ICAB Code of Ethics: Principles-based System
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Questions and Answers

What distinguishes current assets from non-current assets?

  • Non-current assets are liquidated within a short time frame.
  • Current assets include only receivables.
  • Current assets are held for less than a year while non-current assets are held for more than a year. (correct)
  • Non-current assets are accounted for based on market value.

    • Which of the following is an example of a liability?

  • Inventory held for sale
  • Tax owed to the government (correct)
  • Goods in transit from a supplier
  • An office building occupied by employees

    • How does the Business Entity Concept affect accounting?

  • It mandates all businesses to be registered as separate legal entities.
  • It merges the owner’s personal and business accounts for clarity.
  • It allows for personal debts to be disregarded in business reports.
  • It insists that the business is treated distinctly from its owners in financial records. (correct)

    • What is the primary characteristic of a non-current asset?

    <p>It generates benefits over more than one fiscal year.</p> Signup and view all the answers

    What makes a liability 'current'?

    <p>It requires payment within the next 12 months.</p> Signup and view all the answers

    In a sole trader scenario, how are business debts treated?

    <p>Debts must be paid out of personal resources if business assets are insufficient.</p> Signup and view all the answers

    Which statement accurately describes receivables?

    <p>They include all amounts owed by customers and others to the entity.</p> Signup and view all the answers

    Which is an essential characteristic of non-current liabilities?

    <p>Their settlement extends beyond 12 months.</p> Signup and view all the answers

    What is the role of inventory in a business's financial statements?

    <p>It represents goods held for sale and is classified as a current asset.</p> Signup and view all the answers

    Which of the following best defines an asset in an accounting context?

    <p>A present economic resource controlled by the entity due to past events.</p> Signup and view all the answers

    What is the significance of the business entity concept in accounting?

    <p>It necessitates separation between a business entity's financial activities and those of its owners.</p> Signup and view all the answers

    Which of the following is NOT considered an asset?

    <p>A promise to pay in the future.</p> Signup and view all the answers

    Which statement regarding liabilities is correct?

    <p>Liabilities are present obligations as a result of past events.</p> Signup and view all the answers

    Which type of asset is characterized by having no physical form?

    <p>Intangible assets.</p> Signup and view all the answers

    What is the primary function of financial statements?

    <p>To present the financial position and performance of a business entity.</p> Signup and view all the answers

    Which of the following is an example of a physical asset?

    <p>Office furniture.</p> Signup and view all the answers

    Which of the following elements is primarily responsible for a business's economic resources?

    <p>Assets.</p> Signup and view all the answers

    In constructing a statement of financial position, what must be accounted for?

    <p>The interrelationship between assets, liabilities, and capital.</p> Signup and view all the answers

    Which component of the financial statement outlines a business’s income and expenses?

    <p>Statement of Profit or Loss.</p> Signup and view all the answers

    What is the primary effect of profit on the owner's capital?

    <p>Profits are added to owner's capital.</p> Signup and view all the answers

    How are drawings categorized in accounting terms?

    <p>As appropriations of profit.</p> Signup and view all the answers

    If a business incurs expenses, what is the expected outcome on profit?

    <p>Decrease in profit as expenses exceed income.</p> Signup and view all the answers

    In the given example, how much profit did Charlie earn from the day's trading?

    <p>CU250</p> Signup and view all the answers

    What happens to profits if they are retained in the business?

    <p>They remain as part of the owner's capital.</p> Signup and view all the answers

    When Charlie pays Cu40 in wages to their cousin, how is this transaction classified?

    <p>As an expense reducing profit.</p> Signup and view all the answers

    If Charlie decides to take CU180 from the business, how should this amount be viewed for accounting purposes?

    <p>As an appropriation of profit.</p> Signup and view all the answers

    Which statement correctly describes the relationship between income and equity?

    <p>Income contributes to increases in equity.</p> Signup and view all the answers

    What is the role of expenses in regards to financial statements?

    <p>Expenses reduce the reported profit.</p> Signup and view all the answers

    Which statement is true regarding income in the context of business finance?

    <p>Income signifies increases in assets.</p> Signup and view all the answers

    What does capital represent in an entity's financial structure?

    <p>The owner's investment in the business after liabilities</p> Signup and view all the answers

    Which option best describes the basic accounting equation?

    <p>Assets = Capital + Liabilities</p> Signup and view all the answers

    Why is the business considered a separate entity in accounting?

    <p>It can own assets independently of the owner.</p> Signup and view all the answers

    When capital is invested in a business, how is it treated by accountants?

    <p>As money owed to the owner by the business</p> Signup and view all the answers

    How do profits impact the accounting equation?

    <p>Profits directly increase capital.</p> Signup and view all the answers

    What characteristic defines an asset in relation to the business as a separate entity?

    <p>It has a monetary value attributable to the business.</p> Signup and view all the answers

    What is the historical cost principle in accounting?

    <p>Assets are valued at the price paid for them.</p> Signup and view all the answers

    Which of the following statements best explains the concept of equity?

    <p>Equity measures the residual interest in assets after removing liabilities.</p> Signup and view all the answers

    What occurs to an entity's liabilities if its assets increase?

    <p>Liabilities remain unchanged if capital also increases.</p> Signup and view all the answers

    If Charlie purchases flowers for CU650, how does it impact the accounting equation?

    <p>It increases assets by CU650.</p> Signup and view all the answers

    Study Notes

    Principles-based system

    • Ethics codes are principle-based, not rule-based
    • Principles-based systems require individuals to consider independence in each situation, following the spirit, not just the letter, of the guidance
    • Prevents individuals from narrowly interpreting legal requirements to avoid ethical obligations
    • Encourages compliance
    • Accommodates variations in individual situations
    • Adapts to rapidly changing environments
    • Can include prohibitions where necessary safeguards aren't practical

    Interactive Question 7: ICAB Code of Ethics

    • Discuss the merits and drawbacks of the ICAB Code of Ethics being a principles-based system

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    Description

    Explore the merits and drawbacks of the ICAB Code of Ethics as a principles-based system. This quiz delves into the implications of interpreting ethical guidelines in various situations and the flexibility offered by such systems in adapting to change. Assess your understanding of ethics codes and their impact on professional behavior.

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