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CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS
FINANCIAL ACCOUNTING AND REPORTING
COMPETENCY APPRAISAL 2023
1. Which of the following correctly relate(s) to the Monetary/ Stable monetary/ Monetary Unit concept?
I.
assets, liabilities, equity, revenues and expenses should be stated in terms of a unit of measure
which is the peso in the Philippines.
II.
the purchasing power of the peso is stable or constant and that its instability is insignificant and
therefore ignored.
a. I
b. II
c. I and II
d. None
2. To be relevant, information should have which of the following?
a. Verifiability.
b. Confirmatory value.
c. Understandability.
d. Costs and benefits.
3. Entity A’s current year financial statements include the preceding year’s financial statements as
comparative information. This is most in keeping with the concept of
a. Inter-comparability.
b. Intra-comparability.
c. Verifiability.
d. Faithful representation.
4. This refers to financial statements that are intended to meet the needs of users who are not in a
position to require an entity to prepare reports tailored to their particular information needs.
a. All-purpose financial statements
b. General purpose financial statements
c. Managerial reports
d. Unisex financial statements
5. Which of the following statements is incorrect regarding the purpose of the Conceptual Framework?
a. The Conceptual Framework is intended to provide a foundation for the development of globally
acceptable Standards.
b. Globally acceptable Standards contribute to economic efficiency by lowering the cost of capital
and reducing international reporting costs.
c. Globally acceptable Standards reduces the information gap between financial statement users and
the reporting entity’s management.
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d. The Conceptual Framework prescribes the concepts for both general purpose and specific purpose
financial reporting.
6. The Conceptual Framework (choose the incorrect statement)
a. is not a PFRS.
b. in the absence of a PFRS, shall be considered by management when making its judgment in
developing and applying an accounting policy that results in useful information.
c. is concerned with general purpose financial reporting only.
d. prevails over the PFRSs in cases of conflicts.
7. Which of the following is excluded from the scope of the Conceptual Framework?
a. The objective of financial reporting.
b. Qualitative characteristics of useful financial information.
c. The components of a complete set of financial statements and their presentation requirements.
d. Definitions, recognition criteria and derecognition of financial statement elements.
e. Descriptions of the measurement bases used in financial reporting.
8. Which of the following is incorrect regarding the objective of general purpose financial reporting?
a. The objective of general purpose financial reporting is to provide information that is useful to
primary users in making decisions about providing resources to the entity.
b. Decisions about providing resources to the entity depend on the users’ expected returns, which
in turn, depend on assessments of the entity’s prospects for future net cash inflows and
management stewardship.
c. The objective of general purpose financial reporting forms the foundation of the Conceptual
Framework.
d. General purpose financial reporting provides information about an entity’s economic resources,
claims, and changes in those resources and claims, but not on the utilization of those resources by
the entity’s management.
9. Which of the following statements best explains why the reporting entity’s management and
government regulators are not considered primary users under the Conceptual Framework?
a. These users are considered related parties, and hence do not make relevant decisions.
b. These users have the ability to curtail the operations of the reporting entity and therefore have
the ability to affect the entity’s going concern.
c. These users have the power to demand information they need directly from the reporting entity.
d. All of these.
10. Information about the reporting entity’s economic resources, claims against the reporting entity and
changes in those resources and claims is referred to in the Conceptual Framework as the
a. economic phenomena.
b. entity’s return.
c. financial performance.
d. prospects for future cash flows.
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11. Entity A deliberately overstated its liabilities from ₱1M to ₱1.2M. What qualitative characteristic is
violated?
a. Relevance
c. Timeliness
b. Faithful representation
d. Understandability
12. Two primary users are using the financial information of Entity A. If User #1 concludes that Entity
A’s sales has increased while User #2 concludes that it has decreased, Entity A’s financial information
is not
a. relevant.
c. comparable
b. faithfully represented.
d. verifiable.
