TOA CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING

1. Which statement is true concerning the Conceptual Framework for Financial Reporting?
a. The Conceptual Framework is not a reporting standard and does not define standard for any
particular measurement or disclosure issue.
b. The Conceptual Framework is concerned with general purpose financial statements including
consolidated financial statements.
c. In cases of conflict, the requirements of the relevant IFRS shall prevail over those of the
Conceptual Framework.
d. All of these statements are true.
2. Which of the following is not a benefit associated with the Conceptual Framework?
a. A conceptual framework should increase financial statement users understanding and
confidence in financial reporting.
b. Practical problems should be more quickly solvable by reference to an existing conceptual
framework.
c. A coherent set of accounting standards and rules should result.
d. Business entities will need far less assistance form accountants because the financial
reporting process will be quite easy to apply.
3. The Conceptual Framework for Financial Reporting includes all of the following, except
a. Objective of financial reporting
b. Qualitative characteristics of useful financial information
c. Definition, recognition and measurement of elements of financial statements
d. Supplementary information
4. What provides the why or the goal and purpose of accounting?
a. Measurement and recognition concept
b. Qualitative characteristic of accounting information
c. Element of financial statements
d. Objective of financial reporting
5. The objective of financial reporting in the Conceptual Framework
a. Is the foundation for the Conceptual Framework.
b. Includes the qualitative characteristics that make accounting information useful.
c. Is found on the second level of the Conceptual Framework.
d. All of the choices are correct regarding the objective of financial reporting.
6. Which of the following is not normally an objective of financial reporting?
a. To provide information about assets, claims against those assets and changes in them.
b. To provide information that is useful in assessing cash flow prospects.
c. To provide information that is useful in investment and credit decisions.
d. To provide information about an entitys liquidation value.
7. As part of the objective of financial reporting, assessing cash flow prospects is interpreted to
mean
a. Cash basis accounting is preferred over accrual basis accounting.
b. Information about the financial effects of cash receipts and cash payments is generally
considered the best indicator of ability to generate favorable cash flows.
c. Over the long run, trends in revenue and expenses are generally more meaningful than trends
in cash receipts and disbursements.
d. All of the choices are correct regarding assessing cash flow prospects.
8. Which of the following statements best describes the term going concern?
a. When current liabilities exceed current assets.
b. The financial statements are normally prepared on the assumption that an entity will continue
in operation for the foreseeable future.
c. The potential to contribute to the flow cash and cash equivalents to the entity.
d. The expenses exceed income.
9. 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 imply the going concern assumption
10. The economic entity assumption

a.
b.
c.
d.

Is inapplicable to unincorporated businesses

Recognizes the legal aspects of the business organization.
Requires periodic income measurement.
Is applicable to all forms of business organization

11. Consolidated financial statements are prepared when a parent-subsidiary relationship exists.
a. Economic entity assumption
b. Relevance characteristic
c. Comparability characteristic
d. Neutrality characteristic
12. During the lifetime of an entity, accountants produce financial statements at arbitrary or artificial
points in time in accordance with witch basic accounting concept?
a. Objectivity
b. Periodicity assumption
c. Materiality
d. Economic entity
13. Inflation is ignored in accounting due to
a. Economic entity assumption
b. Going concern assumption
c. Monetary unit assumption
d. Periodicity assumption
14. What are the qualitative characteristics of financial statements?
a. Qualitative characteristics are the attributes that make the information provided in financial
statements useful to users.
b. Qualitative characteristics are broad classes of the financial effects of transactions.
c. Qualitative characteristics are nonqualitative aspects of the financial statements.
d. Qualitative characteristics measure compliance with all relevant PFRS.
15. In the Conceptual Framework, qualitative characteristics
a. Are considered either fundamental or enhancing.
b. Contribute to the decision-usefulness of financial reporting information.
c. Distinguish better information from inferior information for decision-making purposes.
d. All of the choices are correct.
16. The fundamental qualities that make accounting information useful are
a. Reliability and comparability
b. Materiality and timeliness
c. Comparability and consistency
d. Relevance and faithful representation
17. To achieve faithful representation, the financial statements
a. Must have predictive and confirmatory value.
b. Must be complete, neutral and reasonably free from error.
c. Are understandable, comparable, verifiable and timely.
d. All of these achieve faithful representation

18. What is the quality of information that gives assurance that it is reasonably free of error and bias?
a. Relevance
b. Faithful representation
c. Verifiability
d. Neutrality
19. Which of the following terms best describes information in financial statements that is neutral?
a. Understandable
b. Reliable
c. Relevant
d. Unbiased
20. Accounting information is considered relevant when it
a. Can be depended on to represent the economic conditions and events that it is intended to
represent

