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

a)Serves as a guide in developing future PFRSs and as a guide to resolving accounting issues that are not addressed directly in existing PFRSs.

b)Prevails in cases where there is conflict with a PFRS.

c)Is not a PFRS and hence does not define standards for any particular measurement or disclosure issue.

d)Describes the objective of, and the concepts for, general purpose financial reporting.

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

a)To assist the Board of Accountancy in promulgating rules and regulations affecting the practice of accountancy in the Philippines.

b)To assist FRSC in the development of future Philippine Financial Reporting Standards (PFRSs) and in its review of existing PFRSs.

c)To assist users of financial statements in interpreting the information contained in financial statements.

d)Provide those who are interested in the work of FRSC with information about its approach to the formulation of PFRSs.

3.How is the Conceptual Framework useful to auditors?

a)By assisting in interpreting the information contained in financial statements prepared in conformity with PFRSs.

b)By assisting in forming an opinion as to whether financial statements conform to PFRSs.

c)By assisting in promoting harmonization of regulations, accounting standards and procedures relating to the presentation of financial statements by providing a basis for reducing the number of alternative accounting treatments permitted by PFRSs.

d)By assisting in applying the accounting standards.

4.Which of the following remained unchanged in the 2018 Conceptual Framework?

a)Presentation and disclosure

b)The reporting entity

c)Derecognition

d)Concepts of capital and capital maintenance

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

a)The objective of general purpose financial reporting.

b)The qualitative characteristics of, and the constraint on, useful financial information.

c)The elements of financial statements.

d)A reporting entity concept.

6.What is the objective of financial reporting as indicated in the conceptual framework?

a)Provide information about those investing in the entity.

b)All of the above.

c)Provide information that is useful to management.

d)Provide information that is useful to those making investing and credit decisions.

7.The 'primary users' 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 and III only

b)I and II only

c)I only

d)I, II and III

8.The decisions of the 'primary users' involve

a)Selling or holding equity and debt instruments

b)Providing or settling loans and other forms of credit.

c)All of the above.

d)Buying equity and debt instruments.

9.Which statements is false concerning users and their information needs?

a)Employees and their representative groups are interested in information about the stability and profitability of the entity.

b)Government and its agencies have an interest in information about the continuance of an enterprise especially when they have long-term involvement or are dependent on the enterprise.

c)The providers of risk capital and their advisers are concerned with the risk inherent in, and return provided by their investment

d)Lenders are interested in information that enables them to determine whether their loans and the interest on these loans will be paid when due.

10.The users of financial statements who are interested in information that enables them to determine whether the amounts owing to them will be paid when due

a)Suppliers and other trade creditors

b)Investors

c)Customers

d)Lenders

11.They are interested in information about trends and recent developments in the prosperity of the enterprise and the range of its activities

a)Lenders

b)Public

c)Customers

d)Investors

12.These are the attributes that make the information provided in financial statements useful to users.

a)Qualitative characteristics

b)Basic assumptions

c)Basic features

d)Basic elements

13.In the Conceptual Framework, qualitative characteristics

a)Distinguish better information from inferior information for decision-making purposes.

b)All of the choices are correct.

c)Are attributes that make the information provided in financial statements useful to users.

d)Are considered either fundamental or enhancing.

14.The "fundamental" qualitative characteristics are

a)Timeliness and verifiability

b)Relevance and faithful representation

c)Understandability and comparability

d)Relevance and reliability

15.Accounting information is considered to be relevant when it

a)Is capable of making a difference in a decision.

b)Is verifiable and neutral.

c)Is understandable by reasonably informed users of accounting information.

d)Can be depended on to represent the economic conditions and events that it is intended to represent.

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

a)Both a and b.

b)If it provides feedback about (confirms or changes) previous evaluations.

c)If it can be used as an input to processes employed by users to predict future outcomes.

d)Neither a nor b.

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

a)Materiality

b)Confirmatory value

c)Timeliness

d)Predictive value

18.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)The IASB does not specify a uniform quantitative threshold for materiality or predetermine what could be material in a particular situation.

c)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 report.

d)None of these.

19.To be a faithful representation as described in the Conceptual Framework, information must be all of the following, except:

a)Free from error.

b)Complete.

c)Confirmatory.

d)Neutral.

20.Information is neutral if it

a)Provides benefits which are at least equal to the costs of its preparation

b)Would have no impact on a decision maker

c)Can be compared with similar information about an enterprise at other points in time

d)Is free from bias toward a predetermined result

21.Which statement is incorrect regarding prudence?

a)Neutrality is supported by the exercise of prudence.

b)Prudence does not allow for overstatement of assets, liabilities, income or expenses.

c)Prudence allows for understatement of assets, liabilities, income or expenses.

d)Prudence is the exercise of caution when making judgments under conditions of uncertainty.

22.Which of the following helps users make good decisions?

a)Neither a nor b.

b)Both a and b.

c)An unfaithful representation of a relevant phenomenon.

d)A faithful representation of an irrelevant phenomenon.

23.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 greement, that a particular depiction is a faithful representation.

c)Financial reports are prepared for users who have a reasonable knowledge of business and economic activities and who review and analyze the information with diligence.

d)Enables users to identify and understand similarities in, and differences among, items.

24.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 decisions they make.This link is

a)Reliability.

b)Relevance.

c)Understandability.

d)Materiality.

25.Which statement is correct regarding enhancing qualitative characteristics?

a)The enhancing qualitative characteristics, either individually or as a group, cannot make information useful if that information is irrelevant or not faithfully represented.

b)Sometimes, one enhancing qualitative characteristic may have to be diminished to maximize another qualitative characteristic.

c)All the statements are correct.

d)Applying the enhancing qualitative characteristics is an iterative process that does not follow a prescribed order.

