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BALIUAG UNIVERSITY

CPA REVIEW 2016-2017


THEORY OF ACCOUNTS VEA

BASIC ACCOUNTING CONCEPT

1. Financial accounting can be broadly defined as the area of accounting


that prepares
a. Financial statements to be used by investors only
b. Financial statements to be used primarily by management
c. General purpose financial statements to be used by parties internal
to the business enterprise only
d. General purpose financial statements to be used by parties both
internal and external to the business enterprise.
2. The economic entity assumption
a. Requires periodic income measurement
b. Is applicable to unincorporated businesses
c. Recognizes the legal aspects of business entities
d. Is applicable to all forms of business organizations
3. Preparation of consolidated financial statements when a parent-
subsidiary relationship exists is an example of the
a. Comparability characteristics
b. Economic entity assumption
c. Neutrality characteristic
d. Relevance characteristic
4. Which of the following is not an economic entity?
a. SM Group of Companies
b. Lions Club International, a civic organization
c. GMA Foundation, a charitable institution
d. Seannybelles Galicia, a Quezon City resident who owns a chain of
beauty salons
5. This accounting objective emphasizes the importance of the Income
Statement as it is geared toward proper income or performance
determination of the enterprise
a. Entity theory
b. Fund theory
c. Proprietary theory
d. Residual equity theory
6. Which among the following equations best exemplifies the Entity
theory of accounting?
a. Assets = Liability +Capital
b. Assets Liability = Capital
c. Assets + Liability = Capital
d. Assets Liability Preferred SHE = Common SHE
7. Which among the following equations best exemplifies the Proprietary
theory of accounting?
a. Assets = Liability +Capital
b. Assets Liability = Capital
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THEORY OF ACCOUNTS VEA

c. Assets + Liability = Capital


d. Assets Liability Preferred SHE = Common SH
8. An accounting uses creative skills and judgment when he or she
a. Applies the rules of debit and credit
b. Attest to the fairness of presentation of financial condition and
performance of an entity
c. Interprets the information presented in the financial statements
through ratios and trend analysis
d. Performs the functions described in (B) and (C) above but not
function (A)
9. Which of the following terms best describes financial statements
whose basis of accounting recognizes transactions and other events
when then occur?
a. Accrual basis of accounting
b. Cash basis of accounting
c. Going concern basis of accounting
d. Invoice basis of accounting

STANDARD SETTING

1. It is a memorandum of agreement made between IASB and FASB (US)


and signed in Norwalk Connecticut, USA with the goal of achieving
comparability in financial reporting standards by eliminating or
minimizing differences between IFRS and US GAAP.
a. The convergence Covenant
b. The IASB-FASB Pact
c. The Norwalk Agreement
d. The Reporting Standard Treaty
2. The name that is presently used for standards issued by the
International Accounting Standards Board is
a. International Accounting Standards (IAS)
b. International Financial Reporting Standards (IFRS)
c. International Financial Accounting Interpretation (IFAI)
d. International Generally Accepted Accounting Principles (IGAAP)
3. Which of the following organizations is responsible for setting
International Financial Reporting Standards?
a. Financial Accounting Committee
b. Financial Accounting Standards Board
c. International Accounting Standards Board
d. International Accounting Standards Committee
4. The purpose of the international accounting standards board is to
a. Issue enforceable accounting standards
b. Develop a single set of high-quality IFRS.
c. Develop a uniform currency for measurement
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d. Arbitrate accounting disputes between auditors and international


