Which is not correct about the Conceptual Framework for Financial Reporting?

a. The Conceptual Framework serves as a guide for the development and revision of accounting
standards.
b.All of the foregoing statements are correct about the Conceptual Framework for Financial
Reporting.
c.The Conceptual Framework constitutes the highest level of authoritative status.
d.The Conceptual Framework forms the theoretical foundation of accounting.
The Conceptual Framework is intended to establish which of the following?
a.The hierarchy of sources of accounting standards and principles.
b.The objectives and concepts for use in developing IFRSs.
c.The true concept of “present fairly in accordance with IFRSs”.
d.IFRSs.
Which of the following is a purpose of the Conceptual Framework for Financial Reporting?
a.To assist preparers of financial statements in developing consistent accounting policies when no
accounting standard applies to a particular transaction or event, or when an accounting standard allows a
choice of accounting policy or treatment.
b.To assist all parties in understanding and interpreting IFRS.
c.To assist the IASB in the development of IFRS based on consistent concepts.
d.All of the foregoing.
Which statements are correct about the Conceptual Framework for Financial Reporting?
      I.        The Conceptual Framework contains the concepts for general-purpose financial reporting only.
    II.        The Conceptual Framework contains the concepts for special-purpose financial reporting only.
  III.        The Conceptual Framework contains the concepts for both general and special-purpose financial
reporting.
   IV.        The Conceptual Framework is an accounting standard.
     V.        The Conceptual Framework is not an accounting standard.
   VI.        In case of conflict between an accounting standard and the Conceptual Framework, the
requirements of the accounting standard will prevail over the requirements of the Conceptual Framework.
 VII.        In case of conflict between an accounting standard and the Conceptual Framework, the
requirements of the Conceptual Framework will prevail over the requirements of the accounting standard.
a.III, IV and VI only
b.I, V and VI only
c.1, IV and VII only
d.III, V and VII only

Which is correct about the Conceptual Framework for Financial Reporting?

a.When there is no accounting standard or interpretation that specifically applies to a particular
transaction or event, the Conceptual Framework must be followed.
 b.The applicability of the Conceptual Framework on a particular transaction or event shall be
considered only when there is no accounting standard or interpretation that specifically deals with that
particular transaction or event.
c.The Conceptual Framework must be followed even if there is an accounting standard or
interpretation that specifically deals with that particular transaction or event.
d.The applicability of the Conceptual Framework on a particular transaction or event shall be
considered even if there is an accounting standard or interpretation that specifically deals with that
particular transaction or event.

What provides the “why” of accounting?

a.Recognition and measurement concepts.
b.Elements of financial statements.
c.Qualitative characteristics of useful financial information.
d.Objective of financial reporting.

What is the underlying theme of the Conceptual Framework?

a.Decision usefulness
b.Comparable information
c.Timeliness of information
d.Understandability of information

Which is correct about the objective of financial reporting?

a.Its overall objective is to provide financial information that is useful for decision-making.
b.If forms the foundation of the Conceptual Framework.
c.All of these are correct.
d.It provides the “why” of accounting.

The primary focus of financial reporting has been on meeting the needs of which of the following users?
      I.        Existing investors
    II.        Potential investors
III. Lenders and creditors
a.II and III only
b.I and III only
c.I and II only
d.I, II and III
Which of the following is not a limitation of financial reporting?
a.Financial reports can only provide all the information needed by its primary users and not of other
users.
b.Financial reports can only provide information to help primary users estimate the value of the entity
and not designed to show the value of the entity.
 c.Financial reports are based on estimates and judgments rather than exact depiction.
d.All of these are limitations of financial reporting.
Qualitative characteristics of useful financial information
a.are the qualities or attributes that make financial information useful to the users in making economic
decisions.
b.contribute to the decision-usefulness of financial information.
c.are classified either as fundamental or enhancing.
d.All of these are correct.
Which of the following are the fundamental qualitative characteristics of useful financial information?
      I.        Relevance
    II.        Reliability
  III.        Faithful representation
   IV.        Materiality
a.I, III and IV
b.I and II
c.I and III
d.II, III and IV
A financial information is considered relevant when it
a.can be depended upon to represent the economic conditions and events that it is intended to
represent.
b.is verifiable and neutral.
c.is understandable by reasonably informed users.
d.is capable of making a difference in a decision.

