CFAS NOTES

CHAPTER 1

Accounting – is the “process of identifying, measuring, and communicating economic

information to permit informed judgment and decisions by users of the information” –(American
association of accountants)

Identifying – process of analyzing events and transaction to determine whether or not they will
recognized.
 Recognition – it is the process of including the effects of an accountable event in the
statement of financial position or the statement of comprehensive income through journal
entry.
 Accountable event or Economic activity – is one that affects assets, liabilities, owners’
equity, income, and expenses of an entity.

Types of events

External Users – are events that involve an entity and another external party.
 Exchange or reciprocal transfer – wherein there is a reciprocal of giving and receiving
of economic resources.
 Non-reciprocal transfer –“one way” transaction.
 External event other than transfer – an event that involves changes in the economic
resources or obligation of an entity caused by an external party or external source but
does not involve transfers of resources or obligations.

Internal Users – are events that do not involve an external party.

 Production – the process by which resources transformed into finished goods/product.
 Casualty – an unanticipated loss from disasters or similar events.

Measuring – involves assigning, normally monetary terms, to the economic transactions and
events.
 Financial statements are said to be prepared using a mixture of cost and value. Costs
include Historical cost and Current cost, while Values include the other measurement
bases.
 Financial statements are said to be mixture of facts and opinion.
- When measurement is affected by estimates, the items measured are said to be
valued by opinion.
- When measurement is unaffected by estimates, the items measures are said to be
valued by fact.

Communicating – the process of transforming economic data into useful accounting

information.

Recording – refers to the process of systematically committing into writing the identified and
measured accountable events in the journal through journal entry
Classifying – involves the groupings of similar and interrelated items into their respective
classes through posing in the ledger
Summarizing – putting together or expressing in condensed form the recorded and classified
transactions and events.
 Interpreting – the processed information involves the computation of
financial statement ratios.
The basic purpose of accounting is to provide information that is useful in making economic
decisions.

Economic entities use accounting to record economic activities, process, and disseminate
information intended to be useful in making economic decisions.

Economic entity is a separately identifiable combination of person and property that uses or
control economic resources to achieve certain goals objectives.
 Not-for-profit entity - one that carries out some socially desirable needs of
the community or its members and whose activities are not directed toward
making profit.

 Business Entity – operated primarily for profit.

Economic activities – are activities that affect the economic resources (assets), obligation
(liabilities), and consequently, the equity of an economic entity.
 Production – the process of converting economic resources into outputs of goods and
services that are intended to have greater utility than the required inputs.
 Exchange – the process of trading resources or obligation for other resources or
obligations.
 Consumption – the process of using the final output of the production process.
 Income distribution – the process of allocating rights to the use of outputs among
individuals and groups in society
 Savings – the process of setting aside rights to present consumption in exchange for
rights to future consumption.
 Investment – the process of using current inputs to increase the tock of resources
available for outputs as opposed to immediately consumable outputs.

Types of information provided by accounting

Quantitative information – expressed by numbers
Qualitative information – expressed by words
Financial information –expressed by money

