NEGROS ORIENTAL STATE UNIVERSITY CHAPTER EXAM

CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

NEGROS ORIENTAL STATE UNIVERSITY

College of Business Administration
Accountancy Department

CFAS (OVERVIEW, CONCEPTUAL FRAMEWORK FOR REPORTING & PRESENTATION OF FINANCIAL

STATEMENTS )

INSTRUCTION: READ THE PROBLEMS CAREFULLY AND ANSWER IT CORRECTLY.

PROBLEM 1

1. It refers to the process of incorporating the effects of an accountable event in the statement of financial
position or the statement of profit or loss and other comprehensive income through a journal entry.
a. realization
b. derecognition
c. recognition
d. posting

2. All of the following are events considered as exchange or reciprocal transfer, except
a. purchase of investment in equity securities
b. sale of equipment for non-interest bearing note
c. subscription of the entity’s own equity instrument (i.e., contributions by owners)
d. exchange of a note payable for an account payable
e. borrowing of money from a bank

3. All of the following are events considered nonreciprocal transfers, except

a. declaration of cash dividends
b. declaration of stock dividends
c. payment of accounts payable
d. imposition of fines
e. theft

4. These are events involving an entity and another external party.

a. external events
b. internal events
c. transactions
d. life events

5. It is the accounting process of assigning numbers, commonly in monetary terms, to the economic
transactions and events.
a. analyzing c. classifying
b. measuring d. interpreting

6. What is the basic purpose of accounting?

a. To provide quantitative financial information about economic activities.
b. To provide all information that users need in making economic decisions.
c. To provide qualitative financial information about economic activities intended to be useful in
making economic decisions.
d. To provide quantitative financial information about economic activities intended to be useful in
making economic decisions.

7. Accounting provides which type of information?

a. quantitative
b. financial information
c. qualitative
d. all of these

8. General purpose financial statements are

a. those statements that cater to the common and specific needs of a wide range of external users.
b. those statements that cater to the common needs of a wide range of external users and internal users.

Page 1 of 7
NEGROS ORIENTAL STATE UNIVERSITY CHAPTER EXAM
CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS
c. those statements that cater to the common needs of a limited range of external users.
d. those statements that cater to the common needs of a wide range of external users.

9. External users are those

a. who do have the authority to demand financial reports tailored to their specific needs.
b. who do not have the authority to demand financial reports tailored to their common needs.
c. who do not have the authority to demand financial reports tailored to their specific needs.
d. who belong to countries other than the domicile country of the reporting entity

10. The primary objective of financial reporting is to provide

a. information about economic resources, claims to these resources, and changes in them.
b. information useful for investment and credit decisions.
c. information useful in predicting future cash flows.
d. all of these

11. Which of the following statements is false?

a. Accountable events are those that have an effect in an entity's assets, liabilities, equity, income or
expenses.
b. The term “recognition” as used in accounting refers to the process of incorporating the effects of an
accountable event in the statement of financial position or the statement of profit or loss and other
comprehensive income through a memo entry.
c. External events are those that involve the reporting entity and an external party.
d. The Board of Accountancy consists of a chairperson and six members.

12. Which of the following statements is true?

a. In current practice, accounting provides only quantitative information that is useful in making
economic decisions.
b. External users are those who do not have the authority to demand financial reports tailored to their
specific needs.
c. Under the stable monetary unit assumption, the owners of the business and the business are viewed
as a single reporting entity. Therefore, the personal transactions of the owners are recorded in the
books of accounts.
d. The practice of accountancy in the Philippines is regulated under R.A. 9892.

13. Which of the following statements correctly refer to the accounting process?
I. Measuring is the accounting process of analyzing business activities as to whether or not they will
be recognized in the books.
II. Recognition refers to the process of including the effects of an event in the totals of the statement of
financial position or the statement of profit or loss and other comprehensive income through memo
entries.
III. Disclosure of events in the notes to financial statement without including their effect in the totals of
the statement of financial position or statement of profit or loss and other comprehensive income is
not an application of the recognition principle.
IV. An accountable event is an event that has an effect on the assets, liabilities or equity of an entity and
its effect can be measured reliably.
V. Sociological and psychological matters are within the scope of accounting.
a. I, II, III, IV and V
b. I, II, III and IV
c. IV
d. III and IV

14. Which of the following statements is true?

I. Loss from theft is classified as a nonreciprocal transfer.
II. Internal events are changes in economic resources by actions of other entities that do not involve
transfers of resources and obligations.
III. Nonreciprocal transfers involve the transfer of resources in only one direction, either from an entity
to other entities or from other entities to the entity.
IV. Internal events are sudden, substantial, unanticipated reductions in resources not caused by other
entities.
V. Fire, earthquake and flood are examples of accountable events classified as internal events.
a. I, II, III and V
b. I, III and V

Page 2 of 7
NEGROS ORIENTAL STATE UNIVERSITY CHAPTER EXAM
CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS
c. II, III, IV and V
d. I, III, IV and V

15. Asset measurements in conventional financial statements

a. are confined to historical cost.
b. are confined to historical cost and current cost.
c. reflect several financial attributes.
d. do not reflect output values.

