ETHIOPIAN HIGHER EDUCATION EXIT EXAM (BA DEGREE IN ACCOUNTING & FINANCE) Course Title: Advanced Financial Accounting I Maximum Mark: 100% Dear Prospective Graduates, ‘We have designed the following questions to assist you in preparing for your Ethiopian Higher Education Exit Exam. Please note that answering these questions does not guarantee a passing score on your exam. We strongly advise you to put in the necessary effort and dedication to achieve success. Best of luck in your studies! Instruction: For each of the following questions, choose the single best answer and encircle the letter of your choice on the separate answer sheet provided. 1. What is a joint venture? A. A partnership between two or more companies for a specific project or business activity B. A subsidiary company fully owned by a parent company C. A merger of two or more companies into a single entity D. A contractual agreement between a buyer and a seller 2. How are joint veutures accounted for in financial statements? A. Using the equity method B. Treating them as wholly-owned subsidiaries C. Recording them as revenne on the income statement D. Ignoring their financial impact 3. Under the equity method, how is the initial investment in a joint venture recorded? A. Asanasset on the balance sheet B. Asa liability on the balance sheet C. Asrevenue on the income statement D. Asan equity investment on the balance sheet 4. What is the purpose of the equity method in accounting for joint ventures? A. Torecognize the joint venture's share of profits and losses B. To fully consolidate the joint venture's financial statements C. To transfer assets from the joint venture to the parent company D. Toallocate joint venture expenses to the parent company5. How are the joint venture's profits or losses recorded under the equity method? A. Asa separate line item on the income statement B. Distributed to the parent company as dividends C. Recorded as revenue or expenses on the parent company's ineome statement D. Ignored in the parent company's financial statements 6. What happens to the parent company's investment account in a joint venture when the joint venture reports profits? A. It increases through the recognition of the parent's share of profits B. It decreases through the distribution of profits as dividends C. Itremains unchanged as profits have no impact on the investment account D. Itis closed and transferred to retained carnings 7. How are joint venture assets and liabilities presented in the parent company's financial statements? A. Consolidated with the parent company’s assets and liabilities B. Excluded from the parent company's financial statements C. Presented as separate line items on the balance sheet D. Transferred to the joint venture's financial statements 8. What happens if the parent company exercises significant influence but does net have control over the joint venture? A. The equity method is still used to aecount for the joint veatuwre B. The joint venture is teated as a subsidiary company C. The joint venture's financial statements are fully consolidated D. The parent company's financial statements are combined with the joint venture's 9. How are joint venture dividends received by the parent company recorded? A. As revenue on the income statement B. Asa reduction in the investment account C. Asa liability on the balance sheet D. Asan increase in retained earnings 10. What is a sales agency? A. A separate legal entity from the parent company B. Anextension of the home office in a different location C. A subsidiary company fully owned by the parent company D. A contractual arrangement between a buyer and a seller 11. What is a branch? A. A separate legal entity from the parent company B. An independent company with its own operations C. A department within the home office structure D. A subsidiary company fully owned by the parent company12, What is the key difference between a sales agency and a branch? A. Legal status and ownership B. Location and geographical presence C. Reporting structure and hierarchy D, Product offerings and services provided 13. How is a sales agency typically structured? A. With its own management team and profit center B. With centralized control and decision-making from the home office C. With its own financial statements and separate accounting system D. With independent operations and legal liability 14, How is a branch typically structured? A. With its own legal entity and separate ownership B. With autoaomous operations and decision-making C. With its own financial statements and accounting system D. With direct control and oversight from the home office 15, How are sales agency transactions recorded in the home office's financiel statements? A. As intercompany transactions B. Asrevenue on the income statement C. Asexpenses on the income statement D. Ignored in the financial statements 16, How are branch transactions recorded in the home office's financial statement A. As intercompany transactions B. As revenue on the income statement C. As expenses