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

a. It has the highest level of authority. In case of a conflict between the Conceptual Framework
and a Standard or Interpretation, the Conceptual Framework overrides the Standard or
Interpretation.
b. If there is a Standard or Interpretation that specifically applies to a transaction, it overrides the
Conceptual Framework. In the absence of a Standard or an Interpretation that specifically
applies, the Conceptual Framework should be followed.
c. If there is a Standard or Interpretation that specifically applies to a transaction, it overrides the
Conceptual Framework. In the absence of a Standard or an Interpretation that specifically
applies to a transaction, management should consider the applicability of the Conceptual
Framework in developing and applying an accounting policy that will result in information that is
relevant and reliable.
d. The Conceptual Framework applies only when IASB develops new or revised Standards. An
entity is never required to consider the Conceptual Framework. (Adapted)

2. The FRSC recognizes that in a limited number of cases there may be a conflict between the Conceptual
Framework and a Philippine Financial Reporting Standard. In those cases where there is a conflict,
a. the requirements of the Philippine Financial Reporting Standard prevail over those of the
Conceptual Framework
b. the requirements of the Conceptual Framework prevail over those of the Philippine Financial
Reporting Standard
c. the professional judgment of the accountant should prevail and this may necessitate disclosure
in the notes.
d. the provisions of standards issued by FASB will prevail (Adapted)

3. Financial statements are most commonly prepared in accordance with an accounting model based on
a. Recoverable historical cost and the nominal financial capital maintenance concept
b. Recoverable historical cost and the physical capital maintenance concept
c. Fair value and the nominal financial capital maintenance concept
d. Either recoverable historical cost and fair value and either nominal financial or physical capital
concept

4. Choose the incorrect statement.

a. The IASB recognizes that governments, in particular, may specify different or additional
requirements for their own purposes. These requirements should not, however, affect financial
statements published for the benefit of other users unless they also meet the needs of those
other users.
b. In conjunction with choice (a), when there are conflicts between local legislation and the IASB
framework or standards, the framework and standards should prevail over the local legislation.
c. Financial statements are most commonly prepared in accordance with an accounting model
based on recoverable historical cost and the nominal financial capital maintenance concept.
d. Other models and concepts may be more appropriate in order to meet the objective of
providing information that is useful for making economic decisions although there is presently
no consensus for change. The Conceptual Framework has been developed so that it is
applicable to a range of accounting models and concepts of capital and capital maintenance.

5. The purpose of the Philippine Conceptual Framework is to:

I. Assist the Financial Reporting Standards Council (FRSC) in developing accounting standards that
represent generally accepted accounting principles in the Philippines
II. Assist the Board of IASC in the development of future International Accounting Standards and in its
review of existing International Accounting Standards
III. Assist the Board of IASC in promoting harmonization of regulations, accounting standards and
procedures relating to the presentation of financial statements by providing a basis for reducing the
number of alternative accounting treatments permitted by International Accounting Standards;
IV. Assist the FRSC in its review and adoption of existing International Accounting Standards
V. Assist preparers of financial statements in applying FRSC financial reporting standards and in dealing
with topics that have yet to form the subject of an FRSC standard
 VI. Assist auditors in forming an opinion as to whether financial statements conform with Philippine
generally accepted accounting principles
VII. Assist users of financial statements in interpreting the information contained in financial statements
prepared in conformity with Philippine generally accepted accounting standards
VIII. Provide those who are interested in the work of FRSC with information about its approach to the
formulation of Financial Reporting Standards.
a. I, II, III, IV c. IV, V, VI, VII, VII
b. I, IV, V, VI, VII, VIII d. all of the above

6. All of the following statements incorrectly refer to the Conceptual Framework except
a. The Conceptual Framework sets out the concepts that underlie the preparation and
presentation of financial statements for external and internal users.
b. The Conceptual Framework is an integral part of the Philippine Financial Reporting Standard and
hence defines standards for any particular measurement or disclosure issue.
c. The FRSC recognizes that in a limited number of cases there may be a conflict between the
framework and a Philippine Financial Reporting Standards. In those cases where there is a
conflict, the requirements of the framework prevail over those of the Philippine Financial
Reporting Standard.
d. As the FRSC will be guided by the framework in the development of future Statements and in its
review of existing Statements, the number of cases of conflict between the framework and
Philippine Financial Reporting Standards will diminish through time.
e. Unlike for the various PASs and PFRSs, the framework, as a solid foundation and a model, will
not be revised from time to time on the basis of the FRSC's experience of working with it.

