Saint Ferdinand College

College of Accountancy
Integrated Course in Financial Accounting and Reporting

Handout – 2
Revised Conceptual Framework

1. What is the authoritative status of the Conceptual Framework?

a. The conceptual framework has the highest level of authority.
b. In the absence of a Standard, the Conceptual Framework should be followed.
c. In the absence of a Standard or an Interpretation that specifically applies to a transaction, management should
consider the Conceptual Framework in developing an accounting policy that results in relevant and reliable
information.
d. The conceptual framework applies only when new or revised standards are developed.
2. The Conceptual Framework is intended to establish
a. Accounting standard in financial reporting
b. The meaning of “present fairly in accordance with GAAP”
c. The objectives and concepts for use in developing financial accounting standards.
d. The hierarchy of sources of GAAP
3. Which is not a purpose of the Revised Conceptual Framework?
a. To assist the IASB to develop IFRS based on consistent concepts.
b. To assist preparers to develop consistent accounting policy when no standard applies to a particular transaction or
when Standard allows a choice of accounting policy.
c. To assist all parties to understand and interpret the Standards.
d. To assist the BOA in issuing rules and regulations affecting the accountancy profession.
4. What is the primary objective of financial reporting?
a. To provide economic information that is comprehensible to all users.
b. To provide management with an accurate evaluation of their financial performance
c. To provide forecasts for future cash flows and financial performance.
d. To provide information that is useful for economic decision making.
5. The objectives of financial reporting are based on
a. The need for conservatism
b. Reporting on management stewardship
c. Generally accepted accounting principles
d. The needs of the users of information
6. Which best describes the going concern assumption?
a. When current assets exceed current liabilities
b. The ability of an entity to continue in operation for the foreseeable future
c. The potential to contribute to the flow of a cash to an entity
d. When revenue exceeds expenses
7. The economic entity assumption
a. Is inapplicable to unincorporated businesses
b. Recognizes the legal aspects of business organizations
c. Requires periodic income measurement
d. Is applicable to all forms of business organizations
8. Consolidated financial statements are prepared when a parent-subsidiary relationship exists.
a. Economic entity assumption
b. Legal entity assumption
c. Monetary unit assumption
d. Time period assumption
9. During the lifetime of an entity, accountants produce financial statements at arbitrary or artificial points in time in accordance
with which basic accounting concept?
a. Objectivity c. Unit of measure
b. Time period assumption d. Continuity assumption
10. Inflation is ignored in accounting due to
a. Economic entity assumption c. Monetary unit assumption
b. Going concern assumption d. Time period assumption
11. Qualitative characteristics of financial statements are
a. The attributes that make the information provided in financial statements useful to users
b. Broad classes of financial effects of transactions and other events
c. Unqualitative aspects of financial position and financial performance
d. Measure the extent to which an entity has complied with all relevant standards and interpretations
12. Fundamental qualitative characteristics of accounting information are
a. Relevance and comparability
b. Comparability and consistency
c. Faithful representation and relevance
d. Neutrality and verifiability
13. Enhancing qualitative characteristics of accounting information include
a. Relevance, faithful representation and materiality
b. Comparability, understandability, timeliness and verifiability
c. Faithful representation and timeliness
d. Materiality and understandability
14. Faithful representation includes
a. Predictive value and confirmatory value
b. Completeness, free from error and neutrality
c. Comparability and understandability
d. Timeliness and verifiability
15. The financial information is directed toward the common needs of users and is independent of presumptions about particular
needs and desires of specific users.
a. Comparability c. Neutrality
b. Verifiability d. Completeness
16. Neutrality is supported by the exercise of prudence. Prudence is the exercise of care and caution when dealing with
uncertainties in the measurement process such that
a. Assets and income are overstated
b. Liabilities and expenses are understated
c. Assets and income are not overstated and liabilities and expenses are not understated.
d. Assets, liabilities, income and expenses are not overstated.
17. The qualitative characteristic of relevance includes
a. Predictive value and confirmatory value
b. Completeness and neutrality
c. Comparability and understandability
d. Verifiability and timeliness
18. Accounting information is considered relevant when it
a. Can be depended on to represent the economic conditions that it is intended to represent
b. Is capable of making a difference in a decision
c. Is understandable by reasonably informed users of accounting information
d. Is verifiable and neutral
19. Which of the following statements about materiality is not correct?
a. An item must make a difference or it need not be disclosed.
b. Materiality is a matter of absolute size.
c. An item is material if omitting, misstating or obscuring it could reasonably be expected to influence the economic
decision of primary users.
d. Materiality is a subquality of relevance.
20. What is meant by comparability when discussing financial accounting information?
a. Information has predictive and feedback value.
b. Information is reasonably free from error.
c. Information is measured and reported in a similar fashion across entities.
d. Information is timely.
21. What is meant by consistency when discussing financial accounting information?
a. Information is measured and reported in a similar fashion across points in time.
b. Information is timely.
c. Information is measured similarly across the industry.
