Name: Abo, Royce Stephen D.

Section: Sec 9
CFAS ACTIVITY
NOTE: Sir I Bold all of my answers.
PROBLEM 1: TRUE OR FALSE
TRUE 1. All events and transactions of an entity are recognized the books of accounts.
FALSE 2. The accounting process of assigning. numbers, commonly in monetary terms, to the
economic transactions and events is referred to as classifying.
TRUE 3. The basic purpose of accounting is to provide information about economic activities
intended to be useful in making economic decisions.
TRUE 4. Financial accounting is the branch of accounting that focuses on general purpose
reports of financial position and operating results known as the financial statements.
TRUE 5. General purpose financial statements are those statements that cater to the common
and specific needs of a wide range of external users.
TRUE 6. The financial statements are the only source of information when making economic
decisions.
TRUE 7. All information presented in the financial statements are sourced from the accounting
records of the entity.
TRUE 8. 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.
FALSE 9. Once promulgated, accounting standards are never changed.
FALSE 10. The entity's management is responsible for the selection of appropriate accounting
policies, not the accountant.

PROBLEM 2: MULTIPLE CHOICE

1. The concept of recognition is applied in which of the following instances?

a. An entity includes the effects of an event in the financial statements through a journal
entry.
b. An entity removes the effects of an event from the financial statements through a journal entry.
c. An entity discloses only an event in the notes, rather than including the effects of the event in
the monetary totals in the financial statements.
d. An entity records an event through a memorandum entry.

2. Which of the following events is not considered an exchange or reciprocal transfer?

a. purchase of inventory on account
b. lending money to another entity
c. payment of a loan payable
d. payment of taxes

3. Which of the following events is considered a nonreciprocal transfer?

a. sale of an asset c. loss from a calamity
b. donation d. production of finished goods

4. To be useful, accounting information should be presented using

a. monetary amounts. c. historical costs.
b. a common denominator. d. fair values.

5. Which of the following violates the historical cost concept?

a. Recording purchases of merchandise inventory at the purchase price.
b. Recording a building at the total construction costs.
c. Measuring inventories at net realizable value.
d. Recording an equipment acquired in an installment purchase at the cash price equivalent.

6. 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
7. Entity A engages in importing and exporting activities. At the end of the period, Entity A has
assets and liabilities denominated in foreign currencies. When preparing its financial statements,
Entity A translates these assets and liabilities to pesos. Entity A is most likely' to be applying
which of the following accounting concepts?
a. double entry c. stable monetary unit
b. accrual basis d. time period

8. Preparing financial statements at least annually is application of which of the following

accounting concepts?
a. historical cost c. stable monetary unit
b. accrual basis d. time period

9. Entity A acquires merchandise inventory. Entity A initially records the acquisition cost of the
inventory as asset rather than an outright expense. When the inventory is subsequently sold,
Entity A recognizes the cost of the inventory sold as expense, in the same period the sale revenue
is recognized. This is an application of which of the following accounting concepts?
a. stable monetary unit c. matching
b. materiality d. proprietary

10. 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

PROBLEM 3: MULTIPLE CHOICE

1. All the following are considered internal events, except

a. transfer of goods from work-in-process to finished goods inventory
b. losses from flood, earthquake, fire and other calamities
c. transformation of biological assets from immature to mature
d. vandalism committed by the entity's employees
2. Which of the following is considered an internal user of Entity A's financial reports?
a. Entity B, a bank, requires Entity A to submit audited financial statements in conjunction
to a loan being applied for by Entity A.
b. Mr. I is deciding whether to invest in Entity A. Mr. I uses Entity A's financial statements
in making its investment decision.
c. Ms. S, a shareholder of Entity A, is deciding whether to hold or sell her shareholdings in
Entity A. Ms. S uses Entity A's financial statemenTSTnriakingits "hold or sell" decision.
d. Mr. X, a member of Entity A's board of directors, uses financial reports to make
decisions regarding the financial and operational affairs of Entity A.

3. When resolving accounting problems not specifically addressed by current standards, an entity
shall be guided by the hierarchy of financial reporting standards. The correct sequence of the
hierarchy of financial reporting standards in the Philippines is
I. PASs, PFRSs and Interpretations
H. Conceptual Framework.
III. Judgment
IV. Pronouncement of other standard-setting bodies
a. I, HI, II and IV c. I, IV, 11 and 111
b. I, H, IV and III
c. I, IV, 11 and 111
d. I, H, III and IV

4. The proper application of accounting principle is most dependent upon the

a. management
b. accountant
c. auditor
d. chief executive officer

5. Which of the following statements is correct?

a. Accounting provides quantitative information only.
b. Accounting is considered an art because it requires the use of creative skills and
judgment.
c. The only acceptable measurement basis in accounting is historical cost.
d. Qualitative information can be found only in the notes to the financial statements.

6. Which of the following statements is correct?

a. All quantitative information are also financial in nature.
b. The accounting process of assigning peso amounts to economic transactions and
events is measuring.
c. The economic activity that involves using current inputs to increase the stock of
resources available for output is called savings.
d. The economic activity of using the final output of the production process is called income
distribution.

7. Which of the following statements is incorrect regarding accounting concepts?

a. Under the Accrual Basis of accounting, revenues are recognized when earned and
expenses are recognized when incurred, not when cash is received and disbursed.
b. Under the Going concern concept, the business entity is assumed to carry on its
operations for an indefinite period of time.
c. Under the Business entity/ Separate entity/ Entity/
Accounting entity Concept, the business is treated separately from its owners.
d. Under the Time Period/ Periodicity/ Accounting Period
concept, the life of the business is divided into series of reporting periods.
e. Under the Cost-benefit concept, the cost of processing and
communicating information should exceed the benefits derived from it.

