CONCEPTUAL FRAMEWORK: ANSWER KEY
1. In order for the IFRS Foundation to carry its mission as the
standard setting body, the IASB was created. IASB stands for
International Accounting Standards Bureau. FALSE
2. PIC was formed by the FRSC to assist the FRSC in establishing
and improving the financial reporting standards of the
Philippines. TRUE
3. Certified Public Accountants are required to earn 40
Continuing Professional Development units in a span of 3
years. FALSE
4. The IFRS Advisory council provides an advisory forum in which
members can constructively contribute towards the
achievement of the IASB’s goal of developing globally
accepted high-quality accounting standards.FALSE, Accounting
Standards Advisory Forum (ASAF)
5. The Philippine Interpretations Committee (PIC) is the
successor of the Accounting Standards Council (ASC) whose
main function is to establish GAAP in the Philippines. FALSE
6. Republic Act 9298 is the law governing the practice
of Accountancy in the Philippines. TRUE
7. The monetary board is a group of capital market authorities
and provides formal link between the Trustees and public
authorities in order to enhance the public accountability of the
IFRS Foundation. FALSE, MONITORING BOARD
8. Current value measurement bases include fair value, value in
use for assets and fulfillment value for liabilities and current
cost. TRUE
9. The unit of account is the right or the group of rights, the
obligation or the group of obligations, or the group of rights
and obligations, to which recognition criteria and
measurement concepts are applied. TRUE
10. A consummated contract is a contract, or a portion of a
contract, that is equally unperformed. FALSE
11. A liability is a future obligation of the entity to transfer an
economic resource as a result of past events. FALSE
12. The general purpose financial reports are not designed to
show the value of a reporting entity but they provide
information that help estimate the value of the reporting
entity. TRUE
13. An entity cannot have a right to obtain economic benefits
from itself. TRUE
14. The potential to produce economic benefits to which an asset
pertains is the present right that contains that potential, not
the future economic benefits that the right may produce.
TRUE
15. Expenses are increases in assets, or decreases in liabilities,
that result in increases in equity, other than those relating to
contributions from holders of equity claims. FALSE
16. One way to apply a historical cost measurement basis to
financial assets and financial liabilities is to measure them at:
AMORTISED COST
17. An economic resource is considered to have potential if it is
likely that the it will produce economic benefits. FALSE
18. Not all of an entity’s rights are assets of that entity. TRUE
19. Equity pertains to present economic resource controlled by
the entity as a result of past events. FALSE
20. Generally, the older the information is the less useful it is
however, some information may continue to be timely long
after the end of a reporting period. TRUE
21. In case of conflict between the substance and form of a
transaction or economic phenomenon, the entity shall follow
the form of the transaction in order to achieve faithful
representation. FALSE
22. The measurement bases most commonly adopted by entities
in preparing their financial statement is historical cost. TRUE
23. There is an income or expense the moment there is a change
in an entity’s economic resources and claims. FALSE
24. An economic resource is a right that has the potential to
produce economic benefits. TRUE
25. Financial information is capable of making a difference in
decisions should have both predictive and confirmatory value.
FALSE
26. An entity controls an economic resource if it has the present
ability to direct the use of the economic resource and obtain
the economic benefits that may flow from it. TRUE
27. An obligation can meet the definition of a liability even if the
probability of a transfer of an economic resource is low. TRUE
28. A reporting entity can be a single entity or can comprise more
than one entity but not a portion of an entity. FALSE
29. Obligations that arise from an entity’s customary practices, if
the entity has no practical ability to act in a manner
inconsistent with those practices is referred to as a
constructive obligation. TRUE
30. Current value measurement bases include fair value, value in
use for assets and fulfillment value for liabilities and current
cost. TRUE
31. Kindly arrange the basic steps of developing an accounting
standard
I - Research Program
II - Maintenance Program
III- Standard Setting Program
IV - Agenda Consultation
ANSWER: IV - I-III- II
32. What do you call the guideline followed by IASB and IFRS
Interpretation Committee in developing an accounting
standard? DUE PROCESS HANDBOOK
33. Which of the following is not a mandatory part of a Standard?
A TABLE OF CONTENTS
34. The Conceptual Framework defines an asset as: A present
economic resource controlled by the entity as a result of past
events
35. Recognition is the process of incorporating an item in the
financial statements
CONCEPTUAL FRAMEWORK: ANSWER KEY
36. According to the IASB Conceptual Framework, the objective of
general purpose financial reporting is to provide financial
information that is useful to users
37. What does an executory contract establish to exchange
economic resources? COMBINED RIGHT AND OBLIGATION
38. The objective of general purpose financial statement is the
foundation of the Conceptual Framework, the other aspects
will flow logically from the objective. TRUE
39. The following are measurement bases of current value,
EXCEPT: HISTORICAL COST
40. Which of the following is not represented in the FRSC?
DEPARTMENT OF BUDGET AND MANAGEMENT
41. Which of the following statements is true? The IASB cannot
specify a uniform quantitative threshold for materiality or
predetermine what could be material in a particular
situation.
