PROBLEMS

PROBLEM 1:TRUEORFALSE

1.Allchangesinanentit
y’seconomi
cresour
cesandcl
aimst
othoser
esour
cesr
esul
tfr
om
theentit
y’sf
inanci
alperfor
mance.

2.Thequal
i
tat
ivecharact
erist
icsofusefuli
nfor
mationappl
yonl
ytot
hef
inanci
al
i
nfor
mati
onprovidedinthefinanci
alstat
ements.

3.Accor
dingtoIFRSsPract
iceSt
atement2MakingMateri
ali
tyJudgement
s,costi
san
i
mportantconsi
derat
ionwhenmakingmater
ial
it
yjudgements.

4.Whenmaki ngmat
eri
ali
tyj
udgements,
aquant
it
ati
veassessmental
onei
snotal
way
s
suf
fi
cientt
oconcl
udethatanit
em ofi
nfor
mat
ionisnotmater
ial
.

5.Mater
ial
i
tyjudgementappl
yonl
ytoi
temst
hatar
erecogni
zedbutnott
othoset
hatar
e
unr
ecognized.

6.Themor esignif
icantthequal
i
tat
ivef
actor
sar
e,t
helowerthequanti
tati
vethr
esholdswi
ll
be.Thus,anitem withazeroamountcanbemat
eri
ali
nlightofqual
itat
ivet
hreshol
ds.

7.Whenmakingmat
eri
ali
tyj
udgements,anenti
tyshoul
djudgeanit
em’smater
ial
it
yonly
onit
sownandnoti
ncombi nat
ionwit
hotherinf
ormati
oninthecomplet
esetoffi
nanci
al
st
atement
s.

8.TheConcept
ualFr
amewor
kandt
heSt
andar
dsspeci
fyauni
for
m quant
it
ati
vet
hreshol
d
format
eri
ali
ty.

9.Tomeettheobject
ivesofgener
al purposefi
nancial
report
i aSt
ng, andar
dsomet
imes
cont
ainsr
equi
rement st
hatdepartfrom theConceptualFr
amewor
k.
10.TheConceptualFrameworkisconcernedwi
tht
hepr
ovi
sionoff
inanci
ali
nfor
mat
iont
o
bot
hexternalusesandint
ernaluser
s.

PROBLEM 2:TRUEORFALSE

1.TheConceptualFr
amewor
kmayber ev
isedfr
om ti
met oti
me.Revi
sionsi
nthe
Concept
ualFramewor
kautomat
ical
l
yresul
ttochangesintheSt
andards.
2.Accordi
ngt otherevsedConcept
i ualFr
amework,
theasseti
stheri
ght,
whilethel
iabi
l
ity
i
st heobl
igati
on,rat
herthantheult
imatei
nfl
owsoroutf
lowsofeconomicbenefi
ts
resul
ti
ngfrom theassetorli
abi
li
ty.

3.Legalenf
orceabi
l
ityofar
ight
,forexampl
eowner
shi
p,i
snecessar
yforcont
rol
overan
economicresour
cetoexi
st.

4.AccordingtotherevsedConcept
i ualFr
amewor k,anassetcanexi
stevenifthe
probabil
it
ythatitwi
llprov
idei
nfl
owsoff ut
ureeconomicbenefi
tsisl
ow, andeveni
fthe
assetissubjecttoahighmeasurementuncert
ainty
.
 5.Accordingtot
herevsedConcept
i ualFr
amework,
whattheenti
tycont
rol
sist
heri
ght
,and
nottheulti
matei
nfl
owsoffutur
eeconomicbenefi
tst
hattheeconomicr
esour
cemay
produce.

6.TheConcept
ualFrameworkdefi
nesi
ncomeandexpensesandexpensesi
nter
msof
changesi
nassetsandl
iabi
li
ti
es.

7.Notalli
temst hatmeetthedef
ini
ti
onofafi
nanci
alstat
ementelementar
erecogni
zed,
t
heyarer ecognizedonl
yifr
ecogni
zingt
hem wi
ll
alsoresul
tinr
elev
antandfai
thf
ull
y
r
epresentedinformati
on.

