Chapter 2 Conceptual Framework

 

b. to prov provide ide info informa rmao on n to thos those e

Chapter 2 Conceptual Framework

interested in the work of FRSC in the

1. The C Conce onceptua ptuall Framew Framework ork deals with all of

formulaon of PFRS

the following, except

c. to assis assistt prepa preparer rerss of n stat stateme ements nts in in

a. The objec objecve ve of of nanci nancial al repor reporng ng

applyng accounng standards

b. The qualitav qualitave e charac characteris teriscs cs of usefu usefull

d. d. All of these

nancial informaon c. The deni denion, on, recogn recognio ion n an and d measurement of the elements of

d

5. This is a complete, complete, comprehen comprehensive sive and single single document promulgated by IASB establishing the concepts that underlie nancial reporng.

nancial statements d. Su Supp pple leme ment ntar ary y inf infor orma mao on n

a. Concep Conceptua tuall Framewo Framework rk for for Financi Financial al

d

Reporng

2. Which of the the followin following g statem statements ents is ttrue rue

b. Concep Conceptua tuall Framewo Framework rk for Finan Financia ciall

concerning the Conceptual Framework for

Statements

Financial Reporng?

c. Concep Conceptua tuall Framew Framework ork for for Busi Busine ness ss

a. It is not not a repo reporn rng g standa standard rd and and does does

Enes

not dene standard for any parcular measurement or disclosure issue. b. It is conc concern erned ed with with gener general al purpo purpose se n statements including consolidated n

d. Conceptual Framework

a

6. What What is the auth authori orita tave ve st statu atuss of the the Conceptual Framework?

statements. c. Nothi Nothing ng in the framew framework ork overri overrides des

a. The Conc Concept eptual ual Fram Framewo ework rk has has the the

any specic PFRS.

highest level of authority.

d. d. All are true d

b. In the the absen absence ce of of a stan standar dard d or an an

3. Which Which is not not a purpos purpose e of the Conc Concept eptua uall

interpretaon that specically applies

Framework?

to a transacon, the Conceptual Framework shall prevail.

a. to assis assistt FRSC FRSC in develo developin ping g accou accounn nng g standards that will represent Philippine

c. In the the a abse bsenc nce e of a stan standar dard d or an

GAAP

interpretaon that specically applies to a transacon, management shall

b. to assi assist st FRSC FRSC in the the revi review ew and and adopon of exisng internaonal

consider the applicability of the Conceptual Framework in developing

accounng standards

and applying an accounng policy that results in informaon that is relevant

c. to assi assist st audi auditor torss in formi forming ng an an opinio opinion n

and reliable.

as to whether n statements conform with Phil. GAAP

d. The Conceptual Framework applies only

d. to assist BOA in promulgang rules and

when the IASB develops new or revised

regulaons aecng the pracce of public

standards. c

accountancy d 4. Which is a basic purpose purpose of the the Conce Conceptua ptuall Framework? a. to assi assist st user userss of  n n state statemen ments ts in interpreng the informaon contained in the nancial statements

7. As regard regardss the the relaon relaonship ship between between IFRS IFRS and the Conceptual Framework, which of the following is true? I.

The Conceptual Framework is a reporng standard. II. In case of conict, the requirements of the Conceptual

 

Framework prevail over those of the relevant IFRS.

a. Measur Measureme ement nt and and recogn recognio ion n concep conceptt

a. I only

b. Qualitav Qualitave e chara characteri cterisc sc of accounn accounng g

b. II only

informaon

c. Both d. Neither

c. Elemen Elementt of nanci nancial al statem statement ent d

d. d. Objec ec ve of nancia iall reporng

8. The Conceptua Conceptuall Framew Framework ork is inten intended ded to establish

12. The underlying theme of the Conceptual Conceptual Framework is

a. GAAP

a. Deci Decisi sion on us usef eful ulne ness ss

b. The meanin meaning g of "pr "prese esent nt fair fairly ly in

b. Unde Unders rsta tand ndab abili ility ty

accordance accordanc e with GAAP"

c. Time imelin ine ess

c. The objec objecves ves an and d conce concepts pts for use use in developing standards of nancial accounng and reporng

d. d. Comparability

a

13. What is a benet of having having a Conceptual Conceptual

d. d. The The hie hiera rarc rchy hy of sour source cess o off GAA GAAP P c

Framework? a. To enable enable the the accoun accounta tancy ncy profe professi ssion on

