Problem 1-1 Multiple Choice (ACP)

1. Accounting is a service activity and its function is to provide quantitative information, primarily financial in nature,
about economic entities, that is intended to be useful in making economic decision. This accounting definition is given
by:

a. Accounting Standards Council

b. AICPA Committee on Accounting Terminology
c. American Accounting Association
d. Board of Accountancy

Answer: A
In page 2, the first to third paragraph in the Definition of accounting cites that:

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The Accounting Standards Council provides the following definition:
Accounting is a service activity.
The accounting function is to provide quantitative information, primarily financial in nature, about
economic entities, that is intended to be useful in making economic decision.
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2. All of the following describe accounting, except

a. A service activity
b. An information system
c. A universal language of business
d. An exact science rather than an art

Answer: D
In page 2, it is already stated that accounting is a service activity. Accounting is also an information system which
is stated in page 5 and in the same page in the third paragraph of Communicating states “… Actually, the
communicating process is the reason why accounting has been called the “universal language of business”. While all
that is left is letter D, it is actually the opposite because accounting is an art as it is defined in page 2 paragraph 5
which states:

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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 at least of a financial character and interpreting the
results thereof.
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3. The important points made in the definition of accounting include all of the following, except
a. Accounting information is quantitative.
b. Accounting information is both quantitative and qualitative.
c. Accounting information is financial in nature.
d. Accounting information is useful in decision making.

Answer: B
In page 3 which states important points made in the definition of accounting, there are 3 points given. There is NO
remark that accounting information is both quantitative and qualitative.

4. This accounting process is the recognition or nonrecognition of business activities as accountable events.
a. Identifying
b. Measuring
c. Communicating
d. Reporting

Answer: A
In page 3, it is stated that:

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Identifying
This accounting process is the recognition or nonrecognition of business activities as “accountable”
events.
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5. The events that affect the entity and in which other entities participate are known as
a. Internal events
b. External events
c. Current events
d. Obligating events

Answer: B
In page 4, in the External and Internal transactions section, paragraph 2 states that:

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External transactions or exchange transactions are those economic events involving one entity and
another entity.
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6. Which of the following statements is incorrect in relation to accountable event?
a. An event is accountable when it has an effect on asset, liability or equity.
b. The subject matter of accounting is the measurement of economic resources and obligations.
c. Only economic activities are emphasized and recognized in accounting.
d. Sociological and psychological matters are quantifiable

Answer: D
In page 3, in the Identifying section, states correct in relation to accountable event except letter D for it states in
paragraph 7 that:

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Sociological and Psychological matters are beyond the province of accounting.
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7. What is the “measuring” component in the definition of accounting?
a. The recognition or nonrecognition of business activities as accounting events.
b. The assigning of peso amounts to the accountable events.
c. The preparation and distribution of accounting reports to users of accounting information.
d. The preparation of audit report by CPAs.

Answer: B
In page 4, in the Measuring section, first paragraph states that:

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Measuring

This accounting process is the assigning of peso amounts to the accountable economic transactions
and events.
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8. The most common financial attribute used in measuring financial information is
a. Historical cost
b. Current cost
c. Realizable value
d. Present value

Answer: A
In page 4, in the Measuring section, paragraph 5 states the 4 measurement bases which are historical cost, current
cost, realizable value and present value. Moving on, paragraph 6 states that:

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Historical cost is the most common measure of financial transactions.
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9. The “communicating” process of accounting includes all of the following, except
a. Recording
b. Classifying
c. Summarizing
d. Interpreting

Answer: D
In page 5, in the Communicating section, there is NO remark about interpreting as it states in paragraph 4:

┌
 Implicit in the communication process are the recording, classifying and summarizing aspects of
accounting.
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10. What is the overall objective of accounting?
a. To provide the information that the managers of an economic entity need to control the operations.
b. To provide information that the creditors can use in deciding whether to grant loans to an entity.
c. To measure the periodic income of the economic entity.
d. To provide quantitative financial information about an entity that is useful in making economic decision.