7. The Scope of the framework includes all of the following except

a. The objective of financial statements
b. The qualitative characteristics that determine the usefulness of information in financial
statements
c. The underlying and implicit assumptions governing the preparation and presentation of
financial statements
d. The definition, recognition and measurement of the elements from which financial statements
are constructed e. Concepts of capital and capital maintenance

8. All of the following statements incorrectly refer to the Conceptual Framework except
a. The framework is concerned with all-purpose financial statements including consolidated
financial statements.
b. Financial statements are prepared and presented at least annually and are directed toward the
common and specific information needs of a wide range of users.
c. Prospectuses and computations prepared for taxation purposes are outside the scope of the
framework.
d. Financial statements may also include supplementary schedules and information based on or
derived from, and expected to be read with, such statements. Financial statements include such
items as reports by directors’ statements by the chairman, discussion and analysis by
management and similar items that may be included in a financial or annual report.
e. The framework applies to the financial statements of all commercial, industrial and business
reporting entities, but only for the private sector.

9. An entity for which there are users who rely on its financial statements as their major source of
financial information about the entity.
a. publicly listed entity c. reporting entity
b. publicly accountable entity d. small or medium-sized entity

10. The primary users of financial statements under the Conceptual Framework include
I. Existing and potential investors
II. Employees
III. Lenders and other creditors
IV. Suppliers and other trade creditors
V. Customers
 VI. Governments and their agencies
VII. Public
VIII. Professional accountants, including auditors
a. I, III c. I, II, III, IV, V, VI, VII
b. I, II, III, IV, V, VI d. all of the above

11. These refer to the providers of risk capital, including their advisers, who are concerned with the risk
inherent in, and return provided by, their investments. They need information to help them determine
whether they should buy, hold or sell. They are also interested in information which enables them to
assess the ability of the entity to pay dividends.
a. investors c. stakeholders
b. shareholders d. public

12. They are interested in information that enables them to determine whether their loans, and the
interest attaching to them, will be paid when due.
a. investors c. suppliers
b. lenders d. public

13. They are interested in information that enables them to determine whether amounts owing to them
will be paid when due. They are likely to be interested in an entity over a shorter period than lenders
unless they are dependent upon the continuation of the entity as a major customer.
a. investors c. suppliers
b. lenders d. public

14. Which of the following statements is correct?

a. All of the information needs of users can be met by financial statements because there are
needs which are common to all users.
b. The accountant/ controller of an entity has the primary responsibility for the preparation and
presentation of the financial statements of the entity.
c. Management is also interested in the information contained in the financial statements even
though it has no access to additional management and financial information that helps it carry
out its planning, decision-making and control responsibilities.
d. Management has the ability to determine the form and content of additional information in
order to meet its own needs. The reporting of such information is within the scope of the
framework.
e. Published financial statements are based on the information used by management about the
financial position, performance and changes in financial position of the entity.

15. The foundation of the Conceptual Framework is formed from

a. The qualitative characteristics that makes information useful to users
b. The objective of general purpose financial reporting
c. The concept of reporting entity
d. The various measurement requirements which results to fair presented financial information

16. What is the objective of financial statements according to the Conceptual Framework?
a. To provide information about the financial position, performance, and changes in financial
position of an entity that is useful to a wide range of users in making economic decisions.
b. To prepare and present a balance sheet, an income statement, a cash flow statement, and a
statement of changes in equity.
c. To prepare and present comparable, relevant, reliable, and understandable information to
investors and creditors.
d. To prepare financial statements in accordance with all applicable Standards and Interpretations.

