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Compilatation of End of chapter Multiple Choice by Valix
Conceptual Framework (Polytechnic University of the Philippines)
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CHAPTER 1-6 QUIZ
1. The IASB was formed to
establish accounting standards for multinational entities
develop accounting standards for countries that do not have their own standard-setting bodies
enforce IFRS in foreign countries
develop a single set of high quality IFRS
2. It is a duty or responsibility that an entity has no practical ability to avoid
Obligation
Right
Equity
Expense
3. Which of the following is not an essential characteristic of an asset?
The economic resource is controlled by the entity as a result of past events
The economic resource is a right that has the potential to produce economic benefits
The economic resource should be present within the entity
The asset is a present economic resource
4. The write off of a worthless patent is an example of which of the following principles?
Immediate recognition
Objectivity
Associating cause and effect
Systematic and rational allocation
5. Continuation of an accounting entity in the absence of evidence to the contrary is an example of
Entity
Time period
Going concern
Unit of measure
7. Why are certain costs of doing business capitalized when incurred & then depreciated/amortized over
subsequent accounting periods?
To adhere to the accounting concept of conservatism
To aid management in the decision-making process
To reduce the income tax liability
To match the costs of production w/ the revenue as earned
7. The objective of financial reporting is based on
Reporting on management stewardship
The need for conservatism
The needs of the users of the information
Generally accepted accounting principles
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8. The principle of objectivity includes the concept of
Verifiability
Summarization
Conservatism
Classification
9. Enhancing qualities include all the following, except
Comparability
Verifiability
Understandability
Neutrality
10. Which of the following is the best description of ‘faithful representation’ in relation to information in financial
statements?
Comprehensibility to users
Influence on the economic decisions of users
Inclusion of a degree of caution
Freedom from material error
11. It is the presentation and classification of financial statement items on a uniform basis from one accounting
period to the next
Comparable information
Accrual basis
Aggregation
Consistency of presentation
12. Generally, revenue is recognized
At the point of sale.
When cause and effect are associated
At the point of cash collection
At appropriate points throughout the operating cycle
13. One element of the objective of financial reporting is to provide
Information that is useful in assessing cash flow prospects
Information about the liquidation value of the resources held by the entity
Information that will attract new investors
Information about the investors in the entity
14. The underlying theme of the Conceptual framework is
Comparability
Understandability
Decision usefulness
Timeliness
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15. Which of the following situations violates the concept of faithful representation?
Data on segments having the same expected risks are reported to analysts estimating future profit.
Management reports to shareholders regularly refer to new projects undertaken
Financial statements included in the item of property, plant and equipment with carrying amount increased to
management estimate of market value
Financial statements were issued 8 months late
16. Predictive & confirmatory roles of information are interrelated.
True
False
17. Payment of salaries to employees is an example of an external transaction.
True
False
18. Comparability within an enterprise is also known as intracomparability.
True
False
19. Information has predictive value when it enables users to correct earlier expectations.
True
False
20. The financial position of the enterprise comprises its assets, liabilities and equity at a particular time.
True
False
21. Under conservatism, when alternatives exist, the alternative which has the least effect on liability should be
chosen.
True
False
22. It is appropriate for an enterprise to leave its accounting policies unchanged when more relevant and
reliable alternative exist.
True
False
23. The book value information is more relevant than earnings per share in determining the attractiveness of
an investment.
True
False
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24. Under cause & effect association, some costs are expensed by simply allocating them over the periods
benefited.
True
False
25. The SEC allows a one-person corporation (OPC) to register for the practice of public accountancy.
True
False
26. The work of the accountant starts when the work of the auditor ends.
True
False
27. If there are no legal rights, control can never exist even if the entity has other means of ensuring that no
other party can benefit from an asset.
True
False
28. The matching principle requires that those costs and expenses incurred in earning a revenue shall be
reported in the same period.
True
False
29. Fair value of an asset is the price that would be received to sell an asset in an orderly transaction between
market participants at measurement date.
True
False
30. A right can meet the definition of an economic resource even if the probability that it will produce economic
benefit is low.
True
False
31. Classify the following costs/expenses. Choose your answer from the following choices:
CEA – cause and effect association principle
SRA – systematic and rational allocation
IR – immediate recognition
ANG - answer not given
a.
b.
c.
d.
e.
depreciation of building - SRA
utilities expense - IR
loss from sale of investment - IR
warranty expense - CEA
doubtful accounts - CEA
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32. Indicate which concept/assumption/principle/constraint is being violated in each of the following situations:
a. Expenses are reported whenever the accountant records them rather than when related revenues are
earned. – Matching Principle
b. An entity follows a policy of recording an item as an asset when the entity is in doubt whether the item
is an asset or expense of the current period. - Conservatism
c. The owners of a multi-national company base its accounting records on the assumption that the
business might close anytime. – Going Concern
d. A department store changes accounting method every year in order to report a higher net income
possible under accounting standards. - Consistency
e. An accounting practitioner mixed personal accounting records with the records of the accounting
practice. – Accounting Entity
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CHAPTER 7-12
1. A change from cost model to fair value model in measuring investment property is an example of a change
in accounting policy.
True
False
2. The entity is required only to disclose significant nonadjusting events.
True
False
3. Acquisition of land by issuing share capital is a transaction that affects the cash flows from financing
activities.
True
False
4. Cash flows arising from the purchase and sale of dealing or trading securities are classified as operating
activities.
True
False
5. Dividend paid to shareholders should also be included in other comprehensive income.
True
False
6. The functional presentation of income statement is also known as the cost of goods sold method.
True
False
7. Financial statements must be prepared at least quarterly.
True
False
8. Biological assets should be reported as current assets.
True
False
9. Physical capital is the quantitative measure of the physical productive capacity to produce goods and
services.
True
False
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10. Return on capital is an erosion of the capital invested in the entity.
True
False
11. The standard provides that the liability is classified as current even if the lender has agreed, after the
reporting period and before the statements are authorized for issue, not to demand payment as a consequence
of the breach.
True
False
12. Information about financial performance is useful in predicting future performance and ability to generate
future cash flows.
True
False
13.A 6-month BSP treasury bill is classified as current asset.
True
False
14. Changes in accounting estimate are to be handled currently and retrospectively.
True
False
15. Bankruptcy of a customer which occurs after the reporting period is considered as an adjusting event.
True
False
16. The physical capital maintenance concept requires the adoption of which measurement basis?
Fair value
Historical cost
present value
Current cost
17. An entity has a loan due for repayment in six months' time but the entity has the option to refinance for
repayment two years later. The entity plans to refinance this loan. In which section of the statement of financial
position should this loan be presented?
Current assets
Current liabilities
Noncurrent assets
Noncurrent liabilities
18. In analyzing an entity's financial statements, which financial statement would a potential investor primarily
use to assess liquidity and financial flexibility?
Statement of retained earnings
Statement of cash flows
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Income statement
Statement of financial position
19. Which of the following changes during a period is not a component of other comprehensive income?
Treasury share
Unrealized gain on equity instrument measured at fair value through other comprehensive income.
Actuarial gain on defined benefit plan
Foreign currency translation adjustment
20. The limitation of the income statement includes all of the following, except
Income measurement involves judgement.
Items that cannot be measured reliably are not reported.
Income numbers are affected by accounting method.
Only actual amounts are reported in net income.
21. Cash receipts from royalties and commissions are:
Cash outflows for financing activities
Cash inflows from operating activities
Cash outflows for operating activities
Cash inflows from investing activities
22. Under IFRS, the dividend received from shares investments can be classified a
only as investing activities
Either an operating activities or a financing activities
only as operating activities
Either an operating activities or investing activities
23. A change in accounting policy requires what kind of adjustment to the financial statements?
Prospective adjustment
Retrospective adjustment
Current period adjustment
Current and prospective adjustment
24. When it is difficult to distinguish between a change in accounting estimate and a change in accounting
policy, the change is treated as
change in accounting estimate with no appropriate disclosure
change in accounting policy with appropriate disclosure
change in accounting estimate with appropriate disclosure
correction of an error
25. An entity built a new factory building during the current year. Subsequent to the current year-end and
before issuance of financial statements, the building was destroyed by fire and the claim against the insurance
entity proved futile because the cause of the fire was negligence on the part of the caretaker of the building.
What should be reported at the current year-end?
Make a provision for one-half of the carrying amount of the building
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Make a provision for three-fourths of the carrying amount of the building
Write off the carrying amount of the building
Disclose the nonadjusting event in the notes to financial statements
26. Identify what is being referred to by the statement. Choose your answer from the selection provided:
Adding together of assets, liabilities, equity, income and expenses that have similar or shared characteristics
and are included in the same classification.
AGGREGATION
The basic statement that shows the movements in the elements or components of the shareholders’ equity.
STATEMENT OF CHANGES IN EQUITY
Short-term highly liquid investments that are readily convertible to known amount of cash and which are
subject to insignificant risk of change in value.
CASH EQUIVALENTS
Omissions and misstatements in the financial statements for one or more periods arising from failure to use or
misuse of reliable information.
PRIOR PERIOD ERROR
Events after the reporting period.
SUBSEQUENT EVENTS
27. CLASSIFY THE FOLLOWING ACCOUNTS. Choose the appropriate line item among the choices.
Advances from customers - Trade and other payable
Three-month money market instrument – Cash and Cash Equivalents
Office supplies unused - Prepaid expenses
Accrued interest income – Trade and other receivables
Plant expansion fund – Long Term Investment
Freight out – Selling expenses
Purchases – Cost of Sales
Doubtful accounts – General expenses
Dividends payable - Trade and other payable
Patterns and dies - Property. plant and equipment
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Exercise _ Chapter 5 _ CF Elements of FS
Question 1
1 / 1 pts
The elements directly related to the measurement of financial position
are
Asset, liability, equity, income and expenses
Correct!
Asset, liability and equity
Income and expenses
Asset and liability
Question 2
1 / 1 pts
The elements of financial position describe amounts of resources and
claims against resources
Neither during a period of time nor at a moment in time
During a period of time
During a period of time and at a moment in time
Correct!
At a moment in time
Question 3
1 / 1 pts
The elements directly related to the measurement of financial
performance are
Asset, liabilities and equity
Correct!
Income and expenses
Asset and liability
Income, expenses and equity
Question 4
1 / 1 pts
It is a present economics resources controlled by the entity as a result
of past events
Correct!
assets
equity
expenses
liabilities
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Question 5
1 / 1 pts
It is a present obligation of the entity to transfer an economic resource
as a result of past events
expenses
asset
equity
Correct!
liability
Question 6
1 / 1 pts
It is the residual interest in the assets of the entity after deducting all
of the liabilities
Correct!
Equity
retained earnings
All of the choices match the definition
income
Question 7
1 / 1 pts
It is an increase in asset or a decrease in liability that result in increase
in equity other than contribution from equity holders
Correct!
income
expense
liability
asset
Question 8
1 / 1 pts
It is a decrease in asset or an increase in liability that results decrease
in equity other than distribution to equity holders
Correct!
Expense
liability
asset
income
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Question 9
1 / 1 pts
Which statement in relation to income is true?
Income encompasses revenue only
Gain encompasses both income and revenue
Revenue encompasses both income and gain
Correct!
Income encompasses both revenue and gain
Question 10
1 / 1 pts
Which is not within the new definition of an asset?
The economic resource is controlled by the entity as a result of past
event
An asset is a present economic resources
Correct!
Future economic benefit is expected to flow to the entity
The economic resource is a right that has potential to produce
economic benefit
Question 11
1 / 1 pts
Which of the following criteria need not be satisfied for a liability to
exist?
Correct!
The settlement is expected to result in an outflow of economic
benefit
The entity has an obligation
The obligation is to transfer an economic resource
The obligation is a present obligation that exists as a result of a past
event
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Question 12
1 / 1 pts
A present obligation exists as a result of past event if
The entity has not yet obtained economic benefit but must transfer an
economics resource
The entity has already obtained economic benefit
The entity must transfer an economic resource
Correct!
The entity has already obtained economic benefit and must transfer
economic resource
Question 13
1 / 1 pts
Rights that have the potential to produce economic benefits and
correspond to an obligation of another entity include all, except
Right to receive goods
Correct!
Right over property, plant and equipment
Right to exchange economic resources with another entity on favorable
terms
Right to receive cash
Question 14
1 / 1 pts
An economic resource could produce economic benefit if an entity is
entitled to all, except
Correct!
To exchange economic resources with another entity on unfavorable
terms
To receive contractual cash flows
To receive cash by selling the economic resource
To extinguish a liability by transferring am economic resource
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Question 15
1 / 1 pts
It is the present ability to direct the use of an economic resource and
obtain the benefit that may flow from it
ownership
Legal right
Correct!
control
obligation
Question 16
1 / 1 pts
It is a duty or responsibility that an entity has no practical ability to
avoid
Expense
right
Correct!
Obligation
Equity
Question 17
1 / 1 pts
Obligation to transfer an economic resource include all, except
Obligation to pay cash
Obligation to deliver goods
Obligation to provide services
Correct!
Obligation to transfer an economic resource even if a specified future
event does not occur
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Question 18
1 / 1 pts
Which statement is not true about income and expense?
Expense is decrease in asset or increase in liability that result in
decrease in equity other than distribution to equity holders
Income is increase in asset or decrease in liability that results in
increase in equity other than contribution from equity holders
Income encompasses revenue and gain
Correct!
Income and expenses are the elements that relate to financial
position
Question 19
1 / 1 pts
This is new term refers to the statement of profit or loss and a
statement presenting other comprehensive income
Statement of financial position
Income statement
Statement of comprehensive income
Correct!
Statement of financial performance
Question 20
1 / 1 pts
Revenue may result from
An increase in a liability from incidental transaction
An increase in an asset from incidental transaction
Correct!
A decrease in a liability from primary operation
A decrease in an asset from primary operations
Question 21
1 / 1 pts
What is the primary distinction between revenue and gain?
Correct!
The nature of the activity that gives rise to the transaction
The method of disclosing the transaction
The likelihood that the transaction will recur
The materiality of the amount
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Question 22
1 / 1 pts
The term income
Includes adjustment of prior period error
Is the same as retained earnings
Correct!
Includes gain resulting from the sale of an asset in an arm’s length
transaction
Includes revaluation of land
Question 23
1 / 1 pts
A decrease in an asset arising from peripheral or incidental transaction
is called
Capital expenditure
Cost
Expense
Correct!
Loss
Question 24
1 / 1 pts
An outflow of asset based on an activity that represents the major
operations is called
Correct!
Expense
Equity
liability
Loss
Question 25
1 / 1 pts
This arises in the course of ordinary regular activities of the entity and
is referred to by a variety of different names including sales, fees,
interest, dividends, royalties and rent
Gain
Correct!
Revenue
Profit
income
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Exercise _ Chapter 6 _ CF Recognition and measurement
Question 1
1 / 1 pts
It is the process of capturing for inclusion in the financial statements an
item that meets the definition of the elements of financial statements.
Measurement
Derecognition
Classifying
Correct!
Recognition
Question 2
1 / 1 pts
An item is recognized in the financial statements if
It is probable that economic benefits will flow to or from the entity and
that the cost can be measured reliably
The entity has ownership of such item
Correct!
It meets the definition of an asset, liability, equity, income and
expense
It is probable that economics benefits will flow to or from the entity
Question 3
1 / 1 pts
Recognition of an element is appropriate when information results in
Neither relevance nor faithful representation
Faithful representation
Correct!
Both relevance and faithful representation
Relevance
Question 4
1 / 1 pts
It is the removal of all or part of a recognized asset or liability from the
statement of financial position
Extinguishment
Correct!
Derecognition
Retirement
Writeoff
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Question 5
1 / 1 pts
Derecognition normally occurs when
The entity no longer has a present obligation for the liability
Correct!
Under all of these circumstances
The entity loses control of the asset
An item no longer meets the definition of an asset or a liability
Question 6
1 / 1 pts
Generally, revenue is recognized
Correct!
At the point of sale
At appropriate points throughout the operating cycle
When cause and effect are associated
At the point of cash collection
Question 7
1 / 1 pts
which of the following is not an accepted basis for recognition of
revenue?
Completion of percentage of a project
Performance of service
Correct!
Upon signing of contract
Passage of time
Question 8
1 / 1 pts
Normally, revenue is recognized
Correct!
When the title to the goods changes
Only if the transaction will create an account receivable
When the customer order is accompanied by a check
When the customer order is received
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Question 9
1 / 1 pts
Which of the following practices may not be an acceptable deviation
from recognizing revenue a the point of sale?
During production
Correct!
Upon receipt of order
End of production
Upon receipt of cash
Question 10
1 / 1 pts
Which of the following represent the least desirable choice for the
recognition of revenue?
Correct!
Recognition of revenue when cash is collected
Recognition of revenue during production
Recognition of revenue when sale occurs
Recognition of revenue when production is completed
Question 11
1 / 1 pts
Revenue recognition conventionally refers to
Correct!
The process of identifying transactions to be recorded as revenue in
an accounting period
The process of measuring and relating revenue and expenses during a
period
The earnings process which gives rise to revenue realization
The process of identifying those transaction that result in an inflow of
asset to the entity
Question 12
1 / 1 pts
Which of the following in the most precise sense means the process of
converting noncash resources and rights into cash or claims to cash?
Recognition
allocation
Correct!
Realization
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collection
Question 13
1 / 1 pts
Gains on assets unsold are identified, in a precise sense, by the term
Correct!
Unrealized
Unallocated
Unrecorded
Unrecognized
Question 14
1 / 1 pts
The term recognized is synonymous with the term
Correct!
Recorded
matched
realized
allocated
Question 15
0 / 1 pts
Which statement conforms to the realization concept?
Cash was collected on accounts receivable
You Answered
Depreciation was assigned to product unit cost
Product unit costs were assigned to cost of goods sold
Correct Answer
Equipment was sold in exchange for a note receivable
Question 16
1 / 1 pts
Which of the following is not a theoretical basis for the allocation of
expense?
Cause and effect association
Immediate recognition
Systematic and rational allocation
Correct!
Profit maximization
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Question 17
1 / 1 pts
Costs that can be reasonably associated with specific revenue but not
with specific product should be
Allocated to the specific product based on the best estimate of the
product processing time
Expensed in the period incurred
Correct!
Expensed in the period in which the related revenue is recognized
Capitalized and then amortized over reasonable period
Question 18
1 / 1 pts
Which of the following is an example of the cause and effect
association principle?
Officers’ salaries
Correct!
Sales commission
Allocation of insurance cost
Depreciation of property, plant and equipment
Question 19
1 / 1 pts
Which of the following is an application of the systematic and rational
allocation principle?
Correct!
Amortization of intangible asset
Research and development cost
Doubtful accounts
Warranty cost
Question 20
1 / 1 pts
Which of the following would be matched with current revenue on a
basis other than association of cause and effect?
Correct!
Goodwill
Cost of goods sold
Sales commission
Warranty cost
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Question 21
1 / 1 pts
Why are certain costs of doing business capitalized when incurred and
then depreciated or amortized over subsequent accounting periods?
To adhere to the accounting concept of conservation
To aid management in the decision-making process
Correct!
To match the cost of production with revenue
To reduce the income tax liability
Question 22
1 / 1 pts
Which of the following principle best describes the conceptual
rationale for the method of matching depreciation with revenue?
Immediate recognition
Correct!
Systematic and rational allocation
Associating cause and effect
Partial recognition
Question 23
1 / 1 pts
Which of the following should be expensed under the principle of
systematic and rational allocation?
Correct!
Insurance premiums
Transportation to customers
Salesmen’s monthly salaries
Electricity to the light office building
Question 24
1 / 1 pts
The writeoff of a worthless patent is an example of which of the
following principles
Correct!
