Assignment Task

Practice theory questions  
The below questions are designed to be simple, quick to answer questions to get you thinking about each topic. They will help you ensure you understand the  basic purpose of each topic. The final exam questions are NOT structured in this  way. 
1. Theory questions 
1.1 Non-Current Assets 
1. What is an asset 
2. What is a non-current asset? 
3. Which costs do you include when recording the purchase of a non-current asset? 4. What is depreciation? 
5. What is the difference between Depreciation Expense and Accumulated Depreciation? 6. How do you calculate the ‘Carrying Amount’ of an asset? 
7. What are the three methods of calculating depreciation? 
8. What are the steps involved in journalizing the sale of a non-current asset? 
1.2 Partnerships 
1. What is a partnership? 
2. What are the characteristics of a partnership? 
3. How can a partnership be formed? 
4. When you form a partnership, at which cost do you record the value of the assets? 5. What are the steps involved in liquidating a partnership? 
1.3 Shareholder’s Equity Accounting 
1. What is a company? 
2. What are the characteristics of a company? 
3. What is the company tax rate in Australia? 
4. What is a dividend? 
5. What is a share split? Why would a company engage in a share split? 6. What is a preference share?  
7. What is the difference between a cumulative, and a non-cumulative preference share? 
1.4 Cash Flow Statements 
1. Why are cash flow statements an important statement to prepare in addition to the Profit  & Loss statement? 
2. What are the three sections of a cash flow statement? 
3. How can you know whether a cash flow should be classified as an Operating, Investing or  Financing cash flow?  
4. What are the two methods available to prepare the Operating Cash flow section? 5. Which method does AASB 107 recommend to use in the preparation of a cash flow  statement?
1.5 Financial statement analysis 
1. What is Horizontal Analysis? 
2. What is Vertical Analysis? 
3. How do you know if a profitability ratio indicates a business has performed strongly or  poorly? 
4. Is a Profit Margin of 3% good or bad? Explain your reasoning. 
5. What is Dupont analysis? 
6. Why is Dupont analysis useful? 
1.6 Ethics 
1. What are the 5 ethical principles listed in APES110? 
2. What are the 5 ethical principles listed in APES110? 
3. Give an example of a business, or an accountant that has acted unethically, and breached  the APES110 standards. What threats were present to cause the ethically breach? 
1.7 Budgets and Flexible Budgeting 
1. Which budget will an organization prepare first? Why is it important to prepare this  budget first? 
2. How does budgeting help a manager plan for the future? 
3. List 3 benefits an organization can obtain from budgeting. 
4. List 3 problems that can arise from the budgeting process. 
5. When preparing a sales budget, list 3 factors you would need to consider that may help  you improve your forecasting of future sales. 
6. What is a static budget? 
7. What is a flexible budget? 
8. Managers are required to plan for the future, run daily operations, and control their  business. Which budgets are most helpful for the planning, operating and controlling  functions of a manager? 
1.8 Flexible Budgets and Variance Analysis 
1. When do you prepare a static budget? 
2. When do you prepare a flexible budget? 
3. What is variance analysis? 
4. Why would a manager want to know if they have a Direct Labour Quantity variance? 5. Why would a manager want to know if they have a Direct Material Price variance? 6. Explain how an ‘Unfavourable’ variance may actually be good for the business. 
1.9 Performance Management Systems 
1. What is a ‘Cost Centre’? 
2. What is a ‘Profit Centre’?
3. When evaluating a Profit Centre’s performance you may prepare a Segmented Profit &  Loss statement. How do you calculate a segment margin? 
4. How does calculating a segment margin help managers? 
5. What is ‘Residual Income’? 
6. Why do companies pay managers with stock and option grants? What are the benefits and disadvantages of this kind of pay? 
1.10 Accounting for Sustainability 
1. What is an ‘External Cost’? 
2. What is ‘Triple Bottom Line Reporting’? 
3. What is the purpose of the Global Reporting Initiative (GRI)? 
4. What are the ‘Value Creation Levers’? How may sustainability create value in  organisations?
2. Theory Solutions. 
2.1 Non-Current Assets 
1. What is an asset 
The definition of an asset has 3 components. A resource controlled by an entity, as a result of  past events, from which future economic benefits are expected to arise. 
2. What is a non-current asset? 
A non-current asset is an asset that is not intended for resale and is expected to be used for  more than 1 year. If an asset is intended for resale it is called Inventory and is a current asset. 
3. Which costs do you include when recording the purchase of a non-current asset? All necessary costs incurred to get the asset delivered, installed and ready to use should be  included in the cost-base of a non-current asset. 
4. What is depreciation? 
Depreciation is the allocation of a non-current assets cost over its useful life. It helps to match  the expenses and revenues from an asset into the same period. 
5. What is the difference between Depreciation Expense and Accumulated  Depreciation? 
Depreciation expense is the periodic expense associated with using an asset. It is an expense  account and shows up on the Income Statement. 
Accumulated depreciation is a contra asset – it lowers the net value of the asset that has been  depreciated. It is calculated by adding up (accumulating) all the prior year’s depreciation  expenses for a particular asset. 
