POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

Sta. Mesa Manila

ACCO 20063 – Conceptual Framework and Accounting Standards
MIDTERM EXAMINATION

Name: ____________________________________ Section: _________ Date: _________ Professor: __________________

Instruction: Shade the letter of the best answer for each of the questions presented. Avoid erasure on your scannable sheet. For
computational analysis, you may use your questionnaire as your solution paper. Do NOT cheat, anyone caught in the act of
cheating shall have a grade of 0% in this examination. Good Luck!

Part I: Multiple choices: Choose the best answer

1. What is the objective of the general purpose financial reporting in accordance with the conceptual framework?
a. To provide information that is useful to management.
b. To provide information about those investing in the entity.
c. to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and
other creditors in making decisions relating to providing resources to the entity
d. All of these.

2. Which of the following is a fundamental quality of useful accounting information?

a. Comparability. b. Consistency c. Materiality d. Relevance

3. For information to be useful, the link between the users and the decisions made is
a. Materiality b. relevance c. reliability d. understandability

4. Which of the following is a benefit of providing financial information?

a. Auditing c. Improved allocation of resources
b. Disclosure to competition d. Potential litigation

5. Which of the following is an enhancing quality that relates to both relevance and faithful representation?
a. Comparability b. Confirmatory value c. Freedom from error d. Predictive value

6. Under Section 5 of RA 9298, who shall appoint the members of the Professional Regulatory Board of Accountancy?
a. The chairman of the Board of Accountancy.
b. The president of the Republic of the Philippines.
c. The chairperson of Professional Regulations Commission.
d. The president of Philippine Institute of Certified Public Accountants.

7. Statement I. All International Financial Reporting Standards (IFRS’s) are issued by the IASB.
Statement II. To issue an IFRS, unanimous vote of the IASB members are needed.
Statement III. The IASB shall report to the IFRS advisory council and IFRS Foundation.

Which of the following statements is (are) true?

a. I only b. II only c. I and II d. II and III e. I, II and III

8. Which of the following is true about the Financial Reporting Standards Council (FRSC)?

Statement I. It establishes generally accepted accounting principles in the Philippines.

Statement II. It is the successor of Accounting Standards Council (ASC).
Statement III. It assists the Professional Regulatory Board of Accountancy (BOA) in carrying out its power and function to
promulgate accounting standards in the Philippines.

a. I only b. II only c. I and II d. II and III e. I, II and III

9. In accordance with RA 9298, the Board of accountancy:

a. shall be composed of seven members including the chairman.
b. shall be given three years equivalent to one term, renewable every three years.
c. shall adopt and issue PAS and PFRS upon recommendation of the PICPA.
d. shall be appointed by the chair of the Professional Regulations Commission.

10. Which of the following was created by Professional Regulatory board of Accountancy to help them in carrying out its
powers and functions?
a. FRSC b. PICPA c. PFRS Interpretations Committee d. ASC e. PRC

11. Determine the true statement regarding IFRS when referred collectively.
a. The term “IAS” generally covers “IFRS”.
b. The term “IAS” generally covers “IFRIC”
c. The term “IFRS” generally covers “IAS”.
d. The term “IFRIC” generally covers “IFRS”
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12. Which is the basic purpose of the 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
issued 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 of accounting standards.

13. The new conceptual framework is composed of eighth chapters, which of the following are correct?
I. Chapter 1: The Objective of General Purpose Financial Reporting
II. Chapter 2: Financial Statement and the Reporting Entity
III. Chapter 3: Qualitative Characteristics of Useful Financial Information
IV. Chapter 4: Recognition and Derecognition
V. Chapter 5: Measurement
VI. Chapter 6: Elements of the Financial Statements
VII. Chapter 7: Presentation and Disclosure
VIII. Chapter 8: Concepts of Capital and Capital Maintenance

a. I, III, VI, VIII b. I, IV, V, VI, VIII c. I, VI, VII, VIII d. I, VII, VIII e. I, IV, VII, VIII

14. The Conceptual Framework provides the foundation for Standards, except:
a. contribute to transparency by enhancing the international comparability and quality of financial information, enabling
investors and other market participants to make informed economic decisions.
b. strengthen accountability by reducing the information gap between the providers of capital and the people to whom
they have entrusted their money.
c. contribute to economic efficiency by helping investors to identify opportunities and risks across the world, thus
improving capital allocation.
d. assist preparers to develop consistent accounting policies when no standard applies to a particular transaction or other
event, or when a Standard allows a choice of accounting policy