Immediate recognition
Systematic and rational allocation
Associating cause and effect
objectivity
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Question 25
1 / 1 pts
What is an example of cost that cannot be directly related to particular
revenue but incurred to obtain benefits that are exhausted in the
period when the cost is incurred?
Prepaid insurance
Freight in
Correct!
Sales salaries
Sales commission
Question 26
1 / 1 pts
The matching principle is best demonstrated by
Correct!
Associating effort with accomplishment
Recognizing prepaid rent received as revenue
Not recognizing any expense unless some revenue is realized
Establishing an appropriation for contingency
Question 27
1 / 1 pts
Bad debt expense is recognized according to which expense
recognition principle?
Immediate recognition
Critical event recognition
Correct!
Direct matching
Systematic and rational allocation
Question 28
1 / 1 pts
What is the general approach as to when product costs are recognized
as expense?
Correct!
In the period when the related revenue is recognized
In the period when the expenses are paid
In the period when the expenses are incurred
In the period when the vendor invoice is received
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Question 29
1 / 1 pts
When should an expenditure be recorded as an asset rather than an
expense?
If the amount is material
never
Correct!
When there is a right that has the potential to produce economic
benefit
always
Question 30
1 / 1 pts
Which accounting principle is being observed when an accountant
charges to expense a cost that contributed to revenue during a period?
Revenue realization
Correct!
Matching
conservatism
Monetary unit
Question 31
1 / 1 pts
Which of the following is not an acceptable basis for the recognition of
expense?
Immediate recognition
Correct!
Cash disbursement
Systematic and rational allocation
Direct matching
Question 32
1 / 1 pts
A cause and effect relationship is implicit in the
Realization principle
Correct!
Matching principle
Going concern assumption
Historical cost principle
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Question 33
1 / 1 pts
An example of direct matching of an expense with revenue would be
Depreciation expense
Correct!
Direct labor costs incurred to produce inventory sold during a period
Advertising expense
Office salaries expense
Question 34
1 / 1 pts
Which category of expenses is subject to immediate recognition in the
income statement?
Correct!
The salary of the entity president
The salary of the production foreman
Repairs and maintenance expense incurred on production equipment
of a manufacturer
Utilities expense for the production line of a manufacturer
Question 35
1 / 1 pts
Which principle best describe the rational for matching distribution
costs and administrative expenses with revenue of the current period?
Systematic and rational allocation
Partial recognition
Direct matching
Correct!
Immediate recognition
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Question 36
1 / 1 pts
Which statement is true about current value?
Fair value of an asset is the price that would be received to sell an asset
in an orderly transaction between two market participants at the
measurement date
Value in use is the present value of the cash flows expected to be
derived from the use and ultimate disposal of an asset
Correct!
All of the given statements are true about current value
Fulfillment value is the present value of the cash expected to be
transferred for the payment of liability
Question 37
1 / 1 pts
The measurement bases include
Correct!
Historical cost and current value
Historical cost
assessed value
current value
Question 38
0 / 1 pts
Current value includes
Fair value and present value
You Answered
Fair value and current cost
Current cost and present value
Correct Answer
Fair value, present value and current value
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Question 39
1 / 1 pts
Which measurement attribute is not currently used in practice
Fair value
Current cost
Present value
Correct!
Inflation adjusted cost
Question 40
1 / 1 pts
It is the amount of cash or cash equivalent that would have to be paid
if the same or an equivalent asset was acquired currently
Historical cost
Present value
Realizable value
Correct!
Current cost
Exercise _ Chapter 7 _ CF Presentation and disclosure
Question 1
1 / 1 pts
The presentation and disclosure requirement achieves all of the
following, except
Understandability and comparability of information
An effective communication tool
More relevant and faithfully represented financial information
Correct!
Financial position, financial performance and cash flows
Question 2
1 / 1 pts
It is the sorting of assets, liabilities, equity, income and expenses with
similar characteristics.
Correct!
Classification
Interpretation
Recognition
Summarization
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Question 3
1 / 1 pts
All of the following can considered appropriate classification, except
Current and noncurrent assets
Current and noncurrent liabilities
Ordinary share capital and preference share capital
Correct!
offsetting asset and liability
Question 4
1 / 1 pts
Income and expenses are classified as
Profit or loss and retained earnings
Retained earnings and other comprehensive income
Ordinary and extraordinary
Correct!
Profit or loss and other comprehensive income
Question 5
1 / 1 pts
What is the new term to describe the statement of profit or loss
together with the statement showing other comprehensive income
Correct!
Statement of financial performance
Statement of profit or loss
Statement of other comprehensive income
Income statement
Question 6
1 / 1 pts
Financial capital is defined as
Correct!
Net assets in monetary terms
Share capital issued and outstanding
Net assets in terms of physical productive capacity
legal capital
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Question 7
1 / 1 pts
The physical capital maintenance concept requires the adoption of
which measurement basis?
Historical cost
Fair value
present value
Correct!
Current cost
Question 8
1 / 1 pts
Which concept is applied to net income and other comprehensive
income?
Correct!
Financial capital
legal capital
borrowed capital
Physical capital
Question 9
1 / 1 pts
Which statement regarding the term profit is true?
Correct!
All of these statements are true about the term profit.
Profit is any amount over and above that required to maintain the
capital at the beginning of the period.
Profit is equal to income minus expenses
Profit is the equivalent of net income under IFRS
Question 10
1 / 1 pts
Under the Financial capital concept, net income occurs when
Correct!
The nominal amount of net assets at year-end increased after
excluding distributions to and contributions from owners.
The nominal amount of net assets at year-end increased.
The physical productive capital at year-end increased.
The physical productive capital at year-end increased after excluding
any distributions to and contributions from owners.
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Exercise _ Chapter 8 _ Presentation of FS - SFP
Question 1
1 / 1 pts
The major financial statements include all, except
Statement of changes in equity
Correct!
Statement of changes in financial position
Statement of comprehensive income
Statement of financial position
Question 2
1 / 1 pts
The major financial statements include all, except
Correct!
Statement of retained earnings
Statement of cash flows
Statement of financial position
Income statement
Question 3
1 / 1 pts
What is the objective of financial statements?
Correct!
To provide information about the financial position, financial
performance and changes in financial position of an entity that is
useful to a wide range of users in making economic decisions.
To present relevant, reliable, comparable and understandable
information to investors.
To present financial statements in accordance with all applicable
standards.
To present a statement of financial position and a statement of
comprehensive income.
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Question 4
1 / 1 pts
Financial statements must be prepared at least
quarterly
semiannually
every two years
Correct!
annually
Question 5
1 / 1 pts
When entity changed the end of reporting period longer or shorter
than one year, the entity shall disclose all, except
The reason for using a longer or shorter period
The fact that amounts presented are not entirely comparable
Period covered by the financial statements
Correct!
The fact that similar entities have done so
Question 6
1 / 1 pts
When there is much variability, the operating cycle is measured at
Three years
The mean value
Correct!
Twelve months
The median value
Question 7
1 / 1 pts
The operating cycle of an entity
Refers to the seasonal variation experienced by entities
Is the period of time normally elapsed in converting trade receivables
back into cash
ls a period of one year
Correct!
Is the time between the acquisition of materials entering into a
process and their realization in cash
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Question 8
1 / 1 pts
An entity shall classify an asset as current under all of the following
conditions, except
The entity expects to realize the asset within twelve months after the
reporting period
Correct!
The asset is cash or a cash equivalent that is restricted to settle a
liability for more than twelve months after the reporting period
The entity expects to realize the asset or intends to sell or consume it
within the entity's normal operating cycle.
The entity holds the asset for the purpose of trading
Question 9
1 / 1 pts
An entity shall classify a liability as current when under all of the
following conditions, except
The entity holds the liability primarily for the purpose of trading
The liability is due to be settled within twelve months after the
reporting period
Correct!
The entity has an unconditional right to defer settlement of the
liability for at least twelve months after the reporting period.
The entity expects to settle the liability within the entity's normal
operating cycle
Question 10
1 / 1 pts
Which obligations are classified as current even if these are due to be
settled after more than twelve months from the end of the reporting
period?
Correct!
Trade payables and accruals for employee and other operating cost
Dividends payable
Bank overdrafts
Current portion of interest-bearing liabilities
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Question 11
1 / 1 pts
Current and noncurrent presentation of assets and liabilities provides
useful information when the entity
is a nonprofit organization
Is a financial institution
Is a public utility
Correct!
Supplies goods or services within a clearly identifiable operating cycle
Question 12
1 / 1 pts
A presentation of assets and liabilities in increasing or decreasing order
of liquidity provides information that is reliable and more relevant
than a current and noncurrent presentation for
Service provider
Manufacturing entity
Public utility
Correct!
Financial institution
Question 13
0 / 1 pts
In the Philippines, the common practice is to present in the statement
of financial position
You Answered
Current assets before noncurrent assets, noncurrent liabilities before
current liabilities and equity after liabilities
Noncurrent assets before current assets, current liabilities before
noncurrent liabilities and equity after liabilities
Noncurrent assets before current assets, noncurrent liabilities before
current liabilities and equity after liabilities
Correct Answer
Current assets before noncurrent assets, current liabilities before
noncurrent liabilities and equity after liabilities.
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Question 14
1 / 1 pts
A financial liabilities due within twelve months after the reporting
period shall be classified as noncurrent
Correct!
When it is refinanced on a long-term basis on or before the end of
reporting period.
When it is refinanced on a long-term basis after the end of reporting
period
When it is refinanced on a long-term basis before the issue of financial
statements.
When the entity has no discretion to refinance for at least twelve
months
Question 15
1 / 1 pts
When an entity breaches under a long-term loan agreement on or
before the end of the reporting period with the effect the liability
becomes payable on demand, the liabilities is classified as
Noncurrent under all circumstances
Correct!
Current if the lender has agreed after the reporting period and before
the issuance of the statements not to demand as a consequence of the
breach
Current under all circumstances
Noncurrent if the lender agreed after the reporting period to provide a
grace period for at least twelve months after the reporting period
Question 16
1 / 1 pts
In presenting a statement of financial position, an entity
Correct!
Must make the current and noncurrent presentation, except when a
presentation based on liquidity provides information that is reliable
and more relevant.
Must make the current and noncurrent presentation.
Must present assets and liabilities in order of liquidity.
Must choose either the current and noncurrent or the liquidity
presentation, meaning free choice of presentation.
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Question 17
1 / 1 pts
Assets to be sold, consumed or realized as part of the normal operating
cycle are
Classified as current or noncurrent in accordance with other criteria
Noncurrent assets
Noncurrent investments
Correct!
Current assets
Question 18
1 / 1 pts
Liabilities that an entity expects to settle within the normal operating
cycle are classified as
Current or noncurrent liabilities in accordance with other criteria
Correct!
Current liabilities
Noncurrent liabilities
Equity
Question 19
1 / 1 pts
In which section of the statement of financial position should cash that
is restricted for the settlement of a liability due 18 months after the
reporting period be presented?
Correct!
Noncurrent assets
Noncurrent liabilities
Equity
Current assets
Question 20
1 / 1 pts
In which section of the statement of financial position should
employment taxes that are due for settlement in 15 months' time be
presented?
Correct!
Current liabilities
Noncurrent assets
Noncurrent liabilities
Current assets
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Question 21
1 / 1 pts
An entity has a loan due for repayment in six months' time but the
entity has the option to refinance for repayment two years later. The
entity plans to refinance this loan. In which section of the statement of
financial position should this loan be presented?
Correct!
Noncurrent liabilities
Noncurrent assets
Current assets
Current liabilities
Question 22
1 / 1 pts
Which of the following must be included on the face of the statement
of financial position?
Shares in an entity owned by that entity
Correct!
Investment property
Contingent asset
Number of shares authorized
Question 23
1 / 1 pts
Which of the following is not required to be presented as minimum
information on the face of the statement of financial position?
Biological asset
Investment accounted under the equity method
Investment property
Correct!
Contingent liability
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Question 24
1 / 1 pts
Which of the following must be included as a line item in the
statement of financial position?
Property, plant and equipment analyzed by class
Contingent asset
Share capital and reserves analyzed by class
Correct!
Deferred tax liability
Question 25
1 / 1 pts
Which statement about the statement of financial position is not true?
The number of shares authorized for issue should be reported in the
statement of financial position or the statement of changes in equity or
in the notes.
Biological assets should be reported in the statement of financial
position.
Provisions should be recognized in the statement of financial position.
Correct!
A revaluation surplus on a noncurrent asset in the current year should
be recognized in the income statement.
Question 26
1 / 1 pts
In analyzing an entity's financial statements, which financial statement
would a potential investor primarily use to assess liquidity and
financial flexibility?
Income statement
Statement of retained earnings
Statement of cash flows
Correct!
Statement of financial position
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Question 27
1 / 1 pts
Which is an essential characteristic of an asset?
An asset is obtained at a cost
An asset is tangible
Correct!
An asset is a right that has the potential to produce economic benefit
The claims to an asset's benefits are legally enforceable
Question 28
1 / 1 pts
The essential characteristics of an asset include all of the following,
except
The economic resource is a right that has the potential to product
economic benefit
Correct!
The asset is tangible.
The asset is controlled by the entity as a result of past event
The asset is a present economic resource
Question 29
1 / 1 pts
Conceptually, asset valuation accounts are
Liabilities
assets
Part of shareholders equity
Correct!
Neither assets nor liabilities
Question 30
1 / 1 pts
Working capital is
Capital which has been reinvested in business
The group of assets needed by the entity to operate profitably
Correct!
Current assets less current liabilities
Unappropriated retained earnings
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Question 31
1 / 1 pts
As generally used, the term net assets represents
Total contributed capital
Retained earnings
Correct!
Total assets less total liabilities
Current assets less current liabilities
Question 32
1 / 1 pts
Treasury shares should be, reported as
Correct!
Reduction of shareholders' equity
Investment
Current asset
Other asset
Question 33
1 / 1 pts
The term "deficit" refers to
An excess of current liabilities over current assets
A prior period error.
Correct!
A debit balance in retained earnings
An excess of current assets over current liabilities
Question 34
1 / 1 pts
When classifying assets as current and noncurrent
Prepayments are included in other assets
Correct!
Assets are classified as current if reasonably expected to be realized in
cash or consumed during the normal operating cycle.
Current assets are determined by the seasonal nature
The amounts at which current assets are carried and
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Question 35
1 / 1 pts
The basis for classifying assets as current or noncurrent is the period of
time normally required to convert cash invested in
Property, plant and equipment back into cash or 12 months, whichever
is longer
Receivables back into cash or 12 months, whiçhever is longer
Inventory back into cash or 12 months, whichever is shorter.
Correct!
Inventory back into cash or 12 months, whichever is longer
Question 36
1 / 1 pts
Which should be classified as current asset?
Correct!
Trade installment accounts receivable normally collectible in 18
month
Cash designated for the redemption of callable preference shares
A deposit on machinery ordered, delivery of which will be made within
six months
Cash surrender value of a life insurance policy
Question 37
1 / 1 pts
Which should not be considered as current asset?
Trading securities
Prepaid taxes
Installment notes receivable due over 18 months in accordance with
normal trade practice
Correct!
Cash surrender value of life insurance policy
Question 38
1 / 1 pts
Current assets should never include
A receivable not collectible within one year
Correct!
Goodwill arising in a business combination
Premium paid on a bond investment
Current tax asset
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Question 39
1 / 1 pts
Equity investments held to finance construction of additional plant
should be classified as
Current assets
Intangible assets
Correct!
Noncurrent investments
Property, plant, and equipment
Question 40
1 / 1 pts
Which of the following is not a noncurrent investment?
Land held for speculation
Cash surrender value of life insurance policy
Correct!
Franchise
A sinking fund
Question 41
1 / 1 pts
The statement of financial position is useful for analyzing all of the
following, except
financial flexibility
Correct!
Profitability
solvency
liquidity
Question 42
1 / 1 pts
The statement of financial position is useful for all of the following,
except
Correct!
To analyze cash inflows and outflows for the period
To evaluate capital structure
To assess future cash flows
To compute rate of return
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Question 43
1 / 1 pts
What is one criticism not normally aimed at a statement of financial
position?
Correct!
The extensive use of separate classifications
Failure to include items of financial value that cannot be recorded
objectively
An extensive use of estimate
Failure to reflect current value information
Question 44
1 / 1 pts
The statement of financial position
Correct!
Omits many items that are of financial value
Makes very limited use of judgment and estimate
All of the choices are correct
Uses fair value for most assets and liabilities
Question 45
1 / 1 pts
Which is a limitation of a statement of financial position?
Judgment and estimate are used
Correct!
All of these are a limitation of the statement of financial position
Current fair value is not reported
Many items that are of financial value are omitted
Question 46
1 / 1 pts
The amount of time that is expected to elapse until an asset is realized
or otherwise converted into cash is referred to as
Exchangeability
Solvency
Financial flexibility
Correct!
Liquidity
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Question 47
1 / 1 pts
Which of the following is not an acceptable major asset classification?
Investments
Correct!
Deferred charges
Property, plant, and equipment
Current assets
Question 48
1 / 1 pts
What is an example of an item which is not an element of working
capital?
Accrued interest on notes receivable
Temporary investments
Correct!
Goodwill
Goods in process
Question 49
1 / 1 pts
Accrued revenue would normally appear in the statement of financial
position under
Correct!
Current assets
Noncurrent liabilities
Noncurrent assets
Current liabilities
Question 50
1 / 1 pts
Which of the following is usually classified as a noncurrent asset
goods in process
Prepaid rent
Correct!
Plant expansion fund
supplies
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Question 51
1 / 1 pts
Notes to financial statements
Document the source of financial statement facts
Are irrelevant facts that are immaterial in amount.
Correct!
Are an integral part of an entity's financial statements
Are relatively unimportant facts that do not belong in the basic
financial statements.
Question 52
1 / 1 pts
Which of the following best demonstrates the full disclosure principle?
The tax return
The separate income statement
The auditor's report
Correct!
The notes to financial statements
Question 53
1 / 1 pts
To meet the needs of full disclosure, entities use supplemental
information including
Disclosure notes conveying additional insights about operations,
accounting principles, contractual agreements and pending litigation.
Supplemental financial statements that report more detailed
information.
Parenthetical comments or modifying comments placed on the face of
the financial statements.
Correct!
All of these are correct
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Question 54
1 / 1 pts
The recognition and measurement concepts recognize which of the
following as a principle rather than an assumption?
time period
Correct!
Full disclosure
going concern
monetary unit
Question 55
1 / 1 pts
The full disclosure principle requires a balance between
Correct!
Relevance and cost effectiveness
Timeliness and predictive value
Comparability and consistency
Reliability and neutrality
Question 56
1 / 1 pts
For a liability to exist
Correct!
There must be past event
The exact amount must be known
There must be an obligation to pay cash in the future
The identity of the party to whom the liability is owed must be known.
Question 57
1 / 1 pts
Which statements best describes the term liability?
resources to meet financial commitments when due
Correct!
a present obligation arising from past event
the residual interest in the assets of the entity after deduction all of the
liabilities
an excess of equity over current assets
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Question 58
1 / 1 pts
Which item is not a current liability?
Correct!
Share dividends payable
unearned revenue
trade accounts payable
the currently maturing portion of long-term debt
Question 59
1 / 1 pts
Noncurrent liabilities include
bonds payable
deferred tax liability
short-term obligation refinanced on a long-term basis at the end of
reporting period.
Correct!
all of the choices are noncurrent liabilities
Question 60
1 / 1 pts
Which is not within the definition of a liability?
A note payable with no specified maturity date
An obligation to provide goods in the future
Correct!
