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    Conceptual Framework and Accounting Standards

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    peejay
    This document provides a conceptual framework and overview of accounting standards for partnerships and corporations. It covers key concepts such as the purpose of financial statements being to provide useful information to external decision makers, qualitative characteristics like relevance and comparability, and the hierarchical authority of frameworks and standards. The document also provides example questions testing understanding of these concepts, such as the objective of financial statements according to the framework and underlying assumptions of financial reporting.

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    Conceptual Framework and Accounting Standards

    Uploaded by

    peejay
    471 views5 pages
    This document provides a conceptual framework and overview of accounting standards for partnerships and corporations. It covers key concepts such as the purpose of financial statements being to provide useful information to external decision makers, qualitative characteristics like relevance and comparability, and the hierarchical authority of frameworks and standards. The document also provides example questions testing understanding of these concepts, such as the objective of financial statements according to the framework and underlying assumptions of financial reporting.

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    Conceptual Framework and Accounting Standards

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    This document provides a conceptual framework and overview of accounting standards for partnerships and corporations. It covers key concepts such as the purpose of financial statements being to provide useful information to external decision makers, qualitative characteristics like relevance and comparability, and the hierarchical authority of frameworks and standards. The document also provides example questions testing understanding of these concepts, such as the objective of financial statements according to the framework and underlying assumptions of financial reporting.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    471 views5 pages

    Conceptual Framework and Accounting Standards

    Uploaded by

    peejay
    This document provides a conceptual framework and overview of accounting standards for partnerships and corporations. It covers key concepts such as the purpose of financial statements being to provide useful information to external decision makers, qualitative characteristics like relevance and comparability, and the hierarchical authority of frameworks and standards. The document also provides example questions testing understanding of these concepts, such as the objective of financial statements according to the framework and underlying assumptions of financial reporting.

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    © All Rights Reserved
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    of 5

    CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

    PARTNERSHIP AND CORPORATION

    1. Choose the statement that is correct.


    a. External decision makers can obtain whatever financial data they need whenever they need it.
    b. Accounting information is prepared for and useful to only outside decision makers.
    c. The members of the Board of Directors are not “external users” of financial information, they are
    “internal users” only.
    d. Managers of an entity are considered to be internal decision makers.

    2. The primary qualitative characteristics of accounting information include which of the following:
    a. Comparability (including consistency) c. Relevance
    b. Understandability d. Materiality

    3. What is the authoritative status of the Framework?


    a. It has the highest level of authority. In case of a conflict between a framework and a Standard or
    Interpretation, the Framework overrides the Standard or Interpretation.
    b. If there is a Standard or Interpretation that specifically applies to a transactions, it overrides the
    framework. In the absence of a Standard or Interpretation that specifically applies, the
    framework should be followed.
    c. If there is a Standard or Interpretation that specifically applies to a transaction, it overrides the
    Framework. In the absence of a Standard or Interpretation that specifically applies to a
    transaction, management should consider the applicability of the Framework in developing and
    applying an accounting policy that results in information that is relevant and reliable.
    d. The Framework applies only when IASB develops new or revised standards. An entity is never
    required to consider the Framework.

    4. What are the qualitative characteristics of financial statements according to Framework?


    a. Qualitative characteristics are the attributes that make the information provided in financial
    statements useful to users.
    b. Qualitative characteristics are broad classes of financial effects of transactions and other events.
    c. Qualitative characteristics are non-quantitative aspects of an entity’s position and performance
    and changes in financial position.
    d. Qualitative characteristics measure the extent to which an entity has complied with all relevant
    Standards and Interpretations.

