Testbank

to accompany

Applying International
Accounting Standards
by
Alfredson, Leo, Picker, Pacter & Radford
Prepared by
Victoria Wise

John Wiley & Sons Australia, Ltd 2005

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CHAPTER 3 Shareholders equity: share capital and reserves

Question 1
When a public share issue is made, the offer comes from:
A
B
C
D

the company issuing the shares;

the Australian Securities and Investments Commission once it has reviewed the
prospectus documentation;
the broker handing the share issue for the company;
the applicant.

Question 2
The bonus issue of shares has the following impact on the equity of a company;
A
B
C
D

total equity increases;

total equity decreases;
one equity account increases and another equity account decreases by an equal
amount;
only the amount of issued share capital changes.

Question 3
A company issued share option is an instrument that gives the holder the right but not the
obligation to:
A
B
C
D

buy a certain number of shares in the company by a specified date at a stated price;
sell a certain number of shares in the company by a specified date at a stated price;
receive a certain dividend declared by the company by a specified date;
receive a bonus issue of shares in a proportion as notified by the company.

Question 4
Dividends declared after the balance sheet date but before the financial statements are authorised
for issue:
A
B
C
D

meet the criteria for recognition as a liability;

satisfy the criteria for recognition as an expense;
are recognised in the balance sheet as they meet the definition of equity;
do not meet the IAS 37 criteria of a present obligation.

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Question 5
IAS 10 Events after the Balance Sheet Date, states that if a dividend is declared after the balance
sheet date but before the financial statements are authorised for issue, the dividend is:
A
B
C
D

recognised as a liability at the balance sheet date;

not recognised as a liability at the balance sheet date;
recorded as a direct reduction of equity at the balance sheet date;
recorded as a reduction against the asset cash at balance sheet date.

Question 6
The balance in the retained earnings account is affected by the transfer to that account of:
I.
II.
III.
IV.
V.
A
B
C
D

Issued share capital;

Dividends paid or provided for.
Transfers to or from Other reserve accounts.
Changes in accounting policies and errors.
Interest paid to debenture holders.

I, II and III only;

I, II, III and IV only;
II, III and IV only;
II, III and V only.

Question 7
Under IAS 16 Property, Plant and Equipment, an entity may choose to measure assets using the
revaluation model. If this model is chosen, revaluation increments are recognised:
A
B
C
D

in profit or loss of the period in which the revaluation is undertaken;

as a deferred credit in the balance sheet;
directly in equity;
as an increase in the balance of the relevant accumulated depreciation account.

Question 8
In relation to an asset revaluation surplus, an entity:
A
B
C

is not able to use this surplus for the payment of future dividends;
is able to use this surplus for the payment of future dividends;
is not able to transfer this surplus to any other reserve account;

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can transfer the surplus to the income statement when the asset is disposed of.

Question 9
Foreign currency translation differences arise:
A
B
C
D

when foreign operations are translated from one currency into another currency for
presentation purposes;
whenever a transaction is originally recorded in the home currency of the reporting
entity;
as a result of translating the language used in one countrys financial statements into
the language of another country;
if the foreign currency denominated financial statements are not converted into
domestic currency for reporting purposes.

Question 10
According to IAS 39 Financial Instruments: Recognition and Measurement, gains and losses on
available-for-sale financial assets are recognised:
A
B
C
D

directly in equity until the financial asset is derecognised;

in profit or loss of the period;
as part of interest revenue or interest expense of the period;
as deferred liabilities or assets until derecognised.

Question 11
IAS 1 Presentation of Financial Statements, requires the following items to appear on the face of
the statement of changes in equity:
I.
II.
III.
IV.
A
B
C
D

The net amount of cash from the issue of any securities during the period.
The cumulative effect of changes in accounting policy and the correction of
errors.
Each item of income or expenses that is required to be recognised directly in
equity.
Profit or loss for the period.

I, II, III and IV;

II, III and IV only;
I, III and IV only;
II and IV only.

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Question 12
The components of equity generally recognised by companies in a balance sheet are:
I.
II.
III.
IV.
V.
A
B
C
D

Provisions.
Debentures
Share capital.
Other reserves.
Retained earnings.

I, II and III only;

I, III, IV and V only;
II, III and V only;
III, IV and V only.

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ANSWERS
1

10

11

12

Applying International Accounting Standards Chapter 3