Question 1

Transactions such as the purchase of assets or the issuance of debt are not considered income because:

Accepted Answer

A)  they involve external parties. 
B)  they necessarily involve cash. 
C)  they do not result in an increase in equity. 
D)  they both result in an increase of the asset or liability concerned. 
A)  they involve external parties. 
B)  they necessarily involve cash. 
C)  they do not result in an increase in equity. 
D)  they both result in an increase of the asset or liability concerned. C

Question 2

Werribee Direct Ltd is a mail order company that allows its customers to order online and return the goods without obligations.Werribee Direct Ltd had experienced a high ratio of returned merchandise from online sales.What is the appropriate accounting treatment for this sale that is in accordance with IASB (2011)Revenue?

Accepted Answer

A)  Record the sale only when the option to return has expired. 
B)  Record the sale and reduce this by an estimate of future returns. 
C)  Record the sale and account for returns as they occur. 
D)  Record the sale as deferred revenue and recognise revenue progressively until expiry of the option. 
A)  Record the sale only when the option to return has expired. 
B)  Record the sale and reduce this by an estimate of future returns. 
C)  Record the sale and account for returns as they occur. 
D)  Record the sale as deferred revenue and recognise revenue progressively until expiry of the option. A

Question 3

A group of contracts shall be treated as:

Accepted Answer

A)  a single contract if negotiated as a package. 
B)  a single contract only when the contracts are performed concurrently. 
C)  individual construction contracts. 
D)  all of the given answers. 
A)  a single contract if negotiated as a package. 
B)  a single contract only when the contracts are performed concurrently. 
C)  individual construction contracts. 
D)  all of the given answers. C

Question 4

IASB and FASB initiated a joint project to clarify the principle for recognising revenue and develop a common revenue standard for IFRS and US GAAP so as to:

Accepted Answer

A)  remove inconsistencies and weaknesses in existing revenue requirements. 
B)  provide a more robust framework for addressing revenue issues. 
C)  simplify the preparation of financial statements. 
D)  All of the given answers are correct. 
A)  remove inconsistencies and weaknesses in existing revenue requirements. 
B)  provide a more robust framework for addressing revenue issues. 
C)  simplify the preparation of financial statements. 
D)  All of the given answers are correct.

Question 5

Magazines Galore receives subscription money in advance,and has received $50 000 from customers on 1 February to cover the next ten issues of Wheels Galore.There are ten issues a year-one at the end of each month except for January and December.What are the appropriate accounting entries to record the receipt of the subscription money and (assuming no monthly entries have been made)the adjusting entry at 30 June (after June's issue has been mailed to subscribers)?

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Question 6

Which of the following is not a step in recognising revenue according to IASB (2011)?

Accepted Answer

A)  Identify the contract with a customer. 
B)  Determine the transaction price. 
C)  Recognise revenue before title of the assets transfers to the customer. 
D)  Identify the separate performance obligations in a contract. 
A)  Identify the contract with a customer. 
B)  Determine the transaction price. 
C)  Recognise revenue before title of the assets transfers to the customer. 
D)  Identify the separate performance obligations in a contract.

Question 7

Which of the following statements is not an indicator of the transfer of the control of an asset to a customer?

Accepted Answer

A)  The entity has a present right to payment for the asset. 
B)  The entity has transferred physical possession of the asset. 
C)  The customer has legal title to the asset. 
D)  When goods or services are exchanged or swapped for goods or services, the revenue is measured at the fair value of the goods or services received, adjusted by the amount of any cash or cash equivalents transferred. 
A)  The entity has a present right to payment for the asset. 
B)  The entity has transferred physical possession of the asset. 
C)  The customer has legal title to the asset. 
D)  When goods or services are exchanged or swapped for goods or services, the revenue is measured at the fair value of the goods or services received, adjusted by the amount of any cash or cash equivalents transferred.

Question 8

Which of the following is an example of a situation in which an entity does not retain the control of the asset?

Accepted Answer

A)  when the entity retains an obligation for unsatisfactory performance not covered by normal warranty provisions 
B)  when the entity provides a 30-day return from purchase with a full refund for the goods sold 
C)  when the buyer has the right to rescind the purchase for a reason specified in the sales contract and the entity is uncertain about the probability of return 
D)  when the goods are shipped subject to installation and the installation is a significant part of the contract that has not yet been completed by the entity 
A)  when the entity retains an obligation for unsatisfactory performance not covered by normal warranty provisions 
B)  when the entity provides a 30-day return from purchase with a full refund for the goods sold 
C)  when the buyer has the right to rescind the purchase for a reason specified in the sales contract and the entity is uncertain about the probability of return 
D)  when the goods are shipped subject to installation and the installation is a significant part of the contract that has not yet been completed by the entity

Question 9

If a company sells its product but gives the buyer the right to return the product,IASB (2011)requires revenue from the sales transaction to be recognised at the time of sale.

