Which of the following statements best describes the statement of changes in equity quizlet?

Recommended textbook solutions

Intermediate Accounting

14th EditionDonald E. Kieso, Jerry J. Weygandt, Terry D. Warfield

1,471 solutions

Essentials of Investments

9th EditionAlan J. Marcus, Alex Kane, Zvi Bodie

689 solutions

Fundamentals of Financial Management, Concise Edition

10th EditionEugene F. Brigham, Joel Houston

777 solutions

Advanced Accounting

11th EditionJoe B. Hoyle, Thomas F. Schaefer, Timothy S. Doupnik

1,062 solutions

The following data were taken from Reynolds Company's balance sheet:

Dec. 31, 20Y8 Dec. 31, 20Y7
Total liabilities $240,000 $210,000
Total stockholders
equity $160,000 $150,000

Which of the following best explains the change in creditors' risk from 20Y7 to 20Y8?

A. Decreased risk
B. Increased risk
C. Risk did not change
D. Not enough information is provided to answer this question

Which ONE of the following statements best describes the term 'liability'?

1) An excess of equity over current assets
2) Resources to meet financial commitments as they fall due
3) The residual interest in the assets of the entity after deducting all its liabilities
4) A present obligation of the entity arising from past events

Answer: 4

The correct answer is 4, as defined in para 49(b) of the Framework.

Are the following statements regarding the term 'profit' true or false?

Statement 1
Profit is any amount over and above that required to maintain the capital at the beginning of the period.

Statement 2
Profit is the residual amount that remains after expenses have been deducted from income.

1) Statement 1: False, Statement 2: False
2) Statement 1: False, Statement 2: True
3) Statement 1: True, Statement 2: False
4) Statement 1: True, Statement 2: True

Answer: 4

Both definitions are correct in that profit is the residual amount that remains after expenses have been deducted from income and is also any amount over and above that required to maintain the capital at the beginning of the period.

The definitions are consistent since the first is by reference to the statement of financial performance and the second is by reference to the statement of financial position, and profit appears in both statements.

4.59 (a) ...a profit is earned only if the financial (or money) amount of the net assets at the end of the period exceeds the financial (or money) amount of net assets at the beginning of the period, after excluding any distributions to, and contributions from, owners during the period.

Which ONE of the following statements best describes the term 'financial position'?

1) The net income and expenses of an entity
2) The net of financial assets less liabilities of an entity
3) The potential to contribute to the flow of cash and cash equivalents to the entity
4) The assets, liabilities and equity of an entity

Answer: 4

Financial position refers to the elements of assets, liabilities and equity. Measurement of performance refers to income and expenses.

Which ONE of the following statements best describes the term 'going concern'?

1) When current liabilities of an entity exceed current assets
2) The ability of the entity to continue in operation for the foreseeable future
3) The potential to contribute to the flow of cash and cash equivalents to the entity
4) The expenses of an entity exceed its income

Answer: 2

The correct answer is 2.
See para 4.1 of the Framework .

Entities may have sufficient reserves to continue in the face of losses or negative net current assets.

Which ONE of the following terms best describes the relationship of the assets, liabilities and equity of an entity?

1) Financial performance
2) Financial position
3) Future economic benefit
4) Obligation

Answer: 2

The correct answer is "Financial position". The elements of financial position are an entity's assets, liabilities and equity.

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

1) Historical cost
2) Realisable value
3) Present value
4) Current cost

Answer: 4

The correct answer is "Current cost" (Framework para 4.55) that describes an asset's amount recorded in the statement of financial position in terms of the costs of acquiring an equivalent asset.

1. Historical cost:
original cost
2. Current cost:
同様の資産に対して支払う予測される金額
3. Realisable or settlement value
当該資産を売却した場合に予測される金額
4. Present value:
This measurement basis involved discounting future cash flows to take account of the time value of money.
現在価値

Which ONE of the following is true of the qualitative characteristic of 'understandability' in relation to information in financial statements?

1) Users who review and analyse the information with diligence
2) Users are expected to have significant business knowledge
3) Financial statements should exclude complex matters
4) Financial statements should be free from material error

Answer: 1

The correct answer is drawn from the Conceptual Framework for Financial Reporting 2010

"it is assumed that users have a REASONABLE KNOWLEDGE of business and accounting and a willingness to study with REASONABLE DILIGENCE the information provided."

3 is not referred in any qualitative characteristics.
4 is a matter of reliability.

