TOA_Q3

DE LA SALLE UNIVERSITY MANILA RVR – COB DEPARTMENT OF ACCOUNTANCY REVDEVT 3rd Term AY 14-15 Theory of Accounts TOA – Quizzer 3

Prof. Francis H. Villamin

The Conceptual Framework for Financial Reporting Multiple Choice: 1. A conceptual framework is a. a statement of financial accounting standards that deal with the presentation of financial statements. b. an embodiment of generally accepted accounting principles, that guide users of financial statements assess the reliability of financial statements. c. a basic accounting assumption that guides the accountants in the preparation of financial statements. d. a theoretical foundation that guides the Financial Reporting Standards Council, preparers and users of financial accounting information in the preparation and presentation of financial statements. 2. Which of the following is not within the scope of the Framework? a. Objectives of financial statements b. Nature and definition of the elements of financial statements c. Form of presentation of financial statements d. Qualitative characteristics that make financial statements useful to users 3. What is the authoritative status of the framework? a. The framework has the highest level of authority. b. In the absence of a standard or an interpretation that specifically applies to a transaction, the framework should be followed. c. 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 the FRSC develops a new or revised standard. 4. The accounting standard setting body in the Philippines is currently known as a. The Accounting Standards Council b. The Financial Reporting Standards Council c. The Auditing Standards and Practices Council of the Philippines d. The Auditing and Assurance Standards Council 5. The FRSC Conceptual Framework is intended to establish a. generally accepted accounting principles in 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. 6. The FRSC’s Conceptual Framework I. sets out the concepts that underlie the preparation and presentation of financial statements for external users. II. is a Statement of Financial Accounting Standards and hence defines the standards for various measurement or disclosure issues. III. is concerned with general-purpose financial statements, including consolidated financial statements. a. I only c. I and III b. I and II d. I, II and III

TOA Quizzer 3

The Conceptual Framework for Financial Reporting

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7. Which of the following is not a valid statement regarding the conceptual framework? a. It sets out the concepts that underlie the preparation and presentation of financial statements for external users. b. It is not a Philippine Financial Reporting Standard and hence does not define standard for any particular measurement or disclosure issue. c.

It is concerned with special financial purpose reports, for example, prospectuses and computations prepared for taxation purposes. d. It applies to the financial statements of all commercial, industrial and business reporting enterprises, whether in the public or private sector. 8. The primary responsibility for the financial statements of an enterprise rests with its a. management c. shareholders b. president d. external Auditors 9. Which is not a purpose of the FRSC framework? a. To assist the FRSC in developing accounting standards that represent generally accepted accounting principles in the Philippines. b. To assist the FRSC in the review and adoption of existing International Accounting Standards. c. To assist auditors in forming an opinion as to whether financial statements conform with Philippine GAAP. d. To assist the Board of Accountancy in promulgating rules and regulations affecting the practice of accountancy in the Philippines. 10. The conceptual framework applies to all financial statements of reporting enterprises described as a. Industrial enterprise b. Commercial enterprise c. Business enterprise d. All of these 11. Which of the following statements regarding the Conceptual framework of accounting is(are) correct? I. The Framework deals with the qualitative characteristics of financial statements. II. The Framework normally prevails over International Accounting Standards where there is a conflict between the two. III. The Framework deals with the objectives of financial statements and the users of financial information. a. Only I is true b. I and II are true c. I and III are true d. All statements are true 12. Which of the following are parts of the “due process of the IASB in issuing a new International Financial Reporting Standard”? I. Establishing an advisory committee to give advice II. Reviewing compliance and enforcement procedures III. Issuing an interpretation as authoritative interim guidance IV. Developing and publishing a discussion document for public comment a. I and IV b. II and III c. II and IV d. I and III 13. You are given the following statements relating to the FRSC and standard setting process in the Philippines. Which of these is(are) true? I. All members of the FRSC should be CPAs. II. The Financial Reporting Standards Council (FRSC) Board of Accountancy (BOA) and Professional Regulation Commission (PRC) are all involved in the standard setting process with PRC as the final approving authority. a. Only I is true b. Only II is true c. I and II are true d. I and II are false

