Romblon State University
College of Business and Accountancy
Liwanag, Odiongan, Romblon
Midterm Examination
Acctg 3 – Conceptual Frameworks and Accounting Standards
A.Y. 2021-2022
Name:
Course:
Instruction: Encircle the letter of the best possible answer.
1. What is the law regulating the practice of accountancy in the Philippines?
a. R.A. No. 9298
b. R.A. No. 9198
c. R.A. No. 9928
d. R.A. No. 9892
2. The qualifications of the members of the Board of Accountancy include all of the
following, except
a. Must be a natural-born citizen and a resident of the Philippines
b. Must be duly registered CPA with at least ten years of work experience in any
scope of practice of accountancy
c. Must be of good moral character and must not have been convicted of crime
involving moral turpitude
d. Must have any pecuniary interest, directly or indirectly, in any school conferring
an academic degree necessary for admission to the practice of accountancy.
3. The continuing Professional Development is required for
a. Renewal of CPA
b. Accreditation to practice the accountancy profession
c. Both renewal of CPA license and accreditation to practice the accountancy
profession
d. Neither renewal of CPA license nor accreditation to practice the accountancy
profession
4. Which is the accounting standard setting body in the Philippines at the present time?
a. Accounting Standards Council
b. Auditing and Assurance Standards Council
c. Philippine Accounting Standards Council
d. Financial Reporting Standards Council
5. Proper application of accounting principles is most dependent upon
a. Existence of specific guidelines
b. Oversight of regulatory bodies
c. External audit function
d. Professional judgment of the accountant
6. What is the authoritative status of the framework?
a. It has the highest level of authority. In case of conflict between the Framework
and a Standard or Interpretation, the Framework overrides the Standards or
Interpretation.
b. 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
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 to a transaction, management
d. The Framework applies only when FRSC develops new or revised standards. An
entity is never required to consider the Framework.
7. The Framework shall assist in promoting harmonization of regulations, accounting
standards and procedures relating to the presentation of financial statements by:
a. Eliminating all alternative accounting treatments found in the Philippine
Accounting Standards.
b. Providing a basis for reducing the number of alternative accounting treatments
permitted by the Philippine Accounting Standards
c. Establishing a preferred or benchmark treatment among acceptable accounting
treatments for a transaction, event or condition.
d. Allowing preparers of financial statements to apply different accounting
treatments for similar transactions, events or condition.
8. 1st statement: The Conceptual Framework is not a standard.
2nd Statement: In the event of conflict between a Standard and the Framework, the
Framework should be followed.
a.
b.
c.
d.
True;True
True;False
False;False
False;True
9. Precluded from the scope of the framework
a. Concepts of capital and capital maintenance
b. Objectives of financial reporting
c. Qualitative characteristics
d. Standards for financial reporting
10. The Conceptual Framework should
a. Lead to infirmity of financial statements among entities within the same industry
b. Eliminate alternative accounting principles and methods
c. Guide the PICPA in developing generally accepted accounting principles
d. Define the basic objectives, terms and concepts of accounting
11. The primary qualitative characteristics are
a. Relevance and reliability
b. Understandability and comparability
c. Relevance, reliability and understandability
d. Relevance, reliability, understandability and comparability
12. The ingredients of relevance include all of the following, except
a. Predictive value
b. Feedback value
c. Timeliness
d. Prudence
13. Which requires that information not be biased in favor of one group of users to the
detriment of others?
a. Relevance
b. Reliability
c. Verifiability
d. Neutrality
14. Conservatism is best described as selecting an alternative that
a. Understates asset and net income
b. Has the least favorable impact on owner’s equity
c. Overstates liability
d. Is least likely to mislead users of financial information
15. Which statement is incorrect concerning materiality?
a. The relevance of information is affected by its nature and materiality
b. Information is material if its omission or misstatement could influence the
economic decision of users taken on the basis of the financial statements
c. Materiality depends on the size of the item or error judged in the particular
circumstances of its omission or misstatement
d. Materiality provides a threshold or cutoff point for useful information and therefore
a primary qualitative characteristic.
