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CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

SEMI FINAL EXAMINATION

1. PFRSs are adopted from the standards issued by the

a. IASC.
b. IASCF.
c. IASB.
d. FASB.

2. Choose the correct statement.

a. Financial accounting is an information system designed to provide information primarily to
internal users.
b. Financial reporting cannot be influenced by changes in legal, political, business and social
environments.
c. General purpose financial statements must be prepared by a Certified Public Accountant.
d. The preparation of general purpose financial statements is usually based on the assumption
that the primary users use information in making decisions about providing resources to the
reporting entity.

3. The concept that states that all the components of a complete set of financial statement are
interrelated.
a. Entity
b. Concept of Articulation
c. Accounting Process
d. Principle of Fair Presentation

4. What type of users’ needs is catered by general purpose financial statements?

a. common needs
b. specific needs
c. a and b
d. neither a nor b

5. The issuance of financial reporting standards in the Philippines is the responsibility of the
a. PICPA.
b. FRSC.
c. AASC.
d. CPE Council.

6. Reporting entities usually place the sentence “See notes to the financial statements” or “See
accompanying notes to the financial statements” or a similar sentence on the face of the financial
statements. This practice is most in keeping with what accounting concept?
a. Articulation
b. Materiality
c. Separate entity
d. Full disclosure
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7. Which of the following is one of the fundamental qualitative characteristics?

a. Relevants
b. Comparability
c. Reliability
d. Faithful representation

8. According to the Conceptual Framework, the correct classifications of Relevance and Reliability,
respectively, are
a. Fundamental, Enhancing
b. Fundamental, Fundamental
c. Enhancing, Fundamental
d. Fundamental, None

9. The qualitative characteristics that enhance the usefulness of financial information includes all of
the following, except
a. Comparability
b. Verifiability
c. Timeliness
d. Materiality

10. Which of the following is not an aspect of the qualitative characteristic of relevance?
a. Predictive value
b. Materiality
c. Feedback or Confirmatory value
d. Timeliness

11. Information has this quality when it can influence the economic decisions of users by helping
them predict future outcomes, or confirm or correct their previous evaluations.
a. Predictive Value
b. Reliability
c. Relevance
d. Understandability

12. Which of the following is an element of the financial position of an entity?

a. income
b. loss
c. gains
d. none of these

13. Which of the following transactions or other events results to the recognition of an asset?
a. An entity forecasts a purchase of inventory in the coming month. The purchase is highly
probable.
b. An entity enters into firm commitment to purchase inventory in the coming month. The
entity cannot cancel the commitment without paying a penalty. The contract is not onerous
c. During the period, one of the buildings of an entity was destroyed by a calamity.
d. An entity receives a non-monetary grant from the government.
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14. Which of the following are elements of faithful representation under the Conceptual Framework?
I. Completeness
II. Neutrality
III. Free from error
IV. Reliability

a. I and II
b. I, II and III
c. I, II and IV
d. I, II, III and IV

15. According to the Conceptual Framework, the objective of general purpose financial statements is to
provide information about the reporting entity’s financial position, financial performance, and
other changes in financial position that is useful in assessing the entity’s
a. prospects for future net cash inflows.
b. management’s stewardship over economic resources.
c. a and b
d. neither a nor b

16. Which of the following can help users assess an entity’s prospects for future cash inflows?
a. Information about the nature and amount of the entity’s economic resources and claims.
b. Information about the entity’s financial performance and other changes in financial position.
c. Information about how the entity’s management has effectively and efficiently discharged its
responsibilities to use the entity’s economic resources.
d. All of these contribute to the assessment of an entity’s prospects for future cash inflows.

17. This refers to the process of incorporating in the statement of financial position or statement of
comprehensive income an item that meets the definition of a financial statement element and is
expected to result in useful information.
a. Recognition
b. Definition
c. Incorporation
d. Celebration

18. Information about an entity’s financial position and changes in financial position is referred to
under the Conceptual Framework as the
a. economic phenomena.
b. foundation of the Conceptual Framework.
c. phantom of the opera.
d. economic sabotage.

