CONCEPTUAL FRAMEWORK AND ACCTG STANDARDS 1.

1. Accounting has been given various definitions, which of the following is not one of those
definitions?

a. Accounting is a service activity. Its function is to provide quantitative information, primarily financial
in nature, about economic entities that is intended to be useful in making economic decisions.

b. Accounting is the art of recording, classifying, and summarizing in a significant manner and in terms of
money, transactions and events which are, in part of at least, of a financial character and interpreting
the results thereof.

c. Accounting is a systematic process of objectively obtaining and evaluating evidence regarding

assertions about economic actions and events to ascertain the degree of correspondence between these
assertions and established criteria and communicating the results to interested users.

d. Accounting is the process of identifying, measuring, and communicating economic information to

permit informed judgment and decisions by users of information.

2. Which of the following statements is true?

a. The basic purpose of accounting is to provide information about economic activities intended to be
useful in making economic decisions.

b. All events and transactions of an entity are recognized in the books of accounts.

c. General purpose financial statements are those statements that cater to the common and specific
needs of a wide range of external users.

d. The accounting process of assigning numbers, commonly in monetary terms, to the economic
transactions and events is referred to as classifying.

3. The accounting standards used in the Philippines are adapted from the standards issued by the

a. Federal Accounting Standards Board (FASB).

b. International Accounting Standards Board (IASB).

c. Philippine Institute of Certified Public Accountants (PICPA).

d. Democratic People's Republic of Korea Accounting Standards Committee (DPKRASC).

4. Which of the following statements is incorrect regarding the basic accounting concepts?

a. One of ABC Co.’s delivery trucks was involved in an accident. Although no lawsuits have yet been filed
against ABC, ABC recognized a liability for the probable loss on the event. This is an application of the
prudence or conservatism concept.

b. Under the consistency concept, the financial statements should be prepared on the basis of
accounting principles which are followed consistently.

c. Under the entity theory, the business is viewed as a separate entity. Therefore, the personal
transactions of the business owners are not recorded in the business’ accounting records.
d. The time period concept means that financial statements are prepared only at the end of the life of a
business.

5. Entity A appropriates ₱1M to fund employee benefits for the last quarter of the following year.
Entity A deposits the ₱1M fund in a payroll account. This economic activity is most appropriately
referred to as

a. production.

b. savings.

c. exchange.

d. investment.

6. It is the branch of accounting that focuses on the preparation of general purpose financial
statements.

a. Financial accounting

b. General Accounting

c. All-purpose Accounting

d. All-around accounting

7. These are events that do not involve an external party.

a. external events

b. nonreciprocal

c. internal events

d. special event

8. Entity A computes for its profit or loss periodically instead of waiting until the end of the life of the
business before doing so. This is an application of which of the following accounting concepts?

a. historical cost

b. stable monetary unit

c. accrual basis

d. time period or reporting period

9. This refers to the use of caution in the exercise of judgments needed in making estimates required
under conditions of uncertainty, such that assets or income are not overstated and liabilities or
expenses are not understated.

a. faithful representation

b. prudence
c. consistency

d. relevance

10. The bottom part of each of Entity A’s financial statements states the following “This statement
should be read in conjunction with the accompanying notes.” This is most likely an application of
which of the following accounting concepts?

a. articulation

b. consistency

c. accrual basis

d. time period

11. Which of the following events is considered as an internal event?

a. sale of inventory on account

b. provision of capital by owners

c. borrowing of money

d. conversion of raw materials into finished goods

e. payment of liabilities

12. Which of the following events is considered as an external event?

a. production

b. payment of taxes

c. gifts and charitable contributions

d. provision of capital by owners

e. b, c and d

13. Financial statements are said to be a mixture of fact and opinion. Which of the following items is
factual?

a. cost of goods sold

b. discount on capital stock

c. retained earnings

d. patent amortization expense

14. This concept defines the area of interest of the accountant. It determines which transactions are
recognized in the books of accounts and which are not.

a. Articulation
b. Matching

c. Separate entity

d. Full disclosure

15. A CPA employed as an accountant in a government agency is considered to be in

a. private practice.

b. public practice.

c. academe.

d. service.

16. Which of the following statements is correct?

I. Accounting provides qualitative information, financial information, and quantitative information.

II. Qualitative information is found in the notes to the financial statements only.

III. Accounting is considered an art because it is supported by an organized body of knowledge

IV. Accounting is considered a science because it involves the exercise of skill and judgment.

V. Measurement is the process of assigning numbers to objects such inventories or plant assets and to
events such as purchases or sales.

