CFAS IV-CONCEPTUAL FRAMEWORK Flashcards
1
Q
- A conceptual framework is:
(a) statements of financial accounting standard.
(b) an underlying accounting assumption.
(c) a theoretical foundation which guides the ASC, preparers and users of financial
accounting information.
(d) a financial statement.
A
(c) a theoretical foundation which guides the ASC, preparers and users of financial
accounting information.
2
Q
- Which is not a basic purpose of a conceptual framework?
(a) to assist ASC in developing accounting standards
(b) to assist preparers of financial statements in applying ASC accounting standards.
(c) to assist ASC in reviewing and adopting International Accounting Standards.
(d) to assist the Board of Accountancy in promulgating rules and regulations affecting the
practice of accountancy in the Philippines
A
(d) to assist the Board of Accountancy in promulgating rules and regulations affecting the
practice of accountancy in the Philippines
3
Q
- The ASC conceptual framework is intended to establish:
(a) generally accepted accounting principles in financial reporting by business enterprises.
(b) the meaning of present fairly in accordance with generally accepted accounting
principles
(c) the objectives and concepts for use in developing standards of financial accounting and
Reporting.
(d) the hierarchy of sources of generally accepted accounting principles.
A
(c) the objectives and concepts for use in developing standards of financial accounting and
Reporting.
4
Q
- Which is not included in the scope of the ACS conceptual framework?
(a) qualitative characteristics that determine usefulness of financial accounting information
(b) definition, recognition and measurement of the elements af financial statements
(c) objective of financial statements
(d) generally accepted accounting principles
A
(d) generally accepted accounting principles
5
Q
- What is the objective of financial statements? the firm’s assets and liabilities
(a) to disclose the market value of the firm’s assets and liabilities
(b) to determine compliance with tax laws
(c) to make forecasts about the economy
(d) to help users makes decisions
A
(d) to help users makes decisions
6
Q
- It is the financial flexibility of an enterprise
(a) liquidity (c) financial structure
(b) solvency (d) capacity for adaptation
A
(d) capacity for adaptation
7
Q
- It is the level of income earned by an enterprise through the efficient and effective
utilization of resources.
(a) financial position (c) positive cash flows
(b) performance (d) negative cash flows
A
(b) performance
8
Q
- Liquidity is defined as the:
(a) ability of the enterprise to pay currently maturing obligations.
(b) ability of the enterprise to meet obligations over a longer term.
(c) invested capital of the enterprise.
(d) borrowed capital of the enterprise
A
(a) ability of the enterprise to pay currently maturing obligations.
9
Q
- The theory of accounting which best describes the accounting equation expressed “assets
Liabilities + proprietorship” is the
(a) entity theory (c)proprietary theory
(b) fund theory (d) residual equity theory
A
(a) entity theory
10
Q
- What theory of ownership equity is enumerated by the following equation: assets
liabilities minus preferred stock equity equals common stock equity?
(a) fund (c) proprietary
(b) enterprise (d) residual equity
A
(d) residual equity
11
Q
- Classifying preferred dividends as expense is an application of what concept
(a) entity (c) residual equity
(b) proprietary (d) fund
A
(c) residual equity
12
Q
- The primary accounting is a fair presentation of the performance of the enterprise.
(a) entity (c) fund
(b) proprietary (d)residual equity
A
(a) entity
13
Q
- Government or fiduciary accounting is an application of:
(a) entity (c)residual equity
(b) proprietary (d) fund
A
(d) fund
14
Q
- Which of the following statements is incorrect?
(a) the accounting theory which explains well the accounting equation “assets minus
liabilities equals capital” is the proprietary theory
(b) under the entity theory, the major accounting effort is directed toward proper valuation
af assets rather than income determination
(c) strict adherence to the entity concept would not allow a parent company to take up in
its books its proportionate share in the profits and losses of its subsidiaries
(d) under the fund theory, assets represent prospective services to the fund, liabilities
represent restriction against asses of the funds, and invested capital represents either
legal or financial restrictions on the use of assets
A
(b) under the entity theory, the major accounting effort is directed toward proper valuation of assets rather than income determination
15
Q
- The type of money prices which uses such concepts as present value, discounted cash
flow and value in use is known as:
(a) price in a current purchase exchange (c)price based on future exchange
(b) price in a past exchange (d) price in a current sale exchange
A
(c)price based on future exchange
16
Q
- All accounts in the financial statements are affected to a certain extent by inflationary
conditions, but the effect is more explicit in some accounts than in others. Which account is
the more seriously affected by inflation?
