FRAMEWORK OF ACCOUNTING

1. Financial statement users with a direct economic interest in a specific business include:
(a) financial advisers (c) stock markets
(b) regulatory bodies (d) suppliers D

2. Which of the following is not a need of financial statement users?

(a) Financial advisers and analysts need financial statements to help investors evaluate particular
investments.
(b) Stock exchanges need financial statements to set a firm’s stock price.
(c) Regulatory agencies need financial statements to evaluate price changes for regulated
industries.
(d) Employees need financial information to negotiate wages and fringe benefits. B

3. A primary objective of external financial reporting is:

(a) direct measurement of the value of a business enterprise.
(b) provision of information that is useful to present and potential investors, creditors, and others
in making rational financial decisions regarding the enterprise.
(c) establishment of rules for accruing liabilities.
(d) direct measurement of the enterprise’s stock price. B

4. The International Accounting Standards Committee (IASC):

(a) directly influences governmental legislative regarding accounting standards.
(b) develops binding pronouncements for its members.
(c) is composed of members from national standard-setting bodies.
(d) establishes uniform accounting standards to eliminate reporting differences among nations.
D

5. The responsibility for the proper preparation of a company’s financial statements rests with its:
(a) management (c) internal auditors
(b) audit committee (d) external auditors A

6. Accounting, as the language of business, would usually reflect the:

(a) colour of life (c) colour of wisdom
(b) colour of love (d) colour of money B

7. Not every paragraph in an International Accounting Standard reflects the financial reporting
standard. The accounting standard paragraph can be identified because it is set in:
(a) light italic type (c) bold italic type
(b) bold roman type (d) light roman type C

8. The reformatted cover of an SFAS or an IAS, as currently published by the PICPA, displays the
following distinctive features:
Reference Number of the
Colour Accounting Standards
 Left-half Right-half Left-half Right-half
of Cover of Cover of Cover of Cover
(a) Midnight blue Canary yellow IAS SFAS
(b) Canary yellow Midnight blue IAS SFAS
(c) Midnight blue Canary yellow SFAS IAS
(d) Canary yellow Midnight blue SFAS IAS C

9. In evaluating the reliability of accounting information, which of the following need not be
considered?
(a) neutrality (c) accessibility
(b) verifiability (d) representational faithfulness C

10. Recognized as the father of accounting was the 15th century Franciscan monk by the name of:
(a) Luca Pastrani (c) Luca Pacioli
(b) Luca Pascali (d) Luca Pavaroti C

11. Which accounting concept underscores that any fact having a significant propensity to influence
an economic decision must be adequately considered?
(a) materiality (c) reliability
(b) prudence (d) measurability A

12. The most general criticism to be leveled at financial statements in the present form is that they
are seriously:
(a) obsolete (c) imaginary
(b) complete (d) incomplete D

13. All of the activities undertaken by an enterprise to make a profit, taken collectively, are called:
(a) gross performance (c) research and development activities
(b) earnings process (d) peripheral activities B

14. A level of accounting theory that attempts to explain current accounting practice is referred to as:
(a) syntactical theory (c) pragmatic theory
(b) semantical theory (d) inductive theory A

Three (3) levels of accounting theory:

a. syntactical (structural) – the way or manner specific events are reported
b. semantical (interpretational) – relationships, such as symbols, ratios
c. pragmatic (behavioral) – decision-oriented effects

15. What would be the consequence if a financial accounting standard cannot be applied literally?
(a) The accountant exercises his professional judgment.
(b) The accountant submits the issue to arbitration.
(c) The IASC imposes a sanction.
(d) The Supreme Court renders a decision, with finality. A

16. Generally accepted accounting principles:

(a) are fundamental truths or axioms that can be derived from laws of nature.
(b) derive their authority form legal court proceedings.
 (c) derived their credibility and authority from general recognition and acceptance by the
accounting profession.
(d) have been specified in detail in the conceptual framework. C

17. 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 be 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 (c) understandability
(b) reliability (d) materiality C

18. Which one is not listed as a major objective of financial reporting?

(a) Financial reporting should provide information useful in evaluating management’s
stewardship.
(b) Financial reporting should provide information about enterprise resources, claims to those
resources and changes in them.
(c) Financial reporting should provide information useful in investment, credit and similar
decisions.
(d) Financial reporting should provide information useful in assessing cash flow prospects.
A

19. The most useful information to investors in predicting future cash flows is:
(a) information about current cash flows.
(b) current earnings based on accrual basis of accounting.
(c) information regarding the accounting policies and principles used by management.
(d) information regarding the results obtained by using a wide variety of accounting policies and
principles. B

20. Which of the following concepts means that there should be no attempt on the part of the
preparers of financial reports to induce a predetermined outcome or a particular mode of
behavior?
(a) conservatism (c) representational faithfulness
(b) neutrality (d) consistency B

21. Financial information exhibits the characteristics of consistency when:

(a) expenses are reported as charges against revenue in the period in which they are paid.
(b) accounting entities give accountable events the same accounting treatment from period to
period.
(c) extraordinary gains and losses are not included on the income statement.
(d) accounting procedures are adopted which give a consistent rate of net income. B

22. When information about two different enterprises has been prepared and presented in a similar
manner, the information exhibits the characteristics of:
(a) relevance (c) consistency
(b) reliability (d) none of these D
23. In classifying the elements of financial statements, the primary distinction between revenue and
gains is:
(a) the materiality of the amounts involved.
(b) the likelihood that the transactions involved will recur in the future.
(c) the nature of the activities that gave rise to the transactions involved.
(d) the costs versus the benefits of the alternative methods of disclosing the transactions
involved. C

24. Which of the following is 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-noncurrent classification of assets and liabilities is justifiable and significant
(d) all of these D

25. Revenue should be recognized:

(a) at the end of production. (c) when realized.
(b) at the time of cash collection. (d) when realized or realizable and earned D

