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ACCOUNTING AND FINANCIAL ACCOUNTING CONCEPTS BOA – BOARD OF ACCOUNTANCY SEC – SECURITY AND EXCHANGE COMMISSION PRC – PROFESSIONAL REGULATION COMMISSION GAAP – GENERALLY ACCEPTED ACCOUNTING PRINCIPLES PIC – PHILIPPINE INTERPRETATION COMMITTEE PFRS – PHILIPPINE FINANCIAL REPORTING STANDARDS IASC – INTERNATIONAL ACCOUNTING STANDARDS COMMITTEE IFRS – INTERNATIONAL FINANCIAL REPORTING STANDARDS ASC – ACCOUNTING STANDARDS COUNCIL FRSC – FINANCIAL REPORTING STANDARD COUNCIL AAA – AMERICAN ACCOUNTING ASSOCIATION REPUBLIC ACT NO 9298 – “PHILIPPINE ACCOUNTANCY ACT OF 2004” FRSC is composed of 15 members, a chairman (who has been or is presently a senior accounting practitioner) and 14 representatives from the ff:  Board of accountancy (BOA)  Securities and Exchange Commission (SEC)  Bangko Sentral ng Pilipinas (BSP)  Bureau of Internal Revenue (BIR)  Commision of Audit (COA)  Financial Executive Institute of the Philippines (FINEX)  Philippine Institute of Certified Public Accountant (PICPA) DUE PROCESS a. Consideration of pronouncements of the IASB b. Formation of a task force when deemed necessary to give advice to the FRSC c. Issuing for comment an exposure draft approved by the majority of the FRSC members; comment period will be at least 60 days, unless a shorter period (not less than 30 days) is considered appropriate by the FRSC d. Consideration of all comments received within the comment period and when appropriate, preparing a comment letter to the IASB e. Approval of a standard or an interpretation by a majority of the FRSC members COMPONENTS OF CONCEPTUAL FRAMEWORK a. Objective of the financial statement b. Qualitative characteristics of information c. Definition of the elements of financial statements d. Recognition of the elements of financial statements e. Measurement of the elements of financial statements f. Concepts of capital and capital maintenance 1. “Accounting is a service activity and its function is to provide quantitative information, primarily financial in nature, about economic entities, that is intended to be useful in making economic decision.” This accounting definition is given by a. Accounting Standard Council b. AICPA Committee in Accounting Terminology c. American Accounting Association d. Board of Accountancy 2. The basic purpose of accounting is a. To provide the information that the manager of an economic entity need to control its operation b. To provide information that the creditors of an economic entity can use in deciding whether to make additional loans to the entity

c. To measure the periodic income of the economic entity d. To provide quantitative financial information about an entity that is useful in making rational economic decision 3. These are the events that affect the entity and in which other entities participate a. Internal events b. External events c. Current events d. Past events 4. The “communicating” process of accounting includes all of the following except: a. Recording b. Classifying c. Summarizing d. Interpreting 5. What is the law regulating the practice of accountancy in the Philippines: a. R.A. No 9298 b. R.A. No 9198 c. R.A. No 9928 d. R.A. No 9892 6. It is the body authorized by law to promulgate rules and regulations affecting the practice of the accountancy profession in the Philippines a. Board of Accountancy b. Philippine Institute of Certified Public Accountants c. Securities and Exchange Commission d. Financial Reporting Standards Council 7. Accountants employed in entities in various capacity as accounting staff, chief accountant or controller are said to be engaged in a. Public accounting b. Private accounting c. Government accounting d. Financial accounting 8. It is accounting standard setting body created by PRC upon recommendation of BOA to assist the BOA in carrying out its powers and functions under R.A. No 9298 a. Accounting standards council b. Auditing and assurance standards council c. Philippine accounting standards council d. Financial reporting standard council 9. Which is not required to be represented in the FRSC? a. Bangko Sentral ng Pilipinas b. Bureau of Internal Revenue c. Commission of Audit d. Department of budget and Management 10. The PFRS collectively include I. PFRS corresponding to IFRS II. PAS corresponding to IAS III. Philippine Interpretations corresponding to IFRIC and SIC Interpretations and Interpretations developed by PIC a. I only b. I and II only c. I and III only d. I, II and III 11. Financial accounting is concerned with a. General-purpose reports in financial position and financial performance b. Specialized reports for inventory management and control

