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External Reporting > MULTIPLE CHOICE QUESTIONS > Flashcards

MULTIPLE CHOICE QUESTIONS Flashcards

1
Q

The sources of regulation which comprise the regulatory framework for financial reporting include:

A

Accounting standards, legislation, and stock exchange regulations

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2
Q

“Accounting standards set out the broad rules which govern financial reporting but do not lay down the detailed accounting treatments of transactions and other items”. True or false?

A

False

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3
Q

The abbreviation “GAAP” stands for:

A

Generally accepted accounting practice

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4
Q

Standards issued by the IASB are known as:

A

International Financial Reporting Standards (IFRSs)

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5
Q

The body to which the IASB is responsible is:

A

The IFRS Foundation

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6
Q

One of the main advantages of standardisation in financial reporting is:

A

Comparability between accounting periods between entities

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7
Q

IFRS1 First-time Adoption of International Financial Reporting Standards defines the date of transaction to IFRS as:

A

The date at the start of the earliest period for which comparatives are provided in the first IFRS financial statements

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8
Q

“An entity which adopts international financial reporting standards must always adhere to the requirements of every standard, no matter the circumstances”. True or false?

A

False

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9
Q

The role of the IFRS Advisory Council is to:

A

Inform the IASB of the Council’s views on standard-setting projects

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10
Q

The word “entity” as used by the IASB refers to:

A

Profit-orientated organisations only

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11
Q

An entity prepares its first IFRS financial stamens for the year to 30 September 2016. These financial statements provide comparative figures for the previous year. The date of transition to IFRS is:

A

1 October 2014

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12
Q

An entity prepares its first IFRS financial statements for the year to 30 September 2016. These financial statements provide comparative figures for the previous year. The accounting policies used when preparing the comparative information for the year to 30 September 2015 must comply with IFRS as at:

A

30 September 2016

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13
Q

A conceptual framework for financial reporting is:

A

A set of principles which underpin financial reporting

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14
Q

The 2010 version of the IASB Conceptual Framework was developed jointly with:

A

The US Financial Accounting Standards Board

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15
Q

The primary users of general purpose financial reports are:

A

Investors and lenders

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16
Q

The fundamental qualitative characteristics of financial information are:

A

Relevance and faithful representation

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17
Q

The enhancing qualitative characteristics of financial information include:

A

Comparability and understandability

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18
Q

Which of the following is not a contributory factor towards faithful representation?

A

Consistency

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19
Q

The elements of financial statements which relate to financial position are:

A

Assets, liabilities and equity

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20
Q

If the current cost measurement basis is used, assets are measured at:

A

Replacement cost

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21
Q

Under the concept of physical capital maintenance, profit is defined in terms of the increase in an entity’s operating capability during an accounting period. True or false?

A

True

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22
Q

Recognition is the process of:

A

Incorporating an item in the financial statements

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23
Q

The underlying assumption that is identified in the 2010 version of the IASB Conceptual Framework is:

A

The going concern basis

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24
Q

Which of the following items qualifies as property, plant and equipment?

  • Computer software bought for use in more than one accounting period
  • A machine bought for use in more than one accounting period
  • A machine bought for resale to a customer
  • A machine bought for use during a single accounting period
A

A machine bought for use in more than one accounting period

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25
Q

The “carrying amount” of an item of property, plant and equipment generally refers tp:

A

The amount at which the item is recognised in the financial statements

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26
Q

A company pays £40,000 to replace a major component of a factory machine. The faulty component that is replaced is sold for £2,000. The carrying amount of the machine just before this replacement occurs is £450,000, of which £10,000 relates to the faulty component that is being replaced. The revised carrying amount of the machine after the replacement occurs and the profit or loss on disposal of the faulty component are:

A

Carrying amount £480,000, Loss £8,000

Carrying amount is £480,000 (£450,000 – £10,000 + £40,000).
Loss on disposal is £8,000 (£10,000 – £2,000).

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27
Q

Which of the following would not be included in the cost of an item of property, plant and equipment?

  • Refundable value added tax
  • Sit preparation costs
  • Delivery and installation charges
  • Testing costs
A

Refundable value added tax

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28
Q

On 31 December 2014, a company acquires land for £500,000. The land is revalued at £530,000 on 31 December 2015 and £460,000 on 31 December 2016. The company prepares financial statements to 31 December each year and uses the revaluation model in relation to land. The correct accounting treatment of each revaluation in the statement of comprehensive income is as follows:

A 
2015: 
Other comprehensive income £30,000
2016:
Negative other comprehensive income £30,000
Expense £40,000

2015
£30,000 is credited to revaluation reserve and shown in OCI
2016
£30,000 is debited to revaluation reserve and shown as negative OCI
A £40,000 expense is recognised in the calculation of profit or loss for the year

29
Q

Depreciation is defined as the fall in value of an asset during an accounting period. True or false?

