FINANCIAL ACCOUNTING AND REPORTING

Conceptual Framework
Contents
DISCUSSION QUESTIONS ......................................................................................... 3
MULTIPLE CHOICE THEORY ................................................................................. 6
Basic Concepts .......................................................................................................... 6
Purpose of Conceptual Framework............................................................................ 7
Objectives of Financial Reporting ............................................................................. 9
Underlying Assumptions ......................................................................................... 12
Recognition and Measurement ................................................................................ 13
Qualitative Charactieristics ...................................................................................... 16
Elements of Financial Statements ............................................................................ 20
Concepts of Capital.................................................................................................. 23
 Conceptual Framework
DISCUSSION QUESTIONS

1. What do you understand by Conceptual Framework for Financial Reporting?

Introduction
2. What are the basic purposes of the Conceptual Framework?
3. Explain the authoritative status of the Conceptual Framework.
4. What is the scope of the Conceptual Framework?
5. What are the classifications of users of financial information under the Conceptual
Framework?
6. Explain "primary users" of financial information and their information needs.
7. Explain "other users" of financial information and their information needs.
8. Explain the information needs of other users.

Objectives of Financial Reporting

9. Explain fully "financial reporting".
10. What is the overall objective of financial reporting?
11. Enumerate the "specific objectives" of financial reporting.
12. Explain fully "economic resources and claims".
13. Explain liquidity and solvency.
14. Explain fully changes in economic resources and claims.
15. What are the limitations of financial reporting?

Underlying Assumptions
16. What are accounting assumptions?
17. What are the underlying accounting assumptions?
18. Explain briefly the going concern assumption.

Qualitative Characteristics
19. What are the "qualitative characteristics" of financial statements?
20. Explain the qualitative characteristic of relevance.
21. Explain briefly the major ingredients of relevant information.
22. Explain "materiality" an relation to relevance.
23. When is an item material?
24. What are the factors that may be considered in determining materiality?
25. What is "faithful representation"?
26. What are the ingredients of faithful representation?
27. Explain "completeness" of financial statements and the related "standard of adequate
disclosure".
28. Explain "neutrality" of financial statements.
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 Financial Accounting & Reporting
29. Explain the characteristic of "free from error".
30. Explain the concept of "substance over form".
31. What about conservatism?
32. Explain the concept of conservatism or prudence.
33. Explain the qualitative characteristic of "understandability".
34. Explain the qualitative characteristic of "comparability".
35. What are the two kinds of comparability?
36. Explain the principle of consistency.
37. Explain the enhancing qualitative characteristic of "verifiability".
38. Explain the two kinds of verification.
39. Explain the enhancing quality of "timeliness".
40. Explain the "cost constraint" on useful information.

Elements of Financial Statements

41. What are the elements of the financial statements?
42. Define an asset.
43. Define a liability. What are the essential characteristics of a liability?
44. Define income.
45. What are the sources of income?
46. Define expense.
47. What are the components of expenses?

Recognition of the Elements of Financial Statements

48. Under the Conceptual Framework, what is the meaning of "recognition"?
49. What are the conditions that must be present for the recognition of an item that meets
the definition of an element?
50. What are the four recognition principles?
51. Explain briefly the "asset recognition principle".
52. What is the meaning of "future economic benefit"?
53. Explain briefly the "liability recognition principle".
54. Explain "present obligation" as an essential characteristic for the recognition of a
liability.
55. Explain fully the income recognition principle or realization principle.
56. Distinguish income from revenue and gain.
57. Explain briefly the "expense recognition principle".
58. Distinguish expenses and losses.
59. What do you understand by the "matching principle"?
60. Explain briefly the "cause and effect association principle".
61. Explain briefly the "systematic and rational allocation principle".
62. Explain briefly the "immediate recognition principle".
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 Conceptual Framework
63. Give examples of expenses that are recognized immediately.