c. Specialized reports for income tax computation and recognition d. General-purpose reports on changes in stock prices and future estimates of market position 12. Financial accounting can be broadly defined as the area of accounting that prepares a. General purpose financial statements to be used by parties internal to the entity only b. Financial purpose financial statements to be used by investors only c. General purpose financial statements to be used by parties both internal and external to the entity d. Financial statements to be used primarily by management 13. Financial accounting is the area of accounting that emphasizes reporting to a. Management b. Regulatory auditors c. Internal auditors d. Creditors and investors 14. Managerial accounting is the area of accounting that emphasizes a. Reporting financial information to external users b. Reporting to the SEC c. Combining accounting knowledge with an expertise in data processing d. Developing accounting information for use within an entity 15. One of the basic features of financial accounting is a. Direct measurement of economic resources and obligations and changes in them in terms of money and sociological and psychological impact b. Direct measurement of economic resources and obligations and changes in them in terms of money c. Direct measurement of economic resources and obligations and changes in them in terms of money and sociological impact d. Direct measurement of economic resources and obligations and changes in them in terms of money and psychological impact 16. Generally accepted accounting principles a. Are accounting adaptations based on the laws of economic science b. Derive their credibility and authority from legal rulings and court precedents c. Derive their credibility and authority from the national government through SEC d. Derive their credibility and authority from the general recognition and acceptance by the accountancy profession 17. Which of the following statements best describes GAAP a. They have been formulated in the public sector b. They have been developed on the basis of such factors as usage and practical necessity c. They are the same as law within our legal system d. They do not apply to small entities 18. Proper application of accounting principles is most dependent upon the a. Existence if specific guidelines b. Oversight of regulatory bodies c. External audit function d. Professional judgment of accountant 19. The process of establishing financial accounting standards a. Is a democratic process in that a majority of practicing accountants must agree with a standards before it becomes implemented b. Is a legislative process based in rules promulgated by government agencies c. Is based solely on economic analysis of the effects each standard will have if it is implemented d. Is a social process which incorporates political actions of various interested user group as well as professional research and logic 20. Once a accounting standard has been established a. The standard is continually reviewed to see if modification is necessary b. The standard is not reviewed unless the SEC makes a complaint c. The task of reviewing the standard to see if modification is necessary is given to the PICPA d. The principle of consistency requires that no revisions ever be made to standard

21. As independent or external auditors, CPA’s are primarily responsible for a. Preparing financial statements in conformity with GAAP b. Certifying the accuracy of financial statements c. Expressing an opinion as to the fairness of financial statements d. Filing financial statements with the SEC 22. The singularly “unique” function performed by CPA is a. Tax preparation b. Management advisory services c. The attest function d. The preparation of financial statement 23. The purpose of the IFRS is to a. Issue enforceable standards which regulate the financial accounting and reporting of multinational entities b. Develop a uniform currency in which the financial transactions of entities throughout the world would be measured c. Promote uniform accounting standards among countries of the world d. Arbitrate accounting disputes between auditors and international entities 24. The IASB was formed to a. Enforce IFRS in foreign countries b. Develop worldwide accounting standards c. Establish accounting standards for multinational entities d. Develop accounting standards for countries that do not have their own standard-setting bodies 25. It is a “global phenomenon” intended to bring about transparency and a higher degree of comparability in financial reporting, both of which will benefit the investors and are essential to achieve the goal of one uniform and globally accepted financial reporting standards a. IFRS b. Borderless accounting c. GAAP d. Information technology 26. What is the only underlying assumption mentioned in the New Conceptual Framework for financial reporting? a. Going concern b. Accounting entity c. Time period d. Monetary unit 27. Which of the following statements best describes the term “Going Concern”? a. When current liabilities of an entity exceed the current assets b. The ability of the entity to continue in operation for the foreseeable future c. The potential to contribute to the flow of cash and cash equivalent to the entity d. The expenses of an entity exceed its income 28. If a business is not being sold or closed, the amounts reported for assets used in the business operations are based in the cost of the assets. This practice is justified by a. Accrual b. Continuity assumption c. Time period d. Accounting entity 29. Continuation of an accounting entity in the absence of evidence to the contrary is an example of the basic concept of a. Accounting entity b. Time period c. Going concern d. Accrual 30. Which of the following is not an implication of going concern assumption a. The historical cost principle is credible b. Depreciation and amortization policies are justifiable c. The current and noncurrent classification of assets and liabilities is justifiable and significant