The signing of a three-year employment contract at a fixed annual
salary
A present obligation that is estimated in amount
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CFAS REVIEWER
CHAPTER 1
Accounting is a service activity and the function is to provide quantitative information, primarily
financial in nature about economic entities, that is intended to be useful in making economic
decisions. This accounting definition is given by accounting standards Council
All of the following describe accounting, except an exact science rather than an art
The important points made in the definition of accounting include all of the following, except
accounting information is both quantitative and qualitative
This accounting process is the recognition or nonrecognition of business activities as accountable
events Identifying
What are the events that affect the entity and in which other entities participate? External events
Which is incorrect in relation to an accountable event? Sociological and psychological matters
are quantifiable
What is the measuring component in the definition of accounting? The assigning of peso amounts
to the accountable events
The most common financial attribute used in measuring financial information is Historical cost
The communicating process of accounting includes all of the following, except interpreting
What is the overall objective of accounting? To provide quantitative financial information about
an entity that is useful in making economic decision
What is the law regulating the practice of accountancy in the Philippines? R.A. No. 9298
What is the body authorized by law to promulgate rules and regulations affecting the practice of the
accountancy profession in the Philippines? Board of Accountancy
What are the three main areas in the practice of the accountancy profession?Public accounting,
private accounting and government accounting
Which statement is incorrect in relation to the practice of public accountancy? The Securities and
Exchange Commission can register any corporation organized for the practice of public
Securities and Exchange Commission
What is the standard-setting body in the Philippines at the present time? Financial Reporting
Standards Council
All of the following are represented in FRSC, except Department of Budget and Management
The Philippine Financial Reporting Standards collectively include All of these are included in
Philippine Financial Reporting Standards
Accounting standard-setting has been characterized as A political process
GAAP is an abbreviation for Generally accepted accounting principles
What is the primary service of CPAs in public practice? Auditing
Accountants employed in entities in various capacity as accounting staff, chief accountant or controller
are said to be engaged in Private accounting
It is the area of the accountancy profession that encompasses the process of analyzing, classifying,
summarizing and communicating all transactions involving the receipt and disposition of government
funds and property and interpreting the results thereof. Government Auditing
How many CPD credit units are required for accreditation to practice the accountancy profession? 120
units
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A CPA shall be permanently exempted from the renewal of CPA license at the age of 65 years
The International Accounting Standards Board was formed To develop a single set of high quality
IFRS
The International Accounting Standards Board Promotes the use of high-quality and
understandable global accounting standards
The IASB declared that the merits of proposed standards are assessed. From a position of
neutrality.
The standard-setting process includes in the correct order. Research, discussion paper, exposure
draft and accounting standard
The IASB employs a due process system which Enables interested parties to express their
views on issues under consideration.
What is due process in standard-setting by IASB?All of these are part of due process in
standard-setting.
The standards published by IASB are called
International Financial Reporting Standards
What is a possible danger if politics plays too big a role in developing IFRS? Financial reporting
standards are not truly generally accepted.
Accounting standard-setting Can be described as a political process which reflects political
actions of various interested user groups as well as a product of research and logic.
IFRIC Interpretations issued by IASB All of the statements are true about IFRIC
Interpretations.
Financial accounting is concerned with General purpose reports on financial position and
financial performance.
Financial accounting can be broadly defined as the area of accounting that prepares General
purpose financial statements to be used by parties both internal and external to the
entity.
Financial accounting emphasizes reporting to creditors and investors
Managerial accounting emphasizes Developing accounting information for use within an
entity
Which statement is true regarding managerial and financial accounting Managerial accounting
need not follow generally accepted accounting principles while financial accounting must
follow GAAP.
Generally accepted accounting principles
Derive their credibility and authority from general recognition and acceptance by the
accountancy profession
Which statement best describes GAAP? The accounting principles have been developed on the
basis of such factors as usage and practical necessity.
Proper application of accounting principles is most dependent upon Professional judgment of the
accountant
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Once an accounting standard has been established The standard is continually reviewed to see
if modification is necessary.
The primary responsibility for properly applying GAAP lies with
Management
CPAs are licensed by
State government
CHAPTER 2
Which statement is true about the Conceptual Framework for Financial Reporting?
In case of conflict, the requirements of the IFRS prevail over the Conceptual Framework.
The Conceptual Framework describes the concepts for general purpose financial reporting. The
Conceptual Framework is not a Standard. All of these statements are true about the Conceptual
Framework
Which is not a purpose of the Revised Conceptual Framework? To assist regulatory agencies in issuing
rules and regulations for a particular industry.
The scope of the Revised Conceptual Framework comprises how many chapters?8
The Conceptual Framework provides the foundation for Standards that Strengthen accountability of
management,
Contribute to transparency by enhancing international comparability and quality of financial
information,
Contribute to economic efficiency by helping investors to identify opportunities and risks
All of these are the result of Standards developed based on consistent concepts
What is the authoritative status of the Conceptual Framework? In the absence of a standard or an
interpretation that specifically applies to a transaction, management shall consider the applicability of
the Conceptual Framework in developing and applying an accounting policy that results in information
that is relevant and faithfully represented.
The Conceptual Framework is intended to establish The objectives and concepts for use in developing
standards of financial accounting and reporting.
A Conceptual Framework should Define the basic objectives, terms and concepts of accounting
Which is not a purpose of the Conceptual Framework? To provide specific guidelines for resolving
situations not covered by existing accounting standards
In the Conceptual Framework for Financial Reporting, what provides the "why" of accounting?
Objective of financial reporting
The underlying theme of the Conceptual Framework is Decision usefulness
The objective of financial reporting is the foundation for the Conceptual Framework
Which of the following is not a benefit associated with the Conceptual Framework?
Business entities will need far less assistance from accountants.
Which statement is not true concerning the Conceptual Framework? The Conceptual Framework
should be based on fundamental truth derived from the law of nature.
Users of financial reports include which of the following? Creditors, government agencies and unions
The primary users of financial information include
Existing and potential investors, lenders and other creditors
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Which group is not among the external users for whom financial statements are prepared?
Employees, Customers, Suppliers
All of these are external users of financial statements
Which of the following is an internal user of financial information?
Board of Directors
These users require information on risk and return provided by their investment
Investors
These users are interested in information about the profitability and stability of the entity in order to
assess the ability of entity to provide remuneration, retirement benefits and employment
opportunities. Employees
These users are interested in information that enables them to assess whether their loans, the related
interest thereon, and other amounts owing to them will be paid when due Lenders and other creditors
These users are interested in information about the continuance of an entity, especially when they
have a long-term involvement with or are dependent on the entity Customers
These users are interested in information in order to regulate the activities of an entity, determine
taxation policies and provide a basis for national statistics. Governments and their agencies
These users need information on trends and recent developments where an entity makes a substantial
contribution to the local economy providing employment and using local suppliers. The public
The overall objective of financial reporting is to provide information That is useful for decision making
The primary focus of financial reporting has been on meeting the needs of which of the following
groups? Existing and potential investors, lenders and other creditors
The primary objective of financial reporting is to provide useful information to Capital providers
Which is an objective of financial reporting?
To provide information that is useful in making investing and credit decisions
An objective of financial reporting is to provide Information that is useful in assessing cash flow
prospects
Assessing cash flow prospects is interpreted to mean Over the long run, trends in revenue and
expenses are generally more meaningful than trends in cash receipts and disbursements
In measuring financial performance, accrual accounting is used because It provides a better indication
of ability to generate cash flows than cash basis
The most useful information in predicting future cash flows is Current earnings based on accrual
accounting
The accrual basis of accounting is most useful for Predicting the long-term financial performance
The objective of financial reporting is based on The needs of the users of the information
Which statement is not true about financial reporting? Financial reporting shall not provide information
useful in evaluating management stewardship.
Which of the following is not an objective of financial To provide information about the liquidation
value of an entity
Financial reporting pertains to information about Individual business entities, rather than to industries
or an economy as a whole or to members of society as consumers
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Under the Revised Conceptual Framework, during a period when an entity is under the direction of a
particular management, financial reporting provides information about entity performance and
management performance
A Conceptual Framework should define the basic objectives, terms and concepts of accounting
CHAPTER 3
Information that has no bearing on an economic decision to be made is useless. Relevance
It is the ability to bring together for the purpose of noting points of likeness and difference.
Comparability
It requires that users have some knowledge of the complex economic economic activities of entities,
the accounting process and the technical terminology in the statements. Understandability
Preparers of statements should not try to increase the usefulness of the information to a few users to
the detriment of others who may have opposing interests. Neutrality
In case of conflict between economic substance and legal form or a transaction, the economic
substance shall prevail. Substance over form
Small expenditures for tools are expensed immediately. Materiality
When in doubt, recognize all loses and don’t recognize gains. Conservatism
The information should be presented in a manner that facilitates understanding and avoids erroneous
implication. Completeness
It is the capacity of the information to influence a decision. Relevance
The description and numbers of figures must watch what really existed or happened. Faithful
representation
The financial statements shall be accompanied by notes to financial statements. Completeness
There are no errors or omissions in the description of the phenomenon. Free from error
It is the goal achieved by consistency. Comparability
This enhancing qualitative characteristics implies consensus. Verifiability
The older the information, the less useful. Timeliness
What are the attributes that make the information provided in the financial statements useful to the
readers? Qualitative characteristics of financial information
Qualitative characteristics Are considered either fundamental or enhancing, Distinguish better
information from inferior information for decision-making purposes, Contribute to the decisionusefulness of financial reporting information All of the choices are correct
The fundamental qualitative characteristics are Relevance and faithful representation
Accounting information is considered relevant when it Is capable of making a difference in a decision
The ingredients of relevant financial information are Predictive value and confirmatory value
What is the quality of information that gives assurance that it is reasonably free of error and bias?
Faithful representation
Which of the following is the best description of “faithful representation” in relation to information in
financial statements? Freedom from material error
To achieve faithful representation, the financial statements must be complete, neutral and reasonably
free from error
The financial accounting information is directed toward the common needs of users and is
independent of presumptions about particular needs and desires of specific users neutrality
In the event of conflict between the economic substance of a transaction and the legal form, the
economic substance shall prevail Substance over form
The enhancing qualitative characteristics of financial information are
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comparability, understandability, verifiability and timeliness
Financial information exhibits consistency when Accounting entities give similar events the same
accounting treatment each period
When information about two different entities engaged in the same industry has been prepared and
presented in similar manner, the information exhibits the enhancing qualitative characteristics of
comparability
The characteristic that is demonstrated when a high degree of consensus can be secured among
independent measures using the same measurement method is verifiability
Which concept of accounting holds that, to the maximum extent possible, financial statements shall
be based on arm’s length transactions verifiability
An entity issuing the annual financial reports within one month after the end of reporting period is an
example of which enhancing quality of accounting information? Timeliness
Allowing entities to estimate rather than physically count inventory at interim periods is an example of
a trade off between timeliness and verifiability
Which qualitative characteristic of financial information requires that the information should not be
biased in favor of one group of users to the detriment of others? neutrality
For information to be useful, the linkage between the users and the decisions made is
understandability
The overriding qualitative characteristics of accounting information is Decision usefulness
Which statement is true in relation to the enhancing quality of understandability? Users have a
reasonable knowledge of business and economic activities and review the information with reasonable
diligence.
Which of the following terms best describes information that influences the economic decisions of
users?
Relevant
What is the quality of information that enables users to better forecast future operations? Relevance
According to the Conceptual Framework, predictive value and confirmatory value are ingredients of
Relevance
Which term best describes information in financial statements that is neutral?
Unbiased
What is meant by comparability when discussing financial accounting information? Information is
measured and reported in a similar fashion across entities
What is meant by consistency when discussing financial accounting information? Information is
measured and reported in a similar fashion across points in time
Which of the following is not an enhancing qualitative characteristics? profit-oriented
Changing the method of inventory valuation should be reported in the financial statements under
what enhancing quality of accounting information? Comparability
When an entity applies the same accounting treatment to similar events from period to period, the
entity is exhibiting which of the following qualities? Consistency
When there is agreement between a measure or description and the phenomenon it purports to
represent, the information possesses which characteristics Faithful representation
The qualitative characteristics of faithful representation includes neutrality
Enhancing qualitative characteristics of accounting information include all of the following,
except: materiality
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The enhancing quality of understandability means that the information should be understood by
Those who have a reasonable understanding of business and economic activities
Enhancing qualitative characteristics of accounting information include: comparability and timeliness
When different competent accountants independently agree on the amount and method of reporting
an economic event, what is the concept demonstrated? verifiability
According to the conceptual framework, verifiability implies consensus
When an entity has started placing its quarterly financial statements on its web page, thereby
reducing by ten days the time to get information to investors and creditors, the qualitative concept
involved is timeliness
When an entity changed the inventory valuation method, which characteristics is jeopardized by this
change? Consistency
Recognizing expected losses immediately but deferring expected gains is an example of conservatism
Which statement about materiality is true? An item is material if the omission or misstatement
would influence the judgment of a primary user, An item must make a difference or it need not be
disclosed, Materiality is a matter of relative size or importance
All of the given statements are true about materiality
An item would be considered material when Omitting, misstating or obscuring the information would
make a difference to the primary users.
The Conceptual Framework includes which constraint? Cost
Which best describes the cost-benefit constraint? The benefit of the information must be greater than
the cost of providing it
What is an enhancing quality of accounting information? Users need reasonable knowledge of
business and financial accounting matters to understand the information contained in financial
statements.
The ability through consensus among measures to ensure that information represents what it
purports to represent is an example of the concept of? Verifiability
Which of the following accounting concepts states that an accounting transaction shall be supported
by sufficient evidence to allow two or more qualified individuals to arrive at essentially similar
conclusion? objectivity
Objectivity is assumed to be achieved when a transaction Involves an arm’s length transaction
between two independent parties
The principles of objectivity includes the concept of verifiability
Proponents of historical cost maintain that statements prepared using historical cost are
more Objective
The consistency standard requires that The effect of accounting changes upon income should be
properly disclosed
Which of the following relates to both relevance and faithful representation? comparability
Which of the following situations violates the concept of faithful representation? Financial statements
included an item of property, plant and equipment with carrying amount increased to management
estimate of market value
What is the underlying concept governing the GAAP pertaining to recording gain contingencies?
Conservatism
The usefulness of providing information in financial statements is subject to the constraint of
cost-benefit
A conceptual framework is a coherent system of interrelated objectives and fundamentals that lead to
consistent standards True
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Fundamental qualitative characteristics of financial accounting information are either relevant or
prudent. False
An enhancing qualitative characteristic is confirmatory value False
A fundamental qualitative characteristic is understandability False
To be a faithful representation, an information must be predictive and confirmatory False
An enhancing quality of financial accounting information is comparability True
Applying different accounting treatment to similar event from period to period is violation of
verifiability. False
The idea of consistency does not mean that entities cannot switch from one accounting method to
another. True
Financial statement users are assumed to have no reasonable knowledge of business and financial
accounting matters. False
Entities consider only quantitative factors in determining whether an item is material False
Neutrality and predictive value are characteristics of relevant information. False
The tendency to recognize favorable events early is an example of conservatism False
The Conceptual Framework focuses primarily on the needs of internal users of financial information.
False
The overall objective of financial reporting is to provide information for making economic decisions.
True
Once an accounting method is adopted, it should never be changed False
CHAPTER 4
What is the general objective of financial statements? To provide information about economic
resources of an entity, claims against the entity and changes in the economic resources and claims
A reporting entity is an entity that is required or choose to prepare financial statements
A reporting entity
Can compromise more than one entity, Can be a single entity, Can be a portion of a single entity All of
the given answers can be considered a reporting entity
If the reporting entity comprises both the parent and its subsidiaries, the financial statements are
referred to as Consolidated financial statements
Combined financial statements provide financial information about Two or more entities without a
parent-subsidiary relationship
Which best describes the term going concern? The ability of the entity to continue in operation for the
foreseeable future
Which is an implication of the going concern assumption?
The historical cost principle is credible.
Depreciation and amortization policies are justifiable and appropriate.
The current and noncurrent classification of assets and liabilities is justifiable and significant
All of these are an implication of going concern.
Which of the following is not a basic assumption underlying financial accounting? historical cost
assumption
Which basic assumption may not be followed when an entity in bankruptcy reports financial results?
going concern assumption
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The economic entity assumption Is applicable to all forms of business organizations
What is being violated if an entity provides financial reports in connection with a new product
introduction?
Economic entity
Which underlying assumption serves as the basis for preparing financial statements at regular
artificial points in time? accounting period
Which basic accounting assumption is threatened by the existence of severe inflation in the economy?
monetary unit assumption
Inflation is ignored in accounting due to
monetary unit assumption
The concept of accounting entity is applicable whenever accounting is involved.
When a parent and subsidiary relationship exists, consolidated financial statements are prepared in
recognition of
Economic entity
The valuation of a promise to receive cash in the future at present value is valid because of what
accounting concept? going concern
What is the accounting concept that justifies the usage of accruals and deferrals?
going concern
During the lifetime of an entity accountants produce financial statements at arbitrary points in time in
accordance with what basic accounting concept?
Periodicity
The relatively stable economic, political and social environment supports going concern
The operations of a savings bank are being evaluated by the BSP. During the investigation, the BSP
has determined that numerous loans made by top management were unwise and have seriously
endangered the future of the saving bank. going concern
The parent entity in Manila has a subsidiary in Japan. The financial statements of the subsidiary are
translated to pesos for consolidation with the financial statements of the parent entity at year-end.
Accounting entity
A machinery was imported from USA at a certain cost five years ago. Because of inflation, the
machinery has now a current replacement cost which is very much higher that the historical cost.
Management would like to report the machinery at current replacement cost. Monetary unit
An entity has experienced a drastic reduction in revenue by reason of a long try spell in the area
where the entity grows its tobacco. The management decided to wait until next year and present
financial statements for a two-period rather than prepare now the financial statements. Time period
A subsidiary was exhibiting poor financial performance for the current year. In an effort to increase
the subsidiary’s reported income, the parent entity purchased goods from the subsidiary at twice the
normal markup. Accounting entity
An entity decided to publish financial statements only in the years when it had good news to report.
Time period
An entity reported inventory, property, plant and equipment and intangible assets at current value at
year-end. going concern
An electronics entity owned by a proprietor reported the cost of the proprietor’s swimming pool as an
asset of the entity. Accounting entity
An entity prepared financial statements adjusted for changes in purchasing power. Monetary unit
A mining entity kept no accounting records after starting business. The entity is waiting until the mine
is exhausted to determine the success or failure of business. Time period
An entity reported financial statements in nominal pesos that have mixed rather than uniform amount
of purchasing power. Monetary unit
A multinational entity published a complete set of financial statements at least once a year, regardless
of whether the financial results were good or bad. Time period
The pesos of today can buy as much as goods and services as the pesos five years ago. Monetary unit
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An accounting entity is viewed as continuing in operation in the absence of evidence to the contrary.
going concern
An accounting practitioner mixed personal accounting records with the records of the accounting
practice. Accounting entity
CHAPTER 5
The elements directly related to the measurement of financial position are
- Asset, liability and equity
The elements of financial position describe amounts of resources and claims against resources
- At a moment in time
The elements directly related to the measurement of financial performance are
- Income and expenses
It is a present economics resources controlled by the entity as a result of past events
- assets
It is a present obligation of the entity to transfer an economic resource as a result of past events
- liability
It is the residual interest in the assets of the entity after deducting all of the liabilities
- Equity
It is an increase in asset or a decrease in liability that result in increase in equity other than
contribution from equity holders
- income
It is a decrease in asset or an increase in liability that results decrease in equity other than distribution
to equity holders
- Expense
Which statement in relation to income is true?
