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1. A soundly developed conceptual framework of concepts and objectives should

a. increase financial statement users' understanding of and confidence in financial reporting.
b. enhance comparability among companies' financial statements.
c. allow new and emerging practical problems to be more quickly soluble.
d. all of these.

2. A Standard sometimes contains requirements that depart from the Conceptual Framework. In such cases,
a. the requirements of the Conceptual Framework will prevail over those of the Standard.
b. the departure is explained in the ‘Basis for Conclusions’ on that Standard.
c. the entity’s management shall formulate its own accounting policy and disregards both the
requirements of the Conceptual Framework and the Standard.
d. A Standard should never depart from the Conceptual Framework.

3. The overall objective of financial reporting is to provide information

a. about an entity's assets, liabilities, and equity.
b. about an entity's financial performance during a period.
c. that is useful to primary users in making economic decisions about providing resources to the entity.
d. that allows owners to assess management's performance.

4. The two primary qualities that make accounting information useful for decision making are
a. comparability and consistency.
b. materiality and timeliness.
c. relevance and reliability.
d. faithful representation and relevance.

5. According to the Conceptual Framework, predictive value relates to

Relevance Faithful representation
a. Yes Yes
b. No Yes
c. Yes No
d. No No

6. Which of the following is considered a qualitative factor in making materiality judgments?

a. the context of an item in relation to the current economic state of the environment where the entity
operates.
b. 10% of profit or loss, in absolute terms
c. 5% of total revenues
d. 1% of total assets

7. Which of the following statements about materiality is not correct?

a. An item must make a difference; otherwise, it need not be reported.
b. Materiality is affected by an item’s relative size and/or importance.
c. An item is material if its inclusion or omission would influence or change the judgment of a
reasonable person.
d. All of these are correct statements about materiality.

8. The Filipino adage “Aanhin mo pa ang damo pag patay na ang kabayo” relates to which of the following
qualitative characteristics?
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a. Relevance
b. Timeliness
c. Faithful representation
d. Comparability

9. When information about two different entities has been prepared and presented in a similar manner, the
information exhibits the characteristic of
a. relevance.
b. reliability.
c. consistency.
d. comparability.

10. According to the Conceptual Framework, physical count of inventory is an example of

a. direct verification.
b. indirect verification.
c. timeliness.
d. relevance.

11. Information is considered relevant when it

a. can be depended on to represent the economic conditions and events 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.

12. The quality of information that gives assurance that it is reasonably free of error and bias and provides
a true, correct and complete depiction of what it purports to represent is
a. relevance.
b. faithful representation.
c. verifiability.
d. neutrality.

13. Information is neutral if it

a. provides benefits which are at least equal to the costs of its preparation.
b. can be compared with similar information.
c. has no impact on a decision maker.
d. is free from bias toward a predetermined result.

14. Decision makers vary widely in the types of decisions they make, the methods of decision making they
employ, the information they already possess or can obtain from other sources, and their ability to
process information. Consequently, for information to be useful there must be a linkage between these
users and the decisions they make. This link is
a. relevance.
b. reliability.
c. understandability.
d. materiality.

15. Which of the following is considered a pervasive constraint by the Conceptual Framework?
a. Cost constraint
b. Verifiability
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c. Conservatism
d. Cost restraint

16. Which of the following is not an element that is directly related to the measurement of an entity’s
financial position?
a. assets
b. liabilities
c. equity
d. income

17. The revised Conceptual Framework defines an asset as

a. a resource controlled by the entity as a result of past events and from which future economic benefits
are expected to flow to the entity.
b. 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.
c. a physical object that can produce economic benefits for the entity.
d. All of these.

18. Which of the following is most likely to result in the recognition of a liability?
a. Customers become entitled to rebates for their past purchases.
b. Intention to acquire inventories in a future period.
c. Entering into a purchase contract for future delivery.
d. Agreeing on an irrevocable future commitment that is not burdensome at present.