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 known as identification.
a. I and V
b. I, II, VI and V
c. I, II, III, IV and V
d. II, VI and V
17. 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
18. 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
19. 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
20. Which of the following events is considered as an external event?
a. production
b.
c.
d.
e.
payment of taxes
gifts and charitable contributions
provision of capital by owners
b, c and d
21. Financial statements portray the financial effects of transactions and other events by
grouping them into broad classes according to their economic characteristics. These
broad classes are termed as the
a. Elements of financial statements
b. Features of accounting
c. Accounting constraints
d. Concepts of capital and capital maintenance
22. Based on the new definition of asset, an asset is recognized in the statement of financial
position when
I. It is a result of past events where the entity has control now.
II. It is probable that the future economic benefits will flow to the entity.
III. The asset has a cost or value that can be measured reliably.
a.
b.
c.
d.
I only
I and II only
Both II and III
All of the above
23. When products or other assets are exchanged for cash or claims for cash, they are said
to be
a. Allocated
b. Realized
c. Recognized
d. Earned
24. Which of the following would most likely result to the recognition of a liability?
a. Customers become entitled to rebates for their past purchases
b. Intention to acquire inventories in a future period
c. Entering into a purchase contract for future delivery
d. Agreeing on an irrevocable future commitment that is not burdensome at present
25. Which of the following is not an element that is directly related to the measurement of
an entity’s financial position
a. Assets
b. Liabilities
c. Equity
d. Income
26. It is the process of capturing for inclusion in the financial statements an item that meets
the definition of the elements of financial statements
a. Recognition
b. Measurement
c. Classifying
d. Derecognition
27. An item is recognized in the financial statements if
a. It is probable that economic benefits will flow to or from the entity
b. It meets the definition of an asset, liability, equity, income and expenses
c. The entity has ownership of such item
d. It is probable that economic benefits will flow to or from the entity and that the
cost can be measured reliably.
28. Recognition of an element is appropriate when information results in
a. Relevance
b. Faithful representation
c. Both relevance and faithful representation
d. Neither relevance nor faithful representation
29. It is the removal of all or part of a recognized asset or liability from the statement of
financial position
a. Write off
b. Derecognition
c. Extinguishment
d. Retirement
30. Derecognition normally occurs when
a. An item no longer meets the definition of an asset or a liability
b. The entity loses control of the asset
c. The entity no longer has a present obligation for the liability
d. Under all of these circumstances.
31. 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
32. 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
33. 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 overall 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.
34. 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 entities, rather than to industries of the economy as a whole or to
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
35. 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
36. 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.
37. 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.
38. Which of the following is not a required disclosure under PAS 1?
a. The financial effect of a departure from a PFRS 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.
39. 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.
40. 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
41. 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
42. 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
43. A firm signs a major contract in December to construct custom machinery for a client.
No work has begun in the current year yet the footnotes to the firm’s financial
statements discuss the nature and peso amount of the contract. This is an example of
a.
b.
c.
d.
Reliability
Full disclosure
Historical cost
Conservatism
44. According to the Conceptual Framework, the needs of 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
45. 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
46. A ten-year bond was issued at par for 150,000 cash. This transaction should be shown on
a statement of cash flows under
a. Investing activities
b. Financing activities
c. Noncash investing and financing activities
d. Operating activities
47. The financial statement which summarizes operating, investing, and financing activities
of an activity for a period of time is the
a. Retained earnings statement
b. Income statement
c. Statement of cash flows
d. Statement of financial position
48. The statement of cash flows provides answers to all of the following questions, except
a. Where did the cash come from during the period?
b. What was the cash used for during the period?
c. What is the impact of inflation on the cash balance at the end of the year?
d. What was the change in the cash balance during the period?
49. The net income reported on the income statement for the current year was 275,000.
Depreciation recorded on fixed assets and amortizations of patents for the year were
40,000 and 9,000, respectively. Balances of current asset and current liability accounts
at the end and at the beginning of the year are as follows:
Cash
Accounts receivable
Inventories
Prepaid expense
Prepaid expenses
End
50,000
112,000
105,000
4,500
4,500
Beginning
60,000
108,000
93,000
93,000
6,500
Accounts
payable 75,000
(merchandise creditors)
89,000
What is the amount of cash flows from operating activities reported on the statement of
cash flows prepared by the indirect method?
a. 198,000
b. 324,000
c. 352,000
d. 296,000
Guide:
Net income
Add
back
any
depreciation
and
amortization (reason: deducted from
income but not a cash flow transaction)
Add any increase in accounts payable or
decrease
in
accounts
receivable,
inventories, and prepaid expenses.