15. Information may be capable of making a difference in a decision even if some users choose not to take advantage of it or
are already aware of it from other sources. This describes the principle of:
a. Comparability b. Completeness c. Relevance d. Faithful Representation

16. Financial information that can be used as an input to processes employed by users to predict future outcomes has?
a. Predictive value b. Confirmatory value c. Feedback value d. Comparable

17. It is an entity-specific aspect of relevance based on the nature or magnitude, or both, of the items to which the information
relates in the context of an individual entity’s financial report.
a. Faithful Representation b. Business entity c. Materiality d. Offsetting

18. Statement I. To be a perfectly faithful representation, a depiction would have three characteristics, complete, neutral and
free from error.
Statement II. To be useful, financial information must not only represent relevant phenomena, but it must also faithfully
represent the substance of the phenomena that it purports to represent.
a. Only statement I is true c. Both statements are true
b. Only statement II is true d. Both statements are false

19. Which of the following is an enhancing qualitative characteristic?

a. Relevance b. Faithful Representation c. Comparability d. Consistency

20. Comparability is the goal; to achieve that goal you must be?
a. Relevant b. material c. consistent d. faithful

21. It means that different knowledgeable and independent observers could reach consensus, although not necessarily complete
agreement, that a particular depiction is a faithful representation.
a. Consistency b. Verifiability c. Comparability d. Knowledgeability

22. Ethan, an accountant, is computing the ending balance of inventory as recorded in the book. Ethan recalculate the ending
balance using First-in, First-out method as stated in the company’s policy. This is an example of:
a. Direct verification c. consistent verification
b. Indirect verification d. knowledgeable verification

23. The objective of financial statements is to provide financial information about the reporting entity, that information is
provided:
Statement I. In the statement of financial position, by recognizing assets, liabilities, equity, income and expenses.
Statement II. In the statement of financial performance, by recognizing income, gains, expenses and losses.
a. Only statement I is correct c. Both statements are correct
b. Only statement II is correct d. Both statements are false
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24. Which of the following assumption is mentioned by the conceptual framework?
a. Accrual basis b. Going Concern c. Periodicity d. Time Value

25. A reporting entity is:

a. a single entity b. a portion of an entity c. more than one entity d. all of them can be an entity

26. Decreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating to distributions to
holders of equity claims.
a. expenses b. income c. gains d. other comprehensive income

27. Which of the following is not an aspect of asset?

a. Control b. right c. potential to produce economic benefits d. obligation

28. Which of the following is an example of asset?

a. legal ownership of a physical object to be used in operation.
b. exchange economic resources with another party on unfavorable terms.
c. claims against the entity for an investment made.
d. obligation to transfer resources in the future.

29. They are claims against the entity that do not meet the definition of a liability:
a. assets b. liabilities c. equity d. forever

30. Which of the following is not an example of equity?

a. Ordinary shares b. preference shares c. retained earnings d. bonds payable

31. Statement I. Income and expenses are the elements of financial statements that relate to an entity’s financial performance.
Statement II. Contributions from holders of equity claims are maybe included in income, and distributions to holders of
equity claims are maybe included in expenses.
a. Only statement I is false c. Both statements are not true
b. Only statement II is false d. Bothe statements are true

32. Statement I. The removal of all or part of a recognized asset or liability is considered derecognition.
Statement II. The removal of all or part of an income or expense is considered derecognition.
a. Only statement I is true c. Both statements are not false
b. Only statement II is true d. Bothe statements are false

33. 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.

34. What are the qualitative characteristic 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.

35. Which of the following is true regarding the qualitative characteristic 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.

36. The going concern assumption is the basis for the rule that:
a. treasury shares should not be reported in the statement of financial position as an asset.
b. the cost of operating assets should be allocated to expense systematically over their useful lives.
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.

