CONCEPTUAL FRAMEWORK

JPIAA-U
1. Which of the following is NOT a benefit associated with the Conceptual Framework?
a. A coherent set of accounting standards and rules should result
b. A conceptual framework increases FS users’ understanding and confidence in financial
reports
c. Practical problems should be more quickly solvable by reference to an existing
conceptual framework
d. Business entities will need far less assistance from accountants because the financial
reporting process will be quite easy to apply
2. A primary objective of financial reporting is to:
a. Assist investors in analyzing the economy
b. Assist investors in predicting prospective cash flows
c. Assist banks to determine an appropriate interest rate for their commercial loans
d. Assist suppliers in determining an appropriate discount to offer a particular company
3. Which of the following best states the objective of general-purpose financial statements?
a. To identify shareholders c. To determine compliance with tax laws
b. To help users make decisions d. To disclose the market value of the fir
4. Which of the following is a benefit of providing financial information?
a. Auditing c. Disclosure to competition
b. Potential litigation d. Improved allocation of resources
5. Under the Conceptual Framework of Financial Reporting, users of financial information may be
classified into:
a. Main users (existing investors, creditors) and incidental users (potential investors, creditors)
b. Internal users (employees, customers) and external users (investors, creditors)
c. Heavy users (management) and slight users (public, government)
d. Primary users (existing and potential investors and creditors) and other users
6. The Conceptual Framework is intended to assist
a. CPAs in public practice c. Financial Reporting Standards Council
b. Users of financial statements d. All of these
7. Which term best describes information that influences the economic decision of users?
a. Reliable c. Relevant
b. Prospective d. Understandable
8. If financial information that is presented in a balance sheet or income statement is misstated, and it
influences the economic decisions of users. that information is described as
a. Reliable c. Prudent
b. Material d. Faithful
9. Which of the following is NOT an ingredient of faithful representation according to Conceptual
Framework for Financial Reporting?
a. Freedom from error
b. Completeness
c. Confirmatory value
d. Neutrality
10. In respect to information included in financial statements, the accounting concept of prudence
ensures that:
a. The financial statements report what they purport to report
b. A degree of caution in the exercise of judgments about estimates is made
c. Information is provided to users within the time period in which it is most likely to bear on
their decisions
d. An appropriate balance is achieved between the relevance and the reliability of information
that has been included

FAR – Conceptual Framework

11. Accounting traditionally has been influenced by conservatism because of the ____

JPIAA-U
a. Difficulty in measuring net income on the accrual basis
b. Large number of transactions recorded in any one period
c. Inherent uncertainties of many accounting measurements
d. Probability of undetected errors in the financial statements
12. Which of the following terms describing information in the financial statements are properly
matched?
a. Understandable and comparable c. Prudent and relevant
b. Reliable and verifiable d. Unbiased and neutral
13. Determine the FALSE statement about consistency and comparability
a. Consistency, although related to comparability, is not the same: comparability is the goal
while consistency helps to achieve such goal
b. Consistency refers to the use of the same methods for the same items, either from period
to period within a reporting entity or in a single period across entities.
c. Comparability is the qualitative characteristic that enables users to identify and understand
similarities in, and differences among, items
d. Comparability is not uniformity, permitting alternative accounting methods for the same
economic phenomenon does not m any way diminish comparability
14. What links the decision makers and the decisions they make so that financial information
would be useful?
a. Relevance c. Understandability
b. Reliability d. Materiality
15. Issuance of interim financial statements is an example Ofc. trade-off between
a. Relevance and reliability c. Timeliness and materiality
b. Reliability and periodicity d. Understandability and timeliness
16. Which of the following is true regarding the qualitative characteristic of •understandability' in
relation to information in financial statements?
a. Users should be willing to study the information with reasonable diligence
b. Users are expected to have significant business knowledge
c. Financial statements should be free from material error
d. Financial statements should exclude complex matters
17. General-purpose financial reports
a. Are designed to show the value of the reporting entity
b. Can provide all the information that primary users need
c. Are intended to provide information to a specific group of users
d. Are largely based on estimate and Judgment rather than exact depiction
18. What is the valuation basis used in conventional financial statements?
a. Replacement cost c. Original cost
b. Market value d. A mixture of costs and values
19. The usefulness of providing information in financial statements is NOT subject to the constraint
of _____.
a. Balance between benefit and cost c. Consistency
b. Balance between qualitative characteristics d. Timeliness
20. The continuity (going concern) assumption is the basis for the rule that:
a. The income statement should not include material gains and losses that are both unusual
and infrequent
b. Treasury stock should not be reported in the balance sheet as an asset
c. The cost of installing a machine should not be included in the recorded cost of the machine,
but rather expensed immediately
d. The cost of operating assets should be allocated to expense systematically over their
useful lives

