Professional Documents
Culture Documents
1. Accounting has been given various definitions, which of the following is not one of those
definitions?
a. Accounting is a service activity. Its function is to provide quantitative information, primarily
financial in nature, about economic entities that is intended to be useful in making economic
decisions.
b. Accounting is the art of recording, classifying, and summarizing in a significant manner and
in terms of money, transactions and events which are, in part of at least, of a financial
character and interpreting the results thereof.
c. Accounting is a systematic process of objectively obtaining and evaluating evidence
regarding assertions about economic actions and events to ascertain the degree of
correspondence between these assertions and established criteria and communicating the
results to interested users.
d. Accounting is the process of identifying, measuring, and communicating economic
information to permit informed judgment and decisions by users of information.
3. The accounting standards used in the Philippines are adapted from the standards issued by the
a. Federal Accounting Standards Board (FASB).
b. International Accounting Standards Board (IASB).
c. Philippine Institute of Certified Public Accountants (PICPA).
d. Democratic People's Republic of Korea Accounting Standards Committee (DPKRASC).
4. Which of the following statements is incorrect regarding the basic accounting concepts?
a. One of ABC Co.’s delivery trucks was involved in an accident. Although no lawsuits have
yet been filed against ABC, ABC recognized a liability for the probable loss on the event.
This is an application of the prudence or conservatism concept.
b. Under the consistency concept, the financial statements should be prepared on the basis of
accounting principles which are followed consistently.
c. Under the entity theory, the business is viewed as a separate entity. Therefore, the personal
transactions of the business owners are not recorded in the business’ accounting records.
d. The time period concept means that financial statements are prepared only at the end of the
life of a business.
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5. Entity A appropriates ₱1M to fund employee benefits for the last quarter of the following year.
Entity A deposits the ₱1M fund in a payroll account. This economic activity is most
appropriately referred to as
a. production.
b. savings.
c. exchange.
d. investment.
6. It is the branch of accounting that focuses on the preparation of general purpose financial
statements.
a. Financial accounting
b. General Accounting
c. All-purpose Accounting
d. All-around accounting
8. Entity A computes for its profit or loss periodically instead of waiting until the end of the life of
the business before doing so. This is an application of which of the following accounting
concepts?
a. historical cost
b. stable monetary unit
c. accrual basis
d. time period or reporting period
9. This refers to the use of caution in the exercise of judgments needed in making estimates
required under conditions of uncertainty, such that assets or income are not overstated and
liabilities or expenses are not understated.
a. faithful representation
b. prudence
c. consistency
d. relevance
10. The bottom part of each of Entity A’s financial statements states the following “This statement
should be read in conjunction with the accompanying notes.” This is most likely an application of
which of the following accounting concepts?
a. articulation
b. consistency
c. accrual basis
d. time period
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13. Financial statements are said to be a mixture of fact and opinion. Which of the following items is
factual?
a. cost of goods sold
b. discount on capital stock
c. retained earnings
d. patent amortization expense
14. This concept defines the area of interest of the accountant. It determines which transactions are
recognized in the books of accounts and which are not.
a. Articulation
b. Matching
c. Separate entity
d. Full disclosure
b. I, II, VI and V
c. I, II, III, IV and V
d. II, VI and V
17. Which of the following statements about the Norwalk Agreement is correct?
a. The Norwalk Agreement requires all domestic companies in the U.S. to prepare financial
statements in accordance with the IFRSs.
b. The Norwalk Agreement is a short-term convergence between the FASB and the IASB which
has long-time been abolished.
c. The Norwalk Agreement is a convergence between the FASB and the IASB to make their
existing financial reporting standards compatible and coordinate their future work programs
to ensure that once achieved, compatibility is maintained.
d. The Norwalk Agreement does not affect the financial reporting standards in the Philippines.
18. The process of identifying, measuring, analyzing, and communicating financial information
needed by management to plan, evaluate, and control an organization’s operations is called
a. financial accounting.
b. tax accounting.
c. managerial accounting.
d. auditing.
