The Institute of Cost and Management Accountants of Bangladesh

Professional Level-III
301. Advanced Financial Accounting II
Knowledge Assessment Test
Part - I: Ethical Issues in Financial Reporting
1. Define:
a. Fraudulent financial reporting
b. Cute accounting
c. Cooking the books
2. Depict the standards of ethical conduct for Management Accountant.
3. Does the code of ethics of the Financial Executive International require FEI members to maintain the
confidentiality of information acquired in the course of their work in all circumstances? Explain.
4. Describe the principles and rules required to follow by accountants in public practice.
Part - II: Accounting for Combination
1.
2.
3.
4.
5.
6.
7.
8.
9.

10.
11.

12.
13.
14.
15.
16.
17.
18.

Define business combination with reference to relevant IFRS.

Differentiate between a statutory merger and a statutory consolidation.
How can you determine an appropriate price to pay for a combinee in a business combination?
How is the combinor in a business combination determined?
List the conditions under which subsidiaries sometimes are excluded from consolidated financial
statements.
What is push-down accounting?
Explain why consolidated financial statement amounts are the same, regardless of whether a parent
company uses the equity method or the cost method to account for a subsidiary's operations.
Discuss some of the advantages-that result from the use of equity method, rather than the 'cost
method, of accounting for a subsidiary's operating results.
Square' Pharmaceuticals Limited owned 60% of Square Textile Mills Limited. Square Textile Mills
Limited declared 20% cash dividend on its Taka 200 million paid up capital. How does Square
Pharmaceuticals record this dividend under the equity method and the cost method of accounting?
Describe the special features of closing entries for a parent company that accounts for its subsidiary's
operating results by the equity method.
Explain how should a parent company and a subsidiary company account for related party transactions
and balances to assure their correct elimination in the preparation of consolidated financial
statements.
Identify common related party transactions between a parent company and its subsidiary.
How do intercompany sales of plant assets differ from intercompany sales of merchandise?
What consolidated financial statement categories are affected by intercompany sales of merchandise
at profit? Explain.
Is an intercompany note receivable that has been discounted by a bank eliminated in the preparation
of a consolidated balance sheet? Explain.
Under what circumstances do income taxes enter into the measurement of current fair values of a
combinees identifiable net assets in business combination?
Are cash dividends declared to minority stockholders' displayed in a consolidated statement of cash
flows? Explain.
Explain how is the equity method of accounting applied when a parent company attains control of a
subsidiary in a series of common stock acquisitions.
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19. If a parent company acquires the minority interest in net assets of a subsidiary at less than carrying
amount, what accounting treatment is appropriate for the difference? Explain.
20. Explain how the minority interest in net assets of a subsidiary is affected by the parent company's
ownership of 70% of subsidiary's outstanding common stock and 60% of the subsidiary's outstanding
7%, cumulative, fully participating preferred stock.
Part - III: Branch Accounting
1. Describe three alternative methods of billing merchandise shipped to branches by home office.
2. What factors might have caused difference between year end balances of the reciprocal ledger
account of ABC Company's branch and home office?
3. Explain the purpose of the financial statements prepared by the branches, the home office financial
statements and the combined financial statements in the following case:
"Agora Superstores operates 6 branches in addition to its home office and bills merchandise shipped
by the home office to the branches at 5% above home office cost. All plant assets are carried in the
home office accounting records. The home office also conducts an advertising campaign that benefits
all branches. Each- branch maintains its own accounting records and prepares separate financial
statements. In the home office, the accounting department prepares financial statements for the
home office and combined financial statements' for the superstores as a whole."
4. Explain the use of and journal entries for a home office's Allowance for Overvaluation of Inventories:
Branch Ledger Account.
5. On April 1, 2006, Arong established the Agrabad Branch. Separate accounting records were set up for
the branch. Both the home office and the Agrabad branch use the periodic inventory system. Among
the intercompany transactions were -the-following:
April 1, Home office mailed a cheque for Taka 5 million to the branch. The cheque was received by
branch on April 3.
April 4, Home office shipped merchandise costing Taka 10 million to the branch at a billed price of
Taka 12 million. The branch received the merchandise on April 8.
April 11, The branch acquired furniture of Taka 3 million. The home office maintains the plant assets of
the branch in its accounting records.
Prepare journal entries for the above transactions in the book of a) home office
b) branch office
Part IV: Foreign Currency Accounting
1. Define
a) Exchange rate
b) Forward rate
c) Selling' spot rate
d) Spot rate
e) Forward' contract
f) Multinational enterprise
g) Functional currency
2. Are foreign currency transaction gains or losses entered in the accounting records prior to collection
of a trade account receivable or payment of a trade account payable denominated in foreign
currency? Explain.
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3. Explain the one transaction perspective regarding the nature of a foreign currency transaction gain or
loss.
4. What arguments are advanced in support of the two-transaction perspective for foreign currency
transaction gains and losses? Explain.
5. Differentiate between the current/non-current method and the current rate method of translating
foreign currency financial statements.
6. Differentiate re-measurement to functional currency from foreign currency translation.
7. Identify the differences between foreign currency transaction gains and losses and foreign currency
transaction translation adjustments.
8. Toy Company is a wholly owned Bangladeshi Subsidiary Company of USA public company. Toy
Company keeps its records in Taka. The average exchange rate for the current year was $1 = Tk. 69.
The income statement of this company for the current year is as follows:
Toy Company
Income Statement
Current-Year
Particulars
Amount (Tk.)
Sales
920,000,000
Gain on sale of land
50,000,000
Total Revenue
970,000,000
Expenses:
Cost of sales
470,000,000
Amortization expenses
132,000,000
Other expenses
220,000,000
Total Expenses
822,000.000
Net Income
148,000,000
Other Information:
a. Sales, Purchases and other expenses occurred uniformly throughout the year.
b. All of the Company's non monetary assets were acquired when $1 = Tk. 68.
c. The opening inventories of Tk. 50,000,000 were acquired when $1 = 68.50, while the closing
inventories of Tk. 70,000,000 were acquired when the rate was Tk. 68.75.
d. The gain on sale of land resulted from a disposition of land with a cost of Tk. 80,000,000. The sale
occurred on July 1 of the current year.
Required: Given that Toy Company is classified as an integrated foreign operation; prepare its
translated income statement for current year.
Part - V: Interim & Segment Reporting
Interim Financial Reporting
1.
2.
3.
4.