entities
5. Which of the following is not directly involved in the accounting
standard-setting due process in the Philippines?
a. Board of Accountancy
b. Bureau of Internal Revenue
c. Professional Regulation Commission
d. Financial Reporting Standards Council
6. The IASB employs a due process system which
a. As an efficient system for collecting dues from members
b. Identifies the accounting issues that are the most important
c. Enables interested parties to express their views on issues under
consideration
d. Requires that all accountants must receive a copy of financial
accounting standards
7. The process of establishing financial accounting standards?
a. Is a legislative process based on rules promulgated by government
agencies
b. Is based solely on economic analysis of the effect each standard
will have if it is implemented
c. Is a democratic process in that a majority of practicing accountants
must agree with a standard before it becomes implemented
d. Is a social process which incorporates political actions of various
interested user groups as well as professional research and logic
8. Which is not part of the financial reporting standard setting process in
the Philippines?
a. Publication in the Professional Regulations Commission (PRC)
Official Gazette and in the newspaper of general circulation
b. Distribution of the exposure draft for comment to CPA professional
and other interested parties
c. Creation of a task force by the standard setting body to study the
proposed accounting standard
d. Approval by Financial Reporting Standards Council (FRSC) and
eventually by the PRC
9. What is the chronological order in the evaluation of a typical
standard?
a. Discussion paper, exposure draft and standard
b. Exposure draft, discussion paper and standard
c. Exposure draft, standard and discussion paper
d. Standard, discussion paper, and exposure draft
10. Which of the following is not a description or a function of the
Financial Reporting Standards Council (FRSC)?
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a. It establishes generally accepted accounting principles in the


Philippines
b. It receives financial support principally from the PRC
c. It is the successor of Accounting Standards Council (ASC) and the
creator of Philippine Interpretations Committee (PIC)
d. It assists the Professional Board of Accountancy (BOA) in carrying
out its power and function to promulgate accounting standards in
the Philippines
11. IFRC interpretations
a. Are considered authoritative and must be followed
b. Cover newly identified financial reporting issues not specifically
addressed
c. Cover issues where unsatisfactory or conflicting interpretations
have developed
d. All of these are correct regarding IFRIC Interpretations
12. The international Accounting Standards (IAS) are
a. Focused on quantitative rules
b. Based on regulations not concepts
c. Principles-based rather than rules-based
d. Rules-based rather than principles-based
13. The purpose of the International Financial Reporting Standards
(IFRS) is to
a. Promote uniform accounting standards among the countries of the
world
b. Arbitrate accounting disputes between auditors and international
entities
c. Issue enforceable standards which regulate the financial reporting
of multinational entities
d. Develop a uniform currency in which the financial transactions of
entities throughout the world would be measured
14. Determine the true statement regarding IFRS when referred
collectively
a. The term IAS generally covers IFRS
b. The term IAS generally covers IFRIC
c. The term IFRS generally covers IAS
d. The term IFRIC generally covers IFRS
15. International Financial Reporting Standards are applicable to
the following entities
a. Not-for-profit entities
b. Government activities
c. Government business enterprises
d. Public sector non-profit organization
16. Generally accepted accounting principles
a. Rarely change
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b. Define accounting practice at a point in time


c. Are not affected by changes in the ways business operate
d. Are similar in nature to the principles of chemistry or physics
17. Generally accepted accounting principles
a. Derive authority from legal court proceedings
b. Have been specified in detail in the FRSC Conceptual Framework
c. Are fundamentally truths or axioms that can be derived from laws
of nature
d. Derived their creditability and authority from general recognition
and acceptance by the accounting profession
18. To qualify as generally accepted, accounting principles must
a. Receive substantial authoritative support
b. Guide entrepreneur of the choice of an accounting entity like a sole
proprietorship, partnership or corporation
c. Usually guide corporate managers in preparing financial
statements, which will be understood by widely scattered
stockholders
d. Guide corporate managers in preparing financial statements, which
will be used for collective bargaining agreements with trade unions
19. Once accounting standard is established
a. The standard is continually reviewed to see if modification is
necessary
b. The task of reviewing the standard to see if modifications is
necessary is given to PICPA
c. The principle of consistency states that no revisions should even be
mad to the standard
d. The standard is not reviewed, unless Securities and Exchange
Commission (SEC) makes a complaint
20. Which of the following is not a source of generally accepted
accounting principles in the Philippine?
a. Existing practices in the Philippines
b. Available literature on the topic or subject under study
c. Pronouncements by the Association of CPAs in Public Practice
d. Statements, recommendations, studies, or standards issued by
standard-setting bodies such as the International Accounting
Standards Board and the Financial Accounting Standards Board
21. What is possible danger if politics plays too big a role in
developing IFRS?
a. User groups become active
b. Individuals may influence the standards
c. The IASB delegates its authority to elected officials
d. Financial reporting standards are not truly generally accepted
22. The IASB declared that the merits of proposed standards are
assessed
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a. From a position of neutrality


b. From a position of materiality
c. Based on arguments of lobbyist
d. Based on possible impact on behavior