26. “When products (goods or services), merchandise or other assets are exchanged for cash or
claims to cash” is a definition of:
(a) allocated (c) realizable
(b) realized (d) earned B

27. Which of the following relates to both relevance and reliability?

Consistency Verifiability Consistency Verifiability
(a) Yes Yes (c) No Yes
(b) Yes No (d) No No B

28. The conceptual framework classifies gains and losses based on whether they are related to an
entity’s major ongoing or central operations. These gains or losses may be classified as:
Nonoperating Operating Nonoperating Operating
(a) Yes Yes (c) No Yes
(b) Yes No (d) No No A

29. Earnings:
(a) is the same as comprehensive income.
(b) excludes certain gains and losses that are included in comprehensive income.
(c) includes certain gains and losses that are excluded in comprehensive income.
(d) includes certain losses that are excluded from comprehensive income. B

30. An operating cycle:

(a) is twelve months or less in length.
(b) is the average time required for an enterprise to collect its receivables.
(c) is used to determine current assets when the operating cycle is longer than one year.
 (d) starts with inventory and end with cash. C

31. When the entity has substantially accomplished what it must do to be entitled to the benefits
represented by the revenues, revenues are:
(a) earned (c) recognized
(b) realized (d) all of these A

32. Which of the following is not a reason why revenue is recognized at time of sale?
(a) realization has occurred
(b) the sale is critical event
(c) title legally passes from seller to buyer
(d) all of these are reasons to recognize revenue at time of sale D

33. A sale should not be recognized as revenue by the seller at the time of sale if:
(a) payment was made by check
(b) the selling price is less than the normal selling price
(c) the buyer has a right to return the product and the amount of future returns cannot be
reasonably estimated
(d) none of the these C

34. If a company sells its product but gives the buyer the right to return the product, the revenue
form the sales transaction shall be recognized at the time of sale only if all of these conditions
have been met. Which of the following is not one of these six conditions?
(a) the amount of future returns can be reasonably estimated
(b) the seller’s price is substantially fixed or determinable at time of sale
(c) the buyer’s obligation to the seller would not be changed in the event of theft or damage of
the product
(d) the buyer is obligation to pay the seller upon resale of the product D

35. In selecting an accounting method for a newly contracted long-term construction project, the
principal factor to be considered should be:
(a) the terms of payment in the contract.
(b) the degree to which a reliable estimate of the costs to complete and extent of progress
toward the completion is practicable.
(c) the method commonly used by the contractor to account for other long-term construction
contracts.
(d) the inherent nature of the contractor’s technical facilities used in construction. B

36. The profession requires that the percentage of completion method be used when certain
conditions exist. Which of the following is not once of those necessary conditions?
(a) Estimates of progress toward completion, revenues, and costs are reasonably dependable.
(b) The contractor can be expected to perform the contractual obligation.
(c) The buyer can be expected to satisfy some of the obligations under the contract.
(d) The contract clearly specifies the enforceable rights of the parties, the consideration to be
exchange, and the manner and terms of settlement. C

37. The method commonly used to report defaults and repossessions is:
(a) provide no basis for the repossessed asset thereby recognizing a loss.
 (b) record the repossessed merchandise at fair value, recording a gain or loss if appropriate.
(c) record the repossessed merchandise at book value, recording no gain or loss.
(d) none of these. B

38. Under the installment sales method:

(a) revenue, costs and gross profit are recognized proportionate to the cash that is received from
the sale of the product.
(b) gross profit is deferred proportionate to cash uncollected form sale of the product, but total
revenues and costs are recognized at the point of sale.
(c) gross profit is not recognized until the amount of cash received exceeds the cost of the item
sold.
(d) revenue and costs are recognized proportionate to the cash received from the sale of the
product, but gross profit is deferred until all cash is received. B

39. A seller is properly using the cost recovery method for a sale. Interest will be earned on the
future payments. Which of the following statements is not correct?
(a) After all costs have been recovered, any additional cash collections are included in income.
(b) Interest revenue may be recognized before all costs have been recovered.
(c) The deferred gross profit is offset against the related receivable on the balance sheet.
(d) Subsequent income statement report the gross profit as a separate item of revenue when it is
recognized as earned. B

40. Incomplete accounting records using only a cash book is a characteristic of:
(a) cash basis (c) single entry system
(b) accrual basis (d) double entry system C

41. Which of the following may be recognized as revenue?

(a) rental deposits
(b) cash from advance magazine subscriptions
(c) value of gold extracted from a mine but not yet sold
(d) cash received in payment of a note receivable C

42. Under generally accepted accounting principles,

(a) income and expenses, assets and liabilities are measured based on the occurrence of changes
in the economic resources and obligations.
(b) assets and liabilities are measured on the basis of their liquidation values.
(c) income and expenses are recognized on the basis of cash receipts and payments, including
depreciation of property, plant and equipment.
(d) financial position and results of operations are measured on the basis of cash received and
cash paid. A

43. Under the concept of conservatism, uncertainties that surround the preparation of financial
statements are reflected in a general tendency toward early recognition of unfavorable events
and the minimization of the amounts of net assets and net income. Accordingly,
(a) a provision for a temporary decline in value of a security not listed in the stock exchange is
recognized.
(b) a liability is accrued for a guarantee of the indebtedness of others.
 (c) losses on a long-term construction-type contract are recognized in full as soon as they
become evident.
(d) a peso-denominated note payable is adjusted for a peso devaluation that occurs after the
balance sheet date. C

44. Which is not a qualitative characteristic?

(a) understandability (c) comparability
(b) relevance (d) accrual basis D

45. Which is not a descriptive of reliability?

(a) The information must represent faithfully the transactions and other events it either purports
to represent or could reasonably be expected to represent.
(b) The transactions and other events are accounted for and presented in accordance with their
substance and economic reality and not merely their legal form.
(c) The information contained in financial statements must be free from bias.
(d) The exercise of prudence allows the creation of hidden reserves or excessive provisions and
deliberate understatement of assets and income. D