(a)property, plant and equipment (c) receivables
(b) merchandise inventory (d) cash
A
(a)property, plant and equipment
17
Q
- The recognition of the deficiencies of historical cost accounting has led to the advocacy
of the recognition of the effects of inflation in the accounts. The following statements
characterize the recognition af the effects of inflation except:
(a) all accounts in the financial statements are affected to a certain extent by inflationaryY
conditions, and the effect is more explicit in some accounts than in others
(b) restating the entire financial statements in terms of current prices is a very complicated
process and requires considerable additional work
(c) users of financial statements advocate the recognition of the effects of inflation in the
accounts because historical cost creates the impression that the business entity is more
profitable than what it really is
(d) inflation affects more drastically those items in the accounts where the rate of turnover
is quite high
A
(d) inflation affects more drastically those items in the accounts where the rate of turnover
is quite high
18
Q
- It is the capacity of information to make a difference in a decision by helping users from
predictions about the outcome of past, present and future events, or confirm and correct
prior expectations.
(a) relevance (c) comparability
(b) reliability (d) understandability
A
(a) relevance
19
Q
- The attributes of relevance include ( choose the incorrect one):
(a) predictive value (c)timeliness
(b) feedback value (d) neutrality
A
(d) neutrality
20
Q
- It is the quality of information that assures readers that the information is free from bias
or error and faithfully represents what it purports to show.
(a) understandability (c)reliability
(b) relevance (d) comparability
A
(c)reliability
21
Q
4 Which of the following has the primary responsibility for the preparation, presentation
and reliability of information in the financial statements?
A
(a) management
22
Q
- In the event of conflict between the economic substance of a transaction and its legal
farm,the economic substance shall prevail. This concept is known as:
(a) form over substance (c) faithful representation
(b) substance over form (d) completeness
A
(b) substance over form
23
Q
-
verifiability of financial accounting information is synonymous with:
(a) faithful representation (c) Prudence
(b) substance over form (d) completeness
A
(a) faithful representation
24
Q
- The financial accounting information is directed toward the common needs of users and
is independent of presumptions about particular needs and desires of specific users.
(a) relevance (c) neutrality
(b) verifiability (d) completeness
A
(c) neutrality
25
Q
- John Company does not know exactly how long its equipment will last. It decides to use
shorter rather than longer useful life for depreciating the equipment. What accounting
concept is being applied in this decision?
(a) reliability (c)materiality
(b) relevance (d) conservatism
A
(d) conservatism
26
Q
- Tt is the exercise of care and caution in dealing with uncertainties in measurement so s
not to overstate assets and income and not understated liabilities and expenses
(a) completeness (c) faithful representation
(b) prudence
A
(b) prudence
27
Q
- It is the result of the standard of adequate disclosure
(a )faithful representation (c) neutrality
(b) substance over form (d) completeness
A
(d) completeness
28
Q
- The conceptual framework of accounting sets out certain essential characteristics o
accounting information Which of the following is not an essential characteristic?
(a) understandability (c) reliability
(b) profit-oriented (d) comparability
A
(b) profit-oriented
29
Q
- Which of the following improves the reliability of accounting information?
(a) accounting entity (c) verifiability
(b) going concern (d) time period
A
(c) verifiability
30
Q
- The financial information must be comprehensible or intelligible if it is to be useful.
(a) relevance (c)understandability
(b) reliability (d) comparability
A
(c)understandability
31
Q
- Which qualitative characteristics relate to the content of the financial statements?
(a) relevance and reliability (c) relevance and understandability
(b) understandability (d) reliability and comparability
A
(a) relevance and reliability
32
Q
- Which qualitative characteristics relate to the presentation of financial statements?
