CFAS - CHAPTER 2

Question 1

Which is true about the Conceptual Framework?

a. The Conceptual Framework is not a Standard.
b. The Conceptual Framework describes the concepts for general purpose financial reporting.
c. In case of conflict, the requirements of the IFRS prevail over the Conceptual Framework
d. All of these statements are true.

Answer 1

d. All of these statements are true.

Question 2

Which is not a purpose of Conceptual Framework?

a. To assist the IASB in developing IFRS.
b. 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
c. To assist all parties to understand and interpret the Standards.
d. To assist regulatory agencies in issuing rules and regulations for a particular industry.

Answer 2

d. To assist regulatory agencies in issuing rules and regulations for a particular industry.

Question 3

What is the authoritative status of the Framework?

a. The Conceptual Framework has the highest level of authority.
b. In the absence of a standard or an interpretation, the Conceptual Framework shall be followed.
c. In the absence of a standard or an interpretation, management shall consider, the Conceptual Framework in developing and applying an accounting policy that results in information that is relevant and reliable.
d. The Conceptual Framework applies only when the IASB develops new standards.

Answer 3

c. In the absence of a standard or an interpretation, management shall consider, the Conceptual Framework in developing and applying an accounting policy that results in information that is relevant and reliable.

Question 4

The Conceptual Framework is intended to establish

a. GAAP 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 accounting and reporting.
d. The hierarchy of sources of GAAP.

Answer 4

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

Question 5

The underlying theme of the Conceptual Framework is

a. Decision usefulness
b. Understandability
c. Timeliness
d. Comparability

Answer 5

a. Decision usefulness

Question 6

A Conceptual Framework should

a. Lead to uniformity of financial statements
b. Eliminate alternative accounting principles.
c. Guide multinational entities in developing GAAP
d. Define the basic objectives, terms and concepts.

Answer 6

d. Define the basic objectives, terms and concepts.

Question 7

Which of the following is not a benefit associated t the Conceptual Framework?

a. A Conceptual Framework should increase users understanding and confidence in financial reporting
b. Pratical problems should be more quickly solvable
c. A coherent set of accounting standards should result
d. Business entities will need far less assistance from accountants.

Answer 7

d. Business entities will need far less assistance from accountants.

Question 8

Which is not true about the Conceptual Framework?

a. The Conceptual Framework should be a basis for standard setting.
b. The Conceptual Framework should allow practical problems to be solved more quickly.
c. The Conceptual Framework should be based on fundamental truth derived from law
d. The Conceptual Framework should increase users’ understanding and confidence in financial reporting.

Answer 8

c. The Conceptual Framework should be based on fundamental truth derived from law

Question 9

Which is not a purpose of the Conceptual Framework?

a. To provide definitions of key terms and fundamental concepts
b. To provide specific guidelines for resolving situations not covered by existing accounting standards.
c. To assist accountants in selecting among alternative accounting and reporting methods.
d. To assist the International Accounting Standards Board in the standard-setting process.

Answer 9

b. To provide specific guidelines for resolving situations not covered by existing accounting standards.

Question 10

Which is not a purpose of the Conceptual Framework?

a. To enable the accountancy profession to solve more quickly emerging practical problems.

b. To provide a foundation from which to build more useful financial accounting standards.

c. To enhance comparability of financial statements across entities.

d. To assist the Board of Accountancy to promulgate rules and regulations affecting the accountancy professioin.

Answer 10

a. To enable the accountancy profession to solve more quickly emerging practical problems.

Question 11

Users of financial reports include which of the following?

a. Creditors
b. Creditors and government agencies.
c. Creditors and unions
d. Creditors, government agencies and unions

Answer 11

d. Creditors, government agencies and unions

Question 12

The primary users of financial information include

a. Existing and potential investors
b. Existing and potential lenders and other creditors
c. User group such as employees, customers, governments and their agencies, and the public
d. Existing and potential investors, lenders and other creditors

Answer 12

d. Existing and potential investors, lenders and other creditors

Question 13

Which group is not among the external users for whom financial statements are prepared?

a. Customers
b. Suppliers
c. Employees
d. All of these are external users of financial statements

Answer 13

d. All of these are external users of financial statements

Question 14

Which of the following is an internal user of financial information?

a. Board of Directors
B. Shareholder
c. Bondholder
d. Creditor with long-term contract

Answer 14

a. Board of Directors

Question 15

These users require information on risk and return provided by their investment.

a. Investors
b. Employees
c. Lenders
d. Customers

Answer 15

a. Investors

Question 16

These users are interested in information about the profitability and stability of the entity in order to assess the ability of the entity to provide remuneration, retirement benefits and employment opportunities.

a. Customers
b. The public
c. Governments and their agencies
d. Employees

Answer 16

d. Employees

Question 17

These users are interested in information that enables them to assess whether their loans, the related interest thereon, and other amounts owing to them will be paid when due.

a. Lenders and other creditors
b. Borrowers
c. Trade creditors
d. Owners

Answer 17

a. Lenders and other creditors

Question 18

These users are interested in information about the continuance of an entity, especially when they have a long-term involvement with or are dependent on the entity.

a. Customers
b. Employees
c. Trade unions
d. Suppliers

Answer 18

a. Customers

Question 19

These users are interested in information in order to regulate the activities of an entity, determine taxation policies and provide a basis for national statistics.

a. Governments and their agencies
b. Major organization of users
c. Bureau of Internal Revenue
d. Department of Finance

Answer 19

d. Department of Finance

Question 20

These users need information on trends and recent developments where an entity makes a substantia contribution to the local economy providing employment and using local suppliers.

a. The public
b. Governments and their agencies
c. Finance entities
d. Private entities

Answer 20

a. The public

Question 21

The overall objective of financial reporting is to provide information

a. That is useful for decision making.
b. About assets, liabilities and equity of an entity.
c. About financial performance during a period.
d. That allows owners to assess management performance.

