CFAS 1.1 5.

Entity A appropriates ₱1M to fund employee

benefits for the last quarter of the following year.
1. Accounting has been given various definitions, Entity A deposits the ₱1M fund in a payroll account.
which of the following is not one of those definitions? This economic activity is most appropriately referred
a. Accounting is a service activity. Its function is to to as
provide quantitative information, primarily financial in a. production
nature, about economic entities that is intended to be b. savings.
useful in making economic decisions. c. exchange.
b. Accounting is the art of recording, classifying, and d. investment
summarizing in a significant manner and in terms of
6. It is the branch of accounting that focuses on the
money, transactions and events which are, in part of at
preparation of general purpose financial statements.
least, of a financial character and interpreting the results
a. Financial accounting
thereof.
b. General Accounting
c. Accounting is a systematic process of objectively
c. All-purpose Accounting
obtaining and evaluating evidence regarding assertions
d. All-around accounting
about economic actions and events to ascertain the degree
of correspondence between these assertions and 7. These are events that do not involve an external
established criteria and communicating the results to party.
interested users. a. external events
d. Accounting is the process of identifying, measuring, b. nonreciprocal
and communicating economic information to permit c. internal events
informed judgment and decisions by users of d. special event
information. 8. Entity A computes for its profit or loss periodically
2. Which of the following statements is true? instead of waiting until the end of the life of the
a. The basic purpose of accounting is to provide business before doing so. This is an application of
information about economic activities intended to be which of the following accounting concepts?
useful in making economic decisions. a. historical cost
b. All events and transactions of an entity are recognized b. stable monetary unit
in the books of accounts. c. accrual basis
c. General purpose financial statements are those d. time period or reporting period
statements that cater to the common and specific needs of 9. This refers to the use of caution in the exercise of
a wide range of external users. judgments needed in making estimates required
d. The accounting process of assigning numbers, under conditions of uncertainty, such that assets or
commonly in monetary terms, to the economic income are not overstated and liabilities or expenses
transactions and events is referred to as classifying are not understated.
3. The accounting standards used in the Philippines a. faithful representation
are adapted from the standards issued by the b. prudence
a. Federal Accounting Standards Board (FASB). c. consistency
b. International Accounting Standards Board (IASB). d. relevance
c. Philippine Institute of Certified Public Accountants 10. The bottom part of each of Entity A’s financial
(PICPA). statements states the following “This statement should
d. Democratic People's Republic of Korea Accounting be read in conjunction with the accompanying notes.”
Standards Committee (DPKRASC) This is most likely an application of which of the
4. Which of the following statements is incorrect following accounting concepts?
regarding the basic accounting concepts? a. articulation
a. The time period concept means that financial b. consistency
statements are prepared only at the end of the life of a c. accrual basis
business d. time period
b. Under the consistency concept, the financial 11. Which of the following events is considered as an
statements should be prepared on the basis of accounting internal event?
principles which are followed consistently. a. sale of inventory on account
c. Under the entity theory, the business is viewed as a b. provision of capital by owners
separate entity. Therefore, the personal transactions of the c. borrowing of money
business owners are not recorded in the business’ d. conversion of raw materials into finished goods
accounting records. e. payment of liabilities
d. One of ABC Co.’s delivery trucks was involved in an
accident. Although no lawsuits have yet been filed 12. Which of the following events is considered as an
against ABC, ABC recognized a liability for the probable external event?
loss on the event. This is an application of the prudence a. production
or conservatism concept. b. payment of taxes
c. gifts and charitable contributions b. The Norwalk Agreement is a short-term convergence
d. provision of capital by owners between the FASB and the IASB which has long-time
been abolished.
13. Financial statements are said to be a mixture of
c. The Norwalk Agreement is a convergence between the
fact and opinion. Which of the following items is
FASB and the IASB to make their existing financial
factual?
reporting standards compatible and coordinate their
a. cost of goods sold
future work programs to ensure that once achieved,
b. discount on capital stock
compatibility is maintained.
c. retained earnings
d. The Norwalk Agreement does not affect the financial
d. patent amortization expense
reporting standards in the Philippines.
14. This concept defines the area of interest of the
2. The process of identifying, measuring, analyzing,
accountant. It determines which transactions are
and communicating financial information needed by
recognized in the books of accounts and which are
management to plan, evaluate, and control an
not.
organization’s operations is called
a. Articulation
a. financial accounting.
b. Matching
b. tax accounting.
c. Separate entity
c. managerial accounting.
d. Full disclosure
d. auditing.
