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CFAS Prelim
Financial Accounting and Reporting (University of the East (Philippines))
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BSA 2101- CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS
PRELIM DEPARTMENTAL EXAM REVIEWER
MULTIPLE CHOICE
_____1. Technically not part of the Philippine Financial Reporting Standards (PFRS)
a. Philippine Accounting Standards (PASs)
b. Philippine Financial Reporting Standards (PFRSs)
c. Philippine Interpretations
d. Conceptual Framework for Financial Reporting
_____2. What is the authoritative status of the framework?
a. It has the highest level of authority. In case of conflict between the Framework and a
Standard or Interpretation, the Framework overrides the Standard or Interpretation
b. If there is a Standard or Interpretation that specifically applies to a transaction, it
overrides the Framework. In the absence of a Standard or an Interpretation that
specifically applies, the Framework should be followed
c. If there is a Standard or Interpretation that specifically applies to a transaction, it
overrides the Framework. In the absence of a Standard or an Interpretation that
specifically applies to a transaction, management should consider the applicability of
the Framework in developing and applying an accounting policy that results in
information that is relevant and reliable
d. The Framework applies only when FRSC develops new or revised standards. An
entity is never required to consider the Framework
_____3. Which is not a purpose of the Conceptual Framework?
a. To provide definitions of key terms and concepts
b. To provide specific guidelines for resolving situations not covered by existing
accounting standards
c. To assist accountants in selecting among alternatives
d. To assist IASB in the standard-setting process
_____4. Which of the following is not an implication of the going concern assumption?
a. The historical cost principle is credible
b. Depreciation and amortization policies are justifiable and appropriate.
c. The current and noncurrent classification of assets and liabilities is justifiable and
significant.
d. Amortizing research and development costs over several periods is justifiable and
appropriate.
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_____5. Assessing cash flow prospects" as an objective of financial reporting is interpreted to
mean
a. Cash basis accounting is preferred over accrual basis accounting.
b. Information about the financial effects of cash receipts and cash payments is
generally considered the best indicator of present and continuing ability to generate
favorable cash flows.
c. Over the long run, trends in revenue and expenses are generally more meaningful
than trends in cash receipts and disbursements.
d. All of the choices are correct regarding "assessing cash flow prospects"
_____6. Allowing entities to estimate rather than physically count inventory at an interim period
is an example of a tradeoff between
a. Verifiability and comparability
b. Timeliness and comparability
c. Timeliness and verifiability
d. Neutrality and consistency
_____7. The overriding qualitative characteristic of accounting information is
a. Relevance
b. Understandability
c. Faithful representation
d. Decision usefulness
_____8. The Conceptual Framework includes which of the following constraints?
a. Prudence
b. Substance over form
c. Cost
d. All of the choices are constraints
_____9. The Conceptual Framework
a. Includes prudence or conservatism which means when in doubt, choose the solution
that will be least likely to overstate assets and income.
b. Includes prudence or conservatism which means when in doubt, choose the solution
that will be least likely to understate liabilities and expenses.
c. Includes prudence or conservatism as a desirable but not required quality of
accounting information.
d. Excludes prudence or conservatism because it is inconsistent with neutrality.
_____10. Which accounting concept justifies the use of accruals and deferrals?
a. Going concern
b. Corporate form of organization
c. Consistency
d. Arm’s length transaction
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_____11. When economic benefits are expected to arise over several accounting periods and
the association with income can only broadly or indirectly determined, expenses are recognized
on the basis of
a. Strict matching
b. Systematic and rational allocation
c. Immediate recognition
d. Realization
_____12. The term revenue recognition conventionally refers to
a. The process of identifying the transactions to be recorded as revenue in an
accounting period
b. The process of measuring and relating revenue and expenses
c. The earning process which gives rise to revenue realization
d. The process of identifying transactions that result in an inflow of assets from
customers
_____13. It is an increase in economic benefit during the accounting period related to an
increase in asset or a decrease in liability that results in increase in equity other than
contribution from owners
a. Asset
b. Liability
c. Income
d. Expense
_____14. All of the following represents costs of providing financial information except
a. Accessing Capital
b. Processing/Preparing
c. Disseminating
d. Auditing
_____15. Which is correct regarding physical concept of capital?
a. It is adopted by most entities in preparing their financial statements
b. Capital is synonymous to net assets or equity
c. It is adopted if the users of financial statements are primarily concerned with the
maintenance of nominal invested capital or the purchasing power of invested capital
d. A profit is earned only if the physical capital productive capacity of the entity at the
end of the period exceeds the physical productive capacity at the beginning of the
period, after excluding any transactions with owners.
