Theory base accounting and accounting standards Quiz-2
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Theory base accounting and accounting standards Quiz-2
Quiz
- Which of the following is not a characteristic of accounting principles?
- They are flexible.
- They are generally accepted.
- They are objective.
- They are neutral.
- Accounting standards are not perfect and have some limitations. Which of the following is NOT a limitation of accounting standards?
- They are based on historical costs.
- They are subjective and open to interpretation.
- They may not be relevant to all users of financial statements.
- They are constantly evolving.
- The verifiable objective concept is an accounting principle that states that accounting information must be verifiable and objective. Which of the following is an example of the verifiable objective concept?
- A business records a sale when it receives payment from a customer.
- A business records a purchase when it receives the goods or services.
- A business records an expense when it pays for goods or services.
- All of the above.
- A business that does not follow the full disclosure principle is likely to:
- Be misleading to users of its financial statements.
- Be fined by the Securities and Exchange Commission (SEC).
- Both of the above
- None of the above.
- Accounting principles are:
- Laws that must be followed by all businesses.
- Guidelines that are used to prepare financial statements.
- Rules that are set by the government.
- Standards that are developed by professional accounting bodies.
- Accounting standards are not always able to capture all the nuances of business activity. Which of the following is an example of a nuance of business activity that accounting standards may not be able to capture?
- The impact of inflation.
- The value of intangible assets.
- The riskiness of a business.
- All of the above.
- Which of the following is a reason why Ind-AS were introduced in India?
- To improve the comparability of financial statements of Indian companies with those of companies in other countries.
- To improve the transparency of financial statements of Indian companies.
- To make it easier for foreign investors to invest in Indian companies.
- All of the above.
- Which of the following is not a benefit of using accounting principles?
- Increased comparability of financial statements
- Reduced risk of financial statement fraud
- Improved decision-making by users of financial statements
- Increased compliance with government regulations
- Which of the following is NOT a difference between Ind-AS and accounting standards?
- Ind-AS are more comprehensive than accounting standards.
- Ind-AS are more consistent with international accounting standards than accounting standards.
- Ind-AS are mandatory for all listed companies in India, while accounting standards are not.
- Ind-AS are more principles-based than accounting standards.
- The accrual assumption is an accounting principle that requires businesses to record revenues when they are earned and expenses when they are incurred, regardless of when cash is received or paid. Which of the following is an example of the accrual assumption?
- A business records revenue when it sells goods to a customer, even if the customer does not pay for the goods until the next month.
- A business records an expense when it pays for goods or services, even if the goods or services are not used until the next month.
- Both of the above
- None of the above.
- The going concern concept is important because it allows businesses to:
- Record assets at their historical cost.
- Recognize revenue when it is earned.
- Recognize expenses when they are incurred.
- Prepare financial statements that are relevant and reliable.
- The consistency assumption is an accounting principle that requires businesses to use the same accounting methods from period to period. Which of the following is an example of a violation of the consistency assumption?
- A business changes from the straight-line method of depreciation to the declining-balance method.
- A business changes the way it accounts for inventory from the FIFO method to the LIFO method.
- A business changes the way it accounts for bad debts from the direct write-off method to the allowance method.
- All of the above.
- The consistency assumption is important because it allows users of financial statements to:
- Make comparisons between the financial statements of different businesses.
- Make comparisons between the financial statements of the same business over time.
- Both of the above
- None of the above.
- A business that does not follow the accrual assumption is likely to:
- Overstate its profits.
- Understate its profits.
- Both of the above
- None of the above.
- The revenue recognition concept is an accounting principle that states that revenue should be recognized when it is earned. Which of the following is an example of the revenue recognition concept?
- A business sells goods to a customer on credit.
- A business receives payment from a customer for goods that were sold on credit.
- A business provides services to a customer and bills the customer immediately.
- All of the above.
- The full disclosure principle is an accounting principle that requires businesses to disclose all material information that is relevant to the financial statements. Which of the following is an example of material information that would need to be disclosed under the full disclosure principle?
- A lawsuit that is likely to result in a significant loss for the business.
- A change in the business's accounting methods.
- A contingent liability that is probable and could have a significant impact on the business's financial position.
- All of the above.
- The going concern concept is an accounting assumption that a business will continue to operate for the foreseeable future. Which of the following is not an implication of the going concern concept?
- Assets are recorded at their historical cost.
- Liabilities are recorded at their present value.
- Revenue is recognized when it is earned.
- Expenses are recognized when they are incurred.
- A business that violates the consistency assumption should:
- Restate its financial statements for all prior periods.
- Disclose the change in the notes to its financial statements and explain the reason for the change.
- Both of the above
- None of the above.
- A business that does not follow the verifiable objective concept is likely to:
- Provide misleading financial information.
- Be unable to raise capital.
- Both of the above
- None of the above.
- The primary purpose of accounting principles is to:
- Ensure that financial statements are accurate.
- Make financial statements comparable between different businesses.
- Provide useful information to users of financial statements.
- All of the above
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