CFAS ACTVITY 1 b.
Recognizes the legal aspects of business organizations
FINANCIAL ACCOUNTING AND REPORTING
REVISED CONCEPTUAL FRAMEWORK
1. Which statement is true about the Conceptual Framework?
a. The Conceptual Framework is not a standard.
b. The Conceptual Framework describes the concepts for
general purpose reporting.
c. In case of conflict, the requirements of IFRS prevail over the
Conceptual Framework.
d. All of these statements are true about the Conceptual
Framework.
2. The Conceptual Framework is intended to establish
a. Accounting standard in financial reporting
b. The meaning of “present fairly in accordance with GAAP”
c. The objectives and concepts for use in developing standards
of financial accounting and reporting
d. The hierarchy of sources of GAAP
3. Which is not a purpose of the Revised Conceptual
Framework?
a. To assist the IASB to develop IFRS based on consistent
concepts.
b. To assist preparers to develop consistent accounting policy
when no standard applies to a particular transaction or when
Standard allows a choice of accounting policy.
c. To assist all parties to understand and interpret the Standards.
d. To assist regulatory agencies in issuing rules and regulations
for a particular industry.
4. Which statement is not true concerning the Conceptual
Framework?
a. The Conceptual Framework should be a basis for standard
setting.
b. The Conceptual Framework should allow practical problems
to be solved more quickly.
c. The Conceptual Framework should be based on fundamental
truth derived from law.
d. The Conceptual Framework should increase users’
understanding and confidence in financial reporting
5. The objective of financial reporting
a. Is the foundation for the Conceptual Framework.
b. Includes the qualitative characteristics of useful information.
c. Is not found in the Conceptual Framework.
d. All of these are correct regarding the objective of financial
reporting.
6. The overall objective of financial reporting is to provide
information
a. That is useful for decision making.
b. About assets, liabilities and equity of an equity.
c. About financial performance during the period
d. About entity performance but not management performance.
7. Which statement is not a specific objective of financial
reporting?
a. To provide information that is useful in investment and credit
decisions.
b. To provide information about entity resources, claims against
those resources and changes in those resources.
c. To provide information on the liquidation value of an entity.
d. To provide information that is useful in assessing cash flow
prospects.
8. The assumption that an entity will not be sold or liquidated in
the near future is known as
a. Economic entity assumption
b. Monetary unit assumption
c. Time period assumption
d. Going concern assumption
9. The economic entity assumption
a. Is inapplicable to unincorporated businesses
c. Requires periodic income measurement
d. Is applicable to all forms of business organizations
10. Consolidated financial statements are prepared when a
parent-subsidiary relationship exists.
a. Economic entity assumption
b. Legal entity assumption
c. Consolidation standard
d. Neutrality
11. During the lifetime of an entity, accountants produce
financial statements at arbitrary or artificial points in time in
accordance with which basic accounting concept?
a. Objectivity
b. Time period assumption
c. Materiality
d. Economic entity
12. Inflation is ignored in accounting due to
a. Economic entity assumption
b. Going concern assumption
c. Monetary unit assumption
d. Periodicity assumption
13. What are the attributes that make information in the
financial statements useful to the readers?
a. Qualitative characteristics of financial information
b. Quantitative characteristics of financial information
c. Elements of financial statements
d. Objectives of financial reporting.
14. Fundamental qualitative characteristics of accounting
information are
a. Relevance and comparability
b. Comparability and consistency
c. Faithful representation and relevance
d. Neutrality and verifiability
15. Enhancing qualitative characteristics of accounting
information include
a. Relevance, faithful representation and materiality
b. Comparability, understandability, timeliness and verifiability
c. Faithful representation and timeliness
d. Materiality and understandability
16. Faithful representation includes
a. Predictive value and confirmatory value
b. Completeness, free from error and neutrality
c. Comparability and understandability
d. Timeliness and verifiability
17. Which is the best description of faithful representation?
a. Influence on the economic decision of users
b. Inclusion of a degree of caution
c. Freedom from material error and bias
d. Comprehensibility to users
18. The financial information is directed toward the common
needs of users and is independent of presumptions about
particular needs and desires of specific users.
a. Comparability
b. Verifiability
c. Neutrality
d. Completeness
19. Neutrality is supported by the exercise of prudence.
Prudence is the exercise of care and caution when dealing with
uncertainties in the measurement process such that
a. Assets and income are overstated
b. Liabilities and expenses are understated
c. Assets and income are not overstated and liabilities and
expenses are not understated.
d. Assets, liabilities, income and expenses are not overstated.