CONCEPTUAL FRAMEWORK

Fundamental Characteristics

1. The Conceptual Framework is intended to assist


a. CPAs in public practice
b. Users of financial statements
c. Financial Reporting Standards Council
d. All of these
2. Which is the basic purpose of the Conceptual Framework of Financial
Reporting?
a. To develop a single set of high quality International Financial
Reporting Standards (IFRS)
b. To promulgate rules and regulations affecting the practice of the
Philippine Accountancy Profession
c. To address accounting issues with divergent and unacceptable
treatments in the absence of an authoritative guidance issued by
FRSC
d. To assist preparers of financial statements in applying accounting
standards and in dealing with issues that have yet to form the
subject of accounting standards
3. What is the authoritative status of the Conceptual Framework?
a. The Framework applies when FRSC develops new or revised
Standards. An enterprise is never required to consider the
framework
b. It has the highest level of authority. In case of a conflict between
the Framework and the Standard or Interpretation, the Framework
overrides the Standard or Interpretation
c. If there is a Standard or Interpretation that specifically applies to a
transaction, it overrides the Framework. In the absence of a
Standard or an Interpretation that specifically applies, the
Framework should be followed.
d. If there is a Standard or Interpretation that specifically applies to a
transaction, management should consider the applicability of the
Framework in developing and applying an accounting policy which
results in information that is relevant and reliable
4. Which of the following is the first step within hierarchy of guidance to
which management refers, and whose applicability at considers, when
selecting accounting policies?
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a. Apply the requirements in PFRS dealing with similar and related


issues
b. Apply a standard from PFRS if it specifically relates to the
transaction, event, or condition
c. Consider the applicability of the definitions, recognition criteria,
and measurement concepts in the Conceptual Framework
d. Consider the most recent pronouncements of other standard-
setting bodies to the extent they do not conflict with PFRS or the
Conceptual Framework
5. Which of the following is not a function of the Conceptual
Framework?
a. To provide a basis for the use of judgment in resolving accounting
issues
b. To facilitate the consistent and logical formulation of Philippine
Financial Reporting Standards
c. To address the concepts underlying the information presented in
general purpose financial statements
d. To set out recognition, measurement, presentation and disclosure
requirements dealing with transactions and other events and
conditions that are important in general purpose financial
statements
6. The Conceptual Framework of Accounting deals with
a. Tax laws and regulations
b. SEC rules and regulations
c. Code of Ethics for professional accountants
d. Concepts of capital and capital maintenance
7. The second level in the Conceptual Framework
a. Identifies the objective of financial reporting
b. Provides the elements of financial statements
c. Include assumptions, principles and constraints
d. Identifies recognition, measurement and disclosure concepts used
in establishing and applying accounting standards
8. What statements are intended to meet the needs of users who are not
in a position to require an entity to prepare reports tailored to their
particular information needs?
a. Separate financial statements
b. Consolidated financial statements
c. Business entity financial statements
d. General purpose financial statements
9. Which of the following best states the purpose of general-purpose
financial statements?
a. To identify shareholders
b. To help users make decisions
c. To determine compliance with tax laws
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d. To disclose the market value of the firm