Which of the following is (area0 correct concerning materiality?

a.information is material if omitting or misstating it could influence the decisions of the users.
b.All of these are correct.
c.Materiality is dependent on the professional judgment of the accountant.
d.Strict adherence to accounting standards is not required when the items are not significant enough to
affect the decision of the user and the fairness of the financial statements.
Which qualitative characteristics of financial information requires that information should not favor one
party to the detriment of another party?
a.Reliability 
b.Neutrality 
c.Free from error
d.Comparability 
These qualitative characteristics are intended to increase the usefulness of financial information.
a.Enhancing qualitative characteristics
b.Completeness characteristics
 c.Fundamental qualitative characteristics
d.Relevance characteristics
The Conceptual Framework mentions one constraint on useful financial reporting. Which is it?
a.cost
b.prudence
c.conservatism
d.going concern
What is the objective of financial statements?
a.To satisfy the information needs of primary users.
b.To assess future cash flows to the entity.
c.To provide information about economic resources of an entity, claims against the entity and changes
in the economic resources and claims.
d.To assess management stewardship.
Financial statements are prepared at least
a.annually
b.semi-annually
c.monthly
d.quarterly
Financial statements provide information about transactions and events  viewed from the perspective of
the
a.other users
b.management
c.primary users
d.reporting entity
The Conceptual Framework mention only one assumption in the preparation of financial statements.
Which is it?
a.going concern
b.liquidating concern
c.accrual basis
d.cash basis
Financial statements are prepared under the assumption that the reporting entity will continue in operation
for the foreseeable future. Which of the following best describes this?
a.liquidating concern assumption
b.going concern assumption
c.reporting entity
d.accrual basis
A reporting entity
 a.All of these can be considered a reporting entity.
b.can be a portion of a single entity.
c.can comprise more than one entity.
d.can be a single entity.
If the reporting entity comprises both the parent and its subsidiaries, the financial statements are referred
to as
a.combined financial statements.
b.consolidated financial statements.
c.unconsolidated financial statements.
d.separate financial statements.
The elements of financial position describe amounts of resources and claims against resources
a.during a period of time.
b.during a period of time and at a point in time.
c.at a point in time.
d.neither during a period of time nor at a point in time.

What is the primary distinction between revenue and gain?

a.The like hood that the transaction will recur.
b.The method of disclosing the transaction.
c.The nature of the activity that gives rise to the transaction.
d.The materiality of the amount.

It is defined as the process of capturing for inclusion in the financial statements an item that meets the
definition of the elements of financial statements.
a.measurement
b.classifying 
c.recognition
d.derecognition

An item is recognized in the financial statements if

a.It is probable that economic benefits will flow to or from the entity and that the cost can be
measured reliably.
b.It is probable that economic benefits will flow to or from the entity.
c.It meets the definition of an asset, liability, equity, income and expense.
d.The cost of that item can be measured reliably.
It is defined as the process of quantifying the elements recognized in the financial statements.
a.measurement
b.derecognition
 c.classifying
d.recognition
The historical cost of an asset is equal to the
a.Amount paid to acquire or produce the asset with consideration of the effect of inflation.
b.Amount paid to acquire or produce the asset.
c.Amount paid to acquire or produce the asset minus transaction costs.
d. Amount paid to acquire or produce the asset plus transaction costs.
The objective of the financial statements is to
a.prepare a statement of financial position and statement of comprehensive income.
b.prepare financial statements in accordance with all applicable standards.
c.present relevant, reliable, comparable and understandable information.
d.provide information about the financial position, financial performance and changes in financial
position useful to a wide range of users.

Which of the following is a limitation of the financial statement?

a.Current fair value is not reported.
b.Judgements and estimates are used.
c.Many items that are of financial value are omitted.
d.All of these.
The financial statements prepared using IFRS
a.are accurate.
b.do not articulate with one another.
c.reflect a single measurement which is historical cost.
d.are not highly precise because estimate and judgment must be made.

The primary responsibility for the preparation and presentation of the financial statements rests with the
a.internal auditor.
b.external auditor.
c.management of the entity.
d.accountant of the entity.
Which accounting method will produce financial statements that provide a more complete picture of a
corporation’s financial position and a more accurate measure of profitability for the most recent fiscal
year?
a.Financial management
b.Accrual method
c.General features
d.Cash method
Which of the following statements is correct concerning presentation of financial statements?
a.Each financial statement is given equal weight.
b.The statement of financial position takes precedence over the other financial statements.
c.The statement of comprehensive income takes precedence over the other financial statements.
d.The statement of cash flows takes precedence over the other financial statements.
Financial statements shall be prepared at least
a.monthly.
b.semi-annually.
c.annually.
d.quarterly.
Items of dissimilar nature or function must
a.always be presented separately.
b.be presented separately even if immaterial.
c.not be presented separately.
d.be presented separately if material.
Materiality depends on the
a.absolute size of the omission or misstatement.
b.nature of the omission or misstatement.
c.relative sized and nature of the omission.
d.judgment of management.
Which of the following statements provide information as of a specific point in time?
a.Statement of financial position
b.Income statement
c.Statement of cash flows.
d.Statement of changes in equity

