Question 1

Which of the following are the three essential criteria in the definition of an asset:&#10; &#10;A) I, III, IV.&#10;B) II, III, V.&#10;C) I, IV, VI.&#10;D) I, III, V.

Accepted Answer

The three essential criteria in the definition of an asset are (I) control, (III) future economic benefits, and (V) the result of a past event or transaction. Therefore, option D is the correct answer as it includes all three criteria.

Question 2

Which of the following satisfy the definition of expenses:&#10;A) Cash withdrawal by owner.&#10;B) Payment of dividends to shareholders.&#10;C) Purchase of equipment.&#10;D) Payment of salaries to employees.

Accepted Answer

Expenses are costs incurred in the process of earning revenue. Payment of salaries to employees is an expense as it is a cost related to the operation of the business.

Question 3

Information is considered material if:&#10;A) it has predictive value.&#10;B) its omission or misstatement could influence users' decision-making.&#10;C) it includes all information necessary for faithful representation.&#10;D) it is free from errors.

Accepted Answer

Materiality is determined by considering whether the omission or misstatement of information could influence users' decision-making. Factors such as size, nature, and relevance are considered in determining materiality. Predictive value, faithful representation, and freedom from errors are also important qualities for information, but they do not necessarily determine materiality on their own.

Question 4

The definition of equity as given in the conceptual framework shows that:&#10;A) Equity = Assets - Expenses.&#10;B) Equity = Assets - Liabilities.&#10;C) Equity = Income - Expenses.&#10;D) Equity = Assets - Liabilities - Expenses.

Accepted Answer

The definition of equity given in the conceptual framework is Equity = Assets - Liabilities. This means that equity represents the residual interest in the assets of an entity after deducting all liabilities. It is essentially the owners' residual interest in the entity's assets after all obligations have been met.

Question 5

The only element in financial statements which has no independent definition under the conceptual framework is:&#10;A) assets.&#10;B) liabilities.&#10;C) equity.&#10;D) expenses.

Accepted Answer

According to the conceptual framework, assets, liabilities, and expenses have independent definitions. However, the definition of equity is derived from the definition of assets and liabilities, making it unique among the financial statement elements.

Question 6

A conceptual framework consists of a set of principles with the purpose to:&#10;A) assist users in the interpretation of information in financial statements.&#10;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.&#10;C) assist standard setters to develop accounting standards.&#10;D) all of the options are correct.

Accepted Answer

A conceptual framework serves multiple purposes, including helping users interpret financial statements, assisting preparers in applying accounting standards, and aiding standard setters in developing new accounting standards. Therefore, all of the options are correct.

Question 7

Some of the implications of adopting the going concern assumption are shown in the following accounting practices, except:&#10;A) justification of using historical cost to measure value of assets.&#10;B) depreciation of non-current assets.&#10;C) liquidation of an entity's operations.&#10;D) inclusion of goodwill in the statement of financial position.

Accepted Answer

The going concern assumption assumes that an entity will continue to operate in the foreseeable future. As a result, it justifies the use of historical cost to measure the value of assets, as assets are expected to be used in the future to generate revenue. It also leads to the depreciation of non-current assets, as it reflects the reduction in value over time due to wear and tear. However, if an entity is liquidated, it means that it cannot continue to operate in the foreseeable future, thus violating the going concern assumption. Therefore, liquidation of an entity's operations is not consistent with the going concern assumption. The inclusion of goodwill in the statement of financial position is also consistent with the going concern assumption, as it represents the future economic benefits expected to arise from the entity's continued operation.

Question 8

Which of the following statements about the Conceptual Framework's definition of income is correct:&#10;A) Income is always in the form of enhancements of assets.&#10;B) Income results in decreases in equity.&#10;C) Income includes contributions from owners.&#10;D) Income includes gains from non-ordinary business activities.

Accepted Answer

The Conceptual Framework defines income as increases in economic benefits during the accounting period in the form of inflows or enhancements of assets, or decreases in liabilities that result in increases in equity, other than those relating to contributions from equity participants. It includes gains from non-ordinary business activities, such as the sale of a fixed asset or an investment, as these events result in an increase in economic benefits for the entity. Therefore, choice D is the correct statement about the Conceptual Framework's definition of income.

