MMSU – CBEA ACC 100 – BS ACC 1 Midterm Exam

Name: _______________________________________ Section: _____ Date: 3/14/2024 Score: __________

Choose the best answer. Shade the circle corresponding to the letter of your choice in the answer sheet.

1. How does the Conceptual Framework explain the role of stewardship?

A. Providing information needed to assess management's stewardship is identified as an additional objective
of financial reporting, equal in prominence to providing financial information useful to users in making
decisions relating to providing resources to the entity
B. Decisions relating to providing resources to the entity depend on users' assessment of the amount, timing
and uncertainty of the prospects for future net cash inflows to the entity and on their assessment of
management's stewardship
C. Providing information needed to assess stewardship is more important than providing information needed
to assess the prospects for future cash inflows to the entity
D. Financial reports are not intended to provide information needed to assess stewardship

2. Which of the following does the Conceptual Framework identify as the primary users of general purpose
financial reports?
A. Employees, investors and trade union representatives
B. Existing and potential investors, lenders and other creditors
C. Lenders and other creditors and customers
D. Existing and potential investors, government agencies and the general public

3. What does the Conceptual Framework say about profit or loss?

A. The statement of profit or loss is the only source of information about an entity’s financial performance for
the period
B. In principle, all income and expenses are included in the statement of profit or loss
C. All income and expenses included in profit or loss arise from ordinary activities of the entity
D. All of the above

4. Recognition is the process of:

A. Capturing, for inclusion in the statement of financial position or the statement(s) of financial performance,
an item that meets the definition of one of the elements of the financial statements—an asset, a liability,
equity, income or expenses
B. Determining where an item should be presented in the financial statements
C. Sorting assets, liabilities, equity, income or expenses on the basis of shared characteristics
D. Adding together of assets, liabilities, equity, income or expenses that have shared characteristics

5. The 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
C. A right to receive income or reduce expenses in the future
D. None of the above

6. Generally, which inventory costing method approximates most closely the current cost for each of the
following?
Cost of goods sold Ending inventory
A. LIFO FIFO
B. LIFO LIFO
C. FIFO FIFO
D. FIFO LIFO

7. Which of the following is not a benefit associated with the Conceptual Framework?
A. A conceptual framework should increase financial statement user’s understanding of and confidence in
financial reporting.
B. Practical problems should be more quickly solvable by reference to an existing conceptual framework.
C. A coherent set of accounting standards and rules should result.
D. Business entities will need far less assistance from accountants because the financial reporting process
will be quite easy to apply.
8. Cash advances and loans made by a financial institution are usually classified as
A. Operating activities C. Financing activities
B. Investing activities D. Component of cash and cash equivalents

9. Which of the following is the objective of financial statements?

A. To prepare and present financial statements and attached Notes thereto in accordance with all applicable
Standards and Interpretations.
B. To prepare and present relevant, reliable, comparable and understandable information to investors and
creditors.
C. To provide information about the financial position, financial performance and changes in financial position
of an entity that is useful to a wide range of users in making economic decisions.
D. To comply with the reportorial requirements of government regulatory bodies like the SEC, BIR and
Insurance Commission

10. If Luffy Design Inc. is not considered a going concern, then what would be required to do in terms of the
Conceptual Framework?
A. Obtain a subordination agreement from its holding Company, One Piece.
B. Apply to the liquidator for exemption from the requirements of the Conceptual Framework.
C. Financial statements may still be prepared on a going concern basis but with appropriate disclosure.
D. The financial statements may have to be prepared on a basis other than going concern, and if so, the
basis used needs to be disclosed.

11. The following transactions are related to a sugar cane farm:

I. Proceeds received from taking out a mortgage on existing land.
II. Proceeds on sale of an irrigation system.
III. Proceeds received from taking out a bank loan
IV. Proceeds received from a cash sale of sugar cane.
V. Cash payment for payroll
VI. Cash payment for purchase of a tractor

Which transactions are classified under financing activities?

A. III only B. I and III only C. I, II, III and IV only D. I, III and V only

12. Which of the following relates to both relevance and faithful representation?
A. Comparability B. Feedback value C. Neutrality D. Free from error

13. Current value includes

A. Fair value only C. Fair value, value in use, fulfillment value and current cost
B. Fair value and current cost D. Fair value, current cost and historical cost

14. Which is not an acceptable option of reporting other comprehensive income?

A. In a statement of changes in equity C. In a single statement of comprehensive income
B. In the notes to financial statements D. In a separate statement of comprehensive income

15. Statement 1: Employees require information on risk and return provided by their investment.
Statement 2: Lenders are interested in information that enables them to assess whether their loans and
other related amounts owed to them will be paid when due.
A. True; True B. True; False C. False; True D. False; False

