TOA.M-1401. CONCEPTUAL FRAMEWORK AND ACCOUNTING CONCEPTS.docx

TOA.M-1401. CONCEPTUAL FRAMEWORK AND ACCOUNTING CONCEPTS MULTIPLE CHOICE QUESTIONS

1.

Technically not part of the Philippine Financial Reporting Standards (PFRS) A. Philippine Accounting Accounting Standards (PASs) B. Philippine Financial Reporting Standards (PFRSs) C. Interpretations D. Conceptual Framework for Financial Financial Reporting

2.

Not a of financial reporting framework A. PFRS for Small-and-Medium-sized Entities (SMEs) B. Interpretations by the International Financial Reporting Interpretations Committee (IFRIC) C. Interpretations by Standing Interpretations Interpretations Committee (SIC) (SIC) D. Philippine Standards on Auditing (PSAs)

3.

Develops and promulgates accounting standards in the Philippines A. Accounting Standards Standards Council (ASC) B. Financial Reporting Standards Council (FRSC) C. Professional Regulatory Regulatory Board of Accountancy (PRBOA) D. Philippine Institute of Certified Public Accountants (PICPA)

4.

The Framework shall assist in promoting harmonization of regulations, accounting standards and procedures relating to the presentation of financial statements by: A. Eliminating all alternative alternative accounting treatments found in the Philippine Accounting Standards B. Providing a basis for reducing reducing the number of alternative accounting treatments  permitted by the Philippine Accounting Standards C. Establishing a preferred or benchmark treatment among acceptable accounting treatments for a transaction, event or condition D. Allowing preparers of financial statements to apply different accounting treatments for similar transactions, events or condition

5.

1 st  Statement. The Conceptual Framework Framework is not a standard. standard. nd  2  Statement. In the event of conflict between a Standard and the Framework, the Framework should be followed. A. True ; True C. False ; False B. True ; False D. False ; True

6.

What is the authoritative status of the framework? A. It has the highest level of authority. In case of conflict between the Framework  the Framework  and  and a Standard or Interpretation, the Framework overrides the Standard o r Interpretation B. If there is a Standard or Interpretation that specifically applies to a transaction, it overrides the Framework. In the absence of a Standard or an Interpretation that specifically applies, the Framework should be followed

C. If there is a Standard or Interpretation that specifically applies to a transaction, it overrides the Framework . In the absence of a Standard or an Interpretation that specifically applies to a transaction, management should consider the applicability of the Framework in developing and applying an accounting policy that results in information that is relevant and reliable D. The Framework applies only when FRSC develops new or revised standards. An entity is never required to consider the Framework 7.

Under PFRS , which of the following is the first step within the hierarchy of guidance to which management refers, and whose applicability it considers, when selecting accounting policies? A. Consider the most recent pronouncements of other standard-setting bodies to the extent they do not conflict with the PFRS or the Conceptual Framework . B. Apply a standard from PFRS  if it specifically relates to the transaction, other event, or condition. C. Consider the applicability of the definitions, recognition criteria, and measurement concepts in the Conceptual Framework . D. Apply the requirements in PFRS  dealing with similar and related issues.

8.

Per conceptual framework, the objectives of financial reporting for business enterprises are based on A. GAAP C. The need for conservatism B. Reporting for regulators D. The needs of the user of information

9.

Per conceptual framework, the relevance of providing information in financial statements is subject to the constraint of A. Comparability C. Reliability B. Cost-benefit D. Faithful representation

10.

Precluded from the scope of the framework A. Concepts of capital and capital maintenance C. Qualitative characteristics B. Objectives of financial reporting D. Standards for financial reporting

11.

The Conceptual Framework should A. Lead to infirmity of financial statements among entities within the same industry B. Eliminate alternative accounting principles and methods C. Guide the PICPA in developing generally accepted accounting principles D. Define the basic objectives, terms and concepts of accounting

12.

