ASSIGNMENT 1
PRELIMS
CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS
Encircle the letter of the correct answer.
1. Which of the following is the primary objective of financial statements?
A. To provide information about the financial position, performance, and changes in financial position
of an entity.
B. To calculate the tax liabilities of a business.
C. To manage the cash flow of a business.
D. To prepare budgets and forecasts.
2. Which financial statement summarizes the revenues and expenses of a company for a specific
period?
A. Balance Sheet.
B. Income Statement.
C. Statement of Cash Flows.
D. Statement of Retained Earnings.
3. What is the purpose of the balance sheet?
A. To show the profitability of a company.
B. To present the financial position of a company at a specific point in time.
C. To summarize the cash inflows and outflows of a company.
D. To reconcile the cash book balance with the bank statement balance.
4. Which of the following is not a component of the balance sheet?
A. Assets.
B. Liabilities.
C. Revenues.
D. Equity.
5. What does the statement of cash flow reports?
A. The financial position of an entity.
B. The changes in equity during a specific period.
C. The cash inflows and outflows from operating, investing, and financing activities.
D. The revenues and expenses of an entity.
6. How are dividends treated in the financial statements?
A. As an expense in the income statement.
B. As a liability in the balance sheet.
C. As a deduction from equity in the statement of changes in equity.
D. As revenue in the income statement.
7. What is the primary purpose of the notes to the financial statements?
A. To provide additional information and disclosures necessary for the users to understand the
financial statements.
B. To correct any errors in the financial statements.
C. To summarize the main financial highlights of the year.
D. To provide a forecast for the next financial year.
8. Which of the following is an example of a non-current asset?
A. Cash.
B. Accounts receivable.
C. Inventory.
D. Property, plant, and equipment.
To God be all the Glory!
9. What is the accounting equation that forms the basis for the balance sheet?
A. Assets = Liabilities + Revenues.
B. Assets = Revenues + Expenses.
C. Assets = Liabilities + Equity.
D. Assets = Equity - Liabilities.
10. How is net income calculated on the income statement?
A. Total revenues minus total expenses.
B. Total assets minus total liabilities.
C. Total equity minus total liabilities.
D. Total cash inflows minus total cash outflows.
11. What is the objective of financial statements?
A. To provide information about the financial position, financial performance and changes in the
financial position useful to a wide range of users.
B. To prepare statement of financial position and statement of comprehensive income.
C. To prepare relevant, reliable, comparable and understandable information.
D. To prepare financial statements in accordance with applicable standards.
12. In presenting a statement of financial position, an entity
A. Must make the current and non-current presentation.
B. Must present the assets and liabilities in the order of liquidity.
C. Must choose either the current and non-current or the liquidity presentation.
D. Must make the current and non-current presentation except when a presentation based on
liquidity provides information that is more reliable and more relevant
13. An entity shall classify a liability as current under all of the following conditions, except
A. The entity expects to settle the liability within the normal operating cycle.
B. The entity holds the liability primarily for the purpose of trading.
C. The liability is due to be settled within twelve months after the reporting period.
D. The entity has the right at the end of reporting period to defer settlement of the liability for at least
twelve months after the reporting period.
14. The items which are reclassified to profit or loss in the current period but were recognized in
other comprehensive income in the current or previous period are
A. Prior period errors
B. Correcting entries
C. Unusual and irregular items
D. Reclassification adjustments
15. An entity shall present an analysis of expense using a classification based on
A. The nature of expenses.
B. The function of expenses.
C. Either the nature of expenses or the function of expenses within the entity, whichever provides
information that is reliable and more relevant.
D. Either the nature of expense or the function of expense withing the entity, whichever the entity
would prefer to present.
Answer the following question, based on your own understanding of the concept.
1. Define the following components of financial statement and the key elements they present for a
company:
a) Statement of Financial Position
b) Statement of Profit or Loss and Other Comprehensive Income
c) Statement of Changes in Equity
d) Statement of Cash Flows
e) Notes to Financial Statements
To God be all the Glory!