FINAL EXAM – AE14 CFAS

INSTRUCTION: Identify the letter of the choice that best completes the statement or answers the question.

1. All of the following are events considered as exchange or reciprocal transfer, except
a. purchase of investment in equity securities
b. sale of equipment for non-interest bearing note
c. subscription of the entity’s own equity instrument (i.e., contributions by owners)
d. exchange of a note payable for an account payable

2. All of the following are events considered nonreciprocal transfers, except

a. declaration of cash dividends c. payment of accounts payable
b. declaration of stock dividends d. imposition of fines

3. These are events involving an entity and another external party.

a. external events c. transactions
b. internal events d. life events

4. What is the basic purpose of accounting?

a. To provide quantitative financial information about economic activities.
b. To provide all information that users need in making economic decisions.
c. To provide qualitative financial information about economic activities intended to be
useful in making economic decisions.
d. To provide quantitative financial information about economic activities intended to be
useful in making economic decisions.

5. Accounting provides which type of information?

a. quantitative c. qualitative
b. financial information d. all of these

6. External users are those

a. who do have the authority to demand financial reports tailored to their specific needs.
b. who do not have the authority to demand financial reports tailored to their common
needs.
c. who do not have the authority to demand financial reports tailored to their specific
needs.
d. who belong to countries other than the domicile country of the reporting entity

7. Which of the following statements is false?

a. Accountable events are those that have an effect in an entity's assets, liabilities, equity,
income or expenses.
b. The term “recognition” as used in accounting refers to the process of incorporating the
effects of an accountable event in the statement of financial position or the statement
of profit or loss and other comprehensive income through a memo entry.
c. External events are those that involve the reporting entity and an external party.
d. The Board of Accountancy consists of a chairperson and six members.

8. Which of the following statements is true?

a. In current practice, accounting provides only quantitative information that is useful in
making economic decisions.
b. External users are those who do not have the authority to demand financial reports
tailored to their specific needs.
c. Under the stable monetary unit assumption, the owners of the business and the
business are viewed as a single reporting entity. Therefore, the personal transactions of
the owners are recorded in the books of accounts.
d. The practice of accountancy in the Philippines is regulated under R.A. 9892.

9. Which of the following statements correctly refer to the accounting process?

I. Measuring is the accounting process of analyzing business activities as to whether or not they will be
recognized in the books.
II. Recognition refers to the process of including the effects of an event in the totals of the statement of
financial position or the statement of profit or loss and other comprehensive income through memo
entries.
III. Disclosure of events in the notes to financial statement without including their effect in the totals of the
statement of financial position or statement of profit or loss and other comprehensive income is not an
application of the recognition principle.
IV. An accountable event is an event that has an effect on the assets, liabilities or equity of an entity and its
effect can be measured reliably.
V. Sociological and psychological matters are within the scope of accounting.
a. I, II, III, IV and V c. IV
b. I, II, III and IV d. III and IV

10. Which of the following statements is true?

I. Loss from theft is classified as a nonreciprocal transfer.
II. Internal events are changes in economic resources by actions of other entities that do not involve
transfers of resources and obligations.
 III. Nonreciprocal transfers involve the transfer of resources in only one direction, either from an entity to
other entities or from other entities to the entity.
IV. Internal events are sudden, substantial, unanticipated reductions in resources not caused by other
entities.
V. Fire, earthquake and flood are examples of accountable events classified as internal events.
a. I, II, III and V c. II, III, IV and V
b. I, III and V d. I, III, IV and V

11. Asset measurements in conventional financial statements

a. are confined to historical cost.
b. are confined to historical cost and current cost.
c. reflect several financial attributes.
d. do not reflect output values.

12. What accounting concept justifies the use of accruals and deferrals?
a. Going concern assumption c. Consistency characteristic
b. Materiality constraint d. Monetary unit assumption

13. 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. going concern.

14. When products or other assets are exchanged for cash or claims for cash, they are said to be
a. allocated. c. recognized.
b. realized. d. earned.

15. The accounting standards used in the Philippines are adapted from the standards issued by the
a. Federal Accounting Standards Board (FASB).
b. International Accounting Standards Board (IASB).
c. Philippine Institute of Certified Public Accountants (PICPA).
d. Democratic People's Republic of Korea Accounting Standards Committee (DPKRASC).

16. Which of the following statements is incorrect regarding the basic accounting concepts?
a. One of ABC Co.’s delivery trucks was involved in an accident. Although no lawsuits have
yet been filed against ABC, ABC recognized a liability for the probable loss on the
event. This is an application of the prudence or conservatism concept.
b. Under the consistency concept, the financial statements should be prepared on the
basis of accounting principles which are followed consistently.
c. Under the entity theory, the business is viewed as a separate entity. Therefore, the
personal transactions of the business owners are not recorded in the business’
accounting records.
d. The time period concept means that financial statements are prepared only at the end
of the life of a business.