The framework is intended to establish A. Generally accepted accounting principles in the financial reporting by business enterprises B. The meaning of “present fairly in accordance with generally accepted accounting  principles” C. The objectives and concepts for use in developing standards of financial accounting and reporting

D. The hierarchy of sources of generally accepted accounting principles 13.

What is the objective of financial statements according to the Framework ? A. To provide information about the financial position, performance, and changes in financial position of an entity that is useful to a wide range of 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 to investors and creditors D. To prepare financial statements in accordance with all applicable Standards and Interpretations

14.

The information handed by financial reporting primarily reflects A. The performance of the individual business enterprises B. The performance of the individual business enterprises and the economy as whole C. The performance of the individual business enterprises and the industry within which it operates D. The performance of the individual business enterprises, the industry within which it operates and the economy as whole

15.

External financial statements, according to FRSC Framework for the Preparation and Presentation of Financial Statements, should provide all of the following information except A. Information that is useful to present and potential investors and creditors and other users in making rational investment, credit, and other decision B. Information that is comprehensible to those who have reasonable understanding of  business and economic activities and are willing to study the information with reasonable diligence C. Information for planning the future of the entity, implementing those plans, and for controlling daily operations D. Information about the economic resources of an enterprise, the claims to those resources and the effects of transactions, events and circumstances that change resources and claims to those resources

16.

During a period when an enterprise is under the direction of a particular management, its financial statements will directly provide information about A. Both enterprise performance and management performance B. Management performance but not directly provide information about enterprise  performance C. Enterprise performance but not directly provides information about management  performance D. Neither enterprise performance nor management performance

17.

Which is not a basic purpose of the conceptual framework? A. To assist FRSC in developing accounting standards

B. To assist preparers of financial statements in applying accounting standards C. To assist FRSC in reviewing and adopting International Accounting Standards D. To assist the BOA in promulgating rules and regulations affecting the practice of  accountancy in the Philippines 18.

Fundamental qualitative characteristics of financial reporting that make information useful are A. Relevance and faithful representation B. Cost-benefit and materiality C. Comparability, verifiability, timeliness, and understandability D. Completeness, neutrality, and freedom from error

19.

Enhancing qualitative characteristics of financial reporting that make information more useful are A. Verifiability, timeliness, understandability, and time-period B. Relevance, reliability, and faithful representation C. Comparability, verifiability, timeliness, and understandability D. Completeness, neutrality, and freedom from error

20.

It means the capacity to influence or make a difference in decision A. Relevance C. Objectivity B. Reliability D. Neutrality

21.

An entity-specific aspect of relevance based on the nature or magnitude (or both) of the items to which the information relates in the context of an individual entity’s f inancial report A. Predictive Value C. Materiality B. Confirmatory Value D. Faithful representation

22.

Faithful representation comprises A. Predictive value & confirmatory value B. Comparability, consistency, & confirmatory value C. Understandability, predictive value, and reliability D. Completeness, neutrality, and freedom from error

23.

It means that different knowledgeable and independent observers could reach consensus, although not necessarily complete agreement, that a particular depiction is a faithful representation A. Faithful representation C. Reliability B. Verifiability D. Enhancing qualitative characteristics

24.

Which of the following situations violates the concept of reliability? A. Data on segments having the same expected risks and growth rates are reported to analysts estimating future profits B. Financial statements are issued nine months late

C. Management reports to stockholders regularly refer to new projects undertaken, but the financial statement never report project results D. Financial statements include property with a carrying amount increased to management’s estimate of market value 25.

The attributes that make financial information useful A. Elements of financial statements B. Qualitative characteristics C. Concepts of capital and capital maintenance D. Reporting entity

26.

Primary qualitative characteristics relate to information’s A. Form B. Content C. Presentation

27.

28.

29.

D. Nature

Primary qualitative characteristics A. Relevance and Understandability B. Relevance and Reliability

C. Comparability and Understandability D. Comparability and Reliability

Secondary qualitative characteristics A. Relevance and Understandability B. Relevance and Reliability

C. Comparability and Understandability D. Comparability and Reliability

Not an ingredient of reliability A. Faithful representation B. Substance over form

C. Comparability D. Neutrality

30.

Which of the following regarding understandability is correct? I. It is assumed that financial reports are prepared for users who have in-depth knowledge of business and economic activities and who can make through review and analysis of the information. II. Some phenomena which are too complex to understand need not to be presented in detail in the financial statements A. I only C. Both I and II B. II only D. Neither I nor II

31.

