PROBLEMS - CFA CH2

Problem 2-1 Multiple choice (IFRS)

1. Which statement is true about the Conceptual

Framework for Financial Reporting?

a. The Conceptual Framework is not a Standard.

b. The Conceptual Framework describes the concepts for general purpose financial reporting.

C. In case of conflict, the requirements of the IFRS.

prevail over the Conceptual Framework.

d. All of these statements are true about the Conceptual Framework.

2. Which is not a purpose of the Revised Conceptual

Framework?

a. To assist the IASB to develop IFRS based on consistent concepts.

b. To assist preparers to develop consistent accounting policy when no Standard applies to a

particular transaction or when Standard allows a choice of accounting policy.

c. To assist all parties to understand and interpret the Standards.

d. To assist regulatory agencies in issuing rules and regulations for a particular industry.

3. The scope of the Revised Conceptual Framework comprises how many chapters?

a. Five

b. Six

c. Seven

d. Eight

4. The Conceptual Framework provides the foundation for Standards that

a. Contribute to transparency by enhancing international comparability and quality of financial

information.

b. Strengthen accountability of management.

c. Contribute to economic efficiency by helping investors

to identify opportunities and risks.

d. All of these are the result of Standards developed based on consistent concepts.
Problem 2-2 Multiple choice (IFRS)

Conceptual

1. What is the authoritative status of the

Framework?

a. The Conceptual Framework has the highest level of authority.

b. In the absence of a standard or an interpretation that specifically applies to a transaction, the

Conceptual Framework shall be followed.

c. In the absence of a standard or an interpretation that specifically applies to a transaction,

management shall consider the applicability of the Conceptual Framework in developing and
applying an accounting policy that results in information that is relevant and faithfully represented.

d. The Conceptual Framework applies only when the IASB develops new standards.

2. The Conceptual Framework is intended to establish

a. GAAP in financial reporting.

b. The meaning of "present fairly in accordance with

GAAP".

c. The objectives and concepts for use in developing standards of financial accounting and reporting.

d. The hierarchy of sources of GAAP.

3. A Conceptual Framework should

a. Lead to uniformity of financial statements.

b. Eliminate alternative accounting principles.

c. Guide multinational entities in developing generally

accepted auditing standards.

d. Define the basic objectives, terms and concepts of accounting.

4. Which is not a purpose of the Conceptual Framework?

a. To provide definitions of key terms and fundamental concepts.

b. To provide specific guidelines for resolving situations not covered by existing accounting
standards.

c. To assist accountants in selecting among alternative

accounting and reporting methods.

d. To assist the International Accounting Standards Board in the standard-setting process.

Problem 2-3 Multiple choice (IAA)

1. In the Conceptual Framework for Financial Reporting,

what provides the "why" of accounting?

a. Measurement and recognition concept

b. Qualitative characteristic of accounting information

c. Element of financial statement

d. Objective of financial reporting

2. The underlying theme of the Conceptual Framework is

a. Decision usefulness

b. Understandability

c. Timeliness

d. Comparability

3. The objective of financial reporting

a. Is the foundation for the Conceptual Framework

b. Includes the qualitative characteristics of useful information

C. Is not found in the Conceptual Framework d. All of these are correct choices regarding the
objective of financial reporting

4. Which of the following is not a benefit associated with the Conceptual Framework?

a. A Conceptual Framework should increase users' understanding and confidence in financial

reporting. b. Pratical problems should be more quickly solvable.

c. A coherent set of accounting standards should result.

d. Business entities will need far less assistance from

accountants.

5. Which statement is not true concerning the Conceptual Framework?

a. The Conceptual Framework should be a basis for standard setting.

b. The Conceptual Framework should allow practical

problems to be solved more quickly.

c. The Conceptual Framework should be based on

fundamental truth derived from the law of nature.

d. The Conceptual Framework should increase users' understanding and confidence in financial
reporting.
Problem 2-4 Multiple choice (ACP)

1. Users of financial reports include which of the following!

a. Creditors

b. Creditors and government agencies

c. Creditors and unions

d. Creditors, government agencies and unions

2. The primary users of financial information include

a. Existing and potential investors

b. Existing and potential lenders and other

c. User group such as employees, customers, creditors

governments and their agencies, and the public

d. Existing and potential investors, lenders and other creditors

3. Which group is not among the external users for whom

financial statements are prepared?

a. Customers

b. Suppliers

c. Employees

d. All of these are external users of financial statements

4. Which of the following is an internal user of financial

information?

