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Theory of Accounts > Conceptual Framework: Old and Revised > Flashcards

Conceptual Framework: Old and Revised Flashcards

1
Q

Under the Conceptual Framework of Financial Reporting, users of financial information may be classified into

a. Heavy users (management) and slight users (public, government)
b. Primary users (existing and potential investors and creditors) and other users
c. Internal users (employees, customers) and external users (investors, creditors)
d. Main users (existing investors, creditors) and incidental users (potential investors, creditors)

A

b. Primary users (existing and potential investors and creditors) and other users

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2
Q

Which of the following is listed in the Framework as underlying assumption regarding financial information?

a. The financial statements are reliable
b. Any changes of accounting policy are neutral
c. The entity can be viewed as a liquidating concern
d. The financial statements are prepared under the accrual basis

A

d. The financial statements are prepared under the accrual basis

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3
Q

Which of the following is not considered a primary characteristics of financial information?

a. Comparability
b. Completeness
c. Neutrality
d. Timeliness

A

a. Comparability

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4
Q

Which of the situations violates the concept of reliability?

a. Data on segments having the same expected risks and growth rates are reported to analysts estimating future profits
b. Financial statements are issued nine months late
c. Management reports to stockholders new projects undertaken, but the financial statements never report the projected results
d. Financial statements include a property with a carrying amount increased to management’s estimate of market value.

A

d. Financial statements include a property with a carrying amount increased to management’s estimate of market value.

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5
Q

Accounting traditionally has been influenced by conservatism because of the

a. Difficulty in measuring net income on the accrual basis
b. Large number of transactions recorded in any one period
c. Inherent uncertainties of many accounting measurement
d. Probability of undetected errors in the financial statements

A

d. Probability of undetected errors in the financial statements

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6
Q

In respect to information included in financial statements, the accounting concept of prudence ensures that

a. The financial statements report what they purport to report
b. A degree of caution in the exercise of judgments about estimates is made
c. Information is provided to users within the same time period in which it is most likely to bear on their decisions
d. An appropriate balance is achieved between the relevance and the reliability of information that has been included

A

b. A degree of caution in the exercise of judgments about estimates is made

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7
Q

The usefulness of providing information in financial statements is not subject to the constraint of

a. Timeliness
b. Consistency
c. Balance between benefit and cost
d. Balance between qualitative characteristics

A

b. Consistency

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8
Q

The conceptual framework is intended to assist

a. CPAs in public practice
b. Users of financial statements
c. Financial Reporting Standards Council
d. All of these

A

d. All of these

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9
Q

Which is the basic purpose of Conceptual Framework of Financial Reporting?

a. To develop a single set of high quality International Financial Reporting Standards (IFRS)
b. To promulgate rules and regulations affecting the practice of the Philippine Accountancy Profession
c. To address accounting issues with divergent and unacceptable treatments in the absence of an authoritative guidance by FRSC
d. To assist preparers of financial statements in applying accounting standards and in dealing with issues that have yet to form the subject to accounting standards

A

d. To assist preparers of financial statements in applying accounting standards and in dealing with issues that have yet to form the subject to accounting standards

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10
Q

What is the authoritative status of the Conceptual Framework?

a. The framework applies when FRSC develops new or revised Standards. An enterprise is never required to insider the framework
b. It has the highest level of authority. In case of conflict between the Framework and Standard or Interpretation, the Framework overrides the Standard or Interpretation
c. If there is Standard or Interpretation that specifically applies to a transaction, it overrides the Framework. In the absence of a Standard or an Interpretation that specially applies, the Framework should be followed.
d. If there is a Standard or Interpretation that specifically applies to a transaction, management should consider the applicability of the Framework in developing and applying an accounting policy which results in information that is relevant and reliable.

A

d. If there is a Standard or Interpretation that specifically applies to a transaction, management should consider the applicability of the Framework in developing and applying an accounting policy which results in information that is relevant and reliable.