The practice of accountancy requires the exercise of creative and critical thinking.
 Creative thinking – involves the use of imagination and insight to solve problems by
finding new relationship (idea) among items of information. It is most important in
identifying alternative solutions.
 Critical thinking - involves the logical analysis of issues, using inductive or deductive
reasoning to test new relationship to determine their effectiveness.
Accounting concepts refers to the principles upon which the process of accounting is based. The
accounting concepts is used interchangeably
 Accounting assumptions (accounting postulates) – are the fundamental concepts or
principles and basic notions that provide the foundation of the accounting process.
 Accounting Theory – is logical reasoning in the form of a set of broad principles that (1)
provide a general frame of reference by which accounting practice can be evaluated and
(2) guide the development of new practices and procedures. It is organized set of
concepts and related principles that explain and guide the accountancy’s action in
identifying, measuring, communicating accounting information. Accounting theory
comprises he conceptual framework and the Philippines financial reporting standards
(PFRS)
Accounting Concepts:
1. Double-entry system- each accountable event is recorded in two parts – Debit and Credit
2. Going concern assumption – the entity assumed to carry on its operations for an indefinite
period of time. Meaning, the entity does not expect to end its operation in the foreseeable
future.
The Measurement basis involving mixture of cost and value is appropriate only when
the entity is a going concern. If the entity is a liquidating concern, the appropriate
measurement basis is realization value, example, estimated selling price less estimated
costs to sell for assets and expected settlement amount for liabilities.
3. Separate entity (Accounting entity/ Business entity concept/ Entity concept) – the entity is
viewed separately from its owners. Accordingly, the personal transactions of the owners among
themselves or with other entities are not recorded in entity’s accounting report.
4. Stable monetary unit (Monetary unit assumption)
a. Assets, liabilities, equity, income and expenses are stated in terms of a common unit of
measure, which is the peso in the Philippine, and
b. The purchasing power of the pesos is regarded as table or constant and that its instability is
insignificant and therefore ignored.
 To be useful, accounting information should be stated in a common denominator. For
example, amounts in foreign currencies should be translated into pesos.
 Element in the accounting equation are stated in terms of common unit .
5. Time period (Periodicity/Accounting period) – the life of the entity is divided into series of
reporting periods. An accounting period is usually 12 months and may either be a calendar year
or a fiscal year. A calendar year period starts on January 1 and ends on December 31 of that
same year. A fiscal year period also covers 12 months but starts on a date other than January 1.
6. Materiality Concept- information is material if it commission or misstatement could influence
economic decisions. Materiality is a matter of professional judgment and is based on the size
and nature of the item being judged.
-costs that are directly related to the earnings of revenue are recognized as expenses in the
same period the related revenue is recognized.
7. Cost-benefit (Cost constraint/ Reasonable assurance) – the cost of processing and
communicating information should not exceed the benefits to be derived from it.
8. Accrual Basis of accounting – the effects of transaction and other event are recognized when
they occur (and not as cash is received or paid) and they are recorded in the accounting records
and reported in the financial statements of the periods to which they related.
Under accrual basis, income is recognized when earned rather than when cash is
collected and expenses are recognized when incurred rather when cash is paid.
9. Historical cost concept (Cost principle) – the value of an asset is determined on the basis of
acquisition cost.
This concept is not always maintained. Some PFRSs require the departure from this
concept, such as when inventories are measured at net realization value (NRV) rather
than at cost when applying the “lower of cost and NRV” measurement.
10. Concept of Articulation- All of the components of a complete set of financial statement is
interrelated. The preparation of a worksheet (and the eventual completion of the financial
statements) recognizes that financial statements are fundamentally interrelated and interact
with each. Accordingly, when users use the financial statements in making decision, they need
to use each financial statement in conjunction with other financial statements.
For example, when evaluating an entity’s ability to generate future cash flows, all the
financial statements should be used and not only the statement of cash flows.
- Receivables and payables in the statement of financial position provide information
on expected cash receipts and cash disbursements in future periods.
- Income and expenses in the statement of profit or loss and other comprehensive
income provide information on the entity’s ability to generate cash flow from its
operations.
- Information on issued and unissued shares in the statement of changes in equity
provides information on the availability of equity financing.
- Information on historical changes in cash and cash equivalents in the statement of
cash flows helps users assess future sources and uses of funds.
- The notes to financial statement provide information on the quality of earning, e.g.,
whether income or expenses are realized or unrealized or whether they are
recurring or non-curing.
11. Full disclosure principle – this principle recognizes that the nature and amount of information
included in the financial statements reflect a series of judgement trade-offs. The trade-offs strive
for:
a. Sufficient detail to disclose matter that make a difference to user, yet
b. Sufficient condensation to make information understandable, keeping in mind the costs of
preparing and using it.
12. Consistency concept- the financial statements are prepared on the basis of accounting
principles that are applied consistently rom one period to next. Changes in accounting policies
are made only when required or permitted by the PFRSs or when the change results to more
relevant and reliable information. Changes in accounting policies are disclosed in the notes.
-Consistent application of accounting principles
13. Matching (Association of cause and effect) – cost are recognized as expenses when the related
revenue is recognized.
 -costs that are directly related to the earnings of revenue are recognized ass expenses in the
same period the related revenue is recognized.
14. Entity theory – the accounting objective is geared towards proper income determination.
Proper matching of costs against revenues is the ultimate end. This theory emphasizes the
income statement and is exemplifies by the equation “Assets = Liabilities + Cash”
-proper income determination to match costs against revenue, emphasizing the income
statement
15. Proprietary Theory – the accounting objective is geared towards the proper valuation of assets.
This theory emphasizes the importance of the balance sheet and I exemplified by the equation
“Assets- Liabilities = capital “
16. Residual equity theory – this theory is applicable when there are two classes of shares issued,
i.e., ordinary and preferred. The equation is “Assets – Liabilities – Proffered Shareholders’ Equity
= Ordinary Shareholders’ Equity. “. This theory is applied in the computation of book value per
share and return on equity.
17. Fund theory – The accounting objective is neither proper income determination nor proper
valuation of assets but the custody and administration of funds. The objective is directed
towards cash flows, exemplified by the formula “Cash inflows minus cash outflows equals fund.
“ This concept is used in government accounting and fiduciary accounting.
18. Realization – The process of converting non-cash assets into cash or claims for cash. It is also the
concept that deals with revenue recognition.
For example, realization occurs when goods are sold for cash or in exchange for account
receivable or notes receivable. The goods are non-cash assets and they are covered into
cash or, in the case of the receivables, claims for cash.
19. Prudence (Conservatism) – is the use of caution when making estimates under condition of
uncertainty, such that assets or income are not overstated and liabilities or expenses are not
understated. In other word, when exercising prudence, the one which has the least effect on
equity is chosen.
However, the excuse of prudence does not allow the deliberate understatement of
assets or overstatement of liabilities in order to create hidden reserves because the
financial statement would not be faithfully represented.
An example of a hidden reserve is the “cookie jar reserved.” It is a form of
fraudulent reporting wherein during periods of high profits; liabilities are overstated
through excessive provisions of expenses or non-recognition of income. In subsequent
periods, when the entity’s financial performance is poor, the “cookie jar reserve” is
reversed to income in order to report high profits. Management engages in such fraud
because of various reason, which may include smoothing earning in order to secure
bonuses over, defer profits to the periods when they are evaluated for promotion or for
election as members of the boards of directors, or to show profits when other entities
belonging to the same industry show declining financial performance.
20. Matching concept (Direct association of costs and revenues) – costs that are directly related to
the earning of revenue are recognized as expenses in the same period the related revenue is
recognized.
 For example, the cost of inventory is initially recognized as assets and recognized as
expense (i.e., cost of sales) when the inventory is sold. Other examples include freight-
out and sales commissions; these are expensed in the period the related sales are
recognized.
21. Systematic and rational allocation – costs that are not directly related to the earning of revenue
are initially recognized as assets and recognized as expenses over the periods their economic
benefits are consumes, using some method of allocation.
For example, the cost of equipment is initially recognized as asset and subsequently
recognized as depreciation expense over the periods the equipment is used. Other
examples include amortization, expensing of prepayments and effective interest method
of allocation.
22. Immediate recognition – Costs that do not meet the definition of an assets, or cease to meet
the definition of an asset, are expensed immediately. Examples include casualty losses and
impairment losses.

