Midterm Exam in Conceptual Framework and Accounting Standards Source: CPA Review Schools
Midterm Exam in Conceptual Framework and Accounting Standards Source: CPA Review Schools
C. Philippine Interpretations equivalent to IFRIC and SIC Interpretations, and Interpretations developed by
PIC.
A. The Framework is not a PFRS and therefore does not define standard for any particular measurement or
disclosure issue.
B. The Framework is concerned with general purpose financial statements including consolidated financial
statements.
C. In cases of conflict, the requirements of the Framework prevail over those of the relevant PFRS.
D. The Framework applies to the financial statements of all commercial, industrial and business reporting
entities, whether in public or private sector.
I. To assist FRSC in developing accounting standards those represent GAAP in the Philippines.
II. To assist FRSC in reviewing and adopting existing international accounting standards.
III. To assist preparers of financial statements in applying accounting standards and in dealing with topics
those have yet to form the subject of accounting standards.
A. I and II only
B. I and III only
C. II and III only
D. I, II and III
5. These users are interested in information about the continuance of an entity, especially when they have a
long-term involvement with or are dependent on the entity.
A. Customers
B. Employees
C. Trade unions
D. Suppliers
I. Financial statements meet the common and specific needs of most users.
II. Financial statements provide all of the information that users may need to make economic decisions since
they largely portray the financial effects of past events and do not necessarily provide nonfinancial
information.
III. Financial statements show the results of the stewardship of management or the accountability of
management for the resources entrusted to it.
A. I and II only
B. I and III only
C. II and III only
D. III only
I. It influences the economic decisions of users by helping them evaluate past, present or future events or
confirming or correcting their past evaluations.
II. It is free from bias and error and can be depended upon by users to represent faithfully that which it either
purports to represent or could reasonably be expected to represent.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
B. Transactions are accounted for in accordance with their legal from and not with their substance and
economic reality.
D. The information must be complete within the bounds of materiality and cost.
D. Selecting an accounting alternative that has the least favorable impact on owner’s equity.
10. Which statement is incorrect concerning constraints on relevant and reliable information?
A. In achieving a balance between relevance and reliability, the overriding consideration is how best to satisfy
the economic decision-making needs of users.
B. The balance between benefit and cost is a pervasive constraint rather than a qualitative characteristic.
C. The cost of providing information should exceed the benefits derived from the information.
D. To provide information on a timely basis, it may often be necessary to report before all aspects of
transaction or event are known, thus impairing reliability.
A. Information is material if its omission or misstatement could influence the economic decision of users
taken on the basis of the financial statements.
B. Materiality depends on the absolute size of the item or error judged in the particular circumstances of its
omission or misstatement.
C. Materiality provides a threshold or cutoff point for useful information rather than being a primary
qualitative characteristic.
D. Materiality of items depends on their individual or collective influence on the economic decision of users.
12. Which of the following statements is true in relation to the term “understandability”?
I. An essential quality of information provided in financial statements is that it is readily understandable by
users.
II. Information about complex matters even if relevant should be excluded from financial statements merely
on the grounds that it may be too difficult for certain users to understand.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
13. An important implication of this qualitative characteristic is that users are informed of the accounting
policies employed, changes in those policies and the effects of such changes.
A. Consistency
B. Comparability
C. Full disclosure
D. Materiality
I. The need for comparability should not be confused with where uniformity and should not be allowed to
become an impediment to the introduction of improved accounting standards.
II. It is appropriate for an entity to leave its accounting policies unchanged when more relevant and reliable
alternatives exist.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
15.Technically, this arises in the course of the ordinary regular activities of an entity and is referred to by a
variety of different names including sales, interest, dividends, royalties and rent.
A. Income
B. Gain
C. Profit
D. Revenue
B. Amount of cash or cash equivalent that would have to be paid if the same or an equivalent asset was
acquired currently.
C. Amount of cash or cash equivalent that could currently be obtained by selling the asset in an orderly
disposal.
D. Discounted value of the future net cash inflows that an item is expected to generate in the normal course
of business.
17. Which is the correct sequence for recording transactions and preparing financial statements?
B. Income statement
19. It is the accounting device that is used to store the recorded monetary information from the entity’s
transactions and events.
