Chapter02

Student:___________________________________________________________________________
1.TheAASBFrameworkhastheforceoflaw.
TrueFalse

2.TheAustralianAccountingStandardsBoard(AASB)retainedtheuseofitsownconceptualframeworkeven
afterharmonisation.
TrueFalse

3.TheAASBFrameworkservesasaguidetotheAustralianAccountingStandardsBoard(AASB)in
developingaccountingstandards.
TrueFalse

4.TheAASBFrameworkisconsideredtobeanAustralianAccountingStandardsBoard(AASB)standard.
TrueFalse

5.OneofthebenefitsoftheConceptualFrameworkisthatitprovidesparametersfortheexerciseofjudgement
inresolvingaccountingissues.
TrueFalse

6.WhenanAASBstandardconflictswiththeFramework,theformerprevails.
TrueFalse

7.TheFrameworkdefinesprinciplesforaspecificaccountingrecognition,measurementanddisclosurematter.
TrueFalse

8.TheFrameworksuggeststhattherelevancecharacteristicoutweighsthefaithfullyrepresentedcharacteristic
ifthefinancialstatementistoberendereduseful.
TrueFalse

9.Theobjectiveoffinancialstatementsistoprovidefutureorientedinformationtohelpinvestorsmake
businessdecisions.
TrueFalse

10.Relevanceandfaithfullyrepresentedcharacteristicsareplacedasoverridingqualitiesoffinancialstatements
overotherqualitativecharacteristics
TrueFalse

11.AseparaterecognitioncriteriaforequityisnotsetforthintheFrameworkbecauseitrepresentsaresidual
interestintheassetsofanentity.
TrueFalse

12.SocialaccountabilityisconsideredintheFrameworkaspartoftheobjectivesofgeneralpurposefinancial
reports.
TrueFalse

13.TheIASBandUSFASBarejointlydevelopingacommonconceptualframeworktoguidebothstandard
settersindevelopingseparatestandardsfortheirconstituents.
TrueFalse

14.Forthepreparationandpresentationoffinancialstatements,AustraliaadoptstheIASBFrameworkandthe
StatementofAccountingConcepts1to4.
TrueFalse

15.TheIASBandUSFASBarejointlydevelopingacommonconceptualframeworkbecausethisisnecessary
fortheConvergenceProject,whichaimstoconvergetwosetsofaccountingstandards.
TrueFalse

16.Prudenceisexercisedinthepreparationandpresentationoffinancialstatementswhenassetvaluesarenever
showninexcessoftheirrealisablevaluesbutcouldbeunderstated,andliabilitiesarenevertobeunderstated.
TrueFalse

17.Theefficiencyperspectiveisconsistentwithlimitingaccountingpolicychoicesintheinterestof
consistencyandcomparability.
TrueFalse

18.Thetradeoffbetweenrelevanceandfaithfulrepresentationrequiresexerciseofjudgmentconstrainedby
timelinessandcostsversusbenefits.
TrueFalse

19.Therecognitioncriteriaforliabilitiesareconsistentwiththoseforassets.
TrueFalse

20.Transactionsoreventsthatcannotbelinkedtoacost'oramarketprice'arenotrecognised.
TrueFalse

21.Acentralgoalinestablishingaconceptualframeworkofaccountingwillbetoobtaingeneralconsensuson:
A.thescopeandobjectivesoffinancialreporting.
B.thequalitativecharacteristicsthatfinancialinformationshouldpossess.
C.whattheelementsoffinancialreportingare,includingagreementonthecharacteristicsandrecognition
criteriaforassets,liabilities,income,expensesandequity.
D.thescopeandobjectivesoffinancialreportingandthequalitativecharacteristicsthatfinancialinformation
shouldpossess.

22.Whichofthefollowingfactorsshouldbeconsideredinordertodeterminewhetheranentityisareporting
entitywhenitisnotobviousthatusersexistwhowouldbedependentonthefinancialreportsoftheentity?
A.separationofmanagementfromthosewitheconomicinterestintheentity
B.economicorpoliticalimportance/influence
C.financialcharacteristics
D.separationofmanagementfromthosewitheconomicinterestintheentityandeconomicorpolitical
importance/influence

23.MrandMrsKUrbanarepartnersinUrbanLtd,amusicshopwithsalesrevenueof$5000000perannum,
totalassetsof$10000000andemployeestotalling15.UrbanLtdis:
A.areportingentitybecausethereareatleasttwousersofafinancialreport.
B.notlikelytobeareportingentitybecauseitisunlikelytohaveusersdependentonitsfinancialreports.
C.likelytobeareportingentitybecausetherearetwoshareholdersanditisanexemptproprietaryentity.
D.notareportingentitybecausesmallproprietarycompaniesarefrequentlynotconsideredreportingentities.

24.BowenPtyLtdisasmallproprietarycompanywithsevendirectors.Fourofthesevendirectorsown75%of
theordinarysharesandtheremainingsharesareownedbyfamilymembersofthedirectors.Thecompanyalso
has15tradecreditorsandanopenlineofcreditwithonestatebank.IsBowenPtyLtdareportingentityand
hencerequiredtopreparegeneralpurposefinancialreports?
A.Yes,becausedependentusersoffinancialreportsexist.
B.Yes,becausetherearetradecreditorswhoareexternalusers.
C.No,becauseitisasmallproprietaryfirm.
D.No,becausetherearenoobvioususerswhoareunabletocommandthepreparationofinformationfromthe
entity.

25.Whichofthefollowingstatement(s)is/aretrueofgeneralpurposefinancialreports?
A.Generalpurposefinancialreportsshouldbepreparedbyallreportingentities.
B.Generalpurposefinancialreportsarereportsthatcomplywithstatementsofaccountingconceptsand
accountingstandards.
C.Generalpurposefinancialreportsareintendedtomeettheinformationneedscommontouserswhoareable
tocommandthepreparationofreports.
D.Generalpurposefinancialreportsshouldbepreparedbyallreportingentitiesandgeneralpurposefinancial
reportsarereportsthatcomplywithstatementsofaccountingconceptsandaccountingstandards.

26.WhichofthefollowingareconsideredintheAASBFrameworkasprimaryqualitativecharacteristics?
A.relevance,faithfulrepresentation,materialityandcomparability
B.relevance,faithfulrepresentation,timelinessandunderstandability
C.relevance,faithfulrepresentation,understandabilityandcomparability
D.materiality,faithfulrepresentation,understandabilityandcomparability

27.Whenpreparingfinancialreportsusersareassumedtohaveareasonableknowledgeofthebusinessand
economicactivitiesandaccountingandawillingnesstostudytheinformationwithreasonablediligence'.This
statementisconsistentwiththequalitativecharacteristicof:
A.materiality.
B.faithfulrepresentation.
C.understandability.
D.comparability.

28.JamesCookLtdboughtapieceofland10yearsagoandthemarketvalueofthispropertyisnowworthfive
timesitspurchasecost.TheaccountantsuggestedthatJamesCookLtdshouldrevaluetheasset.Thisnotionis
consistentwiththequalitativecharacteristicof:
A.relevance.
B.faithfulrepresentation.
C.understandability.
D.comparability.

