Professional Documents
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01 - ASC Framework
01 - ASC Framework
01 - ASC Framework
SCOPE
The Framework deals with:
a) The objective of FS;
b) The qualitative characteristics that determine usefulness of information in the FS;
c) The definition, recognition and measurement of the elements from which FS are
constructed; and
d) Concepts of capital and capital maintenance.
The framework is concerned with general-purpose FS including consolidated FS.
FS are prepared at least annually and directed toward common information needs of a wide
range of users.
Complete set of FS includes: balance sheet, income statement, statement of changes in equity,
cash flow statement and notes to FS (modified per SFAS/IAS 1)
The Framework applies to the FS of all commercial, industrial and business reporting
enterprises, whether in the public or private sectors.
Reporting enterprise – an enterprise for which there are users who rely on the FS as their
major source of financial information about the enterprise.
Management has primary responsibility for the preparation and presentation of FS.
THE OBJECTIVE OF FS
The objective of FS is to provide information about the financial position, performance and
changes in financial position (cash flows).
FS prepared for this purpose meet the common needs of most users.
FS also show the results of the stewardship of management, or the accountability of
management for the resources entrusted to it.
The financial position of an enterprise is affected by:
The economic resources it controls –useful in predicting the ability of the enterprise to generate
cash and cash equivalents in the future.
Its financial structure – useful in predicting borrowing needs and how future profits and cash
flows will be distributed.
- also useful in predicting how successful the enterprise is likely to be in
raising further finance.
Its liquidity and solvency – useful in predicting the ability of the enterprise to meet its financial
commitments as they fall due.
Liquidity refers to the availability of cash in the near future after taking into account financial
commitments over this period.
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Solvency refers to the availability of cash over the longer term to meet financial commitments
as they fall due.
Information about the performance of an enterprise, particularly its profitability, is required in
order to assess potential changes in the economic resources that it is likely to control in the
future.
Information concerning changes in the financial position (cash flows) of an enterprise is useful
in order to assess its investing, financing and operating activities during the reporting period.
UNDERLYING ASSUMPTIONS
Accrual basis – the effects of transactions and other events are recognized when they occur
(and not as cash or its equivalents is received or paid) and they are recorded in the
accounting records and reported in the FS of the periods to which they relate.
Going Concern – the enterprise has neither the intention nor the need to liquidate or curtail
materially the scale of its operations.
QUALITATIVE CHARACTERISTICS
These are attributes that make the information provided in FS useful to users. These include
Understandability – easily understood by users who have reasonable knowledge of business
and economic activities and accounting plus willingness to study information
with reasonable diligence.
Relevance - Information has the quality of relevance when it influences the economic
decisions of users.
- the relevance of information is affected by its nature and materiality.
Reliability - Information has the quality of reliability when it is free from material error and
bias and can be depended upon by users to present faithfully that which it
purports to represent or could be expected to represent.
- Faithful representation, substance over form, neutrality, prudence
(conservatism), completeness
Comparability - Consistency of GAAP and accounting policies and preceding period
information
Constraints on relevant and reliable information – Timeliness, balance between benefits and
cost, balance between qualitative characteristics, fair presentation
QUIZZERS
1. The ASC framework (Choose the incorrect one)
a. Sets out the concepts that underlie the preparation and presentation of financial statements
for external users.
b. Is not a Statement of Financial Accounting Standards and hence does not define standards
for any particular measurement or disclosure issue.
c. Is concerned with special purpose reports, for example, prospectuses and computations
prepared for taxation purposes.
d. Applies to the financial statements of all commercial, industrial and business reporting
enterprises, whether in the public or private sector.
2. Accounting is
I. A service activity and its function is to provide quantitative information, primarily financial in
nature, about economic entities, that is intended to be useful in making economic decision.
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II. The art of recording, classifying, and summarizing in a significant manner and in terms of
money, transactions and events which are in part at least of a financial character and
interpreting the results thereof.
III. The process of identifying, measuring and communicating economic information to permit
informed judgment and decision by users of the information.
a. I, II and III b. I only c. II only d. III only
3. Financial accounting
a. Is the examination of financial statements by an independent CPA for the purpose of
expressing an opinion as to the fairness of the financial statements.
b. Focuses on the preparation and presentation of general purpose reports known as financial
statements.
c. Has no precise coverage but is used generally to refer to services to clients on matters of
accounting, finance, business policies, organization procedures, product costs, distribution
and many other phases of business conduct and operations.
d. Is the preparation of annual income tax returns and determination of tax consequences of
certain proposed business venture.
8. These users are interested in the allocation of resources and activities of enterprises, and
therefore require information to regulate the activities of enterprises, determine taxation policies
and as a basis for national income and similar statistics.
a. Suppliers and trade creditors c. Public
b. Customers d. Governments and their agencies
9. Information about economic resources controlled by the enterprise and its capacity to modify
these resources is useful in predicting the
a. Ability of the enterprise to meet its financial commitments in the near term.
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b. Ability of the enterprise to meet its financial commitments over a longer term.
c. Future borrowing needs and how future profits and cash flows will be distributed among
interested users.
d. Ability of the enterprise to generate cash and cash equivalents in the future.
