Colegio De La Purisima Concepcion

The School of the Archdiocese of Capiz

Roxas City 5800, Philippines
Tel. Nos. (036) 6211-882 Loc. 205 Fax (036) 6210-286 local 119
Website: www.purisima.edu.ph

PrE-9 - FINANCIAL ACCOUNTING AND REPORTING (FAR)

CPA Licensure Examination Syllabus-Based
Module 2.1

2.0 Conceptual Framework, Accounting Process and Presentation of Financial Statements

2.1. The Conceptual Framework for Financial Reporting

2.1.1. Objective and status of the Conceptual Framework

The IASB issued the revised Conceptual Framework for Financial Reporting in March 2018. It is a comprehensive set of
concepts for financial reporting.

The Framework at a Glance

The Structure of the Conceptual Framework addresses the following:

• Chapter 1 – The objective of financial reporting

• Chapter 2 – The qualitative characteristics of useful financial information
• Chapter 3 – Financial statements and the reporting entity
• Chapter 4 – The elements of the financial statements
• Chapter 5 – Recognition and Derecognition
• Chapter 6 – Measurement
• Chapter 7 – Presentation and disclosure
• Chapter 8 – Concepts of capital and capital maintenance

Status and Purpose of the Conceptual Framework

The Conceptual Framework for Financial Reporting (Conceptual Framework) describes the objective of, and the concepts
for, general purpose financial reporting. The purpose of the Conceptual Framework is to:

a) assist the International Accounting Standards Board (Board) to develop IFRS Standards (Standards) that are
based on consistent concepts;
b) assist preparers to develop consistent accounting policies when no Standard applies to a particular transaction or
other event, or when a Standard allows a choice of accounting policy; and
c) assist all parties to understand and interpret the Standards.

The Conceptual Framework is not a Standard. Nothing in the Conceptual Framework overrides any Standard or any
requirement in a Standard.

The objective of general-purpose financial reporting is to provide financial information about the reporting entity that is
useful to existing and potential investors, lenders and other creditors in making decisions relating to providing resources
to the entity.

Primary Users
The primary users of the general-purpose financial reporting are the present and potential investors, lenders and other
creditors, who use that information to make decisions about buying, selling or holding equity or debt instruments and
providing or settling loan or other forms of credit.

The primary users need information about the resources of the entity not only to assess an entity’s prospects for future
cash inflows but also how effectively and efficiently management has discharged their responsibilities to use the entity’s
existing resources.

The Framework notes that the general-purpose financial reports cannot provide all the information that users may need to
make economic decisions. They will need to consider pertinent information from other sources as well.

Other Users
Some parties, like the management, regulators, etc., may find the general-purpose financial reports useful. However, they
are not considered primary users and the general-purpose financial reports are not primarily directed for them.

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Information about a reporting entity’s economic resources, claims against the entity and changes in resources
and claims.

General purpose financial reports provide information about the financial position of a reporting entity, which is information
about the entity’s economic resources and the claims against the reporting entity. Financial reports also provide information
about the effects of transactions and other events that change a reporting entity’s economic resources and claims. Both
types of information provide useful input for decisions relating to providing resources to an entity.

Economic resources and claims

Information about the nature and amounts of a reporting entity’s economic resources and claims can help users to identify
the reporting entity’s financial strengths and weaknesses. That information can help users to assess the reporting entity’s
liquidity and solvency, its needs for additional financing and how successful it is likely to be in obtaining that financing.
That information can also help users to assess management’s stewardship of the entity’s economic resources. Information
about priorities and payment requirements of existing claims helps users to predict how future cash flows will be distributed
among those with a claim against the reporting entity.

Changes in economic resources and claims

Changes in a reporting entity’s economic resources and claims result from that entity’s financial performance and from
other events or transactions such as issuing debt or equity instruments. To properly assess both the prospects for future
net cash inflows to the reporting entity and management’s stewardship of the entity’s economic resources, users need to
be able to identify those two types of changes.

