In relation to the following multiple choice questions, discuss your choice of correct answer.

(a) Which of the following statements about the conceptual framework is incorrect? (i) The conceptual framework considers timeliness and materiality to be constraints on relevant and reliable information. (ii) The conceptual framework states that the elements directly related to the measurement of financial position are assets, liabilities and equity. (iii) The conceptual framework applies to the financial statements of all commercial, industrial and business reporting entities. (iv) In accordance with the conceptual framework, income is recognised when an increase in future economic benefits related to an increase in an asset or a decrease in a liability has arisen that can be measured reliably.

(b) The conceptual framework’s enhancing qualitative characteristics include: (i) understandability, timeliness, verifiability and comparability (ii) faithful representation, relevance, understandability and verifiability (iii) comparability and reliability (iv) substance over form and relevance.

(c) Which of the following statements about the conceptual framework’s definition of expenses is correct? (i) Expenses include distributions to owners. (ii) Expenses are always in the form of outflows or depletions of assets. (iii) Expenses exclude losses. (iv) Expenses are always decreases in economic benefits.

(d) In accordance with the conceptual framework, a lender should recognise the forgiveness of its $20000interest‐free loan as: (i) an increase in income and a decrease in a liability (ii) an increase in an expense and a decrease in an asset (iii) an increase in an asset and an increase in income (iv) an increase in an expense and a decrease in a liability.

THE AASB Visit the AASB website (www.aasb.gov.au) and answer the following.