Chapter 1
Chapter 1
3. These are the events that affect the entity and in which other entities participate.
a. Internal events
b. External events
c. Current events
d. Past events
6. It is the body authorized by law to promulgate rules and regulations affecting the
practice of the accountancy profession in the Philippines.
a. Board of Accountancy
b. Philippine Institute of Certified Public Accountants
c. Securities and Exchange Commission
d. Financial Reporting Standards Council
8. It is the accounting standard setting body in the Philippines at the present time.
a. Accounting Standards Council
b. Auditing and Assurance Standards Council
c. Philippine Accounting Standards Board
d. Financial Reporting Standards Council
a. I only
b. I and II only
c. I and III only
d. I, II, and III
ANSWER 1-48
1. a
2. d
3. b
4. d
5. a
6. a
7. b
8. d
9. b
10. D
QUESTION 1-49 Multiple choice (IAA)
2. Financial accounting can be broadly defined as the area of accounting that prepares
a. General purpose financial statements to be used by parties internal to the entity
only.
b. Financial statements to be used by investors only.
c. General purpose financial statements to be used by parties both internal and
external to the entity.
d. Financial statements to be used primarily by management.
ANSWER 1-49
1. a
2. c
3. d
4. d
5. b
QUESTION 1-50 Multiple choice (IAA)
10. It is a “global phenomenon” intended to bring about transparency and a higher degree
of comparability in financial reporting in order to achieve the goal of one uniform and
globally accepted financial reporting standards.
a. IFRS
b. Borderless accounting
c. World trade
d. Information technology
ANSWER 1-50
1. d
2. b
3. d
4. d
5. a
6. c
7. c
8. c
9. b
10. a
QUESTION 1-51 Multiple choice (IAA)
1. What is the only underlying assumption mentioned in the Conceptual Framework for
Financial Reporting?
a. Going concern
b. Accounting entity
c. Time period
d. Monetary unit
2. Which of the following statements best describes the term “going concern”?
a. When current liabilities of an entity exceed current assets.
b. The ability of the entity to continue in operation for the foreseeable future.
c. The potential to contribute to the flow of cash and cash equivalents to the entity.
d. The expenses of an entity exceed its income.
5. Which basic assumption may not be followed when an entity in bankruptcy reports
financial results?
a. Economic entity assumption
b. Going concern assumption
c. Periodicity assumption
d. Monetary unit assumption
6. The financial statements that are prepared for the business are separate and distinct
from the financial statements of the owners.
a. Going concern assumption
b. Matching principle
c. Economic entity assumption
d. Accounting period assumption
8. Which underlying assumption serves as the basis for preparing financial statements at
regular artificial points in time?
a. Accounting entity
b. Going concern
c. Accounting period
d. Stable monetary unit
10. Which of the following is not an important characteristic of the financial statements
that accountants currently prepare?
a. The information in financial statements is expressed in units of money adjusted
for changing purchasing power.
b. Financial statements articulate with one another because measuring financial
position is related to measuring changes in financial position.
c. The information in financial statements is summarized and classified to help
meet users’ needs.
d. Financial statements can be justified only if the benefits they provide exceed the
costs.
ANSWER 1-51
1. a
2. b
3. d
4. d
5. b
6. c
7. d
8. c
9. a
10. a
QUESTION 1-52 Multiple choice (AICPA Adapted)
2. When a parent and subsidiary relationship exists, consolidated financial statements are
prepared in recognition of
a. Legal entity
b. Economic entity
c. Stable monetary unit
d. Time period
3. The valuation of a promise to receive cash in the future at present value is valid
because of the accounting concept of
a. Entity
b. Time period
c. Going concern
d. Monetary unit
4. What is the accounting concept that justifies the usage of accruals and deferrals?
a. Going concern
b. Materiality
c. Consistency
d. Stable monetary unit
ANSWER 1-52
1. d
2. b
3. c
4. a
5. b
QUESTION 1-53 Multiple choice (Conceptual Framework)
a. I and II only
b. I and III only
c. II and III only
d. I, II and III
6. What is the authoritative status of the Conceptual Framework?
a. The Conceptual Framework has the highest level of authority.
b. In the absence of a standard or an interpretation that specifically applies to a
transaction, the Conceptual Framework shall be followed.
c. In the absence of a standard or an interpretation that specifically applies to a
transaction, management shall consider the applicability of the Conceptual
Framework in developing and applying an accounting policy that results in
information that is relevant and reliable.
d. The Conceptual Framework applies only when the Financial Reporting
Standards Council develops new or revised standards.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
10. As regards the relationship between PFRS and the Conceptual Framework, which of
the following statements is true?
