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.

2. Which of the following statements is true?

a. The basic purpose of accounting is to provide information about economic activities intended to be
useful in

making economic decisions.

b. All events and transactions of an entity are recognized the books of accounts.

c. General purpose financial statements are those statements that cater to the common and specific
needs of

a wide range of external users.

d. The accounting process of assigning numbers, commonly in monetary terms, to the economic
transactions

and events is referred to as classifying.

3. It is the branch of accounting that focuses on the general purpose reports of financial position and
operating

results known as financial statements.

a. Financial accounting

b. Auditing

c. Managerial accounting
d. Taxation

4. These are events that do not involve an external party.

a. external events

b. nonreciprocal

c. internal events

d. special event

5. 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

6. 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

7. The most common form of business organization is a

a. corporation

b. sole proprietorship

c. partnership

d. cell phone stand

8. Which of the following statements is correct?

I. Accounting provides qualitative information, financial information, and quantitative information.

II. Qualitative information is found in the notes to the financial statements only.
III. Accounting is considered an art because it is supported by an organized body of knowledge

IV. Accounting is considered a science because it involves the exercise of skill and judgment.

V. Measurement is the process of assigning numbers to objects such inventories or plant assets and to
events

such as purchases or sales.

VI. All quantitative information is also financial in nature.

VII. The accounting process of assigning peso amounts or numbers to relevant objects and events is
known as

identification.

a. I and V

b. I, II, VI and V

c. I, II, III, IV and V

d. II, VI and V

9. Accounting is often called the "language of business" because

a. it is easy to understand.

b. it is fundamental to the communication of financial information.

c. all business owners have a good understanding of accounting principles.

d. accountants in many companies share financial information.

10. All of the following statements incorrectly refer to the Conceptual Framework except

a. The framework is concerned with all-purpose financial statements including consolidated financial

statements.

b. Financial statements are prepared and presented at least annually and are directed toward the
common and

specific information needs of a wide range of users.

c. Prospectuses and computations prepared for taxation purposes are outside the scope of the
framework.

d. Financial statements include such items as reports by directors, statements by the chairman,
discussion and
analysis by management and similar items that may be included in an annual report.

e. The framework applies to the financial statements of all commercial, industrial and business reporting

entities, but only for the private sector.

11. What is the objective of financial statements according to the Conceptual Framework?

a. To provide information about the financial position, performance, and changes in financial position of
an

entity that is useful to a wide range of 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 to investors
and

creditors.

d. To prepare financial statements in accordance with all applicable Standards and Interpretations.

12. 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

13. Under the Conceptual Framework, qualitative characteristics are sub-classified into

a. primary and secondary qualitative characteristics

b. major and minor qualitative characteristics

c. fundamental and enhancing qualitative characteristics

d. not sub-classified

14. 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

15. 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

a. I and II

b. I and III

c. II, III, IV, V and VII

d. IV, V, VI and VII

16. Which of the following are related to 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

17. Under this qualitative characteristic, users are assumed to have a reasonable knowledge of business
and

economic activities and accounting and a willingness to study the information with reasonable diligence.

However, information about complex matters that should be included in the financial statements
because of its

relevance to the economic decision-making needs of users should not be excluded merely on the
grounds that it

may be too difficult for certain users to understand.

a. Relevance

b. Reliability

c. Understandability

d. Comparability

18. Which of the following statements is incorrect concerning materiality?

a. Materiality can be assessed quantitatively or qualitatively

b. There are no specific materiality thresholds provided under the PFRSs

c. Materiality is a matter of judgment

d. Materiality is a quantitative matter. It should never be assessed qualitatively.

19. The elements of faithful representation do not include

a. Comparability

b. Neutrality
c. Completeness

d. Free from error

20. 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

21. The elements directly related to the measurement of performance

a. income

b. expenses

c. a and b

d. neither a nor b

22. Assets and liabilities are recognized if

a. they meet the definition of an element.

b. have probable future economic benefits and have cost or value that are measured reliably.

c. a and b

d. neither a nor b

23. Entity A needs guidance in accounting for its inventories. Entity A should refer to which of the
following?

a. PAS 1

b. PAS 2

c. PAS 7

d. PAS 8

24. 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

25. Which of the following concepts is violated when measuring inventories at the lower of cost and net
realizable

value?

a. The concept that assets shall not be carried at an amount in excess of its recoverable amount.

b. Historical cost concept

c. Prudence or conservatism concept

d. Offsetting concept

26. 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. Exchange differences from translating foreign currency denominated cash flows.

c. Acquisition of equipment through issuance of note payable.

d. Bank overdrafts that can be offset.

