QUESTION 2-7 JON 2-9 Multiple choice (IFRS) What are the limitations of financial reporting? Aioh statement is not true about the Conceptual jmework for Financial Reporting? ‘The Conceptual Framework is an IFRS. ANSWER 2-7 aus «Conceptual Framework describes the concepts provide all aPans financial reporia do not and casi Foner Bee the sequirements of the IFRS Lire leer eee arenas ool oe : rs need. thing in the Conceptual Framework overrides any i ic IFRS. Which is a purpose of the Conceptual Framework? assist the IASB to develop IFRS. ) assist preparers to develop accounting policy when » Standard applies to a particular transaction. ") assist all parties to understand and interpret IFRS i All'of these can be eonsidered a purpose of the To a large extent, onceptual Framework. , general purpose financial based on estimate and jud a ebors ae J) Which is not a purpose of the Conceptual Framework? ah Heh cetecteereme Mo assist users of financial statements in interpreting QUESTION 2-8 the Standards. b. To assist pre varers of financial statements in applying the Standards. i ¢. To assist preparers of financial statements in developing an accounting policy when a Standard ‘allows an accounting policy choice. 4. ‘Tovassist the Board of Accountancy in promulgating rules and regulations affecting the accountancy profession. 4..A Conceptual Framework should a. Lead to uniformity of financial statements b. Eliminate alternative accounting principles ¢. Guide multinational entities in developing GAAP. ! i. Define the basic terms and concepts of accounting. 5. Which is not a purpose of the Conceptual Framework? ‘a. To provide definitions of key terms and concepts, b. To provide specific guidelines for resolving situations not covered by existing accounting standards. c. To assist accountants in selecting among alternative accounting and reporting methods. 4. To assist IASB in the standard-setting process b. General purpose financial re in ports are not desi fe alee ‘an entity but these reports ross horn fo help the primary users estimate the value of the entity. ¢. General purpose finan rovide P icial reports are intended to provi common information to users and cannot accommodate request for information. = Explain mana; gement ste a EaaneeS wardship of the entity's economic ANSWER 2-8 Financial reporting provides information not only about entity ut also manage: 1 management stewardship. #eme™ Performance on. Information about how eff u :efficientlyand effeetivel has discharged is respensibties to use the entity's economia s helps users t¢ i resources helps 0 assess management stewardship of Sut infomation is also useful for predicting how ma gement will use the entity's economic resou ure periods. sl Hence, the information cat a in be i "* prospects for future net cash tet Ce 18 aRec ee ee QUESTION 2-11 Multiple choice (IAA) I Reporting, n the Conceptual Framework for Financial ¥ What provides the “why” of accounting? ‘ent and recognition concept ih Quatftative characteristic of accounting information " [lement of financial statement l, Objective of financial reporting a. The Conceptual Framework has the highest level b. In the absence of a standard or an interpretation thi specifically applies to a transaction, the Concept Frameton shall be followed. c. In the absence of a standard or an interpretation that specifically applies to a transaction, management shall consider the applicability of the Conceptual Framework in developing and applying an accounting policy that resulte in information that is relevant and teliable, d. The Conceptual Framework applies only when the IASB develops new standards. 2. The Conceptual Framework is intended to establish a. GAAP in financial reporting. b. The meaning of "present fairly:in accordance with GAAP", c. The objectives and concepts for use in developing standards of financial accounting and reporting, 4. The hierarchy of sources of GAAP. 8. Which is not of purpose of a Conceptual Framework? a. To enable the accountancy profession to solve more. wwickly emerging practical problems b. To provide a foundation from which to build more useful financial accounting standards ¢. To enhance comparability of financial statements across entities d. To assist regulatory agencies in issuing rules and regulations for a particular industry 4, Which statement is not true concerning the Conceptual Framework? a. The Conceptual Framework should be a basis for standard setting. b. The Conceptual Framework should allow practical problems to be solved more quickly. ‘he Conceptual Framework should be based on fundamental truth derived from law. d. The Conceptual Framework should increase users’ understanding and confidence in financial reporting. §, The underlying theme of the Conceptual Framework is Decision usefulness Understandability ‘Timeliness Comparability werall objective of financial reporting is to provide formation is useful for decision making . About assets, Liabilities and equity of an entity ¢ : ‘al performance during a period. {That allows owners to aasess management pecformance. ich is an objective of financial reporting? To provide information that is useful in making inv and credit decisions. To provide information that is useful to management, ‘To provide information about the potential users. ‘To provide information about ways to solve intern external conflicts about the entity. sporting? 