- Income encompasses both revenue and gain
Which is not within the new definition of an asset?
- Future economic benefit is expected to flow to the entity
Which of the following criteria need not be satisfied for a liability to exist?
- The settlement is expected to result in an outflow of economic benefit
A present obligation exists as a result of past event if
- The entity has already obtained economic benefit and must transfer economic resource
Rights that have the potential to produce economic benefits and correspond to an obligation of
another entity include all, except
- Right over property, plant and equipment
An economic resource could produce economic benefit if an entity is entitled to all, except
- To exchange economic resources with another entity on unfavorable terms
It is the present ability to direct the use of an economic resource and obtain the benefit that may flow
from it
- control
It is a duty or responsibility that an entity has no practical ability to avoid
- Obligation
Obligation to transfer an economic resource include all, except
- Obligation to transfer an economic resource even if a specified future event does not occur
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Which statement is not true about income and expense?
- Income and expenses are the elements that relate to financial position
This is new term refers to the statement of profit or loss and a statement presenting other
comprehensive income
- Statement of financial performance
Revenue may result from
- A decrease in a liability from primary operation
What is the primary distinction between revenue and gain?
- The nature of the activity that gives rise to the transaction
The term income
- Includes gain resulting from the sale of an asset in an arm’s length transaction
A decrease in an asset arising from peripheral or incidental transaction is called
- Loss
An outflow of asset based on an activity that represents the major operations is called
- Expense
This arises in the course of ordinary regular activities of the entity and is referred to by a variety of
different names including sales, fees, interest, dividends, royalties and rent
- Revenue
CHAPTER 7
The presentation and disclosure requirement achieves all of the following, except
- Financial position, financial performance and cash flows
It is the sorting of assets, liabilities, equity, income and expenses with similar characteristics.
- Classification
All of the following can considered appropriate classification, except
- offsetting asset and liability
Income and expenses are classified as
- Profit or loss and other comprehensive income
What is the new term to describe the statement of profit or loss together with the statement showing
other comprehensive income
- Statement of financial performance
Financial capital is defined as
- Net assets in monetary terms
The physical capital maintenance concept requires the adoption of which measurement basis?
- Current cost
Which concept is applied to net income and other comprehensive income?
- Financial capital
Which statement regarding the term profit is true?
- All of these statements are true about the term profit.
Under the Financial capital concept, net income occurs when
- The nominal amount of net assets at year-end increased after excluding distributions to and
contributions from owners.
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CHAPTER 8
1. The major financial statements include all, except
-Statement of changes in financial position
2. The major financial statements include all, except
- Statement of retained earnings
3. What is the objective of financial statements?
-
To provide information about the financial position, financial performance and changes
in financial position of an entity that is useful to a wide range of users in making
economic decisions.
4. Financial statements must be prepared at least
- Annually
5. When entity changed the end of reporting period longer or shorter than one year, the entity
shall disclose all, except
- The fact that similar entities have done so
6. When there is much variability, the operating cycle is measured at
- Twelve months
7. The operating cycle of an entity
Is the time between the acquisition of materials entering into a process and their
realization in cash
8. An entity shall classify an asset as current under all of the following conditions, except
-
-
The asset is cash or a cash equivalent that is restricted to settle a liability for more than
twelve months after the reporting period
9. An entity shall classify a liability as current when under all of the following conditions, except
-
The entity has an unconditional right to defer settlement of the liability for at least
twelve months after the reporting period.
10. Which obligations are classified as current even if these are due to be settled after more than
twelve months from the end of the reporting period?
-Trade payables and accruals for employee and other operating cost
11. Current and noncurrent presentation of assets and liabilities provides useful information when
the entity
-Supplies goods or services within a clearly identifiable operating cycle
12. A presentation of assets and liabilities in increasing or decreasing order of liquidity provides
information that is reliable and more relevant than a current and noncurrent presentation for
- Financial institution
13. In the Philippines, the common practice is to present in the statement of financial position
-
Current assets before noncurrent assets, current liabilities before noncurrent liabilities
and equity after liabilities.
14.A financial liabilities due within twelve months after the reporting period shall be classified as
noncurrent
- When it is refinanced on a long-term basis on or before the end of reporting period.
15. When an entity breaches under a long-term loan agreement on or before the end of the
reporting period with the effect the liability becomes payable on demand, the liabilities is
classified as
-
Current if the lender has agreed after the reporting period and before the issuance of
the statements not to demand as a consequence of the breach
16. In presenting a statement of financial position, an entity
-
Must make the current and noncurrent presentation, except when a presentation based
on liquidity provides information that is reliable and more relevant.
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17. Assets to be sold, consumed or realized as part of the normal operating cycle are
-
Current assets
18. Liabilities that an entity expects to settle within the normal operating cycle are classified as
-
Current liabilities
19. In which section of the statement of financial position should cash that is restricted for the
settlement of a liability due 18 months after the reporting period be presented?
-
Noncurrent assets
20. In which section of the statement of financial position should employment taxes that are due
for settlement in 15 months' time be presented?
-
Current liabilities
21.An entity has a loan due for repayment in six months' time but the entity has the option to
refinance for repayment two years later. The entity plans to refinance this loan. In which
section of the statement of financial position should this loan be presented?
- Noncurrent liabilities
22. Which of the following must be included on the face of the statement of financial position?
Investment property
-
23. Which of the following is not required to be presented as minimum information on the face of
the statement of financial position?
Contingent liability
-
24.Which of the following must be included as a line item in the statement of financial position?
- Deferred tax liability
25.Which statement about the statement of financial position is not true?
- A revaluation surplus on a noncurrent asset in the current year should be recognized in
the income statement.
26. In analyzing an entity's financial statements, which financial statement would a potential
investor primarily use to assess liquidity and financial flexibility?
-
Statement of financial position
27. Which is an essential characteristic of an asset?
-
An asset is a right that has the potential to produce economic benefit
28.The essential characteristics of an asset include all of the following, except
- The asset is tangible.
29. Conceptually, asset valuation accounts are
-
Neither assets nor liabilities
30. Working capital is
-
Current assets less current liabilities
31. As generally used, the term net assets represents
-
Total assets less total liabilities
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32. Treasury shares should be, reported as
-
Reduction of shareholders' equity
33. The term "deficit" refers to
-
A debit balance in retained earnings
34. When classifying assets as current and noncurrent
-
Assets are classified as current if reasonably expected to be realized in cash or
consumed during the normal operating cycle.
35. The basis for classifying assets as current or noncurrent is the period of time normally required
to convert cash invested in
-
Inventory back into cash or 12 months, whichever is longer
36. Which should be classified as current asset?
-
Trade installment accounts receivable normally collectible in 18 month
37. Which should not be considered as current asset?
-
Cash surrender value of life insurance policy
38.Current assets should never include
- Goodwill arising in a business combination
39. Equity investments held to finance construction of additional plant should be classified as
-
Noncurrent investments
40. Which of the following is not a noncurrent investment?
-
Franchise
41.The statement of financial position is useful for analyzing all of the following, except
- Profitability
42.The statement of financial position is useful for all of the following, except
- To analyze cash inflows and outflows for the period
43. What is one criticism not normally aimed at a statement of financial position?
-
The extensive use of separate classifications
44. The statement of financial position
-
Omits many items that are of financial value
45. Which is a limitation of a statement of financial position?
-
All of these are a limitation of the statement of financial position
46. The amount of time that is expected to elapse until an asset is realized or otherwise converted
into cash is referred to as
-
Liquidity
47. Which of the following is not an acceptable major asset classification?
-
Deferred charges
48. What is an example of an item which is not an element of working capital?
-
Goodwill
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49. Accrued revenue would normally appear in the statement of financial position under
-
Current assets
50.Which of the following is usually classified as a noncurrent asset
- Plant expansion fund
51. Notes to financial statements
-
Are an integral part of an entity's financial statements
52. Which of the following best demonstrates the full disclosure principle?
-
The notes to financial statements
53. To meet the needs of full disclosure, entities use supplemental information including
-
All of these are correct
54. The recognition and measurement concepts recognize which of the following as a principle
rather than an assumption?
-
Full disclosure
55. The full disclosure principle requires a balance between
-
Relevance and cost effectiveness
56. For a liability to exist
-
There must be past event
57. Which statements best describes the term liability?
- a present obligation arising from past event
58. Which item is not a current liability?
- Share dividends payable
59. Noncurrent liabilities include
- all of the choices are noncurrent liabilities
60. Which is not within the definition of a liability?
-The signing of a three-year employment contract at a fixed annual salary
CHAPTER 6
It is the process of capturing for inclusion in the financial statements an item that meets the definition
of the elements of financial statements.
Correct!
Recognition
Question 2
1 / 1 pts
An item is recognized in the financial statements if
Correct!
It meets the definition of an asset, liability, equity, income and expense
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Question 3
1 / 1 pts
Recognition of an element is appropriate when information results in
Correct!
Both relevance and faithful representation
Question 4
1 / 1 pts
It is the removal of all or part of a recognized asset or liability from the statement of financial position
Correct!
Derecognition
Question 5
1 / 1 pts
Derecognition normally occurs when
An item no longer meets the definition of an asset or a liability
The entity loses control of the asset
The entity no longer has a present obligation for the liability
Correct!
Under all of these circumstances
Question 6
1 / 1 pts
Generally, revenue is recognized
Correct!
At the point of sale
Question 7
1 / 1 pts
which of the following is not an accepted basis for recognition of revenue?
Correct!
Upon signing of contract
Question 8
1 / 1 pts
Normally, revenue is recognized
Correct!
When the title to the goods changes
Question 9
1 / 1 pts
Which of the following practices may not be an acceptable deviation from recognizing revenue a the
point of sale?
Correct!
Upon receipt of order
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Question 10
1 / 1 pts
Which of the following represent the least desirable choice for the recognition of revenue?
Correct!
Recognition of revenue when cash is collected
Question 11
1 / 1 pts
Revenue recognition conventionally refers to
Correct!
The process of identifying transactions to be recorded as revenue in an accounting period
Question 12
1 / 1 pts
Which of the following in the most precise sense means the process of converting noncash resources
and rights into cash or claims to cash?
Correct!
Realization
Question 13
1 / 1 pts
Gains on assets unsold are identified, in a precise sense, by the term
Correct!
Unrealized
Question 14
1 / 1 pts
The term recognized is synonymous with the term
- Recorded
Question 15
1 / 1 pts
Which statement conforms to the realization concept?
Correct!
Equipment was sold in exchange for a note receivable
Question 16
1 / 1 pts
Which of the following is not a theoretical basis for the allocation of expense?
Correct!
Profit maximization
Question 17
1 / 1 pts
Costs that can be reasonably associated with specific revenue but not with specific product should be
Correct!
Expensed in the period in which the related revenue is recognized
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Question 18
1 / 1 pts
Which of the following is an example of the cause and effect association principle?
Correct!
Sales commission
Question 19
1 / 1 pts
Which of the following is an application of the systematic and rational allocation principle?
Correct!
Amortization of intangible asset
Question 20
1 / 1 pts
Which of the following would be matched with current revenue on a basis other than association of
cause and effect?
Correct!
Goodwill
Question 21
1 / 1 pts
Why are certain costs of doing business capitalized when incurred and then depreciated or amortized
over subsequent accounting periods?
Correct!
To match the cost of production with revenue
Question 22
1 / 1 pts
Which of the following principle best describes the conceptual rationale for the method of matching
depreciation with revenue?
Systematic and rational allocation
Question 23
1 / 1 pts
Which of the following should be expensed under the principle of systematic and rational allocation?
Insurance premiums
Question 24
1 / 1 pts
The writeoff of a worthless patent is an example of which of the following principles
Correct!
Immediate recognition
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Question 25
1 / 1 pts
What is an example of cost that cannot be directly related to particular revenue but incurred to obtain
benefits that are exhausted in the period when the cost is incurred?
Correct!
Sales salaries
Question 26
1 / 1 pts
The matching principle is best demonstrated by
Correct!
Associating effort with accomplishment
Question 27
1 / 1 pts
Bad debt expense is recognized according to which expense recognition principle?
Correct!
Direct matching
Question 28
1 / 1 pts
What is the general approach as to when product costs are recognized as expense?
Correct!
In the period when the related revenue is recognized
Question 29
1 / 1 pts
When should an expenditure be recorded as an asset rather than an expense?
Correct!
When there is a right that has the potential to produce economic benefit
Question 30
Which accounting principle is being observed when an accountant charges to expense a cost that
contributed to revenue during a period?
Matching
Question 31
1 / 1 pts
Which of the following is not an acceptable basis for the recognition of expense?
Correct!
Cash disbursement
Question 32
1 / 1 pts
A cause and effect relationship is implicit in the
Correct!
Matching principle
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Question 33
1 / 1 pts
An example of direct matching of an expense with revenue would be
Correct!
Direct labor costs incurred to produce inventory sold during a period
Question 34
1 / 1 pts
Which category of expenses is subject to immediate recognition in the income statement?
Correct!
The salary of the entity president
Question 35
1 / 1 pts
Which principle best describe the rational for matching distribution costs and administrative expenses
with revenue of the current period?
Correct!
Immediate recognition
Question 36
Which statement is true about current value?
Fulfillment value is the present value of the cash expected to be transferred for the payment of
liability
Value in use is the present value of the cash flows expected to be derived from the use and ultimate
disposal of an asset
Fair value of an asset is the price that would be received to sell an asset in an orderly transaction
between two market participants at the measurement date
All of the given statements are true about current value
Question 37
The measurement bases include
Historical cost and current value
Question 38
Current value includes
Fair value, present value and current value
Question 39
Which measurement attribute is not currently used in practice
Inflation adjusted cost
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Question 40
It is the amount of cash or cash equivalent that would have to be paid if the same or an equivalent
asset was acquired currently
Current cost
Exercise _ Chapter 9 _ FS - SCI (2) (with correct answer)
Score for this quiz: 39 out of 40
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
-
Earnings
Exclude certain gains and losses included in comprehensive income
Comprehensive income includes all of the following, except
Preference share dividend
Other comprehensive income includes all, except
Dividend paid to shareholders.
Which term cannot be used to describe a line in the statement of comprehensive income?
Extraordinary item
Net income equals
Revenue minus expenses
Which is not generally accepted in presenting the income statement?
Including prior period error in determining income
Which of the following would appear first in a statement of retained earnings?
Prior period error
What is the purpose of reporting comprehensive income?
To report measure of overall entity performance.
The income statement reveals.
Net earnings for a period of time
Comprehensive income always
Could be greater than or less than net income.
The income statement would help in which of the following?
Estimate amount, timing and uncertainty of future cash flows
12.
All of the following components of OCI should be reclassified to profit or loss, except
13.
Remeasurement of equity investment at FVOCI
It is the total of income less expenses, excluding other comprehensive income
-
Profit or loss
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14.
15.
16.
17.
18.
19.
20.
-
The income statement would help in which of the following?
Estimate future cash flows
Corrections of errors in prior period are included in
Retained earnings
Income determination is arrived at by
Using a transaction approach
The limitation of the income statement includes all of the following, except
Only actual amounts are reported in net income
All of the following are components of other comprehensive income, except
Unrealized gain and loss on financial asset held for trading
Conceptually, net income is a measure of
Change of wealth
Comprehensive income includes
Both profit or loss and other comprehensive income
21.
It is a change in equity during a period resulting from transaction and other events, other than
those changes resulting from transactions owner in their capacity as owners.
Comprehensive income
22.
When a complete set of financial statements is preempted, comprehensive income and its
components should
Be displayed in a statement that has the same prominence as other financial statements.
23.
-
Which of the following components of OCI should be reclassified to retained earnings?
All of these components of OCI should be reclassified to retained earnings.
24.
-
Which of the following is not an acceptable option in presenting other comprehensive income?
In the notes to financial statements
25.
Comprehensive income includes all of the following, except
26.
27.
28.
29.
30.
Investment by owners
Change in equity from nonowner sources is
Comprehensive income
Which of the following would represent the least likely use of the income statement?
Use by investors interested in financial position/
Items of other comprehensive income should be analyzed
By nature
Gains are
Increases in equity from peripheral transactions
Separate line items in an analysis of expenses by nature include
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-
Cost of goods sold, administrative costs, transport costs and distribution costs
-
(Correct answer: Depreciation, purchases, transport costs, employee benefits)
31.
Total comprehensive income for the period is presented
Showing separately the total amount attributable to owners of the parent and the
noncontrolling interest
32.
What is the two -statement approach of presenting comprehensive income?
-
A separate income statement and a separate statement of comprehensive income
33.
Which of the following changes during a period is not a component of other comprehensive
income?
Treasury share
34.
35.
36.
-
An entity shall present an analysis of expenses based on
Either the nature of expenses or the function of expense
Under IFRS, the extraordinary item presentation
has been eliminated
Which of the following does not appear in a statement of retained earnings?
Other comprehensive income
37.
Which of the following items would cause net income to differ from comprehensive income?
Unrealized loss on equity investment measured at fair value through other
comprehensive income.
38.
It comprises items of income and expense, including reclassification adjustments, that are not
recognized in profit or loss as required or permitted by PFRS.
Other comprehensive income
39.
40.
-
Separate line items in an analysis of expenses by function include
Cost of goods sold, administrative expenses, and distribution expenses
Investors and creditors use the income statement for all of the following, except
To evaluate the future performance of an entity.
Exercise _ Chapter 10 _ Statement of Cash Flows
Score for this quiz: 20 out of 20
1.
-
Interest received is classified as cash flow from:
operating activities
2.
Which classification of the cash flow arising from the proceeds from an earthquake disaster
settlement would be most appropriate?
Cash flow from operating activities
3.
4.
-
Cash equivalents are
All of the choices are features of cash equivalents
The primary purpose of a statement of cash flows is to provide relevant information about
The cash receipts and cash disbursements of an entity during a period.
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5.
-
Under IFRS, dividend paid can be classified as
Either as operating activities or a financing activities
6.
Cash receipts from royalties and commissions are:
-
Cash inflows from operating activities
7.
8.
9.
10.
Under IFRS, the dividend received from shares investments can be classified as
Either an operating activities or investing activities
Under IFRS, an entity can report interest paid on bank loan in the statement of cash flows
Either in operating activities or financing activities
Noncash investing and financing activities are
Disclosed in a note of separate schedule
Which of the following is not considered as a cash equivalent?
A three-year treasury note maturing on January 31 of next year purchased by the entity
on October 1 of the current year
11.
Cash receipts from issuing shares are
-
Cash inflows from financing activities
12.
Bank overdrafts that are repayable on demand and the bank balance often fluctuates from
positive to overdrawn shall be classified as
component of cash and cash equivalent
13.
14.
15.
16.
17.
-
Interest payments to lenders are classified as
operating activities
Cash flows arising from trading securities are
Classified as operating activities
Cash flows relating to asset held for rental to others are classified as
Operating
Cash advances and loans made by a financial institution are usually classified as
operating activities
All can be classified as cash and cash equivalents, except
Equity investments
18.
When an entity purchased a three-month Treasury bill, how would the purchase be treated in
preparing the statement of cash flows?
Not reported
19.
20.
-
Dividends payments to shareholders are classified as
Cash outflows for financing activities
Cash payments to acquire equity investment are
Cash outflows for investing activities
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Exercise _ Chapter 11 _ Accounting Policies, Estimate and Errors
Score for this quiz: 24 out of 25 (with correct answer)
1. Which is the first step within the hierarchy of guidance when selecting accounting policies?
-
Apply a standard from IFRS if it specifically relates to the transaction.
2. In the absence of an accounting standard that applies specifically to a transaction, what
is the most authoritative source in developing and applying an accounting policy?
