Question 1

The recognition of an element of a financial statement is:
A) a description of the element in the notes to the financial statement
B) an action or process to record the transaction or event in the accounting records
C) a statement identifying the characteristics that an element must have
D) both A and C

Accepted Answer

Recognition of an element of a financial statement refers to the process of recording a transaction or event in the accounting records. It is the second step in financial reporting after measuring the element. Choice A is referring to disclosure, which is different from recognition. Choice C is referring to the definition of an element, which is part of the conceptual framework for financial reporting, but it is not the same as recognition. Choice D is incorrect because A is not a correct answer for recognition.

Question 2

How is the concept of aggregation best summarised?
A) as the property that provides relevant information that is a faithful representation
B) different properties are measured and different scales are used
C) the measurement scale can be defined by several different bases
D) comparable characteristics of all elements should be measured using the same scale

Accepted Answer

The concept of aggregation is best summarized as having comparable characteristics of all elements measured using the same scale.

Question 3

Which of the following is not an advantage of the contract-price method?
A) It is simple to apply
B) It ignores the time value of money
C) It recognizes the interest obligation as a liability
D) It relies on readily verifiable documentary evidence

Accepted Answer

C

Question 4

The key characteristic used by the Framework to define an asset is:
A) saleability
B) type of item
C) ability to generate future economic benefits
D) ability to generate future cash flows

Accepted Answer

According to the Framework, an asset is defined as a resource controlled by an entity as a result of past events and from which future economic benefits are expected to flow to the entity. Therefore, the key characteristic used to define an asset is its ability to generate future economic benefits. The other options (saleability, type of item, ability to generate future cash flows) may be relevant in specific contexts, but they are not the defining characteristic of an asset according to the Framework.

Question 5

The estimated current net market value of an asset in the ordinary course of business is known as:
A) opportunity cost
B) replacement cost
C) current cash equivalent
D) discounted value of future cash flows

Accepted Answer

The estimated current net market value of an asset in the ordinary course of business is best described as its current cash equivalent. This term refers to the amount of cash (or its equivalent) that could currently be obtained by selling the asset in a normal transaction between market participants.

Question 6

In accounting,'value' can mean:
A) historical cost
B) market value
C) replacement cost
D) any of the above

Accepted Answer

In accounting, 'value' can refer to historical cost, market value, or replacement cost, depending on the context and the specific accounting method being used.

Question 7

Under the Framework,a transport company does not regard the road outside its premises as an asset because:
A) it is not owned
B) it will not provide future economic benefits
C) the amount of future economic benefits is uncertain
D) it is not controlled

Accepted Answer

An asset is defined as a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow. The road outside the premises is not controlled by the transport company, hence it is not considered an asset.

Question 8

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%

Accepted Answer

AASB 137 requires disclosure of contingent liabilities when the probability of an outflow of economic resources is more than remote. Therefore, out of the given options, the best choice is A.

Question 9

The Framework defines assets as:
A) resources controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity
B) probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events
C) the service potential expected from resources controlled by the reporting entity as a result of past events
D) future economic benefits expected from resources controlled by the reporting entity as a result of past events

Accepted Answer

The definition of assets in the Framework is resources controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. This definition refers to assets as something that the entity has control over and expects to derive future economic benefits from, which is reflected in choice A.

Question 10

Which of these is not an essential characteristic of a liability under the Framework?
A) Future sacrifice of economic benefits
B) Control
C) Existence of a present obligation to another entity
D) A past transaction or other past event

Accepted Answer

While control may be a relevant consideration in certain situations, it is not a necessary characteristic of a liability under the Framework. The other three characteristics are essential for an item to be recognized as a liability.

Question 11

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

Accepted Answer

According to the Framework, assets should be recognized in the balance sheet when future economic benefits are probable and cost or value can be measured reliably. Option A and D are partially correct but do not include the probability factor. Option B mentions relevancy and materiality, but not the probability and measurement reliability aspects.