Financial accounting –it is the branch of accounting that focuses on general purpose of financial
statement

-governed by the Philippine Financial Reporting Standard (PFRSs)

Financial Statement – are the structured representation of an entity’s financial position and
results of its operation.
Financial Report – includes the financial statements plus other information.

Management Accounting –Preparation of specifically tailored management reports.

- Involves the accumulation and communication of information for the
use by internal users.
- Focuses of internal users
Government Accounting – General record-keeping and preparation of financial reports for the
government and its agencies. It also includes the preparation of budget and accountability
reports.
-refers to the accounting for government and its instrumentalities.
Auditing – Expression of an opinion on the correspondence between
management assertions and established criteria.
- The most common form of such is the Independent
Auditors’s report which is attached to audited
financial statements.
- Involves the inspection of an entity’s financial
statements and business process.
- The process of evaluating the correspondence of
certain assertion with established criteria.

Tax Accounting – Preparation of tax returns

 - Providing tax advice
Cost Accounting – analyses of cost of products or services
- Systematic recording and analysis of the costs of
materials, labor, and overhead incident to the
production of goods or rendering of services.
Fiduciary Accounting – handling of accounts managed by a person entrusted
with the custody and management of property for benefit of another.
Estate Accounting – handling of accounts for fiduciaries.
Social Accounting – the process of communicating the social and
environmental effects of an entity’s economic actions to the society
Institutional Accounting – accounting for non – profit entities
Accounting systems – installation of accounting procedures for the
accumulation of financial data and designing of accounting forms to be used
in data gathering.
Accounting Research – analysis of economic event

Difference between accounting and bookkeeping

-Bookkeeping – refers to the process to recording the account of the transaction of an entity.
Bookkeeping normally ends with the preparation of the trial balance.
-Accounting – covers the whole process of identifying, recording, and communicating information to the
interested users.

