PAMPANGA CPA REVIEW: “Excellence in All We Do” DRILL.

002

PAMPANGA CPA REVIEW

2nd Floor Best Western Hotel (Former Savers Mall Balibago) Mc Arthur
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Email: [email protected]/[email protected]
_____________________________________________________________________________________________________________________________________________________________________________________________

CONCEPTUAL FRAMEWORK

Purpose and status

1. What is the authoritative status of the Conceptual Framework ?
a. It has the highest level authority. In case of a conflict between the Conceptual Framework the 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 Interpretation that specifically applies, the
Conceptual Framework should be followed.
c. If there is a Standard or Interpretation that specifically applies to 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 develop new or revised Standards. An entity is never
required to consider the Conceptual Framework.

2. The FRSC recognizes that in a limited number of cases there may be a conflict between the Conceptual
Framework and a Philippines Financial Reporting Standard. In those cases where there is a conflict,
a. The requirements of the Philippines Financial Reporting Standard prevail over those of the Conceptual
Framework
b. The requirements of the Conceptual Framework prevail over those of the Philippines Financial Reporting
Standard
c. The professional judgment of the accountant should prevail and this may necessitate disclosure in the
notes.
d. The provision of standards issued by FASB will prevail

3. Financial statement are most commonly prepared in accordance with an accounting model based on
a. Recoverable historical cost and the nominal financial capital maintenance concept
b. Recoverable historical cost and the physical capital maintenance concept
c. Fair value and financial capital maintenance concept
d. Either recoverable historical cost and fair value and either nominal financial or physical capital concept

4. Choose the incorrect statement.

a. The IASB recognizes that governments, in particular, may specify different or additional requirements for
their own purposes. These requirements should not, however, affect financial statements published for the
benefit of other users unless they also meet the needs of those other users.
b. In conjunction with choices (a). when there are conflicts between local legislation and the IASB framework
or standards, the framework and standards should prevail over the local legislation..
c. Financial statements are most commonly prepared in accordance with an accounting model based on
recoverable historical cost and the nominal financial capital maintenance concept.
d. Other models and concepts may be more appropriate in order to meet the objective of providing
information that is useful for making economic decisions although there is presently no consensus for
change. The Conceptual Framework has been developed so that it is applicable to a range of accounting
models and concept of capital and capital maintenance.

5. The purpose of the Philippine Conceptual Framework is to :

I. Assist the Financial Reporting Standards Council (FRSC) in developing accounting standards represent
generally accepted accounting principles in the Philippines
II. Assist the Board of IASC in the development of future International Accounting Standards and its review of
existing International Accounting Standards
III. Assist the Board of IASC in promoting harmonization of regulations, accounting standards and procedures
relating of the presentation of financial statements by providing a basis for reducing the number of
alternative accounting treatment permitted by International Accounting Standards;
IV. Assist the FRSC in its review and adoption of existing International Accounting Standards
V. Assist preparers of financial statements in applying FRSC financial reporting standards and in dealing with
topic that have yet to from the subject of an FRSC standard
VI. Assist auditors in forming an opinion as to whether financial statements conform with Philippine generally
accepted accounting standards
VII. Assist users of financial statements in interpreting the information contained in financial statements
prepared in conformity with Philippines generally accepted accounting standards
VIII. Provide those who are interested in the work of FRSC with information about its approach to the
formulation of Financial Reporting Standards.
a. I,II,III,IV b. I,IV, V,VI,VII,VIII c. IV,V,VI,VII,VII d. all of the above

6. All of the following statements incorrectly refer to the Conceptual Framework except
a. The Conceptual Framework sets out the concepts that underline the preparation and presentation of
financial statements for external and internal users.
b. The Conceptual Framework is an integral Part of the Philippines Financial Reporting Standard and hence
defines standards for any particular measurement or disclosure issue.