16. For information to be relevant, it has to possess:

A. Only predictive value C. Both predictive and confirmatory value
B. Only confirmative value D. Either predictive or confirmatory value, or both

17. Consolidated financial statements provide information about the assets, liabilities, equity, income and
expenses of both the parent and its subsidiaries as:
A. A. Separate reporting entities C. A single reporting entity
B. A partnership D. A legal entity

18. Cash payments to acquire equity instruments are

A. Cash outflows for financing activities C. Cash outflows for investing activities
B. Cash inflows from investing activities D. Cash inflows from financing activities
19. The basis of classifying assets as current assets is
A. The accounting cycle or one year, whichever is longer
B. The accounting cycle or one year, whichever is shorter
C. The operating cycle or one year, whichever is longer
D. The operating cycle or one year, whichever is shorter

20. Which of the following is not affected by the inventory valuation method used by an entity?
A. Cost of goods sold. C. Amounts owed for income taxes.
B. Net income of the entity. D. Amounts paid to acquire merchandise.

21. Which statement is incorrect regarding reversal of inventory write-down to net realizable value?
A. If the selling price of inventory that has been written down to net realizable value in a prior period,
subsequently recovers, the previous amount of the write-down can be reversed.
B. The reversal is limited to the amount of the original write-down.
C. The amount of any reversal of any write-down of inventories, arising from an increase in net realizable
value, shall be recognized as a reduction in the amount of inventories recognized as an expense in the
period in which the reversal occurs.
D. None, all the statements are correct.

22. Which is not a required disclosure for inventories in accordance with PAS 2?
A. The fair value of inventories
B. The accounting policies adopted in measuring inventories.
C. The carrying amount of inventories carried at fair value less costs to sell
D. The amount of inventories recognized as an expense during the period

23. Which of the following will not qualify as inventory?

A. Lubricants that are consumed by an entity’s machinery in producing goods.
B. Plant held for sale.
C. Dogs that a pet shop buys from breeders that it then sells.
D. Cryptocurrencies for sale in the ordinary course of business.

24. Which of the following shall be disclosed as part of accounting policies relating to inventories?
I. Costing procedure used
II. Measurement of inventories at the lower of cost and net realizable value.
III. Carrying amount of inventories pledged as securities for existing loans.
A. I, II and III B. I and II C. II and III D. I and III

25. Which of the following is not a purpose of the Conceptual Framework for Financial Reporting according to
the Revised Conceptual Framework for Financial Reporting?
A. To assist regulatory agencies in enforcing compliance of companies to the requirements of the
applicable IFRSs.
B. To assist all parties to understand and interpret the Standards.
C. To assist the International Accounting Standards Board (Board) to develop IFRS Standards (Standards)
that are based on consistent concepts.
D. To assist preparers to develop consistent accounting policies when no Standard applies to a particular
transaction or other event, or when a Standard allows a choice of accounting policy.

26. The following statements concerning the qualitative characteristics of useful financial information:
I. Verifiability, comparability, understandability and timeliness are qualitative characteristics that enhance
the usefulness of information that both is relevant and provides a faithful representation of what it
purports to represent.
II. To be useful, financial information must not only represent relevant phenomena, but it must also
faithfully represent the substance of the phenomena that it purports to represent.
A. Only statement I is correct. C. Both statements are correct.
B. Only statement II is correct. D. Both statements are incorrect.

27. The cost of inventories that are not ordinarily interchangeable and goods or services
A. LIFO B. FIFO C. Average method D. Specific identification

28. Which of the following should not be taken into account when determining the cost of inventory?
A. Storage costs of part-finished goods C. Recoverable purchase taxes
B. Trade discounts D. Import duties on shipping of inventory inward
29. Which statement is incorrect regarding cost formulas?
A. An entity shall use the same cost formula for all inventories having a similar nature and use to the entity.
B. For inventories with a different nature or use, different cost formulas may be justified.
C. The cost of inventories of items that are not ordinarily interchangeable shall be assigned by using specific
identification of their individual costs.
D. If specific identification is not required, the cost of inventories shall be assigned by using the first-in, first-out
(FIFO), last-in, first-out (LIFO) or weighted average cost formula.

30. Which statement is correct regarding presentation of financial statements in accordance with PAS 1?
A. Deferred taxes are classified as current or noncurrent in the statement of financial position based on the
nature of the related asset.
B. Changes in equity may be presented in the notes.
C. Subsequent events are evaluated through the financial statement issuance date.
D. Comparative information for prior year is required.