10. The objectives of financial reporting for business enterprises are
based on the
a. Need for conservative information
b. Needs of the users of the information
c. Needs to report on managements stewardship
d. Need to comply with financial accounting standards
11. Under the Conceptual Framework for Financial Reporting 2010,
the objective of general purpose financial reporting is to provide
financial reporting about the reporting entity that is useful to
a. Existing and potential investors
b. Existing investors, lenders and other creditors
c. Potential investors, lenders and other creditors
d. Existing and potential investors, lenders and other creditors
12. A primary objective of financial reporting is to assist
a. Investors in analyzing the company
b. Investors in predicting prospective cash flows
c. Banks to determine an appropriate interest rate for their
commercials loans
d. Supplies in determining an appropriate discount to offer a
particular company
13. The objective of general purpose financial statements according
to the Conceptual Framework, shall be to provide financial
information about the reporting entity that is useful to all of the
following, except
a. Existing shareholders
b. Lenders
c. Potential investors
d. Prospective customers
14. Which of the following statements about financial statements is
incorrect?
a. They are the primary responsibility of the management of the
enterprise
b. They show the results of the stewardship of the management for
the resources entrusted to it by the capital providers
c. They are prepared at least annually and are directed to both the
common and specific information needs of a wide range of
statement users
d. They provide information about the financial position, performance
and cash flows of an enterprise that is useful to a wide range of
users in making economic decisions
15. Under the Conceptual Framework for Financial Reporting 2010,
which of the following is a new item added in its scope but is still a
work-in-progress?
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a. Consolidated financial statements


b. Mergers and acquisitions
c. The government entity
d. The reporting entity
16. Determine the false statement regarding Conceptual
Framework of Financial Reporting?
a. The Conceptual Framework serves as a guide in developing future
financial reporting standards and in reviewing existing ones
b. The Conceptual Framework is a source of guidance for determining
an accounting treatment where a standard does not provide
specific guidance
c. The Conceptual Framework does not in any ways was assist
preparers of financial statements in applying PFRS and in dealing
with topics that have yet to form the subject of PFRS
d. The Conceptual Framework is not a PFRS, and nothing in it
overrides any specific PFRS, including PFRS that is in some
respect in conflict with the Conceptual Framework
17. Which statement is true concerning Conceptual Framework for
Financial Reporting.
a. The Conceptual Framework is not a reporting standard and does
not define standard for any particular measurement or disclosure
issue.
b. The Conceptual Framework is concerned with general purpose
financial statements including consolidated financial statements
c. In cases of conflict, the requirements of the relevant IFRS prevail
over those of the Conceptual Framework
d. All of these statements are true about Conceptual Framework
18. What is a purpose of having a Conceptual Framework?
a. To enable the profession to more quickly solve emerging practical
problems
b. To provide a foundation from which to build more useful standards
c. To enable the standard setting body to issue more useful and
consistent pronouncements over time
d. All of these can be considered a purpose of a conceptual
framework
19. The Conceptual Framework for Financial Reporting includes all of
the following, except
a. Objective of financial reporting
b. Qualitative characteristics of useful financial information
c. Definition, recognition and measurement of elements of financial
statements
d. Supplementary information
20. What provides the why or the goal and purpose of accounting?
a. Measurement and recognition concept
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b. Qualitative characteristic of accounting information


c. Element of financial statements
d. Object of financial reporting
21. Which of the following statements is not an objective of financial
reporting?
a. To provide information that is useful in investment and credit
decisions
b. To provide information about entitys resources, claims against
those resources, and changes in those resources
c. To provide information on the liquidation value of an entity
d. To provide information that is useful in assessing cash flow
prospects
22. Which of the following is an implication of the going concern
assumption?
a. The historical cost principle is credible
b. Depreciation and amortization policies are justifiable and
appropriate
c. The current-noncurrent classification of assets and liabilities is
justifiable and significant
d. All of these imply the going concern assumption
23. The economic entity assumption?
a. Is inapplicable to unincorporated businesses
b. Recognizes the legal aspects of business organizations
c. Requires periodic income measurement
d. Is applicable to all forms of business organizations
24. Consolidated financial statements are prepared when a parent-
subsidiary relationship exists
a. Economic entity assumption
b. Relevance characteristic
c. Comparability characteristic
d. Neutrality characteristic
25. During the lifetime of an entity, accountants produce financial
statements at arbitrary or artificial points in time in accordance with
which basic accounting concept?
a. Objectivity
b. Periodicity assumption
c. Materiality
d. Economic entity
26. Inflation is ignored in accounting due to
a. Economic entity assumption
b. Going concern assumption
c. Monetary assumption
d. Periodicity assumption
27. In the Conceptual Framework, qualitative characteristics
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a. Are considered either fundamental or enhancing


b. Contribute to the decision-usefulness of financial reporting
information
c. Distinguish better information from inferior information for
decision-making purposes
d. All of the choices are correct