13. Entity A is making a materiality judgment. Entity A considers the size of the impact of an item to be
material if it exceeds 5% of total assets. What type of materiality assessment is this?
a. Quantitative
c. Requirement of a Standard
b. Qualitative
d. Relevance
14. Which of the following is incorrect regarding the objective of general purpose financial statements?
a. General purpose financial statements show information on the reporting entity’s assets, liabilities,
equity, income and expenses.
b. General purpose financial statements are intended to show the value of the reporting entity.
c. General purpose financial statements provide information that is useful in assessing the entity’s
ability to generate future net cash inflows.
d. General purpose financial statements provide information that is useful in assessing the entity’s
management stewardship in relation to the use of the entity’s economic resources.
15. Which of the following is least likely to be considered when determining whether an item meets the
definition of an asset?
a. whether there is a present economic resource, which is a right, that has resulted from past events
b. whether the right has a potential to produce economic benefits, evidenced by at least one
circumstance
c. whether the entity controls the right
d. whether it is probable (more likely than not) that the resource will produce economic benefits
16. The revised definitions of an asset and a liability emphasize that
a. an asset is a right, and a liability is an obligation, that has the potential to produce, or cause the
transfer of, economic benefits.
b. an asset is a controlled resource, and a liability is an obligation, that is expected to cause inflows
or outflows of economic benefits.
c. an asset is the physical object and the liability is ultimate outflow of economic benefits from
settling the obligation.
d. All of these are emphasized in the revised definitions.
17. Which of the following is correct when determining the existence of an asset or a liability?
a. An asset or a liability exists if the associated right or obligation arises from legal or contractual
requirements.
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b. An asset or a liability exists only if the expected inflows or outflows of economic benefits from
the asset or the liability are probable, meaning they are more likely than not to occur.
c. An asset or a liability can exist even if its potential to produce, or cause a transfer of, economic
benefits is not certain or even likely – what is important is that the right or the obligation exists in
the present and that in at least one circumstance it will produce, or cause a transfer of, economic
benefits.
d. All of these are correct.
18. Control is a necessary element of an asset. Control means
a. the entity has the exclusive right over the benefits of an asset, including the ability to prevent
others from accessing those benefits.
b. that the entity can ensure that the resource will produce economic benefits in all circumstances.
c. the entity has the exclusive right over the entire economic resource, and not only a portion of it.
d. a legally enforceable right conferred to the entity by a law or other operation of law.
19. An asset is an economic resource and an economic resource is a right that has the potential to
produce economic benefits. Which of the following is not one of the potentials of an economic
resource to produce economic benefits for an entity?
a. Service potential, i.e., the resource can be used to provide services in the entity’s normal business
activities.
b. The resource can be converted into cash.
c. The resource has the ability to provide cost-savings to the entity.
d. The resource causes more outflows of cash from the entity than inflows.
20. According to the revised Conceptual Framework, an item is recognized if
a. it meets the definition of a financial statement element.
b. recognizing it would provide useful information.
c. it is probable that the item will result to an inflow or outflow of economic benefits and its cost can
be measured reliably.
d. a and b
21. According to the Conceptual Framework, before an item is recognized, it must meet the definition of an
asset, liability, equity, income or expense, and recognizing that item would provide relevant and
faithfully represented information. Which of the following relates to faithful representation rather
than relevance?
a. It is uncertain whether the asset exists.
b. The asset exists but the probability that it will produce inflows of economic benefits is low.
c. A high level of measurement uncertainty associated with the asset.
d. None of these. An item that meets the definition of an asset is always recognized as an asset.
22. Which of the following will most likely to cause the non-recognition of an asset or a liability?
a. The probability of an inflow (outflow) of future economic benefits from the asset (liability) is low.
b. There is a measurement uncertainty regarding the asset or liability.
c. It is uncertain whether the asset or liability exists.
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d. Recognizing the asset or liability would not provide relevant and faithfully represented
information.
23. Which of the following would not result to the recognition of a liability?
a. Receipt of the proceeds of a bank loan.
b. Receipt of delivery of equipment purchased on credit.
c. A future commitment becomes burdensome.
d. Paying in advance the purchase price of inventories for future delivery.