19. According to the Conceptual Framework, contributions from, and distributions to, holders of
equity claims (i.e., the entity’s owners) are
a. income and expenses, respectively.
b. income and expenses, respectively, that are recognized in other comprehensive income.
c. not income and expenses, but rather direct adjustments to equity.
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d. not recognized in the financial statements.

20. Which of the following could result to the recognition of income?

a. increase in liability
b. decrease in equity
c. decrease in asset
d. decrease in liability

21. According to the Conceptual Framework, it is the right or the group of rights, the obligation or the
group of obligations, or the group of rights and obligations, to which recognition criteria and
measurement concepts are applied.
a. Unit of account
b. Aggregation
c. Classifying
d. Executory contract

22. Entity A combines similar items and separates dissimilar items when presenting information.
Entity A is applying which of the following presentation and disclosure principles?
a. Use of entity-specific information, rather than ‘boiler-plate’ descriptions
b. Classifying
c. Aggregates
d. Offsetting

23. According to the Conceptual Framework, this principle refers to presenting information in a
concise manner by summarizing voluminous data, but not too concise that important detail is
either omitted or obscured.
a. Use of entity-specific information, rather than ‘boiler-plate’ descriptions
b. Classifying
c. Aggregation
d. Offsetting

24. Which of the following is considered a primary user of general purpose financial reports under
the Conceptual Framework?
a. government regulatory body
b. the entity’s management
c. potential investor
d. all of these are primary users

25. Which of the following is not one of the aspects in the revised definition of a liability?
a. Probable outflows of economic benefits and reliable measurement of those outflows
b. Obligation
c. Transfer of an economic resource
d. Present obligation as a result of past events

26. The Conceptual Framework uses the term “economic resources” to refer to
a. income.
b. equity.
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c. assets.
d. a and c

27. According to the Conceptual Framework, the historical cost of an asset or a liability is updated for
all of the following (if applicable), except
a. impairment of an asset.
b. accrual of interest, when the time value of money is considered.
c. changes in value as at the measurement date.
d. increase in an obligation relating to a contract becoming onerous.

28. The revised Conceptual Framework defines a liability as

a. a present obligation of the entity arising from past events, the settlement of which is
expected to result in an outflow from the entity of resources embodying economic benefits.
b. a present obligation of the entity to transfer an economic resource as a result of past events.
c. a present economic resource controlled by the entity as a result of past events. An economic
resource is a right that has the potential to produce economic benefits.
d. All of these.

29. Late information lacks this qualitative characteristic.

a. Tardiness
b. Timeliness
c. Verifiability
d. Comparability

30. Comprehensive income excludes which of the following?

a. Gains and losses arising from translation of foreign operation.
b. Gains and losses from investments measured at fair value through other comprehensive
income.
c. Correction of prior period error.
d. Share in the profit or loss of an associate that is accounted for using the equity method.

31. Which of the following is not included among the general features of financial statement
presentation?
a. Growing concern
b. Accrual basis
c. Frequency of reporting
d. Comparative information

32. A company is issuing its comparative financial statements for the years 20x2 and 20x3. If the
company is required to issue an additional statement of financial position, such statement
should be dated
a. as of Jan. 1, 20x1.
b. as of Jan. 1, 20x2.
c. as of Dec. 31, 20x2.
d. as of Dec. 31, 20x1.

33. According to PAS 2, inventories are measured at

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a. cost.
b. fair value less costs to sell.
c. net realizable value.
d. lower of a and b

34. Which of the following is added to the cost of inventories?

a. Cost of wasted material due to production inefficiencies
b. Import duties on shipping of inventory inwards
c. Storage costs of finished goods
d. Trade discounts received on the purchase of inventory

35. Entity A, a trading entity, buys and sells Product Z. Movements in the inventory of Product Z
during the period are as follows:

Date Transaction Units Unit cost Total cost

Feb. 1 Beginning inventory 100 ₱15 ₱1,500
7 Purchase 300 18 5,400
12 Sale 320
21 Purchase 200 21 4,200

How much is the ending inventory under the Weighted Average cost formula? (The average is
calculated on a periodic basis.)
a. 5,180
b. 5,290
c. 5,460
d. 5,920