20. The qualitative characteristic of relevance includes
a. Predictive value and confirmatory value 30. The Conceptual Framework includes which constraint?
b. Completeness and neutrality a. Prudence
c. Comparability and understandability b. Conservatism
d. Verifiability and timeliness c. Cost
d. All of the choices are constraints in the conceptual framework
21. Accounting information is considered relevant when it
a. Can be depended on to represent the economic conditions 31. Which of the following best describes the cost-benefit
that it is intended to represent constraint?
b. Is capable of making a difference in a decision a. The benefit of the information must be greater than the cost
c. Is understandable by reasonably informed users of accounting of providing it.
information b. Financial information should be free from cost to users of the
d. Is verifiable and neutral information.
c. Cost of providing financial information is not always evident
22. Which of the following statements about materiality is not or measurable but must be considered.
correct? d. All of the choices are correct.
a. An item must make a difference or it need not be disclosed.
b. Materiality is a matter of absolute size. 32. A reporting entity
c. An item is material if omitting, misstating or obscuring it could a. Is necessarily a legal entity
reasonably be expected to influence the economic decision of b. Must be a corporate type of entity
primary users. c. Is an entity that is required or chooses to prepare financial
d. Materiality is a subquality of relevance. statements
d. A regulatory government authority
23. What is meant by comparability when discussing financial
accounting information? 33. A reporting entity
a. Information has predictive and feedback value. a. Can be a single entity
b. Information is reasonably free from error. b. Can be a portion of a single entity
c. Information is measured and reported in a similar fashion c. Can comprise more than one entity
across entities. d. All of these can be considered a reporting entity
d. Information is timely.
34. Which statement is true about financial statements of a
24. What is meant by consistency when discussing financial reporting entity?
accounting information? a. If the reporting entity comprises both the parent and its
a. Information is measured and reported in a similar fashion subsidiaries, the financial statements are referred to as
across points in time. consolidated financial statements
b. Information is timely. b. If the reporting entity is the parent alone, the financial
c. Information is measured similarly across the industry. statements are referred to as unconsolidated financial
d. Information is verifiable. statements.
c. If the reporting entity comprises two or more entities that are
25. Which statement is true in relation to the enhancing quality not linked by a parent-subsidiary relationship, the financial
of understandability? statements are referred to as combined financial statements.
a. Users have a reasonable knowledge of business and economic d. All of these statements are true about the financial
activities. statements of a reporting entity.
b. Users are expected to have significant business knowledge.
c. Financial statements shall exclude complex matters. 35. What is the new definition of an asset under the Revised
d. Financial statements shall be free from material error. Conceptual Framework?
a. A resource controlled by the entity as a result of past event
26. According to the Revised Conceptual Framework, verifiability and from which future economic benefit is expected to flow to
implies the entity.
a. Legal evidence b. A resource controlled by the entity and from which future
b. Logic economic benefit is expected to flow to the entity.
c. Consensus c. A present economic resource controlled by the entity as a
d. Legal verdict result of past event.
d. A present economic resource controlled by the entity as a
27. The ability through consensus among measures to ensure result of past event and from which future economic benefit is
that information represents what it purports to represent is an expected to flow to the entity.
example of the concept of
a. Neutrality 36. Which is not a characteristic of an asset under the Revised
b. Comparability Conceptual Framework?
c. Verifiability a. An asset is a present economic resource.
d. Understandability b. The economic resource is a right that has the potential to
produce economic benefits.
28. When an entity has started placing its quarterly financial c. The economic resource is controlled by the entity as a result
statements on its website, thereby reducing ample time to get of past event.
information to users, the qualitative concept involved is d. Future economic benefit is expected to flow to entity and
a. Comparability must be probable or certain.
b. Understandability
c. Verifiability 37. What is the new definition of liability under the Revised
d. Timeliness Conceptual Framework?
a. A present obligation of the entity arising from past event the
29. Allowing entities to estimate rather than physically count settlement of which is expected to result in an outflow of
inventory at interim periods is an example of a tradeoff between economic benefit.
a. Verifiability and comparability. b. A present obligation of the entity arising from present event.
b. Timeliness and comparability. c. A present obligation of the entity to transfer an economic
c. Timeliness and verifiability. resource as a result of past event.
d. Neutrality and timeliness. d. An obligation that the entity has practical ability to avoid.