10. Information about the performance of an enterprise is required in order to assess potential
changes in the economic resources that it is likely to control in the future. This information is
primarily pictured in the
a. Cash flow statement c. Balance sheet
b. Statement of retained earnings d. Income statement
13. What are the primary qualities of financial accounting information that pertain to the content
rather than to the presentation of financial information?
a. Relevance and reliability c. Relevance and comparability
b. Understandability and comparability d. Reliability and understandability
18. Which is incorrect concerning the accounting constraints on relevant and reliable information?
a. It may often be necessary to report before all aspects of a transaction or other event are
known, thus impairing reliability.
b. The benefits derived from the information should exceed the cost of providing it.
c. In achieving a balance between relevance and reliability, the overriding consideration is
how best to satisfy the economic decision-making needs of users.
d. If there is undue delay in the reporting of information it may lose its relevance and reliability.
21. It is a possible asset that arises from past event and whose existence will be confirmed only by
the occurrence or nonoccurrence of one or more uncertain future events not wholly within the
control of the enterprise.
a. Contingent asset
c. Goodwill
b. Intangible asset
d. Other asset
23. These are the events, both favorable and unfavorable, that occur between the balance sheet
date and the date when financial statements are authorized for issue.
a. Events after the balance sheet date c. Fundamental errors
b. Contingencies d. Current events
25. Adjusting events after balance sheet date include all of the following, except
a. The resolution after the balance sheet date of a court case.
b. The bankruptcy of a customer which occurs after the balance sheet date resulting to a loss
on a trade receivable account.
c. The discovery of fraud or errors that show that the financial statements were incorrect.
d. Dividends to holders of equity instruments proposed or declared after balance sheet date
26. Financial statements portray the financial effects of transactions and other events by grouping
them into broad classes according to their economic characteristics. These broad classes are
termed as the
a. Elements of financial statements c. Accounting constraints
b. Features of accounting d. Concepts of capital and capital maintenance
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27. The elements directly related to the measurement of financial position are
a. Assets, liabilities, equity, revenue and expenses
b. Assets, liabilities, equity and revenue
c. Assets, liabilities and equity
d. Revenue and expenses
28. Asset is
a. A resource controlled by the enterprise as a result of past events and from which future
economic benefits are expected to flow to the enterprise.
b. A present obligation of the enterprise arising from past events the settlement of which is
expected to result in an outflow from the enterprise of resources embodying economic
benefits.
c. The residual interest in the assets of the enterprise after deducting all its liabilities.
d. Equivalent to all financial resources of the enterprise.
29. It is the process of incorporating in the balance sheet or income statement an item that meets
the definition of an element of financial statements.
a. Recognition b. Allocation c. Realization d. Summarization
30. It is the process of determining the monetary amounts at which the elements are to be
recognized and carried in the balance sheet and income statement.
a. Measurement b. Recognition c. Reporting d. Interpreting
31. Historical cost is the measurement basis most commonly adopted by enterprises in preparing
the financial statements. This means the
a. Amount of cash or cash equivalent paid or the fair value of the consideration given.
b. Amount of cash or cash equivalent that would have to be paid if the same or an equivalent
asset was acquired currently.
c. Amount of cash or cash equivalent that could currently be obtained by selling the asset in
an orderly disposal.
d. Discounted value of the future net cash inflows that an item is expected to generate in the
normal course of business.
32. Which statement is incorrect concerning the recognition principles?
a. An asset is recognized when it is probable that future economic benefits will flow to the
enterprise and the asset has a cost or value that can be measured reliably.
b. A liability is recognized when it is probable that an outflow of resources embodying
economic benefits will result from the settlement of a present obligation that can measured
reliably.
c. Income is recognized when an increase in future economic benefits related to an increase
in asset or a decrease in liability has arisen that can be measured reliably.
d. Expenses are recognized when a decrease in future economic benefits related to an
increase in asset or a decrease in liability has arisen that can be measured reliably.
33. Which is incorrect concerning the recognition of a liability?
a. Obligations may be legally enforceable as a consequence of a binding contract or statutory
requirement.
b. If an enterprise decides as a matter of policy to rectify faults in its products even when
these become apparent after the warranty period has expired, the amounts that are
expected to be expended in respect of goods sold are liabilities.
c. An obligation normally arises only when the asset is delivered or the enterprise enters into
an irrevocable agreement to acquire the asset.
d. A decision by the management of an enterprise to acquire assets in the future, in itself,
gives rise to a present obligation.
34. Technically, this arises in the course of the ordinary activities of an enterprise and is referred to
by a variety of different names including sales, interest, dividends, royalties and rent.
a. Income b. Gain c. Profit d. Revenue
35. This process involves the simultaneous or combined recognition of revenues and expenses
that result directly and jointly from the same transactions or other events on the basis of direct
association between the costs incurred and the earning of specific items of income.
a. Matching of revenues with costs c. Systematic and rational allocation
b. Matching of costs with revenues d. Immediate recognition
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36. The following statements pertain to the concept of income and expenses. Which statement is
incorrect?
a. The definition of expenses encompasses losses as well as those expenses that arise in the
course of the ordinary activities of the enterprise.
b. Losses represent other items that meet the definition of expenses and may or may not arise
in the course of the ordinary activities of the enterprise.
c. The definition of revenue encompasses both income and gains.
d. Gains represent other items that meet the definition of income and may or may not arise in
the course of the ordinary activities of an enterprise.
37. Which of the following is not regarded as constituting a separate element in the ASC
Framework?
a. Income b. Expense c. Gain d. Equity
38. Which capital maintenance concept is applied to currently reported net income and
comprehensive income?
Currently reported net income Comprehensive income
a. Financial capital Physical capital
b. Physical capital Physical capital
c. Financial capital Financial capital
d. Physical capital Financial capital
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