15. A CPA employed as an accountant in a
3. The PFRSs consist of all of the following except
government agency is considered to be in
a. PFRSs.
a. private practice.
b. Interpretations.
b. public practice.
c. Conceptual Framework.
c. academe.
4. It is the official accounting standard setting body in
d. service.
the Philippines. It is composed of a chairperson and
16. Which of the following statements is correct? 14 members.
I. Accounting provides qualitative information, financial a. Financial Reporting Standards Committee (FRSC)
information, and quantitative information. b. Financial Reporting Standards Council (FRSC)
II. Qualitative information is found in the notes to the c. Accounting Standards Committee (ASC)
financial statements only. d. Accounting Standards Council (ASC)
III. Accounting is considered an art because it is
5. Financial reporting standards continuously change
supported by an organized body of knowledge
primarily in response to
IV. Accounting is considered a science because it
a. users’ needs.
involves the exercise of skill and judgment.
b. political influence.
V. Measurement is the process of assigning numbers to
c. government regulations.
objects such inventories or plant assets and to events such
d. changes in social environments.
as purchases or sales.
VI. All quantitative information is also financial in 6. Accounting is often called the "language of
nature. business" because
VII. The accounting process of assigning peso amounts a. it is easy to understand.
or numbers to relevant objects and events is called b. it is fundamental to the communication of financial
identification. information.
c. all business owners have a good understanding of
a. I and V accounting principles.
b. I, II, VI and V d. accountants in many companies share financial
c. I, II, III, IV and V information.
d. II, VI and V
7. You are the accountant of ABC Co. During the
Explanation: II – not only in the notes but also on the period, your company purchased staplers worth
face of the financial statements. III and IV are inter- ₱1,500. Although the staplers have an estimated
changed. VI – all financial information are quantitative. useful life of 10 years, you have charged their cost as
VII – measuring not identification. expense. Which of the following is most likely to be
true?
CFAS 1.2 a. You are applying the concept of matching.
b. You are applying the concepts of materiality and cost-
1. Which of the following statements about the benefit consideration.
Norwalk Agreement is correct? c. You are applying the concept of verifiability.
a. The Norwalk Agreement requires all domestic
8. All of the following statements incorrectly refer to
companies in the U.S. to prepare financial statements in
the concepts in the Conceptual Framework except
accordance with the IFRSs.
a. The Conceptual Framework is concerned with all-
purpose financial statements.
b. Financial statements are prepared and presented at c. I, II, III, IV, V, VI
least annually and are directed toward both the common d. all of these
and specific information needs of a wide range of users. 13.The Conceptual Framework broadly classifies the
c. The objective of general purpose financial statements qualitative characteristics into
is similar to the objective of general purpose financial a. primary and secondary qualitative characteristics.
reporting. b. major and minor qualitative characteristics.
d. The financial statements prepared by a reporting entity c. fundamental and enhancing qualitative characteristics.
comprising a parent and its subsidiaries are referred to as d. cold and hot qualitative characteristics.
‘combined financial statements’.
9. What is the authoritative status of the Conceptual
Framework? 14.Identify the fundamental qualitative
a. It has the highest level of authority. In case of a characteristics under the Conceptual Framework.
conflict between the Conceptual Framework and a I. Relevance II. Reliability III. Faithful representation IV.
Standard, the Conceptual Framework overrides that Comparability V. Verifiability VI. Timeliness VII.
Standard. Understandability
b. If there is a Standard that specifically applies to a a. I and II
transaction, that Standard overrides the Conceptual b. I and III
Framework. In the absence of such a Standard, the c. I, II, III, IV, V and VI
requirement of the Conceptual Framework should be d. IV, V, VI and VII
followed.
15.Identify the qualitative characteristics that
c. If there is a Standard that applies to a transaction, that
enhance the usefulness of financial information.
Standard overrides the Conceptual Framework. In the
I. Relevance II. Reliability III. Faithful representation IV.
absence of such a Standard, the entity’s management
Comparability V. Verifiability VI. Timeliness VII.
should consider the applicability of the Conceptual
Understandability
Framework in developing and applying an accounting
a. I and II
policy that will result in useful information.
b. I and III
d. The Conceptual Framework applies only to the IASB
c. II, III, IV, V and VII
when developing or amending Standards. A reporting
d. IV, V, VI and VII
entity should never use the Conceptual Framework.