8. Which of the following statements is incorrect?

a. Financial reporting standards may at times be influenced by legal, political, business and
social environments.
b. General-purpose financial statements must be prepared by a Certified Public Accountant.
c. General purpose financial statements are prepared primarily for the use of external
users.
d. The PFRSs are issued by the Financial Reporting Standards Council.
9. Mr. John Doe, CPA, is a professor in a university where he teaches mainly home economics,
music and physical education. Those subjects require that the teacher must be awesome. Mr. Doe
is also frequently invited as a judge in beauty pageants and singing contests and as a referee in
mixed martial arts competitions. Mr. Doe is considered to be
practicing accountancy in which of the following sectors?
a. Academe c. Commerce and industry
b. Public accounting d. None of these

10. Changes to reporting standards response to

a. government regulations.
b. users' needs.
c. global modernization
d. all of these

PROBLEM 4: FOR CLASSROOM DISCUSSION

1. Entity A buys bananas and converts them into banana chips.
The conversion of bananas into banana chips is a (an)
a. non-accountable event . c. non-reciprocal transfer.
b. external event. d. internal event.
Valuation by fact or opinion
2. Which of the following is considered valued by fact rather than by opinion?
a. Depreciation d. Retained earnings
b. Cost of goods sold c. Discount on share capital
Measurement Bases
3. Which of the following is not one of the several measurement bases used in accounting?
a. historical cost c. present value
b. fair value d. all of these are used
Accounting Concept
4. Entity A is owned by Mr. X and Ms. Y. Which of the following transactions does not violate
the separate entity concept and therefore is appropriately recorded in the accounting records of
Entity A?
a. Mr. X purchases groceries for his home consumption.
b. Mr. X gives Ms. Y chocolate and flowers on Valentine's Day.
c. Ms. Y provides capital to Entity A.
d. Ms. Y provides capital to Entity B, another business entity
5. Mr. A is assessing the ability of Entity A to generate future cash and cash equivalents. In
making the assessment, Mr. A uses not only the statement of cash flows but also the other
components of a complete set of financial statements. This is because of which of the following
concepts?
a. Going concern c. Intercalation
b. Time period d. Articulation
6. Entity A acquires a stapler. Instead of recognizing the cost of the stapler as an asset to be
subsequently depreciated, Entity A immediately charges it as expense. This is an application of •
which of the following concepts?
a. Prudence c. Cost-benefit
b. Materiality d. b and c
Common branches of accounting
7. What type of users' needs is catered by general purpose financial statements?
a. common needs c. a and b
b. specific needs d. neither a nor b
Four sectors in the practice of accountancy
8. Which of the following is not among the Four Sectors in the practice of accountancy as
enumerated in R.A. 9298 also known as the "Philippine Accountancy Act of 2004"?
a. Practice in Commerce and Industry
b. Practice in the Government
c. Practice in Education/Academe
d. Practice of Private Accountancy
Accounting standards
9. The Philippine Financial Reporting Standards (PFRSs) comprise:
I. Philippine Financial Reporting Standards
II. Philippine Accounting Standards
III. Interpretations
IV. Accounting Practice Statements and Implementation Guidance
a. I, II and III c. I and II
b. I, II, III and IV d. I and HI

PROBLEMS
PROBLEM 1: TRUE OR FALSE
TRUE 1. All changes in an entity's economic resources and claims to those resources result from
the entity's financial performance.
TRUE 2. The qualitative characteristics of useful information apply only to the financial
information provided in the financial statements.
TRUE 3. According to IFRS® Practice Statement 2 Making Materiality Judgments, cost is an
important consideration when making materiality judgments.
TRUE 4. When making materiality judgments, a quantitative assessment alone is not always
sufficient to conclude that an item of information is not material.
FALSE 5. Materiality judgments apply only to items that are recognized but not to those that are
unrecognized.
FALSE 6. The more significant the qualitative factors are, the lower the quantitative thresholds
will be. Thus, an item with a zero amount can be material in light of qualitative thresholds.
FALSE 7. When making materiality judgments, an entity should judge an item's materiality only
on its own and not in combination with other information in the complete set of financial
statements.
FALSE 8. The Conceptual Framework and the Standards specify a uniform quantitative
threshold for materiality.
TRUE 9.To meet the objectives of general-purpose financial reporting, a Standard sometimes
contains requirements that depart from the Conceptual Framework.
TRUE 10.The Conceptual Framework is concerned with the provision of financial information
to both external users and-internal users.
PROBLEM 2: TRUE OR FALSE
FALSE 1. The Conceptual Framework may be revised from time to time Revisions in the
Conceptual Framework automatically result to changes in the Standards.
TRUE 2. According to the revised Conceptual Framework, the asset is the
right, while the liability is the obligation, rather than the
ultimate inflows or outflow; of economic benefits resulting
from the asset or liability.
TRUE 3. Legal enforceability of a right, for example ownership,
necessary for control over an economic resource to exist.
TRUE 4. According to the revised Conceptual Framework, an asset can exist even if the
probability that it will provide inflows of future economic benefits is low, and even if the asset is
subject to a high measurement uncertainty.
FALSE 5.According to the revised Conceptual Framework, what the entity controls is the right,
and not the ultimate inflows of future economic benefits that the economic resource may
produce.
TRUE 6.The Conceptual Framework defines income and expenses in terms of changes in assets
and liabilities.
TRUE 7. Not all items that meet the definition of a financial statement element are recognized;
they are recognized only if recognizing them will also result in relevant and faithfully
represented information.
TRUE 8. Measuring an asset at historical cost will always' result in the same carrying amount of
the asset from period to period.
TRUE 9. According to the Conceptual Framework, amortized cost measurement relates to
historical cost, rather than current value.
FALSE 10. Although the use of a single measurement basis improves the understandability of
the financial statements, this may not always lead to useful information. Thus, the Standards
require
different measurement bases for different assets, liabilities, income and expenses.
PROBLEM 3: MULTIPLE CHOICE

