Ch. 5 - quiz

Question 1

The overarching objective of IFRS accounting is to provide decisionuseful information, in particular, for investors.

True or False

Answer 1

True

Question 2

To be decision-useful, information must be relevant, i.e., capable of making a difference to the decision maker.

True or False

Answer 2

True

Question 3

Decision-usefulness can only be defined with reference to a specific user of financial statements. However, different users may have different information needs.

True or False

Answer 3

True

Question 4

The going-concern assumption assumes that the entity will be liquidated within the next period and not continue its operations.

True or False

Answer 4

False

Question 5

The IFRS framework defines equity simply as the residual interest in the assets of the entity after deducting all its liabilities.

True or False

Answer 5

True

Question 6

Other comprehensive income (OCI) are gains and losses from changes in current values of assets and liabilities that are not reported in the statement of profit or loss.

True or False

Answer 6

True

Question 7

Historical cost information is often very relevant to financial statement users, but in comparison to current value information (e.g., fair value) historical cost information is typically less reliable.

True or False

Answer 7

False

Question 8

Indicate whether assets exist in the following case:
company has entered a 9-month lease agreement to rent a business office

Yes or No

Answer 8

Yes

Question 9

Indicate whether assets exist in the following case:
costs of a high-level executive development course for the company’s top management

Yes or No

Answer 9

No

Question 10

Indicate whether assets exist in the following case:
company has acquired the right to use a well-known brand name

Yes or No

Answer 10

Yes

Question 11

Indicate whether assets exist in the following case:
expenditure on a promising research project

Yes or No

Answer 11

Yes

Question 12

Indicate whether assets exist in the following case:
building bequeathed to a company

Yes or No

Answer 12

Yes

Question 13

Indicate whether assets exist in the following case:
unsigned, documented contractual agreement to build specialised equipment for a client

Yes or No

Answer 13

No

Question 14

Indicate whether assets exist in the following case:
exploration project to find oil in the arctic sea (10% chance of finding oil that can be exploited commercially)

Yes or No

Answer 14

Yes

Question 15

Indicate whether assets exist in the following case:
the company holds a 5-year option to acquire property which was purchased by the company a year ago

Yes or No

Answer 15

Yes

Question 16

Indicate whether liabilities exist in the following case:
the company is being sued for injuries sustained by an employee who claims that the workplace steps he fell down were unsafe

Yes or No

Answer 16

Yes

Question 17

Indicate whether liabilities exist in the following case:
the company has placed an order for raw materials with one of its regular suppliers (the material has not been delivered yet)

Yes or No

Answer 17

No

Question 18

Indicate whether liabilities exist in the following case:
our company signs a contract to build a customized machine for a customer in the U.S.; the customer will pay after the machine has been
installed

Yes or No

Answer 18

Yes

Question 19

Indicate whether liabilities exist in the following case:
the company has unsecured notes of $ 1,000,000 outstanding

Yes or No

Answer 19

Yes

Question 20

Indicate whether liabilities exist in the following case:
the company has a loan of $1,000,000 outstanding which is secured by a mortgage on the company headquarter

Yes or No

Answer 20

Yes

Question 21

Indicate whether liabilities exist in the following case:
the company prepares its financial statements at the year-end; the company has a loan of $ 1,000,000 outstanding on which interest is payable annually, on the 15th of December

Yes or No

Answer 21

Yes

Question 22

Indicate whether liabilities exist in the following case:
at the end of the financial year, the company’s employees are still entitled to 2,475 vacation days related to the past year

Yes or No

Answer 22

Yes

Question 23

What is the objective of general purpose financial statements in accordance with the IFRS Conceptual Framework for Financial Reporting?

A. … providing the management of the company with information about the financial position and performance of the company.

B. … providing information about the company that is useful to present and future investors, lenders and other creditors in making decisions about providing resources to the company.

C. … providing a starting point for determining payouts to shareholders.

D. … providing a starting point for determining tax payments of the company

Answer 23

B

Question 24

What is the main purpose of the IFRS Conceptual Framework for Financial Reporting?

A. The Conceptual Framework provides answers to accounting issues and problems which companies encounter in practice and which are not covered in IFRS standards or interpretations.

B. Whereas IFRS standards present rules for the recognition and measurement assets and liabilities in the balance sheet (Statement of Financial Position), the Conceptual Framework provides rules for the recognition and measurement of income and expenses in the Statement of Income.

C. Whereas IFRS standards present rules for the recognition and measurement of assets, liabilities, income and expenses, the Conceptual Framework provides detailed rules for disclosures in the Notes.

D. The Conceptual Framework outlines the objectives of financial reporting and defines the elements of financial tatements (assets, liabilities, income, expenses). The purpose is mainly to guide the IASB itself in the development of new IFRS standards.

Answer 24

D

Question 25

Which qualitative characteristics are fundamental to general purpose financial statements according to IFRS Conceptual Framework for Financial Reporting?

A. relevance and comparability

B. relevance and verifiability

C. relevance and faithful representation

D. faithful representation and understandability

Answer 25

C

Question 26

Which set of characteristics best describes the qualitative characteristic “faithful representation” according to The IFRS Conceptual Framework for Financial Reporting?

A. completeness and neutrality

B. neutrality, freedom from error and verifiability

C. completeness, neutrality and freedom from error

D. neutrality, verifiability and understandability

Answer 26

C

Question 27

How is an asset defined according to the IFRS Conceptual Framework for Financial Reporting?

A. An asset is a present economic ressource owned by the entity as a result of
past events

B. An asset is a present economic ressource controlled by the entity as a result of past events.

C. An asset is a benefit controlled by a company as a result of past transactions
and events.

D. An asset is a past economic resource controlled by the entity as a result of current events.

Answer 27

B

Question 28

The accrual assumption of accounting …

A. ensures that accounting records and statements are based on the most reliable data available.

B. holds that the entity will remain in operation for the foreseeable future.

C. ensures that transactions and events are recognized when they are economically caused.

D. enables accountants to ignore the effect of inflation in the accounting records

Answer 28

C

Question 29

Which of the following best describes a liability?

A. Liabilities are a form of paid-in capital.

B. Liabilities are future economic benefits to which a company is entitled.

C. Liabilities are debts payable to outsiders called creditors.

D. Liabilities are current economic
obligations to owners to be paid at some
future date by the corporation.

Answer 29

C

Question 30

Expenses are …

A. Expenses are increases in liabilities resulting from purchasing assets.

B. Expenses are increases in assets resulting from operations.

C. Expenses are decrease in liabilities earnings resulting from operations.

D. Expenses are decreases in equity resulting from operations

Answer 30

D