Module 1 - Accounting Principles and the Conceptual Framework

Question 1

UK listed companies use

Answer 1

IFRS in compliance with Companies Act 2006

Question 2

UK unlisted companies use

Answer 2

FRS

Question 3

IFRS amended by

Answer 3

IASB

Question 4

FRS 102 amended by

Answer 4

FRC

Question 5

New conceptual framework applicable from

Answer 5

1 January 2020

Question 6

Objective of general purpose financial reporting

Answer 6

To provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions relating to providing resources to the entity.

Question 7

Users need information about (3)

Answer 7

• Economic resources and claims
• Changes in resources and claims
• Use of economic resources

Question 8

Conceptual framework qualitative characteristics (2)

Answer 8

Fundamental and enhancing

Question 9

Fundamental characteristics (2)

Answer 9

Must be present for information to be useful

• Relevance
• Faithful representation

Question 10

Enhancing characteristics (4)

Answer 10

Usefulness of information is enhanced by these characteristics

• Comparability
• Verifiability
• Timeliness
• Understandability

Question 11

Relevance is.. (+ two values)

Answer 11

Capable of making a difference in the decisions made by users. This is the case if it has:

• Predictive value
• Confirmatory value

Question 12

Information is material if

Answer 12

Omitting it or misstating it could influence the decisions of the primary users

Question 13

Three characteristics of faithful representation

Answer 13

• Complete
• Neutral
• Free from error

Question 14

Neutrality is supported by

Answer 14

Prudence

Question 15

Consistent use of accounting policies and methods helps to achieve

Answer 15

Comparability

Question 16

Verifiability =

Answer 16

Different knowledgeable and independent observers could reach consensus that a particular depiction is a faithful representation

Question 17

Verification can be (2)

Answer 17

• Direct > eg counting cash

- Indirect > eg recalculation

Question 18

Timeliness =

Answer 18

Having information available to decision makers in time to be capable of influencing their decisions

Question 19

Information is made understandable if it is (3)

Answer 19

• Classified
• Characterised
• Presented clearly and concisely

Question 20

3 types of financial statements

Answer 20

• Unconsolidated
• Combined
• Consolidated

Question 21

Asset =

Answer 21

A present economic resource controlled by the entity as a result of past events

Question 22

Economic resource =

Answer 22

A right that has the potential to produce economic benefits

Question 23

Liability =

Answer 23

A present obligation to transfer an economic resource as a result of past events

Question 24

Obligation =

Answer 24

A duty or responsibility that an entity has no practical ability to avoid

Question 25

Equity =

Answer 25

The residual interest in the assets of the entity after deducting all of its liabilities

Question 26

Income =

Answer 26

Increases in assets or decreases in liabilities that result in increases in equity

Question 27

Expense =

Answer 27

Decreases in assets or increases in liabilities that result in decreases in equity

Question 28

Recognition of income can be

Answer 28

- Recognition of an asset | - Derecognition of a liability

Question 29

Recognition of expense can be

Answer 29

- Derecognition of asset | - Recognition of liability

Question 30

Item is recognised in the financial statements if (2)

Answer 30

- Meets the definition of an element | - Provides users with information that is relevant and a faithful representation

Question 31

Derecognition

Answer 31

Removal of all or part of a recognised asset or liability from an entity's statement of financial position

Question 32

Derecognition of an asset

Answer 32

When control is lost

Question 33

Derecognition of a liability

Answer 33

When there is no longer a present obligation

Question 34

Two main measurement bases

Answer 34

- Historical cost | - Current value

Question 35

Historical cost =

Answer 35

Based on transaction price when asset was acquired or created or liability was incurred

Question 36

Current value (3) =

Answer 36

Reflects changes in values - Fair value - Value in use - Current cost

Question 37

Fair value =

Answer 37

Price received to sell asset or paid to transfer liability

Question 38

Value in use =

Answer 38

Present value of cash flows from use and disposal of asset/ present value of resources transferred to fulfil a liability

Question 39

Current cost =

Answer 39

Cost of an equivalent asset

Question 40

IAS 2 Inventories requires measurement at

Answer 40

Lower of cost or NRV

Question 41

NRV =

Answer 41

Fair value adjusted for costs to completion and selling costs

Question 42

IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets require measurement at

Answer 42

The cost model or revaluation model

Question 43

IAS 36 Impairment of assets requires that an impaired asset is written down to higher of

Answer 43

Value in use and fair value less costs of disposal

Question 44

IAS 40 Investment Property requires measurement using

Answer 44

The cost model or fair value model

Question 45

In exceptional circumstances, the IASB may include income or expenses arising from a change in value of an asset or liability as

Answer 45

Other comprehensive income

Question 46

Financial concept of capital maintenance

Answer 46

Capital refers to the net assets or equity of the entity, profit is made if the equity increases over a period

Question 47

Physical concept of capital maintenance

Answer 47

Capital refers to the productive capacity of the entity, profit is made if the operating capacity at the end of the period is greater than at the start

Question 48

Standard for determining fair value

Answer 48

IFRS 13

Question 49

Level 1 inputs

Answer 49

Quoted price in an active market for identical assets or liabilities

Question 50

Level 2 inputs

Answer 50

Inputs other than quoted prices that are directly or indirectly observable eg quoted prices for similar assets/ liabilities in active/ inactive markets. May need to make adjustments

Question 51

Level 3 inputs

Answer 51

Unobservable inputs that cannot be sourced from the market