d. Amortizing research and development cost over several periods is justifiable and appropriate 31. The relatively stable economic, political and social environment supports a. Conservatism b. Materiality c. Timeliness d. Going concern 32. Which underlying concept serves as the basis for preparing financial statements as regular intervals? a. Accounting entity b. Going concern c. Accounting period d. Stable monetary unit 33. Which of the following is not an important characteristic of the financial statements that accountants currently prepare? a. The information in financial statements is expressed in units of money adjusted for changing purchasing power b. Financial statements articulate with one another because measuring financial position is related to measuring changes in financial position c. The information in financial position is related to measuring changes in financial position d. Financial statements can be justified only if the benefits they provide exceed the costs 34. Which of the ff statements in relation to underlying assumption is true? I. In accordance with the unit of measure assumption, accountants normally revise the amounts to reflect the changing purchasing power of money due to inflation or deflation II. In accordance with the going concern assumption, the life of an entity is presumed to be indefinite a. I only b. II only c. Both I and ii d. Neither I nor ii 35. Inflation and Fluctuations in value of peso are ignored in what accounting assumption a. Going concern b. Unit of measure c. Historical cost d. Realization 36. The concepts of accounting entity is applicable a. Only to the legal aspects of business organization b. Only to the economic aspects of business organization c. Only to business organization d. Whenever accounting is involved 37. When a parent and subsidiary relationship exists, consolidated financial statements are prepared in recognition of a. Legal entity b. Economic entity c. Stable monetary unit d. Time period 38. The valuation of a promise to receive cash in the future at present value is valid because of the accounting concept of a. Entity b. Time period c. Going concern d. Monetary unit 39. This accounting concept justifies the usage of accruals and deferrals a. Going concern b. Materiality c. Consistency d. Monetary unit

40. During the lifetime of an entity, accountants produce financial statements at arbitrary points in time is accordance with what accounting concept? a. Accrual b. Periodicity c. Unit of measure d. Going concern 41. The old framework for the preparation and presentation of Financial Statements is now replaced by a complete comprehensive and single document called a. Conceptual Framework for Financial Reporting b. Conceptual Framework for Financial Statements c. Conceptual Framework for Business Entity d. Conceptual Framework for Economic Entity 42. The Conceptual Framework should a. Lead to uniformity of financial statements among entities within the same industry b. Eliminate alternative accounting principles and methods c. Guide the PICPA in developing generally accepted auditing standards d. Define the basic objectives, terms and concepts of accounting 43. Which is not a basic purpose of the Conceptual Framework a. To assist the FRSC in developing accounting standards b. To assist preparers of financial statements in applying accounting standards c. To assist the FRSC in reviewing and adopting IAS d. To assist BOA in promulgating reules and regulations affecting the practice of accountancy in the Philippines 44. Which of the ff is not a purpose of the Conceptual Framework a. To provide definitions of key terms and fundamental concepts b. To provide specific guidelines for resolving situations not covered by existing accounting standards c. To assist accountants and others in selecting among alternative accounting and reporting methods d. To assist the FRSC in the standard-setting process 45. Which is a basic purpose of the conceptual framework I. To assist users of financial statements in interpreting the information contained in the financial statements II. To assist auditors in forming an opinion as to whether financial statements conform with GAAP III. To provide information to those interested in the work of the FRSC in the formulation of PRFS a. I and II only b. I and III only c. II and III only d. I, II and III 46. What is the “authoritative status” of Conceptual Framework? a. The CF has the highest level of authority b. In the absence of a standard or an interpretation that specifically applies to a transaction, the CF shall be followed c. In the absence of a standard or an interpretation that specifically applies to a transaction, management shall consider the applicability of the CF in developing and applying an accounting policy that results in information that is relevant and reliable d. The CF applies only when the FRSC develops new or revised standards 47. The Conceptual framework is intended to establish a. GAAP in financial reporting by entities b. The meaning of “present fairly in accordance with GAAP” c. The objectives and concepts for use in developing standards of financial accounting and reporting d. The hierarchy of sources of GAAP 48. Which of the ff statement is true concerning the Conceptual Framework? I. The CF is concerned with general purpose financial statements including consolidated financial statements II. Special purpose financial reports are within the scope of the conceptual framework a. I only b. II only