VI. All quantitative information is also financial in nature.

VII. The accounting process of assigning peso amounts or numbers to relevant objects and events is
called identification.

a. I and V

b. I, II, VI and V

c. I, II, III, IV and V

d. II, VI and V

Explanation: II – not only in the notes but also on the face of the financial statements. III and IV are
inter-changed. VI – all financial information are quantitative. VII – measuring not identification.
 CONCEPTUAL FRAMEWORK AND ACCTG STANDARDS 1.2

1. Which of the following statements about the Norwalk Agreement is correct?

a. The Norwalk Agreement requires all domestic companies in the U.S. to prepare financial statements
in accordance with the IFRSs.

b. The Norwalk Agreement is a short-term convergence between the FASB and the IASB which has long-
time been abolished.

c. The Norwalk Agreement is a convergence between the FASB and the IASB to make their existing
financial reporting standards compatible and coordinate their future work programs to ensure that once
achieved, compatibility is maintained.

d. The Norwalk Agreement does not affect the financial reporting standards in the Philippines.

2. The process of identifying, measuring, analyzing, and communicating financial information needed
by management to plan, evaluate, and control an organization’s operations is called

a. financial accounting.

b. tax accounting.

c. managerial accounting.

d. auditing.

3. The PFRSs consist of all of the following except

a. PFRSs.

b. PASs.

c. Interpretations.

d. Conceptual Framework.

4. It is the official accounting standard setting body in the Philippines. It is composed of a chairperson
and 14 members.

a. Financial Reporting Standards Committee (FRSC)

b. Financial Reporting Standards Council (FRSC)

c. Accounting Standards Committee (ASC)

d. Accounting Standards Council (ASC)

5. Financial reporting standards continuously change primarily in response to

a. users’ needs.

b. political influence.
c. government regulations.

d. changes in social environments.

6. Accounting is often called the "language of business" because

a. it is easy to understand.

b. it is fundamental to the communication of financial information.

c. all business owners have a good understanding of accounting principles.

d. accountants in many companies share financial information.

7. You are the accountant of ABC Co. During the period, your company purchased staplers worth
₱1,500. Although the staplers have an estimated useful life of 10 years, you have charged their cost as
expense. Which of the following is most likely to be true?

a. You are applying the concept of matching.

b. You are applying the concepts of materiality and cost-benefit consideration.

c. You are applying the concept of verifiability

d . You are just lazy to compute for the periodic depreciation. d

8. All of the following statements incorrectly refer to the concepts in the Conceptual Framework
except

a. The Conceptual Framework is concerned with all-purpose financial statements.

b. Financial statements are prepared and presented at least annually and are directed toward both the
common and specific information needs of a wide range of users.

c. The objective of general purpose financial statements is similar to the objective of general purpose
financial reporting.

d. The financial statements prepared by a reporting entity comprising a parent and its subsidiaries are
referred to as ‘combined financial statements’.

9. What is the authoritative status of the Conceptual Framework?

a. It has the highest level of authority. In case of a conflict between the Conceptual Framework and a
Standard, the Conceptual Framework overrides that Standard.

b. If there is a Standard that specifically applies to a transaction, that Standard overrides the Conceptual
Framework. In the absence of such a Standard, the requirement of the Conceptual Framework should be
followed.

c. If there is a Standard that applies to a transaction, that Standard overrides the Conceptual
Framework. In the absence of such a Standard, the entity’s management should consider the
applicability of the Conceptual Framework in developing and applying an accounting policy that will
result in useful information.
d. The Conceptual Framework applies only to the IASB when developing or amending Standards. A
reporting entity should never use the Conceptual Framework.

10.The foundation of the Conceptual Framework is formed from

a. the qualitative characteristics that makes information useful to users.

b. the objective of general purpose financial reporting.

c. the concept of reporting entity.

d. the principles and objectives of presentation and disclosure of financial information.

11.What is the objective of general purpose financial statements according to the Conceptual
Framework?

a. To provide information about the financial position, financial performance, and changes in financial
position of an entity that is useful to primary users in making economic decisions.

b. To prepare and present a balance sheet, an income statement, a cash flow statement, and a
statement of changes in equity.

c. To prepare and present comparable, relevant, reliable, and understandable information for investors
and creditors.

d. To prepare financial statements in accordance with all applicable Standards and Interpretations.

12.The primary users of financial statements under the Conceptual Framework include

I. Existing and potential investors

II. Employees

III. Lenders and other creditors

IV. Suppliers and other trade creditors

V. Customers

VI. Governments and their agencies

VII. Public

VIII. Professional accountants, including auditors

a. I and III

b. I, II, III, IV, V, VI, VII

c. I, II, III, IV, V, VI

d. all of these

13.The Conceptual Framework broadly classifies the qualitative characteristics into

a. primary and secondary qualitative characteristics.

b. major and minor qualitative characteristics.

c. fundamental and enhancing qualitative characteristics.

d. cold and hot qualitative characteristics.

