DISCUSSION QUESTIONS

6. Which of the following is the

1. Which statement is incorrect foundation of the Conceptual
regarding the Conceptual Framework?
Framework for Financial a. The objective of general
Reporting? purpose financial reporting.
a. Serves as a guide in b. A reporting entity concept.
developing future PFRSs. c. The qualitative
b. Serves as a guide in characteristics of, and the
resolving accounting issues constraint on, useful financial
that are not addressed information.
directly in existing PFRSs. d. The elements of financial
c. Is not a PFRS and hence does statements.
not define standards for any
particular measurement or 7. What is the objective of financial
disclosure issue. reporting as indicated in the
d. Prevails in cases where there conceptual framework?
is conflict with a PFRS. a. Provide information that is
useful to those making
2. The Conceptual Framework for investing and credit
Financial Reporting addresses decisions.
fundamental issues including a. b. Provide information that is
The objective of financial useful to management.
reporting c. Provide information about
b. Characteristics that make those investing in the entity.
financial information useful d. All of the above.
c. Definition, recognition,
derecognition, measurement, 8. The ‘primary users’ of financial
presentation and disclosure information include I. Existing
of the elements of financial and potential investors
statements II. Existing and potential lenders
d. All of these and other creditors
III. User group such as
3. The IASB revised the Conceptual employees, customers,
Framework because the previous government and their
version is agencies, and the public
a. No longer relevant. a. I only c. I and III
b. No longer useful. only
c. Useful, but incomplete and b. I and II only d. I,
needed improvements. II and III
d. None of the above.
9. The decisions of the ‘primary
4. Revisions of the Conceptual users’ involve
Framework a. Buying equity and debt
a. Are no longer expected after instruments.
the release of the new b. Selling or holding equity and
Conceptual Framework. debt instruments
b. Are expected every three to c. Providing or settling loans
five years. and other forms of credit.
c. Will automatically lead to d. All of the above.
changes to the Standards.
d. Will not automatically lead to 10. Which statements is false
changes to the Standards. concerning users and their
information needs?
5. Which of the following remained a. Lenders are interested in
unchanged in the 2018 information that enables
Conceptual Framework? a. The them to determine whether
reporting entity their loans and the interest
b. Derecognition on these loans will be paid
c. Presentation and disclosure when due.
d. Concepts of capital and b. The providers of risk capital
capital maintenance and their advisers are
concerned with the risk
inherent in, and return
provided by their investment

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EXCEL PROFESSIONAL SERVICES, INC.

c. Government and its agencies c. Can be depended on to

have an interest in represent the economic
information about the conditions and events that it
continuance of an enterprise is intended to represent.
especially when they have d. Is understandable by
long-term involvement or are reasonably informed users of
dependent on the enterprise. accounting information.
d. Employees and their
representative groups are 17. Financial information is capable
interested in information of making a difference in
about the stability and decisions
profitability of the entity. a. If it can be used as an input
to processes employed by
11. The users of financial statements users to predict future
who are interested in information outcomes.
that enables them to determine b. If it provides feedback about
whether the amounts owing to (confirms or changes)
them will be paid when due a. previous evaluations.
Lenders c. Both a and b.
b. Investors d. Neither a nor b.
c. Customers
d. Suppliers and other trade 18. What is an entity-specific aspect
creditors of relevance?
a. Predictive value c.
12. They are interested in Timeliness
information about trends and b. Confirmatory value d.
recent developments in the Materiality
prosperity of the enterprise and
the range of its activities 19. Which statement is incorrect
a. Investors c. regarding ‘materiality’?
Public a. Information is material if
b. Lenders d. omitting it or misstating it
Customers could influence decisions that
users make on the basis of
13. The “fundamental” qualitative financial information about a
characteristics are specific reporting entity.
a. Relevance and reliability b. Materiality is based on the
b. Relevance and faithful nature or magnitude, or both,
representation of the items to which the
c. Timeliness and verifiability information relates in the
d. Understandability and context of an individual
comparability entity’s financial report.
c. The IASB does not specify a
14. Qualitative characteristic that uniform quantitative
financial information must threshold for materiality or
possess to be useful to the predetermine what could be
primary users of general purpose material in a particular
financial reports include situation.
a. Timeliness c. d. None of these.
Understandability
b. Verifiability d. 20. To be a faithful representation as
Faithful representation described in the Conceptual
Framework, information must be
15. Qualitative characteristics that all of the following, except:
make useful information more a. Complete. c.
useful include Confirmatory.
a. Relevance c. b. Free from error. d.
Comparability Neutral.
b. Faithful representation d.
All of these 21. Information is neutral if it
a. Is free from bias toward a
16. Accounting information is predetermined result
considered to be relevant when it b. Would have no impact on a
a. Is capable of making a decision maker
difference in a decision. c. Provides benefits which are
b. Is verifiable and neutral. at least equal to the costs of
its preparation