Accepted Answer

A) True 
 B)False

Question 10

The AASB (IASB)Conceptual Framework now divides revenues into 'income' and 'gains'.

Accepted Answer

A) True 
 B)False

Question 11

Russell Ltd commenced the construction of a bridge on 1July 2013.It has a fixed-price contract for total revenues of $35million.The expected completion date is 30 June 2016.The expected total cost to Russell Ltd at the beginning of the project is $29 million.The following information relates only to the construction of the bridge: $$\begin{array} { | l | r | r | r | } 
\hline \text { For the year ending } 30 \text { June } & \begin{array} { r } 
2014 \
( \$ 000 )
\end{array} & \begin{array} { r } 
2015 \
( \$ 000 )
\end{array} & \begin{array} { r } 
2016 \
( \$ 000 )
\end{array} \
\hline \text { Costs for the year } & 12000 & 18000 & 7000 \
\hline \text { Costs incurred to date } & 12000 & 30000 & 37000 \
\hline \text { Estimated costs to complete } & 19500 & 6300 & - \
\hline \text { Progress billings during the year } & 10000 & 12000 & 13000 \
\hline \text { Cash collected during the year } & 7000 & 10000 & 18000 \
\hline
\end{array}$$ Russell Ltd uses the percentage-of-completion method based on cost to account for its construction contracts.What is the gross profit to be recognised in each of the 3 years (rounded to the nearest $000)?

Accepted Answer

A) 
$$\begin{array} { | l | l | l | } 
\hline 2014 ( \$ 000 ) & 2015 ( \$ 000 ) & 2016 ( \$ 000 ) \
\hline 1333 & ( 2408 ) & 408 \
\hline
\end{array}$$ 
B) 
$$\begin{array} { | l | l | l | } 
\hline 2014 ( \$ 000 ) & 2015 ( \$ 000 ) & 2016 ( \$ 000 ) \
\hline 1333 & ( 2408 ) & - 926 \
\hline
\end{array}$$ 
C) 
$$\begin{array} { | l | l | l | } 
\hline 2014 ( \$ 000 ) & 2015 ( \$ 000 ) & 2016 ( \$ 000 ) \
\hline 1200 & ( 2314 ) & ( 1000 ) \
\hline
\end{array}$$ 
D) 
$$\begin{array} { | l | l | l | } 
\hline 2014 ( \$ 000 ) & 2015 ( \$ 000 ) & 2016 ( \$ 000 ) \
\hline 1864 & 1477 & ( 5341 ) \
\hline
\end{array}$$ 
A) 
$$\begin{array} { | l | l | l | } 
\hline 2014 ( \$ 000 ) & 2015 ( \$ 000 ) & 2016 ( \$ 000 ) \
\hline 1333 & ( 2408 ) & 408 \
\hline
\end{array}$$ 
B) 
$$\begin{array} { | l | l | l | } 
\hline 2014 ( \$ 000 ) & 2015 ( \$ 000 ) & 2016 ( \$ 000 ) \
\hline 1333 & ( 2408 ) & - 926 \
\hline
\end{array}$$ 
C) 
$$\begin{array} { | l | l | l | } 
\hline 2014 ( \$ 000 ) & 2015 ( \$ 000 ) & 2016 ( \$ 000 ) \
\hline 1200 & ( 2314 ) & ( 1000 ) \
\hline
\end{array}$$ 
D) 
$$\begin{array} { | l | l | l | } 
\hline 2014 ( \$ 000 ) & 2015 ( \$ 000 ) & 2016 ( \$ 000 ) \
\hline 1864 & 1477 & ( 5341 ) \
\hline
\end{array}$$

Question 12

Hillier Construction Ltd commenced the construction of a building on 1 July 2013.It has a fixed-price contract for total revenues of $45 million.The expected completion date is 30 June 2016.The expected total cost to Hillier Construction at the beginning of the project is $35 million.The following information relates only to the construction of this building: $$\begin{array} { | l | r | r | r | } 
\hline \text { For the year ending } 30 \text { June } & \begin{array} { r } 
2014 \
( \$ 000 )
\end{array} & \begin{array} { r } 
2015 \
( \$ 000 )
\end{array} & \begin{array} { r } 
2016 \
( \$ 000 )
\end{array} \
\hline \text { Costs for the year } & 12500 & 15000 & 10000 \
\hline \text { Costs incurred to date } & 12500 & 27500 & 37500 \
\hline \text { Estimated costs to complete } & 23000 & 8500 & - \
\hline \text { Progress billings during the year } & 10000 & 12000 & 23000 \
\hline \text { Cash collected during the year } & 10000 & 11000 & 24000 \
\hline
\end{array}$$ Hillier Construction uses the percentage-of-completion method based on cost to account for its construction contracts.What is the gross profit to be recognised in each of the 3 years (rounded to the nearest $000)?