6. How do you calculate the ‘Carrying Amount’ of an asset? 
Carrying Amount = Cost of an asset – Accumulated Depreciation for the asset. 7. What are the three methods of calculating depreciation? 
Straight line depreciation: Depreciation Expense = (Asset cost – Residual Value) / Useful  Life 
Reducing Balance: Depreciation Expense = 2*1/Useful Life * Carrying amount Units of use: Depreciation Expense per unit = (Asset cost – Residual Value) useful life in  units. 
Depreciation Expense = Units used * Depreciation Expense per unit. 
8. What are the steps involved in journalizing the sale of a non-current asset? 
Update the depreciation on the asset (potentially a partial year or month). Calculate the  carrying amount(Cost – Acc Dep) of the asset. If the sale price is greater than the carrying  amount, the difference is recorded as a Cr Gain on Sale. If the sale price is less than the  carrying amount, the difference is recorded as a Dr Loss on Sale.
2.2 Partnerships 
1. What is a partnership? 
A partnership is when two or more people form a business with a view to making a profit.  2. What are the characteristics of a partnership? 
Partnerships have unlimited liability, mutual agency, co-ownership of property, they are non tax paying entities.  
3. How can a partnership be formed? 
A partnership can be formed through either a written contract (recommended), a verbal  contract, or through your actions or conduct (a partnership by estoppel). 
4. When you form a partnership, at which cost do you record the value of the assets? 
Upon partnership formation, you record the assets at the fair value, also called the market  value, or agreed upon value.  
5. What are the steps involved in liquidating a partnership? 
To liquidate a partnership, you must first sell all your assets. You will then only have cash  remaining. The cash must be used to pay off all your liabilities. Then the remaining cash will  be distributed to the partners in the amount of their equity balance. Then the partnership will  have $0 Assets, Liabilities and Equity.
2.3 Shareholder’s Equity Accounting 
1. What is a company? 
Companies are businesses which are separate legal entities, they have the ability to raise  capital by selling shares. Shareholders are owners of companies. 
2. What are the characteristics of a company? 
Companies are owned by shareholders, who have limited liability. Shareholders can easily  transfer their ownership by selling their shares. Companies are governed by stricter regulation  compared to other business forms. They must pay tax as a separate legal entity. They pay out  profits as dividends. 
3. What is the company tax rate in Australia? 
The company tax rate in Australia is 30% for large companies. Small companies pay 27.5%.  The current government is planning to reduce the company tax rate.  
4. What is a dividend? 
A dividend is a distribution of a company’s profit to shareholders of a company. (Dr Retained  Earnings, Cr Cash). 
5. What is a share split? Why would a company engage in a share split? 
A share split is when a company changes the number of shares it has on issue. For example a  company with 100 shares, may decide to double the number of shares on issue so that there  are 200 shares. Every current shareholder who owns 1 share, would own 2 shares after the  split. 
A company would engage in a share split when it wants to lower its share price. For example,  when the share price of Apple got to expensive around $650 per share, they had a share split  to lower the price. This enables more people to be able to afford to buy the shares. 
6. What is a preference share? 
A preference share is a type of share in a company - it often has no voting rights. Preference  shares often have a guaranteed dividend payment. Preference shareholders will be paid back  before ordinary shareholders in the case of a company liquidation. 
7. What is the difference between a cumulative, and a non-cumulative preference  share? 
If a company that has preference shares and is unable to pay a dividend during a year, if it has  cumulative preference shares, it will owe the missed payment in future years. E.g. if a  preference share is expected to pay a $1 dividend each year, but the company cannot afford to  pay a dividend in 2018, it will owe $2 per share in 2019. A non-cumulative preference share  would not have to pay any missed dividend payments. 
2.4 Cash Flow Statements 
1. Why are cash flow statements an important statement to prepare in addition to the  Profit & Loss statement? 
Revenues and Expenses can be different to cash inflows and cash outflows due to timing  issues and accrual accounting estimations. Cash is a physical asset that is used by a business  to pay suppliers, employees, the bank, and shareholders dividends. It is important to keep  track of cash flows to manage these aspects of a business. 
2. What are the three sections of a cash flow statement? 
Operating Cash Flows, Investing Cash Flows, Financing Cash Flows 
3. How can you know whether a cash flow should be classified as an Operating,  Investing or Financing cash flow?  
Operating cash flows normally relate to changes in current assets and current liabilities. Investing cash flows normally relate to changes in Non-current assets. 
Financing cash flows normally relate to changes in Non-current liabilities and Equity. 4. What are the two methods available to prepare the Operating Cash flow section? The ‘Direct method’, and the ‘Indirect Method’. 
5. Which method does AASB 107 recommend to use in the preparation of a cash flow  statement? 
It is recommended to use the Direct Method, and provide a reconciliation using the Indirect  Method 

 

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