What is the objective of financial statements according to the Framework?

(a) To provide information about the financial position, performance, and changes in financial position of an entity that is useful to a wide range of users in making economic decisions.

(b) To prepare and present a statement of financial position, an income statement, a cash flow statement, and a statement of changes in equity.

(c) To prepare and present comparable, relevant, reliable, and understandable information to investors and creditors.

(d) To prepare financial statements in accordance with all applicable Standards and Interpretations.

2. Which of the following are underlying assumptions of financial statements? (a) Relevance and reliability.

(b) Financial capital maintenance and physical capital maintenance.

(c) Accrual basis and going concern.

(d) Prudence and conservatism.

3. What are qualitative characteristics of financial statements according to the Framework?

(a) Qualitative characteristics are the attributes that make the information provided in financial statements useful to users.

(b) Qualitative characteristics are broad classes of financial effects of transactions and other events.

(c) Qualitative characteristics are non-quantitative aspects of an entitys position and performance and changes in financial position.

(d) Qualitative characteristics measure the extent to which an entity has complied with all relevant Standards and Interpretations.

4. Which of the following is not a qualitative characteristic of financial statements according to the Framework?

(a) Materiality.

(b) Understandability.

(c) Comparability. (d) Relevance.

5. When should an item that meets the definition of an element be recognized, according to the Framework?

(a) When it is probable that any future economic benefit associated with the item will flow to or from the entity.

(b) When the element has a cost or value that can be measured with reliability.

(c) When the entity obtains control of the rights or obligations associated with the item.

(d) When it is probable that any future economic benefit associated with the item will flow to or from the entity and the item has a cost or value that can be measured with reliability.

6. Which of the following reports is not a component of the financial statements according to IAS 1? (a) Statement of financial position.

(b) Statement of changes in equity.

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(c) Directors report.

(d) Notes to the financial statements.

7. XYZ Plc. decided to extend its reporting period from a year (12-month period) to a 15-month period. Which of the following is not required under IAS 1 in case of change in reporting period?

(a) XYZ Plc. should disclose the reason for using a longer period than a period of 12 months.

(b) XYZ Plc. should change the reporting period only if other similar entities in the geographical area in which it generally operates have done so in the current year; otherwise its financial statements would not be comparable to others.

(c) XYZ Plc. should disclose that comparative amounts used in the financial statements are not entirely comparable.

8. Which of the following information is not specifically a required disclosure of IAS 1? (a) Name of the reporting entity or other means of identification, and any change in that information from the previous year.

(b) Names of major/significant shareholders of the entity.

(c) Level of rounding used in presenting the financial statements.

(d) Whether the financial statements cover the individual entity or a group of entities.

9. Which one of the following is not required to be presented as minimum information on the face of the statement of financial position, according to IAS 1?

(a) Investment property.

(b) Investments accounted under the equity method.

(c) Biological assets. (d) Contingent liability.

10. When an entity opts to present the income statement classifying expenses by function, which of the following is not required to be disclosed as additional information?

(a) Depreciation expense.

(b) Employee benefits expense.

(c) Directors remuneration. (d) Amortization expense.

11. Inventory should be stated at

(a) Lower of cost and fair value.

(b) Lower of cost and net realizable value. (c) Lower of cost and nominal value.

(d) Lower of cost and net selling price.

12. Which of the following costs of conversion cannot be included in cost of inventory? (a) Cost of direct labor.

(b) Factory rent and utilities.

(c) Salaries of sales staff (sales department shares the building with factory supervisor). (d) Factory overheads based on normal capacity.

13. Inventories are assets

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(a) Used in the production or supply of goods and services for administrative purposes. (b) Held for sale in the ordinary course of business.

(c) Held for long-term capital appreciation.

(d) In the process of production for such sale.

(e) In the form of materials or supplies to be consumed in the production process or the rendering of services.

(f) Choices b and d.

(g) Choices b, d, and e.

14. The cost of inventory should not include (a) Purchase price.

(b) Import duties and other taxes.

(c) Abnormal amounts of wasted materials. (d) Administrative overhead.

(e) Fixed and variable production overhead. (f) Selling costs.

(g) Choices c, d, and f.

