CONCEPTUAL REVIEWER 10.
An amount paid for an advertising
1. It is the process of determining the
monetary amount at which the elements of the
financial statements are recognized and
carried in the financial statements. *
MEASUREMENT
2. Events after the end of reporting period are
either adjusted or disclosed. *
ADEQUATE DISCLOSURE
3. Rent paid in advance is recorded as
prepaid rent expense. *
SYSTEMATIC AND RATIONAL ALLOCATION
Correct answers
EXPENSE RECOGNITION
EXPENSE RECOGNITION PRINCIPLE
4. States that all business transactions that
will be entered in the accounting records must
be duly supported by verifiable evidence. *
OBJECTIVITY PRINCIPLE
5. What principle or concept is violated when
the entity's accountant increased the carrying
amount of a patent from the original cost of
P1,000,000 to the recently appraised value of
P3,000,000? *
HISTORICAL COST PRINCIPLE
6. What principle or concept is violated when
at the end of the current year reporting period,
the entity received an order from a customer.
The merchandise will be shipped in early next
year. Because the sale was made to a long-
time customer and invoice was paid in the
current year, the controller recorded the sale
in the current year. *
REVENUE RECOGNITION PRINCIPLE
7. The entity included a note in the financial
statements that describe a pending lawsuit
against the entity. What accounting principle
was applied by the entity? *
ADEQUATE DISCLOSURE
8. In the middle of the current year, the entity
paid a certain amount to an insurance for one-
year comprehensive insurance coverage. The
entity recorded the entire expenditure as an
expense in the current year. What accounting
principle is violated? *
EXPENSE RECOGNITION PRINCIPLE
Correct answer
MATCHING PRINCIPLE
9. The entire cost of leasehold improvement is
to be charged to an expense account. What
matching principle application is violated? *
SYSTEMATIC AND RATIONAL ALLOCATION
campaign to promote a new product that will
be placed on the market in the following year
is charged to prepaid advertising. What
matching principle application was violated? *
IMMEDIATE RECOGNITION
1. An entity records a new machine at the
cash equivalent price paid. *
HISTORICAL COST
2. The entity allocates the cost of a patent to
the accounting periods in which helps to
produce the revenue. Which matching
principle application is applicable? *
SYSTEMATIC AND RATIONAL ALLOCATION
3. Subscriptions received in advance by a
magazine publishing entity are treated as
deferred revenue until the magazines are
published. *
INCOME RECOGNITION PRINCIPLE
4. The writeoff of a worthless patent is an
example of which matching principle
application? *
IMMEDIATE RECOGNITION
5. Which accounting principle is being
observed when an accountant charges to
expense a cost that contributed revenue
during a period? *
MATCHING PRINCIPLE
6. It is the amount of cash or cash equivalent
that would have to be paid if the same or an
equivalent asset was acquired currently. *
CURRENT COST OF AN ASSET
7. The entity should always report the
important details about share capital, for
example, the number of shares authorized,
shares issued, shares in treasury, subscribed
shares and par value. *
ADEQUATE DISCLOSURE
8. When the merchandise is sold, the cost
thereof is expensed in the form of "cost of
goods sold" because at such time revenue
may be recognized. What matching principle
application is applicable? *
CAUSE AND EFFECT ASSOCIATION
9. The process of capturing for inclusion in the
financial statements an item that meets the
definition of an asset, liability, equity, income
or expense. *
RECOGNITION
10. The effects of transactions and other
events are recognized when they occur and
not as cash or its equivalent is received or
paid. This means that the accountant records 8. The older the information, the less useful. *
revenues as they are earned and expenses as
TIMELINESS
they are incurred. *
ACCRUAL BASIS
9. When an entity applies the same
1. Entity A deliberately overstated its liabilities accounting treatment to similar events from
from P1M to P1.2M. What qualitative period to period, the entity is exhibiting which
characteristic is violated? * accounting concept? *
FAITHFUL REPRESENTATION
PERIODICITY CONCEPT
Correct answers
2. Two primary users are using the financial
CONSISTENCY
information of Entity A. If User #1 concludes
PRINCIPLE OF CONSISTENCY
that Entity A’s sales has increased while User CONSISTENCY CONCEPT
#2 concludes that it has decreased, Entity A’
financial information is not ___________. *
FAITHFUL 10. It is the goal achieved by consistency. *
Correct answers COMPARABILITY