A. Account
B. Journal
C. Ledger
D. Source document
A. Freight in
B. Sales discount
C. Purchases
22. The debit and credit analysis of a transaction normally takes place
B. A transaction is recorded twice, once in the journal and the other in the ledger.
A. Recording
B. Classifying
C. Summarizing
D. Interpreting
B. Summarizing
C. Classifying
D. Recording
26. Transposition is an
D. Error, which if not detected, is automatically compensated or corrected in the next accounting period.
28. Which of the following would not be a correct form for an adjusting entry?
C. Adjusting entries where cash flow and revenue or expense recognition are simultaneous
D. Adjusting entries where revenue and expenses are recognized in the absence of cash flow
30. The purpose of adjusting entries is to
A. Prepare revenue and expense accounts for recording the transactions of the next period.
B. Apply the realization principle and the matching principle to transaction affecting two or more accounting
periods.
C. Adjust daily the balances in asset, liability, revenue, expense accounts for the effects of business
transactions.
D. Adjust the capital account for the revenue, expense and withdrawal transactions which occurred during the
year.
31. The adjusting entry for income collected in advance which was credited originally to income will
A. Decrease liability
B. Increase asset
D. Increase equity
32. The adjusting entry for income earned but not yet collected will
A. Increase liability
B. Increase asset
C. Decrease asset
D. Decrease liability
33. If an expense has been incurred but not yet recorded, the year-end adjusting entry would involve
A. Accumulated depreciation
B. Depreciation expense
C. Dividends
D. Interest revenue
B. All deferrals
C. All accruals
36. Financial statements are structured representation of the financial position and financial performance of
an entity. To meet the objective of providing information about financial position, financial performance and
cash flows of an entity, financial statements should provide information about all of the following, except
I. Fair presentation requires the faithful representation of the effects of transactions, other events and
condition.
II. In virtually all circumstances, an entity achieves a fair presentation by compliance with applicable SEC and
tax regulations.
A. I only
B. II only
C. Both I and II
D. Niether I nor II
D. An entity shall provide a specific disclosure required by PFRS even if the information is not material.
39. The line items in the statement of financial position include all of the following, except
A. Investment property
C. Biological assets
40. When an entity breaches an undertaking under a long-term loan agreement on or before the end of the
reporting period with the effect that the liability becomes payable on demand
I. The liability is classified as current if the lender has agreed after the reporting period and before the
issuance of the statements no to demand payment as a consequence of the breach.
II. The liability is classified as noncurrent if the lender agreed on or before the end of the reporting period to
provide a grace period for at least twelve months after the reporting period within which to rectify the
breach.
A. I only
B. II only
C. Either I or II
D. Neither I nor II
A. Gain and loss arising from translating the financial statements of a foreign operation.
C. The effective portion of gain and loss on hedging instrument in a cash flow hedge.
42. These are amounts reclassified to profit or loss in the current period that were recognized in other
comprehensive income in the current or previous period.
B. Reclassification adjustments
C. Unusual and irregular items
D. Correcting entries
43. What is the “first item” presented in the notes to financial statements?
D. Other disclosures, including contingent liabilities, unrecognized contractual commitments and nonfinancial
disclosures.
B. The domicile and legal form of the entity, its country of incorporation and registered office address.
C. Description of the nature of the entity’s operations and its principal activities.
D. The name of the parent and the ultimate parent of the group.
45. which of the following statements is true regarding events after reporting period?
I. Adjusting events after reporting period are events that provide evidence of conditions that existed at the
end of the reporting period.
II. Nonadjusting events after reporting period are events that are indicative of conditions that arose after the
end of reporting period.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
46. Adjusting events after reporting period include all of the following, except
A. The settlement of a court case after the issuance of the financial statements that confirms that the entity
has a present obligation.
B. The bankruptcy of a customer which occurs after the reporting period and before issuance of statements
resulting to a loss on a trade receivable account.
C. The discovery of fraud or errors after reporting period and before issuance of statements that show that
the financial statements were incorrect.
D. Determination after the reporting period and before the issuance of the statements of the cost of assets
purchased before the end of reporting period.
