Chapter 1

Question 1

These are the means by which the information accumulated and processed in financial accounting is periodically communicated to the users.

Answer 1

Financial statements

Question 2

This is the company’s ability to meet its short term obligations using its most liquid assets

Answer 2

Liquidity

Question 3

What is the most liquid asset?

Answer 3

Cash

Question 4

This refers to the company’s ability to meet non-current liabilities. It reflects whether a company can continue its operations.

Answer 4

Solvency

Question 5

This is the ability of a company to adapt to changing financial conditions or seize opportunities without jeopardizing its financial health.

Answer 5

Financial flexibility

Question 6

This is the faithful representation of the effects of transactions and other events in accordance with the definitions and recognition criteria for assets, liabilities, income, and expenses laid down in the Conceptual Framework.

Answer 6

Fair presentation

Question 7

This is also known as the continuity assumption. It means that the accounting entity is viewed as continuing in operation indefinitely in the absence of evidence to the contrary.

Answer 7

Going concern

Question 8

This means that assets are recognized when receivable rather than when received and liabilities are recognized when payable rather than when actually paid.

Answer 8

Accrual basis

Question 9

This dictates that an entity need not provide a specific disclosure required by standard if the information is not material.

Answer 9

Materiality

Question 10

This means that presenting or communicating would have a similar effect as omitting or misstating the information.

Answer 10

Obscuring information

Question 11

This requires that the accounting methods and practices shall be applied on a uniform basis from period to period.

Answer 11

Principle of consistency