-
The requirement and guidance in the standard or interpretation dealing with similar and
related
issue.
3. A change in accounting policy shall be made when
Required by law.
I.
Required by an accounting standard
II.
The change will result in more relevant or reliable information about the financial
position, financial performance and cash flows of the entity.
III.
-
II and III only
4. Why is an entity is permitted to change an accounting policy?
-
the change would result in financial statements providing more reliable and relevant
information
about financial position, financial performance and cash flows.
5. A change in accounting policy requires what kind of adjustment to the financial statements?
-
Retrospective adjustment.
6. A change in accounting policy required that the cumulative effect of the change for prior
periods should be reported as an adjustment to
-
beginning retained earnings for the earliest period presented.
7. Which of the following is accounted for as a change in accounting policy?
-
A change in inventory valuation from FIFO to average method.
8. Which is a change in accounting policy?
-
All of these are considered change in accounting policy.
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9. Which of the following should be treated as change in accounting policy?
-
A change from cost model to fair value model in measuring investment property.
10. When it is difficult to distinguish between a change in accounting estimate and a change in
accounting policy, the change is treated as
-
change in accounting estimate with no appropriate disclosure.
-
(Correct answer: change in accounting estimate with appropriate disclosure.)
11. How should the effect of a change in accounting estimate be accounted for?
-
In the period of change and future periods if the change affects both.
12. Which is characteristics of a change in accounting estimate?
-
It does not affect the financial statements of the prior period.
13. Which of the following is the proper time period to record the effect of a change in accounting
estimate?
-
Current period and prospectively.
14. Why is retrospective treatment of change in accounting estimate prohibited?
-
A change in accounting estimate is a normal recurring correction or adjustment.
15. Which is required for a change from sum of years’ digits to straight line depreciation?
-
Recomputation of depreciation for current and future years.
16. Which is not classified as an accounting change?
-
Error in the financial statements.
17. When financial statements for a single year are being presented, a prior period error should
-
Be shown as an adjustment of the beginning balance or retained earnings
18. Prior period errors
-
are omissions and misstatements in the financial statements of prior periods.
19. An example of correction of an error is a change
-
from cash basis to accrual basis of accounting.
20. A change from cash basis to accrual basis should be reported.
-
retroactively as correction of an error.
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21. A change in the periods benefited by a deferred cost because additional information has been
obtained is
-
An accounting change that should be reported in the period of change and future
periods if the
change affects both.
22. A change in residual value of an asset arising because additional information has been obtained
is
-
an accounting change that should be reported in the period of change and future
periods if the
change affects both.
23. Which statement in relation to a change in accounting estimate is true?
-
Change in accounting estimate results from new information or new development.
24. The effect of change in accounting policy that is inseparable from the effect of a change in
accounting estimate should be reported
-
as a component of income from continuing operations in the period of change and
future periods
if the change affects both.
25. When an entity changed the expected service life of an asset because additional
information has been obtained, which of the following should be reported?
-
An accounting change that should be reported in the period of change and future
periods if the
change affects both.
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Exercise _ Chapter 12 _ Events after the reporting period
Score for this quiz: 14 out of 14
1. Events after the reporting period are favorable or unfavorable events that occur between
-
the end of the reporting period and the date when the financial statements are
authorized for
issue.
2. Adjusting events are those that
-
provide evidence of conditions that existed at the end of the reporting period.
3. When after the end of reporting period an event occurs that is indicative of conditions that
arose the end of reporting period
-
The entity shall disclose the nature and effect of the event in the financial statements
4. Financial statements are authorized for issue
-
when the board of directors reviews and authorizes the financial statements for issue.
5. Which event after reporting period would require adjustment?
-
Loss on a lawsuit the outcome of which was deemed uncertain at year-end.
6. Events that occurs after the current year-end but before the financial statements are issued
and affect the realizability of accounts receivable should be
-
used to record an adjustment to bad debts expense.
7. Nonadjusting events include all, except
-
destruction of a major production plant by a fire before the end of the reporting period.
8. Nonadjusting events included all, except
-
a mistake in the calculation of allowance for uncollectible accounts receivable.
9. Which event after the end of reporting period would generally require disclosure?
-
Issue of a large amount of ordinary shares.
10. At the end of the current reporting period, an entity carried a receivable from a major
customer who declared bankruptcy after the end of reporting period and before the
issuance of financial statements. What should be reported at the current year-end?
-
Make a provision for the event after reporting period in the financial statements.
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11. An entity decided to build and operate an amusement park next year. The entity applied for
a letter of guarantee which was issued before the issuance of the financial statements of the
current year. What is the adjustment required at the current year-end?
-
Do nothing.
12. An entity built a new factory building during the current year. Subsequent to the current yearend and before issuance of financial statements, the building was destroyed by fire and the
claim against the insurance entity proved futile because the cause of the fire was negligence
on the part of the caretaker of the building. What should be reported at the current year-end?
-
Disclose the nonadjusting event in the notes to financial statements.
13. An entity deals extensively with foreign currency transactions. Subsequent to the end of
reporting period and before the date of authorization of the issuance of the financial
statements, there were abnormal
fluctuations in foreign currency rate. What should be reported at the current year-end?
-
Disclose the post-reporting period event.
14. Which statements is true in relation to events after reporting period?
-
Notes to the financial statements should give details of material nonadjusting events
which could
influence the economic decision of users.
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Exercise _ Chapter 13 _ Related Party Disclosure
Score for this quiz: 15 out of 15
1. Related parties included all of the following, except
-
two ventures simply because they share joint control over a joint venture.
2. A related party transaction is a transfer
- between related parties, regardless of whether a price is charged.
3. Unrelated parties include which of the following?
-
All of these are unrelated parties.
4. Close family members of an individual include all, except
-
Brother and sisters of the individual
5. The minimum disclosure about related party transactions include all of the following, except
-
nature of the relationship.
6. Which is not included in key management personnel compensation?
-
Reimbursement of out-of-pocket expenses
7. Which of the following is not a mandated disclosure about related party transactions?
-
Names of all the associates that an entity has dealt with during the year.
8. Which of the following is not a required minimum discloser about related party transaction?
-
The amount of similar transaction with unrelated parties to establish that comparable
related
party transaction has been entered at arm’s length.
9. Related party transaction include all, except
-
Sold a car to the another entity’s finance director
10. All of the following are related party transaction, except
-
took out a huge bank loan
11. An entity that entered into a related party transaction would be required to disclose all of
the following information, except
-
nature of any future transactions planned between the parties and the terms involved.
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12. Which is not require as a related party disclosure?
-
An entity that has a common director with the entity
13. All of the following are related parties, except
-
the partner of a key manager is a major supplier of the entity.
14. Which of the following is not a related party of an entity?
-
An entity providing banking facilities to the entity.
15. Which of the following should be included in key management personnel compensation?
-
Social security contributions and postemployment benefits.
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Chapter 14 – Inventories
1. LCNRV of inventory Is always either the net realizable value or cost
2. Which of the following costs should be included in inventory valuation? Fixed production
overhead
3. Costs incurred in bringing the inventories to their present location and condition include
Cost of designing products for specific customers
4. A property developer must classify properties that it holds for sale in the course of
business as Inventory
5. Lower of cost and net realizable value as it applies to inventory is best described as
Reporting of a loss when there is a decrease in the future utility below the original cost
6. Inventories are defined by all of the following, except Used in the production or supply of
goods and services for administrative purposes
7. When the allowance method is used to record inventory at net realizable value A loss is
recorded separately
8. When inventory is misstated, the presentation lacks Faithful representation
9. Which of the following cost flow assumptions is used for inventory when an entity builds
townhouses? Specific identification
10. How should import duties be dealt with when measuring inventory at LCNRV? Added to
cost
11. Which of the following is not an acceptable method of applying LCNRV? Inventory
location
12. Which of the inventory method measures most closely the current cost of inventory? FIFO
13. The costs of conversion of inventories include all, except Systematic allocation of
administrative overhead
14. Inventories shall be measured at Lower of cost and net realizable value
15. Fixed production overheads include all, except Indirect materials and indirect labor
16. Inventories encompass all of the following, except Land and other property not held for
sale
17. In a period of falling prices, which inventory method provides the lowest amount of
ending inventory? FIFO
18. Which of the following would not be reported as inventory? Machinery acquired for use in
the production process
19. Which is the reason why the specific identification method may be considered ideal for
assigning cost to inventory? The cost flow matches the physical flow
20. Which of the following is likely to be a circumstance where the specific identification
method can be used? Inventory turnover is low
21. The cost of purchase of inventory does not include Trade discount and rebate
22. Which of the following would not be separately accounted for in the computation of cost
of goods sold? Trade discounts applicable to purchases
23. The amount of any writedown of inventory to net realizable value is Recognized as
component of cost of goods sold
24. How should prompt payment discount be dealt with when measuring inventory at
LCNRV? Ignored
25. Which statement is true regarding inventory writedown and reversal of writedown?
Separate reporting of reversal of inventory writedown is required
26. Which of the following costs of conversion cannot be included in cost of inventory?
Salaries of sales staff
27. IFRS prohibits which of the following cost flow assumptions? LIFO
28. Lower of cost and net realizable value Gives the lowest valuation if applied individually
29. Why is inventory included in the computation of net income? To determine cost of goods
sold
30. Which of the following should not be reported in inventory? Equipment
31. How should trade discounts be dealt with when measuring inventory at LCNRV?
Deducted in arriving at cost
32. Inventories are usually written down to net realizable value Item by item
33. The cost of inventory is the sum of Cost of purchase, cost of conversion and other cost
incurred in bringing the inventory to the present location and condition
34. In a period of declining prices, the inventory method which tends to give the highest
amount of cost of goods sold is FIFO
35. The costing of inventory must be deferred until the end of reporting period under which of
the following method of inventory valuation? Weighted average
36. The cost of inventory shall be measured using Either FIFO or average method
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37. In a period of rising prices which inventory method provides the highest amount of net
income? FIFO
38. Factory supplies to be consumed in the production process are included in Inventory
39. The cost of inventories does not include Abnormal amount of wasted material
40. Which of the following should not be taken into account when determining the cost of
inventory? Trade discount
41. Net realizable value is Estimated selling price less estimated cost to complete and
estimated cost of disposal
42. How should sales staff commission to dealt with when measuring inventory at LCNRV?
Deducted in arriving at net realizable value
43. The specific identification method is required for Inventory that is not interchangeable and
goods produced and segregated for specific project
44. Which of the following should be taken into account when determining the cost of
inventory? Storage cost of part-finished goods
45. Which of the following costs should not be included as part of the cost of inventory?
Abnormal freight
CHAPTER 15 – PPE
1. Which of the following costs should be included in the carrying amount of property, plant
and equipment? None of these should be included
2. All of the following factors need to be considered in determining the useful life of an
asset, except Residual value
3. Which statement describes the proper accounting for loss in a nonmonetary exchange? A
loss is recognized immediately.
4. Which of the following is not a characteristic of property, plant and equipment? The
property, plant and equipment are subject to depreciation
5. The carrying amount of property, plant and equipment shall be derecognized On disposal
and when no future economic benefits are expected from the use of the asset.
6. The cost of property, plant and equipment acquired in a nonmonetary exchange that lacks
commercial substance is measured at Carrying amount of the asset given
7. In an exchange with commercial substance Gain or loss is recognized entirely
8. Depreciation is best described as a method of Cost allocation
9. When property is acquired by issuing equity shares, which of the following is the best
basis for establishing the historical cost of the acquired asset? Fair value of the asset
received
10. A nonmonetary exchange is recognizéd at fair value of the asset exchanged unless Far
value is not determinable
11. What is the proper treatment of freight and interest on the loan to fund the cost of an
imported machinery? Freight is capitalized but interest cannot be capitalized.
12. Which statement is true concerning acquisition by self-construction? All of the
statements are true
13. The initial operating loss should be Expensed and charged to the income statement.
14. The cost of property, plant and equipment comprises all of the following, except Initial
estimate of the cost of dismantling the asset for which the entity has no present obligation.
15. Which statement is incorrect with respect to depreciation? Depreciation is not recognized
if the fair value of an asset exceeds carrying amount.
16. The useful life of property, plant and equipment is
I.
The period of time over which an asset is expected to be used by the entity.
II. The number of production or similar units expected to be obtained from the asset by the
entity.
ANSWER: Both I and II
17. The cost of property, plant and equipment acquired in an exchange is measured at the
Fair value of the asset given plus cash payment.
18. The cost of property, plant and equipment comprises the purchase price and Directly
attributable cost necessary to bring the asset to the location and condition for the intended
use
19. When a plant asset is acquired by deferred payment, which condition generally does not
indicate the need to consider the imputation of interest? The face amount of the deferred
obligation is equal to the fair value of the plant asset exchanged.
20. Which cost should be expensed immediately? All of these are expensed immediately
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21. Which statement is true with respect to residual value? All of these statements are true.
22. For a nonmonetary exchange, the configuration of cash flows includes which of the
following? The risk, timing and amount of cash flows of the assets
23. If the present value of a note issued in exchange for a plant asset is less than the face
amount, the difference is Amortized as interest expense over the life of the note
24. As generally used in accounting, what is depreciation? It is an accounting process which
systematically allocates cost of property, plant and equipment to accounting periods.
25. What valuation model should an entity use to measure property, plant and equipment?
Cost model and revaluation model
26. Which statement best describes the term "depreciation”? The systematic allocation of the
cost of an asset less residual value over the useful life
27. Which statement regarding depreciation is true? If the carrying amount of an asset is less
than the residual value, depreciation is not charged.
28. Which statement is true about depreciation? All of the statements are true.
29. Which of the following shall not be capitalized as cost of property, plant and equipment?
Cost of excess materials from a purchasing error
30. Which cost should be expensed immediately? All of these are expensed immediately
31. An entity purchased a new machinery that it does not have to pay until after three years.
The total payment on maturity will include both principal and interest. The cost would be
the total payment multiplied by what time value of money? Present value of 1
32. An item of property, plant and equipment shall be recognized as an asset when It is
probable that economic benefits will flow to the entity and the cost of the asset can be
measured reliably.
33. Which exchange has commercial substance? Exchange of assets with difference in future
cash flows.
34. Carrying amount is Amount at which an asset is recognized in the statement of financial
position after deducting any accumulated depreciation and accumulated impairment loss.
QUIZ 1
1. What is the branch of accounting that makes financial information about an entity
accessible to the external users? Financial Accounting
2. Which of the following are represented in the Financial Reporting Standards Council?
I.
Securities and Exchange Commission
II.
Department of Trade and Industry
III.
Board of Accountancy
IV.
Philippine Institute of Certified Public Accountants
V.
Bureau of Internal Revenue
VI.
Social Security System
ANSWER: I, III, IV and V
3. The body that authors the International Financial Reporting Standards is the International
Accounting Standards Board
4. Which is an objective of financial reporting To provide information that is useful to assess
the amount, timing, and uncertainty of prospective cash receipts
5. Which of the following are among the four (4) enhancing characteristics of financial
information?
A. Comparability
B. Timeliness
D. Materiality
E. Neutrality
C. Relevance
ANSWER: A and B
6. 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.
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III. concepts of capital and capital maintenance
IV. generally accepted accounting principles
ANSWER: I, II and III
7. 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
substance over form
8. Which of the following statement is true?
1. The objective of financial reporting is based on generally accepted accounting
principles.
2. An item would be considered material when omitting, misstating or obscuring the
information would make a difference to the primary users.
3. Revenue encompasses income and gain.
4. Based on the new definition of asset, future economic benefit is expected to flow to the
entity.
ANSWER: Statement 2 only
QUIZ 2
1. Financial statements are structured presentation of the financial position and changes in
financial position of an enterprise
2. Which of the following is not an objective of financial statements? To present information
about the realizable amount of an entity’s assets in the event of liquidation.
3. The operating cycle allows trade receivables and inventories to be classified as current
assets even if they would not be realized in cash within twelve months from the end of the
reporting period
4. Which among the following is not presented in profit or loss section of the statement of
comprehensive income? Dividends declared during the period
5. When assets and liabilities on the statement of financial position are not presented into
current and non-current classification, they should be presented broadly in the order of
liquidity
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Exercise _ Chapter 1 _The Accountancy Profession
Question 1
0 / 1 pts
Accounting is a service activity and the function is to provide quantitative information, primarily
financial in nature about economic entities, that is intended to be useful in making economic
decisions. This accounting definition is given by
You Answered
AICPA Committee on Accounting Terminology
Board of Accountancy
Correct Answer
Accounting Standards Council
American Accounting Association
Question 2
1 / 1 pts
All of the following describe accounting, except
A service activity
A universal language of business
Correct!
An exact science rather than an art
An information system
Question 3
1 / 1 pts
The important points made in the definition of accounting include all of the following, except
Accounting information is financial in nature
Accounting information is useful in decision making
Accounting information is quantitative
Correct!
Accounting information is both quantitative and qualitative
Question 4
1 / 1 pts
This accounting process is the recognition or nonrecognition of business activities as accountable
events
Communicating
Measuring
Correct!
Identifying
Reporting
Question 5
1 / 1 pts
What are the events that affect the entity and in which other entities participate?
obligating events
current events
Correct!
External events
internal events
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Question 6
1 / 1 pts
Which is incorrect in relation to an accountable event?
An event is accountable when it has an effect on asset, liability or equity
Only economic activities are emphasized and recognized
The subject matter of accounting is the measurement of economic resources and obligations
Correct!
Sociological and psychological matters are quantifiable
Question 7
1 / 1 pts
What is the measuring component in the definition of accounting?
The preparation of audit report by CPAs
Correct!
The assigning of peso amounts to the accountable events
The recognition or nonrecognition of business activities as accountable events
The preparation and distribution of accounting reports to users of accounting information
Question 8
1 / 1 pts
The most common financial attribute used in measuring financial information is
value in use
current cost
fair value
Correct!
Historical cost
Question 9
1 / 1 pts
The communicating process of accounting includes all of the following, except
classifying
summarizing
Correct!
interpreting
recording
Question 10
1 / 1 pts
What is the overall objective of accounting?
To measure the periodic income of the economic entity
To provide the information that the managers of an economic entity need to control the operations
Correct!
To provide quantitative financial information about an entity that is useful in making economic
decision
To provide information that the creditors can use in deciding whether to grant loans to an entity
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Question 11
1 / 1 pts
What is the law regulating the practice of accountancy in the Philippines?
R.A. No. 9198
R.A. No. 9892
R.A. No. 9928
Correct!
R.A. No. 9298
Question 12
1 / 1 pts
What is the body authorized by law to promulgate rules and regulations affecting the practice of
the accountancy profession in the Philippines?
Securities and Exchange Commission
Financial Reporting Standards Council
Correct!
Board of Accountancy
Philippine Institute of Certified Public Accountants
Question 13
1 / 1 pts
What are the three main areas in the practice of the accountancy profession?
Auditing, taxation and managerial accounting
Financial accounting, managerial accounting and corporate accounting
Correct!
Public accounting, private accounting and government accounting
Public accounting, private accounting and managerial accounting
Question 14
1 / 1 pts
Which statement is incorrect in relation to the practice of public accountancy?
Partners of partnerships formed for the practice of public accounting shall be registered CPAs in the
Philippines.
All of these statements are correct.
Correct!
The Securities and Exchange Commission can register any corporation organized for the practice of
public Securities and Exchange Commission
Single practitioners for the practice of public accounting shall be registered CPAs in the Philippines
Question 15
1 / 1 pts
CPAs are licensed by
The PICPA
The city government
The SEC
Correct!
State government
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Question 16
1 / 1 pts
What is the standard-setting body in the Philippines at the present time?