A

False

30
Q

On 1 January 2015, a company which prepares financial statements to 31 December each year buys an item of equipment for £20,000. Useful life is estimated to be six years and residual value is expected to be approximately £1,500. The company uses the diminishing balance method of depreciation at a rate of 35% per annum. To the nearest pound, the depreciation of this item for the year to 31 December 2016 would be:

A

£4,550

WDV at the end of 2015 is £13,000 (65% of £20,000), so depreciation in 2016 is £4,550 (35% of £13,000).

31
Q

Borrowing costs that are directly attributable to the acquisition of a qualifying asset must be capitalised as part of the cost of that asset. True or false?

A

True

32
Q

A company has the following general borrowings outstanding throughout the whole of an accounting year:
6.5% Bank loan of £400,000
8% Bank loan of £800,000.

If a qualifying asset costing £50,000 is funded out of these general borrowings, the capitalisation rate that should be used is:

A

7.5%

Total borrowings are £1,200,000. Total interest is £90,000 (£26,000 + £64,000). This is equivalent to 7.5 % of £1,200,000.

33
Q

If investment property is measured using the fair value model, a gain arising from a change in the fair value of an investment property must be:

A

Recognised in the calculation of profit or loss

34
Q

If a company adopts the revaluation method in relation to an item of property, plant and equipment, it is no longer necessary to charge depreciation in relation to that item. True or false?

A

False

35
Q

On 1 January 2015, a company which prepares financial statements to 31 December acquires an item of equipment and receives a government grant of 20% of the item’s cost. The item cost £30,000 and has an expected useful life of seven years with a residual value of approximately £4,000.
The item is depreciated on the diminishing balance basis at a rate of 25% per annum. The amount of the grant that should be recognised as income in the year to 31 December 2016 is:

A

£1,298

WDV at the end of 2015 is £22,500 (75% of £30,000), so depreciation in 2016 is £5,625 (25% of £22,500). This is equal to 21.63% of the item’s depreciable amount, so income of £1,298 (21.63% of £6,000) is recognised in the year to 31 December 2016.

36
Q

On 1 January 2015, a company which prepares financial statements to 31 December acquires an item of equipment and receives a government grant of 20% of the item’s cost. The item cost £30,000 and has an expected useful life of seven years with a residual value of approximately £4,000.
The item is depreciated on the diminishing balance basis at a rate of 25% per annum. The amount of the grant that should be recognised as income in the year to 31 December 2016 is:

A

£1,298

WDV at the end of 2015 is £22,500 (75% of £30,000), so depreciation in 2016 is £5,625 (25% of £22,500). This is equal to 21.63% of the item’s depreciable amount, so income of £1,298 (21.63% of £6,000) is recognised in the year to 31 December 2016.

37
Q

The definition of “inventories” given by international standard IAS2 states that items qualify as inventories only if they are assets held for sale in the ordinary course of business or assets in the process of production for such sale. True or false?

A

False

38
Q

Which of the following items cannot be included in the cost of inventories?

  • Fixed production overheads
  • Irrecoverable import duties payable on the acquisition of inventories
  • Variable production overheads
  • The cost of abnormal wastage of materials and labour
A

The cost of abnormal wastage of materials and labour

39
Q

Which of the following items should be included in the cost of inventories?

  • Conversation costs
  • Selling costs
  • The cost of storing finished goods
  • The cost of abnormal wastage of materials and labour
A

Conversion costs

40
Q

The cost formula permitted by IAS2 are:

A

FIFO and AVCO

41
Q

The FIFO cost formula assumes that:

A

The inventory items which are sold or consumed are those acquired most longest ago

42
Q

The net realisable value of inventories is defined by IAS2 as:

A

Selling price less costs of completion and selling costs

43
Q

On 31 December 2015, a company has partly-completed inventory with a cost to date of £26,300. It is expected that further costs of £8,900 will be incurred in order to complete the inventory. It will then be sold for £47,500. Selling costs will be £2,000. The cost and the net realisable value of this inventory at 31 December 2015 are:

A

£26,300 and £36,600

44
Q

IAS2 states that inventories should be measured at:

A

The lower of cost and net realisable value

45
Q

If production is abnormally low, the amount of fixed overheads allocated to each unit of production should be calculated by dividing total fixed overheads by the number of units produced. True or false?