1. According to the Conceptual Framework, these are the

qualitative characteristics that make information useful to users.
a. Fundamental c. Relevance
b. Enhancing d. Comparability

2. Information that is capable of making a difference in the

decisions made by users has this qualitative characteristic.
a. Relevance c. Timeliness
b. Faithful representation d. Verifiability

3. When making materiality judgments, the overriding consideration is

a. the ability of the item being judged to influence users' decisions.
b. the size of the impact of the item being judged.
c. the characteristics of the item being judged.
d. c and d

4. This qualitative characteristic is unique in the sense that it necessarily requires at least two
items.
a. Verifiability c. Timeliness
b. Faithful representation d. Comparability

5. Which of the following enhances the comparability of information?

a. Making unlike things look alike.
b. Making like things look different.
c. Using different methods to account for similar transactions from period to period.
d. Consistent application of accounting policies from period to period.
6. 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 c. Verifiability
b. Faithful representation d. Comparability

7. The Conceptual Framework uses the term "claims" against the reporting entity to refer to
a. expenses.
b. liabilities.

8. Entity A is assessing whether an item meets the definition of a financial statement element.
Entity A considers the transaction's substance and economic reality rather than merely its legal
form. Entity A is applying which of the following accounting concepts?
a. Substance over form
b. Form over substance

9. Which of the following is not one of the aspects in the revised definition of an asset?
a. Right
b. Potential to produce economic benefits
c. Probability of the expected inflows of economic benefits from the asset
d. Control

10. The new definition of an asset (a liability) focuses on the asset (liability) being
a. a present right (obligation) that has resulted from past events and has the potential
to produce (cause a transfer of) economic benefits.
b. the expected inflows (outflows) of economic benefits that are both probable and can be
measured reliably.
c. a physical object (a duty to pay cash or other resources).
d. All of these.
11. Which of the following is not an indication of an economic resource's potential to produce
economic benefits?

a. The economic resource can be used in combination with other resources to produce
goods for sale.
b. The economic resource can be used to pay liabilities.
c. The economic resource can be distributed to the owners.
d. The resource has no use in the entity's operations and has no resale value.
12. Which of the following does not meet the definition of an asset?
a. Equipment that the entity intends, and is very certain, to acquire in the future.
b. Inventories purchased and received but not yet paid.
c. Land received from a donation.
d. A publishing title for a college textbook. The publishing title has no physical substance,
meaning you cannot see or touch it.

13. Entity A determined that an asset exists. However, the asset's low probability .of inflows
of economic benefits and its very high level of measurement uncertainty affected Entity A's
recognition decisions about the asset, as these raised doubt on whether the asset's recognition
would result in useful information. Consequently, Entity A did not recognize the asset, but
because Entity A deemed it relevant, information about the asset was nonetheless provided in the
notes. Which of the following statements is correct?
a. Entity A's accounting treatment is grossly incorrect because, according to the
Conceptual Framework, all items that meet the definition of an asset should always be
recognized, regardless of the asset's potential to produce economic benefits and its
measurement uncertainty.
b. Entity A's treatment for the asset is acceptable. The asset is
referred to as an 'unrecognized' asset.
c. Entity A's treatment for the asset is acceptable. The asset is
referred to as anon-existent' asset.
d. Entity A's non-recognition of the asset is correct. However,
the asset should have been completely ignored as providing information about unrecognized
items in the notes is not acceptable under the Conceptual Framework.

14. Which of the following will most likely affect the determination of whether an asset or a
liability exists?
a. A low probability that the asset or liability win cause inflows or outflows of future
economic benefits.
b. A high level of measurement uncertainty regarding the
asset or liability.
c. An unresolved dispute over a right or obligation.
d. All of these are relevant in determining the existence of an asset or a liability,
according to the Conceptual Framework.

15. An increase in the carrying amount of an asset could not possibly result in
a. the recognition of an income.
b. the recognition of an expense.
c. an increase in total equity.
d. no change in total equity.

PROBLEM 4: MULTIPLE CHOICE

1. The Conceptual Framework is least applicable in which of the following cases?

a. to account for a transaction that is specifically dealt with by a Standard
b. in resolving issues not addressed directly by a Standard
c. in developing Standards
d. in analyzing and interpreting Standards

2. General purpose financial statements are designed to

a. meet all the information needs of the primary users.
b. meet all of the common needs of all primary users.
c. meet most of the common needs of most primary users.
d. meet none of the needs of users of financial information.

3. These are users of financial information who are not in a position to require areporting entity
to prepare reports tailored to their particular information needs.
a. Primary users
b. Secondary users
c. heavy users
d. slight users

4. Which of the following is not one of the primary users listed in the Conceptual Framework?
a. Investors
b. Lenders
c. creditors
d. debtors

5. Which of the following would least likely to need general purpose financial statements in
making economic decisions?
a. Stockholders c. Management
b. Potential investors d. Lenders

6. Which of the following is not a factor to consider when applying the qualitative
characteristics?
a. The information must be both relevant and faithfully represented for it to be useful.
b. The enhancing qualitative characteristics only enhance the usefulness of information but
cannot make irrelevant information or erroneous information to be useful.
c. Sometimes, it may be necessary to make trade-offs between the qualitative characteristics
in order to provide useful information.
d. To be useful, information need only to meet one, but not necessarily all, of the
qualitative characteristics.
7. Which of the following is an example of a qualitative factor used in making materiality
judgments?
a. 10% of total revenues
b. 2.5% of total assets
c. P25,000 or more
d. The context of an item in relation to a current crisis in the banking and insurance
industry.

