Exercise _ Chapter 1 _The Accountancy Profession

Question 1
0 / 1 pts
Accounting is a service activity and the function is to provide quantitative information, primarily
financial in nature about economic entities, that is intended to be useful in making economic
decisions. This accounting definition is given by

You Answered
AICPA Committee on Accounting Terminology
Board of Accountancy
Correct Answer
Accounting Standards Council
American Accounting Association

Question 2
1 / 1 pts
All of the following describe accounting, except

A service activity
A universal language of business
Correct!
An exact science rather than an art
An information system

Question 3
1 / 1 pts
The important points made in the definition of accounting include all of the following, except

Accounting information is financial in nature

Accounting information is useful in decision making
Accounting information is quantitative
Correct!
Accounting information is both quantitative and qualitative

Question 4
1 / 1 pts
This accounting process is the recognition or nonrecognition of business activities as accountable
events

Communicating
Measuring
Correct!
Identifying
Reporting

Question 5
1 / 1 pts
What are the events that affect the entity and in which other entities participate?

obligating events
current events
Correct!
External events
internal events
Question 6
1 / 1 pts
Which is incorrect in relation to an accountable event?

An event is accountable when it has an effect on asset, liability or equity

Only economic activities are emphasized and recognized
The subject matter of accounting is the measurement of economic resources and obligations
Correct!
Sociological and psychological matters are quantifiable

Question 7
1 / 1 pts
What is the measuring component in the definition of accounting?

The preparation of audit report by CPAs

Correct!
The assigning of peso amounts to the accountable events
The recognition or nonrecognition of business activities as accountable events
The preparation and distribution of accounting reports to users of accounting information

Question 8
1 / 1 pts
The most common financial attribute used in measuring financial information is

value in use
current cost
fair value
Correct!
Historical cost

Question 9
1 / 1 pts
The communicating process of accounting includes all of the following, except

classifying
summarizing
Correct!
interpreting
recording

Question 10
1 / 1 pts
What is the overall objective of accounting?

To measure the periodic income of the economic entity

To provide the information that the managers of an economic entity need to control the operations
Correct!
To provide quantitative financial information about an entity that is useful in making economic
decision
To provide information that the creditors can use in deciding whether to grant loans to an entity
Question 11
1 / 1 pts
What is the law regulating the practice of accountancy in the Philippines?

R.A. No. 9198

R.A. No. 9892
R.A. No. 9928
Correct!
R.A. No. 9298

Question 12
1 / 1 pts
What is the body authorized by law to promulgate rules and regulations affecting the practice of
the accountancy profession in the Philippines?

Securities and Exchange Commission

Financial Reporting Standards Council
Correct!
Board of Accountancy
Philippine Institute of Certified Public Accountants

Question 13
1 / 1 pts
What are the three main areas in the practice of the accountancy profession?

Auditing, taxation and managerial accounting

Financial accounting, managerial accounting and corporate accounting
Correct!
Public accounting, private accounting and government accounting
Public accounting, private accounting and managerial accounting

Question 14
1 / 1 pts
Which statement is incorrect in relation to the practice of public accountancy?

Partners of partnerships formed for the practice of public accounting shall be registered CPAs in the
Philippines.
All of these statements are correct.
Correct!
The Securities and Exchange Commission can register any corporation organized for the practice of
public Securities and Exchange Commission
Single practitioners for the practice of public accounting shall be registered CPAs in the Philippines

Question 15
1 / 1 pts
CPAs are licensed by

The PICPA
The city government
The SEC
Correct!
State government
Question 16
1 / 1 pts
What is the standard-setting body in the Philippines at the present time?

Correct!
Financial Reporting Standards Council
Accounting Standards Council
Auditing and Assurance Standards Council
Philippine Accounting Standards Board

Question 17
1 / 1 pts
All of the following are represented in FRSC, except

Commission on Audit
Board of Accountancy
Correct!
Department of Budget and Management
Securities and Commission

Question 18
1 / 1 pts
The Philippine Financial Reporting Standards collectively include

PFRS corresponding to IFRS

Correct!
All of these are included in Philippine Financial Reporting Standards
Philippine Interpretations and Interpretations developed by PIC
PAS corresponding to IAS

Question 19
1 / 1 pts
Accounting standard-setting has been characterized as

Using the scientific method

a legal process
Correct!
A political process
Pure deductive reasoning

Question 20
1 / 1 pts
GAAP is an abbreviation for

Generally applied accounting procedure

Correct!
Generally accepted accounting principles
Generally accepted auditing practices
Generally authorized accounting procedures
Question 21
1 / 1 pts
What is the primary service of CPAs in public practice?
controllership
Managerial Accounting
Taxation
Correct!
Auditing

Question 22
1 / 1 pts
Accountants employed in entities in various capacity as accounting staff, chief accountant or
controller are said to be engaged in
Public accounting
Correct!
Private accounting
Government accounting
Financial accounting

Question 23
1 / 1 pts
It is the area of the accountancy profession that encompasses the process of analyzing, classifying,
summarizing and communicating all transactions involving the receipt and disposition of
government funds and property and interpreting the results thereof.
Correct!
Government auditing
External auditing
Internal auditing
Private auditing

Question 24
1 / 1 pts
How many CPD credit units are required for accreditation to practice the accountancy profession?