42. Which of the following statements concerning prudence is
true? Particular Standards may contain asymmetric
requirements if this is a consequence of decisions intended
to select the most relevant information that faithfully
represents what it purports to represent.
43. Which of the following statements concerning neutrality is
false? Neutral information means information with no
influence on behavior.
44. It refers to the use of the same methods for the same items,
either from period to period within a reporting entity or in a
single period across entities. CONSISTENCY
45. Which is not a purpose of the Conceptual Framework?
Prescribe the basis for presentation of general purpose
financial reports to ensure comparability both with the
entity’s financial reports of previous periods and with the
financial reports of other entities.
46. Which of the following statements is false? The enhancing
qualitative characteristics, either individually or as a group,
can make information useful even if that information is
irrelevant or does not provide a faithful representation of
what it purports to represent.
47. It is the exercise of caution when making judgments under
conditions of uncertainty. PRUDENCE
48. Which of the following statements is true? A range of possible
amounts and the related probabilities can be verified.
49. Based on the latest Framework, what are the fundamental
qualitative characteristics of financial information?
RELEVANCE AND FAITHFUL REPRESENTATION
50. It means having information available to decision-makers in
time to be capable of influencing their decisions. TIMELINESS
51. Which of the following statements is not true? Revisions of
the Conceptual Framework will automatically lead to
changes to the Standards.
52. Which of the following is not true? General-purpose reports
are intended to show the actual and true value of the
company in order for the decision-makers to make a sound
and economic decision.
53. Which of the following statements is true? General purpose
financial reports do not and cannot provide all of the
information that existing and potential investors, lenders
and other creditors need.
54. Which of the following statements is true? Information may
be capable of making a difference in a decision even if some
users choose not to take advantage of it or are already aware
of it from other sources.
55. It means checking the inputs to a model, formula or other
technique and recalculating the outputs using the same
methodology. INDIRECT VERIFICATION
56. Which of the following is not true? The new conceptual
framework classifies users as Internal users (e.g., president,
CEO, manager) and external users (e.g., investors, creditors,
etc.)
57. Which of the following is an enhancing qualitative
characteristic? COMPARABILITY
58. It means that different knowledgeable and independent
observers could reach consensus, although not necessarily
complete agreement, that a particular depiction is a faithful
representation. VERIFIABILITY
59. Which of the following statement is false? The free from error
requirement for financial information means perfectly
accurate in all aspects.
60. Which of the following statements is true? All given answers
are true, about comparability.
61. What are the elements of faithful representation?
COMPLETENESS, NEUTRALITY, FREEDOM FROM ERROR
62. It is the qualitative characteristic that enables users to identify
and understand similarities in, and differences among, items.
COMPARABILITY
63. Which of the following is not always needed in order for there
to be a complete depiction of a group of assets? Explanations
of significant facts about the quality and nature of the items
64. The Conceptual Framework provides the foundation for
Standards that: (choose the incorrect one). Provide all of the
information that existing and potential investors, lenders
and other creditors need and show the value of a reporting
entity.
65. It describes the objective of, and the concepts for, general
purpose financial reporting. CONCEPTUAL FRAMEWORK FOR
FINANCIAL REPORTING
ANSWER KEY: PAS 1
1. The title of PAS 1 is "Preparation and Presentation of Financial
Reports." FALSE
2. Reclassification adjustments do not arise from revaluation
surplus. TRUE
3. PAS 1 will not apply when a subsidiary prepares its separate
financial statements. FALSE
CONCEPTUAL FRAMEWORK: ANSWER KEY
4. Offsetting can be allowed when it reflects the substance of the
transaction or other event. TRUE
5. An item that is not sufficiently material to warrant a separate
presentation in the financial statements may warrant separate
presentation in the notes. TRUE
6. An entity shall present, either in the statement of changes in
equity or in the notes, the amount of dividends recognized as
distributions to owners during the period, and the related
amount per share. TRUE
7. An entity need not provide a specific disclosure required by an
IFRS if the information is not material. TRUE
8. Entities are precluded from using terminologies that are
different from the terminologies used in PAS 1. FALSE
9. Employment of inappropriate accounting policies can be
rectified by sufficient disclosure and explanation of such
policies. FALSE
10. An entity shall classify an asset as current when it expects to
realize the asset, or intends to sell or consume it, in its normal
operating cycle. TRUE
11. PAS 1 does not require the presentation of all assets and
liabilities in the order of liquidity. TRUE
12. As a general rule, offsetting an asset with a liability, and
income with an expense is not allowed by PAS 1. TRUE
13. An entity classifying expenses by function shall disclose
additional information on the nature of expenses. TRUE
14. Out of the basic financial statements, the notes to the
financial statements is presented with the least prominence.
