CPA Financial Accounting and Reporting Exam (Financial-Accounting-and-Reporting) Free Practice Test

Question 1

A rules-based approach to standard setting

A. ensures there are no conflicts within accounting standards as each issue is handled just once.

B. provides a broad framework for standard setting.

C. helps a standard-setting body to prioritise matters.

D. prescribes standards that attempt to cover all eventualities a business may face.

Correct Answer: D

Question 2

Which one of the following describes the key advantage of the manual system of accounting?

A. A thorough understanding of the business can be gained through it.

B. Processing is maintained at a reasonable speed even while dealing with large volumes of data.

C. Corrections are easily managed as updating or recreating the whole document is not difficult.

D. The quality of output is not necessarily an issue.

Correct Answer: A

Question 3

Which one of the following contributes to an efficient capital market?

A. having stock markets in every country

B. stock markets ensuring that companies do not overcharge for their products

C. stock markets being managed by directors of companies that are listed on the stock market

D. information about the stock market can be obtained cheaply

Correct Answer: D

Question 4

The amount of cash or cash equivalents that could currently be obtained by selling an asset in an orderly disposal, refers to which basis of measurement?

A. realisable value

B. present value

C. historical cost

D. current cost

Correct Answer: A

Question 5

Which one of the following would be recognised in the statement of profit or loss and other comprehensive income?

A. employee wages

B. prepayment of expenses

C. retained earnings

D. inventory

Correct Answer: A

Question 6

A company purchased a machine 10 years ago for $143 890. It is expected that the machine will generate future revenues of $108 495. The machine could be scrapped for $81 232. An equivalent machine in the same condition would cost $94 950 to buy now. What is the deprival value of the asset?

A. $94 950

B. $35 395

C. $108 495

D. $81 232

Correct Answer: A

Question 7

Which of the following represents a principal-agent relationship?
I.
shareholders-auditors
II.
shareholders-management
III.
security exchange-company
IV.
board of directors-employees

A. I, II, III and IV

B. I, II and IV only

C. II, III and IV only

D. I, II and III only

Correct Answer: B

Question 8

Which one of the following statements is correct in relation to presenting the financial position of an entity?

A. Liquidity represents cash holdings, while solvency is long-term profitability.

B. Solvency is the availability of total assets over a long-term, while liquidity is the availability of total assets over the short-term to meet financial commitments as they fall due.
.

C. Solvency is the availability of cash over the long-term, while liquidity is the availability of funds over the short-term to meet financial commitments as they fall due.

D. Liquidity is the ability to repay long-term financial commitments, whereas solvency is the ability to repay short-term commitments.

Correct Answer: C

Question 9

Which one of the following methods is not used for 'creative accounting'?

A. off balance sheet financing

B. window dressing

C. aggressive debt management

D. profit smoothing

Correct Answer: C

Question 10

Which one of the following statements regarding the IASB's Conceptual Framework for Financial Reporting is correct?

A. It specifies the concepts that underlie the preparation and presentation of special purpose financial statements.

B. It specifies the concepts that underlie the preparation and presentation of only consolidated financial statements.

C. It specifies the concepts that underlie the preparation and presentation of general purpose financial statements.

D. It overrides any local or international accounting standard.

Correct Answer: C

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CPA Australia CPA Financial Accounting and Reporting (Financial-Accounting-and-Reporting) Free Practice Test