Question 1

Which of the following actions are consistent with the Doctrine of Conservatism?

Accepted Answer

A)  deliberate overstatement of expenses to reduce profits 
B)  excessive provisions for warranty expenses 
C)  careful assessment of doubtful debts 
D)  adoption of accelerated depreciation method to reduce profits 
A)  deliberate overstatement of expenses to reduce profits 
B)  excessive provisions for warranty expenses 
C)  careful assessment of doubtful debts 
D)  adoption of accelerated depreciation method to reduce profits

Question 2

A separate recognition criteria for equity is not set forth in the Framework because it represents a residual interest in the assets of an entity.

Accepted Answer

A) True 
 B)False

Question 3

In adopting the standards of IASB,Australian entities are required to comply with:

Accepted Answer

A)  the Australian Conceptual Framework and Statement of Accounting Concepts 1 to 4. 
B)  the Australian Conceptual Framework and Statement of Accounting Concepts 3 and 4. 
C)  the IASB Framework and the Statement of Accounting Concepts 3 and 4. 
D)  the IASB Conceptual Framework and the Statement of Accounting Concept 1. 
A)  the Australian Conceptual Framework and Statement of Accounting Concepts 1 to 4. 
B)  the Australian Conceptual Framework and Statement of Accounting Concepts 3 and 4. 
C)  the IASB Framework and the Statement of Accounting Concepts 3 and 4. 
D)  the IASB Conceptual Framework and the Statement of Accounting Concept 1.

Question 4

The IASB and US FASB are jointly developing a common conceptual framework because this is necessary for the Convergence Project,which aims to converge two sets of accounting standards.

Accepted Answer

A) True 
 B)False

Question 5

Identify and discuss the fundamental qualitative characteristics of financial information identified in the IASB Conceptual Framework for Financial Reporting.

Accepted Answer

The fundamental qualitative characterist

Question 6

The trade-off between relevance and faithful representation requires exercise of judgment constrained by timeliness and costs versus benefits.

Accepted Answer

A) True 
 B)False

Question 7

The Framework suggests that the relevance characteristic outweighs the faithfully represented characteristic if the financial statement is to be rendered useful.

Accepted Answer

A) True 
 B)False

Question 8

The key characteristics of an asset as defined in the Framework include:

Accepted Answer

A)  There must be future economic benefits. 
B)  The reporting entity must control the future economic benefits. 
C)  The asset results from past transactions. 
D)  all of the given answers. 
A)  There must be future economic benefits. 
B)  The reporting entity must control the future economic benefits. 
C)  The asset results from past transactions. 
D)  all of the given answers.

Question 9

Which of the following factors should be considered in order to determine whether an entity is a reporting entity when it is not obvious that users exist who would be dependent on the financial reports of the entity?

Accepted Answer

A)  separation of management from those with economic interest in the entity 
B)  economic or political importance/influence 
C)  financial characteristics 
D)  separation of management from those with economic interest in the entity and economic or political importance/influence 
A)  separation of management from those with economic interest in the entity 
B)  economic or political importance/influence 
C)  financial characteristics 
D)  separation of management from those with economic interest in the entity and economic or political importance/influence

Question 10

One of the benefits of the Conceptual Framework is that it provides parameters for the exercise of judgement in resolving accounting issues.

Accepted Answer

A) True 
 B)False

Question 11

The Framework outlines two underlying assumptions of financial statements.These are:

Accepted Answer

A)  fair value basis and insolvency assumption. 
B)  accrual basis of accounting and going concern assumption. 
C)  cash basis of accounting and insolvency assumption. 
D)  historical cost accounting and limited life concept. 
A)  fair value basis and insolvency assumption. 
B)  accrual basis of accounting and going concern assumption. 
C)  cash basis of accounting and insolvency assumption. 
D)  historical cost accounting and limited life concept.

Question 12

Consider the following information 
$$\begin{array} { | l | r | r | } 
\hline & \text { Mosman Ltd } & \text { Manly Ltd } \
\hline \text { Sales } & \$ 5000000 & \$ 50000 \
\hline \text { Cost and expenses } & 4000000 & 40000 \
\hline \text { Net profit } & 1000000 & 10000 \
\hline & & \
\hline \text { Impairment loss } & 40000 & 5000 \
\hline
\end{array}$$
You are an accountant for both firms and would like to determine whether the impairment loss is material or not.Which of the following statement(s)is/are correct?