FALSE
15. Under the natural presentation, an entity aggregates expenses
within profit or loss according to their nature and does not
reallocate them among functions within the entity. TRUE
16. When an entity decides to prepare interim financial
statements, it must comply with the structure and content
requirements of PAS 1. FALSE
17. When the entity’s normal operating cycle is not clearly
identifiable, it is assumed to be twelve months. TRUE
18. Measuring assets net of valuation allowances is offsetting.
FALSE
19. PAS 1 provides for an elaborate definition of non-current
assets and liabilities. FALSE
20. It is the functional presentation that is used when expenses
are classified as cost of sales, distribution cost, administrative
cost and other expense. TRUE
21. PFRSs apply only to financial statements, and not necessarily
to other information presented in an annual report, a
regulatory filing, or another document. TRUE
22. An entity shall not present any items of income or expense as
extraordinary items anywhere in the financial statements.
TRUE
23. An entity shall disclose comparative information in respect of
the previous period for all amounts reported in the current
period’s financial statements. TRUE
24. An entity is precluded from presenting additional line items,
headings and subtotals in the statement of comprehensive
income and the separate income statement (if presented).
FALSE
25. Since PAS 1 is designed for profit-oriented entities, it cannot
be applied to non-profit-oriented organizations or entities.
FALSE
26. Which of the following statements is true? Total
comprehensive income is the change in equity during a
period resulting from transactions and other events, other
than those changes resulting from transactions with owners
in their capacity as owners
27. The following are Other Comprehensive Income that will be
reclassified subsequently to profit or loss, except: Unrealized
gain or loss on equity investments measured at fair value
through other comprehensive income.
28. Which of the following is not a component of other
comprehensive income? Net interest cost of defined benefit
plan
29. Which of the following is not an objective of PAS 1? Sets out
the recognition, measurement and disclosure requirements
for all transactions and events
30. Which of the following statements is not true? PAS 1 applies
to the structure and content of condensed interim financial
statements prepared in accordance with PAS 34, Interim
Financial Reporting.
31. It provides narrative descriptions or disaggregation of items
presented in the statement of financial position, statement(s)
of profit or loss and other comprehensive income, statement
of changes in equity and statement of cash flows and
information about items that do not qualify for recognition in
those statements. NOTES
32. International Financial Reporting Standards (IFRSs), as referred
to in the Standards, pertain to:
1. IFRS 1 to IFRS 17
2. IAS 1 to IAS 41
3. IFRIC and SIC Interpretations
ANSWER: 1, 2 and 3
33. A complete set of financial statements includes the following
components, except: Reports and statements such as
environmental reports and value added statements
34. It is the presentation and classification of financial statement
items on a uniform basis from one accounting period to the
next. Consistency of Presentation
35. If management concludes that compliance with a requirement
in an IFRS would be so misleading that it would conflict with
the objective of financial statements set out in the Framework,
but the relevant regulatory framework prohibits departure
from the requirement, the entity shall do the following, except:
Make no changes and continue complying with the standard
36. A complete set of financial statements includes:
I. notes, comprising a summary of significant accounting
policies and other explanatory information; and
CONCEPTUAL FRAMEWORK: ANSWER KEY
II. a statement of financial position as at the beginning of the
earliest comparative period when an entity applies an
accounting policy retrospectively or makes a retrospective
restatement of items in its financial statements, or when it
reclassifies items in its financial statements. ANSWER KEY: I
AND II
37. Which of the following should be classified as noncurrent? A
liability with an acceleration clause and the entity violated a
contract provision but the lender agreed by the end of the
reporting period to provide a period of grace ending at least
twelve months after the reporting period.
