Jabel, Tricia Mae A.

BSA-1 ACCTG 134 A2

Exercises:

MULTIPLE CHOICE

1. A complete set of financial statements include all of the following except the
A. Statement of Financial Position. C. Income Statement.
B. Statement of Cash Flows. D. Statement of retained earnings.

2. 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 to them.
C. Provide information on the liquidation value of an enterprise.
D. Provide information that is useful in assessing cash flow prospects.

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

A. That is useful for decision making.
B. About an enterprise's assets, liabilities, and owners' equity.
C. About an enterprise's financial performance during a period.
D. That allows owners to assess management's performance.

4. The information provided by financial reporting pertains to

A. Individual business enterprises, rather than to industries or an economy as a whole or to members of
society as consumers.
B. Business industries, rather than to individual enterprises or an economy as a whole or to members of
society as consumers.
C. Individual business enterprises, industries, and an economy as a whole, rather than to members of
society as consumers.
D. An economy as a whole and to members of society as consumers, rather than to individual enterprises or
industries.

5. Proper application of accounting principles is most dependent upon the

A. Existence of specific guidelines. C. Oversight of regulatory bodies.
B. External audit function. D. Professional judgment of the accountant.

6. Conservatism is best described as selecting an accounting alternative that

A. Understates assets and/or net income.
B. Has the least favorable impact on owners' equity.
C. Overstates, as opposed to understates, liabilities.
D. Is least likely to mislead users of financial information.

7. The financial statements that are prepared for the business are separate and distinct from the owners
according to the
A. Going concern principle. C. Matching principle.
B. Economic entity assumption. D. Full disclosure principle.

8. Recording the purchase price of a chalkboard eraser (with an estimated useful life of 10 years) as an
expense of the current period is justified by the
A. Going concern assumption. C. Materiality constraint.
B. Matching principle. D. Comparability principle.

9. According to the conceptual framework, the process of reporting an item in the financial statements of an
entity is
A. Realization. C. Recognition.
B. Matching. D. Allocation.

10. Which of the following elements of financial statements is not a component of profit or loss?
A. Revenues. C. Expenses.
B. Losses. D. Distributions to owners.

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11. An item would be considered material and therefore would be disclosed in the financial statements if
A. The expected benefits of disclosure exceed the additional costs.
B. The impact on earnings is greater than 3 percent.
C. The IASB definition of materiality is met.
D. The amount is deemed large enough to make a difference to the users.

12. What accounting concept justifies the use of accruals and deferrals?
A. Going concern assumption . C. Separate entity assumption
B. Timeliness assumption D. Relevance

13. Which of the following is not a purpose of the conceptual framework of accounting?
A. To provide definitions of key terms and fundamental concepts.
B. To provide specific guidelines for resolving situations not covered by existing accounting standards.
C. To assist accountants and others in selecting among alternative accounting and reporting methods.
D. To assist the FRSC in the standard-setting process.

14. Which of the following is not an implication of the going-concern assumption?

A. The historical cost principle is credible.
B. Depreciation and amortization policies are justifiable and appropriate.
C. The current/noncurrent classification of assets and liabilities is justifiable and significant.
D. Amortizing research and development costs over multiple periods is justifiable and appropriate.
15. The overriding qualitative characteristic of accounting information is
A. Relevance. C. Understandability.
B. Faithful representation. D. Decision usefulness.

16. When financial reports from two different companies have been prepared and presented in a similar
manner, the information exhibits the characteristic of
A. Relevance. C. Faithful representation
B. Comparability. D. Consistency.

17. Accounting for inventories by applying the lower-of-cost-or-NRV is an example of the application of
A. Conservatism. C. Comparability.
B. Consistency. D. Materiality.

18. The Conceptual Framework

A. Sets out the concepts that underlie the preparation and presentation of financial statements for internal
users.
B. Is a Philippine Financial Reporting Standard that defines standards for a particular measurement or
disclosure issue.
C. Is concerned with special purpose reports, for example, prospectuses and computations prepared for
taxation purposes.
D. Applies to the financial statements of all commercial, industrial and business reporting enterprises,
whether in the public or private sector.

19. Which statement is incorrect concerning the recognition principles?

A. An asset is recognized when it is probable that future economic benefits will flow to the enterprise and
the asset has a cost or value that can be measured reliably.
B. A liability is recognized when it is possible that an outflow of resources embodying economic benefits
will result from the settlement of a present obligation that can measured reliably.
C. Income is recognized when an increase in future economic benefits related to an increase in asset or a
decrease in liability has arisen that can be measured reliably.
D. Expenses are recognized when a decrease in future economic benefits related to an decrease in asset or
an increase in liability has arisen that can be measured reliably.

20. Information about economic resources controlled by the enterprise and its capacity to modify these
resources is useful in predicting the
A. Ability of the enterprise to meet its financial commitments in the near term.
B. Ability of the enterprise to generate cash and cash equivalents in the future.

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 C. Ability of the enterprise to meet its financial commitments over a longer term.
D. Future borrowing needs and how future profits and cash flows will be distributed among interested
users.

21. In respect to information included in financial statements, the accounting concept of ‘prudence’ ensures
that:
A. The financial statements report what they purport to report.
B. A degree of caution in the exercise of judgements about estimates is made.
C. An appropriate balance is achieved between the relevance and the reliability of information that has been
included.
D. Information is provided to users within the time period in which it is most likely to bear on their
decisions.

22. Which statement is incorrect concerning financial statements?

A. Financial statements do not show the results of management’s stewardship of resources entrusted to it.
B. Financial statements are prepared at least annually and are directed toward the common information
needs of a wide range of users.
C. The objective of general-purpose financial statements is to provide information about the financial
position, performance and cash flows of an enterprise that is useful to a wide range of users in making
economic decisions.
D. The management of an enterprise has the primary responsibility for the preparation and presentation of
financial statements.

