Introduction To Accounting, Regulatory Framework And Accounting Conventions

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Natashanelesh
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  • 1/18 Questions

    The business entity concept requires that a business is treated as separate from its owners.

    • True
    • False
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About This Quiz

The questions are set as per ACCA standards and are hence worded to confuse students.
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Number of Questions: 10 questions
Time Available: 13 minutes
Total Marks: 10 marks
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Introduction To Accounting, Regulatory Framework And Accounting Conventions - Quiz

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  • 2. 

    A trade receivable is an example of:

    • Asset

    • Liability

    • Income

    Correct Answer
    A. Asset
    Explanation
    A trade receivable is an example of an asset because it represents the amount of money owed to a business by its customers for goods or services provided on credit. It is an economic resource that the business has a right to receive in the future and has a monetary value. As such, it contributes to the overall value and financial position of the business.

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  • 3. 

    Some of the content of financial statements of companies might be specified by national company law.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    The content of financial statements of companies can be specified by national company law. This means that certain regulations or requirements set by the government may dictate what information should be included in financial statements. These laws ensure transparency and standardization in financial reporting, allowing stakeholders to make informed decisions based on accurate and consistent information. Therefore, it is true that some of the content of financial statements can be specified by national company law.

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  • 4. 

    What is the role of IFRIC?

    • To create a set of global accounting standards

    • To issue guidance on the application of International Financial Reporting Standards

    Correct Answer
    A. To issue guidance on the application of International Financial Reporting Standards
    Explanation
    The role of IFRIC is to issue guidance on the application of International Financial Reporting Standards (IFRS). This means that IFRIC provides clarification and interpretation on specific accounting issues that may arise when applying IFRS. This guidance helps ensure consistent and appropriate application of the standards across different jurisdictions and industries. It serves as a resource for entities and professionals in navigating complex accounting requirements and making informed financial reporting decisions.

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  • 5. 

    A loan of $30,000 from a bank repayable in 3 years' time is:

    • Current liability

    • Non-current liability

    • Current asset

    • Non-current asset

    Correct Answer
    A. Non-current liability
    Explanation
    A loan of $30,000 from a bank repayable in 3 years' time is classified as a non-current liability. This is because it represents a debt that is not expected to be settled within the next year. Non-current liabilities are long-term obligations that are not due for settlement in the short term. In this case, since the loan repayment period extends beyond one year, it falls under the category of non-current liability.

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  • 6. 

    Which of the following items are items of capital expenditure?
    1. Cost of re-decorating offices
    2. Purchase of additional machinery
    3. Construction of an extension to the Head Office building

    • 1 and 2

    • 1 and 3

    • 2 and 3

    • 3 only

    Correct Answer
    A. 2 and 3
    Explanation
    Cost of re-decorating is revenue expenditure because it is a form of maintenance and repair work.

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  • 7. 

    Which of the following are differences between sole traders and limited liability companies? 1.     A sole traders’ financial statements are private; a company’s financial statements are sent to shareholders and are publicly filed 2.     Only companies have capital invested into the business 3.     A sole trader is fully and personally liable for any losses that the business might make; a company’s shareholders are not personally liable for any losses that the company might make.

    • 1 and 2 only

    • 2 and 3 only

    • 1 and 3 only

    • 1, 2 and 3

    Correct Answer
    A. 1 and 3 only
    Explanation
    The correct answer is 1 and 3 only. Sole traders' financial statements are private, while a company's financial statements are sent to shareholders and publicly filed. Additionally, a sole trader is fully and personally liable for any losses that the business might make, while a company's shareholders are not personally liable for any losses that the company might make.

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  • 8. 

    If there is undue delay in reporting financial information, the information might lose its:

    • Relevance

    • Reliability

    Correct Answer
    A. Relevance
    Explanation
    If there is an undue delay in reporting financial information, the information might lose its relevance. This is because the longer it takes for the information to be reported, the less useful it becomes for making informed decisions. Timeliness is a key factor in maintaining the relevance of financial information, as it allows stakeholders to have access to up-to-date and accurate data for decision-making purposes. Therefore, any delay in reporting can diminish the relevance of the information.

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  • 9. 

    Which of the following items are items of capital expenditure?
    1. Computer repair
    2. Purchase of a property
    3. Short-term hire of machinery

    • 1 and 2

    • 1 and 3

    • 2 only

    • 3 only

    Correct Answer
    A. 2 only
    Explanation
    The correct answer is 2 only. This is because the purchase of a property is considered a capital expenditure as it involves acquiring a long-term asset that will provide benefits over multiple periods. On the other hand, computer repair and short-term hire of machinery are considered revenue expenditures as they are necessary for the day-to-day operations of the business and do not result in the acquisition of a long-term asset.

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  • 10. 

    International accounting standards are written primarily with regards to information needs of which type of users?

    • Management

    • Employess

    • Government and government agencies

    • Investors

    Correct Answer
    A. Investors
    Explanation
    International accounting standards are primarily written with regards to the information needs of investors. These standards aim to provide investors with accurate and reliable financial information about a company, enabling them to make informed decisions regarding their investments. By following these standards, companies can ensure transparency, comparability, and consistency in their financial reporting, which is crucial for investors to assess the financial performance and position of a company. This information helps investors evaluate the profitability, risk, and growth potential of an investment, and make decisions accordingly.

