Conceptual framework and accounting standards

I. TRUE OR FALSE

1. The Conceptual Framework prescribes the concepts for general and specific-purpose financial
reporting.
2. All events and transactions of an entity are recognized in the books of accounts
3. The entity's management is responsible for the selection of appropriate accounting policies, not the
accountant.
4. If there is a conflict between a STANDARD and the CONCEPTUAL FRAMEWORK, the requirement of
the Conceptual Framework will prevail.
5. Asset is an economic resource and an economic resource is a right that has the potential to produce
economic benefits.
6. Although related, consistency and comparability are not the same. Comparability is the goal, while
consistency is the means of achieving that goal.
7. Once promulgated, accounting standards are never changed.
8. The basic purpose of accounting is to provide information about economic activities intended to be
useful in making economic decisions.
9. Financial accounting is the branch of accounting that focuses on general-purpose reports of financial
position and operating results known as financial statements.
10. The financial statements are the only source of information.
11. One of the purposes of the Conceptual Framework is to assist the preparers of financial statements in
interpreting the information contained in financial statements prepared in compliance with IFRS.
12. The objective of general-purpose financial statement is the foundation of the Conceptual Framework,
the other aspects will flow logically from the objective.
13. The enhancing qualitative characteristics, either individually or as a group, cannot make information
useful if the information is irrelevant or not faithfully represented.
14. Entity A's accounting period starts on July 1 and ends on June 30 of the following year. Entity A uses a
fiscal year period.
15. An obligation is a duty or responsibility that an entity has a practical ability to avoid.

II. MULTIPLE CHOICE

1. Entity A values its fixed assets at their historical costs and does not restate them for changes in the
purchasing power of the Philippine pesos due to inflation. Entity A is applying which of the following
accounting concepts?
a) Prudence c) stable monetary unit
b) accrual basis d) time period
2. Which of the following supports the accrual basis of accounting?
a) revenue recognition concept c) cash concept
b) matching concept d) revenue recognition and matching concepts
3. Accounting provides which type of information?
a) quantitative c) financial information
b) qualitative d) all of these
4. External users are those
a) who do have the authority to demand financial reports tailored to their specific needs.
b) who do not have the authority to demand financial reports tailored to their common needs.
c) who do not have the authority to demand financial reports tailored to their specific needs.
d) who belong to countries other than the domicile country of the reporting entity
5. What is the role of the IASB?
 Conceptual framework and accounting standards

a) Oversee the standard setting and regulatory process

b) Formulate international financial reporting standards
c) Review defective accounts
d) Control the accountancy profession
6. During the lifetime of an entity, accountants produce financial statements at arbitrary points in time in
accordance with which basic accounting concept?
a) Cost/benefit constraint
b) Periodicity assumption
c) Conservatism constraint
d) Matching principle
7. Ms. Jee owns a butcher shop a restaurant, and a catering business. Separate financial statements are
prepared for each business independent of the other businesses. What accounting principle or
assumption is being applied in this situation?
a) Time period assumption
b) Separate entity assumption
c) Full-disclosure principle
d) Unit-of-measure assumption
8. The Full Disclosure Principle recognizes that the nature and amount of information included in financial
reports reflects a series of judgmental trade- offs. The trade-offs strive for
I. Sufficient detail to disclose matters that make a difference to users
II. Sufficient condensation to make the information understandable, keeping in mind costs of
preparing and using it
a) I
b) II
c) I and II
d) None
9. On Day 1, a customer buys goods from Entity A and promises to pay the sale price on Day 30. Entity A
recognizes sales revenue on Day 1 rather than on Day 30. This is an application of which of the
following accounting concepts?
a) Prudence c) consistency
b) accrual basis d) materiality
10. Information has this qualitative characteristic if different, knowledgeable and independent observers
could reach consensus, although not necessarily complete agreement, that a particular depiction is a
faithful representation.
a) Relevance
b) Verifiability
c) Faithful representation
d) Comparability
11. Which accounting process is the recognition or nonrecognition of business activities as accountable events?
a) Identifying b) measuring c)communicating d) summarizing
12. It focuses on general purpose reports on financial position, performance and cash flows.
a) financial accounting
b) management advisory services
c) managerial accounting
d) auditing
13. Many accountants are employed in business enterprises in various capacities as accounting staff, chief
accountant or controller. These accountants are said to be engaged in:
a) public accounting c) government accounting
b) financial accounting d) private accounting
14. They encompass the conventions, rules, and procedures necessary to define what is accepted accounting
practice.
 Conceptual framework and accounting standards

a) generally accepted accounting principles c) characteristics principles

b) accounting assumptions d) recognition principles
15. It is an independent private sector body with the objective of achieving uniformity in the accounting principles
which are used by business enterprises for financial reporting around the world.
a) International Accounting Standards Committee
b) International Federation of Accountants
c) Financial Accounting Standards Council
d) Securities and Exchange Commission
16. The branch of accounting that is concerned primarily with providing information for internal users is called:
a) auditing c) financial accounting
b) managerial accounting d) income tax accounting
17. The most appropriate equation for portraying the relationship of assets, liabilities, and owners' equity of a
corporation is:
a) assets-liabilities = owners' equity c) assets=restriction of assets
b) assets= liabilities + owners' equity d) liabilities= assets-owners equity
18. The primary measurement basis currently used to value assets in general purpose financial statements of an
enterprise is:
a) the current market price if the assets currently held by an enterprise were sold on the open market
b) the current market price if the assets currently held by an enterprise were purchased on the open market
c) the present value of the cash flows assets are expected to general over their remaining useful lives
d) the market price of the assets at the date the assets were acquired
19. If a business is not being sold or closed, the amounts reported in the accounts for assets used in the business
operations are based on the cost of the assets. This practice is justified by:
a) accrual c) continuity assumption
b) time period d) accounting entity
20. John Ash is the sole owner and manager of Ace Services. John purchased a car for personal use. He uses a van in
the business, Which of the following is violated if John recorded the cost of the car as an asset of the business?
a) conservatism c) full disclosure
b) going concern assumption d) separate entity assumption
21. Which underlying concept serves as the basis for preparing financial statements at regular intervals?
a) accounting entity c) accounting period
b) going concern d) stable monetary unit
22. The financial statements should be stated in terms of a common financial denominator.
a) accrual c) time period
b) going concern d) monetary unit
23. Liquidity is defined as the:
a) ability of the enterprise to pay currently maturing obligations.
b) ability of the enterprise to meet obligations over a longer term.
c) invested capital of the enterprise.
d) borrowed capital of the enterprise
24. Verifiability of financial accounting information is synonymous with:
a) faithful representation c) Prudence
b) substance over form d) completeness
25. Sam Company does not know exactly how long its equipment will last. It decides to use shorter rather than
longer useful life for depreciating the equipment. What accounting concept is being applied in this decision?
a) reliability c) materiality
b) relevance d) conservatism
 Conceptual framework and accounting standards

TRUE/FALSE
1. F
2. F
3. T
4. F
5. T
6. T
7. F
8. T
9. T
10. F
11. T
12. T
13. T
14. T
15. F

MULTIPLE CHOICE
1. C
2. D
3. D
4. C
5. B
6. B
7. B
8. C
9. B
10. B
11. A
12. A
13. D
14. A
15. A
16. B
17. B
18. D
19. C
20. D
21. C
22. D
23. A
24. A
25. D