Revised Conceptual Framework

Question 1

Which statement is false about the Conceptual Framework?
A. The Conceptual Framework is an IFRS.
B. The Conceptual Framework describes the concepts for general purpose reporting.
C. In case of conflict, the requirements of IFRS prevail over the Conceptual Framework.
D. Nothing in the Conceptual Framework overrides any specific IFRS.

Answer 1

A. The Conceptual Framework is an IFRS.

Question 2

The Conceptual Framework is intended to establish
A. Accounting standard in financial reporting
B. The meaning of “present fairly in accordance with GAAP”
C. The objectives and concepts for use in developing standards of financial reporting
D. The hierarchy of sources of GAAP

Answer 2

C. The objectives and concepts for use in developing standards of financial reporting

Question 3

The following statements relate to the purposes of the Revised Conceptual Framework:
I. To assist the IASB to develop IFRS based on consistent concepts.
II. To assist preparers to develop consistent accounting policy when no standard applies to a particular
transaction or when Standard allows a choice of accounting policy.
III. To assist all parties to understand and interpret the Standards.

A. Statements I, II and III are true
B. Statements I, II and III are not true
C. Only statements I and II are true
D. Only statements I and III are true

Answer 3

A. Statements I, II and III are true

Question 4

The following statements relate to the implication of the going concern assumption:
I. The historical cost principle is credible
II. Depreciation and amortization are justifiable and appropriate
III. The current and noncurrent classification of assets and liabilities is justifiable and significant.

A. All statements are true
B. All statements are not true
C. Only two statements are true
D. Only one statement is true

Answer 4

A. All statements are true

Question 5

The economic entity assumption
A. Is inapplicable to unincorporated businesses
B. Recognizes the legal aspects of business organizations
C. Requires periodic income measurement
D. Is applicable to all forms of business organizations

Answer 5

D. Is applicable to all forms of business organizations

Question 6

Consolidated financial statements are prepared when a parent-subsidiary relationship exists.
A. Economic entity assumption
B. Legal entity assumption
C. Consolidation standard
D. Neutrality

Answer 6

A. Economic entity assumption

Question 7

During the lifetime of an entity, accountants produce financial statements at arbitrary or artificial points
in time in accordance with which basic accounting concept?
A. Objectivity
B. Time period assumption
C. Materiality
D. Economic entity

Answer 7

B. Time period assumption

Question 8

Inflation is ignored in accounting due to
A. Economic entity assumption
B. Going concern assumption
C. Monetary unit assumption
D. Periodicity assumption

Answer 8

C. Monetary unit assumption

Question 9

The following statements relate to qualitative characteristics:
I. Qualitative characteristics are the attributes that make the information in the financial statements useful to users.
II. Are considered either fundamental or enhancing.
III. Contribute to the decision-usefulness of financial information
IV. Distinguish better information from inferior information for decision-making purpose.

A. All statements are true
B. All statements are not true
C. Only three statements are true
D. Only two statements are true.

Answer 9

A. All statements are true

Question 10

Fundamental qualitative characteristics of accounting information are
A. Relevance and comparability
B. Comparability and consistency
C. Faithful representation and relevance
D. Neutrality and verifiability

Answer 10

C. Faithful representation and relevance

Question 11

Enhancing qualitative characteristics of accounting information include
A. Relevance, faithful representation and materiality
B. Comparability, understandability, timeliness and verifiability
C. Faithful representation and timeliness
D. Materiality and understandability

Answer 11

B. Comparability, understandability, timeliness and verifiability

Question 12

Faithful representation includes
A. Predictive value and confirmatory value
B. Completeness, free from error and neutrality
C. Comparability and understandability
D. Timeliness and verifiability

Answer 12

B. Completeness, free from error and neutrality

Question 13

The qualitative characteristic of relevance includes
A. Predictive value and confirmatory value
B. Completeness and neutrality
C. Comparability and understandability
D. Verifiability and timeliness

Answer 13

A. Predictive value and confirmatory value

Question 14

Accounting information is considered relevant when it
A. Can be depended on to represent the economic conditions that it is intended to represent
B. Is capable of making a difference in a decision
C. Is understandable by reasonably informed users of accounting information
D. Is verifiable and neutral

Answer 14

B. Is capable of making a difference in a decision

Question 15

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

Answer 15

C. Information is measured and reported in a similar fashion across entities.

Horizontal Comparability - within an entity from one period to the next
Dimensional comparability - 2 or more entities in the same industry

Question 16

What is meant by consistency when discussing financial accounting information?
A. Information is measured and reported in a similar fashion across points in time.
B. Information is timely.
C. Information is measured similarly across the industry.
D. Information is verifiable.