46. It is generally accepted accounting principles:

(a) to consider actual accounting and reporting practices of customary usage even if not
mentioned specifically in ASC and other official pronouncements.
(b) to consider the contents of accounting textbooks only after the principles therein are
approved by the Board of Accountancy.
(c) to consider only the authoritative official pronouncements of the ASC, PICPA, IASC, the SEC,
and the Board of Accountancy.
(d) to ignore the need for professional judgment in the preparation of financial statements.
A
47. The following statements relate to the standard of adequate disclosure. Which statement is
considered false?
(a) In complying with the standard of adequate disclosure, accountants are guided by the
doctrine that more information is always better than less.
(b) Financial accounting information that meets the qualitative characteristics of financial
accounting also meets the reporting standard of adequate disclosure.
(c) Adequate disclosure is concerned not only with the kind of information contained in financial
statements but also with the manner in which that information is presented.
(d) The disclosure standard calls for financial reporting of any financial facts significant enough to
influence the judgment of an informed reader of the statements. A
48. Comparability of financial statements of a single enterprise for one date or period of time with
those of other dates or for other periods would be more informative if the following conditions
exist, except:
(a) the presentations are in the same form
(b) the contents of the statements are identical.
(c) accounting principles are not changed at all.
(d) changes in circumstances or the nature of the underlying transactions are disclosed. C

49. External events are those that affect the enterprise and in which other entities participate. An
example of external event is:
(a) manufacture of a product out of raw materials.
 (b) loss of property due to flood.
(c) issuance of a promissory note in settlement of an account.
(d) transfer of goods from one department to another. C

50. Financial accounting is concerned with:

(a) general-purpose reports on financial position and results of operations.
(b) specialized reports for inventory management and control.
(c) specialized reports for income tax computation and recognition.
(d) general-purpose reports on changes in stock prices and future estimates of market position.
A

51. Financial accounting can be broadly defined as the area of accounting that prepares:
(a) general purpose financial statements to be used by parties internal to the business enterprise
only.
(b) financial statements to be used by investors only.
(c) general purpose financial statements to be used by parties both internal and external to the
business enterprise.
(d) financial statements to be used primarily by management. C

52. The purpose of the International Accounting Standards Committee is to:

(a) issue enforceable standards which regulate the financial accounting and reporting of
multinational corporations.
(b) develop a uniform currency in which the financial transactions of companies throughout the
world would be measured.
(c) promote uniform accounting standards among countries of the world.
(d) arbitrate accounting disputes between auditors and international companies. C

53. 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. D

54. Which of the following is not an objective of financial reporting?

(a) to provide information about economic resources, the claims to those resources, and the
changes in them.
(b) to provide information that is helpful to investors and creditors and other users in assessing
the amounts, timing and uncertainty of future cash flows.
(c) to provide information that is useful to those making investment and credit decisions.
(d) all of these are objectives of financial reporting. D

55. Accounting information is considered to be relevant when it:

(a) can be depended on to represent the economic conditions and events that 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. B

56. Financial information does not demonstrate consistency when:

(a) firms in the same industry use different accounting methods to account for the same types of
transactions.
(b) a company changes its estimate of the salvage value of a fixed asset.
(c) a company fails to adjust its financial statements for changes in the value of the measuring
unit.
(d) none of these. D

57. Information about different entities and about different periods of the same entity can be
prepared and presented in a similar manger. Comparability and consistency are related to which
of these objectives?
Comparability Consistency Comparability Consistency
(a) Entities Entities(c) Periods Entities
(b) Entities Periods(d) Periods PeriodsB

58. The assumption that a business enterprise will not be sold or liquidated in the near future is
known as the:
(a) economic entity assumption (c) conservatism assumption
(b) monetary unit assumption (d) none of these D

59. Valuing assets at their liquidation values rather than their cost is inconsistent with the:
(a) periodicity assumption (c) materiality constraint
(b) matching principle (d) historical cost principle D

60. Application of the full disclosure principle:

(a) is theoretically desirable but not practical because the costs of complete disclosure exceed the
benefits.
(b) is violated when important financial information is buried in the notes to the financial
statements.
(c) is demonstrated by the use of supplementary information presenting the effects of changing
prices.
(d) requires that the financial statements be consistent and comparable. C

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

(a) An item must make a difference or it need be disclosed.
(b) Materiality is a matter of relative size 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. D

62. Trade-offs between the characteristics that make information useful may be necessary or
beneficial. Issuance of interim financial statements is an example of a trade-off between:
(a) relevance and reliability (c) timeliness and materiality
(b) reliability and periodicity (d) understandability and timeliness A
63. The preparation of quarterly financial statements is an example of:
(a) predictive value (c) timeliness
(b) feedback value (d) understandability C

64. Which is not a source of substantial authoritative support for an accounting principle?
(a) Statement of Financial Accounting Standards by the Accounting Standards Council
(b) Statement by Professional Regulation Commission
(c) Statement by the Board of Accountancy
(d) Regulation and accounting pronouncements of the SEC B

65. The rule that helps accounting information be reliable is called:

(a) objective principle (c) accounting
(b) going concern principle (d) entity A

66. Which statement is incorrect concerning the ASC framework?

(a) The framework sets out the concepts that underlie the preparation and presentation of
financial statements for external users.
(b) The framework is not a Standard of Financial Accounting Standards for any particular
measurement or disclosure issue.
(c) The framework applies to the financial statements of all commercial, industrial and business
reporting enterprises, whether in the public or private sector.
(d) Special purpose financial reports, for example, prospectuses and computations prepared for
taxation purposes, are within the scope of the framework. D

67. Which statement is incorrect concerning users and their information needs?
(a) The providers of risk capital (investors) and their advisers are concerned with the risk
inherent in and return provided by their investments.
(b) Employees and their representative groups are interested in information about the stability
and profitability of their employers.
(c) Lenders are interested in information that enables them to determine whether their loans and
the interest attaching to them will be paid when due.
(d) Governments and their agencies have an interest in information about the continuance of an
enterprise, especially when they have a long-term involvement with or are dependent on the
enterprise. D

