Question 1

Capture Theory may be described as taking the perspective that:

Accepted Answer

A)  the regulated interest controls the regulation and the regulating body. 
B)  the principal has control over the agent through contracting and monitoring. 
C)  stakeholders compete to influence the entity in which they have a stake and management attempts to capture that influence through voluntary disclosures. 
D)  the regulated interest is controlled by the regulation agency that generates the regulations. 
A)  the regulated interest controls the regulation and the regulating body. 
B)  the principal has control over the agent through contracting and monitoring. 
C)  stakeholders compete to influence the entity in which they have a stake and management attempts to capture that influence through voluntary disclosures. 
D)  the regulated interest is controlled by the regulation agency that generates the regulations. A

Question 2

PAT assumes that managers will adopt accounting methods that benefit themselves ahead of the entity.

Accepted Answer

A) True 
 B)False  True

Question 3

Problems associated with rewarding managers based on share-price movements include:

Accepted Answer

A)  Share prices do not often reflect the value of the business. 
B)  Share prices are a 'noisy' measure of management performance. 
C)  Share prices track closely the profit measures so it is more efficient to just use profit. 
D)  Share prices do not often reflect the value of the business and share prices are a 'noisy' measure of management performance. 
A)  Share prices do not often reflect the value of the business. 
B)  Share prices are a 'noisy' measure of management performance. 
C)  Share prices track closely the profit measures so it is more efficient to just use profit. 
D)  Share prices do not often reflect the value of the business and share prices are a 'noisy' measure of management performance. B

Question 4

Stakeholders are:

Accepted Answer

A)  anyone with a direct financial interest in the firm. 
B)  special interest groups concerned with the environmental actions of the firm. 
C)  employees. 
D)  All of the people included in the given answers. 
A)  anyone with a direct financial interest in the firm. 
B)  special interest groups concerned with the environmental actions of the firm. 
C)  employees. 
D)  All of the people included in the given answers.

Question 5

Failure of an organisation to comply with negotiated debt covenants can lead to:

Accepted Answer

A)  the operations of the organisation being suspended. 
B)  the organisation being placed in the hands of a party nominated by the lender. 
C)  the lender taking control of the organisation. 
D)  all of the given answers. 
A)  the operations of the organisation being suspended. 
B)  the organisation being placed in the hands of a party nominated by the lender. 
C)  the lender taking control of the organisation. 
D)  all of the given answers.

Question 6

A machine with a carrying amount of $9000 has a net selling price of $8000.The replacement cost of this asset is $10 000 and the present value of future cash flows is $9500.What is the deprival value of the machine?

Accepted Answer

A)  $0 
B)  $8000 
C)  $9000 
D)  $9500 
A)  $0 
B)  $8000 
C)  $9000 
D)  $9500

Question 7

The agency relationship:

Accepted Answer

A)  can lead to a loss of efficiency. 
B)  can only work if principals are paid a bonus. 
C)  involves delegating authority. 
D)  can lead to a loss of efficiency and involves delegating authority. 
A)  can lead to a loss of efficiency. 
B)  can only work if principals are paid a bonus. 
C)  involves delegating authority. 
D)  can lead to a loss of efficiency and involves delegating authority.

Question 8

A new accounting standard requires ABC Ltd to recognise as expense all share-based payments,specifically the issue of options to its employees.Prior to this standard,the company need not do anything until the options are exercised.The manager of ABC Ltd is worried about this new standard as the company is close to a technical violation of its borrowing agreements that the debt-to-equity ratio be less than 40%.Most of the options on issue are cash-settled and will require an increase in liabilities.Which of the following accounting policies if adopted by the company could reduce the likelihood of a debt covenant violation?

Accepted Answer

A)  switching from accelerated depreciation to straight-line depreciation method 
B)  decreasing provision for warranty expenses 
C)  revaluing assets upwards 
D)  All of the given answers are correct. 
A)  switching from accelerated depreciation to straight-line depreciation method 
B)  decreasing provision for warranty expenses 
C)  revaluing assets upwards 
D)  All of the given answers are correct.