9. The Conc Concept eptual ual Fram Framewo ework rk shoul should d

to more quickly solve emerging

a. Lead Lead to unifor uniformit mity y of na nanci ncial al statements among enes within the same industry

praccal problems. b. To provi provide de infor informa maon on from from which which to to build more useful standards.

b. Elimin Eliminate ate alte alterna rnave ve a acco ccoun unng ng principles

c. To enab enable le stan standa dard rd sen seng g body body to to issue more useful and consistent

c. Guide Guide MNCs MNCs in develo developin ping g gene general rally ly accepted auding standards

pronouncements over me. d. d. All of these d

d. d. Dene Dene the the basic basic obje objecv cve, e, terms terms and and concepts of accounng

d

d

14. Which of the following is not not a benet associated with the Conceptual Framework?

10. Which is not a purpose of the Conceptual Conceptual Framework? a. Provid Provide e deni denio ons ns of of key terms terms and and concepts b. Provide Provide specic specic guidelines guidelines for resolving resolving

a. A Conce Conceptu ptual al Fra Framew mework ork should should increase nancial statement users' understanding and condence in nancial reporng. b. Pracc Praccal al probl problems ems shou should ld be more more

situaons not covered by exisng

quickly solvable by reference to an

accounng standards

exisng Conceptual Framework.

c. As Assis sistt accoun accounta tants nts in sele selecn cng g among among alternave accounng and reporng methods d. d. Assis Assistt IASB IASB in the the standa standardrd-se seng ng process b 11. In the Conceptual Conceptual Framework Framework for Financial Financial reporng, what provides the "why" of accounng?

c. A cohere coherent nt set set of acco accoun unng ng stan standa dards rds and rules should result. d. d. Busin Business ess en enes es wi will ll need need far far less less assistance from accountants because the nancial reporng process will be quite easy to apply d 15. Which is an important characterisc characterisc of of the Conceptual Framework?

 

I.

To enable the accountancy profession to more quickly solve emerging praccal problems.

c. User User grou group p such such as employ employees ees,, customers, governments and their

which to build more useful

agencies, and the public

a. I only

d. Exisng and potenal investors, lenders, and other creditors

b. II only

d

19. The users of nancial nancial reports include

c. Both

a. Creditors c

b. Credit Creditors ors and and gover governme nment nt agenc agencies ies

16. Which of the following is not not true concerning concerning the Conceptual Framework? I.

It should be a basis for standard seng.

II. II.

The The Conce oncep ptua tual Fra Frame mew work shoul hould d allow llow praccal problems to be solved more quickly.

III. III.

creditors

II. To provide a foundaon f oundaon from nancial accounng standards.

d. Neither

b. Exisng Exisng and potenal potenal lende lenders rs and other other

c. Cred Credit itor orss and and un unio ions ns d. Creditors, government agencies and unions

d

20. Which of the following is an an internal user user of nancial informaon? a. BOD

It sh shou ould ld be ba base sed d on fund fundam amen enta tall tru truth th

b. Sha Share reho hold lder er

derived from the law of nature. c. Bondhold lder er

a. II only

d. Creditor with a long-term contract

b. III only

a

c. II an and IIIII on only d. d. I and II only

21. These users require require informaon on risk an and d b

return on investment

17. A soundly Conceptual Conceptual Framework Framework should should

a. Investors

I.

b. Employ loyees

Increase nancial statements users' understanding and condence in nancial reporng

II. Enhance comparability of nancial statements across enes. II.

Allow new and emerging praccal problems to be solved more quickly.

d. Customers

a

22. These users are interested in informaon informaon about the protability and stability of an enty in order to assess the ability of the enty to provide remuneraon, rerement benets and employment opportunies. a. Customers

a. I only b. I a an nd II only c. I and III III only d. I, II, III

c. Lenders

d

18. The primary users of nancial statements include a. Exis Exisng ng and and pot poten enal al inve investo stors rs

b. The public c. Govern Governmen mentt and and their their ag agenc encies ies d. Employees

d

23. These users are interested in informaon informaon about the connuance of an enty when they have a long-term involvement with or are dependent on the enty.