(a) relevance and reliability (c) relevance and understandability
(b) understandability and comparability (d) reliability and comparability
A
(b) understandability and comparability
33
Q
- It is the ability to bring together for the purpose of noting similarities and dissimilarities.
(a) relevance (c)understandability
(b) reliability (d) comparability
A
(d) comparability
34
Q
- Which is incorrect concerning the conditions for comparability within a single
enterprise?
(a) The presentations are in the same form.
(b) The contents of the statements are identical.
(c) Accounting principles are not changed or if they are changed, the financial effects of
the changes are not disclosed.
(d) Changes in circumstances or in the nature of underlying transactions are disclose
A
(c) Accounting principles are not changed or if they are changed, the financial effects of the changes are not disclosed.
35
Q
- The ability through consensus among measures to ensure that information represents
what it purports to represents is an example of the concept of:
(a) relevance (c) comparability
(b) verifiability (d) feedback value
A
(b) verifiability
36
Q
- The ASC conceptual framework of accounting sets out two constraints when
implementing accounting procedures. What are they?
(a) cost-benefit and cost principle (c) cost principle and revenue principle
(b) timeliness and revenue principle (d) cost-benefit and timeliness
A
(d) cost-benefit and timeliness
37
Q
- According to the ASC conceptual framework, the usefulness of providing information
in financial statements is subject to the constraints of:
(a) consistency (c)reliability
(b) cost-benefit (d) representational faithfulness
A
(b) cost-benefit
38
Q
- Which of the following accounting concepts states that an accounting transaction
should be supported by sufficient evidence to allow two or more qualified individuals to
arrive at essentially similar conclusions?
(a) conservatism (c) periodicity
(b) objectivity (d) stable monetary unit
A
(b) objectivity
39
Q
- Objectivity is assumed to be achieved when an accounting transaction:
(a) is recorded in a fixed amount of peso.
(b) involves the payment or receipt of cash.
(c)involves an arm’s length transaction between two independent parties.
(d) Allocates revenue or expenses in a rational and systematic manner.
A
(c)involves an arm’s length transaction between two independent parties.
40
Q
- The principle of objectivity includes the concept of:
(a) summarization (c) conservatism
(b) classification (d) verifiability
A
(d) verifiability
41
Q
- The consistency standard of reporting requires that:
(a) expenses be reported as charges against the period in which they are incurred.
(b) the effect of changes in accounting upon income be properly disclosed.
(c) extraordinary gains and losses should not appear on the income statement.
(d) accounting procedures are adapted which give a consistent rate of return.
A
(b) the effect of changes in accounting upon income be properly disclosed.
42
Q
- Accounting changes are often made are the monetary impact is reflected in the
financial statements of a company even though, in theory, this may be a violation of the
accounting concept of:
(a) materiality (c) conservatism
(b) consistency (d) objectivity
A
(b) consistency
43
Q
- Timeliness is an ingredient of:
(a) reliability (c) verifiability
(b) relevance (d) adequate financial statements
A
(b) relevance
44
Q
- Which of the following situations violates the concept of reliability?
(a) Financial statements were issued nine months late.
(b) Report data an segments having the same expected risks and growth rates to
analysts estimating future profits.
(c) Financial statements included property with a carrying amount increases
management’s estimate of market value.
(d) Management reports to stockholders regularly refer to new projects undertaken,
The financial statements never report project results.
A
(c) Financial statements included property with a carrying amount increases
management’s estimate of market value.
45
Q
- What is the underlying concept that supports the immediate recognition of a contingent
loss?
(a) substance over form (c) matching
(b) consistency (d) conservatism
A
(d) conservatism
46
Q
- What is the underlying concept governing the GAAP pertaining to recording gain
contingencies?
