[CONCEPTUAL FRAMEWORK SCORE:

CODE: AC109 ANDACCOUNTING STANDARD]

Name: _____________________________________________ Date: _____________

PRELIM EXAMINATION
Instructions: Encircle your answer of choice. Avoid any erasures.

1. Which statement is incorrect in relation to the practice of public accounting?

A. Single practitioners for the practice of public accounting shall be registered CPAs in the
Philippines.
B. Partners of partnership formed for the practice of public accounting shall be registered CPAs
in the Philippines
C. The SEC can register any corporation organized for the practice of public accounting.
D. A certificate of accreditation shall be issued to CPAs who have acquired at least 3 years of
public practice.

2. Which of the following are considered as accountable events?

I. Payment of employee salaries and wages
II. Death of a company CEO
III. A company signed an agreement to provide services to a client for 3 years
IV. Sale of company products to a customer

A. I and III
B. I and IV
C. II and III
D. III and IV
E. I, III and IV

3. The continuing Professional Development is required for

A. Renewal of CPA License
B. Accreditation to practice the accountancy profession
C. Both A and B
D. Neither A nor B

4. A certificate of accreditation shall be issued to CPAs in public practice only when the CPA has
acquired a minimum of how many years of meaningful experience in any of the areas of public
practice?
A. One
B. Two
C. Three
D. Four

5. A CPA must accumulate at least how many CPA units to be accredited to practice the
accountancy profession?
A. 15 units
B. 60 units
C. 100 units

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D. 120 units

6. International Financial Reporting Standards (IFRSs) are issued by the:

A. International Accounting Standards Board (IASB)
B. International Accounting Standards Committee (IASC)
C. Financial Reporting Standards Board (FASB)
D. Financial Reporting Standards Council (FASC)

7. The accounting standards issued by the International Accounting Standards Committee (IASC)
are called:
A. International Financial Reporting Standards (IFRS)
B. International Accounting Standards (IAS)
C. Philippine Financial Reporting Standard (PFRS)
D. Philippine Accounting Standards (PAS)

8. The International Accounting Standard Board was formed

A. To enforce in foreign countries
B. To develop a single set of high quality IFRS
C. To establish accounting standards for multinational entities
D. To develop accounting standards for countries that do not have their own standard setting
bodies

9. The IASB declared that the merits of proposed standards are assessed
A. From a position of neutrality
B. From a position of materiality
C. Based on possible impact on behavior
D. Based on argument of lobbyist

10. What is the chronological order in the evaluation of a typical standard?

A. Exposure draft, Standard, Discussion paper
B. Exposure draft, Discussion paper, Standard
C. Standard, Discussion paper, Exposure draft
D. Discussion paper, Exposure draft, Standard

11. The IASB employs due process system which

A. Is an efficient system for collecting dues from members
B. Enables interested parties to express their views on issues under consideration
C. Identifies the most important accounting issues
D. Requires that all CPAs must receive a copy of IFRS

12. Accounting standard setting

A. Can be described as a political process which reflects political actions of various
interested user groups.
B. Is based solely on research and empirical findings.
C. Is a legalistic process.
D. Is democratic in the sense that a majority of accountants must agree.

13. The primary responsibility for properly applying GAAP lies with

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A. External Auditor
B. Internal Auditor
C. Management
D. National Accounting Organization

14. Which of the following is correct about the accounting standards issued by the Financial
Reporting Standards Council (FRSC)
A. The accounting standards issued by the FRSC are called Philippine Accounting Standards
(PAS) and Philippine Financial Reporting Standard (PFRS)
B. The accounting standards issued by the FRSC constitute the highest hierarchy of GAAP in
the Philippines
C. The accounting standards issued by the FRSC are based on the accounting standards
issued by the International Accounting Standards Board (IASB)
D. All of these are true about the accounting standards issued by the Financial

15. Generally accepted accounting principles

A. Are accounting principles based on law
B. Derive their credibility and authority from law
C. Derive their authority from regulatory authority
D. Derive their credibility and authority from recognition and acceptance by the
accountancy profession

16. Proper application of generally accepted accounting principles is most dependent upon
A. Existence of specific guidelines
B. Oversight of regulatory bodies
C. External audit function
D. Professional judgement of the accountant