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  • 11. 

    Which of the following characteristics of financial information contribute to reliability? 1.     Completeness 2.     Prudence 3.     Neutrality 4.     Faithful Representation                      

    • All four

    • 1, 2 and 3 only

    • 1, 2 and 4 only

    • 2, 3 and 4 only

    Correct Answer
    A. All four
    Explanation
    Financial information is considered reliable when it possesses certain characteristics. The characteristics of completeness, prudence, neutrality, and faithful representation all contribute to the reliability of financial information. Completeness ensures that all necessary information is included, leaving no gaps or omissions. Prudence involves the cautious approach of recognizing potential losses and expenses but not gains until they are realized. Neutrality refers to the absence of bias or favoritism in the information. Lastly, faithful representation means that the information accurately represents the economic phenomena it intends to portray. Therefore, all four characteristics contribute to the reliability of financial information.

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  • 12. 

    Which of the following are examples of qualitative characteristics?

    • Faithful Representation, neutrality and prudence

    • Neutrality, comparability and true and fair view

    • Prudence, comparability and accruals

    • Neutrality, accruals and going concern

    Correct Answer
    A. Faithful Representation, neutrality and prudence
    Explanation
    The given answer is correct because faithful representation, neutrality, and prudence are all examples of qualitative characteristics in accounting. Faithful representation means that the information is complete, neutral, and free from error. Neutrality means that the information is unbiased and free from any bias or favoritism. Prudence means that the information is conservative and cautious in its approach, taking into account potential risks and uncertainties. These characteristics are important in ensuring that financial information is reliable, relevant, and useful for decision-making purposes.

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  • 13. 

    A company prepares its financial statements to 31 December each year. It hires an item of equipment for the period 1st November Year 1 to 30 April Year 2, at a cost of $42,000. However it does not have to pay the hire charge until the end of the hire period, at the end of April Year 2. What expense for equipment hire should be included in the income statement for the year to 31 December Year 1?

    • $4,000

    • $7,000

    • $14,000

    • $28,000

    Correct Answer
    A. $14,000
    Explanation
    2/6 x $42,000 = $14,000

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  • 14. 

    Which of the following statements are true? 1.     Materiality means only items that have a physical existence is recognized as assets. 2.     Substance over form convention means that the legal form of a transaction must always be shown in financial statements even if this differs from the commercial effect. 3.     Money measurement concept means that only items capable of being measured in monetary terms can be recognized in financial statements.

    • 2 only

    • 1, 2 and 3

    • 1 only

    • 3 only

    Correct Answer
    A. 3 only
    Explanation
    The correct answer is "3 only". This is because the money measurement concept states that only items capable of being measured in monetary terms can be recognized in financial statements. The other statements are not true. Materiality does not mean that only items with physical existence are recognized as assets, and the substance over form convention means that the commercial effect of a transaction should be shown in financial statements, even if it differs from the legal form.

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  • 15. 

    In times of rising prices, what effect does a historical cost concept have on a company’s asset values and profits?

    • Asset values and profits both understated

    • Asset values and profit both overstated

    • Asset value understated profit overstated

    • Asset value overstated profit understated

    Correct Answer
    A. Asset value understated profit overstated
    Explanation
    In times of rising prices, the historical cost concept means that assets are recorded at their original purchase price, rather than their current market value. This results in asset values being understated because they do not reflect the increase in prices over time. However, profits are overstated because the cost of producing goods or services is based on historical costs, which are lower than the current market prices. As a result, the company's profits appear higher than they actually are.

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  • 16. 

    A company prepares its financial statements to 31 December every year. It pays rental costs on an office building annually in advance. It paid rental costs of $600,000 on 31 May Year 1 and $660,000 on 31 May Year 2. What is the expense for the office rental for the year 31 December Year 2?

    • $625,000

    • $630,000

    • $635,000

    • $660,000

    Correct Answer
    A. $635,000
    Explanation
    (5/12 x 600,000) + (7/12 x 660,000) = $635,000

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  • 17. 

    Which of the following statements are correct?
    1. Prudence requires that expenses should never be over-stated in the financial statements.
    2. The going concern assumption is that the business entity will continue in operation for the foreseeable future.
    3. Complex items should not be excluded from the financial statements on the grounds that they would not be understandable for many users.

    • 1 and 2

    • 1 and 3

    • 2 only

    • 2 and 3

    Correct Answer
    A. 2 and 3
    Explanation
    Prudence would require that expenses should not be understated.

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  • 18. 

    Which of the following is not an aspect of reliability of financial information?

    • Fair presentation

    • Substance over form

    • Neutrality

    • Completeness

    Correct Answer
    A. Fair presentation
    Explanation
    Faithful representation is a characteristic of reliable information. Not fair presentation.

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  • Current Version
  • Aug 23, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Aug 11, 2012
    Quiz Created by
    Natashanelesh
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