Deck 3: The Development of Financial Reporting

Question 1

Which accounting concept is associated with recording items at original cost?

A) Current cost
B) Historic cost
C) Current market value
D) Relevant cost

Answer 1

B

Question 2

Public financial statements are produced specifically in order to satisfy the requirements of HM Revenue and Customs

Answer 2

False

Question 3

Unincorporated businesses,such as sole traders and most partnerships,are required by law to produce a statement of financial position and income statement

Answer 3

False

Question 4

Which of the following is false?

A) A company's statement of financial position should only include the assets that it owns
B) An asset is a resource controlled by the enterprise as the result of past events from which economic benefits are expected to flow
C) A company's statement of financial position should include all the assets that it controls
D) A company's statement of financial position may include financial assets, including shares it owns in another company

Question 5

Which of the following statements is true?

A) The amount of profit a company makes is more important than return on capital employed (ROCE)
B) The amount of profit a company makes is less important than return on capital employed (ROCE)
C) The amount of profit a company makes is not related to return on capital employed (ROCE)
D) Shareholders are only concerned with the amount of profit a company makes

Question 6

The objective of "reliability" in the ASB's Statement of Principles overrides which fundamental accounting concept?

A) Comparability
B) Going concern
C) Accruals
D) Prudence

Question 7

Which of the following statements is false?

A) Lenders are often provided with more information than is included on the financial statements of a company
B) It would be impractical to expand financial statements to include all the information that different user groups want
C) It is a legal requirement for companies to provide relevant financial accounting information to each of the user groups defined by the IASB
D) Shareholders and lenders want to know about the future prospects of a company

Question 8

Which of the following statements is false?

A) The auditors prepare the financial statements
B) Auditors are responsible for finding fraud
C) The financial statements show what a company is worth
D) All of the above

Question 9

Published financial statements are aimed at a variety of users,including customers,the public and employees

Question 10

Auditors are not responsible for finding fraud

Question 11

The establishment of the limited liability company made the position of creditors less secure

Question 12

Financial accounting can measure the "true value" of a company

Question 13

Which accounting principle stipulates that dividends should only be paid out of profit,not by issuing new share capital?

A) Revenue recognition
B) Matching
C) Capital maintenance
D) Prudence

Question 14

The going concern concept assumes that the business will continue in operational existence for only a limited period of time

Question 15

Which fundamental accounting concept stipulates that revenue and costs are recognized as they are earned or incurred?

A) Consistency
B) Comparability
C) Accruals
D) Prudence

Question 16

Which of the following statements is correct?

A) Retained earnings are usually available as a cash reserve
B) Retained earnings equal the total amount of equity in a company
C) Retained earnings are defined as operating profit plus proposed dividend
D) Retained earnings are not usually available as cash

Question 17

According to ASB's Statement of Principles for Financial Reporting,what 4 objectives should financial accounting statements meet?

A) Accruals, capital maintenance, understandability and relevance
B) Relevance, reliability, comparability and understandability
C) Prudence, relevance, accruals and comparability
D) True and fair view, capital maintenance, reliability and prudence

Question 18

Which fundamental accounting concept stipulates that revenues and profits are not anticipated,but recognized only when realized as cash?

A) Consistency
B) Prudence
C) Comparability
D) Accruals

Question 19

Companies are allowed to pay dividends out of capital

Question 20

Shareholders wealth consists of two sources:

A) Dividends and share price
B) Profit and share price
C) ROCE and dividends
D) Growth and dividends

Question 21

The four main accounting principles for Financial Reporting established in SSAP 2 "Accounting Concepts" (1971)are:

A) Going Concern, Accruals, Consistency and Prudence
B) Relevance, Reliability, Comparability and Understandability
C) Going Concern, Relevance, Consistency and Comparability
D) Accruals, Prudence, Reliability and Understandability

Question 22

Which of the following statements is correct?

A) Inventories should be shown at the lower of cost and net realizable value
B) Inventories should be shown at net realizable value
C) Inventories should be shown at cost
D) Inventories should be shown at the higher of cost and net realizable value

Question 23

The measurement of profit is useful:

A) As a guide to dividend decisions
B) As a basis for taxation
C) Statements A and B are both correct
D) None of the above

Question 24

Which of the following is NOT generally recognised as being an asset in the financial statements of a company?

A) Goodwill following the sale of a business
B) Plant & Machinery used in the business bought on a hire purchase contract
C) Stock held for resale
D) Skills and qualifications of Staff

Question 25

Which of the following statements is false?

A) For an "intangible" asset to be recognized, there must be a probability of it generating future economic benefit and be capable of being measured
B) Research expenditure may be treated as capital expenditure
C) Development expenditure may be treated as capital expenditure
D) Internally generated intangibles, such as brands, should not be capitalized

Question 26

If a company buys goods for £50,and then sells half of these for £100.How much profit would be recognised?

A) £25
B) £50
C) £75
D) £100

Question 27

During the year,the total amount for equity can change because:

A) Additional shares are issued
B) Property has been revalued
C) Dividends are paid
D) All of the above

Question 28

If a business starts the year with equity of £1.5m,ends the year with £1.8m and inflation is at 10%,how much can it pay out in profit if an Historic Cost approach is taken?

A) 0.15m
B) 0.3m
C) 0.18m
D) 0.03m

Question 29

If a business starts the year with equity of £1.5m,ends the year with £1.8m and inflation is at 10%,how much can it pay out in profit if a Current Purchasing Power (CPP)approach is taken?

A) 0.15m
B) 0.3m
C) 0.18m
D) 0.03m

Question 30

Which of the following concepts suggests that minor items will not affect the true and fair view of a set of financial statements?

A) Duality
B) Materiality
C) Objectivity
D) Consistency

Question 31

Which of the following statements is correct?

A) In a period of rising prices, cost of sales is overstated
B) In a period of rising prices, return on capital employed (ROCE) is understated
C) In a period of rising prices, asset values are understated
D) In a period of rising prices, depreciation is overstated

Question 32

Which of the following statements is false?

A) Goodwill is an intangible asset
B) Goodwill is the excess of the price paid for the business, acquired over the net fair value of identifiable assets
C) According to IFRS 3, internally generated goodwill must be shown as an asset on the statement of financial position
D) Goodwill is recognized only where it is the result of a transaction

Question 33

The four main objectives of the "Statement of Principles for Financial Reporting" are:

A) Going Concern, Accruals, Consistency and Prudence
B) Relevance, Reliability, Comparability and Understandability
C) Going Concern, Relevance, Consistency and Comparability
D) Accruals, Prudence, Reliability and Understandability