68. Financial statements (choose the incorrect one):

(a) provide information about the financial position, performance and changes in financial
position of an enterprise that is useful to a wide range of users in making economic decisions.
(b) also show the results of the stewardship of management or the accountability of the
management for the resources entrusted to it.
(c) are the primary responsibility of the management of an enterprise.
(d) are prepared and presented at least annually and are directed toward the specific information
needs of a wide ranges of users. D

69. Which is incorrect concerning the qualitative characteristics of financial statements?

 (a) To achieve the quality of understandable financial information, users are assumed to have a
reasonable knowledge of business and economic activities and accounting and a willingness to
study the information with reasonable diligence.
(b) Information has the quality of relevance when it influences the economic decisions of users by
helping them evaluate past, present or future events or confirming or correcting their past
evaluations.
(c) To be reliable, information must represent faithfully the transactions and other events it either
purports to represent or could reasonably be expected to represent.
(d) The need for comparability dictates that it is appropriate for an enterprise to leave its
accounting policies unchanged even when more relevant and reliable alternatives exist. D

70. Fair presentation of financial statements requires (choose the incorrect one):
(a) selecting and applying accounting policies in accordance with all the requirements of each
applicable Statement of Financial Accounting Standards.
(b) presenting information, including accounting policies, in a manner which provides relevant,
reliable, comparable and understandable information.
(c) providing additional disclosures when the requirements in Statement of Financial Accounting
Standards are insufficient to enable users to understand the impact of particular transactions
or events on financial position and performance.
(d) rectifying inappropriate accounting treatments either by disclosure of the accounting policies
used or by notes or explanatory material. D

71. Which is not a basic purpose of the ASC framework?

(a) to assist ASC in developing accounting standards
(b) to assist prepares of financial statements in applying ASC accounting standards
(c) to assist ASC 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. D

72. Which is not a characteristic of relevant information?

(a) It can help users increase the likelihood of correctly forecasting outcome of events.
(b) It enables users to confirm or correct earlier expectations.
(c) It is furnished to the decision maker early enough before a decision is made.
(d) It is neutral. D

73. When a company makes a change in accounting principle, prior year statements are not generally
restated to reflect the change. This procedure would prevent a dilution of public confidence in
financial statements but that it would conflict with the accounting concept of:
(a) materiality (c) objectivity
(b) conservatism (d) comparability D

74. One of the following is not a condition for standard of fair presentation.
(a) Generally accepted accounting principles have been applied.
(b) Changes in GAAP have been appropriately disclosed.
 (c) The information in the underlying records is properly reflected in the statements.
(d) All tax laws are followed. D

75. This feature of financial accounting considers that determination of periodic income and financial
position depends on measurement of economic resources and obligations and changes in them as
the changes occur rather than simply on recording receipts and payments of money.
(a) measurement of economic resources and obligations
(b) use of the accrual basis of accounting
(c) measurement in terms of money
(d) exchange price B

76. On December 31, 2005, F Corporation sued J, Inc. for breach of the contract of carriage in the
amount of P1 million. F’s financial statements should report the expected award of P1 million as
a:
(a) recoverable and revenue (c) receivable and deferred payments
(b) revenue (d) disclosures by footnotes only D

77. Which of the following statements pertaining to accounting policies is not recognized as valid?
(a) Information about the accounting policies adopted by a reporting enterprise is essential for
financial statement users.
(b) Disclosures by business enterprises commonly required with respect to accounting policies
include among other those relating to depreciation methods, inventory pricing and basis of
consolidation.
(c) Information about the accounting policies adopted and followed by not-for-profit enterprises
should be presented as an integral part of their financial statements.
(d) Disclosures of accounting policies are required even in special reports in which incomplete
financial preparations are made so long as the enterprise is operated for profit. D

78. The recognition and reporting in the time periods to which the effects of transactions and other
events on the assets and liabilities of a business enterprise relate rather than only when cash is
received or paid is known as:
(a) accrual (c) estimates and judgment
(b) summarization (d) verifiability A

79. Consistency is an important factor in comparability within a single enterprise. The consistency
standard of reporting requires that:
(a) some costs should be recognized as expenses on the basis of a presumed associations with
specific revenue.
(b) assets whose prices or utility are increased by external events other than transfer should be
retained in the accounting records at their recorded amounts until they are exchanged.
(c) historical cost should be the primary basis used in measuring inventory, and property, plant
and equipment.
(d) changes in circumstances or in the nature of the underlying transactions should be disclosed.
D

80. Liabilities + Capital = Assets explains the:

(a) proprietary theory (c) residual equity theory
(b) entity theory (d) fund theory B
81. Q, Inc. is a company whose securities are traded on over-the-counter market. It controls R
Corporation. Consolidated financial statements are prepared in recognition of the accounting
concept of:
(a) economic entity (c) legal entity
(b) materiality (d) reliability A

82. They represent the distillation of the effect of environment characteristics on the financial
accounting process and could also serve as a foundation for other accounting principles that are
based on the same environment characteristics.
(a) basic financial statements (c) basic elements of financial accounting
(b) basic features of financial accounting(d) objectives of financial accounting B

83. When the framework of the purposes of financial accounting and financial statements are the
general objectives which are characterized by one of the following statements. This statement is:
(a) They indicate the qualities that make financial accounting information useful.
(b) They imply that assets and liabilities ideally should include all resources and that all changes
in assets and liabilities ideally should be reported.
(c) They relate the content of the information to the underlying activities of the business
enterprises and to the interests and needs of users of the information.
(d) They aid in determining which resources and obligations and changes should be measured
and reported. C

84. Which among the following influences of the environment on accounting does not adversely
affect the attainment of the objectives of financial accounting?
(a) changes in financial accounting information
(b) changes in financial accounting practices
(c) change in corporate name
(d) inherent difficulties of measurement in terms of money C