Qualitative Characteristics

28. What are the qualitative characteristic of financial statements


according to the Framework?
a. Qualitative characteristics are broad classes of financial effects of
transactions and other events
b. Qualitative characteristics are the attributes that make the
information provided in financial statements useful to others
c. Qualitative characteristics measure the extent to which an entity
has complied with all relevant Standards and Interpretations
d. Qualitative characteristics are non-quantitative aspects of an
entitys position and performance and changes in financial position.
29. Which term best describes information that influences the
economic decisions of users?
a. Prospective
b. Relevant
c. Reliable
d. Understandable
30. Under the Conceptual Framework for Financial Reporting, it is
an entity-specific aspect of relevance based on the nature and
magnitude, or both, of the items to which the information relates in
the context of an individual entitys financial report
a. Comparability
b. Confirmatory value
c. Feedback value
d. Materiality
31. Which of the following is an entity-specific aspect of the
fundamental qualitative characteristic relevance?
a. Confirmatory value
b. Materiality
c. Predictive value
d. Timeliness
32. If the financial information that is presented in a financial
position or income statement is misstated, and it influences the
economic decision of user, the information is described as
a. Faithful
b. Material
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c. Prudent
d. Reliable
33. Under PFRS Conceptual Framework (2010), which of the
following is considered a fundamental characteristic rather than an
enhancing characteristic of financial information
a. Faithful representation
b. Timeliness
c. Understandability
d. Verifiability
34. Under the Conceptual Framework for Financial Reporting 2010,
which of the following characteristics replaces the reliability
characteristic under the old Conceptual Framework?
a. Faithful representation
b. Prudence
c. Substance over form
d. Verifiability
35. Freedom from error relates to which qualitative characteristic
of the Conceptual Framework?
a. Faithful representation
b. Relevance
c. Understandability
d. Verifiability
36. Which of the following terms describing information in the
financial statements are properly matched?
a. Prudent and relevant
b. Reliable and verifiable
c. Unbiased and neutral
d. Understandable and comparable
37. Which of the following is not an ingredient of faithful
representation according to Conceptual Framework for Financial
Reporting?
a. Completeness
b. Confirmatory value
c. Freedom from error
d. Neutrality
38. Which of the following is not listed under the faithful
representation characteristic of financial information based on the
Conceptual Framework of Financial Reporting?
a. Completeness
b. Freedom from error
c. Neutrality
d. Prudence
39. Which two characteristics of financial information are part of
the reliability characteristic under the old Conceptual Framework
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that are no longer explicitly part of the faithful representation under


the Conceptual Framework for Financial Reporting 2010?
a. Prudence and neutrality
b. Completeness and neutrality
c. Prudence and substance over form
d. Completeness and substance over form
40. Under the Conceptual Framework for Financial Reporting
(2010) which of the following statements is not a feature informations
comparability characteristics?
a. Comparability is uniformity
b. A comparison requires at least two items
c. Consistency, although related to comparability, is not the same
d. Comparability is the goal, consistency helps to achieve that goal
41. Under the IFRS Framework (2010), it is the ability through
consensus among independent observers to ensure that financial
information represents what it purports to represent
a. Comparability
b. Feedback value
c. Relevance
d. Verifiability
42. What links the decision makers and the decisions they make so
that financial information would be useful?
a. Materiality
b. Relevance
c. Reliability
d. Understandability
43. Which of the following is true in relation to understandability?
a. Financial statements should exclude complex matters
b. Financial statements should be free from material error
c. Users are expected to have significant business knowledge
d. Users should be willing to study the information with reasonable
diligence
44. Which underlying assumption is indicated in the Conceptual
Framework for Financial Reporting (2010)?
a. Accounting entity
b. Accrual basis
c. Going concern
d. Monetary unit
45. What is a basic underlying assumption?
a. The financial statements are complete, neutral and free from error
b. The financial statements have predictable value and confirmatory
value
c. The financial statements are comparable, understandable,
verifiable and timely
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d. The financial statements are normally prepared on the basis that