on the income statement D. Consolidated with the home office's financials 17, How are sales agency profits or losses attributed in the financial statements? A. Asa separate line item on the income statement B. Allocated to the home office based on a profit-sharing agreement C. Recorded as revenue or expenses on the home office's income statement D. Ignored in the home office's financial statements 18, How are branch profits or losses treated in the financial statements? A. Asa separate line item on the income statement B. Distributed to the home office as dividends C. Recorded as revenue or expenses on the home office's income statement D. Ignored in the home office's financial statements 19, What type of accounting system is typically used for branch operations? Separate accounting system from the home office Manual accounting system Computerized accounting system Outsourced accounting services pomp20. When a branch operates as an extension of the main company, which of the following statements is true regarding branch accounting? A. The branch maintains separate books of accounts, including a cash book and ledger. B. The branch's financial transactions are recorded only in the main company's books. C. The branch's financial transactions are not recorded in any books until the end of the year. D. The branch's financial transactions are recorded ina separate set of books but not linked to the main company’s accounts. 21. When a branch transfers goods to the main company at cost, which of the following accounts will be credited in the branch's books? AB B. ranch Stock Account D. Branch Transfer Account C. Branch Sales Account E. Branch Cash Account 22. Ina joint venture, if the profit for the year is $60,000 and the parties agreed to share profits equally, what is the share of each party? A. $15,000 C. $60,000 B. $30,000 D. $120,000 23. In a joint venture, if one party's share of the profit is $40,000 and the total profit is $120,000, ‘what is the percentage share of that party? A. 20% Cc. 40% B. 30% D. 50% 24. ABC Corporation operates a sales agency and earns sales commissions of $100,000. The applicable tax rate is 30%, How much is the tax expense for ABC Corporation? A. $30,000 . $100,000 B. $70,000 D. $130,000 25. DEF Inc, operates a branch in a different city. The branch generated sales revenue of $1,000,000 and incurred expenses of $700,000. What is the branch's net profit or loss? A. $300,000 net profit C. $700,000 net profit B. $300,000 net loss D. $700,000 net loss 26. GHI Corporation has a tax base of $1,500,000 and a carrying amount of $1,200,000 for its property, plant, and equipment. What is the taxable temporary difference? A. $300,000 C. $150,000 B. $200,000 D. $0 27. JKL Company has a deferred tax liability of $50,000 and a deferred tax asset of $30,000. What is the net deferred tax liability or asset? A. $80,000 deferred tax liability C. $20,000 deferred tax asset B. $20,000 deferred tax liability D. $50,000 deferred tax asset28. XYZ Company has a taxable income of $1,000,000 and is subject to an income tax rate of 25%, How much is the income tax expense for XYZ? ‘A. $250,000 €. $750,000 B. $500,000 D. $1,000,000 29. ABC Corporation forms a joint venture with another company. ABC contributes $200,000 in cash, while the other company contributes $300,000 in cash. What is the total contributed capital for the joint venture? A. $200,000 €. $500,000 B. $300,000 D. $700,000 30. DEF Inc. and GHI Corp. form a joint venture with a profit-sharing ratio of 60:40. The joint venture generates a profit of $200,000. How much is DEF Inc.'s share of the profit? A. $60,000 C.$120,000 B. $80,000 D. $160,000 31. IKL Corporation operates a joint venture and incurs expenses of $500,000. The joint venture generates sales revenue of $800,000. What is the net profit or loss for the joint venture? A. $200,000 net profit C. $300,000 net profit B. $200,000 net loss D. $800,000 net loss 32, MNO Corporation forms a joint venture with another company and contributes a building with a fair value of $500,000. The building has a carrying amount of $400,000 on MNO's books. What is the gain or loss on the contribution of the building? A. $100,000 gain C. $400,000 gain B. $100,000 loss D, $400,000 loss 33. ABC Company grants 1,000 stock options to an employee. The exercise price of each option is $10, and the fair value of each option is $15. What is the total compensation expense related to these stock options? A. $5,000 C.$15,000 B. $10,000 D. $20,000 34. XYZ Corporation awards 500 restricted stock units (RSUs) to an executive, The fair value of each RSU is $50, What is the total compensation expense for the RSUs? A. $5,000 C. $25,000 B. $10,000 D. $50,000 35. LMN Ine. grants performance-based stock options to an employee. The options have a fair value of $20 each. The performance condition is met, and the employee exercises 1,000 options at an exercise price of $15 per option. What is the total compensation expense related to these options? A. $5,000 C. $20,000 B. $15,000 D. $35,00036. PQR Corporation issues 1,000 restricted stock units (RSUs) to an employee. The fair value of each RSU is $100. The vesting period is three years, with 25% vesting at the end of each year. ‘What is the annual compensation expense for the RSUs? A.