R.A 9298 also known as the “Philippine Accountancy Act of 2004”

 Practice of Public Accountancy – involves the rendering of audit or accounting related services
to more than one client one a fee basis.
 Practice in Commerce and Industry –refers to employment in the private sector in a position
which involves decision making requiring professional knowledge.
 Practice in Education/Academe – involves teaching in accounting, auditing, management
advisory services, finance, business law, taxation.
 Practice in the Government – employment or appointment to a position in an accounting
professional group in the government or in a government-owned and/or controlled corporation.

1. Financial Reporting Standard Council (FPSC) – the official accounting standard setting body in
PH created under the R.A 9298
2. Philippine Interpretation Committee (PIC)- committee formed by the Accounting Standards
Council (ASC). The role of reviewing the interpretation of the International Financial Reporting
Interpretation Committee (IFRIC)
3. Board of Accountancy – is the professional regulatory board created under R.A No. 9298 to
supervise the registration.
4. Securities and Exchange Commission (SEC) – tasked with regulating
corporations, including partnerships.
5. Bureau of Internal Revenue (BIR) – tasked in collecting national taxes and
administering the provisions of the Tax Code.
 -administers the provisions of the National Internal Revenue Code.
6. Bangko Sentral ng Pilipinas (BSP) – tasked regulating banks and other
entities performing banking functions.
- Influences the selection and application of accounting
policies by banks and other entities.
7. Cooperative Development Authority (DPA) – Tasked in regulating
cooperatives.
- Influences the selection and application of accounting
policies by cooperatives
International Financial Reporting Interpretations Committee (IFRIC) – is a committee that prepares
interpretations of how specific issues should be accounted for under the application of IFRS

IFRS Advisory Council (known as the Standards Advisory Council ‘SAC’) –group of organization and
individuals with an interest in international financial reporting

Chapter 2
-Conceptual Framework prescribes the concept for general purpose financial reporting:
- assist the international accounting standards board (IASB) in developing
standards that are based on consistent concept.
- Assist preparers in developing consistent accounting policies when no
standard applies to a particular transaction or when a standard allows a
choice of accounting policy.
- assist all parties in understanding and interpreting the standards.

-Conceptual Framework provides the foundation for development of standard

- promote transparency by enhancing the international comparability and
quality of financial information
- Strengthen accountability by reducing the information gap between
providers of capital and the entity’s management.
- Contribute to economic efficiency by helping investor to identify
opportunities and risk around the world, thus improving capital allocation.
Concepts of CF
-The objective of financial reporting
-Qualitative characteristics of useful financial information
-Financial statements and the reporting entity
-The element of financial statements
-Recognition and derecognition
-Measurement
-Presentation and disclosure
-Concepts of capital and capital maintenance

Lenders refers to those who extend loans (banks)

Other creditors refers to those who extend other forms of credit ( supplier)
Financial position – information on economic resources (assets) and claims against the reporting entity
(liabilities and equity)
Changes in economic resources and claims – information on financial performance (income and
expense) and other transactions and events that lead to changes in financial position
Liquidity – refers to an entity’s ability to pay short-term obligations.
Solvency – refers to an entity’s ability to meet long-term obligations.
-Return provides an indication on how well management have efficiently and effectively used the
entity’s resources.

Qualitative characteristics of useful financial information identify the types of information that are likely
to be most useful to the primary users in making decision using an entity’s financial report.

I. Fundamental Qualitative Characteristics - these are the characteristics

that make information useful to user

i. Relevance (Predictive Value, Confirmatory Value, Materiality)

ii. Faithful Representation (Completeness, Neutrality,  Free from
error) 

II. II. Enhancing Qualitative Characteristics – support the fundamental

characteristics .

i. Comparability 
ii. Verifiability 
iii. Timeliness 
iv. Understandability 
Fundamental vs. Enhancing 
• The fundamental qualitative characteristics  are the characteristics that make  
information useful to users.  
• The enhancing qualitative characteristics  are the characteristics that
enhance the  usefulness of information 
Relevance • Information is relevant if it can affect the  decisions of users.  
• Relevant information has the following:
a. Predictive value – the information can be used  in making predictions 
b. Confirmatory value (feedback) – the information can be  used in
confirming past predictions 

Faithful representation - Faithful representation means the information provides a true, 

correct and complete depiction of what it purports to represent. 
• Faithfully represented information has the following:
a. Completeness – all information necessary for users to  understand the phenomenon being
depicted is provided.
b. Neutrality – information is selected or presented without  bias. 
c. Free from error – there are no errors in the description and in  the process by
which the information is selected and applied. 

