CFAS - EXERCISE 3

CHAPTER 2 – THE CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING

Multiple Choice Questions

1. Which among the following is not purpose of the IASB’s Conceptual

Framework for Financial Reporting?
A. To assist the local standard setting bodies, such as the Financial
Reporting Standards Council, in the adoption of the IFRS.
B. To assist the Board of Accountancy in the regulation of the accounting
profession in the Philippines.
C. To assist the auditors in forming an opinion as to the fairness of the
presentation of the financial statements.
D. To assist the users in interpreting the information presented on the
financial statements.

2. Which of the following is a valid statement regarding the status of the

Conceptual Framework?
A. The Conceptual Framework is an IFRS.
B. The Conceptual Framework is a PFRS.
C. In case of conflict between the IFRS, the IFRS shall prevail.
D. In case of conflict between the IFRS and Conceptual Framework, the
Conceptual Framework shall prevail.

3. The IASB’s Conceptual Framework deals with the

I. Objectives of the financial statements.
II. Qualitative characteristics that make the financial statement useful to
users.
III. Concepts of capital and capital maintenance
IV. Generally accepted accounting principles

A. I and II
B. II and III
C. I, II and III
D. I, II, III and IV

4. The objectives of financial reporting are based on the need

A. to comply with prudence.
B. of the users for accounting information.
C. to report management’s stewardship.
D. for compliance to generally accepted accounting principles.
5. Under the Conceptual Framework for Financial Reporting, who are
considered as the primary users of financial reporting?
A. Internal and external users.
B. Existing investors, lenders and other creditors.
C. Potential investors, lenders and other creditors.
D. Existing and potential investors, lenders and other creditors

6. Which of the following is not an objective of financial statements?

A. To provide information about the financial position of an enterprise.
B. To provide information about the performance of an enterprise.
C. To provide information about the economic decisions of the enterprise.
D. To provide information about the changes in the financial position of an
enterprise.

7. Making the financial information available when a decision is to be made

achieves the characteristics of
A. Timeliness
B. Neutrality
C. Completeness
D. Comparability

8. Adequate disclosure in financial statements to meet the needs and purposes

of their users is a means of attaining the quality of
A. Verifiability
B. Faithful representation
C. Understandability
D. Neutrality

9. What is the underlying concept that supports the immediate recognition of a

loss?
A. Matching
B. Substance over form
C. Prudence
D. Consistency

10. Which of the following is a pervasive constraint on the information that can
be provided by financial reporting?
A. Timeliness
B. Neutrality
C. Cost
D. Materiality

11. Neutrality means that the financial accounting information should

A. Not influence or affect the decisions of users
B. Not be biased or prejudiced
C. Not have undesirable or negative consequences
 D. All of the above

12. Continuation of an enterprise in the absence of evidence to the contrary is an

example of the concept of
A. Accounting entity
B. Consistency
C. Going concern
D. Substance over form

13. Information about enterprise earnings and its components measured under
accrual basis provides a better measure of an enterprise’s performance than
information about cash receipts and payments because
A. Accrual basis recognizes that events affecting enterprise operations
during a period often do not coincide with cash receipts and payments.
B. Accrual basis relates accomplishments and efforts in measuring and
reporting enterprise’s earnings and its components.
C. Accrual basis provides estimates of future earnings.
D. Cash receipts and cash payments information cannot adequately indicate
whether or not an enterprise’s performance is successful.

14. Under a lease where the lessee acquires the benefits of ownership of an asset,
the lessee often recognizes the present value of future rental payments as an
asset even though legal title to the property is not acquired. This is an
example of the application of
A. Form over substance
B. Prudence
C. Substance over form
D. Consistency

15. The going concern concept assumes that

A. Market values of assets are relevant.
B. Long-lived assets are adjusted to current prices.
C. Business firms shall continue to operate indefinitely.
D. Enterprises will curtail their operations in the succeeding period.

16. What concept justifies the use of accruals and deferrals?

A. Going concern
B. Consistency
C. Materiality
D. Timeliness

17. Under the accrual basis of accounting, the effects of transactions and other
events are recorded in the accounting records.
A. When they occur but reported in the financial statements when cash is
received or paid.
 B. When cash is received or paid but reported in the financial statements
when they occur.
C. And reported in the financial statements when cash is paid or received.
D. And reported in the financial statements when they occur.

18. Which users of financial statements are interested in information that

enables them to determine whether their loans and interest attaching to
them will be paid when due.
A. Suppliers
B. Investors
C. Lenders
D. Trade creditors

19. The process of determining the monetary amounts at which the elements of
the financial statements are to be recognized and carried in the financial
statements is known as:
A. Measurement
B. Recognition
C. Presentation
D. Maintenance

20. Under the 2018 Conceptual Framework, this is defined as the present value
of the cash inflows or other economic benefits that an entity expects to
derive from the use and eventual disposal of an asset.
A. Present value
B. Realizable value
C. Current cost
D. Value in use

21. Under the Conceptual Framework, the qualitative characteristics that enables
the users to compare the financial statements of an enterprise through time
to identify trends in its financial position and performance is
A. Verifiability
B. Comparability
C. Completeness
D. Understandability

22. Which of the following are among the four (4) enhancing characteristics of
financial information?
A – Comparability
B – Timeliness
C – Relevance
D – Materiality
E – Neutrality
 A. A and B
B. A and C
C. B and D
D. B and E

23. Under this concept, capital is regarded as the net assets or equity of an
enterprise
A. Physical concept
B. All-inclusive concept
C. Financial concept
D. Physical capital maintenance concept

24. An item would be considered material and therefore, should be disclosed in

the financial statements if
A. The expected benefits of disclosure exceed the additional costs to provide
the information.
B. The FRSC’s definition of materiality is met.
C. The amount is deemed large enough to make a difference in the decision
or evaluation of the user.
D. The effect on earnings is more than 10%.