Answer: D
In page 6, in the Overall objective of accounting, paragraph 1 states that:

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The overall objective of accounting is to “provide quantitative financial information about a
business that is useful to statement users particularly owners and creditors, in making
economic decisions.”
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Problem 1-2 Multiple Choice (ACP)

1. What is the law regulating the practice of accountancy in the Philippines?

a. R.A. No. 9298
b. R.A. No. 9198
c. R.A. No. 9928
d. R.A. No. 9892

Answer: A
In page 6, in the ‘The Accountancy Profession’, first and second paragraph states that:

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At present, Republic Act No. 9298 is the law regulating the practice of accountancy in the Philippines.

This law is known as the “Philippine Accountancy Act of 2004”.

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2. What is the body authorized by law to promulgate rules and regulations affecting the practice of the accountancy
profession in the Philippines?
a. Board of Accountancy
b. Philippine Institute of Certified Public Accountants
c. Securities and Exchange Commission
d. Financial Reporting Standards Council

Answer: A
In page 6, in the ‘The Accountancy Profession’, fifth paragraph states that:

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The Board of Accountancy is the body authorized by law to promulgate rules and regulations affecting
the practice of the accountancy profession in the Philippines.
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3. What are the three main areas in the practice of the accountancy profession?
a. Public accounting, private accounting, and managerial accounting.
b. Auditing, taxation and managerial accounting
c. Financial accounting, managerial accounting and corporate accounting
d. Public accounting, private accounting and government accounting

Answer: D
In page 7, in the Accreditation to practice public accountancy section, third paragraph states that:

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Certified Public Accountants generally practice their profession in three main areas, namely:
a. Public accounting
b. Private accounting
c. Government accounting
┘
4. Which of the following statements is incorrect in relation to the practice of public accountancy?
a. Single practitioners for the practice of public accountancy shall be registered CPAs in the Philippines.
b. Partners of partnerships formed for the practice of public accountancy shall be registered CPAs in the Philippines.
c. The Securities and Exchange Commission can register any corporation organized for the practice of public
accountancy.
d. The Professional Regulation Commission upon favorable recommendation of the Board of Accountancy shall issue
certificate of accreditation to CPAs in public practice provided the registrant has acquired a minimum of three years of
meaningful experience in public practice.
Answer: C

As all are correct in relation to the practice of public accountancy except letter C as in the page 7, in the Limitation of
the practice of public accountancy section, paragraph 3 states that:

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The Securities and Exchange Commission shall not register any corporation organized for the
practice of public accountancy.
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5. What is the primary service of CPAs in public practice?
a. Auditing
b. Taxation
c. Managerial accounting
d. Controllership

Answer: A
In page 8, in the Auditing section, first paragraph states:

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Auditing has traditionally been the primary service offered by most public accounting practitioners.
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6. Accountants employed in entities in various capacity as accounting staff, chief accountant or controller are said to
be engaged in
a. Public accounting
b. Private accounting
c. Government accounting
d. Financial accounting

Answer: B
In page 9, in the Private Accounting section states:

┌
Private Accounting

Many Certified Public Accountants are employed in business entities in various capacity as accounting
staff, chief accountant, internal auditor and controller.
┘
7. It is the area of the accountancy profession that encompasses the process of analyzing, classifying, summarizing and
communicating all transaction involving the receipt and disposition of government funds and property and
interpreting the results thereof.
a. Internal auditing
b. External auditing
c. Private accounting
d. Government accounting

Answer: D
In page 10, in the Government accounting section, first paragraph states:

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Government accounting encompasses the process of analyzing, classifying, summarizing and
communicating all transactions involving the receipt and disposition of government funds and property
and interpreting the results thereof.
┘
8. The Continuing Professional Development is required for
a. Renewal of CPA license.
b. Accreditation to practice the accountancy profession.
c. Both renewal of CPA license and accreditation to practice the accountancy profession.
d. Neither renewal of CPA license nor accreditation to practice the accountancy profession.

Answer: C
In page 11, in the CPD credit units section, paragraph 6 states:

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The Continuing Professional Development is required for the renewal of CPA license and
accreditation of CPA to practice the accountancy profession.
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Problem 2-1 Multiple choice (ACP)

1. The Conceptual Framework deals with all of the following, except

a. The objective of financial reporting
b. The qualitative characteristics of useful financial information
c. The definition, recognition and measurement of the elements of financial statements
d. Supplementary information

Answer: D
In page 36, in the Scope of Conceptual Framework, states:

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Scope of Conceptual Framework
a. The objective of financial reporting
b. The qualitative characteristics of useful financial information
c. The definition, recognition and measurement of the elements of financial statements
d. Concepts of capital and capital maintenance
┘
There is NO remark about supplementary information.

