TOA.M-1401. CONCEPTUAL FRAMEWORK AND ACCOUNTING CONCEPTS
MULTIPLE CHOICE QUESTIONS
1.
Technically not part of the Philippine Financial Reporting Standards (PFRS)
A. Philippine Accounting Standards (PASs)
B. Philippine Financial Reporting Standards (PFRSs)
C. Interpretations
D. Conceptual Framework for Financial Reporting
2.
Not a of financial reporting framework
A. PFRS for Small-and-Medium-sized Entities (SMEs)
B. Interpretations by the International Financial Reporting Interpretations Committee
(IFRIC)
C. Interpretations by Standing Interpretations Committee (SIC)
D. Philippine Standards on Auditing (PSAs)
3.
Develops and promulgates accounting standards in the Philippines
A. Accounting Standards Council (ASC)
B. Financial Reporting Standards Council (FRSC)
C. Professional Regulatory Board of Accountancy (PRBOA)
D. Philippine Institute of Certified Public Accountants (PICPA)
4.
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
5.
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. True ; True
C. False ; False
B. True ; False
D. False ; True
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 Standard 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 should consider the
applicability of
the Framework in developing and applying an
accounting policy that results in
information that is relevant and reliable
D. The Framework applies only when FRSC develops new or revised standards. An
entity is never required to consider the Framework
7.
Under PFRS, which of the following is the first step within the hierarchy of guidance to
which management refers, and whose applicability it considers, when selecting
accounting policies?
A. Consider the most recent pronouncements of other standard-setting bodies to the
extent they do not conflict with the PFRS or the Conceptual Framework.
B. Apply a standard from PFRS if it specifically relates to the transaction, other event, or
condition.
C. Consider the applicability of the definitions, recognition criteria, and measurement
concepts in the Conceptual Framework.
D. Apply the requirements in PFRS dealing with similar and related issues.
8.
Per conceptual framework, the objectives of financial reporting for business enterprises
are based on
A. GAAP
C. The need for conservatism
B. Reporting for regulators
D. The needs of the user of information
9.
Per conceptual framework, the relevance of providing information in financial statements
is subject to the constraint of
A. Comparability
C. Reliability
B. Cost-benefit
D. Faithful representation
10.
Precluded from the scope of the framework
A. Concepts of capital and capital maintenance
C. Qualitative characteristics
B. Objectives of financial reporting
D. Standards for financial reporting
11.
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
12.
The framework is intended to establish
A. Generally accepted accounting principles in the financial reporting by business
enterprises
B. The meaning of “present fairly in accordance with generally accepted accounting
principles”
C. The objectives and concepts for use in developing standards of financial accounting
and reporting
D. The hierarchy of sources of generally accepted accounting principles
13.
What is the objective of financial statements according to the Framework?
A. To provide information about the financial position, performance, and changes in
financial position of an entity that is useful to a wide range of users in making
economic decisions
B. To prepare and present a balance sheet, an income statement, a cash flow statement,
and a statement of changes in equity
C. To prepare and present comparable, relevant, reliable, and understandable information
to investors and creditors
D. To prepare financial statements in accordance with all applicable Standards and
Interpretations
14.
The information handed by financial reporting primarily reflects
A. The performance of the individual business enterprises
B. The performance of the individual business enterprises and the economy as whole
C. The performance of the individual business enterprises and the industry within which
it operates
D. The performance of the individual business enterprises, the industry within which it
operates and the economy as whole
15.
External financial statements, according to FRSC Framework for the Preparation and
Presentation of Financial Statements, should provide all of the following information
except
A. Information that is useful to present and potential investors and creditors and other
users in making rational investment, credit, and other decision
B. Information that is comprehensible to those who have reasonable understanding of
business and economic activities and are willing to study the information with
reasonable diligence
C. Information for planning the future of the entity, implementing those plans, and
for controlling daily operations
D. Information about the economic resources of an enterprise, the claims to those
resources and the effects of transactions, events and circumstances that change
resources and claims to those resources
16.
