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FAC3701 - GENERAL FINANCIAL REPORTING EXAM
QUESTIONS LATEST VERSION QUESTIONS AND ANSWERS
2026 EDITION
FAC3701 EXAM 250-QUESTIONS
GENERAL FINANCIAL REPORTING EXAMINATION
SECTION 1: CONCEPTUAL FRAMEWORK AND INTRODUCTION TO FINANCIAL
REPORTING (Questions 1–40)
1. What is the primary objective of general purpose financial reporting according to
the Conceptual Framework for Financial Reporting 2018?
A) To provide information to management for internal decision-making
B) To assist in tax calculations for the revenue authority
C) To provide financial information about the reporting entity that is useful to existing
and potential investors, lenders and other creditors in making decisions about providing
resources to the entity
D) To comply with legal requirements and avoid penalties
Correct Answer: C
Rationale: The primary objective of financial reporting is to provide financial
information about the reporting entity that is useful to existing and potential investors,
lenders and other creditors in making decisions about providing resources to the entity .
This includes decisions about buying, selling or holding equity and debt instruments,
and providing or settling loans and other forms of credit.
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2. Which of the following is a fundamental qualitative characteristic of useful
financial information?
A) Comparability
B) Verifiability
C) Relevance
D) Timeliness
Correct Answer: C
Rationale: The fundamental qualitative characteristics are relevance and faithful
representation. Relevance means that information is capable of making a difference in
users' decisions . Comparability, verifiability, timeliness and understandability are
enhancing qualitative characteristics.
3. Relevance requires that financial information:
A) Is free from error and neutral
B) Is capable of influencing users' decisions
C) Can be compared across different entities
D) Is available to users in time to influence their decisions
Correct Answer: B
Rationale: Relevance requires that information is capable of influencing the economic
decisions of users. This means it has predictive value (can be used to predict future
outcomes) and/or confirmatory value (provides feedback on previous evaluations) .
4. The accounting equation is:
A) Assets = Liabilities + Revenues
B) Assets = Liabilities + Equity
C) Assets + Liabilities = Equity
D) Assets = Equity + Revenues
Correct Answer: B
Rationale: The accounting equation is Assets = Liabilities + Equity. This represents the
relationship between a company's assets (resources controlled by the entity), liabilities
(obligations to transfer economic resources), and equity (the residual interest in the
assets after deducting liabilities) .
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5. Under the Conceptual Framework, an asset is defined as:
A) A resource owned by the entity
B) A present economic resource controlled by the entity as a result of past events
C) Any item that has monetary value
D) Property, plant and equipment owned by the entity
Correct Answer: B
Rationale: The Conceptual Framework defines an asset as "a present economic
resource controlled by the entity as a result of past events." An economic resource is a
right that has the potential to produce economic benefits . Control is the key element,
not ownership.
6. A liability is defined as:
A) An obligation to pay money in the future
B) A present obligation of the entity to transfer an economic resource as a result of past
events
C) Any amount owed by the entity
D) A provision for future expenses
Correct Answer: B
Rationale: The Conceptual Framework defines a liability as "a present obligation of the
entity to transfer an economic resource as a result of past events." This includes legal
and constructive obligations .
7. Equity is defined as:
A) The total assets of the entity
B) The residual interest in the assets of the entity after deducting all its liabilities
C) Share capital and retained earnings
D) The amount invested by shareholders
Correct Answer: B
Rationale: Equity is defined as the residual interest in the assets of the entity after
deducting all its liabilities. This represents the claims of owners on the entity's assets .
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8. An expense is defined as:
A) Cash paid to suppliers
B) Decreases in assets, or increases in liabilities, that result in decreases in equity,
other than those relating to distributions to equity participants
C) Costs incurred to generate revenue
D) Any outflow of economic resources
Correct Answer: B
Rationale: The Conceptual Framework defines expenses as decreases in assets, or
increases in liabilities, that result in decreases in equity, other than those relating to
distributions to equity participants .
9. Income is defined as:
A) Cash received from customers
B) Increases in assets, or decreases in liabilities, that result in increases in equity, other
than those relating to contributions from equity participants
C) Revenue from sales
D) Any inflow of economic resources
Correct Answer: B
Rationale: The Conceptual Framework defines income as increases in assets, or
decreases in liabilities, that result in increases in equity, other than those relating to
contributions from equity participants. Income includes both revenue and gains .
10. According to the Conceptual Framework, what is the objective of financial
reporting?
A) To assist in the calculation of taxes
B) To provide information that is useful for economic decision-making by users
C) To comply with all statutory requirements
D) To provide information to management only
Correct Answer: B
Rationale: The objective of general purpose financial reporting is to provide financial
information about the reporting entity that is useful to existing and potential investors,
lenders and other creditors in making decisions about providing resources to the entity .
