Theory of Accounts 1-4

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1. The concept of accounting entity is applicable

a. only to the legal aspects of business organizations
b. only to the economic aspects of business organizations
c. only to business organizations
d. whenever accounting is involved

2. When a parent and subsidiary relationship exists, consolidated financial statements are prepared in recognition of

a. legal entity
b. economic entity
c. stable monetary unit
d. time period

3. The valuation of a promise to receive cash in the future at present value is valid because of the accounting concept of

a. entity
b. time period
c. going concern
d. monetary unit

4. Continuation of an accounting entity in the absence of evidence to the contrary is the basic concept of

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

5. This accounting concept justifies the usage of accruals and deferrals

a. going concern
b. materiality
c. consistency
d. stable monetary unit

6. One of the basic features of financial accounting is the

a. direct measurement of economic resources and obligations and changes in them in terms of money and sociological and psychological impact
b. direct measurement of economic resources and obligations and changes in them in terms of money
c. direct measurement of economic resources and obligations and changes in them in terms of money and sociological impact
d. direct measurement of economic resources and obligations and changes in them in terms of money and psychological impact

7. During the lifetime of  an entity accountants produce financial statements at arbitrary points in time in accordance with which basic accounting concept

a. accrual
b. periodicity
c. unit of measure
d. continuity

8. Historical cost is a measurement base commonly used in financial accounting. Which of the following measurement bases is also currently used in financial accounting

                          Current selling price            Discounted cash flow           Replacement cost
a.                                     Yes                                               No                                                          Yes
b.                                     Yes                                             Yes                                                          Yes
c.                                      Yes                                              No                                                            No
d.                                      No                                             Yes                                                           Yes

9. When discussing asset valuation, the following valuation bases are sometimes mentioned: replacement cost, exit value and discounted cash flow. Which of these bases should be considered a current value measure

a. replacement cost and exit value only
b. replacement cost and discounted cash flow only
c. exit value and discounted cash flow only
d. replacement cost, exit value and discounted cash flow

10. The primary measurement basis currently used to value assets in external financial statements of an entity is

a. the current market price if the assets currently held by an entity were sold on the open market
b. the current market price if the assets held by an entity were purchased on the open market
c. the present value of the cash flows the assets are expected to generate over their remaining useful lives
d. the market price of the assets held by an entity at the date the assets were acquired


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

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

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