5. Which is an objective of financial ‘To provide information that is useful to management ‘king decisions. f }, To provide information that clearly portrays nancial transactions. Crpmuvide information that is useful to assess the mount, timing, and uncertainty of prospective cash ceipts 5 4. To provide information that excludes claims against the resources. ©,6. The objectives of financial reporting are based on a. The need for conservatism b. Reporting on management stewardship ¢. Generally accepted accounting principles d. The needs of the users of the information 7. The primary focus of financial reporti P ting hi meeting the needs of which of the following groups? a Management . Investors, lenders and other credit ¢. National taxing authorities a. Independent CPAs 8. The primary objective of i i Tesarimary objective of financial reporting is to provide a. Management b. Capital providers ¢. Regulatory body d. Government 9. An objective of financial reporting is to provide a. Information about the investors i i in the ent b. Information about the liquidation value. c. Information useful in assessing cash flow prospects, d. Information that will attract new investors. 10. Assessing cash flow prospects is interpreted to mean a. Cash basis accounting is preferred i is over accrual basis. b. Information about cash receipts and payments is generally the best indicator to generate favorable cash c. Over the long run, trends in re\ , venue and expe are generally more meaningful than trends in cash a. iggeipts and disbursements. of the choices are correct re aL be sh garding assessing cash QUESTION 2-12 Multiple choice (AICPA Adapted) 1. Financial reporting pertains to Individual business entities, rather than to industries or an economy as a whole or to members of society as ‘consumers b, Individual business entities and an economy as a whole or to members of society as consumers ©. Individual business entities and an economy as a whole, rather than to industries or to members of Society as consumers ‘ 4. Individual business entities, industries, an economy asa whole and members of society as consumers 2, During a period when an entity is under the direction of a particular management, financial reporting will directly provide information about ‘a. Both entity performance and management performance b. Management performance but not entity performance ¢. Entity performance but not management performance d. Neither entity performance nor management performance. 4, Which is not true abount financial reporting? a, Financial reporting shall provide information about entity resources, claims against those resources and changes in them. b. Financial reporting shall not provide information useful in evaluating management stewardship. ¢. Financial reporting shall provide information useful in investment, credit and similar decisions. d. Financial reporting shall provide information useful in essessing cash flow prospects. 4, Which is not an objective of financial reporting? a, To provide information about assets and claims against those assets b. ‘To provide information useful in assessing sources and uses of cash ©. To provide information useful in lending and investing decisions . To provide information about liquidation value of an entity a.QUESTION 3-27 Multiple choice (IAA) j quality of information that gives, assurance 7 onably free from error and bias? 1. What are qualitative characteristics of financial stateménts? Rolevance Vaithful representation a. Qualitative characteristics are the attributes that Vorifiability make the information provided in financial statements | Neutrality useful to users. aio b. Qualitative characteristics are broad classes of eh is the best deseription of faithful represent financial effects of transactions and other events. i) felation to information in financial ©. Qualitative characteristics are nonqualitative aspects fluence on the economic decision of users Juision of a degree of caution from material error prehensibility to users of financial position and financial performance. t d. Qualitative characteristics measure the extent to which an entity has complied with all relevant standards and interpretations. jeve faithful representation, the financial nents 2. Qualitative characteristics a. Are considered either fundamental or enhancing. b. Contribute to the decision-usefulness of financial reporting information. ¢. Distinguish better information from inferior information for decision-making purposes. d. All of the choices are correct, a t have predictive and confirmatory vaue. {) Must be compiote, neutral and free from error | Are understandable, comparable, verifiable an timels {Must possess all of these. ‘ho financial accounting information is directed toward the 3. The fundamental quolitative characteristics are Bfmon needs of users. a. Relevance and faithful representation b. Relevance, faithful representation and materiality Beery ©. Relevance and reliability Neutrality 4. Faithful representation