Financial performance reflected by accrual accounting

Accrual accounting depicts the effects of transactions and other events and circumstances on a reporting entity’s economic
resources and claims in the periods in which those effects occur, even if the resulting cash receipts and payments occur
in a different period. This is important because information about a reporting entity’s economic resources and claims and
changes in its economic resources and claims during a period provides a better basis for assessing the entity’s past and
future performance than information solely about cash receipts and payments during that period.

Financial performance reflected by past cash flows

Information about a reporting entity’s cash flows during a period also helps users to assess the entity’s ability to generate
future net cash inflows and to assess management’s stewardship of the entity’s economic resources. That information
indicates how the reporting entity obtains and spends cash, including information about its borrowing and repayment of
debt, cash dividends or other cash distributions to investors, and other factors that may affect the entity’s liquidity or
solvency. Information about cash flows helps users understand a reporting entity’s operations, evaluate its financing and
investing activities, assess its liquidity or solvency and interpret other information about financial performance.

Changes in economic resources and claims not resulting from financial performance
A reporting entity’s economic resources and claims may also change for reasons other than financial performance, such
as issuing debt or equity instruments. Information about this type of change is necessary to give users a complete
understanding of why the reporting entity’s economic resources and claims changed and the implications of those changes
for its future financial performance.

1. A conceptual framework for financial reporting is:

a. A statement of financial accounting standards that deal with the presentation of financial statements.
b. An embodiment of generally accepted accounting principles that guide users of financial statements in
assessing the reliability of financial statements.
c. A basic accounting assumption that guides the accountants in the preparation of financial statements.
d. A theoretical foundation that guides the FRSC, preparers, and users of financial accounting information
in the preparation and presentation of financial statements.

2. The revision of the Conceptual Framework

a. Are no longer expected after the release of the new Conceptual Framework
b. Will not automatically lead to changes to the standard
c. Will automatically led to changes to the standard
d. Are expected to occur at least every 5 years

3. The IASB issued a Revised Conceptual Framework because the old version is:
a. No longer applicable
b. No longer useful
c. No longer relevant
d. Useful, but needed improvements
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4. What is the authoritative status of the Conceptual Framework?

a. The Framework applies when FRSC develops new or revised Standards. An enterprise is never required
to consider the framework.
b. It has the highest level of authority. In case of a conflict between the Framework and s Standard or
Interpretation, the Framework overrides the Standard or Interpretation.
c. If there is a Standard or Interpretation that specifically applies to a transaction, it overrides the
Framework. In the absence of a Standard or an Interpretation that specifically applies, the Framework
should be followed.
d. If there is a Standard or Interpretation that specifically applies to a transaction, management should
consider the applicability of the Framework in developing and applying an accounting policy which results
in information that is relevant and reliable.

5. Which of the following remained unchanged in the 2018 Conceptual Framework?

a. Presentation and disclosure
b. The reporting entity
c. Concepts of capital and capital maintenance
d. Derecognition

6. The underlying theme of the Conceptual Framework is

a. comparability. c. timeliness.
b. decision usefulness d. understandability.

7. Which of the following is not a benefit associated with the Conceptual Framework?
a. A coherent set of accounting standards and rules should result.
b. Practical problems should be more quickly solvable by reference to an existing conceptual framework.
c. A conceptual framework should increase financial statement users’ understanding and confidence in
financial reporting.
d. Business entities will need far less assistance from accountants because the financial reporting process
will be quite easy to apply.

8. What is a major objective of financial reporting?

a. To provide information that excludes claims to the resources.
b. To provide information that clearly portrays nonfinancial transactions.
c. To provide information that is useful to management in making decisions.
d. To provide information that is useful to assess the amounts, timing, and uncertainty of prospective cash
receipts.

9. One element of the objective of financial reporting is to provide information

a. that will attract new investors.
b. about the investors in the entity.
c. that is useful in assessing cash flows prospects.
d. about the liquidation value of the resources held by the entity.