16.Which of the following are considered aspects of
10.The foundation of the Conceptual Framework is
the qualitative characteristic of relevance under the
formed from
Conceptual Framework?
a. the qualitative characteristics that makes information
I. Predictive value II. Confirmatory value III. Timeliness
useful to users.
IV. Materiality
b. the objective of general purpose financial reporting.
a. I and II
c. the concept of reporting entity.
b. I, II and III
d. the principles and objectives of presentation and
c. I, II and IV
disclosure of financial information.
d. I, II, III and IV
11.What is the objective of general purpose financial
statements according to the Conceptual Framework? CFAS 1.3
a. To provide information about the financial position,
financial performance, and changes in financial position 1. Under this qualitative characteristic, users are
of an entity that is useful to primary users in making assumed to have a reasonable knowledge of business
economic decisions. activities and willingness to study the information
b. To prepare and present a balance sheet, an income with reasonable diligence.
statement, a cash flow statement, and a statement of a. Relevance
changes in equity. b. Faithful representation
c. To prepare and present comparable, relevant, reliable, c. Understandability
and understandable information for investors and d. Comparability
creditors.
2. Which of the following statements is incorrect
d. To prepare financial statements in accordance with all
concerning materiality?
applicable Standards and Interpretations.
a. Materiality is a quantitative matter. It should never be
12.The primary users of financial statements under assessed qualitatively.
the Conceptual Framework include b. There are no specific materiality thresholds provided
I. Existing and potential investors II. Employees III. under the PFRSs
Lenders and other creditors IV. Suppliers and other trade c. Materiality is a matter of judgment
creditors V. Customers VI. Governments and their d. Materiality can be assessed quantitatively or
agencies VII. Public VIII. Professional accountants, qualitatively
including auditors
3. The elements of faithful representation do not
a. I and III
include
b. I, II, III, IV, V, VI, VII
a. comparability. 12.“I say red; you say green.” The information lacks
b. neutrality. which of the following qualitative characteristics?
c. completeness. a. Relevance
d. free from error. b. Verifiability
c. Timeliness
4. The ability through consensus among measurers to
d. Colorfulness
ensure that information represents what it purports
to represent is an example of the concept of 13.Which of the following is not one of the decisions
a. relevance. that primary users make?
b. comparability. a. deciding on how to run the day-to-day operations of
c. verifiability. the entity
b. deciding on whether to hold or sell investment in
5. According to the Conceptual Framework, the
stocks
pervasive constraint on the information that can be
c. deciding on whether to buy investment in stocks
provided by financial reporting is
d. deciding on whether to extend loan to the reporting
a. materiality.
entity
b. historical.
c. cost-benefit. 14.Entity A is making a materiality judgment. Entity
d. going concern. A considers an item to be material, and therefore
included in the financial statements, if it pertains to a
6. The element that is related to the measurement of
related party transaction. What type of materiality
an entity’s financial performance is
assessment is Entity A using?
a. income.
a. Quantitative
b. expenses.
b. Qualitative
c. a and b
c. Faithful representation
d. neither a nor b
d. Relevance
7. According to the revised Conceptual Framework,
15.According to the Conceptual Framework, the
an item is recognized if
needs of the primary users that are met by financial
a. it meets the definition of an asset, liability, equity,
statements are
income or expense.
a. all of their needs.
b. recognizing it would provide useful information.
b. all of their common needs only.
c. it is probable that the item will result to an inflow or
c. majority of their common needs only.
outflow of economic benefits and its cost can be
d. substantially a majority of their common and specific
measured reliably.
needs only.
d. a and b
16.The term ‘liquidity’, as used in relation to the
8. Which of the following may result to an expense?
assessment of an entity’s financial position, refers to
a. Increase in asset
a. the entity’s ability to pay its short-term obligations.
b. Decrease in liability
b. the entity’s ability to pay its long-term obligations.
c. Increase in liability
c. the entity’s ability to collect its current receivables.
d. Distribution to holders of equity claims
d. the entity’s ability to flow like water
9. The Conceptual Framework uses the term
“economic resources” to refer to CFAS 1.4
a. assets.
b. equity. 1. The measurement bases described under the
c. liabilities. Conceptual Framework are least applicable to the
measurement of
10.Which of the following is incorrect regarding the
a. assets.
use of the term ‘reporting entity’ under the
b. liabilities.