29.TheauditofthefinancialreportsofMatildaLtdhadbeencompletedexceptfortheoutcomeofamaterial
contingentliabilitythatisstillsubjecttotheoutcomeofacourtdecision.Thecaseisstillongoingbutitis
expectedthatadecisionwillbemadeafterthreemonths.Thedeadlineforsubmittingthefinancialreportsis
nextmonth.Whichactionisconsistentwiththenotionoftimeliness'inthepreparationoffinancialreports?
A.MatildaLtdshouldwaitforthecourtdecisiontobecompletedbeforereleasingthefinancialreportsasthe
amountoftheliabilityismaterial.
B.MatildaLtdshouldreleasethefinancialreportonorbeforethedeadlinebutexcludethecontingentliability
fromthereportastheoutcomeisstilluncertain.
C.MatildaLtdshouldreleasethefinancialreportonorbeforethedeadlinebutdisclosethecontingentliability
inthenotestotheaccounts.
D.MatildaLtdmustwaitforthecourtdecisiontobecompletedbeforereleasingthefinancialreportsasitis
expectedtooccurinthenearfutureanyway(i.e.threemonths).

30.TheFrameworkidentifiestwoaspectstofinancialinformationthatarerelevant'.Theseare:
A.verifiabilityandunderstandability.
B.predictabilityandverifiability.
C.neutralityandverifiability.
D.prudenceandneutrality.

31.TheIASBConceptualFrameworkforFinancialReporting(asreleasedin2010),requiresthatgeneral
purposefinancialreportsdiscloseinformationthatis:
A.relevanttotheassessmentofprofit,fundingandinvesting,andcompliance.
B.relevanttotheassessmentoffinancialandsocialperformance,financialpositionandfundingandinvesting,
andincludesinformationaboutcompliance.
C.relevanttotheassessmentofperformance,financialpositionandfundingandinvesting,including
informationaboutcompliance.
D.relevanttotheassessmentofperformance,financialpositionandcashflows.

32.TheFrameworkoutlinestwounderlyingassumptionsoffinancialstatements.Theseare:
A.fairvaluebasisandinsolvencyassumption.
B.accrualbasisofaccountingandgoingconcernassumption.
C.cashbasisofaccountingandinsolvencyassumption.
D.historicalcostaccountingandlimitedlifeconcept.

33.Whichofthefollowingactionsbestdescribesthequalitativecharacteristicrelevance'?
A.ThefinancialreportofKMCLtdwasauditedbyoneoftheBig4fouraccountingfirms.
B.DGComittedasalestransactionequalto10.5%ofitsaccountsreceivable.
C.MCBLtdandDGCLtdbothuseaccelerateddepreciationmethod.
D.GEPLtddidnotrevalueitsintangibleassetsbecauseitwasdifficulttoobtainthefairvalueoftheassets.

34.Whichofthefollowingstatement(s)is/aretrueofthequalitativecharacteristicfaithfulrepresentation'?
A.informationthatisfreefrommaterialbiasanderror
B.informationthatfaithfullyrepresentswhatitpurportstorepresent
C.informationthatshouldaffectthedecisionsoffinancialstatementusers
D.informationthatisfreefrommaterialbiasanderror,completedescriptionandthatfaithfullyrepresentswhat
itpurportstorepresent

35.WhichofthefollowingactionsareconsistentwiththeDoctrineofConservatism?
A.deliberateoverstatementofexpensestoreduceprofits
B.excessiveprovisionsforwarrantyexpenses
C.carefulassessmentofdoubtfuldebts
D.adoptionofaccelerateddepreciationmethodtoreduceprofits

36.Whichofthefollowingis/arecharacteristicsofcomparability'?
A.Usersmustbeabletocomparethefinancialreportsofanentitywiththefinancialreportsofashareholder.
B.Usersmustbeabletocomparethecurrentfinancialreportswithpriorperiodfinancialreportsofanentity.
C.Usersmustbeabletocomparethefinancialreportsofanentitywiththefinancialreportsofanotherentity.
D.Usersmustbeabletocomparethecurrentfinancialreportswithpriorperiodfinancialreportsofanentity
andusersmustbeabletocomparethefinancialreportsofanentitywiththefinancialreportsofanotherentity.

37.Whichofthefollowingstatement(s)is/aretrueofthequalitativecharacteristiccomparability'?
A.Afinancialreportmustshowcorrespondingresultsfortheprecedingperiod.
B.Afinancialreportmustbepresentedinaconsistentmanner,hence,anentitymustadoptsimilaraccounting
policiesfromperiodtoperiodeventhoughamorereliableandrelevantalternativeexist.
C.Afinancialreportmustcontainallmaterialandrelevantitems.
D.Afinancialreportmustshowcorrespondingresultsfortheprecedingperiodandbepresentedinaconsistent
manner,hence,anentitymustadoptsimilaraccountingpoliciesfromperiodtoperiodeventhoughamore
reliableandrelevantalternativeexist.

38.Whenastandardrestrictsthenumberofaccountingmethodstobeusedtoaccountforaparticular
accountingissue,itispromotingthequalitativecharacteristicof______________?
A.timeliness
B.prudence
C.understandability
D.comparability

39.TheaccountantofBrokenBayLtddecidedtoretainthehistoricalcostoftheentity'sintangibleassets
becauseitwasdifficulttoobtainfairvalueoftheseassets.Thisactionisconsistentwith____________.
A.substanceoverform
B.balancingofrelevanceandfaithfulrepresentation
C.accrualaccounting
D.cashaccounting

40.TheIASBConceptualFrameworkadoptswhichapproachtodeterminingprofits?
A.revenue/expenseapproach
B.matchingprincipleapproach
C.asset/liabilityapproach
D.cashbasisapproach

41.ThekeycharacteristicsofanassetasdefinedintheFrameworkinclude:
A.Theremustbefutureeconomicbenefits.
B.Thereportingentitymustcontrolthefutureeconomicbenefits.
C.Theassetresultsfrompasttransactions.
D.allofthegivenanswers.

42.Whichofthefollowingitemsisnotconsideredanasset?
A.patents
B.researchexpensesofanR&Dproject
C.equipmentunderleasewheretherisksandrewardsflowsintotheentity
D.researchexpensesofanR&Dprojectandequipmentunderleasewheretherisksandrewardsflowsintothe
entity

43.JacksonLtdisdevelopingcomputersoftwareforuseinitscourierdeliveryservicebusiness.Sofarthe
companyhadspent$50000butthesoftwareisstillunfinishedandnotexpectedtobefinishedintimeforthe
preparationofthereports.Asaresult,thecompanyhadtopurchaseacomputerpackageamountingto$100000
tofinaliseitsaccounts.Thereisnofurtherusefortheunfinishedsoftwareasitisexpectedthatthepurchased
computerpackagecouldbeusedbytheentityforanother10years.Whichaccountingtreatmentwouldbe
consistentwiththeFramework?
A.recogniseanassetof$150000
B.recogniseanexpenseof$150000
C.recogniseanassetof$100000andexpenseof$50000
D.recogniseanassetof$50000andexpenseof$100000

44.Whichofthefollowingtransactionsdoesnotmeetthedefinitionofanasset?
A.depositforpurchaseofequipment
B.commitmenttopurchaseequipment
C.financeleasedequipment
D.purchaseofequipmentoncredit.