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d. Can be compared with Consistency yes

similar information about an yes no no
enterprise at other points in Regular reporting periods no
time yes no yes

22. The 2018 Conceptual Framework 27. Decision makers vary widely in
explicitly referred to the types of decisions they make,
a. Prudence the methods of decision making
b. Substance over form they employ, the information
c. Stewardship they already possess or can
d. All of these obtain from other sources, and
their ability to process
23. Which statement is incorrect information. Consequently, for
regarding prudence? information to be useful there
a. Neutrality is supported by must be a linkage between these
the exercise of prudence. users and the decisions they
b. Prudence is the exercise of make. This link is
caution when making a. Relevance. c.
judgments under conditions Understandability.
of uncertainty. b. Reliability. d.
c. Prudence does not allow for Materiality.
overstatement of assets,
liabilities, income or 28. Which of the following enhancing
expenses. qualitative characteristics can
d. Prudence allows for make irrelevant or not faithfully
understatement of assets, represented information useful?
liabilities, income or a. Timeliness c.
expenses. Understandability
b. Verifiability d.
24. Which of the following helps None of these
users make good decisions?
a. A faithful 29. The conceptual framework
representation of an includes a cost-benefit
irrelevant phenomenon. constraint. Which of the
b. An unfaithful representation following best describes the cost-
of a relevant phenomenon. benefit constraint?
c. Both a and b. a. The benefits of the
d. Neither a nor b. information must be greater
than the costs of providing it.
25. Which statement relates to b. Financial information should
comparability? be free from cost to users of
a. Information is available to the information.
decision-makers in time to be c. Costs of providing financial
capable of influencing their information are not always
decisions. evident or measurable, but
b. Different knowledgeable and must be considered.
independent observers could d. All of the choices are correct.
reach consensus, although
not necessarily complete 30. All of the following represent
agreement, that a particular costs of providing financial
depiction is a faithful information except
representation. a. Preparing. c.
c. Financial reports are Auditing.
prepared for users who have b. Disseminating. d.
a reasonable knowledge of Accessing capital.
business and economic
activities and who review and 31. Which statement is incorrect
analyze the information with regarding a reporting entity?
diligence. a. A reporting entity is an entity
d. Enables users to identify and that is required, or chooses,
understand similarities in, to prepare financial
and differences among, statements
items. b. A reporting entity should be a
legal entity.
26. Comparability of financial c. A reporting entity could be a
information depends on portion of an entity or
a b c d

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comprise more than one b. Accrual basis d. Neither a