Define interim period and interim financial reporting?

What are the minimum disclosures of 'interim financial reporting as per IFRS 34?
How is revenue recognized on an interim basis?
What were the problems regarding interim financial reports prior to the issuance of APB Opinion No.
28?
5. Discuss the provisions- of APB Opinion No. 28, "Interim Financial Reporting" dealing with the
accounting for costs associated with revenue in interim financial reports.
6. How are extraordinary items reported on an interim basis?
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Segment Reporting
1. Write notes on the following:
a. Operating Segments
b. Reportable segments
c. Identifiable Assets test
d. Ten Percent Significance' Rules
e. Seventy Five Percent Revenue Test
2. What Information is 'excluded from the determination of a segment's operating profit or loss?
3. A company has seven industry segments of which the largest 4 account for 85% of the combined
revenue of the company. What considerations are important in determining the number of segments
that are separately reportable? How are the remaining segments reported?
4. What are the special rules for determining the revenue, operating profit or loss, and identifiable assets
of financings segments?
Accounting For Liquidation and Re-organization
1. Identify the various types of creditors whose claims are dealt with bankruptcy liquidation as per
Insolvency Act 1997?
2. Identify who can be declared bankrupt and who cannot be declared bankrupt as per Insolvency Act
1997?
3. List down the preferential creditors as per Insolvency Act 1997.
4. Describe the process of liquidation.
5. What are the powers and duties of trustees regarding reorganization?
Part - VI: HRM and Government Accounting Government Accounting
1. Discuss the nature of government accounting.
2. What is meant by "budgetary accounting"? Explain the accounting for expected revenue and
anticipated expenditure.
3. Which governmental funds use operating budgets? Which use capital budgets?
4. Write short note on the following:
a. Scope of government accounting
b. Budget
c. Annual development program
Human Resource Accounting
1.
2.
3.
4.

Define human resource accounting.

Discuss the scope of human resource accounting.
What are the objectives of human resource accounting?
Write short notes on the following:
a. Cost based approaches
b. Historical approaches accounting
c. Replacement cost based approaches
d. Opportunity cost model
e. Economic model
f. Adjusted discounted future wages method
g. Behavioral variable approach
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