31. In the cash flow statement, alternatively, interest received and dividend received may be classified as cash flows
from
A. Operating activities B. Investing activities C. Financing activities D. Revenue activities

32. What is a basic underlying assumption under the PFRS Conceptual Framework?
A. The financial statements are complete, neutral and free from error
B. The financial statements have predictive value and confirmatory value
C. The financial statements are comparable, understandable, verifiable and timely
D. The financial statements are prepared on the basis that the entity will continue in operation for the
foreseeable future

33. In a cash flow statement, which of the following would increase reported cash flows from operating activities
using the direct method?
A. Cash received from insurance C. Gain on early retirement of bonds
B. Gain on sale of equipment D. Change from straight-line to accelerated depreciation

34. Which of the following costs of conversion cannot be included in the cost of inventory?
A. Cost of direct labor C. Factory rent and utilities
B. Salaries of sales staff D. Factory overheads based on normal capacity

35. Which of the following terms best describes the amount of cash or cash equivalents that could currently be
obtained by selling an asset in an orderly disposal?
A. Fair value B. Value in use C. Current cost D. Historical cost

36. The Conceptual Framework (choose the incorrect statement)

A. Is not a PFRS
B. In absence of a standard, shall be considered by management when making its judgment in developing and
applying an accounting policy that result in information that is relevant and reliable
C. Is concerned with general-purpose financial statements only
D. Prevails over the PFRSs in cases of conflicts

37. Which of the following will result if the current year’s ending inventory amount is understated?
A. Cost of goods sold will be understated. C. Net income will be overstated.
B. Gross profit will be understated. D. Retained earnings will be overstated.

38. Which of the following items should not be reported in the statement of comprehensive income?
A. Gain or loss items reported outside profit or loss
B. Selling, General and Administrative Expenses
C. Income and expenses items related to discontinued operations
D. Additional investments and withdrawals of the owner

39. Which of the following represents the least desirable choice for the recognition of revenue?
A. Recognition of revenue when a sale occurs C. Recognition of revenue when production is completed
B. Recognition of revenue when cash is collected D. Recognition of revenue during production
40. Financial reporting pertains to
A. Individual businesses entities and an economy as a whole or to members of a society as consumers
B. Individual business entities, rather than to industries or an economy as a whole or to members of society as
consumers
C. Individual business entities and an economy as a whole, rather than to industries or to members of society
as consumers
D. Individual business entities, industries, an economy as a whole and members of society as consumers

41. Which of the following characteristic of financial information requires that information should not be biased in
favor of one group of users to the detriment of others?
A. Relevance B. Neutrality C. Free from error D. Completeness

42. Which of the following is not a basic assumption underlying financial accounting?
A. Economic entity assumption C. Periodicity assumption
B. Going concern assumption D. Historical cost assumption

43. Statement 1: Capital maintenance approach has two classifications namely, transaction approach and physical
capital.
Statement 2: Capital maintenance approach includes four factors such as beginning and ending capital
balances, dividends declared and additional investments, in order to compute for the financial
performance of a certain entity.
A. True; True B. True; False C. False; True D. False; False

44. Statement 1: Contingent loss is recognized as provision provided that it is probable and measurable.
Statement 2: Contingent gain will only be disclosed in the financial statements.
A. True; True B. True; False C. False; True D. False; False

45. The term comprehensive income

A. Is synonymous with the term net income.
B. Must be reported on the face of the income statement.
C. Includes all changes in equity except those resulting from investments by and distributions to owners.
D. Is the net change in owners’ equity for the period.

46. Which should not be considered as a current asset?

A. Installment accounts receivable due over 18 months in accordance with normal trade practice.
B. Financial asset held for trading
C. Cash surrender value
D. Prepaid taxes

47. Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods sold
computed using FIFO method exceeds cost of goods sold using average cost method?
A. Prices decreased C. Prices increased
B. Prices remained unchanged D. Price trend cannot be determined

48. Which of the following terms best describes information that influences the economic decisions of users?
A. Reliable B. Prospective C. Relevant D. Understandable

49. The following statements pertain to qualitative characteristics of financial statements.

I. Qualitative characteristics are either fundamental or enhancing.
II. The fundamental qualitative characteristics are relevance, faithful representation and materiality.
III. The enhancing qualitative characteristics are comparability, understandability, verifiability and timeliness.
A. All statements are true. C. Only two statements are true.
B. All statements are false. D. Only one statement is true.

50. PAS 7 requires that investing and financing transactions that do not require the use of cash or cash equivalents
should be
A. Excluded from a cash flow statement
B. Included in a cash flow statement before operating, investing and financing activities
C. Presented in the cash flow statement after operating activities and before investing and financing activities
D. Presented in a cash flow statement after the operating, investing and financing activities have been
presented
--- End of Examination ---