21. Preparation of consolidated FS when a parent-subsidiary relationship exists is an example of

the

FAR – Conceptual Framework

 a. Economic entity assumption c. Comparability characteristic

JPIAA-U
b. Relevance characteristics d. Neutrality characteristic
22. The economic entity assumption
a. Requires periodic income measurement
b. Is applicable to unincorporated businesses
c. Recognizes the legal aspects of business entities
d. Is applicable to all forms of business organizations
23. Which capital concept requires the use of current cost basis of accounting?
a. Financial capital concept c. Both financial and physical capital concepts
b. Physical capital concept d. Neither financial nor physical capital concept
24. Which among the following equations best exemplifies the PROPRIETARY theory of
accounting?
a. Assets = Liabilities + Capital
b. Assets — Liabilities = Capital
c. Assets — Liabilities Preferred Equity = Common Equity
d. Asset + Liabilities = Capital

PHILIPPINE FINANCIAL REPORTING STANDARDS

25. Proper application of accounting principles is MOST dependent upon the

a. Existence of specific guidelines. c.External audit function
b. Oversight of regulatory bodies. d. Professional judgment of the accountant
26. The International Accounting Standards (IAS) are
a. Rules-based rather than principles-based c. Based on regulations not
concepts
b. Principles-based rather than rules-based d. Focused on quantitative rules
27. The name that is presently used for standards Issued by the International
Accounting Standards Board is:
a. International Accounting Standards (IAS)
b. International Generally Accepted Accounting Principles (IGAAP)
c. International Financial Accounting Interpretations (WAI)
d. International Financial Reporting Standards (IFRS)
28. The purpose of the International Financial Reporting Standards (IFRS) is to
a. Issue enforceable standards which regulate the financial reporting of multinational entities
b. Develop a uniform currency in which the financial transactions of entities throughout the
world would be measured
c. Promote uniform accounting standards among the countries of the world
d. Arbitrate accounting disputes between auditors and international entities
29. International Financial Reporting Standards are applicable to the following
entitles:
a. Not-for-profit entities c. Government business enterprises
b. Government activities d. Public sector non-profit organization
30. Once an accounting standard is established,
a. The standard is continually reviewed to see if modification is necessary
b. The standard is not reviewed. unless Securities and Exchange Commission (SEC) makes a
complaint
c. The task of reviewing the standard to see if modification is necessary is given to PICPA
d. The principle of consistency states that no revisions should ever be made to the standard

FAR – Conceptual Framework

31. The process of establishing financial accounting standards

JPIAA-U
a. Is based solely on research and empirical findings
b. Is a legalistic process based on rules promulgated by government agencies
c. Is a democratic process though which a majority of practicing accountants must agree
before a standard gets to be implemented
d. Is a social process which incorporates political actions of various interested user groups
as well as professional research and logic
32. Generally accepted accounting principles
a. Are fundamental truths or axioms that can be derived from laws of nature
b. Derive their authority from legal court proceedings
c. Derive their credibility and authority from general recognition and acceptance by the
accounting profession
d. Have been specified in detail in the FRSC conceptual framework
33. To qualify as generally accepted, accounting principle must
a. Usually guide corporate managers in preparing financial statements, which will be
understood by widely scattered stockholders
b. Guide corporate managers to preparing financial statements, which will be used for
collective bargaining agreements with trade unions
c. Guide entrepreneur of the choice of an accounting entity like a sole proprietorship,
partnership or corporation
d. Receive substantial authoritative support
34. Which of the following statements regarding accounting theory is incorrect?
a. Accounting theory can be defined as a coherent set of hypothetical, conceptual and
pragmatic principles that form a general frame of reference for a field of inquiry
b. Accounting theory has developed primarily 'n response to government regulations.
c. Accounting concepts are components of accounting theory
d. Accounting concepts are human-made.
35. Which body is NOT DIRECTLY involved in the accounting standard-setting
"due process " in the Philippines?
a. Financial Reporting Standards Council c. Bureau of Internal Revenue
b. Professional Regulations Commission d. Board of Accountancy

