Accounting Theory 1-10

1. Which of the following terms best describes assets recorded at the amount that represents the immediate purchase cost of an equivalent asset?

a. historical cost
b. realizable value
c. present value
d. current cost 

2. Which of the following terms best describes the discounted value of the future net cash inflows that an item is expected to generate in the course of business?

a. historical cost
b. fair value
c. present value
d. residual value

3. Which of the following measurement attributes is not currently use in practice?

a. present value
b. net realizable value
c. current replacement cost
d. inflation-adjusted cost

4. Which of the following financial attributes of assets is generally considered to be the most relevant?

a. present value
b. current exit value
c. current cost
d. historical cost

5. Asset measurements in conventional financial statements

a. are confined to historical cost
b. are confined to historical cost and current cost
c. reflect several financial attributes
d. do not reflect output value

6. Internally generated goodwill is

a. recognized as an asset because the inflow of future economic benefits is highly probable and the cost of the goodwill can be measured reliably
b. not recognized as an asset because the cost cannot be measured reliably although the inflow of future economic benefits is highly probable
c. recognized as expense
d. recognized as revenue

7. An entity needed a new warehouse and a contractor quoted a P5,000,000.00 price to construct it. The entity believed that it could build the warehouse for P4,300,000.00 and decided to use entity employees to build it. The final construction cost incurred by the entity was P4,80,000.00 but the asset was recorded at P5,000,000.00. What principle is violated?

a. cost principle
b. separate entity
c. matching principle
d. full disclosure

8. According to GAAP, at what amount should an entity measure its assets in the statement of financial position?

a. market value at all times
b. cash equivalent of asset given up or the asset received, whichever is more clearly evident
c. best estimate of an internal auditor
d. cash outlay only, even if part of the consideration given was something other than cash

9. What is another term for equity?

a. net assets
b. net loss
c. revenue
d. liability

10. Which of the following statements is not consistent with generally accepted accounting principles as they relate to asset valuation?

a. assets are originally recorded in the accounting records at cost to the entity
b. accountants assume that assets such as supplies, buildings and equipment will be used in the business operations rather than sold
c. subtracting total liabilities from total assets results in the current market value of an entity
d. accountants base asset valuation upon objective, verifiable evidence rather than on personal opinion

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

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