38. In analyzing a company’s financial statements, which financial
statement would a potential investor primarily use to assess
the company’s liquidity and financial flexibility? BALANCE
SHEET
39. Which of the following are acceptable methods for reporting
comprehensive income under IFRS?
1 One comprehensive income statement.
 report a measure of overall enterprise performance.
2 Two statements: an income statement and a
comprehensive income statement.
 55.
3 In the statement of owner’s equity.
ANSWER: EITHER 1 OR 2
40. How should cash that is restricted for settlement of a liability
that is due 18 months from the reporting period be presented?
NONCURRENT ASSETS
41. All of the items below, except one, give rise to reclassification
adjustment. Which is the exception? Changes in revaluation
surplus
42. Which of the following is required to be disclosed regarding
the risks and uncertainties that exist? The potential impact of
estimates about values of assets and liabilities when it is
reasonably possible that the estimate will change in the near
future.
43. Which of the following should be classified as noncurrent? A
liability in which the entity expects, and has the discretion, to
refinance or roll over an obligation for at least twelve
months after the reporting period under an existing loan
facility.
44. Distribution Cost includes the following items, except:
Expenses of general executives
45. Which of the following statements is required to be disclosed
in the financial statements?
1 An entity whose financial statements comply with PFRSs
shall make an explicit and unreserved statement of such
compliance in the notes.
2 Uncertainties on the entity’s ability to continue as a going
concern when management is aware, in making its assessment,
of material uncertainties related to events or conditions that
may cast significant doubt upon the entity’s ability to continue
as a going concern.
3 An entity’s ability to continue as a going concern.
ANSWER: 1, 2 and 3
46. An entity shall classify a liability as non-current when the
entity has an unconditional right to defer settlement of the
liability for at least twelve months after the reporting period.
47. An entity shall no longer prepare financial statements on a
going concern basis if: The entity intends to liquidate
48. An entity shall classify an asset as current under the following
conditions, except: The entity holds the asset primarily for
the purpose of collecting contractual cash flows
49. Which of the following statements is false? An entity shall
prepare all its financial statements using the accrual basis of
accounting.
50. Which of the following offsetting is not allowed? Presenting
on net basis material foreign exchange gains and losses
51. Which of the statements is false? The Statements of Retained
Earnings is a required basic statement in financial reporting.
52. Which of the following is true? If the refinancing on a
long-term basis is completed on or before the end of the
reporting period, the obligation is going to be classified as
noncurrent liability.
53. Financial statements must be prepared at least ANNUALLY
54. What is the purpose of reporting comprehensive income? To
Which of the following statements is false? Measuring assets
net of valuation allowances—for example, obsolescence
allowances on inventories and doubtful debts allowances on
receivables—is an example of offsetting.
56. What must be disclosed in case management concludes that
compliance with a requirement in an IFRS would be so
misleading that it would conflict with the objective of financial
statements set out in the Framework and the relevant
regulatory framework allows a departure? (choose the
incorrect one) An explicit and unreserved statement that the
entity’s financial statements have complied with all the
requirements of the IFRSs
57. The following are components of expenses, except: PREPAID
EXPENSES
58. Out of the items enumerated below, how many should be
classified as current assets?
• Accounts payable
• Accounts Receivable
• Accrued Expenses
• Accrued interest
• Advances from customers
• Advances from customers (for goods to be delivered after 18
months)
• Advances to subsidiary
• Bank overdraft
• Bonds payable, due in 10 years
• Bonds payable, due in 6 months
• Factory Building
• Cash
• Cash dividends payable
• Cash equivalents
• Customers' deposit
• Deferred tax asset
• Deferred tax liability
• Employee income taxes withheld
• Office equipment
• Equipment held for sale
• Estimated warranty liability
• Factory supplies
• financial assets at amortized cost
• Financial assets at fair value through OCI
• Financial assets held for trading
CONCEPTUAL FRAMEWORK: ANSWER KEY
ANSWER: 7
9. BONUS
59. Out of the items enumerated below, how many should be
classified as current assets? 10. Full or maximum capacity is the production expected to be
achieved on average over a number of periods or seasons
• Accounts payable under normal circumstances, taking into account the loss
• Accounts Receivable of capacity resulting from planned maintenance. FALSE
• Accrued Expenses
• Accrued interest
11. When inventories are sold, the carrying amount of those
• Advances from customers
inventories shall be recognized as an expense (cost of sales)
• Advances from customers (for goods to be delivered after 18
months) in the period in which the related revenue is recognized.