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11
Q

Which of the following is the first step within hierarchy of guidance to which management refers, and whose applicability at considers, when selecting accounting policies

a. Apply the requirements in PFRS dealing with similar and related issues
b. Apply a standard from PFRS if it specifically relates to the transaction, event, or condition
c. Consider the applicability of the definitions, recognition criteria and measurement concepts in the Conceptual Framework
d. Consider the most recent pronouncements of other standards-setting bodies to the extent they do not conflict with PFRS or the Conceptual Framework

A

b. Apply a standard from PFRS if it specifically relates to the transaction, event, or condition

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12
Q

Which of the following is not a function of the PFRS Conceptual Framework?

a. The provide a basis for the use of judgment in resolving accounting issues
b. To facilitate the consistent and logical formulation of the Philippine Financial Reporting Standards
c. To address the concepts underlying the information presented in general purpose financial statements
d. To set out recognition, measurement, presentation and disclosure requirements dealing with transactions and other events and conditions that are important in general purpose financial statements

A

d. To set out recognition, measurement, presentation and disclosure requirements dealing with transactions and other events and conditions that are important in general purpose financial statements

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13
Q

The Conceptual Framework of Accounting deals with

a. Tax laws and regulations
b. SEC rules and regulations
c. Code of Ethics for professional accountants
d. Concepts of capital and capital maintenance

A

d. Concepts of capital and capital maintenance

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14
Q

The second level in the Conceptual Framework

a. Identifies the objective of financial reporting
b. Provides the elements of financial statements
c. Includes assumptions, principles and constraints
d. Identifies recognition, measurement and disclosure concepts used in establishing and applying accounting standards

A

d. Identifies recognition, measurement and disclosure concepts used in establishing and applying accounting standards

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15
Q

What statements are intended to meet the needs users who are not in a position to require an entity to prepare reports tailored to their particular information needs?

a. Separate financial statements
b. Consolidated financial statements
c. Business entity financial statements
d. General purpose financial statements

A

b. Consolidated financial statements

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16
Q

Which of the following best states the purpose of general – purpose financial statements?

a. To identify shareholders
b. To help users make decisions
c. To determine compliance with tax laws
d. To disclose the market value of the firm

A

b. To help users make decisions

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17
Q

The objectives of financial reporting for business enterprises are based on the

a. Need for conservative information
b. Needs of the users of the information
c. Need to report on management’s stewardship
d. Need to comply with financial accounting standards

A

b. Needs of the users of the information

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18
Q

Under the Conceptual Framework for Financial Reporting 2010, the objective of general purpose financial reporting is to provide financial reporting about the reporting entity that is useful to

a. Existing and potential investors
b. Existing investors, lenders and other creditors
c. Potential investors, lenders and other creditors
d. Existing and potential investors, lenders and other creditors

A

d. Existing and potential investors, lenders and other creditors

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19
Q

A primary objective of financial reporting is to assist

a. Investors in analysing the company
b. Investors in predicting prospective cash flows
c. Banks to determine an appropriate interest rate for their commercial loans
d. Suppliers in determining an appropriate discount to offer a particular company.

A

b. Investors in predicting prospective cash flows

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20
Q

The objective of general purpose financial statements, according to the Conceptual Framework, shall be to provide financial information about the reporting entity that is useful to all of the following except

a. Existing shareholders
b. Lenders
c. Potential investors
d. Prospective customers

A

d. Prospective customers

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21
Q

Which of the following statements about financial statements is incorrect?

a. They are the primary responsibility of the management of the enterprise
b. They show the results of the stewardship of the management for the resources entrusted to it by the capital providers
c. They are prepared at least annually and are directed to both the common and specific information needs of a wide range of statement users

A

c. They are prepared at least annually and are directed to both the common and specific information needs of a wide range of statement users

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22
Q

Under the Conceptual Framework for Financial Reporting 2010, which of the following is a new item added in its scope but is still a work-in-progress?

a. Consolidated financial statements
b. Mergers and acquisitions
c. The government entity
d. The reporting entity

A

d. The reporting entity

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23
Q

What are the qualitative characteristics of financial statements according to the Framework?

a. Qualitative characteristics are broad classes of financial effects of transactions and other events
b. Qualitative characteristics are the attributes that make the information provided in financial statements useful to others
c. Qualitative characteristics measure the extent to which an entity has complied with all relevant Standards and Interpretations
d. Qualitative characteristics are non-quantitative aspects of an entity’s position and performance and changes in financial position

A

b. Qualitative characteristics are the attributes that make the information provided in financial statements useful to others

24
Q

Which term best describes information that influences the conomic decisions of users?

a. Prospective
b. Relevant
c. Reliable
d. Understandable

A

b. Relevant

25
Q

Under the Conceptual Framework for Financial Reporting 2010, it is an entity-specific aspect of relevance based on the nature and magnitude, or both, of the items to which the information relates in the context of an individual entity’s financial report

a. Comparability
b. Confirmatory value
c. Feedback value
d. Materiality

A

d. Materiality

26
Q

Which of the following is an entity-specific aspect of the fundamental qualitative characteristics relevance?