Measurement of the Elements of Financial Statements

64. Explain "measurement" of the elements of financial statements.
65. Explain briefly the four measurement bases or financial attributes.
66. What is the "cost principle"?
67. How much is cost?

Concepts of Capital & Capital Maintenance

68. Explain the financial capital concept.
69. Explain the physical capital concept.

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 Financial Accounting & Reporting
MULTIPLE CHOICE THEORY

Basic Concepts
1. This is a complete, comprehensive and single document promulgated by IASB
establishing the concepts that underlie financial reporting.
a. Conceptual Framework
b. Conceptual Framework for Business Entities
c. Conceptual Framework for Financial Reporting
d. Conceptual Framework for Financial Statements

2. 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. The Conceptual Framework applies only when the Financial Reporting
Standards Council develops new or revised standards.
d. 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.

3. The Conceptual Framework is intended to establish

a. The hierarchy of sources of GAAP.
b. The meaning of "present fairly in accordance with GAAP"
c. Generally accepted accounting principles in financial reporting by entities.
d. The objectives and concepts for use in developing standards of financial
accounting and reporting.

4. The Conceptual Framework should

a. Eliminate alternative accounting principles and methods.
b. Define the basic objectives, terms and concepts of accounting.
c. Guide the PICPA in developing generally accepted auditing standards.
d. Lead to uniformity of financial statements among entities within the same
industry.

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 Conceptual Framework
Purpose of Conceptual Framework
5. What is a purpose of the Conceptual Framework?
I. To enable the accountancy profession to solve more quickly emerging practical
problems.
II. To provide a foundation from which to build more useful financial accounting
standards.
a. I only c. Both I and II
b. II only d. Neither I nor II

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

I. To assist users of financial statements in interpreting the information
contained in the financial statements.
II. To assist auditors in forming an opinion as to whether financial statements
conform with Philippine GAAP.
III. To provide information to those interested in the work of the Financial
Reporting Standards Council in the formulation of PFRS.
a. I and II only c. II and III only
b. I and III only d. I, II and III

7. Which is a basic purpose of the Conceptual Framework!

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

8. Which of the following is not a purpose of the Conceptual Framework?

a. To provide definitions of key terms and fundamental concepts.
b. To assist the International Accounting Standards Board in the standard-setting
process.
c. To assist accountants in selecting among alternative accounting and reporting
methods.
d. To provide specific guidelines for resolving situations not covered by existing
accounting standards.

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 Financial Accounting & Reporting
9. Which is not a basic purpose of the Conceptual Framework?
a. To assist preparers of financial statements in applying accounting standards.
b. To assist the Financial Reporting Standards Council in developing accounting
standards.
c. To assist the Financial Reporting Standards Council in reviewing and adopting
International Accounting Standards.
d. To assist the Board of Accountancy in promulgating rules and regulations
affecting the practice of accountancy in the Philippines.

10. Which of the following is not a purpose of the Conceptual Framework?

a. To provide definitions of key terms and fundamental concepts.
b. To assist the Financial Reporting Standards Council in the standard-setting
process.
c. To provide specific guidelines for resolving situations not covered by existing
accounting standards.
d. To assist accountants and others in selecting among alternative accounting and
reporting methods.

11. The primary focus of financial reporting has been on meeting the needs of which
of the following groups?
a. Independent CPAs
b. Managers of an entity
c. National and local taxing authorities
d. Existing and potential investors, lenders and other creditors

12. The "primary users" of financial information include

a. Existing and potential investors only
b. Existing and potential lenders and other creditors only
c. Existing and potential investors, lenders and other creditors.
d. User group, such as employees, customers, governments and their agencies,
and the public

13. The existing and potential investors

I. Are interested in information which enables them to assess the ability of the
entity to pay dividends.
II. Need information to help them determine whether they should buy or sell.
a. I only c. Both I and II
b. II only d. Neither I nor II