Answer 16

A. Information is measured and reported in a similar fashion across points in time.

Question 17

Which statement is true in relation to the enhancing quality of understandability?
A. Users have a reasonable knowledge of business and economic activities.
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.

Answer 17

A. Users have a reasonable knowledge of business and economic activities.

Question 18

According to the Revised Conceptual Framework, verifiability implies
A. Legal evidence
B. Logic
C. Consensus
D. Legal verdict

Answer 18

C. Consensus

Question 19

The Conceptual Framework includes which constraint on financial information?
A. Prudence
B. Conservatism
C. Cost-benefit
D. Materiality

Answer 19

C. Cost-benefit

Question 20

. A reporting entity
A. Is necessarily a legal entity
B. Must be a corporate type of entity
C. Is an entity that is required or chooses to prepare financial statements
D. A regulatory government authority

Answer 20

C. Is an entity that is required or chooses to prepare financial statements

Question 21

A reporting entity
A. Can be a single entity
B. Can be a portion of a single entity
C. Can comprise more than one entity
D. All of these can be considered a reporting entity

Answer 21

D. All of these can be considered a reporting entity

Question 22

If the reporting entity comprises both parent and its subsidiaries, the financial statements are
A. Consolidated financial statements
B. Unconsolidated financial statements
C. Combined financial statements
D. Separate financial statements

Answer 22

A. Consolidated financial statements

B. Unconsolidated financial statements <– if parent alone
C. Combined financial statements <– 2 or more entities without a parent/subsi relationship

Question 23

Which is not within the definition of an asset in the Revised Conceptual Framework?
A. An asset is a present economic resource.
B. The economic resource is a right that has the potential to produce economic benefit.
C. The economic resource is controlled by the entity as a result of past event.
D. Future economic benefit is expected to flow to the entity

Answer 23

D. Future economic benefit is expected to flow to the entity

Question 24

Which of the following criteria need not be satisfied for a liability to exist under the Revised Conceptual
Framework?
A. The entity has a present obligation.
B. The present obligation is to transfer an economic resource.
C. The present obligation exists as a result of past event
D. The settlement is expected to result in an outflow of economic benefit.

Answer 24

D. The settlement is expected to result in an outflow of economic benefit.

Question 25

It is the process of capturing for inclusion in the statement of financial position or the statement of financial performance an item that meets the definition of an element of the financial statements. A. Recognition B. Measurement C. Derecognition D. Disclosure

Answer 25

A. Recognition

Question 26

Under the Revised Conceptual Framework, what is the recognition principle? A. It is probable that any future benefit associated with the item will flow to or from the entity. B. The item has a cost that can be measured with reliability. C. It is probable that any future economic benefit will flow to or from the entity and the cost can be measured reliably. D. Only items that meet the definition of an asset, liability, equity, income and expense are recognized.

Answer 26

D. Only items that meet the definition of an asset, liability, equity, income and expense are recognized.

Question 27

Derecognition is the removal of a recognized asset or liability from the statement of financial position and normally occurs when A. An item no longer meets the definition of an asset or a liability B. The entity loses control of the asset. C. The entity no longer has a present obligation for the liability D. Under all of these circumstances

Answer 27

D. Under all of these circumstances

Question 28

Under the Revised Conceptual Framework, the measurement bases include A. Historical cost B. Current value C. Assessed value D. Historical cost and current value

Answer 28

D. Historical cost and current value

Question 29

Current value includes fair value, value in use, fulfillment value and current cost. Which definition is incorrect? A. Fair value of an asset is the price that would be received to sell the asset in an orderly transaction between market participants. B. Value in use is the present value of cash flows expected to be derived from continuing use of the asset and from the ultimate disposal C. Fulfillment value is the absolute amount of cash outflows expected for the payment of liability D. Current cost is the replacement cost of an asset or current purchase price.

Answer 29

C. Fulfillment value is the absolute amount of cash outflows expected for the payment of liability C. Fulfillment value is the present value

Question 30

Which of the following is not an acceptable basis for the recognition of expense? A. Systematic and rational allocation B. Cause and effect association C. Immediate recognition D. Cash disbursement

Answer 30

D. Cash disbursement