$10,000 C. $33,333 B. $25,000 D. $100,000 37.MNO Corporation forms a joint venture with another company and contributes cash of $300,000. The otter company contributes machinery with a book value of and fair value of ‘$620,000 and $800,000, respectively. What is the total contributed capital for the joint venture? A. $500,000 C. $1,300,000 B. $800,000 D. $1,500,000 38. Which of the following best describes the purpose of share-based compensation plans? A. To decrease employee morale and motivation, B. To provide a cash-based incentive for employees. C. To align employee interests with the company's performance and shareholder value. D. To reduce the financial burden on the company. 39. How does the fair value of share-based compensation affect the compensation expense recognized by a company? A. Higher fair value results in higher compensation expense. B. Lower fair value results in higher compensation expense. C. Fair value does not affect the compensation expense. D. Fair value only impacts the timing of recognizing compensation expense, 40. Under IFRS, which of the following is considered a biological asset? A. Office building B. Patent rights C. Inventory of finished goods D. Orchard of fruit-bearing trees valued at $100,000 41. When measuring a biological asset at fair value less costs to sell under IFRS, which of the following costs should be deducted? A. Administrative overhead costs B. Costs of harvesting and transporting the asset to market C. Costs of acquiring the asset initially D. Costs of maintaining the asset 42, According to IFRS, when should an entity recognize an inerease in the fair value of a biological asset? A. When the asset is first acquired B. When the asset reaches maturity C. When the fair value increase is reliably measurable D. When the asset is harvested43. XYZ Company has a herd of cattle valued at $200,000. During the year, the fair value of the cattle increased by $50,000. How should the increase in fair value be recognized under IFRS? ‘A. Recognize as income in the income statement B. Recognize as @ reduction in the carrying amount of the asset C. Recognize as a revaluation gain in other comprehensive income D. Recognize as an increase in shareholders’ equity. 44, XYZ Insurance Company issues an insurance contract with an annual premium of $10,000 and an estimated claims payout of $8,000. The contract is for a period of one year. How should XYZ initially recognize the insurance contract under IFRS? A. Recognize an insurance liability of $10,000 B. Recognize an insurance liability of $8,000 C. Recognize an insurance asset of $2,000 D. Recognize an insurance revenue of $10,000 45. Which of the following best describes the measurement of insurance liabilities under IFRS? A. Insurance liabilities are measured at historical cost. B. Insurance liabilities are measured at fair value. Insurance liabilities are measured based on the insurer's expected cash flows. D. Insurance liabilities are measured based on the policyholder's expected claims. 46. ABC Company grants 1,000 stock options to an employee. The exercise price of each option is $10, and the fair value of each option is $15. The options vest evenly over a four-year petiod. ‘What is the total compensation expense related o these stock options after wo years, assuming no forfeitures? A. $3,750 CC. $7,500 B. $5,000 D. $10,000 47. XYZ Corporation issues 1,000 restricted stock units (RSUs) to an employee. The fair value of each RSU is $100. The RSUs vest at the end of three years. What is the total compensation expense for the RSUs at the end of the first year? A.S0 C. $66,667 B. $33,333 D. $100,000 48. ABC Insurance Company enters info an insurance coutract with an annual premium of $50,000. The estimated claims payout is $40,000. The insurance contract is for a period of three years. How much should ABC initially recognize as insurance revenue under IFRS? A. $50,000 B. $40,000 C. $10,000 D. $30,00049. XYZ Insurance Company has a portfolio of insurance contracts, At the end of the reporting period, the company estimates an additional $500,000 in claims expenses for the existing insurance contracts. How should XYZ account for this inerease in the liability for incurred claims under IFRS? A. Recognize as an adjustment to the insurance liability, B. Recognize as an increase in insurance revenue, C. Recognize as a reduction in insurance expense. D. Recognize as a change in accounting estimate. 50. ABC Company grants performance-based stock options to an employee. The options have a fair value of $20 each. The performance condition is met, and the employee exercises 1,000 options at an exercise price of $15 per option. What is the total compensation expense related to these options? 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