Audit Test

Under this assumption, the effects of transactions and other events are recognized when they occur and not as cash or its equivalent is received or paid, and they are recorded in the accounting records and reported in the financial statements of the period to which they relate.

• Accrual basis

• Going concern

• Monetary unit

• Time period

Which statement is incorrect concerning the qualitative characterictic of relevance?

• The relevance of information is affected by its nature and materiality.

• To be useful, information must be relevant to the decision making needs of users

• Information about financial position and past performance is frequently used as basis for predicting future financial position and performance and other matters such as dividend and wage payments and ability of the entity to meet its financial commitments as they fall due.

• The predictive and confirmatory roles of information are not interrelated.

When economic benefits are expected to arise over several accounting periods and the association with income can only be broadly or indirectly determined, expenses are recognized in the income statement on the basis of

• Cause and effect association

• Immediate recognition

• Systematic and rational allocation

• Profit maximization

Which of the following statements is incorrect?

• The accrual method, which builds directly on the revenue and matching principles, ignores the timing of cash receipts or payments in determining when to recognize revenue or expenses.

• Expenses are matched with revenues, not the reverse

• In accordance with the unit of measure assumption, accountants normally revise the amounts to reflect the changing purchasing power of money due to inflation or deflation.

• In accordance with the going concern assumption, the life of a business is presumed to be indefinite.

An expense is recognized immediately in the statement of comprehensive income:

I. When an expenditure produces no future economic benefits

II. When cost incurred ceases to qualify for recognition as an asset in the statement of financial position

• I only

• II only

• Both I and II

• Neither I nor II

The measurement basis most commonly adopted by entities in preparing their financial statements is

• Historical cost

• Current cost

• Realizable value

• Present value

Suppliers and other trade creditors are interested in information

• That enables them to determine whether amounts owing to them will be paid when due

• About the continuance of an entity, especially when they have long-term involvement with or are dependent on the entity.

• In order to regulate the activities of the entity, determine taxation policies and as the basis for national income and similar statistics.

• About the stability and profitability of the entity.

The elements directly related to the measurement of performance are

• Income and expenses

• Assets, liabilities and equity

• Assets and liabilities

• Income, expenses and equity

An equity is

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

• A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits

• The residual interest in the assets of the entity after deducting all of its liabilities

• The excess of revenue over expenses

An income is recognized when

• It is probable that future economic benefit will flow to the entity and the economic benefit can be measured reliably.

• It is possible that future economic benefit will flow to the entity and the economic benefit can be measured reliably.

• The entity obtains control of the future economic benefit.

• The future economic benefit can be measured reliably.