FINANCIAL ACCOUNT FOUNDATION LEVEL WEEK 1 QUESTIONS CONTACT NUMBER 08038400843 CONTACT HOURS FOR CALLS WEDNESDAYS AND THURSDAYS, 6PM TO 7PM TOPIC: INTRODUCTION AND IASB CONCEPTUAL FRAME WORK VIDEO LECTURE CHEPTER: 12 & 1 QUESTION 1 (Compulsory) (a) Discuss the following principles in the context of IAS 1, Presentation of Financial Statements; (i) Accruals (ii) Going Concern (iii) Materiality and aggregation (iv) Consistency 8 marks (b) The Conceptual Framework identifies comparability, verifiability, timeliness and understandability as attributes that enhance the qualitative characteristics of useful financial information. Write a brief note on any two of these attributes. 8 marks (c) According to the Conceptual Framework, which users should the preparers of financial reports, aim to provide useful information for? 4 marks www.starrygoldacademy.com Page 1
QUESTION 2 (Compulsory) (a) The IASB is responsible for issuing new international financial reporting standards (IFRS). i. What are accounting standards? 3 Marks ii. List the six steps involved in the standard setting process and describe any four of these steps. 12 Marks (b) IAS1 Presentation of Financial Statements describes how the financial statements of an entity should be presented and sets down a number of provisions with respect to the preparation of financial statements. Briefly describe any two of the following provisions: Accruals concept; Going concern; Offsetting; Materiality and aggregation. QUESTION 1 (Compulsory) 5 Marks (a) Chapter three of the Conceptual Framework states that financial information is useful if it is relevant and faithfully represents what it purports to represent. Discuss faithful representation stating how it is achieved. 5 Marks (b) Chapter Four of the Conceptual Framework identifies five elements of financial statements as listed below. Define any three of the five elements listed: i. Asset ii. Liability iii. Equity iv. Income v. Expenses 6 Marks www.starrygoldacademy.com Page 2
MULTIPLE CHOICE 1 Which item is revenue expenditure? A cost of painting new office premises during construction B cost of repairs to factory plant and machinery C legal fees for the purchase of new factory premises D wages of a company s own workmen for building an office extension 2 The following items appear in a statement of financial position. an estimate of a liability in a court case, the outcome of which is uncertain an unrealized surplus from the revaluation of a non-current asset accumulated depreciation on non-current assets an estimate of future loss arising from bad debts How many of these are provisions and how many are reserves? provisions reserves A 1 3 B 2 2 C 3 1 D 4 0 3 Which accounting principle attempts to deal with off-balance-sheet transactions? A consistency C prudence D substance over form 4 Which item appears in the financial statements of a limited company but not in those of a sole trader or partnership? A dividends paid www.starrygoldacademy.com Page 3
B other payables C other receivables D trade payables 5 A business has a good reputation. The owner wishes to include goodwill in the financial statements. An accountant advises against it. Which accounting principle is the accountant applying? A business entity C matching D prudence 6 What is an example of the substance over form concept? A accounting for assets on hire purchase B depreciating assets over their useful lives C using doubtful debt provisions D valuing inventory at the lower of cost and net realisable value 7 Which of the following is the definition of a business as a going concern? A The assets owned by the business exceed its liabilities. B The business has accumulated revenue reserves. C The business is currently liquid and able to pay its creditors. D The business will continue in operational existence for the foreseeable future. 8 A sole trader pays private expenses from the business bank account and records them as drawings. Which accounting principle is applied? www.starrygoldacademy.com Page 4
A business entity C matching D prudence www.starrygoldacademy.com Page 5