Q2. Framework Quizzer

PAGE 1 FINANCIAL ACCOUNTING AND REPORTING CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING 1. The conceptual framework is intended to establish a. The hierarchy of sources of GAAP. b. GAAP in financial reporting by business entities c. The meaning of “present fairly in accordance with GAAP”. d. The objectives and concepts for use in developing standards of financial accounting and reporting. 2. Philippine Financial Reporting Standards include a. Philippine Financial Reporting Standards corresponding to IFRS issued by IASB. b. Philippine Accounting Standards corresponding to IAS issued by IASC. c. Philippine Interpretations corresponding to IFRIC and SIC Interpretations, Interpretations developed by PIC. d. All of these

and

3. Which statement is true concerning the Conceptual Framework for Financial Reporting? a. The Conceptual Framework is a reporting standard and therefore defines standard for any particular measurement or disclosure issue. b. The Conceptual Framework is concerned with general purpose financial statements including consolidated financial statements. c. In cases of conflict, the requirements of the Conceptual Framework prevail over those of the relevant PFRS. d. All of these statements are true. 4. Which is not a basic purpose of the Conceptual Framework? a. To assist FRSC in developing accounting standards that represent GAAP in the Philippines. b. To assist FRSC in reviewing and adopting existing international accounting standards. c. To promulgate rules and regulations affecting the practice of the accountancy profession in the Philippines. d. To assist auditors in forming an opinion as to whether financial statements conform with accounting standards. 5. The Conceptual Framework for Financial Reporting deals with all of the following, except a. Objective of financial reporting b. Qualitative characteristics of useful financial information c. Definition, recognition and measurement of elements of financial statements d. Generally accepted accounting principles 6. A soundly developed conceptual framework of accounting should a. Increase financial statement users’ understanding and confidence in financial reporting. b. Enhance comparability of financial statements of different entities c. Allow new and emerging practical problems to be solved more quickly d. All of these 7. What provides "the why"-the goal and purpose of accounting? a. Measurement and recognition concepts such as assumptions, principles and constraints b. Qualitative characteristics of accounting information c. Elements of financial statements d. Objective of financial reporting 8. A conceptual framework of accounting should a. Lead to uniformity of financial statements among companies within the same industry. b. Eliminate alternative accounting principles and methods. c. Guide the FRSC in developing generally accepted auditing standards. d. Define the basic objectives, terms, and concepts of accounting. 9. The information provided by financial reporting pertains to a. Individual business enterprises, rather than to industries or an economy as a whole or to members of society as consumers. b. Business industries, rather than to individual enterprises or an economy as a whole or to members of society as consumers. c. Individual business enterprises, industries, and an economy as a whole, rather than to members of society as consumers. d. An economy as a whole and to members of society as consumers, rather than to individual enterprises or industries.

10/16

PAGE 2 10. Which of the following is not normally an objective of financial reporting? a. To provide information about assets, claims against those assets and changes in them. b. To provide information that is useful in assessing an entity’s sources and uses of cash. c. To provide information that is useful in lending and investing decisions. d. To provide information about an entity’s liquidation value. 11. Information about the performance of an enterprise is required in order to assess potential changes in the economic resources that it is likely to control in the future. This information is primarily pictured in the a. Cash flow statement b. Statement of changes in equity c. Statement of financial position d. Income statement 12. Which of the following is not an underlying assumption of financial statements? a. Going concern b. Accounting entity c. Time period d. Accrual 13. The going concern assumption means that a. Where parent and subsidiary relationship exists, consolidated statements for affiliates are prepared because the parent and the subsidiary are a “single economic entity”. b. The accounting function is to account for nominal pesos and not for constant pesos changes in the purchasing power. c. The enterprise will continue in operation for the foreseeable future and the enterprise has neither the intention nor the need to liquidate or curtail materiality the scale of it’s operations. d. The indefinite life of an enterprise is subdivided into accounting periods which are usually of equal length for the purpose or preparing financial reports on financial position, performance and cash flows. 14. Which underlying concept serves as the basis for preparing financial statements at regular intervals? a. Time period c. Accounting entity b. Going concern d. Stable monetary unit 15. During the lifetime of an entity, accountants produce financial statements at arbitrary or artificial points in time in accordance with which basic accounting concept? a. Cost and benefit constraint b. Periodicity assumption c. Materiality d. Expense recognition principle 16. Under current IFRS, inflation is ignored in accounting due to a. Economic entity assumption b. Going concern assumption c. Monetary unit assumption d. Periodicity assumption 17. The economic entity assumption a. Is inapplicable to unincorporated businesses b. Recognizes the legal aspects of business organizations c. Requires periodic income measurement d. Is applicable to all forms of business organizations 18. Consolidated financial statements are prepared when a parent-subsidiary relationship exists. a. Economic entity assumption b. Relevance characteristic c. Comparability characteristic d. Neutrality characteristic