Correct!
Financial Reporting Standards Council
Accounting Standards Council
Auditing and Assurance Standards Council
Philippine Accounting Standards Board
Question 17
1 / 1 pts
All of the following are represented in FRSC, except
Commission on Audit
Board of Accountancy
Correct!
Department of Budget and Management
Securities and Commission
Question 18
1 / 1 pts
The Philippine Financial Reporting Standards collectively include
PFRS corresponding to IFRS
Correct!
All of these are included in Philippine Financial Reporting Standards
Philippine Interpretations and Interpretations developed by PIC
PAS corresponding to IAS
Question 19
1 / 1 pts
Accounting standard-setting has been characterized as
Using the scientific method
a legal process
Correct!
A political process
Pure deductive reasoning
Question 20
1 / 1 pts
GAAP is an abbreviation for
Generally applied accounting procedure
Correct!
Generally accepted accounting principles
Generally accepted auditing practices
Generally authorized accounting procedures
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Question 21
1 / 1 pts
What is the primary service of CPAs in public practice?
controllership
Managerial Accounting
Taxation
Correct!
Auditing
Question 22
1 / 1 pts
Accountants employed in entities in various capacity as accounting staff, chief accountant or
controller are said to be engaged in
Public accounting
Correct!
Private accounting
Government accounting
Financial accounting
Question 23
1 / 1 pts
It is the area of the accountancy profession that encompasses the process of analyzing, classifying,
summarizing and communicating all transactions involving the receipt and disposition of
government funds and property and interpreting the results thereof.
Correct!
Government auditing
External auditing
Internal auditing
Private auditing
Question 24
1 / 1 pts
How many CPD credit units are required for accreditation to practice the accountancy profession?
15 units
60 units
100 units
Correct!
120 units
Question 25
1 / 1 pts
A CPA shall be permanently exempted from the renewal of CPA license
Correct!
At the age of 65 years
When working abroad
When studying abroad
When practicing profession abroad
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Question 26
1 / 1 pts
The International Accounting Standards Board was formed
To develop accounting standards for countries that do not have their own standard-setting bodies
Correct!
To develop a single set of high quality IFRS
To establish accounting standard for multinational entities
To enforce IFRS in foreign countries
Question 27
1 / 1 pts
The International Accounting Standards Board
Was the predecessor to the IASC
Can overrule the USA GAAP when their policies disagree.
Has its headquarters in Geneva.
Correct!
Promotes the use of high-quality and understandable global accounting standards
Question 28
1 / 1 pts
The IASB declared that the merits of proposed standards are assessed.
Based on arguments of lobbyist
From a position of materiality
Correct!
From a position of neutrality.
Based on possible impact on behavior
Question 29
1 / 1 pts
The standard-setting process includes in the correct order.
Exposure draft, research, discussion paper and accounting standard
Discussion paper, research, exposure draft and accounting standard
Research, exposure draft, discussion paper and accounting standard
Correct!
Research, discussion paper, exposure draft and accounting standard
Question 30
1 / 1 pts
The IASB employs a due process system which
Correct!
Enables interested parties to express their views on issues under consideration.
a. Is an efficient system for collecting dues from members
Identifies the accounting issues that are the most important.
Requires that all CPAs must receive a copy of IFRS
Question 31
1 / 1 pts
What is due process in standard-setting by IASB?
IASB operates in full view of the public.
Interested parties can make their views known.
Correct!
All of these are part of due process in standard-setting.
Public hearings are held on proposed standards.
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Question 32
1 / 1 pts
The standards published by IASB are called
International Accounting Standards
Correct!
International Financial Reporting Standards
Statement of Financial Accounting Standards
Financial Reporting Standards
Question 33
1 / 1 pts
What is a possible danger if politics plays too big a role in developing IFRS?
Individuals ,ay influence the standards
Correct!
Financial reporting standards are not truly generally accepted.
User groups become active
The IASB delegates its authority to elected officials
Question 34
1 / 1 pts
Accounting standard-setting
Is a legalistic process
Is based solely on research and empirical findings.
Correct!
Can be described as a political process which reflects political actions of various interested user
groups as well as a product of research and logic.
Is democratic in the sense that a majority of accountants must agree with a standard before it
becomes enforceable.
Question 35
1 / 1 pts
IFRIC Interpretations issued by IASB
Cover newly identified financial reporting issues not specifically addressed.
Are considered authoritative and must be followed.
Cover issued where unsatisfactory or conflicting interpretations have developed
Correct!
All of the statements are true about IFRIC Interpretations.
Question 36
1 / 1 pts
Financial accounting is concerned with
Special reports for inventory management.
Special reports for income tax computation.
General purpose reports on changes in share prices.
Correct!
General purpose reports on financial position and financial performance.
Question 37
1 / 1 pts
Financial accounting can be broadly defined as the area of accounting that prepares
General purpose financial statements to be used by parties internal to the entity
Financial statements to be used by investors
Correct!
General purpose financial statements to be used by parties both internal and external to the entity.
Financial statements to be used primarily by management
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Question 38
1 / 1 pts
Financial accounting emphasizes reporting to
Regulatory bodies
Correct!
Creditors and investors
Management
internal auditors
Question 39
1 / 1 pts
Managerial accounting emphasizes
Correct!
Developing accounting information for use within an entity
Reporting to the SEC
Reporting financial information to external users
Expertise in data processing
Question 40
1 / 1 pts
Which statement is true regarding managerial and financial accounting
Managerial accounting is generally more precise.
The emphasis on managerial accounting is relevance and the emphasis on financial accounting is
timeliness
Correct!
Managerial accounting need not follow generally accepted accounting principles while financial
accounting must follow GAAP.
Managerial accounting has a future focus.
Question 41
1 / 1 pts
Generally accepted accounting principles
Derive their credibility and authority from legal rulings and court precedents.
Are accounting adaptations based on law
Correct!
Derive their credibility and authority from general recognition and acceptance by the accountancy
profession
Derive their credibility and authority from a government regulatory authority.
Question 42
1 / 1 pts
Which statement best describes GAAP?
The accounting principles do not apply to small and medium-sized entities.
Correct!
The accounting principles have been developed on the basis of such factors as usage and practical
necessity.
The accounting principles have been formulated in the public sector.
The accounting principles are the same as laws.
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Question 43
1 / 1 pts
Proper application of accounting principles is most dependent upon
Oversight of regulatory bodies
Existence of specific guidelines
Correct!
Professional judgment of the accountant
External audit function
Question 44
1 / 1 pts
Once an accounting standard has been established
The principle of consistency requires that no revisions ever be made to the standard
Correct!
The standard is continually reviewed to see if modification is necessary.
The task of reviewing the standard is given to the national accounting organization.
The standard is not reviewed unless a regulatory authority makes a complaint.
Question 45
1 / 1 pts
The primary responsibility for properly applying GAAP lies with
Internal auditor
External auditor
Correct!
Management
National accounting organization
Exercise_ Chapter 2 _ CF Objective of financial reporting
Question 1
1 / 1 pts
Which statement is true about the Conceptual Framework for Financial Reporting?
In case of conflict, the requirements of the IFRS prevail over the Conceptual Framework.
The Conceptual Framework is not a Standard.
Correct!
All of these statements are true about the Conceptual Framework
The Conceptual Framework describes the concepts for general purpose financial reporting.
Question 2
1 / 1 pts
Which is not a purpose of the Revised Conceptual Framework?
To assist preparers to develop consistent accounting policy when no Standard applies to a particular
transaction or when Standard allows a choice of accounting policy.
To assist the IASB to develop IFRS based on consistent concepts.
To assist all parties to understand and interpret the Standards.
Correct!
To assist regulatory agencies in issuing rules and regulations for a particular industry.
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Question 3
1 / 1 pts
The scope of the Revised Conceptual Framework comprises how many chapters?
Correct!
Eight
Five
Seven
Six
Question 4
1 / 1 pts
The Conceptual Framework provides the foundation for Standards that
Correct!
All of these are the result of Standards developed based on consistent concepts
Strengthen accountability of management
Contribute to economic efficiency by helping investors to identify opportunities and risks
Contribute to transparency by enhancing international comparability and quality of financial
information
Question 5
1 / 1 pts
What is the authoritative status of the Conceptual Framework?
The Conceptual Framework has the highest level
In the absence of a standard or an interpretation that specifically applies to a transaction, the
Conceptual Framework shall be followed
The Conceptual Framework applies only when the IASB develops new standards.
Correct!
In the absence of a standard or an interpretation that specifically applies to a transaction,
management shall consider the applicability of the Conceptual Framework in developing and
applying an accounting policy that results in information that is relevant and faithfully represented.
Question 6
1 / 1 pts
The Conceptual Framework is intended to establish
GAAP in financial reporting
Correct!
The objectives and concepts for use in developing standards of financial accounting and reporting.
The meaning of "present fairly in accordance with GAAP".
The hierarchy of sources of GAAP.
Question 7
1 / 1 pts
A Conceptual Framework should
Eliminate alternative accounting principles
Lead to uniformity of financial statements
Correct!
Define the basic objectives, terms and concepts of accounting
Guide multinational entities in developing generally accepted auditing standards
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Question 8
1 / 1 pts
Which is not a purpose of the Conceptual Framework?
Correct!
To provide specific guidelines for resolving situations not covered by existing accounting standards
To assist accountants in selecting among alternative accounting and reporting methods.
To assist the International Accounting Standards Board in the standard-setting process.
To provide definitions of key terms and fundamental concepts.
Question 9
1 / 1 pts
In the Conceptual Framework for Financial Reporting, what provides the "why" of accounting?
Qualitative characteristic of accounting information
Element of financial statement
Measurement and recognition concept
Correct!
Objective of financial reporting
Question 10
1 / 1 pts
The underlying theme of the Conceptual Framework is
Understandability
Comparability
Timeliness
Correct!
Decision usefulness
Question 11
1 / 1 pts
The objective of financial reporting
Correct!
Is the foundation for the Conceptual Framework
Includes the qualitative characteristics of useful information
Is not found in the Conceptual Framework
All of these are correct choices regarding the objective
Question 12
1 / 1 pts
Which of the following is not a benefit associated with the Conceptual Framework?
A coherent set of accounting standards should result.
Practical problems should be more quickly solvable.
Correct!
Business entities will need far less assistance from accountants.
A Conceptual Framework should increase users’ understanding and confidence in financial reporting.
Question 13
1 / 1 pts
Which statement is not true concerning the Conceptual Framework?
The Conceptual Framework should allow practical problems to be solved more quickly.
The Conceptual Framework should increase users' understanding and confidence in financial
reporting.
Correct!
The Conceptual Framework should be based on fundamental truth derived from the law of nature.
The Conceptual Framework should be a basis for standard setting.
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Question 14
1 / 1 pts
Users of financial reports include which of the following?
Creditors and government agencies
Correct!
Creditors, government agencies and unions
Creditors
Creditors and unions
Question 15
1 / 1 pts
The primary users of financial information include
Existing and potential investors
Existing and potential lenders and other creditors
Correct!
Existing and potential investors, lenders and other creditors
User group such as employees, customers, governments and their agencies, and the public
Question 16
1 / 1 pts
Which group is not among the external users for whom financial statements are prepared?
Suppliers
Employees
Customers
Correct!
All of these are external users of financial statements
Question 17
1 / 1 pts
Which of the following is an internal user of financial information?
Holder of bonds
Creditor with long-term contract
Shareholder
Correct!
Board of Directors
Question 18
1 / 1 pts
These users require information on risk and return provided by their investment
Employees
lenders
customers
Correct!
Investors
Question 19
1 / 1 pts
These users are interested in information about the profitability and stability of the entity in order
to assess the ability of entity to provide remuneration, retirement benefits and employment
opportunities.
customers
Correct!
Employees
the public
Governments and their agencies
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Question 20
1 / 1 pts
These users are interested in information that enables them to assess whether their loans, the
related interest thereon, and other amounts owing to them will be paid when due
owners
Trade creditors
Correct!
Lenders and other creditors
Borrowers
Question 21
1 / 1 pts
These users are interested in information about the continuance of an entity, especially when they
have a long-term involvement with or are dependent on the entity
Correct!
Customers
trade unions
suppliers
Employees
Question 22
1 / 1 pts
These users are interested in information in order to regulate the activities of an entity, determine
taxation policies and provide a basis for national statistics.
Major organization of users
Correct!
Governments and their agencies
Bureau of Internal Revenue
Department of Finance
Question 23
1 / 1 pts
These users need information on trends and recent developments where an entity makes a
substantial contribution to the local economy providing employment and using local suppliers.
finance entities
Correct!
The public
private entities
Governments and their agencies
Question 24
1 / 1 pts
The overall objective of financial reporting is to provide information
About financial performance during a period
Correct!
That is useful for decision making
That allows owners to assess management performance
About assets, liabilities and equity of an entity
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Question 25
1 / 1 pts
The primary focus of financial reporting has been on meeting the needs of which of the following
groups?
Correct!
Existing and potential investors, lenders and other creditors
Management
National taxing authorities
independent CPAs
Question 26
1 / 1 pts
The primary objective of financial reporting is to provide useful information to
Management
Regulatory body
Correct!
Capital providers
Government
Question 27
1 / 1 pts
Which is an objective of financial reporting?
To provide information about the potential users.
To provide information that is useful to management.
Correct!
To provide information that is useful in making investing and credit decisions
To provide information about ways to solve internal and external conflicts about the entity.
Question 28
1 / 1 pts
An objective of financial reporting is to provide
Information that will attract new investors
Information about the investors in the entity
Correct!
Information that is useful in assessing cash flow prospects
Information about the liquidation value
Question 29
1 / 1 pts
Assessing cash flow prospects is interpreted to mean
Information about the financial effects of cash receipts and cash payments is generally considered
the best indicator of ability to generate favorable cash flows
Correct!
Over the long run, trends in revenue and expenses are generally more meaningful than trends in
cash receipts and disbursements
Cash basis accounting is preferred over accrual basis
All of the choices are correct regarding assessing cash flow prospects
Question 30
1 / 1 pts
In measuring financial performance, accrual accounting is used because
Correct!
It provides a better indication of ability to generate cash flows than cash basis
It recognizes revenue when cash is received
It is one of the implicit assumptions
Cash flows are considered less important
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Question 31
1 / 1 pts
The most useful information in predicting future cash flows is
Information regarding the results obtained by using a wide variety of accounting policies
Correct!
Current earnings based on accrual accounting
Information regarding the accounting policies used
Information about current cash flows
Question 32
1 / 1 pts
The accrual basis of accounting is most useful for
Determining the amount of dividends to be declared
Correct!
Predicting the long-term financial performance
Predicting the short-term financial performance
Determining the amount of income tax liability
Question 33
1 / 1 pts
The objective of financial reporting is based on
Reporting on management stewardship
Correct!
The needs of the users of the information
Generally accepted accounting principles
The need for conservatism
Question 34
1 / 1 pts
Which statement is not true about financial reporting?
Financial reporting shall provide information about entity resources, claims against those resources
and changes in them
Correct!
Financial reporting shall not provide information useful in evaluating management stewardship.
Financial reporting shall provide information useful in assessing cash flow prospects
Financial reporting shall provide information useful in investment, credit and similar decision
Question 35
1 / 1 pts
Which of the following is not an objective of financial
To provide information about an entity's assets and claims against those assets
To provide information that is useful in lending and investing decisions
To provide information that is useful in assessing an entity's sources and uses of cash
Correct!
To provide information about the liquidation value of an entity
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Question 36
0 / 1 pts
Financial reporting pertains to information about
Business industries, rather than to individual entities or an economy as a whole or to members of
society as consumers
An economy as a whole and to members of society as consumers, rather than to individual entities
or industries
You Answered
Individual business entities, industries, and an economy as a whole, rather than to members of
society as consumers
Correct Answer
Individual business entities, rather than to industries or an economy as a whole or to members of
society as consumers
Question 37
1 / 1 pts
Under the Revised Conceptual Framework, during a period when an entity is under the direction of
a particular management, financial reporting provides information about
Management performance but not entity performance
Entity performance but not management performance
Correct!
Entity performance and management performance
Neither entity performance nor management performance
Question 38
1 / 1 pts
A Conceptual Framework should
Guide multinational entities in developing generally accepted auditing standards
Correct!
Define the basic objectives, terms and concepts of accounting
Lead to uniformity of financial statements
Eliminate alternative accounting principles
Exercise _ Ch 3 _ CF Qualitative Characteristics - Matching type (Problem 3-7)
Question 1
15 / 15 pts
Indicate the accounting concept that is defined or described.
Correct!
Information that has no bearing on an economic decision to be made is useless.
Relevance
Correct!
It is the ability to bring together for the purpose of noting points of likeness and difference.
Comparability
Correct!
It requires that users have some knowledge of the complex economic economic activities of entities,
the accounting process and the technical terminology in the statements.
Understandability
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Correct!
Preparers of statements should not try to increase the usefulness of the information to a few users
to the detriment of others who may have opposing interests.
Neutrality
Correct!
In case of conflict between economic substance and legal form or a transaction, the economic
substance shall prevail.
Substance over form
Correct!
Small expenditures for tools are expensed immediately.
Materiality
Correct!
When in doubt, recognize all loses and don’t recognize gains.
Conservatism
Correct!
The information should be presented in a manner that facilitates understanding and avoids
erroneous implication.
Completeness
Correct!
It is the capacity of the information to influence a decision.
Relevance
Correct!
The description and numbers of figures must watch what really existed or happened.
Faithful representation
Correct!
The financial statements shall be accompanied by notes to financial statements.
Completeness
Correct!
There are no errors or omissions in the description of the phenomenon.
Free from error
Correct!
It is the goal achieved by consistency.
Comparability
Correct!
This enhancing qualitative characteristics implies consensus.
Verifiability
Correct!
The older the information, the less useful.
Timeliness
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Exercise _ Chapter 3 _ CF Qualitative Characteristics
Question 1
1 / 1 pts
What are the attributes that make the information provided in the financial statements useful to
the readers?
Elements of financial statements
Objectives of financial reporting
Quantitative characteristics of financial information
Correct!
Qualitative characteristics of financial information
Question 2
1 / 1 pts
Qualitative characteristics
Correct!
All of the choices are correct
Contribute to the decision-usefulness of financial reporting information
Are considered either fundamental or enhancing
Distinguish better information from inferior information for decision-making purposes
Question 3
1 / 1 pts
The fundamental qualitative characteristics are
Correct!
Relevance and faithful representation
Faithful representation and materiality
Relevance and reliability
Relevance, faithful representation and materiality
Question 4
1 / 1 pts
Accounting information is considered relevant when it
Can be dependent on to represent the economic conditions and events that it is intended to
represent
Is understandable by reasonably informed users of accounting information
Correct!
Is capable of making a difference in a decision
Is verifiable and neutral
Question 5
1 / 1 pts
The ingredients of relevant financial information are
Predictive value, confirmatory value, timeliness and materiality
Correct!
Predictive value and confirmatory value
Predictive value, confirmatory value and materiality
Predictive value, confirmatory value and timeliness
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Question 6
1 / 1 pts
What is the quality of information that gives assurance that it is reasonably free of error and bias?
Correct!
Faithful representation
neutrality
Verifiability
Relevance
Question 7
1 / 1 pts
Which of the following is the best description of “faithful representation” in relation to information
in financial statements?
Influence on the economic decision of the users
Comprehensibility to users
Correct!
Freedom from material error
Inclusion of a degree of caution
Question 8
1 / 1 pts
to achieve faithful representation, the financial statements
Correct!
