Other
CPA Australia Financial Reporting Revision Quiz (Knowledge Equity) (ANSWERS & WORKINGS)
- Course
- Institution
CPA Australia Financial Reporting Revision Quiz (ANSWERS & QUESTIONS)
[Show more]
Seller
Follow
studyaddict
Reviews received
Content preview
1FR – Revision Quiz 1 C is a valid statement. To achieve timeliness, it may be necessary
to use estimates rather than waiting until more directly observable
1. Which of the following is not an enhancing qualitative information becomes available.
characteristic of useful financial information as identified in
The Conceptual Framework? D is a valid statement. Users are presumed to have reasonable
knowledge of business and economic activities and to diligently
A. Timeliness review and analyse the information (Conceptual Framework, para.
B. Verifiability QC32).
C. Consistency
D. Understandability Module: 1 > 1.3 Qualitative characteristics of useful financial
information > Enhancing qualitative characteristics > Page: 18
Answer:
C. Consistency 3. When determining whether an item of financial information
C is not an enhancing qualitative characteristic, so this answer is is material, an entity should consider
correct. Consistency of accounting methods contributes to the
goal of comparability, which is an enhancing characteristics, A. Quantitative thresholds.
however consistency is not an enhancing characteristic in its own B. The size of the item only.
right. C. The nature of the item only.
D. The size and nature of the item.
A, B and D (timeliness, verifiability and understandability) are all
enhancing qualitative characteristics. Answer:
D. The size and nature of the item.
Module: 1 > 1.3 Qualitative characteristics of useful financial
information > Enhancing qualitative characteristics > Page: 18-20 D is correct because both the nature and size of an item could
affect assessment of its materiality.
2. Which of the following statements about enhancing
qualitative characteristics of financial statements is not A is incorrect because quantitative thresholds to assess materiality
correct? are not used in the Conceptual Framework (Para 2.11).
A. Fair values of assets that cannot be verified in an active B and C are incorrect because both the nature and size need to
market should not be disclosed in the financial be considered.
statements.
B. The financial statements of similar entities adopting Module: 1 > Part: 0 > 1.3 Qualitative characteristics of useful
different asset measurement bases can be adequately financial information > Fundamental qualitative characteristics >
compared. Page: 16
C. The value of invoices not yet received from suppliers for
services should be estimated at financial year end for 4. Which qualitative characteristic of the Conceptual
reporting purposes. Framework is satisfied by using an external valuer to confirm
D. Financial statements should be presented with the the market price used to measure the fair value of an asset
assumption that a reasonable and informed third person traded in an active market?
will know how to analyse financial information.
A. Comparability
Answer: B. Verifiability
A. Fair values of assets that cannot be verified in an active C. Timeliness
market should not be disclosed in the financial statements. D. Understandability
A is not a valid statement, as they can be disclosed, so this is the Answer:
correct answer. B. Verifiability
● Verification may involve direct observation, such as
confirming the market price used to measure the fair B is correct because verifiability exists if knowledgeable and
value of an asset that is traded in an active market. independent observers can reach a consensus that the
● Where an active market does not exist, verification may information is faithfully represented. Confirming the market price
be indirect, by checking the inputs (for example, initial used to measure the fair value of an asset that is traded in an
recognition) and processes (depreciation methods) used active market is an example of direct verifiability.
to determine reported information.
A is incorrect because comparability generally refers to the ability
B is a valid statement. The ability to compare the financial to compare financial statements over time to enable users to
statements of different entities is important in assessing the identify trends in the entity’s financial position and performance, or
relative financial position and performance of different entities. to compare the financial statements of different entities in
Comparability enables users to recognise similarities or assessing their relative financial position and performance. In this
differences between two sets of economic phenomena. example the purpose of the valuation is not for comparison
Comparability is not satisfied by mere uniformity of accounting purposes.
policies and methods.
, 2
C is incorrect because the timeliness of information in this
example is not being satisfied by the valuation. Timeliness
generally refers to how quickly information is made available to
users. 6. Lewin Ltd (Lewin) has 4 million shares on issue that were
issued to the market at $1.20 per share. The share price is
D is incorrect because understandability requires the information now $1.40. Assets consist of marketable securities that were
in financial statements to be clearly and concisely classified, recently revalued to $9 million. Liabilities of $1.2 million
characterised and presented. In this example, the valuation is not consist of employee entitlements and tax liabilities. Retained
being undertaken for the purpose of increased understandability. earnings are $3 million. The entity has a contingent liability
relating to a legal action for damages of $1.8 million, but
Module: 1 > 1.3 Qualitative characteristics of useful financial settlement is assessed to be remote.
information > Enhancing qualitative characteristics > Table 1.6 >
Page: 19 According to the Conceptual Framework for Financial
Reporting, what amount would Lewin disclose as equity in
the statement of financial position?
