FAT : Pre-week Summary I – Oct 2006 Page 1

ST. SCHOLASTICA’S COLLEGE

Manila

BSA 105A Dean Ester F. Ledesma

CONCEPTUAL FRAMEWORK OF ACCOUNTING MID-TERM EXAMINATION

Instructions: Time schedule for Examinations: 2:00 – 5:00 pm, Thursday, May 28, 2020.
Print the answers of your choice using CAPITAL LETTERS on a separate sheet and submit by
Email back to me on or before 5:00 PM. There will be deductions for late submission.

Overview of Accounting

Bookkeeping Systems/ Accounting Process

1. Which of the following statements about bookkeeping systems is (are) true
I. Double-entry bookkeeping has been used for centuries..
II. Double-entry bookkeeping is the generally acceptable method of bookkeeping because it offers a
more complete income measurement than single-entry.
III. The objective of external financial statements is to communicate the economic effects of completed
transactions and other events in the entity to interested parties
A. Only I is true B. Only II is true C. II and III are true D. I, II and III are true

Accounting Process
2. The accounting equation must remain in balance
A. . throughout each step in the accounting cycle.
B only when journal entries are recorded.
C. only at the time the trial balance is prepared.
D. only when formal financial statements are prepared.

3. Basic steps in the recording process include all of the following except
A. Transfer the journal information to the appropriate account in the statement of financial postion.
B. Analyze each transaction for its effect on the accounts.
C. Enter the transaction information in a journal.
D. All of the choices are corrrect regarding the basic steps in the recording process.
.
4. Which of the following errors will cause an imbalance in the trial balance?
A. Omission of a transaction in the journal.
B. Posting an entire journal entry twice to the ledger.
C. Posting a credit of P720 to Accounts Payable as a credit of P720 to Notes Payable.
D. Listing the balance of an account with a debit balance in the credit column of the trial balance.

5. Which of the following is not a principal purpose of a trial balance?

A. It proves that debits and credits of equal amounts are in the ledger.
B. It is the basis for any adjustments to the account balances
C. It supplies a listing of open accounts and their balances
D. It proves that debits and credits were properly entered in the ledger accounts

6. Adjusting entries are needed because in reporting financial data an entity

I. Adopts the accrual assumption
II Reports on transactions that overlap accounting periods
III. Adopts the going concern assumption
A. I only B. I and II only C. II and III D. I, II and III

7. Which of the following statements best describes the purpose of closing entries?
A . To faciliate posting and taking a trial balance.
B. To determine the amount of net income or net loss for the period.
C. To reduce the balances of temporary accounts to zero so that they may be used to accumulate the
revenues, expenses and dividends of the next period.
D. To complete the record of various transactions that were started in a prior period.

8. Reversing entries
A. Impact the income statement only.
B. Impact the statement of financial position and the income statement.
C. Are not allowed under International Financial Reporting Standards(IFRS).
D Change amounts reported in the financial statements of the preceding periiod

Definition / Nature / Purpose / Environment of Accounting

9. Which of the following statements about accounting information is (are) true?
I. Accounting provides quantitative, qualitative and financial information
II. Qualitative information is found only in the notes to financial statements.
 2

III. Information in the financial statements are sourced only from the books of
account.
A. I only B. I and III only C. II and III only D. I, II and III

10. Which of the following statements is not a proper description of accounting as a communication
profession?
a. Financial statements can be expressed in any national language.
b. Financial statements can be expressed in any dialect of a country.
c. Financial statements should use terminology within the level of understanding of the statement user
d.. Financial statements, as far as possible, should show information that can be verified from
documentary evidence in order to gain the confidence of statement users

11. In which of the following situations is the science aspect of accounting demonstrated?
I.. The accountant makes use of the rules of debit and credit in recording transactions of the
business
II. Transactions and events are processed using the steps of the accounting cycle.
III. A provision for doubtful accounts was estimated by the accountant on the basis of recorded
data and the collection experience of the company
a. I only b. I and II only c. II and III only d. I, II and III

12. he art aspect of accounting is applied in which of the following circumstances?

