PRELIM EXAMINATION

(CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS) – SET A

Name: _____________________________________________ Year/Section: _____________ Date: ______________

Multiple Choice: Read each questions carefully. Choose the best answer from the choices. Shade the letter of your answer. No
erasures.

A B C D 1. Read the following:

I. According to revised Conceptual Framework, the asset is the right while the liability is the obligation, rather
than the ultimate inflows and outflows of economic benefits resulting from the asset or liability.
II. Measuring an asset at historical cost will result in the same carrying amount of the asset from period to period,
unless updated.
III. The conceptual Framework uses the term “claims” against the Reporting entity for Equity only.
A. only I is true B. Only I and II are true C. Only III are true D. All are true
A B C D 2. Read the following:
I. Historical cost does not reflect changes in value, but is updated overtime.
II. Physical possession is always necessary for control to exist
III. Offsetting is always appropriate because it combines dissimilar items
A. only I is true B. Only II is true C. Only III are true D. All are true
A B C D 3. The cost of inventory is recognized as expense
A. Immediately upon purchase. B. using the matching concept.
C. by systematic allocation. D. any of these as a matter of accounting policy choice
A B C D
4. Which of the following is incorrect?
A. Fair value is the price that would be received to sell an asset or paid to transfer a liability, in an orderly transaction
between market participants at the measurement date.
B. Fair value is adjusted for the transaction cost
C. Fair Value is not an entity-specific measurement
D. Fair Value can be measured directly by observing prices in an active market or indirectly using measurement
techniques.
A B C D 5. It is a contract that is equally unperformed – neither party has fulfilled any of its obligations, or both parties have
partially fulfilled their obligations to an equal extent
A. Employment Contract B. Executed Contract C. Executory Contract D. None of the choices
A B C D 6. Which of the statement in relation to income is true?
A. Income encompasses both Revenue and Gain B. Revenue encompasses both Income and Gain
C. Gain encompasses both Income and Revenue D. Income encompasses Revenue only
A B C D 7. The elements directly related to the measurement of financial position are:
A. Asset, Liability, Equity B. Asset and Liability
C. Equity Asset, Liability, Equity, Income and Expense D. Income and Expense
A B C D 8. Recognition of an element is appropriate when information results in:
A. Relevance B. Faithful representation
C. Both Relevance and Faithful representation D. Neither Relevance and Faithful Representation
A B C D 9. The measurement bases described under the Conceptual Framework are least applicable to the measurement of
A. assets. B. liabilities. C. equity. D. income.
A B C D 10. The elements directly related to the measurement of financial performance are:
A. Asset, Liability, Equity
B. Income, Expense, Equity
C. Equity Asset, Liability, Equity, Income and Expense
D. Income and Expense
A B C D 11. It is the process of including in the statement of financial position or the statement of financial performance an item that
meets the definition of one of the financial statement elements
A. Recognition B. Measurement C. Presentation and Disclosure D. Derecognition
A B C D 12. Current Value includes:
A. Fair Value, Value in Use and Fulfilment Value B. Value in Use and Fulfilment Value

