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University of San Jose-Recoletos Department of Accountancy and Finance Financial Accounting 1 Conceptual Framework

I. MULTIPLE CHOICE 1. Accounting is a service activity and its function is to provide quantitative information, primarily financial in nature, about economic entities, that is intended to be useful in making economic decisions. This accounting definition is given by a. Accounting Standards Council b. AICPA Committee on Accounting Terminology c. American Accounting Association d. Board of Accountancy 2. One of the basic features of financial accounting is a. Direct measurement of economic resources and obligations and changes in them in terms of money and sociological and psychological impact. b. Direct measurement of economic resources and obligations and changes in them in terms of money. c. Direct measurement of economic resources and obligations and changes in them in terms of money and sociological impact. d. Direct measurement of economic resources and obligations and changes in them in terms of money and psychological impact. 3. Which of the following is not an implication of the going concern assumption? a. The historical cost principle is credible b. Depreciation and amortization policies are justifiable and appropriate. c. The current and noncurrent classification of assets and liabilities is justifiable and significant. d. Amortizing research and development costs over several periods is justifiable and appropriate. 4. The relatively stable economic, political and social environment supports a. Conservatism b. Materiality c. Timeliness d. Going Concern 5. Which of the following is not an important characteristic of the financial statements that accountants currently prepare? a. The information in financial statements is expressed in units of money adjusted for changing purchasing power. b. Financial statements articulate with one another because measuring financial position is related to measuring changes in financial position. c. The information in financial statements is summarized and classified to help meet users’ needs. d. Financial statements can be justified only if the benefits they provide exceeds costs. 6. Which is not a basic purpose of the Conceptual Framework? a. To assist the Financial Reporting Standards Council in developing accounting standards. b. To assist preparers of financial statements in applying accounting standards. c. To assist the Financial Reporting Standards Council in reviewing and adopting International Accounting Standards. d. To assist the Board of Accountancy in promulgating rules and regulations affecting the practice of accountancy in the Philippines. 7. 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 or an interpretation that specifically applies to a transaction, the Conceptual Framework shall be followed. c. In the absence of a standard or an interpretation that specifically applies to a transaction, management shall consider the applicability of the Conceptual Framework in developing and applying an accounting policy that results in information that is relevant and reliable. d. The Conceptual Framework applies only when the Financial Reporting Standard Council develops new or revised standards.

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8. Which is not included in the scope of the Conceptual Framework? a. Qualitative characteristics of useful financial accounting information b. Definitions, recognition and measurement of the elements of financial statements c. Objective of financial reporting d. Supplementary information 9. Which of the following is not true concerning the Conceptual Framework? I. The Conceptual Framework should be a basis for standard setting. II. The Conceptual Framework should allow practical problems to be solved more quickly. III. The Conceptual Framework should be based on fundamental truths that are derived from the laws of nature. a. b. c. d.

II only III only II and III only I and II only

10. What are the qualitative characteristics of financial statements? a. Qualitative characteristics are the attributes that make the information provided in the financial statements useful to users. b. Qualitative characteristics are broad classes of financial effects of transactions and other events. c. Qualitative characteristics are nonqualitative aspects of an entitys’s position and performance and changes in financial position. d. Qualitative characteristics measure the extent to which an entity has complied with all relevant standards and interpretations. 11. Accounting information is considered relevant when it a. Can be depended upon to represent the economic conditions and events that it is intended to represent. b. Is capable of making a difference in decision. c. Is understandable by reasonably informed users of accounting information. d. Is verifiable and neutral. 12. Which of the following is the best description of faithful representation in relation to information in financial statements? a. Influence on the economic decision of users b. Inclusion of a degree of caution c. Freedom from material error d. Comprehensibility to users 13. Which of the following is not an enhancing qualitative characteristics? a. Understandability b. Profit-oriented c. Timeliness d. Comparability 14. Which of the following situations violates the concept of faithful representation? a. Financial statements were issued nine months late. b. Data on segments having the same expected risks and growth rates are reported to analysts estimating future profits. c. Financial statements included an item of property, plant and equipment with carrying amount increased to management estimate of market value. d. Management reports to shareholders regularly refer to new projects undertaken, but the financial statements never report project results. 15. Which of the following statements is incorrect concerning materiality? a. Information is material if the omission or misstatement could influence the economic decisions that users make on the basis of the financial information about entities. b. Materiality depends on the absolute size of the item or error judged in the particular circumstances of the omission or misstatement. c. Materiality is not a fundamental qualitative characteristic but rather a threshold or cut off point in determining useful information. d. Materiality is dependent on professional judgment because no threshold limit is defined in the Conceptual Framework. 16. Classifying, characterizing and presenting information clearly and concisely makes the information a. Understandable

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