CONCEPTUAL FRAMEWORK AND PAS 1 QUIZBOWL

1. The Conceptual Framework outlines one underlying assumption of financial statements. This is:

Answer: Going concern assumption

2. If financial information that is presented in a balance sheet or income statement is misstated, and it influences the economic decisions of users, that information is described as:

A. Reliable C. PrudentB. Material D. Faithful

3. In respect to information included in financial statements, the accounting concept of ‘prudence’ ensures that:

A. The financial statements report what they purport to report.B. A degree of caution in the exercise of judgements about estimates is made.C. An appropriate balance is achieved between the relevance and the reliability of information that has been included.D. Information is provided to users within the time period in which it is most likely to bear on their decisions.

4. An item cannot be recognized in the balance sheet or the income statement unless it meets the two criteria of:

A. Materiality; Relevance to the usersB. Completeness; Measurement reliabilityC. Neutrality; Representational faithfulnessD. Probable economic benefits; Measurement reliability

5. The operating cycle

A. Measure the time elapsed between cash disbursement for inventory and cash collections of the sales priceB. Refers to the seasonal variations experienced by business enterpriseC. Should be used to classify assets and liabilities as current if it is less than one yearD. Cannot exceed one year

6. In classifying the elements of financial statements, the primary distinction between revenues and gains is

A. The materiality of the amounts involvedB. The likelihood that the transactions involved will recur in the futureC. The nature of the activities that gave rise to the transactions involvedD. The costs versus the benefits of the alternative methods of disclosing the transaction involved

7. Which of the following statements is not an objective of financial reporting?

A. Provide information that is useful in investment and credit decisionsB. Provide information about enterprise resources, claims to those resources, and changes to themC. Provide information on the liquidation value of an enterpriseD. Provide information that is useful in assessing cash flow prospects

8. Financial accounting can be broadly defined as the area of accounting that prepares

A. General purpose financial statements to be used by parties internal to the business enterprise onlyB. Financial statements to be used by investor onlyC. General purpose financial statements to be used by parties both internal and external to the business enterpriseD. Financial statements to be used primarily by management

9. Preparation of consolidated financial statements when a parent-subsidiary relationship exist is an example of the

A. Economic entity assumption C. Comparability characteristicB. Relevance characteristic D. Neutrality characteristic

10. A document that contains disclosures including financial statements, that is issued to potential investors, by companies seeking capital, is known as a:

A. Securities statement C. Company constitutionB. Trust deed D. Prospectus.

11. Which statement is incorrect concerning financial statements?

A. Financial statements do not show the results of management’s stewardship of resources entrusted to it.B. Financial statements are prepared at least annually and are directed toward the common information needs of a wide range of users.C. The objective of general-purpose financial statements is to provide information about the financial position, performance and cash flows of an enterprise that is useful to a wide range of users in making economic decisions.D. The management of an enterprise has the primary responsibility for the preparation and presentation of financial statements.

12. Which is correct regarding the overall considerations in preparation and presentation of financial statements?

A. Assets and liabilities, and income and expenses, when material should be offset against each other.B. Financial statements should be prepared on liquidity concern basis.C. Each material item should be presented separately in the financial statements. Immaterial amounts of similar nature and function should be grouped or condensed as one line item in the financial statements.D. The presentation and classification of financial statement items should not be uniform from one accounting period to the next.

13. Which of the following information should be disclosed in the summary of significant accounting policies?

A. Criteria for determining which investments are treated as cash equivalentsB. Guarantee of indebtedness of othersC. Business combination after balance sheet dateD. Refinancing of debt subsequent to the balance sheet date

14. Financial information does not demonstrate comparability and consistency when

I. Firms in the same industry use different accounting methods to account for the same type of transactionII. A company changes its estimate of the salvage value of fixed assetsIII. A company fails to adjust its financial statements for changes in value of the measuring unit

A. I only B. I and II only C. I and III only D. I, II and III

15. When the presentation or classification of items in the financial statements is amended

A. Comparative amounts for comparative reporting need not be reclassifiedB. Comparative amounts for comparative reporting should be reclassified in all casesC. Comparative amounts for comparative reporting should be reclassified unless it is impracticable to do soD. Nothing should be done

16. Which is incorrect concerning the concept of materiality and aggregation?

A. Materiality depends on the size and nature of the item judged in the particular circumstances of its omission or misstatement. B. Materiality provides that the specific disclosure requirements of a PFRS must be met even if the resulting information is not material.C. Items of a dissimilar nature or function shall be presented separately unless they are immaterial.D. Information is material if its nondisclosure could influence the economic decisions of users taken on the basis of the financial statements.

