FIRST CITY PROVIDENTIAL COLLEGE

CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

FIRST GRADING EXAMINATION

1. Which of the following statements is true?

a. The basic purpose of accounting is to provide information about economic activities intended to
be useful in making economic decisions.
b. All events and transactions of an entity are recognized the books of accounts.
c. General purpose financial statements are those statements that cater to the common and
specific needs of a wide range of external users.
d. The accounting process of assigning numbers, commonly in monetary terms, to the economic
transactions and events is referred to as classifying.

2. RA 9298 is officially known as

a. The Revised Accountancy Act
b. The Revised Accountancy Law
c. The Philippine Accountancy Act of 2004
d. The Accountancy Law of the Philippines, 2007

3. Which of the following statements is incorrect regarding the basic accounting concepts?
a. One of ABC Co.’s delivery trucks was involved in an accident. Although no lawsuits have yet
been filed against ABC, ABC recognized a liability for the probable loss on the event. This is an
application of the prudence or conservatism concept.
b. Under the consistency concept, the financial statements should be prepared on the basis of
accounting principles which are followed consistently.
c. Under the entity theory, the business is viewed as a separate entity. Therefore, the personal
transactions of the business owners are not recorded in the business’ accounting records.
d. The time period concept means that financial statements are prepared only at the end of the life
of a business.

4. It is the branch of accounting that focuses on the general purpose reports of financial position and
operating results known as financial statements.
a. Financial accounting
b. Auditing
c. Managerial accounting
d. Taxation

5. Accounting has been given various definitions, which of the following is not one of those definitions
a. Accounting is a service activity. Its function is to provide quantitative information, primarily
financial in nature, about economic entities that is intended to be useful in making economic
decisions.
b. Accounting is the art of recording, classifying, and summarizing in a significant manner and in
terms of money, transactions and events which are, in part of at least, of a financial character
and interpreting the results thereof.
c. Accounting is a systematic process of objectively obtaining and evaluating evidence regarding
assertions about economic actions and events to ascertain the degree of correspondence
between these assertions and established criteria and communicating the results to interested
users.
d. Accounting is the process of identifying, measuring, and communicating economic information
to permit informed judgment and decisions by users of information.

6. These are events that do not involve an external party.

a. external events
b. nonreciprocal
c. internal events
d. special event

7. Entity A computes for its profit or loss periodically instead of waiting until the end of the life of the
business before doing so. This is an application of which of the following accounting concepts?
a. historical cost
b. stable monetary unit
c. accrual basis

Page 1 of 12
 d. time period

8. This refers to the use of caution in the exercise of judgments needed in making estimates required
under conditions of uncertainty , such that assets or income are not overstated and liabilities or
expenses are not understated.
a. faithful representation
b. prudence
c. consistency
d. relevance

9. The most common form of business organization is a

a. corporation
b. sole proprietorship
c. partnership
d. cell phone stand

10. The bottom part of each of Entity A’s financial statements states the following “This statement
should be read in conjunction with the accompanying notes.” This is most likely an application of
which of the following accounting concepts?
a. articulation
b. consistency
c. accrual basis
d. time period

11. Entity A’s asset has a carrying amount of ₱1M. At year end, Entity A obtains information that the
asset became obsolete, and therefore its usefulness has declined. Entity A estimates that the asset
has a recoverable amount of only ₱800K. Entity A recognizes a loss of ₱200K for the difference.
Although this accounting treatment is required, it violates which of the following concepts?
a. historical cost
b. stable monetary unit
c. accrual basis
d. time period

12. Which of the following events is considered as an internal event?

a. sale of inventory on account
b. provision of capital by owners
c. borrowing of money
d. conversion of raw materials into finished goods

13. The accounting standards used in the Philippines are adapted from the standards issued by the
a. Federal Accounting Standards Board (FASB).
b. International Accounting Standards Board (IASB).
c. Philippine Institute of Certified Public Accountants (PICPA).
d. Democratic People's Republic of Korea Accounting Standards Committee (DPKRASC).