Not ingredient of reliability A. Conservatism B. Prudence

C. Full-disclosure D. Materiality

32.

Neutrality is an ingredient of (1) Reliability, (2) Relevance A. (1) Yes, (2) Yes B. (1) Yes, (2) No C. (1) No, (2) Yes D. (1) No, (2) Yes

33.

It relates to both relevance and reliability A. Comparability B. Feedback Value C. Verifiability

D. Timeliness

34.

Understandability is achieved when financial information is clearly and concisely (choose the exception) A. Classified B. Presented C. Selected D. Characterized

35.

Which of the following is not a qualitative characteristic of financial statements according to the Framework? A. Materiality C. Comparability B. Understandability D. Relevance

36.

When options and warrants are considered as potential shares in computing diluted earnings  per share, which specific characteristic is achieved? A. Completeness C. Relevance B. Reliability D. Substance over form

37.

An entity for which there are users who the financial statements as their major source of financial information about the entity A. Reporting entity C. Partnership B. Corporate entity D. Sole proprietorship

38.

Which of the following is not a decision that external users of a company’s financial information would make? A. Whether or not to extend credit to the company B. Whether or not to hold the company’s stock  C. Whether or not the company should add a new product D. Whether or not to ask for an increase in employee’s benefits during union contract negotiations

39.

Choose the correct statement. A. Financial accounting is a social science and cannot be influenced by changes in legal,  political, business and social environments. B. Financial accounting is an information system designed to provide information  primarily to internal users. C. General-purpose financial statements must be prepared by a certified public accountant D. The preparation of general-purpose financial statements is usually based on the assumption that the primary users of information are external decision makers.

40.

Not primary users of financial reporting information A. Existing investors C. Potential Investors B. Lenders and other creditors D. Regulators and government agencies

41.

Which of the following is an internal user of a company’s financial information? A. Company treasurer C. Bank lending to the company B. Stockholder in the company D. Union representative

42.

Choose the statement that is correct.

A. External decision makers can obtain whatever financial data they need whenever they need it B. Accounting information is prepared for and useful to only outside decision makers C. The members of the Board of Directors are not “external users” of financial information, but are “internal users” only D. Managers of an entity are considered to be internal users 43.

Choose the incorrect statement A. The objective of external financial statements is to communicate the economic effects of completed transactions and other events in the entity B. General purpose financial statements were developed primarily because all outside users have the same information needs C. The double entry system of accounting has been used for centuries D. The practice of accounting requires considerable professional judgement

44.

The user approach to financial reporting focuses on which users? A. Wide range of users C. Regulatory Bodies B. Management D. Providers of finances or capital

45.

The primary users need information about the resources of the entity to I. Assess an entity’s prospects for future net cash inflows II. Assess how effectively and efficiently management has discharged their responsibilities to use the entity’s existing resources (i.e., stewardship) III. Be used in regulation by prudential and market regulators A. I and II only C. I and III only B. II and III only D. I, II and III

46.

A primary objective of financial reporting is to A. Assist investors in analyzing the company B. Assist suppliers in determining an appropriate discount to offer a particular company C. Assist investors in predicting cash flows D. Assist banks to determine an appropriate interest rate for their commercial loans

47.

Existing and potential investors are interested in (choose the exception) A. Risk and return on their investment C. Entity’s ability to pay dividends B. Hold, buy or sell decisions D. Entity’s stability and profitability

48.

Interested in allocation of resources and the activities of the entities A. Government and their agencies C. Employees and unions B. Public D. Customers

49.

Interested in information about the trends and recent developments in the prosperity of the entity and its range of activities A. Government and its agencies C. Employees and unions B. Public D. Customers

50.

They have an interest in information about the continuance of an entity especially when they have a long term involvement with or dependent on the entity A. Government and their agencies C. Employees and unions B. Public D. Customers

51.