17. An entity decided to extend its reporting period from a year (12-month period) to a 15-month period. Which of the following is not required under PAS 1 in case of change in reporting period?

A. The entity should disclose the reason for using a longer period than a period of 12 months.B. The entity should change the reporting period only if other similar entities in the geographical area in which it generally operates have done so in the current year.C. The entity should disclose that comparative amounts used in the financial statements are not entirely comparable.D. The entity should disclose the period covered by the financial statements.

18. What is disclosed when departing from an international accounting standard?

I. The Title of the Standard or Interpretation from which it has departedII. The nature of the departure, and the treatment the Standard or Interpretation would requireIII. The reason why that treatment would be so misleadingIV. The treatment adoptedV. The financial impact of the departure on the financial statements (for each period presented)

A. I and II only C. I, II and III onlyB. I, II III and V only D. All of the above

19. Which statement is incorrect concerning the Conceptual Framework?

A. Nothing in the framework overrides any specific PFRS.B. The framework deals with the objectives of the financial statements, the qualitative characteristics that determine the usefulness of the information in financial statements, the definition, recognition and measurement of the elements of the financial statements and concepts of capital maintenance.C. The framework sets out the concepts that underlie the preparation and presentation of financial statements for internal and external users.D. The framework is concerned with general purpose financial statements including consolidated financial statements.

20. What is the primary difference in the treatment between the two concepts of capital maintenance?

A. The treatment of the effects of changes in the prices of assets and liabilities of the entityB. The treatment of the effects of changes in the prices of expense and revenue of the entityC. The treatment of the effects of changes in foreign exchange ratesD. The treatment of the effect of changes in foreign subsidiary

21. Which of the following statements concerning equity is incorrect?

A. Although equity is defined as a residual, it may be sub-classified in the balance sheet.B. The creation of reserves is sometimes required by statute or other laws in order to give the entity and its creditors an added measure of protection from the effects of losses.C. The existence and size of legal, statutory and tax reserves are information that can be relevant to the decision-making needs of users, transfer from reserves are expense rather than appropriation of retained earnings.D. The amount at which equity is shown in the balance sheet is dependent on the measurement of assets and liabilities.

22. According to the conceptual framework, which of the following statements conforms to the realization concept?

A. Cash was collected on accounts receivable.B. Product unit costs were assigned to cost of goods sold when the units were sold. C. An impaired asset was sold for cash.D. Equipment depreciation was assigned to a production department and then to product unit costs.

23. Per PAS 1, in the absence of a Standard or Interpretation that specifically applies to a transaction or event, management shall develop and apply accounting policy that results in relevant and faithfully represented information. Which of following is the least likely source of such alternative?

A. The requirements and guidance on Standards /Interpretations on similar and related issues B. The definition, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the Framework.C. Most recent pronouncements of other standard setting bodies that use a similar conceptual framework to develop accounting standards and accepted practice.D. Textbooks and other accounting literature to the extent that these do not conflict with existing Standards and Interpretations

24. Which is incorrect concerning the accounting constraints on relevant and faithfully represented information?

A. It may often be necessary to report before all aspects of a transaction or other event are known, thus impairing f.r..B. The benefits derived from the information should exceed the cost of providing it.C. In achieving a balance between relevance and f.r., the overriding consideration is how best to satisfy the economic decision-making needs of users. D. If there is undue delay in the reporting of information it may lose its relevance and f.r..

25. Which one of the following bodies is responsible for reviewing accounting issues that are likely to receive divergent or unacceptable treatment in the absence of authoritative guidance, with a view to reaching consensus as to the appropriate accounting treatment?