entity. nor b
d. A reporting entity does not
comprise an arbitrary or 36. Which statement is incorrect
incomplete collection of regarding the going concern
assets, liabilities, equity, assumption?
income and expenses. a. The entity is a going concern
and will continue in operation
32. The objective of financial for the foreseeable future.
statements is to provide financial b. The entity has neither the
information about the reporting intention nor the need to
entity’s assets, liabilities, equity, enter liquidation or to cease
trading.
income and expenses that is
c. If such an intention or need
useful to users of financial
exists, the financial
statements in assessing
statements may have to be
a. The prospects for future net
prepared on a different basis
cash inflows to the reporting
and, if so, the basis used is
entity.
disclosed.
b. Management’s stewardship
d. None, all the statements are
of the entity’s economic
correct.
resources.
c. Both a and b.
37. Which of the following is an
d. Neither a nor b.
implication of the going concern
assumption?
33. General purpose financial
a. The historical cost principle is
statements
credible.
a. Are those intended to meet
b. Depreciation and
the needs of users who are
amortization policies are
not in a position to require an
justifiable and appropriate.
entity to prepare reports
c. The current-noncurrent
tailored to their particular
classification of assets and
information needs.
liabilities is justifiable and
b. Provide all of the information
significant.
that financial statements’
d. All of these.
users need.
c. Are designed to show the
38. Which statement is incorrect
value of a reporting entity
regarding the elements of
since they provide
financial statements?
information to help existing
a. These are the grouping, into
and potential investors,
broad classes, of the financial
lenders and other creditors to
effects of transactions and
estimate the value of the
other events according to
reporting entity.
economic characteristics.
d. All of the above.
b. The elements directly related
to the measurement of
34. Which of the following financial
financial position are assets,
statements provide information
liabilities and equity.
about assets, liabilities, equity,
c. The elements directly related
income and expenses of two or
to the measurement of
more entities that are not all
financial performance are
linked by a parent-subsidiary
revenues and gains.
relationship?
d. None of the above.
a. Consolidated financial
statements
39. Which statement is incorrect
b. Unconsolidated financial
regarding ‘recognition’?
statements
a. The process of capturing for
c. Combined financial
inclusion in the statement of
statements
financial position or the
d. Separate financial
statement(s) of financial
statements
performance an item that
meets the definition of one of
35. The underlying assumption(s) in
the elements of financial
the preparation of financial
statements.
statements include
b. It involves depicting the item
a. Going concern c. Both a
in one of those statements—
and b
either alone or in aggregation

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with other items—in words an element and satisfies the

and by a monetary amount, criteria for recognition.
and including that amount in c. The process of determining
one or more totals in that the monetary amounts at
statement. which the elements of the
c. Both a and b. financial statements are to
d. Neither a nor b. be recognized and carried in
40. In accordance with the 1989 the balance sheet and
Framework, an item that meets income statement.
the definition of an element d. The sorting of assets,
should be recognized if: liabilities, equity, income or
a. It is probable that any future expenses on the basis of
economic benefit associated shared characteristics for
with the item will flow to or presentation and disclosure
from the entity. purposes.
b. The item has a cost or value
that can be measured with 44. In accordance with the 1989
reliability. Framework, an asset is defined
c. Both a and b. as
d. Neither a nor b. a. A resource controlled by the
entity as a result of past
41. Which statement is incorrect events and from which future
regarding the new criteria for economic benefits are
recognition of the elements of expected to flow to the
financial statements? entity.
a. The revised recognition b. A present obligation of the
criteria refer explicitly to the entity arising from past
qualitative characteristics of events, the settlement of
useful information. which is expected to result in
b. The new criteria are intended an outflow from the entity of
develop a more coherent set resources embodying
of concepts, not to increase economic benefits.
or decrease the range of c. The residual interest in the
assets and liabilities assets of the entity after
recognized. deducting all its liabilities.
c. Both a and b. d. Increases in economic
d. Neither a nor b. benefits during the
accounting period in the form
42. Which statement is incorrect of inflows or enhancements
regarding recognition of the of assets or decreases of
elements of financial liabilities that result in
statements? increases in equity, other
a. Only items that meet the than those relating to
definition of an asset, a contributions from equity
liability or equity are participants.
recognized in the statement
of financial position. 45. Which statement is incorrect
b. Only items that meet the regarding the new definition of
definition of income or an asset?
expenses are recognized in a. An asset is a present
the statement of financial economic resource controlled
performance. by the entity as a result of
c. All items that meet the past events.
definition of one of those b. An economic resource is a
elements are recognized. right that has the potential to
d. None of these. produce economic benefits.
c. It clarified that an asset is
43. The new Conceptual Framework the economic resource, not
defines ‘derecognition’ as the ultimate inflow of
a. The removal of all or part of a economic benefits.
recognized asset or liability d. It needs to be certain or
from an entity’s statement of likely that economic benefits
financial position. will arise.
b. The process of incorporating
in the balance sheet or 46. Which statement is incorrect
income statement an item regarding the new definition of a
that meets the definition of liability?