(a) conservatism (c) consistency
(b) relevance (d) reliability
A
(a) conservatism
47
Q
- Uncertainty and risks inherent in business situations should be adequately considered
in Financial reporting. This statement is an example of the concept of:
(a) conservatism (c) neutrality
(b) completeness (d) representational faithfulness
A
(a) conservatism
48
Q
- An estimated loss from a loss contingency should be accrued when:
(a) It is probable at the date of the financial statements that an asset has been impaired
or a liability has been incurred and the amount of the loss can be reasonably
estimated
(b) The loss has been incurred on the date of the financial statements and
of the loss may be material.
(c) It is probable that a loss will be incurred in a future period and the amount of the
loss can be reasonably estimated.
(d) It is probable at the date of the financial statements thata loss has been incurred
and the amount of the loss may be material.
A
(a) It is probable at the date of the financial statements that an asset has been impaired
or a liability has been incurred and the amount of the loss can be reasonably
estimated
49
Q
- How should a loss contingency that is reasonably possible and for which the amount
can be
reasonably estimated?
(a) accrues and disclosed (c) disclosed only
(b) accrued only (d) neither accrued nor disclosed
A
(c) disclosed only
50
Q
- Reserves for general contingencies should:
(a) be accrued in the financial statements and disclosed in the notes thereto.
(b) not be accrued in the financial statements but should be disclosed in the notes thereto.
(c) not be accrued in the financial statements and need not be disclosed in the notes thereto.
(d) be accrued in the financial statements but need not be disclosed in the notes thereto.
A
(c) not be accrued in the financial statements and need not be disclosed in the notes thereto.
51
Q
- An estimated loss from a loss contingency that is probable and for which the amount of
the loss can be reasonably estimated should:
(a) not be accrued but should be disclosed in the notes to the financial statements.
(b) be accrued by debiting an appropriated retained earnings account and crediting a
liability account or an asset account
(c) be accrued by debiting an expense account and crediting an appropriated retained
earnings account
(d) be accrued by debiting an expense account
A
(d) be accrued by debiting an expense account and crediting a liability account or an asset
account.
52
Q
- On December 20,2001, an uninsured property damage loss was caused by a company
car being driven on company business by a company salesman. The company did not
become aware of the loss until January 25, 2002. The amount of the loss was reasonably
estimable before the company’s 2001 financial statements were issued. The company’s
December 31, 2001 financial statements should report an estimated loss as:
(a) a disclosure, but not an accrual
(c) neither an accrual nor a disclosure.
(b) an accrual.
(d) an appropriation of retained earnings
A
(b) an accrual.
53
Q
- A company did not record an accrual for a contingent loss but disclose the nature of the
contingency and the range of the koss. How likely is the loss?
(a) remote (c) probable
(b) reasonably possible (d) certain
A
(b) reasonably possible
54
Q
- A lawsuit in connection with a safety hazard exists for a manufactured product.
Occurrence of a loss is probable and reasonably estimable. The loss contingency should:
(a) be accrued and disclosed. (c) be disclosed.
(b) be accrued only. (d) neither be accrued nor disclosed
A
(a) be accrued and disclosed.
55
Q
- An expropriation of assets which is imminent and for which the amount of loss can be reasonably estimated should be:
(a) accrued only. (c) accrued and disclosed.
(b) disclosed only .(d) neither accrued and disclosed.
A
(c) accrued and disclosed.
56
Q
- Management can estimate the amount of loss that will occur if a foreign government exçropriates some company assets. If the appropriation is reasonably possible, what is the
treatment of the loss contingency?
(a) disclosed but not accrued as a liability
(c) accrued as a liability but not disclosed
(b) disclosed and accrued as a liability
(d) nether accrued as a liability not disclosed
A
(a) disclosed but not accrued as a liability
57
Q
- A company has a probable loss that can only be reasonably estimated within a range of outcomes However, no single amount within the range is a better estimate than any other
amount. The amount of the loss accrual should be:
(a) zero. (c) minimum of the range.
(b) maximum of the range (d) mean of the range.
A
(c) minimum of the range.