47. Nonadjusting events after reporting period include all of the following, except
C. Destruction of a major production plant by fire on or before the end of reporting period.
48. A party is related to an entity if the party, directly or indirectly through one or more intermediaries
II. Has an interest in the entity that gives it significant influence over the entity.
A. A and II only
B. I and III only
C. II and III only
D. I, II and III
A. Accounting policies
B. Accounting principles
C. Accounting standards
D. Accounting concepts
52. It is an adjustment of the carrying amount of an asset or a liability or the amount of the periodic
consumption of an asset that results from the assessment of the present status and expected future benefit
and obligation associated with the asset and liability.
53. This means “applying a new accounting policy to transactions, other events and conditions as if that
policy had always been applied”.
A. Retrospective application
B. Retrospective restatement
C. Prospective application
D. Prospective restatement
54. This means “applying a new accounting policy to transactions occurring after that date at which the policy
changed”.
A. Retrospective application
B. Prospective application
C. Retrospective restatement
D. Prospective restatement
55. This means “correcting the recognition, measurement and disclosure of amounts of elements of financial
statements as if a prior period error never occurred.”
A. Retrospective application
B. Retrospective restatement
C. Prospective application
D. Prospective restatement
I. It is required by law.
II. The change will result in providing reliable and more relevant information about the entity’s financial
position financial performance and cash flows.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
I. Adoption of an accounting policy for events or transactions that differ in substance from previously
occurring events or transactions.
II. The adoption of a new accounting policy for events or transactions which did not occur previously or
that were immaterial.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
58. When it is difficult to distinguish a change in an accounting policy from a change in an accounting
estimate, the change is treated as
C. Correction of an error
C. Supporting schedule for the amount appearing as cash and cash equivalent
60. An entity purchased a three-month Treasury bill. In preparing the entity’s statement of cash flows, this
purchase would
D. Have no effect
A. Operating activities
B. Investing activities
C. Financing activities
D. Borrowing activities
C. Cash receipts and cash payments of an insurance entity for premiums and claims, annuities and other
policy benefits
D. Cash receipts from sales of property, plant and equipment, intangible assets and other long-term assets.
C. Cash payments by a lessee for the reduction of the outstanding liability relating to a finance lease
D. Cash advances and loans made to other parties, other than advances and loans made by a financial
institution.
64. Noncash investing and financing transactions include all of the following, except
A. The acquisition of asset either by assuming directly related liability or by, means of a finance lease.
D. Noncash items such as depreciation provisions, deferred taxes and unrealized foreign currency gains and
losses.
65. An entity shall report cash flows from operating activities using
A. Direct method
B. Indirect method
66. The direct method of presenting the operating activities is the method whereby
I. The major classes of gross cash receipts and gross cash payments are disclosed.
II. Net income or loss is adjusted for the effects of transactions of a noncash nature, any deferrals or accruals
of past of future operating cash receipts or payments, and items of income or expense associated with
investing or financing cash flows.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
67. Cash advances and loans made by financial institutions are usually classified as
A. Operating activities
B. Investing activities
C. Financing activities
68. Interest payments to lenders and other creditors are usually classified as cash outflows for
A. Operating activities
B. Borrowing activities
C. Lending activities
D. Financing activities
69. Dividend payments to owners are usually classified as cash outflows for
A. Operating activities
B. Investing activities
C. Financing activities
D. Ordinary activities
70. Alternatively, which of the following cash flows should be classified as operating cash flows?
A. Interest paid
B. Interest received
C. Dividend received
D. Dividend paid
71. Dividends received from equity investee shall be presented in the statement of cash flows as
72. Which of the following cash flows does not appear in a statement of cash flows using indirect method?
73. In a statement of cash flows, if used equipment is sold at a gain, the amount shown as a cash flow from
investing activities equals the carrying amount of the equipment
A. Plus the gain
B. Plus the gain and less the amount of tax attribute to the gain
C. Plus both the gain and the amount of tax attributable to the gain
74. The amortization of bond premium related to long-term debt shall be presented in a statement of cash
flows prepared using the indirect method as
B. Outflow of cash
C. Deduction from net income in the adjustments to reconcile net income to cash from operating activities.
D. Addition to net income in the adjustments to reconcile net income to cash from operating activities.
75. When preparing a statement of cash flows using the direct method, amortization of goodwill is
-End of exam-