A. International Financial Reporting Interpretations Committee (IFRIC)B. Standards Advisory Council (SAC)C. International Accounting Standards Board (IASB)D. International Accounting Standards Committee Foundation (IASCF)

26. Which of the following is an application of the science aspect of accounting?

A. Exercise of creative skill and judgmentB. Interpreting the information presented in the financial statements through ratio and trend analysisC. Applying the rules of debit and creditD. Attesting to the fairness of presentation of financial condition and operating results

27. Which is not included in the category of comprehensive income of an accounting entity?

A. Net income for the periodB. Revaluation surplusC. Gain on sale of treasury stockD. None of the above

28. Disclosure in the financial statements is not required for which of the following?

A. Use of property by lease between a parent company and its subsidiaryB. Receipt of services by subsidiary from a principal without charge or without record of receipt of servicesC. Possibility of strikeD. Guarantees for indebtedness of others if the possibility of loss is remote

29. In which section of the statement of financial position should employment taxes that are due for settlement in 15 months’ time be presented according to PAS 1?

A. Current liabilities C. Non-current liabilitiesB. Current assets D. Non-current assets

30. This revenue recognition method is allowed when a sale is assured under a forward contract or government guarantee or when a homogenous market exists and there is negligible risk of failure to sell.

A. Percentage of completion method C. Cash methodB. Production method D. Accrual method

31. Which of the following bases of revenue recognition reflects the greatest uncertainty about future events?A. Sales method applied to sales of a department store.B. Cost recovery method applied to an instalment sales contract.C. Production method for a gold mining operation.D. Percentage of completion on a construction contract.

32. The most useful information to existing and potential investors, lenders and other creditors in predicting future cash flows is:A. Information about current cash flowsB. Current earnings based on accrual accountingC. Information regarding the accounting policies used by managementD. Information regarding the results obtained by using a wide variety of accounting policies.

33. What is meant by comparability when discussing financial accounting information?A. Information has predictive and confirmatory value.B. Information is reasonably free from error.C. Information is measured and reported in a similar fashion across entities.D. Information is timely.

34. Which of the following statements is true in relation to the enhancing qualitative characteristic of understandability of financial information?A. Users have a reasonable knowledge of business and economic activities and review the

information with reasonable diligence.B. Users are expected to have significant business knowledge.C. Financial statements shall exclude complex matters.D. Financial statements shall be free from material error.

35. Which of the following is an implication of the going concern assumption?A. The historical cost principle is credible.B. Depreciation and amortization policies are justifiable and appropriate.C. The current and noncurrent classification of assets and liabilities is justifiable and significant.D. All of these.

36. Which of the following statements pertaining to the “Framework for the Preparation and Presentation of Financial Statements” is correct?A. Financial statements, if properly prepared, can provide all of the information needs of all types of users.B. The external auditor hired by an enterprise has the primary responsibility for the preparation and presentation of the financial statements of the enterprise.C. Management has the ability to determine the form and content of additional information in order to meet its own needs, but the reporting of such information is beyond the scope of the framework.D. Both A and C

37. Which of the following statements in relation to the going concern assumption is incorrect? A. The going concern concept assumes that the business enterprise will never be liquidated.B. The going concern assumption serves as the basis for classifying liabilities as current and non-current.C. The going concern assumption is generally applicable to most business situations whether or not liquidation appears imminent.D. If there is an intention or need to liquidate or curtail materially the scale of an enterprise’s operations, the financial statements may have to be prepared on a basis other than a going concern and the basis used is disclosed.

38. Under the accrual basis of accounting, cash receipts and disbursements mayA. Only coincide with the period in which revenues and expenses are recognized.B. Coincide with or follow, but never precede the period in which revenues and expenses are recognized.C. Precede, coincide with, but never follow the period in which revenues and expenses are recognized.D. Precede, coincide with or follow the period in which revenues and expenses are recognized.

39. The information provided by financial reporting pertains toA. Individual business enterprises, rather than to industries or an economy as a whole or to members of society as consumersB. Individual business enterprises and industries, rather than to an economy as a whole or to members of society as consumersC. Individual business enterprises and an economy as a whole, rather than industries or to members of society as consumersD. Individual business enterprises and an economy as a whole, rather than to members of society as consumers

40. Which of the following statements in relation to the accounting entity assumption is incorrectly stated?A. In financial accounting the accounting entity is the specific business enterprise which is identified in the financial statementsB. An accounting entity may exist as a sole proprietorship, a partnership, a corporation, an individual, a group of individuals or any other form of organizationC. Under the accounting entity assumption, the business enterprise is separate and distinct from its owners, managers and employees that constitute the firm.D. The boundaries of accounting entity is always the same as those of the legal entity