10. Which of the following is an implication of the going concern assumption?

a. The historical cost principle is credible.
b. Depreciation and amortization policies are justifiable and appropriate.
c. The current-noncurrent classification of assets and liabilities is justifiable and significant.
d. All of these are an implication of going concern.

2.1.2. Qualitative characteristics of a useful financial information

If financial information is to be useful, it must be relevant and faithfully represent what it purports to represent. The
usefulness of financial information is enhanced if it is comparable, verifiable, timely and understandable.

Fundamental qualitative characteristics

The fundamental qualitative characteristics are relevance and faithful representation.

Relevance
Relevant financial information is capable of making a difference in the decisions made by users. Information may be
capable of making a difference in a decision even if some users choose not to take advantage of it or are already aware
of it from other sources. Financial information is capable of making a difference in decisions if it has predictive value,
confirmatory value or both.
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Materiality
Information is material if omitting it or misstating it could influence decisions that the primary users of general-purpose
financial reports make on the basis of those reports, which provide financial information about a specific reporting entity.
In other words, materiality is an entity-specific aspect of relevance based on the nature or magnitude, or both, of the items
to which the information relates in the context of an individual entity’s financial report.

Faithful representation
Financial reports represent economic phenomena in words and numbers. To be useful, financial information must not only
represent relevant phenomena, but it must also faithfully represent the substance of the phenomena that it purports to
represent. In many circumstances, the substance of an economic phenomenon and its legal form are the same. If they are
not the same, providing information only about the legal form would not faithfully represent the economic phenomenon.

Enhancing qualitative characteristics

Comparability, verifiability, timeliness and understandability are qualitative characteristics that enhance the usefulness of
information that both is relevant and provides a faithful representation of what it purports to represent. The enhancing
qualitative characteristics may also help determine which of two ways should be used to depict a phenomenon if both are
considered to provide equally relevant information and an equally faithful representation of that phenomenon.

Comparability
Comparability is the qualitative characteristic that enables users to identify and understand similarities in, and differences
among, items. Unlike the other qualitative characteristics, comparability does not relate to a single item. A comparison
requires at least two items. Comparability is not uniformity. For information to be comparable, like things must look alike
and different things must look different. Comparability of financial information is not enhanced by making unlike things look
alike any more than it is enhanced by making like things look different.

Verifiability
Verifiability helps assure users that information faithfully represents the economic phenomena it purports to represent.
Verifiability means that different knowledgeable and independent observers could reach consensus, although not
necessarily complete agreement, that a particular depiction is a faithful representation. Quantified information need not be
a single point estimate to be verifiable. A range of possible amounts and the related probabilities can also be verified.

Timeliness
Timeliness means having information available to decision-makers in time to be capable of influencing their decisions.
Generally, the older the information is the less useful it is. However, some information may continue to be timely long after
the end of a reporting period because, for example, some users may need to identify and assess trends.

Understandability
Classifying, characterizing and presenting information clearly and concisely makes it understandable. Some phenomena
are inherently complex and cannot be made easy to understand. Excluding information about those phenomena from
financial reports might make the information in those financial reports easier to understand. However, those reports would
be incomplete and therefore possibly misleading. Financial reports are prepared for users who have a reasonable
knowledge of business and economic activities and who review and analyze the information diligently. At times, even well-
informed and diligent users may need to seek the aid of an adviser to understand information about complex economic
phenomena.

The cost constraint on useful financial reporting

Cost is a pervasive constraint on the information that can be provided by financial reporting. Reporting financial information
imposes costs, and it is important that those costs are justified by the benefits of reporting that information. There are
several types of costs and benefits to consider.
11. Which of the following is a fundamental quality of useful accounting information?
a. Comparability. c. Materiality.
b. Consistency. d. Relevance.

12. To achieve faithful representation, the financial statements

a. must have predictive and confirmatory value.
b. are comparable, understandable, verifiable and timely.
c. must be complete, neutral and reasonably free from error.
d. All of these would achieve faithful representation.