17. It is the branch of accounting that focuses on the general purpose reports of financial position and operating
results known as financial statements.
a. Financial accounting c. Managerial accounting
b. Auditing d. Taxation

18. The bottom part of each of Entity A’s financial statements states the following “This statement should be read in
conjunction with the accompanying notes.” This is most likely an application of which of the following accounting
concepts?
a. articulation c. accrual basis
b. consistency d. time period

19. Which of the following events is considered as an external event, except?

a. production c. gifts and charitable contributions
b. payment of taxes d. provision of capital by owners

20. Which of the following statements about the Norwalk Agreement is correct?
a. The Norwalk Agreement requires all domestic companies in the U.S. to prepare financial
statements in accordance with the IFRSs.
b. The Norwalk Agreement is a short-term convergence between the FASB and the IASB
which has long-time been abolished.
c. The Norwalk Agreement is a convergence between the FASB and the IASB to make
their existing financial reporting standards compatible and coordinate their future work
programs to ensure that once achieved, compatibility is maintained.
d. The Norwalk Agreement does not affect the financial reporting standards in the
Philippines.

21. It is the official accounting standard setting body in the Philippines. It is composed of a chairperson and 14
members.
a. Financial Reporting Standards Committee (FRSC)
b. Financial Reporting Standards Council (FRSC)
c. Accounting Standards Committee (ASC)
d. Accounting Standards Council (ASC)
22. Accounting is often called the "language of business" because
a. it is easy to understand.
b. it is fundamental to the communication of financial information.
c. all business owners have a good understanding of accounting principles.
d. accountants in many companies share financial information.

23. You are the accountant of ABC Co. During the period, your company purchased staplers worth ?1,500. Although
the staplers have an estimated useful life of 10 years, you have charged their cost as expense. Which of the
following is most likely to be true?
a. You are applying the concept of matching.
b. You are applying the concepts of materiality and cost-benefit consideration.
c. You are applying the concept of verifiability.
d. You are just lazy to compute for the periodic depreciation.

24. The manner in which the accounting records are organized and employed within a business is referred to as
a. Accounting system c. Business document
b. Voucher system d. Special journals

25. The issuance of financial reporting standards in the Philippines is the responsibility of the
a. PICPA c. AASC
b. FRSC d. CPE Council

26. 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.

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

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

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

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

30. Which of the following is considered a pervasive constraint by the Conceptual Framework?
a. Cost-benefit relationship c. Conservatism
b. Timeliness d. Materiality

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

Relevance Faithful representation

a. Yes Yes
b. No Yes
c. Yes No
d. No No

32. 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.

33. 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. c. understandability.
b. reliability. d. materiality.

34. Accounting information is considered to be 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.

35. 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. c. verifiability.
b. faithful representation. d. neutrality.

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

37. A decrease in net assets arising from peripheral or incidental transactions is called a(n)
a. capital expenditure. c. loss.
b. cost. d. expense.

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

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

39. 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.

40. 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.

41. Identify the qualitative characteristics that enhance the usefulness of financial information.
I. Relevance
II. Reliability
III. Faithful representation
IV. Comparability
V. Verifiability
VI. Timeliness
VII. Understandability

a. I and II c. II, III, IV, V and VII

b. I and III d. IV, V, VI and VII

42. Which of the following is most likely expensed under the ‘immediate recognition’ principle?
a. cost of inventories c. impairment loss
b. cost of equipment d. rentals paid

43. Which of the following statements is incorrect concerning materiality?

a. Materiality can be assessed quantitatively or qualitatively
b. There are no specific materiality thresholds provided under the PFRSs
c. Materiality is a matter of judgment
d. Materiality is a quantitative matter. It should never be assessed qualitatively.

44. Which of the following is not one of the decisions that primary users make?
a. deciding on how to run the day-to-day operations of the entity
b. deciding on whether to hold or sell investment in stocks
c. deciding on whether to buy investment in stocks
d. deciding on whether to extend loan to the reporting entity

45. This refers to the comparability of financial statements of the same entity but in different periods.
 a. Inter-comparability c. Intra-comparability
b. Extra-comparability d. Intro-comparability

46. Materiality does not make any difference with regard to

a. the separate presentation of items in the financial statements.
b. the disclosure of additional information in the notes.
c. intentional errors.
d. level of rounding-off of amounts in the financial statements.

47. The elements related to relevance do not include

a. Predictive value c. Feedback or Confirmatory value
b. Materiality d. Timeliness

48. Which of the following transactions results to the recognition of an asset?

a. An entity forecasts a purchase of inventory in the coming month. The purchase is
highly probable.
b. An entity enters into firm commitment to purchase inventory in the coming month. The
entity cannot cancel the commitment without paying a penalty. The contract is not
onerous
c. During the period, one of the buildings of an entity was destroyed by a calamity.
d. An entity receives a non-monetary grant from the government.