45.MsMapleisanaccountingcadetforoneofthebigaccountingfirms.Sheisabitconfusedastowhichof
thefollowingsourcesshouldbereferredtofirstindealingwithanaccountingissue.
A.industrypractice
B.accountingstandards
C.conceptualframework
D.auditingstandards

46.TheauditofLiverpoolLtdhadbeencompletedandtheauditseniorfortheengagementprepareditemsfor
discussion.Hearguesthatthefollowinglistofaccountingchangesviolatetheconsistencyqualitative
characteristicofaccountinginformation.Asauditmanager,whichofthefollowingitemsdoyouthinkare
worthyofdiscussionwiththeauditpartner?
A.Afterfiveyearsofusingstraightlinedepreciationforreportingpurposesandaccelerateddepreciationfortax
purposes,theentitydecidedtoadoptaccelerateddepreciationforreportingpurposes.
B.Thecompanyusesaninventoryvaluationmethodthatisdifferentfromthemethodusedbyothercompanies
intheindustry.
C.Theestimatedremainingusefullifeofanassetwasreducedduetotheincreaseinvolumeofuseoftheasset.
D.Thecompanydisposedofasubsidiarythathadbeenincludedinthefinancialreportsinprioryears.

47.TheFramework'srecognitioncriteriaprovidesthatanassetisrecognisedinthebalancesheetwhenitis
________thatthefutureeconomicbenefitswillflowtotheentityandtheassethasacostorvaluethatcanbe
measured__________'.
A.possible;reliably
B.probable;accurately
C.probable;reliably
D.certain;accurately

48.TheBlaxlandLtdfiledalawsuitagainstDMartMachineriesforfailuretocomplywiththespecificationsof
thefactoryequipmentthattheyorderedandreceived.ThesolicitorsforBlaxlandLtdstronglybelievethatthe
companywillreceive$50000to$100000iftheywinthecase.Whichactionisconsistentwiththe
Framework?
A.BlaxlandLtdshouldrecogniseareceivableof$75000,theexpectedvalueofthegain.
B.BlaxlandLtdshouldrecogniseareceivableof$50000,aconservativeestimateofthegain.
C.BlaxlandLtdshouldnotrecognisethereceivableuntilitisprobablethattheyhavewonthecase.
D.BlaxlandLtdshouldnotrecognisethereceivablebecausewhilethesolicitorisexpectingtowinthecase,the
receivablecannotbeestimatedreliably.

49.Yourbestfriendfromhighschoolapproachesyoutoinvestinetrack'anupcominghightechcompany
whichheisconvincedwillmakehugeprofitsinthefuture.Youarescepticalofthebusinessventureandsay
thatyouwouldhavetolookupthefinancialstatementsofthecompanybeforeinvestingyourownmoney.He
sendsyouthefinancialreportandyounoticethatthereportisunauditedanddoesnotprovideprioryears'
resultseventhoughthefirmhadbeenoperatingforthelastthreeyears.
Basedontheaboveinformation,whichqualitativecharacteristicsislackinginetrack'sfinancialreports?
A.relevanceandfaithfulrepresentation
B.relevanceandtimeliness
C.comparabilityandconsistency
D.faithfulrepresentationandcomparability

50.Whichofthefollowingstatement(s)is/aretruewithrespecttomateriality?
A.Materialityreferstothenotionthatanitemneednotberecognisedinthefinancialreports.
B.Materialityisaprimaryqualitativecharacteristic.
C.Materialityrelatestofinancialinformationwhereitsomissionormisstatementcouldinfluencetheeconomic
decisionsofusers.
D.Materialityrelatestofinancialinformationwhereitsomissionormisstatementcouldinfluencetheeconomic
decisionsthatusersmakeaboutaspecificreportingentity.

51.Considerthefollowinginformation

Youareanaccountantforbothfirmsandwouldliketodeterminewhethertheimpairmentlossismaterialor
not.Whichofthefollowingstatement(s)is/arecorrect?
A.Theimpairmentlossforbothfirmsismaterial.
B.TheimpairmentlossforManlyLtdismaterial.
C.TheimpairmentlossforMosmanLtdismaterial.
D.Theimpairmentlossforbothfirmsisimmaterial.

52.WhatguidelinesareavailableinAASB1031Materiality'toassistindeterminingthematerialityofan
item?
A.Iftheamountisequalorgreaterthan10%oftheappropriatebaseamount,theitemismaterial.
B.Iftheamountisequalorgreaterthan10%oftheappropriatebaseamount,theitemisimmaterial.
C.Iftheamountisequalorlessthan5%oftheappropriatebaseamount,theitemismaterial
D.Iftheamountisequalorgreaterthan10%oftheappropriatebaseamount,theitemismaterial;iftheamount
isequalorlessthan5%oftheappropriatebaseamount,theitemisimmaterial.

53.Identifywhichqualitativecharacteristicoffinancialreportsisbestdescribedineachitembelow:

A.relevance,comparability,timeliness
B.faithfulrepresentation,consistency,understandability
C.faithfulrepresentation,comparability,timeliness
D.relevance,understandability,comparability

54.Identifytheappropriatequalitativecharacteristicemployedinthefollowinginformation:

A.relevance,faithfulrepresentation,consistency
B.faithfulrepresentation,relevance,comparability
C.faithfulrepresentation,relevance,consistency
D.relevance,faithfulrepresentation,comparability

55.InaccordancewithIASBConceptualFrameworkwhichofthefollowingisconsistentwiththedefinitionof
income?
A.increasesineconomicbenefitsduringtheaccountingperiodintheformofinflowsorenhancementsof
assetsordecreasesofliabilitiesthatresultinincreasesinequity,otherthanthoserelatingtocontributionsfrom
equityparticipants
B.increasesineconomicbenefitsduringtheaccountingperiodintheformofinflowsotherthanthoserelating
tocontributionsfromequityparticipants
C.increasesineconomicbenefitsduringtheaccountingperiodintheformofcashinflowsordecreasesof
liabilitiesthatresultinincreasesinequity,otherthanthoserelatingtocontributionsfromequityparticipants
D.Allofthegivenanswersarecorrect.

56.InaccordancewithIASBConceptualFrameworkwhichofthefollowingtransaction(s)is/areconsistent
withadefinitionofincome?
A.collectionofaccountsreceivable
B.debtforgiveness
C.issueofsharecapital
D.collectionofaccountsreceivableanddebtforgiveness

57.InaccordancewithIASBConceptualFrameworkwhichofthefollowingisconsistentwiththedefinitionof
expenses?
A.decreasesineconomicbenefitsduringtheaccountingperiodintheformofoutflowsotherthanthoserelating
todistributionstoequityparticipants
B.increasesineconomicbenefitsduringtheaccountingperiodintheformofinflowsorenhancementofassets
orincurrencesofliabilitiesthatresultindecreasesinequity,otherthanthoserelatingtodistributionstoequity
participants
C.decreasesineconomicbenefitsduringtheaccountingperiodintheformofoutflowsordepletionsofassets
orincurrencesofliabilitiesthatresultindecreasesinequity,otherthanthoserelatingtodistributionstoequity
participants
D.Allofthegivenanswersarecorrect.

58.InaccordancewithIASBConceptualFrameworkwhichofthefollowingaccountsareexpenses?
A.dividendspaid
B.provisionforwarranties
C.entitydumpspollutantsinariveradjacenttoitsfactory
D.Noneofthegivenanswersarecorrect.

59.Faithfulpresentationisoneonthetwoprimaryfundamentalqualitativecharacteristicsforfinancial
informationtobeuseful.AccordingtotheIASBConceptualFrameworkafinancialreportisfaithfully
presentedifitis:
A.consistent,freefrombiasandfreeofmaterialerror.
B.accurate,freefrombiasandfreeofmaterialerror.
C.complete,neutralandfreeofmaterialerror.
D.reliable,neutralandfreeofmaterialerror.