During a period when an enterprise is under the direction of a particular management, its
financial statements will directly provide information about
A. Both enterprise performance and management performance
B. Management performance but not directly provide information about enterprise
performance
C. Enterprise performance but not directly provides information about management
performance
D. Neither enterprise performance nor management performance
17.
Which is not a basic purpose of the conceptual framework?
A. To assist FRSC in developing accounting standards
B. To assist preparers of financial statements in applying accounting standards
C. To assist FRSC in reviewing and adopting International Accounting Standards
D. To assist the BOA in promulgating rules and regulations affecting the practice of
accountancy in the Philippines
18.
Fundamental qualitative characteristics of financial reporting that make information
useful are
A. Relevance and faithful representation
B. Cost-benefit and materiality
C. Comparability, verifiability, timeliness, and understandability
D. Completeness, neutrality, and freedom from error
19.
Enhancing qualitative characteristics of financial reporting that make information more
useful are
A. Verifiability, timeliness, understandability, and time-period
B. Relevance, reliability, and faithful representation
C. Comparability, verifiability, timeliness, and understandability
D. Completeness, neutrality, and freedom from error
20.
It means the capacity to influence or make a difference in decision
A. Relevance
C. Objectivity
B. Reliability
D. Neutrality
21.
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
A. Predictive Value
C. Materiality
B. Confirmatory Value
D. Faithful representation
22.
Faithful representation comprises
A. Predictive value & confirmatory value
B. Comparability, consistency, & confirmatory value
C. Understandability, predictive value, and reliability
D. Completeness, neutrality, and freedom from error
23.
It means that different knowledgeable and independent observers could reach consensus,
although not necessarily complete agreement, that a particular depiction is a faithful
representation
A. Faithful representation
C. Reliability
B. Verifiability
D. Enhancing qualitative characteristics
24.
Which of the following situations violates the concept of reliability?
A. Data on segments having the same expected risks and growth rates are reported to
analysts estimating future profits
B. Financial statements are issued nine months late
C. Management reports to stockholders regularly refer to new projects undertaken, but
the financial statement never report project results
D. Financial statements include property with a carrying amount increased to
management’s estimate of market value
25.
The attributes that make financial information useful
A. Elements of financial statements
B. Qualitative characteristics
C. Concepts of capital and capital maintenance
D. Reporting entity
26.
Primary qualitative characteristics relate to information’s
A. Form
B. Content
C. Presentation
27.
28.
29.
D. Nature
Primary qualitative characteristics
A. Relevance and Understandability
B. Relevance and Reliability
C. Comparability and Understandability
D. Comparability and Reliability
Secondary qualitative characteristics
A. Relevance and Understandability
B. Relevance and Reliability
C. Comparability and Understandability
D. Comparability and Reliability
Not an ingredient of reliability
A. Faithful representation
B. Substance over form
C. Comparability
D. Neutrality
30.
Which of the following regarding understandability is correct?
I. It is assumed that financial reports are prepared for users who have in-depth
knowledge of business and economic activities and who can make through
review and
analysis of the information.
II. Some phenomena which are too complex to understand need not to be presented in
detail in the financial statements
A. I only
C. Both I and II
B. II only
D. Neither I nor II
31.
Not ingredient of reliability
A. Conservatism
B. Prudence
C. Full-disclosure
D. Materiality
32.
Neutrality is an ingredient of (1) Reliability, (2) Relevance
A. (1) Yes, (2) Yes
B. (1) Yes, (2) No C. (1) No, (2) Yes D. (1) No, (2) Yes
33.
It relates to both relevance and reliability
A. Comparability
B. Feedback Value C. Verifiability
D. Timeliness
34.
Understandability is achieved when financial information is clearly and concisely (choose
the exception)
A. Classified B. Presented C. Selected D. Characterized
35.
Which of the following is not a qualitative characteristic of financial statements
according
to the Framework?
A. Materiality
C. Comparability
B. Understandability
D. Relevance
36.
When options and warrants are considered as potential shares in computing diluted
earnings
per share, which specific characteristic is achieved?
A. Completeness
C. Relevance
B. Reliability
D. Substance over form
37.