c. Both I and II d. Neither I nor II 49. Which is not included in the scope of the conceptual framework? a. Qualitative characteristic of useful financial accounting information b. Definition, recognition and measurement of the elements of financial statements c. Concepts of capital and capital maintenance d. Concepts of GAAP 50. As regards to the relationship between PFRS and the CF , which of the ff statements is true? I. The CF is a reporting standard II. In case of conflict, the requirements of the CF prevail over those of the relevant PFRS 1. I only 2. II only 3. Both I and II 4. Neither I nor II 51. The theory of accounting which best describes the accounting equation expressed “ASSETS = LIABILITIES+EQUITY” is the a. Entity theory b. Fund theory c. Proprietary theory d. Residual theory 52. What theory of ownership equity is enumerated by the ff equation “ASSET-LIABILITIES-PREFERENCE SHARE EQUITY = ORDINARY SHARE EQUITY” a. Fund theory b. Entity theory c. Proprietary theory d. Residual theory 53. Classifying preference dividends as expense is an application of what concept a. Entity theory b. Proprietary theory c. Residual theory d. Fund theory 54. The primary accounting objective is fair presentation of financial performance of the entity a. Entity theory b. Proprietary theory c. Residual theory d. Fund theory 55. Fiduciary accounting is an application of a. Entity theory b. Proprietary theory c. Residual theory d. Fund theory 56. What is the objective of financial reporting a. To provide information about the financial position, financial performance and changes in financial position of an entity b. To prepare and present a statement of financial position, income statement, statement of comprehensive income, statement of cash flow and statement of changes in equity c. To provide information about an entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity d. To prepare financial statements in accordance with all applicable standards and interpretations 57. The primary focus of financial reporting has been on meeting the needs of which of the following groups a. Managers of an entity b. Existing and potential investors, lenders and other creditors c. National and local taxing authorities