15. ABC Plc manufactures and sells paper envelopes. The stock of envelopes was included in the closing inventory as of December 31, 2021, at a cost of GHS50 each per pack. During the final audit, the auditors noted that the subsequent sale price for the inventory at January 15, 2022, was GHS40 each per pack. Furthermore, inquiry reveals that during the physical stock take, a water leakage has created damages to the paper and the glue. Accordingly, in the following week, ABC Plc spent a total of GHS15 per pack for repairing and reapplying glue to the envelopes. The net realizable value and inventory write-down (loss)

amount to

(a) GHS40 and GHS10 respectively. (b) GHS45 and GHS10 respectively. (c) GHS25 and GHS25 respectively. (d) GHS35 and GHS25 respectively. (e) GHS30 and GHS15 respectively.

16 XYZ Plc. changes its method of valuation of inventories from weighted-average method to first-in, first-out (FIFO) method. XYZ Plc. should account for this change as

(a) A change in estimate and account for it prospectively.

(b) A change in accounting policy and account for it prospectively.

(c) A change in accounting policy and account for it retrospectively.

(d) Account for it as a correction of an error and account for it retrospectively.

17 Change in accounting policy does not include

(a) Change in useful life from 10 years to 7 years.

(b) Change of method of valuation of inventory from FIFO to weighted-average.

(c) Change of method of valuation of inventory from weighted-average to FIFO.

(d) Change from the practice (convention) of paying as Christmas bonus one months salary to staff before the end of the year to the new practice of paying one-half months salary only.

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18. When a public shareholding company changes an accounting policy voluntarily, it has to (a) Inform shareholders prior to taking the decision.

(b) Account for it retrospectively.

(c) Treat the effect of the change as an extraordinary item.

(d) Treat it prospectively and adjust the effect of the change in the current period and future periods.

19. When it is difficult to distinguish between a change of estimate and a change in accounting policy, then an entity should

(a) Treat the entire change as a change in estimate with appropriate disclosure.

(b) Apportion, on a reasonable basis, the relative amounts of change in estimate and the change in accounting policy and treat each one accordingly.

(c) Treat the entire change as a change in accounting policy.

(d) Since this change is a mixture of two types of changes, it is best if it is ignored in the year of the change; the entity should then wait for the following year to see how the change develops and then treat it accordingly.

20. When an independent valuation expert advises an entity that the salvage value of its plant and machinery had drastically changed and thus the change is material, the entity should

(a) Retrospectively change the depreciation charge based on the revised salvage value.

(b) Change the depreciation charge and treat it as a correction of an error.

(c) Change the annual depreciation for the current year and future years.

(d) Ignore the effect of the change on annual depreciation, because changes in salvage values would normally affect the future only since these are expected to be recovered in future.

21. ABC Plc. decided to operate a new amusement park that will cost GHS1 million to build in the year 2005. Its financial year-end is December 31, 2005. ABC Plc. has applied for a letter of guarantee for GHS700,000. The letter of guarantee was issued on March 31, 2006. The audited financial statements have been authorized to be issued on April 18, 2006. The adjustment required to be made to the financial statement for the year ended December 31, 2005, should be

(a) Booking a GHS700,000 long-term payable.

(b) Disclosing GHS700,000 as a contingent liability in 2005 financial statement. (c) Increasing the contingency reserve by GHS700,000.

(d) Do nothing.

22. A new drug named EEE was introduced by Genius Inc. in the market on December 1, 2005. Genius Inc.s financial year ends on December 31,2005. It was the only company that was permitted to manufacture this patented drug. The drug is used by patients suffering from an irregular heartbeat. On March 31, 2006, after the drug was introduced, more than 1,000 patients died. After a series of investigations, authorities discovered that when this drug was simultaneously used with BBB, a drug used to regulate hypertension, the patients blood would clot and the patient suffered a stroke. A lawsuit for GHS100,000,000 has been filed against Genius Inc. The financial statements were authorized for issuance on April 30, 2006. Which of the following options is the appropriate accounting treatment for this post statement of financial position event under IAS 10?

(a) The entity should provide GHS100,000,000 because this is an adjusting event and the financial statements were authorized to be issued after the accident.

(b) The entity should disclose GHS100,000,000 as a contingent liability because it is an adjusting event.

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(c) The entity should disclose GHS100,000,000 as a contingent liability because it is a present obligation with an improbable outflow.

(d) Assuming the probability of the lawsuit being decided against Genius Inc. is remote, the entity should disclose it in the footnotes, because it is a non-adjusting material event.