FAC3701 - GENERAL FINANCIAL REPORTING EXAM
QUESTIONS LATEST VERSION QUESTIONS AND ANSWERS
2026 EDITION
FAC3701 EXAM 250-QUESTIONS
GENERAL FINANCIAL REPORTING EXAMINATION
SECTION 1: CONCEPTUAL FRAMEWORK AND INTRODUCTION TO FINANCIAL
REPORTING (Questions 1–40)
1. What is the primary objective of general purpose financial reporting according to
the Conceptual Framework for Financial Reporting 2018?
A) To provide information to management for internal decision-making
B) To assist in tax calculations for the revenue authority
C) To provide financial information about the reporting entity that is useful to existing
and potential investors, lenders and other creditors in making decisions about providing
resources to the entity
D) To comply with legal requirements and avoid penalties
Correct Answer: C
Rationale: The primary objective of financial reporting is to provide financial
information about the reporting entity that is useful to existing and potential investors,
lenders and other creditors in making decisions about providing resources to the entity .
This includes decisions about buying, selling or holding equity and debt instruments,
and providing or settling loans and other forms of credit.
, Page 2 of 86
2. Which of the following is a fundamental qualitative characteristic of useful
financial information?
A) Comparability
B) Verifiability
C) Relevance
D) Timeliness
Correct Answer: C
Rationale: The fundamental qualitative characteristics are relevance and faithful
representation. Relevance means that information is capable of making a difference in
users' decisions . Comparability, verifiability, timeliness and understandability are
enhancing qualitative characteristics.
3. Relevance requires that financial information:
A) Is free from error and neutral
B) Is capable of influencing users' decisions
C) Can be compared across different entities
D) Is available to users in time to influence their decisions
Correct Answer: B
Rationale: Relevance requires that information is capable of influencing the economic
decisions of users. This means it has predictive value (can be used to predict future
outcomes) and/or confirmatory value (provides feedback on previous evaluations) .
4. The accounting equation is:
A) Assets = Liabilities + Revenues
B) Assets = Liabilities + Equity
C) Assets + Liabilities = Equity
D) Assets = Equity + Revenues
Correct Answer: B
Rationale: The accounting equation is Assets = Liabilities + Equity. This represents the
relationship between a company's assets (resources controlled by the entity), liabilities
(obligations to transfer economic resources), and equity (the residual interest in the
assets after deducting liabilities) .
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5. Under the Conceptual Framework, an asset is defined as:
A) A resource owned by the entity
B) A present economic resource controlled by the entity as a result of past events
C) Any item that has monetary value
D) Property, plant and equipment owned by the entity
Correct Answer: B
Rationale: The Conceptual Framework defines an asset as "a present economic
resource controlled by the entity as a result of past events." An economic resource is a
right that has the potential to produce economic benefits . Control is the key element,
not ownership.
6. A liability is defined as:
A) An obligation to pay money in the future
B) A present obligation of the entity to transfer an economic resource as a result of past
events
C) Any amount owed by the entity
D) A provision for future expenses
Correct Answer: B
Rationale: The Conceptual Framework defines a liability as "a present obligation of the
entity to transfer an economic resource as a result of past events." This includes legal
and constructive obligations .
7. Equity is defined as:
A) The total assets of the entity
B) The residual interest in the assets of the entity after deducting all its liabilities
C) Share capital and retained earnings
D) The amount invested by shareholders
Correct Answer: B
Rationale: Equity is defined as the residual interest in the assets of the entity after
deducting all its liabilities. This represents the claims of owners on the entity's assets .
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8. An expense is defined as:
A) Cash paid to suppliers
B) Decreases in assets, or increases in liabilities, that result in decreases in equity,
other than those relating to distributions to equity participants
C) Costs incurred to generate revenue
D) Any outflow of economic resources
Correct Answer: B
Rationale: The Conceptual Framework defines expenses as decreases in assets, or
increases in liabilities, that result in decreases in equity, other than those relating to
distributions to equity participants .
9. Income is defined as:
A) Cash received from customers
B) Increases in assets, or decreases in liabilities, that result in increases in equity, other
than those relating to contributions from equity participants
C) Revenue from sales
D) Any inflow of economic resources
Correct Answer: B
Rationale: The Conceptual Framework defines income as increases in assets, or
decreases in liabilities, that result in increases in equity, other than those relating to
contributions from equity participants. Income includes both revenue and gains .
10. According to the Conceptual Framework, what is the objective of financial
reporting?
A) To assist in the calculation of taxes
B) To provide information that is useful for economic decision-making by users
C) To comply with all statutory requirements
D) To provide information to management only
Correct Answer: B
Rationale: The objective of general purpose financial reporting is to provide financial
information about the reporting entity that is useful to existing and potential investors,
lenders and other creditors in making decisions about providing resources to the entity .
