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CH 10

The accounting practice that most clearly violates an assumption is described in statement 3, where an electronics entity owned by a proprietor reported the cost of the proprietor's swimming pool as an asset of the entity. This violates the assumption that the accounting records of an entity should be separate from those of its owners. The assumption defined or described is statement 2, where a multinational entity published a complete set of financial statements at least once a year, regardless of whether the financial results were good or bad. This describes the assumption that financial statements should be prepared regularly, regardless of performance.

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82 views

CH 10

The accounting practice that most clearly violates an assumption is described in statement 3, where an electronics entity owned by a proprietor reported the cost of the proprietor's swimming pool as an asset of the entity. This violates the assumption that the accounting records of an entity should be separate from those of its owners. The assumption defined or described is statement 2, where a multinational entity published a complete set of financial statements at least once a year, regardless of whether the financial results were good or bad. This describes the assumption that financial statements should be prepared regularly, regardless of performance.

Uploaded by

Jao Flores
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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PROBLEM 2-10 IDENTIFICATION (IAA)

Identify the assumption that is most clearly violated by the accounting practice.
1. An entity decided to publish financial statements only in the years when it had good news to
report.
2. An entity reported inventory, property, plant and equipment and intangible assets at current
value at year end.
3. An electronics entity owned by a proprietor reported the cost of the proprietor’s swimming
pool as an asset of the entity.
4. An entity prepared financial statements adjusted for changes in purchasing power.
5. A mining entity kept no accounting records after starting business. The entity is waiting until
the mine is exhausted to determine the success or failure of business.

PROBLEM 2-11 IDENTIFICATION (IAA)


Identify the assumption defined or described.
1. An entity reported financial statements in nominal pesos that have mixed rather than
uniform amount of purchasing power.
2. A multinational entity published a complete set of financial statements at least once a year,
regardless of whether the financial results were good or bad.
3. The pesos of today can buy as much as goods and services as the pesos five years ago.
4. An accounting entity is viewed as continuing in operation in the absence of evidence in the
contrary.
5. An accounting practitioner mixed personal accounting records with the records of the
accounting practice.

PROBLEMS
PROBLEMS 3-1 MULTIPLE CHOICE (IAA)
1. What are the attributes that make the information provided in the financial statements
useful to the readers?
a. Qualitative characteristics of financial information
b. Quantitative characteristics of financial information
c. Elements of financial statements
d. Objectives of financial reporting
2. Qualitative characteristics
a. Are considered either fundamental or enhancing
b. Contribute to the decision usefulness of financial reporting information
c. Distinguish better information from inferior information for decision making purposes
d. All of the choices are correct
3. The fundamental qualitative characteristics are
a. Relevance and faithful representation
b. Relevance and faithful representation and materiality
c. Relevance and reliability
d. Faithful representation and materiality
4. Accounting information is considered relevant when it
a. Can be depended on to represent the economic conditions and events that it is intended
to represent.
b. Is capable of making difference in a decision
c. Is understandable by reasonably informed users of accounting information
d. Is verifiable and neutral.
5. The ingredients of relevant financial information are
a. Predictive value and confirmatory value
b. Predictive value and confirmatory value and timeliness
c. Predictive value and confirmatory value and materiality
d. Predictive value and confirmatory value, timeliness and materiality
6. What is the quality of information that gives assurance that is reasonably free of error and
bias?
a. Relevance
b. Faithful representation
c. Verifiability
d. Neutrality
7. Which of the following is the best description of “faithful representation” in relation to
information in financial statements?
a. Influence on the economic decisions of users
b. Inclusion of degree of caution
c. Freedom from material error
d. Comprehensibility to users
8. The ingredients of faithful representation are
a. Completeness and neutrality
b. Completeness and free from error
c. Completeness, neutrality and free from error
d. Completeness, neutrality and free from error and conservatism
9. The financial accounting information is directed toward the common needs of users and is
independent of presumptions about particular needs and desires of specific users.
a. Relevance
b. Verifiability
c. Neutrality
d. Completeness
10. In the event of conflict between the economic substance of a transaction and the legal form,
the economic substance shall prevail.
a. Form over substance
b. Substance over form
c. Relevance
d. Completeness

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