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ACCTNG 112 Answers For Chapter 2

The document contains 10 multiple choice questions related to accounting concepts like materiality, qualitative characteristics of financial information, and definitions of assets and liabilities. It tests understanding of concepts from the Conceptual Framework like substance over form, aspects of the revised definition of an asset, and how the new definition of an asset focuses on a present right from past events to produce economic benefits. The questions cover topics like when making materiality judgements, qualitative factors that make information useful, and how comparability enhances information.

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Hayes Medrano
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0% found this document useful (0 votes)
200 views5 pages

ACCTNG 112 Answers For Chapter 2

The document contains 10 multiple choice questions related to accounting concepts like materiality, qualitative characteristics of financial information, and definitions of assets and liabilities. It tests understanding of concepts from the Conceptual Framework like substance over form, aspects of the revised definition of an asset, and how the new definition of an asset focuses on a present right from past events to produce economic benefits. The questions cover topics like when making materiality judgements, qualitative factors that make information useful, and how comparability enhances information.

Uploaded by

Hayes Medrano
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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PROBLEM # 1 (TRUE OR FALSE)

4. When making materiality judgements, a


quantitative assessment alone is not always
1. All changes in an entity’s economic sufficient to conclude that an item of
resources and claims to those resources information is not material.
result from the entity’s finance performance.

ANSWER: FALSE ANSWER: TRUE

EXPLANATION: other than financial EXPLANATION: if a certain item is not


performance, other events and transactions quantitatively material, it needs to reassess based
are the cause. on qualitative factors.

PAGE/LINK/ASSUMPTION: 42 It is not always sufficient.

PAGE/LINK/ASSUMPTION: 46
2. The qualitative characteristics of useful
information apply only to the financial
information provided in the financial
statements.
5. Materiality judgements apply only to items
that are recognized but not to those that
ANSWER: FALSE unrecognized.
EXPLANATION: qualitative characteristics
apply to information in the financial statements
as well as to financial formation provided in ANSWER: FALSE
other ways.
EXPLANATION: unrecognized are
PAGE/LINK/ASSUMPTION: 44 still applied for materiality judgements.

PAGE/LINK/ASSUMPTION:
3. According to IFRS Practice Statement 2
Making Materiality Judgements, cost is an The entity makes this assessment by
important consideration when making considering not only the size of the impact it
materiality judgements. recognizes in its primary financial statements
but also any unrecognized items that could
ultimately affect primary users’ overall
perception of the entity’s financial position,
ANSWER: FALSE
financial performance and cash flows (e.g.
EXPLANATION: cost is an important contingent liabilities or contingent assets)
consideration when making materiality
PAGE/LINK/ASSUMPTION:
judgements but not just cost but also benefits.
https://www.sekoyen.com/PS02.p
The IASB identifies the information needs of a
wide range of primary users and considers the
balance between the benefits to be derived from 6. The more significant the qualitative factors,
the information and the cost of producing it. the lower the quantitative thresholds will be.
Thus, an item with a zero amount can be
PAGE/LINK/ASSUMPTION: 45
material in light of qualitative thresholds.

ANSWER: TRUE

EXPLANATION: if an item is
quantitatively material, the entity need not
reassess it on the basis of qualitative factors.
Iif an item is quantitatively not material, the
entity needs to reassess it on the basis of
qualitative factors.
PAGE/LINK/ASSUMPTION: 46

9. To meet the objectives of general purpose


financial reporting, a standard sometimes
7. When making materiality judgements, an contains requirements that depart from the
entity should judge an item’s materiality on Conceptual Framework.
its own and not in combination with other
information in the complete set of financial
statements.
ANSWER: TRUE

EXPLANATION: stated in the book.


ANSWER: FALSE
PAGE/LINK/ASSUMPTION: 38
EXPLANATION: the entity concludes
that information about the business
combination is material because the 10. The Conceptual Framework is concerned
acquisition is expected to have a significant with the provision of financial information
impact on the entity’s operations, due to the to both external users and internal users.
overall size of the transaction compared with
the size of the entity.