d. Independent CPA’s 58. The overall objective of financial reporting is to provide information a. That is useful for decision making b. About an entity’s assets, liabilities and equity c. About an entity’s financial performance during a period d. About an entity’s financial position during a period 59. Which of the following statements concerning the objectives of financial reporting is true? a. The objectives are intended to be specific in nature b. The objectives are directed primarily toward the needs of internal users of accounting information c. The objectives are the end result of the conceptual framework project d. The objectives are encompass not only financial statement disclosure but other information as well 60. Which of the ff best describes the term “financial position”? a. The net income and expenses of an entity b. The net of financial assets less liabilities of an entity c. The cash flow of an entity d. The asset, liabilities and equity of an entity 61. Which of the ff best describes the term “financial performance” of an entity? a. The revenue, expenses and net income or loss for a period of an entity b. The assets, liabilities and equity of an entity c. The total asset minus total liabilities d. The total cash inflows less cash outflows 62. Which of the ff statements is true in relation to financial position? I. Information about financial position can help users to assess the entity’s liquidity, solvency and its need for additional financing II. Information about priorities and payment requirements for existing claims can help users to predict how future cash flows will be distributed among those with a claim against the entity a. I only b. II only c. Both I and II d. Neither I nor II 63. Which of the ff statement is true in relation to financial reporting I. Financial reports include not only financial statements but also other information such as financial highlights, summary of important financial figures, analysis of financial statements and significant ratios II. Financial reports also include non financial information such as description of major products and a listing og corporate officers and directors a. I only b. II only c. Both I and II d. Neither I nor II 64. Which of the ff statements in relation to financial reporting is true? a. The statement of financial position reflects the current value of an entity b. The statement of financial position reflects the instability of the peso c. The financial statement formats and classifications do not vary to reflect industry differences d. Due to measurement problems, some entity resources and obligations are not reported in the statement of financial position 65. Which of the ff statements in relation to financial reporting is incorrect? a. General purpose financial reports do not and cannot provide all of the information that primary users need b. General purpose financial reports are designed to show the value of the reporting entity c. General purpose financial reports are intended to provide common information to users d. Financial reports are largely based in estimate and judgment rather than exact depiction 66. The objectives of financial reporting for entities are based on a. The need of conservatism b. Reporting on management’s stewardship

c. Generally accepted accounting principles d. The needs of the users of the information 67. The information provided by financial reporting pertains to a. Individual business entities, rather than to industries or an economy as a whole or to members of society as consumers b. Individual business entities and an economy as a whole or to members of society as consumers c. Individual business entities and an economy as a whole rather than to industries or to members of society as consumers d. Individual business entities, industries and an economy as a whole, rather than to members of society as consumers 68. During a period when an entity is under the direction of a particular management, financial reporting will directly provide information about a. Both entity and management performance b. Management performance but not entity performance c. Entity performance but not management performance d. Neither entity nor management performance 69. Which of the ff is not listed as a major objective of financial reporting? a. Provide information about entity resources, claims to those resources and changes in them b. Provide information useful in evaluating management stewardship c. Provide information useful in investment, credit and similar decision d. Provide information useful in assessing cash flow prospects 70. An entity shall present a. The statement of cash flows more prominently than other statements b. The statement of financial position more prominently than other statements c. The statement of comprehensive income more prominently than other statements d. Each financial statement with equal prominence 71. The principles which constitute the ground rules for financial reporting are termed “Generally Accepted Accounting Principles”. To qualify as generally accepted, an accounting principle must a. Usually guide corporate managers in preparing financial statements which will be understood by widely scattered shareholders b. Guide corporate managers in preparing financial statements, which will be used for collective bargaining agreement with trade unions c. Guide an entrepreneur of the choice of an accounting entity d. Receive substantial authoritative support 72. Under GAAP a. Income and expense, assets and liabilities are measured based on the occurrence of changes in the economic resources and obligations b. Assets and liabilities are measured on the basis of their liquidation value c. Income and expenses are recognized on the basis of cash receipts and payments d. Financial position and financial performance are measured on the basis of cash received and paid 73. The four phases of accounting are recording, classifying, summarizing and interpreting. The phase whereby the liquidity, solvency and profitability of an entity are significantly portrayed is known as a. Summarizing b. Classifying c. Recording d. Interpreting 74. Four types of money prices are used in measuring resources in financial accounting. The measurement which uses such concepts as present value, discounted cash flow and value in use is known as a. Price in a current purchase exchange b. Price in past purchase exchange c. Price based on future exchange d. Price in a current sale exchange 75. External events include all the following, except

a. b. c. d.