17. Which of the following statements correctly relates to the provisions of the Conceptual Framework?
a. Financial statements are prepared and presented at least annually and are directed toward the
common information needs of a limited range of users.
 b. Financial statements do not include items such as reports by directors, statements by the
chairman, discussion and analysis by management and similar items that may be included in a
financial or annual report.
c. The Conceptual Framework applies only to the financial statements of all commercial, industrial
and business reporting entities, which are in the private sector.
d. Special purpose financial reports, for example, prospectuses and computations prepared for
taxation purposes, are within the scope of the Conceptual Framework.

18. Which of the following statements correctly relates to the provisions of the Conceptual Framework?
a. Financial statements do not form part of the process of financial reporting.
b. The statement of changes in financial position may be presented in a variety of ways such as
classified or unclassified statement of financial position.
c. All of the information needs of users cannot be met by financial statements.
d. The shareholders of an entity have the primary responsibility for the preparation and
presentation of the financial statements of the entity.

19. Which of the following statements incorrectly relates to the provisions of the Conceptual Framework
regarding the use of financial information by an entity’s management?
a. Management is also interested in the information contained in the financial statements even
though it has access to additional management and financial information that helps it carry out
its planning, decision-making and control responsibilities.
b. Management has the ability to determine the form and content of such additional information
in order to meet its own needs.
c. The reporting of information for internal use of management is beyond the scope of the
Conceptual Framework.
d. Published financial statements are not based on the information used by management about
the financial position, performance and changes in financial position of the entity.

20. Who has the primary responsibility for the preparation and presentation of the financial statements of
an entity?
a. shareholders c. management
b. board of directors d. accountant

21. The objective of financial statements is

a. to provide information about the financial position, performance and changes in financial
position of an entity that is useful to a limited range of users in making economic decisions.
b. to provide information that meets the common needs of all users
c. to provide information that meets the common needs of most users
d. to provide information about the financial position, performance and changes in financial
position of an entity that is useful for managing day-to-day operations.

22. The following statements relate to the objective of financial statements, except
a. The objective of financial statements is to provide information about the financial position,
performance and changes in financial position of an entity that is useful to a wide range of users
in making economic decisions.
b. Financial statements prepared for a wide range of users meet the common needs of most users.
c. Financial statements provide all the information that users may need to make economic
decisions since they largely portray the financial effects of past events and do not necessarily
provide non-financial information.
d. Financial statements also show the results of the stewardship of management, or the
accountability of management for the resources entrusted to it. Those users who wish to assess
the stewardship or accountability of management do so in order that they may make economic
decisions; these decisions may include, for example, whether to hold or sell their investment in
the entity or whether to reappoint or replace the management.

23. All of the following correctly relate to the provisions of the Conceptual Framework, except
 a. Financial statements do not provide all the information that users may need to make economic
decisions since they largely portray the financial effects of past events and do not necessarily
provide non-financial information.
b. The economic decisions that are taken by users of financial statements require an evaluation of
the ability of an entity to generate cash and cash equivalents and of the timing and certainty of
their generation.
c. The income statement provides an incomplete picture of performance unless it is used in
conjunction with the balance sheet and the other financial statements.
d. According to the Conceptual Framework, the underlying assumptions are accrual basis of
accounting and going concern and the implicit assumptions are accounting entity, periodicity
and stable monetary concept.

24. The financial position of an entity is affected by all of the following, except
a. the economic resources it controls
b. its performance
c. its liquidity and solvency d. its capacity to adapt to changes in the environment
d. its financial structure

25. Users are better able to evaluate an entity’s ability to generate cash and cash equivalents if they are
provided with information that focuses on the entity’s
a. financial position c. cash flows
b. performance d. a, b and c

26. When the going concern becomes inappropriate such as when liquidation becomes imminent, the
assets of an entity should be shown on the balance sheet at their
a. historical cost c. fair value
b. realizable value d. current cost