15 units
60 units
100 units
Correct!
120 units

Question 25
1 / 1 pts
A CPA shall be permanently exempted from the renewal of CPA license
Correct!
At the age of 65 years
When working abroad
When studying abroad
When practicing profession abroad
Question 26
1 / 1 pts

The International Accounting Standards Board was formed

To develop accounting standards for countries that do not have their own standard-setting bodies
Correct!
To develop a single set of high quality IFRS
To establish accounting standard for multinational entities
To enforce IFRS in foreign countries

Question 27
1 / 1 pts
The International Accounting Standards Board
Was the predecessor to the IASC
Can overrule the USA GAAP when their policies disagree.
Has its headquarters in Geneva.
Correct!
Promotes the use of high-quality and understandable global accounting standards

Question 28
1 / 1 pts
The IASB declared that the merits of proposed standards are assessed.

Based on arguments of lobbyist

From a position of materiality
Correct!
From a position of neutrality.
Based on possible impact on behavior

Question 29
1 / 1 pts
The standard-setting process includes in the correct order.
Exposure draft, research, discussion paper and accounting standard
Discussion paper, research, exposure draft and accounting standard
Research, exposure draft, discussion paper and accounting standard
Correct!
Research, discussion paper, exposure draft and accounting standard

Question 30
1 / 1 pts
The IASB employs a due process system which
Correct!
Enables interested parties to express their views on issues under consideration.
a. Is an efficient system for collecting dues from members
Identifies the accounting issues that are the most important.
Requires that all CPAs must receive a copy of IFRS

Question 31
1 / 1 pts
What is due process in standard-setting by IASB?
IASB operates in full view of the public.
Interested parties can make their views known.
Correct!
All of these are part of due process in standard-setting.
Public hearings are held on proposed standards.
Question 32
1 / 1 pts
The standards published by IASB are called
International Accounting Standards
Correct!
International Financial Reporting Standards
Statement of Financial Accounting Standards
Financial Reporting Standards

Question 33
1 / 1 pts
What is a possible danger if politics plays too big a role in developing IFRS?
Individuals ,ay influence the standards
Correct!
Financial reporting standards are not truly generally accepted.
User groups become active
The IASB delegates its authority to elected officials

Question 34
1 / 1 pts
Accounting standard-setting
Is a legalistic process
Is based solely on research and empirical findings.
Correct!
Can be described as a political process which reflects political actions of various interested user
groups as well as a product of research and logic.
Is democratic in the sense that a majority of accountants must agree with a standard before it
becomes enforceable.

Question 35
1 / 1 pts
IFRIC Interpretations issued by IASB

Cover newly identified financial reporting issues not specifically addressed.

Are considered authoritative and must be followed.
Cover issued where unsatisfactory or conflicting interpretations have developed
Correct!
All of the statements are true about IFRIC Interpretations.

Question 36
1 / 1 pts
Financial accounting is concerned with
Special reports for inventory management.
Special reports for income tax computation.
General purpose reports on changes in share prices.
Correct!
General purpose reports on financial position and financial performance.

Question 37
1 / 1 pts
Financial accounting can be broadly defined as the area of accounting that prepares
General purpose financial statements to be used by parties internal to the entity
Financial statements to be used by investors
Correct!
General purpose financial statements to be used by parties both internal and external to the entity.
Financial statements to be used primarily by management
Question 38
1 / 1 pts
Financial accounting emphasizes reporting to
Regulatory bodies
Correct!
Creditors and investors
Management
internal auditors

Question 39
1 / 1 pts
Managerial accounting emphasizes
Correct!
Developing accounting information for use within an entity
Reporting to the SEC
Reporting financial information to external users
Expertise in data processing

Question 40
1 / 1 pts
Which statement is true regarding managerial and financial accounting
Managerial accounting is generally more precise.
The emphasis on managerial accounting is relevance and the emphasis on financial accounting is
timeliness
Correct!
Managerial accounting need not follow generally accepted accounting principles while financial
accounting must follow GAAP.
Managerial accounting has a future focus.

Question 41
1 / 1 pts
Generally accepted accounting principles
Derive their credibility and authority from legal rulings and court precedents.
Are accounting adaptations based on law
Correct!
Derive their credibility and authority from general recognition and acceptance by the accountancy
profession
Derive their credibility and authority from a government regulatory authority.

Question 42
1 / 1 pts
Which statement best describes GAAP?
The accounting principles do not apply to small and medium-sized entities.
Correct!
The accounting principles have been developed on the basis of such factors as usage and practical
necessity.
The accounting principles have been formulated in the public sector.
The accounting principles are the same as laws.
Question 43
1 / 1 pts
Proper application of accounting principles is most dependent upon
Oversight of regulatory bodies
Existence of specific guidelines
Correct!
Professional judgment of the accountant
External audit function

Question 44
1 / 1 pts
Once an accounting standard has been established

The principle of consistency requires that no revisions ever be made to the standard
Correct!
The standard is continually reviewed to see if modification is necessary.
The task of reviewing the standard is given to the national accounting organization.
The standard is not reviewed unless a regulatory authority makes a complaint.