26.The conceptual framework includes a cost-benefit constraint.Which of the following best describes the cost-benefit constraint?

a)Financial information should be free from cost to users of the information.

b)Costs of providing financial information are not always evident or measurable, but must be considered.

c)The benefits of the information must be greater than the costs of providing it.

d)All of the choices are correct.

27.The objective of 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)Neither a nor b.

b)The prospects for future net cash inflows to the reporting entity.

c)Both a and b.

d)Management's stewardship of the entity's economic resources.

28.General purpose financial statements

a)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.

b)Are those intended to meet the needs of users who are not in a position to require an entity to prepare reports tailored to their particular information needs.

c)All of the above.

d)Provide all of the information that financial statements' users need.

29.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)Separate financial statements

b)Unconsolidated financial statements

c)Consolidated financial statements

d)Combined financial statements

30.According to the Conceptual Framework, which of the following, is the underlying assumption relating to financial statements?

a)Users are assumed to have sufficient knowledge to be able to understand the financial statements

b)The business is expected to continue in operation for the foreseeable future

c)The accounts have been prepared on an accruals basis

d)The information is free from material error or bias

31.Which statement is incorrect regarding a reporting entity?

a)A reporting entity could be a portion of an entity or comprise more than one entity.

b)A reporting entity does not comprise an arbitrary or incomplete collection of assets, liabilities, equity, income and expenses.

c)A reporting entity should be a legal entity.

d)A reporting entity is an entity that is required, or chooses, to prepare financial statements

32.Which of the following is an implication of the going concern assumption?

a)The historical cost principle is credible

b)The current-noncurrent classification of assets and liabilities is justifiable and significant.

c)All of these.

d)Depreciation and amortization policies are justifiable and appropriate.

33.Which statement is incorrect regarding the elements of financial statements?

a)None of the above.

b)These are the grouping, into broad classes, of the financial effects of transactions and other events according to economic characteristics.

c)The elements directly related to the measurement of financial performance are revenues and gains.

d)The elements directly related to the measurement of financial position are assets, liabilities and equity.

34.The new Conceptual Framework defines 'recognition' as

a)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.

b)The removal of a previously recognized asset or liability from an entity's statement of financial position.

c)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.

d)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.

35.Which statement is incorrect regarding 'assets' in accordance with the Conceptual Framework?

a)Assets are recognized in the statement of financial position if it is probable that the future economic benefits will flow to the entity and the item has a cost or value that can be measured reliably.

b)Assets are presented in the statement of financial position either as current or noncurrent.

c)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.

d)Assets are required to be measured at fair value.

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

a)Neither a nor b

b)Legal right

c)Both a and b

d)Physical form

37.Which statement is incorrect regarding a liability?

a)A liability may arise from normal business practice, custom and a desire to maintain good business relations or act in an equitable manner.

b)A liability may be legally enforceable as a consequence of a binding contract or statutory requirement.

c)An essential characteristic of a liability is that the entity has a present obligation.

d)A decision by the management of an entity to acquire assets in the future gives rise to a present obligation.

38.Which statement is incorrect regarding 'income' in accordance with the Conceptual Framework?

a)Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants.

b)Income encompasses both revenue and gains.

c)Revenue is normally reported net of the related expenses.

d)Income is recognized when increase in future economic benefits related to an increase in an asset or a decrease of a liability has arisen that can be measured reliably.

39.Information about income and expenses is

a)More important as information about assets and liabilities.

b)Not important.

c)Less important as information about assets and liabilities.

d)Just as important as information about assets and liabilities.

40.Historical cost is

a)The discounted value of the future net cash inflow that an asset is expected to generate in the normal course of business.

b)The amount of cash or cash equivalent that could currently be obtained by selling the asset in an orderly disposal.

c)The amount of cash or cash equivalent paid or the consideration to acquire an asset.

d)The amount of cash or cash equivalent that would have to be paid if the same or an equivalent asset is acquired currently.

41.Which statement is incorrect regarding concepts of capital?

a)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.

b)A physical concept of capital is adopted by most entities in preparing their financial statements.

c)The selection of the appropriate concept of capital by an entity should be based on the needs of the users of its financial statements.

d)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.

42.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 invested capital?

a)Neither a nor b

b)Physical concept

c)Financial concept

d)Either a or b

43.The Conceptual Framework includes all of the following, except:

a)Objective of financial reporting.

b)Elements of financial statements.

c)Supplementary information

d)Qualitative characteristics of accounting information.

44.What is a purpose of having a conceptual framework?

a)Neither a nor b.

b)To provide a foundation from which to build more useful standards.

c)To enable the profession to more quickly solve emerging practical problems.

d)Both a and b.

45.The underlying theme of the conceptual framework is

a)Understandability.

b)Decision usefulness.

c)Reliability.

d)Comparability.

46.What is the quality of information that enables users to better forecast future operations?

a)Relevance.

b)Comparability.

c)Reliability.

d)Materiality.

47.When inventory is misstated, its presentation lacks:

a)Relevance

b)Faithful representation

c)All of the choices are correct

d)Comparability

48.What is meant by comparability when discussing financial accounting information?

a)Information is timely.

b)Information is reasonably free from error.

c)Information has predictive or feedback value.

d)Information that is measured and reported in a similar fashion across companies.

49.Changing the method of inventory valuation should be reported in the financial statements under what qualitative characteristic of accounting information?

a)Verifiability.

b)Understandability.

c)Timeliness.

d)Comparability.