38. Under the Revised Conceptual Framework, which of the
following criteria need not be satisfied for a liability to exist?
a. The entity has an obligation or a duty or responsibility that it
has no practical ability to avoid.
b. The obligation is to transfer an economic resource and not
the ultimate outflow of economic benefit.
c. The obligation is a present obligation that exists as a result of
a past event.
d. The settlement of the obligation is expected to result in an
outflow of economic benefit.
39. Which statement is not true about income and expenses?
a. Income is increase in asset or decrease in liability that results
in increase in equity other than that relating to contribution
from equity holders.
b. Expense is decrease in asset or increase in liability that results
in decrease in equity other than that relating to distribution to
equity holders.
c. Income and expenses are the elements that relate to financial
position.
d. Income encompasses revenue and gain.
40. It is the process of capturing for inclusion in the statement of
financial position or the statement of financial performance an
item that meets the definition of an element of the financial
statements.
a. Recognition
b. Measurement
c. Derecognition
d. Disclosure
41. Under the Revised Conceptual Framework, what is the
recognition principle?
a. It is probable that any future economic benefit associated
with the item will flow to or from the entity.
b. The item has a cost or value that can be measured with
reliability.
c. It is probable that any future economic benefit will flow to or
from the entity and the element can be measured reliably.
d. Only items that meet the definition of an asset, liability,
equity, income and expense are recognized.
42. Derecognition is the removal of a recognized asset or liability
from the statement of financial position and normally occurs
when
a. An item no longer meets the definition of an asset or a
liability
b. The entity loses control of the asset.
c. The entity no longer has a present obligation for the liability
d. Under all of these circumstances
43. Under the Revised Conceptual Framework, the
measurement bases include
a. Historical cost
b. Current value
c. Assessed value
d. Historical cost and current value
44. Current value includes
a. Fair value
b. Value in use
c. Fulfillment value
d. Fair value, value in use, fulfillment value and current cost
45. Which statement is not true about current value
measurement?
a. Fair value of an asset is the price that would be received to
sell an asset in an orderly transaction between market
participants at the measurement date.
b. Value in use is the present value of the cash flows expected to
be derived from the use and ultimate disposal of an asset.
c. Fulfillment value is the absolute amount of cash
expected for the payment of liability.
d. Current cost is the cost of an equivalent asset at reporting
date comprising the consideration paid and transaction cost.
46. The term “revenue recognition” conventionally refers to
a. The process of identifying transactions to be recorded as
revenue in an accounting period.
b. The process of measuring and relating revenue and expenses
of an entity for an accounting period.
c. The earning process which gives rise to revenue realization.
d. The process of identifying those transactions that result in an
inflow of assets from customers.
47. Which of the following is not an acceptable basis for the
recognition of expense?
a. Systematic and rational allocation
b. Cause and effect association
c. Immediate recognition
d. Cash disbursement
48. Which would be matched with current revenue other than
association of cause and effect?
a. Goodwill
b. Cost of goods sold
c. Sales commission
d. Warranty cost
49. Which is an application of systematic and allocation?
a. Doubtful accounts expense
b. Research and development cost
c. Salary of president
d. Amortization of intangible asset
50. Which category of expenses is subject to immediate
recognition principle?
a. Utilities expense for the production line of a manufacturer
b. Repairs and maintenance expense incurred on production
equipment
c. The salary of the production foreman
d. The salary of the President of the entity
CFAS ACTIVITY 02
PAS 1 – PRESENTATION OF FINANCIAL STATEMENTS
1. The major financial statements include all, except
a. Statement of financial position
b. Statement of comprehensive income
c. Statement of cash flows
d. Statement of retained earnings
2. An entity shall present
a. The statement of financial position more prominently
b. The income statement more prominently
c. The statement of cash flows more prominently
d. Each statement with equal prominence
3. When an entity changes the end of the reporting period
longer or shorter than one year, an entity shall
disclose all of the following, except
a. Period covered by the financial statements.
b. The reason for using a longer or shorter period.
c. The fact that amounts presented in the financial statements
are not entirely comparable.
d. The fact that similar entities in the geographical area in which
the entity operates have done so.
4. An entity must disclose comparative information for
a. The previous comparable period for all amounts reported.
b. The previous comparable period for all narrative and
descriptive information.
c. The previous comparable period for all amounts reported, and
for all narrative and descriptive
information when it is relevant to an understanding of the
current period’s financial statements.
d. The previous two comparable periods for all amounts
reported.