Suppliers and other trade creditors are interested in information A. That enables them to determine whether amounts owing to them will be paid when due B. About the continuance of an entity, especially when they have a long-term involvement with them or are dependent on the entity C. In order to regulate the activities of the entity, determine taxation policies and as the basis for national income and similar activities D. That enables them to determine whether loans and interest thereon will be  paid when due

52.

Concept of capital currently used in the presentation of financial statements A. Physical C. Physical and Financial B. Financial D. Neither Physical nor Financial

53.

Which is correct regarding physical concept of capital? A. It is adopted by most entities in preparing their financial statements B. Capital is synonymous to net assets or equity C. It is adopted if the users of financial statements are primarily concerned with the maintenance of nominal invested capital or the purchasing power of invested capital D. A profit is earned only if the physical capital productive capacity of the entity at the end of the period exceeds the physical productive capacity at the beginning of the  period, after excluding any transactions with owners.

54.

S1. Assets = Liabilities –  Owner’s Equity deals with the performance of the entity rather that asset valuation S2. Net assets = Owner’s Equity exemplifies the entity perspective of financial reporting S3. The proprietary perspective is also called as “wealth concept” A. True True False B. True False True C. False True True D. True True True

55.

Fiduciary accounting is an application of A. Entity concept B. Fund concept

56.

C. Residual Equity Concept D. Proprietary Concept

Which of the following statements is incorrect? A. The accounting theory which explains well the accounting equation “assets –  liabilities = capital” is the proprietary theory B. Under the entity theory, the major accounting effort is directed toward proper valuation of assets rather than income determination C. Strict adherence to the entity concept would not follow a parent company to take up in its books its proportionate share in the profits and losses of its subsidiaries D. Under the fund theory, assets represent prospective services to the fund, liabilities

represent restriction against assets of the fund, and invested capital either legal or financial restrictions on the use of assets 57.

Per Framework, these are the broad classes of events or transactions that are grouped according to their economic characteristics A. Elements of financial statements C. Accountable events B. Economic transactions D. Financial statements

58.

Does not constitute a separate major element of financial statement A. Income B. Expense C. Gain D. Liability

59.

The process of incorporating in the statement of financial position or comprehensive income an item that meets the definition of an element and satisfies the following criteria for recognition A. Journalizing B. Recognition C. Acounting D. Recording

60.

Per Framework: the removal of an account balance from the books of accounts A. Write-off B. Derecognition C. Retirement D. Disposal

61.

These are increases in economic benefits during the accounting period in the form of inflows or enchantments of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants A. Eqiuty B. Asset C. Cash D. Income

62.

A resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity A. Equity B. Asset C. Cash D. Income

63.

Decreases in economic benefits from incidental/peripheral transactions other than distributions to equity participants A. Expenses B. Losses C. Casualties D. Drawings

64.

Not considered “revenues” A. Sales B. Royalties

C. Interest D. Gain from sale of building

65.

An entity’s revenue may result from A. Decrease in an asset –  primary operations B. Increase in an asset –  incidental transactions C. Increase in a liability –  incidental transactions D. Decrease in a liability –  primary operations

66.

(OLD) Underlying assumptions in preparing financial statements A. Relevance and reliability B. Accrual Basis and going concern C. Financial and physical capital maintenance

D. Prudence and conservatism 67.

(NEW) Underlying assumption/s in preparing financial statements A. Accrual basis C. Accrual basis and going concern B. Going concern D. Neither accrual basis nor going concern

68.

Which of the following is supported by the going concern assumption? I. A promise to receive cash in the future is measured at present value on the financial statement of a business entity II. An entity uses accrual and deferrals in recording certain transactions A. I only B. II only C. Both I and II D. Neither I nor II

69.

The valuation to receive cash in the future at present value on financial statements  justified by which accounting concept? A. Monetary B. Time period C. Accrual D. Going concern

70.

Choose the correct statement about generally accepted accounting principles. A. They are laws. B. The BIR enforces GAAP. C. GAAP and tax principles are the same. D. Firms that do not comply with GAAP may suffer negative economic consequences.

71.

Statement 1. The economic entity assumption is applicable not only to business organizations, but whenever accounting is involved. Statement 2. When a parent and subsidiary relationship exists, consolidated financial statements are presented in recognition of the economic entity assumption. A. True ; True C. False ; True B. True ; False D. False ;False

72.