• Advances to subsidiary TRUE
• Bank overdraft
• Bonds payable, due in 10 years 12. An entity shall use the same cost formula for all inventories
• Bonds payable, due in 6 months having a similar nature and use to the entity. TRUE
• Factory Building
• Cash 13. The amount of any write-down of inventories to net
• Cash dividends payable realizable value and all losses of inventories shall be
• Cash equivalents recognized as an expense in the period the write-down or
• Customers' deposit loss occurs. TRUE
• Deferred tax asset
• Deferred tax liability 14. The amount of any reversal of any write-down of
• Employee income taxes withheld inventories, arising from an increase in net realizable value,
• Office equipment shall be recognized as an income in the period in which the
• Equipment held for sale reversal occurs. FALSE
• Estimated warranty liability
• Factory supplies
15. The cost of inventories shall be assigned by using the
• financial assets at amortized cost
first-in, first-out (FIFO), last-in, first out (LIFO) or weighted
• Financial assets at fair value through OCI
• Financial assets held for trading average cost formula. FALSE
ANSWER: 9
16. Inventories are assets held for sale in the ordinary course
of business, in the process of production for such sale or in
the form of materials or supplies to be consumed in the
ANSWER KEY PAS 7…
production process or in the rendering of services. TRUE
1. Which of the following will form part of the cost of
17. Which of the following statements is not true? Fixed
inventory? Storage costs necessary in the production
overheads are those indirect costs of production that vary
process before a further production stage
directly, or nearly directly, with the volume of production,
such as indirect materials and indirect labor.
2. Indirect materials and indirect labour are examples of fixed
production overheads. FALSE
18. Which of the following will form part of the cost of
inventory? Normal amounts of wasted materials, labour
3. Broker-traders are those who buy or sell commodities for
or other production costs
others or on their own account. TRUE
19. PAS 2 applies to the measurement of inventories held by
4. Which is true? Net realisable value for inventories may
commodity broker-traders who measure their inventories
not equal its fair value less costs to sell.
at fair value less costs to sell. FALSE
5. Which of the following statements is not true? Variable
20. Which of the following will not form part of the cost of an
production overheads are allocated to each unit of
inventory? Recoverable purchase taxes
production on the basis of the budgeted use of the
production facilities.
21. It is the estimated selling price in the ordinary course of
business less the estimated costs of completion and the
6. The practice of writing inventories down below cost to net
estimated costs necessary to make the sale. Net realizable
realizable value is consistent with the view that assets
value
should not be carried in excess of amounts expected to be
realized from their sale or use. TRUE
22. PAS 2 applies to financial instruments, biological assets
related to agricultural activity and, agricultural produce at
7. Which of the following statements is incorrect? Loss from
the point of harvest. FALSE
inventory write-down and Gain from reversal of inventory
write-down are presented in the income statement as a
23. Which of the following statements is not true? PAS 2
separate line item or as miscellaneous income.
applies to financial instruments and biological assets
related to agricultural activity and agricultural produce at
8. This means that specific costs are attributed to identified
the point of harvest
items of inventory. Specific identification of cost
CONCEPTUAL FRAMEWORK: ANSWER KEY
24. Specific identification of costs is inappropriate and
impractical when there are large numbers of items of
inventory that are ordinarily interchangeable. TRUE
25. BONUS
26. Depreciation and maintenance of factory buildings,
equipment and right-of-use assets used in the production
process, and the cost of factory management and
administration are examples of variable production
overheads. FALSE
27. The costs of purchase of inventories comprise the purchase
price, import duties and other taxes, including those
subsequently recoverable by the entity from the taxing
authorities, and transport, handling and other costs
directly attributable to the acquisition of finished goods,
materials and services. FALSE
28. Which of the following statements is not true? Fair value is
entity-specific while net realizable value is market-based.
29. Fair value is the estimated selling price in the ordinary
course of business less the estimated costs of completion
and the estimated costs necessary to make the sale. FALSE
30. PAS 2 applies to the measurement of inventories held by
producers of agricultural and forest products, agricultural
produce after harvest. FALSE
31. Inventories are usually written down to net realizable value
item by item. TRUE
32. When a decline in the price of materials indicates that the
cost of the finished products exceeds net realizable value,
the materials are written down to net realizable value.