27. This information is useful in predicting future borrowing needs and how future profits and cash flows
will be distributed among those with an interest in the entity; it is also useful in predicting how
successful the entity is likely to be in raising further finance.
a. economic resources c. liquidity and solvency
b. financial structure d. performance

28. This information is useful in predicting the ability of the entity to meet its financial commitments as
they fall due
a. economic resources c. liquidity and solvency
b. financial structure d. performance

29. This information is required in order to assess potential changes in the economic resources that an
entity is likely to control in the future.
a. economic resources c. liquidity and solvency
b. financial structure d. performance

30. This information is useful in predicting the capacity of the entity to generate cash flows from its existing
resource base. It is also useful in forming judgments about the effectiveness with which the entity
might employ additional resources.
a. economic resources c. liquidity and solvency
b. financial structure d. performance

31. This information is useful in assessing an entity’s its investing, financing and operating activities during
the reporting period.
a. economic resources c. cash flows
b. financial structure d. performance

32. Financial statements are prepared and presented for external users by many entities around the world.
Although such financial statements may appear similar from country to country, there are differences
which have probably been caused by a variety of social, economic and legal circumstances and by
 different countries having in mind the needs of different users of financial statements when setting
national requirements. These different circumstances have led/ resulted to all of the following except
a. use of a variety of definitions of the elements of financial statements; that is, for example,
assets, liabilities, equity, income and expenses.
b. use of different criteria for the recognition of items in the financial statements and in a
preference for different bases of measurement.
c. different audit opinions resulting to various losses, litigations and differences in audit standards
d. differences in the scope of the financial statements and the disclosures made in them.
(Adapted)

33. Nearly all users of financial statements are making economic decisions which include the following
I. decide when to buy, hold or sell an equity investment
II. assess the stewardship or accountability of management
III. assess the ability of the entity to pay and provide other benefits to its employees
IV. assess the security for amounts lent to the entity
V. determine taxation policies VI. determine distributable profits and dividends
VII. prepare and use national income statistics VIII. regulate the activities of entities State how many
items are correctly included in the list.
a. 4 to 5 b. 5 to 6 c. 6 to 7 d. all items are correctly included

34. When determining how liquid a company is which ratio best provides the indication?
a. Debt to worth ratio c. Inventory turnover
b. Dupont ratio d. Current ratio (Adapted)

35. Which is the best ratio indicator for the solvency of a company?
a. Cash flow to debt c. Current ratio
b. Return of average assets d. Debt to equity ratio (Adapted)

36. The financial position of an entity is affected by I. the economic resources it controls II. its financial
structure III. its liquidity and solvency IV. its capacity to adapt to changes
a. I, II b. I, II, III c. I, II, III, IV d. II, III, IV

37. It refers to the availability of cash in the near future after taking account of financial commitments over
this period.
a. Financial structure c. Solvency
b. Liquidity d. Performance

38. It refers to the availability of cash over the longer term to meet financial commitments as they fall due.
a. Financial structure c. Solvency
b. Liquidity d. Performance

39. The following statements relate to the objective of financial statements except
a. Information about financial structure is useful in predicting future borrowing needs and how
future profits and cash flows will be distributed among those with an interest in the entity; it is
also useful in predicting how successful the entity is likely to be in raising further finance.
b. Information about liquidity and solvency is useful in predicting the ability of the entity to meet
its financial commitments as they fall due.
c. Information about the performance of an entity, in particular its profitability is required in order
to assess potential changes in the economic resources that it is likely to control in the future.
d. Information about performance is useful in predicting the capacity of the entity to generate
revenues but not cash flows from its existing resource base. It is also useful in forming
judgments about the effectiveness with which the entity might employ additional resources.
e. Information concerning changes in the financial position of an entity is useful in order to assess
its investing, financing and operating activities during the reporting period. This information is
useful in providing the user with a basis to assess the ability of the entity to generate cash and
cash equivalents and the needs of the entity to utilize those cash flows.
40. Information about financial position is primarily provided in a(n)
a. Statement of financial position
b. Statement of profit or loss and other comprehensive income
c. Statement of cash flows
d. Statement of changes in equity