Conceptual Framework?
c. equity.
a. A reporting entity one that is required, or chooses, to
d. income.
prepare financial statements.
b. A reporting entity must be a legal entity.
2. Information on the utilization of economic
c. A reporting entity can be a parent and its subsidiaries
resources is most useful when assessing an entity’s
viewed as a single entity.
a. management stewardship.
d. All of these are correct.
b. liquidity and solvency.
11.The cost of inventory is recognized as expense c. financial position and financial performance.
a. immediately. d. financial strengths and weaknesses, including the
b. using the matching concept. entity’s needs for additional financing.
c. by systematic allocation.
3. This refers to the comparability of financial
d. any of these as a matter of accounting policy choice
statements of the same entity but in different periods.
a. Inter-comparability
b. Extra-comparability after the end of the reporting period but before the
c. Intra-comparability financial statements are authorized for issue.
d. Intro-comparability b. Currently maturing obligations are presented as
noncurrent liabilities only if their original term is longer
4. Which of the following financial statements would
than one year.
not be dated as covering a certain reporting period?
c. Currently maturing obligations are presented as
a. Statement of financial position
noncurrent liabilities only if a refinancing agreement is
b. Statement of profit or loss and other comprehensive
completed after the end of the reporting period but before
income
the financial statements are authorized for issue.
c. Statement of cash flows
d. Currently maturing obligations are presented as
d. Statement of changes in equity
noncurrent liabilities if a refinancing agreement is
5. Comprehensive income (or total comprehensive completed after the financial statements are authorized
income) includes for issue.
a. Profit or loss
b. Other comprehensive income
c. Transactions with owners
10.According to PAS 1, the judgments and estimates
d. a and b
embodied in the financial statements, for example,
6. What is the purpose of reporting comprehensive materiality judgments, assessments of uncertainty and
income? risk, and the like, are the responsibility of the entity’s
a. To report changes in equity due to transactions with a. management.
owners. b. accountant.
b. To report a measure of the overall financial c. auditor.
performance of an entity. d. janitor.
c. To replace profit with a better measure.
11.Which of the following is not a disclosure
d. To combine income from continuing operations with
requirement of PAS 1?
income from discontinued operations and extraordinary
a. The financial effect of a departure when an entity
items.
departs from a PFRS requirement.
7. The information provided by financial reporting b. Any material uncertainties on the entity’s ability to
pertains to continue as a going concern.
a. individual business entities and the economy as a c. The recognition, measurement and disclosure of
whole, rather than to industries or to members of society specific transactions and other events.
as consumers d. The reason for using a longer or shorter period when
b. individual business entities, industries and the an entity changes the frequency of its reporting.
economy as a whole, rather than to members of society as Explanation: Choice (c) is a disclosure requirement of
consumers other Standards, not PAS 1.
c. individual reporting entities, rather than to industries,
the economy as a whole or members of society as 12.An entity’s financial position or condition refers to
consumers which of the following?
d. individual business entities and industries, rather than a. The status of the entity’s assets, liabilities and equity.
to the economy as a whole or to members of society as b. The amount of return that the entity has generated
consumers from its economic resources during the period.
c. The level of change in the entity’s economic resources
8. Which of the following statements is correct when and claims to those resources, also referred to as the
an entity departs from a provision of a PFRS? economic phenomena.
a. The entity’s financial statements would be grossly d. All of these.
incorrect; therefore, PAS 1 does not allow such a 13.Comprehensive income excludes which of the
departure. following
b. PAS 1 permits such a departure if the relevant a. Revaluation surplus
regulatory framework requires, or otherwise does not b. Gains and losses from investments measured at fair
prohibit, such a departure. value through profit or loss
c. PAS 1 requires certain disclosures when an entity c. Income tax expense
departs from a provision of a PFRS. d. Distributions to owners
d. b and c
14.Entity A needs guidance in accounting for its
9. Which of the following statements is correct inventories. Entity A should refer to which of the
regarding the classification of financial liabilities as following?
current or noncurrent in accordance with PAS 1? a. PAS 1
a. Currently maturing obligations are presented as current b. PAS 2
liabilities even if their original term is longer than one c. PAS 7
year and even if a refinancing agreement is completed 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
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.