b. understandability.
*c. verifiability.
d. comparability.
General Feedback:
Learning objective 1.6: explain the qualitative characteristics that make information in financial statements useful.
10. Which of the following statements about the going concern assumption is not true?
a. it can justify the use of historical costs when measuring non-current assets.
b. it supports the use of assets such as Prepaid Expenses.
c. it supports the systematic allocation of depreciation over an asset's useful life.
*d. it is used when an entity goes into liquidation.
General Feedback:
Learning objective 1.7: describe the objective and scope of financial statements prepared by a reporting entity.
11. Which of the following are the three essential criteria in the definition of an asset:
a. I, III, VI.
*b. II, IV, VI.
c. II, III, VI.
d. I, III, V.
General Feedback:
Learning objective 1.8: define the basic elements in financial statements - assets, liabilities, equity, income and expenses.
12. The only financial statement element which cannot be defined independently of the other elements under the Conceptual Framework is:
*a. equity.
b. assets.
c. income.
d. expenses.
General Feedback:
Learning objective 1.8: define the basic elements in financial statements - assets, liabilities, equity, income and expenses.
13. Which of the following statements is correct?
a. Equity is defined as 'the residual interest in the assets of the entity after deducting all its expenses'.
*b. Equity is increased by profit and owner contributions.
c. Equity is decreased by an entity's income.
d. Equity cannot be sub-classified in the statement of financial position.
General Feedback:
Learning objective 1.8: define the basic elements in financial statements - assets, liabilities, equity, income and expenses.
14. An example of an expense, as defined in the Conceptual Framework, is:
a. Payment to a supplier for purchases made on credit.
b. Dividends paid to shareholders.
c. Cash purchase of office equipment.
*d. Wages paid on a weekly-basis to employees.
General Feedback:
Learning objective 1.8: define the basic elements in financial statements - assets, liabilities, equity, income and expenses.
15. Which of the following statements about income is not true?
*a. Income includes capital contributed by owners of the entity.
b. Income can be in the form of decreases of liabilities.
c. Income arises when there is control over the increase in economic benefits.
d. Income results in increases in economic benefits.
General Feedback:
Learning objective 1.8: define the basic elements in financial statements - assets, liabilities, equity, income and expenses.
16. Which of the following is not an example of a settlement of a liability?
a. cash payment.
b. provision of services.
*c. owner contribution.
d. creditor waiving their rights to the obligation.
General Feedback:
Learning objective 1.8: define the basic elements in financial statements - assets, liabilities, equity, income and expenses.
17. Fiona's Flowers rents a small shop located in the outskirts of Sydney. In accordance with the Conceptual Framework, Fiona's Flowers should recognise the monthly payment for the shop rental as:
a. an increase in income and a decrease in liabilities.
b. a decrease in assets and an increase in equity.
c. a decrease in assets and a decrease in income.
*d. a decrease in assets and an increase in expense.
General Feedback:
Learning objective 1.8: define the basic elements in financial statements - assets, liabilities, equity, income and expenses.
18. The two recognition criteria for the elements of financial statements are:
a. Faithful representation and Existence of economic benefits.
b. Existence of economic benefits and Control.