5. When the classification of items in the financial statements is
changed, the entity
a. Must not reclassify the comparative amounts
b. Can choose whether or not to reclassify
c. Must reclassify the comparative amounts unless it is
impracticable to do so.
d. Must reclassify current year amounts only.
6. In presenting a statement of financial position, an entity
a. Must make the current and noncurrent presentation.
b. Must present assets and liabilities in the order of liquidity.
c. Must choose either the current and noncurrent or the
liquidity presentation.
d. Must make the current and noncurrent presentation except
when a presentation based on liquidity provides information
that is reliable and more relevant.
7. An entity shall classify an asset as current under all of the
following conditions, except
a. The entity expects to realize, or intends to sell or consume it
within normal operating cycle.
b. The entity holds the asset primarily for the purpose of
trading.
c. The entity expects to realize the asset within twelve months
after the reporting period.
d. The asset is cash or cash equivalent restricted to settle a
liability for more than twelve months after the reporting period.
8. An entity shall classify a liability as current under all of the
following conditions, except
a. The entity expects to settle the liability within the normal
operating cycle.
b. The entity holds the liability primarily for the purpose of
trading.
c. The liability is due to be settled within twelve months after
the reporting period.
d. The entity has the right at the end of reporting period to
defer settlement of the liability for at least twelve months after
the reporting period.
9. A financial liability that is due to be settled within twelve
months after the reporting period shall be classified as
noncurrent
a. When it is refinanced on a long-term basis before the issue of
financial statements.
b. When the entity has the right at the end of the reporting
period to roll over an obligation for at least twelve months after
the and of reporting period.
c. When it is refinanced on a long-term basis after the end of
reporting period.
d. Under all of these circumstances.
10. When an entity breaches under a long-term loan agreement
on or before the end of the reporting period with the effect that
the liability becomes payable on demand, the liability is
classified as
a. Current under all circumstances
b. Noncurrent under all circumstances
c. Current if the lender agreed after the reporting period and
before the issuance of the statements not to demand payment
as a consequence of the breach.
d. Noncurrent if the lender agreed after the end of the
reporting period to provide a grace period for at least twelve
months after the reporting period.
11. The items which are reclassified to profit or loss in the
current period but were recognized in other comprehensive
income in the current or previous period are
a. Prior period errors
b. Correcting entries
c. Unusual and irregular items
d. Reclassification adjustments
12. All of the following components of OCI should be reclassified
to profit or loss, except
a. Gain and loss arising from translating the financial statements
of a foreign operation.
b. Gain and loss on remeasuring debt investment at FVOCI.
c. The effective portion of gain or loss on hedging instrument in
a cash flow hedge
d. Gain or loss on remeasuring equity investment at FVOCI.
13. What is the purpose of reporting comprehensive income?
a. To report transactions with owners
b. To report a measure of overall performance of the entity
c. To replace net income with a better measure
d. To combine income from continuing operations with
discontinued operations
14. An entity shall present an analysis of expenses using a
classification based on
a. The nature of expenses.
b. The function of expenses.
c. Either the nature of expenses or the function of expenses
within the entity, whichever provides information that is reliable
and more relevant.
d. Either the nature of expenses or the function of expenses
within the entity, whichever the entity would prefer to present.
15. What is the purpose of the notes to financial statements?
a. To provide disclosures required by IFRS.
b. To correct improper presentation in financial statements
c. To provide recognition of amounts not included in financial
statements
d. To present management response to auditor comments
16. What is the “first item” presented in the notes to financial
statements?
a. Statement of compliance with IFRS.
b. Summary of significant accounting policies
c. Supporting information for items presented in the financial
statements
d. Other disclosures, including contingent liabilities and
nonfinancial disclosures
17. The presentation of notes to financial statements in a
systematic manner
a. Is voluntary
b. Is mandatory
c. Is mandatory, as far as practicable
d. Depends on the industry
PAS 10 – EVENTS AFTER REPORTING PERIOD
18. Events after the end of the reporting period are favorable or
unfavorable events that
a. Occur between the end of the reporting period and the date
of the next annual financial statements.
b. Occur between the year-end and the date of the next interim
or annual financial statements.
c. Occur between the year-end and the date when financial
statements are authorized for issue.
d. Occur between the end of reporting period and the date of
the next interim statements.
19. Financial statements are said to be authorized for issue
when
a. The financial statements are filed with the SEC.
b. The shareholders approve the financial statements at their
annual meeting.
c. The management is required to submit the financial
statements to a supervisory body.
d. The management reviews the financial statements and
authorizes them for issue.