36. This method of presenting cash flows from (used in) operating activities shows each major class
of gross cash receipts and gross cash payments.
a. Direct method
b. Inverse method
c. Indirect method
d. Straight method

37. According to PAS 10, this is the date when management authorizes the financial statements for
issue regardless of whether such authorization is final or subject to further approval.
a. Date of authorization of the financial statements
b. Date of declaration
c. Date of events after the reporting period
d. Adjustment date

38. Entity A’s inventories on December 31, 20x1 have a cost of ₱100,000 and a net realizable value of
₱80,000. Accordingly, Entity A recognized a write-down of inventories of ₱20,000. Shortly after
December 31, 20x1, but before the financial statements were authorized for issue, the inventories
were sold for a net sale proceeds of ₱70,000. The correct amount of inventory write-down to be
reported in Entity A’s December 31, 20x1 financial statements is
a. 20,000
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b. 0
c. 30,000
d. any of these

39. Which of the following is not considered an item of PPE?

a. land classified as investment property
b. land used in agricultural activity by a farming entity
c. equipment manufactured or acquired primarily to be held for rentals
d. all of these

40. Which of the following assets may not be depreciated?

a. Building that is measured under the revaluation model.
b. Equipment that becomes idle or is retired from active use.
c. Land
d. Landfill site

41. A change in depreciation method, estimate of useful life or residual value is accounted for as a
a. change in accounting policy.
b. correction or error.
c. change in accounting estimate.
d. any of these

42. Entity A exchanges its equipment for Entity B’s equipment. If the exchange has commercial
substance, Entity A should measure the equipment received from Entity B on initial recognition
at
a. the fair value of the equipment received.
b. the fair value of the equipment given up.
c. the carrying amount of the equipment received.
d. the carrying amount of the equipment given up.

43. In accounting parlance, depreciation means

a. the decline in the value of an asset during the period.
b. the amount derived by dividing the cost of an asset over its useful life.
c. the amount derived by multiplying the cost of an asset by its useful life.
d. the systematic allocation of the depreciable amount of an asset over its useful life.

44. Entity A pays salaries on a bi-monthly basis. Entity A has 10 employees, each earning ₱20,000
per month. During the month of April 20x1, none of the employees were absent, late or have
rendered overtime service. Which of the following is correct regarding the timing of recognition
and the amount of salaries expense recognized on the first payday in the month of April 20x1?
Timing of recognition Amount recognized
a. April 1 20,000
b. April 15 200,000
c. April 1 100,000
d. April 15 100,000
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45. Grants are normally recognized at

a. current value.
b. market value.
c. fair value.
d. net realizable value.

46. On December 1, 20x1, you imported a machine from a foreign supplier for $100,000, due for
settlement on January 6, 20x2. Your functional currency is the Philippine peso. The relevant
exchange rates are as follows:
Dec. 1, 20x1 Dec. 31, 20x1 Jan. 6, 20x2
₱50:$1 ₱52:$1 ₱47:$1

How much is your net foreign exchange gain (loss) on the importation?
a. 200,000
b. (200,000)
c. 300,000
d. (300,000)

47. On January 1, 20x1, Entity A obtained a 10%, ₱5,000,000 loan, specifically to finance the
construction of a building. The proceeds of the loan were temporarily invested and earned
interest income of ₱180,000. The construction was completed on December 31, 20x1 for a total
construction costs of ₱7,000,000. How much are the borrowing costs capitalized to cost of the
building?
a. 320,000
b. 300,000
c. 500,000
d. 680,000

48. Which of the following are not related parties under PAS 24?
a. A parent and its subsidiaries
b. An investor and its associate
c. Family member of a Chief Executive Officer and the entity
d. A shareholder who holds 2% interest in the voting rights of the entity

49. Entity B, a trustee, undertakes to manage the retirement benefit fund of Entity A for the benefit
of Entity A’s employees. When reporting to Entity A regarding the status and performance of
the fund, Entity B would most likely apply which of the following standards?
a. PAS 19
b. PAS 24
c. PAS 26
d. PFRS 6

50. According to PAS 27, investments in subsidiaries, associates or joint ventures are accounted for
in the separate financial statements
a. at cost.
b. at fair value in accordance with PFRS 9.
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c. using the equity method under PAS 28.

d. any of these, as a matter of accounting policy choice.