14. Which of the following events is considered as an external event?

a. payment of taxes
b. gifts and charitable contributions
c. provision of capital by owners
d. All of the above

15. Financial statements are said to be a mixture of fact and opinion. Which of the following items is
factual?
a. cost of goods sold
b. discount on capital stock
c. retained earnings
d. patent amortization expense

16. This concept defines the area of interest of the accountant. It determines which transactions are
recognized in the books of accounts and which are not.
a. Articulation
b. Matching

Page 2 of 12
 c. Separate entity
d. Full disclosure

17. A CPA employed as an accountant in a government agency is considered to be in

a. private practice.
b. public practice.
c. academe.
d. service.

18. The process of identifying, measuring, analyzing, and communicating financial information needed
by management to plan, evaluate, and control an organization’s operations is called
a. financial accounting.
b. tax accounting.
c. managerial accounting.
d. auditing.

19. The PFRSs consist of all of the following except

a. PFRSs.
b. PASs.
c. Interpretations.
d. Conceptual Framework.

20. Accounting is often called the "language of business" because

a. it is easy to understand.
b. it is fundamental to the communication of financial information.
c. all business owners have a good understanding of accounting principles.
d. accountants in many companies share financial information.

21. It is the official accounting standard setting body in the Philippines. It is composed of a chairperson
and 14 members.
a. Financial Reporting Standards Committee (FRSC)
b. Financial Reporting Standards Council (FRSC)
c. Accounting Standards Committee (ASC)
d. Accounting Standards Council (ASC)

22. Financial reporting standards continuously change primarily in response to

a. users’ needs.
b. political influence.
c. government regulations.
d. changes in social environments.

23. You are the accountant of ABC Co. During the period, your company purchased staplers worth
₱1,500. Although the staplers have an estimated useful life of 10 years, you have charged their cost
as expense. Which of the following is most likely to be true?
a. You are applying the concept of matching.
b. You are applying the concepts of materiality and cost-benefit consideration.
c. You are applying the concept of verifiability.
d. You are just lazy to compute for the periodic depreciation. 

24. All of the following statements incorrectly refer to the Conceptual Framework except
a. The framework is concerned with all-purpose financial statements including consolidated
financial statements.
b. Financial statements are prepared and presented at least annually and are directed toward the
common and specific information needs of a wide range of users.
c. Prospectuses and computations prepared for taxation purposes are outside the scope of the
framework.
d. Financial statements include such items as reports by directors, statements by the chairman,
discussion and analysis by management and similar items that may be included in an annual
report.
e. The framework applies to the financial statements of all commercial, industrial and business
reporting entities, but only for the private sector.

Page 3 of 12
25. What is the authoritative status of the Conceptual Framework?
a. It has the highest level of authority. In case of a conflict between the Conceptual Framework and
a Standard or Interpretation, the Conceptual Framework overrides the Standard or
Interpretation.
b. If there is a Standard or Interpretation that specifically applies to a transaction, it overrides the
Conceptual Framework. In the absence of a Standard or an Interpretation that specifically
applies, the Conceptual Framework should be followed.
c. If there is a Standard or Interpretation that specifically applies to a transaction, it overrides the
Conceptual Framework. In the absence of a Standard or an Interpretation that specifically
applies to a transaction, management should consider the applicability of the Conceptual
Framework in developing and applying an accounting policy that will result in information that is
relevant and reliable.
d. The Conceptual Framework applies only when IASB develops new or revised Standards. An
entity is never required to consider the Conceptual Framework.

26. Which of the following statements is correct?

I. Accounting provides qualitative information, financial information, and quantitative information.
II. Qualitative information is found in the notes to the financial statements only.
III. Accounting is considered an art because it is supported by an organized body of knowledge
IV. Accounting is considered a science because it involves the exercise of skill and judgment.
V. Measurement is the process of assigning numbers to objects such inventories or plant assets
and to events such as purchases or sales.
VI. All quantitative information is also financial in nature.
VII. The accounting process of assigning peso amounts or numbers to relevant objects and events is
known as identification.
a. I and V
b. I, II, VI and V
c. I, II, III, IV and V
d. II, VI and V

27. What is the objective of financial statements according to the Conceptual Framework?
a. To provide information about the financial position, performance, and changes in financial
position of an entity that is useful to a wide range of users in making economic decisions.
b. To prepare and present a balance sheet, an income statement, a cash flow statement, and a
statement of changes in equity.
c. To prepare and present comparable, relevant, reliable, and understandable information to
investors and creditors.
d. To prepare financial statements in accordance with all applicable Standards and Interpretations.