19. Which of the following is not an indication of an economic resource’s potential to produce economic
benefits for the entity?
a. The resource cannot be used in the entity’s operations but has a resale value.
b. The resource has no use to the entity but it can be exchanged for another resource with another party.
c. The entity does not intend to sell or use the resource but instead distribute it to the owners as
dividends.
d. The economic benefits from the resource were already consumed by the entity.

20. Which of the following correctly reflects the Conceptual Framework definitions of income and expenses?
Income Expenses
a. Increase in assets Increase in liabilities
b. Decrease in assets Decrease in liabilities
c. Owner contributions Owner distributions
d. Decrease in equity Increase in equity

21. According to PAS 8, these are the specific principles, bases, conventions, rules and practices applied by
an entity in preparing and presenting financial statements.
a. Accounting policies c. Accounting standards
b. Accounting estimates d. Accounting assumptions

22. A change in the pattern of consumption of economic benefits from an asset is most likely a
a. change in accounting policy. c. error.
b. change in accounting estimate. d. any of these
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23. PAS 8 permits a change in accounting policy only if the change

a. is required by a PFRS
b. results in reliable and more relevant information
c. a or b
d. PAS 8 does not permit a change in accounting policy

24. These arise from misapplication of accounting policies, mathematical mistakes, oversights or
misinterpretations of facts, or fraud.
a. Error
b. Change in accounting estimate
c. Change in accounting policy
d. Impracticable application

25. How should the following changes be treated, according to PAS 8?

I. A change is to be made in the method of calculating the provision for uncollectible receivables.
II. Investment properties are now measured at fair value, having previously been measured at cost.
Change (1) Change (2)
a. Change of accounting policy Change of accounting policy
b. Change of accounting policy Change of accounting estimate
c. Change of accounting estimate Change of accounting policy
d. Change of accounting estimate Change of accounting estimate

26. According to PAS 10, these are those events, favorable and unfavorable, that occur between the end of
the reporting period and the date when the financial statements are authorized for issue.
a. Events after the reporting period c. Adjusting events
b. Non-adjusting events d. all of these

27. The Sarin Company's financial statements for the year ended 30 April 20X8 were approved by its finance
director on 7 July 20X8 and a public announcement of its profit for the year was made on 10 July 20X8.
The board of directors authorised the financial statements for issue on 15 July 20X8 and they were
approved by the shareholders on 20 July 20X8. Under PAS 10, after what date should consideration no
longer be given as to whether the financial statements to 30 April 20X8 need to reflect adjusting and non-
adjusting events?
a. 7 July 20X8
b. 10 July 20X8
c. 15 July 20X8
d. 20 July 20X8
(Adapted)

28. Which of the following is an example of a non-adjusting event?

a. Sale of inventory for less than its carrying value shortly after the reporting period
b. Amounts received in respect of an insurance claim being negotiated at the period end
c. Destruction of a machine by fire after the reporting period
d. Bankruptcy of a major customer with a balance owing at the period end
(Adapted)

29. One of Entity A’s delivery trucks had an accident on February 14, 20x2. The truck is totally wrecked and
is uninsured. Entity A’s December 31, 20x1 current-period financial statements were authorized for issue
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on March 31, 20x2. Entity A asked you if it can write-off the carrying amount of the destroyed truck from
its December 31, 20x1 statement of financial position. What will you tell Entity A?
a. Yes, go ahead. Write-off the truck because the event is an adjusting event.
b. No. Don’t write-off the truck because the event is a non-adjusting event.
c. No. Don’t write-off the truck because the event is a non-adjusting event. You should, however,
disclose the event if you deem it to be material.
d. Yes, go ahead. I will support you.

30. Which of the following is most likely to be a non-adjusting event?

a. A major customer liquidates its business after the end of the reporting period.
b. The entity announces a major restructuring after the end of the reporting period.
c. The settlement after the reporting period of a court case that confirms that the entity has a present
obligation at the end of reporting period.
d. The determination after the reporting period of the cost of asset purchased, or the proceeds from
asset sold, before the end of reporting period.