Financial Accounting 368903 Session 4, Week 2 Answers

Answer:- b)

5. Share capital:
   1. relates to one class of shares, with the remaining equity recorded as reserves or retained profits.
   2. represents the amount shareholders are guaranteed to receive if the company is wound up.
   3. may relate to one or several classes of shares.
   4. may be calculated by subtracting liabilities from assets.

Answer:- c)

6. A statement of changes in equity includes:
   1. each item of income and expense for the period that, as required by other Australian Accounting Standards, is recognised directly in equity.
   2. profit or loss for the period.
   3. total income and expense for the period showing separately the total amounts attributable to equity holders of the parent and to minority interest.
   4. each item of income and expense for the period that, as required by other Australian Accounting Standards, is recognised directly in equity, profit or loss for the period, and total income and expense for the period showing separately the total amounts attributable to equity holders of the parent and to minority interest.

Answer:- d

7. The statement of changes in equity:
   1. presents, either on the face of the statement or in the notes, the amounts of dividends recognised as distributions to owners during the period and the related amount per share.
   2. is identical to the statement of recognised income and expense.
   3. is the same as a note disclosure for equity and reserves.
   4. provides a reconciliation between the expenses outstanding at the start of the period and those outstanding at the end of the period.

Answer:- a

8. Share capital is also referred to as:
   1. equity
   2. contributed equity
   3. owners contribution
   4. shareholder equity

Answer:- b

9. NZ IAS 1 permits an entity to present all items of income and expense recognised in a period to be presented in either the statement of comprehensive income or the income statement.

Answer:- False

10. Total comprehensive income for the year is profit for the year plus other items of comprehensive income.

Answer:- True

11. Comprehensive income includes dividend payments to shareholders.

Answer:- False

12. The income statement under NZ IAS 1 is designed to report all revenues and expenses to determine profit or loss.

Answer:- False

13. An entity is required in NZ IAS 1 to produce:
    1. a statement of changes in equity.
    2. a statement of financial position.
    3. a statement of comprehensive income.
    4. all of the answers provided.

Answer:- d

14. The problem with a ‘blanket rule' requiring all expenditure of a particular type to be written off as incurred (e.g. expenditure on research) is that:
    1. it is too much like US GAAP.
    2. it does not enable readers of financial reports to differentiate between entities that have generated future economic benefits from particular activities and those who have not.
    3. it does not enable readers of financial reports to differentiate between entities that have managed their earnings and those that have not.
    4. it does not enable readers of financial reports to differentiate between entities that are going to continue to be successful and those that are not.

Answer:- b

15. ‘Profit is a measure of financial performance'. How might it be deficient as a measure of an entity's overall performance? What is typically excluded from newspaper reports discussing an entity's performance?

Profit is a measure of financial performance and non-financial issues such as the social and environmental performance of an entity are not directly incorporated into the calculation of financial profit or loss (or comprehensive income). If a company is exploiting its workforce, causing environmental damage or producing potentially unsafe goods, this will not directly affect profits—although ultimately community support could wane causing demand for the organisation's products to fall.

Newspaper articles about how a particular company's profits have increased or decreased typically do not mention the accounting methods used to calculate the profit or loss, or of possible changes therein (any changes in accounting methods can lead to changes in accounting profits). The profit figure really only makes sense when considered in the light of the accounting policies adopted and the accounting assumptions made. By not referring to the accounting policies, methods and assumptions the media tends to treat accounting profits as an objective reality

For more information refer to ‘Profit as a guide to an organisation's success'.