SELF TEST QUESTION

CONCEPTUAL FRAMEWORK

1. Which ONE of the following statements best describes the term 'liability'?
A An excess of equity over current assets
B Resources to meet financial commitments as they fall due
C The residual interest in the assets of the entity after deducting all its
liabilities
D A present obligation of the entity arising from past events
Short Analysis

2. Are the following statements regarding the term 'profit' true or false?
(1) Profit is any amount over and above that required to maintain the
capital at the beginning of the period.
(2) Profit is the residual amount that remains after expenses have been
deducted from income.
Statement (1) Statement (2)
A False False
B False True
C True False
D True True
Short Analysis

3. Which ONE of the following statements best describes the term 'financial
position'?
A The net income and expenses of an entity
B The net of financial assets less liabilities of an entity
C The potential to contribute to the flow of cash and cash equivalents to
the entity
D The assets, liabilities and equity of an entity
Short Analysis

4. Which ONE of the following statements best describes the term 'going
concern'?
A When current liabilities of an entity exceed current assets
B The ability of the entity to continue in operation for the foreseeable
future
C The potential to contribute to the flow of cash and cash equivalents to
the entity
D The expenses of an entity exceed its income
Short Analysis

5. Which ONE of the following terms best describes the relationship of the
assets, liabilities and equity of an entity?
A Financial performance
B Financial position
C Future economic benefit
D Obligation
Short Analysis
6. Which ONE 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 Realisable value
C Present value
D Current cost
Short Analysis

7. Which ONE of the following is true of the qualitative characteristic of

'understandability' in relation to information in financial statements?
A Users should be willing to study the information with reasonable
diligence
B Users are expected to have significant business knowledge
C Financial statements should exclude complex matters
D Financial statements should be fee from material error
Short Analysis

8. Which ONE of the following terms best describes information in financial

statements that is neutral?
A Understandable
B Reliable
C Relevant
D Unbiased
Short Analysis

9. 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?
A Fair value
B Realisable value
C Residual value
D Value in use
Short Analysis

10. Which ONE of the following terms best describes financial statements whose
basis of accounting recognises transactions and other events when they
occur?
A Accrual basis of accounting
B Going concern basis of accounting
C Cash basis of accounting
D Invoice basis of accounting
Short Analysis