TOA Quizzer 3

The Conceptual Framework for Financial Reporting

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14. Who among the following may be nominated for membership in Financial Reporting Standards Council? a. A member of FINEX who is a CPA and is a Finance Officer of the company he represents. b. A regional director of the Bureau of Internal Revenue. c. A Director of the Securities and Exchange Commission who is not a CPA. d. A Deputy Governor of the Central Bank who is not a CPA. 15. Which of the following is a characteristic of the Financial Reporting Standards Council (FRSC)? a. FRSC members must come from CPA firms. b. FRSC members are required to render service to the Council on full-time basis. c. All four sectors of the Accountancy profession are represented in the FRSC. d. All members should be CPAs. 16. Which of the following is(are) part of the financial reporting standard setting process in the Philippines? I. Consideration of pronouncements of the IASB. II. Creation of a task force by the standard setting body to study the proposed accounting standard. III. Distribution of the exposure draft for comments to CPA professionals and other interested parties. IV. Approval by the Financial Reporting Standards Council and eventually by the Professional Regulation Commission. V. Publication in the Official Gazette and in a newspaper of general circulation. a. I and IV only b. II, III and V only c. I, II, III and IV only d. I, II, III, IV and V 17. Once the FRSC has established an accounting standard a. The standards are continually reviewed to see if modifications or amendments are necessary. b. The standards are not reviewed unless the SEC makes a complaint. c. The task of reviewing the standards to see if modification that is necessary is given to PICPA. d. The standard should never be modified to conform with the principle of consistency. 18. Which is incorrect concerning financial statements? a. The objective of general purpose financial statements is to provide information about the financial position, performance and cash flows of an enterprise that is useful to a wide range of users in making economic decisions. b. The management of an enterprise has the primary responsibility for the preparation and presentation of financial statements. c. Financial statements are prepared and presented at least annually and are directed toward the common information needs of a wide range of users. d. Financial statements provide all the information that users may need to make economic decisions since they largely portray the financial effects of past events and do not necessarily provide nonfinancial information. 19. Which of the following is not an appropriate description of financial statements? a. Provide information about the financial position, financial performance and cash flows of an enterprise. b. Are the primary responsibility of the management of the enterprise. c. Also show the results of the stewardship of management for resources entrusted to it. d. Are prepared and presented at least annually and are directed toward the specific information needs of a wide range users. 20. Which statement is incorrect concerning the users and their information needs? a. Enterprises affect members of the public in a variety of ways, including the number of people they employ and their patronage of local suppliers. b. Government and their agencies are interested in the allocation of resources and therefore activities of the enterprise. c. Employees and their representative groups are interested in information about the stability and profitability of an enterprise. d. Suppliers and trade creditors have interest in information about the continuance of an enterprise, especially when they have a long term involvement with or are dependent on the enterprise.

TOA Quizzer 3

The Conceptual Framework for Financial Reporting

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21. The providers of risk capital (investors) a. are interested in information which enables them to assess the ability of the enterprise to provide renumeration, retirement benefits and employment opportunities. b. are interested in information that enable them to determine whether their loans and the interest attaching to them will be paid when due. c. have an interest in information about the continuance of an enterprise especially when they have a long-term involvement with or are dependent on the enterprise. d. are concerned with the risk inherent in and return provided by their investments and need information to help them determine whether they should buy or sell the investment 22. An entity for which there are users who rely on its financial statements as their major source of financial information about the entity. a. publicly listed entity b. publicly accountable entity c. reporting entity d. small or medium-sized entity 23. These refer to the providers of risk capital, including their advisers, who are concerned with the risk inherent in, and return provided by their investments. They need information to help them determine whether they should buy, hold or sell. They are also interested in information which enables them to assess the ability of the entity to pay dividends. a. investors b. shareholders c. stakeholders d. public 24. They are interested in information that enables them to determine whether their loans, and the interest attaching to them, will be paid when due. a. investors b. lenders c. suppliers d. public 25. They are interested in information that enables them to determine whether amounts owing to them will be paid when due. They are likely to be interested in an entity over a shorter period than lenders unless they are dependent upon the continuation of the entity as a major customer. a. investors b. lenders c. suppliers d. public 26. These users are interested in the allocation of resources and activities of enterprises, and therefore require information to regulate the activities of enterprises, determine taxation policies and as a basis for national income and similar statistics. a. b. c. d.

suppliers and trade creditors customers public government and its agencies

27. Which of the following statement users will use financial information to anticipate price changes, seek alternative sources of supply, and assess ability of enterprise to operate as a going concern? a. Public in general b. Customers c. Lenders d. Employees 28. Which users need financial information to enable them to assess the ability of the enterprise to provide remuneration and retirement benefits and employment opportunities? a. Employees b. Government and its agencies c. Customers d. Investors

