Question

7.   Which of the following is a characteristic of rules-based accounting standards?

a.	They are highly detailed.
b.	They rely heavily on judgment by management or the auditor.
c.	They are shorter than rules-based standards.
d.	They are required by Sarbanes-Oxley.

    

8. Which of the following is not a formal definition of assets that has been used by the accounting profession in the US?

a.	Something represented by a debit balance that is or would be properly carried forward upon a closing of books of account according to the rules or principles of accounting, on the basis that it represents either a property right or value acquired, or an expenditure made which has created a property or is properly applicable to the future.
b.	Economic resources of an enterprise that are recognized and measured in conformity with generally accepted accounting principles as well as certain deferred charges that are not resources but that are recognized and measured in conformity with generally accepted accounting principles.
c.	Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.
d.	Only those economic resources that can be severed from the firm and sold.

9.   Under the current-operating concept, increases in equity from peripheral or incidental transactions (transactions other than sales of products, merchandise, or services) are referred to as:

a.	gains.
b.	revenue.
c.	comprehensive income.
d.	accruals.

Answer 1

7.The answer is (a) They are highly detailed. According to GAAP(Generally Accepted Accounting Principles) US there are four characteristics of rules-based accounting which are: 1.Scope and legacy expectations, 2.Large volumes of implementation guidance, 3.Brightline thresholds and 4. High levels of details - because it primarily consistent with high rule-based content.

8. Option (d) is not a formal definition of assets that has been used by the accounting profession in thhe US- because an assets represents an economic resource for a company or represents an economic value of an individual or controls with the expectation that it will provide a future benefits.

9. The answer is (a) gains, because it increases in owner's equity (net assets) from peripheral or incidental transactions and from all othe transactions, except those that result from revenues or investments by owners.Examples are: a gain on the early retirement of long-term debt, gain on sale of investments, gain on legal settlement, etc.