14.Identify the fundamental qualitative characteristics under the Conceptual Framework.

I. Relevance

II. Reliability

III. Faithful representation

IV. Comparability

V. Verifiability

VI. Timeliness

VII. Understandability

a. I and II

b. I and III

c. I, II, III, IV, V and VI

d. IV, V, VI and VII

15.Identify the qualitative characteristics that enhance the usefulness of financial information.

I. Relevance

II. Reliability

III. Faithful representation

IV. Comparability

V. Verifiability

VI. Timeliness

VII. Understandability

a. I and II

b. I and III

c. II, III, IV, V and VII

d. IV, V, VI and VII

16.Which of the following are considered aspects of the qualitative characteristic of relevance under
the Conceptual Framework?

I. Predictive value

II. Confirmatory value

III. Timeliness

IV. Materiality

a. I and II

b. I, II and III

c. I, II and IV

d. I, II, III and IV

CONCEPTUAL FRAMEWORK AND ACCTG STANDARDS 1.3

1. Under this qualitative characteristic, users are assumed to have a reasonable knowledge of business
activities and willingness to study the information with reasonable diligence.

a. Relevance

b. Faithful representation

c. Understandability

d. Comparability

2. Which of the following statements is incorrect concerning materiality?

a. Materiality can be assessed quantitatively or qualitatively

b. There are no specific materiality thresholds provided under the PFRSs

c. Materiality is a matter of judgment

d. Materiality is a quantitative matter. It should never be assessed qualitatively.

3. The elements of faithful representation do not include

a. comparability.

b. neutrality.

c. completeness.

d. free from error.

4. The ability through consensus among measurers to ensure that information represents what it
purports to represent is an example of the concept of
a. relevance.

b. comparability.

c. verifiability.

d. feedback value.

5. According to the Conceptual Framework, the pervasive constraint on the information that can be
provided by financial reporting is

a. materiality.

b. historical.

c. cost-benefit.

d. going concern.

6. The element that is related to the measurement of an entity’s financial performance is

a. income.

b. expenses.

c. a and b

d. neither a nor b

7. According to the revised Conceptual Framework, an item is recognized if

a. it meets the definition of an asset, liability, equity, income or expense.

b. recognizing it would provide useful information.

c. it is probable that the item will result to an inflow or outflow of economic benefits and its cost can be
measured reliably.

d. a and b

8. Which of the following may result to an expense?

a. Increase in asset

b. Decrease in liability

c. Increase in liability

d. Distribution to holders of equity claims

9. The Conceptual Framework uses the term “economic resources” to refer to

a. assets.

b. equity.
c. liabilities.

d. income.

10.Which of the following is incorrect regarding the use of the term ‘reporting entity’ under the
Conceptual Framework?

a. A reporting entity one that is required, or chooses, to prepare financial statements.

b. A reporting entity must be a legal entity.

c. A reporting entity can be a parent and its subsidiaries viewed as a single entity.

d. All of these are correct.

11.The cost of inventory is recognized as expense

a. immediately.

b. using the matching concept.

c. by systematic allocation.

d. any of these as a matter of accounting policy choice

12.“I say red; you say green.” The information lacks which of the following qualitative characteristics?

a. Relevance

b. Verifiability

c. Timeliness

d. Colorfulness

13.Which of the following is not one of the decisions that primary users make?

a. deciding on how to run the day-to-day operations of the entity

b. deciding on whether to hold or sell investment in stocks

c. deciding on whether to buy investment in stocks

d. deciding on whether to extend loan to the reporting entity

14.Entity A is making a materiality judgment. Entity A considers an item to be material, and therefore
included in the financial statements, if it pertains to a related party transaction. What type of
materiality assessment is Entity A using?

a. Quantitative

b. Qualitative

c. Faithful representation

d. Relevance
15.According to the Conceptual Framework, the needs of the primary users that are met by financial
statements are

a. all of their needs.

b. all of their common needs only.

c. majority of their common needs only.

d. substantially a majority of their common and specific needs only.

16.The term ‘liquidity’, as used in relation to the assessment of an entity’s financial position, refers to

a. the entity’s ability to pay its short-term obligations.

b. the entity’s ability to pay its long-term obligations.

c. the entity’s ability to collect its current receivables.

d. the entity’s ability to flow like water.

CONCEPTUAL FRAMEWORK AND ACCTG STANDARDS 1.4

1. The measurement bases described under the Conceptual Framework are least applicable to the
measurement of

a. assets.

b. liabilities.

c. equity.

d. income.

2. Information on the utilization of economic resources is most useful when assessing an entity’s

a. management stewardship.

b. liquidity and solvency.

c. financial position and financial performance.

d. financial strengths and weaknesses, including the entity’s needs for additional financing.