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 Conceptual Framework
14. Which of the following is an internal user of financial information?
a. Board of Directors c. Creditor with long-term contract
b. Bondholder d. Shareholder

15. These users are interested in information about the profitability and stability of an
entity in order to assess the ability of the entity to provide remuneration, retirement
benefits and employment opportunities.
a. Customers c. Governments and their agencies
b. Employees d. The public

16. These users are interested in information about the continuance of an entity when
they have a long-term involvement with or are dependent on the entity.
a. Customers c. Suppliers
b. Employees d. Trade unions

17. These users are interested in information in order to regulate the activities of an
entity, determine taxation policies and provide a basis for national statistics.
a. Bureau of Internal Revenue c. Governments and their agencies
b. Department of Finance d. Major organization of users

18. These users need information on trends and recent developments where an entity
makes a substantial contribution to the local economy providing employment and
using local suppliers.
a. Finance entities
b. Governments and their agencies
c. Private entities
d. The public

19. The primary focus of financial reporting has been on meeting the needs of which
of the following groups?
a. Independent CPAs
b. Managers of an entity
c. National and local taxing authorities
d. Existing and potential investors, lenders and other creditors

Objectives of Financial Reporting

20. Which of the following statements best describes the term "financial position"?
a. The net income and expenses of an entity
b. The assets, liabilities and equity of an entity
c. The net of financial assets less liabilities of an entity
d. The potential to contribute to the flow of cash and cash equivalents to the entity
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 Financial Accounting & Reporting
21. Which definition is correct relating to financial performance?
a. Gains are increases in equity from major operations.
b. Losses are all decreases in equity other than transactions with owners.
c. Revenues are inflows or other enhancements of assets or settlements of
liabilities from major operations.
d. Expenses are outflows of assets or liabilities incurred from peripheral or
incidental transactions.

22. As part of the objective of financial reporting, the phrase "assessing cash flow
prospects" is interpreted to mean
a. Cash basis accounting is preferred over accrual basis accounting.
b. All of the choices are correct regarding "assessing cash flow prospects".
c. Over the long run, trends in revenue and expenses are generally more
meaningful than trends in cash receipts and disbursements.
d. Information about the financial effects of cash receipts and cash payments is
generally considered the best indicator of an entity's present and continuing
ability to generate favorable cash flows.

23. Which one of the following is not listed as a major objective of financial reporting?
a. Financial reporting shall provide information useful in assessing cash flow
prospects.
b. Financial reporting shall provide information useful in investment, credit and
similar decisions.
c. Financial reporting shall provide information useful in evaluating
management's stewardship.
d. Financial reporting shall provide information about entity resources, claims to
those resources and changes in them.

24. Which of the following statements is not normally an objective of financial

reporting?
a. To provide information about an entity's liquidation value
b. To provide information that is useful in lending and investing decisions
c. To provide information about an entity's assets and claims against those assets
d. To provide information that is useful in assessing an entity's sources and uses
of cash

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 Conceptual Framework
25. Which of the following is not a specific objective of financial reporting?
a. Financial reporting shall provide information useful in assessing cash flow
prospects.
b. Financial reporting shall provide information useful in investment, credit and
similar decision.
c. Financial reporting shall provide information useful in evaluating stewardship
of management.
d. Financial reporting shall provide information about resources, claims against
those resources and changes in them.

26. In the Conceptual Framework for Financial Reporting, what provides the "why" of
accounting?
a. Element of financial statement
b. Objective of financial reporting
c. Measurement and recognition concept
d. Qualitative characteristic of accounting information

27. The objectives of financial reporting are based on

a. The need for conservatism
b. Reporting on management's stewardship
c. Generally accepted accounting principles
d. The needs of the users of the information

28. The overall objective of financial reporting is to provide information

a. That is useful for decision making
b. About an entity's assets, liabilities and owners' equity
c. About an entity's financial performance during a period
d. That allows owners to assess management's performance

29. Which is an objective of financial reporting?

a. To provide information that is useful to management.
b. To provide information about those investing in the entity.
c. To provide information that is useful to those making investing and credit
decisions.
d. To provide information about ways to solve internal and external conflicts
about the entity.