10/16

PAGE 3 19. What are “qualitative characteristics” of financial statements? a. Qualitative characteristics are the attributes that make the information provided in the financial statements useful to users. b. Qualitative characteristics are broad classes of the financial effects of transactions. c. Qualitative characteristics are nonqualitative aspects of an entity’s financial statements. d. Qualitative characteristics measure compliance with all relevant PFRS. 20. In the Conceptual Framework, qualitative characteristics a. Are considered either fundamental or enhancing. b. Contribute to the decision-usefulness of financial reporting information. c. Distinguish better information from inferior information for decision-making purposes. d. All of the choices are correct. 21. The “fundamental” qualitative characteristics are a. Relevance and reliability b. Relevance and materiality c. Relevance, faithful representation and materiality d. Relevance and faithful representation 22. Accounting information is considered relevant when it a. Can be depended on to represent the economic conditions and events that it is intended to represent b. Is capable of making a difference in a decision c. Is understandable by reasonably informed users of accounting information d. Is verifiable and neutral 23. Which statement is incorrect concerning the qualitative characteristic of relevance? a. The relevance of information is affected by its nature and materiality. b. To be useful, information must be relevant to the decision-making needs of users. c. Information about financial position and past performance is frequently used as basis for predicting future financial position and performance and other matters such as dividend and wage payments and ability of the entity to meet it financial commitments as they fall due. d. The predictive and confirmatory roles of information are not interrelated. 24. Which of the following is an ingredient of relevance? a. Predictive value b. Confirmatory value c. Neutrality d. Predictive value and confirmatory value 25. Which of the following statements about materiality is not correct? a. An item must make a difference or it need not be disclosed. b. Materiality is a matter of relative size or importance. c. An item is material if the inclusion or omission would influence or change the judgment of a reasonable person. d. All of these are correct statements about materiality. 26. What is the quality of information that gives assurance that it is reasonably free of error and bias ? a. Relevance b. Faithful representation c. Verifiability d. Neutrality 27. To be a faithful representation, information must be all of the following, except a. Complete b. Free from error c. Confirmatory d. Neutral

10/16

PAGE 4 28. Which is incorrect concerning the quality or relevance? a. The relevance of information is not affected by its nature and materiality. b. The information must be relevant to the decision-making needs of the users in order to be useful. c. The predictive and confirmatory roles of information are interrelated. d. Relevance is a primary quality of financial information because it relates to the content of the information. 29. Which of the following terms best describes information in financial statements that is neutral? a. Understandable b. Reliable c. Relevant d. Unbiased 30. This means that the financial reports should include all information necessary for a user to understand the phenomenon being depicted including all necessary description and explanations. a. Completeness b. Neutrality c. Free from error d. Substance over form 31. It is the inclusion of a degree of caution in the exercise of judgment needed in making estimates required under conditions of uncertainty such as assets and income are not overstated or liabilities and expenses are not understated. a. Prudence (conservatism) c. Materiality b. Judgment d. Neutrality 32. If information is to represent faithfully the transactions and other events that it purports to represent, it is necessary that they are accounted for and presented in accordance with their substance and economic reality and not merely their legal form. a. Faithful representation c. Completeness b. Neutrality d. Substance over form 33. Enhancing qualities include all of the following, except a. Comparability b. Neutrality c. Understandability d. Verifiability 34. What is meant by comparability when discussing financial accounting information? a. Information has predictive or feedback value. b. Information is reasonably free from error. c. Information that is measured and reported in a similar fashion across entities. d. Information is timely. 35. What is meant by consistency when discussing financial accounting information? a. Information that is measured and reported in a similar fashion across points in time. b. Information is timely. c. Information is measured similarly across the industry. d. Information is verifiable. 36. An enhancing quality described in the Conceptual Framework is that a. Information must be decision-useful to all potential users of financial reporting. b. General-purpose financial reporting is the primary source of information for users of financial reporting. c. Users need reasonable knowledge of business and financial accounting matters to understand the information contained in financial statements. d. All of the choices are correct. 37. This enhancing qualitative characteristic is demonstrated when a high degree of consensus can be secured among independent measurers using the same measurement method. a. Comparability b. Understandability c. Verifiability d. Timeliness

