FAR Chapter 2 Problem 2

1. The assumption that a business entity will not cease its operations shortly refers to the
concept of consistency. false
2. Using the same accounting treatment for identical items from one period to another is an
application of the concept of the time period. false
3. Entity a acquires a regular ballpen. Instead of recognizing the cost of the ballpen as an asset
to be subsequently depreciated, entity a immediately charges it as an expense. This is an
application of the concepts of materiality and cost-benefit. true
4. You own a business. Your business extends credit to various customers. One day, you found
out that one of your customers became bankrupt. You immediately charged that customer’s
account as a loss because you don’t expect that the customer will be able to pay you
anymore. You are applying the concept of cost-benefit. false
5. Under the accrual basis of accounting, income is recognized when earned, not when cash is
collected, and expenses are recognized when incurred, not when cash is disbursed. true
6. Corporate and partnership businesses in the Philippines are regulated by the department of
trade and industry (DTI). false
7. After becoming a certified public accountant (CPA), Mr. A worked as an external auditor in
one of the biggest auditing firms in our country. Two years later, an international auditing
firm offered Mr. an an external audit job abroad, which Mr. a accepted. Mr. a will be
applying different accounting standards in his new job compared to those that he has
applied in his previous job. false
8. The term standards are used in practice to refer to both the PFRSs and the conceptual
framework. false
9. Qualitative characteristics are the traits that determine whether an item of information is
useful to users, and therefore included in the financial statements. true
10. Information has the qualitative characteristics of relevance if it is capable of making a
difference in the decision of users. true