2019, February Flashcards
Discuss the considerations necessary under the applicable accounting standards for recognising the existence of a liability and whether to account for it as deferred, current, contingent or as a provision.
What differences are there between the GRI and the IIRC’s treatment of EITHER stakeholders OR natural capital?
Why is stakeholder theory incompatible with agency theory?
Sidgrey pty ltd bought a plant five years ago for 50 million dollars when the CPI was 300.
The estimated economic life of the plant was 10 years.
Now the CPI is 450, the plant would cost 75 million to replace but would only fetch 33million if sold on the nearest relevant open market.
The last year-end the CPI was 400 and the plant’s resale value was 44 million.
Depreciation was provided last year on a fair value basis and the plant’s carrying value was shown after impairment.
You are required to calculate the backlog depreciation to be provided up to the beginning of this year and for this year under CPP, under CCA and under level 2 fair value, then briefly explain which method is to be preferred under normal conditions.
Discuss the biases applicable in each of the following three cases.
A
Fred Karno saw a promotional video for the Make Us Rich fund and was tempted to pay $500 deposit for investment advice when his son aged 18 warned him about financial scams, but Fred went ahead anyway believing he was too smart to be scammed.
B
Angela Channing saw the same video and rang the fund. She spoke to a man with a very upper-class English accent who briefly mentioned his father was a Lord, he had inherited a large mansion in Toorak, Melbourne and he was only on phone duty today to help out his uncle who was CEO of the fund. Angela was a big fan of the series Downton Abbey and the salesman reminded her of the Lord in that series who had high integrity. She is now very tempted to invest in the fund.
C
Alison Snowdon has investments in a portfolio of 18 different Australian shares. One of them is a building company based in Inverell that has had a steady profit but no real growth for the last three years and is run by her ex-husband Simon with whom she is friendly since they both remarried. Alison’s present husband Barry is the manager of the Inverell branch of a big bank. Yesterday one of his oldest customers told him the building company owed him a lot of money and kept making excuses not to pay. Barry cannot mention this confidential information to Alison but is allowed to suggest to her she gets rid of any small firm from her portfolio because they may be unable to survive the upcoming sharp rise in interest rates. Alison is inclined to act on this advice.
What is the significance to an investor of knowing whether a stock market is inefficient or weak-form efficient?
Would the accruals anomaly and PEAD be different in each case?
A firm that can pay all its liabilities in due course but right now its current liabilities exceed its liquid assets is said to be
a) Technically insolvent
b) Illiquid
c) Insolvent
A machine costing 5 million dollars is leased for 12 years by a firm at $500,000 a year payable in quarterly instalments with an implicit interest of 10% flat.
In the second year of the lease, the firm should account for the lease
a) At 5 million dollars in its balance sheet minus any applicable depreciation
b) At $500,000 in its income statement with the implicit interest separated out
c) At $500,000 in its cash flow statement as a financial flow, not an operating flow
In a weak-form efficient market
a) The market average can be beaten by a careful and correct analysis of the accounts
b) The accruals anomaly will be especially pronounced
c) Information will be slowly and inaccurately translated into stock trading decisions by all
Accounting for engagement with each different stakeholder group during the accounting period is required by
a) The IIRC
b) The IFRS Board
c) The GRI
Wood is what kind of natural capital?
a) Renewable
b) Sustainable
c) Replaceable
NPV is
a) Both fair value level 3 and the increase in stock market value from taking on the project or asset concerned
b) An opinion masquerading as a fact
c) Irrelevant to stock market value except when the market is very highly efficient
In heuristics, the bias in anchorage and adjustment is
a) The adjustment is much too small when it comes
b) The initial estimate is totally unrealistic
c) The adjustment is much too big when it comes
A large old firm whose diversification fails but whose CEO also deceives the bank into lending against non-existent assets is an example of
a) Type 1 and 3 together
b) Type 2 and 3 together
c) Type 1 and 2 together
Exit value is to fair value as entry value is to
a) Market value
b) Deprival value
c) Exchange value