8. According to the Conceptual Framework, this information provides a direct indication of how
well management has discharged its responsibilities to make efficient and effective use of the
reporting entity's resources.
a. The changes in the' entity's economic resources
and claims to those resources.
b. The return that the entity has produced from its economic
resources.
c. The level of the entity's economic resources in relation to
the claims thereof.
d. The entity's liquidity and solvency.

9. Which of the following statements about the concepts in the Conceptual Framework is least
accurate?
a. General purpose financial reports are intended to meet equally the needs of all types of
external users.
b. A low probability of expected inflows or outflows of economic benefits resulting from an
asset or liability may affect the recognition of that asset or liability, but not necessarily its
existence.
c. A high level of measurement uncertainty associated with an asset or liability can affect
the faithful representation of that asset or liability, but not necessarily its relevance.
d. Recognition means including an item in the totals of the financial statements when
that item meets the definition of a financial statement element and recognizing it would
result in useful information.
10. According to the revised Conceptual Framework, the degree of uncertainty in the expected
inflows or outflows of economic benefits from an asset or liability or the degree of measurement
uncertainty associated with that asset or liability a. does not necessarily affect the conclusion that
an asset or a
liability exists, although it may affect recognition decisions about the asset or liability.
a. does not necessarily affect the conclusion that an asset or a liability exists, although it may
affect recognition decisions about the asset or liability.
b. greatly affects the conclusion that an asset or a liability exists if the expectation of inflows or
outflows is lowor the measurement uncertainty is high.
c. may not always affect the conclusion that an asset or a liability exists, but will most
certainly result to the non¬recognition of an asset or liability if the expectation of
inflows or outflows is low or the measurement uncertainty is high.
d. is irrelevant, both in determining the existence of an asset
or a liability and in making recognition decisions about that asset or liability.

PROBLEM 5: FOR CLASSROOM DISCUSSION

Purpose
1. Which of the following statements is incorrect regarding the purpose of the Conceptual
Framework?
a. The Conceptual Framework is intended to provide a foundation for the development of
globally acceptable Standards.
b. Globally acceptable Standards contribute to economic efficiency by lowering the cost of
capital and reducing international reporting costs.
c. Globally acceptable Standards reduces the information gap between financial statement
users and the reporting
entity's management.
d. The Conceptual Framework prescribes the concepts for both
general purpose and specific purpose financial reporting.

Status
2. The Conceptual Framework (choose the incorrect statement)
a. is not a PFRS.
b. in the absence of a PFRS, shall be considered by
management when making its judgment in developing
and applying an accounting policy that results in useful
information.
c. is concerned with general purpose financial reporting
only.
d. prevails over the PFRSs in cases of conflicts.

Scope
3. Which of the following is excluded from the scope of the Conceptual Framework?
a. The objective of financial reporting. financial information.
b. Qualitative characteristics of useful of financial statements
c. The components of a complete set
and their presentation requirement s.
and derecognition of
d. Definitions, recognition criteria
financial statement elements.
e. Descriptions of the measurement bases used in financial reporting.

The objective of financial reporting.

4. Which of the following is incorrect regarding the objective of general purpose financial
reporting?
a. The objective of general purpose financial reporting is to provide information that is
useful to primary users in making decisions about providing resources to the entity.
b. Decisions about providing resources to the entity depend on the users' expected
returns, which in turn, depend on assessments of the entity's prospects for future net cash
inflows and management stewardship.
c. The objective of general purpose financial reporting forms the foundation of the
Conceptual Framework.
d. General purpose financial reporting provides information about an entity's economic
resources, claims, and changes in those resources and claims, but not on the utilization of those
resources by the entity's management.

Primary users
5. Which of the following statements best explains why government regulators are the reporting
entity's management and government not considered primary users under the Conceptual
Framework? a. These users are considered related parties, and hence do not make relevant
decisions.
a. These users have the ability to curtail the operations of the reporting entity and therefore have
the ability to affect the entity's going concern.
b. These users have the ability to curtail the operations of the reporting entity and therefore have
the ability to affect the entity's going concern.
c. These users have the power to demand information they need directly from the reporting
entity.
d. All of these.

Information on economic resources, claims, and changes

6. Information about the reporting entity's economic resources, claims against the reporting
entity and changes in those resources and claims is referred to in the Conceptual Framework as
the
a. economic phenomena.
b. entity's return.
c. financial performance.
d. prospects for future cash flows.

Qualitative characteristics
7. Entity A deliberately overstated its liabilities from PM to 01.2M. What qualitative
characteristic is violated?
a. Relevance c. Timeliness
b. Faithful representation d. Understandability

8. Two primary users are using the financial information of Entity A. If User #1 concludes that
Entity A's sales has increased while User #2 concludes that it has decreased, Entity A's financial
information is not
a. relevant.
b. faithfully represented.
c. comparable
d. verifiable.
Materiality
9. Entity A is making a materiality judgment. Entity A considers the size of the impact of an item
to be material if it exceeds 5% of total assets. What type of materiality assessment is this?
a. Quantitative c. Requirement of a Standard
b. Qualitative d. Relevance

Financial statements and the Reporting entity

10. Which of the following is incorrect regarding the objective of general purpose financial
statements?
a. General purpose financial statements show information on the reporting entity's assets,
liabilities, equity, income and expenses.
b. General purpose financial statements are intended to show the value of the reporting
entity.
c. General purpose financial statements provide information that is useful in assessing
the entity's ability to generate future net cash inflows.
d. General purpose financial statements provide information that is useful in assessing the
entity's management stewardship in relation to the use of the entity's economic resources.