 

the related interest thereon, and other

a. Customers ers

amounts owing to them will be paid when due.

b. Employees

a. Lender Lenderss and and other other credit creditors ors

c. Trade un unions d. Suppliers

b. Borrowers

a

24. These users are are interested in informaon in order to regulate the acvies of an enty, determine taxaon policies and provide a basis for naonal stascs. a. Govern Governmen mentt and and thei theirr ag agenc encies ies

c. Tra Trade cred credit itor orss d. d. Owners

a

28. What is the objecve of nancial nancial reporng? reporng? a. To prov provide ide inform informa aon on abo about ut the the nancial posion and nancial performance of an enty

b. Major Major org organ aniza izaon on of us users ers

b. To To prov provide ide info informa rmao on n about about an

c. BIR d. De Department of Finance

a

25. These users need informaon on on trends and and recent developments where an enty makes a substanal contribuon contribuon to the local economy providing employment and using local suppliers.

enty that is useful to exisng and potenal investors, lenders, and other creditors in making decisions about providing resources to the enty c. To prep prepare are a state statemen mentt of nanci nancial al posion, a statement of comprehensive income and a statement of cash ows

a. The pu public

d. d. To prepa prepare re nanci nancial al stat stateme ements nts in in

b. Govern Governmen mentt a and nd thei theirr ag agenc encies ies

accordance with all applicable standards and interpretaons

b

c. Fin ina anc nce e en enes es 29. The overall objecve objecve of nanc nancial ial reporng is to d. d. Private enes

a

26. Which of the following in relaon relaon to

provide informaon a. That That is usef useful ul for for deci decisio sion n makin making g

informaon needs is true? b. About About assets, assets, liabilies liabilies and equity equity of an I.

Informaon that meets the need of

enty

specied primary users is likely to meet the needs of other users, such as employees, customers, government and their agencies, and the public. II.

The ma management ent iiss als also o in interested in in nancial informaon but it need not rely on general purpose nancial reports because it can access addional informaon internally.

c. About About nanc nancial ial perf perform orman ance ce durin during ga period d. d. That That allo allows ws o owne wners rs to to asses assesss mana ma nage geme ment nt pe perf rfor orma manc nce e

a

30. Which is an objecve of nancial nancial reporng? reporng? a. to provi provide de infor informa maon on that that is usef useful ul to management in making decisions b. to provi provide de infor informa maon on that that clear clearly ly

a. I only

portrays non-nancial transacons transacons

b. II only

c. to provi provide de infor informa maon on that that is useful useful to to assess the amounts, ming and

c. Both d. Neither

uncertainty of of prospecve cash c

27. These users are are interested in informaon that that enables them to assess whether their loans,

receipts d. d. to provid provide e informa informaon on tthat hat exclu excludes des claims cla ims agai against nst the the resour resources ces c

 

31. One objecve of nancial reporng reporng is to

d. d. It is one one of the the implic implicit it assum assumpo pons. ns.

provide

b

a. Inform Informao aon n about about the the invest investors ors in in the enty

35. The most useful useful informaon to exisng and and potenal investors, lenders and other creditors

b. Inform Informao aon n about about the liquid liquida aon on value value

in predicng future cash ow is

of the resources held by the enty

a. Inform Informa aon on ab about out cash cash ows ows

c. Inform Informao aon n that that is u usef seful ul in asse assess ssing ing

b. Curren Currentt earnin earnings gs based based on on accrua accruall

cash ow prospects

accounng

d. d. Infor Informa maon on that that will will a arac ractt new investors

c. Inform Informa aon on rega regardi rding ng th the e accou accoun nng ng

c

policies used by management

32. An objecve of nancial reporng reporng is "assessing "assessing

d. d. Inform Informa aon on regard regarding ing the the results results

cash ow prospects" which is interpreted to

obtained by using a wide variety of

mean

accounng polic licies

a. Cash Cash basis basis accou accounn nng g is pre prefer ferred red over over accrual basis of accounng. accounng.

