Abo Royce Stephen Cfas Activities Answers
Abo Royce Stephen Cfas Activities Answers
15 0
d. An entity records an event through a memorandum entry.
6. Entity A values its fixed assets at their historical costs and does not restate them for changes in
the purchasing power of the Philippine pesos due to inflation. Entity A is applying which of the
following accounting concepts?
a. prudence c. stable monetary unit
b. accrual basis d. time period
15 0
7. Entity A engages in importing and exporting activities. At the end of the period, Entity A has
assets and liabilities denominated in foreign currencies. When preparing its financial statements,
Entity A translates these assets and liabilities to pesos. Entity A is most likely' to be applying
which of the following accounting concepts?
a. double entry c. stable monetary unit
b. accrual basis d. time period
9. Entity A acquires merchandise inventory. Entity A initially records the acquisition cost of the
inventory as asset rather than an outright expense. When the inventory is subsequently sold,
Entity A recognizes the cost of the inventory sold as expense, in the same period the sale revenue
is recognized. This is an application of which of the following accounting concepts?
a. stable monetary unit c. matching
b. materiality d. proprietary
10. On Day 1, a customer buys goods from Entity A and promises to pay the sale price on Day
30. Entity A recognizes sales revenue on Day 1 rather than on Day 30. This is an application of
which of the following accounting concepts?
a. prudence c. consistency
b. accrual basis d. materiality
15 0
d. vandalism committed by the entity's employees
2. Which of the following is considered an internal user of Entity A's financial reports?
a. Entity B, a bank, requires Entity A to submit audited financial statements in conjunction
to a loan being applied for by Entity A.
b. Mr. I is deciding whether to invest in Entity A. Mr. I uses Entity A's financial statements
in making its investment decision.
c. Ms. S, a shareholder of Entity A, is deciding whether to hold or sell her shareholdings in
Entity A. Ms. S uses Entity A's financial statemenTSTnriakingits "hold or sell" decision.
d. Mr. X, a member of Entity A's board of directors, uses financial reports to make
decisions regarding the financial and operational affairs of Entity A.
3. When resolving accounting problems not specifically addressed by current standards, an entity
shall be guided by the hierarchy of financial reporting standards. The correct sequence of the
hierarchy of financial reporting standards in the Philippines is
I. PASs, PFRSs and Interpretations
H. Conceptual Framework.
III. Judgment
IV. Pronouncement of other standard-setting bodies
a. I, HI, II and IV c. I, IV, 11 and 111
b. I, H, IV and III
c. I, IV, 11 and 111
d. I, H, III and IV
15 0
a. Accounting provides quantitative information only.
b. Accounting is considered an art because it requires the use of creative skills and
judgment.
c. The only acceptable measurement basis in accounting is historical cost.
d. Qualitative information can be found only in the notes to the financial statements.
15 0
c. General purpose financial statements are prepared primarily for the use of external
users.
d. The PFRSs are issued by the Financial Reporting Standards Council.
9. Mr. John Doe, CPA, is a professor in a university where he teaches mainly home economics,
music and physical education. Those subjects require that the teacher must be awesome. Mr. Doe
is also frequently invited as a judge in beauty pageants and singing contests and as a referee in
mixed martial arts competitions. Mr. Doe is considered to be
practicing accountancy in which of the following sectors?
a. Academe c. Commerce and industry
b. Public accounting d. None of these
15 0
Accounting Concept
4. Entity A is owned by Mr. X and Ms. Y. Which of the following transactions does not violate
the separate entity concept and therefore is appropriately recorded in the accounting records of
Entity A?
a. Mr. X purchases groceries for his home consumption.
b. Mr. X gives Ms. Y chocolate and flowers on Valentine's Day.
c. Ms. Y provides capital to Entity A.
d. Ms. Y provides capital to Entity B, another business entity
5. Mr. A is assessing the ability of Entity A to generate future cash and cash equivalents. In
making the assessment, Mr. A uses not only the statement of cash flows but also the other
components of a complete set of financial statements. This is because of which of the following
concepts?