This is necessary because an item might not ANSWER: FALSE


be material on its own, but it might be
EXPLANATION: external users only,
material if used in conjunction with the other
the primary users.
information in the complete set of financial
positions. PAGE/LINK/ASSUMPTION: feel lang nako.
Not only on its own but also on other
financial position.

PAGE/LINK/ASSUMPTION:
https://www.sekoyen.com/PS02.pdf (p.g. 14) PROBLEM # 3 (MULTIPLE CHOICE)

P.G. 47
1. According to the Conceptual Framework,
these are the qualitative characteristics that
8. The Conceptual Framework and the make information useful to users.
Standards specify a uniform quantitative
threshold for materiality.
ANSWER: A - fundamental

ANSWER: FALSE EXPLANATION:

EXPLANATION: conceptual PAGE/LINK/ASSUMPTION: 44


framework and standards do not specify
uniform.
2. Information that is capable of making a
There is no uniform. The complexity of
difference in the decisions made by users
companies vary.
has this qualitative characteristic.
PAGE/LINK/ASSUMPTION: 45

ANSWER: A – faithful representation

EXPLANATION:

PAGE/LINK/ASSUMPTION:

3. When making materiality judgements, the


overriding consideration is
element. Entity A considers the transaction’s
substance and economic reality rather than
ANSWER: A – the ability of the item being merely its legal form. Entity A is applying
judged to influence users’ decision. which of the following accounting concepts?
EXPLANATION:

PAGE/LINK/ASSUMPTION: ANSWER: A – substance over form

EXPLANATION:
4. This qualitative characteristic is unique in PAGE/LINK/ASSUMPTION:
the sense that it necessarily requires at least
two items.

9. Which of the following is not one of the


aspects in the revised definition of an asset?
ANSWER: D – comparability

EXPLANATION:
ANSWER: C – probability of the expected
PAGE/LINK/ASSUMPTION:
inflows of economic benefits from the asset

EXPLANATION: All have been mentioned


5. Which of the following enhances the except for letter c.
comparability of information?
PAGE/LINK/ASSUMPTION:

ANSWER: C – using different methods to account


10. The new definition of an asset (a liability)
for similar transactions from period to period.
focuses on the asset (liability) being
EXPLANATION:
Answer: A – a present right (obligation) that
PAGE/LINK/ASSUMPTION: has resulted from past events and has the potential
to produce (cause a transfer of) economic benefits.
6. Information has this qualitative
characteristic if different, knowledgeable EXPLANATION: For liability to exist the
and independent observers could reach entity must have obligation, the
consensus, although not necessarily obligation is to transfer an
complete agreement, that a particular economic resource, and it is a
depiction is a faithful representation. present obligation resulted to exist
of past events.

ANSWER: C – verifiability

EXPLANATION:

PAGE/LINK/ASSUMPTION:

11. Which of the following is not an indication


7. The Conceptual Framework uses the term of an economic resource's potential to
“claims” against the reporting entity refer to produce economic benefits?

ANSWER: D – both Answer: D – the resource has no use in the


entity’s operation and has no resale value.
EXPLANATION:
EXPLANATION: Sold, leased, transferred or
PAGE/LINK/ASSUMPTION: exchanged for other assets.