I. The accountant records a purchased equipment at cost plus expenses in acquisition and
putting it available for use.
II. The external auditor gives an unqualified opinion that the financial statements are fairly
presented in conformity with generally accepted accounting principles
III. The accountant selects the reliable fair value at which a consumable biological asset
will be recognized and measured in the books of account.
a. Statement I only c. Statements II and III
b. Statements I and II d. Statements I, II and III
13. Which of the following statements is (are) true?
I. Not all quantitative information is also financial in nature.
II. Measurement is the process of assigning numbers to objects such as inventories or plant
assets and to events such as purchases or sales.
III. Management decisions are oriented to the future whereas the decisions of external users
are oriented to the past.
a. I and II only c. I and III only
b. II and III only d. I, II and III

14. Which of the following statements about financial accounting is incorrect?

I. General purpose financial statements must be prepared by a certified public accountant.
II. Financial accounting is a social science that can be influenced by changes in the legal, political and
business environments
III. Financial accounting emphasizes subjective data as long as it is relevant to a particular decision
maker.
IV. Not all significant information useful to users can be displayed on the face of the basic financial
statements
A. Statement I only C. Statements II and IV only
B. Statement I and III only D. Statements I, II and III only

15. Which of the following items are reported in the Financial Statements as of a given period of time?
Net income (loss) Assets and Liabilities Income and Expenses
a. Yes No Yes
b. Yes No No
c. Yes No Yes
d. No Yes No

16. Which of the following criteria should be met before a particular action, condition, or set of circumstances
qualifies as an accountable event ?
A..It has already happened.
B.. It affects the financial position of individual business entities.
C.. It can be measured in monetary terms with a reasonable degree of precision.
D.. All of the above.
17. The following are classified as external events except
A. Payment of money borrowed C. Government grant
B. Purchase of supplies D. Casualty loss
 3

18. Sigurado Corp. discovered a material amount of loss from theft. The value of the loss should be classified as
a. A non-reciprocal transfer c. An exchange
b. A reciprocal transfer d. A casualty

19. External events are those that affect the enterprise and in which other entities participate. One example
is when
a. A manufacturing company transfers goods from one production department to another
b. The expired portion of prepaid insurance is taken up as expense
c. Loss of inventory due to fire
d. Issuance of promissory note in settlement of an account
20. Under this measurement base, assets are carried at the amount of cash or cash equivalents that would
have to be paid if the same or an equivalent asset was acquired currently.
A. Historical cost C. Present discounted value
B Current cost (or Fair value). D Net realizable value
Purchase of supplies

21. Assets are usually measured by the cash or cash equivalent paid or the fair value of the consideration
given to acquire them at the time of acquisition. Which of the following is this measurement base?
A. Historical cost C. Net realizable value
B. Current cost (or Fair value) D. Present discounted value

22. Historical cost is a measurement base currently used in financial accounting. Which of the following
measurement bases is (are) also currently used in financial accounting?
Fair value or current value Discounted Cash Flow Net Realizable Value
A. Yes Yes Yes
B. No Yes Yes
C. Yes No Yes
D. Yes No No

23. Which of the following types of acquisition of asset and measurement base is (are) properly and logically
matched?
Mode of acquisition Measurement base
1. Acquisition asset by purchase 1. Historical cost
2. Acquisition of machinery by long-term credit 2. Net realizable value
3. Acquisition of land invested by the owner 3. Fair value
A. 1 only B. 1 and 2 only C. 1 and 3 only D. 1, 2 and 3
Users of Accounting Information
24. The investors or providers of risk capital and their advisers are concerned with the following information
except
A. The need to determine whether they should buy, hold, or sell their investment
B. The need to assess the ability of the enterprise to pay dividends
C. The need to assess the ability of the enterprise to provide retirement benefits
and employment opportunities
D. The need to assess the risk inherent in, and return provided by their investments

25. Which of the following is not a primary user of financial information?

A. investors C. Employees
B. Trade creditrs and suppliers D. Lenders

26. Lenders are interested in information that enables them to determine

a. Whether the entity has the capacity to pay its short-term obligation
b. Whether their loans and the interest attaching to them will be paid when due
c.Whether the enterprise is making a substantial contribution to the local economy
d. Whether the enterprise will continue to operate as a going concern

27. Which of the following is an internal user of a company’s financial information?

a. A member of the board of directors
b. A creditor with long-term contracts with the company
c. A holder of the company’s bonds
d. A stockholder of the company
 4