36. The accrual basis basis of accounng accounng is most useful for

b. Inform Informao aon n about about the nanc nancial ial eects eects

a. Determ Determini ining ng the the amount amount of of income income tax tax

of cash receipts and cash payments is

liability

generally considered the best indicator

b. Predic Predicn ng g the short short-te -term rm nanci nancial al

of ability to generate favorable cash ows.

performance. c. Predic Predicn ng g the the longlong-ter term m nan nancia ciall

c. Over Over th the e long long rrun un,, tr trend endss in revenu revenue e

performance.

and expenses are generally more meaningful than trends in cash receipts

d. d. Dete Determi rminin ning g the the amoun amountt of

and disbursements. d. d. All All of tth hes ese. e. c 33. Which of the following best describes describes "nancial performance"?

dividends to be declared.

been on meeng the needs of which of the following groups? a. Management

or loss for a period

b. Exisng Exisng and potenal potenal inves investors tors,, len lenders ders and other creditors

b. The asse assets, ts, liab liabili ilies es an and d equ equity ity

c. Naon Naonal al an and d loca locall taxin taxing g autho authori ries es

c. The tota totall assets assets m minu inuss tota totall liabili liabilies es

d. d. In Ind dep epen end den entt CPAs PAs b

d. d. The The total total cash cash inow inowss minus minus tota totall

34. In measuring nancial nancial performance, performance, accrual accrual

b

37. The primary focus focus of nancial nancial reporng has has

a. The reve revenu nue, e, expen expenses ses and and n net et incom income e

ca cash sh oul oulow owss a

b

38. Which of the following best describes the term "nancial posion"?

accounng is used because

a. The The net net inco income me and and exp expen ense sess

a. Cash Cash ows ows are are ccons onside idered red les lesss

b. The net net of nancial nancial assets assets less less liabili liabilies es

important. c. The pote poten nal al to to contr contribu ibute te to to the the o ow w b. It provi provides des a beer beer indic indica aon on of abilit ability y to generate cash ows than cash basis.

of cash and cash equivalents d. d. The The as asse setts, lia liabili ilies es an and d eq equity ity

d

c. It reco recogni gnizes zes revenu revenue e when when cash cash is received and expenses when cash is paid.

39. The objecves of of nancial reporng reporng are based based on

 

a. The The need need for for con conse serv rva asm sm

d. d. An An econo economy my as as a whol whole e or to members of society as consumers,

b. Repor Reporng ng on manag manageme ement nt stewa stewards rdship hip

rather than to Individual business en en es es or ind indus ustr trie iess a

c. Genera Generally lly accept accepted ed ac accou coun nng ng principles

43. During a period period when an enty is under under the direcon of a parcular management, nancial

d. d. The The n need eedss of of the the users users of the the informaon

reporng will directly provide informaon

d

about 40. Which of the following statements statements is not a a. Both Both ent enty y perf perform orman ance ce an and d

major objecve of nancial reporng?

management performance

a. It sha shall ll provi provide de infor informa maon on abou aboutt enty resources, claims against those

enty performance

resources and changes in them.

c. En Ent ty y perf perfor orma manc nce e but but not not

b. It shall shall provi provide de infor informa maon on usefu usefull in evaluang management stewardship.

management performance d. d. Neith Neither er en enty ty perf perform ormanc ance e nor

c. It sha shall ll provi provide de infor informa maon on usef useful ul in investment, credit and similar decision. d. d. It shall shall prov provide ide infor informa maon on usef useful ul in assessing cash ow prospects.

b. Manag Manageme ement nt perfo performa rmance nce b but ut not not

b

41. Which of the following is not not an objecve objecve of nancial reporng? a. To prov provide ide inform informa aon on abou aboutt an enty's assets and claims against those assets

mana ma nage geme ment nt pe perf rfor orma manc nce e

44. Which best describes the the term "going "going concern"?

a. Current Current liab liabilies ilies exceed exceed current current assets. assets. b. Abilit Ability y of tthe he enty enty to con connu nue e in operaon for the foreseeable future c. c. Poten Potena all to contr contribu ibute te to the the ow ow of cash and cash equivalents to the enty b

b. To provi provide de infor informa maon on tha thatt is useful useful in assessing an enty's sources and uses of cash c. To provi provide de infor informa maon on that that is usefu usefull in lending and invesng decisions

