Deck 4: A Conceptual Framework: Recognition and Measurement of the Elements of Financial Statements

Question 1

The receipt of cash or its equivalent from an income transaction is known as:

A) realisation
B) resolution
C) reception
D) recognition

Answer 1

A

Question 2

Measuring and reporting assets using historical cost is most relevant in satisfying:

A) the stewardship objective of financial reporting
B) the decision usefulness objective of financial reporting
C) the objectives of relevance and reliability in financial reporting
D) both A and B

Answer 2

A

Question 3

Under the Framework,assets should be recognised in the balance sheet when:

A) future economic benefits can probably be measured reliably
B) future economic benefits are relevant, reliable and material
C) future economic benefits are probable and cost or value can be measured reliably
D) future economic benefits are relevant and can be measured reliably

Answer 3

C

Question 4

In accounting,'value' can mean:

A) historical cost
B) market value
C) replacement cost
D) any of the above

Question 5

In the Framework,'probable' means:

A) greater than 50% certainty
B) 50% certainty
C) greater than 75% certainty
D) greater than 95% certainty

Question 6

The Framework specifies that liabilities should be measured at:

A) historical cost
B) current replacement cost
C) current cash equivalent
D) The Framework does not specify how liabilities should be measured

Question 7

Which of these is the strongest argument in favour of current replacement cost as an alternative to historical cost?

A) Current replacement cost provides a more reliable measure of performance
B) Current replacement cost provides a more relevant measure of performance
C) Current replacement cost provides a more reliable balance sheet
D) Current replacement cost provides better information on cash flows

Question 8

Which of these is not correct concerning measuring assets at their current cash equivalent?

A) Shareholders would be able to satisfy themselves that the business has maintained its capacity to adapt to change
B) A useful measure of solvency is provided
C) Information is provided to creditors about asset marketability
D) The measurement of performance is given pre-eminence over the measurement of financial position

Question 9

Future economic benefits for assets come from:

A) value-in-utility
B) value-in-exchange
C) value-in-use
D) both B and C

Question 10

Which statement concerning liabilities is not correct?

A) If a material liability fails the probability test, it may still warrant disclosure in the notes to the financial statements
B) If a material liability cannot be measured reliably, then it should not be recognised in the accounts
C) If the probability that a previously recognised liability will have to be settled falls below 50%, it should still remain in the balance sheet
D) None of the statements is incorrect, i.e., all are correct statements

Question 11

The statement in relation to the current replacement cost of liabilities that is correct is:

A) Current replacement cost for liabilities is the amount that could be borrowed now with a similar debt instrument against a promise to pay the interest and principal commitments of the existing liability
B) The current replacement cost of a liability is difficult to measure
C) If current replacement cost is the characteristic of assets that is measured, then, for consistency, liabilities should also be measured at current replacement cost
D) All the statements are correct

Question 12

Which of these is not a difference between the contract-price method and the internal-yield method of valuing liabilities?

A) Ease/difficulty of calculation
B) Treatment of the time value of money
C) Reliance on historical cost information
D) Treatment of the interest obligation

Question 13

The amount that an entity would need to receive to compensate it for the loss of an asset is known as:

A) value-in-use
B) carrying value
C) deprival value
D) value-in-exchange

Question 14

Assume that assets are held for use and not offered for sale and that PV = present value,MV = net market value and RC = current replacement cost.If PV > MV > RC,the deprival value of the asset is:

A) current replacement cost
B) present value
C) net market value
D) cannot be determined

Question 15

The correct statement is:

A) Value-in-use is lower than value-in-exchange for most assets
B) The value of an asset is the lower of its value-in-use and its value-in-exchange
C) If value-in-use is higher than value-in-exchange the asset should be offered for sale
D) The value of an asset is the higher of its value-in-use and its value-in-exchange

Question 16

The estimated current net market value of an asset in the ordinary course of business is known as:

A) current cash equivalent
B) replacement cost
C) opportunity cost
D) discounted value of future cash flows

Question 17

Assume a business commences operations with owners' contributions of $20 000 with which it purchases an item of inventory that it later sells for $24 000.If the replacement cost of the inventory at the date of sale is $21 000 the amount the business can distribute and still maintain the same level of operations is:

A) $0
B) $3000
C) $4000
D) $1000

Question 18

Which of the following provides an example of measurement based on a nominal scale?

A) Postcode
B) Temperature using centigrade
C) Temperature using Fahrenheit
D) The outcome of an election process

Question 19

There is wide agreement that the soundest measure,conceptually,of value-in-use is:

A) historical cost less accumulated depreciation
B) the estimated net market value if the asset was sold in the ordinary course of business
C) deprival value
D) the discounted value of the asset's future cash flows

Question 20

Assume that assets have been offered for sale and that PV = present value,MV = net market value and RC = current replacement cost.If RC > MV > PV,the deprival value of the asset is:

A) net market value
B) present value
C) current replacement cost
D) cannot be determined

Question 21

If accountants cannot agree on a single basis of measurement,then the best approach is to present the financial statements under several alternatives and let the user choose the one that is best suited to their needs.Discuss.

Question 22

Using the Framework criteria,explain why the point of sale is generally selected as the point at which income is recognised.

Question 23

Explain and discuss the assertion that current replacement cost provides a more relevant but less reliable measure of assets than historical cost.

Question 24

The correct statement is:

A) If the 0.5 probability recognition criteria from the Framework were applied to revenue, it is likely that revenue would generally be recognised earlier in the operating cycle than at present
B) If the 0.5 probability recognition criteria from the Framework were applied to expenses, it is likely that expenses would generally be recognised earlier in the operating cycle than at present
C) If the 0.5 probability recognition criteria from the Framework were applied to revenue, it is likely that revenue would generally be recognised later in the operating cycle than at present
D) None of the statements is correct

Question 25

It is a conventional accounting practice to recognise a doubtful debts expense when the probability of a decrease in economic benefits is:

A) more than 90% likely
B) less than 50% likely
C) more than 60% likely
D) beyond a reasonable doubt

Question 26

Discuss the advantages and disadvantages associated with the use of the contract-price method of measuring liabilities.

Question 27

For which of the following groups would all of the items be regarded as expenses under the Framework?

A) Dividends paid, cost of goods sold, electricity
B) Depreciation, payment of a creditor for expenses, salaries
C) Interest, rent, stock loss, amortisation
D) Inventory, light and power, cleaning

Question 28

Under the Framework,the statement that is correct is:

A) Equity is defined independently of assets and liabilities
B) The recognition criteria of probability and measurability apply to equity
C) The measurement of equity depends on the basis of measurement employed for assets and liabilities
D) All of the statements are correct

Question 29

AASB 137 'Provisions,Contingent Liabilities and Contingent Assets' requires information about contingent liabilities to be disclosed in a note to the financial statements where the probability of a future sacrifice of economic benefit is:

A) higher than remote
B) above 20%
C) between 25% and 50%
D) above 50%