Chapter 3

Which of the following company characteristics will affect the objectives and scope of financial reporting?
1. Legal form
2. Nature of ownership
3. Company size
4. All of the above
Which of the following is a correct expression of the balance sheet equation?
1. Assets –Liabilities + Equity = 0
2. Assets = Liabilities – Equity
3. Assets + Equity = Liabilities
4. Assets = Liabilities + Equity
Which of the following is incorrect?
1. The statement of financial position and the income statement are the core of the financial reporting process
2. The statement of financial position is essentially a status report
3. The income statement reports on the company’s performance over an accounting period
4. The statement of financial position is published with comparative data from the previous period, the income statement is not
The statement of financial position does not include
1. Long-term assets
2. Shareholders’ equity
3. Operating result
4. Retained profit
The statement of comprehensive income does not include:
1. Sales
2. Retained earnings
3. Interest income
4. Depreciation expense
Assets equal:
1. Shareholders’ equity
2. Liabilities less shareholders’ equity
3. Liabilities plus shareholders’ equity
4. Liabilities plus retained profit
GAAP is the abbreviation of
1. Globally Accepted Accounting Principles
2. Globally Accepted Auditing Principles
3. Generally Accepted Accounting Principles
4. Generally Accepted Auditing principles
The key basic conventions according the IASB rules are:
1. Consistency, accrual basis, prudence, going concern;
2. Consistency, accrual basis, prudence, comparison;
3. Consistency, accrual basis, fair value accounting, going concern;
4. Consistency, prudence, going concern, realized cost-income accounting.
A change in equity can be caused by:
1. An increase of share capital
2. Net profit for the period
3. Distribution of dividend
4. All of the above is true
IASB standards usually cover sections on
1. Accrual accounting, measurement and disclosure
2. Acquisition accounting, measurement and approval
3. Recognition, measurement and disclosure
4. Accrual accounting, definitions and disclosure
Profit is the difference between
1. Assets and liabilities
2. Assets and equities
3. The assets purchased with cash contributed by the owner and the cash spent to operate the business
4. The assets received for goods and services and the amounts used to provide the goods and services
Which of the following is an essential requirement for an item to be recognised as an asset
1. The capacity to generate future economic benefits
2. Ownership of the item by the company
3. Tangibility of the item
4. All of the above
Equity can be subdivided as
1. Funds contributed by shareholders, retained profit, reserves
2. Funds contributed by shareholders, retained profit, distributed profit
3. Funds contributed by shareholders, profit, provisions
4. Funds contributed by shareholders, retained profit, provisions
Which of the following is correct?
1. Gains and losses are presented as gross amounts
2. Revenue and expenses meet the definition of income
3. Gains and losses are presented as net amounts
4. Revenue and expenses are another term for gains and losses
The income statement reports a company’s:
1. Net cash from its operations
2. Operating, investing and financing activities
3. Income and expenses
4. Assets, liabilities and equity
An external auditor’s report expresses an opinion...
1. As to the fairness of the financial statements;
2. As to compliance of financial statements with Generally Accepted Accounting Principles;
3. As to the company’s financial prospects for the future;
4. Both a and b;
5. All of the above are true.
The purchase of an equipment tool with cash:
1. Increases shareholders’ equity and liabilities
2. Decreases shareholders’ equity and assets
3. Increases assets and shareholders’ equity
4. Has no net effect on total assets
5. None of the above.
Which of the following transactions causes a net decrease in total assets?
1. The profitable credit sale of finished goods
2. Payment of a parking ticket
3. Cash purchase of inventory
4. Credit purchase of machinery
5. None of the above
When a company distributes part of its profits to shareholders, this will:
1. Decrease its assets and shareholders’ equity
2. Decrease its assets and liabilities
3. Increase its assets and liabilities
4. Increase its liabilities and shareholders’ equity
5. None of the above is true
If assets decreased by €24,000 during a period and shareholders’ equity increased by €8,000 then liabilities must have:
1. Increased by €16,000 during the period
2. Decreased by €42,000 during the period
3. Increased by €32,000 during the period
4. Decreased by €24,000 during the period
5. None of the above
The net assets of a company are
1. Current assets less current liabilities;
2. Total assets less current assets;
3. Shareholders’ equity
4. Non-current assets less accumulated depreciation
5. Total liabilities less shareholders’ equity
Which of the following statements is true concerning assets?
1. Assets are generally measured using the historical cost concept
2. GAAP require that assets are reported on the income statement
3. Assets are recorded at cost and adjusted for inflation
4. Assets are measured at market value when historical cost can not be reliably established
Which of the following conditions must not be met in order for a liability to be recognised?
1. There is an obligation that will be confirmed by future events
2. There is a present obligation as a result of past events
3. There is an obligation that is reliably measurable
4. An outflow of economic benefits is probable
Which of the following conditions must not be met in order for an asset to be recognised?
1. There is a resource embodying future economic benefits
2. Future economic benefits are expected to flow to the company
3. The resource is owned by the company
4. The resource is the result of past company transactions or events
IFRS do not comprise:
1. Rules for accounting in financial statements
2. Rules for narrative disclosures in prospectuses
3. Rules for measurement of financial statement elements
4. Rules for recognition of financial statement elements
5. Rules for disclosures in the notes
Which of the following is not part of the principal assumptions for financial statements according to IASB’s Conceptual Framework?
1. Going concern principle
2. Tax conformity principle
3. Accrual principle
4. Consistency principle
In which of the following statements is the accrual principle not used?
1. Statement of financial position
2. Income statement
3. Statement of changes in equity
4. Statement of cash flows
Which of the following financial statement items should not be included under current assets in the statement of financial position?
1. Inventories
2. Cash deposits
3. Securities held for trading purposes
4. Investments in associated companies
5. Trade receivables
Which of the following items should not be included under non-current assets in the statement of financial position?
1. Plant and equipment
2. Intangible assets
3. Strategic investments in other companies
4. Finished goods inventory

Chapter 3

Quiz