c

45. What is an implicaon of the going concern concern assumpon? a. The histo historic rical al cost cost princ principl iple e is credibl credible. e. b. Deprec Deprecia iaon on and amor amorza zaon on policie policiess

d. d. To prov provide ide infor informa maon on abou aboutt the the liquidao liqu idaon n value value of an an enty enty d 42. The informaon informaon provided by nancial reporng pertains to a. Indivi Individua duall busines businesss enes, enes, rathe ratherr tha than n to industries or an economy as a whole or to members of society as consumers b. Busin Business ess indus industri tries, es, rathe ratherr tha than n to individual enes or an economy as a whole or to members of society as consumers c. Indivi Individua duall busines businesss enes enes,, industr industries ies and an economy as a whole, rather

are jusable and appropriate. c. The curren currentt and no non-c n-curr urrent ent classicaon of assets and liabilies is  jusable and signicant. signicant. d. d. All of tth hes ese. e. d 46. The relavely stable economic, economic, polical polical and social environment supports a. Con Conse serv rva asm b. Mate Materi ria alit lity c. Time imelin ine ess d. d. Going concern

d

than to members of society as consumers

47. Which of the following is not not a basic assumpon underlying nancial accounng? accounng?

 

a. Econo Economic mic enty enty as assum sumpo pon n

b. Pe Perriodi iodiccity ity

b. Goin Going g conce concern rn assu assump mpo on n

c. Goin Going g conce oncern rn

c. Pe Peri riod odic icit ity y ass assum ump pon on

d. d. Economic enty

d. d. Hist Histor oric ical al co cost st assu assump mpo on n d

a

53. Inaon is ignored ignored in accounng accounng due to

48. Which basic assumpon may may not be followed when an enty in bankruptcy reports nancial results?

a. ec econ onom omic ic en ent ty y b. go goin ing g con conce cern rn

a. Econo conomi micc ent enty y c. mon moneta etary uni nitt

b. Goin Going g con concer ern n

d. d.  m me pe period c

c. Periodicit ity y d. c. Monetary unit

54. The concept of of accounng enty is applicable applicable

b

a. Only Only to the the lega legall aspec aspectt of busi busines nesss

49. The economic economic enty assumpon

organizaons

a. Is appl applica icable ble to unin unincor corpor porat ated ed businesses

b. Only Only to the the econo economic mic aspe aspects cts of business organizaons organizaons

b. Recog Recogniz nizes es the the leg legal al aspe aspects cts of business organizaons organizaons

c. Only Only to to b busi usines nesss orga organiz nizao aons ns d. d. When Whenev ever er acco accoun unn ng g is in invo volv lved ed d

c. Requ Requir ires es per perio iodi dicc inco income me measurement

55. When a parent parent and subsidiary subsidiary relaonship relaonship

d. d. Is appl applica icable ble to all all forms forms o off busine business ss orga organi niza zao ons ns d 50. What is being violated if an enty provides nancial reports in connecon with a new

exists, consolidated nancial statements are prepared in recognion of  a. le leg gal e en nty b. ec econ onom omic ic en ent ty y

product introducon? c. st stab able le mon monet etar ary y unit unit a. Econo conomi micc ent enty y d. d.  m me pe period b b. Per erio iod dic icit ity y 56. The valuaon of a promise to receive cash cash in c. Mon Monet eta ary unit unit

the future at present value is valid because of what accounng concept?

d. d. Connuity a 51. Which underlying assumpon serves as the the basis for preparing nancial statements at

a. enty b. me period iod

regular arcial points in me? c. go goin ing g conce oncern rn a. Ac Acco coun unn ng ge en nty ty d. d. monetary unit

c

b. Goin Going g con concer ern n 57. What is the accounng accounng concept that that juses c. Periodicit ity y d. d. Stable monetary unit

the usage of accruals and deferrals? c a. go goin ing g con conce cern rn

52. Which basic accounng assumpon is

b. mate materi ria ality lity

threatened by the existence of severe inaon in the economy? a. Mon Monet eta ary unit unit

c. consis isttency d. d. stable monetary unit

a

 

58. During the lifeme lifeme of an enty, enty, accountants accountants produce nancial statements at arbitrary points in me in i n accordance with what basic accounng concept?

from the subsidiary at twice the normal markup.

