Problem 2
Problem 2
Problem 2
What is the only underlying assumption mentioned in the Conceptual Framework for Financial
Reporting?
a. Going concern
b. Accountancy entity
c. Time period
d. Monetary unit
2. Which best describes the term “going concern”?
a. When current liabilities exceed current assets
b. The ability of the entity to continue in operation for the foreseeable future
c. The potential to contribute to the flow of cash and cash equivalents to the entity
d. The expenses exceed income
3. Which is and implication of the going concern assumption?
a. The historical cost principle is credible
b. Depreciation and amortization policies are justifiable and appropriate
c. The current and noncurrent classification of assets and liabilities is justifiable and significant
d. All of these are an implication of going concern
4. The relatively stable economic, political and social environment supports
a. Conservation
b. Materiality
c. Timeliness
d. Going concern
5. Which of the following is not a basis assumption underlying financial accounting?
a. Economic entity assumption
b. Going concern assumption
c. Periodicity assumption
d. Historical cost assumption
6. Which basic assumption may not be followed when an entity in bankruptcy reports financial results?
a. Economic entity assumption
b. Going concern assumption
c. Periodicity assumption
d. Monetary unit assumption
7. The financial statements of an entity are separate and distinct from financial statements of the owners
a. Going concern assumption
b. Matching principle
c. Economic entity assumption
d. Accounting period assumption
8. The economic entity assumption
a. Is inapplicable to unincorporated businesses
b. Recognizes the legal aspects of business organizations
c. Requires periodic income measurement
d. Is applicable to all forms of business organizations
9. Which underlying assumption serves as the basis for preparing financial statements at regular
artificial points in time?
a. Accounting entity
b. Going concern
c. Accounting period
d. Stable monetary period
10. Which basic accounting assumption is threatened by the existence of severe inflation in the
economy?
a. Monetary unit assumption
b. Periodicity assumption
c. Going concern assumption
d. Economic entity assumption
a. I only
b. II only
c. Both I and II
d. Neither I nor II
28. Which of the following statements is not true concerning a Conceptual Framework?
I. The Conceptual Framework should be a basis for standard setting
II. The Conceptual Framework should allow practical problems to be solved more quickly
III. The Conceptual Framework should be based on fundamental truth derived from the law
of nature
a. II only
b. III only
c. II and III only
d. I and II only
29. A soundly developed Conceptual Framework should
I. Increase financial statement users’ understanding and confidence in financial reporting
II. Enhance comparability of financial statements across entities
III. Allow new and emerging practical problems to be solved more quickly
a. I only
b. I and II only
c. I and III only
d. I, II and III
30. 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
31. The “primary users” of financial information include
a. Existing and potential investors
b. Existing and potential leaders 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
32. Which of the following is an internal user of financial information?
a. Board of Directors
b. Shareholder
c. Holder of bonds
d. Creditor with long-term contract
33. These users require information on risk and return provided by their investment
a. Investors
b. Employees
c. Lenders
d. Customers
34. These users are interested in information about the profitability and stability of the entity in order to
assess the ability of entity to provide remuneration, retirement benefits and employment
opportunities
a. Customers
b. The public
c. Governments and their agencies
d. Employees
35. These users are interested in information that enables them to assess whether their loans, the related
interest theon, and other amounts owing to them will be paid when due
a. Lenders and other creditors
b. Borrowers
c. Trade creditors
d. Owners
36. 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
37. 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
38. These users need information on trends and recent developments where an entity makes a substantial
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
39. What is the objective of financial reporting?
a. To provide information about the financial position and financial performance of an entity
b. To provide financial information about an entity that is useful to existing and potential investors,
lenders and other creditors in making decisions about providing resources to the entity
c. To prepare a statement of financial position, a statement of comprehensive income and a
statement of cash flows
d. To prepare financial statements in accordance with all applicable standards and interpretations
40. 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
41. Which is an objective of financial reporting?
a. To provide information that is useful in making investing and credit decisions
b. To provide information that is useful to management
c. To provide information about the potential users investing in the entity
d. To provide information about ways to solve internal and external conflicts about the entity
42. What is a major objective of financial reporting?
a. To provide information that is useful to management in making decisions
b. To provide information that clearly portrays nonfinancial transactions
c. To provide information that is useful to assess the amounts, timing, and uncertainty of
perspective cash receipts
d. To provide information that excludes claims against the resources
43. One objective of financial reporting is to provide
a. Information about the investors in the entity
b. Information about the liquidation value of the resources held by the entity
c. Information that is useful in assessing cash flow prospects
d. Information that will attract new investors
44. An objective of financial reporting is “assessing cash flow prospects” which is interpreted to mean
a. Cash basis accounting is preferred over accrual basis accounting
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”
45. Which of the following best describes “financial performance”?
a. The revenue, expenses and net income or loss for a period
b. The assets, liabilities and equity
c. The total assets minus total liabilities
d. The total cash inflows minus total cash outflows
46. 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 and expenses when cash is paid
d. It is one of the implicit assumptions
47. The most useful information to existing and potential investors, lenders and other creditors 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 by management
d. Information regarding the results obtained by using a wide variety of accounting policies
48. 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
49. The objectives of financial reporting are based on
a. The need of conservatism
b. Reporting on management stewardship
c. Generally accepted accounting principles
d. The need of the users of the information
50. Which of the following statements is not a major objective of financial reporting?
a. Financial reporting shall provide information about entity resources, claims against those
resources and changes in them
b. Financial reporting shall 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
51. Which of the following is not an objective of financial reporting?
a. To provide information about an entity’s assets and claims against those assets
b. To provide information that is useful in assessing an entity’s sources and uses of cash
c. To provide information that is useful in lending and investing decisions
d. To provide information about the liquidation value of an entity
52. The information provided by financial reporting pertains to
a. Individual business entities, rather than to industries or an economy as a whole or members or
society as consumers
b. Business industries, rather than to individual entities or an economy as a whole or to members or
society as consumers
c. Individual business entities, industries, and an economy as a whole, rather than to members of
society as consumers
d. An economy as a whole and to members of society as consumers, rather than to individual
entities or industries
53. During a period when an entity is under the direction of a particular management, financial reporting
will directly provide information about
a. Both 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