THE ACCOUNTING PROCESS

36. The recording phase of financial accounting covers the following steps, EXCEPT
a. Business documents are received/prepared c. Transactions are posted to the ledger
b. Transactions are journalized d. Financial statements are prepared
37. It is an accounting device for accumulating increases and decreases relating to a particular
accounting value such as an asset or a liability
a. Account c. Trial balance
b. Journal d. Worksheet
38. The double-entry concept in accounting means which of the following?
a. The debit-credit convention must not be used
b. Only two accounts affected by each transaction recording
c. At least two accounts arc affected by each transaction recorded
d. For every asset increased, a revenue or liability must also be increased

39. Which of the following is an application of the science aspect of accounting?

FAR – Conceptual Framework

 a. Interpreting the information presented in the financial statements through ratios and

JPIAA-U
trend analysis
b. Attesting to the fairness of presentation of financial condition and operating results
c. Exercise of creative skill and judgment
d. Applying the rules of debit and credit
40. Which one of these is NOT among the criteria to consider an event as accountable?
a. It must have already happened
b. Its amount can be measured reliably
c. It must Increase or decrease an element of the financial statements
d. It must be classified as an external event rather than an internal even
41. A cash refund to a customer for sales returns should be entered in
a. Sales journal c. Cash Receipts journal
b. Purchases Journal d. Cash Disbursements journal
42. To post in accounting means to
a. Copy the information about account change, from the ledger and place it into the journal.
b. Copy the information about account changes from the journal. and place it into the ledger
c. Copy the information about account changes from the source documents, and record it in
the ledger.
d. Copy the information about account changes from the journal, place it into the ledger, and
then delete it from the journal.
43. A control device that helps minimize and localize accounting errors is known as
a. Subsidiary ledger c. Trial balance
b. Worksheet d. Chart of accounts
44. In the accounting cycle, a worksheet is prepared:
a. After adjusting entries are entered in the journal and posted to the ledger
b. Before adjusting entries are entered in the journal and posted to the ledger
c. Only for the purpose of preparing reversing entries
d. As a substitute for financial statements
45. Adjusting entries are needed because an entity
a. Has expenses
b. Uses the accrual basis of accounting
c. Uses the cash basis of accounting rather than the accrual basis
d. Has earned revenue during the period by selling products from its central operations
46. The adjusting entry at the end of the accounting year to reflect revenues earned but not yet
collected or recorded will:
a. Decrease liabilities c. Not affect assets
b. Not affect income for the current period d.Increase assets
47. Which of the following is an example of a closing entry?
a. Posting the ending inventory balance in a perpetual inventory system
b. Transferring an amount entered in a wrong account to the appropriate account
c. Transferring the balance in the bad debt expense account to the income summary account
d. Transferring the balance in a temporary account to a contra account

48. The effect of closing entries is to

a. Change assets c. Change retained earnings
b. Change liabilities d. Change debits into credits and vice-versa

FAR – Conceptual Framework

49. An appropriate reversing entry

JPIAA-U
a. Must be made because they are required by accounting standards
b. Is dated the first day of the next accounting period
c. Is usually made tor adjusting entries that affect deferred items only
d. Is often used to correct entries which were Initially based on estimates
50. As a general mile, which of the following is NOT subject to reversal?
a. Accrued expenses
b. Accrued revenues
c. Prepaid expenses recorded as assets upon payment
d. Deferred revenues recorded as revenue upon receipt

COMPREHENSIVE INCOME AND ACCOUNTING CHANGES

51. What is the purpose of reporting comprehensive income?
a. To replace net Income with a better measure
b. To report a measure of overall enterprise performance
c. To report changes in equity due to transactions with owners.
d. To combine income from continuing operations and extraordinary Items
52. Accounting income is a concept in which
a. Income is measured as the amount of "real wealth' that an entity could consume during a
period and be as well off at the end of that period as it was at the beginning.
b. The transactions approach is used to record income and expenses throughout the
reporting period
c. Market values adjusted for the effects of inflation or deflation are used to calculate real
wealth
d. Income equals the change in market value of the firm’s outstanding common stock for the
period.
53. Which is NOT included in the category of comprehensive income of an accounting entity?
a. Net income for the period c. Change in revaluation surplus
b. Gain on sale of treasure stock d. Increase in value of investment property
54. Revenue is normally recognized
a. When the title to the goods changes
b. When the customer's order is received
c. When the customer's order is accompanied by a check
d. When the transaction results to recording an account receivable
55. ReSA Corporation classifies expenses by logistics quality control, manufacturing, plant
engineering. sales and marketing, research and development, finance and administration. The
basis of classification is by
a. Nature of expense c. Function performed
b. Object of expenditure d. Area of responsibility

