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RE TEST: ASSUMPTIONS & FINANCIAL REPORTING

1. What is the only underlying assumption mentioned in the Conceptual Framework for
Financial Reporting?
a. Going concern
b. Accounting entity
c. Time period
d. Monetary unit
2. Which 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 expense exceed income
3. Which of the following is NOT an implication of the going concern assumption?
a. The historical cost principle is credible
b. Depreciation and amortization policies are justifiable and appropriate
c. The current and non-current classification of assets and liabilities is justifiable and
significant
4. The relatively stable economic, political and social environment supports
a. Conservatism
b. Materiality
c. Timeliness
d. Going concern
5. Which basic assumption may NOT be followed when an entity in bankruptcy reports
financial results?
a. Economic entity assumption
b. Going concern assumption
c. Time period assumption
d. Monetary unit assumption
6. The financial statements that are prepared for the business are separate and distinct from
the financial statements of the owners.
a. Going concern assumption
b. Matching principle
c. Economic entity assumption
d. Accounting period assumption
7. The economic entity assumption
a. Is inapplicable to unincorporated businesses
b. Recognizes the legal aspects of business organizations
c. Requires periodic income measurement
d. Is applicable to all forms of business organizations
8. Which underlying assumption serves as the basis for the preparing financial statements at
regular artificial points in time?
a. Accounting entity
b. Going concern
c. Accounting period
d. Stable monetary unit
9. Which basic accounting assumption is threatened by the existence of severe inflation in an
economy?
a. Monetary unit assumption
b. Periodicity assumption
c. Going concern assumption
d. Economic entity assumption
10.Which of the following is NOT an important characteristic of the financial statements that
accountant currently prepare?

d. The information in financial statements is summarized and classified to help meet user’s needs. c. The information in financial statements is expressed in units of money adjusted for changing purchasing power. Financial statements can be justified only if the benefits exceed the costs. 11. Financial statements articulate with one another because measuring financial position is related to measuring changes in financial position. comprehensive and single document promulgated by the IASB .a. b.This is a complete.