Accounting Standard Setting

28. The accounting 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.

29. Which of the following statements relating to the FRSC and standard setting process in the Philippines. is (are)
true?
I. Members of the FRSC who are recommended by PICPA as the representatives of the four sectors of the
accountancy profession should be CPAs.
II. The Financial Reporting Standards Council (FRSC) Board of Accountancy (BOA), the Philippine Institute
of CPAs (PICPA), the Philippine Interpretations Committee (PIC) and the Professional Regulation
Commission (PRC) are all involved in the standard setting process, with PRC as the final approving
authority.
III. Members of the accountancy profession may participate in the accounting standard-setting process by
responding to invitations to comment on the Exposure Drafts issued by the accounting standard-setters.
V. I is true b. I and II are true c. I and III are true d. I, II and III are true

30. In the Philippines, the body that is responsible for reviewing Philippine accounting issues with divergent and
unacceptable treatments in the absence of in authoritative guidance and serves as the study group of the Financial
Reporting Standards Council is
a. Philippine Accounting Principles Committee c. Accounting Standards Interpretations Committee
b. Philippine Interpretations Committee d. Education Technical Committee

The Conceptual Framework

31. A soundly developed conceptual framework of concepts and objectives should
a. increase financial statement users' understanding of and confidence in financial reporting.
b. enhance comparability among companies' financial statements.
c. allow new and emerging practical problems to be more quickly solved.
d. all of these.

32. The underlying theme of the conceptual framework is

a. decision usefulness. b. understandability c. reliability d. comparability

33. Which of the following basic accounting assumptions is threatened by the existence of severe inflation in the
economy?
A. Monetary unit assumption. C. Going-concern assumption
B. Periodicity assumption. D. Economic entity assumption.

34. In the International Accounting Standards Board’s (IASB’s) Conceptual Framework, qualitative characteristics
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.
.
35. What is meant by comparability when discussing financial accounting information?
a. Information has predictive or feedback value.
b. Information is reasonably free from error.
c. Information that is measured and reported in a similar fashion across companies.
d. Information is timely.

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

a. Information that 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.

37. Under the revised Conceptual Framework, which of the following are among the enhancing qualitative objectives
of financial accounting?
A. Relevance D. Timeliness G. Freedom from bias
B. Faithful representation E. Verifiability H. Comparability
C. Understandability F. Neutrality I. Completeness
a. A ,C, D and F b. C, D, E and H c. B, G, H, and I d. C, D, E and F

38. Which of the following statements about the qualitative characteristics is (are) true?
I. Relevance is the capacity of information to make a difference in decision by helping users form
 5

predictions about outcome of past, present and future events or confirm /correct prior expectations
II. The quality of faithful representation assures readers that the financial information is free from bias and
faithfully represents what it purports to show, including adequate disclosure of significant information
III. Under the IASB Framework for the Preparation and presentation of financial statements, the
attainment of the qualitative objectives of accounting becomes difficult at times because of cost
constraints
A, I and II only B. I and III only C. II and III only D. I, II and III

39. The Conceptual Framework includes a materiality constraint. Which of the following is false regarding
this constraint?
A. “Accuracy can be dispensed with if the amount involved is not material.
B. Materiality factors into both internal and external accounting decisions.
C. An item is immaterial if its inclusion or omission would influence or change the judgment of a reasonable
person.
D. All of the choices are correct

40. The International Accounting Standards Board’s conceptual framework includes a cost-benefit constraint. Which
of the following best describes the cost-benefit constraint?
A. The benefits of the information must be greater than the costs of providing it.
B. Financial information should be free from cost to users of the information.
C. Costs of providing financial information are not always evident or measurable, but must be considered.
D. All of the choices are correct.