16. During the lifetime of an entity, accountants produce financial statements at arbitrary points in time in
accordance with which basic accounting concept?
a. Cost/benefit constraint
b. Periodicity assumption
c. Conservatism constraint
d. Matching principle

17. What accounting concept justifies the use of accruals and deferrals?
a. Going concern assumption
b. Materiality constraint
c. Consistency characteristic
d. Monetary unit assumption

18. The assumption that a business enterprise will not be sold or liquidated in the near future is known as
the
a. economic entity assumption.
b. monetary unit assumption.
c. conservatism assumption.
d. going concern.

19. Valuing assets at their liquidation values rather than their cost is inconsistent with the
a. periodicity assumption.
b. matching principle.
c. materiality constraint.
d. historical cost principle.

20. When products or other assets are exchanged for cash or claims for cash, they are said to be
a. allocated.
b. realized.
c. recognized.
d. earned.
PROBLEM 2

1. A soundly developed conceptual framework of concepts and objectives should

a. increase financial statement users' understanding of and confidence in financial reporting.
b. enhance comparability among companies' financial statements.
c. allow new and emerging practical problems to be more quickly soluble.
d. all of these.

2. The overall objective of financial reporting is to provide information

a. about an entity's assets, liabilities, and owners' equity.
b. about an entity's financial performance during a period.
c. that is useful in making economic decisions.
d. that allows owners to assess management's performance.

3. The two primary qualities that make accounting information useful for decision making are
a. comparability and consistency.
b. materiality and timeliness.
c. relevance and reliability.
d. faithful representation and relevance.

4. Late information lacks this qualitative characteristic.

Page 3 of 7
NEGROS ORIENTAL STATE UNIVERSITY CHAPTER EXAM
CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS
a. Tardiness c. Timeliness
b. Verifiability d. Comparability

5. Which of the following is considered a qualitative factor in making materiality judgments?

a. the context of an item in relation to the current economic state of the environment where the entity
operates.
b. 10% of profit or loss, in absolute terms
c. 5% of total revenues
d. 1% of total assets

6. Which of the following statements about materiality is not correct?

a. An item must make a difference; otherwise, it need not be reported.
b. Materiality is affected by an item’s relative size and/or importance.
c. An item is material if its inclusion or omission would influence or change the judgment of a
reasonable person.
d. All of these are correct statements about materiality.

7. Which of the following does not provide evidence of future economic benefits from a resource?
a. The resource cannot be used in the entity’s operations but has a resale value.
b. The resource has no use for the entity but it can be swapped for other resources.
c. The entity does not intend to sell or use the resource but instead distribute it to the owners as
dividends.
d. The resource is expected to be used only in the current period and that’s it.

8. Which of the following would most likely result to the recognition of a liability?
a. Customers become entitled to rebates for their past purchases.
b. Intention to acquire inventories in a future period.
c. Entering into a purchase contract for future delivery.
d. Agreeing on an irrevocable future commitment that is not burdensome at present.

9. The adage “Aanhin mo pa and kabayo pag patay na ang damo” relates to which of the following
qualitative characteristics?
a. Relevance
b. Timeliness
c. Faithful representation
d. Comparability

10. The Conceptual Framework classifies gains and losses based on whether they are related to an entity's
major ongoing or central operations. These gains or losses may be classified as
Non-operating Operating
a. Yes No
b. Yes Yes
c. No Yes
d. No No

11. Which of the following is considered a pervasive constraint by the Conceptual Framework?
a. Cost-benefit relationship
b. Timeliness
c. Conservatism
d. Materiality

12. According to the Conceptual Framework, predictive value relates to

Relevance Faithful representation
a. Yes Yes
b. No Yes
c. Yes No
d. No No

13. Information is neutral if it

a. provides benefits which are at least equal to the costs of its preparation.
b. can be compared with similar information.
c. has no impact on a decision maker.

Page 4 of 7
NEGROS ORIENTAL STATE UNIVERSITY CHAPTER EXAM
CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS
d. is free from bias toward a predetermined result.

14. 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. relevance.
b. reliability.
c. understandability.
d. materiality.

