1. Which statement is incorrect regarding the Conceptual Framework for Financial Reporting?

a. Describes the objective of, and the concepts for, general purpose financial reporting.
b. Serves as a guide in developing future PFRSs and as a guide to resolving accounting issues that are not addressed
directly in existing PFRSs.
c. Is not a PFRS and hence does not define standards for an particular measurement or disclosure issue.
d. Prevails in case where there is conflict with a PFRS.

2. Which is not a specific purpose of the Conceptual Framework?

a. To assist FRSC in the development of future Philippine Financial Reporting Standards (PFRSs) and its review of existing
PFRSs.
b. To assist users of financial statements in interpreting the information contained in financial statements.
c. Provide those who are not interested in the work of FRSC with information about its approach to the formulation of
PFRSs.
d. To assist the Board of Accountancy in promulgating rules and regulation affecting the practice of accountancy in the
Philippines.

3. Revisions of the Conceptual Framework

a. Are no longer expected after the release of the new Conceptual Framework.
b. Are expected every three to five years.
c. Will automatically lead to changes to the Standards.
d. Will not automatically lead to changes to the Standards.

4. Which of the following is the foundation of the Conceptual Framework?

a. The objective of general purpose financial reporting.
b. A reporting entity concept
c. The qualitative characteristics of, and the constraint on, useful financial information.
d. The elements of financial statements.

5. What is the objective of financial reporting as indicated in the Conceptual Framework?

a. Provide information that is useful to those making investing and credit decisions.
b. Provide information that is useful to management.
c. Provide information about those investing in the entity.
d. All of the above

6. The primary user of financial information include

I. Existing and potential investors
II. Existing and potential lenders and other creditors
III. User group such as employees, customers, government and their agencies, and the public.
a. I only c. I and II only
b. I and II only d. I, II and III

7. The decisions of the primary users involve

a. Buying equity and debt instruments
b. Selling or holding equity and debt instruments
c. Providing or settling loans and other forms of credit.
d. All of the above

8. Which statement is false concerning users and their information needs?

a. Lenders are interested in information that enables them to determine whether their loans and the interest on these
loans will be paid when due.
b. The providers of risk capital and their advisers are concerned with the risk inherent in, and return provided by their
investment.
c. Government and its agencies have an interest in information about continuance of an enterprise specially when they
have long-term involvement or are dependent on the enterprise.
d. Employees and their representative groups are interested in information about the stability and profitability of the
entity.

9. In the Conceptual Framework, qualitative characteristics

a. Are attributes that make information provided in financial statements useful to users.
b. Distinguish better information from inferior information for decision-making purposes.
c. Are considered either fundamental or enhancing.
d. All of the above.

10. The fundamental qualitative characteristics are

a. Relevance and reliability c. Timeliness and verifiability
b. Relevance and faithful representation d. Understandability and comparability

11. Accounting information is considered to be relevant when it

a. Is capable of making a difference in a decision
b. Can be depended on to represent the economic conditions and events that is intended to represented.
 c. Is understandable by reasonably informed users of accounting information.
d. Is verifiable and neutral.

12. Financial information is capable of making a difference in decisions

a. If it can be used as an input to processes employed by users to predict future outcomes
b. If it provides feedback about (confirms or changes) previous evaluations.
c. Both a and b
d. Neither a nor b

13. What is an entity-specific aspect of relevance?

a. Predictive value c. Timeliness
b. Confirmatory value d. Materiality

14. Which statement is incorrect regarding materiality?

a. Information is material if omitting it or misstating it could influence decisions that users make on the basis of financial
information about a specific reporting entity.
b. Materiality is based on the nature or magnitude, or both, of the items to which the information relates in the context
of an individual entity’s financial reports.
c. The IASB does not specify a uniform quantitative threshold for materiality or predetermine what could be material in a
particular situation.
d. None of these.

15. To be a faithful representation as described in the Conceptual Framework, information must be all of the following, except
a. Complete c. Confirmatory
b. Free from error d. Neutral

16. Information is neutral if it

a. Is free from bias toward a predetermined result.
b. Would have no impact on a decision maker.
c. Provides benefits which are at least equal to the costs of its preparation.
d. Can be compared with similar information about an enterprise at other points in time.

17. Which statement is incorrect regarding prudence?

a. Neutrality is supported by the exercise of prudence.
b. Prudence is the exercise of caution when making judgments under conditions of uncertainty.
c. Prudence does not allow overstatement of assets, liabilities, income or expenses.
d. Prudence allows for understatement of assets, liabilities, income or expenses.

18. Which of the following help users make good decisions?

a. A faithful representation of an irrelevant phenomenon.
b. An unfaith representation of a relevant phenomenon.
c. Both a and b.
d. Neither a nor c.

19. Which statement relates to comparability?

a. Information is available to decision-makers in time to be capable of influencing their decisions.
b. Different knowledgeable and independent observers could reach consensus, although not necessarily complete
agreement, that a particular depiction is a faithful representation.
c. Financial reports are prepared for users who have reasonable knowledge of business and economic activities and who
review and analyze the information with diligence.
d. Enable users to identify and understand similarities in, and differences among, items.