An entity for which there are users who the financial statements as their major source of
financial information about the entity
A. Reporting entity
C. Partnership
B. Corporate entity
D. Sole proprietorship
38.
Which of the following is not a decision that external users of a company’s financial
information would make?
A. Whether or not to extend credit to the company
B. Whether or not to hold the company’s stock
C. Whether or not the company should add a new product
D. Whether or not to ask for an increase in employee’s benefits during union contract
negotiations
39.
Choose the correct statement.
A. Financial accounting is a social science and cannot be influenced by changes in legal,
political, business and social environments.
B. Financial accounting is an information system designed to provide information
primarily to internal users.
C. General-purpose financial statements must be prepared by a certified public
accountant
D. The preparation of general-purpose financial statements is usually based on the
assumption that the primary users of information are external decision makers.
40.
Not primary users of financial reporting information
A. Existing investors
C. Potential Investors
B. Lenders and other creditors
D. Regulators and government agencies
41.
Which of the following is an internal user of a company’s financial information?
A. Company treasurer
C. Bank lending to the company
B. Stockholder in the company
D. Union representative
42.
Choose the statement that is correct.
A. External decision makers can obtain whatever financial data they need whenever they
need it
B. Accounting information is prepared for and useful to only outside decision makers
C. The members of the Board of Directors are not “external users” of financial
information, but are “internal users” only
D. Managers of an entity are considered to be internal users
43.
Choose the incorrect statement
A. The objective of external financial statements is to communicate the economic effects
of completed transactions and other events in the entity
B. General purpose financial statements were developed primarily because all
outside users have the same information needs
C. The double entry system of accounting has been used for centuries
D. The practice of accounting requires considerable professional judgement
44.
The user approach to financial reporting focuses on which users?
A. Wide range of users
C. Regulatory Bodies
B. Management
D. Providers of finances or capital
45.
The primary users need information about the resources of the entity to
I. Assess an entity’s prospects for future net cash inflows
II. Assess how effectively and efficiently management has discharged their
responsibilities to use the entity’s existing resources (i.e., stewardship)
III. Be used in regulation by prudential and market regulators
A. I and II only
C. I and III only
B. II and III only
D. I, II and III
46.
A primary objective of financial reporting is to
A. Assist investors in analyzing the company
B. Assist suppliers in determining an appropriate discount to offer a particular company
C. Assist investors in predicting cash flows
D. Assist banks to determine an appropriate interest rate for their commercial loans
47.
Existing and potential investors are interested in (choose the exception)
A. Risk and return on their investment
C. Entity’s ability to pay dividends
B. Hold, buy or sell decisions
D. Entity’s stability and profitability
48.
Interested in allocation of resources and the activities of the entities
A. Government and their agencies
C. Employees and unions
B. Public
D. Customers
49.
Interested in information about the trends and recent developments in the prosperity
of the entity and its range of activities
A. Government and its agencies
C. Employees and unions
B. Public
D. Customers
50.
They have an interest in information about the continuance of an entity especially when
they have a long term involvement with or dependent on the entity
A. Government and their agencies
C. Employees and unions
B. Public
D. Customers
51.
Suppliers and other trade creditors are interested in information
A. That enables them to determine whether amounts owing to them will be paid
when due
B. About the continuance of an entity, especially when they have a long-term
involvement with them or are dependent on the entity
C. In order to regulate the activities of the entity, determine taxation policies and
as the basis for national income and similar activities
D. That enables them to determine whether loans and interest thereon will be
paid when due
52.
Concept of capital currently used in the presentation of financial statements
A. Physical
C. Physical and Financial
B. Financial
D. Neither Physical nor Financial
53.
Which is correct regarding physical concept of capital?
A. It is adopted by most entities in preparing their financial statements
B. Capital is synonymous to net assets or equity
C. It is adopted if the users of financial statements are primarily concerned with the
maintenance of nominal invested capital or the purchasing power of invested capital
D. A profit is earned only if the physical capital productive capacity of the entity at the
end of the period exceeds the physical productive capacity at the beginning of the
period, after excluding any transactions with owners.