Question 45
1 / 1 pts
The primary responsibility for properly applying GAAP lies with
Internal auditor
External auditor
Correct!
Management
National accounting organization

Exercise_ Chapter 2 _ CF Objective of financial reporting

Question 1
1 / 1 pts
Which statement is true about the Conceptual Framework for Financial Reporting?
In case of conflict, the requirements of the IFRS prevail over the Conceptual Framework.
The Conceptual Framework is not a Standard.
Correct!
All of these statements are true about the Conceptual Framework
The Conceptual Framework describes the concepts for general purpose financial reporting.

Question 2
1 / 1 pts
Which is not a purpose of the Revised Conceptual Framework?

To assist preparers to develop consistent accounting policy when no Standard applies to a particular
transaction or when Standard allows a choice of accounting policy.
To assist the IASB to develop IFRS based on consistent concepts.
To assist all parties to understand and interpret the Standards.
Correct!
To assist regulatory agencies in issuing rules and regulations for a particular industry.
Question 3
1 / 1 pts
The scope of the Revised Conceptual Framework comprises how many chapters?

Correct!
Eight
Five
Seven
Six

Question 4
1 / 1 pts
The Conceptual Framework provides the foundation for Standards that

Correct!
All of these are the result of Standards developed based on consistent concepts
Strengthen accountability of management
Contribute to economic efficiency by helping investors to identify opportunities and risks
Contribute to transparency by enhancing international comparability and quality of financial
information

Question 5
1 / 1 pts
What is the authoritative status of the Conceptual Framework?

The Conceptual Framework has the highest level

In the absence of a standard or an interpretation that specifically applies to a transaction, the
Conceptual Framework shall be followed
The Conceptual Framework applies only when the IASB develops new standards.
Correct!
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 faithfully represented.

Question 6
1 / 1 pts
The Conceptual Framework is intended to establish
GAAP in financial reporting
Correct!
The objectives and concepts for use in developing standards of financial accounting and reporting.
The meaning of "present fairly in accordance with GAAP".
The hierarchy of sources of GAAP.

Question 7
1 / 1 pts
A Conceptual Framework should

Eliminate alternative accounting principles

Lead to uniformity of financial statements
Correct!
Define the basic objectives, terms and concepts of accounting
Guide multinational entities in developing generally accepted auditing standards
Question 8
1 / 1 pts
Which is not a purpose of the Conceptual Framework?

Correct!
To provide specific guidelines for resolving situations not covered by existing accounting standards
To assist accountants in selecting among alternative accounting and reporting methods.
To assist the International Accounting Standards Board in the standard-setting process.
To provide definitions of key terms and fundamental concepts.

Question 9
1 / 1 pts
In the Conceptual Framework for Financial Reporting, what provides the "why" of accounting?
Qualitative characteristic of accounting information
Element of financial statement
Measurement and recognition concept
Correct!
Objective of financial reporting

Question 10
1 / 1 pts
The underlying theme of the Conceptual Framework is
Understandability
Comparability
Timeliness
Correct!
Decision usefulness

Question 11
1 / 1 pts
The objective of financial reporting
Correct!
Is the foundation for the Conceptual Framework
Includes the qualitative characteristics of useful information
Is not found in the Conceptual Framework
All of these are correct choices regarding the objective

Question 12
1 / 1 pts
Which of the following is not a benefit associated with the Conceptual Framework?
A coherent set of accounting standards should result.
Practical problems should be more quickly solvable.
Correct!
Business entities will need far less assistance from accountants.
A Conceptual Framework should increase users’ understanding and confidence in financial reporting.

Question 13
1 / 1 pts
Which statement is not true concerning the Conceptual Framework?
The Conceptual Framework should allow practical problems to be solved more quickly.
The Conceptual Framework should increase users' understanding and confidence in financial
reporting.
Correct!
The Conceptual Framework should be based on fundamental truth derived from the law of nature.
The Conceptual Framework should be a basis for standard setting.
Question 14
1 / 1 pts
Users of financial reports include which of the following?
Creditors and government agencies
Correct!
Creditors, government agencies and unions
Creditors
Creditors and unions

Question 15
1 / 1 pts
The primary users of financial information include
Existing and potential investors
Existing and potential lenders and other creditors
Correct!
Existing and potential investors, lenders and other creditors
User group such as employees, customers, governments and their agencies, and the public

Question 16
1 / 1 pts
Which group is not among the external users for whom financial statements are prepared?
Suppliers
Employees
Customers
Correct!
All of these are external users of financial statements

Question 17
1 / 1 pts
Which of the following is an internal user of financial information?
Holder of bonds
Creditor with long-term contract
Shareholder
Correct!
Board of Directors

Question 18
1 / 1 pts
These users require information on risk and return provided by their investment
Employees
lenders
customers
Correct!
Investors

Question 19
1 / 1 pts
These users are interested in information about the profitability and stability of the entity in order
to assess the ability of entity to provide remuneration, retirement benefits and employment
opportunities.
customers
Correct!
Employees
the public
Governments and their agencies
Question 20
1 / 1 pts
These users are interested in information that enables them to assess whether their loans, the
related interest thereon, and other amounts owing to them will be paid when due

owners
Trade creditors
Correct!
Lenders and other creditors
Borrowers

Question 21
1 / 1 pts
These users are interested in information about the continuance of an entity, especially when they
have a long-term involvement with or are dependent on the entity

Correct!
Customers
trade unions
suppliers
Employees

Question 22
1 / 1 pts
These users are interested in information in order to regulate the activities of an entity, determine
taxation policies and provide a basis for national statistics.