Deduct any decrease in accounts payable
or increase in accounts receivable,
inventories, and prepaid expenses.
50. The following information is available from the current period financial statements:
Net income
140,000
Depreciation expense
28,000
Increase in accounts receivable
16,000
Decrease in accounts payable
21,000
What PAS covers the preparation of Statement of Cash flows and what is the net cash
flow from operating activities using the indirect method is?
a.
b.
c.
d.
PAS7; 131,000
PAS2; 163,000
PAS7;107,000
PAS7;205,000
51. 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
52. 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. level of rounding-off of amounts in the financial statements.
53. According to PAS 8, these are specific principles, bases, conventions, rules and
practices applied by an entity in preparing and presenting financial statements
a. Accounting policies
b. Accounting estimates
c. Accounting standards
d. Accounting assumptions
54. A change in the pattern of consumption of economic benefits from an asset is most
likely a
a. Change in accounting policy
b. Change in accounting estimate
c. Error
d. Any of these
55. PAS 8 permits a change in accounting policy only if the change
a. Is required by a PFRS
b. Results in reliable and more relevant information
c. A or B
d. PAS 8 does not permit a change in accounting policy
56. According to PAS 10, these are those events, favorable and unfavorable, that occur
between the end of the reporting period and the date when the financial statements
are authorized for issue.
a.
Events after the reporting period
c. Adjusting events
b.
Non-adjusting events
d. all of these
57. The Sarin Company's financial statements for the year ended 30 April 20X8 were
approved by its finance director on 7 July 20X8 and a public announcement of its profit
for the year was made on 10 July 20X8. The board of directors authorised the financial
statements for issue on 15 July 20X8 and they were approved by the shareholders on 20
July 20X8. Under PAS 10, after what date should consideration no longer be given as to
whether the financial statements to 30 April 20X8 need to reflect adjusting and nonadjusting events?
a.
7 July 20X8
b.
10 July 20X8
c.
15 July 20X8
d.
20 July 20X8
58. Which of the following is an example of a non-adjusting event?
a.
Sale of inventory for less than its carrying value shortly after the reporting period
b.
Amounts received in respect of an insurance claim being negotiated at the
period end
c.
Destruction of a machine by fire after the reporting period
d.
Bankruptcy of a major customer with a balance owing at the period end
59. One of Entity A’s delivery trucks had an accident on February 14, 20x2. The truck is totally
wrecked and is uninsured. Entity A’s December 31, 20x1 current-period financial
statements were authorized for issue on March 31, 20x2. Entity A asked you if it can writeoff the carrying amount of the destroyed truck from its December 31, 20x1 statement of
financial position. What will you tell Entity A?
a.
Yes, go ahead. Write-off the truck because the event is an adjusting event.
b.
No. Don’t write-off the truck because the event is a non-adjusting event.
c.
No. Don’t write-off the truck because the event is a non-adjusting event. You
should, however, disclose the event if you deem it to be material.
d.
Yes, go ahead. I will support you.
60. Which of the following is most likely to be a non-adjusting event?
a.
A major customer liquidates its business after the end of the reporting period.
b.
The entity announces a major restructuring after the end of the reporting period.
c.
The settlement after the reporting period of a court case that confirms that the
entity has a present obligation at the end of reporting period.
d.
The determination after the reporting period of the cost of asset purchased, or
the proceeds from asset sold, before the end of reporting period.
61. PAS 24 requires a reporting entity to disclose
a. Transactions with its related parties
b. Relationships between parents and subsidiaries irrespective of whether there
have been transactions between those related parties
c. Both a and b
d. Neither a nor b
62. To enable financial statement users to form a view about the effects of related party
transactions, PAS 24 requires certain disclosure to be made. PAS 24 requires a reporting
entity to disclose
a. Name of the entity’s parent and, if different, the ultimate controlling party
b. If neither the entity’s parent nor its ultimate controlling entity produces financial
statements available for public use, then the name of the next most senior parent
that does so
c. Both a and b
d. Neither a nor b.