2. Which statement is true concerning the Conceptual Framework for Financial Reporting?
a. The Conceptual Framework is not a reporting standard and does not define standard for any particular
measurement or disclosure issue.
b. The conceptual Framework is concerned with general purpose financial statements including consolidated financial
statements.
c. Nothing in the Conceptual Framework overrides any specific Philippine Financial Reporting Standard.
d. All of these statements are true about the Conceptual Framework.

Answer: D
All of the choices are true as it states in the Definition section and also in the Authoritative status of Conceptual
Framework page 32-33.
3. Which is not a purpose of the Conceptual Framework?
a. To assist the FRSC in developing accounting standards that will represent GAAP in the Philippines.
b. To assist the FRSC in the review and adoption of existing international accounting standards.
c. To assist auditors in forming an opinion as to whether financial statements conform with Philippine GAAP.
d. To assist the Board of Accountancy in promulgating rules and regulations affecting the practice of public
accountancy.

Answer: D
While of the choices can be seen in the ‘Purposes of Conceptual Framework’ in page 33, there is no remark which tells
that one of the purpose of the Conceptual Framework is to assist the Board of Accountancy in promulgating rules and
regulations affecting the practice of public accountancy.

4. Which is a basic purpose of the Conceptual Framework?

a. To assist users of financial statements in interpreting the information contained in the financial statements.
b. To provide information to those interested in the work of the FRSC in the formulation of PFRS.
c. To assist preparers of financial statements in applying accounting standards.
d. All of these are considered basic purpose of the Conceptual Framework.

Answer: D
All of the choices are true as it states in the ‘Purposes of Conceptual framework’ in page 33.

Problem 2-2 Multiple Choice (IFRS)

1. What is the authoritative status of the Conceptual Framework?
a. The Conceptual Framework has the highest level of authority.
b. In the absence of a standard or an interpretation that specifically applies to a transaction, the Conceptual
Framework shall be followed.
c. In the absence of a standard or an interpretation that specifically applies to a transaction, management shall
consider the applicability of the Conceptual Framework in developing and applying an accounting policy that results
in information that is relevant and faithfully represented.
d. The Conceptual Framework applies only when the IASB develops new standards.

Answer: C
In page 33, in the Authoritative status of Conceptual Framework, second paragraph states:

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In the absence of a standard or an interpretation that specifically applies to a transaction,
management shall consider the applicability of the Conceptual Framework in developing and
applying an accounting policy that results in information that is relevant and reliable.
┘
2. The Conceptual Framework is intended to establish
a. GAAP in financial reporting.
b. The meaning of “present fairly in accordance with GAAP”.
c. The objectives and concepts for use in developing standards of financial accounting and reporting.
d. The hierarchy of sources of GAAP.

Answer: C
In page 32, in the Definition section, paragraph 5 states:

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It [referring to Conceptual Framework] is the underlying theory for the development of accounting
standards and revisions of previously issued accounting standards.
┘
3. A Conceptual Framework should
a. Lead to uniformity of financial statements
b. Eliminate alternative accounting principles.
c. Guide multinational entities in developing generally accepted auditing standards.
d. Define the basic objectives, terms and concepts of accounting.

Answer: D
In page 32, in the Definition section, paragraph 2 states:
┌
The Conceptual Framework is a summary of the terms and concepts that underlie the preparation of
financial statements for external users.
┘
4. Which is not a purpose of the Conceptual Framework?
a. To provide definitions of key terms and fundamental concepts.
b. To provide specific guidelines for resolving situations not covered by existing accounting standards.
c. To assist accountants in selecting among alternative accounting and reporting methods.
d. To assist the International Accounting Standards Board in the standard-setting process.

Answer: B
While all of the choices were stated in the ‘Purposes of Conceptual Framework’ in page 33, there is no remark about
one of the purpose of the Conceptual Framework is to provide specific guidelines for resolving situations not covered
by existing accounting standards.