    5. Choose the incorrect statement.


    a. Disclosure notes facilitate the evaluation of enterprise position and performance because they
    include information which helps to explain the quality of earnings.
    b. Disclosure notes are integral part of financial statements.
    c. Companies often look for opportunities to smooth earnings.
    d. Accounting concepts, principles and standards are just as broad and general today as they were
    sixty years ago.
    6. Accounting concepts are not derived from:
    a. Inductive Reasoning c. Pragmatism
    b. Experience d. Laws of nature
    7. Choose the incorrect statement.
    a. The objective of financial statements is to communicate the economic effects of completed
    transactions and other events in the entity.
    b. General purpose financial statements were developed primarily because all outside users have
    the same information needs.
    c. The double-entry system of accounting has been used for centuries.
    d. The practice of accounting requires considerable professional judgements.

    8. Which of the following is not a qualitative characteristics of financial statements according to


    Framework?
    a. Materiality c. Comparability
    b. Understandability d. Relevance

    9. Comparability is sometimes sacrificed for:


    a. Reliability c. Objectivity
    b. Conservatism d. Relevance

    10. Which of the following are underlying assumptions of financial statements?


    a. Relevance and Reliability
    b. Financial Capital Maintenance and Physical Capital Maintenance
    c. Accrual basis and going concern
    d. Prudence and Conservatism

    11. When should an item meets the definition of an element be recognized, according to Framework?
    a. When it is possible that any future economic benefit associated with the item will flow to or from
    the entity.
    b. When the element has a cost or value that can be measured with reliability.
    c. When entity obtains control of the rights or obligations associated with the item.
    d. When it is probable that any future economic benefit associated with the item will flow to or
    from the entity and the item has a cost or value that can be measured with reliability.

    12. If accounting information is timely and has predictive and feedback value, then it can be characterized
    as:
    a. Verifiable b. Relevant c. Reliable d. Qualitative

    13. Which of the following is the incorrect statement?


    a. Theory can be defined as coherent set of hypothetical, conceptual and pragmatic principles
    forming a general frame of reference for a field of inquiry.
    b. Accounting theory has developed primarily in response to government regulations.
    c. Concepts are components of theory.
    d. Accounting concepts are human-made.

    14. What is the objective of financial statements according to the framework?


    a. To provide financial information about financial position, performance, and changes in financial
    position of an entity that is useful to a wide range of users in making economic decisions.
    b. To prepare and present a Statement of Financial Position, Income Statement, Cash Flow
    Statement, and Statement of Changes in Equity.
    c. To prepare and present comparable, relevant, reliable, and understandable information to
    investors and creditors.
    d. To prepare financial statements in accordance with all applicable Standards and Interpretations.

    15. A primary objective of financial reporting is to:


    a. Assist investors in analyzing the economy.
    b. Assist suppliers in determining an appropriate discount to offer a particular company.
    c. Assists investors in predicting prospective cash flows
    d. Assist banks to determine an appropriate interest rate for their commercial loans.

    Shareholders’ Equity
    Be the One Corp. received a charter authorizing 120,000 shares of Ordinary Shares at P15 par share.
    During the first year of operations, 40,000 shares were sold at P28 per share. 600 shares were issued in
    payment of current operating debt of P18,600. In the first year, the net income was 142,000.

    During the year, dividends of 36,000 were paid to shareholders. At the end of the year, total liabilities
    were P82,000. Use the given data to compute the following items at the end of the first year.

    1. Total liabilities and shareholders’ equity


    2. Shareholder’s equity
    3. Contributed capital
    4. Issued share capital (par)
    5. Outstanding share capital (par)
    6. Unissued share capital (number of shares)
    7. Share Premium
    SOLUTION
    1. D
    2. C
    3. C
    4. A
    5. D
    6. D
    7. B
    8. A
    9. D
    10. C
    11. D
    12. B
    13. B
    14. A
    15. C

    1. Total liabilities and shareholders’ equity : 1,244,600 + 82,000 = 1,326,600


    2. Shareholder’s equity : 1,244,600
    3. Contributed capital : 609,000 + 529,600 = 1,138,600
    4. Issued share capital (par) : 600,000 + 9,000 = 609,000
    5. Outstanding share capital (par) : 600,000 + 9,000 = 609,000
    6. Unissued share capital (number of shares) : 79,400 shares
    7. Share Premium : 520,000 + 9,600 = 529,600

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