63. The principal concern with accounting for related party transactions is:
a. Differences between economic substance and legal form
b. The size of the transactions
c. The absence of legally binding contracts
d. The lack of accurate data to record transactions
64. The minimum disclosures prescribed under PAS 24 are to be made separately for certain
categories of related parties. Which of the following is not among the list of categories
specified under the Standard for the purposes of separate disclosure?
a. Entities with joint control or significant influence over the entity
b. The parent company of the entity
c. Joint ventures in which the entity is a venturer
d. An entity that has a common director with the entity.
65. Related parties include
a. Providers of finance
b. Major customers
c. Trade unions
d. Key management personnel and close family members of such individuals
66. 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
67. 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)
Commission to broker
Advertisement costs
15,000
2,000
10,000
How much is the cost of the inventories purchased?
a. 102,000
b. 122,000
c. 97,000
d. 100,000
Use the following information for the next three questions:
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. Inv
100
15
1,500
Feb. 7
Purchase
300
18
5,400
Feb. 12
Sale
320
Feb. 21
Purchase
200
21
4,200
68. How much is the ending inventory under the FIFO cost formula?
a. 6,540
b. 5,840
c. 5,640
d. 4,860
69. How much is the ending inventory under the Weighted Average cost formula? (the
average is calculated on a periodic basis)
a. 5,180
b. 5,280
c. 5,460
d. 5,580
70. How much is the ending inventory under the Weighted Average cost formula? (the
average is calculated as each additional purchase is made, i.e., ‘moving average’.)
a. 5,860
b. 5,680
c. 5,580
d. 5,380
71. Which of the following is most likely an acceptable measurement for agricultural
produce
Initial measurement
Subsequent measurement
a.
b.
c.
d.
fair value less costs to sell
cost
fair value less costs to sell
lower of cost and NRV
fair value
lower of cost and FV less costs to sell
fair value less costs to sell
fair value less costs to sell
72. Biological assets and agricultural produce are recognized when all of the following are
present except
a. control
b. probable future economic benefits
c. probable future event
d. fair value or cost can be measured reliably
73. Which of the following statements is incorrect regarding the accounting for biological
assets?
a. Agricultural land used in growing agricultural produce can never qualify for recognition
as biological asset.
b. Biological asset is living animal or plant.
c. Agricultural produce is harvested product from a biological asset before any
processing.
d. PAS 41 is used to account for both consumable and bearer plants.
74. Which of the following is considered an agricultural produce?
a. eggs to be hatched into chicks
b. condensed milk
c. dairy cow
d. felled trees m
75. Which of the following is considered an inventory rather than an agricultural produce at
the point of harvest?
a. Harvested cotton
b. Harvested cane
c. Tea
d. Picked leaves
76. Estimated liabilities are disclosed in financial statements by
a. Note to the financial statements
b. Showing the amount among the liabilities but not extending to the liability total
c. An appropriation of retained earnings
d. Appropriately classifying them as regular liabilities in the statement of financial
position
77. It is a marketing scheme whereby an entity grants award credits to customers and the
entity can redeem the award credits in exchange for free or discounted goods or
services
a. Customer loyalty program
b. Premium plan
c. Marketing program
d. Loyalty award
78. The award credits granted to customers under a customer loyalty program it offers is
often described as
a. Points
b. Awards
c. Credits
d. Royalty
79. The consideration allocated to the award credits is measured at
a. Fair value of the award credits
b. Carrying amount of goods to be received in exchange
c. Fair value of the goods to be received in exchange
d. The proportion of the fair value of the award credits relative to the total
consideration received from the initial sale of the goods
80. Under a loyalty program, if the entity supplies the awards itself, the consideration
allocated to the award credits
a. Shall be recognized as revenue immediately
b. Shall not be accounted for as revenue separately
c. Shall be recognized initially as deferred revenue and amortized as revenue over
a reasonable period not exceeding five years
d. Shall be recognized initially as deferred revenue and subsequently recognized
as revenue upon the redemption of the award credits