20. Which event after the reporting period would require
adjustment of the financial statements?
a. Loss of plant as a result of fire
b. Changes in the quoted market prices of securities held as an
investment
c. Loss on inventory resulting from major flood loss
d. Loss on settlement of lawsuit the outcome of which was
deemed uncertain at year end.
21. Which subsequent event would generally require disclosure
in the financial statements?
a. Retirement of the company president
b. Settlement of litigation when the event that gave rise to the
litigation occurred prior to the end of reporting period
c. Employees strike
d. Issue of a large amount of ordinary shares
PAS 24 RELATED PARTY DISCLOSURES
22. Related parties include all of the following, except
a. Parent, subsidiary and fellow subsidiaries
b. Associate
c. Key management personnel and close family members of
such individuals
d. Two venturers simply because they share joint control over a
joint venture
23. Close family members of an individual include all of the
following, except
a. The individual’s spouse and children
b. Children of the individual’s spouse
c. Dependents of the individual or the individual’s spouse
d. Brother or sister of the individual
24. The minimum disclosures about related party transactions
include all, except
a. The amount of the transaction
b. The amount of outstanding balance
c. Allowance for doubtful accounts related to outstanding
balance
d. The amount of similar transaction with unrelated parties
25. Related party transactions include all, except
a. Transferred goods from inventory to subsidiary
b. Sold an asset to the wife of the chief operating officer
c. Sold goods to another entity owned by daughter of the
managing director
d. Took out a huge bank loan
26. Which is not a mandated disclosure about related party
transactions?
a. Relationship between parent and subsidiaries.
b. Names of all associates that an entity has dealt with during
the year.
c. Name of the entity’s parent and if different, the ultimate
controlling party.
d. If neither the entity’s parent nor the ultimate controlling
party produces financial statements available for public use,
then the name of the next most senior parent that does so.
PAS 8 – ACCOUNTING POLICIES, ESTIMATES AND ERRORS
27. Which is the first step within the hierarchy of guidance when
selecting accounting policies?
a. Apply a standard from IFRS if it specifically relates to the
transaction
b. Apply the requirements in IFRS dealing with similar and
related issue
c. Consider the applicability of the definitions, recognition
criteria and measurement concepts in the Conceptual
Framework
d. Consider the most recent pronouncements of other standard
setting bodies
28. In the absence of an accounting standard that applies
specifically to a transaction, what is most
authoritative source in developing an accounting policy?
a. Apply the requirements in IFRS dealing with similar and
related issue.
b. The definition, recognition criteria and measurement of asset,
liability income and expense in the
Conceptual Framework.
c. Most recent pronouncement of other standard setting body.
d. Accounting literature and accepted industry practice.
29. Which is the reason why entities are permitted to change
accounting policy?
a. The change would allow the presentation of a more favorable
profit picture
b. The change would result in providing more reliable and
relevant information about financial position, financial
performance and cash flows.
c. The change is made by the internal auditor.
d. The change is required by law.
30. Which method is required for reporting a change in
accounting policy?
a. Cumulative effect approach
b. Retrospective approach
c. Prospective approach
d. Averaging approach
31. A change in accounting policy requires that the cumulative
effect of the change for prior periods be shown as an
adjustment to
a. Beginning retained earnings for the earliest period presented.
b. Net income for the period in which the change occurred.
c. Comprehensive income for the earliest period presented.
d. Shareholders’ equity for the period in which the change
occurred.
32. Which of the following is not treated as a change in
accounting policy?
a. A change from FIFO inventory valuation to average cost
b. A change from cash basis to accrual basis of accounting
c. A change from cost model to fair model in measuring
investment property
d. A change to a new IFRS requirement
33. Which is the proper time period to record the effect of a
change in accounting estimate?
a. Current period and prospectively
b. Current period and retrospectively
c. Retrospectively
d. Current period
34. When it is difficult to distinguish a change in an accounting
policy from a change in an accounting estimate, the change is
treated as
a. Change in accounting estimate with appropriate disclosure
b. Change in accounting policy
c. Correction of an error
d. Initial adoption of an accounting policy
35. What is the treatment if an entity has included in the
consolidation this year a subsidiary that was appropriately
excluded from consolidation last year?
a. An accounting change that should be reported prospectively.
b. An accounting change that should be reported retrospectively
c. A correction of an error
d. Neither an accounting change nor a correction of an error.