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_____16. Which of the following is not a noncurrent investment?
a. Cash surrender value of life insurance policy
b. Franchise
c. Land held for speculation
d. A sinking fund
_____17. Long-term debt that matures within one year and is to be converted into shares
should be reported
a. as a current liability.
b. in a special section between liabilities and equity.
c. as part current and part non-current.
d. as non-current
_____18. Which statement is incorrect regarding events after balance sheet date?
a. Events after the balance sheet date that provide further evidence of conditions that
existed at the balance sheet date will require adjustments to the financial statements.
b. Events or conditions that arose after the balance sheet date does not require
adjustments to the financial statements.
c. If an entity declares dividends after the balance sheet date, the entity shall recognize
those dividends as a liability at the balance sheet date.
d. An entity shall not prepare its financial statements on a going concern basis if
management determines after the balance sheet date either that it intends to liquidate
the entity or to cease trading, or that it has no realistic alternative but to do so
_____19. Companies should disclose all of the following in interim reports except
a. basic and diluted earnings per share.
b. changes in accounting principles.
c. post-balance-sheet events.
d. seasonal revenue, cost, or expense
_____20. Treasury shares are
a. shares held as an investment by the treasurer of the corporation.
b. shares held as an investment of the corporation.
c. issued and outstanding shares.
d. issued but not outstanding shares.
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_____21. A deferred tax liability is classified on the balance sheet as either a current or a
noncurrent liability. The current amount of a deferred tax liability should generally be
a. the net deferred tax consequences of temporary differences that will result in net
taxable amounts during the next year.
b. totally eliminated from the financial statements if the amount is related to a noncurrent
asset.
c. based on the classification of the related asset or liability for financial reporting
purposes.
d. the total of all deferred tax consequences that are not expected to reverse in the
operating period or one year, whichever is greater.
_____22. 5. A sale should not be recognized as revenue by the seller at the time of sale if
a. Payment was made by check
b. The selling price is less than the normal selling price
c. The buyer has a right to return the product and the amount of future returns cannot be
reasonably estimated
d. Only a promise to receive cash was obtained though the items have been delivered
_____23. Which of the following describes proper revenue recognition?
a. Goods shipped subject to installation and inspection are recognized as revenue only
when the buyer accepts delivery, and only when the inspection is complete.
b. Goods under bill and hold sales are recognized as revenue when there is an intention
to acquire or manufacture the goods in time for delivery.
c. Goods sold on approval when the buyer has negotiated a limited right of return are
recognized as revenue when the shipment has been formally accepted by the buyer of
the goods have been delivered, even if the time period for rejection has elapsed.
d. In lay away sales under which the goods are delivered only when the buyer makes the
final payment in a series of installments, revenue is recognized when the goods are
delivered.
_____24. Comprehensive income excludes changes in equity resulting from which of the
following?
a. Unrealized loss on securities classified as available for sale
b. Purchase of treasury shares
c. Loss from discontinued operations
d. Prior period error correction
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_____25. How would the proceeds received from the advance sale of nonrefundable tickets for
a theatrical performance be reported in the seller’s financial statements before the
performance?
a. Unearned revenue to the extent of related costs expended
b. Revenue to the extent of related costs expended
c. Unearned revenue for the entire proceeds
d. Revenue for the entire proceeds
_____26. Under what condition is it proper to recognize revenue prior to the sale of the
merchandise?
a. When management has a long-established policy to do so.
b. When the revenue is to be reported as an installment sale
c. When the ultimate sale of the goods is at an assured sales price
d. When the concept of internal consistency of amounts of revenue must be complied
with.