3. This refers to the comparability of financial statements of the same entity but in different periods.

a. Inter-comparability

b. Extra-comparability

c. Intra-comparability

d. Intro-comparability
4. Which of the following financial statements would not be dated as covering a certain reporting
period?

a. Statement of financial position

b. Statement of profit or loss and other comprehensive income

c. Statement of cash flows

d. Statement of changes in equity

5. Comprehensive income (or total comprehensive income) includes

a. Profit or loss

b. Other comprehensive income

c. Transactions with owners

d. a and b

e. All of these

6. What is the purpose of reporting comprehensive income?

a. To report changes in equity due to transactions with owners.

b. To report a measure of the overall financial performance of an entity.

c. To replace profit with a better measure.

d. To combine income from continuing operations with income from discontinued operations and
extraordinary items.

7. The information provided by financial reporting pertains to

a. individual business entities and the economy as a whole, rather than to industries or to members of
society as consumers

b. individual business entities, industries and the economy as a whole, rather than to members of
society as consumers

c. individual reporting entities, rather than to industries, the economy as a whole or members of society
as consumers

d. individual business entities and industries, rather than to the economy as a whole or to members of
society as consumers

8. Which of the following statements is correct when an entity departs from a provision of a PFRS?

a. The entity’s financial statements would be grossly incorrect; therefore, PAS 1 does not allow such a
departure.

b. PAS 1 permits such a departure if the relevant regulatory framework requires, or otherwise does not
prohibit, such a departure.
c. PAS 1 requires certain disclosures when an entity departs from a provision of a PFRS.

d. b and c

9. Which of the following statements is correct regarding the classification of financial liabilities as
current or noncurrent in accordance with PAS 1?

a. Currently maturing obligations are presented as current liabilities even if their original term is longer
than one year and even if a refinancing agreement is completed after the end of the reporting period
but before the financial statements are authorized for issue.

b. Currently maturing obligations are presented as noncurrent liabilities only if their original term is
longer than one year.

c. Currently maturing obligations are presented as noncurrent liabilities only if a refinancing agreement
is completed after the end of the reporting period but before the financial statements are authorized for
issue.

d. Currently maturing obligations are presented as noncurrent liabilities if a refinancing agreement is

completed after the financial statements are authorized for issue.

10.According to PAS 1, the judgments and estimates embodied in the financial statements, for example,
materiality judgments, assessments of uncertainty and risk, and the like, are the responsibility of the
entity’s

a. management.

b. accountant.

c. auditor.

d. janitor.

11.Which of the following is not a disclosure requirement of PAS 1?

a. The financial effect of a departure when an entity departs from a PFRS requirement.

b. Any material uncertainties on the entity’s ability to continue as a going concern.

c. The recognition, measurement and disclosure of specific transactions and other events.

d. The reason for using a longer or shorter period when an entity changes the frequency of its reporting.

Explanation: Choice (c) is a disclosure requirement of other Standards, not PAS 1.

12.An entity’s financial position or condition refers to which of the following?

a. The status of the entity’s assets, liabilities and equity.

b. The amount of return that the entity has generated from its economic resources during the period.

c. The level of change in the entity’s economic resources and claims to those resources, also referred to
as the economic phenomena.
d. All of these.
13.Comprehensive income excludes which of the following

a. Revaluation surplus

b. Gains and losses from investments measured at fair value through profit or loss

c. Income tax expense

d. Distributions to owners

14.Entity A needs guidance in accounting for its inventories. Entity A should refer to which of the
following?

a. PAS 1

b. PAS 2

c. PAS 7

d. PAS 8

15.Entity A needs guidance in preparing its statement of changes in equity. Entity A should refer to
which of the following?

a. PAS 1

b. PAS 2

c. PAS 7

d. PAS 8

16.Entity A buys and sells artifacts. Each artifact is unique and not ordinarily interchangeable. According
to PAS 2, the cost formula that Entity A should use is

a. Specific identification.

b. Weighted Average.

c. FIFO.

d. Any of these
 CONCEPTUAL FRAMEWORK AND ACCTG STANDARDS 1.5

1. Entity A acquires inventories and incurs the following costs:

Purchase price, gross of trade discount 100,000

Trade discount 20,000

Non-refundable purchase tax, not included in the purchase price above 5,000

Freight-in (Transportation costs) 15,000

Commission to broker 2,000

Advertisement costs 10,000

How much is the cost of the inventories purchased?

a. 102,000

b. 122,000

c. 97,000

d. 100,000

Solution:

Purchase price, gross of trade discount 100,000

Trade discount (20,000)

Non-refundable purchase tax 5,000

Freight-in (Transportation costs) 15,000

Commission to broker 2,000

Total cost of inventories 102,000

2. Which of the following is presented in the activities section of the statement of cash flows?

a. Purchase of a treasury bill three months before its maturity date.

b. Dividends paid this year although declared in a prior year.

c. Acquisition of equipment through issuance of note payable.

d. Bank overdrafts that can be offset.

