Question 1

The only element in financial statements which has no independent definition under the conceptual framework is:

Accepted Answer

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

Question 2

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:

Accepted Answer

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

Question 3

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

Accepted Answer

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

Question 4

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?

Accepted Answer

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. 
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 5

Which of the following statements is false:

Accepted Answer

A)  Members of the IFRS Interpretations Committee 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 IFRS Interpretations Committee. 
D)  IFRS Foundation Trustees appoint members of both IASB and IFRS Advisory Council. 
A)  Members of the IFRS Interpretations Committee 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 IFRS Interpretations Committee. 
D)  IFRS Foundation Trustees appoint members of both IASB and IFRS Advisory Council.

Question 6

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

Accepted Answer

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. 
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 7

Which of the following are the three essential criteria in the definition of an asset:

Accepted Answer

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

Question 8

The definition of equity as given in the conceptual framework shows that:

Accepted Answer

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

Question 9

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:

Accepted Answer

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. 
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 10

Members of the IASB are appointed by:

Accepted Answer

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

Question 11

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

Accepted Answer

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

Question 12

The definition of income encompasses the following criteria, except:

Accepted Answer

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. 
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.

Question 13

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

Accepted Answer

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. 
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 14

The two fundamental qualitative characteristics of useful information are:

Accepted Answer

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

Question 15

Information is considered material if:

Accepted Answer

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. 
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 16

Which of the following satisfy the definition of expenses:

Accepted Answer

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

Question 17

Which of the following are the recognition criteria of elements of financial statements:

Accepted Answer

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

Question 18

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

Accepted Answer

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. 
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 19

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?

Accepted Answer

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

Question 20

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

Accepted Answer

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. 
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.

Exam 1: Accounting Regulation and the Conceptual Framework

The only element in financial statements which has no independent definition under the conceptual framework is:

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:

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

Which of the following statements is false:

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

Which of the following are the three essential criteria in the definition of an asset:

The definition of equity as given in the conceptual framework shows that:

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:

Members of the IASB are appointed by:

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

The definition of income encompasses the following criteria, except:

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

The two fundamental qualitative characteristics of useful information are:

Information is considered material if:

Which of the following satisfy the definition of expenses:

Which of the following are the recognition criteria of elements of financial statements:

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

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

Application of Accounting Theory

Fair Value Measurement

Inventories

Property, Plant and Equipment

Intangible Assets

Impairment of Assets

Provisions, Contingent Liabilities and Contingent Assets

Employee Benefits

Leases

Financial Instruments

Income Taxes

Share Capital and Reserves

Share-Based Payment

Revenue

Presentation of Financial Statements

Statement of Cash Flows

Accounting Policies and Other Disclosures

Earnings Per Share

Operating Segments

Related Party Disclosures

Sustainability and Corporate Social Responsibility Reporting

Foreign Currency Transactions and Forward Exchange Contracts

Translation of Foreign Currency Financial Statements

Business Combinations

Consolidation: Controlled Entities

Consolidation: Wholly Owned Entities

Consolidation: Intragroup Transactions

Consolidation: Non-Controlling Interest

Consolidation: Other Issues

Associates and Joint Ventures

Joint Arrangements

Insolvency and Liquidation

Accounting for Mineral Resources

Agriculture

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