Answer 21

a. That is useful for decision making.

Question 22

The primary focus of financial reporting has been on meeting the needs of which of the following groups?

a. Management
b. Existing and potential investors, lenders and other creditors
c. National taxing authorities
d. Independent CPAs

Answer 22

b. Existing and potential investors, lenders and other creditors

Question 23

The primary objective of financial reporting is to provide useful information to

a. Management
b. Capital providers
c. Regulatory body
d. Government

Answer 23

b. Capital providers

Question 24

Which is an objective of financial reporting?

a. To provide information useful in making investing and credit decisions.
b. To provide information useful to management.
c. To provide information about the potential users.
d. To provide information about ways to solve internal and external conflicts about the entity.

Answer 24

a. To provide information useful in making investing and credit decisions.

Question 25

Which is an objective of financial reporting?

a. To provide information useful to management in making decisions.

b. To provide information that clearly portrays nonfinancial transactions..

c. To provide information useful to assess the amount, timing, and uncertainty of prospective cash receipts.

d. To provide information that excludes claims against
the resources.

Answer 25

c. To provide information useful to assess the amount, timing, and uncertainty of prospective cash receipts.

Question 26

An objective of financial reporting is to provide

a. Information about the investors in the entity.
b. Information about the liquidation value.
c. Information useful in assessing cash flow prospects.
d. Information that will attract new investors.

Answer 26

c. Information useful in assessing cash flow prospects.

Question 27

Assessing cash flow prospects is interpreted to mean

a. Cash basis accounting is preferred over accrual basis

b. Information about the financial effects of cash receipts and cash payments is generally considered the best indicator of ability to generate favorable cash flows.

c. Over the long run, trends in revenue and expenses are generally more meaningful than trends in cash receipts and disbursements.

d. All of the choices are correct regarding assessing cash flow prospects.

Answer 27

b. Information about the financial effects of cash receipts and cash payments is generally considered the best indicator of ability to generate favorable cash flows.

Question 28

In measuring financial performance, accrual accounting is used because

a. Cash flows are considered less important.
b. It provides a better indication of ability to generate cash flows than cash basis.
c. It recognizes revenue when cash is received.
d. It is one of the implicit assumptions.

Answer 28

b. It provides a better indication of ability to generate cash flows than cash basis.

Question 29

The most useful information in predicting future cash flows is

a. Information about current cash flows
b. Current earnings based on accrual accounting
c. Information regarding the accounting policies used
d. Information regarding, the results obtained by using a wide variety of accounting policies

Answer 29

b. Current earnings based on accrual accounting

Question 30

The accrual basis of accounting is most useful for

a. Determining the amount of income tax liability.
b. Predicting the short-term financial performance.
c. Predicting the long-term financial performance.
d. Determining the amount of dividends to be declared.

Answer 30

c. Predicting the long-term financial performance.

Question 31

The objective of financial reporting is based on

a. The need for conservatism
b. Reporting on management stewardship
c. Generally accepted accounting principles
d. The needs of the users of the information

Answer 31

d. The needs of the users of the information

Question 32

Which statement is not true about financial reporting?

a. Financial reporting shall provide information about resources, claims and changes in resources.

b. Financial reporting shall not provide information useful in evaluating management stewardship.

c. Financial reporting shall provide information useful in investment, credit and similar decision.

d. Financial reporting shall provide information useful in assessing cash flow prospects.

Answer 32

b. Financial reporting shall not provide information useful in evaluating management stewardship.

Question 33

Which is not an objective of financial reporting?

a. To provide information about assets and claims, against the assets
b. To provide information useful in assessing sources and uses of cash
c. To provide information useful in lending and investing decisions
d. To provide information about the liquidation value of an entity.

Answer 33

d. To provide information about the liquidation value of an entity.

Question 34

Financial reporting pertains to information about

a. Individual business entities, rather than to industries or an economy or to members of society as consumers.

b. Industries, rather than to individual entities or an economy or to meinbers, of society as consumers.

c. Individual business entities, industries and an economy as a whole, rather than to members of society.

d. An economy and to members of society as consumers, rather than to individual entities or industries.

Answer 34

a. Individual business entities, rather than to industries or an economy or to members of society as consumers.

Question 35

Financial reporting provides information about

a. Entity performance and management performance
b. Management performance but not entity performance
c. Entity performance but not management performance
d. Neither entity performance nor management performance.

Answer 35

a. Entity performance and management performance