Question 3

The Conceptual Framework for Financial Reporting (the Conceptual Framework) identifies the
underlying assumptions in the preparation and presentation of financial statements for external
users.

Required:

Briefly explain the purposes of conceptual framework.

The purpose of the Conceptual Framework is to:

(a) assist the MASB to develop MFRS Standards (Standards) that are based on consistent
concepts;
(b) to assist preparers to develop consistent accounting policies when no Standards applies to a
particular transaction or other event, or when a Standard allows a choice of accounting policies;
and
(c) assist all parties to understand and interpret the Standards.

Question 4

The Conceptual Framework for Financial Reporting sets out the concepts and principles that underlie
the preparation and presentation of financial statements for external users.

Required:

Briefly explain ANY FOUR (4) elements of financial statements as prescribed by the Conceptual
Framework.

1. The elements of financial statements defined in the Conceptual Framework are:

(a) assets, liabilities and equity, which relate to a reporting entity’s financial position; and
(b) income and expenses, which relate to a reporting entity’s financial performance.

2. Those elements are linked to the economic resources, claims and changes in economic
resources and claims discussed.

Question 5 [ACCA Dec 2004 Q5]

(a) Explain FOUR ways in which the use of historical cost accounting may cause users of financial
statements to be misled when prices are rising.

(b) Briefly state THREE reasons why historical cost accounting remains in use in spite of its
limitations.

Question 6 [ACCA June 2004 Q5]

Comparability is a characteristic which adds to the usefulness of financial statements.

Required:
 a. Explain what is meant by the term ‘comparability’ in financial statements, relating to two
types of comparison that users of financial statements may make. (4 marks)

Comparability is meant by the qualitative characteristic that enables users to identify and
understand similarities in, and differences among, items. Unlike the other qualitative
characteristics, comparability does not relate to a single item. A comparison requires at least
two items.

Consistency, although related to comparability, is not the same. Consistency refers to the use of
the same methods for the same items, either from period to period within a reporting entity or
in a single period across entities. Comparability is the goal; consistency helps to achieve that
goal.

*MASB = Malaysia Accounting Standard Board 马来西亚会计准则委员会

(b) Explain two ways in which the MASB’s accounting standards aid the comparability of financial
information. (4 marks)

- contribute to transparency by enhancing the international comparability and quality of

financial information, enabling investors and other market participants to make informed
economic decisions.

- contribute to economic efficiency by helping investors to identify opportunities and risks

across the world, thus improving capital allocation. For businesses, the use of a single, trusted
accounting language derived from Standards based on the Conceptual Framework lowers the
cost of capital and reduces international reporting costs.

Question 7 [21 AUGUST 2014, Q3 (A)]

The Conceptual Framework for Financial Reporting (The Conceptual Framework) sets out the
concepts and principles that underlie the preparation and presentation of financial statements for
external users.

Briefly explain the following qualitative characteristic of financial information:

(a) Comparability;

Comparability is the qualitative characteristic that enables users to identify and understand
similarities in, and differences among, items. Unlike the other qualitative characteristics,
comparability does not relate to a single item. A comparison requires at least two items.
(b) Verifiability;

Verifiability helps assure users that information faithfully represents the economic phenomena
it purports to represent. Verifiability means that different knowledgeable and independent
observers could reach consensus, although not necessarily complete agreement, that a
particular depiction is a faithful representation. Quantified information need not be a single
point estimate to be verifiable. A range of possible amounts and the related probabilities can
also be verified.

(c) Timeliness. (10 marks)

Timeliness means having information available to decision-makers in time to be capable of

influencing their decisions. Generally, the older the information is the less useful it is. However,
some information may continue to be timely long after the end of a reporting period because,
for example, some users may need to identify and assess trends.

Question 8 [APRIL 2014, Q3 (A)]

The Conceptual Framework for Financial Reporting (The Conceptual Framework) sets out the
concepts and principles that underline the preparation and presentation of financial statements for
external users.

(a) Briefly explain the recognition criteria for assets and liabilities.

(6 marks)

(b) List the bases for measurement of assets and liabilities in the financial statements as stated
in The Conceptual Framework. (4 marks)
Question 9

(a) Explain and give example of the effect on a set of published financial statements if the going
concern convention is held not to apply.

(b) Explain in general terms what MASB Conceptual Framework is trying to achieve.

(10 marks)

Question 10

For each of the two items below, the company keeps its records on a cash basis.

The company’s accounting year ended 30 September each year.

(A) On 2 February 2020, the company paid insurance premium for its premises

amounted to RM60,000 for the year ended 31 January 2020. It was recorded

as follows:

No further entries were made with respect to the rental.

Required:

(a) Calculate the amount of insurance to be recognised in the financial

statements.

(b) Show the journal entries that need to be made to convert the company’s

year ended 30 September 2020 accounts to an accrual basis and the

closing of the insurance account.

(B) The company invests RM750,000 in a 6-months fixed deposit at a commercial

bank on 1 September 2020. Interest rate stated at 4% per annum. The

following entry was made on 1 September 2020:

No further entries were made in the company’s books in 2020 since no interest

was received in cash during that year.

Required:

(a) When the fixed deposit mature on 1 March 2021, how much should the

company receive?

(b) Show the journal entries to convert the cash basis accounts to an accrual

basis and the closing of the interest received account for the year ended 30

September 2020.

Question 11

Hebat Enterprise’s financial year end is on 30 November.

On 2 November 2020, Hebat Enterprise paid the rental for its premises amounting to RM120,000 for
the period from 1 November 2020 to 31 January 2021. The above transaction was recorded as
follows:

No further entries were made pertaining to the above transaction for the year ended 30 November
2020.

Required:

(c) Prepare the relevant journal entries to show how the above transaction should be accounted for
in the financial statements for the year ended 30 November 2020.

(d) Explain how the above rental paid should be presented in the financial statements of Hebat
Enterprise for the year ended 30 November 2020.