COMPARABILITY
11. The enterprise should always report the
COMPARABLE
important details about capital stock, for
instance, the number of shares authorized,
3. According to the conceptual framework, shares issued, shares in treasury, subscribed
these are the qualitative characteristics that shares and par value. What accounting
relate to the content or substance of financial concept is applied? *
information. * GOING CONCERN
FUNDAMENTAL QUALITATIVE Correct answers
CHARACTERISTICS
COMPLETENESS
STANDARD OF ADEQUATE DISCLOSURE
4. Information that is capable of making ADEQUATE DISCLOSURE
difference in the decisions made by users has ADEQUATE DISCLOSURE STANDARD
this qualitative characteristic. PRINCIPLE OF FULL DISCLOSURE
RELEVANCE FULL DISCLOSURE PRINCIPLE
STANDARD ADEQUATE DISCLOSURES
5. Information has this qualitative
characteristic if different, knowledgeable and 12. A large enterprise decides that whenever
independent observers could reach an asset has a cost of less than P10,000, the
consensus, although not necessarily cost will be charged to expense even though
complete agreement, that a particular the asset may benefit, several accounting
depiction is a faithful representation. * periods. *
VERIFIABILITY MATERIALITY

6. It is the exercise of care and caution in 13. When an accounting entities give similar
dealing with uncertainties in measurement so events the same accounting treatment each
as not to overstate assets and income and not period, the entity is exhibiting what accounting
understate liabilities and expenses. * concept?
PRUDENCE PERIODICITY CONCEPT
Correct answers
7. It is a concept that describes, “when in
CONSISTENCY
doubt, recognize all losses and don’t CONSISTENCY CONCEPT
recognize gains.” *
CONSERVATISM
14. Small expenditures for tools are expensed
immediately. *
MATERIALITY
15. Information is understandable if it is
presented in a clear and concise manner. *
UNDERSTANDABILITY
1. While making a delivery, the driver of
Fastrac Courier collided with another vehicle
causing both property damage and personal
injury. The party sued Fastrac for damages
which could exceed Fastrac's insurance
coverage. Existence of the lawsuit was
reported in the notes to Fastrac's financial
statements. What ingredient of faithful
representation is applied in this situation? *
COMPLETENESS
2. Information has this quality when it
influences the economic decisions of users by
helping them evaluate past, present or future
events or confirming, or correcting, their past
evaluations. *
RELEVANCE
3. It depends on the size of the item or error
judged in the particular circumstances of its
omission or misstatement and provides a
threshold or cut-off point rather than being a
primary qualitative characteristic which
information must have if it is to be useful. *
MATERIALITY
4. Which of the qualitative characteristics
states that before a transaction is recorded,
sufficient evidence must exist to allow two or
more knowledgeable individuals to reach
essentially the same conclusion about the
transaction? *
VERIFIABILITY
5. This accounting principle states that in the
event of conflict between the economic
substance of a transaction and the legal form,
the economic substance shall prevail. *
SUBSTANCE OVER FORM
6. “Financial statements of different firms
should be based on similar accounting
principles and procedures in order to aid users
of financial statements in finding similarities
and differences among firms for purposed of
financial decision making.” This qualitative
characteristic is called _______. *
COMPARABILITY
7. It is the accounting principle that refers to
the uniform application of accounting period
from period to period within an entity. *
CONSISTENCY
8. The financial information should not favor
one party to the detriment of another party. *
NEUTRALITY
9. It requires that users have some knowledge
of the complex economic activities of entities,
the accounting process and the technical
terminology in the statements. *
UNDERSTANDABILITY
10. When in doubt, recognize all losses and
don't recognize gains. *
CONSERVATISM
11. The description and numbers or figures
must match what really existed or happened. *
FAITHFUL REPRESENTATION
12. There are no errors or omissions in the
description of the phenomenon. *
FREE FROM ERROR
13. It the goal achieved by consistency. *
COMPARABILITY
14. The older the information, the less
useful. *
TIMELINESS
15. The information should be presented in a
manner that facilitates understanding and
avoids erroneous implication. *
COMPLETENESS
1. What is the authoritative status of the
conceptual framework? *
The framework has the highest level of authority.
In the absence of a standard or an interpretation that
specifically applies to a transaction, the framework
should be followed.
In the absence of a standard or an interpretation that
specifically applies to a transaction, management
should consider the applicability of the framework in
developing and applying an accounting policy that
results in information that is relevant and reliable.
The framework applies only when the FRSC
develops new or revised standards.
2. A conceptual framework should *
Lead to uniformity of financial statements among
entities within the same industry.
Eliminate alternative accounting approach.
Guide PICPA in developing generally accepted
auditing standards.
Define the basic objectives, terms and concepts of
accounting.
3. Which is not a basic purpose of a
conceptual framework? *
To assist FRSC in developing accounting
standards.
To assist preparers of financial statements in
applying accounting standards.
To assist FRSC in reviewing and adopting IAS.