Which ONE of the following terms best describes information in financial statements that is neutral?

1) Understandable
2) Reliable
3) Relevant
4) Unbiased

Answer: 4

The Framework (para 36) refers to information in financial statements as being neutral if it is free from bias ("Management should present information which is neutral, ie free from bias" as a matter of reliability). Bias is defined as information being presented that attempts to predetermine a reader's decision or judgement arising from the financial statements.

Which ONE of the following terms best describes the amount of cash or cash equivalents that could currently be obtained by selling an asset in an orderly disposal?

1) Fair value
2) Realisable value
3) Residual value
4) Value in use

Answer: 2

The correct answer is "Realisable value" as defined in the IASB Framework para 4.55.

Which ONE of the following terms best describes financial statements whose basis of accounting recognises transactions and other events when they occur?

1) Accrual basis of accounting
2) Going concern basis of accounting
3) Cash basis of accounting
4) Invoice basis of accounting

Answer: 1

Which ONE of the following is the best description of 'reliability' in relation to information in financial statements?

1) Influence on the economic decisions of users
2) Inclusion of a degree of caution
3) Freedom from material error
4) Comprehensibility to users

Answer: 3

Which ONE of the following terms best describes information that influences the economic decisions of users?

1) Reliable
2) Prospective
3) Relevant
4) Understandable

Answer: 3

"Relevant" is the best answer.
Relevant financial information is capable of making a difference in the decisions made by users.

"Information is relevant if it has the ability to INFLUENCE THE ECONOMIC DECISIONS of users and is provided in time to influence those decisions. "

Two characteristics of RELEVANCE:
- predictive value: a reasoned evaluation of how management might react to certain future events
- confirmatory value: to confirm or adjust their previous assessments

Are the following statements regarding 'recognition' true or false?

Statement 1
Recognition is the process of incorporating in the financial statements an item that meets the definition of an element.

Statement 2
Recognition is the process of determining the amounts at which elements of the financial statements are to be recognised.

1) Statement 1: False, Statement 2: False
2) Statement 1: False, Statement 2: True
3) Statement 1: True, Statement 2: False
4) Statement 1: True, Statement 2: True

Answer: 3

See the Framework paras 4.37 and 4.54.

4.37 Recognition is the process of incorporating in the balance sheet or income statement an item that meets the definition of an element and satisfies the criteria for recognition set out in paragraph 4.38.

4.38 An item that meets the definition of an element should be recognised if:
(a) it is probable that any future economic benefit associated with the item will flow to or from the entity; and
(b) the item has a cost or value that can be measured with reliability.

4.54 Measurement is the process of determining the monetary amounts at which the elements of the financial statements are to be recognised and carried in the balance sheet and income statement.

incorporate = 組み入れる

According to the IASB Framework for the preparation and presentation of financial statements, which TWO of the following are examples of 'expenses'?

1) A loss on the disposal of a non-current asset
2) A decrease in equity arising from a distribution to equity participants
3) A decrease in economic benefits during the accounting period
4) A reduction in income for the accounting period

Answer: 1, 3

The correct answers are "A loss on the disposal of a non-current asset (= write-downs of non-current assets)" and "A decrease in economic benefits during the accounting period".

Distributions to shareholders are specifically excluded by para 70(b) of the Framework from being part of an expense (要するに配当のことなので). A reduction in income （収益の減少）is not an expense.

IFRSs approved by the IASB include paragraphs in bold type and plain text.
In relation to the IFRS paragraphs in bold type, are the following statements true or false?

Statement 1
Bold-type paragraphs should be given greater authority than the paragraphs in plain text.

Statement 2
Bold-type paragraphs indicate the main principles of the standard.

1) Statement 1: False, Statement 2: False
2) Statement 1: False, Statement 2: True
3) Statement 1: True, Statement 2: False
4) Statement 1: True, Statement 2: True

Answer: 2

The Preface to IFRS para 14 states that bold type indicates the MAIN PRINCIPLES but that bold and plain type have equal authority.

Financial statements include a statement of financial position, a statement of comprehensive income and a statement of changes in equity.

According to the Preface to international financial reporting standards, which TWO of the following are also included within the financial statements?

1) A statement of cash flows
2) Accounting policies
3) An auditor's report
4) A directors' report

Answer: 1, 2

Para 11 of the Preface includes accounting policies and a cash flow statement as part of the financial statements.