In presenting a statement of financial position, an entity must

a.make the current and non-current presentation, except when a presentation based on liquidity
provides information that is reliable and more relevant.
b.choose either the current and non-current or the liquidity presentation, meaning free choice of
presentation.
c.present assets and liabilities in order of liquidity.
d.make the current and non-current presentation.
The basis for classifying assets as current or noncurrent is conversion to cash within
a.the operating cycle or one year, whichever is shorter.
b.the accounting cycle or one year, whichever is longer.
c.the operating cycle or one year, whichever is longer.
 d.the accounting cycle or one year, whichever is shorter.
The operating cycle of an entity is defined as
a.the seasonal variation experienced by entities.
b.a period of twelve months or one year.
c.the period normally elapsed in converting trade receivables back into cash.
d.the time between the acquisition of materials entering a process and their realization in cash.
In presenting a statement of financial position, Philippine companies normally present
a.Non-current assets before current assets, non-current liabilities before current liabilities and equity
after liabilities.
b.Current assets before non-current assets, non-current liabilities before current liabilities and equity
after liabilities.
c.Current assets before non-current assets, current liabilities before non-current liabilities and equity
after liabilities.
d.Non-current assets before current assets, current liabilities before non-current liabilities and equity
after liabilities.
Which of the following liability items are classified as current even if these are due to be settled after more
than twelve months after the reporting period?
a.Trade payable and accruals for employee and other operating cost
b.Current portion of interest-bearing liabilities
c.Bank overdrafts
d.Dividends payable
The major elements of the statement of comprehensive income are
a.operating, investing, and financing.
b.operating section and non-operating section.
c.income and expenses.
d.assets, liabilities, and equity.

Which of the following statements about comprehensive income is true?

a.Comprehensive income is equal to profit or loss plus total other comprehensive income plus
extraordinary items.
b.Comprehensive income is equal to profit or loss plus total other comprehensive income.
c.Profit or loss is equal to comprehensive income plus total other comprehensive income.
d.Total other comprehensive income is equal to comprehensive income plus profit or loss.
The income statement reveals
a.assets, liabilities, and equities of an entity at a point in time.
b.profit or loss of an entity at a point in time.
c.profit or loss of an entity for a period of time.
 d.assets, liabilities, and equities of an entity for a period of time.
An entity shall present an analysis of expenses using a classification based on
a.The nature of expenses
b.either the nature of expenses or the function of expenses, whichever the entity would prefer to
present.
c.Either the nature of expenses or the function of expenses, whichever provides information that is
reliable and more relevant.
d.The function of expenses
The two-statement approach of presenting comprehensive income is preparing
a.a combined statement of comprehensive income and retained earnings.
b.a separate income statement and a separate statement of comprehensive income.
c.a combined income statement and a statement of changes in equity.
d.a comparative statement of comprehensive income.

Which of the following is correct regarding accounting for raw materials and manufacturing supplies held
for use in the production of inventories?
a.Raw materials and supplies are not written down below cost under the condition that the finished
goods in which they will be incorporated are expected to be sold at or above cost.
b.Raw materials and supplies are not required to be disclosed since they are normally immaterial.
c.Raw materials and supplies are written down below cost if its net realizable value is lower than cost.
d.Raw materials and supplies must be separately presented from the other inventories.
All of the following are correct, except
a.Write-down is an additional item under operating expenses.
b.Write-down is a component of cost of goods sold.
c.If inventory cost is greater than its NRV, then NRV will be the basis for recording the inventory
with recognition of write-down.
d.If inventory cost is less than its NRV, then cost will be the basis for recording the inventory without
recognition of write-down.
The net realizable value of the merchandise inventory of a retailer is
a.equal to estimated selling price less estimated cost to complete less estimated cost of disposal.
b.equal to its estimated selling price.
c.equal to its current replacement cost.
d.equal to estimated selling price less normal profit margin.

According to IAS 2 Inventories, inventories are

a.always stated at cost.
b.written down to NRV on a per classification basis (i.e., raw materials, work-in-process, finished
goods)
c.written down to NRV on an item by item basis.
 d.either a or b, depending on the company policy choice.