28. The foundation of the Conceptual Framework is formed from

a. the qualitative characteristics that makes information useful to users.
b. the objective of general purpose financial reporting.
c. the concept of reporting entity.
d. the various measurement requirements which results to fair presented financial information.

29. The primary users of financial statements under the Conceptual Framework include
I. Existing and potential investors
II. Employees
III. Lenders and other creditors
IV. Suppliers and other trade creditors
V. Customers
VI. Governments and their agencies
VII. Public
VIII. Professional accountants, including auditors

a. I and III
b. I, II, III, IV, V, VI, VII
c. I, II, III, IV, V, VI
d. all of these

30. Identify the fundamental qualitative characteristics under the Conceptual Framework.
I. Relevance
II. Reliability

Page 4 of 12
 III. Faithful representation
IV. Comparability
V. Verifiability
VI. Timeliness
VII. Understandability

a. I and II
b. I and III
c. I, II, III, IV, V and VI
d. IV, V, VI and VII

31. Under the Conceptual Framework, qualitative characteristics are sub-classified into
a. primary and secondary qualitative characteristics
b. major and minor qualitative characteristics
c. fundamental and enhancing qualitative characteristics
d. not sub-classified

32. Which of the following are related to the qualitative characteristic of relevance under the
Conceptual Framework?
I. Predictive value
II. Confirmatory value
III. Timeliness
IV. Materiality

a. I and II
b. I, II and III
c. I, II and IV
d. I, II, III and IV

33. Under this qualitative characteristic, users are assumed to have a reasonable knowledge of business
and economic activities and accounting and a willingness to study the information with reasonable
diligence. However, information about complex matters that should be included in the financial
statements because of its relevance to the economic decision-making needs of users should not be
excluded merely on the grounds that it may be too difficult for certain users to understand.
a. Relevance
b. Reliability
c. Understandability
d. Comparability

34. The Conceptual Framework sets out general recognition principles of financial statement elements
which include all of the following except
a. asset recognition
b. equity recognition
c. liability recognition
d. expense recognition

35. Which of the following is most likely expensed under the ‘immediate recognition’ principle?
a. cost of inventories
b. impairment loss
c. cost of equipment
d. rentals paid

36. Identify the qualitative characteristics that enhance the usefulness of financial information.
I. Relevance
II. Reliability
III. Faithful representation
IV. Comparability
V. Verifiability
VI. Timeliness
VII. Understandability

Page 5 of 12
 a. I and II
b. I and III
c. II, III, IV, V and VII
d. IV, V, VI and VII

37. A secondary objective of financial statements

a. is to show information regarding assets and liabilities of an entity
b. is to show information regarding an entity’s financial position, performance, and changes in
financial position
c. is to show the results of the stewardship of management.
d. b and c

38. The elements of faithful representation do not include

a. Comparability
b. Neutrality
c. Completeness
d. Free from error

39. Which of the following statements is incorrect concerning materiality?

a. Materiality can be assessed quantitatively or qualitatively
b. There are no specific materiality thresholds provided under the PFRSs
c. Materiality is a matter of judgment
d. Materiality is a quantitative matter. It should never be assessed qualitatively.

40. The ability through consensus among measurers to ensure that information represents what it
purports to represent is an example of the concept of
a. Relevance
b. Comparability
c. Verifiability
d. Feedback value

41. The elements directly related to the measurement of performance

a. income
b. expenses
c. a and b
d. neither a nor b

42. Assets and liabilities are recognized if

a. they meet the definition of an element.
b. have probable future economic benefits and have cost or value that are measured reliably.
c. a and b
d. neither a nor b

43. The cost of purchases of inventory is recognized as expense

a. immediately.
b. using the matching concept.
c. by systematic allocation.
d. any of these as a matter of accounting policy choice

