CONCEPTUAL FRAMEWORK

MODFIN1 T1 AY2017 – 2018

Matching – Write the letter of the term under List B that corresponds to the statement
indicated under List A.

LIST A LIST B
Concerns the relative size of an item and its effect on
1 a. Predictive value
decisions.
2 Information confirms expectations. b. Relevance
3 Important for making inter-firm comparisons. c. Timeliness
Accrual basis of
4 Applying the same accounting practices over time. d.
accounting
5 Implies consensus among different measures. e. Feedback value
A complete set of financial statements (including
6 comparative information) should be presented at least f. Frequency of reporting
annually.
7 Information is available prior to the decisions. g. Faithful representation
8 Pertinent to the decision at hand. h. Understandability
Along with relevance, a fundamental qualitative
9 i. Materiality
characteristic.
Requires consideration of the cost and value of
10 j. Comparability
information.
The process of admitting information into financial
11 k. Offsetting
statements.
An entity reports separately both assets and liabilities,
12 l. Recognition
and income and expenses.
13 Information is useful in determining the future m. Consistency
Effects of transactions on an entity’s economic resources
and claims are recognized in the periods in which those
14 n. Cost effectiveness
effects occur, even if the resulting cash receipts and
payments occur in a different period.
It requires that users have some knowledge of the
complex economic activities of enterprises, the
15 o. Verifiability
accounting process and the technical terminology in the
statements.
p. Prudence
q. Substance over form

MULTIPLE CHOICES – REVIEW QUESTIONS

1. The objectives of financial reporting for business enterprises are based on

A. the need for conservative information
B. the needs of the users of the information
C. the need to report on management’s stewardship
D. the need to comply with financial accounting standards

2. Which of the following statements regarding users of financial information is correct?

A. Managers of an entity are considered to be internal decision makers.
 B. Accounting information is prepared for and useful to only outside decision makers.
C. External decision makers can obtain whatever financial data they need and whenever
they need it.
D. The members of the Board of Directors are not internal rather than external users of
financial information.

3. Which of the following statements is (are) true, concerning the Going Concern
assumption?
I. When preparing financial statements, management is required to make an assessment
of an enterprise’s ability to continue as a going concern which should be at least
twelve months from balance sheet date.
II. When an enterprise has a history of profitable operations and ready access to
financial resources it is not a detailed analysis as to is ability to operate as a going
concern is not necessary.
III. When the financial statements are not prepared on a going-concern basis, this fact
should disclosed
A. I and II only C. II and III
B. II and III only D. I, II, and III

4. If accounting information is timely, and has predictive as well as feedback value, then it
is considered to be
A. relevant C. understandable
B. reliable D. verifiable

5. In the first week of December, 2016, Elisa Company signs a major contract to develop an
accounting information system for Edward Inc. No work is begun the current year, yet the
notes to the financial statements discuss the nature and peso amount of the contract. This
is an example of:
A. completeness or full disclosure C. historical cost
B. conservatism D. relevance

6. Which of the following statements best describes the term “going concern”
A. The expenses of an entity exceed its income
B. When current liabilities of an entity exceeds current assets
C. The ability of the entity to continue in operation for the foreseeable future
D. The potential to contribute to the flow of cash and cash equivalents to the entity

7. Which TWO of the following are listed in the IASB Framework as ‘underlying
assumptions’ regarding financial statements?
A. The financial statements are prepared under the accrual basis
B. The entity can be viewed as a going concern
C. The financial statements are reliable
D. Accounting policies are consistently applied
A. A and B C. B and D
B. B and C D. C and D

8. Which of the following situations violates the concept of reliability?

I. Relevance is the capacity of information to make difference in decision by helping
users from predictions about outcome of past, present and future events or
confirm/correct prior expectations
 II. The quality of reliability assures readers that the financial information is free from
bias and faithfully represents what it purports to show, including adequate disclosure
of significant information
III. Under the IASB Framework for the Preparation and presentation of financial
statements, conservatism is not a concept that is recognized as a qualitative objective.
A. I and II only C. II and III only
B. I and III only D. I, II and III

9. Which of the following is the best description of reliability in relation to information in

financial statements?
A. Comprehensibility to users C. Influence on the economic decisions
B. Freedom from material error and bias D. Inclusion of degree of caution of users

10. According to the IASB Framework for the preparation and presentation of financial
statements, which TWO of the following are examples of expenses?
I. A loss on the disposal of a non-current asset
II. A decrease in equity arising from a distribution to equity participants
III. A decrease in economic benefits during the accounting period
IV. A reduction in income for the accounting period
A. I and II C. II and III
B. I and III D. III and IV

11. An expiration of cost which is incurred without compensation or return and is not
absorbed as cost of revenue is called
A. Deferred charge C. Indirect cost
B. Deferred credit D. Loss