TOA Quizzer 3

The Conceptual Framework for Financial Reporting

5

29. This is the a factor of the financial position of an entity which indicates what amount of the assets has been financed by creditors and how much was financed by owners a. solvency b. financial structure

c. financial position d. capacity for adaptation

30. Information about liquidity is useful in predicting the a. ability of the enterprise to meet its financial commitments in the near term. b. ability of the enterprise to meet its financial commitments over a longer term. c.

future borrowing needs and how future profits and cash flows will be distributed among interested users. d. ability of the enterprise to generate cash and cash equivalents in the future. 31. Information about financial flexibility is useful in predicting the a. ability of the enterprise to meet its financial commitments in the near term. b. ability of the enterprise to meet its financial commitments over a long term. c. future borrowing needs and how future profits and cash flows will be distributed among interested users. d. ability of the enterprise to use its available cash for unexpected requirements and investment opportunities. 32. The accrual basis means that a. the effects of transaction and other events are recognized when they occur and not as cash or its equivalent is received or paid and they are recorded in the accounting records and reported in the financial statements of the periods to which they relate. b. the financial statements are normally prepared on the assumption that an entity is a going concern and will continue in operation for the foreseeable future. c. consolidated financial statements are prepared for the parent and its subsidiaries under the concept of economic entity. d. the accounting function is to account for nominal pesos only and not for constant pesos. 33. 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. statement of comprehensive income 34. 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. 35. Which underlying concept serves as the basis for preparing financial statements at regular intervals? a. time period b. going concern

c. accounting entity d. stable monetary unit

36. When determining whether or not financial information should be presented is a. the ease with which information can be obtained. b. whether or not it is required by the management. c. the cost of providing the information. d. its usefulness for decision-making purposes.

TOA Quizzer 3

The Conceptual Framework for Financial Reporting

6

37. According to the IASB’s Framework, which one of the following is not an element of reliability? a. neutrality c. completeness b. materiality d. faithful representation 38. Which one of the following represents the best source for assessing the consistency of a company’s financial statements? a. the “summary of significant accounting policies” section of the notes to the financial statements. b. the auditor’s report c. the management’s discussion and analysis section of the annual report d. the face of the financial statements 39. Which one of the following is not an element of relevant accounting information? a. representation c. predictive value b. feedback value d. materiality 40. Which of the following statements about the financial statements is true? a. A prediction of events and transactions that will give rise to cash inflows and cash outflows is best seen in the Statement of Cash Flows. b. A Statement of Comprehensive Income shows only realized gains and losses for the period. c. The Statement of Changes in Equity shows information about owner-related transactions and events as well as results of profit –directed activities including realized and unrealized gains and losses for a time period. d. Notes to financial statements are necessary because there are significant transactions and events that are non-quantitative but are important in making economic decisions. 41. What are the primary qualitative characteristics of accounting information? I. Comparability II. Relevance III. Completeness IV. Materiality a. I, II, III and IV b. II and VIII

V. Reliability VI. Timeliness VII. Understandability VIII. Faithful representation c. II, III, IV and V d. II, III, V and VII

42. Which of the following refers to the relative size and magnitude of a financial statement element? a. Neutrality c. Materiality b. Verifiability d. Timeliness 43. When an information is prudent, neutral, representationally faithful and presents the economic substance rather than the legal form of the transaction, then such information is described as a. Reliable c. Understandable b. Relevant d. Comparable 44. A quality of financial information that makes it needed and worthy for the purpose it was prepared is its a. Completeness c. Reliability b. Relevance d. Understandability 45. Information has the quality of relevance when a. it influences the economic decisions of users by helping them evaluate past, present, or future events or confirming or correcting their past evaluations. b. it is free from bias and error and can be depended upon by users to represent faithfully that which it either purports to represent or could reasonably be expected to represent. c. users are assumed to have a reasonable knowledge of business and economic activities and accounting and a willingness to study the information with reasonable diligence. d. users are informed of the accounting policies employed, any changes in those policies and the effects of such changes. 46. 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.