65. IDENTIFY ASSUMPTION ASSUMPTION CLEARLY CLEARLY VIOLATED: VIOLATED: An enty decided to publish n statements only in the years when it had good news to report.

a. accrual

Time period

b. per erio iodi diccit ity y

66. IDENTIFY ASSUMPTION ASSUMPTION CLEARLY CLEARLY VIOLATED: VIOLATED: An

c. unit of mea easu sure re d. d. connuity

Accounng enty

enty reported inventory, PPE and intangible i ntangible assets asse ts at at current current value at year-en year-end. d. Going

b

59. IDENTIFY UNDERLYING ASSUMPTION INVOLVED: The operaons of a saving bank are

concern 67. IDENTIFY ASSUMPTION ASSUMPTION CLEARLY CLEARLY VIOLATED: VIOLATED: An

being evaluated by the BSP. During the

electronics enty owned by a proprietor

invesgaon, the BSP has determined that

reported the cost of the proprietor's swimming

numerous loans made by top management

pool as an asset of the enty. Accounng enty

were unwise and have seriously endangered the future of th the sa saving bank.

Going

concern

68. IDENTIFY ASSUMPTION ASSUMPTION CLEARLY CLEARLY VIOLATED: VIOLATED: An enty prepared nancial statements adjusted for for ch chan ange gess in pur purch chas asin ing g powe power. r.

60. IDENTIFY UNDERLYING ASSUMPTION INVOLVED: The parent enty in Manila has a subsidiary in Japan. The nancial statements of  the subsidiary are translated to pesos for consolidaon with nancial statements of the pa pare rent nt ent enty y at at y yea earr end. end.

Accou ccoun nng ng ent enty y

61. IDENTIFY UNDERLYING ASSUMPTION INVOLVED: A machinery was imported from USA at a certain cost ve years ago. Because of  inaon, the machinery has now a current replacement cost which is very much higher than the historical cost. Management would

Mone Moneta tary ry

unit 69. IDENTIFY ASSUMPTION ASSUMPTION CLEARLY CLEARLY VIOLATED: VIOLATED: A mining enty kept no accounng records aer starng business. The enty is waing unl the mine is exhausted to determine the success or fa fail ilur ure e of bu busi sine ness ss..

Time Time pe peri riod od

70. IDENTIFY ASSUMPTION ASSUMPTION DESCRIBED: DESCRIBED: An enty enty reported nancial statements in nominal pesos that have mixed rather than uniform amount of purchas purchasing ing power. power. Monetary Monetary unit unit 71. IDENTIFY ASSUMPTION ASSUMPTION DESCRIBED: DESCRIBED: A MNC

like to report the machinery at current

published a complete set of nancial

re rep pla laccemen ementt co cost st..

statements at least once a year, regardless of

Mon Monet eta ary unit nit

whether the nancial results were good or 62. IDENTIFY UNDERLYING ASSUMPTION INVOLVED: An enty has experience a drasc reducon n revenue by reason of a long dry

bad.

Time period

72. IDENTIFY ASSUMPTION ASSUMPTION DESCRIBED: DESCRIBED: The pesos

spell in the area where the enty e nty grows its

of today can buy as much goods and services

tobacco.

as the pesos pesos ve years years ago. ago.

Moneta Monetary ry unit unit

73. IDENTIFY ASSUMPTION ASSUMPTION DESCRIBED: An 63. The management management decided to wait wait unl next next year and present nancial statements for a two-year period rather than prepare now the tradional 12-month nancial statements. Time period 64. IDENTIFY UNDERLYING ASSUMPTION INVOLVED: A subsidiary was exhibing poor nancial performance for the current year. In an eort to increase i ncrease the subsidiary's reported income, the parent enty purchased goods

accounng enty is viewed as connuing in operaon in the absence of the evidence of the contra contrary. ry. Going Going concer concern n 74. IDENTIFY ASSUMPTION ASSUMPTION DESCRIBED: An accounng praconer mixed personal accounng records with the records of the accoun acc ounng ng prac pracc ce. e. Ac Accou coun nng ng enty enty