Major organization of users

Correct!
Governments and their agencies
Bureau of Internal Revenue
Department of Finance

Question 23
1 / 1 pts
These users need information on trends and recent developments where an entity makes a
substantial contribution to the local economy providing employment and using local suppliers.

finance entities
Correct!
The public
private entities
Governments and their agencies

Question 24
1 / 1 pts
The overall objective of financial reporting is to provide information
About financial performance during a period
Correct!
That is useful for decision making
That allows owners to assess management performance
About assets, liabilities and equity of an entity
Question 25
1 / 1 pts
The primary focus of financial reporting has been on meeting the needs of which of the following
groups?
Correct!
Existing and potential investors, lenders and other creditors
Management
National taxing authorities
independent CPAs

Question 26
1 / 1 pts
The primary objective of financial reporting is to provide useful information to
Management
Regulatory body
Correct!
Capital providers
Government

Question 27
1 / 1 pts
Which is an objective of financial reporting?

To provide information about the potential users.

To provide information that is useful to management.
Correct!
To provide information that is useful in making investing and credit decisions
To provide information about ways to solve internal and external conflicts about the entity.

Question 28
1 / 1 pts
An objective of financial reporting is to provide
Information that will attract new investors
Information about the investors in the entity
Correct!
Information that is useful in assessing cash flow prospects
Information about the liquidation value

Question 29
1 / 1 pts
Assessing cash flow prospects is interpreted to mean
Information about the financial effects of cash receipts and cash payments is generally considered
the best indicator of ability to generate favorable cash flows
Correct!
Over the long run, trends in revenue and expenses are generally more meaningful than trends in
cash receipts and disbursements
Cash basis accounting is preferred over accrual basis
All of the choices are correct regarding assessing cash flow prospects

Question 30
1 / 1 pts
In measuring financial performance, accrual accounting is used because
Correct!
It provides a better indication of ability to generate cash flows than cash basis
It recognizes revenue when cash is received
It is one of the implicit assumptions
Cash flows are considered less important
Question 31
1 / 1 pts
The most useful information in predicting future cash flows is
Information regarding the results obtained by using a wide variety of accounting policies
Correct!
Current earnings based on accrual accounting
Information regarding the accounting policies used
Information about current cash flows

Question 32
1 / 1 pts
The accrual basis of accounting is most useful for
Determining the amount of dividends to be declared
Correct!
Predicting the long-term financial performance
Predicting the short-term financial performance
Determining the amount of income tax liability

Question 33
1 / 1 pts
The objective of financial reporting is based on
Reporting on management stewardship
Correct!
The needs of the users of the information
Generally accepted accounting principles
The need for conservatism

Question 34
1 / 1 pts
Which statement is not true about financial reporting?
Financial reporting shall provide information about entity resources, claims against those resources
and changes in them
Correct!
Financial reporting shall not provide information useful in evaluating management stewardship.
Financial reporting shall provide information useful in assessing cash flow prospects
Financial reporting shall provide information useful in investment, credit and similar decision

Question 35
1 / 1 pts
Which of the following is not an objective of financial
To provide information about an entity's assets and claims against those assets
To provide information that is useful in lending and investing decisions
To provide information that is useful in assessing an entity's sources and uses of cash
Correct!
To provide information about the liquidation value of an entity
Question 36
0 / 1 pts
Financial reporting pertains to information about
Business industries, rather than to individual entities or an economy as a whole or to members of
society as consumers
An economy as a whole and to members of society as consumers, rather than to individual entities
or industries
You Answered
Individual business entities, industries, and an economy as a whole, rather than to members of
society as consumers
Correct Answer
Individual business entities, rather than to industries or an economy as a whole or to members of
society as consumers

Question 37
1 / 1 pts
Under the Revised Conceptual Framework, during a period when an entity is under the direction of
a particular management, financial reporting provides information about
Management performance but not entity performance
Entity performance but not management performance
Correct!
Entity performance and management performance
Neither entity performance nor management performance

Question 38
1 / 1 pts
A Conceptual Framework should

Guide multinational entities in developing generally accepted auditing standards

Correct!
Define the basic objectives, terms and concepts of accounting
Lead to uniformity of financial statements
Eliminate alternative accounting principles

Exercise _ Ch 3 _ CF Qualitative Characteristics - Matching type (Problem 3-7)

Question 1
15 / 15 pts
Indicate the accounting concept that is defined or described.