a. Confirmatory value
b. Materiality
c. Predictive value
d. Timeliness

A

b. Materiality

27
Q

If financial information that is presented in a balance sheet or income statement is misstated, and it influences the economic decisions of user, that information is described as

a. Faithful
b. Material
c. Prudent
d. Reliable

A

b. Material

28
Q

Under PFRS Conceptual Framework (2010), which of the following is considered a fundamental characteristics rather than an enhancing characteristic of financial information?

a. Faithful representation
b. Timeliness
c. Understand ability
d. Verifiability

A

a. Faithful representation

29
Q

Under the Conceptual Framework for Financial Reporting 2010, which of the following characteristics replaces the “reliability” characteristic under the old Conceptual Framework?

a. Faithful representation
b. Prudence
c. Substance over form
d. Verifiability

A

a. Faithful representation

30
Q

“Freedom form error” relates to which qualitative characteristic of the Conceptual Framework?

a. Faithful representation
b. Relevance
c. Understand ability
d. Verifiability

A

a. Faithful representation

31
Q

Which of the following terms describing information in the financial statements are properly matched?

a. Prudent and relevant
b. Reliable and verifiable
c. Unbiased and neutral
d. Understandable and comparable

A

c. Unbiased and neutral

32
Q

Which of the following is not an ingredient of faithful representation according to Conceptual framework for Financial Reporting?

a. Completeness
b. Confirmatory value
c. Freedom from error
d. Neutrality

A

b. Confirmatory value

33
Q

Which of the following is not listed under the “faithful representation” characteristic of financial information based on the Conceptual Framework of Financial Reporting?

a. Completeness
b. Freedom from error
c. Neutrality
d. Prudence

A

d. Prudence

34
Q

Which two characteristics of financial information are part of the “reliability” characteristic under the old Conceptual Framework that are no longer explicitly part of the “faithful representation” characteristic under the Conceptual Framework for Financial Reporting 2010?

a. Prudence and neutrality
b. Completeness and neutrality
c. Prudence and substance over form
d. Completeness and substance over form

A

c. Prudence and substance over form

35
Q

Under the Conceptual Framework for Financial Reporting 2010, which of the following statements is not a feature of financial information’s “comparability” characteristics?

a. Comparability is uniformity
b. A comparison requires at least two items
c. Consistency, although related to comparability, is not the same
d. Comparability is the goal, consistency helps to achieve that goal

A

a. Comparability is uniformity

36
Q

Under the IFRS Framework 2010, it is the ability through consensus among independent observers to ensure that financial information represents what it purports to represent

a. Comparability
b. Feedback value
c. Reliability
d. Verifiability

A

d. Verifiability

37
Q

What links the decision makers and the decisions makers and the decisions they make so that financial information would be useful?

a. Materiality
b. Relevance
c. Reliability
d. Understandability

A

d. Understandability

38
Q

Which of the following is true in relation to understandability?

a. Financial statements should exclude complex matters
b. Financial statements should be free from material error
c. Users are expected to have significant business knowledge
d. Users should be willing to study the information with reasonable diligence

A

d. Users should be willing to study the information with reasonable diligence

39
Q

Which of the following is true regarding the qualitative characteristics of “understandability” in relation to information in financial statements?

a. Financial statements should exclude complex matters
b. Financial statements should be free from material error
c. Users are expected to have significant business knowledge
d. Users should be willing to study the information with reasonable diligence

A

d. Users should be willing to study the information with reasonable diligence

40
Q

Which underlying assumption is indicated in the Conceptual Framework for Financial Reporting 2010?

a. Accounting entity
b. Accrual basis
c. Going concern
d. Monetary unit

A

c. Going concern

41
Q

What is the basic underlying assumption?

a. The financial statements are complete, neutral and free from error
b. The financial statements have predictable value and confirmatory value
c. The financial statements are comparable, understandable, verifiable and timely
d. The financial statements are normally prepared on the basis that the entity will continue in operation for the foreseeable future

A

d. The financial statements are normally prepared on the basis that the entity will continue in operation for the foreseeable future

42
Q

The continuity (going concern) assumption is the basis for the rule that

a. Treasury stock should not be reported in the balance sheet as an asset
b. The cost of operating assets should be allocated to expense over their useful life
c. The income statement should not include material gains and losses that are both unusual and infrequent
d. The cost of installing a machine should not be included in the recorded cost of the machine, but rather expensed immediately

A

b. The cost of operating assets should be allocated to expense over their useful life

43
Q

Which of the following is an essential characteristic of an asset?