To assist the Board of Accountancy in promulgating
rules and regulations affecting the practice of
accountancy in the Philippines.
4. The purpose of the framework is (choose
the incorrect one) *
To assist the FRSC in developing accounting
standards that will represent GAAP in the
Philippines.
To assist the FRSC in its review and adoption of
existing international accounting standards.
To assist auditors in forming an opinion as to
whether financial statements conform with
Philippines GAAP.
To assist the Board of Accountancy in promulgating
rules and regulations affecting the practice of public
accountancy.
5. Which of the following is not a purpose of
the conceptual framework of accounting? *
To provide definitions of key terms and fundamental
concepts.
To provide specific guidelines for resolving
situations not covered by existing accounting
standards.
To assist accountants and others in selected among
alternative accounting and reporting methods.
To assist the FRSC in the standard-setting process.
6. Which of the following statements is not
true concerning conceptual framework? I. The
framework is a Philippine Financial Reporting
Standard and hence defines standard for any
particular measurement or disclosure issue. II.
The framework is concerned with general
purpose financial statements including
consolidated financial statements. *
I only
II only
Both I and II
Neither I nor II
Correct answer
I only
7. The conceptual framework is intended to
establish *
Generally accepted accounting principles in
financial reporting by entities.
The meaning of “present fairly in accordance with
GAAP”.
The objectives and concepts for use in developing
standards of financial accounting and reporting.
The hierarchy of sources of GAAP.
8. Which is not included in the scope of the
conceptual framework? *
Qualitative characteristics that determine the
usefulness of financial accounting information.
Definition, recognition, and measurement of the
elements of financial statements.
Objective of financial statements.
Generally accepted accounting principles.
9. Which statement is incorrect concerning the
conceptual framework? *
The framework applies to the financial statements
of all commercial, industrial, and business reporting
entities, whether in the public and private sector.
Special purpose financial reports, for example,
prospectuses and computations prepared for
taxation purposes, are within the scope of the
framework.
The framework is not a Philippine Financial
Reporting Standard and hence does not define
standard for any particular measurement or
disclosure issue.
The framework is concerned with general purpose
financial statements including consolidated financial
statements.
Correct answer
Special purpose financial reports, for example,
prospectuses and computations prepared for
taxation purposes, are within the scope of the
framework.
10. As regards the relationship between
PFRS and the Framework for the preparation
and presentation of financial statements, are
the following statements true or false?
Statement 1: The Framework is a reporting
standard. Statement 2: In case of conflict, the
requirements of the Framework prevail over
those of the relevant PFRS. *
Both statements are true.
Statement 1 is true; Statement 2 is false.
Both statements are false
Statement 1 is false; Statement 2 is true.
11. These are also known as postulates. *
accounting assumptions
accounting standards
accounting principles
qualitative characteristics
12. Which of the following statements best
describes the term “going concern”? *
When current liabilities of an entity exceed current
assets.
The ability of the entity to continue in operation for
the foreseeable future.
The potential to contribute to the flow of cash and
cash equivalents to the entity.
The expense of an entity exceeds its income.
13. Which of the following is not 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 and noncurrent classification of
assets and liabilities is justifiable and significant.
d. Amortizing research and development costs over
several periods is justifiable and appropriate.
14. The financial statements that are prepared
for the business are separate and distinct from
the owners according to the *
a. Going concern principle
b. Matching principle
c. Accounting entity assumption
d. Accounting period assumption
15. When a parent and subsidiary relationship
exists, consolidated financial statements are
prepared in recognition of
a. Legal entity
b. Economic/Accounting entity
c. Stable monetary unit
d. Time period
16. Which underlying concept serves as the
basis for preparing financial statements at
regular intervals? *
a. Accounting entity
b. Going concern
c. Accounting period
d. Stable monetary unit
17. During the lifetime of an entity,
accountants produce financial statements at
arbitrary points in time in accordance with
which basic accounting concept? *
a. Accrual
b. Periodicity
c. Unit of measure
d. Continuity
18. The financial statements should be stated
in terms of a common financial denominator. *
a. Accrual
b. Going concern
c. Time period
d. Monetary unit
19. Which of the following is not an important
characteristic of the financial statements that
accountants currently prepare? *
a. The information in financial statements is
expressed in units of money adjusted for changing
purchasing power.
b. Financial statements articulate with one another
because measuring financial position is related to
measuring changes in financial position.
c. The information in financial statements is
summarized and classified to help meet users’
needs.
d. Financial statements can be justified only if the
benefits they provide exceed the costs.
Correct answer
a. The information in financial statements is
expressed in units of money adjusted for changing
purchasing power.
20. Which of the following statements is
incorrect? *
a. The accrual method, which builds directly on the
revenue and matching principles, ignores the timing
of cash receipts or payments when determining
when to recognize revenue or expenses.
b. In accordance with the unit of measure
assumption, accountants normally revise the
amounts to reflect the changing purchasing power
of money due to inflation or deflation.
c. In accordance with the going concern
assumption, the life of a business is presumed to be
indefinite.
d. Accountants prepare financial statements at
arbitrary points in time during an entity’s lifetime in
accordance with the accounting concept of
accounting period.
Correct answer
b. In accordance with the unit of measure
assumption, accountants normally revise the
amounts to reflect the changing purchasing power
of money due to inflation or deflation.
21. Which qualitative characteristics relate to
the content of financial statements? *
a. Relevance and reliability
b. Relevance and faithful representation
c. Relevance and understandability
d. Relevance and comparability
22. As essential quality of the information
provided in financial statements is that it is
readily understandable by users. For this
purpose, users are: I. Assumed to have a
reasonable knowledge of business and
economic activities and accounting and a
willingness to study the information with
reasonable diligence. II. Informed of the
accounting policies employed, any changes in
those policies and the effects of such
changes.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
23. Which of the following is true of the
qualitative characteristic of “understandability”
in relation to information in financial
statements? *
a. Users are willing to study the information with
reasonable diligence.
b. Users are expected to have significant business
knowledge.
c. Financial statements shall exclude complex
matters.
d. Financial statements shall be free from material
error.
Correct answer
a. Users are willing to study the information with
reasonable diligence.
24. It is the capacity of information to make a
difference in decision by helping users form
predictions about outcome of past, present
and future events or confirm and correct prior
expectations. *
a. Relevance
b. Understandability
c. Comparability
d. Reliability
25. Information has the quality of relevance; I.
When it influences the economic decision of
users by helping them evaluate past, present,
and future events or confirming or correcting
their past evaluations. II. When it is free from
material error and bias and can depended
upon by users to represent faithfully that
which it purports to represent or could
reasonably be expected to represent. *
a. I only
b. II only
c. Both I and II
d. Neither I nor II
26. The attributes of relevance include all of
the following except
a. Predictive value
b. Feedback value
c. Materiality
d. Neutrality
27. It is the all-encompassing “principle of
fairness”. *
a. Faithful representation
b. Completeness
c. Substance over form
d. Neutrality
28. Conservatism is best described as
selecting an accounting alternative that *
a. Understates assets and net income
b. Has the least favorable impact to owner’s equity
c. Overstates, as opposed to understates, liability
d. Is least likely to mislead users of financial
information.
29. Financial information exhibits consistency
when *
a. Accounting procedures are adopted which
smooth net income and make results consistent
between years.
b. Gains and losses are shown separately on the
income statement.
c. Accounting entities give similar events the same
accounting treatment each period.
d. Expenditures are reported as expenses and
netted against revenue in the period in which they
are paid.
30. An item would be considered material and
therefore would be disclosed in the financial
statements if *
a. The expected benefits of disclosure exceed the
additional cost.
b. The impact on earnings is greater than ten
percent.
c. The FRSC definition of materiality is met.
d. The omission or misstatement of the amount
would make a difference to the users.

31. 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. *
a. Relevance
b. Verifiability
c. Neutrality
d. Completeness

32. In the event of conflict between the

economic substance of a transaction and its
legal form, the economic substance shall
prevail. This concept is known as *
a. Form over substance
b. Substance over form
c. Faithful representation
d. Completeness

33. It is the exercise of care and caution in

dealing with uncertainties in measurement so
as not to overstate assets and income and not
understate liabilities and expenses.
a. Completeness
b. Prudence
c. Faithful representation
d. Neutrality

34. When information about two difference

entities engaged in the same industry has
been prepared and presented in similar
manner, the information exhibits the
qualitative characteristic of *
a. Relevance
b. Reliability
c. Consistency
d. Comparability

35. What are the qualitative characteristics of

financial statements? *
a. Qualitative characteristics are the attributes that
make the information provided in financial
statements useful to users
b. Qualitative characteristics are broad classes of
financial effects of transactions and other events.
c. Qualitative characteristics are no qualitative
aspects of an entity’s position and performance and
changes in financial position.
d. Qualitative characteristics measure the extent to
which an entity has complied with all relevant
standards and interpretations.