24. Entity A determined that a previously recognized asset no longer meet the definition of an asset.
Accordingly, Entity A removed the carrying amount of the asset from the statement of financial
position and recognized it as an expense. Entity A is applying which of the following principles?
a. Matching
c. Derecognition
b. Recognition
d. Presentation and disclosure
25. Recognizing a financial statement element requires measuring it in monetary terms. Which of the
following statements is incorrect regarding measurement?
a. The Conceptual Framework only describes the measurement bases used in financial reporting but
does not specify how a particular financial statement element should be measured – this is
addressed by the Standards.
b. The Conceptual Framework broadly classifies the measurement bases used in financial reporting
into two, namely, historical cost and current value.
c. Measurement uncertainty will always cause the non-recognition of a financial statement element.
d. Measuring a financial statement element often requires estimation.
26. Effective communication makes information more useful. Effective communication requires all of the
following except
a. focusing on presentation and disclosure objectives and principles rather than focusing on rules
b. classifying information in a manner that groups similar items and separates dissimilar items.
c. aggregating information in such a way that it is not obscured either by unnecessary detail or by
excessive aggregation.
d. using standardized descriptions, a.k.a. ‘boilerplate’, rather than entity-specific information.
27. According to the revised Conceptual Framework, income and expenses are classified as either
a. recognized in profit or loss or in other comprehensive income.
b. gains and revenues, and expenses and losses, respectively.
c. contributions from, or distributions to, the entity’s owners.
d. increases or decreases in the entity’s assets or liabilities.
28. Under this concept of capital maintenance, profit is earned if net assets increased during the period
after excluding the effects of transactions with the owners.
a. Financial capital maintenance
b. Physical capital maintenance
c. Repairs and maintenance
d. Building maintenance
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29. A complete set of financial statements does not include a
a. statement of financial position.
b. statement of comprehensive income.
c. statement of retained earnings.
d. notes.
30. Which of the following is an acceptable method of reporting other comprehensive income and its
components?
a. In a statement of profit or loss and other comprehensive income.
b. In a statement of changes in equity
c. In the notes only.
d. All of these
31. Which of the following may be included in the cost of inventories?
a. Storage costs of part-finished goods
b. Abnormal amount of wasted materials, labor and factory overhead
c. Recoverable purchase taxes
d. Administrative costs
32. Which of the following cost formulas is not allowed under PAS 2?
a. FIFO
b. Weighted average
c. Specific identification
d. LIFO
33. Interest expense that is paid in cash is presented in the statement of cash flows under
a. operating activities.
b. investing activities
c. financing activities
d. a or c
34. When it is difficult to distinguish a change in accounting policy from a change in accounting
estimate, the change is treated as
a. a change in an accounting estimate.
b. a change in an accounting policy.
c. a correction of prior period error.
d. not accounted for.
35. These are differences that do not have future tax consequences.
a. Permanent differences
b. Taxable differences
c. Temporary differences
d. Deductible differences
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36. This type of difference gives rise to deferred tax asset.
a. Taxable temporary difference
b. Permanent difference
c. Deductible temporary difference
d. No difference
37. In accounting parlance, depreciation means
a. the amount derived by dividing the cost of an asset over its useful life.
b. the amount derived by multiplying the cost of an asset by its useful life.
c. the systematic allocation of the depreciable amount of an asset over its useful life.
d. the decline the in the value of an asset during the period.
38. It is a type of retirement plan where the employer assures a definite amount of benefit to be received
by the employee. The risk that funds needed to pay the agreed benefits may be insufficient is retained
by the employer.
a. Defined contribution plan
b. Defined benefit plan
c. Leche plan
d. Plan vs. zombies
39. The government extends a repayable loan to Entity A. The loan pays interest at market rate. Entity A
should account for the government loan using which of the following standards?
a. PAS 20
b. PAS 41
c. PFRS 9
d. PFRS 16
40. According to PAS 23, borrowing costs are capitalized when
a. they relate directly to the acquisition, construction or production of a qualifying asset.
b. the entity chooses to capitalize them.
c. they are material and are expected to be incurred over more than one reporting period.
d. all of these
41. Which of the following are not related parties?
a. A parent and its subsidiary
b. Two or more subsidiaries with the same parent
c. A company and its Chief Executive Officer
d. Two co-venturers of a common joint venture business
42. According to PAS 27, which of the following is required to present separate financial statements?
a. A publicly-listed entity
b. A parent
c. An entity with an investment in associate
d. None of these
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43. Which of the following is classified as an equity instrument rather than a financial liability?
a. Preference shares that are mandatorily redeemable
b. A contract that is settled by the delivery of a variable number of the entity’s own equity
instruments in exchange for a fixed amount of cash or another financial asset.
c. A contract that is settled by the delivery of a fixed number of the entity’s own equity instruments
in exchange for a variable amount of cash or another financial asset.
d. Shares issued but were subsequently reacquired.
