1 Activity in CFAS 

 
st

Instruction: Choose the letter of the correct/best answer.  

Overview of Accounting  

1. These are events involving an entity and another external party.  

a. external events  
b. internal events  
c. transactions  
d. life events  

2. It is the accounting process of assigning numbers, commonly in monetary terms, to the economic 
transactions and events.  
a. analyzing c. classifying  
b. measuring d. interpreting  

3. What is the basic purpose of accounting?  

a. To provide quantitative financial information about economic activities.  b. To provide all
information that users need in making economic decisions.  c. To provide qualitative financial
information about economic activities intended to be useful  in making economic decisions.  
d. To provide quantitative financial information about economic activities intended to be useful  in
making economic decisions.  

4. Accounting provides which type of information?  

a. quantitative  
b. financial information  
c. qualitative  
d. all of these  

5. General purpose financial statements are  

a. those statements that cater to the common and specific needs of a wide range of external
users.  b. those statements that cater to the common needs of a wide range of external users
and internal  users.  
c. those statements that cater to the common needs of a limited range of external
users.  d. those statements that cater to the common needs of a wide range of external
users.  

6. External users are those  

a. who do have the authority to demand financial reports tailored to their specific needs.  b.
who do not have the authority to demand financial reports tailored to their common needs.  c.
who do not have the authority to demand financial reports tailored to their specific needs.  d.
who belong to countries other than the domicile country of the reporting entity  

7. The primary objective of financial reporting is to provide  

a. information about economic resources, claims to these resources, and changes in them. 
b. information useful for investment and credit decisions.  
c. information useful in predicting future cash flows.  
 d. all of these  

8. Which of the following statements is false?  

a. Accountable events are those that have an effect in an entity's assets, liabilities, equity, income 
or expenses.  
b. The term “recognition” as used in accounting refers to the process of incorporating the effects  of
an accountable event in the statement of financial position or the statement of profit or loss   and
other comprehensive income through a memo entry.  
c. External events are those that involve the reporting entity and an external party. 
d. The Board of Accountancy consists of a chairperson and six members.  

9. Which of the following statements is true?  

a. In current practice, accounting provides only quantitative information that is useful in making 
economic decisions.  
b. External users are those who do not have the authority to demand financial reports tailored  to
their specific needs.  
c. Under the stable monetary unit assumption, the owners of the business and the business are 
viewed as a single reporting entity. Therefore, the personal transactions of the owners are  
recorded in the books of accounts.  
d. The practice of accountancy in the Philippines is regulated under R.A. 9892.  

10. Which of the following statements correctly refer to the accounting process?  I. Measuring is the
accounting process of analyzing business activities as to whether or not they  will be recognized in the
books. 
II. Recognition refers to the process of including the effects of an event in the totals of the  statement of
financial position or the statement of profit or loss and other comprehensive  income through
memo entries. 
III. Disclosure of events in the notes to financial statement without including their effect in the   totals of the
statement of financial position or statement of profit or loss and other  comprehensive income is not
an application of the recognition principle. 
IV. An accountable event is an event that has an effect on the assets, liabilities or equity of an  entity and
its effect can be measured reliably. 
V. Sociological and psychological matters are within the scope of accounting.  a. I,
II, III, IV and V  
b. I, II, III and IV  
c. IV  
d. III and IV  

Conceptual Framework for Financial Reporting  

1. The adage “Aanhin mo pa ang damo kung patay na ang kabayo” relates to which of the following 
qualitative characteristics? 
a. Relevance  
b. Timeliness  
c. Faithful representation  
d. Comparability  
2. The Conceptual Framework classifies gains and losses based on whether they are related to an 
entity's major ongoing or central operations. These gains or losses may be classified as  Non-
operating Operating 
a. Yes No  
b. Yes Yes  
c. No Yes  
d. No No  

3. Which of the following is considered a pervasive constraint by the Conceptual Framework?  a.

Cost-benefit relationship  
b. Timeliness  
c. Conservatism  
d. Materiality  

4. According to the Conceptual Framework, predictive value relates to  

 Relevance Faithful representation 
a. Yes Yes  
b. No Yes  
c. Yes No  
d. No No  

5. Information is neutral if it  

a. provides benefits which are at least equal to the costs of its preparation.  
b. can be compared with similar information.  
c. has no impact on a decision maker.  
d. is free from bias toward a predetermined result.  