13. To be relevant, the financial statements

a. Must have predictive and confirmatory value.
b. Are complete, neutral and free from bias and error.
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c. Are comparable, understandable, verifiable and timely.
d. All of these.

14. Which of the following statements is false concerning the enhancing qualitative characteristics?
a. Verifiability means that different knowledgeable and independent observers could reach different conclusions
b. Timeliness means having information available to decision-makers in time to be capable of influencing their
decisions
c. Comparability of financial information is not enhanced by making unlike things look alike any more than it is
enhanced by making like things look different.
d. Financial reports are prepared for users who have a reasonable knowledge of business and economic
activities and who review and analyze the information diligently

15. Which statement is incorrect concerning the qualitative characteristic of relevance?

a. The relevance of information is affected by its nature and materiality
b. To be useful, information must be relevant to the decision-making needs of users
c. Information about financial position and past performance is frequently used as basis for predicting future
financial position and performance and other matters such as dividend and wage payments and ability of the
entity to meet its financial commitments as they fall due.
d. The predictive value and confirmatory roles of information are not interrelated

16. The enhancing qualitative characteristics of financial reporting are

a. cost-benefit and materiality.
b. relevance, reliability and faithful representation.
c. completeness, neutrality, and freedom from error.
d. comparability, verifiability, timeliness and understandability.

17. Where is materiality not used in providing financial information?

a. Determining the level of disclosure.
b. Applying the going concern assumption.
c. Applying the revenue recognition principle.
d. Determining what items to include in the financial statements.

18. Which of the following is true regarding the cost-benefit constraint?

a. Benefits are more difficult to quantify than costs.
b. The IASB seeks inputs on costs and benefits as part of due process.
c. Benefits to preparers may include access to capital at a lower cost.
d. All of the choices are correct.

19. Which of the following is a benefit of providing financial information?

a. Auditing. c. Improved allocation of resources.
b. Disclosure to competition. d. Potential litigation

2.1.3. Definition of, recognition and derecognition criteria and measurement bases for the elements of
the financial statements

The objective of financial statements is to provide financial information about the reporting entity’s assets, liabilities, equity,
income and expenses that is useful to users of financial statements in assessing the prospects for future net cash inflows
to the reporting entity and in assessing management’s stewardship of the entity’s economic resources

That information is provided:

a) in the statement of financial position, by recognizing assets, liabilities and equity;

b) in the statement(s) of financial performance, by recognizing income and expenses; and
c) in other statements and notes, by presenting and disclosing information about:
i. recognized assets, liabilities, equity, income and expenses, including information about their nature and
about the risks arising from those recognized assets and liabilities;
ii. assets and liabilities that have not been recognized, including information about their nature and about the
risks arising from them;
iii. cash flows;
iv. contributions from holders of equity claims and distributions to them; and
v. the methods, assumptions and judgments used in estimating the amounts presented or disclosed, and
changes in those methods, assumptions and judgments

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Financial statements
A particular form of financial reports that provide information about the reporting entity’s assets, liabilities, equity, income,
and expenses.

Consolidated – provide information about the assets, liabilities, equity, income, and expenses of both the parent and its
subsidiaries as a single reporting entity.

Unconsolidated – provide information about the assets, liabilities, equity, income, and expenses of the parent only.

Combined – provide information about the assets, liabilities, equity, income, and expenses of two or more entities that are
not linked by a parent-subsidiary relationship.

Reporting period
Financial statements are prepared for a specified period of time (reporting period) and provide information about:

a. assets and liabilities—including unrecognized assets and liabilities—and equity that existed at the end of the
reporting period, or during the reporting period; and

b. income and expenses for the reporting period.

Perspective adopted in financial statements

Financial statements provide information about transactions and other events viewed from the perspective of the reporting
entity as a whole, not from the perspective of any particular group of the entity’s existing or potential investors, lenders or
other creditors.