a. Board of Directors b. Shareholder

c. Holder of bonds

d. Creditor with long-term contract

5. These users require information on risk and return provided by their investment.

a. Investors

b. Employees

c. Lenders

d. Customers

6. These users are interested in information about the profitability and stability of the entity in order
to assess the ability of entity to provide remuneration, retirement benefits and employment
opportunities.
a. Customers b. The public

c. Governments and their agencies

d. Employees

7. These users are interested in information that enables them to assess whether their loans, the
related interest thereon, and other amounts owing to them will be paid when due.

a. Lenders and other creditors

b. Borrowers c. Trade creditors

d. Owners

8. These users are interested in information about the continuance of an entity, especially when
they have a long-term involvement with or are dependent on the entity.

a. Customers

b. Employees

c. Trade unions

d. Suppliers

9. These users are interested in information in order to regulate the activities of an entity, determine
taxation policies and provide a basis for national statistics.

a. Governments and their agencies

b. Major organization of users

c. Bureau of Internal Revenue d. Department of Finance

10. These users need information on trends and recent developments where an entity makes a
substantial contribution to the local economy providing employment and using local suppliers.

a. The public

b. Governments and their agencies

c. Finance entities d. Private entities

Problem 2-5 Multiple choice (IAA)

1. The overall objective of financial reporting is to provide information a. That is useful for decision
making.

b. About assets, liabilities and equity of an entity.

C. About financial performance during a period.

d. That allows owners to assess management performance

2. The primary focus of financial reporting has been meeting the needs of which of the following
groups?

a. Management
b. Existing and potential investors, lenders and

creditors

c. National taxing authorities

d. Independent CPAS

3. The primary objective of financial reporting is to provide useful information to

a. Management

b. Capital providers

c. Regulatory body

d. Government

4. Which is an objective of financial reporting?

a. To provide information that is useful in making

investing and credit decisions.

b. To provide information that is useful to management

c. To provide information about the potential users.

d. To provide information about ways to solve internal and external conflicts about the entity.

5. Which is an objective of financial reporting?

a. To provide information that is useful to management in making decisions.

b. To provide information that clearly portray nonfinancial transactions.

c. To provide information that is useful to assess t amount, timing, and uncertainty of prospective
cash the receipts.

d. To provide information that excludes claims against the resources.

6. An objective of financial reporting is to provide

a. Information about the investors in the entity.

b. Information about the liquidation value.

c. Information that is useful in assessing cash flow prospects.

d. Information that will attract new investors.

7. Assessing cash flow prospects is interpreted to mean

a. Cash basis accounting is preferred over accrual basis.

b. Information about the financial effects of cash receipts and cash payments is generally considered
the best indicator of ability to generate favorable cash flows.
 c. Over the long run, trends in revenue and expenses are generally more meaningful than trends in
cash receipts and disbursements.

d. All of the choices are correct regarding assessing cash flow prospects.

8. In measuring financial performance, accrual accounting is used because

a. Cash flows are considered less important.

b. It provides a better indication of ability to generate cash flows than cash basis.

c. It recognizes revenue when cash is received.

d. It is one of the implicit assumptions.

9. The most useful information in predicting future cash flows is

a. Information about current cash flows

b. Current earnings based on accrual accounting

c. Information regarding the accounting policies used

d. Information regarding the results obtained by using a wide variety of accounting policies

10. The accrual basis of accounting is most useful for

a. Determining the amount of income tax liability.

b. Predicting the short-term financial performance.

c. Predicting the long-term financial performance.

d. Determining the amount of dividends to be declared.

Problem 2-6 Multiple choice (AICPA Adapted)

1. The objective of financial reporting is based on

a. The need for conservatism

b. Reporting on management stewardship

c. Generally accepted accounting principles

d. The needs of the users of the information

2. Which statement is not true about financial

a. Financial reporting shall provide information about entity resources, claims against those
resources and changes in them.

b. Financial reporting shall not provide information useful in evaluating management stewardship.
c. Financial reporting shall provide information useful in investment, credit and similar decision.

d. Financial reporting shall provide information useful in assessing cash flow prospects.

3. Which of the following is not an objective of financial reporting?

a. To provide information about an entity's assets and claims against those assets

b. To provide information that is useful in assessing an entity's sources and uses of cash

c. To provide information that is useful in lending and investing decisions

d. To provide information about the liquidation value of an entity

4. Financial reporting pertains to information about

a. Individual business entities, rather than to industries or an economy as a whole or to members of

society as consumers.

b. Business industries, rather than to individual entities or an economy as a whole or to members of

society as consumers.

c. Individual business entities, industries, and an economy as a whole, rather than to members of
society as consumers. d. An economy as a whole and to members of society as consumers, rather
than to individual entities or industries.

5. Under the Revised Conceptual Framework, during a period when an entity is under the direction
of a particular management, financial reporting provides information about

a. Entity performance and management performance

b. Management performance but not entity performance

c. Entity performance but not management performance

d. Neither entity performance nor management performance.