CFAS III-ACCOUNTING ASSUMPTIONS

Question 1

1. the basic notions or fundamental premises on which the accounting process is based.
   (a) accounting assumptions (c) generally accepted accounting principles
   (b) accounting standards (d) accounting concepts

Answer 1

(a) accounting assumptions

Question 2

2. The ASC conceptual framework specifically mentions two underlying assumptions.
   These are:
   (a) accrual and going concern (c) going concern and time period
   (b) accrual and accounting entity (d)time period and monetary unit

Answer 2

(a) accrual and going concern

Question 3

3. The effects of transactions and other events are recognized when they occur and nct as
   cash or its equivalent is received or paid, and they are recorded and reported in th
   financial statements of the period to which they relate

(a) accrual (c) time period
(b) going concern (d) monetary unit

Answer 3

a

Question 4

4. Which of the following statements is incorrect?
   (a) The accrual method, which builds directly on the revenue and matching principles,
   ignores the timing of cash receipts or payments when determining when to recognize
   revenue or expenses.
   (b) Expenses are matched with revenue, not the reverse
   (c) In accordance with the unit of measure assumption, accountants normally revise the amounts to reflects the changing purchasing power of money due to inflation or
   deflation.
   (d) In accordance with the going concern assumption, the life of a business is presumed to
   be indefinite.

Answer 4

(c) In accordance with the unit of measure assumption, accountants normally revise the amounts to reflects the changing purchasing power of money due to inflation or
deflation.

Question 5

5. If a business is not being sold or closed, the amounts reported in the accounts for assets
   used in the business operations are based on the cost of the assets. This practice is
   justified by:
   (a) accrual (c)continuity assumption
   (b) time period (d) accounting entity

Answer 5

(c)continuity assumption

Question 6

6. John Frivs is the sole owner and manager of Ace Services. John purchased a car for
   personal use. He uses a van in the business, Which of the following is violated if John
   recorded the cost of the car as an asset of the business?
   (a) conservatism (c) full disclosure
   (b) going concern assumption (d) separate entity assumption

Answer 6

(d) separate entity assumption

Question 7

7. What is the traditional accounting period?
   (a) three months (c) two years
   (b) six months (d) twelve months

Answer 7

(d) twelve months

Question 8

8. Which underlying concept serves as the basis for preparing financial statements at
   regular intervals?
   (a) accounting entity (c) accounting period
   (b) going concern (d) stable monetary unit

Answer 8

(c) accounting period

Question 9

9. Revenue is expressed as the number of pesos received or the pas0 equivalent of the
   commodities of services received. Cost is expressed as the number of pesos paid out of the
   peso equivalent of the items given up. Fluctuations in the value of the peso are ignored. The
   above describes what accounting assumption?
   (a) going concern (c) historical cost
   (b) unit of measure (d) realization

Answer 9

(b) unit of measure

Question 10

10. The financial statements should be stated in terms of a common financial denominator.
    (a) accrual (c) time period
    (b) going concern (d) monetary unit

Answer 10

(d) monetary unit

Question 11

11. The concept of accounting entity is applicable:
    (a) only to be legal aspects of business organizations.
    (b) only to the economic aspects of business organizations.
    (c) only to business organizations.
    (d) whenever accounting is involved.

Answer 11

(d) whenever accounting is involved.

Question 12

12. When a parent and subsidiary relationship exists, consolidated financial statements are
    prepared in recognition of:
    (a) legal entity (c) stable monetary unit
    (b) economic entity (d) time period

Answer 12

(b) economic entity

Question 13

13. The valuation of a promise to receive cash in the future at present value on the financial
    statement of a business entity is valid because of the accounting concept of:
    (a) entity (c) going concern
    (b) time period (d) monetary unit

Answer 13

(c) going concern

Question 14

14.Continuation of an accounting entity in the absence of evidence to the contraryY is an
example of the basic concept of:
(a) accounting entity (c)going concern
(b) time period (d) accrual

Answer 14

(c)going concern

Question 15

15. This accounting concept justifies the usage of accruals and deferrals.
    (a) going concern (c) consistency
    (b) materiality (d) stable monetary unit

Answer 15

(a)going concern

Question 16

16. During the lifetime of an entity, accountants produce financial statements at arbitrary
    points in time in accordance with which basic accounting concepts?
    (a) accrual (c) unit of measure
    (b) periodicity (d) continuity

Answer 16

(b) periodicity

Question 17

17. The relatively stable economic, political and social environment supports:
    (a) conservatism (c)timeliness
    (b) materiality (d) going concern

Answer 17

(d) going concern