60.Whichofthefollowingstatementsmostaccuratelyreflectsthequalitativecharacteristicsoffinancial
informationintheIASBConceptualFramework?
A.Theseattributesorqualitiesdeterminewhetheranentityisconsideredtobeareportingentity.
B.Theseareattributesorqualitiesthatfinancialinformationshouldpossessifitistobeusefulforsuchdecision
making.
C.Theseattributesorqualitiessatisfythedefinitionofelementsinthefinancialreports.
D.Allofthegivenanswersarecorrect.

61.InadoptingthestandardsofIASB,Australianentitiesarerequiredtocomplywith:
A.theAustralianConceptualFrameworkandStatementofAccountingConcepts1to4.
B.theAustralianConceptualFrameworkandStatementofAccountingConcepts3and4.
C.theIASBFrameworkandtheStatementofAccountingConcepts3and4.
D.theIASBConceptualFrameworkandtheStatementofAccountingConcept1.

62.WhichofthefollowingStatementofAccountingConceptsarestilloperationalinAustralia?
A.StatementofAccountingConcepts1to4
B.StatementofAccountingConcepts1to3
C.StatementofAccountingConcepts1
D.StatementofAccountingConcepts3and4

63.Whichofthefollowingaccountingpoliciesisanexampleofatradeoffbetweenrelevanceandfaithful
representation?
A.Researchoutflowsareexpensedanddevelopmentactivitiesexpensesarecapitalised.
B.Biologicalassetsarestatedatfairvalueunlessthefairvaluecannotbemeasuredreliably.
C.Machineryandequipmentarereviewedperiodicallytoassessproprietyofusefullifeestimationsusedin
depreciation.
D.Allofthegivenanswersarecorrect.

64.Whichofthefollowingaccountingpoliciesisanexampleofcostsversusbenefitsconstraintbeingexercised
inthedisclosureoffinancialinformation?
A.Inventoryisvaluedatlowerofcostormarket.
B.Property,plantandequipmentareappraisedandrevaluedeverythreeyears.
C.Biologicalassetsarestatedatfairvalueunlessthefairvaluecannotbemeasuredreliably.
D.Researchanddevelopmentcostsareexpensedasincurred.

65.Whatqualitiesshouldfinancialinformationpossesstobefaithfullyrepresented?

66.Theframeworkidentifiedsomeconstraintsthatpreparersshouldconsiderinthepreparationoffinancial
reports.Identifyanddiscusstheseconstraints.

67.Liabilitiesthatarelegallyenforceableandequitablyorconstructivelyunavoidablemustberecognisedif
theycanbemeasuredreliably'.Discuss.

68.Discussthebenefitsofaconceptualframework

69.Discusssomeofthecriticismsoftheconceptualframework.

70.Identifyanddiscussthefundamentalqualitativecharacteristicsoffinancialinformationidentifiedinthe
IASBConceptualFrameworkforFinancialReporting.

71.WiththeconvergenceprojectbetweenIASBandFASBexplainwhythereisaneedforarevised
conceptualframework.

72.DiscussissuescoveredbyIASBandtheUSFASBwithrespecttomeasurementprinciplesinthe
developmentofacommonconceptualframework.

Chapter02Key

1.TheAASBFrameworkhastheforceoflaw.
FALSE

ChapterChapter02#1
Difficulty:Easy
Section:2.01AustraliasuseoftheIASBConceptualFramework

2.TheAustralianAccountingStandardsBoard(AASB)retainedtheuseofitsownconceptualframeworkeven
afterharmonisation.
FALSE

ChapterChapter02#2
Difficulty:Easy
Section:2.01AustraliasuseoftheIASBConceptualFramework

3.TheAASBFrameworkservesasaguidetotheAustralianAccountingStandardsBoard(AASB)in
developingaccountingstandards.
TRUE

ChapterChapter02#3
Difficulty:Easy
Section:2.03Benefitsofaconceptualframework

4.TheAASBFrameworkisconsideredtobeanAustralianAccountingStandardsBoard(AASB)standard.
FALSE

ChapterChapter02#4
Difficulty:Easy
Section:2.01AustraliasuseoftheIASBConceptualFramework
Section:2.05StructureoftheConceptualFramework

5.OneofthebenefitsoftheConceptualFrameworkisthatitprovidesparametersfortheexerciseofjudgement
inresolvingaccountingissues.
TRUE

ChapterChapter02#5
Difficulty:Easy
Section:2.03Benefitsofaconceptualframework

6.WhenanAASBstandardconflictswiththeFramework,theformerprevails.
TRUE

ChapterChapter02#6
Difficulty:Easy
Section:2.05StructureoftheConceptualFramework

7.TheFrameworkdefinesprinciplesforaspecificaccountingrecognition,measurementanddisclosurematter.
FALSE

ChapterChapter02#7
Difficulty:Easy
Section:2.02Whatisaconceptualframework?

8.TheFrameworksuggeststhattherelevancecharacteristicoutweighsthefaithfullyrepresentedcharacteristic
ifthefinancialstatementistoberendereduseful.
FALSE

ChapterChapter02#8
Difficulty:Easy
Section:2.06Buildingblocksofaconceptualframework

9.Theobjectiveoffinancialstatementsistoprovidefutureorientedinformationtohelpinvestorsmake
businessdecisions.
FALSE

ChapterChapter02#9
Difficulty:Easy
Section:2.04Currentinitiativestodeveloparevisedconceptualframework

10.Relevanceandfaithfullyrepresentedcharacteristicsareplacedasoverridingqualitiesoffinancialstatements
overotherqualitativecharacteristics
TRUE

ChapterChapter02#10
Difficulty:Easy
Section:2.06Buildingblocksofaconceptualframework

11.AseparaterecognitioncriteriaforequityisnotsetforthintheFrameworkbecauseitrepresentsaresidual
interestintheassetsofanentity.
TRUE

ChapterChapter02#11
Difficulty:Easy
Section:2.06Buildingblocksofaconceptualframework

12.SocialaccountabilityisconsideredintheFrameworkaspartoftheobjectivesofgeneralpurposefinancial
reports.
FALSE

ChapterChapter02#12
Difficulty:Medium
Section:2.08Acriticalreviewofconceptualframeworks

13.TheIASBandUSFASBarejointlydevelopingacommonconceptualframeworktoguidebothstandard
settersindevelopingseparatestandardsfortheirconstituents.
FALSE

ChapterChapter02#13
Difficulty:Medium
Section:2.03Benefitsofaconceptualframework
Section:2.04Currentinitiativestodeveloparevisedconceptualframework

14.Forthepreparationandpresentationoffinancialstatements,AustraliaadoptstheIASBFrameworkandthe
StatementofAccountingConcepts1to4.
FALSE

ChapterChapter02#14
Difficulty:Easy
Section:2.05StructureoftheConceptualFramework

15.TheIASBandUSFASBarejointlydevelopingacommonconceptualframeworkbecausethisisnecessary
fortheConvergenceProject,whichaimstoconvergetwosetsofaccountingstandards.
TRUE

ChapterChapter02#15
Difficulty:Easy
Section:2.04Currentinitiativestodeveloparevisedconceptualframework

16.Prudenceisexercisedinthepreparationandpresentationoffinancialstatementswhenassetvaluesarenever
showninexcessoftheirrealisablevaluesbutcouldbeunderstated,andliabilitiesarenevertobeunderstated.
FALSE