12. Which of the following best describes the distinction between expenses and losses?
A. Losses are material items whereas expenses are immaterial items
B. Losses are extraordinary charges whereas expenses are ordinary charges
C. Losses are reported net-of-related-tax effect whereas expenses are not reported not-
of-tax
D. Losses results from peripheral or incidental transactions whereas expenses result
from ongoing major or central operations of the entity

13. Which of the following statements about accounting recognition is (are) true?
I. In accounting, there are instances when a gain/loss would arise upon initial
recognition of an asset.
II. No asset can simultaneously be an asset of more than one entity
III. At times, two or more entities may share the benefits that an asset provides
IV. An appropriate basis for recognizing an asset is when a particular enterprise acquires
the right to utilize and control access to the asset’s benefits
A. I and II only C. I, II and III only
B. I and IV only D. I, II, III and IV

14. Which one of the following term best describes the amount of cash or cash equivalents
that could currently be obtained by selling an asset in an orderly disposal?
A. Fair value C. Residual value
B. Realizable value D. Value in use
15. Which of the following assets are initially and subsequently measured at Fair Value?
I. Biological assets IV. Property and Equipment
II. Available for sale securities V. Held for trading securities
III. Inventories VI. Intangible assets

A. I and II only C. I, II, III and V only

B. I, II and III only D. I, II, IV, and V only

16. The capital maintenance concept followed under present GAAP is

A. Economic capital C. Physical capital
B. Financial and physical capital D. Real capital

17. What concept is critical in distinguishing an enterprise’s return on investment from return
of its investment?
A. Capital maintenance concept C. Current operating performance concept
B. Comprehensive income concept D. Return on investment concept

18. Under the Conceptual Framework of Financial Reporting, users of financial information
may be classified into
A. Heavy users (management) and slight users (public, government).
B. Primary users (existing and potential investors and creditors) and other users.
C. Internal users (employees, customers) and external users (investors, creditors).
D. Main users (existing investors, creditors) and incidental users (potential investors,
creditors)

19. Which of the following is not considered a primary characteristic of financial

information?
A. Comparability. C. Neutrality.
B. Completeness. D. Timeliness.

20. Which of the following situations violates the concept of reliability?

A. Data on segments having the same expected risks and growth rates are reported to
analysts estimating future profits.
B. Financial statements are issued nine months late.
C. Management reports to stockholders new projects undertaken, but the financial
statements never report the projected results.
D. Financial statements include a property with a carrying amount increased to
management’s estimate of market value.

21. What is the authoritative status of the Conceptual Framework?

A. The Framework applies when FRSC develops new or revised Standards. An
enterprise is never required to consider the framework.
B. It has the highest level of authority. In case of a conflict between the Framework and
s Standard or Interpretation, the Framework overrides the Standard or Interpretation.
C. If there is a Standard or Interpretation that specifically applies to a transaction, it
overrides the Framework. In the absence of a Standard or an Interpretation that
specifically applies, the Framework should be followed.
D. If there is a Standard or Interpretation that specifically applies to a transaction,
management should consider the applicability of the Framework in developing and
 applying an accounting policy which results in information that is relevant and
reliable.

22. Which of the following is the first step within hierarchy of guidance to which
management refers, and whose applicability at considers, when selecting accounting
policies?
A. Apply the requirements in PFRS dealing with similar and related issues.
B. Apply a standard from PFRS if it specifically relates to the transaction, event, or
condition.
C. Consider the applicability of the definitions, recognition criteria, and measurement
concepts in the Conceptual Framework.
D. Consider the most recent pronouncements of other standard-setting bodies to the
extent they do not conflict with PFRS or the Conceptual Framework?

23. Under the Conceptual Framework for Financial Reporting 2010, which of the following is
a new item added in its scope but is still a work-in-progress?
A. Consolidated financial statements. C. The government entity.
B. Mergers and acquisitions. D. The reporting entity.

24. What are the qualitative characteristic of financial statements according to the
Framework?
A. Qualitative characteristics are broad classes of financial effects of transactions and
other events.
B. Qualitative characteristics are the attributes that make the information provided in
financial statements useful to others.
C. Qualitative characteristics measure the extent to which an entity has complied with
all relevant Standards and Interpretations.
D. Qualitative characteristics are non-quantitative aspects of an entity’s position and
performance and changes in financial position.

25. Under the Conceptual Framework for Financial Reporting (2010) which of the following
statements is not a feature of financial information’s “comparability” characteristics?
A. Comparability is uniformity.
B. A comparison requires at least two items.
C. Consistency, although related to comparability, is not the same.
D. Comparability is the goal, consistency helps to achieve that goal.

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