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 4 Measurement

Chapter 4 Measurement
Multiple Choice Questions

1. Measurement in an accounting context involves

a. Determining the quantities of assets held by an entity

b. Estimating the amounts to be derived from assets
c. Apportioning costs between items
*d. All of the above

Correct answer: d
Learning Objective 4.1 ~ Analyse the concept of measurement in the context of financial
reporting and demonstrate an understanding of its many benefits and limitations.

2. Which of the following is NOT a benefit of measurement in accounting?

*a. Dissimilar items can be easily combined into meaningful totals

b. It makes information more decision useful
c. It allows users to assess the performance of the entity
d. It allows users to compare entities

Correct answer: a
Learning Objective 4.1 ~ Analyse the concept of measurement in the context of financial
reporting and demonstrate an understanding of its many benefits and limitations.

3. Which of the following is NOT a limitation of measurement in accounting?

a. There is little agreement on what measurement methods should be used

b. Measurement can be quite subjective
*c. It is impossible to compare entities over a period of time
d. There are some accounting items that are not easily measured

Correct answer: c
Learning Objective 4.1 ~ Analyse the concept of measurement in the context of financial
reporting and demonstrate an understanding of its many benefits and limitations.

John Wiley & Sons Australia, Ltd 2012 4.1

Testbank to accompany Contemporary Issues in Accounting

4. The statement in relation to current trends in accounting that is NOT correct is:

a. There is a movement towards a fair value approach

*b. There is a movement towards a more traditional approach
c. The concepts of capital and profit have changed and evolved over time.
d. More emphasis is now being placed on the relevance of information rather than its
reliability

Correct answer: b
Learning Objective 4.2 ~ Describe the standard setters approach to measurement and evaluate
different measurement approaches.

5. Which of these is NOT a criticism of historical cost accounting?

a. It is not objective and is open to manipulation

*b. It has been used by business over many centuries
c. Historical cost overstates profit in times of rising prices
d. Cost information is not always available

Correct answer: b
Learning Objective 4.2 ~ Describe the standard setters approach to measurement and evaluate
different measurement approaches.

6. The statement that is true with respect to current cost accounting is:

a. Gains are recorded only when the assets are disposed of

b. Holding gains are not included in current operating profits
*c. Current operating profit is the excess of the current value of the output sold over
the current cost of the related inputs
d. None of the above is true

Correct answer: c
Learning Objective 4.2 ~ Describe the standard setters approach to measurement and evaluate
different measurement approaches.

John Wiley & Sons Australia, Ltd 2012 4.2

 Chapter 4 Measurement

7. Which of these is a defence of current cost accounting?

a. It is the most objective of the proposed accounting methods

*b. Relevant current events of the accounting period should be accounted for to
maintain the usefulness of accounting information for decision-making
c. It specifically recognises future technological changes in profit determination
d. All of the above are defences

Correct answer: b
Learning Objective 4.2 ~ Describe the standard setters approach to measurement and evaluate
different measurement approaches.

8. Which of the following is NOT an argument in favour of exit price accounting?

a. Valuing all elements in the financial statements at their money equivalents

provides one rule that can be applied consistently.
b. The financial statements are allocation-free
*c. Rather than measuring past events the method measures those that might happen
if a firm does something other than what was planned
d. Exit price accounting involves references to real-world examples therefore it is
more grounded in reality than historical cost accounting

Correct answer: c
Learning Objective 4.2 ~ Describe the standard setters approach to measurement and evaluate
different measurement approaches.

9. Deprival value is:

*a. The loss that would be incurred if the asset was removed
b. An objective measure of value
c. Considered relevant as theft of business assets is common
d. All of the above

Correct answer: a
Learning Objective 4.2 ~ Describe the standard setters approach to measurement and evaluate
different measurement approaches.

John Wiley & Sons Australia, Ltd 2012 4.3

Testbank to accompany Contemporary Issues in Accounting

10. Under the Conceptual Framework the preferred measurement model is:

a. Historical Cost
b. Current Cost
c. Present Value
*d. None of the above

Correct answer: d
Learning Objective 4.2 ~ Describe the standard setters approach to measurement and evaluate
different measurement approaches.

11. Information produced using historical cost as the measurement base is considered

*a. Less relevant

b. Less faithfully represented
c. More comparable
d. All of the above

Correct answer: a
Learning Objective 4.3 ~ Evaluate the impact of measurement choice on the quality of
accounting information.

12. Information produced using fair value as the measurement base is considered

a. More relevant
b. More faithfully represented
c. Less Neutral
*d. All of the above

Correct answer: d
Learning Objective 4.3 ~ Evaluate the impact of measurement choice on the quality of
accounting information.

13. Information produced using current cost as the measurement base is considered

a. Less relevant
*b. Less understandable
c. More comparable between different companies
d. All of the above

Correct answer: b
Learning Objective 4.3 ~ Evaluate the impact of measurement choice on the quality of
accounting information.

John Wiley & Sons Australia, Ltd 2012 4.4

 Chapter 4 Measurement

14. Information produced using deprival value as the measurement base is considered

a. Less relevant
b. Less faithfully represented
c. Less understandable
*d. All of the above

Correct answer: d
Learning Objective 4.3 ~ Evaluate the impact of measurement choice on the quality of
accounting information.

15. An argument against fair value measurement in accounting is:

a. Market prices are too objective

b. It does not allow enough professional judgement
*c. It can lead to volatility in earnings
d. It reflects the value of the item today

Correct answer: c
Learning Objective 4.4 ~ Explain the controversial nature of fair value as a measurement
approach and consider the arguments for and against a shift toward fair value under the
accounting standards.

16. Which measurement system would seem most relevant to investors?

a. Historic cost
*b. Fair value
c. Current cost
d. Deprival value

Correct answer: b
Learning Objective 4.5 ~ Explain the political nature of accounting measurement by developing
an understanding of the different stakeholders in the financial reporting process.

John Wiley & Sons Australia, Ltd 2012 4.5

Testbank to accompany Contemporary Issues in Accounting

17. Which measurement system would seem most relevant to creditors?

a. Historic cost
*b. Fair value
c. Current cost
d. Deprival value

Correct answer: b
Learning Objective 4.5 ~ Explain the political nature of accounting measurement by developing
an understanding of the different stakeholders in the financial reporting process.

18. Which of the following is NOT a reason measurement is a controversial accounting

issue?

a. It can be quite subjective

*b. It is not a political issue
c. It can affect how entities are perceived
d. It does not lead to consistent recording

Correct answer: b
Learning Objective 4.6 ~ Describe the issues which contribute to the controversial nature of
accounting measurement.

19. Accounting for the environment is a difficult area because

a. It is difficult to measure the accounting consequences of environmental issues

b. Environmental issues extend beyond the entity boundary
c. As a common good it is hard to value the environment
*d. All of the above

Correct answer: d
Learning Objective 4.7 ~ Analyse current measurement challenges faced by the accounting
profession with particular reference to environmental sustainability, green assets, intangible
assets and water assets.

John Wiley & Sons Australia, Ltd 2012 4.6

 Chapter 4 Measurement

20. Intangible assets have been identified as one of the hardest area to value because:

a. They are one of the most important assets on the balance sheet
b. There are too many markets to choose from
*c. It is difficult to measure an asset with no physical substance
d. All of the above

Correct answer: c
Learning Objective 4.7 ~ Analyse current measurement challenges faced by the accounting
profession with particular reference to environmental sustainability, green assets, intangible
assets and water assets.

John Wiley & Sons Australia, Ltd 2012 4.7