6. Decision makers vary widely in the types of decisions they make, the methods of decision making  
they employ, the information they already possess or can obtain from other sources, and their   ability
to process information. Consequently, for information to be useful there must be a linkage  between
these users and the decisions they make. This link is  
a. relevance.  
b. reliability.  
c. understandability.  
d. materiality.  

7. 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 of making a difference in a decision. 
c. is understandable by reasonably informed users of accounting information. 
d. is verifiable and neutral.  

8. The quality of information that gives assurance that it is reasonably free of error and bias and 
provides a true, correct and complete depiction of what it purports to represent is  a. relevance.  
b. faithful representation.  
c. verifiability.  
d. neutrality.  
9. When information about two different entities has been prepared and presented in a similar  manner,
the information exhibits the characteristic of  
a. relevance.  
b. reliability.  
c. consistency.  
d. comparability.  

10. A decrease in net assets arising from peripheral or incidental transactions is called a(n)  a.
capital expenditure.  
b. cost.  
c. loss.  
d. expense.  

Presentation of FS  

1. PAS 1 requires an assessment of the entity’s ability to continue as a going concern each time 
financial statements are prepared. Who is responsible in making this assessment?  a. Accountant  
b. Auditor  
c. Management  
d. Government regulatory body  

2. These are the end product of the financial reporting process and the means by which information 
gathered and processed is periodically communicated to users.  
a. Financial reporting  
b. Financial statements  
c. Financial products  
d. Accounting statements  

3. Which of the following is not one of the general features of financial statements under PAS 1?  a.
Fair presentation and compliance with PFRSs  
b. Going Concern  
c. Cash Basis  
d. Materiality and aggregation 
4. Who is responsible for the preparation and the fair presentation of an entity’s financial statements  in
accordance with the PFRSs?  
a. Any accountant  
b. Certified Public Accountant  
c. Auditor  
d. Management  

5. This type of presentation of statement of financial position does not show distinctions between 
current and noncurrent items.  
a. Classified presentation  
b. Unclassified presentation  
c. Non-discriminating presentation  
d. Awesome presentation  
6. In making an economic decision, an investor needs information on the amounts of an entity’s 
economic resources and claims to those resources. That investor would most likely refer to which  of
the following financial statements?  
a. Statement of financial position  
b. Statement of comprehensive income  
c. Statement of cash flows  
d. Statement of changes in equity  

7. Which of the following financial statements would be dated as at a certain date?  a.

Statement of financial position  
b. Statement of profit or loss and other comprehensive income  
c. Statement of cash flows  
d. All of these  

8. Imagine you are a business manager. You would be most awesome as a manager in which of the 
following independent scenarios?  
a. Your company has an average total assets of ₱10M during the year. At the end of the year,   your
company reported profit of ₱1M. The average return of other similar companies with the  same
level of assets is 30%.  
b. Your adoption of accounting policy has led to the immediate recognition of expenses. Those 
costs could have otherwise been allocated over several periods. Accordingly, your company  did
not declare dividends during the period. This resulted to a decline in the market value of   your
company’s stocks while the prices of all other stocks in the stock market have increased.  
c. You changed your company’s method of allocating costs from an accelerated method to a 
straight-line method. The change met the requirements of the PFRSs. This led to the smoothing 
of expenses, which increased your company’s profit during the period by 12%, above the 
industry average.  
d. You are great at closing deals, that’s why you’re a boss. Eager to increase your company’s 
resources, you were able to obtain a ₱20M loan from a bank. Interest expense on the loan 
during the year was ₱3.4M while the return on investments of loan proceeds was 2%. 
9. This comprises all “non-owner changes in equity.” It excludes owner changes in equity, such as 
subscription, issuance, and reacquisition of share capital and declaration of dividends.  a. Other
comprehensive income  
b. Changes in equity  
c. Total comprehensive income  
d. Profit or loss  

