ACC407

TUTORIAL: CHAPTER 1 & 2

Choose the most suitable answer(s).

1) Which of the following statements about the users of accounting information is

incorrect?
A. Management is an internal user
B. Tax authorities are external users
C. Creditors or suppliers on credit are external users
D. Regulatory authorities are internal user

2) The 3 most common forms of business entities are:

A. Sole proprietor, small businesses, and partnership
B. Sole proprietor, partnership, and large businesses
C. Sole proprietor, partnership, and corporation
D. Financial, manufacturing, and service companies

3) Preparing the financial statements reflect which phase of accounting?

A. Recording
B. Interpreting
C. Summarising
D. Classifying

4) Which of the following is the similarity between a sole proprietor and partners in a
partnership?
A. Unlimited liability
B. Limited liability
C. Not personally liable
D. A separate legal entity from the business

5) Which of the following business entity is considered as a separate entity from the legal
perspective?
A. Iqbal & Associates
B. Amza Enterprise
C. Usaha Sdn. Bhd.
D. Afza, Nazifa & Iskandar

6) This area of accounting keeps track of the business’s financial transactions.

A. Cost Accounting
B. Management Accounting
C. Financial Accounting
D. Forensic Accounting

7) A structured representation of the financial performance and financial position of a

business and changes over a period of time is the_________.
A. Profit or loss account
B. Financial statement
C. Financial position
D. Internal audit

8) Which of the following users assesses the potential of an investment?

A. Tax authority
B. Financial analyst
C. Banker
D. Employee
9) Which of the following is a primary characteristic of useful accounting information?
A. Comparability
B. Relevance
C. Consistency
D. Timeliness

10) Which of the following can be considered as the benefit of the conceptual framework?
A. Increase the financial statement users’ understanding of and confidence in the
financial reports
B. Enhance comparability among companies’ financial statements
C. Allow new and emerging practical problems to be more quickly solved
D. All are the benefits

11) Which of the following basic accounting assumptions is threatened by the existence of
severe inflation in the economy?
A. Monetary unit assumption
B. Periodicity assumption
C. Going-concern assumption
D. Economic entity assumption.

12) What is meant by comparability when discussing financial accounting information?

A. Information has predictive or feedback value.
B. Information is reasonably free from error.
C. Information that is measured and reported in a similar fashion across companies.
D. Information is timely.

13) Changing the method of inventory valuation should be reported in the financial
statements under what qualitative characteristic of accounting information?
A. Comparability
B. Consistency
C. Verifiability
D. Understandability

14) Asfa Bhd issued its annual financial reports within one month of the end of the year;
this is an example of which ingredient of primary quality of accounting information?
A. Neutrality
B. Timeliness
C. Predictive value
D. Representational faithfulness

15) Which basic assumption may not be followed when a firm in bankruptcy reports
financial results?
A. Economic entity assumption
B. Going concern assumption
C. Periodicity assumption
D. Monetary unit assumption

16) Information is neutral if it ________________.

A. provides benefits which are at least equal to the costs of its preparation
B. can be compared with similar information about an enterprise at other points in
time
C. would have no impact on a decision maker
D. is free from bias toward a predetermined result
17) The following are the internal users of an organization, except:
A. Owners and managers.
B. Securities Commission and potential customers.
C. Storekeeper and employee.
D. Internal auditor and accountant.

18) ____________ is the last step in the accounting cycle.

A. Preparation of financial statements.
B. Postings the transactions from journal to ledgers.
C. Recording the accounting adjustments.
D. Analysis of financial statements

19) An asset is recorded at its original price. This is to fulfil which qualitative characteristic
of financial information or accounting concept?
A. Completeness
B. Economic entity concept
C. Historical cost concept
D. confirmatory value

20) Which of the following is not true concerning a conceptual framework in accounting
concept?
A. It allows preparers to solve practical problem more quickly by reference to it.
B. To assist MASB in developing MFRS Standards
C. It should be a basis on fundamental truths that are derived from the laws of nature.
D. None of the above.