TRUE
33. An entity (other than a financial institution) receives
dividends from its investment in shares. How should it
disclose the dividends received in the statement of cash
flows prepared under PAS 7? Either as operating cash
inflow or as investing cash inflow
34. For IFRS purposes, cash advances and loans from bank
overdrafts should be reported on the statement of cash
flows as OPERATING ACTIVITIES
35. An entity purchases a building and the seller accepts
payment partly in equity shares and partly in debentures of
the entity. This transaction should be treated in the
statement of cash flows as follows: This does not belong in
a cash flow statement and should be disclosed only in the
notes to the financial statements.
36. How should gain on the sale of an office building owned by
the entity be presented in a statement of cash flows? As an
adjustment to the net income in the operating activities
section of the statement of cash flows prepared under the
indirect method.
37. For entities other than financial institutions, how are
'interest received' classified in the statement of cash flows?
Either operating or investing cash flow
38. How should an unrealized on foreign currency translation
be presented in a statement of cash flows? As an
adjustment to the net income in the operating activities
section of the statement of cash flows
39. For financial institutions, how are dividends received
usually classified in the statement of cash flows?
OPERATING CASH FLOW
40. For financial institutions, how are interest paid usually
classified in the statement of cash flows? OPERATING
CASH FLOW
41. Which of the following information should be disclosed in
the summary of significant accounting policies? Criteria for
determining which investments are treated as cash
equivalents.
42. For entities other than financial institutions, how are
'dividends paid' classified in the statement of cash flows?
Either operating or financing cash flow
43. Which of the following statements is false? Changes in
accounting estimates include effects of mathematical
mistakes, mistakes in applying accounting polices, ,
oversights, or misinterpretation of facts.
44. For a particular prior period, it is impracticable to apply a
change in an accounting policy retrospectively or to make a
retrospective restatement to correct an error if: (choose
the incorrect one) The effects of the retrospective
application or retrospective restatement are
determinable
45. Which of the following statements is true? Retrospective
application to a prior period is practicable when the
cumulative effect on the amounts in both the opening
and closing statements of financial position for that
period is determinable.
46. Application guidances that accompany the PFRSs are
mandatory requirements for financial reporting whether or
not they are considered as an integral part of the related
Standard. FALSE
47. It means applying a new accounting policy to transactions,
other events and conditions as if that policy had always
been applied. RETROSPECTIVE APPLICATION
48. Which of the following statements is false? Changing an
accounting policy is not permitted if it is impracticable to
apply the policy prospectively for any prior period.
49. What account is usually adjusted to retrospectively adjust a
change in accounting policy? Retained earnings
50. In using judgement to develop and apply an accounting
policy for a transaction or event where no specific standard
applies, which of the following should management give
foremost consideration? The requirements in PFRSs
dealing with similar and related issues
51. Which of the following statements is false? The correction
of a prior period error is included from profit or loss for
the period in which the error is discovered.
CONCEPTUAL FRAMEWORK: ANSWER KEY
52. They are the specific principles, bases, conventions, rules
and practices applied by an entity in preparing and
presenting financial statements. Accounting policies
53. When a change in accounting policy is applied
retrospectively, the entity shall adjust the ______________
balance of each affected component of _______________
for the earliest prior period presented and the other
comparative amounts disclosed for each prior period
presented as if the new accounting policy had always been
applied. OPENING, EQUITY
54. Which of the following statements is false? It is
appropriate to make, or leave uncorrected, departures
from PFRSs that are immaterial to achieve a particular
presentation of an entity’s financial position, financial
performance or cash flows.
55. It is an adjustment of the carrying amount of an asset or a
liability, or the amount of the periodic consumption of an
asset, that results from the assessment of the present
status of, and expected future benefits and obligations
associated with, assets and liabilities. Change in
accounting estimate
ANSWER KEY PFRS 5…
Any gain or loss on the remeasurement of a non-current
asset (or disposal group) classified as held for sale that does
not meet the definition of a discontinued operation shall be
included in profit or loss from continuing operations. True
Which of the following statements is false in relation to PFRS
5? The entity shall provide, in detail, the total revenue, cost
of sales, and other income statement items of a
discontinued operation in the Statement of Comprehensive
Income
The liabilities of a disposal group classified as held for sale
shall be presented separately from other liabilities in the
statement of financial position. True
The assets and liabilities of a disposal group classified as held
for sale shall be offset and presented as a single amount.
False
When shall an entity classify a non-current asset as held for
sale in accordance with PFRS 5? When the carrying amount
of the non-current asset will be recovered principally
through sale transaction rather than through continuing
use.