51. On January 1, 20x1, Entity A acquires 30% interest in Entity B for ₱600,000. Entity B reports
profit of ₱200,000 and declares dividends of ₱50,000 in 20x1. How much is the carrying amount
of the investment in associate on December 31, 20x1?
a. 600,000
b. 660,000
c. 645,000
d. 630,000

52. Under constant peso accounting, items are restated using this formula:
a. Historical cost x (Current price index ÷ Average price index)
b. Historical cost x (Current price index ÷ Historical price index)
c. Revalued amount x (Current price index ÷ Historical price index)
d. Historical cost x (Current price index ÷ Historical price index*) *However, if the historical
price index is impracticable to determine, the average price index may be used.

53. Entity A issues convertible bonds with face amount of ₱2,000,000 for ₱2,600,000. Each ₱1,000
bond is convertible into 10 shares with par value of ₱60 per share. On issuance date, the bonds
are selling at 102 without the conversion option. What is the value allocated to the equity
component on initial recognition?
a. 2,040,000
b. 540,000
c. 560,000
d. 460,000

54. Entity A had 100,000, ₱10 par, 10% cumulative preference shares outstanding all throughout
20x1. Entity A reported profit after tax of ₱2,800,000 for the year ended December 31, 20x1. The
movements in the number of ordinary shares are as follows:
1/1/20x1 Ordinary shares outstanding 120,000
3/1/20x1 Shares issued for cash 42,000
9/30/20x1 Subscribed shares 20,000
11/1/20x1 Reacquisition of treasury shares (12,000)
Outstanding shares at the end of period 170,000

What is the basic earnings per share?

a. 18.92
b. 17.09
c. 18.07
d. 16.98

55. According to PAS 34, income tax expenses in interim periods are computed using
a. a weighted average annual income tax rate.
b. a substantially enacted future tax rate.
c. a uniform tax rate for all periods presented, including comparatives.
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d. an imputed tax rate.

56. According to PAS 36, which of the following is an indication of impairment from internal
sources of information?
a. Significant decline in the asset’s (market) value.
b. Indications that the economic performance of an asset is, or will be, worse than expected.
c. Significant changes in technological, market, economic, or legal environment that adversely
affect the recoverable amount of an asset.
d. The carrying amount of the entity’s net assets exceeds its market capitalization.

57. If the carrying amount of an asset is less than its recoverable amount, the asset
a. is impaired.
b. should be written-down.
c. is not impaired.
d. should be written-off in profit or loss.

58. Which of the following assets is not tested for impairment in accordance with PAS 36?
a. Property, plant and equipment
b. Inventory
c. Intangible assets
d. Goodwill

59. According to PAS 37, contingent liabilities are

a. recognized and disclosed.
b. always disclosed.
c. disclosed, only if their expected occurrence is remote.
d. not disclosed if their expected occurrence is remote.

60. Which of the following assets can be measured using the revaluation model?
a. Property, plant and equipment
b. Investment property
c. Intangible assets
d. a and c
e. all of these

61. Entity A acquires a building for ₱1,000,000. The building is to be leased out under various
operating leases. The building has an estimated useful life of 10 years and zero residual value.
Entity A uses the cost model for its property, plant and equipment and the fair value model for
its investment property. At the end of Year 1, the building is assessed to have a fair value of
₱1,080,000. How much should Entity A recognize in profit or loss in relation to the building?
a. 80,000 gain on change in fair value
b. 100,000 depreciation
c. 180,000 gain on change in fair value
d. b and c

62. Which of the following is considered an agricultural activity under PAS 41?
a. fishing in the open seas
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b. illegal logging
c. floriculture
d. farming in the computer or cellphone

63. Which of the following is accounted for under PAS 41?

a. bearer plants
b. bearer animals
c. government grants related to biological assets measured at cost
d. plants used in landscaping

64. Prior to the full adoption of the IFRSs in 2005, the reporting standards used in the Philippines
were primarily based on
a. US GAAP (SFASs).
b. Japanese GAAP.
c. Spaniard GAAP.
d. a combination of a, b and c and a little bit of Lapu-lapu’s accounting concepts.

