CHAPTER 2

Question 1

These are guidelines that accountants follow when recording and communicating accounting information.
1. Accounting concepts and principles
2. Accounting laws and regulations
3. Accounting memos and guidelines
4. Accounting walkthrough, guides and cheats

Answer 1

1
Accounting concepts and principles

Question 2

Treating a business and its owner as one and the same violates which of the following principles?
1. Verifiability
2. Separate Entity
3. Materiality
4. Going concern

Answer 2

2
Separate entity

Question 3

This concept requires the preparation of financial statements at least annually.
1. Reporting period
2. Accrual basis
3. Materiality
4. Separate entity

Answer 3

2
Reporting period

Question 4

What concept justifies the use of the accrual basis and historical cost concepts?
1. Going concern
2. Materiality
3. Monetary unit
4. Full disclosure

Answer 4

1
Goiing concern

Question 5

under the accrual basis of accountiing, a business records a sale
1. when the sale occurs.
2. when the sale price is collected.
3. at the point in time when (a) and (b) above are satisfied.
4. a or b, as an accounting policy choice.

Answer 5

1
when the sale occurs.

Question 6

Providing and using information entail cost. Accordingly, there should be a balance between the cost of providing and using information and the information’s usefulness, such that the information’s usefulness justifies its cost. This relates to which of the following concepts?
1. Reporting period
2. Cost-benefit
3. Stable monetary unit
4. Prudence

Answer 6

2
Cost-benefit

Question 7

Under this concept, amounts in the financial statements are stated in the Philippine pesos and changes in the purchasing power of the Philippine peso due to inflation are generally ignored.
1. Prudence
2. Materiality
3. Stable monetary unit
4. Ignoring concept

Answer 7

3
Stable monetary unit

Question 8

Which of the following statements is incorrect regarding the accounting standards used in the Philippines?
1. The accounting standards used in the Philippines consist of the Philipine Financial Reporting Standards (PFRSs).
2. The PFRSs are derived from the International Financial Reporting Standards (IFRSs).
3. The accounting standards used in the Philippines are similar to those used in other countries worlwide.
4. The accounting standards used in the Philippines are inferior compared to intenational standards.

Answer 8

4
The accounting standards used in the Philippines are inferior compared to intenational standards.

Question 9

Which branch of accounting is governed by the Philippine Financial Reporting Standards?
1. Management accounting
2. Cost accounting
3. Financial accounting
4. Tax accounting

Answer 9

3
Financial accounting

Question 10

Information has this qualitative characteristic if it provides a true, correct, and complete depiction of what it intends to represent.
1. Relevance
2. Faithful represaentation
3. Comparability
4. Understandability

Answer 10

2
Faithful representation

Question 11

Information has this qualitative characteristic if two different users could reach a general agreement as to what the informationintends to represent.
1. Relevance
2. faithful representation
3. Comparability
4. Verifiability

Answer 11

4
Verifiability

Question 12

Which of the following is least likely to be a source of an accounting concept?
1. The Standards (i.e., PFRS or IFRS)
2. The Conceptual Framework for Financial Reporting
3. The general acceptance and long-time use in practice.
4. Laws enacted by the Congress

Answer 12

4
Laws enacted by the Congress

Question 13

Which of the following is incorrect regarding accounting concepts and principles?
1. They are practicable, meaning they can be applied to real-life situations.
2. They are intended to make financial reports useful to users in making economic decisions about an entity.
3. There are only twelve (12) accounting concepts and principles used in practice.
4. There are numerous accounting concepts and principles and it is not practicable to make a complete list of them all.

Answer 13

3
There are only twelve (12) accounting concepts and principles used in practice.

Question 14

Which of the following statements is not correct regarding the basic accounting concepts?
1. An entity that is going out of business is going concern.
2. Rounding-off of large amounts when presenting financial statements is acceptable under the concept of materiality.
3. Applying the separate entity concept allows the reporting of a true and fair picture of business financial affairs.
4. Applying the same accounting treatment for similar items from one period to another relates to ‘Consistency.’

Answer 14

1
An entity that is going out of business is a going concern.

Question 15

Which of the following statements is not correct regarding the basic accounting concepts?
1. Under the cost-benefit concept, the information’s costs of processing and communication should exeed the benefits expected to be derived from its use.
2. Information is material if its omission or misstatement could influence the decision of users.
3. The concepts of historical cost, going concern, matching, accrual basis, and reporting period are all interrelated. The application of one necessarily results fom, or results to, the application of the other.
4. The simultaneous recognition of income and expenses is referred to as ‘Matching.’

Answer 15

1
Under the cost-benefit concept, the information’s costs of processing and comminucation should exceed the benefits expected to be derived from its use.

Question 16

When making judgments and estimates under conditions of uncertainty, the accountant chooses the potentially unfavorable outcome over the favorable one. This concept refers to
1. Separate entity.
2. Going concern.
3. Prudence/ Conservatism.
4. Reporting period.