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30. One element of the objective of financial reporting is to provide
a. Information that will attract new investors.
b. Information about the investors in the entity.
c. Information that is useful in assessing cash flow prospects.
d. Information about the liquidation value of the resources held by the entity.

Underlying Assumptions
31. According to the Conceptual Framework, the usefulness of providing information
in financial statements is subject to the constraint of
a. Consistency c. Materiality
b. Cost-benefit d. Timeliness

32. What is the only underlying assumption mentioned in the Conceptual Framework
for Financial Reporting?
a. Accounting entity c. Monetary unit
b. Going concern d. Time period

33. The valuation of a promise to receive cash in the future at present value is valid
because of the accounting concept of
a. Entity c. Monetary unit
b. Going concern d. Time period

34. Which of the following is an application of the principle of conservatism?

a. A liability is accrued for a guarantee of the indebtedness of others.
b. An expected loss on a long-term construction-type contract is recognized in
full immediately.
c. A dollar-denominated note payable is adjusted for a peso devaluation that
occurs after the end of the reporting period.
d. A provision for a temporary decline in value of a debt security classified as
"financial asset at amortized cost" is recognized.

35. The underlying theme of the Conceptual Framework is

a. Comparability c. Timeliness
b. Decision usefulness d. Understandability

36. The overriding criterion by which accounting information can be judged is that of
a. Comparability
b. Usefulness for decision making
c. Freedom from bias
d. Timeliness
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 Conceptual Framework
Recognition and Measurement
37. The conservative approach in the measurement of financial position is best
illustrated in which of the following?
a. Recognition of a fictitious liability.
b. An intangible asset is measured at nominal amount.
c. Inventory is measured at cost or net realizable value, whichever is lower.
d. Arbitrary reduction of a property item to report a conservative asset position.

38. It is the process of incorporating or reporting in the statement of financial position

or statement of comprehensive income an item that meets the definition of an
element of financial statements.
a. Allocation c. Recognition
b. Realization d. Summarization

39. An item that meets the definition of an element shall be recognized when
I. It is probable that future economic benefits associated with the item will flow
to or from the entity.
II. The item has a cost or value that can be measured with reliability.
a. I only c. Either I or II
b. II only d. Both I and II

40. When should an expenditure be recorded as an asset rather than an expense?

a. Always c. Never
b. If the amount is material d. When future benefit exists

41. An income is recognized when

a. The future economic benefit can be measured reliably.
b. The entity obtains control of the future economic benefit.
c. It is possible that future economic benefit will flow to the entity and the
economic benefit can be measured reliably.
d. It is probable that future economic benefit will flow to the entity and the
economic benefit can be measured reliably.

42. The accounting principle of matching is best demonstrated by

a. Associating effort with accomplishment
b. Establishing an appropriation for contingency
c. Recognizing prepaid rent received as revenue
d. Not recognizing any expense unless some revenue is realized

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43. Which of the following measurement bases is currently used in financial
statements?
a. Present value
b. Settlement value and fair value
c. Present value and settlement value
d. Present value, settlement value and fair value

44. The recognition of an allowance for doubtful accounts is an application of

a. Going concern assumption c. Materiality constraint
b. Matching principle d. Revenue recognition principle

45. Which of the following principles best describes the conceptual rationale for the
method of matching depreciation with revenue?
a. Associating cause and effect
b. Immediate recognition
c. Partial recognition
d. Systematic and rational allocation

46. Which of the following is an application of the systematic and rational allocation
principle?
a. Amortization of intangible asset
b. Doubtful accounts
c. Research and development costs
d. Warranty costs