85. Proceeds of a loan is not revenue under generally accepted accounting principles because:
(a) owner’s equity cannot change at the time of the loan.
(b) the loan does not increase assets.
(c) the loan has to be paid back at a future date.
(d) there is no sale of an asset. A

86. Non-cash resources and obligations of an enterprise change in time periods other than those in
which money is received or paid. This would relate to the essence of the of the basic feature of
financial accounting known as:
(a) substance over form (c) approximation
(b) accrual (d) materiality B

87. Actual accounting and reporting practices are important sources of detailed accounting principles
in areas not covered by PICPA and ASC pronouncements because:
(a) it is so provided by a Statement of Financial Accounting Standards.
(b) business experience has demonstrated that the practice produces dependable results for the
guidance of statement users.
(c) such a practice exists and has gained widespread acceptance among statement users.
 (d) it has been demonstrated that the practice legally reduces the income taxes to be paid by
statement users. C

88. Robbers stole from X Corporation, 30 computers worth P300,000. The value of the loss should
be classified as:
(a) an exchange (c) a cost
(b) a casualty (d) a nonreciprocal transfer D

89. It is the body authorized by law to promulgate rules and regulations affecting the practice of
accountancy in the Philippines.
(a) PICPA (c) Board of Accountancy
(b) ASC (d) PRC C

90. The ASC will not issue any SFAS without the approval of at least:
(a) eight members (c) four members
(b) five members (d) three members B

91. The continuity, complexity, uncertainty and joint nature of results inherent in economic activity
often preclude definitive measurements and make estimates necessary.
(a) accrual (c) approximation
(b) exchange price (d) judgment C

92. The financial information is designed to serve the common needs of owners, creditors, managers,
and other users, with primary emphasis on the needs of present and potential owners and
creditors.
(a) general purpose financial information
(b) fundamentally related financial statements
(c) substance over form
(d) materiality A

93. Which statement best describes generally accepted accounting principles?

(a) they have been formulated mainly by the public sector
(b) they have been developed on the basis of such factors as experience, reason, custom, usage
and to a significant extent, practical necessity
(c) they are the same as laws within our legal system
(d) they do not apply to small enterprises B

94. To achieve a reasonably objective basis, financial forecast and projections should be prepared:
I. In accordance with GAAP.
II. Using information that is in accordance with the plans of the entity.
III. With due professional care.
(a) I and III (c) I, II and III
(b) II and III (d) I and II C

95. Which of the following is required to be disclosed regarding the risks and uncertainties that exist?
(a) Factors causing an estimate to be sensitive
(b) The potential impact of estimates about value of assets and liabilities when it is reasonably
possible.
 (c) The potential impart of estimates about values of assets and liabilities when it is remotely
possible that the estimate will change in the near future.
(d) A description of the operations both within and outside of the home country. B

96. These determine the information that is included, how it is organized, measured, combined, and
adjusted, and finally how it is presented in the financial statements.
(a) GAAP (c) accounting postulates
(b) accounting objectives (d) accounting procedures A

97. The following are considered part of the environment of financial accounting except:
(a) the many uses and users which accounting serves
(b) the overall organization of economic activity in society
(c) the nature of economic activity in individual business enterprises
(d) the need to value assts at their fair market values. D

98. Statement 1 General objectives are broader or longer in range than those for
particular financial statements.
Statement 2 The basic purpose of financial accounting is to determine the
liquidity of a business.
A B C D
STATEMENT 1 TRUE TRUE FALSE FALSE
STATEMENT 2 TRUE FALSE FALSE TRUE B

99. Statement 1 All of the profit-directed activities of an enterprise that comprise

the process by which revenue is earned may be called the
earning process.
Statement 2 The revenue realization principle requires that revenue be
earned before it is recorded.
A B C D
STATEMENT 1 TRUE TRUE FALSE FALSE
STATEMENT 2 TRUE FALSE FALSE TRUE A

100. Under the cost principle, assets are generally carried in the accounting records at the following
amount, except:
(a) acquisition price (c) historical cost
(b) input exchange price (d) output exchange price D

101. Modifying conventions are a means of substituting the collective judgment of the profession for
that of the individual accountant. These conventions include the following, except:
(a) timeliness (c) emphasis on income
(b) conservatism (d) application of judgment A

102. Statement 1 In exchanges in which neither money nor promises to pay money
are exchanged, the assets acquired are generally measured at the
fair value of the assets given up.
 Statement 2 If the fair value of the assets received is more clearly evident that
the assets given up, it is used in recording the assets acquired.
A B C D
STATEMENT 1 TRUE TRUE FALSE FALSE
STATEMENT 2 TRUE FALSE FALSE TRUE A

103. Which of the following accounting pronouncements is the most authoritative?

(a) ASC Exposure Draft
(b) ASC Statement of Financial Accounting Standards
(c) ASPC Statements of Auditing Standards
(d) PICPA Statement of Position B

104. The qualitative objective in accounting that information should be made available without delay
before decisions are to be made.
(a) relevance (c) completeness
(b) timeliness (d) understandability B

105. The following are considered as external events, except:

(a) donation received from stockholder (c) fire, flood, or other calamities
(b) borrowing of money from bank (d) sale of merchandise C

106. Accounting theory is:

(a) well-defined and accepted in general.
(b) universified hypotheses about accounting
(c) imprecise and still developing
(d) not given C

107. Fundamental assumptions related to the economic environment in which accounting operates
are called:
(a) accounting principles (c) accounting concepts
(b) accounting postulates (d) accounting theories B

108. Comparability of financial information depends on:

A B C D
Consistency Yes Yes No No
Regular reporting period No Yes No Yes B

109. In cases of any departure from conformity with GAAP, the CPA must indicate:
A B C D
Nature of departure Yes Yes No No
Approximate effects thereof No Yes No Yes B