17. Once the accounting standard has been established

A. The standard is continually reviewed to see if modification is necessary
B. The standard is not reviewed
C. The task of reviewing the standard is given to a national organization of CPAs
D. No revisions should be made to standard

18. What is the authoritative status of the Conceptual Framework

A. The Conceptual Framework has the highest level of authority
B. In the absence of a standard or an interpretation that specifically applies to a transaction, the
Conceptual Framework 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 results in information that is
relevant and reliable
D. The Conceptual Framework applies only when the IASB develops new standards

19. Assessing cash flow prospects is interpreted to mean

A. Cash basis accounting is preferred over accrual basis
B. Information about cash receipts and payments is generally the best indicator to generate
favourable cash flows

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C. Over the long run, trends in revenue and expenses are generally more meaningful than
trends in cash receipts and disbursements
D. All of the choices are correct regarding assessing cash flow prospects

20. Financial Reporting pertains to

A. Individual business entities, rather than to industries or an economy as a whole or to
members of society consumers
B. Individual business entities and an economy as a whole or to members of society as
consumers
C. Individual business entities and an economy as a whole, rather than to industries or to
members of society as consumers
D. Individual business entities, industries, an economy as a whole and members of society as
consumers

21. Which is an objective of financial reporting?

A. To provide information that is useful in making investing and credit decisions
B. To provide information that is useful to management.
C. To provide information about potential users
D. To provide information about ways to solve internal and external conflicts about the entity

22. Which is not true about 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
C. Financial reporting shall provide information useful in investment, credit, and similar decisions.
D. Financial reporting shall provide information useful in assessing cash flow prospects.

23. 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
C. Entity performance but not management performance
D. Neither entity performance nor management performance

24. Which of the following is not a limitation of financial reporting

A. Financial Reports can only provide information to help primary users estimate the value of the
entity and are not designed to show the value of the entity
B. Financial reports are based on estimates and judgements rather than exact depictions
C. Financial Reports can only provide all the information needed by its primary users and
not of other users
D. All of these are limitations of financial reporting

25. The objectives of financial reporting are based on

A. The need for conservatism
B. Reporting on management stewardship
C. Generally accepted accounting principles
D. The needs of the users of the information

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26. These qualitative characteristics relate to the content or substance of financial information
A. Fundamental qualitative characteristics
B. Enhancing qualitative characteristics
C. Relevance characteristics
D. Completeness characteristics

27. To historical cost of liability is equal to

A. Amount received to incur the liability
B. Amount received to incur the liability plus transaction cost
C. Amount received to incur the liability minus transaction cost
D. Amount received to incur the liability with consideration of the effect of inflation

28. A piece of information is considered relevant when it

A. Is capable of making a difference in a decision
B. Can be depended upon to represent the economic conditions and events that is intended to
represent
C. Is understandable by reasonably informed users
D. Is verifiable and neutral

29. Which of the following is correct in case there will be a conflict between the economic substance
and legal form of a particular transaction?
A. The economic substance of that transaction will prevail over its legal form.
B. The legal form of that transaction will prevail over its economic substance.
C. Either the economic substance of the legal form of that transaction, depending on the
accounting policy of the entity.
D. The transaction should not be accounted for.

30. Which of the following characteristic is demonstrated when different accountants independently
agree on the amount and method of reporting a transaction or event
A. Comparability
B. Verifiability
C. Understandability
D. Neutralilty

31. When information about two different companies engaged in the same industry has been
prepared and presented in similar manner, the information exhibits which of the following
characteristics
A. Comparability
B. Consistency
C. Neutrality
D. Verifiable

32. Financial information exhibits consistency when

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

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D. Expenditures are reported as expenses

33. The overriding qualitative characteristics of accounting information is

A. Relevance
B. Understandability
C. Faithful Representation
D. Decision Usefulness

34. Changing the method of inventory valuation should be reported under what quality of information
A. Understandability
B. Profit-Oriented
C. Timeliness
D. Comparability

35. When there is an agreement between a measure or description and the phenomenon it purports
to represent, the information possesses which characteristics?
A. Verifiability
B. Predictive Value
C. Faithful representation
D. Timeliness

36. Recognizing expected loss immediately but deferring expected gain is an example of
A. Materiality
B. Conservatism
C. Cost effectiveness
D. Timeliness