27. 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

28. 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

29. Materiality does not make any difference with regard to

a. the separate presentation of items in the financial statements.

b. the disclosure of additional information in the notes.

c. intentional errors.

d. level of rounding-off of amounts in the financial statements.

30. Which of the following events is considered as an internal event?

a. sale of inventory on account

b. provision of capital by owners

c. borrowing of money

d. conversion of raw materials into finished goods

e. payment of liabilities

31. Which of the following events is considered as an external event?

a. production

b. payment of taxes

c. gifts and charitable contributions

d. provision of capital by owners

e. b, c and d

32. 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

33. Financial reporting standards continuously change primarily in response to

a. users’ needs.

b. political influence.

c. government regulations.

d. changes in social environments.

34. The cost of purchases of inventory is recognized as expense

a. immediately.
b. using the matching concept.

c. by systematic allocation.

d. any of these as a matter of accounting policy choice

35. 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

36. Entity A is making a materiality judgment. Entity A considers an item to be material, and therefore
needs to be

disclosed in the notes to the financial statements, if the item pertains to a related party transaction.
What type of

materiality assessment is Entity A using?

a. quantitative

b. qualitative

c. faithful representation

d. relevance

37. 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

38. The information provided by financial reporting pertains to

a. individual business entities and the economy as a whole, rather than to industries or to members of
society

as consumers

b. individual business entities, industries and the economy as a whole, rather than to members of society
as

consumers
c. individual entities, rather than to industries of the economy as a whole or to members of society as

consumers

d. individual business entities and industries rather than to the economy as a whole or to members of
society

as consumers

39. An entity’s financial position or condition refers to which of the following?

a. The status of the entity’s assets, liabilities and equity.

b. The amount of return that the entity has generated from its economic resources during the period.

c. The level of change in the entity’s economic resources and claims to those resources, also referred to
as the

economic phenomena.

d. All of these.

40. 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

41. What is the authoritative status of the Conceptual Framework?

a. It has the highest level of authority. In case of a conflict between the Conceptual Framework and a
Standard

or Interpretation, the Conceptual Framework overrides the Standard or Interpretation.

b. If there is a Standard or Interpretation that specifically applies to a transaction, it overrides the

Conceptual

Framework. In the absence of a Standard or an Interpretation that specifically applies, the Conceptual

Framework should be followed.

c. If there is a Standard or Interpretation that specifically applies to a transaction, it overrides the
Conceptual

Framework. In the absence of a Standard or an Interpretation that specifically applies to a transaction,

management should consider the applicability of the Conceptual Framework in developing and applying
an

accounting policy that will result in information that is relevant and reliable.

d. The Conceptual Framework applies only when IASB develops new or revised Standards. An entity is
never

required to consider the Conceptual Framework.

42. According to PAS 8, these are the specific principles, bases, conventions, rules and practices applied
by an

entity in preparing and presenting financial statements.

a. Accounting policies c. Accounting standards

b. Accounting estimates d. Accounting assumptions

43. A change in the pattern of consumption of economic benefits from an asset is most likely a

a. change in accounting policy. c. error.

b. change in accounting estimate. d. any of these

44. PAS 8 permits a change in accounting policy only if the change

a. is required by a PFRS

b. results in reliable and more relevant information

c. a or b

d. PAS 8 does not permit a change in accounting policy

45. These arise from misapplication of accounting policies, mathematical mistakes, oversights or
misinterpretations

of facts, or fraud.

a. Error

b. Change in accounting estimate

c. Change in accounting policy

d. Impracticable application

46. How should the following changes be treated, according to PAS 8?

I. A change is to be made in the method of calculating the provision for uncollectible receivables.

II. Investment properties are now measured at fair value, having previously been measured at cost.

Change (1) Change (2)

a. Change of accounting policy Change of accounting policy

b. Change of accounting policy Change of accounting estimate

c. Change of accounting estimate Change of accounting policy

d. Change of accounting estimate Change of accounting estimate

47. 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.

48. Which of the following is not a required disclosure under PAS 1?

a. The financial effect of a departure from a PFRS when an entity departs from a PFRS requirement.

b. Any material uncertainties on the entity’s ability to continue as a going concern.

c. The recognition, measurement and disclosure of specific transactions and other events.

d. The reason for using a longer or shorter period when an entity changes the frequency of its reporting.