25. Which measurement basis adopted by the physical capital maintenance

concept?
A. Historical cost
B. Current cost
C. Realizable value
D. Present value

26. Which of the following does not necessarily contribute to representational

faithfulness of accounting information?
A. Providing information that possesses confirmatory value.
B. Providing complete information within the bounds of materiality and
cost.
C. Providing information that are free from bias.
D. Informing the users of the accounting policies and changes in accounting
policies employed in the preparation of the financial statements.

27. Which of the following relates to relevance?

A. Confirmatory value
B. Representational faithfulness
C. Neutrality
D. Comparability
28. The basic assumption which is the best basis for the classification of assets
and liabilities as current and non-current is the
A. Accounting period
B. Going concern
C. Judgment
D. Materiality

29. What is the underlying concept that supports the recognition of impairment
in value of non-monetary assets held by the enterprise?
A. Substance over form
B. Consistency
C. Prudence
D. Neutrality

30. An expense may result from a/an

A. Decrease in asset from primary operations
B. Decrease in an asset from incidental transactions
C. Increase in liability from incidental transactions
D. Increase in asset from primary operations

31. Under this concept, a profit is earned when the amount of the capital at the
end of the period exceeds the amount of capital at the beginning of the
period, after excluding the effects of transactions with owners.
A. Transaction approach
B. Entity concept
C. Capital maintenance concept
D. Going concern concept

32. It is the process of incorporating in the statement of financial position or

statement of comprehensive income an item that meets the definition of an
element of the financial statements.
A. Recognition
B. Measurement
C. Realization
D. Allocation

33. Which of the following is not a valid statement relating to the accrual basis of
accounting?
A. Revenues are recorded in the period that they are earned rather than in
the period in which the cash is collected.
B. Expenses are recorded in the period that they are incurred rather than in
the period in which cash is paid.
C. Accrual basis results to more complete financial information compared to
the cash basis.
D. Accrual basis emphasizes the timing of cash receipts and cash
disbursements in the recognition of income and expenses.
34. For the information to be useful, there must be a linkage between the
information and the decisions that the users must take. This linkage is
A. Materiality
B. Relevance
C. Reliability
D. Understandability

35. The quality of information that makes it needed and worthy for the purpose
it was prepared is
A. Understandability
B. Relevance
C. Reliability
D. Completeness

36. The major objective of applying consistency in accounting policies is

A. To promote comparability between financial statements of different
enterprises.
B. To promote comparability between financial statements of different
reporting periods.
C. To match the appropriate revenues and expenses in a particular
reporting period.
D. To reflect accurately the transaction or other circumstance that the
information purports to represent.

37. The characteristics of consistency in financial information is best depicted

when
A. The entity gives accountable events the same accounting treatment from
period to period.
B. Expenses are deducted from revenue in the same accounting period.
C. Accounting procedures are adopted that give a consistent rate of return
for the entity.
D. The reported income is consistent from period to period.

38. An information is representationally faithful if it

A. Is current, so users of financial statement can use it to make decisions.
B. Is complete, neutral and free from error.
C. Allows users to make comparisons across financial statements.
D. Is presented the same way period after period.

39. Neutrality provides assurance that the information presented on the

financial statements are
A. Fair
B. Complete
C. Reliable
D. Prudent
40. This enhancing characteristic requires that the users be well-informed and
diligent for information to be useful.
A. Comparability
B. Relevance
C. Reliability
D. Understandability

41. An information that achieves the all encompassing concept of fairness

achieves the characteristic of
A. Completeness
B. Neutrality
C. Relevance
D. Understandability

42. Under the IASB’s Conceptual Framework, the process of reporting an item in
the financial statements of an enterprise is
A. Allocation
B. Matching
C. Measurement
D. Recognition

43. Which process is the assigning of peso amounts to the accountable economic
transactions and events?
A. Communication
B. Summarizing
C. Measurement
D. Identification

44. Which of the following are elements relating to the entity’s financial position?
I. Present economic resource controlled by the entity as a result of past
events.
II. The residual interest in the assets of the entity after deducting all its
liabilities.
III. Outflow or using up of an economic resource or incurrence of an
obligation from delivering or producing goods or rendering services.
IV. Present obligation of an entity to transfer an economic resource as a
result of past events.

A. I, II, III and IV

B. I, II and IV
C. II, III and IV
D. I and III
45. The measurement basis that is most commonly used in practice because of
its objectivity, verifiability and therefore, fairness is the
A. Current cost
B. Fair value
C. Historical cost
D. Fulfillment value

46. Fair value may be observed

I. Directly
II. Indirectly

A. I only
B. II only
C. Either I or II
D. Neither I or II

47. Which of the following is an exit value?

A. Current cost
B. Historical cost
C. Fair value
D. Amortized cost

48. Which of the following is an entry value?

A. Current cost
B. Fair value
C. Fulfillment value
D. Value in use

49. Fulfillment value is associated with measuring (A) ____________ at

(B)_____________
A B
A. Asset Historical cost
B. Asset Current value
C. Liability Historical cost
D. Liability Current value

50. Which of the following statements relating to initial measurement is not

correct?
A. When an asset or liability is measured at cost, transaction costs are
included in the initial measurement basis to arrive at historical cost.
B. When an asset is acquired through donation, the fair value of the asset at
the date of donation as its “deemed cost”.
C. When an asset or liability is initially measured at fair value, transaction
costs increase the initial measurement basis for that asset or liability.
D. The choice of the initial measurement basis is affected by the nature of
the information that the measurement basis will produce and the
characteristics of asset or liability as well as their contributions to the
entity’s cash flows.