21) The fundamental qualitative characteristic of conceptual framework is _____________

A. economic entity
B. Going concern
C. Truthful representation
D. Free from error

22) The depreciation method was used for the last accounting year, and it should be used
for the current and future accounting period as to comply with __________
A. Consistency concept
B. Going concern concept
C. Money measurement concept
D. Completeness concept

23) Which of the following is the external user of the accounting information?
A. Creditor
B. Employee
C. Manager
D. Business Owner

24) Which of the following accounting process is correct?

A. Source documents – ledger – journal – financial statements – trial balance
B. Journal – source document – trial balance – ledger – financial statements
C. Ledger – trial balance – journal – source document – financial statements
D. Source documents – journal – ledger – trial balance – financial statements
 25) Choose the incorrect statement about the neutrality characteristic as discussed in the
conceptual framework for financial reporting.
A. It is an input to processes employed by users to predict future outcomes.
B. It is an exercise of caution when making judgements under conditions of uncertainty.
C. The financial information is free from bias.
D. It does not allow misstatements.

26) The financial information provided must be capable of being tested such as falsified or
provable by observation. This is to fulfil which qualitative characteristic of financial
information?
A. Understandability
B. Verifiability
C. Neutrality
D. Timeliness

27) Three (3) characteristics of faithful representation are ______________.

A. relevance, materiality and reliability
B. uniformity, completeness and materiality
C. neutrality, relevance and confirmatory
D. completeness, neutrality and free from error

28) Jack the owner of a grocery shop paid his personal insurance policy and recorded this
expense as a business expense. This transaction violates the ______________.
A. consistency concept
B. going concern concept
C. money measurement concept
D. business entity concept

State True or False for all statements.

1. Hiring 10 semi-skilled labour by A&M Co is an example of non-economic events.

2. In the accounting cycle, the closing entries are prepared after the adjusting entries.

3. Information has confirmatory value if in its preparation under conditions of uncertainty,

a degree of caution has been applied in exercising judgment and making the necessary
estimates.

4. Businesses should not include complex information in the financial statements because
it would not be understood by some users.
QUESTION 1

Encik Hakim, started his business on 1 January 2023. His business, Kampung Pisang Trading
was set up with the objective to offer exclusive traditional attires at an affordable price. He
contributed RM80,000 to start up the business. Beside that the business also obtained
RM200,000 20-years loan from KKK bank. He also brought a used motor van valued at
RM40,000 for the business purposes. On 3 January 2023, Encik Hakim bought and recorded
furniture and office equipment at a cost of RM7,000 and RM6,000 respectively. The business
adopts reducing balance method and plan to used the same method for future accounting
year. Encik Hakim assumes that his business will continue to operate and grow in the
foreseeable future.

Encik Hakim took RM500 to buy his daughter a birthday’s present and he did not record this
transaction in the business books of accounts. The accounting year end of Kampung Pisang
Trading is on 31 December each year.

Required:

(a) Briefly explain the following business characteristics possessed by Kampung Pisang
Trading .
(i). Capital contribution and ownership
(ii). Liabilities
(iii). Profit and loss

(b) Briefly discuss the following qualitative characteristic that determine the quality of financial
information.
(i). Comparability
(ii). Faithful representation

QUESTION 2

Encik Musa, a sole trader started his business on 1 January 2022 under the name of Maju
Enterprise. The business sells a variety of sports equipment and accessories. He brought in
cash RM50,000 and a used motor van valued at RM5,000 for the business purposes. On 2
October 2022, Encik Musa bought and recorded furniture and office equipment at a cost of
RM4,000 and RM6,000 respectively.

Encik Musa attended his nephew’s wedding ceremony at Kuala Terengganu on 28 October
2022. He took a hiking bag from the business to be given to his nephew as a wedding present
and recorded this transaction in the business books of accounts. The accounting year end of
Maju Enterprise is on 31 December each year. Encik Musa assumes that his business will
continue to operate and grow in the foreseeable future.

Required:
(a) Briefly explain three (3) business characteristics possessed by Maju Enterprise.
(b) Briefly explain two (2) accounting assumptions and concepts that relate to Maju
Enterprise.