CFAS 1.1
1. Accounting has been given various definitions,
which of the following is not one of those definitions?
a. Accounting is a service activity. Its function is to
provide quantitative information, primarily financial in
nature, about economic entities that is intended to be
useful in making economic decisions.
b. Accounting is the art of recording, classifying, and
summarizing in a significant manner and in terms of
money, transactions and events which are, in part of at
least, of a financial character and interpreting the results
thereof.
c. Accounting is a systematic process of objectively
obtaining and evaluating evidence regarding assertions
about economic actions and events to ascertain the degree
of correspondence between these assertions and
established criteria and communicating the results to
interested users.
d. Accounting is the process of identifying, measuring,
and communicating economic information to permit
informed judgment and decisions by users of
information.
2. Which of the following statements is true?
a. The basic purpose of accounting is to provide
information about economic activities intended to be
useful in making economic decisions.
b. All events and transactions of an entity are recognized
in the books of accounts.
c. General purpose financial statements are those
statements that cater to the common and specific needs of
a wide range of external users.
d. The accounting process of assigning numbers,
commonly in monetary terms, to the economic
transactions and events is referred to as classifying
3. The accounting standards used in the Philippines
are adapted from the standards issued by the
a. Federal Accounting Standards Board (FASB).
b. International Accounting Standards Board (IASB).
c. Philippine Institute of Certified Public Accountants
(PICPA).
d. Democratic People's Republic of Korea Accounting
Standards Committee (DPKRASC)
4. Which of the following statements is incorrect
regarding the basic accounting concepts?
a. The time period concept means that financial
statements are prepared only at the end of the life of a
business
b. Under the consistency concept, the financial
statements should be prepared on the basis of accounting
principles which are followed consistently.
c. Under the entity theory, the business is viewed as a
separate entity. Therefore, the personal transactions of the
business owners are not recorded in the business’
accounting records.
d. One of ABC Co.’s delivery trucks was involved in an
accident. Although no lawsuits have yet been filed
against ABC, ABC recognized a liability for the probable
loss on the event. This is an application of the prudence
or conservatism concept.
5. Entity A appropriates ₱1M to fund employee
benefits for the last quarter of the following year.
Entity A deposits the ₱1M fund in a payroll account.
This economic activity is most appropriately referred
to as
a. production
b. savings.
c. exchange.
d. investment
6. It is the branch of accounting that focuses on the
preparation of general purpose financial statements.
a. Financial accounting
b. General Accounting
c. All-purpose Accounting
d. All-around accounting
7. These are events that do not involve an external
party.
a. external events
b. nonreciprocal
c. internal events
d. special event
8. Entity A computes for its profit or loss periodically
instead of waiting until the end of the life of the
business before doing so. This is an application of
which of the following accounting concepts?
a. historical cost
b. stable monetary unit
c. accrual basis
d. time period or reporting period
9. This refers to the use of caution in the exercise of
judgments needed in making estimates required
under conditions of uncertainty, such that assets or
income are not overstated and liabilities or expenses
are not understated.
a. faithful representation
b. prudence
c. consistency
d. relevance
10. The bottom part of each of Entity A’s financial
statements states the following “This statement should
be read in conjunction with the accompanying notes.”
This is most likely an application of which of the
following accounting concepts?
a. articulation
b. consistency
c. accrual basis
d. time period
11. Which of the following events is considered as an
internal event?
a. sale of inventory on account
b. provision of capital by owners
c. borrowing of money
d. conversion of raw materials into finished goods
e. payment of liabilities
12. Which of the following events is considered as an
external event?
a. production
b. payment of taxes
c. gifts and charitable contributions
d. provision of capital by owners
13. Financial statements are said to be a mixture of
fact and opinion. Which of the following items is
factual?
a. cost of goods sold
b. discount on capital stock
c. retained earnings
d. patent amortization expense
14. This concept defines the area of interest of the
accountant. It determines which transactions are
recognized in the books of accounts and which are
not.
a. Articulation
b. Matching
c. Separate entity
d. Full disclosure
15. A CPA employed as an accountant in a
government agency is considered to be in
a. private practice.
b. public practice.
c. academe.
d. service.
16. Which of the following statements is correct?
I. Accounting provides qualitative information, financial
information, and quantitative information.
II. Qualitative information is found in the notes to the
financial statements only.
III. Accounting is considered an art because it is
supported by an organized body of knowledge
IV. Accounting is considered a science because it
involves the exercise of skill and judgment.
