PRELIM EXAMINATION d.

The time period concept means that financial

NAME: kreeshelle Princess Mae C Provido: AF-1 statements are prepared only at the end of the
life of a business.
SCORE:
1. Accounting has been given various definitions, which 5. Entity A appropriates ₱1M to fund employee benefits
of the following is not one of those definitions? for the last quarter of the following year. Entity A
a. Accounting is a service activity. Its function is to
deposits the ₱1M fund in a payroll account. This
provide quantitative information, primarily
economic activity is most appropriately referred to as
financial in nature, about economic entities that
is intended to be useful in making economic a. production.
decisions. b. savings.
b. Accounting is the art of recording, classifying, c. exchange.
and summarizing in a significant manner and in d. investment.
terms of money, transactions and events which
are, in part of at least, of a financial character
and interpreting the results thereof. 6. It is the branch of accounting that focuses on the
c. Accounting is a systematic process of objectively preparation of general purpose financial statements.
obtaining and evaluating evidence regarding a. Financial accounting
assertions about economic actions and events to b. General Accounting
ascertain the degree of correspondence between c. All-purpose Accounting
these assertions and established criteria and
communicating the results to interested users.
d. All-around accounting
d. Accounting is the process of identifying,
measuring, and communicating economic 7. These are events that do not involve an external
information to permit informed judgment and party.
decisions by users of information. a. external events
b. nonreciprocal
2. Which of the following statements is true? c. internal events
a. The basic purpose of accounting is to provide d. special event
information about economic activities intended to
be useful in making economic decisions.
8. Entity A computes for its profit or loss periodically
b. All events and transactions of an entity are instead of waiting until the end of the life of the
recognized in the books of accounts. business before doing so. This is an application of
c. General purpose financial statements are those which of the following accounting concepts?
statements that cater to the common and specific a. historical cost
needs of a wide range of external users.
b. stable monetary unit
d. The accounting process of assigning numbers,
commonly in monetary terms, to the economic
c. accrual basis
transactions and events is referred to as d. time period or reporting period
classifying.
9. This refers to the use of caution in the exercise of
3. The accounting standards used in the Philippines are judgments needed in making estimates required
adapted from the standards issued by the under conditions of uncertainty, such that assets or
a. Federal Accounting Standards Board (FASB). income are not overstated and liabilities or expenses
are not understated.
b. International Accounting Standards Board
(IASB).
a. faithful representation
c. Philippine Institute of Certified Public b. prudence
Accountants (PICPA). c. consistency
d. Democratic People's Republic of Korea d. relevance
Accounting Standards Committee (DPKRASC).
10. The bottom part of each of Entity A’s financial
4. Which of the following statements is incorrect statements states the following “This statement
regarding the basic accounting concepts? should be read in conjunction with the accompanying
a. One of ABC Co.’s delivery trucks was involved in notes.” This is most likely an application of which of
an accident. Although no lawsuits have yet been the following accounting concepts?
filed against ABC, ABC recognized a liability for a. articulation
the probable loss on the event. This is an b. consistency
application of the prudence or conservatism
c. accrual basis
concept.
b. Under the consistency concept, the financial d. time period
statements should be prepared on the basis of
accounting principles which are followed
consistently. 11. Which of the following events is considered as an
c. Under the entity theory, the business is viewed internal event?
as a separate entity. Therefore, the personal a. sale of inventory on account
transactions of the business owners are not b. provision of capital by owners
recorded in the business’ accounting records. c. borrowing of money