65. According to PFRS 1, an entity’s first PFRS financial statements shall include, at the minimum, at
least (choose the incorrect statement)
a. three statements of financial position
b. two statements of financial position
c. two statements of comprehensive income
d. two statements of cash flows

66. On January 1, 20x4, Entity A has granted 600 share options to each of its 100 employees. The
options vest in three years’ time. Each share option has a fair value of ₱100 on grant date.
Information on employee departure is as follows:
• January 1, 20x4: estimate of employees leaving the entity during the vesting period – 4%
• December 31, 20x4: revision of estimate of employees leaving to 5% before vesting date
• December 31, 20x5: revision of estimate of employees leaving to 6% before vesting date
• December 31, 20x6: actual employees leaving 5%

How much is the salaries expense in 20x5?

a. 2,000,000
b. 1,880,000
c. 1,860,000
d. 0

67. According to PFRS 3, how does an acquirer account for negative goodwill?
a. as an asset
b. as a deferred credit (liability), but only after reassessment of the identifiable net assets
acquired
c. as gain in profit or loss on the acquisition date
d. as gain in profit or loss in the period of business combination but only after reassessment of
the identifiable net assets acquired
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68. Which of the following assets of an acquiree may not be included when computing for the
goodwill arising from a business combination?
a. capitalized kitchen utensils and equipment
b. intangible assets not previously recorded
c. research and development costs charged as expenses
d. goodwill recorded by the acquiree prior to the business combination

69. Imagine you are an awesome auditor. Your “not-so-awesome” client does not know when to
classify assets and liabilities as current or non-current. Which of the following standards would
you suggest your client should refer to?
a. PAS 1
b. PAS 24
c. PAS 34
d. PFRS 1000

70. Imagine you are an awesome accountant. You client, Entity A which is engaged in farming
activities, asked you for an advice on how it will account for its agricultural land. Which of the
following standards would you advise Entity A should use?
a. PAS 7
b. PAS 16
c. PAS 40
d. PAS 41

71. Provisions, contingent liabilities and contingent assets are accounted for using
a. PAS 37.
b. PFRS 6.
c. PAS 29.
d. PAS 8.

72. To account for additions and disposals of items of property, plant and equipment, a CPA would
most likely refer to the accounting and disclosure requirements of
a. PAS 2.
b. PAS 40.
c. PFRS 5.
d. PAS 16.

73. Entity X acquires 90% interest in Entity Y in a business combination. The most relevant Standard
to be applied to this transaction is
a. PAS 28.
b. PAS 3.
c. PFRS 5.
d. PFRS 3.

74. Inventories are accounted for under

a. PAS 1.
b. PAS 2.
c. PFRS 1.
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d. PFRS 2.

75. You are a member of the board of directors of ABC Co. Your company acquired a building to be
held solely for rentals. You are tasked in selecting an appropriate accounting policy for the
building. In this regard, you will most likely refer to which of the following standards?
a. PAS 17
b. PAS 39
c. PAS 40
d. PAS 41

76. You are the sole proprietor of Entity A. As a requisite to your business loan application, you
were required by the bank to submit audited financial statements. During the audit of your
financial statements, the auditor questioned the carrying amount of your land. The auditor
believes that the carrying amount is overstated and needs to be written down to its recoverable
amount. In your discussions with your auditor, the auditor would most likely refer to this
standard in her report?
a. PAS 36
b. PFRS 1
c. PAS 26
d. PAS 12

77. Events after the reporting period are accounted for under
a. PAS 1.
b. PAS 10.
c. PFRS 1.
d. PAS 24.

78. The presentation of financial statements is addressed by this standard.

a. PAS 1
b. PAS 8
c. PFRS 3
d. PAS 28

79. PAS 34 relates to

a. the accounting for inventories.
b. the identification and disclosure of related party relationships.
c. interim financial reporting.
d. the presentation of financial instruments.

80. Which of the following is not one of the current PFRSs?

a. PAS 2
b. PAS 3
c. PAS 7
d. PAS 10
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“I press on toward the goal to win the prize for which God has called me heavenward in Christ
Jesus.” (Philippians 3:14)

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