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

Accepted Answer

According to the Framework, a material item is defined as information that is likely to influence the decisions of users of financial statements. This means that the item is significant enough to affect an investor, creditor or other user's understanding of the entity's financial position, financial performance, or cash flows. The other options, being unusual or large, are not necessarily indicative of materiality on their own.

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

Accepted Answer

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

Accepted Answer

The key characteristic used by the Framework to define an asset is its ability to generate future economic benefits, as defined in the Conceptual Framework for Financial Reporting issued by the International Accounting Standards Board (IASB). While saleability and type of item may be relevant to the classification of an asset, they are not the defining characteristic. The ability to generate future cash flows is closely related to the ability to generate future economic benefits, but not identical to it.

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

Accepted Answer

The primary constraint on relevant, reliable, material, understandable, and comparable information is the cost/benefit constraint, which ensures that the benefits of providing the information outweigh the costs associated with it.

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

Accepted Answer

SAC3 arranges the qualitative characteristics in three levels: fundamentals, enhancing, and constraints. The fundamentals include relevance, faithful representation, and comparability. Enhancing characteristics include verifiability, timeliness, understandability, and comparability. Constraints include cost and materiality. Therefore, choice C is the correct answer.

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

Accepted Answer

The answer of Attributes of relevant information include:
A) a faithful...

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

Accepted Answer

The Framework specifies confirmation and prediction as the two principle ingredients of relevance, focusing on how information can confirm past evaluations or predict future outcomes.

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

Accepted Answer

Financial information that assists in either confirmation of past predictions or in making new predictions is relevant, as it is directly related to the predictions being made. Timeliness and comparability are also important factors in financial information, but they do not specifically relate to predicting future financial outcomes.

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

Accepted Answer

This statement is explicitly stated in the Conceptual Framework for Financial Reporting issued by the International Accounting Standards Board (IASB). Option A is incorrect because it is possible that a more detailed financial report may be more understandable, depending on the users' level of financial knowledge. Option B is incorrect because an item can be relevant and reliable but not material. Option C is incorrect because relevance and reliability can sometimes conflict, requiring a trade-off between the two qualities.

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

Accepted Answer

The answer of The Framework definition of revenue (income)differs in...

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

Accepted Answer

The Framework defines assets as resources controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. The other options are not the correct definitions of assets according to the Framework.

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

Accepted Answer

SFAC2 differed from its predecessors by arranging the characteristics of accounting information in a hierarchy, instead of listing them separately. The hierarchy included fundamental characteristics (relevance and faithful representation) at the top, followed by enhancing characteristics (comparability, verifiability, timeliness, and understandability) that improve the usefulness of financial information. Therefore, option D is the correct answer.

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

Accepted Answer

The definition given in the statement is of a liability. It refers to an obligation of the entity that has arisen from past events and is expected to result in an outflow of resources that will generate economic benefits. This definition fits well with the concept of liabilities, which represents the amount owed by the entity to other parties.

Question 14

Information that is free from bias is regarded as:
A) timely
B) reliable
C) understandable
D) material

Accepted Answer

Bias-free information is considered reliable, as it is not influenced by personal opinions or agendas. Timeliness, understandability, and materiality are also important qualities, but they do not necessarily guarantee the absence of bias.

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

Accepted Answer

Under the conceptual framework of financial statements in Australia, profit is not categorized as an identifiable element. The identifiable elements include assets, liabilities, and equity. Profit is a result of the operation of a business and is not an item that can be measured or recognized directly. Instead, it arises from changes in the values of elements such as assets or liabilities.

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

Accepted Answer

The definition given in the statement refers to the quality of reliability, which means that financial information can be trusted to be free of bias or errors and represent transactions or events accurately.

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

Accepted Answer

The answer of Which statement is incorrect?
A) Net assets, net...

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

Accepted Answer

No liability exists at this stage because there is no present obligation that meets the definition of a liability under the accounting framework. A decision or intention to purchase in the future does not create a present 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

Accepted Answer

Recognition refers to the process of recording a transaction or event in the accounting system. It involves determining if an item meets the criteria to be reported as an element in the financial statements, and then recording it appropriately in the accounting records. Option A is incorrect as disclosure in the notes does not constitute recognition. Option C is incorrect as it describes the definition of an element rather than recognition. Option D is incorrect as it includes an incorrect option.

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

Accepted Answer

Control is not an essential characteristic of a liability under the Framework. The other three characteristics, namely future sacrifice of economic benefits, existence of a present obligation to another entity, and a past transaction or other past event, are recognized as essential characteristics of liabilities.

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

Under the Framework a 'material' item must be:

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

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

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

SAC3 arranges the qualitative characteristics in three levels:

Attributes of relevant information include:

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

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

Which of these statements is correct?

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

The Framework defines assets as:

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

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:

Information that is free from bias is regarded as:

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

'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:

Which statement is incorrect?

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

The recognition of an element of a financial statement is:

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