Financial Accounting 3

How does the Conceptual Framework define an asset?

• A resource owned by an entity as a result of past events and from which future economic benefits are expected to flow to the entity

• A resource over which an entity has legal rights as a result of past events and from which economic benefits are expected to flow to the entity

• A resource controlled by an entity as a result of past events and from which future economic benefits are expected to flow to the entity

• A resource to which an entity has a future commitment as a result of past events and from which future economic benefits are expected to flow from the entity

Who issues International Financial Reporting Standards?

• The government

• The International Accounting Standards Board

• The stock exchange

• The IFRS Advisory Committee

Which of the following statements is/are true?

1- The IFRS Interpretations Committee is a forum for the IASB to consult with the outside world.

2 -The IFRS Foundation produces IFRSs. The IFRS Foundation is overseen by the IASB.

3 - One of the objectives of the IFRS Foundation is to bring about convergence of national accounting standards and IFRSs.

• 1 and 3 only

• 2 only

• 2 and 3 only

• 3 only

What is the role of the IASB?

• Oversee the standard setting and regulatory process

• Formulate international financial reporting standards

• Review defective accounts

• Control the accountancy profession

Which ONE of the following statements correctly describes how International Financial Reporting Standards (IFRSs) should be used?

• To provide examples of best financial reporting practice for national bodies who develop their own requirements

• To ensure high ethical standards are maintained by financial reporting professionals internationally

• To facilitate the enforcement of a single set of global financial reporting standards

• To prevent national bodies from developing their own financial reporting standards

Which of the following statements about provisions and contingencies is/are correct?

1 -A company should disclose details of the change in carrying amount of a provision from the beginning to the end of the year.

2-Contingent assets must be recognized in the financial statements in accordance with the prudence concept.

3- Contingent liabilities must be treated as actual liabilities and provided for if it is probable that they will arise.

• All three statements are correct

• 1 and 3 only

• 2 and 3 only

• 3 only

Which of the following statements about contingent assets and contingent liabilities are correct?

1-A contingent asset should be disclosed by note if an inflow of economic benefits is probable.

2- A contingent liability should be disclosed by note if it is probable that a transfer of economic benefits to settle it will be required, with no provision being made.

3 -No disclosure is required for a contingent liability if it is not probable that a transfer of economic benefits to settle it will be required.

4 -No disclosure is required for either a contingent liability or a contingent asset if the likelihood of a payment or receipt is remote.

• 1 and 4 only

• 2 and 3 only

• 2, 3 and 4

• 1, 2 and 4

Which TWO of the following events which occur after the reporting date of a company but before the financial statements are authorized for issue are classified as adjusting events in accordance with IAS 10 Events after

the reporting period?

• A change in tax rate announced after the reporting date, but affecting the current tax liability

• The discovery of a fraud which had occurred during the year

• The determination of the sale proceeds of an item of plant sold before the year end

• The destruction of a factory by fire

Which one of the following would not be valid grounds for a provision?

• A company has a policy has a policy of cleaning up any environmental contamination caused by its operations, but is not legally obliged to do so.

• A company is leasing an office building for which it has no further use. However, it is tied into the lease for another year.

• A company is closing down a division. The Board has prepared detailed closure plans which have been communicated to customers and employees.

• A company has acquired a machine which requires a major overhaul every three years. The cost of the first overhaul is reliably estimated at $120,000.

Which of the following items does the statement below describe?

“A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non -occurrence of one or more uncertain future events not wholly within the entity's control”

• A provision

• A current liability

• A contingent liability

• A contingent asset