20. Decision makers vary widely in the types of decisions they make, the methods of decision making they employ, the
information they already possess or can obtain from other sources, and their ability to process information. Consequently,
for information to be useful there must be a linkage between these users and the decision they make. This link is
a. Relevance c. Understandability
b. Reliability d. Materiality

21. Which statement is incorrect regarding enhancing qualitative characteristics?

a. The enhancing qualitative characteristics, either individually or as a group. Cannot make information useful if the
information is irrelevant or not faithfully represented.
b. Applying the enhancing qualitative characteristics is an alternative process that does not follow a prescribed order.
c. Sometimes, one of the enhancing qualitative characteristic may have to be diminished to maximize another qualitative
characteristics.
d. All of the statements are correct.

22. The Conceptual Framework includes a cost-benefit constraint. Which of the following best describes the cost-benefit
constraint?
 a. The benefits of the information must be greater than the costs of providing it.
b. Financial information should be free from cost to users if the information.
c. Costs of providing financial information are not always evident or measurable, but must be considered.
d. All of the choices are correct.

23. Which statement is incorrect regarding a reporting entity?

a. A reporting entity is an entity that is required, or chooses, to prepare financial statements.
b. A reporting entity should be a legal entity.
c. A reporting entity could be a portion of an entity or comprise more than one entity.
d. A reporting entity does not comprise an arbitrary or incomplete collection of assets, liabilities, equity, income and
expenses.

24. The objective of the financial statements is to provide financial information about the reporting entity’s assets, liabilities,
equity, income and expenses that is useful to users of financial statements in assessing
a. The prospects for future net cash inflows to the reporting entity.
b. Management’s stewardship of the entity’s economic resources.
c. Both a and b
d. Neither a nor b

25. General purpose financial statements

a. Are those intended to meet the needs of users who are not in a position to require an entity to prepare a reports
tailored to their particular information
b. Provide all of the information that financial statements’ users need.
c. Are designed to show the value of a reporting entity since they provide information to help existing and potential
investors, lenders and other creditors to estimate the value of the reporting entity.
d. All of the above

26. Which of the following financial statements provide information about assets, liabilities, equity, income and expenses of
two or more entities that are not all linked by a parent-subsidiary relationship?
a. Consolidated financial statements c. Combined financial statements
b. Unconsolidated financial statements d. Separate financial statements

27. According to the Conceptual Framework, which of the following, is the underlying assumption relating to financial
statements?
a. The accounts have been prepared on an accrual basis
b. Users are assumed to have sufficient knowledge to be able to understand the financial statements
c. The business is expected to continue operation for the foreseeable future
d. The information is free from material error or bias

28. Which of the following is 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-noncurrent classification of assets and liabilities us justifiable and significant.
d. All of these

29. Which statements is incorrect regarding the elements of financial statements?

a. These are the grouping, into broad classes, of the financial effects of transactions and other events according to
economic characteristics.
b. The elements directly related to the measurement of financial position are assets, liabilities and equity.
c. The elements directly related to the measurement of financial performance are revenues and gains.
d. None of the above.

30. The Conceptual Framework defines recognition as

a. The process of capturing for inclusion in the statement of financial position or the statement(s) of financial
performance an item that meets the definition of an asset, a liability, equity, income or expenses.
b. The process of incorporating in the balance sheet or income statement an item that meets the definition of an element
and satisfies the criteria for recognition.
c. The removal of a previously recognized asset or liability from an entity’s statement of financial position.
d. The process of determining the monetary amounts at which the elements of the financial statements are to be
recognized and carried in the balance sheet and income statement.

31. Which statement is incorrect regarding recognition of the new criteria?

a. The revised recognition criteria refer explicitly to qualitative characteristics of useful information.
b. The new criteria are intended to develop a more coherent set of concepts, not to increase or decrease the range of
assets and liabilities recognized.
c. Both a and b
d. Neither a nor b

32. Which statement is incorrect regarding recognition of the elements of financial statements?
 a. Only items that meet the definition of an asset, a liability or equity are recognized in the statement of financial
position.
b. Only items that meet the definition of income or expenses are recognized in the statement of financial performance.
c. All items that meet the definition of one of those elements are recognized.
d. None of these.

33. Which statement is incorrect regarding asset in accordance with the Conceptual Framework?
a. Assets are resources controlled by the entity as a result of past events and from which future economic benefits are
expected to flow to the entity.
b. Assets are recognized in the statement of financial position if it is probable that the future economic benefits the flow
to the entity and the item has a cost or value that can be measured reliably.
c. Assets are required to be measured at fair value.
d. Assets are presented in the statement of financial position either as current or non-current.