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PAMPANGA CPA REVIEW: “Excellence in All We Do” DRILL.002
c. The FRSC recognizes that in a limited number of cases there may be a conflict between the framework
and Philippines Financial Reporting Standards. In those cases where there is a conflict, the requirements
of the framework prevail over those of the Philippines Financial Reporting Standard.
d. As the FRSC will be guided by the framework in the development of future Statements and in its review of
existing Statements, the number of Reporting Standards will diminish through time.
e. Unlike for the various PASs and PFRSs, the framework, as a solid foundation and a model, will not be
revised from to time to time on the basis of the FRSC’s experience of working with it.

7. The Scope of the Framework includes all of the following except

a. The objective of financial statements
b. The qualitative characteristics that determine the usefulness of information in financial statements
c. The underlying and implicit assumption governing the preparation and presentation of financial statements
d. The definition, recognition and measurement of the elements from which financial statements are
constructed
e. Concept of capital and capital maintenance

8. 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 may also include supplementary schedules and information based on or derived
from, and expected to be read with, such statements. Financial statements include such items as reports
by director’s statements by the chairman, discussion and analysis by management and similar items that
may be included in a financial or annual report.
e. The framework applies to the financial statements of all commercial, industrial and business reporting
entities, but only for the private sector.
9. An entity for which there are users who rely on its financial statements as their major source of financial
information about the entity.

a. publicly listed entity b. publicly accountable entity

c. reporting entity d. small or medium-sized entity

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 10. 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, III b. I, II, III, IV, V, VI c. I, II, III, IV, V, VI, VII d. all of the above

11. These refer to the providers of risk capital, including their advisers, who are concerned with the risk inherent
in, and return provided by, their investments They need information to help them determine whether they
should buy, hold or sell. They are also interested in information which enables them to assess the ability of
the entity to pay dividends.
a. investors b. shareholders c. stakeholders d. public

12. They are interested in information that enables them to determine whether their loans. and the interest
attaching to them, will be paid when due.
a. investors b. lenders c. suppliers d. public

13. They are interested in information that enables them to determine whether amounts owing to them will be
paid when due. They are likely to be interested in an entity over a shorter period than lenders unless they
are dependent upon the continuation of the entity as a major customer.
a. investors b. lenders c. suppliers d. public

14. Which of the following statements is correct?

a. All of the information needs of users can be met by financial statements because there are needs
which are common to all users.
b. The accountant/controller of an entity has the primary responsibility for the preparation and
presentation of the financial statements of the entity. Management is also interested in the
information contained in the financial statements even though it has no access to additional
management and financial information that helps it carry out its planning, decision-making and control
responsibilities.
c. Managementhas the ability to determine the form and content of additional information in order to
meet its own needs. The reporting of such information is within the scope of the framework.
d. Published financial statements are based on the information used by management about the financial
position, performance and changes in financial position of the entity.

Objective of financial statements

15. 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.

16. 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.

17. Which of the following statements correctly relates to the provisions of the Conceptual Framework?
a. Financial statements are prepared and presented at least annually and are directed toward the common
information needs of a limited range of users.
b. Financial statements do not include items such as reports by directors, statements by the chairman,
discussion and analysis by management and similar items that may be included in a financial or annual
report.
c. The Conceptual Framework applies only to the financial statements of all commercial, industrial and
business reporting entities, which are in the private sector.
d. Special purpose financial reports, for example, prospectuses and computations prepared for taxation
purposes, are within the scope of the Conceptual Framework.

18. Which of the following statements correctly relates to the provisions of the Conceptual Framework?
a. Financial statements do not form part of the process of financial reporting
b. The statement of changes in financial position may be presented in a variety of ways such as classified or
unclassified statement of financial position
c. All of the information needs of users cannot be met by financial statements
d. The shareholders of an entity have the primary responsibility for the preparation and presentation of the
financial statements of the entity.

19. Which of the following statements incorrectly relates to the provisions of the Conceptual Framework
regarding the use of financial information by an entity’s management?
 a. Management is also interested in the information contained in the financial statements even though it has
access to additional management and financial information that helps it carry out its planning, decision-
making and control responsibilities.
b. Management has the ability to determine the form and content of such additional information in order to
meet its own needs.
c. The reporting of information for internal use of management is beyond the scope of the Conceptual
Framework.
d. Published financial statements are not based on the information used by management about the financial
position, performance and changes in financial position of the entity.