3. In the statement of cash flows of a non-financial institution, interest income received is presented
under

a. operating activities.

b. financing activities.
c. investing activities.

d. a or c

4. An entity makes a change in accounting estimate. How does the entity recognize the effects of the
change in profit or loss?

a. Prospectively in the current period

b. Prospectively in the current and future periods

c. Retrospectively starting from the earliest period presented

d. a or b

5. Materiality does not make any difference with regard to

a. the separate presentation of items in the financial statements.

b. the disclosure of additional information in the notes.

c. intentional errors.

d. the level of rounding-off of amounts in the financial statements.

6. According to PAS 10, dividends declared after the reporting period, but before the financial
statements are authorized for issue, are

a. recognized as liability at the end of reporting period.

b. not recognized as liability at the end of reporting period.

c. disclosed only as an adjusting event.

d. any of these.

7. At the end of the period, Entity A has deductible temporary difference of ₱100,000. Entity A’s
income tax rate is 30%. Entity A’s statement of financial position would report which of the following?

a. 30,000 deferred tax asset

b. 30,000 deferred tax liability

c. 30,000 deferred tax expense

d. 30,000 income tax expense

8. You are a business manager. During the period, you have authorized the acquisition of a machine that
will be used in your company’s manufacturing activities in the next 5 years. In your selection of an
appropriate accounting policy for the recognition and measurement of the machine, which of the
following reporting standards is most relevant?

a. PAS 1

b. PAS 2
c. PAS 16

d. PAS 32

9. Which of the following is not one of the principal issues in the accounting for PPE?

a. Recognition.

b. Initial measurement as asset.

c. Allocation of carrying amount over the period of use.

d. Recognition of carrying amount as expense when the related revenue is recognized.

10.You are the General Manager of Entity A. You have received the actuarial report for your
company’s defined benefit plan. The report shows the following information:

PV of DBO – Jan. 1, 20x1 1,500,000

FVPA – Jan. 1, 20x1 1,200,000

PV of DBO – Dec. 31,20x1 1,800,000

FVPA, end. – Dec. 31, 20x1 1,310,000

Actuarial gain 100,000

Return on plan assets 110,000

Discount rate 5%

When reporting on your company’s year-end highlights of financial summary, which of the following
will you report to the Board of Directors (the ‘big bosses’)?

a. Your company’s net liability for retirement benefits has increased by ₱490,000.

b. Your company’s net liability for retirement benefits has decreased by ₱300,000.

c. Your company’s net liability for retirement benefits has increased by ₱190,000.

d. I will tell them nothing.

Solution:

Net defined benefit liability, beg. (1.5M – 1.2M) = 300,000

Net defined benefit liability, end. (1.8M – 1.310M) = 490,000

Increase = 190,000

11.Entity A has 20 employees who are each entitled to one day paid vacation leave for each month of
service rendered. Unused vacation leaves are carried forward and can be used in future periods if the
current period’s entitlement is not used in full.
However, unutilized entitlements are forfeited when employees leave the entity. All the employees
have rendered service throughout the current year and have taken a total of 150 days of vacation
leaves. The average daily rate of the employees in the current period is ₱1,000. However, a 5%
increase in the rate is expected to take into effect in the following year. Based on Entity A’s past
experience, the average annual employee turnover rate is 20%. How much will Entity A accrue at the
end of the current year for unused entitlements?

a. 0

b. 90,000

c. 75,600

d. 94,500

Solution: [(20 employees x 1 day x 12 months) – 150 days] x ₱1,000 x 105% x 80%* = 75,600

* The paid absences are non-vesting.

12.Under a profit-sharing plan, Entity A agrees to pay its employees 5% of its annual profit. The bonus
shall be divided among the employees currently employed as at year-end. Relevant information
follows:

Profit for the year ₱8,000,000

Employees at the beginning of the year 8

Average employees during the year 7

Employees at the end of the year 6

If you are an alumnus of Entity A, how much bonus do you expect to receive?

a. 66,667

b. 50,000

c. 57,143

d. 0

Explanation: Only those who are currently employed as at year-end are entitled to receive the bonus.

13.The transfer of resources from the government to an entity in exchange for past or future
compliance with certain conditions is called

a. Government grant.
b. Government assistance.

c. Government financial assistance.

d. Government asset transfer.