34. Which of the following is (are) essential to the existence of an asset?

a. Legal right c. both A and B
b. Physical form d. neither a nor B

35. The future economic benefit embodied in an asset is the potential to contribute, directly or indirectly, to the flow of cash
and cash equivalents to the entity. The potential may
a. be a productive one that is part of the operating activities of the entity.
b. Take the form of convertibility into cash or cash equivalents.
c. Take the form of a capability to reduce cash outflows, such as when an alternative manufacturing process lowers the
costs of production.
d. Any of the above.

36. the future economic benefits embodied in an asset may flow to the entity in a number of ways, for example, an asset
maybe:
I. Used singly or in combination with other assets in the production of goods and services to be sold by the entity.
II. Exchange for other assets.
III. Used to settle a liability.
IV. Distributed to the owners of the entity.
a. I, II, III and IV c. I, II and III
b. I, II and IV d. I, III and IV

37. Which statement is incorrect regarding the new definition of an asset?

a. An asset is a present economic resource controlled by the entity as a result of past events.
b. An economic resources are right that has the potential to produce economic benefits.
c. It clarified that an asset is the economic resource, not the ultimate inflow of economic benefits.
d. It needs to be certain or likely that economic benefits will arise.

38. Which statement is incorrect regarding a liability?

a. an essential characteristic of a liability is that the entity has a present obligation.
b. a liability may be legally enforceable as a consequences of a binding contract or statutory requirement.
c. A liability may arise from normal business practice, custom and the desire to maintain good business relations or act in
an equitable manner.
d. A decision by the management of an entity to acquire assets in the future gives rise to a present obligation.

39. the settlement of a present obligacion usually involves the entity giving up resources embodying economic benefits in order
to satisfy the claim of the other party. settlement of a present obligation may occur in a number of ways, for example, by:
I. payment of cash.
II. transfer of other assets.
III. provision of services.
IV. the placement of that obligation with other obligation.
V. conversion of the obligation to equity
VI. A creditor waiving or forfeiting its rights.
a. I, II, III, IV, V and VI c. I, II, III, V, and VI
b. I, II, III, IV and VI only d. I, II and III only

40. Which statement is incorrect regarding equity?

a. Is the residual interest in the assets of the entity after deducting all its liability.
b. The amount at which equity is shown in the balance sheet is dependent on the measurement of assets and liabilities.
c. Equity maybe subclassified in the balance sheet.
d. None, all the statements are correct.

41. In accordance with the 2018 conceptual framework, income is defined as

a. increases in economic benefits during the accounting. In the form of inflows or enhancements of assets or decreases of
liabilities that resolved in increase in equity, other than those relating to contributions from equity participants.
b. increases in assets, or decreases in liabilities, that result increases in equity, other than those relating to contributions
from holders of equity claims.
 c. Decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or
incurrences of liabilities that result in decreases in equity, other than those relating to distributions from equity
participants.
d. Decreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating to
distributions to holders of equity claims.

42. Information about income and expenses is

a. Less important as information about assets and liabilities.
b. more important as information about assets and liabilities.
c. Just as important as information about assets and liabilities.
d. Not important.

43. Factors to consider in selecting a measurement basis include

I. characteristics all the assets or liability
II. contribution the future cashflows
III. measurement inconsistency
IV. Measurement uncertainty
a. I, II, III and IV c. I, II and II only
b. I and II only d. I, II and IV only

44. The following measurement basis provide information updated to reflect conditions at the measurement date, except
a. Fair value
b. value in use
c. current cost
d. amortized cost

45. In accordance with the 2018 conceptual framework, historical cost

a. provides information derived, at least in part, from the price of the transaction or other events that gave rise to the
item being measured.
b. is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between
market participants at the measurement date.
c. It reflects entity- specific current expectations about the amount, timing and uncertainty of future cashflows.
d. Reflects the current amount that will be paid to acquire an equivalent asset or received to take on equivalent liability.

46. it is the undiscounted amount of cash or cash equivalent expected to be paid to satisfy the liabilities in the normal course of
business
a. present value c. current cost
b. settlement value d. historical cost

47. Effective communication of information and financial statements does not require:
a. focusing on presentation and disclosure objectives and principles rather than focusing on rules
b. classifying information in a manner that groups similar items and separate dissimilar items
c. aggregating information in such a way that it is not obscured either by unnecessary detail or by excessive aggregation
d. disregarding cost constraints

48. Which statement is incorrect regarding concepts of capital?

a. The selection of the appropriate concept of capital by an entity should be based on the needs of the users of its
financial statements
b. under a financial concept of capital, such as invested money or invested purchasing power, capital is synonymous with
the net assets or equity of the entity
c. under a physical concept of capital, such as operating capability, capital is regarded as the productive capacity of the
entity based on, for example, units of output per day
d. a physical concept of capital is adopted by most entities in preparing their financial statements

49. Which concept of capital should be adopted by an entity if the users of financial statements are primarily concerned with
the maintenance of nominal invested capital or the purchasing power of the invested capital?
a. Financial concept c. either a or B
b. physical concept d. neither a nor B

50. Which capital maintenance concept requires that adoption of the current cost basis of measurement?
a. Financial concept c. either a or B
b. physical concept d. neither a nor B