54.
S1. Assets = Liabilities – Owner’s Equity deals with the performance of the entity
rather that asset valuation
S2. Net assets = Owner’s Equity exemplifies the entity perspective of financial reporting
S3. The proprietary perspective is also called as “wealth concept”
A. True True False
B. True False True C. False True True D. True True True
55.
Fiduciary accounting is an application of
A. Entity concept
B. Fund concept
56.
C. Residual Equity Concept
D. Proprietary Concept
Which of the following statements is incorrect?
A. The accounting theory which explains well the accounting equation “assets –
liabilities = capital” is the proprietary theory
B. Under the entity theory, the major accounting effort is directed toward proper
valuation of assets rather than income determination
C. Strict adherence to the entity concept would not follow a parent company to take up
in its books its proportionate share in the profits and losses of its subsidiaries
D. Under the fund theory, assets represent prospective services to the fund, liabilities
represent restriction against assets of the fund, and invested capital either legal or
financial restrictions on the use of assets
57.
Per Framework, these are the broad classes of events or transactions that are grouped
according to their economic characteristics
A. Elements of financial statements
C. Accountable events
B. Economic transactions
D. Financial statements
58.
Does not constitute a separate major element of financial statement
A. Income
B. Expense
C. Gain
D. Liability
59.
The process of incorporating in the statement of financial position or comprehensive
income an item that meets the definition of an element and satisfies the following
criteria for recognition
A. Journalizing
B. Recognition
C. Acounting
D. Recording
60.
Per Framework: the removal of an account balance from the books of accounts
A. Write-off
B. Derecognition
C. Retirement
D. Disposal
61.
These are increases in economic benefits during the accounting period in the form of
inflows or enchantments of assets or decreases of liabilities that result in increases in
equity, other than those relating to contributions from equity participants
A. Eqiuty
B. Asset
C. Cash
D. Income
62.
A resource controlled by the entity as a result of past events and from which future
economic benefits are expected to flow to the entity
A. Equity
B. Asset
C. Cash
D. Income
63.
Decreases in economic benefits from incidental/peripheral transactions other than
distributions to equity participants
A. Expenses
B. Losses
C. Casualties
D. Drawings
64.
Not considered “revenues”
A. Sales
B. Royalties
C. Interest
D. Gain from sale of building
65.
An entity’s revenue may result from
A. Decrease in an asset – primary operations
B. Increase in an asset – incidental transactions
C. Increase in a liability – incidental transactions
D. Decrease in a liability – primary operations
66.
(OLD) Underlying assumptions in preparing financial statements
A. Relevance and reliability
B. Accrual Basis and going concern
C. Financial and physical capital maintenance
D. Prudence and conservatism
67.
(NEW) Underlying assumption/s in preparing financial statements
A. Accrual basis
C. Accrual basis and going concern
B. Going concern
D. Neither accrual basis nor going concern
68.
Which of the following is supported by the going concern assumption?
I. A promise to receive cash in the future is measured at present value on the financial
statement of a business entity
II. An entity uses accrual and deferrals in recording certain transactions
A. I only
B. II only
C. Both I and II
D. Neither I nor II
69.
The valuation to receive cash in the future at present value on financial statements
justified by which accounting concept?
A. Monetary B. Time period
C. Accrual
D. Going concern
70.
Choose the correct statement about generally accepted accounting principles.
A. They are laws.
B. The BIR enforces GAAP.
C. GAAP and tax principles are the same.
D. Firms that do not comply with GAAP may suffer negative economic consequences.
71.
Statement 1. The economic entity assumption is applicable not only to business
organizations, but whenever accounting is involved.
Statement 2. When a parent and subsidiary relationship exists, consolidated financial
statements are presented in recognition of the economic entity assumption.
A. True ; True
C. False ; True
B. True ; False
D. False ;False
72.
Which of the following is the incorrect statement?
A. Theory can be defined as a coherent set of hypothetical, conceptual, and pragmatic
principles forming a general frame of reference for a field of inquiry
B. Accounting theory has developed primarily in response to government regulations
C. Concepts are component of theory
D. Accounting concepts are human-made
73.