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EXCEL PROFESSIONAL SERVICES, INC.

a. A liability is a present b. Value in use d.

obligation of the entity to Amortized cost
transfer an economic
resource as a result of past 51. In accordance with the 2018
events. Conceptual Framework, historical
b. An obligation is a duty or cost
responsibility that the entity a. Provides information derived,
has no practical ability to at least in part, from the
avoid. price of the transaction or
c. It clarified that a liability is other event that gave rise to
the obligation to transfer the the item being measured.
economic resource, not the b. Is the price that would be
ultimate outflow of economic received to sell an asset, or
benefits. paid to transfer a liability, in
d. Retained the ‘expected flow’ an orderly transaction
criterion. between market participants
at the measurement date.
47. Which statement is incorrect c. Reflects entity-specific
regarding equity? current expectations about
a. Equity is the residual interest the amount, timing and
in the assets of the entity uncertainty of future cash
after deducting all its flows.
liabilities. d. Reflects the current amount
b. The amount at which equity that would be paid to acquire
is shown in the balance sheet an equivalent asset or
is dependent on the received to take on an
measurement of assets and equivalent liability.
liabilities.
c. Equity may be sub-classified 52. Effective communication of
in the balance sheet. information in financial
d. None, all the statements are statements does not require:
correct. a. Focusing on presentation and
disclosure objectives and
48. Information about income and principles rather than
expenses is focusing on rules.
a. Less important as b. Classifying information in a
information about assets and manner that groups similar
liabilities. items and separates
b. More important as dissimilar items.
information about assets and c. Aggregating information in
liabilities. such a way that it is not
c. Just as important as obscured either by
information about assets and unnecessary detail or by
liabilities. excessive aggregation.
d. Not important. d. Disregarding costs
constraints.
49. Factors to consider in selecting a
measurement basis include 53. Under this concept, a profit is
I. Characteristics of the asset earned only if the financial
or liability (money) amount of the net
II. Contribution to future cash assets at the end of the period
flows exceeds the financial (money)
III. Measurement inconsistency amount of net assets at the
IV. Measurement uncertainty beginning of the period, after
excluding any distributions to,
a. I, II, III and IV c. I, II and III and contributions from, owners
only during the period.
b. I and II only d. I,
II and IV only Under this concept, a profit is
earned only if the physical
50. The following measurement productive capacity (or operating
bases provide information capability) of the enterprise (or
updated to reflect conditions at the resources or funds needed to
the measurement date, except achieve that capacity) at the end
a. Fair value c. of the period exceeds the
Current cost physical productive capacity at
the beginning of the period, after

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excluding any distributions to, capital or the purchasing power

