FAR 3MC The Conceptual Framework of Financial Reporting
FAR 3MC The Conceptual Framework of Financial Reporting
1. The joint FASB and IASB conceptual framework project is b. Is to show information regarding an entity’s financial
intended to establish: position, performance, and changes in financial position.
a. A common set of objectives and concepts for use in c. Is to show the results of the stewardship of management.
developing standards of financial accounting and reporting. d. b and c
b. A common set of generally accepted accounting principles.
c. A comprehensive set of financial statement disclosures. 8. According to the FASB and IASB conceptual frameworks, the
d. The structure of the FASB Codification. objective of general purpose financial reporting is to:
a. Comply with the need for conservatism.
2. The Conceptual Framework (choose the incorrect statement) b. Comply with generally accepted accounting principles.
a. Is not a PFRS c. Report on how effectively and efficiently management has
b. In the absence of a standard, shall be considered by used the entity’s resources.
management when making its judgment in developing and d. Provide financial information that is useful to primary users.
applying accounting policy that result in information that is
relevant and reliable. 9. According to the FASB and IASB conceptual frameworks, the
c. Is concerned with general-purpose financial statements primary users of financial reports include all of the following,
only. except:
d. Prevails over the PFRSs in cases of conflicts. a. Lenders.
b. Investors.
3. Which of the following statements regarding the conceptual c. Regulators.
framework is incorrect? d. Creditors.
a. The framework is concerned with general-purpose financial
statements 10. According to the Conceptual Framework, the needs of primary
b. The framework applies to financial statements of business users that are met by financial statements are
reporting enterprises both in the private sector and in the a. All of their needs
public sector b. All of their common needs only
c. In cases where there is conflict between the framework and c. Majority of their common needs only
an PFRS, the requirement of the framework will prevail
d. Substantially a majority of their common and specific needs
d. The framework deals with concepts of capital
only
4. Financial information provided in general purpose financial
11. According to the FASB and IASB conceptual frameworks, useful
reports does not include information about:
information must exhibit the fundamental qualitative
a. How effectively and efficiently the entity’s governing board
has discharged its responsibility to use the entity’s characteristics of:
resources. a. Neutrality and verifiability
b. How effectively and efficiently the entity’s shareholders’ b. Understandability and timeliness.
have discharged their responsibility to use the entity’s c. Comparability and materiality.
resources. d. Faithful representation and relevance.
c. The resources of the entity.
d. The claims against the entity. 12. Users of financial statements frequently rely upon the data
displayed in the financial statements to predict future financial
5. The following are the components of the conceptual framework outcomes. Financial accounting concepts refer to the
of accounting except characteristic of accounting information that provides predictive
a. The objective of financial statements value to users as the quality of:
b. The definition of the elements of financial statements a. Comparability
c. The form of presentation of financial statements b. Relevance.
d. The qualitative characteristics of financial statements c. Faithful representation.
d. Understandability.
6. The objective of general purpose financial reporting is
a. To provide information regarding the economic resources
13. According to the IASB Framework for the Preparation and
of an entity.
Presentation of Financial Statements, the fundamental
b. To provide users with relevant and reliable information
qualitative characteristics of relevance includes
needed to oversee the day-to-day operations of an entity.
a. Predictive value and feedback value.
c. To provide financial information about the reporting entity
b. Verifiability, neutrality, and representational faithfulness.
that is useful to existing and potential investors, lenders c. Predictive value and confirmatory value.
and other creditors in making decisions about providing d. Comparability and timeliness.
resources to the entity.
d. All of these. 14. According to the FASB and IASB conceptual frameworks, the
quality of information that helps users forecast future outcomes
7. A secondary objective of financial statements is:
a. Is to show information regarding assets and liabilities of an a. Neutrality.
entity. b. Representational faithfulness.
c. Confirming value
d. Predictive value. 23. According to the IASB Framework, the financial statement
element that is defined as increases in economic benefits during
15. According to the FASB and IASB conceptual frameworks, to be the accounting period in the form of inflows or enhancements of
relevant, information should have which of the following? assets or decreases of liabilities that result in increase in equity,
a. Completeness. other than those relating to contributions from equity
b. Neutrality. participants, is
c. Verifiability a. Revenue.
d. Predictive value b. Income.
c. Profits.
16. According to the FASB and IASB conceptual frameworks, one of d. Gains.
the fundamental qualitative characteristics of useful financial
information is: 24. According to the IASB Framework, the two criteria required for
a. Timeliness. incorporating items into income statement or statement of
b. Relevance. financial position are that
c. Verifiability. a. It meets the definition of relevance and faithful
d. Comparability. representation.
b. It meets the definition of an element and can be measured
17. Which of the following characteristics of accounting information reliably.
primarily allows users of financial statements to generate c. It satisfies the criteria of capital maintenance.
predictions about an organization? d. It meets the requirements of comparability and
consistency.
a. Reliability.
b. Relevance.
25. What is the underlying concept governing the recording of gain
c. Neutrality.
contingencies?
d. Timeliness.
a. Conservatism.
b. Reliability.
18. According to the FASB and IASB conceptual frameworks,
c. Relevance.
completeness is an ingredient of:
d. Consistency.
a. Relevance.
b. Faithful Representation.
26. Accounting to the FASB conceptual framework, which of the
c. Both a and b.
following attributes would not be used to measure inventory?
d. Neither a nor b.
a. Replacement cost.
b. Net realizable value.