a. Going concern c. Intercalation
b. Time period d. Articulation
6. Entity A acquires a stapler. Instead of recognizing the cost of the stapler as an asset to be
subsequently depreciated, Entity A immediately charges it as expense. This is an application of •
which of the following concepts?
a. Prudence c. Cost-benefit
b. Materiality d. b and c
Common branches of accounting
7. What type of users' needs is catered by general purpose financial statements?
a. common needs c. a and b
b. specific needs d. neither a nor b
Four sectors in the practice of accountancy
8. Which of the following is not among the Four Sectors in the practice of accountancy as
enumerated in R.A. 9298 also known as the "Philippine Accountancy Act of 2004"?
a. Practice in Commerce and Industry
b. Practice in the Government
c. Practice in Education/Academe
d. Practice of Private Accountancy
Accounting standards
15 0
9. The Philippine Financial Reporting Standards (PFRSs) comprise:
I. Philippine Financial Reporting Standards
II. Philippine Accounting Standards
III. Interpretations
IV. Accounting Practice Statements and Implementation Guidance
a. I, II and III c. I and II
b. I, II, III and IV d. I and HI
PROBLEMS
PROBLEM 1: TRUE OR FALSE
TRUE 1. All changes in an entity's economic resources and claims to those resources result from
the entity's financial performance.
TRUE 2. The qualitative characteristics of useful information apply only to the financial
information provided in the financial statements.
TRUE 3. According to IFRS® Practice Statement 2 Making Materiality Judgments, cost is an
important consideration when making materiality judgments.
TRUE 4. When making materiality judgments, a quantitative assessment alone is not always
sufficient to conclude that an item of information is not material.
FALSE 5. Materiality judgments apply only to items that are recognized but not to those that are
unrecognized.
FALSE 6. The more significant the qualitative factors are, the lower the quantitative thresholds
will be. Thus, an item with a zero amount can be material in light of qualitative thresholds.
FALSE 7. When making materiality judgments, an entity should judge an item's materiality only
on its own and not in combination with other information in the complete set of financial
statements.
FALSE 8. The Conceptual Framework and the Standards specify a uniform quantitative
threshold for materiality.
TRUE 9.To meet the objectives of general-purpose financial reporting, a Standard sometimes
contains requirements that depart from the Conceptual Framework.
TRUE 10.The Conceptual Framework is concerned with the provision of financial information
to both external users and-internal users.
15 0
PROBLEM 2: TRUE OR FALSE
FALSE 1. The Conceptual Framework may be revised from time to time Revisions in the
Conceptual Framework automatically result to changes in the Standards.
TRUE 2. According to the revised Conceptual Framework, the asset is the
right, while the liability is the obligation, rather than the
ultimate inflows or outflow; of economic benefits resulting
from the asset or liability.
TRUE 3. Legal enforceability of a right, for example ownership,
necessary for control over an economic resource to exist.
TRUE 4. According to the revised Conceptual Framework, an asset can exist even if the
probability that it will provide inflows of future economic benefits is low, and even if the asset is
subject to a high measurement uncertainty.
FALSE 5.According to the revised Conceptual Framework, what the entity controls is the right,
and not the ultimate inflows of future economic benefits that the economic resource may
produce.
TRUE 6.The Conceptual Framework defines income and expenses in terms of changes in assets
and liabilities.
TRUE 7. Not all items that meet the definition of a financial statement element are recognized;
they are recognized only if recognizing them will also result in relevant and faithfully
represented information.
TRUE 8. Measuring an asset at historical cost will always' result in the same carrying amount of
the asset from period to period.
TRUE 9. According to the Conceptual Framework, amortized cost measurement relates to
historical cost, rather than current value.
FALSE 10. Although the use of a single measurement basis improves the understandability of
the financial statements, this may not always lead to useful information. Thus, the Standards
require
different measurement bases for different assets, liabilities, income and expenses.