Reclassifying assets from held for sale to held for distribution
shall change the date of classification as the reckoning point
of the one-year period. False
Which of the following statements is false? Costs to
distribute are the incremental costs directly attributable to
the distribution, including finance costs and income tax
expense.
Which of the following is not true regarding discontinued
operation? A component of an entity which qualifies to the
10% quantitative thresholds.
Where shall an equipment classified as held for distribution
to owners be presented? As part of the balance sheet as
current assets.
An entity shall present a non-current asset classified as held
for sale and the assets of a disposal group classified as held
for sale separately from other assets in the statement of
financial position. True
Which of the following choices best describes the following
statements? Only one of the statements is true
Which of the following statements is false? An entity shall
reclassify or re-present amounts presented for non-current
assets or for the assets and liabilities of disposal groups
classified as held for sale in the statements of financial
position for prior periods to reflect the classification in the
statement of financial position for the latest period
presented.
At what amount will an entity record the non-current asset
held for sale? Lower of carrying amount and fair value less
costs to sell
Which of the following is not one of the indications that the
sale is highly probable? The sale must be completed within
one year from classification
An unconditional government grant related to a biological
asset measured at its fair value less costs to sell shall be
recognized in profit or loss when, and only when, the
government grant is already received. False
Which of the following statements is not true? Biological
transformation is the detachment of produce from a
biological asset or cessation of a biological asset’s life
processes.
Biological transformation comprises the processes of growth,
degeneration, production, and procreation that cause
qualitative or quantitative changes in a biological asset. True
There is a conclusive presumption that fair value can be
measured reliably for a biological asset at initial recognition.
False
Which of the following statements is/are true? At least
two of the other statements are true.
Harvest is the management by an entity of the biological
transformation and harvest of biological assets for sale or for
conversion into agricultural produce or into additional
biological assets. False
An entity shall disclose the aggregate gain or loss arising
during the current period on initial recognition of biological
assets and agricultural produce and from the change in fair
value less costs to sell of biological assets. True
CONCEPTUAL FRAMEWORK: ANSWER KEY
A biological asset shall be measured on initial recognition and
at the end of each reporting period at its fair value less costs
to sell, except for the case where the fair value cannot be
measured reliably. True
A loss may arise on initial recognition of a biological asset,
because costs to sell are deducted in determining fair value
less costs to sell of a biological asset. True
Agricultural produce is the harvested produce of the entity’s
biological assets. True
A gain or loss may arise on initial recognition of agricultural
produce as a result of harvesting. True
A gain or loss arising on initial recognition of a biological asset
at fair value less costs to sell and from a change in fair value
less costs to sell of a biological asset shall be included in
other comprehensive income for the period in which it arises.
False
Agricultural produce harvested from an entity’s biological
assets shall be measured at its fair value less costs to sell at
the point of sale. False
An entity with joint control of, or significant influence over,
an investee shall account for its investment in an associate or
a joint venture using the equity method. True
Significant influence is the power to control or joint control of
the financial and operating policy decision of the investee.
False
After the entity’s interest is reduced to zero (after
recognizing losses), additional losses are provided for and a
liability is recognized in all circumstances. False
If an entity holds, directly or indirectly, 20% or more of the
voting power of the investee, it is presumed that the entity
has no significant influence, unless it can be clearly
demonstrated that this is not the case. False
When an entity holds between 20% and 50% of the voting
power of an investee, which statement is true? The investor
should use the equity method unless circumstances indicate
that it is unable to exercise significant influence over the
investee.
Which statement is true concerning significant influence? All
of the other statements are true about significance
influence.
When the end of the reporting period of the entity is
different from that of the associate or joint venture, the
associate or joint venture prepares, for the use of the entity,
financial statements as of the same date as the financial
statements of the entity unless it is impracticable to do so.
True
The equity method is a method of accounting whereby the
investment is initially recognized at fair value and adjusted
thereafter for the post-acquisition change in the investor’s
share of the investee’s net assets. False
One evidence of the existence of significant influence is a
representation on the board of directors or equivalent
governing body of the investee. True
On acquisition of the investment, any difference between the
cost of the investment and the entity’s share of the net fair
value of the investee’s identifiable assets and liabilities is
accounted for as goodwill or income. True
When an investor uses the equity method to account for
investment in ordinary shares, cash dividends received by the
investor from the investee shall be recorded as. A deduction
from the investment account
If an investment in an associate becomes an investment in a
joint venture or an investment in a joint venture becomes an
investment in an associate, the entity continues to apply the
equity method and does not remeasure the retained interest.