41. Which one of the following statements best describes the term “going concern”?
A. When current liabilities of an entity exceeds current assets
B. The ability of the entity to continue in operation for the foreseeable future
C. The potential to contribute to the flow of cash and cash equivalents to the entity
D. The expenses of an entity exceed its income

Numbers 42 to 44 pertain to ethical issues, some procedures and practices by some reporting enterprises. For
each of the situations described in these numbers, identify what assumption, principle, qualitative objective or
constraint is most violated:

42. ABC Corp. purchased a computer for home use, costing P120,000 but recorded it as an asset of the
corporation
A. Materiality concept C. Entity assumption
B. Measurement principle D. Going concern assumption

43. DEF Corp. recorded a possible material loss liability on a pending lawsuit amounting to P 1,000, 000 nor was it
disclosed in the notes to financial statements
A. Completeness C. Materiality
B . Verifiability D. Comparability

44. The bookkeeper of GHI Corporation did not record a sale on account amounting to P180,000. She reasoned that
no cash has yet been received, therefore, no income should be recorded until the account is collected.
A. Accrual assumption C. Going concern assumption
B. Matching Principle D. Measurement principle

45. MNO Corporation reported Accounts Receivable at its fair value of P10,000,000 in the Statement of Financial
Position as of December 31, 2019. Its collection experience shows that 10% of this is long past due. A provision
for impairment loss was not recognized in the financial statements as there is no concrete or written evidence yet
that the customers will not pay their account .
A. Relevance C. Materiality
B. Faithful representation D. Verifiability

Numbers 46 to 48 pertain to some procedures and practices by certain reporting enterprises.. For each of the
situations described in these numbers, identify what assumption, principle, qualitative objective or constraint is / are
applied. (Choose the best answer)

46. A petty cash count was conducted by Prince Company in order to determine the correct amount of Petty Cash to
be presented in the balance sheet as of December 31, 2019.
A. Verifiability C. Verifiability, Comparability, Understandability
B. Relevance, timeliness D. Verifiability, Faithful representation, Timeliness

47. Princess Manufacturing Corporation purchased some punchers, staplers and staple removers and other items of
office equipment at a total amount of P20,000. Although these items can be used for more than one, year, this
was charged to Office Supplies Expense.
A. Materiality / Cost-benefit constraints C. Materiality / Understandability
B. Relevance/Verifiability D. Verifiability
 6

48. Duchess Corporation is experiencing financial difficulties and entered into a refinance agreement for an extension
of payment of loan in the amount of P5,000,000 that is currently due. This fact was disclosed in the notes to
financial statements.
A. Relevance / Faithful representation C. Going Concern/Relevance/ Faithful Representation
B. Relevance / Understandability D. Accrual / Going Concern / Faithful Representation

Financial Statements
49. Financial statements include a statement of financial position, Ua statement of comprehensive income and a
statement of changes in equity. According to the Preface to international financial reporting standards, which TWO
of the following are also included within the financial statements?
I. A statement of cash flows III. An auditor’s report
II. Accounting policies IV. A directors' report
a. I and II b. I and III c. II and III d. III and IV
50. Which of the following is (are) among the limitations of financial accounting and financial statements?
I. Use of estimates
II. Historical in nature
III. Some information that are not quantifiable but may be significant to statement users in forming economic
decisions are not given recognition.
a. I only b. I and II only c. II and III only d. I, II and III

PART 2 – Cases (Synthesis of Overview and CFA Level 1)

Accounting elements are measured in terms of money, There are four bases of measurement of the these accounting
elements: : Historical Cost, Fair value (or current cost), Present discounted value, and Net realizable value.
We also discussed in the environment of Accounting that the type of events, ( external or internal), in many instances
will affect the choice of the reliable measurement base.
INSTRUCTIONS
On the matrix provided, fill out your answers to the transactions or elements described hereunder:

Item Measurement base Qualitative Objective/(s) involved

on choice of measurement base
1.. Merchandise inventory purchased
At P250,000, on account FV FAITHFUL REPRESENTATION

2. Machinery, valued at P 2 million invested

by the owner FV MATERIALITY,
UNDERSTANDABILITY

3.. 3-year promissory note, P3,000,000

issued for purchase of delivery truck PDV COMPLETENESS, TIMELINESS

4.. Land received by XYZ Company, donated

by the city government HC NEUTRALITY

5.. Accounts Receivable, P 5 million, 10%

of which is doubtful of collection NRV FAITHFUL REPRESENTATION
COMPLETENESS.

6. Cash P10 M received from sale of

Merchandise FV FAITHFUL REPRESENTATION,
VERIFIABILITY

END OF EXAMINATION - GOD BLESS!