According to IAS 2 Inventories, inventories shall be subsequently measured at

a.net realizable value.
b.lower of cost and net realizable value.
c.cost.
d.higher of cost and net realizable value.
Which of the following will affect the merchandise inventory account at the end of the period?
a.Inventory overage
b.All of the above
c.Inventory shortage
d.Normal losses in the inventory
Which of the following is the correct treatment for cash discounts?
a.Cash discounts are added to miscellaneous income, whether taken or not.
b.Cash discounts are deducted from inventory, only if taken.
c.Cash discounts are deducted from inventory, whether taken or not.
d.Cash discounts are added to miscellaneous income, only if taken.
Which of the following should not be included in determining the cost of inventory?
a.Depreciation of factory machinery.
b.Wages of factory workers.
c.Interest on loan taken out specifically for the purpose of purchasing inventory items.
d.Commission paid to broker who arranged the importation of the inventory.
Which of the following is not included in the initial measurement of inventories?
a.Recoverable purchase taxes
b.Freight, handling, and other directly attributable costs
c.Import duties
d.Irrecoverable purchase taxes
Which of the following is not included in the initial measurement of inventories?
a.All options are included.
b.Cost of conversion.
c.Purchase cost that normally includes purchase price, import duties, irrevocable taxes, freight,
handling and other costs directly associated in the acquisition of finished goods, materials and services.
d.Other costs related to bringing the inventory items to their present location and condition.
IAS 2 Inventories prohibits which of the following cost flow method?
a.Specific identification method
b.LIFO method
 c.Average method
d.FIFO method
Which of the following is/are true regarding FIFO method?
a.All options are correct.
b.The basic rule is “first come, first sold”.
c.The goods remaining in the inventory at the end of the period are those most recently purchased or
produced.
d.In a period of inflation, it would result to highest net income.
Which inventory cost flow method is appropriate to use if the inventory items are not interchangeable?
a.Average method
b.FIFO method
c.Either b or c
d.Specific identification method
Which of the following is correct about inventories?
a.Inventories include goods in process.
b.Inventories include raw materials that are used in the production process.
c.All of the above.
d.Inventories include finished goods.
Which of the following is incorrect definition of inventory?
a.In the process of production for sale.
b.Held for use in the production or supply of goods or services.
c.Held for sale in the ordinary course of business.
d.In the form of materials or supplies to be consumed in the production process or in the rendering of
services.
 Report that provides information about the entity’s cash inflows and outflows during the period.
a.Statement of Cash Flows
b.Statement of Comprehensive Income
c.Notes to Financial Statements
d.Statement of Financial Position
The primary purpose of a statement of cash flows is to provide relevant information about which of the
following?
a.Difference between net income and associated cash receipts and disbursements.
b.The cash receipts and cash disbursements of an entity during a period.
c.An entity’s ability to meet cash operating needs.
d.An entity’s ability to generate positive net cash flows.
The statement of cash flows is solely concerned with
a.cash outflows.
 b.assets.
c.cash inflows.
d.cash.

A statement of cash flows is composed of three types of activities, namely

a.operating activities, disposing activities, and financing activities.
b.operating activities, investing activities, and financing activities.
c.investing activities, supplying activities, and receiving activities.
d.operating activities, investing activities, and issuing activities.
The following examples are under operating activities, except
a.royalties, rental, fees, commissions, and other revenues.
b.future contracts, forward contracts, option contracts, and swap contracts that require cash payments.
c.cash receipts from sale of goods and services.
d.payment to suppliers.
Operating activities is associated with any changes in which of the following?
a.Current assets only
b.Non-current assets and non-current liabilities
c.Current liabilities only
d.Current assets and current liabilities

In preparing a statement of cash flow, cash flows from operating activities

a.are determined as the difference between revenues and expenses.
b.can be determined by appropriately adding to or deducting from net income those items in the
income statement that do affect cash.
c.are always equal to accrual accounting income.
d.can be determined by appropriately adding to or deducting from net income those items in the
income statement that do not affect cash.
What section of a cash flow statement shows the cash paid on new equipment during the previous
accounting period?
a.The statement of cash flows does not provide this kind of information
b.The investing activities section
c.The financing activities section
d.The operating activities section
n broad sense, financing activities include cash flows from
a.non-operating assets transactions.
b.operating assets transactions.
c.transactions involving an entity’s nontrade liabilities and equity.
 d.repayments of advances and loans.
Which of the following activities is an example of financing activity?
a.Selling goods on account
b.Issuing shares of stock
c.Purchase of inventory
d.Purchase of equipment
Cash flows arising from trading securities are
a.not reported in the statement of cash flows.
b.classified as operating activities.
c.classified as financing activities.
d.classified as investing activities.