V. Measurement is the process of assigning numbers to
objects such inventories or plant assets and to events such
as purchases or sales.
VI. All quantitative information is also financial in
nature.
VII. The accounting process of assigning peso amounts
or numbers to relevant objects and events is called
identification.
a. I and V
b. I, II, VI and V
c. I, II, III, IV and V
d. II, VI and V
Explanation: II – not only in the notes but also on the
face of the financial statements. III and IV are interchanged. VI – all financial information are quantitative.
VII – measuring not identification.
CFAS 1.2
1. Which of the following statements about the
Norwalk Agreement is correct?
a. The Norwalk Agreement requires all domestic
companies in the U.S. to prepare financial statements in
accordance with the IFRSs.
b. The Norwalk Agreement is a short-term convergence
between the FASB and the IASB which has long-time
been abolished.
c. The Norwalk Agreement is a convergence between the
FASB and the IASB to make their existing financial
reporting standards compatible and coordinate their
future work programs to ensure that once achieved,
compatibility is maintained.
d. The Norwalk Agreement does not affect the financial
reporting standards in the Philippines.
2. The process of identifying, measuring, analyzing,
and communicating financial information needed by
management to plan, evaluate, and control an
organization’s operations is called
a. financial accounting.
b. tax accounting.
c. managerial accounting.
d. auditing.
3. The PFRSs consist of all of the following except
a. PFRSs.
b. Interpretations.
c. Conceptual Framework.
4. It is the official accounting standard setting body in
the Philippines. It is composed of a chairperson and
14 members.
a. Financial Reporting Standards Committee (FRSC)
b. Financial Reporting Standards Council (FRSC)
c. Accounting Standards Committee (ASC)
d. Accounting Standards Council (ASC)
5. Financial reporting standards continuously change
primarily in response to
a. users’ needs.
b. political influence.
c. government regulations.
d. changes in social environments.
6. Accounting is often called the "language of
business" because
a. it is easy to understand.
b. it is fundamental to the communication of financial
information.
c. all business owners have a good understanding of
accounting principles.
d. accountants in many companies share financial
information.
7. You are the accountant of ABC Co. During the
period, your company purchased staplers worth
₱1,500. Although the staplers have an estimated
useful life of 10 years, you have charged their cost as
expense. Which of the following is most likely to be
true?
a. You are applying the concept of matching.
b. You are applying the concepts of materiality and costbenefit consideration.
c. You are applying the concept of verifiability.
8. All of the following statements incorrectly refer to
the concepts in the Conceptual Framework except
a. The Conceptual Framework is concerned with allpurpose financial statements.
b. Financial statements are prepared and presented at
least annually and are directed toward both the common
and specific information needs of a wide range of users.
c. The objective of general purpose financial statements
is similar to the objective of general purpose financial
reporting.
d. The financial statements prepared by a reporting entity
comprising a parent and its subsidiaries are referred to as
‘combined financial statements’.
9. What is the authoritative status of the Conceptual
Framework?
a. It has the highest level of authority. In case of a
conflict between the Conceptual Framework and a
Standard, the Conceptual Framework overrides that
Standard.
b. If there is a Standard that specifically applies to a
transaction, that Standard overrides the Conceptual
Framework. In the absence of such a Standard, the
requirement of the Conceptual Framework should be
followed.
c. If there is a Standard that applies to a transaction, that
Standard overrides the Conceptual Framework. In the
absence of such a Standard, the entity’s management
should consider the applicability of the Conceptual
Framework in developing and applying an accounting
policy that will result in useful information.
d. The Conceptual Framework applies only to the IASB
when developing or amending Standards. A reporting
entity should never use the Conceptual Framework.
10. The foundation of the Conceptual Framework is
formed from
a. the qualitative characteristics that makes information
useful to users.
b. the objective of general purpose financial reporting.
c. the concept of reporting entity.
d. the principles and objectives of presentation and
disclosure of financial information.
c. I, II, III, IV, V, VI
d. all of these
13. The Conceptual Framework broadly classifies the
qualitative characteristics into
a. primary and secondary qualitative characteristics.
b. major and minor qualitative characteristics.
c. fundamental and enhancing qualitative characteristics.
d. cold and hot qualitative characteristics.
14. Identify
the
fundamental
qualitative
characteristics under the Conceptual Framework.
I. Relevance II. Reliability III. Faithful representation IV.
Comparability V. Verifiability VI. Timeliness VII.
Understandability
a. I and II
b. I and III
c. I, II, III, IV, V and VI
d. IV, V, VI and VII
15. Identify
the qualitative characteristics that
enhance the usefulness of financial information.