C. Fair Value, Value in Use and Fulfilment Value, Current Cost D. Fair Value and Present Value
A B C D 13. The revised Conceptual Framework defines an asset as
A. a resource controlled by the entity as a result of past events and from which future economic benefits are expected
to flow to the entity.
B. a present economic resource controlled by the entity as a result of past events. An economic resource is a right that
has the potential to produce economic benefits.
C. a physical object that can produce economic benefits for the entity.
D. All of these.
A B C D 14. Which of the following is most likely to result in the recognition of a liability?
A. Customers become entitled to rebates for their past purchases.
B. Intention to acquire inventories in a future period.
C. Entering into a purchase contract for future delivery.
D. Agreeing on an irrevocable future commitment that is not burdensome at present.
A B C D 15. The Conceptual Framework uses the term “economic resources” to refer to
A. assets. B. equity C. liabilities. D. income.
A B C D 16. It is the sorting of assets, liabilities, equity, income and expenses with similar characteristics
A. Summarization B. Classification C. Offsetting D. Interpretation
A B C D 17. Under this concept, Capital is regarded as the entity’s productive capacity e.g., units of output per day
A. Financial Concept of Capital B. Physical Concept of Capital
 C. Financial Capital Maintenance D. Physical Capital of Maintenance
A B C D 18. Which of the following is not an indication of an economic resource’s potential to produce economic benefits for the
entity?
A. The resource cannot be used in the entity’s operations but has a resale value.
B. The resource has no use to the entity but it can be exchanged for another resource with another party.
C. The entity does not intend to sell or use the resource but instead distribute it to the owners as dividends.
D. The economic benefits from the resource were already consumed by the entity.
A B C D 19. These are “decreases in assets, or increases in liabilities that result in decrease in equity, other than those relating to
distributions to holders of equity claims.”
A. Asset B. Gains C. Expense D. Income
A B C D 20. It occurs when the item no longer meet the definition of an asset or liability, such as when the entity loses control of all
or part of the asset, or no longer has a present obligation for all or part of the liability.
A. Recognition B. Measurement C. Presentation and Disclosure D. Derecognition
A B C D 21. It is the residual interest in the assets of the entity after deducting all its liabilities
A. Equity B. Asset C. Income D. Liability
A B C D 22. Which of the following correctly reflects the Conceptual Framework definitions of income and expenses?
Income Expenses
A. Increase in assets Increase in liabilities
B. Decrease in assets Decrease in liabilities
C. Owner contributions Owner distributions
D. Decrease in equity Increase in equity
A B C D 23. It is the “right or 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.”
A. Unit of Account B. Executory Contract C. Transfer D. Account
A B C D 24. Which of the following may result to an expense?
A. Increase in asset B. Decrease in liability
C. Increase in liability D. Distribution to holders of equity claims
A B C D 25. An entity sold its office-use vehicle for P200,00.00. The said vehicle has a carrying amount of P 250,000.00, What
should be recognized by the entity from the transaction?
A. Gain B. Revenue C. Expense D. Loss
A B C D 26. It arises in the course of the ordinary activities of an entity and is referred to in a variety of names including sales, fees,
interests, dividends, royalties, rent.
A. Income B. Gains C. Revenue D. Asset
A B C D 27. This measure provides monetary information about the Asset or Liability and related Income and Expense, using
information derived in part, from the price of the transaction or other event that gave rise to them.
A. Historical Cost B. Fair Value C. Value in Use D. Current Cost
A B C D 28. Which of the following is true?
A. Historical Cost of an Asset is the consideration paid to acquire the asset minus the transaction cost
B. Historical Cost of a Liability is the consideration received to incur the liability minus the transaction cost
C. Historical cost is an exit price
D. All are false
A B C D 29. Which of the following is most likely to result in the recognition of a liability?
A. Customers become entitled to rebates for their past purchases.
B. Intention to acquire inventories in a future period.
C. Entering into a purchase contract for future delivery.
D. Agreeing on an irrevocable future commitment that is not burdensome at present.
A B C D 30. Identify which of the following statements is correct?
A. Under Financial Concept of Capital, capital is regarded as the invested money or invested purchasing power.
Capital is synonymous with equity, net assets, or net worth
B. Under Physical Concept of Capital, capital is regarded as the entity’s productive capacity
C. Capital Maintenance Adjustments is the revaluation or restatement of assets and liabilities results in increases or
decreases in equity
D. All are correct
A B C D 31. Which of the following is correct?
I. According to the revised Conceptual Framework, an asset can exist even if the probability that it will provide
inflows of future economic benefits is low, and even if the asset is subject to high measurement uncertainty
II. Only items that meet the definition of a financial statement elements are recognized and if recognizing them will
also result in relevant and faithfully represented information
III. According to the Conceptual Framework, Relevance and Comparability are fundamental qualitative
characteristics that make information useful to users.
A. I and II only B. II and III only C. All are True D. None is true
A B C D 32. According to the revised Conceptual Framework, an item is recognized if