10. Materiality judgment is least likely to be applied in which of the following?  a. in determining whether
an item warrants separate presentation in the financial statements or  is to be aggregated with other
items  
b. in determining whether information could influence the decisions of users, and therefore,  must be
presented in the financial statements  
c. in determining whether the cost of processing and communicating information exceeds the 
benefits expected to be derived from it  
d. whether additional information needs to be provided, including the level of detail and  conciseness
of the information’s presentation  

PAS 2- Inventories  
 1. Which of the following is added to the cost of inventories?  
a. Storage costs of part-finished goods  
b. Trade discounts  
c. Refundable purchase taxes  
d. Administrative costs  

2. Which of the following costs are included in the cost of inventories?  

a. Transport costs for raw materials  
b. Abnormal material usage  
c. Storage costs relating to finished goods  
d. Administrative and general overhead  

3. How should trade discounts be dealt with when valuing inventories at the lower of cost and net 
realizable value (NRV) according to PAS 2?  
a. Added to cost  
b. Ignored  
c. Deducted in arriving at NRV  
d. Deducted from cost  

4. The cost of inventory should not include  

I. Purchase price.  
II. Import duties and other taxes.  
III. Abnormal amounts of wasted materials.  
IV. Administrative overhead. 
V. Fixed and variable production overhead.  
VI. Selling costs.  

a. II, III, IV, V  

b. III, IV, VI  
c. I, II  
d. II, III, IV, V, VI  

5. The Coronet Company has a cost card in relation to an item of goods manufactured as follows: 
Materials 70  
Storage costs of finished goods 18  
Delivery to customers (Freight out) 4  
Non-recoverable purchase taxes 6  

According to PAS 2, at what figure should the item be valued in inventory?  

a. 88  
b. 76  
c. 98  
d. 94  

PAS 7- Statement of Cash Flows  

 1. Entity A had the following balances at December 31, 20x1:  
Cash in checking account 35,000  
Cash in 90-day money market account 75,000  
Treasury bill, purchased 12/1/x0, maturing 5/31/x2 150,000  
Treasury bill, purchased 12/1/x1, maturing 2/28/x2 200,000  

How much cash and cash equivalents is reported in Entity A’s December 31, 20x1 statement of 
financial position?  
a. 110,000 c. 310,000  
b. 235,000 d. 460,000  

2. Entity A acquires equipment by issuing shares of stocks. How should Entity A report the  transaction
in the statement of cash flows?  
a. Operating activities  
b. Investing activities  
c. Financing activities  
d. Not reported  

3. Entity A, a financial institution, received cash dividends from its investments in marketable  securities
during the year. How will the dividends be presented in Entity A’s statement of cash  flows?  
a. as investing activity 
b. as operating activity  
c. as financing activity  
d. a or b  

4. Which of the following statements best describes a statement of cash

flows?  a. The statement of cash flows is also called the statement of
activities.  
b. The statement of cash flows shows information on an entity’s assets, liabilities and equity.  c.
The statement of cash flows shows information on an entity’s income and expenses during the 
period.  
d. The statement of cash flows shows historical changes of cash and cash equivalents during the 
period.  

5. Which of the following is presented under the investing activities section of a statement of cash 
flows?  
a. Collection of accounts receivable  
b. Cash purchases of inventories  
c. Purchase of equipment through cash  
d. Issuance of share capital through cash 
1. Accounting has been given various definitions, which of the following is not one of
those definitions *

a. Accounting is a service activity. Its function is to provide quantitative information, primarily financial in
nature, about economic entities that is intended to be useful in making economic decisions.

b. Accounting is the art of recording, classifying, and summarizing in a significant manner and in terms
of money, transactions and events which are, in part of at least, of a financial character and interpreting
the results thereof.

c. Accounting is a systematic process of objectively obtaining and evaluating evidence regarding

assertions about economic actions and events to ascertain the degree of correspondence between
these assertions and established criteria and communicating the results to interested users.

d. Accounting is the process of identifying, measuring, and communicating economic information to

permit informed judgment and decisions by users of information.
2. Which of the following statements is true? *

a. The basic purpose of accounting is to provide information about economic activities intended to be
useful in making economic decisions.

