Conceptual Frameworks Accounting Standards (CFAS) Chapters 1 and 2

Pre-Midterm Exam of USC

Many accountants are employed in entities in various capacity as accounting staff, chief accountant or controller. These accountants are said to be engaged in

Private Accounting

Identifying

Which accounting process is the recognition or nonrecognition of business activities as accountable events

Current Events

These are the events that affect the entity in which other entities participate

Creditors and Investors (External Users)

Financial Accounting is the area of accounting that emphasizes reporting to

General purpose financial statements to be used by parties both internal and external to the entity.

Financial Accounting can be broadly defined as the are of accounting that prepares

Developing accounting information for use within an entity

Managerial Accounting is the area of accounting that emphasizes

To provide quantitative financial information about the entity that is useful in making rational economic decision

The basic purpose of accounting is

Which is incorrect concerning the Financial Reporting Standards Council (FRSC)

Any member of the ASC shall be disqualified from being appointed to the FRSC

Present Value

The measurement basis is the discounted value of future net cash inflows that an asset is expected to generate in the normal course of business

Financial Reporting Standards Council

It is the accounting standard setting body created by PRC upon recommendation of the Board of Accountancy to assist the Board of Accountancy in carrying out its powers and functions under R.A. No. 9298

The attest function

The singularly unique function performed by Certified Public Accountants is

Board of Directors

Which of the following is an internal user of a company’s financial information?

Expressing an opinion as to the fairness of financial statements

As independent or external auditors. CPAs are primarily responsible for

Inflation-adjusted cost

Which of the following measurement attributes is not currently used in practice?

International Financial Reporting Standards

The International Accounting Standards Board publishes its standards in a series of pronouncements called

Develop worldwide accounting standards

The International Accounting Standards Board was formed to

The standard is continually reviewed to see if medication is necessary.

Once an accounting standard has been established

Is a social process which incorporates political actions of various interested user groups as well as professional research and logic.

The process of establishing financial accounting standard

Professional judgment of the accountant

Proper application of accounting principles is most dependent upon the

That is useful for decision making

The overall objective of financial reporting is to provide information

The FSRSC is the successor of the Accounting Standards Council which was created in November 1981 by the Philippine Institute of Certified Public Accountants (PICPA)

Which statement is correct regarding the Financial Sustainability and Reporting Standards Council?

III, I, II

In “due process” system used by the IASB in the evolution of a typical IASB Standard. The Chronological order of the following documents are released is as follows:

• Exposure Draft

• IASB Standard

• Discussion Paper

IFRS is considered to be “principled based’ and less detailed than US GAAP

Which of these statements regarding the IFRS and US GAAP is correct?

Substance over form

In the event of conflict between the economic substance of a transaction and its legal form the economic substance shall prevail. This concept is known as

Chairman and six members to be appointed by the President of the Philippines

Under the Philippine Accountancy Act 2004 or RA 9298, The Professional Regulatory Board of Accountancy shall be composed of

Any scope of accounting practice

The chairman of the FSRSC should have been or presently a senior practitioner in

Prudence

. It is the exercise of care and caution in dealing with uncertainties in measurement so as not to overstate assets and income and not to understate liabilities and expenses.

Neutrality

The financial accounting information is directed toward the common needs of users and is independent of presumptions about particular needs and desires of specific users

Relevance

It is the capacity of information to make difference in decision by helping users form prediction about outcome of past, present and future events or confirm and correct prior expectations.

Qualitative characteristics are the attributes the make the information provided in financial statements useful to users

What are qualitative characteristics of financial statements?

Usefulness for decision making

The overriding criterion by which accounting information can be judged is that of

Corporate management

Which of the following is most likely to prepare the most accurate financial forecast for a corporate entity based on empirical evidence?

Neutrality

Which of the following concepts means that there should be no attempt on the part of the preparers of the financial reports to induce a predetermined outcome or a particular mode of behavior.

Current earnings based in accrual basis accounting

The most useful information to investors in predicting future cash flows is

Materiality, timeliness and cost- effectiveness

Important constraints underlying the qualitative characteristics of accounting information are

Verifiability

The characteristics that is demonstrated when a high degree of consensus can be secured among independent measurers using the same measurement methods is

FRSC members serve for a term of three years renewable for another term

Which of the following is correct regarding FSRSC?

