CONCEPTUAL FRAMEWORKS AND ACCOUNTING STANDARDS - REVIEWER

BACHELOR OF SCIENCE IN ACCOUNTANCY 2-1

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES – TAGUIG
PROF. U.C. VALLADOLID
MODULE 3 – BASIS FOR THE PREPARATION OF FINANCIAL STATEMENTS
THEORIES

1. An entity shall classify a liability as current under all of the following conditions, except
A. The entity expects to settle the liability within the entity's normal operating cycle.
B. The entity holds the liability primarily for the purpose of trading.
C. The liability is due to be settled within twelve months after the reporting period.
D. The entity has an unconditional right after settlement of the liability for at least twelve months after
the reporting period

2. Conceptually, asset valuation accounts are

A. Assets
B. Neither Assets nor liabilities
C. Part of shareholders' equity
D. Liabilities

3. What is the new term to describe the statement of profit or loss together with the statement
showing other comprehensive income?
A. Income statement
B. Statement of Profit or Loss
C. Statement of other comprehensive income
D. Statement of financial performance

4. Which principle best describes the rationale for matching distribution costs and administrative
expenses with revenue of the current period?
A. Direct matching
B. Systematic and rational allocation
C. Immediate Recognition
D. Partial Recognition

5. Technically, offsetting in financial Statements is accomplished when

A. The allowance for doubtful accounts is deducted from accounts Receivable
B. The accumulated depreciation is deducted from property, plant and equipment
C. The total liabilities are deducted from total assets.
D. Gain or loss from disposal of noncurrent assets is reported by deducting from the proceeds the
carrying amount of the asset and the related disposal cost.

6. The effects of transactions and other events on economic resources and claims are depicted in the
periods in which those effects occur even if the resulting cash receipts and payments occur in a different
period
A. Accrual accounting
B. Cash Accounting
C. Modified Accrual Accounting
D. Modified Cash Accounting

7. A third statement of financial position as at beginning of the earliest comparative period presented is
required
A. When an entity applies an accounting policy retrospectively
B. When an entity makes a retrospective restatement of items in the financial statements
C. When an entity reclassifies items in the financial statements
D. Under all of these circumstances

8. Which Statement indicates going concern

A. Management intends to liquidate the entity
B. Management intends to cease the operations of the entity
C. Management has no realistic alternative but to cease the operations of the entity
D. None of these would indicate going concern

9. Materiality depends on
A. the nature of the omission or misstatement
B. the absolute size of the omission or misstatement
C. the relative size and nature of the omission
D. The judgement of management of the management

10. The presentation and classification of items in the financial statements shall be retained from one
accounting period to the next

A. Consistency of Presentation
B. Materiality
C. Aggregation
D. Comparability

11. The deferred tax Expense

A. Decrease in the DTA minus the increase in DTL
B. Increase in the DTA plus the increase in DTL
C. Increase in the DTA minus increase in DTL
D. Increase in the DTL minus Increase in DTL

12.According to PAS 12, deferred tax assets and liabilities should be reported in the balance sheet
A. As non-current asset and non-current liability’
B. always net non-current asset or net non-current liability
C. As current and non-current depending on the order of liquidity or maturity
D. As current and non-current assets and liabilities depending on the balance sheet classification
of the related tax basis of the temporary difference

13. Current assets should never include

A. A receivable not collectible within one year
B. Current tas asset
C. Goodwill arising in a business combination
D. Bond investment

14. Which of the following is not a noncurrent investment?

A. Cash surrender value of life insurance policy
B. Franchise
C. Land held for speculation
D. A sinking fund

15. The operating cycle is measured at

A. The mean value
B. The median value
C. Twelve months
D. Three years

16. What is the objective of financial statements?

A. To provide information about the financial position, financial performance and changes in
financial position of an entity that is useful to a wide range of users in making economic decisions.
B. To present a statement of financial position and a statement of comprehensive income.
C. To present relevant, reliable, comparable, and understandable information to investors.
D. To present financial statements in accordance with all applicable standards.

