NEGROS ORIENTAL STATE UNIVERSITY CHAPTER EXAM

CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

NEGROS ORIENTAL STATE UNIVERSITY

College of Business Administration
Accountancy Department

CFAS (OVERVIEW, CONCEPTUAL FRAMEWORK FOR REPORTING & PRESENTATION OF FINANCIAL

STATEMENTS )

INSTRUCTION: READ THE PROBLEMS CAREFULLY AND ANSWER IT CORRECTLY.

PROBLEM 1

1. It is an adjustment for the carrying amount of an assets or a liability or the amount of the periodic
consumption of an asset that results from the assessment of the present status and expected future
benefit and obligation associated with the asset and liability.

A. Change in accounting estimate

B. Change in accounting policy
C. Correction of a prior period errors
D. Change in reporting entity

2. The effect of an change in accounting estimate shall be recognized prospectively by including its profit
or loss of recognized prospectively by including it in profit or loss of

A. Current period only

B. Future periods only
C. Prior periods only
D. Current period future periods if the change affects both

3. The effect of a change in the expected pattern of consumption of economic benefits of a depreciable
assets shall be

A. Included in the determination of income or loss in the period of change.

B. Included in the determination of income or loss in the period of change and future periods.
C. Included in the statement of retained earnings as an adjustment of the beginning balance.
D. Included as component of other comprehensive income.

4. Prospective recognition of the effect of a change in an accounting estimate means that the change is
applied to transactions from the

A. Date of the change in estimate.

B. End of the current reporting period
C. Beginning of the year of change
D. Date of issuance of financial statements.

5. Which of the following statements is incorrect concerning accounting estimate?

A. As a result of the uncertainties inherent in business activities, many times in financial statements
cannot be measured with precision but can only be estimated.
B. The use of reasonable estimate is an essential part of the preparation of financial statements and
does not undermine their reliability.
C. An estimate may need revision if changes occur in the circumstances on which the estimate was
based or as I result of new information or more experience.
D. By very nature, the revision of an estimate relates to a prior period and is a correction of an error.

PROBLEM 2

1. When financial statements for a single year are being presented, a prior period error should

A. Be shown as an adjustment of the balance of retained earnings at the start of the current year.
B. Affect net income of the current year

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CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS
C. Be shown in the statement of changes in equity.
D. Be included on other comprehensive income.

2. Items reported as prior period errors

A. Do not include the effect of a mistake in the application of accounting policy.

B. Do not affect the presentation of prior period comparative financial statements.
C. Do not require further disclosure in the body of the financial statements.
D. Are reflected as adjustment of the opening balance of retained earnings of the earliest period
presented.

3. An example of a correction of an error in previously issued financial statements is a change

A. From FIFO method of inventory valuation to the average method.

B. In the service life of property, plant and equipment.
C. From cash basis to accrual basis of accounting.
D. In the tax assessment related to a prior period.

4. An entity that changed from cash basis to accrual basis of accounting during the current year should
report

A. Prior period adjustment resulting from the correction of an error.

B. Prior period adjustment resulting from the change in accounting policy.
C. Component of income from continuing operations.
D. Component of income from discontinued operations.

5. An entity that changed from an accounting principle that is not generally accepted to one that is generally
accepted should report the effect of the change, net of applicable income tax, in the current

A. Income statement as component of income from continuing operations

B. Income statement as component of discontinued operations
C. Statement of retained earnings as an adjustments of the opening balance.
D. Statement of retained earnings after net income but before dividends.

PROBLEM 3

1. These are the specific principles, bases, conventions, rules and practices applied in the preparation and
presentation of financial statements.

A. Accounting policies
B. Accounting principles
C. Accounting standards
D. Accounting concepts

2. A change in accounting policy includes

I. Adoption of an accounting policy for events or transactions that differ in substance from
previously occurring events or transactions.
II. The adoption of a new accounting policy for events or transactions which did not occur
previously or that were immaterial.

A. I only
B. II only
C. Both I and II
D. Neither I and II

3. A change in accounting policy includes all of the following, except

A. The initial adoption of a policy to carry assets at revalued amount.

B. The change from cost model to revaluation model in measuring property, plant and equipment.
C. The change in inventory valuation from FIFO to weighted average method.
D. The change in depreciation method from sum of years’ digits to straight line.

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4. A change in measurement basis is

A. A change in accounting estimate

B. A change in accounting policy
C. A correction of an error
D. Not an accounting change

5. When it is difficult to distinguish between a change in accounting estimate and a change in accounting
policy, the change is treated as

A. Change in accounting estimate with appropriate disclosure.

B. Change in accounting policy
C. Correction of an error
D. Change in accounting estimate with no appropriate disclosure

6. In the absence of an accounting standard that applies specifically to a transaction, what is the most
authoritative source in developing and applying an accounting policy?

A. The requirement and guidance in the standard or interpretation dealing with similar and related
issue.
B. The definition, recognition criteria and measurement of assets, liability, income and expense in the
conceptual framework.
C. Most recent pronouncement of other standard-setting body.
D. Accounting literature and accepted industry practice.

7. The initial application of a policy to revalue assets is

A. A change an accounting policy

B. A change in accounting estimate
C. Correction of a prior period error
D. Not an accounting change.

8. A change in accounting policy shall be made when

I. Required by law
II. Required by an accounting standard or interpretation of the standard.
III. The change will result in more relevant or reliable information about financial position, financial
performance and cash flows of the entity.

A. I and III only

B. II and III only
C. I and II only
D. I, II and III

9. Which of the following should be treated as change in accounting policy?

A. A change is made in the method of calculating the provision for uncollectible accounts receivable.
B. Investment properties are now measured at fair value, having previously been measured at cost.
C. An entity engaging in construction contract for the first time needs on accounting policy to deal with
this.
D. All of these qualify as change in accounting policy.

10. Which of the following statement is correct concerning application of a change in accounting policy?

I. An entity shall account for a change in accounting policy resulting from the initial application of
a standard or an interpretation in accordance with any transitional provision.
II. When an entity changes an accounting policy upon initial application of a standard or an
interpretation that does not include specific transitional provision applying to that change shall
be applied retrospectively.

A. I only

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NEGROS ORIENTAL STATE UNIVERSITY CHAPTER EXAM
CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS
B. II only
C. Both I and II
D. Neither I nor II

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