I. The Conceptual Framework is a reporting standard.
II. In case of conflict, the requirements of the Conceptual Framework prevail over
those of the relevant PFRS.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
ANSWER 1-53
1. a
2. d
3. d
4. b
5. d
6. c
7. c
8. a
9. d
10. d
QUESTION 1-54 Multiple choice (IAA)
1. In the Conceptual Framework for Financial Reporting, what provides the “why” of
accounting?
a. Measurement and recognition concept
b. Qualitative characteristic of accounting information
c. Element of financial statement
d. Objective of financial reporting
a. I only
b. II only
c. Both I and II
d. Neither I nor II
a. II only
b. III only
c. II and III only
d. I and II only
a. I only
b. I and II only
c. I and III only
d. I, II, and III
ANSWER 1-54
1. d
2. a
3. c
4. b
5. d
QUESTION 1-55 Multiple choice (Users of information)
I. Creditors
II. Government agencies
III. Unions
a. I only
b. I and II only
c. I and III only
d. I, II, and III
5. These users are interested in information about the profitability and stability of an
entity in order to assess the ability of the entity to provide remuneration, retirement
benefits and employment opportunities.
a. Customers
b. The public
c. Governments and their agencies
d. Employees
6. These users are interested in information that enables them to assess whether their
loans, the related interest thereon, and other amounts owing to them will be paid when
due.
a. Lenders and other creditors
b. Borrowers
c. Trade creditors
d. Owners
7. These users are interested in information about the continuance of an entity when they
have a long-term involvement with or are dependent on the entity.
a. Customers
b. Employees
c. Trade unions
d. Suppliers
8. These users are interested in information in order to regulate the activities of an entity,
determine taxation policies and provide a basis for national statistics.
a. Governments and their agencies
b. Major organization of users
c. Bureau of Internal Revenue
d. Department of Finance
9. These users need information on trends and recent developments where an entity
makes a substantial contribution to the local economy providing employment and using
local suppliers.
a. The public
b. Government and their agencies
c. Finance entities
d. Private entities
a. I only
b. II only
c. Both I and II
d. Neither I nor II
ANSWER 1-55
1. b
2. d
3. a
4. a
5. d
6. a
7. a
8. a
9. a
10. c
QUESTION 1-56 Multiple choice (AICPA Adapted)
2. The equation “assets minus liabilities minus preference equity equals ordinary equity”
is
a. Fund
b. Entity
c. Proprietary
d. Residual equity
ANSWER 1-56
1. a
2. d
3. c
4. a
5. d
QUESTION 1-57 Multiple choice (IAA)
2. The primary focus of financial reporting has been on meeting the needs of which of the
following groups?
a. Managers of an entity
b. Existing and potential investors, lenders, and other creditors
c. National and local taxing authorities
d. Independent CPAs
7. Which of the following statements best describes the term “financial position”?
a. The net income and expenses of an entity
b. The net of financial assets less liabilities of an entity
c. The potential to contribute to the flow of cash and cash equivalents to the entity
d. The assets, liabilities and equity of an entity
ANSWER 1-57
1. c
2. b
3. a
4. a
5. c
6. c
7. d
8. a
9. c
10. b
QUESTION 1-58 Multiple choice (AICPA Adapted)
4. Which one of the following is not listed as a major objective of financial reporting?
a. Financial reporting shall provide information about entity resources, claims to
those resources and changes in them.
b. Financial reporting shall provide information useful in evaluating management’s
stewardship.
c. Financial reporting shall provide information useful in investment, credit and
similar decisions.
d. Financial reporting shall provide information useful in assessing cash flow
prospects.
ANSWER 1-58
1. d
2. a
3. c
4. b
5. d
QUESTION 1-59 Multiple Choice (PHILCPA Adapted)
1. The principles which constitute the ground rules for financial reporting are termed
“generally accepted accounting principles”. To qualify as “generally accepted,” an
accounting principle must
a. Usually guide corporate managers in preparing financial statements, which will
be understood by widely scattered shareholders.
b. Guide corporate managers in preparing financial statements, which will be used,
for collective bargaining agreement with trade unions.
c. Guide an entrepreneur of the choice of an accounting entity like single
proprietorship, partnership or corporation.
d. Receive substantial authoritative support.
4. Four types of money prices are used in measuring resources in financial accounting.
The measurement which uses such concepts as present value, discounted cash flow and
value in use is known as
a. Price in a current purchase exchange
b. Price in past purchase exchange
c. Price based on future exchange
d. Price in a current sale exchange
ANSWER 1-59
1. d
2. a
3. d
4. C
5. d