110. The basis for valuing or recording transactions where cash is not involved:
(a) historical cost (c) selling price
(b) fair value (d) home consumption value B

111. The principles of accounting are to a considerable extent shaped and influenced by the
following except:
 (a) the business environment
(b) the needs of the users
(c) the accounting records of the business enterprise
(d) the accounting systems used C

112. Authoritative support for accounting principles may come from the following except:
(a) PICPA (c) SEC
(b) ASPC (d) ASC B

113. The following are related to objectivity except:

(a) arm’s length-transactions (c) periodicity
(b) neutrality (d) verifiability C

114. The following are related to comparability, except:

(a) representational faithfulness (c) consistency
(b) periodicity (d) uniformity A

115. Early accounting records were used primarily by:

(a) owners and managers (c) creditors and managers
(b) owners and creditors (d) creditors and suppliers B

116. Accounting policies refer to:

(a) accounting postulates
(b) basic accounting assumptions
(c) accounting principles adopted by a business enterprise
(d) accounting systems C

117. Accounting principles include:

(a) accounting procedures and methods (c) accounting postulates
(b) accounting concepts (d) accounting controls A

118. An accounting entity refers to the following, except:

(a) business enterprise (c) management
(b) corporation (d) economic entity C

119. The highest accounting standard-setting authority in the Philippines is:

(a) Accounting Standards Committee (c) Financial Accounting Standards Board
(b) PICPA (d) Accounting Standards Council D

120. Periodicity refers to:

(a) the entire life of the entity. (c) a chain of one-year segments.
(b) the natural life of the business. (d) any period covered by a report. C

121. Going concern refers to the assumption that the:

(a) firm will continue to operate.
(b) firm operations are soon to be terminated.
(c) firm cannot fulfill existing commitments.
(d) firm is suffering from huge losses. A
122. Which of the following is intended to attain the quality of completeness?
(a) neutrality (c) comparability
(b) representational faithfulness (d) disclosure D

123. The matching principle provides guidance in accounting for:

(a) owner’s equity (c) liabilities
(b) expense (d) assets B

124. The consistency principle has the most direct impact on whether to:
(a) use the periodic or the perpetual inventory system.
(b) include or exclude an item in the inventory.
(c) write down to a market value below cost.
(d) change from one inventory method to another. D

125. Statement 1 The definition of a financial-statement element merely identifies

the essential features of the element.
Statement 2 The definition of a financial-statement element does not specify
the criteria for the recognition of the element.
A B C D
STATEMENT 1 TRUE TRUE FALSE FALSE
STATEMENT 2 TRUE FALSE FALSE TRUE A

126. As indicated in the framework for the preparation and presentation of financial statements, par.
76, gains are often reported:
(a) net of other revenue (c) net of contributions from equity participants
(b) net of related investments (d) net of related expenses D

127. According to SFAS 1/ IAS 1, par. 71, on the presentation of financial statements, the use of
different measurement bases for different classes of assets suggests for the presentation of these
assets as:
(a) aggregate line items
(b) additional disclosures in the notes to financial statements
(c) separate line items
(d) coordinate line items C

128. Under the framework for the preparation and presentation of financial statements, par. 62, an
obligation may also be extinguished by other means, such as:
(a) a change in petroleum prices
(b) a declaration of dividend by the Board of Directors
(c) a waiver by a creditor of its rights
(d) a resolution by the Bangko Sentral ng Pilipinas on a higher working-capital ratio can be
maintained by borrowers C

129. The amount by which a present obligation is discharged by cash-payment is the obligation’s:
(a) realizable value (c) nominal value
(b) present value (d) settlement value D
130. SFAS 1/ IAS 1, par. 37, on the presentation of financial statements, provides that gains (losses)
arising from a group of similar transactions are reported separately or on a:
(a) net basis (c) comparative basis
(b) gross basis (d) deferred basis A

131. Paragraph 8 of the framework for the presentation and presentation of financial statements
specifies that the framework applies to the financial statements of all commercial, industrial, and
business reporting-enterprises:
(a) in the private sector only (c) in the public or the private sectors
(b) in the public sector only (d) neither in the public nor the private sector
C
132. SFAS 1/ IAS 1, par. 84, on the presentation of financial statements, requires:
(a) the function-of-expense classification
(b) a choice between the nature-of-expense or the function-of expense classification
(c) the nature-of-expense classification
(d) a choice between the function-of-expense or the cost-of-sales classification B

133. The framework for the preparation and presentation of financial statements, par. 25, indicates
that information about complex matters that may be difficult for certain users to understand:
(a) should be excluded from the financial statements
(b) may either be included in or excluded from the financial statements
(c) should not be excluded from the financial statements
(d) should only be presented in the notes to financial statements C

134. To find the present value of the future cash flows, the variables needed are the future cash
flows, the discount rate, and the:
(a) time of exchange (c) time horizon
(b) price change (d) marginal utility C

135. As indicated in SFAS 1/ IAS 1 on the Presentation of Financial Statements, a financial asset that
represents a contractual right to exchange financial instruments with another enterprise is
presumed to exist under conditions that are potentially:
(a) favourable (c) prohibitive
(b) ambiguous (d) unfavourable A

136. As indicated in SFAS 1/ IAS 1 on the Presentation of Financial Statements, when assets and
liabilities are not classified into the current and noncurrent categories, they should be presented
broadly on the face of the balance sheet in the order of:
(a) recovery (c) maturity
(b) liquidity (d) complexity B

137. Which costing concept is acceptable for external reporting purposes?

(a) direct costing (c) variable costing
(b) absorption costing (d) standard costing B

138. A complete set of financial statements includes:

(a) financial highlights
(b) statement of management’s responsibility for financial statements
 (c) notes to financial statements
(d) report on independent public accountant C

139. Descriptive accounting theory deals primarily with:

(a) theory that is currently applied (c) both A and B
(b) theory that is ought to be applied (d) neither A nor B A