1
 d. conversion of raw materials into finished goods b. The Norwalk Agreement is a short-term
e. payment of liabilities convergence between the FASB and the IASB
which has long-time been abolished.
12. Which of the following events is considered as an c. The Norwalk Agreement is a convergence
external event? between the FASB and the IASB to make their
a. production existing financial reporting standards compatible
b. payment of taxes and coordinate their future work programs to
c. gifts and charitable contributions ensure that once achieved, compatibility is
d. provision of capital by owners maintained.
e. b, c and d d. The Norwalk Agreement does not affect the
financial reporting standards in the Philippines.
13. Financial statements are said to be a mixture of fact
and opinion. Which of the following items is factual? 18. The process of identifying, measuring, analyzing, and
a. cost of goods sold communicating financial information needed by
b. discount on capital stock management to plan, evaluate, and control an
c. retained earnings organization’s operations is called
d. patent amortization expense a. financial accounting.
b. tax accounting.
14. This concept defines the area of interest of the c. managerial accounting.
accountant. It determines which transactions are d. auditing.
recognized in the books of accounts and which are
not. 19. The PFRSs consist of all of the following except
a. Articulation a. PFRSs.
b. Matching b. PASs.
c. Separate entity c. Interpretations.
d. Full disclosure d. Conceptual Framework.
15. A CPA employed as an accountant in a government 20. It is the official accounting standard setting body in
agency is considered to be in
the Philippines. It is composed of a chairperson and
a. private practice. 14 members.
b. public practice. a. Financial Reporting Standards Committee
c. academe. (FRSC)
d. service. b. Financial Reporting Standards Council (FRSC)
c. Accounting Standards Committee (ASC)
d. Accounting Standards Council (ASC)
16. Which of the following statements is correct?
I. Accounting provides qualitative information,
financial information, and quantitative
21. Financial reporting standards continuously change
primarily in response to
information.
II. Qualitative information is found in the notes to a. users’ needs.
the financial statements only. b. political influence.
III. Accounting is considered an art because it is c. government regulations.
supported by an organized body of knowledge d. changes in social environments.
IV. Accounting is considered a science because it
involves the exercise of skill and judgment.
V. Measurement is the process of assigning 22. Accounting is often called the "language of business"
numbers to objects such inventories or plant because
assets and to events such as purchases or sales. a. it is easy to understand.
VI. All quantitative information is also financial in b. it is fundamental to the communication of
nature. financial information.
VII. The accounting process of assigning peso c. all business owners have a good understanding of
amounts or numbers to relevant objects and accounting principles.
events is called identification. d. accountants in many companies share financial
information.
a. I and V
b. I, II, VI and V
23. You are the accountant of ABC Co. During the period,
c. I, II, III, IV and V your company purchased staplers worth ₱1,500.
d. II, VI and V Although the staplers have an estimated useful life of
10 years, you have charged their cost as expense.
17. Which of the following statements about the Norwalk Which of the following is most likely to be true?
Agreement is correct? a. You are applying the concept of matching.
a. The Norwalk Agreement requires all domestic b. You are applying the concepts of materiality and
cost-benefit consideration.
companies in the U.S. to prepare financial
c. You are applying the concept of verifiability.
statements in accordance with the IFRSs.
d. You are just lazy to compute for the periodic
depreciation. 