14.Entity A receives land from the government conditioned that the land will only be used in Entity A’s
primary business activities and should never be sold. If in case, Entity A decides not to use the land in
its primary business activities, it shall return the land to the government. Which of the following
standards is least likely to be relevant in accounting for the land?

a. PAS 2

b. PAS 16

c. PAS 20

d. All of these are relevant

15.On December 1, 20x1, you imported a machine from a foreign supplier for $100,000, due for
settlement on January 6, 20x2. Your functional currency is the Philippine peso. The relevant exchange
rates are as follows:

Dec. 1, 20x1 Dec. 31, 20x1 Jan. 6, 20x2

₱50:$1 ₱52:$1 ₱47:$1

The cost of the machine that will be disclosed in your December 31, 20x1 financial statements is

a. $100,000.

b. ₱5,000,000.

c. ₱5,200,000.

d. ₱4,700,000.

Solution: $100,000 x ₱50 spot exchange rate at acquisition date = ₱5M

16.On January 1, 20x1, Entity A started the construction of a qualifying asset. The qualifying asset is
financed through general borrowings. The average expenditures during the year amounted to
₱9,500,000. The capitalization rate is 11%. The actual borrowing costs incurred during the period were
₱1,990,000. How much are the borrowing costs eligible for capitalization?

a. 1,990,000

b. 1,045,000

c. 1,090,000

d. 990,000

Solution:

Capitalizable BC from formula = 9,500,000 x 11% = 1,045,000

1,045,000 vs. 1,990,000 actual borrowing costs = Capitalizable BC is 1,045, 000

 CONCEPTUAL FRAMEWORK AND ACCTG STANDARDS 1.6

1. PFRSs are adopted from the standards issued by the

a. IASC.

b. IASCF.

c. IASB.

d. FASB.

2. Choose the correct statement.

a. Financial accounting is an information system designed to provide information primarily to internal

users.

b. Financial reporting cannot be influenced by changes in legal, political, business and social
environments.

c. General purpose financial statements must be prepared by a Certified Public Accountant.

d. The preparation of general purpose financial statements is usually based on the assumption that the
primary users use information in making decisions about providing resources to the reporting entity.

3. The concept that states that all the components of a complete set of financial statement are
interrelated.

a. Entity

b. Concept of Articulation

c. Accounting Process

d. Principle of Fair Presentation

4. What type of users’ needs is catered by general purpose financial statements?

a. common needs

b. specific needs

c. a and b

d. neither a nor b

5. The issuance of financial reporting standards in the Philippines is the responsibility of the

a. PICPA.

b. FRSC.

c. AASC.

d. CPE Council.
6. Reporting entities usually place the sentence “See notes to the financial statements” or “See
accompanying notes to the financial statements” or a similar sentence on the face of the financial
statements. This practice is most in keeping with what accounting concept?

a. Articulation

b. Materiality

c. Separate entity

d. Full disclosure

7. Which of the following is one of the fundamental qualitative characteristics?

a. Relevants

b. Comparability

c. Reliability

d. Faithful representation

8. According to the Conceptual Framework, the correct classifications of Relevance and Reliability,
respectively, are

a. Fundamental, Enhancing

b. Fundamental, Fundamental

c. Enhancing, Fundamental

d. Fundamental, None

9. The qualitative characteristics that enhance the usefulness of financial information includes all of
the following, except

a. Comparability

b. Verifiability

c. Timeliness

d. Materiality

10.Which of the following is not an aspect of the qualitative characteristic of relevance?

a. Predictive value

b. Materiality

c. Feedback or Confirmatory value

d. Timeliness
11.Information has this quality when it can influence the economic decisions of users by helping them
predict future outcomes, or confirm or correct their previous evaluations.

a. Predictive Value

b. Reliability

c. Relevance

d. Understandability

12.Which of the following is an element of the financial position of an entity?

a. income

b. loss

c. gains

d. none of these

13.Which of the following transactions or other events results to the recognition of an asset?

a. An entity forecasts a purchase of inventory in the coming month. The purchase is highly probable.

b. An entity enters into firm commitment to purchase inventory in the coming month. The entity cannot
cancel the commitment without paying a penalty. The contract is not onerous

c. During the period, one of the buildings of an entity was destroyed by a calamity.

d. An entity receives a non-monetary grant from the government.

14.Which of the following are elements of faithful representation under the Conceptual Framework?

