FAR1C2 C

Question 1

How does information about priorities and payment requirements of existing claims can help users?

Answer 1

It can help users to predict how future cash flows will be distributed among those with a claim against the reporting entity.

Question 2

How does information about priorities and payment requirements of existing claims can help users?

It can help users to — how future cash flows will be — among those with a — against the — entity.

Answer 2

It can help users to predict how future cash flows will be distributed among those with a claim against the reporting entity.

Question 3

What general purpose financial reports provide in terms of changes in economic resources and claims?

It provides — about the — of — and other events that — the economic — and —. Changes and economic resources and claims results from financial — and from other — or —, such as issuing — or equity —.

Answer 3

It provides information about the effects of transactions and other events that change the economic resources and claims. Changes and economic resources and claims results from financial performance and from other events or transactions, such as issuing debt or equity instruments.

Question 4

What is financial performance?

The financial performance of an entity comprises —, — and net – or — for a period of time. In other words, financial performance is the — of — earned by the entity through the efficient and effective use of its —. The financial performance of an entity is also known as — of — and is portrayed in the — — and statement of — —.

Answer 4

The financial performance of an entity comprises revenue, expenses and net income or loss for a period of time. In other words, financial performance is the level of income earned by the entity through the efficient and effective use of its resources. The financial performance of an entity is also known as results of operations and is portrayed in the income statement and statement of comprehensive income.

Question 5

It comprises revenue, expenses and net income or loss for a period of time. In other words, it is the level of income earned by the entity through the efficient and effective use of its resources. It is also known as results of operations and is portrayed in the income statement and statement of comprehensive income.

Answer 5

Financial performance

Question 6

It comprises revenue, expenses and net income or loss for a period of time. In other words, it is the level of income earned by the entity through the efficient and effective use of its resources.

Answer 6

Financial performance

Question 7

It is also known as results of operations and is portrayed in the income statement and statement of comprehensive income.

Answer 7

Financial performance

Question 8

Explain four (4) usefulness of financial performance.

1) Information about financial performance helps users to — the — that the entity has — on the economic —.
2) Information about the return the entity has produced provides an — of how — management has — its responsibilities to make — and — use of the entity’s economic —.
3) Information about past financial performance is usually helpful in — the — — on the entity’s economic —.
4) Information about financial performance during a period is useful in — the entity’s ability to — future cash — from —.

Answer 8

1) Information about financial performance helps users to understand the return that the entity has produced on the economic resources.
2) Information about the return the entity has produced provides an indication of how well management has discharged its responsibilities to make efficient and effective use of the entity’s economic resources.
3) Information about past financial performance is usually helpful in predicting the future returns on the entity’s economic resources.
4) Information about financial performance during a period is useful in assessing the entity’s ability to generate future cash inflows from operations.

Question 9

What is accrual accounting?

It depicts the effects of — and other — and — on an entity’s economic — and — in the periods in which those effects — even if the resulting cash receipts and payments occur in a — period. In other words, under the accrual basis, the — of — and other — are recognized when they — and not as cash is — or —. It simply stated, accrual accounting means that income is — when — regardless of when — and — is recognized when — regardless of when —.

Answer 9

It depicts the effects of transactions and other events and circumstances on an entity’s economic resources and claims in the periods in which those effects occur even if the resulting cash receipts and payments occur in a different period. In other words, under the accrual basis, the effects of transactions and other events are recognized when they occur and not as cash is received or paid. It simply stated, accrual accounting means that income is recognized when earned regardless of when received and expense is recognized when incurred regardless of when paid.

Question 10

It depicts the effects of transactions and other events and circumstances on an entity’s economic resources and claims in the periods in which those effects occur even if the resulting cash receipts and payments occur in a different period. In other words, under the accrual basis, the effects of transactions and other events are recognized when they occur and not as cash is received or paid. It simply stated, accrual accounting means that income is recognized when earned regardless of when received and expense is recognized when incurred regardless of when paid.

Answer 10

Accrual accounting

Question 11

It depicts the effects of transactions and other events and circumstances on an entity’s economic resources and claims in the periods in which those effects occur even if the resulting cash receipts and payments occur in a different period.

Answer 11

Accrual accounting

Question 12

In other words, under this basis, the effects of transactions and other events are recognized when they occur and not as cash is received or paid.

Answer 12

Accrual accounting

Question 13

It means that income is recognized when earned regardless of when received and expense is recognized when incurred regardless of when paid.

Answer 13

Accrual accounting

Question 14

How does information about financial performance measured?

It is measured in accordance with — —. Because it provides a — — for — — and — — than — solely about — — and — during a period.

Answer 14

It is measured in accordance with accrual accounting. Because it provides a better basis for assessing past and future performance than information solely about cash receipts and payments during a period.

Question 15

What are the four (4) limitations of financial reporting?

1) General purpose financial reports do not and cannot provide all of the — that existing and potential investors, lenders and other creditors —.
These users need to consider — — from other —, for example, general economic conditions, political events and industry outlook.
2) General purpose financial reports are not — to show the — of an — but the reports — — to help the primary users — the value of the entity.
3) General purpose financial reports are intended to — — — to users and — accommodate every — for —.
4) To a large extent, general purpose financial reports are based on — and — rather than — —.

Answer 15

1) General purpose financial reports do not and cannot provide all of the information that existing and potential investors, lenders and other creditors need.
These users need to consider pertinent information from other sources, for example, general economic conditions, political events and industry outlook.
2) General purpose financial reports are not designed to show the value of an entity but the reports provide information to help the primary users estimate the value of the entity.
3) General purpose financial reports are intended to provide common information to users and cannot accommodate every request for information.
4) To a large extent, general purpose financial reports are based on estimate and judgement rather than exact depiction.