10/16

PAGE 5 38. Proponents of historical cost ordinarily maintain that in comparison with all other valuation alternatives for financial reporting, statements prepared using historical cost are more a. Verifiable b. Relevant c. Indicative of the entity's purchasing power d. Conservative 39. An entity issuing the annual financial reports within one month after the end of the year is an example of which enhancing quality of accounting information? a. Neutrality b. Timeliness c. Predictive value d. Representational faithfulness 40. The Conceptual Framework includes which of the following constraints? a. Prudence b. Conservatism c. Cost d. All of the choices are constraints in the conceptual framework 41. Which of the following best describes the cost-benefit constraint? a. The benefits of the information must be greater than the costs of providing it. b. Financial information should be free from cost to users of the information. c. Costs of providing financial information are not always evident or measurable but must be considered. d. All of the choices are correct. 42. Financial statements portray the financial effects of transactions and other events by grouping them into broad classes according to their economic characteristics. These broad classes are termed as the a. Elements of financial statements c. Accounting constraints b. Concepts of capital and capital maintenance d. Features of accounting 43. The elements directly related to the measurement of performance are a. Income and expenses c. Assets and liabilities b. Assets, liabilities and equity d. Income, expenses and equity 44. A liability is a. A resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise. b. A present obligation of the enterprise arising from past events the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. c. The residual interest in the assets of the enterprise after deducting all of its liabilities. d. Equivalent to all financial resources of the enterprise. 45. Which is incorrect concerning the recognition of a liability? a. Obligations may be legally enforceable as a consequence of a binding contract or statutory requirement. b. If an enterprise decides as a matter of policy to rectify faults in its products even when these become apparent after the warranty period has expired, the amounts that are expected to be expended in respect of goods sold are liabilities. c. An obligation normally arises only when the asset is delivered or the enterprise enters enters into an irrevocable agreement to acquire the asset. d. A decision by the management of an enterprise to acquire assets in the future, in itself, gives rise to a present obligation. 46. Which is not an essential characteristic of an asset? a. The asset is controlled by the enterprise b. The asset is the result of a past transaction or event c. The asset provides future cash flows to the entity. d. The cost of the asset can be measured reliably.

10/16

PAGE 6 47. It is the process of incorporating in the financial statements an item that meets the definition of an element of financial statements. a. Recognition c. Realization b. Allocation d. Summarization 48. 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 49. It is the process of determining the monetary amounts at which the elements are to be recognized and carried in the balance sheet and income statement. a. Measurement c. Reporting b. Recognition d. Interpreting 50. Historical cost is the a. Amount of cash or cash equivalent paid or the fair value of the consideration given at the time the asset was acquired. b. Amount of cash or cash equivalent that would have to be paid if the same or an equivalent asset was acquired currently. c. Amount of cash or cash equivalent that could currently be obtained by selling the asset in an orderly disposal. d. Discounted value of the future net cash inflows that an item is expected to generate in the normal course of business. 51. Technically, this arises in the course of the ordinary regular activities of an enterprise and is referred to by a variety of different names including sales, interest, dividends, royalties and rent. a. Income c. Profit b. Gain d. Revenue 52. Which statement is incorrect concerning the elements directly related to the measurement of performance? a. Gains represent other items that meet the definition of income and do not arise in the course of ordinary regular activities. b. Losses represent other items that meet the definition of expenses and do not arise in the course of ordinary regular activities. c. The definition of expenses encompasses losses as well as those expenses that arise in the course of ordinary regular activities. d. The definition of revenue encompasses both income and gains. 53. The process of “matching of costs with revenue” involves the simultaneous or combined recognition of revenue and expenses that result directly and jointly from the same transactions or other events. This approach is exemplified by which of the following? a. Expenses are recognized in the income statement on the basis of direct association between the costs incurred and the earning of specific items of income. b. When economic benefits are expected to arise over several accounting periods and the association with income can only be broadly or indirectly determined, expenses are recognized on the basis of systematic and rational allocation. c. An expense is recognized immediately when an expenditure produces no future economic benefits or when future economic benefits do not qualify or cease to qualify for recognition as an asset. d. An expense is recognized immediately when a liability is incurred without recognition of an asset as when a liability under a product warranty arises 54. An expense is recognized immediately in the income statement I. When the expenditure produces no future economic benefits. II. When the cost incurred ceases to qualify for recognition as an asset in the balance sheet. a. I only c. Both I and II b. II only d. Neither I nor II

10/16

PAGE 7 55. Which of the following is not a theoretical basis for the allocation of expense? a. Immediate recognition c. Cause and effect association b. Systematic and rational allocation d. Profit maximization 56. What is another term for equity? a. Net assets b. Net losses

c. Revenue d. Liability

57. Which statement is correct concerning the two concepts of capital? I. Under a financial capital concept, such as invested money or invested purchasing power, capital is synonymous with the net assets or equity of the entity. II. Under a physical capital concept, such as operating capability, capital is regarded as the productive capacity of the entity. a. Both I and II c. I only b. Neither I nor II d. II only 58. Under the financial capital maintenance concept, a profit is earned when I. The financial amount of the net assets at the end of the period exceeds the financial amount of the net asset at the beginning of the period, after excluding any distributions to and contributions from owners during the period. II. The physical productive capacity of the entity (funds needed to achieve that capacity) at the end of the period exceeds the physical productive capacity at the beginning of the period, after excluding any distributions to and contributions from owners during the period. a. Both I and II c. I only b. Neither I nor II d. II only 59. Which of the following accounting theory justifies the use of historical cost method in the preparation of financial statements? a. Conservatism c. Relevance b. Objectivity d. Comparability 60. Which statement is incorrect concerning the concept of capital? a. The selection of the appropriate concept of capital should be based on the needs of the users of the financial statements. b. A financial capital concept is adopted if the users are primarily concerned with the maintenance of nominal invested capital or purchasing power of invested capital. c. A physical capital concept is adopted if the main concern of the users is the operating capability of the entity. d. A physical capital concept is adopted by most entities in preparing their financial statements. . - END-

10/16