The Elements of Financial Statements

11. Which of the following is least likely to be considered when determining whether an item
meets the definition of an asset?
a. whether there is a present economic resource, which is a right, that has resulted
from past events
b. whether the right has a potential to produce economic benefits, evidenced by at least one
circumstance
c. whether the entity controls the right
d. whether it is probable (more likely than not) that the resource will produce economic
benefits

12. The revised definitions of an asset and a liability emphasize that

a. an asset is a right, and a liability is an obligation, that has
the potential to produce, or cause the transfer of, economic benefits.
b. an asset is a controlled resource, and a liability is an
obligation, that is expected to cause inflows or outflows of economic benefits.
c, an asset is the physical object and the liability is ultimate outflow of economic benefits from
settling the obligation.
d. All of these are emphasized in the revised definitions.

13. Which of the following is correct when determining the existence of an asset or a liability?
a. An asset or a liability exists if the associated right or obligation arises from legal or contractual
requirements.
b. An asset or a liability exists only if the expected inflows or outflows of economic benefits
from the asset or the liability are probable, meaning they are more likely than not to occur,
c. An asset or a liability can exist even if its potential to produce, or cause a transfer of,
economic benefits is not certain or even likely — what is important is that the right or the
obligation exists in the present and that in at least one circumstance it will produce, or
cause a transfer of, economic benefits.
d. All of these are correct.

14. Control is a necessary element of an asset. Control means

a. the entity has the exclusive right over the benefits -of an asset, including the ability to
prevent others from
accessing those benefits.
b. that the entity can ensure that the resource will produce economic benefits in all
circumstances.
c. the entity has the exclusive right over the entire economic resource, and not only a
portion of it.
d. a legally enforceable right conferred to the entity by a law
or other operation of law.

15. An asset is an economic resource and an economic resource is a right that has the potential to
produce economic benefits. Which. of the following is not one of the potentials of an economic
resource to produce economic benefits for an entity?
a. Service potential, i.e., the resource can be used to provide services in the entity's normal
business activities.
b. The resource can be converted into cash.
c. The resource has the ability to provide cost-savings to the entity.
d. The resource causes more outflows of cash from the entity than inflows.

Executory contracts
16. Entity A enters into a purchase commitment with Entity B (a seller). Neither party performs
its obligation on the contract, i.e., Entity A did not yet pay the purchase price, while Entity B did
not yet deliver the goods. Which of the following is incorrect?
a. The contract is executory. Entity A has a combined right to receive the goods and an
obligation to pay for them.
b. Entity A recognizes neither an asset nor a liability except when the contract becomes
burdensome, such as when the goods become obsolete before they are delivered.
c. If Entity B performs its obligation first, Entity A's combined right and obligation
changes to a liability.
d. If Entity A performs its obligation first, Entity A's combined right and obligation changes
to a liability.
Recognition and Derecognition
17. According to the revised Conceptual Framework, an item is recognized if
a. it meets the definition of a financial statement element.
b. recognizing it would provide useful information.
c. it is probable that the item will result to an inflow or
outflow of economic benefits and its cost can be measured reliably.
d. a and b

18. According to the Conceptual Framework, an item is recognized if it meets the definition of an
asset, liability, equity, income or
expense, and recognizing it would provide relevant and faithfully represented information.
Which of the following relates faithful representation rather than relevance?
a. It is uncertain whether the asset exists.
b. The asset exists but the probability that it will produce inflows of economic benefits is low.
c. A high level of measurement uncertainty associated with the asset.
d. None of these. An item that meets the definition of an asset is always recognized as an asset.

19. Which of the following will most likely to cause the non-recognition of an asset or a
liability?
a. The probability of an inflow (outflow) of future economic benefits from the asset
(liability) is low.
b. There is a measurement uncertainty regarding the asset or liability.
c. It is uncertain whether the asset or liability exists.
d. Recognizing the asset or liability would not provide relevant and faithfully represented
information.

20. Which of the following would not result to the recognition of a liability?
a. Receipt of the proceeds of a bank loan.
b. Receipt of delivery of equipment purchased on credit.
c. A commitment for future execution becomes burdensome.
d. Paying in advance the purchase price of inventories for future delivery.
21. Entity A determined that a previously recognized asset no longer meet the definition of an
asset. Accordingly, Entity A removed the carrying amount of the asset from the statement of
financial position and recognized it as an expense. Entity A is applying which of the following
principles?
a. Matching
b. Recognition c. Derecognition
d. Presentation and disclosure

22. Recognizing a financial statement element requires measuring it in monetary terms. Which of
the following statements is incorrect regarding measurement?
a. The Conceptual Framework only describes the measurement bases used in financial reporting
but does not specify how a particular statement element should be measured- this is addressed by
the Standards.
b. The Conceptual Framework broadly classifies the measurement bases used in financial
reporting into two, namely, historical cost and current value.
c. Measurement uncertainty will always cause the non-recognition of a financial statement
element.
d. Measuring a financial statement element often requires estimation.