15 0
PROBLEM 3: MULTIPLE CHOICE
4. This qualitative characteristic is unique in the sense that it necessarily requires at least two
items.
a. Verifiability c. Timeliness
b. Faithful representation d. Comparability
15 0
6. Information has this qualitative characteristic if different, knowledgeable and independent
observers could reach consensus, although not necessarily complete agreement, that a particular
depiction is a faithful representation.
a. Relevance c. Verifiability
b. Faithful representation d. Comparability
7. The Conceptual Framework uses the term "claims" against the reporting entity to refer to
a. expenses.
b. liabilities.
8. Entity A is assessing whether an item meets the definition of a financial statement element.
Entity A considers the transaction's substance and economic reality rather than merely its legal
form. Entity A is applying which of the following accounting concepts?
a. Substance over form
b. Form over substance
9. Which of the following is not one of the aspects in the revised definition of an asset?
a. Right
b. Potential to produce economic benefits
c. Probability of the expected inflows of economic benefits from the asset
d. Control
10. The new definition of an asset (a liability) focuses on the asset (liability) being
a. a present right (obligation) that has resulted from past events and has the potential
to produce (cause a transfer of) economic benefits.
b. the expected inflows (outflows) of economic benefits that are both probable and can be
measured reliably.
15 0
c. a physical object (a duty to pay cash or other resources).
d. All of these.
11. Which of the following is not an indication of an economic resource's potential to produce
economic benefits?
a. The economic resource can be used in combination with other resources to produce
goods for sale.
b. The economic resource can be used to pay liabilities.
c. The economic resource can be distributed to the owners.
d. The resource has no use in the entity's operations and has no resale value.
12. Which of the following does not meet the definition of an asset?
a. Equipment that the entity intends, and is very certain, to acquire in the future.
b. Inventories purchased and received but not yet paid.
c. Land received from a donation.
d. A publishing title for a college textbook. The publishing title has no physical substance,
meaning you cannot see or touch it.
13. Entity A determined that an asset exists. However, the asset's low probability .of inflows
of economic benefits and its very high level of measurement uncertainty affected Entity A's
recognition decisions about the asset, as these raised doubt on whether the asset's recognition
would result in useful information. Consequently, Entity A did not recognize the asset, but
because Entity A deemed it relevant, information about the asset was nonetheless provided in the
notes. Which of the following statements is correct?
a. Entity A's accounting treatment is grossly incorrect because, according to the
Conceptual Framework, all items that meet the definition of an asset should always be
recognized, regardless of the asset's potential to produce economic benefits and its
measurement uncertainty.
b. Entity A's treatment for the asset is acceptable. The asset is
referred to as an 'unrecognized' asset.
c. Entity A's treatment for the asset is acceptable. The asset is
referred to as anon-existent' asset.
d. Entity A's non-recognition of the asset is correct. However,
15 0
the asset should have been completely ignored as providing information about unrecognized
items in the notes is not acceptable under the Conceptual Framework.
14. Which of the following will most likely affect the determination of whether an asset or a
liability exists?
a. A low probability that the asset or liability win cause inflows or outflows of future
economic benefits.
b. A high level of measurement uncertainty regarding the
asset or liability.
c. An unresolved dispute over a right or obligation.
d. All of these are relevant in determining the existence of an asset or a liability,
according to the Conceptual Framework.
15. An increase in the carrying amount of an asset could not possibly result in
a. the recognition of an income.
b. the recognition of an expense.
c. an increase in total equity.
d. no change in total equity.
15 0
c. meet most of the common needs of most primary users.
d. meet none of the needs of users of financial information.
3. These are users of financial information who are not in a position to require areporting entity
to prepare reports tailored to their particular information needs.
a. Primary users
b. Secondary users
c. heavy users
d. slight users
4. Which of the following is not one of the primary users listed in the Conceptual Framework?
a. Investors
b. Lenders
c. creditors
d. debtors
5. Which of the following would least likely to need general purpose financial statements in
making economic decisions?
a. Stockholders c. Management
b. Potential investors d. Lenders
6. Which of the following is not a factor to consider when applying the qualitative
characteristics?
a. The information must be both relevant and faithfully represented for it to be useful.
b. The enhancing qualitative characteristics only enhance the usefulness of information but
cannot make irrelevant information or erroneous information to be useful.
c. Sometimes, it may be necessary to make trade-offs between the qualitative characteristics
in order to provide useful information.
d. To be useful, information need only to meet one, but not necessarily all, of the
qualitative characteristics.