Accepted Answer

A) 
$$\begin{array} { | l | l | l | } 
\hline 2014 ( \$ 000 ) & 2015 ( \$ 000 ) & 2016 ( \$ 000 ) \
\hline 3345 & 3530 & 3970 \
\hline
\end{array}$$ 
B) 
$$\begin{array} { | l | l | l | } 
\hline 2014 ( \$ 000 ) & 2015 ( \$ 000 ) & 2016 ( \$ 000 ) \
\hline 3345 & 3530 & 625 \
\hline
\end{array}$$ 
C) 
$$\begin{array} { | l | l | l | } 
\hline 2014 ( \$ 000 ) & 2015 ( \$ 000 ) & 2016 ( \$ 000 ) \
\hline 7747 & 20135 & 17118 \
\hline
\end{array}$$ 
D) 
$$\begin{array} { | l | l | l | } 
\hline 2014 ( \$ 000 ) & 2015 ( \$ 000 ) & 2016 ( \$ 000 ) : \
\hline 3571 & 4286 & 2857 \
\hline
\end{array}$$ 
A) 
$$\begin{array} { | l | l | l | } 
\hline 2014 ( \$ 000 ) & 2015 ( \$ 000 ) & 2016 ( \$ 000 ) \
\hline 3345 & 3530 & 3970 \
\hline
\end{array}$$ 
B) 
$$\begin{array} { | l | l | l | } 
\hline 2014 ( \$ 000 ) & 2015 ( \$ 000 ) & 2016 ( \$ 000 ) \
\hline 3345 & 3530 & 625 \
\hline
\end{array}$$ 
C) 
$$\begin{array} { | l | l | l | } 
\hline 2014 ( \$ 000 ) & 2015 ( \$ 000 ) & 2016 ( \$ 000 ) \
\hline 7747 & 20135 & 17118 \
\hline
\end{array}$$ 
D) 
$$\begin{array} { | l | l | l | } 
\hline 2014 ( \$ 000 ) & 2015 ( \$ 000 ) & 2016 ( \$ 000 ) : \
\hline 3571 & 4286 & 2857 \
\hline
\end{array}$$

Question 13

Under the AASB (IASB)Conceptual Framework an increase in economic benefits in the form of the reduction of a liability that is not a contribution by equity participants and results in an increase in equity during the reporting period,is income.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following statements is incorrect with respect to revenue recognition of construction contracts?

Accepted Answer

A)  The percentage-of-completion method is to be applied for fixed price contracts if the recognition criteria are satisfied. 
B)  IASB (2011) requires individual construction contracts to be accounted for separately and the requirements of the standard to be applied separately to each contract. 
C)  The percentage-of-completion method should be used, provided certain conditions are met that enable the outcome of the contract to be reliably measured. 
D)  Percentage-of-completion method requires contract revenue to be matched with progress billings, resulting in the reporting of revenue, expenses and profit which can be attributed to the amount billed to customers. 
A)  The percentage-of-completion method is to be applied for fixed price contracts if the recognition criteria are satisfied. 
B)  IASB (2011) requires individual construction contracts to be accounted for separately and the requirements of the standard to be applied separately to each contract. 
C)  The percentage-of-completion method should be used, provided certain conditions are met that enable the outcome of the contract to be reliably measured. 
D)  Percentage-of-completion method requires contract revenue to be matched with progress billings, resulting in the reporting of revenue, expenses and profit which can be attributed to the amount billed to customers.

Question 15

Daniel Ltd sells one of its properties to a financing company with an attached call option,which allows Daniel Ltd to reacquire the property at a future date for $400 000.The current market value at the time of the sale is $300 000,but the financing company pays $350 000 for it.It is expected that the market value of the property will exceed $400 000 before the option expires.What is the appropriate treatment of this sale?

Accepted Answer

A)  Record the revenue and make appropriate note disclosures about the call option and its associated risks. 
B)  Set-off the call option and the building-reporting changes in the difference between their current values as revenues or expenses as appropriate. 
C)  No entry would be required as the call option is off balance sheet and the building has not effectively been sold. 
D)  Record the inflow of cash and a liability. 
A)  Record the revenue and make appropriate note disclosures about the call option and its associated risks. 
B)  Set-off the call option and the building-reporting changes in the difference between their current values as revenues or expenses as appropriate. 
C)  No entry would be required as the call option is off balance sheet and the building has not effectively been sold. 
D)  Record the inflow of cash and a liability.