Correct!
Information that has no bearing on an economic decision to be made is useless.
Relevance

Correct!
It is the ability to bring together for the purpose of noting points of likeness and difference.
Comparability

Correct!
It requires that users have some knowledge of the complex economic economic activities of entities,
the accounting process and the technical terminology in the statements.
Understandability
Correct!
Preparers of statements should not try to increase the usefulness of the information to a few users
to the detriment of others who may have opposing interests.
Neutrality
Correct!
In case of conflict between economic substance and legal form or a transaction, the economic
substance shall prevail.
Substance over form

Correct!
Small expenditures for tools are expensed immediately.
Materiality

Correct!
When in doubt, recognize all loses and don’t recognize gains.
Conservatism

Correct!
The information should be presented in a manner that facilitates understanding and avoids
erroneous implication.
Completeness

Correct!
It is the capacity of the information to influence a decision.
Relevance

Correct!
The description and numbers of figures must watch what really existed or happened.
Faithful representation

Correct!
The financial statements shall be accompanied by notes to financial statements.
Completeness

Correct!
There are no errors or omissions in the description of the phenomenon.
Free from error

Correct!
It is the goal achieved by consistency.
Comparability

Correct!
This enhancing qualitative characteristics implies consensus.
Verifiability

Correct!
The older the information, the less useful.
Timeliness
Exercise _ Chapter 3 _ CF Qualitative Characteristics
Question 1
1 / 1 pts
What are the attributes that make the information provided in the financial statements useful to
the readers?
Elements of financial statements
Objectives of financial reporting
Quantitative characteristics of financial information
Correct!
Qualitative characteristics of financial information

Question 2
1 / 1 pts
Qualitative characteristics
Correct!
All of the choices are correct
Contribute to the decision-usefulness of financial reporting information
Are considered either fundamental or enhancing
Distinguish better information from inferior information for decision-making purposes

Question 3
1 / 1 pts
The fundamental qualitative characteristics are
Correct!
Relevance and faithful representation
Faithful representation and materiality
Relevance and reliability
Relevance, faithful representation and materiality

Question 4
1 / 1 pts
Accounting information is considered relevant when it
Can be dependent on to represent the economic conditions and events that it is intended to
represent
Is understandable by reasonably informed users of accounting information
Correct!
Is capable of making a difference in a decision
Is verifiable and neutral

Question 5
1 / 1 pts
The ingredients of relevant financial information are
Predictive value, confirmatory value, timeliness and materiality
Correct!
Predictive value and confirmatory value
Predictive value, confirmatory value and materiality
Predictive value, confirmatory value and timeliness
Question 6
1 / 1 pts
What is the quality of information that gives assurance that it is reasonably free of error and bias?
Correct!
Faithful representation
neutrality
Verifiability
Relevance

Question 7
1 / 1 pts
Which of the following is the best description of “faithful representation” in relation to information
in financial statements?
Influence on the economic decision of the users
Comprehensibility to users
Correct!
Freedom from material error
Inclusion of a degree of caution

Question 8
1 / 1 pts
to achieve faithful representation, the financial statements
Correct!
Must be complete, neutral and reasonably free from error
Are understandable, comparable, verifiable and timely
Must have predictive and confirmatory value
Must possess all of these

Question 9
1 / 1 pts
The financial accounting information is directed toward the common needs of users and is
independent of presumptions about particular needs and desires of specific users
verifiability
Correct!
neutrality
relevance
completeness

Question 10
1 / 1 pts
In the event of conflict between the economic substance of a transaction and the legal form, the
economic substance shall prevail
Relevance
completeness
Correct!
Substance over form
Form over substance

Question 11
1 / 1 pts
The enhancing qualitative characteristics of financial information are
Verifiability and timeliness
comparability and understandability
Correct!
comparability, understandability, verifiability and timeliness
comparability, understandability and verifiability
Question 12
1 / 1 pts
Financial information exhibits consistency when
Accounting procedures are adopted which smooth net income and make results consistent between
years
Expenditures are reported as expenses
Gains and losses are shown separately on the income statement
Correct!
Accounting entities give similar events the same accounting treatment each period

Question 13
1 / 1 pts
When information about two different entities engaged in the same industry has been prepared
and presented in similar manner, the information exhibits the enhancing qualitative characteristics
of
Faithful representation
Correct!
comparability
relevance
consistency

Question 14
1 / 1 pts
The characteristic that is demonstrated when a high degree of consensus can be secured among
independent measures using the same measurement method is
Correct!
verifiability
understandability
neutrality
relevance

Question 15
1 / 1 pts
Which concept of accounting holds that, to the maximum extent possible, financial statements shall
be based on arm’s length transactions
matching
Correct!
verifiability
monetary unit
Revenue realization

Question 16
1 / 1 pts
An entity issuing the annual financial reports within one month after the end of reporting period is
an example of which enhancing quality of accounting information?
representational faithfulness
predictive value
Correct!
timeliness
neutrality
Question 17
1 / 1 pts
Allowing entities to estimate rather than physically count inventory at interim periods is an
example of a trade off between
Correct!
timeliness and verifiability
timeliness and comparability
verifiability and comparability
neutrality and consistency

Question 18
1 / 1 pts
Which qualitative characteristic of financial information requires that the information should not be
biased in favor of one group of users to the detriment of others?
Relevance
free from error
Correct!
neutrality
completeness

Question 19
0 / 1 pts
For information to be useful, the linkage between the users and the decisions made is
Relevance
verifiability
You Answered
Faithful representation
Correct Answer
understandability

Question 20
1 / 1 pts
The overriding qualitative characteristics of accounting information is
Faithful representation
Relevance
Understandability
Correct!
Decision usefulness