Enhancing Qualitative Characteristics 

1. Comparability – the information helps users in  identifying similarities and differences
between  different sets of information. 
2. Verifiability – different users could reach consensus as  to what the information purports to
represent.
3. Timeliness – the information is available to users in time to be able to influence their
decisions. 
4. Understandability – users are expected to have: a. reasonable knowledge of business
activities;  and 
b. willingness to analyze the information diligently. 

Assets – are the economic resources you control that have resulted from past events and can provide
with economic benefits.
-you don’t necessarily need own economic resources to consider your assets.
RIGHTS THAT CORREPOND TO AN OBLIGATION OF ANOTHER PARTY
-right to receive cash, goods or services.
-rights to exchange economic resources with another party on favorable terms
-right to benefit from an obligation of another party to transfer an economic resource if a specified
uncertain future occurs
RIGHT THAT DO NOT CORREPOND TO AN OBLIGATION OF ANOTHER PARTY
-right over physical objective (e.g., right to use a property or tight to sell an inventory)
-right to use intellectual property

Answers:
All changes in an entity's economic resources and claims to those resources result from the entity's
financial performance. – F
The qualitative characteristics of useful information apply only to the financial information provided in
the financial statements. – F
According to IFRS Practice Statement 2 Making Materiality Judgements, cost is an important
consideration when making materially judgment. – F
When making materiality judgments, a quantitative assessment alone is not always sufficient to
conclude that an item of information is not material. – T
Materiality judgments apply only to items that are recognized but not to those that are unrecognized.- F
The more significant the qualitative factors are, the lower the quantitative thresholds will be. Thus, an
item with a zero amount can be materials in light of qualitative thresholds.- T
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. – F
The Conceptual Framework and Standards specify a uniform quantitative threshold for materiality. – F
To meet the objectives of general purpose financial reporting, a Standard sometimes contains
requirements that depart from the Conceptual Framework. – T
The Conceptual Framework is concerned with the provision of financial information to both external
users and internal users. –F
The Conceptual Framework may be revised from time to time. Revisions in the Conceptual
Framework automatically result in changes in the Standard. – F
According to the revised Conceptual Framework, the set is the right while the liability is the obligation,
rather than the ultimate inflows or outflows of economic benefit resulting from the asset or liability. – T
Legal enforceability of a right, for example ownership, is necessary for control over an economic
resource to exist. – F
According to the revised Conceptual Framework, an asset can exist even if the probability that will
provide inflows of future economic benefits is low, and even if the asset is subject to high measurement
uncertainty. – T
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. –T
The Conceptual Framework defines income and expenses in terms of changes in assets and liabilities. - T
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. –
T
Measuring an asset at historical cost will always result in the same carrying amount of the asset from
period to period. – F
According to the Conceptual Framework, amortised cost measurement relates to historical cost, rather
than current value. – T
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. – T

According to the Conceptual Framework, these are the qualitative characteristics that make information
useful to users. –FUNDEMENTAL

Information that is capable of making a difference in the decision made by users has this qualitative
characteristic. – RELEVANCE
When making materiality judgments, the overriding consideration is – THE ABILITY OF THE ITEM BEING
JUDGED TO INFLUENCE UNSERS’ DECISIONS

This qualitative characteristic is unique in the sense that it necessarily requires at least two items. –
COMPARABILITY

Which of the following enhances the comparability of information? - Consistent application of

accounting policies from period to period

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. - VERIFIABILITY

The Conceptual Framework uses the term "claims" against the reporting entity to refer to – LABILITY
AND EQUITY

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? – SUBSTANCE OVER FORM

Which of the following is not one of the aspects in the revised definition of an asset? - Probability of the
expected inflows of economic benefits from the asset

The new definition of an asset (a liability) focuses on the asset (liability) being - a present right
(obligation) that has resulted from past events and has the potential to produce (cause a transfer of)
economic benefits.