37. Which concept of accounting holds that, to the maximum extent possible, financial statements
shall be based on arm’s length transactions?
A. Revenue Realization
B. Verifiability
C. Monetary Unit
D. Matching Principle

38. Allowing entities to estimate rather than physically count inventory at an interim period is an
example of trade-off between
A. Verifiability and Comparability
B. Timeliness and Comparability
C. Timeliness and Verifiability
D. Neutrality and Consistency

39. Which statement is true in relation to the enhancing qualitative characteristics of

understandability?
A. Users have reasonable knowledge of business and economic activities and review the
information with reasonable diligence.
B. Users are expected to have significant business knowledge
C. Financial statements shall exclude complex matters
D. Financial statements shall be free from material error

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40. The Conceptual Framework mentions one constraint on useful financial reporting. Which is it?
A. Conservatism
B. Cost
C. Prudence
D. Going Concern

41. Financial Statements provide information about transactions and events viewed from the
perspective of the
A. Primary users
B. Other users
C. Reporting Entity
D. Management

42. What is the quality of information that enables users to better forecast future operations
A. Faithful Representation
B. Materiality
C. Comparability
D. Relevance

43. Proponents of historical cost maintain that statement prepared using historical cost are more
A. Objective
B. Relevant
C. Indicative of purchasing power
D. Conservative

44. Which of the following violates the concept of faithful representation

A. Financial statements were issued nine months late.
B. Expected risks are not reported
C. Property, Plant and Equipment with carrying amount increased to management
estimate of market value
D. Management reports regularly refer to new projects.

45. The consistency standard requires that

A. Expenses should be reported when incurred
B. The effect of accounting changes upon income should be properly disclosed
C. Gains and losses should not be recognized
D. Accounting procedures should be adopted when the result is a consistent rate of return

46. Which of the following is not a basic assumption underlying financial accounting?
A. Economic entity assumption
B. Going Concern assumption
C. Periodicity assumption
D. Historical cost assumption

47. It is the adding together of assets, liabilities, equity, income, and expenses that have similar
characteristics and are included in the same classification
A. Aggregation

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B. Classification
C. Summarization
D. Interpretation

48. The valuation of a promise to receive cash in the future at present value is valid because of what
accounting concept?
A. Entity
B. Time Period
C. Going Concern
D. Monetary Unit

49. Conservatism is selecting an accounting alternative that

A. Understates assets and net income
B. Has the least favourable impact on the equity
C. Overstates liabilities
D. Is likely to mislead users if financial information

50. What is meant by consistency when discussing financial accounting information?

A. Information is measured and reported in a similar fashion across points tin time.
B. Information is timely

51. An item is recognized in the financial statements if

A. It is probable that economic benefits will flow to or from the entity
B. It meets the definition of an asset , liability, equity, income and expense
C. The entity has ownership of such item.
D. It is probable that economic benefits will flow to or from the entity and that the cost can be
measured reliably

52. Which of the following is not an accepted basis for recognition of revenue?
A. Passage of time
B. Performance of service
C. Completion of percentage of project
D. Upon signing of contract

53. Which statement conforms to the realization concept?

A. Depreciation was assigned to the product unit cost
B. Equipment was sold in exchange for a note receivable
C. Cash was collected on accounts receivable
D. Product unit costs were assigned to cost of goods sold

54. Costs that can be reasonably associated with specific revenue but not with specific product
should be
A. Expensed in the period incurred
B. Allocated to the specific product based on the best estimate of the product processing time
C. Expensed in the period in which the related revenue is recognized
D. Capitalized and then amortized over a reasonable period

55. Which statement is not true about current value?

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A. Fair value of an asset is the price that would be received to sell an asset in an orderly
transaction
B. Value in use is the present value of the cash flows expected to be derived from an asset
C. Fulfillment value is the absolute amount of cash expected for the payment of liability
D. Current cost is a current value measure

56. Which measurement attribute is the most relevant?

A. Present value
B. Exit value
C. Current cost
D. Historical cost

57. Which concept is applied to net income and other comprehensive income?
A. Financial Capital
B. Physical Capital
C. Legal Capital
D. Borrowed Capital