Question 21
1 / 1 pts
Which statement is true in relation to the enhancing quality of understandability?
Correct!
Users have a reasonable knowledge of business and economic activities and review the
information with reasonable diligence.
Financial statements shall exclude complex matters
Financial statements shall be free from material error
Users are expected to have significant business knowledge
Question 22
1 / 1 pts
Which of the following terms best describes information that influences the economic decisions of
users?
Prospective
Understandable
Reliable
Correct!
Relevant

Question 23
1 / 1 pts
What is the quality of information that enables users to better forecast future operations?
materiality
comparability
Faithful representation
Correct!
Relevance

Question 24
1 / 1 pts
According to the Conceptual Framework, predictive value and confirmatory value are ingredients of
comparability
Correct!
Relevance
understandability
Faithful representation

Question 25
1 / 1 pts
Which term best describes information in financial statements that is neutral?
Correct!
unbiased
relevant
comparable
Understandable

Question 26
1 / 1 pts
What is meant by comparability when discussing financial accounting information?
Correct!
Information is measured and reported in a similar fashion across entities
Information is reasonably free from error
Information is timely
Information has predictive and confirmatory value

Question 27
1 / 1 pts
What is meant by consistency when discussing financial accounting information?
Information is timely
Correct!
Information is measured and reported in a similar fashion across points in time
Information is measured similarly across the industry
Information is verifiable
Question 28
1 / 1 pts
Which of the following is not an enhancing qualitative characteristics?
Understandability
comparability
Correct!
profit-oriented
timeliness

Question 29
1 / 1 pts
Changing the method of inventory valuation should be reported in the financial statements under
what enhancing quality of accounting information?
verifiability
timeliness
Correct!
comparability
understandability

Question 30
1 / 1 pts
When an entity applies the same accounting treatment to similar events from period to period, the
entity is exhibiting which of the following qualities?
verifiability
all of the choices are correct
Correct!
consistency
predictive value

Question 31
1 / 1 pts
When there is agreement between a measure or description and the phenomenon it purports to
represent, the information possesses which characteristics
Correct!
Faithful representation
verifiability
predictive value
timeliness

Question 32
1 / 1 pts
The qualitative characteristics of faithful representation includes
Correct!
neutrality
timeliness
confirmatory value
predictive value

Question 33
1 / 1 pts
Enhancing qualitative characteristics of accounting information include all of the following, except:
comparability
Correct!
materiality
timeliness
verifiability
Question 34
1 / 1 pts
The enhancing quality of understandability means that the information should be understood by
Correct!
Those who have a reasonable understanding of business and economic activities
CPAs
Financial analysts
those who are experts in the interpretation of financial information

Question 35
1 / 1 pts
Enhancing qualitative characteristics of accounting information include:
understandability and relevance
relevance and comparability
neutrality and comparability
Correct!
comparability and timeliness

Question 36
1 / 1 pts
When different competent accountants independently agree on the amount and method of
reporting an economic event, what is the concept demonstrated?
completeness
reliability
comparability
Correct!
verifiability

Question 37
1 / 1 pts
According to the conceptual framework, verifiability implies
logic
legal evidence
Correct!
consensus
legal verdict

Question 38
1 / 1 pts
When an entity has started placing its quarterly financial statements on its web page, thereby
reducing by ten days the time to get information to investors and creditors, the qualitative concept
involved is
Correct!
timeliness
comparability
Faithful representation
consistency
Question 39
1 / 1 pts
When an entity changed the inventory valuation method, which characteristics is jeopardized by
this change?
Correct!
consistency
feedback value
representational faithfulness
comparability

Question 40
1 / 1 pts
Recognizing expected losses immediately but deferring expected gains is an example of
materiality
Correct!
conservatism
cost effectiveness
timeliness

Question 41
1 / 1 pts
Which statement about materiality is true?

An item must make a difference or it need not be disclosed

Materiality is a matter of relative size or importance
Correct!
All of the given statements are true about materiality
An item is material if the omission or misstatement would influence the judgment of a primary user.

Question 42
1 / 1 pts
An item would be considered material when
Correct!
Omitting, misstating or obscuring the information would make a difference to the primary users.
The impact on earnings is greater than 10%
The expected benefit exceeds the additional cost
The standard definition of materiality is met.

Question 43
1 / 1 pts
The Conceptual Framework includes which constraint?
All of the choices are constraints
Conservatism
Correct!
Cost
Prudence

Question 44
1 / 1 pts
Which best describes the cost-benefit constraint?
All of the choices are correct
Correct!
The benefit of the information must be greater than the cost of providing it
Cost of providing financial information is not always evident or measurable but must be considered
Financial information should be free from cost to users
Question 45
1 / 1 pts
What is an enhancing quality of accounting information?
Correct!
Users need reasonable knowledge of business and financial accounting matters to understand the
information contained in financial statements.
All of the choices are correct
Information must be decision-useful to all users
General-purpose financial reporting is the primary source of information for statement users

Question 46
1 / 1 pts
The ability through consensus among measures to ensure that information represents what it
purports to represent is an example of the concept of?
Correct!
verifiability
comparability
Relevance
feedback value