True
An entity shall apply PAS 28 to an investment, or a portion of
an investment, in an associate or a joint venture that meets
the criteria to be classified as held for sale. False
If the associate becomes a subsidiary PAS 28 still applies.
False
If the associate or joint venture that was reduced to zero
subsequently reports profits, the entity resumes recognizing
its share of the profits only after its share of the profits
equals the share of losses not recognized. True
Gains and losses resulting from ‘upstream’ and ‘downstream’
transactions between an entity and its associate or joint
venture are recognized in the entity’s financial statements
only to the extent of unrelated investors’ interests in the
associate or joint venture. True
An entity loses significant influence over an investee when it
loses the power to participate in the financial and operating
policy decisions of that investee. True
It is an entity over which the investor has significant influence.
Associate
After the disposal takes place, an entity shall account for any
retained interest in the associate or joint venture in
accordance with PFRS 9 unless the retained interest
continues to be an associate or a joint venture, in which case
the entity uses the equity method. True
The difference between the end of the reporting period of
the associate or joint venture and that of the entity shall be
no more than 
three months. True
CONCEPTUAL FRAMEWORK: ANSWER KEY
An entity shall discontinue the use of the equity method from
the date when its investment ceases to be an associate or a
joint venture. True
A sale of equipment from a parent to its subsidiary is an
example of an upstream transaction. False
Which of the following is not necessarily a related party? A
major supplier of an entity
Generally, intragroup related party transactions and
outstanding balances are eliminated in the preparation of
consolidated financial statements of the group. True
Which of the following are related parties? The entity and
the reporting entity are members of the same group
A person or a close member of that person's family is related
to a reporting entity if that person: (choose the incorrect
one). Is the only supplier of the reporting entity
Related party transactions and outstanding balances with
other entities in a group are not disclosed in an entity’s
financial statements. False
Disclosure of transactions between related parties is only
required if the transaction between the parties are not at
arms-length. False
An associate’s subsidiary and the investor that has significant
influence over the associate are related to each other. True
A person or a close member of that person’s family is related
to reporting entity if that person has less than significant
influence of the reporting entity. False
The profit or loss and financial position of an entity may be
affected by a related party relationship even if related party
transactions do not occur. True
Close members of the family of a person includes that
person’s children and spouse or domestic partner. True
A related party transaction is a transfer of resources, services
or obligations between a reporting entity and a related party,
regardless of whether a price is charged. True
Items of a similar nature may be disclosed in aggregate
except when separate disclosure is necessary for an
understanding of the effects of related party transactions on
the financial statements of the entity. True
Amounts incurred by the entity for the provision of key
management personnel services that are provided by a
separate management entity shall be disclosed. True
Relationships between a parent and its subsidiaries shall be
disclosed only if there have been transactions between them.
False
The following are among the minimum disclosures required if
an entity has had related party transactions during the
periods covered by the financial statements, except: the
frequency of transactions between the related parties
A reporting entity is not exempt from the disclosure
requirements in relation to related party transactions and
outstanding balances with a government that has control,
joint control or a significant influence, over the reporting
entity. False
A transfer of resources, services, or obligations between a
reporting entity and a related party is a related party
transaction only if there is no price charged or it is less than
the FMV. False
Rank-and-file employees are those persons having authority
and responsibility for planning, directing and controlling the
activities of the entity, directly or indirectly, including any
director of that entity. False
A joint operator shall recognize its interest in a joint
operation as an investment and shall account for that
investment using the equity method. False
In a joint arrangement, a single party can control the
arrangement on its own. False
An arrangement can be a joint arrangement even though not
all of its parties have joint control of the arrangement. True
A joint venture can either be a joint operation or a joint
arrangement. False
The phrase "party to a joint arrangement" is limited to those
that have joint control over the joint arrangement. False
A subsidiary is a separately identifiable financial structure,
including separate legal entities or entities recognized by
statute, regardless of whether those entities have a legal
personality. False
A joint venture is a joint arrangement whereby the parties
that have joint control of the arrangement have rights to the
net assets of the arrangement. True
Joint operations and joint ventures can coexist when the
parties undertake different activities that form part of the
same framework agreement. True
A joint operation is a joint arrangement whereby the parties
that have joint control of the arrangement have rights to the
assets, and obligations for the liabilities, relating to the
arrangement. True
Joint control is the contractually agreed sharing of control of
an arrangement, which exists only when decisions about the
relevant activities require the unanimous consent of the
parties sharing control. True
CONCEPTUAL FRAMEWORK: ANSWER KEY