Which of the following describes the economic entity postulate?
A. Economic activity can be identified with a particular unit of accountability. In other
words, a company keeps its activity separate and distinct from its owners and any
other business unit
B. Money is the common denominator of economic activity and provides an appropriate
basis for accounting measurement and analysis
C. A company can divide its economic activities into artificial time periods
D. Transactions that change a company’s financial statements are recorded in the periods
in which the events occur
74.
J. Gonzales is the sole owner and manager of the Gonzales Lawn and Grass Services.
Gonzales purchased a new station wagon for personal use. Gonzales uses a dump truck in
the business. Which of the following assumptions, principles, or constraints would be
violated if Gonzales recorded the cost of the station wagon as an asset of the business?
A. Materiality Constraint
C. Full-disclosure principle
B. Conservatism constraint
D. Separate entity assumption
75.
Revenue is expressed as the number of pesos received or the peso equivalent of the
commodities or services received. Cost is expressed as the number of pesos paid out or
the peso equivalent of the items given up. Fluctuations in value of peso are ignored. What
is the applicable accounting assumption?
A. Realization
C. Going concern
B. Historical cost
D. Unit of measure
76.
Statement 1. The realizable value of an asset is the amount of cash or cash equivalents
that would be obtained in orderly disposal.
Statement 2. The current cost of a liability is the undiscounted amounts of cash or cash
equivalents that would be required to settle the obligation currently.
A. True ; True
C. False ; True
B. True ; False
D. False ; False
77.
Realizable value is the exchange counterpart of
A. Settlement value
C. Present value
B. Replacement value
D. Current cost
78.
Materials and other supplies held for use in the production of inventories are not written
down below cost if the finished products in which they will be incorporated are expected
to be sold at or above cost. However, when a decline in the price of the materials
indicates that the cost of the finished products exceeds net realizable value, the materials
are written down to net realizable value. In such circumstances, what is the best available
measure of the materials’ net realizable value?
A. Settlement value
C. Present value
B. Replacement cost
D. Historical cost
79.
A corporation needed a new warehouse, a contractor quoted a P250,000 price to construct
it. The corporation believed that it could build the warehouse for P215,000 and decided to
use company employees to construct the warehouse. The final construction cost incurred
by the corporation was P240,000 but the asset was recorded at P250,000. This is a
violation of the
A. Matching principle
C. Cost principle
B. Revenue recognition principle
D. No principle is violated
80.
When a P300 asset with a 6-year useful life is recorded as an expense at the date of
purchase, this is an application of the:
A. Matching principle
B. Cost principle
C. Materiality constraint
D. Separate entity assumption
81.
The primary measurement basis currently used to value assets in general purpose
financial statement of an entity is
A. The current market price if the assets currently held by an entity were sold on the
open market
B. The current market price if the assets currently held by an entity were purchased on
the open market
C. The present value of the cash flows assets are expected to generate over their
remaining useful lives
D. The market price of the assets at the date the assets were acquired
82.
A firm signs a major contract in December to construct custom machinery for a client. No
work is begun 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. Reliability
C. Historical cost
B. Full disclosure
D. Conservatism
83.
A corporation report the sale of some of its shares to shareholder in its financial
statements, and the shareholder reports the same transaction as an investment. Therefore,
A. The revenue principle has been violated
B. The separate entity assumption has been violated
C. The double entry accounting concept has been violate
D. No accounting concept has been violated
84.
Financial accounting period of less than one year
A. Interim
B. Calendar
C. Fiscal
D. Quarter
85.
Preparation of interim financial statements sacrifices this for relevance.
A. Reliability
B. Understandability C. Completeness
D. Presentation
86.
Which of the following statement conforms to the realization concept?
A. Equipment depreciation was assigned to a production department and then to product
unit cost
B. Depreciated equipment was sold in exchange for a note receivable
C. Cash was collected on accounts receivable
D. Product unit cost were assigned to cost of goods sold when units were sold