b. All events and transactions of an entity are recognized the books of accounts.

c. General purpose financial statements are those statements that cater to the common and specific
needs of a wide range of external users.

d. The accounting process of assigning numbers, commonly in monetary terms, to the economic
transactions and events is referred to as classifying.
3. It is the branch of accounting that focuses on the general purpose reports of financial
position and operating results known as financial statements. *

a. Financial accounting

b. Auditing

c. Managerial accounting

d. Taxation
4. These are events that do not involve an external party. *

a. external events

b. nonreciprocal

c. internal events

d. special event
5. Entity A computes for its profit or loss periodically instead of waiting until the end of
the life of the business before doing so. This is an application of which of the following
accounting concepts? *

a. historical cost

b. stable monetary unit

c. accrual basis

d. time period
6. This refers to the use of caution in the exercise of judgments needed in making
estimates required under conditions of uncertainty, such that assets or income are not
overstated and liabilities or expenses are not understated. *
 a. faithful representation

b. prudence

c. consistency

d. relevance
7. The most common form of business organization is a *

a. corporation

b. sole proprietorship

c. partnership

d. cooperative
8. *

a. I and V

b. I, II, VI and V

c. I, II, III, IV and V

d. II, VI and V
9. Accounting is often called the "language of business" because *

a. it is easy to understand.

b. it is fundamental to the communication of financial information.

c. all business owners have a good understanding of accounting principles.

d. accountants in many companies share financial information.

10. All of the following statements incorrectly refer to the Conceptual Framework except
*

a. The framework is concerned with all-purpose financial statements including consolidated financial
statements.

b. Financial statements are prepared and presented at least annually and are directed toward the
common and specific information needs of a wide range of users.

c. Prospectuses and computations prepared for taxation purposes are outside the scope of the
framework.

d. Financial statements include such items as reports by directors, statements by the chairman,
discussion and analysis by management and similar items that may be included in an annual report.

e. The framework applies to the financial statements of all commercial, industrial and business reporting
entities, but only for the private sector.
11. What is the objective of financial statements according to the Conceptual
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.
12. *

a. I and III

b. I, II, III, IV, V, VI, VII

 c. I, II, III, IV, V, VI

d. all of these
13. Under the Conceptual Framework, qualitative characteristics are sub-classified into
*

a. primary and secondary qualitative characteristics

b. major and minor qualitative characteristics

c. fundamental and enhancing qualitative characteristics

d. not sub-classified
14. *

a. I and II

b. I and III

c. I, II, III, IV, V and VI

d. IV, V, VI and VII

15. *

a. I and II
 b. I and III

c. II, III, IV, V and VII

d. IV, V, VI and VII

16. *

a. I and II

b. I, II and III

c. I, II and IV

d. I, II, III and IV

17. Under this qualitative characteristic, 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. However, information about complex
matters that should be included in the financial statements because of its relevance to
the economic decision-making needs of users should not be excluded merely on the
grounds that it may be too difficult for certain users to understand. *

a. Relevance

b. Reliability

c. Understandability

d. Comparability
18. Which of the following statements is incorrect concerning materiality? *

a. Materiality can be assessed quantitatively or qualitatively

b. There are no specific materiality thresholds provided under the PFRSs

c. Materiality is a matter of judgment

d. Materiality is a quantitative matter. It should never be assessed qualitatively.

19. The elements of faithful representation do not include *

a. Comparability

b. Neutrality

c. Completeness

d. Free from error

20. The ability through consensus among measurers to ensure that information
represents what it purports to represent is an example of the concept of *

a. Relevance

b. Comparability

c. Verifiability

d. Feedback value
21. The elements directly related to the measurement of performance *

a. income

b. expenses

c. a and b

d. neither a nor b
22. Assets and liabilities are recognized if *

a. they meet the definition of an element.

b. have probable future economic benefits and have cost or value that are measured reliably.

