Question

1- The primary objectives of financial reporting are to provide useful, relevant information that faithfully represents an entity’s financial position. However, in meeting these objectives, an entity is limited by which of the following?

A- The cost-benefit constraintB-The going-concern assumption

C-The capital maintenance concept

D-The materiality characteristic

2- Fortsman Inc. began operations on January 1, 20X4. It prepares financial statements in accordance with IFRS. The following is a summary of selected financial information for the year ended December 31, 20X4:

• Equipment was purchased and brought into use on March 1, 20X4, at a cost of $300,000. Fortsman paid $80,000 cash and signed a 3% note for the balance payable in full on March 1, 20X6.
• Fortsman received a $250,000 shareholder loan that was advanced on May 1, 20X4. Interest is payable annually at 5%.
• Fortsman received $150,000 in proceeds from a bank loan that was advanced on June 1, 20X4. Interest is payable monthly on the first of the month at 4% per annum, starting July 1, 20X4.
• Fortsman made interest payments of $8,000 during the 20X4 year.

What amount should Fortsman have reported as interest expense for the year ended December 31, 20X4? For ease of computation, base your interest calculations on whole months outstanding, rather than number of days outstanding.

A- 8,000
B- 9,333
C- 17,333
D- 19,333

Answer 1

Answer 1

D- The materiality characteristic

Explanation;

The Relevance of data is influenced by its nature and its materiality.

Materiality : Information is material if excluding it, or misquoting it could impact choices that clients make based on financial information about a particular reporting entity.

Materiality is a part of relevence which is substance explicit. It implies that what is material to one substance may not be material to another. It is relative. Data is material in the event that it is sufficiently critical to impact the decision of users. Materiality is influenced by the nature and extent (or size) of the thing.