Which of the following is not an indication of an economic resource's potential to produce economic
benefits? - The resource has no use in the entity's operations and has no resale value.

Which of the following does not meet the definition of an asset? - Equipment that the entity intends,
and is very certain, to acquire in the future.

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 assets, 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
statement is correct? - Entity A's treatment for the asset is acceptable. The asset is referred to as an
"unrecognized" asset

Which of the following will most likely affect the determination of whether an asset or a liability exists?-
An unresolved dispute over a right or obligation

An increase in the carrying amount of an asset could not possibly result in - the recognition of an
expense
The Conceptual Framework is least applicable in which of the following cases? - to account for a
transaction that is specifically dealt with by a Standard

General-purpose financial statements are designed to - meet most of the common needs of most
primary users

These are users of financial information who are not in a position to require a reporting entity to
prepare reports tailored to their particular information needs.- Primary users

Which of the following is not one of the primary users listed in the Conceptual Framework? - Debtors

Which of the following would be least likely to need general purpose financial statements in making
economic decisions? – Management

Which of the following is not a factor to consider when applying the qualitative characteristic? - To be
useful, information needs only to meet one, but not necessarily all, of the qualitative characteristics.

Which of the following is an example of a qualitative factor used in making materiality judgments? - The
context of an item in relation to a current crisis in the banking and insurance industry.

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. - The return that the entity has produced from its economic resources

Which of the following statements about the concepts in the Conceptual Framework is least accurate? -
General-purpose financial reports are intended to meet equally the needs of all types of external
users.

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 - does not necessarily affect the conclusion that an asset or a
liability exists, although it may affect recognition decisions about the asset or liability.

Which of the following statements is incorrect regarding the purpose of the Conceptual Framework? -
The Conceptual Framework prescribes the concepts for both general-purpose and specific-purpose
financial reporting.

The Conceptual Framework (choose the incorrect statement) - prevails over the PFRS in cases of
conflicts.

Which of the following is excluded from the scope of the Conceptual Framework? - The components of
a complete set of financial statements and their presentation requirement.

Which of the following is incorrect regarding the objectives of general-purpose financial reporting? –
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.

Which of the following statements best explains who the reporting entity's management and
government regulators are not considered primary users under the Conceptual Framework? - economic
phenomena

Entity A deliberately overstated its liabilities from P1M to P1.2M. Which qualitative characteristic is
violated? - Faithful representation

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 –
verifiable

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 asset. What type of materiality assessment is this? -
quantitative

Which pf the following is incorrect regarding the objective of general-purpose financial statements? -
General-purpose financial statements are intended to show the value of the reporting entity .

Which of the following is least likely to be considered when determining whether an item meets the
definition of an asset? - whether it is probable (more likely than not) that the resource will produce
economic benefits

The revised definition of an asset and a liability emphasizes that - an asset is a right, and a liability is an
obligation, that has the potential to produce or cause the transfer of, economic benefits.

Which of the following is correct when determining the existence of an asset or a liability? - 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.

Control is a necessary element of an asset. Control means - the entity has the exclusive right over the
benefits of an asset, including the ability to prevent others from accessing those benefits.

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? - The resource causes more outflows of cash from the entity
than inflows.

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? - IF Entity A performs its obligation first, Entity A's
combined right and obligation change to a liability.
According to the revised Conceptual Framework, an item is recognized if - it meets the definition of a
financial statement element, and recognizing it would provide useful information

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 to faithful representation rather than
relevance. -A high level of measurement uncertainty associated with the asset

Which of the following will most likely to cause the non-recognition of an asset or liability? -Recognizing
the asset or liability would not provide relevant and faithfully represented information.

Which of the following would not result to the recognition of a liability? - Paying in advance the
purchase price of inventories for future delivery

Entity A determined that a previously recognized asset no longer meets 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? – Derecognition

Recognizing a financial statement element requires measuring it in monetary terms. Which of the
following statements is incorrect regarding measurement? - Measurement uncertainty will always
cause the non-recognition of a financial statement element.

Effective communication makes information more useful. Effective communication requires all of the
following except - using standardized descriptions, a.k.a. "boilerplate", rather than entity-specific
information

According to the revised Conceptual Framework, income and expense are classified as either -
recognized in profit or loss or in other comprehensive income

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. - Financial capital maintenance