I. Relevance II. Reliability III. Faithful representation IV.
Comparability V. Verifiability VI. Timeliness VII.
Understandability
a. I and II
b. I and III
c. II, III, IV, V and VII
d. IV, V, VI and VII
16. Which of the following are considered aspects of
the qualitative characteristic of relevance under the
Conceptual Framework?
I. Predictive value II. Confirmatory value III. Timeliness
IV. Materiality
a. I and II
b. I, II and III
c. I, II and IV
d. I, II, III and IV
11. What is the objective of general purpose financial
statements according to the Conceptual Framework?
a. To provide information about the financial position,
financial performance, and changes in financial position
of an entity that is useful to primary users in making
economic decisions.
b. To prepare and present a balance sheet, an income
statement, a cash flow statement, and a statement of
changes in equity.
c. To prepare and present comparable, relevant, reliable,
and understandable information for investors and
creditors.
d. To prepare financial statements in accordance with all
applicable Standards and Interpretations.
12. The primary users of financial statements under
the Conceptual Framework include
I. Existing and potential investors II. Employees III.
Lenders and other creditors IV. Suppliers and other trade
creditors V. Customers VI. Governments and their
agencies VII. Public VIII. Professional accountants,
including auditors
a. I and III
b. I, II, III, IV, V, VI, VII
CFAS 1.3
1. Under this qualitative characteristic, users are
assumed to have a reasonable knowledge of business
activities and willingness to study the information
with reasonable diligence.
a. Relevance
b. Faithful representation
c. Understandability
d. Comparability
2. Which of the following statements is incorrect
concerning materiality?
a. Materiality is a quantitative matter. It should never be
assessed qualitatively.
b. There are no specific materiality thresholds provided
under the PFRSs
c. Materiality is a matter of judgment
d. Materiality can be assessed quantitatively or
qualitatively
3. The elements of faithful representation do not
include
a. comparability.
b. neutrality.
c. completeness.
d. free from error.
4. The ability through consensus among measurers to
ensure that information represents what it purports
to represent is an example of the concept of
a. relevance.
b. comparability.
c. verifiability.
5. According to the Conceptual Framework, the
pervasive constraint on the information that can be
provided by financial reporting is
a. materiality.
b. historical.
c. cost-benefit.
d. going concern.
6. The element that is related to the measurement of
an entity’s financial performance is
a. income.
b. expenses.
c. a and b
d. neither a nor b
7. According to the revised Conceptual Framework,
an item is recognized if
a. it meets the definition of an asset, liability, equity,
income or expense.
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
8. Which of the following may result to an expense?
a. Increase in asset
b. Decrease in liability
c. Increase in liability
d. Distribution to holders of equity claims
9. The Conceptual Framework uses the term
“economic resources” to refer to
a. assets.
b. equity.
c. liabilities.
10.Which of the following is incorrect regarding the
use of the term ‘reporting entity’ under the
Conceptual Framework?
a. A reporting entity one that is required, or chooses, to
prepare financial statements.
b. A reporting entity must be a legal entity.
c. A reporting entity can be a parent and its subsidiaries
viewed as a single entity.
d. All of these are correct.
11.The cost of inventory is recognized as expense
a. immediately.
b. using the matching concept.
c. by systematic allocation.
d. any of these as a matter of accounting policy choice
12.“I say red; you say green.” The information lacks
which of the following qualitative characteristics?
a. Relevance
b. Verifiability
c. Timeliness
d. Colorfulness
13.Which of the following is not one of the decisions
that primary users make?
a. deciding on how to run the day-to-day operations of
the entity
b. deciding on whether to hold or sell investment in
stocks
c. deciding on whether to buy investment in stocks
d. deciding on whether to extend loan to the reporting
entity
14.Entity A is making a materiality judgment. Entity
A considers an item to be material, and therefore
included in the financial statements, if it pertains to a
related party transaction. What type of materiality
assessment is Entity A using?
a. Quantitative
b. Qualitative
c. Faithful representation
d. Relevance
15.According to the Conceptual Framework, the
needs of the primary users that are met by financial
statements are
a. all of their needs.
b. all of their common needs only.
c. majority of their common needs only.
d. substantially a majority of their common and specific
needs only.