140. According to SFAS 1/ IAS 1 on the Presentation of Financial Statements, which is not an
accounting policy?
(a) convention (c) principle
(b) practice (d) cost-benefit relationship D

141. This body was created by PICPA in order to establish GAAP in the Philippines.
(a) ASC (b) IASC (c) IASB (d) FASB A

142. This was formed by the ASC in order to prepare interpretations of Philippine Financial Reporting
Standards and to provide timely guidance on financial reporting issues not specifically addressed
in the accounting standards.
(a) IC (b) SIC (c) IFRIC (d) ED A

143. The GAAP in the Philippines are now known as:

(a) SFAS (b) PAS (c) PFRS (d) both PAS & PFRS D

144. Which is true concerning the ASC framework?

I. The framework sets out the concepts that underlie the preparation and presentation of
financial statements for external users.
II. The framework is not a Statement of Financial Accounting Standards and hence does not
define standard for any particular measurement or disclosure issue.
III. If there is a conflict between a provision of the framework and that of a financial accounting
standard, the financial accounting standard should prevail.
(a) I only (c) I and III
(b) I and II (d) I, II, and III D

145. Which one of these is not among the criteria for accountable events?
(a) It must affect an element of financial accounting.
(b) It must be a result of a past activity.
(c) Its cost can be measured reliably.
(d) It must involve an exchange between two parties. D

146. The ASC conceptual framework of accounting sets out two constraints when implementing
accounting procedures. What are they?
(a) cost-benefit and timeliness (c) comparability and consistency
(b) timeliness and materiality (d) cost-benefit and materiality A

147. Which of these activities does not generate revenue?

(a) permitting others to use enterprise resources
(b) sale of merchandise
(c) adjustment of revenue of prior periods
 (d) disposing of investment in other entities C

148. The following statements are applications of the basic features of financial accounting, except:
(a) A parent corporation and its subsidiaries are treated as a single enterprise.
(b) Estimates used in accounting are based on informed judgment.
(c) Economic activities that can be quantified are emphasized in financial accounting.
(d) Financial information should be presented in a way that facilitates understanding and avoids
erroneous implications. D

149. The objectives of the ASC are (choose the incorrect one):
(a) to develop, in the public interest, a single set of high quality, understandable and enforceable
accounting standards
(b) to promote the use and required application of Philippine accounting standards
(c) to work the convergence of Philippine accounting standards with IFRS
(d) to promulgate rules and regulations affecting the practice of the accountancy D

150. The approach most companies will probably use to provide information related to the
components of other comprehensive income is a:
(a) second separate income statement
(b) combined income statement of comprehensive income
(c) separate column in the statement of changes in stockholders’ equity
(d) footnote disclosures C

151. The essential characteristic(s) of accounting is (are):

(a) communication of financial information to interested persons
(b) communication of financial information about economic entities
(c) identification, measurement, and communication of financial information
(d) all of these D

152. Financial accounting is concerned with:

(a) general-purpose reports on financial position and results of operations
(b) specialized reports for inventory management and control
(c) specialized reports for income tax computation and recognition
(d) general-purpose reports on changes in stock prices and future estimates of market position
A

153. Financial accounting can be broadly defined as the area of accounting that prepares:
(a) general-purpose reports financial statements to be used by parties internal to the business
enterprise only
(b) financial statements to be used by investors only
(c) general-purpose reports financial statements to be used by parties both internal and external
to the business enterprise only
(d) financial statements to be used primarily by management C

154. Which of the following statements is not an objective of financial reporting?

(a) provide information that is useful in investment and credit decisions
(b) provide information about enterprise resources, claims to those resources, and changes in
them
 (c) provide information on the liquidation value of an enterprise
(d) provide information that is useful in assessing cash flow prospects C

155. The quality of information that gives assurance that it is reasonably free of error and bias and is
a faithful representation is:
(a) relevance (c) verifiability
(b) reliability (d) neutrality B

156. When information about two different enterprises has been prepared and presented in a similar
manner, the information exhibits the characteristic of:
(a) relevance (c) consistency
(b) reliability (d) comparability D

157. The Accounting Standards Council (ASC):

(a) reviews the annual financial statements of all corporations whose shares of stock are listed to
the stock exchange
(b) issues authoritative expressions of generally accepted accounting principles
(c) performs independent audits of the financial statements of multi-national companies
(d) audits the income tax returns and accounting records of both individuals and partners in
partnerships B

158. At present, GAAP usually are established by:

(a) ASC, subject for final approval of the PRC
(b) PICPA, subject to the oversight of the ASC
(c) SEC, subject to legal authority of the Congress
(d) Congress, subject to the review of the SEC A

159. The underlying assumption that assets purchased by a business are to be recorded at their
purchase price is called:
(a) Historical cost concept (c) Money measurement concept
(b) Business entity concept (d) Going concern concept A

160. Who among these accountants should be completely independent of the firm or organization
whose financial data is being examined?
(a) internal auditor (c) controller
(b) budget director (d) public accountant C

161. The concept of materiality is:

(a) measured strictly by the peso amounts of the individual items – for example, a P30,000
amount is always material
(b) measured by whether or not the manner in which the item is treated might influence
decisions or evaluations
(c) unimportant in determining whether or not there is adequate disclosure
(d) none B

162. The accounting staff of a large company might perform all of the following tasks except:
(a) prepare and develop financial forecasts
(b) evaluate the company’s system of internal control
 (c) prepare the company’s financial statements
(d) express and issue an independent auditor’s report pertaining to the fairness of the company’s
financial statements D

163. Advertising costs incurred are typically treated as expenses in the period in which incurred
under the:
(a) cash basis (c) accrual basis
(b) historical cost (d) materiality C

164. Which of the following does not have a representation to the ASC, the official source of
accounting principles?
(a) PICPA (b) BIR (c) BOA (d) SEC B