41. Information about performance is primarily provided in a(n)

a. Statement of financial position
b. Statement of profit or loss and other comprehensive income
c. Statement of cash flows
d. Statement of changes in equity

42. Information about changes in financial position is provided in the financial statements
a. through the statement of cash flows
b. through the statement of changes in equity
c. by means of a separate statement
d. all of the above

43. The following relate to the elements of the financial statements which include (1) elements directly
related to the measurement of financial position and (2) elements directly related to measurement of
profit. Which of the following statements is correctly stated?
I. An asset is 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.
II. A liability is a present obligation of the entity arising from past events, the settlement of which is
expected to result in an outflow from the entity of resources embodying economic benefits.
III. Equity is the residual interest in the assets of the entity after deducting all its liabilities.
IV. Income is increases in economic benefits during the accounting period in the form of inflows or
enhancements of assets or decreases of liabilities that result in increases in equity, other than those
relating to contributions from equity participants.
V. Expenses are decreases in economic benefits during the accounting period in the form of outflows or
depletions of assets or incidences of liabilities that result in decreases in equity, other than those
relating to distributions to equity participants.
a. I, II, III b. I, II, III, IV
c. I, II, III, V d. I, II, III, IV, V

44. The future economic benefits embodied in an asset may flow to the entity in a number of ways which
include all of the following except
a. Used singly or in combination with other assets in the production of goods or services to be sold
by the entity
b. Exchanged for other assets
c. Used to settle a liability
d. Used to incur or replace an obligation with another obligation
e. Distributed to the owners of the entity

45. The settlement of a present obligation usually involves the entity giving up resources embodying
economic benefits in order to satisfy the claim of the other party. Settlement of a present obligation
may occur in a number of ways which includes all of the following except
a. Payment of cash or transfer of other assets
b. Replacement of the obligation with another obligation
c. Provision of services
d. Conversion of the obligation to asset

46. Choose the correct statement.

a. The amount at which equity is shown in the balance sheet is dependent on the measurement of
assets and liabilities.
b. Realization is the process of incorporating in the balance sheet or income statement an item
that meets the definition of an element and satisfies the criteria for recognition set out in
 paragraph. It involves the depiction of the item in words and by a monetary amount and the
inclusion of that amount in the balance sheet or income statement totals.
c. Items that satisfy the recognition criteria should be recognized in the balance sheet or income
statement. The failure to recognize such items is rectified by disclosure of the accounting
policies used or by notes or explanatory material.
d. An item that meets the definition of an element should be recognized if: (a) It is probable or
reasonably possible that any future economic benefit associated with the item will flow to or
from the entity; and (b) The item has a cost or value that can be measured with reliability.
e. In many cases, cost or value must be estimated; the use of reasonable estimates is not an
essential part of the preparation of financial statements and undermines their reliability.

47. Measurement is the process of determining the monetary amounts at which the elements of the
financial statements are to be recognized and carried in the balance sheet and income statement. This
involves the selection of the particular basis of measurement. A number of different measurement
bases are employed to different degrees and in varying combinations in financial statements. The
measurement bases enumerated in the Conceptual Framework include all of the following except
a. Historical cost
b. Current cost
c. Realizable value
d. Present value
e. Fair Value

48. The measurement basis most commonly adopted by entities in preparing their financial statements is
a. Historical cost b. Fair value c. Present Value d. Current cost

49. According to the framework, certain assets are reported in financial statements at the amount of cash
or its equivalent that would have to be paid if the same or equivalent assets were acquired currently.
What is the name of the reporting concept?
a. Replacement cost b. Current market value c. Historical cost d. Net realizable value
(AICPA)
50. Historical cost is a measurement base currently used in financial accounting. Which of the following
measurement bases is also currently used in financial accounting? (Item #1) Current selling price; (Item
#2) Discounted cash flow; (Item #3) Replacement cost
a. Yes, No, Yes b. Yes, Yes, Yes c. Yes, No, No d. No, Yes, Yes
(AICPA)