16.The term ‘liquidity’, as used in relation to the
assessment of an entity’s financial position, refers to
a. the entity’s ability to pay its short-term obligations.
b. the entity’s ability to pay its long-term obligations.
c. the entity’s ability to collect its current receivables.
d. the entity’s ability to flow like water
CFAS 1.4
1. The measurement bases described under the
Conceptual Framework are least applicable to the
measurement of
a. assets.
b. liabilities.
c. equity.
d. income.
2. Information on the utilization of economic
resources is most useful when assessing an entity’s
a. management stewardship.
b. liquidity and solvency.
c. financial position and financial performance.
d. financial strengths and weaknesses, including the
entity’s needs for additional financing.
3. This refers to the comparability of financial
statements of the same entity but in different periods.
a. Inter-comparability
b. Extra-comparability
c. Intra-comparability
d. Intro-comparability
4. Which of the following financial statements would
not be dated as covering a certain reporting period?
a. Statement of financial position
b. Statement of profit or loss and other comprehensive
income
c. Statement of cash flows
d. Statement of changes in equity
5. Comprehensive income (or total comprehensive
income) includes
a. Profit or loss
b. Other comprehensive income
c. Transactions with owners
d. a and b
6. What is the purpose of reporting comprehensive
income?
a. To report changes in equity due to transactions with
owners.
b. To report a measure of the overall financial
performance of an entity.
c. To replace profit with a better measure.
d. To combine income from continuing operations with
income from discontinued operations and extraordinary
items.
7. The information provided by financial reporting
pertains to
a. individual business entities and the economy as a
whole, rather than to industries or to members of society
as consumers
b. individual business entities, industries and the
economy as a whole, rather than to members of society as
consumers
c. individual reporting entities, rather than to industries,
the economy as a whole or members of society as
consumers
d. individual business entities and industries, rather than
to the economy as a whole or to members of society as
consumers
8. Which of the following statements is correct when
an entity departs from a provision of a PFRS?
a. The entity’s financial statements would be grossly
incorrect; therefore, PAS 1 does not allow such a
departure.
b. PAS 1 permits such a departure if the relevant
regulatory framework requires, or otherwise does not
prohibit, such a departure.
c. PAS 1 requires certain disclosures when an entity
departs from a provision of a PFRS.
d. b and c
9. Which of the following statements is correct
regarding the classification of financial liabilities as
current or noncurrent in accordance with PAS 1?
a. Currently maturing obligations are presented as current
liabilities even if their original term is longer than one
year and even if a refinancing agreement is completed
after the end of the reporting period but before the
financial statements are authorized for issue.
b. Currently maturing obligations are presented as
noncurrent liabilities only if their original term is longer
than one year.
c. Currently maturing obligations are presented as
noncurrent liabilities only if a refinancing agreement is
completed after the end of the reporting period but before
the financial statements are authorized for issue.
d. Currently maturing obligations are presented as
noncurrent liabilities if a refinancing agreement is
completed after the financial statements are authorized
for issue.
10.According to PAS 1, the judgments and estimates
embodied in the financial statements, for example,
materiality judgments, assessments of uncertainty and
risk, and the like, are the responsibility of the entity’s
a. management.
b. accountant.
c. auditor.
d. janitor.
11.Which of the following is not a disclosure
requirement of PAS 1?
a. The financial effect of a departure when an entity
departs from a PFRS requirement.
b. Any material uncertainties on the entity’s ability to
continue as a going concern.
c. The recognition, measurement and disclosure of
specific transactions and other events.
d. The reason for using a longer or shorter period when
an entity changes the frequency of its reporting.
Explanation: Choice (c) is a disclosure requirement of
other Standards, not PAS 1.
12.An entity’s financial position or condition refers to
which of the following?
a. The status of the entity’s assets, liabilities and equity.
b. The amount of return that the entity has generated
from its economic resources during the period.
c. The level of change in the entity’s economic resources
and claims to those resources, also referred to as the
economic phenomena.
d. All of these.
13.Comprehensive income excludes which of the
following
a. Revaluation surplus
b. Gains and losses from investments measured at fair
value through profit or loss
c. Income tax expense
d. Distributions to owners
14.Entity A needs guidance in accounting for its
inventories. Entity A should refer to which of the
following?
a. PAS 1
b. PAS 2
c. PAS 7
d. PAS 8
15.Entity A needs guidance in preparing its statement
of changes in equity. Entity A should refer to which of
the following?
a. PAS 1
b. PAS 2
c. PAS 7
16.Entity A buys and sells artifacts. Each artifact is
unique and not ordinarily interchangeable. According
to PAS 2, the cost formula that Entity A should use is
a. Specific identification.
b. Weighted Average.
c. FIFO.