a. The cost of the asset can be measure accurately
b. It is a result of either past or predictable transactions
c. It must be exclusively owned and must be exchangeable
d. The inflow of future economic benefits is controlled by the enterprise

A

d. The inflow of future economic benefits is controlled by the enterprise

44
Q

Which of the following is an essential characteristic of a liability?

a. The exact amount due must be known
b. It may be the result of future transactions
c. The identity of the creditor must be known
d. It must be an obligation to transfer or provide services in the future

A

d. It must be an obligation to transfer or provide services in the future

45
Q

Which of the following is not an essential characteristics for an item to be reported as a liability on the balance sheet?

a. The liability arises from past transactions or events
b. The liability is payable to a specifically identified payee
c. The liability is the present obligation of a particular entity
d. The settlement of the liability requires an outflow of resources embodying economic benefits.

A

b. The liability is payable to a specifically identified payee

46
Q

It is frequently used as a measure of performance or as the basis for other measures, such as return on investment or earnings per share

a. Gain
b. Income
c. Profit
d. Revenues

A

c. Profit

47
Q

It involves the depiction of the items in words and by a monetary amount and the inclusion of that amount in the financial statements

a. Disclosure
b. Presentation
c. Realization
d. Recognition

A

d. Recognition

48
Q

According to the Conceptual Framework, the two criteria required for incorporating items into the income statement or financial position are that it

a. Satisfies the criterion of capital maintenance
b. Meets the definition of relevance and reliability
c. Meets the requirements of comparability and consistency
d. Meets the definitions of an element and can be measured reliably

A

d. Meets the definitions of an element and can be measured reliably

49
Q

What is the valuation basis used n conventional financial statements

a. Market value
b. Original cost
c. Replacement cost
d. A mixture of costs and values

A

d. A mixture of costs and values

50
Q

Which of the following terms best describes assets recorded at amounts that represent immediate purchase cost of an equivalent asset?

a. Current cost
b. Historical cost
c. Present value
d. Realizable value

A

a. Current cost

51
Q

The measurement basis often used to report a long-term payable requiring a commitment to pay money at a determinable future date is

a. Current cost level
b. General price level
c. Net realizable value
d. Present value of future cash flows

A

d. Present value of future cash flows

52
Q

When fair value is used in measuring assets in the financial statements, current GAAP provides following references as basis of fair value, except

a. Price in active market
b. Price in recent transaction
c. Price taken from industry or sector benchmarks
d. Price based on assessed value of government bodies

A

d. Price based on assessed value of government bodies

53
Q 
Which capital concept requires the use of current cost basis of accounting?
Physical capital concept 
Financial capital concept 
a.	Yes yes 
b.	Yes no 
c.	No yes
d.	No no
A

b. Yes no

54
Q

The current cost basis of accounting is specifically required under

a. Any circumstances
b. Physical capital maintenance concept
c. Financial capital maintenance concept
d. Both financial and physical capital maintenance concept

A

b. Physical capital maintenance concept

55
Q

The following statements pertain to the provision of Conceptual Framework on the concept of Capital and Capital Maintenance
Statement I: The principal difference between two concepts of capital maintenance is the treatment of the effects of changes in the prices of assets and liability of the entity
Statement II: The selection of the appropriate concept of capital by an entity should be based on the needs of the users of its financial statements
Statement III: The concept of capital maintenance chosen by an entity shall determine the accounting model used in the preparation of its financial statements
a. Only statement I is false
b. Only statement II is false
c. Only statement III is false
d. None of the foregoing statement is false

A

d. None of the foregoing statement is false

56
Q

Identify the (1) pervasive constraint and (2) underlying assumption mentioned in the Conceptual Framework
A B C D
Pervasive Constraint Cost Cost Timeliness Timeliness
Underlying assumption Accrual basis Going concern Accrual basis Going concern

A

B Cost and Going Concern

57
Q

Determine the false statement regarding the Conceptual Framework of Financial Reporting

a. The Conceptual Framework serves as a guide in developing future financial reporting standards and in reviewing existing ones
b. The Conceptual Framework is a source of guidance for determining an accounting treatment where a standard does not provide specific guidance
c. The Conceptual Framework does not in any was assist preparers of financial statement in applying PFRS and in dealing with topics that have yet to form the subject of PFRS
d. The Conceptual Framework is not a PFRS, and nothing in it overrides any specific PFRS, including PFRS that is in some respect in conflict with the Conceptual Framework

A

c. The Conceptual Framework does not in any was assist preparers of financial statement in applying PFRS and in dealing with topics that have yet to form the subject of PFRS

Theory of Accounts (6 decks)

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