15 0
7. Which of the following is an example of a qualitative factor used in making materiality
judgments?
a. 10% of total revenues
b. 2.5% of total assets
c. P25,000 or more
d. The context of an item in relation to a current crisis in the banking and insurance
industry.
8. According to the Conceptual Framework, this information provides a direct indication of how
well management has discharged its responsibilities to make efficient and effective use of the
reporting entity's resources.
a. The changes in the' entity's economic resources
and claims to those resources.
b. The return that the entity has produced from its economic
resources.
c. The level of the entity's economic resources in relation to
the claims thereof.
d. The entity's liquidity and solvency.
9. Which of the following statements about the concepts in the Conceptual Framework is least
accurate?
a. General purpose financial reports are intended to meet equally the needs of all types of
external users.
b. A low probability of expected inflows or outflows of economic benefits resulting from an
asset or liability may affect the recognition of that asset or liability, but not necessarily its
existence.
c. A high level of measurement uncertainty associated with an asset or liability can affect
the faithful representation of that asset or liability, but not necessarily its relevance.
d. Recognition means including an item in the totals of the financial statements when
that item meets the definition of a financial statement element and recognizing it would
result in useful information.
15 0
10. According to the revised Conceptual Framework, the degree of uncertainty in the expected
inflows or outflows of economic benefits from an asset or liability or the degree of measurement
uncertainty associated with that asset or liability a. does not necessarily affect the conclusion that
an asset or a
liability exists, although it may affect recognition decisions about the asset or liability.
a. does not necessarily affect the conclusion that an asset or a liability exists, although it may
affect recognition decisions about the asset or liability.
b. greatly affects the conclusion that an asset or a liability exists if the expectation of inflows or
outflows is lowor the measurement uncertainty is high.
c. may not always affect the conclusion that an asset or a liability exists, but will most
certainly result to the non¬recognition of an asset or liability if the expectation of
inflows or outflows is low or the measurement uncertainty is high.
d. is irrelevant, both in determining the existence of an asset
or a liability and in making recognition decisions about that asset or liability.
Purpose
1. Which of the following statements is incorrect regarding the purpose of the Conceptual
Framework?
a. The Conceptual Framework is intended to provide a foundation for the development of
globally acceptable Standards.
b. Globally acceptable Standards contribute to economic efficiency by lowering the cost of
capital and reducing international reporting costs.
c. Globally acceptable Standards reduces the information gap between financial statement
users and the reporting
entity's management.
d. The Conceptual Framework prescribes the concepts for both
15 0
general purpose and specific purpose financial reporting.
Status
2. The Conceptual Framework (choose the incorrect statement)
a. is not a PFRS.
b. in the absence of a PFRS, shall be considered by
management when making its judgment in developing
and applying an accounting policy that results in useful
information.
c. is concerned with general purpose financial reporting
only.
d. prevails over the PFRSs in cases of conflicts.
Scope
3. Which of the following is excluded from the scope of the Conceptual Framework?
a. The objective of financial reporting. financial information.
b. Qualitative characteristics of useful of financial statements
c. The components of a complete set
and their presentation requirement s.
and derecognition of
d. Definitions, recognition criteria
financial statement elements.
e. Descriptions of the measurement bases used in financial reporting.
15 0
b. Decisions about providing resources to the entity depend on the users' expected
returns, which in turn, depend on assessments of the entity's prospects for future net cash
inflows and management stewardship.
c. The objective of general purpose financial reporting forms the foundation of the
Conceptual Framework.
d. General purpose financial reporting provides information about an entity's economic
resources, claims, and changes in those resources and claims, but not on the utilization of those
resources by the entity's management.
