Deck 10: Expenses

Question 1

Which of these is not one of the three basic methods of matching costs and revenue that are commonly relied on?

A)The reducing-balance method
B)The straight-line method
C)A and B
D)None of the above is one the three basic methods of matching costs and revenue that are commonly relied on.

Answer 1

D

Question 2

The criterion that is not true regarding the Framework's definition of expenses is:

A)The definition makes clear the distinction between monetary and physical events
B)The definition clearly defines expenses as outflows to indicate the concept of value
C)Expenses do not include reductions in assets or increases in liabilities relating to distributions to owners
D)The definition remains independent of assumptions regarding measurement

Answer 2

A

Question 3

If an employee renders services to the firm,without pay,in order to gain experience,an expense must be recorded by the firm.

Answer 3

False

Question 4

The FASB,the US standard setter,unlike the IASB,distinguished between expenses and losses.

Question 5

Which of these is considered to be the 'ideal' way to match expenses?

A)Allocation of costs
B)Cause and effect
C)Immediate recognition
D)All of the above are equally 'ideal' depending upon the circumstances

Question 6

IAS1/AASB 101 distinguishes between expenses and losses by categorising items as abnormal or extraordinary in the income statement.

Question 7

An example where accountants normally decide that a cause and effect relationship exist between revenue and expenses is:

A)Sales revenue and sales commissions
B)Sales revenue and cost of sales
C)Sales and sales manager's salary
D)All of the above

Question 8

The statements concerning the matching concept that is correct is:
I)The matching concept forms the basis of historical cost accounting
Ii)The matching concept forms the basis of accrual accounting
Iii)In practice proper matching is a relatively easy task
Iv)In practice proper matching is a relatively difficult task

A)i.iii
B)ii.iii
C)i.iv
D)ii.iv

Question 9

Under the FASB's Concept Statement No 6,the statement that is correct is:

A)There is no distinction between expenses and losses
B)Losses are regarded as always arising outside the course of the ordinary activities of the entity
C)The treatment of losses is similar to that of the Framework
D)All of the statements are correct

Question 10

Accountants demand objective strong evidence for the recognition of expenses in the same way that they demand objective strong evidence for the recognition of revenue.

Question 11

Under the IAS accounting standards a provision for maintenance cannot be recognised unless there is an obligation to an external party and it meets the recognition criteria.

Question 12

The Framework links the definition of expenses to their relationship to revenue.

Question 13

Under the Framework which of the following is not explicitly part of the definition of expenses?

A)Expenses are decreases in economic benefits
B)The decreases in economic benefits can be in the form of outflows or depletions of assets
C)The decreases in economic benefits can be in the form of incurrences of liabilities
D)The decrease in economic benefits must be from the occurrence of a past transaction

Question 14

When depreciating assets using the allocation of costs method which of the following methods is best?

A)Straight-line
B)Unit-of-production
C)Reducing-balance
D)It is not possible to say which is the best method from the information given in the question

Question 15

The Framework specifically states that the matching concept should not be applied in such a way as to allow the recognition of items in the balance sheet which do not meet the definition of assets or liabilities.

Question 16

Treating assets as expenses is a way to overstate profits for a period.

Question 17

The correct statement is:

A)The recognition criterion for expenses are consistent with those of other elements in the Framework
B)The recognition criterion for expenses are not consistent with those of other elements in the Framework
C)There are no recognition criteria for expenses in the Framework
D)The recognition criterion for expenses are only partially consistent with those of other elements in the Framework

Question 18

For an outflow to be recognised as an expense it must be probable that the outflow of future economic benefits has occurred or the expense must be able to be measured with reliability.

Question 19

When the 'percentage-of-completion' method is used for construction contracts,how are expenses recorded?

A)The liability account deferred gross profit is proportionately allocated
B)The total accumulated costs of construction are expensed when the project is completed
C)For a given period the actual construction costs for that period are expensed
D)None of the above

Question 20

The cause and effect method of matching is based upon the costs attach concept.

Question 21

'The matching process has become an essential part of accounting practice.However,there are many criticisms of this approach.' J.Godfrey,et el,'Accounting Theory',7^th Ed.p.353.Outline and discuss the criticisms of matching and briefly explain how standard setters have sought to address these criticisms.

Question 22

A criticism of the 'cause and effect' matching method is:

A)Not all costs attach in a discernable manner
B)The method is based upon estimates and assumptions
C)It implies that a certain amount of revenue can be attributed to a certain amount of expense
D)All of the above are criticisms

Question 23

Which item is usually not given immediate recognition as an expense?

A)Research expenditure
B)The cost of the goods sold
C)Advertising expenses
D)Impairment expenses

Question 24

Which of these expenses normally requires a significant degree of estimation?

A)Wages and salaries
B)Light and power
C)Cost of sales
D)None of the above requires a significant degree of estimation

Question 25

Which of these is an expense that will normally be recognised using the 'immediate recognition' principle?

A)Wages expense
B)Sales commission
C)Advertising expense
D)All of the above

Question 26

'The interpretation of the matching concept in practice,therefore,is biased by the effect of the convention of conservatism.' J.Godfrey,et el,'Accounting Theory',7^th Ed.p.348.
Explain and discuss the above statement.Do you agree or disagree with the statement?

Question 27

The statement that is correct concerning depreciation is:

A)Depreciation means that the market price of the depreciable asset is declining
B)The straight-line method is the preferred method of depreciation
C)Depreciation expense as recorded by accountants is a monetary effect of a physical event
D)Depreciation is mainly caused by physical wear and tear

Question 28

The treatment of the relationship of losses to expenses in the IASB Framework differs from the treatment by the FASB.Explain the different treatments and discuss whether it is useful in terms of decision-making to distinguish between expenses and losses in financial reports.

Question 29

Explain the essence of each of the three basic methods of matching commonly relied on;associated cause and effect,systematic and rational allocation and immediate recognition.

Question 30

The Framework in relation to conservatism:

A)Explicitly states that conservatism is a bias to be avoided
B)Requires that no profits be anticipated but all losses must be anticipated
C)Is not explicit about the application of conservatism
D)Because of conservatism requires a higher standard of evidence for the recognition of expenses than for revenue

Question 31

Treating expenses as assets:

A)Overstates profit and understates equity
B)Overstates profits and overstates equity
C)Understates profits and understates equity
D)Understates profits and overstates equity