Deck 1: Accounting Regulation and the Conceptual Framework

Question 1

YinYang Ltd. is a company listed on the ASX, with a total number of 250 non-employee shareholders owning the company's shares and 60 employees working at the company. Which of the following statements about Yinyang Ltd. is incorrect?

A) Yinyang Ltd. is proprietary company.
B) Yinyang Ltd. is a disclosing entity.
C) Yinyang Ltd is a public company.
D) Yinyang Ltd. is required to prepare a financial report.

Answer 1

A

Question 2

Section 297 of the Corporations Act states that financial statements must provide a true and fair view of an entity's financial position and performance. However, when compliance with the accounting standards results in financial statements which would not produce a true and fair view, the Corporations Act requires the entity to:

A) not comply with the accounting standards.
B) not comply with the accounting standards and write a letter to the shareholders explaining the non-compliance.
C) still comply with the accounting standards and provide additional information in the notes to the financial statements to give a true and fair view.
D) request an exemption from the AASB.

Answer 2

C

Question 3

According to the Australian Accounting Standards, the following assets can be recorded initially at historical cost, except for:

A) land.
B) inventory.
C) equipment.
D) motor vehicle.

Answer 3

B

Question 4

A conceptual framework consists of a set of principles with the purpose to:

A) assist users in the interpretation of information in financial statements.
B) assist preparers of financial statements in the application of accounting standards and in dealing with topics that are not the subject of existing accounting standards.
C) assist standard setters to develop accounting standards.
D) all of the options are correct.

Question 5

Members of the IASB are appointed by:

A) the Monitoring Board.
B) the IFRS Advisory Council.
C) the IFRS Foundation Trustees.
D) the IFRS Interpretations Committee.

Question 6

Which of the followings are the three essential criteria in the definition of an asset?
$\begin{array}{ll}\text { I. Future economic benefits}&\text {IV.Present obligation }\\\text {II.Future sacrifices of economic benefits. }&\text {V. Control. }\\\text {III.Past event }&\text{VI.Ownership} \\\end{array}$

A) I, III, IV.
B) II, III, V.
C) I, IV, VI.
D) I, III, V.

Question 7

The Corporations Act requires the following entities to prepare a financial report, except for:

A) public companies.
B) small proprietary companies.
C) large proprietary companies.
D) registered schemes.

Question 8

Currently the Australian conceptual framework comprises:

A) the Framework for the Preparation and Presentation of Financial Statements.
B) the Conceptual Framework for Financial Reporting.
C) the Framework for the Preparation and Presentation of Financial Statements, SAC 1, and SAC 2.
D) the Conceptual Framework for Financial Reporting, SAC 1, and SAC 2.

Question 9

The following statements about the AASB are correct, except:

A) The AASB has the authority to issue Australian Accounting Standards.
B) The AASB has power to establish committees, advisory panels, and consultative groups.
C) Members of the AASB are appointed by the FRC.
D) Chair of the AASB is appointed by the FRC.

Question 10

The definition of equity as given in the Conceptual Framework shows that:

A) Equity = Assets - Expenses
B) Equity = Assets - Liabilities
C) Equity = Income - Expenses
D) Equity = Assets - Liabilities - Expenses

Question 11

An independent body established in 2006 to resolve disputes between ASIC and companies is:

A) APRA
B) FRP
C) FRC
D) ASX

Question 12

Information is considered material if:

A) it has predictive value.
B) its omission or misstatement could influence users' decision-making.
C) it includes all information necessary for faithful representation.
D) it is free from errors.

Question 13

The only element in financial statements which has no independent definition under the Conceptual Framework is:

A) assets.
B) liabilities.
C) equity.
D) expenses.

Question 14

Some of the implications of adopting the going concern assumption are shown in the following accounting practices, except:

A) justification of using historical cost to measure value of assets.
B) depreciation of non-current assets.
C) liquidation of an entity's operations.
D) inclusion of goodwill in the statement of financial position.

Question 15

What is the essential factor in identifying whether an entity is a reporting entity?