Must be complete, neutral and reasonably free from error
Are understandable, comparable, verifiable and timely
Must have predictive and confirmatory value
Must possess all of these
Question 9
1 / 1 pts
The financial accounting information is directed toward the common needs of users and is
independent of presumptions about particular needs and desires of specific users
verifiability
Correct!
neutrality
relevance
completeness
Question 10
1 / 1 pts
In the event of conflict between the economic substance of a transaction and the legal form, the
economic substance shall prevail
Relevance
completeness
Correct!
Substance over form
Form over substance
Question 11
1 / 1 pts
The enhancing qualitative characteristics of financial information are
Verifiability and timeliness
comparability and understandability
Correct!
comparability, understandability, verifiability and timeliness
comparability, understandability and verifiability
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Question 12
1 / 1 pts
Financial information exhibits consistency when
Accounting procedures are adopted which smooth net income and make results consistent between
years
Expenditures are reported as expenses
Gains and losses are shown separately on the income statement
Correct!
Accounting entities give similar events the same accounting treatment each period
Question 13
1 / 1 pts
When information about two different entities engaged in the same industry has been prepared
and presented in similar manner, the information exhibits the enhancing qualitative characteristics
of
Faithful representation
Correct!
comparability
relevance
consistency
Question 14
1 / 1 pts
The characteristic that is demonstrated when a high degree of consensus can be secured among
independent measures using the same measurement method is
Correct!
verifiability
understandability
neutrality
relevance
Question 15
1 / 1 pts
Which concept of accounting holds that, to the maximum extent possible, financial statements shall
be based on arm’s length transactions
matching
Correct!
verifiability
monetary unit
Revenue realization
Question 16
1 / 1 pts
An entity issuing the annual financial reports within one month after the end of reporting period is
an example of which enhancing quality of accounting information?
representational faithfulness
predictive value
Correct!
timeliness
neutrality
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Question 17
1 / 1 pts
Allowing entities to estimate rather than physically count inventory at interim periods is an
example of a trade off between
Correct!
timeliness and verifiability
timeliness and comparability
verifiability and comparability
neutrality and consistency
Question 18
1 / 1 pts
Which qualitative characteristic of financial information requires that the information should not be
biased in favor of one group of users to the detriment of others?
Relevance
free from error
Correct!
neutrality
completeness
Question 19
0 / 1 pts
For information to be useful, the linkage between the users and the decisions made is
Relevance
verifiability
You Answered
Faithful representation
Correct Answer
understandability
Question 20
1 / 1 pts
The overriding qualitative characteristics of accounting information is
Faithful representation
Relevance
Understandability
Correct!
Decision usefulness
Question 21
1 / 1 pts
Which statement is true in relation to the enhancing quality of understandability?
Correct!
Users have a reasonable knowledge of business and economic activities and review the
information with reasonable diligence.
Financial statements shall exclude complex matters
Financial statements shall be free from material error
Users are expected to have significant business knowledge
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Question 22
1 / 1 pts
Which of the following terms best describes information that influences the economic decisions of
users?
Prospective
Understandable
Reliable
Correct!
Relevant
Question 23
1 / 1 pts
What is the quality of information that enables users to better forecast future operations?
materiality
comparability
Faithful representation
Correct!
Relevance
Question 24
1 / 1 pts
According to the Conceptual Framework, predictive value and confirmatory value are ingredients of
comparability
Correct!
Relevance
understandability
Faithful representation
Question 25
1 / 1 pts
Which term best describes information in financial statements that is neutral?
Correct!
unbiased
relevant
comparable
Understandable
Question 26
1 / 1 pts
What is meant by comparability when discussing financial accounting information?
Correct!
Information is measured and reported in a similar fashion across entities
Information is reasonably free from error
Information is timely
Information has predictive and confirmatory value
Question 27
1 / 1 pts
What is meant by consistency when discussing financial accounting information?
Information is timely
Correct!
Information is measured and reported in a similar fashion across points in time
Information is measured similarly across the industry
Information is verifiable
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Question 28
1 / 1 pts
Which of the following is not an enhancing qualitative characteristics?
Understandability
comparability
Correct!
profit-oriented
timeliness
Question 29
1 / 1 pts
Changing the method of inventory valuation should be reported in the financial statements under
what enhancing quality of accounting information?
verifiability
timeliness
Correct!
comparability
understandability
Question 30
1 / 1 pts
When an entity applies the same accounting treatment to similar events from period to period, the
entity is exhibiting which of the following qualities?
verifiability
all of the choices are correct
Correct!
consistency
predictive value
Question 31
1 / 1 pts
When there is agreement between a measure or description and the phenomenon it purports to
represent, the information possesses which characteristics
Correct!
Faithful representation
verifiability
predictive value
timeliness
Question 32
1 / 1 pts
The qualitative characteristics of faithful representation includes
Correct!
neutrality
timeliness
confirmatory value
predictive value
Question 33
1 / 1 pts
Enhancing qualitative characteristics of accounting information include all of the following, except:
comparability
Correct!
materiality
timeliness
verifiability
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Question 34
1 / 1 pts
The enhancing quality of understandability means that the information should be understood by
Correct!
Those who have a reasonable understanding of business and economic activities
CPAs
Financial analysts
those who are experts in the interpretation of financial information
Question 35
1 / 1 pts
Enhancing qualitative characteristics of accounting information include:
understandability and relevance
relevance and comparability
neutrality and comparability
Correct!
comparability and timeliness
Question 36
1 / 1 pts
When different competent accountants independently agree on the amount and method of
reporting an economic event, what is the concept demonstrated?
completeness
reliability
comparability
Correct!
verifiability
Question 37
1 / 1 pts
According to the conceptual framework, verifiability implies
logic
legal evidence
Correct!
consensus
legal verdict
Question 38
1 / 1 pts
When an entity has started placing its quarterly financial statements on its web page, thereby
reducing by ten days the time to get information to investors and creditors, the qualitative concept
involved is
Correct!
timeliness
comparability
Faithful representation
consistency
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Question 39
1 / 1 pts
When an entity changed the inventory valuation method, which characteristics is jeopardized by
this change?
Correct!
consistency
feedback value
representational faithfulness
comparability
Question 40
1 / 1 pts
Recognizing expected losses immediately but deferring expected gains is an example of
materiality
Correct!
conservatism
cost effectiveness
timeliness
Question 41
1 / 1 pts
Which statement about materiality is true?
An item must make a difference or it need not be disclosed
Materiality is a matter of relative size or importance
Correct!
All of the given statements are true about materiality
An item is material if the omission or misstatement would influence the judgment of a primary user.
Question 42
1 / 1 pts
An item would be considered material when
Correct!
Omitting, misstating or obscuring the information would make a difference to the primary users.
The impact on earnings is greater than 10%
The expected benefit exceeds the additional cost
The standard definition of materiality is met.
Question 43
1 / 1 pts
The Conceptual Framework includes which constraint?
All of the choices are constraints
Conservatism
Correct!
Cost
Prudence
Question 44
1 / 1 pts
Which best describes the cost-benefit constraint?
All of the choices are correct
Correct!
The benefit of the information must be greater than the cost of providing it
Cost of providing financial information is not always evident or measurable but must be considered
Financial information should be free from cost to users
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Question 45
1 / 1 pts
What is an enhancing quality of accounting information?
Correct!
Users need reasonable knowledge of business and financial accounting matters to understand the
information contained in financial statements.
All of the choices are correct
Information must be decision-useful to all users
General-purpose financial reporting is the primary source of information for statement users
Question 46
1 / 1 pts
The ability through consensus among measures to ensure that information represents what it
purports to represent is an example of the concept of?
Correct!
verifiability
comparability
Relevance
feedback value
Question 47
1 / 1 pts
Which of the following accounting concepts states that an accounting transaction shall be
supported by sufficient evidence to allow two or more qualified individuals to arrive at essentially
similar conclusion?
stable monetary unit
periodicity
Correct!
objectivity
conservatism
Question 48
1 / 1 pts
Objectivity is assumed to be achieved when a transaction
Is recorded in a fixed amount of pesos
Involves the payment or receipts of cash
Correct!
Involves an arm’s length transaction between two independent parties
Allocates revenue and expenses in a rational and systematic manner
Question 49
1 / 1 pts
The principles of objectivity includes the concept of
Correct!
verifiability
classification
conservatism
summarization
Question 50
1 / 1 pts
Proponents of historical cost maintain that statements prepared using historical cost are more
Relevant
conservative
Correct!
Objective
Indicative of purchasing power
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Question 51
1 / 1 pts
The consistency standard requires that
Gains and losses should not be recognized
Correct!
The effect of accounting changes upon income should be properly disclosed
Accounting procedures should be adopted when the result is a consistent rate of return
Expenses should be reported when incurred
Question 52
1 / 1 pts
Which of the following relates to both relevance and faithful representation?
Correct!
comparability
neutrality
free from error
feedback value
Question 53
1 / 1 pts
Which of the following situations violates the concept of faithful representation?
Financial statements were issued nine months late
Management
Correct!
Financial statements included an item of property, plant and equipment with carrying amount
increased to management estimate of market value
Data on segments having the same expected risks are reported to analysts estimating future profit.
Question 54
1 / 1 pts
What is the underlying concept governing the GAAP pertaining to recording gain contingencies?
reliability
Relevance
Correct!
Conservatism
consistency
Question 55
1 / 1 pts
The usefulness of providing information in financial statements is subject to the constraint of
Correct!
cost-benefit
consistency
reliability
representational faithfulness
Question 56
1 / 1 pts
A conceptual framework is a coherent system of interrelated objectives and fundamentals that lead
to consistent standards
Correct!
True
False
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Question 57
1 / 1 pts
Fundamental qualitative characteristics of financial accounting information are either relevant or
prudent.
True
Correct!
False
Question 58
1 / 1 pts
An enhancing qualitative characteristic is confirmatory value
True
Correct!
False
Question 59
1 / 1 pts
A fundamental qualitative characteristic is understandability
True
Correct!
False
Question 60
1 / 1 pts
To be a faithful representation, an information must be predictive and confirmatory
True
Correct!
False
Question 61
1 / 1 pts
An enhancing quality of financial accounting information is comparability
Correct!
True
False
Question 62
1 / 1 pts
Applying different accounting treatment to similar event from period to period is violation of
verifiability.
True
Correct!
False
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Question 63
1 / 1 pts
The idea of consistency does not mean that entities cannot switch from one accounting method to
another
Correct!
True
False
Question 64
1 / 1 pts
Financial statement users are assumed to have no reasonable knowledge of business and financial
accounting matters.
True
Correct!
False
Question 65
0 / 1 pts
Entities consider only quantitative factors in determining whether an item is material.
Correct Answer
False
You Answered
True
Question 66
1 / 1 pts
Neutrality and predictive value are characteristics of relevant information.
True
Correct!
False
Question 67
1 / 1 pts
The tendency to recognize favorable events early is an example of conservatism
True
Correct!
False
Question 68
1 / 1 pts
The Conceptual Framework focuses primarily on the needs of internal users of financial information.
True
Correct!
False
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Question 69
1 / 1 pts
The overall objective of financial reporting is to provide information for making economic decisions.
Correct!
True
False
Question 70
1 / 1 pts
Once an accounting method is adopted, it should never be changed
True
Correct!
False
Exercise _ Chapter 4 _ CF FS and reporting entity Underlying assumptions
Question 1
1 / 1 pts
What is the general objective of financial statements?
To satisfy the information needs of users of financial statements
Correct!
To provide information about economic resources of an entity, claims against the entity and
changes in the economic resources and claims
To assess future cash flows to the entity
To assess management stewardship of economic resources
Question 2
1 / 1 pts
A reporting entity is
Necessarily a legal entity
Correct!
An entity that is required or choose to prepare financial statements
Necessarily an economic entity
a regulatory government authority
Question 3
1 / 1 pts
A reporting entity
Correct!
All of the given answers can be considered a reporting entity
Can be a portion of a single entity
Can compromise more than one entity
Can be a single entity
Question 4
1 / 1 pts
If the reporting entity comprises both the parent and its subsidiaries, the financial statements are
referred to as
Separate financial statements
Combined financial statements
Correct!
Consolidated financial statements
Unconsolidated financial statements
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Question 5
1 / 1 pts
Combined financial statements provide financial information about
The subsidiaries
Correct!
Two or more entities without a parent-subsidiary relationship
The parent and its subsidiaries
The parent
Question 6
1 / 1 pts
Which best describes the term going concern?
The expenses exceed income
The potential to contribute to the flow of cash and cash equivalents to the entity
When current liability exceeds current assets
Correct!
The ability of the entity to continue in operation for the foreseeable future
Question 7
1 / 1 pts
Which is an implication of the going concern assumption?
The historical cost principle is credible.
The current and noncurrent classification of assets and liabilities is justifiable and significant
Correct!
All of these are an implication of going concern.
Depreciation and amortization policies are justifiable and appropriate.
Question 8
1 / 1 pts
Which of the following is not a basic assumption underlying financial accounting?
Correct!
historical cost assumption
periodicity assumption
Economic entity assumption
going concern assumption
Question 9
1 / 1 pts
Which basic assumption may not be followed when an entity in bankruptcy reports financial results?
Economic entity assumption
monetary unit assumption
Correct!
going concern assumption
periodicity assumption
Question 10
1 / 1 pts
The economic entity assumption
Is inapplicable to unincorporated businesses.
Correct!
Is applicable to all forms of business organizations
Requires periodic income measurement
Recognizes the legal aspects of business organizations
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Question 11
1 / 1 pts
What is being violated if an entity provides financial reports in connection with a new product
introduction?
periodicity
monetary unit
Correct!
Economic entity
continuity
Question 12
1 / 1 pts
Which underlying assumption serves as the basis for preparing financial statements at regular
artificial points in time?
stable monetary unit
Correct!
accounting period
accounting entity
going concern
Question 13
1 / 1 pts
Which basic accounting assumption is threatened by the existence of severe inflation in the
economy?
Economic entity assumption
Correct!
monetary unit assumption
going concern assumption
periodicity assumption
Question 14
1 / 1 pts
Inflation is ignored in accounting due to
going concern assumption
Economic entity assumption
Correct!
monetary unit assumption
time period assumption
Question 15
1 / 1 pts
The concept of accounting entity is applicable
only to the legal aspects of business organizations
only to the economic aspects of business organizations
only to business organizations
Correct!
whenever accounting is involved.
Question 16
1 / 1 pts
When a parent and subsidiary relationship exists, consolidated financial statements are prepared in
recognition of
legal entity
monetary unit
Correct!
Economic entity
going concern
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Question 17
1 / 1 pts
The valuation of a promise to receive cash in the future at present value is valid because of what
accounting concept?
Correct!
going concern
monetary unit
entity
time period
Question 18
1 / 1 pts
What is the accounting concept that justifies the usage of accruals and deferrals?
materiality
consistency
Correct!
going concern
stable monetary unit
Question 19
1 / 1 pts
During the lifetime of an entity accountants produce financial statements at arbitrary points in time
in accordance with what basic accounting concept?
Correct!
periodicity
continuity
accrual
unit of measure
Question 20
1 / 1 pts
The relatively stable economic, political and social environment supports
materiality
conservatism
timeliness
Correct!
going concern
Question 21
5 / 5 pts
For each situation, identity the underlying assumption involved.
- Going concern
- Accounting entity
- Time period
- Monetary unit
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Correct!
The operations of a savings bank are being evaluated by the BSP. During the investigation, the BSP
has determined that numerous loans made by top management were unwise and have seriously
endangered the future of the saving bank.
Going concern
Correct!
The parent entity in Manila has a subsidiary in Japan. The financial statements of the subsidiary are
translated to pesos for consolidation with the financial statements of the parent entity at year-end.
Accounting entity
Correct!
A machinery was imported from USA at a certain cost five years ago. Because of inflation, the
machinery has now a current replacement cost which is very much higher that the historical cost.
Management would like to report the machinery at current replacement cost.
Monetary unit
Correct!
An entity has experienced a drastic reduction in revenue by reason of a long try spell in the area
where the entity grows its tobacco. The management decided to wait until next year and present
financial statements for a two-period rather than prepare now the financial statements.
Time period
Correct!
A subsidiary was exhibiting poor financial performance for the current year. In an effort to increase
the subsidiary’s reported income, the parent entity purchased goods from the subsidiary at twice
the normal markup.
Accounting entity
Question 22
5 / 5 pts
Identify the assumption that is most clearly violated by the accounting practice.
- Going concern
- Accounting entity
- Time period
- Monetary unit
Correct!
An entity decided to publish financial statements only in the years when it had good news to report.
Time period
Correct!
An entity reported inventory, property, plant and equipment and intangible assets at current value
at year-end.
Going concern
Correct!
An electronics entity owned by a proprietor reported the cost of the proprietor’s swimming pool as
an asset of the entity.
Accounting entity
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Correct!
An entity prepared financial statements adjusted for changes in purchasing power.
Monetary unit
Correct!
A mining entity kept no accounting records after starting business. The entity is waiting until the
mine is exhausted to determine the success or failure of business.
Time period
Question 23
5 / 5 pts
Identify the assumption that is most clearly violated by the accounting practice.
- Going concern
- Accounting entity
- Time period
- Monetary unit
Correct!
An entity reported financial statements in nominal pesos that have mixed rather than uniform
amount of purchasing power.
Monetary unit
Correct!
A multinational entity published a complete set of financial statements at least once a year,
regardless of whether the financial results were good or bad.
Time period
Correct!
The pesos of today can buy as much as goods and services as the pesos five years ago.
Monetary unit
Correct!
An accounting entity is viewed as continuing in operation in the absence of evidence to the contrary.
Going concern
Correct!
An accounting practitioner mixed personal accounting records with the records of the accounting
practice.
Accounting entity
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First quiz
Question 1
1 / 1 pts
Accounting standard-setting has been characterized as
Pure deductive reasoning
a legal process
Using the scientific method
Correct!
A political process
Question 2
1 / 1 pts
Accounting is a service activity and the function is to provide quantitative information, primarily
financial in nature about economic entities, that is intended to be useful in making economic
decisions. This accounting definition is given by
Board of Accountancy
American Accounting Association
AICPA Committee on Accounting Terminology
Correct!
Accounting Standards Council
Question 3
1 / 1 pts
All of the following are represented in FRSC, except
Correct!
Department of Budget and Management
Board of Accountancy
Commission on Audit
Securities and Commission
Question 4
1 / 1 pts
All of the following describe accounting, except
A service activity
Correct!
An exact science rather than an art
A universal language of business
An information system
Question 5
1 / 1 pts
What is the primary service of CPAs in public practice?
controllership
Correct!
Auditing
Managerial Accounting
Taxation
Question 6
1 / 1 pts
GAAP is an abbreviation for
Generally authorized accounting procedures
Generally accepted auditing practices
Generally applied accounting procedure
Correct!
Generally accepted accounting principles
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Question 7
1 / 1 pts
What is the standard-setting body in the Philippines at the present time?
Accounting Standards Council
Auditing and Assurance Standards Council
Philippine Accounting Standards Board
Correct!
Financial Reporting Standards Council
Question 8
1 / 1 pts
The standards published by IASB are called
Correct!
International Financial Reporting Standards
Statement of Financial Accounting Standards
Financial Reporting Standards
International Accounting Standards
Question 9
1 / 1 pts
The communicating process of accounting includes all of the following, except
Correct!
interpreting
recording
summarizing
classifying
Question 10
1 / 1 pts
The most common financial attribute used in measuring financial information is
Correct!
Historical cost
current cost
value in use
fair value
Question 11
1 / 1 pts
A CPA shall be permanently exempted from the renewal of CPA license
When studying abroad
Correct!
At the age of 65 years
When practicing profession abroad
When working abroad
Question 12
1 / 1 pts
Managerial accounting emphasizes
Correct!