Question 9

An empirically based theory could be described as being:

Accepted Answer

A)  developed and supported on the basis of observations. 
B)  based on a set of accepted scales and measures. 
C)  based on a political approach developed in the early nation states. 
D)  related to a specific time period and not able to be generalised. 
A)  developed and supported on the basis of observations. 
B)  based on a set of accepted scales and measures. 
C)  based on a political approach developed in the early nation states. 
D)  related to a specific time period and not able to be generalised.

Question 10

PAT has been described as:

Accepted Answer

A)  a vibrant philosophical movement. 
B)  providing valuable evidence. 
C)  being empty and commonplace. 
D)  forward thinking research. 
A)  a vibrant philosophical movement. 
B)  providing valuable evidence. 
C)  being empty and commonplace. 
D)  forward thinking research.

Question 11

The rational economic person assumption as it is used in PAT is that:

Accepted Answer

A)  All action by all individuals is driven by multiple interests in achieving a wide range of goals. 
B)  All individual action is driven by self-interest and individuals will act in an opportunistic manner. 
C)  Individuals are governed by a desire to cooperate in organisations to achieve the rational allocation of economic resources. 
D)  The rational person is concerned only with economic factors and so does not assess the importance of non-economic impacts on their organisation. 
A)  All action by all individuals is driven by multiple interests in achieving a wide range of goals. 
B)  All individual action is driven by self-interest and individuals will act in an opportunistic manner. 
C)  Individuals are governed by a desire to cooperate in organisations to achieve the rational allocation of economic resources. 
D)  The rational person is concerned only with economic factors and so does not assess the importance of non-economic impacts on their organisation.

Question 12

Creative accounting:

Accepted Answer

A)  is a term used by the media to describe the process of selecting accounting methods when creating reports that provide results desired by preparers. 
B)  occurs, according to PAT, because managers will work for their own interests. 
C)  occurs when account preparers choose not to follow accounting standards to best reflect the performance of the firm. 
D)  is a term used by the media to describe the process of selecting accounting methods when creating reports that provide results desired by preparers and occurs, according to PAT, because managers will work for their own interests. 
A)  is a term used by the media to describe the process of selecting accounting methods when creating reports that provide results desired by preparers. 
B)  occurs, according to PAT, because managers will work for their own interests. 
C)  occurs when account preparers choose not to follow accounting standards to best reflect the performance of the firm. 
D)  is a term used by the media to describe the process of selecting accounting methods when creating reports that provide results desired by preparers and occurs, according to PAT, because managers will work for their own interests.

Question 13

An asset that has a deprival value of zero is likely to be:

Accepted Answer

A)  goodwill. 
B)  intangible assets. 
C)  land. 
D)  goodwill and intangible assets. 
A)  goodwill. 
B)  intangible assets. 
C)  land. 
D)  goodwill and intangible assets.

Question 14

Within the principal/agent perspective of PAT,the price-protection approach is:

Accepted Answer

A)  The principal pays the agent a lower salary on the basis that the agent is expected to undertake opportunistic behaviour. 
B)  The contract between the principal and agent includes a clause that stipulates the basis for pricing of goods so that the agent does not price the product too highly in an effort to increase the agent's short-term rewards. 
C)  The contract between the principal and the agent specifies a period within which the price paid for the services of the agent cannot be changed. 
D)  The contract between the principal and the agent includes an agreement whereby the agent guarantees the price of the shares in the company will be protected by the agent's actions. 
A)  The principal pays the agent a lower salary on the basis that the agent is expected to undertake opportunistic behaviour. 
B)  The contract between the principal and agent includes a clause that stipulates the basis for pricing of goods so that the agent does not price the product too highly in an effort to increase the agent's short-term rewards. 
C)  The contract between the principal and the agent specifies a period within which the price paid for the services of the agent cannot be changed. 
D)  The contract between the principal and the agent includes an agreement whereby the agent guarantees the price of the shares in the company will be protected by the agent's actions.

Question 15

Economic interest group theory of regulation adopts the notion that _____________ are considered to dominate the legislative process.