Sale of merchandise Borrowing from bank Donation received from shareholders Casualty loss caused by flood

QUALITATIVE CHARACTERISTICS OF INFORMATION – Qualities or attributes that make financial accounting information useful to the users “Fundamental Qualitative Characteristics”  Relevance o Predictive value o Confirmatory value  Faithful Representation o Completeness o Neutrality o Free from error

“Enhancing Qualitative Characteristics”  Understandability  Comparability o Within an entity o Across entities  Verifiability o Direct o Indirect  Timeliness

76. What are qualitative characteristics of financial statements? a. Qualitative characteristics are the attributes that make the information provided in financial statements useful to users b. Qualitative characteristics are broad classes of financial effects of transactions and other events c. Qualitative characteristics are non-qualitative aspects of an entity’s position and performance and changes in financial position d. Qualitative characteristics measure the extent to which an entity has complied with all relevant standards and interpretations 77. The fundamental Qualitative characteristics are a. Relevance and faithful representation b. Relevance, faithful representation and materiality c. Relevance and reliability d. Faithful Representation and materiality 78. What is the meaning of relevance? I. The capacity of the information to make a difference in the decisions made by the users II. The financial reports represent economic phenomena or transactions in words and number a. I only b. II only c. Both d. Neither I nor II 79. The ingredients of relevant financial information are a. Predictive value and confirmatory value b. Predictive value, confirmatory value and timeliness c. Predictive value, confirmatory value and materiality d. Predictive value, confirmatory value and reliability 80. Which of the ff statements is incorrect concerning materiality? a. Information is material if its omission or misstatement could influence the economic decisions that users make on the basis of the financial information b. Materiality depends on the relative size of the item or error judged in the particular circumstances of its omission or misstatement c. Materiality is a fundamental quantitative characteristics rather than a threshold or cut-off point in determining useful information d. Materiality is dependent on professional judgment because no threshold limit is defined in the conceptual framework

81. Which of the following is the best description of “faithful representation” in relation to information in financial statements? a. Influence on the economic decision of users b. Inclusion of a degree of caution c. Freedom from material error d. Comprehensibility to users 82. The ingredients of faithful representation are a. Completeness and neutrality b. Completeness and free from error c. Completeness , neutrality and free from error d. Completeness, neutrality , free from error and conservatism 83. In the event of conflict between the economic substance of a transaction and its legal form, the economic substance shall prevail. This concept is known as a. Form over substance b. Substance over form c. Faithful representation d. Completeness 84. The financial accounting information is directed toward the common needs of users and is independent of presumptions about particular needs and desires of specific users a. Relevance b. Verifiability c. Neutrality d. Completeness 85. It is exercise of care and caution in dealing with uncertainties in measurement so as not to overstate assets and income or not to understate liabilities and expenses a. Completeness b. Prudence c. Faithful representation d. Neutrality 86. The enhancing qualitative characteristics of financial information are a. Comparability and understandability b. Verifiability and timeliness c. Comparability, understandability and verifiability d. Comparability, understandability, verifiability and timeliness 87. Financial information exhibits consistency when a. Accounting procedures are adopted which smooth net income and make results consistent between years b. Gains and losses are shown separately in the income statement c. Accounting entities give similar events the same accounting treatment each period d. Expenditures are reported as expenses and netted against revenue in the period in which they are paid 88. When information about two different entities engaged in the same industry has been prepared and presented in similar manner, the information exhibits the enhancing qualitative characteristics of a. Relevance b. Faithful representation c. Consistency d. Comparability 89. Which of the ff enhances the usefulness of financial information? a. Accounting entity b. Going concern c. Verifiability d. Time period 90. Which of the ff is not an enhancing qualitative characteristic of conceptual framework? a. Understandability b. Profit-oriented