20. Who has the primary responsibility for the preparation and presentation of the financial statements of an
entity?
a. Shareholders b. board of directors c. management d. accountant

21. The objective of financial statements is

a. To provide information about the financial positron. performance and changes In financial position of an
entity that IS useful to a limited range of users in making economic decisions.
b. to provide information that meets the common needs of all users
c. to provide information that meets the common needs of most users
d. to provide information about the financial position performance and changes in financial position of an
entity that is useful for managing day-to-day operations

22. The following statements relate to the objective of financial statements except
a. The objective of financial statements is 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. Financial statements prepared for a wide range of users meet the common needs of most users.
c. Financial statements provide all 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 non-financial
information.
d. Financial statements also show the results of the stewardship of management, or the accountability of
management for the resources entrusted to it. Those users who wish to assess the stewardship or
accountability of management do so in order that they may make economic decisions; these decisions
may include, for example, whether to hold or sell their investment in the entity or whether to reappoint or
replace the management.

23. All of the following correctly relate to the provisions of the Conceptual Framework, except
a. Financial statements do not provide all 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 non-financial
information.
b. The economic decisions that are taken by users of financial statements require an evaluation of the ability
of an entity to generate cash and cash equivalents and of the timing and certainty of their generation.
c. The income statement provides an incomplete picture of performance unless it is used in conjunction with
the /balance sheet and the other financial statements.
d. According to the Conceptual Framework, the underlying assumptions are accrual basis of accounting and
going concern and the implicit assumptions are accounting entity. periodicity and stable monetary
concept.

24. The Financial position of an entity is affected by all of the following except
a. the economic resources it controls
b. its performance
c. its liquidity and solvency
d. its capacity to adapt to changes in the environment
e. its financial structure
25. Users are better able to evaluate an entity's ability to generate cash and cash equivalents if they are
provided with information that focuses on the entity's
a. financial position b. performance c. cash flows d. a, b and c

Underlying assumption
26. Under the Conceptual Framework, the underlying assumption is
a. Relevance and reliability c. Accrual basis and going concern
b. Concepts of capital maintenance d. Going concern

58. It is assumed that the entity has neither the intention nor the need to liquidate or curtail materially the
scale of its operations; if such an intention or need exists, the financial statements may have to be prepared
on a different basis and, if so, the basis used is disclosed.
a. Growing Concern b. Accrual Basis c. Cash Basis d. Going Concern

27. The going concern assumption

a. means the entity will continue to exist forever
b. supports the valuation of assets using historical costs and fair values but do not support valuation in a
forced sale transaction.
c. requires that capital expenditures be immediately recognized as expense
d. is always maintained by all entities

28. The assets of a liquidating entity should be shown on the balance sheet at their
a. historical cost b. fair value c. realizable value d. current cost
 29. The valuation of a promise to receive cash in the future at present value on the financial statements of a
company is valid because of the accounting concept of
a. Entity b. Materiality c. Going concern d. Neutrality

Qualitative characteristics
30. These identify the types of information that are likely to be most useful to the existing and potential
investors, lenders and other creditors for making decisions about the reporting entity on the basis of
information in its financial report(financial information)
a. Relevance and Faithful representation c. Qualitative characteristics
b. Fundamental qualitative characteristics d. Pervasive constrain

31. What are qualitative characteristics of financial statements according to the Conceptual Framework ?
a. Qualitative characteristics are the attributes that make the information provided in financial
statements useful to users.
b. Qualitative characteristics are broad classes of financial effects of transactions and other events.
c. Qualitative characteristics are nonquantitative aspects of an entity 5 position and 5 performance
and changes in financial position.
d. Qualitative characteristics measure the extent to which an entity has complied with all relevant
Standards and Interpretations.