and contributions from, owners of invested capital? a. Financial
during the period. concept
b. Physical concept
First statement Secondc. Either a or b
statement d. Neither a nor b
a. Physical capital
Financial capital 56. Which capital maintenance
b. Financial capital concept requires the adoption of
Physical capital the current cost basis of
c. Financial capital measurement? a. Financial
Financial capital concept
d. Physical capital b. Physical concept
Physical capital c. Either a or b
d. Neither a nor b
54. The balance sheet of Lai
Company showed the following
DO-IT-YOURSELF (DIY) DRILL
on January 1 and December 31 of - now do the DIY drill -
the current year:
1. Which is (are) true concerning
January 1
the Conceptual Framework?
December 31 I. The framework sets out the
Total assets 10,000,000 concepts that underlie the
15,000,000 preparation and presentation
Total liabilities 3,000,000 of financial statements for
4,000,000 Contributed capital external users.
5,000,000 II. The framework is not PFRS
and hence does not define
During the year, Lai issued standard for any particular
ordinary shares with par value of measurement or disclosure
P2,000,000 at a premium of issue.
P1,000,000. On December 31, III. The framework is concerned
Lai paid dividends of P2,500,000. with general-purpose
What was the net income for the financial statements
current year? including consolidated
a. P3,500,000 c. financial statements.
P4,000,000 a. I only c. I and III
b. P4,500,000 d. b. I and II d. I, II and III
P5,500,000
2. The Conceptual Framework
SOLUTION GUIDE: includes all of the following,
except:
Equity, ending a. Objective of financial
Pxx reporting.
Equity, beginning b. Qualitative
( xx) characteristics of
Net change in equity – Increase accounting information.
(Decrease) c. Elements of financial
Contributions from owners statements.
( xx) d. Supplementary information
Distribution to owners
xx 3. What is a purpose of having a
Comprehensive income conceptual framework?
xx a. To enable the profession to
Other comprehensive income (OCI) more quickly solve emerging
practical problems.
Profit or loss b. To provide a foundation from
Pxx which to build more useful
standards.
c. Neither a nor b.
55. Which concept of capital should d. Both a and b.
be adopted by an entity if the
users of financial statements are 4. One element of the objective of
primarily concerned with the financial reporting is to provide:
maintenance of nominal invested

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EXCEL PROFESSIONAL SERVICES, INC.

a. Information that is useful in statements under what

assessing cash flow qualitative characteristic of
prospects accounting information? a.
b. Information about the Understandability. c.
liquidation values of the Timeliness.
resources held by the b. Verifiability.
enterprise Comparability.
c. Information about the
investors in the business 11. Company A issuing its annual
entity financial reports within one
d. Information that will attract month of the end of the year is
new investors an example of which enhancing
quality of accounting
5. The underlying theme of the information? a. Neutrality. c.
conceptual framework is Predictive value.
a. Decision usefulness. b. Timeliness.
c. Reliability. Comparability
b. Understandability.
d. Comparability. 12. Which of the following qualitative
characteristics is (are) included
6. What is the quality of information in the 2018 Conceptual
that enables users to better Framework?
forecast future operations? a. Substance over form
a. Reliability. c. Verifiability
c. Comparability. b. Prudence
b. Materiality. d. All of these
d. Relevance.
13. According to the Conceptual
7. When inventory is misstated, its Framework, the usefulness of
presentation lacks: providing information in financial
a. Faithful representation statements is subject to the
b. Relevance constraint of a. Consistency
c. Comparability b. Materiality
d. All of the choices are correct c. Reliability
d. Balance between benefit and
8. An implicit assumption in the cost
Conceptual Framework is that
a. Information must be decision- 14. Which of the following
useful to all potential users of measurement attributes is not
financial reporting. currently used in practice? a.
b. General-purpose financial Present value
reporting is the primary b. Net realizable value
source of information for c. Current replacement cost
users of financial reporting. d. Inflation-adjusted cost
c. Users need reasonable
knowledge of business and 15. The following statements pertain
financial accounting matters to the provisions of Conceptual
to understand the Framework on the concepts of
information contained in Capital
financial statements. Maintenance
d. All of the choices are correct.
Statement 1: The principal
9. What is meant by comparability difference between two concepts
when discussing financial of capital maintenance is the
accounting information? treatment of the effects of
a. Information has predictive or changes in the prices of assets
feedback value. and liability of the entity.
b. Information is reasonably
free from error. Statement II: The selection of the
c. Information that is measured appropriate concept of capital by
and reported in a similar an entity should be based on the
fashion across companies. needs of the users of its financial
d. Information is timely. statements.

10. Changing the method of Statement III: The concept of

inventory valuation should be capital maintenance chosen by
reported in the financial an entity shall determine the

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EXCEL PROFESSIONAL SERVICES, INC.

accounting model used in the d. None of the foregoing

preparation of its financial statements is false
statements.

a. Only statement I is false

b. Only statement II is false J - end of FAR.2943 - J
c. Only statement III is false

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