Primary users
5. Which of the following statements best explains why government regulators are the reporting
entity's management and government not considered primary users under the Conceptual
Framework? a. These users are considered related parties, and hence do not make relevant
decisions.
a. These users have the ability to curtail the operations of the reporting entity and therefore have
the ability to affect the entity's going concern.
b. These users have the ability to curtail the operations of the reporting entity and therefore have
the ability to affect the entity's going concern.
c. These users have the power to demand information they need directly from the reporting
entity.
d. All of these.
Qualitative characteristics
15 0
7. Entity A deliberately overstated its liabilities from PM to 01.2M. What qualitative
characteristic is violated?
a. Relevance c. Timeliness
b. Faithful representation d. Understandability
8. Two primary users are using the financial information of Entity A. If User #1 concludes that
Entity A's sales has increased while User #2 concludes that it has decreased, Entity A's financial
information is not
a. relevant.
b. faithfully represented.
c. comparable
d. verifiable.
Materiality
9. Entity A is making a materiality judgment. Entity A considers the size of the impact of an item
to be material if it exceeds 5% of total assets. What type of materiality assessment is this?
a. Quantitative c. Requirement of a Standard
b. Qualitative d. Relevance
15 0
11. Which of the following is least likely to be considered when determining whether an item
meets the definition of an asset?
a. whether there is a present economic resource, which is a right, that has resulted
from past events
b. whether the right has a potential to produce economic benefits, evidenced by at least one
circumstance
c. whether the entity controls the right
d. whether it is probable (more likely than not) that the resource will produce economic
benefits
13. Which of the following is correct when determining the existence of an asset or a liability?
a. An asset or a liability exists if the associated right or obligation arises from legal or contractual
requirements.
b. An asset or a liability exists only if the expected inflows or outflows of economic benefits
from the asset or the liability are probable, meaning they are more likely than not to occur,
c. An asset or a liability can exist even if its potential to produce, or cause a transfer of,
economic benefits is not certain or even likely — what is important is that the right or the
obligation exists in the present and that in at least one circumstance it will produce, or
cause a transfer of, economic benefits.
d. All of these are correct.
15 0
the asset should have been completely ignored as providing information about unrecognized
items in the notes is not acceptable under the Conceptual Framework.
14. Which of the following will most likely affect the determination of whether an asset or a
liability exists?
a. A low probability that the asset or liability win cause inflows or outflows of future
economic benefits.
b. A high level of measurement uncertainty regarding the
asset or liability.
c. An unresolved dispute over a right or obligation.
d. All of these are relevant in determining the existence of an asset or a liability,
according to the Conceptual Framework.
15. An increase in the carrying amount of an asset could not possibly result in
a. the recognition of an income.
b. the recognition of an expense.
15 0
c. an increase in total equity.
d. no change in total equity.
PROBLEM 4: MULTIPLE CHOICE
15 0
c. meet most of the common needs of most primary users.
d. meet none of the needs of users of financial information.
3. These are users of financial information who are not in a position to require areporting entity
to prepare reports tailored to their particular information needs.
a. Primary users
b. Secondary users
c. heavy users
d. slight users
4. Which of the following is not one of the primary users listed in the Conceptual Framework?
a. Investors
b. Lenders
c. creditors
d. debtors
5. Which of the following would least likely to need general purpose financial statements in
making economic decisions?
a. Stockholders c. Management
b. Potential investors d. Lenders
6. Which of the following is not a factor to consider when applying the qualitative
characteristics?
a. The information must be both relevant and faithfully represented for it to be useful.
b. The enhancing qualitative characteristics only enhance the usefulness of information but
cannot make irrelevant information or erroneous information to be useful.
c. Sometimes, it may be necessary15 0 trade-offs between the qualitative characteristics
to make
in order to provide useful information.
d. To be useful, information need only to meet one, but not necessarily all, of the
qualitative characteristics.
15 0
7. Which of the following is an example of a qualitative factor used in making materiality
judgments?
a. 10% of total revenues
b. 2.5% of total assets
c. P25,000 or more
d. The context of an item in relation to a current crisis in the banking and insurance
industry.