32. Under the Conceptual Framework, qualitative characteristics are sub-classified into
a. primary and secondary qualitative characteristics
b. major and minor qualitative characteristics mess of
c. fundamental characteristics and those that enhance the useful financial information
d. not sub-classified

33. Identify the fundamental qualitative characteristics under the Conceptual Framework.
I. Relevance
II. Reliability
III. Faithful representation
IV. Comparability
V. Verifiability
VI. Timeliness
VII. Understandability
a. I, II b. I, II c. I, II, III, IV, V, VI d. IV, V, VI, VII

34. Identify the qualitative characteristics that enhance the usefulness of information.
I. Relevance
II. Reliability
III. Faithful representation
IV. Comparability
V. Verifiability
VI. Timeliness
VII. Understandability
a. I, II b. I, II c. II, III, IV, V, VII d. IV, V, VI, VII

35. Which of the following are ingredients of relevance under the Conceptual Framework ?
l. Predictive value
ll. Confirmatory value
Ill. Timeliness
IV. Materiality
a. I, II b. I, II, Ill c. I, II, IV d. I, II,III,IV

36. Which of the following are ingredients of faithful representation under the Conceptual Framework?
l. Completeness
ll. Neutrality
III. Free from error
IV. Reliability
a. I, II b. I, II, Ill c. I, II, IV d. I, II,III,IV

The elements of financial statements

37. When should an item that meets the definition of an element be recognized, according to the Conceptual
Framework?
a. When it is probable that any future economic benefit associated with item will flow to or from the
entity.
b. When the element has a cost or value that can be measured with reliability.
c. When the entity obtains control of the rights or obligations associated with the item.
d. When it is probable that any future economic benefit associated with the item will flow to or from the
entity and the item has a cost or value that can be measured with reliability.

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

39. The following statements relate to the concept of revenue." Which state is not true?
a. Income determination is a technical term that refers to the process identifying, measuring and relating
revenue and expenses during an accounting period.
b. Transactions like issuance of capital stock and payment of dividends between the business entity and
its owners cannot give rise to revenue
c. Deferred revenue is synonymous with unrealized revenue.
d. The definition of income encompasses both revenue and gains.

40. Assume that employees confessed to a P500,000 inventory theft but are able to make restitution. How
should this material fraud be shown in the financial statements?
a. Classified as a loss and shown as a separate line item in the income statement.
b. Initially classified as an accounts receivable because the employee responsible for the goods. Because
they cannot pay, the loss would recognized as a write-off of accounts receivable.
c. Included in cost of goods sold because the goods are not on hand, losses on inventory shrinkage are
ordinary. and it would cause the east amount of attention.
d. Recorded directly to retained earnings because it is not an income producing item.

41. The framework classifies gains and losses based on whether they are related to an entity's major ongoing
or central operations. These gains or losses may be classified as (Item #1) Nonoperating; (Item #2)
Operating
a. Yes, No b. Yes, Yes c. No, Yes d. No, No

42. Goodwill is recognized in profit or loss under the

a. matching concept c. immediate distribution
b. systematic and rational allocation concept d. immediate recognition

43. According to the framework, the objectives of financial reporting for business entities are based on
a. The need for conservatism.
b. Reporting on management’s stewardship.
c. Generally accepted accounting principles.
d. The needs of the users of the information.

44. Information about economic resources controlled by the entity and its capacity to modify these resources
is useful in predicting.
I. The ability of the entity to generate cash and cash equivalents in the future.
II. The capacity 0f the entity to generate cash flows from its operations.
a. I only b. II only c. l and II d. Neither I nor II

45. During a period when an entity is under the direction of a particular management financial reporting will
directly provide information about.
a. Both entity performance and management performance.
b. Management performance but not entity performance.
c. Entity performance but not management performance It.
d. Neither entity Performance nor management performance.

46. An objective of financial reporting is

a. Providing information useful to investors, creditors, donors, and other users for decision making.
b. Assessing the adequacy of internal control.
c. Evaluating management results compared with standards.
d. Providing information on compliance with established procedures.