I. Completeness

II. Neutrality

III. Free from error

IV. Reliability

a. I and II

b. I, II and III

c. I, II and IV

d. I, II, III and IV

15.According to the Conceptual Framework, the objective of general purpose financial statements is
to provide information about the reporting entity’s financial position, financial performance, and
other changes in financial position that is useful in assessing the entity’s

a. prospects for future net cash inflows.

b. management’s stewardship over economic resources.

c. a and b

d. neither a nor b

16.Which of the following can help users assess an entity’s prospects for future cash inflows?

a. Information about the nature and amount of the entity’s economic resources and claims.

b. Information about the entity’s financial performance and other changes in financial position.

c. Information about how the entity’s management has effectively and efficiently discharged its
responsibilities to use the entity’s economic resources.

d. All of these contribute to the assessment of an entity’s prospects for future cash inflow

CONCEPTUAL FRAMEWORK AND ACCTG STANDARDS 1.7

1. This refers to the process of incorporating in the statement of financial position or statement of
comprehensive income an item that meets the definition of a financial statement element and is
expected to result in useful information.

a. Recognition

b. Definition

c. Incorporation

d. Celebration

2. Information about an entity’s financial position and changes in financial position is referred to
under the Conceptual Framework as the

a. economic phenomena.

b. foundation of the Conceptual Framework.

c. phantom of the opera.

d. economic sabotage.

3. According to the Conceptual Framework, contributions from, and distributions to, holders of equity
claims (i.e., the entity’s owners) are

a. income and expenses, respectively.

b. income and expenses, respectively, that are recognized in other comprehensive income.

c. not income and expenses, but rather direct adjustments to equity.

d. not recognized in the financial statements.

4. Which of the following could result to the recognition of income?

a. increase in liability

b. decrease in equity

c. decrease in asset

d. decrease in liability

5. According to the Conceptual Framework, it is the right or the group of rights, the obligation or the
group of obligations, or the group of rights and obligations, to which recognition criteria and
measurement concepts are applied.

a. Unit of account

b. Aggregation

c. Classifying

d. Executory contract

6. Entity A combines similar items and separates dissimilar items when presenting information. Entity
A is applying which of the following presentation and disclosure principles?

a. Use of entity-specific information, rather than ‘boiler-plate’ descriptions

b. Classifying

c. Aggregates

d. Offsetting

7. According to the Conceptual Framework, this principle refers to presenting information in a concise
manner by summarizing voluminous data, but not too concise that important detail is either omitted
or obscured.

a. Use of entity-specific information, rather than ‘boiler-plate’ descriptions

b. Classifying

c. Aggregation

d. Offsetting

8. Which of the following is considered a primary user of general purpose financial reports under the
Conceptual Framework?

a. government regulatory body

b. the entity’s management

c. potential investor
d. all of these are primary users

9. Which of the following is not one of the aspects in the revised definition of a liability?

a. Probable outflows of economic benefits and reliable measurement of those outflows

b. Obligation

c. Transfer of an economic resource

d. Present obligation as a result of past events

10.The Conceptual Framework uses the term “economic resources” to refer to

a. income.

b. equity.

c. assets.

d. a and c

11.According to the Conceptual Framework, the historical cost of an asset or a liability is updated for
all of the following (if applicable), except

a. impairment of an asset.

b. accrual of interest, when the time value of money is considered.

c. changes in value as at the measurement date.

d. increase in an obligation relating to a contract becoming onerous.

12.The revised Conceptual Framework defines a liability as

a. a present obligation of the entity arising from past events, the settlement of which is expected to
result in an outflow from the entity of resources embodying economic benefits.

b. a present obligation of the entity to transfer an economic resource as a result of past events.

c. 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.

d. All of these.

13.Late information lacks this qualitative characteristic.

a. Tardiness

b. Timeliness

c. Verifiability

d. Comparability.
14.Comprehensive income excludes which of the following?

a. Gains and losses arising from translation of foreign operation

b. Gains and losses from investments measured at fair value through other comprehensive income.

c. Correction of prior period error.

d. Share in the profit or loss of an associate that is accounted for using the equity method.

15.Which of the following is not included among the general features of financial statement
presentation?

a. Growing concern

b. Accrual basis

c. Frequency of reporting

d. Comparative information

16.A company is issuing its comparative financial statements for the years 20x2 and 20x3. If the
company is required to issue an additional statement of financial position, such statement should be
dated

a. as of Jan. 1, 20x1.

b. as of Jan. 1, 20x2.

c. as of Dec. 31, 20x2.

d. as of Dec. 31, 20x1

CONCEPTUAL FRAMEWORK AND ACCTG STANDARDS 1.8

1. According to PAS 2, inventories are measured at

a. cost.

b. fair value less costs to sell.

c. net realizable value.

d. lower of a and b

2. Which of the following is added to the cost of inventories?

a. Cost of wasted material due to production inefficiencies

b. Import duties on shipping of inventory inwards

c. Storage costs of finished goods

d. Trade discounts received on the purchase of inventory

3. Entity A, a trading entity, buys and sells Product Z. Movements in the inventory of Product Z during
the period are as follows:

DATE TRANSACTION UNITS UNIT COST TOTAL COST

Feb 1 Beg. Inventory 100 15 1500
7 Purchase 300 18 5400
12 Sale 320
21 Purchase 200 21 4200

How much is the ending inventory under the Weighted Average cost formula? (The

average is calculated on a periodic basis.)