_____27. During the current year, the entity voluntarily changed its accounting method because
the new method will provide more reliable and relevant information. The entity can estimate the
effects of the change. How should the entity treat the change in accounting policy?
a. On a prospective basis
b. By restating the financial statements
c. By a cumulative adjustment on the income statement
d. On a retrospective basis
_____28. Earnings
a. Include certain gains excluded from comprehensive income
b. Are the same as comprehensive income
c. Exclude certain gains and losses included incomprehensive income
d. Include certain losses excluded from comprehensive income
_____29. A presentations 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
a. Financial institution
b. Public utility
c. Manufacturing entity
d. Service provider
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_____30. In a statement of cash flows, receipts from sales of property, plant, and equipment
and other productive assets should generally be classified as cash inflows from
a. operating activities
b. financing activities
c. investing activities
d. selling activities
_____31. The full disclosure principle is best described by which of the following?
a. All information related to an entity’s business and operating objectives is required to
be disclosed in the financial statements.
b. Information about each account balance appearing in the financial statements is to be
included in the notes to financial statements.
c. Enough information should be disclosed in the financial statements so a person
wishing to invest in the shares of the entity can make a profitable decision.
d. Disclosure of any financial facts significant enough to influence the judgment of an
informed reader.
_____32. The body established by the Financial Reporting Standards Council as its support
group tasked to study and deliberate on controversial issues affecting Philippine accounting
practice is
a. Philippine Accounting Principles Committee
b. Standing Interpretations Committee
c. Philippine Interpretations Committee
d. International Financial Reporting Standards Committee
_____33. It is the change in equity during a period resulting from transactions and other events,
other than changes resulting from transactions with owners in their capacity as owners.
a. Comprehensive income
b. Other comprehensive income
c. Profit or loss
d. Retained earnings
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_____34. Separate line items in an analysis of expenses by function include
a. purchases, transport costs, employee benefits, depreciation, extraordinary items
b. purchases, distribution costs, administrative costs, employee benefits, depreciation,
taxes
c. depreciation, purchases, transport costs, employee benefits, advertising costs
d. cost of goods sold, administrative and distribution costs
_____35. Which capital maintenance concept is applied respectively to net income and
comprehensive income?
a. Financial capital and Financial capital
b. Physical capital and Physical capital
c. Financial capital and Physical capital
d. Physical capital and Financial capital
_____36. If financial information that is presented in the statement of financial position or
statement of comprehensive income is misstated, and it influences the economic decisions of
users, that information is described as:
a. Reliable
b. Material
c. Prudent
d. Faithful
_____37. In respect to information included in financial statements, the accounting concept of
‘prudence’ ensures that:
a. The financial statements report what they purport to report
b. A degree of caution in the exercise of judgments about estimates is made
c. An appropriate balance is achieved between the relevance and the reliability of
information that has been included
d. Information is provided to users within the time period in which it is most likely to bear
on their decisions
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_____38. Which of the following statements is incorrect in relation to fair presentation and
compliance with PFRS?
a. Fair presentation requires the faithful representation of the effects of transactions,
other events and conditions in accordance with the definition criteria for assets, liabilities,
income and expense set out in the Conceptual Framework.
b. An entity whose financial statements comply with PFRS shall make an explicit
unreserved statement of such compliance in the notes.
c. An entity shall not describe financial statements as complying with PFRS unless they
comply with all the requirements of PFRS.
d. An entity can rectify inappropriate accounting policies either by disclosure of the
accounting policies used or by notes or explanatory material.
_____39. When an entity breaches a covenant under a long-term loan agreement on or before
the balance sheet date with the effect that the liability becomes payable on demand, the liability
is classified as noncurrent when
I. The lender has agreed after the balance sheet date and before the financial statements are
authorized for issue not to demand payment as a consequence of the breach.
II. The lender has agreed on or before the balance sheet date to provide a grace period ending
at least twelve months after the balance sheet date.
a. Both I and II
b. Neither I nor II
c. I only
d. II only
_____40. Which accounting principle is being observed when an accountant charges to
expense a cost that contributed to revenue during a period?
a. Revenue Realization
b. Matching
c. Monetary unit
d. Conservatism
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ANSWER KEY
1. D
2. C
3. B
4. D
5. C
6. C
7. D
8. C
9. D
10. A
11. B
12. A
13. C
14. A
15. D
16. B
17. D
18. C
19. C
20. D
21. C
22. C
23. D
24. B
25. C
26. C
27. D
28. C
29. A
30. C
31. D
32. C
33. A
34. D
35. A
36. B
37. B
38. D
39. D
40. B
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