Presentation and Disclosure

23. Effective communication makes information more useful.
Effective communication requires all of the following except
a. focusing on presentation and disclosure objectives and principles rather than
focusing on rules
b. classifying information in a manner that groups similar items and separates dissimilar
items.
c. aggregating information in such a way that it is not
obscured either by unnecessary detail or by excessive aggregation.
d. using standardized descriptions, a.k.a `boilerplate', rather than entity-specific information.
24. According to the revised Conceptual' Framework, income and expenses are classified as
either
a. recognized in profit or loss or in other comprehensive
b. gains and revenues and expenses and losses, respectively
c. contributions form, or distributions to the entity’s owners.
d. increases or decreases in the entity's assets or liabilities.
Concepts of Capital and Capital maintenance
25. Under this concept of capital maintenance, profit is earned if net assets increased during the
period after excluding the effects of transactions with the owners.
a. Financial capital maintenance
b. Physical capital maintenance
c. Repairs and maintenance
d. Building maintenance

PROBLEM 6: ACTIVITY
Requirements:
1. Make a list of your assets and explain why the items in your list meet the definition of an
asset. Be sure to consider all the three aspects in the definition of an asset.
This the list of assets that I think suitable in this question
* furniture
*clothes
*goods
*electronic devices
That is my four assets and they meet the definition of an asset because all of that are in the
properties of asset specifically in ownership, Assets represent ownership that can be
eventually turned into cash and cash equivalents and also in economic value assets have
economic value and can be exchanged or sold.
2. Assess whether each item in the list qualifies for recognition in your personal statement
of financial position. Explain why an item is or is not recognized. (Hint: Your old undergarment
might meet the definition of an asset, but recognizing it might not provide useful information)
An item can be recognized if this asset can give or generate future economic benefits
specially in yourself and it cannot be recognized if that item cannot give you or a specific
company a benefit that can help you a lot in your path.

PROBLEMS
PROBLEM 1: TRUE OR FALSE
TRUE 1.The application of PFRSs, with additional disclosure when necessary, is presumed to
result in financial statements that achieve a fair presentation.
TRUE 2.According to PAS 1, an entity shall make an explicit and unreserved statement of
compliance with the PFRSs in the notes only if the entity complies with all the requirements of
PFRSs.
FALSE 3. PAS 1 encourages, but does not require, the presentation of the preceding year's
financial statements as comparative information to the current year's financial statements.
FALSE 4. According to PAS 1, assets and liabilities or income and expenses are offset, unless
separate presentation is required or permitted by a PFRS.
TRUE 5.According to PAS 1, PFRSs apply to financial statements as well as to other
information presented in an annual report, a regulatory filing, or another document.
FALSE 6.According to PAS 1, the line item "Cash and cash equivalents" should always be
presented first in the statement of financial position.
FALSE 7. PAS 1 prescribes an order or format of presenting items in the financial statements.
TRUE 8. An entity may omit the notes when presenting general purpose financial statements.
FALSE 9. If profit or loss is P100 while other comprehensive income is P20, total
comprehensive income must be P130.
FALSE 10. PAS 1 encourages, but does not require, the disclosure of an entity's domicile and
legal form, its country of incorporation and the address of its registered office and a description
of the nature of its operations and its principal activities.

PROBLEM 2: MULTIPLE CHOICE

1. The objective of PAS 1 is
a. to ensure comparability by prescribing the basis for presentation of general purpose
financial statements.
b. to ensure the faithful representation of financial statements.
c. to ensure the relevance of information presented in the financial statements.
d. to prescribe the recognition and measurement principles applicable to assets, liabilities,
income and expenses.

2. Entity A's financial statements in the current period is comparable with Entity A's financial
statements in the previous period. This type of comparability is called
a. Inter-comparability c. Extra-comparability
b. Intra-comparability d. Intro-comparability
3. The scope of PAS 1 is
a. the preparation and presentation of general purpose financial statements.
b. the recognition, measurement and disclosure requirements for specific transactions and
other events.
c. the presentation of general purpose financial statements as well as all other information
contained in an entity's annual report.
d. all of these

4. The statement of financial position is also called

a. balance sheet. c. positions statement.
b. income statement. d. all of these
5. When preparing financial statements, PAS 1 requires management to assess the entity's ability
to continue as a going concern. The assessment covers a minimum period of
a. at least one year from the end of the reporting period.
b. at least two years from the end of the reporting period.
c. at least five years from the end of the reporting period.
d. there is no such requirement.

6. Which of the following is not considered an appropriate application of offsetting under PAS 1?
a. Presenting a gain from the sale of a noncurrent asset net of the related selling expenses.
b. Deducting foreign exchange losses from foreign exchange gains and presenting only the net
amount.
c. Deducting unrealized losses from unrealized gains from trading securities and presenting only
the net amount.
d. Deducting accumulated depreciation from the equipment
account and presenting only the carrying amount.

7. PAS 1 requires an entity to provide an additional balance sheet dated as of the beginning of the
preceding period if certain instances occur. Which of the following is not one of those instances?
(Assume all of the following has a material effect)
a. Retrospective application of an accounting policy.
b. Retrospective restatement
c. Reclassification of items in the financial statements
d. Change in the frequency of reporting

8. The PFRSs apply to which of the following?

a. A management's review of the entity's financial performance during the period vis-a-vis its
targets for that period contained in the entity's annual report, which also includes the entity's
financial statements.
b. Schedules, reconciliations and returns required by the Bureau of Internal Revenue (BIR)
to be filed together with the financial statements.
c. Environmental reports required by the Department of Environment and Natural Resources
(DENR) that are included in the entity's annual report.
d. Explanatory material and other information that are disclosed in the notes to the financial
statements.

9. This is the most used method of presenting a statement of financial position. It facilitates the
computation of liquidity and solvency ratios.
a. Classified presentation
b. Unclassified presentation
c. Classified as to liquidity
d. Based on liquidity
10. Which of the following best reflects the definition of nomiai operating cycle under PAS 1?
a. For a manufacturing entity, this is the usual time it takes for the entity to acquire raw
materials, process those raw materials into finished goods, and sell the finished goods.
b. For a manufacturing entity, this is the usual time it takes for the entity to acquire
raw materials, process those raw materials into finished goods, sell the finished goods on
account, and collect the receivables.
c. For a manufacturing entity, this is the usual time it takes for the entity to acquire raw
materials on account and settle the account.
d. For a manufacturing entity, this is the usual time it takes for the entity to sell finished
goods on account and coiled the receivables.