b. Is capable of making a difference in a decision

c. Is understandable by reasonably informed users of accounting information
d. Is verifiable and neutral
21. The overriding criterion by which accounting information can be judged is that of
a. Usefulness for decision making
b. Freedom from bias
c. Timeliness
d. Comparability
22. Which of the following statements about materiality is incorrect?
a. An item must make a difference or it need not be disclosed.
b. Materiality is a matter of relative size or importance.
c. An item is material if the inclusion or omission would influence or change the judgment of a
reasonable person.
d. All of these are correct statements about materiality.
23. The Conceptual Framework
a. Includes conservatism which means when in doubt, choose the solution that is least likely to
overstate assets or income and understate liabilities or expenses.
b. Excludes conservatism because it is inconsistent with neutrality which encompasses freedom
from bias.
c. Includes conservatism is a required quality of accounting information.
d. Includes conservatism as a desirable but not a required quality of accounting information.
24. Enhancing qualities include all of the following, except
a. Comparability
b. Completeness
c. Understandability
d. Verifiability
25. What is meant by comparability when discussing financial accounting information?
a. Information predictive and feedback value.
b. Information is reasonably free from error.
c. Information is measured and reported in a similar fashion across entities.
d. Information is timely.
26. What is meant by consistency when discussing financial accounting information?
a. Information is measured and reported in a similar fashion across points in time.
b. Information is timely.
c. Information is measured similarly across the industry.
d. Information is verifiable
27. For information to be useful, the linkage between the users and the decisions made is
a. Relevance
b. Reliability
c. Understandability
d. Materiality
28. What is an enhancing quality described in the Conceptual Framework?
a. Information must be decision-useful to all potential users of financial reporting.
b. General-purpose financial reporting is the primary source of information for users of financial
reporting.
c. Users need reasonable knowledge of business and financial accounting matters to understand
the information contained in financial statements.
d. All of the choices are correct.
29. The enhancing qualitative characteristic is demonstrated when a high degree of consensus can be
secured among independent measurers using the same measurement method.
a. Comparability
b. Understandability
c. Verifiability
d. Timeliness
30. Proponents of historical cost ordinarily maintain that in comparison with all other valuation
alternatives for financial reporting, statements prepared using historical cost are

a.
b.
c.
d.

Verifiable
Relevant
Indicative of the entitys purchasing power
Conservative

31. Which of the following is an argument against historical cost?

a. Fair value is more relevant.
b. Historical cost is based on exchange transaction.
c. Historical cost is verifiable and reliable.
d. Fair value is subjective.
32. An entity issuing the annual financial reports within one month after the end of the year is an
example of which enhancing quality of accounting information?
a. Neutrality
b. Timeliness
c. Predictive value
d. Representational faithfulness
33. The Conceptual Framework includes which of the following constraints?
a. Prudence
b. Conservatism
c. Cost
d. All of the choices are constraints in the conceptual framework.
34. Which of the following best describes the cost-benefit constraint?
a. The benefit of the information must be greater than the cost of providing it.
b. Financial information should be free from cost to users of the information.
c. Cost of providing financial information is not always evident or measurable but must be
considered.
d. All of the choices are correct.
35. Which of the following basic elements is not associated with the statement of financial position?
a. Income
b. Equity
c. Liability
d. Asset
36. It is the process of incorporating or reporting in the statement of financial position or statement of
comprehensive income an item that meets the definition of an element o financial statements.
a. Recognition
b. Allocation
c. Realization
d. Summarization
37. An item that meets the definition of an element should be recognized when
a. It is probable that any future economic benefit associated with the item will flow to or from
the entity.
b. The cost of the item can be measured reliably.
c. It is possible that any future economic benefit associated with the item will flow to or from
the entity and the cost of the item can be measured reliably.
d. It is probable that any future economic benefit associated with the item will flow to or from
the entity and the cost of the item can be measured reliably.
38. Technically, this arises in the course of the ordinary regular activities of an entity and is referred
to by a variety of different names including sales, interest, dividends, royalties and rent.
a. Income
b. Gain
c. Profit
d. Revenue
39. Which of the following statements is true?
a. Income encompasses both revenue and gain.
b. Revenue encompasses both income and gain.
c. Gain encompasses both income and revenue.
d. Income encompasses revenue only
40. Which of the following describes revenue recognition principle?
a. Cash is received and the amount is material.

b. It is probable that future economic benefit will flow to the entity and the amount can be
measured reliably.
c. Production is complete and there is an active market for the product.
d. Cash is realized and production is complete.
41. Under International Finance Reporting Standards, revenue may be recognized
a. At the point of sale
b. During production
c. At the end of production
d. All of the choices may be acceptable for revenue recognition
42. The expense recognition principle is best demonstrated by
a. Not recognizing any expense unless revenue is recognized.
b. Associating effort with accomplishment.
c. Recognizing rent received in advance as revenue.
d. Establishing and appropriation for contingency.
43. An expense is recognized immediately
a. When an expenditure produces no future economic benefit.
b. When cost incurred ceases to qualify as an asset.
c. When an expenditure produces future economic benefit.
d. When an expenditure produces no future economic benefit and when cost incurred ceases to
qualify as an asset.

44. Which is an example of expense recognition principle of associating cause and effect?
a. Allocation of insurance cost
b. Sales commission
c. Depreciation
d. Officers salaries
45. Which is an application of the principle of systematic and rational allocation?
a. Amortization of intangible asset
b. Cost of goods sold
c. Research and development cost
d. Salesmens salaries
46. The recognition of bad debt expense is an example of
a. Direct matching
b. Systematic and rational allocation
c. Immediate recognition
d. Realization
47. When should an expenditure be recorded as an asset rather than expense?
a. Never
b. Always
c. If the amount is material
d. When future benefit exists
48. What is the general approach as to when product costs are recognized as expenses?
a. In the period when the expenses are paid
b. In the period when the expenses are incurred
c. In the period when the vendor invoice is received
d. In the period when the related revenue is recognized
49. It is the process of determining the monetary amounts at which the elements are to be recognized
and carried in the financial statements.
a. Measurement
b. Recognition
c. Reporting
d. Interpreting
50. Historical cost

a. Amount of cash or cash equivalent paid or the fair value of the consideration given at the time
of acquisition.
b. Amount of cash and cash equivalent that would have to be paid if the same or an equivalent
asset was acquired currently.
c. Amount of cash or cash equivalent that could currently be obtained by selling the asset in an
orderly disposal.
d. Discounted value of the future net cash inflows that an item is expected to generate in the
normal course of business.