Accepted Answer

A)  The impairment loss for both firms is material. 
B)  The impairment loss for Manly Ltd is material. 
C)  The impairment loss for Mosman Ltd is material. 
D)  The impairment loss for both firms is immaterial. 
A)  The impairment loss for both firms is material. 
B)  The impairment loss for Manly Ltd is material. 
C)  The impairment loss for Mosman Ltd is material. 
D)  The impairment loss for both firms is immaterial.

Question 13

Identify which qualitative characteristic of financial reports is best described in each item below:

Accepted Answer

A)  relevance, comparability, timeliness 
B)  faithful representation, consistency, understandability 
C)  faithful representation, comparability, timeliness 
D)  relevance, understandability, comparability 
A)  relevance, comparability, timeliness 
B)  faithful representation, consistency, understandability 
C)  faithful representation, comparability, timeliness 
D)  relevance, understandability, comparability

Question 14

James Cook Ltd bought a piece of land 10 years ago and the market value of this property is now worth five times its purchase cost.The accountant suggested that James Cook Ltd should revalue the asset.This notion is consistent with the qualitative characteristic of:

Accepted Answer

A)  relevance. 
B)  faithful representation. 
C)  understandability. 
D)  comparability. 
A)  relevance. 
B)  faithful representation. 
C)  understandability. 
D)  comparability.

Question 15

In accordance with IASB Conceptual Framework which of the following is consistent with the definition of income?

Accepted Answer

A)  increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants 
B)  increases in economic benefits during the accounting period in the form of inflows other than those relating to contributions from equity participants 
C)  increases in economic benefits during the accounting period in the form of cash inflows or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants 
D)  All of the given answers are correct. 
A)  increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants 
B)  increases in economic benefits during the accounting period in the form of inflows other than those relating to contributions from equity participants 
C)  increases in economic benefits during the accounting period in the form of cash inflows or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants 
D)  All of the given answers are correct.

Question 16

The audit of the financial reports of Matilda Ltd had been completed except for the outcome of a material contingent liability that is still subject to the outcome of a court decision.The case is still ongoing but it is expected that a decision will be made after three months.The deadline for submitting the financial reports is next month.Which action is consistent with the notion of 'timeliness' in the preparation of financial reports?

Accepted Answer

A)  Matilda Ltd should wait for the court decision to be completed before releasing the financial reports as the amount of the liability is material. 
B)  Matilda Ltd should release the financial report on or before the deadline but exclude the contingent liability from the report as the outcome is still uncertain. 
C)  Matilda Ltd should release the financial report on or before the deadline but disclose the contingent liability in the notes to the accounts. 
D)  Matilda Ltd must wait for the court decision to be completed before releasing the financial reports as it is expected to occur in the near future anyway (i.e. three months). 
A)  Matilda Ltd should wait for the court decision to be completed before releasing the financial reports as the amount of the liability is material. 
B)  Matilda Ltd should release the financial report on or before the deadline but exclude the contingent liability from the report as the outcome is still uncertain. 
C)  Matilda Ltd should release the financial report on or before the deadline but disclose the contingent liability in the notes to the accounts. 
D)  Matilda Ltd must wait for the court decision to be completed before releasing the financial reports as it is expected to occur in the near future anyway (i.e. three months).

Question 17

A central goal in establishing a conceptual framework of accounting will be to obtain general consensus on:

Accepted Answer

A)  the scope and objectives of financial reporting. 
B)  the qualitative characteristics that financial information should possess. 
C)  what the elements of financial reporting are, including agreement on the characteristics and recognition criteria for assets, liabilities, income, expenses and equity. 
D)  the scope and objectives of financial reporting and the qualitative characteristics that financial information should possess. 
A)  the scope and objectives of financial reporting. 
B)  the qualitative characteristics that financial information should possess. 
C)  what the elements of financial reporting are, including agreement on the characteristics and recognition criteria for assets, liabilities, income, expenses and equity. 
D)  the scope and objectives of financial reporting and the qualitative characteristics that financial information should possess.