17. It is the total of income less expenses, excluding the components of other comprehensive
income.
A. Comprehensive income
B. Profit or loss
C. accounting income
D. Economic income

18. The two statement approach of presenting comprehensive income is preparing

A. A comparative statement of comprehensive income
B. A combined statement of comprehensive income and retained earnings
C. A combined income statement and a statement of changes in equity
D. A separate income statement and a separate statement of comprehensive income

19. Which one of the following statements best describes the term ‘liability’?
A. An excess of equity over current asset
B. Resources to meet financial commitments as they fall due
C. The residual interest in the assets of the entity after deducting all its liability
D. A present obligation of the entity arising from past events.

20. Are the following statements regarding the term ‘profit’ true or false?

Statement 1: Profit is any amount over and above that required to maintain the capital at the beginning of
the period.
Statement 2: Profit is the residual amount that remains after expenses have been deducted from income
A. Statement 1: False, Statement 2: False
B. Statement 1: False, Statement 2: True
C. Statement 1: True, Statement 2: False
D. Statement 1: True, Statement 2: True

21. When preparing financial statements, management shall make an assessment of an entity’s ability to
continue as a going concern. An entity shall prepare financial statements on a going concern basis unless

Statement I: Management intends to liquidate the entity

Statement II: Management intends to cease operations of the entity
Statement III: Management has no realistic alternative but to cease operations of the entity
Statement IV: There are material uncertainties

A. I, II or III
B. II, III or IV
C. I, II, III or IV
D. I or II

22. Which one of the following terms best describes the relationship of the asset, liabilities and equity of
an entity?
A. Financial Performance
B. Financial Position
C. Future economic benefit
D. Obligation

23. The notes to financial statements should do the following except:

A. present information about the basis of preparation of the financial statements and the
specific accounting policies used
B. disclose any information required by PFRSs that is not presented elsewhere in the
financial statements
C. provide additional information that is not presented elsewhere in the financial statements but
is relevant to an understanding of any of them
D. present in a non-systematic manner and cross-referenced from the face of the financial
statements to the relevant note.

24. The following are the general features of Financial Statements except:
A. Going Concern
B. Accrual Basis of Accounting
C. Fair presentation and non compliance with PFRs
D. Offsetting

25. The primary difference between accrual-basis and cash-basis accounting is:
A. The timing of when revenues and expenses are recorded.
B. Cash-basis accounting is allowed for financial reporting purposes but not accrual-basis accounting.
C. Adjusting entries is only a necessary part of cash-basis accounting.
D. Accrual-basis accounting violates both the revenue recognition and matching principles.

26. The basis for classifying assets as current or noncurrent is realization within
A. the accounting cycle or one year, whichever is longer.
B. the accounting cycle or one year, whichever is shorter.
C. the operating cycle or one year, whichever is shorter.
D. the operating cycle or one year, whichever is longer.

27. The fair value for an asset or liability is defined as

A. The appraised value of the asset or liability
B. The price that would be paid to acquire the asset or received to assume the liability in an
orderly transaction between market participants
C. The price that would be received when selling an asset or paid when transferring a liability in
an orderly transaction between market participants
D. The cost of the asset less any accumulated depreciation or the carrying value of the liability on
the date of the sale

28. Where in its financial statements should a company disclose information about its concentration of
credit risks?
A. No disclosure is required
B. The notes to the financial statements.
C. Supplementary information to the financial statements.
D. Management's report to shareholders.

