Liana Febrianti Ismail

1706059284

Financial Accounting Theory

Pre Test

True/False
1. Revenue is directly related to the monetary event of value increasing in the firm.
a. True
b. False
2. Under the IASB Framework revenue encompasses both income and gains.
a. True
b. False
3. At present, in most cases, the firm must be a direct participant in a transaction before
revenue can be recognised.
a. True
b. False
4. Revenue can never be recognised before the point of sale.
a. True
b. False
5. In determining whether a sale has taken place consideration should only be given to the
legal form of the contract of sale.
a. True
b. False
6. Where revenue is not recognised until cash is received it is possible that the revenue
recognition criteria 'substantial completion' has not been met prior to this event.
a. True
b. False
7. Under the IAS standards accrued revenue cannot be recorded because there is no external
transaction.
a. True
b. False
8. Revenue recognition policies of US companies have been the subject of the majority of the
SEC's requests for restatement of financial statements.
a. True
b. False
9. The IASB and the FASB's joint project on revenue recognition and measurement gives
more emphasis to the substantial completion of the earning process than previous guidance
and less on the change in value of assets and liabilities.
a. True
b. False
10. Understatement of revenue is regarded as a greater problem by auditors than
overstatement of revenue.
a. True
b. False

Multiple choice
11. Under the Framework the statement concerning gains that is incorrect is:
a. Income is defined to include both revenue and gains
b. Gains that meet the definition of income always arise outside the course of ordinary
operations
c. The definition of income includes unrealised gains
d. None of the statements is incorrect
 Liana Febrianti Ismail
1706059284

12. The criteria that is not included in the Framework's definition of income is:
a. An increase in economic benefits
b. The economic benefits are in the form of increases in assets or reductions in
liabilities of the entity (not resulting from equity contributions)
c. The economic benefit results from transactions or events that constitute the entities
ongoing major or central operations
d. The benefits result in an increase in equity during the period
13. According to Myers, Paton and Littleton when do revenue and profit accrue in the
earnings process for a clothing manufacturer?
a. Purchase of the raw materials (cloth, thread etc.)
b. Completion of the piece of clothing for sale
c. Sale of the clothing to a retail store on credit
d. All of the above
14. According to Coombs and Martin when is revenue most likely to be recognised in the
earning cycle?
a. Delivery of goods to customers
b. Receipt of orders after completing production
c. Receipt of cash
d. Completion of production
15. The statement regarding recognition versus realisation of revenue that is true is:
a. For an asset to be "realised' there must be an inflow of assets or a measurable
change in the value of an asset
b. 'Recognition of revenue' means an inflow of liquid assets
c. 'Realisable' means the asset received is readily convertible to known amounts of
cash
d. All of the above are true
16. The statement regarding IAS 11/AASB 111 'Construction Contracts 'that is not true with
respect to revenue recognition is:
a. The standard adopts the 'stage of completion' method
b. It is recommended that revenues and associated costs be recognised only when they
can be 'clearly estimated'
c. Revenues and expenses are recognised in the financial years in which the
construction activities are performed
d. None of the above, i.e. all are true statements
17. In which of these cases would the criteria for recognising revenue definitely not be met?
a. A wholly executory contract
b. A credit sale
c. The signing of a lease
d. The collection of instalments on a higher purchase contract.
18. Which of these is not an accepted exception to the recorded revenue at the time of sale?
a. Revenue recognised upon receipt of an order
b. Revenue recognised at the end of production
c. Revenue recognised when cash is received after the sale is made
d. Revenue recognised during production
 Liana Febrianti Ismail
1706059284

19. The main consideration to determine whether a sale has occurred is:
a. The economic substance of the transaction
b. Whether title to the goods has passed
c. The provisions of the legal contract
d. Whether the sale is for goods or services
20. For a cash sale, when possession of the goods passes at the time of sale, revenue will be
recognised:
a. At the point of sale
b. When the goods are delivered
c. When the cash is received
d. All of the above