Accepted Answer

A)  public interests 
B)  private interests 
C)  shareholders 
D)  debtholders 
A)  public interests 
B)  private interests 
C)  shareholders 
D)  debtholders

Question 16

An example of a theory that adopts a systems-oriented perspective is Legacy Theory.

Accepted Answer

A) True 
 B)False

Question 17

Discuss the criticism of PAT is that it is not value-free.

Accepted Answer

The criticism of PAT (Psychometric Asses

Question 18

The general aim of the current-cost accounting theory is:

Accepted Answer

A)  to provide calculation of income which, after adjusting for changing prices, could be withdrawn from the entity and yet still leave the physical capital of the entity intact. 
B)  to provide a statement of financial position valuation method that presents a reflection of the capacity of the entity to adapt to changing conditions. 
C)  to provide calculation of income which, after adjusting for changing prices, could be withdrawn from the entity and yet still leave the financial capital of the entity intact. 
D)  to provide a statement of financial position valuation method that allows a more reliable basis for decision making by providing current costs. 
A)  to provide calculation of income which, after adjusting for changing prices, could be withdrawn from the entity and yet still leave the physical capital of the entity intact. 
B)  to provide a statement of financial position valuation method that presents a reflection of the capacity of the entity to adapt to changing conditions. 
C)  to provide calculation of income which, after adjusting for changing prices, could be withdrawn from the entity and yet still leave the financial capital of the entity intact. 
D)  to provide a statement of financial position valuation method that allows a more reliable basis for decision making by providing current costs.

Question 19

The development of exit-price accounting (or CoCoa)was based on which of the following key assumptions?

Accepted Answer

A)  Firms exist to increase the wealth of their owners. 
B)  Firms' successful operations are based on the ability of the firm to adapt to changing circumstances. 
C)  Firms' capacity to adapt will be best reflected by the monetary value of the organisation's net assets at statement of financial position date. 
D)  All of the given answers are correct. 
A)  Firms exist to increase the wealth of their owners. 
B)  Firms' successful operations are based on the ability of the firm to adapt to changing circumstances. 
C)  Firms' capacity to adapt will be best reflected by the monetary value of the organisation's net assets at statement of financial position date. 
D)  All of the given answers are correct.

Question 20

The efficiency perspective in PAT research considers:

Accepted Answer

A)  the cost of risk capital ex ante-before the provision of additional accounting information to reduce risk through monitoring. 
B)  what mechanisms are put in place 'up-front' with the objective of minimising future agency costs 
C)  the interaction of many investors in the market for corporate shares to generate efficient prices. 
D)  the lowest cost method of establishing which accounting methods are best for particular enterprises. 
A)  the cost of risk capital ex ante-before the provision of additional accounting information to reduce risk through monitoring. 
B)  what mechanisms are put in place 'up-front' with the objective of minimising future agency costs 
C)  the interaction of many investors in the market for corporate shares to generate efficient prices. 
D)  the lowest cost method of establishing which accounting methods are best for particular enterprises.

Exam 3: Theories of Accounting

Capture Theory may be described as taking the perspective that:

PAT assumes that managers will adopt accounting methods that benefit themselves ahead of the entity.

Problems associated with rewarding managers based on share-price movements include:

Stakeholders are:

Failure of an organisation to comply with negotiated debt covenants can lead to:

A machine with a carrying amount of $9000 has a net selling price of $8000.The replacement cost of this asset is $10 000 and the present value of future cash flows is $9500.What is the deprival value of the machine?

The agency relationship:

An empirically based theory could be described as being:

PAT has been described as:

The rational economic person assumption as it is used in PAT is that:

Creative accounting:

An asset that has a deprival value of zero is likely to be:

Within the principal/agent perspective of PAT,the price-protection approach is:

Economic interest group theory of regulation adopts the notion that _____________ are considered to dominate the legislative process.

An example of a theory that adopts a systems-oriented perspective is Legacy Theory.

Discuss the criticism of PAT is that it is not value-free.

The general aim of the current-cost accounting theory is:

The development of exit-price accounting (or CoCoa)was based on which of the following key assumptions?

The efficiency perspective in PAT research considers:

An Overview of the Australian External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

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

Revenue Recognition Issues

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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