Quiz Round - 01

Alex Company (Pvt) Ltd engages in the business of importing and distributing toys. The following financial data are extracted from its financial statements for the 2023/24 year.

• - Short-term investments: Rs. 1,500,000 (previous year: Rs. 400,000)

• - Long-term investments: Rs. 3,000,000 (previous year: Rs. 1,000,000)

How does the information about Alex Company (Pvt) Ltd's investments illustrate the predictive value of financial reporting, and what decisions can stakeholders make based on this information?

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• • - Stakeholders can anticipate the company’s future liquidity and investment growth based on the significant increase in short-term and long-term investments.

• • - Stakeholders can verify the company’s past investment strategies by analyzing the increase in investment values.

• • - Stakeholders can predict the company’s future profitability and financial stability based on the expanded investment portfolio.

• • - Stakeholders can validate the company’s ability to manage its investment returns based on historical data.

Which of the following is an example of financial information with high confirmatory value?

• • - Revenue in the quarterly financial statements that align closely with quarterly revenue forecasts

• • - Projected financial statements based on historical trends

• • - Economic forecasts used to adjust company's financial strategies

• • - Capital expenditure forecasts that are used to arrange future financial arrangements

ABC PLC financial statement shows a significant increase in inventory levels compared to the previous year due to high level inflation. The company's management attributes this to a strategic decision to stock up on raw materials in anticipation of a price hike.

Which qualitative characteristic is demonstrated by this scenario?

• • - Materiality

• • - Confirmatory value

• • - Neutrality

• • - Predictive value

Araliya (Pvt) Ltd restates revenue in its financial statements of the previous year after discovering a significant error in the current year. Which qualitative characteristic is being applied when the company corrects this error?

• • - Timeliness

• • - Verifiability

• • - Confirmatory value

• • - Free from errors

During an audit, the engagement team examines and verifies the company's financial statements to ensure accuracy, compliance with accounting standards, and regulatory requirements. Which qualitative characteristic are they ensuring?

• • - Relevance

• • - Faithful representation

• • - Predictive value

• • - Confirmatory value

Enlight PLC, an electricity supply and accessory items manufacturer. The sales of the cable product category are continuously declining due to availability of low priced products in the market. The net book value of the machinery used for production as at 31 March 2024 was Rs. 850 million. The company decided that no impairment provision is required in the financial statements. Which of the following qualitative characteristics of financial information is violated by the decision to not recognize an impairment provision?

• • - Relevance

• • - Faithful Representation

• • - Verifiability

• • - Materiality

HC Exports PLC had a pending legal case for a dispute with former supplier. The company's legal advisors have indicated that it is probable the company will lose the case, and the best estimate of the potential settlement cost is Rs:500,000.

How does HC Exports PLC account for this situation in its financial statements before the lawsuit was resolved?

• • - Disclose the pending lawsuit in the notes to the financial statements without recording any amounts.

• • - Record an asset of Rs: 500,000 and an income of Rs: 500,000.

• • - Record a liability of Rs: 500,000 and an expense of Rs: 500,000.

• • - Ignore the lawsuit until the loss is confirmed.

iSecurity PLC is a consultancy firm which provides consultancy services in relation to information technology (IT) security to corporates.

Recently the management of the company has sent three employees of the company to Singapore for IT security training in order to develop their job related skills. The total expenses incurred for this training were Rs. 1.2 million.

How does iSecurity PLC consider the Rs: 1.2 million in its financial statements?

• • - As an asset

• • - As an expense

• • - As a liability

• • - As a reduction in equity

DEF Company Ltd owns a patent for a unique technology, which it developed internally in June 2023 at a cost of Rs: 1.2 million. As of 31 March 2024, the patent generates significant cash flows and has an estimated present value of Rs: 1.8 million and the fair value of the patent, if sold in the market, is Rs: 2.3 million.

What is the most appropriate value of patent DEF Company Ltd should present in its financial statements as at 31 March 2024 as per measurement bases in conceptual framework?

• • - Historical cost of Rs: 1.2 million

• • - Present value of Rs: 1.8 million

• • - Market value of Rs: 2.3 million

• • - Nil

Crispi (Pvt) Ltd has a manufacturing plant that was acquired 5 years ago. The plant is depreciated over its useful life of 10 years using the straight-line method. However, the company has recently revised its estimate of the plant's useful life and residual value for the year ended 31 March 2024.

Which measurement basis will best reflect the manufacturing plant value in its financial statements as per measurement bases in conceptual framework?

• • - Historical Cost

• • - Replacement Cost

• • - Fair Value

• • - Current Cost