Answer 16

3
Prudence/ Conservatism

Question 17

When reporting information in its financial statements, an entity strives for a balance between detail and conciseness because neither too much detail nor too little information helps users make good decisions. This is an application of which of the following concepts.
1. Accrual basis
2. Cost-benefit
3. Full disclosure
4. Going concern

Answer 17

3
Full disclosure

Question 18

The official accounting standard-setting body in the Philippines, as promulgated by law, is the
1. Philippine Institue of Certified Public Accountant (PICPA)
2. Financial Reporting Standards Council (FRSC)
3. Accounting Standards Council (ASC)
4. Kapisanan ng Kontador sa Pilipinas (KKP)

Answer 18

2
Financial Reporting Standards Council

Question 19

The process by which accounting standards are established is, by nature,
1. bureaucratic because only a group of priviledged accountants decides on whether a standard is to be implemented.
2. democratic because a majority of the members of the Congress need to concur before a standard becomes implemented, and those representatives are elected by the people.
3. democratic because a majority of practicing accountants worldwide agree with a standard before it becomes implemented.
4. authoritarian because only one accountant dictates the standards to be used throughout the world.

Answer 19

3
democratic because a maority of practicing accountants worldwide must agree with a standard before it becomes implemented.

Question 20

This accounting concept is ‘entity-specific,’ meaning it depends on the facts and circumstances surrounding a specific entity.
1. Matching
2. Separate entity
3. Materiality
4. Going concern

Answer 20

3
Materiality

Question 21

The punctuality of information to be able to affect the decisions of users refers to the qualitative characteristics of
1. Relevance.
2. Faithful representation.
3. Timeliness.
4. Verifiability.

Answer 21

3
Timeliness.

Question 22

You own a fish ball business. When you get fish ball from your business for your personal consumption, you pay for it, even though you are the business owner. You are applying which of the following accounting concepts?
1. Cost-benefit
2. Separate entity
3. Going concern
4. Fishy business

Answer 22

2
Separate entity

Question 23

Mr. X and Ms. Y are co-owners of Entity A. Which of the following transactions does not violate the separate entity concept and therefore is appropriately recorded in Entity A’s accounting records?
1. Mr. X buys Mr. Y a cake on her birthday.
2. Mr. X purchases a car for his personal use. The car is registered to Mr. X.
3. Ms. Y provides capital to Entity B, another business entity.
4. Ms. Y provides capital to Entity A.

Answer 23

4
Ms. Y provides capital to Entity A.

Question 24

You acquired goods with normal selling price of Php10,000 at a discounted price of Php8,000. You recorded the goods at Php8,000. You are applying which of the following concepts?
1. Discounted price concept
2. Materiality
3. Historical cost
4. Accrual basis

Answer 24

3
Historical cost

Question 25

Your business is engaged in the buying and selling of goods. You initially treat the cost of goods purchased as asset and recognize it as an expense only when the goods are sold. You are applying which of the following concepts?
1. Matching
2. Separate entity
3. Historical cost
4. Accrual basis

Answer 25

1
Matching

Question 26

Today, you went to Kina Roger’s Canteen and ordered “halo-halo.” You told Mang Roger, the canteen owner, that you will pay him next week. mang Roger records immediately the sale today, rather than next week after collecting your due. Mang Roger is applying the accounting principle of
1. Historical cost.
2. Accrual basis.
3. Cost-benefit.
4. Stable monetary unit.

Answer 26

2
Accrual basis

Question 27

You went abroad and forgot to pay Mang Roger (see #26 above). Mang Roger contacted you 10,000 times on your Messenger reminding you of your debt but you repeatedly ignored him; you even locked him. Feeling hopeless and with teary eyes and stuffy nose, Mang Roger reluctantly crossed-out your dues in his accounting records. Mang Roger is applying which of the following accounting concepts?
1. Separate entity
2. Materiality
3. Prudence
4. No conscience concept

Answer 27

3
Prudence

Question 28

Entity A, an established business, purchases two staplers costing Php300 each. Entity A charges the cost of one of the staplers as expense but recognizes the cost of the other stapler as asset. Which of the following concepts is violated?
1. Materiality
2. Historical cost
3. Consistency
4. Stapler concept

Answer 28

3
Consistency

Question 29

These are the qualitative characteristics that only increase the usefulness of information that is already useful, but cannot make information that is not useful to be useful.
1. Fundamental qualitative characteristics
2. Enhancing qualitative characteristics
3. Materiality
4. Usefulness traits

Answer 29

2
Enhancing qualitative characteristics

Question 30

Entity A, a big corporation, purchases a calculator for Php500. Entity A immediately charges the cost as expense. This is acceptable under which of the following concepts?
1. Prudence
2. Cost-benefit
3. Materiality
4. 2 and 3

Answer 30

4
2 and 3

Question 31

“Look it’s Superman,” he says. “No, it’s just a little bird,” she says. The information lacks
1. Faithful representation.
2. Timeliness.
3. Comparability.
4. Verifiability.

Answer 31

4
Verifiability.