Testbank

to accompany

Contemporary Issues in
Accounting

Michaela Rankin, Patricia Stanton,

Susan McGowan, Matthew Tilling,
Kimberly Ferlauto & Carol Tilt

Prepared by
Matt Tilling

John Wiley & Sons Australia, Ltd 2012

 Chapter 14 Special Reporting Issues

Chapter 14 Special Reporting Issues

Multiple Choice Questions

1. The market value of a company often:

*a. Exceeds its book value because certain assets are not recognised under
accounting rules
b. Appears to be random distributed with regards to book value
c. Is less than its book value because certain assets are not recognised under
accounting rules
d. None of the above

Correct answer: a
Learning Objective 14.1 ~ Analyse the background leading to the issue of whether intangible
assets and heritage assets should be recognised in financial statements

2. Historically internally generated intangible assets have not been recognised in the
financial statements for what reason?

a. The difficulty in measuring the associated costs

b. Failure to meet the old asset definition
*c. The perceived lack of usefulness in assessing future earnings capacity.
d. They did not exist as a concept until recently

Correct answer: c
Learning Objective 14.2 ~ Explain why capitalisation is contentious and apply the asset
definition and recognition tests of the Conceptual Framework

3. Which of the following is NOT part of the Conceptual Framework definition of an

asset?

a. Control
*b. Seperability
c. Future economic benefit
d. None of the above, i.e. they are all part of the definition

Correct answer: b
Learning Objective 14.2 ~ Explain why capitalisation is contentious and apply the asset
definition and recognition tests of the Conceptual Framework

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Testbank to accompany Contemporary Issues in Accounting

4. Which of the following attributes are important in determining whether an asset

exists?

a. Tangibility
b. Ownership
c. Existence of a market for the asset
*d. None of the above

Correct answer: d
Learning Objective 14.2 ~ Explain why capitalisation is contentious and apply the asset
definition and recognition tests of the Conceptual Framework

5. Which of the following is NOT a criticism that has been levelled at the current
definition of an asset under the Conceptual Framework?

a. It is too complex to operationalise

b. It is too vague to be used to solve problems
*c. It excludes too many potential assets
d. None of the above, i.e. they have all been identified as problems

Correct answer: c
Learning Objective 14.2 ~ Explain why capitalisation is contentious and apply the asset
definition and recognition tests of the Conceptual Framework

6. Which of the following is NOT a feature of intangibles that differentiates them from
other assets?

a. They are largely knowledge based assets

b. Many are not separable items
c. They often do not have well-defined property rights
*d. None of the above, i.e. they are all features of intangible assets

Correct answer: d
Learning Objective 14.3 ~ Analyse whether intangibles pass the definition and recognition
tests

7. Which of the following in NOT part of the AASB 138 definition of an intangible
asset?

a. Non-monetary
*b. Unidentifiable
c. Controlled
d. None of the above, i.e. they are all part of the definition

Correct answer: b
Learning Objective 14.3 ~ Analyse whether intangibles pass the definition and recognition
tests

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 Chapter 14 Special Reporting Issues

8. Which of the following internally generated intangible assets can be recognised in

accordance with AASB 138?

a. Mastheads
b. Customer lists
c. Registered brand names
*d. None of the above

Correct answer: d
Learning Objective 14.3 ~ Analyse whether intangibles pass the definition and recognition
tests

9. Differential treatment of purchased versus internally generated intangible assets is

said to not make economic sense because:

a. It violates the efficient market hypothesis

b. It isnt economically rational
*c. It creates information asymmetry
d. All of the above

Correct answer: c
Learning Objective 14.4 ~ Explain the implications of non-recognition of intangibles

10. Internally generated goodwill is not accounted for because it is difficult to:

a. Identify
b. Measure
c. Isolate
*d. All of the above

Correct answer: d
Learning Objective 14.4 ~ Explain the implications of non-recognition of intangibles

11. How is purchased goodwill valued?

a. At fair value
b. As the balancing item between the fair value of assets and their carrying
amount
*c. As the balancing item between purchase consideration and the fair value of
identifiable net assets acquired
d. At historic cost

Correct answer: c
Learning Objective 14.4 ~ Explain the implications of non-recognition of intangibles

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Testbank to accompany Contemporary Issues in Accounting

12. It has been argued that when it comes to intangible assets capital markets would be
better served by:

a. Requiring all intangibles, internally generated or purchased, to be expensed

b. Only allowing purchased intangibles to be capitalised
*c. Giving discretion to management on when to capitalise intangible assets
d. Requiring all intangibles, internally generated or purchased, to be capitalised

Correct answer: c
Learning Objective 14.4 ~ Explain the implications of non-recognition of intangibles

13. Lev has suggested that by not including internally generated intangible assets
companies book values may be understated by as much as:

a. 100%
*b. 75%
c. 50%
d. 25%

Correct answer: b
Learning Objective 14.4 ~ Explain the implications of non-recognition of intangibles

14. Which of the following is NOT part of the definition of a heritage asset?

*a. Intangible
b. Of historic, artistic, scientific etc. value
c. Held and maintained for its contribution to knowledge and culture
d. None of the above, i.e. they are all part of the definition

Correct answer: a
Learning Objective 14.5 ~ Analyse whether heritage assets pass the definition and
recognition tests

15. Which of the following is NOT an example of a heritage asset?

a. Stonehenge
*b. Aboriginal oral history
c. The Great Barrier Reef
d. None of the above, i.e. they are all heritage assets

Correct answer: b
Learning Objective 14.5 ~ Analyse whether heritage assets pass the definition and
recognition tests

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 Chapter 14 Special Reporting Issues

16. Which part of the Conceptual Framework definition of an asset makes recognition of
Heritage Assets difficult?

a. Future economic benefit

b. Control
c. Past transaction or event
*d. Both future economic benefit and control

Correct answer: d
Learning Objective 14.5 ~ Analyse whether heritage assets pass the definition and
recognition tests

17. Which part of the Conceptual Framework definition of a liability makes it unlikely
that Heritage Assets should be recognised as liabilities?

a. Future economic sacrifice

*b. Present obligation
c. Past transaction or event
d. Measurability

Correct answer: b
Learning Objective 14.5 ~ Analyse whether heritage assets pass the definition and
recognition tests

18. Which of following methods have NOT been proposed to measure the value of
Heritage Assets?

a. Valuation at nominal amounts

b. Travel cost method
c. Contingent valuation
*d. None of the above, i.e. they are all proposed measurement approaches

Correct answer: d
Learning Objective 14.5 ~ Analyse whether heritage assets pass the definition and
recognition tests

19. One important question regarding the recognition of Heritage Assets is whether they
fall within SAC 2. Which of the following questions would address this concern?

a. Are the entities holding the assets reporting entities?

b. Do the assets meet the formal definition of an asset?
*c. Are there identifiable users who require financial information about the
assets?
d. Can the value of the assets be accurately measured?

Correct answer: c
Learning Objective 14.6 ~ Explain the implications of recognition of heritage assets.

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Testbank to accompany Contemporary Issues in Accounting

20. Which objective of financial accounting most closely aligns with the concept of
Heritage Assets?

*a. Stewardship
b. Corporate governance
c. Decision usefulness
d. Financial valuation

Correct answer: a
Learning Objective 14.6 ~ Explain the implications of recognition of heritage assets.

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