PROBLEM 3: MULTIPLE CHOICE

1. Who is responsible for the preparation and fair presentation of an entity's financial statements
in accordance with the PFRSs?
a. Accountant c. Auditor
b. Management d. Government regulatory body

2. The statement of financial position may be presented either showing current/non-current

distinction (classified) or based on liquidity (unclassified). PAS 1 encourages a(an)
C
3 Which of the following is a current asset?
a. Deferred tax asset expected to reverse within 3 months from the reporting date
b. Property, plant and equipment
c. Non-trade note receivable due in 13 months
d. Accounts receivable
4. Which of the following statements is incorrect regarding the provisions of PAS 1?
a. An entity is required to present separate sections of profit or loss and other
comprehensive income.
b. Presenting an income statement or statement of profit or loss in addition to a statement of
other comprehensive income is permitted when an entity elects to use the "two-statement"
presentation.
c. Presenting an income statement or statement of profit or loss alone without a statement of
other comprehensive income is allowed.
d. Presenting comprehensive income as a note disclosure only is prohibited.

5. When a separate statement of profit or loss (income statement) is presented,

a. it shall be displayed immediately before the statement presenting comprehensive income.
b. it shall be displayed immediately after the statement presenting comprehensive
income.
c. it shall be displayed alone. The entity may opt not to present information on
comprehensive income.
d. Any of these.

6. Which of the following is not correct when an entity opts to use the "two-statement
presentation" of income and expenses.
a. The separate income statement forms part of a complete set of financial statements and shall
be displayed immediately before the statement presenting comprehensive income.
b. The profit or loss section is not presented anymore in the
statement presenting comprehensive income.
c. The profit or loss section is required to be presented in the statement presenting
comprehensive income.
d. The separate statement presenting comprehensive income begins with the amount of
profit or loss.

7. Entity A reclassifies a gain that was previously recognized in other comprehensive income to
the current period's profit or loss. According to PAS 1, how should Entity A present the
reclassification adjustment in the other comprehensive income section of the statement of
comprehensive income?
a. as an addition c. only at net of tax
b. as a deduction d. none of these
8. Which of the following is a current liability?
a. Deferred tax liability
b. An obligation for which the entity has an unconditional right to defer.
c. A long-term obligation that becomes payable on demand because of a breach of loan
agreement but the lender agrees before the balance sheet date to provide a grace period for the
lender to rectify the breach.
d. An obligation for which the entity has a conditional right to defer.

9. According to PAS 1, items of other comprehensive income are presented according to the
following groupings
a. ordinary and extraordinary items
b. by nature and by function
c. those that are subsequently reclassified to profit or 1°s5 and those that are not
d. continuing and discontinued operations

10. When an entity changes the end of its reporting period and presents financial statements for a
period longer or shorter than one year, an entity shall disclose all of the following, except
a. the period covered by the financial statements
b. the reason for using a longer or shorter period.
c. the fact that amounts presented in the financial statements are not entirely comparable.
d. a quantification of the possible adjustments that would eliminate the effects of the
longer or shorter reporting period.

PROBLEM 4: FOR CLASSROOM DISCUSSION

Scope
1. PAS 1 applies to which of the following?
a. The preparation and presentation of general purpose financial statements.
b. The recognition and measurement of specific assets, liabilities, income and expenses.
c. The disclosure requirements for specific transactions and other events.
d. All of these.
General features
2. In 20x3, Entity A makes a retrospective application of an accounting policy that has a material
effect on the information in the statement of financial position as at the beginning of the
preceding period. Entity A wishes to provide comparative information in addition to the
minimum requirement of PAS 1, i.e., Entity A will be presenting its 20x3 financial statements
together with the 20x2 and 20x1 financial statements. In this case, the additional statement of
financial position required by PAS 1 will be dated
a. as at January 1, 20x1.
b. as at January 1, 20x2.
c. as at January 1, 20x3
d. for the period ended 20x1

3. Entity A wants to change the presentation of, and the classification of some items in, its
financial statements. Whichof the following statements is incorrect?
a. Entity A can make the change if it is required by a PFRS.
b. Entity A can make the change if the change is expected to result in reliable and more relevant
information to the users of its financial statements.
c. Entity A may be required to provide an additional balance sheet dated as at the beginning of
the preceding period.
d. Entity A can make the change only if it makes an irrevocable promise not to make
another change within the next five years.

4. The financial statements of Entity A shows line items described as "Other current assets,"
"Other noncurrent liabilities," and "Miscellaneous expenses." Which of the following is correct?
a. Entity A considers the items included in these line items as dissimilar and cannot be
included in material classes of similar items and are also individually immaterial to warrant
separate presentation.
b. Entity A considers the items included in these line items as individually material but with
dissimilar nature or function.
c. Entity A considers the items included in these line items as comprising a material class of
similar items.
d. This manner of presenting items is unacceptable under PAS 1.

Complete set of financial statements

5. According to PAS 1, a complete set of financial statements includes which of the following?
a. Income tax return
b. Directors' reports
c. Notes
d. All of these
Additional Statement of financial position
6. PAS 1 requires an entity to present an additional statement of financial position as at the
beginning of the preceding period when an entity makes any of the following, except
a. the retrospective application of an accounting policy.
b. the retrospective restatement of items in the financial statements.
c. the reclassification of items in the financial statements.
d. the prospective application of a change in accounting estimate.

