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Multiple Choice

1. The set of data that would be measured on a nominal scale is:

a. The height of a group of school children


b. Assets classified into current/non-current and tangible/intangible
c. Investment opportunities classified into 'poor', 'average' or 'good' with respect to
anticipated returns.
d. The share prices of a group of companies

Feedback: For the other groups of data A would be interval scale, C would be ordinal scale and D
would be ratio scale.
Section 'Scales'

2. Which statement is not true with respect to the interval scale?

a. It is less informative than the ratio scale


b. The distance between the intervals on the scale is equal and known
c. The zero point is arbitrarily established
d. A unique origin exists where the distance from it for at least one object is known

Feedback: Statement d. describes a property of the ratio scale.


Section 'Scales'

3. The statement that is false with regard to the ratio scale is:

a. The intervals between the objects are equal and are known
b. A natural zero point exists where the distance from it for at least one object is known
c. The intervals between the numbers do not tell anything about the differences in the
quantity of the property they represent
d. The rank order of the objects or events with respect to a given property is known

Feedback: Statement C is the weakness of ordinal scale. Section 'Scales'

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4. Emma has collected data on the ages of students in a third year accounting course. The data
has been group into the following age ranges:
0-18
19-24
24-30
31-35
35+
Which of these measurement scales would her data be measured on?

a. Nominal
b. Ordinal
c. Interval
d. Ratio

Feedback: She is measuring using the ordinal scale because the distance between the intervals on
the scale is not equal and is not known due to the grouping of the age data.
Section 'Scales'

5. Sarah has collected data on the salaries of part-time third-year accounting students. Which of
these measurement scales would her data be measured on?

a. Nominal
b. Ordinal
c. Interval
d. Ratio

Feedback: This data set would fulfil all the criteria of a ratio scale.
Section 'Scales'

6. Higher than average income


Which of these measurement scales would her data be measured on?

a. Nominal
b. Ordinal
c. Interval
d. Ratio

Feedback: The scale would be ordinal. The operation of grouping ranks the students' ages (group
2 being the older group), however, the distance on the scale is not equal and known.
Section 'Scales'

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7. The operations that can be performed with reference to particular numbers on the interval
scale is/are:

a. Multiplication and division


b. Subtraction
c. Addition
d. B and C only

Feedback: On the interval scale multiplication and division cannot be used with reference to the
particular numbers only to the intervals.
Section 'Permissible operations of scales'

8. Which of these is not the condition of invariance?

a. The rank order of the points is unchanged


b. The numbers in the scale are unchanged
c. The ratios of the points are unchanged
d. The zero point is unchanged

Feedback: The numbers in the scale will change over transformations, however, the scale is
invariant when the rank order of the points, the ratios of the points, and the zero point of the
scale are unchanged.
Section 'Permissible operations of scales'

9. What type of measurement does the following description relate to?


'A measurement that depends on the measurement of two or more other quantities'

a. Fiat measurement
b. Fundamental measurement
c. Derived measurement
d. All of the above

Feedback: Section 'Types of measurement'

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10. Michael measures the varying depths of the seabed around the Australian coastline. These
measurements are best described as:

a. Fundamental measurements
b. Fiat measurements
c. Derived measurements
d. All of the above

Feedback: Depth can be measured by reference to natural laws and does not depend upon the
measurement of any other variable.
Section 'Types of measurement'

11. Which of these is not a source of error in measurement?

a. The environment
b. Risk and uncertainty
c. An unclear attribute
d. All are sources of error

Feedback: Measurement operations stated imprecisely, the measurer, the instrument, the
environment, risk and uncertainty, and an unclear attribute are all sources of error in
measurement.
Section 'Reliability and accuracy'

12. A researcher wishes to measure the success of accountants in using graphs to determine the
liquidity of a firm, and compare this with their success when using tables. The researcher has
decided to use accounting students in the research and has told the students that their
performance in the experiment will form part of their assessment for the accounting course they
are enrolled in. A limitation of the study is whether students are an adequate proxy for
experienced accountants. Which of the following measurement errors may occur when the
experiment is conducted?

a. Instrument error
b. Environment error
c. Attribute unclear error
d. All of the above

