66 Questions
Which one of the following is NOT an element of financial statements defined in the Conceptual Framework?
Revenues
According to the Conceptual Framework, what is the definition of an asset?
A present economic resource controlled by the entity as a result of past events.
What is the definition of equity according to the Conceptual Framework?
The residual interest in the assets of the entity after deducting all its liabilities.
Which of the following best describes the combined effect of two contracts that nullify each other's rights or obligations?
The two contracts create no rights or obligations
When may an entity need to account for each set of rights and obligations as if they arose from separate contracts?
When a single contract creates multiple sets of rights and obligations
What happens when the rights or obligations in one contract nullify all the rights or obligations in another contract?
The two contracts create no rights or obligations
Which of the following is NOT considered as an obligation to transfer an economic resource?
Obligations to exchange economic resources on favorable terms
When does a present obligation exist as a result of past events?
When the entity has already obtained economic benefits or taken an action
Which of the following is NOT a situation where an entity can fulfill its obligation to transfer an economic resource?
Obtaining economic benefits or taking an action
Can a present obligation exist even if a transfer of economic resources cannot be enforced until some point in the future?
Yes, a present obligation can exist even if a transfer of economic resources cannot be enforced until some point in the future
Which of the following best describes a present obligation according to the text?
An entity's requirement to transfer an economic resource after receiving the benefits
When is a unit of account selected for an asset or liability?
When considering the recognition criteria and measurement concepts
Under what circumstances is it appropriate to select a different unit of account for recognition and measurement?
When contracts are recognized individually but measured as part of a portfolio
What is the importance of selecting a unit of account in financial reporting?
All of the above
Which one of the following is true about treating a set of rights and obligations as a single unit of account?
It may result in the identification of separate assets and liabilities
What is an executory contract?
A contract where neither party has fulfilled any of their obligations
When is an entity considered to have an asset in an executory contract?
When the reporting entity performs first under the contract
What should financial statements report regarding the substance of contractual rights and obligations?
The implicit terms of the contract
What are the three aspects of a liability?
Right, potential to produce economic benefits, and control
What is the definition of a liability?
A present obligation of the entity to transfer an economic resource as a result of past events
What is an obligation?
A duty or responsibility that an entity has no practical ability to avoid
When does a liability exist?
When the entity has an obligation, the obligation is to transfer an economic resource, and the obligation is a present obligation that exists as a result of past events
Which one of the following best describes an economic resource?
A right that has the potential to produce economic benefits.
Which one of the following is NOT an element of financial statements defined in the Conceptual Framework?
Revenues
When does an expense occur according to the Conceptual Framework?
When there is a decrease in equity.
Which of the following is true about the combined effect of two contracts that nullify each other's rights or obligations?
The two contracts create no rights or obligations
When may an entity need to account for each set of rights and obligations as if they arose from separate contracts?
When a single contract creates two or more sets of rights or obligations that could have been created through two or more separate contracts
What is the purpose of accounting for each set of rights and obligations as if they arose from separate contracts?
To faithfully represent the rights and obligations
Which of the following is NOT a criterion for a liability to exist?
The entity has a right to receive an economic resource
What is an obligation according to the text?
A duty or responsibility that an entity has no practical ability to avoid
When does an entity have an obligation according to the text?
When it has a duty or responsibility to transfer an economic resource
What is a constructive obligation according to the text?
An obligation that arises from an entity's customary practices, published policies, or specific statements
Which of the following is considered an obligation to transfer an economic resource?
Obligations to pay cash
What is the third criterion for a liability?
The obligation is a present obligation that exists as a result of past events
Under what circumstances can an entity fulfill its obligation to transfer an economic resource?
All of the above
When does a present obligation arise as a result of new legislation?
When the entity obtains economic benefits or takes an action to which that legislation applies
Which of the following is true about treating a set of rights and obligations as a single unit of account?
It can be done for a group of rights and/or obligations arising from a portfolio of similar items
When is it appropriate to group separable rights and obligations in a single unit of account?
When the rights and obligations arise from a single source
What is an executory contract?
A contract that has not been performed by either party to an equal extent
What is the substance of contractual rights and obligations?
The economic effect of the contract
What is the unit of account in financial reporting?
The group of rights and obligations to which recognition criteria and measurement concepts are applied
What is the importance of selecting a unit of account in financial reporting?
All of the above
When may a unit of account change for an asset or liability?
All of the above
What factors determine whether a group of rights and obligations should be treated as a single unit of account?
All of the above
Which one of the following best describes an economic resource?
A present economic resource controlled by the entity
Which one of the following is true about the definition of equity?
Equity is the difference between assets and liabilities
When does an expense occur according to the Conceptual Framework?
When there is a decrease in equity
Which of the following best describes the combined effect of two contracts that nullify each other's rights or obligations?
The two contracts create no rights or obligations
When may an entity need to account for each set of rights and obligations as if they arose from separate contracts?
When a single contract creates two or more sets of rights or obligations that could have been created through two or more separate contracts
What is the definition of an asset according to the Conceptual Framework?
An economic resource that will be received or controlled by an entity in the future
Which of the following is NOT a criterion for a liability to exist?
The entity has the practical ability to avoid the transfer
What is a constructive obligation according to the text?
An obligation that arises from an entity's customary practices or published policies
Under what circumstances can an entity fulfill its obligation to transfer an economic resource?
When the entity has an obligation that is legally enforceable
What factors determine whether a group of rights and obligations should be treated as a single unit of account?
The nature of the entity's duty or responsibility
Which of the following is NOT considered an obligation to transfer an economic resource?
Obligations to exchange economic resources on unfavourable terms
What is a constructive obligation according to the text?
An obligation that arises from customary practice, published policy, or specific statement
When may an entity need to account for each set of rights and obligations as if they arose from separate contracts?
When the entity has a single contract with multiple counterparties
What is the importance of selecting a unit of account in financial reporting?
To determine the recognition and measurement of assets and liabilities
Which of the following is true about an executory contract?
It is a contract where neither party has fulfilled any of their obligations
When does an entity have an asset in an executory contract?
When the entity performs first under the contract
What is the definition of an executory contract?
A contract where neither party has fulfilled any of their obligations
Which of the following is considered an obligation to transfer an economic resource?
A contract where one party has fulfilled all their obligations
Which of the following is a criterion for selecting a unit of account in financial reporting?
The unit of account must provide useful information and justify the costs associated with providing and using that information.
When does a unit of account change for an asset or liability?
When the asset or liability is separated into components.
What is the definition of a present obligation according to the text?
A present obligation exists when an entity has obtained economic benefits or taken an action that requires the entity to transfer an economic resource.
When is it appropriate to treat a group of rights and obligations as a single unit of account?
When the rights and obligations are used together in the business activities conducted by an entity to produce cash flows and are measured by reference to estimates of their interdependent future cash flows.
Understanding the Criteria for Present Obligations in Accounting
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