49. All of the following statements incorrectly refer to the Conceptual Framework except
a. The framework is concerned with all-purpose financial statements including consolidated financial

statements.

b. Financial statements are prepared and presented at least annually and are directed toward the
common and

specific information needs of a wide range of users.

c. Prospectuses and computations prepared for taxation purposes are outside the scope of the
framework.

d. Financial statements include such items as reports by directors, statements by the chairman,
discussion and

analysis by management and similar items that may be included in an annual report.

e. The framework applies to the financial statements of all commercial, industrial and business reporting

entities, but only for the private sector.

50. Comprehensive income (or total comprehensive income) includes

a. Profit or loss

b. Other comprehensive income

c. Transactions with owners

d. a and b

e. All of these

51. Comprehensive income excludes which of the following

a. Revaluation surplus

b. Gains and losses from investments measured at fair value through profit or loss

c. Income tax expense

d. Distributions to owners

52. What is the purpose of reporting comprehensive income?

a. To report changes in equity due to transactions with owners.

b. To report a measure of overall performance of an entity.

c. To replace profit with a better measure.

d. To combine income from continuing operations with income from discontinued operations and
extraordinary

items.

53. 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

54. 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).

55. 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)

56. 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.

57. The Conceptual Framework sets out general recognition principles of financial statement elements
which

include all of the following except

a. asset recognition

b. equity recognition

c. liability recognition

d. expense recognition

58. Which of the following is most likely expensed under the ‘immediate recognition’ principle?

a. cost of inventories

b. impairment loss

c. cost of equipment

d. rentals paid

59. A secondary objective of financial statements

a. is to show information regarding assets and liabilities of an entity

b. is to show information regarding an entity’s financial position, performance, and changes in financial
position

c. is to show the results of the stewardship of management.

d. b and c

60. Which of the following statements is incorrect concerning materiality?

a. Materiality can be assessed quantitatively or qualitatively

b. There are no specific materiality thresholds provided under the PFRSs

c. Materiality is a matter of judgment

d. Materiality is a quantitative matter. It should never be assessed qualitatively.

----- End of Examination -----

1. d. Accounting is the process of identifying, measuring, and communicating
economic information to permit informed judgment and decisions by users of
information.
2. a. The basic purpose of accounting is to provide information about economic
activities intended to be useful in making economic decisions.
3. a. Financial accounting
4. c. internal events
5. d. time period
6. b. prudence
7. b. sole proprietorship
8. c. I, II, III, IV, and V
9. b. it is fundamental to the communication of financial information.
10. d. Financial statements include such items as reports by directors, statements by
the chairman, discussion and analysis by management and similar items that may
be included in an annual report.
11. a. To provide information about the financial position, performance, and changes
in financial position of an entity that is useful to a wide range of users in making
economic decisions.
12. d. all of these
13. c. fundamental and enhancing qualitative characteristics
14. c. I, II, III, IV, V, and VI
15. c. II, III, IV, V, and VII
16. d. I, II, III, and IV
17. c. Understandability
18. d. Materiality is a quantitative matter. It should never be assessed qualitatively.
19. a. Comparability
20. c. Verifiability
21. c. a and b
22. c. a and b
23. b. PAS 2
24. d. PAS 8
25. c. Prudence or conservatism concept
26. c. Acquisition of equipment through issuance of note payable.
27. a. operating activities.
28. d. a or b
29. c. intentional errors.
30. c. borrowing of money
31. c. gifts and charitable contributions
32. a. cost of goods sold
33. a. users' needs.
34. b. using the matching concept.
35. a. deciding on how to run the day-to-day operations of the entity
36. a. quantitative
37. a. Statement of financial position
38. b. individual business entities, industries and the economy as a whole, rather than
to members of society as consumers
39. a. The status of the entity's assets, liabilities, and equity.
40. d. PAS 8
41. c. If there is a Standard or Interpretation that specifically applies to a transaction,
it overrides the Conceptual Framework. In the absence of a Standard or an
Interpretation that specifically applies to a transaction, management should
consider the applicability of the Conceptual Framework in developing and
applying an accounting policy that will result in information that is relevant and
reliable.
42. a. Accounting policies
43. b. change in accounting estimate.
44. c. a or b
45. a. Error