Going concern assumption

Financial statements are normally prepared on the assumption that the reporting entity is a going concern and will continue
in operation for the foreseeable future. Hence, it is assumed that the entity has neither the intention nor the need to enter
liquidation or to cease trading. If such an intention or need exists, the financial statements may have to be prepared on a
different basis. If so, the financial statements describe the basis used.

The Reporting Entity

A reporting entity is an entity that is required, or chooses, to prepare financial statements. A reporting entity can be a single
entity or a portion of an entity or can comprise more than one entity. A reporting entity is not necessarily a legal entity.

The elements of financial statements defined in the Conceptual Framework are:

a. assets, liabilities and equity, which relate to a reporting entity’s financial position; and
b. income and expenses, which relate to a reporting entity’s financial performance.

Recognition
Recognition is the process of capturing for inclusion in the financial statements an item that meet the definition of an asset,
liability, equity, income, and expense. Recognition is appropriate if it results in both relevant information and a faithful
representation of those information.

Derecognition
Derecognition is the removal of all or part of a recognized asset or liability from an entity’s statement of financial position.

Derecognition normally occurs when that item no longer meets the definition of an asset or a liability:
a. for an asset, derecognition normally occurs when the entity losses control of all or part of the recognized asset.
b. for a liability, derecognition normally occurs when the entity has a present obligation for all or part of the recognized
liability.

Measurement bases for financial statement elements

• Historical cost – normally the acquisition cost of an item.
• Current value – refer to the following:
o Fair value
o Value in use (for asset) & fulfillment value (for liability)
o Current cost

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20. Liabilities are
a. deferred credits.
b. any accounts with credit balances.
c. obligations to transfer ownership shares to other entities in the future.
d. present obligations arising from past events and result in an outflow of resources.

21. It is defined as increase in economic benefits during the accounting period in the form of inflows or enhancements
of assets or decreases in liabilities that result in increases in equity, other than those relating to contributions from
equity participants.
a. Gain. c. Profit.
b. Income. d. Revenue.

22. Under Philippine Financial Reporting Standards

a. the cash basis of accounting is accepted.
b. events are recorded in the period in which the event occurs.
c. net income will be lower under the cash basis than accrual basis accounting.
d. all of the choices are correct.

23. Under the Conceptual Framework for Financial Reporting which of the following statements is not a feature of
financial information’s “comparability” characteristics?
a. Comparability is uniformity.
b. A comparison requires at least two items.
c. Consistency, although related to comparability, is not the same.
d. Comparability is the goal; consistency helps to achieve that goal.

24. When fair value is used in measuring assets in the financial statements, current GAAP provides following
references as basis of fair value, except
a. Price in active market.
b. Price in recent transaction.
c. Price taken from industry or sector benchmarks.
d. Price based on assessed value of government bodies.

25. According to the IASB Framework for the preparation and presentation of financial statements, which TWO of
the following are examples of expenses?

I. A loss on the disposal of a non-current asset

II. A decrease in equity arising from a distribution to equity participants
III. A decrease in economic benefits during the accounting period
IV. A reduction in income for the accounting period

A. I and II C. II and III

B. I and III D. III and IV

26. Which of the following best describes the distinction between expenses and losses?
a. Losses are material items whereas expenses are immaterial items
b. Losses are extraordinary charges whereas expenses are ordinary charges
c. Losses are reported net-of-related-tax effect whereas expenses are not reported not-of-tax
d. Losses results from peripheral or incidental transactions whereas expenses result from ongoing major or
central operations of the entity

27. Under the Conceptual Framework of Financial Reporting, users of financial information may be classified into
a. Heavy users (management) and slight users (public, government).
b. Primary users (existing and potential investors and creditors) and other users.
c. Internal users (employees, customers) and external users (investors, creditors).
d. Main users (existing investors, creditors) and incidental users (potential investors, creditors)

28. Which of the following is not within the scope of the Conceptual Framework?
a. Objectives of financial statements
b. Nature and definition of the elements of financial statements
c. Qualitative characteristics that make financial statements useful to the users
d. Form of presentation of financial statements

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29. Which of the following statements about materiality is not correct?
a. An item must make a difference or it need not be disclosed.
b. Materiality is a matter of absolute size.
c. An item is material if omitting, misstating or obscuring it could reasonably be expected to influence the
economic decision of primary users.
d. Materiality is a sub-quality of relevance.