Question 9

Members of the IASB are appointed by:&#10;A) the Monitoring Board.&#10;B) the IFRS Advisory Council.&#10;C) the IFRS Foundation Trustees.&#10;D) the IFRS Interpretations Committee.

Accepted Answer

Members of the IASB are appointed by the IFRS Foundation Trustees. The Monitoring Board and IFRS Advisory Council provide oversight and advice to the IASB, but they are not responsible for appointing its members. The IFRS Interpretations Committee is a separate body that provides guidance on the application of IFRS standards.

Question 10

The definition of income encompasses the following criteria, except:&#10;A) increases in economic benefits.&#10;B) control of increases in economic benefits by the entity.&#10;C) including capital contributions from owners.&#10;D) results in increases in equity.

Accepted Answer

The definition of income does not include capital contributions from owners as they are not considered increases in economic benefits earned by the entity. Instead, they are considered the owners' investment in the entity. The other criteria listed in the question are commonly accepted as part of the definition of income.

Question 11

According to the Australian Accounting Standards, the following assets can be recorded initially at historical cost, except for:&#10;A) land.&#10;B) inventories.&#10;C) equipment.&#10;D) motor vehicle.

Accepted Answer

The answer of According to the Australian Accounting Standards, the...

Question 12

The two fundamental qualitative characteristics of useful information are:&#10;A) materiality and relevance.&#10;B) relevance and faithful representation.&#10;C) comparability and verifiability.&#10;D) timeliness and understandability.

Accepted Answer

The answer of The two fundamental qualitative characteristics of useful...

Question 13

Which of the following are the recognition criteria of elements of financial statements:&#10; &#10;A) I and II.&#10;B) II and III.&#10;C) II and IV.&#10;D) I and III.

Accepted Answer

The answer of Which of the following are the recognition...

Question 14

Which of the following statements is false:&#10;A) Members of the IFRS Interpretations Committee are appointed by the IASB.&#10;B) The IFRS Advisory Council provides strategic advice to the IASB.&#10;C) Compliance with IASB standards includes compliance with interpretations issued by IFRS Interpretations Committee.&#10;D) IFRS Foundation Trustees appoint members of both IASB and IFRS Advisory Council.

Accepted Answer

The answer of Which of the following statements is false:&#10;A)...

Question 15

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?&#10;A) Historical cost.&#10;B) Current cost.&#10;C) Present value.&#10;D) Realisable value.

Accepted Answer

The answer of Which measurement base uses the discounted future...

Question 16

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:&#10;A) verifiability.&#10;B) comparability.&#10;C) understandability.&#10;D) neutrality.

Accepted Answer

The answer of A quality of information demonstrated when different...

Question 17

What is the constraint that limits the information provided by financial reporting?&#10;A) Timeliness.&#10;B) Materiality.&#10;C) Comparability.&#10;D) Cost.

Accepted Answer

The answer of What is the constraint that limits the...

Question 18

Currently the Australian conceptual framework comprises:&#10;A) the Framework for the Preparation and Presentation of Financial Statements.&#10;B) the Conceptual Framework for Financial Reporting.&#10;C) the Framework for the Preparation and Presentation of Financial Statements and SAC 1.&#10;D) the Conceptual Framework for Financial Reporting, SAC 1, and SAC 2.

Accepted Answer

The answer of Currently the Australian conceptual framework comprises:&#10;A) the...

Question 19

Which of the following statements is incorrect about financial capital concept:&#10;A) The general price level accounting system follows financial capital concept.&#10;B) Capital is calculated as total assets less total liabilities.&#10;C) Profit is earned after an entity's capital is sufficient to maintain the operating capability of the entity's assets.&#10;D) Capital is determined as the purchasing power of equity recorded.

Accepted Answer

The answer of Which of the following statements is incorrect...

Question 20

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.

Accepted Answer

The answer of Ice-cream R Us Ltd just purchased a...

Question 21

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.

Accepted Answer

The answer of Kwik Kut Hairdressing rents a small shop...

Deck 1: Accounting Regulation and the Conceptual Framework