44. “I say red, you say green.” The information lacks which of the following qualitative characteristics?
a. Relevance
b. Verifiability
c. Timeliness
d. Colorfulness

45. Which of the following is not one of the decisions that primary users make?
a. deciding on how to run the day-to-day operations of the entity

b. deciding on whether to hold or sell investment in stocks

c. deciding on whether to buy investment in stocks
d. deciding on whether to extend loan to the reporting entity

Page 6 of 12
46. According to the Conceptual Framework, the needs of primary users that are met by financial
statements are
a. all of their needs
b. all of their common needs only
c. majority of their common needs only
d. substantially a majority of their common and specific needs only

47. This refers to the comparability of financial statements of the same entity but in different periods.
a. Inter-comparability
b. Extra-comparability
c. Intra-comparability
d. Intro-comparability

48. According to the Conceptual Framework, it is a pervasive constraint on the information that can be
provided by financial reporting
a. materiality
b. historical
c. cost
d. going concern

49. A chart of accounts is

a. A flowchart of all transactions
b. An accounting procedure manual
c. A journal
d. A list of all account titles in the general ledger

50. Which of the following financial statements would not be dated as covering a certain reporting
period?
a. Statement of financial position
b. Statement of profit or loss and other comprehensive income
c. Statement of cash flows
d. Statement of changes in equity

51. Comprehensive income (or total comprehensive income) includes

a. Profit or loss
b. Other comprehensive income
c. Transactions with owners
d. a and b

52. Entity A is making a materiality judgment. Entity A considers an item to be material, and therefore
needs to be disclosed in the notes to the financial statements, if the item pertains to a related party
transaction. What type of materiality assessment is Entity A using?
a. quantitative
b. qualitative
c. faithful representation
d. relevance

53. What is the purpose of reporting comprehensive income?

a. To report changes in equity due to transactions with owners.
b. To report a measure of overall performance of an entity.
c. To replace profit with a better measure.
d. To combine income from continuing operations with income from discontinued operations and
extraordinary items.

54. The information provided by financial reporting pertains to

a. individual business entities and the economy as a whole, rather than to industries or to
members of society as consumers
b. individual business entities, industries and the economy as a whole, rather than to members of
society as consumers
c. individual entities, rather than to industries of the economy as a whole or to members of society
as consumers

Page 7 of 12
 d. individual business entities and industries rather than to the economy as a whole or to members
of society as consumers

55. Which of the following statements is correct regarding the classification of financial liabilities as
current or noncurrent in accordance with PAS 1?
a. Currently maturing obligations are presented as current liabilities even if their original term is
longer than one year and even if a refinancing agreement is completed after the end of the
reporting period but before the financial statements are authorized for issue.
b. Currently maturing obligations are presented as noncurrent liabilities only if their original term is
longer than one year.
c. Currently maturing obligations are presented as noncurrent liabilities only if a refinancing
agreement is completed after the end of the reporting period but before the financial
statements are authorized for issue.
d. Currently maturing obligations are presented as noncurrent liabilities if a refinancing agreement
is completed after the financial statements are authorized for issue.

56. Which of the following statements is correct when an entity departs from a provision of a PFRS?
a. The entity’s financial statements would be grossly incorrect; therefore, PAS 1 does not allow
such a departure.
b. PAS 1 permits such a departure if the relevant regulatory framework requires, or otherwise does
not prohibit, such a departure.
c. PAS 1 requires certain disclosures when an entity departs from a provision of a PFRS.
d. b and c

57. According to PAS 1, the judgments and estimates embodied in the financial statements, for
example, materiality judgments, assessments of uncertainty and risk, and the like, are the
responsibility of the entity’s
a. management.
b. accountant.
c. auditor.
d. janitor.

58. An entity’s financial position or condition refers to which of the following?

a. The status of the entity’s assets, liabilities and equity.
b. The amount of return that the entity has generated from its economic resources during the
period.
c. The level of change in the entity’s economic resources and claims to those resources, also
referred to as the economic phenomena.
d. All of these.