TOA Quizzer 3

The Conceptual Framework for Financial Reporting

7

47. If accounting information is verifiable, representationally faithful and neutral, and considers the economic realities rather than the legal aspect, then such information is a. relevant c. reliable b. understandable d. comparable 48. The overriding criterion by which accounting information can be judged is that of a. usefulness for decision making b. freedom from bias

c. timeliness d. comparability

49. Important constraints underlying the qualitative characteristics of accounting information are a. Historical cost and going concern. b. Materiality, conservatism, and cost-effectiveness. c. Consistency, comparability, and conservatism. d. Verifiability, neutrality, and representational faithfulness. 50. Which of the following is not a constraint when implementing accounting procedures to achieve the qualitative objectives of relevance and reliability as set forth in the FRSC Conceptual framework? a. Materiality b. Balance between qualitative characteristics c. Timeliness d. Cost benefit relationship 51. The relevance of information is affected by its nature and materiality. Which is not valid concerning materiality? a. Information is material if its omission or misstatement could influence the economic decisions of users. b. Materiality depends on the size of the item or error judge in the particular circumstances of its omission or misstatement. c. An item may be inherently material because by its very nature it affects economic decisions. d. Materiality is primary qualitative characteristic that provides a threshold or cut-off point which information must be reported to be useful to users. 52. Accounting information is considered to be relevant when it a. can be depended on to represent the economic conditions and events that it is intended to represent. b. is capable to making a difference in a decision. c. is understandable by reasonably informed users of accounting information. d. is verified and neutral. 53. 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. 54. 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 55. Which of the following does not relate to reliability of financial information? a. If the information is to represent faithfully the transactions and other events it purports to represent, it is necessary that it is accounted for and presented in accordance with its substance and economic reality and not merely their legal form. b. Financial statements are prepared to influence the making of a decision or judgment in order to achieve a predetermined result or outcome. c. Prudence is the inclusion of a degree of caution in the exercise of judgment needed under conditions of uncertainty such that assets and income are not overstated or liabilities and expenses are not understated. d. The information in financial statements must be complete within the bounds of materiality and cost.

TOA Quizzer 3

The Conceptual Framework for Financial Reporting

8

56. 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 57. Which is incorrect concerning the accounting constraints on relevant and reliable information? a. It may often be necessary to report before all aspects of a transaction or other event are known, thus impairing reliability. b. The benefits derived from the information should exceed the cost of providing it. c. In achieving a balance between relevance and reliability, the overriding consideration is how best to satisfy the economic decision-making needs of users. d. If there is undue delay in the reporting of information it may lose its relevance and reliability. 58. When information about two different enterprises has been prepared and presented in a similar manner, the information exhibits the characteristic of a. horizontal comparability c. consistency b. vertical comparability d. dimensional comparability 59. Which is incorrect concerning the comparability of financial information? a. Users must be able to compare the financial statements of an entity through time in order to identify trends in its financial position and performance. b. Users must be able to compare the financial statements of different entities in order to evaluate their relative financial position, performance and cash flows. c. It is appropriate for an entity to leave its accounting policies unchanged when more relevant and reliable alternative exist. d. It is important that financial statements show information for the preceding period because users wish to compare financial position, performance and cash flows of an entity over time. 60 Comparability of financial information depends on which of the following a. Consistency of accounting policies b. Regular reporting periods c. Consistency of accounting policies and regular reporting periods d. Neither consistency nor regular reporting periods 61. Financial information exhibits the characteristic of consistency when a. Expenses are reported as charges against revenue in the period in which they are paid. b. Accounting entities give accountable events the same accounting treatment from period to period. c. Gains and losses are not included on the income statement. d. Accounting procedures are adopted which give a consistent rate of net income. 62. 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. b. c. d.

Elements of financial statements Concepts of capital and capital maintenance Accounting constraints Features of accounting

63. 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 64. 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.

TOA Quizzer 3

The Conceptual Framework for Financial Reporting

9

65. 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. 66. 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. 67. It is the process of incorporating in the balance sheet or income statement an item that meets the definition of an element of financial statements. a. Recognition c. Realization b. Allocation d. Summarization 68. 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 69. 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 b. Recognition

c. Reporting d. Interpreting

70. Net realizable value 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. 71. Which of the following measurement attributes is not currently used in practice? a. Present value c. Inflation-adjusted cost b. Net realizable value d. Current replacement cost 72. 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 73. 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.

TOA Quizzer 3

The Conceptual Framework for Financial Reporting

10

74. This process involves the simultaneous or combined recognition of revenue and expenses that result directly and jointly from the same transactions or other events on the basis of direct association between the costs incurred and the earning of specific items of income. a. Matching of revenue with costs b. Matching of costs with revenue c. Systematic and rational allocation d. Immediate recognition 75. 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 76. 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 b. II only

c. Both I and II d. Neither I nor II

77. Which of the following is not a theoretical basis for the allocation of expense? a. Immediate recognition b. Systematic and rational allocation c. Cause and effect association d. Profit maximization 78. The elements directly related to the measurement of profit are income and expense. Which definition is correct? I. Income is increase in economic benefit during an accounting period in the form of inflows or increase in asset or decrease in liability that results in increase in equity other than contribution from equity participants. II. Expense is decrease in economic benefit during an accounting period in the form of outflows or decrease in asset or increase in liability that results in decrease in equity other than distributions to equity participants. a. I only b. II only