23. An item cannot be recognized in the statement of financial position or the income statement unless it meets
the two criteria of:
A. Materiality; Relevance to the users
B. Completeness; Measurement reliability
C. Neutrality; Representational faithfulness
D. Probable economic benefits; Measurement reliability

24. The operating cycle

A. Measure the time elapsed between cash disbursement for inventory and cash collections of the sales
price
B. Refers to the seasonal variations experienced by business enterprise
C. Should be used to classify assets and liabilities as current if it is less than one year
D. Cannot exceed one year

25. In classifying the elements of financial statements, the primary distinction between revenues 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 transaction involved

26. Preparation of consolidated financial statements when a parent-subsidiary relationship exist is an example
of the
A. Economic entity assumption C. Comparability characteristic
B. Relevance characteristic D. Neutrality characteristic

27. Which is correct regarding the overall considerations in preparation and presentation of financial
statements?
A. Assets and liabilities, and income and expenses, when material should be offset against each other.
B. Financial statements should be prepared on liquidity concern basis.
C. Each material item should be presented separately in the financial statements. Immaterial amounts of
similar nature and function should be grouped or condensed as one line item in the financial statements.
D. The presentation and classification of financial statement items should not be uniform from one
accounting period to the next.

28. Which statement is incorrect concerning the Conceptual Framework?

A. Nothing in the framework overrides any specific Statement of Financial Accounting Standards.

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 B. The framework deals with the objectives of the financial statements, the qualitative characteristics that
determine the usefulness of the information in financial statements, the definition, recognition and
measurement of the elements of the financial statements and concepts of capital maintenance.
C. The framework sets out the concepts that underlie the preparation and presentation of financial
statements for internal and external users.
D. The framework is concerned with general purpose financial statements including consolidated financial
statements.

29. Financial information does not demonstrate comparability and consistency when

I. Firms in the same industry use different accounting methods to account for the same type of
transaction
II. A company changes its estimate of the salvage value of a fixed assets
III. A company fails to adjust its financial statements for changes in value of the measuring unit.

A. I only C. I and II only

B. I and III only D. I, II and III

30. What is the primary difference in the treatment between the two concepts of capital maintenance?
A. The treatment of the effects of changes in the prices of assets and liabilities of the entity
B. The treatment of the effects of changes in the prices of expense and revenue of the entity
C. The treatment of the effects of changes in foreign exchange rates
D. The treatment of the effect of changes in foreign subsidiary

31. Which is incorrect concerning the concept of materiality and aggregation?

A. Materiality depends on the size and nature of the item judged in the particular circumstances of its
omission or misstatement.
B. Materiality provides that the specific disclosure requirements of a PFRS must be met even if the
resulting information is not material.
C. Items of a dissimilar nature or function shall be presented separately unless they are immaterial.
D. Information is material if its nondisclosure could influence the economic decisions of users taken on the
basis of the financial statements.

32. Which of the following statements concerning equity is incorrect?

A. Although equity is defined as a residual, it may be sub-classified in the statement of financial position.
B. The creation of reserves is sometimes required by statute or other laws in order to give the entity and its
creditors an added measure of protection from the effects of losses.
C. The existence and size of legal, statutory and tax reserves are information that can be relevant to the
decision-making needs of users, transfer from reserves are expense rather than appropriation of retained
earnings.
D. The amount at which equity is shown in the balance sheet is dependent on the measurement of assets
and liabilities.

33. According to the conceptual framework, which of the following statements conforms to the realization
concept?
A. Cash was collected on accounts receivable.
B. Product unit costs were assigned to cost of goods sold when the units were sold.
C. An impaired asset was sold for cash.
D. Equipment depreciation was assigned to a production department and then to product unit costs.

34. Per PAS 1, in the absence of a Standard or Interpretation that specifically applies to a transaction or event,
management shall develop and apply accounting policy that results in relevant and faithfully represented
information. Which of following is the least likely source of such alternative?
A. The requirements and guidance on Standards /Interpretations on similar and related issues
B. The definition, recognition criteria and measurement concepts for assets, liabilities, income and
expenses in the Framework.
C. Most recent pronouncements of other standard setting bodies that use a similar conceptual framework to
develop accounting standards and accepted practice.

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 D. Textbooks and other accounting literature to the extent that these do not conflict with existing Standards
and Interpretations.

35. Which is not included in the category of comprehensive income of an accounting entity?
A. Net income for the period
B. Revaluation surplus
C. Gain on sale of treasury shares
D. Increase in value of financial instruments classified through fair value

36. Which of the following statements is/are true about equity?

I. Equity is defined as the difference between assets and liabilities

II. Increases and decreases in equity (other than from transactions with owners of the enterprise) represent
income and expenses.

A. I only C. Both I and II

B. II only D. Neither I nor II

37. 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. Faithful Representation
B. Understandability D. Materiality

38. Under a lease where the lessee acquires the benefits of ownership of an asset, the lessee often recognizes
the present value of future rentals as an asset even though legal title to the property is not acquired. This is
an example of
A. Form over substance C. Verifiability
B. Substance over form D. Conservatism

39. Information about the sources and uses of an enterprise’s cash and cash equivalents is provided in the:
A. Income statement C. Statement of changes in equity
B. Cash flow statement D. Statement of financial position

40. The measurement basis “net realizable value” is best described as:
A. Unamortized historical cost
B. An asset’s selling price or a liability’s settlement amount
C. Unadjusted initial cost
D. Time adjusted cash flow

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