Financial Statements:
FIVE STATEMENTS & AN ACCOMPANYING NOTES

As regards the relationship between IFRSs and the Framework for the preparation and presentation of financial statements, are the following statements true or false?

Statement 1
The Framework is a reporting standard.

Statement 2
In cases of conflict, the requirements of the Framework prevail over those of the relevant IFRS.

1) Statement 1: False, Statement 2: False
2) Statement 1: False, Statement 2: True
3) Statement 1: True, Statement 2: False
4) Statement 1: True, Statement 2: True

Answer: 1

Both statements are false, as specified in para 2 of the IASB Framework.

The Framework is the conceptual accounting framework, not a reporting standard.

Which TWO of the following are listed in the IASB Framework as enhancing qualitative characteristics' regarding financial statements?

1) The financial statements are reliable
2) Any changes of accounting policy are neutral
3) The financial statements are prepared in a timely manner
4) The financial statements are verifiable

Answer: 3, 4

The IASB Framework identifies timeliness and verifiability as enhancing qualitative characteristics.

The qualitative characteristics have been re-organized and expanded. Under the new project undertaken by the IASB and the FASB, there are two types of qualitative characteristics:

Fundamental => relevance, faithful representation
Enhancing => comparability, verifiability, timeliness, understandability

Former characteristic "reliability" is now under "faithful representation". Four characteristics become now six.

Which TWO of the following statements concerning the provisions of the IASB Framework are correct?

1) The Framework provides that transactions must be accounted for in accordance with their legal form
2) Primary responsibility for the preparation and presentation of the financial statements of the entity rests with management
3) Financial statements must not exclude complex matters in order to achieve understandability
4) Where any conflict arises between the Framework and an IAS, the requirements of the Framework prevail

Answer: 2, 3

The correct answers are that primary responsibility for the financial statements rests with management and that financial statements must not avoid complex issues for the sake of understandability.

4.6 In assessing whether an item meets the definition of an asset, liability or equity, attention needs to be given to its underlying substance and economic reality and not merely its legal form.
法的形式のみならず、経済的実態に着目して資産、負債また資本の項目を決定する

rest with 〜次第である

According to the IASB Framework, which TWO of the following characteristics are described as fundamental qualitative characteristics that make the information provided in financial statements useful to users?

1) Comparability
2) Relevance
3) Understandability
4) Faithful representation

Answer: 2, 4

The IASB Framework identifies faithful representation and relevance as two of the four fundamental qualitative characteristics. Comparability and understandability are enhancing qualitative characteristics (+ verifiability, timeliness). These new characteristics are part of the new joint project with the US Financial Accounting Standards Board to develop a new common conceptual framework for financial reporting.

Which of the following statements about the IASB Framework are correct?

(1) The Framework deals with the qualitative characteristics of financial statements.

(2) The Framework normally prevails over International Accounting Standards where there is a conflict between the two.

(3) The Framework deals with the objectives of financial statements.

1) All of them
2) Statement (1) and Statement (3) only
3) Statement (2) and Statement (3) only
4) Statement (1) and Statement (2) only

Answer: 2

The IASB Framework para 5 deals with objectives and qualitative characteristics.

Objective についてはどうやら Preface に移ってるらしい。なので、この問題が出たら、とにかくこの通りに答えておくしかないかも。

Which TWO of the following are roles of the IFRS Foundation Committee?

1) Issuing International Financial Reporting Standards
2) Determining the basis of funding the standard-setting process
3) Reviewing broad strategic issues affecting accounting standards
4) Providing technical advice to other IASB bodies

Answer: 2, 3

1 is a role of IASB.
4 is a role of EFRAG

Which TWO of the following are parts of the 'due process' of the IASB in issuing a new International Financial Reporting Standard?

1) Establishing an advisory committee to give advice
2) Reviewing compliance and enforcement procedures
3) Issuing an interpretation as authoritative interim guidance
4) Developing and publishing a discussion document for public comment

Answer: 1, 4

The correct answers are "Establishing an advisory committee to give advice" and "Developing and publishing a discussion document for public comment" per para 18 of the IFRS Preface .

The ten stages of the IASB process for developing new standards sat out in the Preface (the following four is always required:
3. Consultation with the IFRS Advisory Council on whether the issue should be added to the IASB's agenda.
6. The publication of an exposure draft, together with any dissenting opinions held by IASB members and a basis of conclusions.
7. Consideration of all comments received on an exposure draft.
9. Issue of a standard together with any dissenting opinions held by IASB members.