and materiality Completeness 4. Accounting information is considered relevant when it he economic substanee of a transaction shall prevail over al form. a. Can be depended upon 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. d. Is verifiable and neutral. orm over substance ubstance over form @, Relevance d, Completeness 5. The ingredients of relevant financial information are j Predictive value and confirmatory value Predictive value, confirmatory value and timeliness Predictive value, confirmatory value and materiality Predictive value, confirmatory value and timeliness nese 38QUESTION 3-28 Multiple choice (IAA) (An entity issuing the annual financial reports within one inonth at the end of reporting period is an example of 1. The enhancing qualitative characteristics of financial Which enhaneing quality of accounting information? information are a. Comparability and understandability a. Neutrality b. Verifiability and timeliness b, Timeliness ¢. Comparability, understandability and verifiability % Predictive value 4 Comparability, understandability, verifiability and , Representational faithfulness imeliness | 7, Allowing entities to estimate rather than physically count 2. Financial information exhibits consistency when 4 inventory at an interim period is an example of a tradeoff hotween. . Verifiability and comparability W) Timehiness and comparability ‘Timeliness and verifiability 4, Neutrality and consistency {i Which qualitative characteristic of financial information quires that information should not be biased in favor ‘of one group of users to the detriment of others? a. Accounting procedures are adopted which smooth net. income and make results consistent between years. b. Gains and losses are shown separately. c. Accounting entities give similar events the same accounting treatment each period. d. Expenditures are reported as expenses. 3. When information about two different entities engaged in the same industry has been prepared and presented in similar manner, the information exhibits the enhancing qualitative characteristic of 4. Relevance b, Free from error © Completeness 4. Neutrality a. Relevance b. Faithful representation ec. Consistenc or information to be more useful, the linkage between a. Comparability the users and the decisions made is 4 Relevance b, Faithful reprosentation Understandability Verifiability ich statement is true in relation to the enhancing ve characteristic of understandability” Users have a reasonable knowledge of business and omic activities and review the information with ‘onable diligence. ‘i 4 rs are expected to have significant business knowledge. Financial statements shall exclude complex matters. 4, Financial statements shall be free from material error. 4. The characteristic that is demonstrated when a high degree of consensus can be secured among independent. measurers using the same measurement method is a. Relevance b. Understandability ¢. Verifiability d. Neutrality 5. Which. concept of accounting holds that, to the maximum extent possible, financial statements shall be based on. arm's length transactions? q Revenue realization Verifiability Monetary unit Matching Boge aQUESTION 3-29 Multiple choice (IAA) L . Which of the following terms best describes inform: |. According to the Conceptual Framework, predictive valt What is meant by comparability when discussing {nancial accounting information? | Information has predictive and confirmatory value. fy Information is reasonably free from error. { Information is measured and reported in a similar faghion across entities. 11 Information is timely. The overriding qualitative characteristic of account information is Relevance Understandability Faithful representation : a, b. e d. Decision usefulness What is meant by consistency when discussing financial ounting information? Information is measured and reported in a similar fashibn across points in time. formation is timely. that influences the economic decisions of users? b ee | Information is measured similarly across the industry. ©, Relevant {\. Information is verifiable. Which of the following is not an enhancing qualitative vharacteristic? Understandability | Profit-oriented a. Faithful representation “} ‘Timeliness _ b. Materiality 4. Comparability ¢. Comparability d. Relevance d. Understandable What is the quality of information that enables users better forecast future operations? Changing the method of inventory valuation should be yoported under what quality of information? Understandability and confirmatory value are ingredients of 4 fal RMlsvaee: i Comparability b. Faithful representation c. Understandability d. Comparability ically, when an entity applies the same accounting {roatment to similar events from period to period, the ontity is exhibiting which quality? Verifiability Consistency Predictive value Comparability Which term best describes information in finanei statements that is unbiased? Understandable q Comparable Relevant Neutral q poseifferent accountants independently agree on the Mintand method of reporting an economic event, what 1. When there is agreement between a measure or ‘ihe concept demonstrated? description and the phenomenon it purports