44. Which of the following is correct regarding the provisions of PAS 34?
a. All entities should publish quarterly interim reports.
b. All publicly-listed entities should publish quarterly interim reports.
c. All publicly-listed entities should publish semi-annual interim reports.
d. PAS 34 does not require any entity to publish interim reports, and how often.
45. If a cash-generating unit (CGU) is impaired, the impairment loss is allocated first to
a. the goodwill in that CGU.
b. the noncurrent assets in that CGU.
c. the current assets in that CGU.
d. a and b
46. The amount at which an asset is recorded in the books of accounts minus any accumulated
depreciation and accumulated impairment losses is referred to as
a. fair value.
b. cost.
c. carrying amount.
d. amortized cost.
47. Which of the following statements is correct?
a. A provision is recognized only when it represents a present obligation.
b. An event or transaction whose outflow of economic benefits is probable and can be measured
reliably is always recognized.
c. A contingent asset that is possible is usually ignored.
d. A contingent liability that is possible is ignored.
48. Intangible assets are measured as follows:
Initial measurement
Subsequent measurement
a. cost
fair value
b. cost
cost model or revaluation model
c. cost
cost model or fair value model
d. fair value
cost model or revaluation model
49. Which of the following properties meets the definition of investment property?
I.
Land held for long-term capital appreciation
II.
Property occupied by an employee paying rent at market rate
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III.
IV.
a.
b.
c.
d.
Property being constructed on behalf of third parties
A building owned by an entity and leased out under an operating lease
I and II
I and IV
II and IV
II, III and IV
50. Which of the following is considered a bearer plant?
a. Palm oil
b. Corn oil
c. Baby oil
d. Oil palm
51. According to PFRS 1, when a first-time adopter presents one year comparative information to its first
PFRS financial statements, it shall prepare, at the minimum,
a. two statements of financial position and one of each of the other financial statements, and related
notes.
b. two statements of financial position and two of each of the other financial statements, and related
notes.
c. three statements of financial position and two of each of the other financial statements, and
related notes.
d. three statements of financial position and three of each of the other financial statements, and
related notes.
52. According to PFRS 5, assets held for sale are measured at
a. fair value.
b. fair value less costs to sell.
c. carrying amount.
d. lower of b and c
53. After recognition, exploration and evaluation assets are accounted for under the
a. cost model
b. fair value model
c. revaluation model
d. a or c
54. Entity A acquires a legal right to search for mineral resources in a specific area. What PFRS should
Entity A apply in accounting for the costs it incurs on its exploration and evaluation activities?
a. PAS 26
b. PFRS 4
c. PFRS 5
d. PFRS 6
55. Which of the following properly describes credit risk?
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a. The possibility that Entity A will not be able to settle its financial liabilities when they become
due.
b. The possibility that Entity A will incur loss on its foreign-currency denominated financial
instruments when there is an adverse change in foreign exchange rates.
c. The possibility that Entity A cannot collect on its receivables.
d. The possibility that Entity A will be required to pay higher interest on its variable-rate loan when
market interest rates increase.
56. Andrix Domingo’s Sari-sari Store has a sign that reads “Your credit is good but I need cash.” What
type of risk is Mr. Andrix trying to avoid by putting up that sign?
a. credit risk
b. market risk
c. liquidity risk
d. store risk
57. Which of the following is not among the quantitative thresholds under PFRS 8?
a. At least 10% of total revenues (external and internal)
b. At least 10% of the higher of total profits of segments reporting profits and total losses of
segments reporting losses, in absolute amount.
c. At least 10% of total assets (inclusive of intersegment receivables).
d. At least 10% of total revenues (external only)
58. Rex Banggawan Co. acquires investment in stocks of Darrell Joe Asuncion. The investment will be
held for trading and it gives Rex neither significant influence nor control over Darrell. Rex will most
likely measure the investment
a. at fair value through profit or loss.
b. using the equity method.
c. at amortized cost.
d. at historical cost
59. According to PFRS 10, which of the following is not an element of control?
a. power
b. exposure, or rights, to variable returns
c. major holdings
d. ability to affect return.