Question 16

The following is a diagram of the earnings cycle as presented by Coombes and Martin (1982).     In the traditional historical-cost accounting model,at what point has revenue been recognised for long-term construction contracts in the building industry?

Accepted Answer

A)  Point 8 
B)  Point 4 
C)  Point 6 
D)  Point 5 
A)  Point 8 
B)  Point 4 
C)  Point 6 
D)  Point 5

Question 17

Explain the accounting treatment when a third party supplies the awards under a customer loyalty programme.

Accepted Answer

When a third party supplies the awards u

Question 18

On 1 July 2013 Bryson Ltd sells a machine to Adams Ltd in exchange for a promissory note that requires Adams Ltd to make five payments of $8000,the first to be made on 30 June 2014.The machine cost Bryson Ltd $20 000 to manufacture.Bryson Ltd would normally sell this type of machine for $30 326 for cash or short-term credit.The implicit interest rate in the agreement is 10%.What are the appropriate journal entries to record the sale agreement and the first two instalments using the net-interest method?

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Question 19

When the cost basis is used to calculate the percentage of completion,cost items that may need adjustment include:

Accepted Answer

A)  discounts for the bulk purchase of construction materials. 
B)  gains and losses on foreign currency translation. 
C)  materials delivered and paid for, but not yet used. 
D)  interest charges on late payments for materials and other items used in the construction project. 
A)  discounts for the bulk purchase of construction materials. 
B)  gains and losses on foreign currency translation. 
C)  materials delivered and paid for, but not yet used. 
D)  interest charges on late payments for materials and other items used in the construction project.

Question 20

An entity shall recognise revenue from a contract when:

Accepted Answer

A)  the entity has satisfied the performance obligation. 
B)  the goods or service have been transferred to the customer. 
C)  the customer obtains control of the goods or service. 
D)  All of the given answers are necessary for recognition of revenue from a contract. 
A)  the entity has satisfied the performance obligation. 
B)  the goods or service have been transferred to the customer. 
C)  the customer obtains control of the goods or service. 
D)  All of the given answers are necessary for recognition of revenue from a contract.

Exam 15: Revenue Recognition Issues

Transactions such as the purchase of assets or the issuance of debt are not considered income because:

A group of contracts shall be treated as:

IASB and FASB initiated a joint project to clarify the principle for recognising revenue and develop a common revenue standard for IFRS and US GAAP so as to:

Which of the following is not a step in recognising revenue according to IASB (2011)?

Which of the following statements is not an indicator of the transfer of the control of an asset to a customer?

Which of the following is an example of a situation in which an entity does not retain the control of the asset?

If a company sells its product but gives the buyer the right to return the product,IASB (2011)requires revenue from the sales transaction to be recognised at the time of sale.

The AASB (IASB)Conceptual Framework now divides revenues into 'income' and 'gains'.

Under the AASB (IASB)Conceptual Framework an increase in economic benefits in the form of the reduction of a liability that is not a contribution by equity participants and results in an increase in equity during the reporting period,is income.

Which of the following statements is incorrect with respect to revenue recognition of construction contracts?

The following is a diagram of the earnings cycle as presented by Coombes and Martin (1982). In the traditional historical-cost accounting model,at what point has revenue been recognised for long-term construction contracts in the building industry?

Explain the accounting treatment when a third party supplies the awards under a customer loyalty programme.

When the cost basis is used to calculate the percentage of completion,cost items that may need adjustment include:

An entity shall recognise revenue from a contract when:

An Overview of the Australian External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

Theories of Accounting

An Overview of Accounting for Assets

Depreciation of Property, plant and Equipment

Revaluations and Impairment Testing of Non-Current Assets

Inventory

Accounting for Intangibles

Accounting for Heritage Assets and Biological Assets

An Overview of Accounting for Liabilities

Accounting for Leases

Accounting for Employee Benefits

Share Capital and Reserves

Accounting for Financial Instruments

The Statement of Comprehensive Income and Statement of Changes in Equity

Accounting for Share-Based Payments

Accounting for Income Taxes

The Statement of Cash Flows

Accounting for the Extractive Industries

Accounting for General Insurance Contracts

Accounting for Superannuation Plans

Events Occurring After the End of the Reporting Period

Segment Reporting

Related Party Disclosures

Earnings Per Share

Accounting for Group Structures

Further Consolidation Issues I: Accounting for Intragroup Transactions

Further Consolidation Issues II: Accounting for Non-Controlling Interests

Further Consolidation Issues IV: Accounting for Changes in the Degree of Ownership of a Subsidiary

Accounting for Equity Investments,including Investments in Associates and Joint Arrangements

Accounting for Foreign Currency Transactions

Translating the Financial Statements of Foreign Operations

Accounting for Corporate Social Responsibility

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