8. According to the Conceptual Framework, this information provides a direct indication of how
well management has discharged its responsibilities to make efficient and effective use of the
reporting entity's resources.
a. The changes in the' entity's economic resources
and claims to those resources.
b. The return that the entity has produced from its economic
resources.
c. The level of the entity's economic resources in relation to
the claims thereof.
d. The entity's liquidity and solvency.
9. Which of the following statements about the concepts in the Conceptual Framework is least
accurate?
a. General purpose financial reports are intended to meet equally the needs of all types of
external users.
b. A low probability of expected inflows or outflows of economic benefits resulting from an
asset or liability may affect the recognition of that asset or liability, but not necessarily its
existence.
c. A high level of measurement uncertainty associated with an asset or liability can affect
the faithful representation of that asset or liability, but not necessarily its relevance.
d. Recognition means including an item in the totals of the financial statements when
that item meets the definition of a financial statement element and recognizing it would
result in useful information.
15 0
10. According to the revised Conceptual Framework, the degree of uncertainty in the expected
inflows or outflows of economic benefits from an asset or liability or the degree of measurement
uncertainty associated with that asset or liability a. does not necessarily affect the conclusion that
an asset or a
liability exists, although it may affect recognition decisions about the asset or liability.
a. does not necessarily affect the conclusion that an asset or a liability exists, although it may
affect recognition decisions about the asset or liability.
b. greatly affects the conclusion that an asset or a liability exists if the expectation of inflows or
outflows is lowor the measurement uncertainty is high.
c. may not always affect the conclusion that an asset or a liability exists, but will most
certainly result to the non¬recognition of an asset or liability if the expectation of
inflows or outflows is low or the measurement uncertainty is high.
15 0
d. is irrelevant, both in determining the existence of an asset
or a liability and in making recognition decisions about that asset or liability.
Purpose
1. Which of the following statements is incorrect regarding the purpose of the Conceptual
Framework?
a. The Conceptual Framework is intended to provide a foundation for the development of
globally acceptable Standards.
b. Globally acceptable Standards contribute to economic efficiency by lowering the cost of
capital and reducing international reporting costs.
c. Globally acceptable Standards reduces the information gap between financial statement
users and the reporting
entity's management.
d. The Conceptual Framework prescribes the concepts for both
15 0
general purpose and specific purpose financial reporting.
Status
2. The Conceptual Framework (choose the incorrect statement)
a. is not a PFRS.
b. in the absence of a PFRS, shall be considered by
management when making its judgment in developing
and applying an accounting policy that results in useful
information.
c. is concerned with general purpose financial reporting
only.
d. prevails over the PFRSs in cases of conflicts.
Scope
3. Which of the following is excluded from the scope of the Conceptual Framework?
a. The objective of financial reporting. financial information.
b. Qualitative characteristics of useful of financial statements
c. The components of a complete set
and their presentation requirement s.
and derecognition of
d. Definitions, recognition criteria
15 0
financial statement elements.
e. Descriptions of the measurement bases used in financial reporting.
15 0
b. Decisions about providing resources to the entity depend on the users' expected
returns, which in turn, depend on assessments of the entity's prospects for future net cash
inflows and management stewardship.
c. The objective of general purpose financial reporting forms the foundation of the
Conceptual Framework.
d. General purpose financial reporting provides information about an entity's economic
resources, claims, and changes in those resources and claims, but not on the utilization of those
resources by the entity's management.
Primary users
5. Which of the following statements best explains why government regulators are the reporting
entity's management and government not considered primary users under the Conceptual
Framework? a. These users are considered related parties, and hence do not make relevant
decisions.
a. These users have the ability to curtail the operations of the reporting entity and therefore have
the ability to affect the entity's going concern.
b. These users have the ability to curtail the operations of the reporting entity and therefore have
the ability to affect the entity's going concern.
c. These users have the power to demand information they need directly from the reporting
entity.
d. All of these.
Qualitative characteristics
15 0
7. Entity A deliberately overstated its liabilities from PM to 01.2M. What qualitative
characteristic is violated?
a. Relevance c. Timeliness
b. Faithful representation d. Understandability
8. Two primary users are using the financial information of Entity A. If User #1 concludes that
Entity A's sales has increased while User #2 concludes that it has decreased, Entity A's financial
information is not 15 0
a. relevant.
b. faithfully represented.
c. comparable
d. verifiable.