37. It provides information about the present value of the estimated cash flows from the use of an asset and from its ultimate
disposal.
a. Fulfilment value b. Value in use c. Fair Value d. Historical cost

38. Expenses arising because historical cost is no longer recoverable.

a. loss on sale b. operating expense c. impairment loss d. unrecoverable cost
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39. It is the sorting of assets, liabilities, equity, income or expenses on the basis of shared characteristics for presentation and
disclosure purposes.
a. Presentation b. Measurement c. Recognition d. Classification

40. Which of the following financial statement reports for specific date?
a. Statement of Financial Position c. Statement of Cash Flows
b. Statement of Comprehensive Income d. Statement of Changes in Equity

41. Under this concept a profit is earned only if the financial (or money) amount of the net assets at the end of the period
exceeds the financial (or money) amount of net assets at the beginning of the period, after excluding any distributions to,
and contributions from, owners during the period.
a. Financial capital maintenance c. Capital position maintenance
b. Physical capital maintenance d. Performance capital maintenance

42. PAS 1: Presentation of Financial Statement, except:

a. sets out overall requirements for the presentation of financial statements.
b. sets out guidelines for the structure of each financial statement components.
c. sets out the minimum requirements for the content of the financial statement.
d. sets out for recognition and measurement of asset, liabilities, equity, income and expenses.

43. PAS 1, shall apply to those financial statements that present:

I. In accordance with PAS 27
II. In accordance with PFRS 10
III. In accordance with PAS 34

It shall apply to FS prepared using:

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

44. Philippine Financial Reporting Standards (PFRS) comprises:

I. Philippine Financial Reporting Standards (PFRS)
II. Philippine Accounting Standards (PAS)
III. PIC Interpretations

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

45. Which of the following is not reported in profit or loss in accordance with the definition of PAS 1?
a. loss on sale of equipment c. gain on sale of investment
b. rent expense d. foreign exchange translation loss

46. Which of the following is reported as other comprehensive income in accordance with PAS 1, Presentation of Financial
Statement?
a. changes in revaluation surplus c. loss on sale of machinery
b. sale of inventory at more than cost d. impairment loss of depreciable asset

47. Total comprehensive income is best described as:

a. income minus expenses
b. net income plus other comprehensive income
c. gains less losses
d. operating income less other comprehensive income

48. Under PAS 1, which of the following is true about PFRS requirements?
a. Income statements for three years are required.
b. Prior year comparative financial statements are required.
c. Statements of financial position for three years are required.
d. There are not specific requirements regarding comparative financial statements.

49. Which of the following is reported in profit or loss in accordance with PAS 1?
I. Sales revenue
II. Impairment loss
III. Interest income
IV. Re-measurement loss on defined benefit plans

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

50. Which of the following is not reported in the financial statement at specific date?
a. Cash and cash equivalents c. Non-Current Asset held for sale
b. Non-controlling interest d. Sales Revenue

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Part II. Computational analysis. Compute the required, shade your answer on the scannable sheet provided.

Use the following information for number 51-52:

Lany Incorporated had the following balances of assets and liabilities in 2019:
Beginning balances:
Cash and cash equivalents P250,000 Accounts payable P120,000
Trade and other receivables 150,000 Notes payable 80,000
Inventories 210,000 Bonds payable 200,000
Prepaid expenses 50,000 Mortgage payable 240,000
Property, plant and equipment - net 350,000
Ending balances:
Cash and cash equivalents P230,000 Accounts payable P100,000
Trade and other receivables 250,000 Notes payable 60,000
Inventories 300,000 Bonds payable 170,000
Prepaid expenses 40,000 Mortgage payable 240,000
Property, plant and equipment - net 300,000

51. Using the financial capital maintenance approach, how much is the profit in 2019?
a. P180,000 b. P210,000 c. P370,000 d. P420,000

52. Using the conceptual framework, how much is the equity at the end of 2019?
a. P270,000 b. P370,000 c. P420,000 d. P550,000

53. The following information is available for Hello, Love and Goodbye Studio in 2019:
Total assets, beginning P2,500,000
Total liabilities, beginning 1,835,000
Equity, ending 681,000
Contributions from the equity participants 88,000

Using the capital maintenance approach, what is the amount of distributions to the equity participants during the period?
a. P120,000 b. P72,000 c. P54,000 d. P45,000