Feedback: If the researcher decides that 'speed' is a measure of success and uses a stopwatch to
time the students, there is a possibility of the stopwatch failing or being read incorrectly
(instrument error). The students have been put under pressure to perform and the stress of this
may affect their decision-making (environment error). Further, the measures that the researcher
decides to use to measure success may not capture success accurately (attribute unclear) - for
example, if you only measure the speed of the decision you will neglect accuracy and accuracy

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could be argued to be a measure (or a dimension) of success.
Section 'Reliability and accuracy'

13. An example of attribute unclear error is:

a. An accountant measures the value of a manufacturing plant


b. A tax officer uses an outdated list of tax rates when calculating tax returns
c. A manager misreads a question while completing a survey
d. An accountant applies the reducing-balance depreciation method instead of the
straight-line method due to pressures from his manager

Feedback: The attribute 'value' is vague and unclear because value of the manufacturing plant
can be measured using different measurements such as present value, acquisition cost, fair value,
etc. B is an example of instrument error (the outdated list); C is an example of measurer error
(the manager made a mistake); D is an example of environment error (pressure from manager).
Section 'Reliability and accuracy'

14. The statement that is describing the concept of reliability is:

a. The measurements are repeatable or reproducible and as a result demonstrate their


consistency
b. The agreement of the results among repeated use of the measurement operation as
applied to a given property
c. The proven consistency of an operation to produce satisfactory results
d. All of the above describe the concept of reliability.

Feedback: All of the statements describe the concept of reliability.


Section 'Reliability and accuracy'

15. What is the main problem in determining accuracy in accounting?

a. The measurement is not reliable


b. The measurement does not give precise results
c. The true value of the measurement is not known
d. There is no repetition of operations in the measurement

Feedback: Although the measurement may give precise results and be highly reliable, this does
not imply that it is accurate. Repetition of operations does not ensure accuracy either. The reason
is that accuracy has to do with how close the measurement is to the true value, and for many
measurements the true value is not known.
Section 'Reliability and accuracy'

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16. Which of these arguments is not a criticism of historical cost valuation?

a. The historical cost allocation system is based on the matching principle


b. The derived profit does not measure contemporary resource usage
c. Valuation of firms based on outdated historical costs is not useful for economic
decision-making
d. B and C

Feedback: Statement A is not a criticism, but only a description of fact of historical cost.
Section 'Measurement in accounting'

17. The event that was not a contributory factor towards the evolution of capital valuation is:

a. The development of joint stock companies with limited liability in England


b. The World War II
c. The railway expansion in the United States
d. Publication of the first definitive statement on the concepts of capital and profit by
Paton and Littleton

Feedback: A brief history about the evolution of capital valuation can be found in the text.
Section 'Measurement in accounting'

18. Which of these is not an issue discussed under the FASB/IASB joint project on Financial
Statement Presentation?

a. The income statement should include the effects of all changes in net assets and
liabilities during the period, other than transactions with owners
b. Entities should present a single statement of all recognised income and expense items
as a component of a complete set of financial statements
c. For debt and equity instruments held for sale, fair value must be used instead of
historical cost
d. Accounting information should be aimed at decision makers making economic
decisions about the entity

Feedback: C is not an issue discussed under the FASB/IASB joint project on Financial Statement
Presentation.
Section 'Measurement in accounting'

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19. It has been argued by some firms that IASB fair value accounting fundamentally changes the
focus of risk management. Which of these is a way in which the focus may change?

a. Firms may increase their hedging activities because they are worried about the impact
on accounting profits
b. Firms may decrease their hedging activities because they are worried about the impact
on accounting profits
c. Firms may increase their hedging for pension liabilities as these now must show up as
a liability on the balance sheet
d. B and C

Feedback: Firms may decrease their hedging activities because they are worried about the impact
on accounting profits and increase their hedging for pension liabilities as these now must show
up as a liability on the balance sheet.
Section 'Measurement in accounting'

20. The incorrect statement in relation to measurement issues for auditors is:

a. It is easier for the auditor to gather evidence if profit is measured by changes in fair
value than when it is determined by matching revenue and expense transactions.
b. ISA 540 is the international auditing standard that provides guidance for auditing
impairment losses.
c. Under the international auditing standard on impairment losses auditors are required to
judge if the amount recognised as an impairment loss is reasonable
d. Auditors must assess whether the asset or liability values are properly determined from
management's significant assumptions.

Feedback: It is harder for the auditor to gather evidence if profit is measured by changes in fair
value than when it is determined by matching revenue and expense transactions.
Section 'Measurement issues for auditors'