Problem 3-1 Multiple Choice (IAA)

1. What are the attributes that make the information provided in the financial statements useful to the readers?
a. Qualitative characteristics of financial information
b. Quantitative characteristics of financial information
c. Elements of financial statements
d. Objectives of financial reporting

Answer: A
In page 62, in the Definition section, paragraph 1 states:
 ┌
Definition
Qualitative characteristics are the qualities or attributes that make financial accounting information
useful to the users.
┘
2. Qualitative characteristics
a. Are considered either fundamental or enhancing
b. Contribute to the decision-usefulness of financial reporting information.
c. Distinguish better information from inferior information for decision-making purpose.
d. All of the choices are correct.
Answer: D
In page 62, in the Definition section, it talks about the qualitative characteristics and its nature. It states that
qualitative characteristics are classified into fundamental qualitative characteristics and enhancing qualitative
characteristics. It also stated letter B and C as it cites in paragraph 2:

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In deciding which information to include in financial statements, the objective is to ensure that the
information is useful to the users in making economic decisions.
┘
3. The fundamental qualitative characteristics are
a. Relevance and faithful representation
b. Relevance, faithful representation and materiality
c. Relevance and reliability
d. Faithful representation and materiality

Answer: A
In page 62, in the Fundamental qualitative characteristics, paragraph 2 states:

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The fundamental qualitative characteristics are relevance and faithful representation.
┘
4. Accounting information is considered relevant when it
a. Can be depended on to represent the economic conditions and events that it is intended to represent.
b. Is capable of making a difference in a decision.
c. Is understandable by reasonably informed users of accounting information.
d. Is verifiable and neutral

Answer: B
In page 63, in the Relevance section, paragraph 2 states:

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To be relevant, the financial information must be capable of making a difference in the decisions
made by users.
┘
5. The ingredients of relevant financial information are
a. Predictive value and confirmatory value
b. Predictive value, confirmatory value and timeliness
c. Predictive value, confirmatory value and materiality
d. Predictive value, confirmatory value, timeliness and materiality

Answer: A
In page 63, in the Ingredients of relevance section, first paragraph states:

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Financial information is capable of making a difference in a decision if it has predictive value and
confirmatory value.
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6. What is the quality of information that gives assurance that it is reasonably free of error and bias?
a. Relevance
b. Faithful representation
c. Verifiability
d. Neutrality
Answer: B
In page 67, in the Ingredients of faithful representation, it states that:

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To be a perfectly faithful representation, a depiction should have three characteristics, namely:
a. Completeness
b. Neutrality (which states in page 68, in the Neutrality section, paragraph 3: “… to be neutral …
financial statements must be free from bias.”)
c. free from error
┘
7. Which of the following is the best description of “faithful representation” in relation to information in financial
statements?
a. Influence on the economic decisions of users
b. Inclusion of a degree of caution
c. Freedom from material error
d. Comprehensibility to users

Answer: C
Letter A talks about Relevance which is stated in page 63. Inclusion of a degree of caution refers to Prudence which is
stated in page 71 and letter C pertains to Understandability which is stated in page 74. All that is left to it is Freedom
from material error as it states in page 67: “To be perfectly faithful representation… c. free from error.”

8. To achieve faithful representation, the financial statements

a. must have predictive and confirmatory value
b. Must be complete, neutral and reasonably free from error
c. Are understandable, comparable, verifiable and timely
d. Must possess all of time

Answer: B
In page 67, in the Ingredients of faithful representation, it states that:

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To be a perfectly faithful representation, a depiction should have three characteristics, namely:
a. Completeness
b. Neutrality
c. free from error
┘
9. The financial accounting information is directed towards the common needs of users and is independent of
presumptions about particular needs and desires of specific users.
a. Relevance
b. Verifiability
c. Neutrality
d. Completeness

Answer: C
In page 68, in the Neutrality section, paragraph 5 states:

┌
Neutrality
… The information is directed to the common needs of many users, and not to the particular needs of
specific users.
┘
10. In the event of conflict between the economic substance of a transaction and the legal form, the economic
substance shall prevail.
a. From over substance
b. Substance over form
c. Relevance
d. Completeness

Answer: B
In page 69, in the Substance over form section, first paragraph states:

┌
Substance over form
 If information is to represent faithfully the transactions and other events it purports to represent, it is
necessary that the transactions and events are accounted in accordance with their substance and
reality and not merely their legal form.
┘
Problem 3-2 Multiple Choice (IAA)

1. The enhancing qualitative characteristics of financial information are

a. Comparability and understandability
b. Verifiability and timeliness
c. Comparability, understandability and verifiability
d. Comparability, understandability, verifiability and timeliness

Answer: D
In page 72, in the Enhancing qualitative characteristics, paragraph 3 states:

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The enhancing qualitative characteristics are comparability, understandability, verifiability and
timeliness.
┘
2. Financial information exhibits consistency when
a. Accounting procedures are adopted which smooth net income make results consistent between years.
b. Gains and losses are shown separately on the income statement.
c. Accounting entities give similar events the same accounting treatment each period.
d. Expenditures are reported as expenses.

Answer: C
In page 73, in the Consistency section, paragraph 5 states:

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In a limited sense, consistency is the uniform application of accounting method from period to period
within an entity.
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3. When information about two different entities engaged in the same industry has been prepared and presented in
similar manner, the information exhibits the enhancing qualitative characteristic of
a. Relevance
b. Faithful representation
c. Consistency
d. Comparability

Answer: D
In page 72, in the Comparability section, paragraph 6 states:

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Comparability between and across entities is the quality of information that allows comparisons
between two or more entities engaged in the same industry.
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4. The characteristic that is demonstrated when a high degree of consensus can be secured among independent
measurers using the same measurement method is
a. Relevance
b. Understandability
c. Verifiability
d. Neutrality

Answer: C
In page 75, in the Verifiability section, first paragraph states that “Verifiability means that different knowledgeable and
independent observers could reach consensus, although not necessarily complete agreement, that a particular
depiction is a faithful representation.” Addition to that, paragraph 4 states:

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Verifiable financial information provides results that would be substantially duplicated by measurers
using the same measurement method.
┘
5. Which concept of accounting holds that, to the maximum extent possible financial statements shall be based on
arm’s length transactions?
a. Revenue realization
b. Verifiability
c. Monetary unit
d. Matching

Answer: B
According to one of the source in the internet which taken from ‘Introduction to Accounting and Business’, chapter 1,
page 12, Under the measurement principle states that: “… Transactions between two independent parties, called arm’s
length transactions, provide amounts that are objective and verifiable.”

6. An entity issuing the annual financial reports within one month after the end of reporting period is an example of
which enhancing quality of accounting information?
a. Neutrality
b. Timeliness
c. Predictive value
d. Representational faithfulness

Answer: B
In page 76, in the Timeliness section, it states that:

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Timeliness means that financial information must be available or communicated early enough when a
decision is to be made. … For example, the most important attribute of quarterly or interim financial
information is its timeliness.
┘
7. Allowing entities to estimate rather than physically count inventory at interim periods is an example of a tradeoff
between
a. Verifiability and comparability
b. Timeliness and comparability
c. Timeliness and verifiability
d. Neutrality and consistency

Answer: C
While using a method to verify an amount through direct observation, it pertains to verifiability while the interim
periods part talks about timeliness.

8. Which qualitative characteristic of financial information requires that information should not be biased in favor of
one group of users to the detriment of others?
a. Relevance
b. Free from error
c. Completeness
d. Neutrality

Answer: D
In page 68, in the Neutrality section, paragraph 3 to 4 states:

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In other words, to be neutral, the information contained in the financial statements must be free from
bias.
The financial information should not favor one party to the detriment of another party.
┘
9. For information to be useful, the linkage between the users and the decisions made is
a. Relevance
b. Faithful representation
c. Understandability
d. Verifiability

Answer: C
In page 74, in the Understandability section, paragraph 10 states:

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Understandability is very essential because a relevant and faithfully represented information may
prove useless if it is not understand by users.
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10. Which statement is true in relation to the enhancing quality if understandability?
a. Users have a reasonable knowledge of business and economic activities and review the information with reasonable
diligence.
b. Users are expected to have significant business knowledge.
c. Financial statements shall exclude complex matters.
d. Financial statements shall be free from material error.

Answer: A
In page 74, in the Understandability section, paragraph 8 states:

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Financial reports are prepared for users who have a reasonable knowledge of business and
economic activities and who review and analyze the information diligently.
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