A. it meets the definition of an asset, liability, equity, income or expense.
B. recognizing it would provide useful information.
C. it is probable that the item will result to an inflow or outflow of economic benefits and its cost can be measured
reliably.
D. a and b
A B C D 33. It the present value of cash flows, or other economic benefits, that an entity expects to derive from the use of an asset
and from its ultimate disposal
A. Fair Value B. Value in Use C. Fulfilment Value D. Current Cost
A B C D 34. It is a duty or responsibility that an entity has no practical ability to avoid.
A. Expense B. Obligation C. Asset D. Right
A B C D 35. Normally, revenue is recognized
A. When the customer order is received B. When the customer order is accompanied by a check
 C. Only if the transaction will create an accounts receivable D. When the title of the goods is transferred to
A B C D buyer
36. The term recognized is synonymous with the term
A. Recorded B. Realized C. Matched D. Allocated
A B C D 37. The element that is related to the measurement of an entity’s financial performance is
A. income. B. expenses. C. a and b D. neither a nor b
A B C D 38. Which of the following is correct?
I. Carrying Amount refers to the amount at which an asset, liability or equity is recognized in the statement of
financial position.
II. Measurement is the process of quantifying, in monetary terms, an element recognized in financial statement
III. Losses are other expenses that may or may not arise in the course of the ordinary activities of the entity
A. I and II only B. II and III only C. All are true D. None is true
A B C D 39. Effective communication makes information more useful. Effective communication requires
A. Focusing on presentation and disclosure objectives and principles rather than on rules.
B. Classifying information by grouping similar items and separating dissimilar items.
C. Aggregating information in a manner that it is not obscured either by excessive detail or by excessive
summarization
D. All of the above
A B C D 40. Information on the utilization of economic resources is most useful when assessing an entity’s
A. management stewardship.
B. liquidity and solvency.
C. financial position and financial performance.
D. financial strengths and weaknesses, including the entity’s needs for additional financing
A B C D 41. Which of the following is incorrect?
A. Classification refers to the sorting of assets, liabilities, equity, income or expenses with similar nature, function,
and measurement basis for presentation and disclosure purposes
B. Aggregation is the adding together of assets, liabilities, equity, income, or expenses that have shared characteristics
and are included in the same classification.
C. Offsetting of Accounts are usually prohibited
D. All are correct
A B C D 42. It is increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to
contributions from holders of equity claims.
A. Asset B. Liability C. Income D. Expense
A B C D 43. Which of the following statements is incorrect?
A. Value in use is the present value of cash flows, or other economic benefits, that an entity expects to derive from the
use of an asset and from its ultimate acquisition
B. Fulfilment Value is the present value of the cash, or other economic resources, that an entity expects to be obliged
to transfer as it fulfils a liability.
C. Both Value in use and fulfilment value reflect entity-specific assumptions rather than assumptions by market
participants
D. Both Value in Use and Fulfilment value are considered exit price
A B C D 44. An obligation to transfer an economic resource may be an obligation to:
A. Pay cash, deliver goods, or render services
B. Exchange assets with another party on unfavorable terms
C. Transfer the assets if a specified uncertain future event occurs
D. All of the above
A B C D 45. Under this concept, profit is earned if the net assets at the end of the period exceeds the net assets at the beginning of the
period, after excluding any distributions to, and contributions from, owners during the period.
A. Financial Concept of Capital B. Physical Concept of Capital
C. Financial Capital Maintenance D. Physical Capital of Maintenance
A B C D 46. Under this concept, profit is earned only if the entity’s productive capacity at the end of the period exceeds the
productive capacity at the beginning of the period, after excluding any distributions to, and contributions from, owners
during the period
A. Financial Concept of Capital B. Physical Concept of Capital
C. Financial Capital Maintenance D. Physical Capital Maintenance
A B C D 47. Which of the following is incorrect?
A. Current cost of an asset is the cost of an equivalent asset at the measurement date, comprising the consideration
that would be paid at the measurement date plus the transaction costs that would be incurred at that date
B. Current cost of a liability is the consideration that would be received for an equivalent liability at the measurement
date minus the transaction costs that would be incurred at that date
C. Current cost is an entry price
D. Current cost and historical cost reflects conditions at the measurement date.

A B C D 48. Which of the following is incorrect?

I. An entity cannot have a right to obtain economic benefit from itself.
II. An Asset or Liability that is not certain to exist must still be recognized as Asset and Liability.
III. Asset is a present economic resource controlled by the entity as a result of past events
A. I B. II C. III D. I and III
A B C D 49. Information about assets, liabilities, equity, income and expenses is communicated through _________ in the financial
statement.
A. Recognition B. Measurement C. Presentation and Disclosure D. Derecognition
A B C D 50. The Concept of Capital and Capital Maintenance is the only Chapter in the Conceptual Framework that is not yet
revised or updated since _______.
A. 1999 B. 1989 C. 1899 D. 1998
**End of Exam. Good Luck and God bless**