ChapterChapter02#16
Difficulty:Medium
Section:2.07Measurementprinciples

17.Theefficiencyperspectiveisconsistentwithlimitingaccountingpolicychoicesintheinterestof
consistencyandcomparability.
FALSE

ChapterChapter02#17
Difficulty:Medium
Section:2.06Buildingblocksofaconceptualframework

18.Thetradeoffbetweenrelevanceandfaithfulrepresentationrequiresexerciseofjudgmentconstrainedby
timelinessandcostsversusbenefits.
TRUE

ChapterChapter02#18
Difficulty:Medium
Section:2.06Buildingblocksofaconceptualframework

19.Therecognitioncriteriaforliabilitiesareconsistentwiththoseforassets.
TRUE

ChapterChapter02#19
Difficulty:Easy
Section:2.06Buildingblocksofaconceptualframework

20.Transactionsoreventsthatcannotbelinkedtoacost'oramarketprice'arenotrecognised.
TRUE

ChapterChapter02#20
Difficulty:Medium
Section:2.08Acriticalreviewofconceptualframeworks

21.Acentralgoalinestablishingaconceptualframeworkofaccountingwillbetoobtaingeneralconsensuson:
A.thescopeandobjectivesoffinancialreporting.
B.thequalitativecharacteristicsthatfinancialinformationshouldpossess.
C.whattheelementsoffinancialreportingare,includingagreementonthecharacteristicsandrecognition
criteriaforassets,liabilities,income,expensesandequity.
D.thescopeandobjectivesoffinancialreportingandthequalitativecharacteristicsthatfinancialinformation
shouldpossess.

ChapterChapter02#21
Difficulty:Medium
Section:2.02Whatisaconceptualframework?

22.Whichofthefollowingfactorsshouldbeconsideredinordertodeterminewhetheranentityisareporting
entitywhenitisnotobviousthatusersexistwhowouldbedependentonthefinancialreportsoftheentity?
A.separationofmanagementfromthosewitheconomicinterestintheentity
B.economicorpoliticalimportance/influence
C.financialcharacteristics
D.separationofmanagementfromthosewitheconomicinterestintheentityandeconomicorpolitical
importance/influence

ChapterChapter02#22
Difficulty:Easy
Section:2.05StructureoftheConceptualFramework
Section:2.06Buildingblocksofaconceptualframework

23.MrandMrsKUrbanarepartnersinUrbanLtd,amusicshopwithsalesrevenueof$5000000perannum,
totalassetsof$10000000andemployeestotalling15.UrbanLtdis:
A.areportingentitybecausethereareatleasttwousersofafinancialreport.
B.notlikelytobeareportingentitybecauseitisunlikelytohaveusersdependentonitsfinancialreports.
C.likelytobeareportingentitybecausetherearetwoshareholdersanditisanexemptproprietaryentity.
D.notareportingentitybecausesmallproprietarycompaniesarefrequentlynotconsideredreportingentities.

ChapterChapter02#23
Difficulty:Medium
Section:2.05StructureoftheConceptualFramework
Section:2.06Buildingblocksofaconceptualframework

24.BowenPtyLtdisasmallproprietarycompanywithsevendirectors.Fourofthesevendirectorsown75%of
theordinarysharesandtheremainingsharesareownedbyfamilymembersofthedirectors.Thecompanyalso
has15tradecreditorsandanopenlineofcreditwithonestatebank.IsBowenPtyLtdareportingentityand
hencerequiredtopreparegeneralpurposefinancialreports?
A.Yes,becausedependentusersoffinancialreportsexist.
B.Yes,becausetherearetradecreditorswhoareexternalusers.
C.No,becauseitisasmallproprietaryfirm.
D.No,becausetherearenoobvioususerswhoareunabletocommandthepreparationofinformationfromthe
entity.

ChapterChapter02#24
Difficulty:Medium
Section:2.05StructureoftheConceptualFramework
Section:2.06Buildingblocksofaconceptualframework

25.Whichofthefollowingstatement(s)is/aretrueofgeneralpurposefinancialreports?
A.Generalpurposefinancialreportsshouldbepreparedbyallreportingentities.
B.Generalpurposefinancialreportsarereportsthatcomplywithstatementsofaccountingconceptsand
accountingstandards.
C.Generalpurposefinancialreportsareintendedtomeettheinformationneedscommontouserswhoareable
tocommandthepreparationofreports.
D.Generalpurposefinancialreportsshouldbepreparedbyallreportingentitiesandgeneralpurposefinancial
reportsarereportsthatcomplywithstatementsofaccountingconceptsandaccountingstandards.

ChapterChapter02#25
Difficulty:Medium
Section:2.05StructureoftheConceptualFramework
Section:2.06Buildingblocksofaconceptualframework

26.WhichofthefollowingareconsideredintheAASBFrameworkasprimaryqualitativecharacteristics?
A.relevance,faithfulrepresentation,materialityandcomparability
B.relevance,faithfulrepresentation,timelinessandunderstandability
C.relevance,faithfulrepresentation,understandabilityandcomparability
D.materiality,faithfulrepresentation,understandabilityandcomparability

ChapterChapter02#26
Difficulty:Medium
Section:2.06Buildingblocksofaconceptualframework

27.Whenpreparingfinancialreportsusersareassumedtohaveareasonableknowledgeofthebusinessand
economicactivitiesandaccountingandawillingnesstostudytheinformationwithreasonablediligence'.This
statementisconsistentwiththequalitativecharacteristicof:
A.materiality.
B.faithfulrepresentation.
C.understandability.
D.comparability.

ChapterChapter02#27
Difficulty:Medium
Section:2.06Buildingblocksofaconceptualframework

28.JamesCookLtdboughtapieceofland10yearsagoandthemarketvalueofthispropertyisnowworthfive
timesitspurchasecost.TheaccountantsuggestedthatJamesCookLtdshouldrevaluetheasset.Thisnotionis
consistentwiththequalitativecharacteristicof:
A.relevance.
B.faithfulrepresentation.
C.understandability.
D.comparability.

ChapterChapter02#28
Difficulty:Medium
Section:2.06Buildingblocksofaconceptualframework

29.TheauditofthefinancialreportsofMatildaLtdhadbeencompletedexceptfortheoutcomeofamaterial
contingentliabilitythatisstillsubjecttotheoutcomeofacourtdecision.Thecaseisstillongoingbutitis
expectedthatadecisionwillbemadeafterthreemonths.Thedeadlineforsubmittingthefinancialreportsis
nextmonth.Whichactionisconsistentwiththenotionoftimeliness'inthepreparationoffinancialreports?
A.MatildaLtdshouldwaitforthecourtdecisiontobecompletedbeforereleasingthefinancialreportsasthe
amountoftheliabilityismaterial.
B.MatildaLtdshouldreleasethefinancialreportonorbeforethedeadlinebutexcludethecontingentliability
fromthereportastheoutcomeisstilluncertain.
C.MatildaLtdshouldreleasethefinancialreportonorbeforethedeadlinebutdisclosethecontingentliability
inthenotestotheaccounts.
D.MatildaLtdmustwaitforthecourtdecisiontobecompletedbeforereleasingthefinancialreportsasitis
expectedtooccurinthenearfutureanyway(i.e.threemonths).

ChapterChapter02#29
Difficulty:Medium
Section:2.06Buildingblocksofaconceptualframework

30.TheFrameworkidentifiestwoaspectstofinancialinformationthatarerelevant'.Theseare:
A.verifiabilityandunderstandability.
B.predictabilityandverifiability.
C.neutralityandverifiability.
D.prudenceandneutrality.