A

False

46
Q

At the end of an accounting period, the cost of a company’s inventory is £450,000. This includes damaged items with a cost of £25,000 which are expected to be sold for only £10,000 (less selling expenses of 5%). All other items of inventory have a net realisable value which exceeds cost. The amount at which the company’s inventory should be recognised at the end of the period is:

A

£434,500

The NRV of the damaged items is £9,500, which is £15,500 less than cost. Therefore inventory should be measured at £434,500 (£450,000 – £15,500).

47
Q

A company’s inventories should be measured at the lower of total cost and total net realisable value. True or false?

A

False

The cost and NRV of inventories must normally be compared item by item rather than in total.

48
Q

A company which makes only one type of product incurs fixed production overheads of £180,000 for an accounting year. Actual production during the year was 30,000 units. Normal production is 24,000 units per annum. The amount of fixed production overheads that should be allocated to each unit of production is:

A

£6

49
Q

International standard IAS37 defines a provision as:

A

A liability of uncertain timing or amount

50
Q

In order that a provision should be recognised in an entity’s financial statements, it is necessary that:

A

The entity has a present obligation

51
Q

A past event is an obligating event only if it gives rise to a legally enforceable obligation. True or False?

A

False

52
Q

The amount of a provision should be the “best estimate” of the expenditure required to settle the obligation concerned. This estimate:

A

Should be the amount that would rationally be paid to settle or transfer the obligation

53
Q

If a provision relates to a large population of items, the amount of the provision should be calculated as:

A

The expected value of the expenditure that will be required to settle the obligation

54
Q

Should a provision be recognised in relation to:

(a) future operating losses?
(b) onerous contracts?

A

(a) No (b) Yes

55
Q

In general terms, a contingent liability is a possible obligation that depends upon the outcome of a future event that is within the control of the entity. True or false?

A

False

56
Q

Contingent liabilities are:

A

Disclosed in the notes unless the possibility of an outflow of economic benefits is remote

57
Q

Contingent assets are:

A

Disclosed in the notes if an inflow of economic benefits is probable

58
Q

International standard IAS10 requires that financial statements should be adjusted to take account of any events occurring between the end of the reporting period and the date when the financial statements are authorised for issue. True or false?

A

False

59
Q

A company is preparing its financial statements for the year to 31 March 2016. Assuming that each of the following events occurs after 31 March 2016 but before the financial statements are authorised for issue, which one of them should be classified as a NON-ADJUSTING event?

A

A change in tax rates that is announced in April 2016 and which has a material impact on the tax liability for the year to 31 March 2016

60
Q

Although the accounting treatment of inventories is prescribed by IAS2 Inventories, a company may also need to apply IAS10 Events After the Reporting Period when determining the inventories figure which should be shown in its financial statements. True or false?

A

True

61
Q

The Conceptual Framework can override requirements in a standard. True or false?

A

False

62
Q

The objective of general purpose financial reporting as described in the Conceptual Framework is to:

A

Provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions relating to providing resources to the entity

63
Q

Which statement is included in the Conceptual Framework?

  • Relevance is a fundamental qualitative characteristic of useful financial information
  • Financial information without both relevance and faithful representation is not useful
  • Enhancing qualitative characteristics cannot make information useful if that information is irrelevant or does not provide a faithful representation of what it purports to represent
  • All of the above
  • None of the above
A

All of the above

64
Q

Consolidated financial statements provide information about the assets, liabilities, equity, income and expenses of both the parent and its subsidiaries as:

A

A single reporting entity

65
Q

The residual interest in the assets of an entity after deducting all its liabilities is:

A

Equity

66
Q

Which factors may indicate that recognition of an item meeting the definition of an asset or a liability may not provide relevant information?

  • Uncertainty about whether an asset or liability exists
  • Low probability of an inflow or outflow of economic benefits
  • Other factors
  • All of the above
  • None of the above
A

All of the above

67
Q

Which of the following factors is (or are) considered in selecting a measurement basis?

  • Variability of cash flows of the asset or liability
  • How the asset or liability contributes to future cash flows, which depends in part on the nature of an entity’s business activities
  • The level of measurement uncertainty associated with a particular measurement basis
  • All of the above
  • None of the above
A

All of the above

68
Q

What does the Conceptual Framework say about profit or loss?

A

In principle, all income and expenses are included in the statement of profit or loss

External Reporting (16 decks)

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