Question

[33] What is the purpose of information presented in notes to the financial statements?

A. To provide disclosures required by generally accepted accounting principles.

B. To correct improper presentation in the financial statements.

C. To provide recognition of amounts not included in the totals of the financial statements.

D. To present management’s responses to auditor comments.

[34] According to the FASB’s conceptual framework, certain assets are reported in financial statements at the amount of cash or its equivalent that would have to be paid if the same or equivalent assets were acquired currently. What is the name of the reporting concept?

A. Replacement cost.

B. Current market value.

C. Historical cost.

D. Net realizable value.

[35] Costs that can be reasonably associated with specific revenues but not with specific products should be

A. Charged to expense in the period incurred.

B. Allocated to specific products based on the best estimate of the production processing time.

C. Expensed in the period in which the related revenue is recognized.

D. Capitalized and then amortized over a period not to exceed 60 months.

[36] When bad debt expense is estimated on the basis of the percentage of past actual losses from bad debts to past net credit sales, and this percentage is adjusted for anticipated conditions, the accounting concept of

A. Matching is applied.

B. Matching is not applied.

C. Substance over form is applied.

D. Going concern is not applied.

[37] According to the FASB’s conceptual framework, a department store ordinarily recognizes revenue when

A. Merchandise to be held for resale is received from suppliers.

B. Payment is received from customers.

C. Customers receive merchandise.

D. Preparation of merchandise for resale has been completed.

Answer 1

Question no 33.

Correct answer : Option A

Reason : The notes to financial statements are required to be disclosed as they provide additional information to stakeholders for the users of financial statements and help them to understand the accounting policies or procedures used by the company in the preparation of financial statements

Question no 34.

Correct answer : Option A

Reason : Replacement cost is the amount of cash / cash equivalents required to acquire/replace the existing asset with suitable other asset at the existing market price.

Question no 35:

Correct answer : Option C

Reason: As per the accounting practice "Matching concept" a company should recognize the revenues and the related expenses in the same accounting period.So considering the statement in question that costs are related to specific revenues, those costs should be expensed in the period when the revenues are realised.

Question no 36:

Correct answer : Option A

Reason : Normally Bad debts are estimated as percentage of net sales based on company history and the percentage obtained will be adjusted to current existing conditions to represent current state of the company accounts receivables.This is done to follow the accounting practice of "Matching concept" where the costs(Bad debts) associated with revenue(net sales) are recognized in same accounting period.

Question no 37:

Correct answer : Option C

Reason : Revenues are normally recognised when the risk and rewards of the goods are transferred to buyer in exchange for certain amount of consideration.It is not imperative that consideration should be received at point of sale.In case of departmental store the revenues are recognised when customer receives merchandise for determinable amount of consideration.it is not important whether the consideration is received immediately or not.