c. a and b

d. neither a nor b
23. Entity A needs guidance in accounting for its inventories. Entity A should refer to
which of the following? *

a. PAS 1

b. PAS 2

c. PAS 7
 d. PAS 8
24. Entity A needs guidance in preparing its statement of changes in equity. Entity A
should refer to which of the following? *

a. PAS 1

b. PAS 2

c. PAS 7

d. PAS 8
25. Which of the following concepts is violated when measuring inventories at the lower
of cost and net realizable value? *

a. The concept that assets shall not be carried at an amount in excess of its recoverable amount.

b. Historical cost concept

c. Prudence or conservatism concept

d. Offsetting concept
26. Which of the following is presented in the activities section of the statement of cash
flows? *

a. Purchase of a treasury bill three months before its maturity date.

b. Exchange differences from translating foreign currency denominated cash flows.

c. Acquisition of equipment through issuance of note payable.

d. Bank overdrafts that can be offset.

27. In the statement of cash flows of a non-financial institution, interest income received
is presented under *

a. operating activities.

b. financing activities.

c. investing activities.

d. a or c
28. An entity makes a change in accounting estimate. How does the entity recognize
the effects of the change in profit or loss? *
 a. Prospectively in the current period

b. Prospectively in the current and future periods

c. Retrospectively starting from the earliest period presented

d. a or b
29. Materiality does not make any difference with regard to *

a. the separate presentation of items in the financial statements.

b. the disclosure of additional information in the notes.

c. intentional errors.

d. level of rounding-off of amounts in the financial statements.

30. Which of the following events is considered as an internal event? *

a. sale of inventory on account

b. provision of capital by owners

c. borrowing of money

d. conversion of raw materials into finished goods

e. payment of liabilities
31. Which of the following events is considered as an external event? *

a. production

b. payment of taxes

c. gifts and charitable contributions

d. provision of capital by owners

e. b, c and d
32. Financial statements are said to be a mixture of fact and opinion. Which of the
following items is factual? *

a. cost of goods sold

b. discount on capital stock

c. retained earnings

d. patent amortization expense

33. Financial reporting standards continuously change primarily in response to *

a. users’ needs.

b. political influence.

c. government regulations.

d. changes in social environments.

34. The cost of purchases of inventory is recognized as expense *

a. immediately.

b. using the matching concept.

c. by systematic allocation.

d. any of these as a matter of accounting policy choice

35. Which of the following is not one of the decisions that primary users make? *

a. deciding on how to run the day-to-day operations of the entity

b. deciding on whether to hold or sell investment in stocks

c. deciding on whether to buy investment in stocks

d. deciding on whether to extend loan to the reporting entity

36. Entity A is making a materiality judgment. Entity A considers an item to be material,
and therefore needs to be disclosed in the notes to the financial statements, if the item
pertains to a related party transaction. What type of materiality assessment is Entity A
using? *

a. quantitative

b. qualitative

c. faithful representation

d. relevance
37. Which of the following financial statements would not be dated as covering a certain
reporting period? *

a. Statement of financial position

b. Statement of profit or loss and other comprehensive income

 c. Statement of cash flows

d. Statement of changes in equity

38. The information provided by financial reporting pertains to *

a. individual business entities and the economy as a whole, rather than to industries or to members of
society as consumers

b. individual business entities, industries and the economy as a whole, rather than to members of
society as consumers

c. individual entities, rather than to industries of the economy as a whole or to members of society as
consumers

d. individual business entities and industries rather than to the economy as a whole or to members of
society as consumers
39. An entity’s financial position or condition refers to which of the following? *

a. The status of the entity’s assets, liabilities and equity.

b. The amount of return that the entity has generated from its economic resources during the period.

c. The level of change in the entity’s economic resources and claims to those resources, also referred
to as the economic phenomena.

d. All of these.
40. Entity A needs guidance in preparing its statement of changes in equity. Entity A
should refer to which of the following? *

a. PAS 1

b. PAS 2

c. PAS 7

d. PAS 8

1. Entity A receives land from the government conditioned that the land will only be
used in Entity A’s primary business activities and should never be sold. If in case,
Entity A decides not to use the land in its primary business activities, it shall return the
land to the government. Which of the following standards is least likely to be relevant
in accounting for the land? *
1/1
a. PAS 2
b. PAS 16
c. PAS 20
d. All of these are relevant

2. The transfer of resources from the government to an entity in exchange for past or
future compliance with certain conditions relating to the operating activities of the
entity is called *
1/1
a. Government grants.
b. Government assistance.
c. Government financial assistance.
d. Government asset transfers.