Question 47
1 / 1 pts
Which of the following accounting concepts states that an accounting transaction shall be
supported by sufficient evidence to allow two or more qualified individuals to arrive at essentially
similar conclusion?
stable monetary unit
periodicity
Correct!
objectivity
conservatism

Question 48
1 / 1 pts
Objectivity is assumed to be achieved when a transaction
Is recorded in a fixed amount of pesos
Involves the payment or receipts of cash
Correct!
Involves an arm’s length transaction between two independent parties
Allocates revenue and expenses in a rational and systematic manner

Question 49
1 / 1 pts
The principles of objectivity includes the concept of
Correct!
verifiability
classification
conservatism
summarization

Question 50
1 / 1 pts
Proponents of historical cost maintain that statements prepared using historical cost are more
Relevant
conservative
Correct!
Objective
Indicative of purchasing power
Question 51
1 / 1 pts
The consistency standard requires that
Gains and losses should not be recognized
Correct!
The effect of accounting changes upon income should be properly disclosed
Accounting procedures should be adopted when the result is a consistent rate of return
Expenses should be reported when incurred

Question 52
1 / 1 pts
Which of the following relates to both relevance and faithful representation?
Correct!
comparability
neutrality
free from error
feedback value

Question 53
1 / 1 pts
Which of the following situations violates the concept of faithful representation?
Financial statements were issued nine months late
Management
Correct!
Financial statements included an item of property, plant and equipment with carrying amount
increased to management estimate of market value
Data on segments having the same expected risks are reported to analysts estimating future profit.

Question 54
1 / 1 pts
What is the underlying concept governing the GAAP pertaining to recording gain contingencies?
reliability
Relevance
Correct!
Conservatism
consistency

Question 55
1 / 1 pts
The usefulness of providing information in financial statements is subject to the constraint of
Correct!
cost-benefit
consistency
reliability
representational faithfulness

Question 56
1 / 1 pts
A conceptual framework is a coherent system of interrelated objectives and fundamentals that lead
to consistent standards

Correct!
True
False
Question 57
1 / 1 pts
Fundamental qualitative characteristics of financial accounting information are either relevant or
prudent.

True
Correct!
False

Question 58
1 / 1 pts
An enhancing qualitative characteristic is confirmatory value

True
Correct!
False

Question 59
1 / 1 pts
A fundamental qualitative characteristic is understandability

True
Correct!
False

Question 60
1 / 1 pts
To be a faithful representation, an information must be predictive and confirmatory

True
Correct!
False

Question 61
1 / 1 pts
An enhancing quality of financial accounting information is comparability

Correct!
True
False

Question 62
1 / 1 pts
Applying different accounting treatment to similar event from period to period is violation of
verifiability.

True
Correct!
False
Question 63
1 / 1 pts
The idea of consistency does not mean that entities cannot switch from one accounting method to
another

Correct!
True
False

Question 64
1 / 1 pts
Financial statement users are assumed to have no reasonable knowledge of business and financial
accounting matters.

True
Correct!
False

Question 65
0 / 1 pts
Entities consider only quantitative factors in determining whether an item is material.

Correct Answer
False
You Answered
True

Question 66
1 / 1 pts
Neutrality and predictive value are characteristics of relevant information.

True
Correct!
False

Question 67
1 / 1 pts
The tendency to recognize favorable events early is an example of conservatism

True
Correct!
False

Question 68
1 / 1 pts
The Conceptual Framework focuses primarily on the needs of internal users of financial information.

True
Correct!
False
Question 69
1 / 1 pts
The overall objective of financial reporting is to provide information for making economic decisions.

Correct!
True
False

Question 70
1 / 1 pts
Once an accounting method is adopted, it should never be changed

True
Correct!
False

Exercise _ Chapter 4 _ CF FS and reporting entity Underlying assumptions

Question 1
1 / 1 pts
What is the general objective of financial statements?
To satisfy the information needs of users of financial statements
Correct!
To provide information about economic resources of an entity, claims against the entity and
changes in the economic resources and claims
To assess future cash flows to the entity
To assess management stewardship of economic resources

Question 2
1 / 1 pts
A reporting entity is
Necessarily a legal entity
Correct!
An entity that is required or choose to prepare financial statements
Necessarily an economic entity
a regulatory government authority

Question 3
1 / 1 pts
A reporting entity

Correct!
All of the given answers can be considered a reporting entity
Can be a portion of a single entity
Can compromise more than one entity
Can be a single entity

Question 4
1 / 1 pts
If the reporting entity comprises both the parent and its subsidiaries, the financial statements are
referred to as
Separate financial statements
Combined financial statements
Correct!
Consolidated financial statements
Unconsolidated financial statements
Question 5
1 / 1 pts
Combined financial statements provide financial information about
The subsidiaries
Correct!
Two or more entities without a parent-subsidiary relationship
The parent and its subsidiaries
The parent

Question 6
1 / 1 pts
Which best describes the term going concern?
The expenses exceed income
The potential to contribute to the flow of cash and cash equivalents to the entity
When current liability exceeds current assets
Correct!
The ability of the entity to continue in operation for the foreseeable future

Question 7
1 / 1 pts
Which is an implication of the going concern assumption?
The historical cost principle is credible.
The current and noncurrent classification of assets and liabilities is justifiable and significant
Correct!
All of these are an implication of going concern.
Depreciation and amortization policies are justifiable and appropriate.