47. An expense is recognized immediately

I. When an expenditure produces no future economic benefits.
II. When cost incurred ceases to qualify for recognition as an asset in the statement
of financial position.
a. I only c. Either I or II
b. II only d. Neither I nor II

48. The writeoff of a worthless patent is an example of which of the following

principles?
a. Associating cause and effect
b. Immediate recognition
c. Objectivity
d. Systematic and rational allocation

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 Conceptual Framework
49. Which category of expenses is subject to immediate recognition in the income
statement?
a. The salary of the entity president
b. The salary of the production foreman
c. Utilities expense for the production line of a manufacturer
d. Repairs and maintenance expense incurred on production equipment of a
manufacturer

50. Some costs cannot be directly related to particular revenue but are incurred to
obtain benefits that are exhausted in the period in which costs are incurred. An
example of such cost is
a. Freight in c. Sales commissions
b. Prepaid insurance d. Sales salaries

51. One of the basic features of financial accounting is the direct measurement of
economic resources and obligations and changes in them in terms of
a. money.
b. money and sociological impact.
c. money and psychological impact.
d. money and sociological and psychological impact.

52. The allowance for doubtful accounts which appears as a deduction from accounts
receivable is an application of
a. Going concern assumption c. Materiality constraint
b. Matching principle d. Revenue recognition principle

53. The measurement bases used in financial accounting include

a. Historical cost and current cost only
b. Historical cost, current cost and present value only
c. Historical cost, current cost and realizable value only
d. Historical cost, current cost, realizable value and present value

54. Historical cost is the

a. Amount of cash paid or fair value of the consideration given at the time of
acquisition.
b. Amount of cash that could currently be obtained by selling the asset in an
orderly disposal.
c. Amount of cash that would have to be paid if the same or an equivalent asset
is acquired currently.
d. Discounted value of the future net cash inflows that the item is expected to
generate in the normal course of business.
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55. Proponents of historical costs maintain that in comparison with all other valuation
alternatives for general purpose financial reporting, statements prepared using
historical costs are more
a. Objective
b. Relevant
c. Conservative
d. Indicative of the entity's purchasing power

56. It is the amount of cash or cash equivalent that would have to be paid if the same
or an equivalent asset was acquired currently.
a. Current cost c. Present value
b. Historical cost d. Realizable value

57. Asset measurements in financial statements

a. Do not reflect output value
b. Are confined to historical cost
c. Reflect several financial attributes
d. Are confined to historical cost and current cost

58. When discussing asset valuation, valuation bases such as replacement cost, exit
value and discounted cash flow are mentioned. Which of these bases should be
considered a current value measure?
a. Replacement cost and exit value
b. Exit value and discounted cash flow
c. Replacement cost and discounted cash flow
d. Replacement cost, exit value and discounted cash flow

Qualitative Charactieristics
59. The fundamental qualitative characteristics are
a. Relevance and reliability
b. Faithful representation and materiality
c. Relevance and faithful representation
d. Relevance, faithful representation and materiality

60. Which of the following terms best describes information that influences the
economic decisions of users?
a. Faithfully represented c. Relevant
b. Prospective d. Understandable

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 Conceptual Framework
61. Accounting information is considered relevant when it
a. Is verifiable and neutral.
b. Is capable of making a difference in a decision.
c. Is understandable by reasonably informed users of accounting information.
d. Can be depended on to represent the economic conditions and events that it is
intended to represent.

62. According to the Conceptual Framework, predictive value and confirmatory value
are ingredients of
a. Comparability c. Relevance
b. Faithful representation d. Understandability

63. 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

64. What is the quality of information that gives assurance that it is reasonably free of
error and bias?
a. Faithful representation c. Relevance
b. Neutrality d. Verifiability

65. Which of the following is not a characteristic of faithful representation?

a. The financial information must have predictive value and confirmatory value.
b. The financial information must be complete within the bounds of materiality
and cost.
c. The financial information contained in the financial statements must be free
from bias.
d. The phenomena described in the financial statements and the process used to
produce the reported information must be free from error.