c. Both I and II d. Neither I nor II

79. What is another term for equity? a. Net assets b. Net losses

c. Revenue d. Liability

80. 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 b. Neither I nor II

c. I only d. II only

81. 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

TOA Quizzer 3

The Conceptual Framework for Financial Reporting

11

82. 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 83. 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. 84. Which statement is incorrect concerning “capital maintenance concept”? a. Under the concept of physical capital maintenance, capital is defined in terms of physical productive capacity. b. Under the concept of financial capital maintenance, capital is defined in terms of nominal monetary units. c. Increases in the prices of assets held over the period are conventionally referred to as holding gains and conceptually are not profits. d. Generally, the holding gains are treated as capital maintenance adjustments and therefore part of equity. 85. What is the basis of measurement under the physical capital maintenance concept? a. Historical cost c. Realizable value b. Current cost d. Present value 86. Under a physical capital concept, a profit is earned if a. The physical productive capacity at the end exceeds the physical productive capacity at the beginning. b. The physical productive capacity at the end exceeds the physical productive capacity at the beginning, after excluding only any distribution to owners. c.

The physical productive capacity at the end exceeds the physical productive capacity at the beginning, after excluding only any contribution from owners.

d. The physical productive capacity at the end exceeds the physical productive capacity at the beginning, after excluding any distribution to and contribution from owners. 87. A profit is earned under financial capital maintenance concept if a. The financial amount of net assets at the beginning period exceeds the financial amount of net assets at the end of the period, after excluding distributions to and contributions from owners during period. b. The financial amount of net assets at the end of the period exceeds the net assets at the beginning of the period, after excluding distributions to and contributions from owners during period. c. The physical productive capacity at the end of the period exceeds the physical productive capacity at the beginning of the period, after excluding distributions to and contributions from owners during the period. d. The physical productive capacity at the beginning of the period exceeds the physical productive capacity at the end of the period, after excluding distributions to and contributions from the owners during the period. 88. Under financial capital concept, capital is synonymous with a. Historical cost of all assets b. Current cost of all assets c. Productive capacity or operating capability of the enterprise (resources of funds to achieve the capacity) d. Net assets or equity of the enterprise (money invested or invested purchasing power)

TOA Quizzer 3

The Conceptual Framework for Financial Reporting

12

89. 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. 90. Under generally accepted accounting principles a. Income and expenses, 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 including depreciation of property, plant and equipment. d. Financial position and financial performance are measured on the basis of cash received and paid. 91. These identify the types of information that are likely to be most useful to the existing and potential investors, lenders and other creditors for making decisions about the reporting entity on the basis of information in its financial report (financial information). a. Relevance and Faithful representation b. Fundamental qualitativee characteristics c. Qualitative characteristics d. Pervasive constraint 92. Information has this quality when it influences the economic decisions of users by helping them evaluate past, present or future events or confirming, or correcting their past evaluations. a. Predictive Value b. Relevance c. Reliability d. Understandability 93. The relevance of information is affected by its a. Nature b. Risk c. Materiality d. All of these 94. It depends on the size of the item or error judged in the particular circumstances of its omission or misstatement and provides a threshold or cut-off point rather than being a primary qualitative characteristic which information must have if it is to be useful. a. Materiality b. Relevance c. Budget d. Variance 95. Which of the following is the pervasive constraint under the Conceptual Framework? a. Timeliness b. Cost constraint c. Balance between Qualitative Characteristics d. All of the choices 96. Comparability is sometimes sacrificed for: a. Reliability b. Conservatism c. Objectivity d. Relevance 97. This concept defines the accountant’s area of interests and determines what information should be included in, or excluded from the financial statements. a. Periodicity b. Going concern c. Accrual basis d. Accounting entity

TOA Quizzer 3

The Conceptual Framework for Financial Reporting

13

98. To be relevant, information should have which of the following? a. Verifiability b. Feedback value c. Understandability d. Costs and benefits 99. Which of the following accounting concepts states that before a transaction is recorded, sufficient evidence must exist to allow two or more knowledgeable individuals to reach essentially the same conclusion about the transaction? a. Continuity assumption b. Materiality constraint c. Cost principle d. Verifiability quality 100. Technically, it is the quality of information that allows comparisons within a single entity through time or from one accounting period to the next. a. Comparability b. Consistency c. Reliability d. Uniformity

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