Cash receipts from issuing shares are

a.classified as operating activities.
b.not reported in the statement of cash flows.
c.classified as investing activities.
d.classified as financing activities.
In a statement of cash flows, depreciation is treated as an adjustment to reported earnings because
depreciation
a.reduces reported net earnings and involves an inflow of cash.
b.is an inflow of cash to a reserve account for replacement of assets.
c.reduces reported net earnings but does not involve an outflow of cash.
d.is a direct source of cash.
How should a gain on sale of machinery for cash be reported in the cash flow statement using the indirect
method?
a.In operating activities as an addition to net income.
b.In investing activities as a cash inflow.
c.In investing activities as a cash outflow.
d.In operating activities as a deduction from net income.
Which statement about the method of preparing the statement of cash flows is true?
a.All of the above statements are true.
b.The direct method is known as the reconciliation method.
c.The direct method is more consistent with the primary of the statement of cash flows.
d.The indirect method starts with income before tax
Which of the following are included in the categories of accounting change?
            I.        Change in accounting estimate
           II.        Change in accounting policy
         III.        Correction of prior period error
 a.I only
b.III only
c.I, II and III
d.I and II only
Events after the end of reporting period are favorable or unfavorable events that
a.occur between the end of the reporting period and the date of the next interim financial statements.
b.occur between the end of the reporting period and the date when the financial statements are
authorized for issue.
c.occur between the end of the reporting period and the date of the next interim or annual financial
statements.
d.occur between the end of the reporting period and the date of the next annual financial statements.
Adjusting events are events that
a.Are indicative of conditions that arose after the end of the reporting period.
b.Provide evidence of favorable conditions that exist at the end of the reporting period.
c.Provide evidence of conditions that exist at the end of the reporting period.
d.Provide evidence of unfavorable conditions that exist at the end of the reporting period.
Which of the following is the best explanation why accounting changes are classified into change in
accounting policy and change in accounting estimate?
a.The fact that some treatments are considered generally accepted.
b.All of these correctly explains why accounting changes are classified into change in accounting
policy and change in accounting estimate.
c.The materiality of the change.
d.Each change involves different method of recognition in the financial statements.
Which type of accounting change should always be accounted for in current and future periods?
a.Change in accounting policy
b.Correction of an error
c.Prior period adjustment
d.Change in accounting estimate
How should the effect of a change in accounting estimate be accounted for?
a.As a prior period adjustment to beginning retained earnings.
b.In the period of change and future periods if the change affects both.
c.Any of the above.
d.By restating amounts reported in financial statements of prior periods.
Which of the following is accounted for as a change in accounting estimate?
         I.        Change in depreciation method.
       II.        Change in the method of computing doubtful accounts expense.
      III.        Change from cash basis to accrual basis of accounting.
      IV.        Change in measurement basis.
 a.I & II only
b.I, II & IV only
c.III & IV only
d.III only

When a company decides to switch from the double-declining balance method to the straight-line method,
this change should be handled as a
a.correction of an error.
b.change in accounting policy
c.prior period adjustment.
d.change in accounting estimate.
It is the income for a period determined in accordance with the rules established by tax authorities upon
which income taxes are payable or recoverable.
a.Accounting income subject to tax
b.Accounting income
c.Net income
d.Taxable income
It is the income for a period before deducting tax expense
a.Taxable income
b.Accounting income
c.Gross income
d.Net income
It is the amount of income tax payable in respect of taxable income
a.Total income tax expense
b.Current tax expense
c.Deferred tax benefit
d.Deferred tax expense
In accordance with PAS 12, it is the total amount included in the determination of profit or loss for the
period.
a.Deferred tax benefit
b.Current tax expense
c.Income tax expense
d.Deferred tax expense
Which of the following will not result in a temporary difference?
a.Advance rental receipts
b.All of these will result in a temporary difference
 c.Installment sales
d.Product warranty liability

These are differences that will result in future taxable amount in determining taxable income of future
periods.
a.Permanent differences
b.Deductible temporary differences
c.Taxable temporary differences
d.Temporary differences
These are differences that result in future deductible amount in determining taxable income in future
periods.
a.Taxable temporary differences
b.Permanent differences
c.Deductible temporary differences
d.Temporary differences