56. When an entity opts to present the income statement classifying expenses by function, which
of the following is NOT required to be disclosed as "additional information?”
a. Depreciation expense c. Director's remuneration
b. Employee benefits expense d. Amortization expense
57. The matching principle is best demonstrated by:

FAR – Conceptual Framework

 a. Allocating advertising expense to several Reporting periods

JPIAA-U
b. Recognizing rent as revenue when the cash was collected
c. Not recognizing any expense unless some revenue is recognized
d. Associating effort (cost) with accomplishment (revenue)
58. It is a subsidiary, a major line of business or geographical segment whose operations and
cash flows can be clearly distinguished, operationally and for financial reporting purposes, from
the rest of the entity
a. Component of an entity
b. Disposal group
c. Discontinued operation
d. Extraordinary activity
59. PFRS requires that a
SINGI.E AMOUNT be disclosed within income statement for
a. The pretax profit or loss on discontinued operations and the pretax gain or Joss on the
disposal of discontinued operational assets
b. The pretax profit or loss on discontinued operations and the post-tax gain or loss on the
disposal of discontinued operational assets
c. The post-tax profit or loss on discontinued operations and the pretax gain or loss on the
disposal of discontinued operational assets
d. The post-tax profit or loss on discontinued operations and the post-tax gain or loss on the
disposal of discontinued operational assets
60. Under PAS I, which of the following should be classified as extraordinary item in reporting results
of operations?
a. Foreign exchange losses arising from appreciation of Japanese yen relative to the Philippine
peso
b. Gain resulting from the national government expropriation of a corporate property
c. Losses resulting from an unusual major flash flood in the Visayas region
d. None, all are ordinary gains and losses
61. An accounting policy
a. Comprises the principles applied in preparing the financial statements
b. Is a judgment applied in deciding whether to recognize a transaction
c. Is the application of judgment In deciding on the measurement of an item
d. Is the judgment used in deciding on whether to disclose a particular item
62. In 2019, a firm changed from the FIFO method of accounting for inventory to Weighed Average
(WA). The firm’s 2019 and 2018 comparative financial statements will reflect which method or
methods?
a. 2018: WA. 2019: WA c. 2018. FIFO, 2019: WA
b. 2018. FIFO, 2019: FIFO d. 2018 WA. 2019: FIFO
63. Which type of accounting change should always be accounted for in current and future periods
a. Change in accounting estimate. c. Change in accounting principle
b. Correction of an error. d. Change in reporting entity
64. Which of the following is a characteristic of a charge Jn accounting estimate?
a. It does not affect the financial statements prior periods
b. It requires the reporting of pro forma amounts for prior periods.
c. It never needs to be disclosed
d. It should be reported through restatement of the financial statements.
65. In 2019, a firm changed from straight-line (SL) method of depreciation to double declining
balance (DDB). The firm’s 2018 and 2019 comparative financial statements will reflect which method
or methods?
a. 2018: SL. 2019: SL c. 2018: DDB, 2019: DDB
b. 2018: SL, 2019: DDB d. 2018. SL, 2019. Cither SL or DDB
66. Which of the following changes would be accounted for prospectively?

FAR – Conceptual Framework

 a. Corrections of prior period errors

JPIAA-U
b. Change in the expected life of a depreciable asset.
c. First time presentation of consolidated financial statements.
d. Changing from FIFO to weighted average for merchandise inventory
67. The concept of consistency is sacrificed in the accounting for which of the following items9
a. Extraordinary items
b. Discontinued operations
c. Effect of change in accounting principle
d. Loss on disposal of a segment of a business
68. Which of the following are considered as examples of expenses?
I. A loss on the disposal of a non-cu7rent asset
Il A decrease in equity arising from distribution to equity participants
Ill. A decrease in economic benefits during the accounting period
IV. A reduction in Income for the accounting period