Materiality
9. Entity A is making a materiality judgment. Entity A considers the size of the impact of an item
to be material if it exceeds 5% of total assets. What type of materiality assessment is this?
a. Quantitative c. Requirement of a Standard
b. Qualitative d. Relevance
15 0
11. Which of the following is least likely to be considered when determining whether an item
meets the definition of an asset?
a. whether there is a present economic resource, which is a right, that has resulted
from past events
b. whether the right has a potential to produce economic benefits, evidenced by at least one
circumstance
c. whether the entity controls the right
d. whether it is probable (more likely than not) that the resource will produce economic
benefits
13. Which of the following is correct when determining the existence of an asset or a liability?
a. An asset or a liability exists if the associated right or obligation arises from legal or contractual
requirements.
b. An asset or a liability exists only if the expected inflows or outflows of economic benefits
from the asset or the liability are probable, meaning they are more likely than not to occur,
c. An asset or a liability can exist even if its potential to produce, or cause a transfer of,
economic benefits is not certain or even likely — what is important is that the right or the
obligation exists in the present and that in at least one circumstance it will produce, or
cause a transfer of, economic benefits.
d. All of these are correct.
15 0
a. the entity has the exclusive right over the benefits -of an asset, including the ability to
prevent others from
accessing those benefits.
b. that the entity can ensure that the resource will produce economic benefits in all
circumstances.
c. the entity has the exclusive right over the entire economic resource, and not only a
portion of it.
d. a legally enforceable right conferred to the entity by a law
or other operation of law.
15. An asset is an economic resource and an economic resource is a right that has the potential to
produce economic benefits. Which. of the following is not one of the potentials of an economic
resource to produce economic benefits for an entity?
a. Service potential, i.e., the resource can be used to provide services in the entity's normal
business activities.
b. The resource can be converted into cash.
c. The resource has the ability to provide cost-savings to the entity.
d. The resource causes more outflows of cash from the entity than inflows.
Executory contracts
16. Entity A enters into a purchase commitment with Entity B (a seller). Neither party performs
its obligation on the contract, i.e., Entity A did not yet pay the purchase price, while Entity B did
not yet deliver the goods. Which of the following is incorrect?
a. The contract is executory. Entity A has a combined right to receive the goods and an
obligation to pay for them.
b. Entity A recognizes neither an asset nor a liability except when the contract becomes
burdensome, such as when the goods become obsolete before they are delivered.
c. If Entity B performs its obligation first, Entity A's combined right and obligation
changes to a liability.
d. If Entity A performs its obligation first, Entity A's combined right and obligation changes
to a liability.
15 0
Recognition and Derecognition
17. According to the revised Conceptual Framework, an item is recognized if
a. 15 statement
it meets the definition of a financial 0 element.
b. recognizing it would provide useful information.
c. it is probable that the item will result to an inflow or
outflow of economic benefits and its cost can be measured reliably.
d. a and b
18. According to the Conceptual Framework, an item is recognized if it meets the definition of an
asset, liability, equity, income or
expense, and recognizing it would provide relevant and faithfully represented information.
Which of the following relates faithful representation rather than relevance?
a. It is uncertain whether the asset exists.
b. The asset exists but the probability that it will produce inflows of economic benefits is low.
c. A high level of measurement uncertainty associated with the asset.
d. None of these. An item that meets the definition of an asset is always recognized as an asset.
19. Which of the following will most likely to cause the non-recognition of an asset or a
liability?
a. The probability of an inflow (outflow) of future economic benefits from the asset
(liability) is low.
b. There is a measurement uncertainty regarding the asset or liability.
c. It is uncertain whether the asset or liability exists.
d. Recognizing the asset or liability would not provide relevant and faithfully represented
information.
20. Which of the following would not result to the recognition of a liability?
a. Receipt of the proceeds of a bank loan.
b. Receipt of delivery of equipment purchased on credit.
c. A commitment for future execution becomes burdensome.
15 0