CONCEPTUAL FRAMEWORK

In accordance with the Conceptual Framework which of the following is/are true in relation to the enhancing characteristic of comparability?

(1) Permitting alternative accounting treatments for the same economic phenomenon enhances comparability

(2) Comparability requires uniformity

• Both 1 and 2

• Neither 1 nor 2

• 1 only

• 2 only

Which TWO of the following statements would be an advantage of adopting IFRS?

•  It would be easier for investors to compare the financial statements of companies with those of foreign competitors

•  Cross-border listing would be facilitated

•  Accountants and auditors would have more defence in case of litigation

•  The accounting standards can be more easily tailored to reflect the industries of the territory adopting them

The process for developing an International Financial Reporting Standard involves a number of stages. During the early stages of a project, the IASB will undertake consultation on the key issues. Which of the following is correct regarding the early stages of the process:

•  In the early stages of the project, the IASB will issue a Discussion Paper to obtain views from the public

•  In the early stages of the project, the IASB will consult with the Advisory Committee and IFRS Advisory Council to seek out the key issues

•  In the early stages of the project, the IASB will issue a Discussion Paper then consult with the Advisory Committee

•  In the early stages of the project, the IASB will issue an Exposure Draft to obtain views from the public

Historical cost accounting remains in use because of its practical advantages. Which of the following is NOT an advantage of historical cost accounting?

•  Amounts of transactions are reliable and can be verified

•  Amounts in the statement of financial position can be matched to amounts in the statement of cash flows

•  It avoids the overstatement of profit which can arise during periods of inflation

•  It provides fewer opportunities for creative accounting than systems of current value accounting

Drexler acquired an item of plant on 1 October 20X2 at a cost of $500,000. It has a useful life of five years (straight-line depreciation) and an estimated residual value of 10% of its historical cost or current cost as appropriate. As at 30 September 20X4, the manufacturer of the plant still makes the same item of plant and its current price is $600,000. What is the correct carrying amount to be shown in the statement of financial position of Drexler as at 30 September 20X4 under historical cost and current cost?

• Historical cost 320,000

  Current cost 600,000

• Historical cost 320,000

  Current cost 384,000

• Historical cost 300,000

  Current cost 600,000

• Historical cost 300,000

  Current cost 384,000

The accountant of Lisbon is considering a number of transactions and events and how they should be treated in accordance with the concepts and qualitative characteristics of financial information as set out in the Conceptual Framework. During the year ended 31 March 20X6, Lisbon experienced the following transactions or events:

(i) Lisbon sold an asset to a finance company and immediately leased it back for the remainder of its useful life. The transaction met the criteria to be recognised as a sale under IFRS 15 Revenue from Contracts with Customers. The accountant has decided that this should be treated as a sale and leaseback and has accounted for it accordingly.

(ii) The company's statement of profit or loss, prepared using historical costs, showed a loss from operating its shops, but Lisbon is aware that the increase in the value of its properties during the period far outweigh the operating loss.

(iii) Inventory has up to this year been valued using FIFO but the accountant is considering changing to the weighted average method for the year to 31 March 20X6.

In looking at issue (ii) above, the accountant decides that the properties should be revalued. Which concept or qualitative characteristic has been applied in making this decision?

•  Materiality

•  Going concern

•  Relevance

•  Timeliness

The accountant of Lisbon is considering a number of transactions and events and how they should be treated in accordance with the concepts and qualitative characteristics of financial information as set out in the Conceptual Framework. During the year ended 31 March 20X6, Lisbon experienced the following transactions or events:

(i) Lisbon sold an asset to a finance company and immediately leased it back for the remainder of its useful life. The transaction met the criteria to be recognised as a sale under IFRS 15 Revenue from Contracts with Customers. The accountant has decided that this should be treated as a sale and leaseback and has accounted for it accordingly.

(ii) The company's statement of profit or loss, prepared using historical costs, showed a loss from operating its shops, but Lisbon is aware that the increase in the value of its properties during the period far outweigh the operating loss.

(iii) Inventory has up to this year been valued using FIFO but the accountant is considering changing to the weighted average method for the year to 31 March 20X6.

In applying the enhancing qualitative characteristic of comparability, how should the change of inventory valuation basis be accounted for?

•  The change should be disclosed only

•  The financial statements for 31 March 20X6 should show both methods

•  The notes should show what the profit would have been if the change had not taken place

•  The financial statements for the prior period as shown at 31 March 20X6 should be restated using the weighted average basis

Recognition is the process of including within the financial statements items which meet the definition of an element according to the IASB's Conceptual Framework for Financial Reporting.

Which of the following items should be recognised as an asset in the statement of financial position of a company?

(i) A secret formula for the manufacture of a best-selling sauce. The recipe is kept secure at the company premises and known only by the company directors

(ii) A highly lucrative contract signed during the year which is due to commence shortly after the year end

(iii) Items that are to be sold via a third party agent which the company can no longer control and cannot be returned to the company of they are unsold

(iv) A receivable from a customer which has been sold (factored) to a finance company. The finance company has full recourse to the company for any losses

• (i) and (iii)

• (iii) and (iv)

• (i) and (iv)

• (ii), (iii) and (iv)