19. According to the FASB and IASB conceptual frameworks,
c. Historical cost.
neutrality is an ingredient of:
d. Present value of future cash flows.
a. Comparability.
b. Relevance.
27. What is the underlying concept that supports the immediate
c. Timeliness.
recognition of a contingent loss?
d. Faithful representation.
a. Substance over form.
b. Conservatism.
20. According to the FASB and IASB conceptual frameworks, which
c. Matching.
of the following correctly pairs a fundamental qualitative
d. Consistency.
characteristic of useful information with one of its components?
a. Faithful representation and predictive value.
28. According to the FASB conceptual framework, the process of
b. Faithful representation and verifiability.
c. Relevance and timeliness. reporting an item in the financial statements of an entity is:
d. Relevance and materiality. a. Matching.
b. Realization.
21. According to the FASB and IASB conceptual frameworks, which c. Recognition.
of the following is an enhancing qualitative characteristic? d. Allocation.
a. Materiality.
b. Timeliness. 29. According to the FASB conceptual framework, which of the
c. Neutrality. following statements conforms to the realization concept?
d. Completeness. a. Equipment depreciation was assigned to a production
department and then to product unit costs.
22. Which of the following characteristics enhances relevance and b. Product unit costs were assigned to cost of goods sold
when the units were sold.
faithful representation?
c. Depreciated equipment was sold in exchange for a note
a. Materiality.
receivable.
b. Timeliness. d. Cash was collected on accounts receivable.
c. Predictive value.
d. Neutrality.
33. According to the IASB conceptual framework, which of the 38. Changes in the account balances of ABC Co. during 2017 are
following is an underlying assumption of financial statement shown below:
preparation and presentation? Increase/(Decrease)
a. Monetary unit. Cash ₱1,200,000
b. Historical cost. Accounts receivable (640,000)
c. Going concern. Allowance for bad debts (100,000)
d. Periodicity. Inventory 600,000
Investment in associate 900,000
Buildings and equipment 1,200,000
34. Under this concept, a profit is earned only if the financial (or Accumulated depreciation 300,000
money) amount of the net assets at the end of the period Accounts payable 800,000
exceeds the financial (or money) amount of net assets at the Bonds payable (520,000)
beginning of the period, after excluding any distributions to, and Discount on bonds payable (120,000)
contributions from, owners during the period. It can be Common stock 600,000
measured in either nominal monetary units or units of constant Additional paid-in capital 100,000
purchasing power. Revaluation surplus 300,000
a. Concept of capital Dividends declared during 2017 were ₱800,000. No other
b. Concept of capital maintenance transactions affected retained earnings during the year.
c. Financial capital maintenance concept Calculate the amount of net income to be reported in 2017.
d. Physical capital maintenance concept a. ₱2,460,000
b. ₱3,100,000
35. The following information was obtained from a review of ABC c. ₱3,500,000
Co.’s accounting records: d. ₱4,460,000
Net Assets, Jan. 1, 2017 ₱500,500
Net Assets, Dec. 31, 2017 480,600 39. For a given year, beginning and ending total liabilities were
Share capital issued in 2017 80,000 ₱8,400 and ₱10,000, respectively. At year-end, owners’ equity
Dividends declared in 2017 160,000 was ₱26,000 and total assets were ₱2,000 larger than at the
Using the capital maintenance approach, the amount of net beginning of the year. If new capital stock issued exceeded
income or loss for 2017 is dividends by ₱2,400, profit (loss) for the year was apparently
a. ₱60,010 a. ₱2,000
b. (₱60,010) b. ₱2,400
c. ₱2,100 c. ₱(2,000)
d. ₱60,100 d. ₱(2,400)
a. ₱2,000,000
40. Changes in the account balances of Victor Wooten Corp. during b. ₱1,960,000
the current year are shown below: c. ₱1,840,000
Increase/(Decrease) d. ₱1,955,000
Cash ₱270,000
Accounts receivable, net 760,000 43. The following information was obtained from a review of ABC
Financial assets at FVPL 65,000 Co.’s accounting records:
Inventory 1,780,000 Increase in Net assets during the period ₱120,000
Investment in associate (50,000) Share capital issued during the period 80,000
Accounts payable (360,000) Profit for the year 75,000
Bonds payable 1,200,000 How much are the dividends declared during the period?
Premium on bonds payable (25,000) a. ₱65,000
b. ₱15,000
Additional information:
c. ₱21,000
The company issued 10,000 shares with par value of ₱100 per
d. ₱35,000
share for ₱160 per share. Stock issuance costs incurred
amounted to ₱15,000. Cash dividends declared and paid
amounted to ₱230,000. Unrealized gains recognized in profit or
loss amounted to ₱10,000. Using the net assets approach,
Victor Wooten’s profit for the year is
a. ₱630,000
b. ₱590,000
c. ₱640,000
d. ₱655,000
42. Changes in the Ytse Jam Co.’s account balances are shown
below:
Assets ₱1,870,000 Increase
Liabilities 370,000 Increase
Common stock 470,000 Decrease
Share premium 60,000 Increase
Revaluation surplus 40,000 Decrease
Unrealized gain-FVPL 60,000 Increase
Treasury stock 30,000 decrease
No other changes in the retained earnings account other than
for a cash dividend declaration of ₱35,000 and an appropriation
of ₱360,000. Ytse Jam Co.’s profit amounted to