Going Concern Concept in Financial Reporting

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What is the primary concern when Andrea withdraws money for personal expenses?

Recording the nature of the expense

Fulfilling a liability

Recording the fact of the withdrawal (correct)

Updating the historical cost of assets and liabilities

What does historical cost measure provide information about?

Assets, liabilities, income, and expenses (correct)

Price changes over time

Income and expenses only

Liabilities and related income

How are assets and liabilities recorded in the context of FA2?

At a value derived from price changes over time

At the current market value

At the original historical cost (correct)

At a value based on the date of the transaction

What is not necessary to be recorded when Andrea withdraws funds for personal expenses?

The nature of the expense Signup and view all the answers

What is used to derive the value at which transactions are recorded?

Historical cost Signup and view all the answers

Which factor will historical cost be updated to depict over time?

Fulfillment of part or all of a liability Signup and view all the answers

What is the assumption when financial statements are prepared?

The entity will continue in operation for the foreseeable future Signup and view all the answers

When might the financial statements have to be prepared on a different basis?

If the entity has the intention or need to enter liquidation or to cease trading Signup and view all the answers

What does the materiality definition refer to?

Information that could influence decisions made by primary users of financial reports Signup and view all the answers

What is an advanced issue that candidates do not need to consider for FA2?

Time period that might be regarded as the foreseeable future Signup and view all the answers

What is assumed about the entity according to the going concern principle?

It will continue in operation for the foreseeable future Signup and view all the answers

When is information considered material?

When it could influence decisions made by primary users of financial reports Signup and view all the answers

What is the main purpose of financial statements according to the passage?

To provide information for decision making Signup and view all the answers

What does 'materiality' refer to in the context of financial reporting?

Reporting values in a way that provides essential information for decision making Signup and view all the answers

What is the 'duality' principle in accounting based on?

The fact that each transaction has a dual aspect and requires double entry accounting Signup and view all the answers

What is the main implication of the dual aspect principle in accounting?

Every transaction must be recorded with both a debit and a credit entry Signup and view all the answers

According to the passage, what does the business entity principle imply?

That unincorporated businesses should be treated as separate entities from their owners Signup and view all the answers

2

5 Signup and view all the answers

3

2 Signup and view all the answers

5

6 Signup and view all the answers

6

5 Signup and view all the answers

The going concern principle assumes that the reporting entity will cease trading in the foreseeable future.

False Signup and view all the answers

If the intention or need to enter liquidation exists, the financial statements may have to be prepared on a different basis.

True Signup and view all the answers

The materiality concept refers to the influence of omitted, misstated, or obscured information on decisions made by primary users of financial reports.

True Signup and view all the answers

For FA2, candidates are not required to consider the time period that might be regarded as the 'foreseeable future' in the context of the going concern principle.

True Signup and view all the answers

The historical cost measure provides information about the current market value of assets and liabilities.

False Signup and view all the answers

The going concern assumption implies that the entity has neither the intention nor the need to cease trading.

True Signup and view all the answers

When Andrea withdraws money for personal expenses, the nature of the expense is recorded in detail.

False Signup and view all the answers

Historical cost is the only basis that needs to be considered in the context of FA2.

True Signup and view all the answers

Assets and liabilities in FA2 will be recorded at their current market value.

False Signup and view all the answers

The historical cost of assets and liabilities will never be updated over time.

False Signup and view all the answers

Historical cost measures provide monetary information about assets, liabilities, income, and expenses based on current market values.

False Signup and view all the answers

The primary purpose of financial statements is to depict the current value of assets and liabilities.

False Signup and view all the answers

Materiality and complete accuracy are the same thing.

False Signup and view all the answers

Financial statements typically report values in exact dollar amounts.

False Signup and view all the answers

Materiality is related to the fact that financial statements provide information for decision making.

True Signup and view all the answers

Materiality is affected only by whether information is included or omitted from financial statements.

False Signup and view all the answers

Duality principle in accounting requires the use of single entry accounting.

False Signup and view all the answers

Every transaction gives rise to both a debit entry and a credit entry in double entry accounting.

True Signup and view all the answers

The total value of the debit entries will be different from the total value of the credit entries for any given transaction.

False Signup and view all the answers

The business entity principle means that the business is not treated as a separate entity from the owner(s) of the business.

False Signup and view all the answers

A sole trader's personal assets may be used to settle business debts.

True Signup and view all the answers

Historical cost measure provides information about current market values of assets and liabilities.

False Signup and view all the answers

One implication of the dual aspect principle is that every transaction has a 'dual aspect' and therefore requires the use of single entry accounting.

False Signup and view all the answers

The purpose of financial statements according to the passage is to provide information for decision making about whether to undertake transactions with a particular entity.

True Signup and view all the answers

What is the primary concern when Andrea withdraws money for personal expenses?

