Financial Accounting - Final Exam MCQ

There are two main approaches to a code of professional ethics: a rules-based ethical code and a code based upon a set of principles. Indicate whether the following statements are true or false.

• True - True
• False - True
• False - False
• True - False

Which of the following best explains what is meant by ‘capital expenditure’?

• on non-current assets, including repairs and maintenance
• on expensive items over £10,000
• on items relating to owners’ capital
• on the acquisition of non-current assets, or improvement in their earning capacity

According to the IASB’s Conceptual Framework, which of the following are enhancing qualitative characteristics?

• Materiality, understandability, measurability, reliability
• Consistency, prudence, measurability, verifiability
• Consistency, reliability, measurability, timeliness
• Comparability, understandability, timeliness, verifiability

Which of the following statements best describes ethical guidance in the UK?

• Ethical guidance provides a set of rules which must be followed in all circumstances
• Ethical guidance provides a set of principles which can be applied at the discretion of the accountant
• Ethical guidance is a series of legal requirements
• Ethical guidance is a framework containing a combination of rules and principles, the application of which is dependent on the professional judgement of the accountant based on the specific circumstances

Which of the following items should be treated as capital expenditure in the financial statements of a sole trader?

• £500 taken by the proprietor to buy himself a music system
• £800 spent on purchasing a new laptop to replace his secretary’s old one
• £150 paid to a painter for redecorating his office
• £2,000 on purchasing a machine for resale

Which of the following is an aspect of relevance, according to the IASB’s Conceptual Framework?

• Neutrality
• Free from error
• Completeness
• Materiality

According to IAS 1, Presentation of Financial Statements, compliance with IFRS Standards will normally ensure that:

• the entity’s financial statements are prepared on the assumption that it is a going concern
• the entity’s inventory is valued at net realisable value
• the entity’s assets are valued at their break-up value
• the entity’s financial position, financial performance and cash flows are presented fairly

Which of the following is the best description of fair presentation in accordance with IAS 1, Presentation of Financial Statements?

• The directors of the company have stated that the financial statements are accurate and correctly prepared
• The financial statements are as accurate as possible given the accounting systems of the organisation
• The financial statements are accurate
• The financial statements are reliable in that they faithfully reflect the effects of transactions, other events and conditions

Which of the following definitions of the going concern concept in accounting is consistent with the definition given in IAS 1, Presentation of Financial Statements?

• The directors expect the entity’s assets to yield future economic benefits
• Financial statements have been prepared on the assumption that the entity is solvent and would be able to pay all creditors in full in the event of being wound up
• The entity is able to pay its debts as and when they fall due
• The directors do not intend to liquidate the entity or to cease trading in the foreseeable future

The directors of Lagon plc wish to omit an item from the company’s financial statements on the grounds that it is commercially sensitive. Information on the item would influence the users of the information when making economic decisions. According to IAS 1, Presentation of Financial Statements, the item is said to be:

• prudent
• understandable
• neutral
• material