8. Entity A is assessing whether an item meets 12. Which of the following does not meet the
the definition of a financial statement definition of an asset?
EXPLANATION: Understandable

Answer: C

EXPLANATION: Understandable PROBLEM IV

13. Entity A determined that an asset exists.


However, the asset's low probability of 1. The conceptual framework is least
inflows of economic benefits and its very applicable in which of the following
high level of measurement uncertainty cases?
affected entity. A’s recognition decisions Answer: A
about the asset, as these raised doubt on
whether the asset's recognition would result EXPLANATION: All are stated at the book
in useful information. Consequently, entity excluding A.
A did not recognize the asset, but because
entity a deemed it relevant, information
about the asset was nonetheless provided in 2. General purpose financial statements are
the notes. designed to

Answer: C
ANSWER: B – entity A’s treatment for the asset
is acceptable. The asset is referred to as an EXPLANATION: General purpose financial
‘unrecognized’ asset. reporting deals with providing
information that caters to the
EXPLANATION: Even if an item that meets the common needs of the primary users.
definition of an asset or liability is Financial reports do not and
not recognized, information about cannot provide all the information
that item may still need to be needs of primary users. These
disclosed in the notes. In such case, users will need to consider other
it is referred to as unrecognized resources for their other
asset/liability. information needs such as general
economic conditions and
If one or both of the foregoing
expectations.)
factors result to non-recognition,
information about the
unrecognized asset or liability may
still need to be provided in the 3. These are users of financial information
notes. Despite the presence of one who are not in a position to require a
or both of the foregoing factors, an reporting entity to prepare reports
asset or liability may nonetheless tailored to their particular needs.
be recognized if this provides
Answer: A
relevant information.
EXPLANATION:

4. Which of the following is not one of the


14. Which of the following will most likely
primary users listed in the Conceptual
affect the determination of whether an asset
Framework?
or a liability exists?

Answer: C – an unresolved dispute over a


right or obligation. ANSWER: D – debtors

EXPLANATION: Understandable EXPLANATION:

PAGE/LINK/ASSUMPTION:

15. An increase in the carrying amount of an


asset could not possibly result in
5. Which of the following would least
Answer: B – the recognition of an expense. likely to need general purpose financial
statements in making economic
decisions? ANSWER: A – a low probability of expected
inflows or outflows of economic benefits resulting from
an asset or liability, but not necessarily its existence.
ANSWER: C - management EXPLANATION:
EXPLANATION: PAGE/LINK/ASSUMPTION:
PAGE/LINK/ASSUMPTION:

10. According to the revised Conceptual


6. Which of the following is not a factor to Framework, the degree of uncertainty in
consider when applying the qualitative the expected inflows or outflows of
characteristics? economic benefits from an asset or
liability or the degree of measurement
uncertainty associated with that asset or
liability
ANSWER: D – to be useful, information need
only to meet one, but not necessarily all, of the
qualitative characteristics.
ANSWER: A – does not necessarily affect the
EXPLANATION: conclusion that an asset or liability exists, although
it may affect recognition decisions about the asset
PAGE/LINK/ASSUMPTION:
or liability.

EXPLANATION:
7. Which of the following is an example of
PAGE/LINK/ASSUMPTION:
a qualitative factor used in making
materiality judgements?

TERMS

ANSWER: D – the context of an item in relation


to a current crisis in the banking and insurance Dispute
industry.
Disagreement, argument, or debate.
EXPLANATION:
Economic Benefit
PAGE/LINK/ASSUMPTION:
An economic benefit is any benefit that we can
quantify in terms of the money that it generates. Net
income and revenues, for example, are forms of
8. According to the Conceptual
economic benefit. Profit and net cash flow are also
Framework, this information provides a
economic benefits. An economic benefit may also
direct indication of how well
refer to a reduction in something such as a cost.
management has discharged its
responsibilities to make efficient and
effective use of the reporting entity’s
resources. Economic Resource

Economic resources are the factors used in


producing goods or providing services. Economic
ANSWER: B – the return that the entity has resources can be divided into human resources, such
produced from its economic resources. as labor and management, and nonhuman resources,
such as land, capital goods, financial resources, and
EXPLANATION:
technology.
PAGE/LINK/ASSUMPTION:

THRESHOLDS
9. Which of the following statements about
The level at which something is affected by a
the concepts in the Conceptual
particular rule or belongs in a particular class, or the
Framework is least accurate?
level of money earned or income.

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