3. Which of the following is not one of the principal issues in the accounting for PPE? *
1/1
a. Recognition.
b. Initial measurement as asset.
c. Allocation of carrying amount over the period of use.
d. Recognition of carrying amount as expense when the related revenue is recognized.

4. You are a business manager. During the period, you have authorized the
acquisition of a machine that will be used in your company’s manufacturing activities
in the next 5 years. In your selection of an appropriate accounting policy for the
recognition and measurement of the machine, which of the following reporting
standards is most relevant? *
1/1
a. PAS 1
b. PAS 2
c. PAS 16
d. PAS 32

5. According to PAS 10, dividends declared after the reporting period, but before the
financial statements are authorized for issue, are *
1/1
a. recognized as liability at the end of reporting period.
b. not recognized as liability at the end of reporting period.
c. disclosed only as an adjusting event.
d. any of these.
6. Materiality does not make any difference with regard to *
1/1
a. the separate presentation of items in the financial statements.
b. the disclosure of additional information in the notes.
c. intentional errors.
d. level of rounding-off of amounts in the financial statements.

7. An entity makes a change in accounting estimate. How does the entity recognize
the effects of the change in profit or loss? *
1/1
a. Prospectively in the current period
b. Prospectively in the current and future periods
c. Retrospectively starting from the earliest period presented
d. a or b

8. In the statement of cash flows of a non-financial institution, interest income received

is presented under *
1/1
a. operating activities.
b. financing activities.
c. investing activities.
d. a or c

9. Which of the following is presented in the activities section of the statement of cash
flows? *
1/1
a. Purchase of a treasury bill three months before its maturity date.
b. Exchange differences from translating foreign currency denominated cash flows.
c. Acquisition of equipment through issuance of note payable.
d. Bank overdrafts that can be offset.

10. Which of the following concepts is violated when measuring inventories at the
lower of cost and net realizable value? *
1/1
a. The concept that assets shall not be carried at an amount in excess of its recoverable amount.
b. Historical cost concept
c. Prudence or conservatism concept
d. Offsetting concept

11. The information provided by financial reporting pertains to *

1/1
a. individual business entities and the economy as a whole, rather than to industries or to
members of society as consumers
b. individual business entities, industries and the economy as a whole, rather than to members of
society as consumers
c. individual entities, rather than to industries of the economy as a whole or to members of society
as consumers
d. individual business entities and industries rather than to the economy as a whole or to
members of society as consumers

12. Which of the following financial statements would not be dated as covering a
certain reporting period? *
1/1
a. Statement of financial position
b. Statement of profit or loss and other comprehensive income
c. Statement of cash flows
d. Statement of changes in equity

13. According to the Conceptual Framework, the needs of primary users that are met
by financial statements are *
1/1
a. all of their needs
b. all of their common needs only
c. majority of their common needs only
d. substantially a majority of their common and specific needs only

14. Entity A is making a materiality judgment. Entity A considers an item to be

material, and therefore needs to be disclosed in the notes to the financial statements,
if the item pertains to a related party transaction. What type of materiality assessment
is Entity A using? *
1/1
a. quantitative
b. qualitative
c. faithful representation
d. relevance

15. Which of the following is not one of the decisions that primary users make? *
1/1
a. deciding on how to run the day-to-day operations of the entity
b. deciding on whether to hold or sell investment in stocks
c. deciding on whether to buy investment in stocks
d. deciding on whether to extend loan to the reporting entity

16. The cost of purchases of inventory is recognized as expense *

1/1
a. immediately.
b. using the matching concept.
c. by systematic allocation.
d. any of these as a matter of accounting policy choice

17. A secondary objective of financial statements *

1/1
a. is to show information regarding assets and liabilities of an entity
b. is to show information regarding an entity’s financial position, performance, and changes in
financial position
c. is to show the results of the stewardship of management.
d. b and c