8.Measur
inganassetathi
stor
ical
costwi
l
lal
way
sresul
tint
hesamecar
ryi
ngamountof
t
heassetfr
om peri
odtoperi
od.

9.Accor
dingt heConcept
ot ualFramework,
amor
ti
zedcostmeasur
ementr
elat
est
o
hi
stor
ical
cost
,rat
hert
hancurr
entval
ue.

10.Althoughtheuseofasi nglemeasur
ementbasi
simprovest heunderst
andabi
li
tyoft
he
fi
nancialstat
ements,
thismaynotalwaysleadt
ousefulinformati
on.Thus,t
he
Standardsrequi
resdi
fferentmeasur
ementbaesfordi
ff
er entasset
s,li
abi
li
ti
es,i
ncome
andexpenses.

PROBLEM 3:MULTI
PLECHOI
CE

1.Accor
dingt heConcept
ot ualFr
amewor
k,t
hesear
ethequal
i
tat
ivechar
act
eri
sti
cst
hat
makeinfor
mati
onusef
ult
ousers.

a.Fundament
al c.Rel
evance

b.Enhanci
ng d.Compar
abi
l
ity

2.I
nfor
mationthatiscapabl
eofmaki
ngadi
ff
erencei
nthedeci
sionsmadebyuser
shas
t
hisqual
i
t at
ivechar
acteri
sti
c.

a.Rel
evance c.Ti
mel
i
ness

b.Fai
thf
ulr
epr
esent
ati
on d.Ver
if
iabi
l
ity

3.Whenmaki
ngmat
eri
ali
tyj
udgement
s,t
heov
err
idi
ngconsi
der
ati
oni
s

a.t
heabi
l
ityoft
hei
tem bei
ngj
udgest
oinf
luenceuser
s’deci
sions.

b.t
hesi
zeoft
hei
mpactoft
hei
tem bei
ngj
udged.

c. t
hechar
act
eri
sti
csoft
hei
tem bei
ngj
udged.

d.candd
4.Thi
squal
it
ati
vechar
act
eri
sti
cisuni
quei
nthesenset
hati
tnecessar
il
yrequi
resatl
east
twoi
tems.

a.Ver
if
iabi
l
ity c.Ti
mel
i
ness

b.Fai
thf
ulr
epr
esent
ati
on d.Compar
abi
l
ity

5.Whi
choft
hef
oll
owi
ngenhancet
hecompar
abi
l
ityofi
nfor
mat
ion?

a.Maki
ngunl
i
ket
hingsl
ookal
i
ke.

b.Maki
ngl
i
ket
hingsl
ookdi
ff
erent
.

c. Usi
ngdi
ff
erentmet
hodst
oaccountf
orsi
mil
art
ransact
ionsf
rom per
iodt
oper
iod.

d.Consi
stentappl
i
cat
ionofaccount
ingpol
i
ciesf
rom per
iodt
oper
iod.

6.I
nfor
mat i
onhasthisquali
tat
ivecharact
eri
sti
cifdi
ffer
entknowledgeabl
eand
i
ndependentobser
vescouldreachconsensus,alt
houghnotnecessaril
ycompl
ete
agr
eement,thatapar
ticul
ardepict
ionisafai
thfulr
epresent
ati
on.

a.Rel
evance c.Ver
if
iabi
l
ity

b.Fai
thf
ulr
epr
esent
ati
on d.Compar
abi
l
ity

7.TheConcept
ualFr
amewor
kusest
het
erm“
clai
ms”agai
nstt
her
epor
ti
ngent
it
ytor
efer
to

a.expenses. c.equi
ty.

b.l
i
abi
l
iti
es. d.bot
hbandc

8.Ent
ityAisassessi
ngwhetherani
tem meetsthedefi
nit
ionofafi
nancial
statement
el
ement.Enti
tyAconsi
dersthetr
ansacti
on’
ssubstanceandeconomicreali
tyrat
herthan
merelyi
tsl
egalfor
m.Enti
tyAisapplyi
ngwhichofthefoll
owingaccount
ingconcepts?

a.Subst
anceov
erf
orm c.Accr
ual

b.For
m ov
ersubst
ance d.Ver
if
iabi
l
ity
9.Whi
choft
hef
oll
owi
ngi
snotoneoft
heaspect
sint
her
evi
seddef
ini
ti
onofanasset
?

