BAC1634 - Quiz 2 - Chapter 2

What is conceptual framework?

• To provide information about financial position, performance and changes in financial position of an enterprise

• Sets out the concepts that underlie the preparation and presentation of financial statements for external users.

• Provide information that is useful to present and potential investors and creditors

• Provide information that is understandable to one who has a reasonable knowledge of accounting and business

The list are the main reasons for developing an agreed conceptual framework EXCEPT:

• fundamental principles which then do not have to be repeated in accounting standards.

• framework for setting accounting standards.

• basis for resolving accounting disputes.

• Basis to satisfy the owner's need.

What is "Usefulness" under objectives of Financial Reporting?

• Financial reporting should provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit, and similar decisions.

• Financial reporting should provide information that is understandable to one who has a reasonable knowledge of accounting and business and who is willing to study and analyze the information presented.

• While there are many potential users of financial reports, the objectives are directed primarily toward investors and creditors.

• Financial reporting should provide information that is useful in assessing amounts, timing, and uncertainty (risk) of prospective cash flows.

What is "Understandability" under objectives of Financial Reporting?

• Financial reporting should provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit, and similar decisions.

• Financial reporting should provide information that is understandable to one who has a reasonable knowledge of accounting and business and who is willing to study and analyze the information presented.

• While there are many potential users of financial reports, the objectives are directed primarily toward investors and creditors.

• Financial reporting should provide information that is useful in assessing amounts, timing, and uncertainty (risk) of prospective cash flows.

What is "Relevance" under fundamental qualitative characteristics of accounting information?

• Information should represent the actual situation of a business or entity.

• The users of financial information are assumed to be knowledgeable users.

• The older the information, the less useful it is.

• Information that is capable of changing the decision made by users.

What is "Faithful representation" under fundamental qualitative characteristics of accounting information?

• Information should represent the actual situation of a business or entity.

• The users of financial information are assumed to be knowledgeable users.

• The older the information, the less useful it is.

• Information that is capable of changing the decision made by users.

Which one of these are the characteristics of relevance?

i. Predictive value

ii. Material

iii. Neutral

iv. Free from error

• i & ii

• i & iii

• iii & iv

• ii & iv

Which one of these are the characteristics of faithful representation?

i. Predictive value

ii. Material

iii. Neutral

iv. Free from error

• i & ii

• i & iii

• iii & iv

• ii & iv

What is going concern assumption?

• The activities of the entity are to be kept separate and distinct from the activities of the owner and all other economic entities.

• Only transaction data that can be expressed in terms of money be included in the accounting records.

• The enterprise will continue in operation long enough to carry out its existing objectives.

• Expenses are matched with revenues in the period in which efforts are made to generate revenues.

What is matching principle?

• The activities of the entity are to be kept separate and distinct from the activities of the owner and all other economic entities.

• Only transaction data that can be expressed in terms of money be included in the accounting records.

• The enterprise will continue in operation long enough to carry out its existing objectives.

• Expenses are matched with revenues in the period in which efforts are made to generate revenues.