d. Information is verifiable.
22. The enhancing quality of understandability means that information should be understood by
a. Those who are experts in the interpretation of financial information
b. Those who have a reasonable understanding of business and economic activities
c. Financial analysts
d. CPAs
23. According to the Revised Conceptual Framework, verifiability implies
a. Legal evidence
b. Logic
c. Consensus
d. Legal verdict
24. When an entity has started placing its quarterly financial statements on its website, thereby reducing ample time to get
information to users, the qualitative concept involved is
a. Comparability
b. Understandability
c. Verifiability
d. Timeliness
25. The usefulness of providing information in financial statements is subject to the constraint of
a. Consistency
b. Cost-benefit
c. Conservatism
d. Materiality
26. Which of the following best describes the cost-benefit constraint?
a. The benefit of the information must be greater than the cost of providing it.
b. Financial information should be free from cost to users of the information.
c. Cost of providing financial information is not always evident or measurable.
d. All of the choices are correct.
27. A reporting entity
a. Is necessarily a legal entity
b. Must be a corporate type of entity
c. Is an entity that is required or chooses to prepare financial statements
d. A regulatory government authority
28. A reporting entity
a. Can be a single entity
b. Can be a portion of a single entity
c. Can comprise more than one entity
d. All of these can be considered a reporting entity
29. Which statement is true about financial statements of a reporting entity?
a. If the reporting entity comprises both the parent and its subsidiaries, the financial statements are referred to as
consolidated financial statements.
b. If the reporting entity is the parent alone, the financial statements are referred to as unconsolidated financial
statements.
c. If the reporting entity comprises two or more entities that are not linked by a parent-subsidiary relationship, the
financial statements are referred to as combined financial statements.
d. All of these statements are true about the financial statements of a reporting entity.
30. Under the Revised Conceptual Framework, an asset is defined as a present economic resource controlled by the entity as a
result of past event. Which is not a characteristic of an asset?
a. An asset is a present economic resource.
b. The economic resource is a right that has the potential to produce economic benefits.
c. The economic resource is controlled by the entity as a result of past event.
d. Future economic benefit is expected to flow to entity and must be probable or certain.
31. A liability is defined as a present obligation to transfer an economic resource as a result of past event. Which of the following
criteria need not be satisfied for a liability to exist?
a. The entity has an obligation or a duty or responsibility that it has no practical ability to avoid.
b. The obligation is to transfer an economic resource and not the ultimate outflow of economic benefit.
c. The obligation is a present obligation that exists as a result of a past event.
d. The settlement of the obligation is expected to result in an outflow of economic benefit.
32. Which statement is not true about income and expenses?
a. Income is increase in asset or decrease in liability that results in increase in equity other than that relating to
contribution from equity holders.
b. Expense is decrease in asset or increase in liability that results in decrease in equity other than that relating to
distribution to equity holders.
c. Income and expenses are the elements that relate to financial position.
d. Income encompasses revenue and gain.
33. It is the process of capturing for inclusion in the statement of financial position or the statement of financial performance an
item that meets the definition of an element of the financial statements.
a. Recognition
b. Measurement
c. Derecognition
d. Disclosure
34. Under the Revised Conceptual Framework, what is the recognition principle?
a. It is probable that future economic benefit associated with the item will flow to or from the entity.
b. The item has a cost or value that can be measured with reliability.
c. It is probable that the element of financial statements can be measured reliably.
d. Only items that meet the definition of an asset, liability, equity, income and expense are recognized.
35. Derecognition is the removal of a recognized asset or liability from the statement of financial position and normally occurs
when
a. An item no longer meets the definition of an asset or a liability
b. The entity loses control of the asset.
c. The entity no longer has a present obligation for the liability
d. Under all of these circumstances
36. Under the Revised Conceptual Framework, the measurement bases include
a. Historical cost
b. Current value
c. Assessed value
d. Historical cost and current value
37. Current value includes
a. Fair value
b. Value in use
c. Fulfillment value
d. Fair value, value in use, fulfillment value and current cost
38. Fair value of an asset is
a. The price that would be received to sell an asset in an orderly transaction between market participants at the
measurement date.
b. The present value of the cash flows to be derived from the use and ultimate disposal of an asset.
c. The discounted amount of cash expected for the payment of liability.
d. The cost of an equivalent asset comprising the consideration paid and transaction cost.
39. The term “revenue recognition” conventionally refers to
a. The process of identifying transactions to be recorded as revenue in an accounting period.
b. The process of measuring and relating revenue and expenses of an entity.
c. The earning process which gives rise to revenue realization.
d. The process of identifying those transactions that result in an inflow of assets from customers.
40. Which of the following is not an acceptable basis for the recognition of expense?
a. Systematic and rational allocation
b. Cause and effect association
c. Immediate recognition
d. Cash disbursement

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