54. On July 1, 2019, Ethan Company purchased a machinery from a dealer paying P2,310,000 cash. In addition, a P150,000
transaction cost was incurred to bring the machinery in Ethan’s premises. Using the conceptual framework, how much is
the historical cost of the machinery?
a. P2,310,000 b. P2,460,000 c. P2,160,000 d. P2,385,000

Use the following information for numbers 55 – 58:

During 2019, the results of operation of Joy Company was summarized below:

Cash on hand P120,000

Petty cash fund 5,000
Notes payable 70,000
Accounts payable 20,000
Accounts receivable 40,000
Inventories 55,000
Accrued income 12,000
Rent Income 22,000
Sales Revenue 210,000
Cash in bank 320,000
Notes receivable 140,000
Interest income 4,000
Rent expense 50,000
Prepaid insurance expense 20,000
Insurance expense 5,000
Supplies 10,000
Supplies expense 2,000
Unearned rent income 45,000
Accrued expenses 7,000
Contribution from the equity participants 53,000
Distributions to the equity participants 42,000
Cost of goods sold 80,000

Using the conceptual framework and PAS 1, determine the following:

55. Total assets:
a. P722,000 b. P710,000 c. P690,000 d. P650,000

56. Total liabilities:

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 a. P90,000 b. P135,000 c. P142,000 d. P160,000

57. How much is the profit or loss during the period?

a. P156,000 b. P129,000 c. P99,000 d. P72,000

58. Using the financial concept of capital, how much is the beginning balance of the equity?
a. P497,000 b. P470,000 c. P440,000 d. P413,000

Use the following information for number 59 – 60:

Sales revenue 300,000

Cost of sales 100,000
Operating expense 80,000
Finance cost 20,000
Revaluation surplus 30,000
Foreign exchange translation loss 25,000

59. How much is the amount reported in profit or loss?

a. P125,000 b. P100,000 c. P105,000 d. P130,000

60. How much is the amount reported in comprehensive income?

a. P125,000 b. P100,000 c. P105,000 d. P130,000

Use the following information for number 61 – 65:

Cash and cash equivalents P210,000

Accounts payable 85,000
Gain on sale of equipment 22,000
Notes receivable 75,000
Interest Income 12,000
Notes payable 58,000
Accounts receivable 80,000
Rent Income 310,000
Equipment - net 250,000
Furniture and fixtures - net 140,000
Mortgage payable 180,000
Loss on sale of furniture 51,000
Impairment loss 45,000
Inventories 65,000
Bonds payable 190,000
Withholding tax payable 25,000
Accrued expenses 14,000
Accrued income 8,000
Utilities expense 21,000
Equity balance, beginning 49,000

61. How much is the total assets?

a. P828,000 b. P820,000 c. P790,000 d. P758,000

62. How much is the total liabilities?

a. P538,000 b. P552,000 c. P560,000 d. P572,000

63. How much is the total income?

a. P322,000 b. P332,000 c. P300,000 d. P344,000

64. How much is the total expenses?

a. P117,000 b. P72,000 c. P60,000 d. P58,000

65. How much is the equity balance at the end?

a. P268,000 b. P290,000 c. P276,000 d. P272,000

Use the following information for number 66 – 67:

Rent expense P120,000 Depreciation expense P50,000

Utilities expense 30,000 Loss on sale of furniture 12,000
Insurance expense 12,000 Impairment loss 45,000

66. How much is the total loss?

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 a. P57,000 b. P119,000 c. P149,000 d. P269,000

67. How much is the total expenses?

a. P57,000 b. P119,000 c. P149,000 d. P269,000

Use the following information for number 68 – 70:

Tanya Company is merchandising business that sells goods in different parts of the country. The following summarized the
transaction of Tanya during the year:

Sales P540,000
Rent income 30,000
Interest income 10,000
Gain on sale of machinery 12,000
Cost of sales 200,000
Rent expense 100,000
Insurance expense 30,000
Depreciation expense 40,000
Loss on sale of equipment 15,000
Foreign exchange translation loss 20,000
Revaluation surplus 40,000

68. How much is the total income?

a. P540,000 b. P570,000 c. P580,000 d. P592,000

69. How much is the total expense?

a. P185,000 b. P205,000 c. P385,000 d. P405,000

70. How much is the total comprehensive income?

a. P227,000 b. P207,000 c. P187,000 d. P210,000

*** END OF EXAMINATION ***

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