Recording the nature of the expense in detail Signup and view all the answers

What is used to derive the value at which transactions are recorded?

Historical cost measures Signup and view all the answers

What does historical cost measure provide information about?

Current market values of assets and liabilities Signup and view all the answers

What is an advanced issue that candidates do not need to consider for FA2?

The time period regarded as the 'foreseeable future' Signup and view all the answers

What is assumed about the entity according to the going concern principle?

The intention or need to cease trading in the foreseeable future Signup and view all the answers

When is information considered material?

Whether information is included or omitted from financial statements Signup and view all the answers

What is the assumption made about the reporting entity according to the going concern principle?

The entity will continue in operation for the foreseeable future Signup and view all the answers

What does the materiality definition refer to in the context of financial reporting?

The influence of omitted, misstated, or obscured information on decision making Signup and view all the answers

What is the primary purpose of financial statements according to the passage?

To provide information for decision making about specific entities Signup and view all the answers

What is assumed by the business entity principle according to the passage?

The business is not treated as a separate entity from the owner(s) of the business Signup and view all the answers

What is used to derive the value at which transactions are recorded?

Historical cost measure Signup and view all the answers

What does historical cost measure provide information about according to the passage?

Current market value of assets and liabilities Signup and view all the answers

What does the 'duality' principle in accounting imply?

Every transaction has a 'dual aspect' and therefore requires the use of single entry accounting. Signup and view all the answers

According to the passage, what does the business entity principle imply?

The business is treated as a separate entity from the owner(s) of the business. Signup and view all the answers

What is an implication of the dual aspect principle in accounting?

Every transaction gives rise to both a debit entry and a credit entry in double entry accounting. Signup and view all the answers

What is assumed about the entity according to the going concern principle?

The entity has neither the intention nor the need to cease trading. Signup and view all the answers

'Materiality' refers to what in the context of financial reporting?

'Materiality' refers to the influence of omitted, misstated, or obscured information on decisions made by primary users of financial reports. Signup and view all the answers

When might the financial statements have to be prepared on a different basis?

If the intention or need to enter liquidation exists, the financial statements may have to be prepared on a different basis. Signup and view all the answers

'Historical cost measure provides information about what?

'Historical cost measure provides monetary information about assets, liabilities, income, and expenses based on current market values. Signup and view all the answers

'What is not necessary to be recorded when Andrea withdraws funds for personal expenses?

'Historical cost measure provides monetary information about assets, liabilities, income, and expenses based on current market values. Signup and view all the answers

'What is assumed when financial statements are prepared?'

'The going concern assumption implies that the entity has neither the intention nor the need to cease trading.' Signup and view all the answers

'Which factor will historical cost be updated to depict over time?'

The historical cost of assets and liabilities will never be updated over time. Signup and view all the answers

When Andrea withdraws money for personal expenses, the nature of the expense is recorded in detail.

False Signup and view all the answers

The historical cost of assets and liabilities will never be updated over time.

False Signup and view all the answers

The total value of the debit entries will be different from the total value of the credit entries for any given transaction.

False Signup and view all the answers

The going concern assumption implies that the entity has neither the intention nor the need to cease trading.

True Signup and view all the answers

The historical cost of assets and liabilities will continue to be recorded at the value at which they were initially recorded.

True Signup and view all the answers

Every transaction gives rise to both a debit entry and a credit entry in double entry accounting.

True Signup and view all the answers

The going concern principle assumes that the entity will continue to operate for the foreseeable future.

True Signup and view all the answers

Materiality refers to whether omitting, misstating, or obscuring information could reasonably be expected to influence decisions made on the basis of financial reports.

True Signup and view all the answers

The historical cost measure provides information about the current market value of assets and liabilities.

False Signup and view all the answers

Every transaction gives rise to both a debit entry and a credit entry in double entry accounting.

True Signup and view all the answers

The primary purpose of financial statements is to depict the current value of assets and liabilities.

False Signup and view all the answers

The materiality of information is related to its potential influence on decisions made by the primary users of financial reports.

True Signup and view all the answers

Materiality is different from complete accuracy.

True Signup and view all the answers

Materiality is not related to the purpose of financial statements in decision making.

False Signup and view all the answers

Materiality is only affected by whether information is included or omitted from financial statements.

False Signup and view all the answers

Double entry accounting is not a fundamental underpinning principle in accounting.

False Signup and view all the answers

The dual aspect principle means that every transaction gives rise to both a debit entry and a credit entry.

True Signup and view all the answers

The business entity principle means that for accounting records, the business is treated as a separate entity from the owner(s) of the business.

True Signup and view all the answers

Historical cost measure provides information about current market values of assets and liabilities.

False Signup and view all the answers

Every transaction requires the use of single entry accounting according to the dual aspect principle.

False Signup and view all the answers

A sole trader's personal assets may not be used to settle business debts.