a. 5,180

b. 5,290

c. 5,460

d. 5,920

Solution:

Date Transaction Units

Jan. 1 Beginning inventory 100
7 Purchase 300
12 Sale (320)
21 Purchase 200
Ending inventory (in units) 280

Date Transaction Units Unit cost Total cost

Jan. 1 Beginning inventory 100 ₱15 ₱1,500
7 Purchase 300 18 5,400
21 Purchase 200 21 4,200
Total goods available for sale 600 ₱11,100
Formula:

Weighted ave. cost = Total goods available for sale (TGAS) in pesos

Total goods available for sale (TGAS) in units

Weighted average unit cost = ₱11,100 ÷ 600 = ₱ 18.50

Ending inventory (in units) 280

Weighted average unit cost ₱18.50

Ending inventory (at cost) ₱5,180

4. This method of presenting cash flows from (used in) operating activities shows each major class of
gross cash receipts and gross cash payments.

a. Direct method

b. Inverse method

c. Indirect method

d. Straight method

5. According to PAS 10, this is the date when management authorizes the financial statements for
issue regardless of whether such authorization is final or subject to further approval.

a. Date of authorization of the financial statements

b. Date of declaration

c. Date of events after the reporting period

d. Adjustment date

6. Entity A’s inventories on December 31, 20x1 have a cost of ₱100,000 and a net realizable value of
₱80,000. Accordingly, Entity A recognized a write-down of inventories of ₱20,000. Shortly after
December 31, 20x1, but before the financial statements were authorized for issue, the inventories
were sold for a net sale proceeds of ₱70,000. The correct amount of inventory write-down to be
reported in Entity A’s December 31, 20x1 financial statements is

a. 20,000

b. 0

c. 30,000

d. any of these

7. Which of the following is not considered an item of PPE?

a. land classified as investment property

b. land used in agricultural activity by a farming entity

c. equipment manufactured or acquired primarily to be held for rentals

d. all of these

8. Which of the following assets may not be depreciated?

a. Building that is measured under the revaluation model.

b. Equipment that becomes idle or is retired from active use.

c. Land

d. Landfill site
9. A change in depreciation method, estimate of useful life or residual value is accounted for as a

a. change in accounting policy.

b. correction or error.

c. change in accounting estimate.

d. any of these

10.Entity A exchanges its equipment for Entity B’s equipment. If the exchange has commercial
substance, Entity A should measure the equipment received from Entity B on initial recognition at

a. the fair value of the equipment received.

b. the fair value of the equipment given up.

c. the carrying amount of the equipment received.

d. the carrying amount of the equipment given up.

11.In accounting parlance, depreciation means

a. the decline in the value of an asset during the period.

b. the amount derived by dividing the cost of an asset over its useful life.

c. the amount derived by multiplying the cost of an asset by its useful life.

d. the systematic allocation of the depreciable amount of an asset over its useful life.

12.Entity A pays salaries on a bi-monthly basis. Entity A has 10 employees, each earning ₱20,000 per
month. During the month of April 20x1, none of the employees were absent, late or have rendered
overtime service. Which of the following is correct regarding the timing of recognition and the amount
of salaries expense recognized on the first payday in the month of April 20x1? Timing of recognition
Amount recognized

a. April 1 20,000

b. April 15 200,000

c. April 1 100,000

d. April 15 100,000

Solution: (₱20,000 x 10 employees x ½) = 100,000

13.Grants are normally recognized at

a. current value.

b. market value.

c. fair value.
d. net realizable value.

14.On December 1, 20x1, you imported a machine from a foreign supplier for $100,000, due for
settlement on January 6, 20x2. Your functional currency is the Philippine peso. The relevant exchange
rates are as follows:

Dec. 1, 20x1 Dec. 31, 20x1 Jan. 6, 20x2

₱50:$1 ₱52:$1 ₱47:$1

How much is your net foreign exchange gain (loss) on the importation?

a. 200,000

b. (200,000)

c. 300,000

d. (300,000)

C [$100,000 x (47 – 50)] = 300,000 net FOREX gain

15.On January 1, 20x1, Entity A obtained a 10%, ₱5,000,000 loan, specifically to finance the
construction of a building. The proceeds of the loan were temporarily invested and earned interest
income of ₱180,000. The construction was completed on December 31, 20x1 for a total construction
costs of ₱7,000,000. How much are the borrowing costs capitalized to cost of the building?

a. 320,000

b. 300,000

c. 500,000

d. 680,000

A (5M x 10%) – 180,000 = 320,000

16.Which of the following are not related parties under PAS 24?

a. A parent and its subsidiaries

b. An investor and its associate

c. Family member of a Chief Executive Officer and the entity

d. A shareholder who holds 2% interest in the voting rights of the entity