59. Comprehensive income excludes which of the following

a. Revaluation surplus
b. Gains and losses from investments measured at fair value through profit or loss
c. Income tax expense
d. Distributions to owners

60. Which of the following is not a required disclosure under PAS 1?

a. The financial effect of a departure from a PFRS when an entity departs from a PFRS requirement.
b. Any material uncertainties on the entity’s ability to continue as a going concern.
c. The recognition, measurement and disclosure of specific transactions and other events.
d. The reason for using a longer or shorter period when an entity changes the frequency of its
reporting.

61. Entity A needs guidance in preparing its statement of changes in equity. Entity A should refer to
which of the following?
a. PAS 1
b. PAS 2
c. PAS 7
d. PAS 8

62. These are the end product of the financial reporting process and the means by which information
gathered and processed is periodically communicated to users.

Page 8 of 12
 a. Financial reporting
b. Financial statements
c. Financial products
d. Accounting statements

63. Who is responsible for the preparation and the fair presentation of an entity’s financial statements
in accordance with the PFRSs?
a. Any accountant
b. Certified Public Accountant
c. Auditor
d. Management

64. Which of the following is not one of the general features of financial statements under PAS 1?
a. Fair presentation and compliance with PFRSs
b. Going Concern
c. Cash Basis
d. Materiality and aggregation

65. This type of presentation of statement of financial position does not show distinctions between
current and noncurrent items.
a. Classified presentation
b. Unclassified presentation
c. Non-discriminating presentation
d. Awesome presentation

66. Which of the following financial statements would be dated as at a certain date?
a. Statement of financial position
b. Statement of profit or loss and other comprehensive income
c. Statement of cash flows
d. All of these

67. In making an economic decision, an investor needs information on the amounts of an entity’s
economic resources and claims to those resources. That investor would most likely refer to which of
the following financial statements?
a. Statement of financial position
b. Statement of comprehensive income
c. Statement of cash flows
d. Statement of changes in equity

68. Which of the following is not directly involved in the accounting standard-setting “due process” in
the Philippines?
a. Board of Accountancy
b. Bureau of Internal Revenue
c. Professional Regulations Commission
d. Financial Reporting Standards Council

69. Materiality judgment is least likely to be applied in which of the following?

a. in determining whether an item warrants separate presentation in the financial statements or is
to be aggregated with other items
b. in determining whether information could influence the decisions of users, and therefore, must
be presented in the financial statements
c. in determining whether the cost of processing and communicating information exceeds the
benefits expected to be derived from it
d. whether additional information needs to be provided, including the level of detail and
conciseness of the information’s presentation

70. The first step in the accounting cycle is to

a. Record transactions in a journal
b. Analyze transactions from source documents
c. Post journal entries to general ledger accounts
d. Adjust the general ledger accounts

Page 9 of 12
71. The accounting equation must remain in balance.
a. Throughout each step in the accounting cycle.
b. Only when journal entries are recorded.
c. Only at the time the trial balance is prepared.
d. Only when formal financial statement are prepared.

72. This comprises all “non-owner changes in equity.” It excludes owner changes in equity, such as
subscription, issuance, and reacquisition of share capital and declaration of dividends.
a. Other comprehensive income
b. Changes in equity
c. Total comprehensive income
d. Profit or loss

73. Which accounts measure economic flows over a period of time?

a. Real accounts
b. Nominal accounts
c. Mixed accounts
d. Contra accounts

74. A financial liability due within twelve months after the reporting period shall be classified as
noncurrent.
a. When it is refinanced on a long-term basis before the issue of financial statements.
b. When the entity has no discretion to refinance for at least twelve months.
c. When it is refinanced on a long-term basis after the end of reporting period.
d. When it is refinanced on a long-term basis on or before the end of reporting period.

75. Liabilities that an entity expects to settle within the normal operating cycle are classified as
a. Noncurrent liabilities
b. Current or noncurrent liabilities in accordance with other criteria
c. Current liabilities
d. Equity

76. PAS 1 requires an assessment of the entity’s ability to continue as a going concern each time
financial statements are prepared. Who is responsible in making this assessment?
a. Accountant
b. Auditor
c. Management
d. Government regulatory body

77. Which of the following must be included on the face of the statement of financial position?
a. Investment property
b. Number of shares authorized
c. Contingent Assets
d. Shares in entity owned by that entity

78. Which of the following must be included as a line item in the statement of financial position?
a. Contingent asset
b. Property, plant and equipment analyzed by class
c. Share capital and reserves analyzed by class
d. Deferred tax

79. In analyzing financial statements, which financial statement would a potential investor primarily use
to assess liquidity and financial flexibility?
a. Statement of financial position
b. Income statement
c. Statement of retained earnings
d. Statement of cash flows

80. Working capital is

a. Assets which enable the entity to operate profitability.
b. Capital which has been reinvested in the business.
c. Unappropriated retained earnings.