165. A single proprietor decided to use the same bank account for his personal affairs and that of his
business. What accounting concept is violated by this practice?
(a) accounting entity (c) going concern
(b) measuring unit (d) objectivity A

166. A corporation’s financial statements do not report centavos amounts. This is an example of the
application of which of the following concepts?
(a) business entity (c) consistency
(b) objectivity (d) materiality D

167. When assets are withdrawn from a business for the owner’s personal consumption and
recorded as a reduction in owner’s equity, which major underlying assumption of accounting is
applied?
(a) going concern (c) time periods
(b) entity (d) adequate disclosure B

168. Disregarding liquidation value in presenting assets and liabilities in the balance sheet is justified
by which of the following concept?
(a) matching (c) business entity
(b) time period (d) going concern D

169. A characteristic that requires disclosure of all significant information in a way that aids proper
understanding and does not mislead the user is called:
(a) completeness (c) objectivity
(b) consistency (d) materiality A

170. Which of the following is characterized by private accountants?

(a) are usually employed by a single employer
(b) are outside independent experts rather than employees
(c) must possess a CPA licensed
(d) render opinions as to the fairness of published financial statements A

171. Financial accounting information:

(a) need not conform to GAAP
(b) is not concerned with the solvency of a business
 (c) is primarily historical in nature
(d) is intended primarily for internal management use C

172. Revenue is most commonly recognized at the point wherein the:

(a) sale is made (c) cash is collected from customers
(b) production process is complete (d) order is received from customers A

173. The accounting rule that defines a revenue as an inflow of assets in exchange for goods or
services and requires the revenue to be recognized at the time it is earned, and that all expenses
incurred in earning a revenue be deducted from revenue in determining net income is the:
(a) matching (c) going concern
(b) objectivity (d) materiality A

174. Internal users of accounting reports includes which of the following?

(a) BIR examiner (c) marketing managers
(b) creditors (d) all of these C

175. This is the field of accounting in which persons perform cost accounting, management
accounting, and internal auditing.
(a) private accounting (c) governmental accounting
(b) public accounting (d) none of these A

176. A corporation is characterized by:

(a) the stockholders manage the corporation by voting on all important matters of policy
(b) the officers of the corporation elect the board of directors
(c) evidence of ownership is in the form of shares of stock
(d) in case of failure, a corporation’s owners are individually liable for its debts C

177. Among the governmental sector organization involved in establishing SFAS is the:
(a) FINEX (b) BSP (c) PICPA (d) ASC B

178. Examples of a single proprietorship would normally not include:

(a) an interior designer in business by herself (c) an independent shoe-repairman
(b) the owner and operator of a laundry shop (d) a CPA firm with only two partners D

179. The going concern concept is:

(a) other term used to describe the matching principle
(b) the idea that the purchasing power of the unit of measure used in accounting, the pesos does
not change
(c) the idea that a business is separate and distinct from its owner(s) and from every other
business
(d) the idea that a business is a continuing enterprise that will continue to operate D

180. Under the accrual method of accounting, which of the following cash receipts of 2005 would
increase net income for 2005?
(a) cash received for interest earned in 2004
(b) cash received for services to be rendered in 2006
(c) cash received for services rendered in 2004
 (d) cash received from the sale of land at more than cost D

181. The following statements relate to the principle of full disclosure. Which is false?
(a) requires providing the user with an assessment of management effectiveness
(b) requires disclosure of accounting methods used, such as for depreciation and bad debts
(c) requires disclosure of contingent liabilities
(d) can be satisfied by notes to the financial statements A

182. Statement 1 Accounting information which is verifiable and

are exchanged, the assets acquired are generally measured at the
fair value of the assets given up.
Statement 2 If the fair value of the assets received is more clearly evident that
the assets given up, it is used in recording the assets acquired.
A B C D
STATEMENT 1 TRUE TRUE FALSE FALSE
STATEMENT 2 TRUE FALSE FALSE TRUE A

183. A generally accepted method of valuation is:

1. trading securities at market value
2. accounts receivable at net realizable value
3. inventories at current cost
(a) 1 (b) 2 (c) 3 (d) 1 and 2 B

184. Working capital is:

(a) capital which has been reinvested in the business
(b) unappropriated retained earnings
(c) cash and receivables less current liabilities
(d) none of these D

185. An example of an item which is not an element of working capital is:

(a) accrued interest on notes receivable
(b) organization costs
(c) goods in process
(d) temporary investments B

186. A generally accepted account title is:

(a) prepaid revenue (c) earned surplus
(b) appropriation for contingencies (d) reserve for doubtful accounts B

187. Which of the following is not a method of disclosing pertinent information?

(a) supporting schedules
(b) parenthetical explanations
(c) cross reference and contra items
(d) all of these are methods of disclosing pertinent information D

188. Significant accounting policies may not be:

(a) selected on the basis of judgment
(b) selected from existing acceptable alternatives
 (c) unusual or innovative in application
(d) omitted from financial statement disclosure D

189. It is mandatory that the essential provisions of which of the following be clearly stated in the
notes to the financial statements?
(a) stock option plans (c) lease contracts
(b) pension obligations (d) all of these D

190. Which of the following post-balance sheet events would generally require disclosure, but no
adjustment of the financial statements?
(a) retirement of the company president
(b) settlement of litigation when the event that gave rise to the litigation occurred prior to the
balance sheet date
(c) employee strikes
(d) issue of a large amount of capital stock D

191. Which of the following subsequent events (post-balance sheet events) would require
adjustment of the accounts before issuance of the financial statements?
(a) loss of plant as a result of fire
(b) changes in quoted market prices of securities held as an investment
(c) loss on an uncollectible account receivable resulting from a customer’s major flood loss
(d) loss on a lawsuit, the outcome of which was deemed uncertain at year-end D

192.

SOURCES & REFERENCES:

 Gleim, Flesher, CMA REVIEW – 2000 Edition, Gleim Productions, Inc.

 CPAR
 CRC
 RESA
 Test Bank Dump