20. It is the official accounting standard setting body in the Philippines. It is composed of a
chairperson and 14 members.
a. Financial Reporting Standards Committee (FRSC)
b. Financial Reporting Standards Council (FRSC)
c. Accounting Standards Committee (ASC)
d. Accounting Standards Council (ASC)
23. You are the accountant of ABC Co. During the period, your company purchased staplers worth
₱1,500. Although the staplers have an estimated useful life of 10 years, you have charged their
cost as expense. Which of the following is most likely to be true?
a. You are applying the concept of matching.
b. You are applying the concepts of materiality and cost-benefit consideration.
c. You are applying the concept of verifiability.
d. You are just lazy to compute for the periodic depreciation. ☺
24. All of the following statements incorrectly refer to the concepts in the Conceptual Framework
except
a. The Conceptual Framework is concerned with all-purpose financial statements.
b. Financial statements are prepared and presented at least annually and are directed toward
both the common and specific information needs of a wide range of users.
c. The objective of general purpose financial statements is similar to the objective of general
purpose financial reporting.
d. The financial statements prepared by a reporting entity comprising a parent and its
subsidiaries are referred to as ‘combined financial statements’.
27. What is the objective of general purpose financial statements according to the Conceptual
Framework?
a. To provide information about the financial position, financial performance, and changes in
financial position of an entity that is useful to primary users in making economic decisions.
b. To prepare and present a balance sheet, an income statement, a cash flow statement, and a
statement of changes in equity.
c. To prepare and present comparable, relevant, reliable, and understandable information for
investors and creditors.
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28. The primary users of financial statements under the Conceptual Framework include
I. Existing and potential investors
II. Employees
III. Lenders and other creditors
IV. Suppliers and other trade creditors
V. Customers
VI. Governments and their agencies
VII. Public
VIII. Professional accountants, including auditors
a. I and III
b. I, II, III, IV, V, VI, VII
c. I, II, III, IV, V, VI
d. all of these
29. The Conceptual Framework broadly classifies the qualitative characteristics into
a. primary and secondary qualitative characteristics.
b. major and minor qualitative characteristics.
c. fundamental and enhancing qualitative characteristics.
d. cold and hot qualitative characteristics.
30. Identify the fundamental qualitative characteristics under the Conceptual Framework.
I. Relevance
II. Reliability
III. Faithful representation
IV. Comparability
V. Verifiability
VI. Timeliness
VII. Understandability
a. I and II
b. I and III
c. I, II, III, IV, V and VI
d. IV, V, VI and VII
31. Identify the qualitative characteristics that enhance the usefulness of financial information.
I. Relevance
II. Reliability
III. Faithful representation
IV. Comparability
V. Verifiability
VI. Timeliness
VII. Understandability
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a. I and II
b. I and III
c. II, III, IV, V and VII
d. IV, V, VI and VII
32. Which of the following are considered aspects of the qualitative characteristic of relevance under
the Conceptual Framework?
I. Predictive value
II. Confirmatory value
III. Timeliness
IV. Materiality
a. I and II
b. I, II and III
c. I, II and IV
d. I, II, III and IV
33. Under this qualitative characteristic, users are assumed to have a reasonable knowledge of
business activities and willingness to study the information with reasonable diligence.
a. Relevance
b. Faithful representation
c. Understandability
d. Comparability
36. The ability through consensus among measurers to ensure that information represents what it
purports to represent is an example of the concept of
a. relevance.
b. comparability.
c. verifiability.
d. feedback value.
37. According to the Conceptual Framework, the pervasive constraint on the information that can be
provided by financial reporting is
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a. materiality.
b. historical.
c. cost-benefit.
d. going concern.
38. The element that is related to the measurement of an entity’s financial performance is
a. income.
b. expenses.
c. a and b
d. neither a nor b
41. The Conceptual Framework uses the term “economic resources” to refer to
a. assets.
b. equity.
c. liabilities.
d. income.
42. Which of the following is incorrect regarding the use of the term ‘reporting entity’ under the
Conceptual Framework?
a. A reporting entity one that is required, or chooses, to prepare financial statements.
b. A reporting entity must be a legal entity.
c. A reporting entity can be a parent and its subsidiaries viewed as a single entity.
d. All of these are correct.