Statement of financial position

7. The statement of financial position of which of the following entities does not show current
and noncurrent distinctions among assets and liabilities?
a. Banks and other financial institutions
b. Mining companies
c. Trading enterprises
d. Manufacturing firms

8. The principles of PAS 1 in relation to the classification of liabilities as current or noncurrent

favor the current classification. PAS 1 provides stricter conditions for classifying liabilities as
noncurrent. Which of the following statements best re
best reflects a valid reason foe
a. Noncurrent liabilities are usually more material in terms of size compared to current liabilities.
b. Most primary users are concerned more with an entity's current liabilities when making
economic decisions because of the shorter duration of time before they cause an outflow of
economic resources.
c. The stricter conditions for noncurrent classification address thepotential misuse of
classification in order to present favorably the entity's liquidity.
d. All of these.

Statement of profit or loss and other comprehensive income

9. Which of the following is not an acceptable method of presenting income and expenses?
a. Presenting income and expenses that affect profit or loss and those that are components
of other comprehensive
income in a single statement.
b. Presenting an income statement in addition to a statement that presents comprehensive
income.
c. Presenting an income statement alone without a statement that presents comprehensive
income.
d. All of these are acceptable methods of presentation.

10. This method of presenting expenses is more difficult to apply

but has the potential of providing more relevant information
to users. Its downside, however, is that it involves
considerable judgment and may require arbitrary allocations.
a. Nature of expense. c. Classifiedpresentation
b. Function of expense d. Based on liquidity

Notes
11. Which of the following is not a purpose of the notes?
a. to present information about the basis of preparation of the financial statements and the
specific accounting
policies
b. to disclose the information 'required by PFRSs that is not presented elsewhere in the
financial statements
c. to provide information that is not presented elsewhere in the financial statements but is
relevant to an understanding of any of the financial statements.
d. to rectify inappropriate accounting policies.

PROBLEMS
PROBLEM 1: TRUE OR FALSE
FALSE 1. Cash flows are presented in the statement of cash flows into
four activities.
TRUE 2. Non-financial institutions have the option of classifying interest income received as
either investing activities or operating activities.
FALSE 3. Cash flows relating to income and expenses are normally classified as investing
activities in the statement of cash flows.
TRUE 4. Only transactions that have affected cash and cash equivalents are included in the
statement of cash flows. Non-cash transactions are excluded and disdosed only.
FALSE 5. According to PAS 7, the indirect method of presenting cash flows relating to operating
activities shows each major class of gross cash receipts and gross cash payments.

PROBLEM 2: MULTIPLE CHOICE

1. Entity A had the following balances at December 31, 20x1:
Cash in bank P 35,000
Cash in 90-day money market account 75,000
Treasury bill, purchased 11/1/xl, maturing 1/31/x2 350,000
Treasury bill, purchased 12/1/xl,maturing 3/31/x2 400,000
How much is the cash and cash equivalents to be reported in Entity A's December 31, 20x1
statement of financial position?
a. 110,000 c. 460,000
b. 385,000 d. 860,000

2. Which of the following cash flows is presented in the operating activities section of a
statement of cash flows?
a. cash receipts from issuing shares or other equity instruments and cash payments to
redeem them
b. cash receipts from issuing notes, loans, bonds and mortgage payable and other short-term
or long-term borrowings, and their repayments
c. cash receipts from the sale of goods, rendering of services, or other forms of income
d. cash payments by a lessee for the reduction of the outstanding liability relating to a lease
3. In the statement of cash flows of a non-financial institution, interest expense paid is presented
under
a. operating activities.
b. investing activities.
c. financing activities
d. a or c

4. Which of the following is presented in the activities section of the statement of cash flows?
a. Purchase of a treasury bill three months before its maturity date.
b. Exchange differences from translating foreign currency denominated cash flows.
c. Acquisition of equipment through issuance of note payable.
d. Bank overdrafts that can be offset.

5. Entity A acquires equipment by paying a 10% down payment and issuing a note payable for
the balance. How should Entity A report the transaction in the statement of cash flows?
Down payment Note payable
a. Investing Activities None
b. Investing Activities Financing Activities
c. Financing Activities None
d. None None

PROBLEM 3: FOR CLASSROOM DISCUSSION

Cash and cash equivalents
1. Entity A had the following balances at December 31, 20x2;
Cash on hand P300,000
Cash in bank 700,000
Cash in 90-day money-market account 500,000
Treasury bill, purchased 12/1/x2, maturing 2/28/x3 1,600,000
Treasury bond, purchased 3/1/x2, maturing 2/28/x3 1,000,000
How much cash and cash equivalents is reported in Entity A's December 31, 20x2 statement of
financial position?
a. 3,800,000 c. 2,800,000
b. 1,100,000 d. 1,500,000

Presentation
2. Which of the following is included in the investing activities section of the statement of cash
flows?
a. Acquisition and sale of investments in held for trading securities.
b. Acquisition and sale of items of property, plant and equipment that are routinely
manufactured in the entity's ordinary course of business and are to be held for rentals and
reclassified to inventories when the assets cease to be rented and become held for sale.
c. Acquisition and sale of short-term investments in cash equivalents.
d. Cash inflow from repayment of loan.

3. Which of the following is included in the financing activities section of the statement of cash
flows?
a. cash payments for purchases of goods and services
b. cash receipts and cash payments in the acquisition and disposal of property, plant and
equipment, investment property, intangible assets and other noncurrent assets
c. loans to other parties and collections thereof (other than loans made by a financial institution)
d. cash receipts from issuing shares or. other equity instruments and cash payments to
redeem them

4. This method of presenting cash flows from (used in) operating activities involves adjusting
accrual basis profit or loss for the effects of changes in operating assets and liabilities and effects
of non-cash items.
a. Direct method
c. Inverse method
b. Indirect method
d. Reverse method

5. Entity A declares cash dividends in 20x1 and pays the dividends in 20x2. How should Entity
A report the dividends paid in the statement of cash flows for
20x1 20x2
a. Operating activities None
b. Financing activities None
c. None Financing Activities
d. None Operating or Financing