Subsistema Principal

Chapter 1

1 B Limited liability refers to the liability of the owners of a company (ie the shareholders) to make good the debts of that company. Shareholders are liable only to the extent of the nominal value of their share capital. Where this has been paid up in full, there is no further liability.

2 A Financial accountants are concerned with producing financial statements based on past performance ; management accountants are concerned with forward looking financial information used to plan and control a business.

3 D Directors are responsible for the stewardship of a company on behalf of its shareholders ie they must run the company with the best interests of the shareholders in mind.

4 C A purchasing department receives invoices and codes them to the correst cost category.

5 D The credit controller assesses the level of credit that should be given to customers and chases customers who do not make payments on time.

6 D A cheque should not be written until the legitimacy and accuracy of the invoice have been checked.

Chapter 2

1 C The Framework for the Preparation and Presentation of Financial Statements was issued in 1989 by the IASB in order to provide general principles underpinning accounting. It is in the process of being replaced.

2 D In each case the reverse is true: US accounting standards are rules-based and IFRS are principles-based.

3 D This is set to increase to 16 by 2012.

4 B The IFRS Foundation is the overseeing body for the IASB, IFRSIC and IFRSAC. The Monitoring Board serves as a mechanism for communication between capital markets authorities and the IFRS Foundation.

5 A The IASB is responsible for issuing IFRSs.

6 C The FASB is the US standards setter.

Chapter 3

1 B The Framework is not sufficiently specific to deal adequately with all accounting topics;

therefore standards are required for each of these different areas.

2 B Concepts and conventions are contained within the Framework, however this is not the title of a chapter.

3 B One of the purposes of the Framework is to enable the reduction of the number of alternative accounting treatments permitted by IFRS.

4 C A directors’’ report and management commentary are often presented within a set of financial statements, however they are not a mandatory part of those financial statements as required by IAS 1.

5 D A statement of cash flows details cash received by a business and cash paid out, categorised under the headings operating, investing and financing.

6 C Liquidity deals with meeting short term obligations such as paying suppliers; solvency refers to the longer term financial health of a business.

Chapter 4

1 C A true and fair override arises where a company does not follow the requirements of an IFRS in order to achieve a true and fair presentation.

2 B Accounting standards do not apply to immaterial items.

3 C IAS 8 Accounting policies, changes in accounting estimates and errors

4 D The depreciation of non-current assets is an accounting policy; judgements in the application of this policy, including the useful life and residual value of an asset or method of depreciation, are accounting estimates.

5 C A change in accounting policy occurs if there has been a change in recognition, presentation or measurement basis. Such changes are applied retrospectively and disclosed. A change in estimation technique qualifies as a change in accounting estimate rather than accounting policy.

6 D Information is reliable when it is free from material error and bias. Prudence, completeness, neutrality, substance over form and faithful representation are the sub-qualities of reliable information given within the Framework.

Chapter 5

1 A B is the definition of a liability; C is the definition of an asset; D is a mixture of the definition of an asset and a liability.

2 D A provision is a liability of uncertain timing and / or amount - the amount is not necessarily an estimate; it may be known and the uncertainty surrounds timing of the payment. Provisions are recognised in the financial statements when certain criteria are met.

3 D A gain from the sale of a current asset is a realised gain but the revaluation of a non-current asset is an unrealised gain.

4 C This is the definition contained within the Framework.

5 B The working capital of a business is its current assets and current liabilities.

6 C Prepayments are current assets; employee wages are an expense; a revaluation surplus forms part of equity.

Chapter 6

1 B The measurement of items can also affect the statement of comprehensive income if there are increases / decreases in the measurement of assets and liabilities.

2 D Current cost is the same as replacement cost.

3 B Realisable value is the amount of cash or cash equivalents that could be obtained by selling an asset in an orderly disposal. Settlement value is the undiscounted amounts of cash or cash equivalents expected to be paid to satisfy the liabilities in the normal course of business;

historical value is the amount paid for an asset.

4 D Historical cost is objective in that it is equivalent to the amount paid to obtain an asset. No estimation nor cost formulae are required.

5 B This is the definition of fair value contained within a number of IFRS.

6 D Modified historical cost refers to the application of the revluation model to certain assets.

Chapter 7

1 D The first statement relates to normative theory and the second to positive theory.

2 D Operating capital maintenance is based on the productive capacity of an entity, and therefore requires a maintained level of assets.

3 C

4 D Statements A –– C are all incorrect: operating capital maintenance is the concept in current cost accounting; financial capital maintenance, adjusted for inflation, is the concept in current purchasing power accounting; current cost accounting is based on specific price inflation.

5 B Under CPP accounting it is non-current assets which are restated for the effects of general price inflation.

6 D Deprival value is the lower of replacement cost or recoverable value. Recoverable value is the higher of sales value (net realisable value) and value in use (economic value).

Chapter 8

1 B An agent is not required to carry out any instruction which is illegal.

2 B A management buy-in is where external managers purchase the company.

3 A

4 D The responsibility for the preparation of the financial statements is that of the directors. The auditors’’ report gives an opinion as to whether the financial show a true and fair view or are fairly presented.

5 C A statement of financial position and statement of cash flows are required by IAS 1; corporate governance disclosures are required as part of compliance with listing rules.

6 B B is not an advantage; competitors may use the information contained within such disclosures in order to gain advantages in the market.

Chapter 9

1 B Financial markets have operational efficiency if transaction costs are kept as low as possible.

Transaction costs are kept low where there is open competition between brokers and other market participants.

2 C Investors are assumed to be rational.

3 A If interest rates rise then share prices will tend to fall as investors demand a higher return on their investment.

4 A Weak-form market efficiency assumes that the share price reflects all available information about the past; technical analysis would therefore not give an advantage.

5 B The details of the members of the various committees are detailed in the corporate governance report.

6 D Auditors do not prepare the financial statements. An auditor’’s report does not indicate that financial statements are ‘‘correct’’, although it does indicate that they are fairly presented and so free from material misstatement.

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