60. Which of the following is a peculiar characteristic of a joint arrangement?
a. significant influence
b. joint control
c. control
d. joint venture
61. This PFRS provides a single framework for measuring the fair value of an asset, liability or equity
when other PFRSs require or permit measurement at fair value or fair value less costs to sell. It also
prescribes the disclosures related to fair value measurement.
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a.
b.
c.
d.
PFRS 3
PAS 1
PFRS 9
PFRS 13
62. Leases are accounted for under
a. PAS 16.
b. PFRS 14.
c. PFRS 15.
d. PFRS 16.
63. PFRS 8 relates to which of the following?
a. Disclosure of operating segments
b. Disclosure of related party relationships and transactions
c. Disclosure of events after the reporting period
d. Interim financial reporting
64. You are the accountant of ABC Co. During the period, ABC Co. acquired short-term investment in
stocks. Which of the following financial reporting standards is most likely to be relevant in
accounting for the transaction?
a. PFRS 8
b. PFRS 9
c. PAS 28
d. b or c
65. You are a CPA and were engaged to audit the annual financial statements of ABC Co., a mining
company. Which of the following standards is most likely to be relevant to ABC Co.?
a. PFRS 4
b. PAS 34
c. PAS 41
d. PFRS 6
66. You are the accountant of ABC Co. During the period, your company acquired majority holdings in
XYZ, Inc. This transaction gave rise to goodwill. Which of the following standards will be referred to
in your company’s notes to the financial statements under summary of significant accounting
policies?
a. PFRS 3
b. PFRS 10
c. PAS 36
d. All of these
67. You are the accountant of Entity X. The board of directors asked you for an advice because they feel
like the company’s financial statements do not properly reflect the company’s financial position. The
board noted out that the company’s properties (i.e., land) are absurdly stated at their historical cost.
The properties were acquired 50 years ago and the market prices of the properties have more than
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tripled since then. In providing your professional advice, you will most certainly quote the
provisions of which of the following standards?
a. PAS 7
b. PAS 33
c. PAS 16
d. All of these
68. When determining whether an investor controls an investee, the investor should refer to
a. PAS 21.
b. PFRS 10.
c. PAS 10.
d. PAS 1.
69. When measuring the fair value of an asset or a liability, an entity refers to
a. PFRS 13.
b. PAS 28.
c. PFRS 1.
d. PFRS 7.
70. Non-current assets held for sale and discontinued operations are accounted for under
a. PFRS 4.
b. PAS 41.
c. PFRS 5.
d. PFRS 8.
71. The equity method of accounting for investments is discussed under
a. PAS 28.
b. PAS 29.
c. PAS 21.
d. PFRS 2.
72. The computation of employee retirement benefits expense is addressed in this standard.
a. PAS 17
b. PFRS 7
c. PAS 19
d. PFRS 9
73. This standard deals with the recognition and measurement of financial instruments.
a. PAS 32
b. PFRS 7
c. PFRS 9
d. PFRS 3
74. Joint arrangements are discussed under
a. PFRS 1.
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b. PFRS 11.
c. PAS 20.
d. PAS 24.
75. Entity A is preparing its first PFRS financial statements. Which of the following standards is most
relevant to Entity A?
a. PFRS 1
b. PAS 12
c. PAS 8
d. PFRS 9
76. This standard is most relevant to insurance companies.
a. PFRS 14
b. PFRS 15
c. PFRS 16
d. PFRS 17
77. Intangible assets, other than goodwill, are accounted for under
a. PAS 38.
b. PFRS 8.
c. PAS 26.
d. PAS 20.
78. The computation of earnings per share is addressed by
a. PAS 36.
b. PFRS 3.
c. PAS 33.
d. PFRS 11.
“Do not be deceived: God cannot be mocked. A man reaps what he sows.” Galatians 6:7
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