Page 10 of 12
 d. Current assets less current liabilities.

81. Which is an optional step in the accounting cycle?

a. Adjusting entries
b. Closing entries
c. Financial statements
d. Post-closing trial balance

82. Accrued revenue would normally appear in the statement of financial position under
a. Noncurrent assets
b. Current liabilities
c. Long-term liabilities
d. Current assets

83. The essential characteristic of an asset include all of the following, except
a. The asset is the result of past event.
b. The asset provides future economic benefit.
c. The cost of the asset can be measured reliably.
d. The asset is tangible.

84. It is defines as increase in economic benefits during the accounting period in the form of inflows
or enhancements of assets or decreases in liabilities that result in increases in equity other than
those relating to contributions from equity participants
a. Gain
b. Income
c. Profit
d. Revenue

85. Which should be classified as current asset?

a. Trade installment accounts receivable normally collectible in 18 months

b. Cash designated for the redemption of callable preference shares
c. Cash surrender value of a life insurance policy
d. A deposit on machinery ordered, delivery of which will be made within six months

1. The process of reporting an item in the financial statements is

a. Allocation
b. Matching
c. Realization
d. Recognition

2. The term "deficit" refers to

a. An excess of current assets over current liabilities
b. An excess of current liabilities over current assets
c. A debit balance in retained earnings
d. A prior period error

3. Under Philippine Financial Reporting Standards

a. The cash basis of accounting is accepted
b. Events are recorded in the period in which the event occurs
c. Net income will be lower under the cash basis than accrual basis accounting
d. All of the choices are correct

4. Under Section 5 of RA 9298, who shall appoint the members of the Professional Regulatory Board of
Accountancy?
a. The chairman of the Board of Accountancy
b. The President of the Republic of the Philippines
c. The Chairperson of Professional Regulations Commission
d. The President of Philippine Institute of Certified Public Accountants

5. Financial accounting can be broadly defines as the area of accounting that prepares

Page 11 of 12
 a. Financial statements to be used by investors only
b. Financial statements to be used primarily by management
c. General purpose financial statements to be used by parties internal to the business enterprise
only
d. General purpose financial statements to be used by parties both internal and external to the
business enterprise

6. Which among the following equations best exemplifies the ENTITY theory of accounting?
a. Assets = Liabilities + Capital
b. Assets – Liabilities = Capital
c. Assets + Liabilities = Capital
d. Assets – Liabilities – Preferred SHE = Common SHE

7. An accountant uses creative skills and judgment when he or she

a. Applies the rules of debit and credit
b. Attest to the fairness of presentation of financial condition and performance of an entity
c. Interprets the information presented in the financial statements through ratios and trend
analysis
d. Performs the functions described in (B) and (C) above but not function (A)

8. Which of the following organizations is responsible for setting International Financial Reporting
Standards?
a. Financial Accounting Committee
b. Financial Accounting Standards Board
c. International Accounting Standards Board
d. International Accounting Standards Committee

9. The purpose of the International Financial Reporting Standards (IFRS) is to

a. Promote uniform accounting standards among the countries of the world
b. Arbitrate accounting disputes between auditors and international entities
c. Issue enforceable standards which regulate the financial reporting of multinational entities
d. Develop uniform currency in which the financial transactions of entities throughout the world
would be measured

10. Which among the following equations best exemplifies the PROPRIETARY theory of accounting?
a. Assets = Liabilities + Capital
b. Assets – Liabilities = Capital
c. Assets + Liabilities = Capital
d. Assets – Liabilities – Preferred SHE = Common SHE

-END-

Page 12 of 12