Verifiability

Which concept of accounting holds that to the maximum extent possible, financial statements should be based on arm’s length transactions?

Present value

Which of the following financial attributes of assets is generally considered to be the most relevant?

Neutrality and consistency

Allowing firms to estimate rather than physically count inventory at interim periods is an example of a tradeoff between

Historical cost

The measurement basis most commonly adopted by entities in preparing financial statements

Realizable value

It is the amount of cash that could currently be obtained by selling the asset in orderly disposal

Both I and II

An asset is recognized in the balance sheet when

I. It is probable that future economic benefits will flow to the entity

II. The asset has a cost or value that can be measured

Historical cost, current cost, realizable value and present value

. The measurement bases used in financial accounting include

Either I or II

An expense is recognized immediately in the income statement

I. When an expenditure produces no future economic benefits

II. When cost incurred ceases to qualify for recognition as an asset in the balance sheet

Systematic and rational allocation

When economic benefits are expected to arise over several accounting periods and the association with income can only be broadly or indirectly determined, expenses are recognized on the basis of

Matching of cost with revenue

It is the process that involves the simultaneous or combined recognition of revenue and expenses that result directly and jointly from the same transactions or other events

Elements of financial statements

Financial statements portray the financial effects of transactions and other events by grouping them into broad classes according to their economic characteristics. These broad classes are termed as

In determining existence of an asset, the right of ownership is essential.

Which statement is incorrect concerning assets?

Income and Expenses

The elements directly related to the measurement of performance are

Liability

These are present obligations of an entity arising from past transactions or events the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits

Assets, Liabilities and equity

The elements directly related to the measurement of financial position are

Expense

It is a decrease in economic benefit during the accounting period related to a decrease in asset or an increase in liability that results in decrease in equity other than distribution to equity participants

Current cost

It is the amount of cash or cash equivalent that would have to be paid if the same or an equivalent asset was acquired currently

Amount of cash paid or fair value of the consideration given at the time of acquisition.

Historical cost is the

Unrealized

Gains on assets unsold are identified, in a precise sense, by the term

Recorded

The term ‘recognized’ is synonymous with the term

Which of the following in the most precise sense means the process of converting noncash resources and rights into cash or claims to cash?

Realization

To match the costs of production with revenue as earned

Why are certain costs of doing business capitalized when incurred and then depreciated or amortized over subsequent accounting cycles

Systematic and rational allocation

Which of the following principles best describes the conceptual rationale for the method of matching depreciation with revenue?

Insurance premiums

Which of the following is expensed under the principle of systematic and rational allocation?

Immediate recognition

A patent with a ten-year life, was determined to be worthless. The write-off of the asset is an example of which of the following principles?

Sales salaries

Some costs cannot be directly related to particular revenue but are incurred to obtain benefits that are exhausted in the period in which costs are incurred. An example of such cost is

Expensed in the period in which the related revenue is recognized

When costs can be reasonably associated with specific revenue but not with specific products the costs should be

Sales commissions

Which of the following is an example of the expense recognition principle of associating cause and effect?

Goodwill

Which of the following would be matched with current revenue on a basis other than association of cause and effect?

Amortization of intangible assets

Which of the following isa an application of the principle of systematic and rational allocation?

Profit maximization

Which of the following is not a theoretical basis for the allocation of expense?

Immediate recognition

The costs of selling and administration in manufacturing firm are an example of

Loss

A decrease in net assets arising from peripheral or incidental transactions is called

Expense

An outflow of assets from an entity based on an activity that represents the entity’s major operations is called

Analyze transactions from source documents

The first step in the accounting cycle is to

Prepare a post-closing trial balance

The last step in the accounting cycle is to

Record closing entries

Which of the following is not among the first five steps in accounting cycle?

Accounting system

The manner in which the accounting records are organized and employed within a business is referred to as

Invoice received from seller

Which of the following would typically be considered a source document?

Purchase order

Which of the following documents does not initiate an entry to be made in the accounts?

General Ledger

Which of the following is not considered a book of original entry

Consist of one debit and one credit

A simple journal entry

A compound journal entry

A journal entry that contains more than two accounts is called