CONCEPTUAL FRAMEWORK OF FINANCIAL REPORTING

1 What is the objective of financial statements according to the Framewrok?

a
to prepare and present a statement of financial position, a statement of comprehensive income, a statement of cash flows, a statement of changes in equity, and notes
b to prepare and present comparable, relevant, reliable and understandable information to investors and creditors
c to prepare financial statements in accordance with all applicable Standards and Interpretation
d to provide information about the financial position, performance and changes in financial position of an entity that is useful to a wide range of users in making
economic decisions

2 The conceptual framework is intended to establish

a generally accepted accounting principles (GAAP) in financial reporting by business enterprises
b the hierarchy of sources of GAAP
c the meaning of "present fairly in accordance with GAAP"
d the objectives and concepts for use in developing standards of financial accounting and reporting

3 Which statement is incorrect concerning the conceptual framework?

a the framework applies to the financial statements of all commercial, industrial and business reporting enterprises, whether in public or private sector
b the framework is concerned with special purpose financial statements including consolidated financial statements
c the framework is not a Philippine Financial Reporting Standard (PFRS) and therefore does not define standard for any particular measurement or disclosre issue
d there is nothing in the framework that overrides any PFRS

4 The conceptual framework deals with the following except

a generally accepted accounting principles
b the definition, measurement and recognition of the elements of financial statements
c the objective of financial statements
d the qualitative characteristics which make the financial statements more useful to the users

5 Which statement is incorrect concerning the objective of financial statements?

I Financial statements provide all the information that users may need to make economic decisions since they largely portray the financial effects of past events and
do not necessarily provide nonfinancial information.
II Financial statements show the results of stewardship of management or the accountability of management for the resources entrusted to it.
a I only
b II only
c both I and II
d neither I and II

6 Which statement is incorrect concerning the concept of capital?

a a financial capital concept is adopted if the users are primarily concerned with the maintenance of nominal invested capital or purchasing power of invested capital
b a physical capital concept is adopted by most entities in preparing their financial statements
c a physical capital concept is adopted if the main concern of the users is the operating capability of the entity
d the selection of the appropriate concept of capital should be based on the needs of the users of the financial statements

7 The underlying assumptions mentions in the Framework are

a accrual basis and going concern
b entity and time period
c going concern and time period
d monetary unit and entity

8 Under this concept, the effects of transactions and other events are recognized when they occur and they are recorded in the accounting records and reported in the
financial statements of the periods to which they relate
a accrual basis
b entity
c going concern
d time period

9 Accounting for inventories by applying the concept of lower of cost or net realizable value is an example of the application of
a comparability
b consistency
c materiality
d prudence/ conservatism

10 What is the purpose of information presented in notes to the financial statements?

a to correct improper presentation in the financial statements
b to present management's responses to auditors comments
c to provide disclosures required by GAAP
d to provide recognition of amounts not included in the total of the financial statements

11 The assumption that a business enterprise will not be sold or liquidated in the near future is known as the
a conservative assumption
b economic entity assumption
c going concern assumption
d monetary unit assumption

12 The quality that makes financial information needed and worthy for the purpose it was prepared is
a completeness
b neutrality
c relevance
d timeliness

13 Which statement is incorrect concerning the capital maintenance concept?

a generally, the holding gains are treated as capital maintenance adjustment and therefore part of equity
b increases in the prices of assets held over the period are conventionally referred as holding gains and conceptually are not profits
c under the concept of financial capital maintenance, capital is defined in terms of nominal monetary units
d under the concept of physical capital maintenance, capital is defined in terms of physical productive capacity

14 In complying with the objective of completeness, an accountant must determine the amount of disclosure necessary. How much disclosure is enough?
a all information that might be of interest to an owner of a business enterprise
b information sufficient for a person without knowledge of accounting to understand the statements
c information sufficient to permit most persons coming in contact with the statements to reach decision about the financial condition of the enterprise
d information that is of sufficient importance to influence the judgment and decisions of an informed user

15 Which statement is incorrect concerning materiality?

a information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements
b materiality depends on the size of the item or error judged in the particular circumstances of its ommissions or misstatement
c materiality is a primary qualitative charateristics rather than a threshold or cut off point in determining useful information
d materiality is dependent on professional judgment because no threshold limit is defined in the framework or accounting standard

16 The branch of accounting that makes financial information about an entity accessible to the external users
a Auditing
b Financial Accounting
c Government Accounting
d Management Accounting

17 Which is not a characteristic of financial accounting and financial statements?

a financial accounting presents information needed to serve the common needs of users
b the cash basis of accounting is used
c financial statements are expressed in pesos
d financial accounting information is primarily historical in nature

18 The branch of accounting that is concerned primarily with providing information for internal users
a Tax Accounting
b Financial Accounting
c Government Accounting
d Management Accounting

19 This is the cash equivalent price that would be exchanged currently to purchase or replace equivalent goods or services
a Historical cost
b Current cost
c Net realizable value
d Present value

20 The measurement basis that is most commonly applied in practice because of its objectivity or fairness is
a Historical cost
b Current cost
c Net realizable value
d Present value