30. What is meant by comparability when discussing financial accounting information?

a. Information has predictive and feedback value.
b. Information is reasonably free from error.
c. Information is measured and reported in a similar fashion across entities.
d. Information is timely.

31. Which statement is true about a reporting entity?

a. A reporting entity is an entity that is required or chooses to prepare financial statements.
b. A reporting entity can be a single entity or a portion of that entity or can comprise more than one entity.
c. A reporting entity is not necessarily a legal entity.
d. All of these statements are true about a reporting entity.

32. Which statement is true about financial statements of a reporting entity?

a. If the reporting entity comprises both the parent and its subsidiaries, the financial statements are referred to
as consolidated financial statements.
b. If the reporting entity is the parent alone, the financial statements are referred to as unconsolidated financial
statements.
c. If the reporting entity comprises two or more entities that are not linked by a parent-subsidiary relationship,
the financial statements are referred to as combined financial statements.
d. All of these statements are true about the financial statements of a reporting entity.

33. Under the Conceptual Framework, recognition of assets, liabilities, equity, Income and expenses is appropriate
if (select the best answer).
a. It is both probable and not necessarily measurable.
b. It is probable or measurable, but not both
c. It results in both relevant information and faithful representation of the related item
d. It results in relevant information or faithful representation of the related item, but not both

34. What is the new definition of an asset under the Revised Conceptual Framework?
a. A resource controlled by the entity as a result of past event and from which future economic benefit is expected
to flow to the entity.
b. A resource controlled by the entity and from which future economic benefit is expected to flow to the entity.
c. A present economic resource controlled by the entity as a result of past event.
d. A present economic resource controlled by the entity as a result of past event and from which future economic
benefit is expected to flow to the entity.

35. What is the new definition of liability under the Revised Conceptual Framework?
a. A present obligation of the entity arising from past event the settlement of which is expected to result in an
inflow of economic benefit.
b. A present obligation of the entity arising from present event.
c. A present obligation of the entity to transfer an economic resource as a result of past event.
d. An obligation that the entity has practical ability to avoid.

36. Which statement is not true about income and expenses?

a. Income is increase in asset or decrease in liability that results in increase in equity other than that relating to
contribution from equity holders.
b. Expense is decrease in asset or increase in liability that results in decrease in equity other than that relating
to distribution to equity holders.
c. Income and expenses are the elements that relate to financial position.
d. Income encompasses revenue and gain.

37. Under the Revised Conceptual Framework, what is the recognition principle?
a. It is probable that any future economic benefit associated with the item will flow to or from the entity.
b. The item has a cost or value that can be measured with reliability.
c. It is probable that any future economic benefit will flow to or from the entity and the element can be measured
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reliably.
d. Only items that meet the definition of an asset, liability, equity, income and expense are recognized.

38. Which statement is not true about derecognition?

a. Derecognition is the removal of a recognized asset or liability from the statement of financial position.
b. Derecognition is the removal of a recognized income or expense from the income statement.
c. Derecognition for an asset normally occurs when the entity loses control of the recognized asset.
d. Derecognition for a liability normally occurs when the entity no longer has a present obligation for the
recognized liability.