58
Q
- Ax Company is being used for illness caused to local residents as a result of negligence on the company’s part in permitting local residents to be exposed to highly toxic chemicals fram its plant. Ex’s lawyer states that it is probable that Ax will loss the sit and be found
liable for a judgment costing anywhere from P500,000 to P2,500,000. However, the lawyer
states that the most probable cost is P1,000,000. As a result of the above facts, Ax should
accrue:
(a) a loss contingency of P500,000 and disclose a additional cortingency of up to
P2,000,000.
(b) a loss contingency of P1,000,000 and disciose as additional contingency of up to
P1,500,000
(c) a loss contingency of P1,000,000 but not disclose any additional contingency.
(d) no loss contingency but disclose a contingency of PS00,000 to P2,000,000.
A
(b) a loss contingency of P1,000,000 and disciose as additional contingency of up to
P1,500,000
59
Q
- Ever Company has consigned that mortgage ncte on the home of its president,
guaranteeing the indebtedness in the event that the president should default. Ever
considers the likelihood of default to be remote. How should the guarantee be treated Ever’s financial statements?
(a) disclosed only (c) accrued and disclosed
(b) accrued anly (d) neither accrued and disclosed
A
(a) disclosed only
60
Q
- The likelihood that the future event will or will nor occur can be expressed by a range
of outcomes. Which range means that the future event occurring is very slight?
(a) probable (c) certain
(b) reasonably possible (d) remote
A
(d) remote
61
Q
44.Gain contingency is USually recognized when:
(a) realized.
(b) occurrence is reasonably possible and the amount is reasonably estimable.
(c) occurrence is probable and the amount is reasonably estimable.
(d) the amount is reasonably estimable.
A
(a) realized.
62
Q
- Which of the following is the proper accounting treatment of a gain contingency?
(a) an accrued account.
(b) deferred earning
(c)an account receivable with an additional disclosure explaining the nature of the transaction.
(d) a disclosure only.
A
(d) a disclosure only.
63
Q
- When the occurrence of a gain contingency is probable and its amount can be
reasonably estimated, the gain contingency should be:
(a) recognized in the income statement and disclosed,
(b) classified as an appropriation of retained earnings.
(c) disclosed, but not recognized in the income statement
(d) neither recognized in the income statement nor disclosed.
A
(c) disclosed, but not recognized in the income statement
64
Q
- The Great Company operated a plant in a foreign country. It is probable that the plant
will be expropriated. However, the foregn governi has indicated that Great will receive a
definite amour or cope aino amount of the plant. The contingency sauce provides a definite
amount of compensation for the plant. The amount of compensation is less than the fair
market value but exceeds the carrying amount of the plant. The contingency should be
reported:
(a) as a valuation allowance as a part of stockholders equity.
(b) as a fixed asset valuation allowance account.
(c) in the notes to the financial statements.
(d) in the income statement.
A
(c) in the notes to the financial statements.
65
Q
- On December 31, 2002, Cream Company was suing a competitor for patent
infringement. The award from the probable favorable outcome could be reasonably
estimated. Crearm’s 2002 financial statements should report the expected award as a
(a) receivable and revenue. (c)receivable and deferred revenue
(b) receivable and reduction of patent (d) disclosure only
A
(d) disclosure only
66
Q
- Neutrality is an ingredient of:
(a) relevance (c)understandability
(b) reliability (d) comparability
A
(b) reliability
67
Q
- Which of the following relates to both relevance and reliability?
(a) comparability (c)verifiability
(b) feedback value (d) timeliness
A
(a) comparability
68
Q
- Under the ASC framework, the qualitative characteristics are:
(a) understandability, relevance, reliability and comparability
(b) accrual and going concern
(c) timelines, cost and benefit and materiality
(d) entity, proprietary, residual equity and fund theory
A
(a) understandability, relevance, reliability and comparability
69
Q
- The characteristic that is demonstrated when a high degree of consensus can be secured
among independent measurers the same measurement methods is
(a) relevance (c)verifiability
(b) reliability (d) neutrality
A
(c)verifiability
70
Q
- Which of the following are considered pervasive constraints?
(a) materiality and conservatism (c) conservatism and timeliness
(b) timeliness and predictive value (d) cost-benefit and maternity
A
(d) cost-benefit and maternity