Which of the following is the incorrect statement? A. Theory can be defined as a coherent set of hypothetical, conceptual, and pragmatic  principles forming a general frame of reference for a field of inquiry B. Accounting theory has developed primarily in response to government regulations C. Concepts are component of theory D. Accounting concepts are human-made

73.

Which of the following describes the economic entity postulate? A. Economic activity can be identified with a particular unit of accountability. In other words, a company keeps its activity separate and distinct from its owners and any other business unit B. Money is the common denominator of economic activity and provides an appropriate  basis for accounting measurement and analysis C. A company can divide its economic activities into artificial time periods D. Transactions that change a company’s financial statements are recorded in the periods in which the events occur

74.

J. Gonzales is the sole owner and manager of the Gonzales Lawn and Grass Services. Gonzales purchased a new station wagon for personal use. Gonzales uses a dump truck in the business. Which of the following assumptions, principles, or constraints would be violated if Gonzales recorded the cost of the station wagon as an asset of the business? A. Materiality Constraint C. Full-disclosure principle B. Conservatism constraint D. Separate entity assumption

75.

Revenue is expressed as the number of pesos received or the peso equivalent of the commodities or services received. Cost is expressed as the number of pesos paid out or the peso equivalent of the items given up. Fluctuations in value of peso are ignored. What is the applicable accounting assumption? A. Realization C. Going concern B. Historical cost D. Unit of measure

76.

Statement 1. The realizable value of an asset is the amount of cash or cash equivalents that would be obtained in orderly disposal. Statement 2. The current cost of a liability is the undiscounted amounts of cash or cash equivalents that would be required to settle the ob ligation currently. A. True ; True C. False ; True B. True ; False D. False ; False

77.

Realizable value is the exchange counterpart of A. Settlement value C. Present value B. Replacement value D. Current cost

78.

Materials and other supplies held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost. However, when a decline in the price of the materials indicates that the cost of the finished products exc eeds net realizable value, the materials are written down to net realizable value. In such circumstances, what is the best available measure of the materials’ net realizable value? A. Settlement value C. Present value B. Replacement cost D. Historical cost

79.

A corporation needed a new warehouse, a contractor quoted a P250,000 price to construct it. The corporation believed that it could build the warehouse for P215,000 and decided to use company employees to construct the warehouse. The final construction cost incurred  by the corporation was P240,000 but the asset was recorded at P250,000. This is a violation of the A. Matching principle C. Cost principle B. Revenue recognition principle D. No principle is violated

80.

When a P300 asset with a 6-year useful life is recorded as an expense at the date of  purchase, this is an application of the: A. Matching principle C. Materiality constraint B. Cost principle D. Separate entity assumption

81.

The primary measurement basis currently used to value assets in general purpose financial statement of an entity is A. The current market price if the assets currently held by an entity were sold on the open market B. The current market price if the assets currently held by an entity were purchased on the open market C. The present value of the cash flows assets are expected to generate over their remaining useful lives D. The market price of the assets at the date the assets were acquired

82.

A firm signs a major contract in December to construct custom machinery for a client. No work is begun the current year yet the footnotes to the firm’s financial statements discuss the nature and peso amount of the contract. This is an example of A. Reliability C. Historical cost B. Full disclosure D. Conservatism

83.

A corporation report the sale of some of its shares to shareholder in its financial statements, and the shareholder reports the same transaction as an inv estment. Therefore, A. The revenue principle has been violated B. The separate entity assumption has been violated C. The double entry accounting concept has been violate D. No accounting concept has been violated

84.

Financial accounting period of less than one year A. Interim B. Calendar C. Fiscal

D. Quarter

85.

Preparation of interim financial statements sacrifices this for relevance. A. Reliability B. Understandability C. Completeness D. Presentation

86.

Which of the following statement conforms to the realization concept? A. Equipment depreciation was assigned to a production department and then to product unit cost B. Depreciated equipment was sold in exchange for a note receivable C. Cash was collected on accounts receivable D. Product unit cost were assigned to cost of goods sold when units were sold