66. Which of the following situations violates the concept of faithful representation?
a. Financial statements were issued nine months late.
b. Data on segments having the same expected risks and growth rates are reported
to analysts estimating future profits.
c. Management reports to shareholders regularly refer to new projects
undertaken, but the financial statements never report project results.
d. Financial statements included an item of property, plant and equipment with
carrying amount increased to management estimate of market value.
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67. An ingredient of the fundamental qualitative characteristic of faithful
representation is
a. Neutrality c. Understandability
b. Timeliness d. Verifiability

68. Which of the following qualitative characteristics of financial information requires

that information shall not be biased in favor of one group of users to the detriment
of others?
a. Free from error c. Neutrality
b. Completeness d. Relevance

69. Under the Conceptual Framework, neutrality is an ingredient of

a. Relevance
b. Faithful representation
c. Both relevance and faithful representation
d. Neither relevance nor faithful representation

70. To be most useful, the financial information shall be compared with similar
information of previous periods or with information produced by other entities.
a. Comparability c. Reliability
b. Relevance d. Understandability

71. An important implication of this qualitative characteristic is that users are informed
of the accounting policies employed, changes in those policies and the effects of
such changes.
a. Comparability c. Full disclosure
b. Consistency d. Understandability

72. What is meant by comparability when discussing financial accounting

information?
a. Information is timely.
b. Information is reasonably free from error.
c. Information has predictive and confirmatory value.
d. Information is measured and reported in a similar fashion across entities.

73. Which of the following relates to both relevance and faithful representation?
a. Consistency c. Timeliness
b. Feedback value d. Verifiability

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 Conceptual Framework
74. When an entity applies the same accounting treatment to similar events from period
to period, the entity is exhibiting which of the following qualities?
a. Consistency c. Verifiability
b. Predictive value d. All of the choices are correct

75. The consistency standard requires that

a. Gains and losses should not appear in the income statement.
b. Expenses should be reported as charges against the period when incurred.
c. The effect of changes in accounting upon income should be property disclosed.
d. Accounting procedures should be adopted when the result is a consistent rate
of return.

76. The ability through consensus among measurers to ensure that information
represents what it purports to represent is an example of
a. Comparability c. Relevance
b. Confirmatory value d. Verifiability

77. The characteristic that is demonstrated when a high degree of consensus can be
secured among independent measurers using the same measurement method is
a. Neutrality c. Understandability
b. Relevance d. Verifiability

78. Which concept of accounting holds that, to the maximum extent possible, financial
statements shall be based on arm's length transactions?
a. Matching c. Revenue realization
b. Monetary unit d. Verifiability

79. 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 c. Representational faithfulness
b. Predictive value d. Timeliness

80. Allowing entities to estimate rather than physically count inventory at interim
periods is an example of a tradeoff between
a. Neutrality and consistency
b. Timeliness and comparability
c. Timeliness and verifiability
d. Verifiability and comparability

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81. For information to be useful, the linkage between the users and the decisions made
is
a. Faithful representation c. Understandability
b. Relevance d. Verifiability

82. Enhancing qualities include all of the following, except

a. Comparability c. Understandability
b. Neutrality d. Verifiability

83. Which of the following statements is incorrect in relation to the enhancing

qualitative characteristics?
a. Verifiable financial information implies consensus.
b. Financial information shall be made available to users in time to influence their
decisions.
c. Financial information must exclude complex matters in order to achieve
understandability.
d. To be most useful, the financial information shall be compared with similar
information of previous periods, or with information produced by other
entities.