the entity will continue in operation for the foreseeable future
46. The continuity (going concern) assumption is the basis for the
rule that
a. Treasury stock should not be reported in the financial position as
an asset
b. The cost of operating assets should be allocated to express
systematically over their useful lives
c. The income statement should not include material gains and losses
that are both unusual and infrequent
d. The cost of installing a machine should not be included in the
recorded cost of the machine, but rather expensed immediately
47. An entity using the annual financial reports within one month
after the end of the year is an example of which enhancing quality of
accounting information>
a. Neutrality
b. Timeliness
c. Predictive value
d. Representational facilities
48. Identify the (1) pervasive constraints and (2) underlying
assumption mentioned in the Conceptual Framework?
a. (1) Cost; (2) Accrual basis
b. (1) Cost, (2) Going concern
c. (1) Timeliness, (2) Accrual basis
d. (1) Timeliness, (2) Going concern
49. To achieve faithful representation, the financial statements
a. Must have predictive and confirmatory value
b. Must be complete, neutral and reasonably free from error
c. Are understandable, comparable, verifiable and timely
d. All of these achieve faithful representation
50. Which of the following statements is not true about relevance?
a. Accounting information is relevant when it is capable of making a
difference in a decision
b. The overriding criterion by which relevant information can be
judged is that of usefulness for decision making
c. The relevance of an accounting information is not affected by its
nature and materiality
d. Financial information is capable of a making difference in decision
if it has predictive value or confirmatory value or both
51. Which of the following statements about materiality is correct?
a. An item must make a difference or it need not be disclosed
b. Materiality is a matter of relative size or importance
c. An item is material if the inclusion or omission would influence or
change the judgment of a reasonable person
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d. All of these are correct statements about materiality


52. What is meant by comparability when discussing financial
accounting information?
a. Information has predictive and feedback value
b. Information is reasonably free from error
c. Information is measured and reported in a similar fashion across
entities
d. Information is timely
53. What is meant by consistency when discussing financial accounting
information?
a. Information is measured and reported in a similar fashion across
points in time
b. Information is timely
c. Information is measured similarly across the industry
d. Information is verifiable
54. What is an enhancing quality described in the Conceptual
Framework?
a. Information must be decision-useful to all potential users of
financial reporting
b. General-purpose financial reporting is the primary source of
information for users of financial reporting
c. Users need reasonable knowledge of business and financial
accounting matters to understand the information contained in
financial statements
d. All of the choices are correct
55. Which of the following statements about verifiability is true?
a. Verifiable financial information provides results that would be
substantially duplicated by independent measurers using the same
measurement method
b. Verifiability implies consensus
c. Proponents of historical cost maintain that statements prepared
using historical cost are verifiable
d. All of these statements are true about verifiability
56. The Conceptual Framework includes which one of the following
constraints?
a. Prudence
b. Conservatism
c. Cost
d. All of the choices are constraints in the conceptual framework
57. Which of the following best describes the cost-benefit constraints?
a. The benefit of the information must be greater than the cost of
providing it
b. Financial information should be free from cost to users of the
information
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c. Cost of providing financial information is not always evident or