to represent i the information: possesses which characteristic? Hinbitity ‘omparability ‘ompleteness a. Verifiability b. Predictive value Vorifiability c. Faithful representation d. Timeliness QUESTION 3-30 Multiple choice (IAA) yifigbility implies Loyal evidence Logic nvensus | Logal verdict 2. The qualitative characteristic of faithful representatior includes a. Predictive value b. Neutrality ¢. Confirmatory value d. Timeliness i srly financial Won an entity has started placing its quarterly ements on its web page, thereby reducing by ten days lime to get information to investors and creditors, W@ qualitative concept involved is 3. Enhancing qualitative characteristics of accounting information include all of the following, except mparability a. Timeliness Timeliness i b. Materiality Waithful representation ¢. Comparability a a. Verifiablity Jhon an entity changed the inventory valuation method, hich characteristic is jeopardized by this change? Comparability Representational faithfulness Consistency eedback value 4. The enhancing quality of understandability means that information should be understood by a. Those who are experts in the interpretation of financial information b. Those who have a reasonable understanding of business and economic activities ¢. Financial analysts d. CPAs ing expected loss immediately but deferring d gain is an example of riality servatism Cost effectiveness ‘Timeliness 5. Enchancing qualitative characteristics of accounting information include Relevance and comparability Comparability and timeliness Understandability and relevance Neutrality and comparability pose 4QUESTION 3-81 Multiple choice (AICPA Adapted) L perp . Which of the following accounting concepts states . The principle of objectivity includes the concept of sistency standard requires that i a. ‘The ability through consensus among measurers to ensi nnges should be reported when incurre that information represents what it purports to repre: } effect of accounting changes upon income should le of y operly disclosed. pane eta cm os al ioanes, should not be recognized. ‘Acvounting procedures should be adopted when the ‘yoault is a consistent rate of return. a. Relevance b. Verifiability c. Comparability d. Feedback value of the following relates to both relevance and \Wiful representation? an accounting transaction shall be supported by sufi | Comparability evidence to allow two or more qualified individuals back value arrive at essentially similar conclusion? q uutrality | Viree from error Which violates the concept of faithful representation? Financial statements were issued nine months late. pected risks are not reported. i hperty, plant and equipment with carrying amount creased to management estimate of market value fanagement reports regularly refer to new projects. a, Conservatism b. Objectivity e. Periodicity d. Stable monetary unit Objectivity is assumed to be achieved when a transacti Is recorded in a fixed amount of pesos Involves the payment or receipt of cash gta Gla Involves an arm’s length transaction between t What is the underlying concept governing the independent parties jortaining to recording gain contingencies? 4. Allocates revenue and expenses in a rational al systematic manner eae Conservatism Relevance sistency ability a. Summarization iding information in financial ‘The usefulness of providing informa 3 Gaeta huatements is subject to the constraint of d. Verifiability Proponents of historical cost maintain that statement or ds ability Prepared using historical cost are more resentational faithfulness Objective Relevant Indicative of purchasing power Conservative arQUESTION 3-32 Multiple choice (LAA) 1. Which statement about materiality is not true? a. An item must make a difference or it need not uncial statements and reporting entity isclose Bs b. Materiality is a matter of relative size or importa lerlying assumptions ¢. An item is material if the inclusion or omission wot influence the judgment of a primary user. ‘The relevance of information is not affected by nature and materiality. a 2. An item would be considered material when WR 4-1 a. The expected benefits exceed additional costs. ferb 4 B. ‘The impact on earnings is greater than 10%. ieial statements provide information se ¢. The standard definition of materiality is met. rte ofthe reporting entity, claims agains d. The omission or misstatement would make in the economic resources and claims. siftersties fo the’ primary: Uses: words, financial statements provide financial bout an entity's assets, liabilities, equity, income 3. The Conceptual Framework includes which constraint a. Prudence 4 Bb. Conservatism Sost i d./ANl of thd ‘chotowe as eamtecics -ypes of financial statements under the Revised gptual Framework. 4. Which best describes the cost-benefit constraint? BR 4-2 a. The benefit of the information must be greater tha Rovised Conceptual Framework recognizes three types the cost of providing it. \ ere b. Financial information should be free from cost. ‘ eee ©. Cost of providing financial information is not always solidated financial statements are the finane evident or measurable but must be considered. §latements prepared when the reporting entity comprises 4. The evaluation of cost constraint is not a judgmental. Hoth the parent and its subsidiaries. process. i financial Unconsolidated financial statements are the rorvestc vecpared’ when: the reporting entity in the purent alone. Jombined financial statements are the financial i ises two or Jatoments when the reporting entity comprises fuore entities that are not linked by a parent and gubsidiary relationship. 