Conceptual Framework

1.Financial statements are the principal means through which financial information is communicated to
those outside an enterprise. True

2.Users of the financial information provided by a company use that information to make capital
allocation decisions. True

3.All changes in an entity's economic resources and claims to those resources result from the entity's
financial performance. False

4.Cost is an important consideration when making materiality judgments. False

5.An entity should judge an item's materiality only on its own and not in combination with other
information in the complete set of financial statements. False

6.To meet the objectives of general purpose of financial reporting, a Standard sometimes contains
requirements that depart from the Conceptual Framework. True

7.The Conceptual Framework may be revised from time to time. Revisions in the Conceptual Framework
automatically result to changes in the Standards. False

8.Legal enforceability of a right, for example ownership, is necessary for control over an economic
resource to exist. False

9.The Conceptual Framework defines income and expenses in changes in assets and liabilities. True

10.According to the Conceptual Framework, amortized cost measurement relates to historical cost,
rather than current value. True

1.The cost constraint included in the International Accounting Standards Board’s conceptual framework
states that financial information should be free from cost to users of the information. False

2.Under International Financial Reporting Standards notes to the financial statements must qualify as an
element. False

3.The International Accounting Standards Board has given companies the option of using fair value to
report financial liabilities. True

4.Supplementary information may include details or amounts that present a different perspective from
that adopted in the financial statements. True

5.The expense recognition principle states that debits must equal credits in each transaction. False

6.The conceptual framework specifically identifies accrual basis accounting as one of its fundamental
assumptions. True
7.Timeliness is one of the basic assumptions of accounting used by the International Accounting
Standards Board. False

8.Materiality is one of the basic assumptions of accounting used by the International Accounting
Standards Board. False

9.The International Accounting Standards Board’s definition of retained earnings is “the residual interest
in the assets of the entity after deducting all its liabilities.” False

10.To be a faithful representation as described by the International Accounting Standards Board’s

Conceptual Framework, information must be confirmatory. False

Cash and Cash Equivalents

1.What is the major objective of financial reporting?

Provide information that is useful to present and potential equity investors, lenders, and other creditors
in making decisions.

2.Accrual accounting is used because

it provides a better indication of ability to generate cash flows than the cash basis.

3.As part of the objective of general-purpose financial reporting, there is an emphasis on “assessing cash
flow prospects.” Under International Financial Reporting Standards this is interpreted to mean

Over the long run, trends in revenues and expenses are generally more meaningful than trends in cash
receipts and disbursements.

8.Technically, cash may not include

Restricted cash

9.What is a compensating balance?

Minimum deposit required to be maintained in connection with a borrowing arrangement.

10.A compensating balance

Which is legally restricted and related to a short-term loan is classified separately as current asset.