Elements of Financial Statements

84. Financial statements portray the financial effects of transactions and other events
by grouping them into broad classes according to their economic characteristics.
These broad classes are termed as
a. Audit reports
b. Elements of financial statements
c. Financial reports
d. Notes to financial statements

85. The elements of financial position describe amounts of resources and claims
against resources
a. At a moment in time
b. During a period of time
c. During a period of time and at a moment in time
d. Neither during a period of time nor at a moment in time

86. The essential characteristics of an asset include all of the following, except
a. The asset is tangible.
b. The asset provides future economic benefit.
c. The cost of the asset can be measured reliably.
d. The asset is the result of past transaction or event.
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 Conceptual Framework
87. Which of the following statements is not true regarding assets?
a. An asset represents a probable future economic benefit.
b. Assets include costs that have not yet been matched with revenue.
c. An asset is obtained or controlled as a result of past or probable future event.
d. Assets reported in the statement of financial position include current and
noncurrent assets.

88. It is a present obligation of an entity arising from past events the settlement of
which is expected to result in an outflow from the entity of resources embodying
economic benefits.
a. Asset c. Expense
b. Equity d. Liability

89. Which of the following best describes the term "liability"?

a. An excess of equity over current assets
b. A present obligation arising from past event
c. Resources to meet financial commitments when due
d. The residual interest in the assets of the entity after deducting all of the
liabilities

90. For a liability to exist

a. The exact amount must be known.
b. There must, be a past transaction or event.
c. There must be an obligation to pay cash in the future.
d. The identity of the party to whom the liability is owed must be known.

91. Which is not within the definition of a liability?

a. A note payable with no specified maturity date
b. A present obligation that is estimated in amount
c. An obligation to provide goods or services in the future
d. The signing of a three-year employment contract at a fixed annual salary

92. It is the residual interest in the assets of the entity after deducting all of the
liabilities.
a. Equity c. Retained earnings
b. Income d. All of the choices match the definition

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93. It is an increase in economic benefit during the accounting period related to an
increase in asset or a decrease in liability that results in increase in equity other than
contribution from owners.
a. Asset c. Income
b. Expenses d. Liability

94. Under the Conceptual Framework, the term "income"

a. Is the same as comprehensive income.
b. Includes foreign currency translation adjustment.
c. Includes change in fair value of financial assets at fair value through other
comprehensive income.
d. Includes gain resulting from the sale of an asset to another party in an arm's
length transaction.

95. This arises in the course of ordinary regular activities of the entity and is referred
to by a variety of different names including sales, fees, interest, dividends, royalties
and rent.
a. Gain c. Profit
b. Income d. Revenue

96. Which of the following statements in relation to the term "expense" is incorrect?
a. Expense is synonymous with expenditure.
b. Entities do not incur expenses per se but they initially acquire assets.
c. All expenses and losses are expired costs but not all expired costs are expenses
or losses.
d. All expenses decrease owners' equity but not all decreases in owners' equity
are expenses.

97. A decrease in assets arising from peripheral or incidental transactions is called

a. Capital expenditure c. Expense
b. Cost d. Loss

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 Conceptual Framework
Concepts of Capital
98. Which of the following statements is true concerning the concepts of capital?
I. Under the financial capital concept, a profit is earned only if the monetary
amount of net assets at the end of the period exceeds the monetary amount of
net assets at the beginning of the period, after excluding any distributions to
and contributions from owners.
II. Under the physical capital concept, a profit is earned only if the physical
productive capacity at the end of the period exceeds the physical productive
capacity at the beginning of the period, after excluding any distributions to and
contributions from owners.
a. I only c. Both I and II
b. II only d. Neither I nor II

99. The financial capital concept requires that net assets shall be measured at
a. Current cost
b. Historical cost
c. Current cost adjusted for changes in purchasing power
d. Historical cost adjusted for changes in purchasing power

100. Which capital maintenance concept is applied respectively to currently reported net
income and comprehensive income?
a. Financial capital and financial capital
b. Financial capital and physical capital
c. Physical capital and financial capital
d. Physical capital and physical capital

***end of handouts***

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