ChapterChapter02#30
Difficulty:Medium
Section:2.06Buildingblocksofaconceptualframework

31.TheIASBConceptualFrameworkforFinancialReporting(asreleasedin2010),requiresthatgeneral
purposefinancialreportsdiscloseinformationthatis:
A.relevanttotheassessmentofprofit,fundingandinvesting,andcompliance.
B.relevanttotheassessmentoffinancialandsocialperformance,financialpositionandfundingandinvesting,
andincludesinformationaboutcompliance.
C.relevanttotheassessmentofperformance,financialpositionandfundingandinvesting,including
informationaboutcompliance.
D.relevanttotheassessmentofperformance,financialpositionandcashflows.

ChapterChapter02#31
Difficulty:Easy
Section:2.06Buildingblocksofaconceptualframework

32.TheFrameworkoutlinestwounderlyingassumptionsoffinancialstatements.Theseare:
A.fairvaluebasisandinsolvencyassumption.
B.accrualbasisofaccountingandgoingconcernassumption.
C.cashbasisofaccountingandinsolvencyassumption.
D.historicalcostaccountingandlimitedlifeconcept.

ChapterChapter02#32
Difficulty:Easy
Section:2.06Buildingblocksofaconceptualframework

33.Whichofthefollowingactionsbestdescribesthequalitativecharacteristicrelevance'?
A.ThefinancialreportofKMCLtdwasauditedbyoneoftheBig4fouraccountingfirms.
B.DGComittedasalestransactionequalto10.5%ofitsaccountsreceivable.
C.MCBLtdandDGCLtdbothuseaccelerateddepreciationmethod.
D.GEPLtddidnotrevalueitsintangibleassetsbecauseitwasdifficulttoobtainthefairvalueoftheassets.

ChapterChapter02#33
Difficulty:Hard
Section:2.06Buildingblocksofaconceptualframework

34.Whichofthefollowingstatement(s)is/aretrueofthequalitativecharacteristicfaithfulrepresentation'?
A.informationthatisfreefrommaterialbiasanderror
B.informationthatfaithfullyrepresentswhatitpurportstorepresent
C.informationthatshouldaffectthedecisionsoffinancialstatementusers
D.informationthatisfreefrommaterialbiasanderror,completedescriptionandthatfaithfullyrepresentswhat
itpurportstorepresent

ChapterChapter02#34
Difficulty:Medium
Section:2.06Buildingblocksofaconceptualframework

35.WhichofthefollowingactionsareconsistentwiththeDoctrineofConservatism?
A.deliberateoverstatementofexpensestoreduceprofits
B.excessiveprovisionsforwarrantyexpenses
C.carefulassessmentofdoubtfuldebts
D.adoptionofaccelerateddepreciationmethodtoreduceprofits

ChapterChapter02#35
Difficulty:Easy
Section:2.05StructureoftheConceptualFramework
Section:2.08Acriticalreviewofconceptualframeworks

36.Whichofthefollowingis/arecharacteristicsofcomparability'?
A.Usersmustbeabletocomparethefinancialreportsofanentitywiththefinancialreportsofashareholder.
B.Usersmustbeabletocomparethecurrentfinancialreportswithpriorperiodfinancialreportsofanentity.
C.Usersmustbeabletocomparethefinancialreportsofanentitywiththefinancialreportsofanotherentity.
D.Usersmustbeabletocomparethecurrentfinancialreportswithpriorperiodfinancialreportsofanentity
andusersmustbeabletocomparethefinancialreportsofanentitywiththefinancialreportsofanotherentity.

ChapterChapter02#36
Difficulty:Medium
Section:2.06Buildingblocksofaconceptualframework

37.Whichofthefollowingstatement(s)is/aretrueofthequalitativecharacteristiccomparability'?
A.Afinancialreportmustshowcorrespondingresultsfortheprecedingperiod.
B.Afinancialreportmustbepresentedinaconsistentmanner,hence,anentitymustadoptsimilaraccounting
policiesfromperiodtoperiodeventhoughamorereliableandrelevantalternativeexist.
C.Afinancialreportmustcontainallmaterialandrelevantitems.
D.Afinancialreportmustshowcorrespondingresultsfortheprecedingperiodandbepresentedinaconsistent
manner,hence,anentitymustadoptsimilaraccountingpoliciesfromperiodtoperiodeventhoughamore
reliableandrelevantalternativeexist.

ChapterChapter02#37
Difficulty:Medium
Section:2.06Buildingblocksofaconceptualframework

38.Whenastandardrestrictsthenumberofaccountingmethodstobeusedtoaccountforaparticular
accountingissue,itispromotingthequalitativecharacteristicof______________?
A.timeliness
B.prudence
C.understandability
D.comparability

ChapterChapter02#38
Difficulty:Medium
Section:2.06Buildingblocksofaconceptualframework

39.TheaccountantofBrokenBayLtddecidedtoretainthehistoricalcostoftheentity'sintangibleassets
becauseitwasdifficulttoobtainfairvalueoftheseassets.Thisactionisconsistentwith____________.
A.substanceoverform
B.balancingofrelevanceandfaithfulrepresentation
C.accrualaccounting
D.cashaccounting

ChapterChapter02#39
Difficulty:Easy
Section:2.06Buildingblocksofaconceptualframework

40.TheIASBConceptualFrameworkadoptswhichapproachtodeterminingprofits?
A.revenue/expenseapproach
B.matchingprincipleapproach
C.asset/liabilityapproach
D.cashbasisapproach

ChapterChapter02#40
Difficulty:Easy
Section:2.06Buildingblocksofaconceptualframework

41.ThekeycharacteristicsofanassetasdefinedintheFrameworkinclude:
A.Theremustbefutureeconomicbenefits.
B.Thereportingentitymustcontrolthefutureeconomicbenefits.
C.Theassetresultsfrompasttransactions.
D.allofthegivenanswers.

ChapterChapter02#41
Difficulty:Easy
Section:2.06Buildingblocksofaconceptualframework

42.Whichofthefollowingitemsisnotconsideredanasset?
A.patents
B.researchexpensesofanR&Dproject
C.equipmentunderleasewheretherisksandrewardsflowsintotheentity
D.researchexpensesofanR&Dprojectandequipmentunderleasewheretherisksandrewardsflowsintothe
entity

ChapterChapter02#42
Difficulty:Medium
Section:2.06Buildingblocksofaconceptualframework

43.JacksonLtdisdevelopingcomputersoftwareforuseinitscourierdeliveryservicebusiness.Sofarthe
companyhadspent$50000butthesoftwareisstillunfinishedandnotexpectedtobefinishedintimeforthe
preparationofthereports.Asaresult,thecompanyhadtopurchaseacomputerpackageamountingto$100000
tofinaliseitsaccounts.Thereisnofurtherusefortheunfinishedsoftwareasitisexpectedthatthepurchased
computerpackagecouldbeusedbytheentityforanother10years.Whichaccountingtreatmentwouldbe
consistentwiththeFramework?
A.recogniseanassetof$150000
B.recogniseanexpenseof$150000
C.recogniseanassetof$100000andexpenseof$50000
D.recogniseanassetof$50000andexpenseof$100000

ChapterChapter02#43
Difficulty:Easy
Section:2.06Buildingblocksofaconceptualframework

44.Whichofthefollowingtransactionsdoesnotmeetthedefinitionofanasset?
A.depositforpurchaseofequipment
B.commitmenttopurchaseequipment
C.financeleasedequipment
D.purchaseofequipmentoncredit.

