Accounting Theory 1-9

1. Which of the following enhances the reliability of accounting information

a. accounting entity
b. going concern
c. verifiability
d. time period

2. The conceptual framework of accounting sets out certain qualitative characteristics of accounting information. Which of the following is not a qualitative characteristic

a. understandability
b. profit-oriented
c. reliability
d. comparability

3. Historical cost has been the valuation basis most commonly used in accounting because of its

a. timeliness
b. conservatism
c. reliability
d. accuracy

4. Which of the following qualitative characteristics of financial information requires that information should not be biased in favor of one group of users to the detriment of others

a. relevance
b. reliability
c. verifiability
d. neutrality

5. Conservatism is best described as  selecting an accounting alternative that

a. understates assets and net income
b. has the least favorable impact on owners' equity
c. overstates, as opposed to understates, liabilities
d. is least likely to mislead users of financial information

6. Accounting for inventory by applying the lower of cost or net realizable value is an example of the application of

a. conservatism
b. comparability
c. consistency
d. materiality

7. An item would be considered material and therefore would be disclosed in the financial statements if

a. the expected benefits of disclosure exceed the additional costs
b. the impact on earnings is greater than 10 percent
c. the standard definition of materiality is met
d. the omission or misstatement of the amount would make a difference to the users

8. Recording the purchase price of a pencil sharpener with an estimated useful  life of 10 years as an expense of the current period is justified by the

a. going concern assumption
b. materiality constraint
c. matching principle
d. comparability principle

9. Financial information exhibits consistency when

a. accounting procedures are adopted which smooth net income and make results consistent between years
b. gains and losses are shown separately on the income statement
c. accounting entities give similar events the same accounting treatment each period
d. expenditures are reported as expenses and netted against revenue in the period in which they are  paid

10. When information about two different entities engaged in the same industry has been prepared and presented in similar manner, the information exhibits the qualitative characteristic of

a. relevance
b. reliability
c. consistency
d. comparability


Answer:
1. c
2. b
3. c
4. d
5. b
6. a
7. d
8. b
9. c
10. d


"Questions are lifted from the following sources: PHILCPA, AICPA, ACP, PAS, PFRS, IAS, IFR