29. According to the FASB conceptual framework, comprehensive income includes which of the following?
A. Loss on discontinued operations
B. Investment by owners
C. Both loss on discontinued operations and investment by owners
D. Neither loss on discontinued operations nor investment by owners

30. An entity shall classify an asset as current under all of the following conditions, except
A. The entity excepts to realize the assets or intends to sell or consume it within the entity ‘s normal
operating cycle.
B. The entity holds the asset for the purpose of trading
C. The entity excepts to realize the assets within twelve months after the reporting period
D. The assets is cash or a cash equivalent that is restricted to settle a liability for more than
twelve months after the reporting period

31. Simply defined as an identifiable non-monetary asset without physical substance.

A. Tangible assets
B. Intangible assets
C. Nonccurent assets
D. Current assets

32. Net Income equals

A. Revenue minus cost of goods sold
B. Cash receipts minus cash payments
C. Assets minus liabilities
D. Revenue minus expenses
33. It is change in equity during a period resulting from transactions and other events, other than
those changes resulting from transactions with owners in their capacity as owners.
A. Profit or loss
B. Other comprehensive Income
C. Comprehensive Income
D. Share Capital

34. What is an example of an item which is NOT an element of working capital?

A. Goodwill
B. Accrued interest receivable
C. Trading investment
D. Goods in process

35. It comprises items of income and expense, including reclassification adjustments, that are not
recognized in profit or loss as required or permitted by IFRS.
A. Retained income
B. Profit or loss
C. Other comprehensive income
D. Comprehensive income

36. Under PAS 1, an entity shall present a complete set of financial statements
A. on as-needed basis, with or without comparative information
B. including comparative information at least annually.
C. at least annually, with or without comparative information
D. at least every three years when there are limited users.

37. The current assets section of the statement of financial position should include
A. patents
B. inventory
C. machinery
D. goodwill

38. The financial statement element that is defined as increases in economic, benefits during the
accounting period in the form of inflows or enhancements' of assets or decreases of liabilities that result
in increases in equity, other than those relating to contributions from equity participants, is:
A. Revenue
B. Gains
C. Asset
D. Income

39. Which of the financial statements should present operating, investing and financing activities of
a company?
A. Statement of cash flows
B. Statement of financial position
C. Statement of changes in equity
D. Statement of comprehensive income
40. All of the following statements correctly refer to PAS 1 Presentation of Financial Statements, except
A. The application of PFRSs, with additional disclosure when necessary, is presumed to result in
financial statements that achieve a fair presentation.
B. PAS 1 shall be applied to special-purpose financial statements prepared and presented
in accordance with Philippine Financial Reporting Standards (PFRSs).
C. Inappropriate accounting policies are not rectified either by disclosure of the accounting
policies used or by notes or explanatory material.
D. The objective of this Standard is to prescribe the basis for presentation of general purpose
financial statements, to ensure comparability both with the entity’s financial statements of previous periods
and with the financial statements of other entities.

41. Which is not correct?

A. an entity whose financial statement comply with PFRSs is presumed to have compliance and is not
required to make an explicit and unreserved statement of such compliance
B. omission or misstatement of an item is material if they could individually or collectively,
influence the decision of users taken on the basis of the financial statements
C. inappropriate accounting policies are not rectified by disclosures of the accounting policies used
or by notes or explanatory materials
D. the application of PFRSs, with additional disclosure when necessary, is presumed to result
in financial statement that achieve fair presentation

42. Which of the following financial statements is concerned with the entity at a point in time?
A. Statement of Financial Position
B. Statement of Comprehensive Income
C. Statement of Cash flows
D. Income Statement

43. Which of the following would not represent cash inflow nor outflow?
A. Share dividends declared and issued
B. Ordinary shares issued
C. A purchase of treasury shares
D. Cash dividend paid

44. Transactions of a company involving external sources of funding are referred to as:
A. External activities.
B. Investing activities.
C. Financing activities.
D. Operating activities.
Answer Key:

1. D
2. B
3. D
4. C
5. D
6. A
7. D
8. D
9. C
10. A
11. C
12. A
13. C
14. C
15. C
16. A
17. B
18. D
19. D
20. D
21. A
22. B
23. D
24. C
25. A
26. D
27. C
28. B
29. A
30. D
31. B
32. D
33. C
34. A
35. C
36. B
37. B
38. D
39. A
40. B
41. A
42. A
43. A
44. C