ChapterChapter02#44
Difficulty:Medium
Section:2.06Buildingblocksofaconceptualframework

45.MsMapleisanaccountingcadetforoneofthebigaccountingfirms.Sheisabitconfusedastowhichof
thefollowingsourcesshouldbereferredtofirstindealingwithanaccountingissue.
A.industrypractice
B.accountingstandards
C.conceptualframework
D.auditingstandards

ChapterChapter02#45
Difficulty:Medium
Section:2.05StructureoftheConceptualFramework

46.TheauditofLiverpoolLtdhadbeencompletedandtheauditseniorfortheengagementprepareditemsfor
discussion.Hearguesthatthefollowinglistofaccountingchangesviolatetheconsistencyqualitative
characteristicofaccountinginformation.Asauditmanager,whichofthefollowingitemsdoyouthinkare
worthyofdiscussionwiththeauditpartner?
A.Afterfiveyearsofusingstraightlinedepreciationforreportingpurposesandaccelerateddepreciationfortax
purposes,theentitydecidedtoadoptaccelerateddepreciationforreportingpurposes.
B.Thecompanyusesaninventoryvaluationmethodthatisdifferentfromthemethodusedbyothercompanies
intheindustry.
C.Theestimatedremainingusefullifeofanassetwasreducedduetotheincreaseinvolumeofuseoftheasset.
D.Thecompanydisposedofasubsidiarythathadbeenincludedinthefinancialreportsinprioryears.

ChapterChapter02#46
Difficulty:Medium
Section:2.06Buildingblocksofaconceptualframework

47.TheFramework'srecognitioncriteriaprovidesthatanassetisrecognisedinthebalancesheetwhenitis
________thatthefutureeconomicbenefitswillflowtotheentityandtheassethasacostorvaluethatcanbe
measured__________'.
A.possible;reliably
B.probable;accurately
C.probable;reliably
D.certain;accurately

ChapterChapter02#47
Difficulty:Easy
Section:2.06Buildingblocksofaconceptualframework

48.TheBlaxlandLtdfiledalawsuitagainstDMartMachineriesforfailuretocomplywiththespecificationsof
thefactoryequipmentthattheyorderedandreceived.ThesolicitorsforBlaxlandLtdstronglybelievethatthe
companywillreceive$50000to$100000iftheywinthecase.Whichactionisconsistentwiththe
Framework?
A.BlaxlandLtdshouldrecogniseareceivableof$75000,theexpectedvalueofthegain.
B.BlaxlandLtdshouldrecogniseareceivableof$50000,aconservativeestimateofthegain.
C.BlaxlandLtdshouldnotrecognisethereceivableuntilitisprobablethattheyhavewonthecase.
D.BlaxlandLtdshouldnotrecognisethereceivablebecausewhilethesolicitorisexpectingtowinthecase,the
receivablecannotbeestimatedreliably.

ChapterChapter02#48
Difficulty:Medium
Section:2.06Buildingblocksofaconceptualframework

49.Yourbestfriendfromhighschoolapproachesyoutoinvestinetrack'anupcominghightechcompany
whichheisconvincedwillmakehugeprofitsinthefuture.Youarescepticalofthebusinessventureandsay
thatyouwouldhavetolookupthefinancialstatementsofthecompanybeforeinvestingyourownmoney.He
sendsyouthefinancialreportandyounoticethatthereportisunauditedanddoesnotprovideprioryears'
resultseventhoughthefirmhadbeenoperatingforthelastthreeyears.
Basedontheaboveinformation,whichqualitativecharacteristicsislackinginetrack'sfinancialreports?
A.relevanceandfaithfulrepresentation
B.relevanceandtimeliness
C.comparabilityandconsistency
D.faithfulrepresentationandcomparability

ChapterChapter02#49
Difficulty:Medium
Section:2.06Buildingblocksofaconceptualframework

50.Whichofthefollowingstatement(s)is/aretruewithrespecttomateriality?
A.Materialityreferstothenotionthatanitemneednotberecognisedinthefinancialreports.
B.Materialityisaprimaryqualitativecharacteristic.
C.Materialityrelatestofinancialinformationwhereitsomissionormisstatementcouldinfluencetheeconomic
decisionsofusers.
D.Materialityrelatestofinancialinformationwhereitsomissionormisstatementcouldinfluencetheeconomic
decisionsthatusersmakeaboutaspecificreportingentity.

ChapterChapter02#50
Difficulty:Medium
Section:2.06Buildingblocksofaconceptualframework

51.Considerthefollowinginformation

Youareanaccountantforbothfirmsandwouldliketodeterminewhethertheimpairmentlossismaterialor
not.Whichofthefollowingstatement(s)is/arecorrect?
A.Theimpairmentlossforbothfirmsismaterial.
B.TheimpairmentlossforManlyLtdismaterial.
C.TheimpairmentlossforMosmanLtdismaterial.
D.Theimpairmentlossforbothfirmsisimmaterial.

ChapterChapter02#51
Difficulty:Easy
Section:2.06Buildingblocksofaconceptualframework

52.WhatguidelinesareavailableinAASB1031Materiality'toassistindeterminingthematerialityofan
item?
A.Iftheamountisequalorgreaterthan10%oftheappropriatebaseamount,theitemismaterial.
B.Iftheamountisequalorgreaterthan10%oftheappropriatebaseamount,theitemisimmaterial.
C.Iftheamountisequalorlessthan5%oftheappropriatebaseamount,theitemismaterial
D.Iftheamountisequalorgreaterthan10%oftheappropriatebaseamount,theitemismaterial;iftheamount
isequalorlessthan5%oftheappropriatebaseamount,theitemisimmaterial.

ChapterChapter02#52
Difficulty:Easy
Section:2.06Buildingblocksofaconceptualframework

53.Identifywhichqualitativecharacteristicoffinancialreportsisbestdescribedineachitembelow:

A.relevance,comparability,timeliness
B.faithfulrepresentation,consistency,understandability
C.faithfulrepresentation,comparability,timeliness
D.relevance,understandability,comparability

ChapterChapter02#53
Difficulty:Medium
Section:2.06Buildingblocksofaconceptualframework

54.Identifytheappropriatequalitativecharacteristicemployedinthefollowinginformation:

A.relevance,faithfulrepresentation,consistency
B.faithfulrepresentation,relevance,comparability
C.faithfulrepresentation,relevance,consistency
D.relevance,faithfulrepresentation,comparability

ChapterChapter02#54
Difficulty:Hard
Section:2.06Buildingblocksofaconceptualframework

55.InaccordancewithIASBConceptualFrameworkwhichofthefollowingisconsistentwiththedefinitionof
income?
A.increasesineconomicbenefitsduringtheaccountingperiodintheformofinflowsorenhancementsof
assetsordecreasesofliabilitiesthatresultinincreasesinequity,otherthanthoserelatingtocontributionsfrom
equityparticipants
B.increasesineconomicbenefitsduringtheaccountingperiodintheformofinflowsotherthanthoserelating
tocontributionsfromequityparticipants
C.increasesineconomicbenefitsduringtheaccountingperiodintheformofcashinflowsordecreasesof
liabilitiesthatresultinincreasesinequity,otherthanthoserelatingtocontributionsfromequityparticipants
D.Allofthegivenanswersarecorrect.