5. Conservatism is selecting an accounting alternative that. a. Undorstates assets and net income b. Has the least favorable impact on equity c. Overstates liabilities d. Is least likely to mislead users of financial informationQUESTION 4-12 Multiple choice (Conceptual Framet 1. What is the general objective of financial statements? i 2 a. To provide information about economic resources: wh best describes the term going concern’ an entity, claims against the entity and changes. the economic resources and claims. {ION 4-18 Multiple choice (IAA) Whon current liabilities exceed current assets b. To assess future cash flows to the entity. ‘The ability pe ee entity to continve in operation for ¢. To assess management. stewardship. , ee gen seutices enailomeapcaenvane d. To satisfy the information needs of primary users, Mii equivalents to the entity 2. A reporting entity is \o expenses exceed income a. Necessarily a legal entity. jjoh is an implication of the going concern assumption? b. Necessarily an economic entity. An entity that is required or chooses to prep: financial statements. d. A regulatory government authority, ‘The historical cost principle is credible. : Depreciation and amortization policies are justifiable nd appropriate. fi | Phe current and noncurrent classification of assets abilities is justifiable and significant. these are an implication of going concern. 3. A reporting entity a. Can be a single entity b. Can be a portion of a single entity ¢. Can comprise more than one entity d. All of these can be considered a reporting entity vely stable economic, political and social ment supports Conservatism 4. If the reporting entity comprises both the parent and lateriality subsidiaries, the financial statements are referred to a. Consolidated financial statements b. Unconsolidated financial statements ¢. Combined financial statements d. Separate financial statements Going concern Nich of the following is not a basic assumption ilorlying financial accounting? mic entity assumption concern assumption dicity assumption ‘The parent and its subsidiaries Historical cost assumption The parent The subsidiaries ‘Two or more entities without a parent-subsidiary relationship 5. Combined financial statements provide financi: information about je assumption may not be followed when an bankruptcy reports financial results? peep ‘nomic entity assumption ng, concern assumption viodicity assumption 1 Monetary unit assumption10. ‘The economic entity assumption Requires periodic income measurement. Boop What is being violated if an entity provides financial in connection with a new product introduction? Economic entity Periodicity Monetary unit Continuity Bese Which underlying assumption serves as the basis fé preparing financial statements at artificial points in tim Accounting entity Going concern Accounting period Stable monetary unit aeeE Which basic accounting assumption is threatened by existence of severe inflation in the economy? a. Monetary unit assumption b. Periodicity assumption ¢. Going concern assumption 4. Economie entity assumption Inflation is ignored in accounting due to Economic entity assumption Going concern assumption Monetary unit assumption Time period assumption Bore Is inapplicable to unincorporated businesses. Recognizes the legal aspects of business organizatior Is applicable to all forms of business organizations, JON 4-14 Multiple choice (AICPA Adapted) \ concept of accounting entity is applicable Only to the legal aspects of business organizations Only to the economic aspects of business organizations Only to business organizations Whenever accounting is involved parent and subsidiary relationship exists, idated financial statements are prepared in entity omic entity ftable monetary unit ‘Time period valuation of a promise to receive cash in the future prosent value is valid because of what accounting noopt? sntity’ ne period ing concern -y unit, Gi Ma C ng concern ‘ality nsistency monetary unit Niring the lifetime of an entity accountants produce statements at arbitrary points in time in e with what basic accounting concept?iaReTiON |ON 5-9 Multiple choice (ACP) BT ts directly related to the measurement of Define income. ANSWER 5-7 Income is defined as increases in assets or decreases in. liabil that result in increases in equity, other than those relatir contributions from equity holders, iability, equity, income and expense ‘The definition of income encompasses both revenue and. vlements of financial position describe amounts of Revenue arises in the course of the ordinary regular acti and is referred to by variety of different names including a period of time feos, interest, dividends, royalties and rent. i n time : a period of time and at a moment in time her during a period of