I. Multiple Choice - ( Accounting Policies, Estimates and Errors)
1. Which is the first step within the hierarchy of guidance when selecting accounting policies?
a. Apply a standard from IFRS if it specifically relates to the transaction.
b. Apply the requirements in IFRS dealing with similar and related issue.
c. Consider the applicability of the definitions, recognition criteria and measurement concepts in the Conceptual Framework.
d. Consider the most recent pronouncement of other standard setting bodies.
2. In the absence of an accounting standard that applies specifically to a transaction, what is the most authoritative source in developing and applying an accounting policy?
a. The requirement and guidance in the standard or interpretation dealing with similar and related issue.
b. The definition, recognition criteria and measurement of asset, liability, income and expense in the Conceptual Framework
c. Most recent pronouncement of other standard-setting body
d. Accounting literature and accepted industry practice
3. A change in accounting policy shall be made when I. Required by law.
II. Required by an accounting standard.
III. The change will result in more relevant or reliable information about the
financial position, financial performance and cash flow of the entity. a. I and III only
b. II and III only
c. I and II only
d. I, II and III
4. Why is an entity permitted to change an accounting policy?
a. The change would allow the entity to present a more favorable profit picture.
b. The change would result in the financial statements providing more reliable and relevant information about financial position, financial performance and cash flows. c. The change is made by the internal auditor.
d. The change is made by the CPA.
5. A change in accounting policy requires what kind of adjustment to the financial statements?
a. Current period adjustment
b. Prospective adjustment
c. Retrospective adjustment
d. Current and prospective adjustment
6. How should the effect of a change in accounting estimate be accounted for?
a. By restating amounts reported in financial statements of prior periods
b. By reporting pro forma amounts for prior periods
c. As a prior period error
d. In the period of change and future periods if the change affects both
7. When it is difficult to distinguish between a change in accounting estimate and a change in accounting policy, the change is treated as
a. Change in accounting estimate with appropriate disclosure
b. Change in accounting policy
c. Correction of an error
d. Change in accounting estimate with no appropriate disclosure
8. Which of the following is the proper time period to record the effect of a change in accounting estimate?
a. Current period and prospective
b. Current period and retrospectively
d. Current period
9. Why is retrospective treatment of change in accounting estimate prohibited?
a. A change in accounting estimate is a normal recurring correction or adjustment.
b. The retrospective treatment is not allowed.
c. Retrospective treatment of change in accounting estimate is required by IFRS.
d. IFRS is silent on the issue.
10. Which is required for a change from sum of years' digits to straight line depreciation?
a. Reported in the statement of retained earnings
b. Retrospective restatement
c. Recomputation of depreciation for current and future years
d. All of these are required.
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