18. What is the authoritative status of the Conceptual Framework? *

1/1
a. It has the highest level of authority. In case of a conflict between the Conceptual Framework
and a Standard or Interpretation, the Conceptual Framework overrides the Standard or
Interpretation.
b. If there is a Standard or Interpretation that specifically applies to a transaction, it overrides the
Conceptual Framework. In the absence of a Standard or an Interpretation that specifically
applies, the Conceptual Framework should be followed.
c. If there is a Standard or Interpretation that specifically applies to a transaction, it overrides the
Conceptual Framework. In the absence of a Standard or an Interpretation that specifically applies
to a transaction, management should consider the applicability of the Conceptual Framework in
developing and applying an accounting policy that will result in information that is relevant and
reliable.
d. The Conceptual Framework applies only when IASB develops new or revised Standards. An
entity is never required to consider the Conceptual Framework.

19. It is the official accounting standard setting body in the Philippines. It is composed
of a chairperson and 14 members. *
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a. Financial Reporting Standards Committee (FRSC)
b. Financial Reporting Standards Council (FRSC)
c. Accounting Standards Committee (ASC)
d. Accounting Standards Council (ASC)

20. The PFRSs consist of all of the following except *

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a. PFRSs.
b. PASs.
c. Interpretations.
d. Conceptual Framework.

21. *
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a. I and V
b. I, II, VI and V
c. I, II, III, IV and V
d. II, VI and V

22. This concept defines the area of interest of the accountant. It determines which
transactions are recognized in the books of accounts and which are not. *
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a. Articulation
b. Matching
c. Separate entity
d. Full disclosure

23. This refers to the use of caution in the exercise of judgments needed in making
estimates required under conditions of uncertainty, such that assets or income are not
overstated and liabilities or expenses are not understated. *
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a. faithful representation
b. prudence
c. consistency
d. relevance

24. Which of the following statements is incorrect regarding the basic accounting
concepts? *
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a. One of ABC Co.’s delivery trucks was involved in an accident. Although no lawsuits have yet
been filed against ABC, ABC recognized a liability for the probable loss on the event. This is an
application of the prudence or conservatism concept.
b. Under the consistency concept, the financial statements should be prepared on the basis of
accounting principles which are followed consistently.
c. Under the entity theory, the business is viewed as a separate entity. Therefore, the personal
transactions of the business owners are not recorded in the business’ accounting records.
d. The time period concept means that financial statements are prepared only at the end of the
life of a business.

25. Grants are normally recognized at *

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a. current value.
b. market value.
c. fair value.
d. net realizable value.

26. In accounting parlance, depreciation means *

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a. the decline in the value of an asset during the period.
b. the amount derived by dividing the cost of an asset over its useful life.
c. the amount derived by multiplying the cost of an asset by its useful life.
d. the systematic allocation of the depreciable amount of an asset over its useful life.

27. Entity A exchanges its equipment for the equipment owned by Entity B. If the
exchange has commercial substance, Entity A should measure the equipment
received from Entity B on initial recognition at *
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a. the fair value of the equipment received.
b. the fair value of the equipment given up.
c. the carrying amount of the equipment received.
d. the carrying amount of the equipment given up.

28. A change in depreciation method, estimate of useful life or residual value is

accounted for as a *
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a. change in accounting policy
b. correction or error
c. change in accounting estimate
d. any of these

29. Which of the following is not considered an item of PPE? *

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a. land classified as investment property
b. land used in agricultural activity by a farming entity
c. equipment manufactured or acquired primarily to be held for rentals
d. all of these
30. According to PAS 10, this is the date when management authorizes the financial
statements for issue regardless of whether such authorization is final or subject to
further approval. *
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a. Date of authorization of the financial statements
b. Date of declaration
c. Date of events after the reporting period
d. Adjustment date

31. Which of the following is added to the cost of inventories? *

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a. Cost of wasted material due to production inefficiencies
b. Import duties on shipping of inventory inwards
c. Storage costs of finished goods
d. Trade discounts received on the purchase of inventory

32. Reporting entities commonly place the sentence “See notes to the financial
statements” or “See accompanying notes to the financial statements” or a similar
sentence on the face of the financial statements. This practice is most in keeping with
what accounting concept? *
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a. Articulation
b. Materiality
c. Separate entity
d. Full disclosure

33. Choose the correct statement *

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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 the information are external decision makers.