time nor at a moment in time The essence of revenue is reguic Gains represent other items that meet the definition of i and do not arise in the course of the ordinary regular acti ts directly related to the measurement of Gains include gain from disposal of noncurrent asset, performance are gain on tr ig investment and gain expropriation, QUESTION 5-8 We and expense ty and equity id liability expense and equity Define expense. ANSWER 5-8 economic resource controlled by the entity Expense is defined as decreases in assets or increases liabilities that result in decreases in equity, other than relating to distributions to equity holders. Expenses encompass losses as well as those expenses arise in the course of the ordinary regular activities, 1. obligation of the entity to transfer an Expenses that arise in the course of ordinary reg source as a result of past event. activities include cost of goods sold, wages and depreciati Losses do not arise in the course of the ordinary regi activities and include losses resulting from disasters. Examples include losses from fire, flood, storm surge, tsunai and hurricane, as well as those arising from disposal noncurrent assets.6. It is the residual interest in the assets of the entity a deducting all of the habilities. IESTION 5-10 Multiple choice (Conceptual Framework) a. Income is not within the new definition of an asset? be Bataty ‘An asset is a present economic resource. 4. Ai tie cholees inatzh the definition The economic resource is a right that has potential to produce economic benefit 7. It is an increase in asset or a decrease in liability ‘economic resource is controlled by the entity as a result i repa ieee ast event. Seo oie ye ee all \uture economic benefit is expected to flow to the entity. ich of the following criteria need not be satisfied for a a. Asset is b. Liability a, a e. Income .¢ entity has an obligation. a. Expenses ‘The obligation is to transfer an economic resource. ‘The obligation is a present obligation that exists as a 8.It is a decrease in asset or an increase in liability it of a past event. : results in decrease in equity other than distribution fe settlement is expected to result in an outflow of equity holders. economic benefit. a. Asset a duty or responsibility that an entity has no practical b. Liability fy to avai. e. Income Beg a Sapee Obligation 9. This arises in the course of ordinary regular activi the entity and is referred to by a variety of diffe names including sales, fees, interest, dividends, roy, and rent, tial to produce economic benefits respond to an obligation of another entity include sh ya: All, exeept b. Revenue ight to receive cash ©. Profit ight to receive goods d. Gain ight to exchange economic resource with another entity favorable terms 10. Which statement in relation to income is true? ight over property, plant and equipment a. Income encompasses both revenue and gain. ions to transfer an economic resource include all, b. Revenue encompasses both income and gain. eae ¢. Gain encompasses both income and revenue. d. Income is technically the same as revenue. gation to pay cash igation to deliver goods igation to provide services gation to transfer an economic resource even if a ified future event does not occurQUESTION 5-11 Multiple choice (AICPA Adapted) 1. Revenue may result from an asset from primary operations. b. An increase in an asset from incidental transacti ¢. An increase in a liability from incidental transacti d. A decrease in a liability from primary operations. 2. What is the primary distinction between revenue and a. ‘The materiality of the amount b. The likelihood that the transaction will recur : tht ¢. The nature of the activity that gives rise to ng far tnclusin in the transaction d. The method of disclosing the transactic , income or expense. ch an asset, a liability or equity is 3. The term income statement of financial position is reported b me aoe oy Be on period error. we the elements to the statement of financial : Ee e jal performance. c. Includes gain resulting from the sale of an asset in atement of financial px ict arm’s length transaction. s tion ofan item d. Is the same as retained earnings. 4. A decrease in an asset arising from peripheral or transaction is called criteria for the elements of a. Capital expenditure eri b. Cost © Loss d. Expense ‘ition of an asset, a tiat A tement of financial position. 5. An outflow of asset based on an activity that represents re i i sPilasiric cape ane ‘ neet the definition! najor operations is called pry ine el Loss how probable economic ’ focus anymore on how pro| Liability ee a renee anal Genk the sogeean Expense Equity peop ity and any corresponding income or expense the probability of inflow or outflow of theQUESTION 6-17 Multiple choice (Conceptual Frame JON 6-18 Multiple choice (IAA) 1. It is the process of capturing for inclusion in the 5 a statements an item that meets the definition of pally, revenue is recognize elements of financial statements. a a. Recognition Whion cause and effect are associated, b. Measurement “At the point of cash collection. c. Classifying At appropriate points throughout the operating cycle. d. Dereeognition wh of the following