a. I and Il
b. Il and Ill
c. I and Ill
d. III and IV

STATEMENT OF FINANCIAL POSITION, NOTES, AND DISCLOSURES

69. A required format for the presentation of the Statement of Financial Position is:
a. Prescribed by the standard
b. Not prescribed and no guidance is provided in the standard
c. Not prescribed but details are found in the Conceptual Framework
d. Not prescribed but guidance is provided in the standard for a suitable format
70. PAS I Presentation of Financial Statements requires disclosure in the balance sheet of the
following items:
a. A statement of compliance with Philippine Financial Repotting Standards (PFRS)
b. Information about the key assumptions in the depreciation of assets
c. The measurement basis used for the revaluation of assets
d. The carrying amount of property, plant and equipment
71. The summary of accounting policies is normally presented
a. Before all of the financial statements in a financial report
b. As the first note. after all the financial statements
c. As the last note in a set of financial statements
d. Within the auditor's report
72. Which of the following should be disclosed in the summary of significant accounting policies?
a. Refinancing of debt subsequent to the balance sheet date
b. Guarantees of indebtedness of others
c. Criteria for determining which investments arc treated as cash equivalent
d. Adequacy of pension plan assets relative to vested benefits
73. As a significant component of the notes to the financial statements, the accounting policies
section should describe
a. Only the measurement bases used in preparing the financial statements
b. Only the specific accounting policies followed by the enterprise
c. Both the measurement bases used and accounting policies followed
d. The nature of the enterprise's operations and its principal activities
74. The full disclosure principle is best described as.

FAR – Conceptual Framework

 a. Disclosure of any financial facts significant enough to influence the judgment of an

JPIAA-U
informed reader
b. All information related to an entity's business and operating objectives is required to be
disclosed in the financial statements
c. Information about each account balance appearing in the financial statements is to be
included in the notes to the financial statements
d. Enough information should be disclosed in the financial statements so a person wishing
to invest in the shares of the company can make a profitable decision
75. Which of the following information is NOT specifically a required disclosure of PAS I?
a. Name of the reporting entity or other means of identification and any change in that
information from the previous year
b. Names of major shareholders of the entity
c. Level of rounding used in presenting the financial statements
d. Whether the financial statements cover the individual entity or a group of entities
76. PAS I requires the following note disclosures in relation to dividends of an entity:
a. Amount of any cumulative preference dividends not recognized
b. Names of the recipients of the dividends
c. Addresses of all shareholders who are entitled to receive the dividends
d. A schedule of cumulative dividends paid in prior periods
77. Which one of the following falls within the definition of related parties as defined by PAS 24?
a. Government department and agencies
b. A supplier with whom the reporting entity has a one-year contract for the supply of raw
materials
c. Providers of finance in the course of their normal dealings with an enterprise by virtue only
of those dealings
d. The wife of a key management personnel who has the authority to plan, direct, and control
the activities of the reporting enterprise
78. If a business entity entered into certain related party transactions, it would be required to
disclose all of the following information, EXCEPT:
a. Pero amount of the transactions
b. Nature of relationship between parties to the transaction
c. Amount due from or due to related parties at the end of reporting periods
d. Nature of any future transaction planned between the parties and the terms involved
79. Which of the following situations will require disclosure as a related party?
a. In consolidated financial statements in respect to intra-group transactions
b. In parent separate FS when they are made available or published with the consolidated FS
c. In the FS of state-controlled enterprise of transactions with other state-controlled enterprises
d. In related party relationships where control exists. Irrespective of whether there have been
transactions between related parties

80. Adjustments of financial statements are required for those events after balance sheet date
which
a. Are unusual and material
b. Occurred prior to issuance of the financial statements
c. Have a material effect or a user's evaluation of the information presented in the financial
statements
d. Provide additional information for determining amounts relating to conditions existing on
the balance sheet data
81. Type I events that provide evidence of conditions existing at the balance sheet date are given
the following treatment.
a. Recognition in the financial statements
b. Adjustment in the cash flow statement
c. Disclosure in the notes to the financial statements
d. Ratification by shareholders at an annual meeting

FAR – Conceptual Framework

82. Type Il events that are indicative of conditions that arose after the balance sheet date are

JPIAA-U
given the following treatment
a. Recognition in the balance sheet
b. Recognition in the income statement
c. Recognition in the cash flow statement
d. Note disclosure in the financial statements
83. Under PAS 10, which of the following is classified as an adjusting event rather than a non-
adjusting event?
a. Destruction of a major production plant by fire
b. The entity announced the discontinuance of its assembly operation
c. The entity entered into an agreement to purchase the freehold of its currently leased
office building
d. A mistake was discovered in the calculation of the allowance for uncollectible trade
receivables resulting to understatement of the trade receivables
84. Non-adjusting events after balance sheet date should be disclosed if
a. Non-disclosure would affect the ability of users of the financial statements to make proper
decisions
b. Non-disclosure would affect the amounts presented in the financial statements
c. They relate to conditions existing at the balance sheet date
d. They are unusual and material

FAR – Conceptual Framework