CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/ESCALA/SANTOS/DELA CRUZ

REVISED CONCEPTUAL FRAMEWORK

1. The Conceptual Framework is intended to establish

a. Accounting standard in financial reporting
b. The meaning of “present fairly in accordance with GAAP”
c. The objectives and concepts for use in developing standards of financial accounting and
reporting
d. The hierarchy of sources of GAAP

2. Which is not a purpose of the Revised Conceptual Framework?

a. To assist the IASB to develop IFRS based on consistent concepts.
b. 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.
c. To assist all parties to understand and interpret the Standards.
d. To assist regulatory agencies in issuing rules and regulations for a particular industry.

3. Which statement is not true concerning the Conceptual Framework?

a. The Conceptual Framework should be a basis for standard setting.
b. The Conceptual Framework should allow practical problems to be solved more quickly.
c. In cases of conflict, the Conceptual Framework prevails over the relevant IFRS.
d. The Conceptual Framework should increase users’ understanding and confidence in financial
reporting

4. What provides "the why" or the goal and purpose of accounting?

a. Measurement and recognition concept
b. Qualitative characteristic of accounting information
c. Element of financial statements
d. Objective of financial reporting

5. Under the Revised Conceptual Framework, during a period when an entity is under the direction of
a particular management, financial reporting will directly provide information about
a. Entity performance and management performance.
b. Entity performance but not management performance
c. Management performance but not entity performance
d. Neither entity performance nor management performance

6. Which statement is not a specific objective of financial reporting?

a. To provide information that is useful in investment and credit decisions.
b. To provide information about entity 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.

7. The assumption that an entity will not be sold or liquidated in the near future is known as
a. Economic entity assumption
b. Monetary unit assumption
c. Time period assumption
d. Going concern assumption

8. 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

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9. Consolidated financial statements are prepared when a parent-subsidiary relationship exists.

a. Economic entity assumption
b. Legal entity assumption
c. Consolidation standard
d. Neutrality

10. 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. Time period assumption
c. Materiality
d. Economic entity

11. Inflation is ignored in accounting due to

a. Economic entity assumption
b. Going concern assumption
c. Monetary unit assumption
d. Periodicity assumption

12. What are the attributes that make information provided in the financial statements useful to the
readers?
a. Qualitative characteristics of financial information
b. Quantitative characteristics of financial information
c. Elements of financial statements
d. Objectives of financial reporting.

13. Fundamental qualitative characteristics of accounting information are

a. Relevance and comparability
b. Comparability and consistency
c. Faithful representation and relevance
d. Neutrality and verifiability

14. Enhancing qualitative characteristics of accounting information include

a. Relevance, faithful representation and materiality
b. Comparability, understandability, timeliness and verifiability
c. Faithful representation and timeliness
d. Materiality and understandability

15. Faithful representation includes

a. Predictive value and confirmatory value
b. Completeness, free from error and neutrality
c. Comparability and understandability
d. Timeliness and verifiability

16. Which is the best description of faithful representation?

a. Influence on the economic decision of users
b. Inclusion of a degree of caution
c. Freedom from material error and bias
d. Comprehensibility to users

17. The financial information is directed toward the common needs of users and is independent of
presumptions about particular needs and desires of specific users.
a. Comparability
b. Verifiability
c. Neutrality
d. Completeness

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18. Neutrality is supported by the exercise of prudence. Prudence is the exercise of care and caution
when dealing with uncertainties in the measurement process such that
a. Assets and income are overstated
b. Liabilities and expenses are understated
c. Assets and income are not overstated and liabilities and expenses are not understated.
d. Assets, liabilities, income and expenses are not overstated.

19. The qualitative characteristic of relevance includes

a. Predictive value and confirmatory value
b. Completeness and neutrality
c. Comparability and understandability
d. Verifiability and timeliness

20. Accounting information is considered relevant when it

a. Can be depended on to represent the economic conditions that it is intended to represent
b. Is capable of making a difference in a decision
c. Is understandable by reasonably informed users of accounting information
d. Is verifiable and neutral

21. Which of the following statements about materiality is not correct?

a. An item must make a difference or it need not be disclosed.
b. Materiality is a matter of absolute size.
c. An item is material if omitting, misstating or obscuring it could reasonably be expected to
influence the economic decision of primary users.
d. Materiality is a subquality of relevance.

22. 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.

23. 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.

24. The enhancing quality of understandability means the information should be understood by
a. Experts in the interpretation of financial statements
b. Users with reasonable understanding of business and economic activities
c. Financial analysts
d. CPAs

25. According to the Revised Conceptual Framework, verifiability implies

a. Legal evidence
b. Logic
c. Consensus
d. Legal verdict

26. The ability through consensus among measurers to ensure that information represents what it
purports to represent is an example of the concept of
a. Neutrality
b. Comparability
c. Verifiability
d. Understandability

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27. When an entity has started placing its quarterly financial statements on its website, thereby reducing
ample time to get information to users, the qualitative concept involved is
a. Comparability
b. Understandability
c. Verifiability
d. Timeliness

28. The Conceptual Framework includes which constraint?

a. Prudence
b. Conservatism
c. Cost
d. All of the choices are constraints in the conceptual framework

29. Which of the following best describes the cost-benefit constraint?

a. The benefit of the information must be greater than the cost of providing it.
b. Financial information should be free from cost to users of the information.
c. Cost of providing financial information is not always evident or measurable but must be
considered.
d. All of the choices are correct.