39. The highest consideration to apply in selecting a measurement base is

a. Usefulness to users
b. Financial Performance
c. Financial position of the reporting entity
d. Professional Judgment of Management

40. Under the Revised Conceptual Framework, the measurement bases include:
a. Historical cost
b. Current value
c. Assessed value
d. Historical cost & current value

41. Current value includes:

a. Current cost and fair value
b. Value in use and fulfillment value
c. Fair value and value in use
d. Current cost, fair value, value in use & fulfillment value

42. Which statement is true about current value measurement?

a. Fair value of an asset is the price that would be received to sell an asset in an orderly transaction between
market participants at the measurement date.
b. Value in use is the present value of the cash flows expected to be derived from the use and ultimate disposal
of an asset.
c. Fulfillment value is the present value of the cash expected to be transferred for the payment of liability.
d. All of these statements are true about current value measurement.

43. The term "revenue recognition" conventionally refers to

a. The process of identifying transactions to be recorded as revenue in an accounting period.
b. The process of measuring and relating revenue and expenses of an entity for an accounting period.
c. The earning process which gives rise to revenue realization.
d. The process of identifying those transactions that result in an inflow of assets from customers.

44. Financial statements portray the financial effects of the transactions and other events by grouping them into broad
classes according to their economic characteristics. These broad classes are termed as the:
a. Accounting constraints
b. Elements of financial statements
c. Features of accounting
d. Concepts of capital and capital maintenance

45. Which of the following is not an acceptable basis for the recognition of expense?
a. Systematic and rational allocation
b. Immediate recognition
c. Cause and effect association
d. Profit Maximization

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2.1.4. Concepts of capital and capital maintenance

Concepts of Capital

Financial Capital
A financial concept of capital is adopted by most entities in preparing their financial statements. Under a financial concept
of capital, such as invested money or invested purchasing power, capital is synonymous with the net assets or equity of
the entity.

Physical Capital
Under a physical concept of capital, such as operating capability, capital is regarded as the productive capacity of the
entity based on, for example, units of output per day.

Concepts of Capital Maintenance

Financial capital maintenance

Under this concept a profit is earned only if the financial (or money) amount of the net assets at the end of the period
exceeds the financial (or money) amount of net assets at the beginning of the period, after excluding any distributions to,
and contributions from, owners during the period. Financial capital maintenance can be measured in either nominal
monetary units or units of constant purchasing power.

Physical capital maintenance

Under this concept a profit is earned only if the physical productive capacity (or operating capability) of the entity (or the
resources or funds needed to achieve that capacity) at the end of the period exceeds the physical productive capacity at
the beginning of the period, after excluding any distributions to, and contributions from, owners during the period.

46. Which capital maintenance concept is applied to net income and other comprehensive income?
a. Financial capital
b. Physical capital
c. Financial capital for net income and physical capital for other comprehensive income
d. Physical capital for net income and financial capital for other comprehensive income

47. Financial capital is defined as the

a. Net assets or equity of an entity in monetary terms.
b. Net assets or equity of an equity in terms of physical productive capacity
c. Legal capital
d. Share capital issued and outstanding.

48. What are the two capital concepts included in the scope of the Conceptual Framework?
a. Financial and physical capital
b. Accounting and economic capital
c. Borrowed and invested capital
d. Monetary and non-monetary capital

49. Which of the following statements is INCORRECT concerning the concept of capital?
a. The selection of the appropriate concept of capital should be based on the needs of the users of the financial
information.
b. A financial capital concept is adopted if the users are primarily concerned with the maintenance of nominal
invested capital or purchasing power of invested capital.
c. A physical capital concept is adopted if the main concern of the users is the operating capacity of the entity.
d. A physical capital concept is adopted by most entities in preparing their financial statements.

50. What is not a purpose of the IASB’s Revised Conceptual Framework?

a. To assist the International Accounting Standards Board (Board) to develop IFRS Standards (Standards) that
are based on consistent concepts
b. To assist auditors in forming an opinion as to whether financial statements conform to generally accepted
accounting principles
c. To assist preparers to develop consistent accounting policies when no Standard applies to a particular
transaction or other event, or when a Standard allows a choice of accounting policy
d. To assist all parties to understand and interpret the Standard

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