15. Accounting information is considered to be relevant when it

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

16. The quality of information that gives assurance that it is reasonably free of error and bias and provides a
true, correct and complete depiction of what it purports to represent is
a. relevance.
b. faithful representation.
c. verifiability.
d. neutrality.

17. When information about two different entities has been prepared and presented in a similar manner, the
information exhibits the characteristic of
a. relevance.
b. reliability.
c. consistency.
d. comparability.

18. A decrease in net assets arising from peripheral or incidental transactions is called a(n)
a. capital expenditure.
b. cost.
c. loss.
d. expense.

19. Which of the following is not an element that is directly related to the measurement of an entity’s
financial position?
a. assets
b. liabilities
c. equity
d. income

20. According to the Conceptual Framework, physical count of inventory is an example of

a. direct verification.
b. indirect verification.
c. timeliness.
d. relevance.

PROBLEM 3

1. PAS 1 requires an assessment of the entity’s ability to continue as a going concern each time financial
statements are prepared. Who is responsible in making this assessment?
a. Accountant
b. Auditor
c. Management
d. Government regulatory body

2. These are the end product of the financial reporting process and the means by which information
gathered and processed is periodically communicated to users.
a. Financial reporting

Page 5 of 7
NEGROS ORIENTAL STATE UNIVERSITY CHAPTER EXAM
CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS
b. Financial statements
c. Financial products
d. Accounting statements

3. Which of the following is not one of the general features of financial statements under PAS 1?
a. Fair presentation and compliance with PFRSs
b. Going Concern
c. Cash Basis
d. Materiality and aggregation

4. Who is responsible for the preparation and the fair presentation of an entity’s financial statements in
accordance with the PFRSs?
a. Any accountant
b. Certified Public Accountant
c. Auditor
d. Management

5. This type of presentation of statement of financial position does not show distinctions between current
and noncurrent items.
a. Classified presentation
b. Unclassified presentation
c. Non-discriminating presentation
d. Awesome presentation

6. In making an economic decision, an investor needs information on the amounts of an entity’s economic
resources and claims to those resources. That investor would most likely refer to which of the following
financial statements?
a. Statement of financial position
b. Statement of comprehensive income
c. Statement of cash flows
d. Statement of changes in equity

7. Which of the following financial statements would be dated as at a certain date?

a. Statement of financial position
b. Statement of profit or loss and other comprehensive income
c. Statement of cash flows
d. All of these

8. Imagine you are a business manager. You would be most awesome as a manager in which of the
following independent scenarios?
a. Your company has an average total assets of ₱10M during the year. At the end of the year, your
company reported profit of ₱1M. The average return of other similar companies with the same level
of assets is 30%.
b. Your adoption of accounting policy has led to the immediate recognition of expenses. Those costs
could have otherwise been allocated over several periods. Accordingly, your company did not
declare dividends during the period. This resulted to a decline in the market value of your
company’s stocks while the prices of all other stocks in the stock market have increased.
c. You changed your company’s method of allocating costs from an accelerated method to a straight-
line method. The change met the requirements of the PFRSs. This led to the smoothing of expenses,
which increased your company’s profit during the period by 12%, above the industry average.
d. You are great at closing deals, that’s why you’re a boss. Eager to increase your company’s resources,
you were able to obtain a ₱20M loan from a bank. Interest expense on the loan during the year was
₱3.4M while the return on investments of loan proceeds was 2%.

9. This comprises all “non-owner changes in equity.” It excludes owner changes in equity, such as
subscription, issuance, and reacquisition of share capital and declaration of dividends.
a. Other comprehensive income
b. Changes in equity
c. Total comprehensive income
d. Profit or loss

10. Materiality judgment is least likely to be applied in which of the following?

Page 6 of 7
NEGROS ORIENTAL STATE UNIVERSITY CHAPTER EXAM
CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS
a. in determining whether an item warrants separate presentation in the financial statements or is to be
aggregated with other items
b. in determining whether information could influence the decisions of users, and therefore, must be
presented in the financial statements
c. in determining whether the cost of processing and communicating information exceeds the benefits
expected to be derived from it
d. whether additional information needs to be provided, including the level of detail and conciseness
of the information’s presentation

PROBLEM 4: ESSAY

What is the relevance of the Conceptual Framework and the PFRSs to your future career as a business
manager or an accountant?

“There is a time for everything, and a season for every activity under the heavens;” (Ecclesiastes 3:1)

“Do not be wise in your own eyes; fear the LORD and shun evil. “
(Proverbs 3:7)

“A wise man will hear and increase learning, and a man of understanding will attain wise counsel.” (Proverbs 1:5)

Page 7 of 7