Question 8
1 / 1 pts
Which of the following is not a basic assumption underlying financial accounting?
Correct!
historical cost assumption
periodicity assumption
Economic entity assumption
going concern assumption

Question 9
1 / 1 pts
Which basic assumption may not be followed when an entity in bankruptcy reports financial results?
Economic entity assumption
monetary unit assumption
Correct!
going concern assumption
periodicity assumption

Question 10
1 / 1 pts
The economic entity assumption
Is inapplicable to unincorporated businesses.
Correct!
Is applicable to all forms of business organizations
Requires periodic income measurement
Recognizes the legal aspects of business organizations
Question 11
1 / 1 pts
What is being violated if an entity provides financial reports in connection with a new product
introduction?
periodicity
monetary unit
Correct!
Economic entity
continuity

Question 12
1 / 1 pts
Which underlying assumption serves as the basis for preparing financial statements at regular
artificial points in time?
stable monetary unit
Correct!
accounting period
accounting entity
going concern

Question 13
1 / 1 pts
Which basic accounting assumption is threatened by the existence of severe inflation in the
economy?
Economic entity assumption
Correct!
monetary unit assumption
going concern assumption
periodicity assumption

Question 14
1 / 1 pts
Inflation is ignored in accounting due to
going concern assumption
Economic entity assumption
Correct!
monetary unit assumption
time period assumption

Question 15
1 / 1 pts
The concept of accounting entity is applicable
only to the legal aspects of business organizations
only to the economic aspects of business organizations
only to business organizations
Correct!
whenever accounting is involved.

Question 16
1 / 1 pts
When a parent and subsidiary relationship exists, consolidated financial statements are prepared in
recognition of
legal entity
monetary unit
Correct!
Economic entity
going concern
Question 17
1 / 1 pts
The valuation of a promise to receive cash in the future at present value is valid because of what
accounting concept?
Correct!
going concern
monetary unit
entity
time period

Question 18
1 / 1 pts
What is the accounting concept that justifies the usage of accruals and deferrals?
materiality
consistency
Correct!
going concern
stable monetary unit

Question 19
1 / 1 pts
During the lifetime of an entity accountants produce financial statements at arbitrary points in time
in accordance with what basic accounting concept?
Correct!
periodicity
continuity
accrual
unit of measure

Question 20
1 / 1 pts
The relatively stable economic, political and social environment supports
materiality
conservatism
timeliness
Correct!
going concern

Question 21
5 / 5 pts
For each situation, identity the underlying assumption involved.

- Going concern

- Accounting entity

- Time period

- Monetary unit
Correct!
The operations of a savings bank are being evaluated by the BSP. During the investigation, the BSP
has determined that numerous loans made by top management were unwise and have seriously
endangered the future of the saving bank.

Going concern

Correct!
The parent entity in Manila has a subsidiary in Japan. The financial statements of the subsidiary are
translated to pesos for consolidation with the financial statements of the parent entity at year-end.
Accounting entity

Correct!
A machinery was imported from USA at a certain cost five years ago. Because of inflation, the
machinery has now a current replacement cost which is very much higher that the historical cost.
Management would like to report the machinery at current replacement cost.
Monetary unit

Correct!
An entity has experienced a drastic reduction in revenue by reason of a long try spell in the area
where the entity grows its tobacco. The management decided to wait until next year and present
financial statements for a two-period rather than prepare now the financial statements.
Time period

Correct!
A subsidiary was exhibiting poor financial performance for the current year. In an effort to increase
the subsidiary’s reported income, the parent entity purchased goods from the subsidiary at twice
the normal markup.
Accounting entity

Question 22
5 / 5 pts
Identify the assumption that is most clearly violated by the accounting practice.

- Going concern

- Accounting entity

- Time period

- Monetary unit

Correct!
An entity decided to publish financial statements only in the years when it had good news to report.
Time period
Correct!

An entity reported inventory, property, plant and equipment and intangible assets at current value
at year-end.
Going concern
Correct!

An electronics entity owned by a proprietor reported the cost of the proprietor’s swimming pool as
an asset of the entity.
Accounting entity
Correct!

An entity prepared financial statements adjusted for changes in purchasing power.

Monetary unit

Correct!
A mining entity kept no accounting records after starting business. The entity is waiting until the
mine is exhausted to determine the success or failure of business.
Time period

Question 23
5 / 5 pts
Identify the assumption that is most clearly violated by the accounting practice.

- Going concern

- Accounting entity

- Time period

- Monetary unit

Correct!
An entity reported financial statements in nominal pesos that have mixed rather than uniform
amount of purchasing power.
Monetary unit

Correct!
A multinational entity published a complete set of financial statements at least once a year,
regardless of whether the financial results were good or bad.
Time period

Correct!
The pesos of today can buy as much as goods and services as the pesos five years ago.
Monetary unit

Correct!
An accounting entity is viewed as continuing in operation in the absence of evidence to the contrary.
Going concern

Correct!
An accounting practitioner mixed personal accounting records with the records of the accounting
practice.
Accounting entity