58. The physical capital concept requires which measurement?

A. Historical cost
B. Current cost
C. Fair value
D. Present value

59. When an entity changed the reporting period longer or shorter than one year, an entity shall
disclose all, except
A. Period covered by the financial statements
B. The reason for using a longer or shorter period
C. The fact that amounts presented in the financial statements are not entirely comparable
D. The fact that similar entities in the geographical area in which the entity operates have
done so

60. An entity is permitted to depart from a particular standard if all conditions are satisfied, except
A. In extremely rare circumstances
B. When management concludes that compliance with the standard would be misleading
C. When the departure from the standard is necessary to achieve fair presentation
D. When the conceptual framework for financial reporting prohibits such a departure

61. An entity shall disclose in the summary of significant accounting policies

A. The measurement basis used
B. All measurement bases whether used or not
C. The measurement basis used in preparing the financial statements and accounting
policies used
D. All of the measurement bases and the accounting policy choices available to the entity

62. An entity shall disclose in the summary of significant accounting policies

A. The measurement basis used
B. All measurement bases whether used or not

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C. The measurement basis used in preparing the financial statements and accounting
policies used
D. All of the measurement bases and the accounting policy choices available to the entity

63. A Conceptual Framework should

A. Lead to uniformity of financial statements
B. Eliminate alternative accounting principles
C. Guide multinational entities in developing GAAP
D. Define the basic terms and concepts of accounting

64. 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 for financial accounting
and reporting
D. The hierarchy of sources of GAAP

65. Which is not a purpose of Conceptual Framework?

A. To enable the accountancy profession to solve more quickly emerging practical problems
B. To provide foundation from which to build more useful financial accounting standards
C. To enhance comparability of financial statements across entities
D. To assist regulatory agencies in issuing rules and regulations for a particular industry

66. For information to be useful, the linkage between the users and the decisions made is
A. Relevance
B. Faithful representation
C. Undestandability
D. Verifiability

67. Enhancing qualitative characteristics of accounting information include

A. Relevance and comparability
B. Comparability and timeliness
C. Understandability and relevance
D. Neutrality and comparability

68. When an entity changed the inventory valuation method, which characteristic is jeopardized by
this change?
A. Comparability
B. Representational Faithfulness
C. Consistency
D. Feedback Value

69. An item would be considered material when

A. The expected benefits exceed additional costs
B. The impact on earnings is greater than 10%
C. The standard definition of materiality is met
D. The omission or misstatement would make a difference to the primary users

70. What is being violated if an entity provides financial reports in connection with new product
introduction?
A. Economic entity

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B. Periodicity
C. Monetary unit
D. Continuity

71. Which of the following may not be an acceptable deviation from recognizing revenue at point of
sale?
A. Upon receipt of cash
B. During production
C. Upon receipt of order
D. End of production

72. The Conceptual Framework include which constraint?

A. Prudence
B. Conservatism
C. Cost
D. All of the choices are constraints

73. Which best describes the cost-benefit constraint?

A. The benefit of the information must be greater than the cost of providing it
B. Financial information should be free from cost
C. Cost of providing financial information is not always evident or measurable but must be
considered
D. The evaluation of cost constraint is not a judgemental process

74. It is the residual interest in the assets of the entity after deducting all the liabilities
A. Income
B. Equity
C. Retained Earnings
D. All of the above match the definition

75. Which of the following criteria need not be satisfied for a liability to exist?
A. The entity has an obligation
B. The obligation is to transfer an economic resource
C. The obligation is a present obligation the exists as a result of a past event
D. The settlement is expected to result in an outflow of economic benefit

76. Revenue may result from

A. A decrease in asset from primary operations
B. An increase in an asset from incidental transactions
C. An increase in a liability from incidental transactions
D. A decrease in a liability from primary operations

77. The primary distinction between revenue and gain

A. The materiality of the amount
B. The likelihood that the transaction will recur
C. The nature of the activity that gives rise to the transaction
D. The method of disclosing the transaction

78. A decrease in asset arising from peripheral transaction is called

A. Capital expenditure
B. Cost
C. Loss
D. Expense

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79. The tem income

A. Includes revaluation surplus
B. Includes adjustment of prior period error
C. Includes gain resulting from the sale of an asset in an arm’s length transaction
D. Is the same as retained earnings

