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to accompany

Applying International
Accounting Standards
Alfredson, Leo, Picker, Pacter & Radford

Prepared by
Victoria Wise

John Wiley & Sons Australia, Ltd 2005


CHAPTER 2 The conceptual framework of the IASB

Question 13

Information about the sources and uses of an enterprises cash and cash equivalents is provided
in the:

A income statement;
B statement of changes in equity;
C cash flow statement;
D balance sheet.

Question 14

The IASB Framework outlines two underlying assumptions of financial statements. These are:

Assumption 1 Assumption 2
A Accrual basis of accounting Going concern assumption;
B Cash basis of accounting Insolvency assumption;
C Historical cost accounting Limited life concept;
D Fair value basis of measurement Perpetual life concept.

Question 15

If financial information that is presented in a balance sheet or income statement is misstated, and
it influences the economic decisions of users, that information is described as:

A reliable;
B material;
C prudent;
D faithful.

Question 16

The IASB Framework identifies four principal qualitative characteristics that make the
information in financial statements useful to investors, creditors and others. These
characteristics are:

I. Comparability.
II. Relevance.
III. Subjectivity.
IV. Confidentiality.

Applying International Accounting Standards Chapter 2


V. Understandability.
VI. Reliability.

A I, II, III and IV;

B II, IV, V and IV.
C I, III, IV and VI;
D I, II, V, and IV.

Question 17

In respect to information included in financial statements, the accounting concept of prudence

ensures that:

A the financial statements report what they purport to report;

B a degree of caution in the exercise of judgements about estimates is made:
C an appropriate balance is achieved between the relevance and the reliability of
information that has been included;
D information is provided to users within the time period in which it is most likely to
bear on their decisions.

Question 18

An item cannot be recognised in the balance sheet or the income statement unless it meets the
two criteria of:

Criterion 1 Criterion 2
A Materiality Relevance to the users;
B Completeness Measurement reliability;
C Neutrality Representational faithfulness;
D Probable economic benefits Measurement reliability.

Question 19

The following statement: decreases in economic benefits during the accounting period in the
form of outflows or depletions of assets, or the incurrence of liabilities that result in decreases in
equity other than those relating to distributions to equity participants provides a definition of:

A expenses;
B liabilities;
C assets;
D income.

Applying International Accounting Standards Chapter 2


Question 20

The following definition increases in economic benefits during the accounting period in the
form of inflows or enhancements of assets or decreases of liabilities that result in increases in
equity, other than those relating to contributions from equity participants is a formal statement
of the meaning of:

A assets;
B liabilities;
C income;
D expense.

Question 21

When measuring the revenue from dividends, IAS 18 Revenue, allows the recognition of
dividend revenue only when:

A the revenue has been realised;

B the cash is received;
C when the right to receive payment is established;
D the dividend amount is determined and the dividend has been declared.

Question 22

So long as it is probable that the economic benefits will flow to the enterprise and the amount of
revenue can be measured reliably, revenue from royalties should be recognised on:

A an accruals basis;
B the cash basis of accounting;
C the net present value of cash flows method;
D a percentage of completion basis.

Question 23

According to IAS 18 Revenue, the revenue from interest should be recognised using the
following measurement basis:

A the accrual basis;

B the cash basis;
C the historical cost basis;
D a time proportionate basis that takes into account, the effective yield;

Applying International Accounting Standards Chapter 2


Question 24

The measurement basis net realisable value is best described as:

A unamortised historical cost;

B an assets selling price or a liabilitys settlement amount;
C unadjusted initial cost;
D time adjusted cash flow.

Applying International Accounting Standards Chapter 2



1 C

2 A

3 B

4 D

5 B

6 D

7 A

8 C

9 C

10 A

11 D

12 B

Applying International Accounting Standards Chapter 2