measureable but must be considered
d. All of the choices are correct

Elements of Financial Statements

58. Which one of the following is an essential characteristic of an


asset?
a. The cost of the assets can be measured accurately
b. It is a result of either past or predictable transactions
c. It must be exclusively owned and must be exchangeable
d. The inflow of future economic benefits is controlled by the
enterprise
59. Which of the following is an essential characteristic of a
liability?
a. The exact amount due must be known
b. It may be the result of future transactions
c. The identity of the creditor must be known
d. It must be an obligation to transfer assets or provide services in
the future
60. Which of the following is not an essential characteristic for an
item to be reported as a liability on the financial position?
a. The liability arises from past transactions or events
b. The liability is payable to a specifically identified payee
c. The liability is the present obligation of a particular entity
d. The settlement of the liability requires an outflow of resources
embodying economic benefits
61. It is frequently used as a measure of performance or as the
basis for other measures, such as return on investment or earnings
per share
a. Gain
b. Income
c. Profit
d. Revenues
62. It involves the depiction of the items in words and by a
monetary amount and the inclusion of that amount in the financial
statements
a. Disclosure
b. Presentation
c. Realization
d. Recognition
63. According to the Conceptual Framework, the two criteria
required for incorporating items into the income statement or
statement of financial position are that it
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a. Satisfies the criterion of capital maintenance


b. Meets the definition of relevance and reliability
c. Meets the requirements of comparability and consistency
d. Meets the definitions of an element and can be measured reliably
64. What is the valuation basis used in conventional financial
statements?
a. Market value
b. Original cost
c. Replacement cost
d. A mixture of costs and values
65. Which of the following items best describes assets recorded at
amounts that represent immediate purchase cost of an equivalent
asset?
a. Current cost
b. Historical cost
c. Present value
d. Realizable value
66. The measurement basis often used to report a long-term
payable requiring a commitment to pay money at a determinable
future date is
a. Current cost level
b. General price level
c. Net realizable value
d. Present value of future cash flows
67. When fair value is used in measuring assets in the financial
statements, current GAAP provides following references as basis of
fair value, except
a. Price in active market
b. Price in recent transaction
c. Price taken from industry or sector benchmarks
d. Price based on assessed value of government bodies
68. Which capital concept requires the use of current cost basis of
accounting?
I. Physical capital concept
II. Financial capital concept

a. Yes, Yes
b. Yes, No
c. No, Yes
d. No, No
69. The current cost basis of accounting is specifically required
under
a. Any circumstances
b. Physical capital maintenance concept
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c. Financial capital maintenance concept


d. Both financial and physical capital maintenance concept
70. The following statements pertain to the provision of Conceptual
Framework on the concept of Capital and Capital Maintenance:
STATEMENT I: The principal difference between the two concepts
of capital maintenance is the treatment of the effects
of changes in the prices of assets and liability of the
entity
STATEMENT II: The selection of the appropriate concept of capital
by an entity should be based on the needs of the
users of its financial statements
STATEMENT III: The concept of capital maintenance chosen by an
entity shall determine the accounting model used in
the preparation of its financial statements
a. Only statement I is false
b. Only statement II is false
c. Only statement III is false
d. None of the foregoing statements is false
71. An item that meets the definition of an element should be
recognized when
a. It is probable that any future associated with the item will flow to
or from the entity
b. The cost of the item can be measured reliably
c. It is possible that any future economic benefit associated with the
item will flow to or from the entity and the cost of the item can be
measured reliably
d. It is probable that any future economic benefit associated with the
item will flow to or from the entity and the cost of the item can be
measured reliably
72. Which of the following statements is true?
a. Income encompasses both revenue and gain
b. Revenue encompasses both income and gain
c. Gain encompasses both income and revenue
d. Income encompasses revenue only
73. An expense is recognized immediately
a. When an expenditure produces no future economic benefit
b. When cost incurred ceases to qualify as an asset
c. When an expenditure produces future economic benefit
d. When an expenditure produces no future economic benefit and
when cost incurred ceases to qualify as an asset
74. Which is an example of expense recognition principle of associating
cause and effect?
a. Allocation of insurance cost
b. Sales commission
BALIUAG UNIVERSITY
CPA REVIEW 2016-2017
THEORY OF ACCOUNTS VEA

c. Depreciation
d. Officers salaries
75. Which is an example of the principle of systematic and rational
allocation?
a. Amortization of intangible asset
b. Cost of goods sold
c. Research and development cost
d. Salesmens salaries

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