2
24. All of the following statements incorrectly refer to the II. Employees
concepts in the Conceptual Framework except III. Lenders and other creditors
a. The Conceptual Framework is concerned with all- IV. Suppliers and other trade creditors
purpose financial statements. V. Customers
b. Financial statements are prepared and presented VI. Governments and their agencies
at least annually and are directed toward both VII. Public
the common and specific information needs of a VIII. Professional accountants, including auditors
wide range of users.
c. The objective of general purpose financial a. I and III
statements is similar to the objective of general b. I, II, III, IV, V, VI, VII
purpose financial reporting. c. I, II, III, IV, V, VI
d. The financial statements prepared by a reporting
entity comprising a parent and its subsidiaries d. all of these
are referred to as ‘combined financial
statements’. 29. The Conceptual Framework broadly classifies the
qualitative characteristics into
25. What is the authoritative status of the Conceptual a. primary and secondary qualitative
Framework? characteristics.
a. It has the highest level of authority. In case of a b. major and minor qualitative characteristics.
conflict between the Conceptual Framework and c. fundamental and enhancing qualitative
a Standard, the Conceptual Framework overrides characteristics.
that Standard. d. cold and hot qualitative characteristics.
b. If there is a Standard that specifically applies to a
transaction, that Standard overrides the 30. Identify the fundamental qualitative characteristics
Conceptual Framework. In the absence of such a under the Conceptual Framework.
Standard, the requirement of the Conceptual I. Relevance
Framework should be followed. II. Reliability
c. If there is a Standard that applies to a III. Faithful representation
transaction, that Standard overrides the IV. Comparability
Conceptual Framework. In the absence of such a V. Verifiability
Standard, the entity’s management should VI. Timeliness
consider the applicability of the Conceptual VII. Understandability
Framework in developing and applying an
accounting policy that will result in useful a. I and II
information. b. I and III
d. The Conceptual Framework applies only to the
IASB when developing or amending Standards. A c. I, II, III, IV, V and VI
reporting entity should never use the Conceptual d. IV, V, VI and VII
Framework.
31. Identify the qualitative characteristics that enhance
26. The foundation of the Conceptual Framework is the usefulness of financial information.
formed from I. Relevance
a. the qualitative characteristics that makes II. Reliability
information useful to users. III. Faithful representation
b. the objective of general purpose financial IV. Comparability
reporting. V. Verifiability
c. the concept of reporting entity. VI. Timeliness
d. the principles and objectives of presentation and VII. Understandability
disclosure of financial information.
a. I and II
27. What is the objective of general purpose financial b. I and III
statements according to the Conceptual Framework? c. II, III, IV, V and VII
a. To provide information about the financial
position, financial performance, and changes in d. IV, V, VI and VII
financial position of an entity that is useful to
primary users in making economic decisions. 32. Which of the following are considered aspects of the
b. To prepare and present a balance sheet, an qualitative characteristic of relevance under the
income statement, a cash flow statement, and a Conceptual Framework?
statement of changes in equity. I. Predictive value
c. To prepare and present comparable, relevant, II. Confirmatory value
reliable, and understandable information for III. Timeliness
investors and creditors. IV. Materiality
d. To prepare financial statements in accordance
with all applicable Standards and Interpretations. a. I and II
b. I, II and III
28. The primary users of financial statements under the c. I, II and IV
Conceptual Framework include
I. Existing and potential investors
d. I, II, III and IV

3
33. Under this qualitative characteristic, users are b. Decrease in liability
assumed to have a reasonable knowledge of business c. Increase in liability
activities and willingness to study the information d. Distribution to holders of equity claims
with reasonable diligence.
a. Relevance 41. The Conceptual Framework uses the term “economic
b. Faithful representation resources” to refer to
c. Understandability a. assets.
d. Comparability b. equity.
c. liabilities.
34. Which of the following statements is incorrect d. income.
concerning materiality?
a. Materiality can be assessed quantitatively or
qualitatively 42. Which of the following is incorrect regarding the use
b. There are no specific materiality thresholds of the term ‘reporting entity’ under the Conceptual
provided under the PFRSs Framework?
c. Materiality is a matter of judgment a. A reporting entity one that is required, or
d. Materiality is a quantitative matter. It should chooses, to prepare financial statements.
never be assessed qualitatively. b. A reporting entity must be a legal entity.
c. A reporting entity can be a parent and its
35. The elements of faithful representation do not include subsidiaries viewed as a single entity.
a. comparability. d. All of these are correct.
b. neutrality.
c. completeness. 43. The cost of inventory is recognized as expense
d. free from error. a. immediately.
b. using the matching concept.
c. by systematic allocation.
36. The ability through consensus among measurers to d. any of these as a matter of accounting policy
ensure that information represents what it purports
choice
to represent is an example of the concept of
a. relevance.
b. comparability.
c. verifiability.
d. feedback value.

37. According to the Conceptual Framework, the

pervasive constraint on the information that can be
provided by financial reporting is
a. materiality.
b. historical.
c. cost-benefit.
d. going concern.

38. The element that is related to the measurement of an

entity’s financial performance is
a. income.
b. expenses.
c. a and b
d. neither a nor b

39. According to the revised Conceptual Framework, an

item is recognized if
a. it meets the definition of an asset, liability,
equity, income or expense.
b. recognizing it would provide useful information.
c. it is probable that the item will result to an inflow
or outflow of economic benefits and its cost can
be measured reliably.
d. a and b

40. Which of the following may result to an expense?

a. Increase in asset