23. At the statement of financial position date, December 31, 2021, ABC Inc. carried a receivable from XYZ, a major customer, at GHS10 million. The authorization date of the financial statements is on February 16, 2022. XYZ declared bankruptcy on Valentines Day (February 14, 2022). ABC Inc. will (a) Disclose the fact that XYZ has declared bankruptcy in the footnotes.

(b) Make a provision for this poststatement of financial position event in its financial statements (as opposed to disclosure in footnotes).

(c) Ignore the event and wait for the outcome of the bankruptcy because the event took place after the year-end.

(d) Reverse the sale pertaining to this receivable in the comparatives for the prior period and treat this as an error under IAS 8.

24. Excellent Plc. built a new factory building during 2021 at a cost of GHS20 million. At December 31, 2021,the net book value of the building was GHS19 million. Subsequent to year-end, on March 15, 2022, the building was destroyed by fire and the claim against the insurance company proved futile because the cause of the fire was negligence on the part of the caretaker of the building. If the date of authorization of the financial statements for the year ended December 31, 2021, was March 31, 2022, Excellent Plc. should

(a) Write off the net book value to its scrap value because the insurance claim would not fetch any compensation.

(b) Make a provision for one-half of the net book value of the building.

(c) Make a provision for three-fourths of the net book value of the building based on prudence.

(d) Disclose this non-adjusting event in the footnotes.

25. International Inc. deals extensively with foreign entities, and its financial statements reflect these foreign currency transactions. Subsequent to the statement of financial position date, and before the date of authorization of the issuance of the financial statements, there were abnormal fluctuations in foreign currency rates. International Inc. should

(a) Adjust the foreign exchange year-end balances to reflect the abnormal adverse fluctuations in foreign exchange rates.

(b) Adjust the foreign exchange year-end balances to reflect all the abnormal fluctuations in foreign exchange rates (and not just adverse movements).

(c) Disclose the poststatement of financial position event in footnotes as a non-adjusting event. (d) Ignore the poststatement of financial position event.

26 Bill and hold sales, in which delivery is delayed at the buyers request but the buyer assumes title and accepts invoicing, should be recognized when

(a) The buyer makes an order.

(b) The seller starts manufacturing the goods.

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(c) The title has been transferred but the goods are kept on the sellers premises.

(d) It is probable that the delivery will be made, payment terms have been established, and the buyer has acknowledged the delivery instructions.

27. ABC Inc. is a large manufacturer of machines. XYZ Plc., a major customer of ABC Inc., has placed an order for a special machine for which it has given a deposit of 112,500 to ABC Inc. The parties have agreed on a price for the machine of 150,000. As per the terms of the sales agreement, it is an FOB (free on board) contract and the title passes to the buyer when goods are loaded onto the ship at the port. When should the revenue be recognized by ABC Inc.?

(a) When the customer orders the machine.

(b) When the deposit is received.

(c) When the machine is loaded on the port.

(d) When the machine has been received by the customer.

28. Revenue from an artistic performance is recognized once (a) The audience register for the event online.

(b) The tickets for the concert are sold.

(c) Cash has been received from the ticket sales.

(d) The event takes place.

29. X Plc., a large manufacturer of cosmetics, sells merchandise to Y Plc., a retailer, which in turn sells the goods to the public at large through its chain of retail outlets. Y Plc. purchases merchandise from X Plc. under a consignment contract. When should revenue from the sale of merchandise to Y Plc be recognized by X Plc.?

(a) When goods are delivered to Y Plc.

(b) When goods are sold by Y Plc.

(c) It will depend on the terms of delivery of the merchandise by X Plc. to Y Plc. (i.e., CIF [cost, insurance, and freight] or FOB).

(d) It will depend on the terms of payment between Y Plc. and X Plc. (i.e., cash or credit).

30. M Plc, a new company manufacturing and selling consumable products, has come out with an offer to refund the cost of purchase within one month of sale if the customer is not satisfied with the product. When should M Plc. recognize the revenue?

(a) When goods are sold to the customers.

(b) After one month of sale.

(c) Only if goods are not returned by the customers after the period of one month.

(d) At the time of sale along with an offset to revenue of the liability of the same amount for the possibility of the return.

31. When can a provision be recognized in accordance with IAS 37?

(a) When there is a legal obligation arising from a past (obligating) event, the probability of the outflo