80. It is the process of capturing in the financial statements an item that meets the definition of the
elements of financial statements
A. Recognition
B. Measurement
C. Classifying
D. Derecognition

81. It is the amount at which an asset or liability is recognized and reported in the statement of
financial position
A. Historical cost
B. Fair value
C. Carrying amount
D. Amortized cost

82. Generally, revenue is recognized

A. At the point of sale
B. When cause and effect are associated
C. At the point of cash collection
D. At appropriate points throughout the operating cycle

83. Revenue from sale of goods is recognized

A. When the customer order is received
B. When the customer order is accompanied by check
C. Only if the transaction will create an account receivable
D. When the title to the good changes

84. Which means the process of converting noncash resources to cash or claims to cash?
A. Allocation
B. Collection
C. Recognition
D. Realization

85. Gains on assets unsold are identified by the term

A. Unrecorded
B. Unrealized
C. Unrecognized
D. Unallocated

86. The term recognized is synonymous with the term

A. Recorded
B. Realized
C. Matched
D. Allocated

87. Why are certain costs of doing business capitalized when incurred and then depreciated or
amortized?
A. To reduce income tax liability
B. To aid management in the decision-making process
C. To match the cost of production with revenue

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D. To adhere to the accounting concept of conservatism

88. The matching principle is best demonstrated by

A. Not recognizing any expense unless some revenue is realized
B. Associating effort with accomplishment
C. Recognizing prepaid rent received as revenue
D. Establishing an appropriation for contingency

89. What is the general approach as to when the product costs are recognized as expenses?
A. In the period when the expenses are paid
B. In the period when the expenses are incurred
C. In the period when the vendor invoice is received
D. In the period when the related revenue is recognized

90. Which category is subject to immediate recognition?

A. Utilities expense for the production line
B. Repair and maintenance incurred on production equipment of a manufacturer
C. The salary of the production foreman
D. The salary of the entity president

91. Which principle best describes the rationale for distribution and administrative expenses?
A. Direct matching
B. Systematic and rational allocation
C. Immediate recognition
D. Partial recognition

92. Which term best describes the amount that represents the immediate purchase of cost of an asset
A. Historical cost
B. Realizable value
C. Present value
D. Current cost

93. Asset measurements in financial statements

A. Are confined to historical cost
B. Are confined to historical and current cost
C. Reflect several financial attributes
D. Do not reflect output value

94. Which measurement basis is currently used in financial statements?

A. Present value
B. Present value and settlement value
C. Settlement value and fair value
D. Present value, settlement value and fair value

95. The presentation and disclosure requirements achieves all of the following, except
A. An effective communication tool
B. More relevant and faithfully represented information
C. Understandability and comparability of information
D. Financial position, performance and cash flow

96. Income and expenses are classified as

A. Profit and loss and other comprehensive income
B. Profit and loss and retained earnings
C. Retained earnings and other comprehensive income
D. Ordinary and extraordinary

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97. Under the financial capital concept, net income occurs when
A. The nominal amount of net assets at year-end increased
B. The physical productive capital at year-end increased excluding equity transactions with
owners
C. The nominal amount of net assets at year-end increased excluding equity transactions
with owners
D. The physical productive capital at year-end increased

98. Recognizing an element of financial statements requires measuring it in monetary terms. Which of
the following is incorrect regarding measurement?
A. The conceptual framework only describes the measurement bases used in financial reporting
but does not specify how a particular element should be measured
B. The conceptual framework broadly classifies the measurement bases used in financial
reporting into historical and current value
C. Measurement uncertainty will always cause non-recognition of an element of financial
statements
D. Measuring an element of financial statements often requires estimation.

99. The conceptual framework is intended to establish which of the following?

A. IFRSs
B. The objectives and concepts used in developing IFRSs
C. The true concept of “present fairly in accordance with IFRSs”
D. The hierarchy of sources of accounting standards and principles

100. Information about different companies and about different periods of the same company can be
prepared and presented in similar manner. Comparability and consistency are related to which of
these objectives?
Comparability Consistency
A. Companies Companies
B. Companies Periods
C. Periods Companies
D. Periods Periods

“Perseverance is not a long race; it is many short races after the other.” – Walter Elliot

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