5. When the going concern assumption is not considered
appropriate, which of the following is correct in relation to the A. $4,800,000
Conceptual Framework? B. $6,000,000
C. $7,800,000
A. It does not specify an alternative basis for preparation. D. $8,600,000
B. It recommends the financial statements not be prepared.
C. It requires the financial statements to be prepared on a Answer:
cost basis. C. $7,800,000
D. It recommends the financial statements be prepared on a
cash basis. Equity
= Assets - Liabilities
Answer: = $9,000,000 - $1,200,000
A. It does not specify an alternative basis for preparation. = $7,800,000
A is correct because where the going concern assumption is not C is correct because the conceptual framework states that ‘the
appropriate (e.g. because of the entity’s intention or need to wind amount at which equity is shown in the balance sheet is
up operations), the financial statements should be prepared on dependent on the measurement of assets and liabilities’.
some other basis. The Conceptual Framework does not specify an
alternative basis. However, one approach may be to state assets The accounting equation is Assets = Liabilities + Equity
at their net realisable value—which in the case of certain
intangible assets may be negligible—and liabilities at the amount The conceptual framework states that the ‘residual interest in the
required for their immediate settlement. assets of the entity after deducting all its liabilities (para. 4.63).
B is incorrect because the Conceptual Framework does not This can be re-written as: Equity = Assets – Liabilities.
provide any relief for entities with respect of preparation of
financial statements when the going concern assumption is not We know that assets are $9 million (the marketable securities
considered appropriate. which have been revalued).
C and D are incorrect because the Conceptual Framework does Liabilities are $1.2m
not require the financial statements to be prepared on a cost basis
(Option C) or cash basis (Option D) when the going concern $9m – $1.2m = $7.8m
assumption is not considered appropriate.
We can also confirm this is correct because we have:
Module: 1 > Part: 0 > 1.2 The Conceptual Framework for Financial
Reporting > Going concern > Page: 15 $4.8m in share capital (4 million shares x $1.20) and $3m in
retained earnings.
$4.8m + $3m = $7.8m.
Note that the contingent liability is irrelevant here as it is not
recognised. The share price of $1.40 is also irrelevant.
A, B and D are incorrect because they don’t include the retained
earnings (Option A) or include the contingent liability (Option B) or
use the market value of the shares (Option D).
Module: 1 > Part: 0 > 1.4 The elements of financial statements >
Defining the elements of financial statements > Page: 23
, 3
7. A struggling company has lost its financing. Although it 8. For the year ended 31 December 20X8, Absalom Ltd’s
has not ceased trading, it has been unsuccessful so far at (Absalom’s) statement of profit or loss and other
obtaining a loan from another source. comprehensive income included operating expenses of
$320,000. In addition, Absalom’s statement of financial
Under IAS 1 Presentation of Financial Statements, which one position as at 31 December 20X8 revealed the following
of the following must be disclosed in the company’s financial information
statements?
A. The amount of debt not renewed by the original lender.
B. That the company is no longer a going concern, and the
reasons why.
C. That the company is a going concern but may not
continue, and the reasons why.
D. A listing of potential lenders and steps that management
is taking to obtain financing.
According to IAS 7 Statement of Cash Flows, what was the
Answer: amount of cash paid to suppliers of goods and services by
C. That the company is a going concern but may not Absalom for the year ended 31 December 20X8?
continue, and the reasons why.
C is correct because given the uncertainty about whether the A. $314,000
company can continue, IAS 1 states that it must disclose the B. $318,000
details of the uncertainty (IAS 1, para. 25) C. $322,000
D. $326,000
A is incorrect because disclosure of debt is not addressed in IAS
1. Answer:
C. $322,000
B is incorrect. Although the company is in financial distress and its
future is uncertain, it is still considered a going concern. Cash payments to suppliers
= Opening expenses + Increase in prepaid expenses - Increase in
D is incorrect. There is no requirement to disclose ongoing plans trade payables
or potential lenders in the financial statement notes. = $320,000 + ($20,000 - $16,000) - ($37,000 - $35,000)
= $320,000 + $4,000 - $2,000
Module: 2 > Part: A > 2.1 Complete set of financial statements > = $322,000
Other general features > Page: 65
C is correct because cash paid to suppliers calculated as follows:
As there is an increase in prepaid expenses, this implies that the
cash outlaid for prepaid expenses exceeded the amount expensed
during the financial year. The additional cash outlaid must be
added to the operating expenses. As there is an increase in trade
payables, this implies that the cash outlaid to creditors must have
been less than the goods and services expensed during the
period. To arrive at the lesser amount of cash paid, the increase in
trade payables must be deducted from the operating expenses.
A is incorrect because the movement in prepaid expenses has
been deducted rather than added.
B is incorrect because the movement in prepaid expenses has
been deducted rather than added and the movement in trade
payables has been added rather than deducted
D is incorrect because the movement in trade payables has been
added rather than deducted
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller studyaddict. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $7.99. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
82215 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now
Recently viewed by you