A) Existence of users dependent on general purpose financial statements to make decisions.
B) Existence of users who are able to demand financial statements to meet their specific needs.
C) Whether the entity is listed on the ASX or not.
D) Total revenue earned.

Question 16

What is the constraint that limits the information provided by financial reporting?

A) Timeliness
B) Materiality
C) Comparability
D) Cost

Question 17

The two fundamental qualitative characteristics of useful information are:

A) materiality and relevance.
B) relevance and faithful representation.
C) comparability and verifiability.
D) timeliness and understandability.

Question 18

Which of the following statements is false?

A) Members of the IFRIC are appointed by the IASB.
B) The IFRS Advisory Council provides strategic advice to the IASB.
C) Compliance with IASB standards includes compliance with interpretations issued by IFRIC.
D) IFRS Foundation Trustees appoint members of both IASB and IFRS Advisory Council.

Question 19

A quality of information demonstrated when different independent observers could reach the same general conclusions that the information represents what it purports to represent is:

A) verifiability.
B) comparability.
C) understandability.
D) neutrality

Question 20

Which regulatory body has the responsibility for overseeing the standard-setting process in Australia?

A) AASB
B) FRC
C) APRA
D) ASIC

Question 21

Which of the following statements about the Conceptual Framework's definition of income is correct?

A) Income is always in the form of enhancements of assets.
B) Income results in decreases in equity.
C) Income includes contributions from owners.
D) Income includes gains from non-ordinary business activities.

Question 22

Which of the followings satisfy the definition of expenses?

A) Cash withdrawal by owner.
B) Payment of dividends to shareholders.
C) Purchase of equipment.
D) Payment of salaries to employees.

Question 23

Which of the following statements is incorrect about financial capital concept?

A) The general price level accounting system follows financial capital concept.
B) Capital is calculated as total assets less total liabilities.
C) Profit is earned after an entity's capital is sufficient to maintain the operating capability of the entity's assets.
D) Capital is determined as the purchasing power of equity recorded.

Question 24

'Kwik Kut Hairdressing' rents a small shop located in Melbourne CBD to operate its hairdressing business. In accordance with the Conceptual Framework, 'Kwik Kut Hairdressing' should recognise monthly payment for the shop rental as:

A) a decrease in assets and an increase in equity.
B) an increase in income and a decrease in liabilities.
C) a decrease in assets and a decrease in income.
D) a decrease in assets and an increase in expense.

Question 25

Which measurement base uses the discounted future net cash inflows or net cash savings that are expected to arise in the normal course of business in measuring the value of an asset?

A) Historical cost
B) Current cost
C) Present value
D) Realisable value

Question 26

The Financial Reporting Council (FRC) has the power to do the following, except:

A) directing the AASB to develop a particular accounting standard.
B) appointing the members of the AASB.
C) determining broad strategic direction for the AASB.
D) monitoring the development of international accounting standards.

Question 27

Which of the followings are the recognition criteria of elements of financial statements?
$\begin{array}{ll}I.\text { Existence of economic benefits}&III.\text { Probable occurrence }\\II.\text {Reliable measurement }&IV.\text { Control by the entits}\\\end{array}$

A) I and II
B) II and III
C) II and IV
D) I and III

Question 28

'Ice-cream R Us' Ltd. just purchased a block of land, on which it will build a new factory for its operations. 'Ice-cream R Us' paid $500,000 cash to the land owner. An independent evaluation reveals that the land is worth $550,000. Using historical cost as a measurement base, how should 'Ice-cream R Us' recognise the land purchase in its financial statements?

A) $500,000 recognised as an asset (land).
B) $550,000 recognised as an asset (land).
C) $500,000 recognised as an asset (land) and $50,000 as a liability.
D) The land should not be recognised as an asset as it cannot be measured with reliability.

Question 29

The definition of income encompasses the following criteria, except:

A) increases in economic benefits.
B) control of increases in economic benefits by the entity.
C) including capital contributions from owners.
D) results in increases in equity.