False Signup and view all the answers

The going concern principle assumes that the reporting entity will cease trading in the foreseeable future.

False Signup and view all the answers

Materiality allows for excessive detail to be included in financial statements which can improve presentation and assist users.

False Signup and view all the answers

Duality refers to the fact that every transaction has a 'dual aspect' and therefore requires the use of 'double entry' accounting.

True Signup and view all the answers

Going Concern Concept in Financial Reporting

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Questions and Answers

What is the primary concern when Andrea withdraws money for personal expenses?

What does historical cost measure provide information about?

How are assets and liabilities recorded in the context of FA2?

What is not necessary to be recorded when Andrea withdraws funds for personal expenses?

What is used to derive the value at which transactions are recorded?

Which factor will historical cost be updated to depict over time?

What is the assumption when financial statements are prepared?

When might the financial statements have to be prepared on a different basis?

What does the materiality definition refer to?

What is an advanced issue that candidates do not need to consider for FA2?

What is assumed about the entity according to the going concern principle?

When is information considered material?

What is the main purpose of financial statements according to the passage?

What does 'materiality' refer to in the context of financial reporting?

What is the 'duality' principle in accounting based on?

What is the main implication of the dual aspect principle in accounting?

According to the passage, what does the business entity principle imply?

2

3

5

6

The going concern principle assumes that the reporting entity will cease trading in the foreseeable future.

If the intention or need to enter liquidation exists, the financial statements may have to be prepared on a different basis.

The materiality concept refers to the influence of omitted, misstated, or obscured information on decisions made by primary users of financial reports.

For FA2, candidates are not required to consider the time period that might be regarded as the 'foreseeable future' in the context of the going concern principle.

The historical cost measure provides information about the current market value of assets and liabilities.

The going concern assumption implies that the entity has neither the intention nor the need to cease trading.

When Andrea withdraws money for personal expenses, the nature of the expense is recorded in detail.

Historical cost is the only basis that needs to be considered in the context of FA2.

Assets and liabilities in FA2 will be recorded at their current market value.

The historical cost of assets and liabilities will never be updated over time.

Historical cost measures provide monetary information about assets, liabilities, income, and expenses based on current market values.

The primary purpose of financial statements is to depict the current value of assets and liabilities.

Materiality and complete accuracy are the same thing.

Financial statements typically report values in exact dollar amounts.

Materiality is related to the fact that financial statements provide information for decision making.

Materiality is affected only by whether information is included or omitted from financial statements.

Duality principle in accounting requires the use of single entry accounting.

Every transaction gives rise to both a debit entry and a credit entry in double entry accounting.

The total value of the debit entries will be different from the total value of the credit entries for any given transaction.

The business entity principle means that the business is not treated as a separate entity from the owner(s) of the business.

A sole trader's personal assets may be used to settle business debts.

Historical cost measure provides information about current market values of assets and liabilities.

One implication of the dual aspect principle is that every transaction has a 'dual aspect' and therefore requires the use of single entry accounting.

The purpose of financial statements according to the passage is to provide information for decision making about whether to undertake transactions with a particular entity.

What is the primary concern when Andrea withdraws money for personal expenses?

What is used to derive the value at which transactions are recorded?

What does historical cost measure provide information about?

What is an advanced issue that candidates do not need to consider for FA2?

What is assumed about the entity according to the going concern principle?

When is information considered material?

What is the assumption made about the reporting entity according to the going concern principle?

What does the materiality definition refer to in the context of financial reporting?

What is the primary purpose of financial statements according to the passage?

What is assumed by the business entity principle according to the passage?

What is used to derive the value at which transactions are recorded?

What does historical cost measure provide information about according to the passage?

What does the 'duality' principle in accounting imply?

According to the passage, what does the business entity principle imply?

What is an implication of the dual aspect principle in accounting?

What is assumed about the entity according to the going concern principle?

'Materiality' refers to what in the context of financial reporting?

When might the financial statements have to be prepared on a different basis?

'Historical cost measure provides information about what?

'What is not necessary to be recorded when Andrea withdraws funds for personal expenses?

'What is assumed when financial statements are prepared?'

'Which factor will historical cost be updated to depict over time?'

When Andrea withdraws money for personal expenses, the nature of the expense is recorded in detail.

The historical cost of assets and liabilities will never be updated over time.

The total value of the debit entries will be different from the total value of the credit entries for any given transaction.

The going concern assumption implies that the entity has neither the intention nor the need to cease trading.

The historical cost of assets and liabilities will continue to be recorded at the value at which they were initially recorded.

Every transaction gives rise to both a debit entry and a credit entry in double entry accounting.

The going concern principle assumes that the entity will continue to operate for the foreseeable future.

Materiality refers to whether omitting, misstating, or obscuring information could reasonably be expected to influence decisions made on the basis of financial reports.

The historical cost measure provides information about the current market value of assets and liabilities.