44. “I say red; you say green.” The information lacks which of the following qualitative
characteristics?
a. Relevance
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b. Verifiability
c. Timeliness
d. Colorfulness
45. Which of the following is not one of the decisions that primary users make?
a. deciding on how to run the day-to-day operations of the entity
b. deciding on whether to hold or sell investment in stocks
c. deciding on whether to buy investment in stocks
d. deciding on whether to extend loan to the reporting entity
46. Entity A is making a materiality judgment. Entity A considers an item to be material, and
therefore included in the financial statements, if it pertains to a related party transaction. What
type of materiality assessment is Entity A using?
a. Quantitative
b. Qualitative
c. Faithful representation
d. Relevance
47. According to the Conceptual Framework, the needs of the primary users that are met by financial
statements are
a. all of their needs.
b. all of their common needs only.
c. majority of their common needs only.
d. substantially a majority of their common and specific needs only.
48. The term ‘liquidity’, as used in relation to the assessment of an entity’s financial position, refers
to
a. the entity’s ability to pay its short-term obligations.
b. the entity’s ability to pay its long-term obligations.
c. the entity’s ability to collect its current receivables.
d. the entity’s ability to flow like water.
49. The measurement bases described under the Conceptual Framework are least applicable to the
measurement of
a. assets.
b. liabilities.
c. equity.
d. income.
50. Information on the utilization of economic resources is most useful when assessing an entity’s
a. management stewardship.
b. liquidity and solvency.
c. financial position and financial performance.
d. financial strengths and weaknesses, including the entity’s needs for additional financing.
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51. This refers to the comparability of financial statements of the same entity but in different
periods.
a. Inter-comparability
b. Extra-comparability
c. Intra-comparability
d. Intro-comparability
52. Which of the following financial statements would not be dated as covering a certain reporting
period?
a. Statement of financial position
b. Statement of profit or loss and other comprehensive income
c. Statement of cash flows
d. Statement of changes in equity
56. Which of the following statements is correct when an entity departs from a provision of a PFRS?
a. The entity’s financial statements would be grossly incorrect; therefore, PAS 1 does not allow
such a departure.
b. PAS 1 permits such a departure if the relevant regulatory framework requires, or otherwise
does not prohibit, such a departure.
c. PAS 1 requires certain disclosures when an entity departs from a provision of a PFRS.
d. b and c
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57. Which of the following statements is correct regarding the classification of financial liabilities as
current or noncurrent in accordance with PAS 1?
a. Currently maturing obligations are presented as current liabilities even if their original term
is longer than one year and even if a refinancing agreement is completed after the end of the
reporting period but before the financial statements are authorized for issue.
b. Currently maturing obligations are presented as noncurrent liabilities only if their original
term is longer than one year.
c. Currently maturing obligations are presented as noncurrent liabilities only if a refinancing
agreement is completed after the end of the reporting period but before the financial
statements are authorized for issue.
d. Currently maturing obligations are presented as noncurrent liabilities if a refinancing
agreement is completed after the financial statements are authorized for issue.
58. According to PAS 1, the judgments and estimates embodied in the financial statements, for
example, materiality judgments, assessments of uncertainty and risk, and the like, are the
responsibility of the entity’s
a. management.
b. accountant.
c. auditor.
d. janitor.
62. Entity A needs guidance in accounting for its inventories. Entity A should refer to which of the
following?
a. PAS 1
b. PAS 2
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c. PAS 7
d. PAS 8
63. Entity A needs guidance in preparing its statement of changes in equity. Entity A should refer to
which of the following?
a. PAS 1
b. PAS 2
c. PAS 7
d. PAS 8
64. Entity A buys and sells artifacts. Each artifact is unique and not ordinarily interchangeable.
According to PAS 2, the cost formula that Entity A should use is
a. Specific identification.
b. Weighted Average.
c. FIFO.
d. Any of these.
66. Which of the following is presented in the activities section of the statement of cash flows?
a. Purchase of a treasury bill three months before its maturity date.
b. Dividends paid this year although declared in a prior year.
c. Acquisition of equipment through issuance of note payable.
d. Bank overdrafts that can be offset.
67. In the statement of cash flows of a non-financial institution, interest income received is presented
under
a. operating activities.
b. financing activities.
c. investing activities.
d. a or c
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68. An entity makes a change in accounting estimate. How does the entity recognize the effects of
the change in profit or loss?
a. Prospectively in the current period
b. Prospectively in the current and future periods
c. Retrospectively starting from the earliest period presented
d. a or b
70. According to PAS 10, dividends declared after the reporting period, but before the financial
statements are authorized for issue, are
a. recognized as liability at the end of reporting period.
b. not recognized as liability at the end of reporting period.
c. disclosed only as an adjusting event.
d. any of these.