is not an accepted basis for 2. An item is recognized in the financial statements if ion of revenue? a. It is probable that economic benefits will flow from the entity. Panwage of time b. It meets the definition of an asset, liability, eq nance of service income and expense. tion of percentage of a project ¢. The entity has ownership of such item. on signing of contract d. Itis probable that economic benefits will flow to or the entity and that the cost can be measured relial 3. It is the amount at which an asset or liability is and reported in the statement of financial position. ‘om sale of goods is recognized Whon the customer order is received. > customer order is accompanied by a check. a. Historical cost e transaction will create an account receivable. enor easleost following practices may not be an necoptable 4. Tt is the removal of all or part of a recognized asset rom recognizing revenue at the point of sale? liability from the statement of financial position. a. Writeoff b. Derecognition cc. Extinguishment d. Retirement pt of cash production ipt of order duction jllowing represents the least desirable 5. Derecognition normally occurs when . s the recognition of revenue? a. An item no longer meets the definition of an asset a liability. ion of revenue during production b. ‘The entity loses control of the asset. jon of revenue when a sale occurs & ae Sane, no longer has a present obligation for of revenue when cash is collected liability, jon of r cluction is completed a. Under all of these circumstances. penta REE *QUESTION 6-19 Multiple choice (AICPA Adapted) — |ON 6-20 Multiple choice (AICPA Adapted) 1. Revenue recognition conventionally refers to not a theoretical basis for the allocation of a. The process of identifying transactions to be as revenue in an accounting period. b, The process of measuring and relating revenue jynmediate recognition § expenses during a period, tomatic and rational allocation e. The earning process which gives rise to rev fnuse and effect association realization. ofit maximization ad. The process of identifying those transactions result in an inflow of assets to the entit is that can be reasonably associated with specific _ uo but not with specific product should be 2. Which means the process of converting noncash resot into cash or claims to cash? Hixpensed in the period incurred Allocated to the specific product based on the best of the product processing time in the period in which the related revenue jp recognized Cpitalized and then amortized over a reasonable poriod a. Allocation b. Collection ec. Recognition d. Realization 3. Gains on assets unsold are identified by the term a. Unrecorded oh ip an example of the cause and effect association b. Unrealized ¢c. Unrecognized r u 4. Unallocated Hales commission Miocation of insurance cost 4. The term recognized is synonymous with the term Dopreciation of property, plant and equipment Officers! salaries a. Recorded b. Realized c. Matched d. Allocated is an application of the systematic and rational principle? ful accounts h and development cost inty cost ization of intangible asset 5. Which statement conforms to the realization concept a. Depreciation was assigned to product unit cost. b. Equipment was sold in exchange for a note receiv. ¢. Cash was collected on accounts receivable would be matched with current revenue on a basis d. Product unit costs were assigned to cost of goods: Bont of goods sold | Hales commission | Warranty costON 6-21 Multiple choice (IAA) 6. Why are certain costs of doing business capitalized incurred and then depreciated or amortized? Matching principle is best demonstrated by a. To reduce the income tax liability is inless some revenue is . ‘To aid management in the decision-making p Remmprisins any expense, c. To match the cost of production with revenue ne ffort with accomplishment d. To adhere to the accounting concept of conser nizing prepaid rent recaived as revenue 7. Which principle best describes the rationale for mat {ublishing an appropriation for contingency i reve ?. 4 Aepreciation ith revenue dlobt expense is recognized according to which a. Associating cause and effect {wwe recognition prineiple? b. Systematic and rational allocation ¢. Immediate recognition voc matching d. Partial recognition fiimeciate recognition 8 Which should be expensed under the principle systematic and rational allocation? a, Salesmen's monthly salaries b. Insurance premiums ¢. Transportation to customers period when the expenses are paid. d. Electricity to light office building ' riod when the expenses are incurred. 