Topic 1

Which of the bodies listed below is responsible for reviewing International Accounting Standards and issuing guidance on their application?

• IFRS Foundation

• IFRS Advisory Council

• International Accounting Standards Board

• IFRS Interpretation Committee

Which of the following measurement base(s) should be used by an entity according to the conceptual framework for financial reporting?

• Any of the above

• Historical cost

• Current cost

• Present value

Which of the following statements is incorrect in relation to the recognition criteria for elements of the financial statements?

• Income is recognised when an increase in future economic benefits related to a decrease in an asset or an increase in a liability that has arisen can be measured reliably.

• Liabilities are recognised when it is probable that an outflow of resources embodying economic benefits will result from the settlement of a present obligation and the amount at which settlement will take place can be measured reliably.

• Assets are recognised when it is probable that future economic benefits will flow to the entity and the asset has a cost or value that can be measured reliably.

• Because equity is the arithmetic difference between assets and liabilities, a separate recognition criteria for equity is not needed in the conceptual framework.

Which one of the following would be classified as a liability?

• Expansion is planning to invest in new machinery and has been quoted a price of $570,000.

• Carter has estimated the tax charge on its profits for the year just ended as $165,000.

• Reckless purchased an investment 9 months ago for $120,000. The market for these investments has now fallen and Reckless's investment is valued at $90,000.

• Dexter's business manufactures a product under licence. In 12 months' time the licence expires and Dexter will have to pay $50,000 for it to be renewed.

Which of the following best describes the role of the IFRS Advisory Council?

• To select the members of the IASB

• To provide the IASB with the views of its members on standard setting projects

• To promote the use of International Accounting Standards amongst its members

• To prepare interpretations of International Accounting Standards

The conceptual framework for financial reporting lists the qualitative characteristics of financial statements.(i) Comparability;(ii) Verifiability;(iii) Timeliness;(iv) Understandability;(v) Relevance;(vi) Faithful representation. Which two of the above are not included in the enhancing qualitative characteristics listed by the conceptual framework?

• (i) and (vii)

  
  

• (v) and (vi)

  
  

• (ii) and (v)

  
  

• (iv) and (v)

  
  

Conceptual Framework for Financial Reporting. Which of the following does NOT improve comparability?

• Prohibiting changes of accounting policy unless required by an IFRS or to give more relevant and reliable information

• Restating the financial statements of previous years when there has been a change of accounting policy

• Applying an entity's current accounting policy to a transaction which an entity has not engaged in before

  
  

• Disclosing discontinued operations in financial statements

Which of the following accounting treatments correctly applies the principle of faithful representation?

• Allocating part of the sales proceeds of a motor vehicle to interest received even though it was sold with 0% (interest free) finance

• Reporting a transaction based on its legal status rather than its economic substance

• Excluding a subsidiary from consolidation because its activities are not compatible with those of the rest of the group.

  
  

• Recording the whole of the net proceeds from the issue of a loan note which is potentially convertible to equity shares as debt (liability)

  
  

Which of the following is a possible advantage of a rules-based system of financial reporting?

• It ensures that no standards conflict with each other

  
  

• It offers accountants more protection in the event of litigation

  
  

•  It encourages the exercise of professional judgement

  
  

•  It prevents a fire-fighting approach to the formulation of standards

  
  

Which of the following statements in relation to income is true?

• The conceptual framework requires that all items of income are reported on a net basis.

•  The conceptual framework defines income as an increase in economic benefits which results in an increase in equity.

  
  

• Gains and revenue are different in nature and therefore are recognised as separate elements of the financial statements per the conceptual framework.

• Gains are normally reported separately from revenue in the Statement of profit or loss and other comprehensive income due to the different probabilities attached to that type of income.