30. A reporting entity

a. Is necessarily a legal entity
b. Must be a corporate type of entity
c. Is an entity that is required or chooses to prepare financial statements
d. A regulatory government authority

31. A reporting entity

a. Can be a single entity
b. Can be a portion of a single entity
c. Can comprise more than one entity
d. All of these can be considered a reporting entity

32. Which statement is true about financial statements of a reporting entity?

a. If the reporting entity comprises both the parent and its subsidiaries, the financial statements are
referred to as consolidated financial statements.
b. If the reporting entity is the parent alone, the financial statements are referred to as
unconsolidated financial statements.
c. If the reporting entity comprises two or more entities that are not linked by a parent-subsidiary
relationship, the financial statements are referred to as combined financial statements.
d. All of these statements are true about the financial statements of a reporting entity.

33. What is the new definition of an asset under the Revised Conceptual Framework?
a. A resource controlled by the entity as a result of past event and from which future economic
benefit is expected to flow to the entity.
b. A resource controlled by the entity and from which future economic benefit is expected to flow
to the entity.
c. A present economic resource controlled by the entity as a result of past event.
d. A present economic resource controlled by the entity as a result of past event and from which
future economic benefit is expected to flow to the entity.

34. Which is not a characteristic of an asset under the Revised Conceptual Framework?
a. An asset is a present economic resource.
b. The economic resource is a right that has the potential to produce economic benefits.
c. The economic resource is controlled by the entity as a result of past event.
d. Future economic benefit is expected to flow to entity and must be probable or certain.

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35. What is the new definition of liability under the Revised Conceptual Framework?
a. A present obligation of the entity arising from past event the settlement of which is expected to
result in an outflow of economic benefit.
b. A present obligation of the entity arising from present event.
c. A present obligation of the entity to transfer an economic resource as a result of past event.
d. An obligation that the entity has practical ability to avoid.

36. Under the Revised Conceptual Framework, which of the following criteria need not be satisfied for
a liability to exist?
a. The entity has an obligation or a duty or responsibility that it has no practical ability to avoid.
b. The obligation is to transfer an economic resource and not the ultimate outflow of economic
benefit.
c. The obligation is a present obligation that exists as a result of a past event.
d. The settlement of the obligation is expected to result in an outflow of economic benefit.

37. Which statement is not true about income and expenses?

a. Income is increase in asset or decrease in liability that results in increase in equity other than that
relating to contribution from equity holders.
b. Expense is decrease in asset or increase in liability that results in decrease in equity other than
that relating to distribution to equity holders.
c. Income and expenses are the elements that relate to financial position.
d. Income encompasses revenue and gain.

38. It is the process of capturing for inclusion in the statement of financial position or the statement of
financial performance an item that meets the definition of an element of the financial statements.
a. Recognition
b. Measurement
c. Derecognition
d. Disclosure

39. The term “recognized” is synonymous with the term

a. Recorded
b. Realized
c. Matched
d. Allocated

40. Which means the process of converting noncash resources into cash or claims to cash?
a. Allocation
b. Collection
c. Recognition
d. Realization

41. Under the Revised Conceptual Framework, what is the recognition principle?
a. It is probable that any future economic benefit associated with the item will flow to or from the
entity.
b. The item has a cost or value that can be measured with reliability.
c. It is probable that any future economic benefit will flow to or from the entity and the element can
be measured reliably.
d. Only items that meet the definition of an asset, liability, equity, income and expense are
recognized.

42. Derecognition is the removal of a recognized asset or liability from the statement of financial position
and normally occurs when
a. An item no longer meets the definition of an asset or a liability
b. The entity loses control of the asset.
c. The entity no longer has a present obligation for the liability
d. Under all of these circumstances

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43. Under the Revised Conceptual Framework, the measurement bases include
a. Historical cost
b. Current value
c. Assessed value
d. Historical cost and current value

44. Current value includes

a. Fair value
b. Value in use
c. Fulfillment value
d. Fair value, value in use, fulfillment value and current cost

45. Which statement is not true about current value measurement?

a. Fair value of an asset is the price that would be received to sell an asset in an orderly transaction
between market participants at the measurement date.
b. Value in use is the present value of the cash flows expected to be derived from the use and
ultimate disposal of an asset.
c. Fulfillment value is the absolute amount of cash expected to be transferred for the payment of
liability.
d. Current cost is the cost of an equivalent asset at reporting date comprising the consideration paid
and transaction cost.

46. The term “revenue recognition” conventionally refers to

a. The process of identifying transactions to be recorded as revenue in an accounting period.
b. The process of measuring and relating revenue and expenses of an entity for an accounting
period.
c. The earning process which gives rise to revenue realization.
d. The process of identifying those transactions that result in an inflow of assets from customers.

47. Which of the following is not an acceptable basis for the recognition of expense?
a. Systematic and rational allocation
b. Cause and effect association
c. Immediate recognition
d. Cash disbursement

48. Which of the following would be matched with current revenue other than association of cause and
effect?
a. Goodwill
b. Cost of goods sold
c. Sales commission
d. Warranty cost

49. Which is an application of systematic and allocation?

a. Doubtful accounts
b. Research and development cost
c. Salary of president
d. Amortization of patent

50. Doubtful accounts expense is recognized according to which expense recognition principle?
a. Direct matching
b. Immediate recognition
c. Systematic and rational allocation
d. Critical event recognition

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