Question 16

What are accounting assumptions?

They are the basic — or fundamental — on which the accounting process is —. They are also known as —. They serve as the — of accounting in order to — — but rather — the — and — of the financial statements.

Answer 16

They are the basic notions or fundamental premises on which the accounting process is based. They are also known as postulates. They serve as the foundation of accounting in order to avoid misunderstanding but rather enhance the understanding and usefulness of the financial statements.

Question 17

They are the basic notions or fundamental premises on which the accounting process is based. They are also known as postulates. They serve as the foundation of accounting in order to avoid misunderstanding but rather enhance the understanding and usefulness of the financial statements.

Answer 17

Accounting assumptions

Question 18

They are the basic notions or fundamental premises on which the accounting process is based.

Answer 18

Accounting assumptions

Question 19

They are also known as postulates.

Answer 19

Accounting assumptions

Question 20

They serve as the foundation of accounting in order to avoid misunderstanding but rather enhance the understanding and usefulness of the financial statements.

Answer 20

Accounting assumptions

Question 21

What is the only assumption mention by the Conceptual Framework for Financial Reporting?

— —. However, implicit in accounting are the basic assumptions of — —, — —, and — —.

Answer 21

Going concern. However, implicit in accounting are the basic assumptions of accounting entity, time period, and monetary unit.

Question 22

What going concern or continuity assumption means?

It means that in the absence of — to the —, the accounting entity is viewed as — in operation —. In other words, the financial statements are normally prepared on the — that the entity will — in — for the — future.

Answer 22

It means that in the absence of evidence to the contrary, the accounting entity is viewed as continuing in operation indefinitely. In other words, the financial statements are normally prepared on the assumption that the entity will continue in operations for the foreseeable future.

Question 23

It means that in the absence of evidence to the contrary, the accounting entity is viewed as continuing in operation indefinitely. In other words, the financial statements are normally prepared on the assumption that the entity will continue in operations for the foreseeable future.

Answer 23

Going concern or continuity assumption means

Question 24

What is going concern postulate?

It is the very — of the cost —. Thus, assets are normally recorded at —. As a rule, market values are —. However, some new standards require — of certain — at — —./ If there is evidence that the entity would experience large and persistent — or that the entity’s operations are to be —, the going concern assumption is —. In this case, the users of the statements will have a great interest in the amount of — that will be generated from the entity’s — in the — term.

Answer 24

It is the very foundation of the cost principle. Thus, assets are normally recorded at cost. As a rule, market values are ignored. However, some new standards require measurement of certain assets at fair value./ If there is evidence that the entity would experience large and persistent losses or that the entity’s operations are to be terminated, the going concern assumption is abandoned. In this case, the users of the statements will have a great interest in the amount of cash that will be generated from the entity’s assets in the short term.

Question 25

It is the very foundation of the cost principle. Thus, assets are normally recorded at cost. As a rule, market values are ignored. However, some new standards require measurement of certain assets at fair value./ If there is evidence that the entity would experience large and persistent losses or that the entity’s operations are to be terminated, the going concern assumption is abandoned. In this case, the users of the statements will have a great interest in the amount of cash that will be generated from the entity’s assets in the short term.

Answer 25

Going concern postulate

Question 26

What is accounting entity?

In financial accounting, it is the — —- —, which may be a —, —, or —. Under this assumption, the entity is — from the —, —, and — who — the entity.

Answer 26

In financial accounting, it is the specific business organization, which may be a proprietorship, partnership, or corporation. Under this assumption, the entity is separate from the owners, managers, and employees who constitute the entity.

Question 27

In financial accounting, it is the specific business organization, which may be a proprietorship, partnership, or corporation. Under this assumption, the entity is separate from the owners, managers, and employees who constitute the entity.

Answer 27

Accounting entity

Question 28

What is the reason for the accounting entity assumption?

The reason for the entity assumption is to have a — —- of financial —-.
Accordingly, the transactions of the entity shall not be — with the transactions of the —.
The — transactions of the — shall not be allowed to — the financial statements of the —.
For example, the cash invested by the proprietor is treated as an asset of the proprietorship.
If an enterprising entrepreneur owns department store, restaurant and bookstore, — statements shall be prepared for — business in order to — which business is —.
Each business is an — — —.
When a major shareholder of a corporation borrows money from a bank on his own personal account, the loan is a —- of the — — and not of the —-.
The shareholder is not the — and the corporation is not the —.
However, when a parent and subsidiary relationship exists, — statements for the affiliates are usually made because for practical and economic purposes, the parent and the subsidiary are a “— — —”.
The consolidation, however, does not — the legal boundary — the affiliated entities.
Accounting will continue to be done — for each entity.

Answer 28

The reason for the entity assumption is to have a fair presentation of financial statements.
Accordingly, the transactions of the entity shall not be merged with the transactions of the owners.
The personal transactions of the owners shall not be allowed to distort the financial statements of the entity.
For example, the cash invested by the proprietor is treated as an asset of the proprietorship.
If an enterprising entrepreneur owns department store, restaurant and bookstore, separate statements shall be prepared for each business in order to determine which business is profitable.
Each business is an independent accounting entity.
When a major shareholder of a corporation borrows money from a bank on his own personal account, the loan is a liability of the shareholder alone and not of the corporation.
The shareholder is not the corporation and the corporation is not the shareholder.
However, when a parent and subsidiary relationship exists, consolidated statements for the affiliates are usually made because for practical and economic purposes, the parent and the subsidiary are a “single economic entity”.
The consolidation, however, does not eliminate the legal boundary segregating the affiliated entities.
Accounting will continue to be done separately for each entity.