Developing accounting information for use within an entity
Expertise in data processing
Reporting to the SEC
Reporting financial information to external users
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Question 13
1 / 1 pts
What is a possible danger if politics plays too big a role in developing IFRS?
Individuals ,ay influence the standards
The IASB delegates its authority to elected officials
Correct!
Financial reporting standards are not truly generally accepted.
User groups become active
Question 14
1 / 1 pts
What are the three main areas in the practice of the accountancy profession?
Financial accounting, managerial accounting and corporate accounting
Public accounting, private accounting and managerial accounting
Correct!
Public accounting, private accounting and government accounting
Auditing, taxation and managerial accounting
Question 15
1 / 1 pts
What is the branch of accounting that makes financial information about an entity accessible to the
external users?
Correct!
Financial Accounting
Management accounting
Government auditing
Auditing
Question 16
1 / 1 pts
Which of the following are represented in the Financial Reporting Standards Council?
I. Securities and Exchange Commission
II. Department of Trade and Industry
III. Board of Accountancy
IV. Philippine Institute of Certified Public Accountants
V. Bureau of Internal Revenue
VI. Social Security System
I, II, III, IV, V and VI
II, IV, V and VI
I, II, III, V and VI
Correct!
I, III, IV and V
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Question 17
1 / 1 pts
The body that authors the International Financial Reporting Standards is the
International Accounting Standards Committee
Correct!
International Accounting Standards Board
Accounting Standards Council
Financial Reporting Standards Council
Question 18
1 / 1 pts
Which statement is not true about financial reporting?
Financial reporting shall provide information useful in investment, credit and similar decision
Correct!
Financial reporting shall not provide information useful in evaluating management stewardship.
Financial reporting shall provide information about entity resources, claims against those resources
and changes in them
Financial reporting shall provide information useful in assessing cash flow prospects
Question 19
1 / 1 pts
Which is an objective of financial reporting?
To provide information about the potential users.
To provide information about ways to solve internal and external conflicts about the entity.
To provide information that is useful to management.
Correct!
To provide information that is useful in making investing and credit decisions
Question 20
1 / 1 pts
These users are interested in information that enables them to assess whether their loans, the
related interest thereon, and other amounts owing to them will be paid when due
Correct!
Lenders and other creditors
Trade creditors
owners
Borrowers
Question 21
1 / 1 pts
Which of the following is not an objective of financial
To provide information that is useful in lending and investing decisions
To provide information about an entity's assets and claims against those assets
Correct!
To provide information about the liquidation value of an entity
To provide information that is useful in assessing an entity's sources and uses of cash
Question 22
1 / 1 pts
These users are interested in information about the profitability and stability of the entity in order
to assess the ability of entity to provide remuneration, retirement benefits and employment
opportunities.
customers
Correct!
Employees
Governments and their agencies
the public
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Question 23
1 / 1 pts
These users need information on trends and recent developments where an entity makes a
substantial contribution to the local economy providing employment and using local suppliers.
finance entities
private entities
Correct!
The public
Governments and their agencies
Question 24
1 / 1 pts
Which of the following is not a benefit associated with the Conceptual Framework?
A coherent set of accounting standards should result.
ractical problems should be more quickly solvable.
A Conceptual Framework should increase users’ understanding and confidence in financial reporting.
Correct!
Business entities will need far less assistance from accountants.
Question 25
1 / 1 pts
Which statement is not true concerning the Conceptual Framework?
The Conceptual Framework should be a basis for standard setting.
The Conceptual Framework should allow practical problems to be solved more quickly.
The Conceptual Framework should increase users' understanding and confidence in financial
reporting.
Correct!
The Conceptual Framework should be based on fundamental truth derived from the law of nature.
Question 26
1 / 1 pts
Which is not a purpose of the Conceptual Framework?
To assist the International Accounting Standards Board in the standard-setting process.
Correct!
To provide specific guidelines for resolving situations not covered by existing accounting standards
To assist accountants in selecting among alternative accounting and reporting methods.
To provide definitions of key terms and fundamental concepts.
Question 27
1 / 1 pts
Which of the following is an internal user of financial information?
Holder of bonds
Shareholder
Creditor with long-term contract
Correct!
Board of Directors
Question 28
1 / 1 pts
Which of the following are among the four (4) enhancing characteristics of financial information?
A. Comparability
B. Timeliness
D. Materiality
E. Neutrality
C. Relevance
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B and D
A and C
Correct!
A and B
B and E
Question 29
0 / 1 pts
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
You Answered
I, II, III and IV
II and III
Correct Answer
I, II and III
I and II
Question 30
1 / 1 pts
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
Correct!
substance over form
consistency
form over substance
prudence
Question 31
1 / 1 pts
For information to be useful, the linkage between the users and the decisions made is
Faithful representation
verifiability
Correct!
understandability
Relevance
Question 32
1 / 1 pts
Allowing entities to estimate rather than physically count inventory at interim periods is an
example of a trade off between
verifiability and comparability
timeliness and comparability
Correct!
timeliness and verifiability
neutrality and consistency
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Question 33
1 / 1 pts
When an entity applies the same accounting treatment to similar events from period to period, the
entity is exhibiting which of the following qualities?
verifiability
predictive value
Correct!
consistency
all of the choices are correct
Question 34
1 / 1 pts
Which of the following is the best description of “faithful representation” in relation to information
in financial statements?
Comprehensibility to users
Inclusion of a degree of caution
Correct!
Freedom from material error
Influence on the economic decision of the users
Question 35
1 / 1 pts
The fundamental qualitative characteristics are
Faithful representation and materiality
Relevance, faithful representation and materiality
Relevance and reliability
Correct!
Relevance and faithful representation
Question 36
1 / 1 pts
Objectivity is assumed to be achieved when a transaction
Is recorded in a fixed amount of pesos
Involves the payment or receipts of cash
Allocates revenue and expenses in a rational and systematic manner
Correct!
Involves an arm’s length transaction between two independent parties
Question 37
1 / 1 pts
The ability through consensus among measures to ensure that information represents what it
purports to represent is an example of the concept of?
comparability
feedback value
Relevance
Correct!
verifiability
Question 38
1 / 1 pts
The characteristic that is demonstrated when a high degree of consensus can be secured among
independent measures using the same measurement method is
No answer text provided.
No answer text provided.
Correct!
verifiability
relevance
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Question 39
1 / 1 pts
The enhancing quality of understandability means that the information should be understood by
Correct!
Those who have a reasonable understanding of business and economic activities
CPAs
those who are experts in the interpretation of financial information
Financial analysts
Question 40
1 / 1 pts
When an entity has started placing its quarterly financial statements on its web page, thereby
reducing by ten days the time to get information to investors and creditors, the qualitative concept
involved is
Faithful representation
consistency
comparability
Correct!
timeliness
Question 41
1 / 1 pts
When different competent accountants independently agree on the amount and method of
reporting an economic event, what is the concept demonstrated?
comparability
completeness
Correct!
verifiability
reliability
Question 42
1 / 1 pts
What is the underlying concept governing the GAAP pertaining to recording gain contingencies?
reliability
Correct!
Conservatism
Relevance
consistency
Question 43
1 / 1 pts
What is meant by consistency when discussing financial accounting information?
Information is verifiable
Information is timely
Information is measured similarly across the industry
Correct!
Information is measured and reported in a similar fashion across points in time
Question 44
1 / 1 pts
Which concept of accounting holds that, to the maximum extent possible, financial statements shall
be based on arm’s length transactions
matching
Revenue realization
monetary unit
Correct!
verifiability
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Question 45
1 / 1 pts
A reporting entity
Can be a single entity
Can be a portion of a single entity
Can compromise more than one entity
Correct!
All of these can be considered a reporting entity
Question 46
1 / 1 pts
A reporting entity is
Necessarily an economic entity
a regulatory government authority
Correct!
An entity that is required or choose to prepare financial statements
Necessarily a legal entity
Question 47
1 / 1 pts
The relatively stable economic, political and social environment supports
materiality
Correct!
going concern
conservatism
timeliness
Question 48
1 / 1 pts
The economic entity assumption
Is inapplicable to unincorporated businesses.
Requires periodic income measurement
Correct!
Is applicable to all forms of business organizations
Recognizes the legal aspects of business organizations
Question 49
1 / 1 pts
What is the accounting concept that justifies the usage of accruals and deferrals?
stable monetary unit
materiality
consistency
Correct!
going concern
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Question 50
1 / 1 pts
Which of the following statement is true?
1. The objective of financial reporting is based on generally accepted accounting principles.
2. An item would be considered material when omitting, misstating or obscuring the information
would make a difference to the primary users.
3. Revenue encompasses income and gain.
4. Based on the new definition of asset, future economic benefit is expected to flow to the entity.
Statement 1 and 2
Correct!
Statement 2 only
All statements are false
Statements 1, 2 and 4
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Second Quiz
Question 1
1 / 1 pts
Financial statements are
intended to meet the information needs of the management
reports about the performance of the management
specific purpose financial reports
Correct!
structured presentation of the financial position and changes in financial position of an enterprise
Question 2
1 / 1 pts
Which of the following is not an objective of financial statements?
To present information about the changes of financial position of an enterprise
Correct!
To present information about the realizable amount of an entity’s assets in the event of
liquidation.
To present information about the financial performance of an entity for a given reporting period.
To present information about financial position of an entity as of a given date.
Question 3
1 / 1 pts
When assets and liabilities on the statement of financial position are not presented into current
and non-current classification, they should be presented broadly
in the order of magnitude
in the order of maturity
Correct!
in the order of liquidity
alphabetically
Question 4
1 / 1 pts
The operating cycle
refers to the seasonal variations experienced by business enterprises
cannot exceed one year
should be used to classify assets and liabilities as current if it is less than one year
Correct!
allows trade receivables and inventories to be classified as current assets even if they would not
be realized in cash within twelve months from the end of the reporting period
Question 5
1 / 1 pts
Which among the following is not presented in profit or loss section of the statement of
comprehensive income?
Finance costs incurred during the period
Expenses incurred during the period
Revenue earned during the period
Correct!
Dividends declared during the period
Question 6
1 / 1 pts
A decrease in an asset arising from peripheral or incidental transaction is called
Capital expenditure
Expense
Correct!
Loss
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Cost
Question 7
1 / 1 pts
It is a decrease in asset or an increase in liability that results decrease in equity other than
distribution to equity holders
income
asset
Correct!
Expense
liability
Question 8
1 / 1 pts
Which statement in relation to income is true?
Gain encompasses both income and revenue
Revenue encompasses both income and gain
Correct!
Income encompasses both revenue and gain
Income encompasses revenue only
Question 9
1 / 1 pts
It is the present ability to direct the use of an economic resource and obtain the benefit that may
flow from it
Correct!
control
ownership
obligation
Legal right
Question 10
1 / 1 pts
The elements of financial position describe amounts of resources and claims against resources
During a period of time
During a period of time and at a moment in time
Neither during a period of time nor at a moment in time
Correct!
At a moment in time
Question 11
1 / 1 pts
Which statement is not true about income and expense?
Expense is decrease in asset or increase in liability that result in decrease in equity other than
distribution to equity holders
Correct!
Income and expenses are the elements that relate to financial position
Income is increase in asset or decrease in liability that results in increase in equity other than
contribution from equity holders
Income encompasses revenue and gain
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Question 12
1 / 1 pts
This arises in the course of ordinary regular activities of the entity and is referred to by a variety of
different names including sales, fees, interest, dividends, royalties and rent
Profit
income
Correct!
Revenue
Gain
Question 13
1 / 1 pts
An outflow of asset based on an activity that represents the major operations is called
Loss
Correct!
Expense
liability
Equity
Question 14
1 / 1 pts
Which of the following criteria need not be satisfied for a liability to exist?
The obligation is to transfer an economic resource
Correct!
The settlement is expected to result in an outflow of economic benefit
The obligation is a present obligation that exists as a result of a past event
The entity has an obligation
Question 15
1 / 1 pts
A present obligation exists as a result of past event if
The entity has already obtained economic benefit
The entity has not yet obtained economic benefit but must transfer an economics resource
Correct!
The entity has already obtained economic benefit and must transfer economic resource
The entity must transfer an economic resource
Question 16
1 / 1 pts
This is new term refers to the statement of profit or loss and a statement presenting other
comprehensive income
Statement of financial position
Income statement
Correct!
Statement of financial performance
Statement of comprehensive income
Question 17
1 / 1 pts
What is the primary distinction between revenue and gain?
The method of disclosing the transaction
The materiality of the amount
The likelihood that the transaction will recur
Correct!
The nature of the activity that gives rise to the transaction
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Question 18
1 / 1 pts
Which of the following would be matched with current revenue on a basis other than association of
cause and effect?
Correct!
Goodwill
Warranty cost
Cost of goods sold
Sales commission
Question 19
1 / 1 pts
What is the general approach as to when product costs are recognized as expense?
In the period when the expenses are paid
In the period when the expenses are incurred
Correct!
In the period when the related revenue is recognized
In the period when the vendor invoice is received
Question 20
1 / 1 pts
A cause and effect relationship is implicit in the
Historical cost principle
Realization principle
Going concern assumption
Correct!
Matching principle
Question 21
1 / 1 pts
It is the process of capturing for inclusion in the financial statements an item that meets the
definition of the elements of financial statements.
Derecognition
Correct!
Recognition
Measurement
Classifying
Question 22
1 / 1 pts
Which accounting principle is being observed when an accountant charges to expense a cost that
contributed to revenue during a period?
Correct!
Matching
Monetary unit
Revenue realization
conservatism
Question 23
1 / 1 pts
Which of the following principle best describes the conceptual rationale for the method of
matching depreciation with revenue?
Partial recognition
Immediate recognition
Correct!
Systematic and rational allocation
Associating cause and effect
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Question 24
1 / 1 pts
Which of the following practices may not be an acceptable deviation from recognizing revenue a
the point of sale?
Correct!
Upon receipt of order
End of production
During production
Upon receipt of cash
Question 25
1 / 1 pts
An example of direct matching of an expense with revenue would be
Depreciation expense
Advertising expense
Office salaries expense
Correct!
Direct labor costs incurred to produce inventory sold during a period
Question 26
1 / 1 pts
Which measurement attribute is not currently used in practice
Current cost
Correct!
Inflation adjusted cost
Present value
Fair value
Question 27
1 / 1 pts
It is the amount of cash or cash equivalent that would have to be paid if the same or an equivalent
asset was acquired currently
Correct!
Current cost
Realizable value
Historical cost
Present value
Question 28
1 / 1 pts
Financial capital is defined as
legal capital
Correct!
Net assets in monetary terms
Share capital issued and outstanding
Net assets in terms of physical productive capacity
Question 29
1 / 1 pts
Income and expenses are classified as
Retained earnings and other comprehensive income
Profit or loss and retained earnings
Correct!
Profit or loss and other comprehensive income
Ordinary and extraordinary
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Question 30
1 / 1 pts
What is the new term to describe the statement of profit or loss together with the statement
showing other comprehensive income
Statement of profit or loss
Statement of other comprehensive income
Correct!
Statement of financial performance
Income statement
Question 31
1 / 1 pts
The operating cycle of an entity
Is the period of time normally elapsed in converting trade receivables back into cash
Refers to the seasonal variation experienced by entities
ls a period of one year
Correct!
Is the time between the acquisition of materials entering into a process and their realization in
cash
Question 32
1 / 1 pts
Current assets should never include
A receivable not collectible within one year
Current tax asset
Correct!
Goodwill arising in a business combination
Premium paid on a bond investment
Question 33
1 / 1 pts
The major financial statements include all, except
Statement of changes in equity
Correct!
Statement of changes in financial position
Statement of financial position
Statement of comprehensive income
Question 34
1 / 1 pts
Assets to be sold, consumed or realized as part of the normal operating cycle are
Correct!
Current assets
Noncurrent investments
Classified as current or noncurrent in accordance with other criteria
Noncurrent assets
Question 35
1 / 1 pts
Which statements best describes the term liability?
resources to meet financial commitments when due
an excess of equity over current assets
the residual interest in the assets of the entity after deduction all of the liabilities
Correct!
a present obligation arising from past event
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Question 36
1 / 1 pts
Which item is not a current liability?
unearned revenue
trade accounts payable
Correct!
Share dividends payable
the currently maturing portion of long-term debt
Question 37
1 / 1 pts
In the Philippines, the common practice is to present in the statement of financial position
Noncurrent assets before current assets, noncurrent liabilities before current liabilities and equity
after liabilities
Noncurrent assets before current assets, current liabilities before noncurrent liabilities and equity
after liabilities
Current assets before noncurrent assets, noncurrent liabilities before current liabilities and equity
after liabilities
Correct!
Current assets before noncurrent assets, current liabilities before noncurrent liabilities and equity
after liabilities.
Question 38
1 / 1 pts
Notes to financial statements
Are irrelevant facts that are immaterial in amount.
Correct!
Are an integral part of an entity's financial statements
Document the source of financial statement facts
Are relatively unimportant facts that do not belong in the basic financial statements.
Question 39
1 / 1 pts
Treasury shares should be, reported as
Correct!
Reduction of shareholders' equity
Current asset
Investment
Other asset
Question 40
1 / 1 pts
Which of the following is usually classified as a noncurrent asset
goods in process
Correct!
Plant expansion fund
Prepaid rent
supplies
Question 41
1 / 1 pts
An entity shall classify a liability as current when under all of the following conditions, except
The entity holds the liability primarily for the purpose of trading
The entity expects to settle the liability within the entity's normal operating cycle
Correct!
The entity has an unconditional right to defer settlement of the liability for at least twelve months
after the reporting period.
The liability is due to be settled within twelve months after the reporting period
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Question 42
1 / 1 pts
Which of the following must be included on the face of the statement of financial position?
Shares in an entity owned by that entity
Contingent asset
Correct!
Investment property
Number of shares authorized
Question 43
1 / 1 pts
The statement of financial position is useful for analyzing all of the following, except
financial flexibility
solvency
Correct!
Profitability
liquidity
Question 44
1 / 1 pts
A financial liabilities due within twelve months after the reporting period shall be classified as
noncurrent
Correct!
When it is refinanced on a long-term basis on or before the end of reporting period.
When it is refinanced on a long-term basis after the end of reporting period
When the entity has no discretion to refinance for at least twelve months
When it is refinanced on a long-term basis before the issue of financial statements.
Question 45
1 / 1 pts
Current and noncurrent presentation of assets and liabilities provides useful information when the
entity
Is a public utility
is a nonprofit organization
Is a financial institution
Correct!
Supplies goods or services within a clearly identifiable operating cycle
Question 46
1 / 1 pts
The major financial statements include all, except
Income statement
Statement of cash flows
Correct!
Statement of retained earnings
Statement of financial position
Question 47
1 / 1 pts
The recognition and measurement concepts recognize which of the following as a principle rather
than an assumption?
going concern
Correct!
Full disclosure
time period
monetary unit
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Question 48
1 / 1 pts
Which is a limitation of a statement of financial position?
Current fair value is not reported
Many items that are of financial value are omitted
Correct!
All of these are a limitation of the statement of financial position
Judgment and estimate are used
Question 49
1 / 1 pts
To meet the needs of full disclosure, entities use supplemental information including
Supplemental financial statements that report more detailed information.
Parenthetical comments or modifying comments placed on the face of the financial statements.
Disclosure notes conveying additional insights about operations, accounting principles, contractual
agreements and pending litigation.
Correct!
All of these are correct
Question 50
1 / 1 pts
The term "deficit" refers to
An excess of current liabilities over current assets
Correct!
A debit balance in retained earnings
An excess of current assets over current liabilities
A prior period error.
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