Question 1

Barth and Kasznik reported that,between 1983 and 1995,in the United Kingdom,20% of firms recorded an asset revaluation reserve.

Accepted Answer

Barth and Kasznik's study focused on firms in Australia, not the United Kingdom, during that time period.

Question 2

The statement in relation to conservatism (prudence)that is true is:

Accepted Answer

Conservatism, also known as prudence, is an accounting principle that guides accountants to exercise caution and choose methods that minimize the possibility of overstating assets or income. This principle is indeed inconsistent with the principle of neutrality, as it biases towards understatement rather than neutrality in financial reporting.

Question 3

Under the IASB standards all wholly executory contracts are recognised as assets.

Accepted Answer

Under IASB standards, only executory contracts that meet certain criteria such as providing the entity with the right to obtain goods or services in the future are recognized as assets. Not all wholly executory contracts are recognized as assets.

Question 4

The statement concerning the measurement of tangible assets that is not true is:

Accepted Answer

IAS 16 permits the use of either the cost model or revaluation model for subsequent measurement of tangible assets, but it does not require the use of the revaluation model.

Question 5

The IASB (AASB)Framework does refer to the conservatism (prudence)principle.

Accepted Answer

The IASB (AASB) Framework does indeed refer to the conservatism (prudence) principle. The principle states that when uncertain situations arise, accountants should choose the course of action that will result in the least favorable outcome. This principle helps ensure that financial statements are reliable and not overly optimistic.

Question 6

The criteria that normally need to be recognised for a non-cancellable lease to be capitalised by a lessee IAS 17/AASB 117)is:

Accepted Answer

The answer of The criteria that normally need to be...

Question 7

The FASB and the IASB intend to address the issue of measurement of assets in Phase C of the conceptual framework project.

Accepted Answer

Phase C of the conceptual framework project is focused on measurement and the FASB and IASB have indicated their intention to address the issue of asset measurement in this phase.

Question 8

IAS 39 created a separate category of assets and liabilities,financial assets and liabilities,and introduced associated measurement rules.

Accepted Answer

IAS 39 did create a separate category of assets and liabilities, called financial assets and liabilities, and introduced associated measurement rules.

Question 9

Arguments in favour of including 'exchangeability' as an essential criterion for the identification of an asset under the IASB (AASB)Framework include which of the following?

Accepted Answer

One of the essential characteristics of an asset is that it should be separable from the entity and have a separate disposal value. Exchangeability is one way to achieve this characteristic, as an asset can be exchanged for cash or another asset, establishing its separate value. Therefore, including exchangeability as a criterion for identifying an asset is appropriate. Choices B and C are incorrect as they do not support the inclusion of exchangeability as an essential criterion, and choice D is incorrect as the question explicitly asks for arguments in favor of including exchangeability.

Question 10

The extent and timing of recognition of assets are important because:

Accepted Answer

All of the choices are correct. Recognition of assets affects decision making for users of financial statements because it provides information about the entity's financial position, performance, and liquidity. It affects the calculation of ratios which are important inputs for debt covenants because financial ratios often rely on recognition and measurement of assets. Lastly, it can affect management compensation because some compensation plans are linked to financial performance.

Question 11

Which of these is not an argument in favour of restricting the recognition of internally generated goodwill?

Accepted Answer

Goodwill can be sold, but it is not always easy to do so.

Question 12

IAS 16 and IAS 40 permit,but do not require,the use of a current value measurement model.

Accepted Answer

IAS 16 and IAS 40 both state that current value measurement models may be used, but they do not require their use. Instead, entities may choose to value property, plant, and equipment and investment property at historical cost or cost model.

Question 13

To fulfil the IASB (AASB)Framework criteria that an asset must have 'future economic benefits' which of the following criteria must be met?
i.It must be scarce
ii.It must have utility
iii.It must be capable of generating cash inflows to the entity

Accepted Answer

The answer of To fulfil the IASB (AASB)Framework criteria that...

Question 14

Exchangeability is a characteristic that supports the existence of an asset,however,it is not an essential characteristic.

Accepted Answer

Exchangeability refers to an asset's ability to be readily traded or converted into cash. While it may be desirable, it is not essential for an asset to have exchangeability for it to exist.

Question 15

The recognition rules for assets contained in the Framework are extensions of the subsidiary objectives (qualitative characteristics)of relevance and reliability of accounting information.

Accepted Answer

The recognition criteria for assets in the Framework are indeed based on the qualitative characteristics of relevance and reliability, as they require assets to meet specific conditions such as being measurable, being controlled by the entity, and having future economic benefits. Therefore, statement A is correct.

Question 16

The use of a current value model for intangible assets is:

Accepted Answer

The use of a current value model for intangible assets is rare. This is because intangible assets have unique characteristics that make it difficult to reliably measure their current value. Instead, they are usually recorded at cost and then systematically amortized over their useful lives, with impairment tests conducted to ensure their carrying amount does not exceed their recoverable amount.

Question 17

Which of these items would meet the asset criteria of 'having future economic benefits' for a local council?

Accepted Answer

A council park can generate revenue and provide economic benefits through the activities and events held there, such as charging for parking, renting out facilities or hosting concerts and festivals. The other options do not have economic benefits.

Question 18

An asset must have future cash generating abilities according to the IASB (AASB)Framework definition.

Accepted Answer

The answer of An asset must have future cash generating...

Question 19

Cairns argues that under the IASB standards fair value is used to measure assets on initial recognition but subsequent measurement at fair value is more rare.

Accepted Answer

Cairns' argument is accurate because, under IASB (International Accounting Standards Board) standards, while fair value is often used for the initial measurement of assets, subsequent measurements at fair value are less common and depend on the specific standard applicable to the asset in question.

Question 20

Using fair values for assets could appear less attractive to management (and more risky for auditors)during periods of rising asset values.

Accepted Answer

Using fair values for assets during periods of rising asset values can make a company's financial position appear more attractive because it reflects higher asset valuations on the balance sheet, potentially increasing the company's net worth.

Quiz 7: Assets