ChapterChapter02#55
Difficulty:Medium
Section:2.06Buildingblocksofaconceptualframework

56.InaccordancewithIASBConceptualFrameworkwhichofthefollowingtransaction(s)is/areconsistent
withadefinitionofincome?
A.collectionofaccountsreceivable
B.debtforgiveness
C.issueofsharecapital
D.collectionofaccountsreceivableanddebtforgiveness

ChapterChapter02#56
Difficulty:Easy
Section:2.06Buildingblocksofaconceptualframework

57.InaccordancewithIASBConceptualFrameworkwhichofthefollowingisconsistentwiththedefinitionof
expenses?
A.decreasesineconomicbenefitsduringtheaccountingperiodintheformofoutflowsotherthanthoserelating
todistributionstoequityparticipants
B.increasesineconomicbenefitsduringtheaccountingperiodintheformofinflowsorenhancementofassets
orincurrencesofliabilitiesthatresultindecreasesinequity,otherthanthoserelatingtodistributionstoequity
participants
C.decreasesineconomicbenefitsduringtheaccountingperiodintheformofoutflowsordepletionsofassets
orincurrencesofliabilitiesthatresultindecreasesinequity,otherthanthoserelatingtodistributionstoequity
participants
D.Allofthegivenanswersarecorrect.

ChapterChapter02#57
Difficulty:Medium
Section:2.06Buildingblocksofaconceptualframework

58.InaccordancewithIASBConceptualFrameworkwhichofthefollowingaccountsareexpenses?
A.dividendspaid
B.provisionforwarranties
C.entitydumpspollutantsinariveradjacenttoitsfactory
D.Noneofthegivenanswersarecorrect.

ChapterChapter02#58
Difficulty:Medium
Section:2.06Buildingblocksofaconceptualframework

59.Faithfulpresentationisoneonthetwoprimaryfundamentalqualitativecharacteristicsforfinancial
informationtobeuseful.AccordingtotheIASBConceptualFrameworkafinancialreportisfaithfully
presentedifitis:
A.consistent,freefrombiasandfreeofmaterialerror.
B.accurate,freefrombiasandfreeofmaterialerror.
C.complete,neutralandfreeofmaterialerror.
D.reliable,neutralandfreeofmaterialerror.

ChapterChapter02#59
Difficulty:Medium
Section:2.06Buildingblocksofaconceptualframework

60.Whichofthefollowingstatementsmostaccuratelyreflectsthequalitativecharacteristicsoffinancial
informationintheIASBConceptualFramework?
A.Theseattributesorqualitiesdeterminewhetheranentityisconsideredtobeareportingentity.
B.Theseareattributesorqualitiesthatfinancialinformationshouldpossessifitistobeusefulforsuchdecision
making.
C.Theseattributesorqualitiessatisfythedefinitionofelementsinthefinancialreports.
D.Allofthegivenanswersarecorrect.

ChapterChapter02#60
Difficulty:Medium
Section:2.06Buildingblocksofaconceptualframework

61.InadoptingthestandardsofIASB,Australianentitiesarerequiredtocomplywith:
A.theAustralianConceptualFrameworkandStatementofAccountingConcepts1to4.
B.theAustralianConceptualFrameworkandStatementofAccountingConcepts3and4.
C.theIASBFrameworkandtheStatementofAccountingConcepts3and4.
D.theIASBConceptualFrameworkandtheStatementofAccountingConcept1.

ChapterChapter02#61
Difficulty:Medium
Section:2.05StructureoftheConceptualFramework

62.WhichofthefollowingStatementofAccountingConceptsarestilloperationalinAustralia?
A.StatementofAccountingConcepts1to4
B.StatementofAccountingConcepts1to3
C.StatementofAccountingConcepts1
D.StatementofAccountingConcepts3and4

ChapterChapter02#62
Difficulty:Easy
Section:2.05StructureoftheConceptualFramework

63.Whichofthefollowingaccountingpoliciesisanexampleofatradeoffbetweenrelevanceandfaithful
representation?
A.Researchoutflowsareexpensedanddevelopmentactivitiesexpensesarecapitalised.
B.Biologicalassetsarestatedatfairvalueunlessthefairvaluecannotbemeasuredreliably.
C.Machineryandequipmentarereviewedperiodicallytoassessproprietyofusefullifeestimationsusedin
depreciation.
D.Allofthegivenanswersarecorrect.

ChapterChapter02#63
Difficulty:Medium
Section:2.06Buildingblocksofaconceptualframework

64.Whichofthefollowingaccountingpoliciesisanexampleofcostsversusbenefitsconstraintbeingexercised
inthedisclosureoffinancialinformation?
A.Inventoryisvaluedatlowerofcostormarket.
B.Property,plantandequipmentareappraisedandrevaluedeverythreeyears.
C.Biologicalassetsarestatedatfairvalueunlessthefairvaluecannotbemeasuredreliably.
D.Researchanddevelopmentcostsareexpensedasincurred.

ChapterChapter02#64
Difficulty:Medium
Section:2.07Measurementprinciples

65.Whatqualitiesshouldfinancialinformationpossesstobefaithfullyrepresented?

ChapterChapter02#65
Difficulty:Easy
Section:2.06Buildingblocksofaconceptualframework

66.Theframeworkidentifiedsomeconstraintsthatpreparersshouldconsiderinthepreparationoffinancial
reports.Identifyanddiscusstheseconstraints.

ChapterChapter02#66
Difficulty:Medium
Section:2.06Buildingblocksofaconceptualframework

67.Liabilitiesthatarelegallyenforceableandequitablyorconstructivelyunavoidablemustberecognisedif
theycanbemeasuredreliably'.Discuss.

ChapterChapter02#67
Difficulty:Medium
Section:2.06Buildingblocksofaconceptualframework

68.Discussthebenefitsofaconceptualframework

ChapterChapter02#68
Difficulty:Medium
Section:2.03Benefitsofaconceptualframework

69.Discusssomeofthecriticismsoftheconceptualframework.

ChapterChapter02#69
Difficulty:Easy
Section:2.08Acriticalreviewofconceptualframeworks

70.Identifyanddiscussthefundamentalqualitativecharacteristicsoffinancialinformationidentifiedinthe
IASBConceptualFrameworkforFinancialReporting.

ChapterChapter02#70
Difficulty:Medium
Section:2.06Buildingblocksofaconceptualframework

71.WiththeconvergenceprojectbetweenIASBandFASBexplainwhythereisaneedforarevised
conceptualframework.

ChapterChapter02#71
Difficulty:Medium
Section:2.04Currentinitiativestodeveloparevisedconceptualframework

72.DiscussissuescoveredbyIASBandtheUSFASBwithrespecttomeasurementprinciplesinthe
developmentofacommonconceptualframework.

ChapterChapter02#72
Difficulty:Medium
Section:2.07Measurementprinciples

Chapter02Summary
Category

#ofQuestions

ChapterChapter02

72

Difficulty:Easy

29

Difficulty:Hard

Difficulty:Medium

41

Section:2.01AustraliasuseoftheIASBConceptualFramework

Section:2.02Whatisaconceptualframework?

Section:2.03Benefitsofaconceptualframework

Section:2.04Currentinitiativestodeveloparevisedconceptualframework

Section:2.05StructureoftheConceptualFramework

11

Section:2.06Buildingblocksofaconceptualframework

48

Section:2.07Measurementprinciples

Section:2.08Acriticalreviewofconceptualframeworks