The document outlines a method for answering theory questions in accounting by identifying relevant qualitative characteristics or principles, defining them, and relating them to the specific question. An example illustrates how an owner omitting cents in a balance sheet can be justified through the concept of relevance, which states only information impacting decision-making should be included. It concludes that the omission is correct as it does not materially affect decisions based on the figures.

1. Answering Theory Questions
• It is recommended that you adopt the following approach when answering a
theory question:
• Identify: identify the relevant Qualitative Characteristic or Accounting
Principle
• Define: define the Qualitative Characteristic or Accounting Principle you
have identified
• Relate: relate the Qualitative Characteristic or Accounting Principle to the
question or case study you have been given.

2. Answering Theory Questions
For example, this question could be answered in the following way:
“The owner of a small business has decided to omit cents from figures listed
in the Balance Sheet. Explain whether the owner is correct in doing this.”
Identify Relevance
Define
Relevance states that only information which influences decision-
making should be included in the firm’s financial records.
Relate In this case, the omission of cents is not material enough to effect
any decision the owner makes based on the figures in the Balance
Sheet.

3. Explain The owner is correct in making this decision due to the concept of.
Relevance. Relevance states that only information which influences decision-
making should be included in the firm’s financial records. In this case, the
omission of cents is not material enough to effect any decision the owner makes
based on the figures in the Balance Sheet.
Answering Theory Questions
For example, this question could be answered in the following way:
“The owner of a small business has decided to omit cents from figures listed
in the Balance Sheet. Explain whether the owner is correct in doing this.”v
Explain The owner is correct in making this decision due to the concept of.
Relevance. Relevance states that only information which influences decision-
making should be included in the firm’s financial records. In this case, the
omission of cents is not material enough to effect any decision the owner makes
based on the figures in the Balance Sheet.
Explain The owner is correct in making this decision due to the concept of.
Relevance. Relevance states that only information which influences decision-
making should be included in the firm’s financial records. In this case, the
omission of cents is not material enough to effect any decision the owner makes
based on the figures in the Balance Sheet.
Explain The owner is correct in making this decision due to the concept of.
Relevance. Relevance states that only information which influences decision-
making should be included in the firm’s financial records. In this case, the
omission of cents is not material enough to effect any decision the owner makes
based on the figures in the Balance Sheet.