Question 18

The framework identified some constraints that preparers should consider in the preparation of financial reports.Identify and discuss these constraints.

Accepted Answer

The framework for financial reporting id

Question 19

Social accountability is considered in the Framework as part of the objectives of general purpose financial reports.

Accepted Answer

A) True 
 B)False

Question 20

Your best friend from high school approaches you to invest in 'e-track' an upcoming high-tech company which he is convinced will make huge profits in the future.You are sceptical of the business venture and say that you would have to look up the financial statements of the company before investing your own money.He sends you the financial report and you notice that the report is unaudited and does not provide prior years' results even though the firm had been operating for the last three years. Based on the above information,which qualitative characteristics is lacking in e-track's financial reports?

Accepted Answer

A)  relevance and faithful representation 
B)  relevance and timeliness 
C)  comparability and consistency 
D)  faithful representation and comparability 
A)  relevance and faithful representation 
B)  relevance and timeliness 
C)  comparability and consistency 
D)  faithful representation and comparability

Exam 2: The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

Which of the following actions are consistent with the Doctrine of Conservatism?

A separate recognition criteria for equity is not set forth in the Framework because it represents a residual interest in the assets of an entity.

In adopting the standards of IASB,Australian entities are required to comply with:

The IASB and US FASB are jointly developing a common conceptual framework because this is necessary for the Convergence Project,which aims to converge two sets of accounting standards.

Identify and discuss the fundamental qualitative characteristics of financial information identified in the IASB Conceptual Framework for Financial Reporting.

The trade-off between relevance and faithful representation requires exercise of judgment constrained by timeliness and costs versus benefits.

The Framework suggests that the relevance characteristic outweighs the faithfully represented characteristic if the financial statement is to be rendered useful.

The key characteristics of an asset as defined in the Framework include:

Which of the following factors should be considered in order to determine whether an entity is a reporting entity when it is not obvious that users exist who would be dependent on the financial reports of the entity?

One of the benefits of the Conceptual Framework is that it provides parameters for the exercise of judgement in resolving accounting issues.

The Framework outlines two underlying assumptions of financial statements.These are:

Identify which qualitative characteristic of financial reports is best described in each item below:

James Cook Ltd bought a piece of land 10 years ago and the market value of this property is now worth five times its purchase cost.The accountant suggested that James Cook Ltd should revalue the asset.This notion is consistent with the qualitative characteristic of:

In accordance with IASB Conceptual Framework which of the following is consistent with the definition of income?

A central goal in establishing a conceptual framework of accounting will be to obtain general consensus on:

The framework identified some constraints that preparers should consider in the preparation of financial reports.Identify and discuss these constraints.

Social accountability is considered in the Framework as part of the objectives of general purpose financial reports.

An Overview of the Australian External Reporting Environment

Theories of Accounting

An Overview of Accounting for Assets

Depreciation of Property, plant and Equipment

Revaluations and Impairment Testing of Non-Current Assets

Inventory

Accounting for Intangibles

Accounting for Heritage Assets and Biological Assets

An Overview of Accounting for Liabilities

Accounting for Leases

Accounting for Employee Benefits

Share Capital and Reserves

Accounting for Financial Instruments

Revenue Recognition Issues

The Statement of Comprehensive Income and Statement of Changes in Equity

Accounting for Share-Based Payments

Accounting for Income Taxes

The Statement of Cash Flows

Accounting for the Extractive Industries

Accounting for General Insurance Contracts

Accounting for Superannuation Plans

Events Occurring After the End of the Reporting Period

Segment Reporting

Related Party Disclosures

Earnings Per Share

Accounting for Group Structures

Further Consolidation Issues I: Accounting for Intragroup Transactions

Further Consolidation Issues II: Accounting for Non-Controlling Interests

Further Consolidation Issues IV: Accounting for Changes in the Degree of Ownership of a Subsidiary

Accounting for Equity Investments,including Investments in Associates and Joint Arrangements

Accounting for Foreign Currency Transactions

Translating the Financial Statements of Foreign Operations

Accounting for Corporate Social Responsibility

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