c. Timeliness d. Comparability 91. The characteristics that is demonstrated when a high degree of consensus can be secured among independent measures using the same measurement method is a. Relevance b. Understandability c. Verifiability d. Neutrality 92. Which concept of accounting holds that, to the maximum extent possible, financial statements shall be based on arm’s length transaction? a. Revenue realization b. Verifiability c. Monetary unit d. Matching 93. Allowing entities to estimate rather than physically count inventory at interim periods is an example of a tradeoff between a. Verifiability and comparability b. Timeliness and comparability c. Timeliness and verifiability d. Neutrality and consistency 94. Which of the ff statements is true in relation to the enhancing qualitative characteristic of “understandability” of financial information? a. Users have a reasonable knowledge of business and economic activities and review the information with reasonable diligence b. Users are expected to have significant business knowledge c. Financial statements shall exclude complex matters d. Financial statements shall be free from material error 95. Which of the ff statements in relation to the enhancing qualitative characteristic of “comparability” is true? I. For information to be more useful, it is important that it be compared with similar information of previous periods or with that produced by another entity II. For information to be comparable, it should be consistently prepared a. I only b. II only c. Both I and II d. Neither I nor II 96. The overriding qualitative characteristics of accounting information is a. Relevance b. Understandability c. Faithful representation d. Decision usefulness 97. Which of the ff terms best describes information that influences the economic decision of users? a. Reliable b. Prospective c. Relevant d. Understandable 98. According to the conceptual framework, predictive value and confirmatory value are ingredients of a. Relevance b. Faithful representation c. Understandability d. Comparability 99. Which of the ff terms best describes information in financial statements that is neutral? a. Understandable b. Comparable

c. Relevant d. Unbiased 100. Under the Conceptual Framework, neutrality is an ingredients of a. Relevance only b. Faithful representation only c. Both relevance and faithful representation d. Neither relevance and faithful representation 101. Which of the ff statements in relation to “materiality” I. Materiality of items depends on their individual or collective influence on the economic decisions of users II. Materiality of an item depends on its absolute size and nature a. I only b. II only c. Both I and II d. Neither I nor II 102. Historical cost has been the valuation basis most commonly used in accounting because of its a. Timeliness b. Conservatism c. Verifiability d. Accuracy 103. Which of the ff qualitative characteristics of financial information requires that information should not be biased in favor of one group of users to the detriment of others? a. Relevance b. Reliability c. Verifiability d. Neutrality 104. Conservatism is best described as selecting an accounting alternative that a. Understates assets and net income b. Has the least favorable impact on owner’s equity c. Overstates liabilities d. Is least likely to mislead users of financial information 105. An item would be considered material and therefore would be disclosed in the financial statement if a. The expected benefits of disclosure exceed the additional cost b. The impact of earning is greater than 10% c. The standard definition of materiality is met d. The omission or misstatement of the amount would make a difference to the users 106. The ability through consensus among measurer to ensure that information represents what it purports to represent is an example of the concept of a. Relevance b. Verifiability c. Comparability d. Feedback value 107. Which of the ff accounting concepts states that an accounting transaction shall be supported by sufficient evidence to allow two or more qualified individuals to arrive at essentially similar conclusions? a. Conservatism b. Objectivity c. Periodicity d. Stable monetary unit 108. Objectivity is assumed to be achieved when an accounting transaction a. Is recorded in a fixed amount of pesos b. Involves the payment or receipt of cash c. Involves an arm’s length transaction between two independent parties d. Allocates revenue or expenses in a rational and systematic manner 109. The principle of objectivity include the concept of

a. Summarization b. Classification c. Conservatism d. Verifiability 110. Proponents of historical costs maintain that in comparison with all other valuation alternatives for general purpose financial reporting, statements prepared using historical costs are more a. Objective b. Relevant c. Indicative of entity’s purchasing power d. Conservatism 111. The consistency standards of reporting requires that a. Expenses be reported as charges against the period in which they are incurred b. The effect of changes in accounting upon income be properly disclosed c. Gains and losses should not appear on the income statement d. Accounting procedures be adopted which give a consistent rate of return 112. Which of the ff relates to both relevance and faithful representation? a. Consistency b. Feedback value c. Verifiability d. Timeliness 113. Which of the ff situations violates the concept of faithful representation? a. Financial statement were issued nine months late b. Data on segments having the same expected risks and growth rate are reported to analysts estimating future profit c. Financial statements include an item of property, plant and equipment with carrying amount increased to management’s estimate of market value d. Management reports to shareholders regularly refer to new projects undertaken, but the financial statements never report project results 114. What is the underlying concept governing the generally accepted accounting principles pertaining to recording gain contingencies? a. Conservatism b. Relevance c. Consistency d. Reliability 115. According to the Conceptual Framework, the usefulness of providing information in financial statements is subject to the constraint of a. Consistency b. Cost-benefit c. Reliability d. Faithful representation 116. Which of the ff statements is true in relation to relevance? I. Financial information has predictive value when it can help users increase the likelihood of correctly forecasting the outcome of events II. Financial information has confirmatory value when it provides feedback about previous evaluations a. I only b. II only c. Both I and II d. Neither I nor II 117. Which of the ff statements in incorrect concerning the qualitative characteristics 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. The predictive and confirmatory roles of information are not interrelated d. Relevance is the capacity if the information to influence an economic decision