4 od Ww: he vendor invoice is receive 9. The writeoff of a worthless patent is an example of wl od see a paces ierpame expense recognition principle? a. Associating cause and effect n expenditure be recorded as an asset b. Immediate recognition ¢. Systematic and rational allocation d. Objectivity 10. What is an example of cost that cannot be directly relat : 1e potential to produce to particular revenue but incurred to obtain benefits heres a ight that has the po are exhausted in the period when the cost is incurred? ic benefit js i d when an Sales commissions nting principle is being observe Sales salaries anges to expense a cost that contributed to Freight in during a period? |. Prepaid insurance pore ue realization Monotary unit PonservatismION 6-22 Multiple choice (Conceptual Framework) 6. Which is not acceptable for recognition of expen a. Systematic and rational allocation ent is not true about current value? Bitpaeoatees tes value of an asset is the price that would be a Gaak aavecaeeane od to soll an asset in an orderly transaction camara oer Value in use is the present value of the cash flows jpocted to be derived from an asset. Mfillment value is the absolute amount of cash pected for the payment of liability. inrent cost is a current value measure. 7. A cause and effect relationship is implicit in the a. Realization principle b. Historical cost. principle o. Matching ipeiocinls ieasuirement bases include d. Going concern assumption “Historical cost 8. An example of direct matching would be nt value ANusessed value a. Depreciation expense Historical cost and current value b. Office salaries expense 4 c. Direct labor costs incurred to produce inventory vont value includes d. Advertising expense Vo alue and present value Current cost and value in use Voir value, value in use and current cost 9. Which category is subject to immediate recognition’ a. Utilities expense for the production line b. Repair and maintenance incurred on produ equipment of a manufacturer ¢. The salary of the production foreman d. The salary of the entity president measurement attribute is not currently used? 10, Which principle best describes the rationale distribution and administrative expenses? lich term best describes the amount that represents Direct matching diate purchase cost of an asset? Systematic and rational allocation Immediate recognition Partial recognition ‘eal cost ble value resent value Current cost pese atQUESTION 6-23 Multiple choice (IAA) 1. Asset measurements in financial statements Are confined to historical cost ‘PTUAL FRAMEWORK Are confined to historical cost and current cost * ‘ Reflect several financial attributes ntation and disclosure Do not reflect output value pts of capital pegs 2. Which should be considered a current value me: a. Replacement cost and exit value PN 7-1 b. Replacement cost and discounted cash flow ‘i ¢. Exit value and discounted cash flow nntation and disclosure of financial information d.. Replacement cost, exit value and discounted cash Col egies sesoaeerpest ba tion and disclosure can be.an effective 8. Historical cost fool about the information in financial b. Fair value c. Value in use d. Current cost ty communicates information about its assets, c income and expenses by presenting and i in the financial statements. 4. Which measurement basis is currently used in fin 2 statements? munication of information in financial es the information more relevant and 4 faithful represeniation of an entity's assets me and expenses. a. Present value b, Present value and settlement value ©, a. Settlement value and fair value iol information in Present value, settlement value and fair value munication of infor 30 enhances the understandab formation in the financial statements. 5. Which measurement attribute is the most relevant? \ication in financial statements is supported Pay ee ‘@ information in different parts of the b. Exit value ©. Current cost Siete understandable. cl tion nd disclosure can be achieved by classifica Jironation of assets, liabilities, equity, income andQUESTION 7-9 Multiple choice (Conceptual Frame 1. The presentation and disclosure requirement acl ots in monetary terms. all of the following, except Merete in torn of physical productive capacity. a. An effective communication tool Ht capital. b. More relevant and faithfully represented inform: jhure eapital issued and outstanding. ¢. Understandability and comparability of inform: 4. Financial position, performance and cash flows 2. It is the sorting of assets, liabilities, equity, income § expenses with similar characteristic a, Classification b..Summarisation Jvh concept is applied to net income and other ¢. Interpretation Wirehensive income? 4. Recognition 3.All of the following can consideréd approp! clas ; ci are ea ree a Nee a cas ¢. Ordinary share capital and preference share cay d. Offsetting asset and liability ; we that required to Hofit is any amount over and above tl iran tke capital at the beginning of the period. jual to income minus expenses. 4. Income and expenses are classified as al i ining ON Bia @ statements are true about the term profit. a. Profit or loss and other comprehensive income tatem b. Profit loss and retained earnings ¢. Retained earnings and other comprehensive in d. Ordinary and extraordinary ancial capital concept, net income occurs nominal amount of net assets at year-end 5. What is the new term to describe the statement showi ive capi -ar-end increased profit or loss and other comprehensive income? ical productive capital at ye equity transactions with owners Income statement al amount of net assets at year-end Statement of profit or loss xcluding equity transactions with ae Statement of other comprehensive income hhysical productive capital at year-end increase Statement of financial performance Bees