49. Choose the correct statement

a. Financial accounting is a social science and cannot be influenced by changes in legal,
political, business and social environments.
b. Financial accounting is an information system designed to provide information primarily
to internal users.
c. General-purpose financial statements must be prepared by a certified public
accountant.
d. The preparation of general-purpose financial statements is usually based on the
assumption that the primary users of the information are external decision makers.

50. Which of the following is not included among the general features of financial statement presentation?
a. Growing concern c. Frequency of reporting
b. Accrual basis d. Comparative information
Quiz 1
Answer Section

MULTIPLE CHOICE

1. ANS: C REF: CFAS01-002 TOP: Overview of Accounting

2. ANS: C REF: CFAS01-003 TOP: Overview of Accounting

3. ANS: A REF: CFAS01-004 TOP: Overview of Accounting

4. ANS: D REF: CFAS01-006 TOP: Overview of Accounting

5. ANS: D REF: CFAS01-007 TOP: Overview of Accounting

6. ANS: C REF: CFAS01-009 TOP: Overview of Accounting

7. ANS: B REF: CFAS01-011 TOP: Overview of Accounting

8. ANS: B REF: CFAS01-012 TOP: Overview of Accounting

9. ANS: D REF: CFAS01-013 TOP: Overview of Accounting

10. ANS: B REF: CFAS01-014 TOP: Overview of Accounting

11. ANS: C REF: CFAS01-015 TOP: Overview of Accounting

12. ANS: A REF: CFAS01-017 TOP: Overview of Accounting

13. ANS: D REF: CFAS01-018 TOP: Overview of Accounting

14. ANS: B REF: CFAS01-020 TOP: Overview of Accounting

15. ANS: B REF: CFAS01-042 TOP: Overview of Accounting

16. ANS: D REF: CFAS01-043 TOP: Overview of Accounting

17. ANS: A REF: CFAS01-044 TOP: Overview of Accounting

18. ANS: A REF: CFAS01-046 TOP: Overview of Accounting

19. ANS: A REF: CFAS01-047 TOP: Overview of Accounting

20. ANS: C REF: CFAS01-050 TOP: Overview of Accounting

21. ANS: B REF: CFAS01-052 TOP: Overview of Accounting

22. ANS: B REF: CFAS01-053 TOP: Overview of Accounting

23. ANS: B REF: CFAS01-054 TOP: Overview of Accounting

24. ANS: A REF: CFAS01-074 TOP: Overview of Accounting

25. ANS: B REF: CFAS01-076 TOP: Overview of Accounting

26. ANS: D REF: CFAS01-021

TOP: Conceptual Framework for Financial Reporting

27. ANS: C REF: CFAS01-022

TOP: Conceptual Framework for Financial Reporting

28. ANS: D REF: CFAS01-023

TOP: Conceptual Framework for Financial Reporting

29. ANS: B REF: CFAS01-029

TOP: Conceptual Framework for Financial Reporting

30. ANS: A REF: CFAS01-031

TOP: Conceptual Framework for Financial Reporting

31. ANS: C REF: CFAS01-032

TOP: Conceptual Framework for Financial Reporting

32. ANS: D REF: CFAS01-033

TOP: Conceptual Framework for Financial Reporting
33. ANS: C REF: CFAS01-034
TOP: Conceptual Framework for Financial Reporting

34. ANS: B REF: CFAS01-035

TOP: Conceptual Framework for Financial Reporting

35. ANS: B REF: CFAS01-036

TOP: Conceptual Framework for Financial Reporting

36. ANS: D REF: CFAS01-037

TOP: Conceptual Framework for Financial Reporting

37. ANS: C REF: CFAS01-038

TOP: Conceptual Framework for Financial Reporting

38. ANS: A REF: CFAS01-040

TOP: Conceptual Framework for Financial Reporting

39. ANS: C REF: CFAS01-055

TOP: Conceptual Framework for Financial Reporting

40. ANS: A REF: CFAS01-056

TOP: Conceptual Framework for Financial Reporting

41. ANS: D REF: CFAS01-058

TOP: Conceptual Framework for Financial Reporting

42. ANS: C REF: CFAS01-060

TOP: Conceptual Framework for Financial Reporting

43. ANS: D REF: CFAS01-062

TOP: Conceptual Framework for Financial Reporting

44. ANS: A REF: CFAS01-065

TOP: Conceptual Framework for Financial Reporting

45. ANS: C REF: CFAS01-066

TOP: Conceptual Framework for Financial Reporting

46. ANS: C REF: CFAS01-069

TOP: Conceptual Framework for Financial Reporting

47. ANS: D REF: CFAS01-071

TOP: Conceptual Framework for Financial Reporting

48. ANS: D REF: CFAS01-073

TOP: Conceptual Framework for Financial Reporting

49. ANS: D REF: CFAS01-075

TOP: Conceptual Framework for Financial Reporting

50. ANS: A REF: CFAS01-077

TOP: Conceptual Framework for Financial Reporting