118. Which of the ff is not a characteristic of faithful representation a. The financial information must be complete within the bounds of materiality and cost b. The financial information contained in the financial statements must be free from bias c. The phenomena described in the financial statements and the process used to produce the reported information must be free from error d. The financial information must have predictive value or confirmatory value or both 119. Which of the ff statements is incorrect in relation to the enhancing qualitative characteristics? a. Financial information must exclude complex matters in order to achieve understandability b. To be most useful, the financial information shall be compared with similar information of previous periods or with information produced by other entities c. Verifiable financial information implies consensus d. Financial information shall be made available to users in time to influence their decisions 120. Classifying, characterizing and presenting information “clearly and concisely” makes the information a. Understandable b. Comparable c. Verifiable d. Timely 121. It is the ability to bring together for the purpose of noting similarities and dissimilarities a. Relevance b. Reliability c. Understandability d. Comparability 122. An important implication of this qualitative characteristics is that users are informed of the accounting policies employed, changes in those policies and the effects of such changes a. Comparability b. Consistency c. Understandability d. Full disclosure 123. If there is undue delay in the reporting of information, it may lose its a. Relevance b. Relevance and faithful representation c. Usefulness d. Faithful representation 124. Which of the ff concepts means that there should be no attempts on the part of the preparers of financial reports in induce a predetermined outcome or particular mode of behavior? a. Verifiability b. Neutrality c. Faithful representation d. Consistency 125. Which of the ff relates to both relevance and faithful representation a. Materiality b. Conservatism c. Substance over form d. Cost-benefit constraints 126. Consistency is an important factor in comparability within a single entity. Consistency requires that a. Some costs should be recognized as expenses on the basis of presumed direct association with specific revenue b. Assets whose prices or utility are increased by external events other than transfer should be retained in the accounting records at their recorded amount until they are exchange c. Historical cost should be the primary basis used in measuring inventory, intangible assets and PPE d. Changes in circumstances or in the nature of the underlying transactions should be disclosed 127. Application of full disclosure principle a. Is theoretically desirable but not practical because the cost of complete disclosure exceeds the benefit

b. Is violated when important financial information is buried in the notes to the financial statements c. Is demonstrated by the use of supplementary information presenting the effects of changing prices d. Requires that the financial statements be consistent and comparable 128. Which of the ff is an application of the principle of conservatism? a. A provision of a temporary decline in value of a debt security classified as “financial asset at amortized cost” is recognized b. A liability is accrued for a guarantee of the indebtedness of others c. An expected loss on a long-term construction-type contract is recognized in full immediately d. A dollar-denominated note payable is adjusted for a peso devaluation that occurs after the end of the reporting period 129. The conservative approach in the measurement of financial position is the best illustrated in which of the ff? a. Arbitrary reduction of a property item to report a conservative asset position b. Recognition of fictitious liability c. Inventory is measured at cost or net realizable value, whichever is lower d. An intangible asset is measured at nominal amount 130. Which if the following statement in relation to the standard of adequate disclosure is true? I. In complying with the standard of adequate disclosure, accountants are guided by the doctrine that more information is always better than less II. Adequate disclosure is concerned not only with the kind of information contained in financial statements but also with the manner in which that information is presented a. I only b. II only c. Both I and II d. Neither I nor II