Deck 3: A Conceptual Framework: the Fundamentals of General Purpose Financial Reporting

Question 1

Under the Framework a 'material' item must be:

A) likely to influence the decisions of users
B) unusual
C) large
D) all of the above

Answer 1

A

Question 2

Under the Framework,a transport company does not regard the road outside its premises as an asset because:

A) it is not owned
B) it will not provide future economic benefits
C) the amount of future economic benefits is uncertain
D) it is not controlled

Answer 2

D

Question 3

The key characteristic used by the Framework to define an asset is:

A) saleability
B) type of item
C) ability to generate future economic benefits
D) ability to generate future cash flows

Answer 3

C

Question 4

The constraint(s)on relevant,reliable,material,understandable and comparable information is/are:

A) verifiability
B) timeliness
C) cost/benefit
D) B and C

Question 5

SAC3 arranges the qualitative characteristics in three levels:

A) fundamentals, presentation, display
B) fundamentals, enforcement, display
C) fundamentals, enhancing, constraints
D) assets, liabilities, owners' equity

Question 6

Attributes of relevant information include:

A) a faithful representation of transaction
B) a faithful representation of the economic effect of the transaction
C) neither A nor B
D) both A and B

Question 7

The two principle ingredients of relevance specified by the Framework are:

A) confirmation and reliability
B) confirmation and prediction
C) accountability and stewardship
D) reliability and prediction

Question 8

Under the framework financial information that assists in either confirmation of past predictions or in making new predictions is:

A) relevant
B) timely
C) comparable
D) none of the above

Question 9

Which of these statements is correct?

A) Simplified financial reports will always be the most understandable
B) A relevant and reliable item will always be material
C) Relevance and reliability can never be in conflict
D) It is apparent from the Framework that general purpose financial reports are addressed to users with a reasonable knowledge of business and economic activities

Question 10

The Framework definition of revenue (income)differs in which important aspect from the FASB definition?

A) In some circumstances it includes contributions by owners as revenue
B) It includes a reduction in liabilities as one of the forms that revenue can take
C) It defines revenue as an inflow
D) It does not identify the sources of the revenue

Question 11

The Framework defines assets as:

A) resources controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity
B) probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events
C) the service potential expected from resources controlled by the reporting entity as a result of past events
D) future economic benefits expected from resources controlled by the reporting entity as a result of past events

Question 12

In 1980 the FASB issued SFAC2,'Qualitative Characteristics of Accounting Information' which differed from its predecessors by:

A) including extra characteristics
B) calling for the harmonisation of different versions of the characteristics
C) dropping several characteristics
D) arranging the characteristics in a hierarchy

Question 13

In the Framework,'the present obligation of the entity arising from past events,the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits' is the definition of:

A) revenues
B) assets
C) expenses
D) liabilities

Question 14

Information that is free from bias is regarded as:

A) timely
B) reliable
C) understandable
D) material

Question 15

In Australia under the conceptual framework,which of the following is not an identifiable element of financial statements?

A) Liabilities
B) Assets
C) Profit
D) None of the above, i.e., all are identifiable elements

Question 16

'That quality of financial information which exists when that information can be depended upon to represent faithfully,and without bias or undue error,the transactions or events that it purports to represent or could reasonably be expected to represent' (The Framework para.31),is:

A) understandability
B) reliability
C) timeliness
D) comparability

Question 17

Which statement is incorrect?

A) Net assets, net worth, shareholders' equity and proprietorship are all synonyms for equity
B) The settlement of a liability by the owner from his private funds results in an increase in equity
C) Under the Framework equity exists only because there are assets and liabilities
D) None of the statements is incorrect, i.e., all are correct

Question 18

An entity has decided to commit itself to the purchase of a new building in the next financial year.Under the Framework:

A) a liability exists because it is probable that a future sacrifice of economic benefits will be required
B) no liability exists because there is no present obligation
C) a liability exists because there is a constructive obligation
D) a liability exists because there is an equitable obligation

Question 19

The recognition of an element of a financial statement is:

A) a description of the element in the notes to the financial statement
B) an action or process to record the transaction or event in the accounting records
C) a statement identifying the characteristics that an element must have
D) both A and C

Question 20

Which of these is not an essential characteristic of a liability under the Framework?

A) Future sacrifice of economic benefits
B) Control
C) Existence of a present obligation to another entity
D) A past transaction or other past event

Question 21

Under the Framework,which of these is not an essential characteristic of an expense?

A) It must result in a decrease in equity
B) It must represent a flow
C) It must be associated with the earning of revenue
D) It must take the form of a decrease in an asset or an increase in a liability

Question 22

Identify and discuss three possible conflicts between the Framework's list of qualitative characteristics.

Question 23

A Regulation Impact Statement is prepared by the AASB.This statement:

A) provides a cost-benefit analysis of the proposed new standard
B) must be prepared by the AASB before any new standards are released
C) ensures that information contained in the financial statements is timely and material
D) both A and B

Question 24

Depreciation and wages that have been accrued represent,respectively,expenses resulting from:

A) a decrease in an asset: a decrease in a liability
B) the using up of an asset: an increase in a liability
C) the using up of a liability: an increase in an asset
D) none of the above

Question 25

In the Framework's definition of expenses:

A) there is no distinction between expenses and losses
B) expenses must be matched against income
C) the causes of expenses are specifically identified
D) if the definition is satisfied the item must be recognised in the financial statements

Question 26

Compare and contrast the FASB definition of revenue and the Australian concept of income.In your answer discuss the treatment of gains in both jurisdictions.

Question 27

Under the Framework,profit is defined as:

A) an increase in 'well-offness'
B) a matter of display
C) an increase in wealth
D) including all changes in equity occurring during a period

Question 28

Under the Framework,the purchase of inventory by an entity is:

A) an expense as it decreases equity
B) an expense as it arises from carrying out the major activities of the entity
C) an expense because it is a flow
D) not an expense

Question 29

Under the Framework,which of these statements is correct?

A) A distinction is made between profit and gains
B) Profit is not defined independently of income and expenses
C) Profit is defined as the amount that can be distributed as a dividend whilst maintaining capital intact
D) None of the statements is correct

Question 30

Explain and discuss three essential characteristics of an asset as defined by the Framework.

Question 31

In Australia,income is limited to:

A) revenue and gains
B) revenue and expenses from the delivery or production of goods and services
C) revenues and expenses from ongoing normal operations
D) any transaction that results in an increase in equity

Question 32

Is taxation an expense under the Framework? Discuss.