Question 12

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

Accepted Answer

Measuring and reporting assets using historical cost is most relevant in satisfying the stewardship objective of financial reporting, which is to provide information about how effectively and efficiently management has used the resources entrusted to them. Historical cost reflects the actual amount paid for the asset at the time of acquisition, and provides a reliable basis for measuring and reporting asset values over time. While historical cost is also relevant to the decision usefulness objective of financial reporting, the primary focus of this objective is on providing information that helps users make decisions about investing in or lending to an entity.

Question 13

An entity has decided to commit itself to the purchase of a new building in the next financial year.Under the Framework:
A) a liability exists because it is probable that a future sacrifice of economic benefits will be required
B) no liability exists because there is no present obligation
C) a liability exists because there is a constructive obligation
D) a liability exists because there is an equitable obligation

Accepted Answer

No liability exists at this stage because there is no present obligation that meets the definition of a liability under the accounting framework. A decision or intention to purchase in the future does not create a present obligation.

Question 14

Which of the following is not considered an element of the statement of financial position?
A) Liabilities
B) Equity
C) Expenses
D) Assets

Accepted Answer

The statement of financial position, also known as the balance sheet, includes three elements: assets, liabilities, and equity. Expenses are not included in the statement of financial position as they are reflected in the statement of profit or loss.

Question 15

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

Accepted Answer

Current replacement cost provides a more relevant measure of performance because it reflects the current market value of assets and takes into account changes in prices, while historical cost measures the original cost of acquisition and may not accurately reflect the current value of assets. This makes current replacement cost a better option for decision making and evaluating performance. The other options (A, C, and D) may still hold some value, but they are not as strong as the argument for relevance.

Question 16

Future economic benefits for assets come from:
A) value-in-utility
B) value-in-exchange
C) value-in-use
D) both B and C

Accepted Answer

Value-in-exchange refers to the monetary value that an asset can bring in a market setting, while value-in-use is the value derived from the actual use or utility of the asset. Both of these factors contribute to an asset's economic benefits in the future, as they determine the potential for revenue generation or cost savings. Therefore, the best choice is D, as both value-in-exchange and value-in-use play a role in determining future economic benefits for assets.

Question 17

In the Framework,'the present obligation of the entity arising from past events,the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits' is the definition of:
A) revenues
B) assets
C) expenses
D) liabilities

Accepted Answer

The definition provided is that of a liability, which represents an obligation of the entity to transfer resources or provide services to another party in the future as a result of past events. Liabilities have economic value and typically involve the payment of money or other resources to settle the obligation. Revenues represent inflows of economic resources, while assets are resources controlled by the entity that have the potential to generate economic benefits. Expenses are reductions in economic resources resulting from the entity's ongoing operations.

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

Accepted Answer

A postcode is an example of measurement on a nominal scale as they only represent categories or labels without any inherent order or value.

Question 19

What is the term for the action or process of recording a transaction or event in an entity's accounting records?
A) Recording
B) Valuation
C) Aggregating
D) Recognition

Accepted Answer

Recognition is the term used for the action or process of recording a transaction or event in an entity's accounting records.

Question 20

In the Framework,'probable' means:
A) greater than 50% certainty
B) 50% certainty
C) greater than 75% certainty
D) greater than 95% certainty

Accepted Answer

In the Framework, probable is defined as having a greater than 50% chance of occurring. This means that the likelihood of the event happening is more than the likelihood of the event not happening. Therefore, option A is the correct answer.

Quiz 3: The Conceptual Framework: Definition, recognition and Measurement of the Elements in General Purpose Financial Statements

The recognition of an element of a financial statement is:

How is the concept of aggregation best summarised?

Which of the following is not an advantage of the contract-price method?

The key characteristic used by the Framework to define an asset is:

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

In accounting,'value' can mean:

Under the Framework,a transport company does not regard the road outside its premises as an asset because:

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:

The Framework defines assets as:

Which of these is not an essential characteristic of a liability under the Framework?

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

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

An entity has decided to commit itself to the purchase of a new building in the next financial year.Under the Framework:

Which of the following is not considered an element of the statement of financial position?

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

Future economic benefits for assets come from:

In the Framework,'the present obligation of the entity arising from past events,the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits' is the definition of:

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

What is the term for the action or process of recording a transaction or event in an entity's accounting records?

In the Framework,'probable' means: