Quiz 1

Conceptual Framework and Accounting Standards

I. TRUE OR FALSE

FALSE All business activities are accountable transactions.

TRUE The focus of government accounting is the custody and administration of public funds.

FALSE Recording is sorting of similar and interrelated accounts.

FALSE Management Advisory services excludes quality control since these are task designated
only to production managers.

TRUE The key product of the accounting as an information system is the set of financial
statements.

TRUE Accounting is about quantitative information.

FALSE The three main areas of practice of CPA excludes private accounting since they render
service only on their employers.

TRUE The Bangko Sentral ng Pilipinas has one representative on the Financial Reporting
Standards Council.

FALSE A member of ASC is prohibited from being appointed to the FRSC.

FALSE Treasurer is the highest accounting officer in an entity

FALSE In case of a conflict, the conceptual framework will prevail since it is the guide in
developing IFRS.

TRUE The focus of the Financial Capital concept is the monetary amount invested by
shareholders to the net assets of the entity.

FALSE Employees are considered primary users since they are the one who handles and manages
the assets of the company.

TRUE Current value includes fair value.

TRUE General purpose financial statements help the primary users in estimating the value of the
entity.
FALSE Cause and effect association of expense recognition is illustrated when an entity records
an advertising expense immediately.
FALSE Conservatism concept states that an accounting transaction shall be supported by
sufficient evidence to allow two or more qualified individuals to arrive at essential
similar conclusion.
TRUE An economic resource is said to produce economic benefit if the entity is entitled to
exchange an economic resource with another entity on a favorable term.
TRUE The going concern assumption is the foundation of the cost principle
FALSE Understandability is an enhancing qualitative characteristic in which financial statements
users are assumed to have no reasonable knowledge of basic business, accounting, and
financial matters.
FALSE The main objective of the financial statements is to provide information about the
financial position, financial performance of the business but not the cash inflows and
outflows of the firm.
TRUE The components of “other comprehensive income” excludes realized gain or loss on sale
of property, plant, and equipment.
FALSE It is mandated to prepare the financial statements monthly to assess the performance of
the entity timely.
TRUE The level of profit or income earned by an entity is the primary measurement of the
company’s financial performance.
FALSE A restricted cash equivalent shall be presented as non-current liability.
FALSE Report form is the required form of the statement of financial position as mandated by the
Securities and Exchange Commission.
FALSE Current assets are always presented in the order of their liquidity.
TRUE The discretion to refinance in classifying liabilities as current or non-current must be at
the discretion of the entity to refinance or roll-over.
TRUE Once a condition or covenant attached to a liability is breached the liability is generally
shall be classified as current.
TRUE Intangible assets exclude goodwill but include patents since the former is unidentifiable.
TRUE The primary purpose of a statement of cash flow is to provide relevant information about
the company’s cash receipts and disbursements.
TRUE The acquisition of assets by issuing share capital shall be excluded from the statement of
cash flows.
FALSE Cash equivalents are liquid investments that are long-term.
TRUE Cash disbursement in acquisition of treasury shares are financing activities.
FALSE Cash inflow and outflow from purchase and sale of trading securities are investing
activities.
FALSE Dividends received may be presented as investing activity but not operating.
TRUE Investing activities typically affects non-current assets.
FALSE Dividends paid may be alternatively presented as investing activity.
TRUE Interest paid and received may be classified as operating cash flow activities.
FALSE Investment must be acquired three months or more before the maturity date to be
qualified as cash equivalent.

II. IDENTIFICATION & QUESTION TYPE

An entity should prepare a statement of cash flows and should present it as:

Supplementary in the face of financial statements

Notes to financial statement

Support schedule of the cash line item in the balance sheet

Integral part of the entity’s financial statements

How should a gain from the sale of equipment for cash be reported in the statement of cash flows using
indirect method?

Under operating activity as addition to net income

Under investing activity as cash outflow

Under investing activity as reduction of cash inflow from sale

Under operating activity as deduction to profit

Cash equivalents are

Readily convertible to known amount of cash

Investment with original maturity of 120 days

Treasury bills and treasury bonds

All of these are features of cash equivalents

Which of the following is an investing activity?

Obtaining or collecting resources from investors

Providing loans and collecting it from subsidiaries

Collecting non-trade notes receivable from related parties

Acquiring of investment properties

In preparation of statement of cash flows, which of the following transactions would be considered an
investing activity?

Purchase of treasury shares

Issuance of bonds payable

 Sale of business segment

Sale of share capital

Cash Receipts from royalties are

Presented under operating cash inflow under direct method
Added to net income under direct method
Deducted from the net income under indirect method
Included in the cash flows as addition to income under indirect method
Operating activities are
Cash flow arising from the sale of inventory only
A principal revenue-producing activity that enters the computation of net income or net loss
Activities that result to changes in the changes in size and computation of equity and borrowings
The acquisition of long-term assets and other investments
Which of the following are valid statements regarding financial reporting and accounting standards?
I. Financial Accounting Provides information that is relevant to primary users.
II. Accounting standards are those accounting principles with substantial authoritative support.
III. Once developed, standards are not changed.
IV. Accounting standards are developed to ensure financial statements are relevant to wide range
of users.
V. The adoption of global financial standards enhances comparability

I, II, III, IV, and V

I, III, IV, and V
I, II, IV, and V
II, III, IV, and V
A conceptual framework for financial reporting is
Embodiment of GAAP that guides users in assessing the reliability of financial statements.
Basic accounting assumptions that guide accountants
Theoretical foundation that guides the FRSC and the financial report preparers in presentation
and preparation of financial statements.
A statement of the financial accounting standard that deals with the presentation and preparation
of financial statements
The primary responsibility for the financial statements of an enterprise rest with its
President
External Auditors
 Shareholders
Management
In assessing the financial position of an entity, what indicates the amount of the assets financed by the
creditors and the owners?
Solvency
Capacity for adaption
Financial Structure
Financial Performance
Which of the following is incorrect concerning financial statements?
The objective of general-purpose financial statement is to provide information about financial
position, performance, and cash flow of the entity.
The management has the primary responsibility for the preparation and presentation of financial
statements.
Financial statements provide all the necessary information that users need to make economics and
sound decision.
Financial statements are prepared at least annually and directed towards the common needs of
wide range users.
The providers of funds or capital
Are concerned with the inherent risk and returns and the information to determine whether to buy
or hold their investments.
Are interested in the information that enables them to monitor the regulatory compliance of the
entity with the legal authority
Are interested in the information that enables them to assess the ability of the firm to pay
remunerations and benefits.
Have interest on the continuance of the enterprise
Which of the following represents best source for assessing the consistency of the financial statements?
The summary of significant accounting policies in the notes to financial statement
Auditor’s report attached on the annual report of the firm
Statement of the company’s president
Management statement on the annual report.
What is another term for equity?
Net Liability
Revenue
 Creditor’s Claim
Net Assets
Which statement is incorrect concerning the concept of capital?
Physical capital is adopted if the users are primarily concerned with the operating capability of
the entity.
Financial capital is adopted if the users are primarily concerned with the maintenance of the
nominal invested capital.
Selection of the appropriate concept of capital should be based on the needs of the users.
Physical capital is adopted by most of the preparers of the financial statements of the firms.
Proper application of accounting principles is most dependent upon
External audit function
Existence of specific guides
Oversight of regulatory bodies
Professional judgment of the accountant
The information provided by the financial accounting pertains to

Individual business entities, industries, and economy as a whole

Business industries rather than individual enterprises

Individual business rather than the industry and economy as a whole

The economy as a whole rather than individual businesses

Which of the following is not in the scope of the conceptual framework?

Form and presentation of financial statements

Qualitative characteristics of the financial information

Nature and definition of elements of financial statements

Objectives of the financial statements

General Accepted accounting Principles

Are accounting based on laws of economic science

Derive their credibility and authority from financial reporting authority of SEC

Derive their credibility from general acceptance of accounting profession

 Derive their credibility and authority from legal rulings of the court

Immaterial amounts of similar nature and function shall be grouped or condensed together as one-line
item in the financial statements. This is a basic feature of

Offsetting

Comparability

Aggregation

Accounting Policy

Which of the following does not result to a fair presentation of financial information?

Disclosing inappropriate accounting policies without rectification

Providing additional disclosure is specifically required by a standard

Presenting information including accounting policies in a manner that allows financial

information to be relevant and faithfully represented

Selecting and applying accounting policies in accordance with IFRS

Which of the following is not a component of a complete set of financial statements?

Statement of Retained Earnings

Statement of Financial Position

Statement of Cash Flows

Notes, comprising summary of significant accounting policies

Which of the following must not be classified as current liability?

An obligation that is settled within one year after the reporting period.

A legal obligation expected to be settled with the entity’s normal operating cycle

An obligation that is held primarily for the purpose of being traded

An obligation on which the entity has an unconditional right to defer the settlement for at least 12
months after the reporting period.

Investment securities held for the purpose of retiring long-term bonds payable shall be classified as

Non-current Asset

Intangible Assets

Current liability

Deferred bond liability

Which of the following regarding asset is not valid?

Assets in the statement of financial position include both current and non-current assets

Assets include cost that are not yet matched with the revenue

An asset represents an economic benefit

Assets are obtained as a result of past transaction and possible future events.

“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
purposes of financial decision making” This convention is called:

Objectivity

Consistency

Comparability

Conservatism

The recording phase of accounting covers the following steps, except:

Transactions are posted to the ledger

Business documents are received and prepared

Transactions are journalized

Financial statements are prepared.

The essential characteristics of an asset include (choose the incorrect one):

The asset is tangible

The asset is the result of past transaction or event.

The asset provides future economic benefits.

The cost of the asset can be measured reliably.