Financial Reporting And Analysis - Financial Reporting And Analysis Section 1

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46. Which of the following categories is not permitted under IFRS?

  • Option : B
  • Explanation : IFRS prohibits items to be categorized as extraordinary, while U.S. GAAP permits this categorization.
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47. Retrospective application refers to:

  • Option : C
  • Explanation : Retrospective application means that the financial statements for previous fiscal years are presented as if the newly adopted accounting principle had been used throughout the period. A change in accounting policy is applied retrospectively.
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48. Which of the following statements is most accurate?

  • Option : B
  • Explanation : A classified balance sheet separately classifies current and non-current assets and liabilities. Excess of current assets over current liabilities is known as working capital.
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49. An asset or liability is created on the balance sheet when revenue is recognized before cash is received and vice versa. Which of the following combinations is most accurate regarding the creation of an asset or liability?

Revenue recognized.Cash not received.Cash received. Revenue not recognized.
Asset Asset
Asset. Liability
Liability. Asset

  • Option : B
  • Explanation : Recognizing revenue before receiving cash creates a ‘receivable’ which is an asset. Receiving cash before recognizing revenue creates ‘unearned revenue’ which is a liability.
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50. Balance sheet provides financial information of a company:

  • Option : B
  • Explanation : Balance sheet provides information about a company at a specific point in time. C is incorrect because there are three elements: assets, liabilities, and equity.
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