34. *
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a. I and II
b. I, II and III
c. I, II and IV
d. I, II, III and IV

35. Which of the following transactions results to the recognition of an asset? *

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a. An entity forecasts a purchase of inventory in the coming month. The purchase is highly
probable.
b. An entity enters into firm commitment to purchase inventory in the coming month. The entity
cannot cancel the commitment without paying a penalty. The contract is not onerous.
c. During the period, one of the buildings of an entity was destroyed by a calamity.
d. An entity receives a non-monetary grant from the government.

36. 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. *
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a. Predictive Value
b. Reliability
c. Relevance
d. Understandability

37. The elements related to relevance do not include *

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a. Predictive value
b. Materiality
c. Feedback or Confirmatory value
d. Timeliness

38. Which of the following is correct regarding asset recognition? *

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a. Items that do not meet all the requirements for recognition are always ignored.
b. Before an entity recognizes an item as an asset, the item must be owned by the entity.
c. Physical form is necessary for an item to be recognized as an asset.
d. Costs are recognized as assets if they meet the definition of an asset as well as the recognition
criteria of “probable future economic benefits” and “reliable measurement of cost or other value.”
39. You are the accountant of Entity X. The board of directors asked you for an advice
because they feel like the company’s financial statements do not properly reflect the
company’s financial position. The board noted out that the company’s properties (i.e.,
land) are absurdly stated at their historical cost. The properties were acquired 50
years ago and the market prices of the properties have more than tripled since then. In
providing your professional advice, you will most certainly quote the provisions of
which of the following standards? *
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a. PAS 7
b. PAS 33
c. PAS 16
d. All of these

40. The amount at which an asset is recorded in the books of accounts minus any
accumulated depreciation and accumulated impairment losses is referred to as *
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a. fair value.
b. cost.
c. carrying amount.
d. amortized cost.

41. This type of difference will give rise to deferred tax asset. *
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a. Taxable temporary difference
b. Permanent difference
c. Deductible temporary difference
d. No difference

42. These are differences that do not have future tax consequences. *
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a. Permanent differences
b. Taxable differences
c. Temporary differences
d. Deductible differences

43. When it is difficult to distinguish a change in accounting policy from a change in

accounting estimate, the change is treated as *
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a. a change in an accounting estimate.
b. a change in an accounting policy.
c. a correction of prior period error.
d. not accounted for.
44. Interest expense that is paid in cash is presented in the statement of cash flows
under *
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a. operating activities.
b. investing activities
c. financing activities
d. a or c

45. Which of the following cost formulas is not allowed under PAS 2? *
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a. FIFO
b. Weighted average
c. Specific identification
d. LIFO

46. Which of the following may be included in the cost of inventories? *

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a. Storage costs of part-finished goods
b. Abnormal amount of wasted costs of materials, labor and factory overhead
c. Recoverable purchase taxes
d. Administrative costs

47. A complete set of financial statements does not include a *

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a. statement of financial position
b. statement of comprehensive income
c. statement of retained earnings
d. notes

48. *
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a. I
b. II
c. I and II
d. None
49. Accounting has been given various definitions, which of the following is not one of
those definitions *
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a. Accounting is a service activity. Its function is to provide quantitative information, primarily
financial in nature, about economic entities that is intended to be useful in making economic
decisions.
b. Accounting is the art of recording, classifying, and summarizing in a significant manner and in
terms of money, transactions and events which are, in part of at least, of a financial character and
interpreting the results thereof.
c. Accounting is a systematic process of objectively obtaining and evaluating evidence regarding
assertions about economic actions and events to ascertain the degree of correspondence
between these assertions and established criteria and communicating the results to interested
users.
d. Accounting is the process of identifying, measuring, and communicating economic information
to permit informed judgment and decisions by users of information.

50. The PFRS do not apply to *

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a. sole proprietorships.
b. partnerships.
c. cooperatives.
d. non-profit organizations.
e. The PFRS apply to all of these entities.

CLAIM IT!