a.Ri
ght

b.Pot
ent
ial
topr
oduceeconomi
cbenef
it
s

c. Pr
obabi
l
ityoft
heexpect
edi
nfl
owsofeconomi
cbenef
it
sfr
om t
heasset
.

d.Cont
rol

10.Thenewdef
ini
ti
onofanasset(
ali
abi
l
ity
)focusesont
heasset(
li
abi
l
ity
)bei
ng

a.apr
esentri
ght(obl
i
gati
on)t
hathasresul
tedf
rom pastev
ent
sandhast
hepot
ent
ial
t
oproduce(causeatr
ansf
erof)economi
cbenefi
ts.

b.theexpect
edi
nfl
ows(out
fl
ows)ofeconomi
cbenef
it
sthatar
ebot
hpr
obabl
eandcan
bemeasuredr
eli
abi
l
ity
.

c. aphy
sical
obj
ect(
adut
ytopaycashorot
herr
esour
ces)
.

d.Al
loft
hese.

11.Whichoft
hefol
lowingi
snotani
ndi
cat
ionofaneconomi
cresour
ce’
spot
ent
ial
to
pr
oduceeconomicbenef
it
s?

a.Theeconomicresour
cecanbeusedi
ncombi
nat
ionwi
thot
herr
esour
cest
opr
oduce
goodsforsal
e.

b.Theeconomi
cresour
cecanbeusedt
opayl
i
abi
l
iti
es.

c. Theeconomi
cresour
cecanbedi
str
ibut
edt
otheowner
s.

d.Ther
esour
cehasnousei
ntheent
it
y’soper
ati
onsandhasnor
esal
eval
ue.

12.Whi
choft
hef
oll
owi
ngdoesnotmeett
hedef
ini
ti
onofanasset
?

a.Equi
pmentt
hatt
heent
it
yint
ends,
andi
sver
ycer
tai
n,t
oacqui
rei
nthef
utur
e.

b.I
nvent
ori
espur
chasedandr
ecei
vedbutnoty
etpai
d.

c. Landr
ecei
vedf
rom adonat
ion.

d.Apubli
shingt
it
lef
oracoll
egetext
book.Thepubl
ishi
ngt
it
lehasnophy
sical
subst
ance,meani
ngyoucannotseeortouchi
t.
13.Entit
yAdet erminedt hatanassetexist
s.Howev er,
theasset’
slowprobabili
tyofinf
lows
ofeconomi cbenef i
tsanditsveryhighlevelofmeasur ementuncert
aintyaff
ectedEntit
y
A’srecognit
iondeci si
onabouttheasset ,
ast heser ai
seddoubtonwhet hertheasset’
s
recognit
ionwoul dresulti
nusefuli
nf or
mat i
on.Consequent l
y,Ent
it
yAdi dnotrecognize
theasset,butbecauseEnt it
yAdeemedi trel
ev ant,i
nformat
ionabouttheassetwas
nonethelessprovidedinthenotes.Whichoft hef ol
lowingst
atementsiscorrect?

a.Ent
ityA’saccounti
ngtreat
mentisgrosslyi
ncorr
ectbecause,
accordi
ngtothe
ConceptualFramework,al
lit
emsthatmeett hedef
ini
ti
onofanassetshoul
dalway s
berecognized,r
egardl
essoftheasset’
spotenti
alt
oproduceeconomicbenef
itsand
i
tsmeasur ementuncertai
nty
.

b.Ent
ityA’st
reat
mentf ort
heasseti
saccept
abl
e.Theasseti
sref
err
edt
oasan
‘
unrecogni
zed’asset
.

c. Ent
it
yA’streat
mentf
ort
heasseti
saccept
abl
e.Theasseti
sref
err
edt
oasan‘
non-
exi
stent
’asset
.

d.Enti
tyA’
snon-r
ecogni
ti
onoft
heassetiscorr
ect.However
,theassetshouldhav
e
beencomplet
elyi
gnor
edasprovidi
ngi
nfor
mat i
onaboutunrecogni
zeditemsinthe
notesi
snotaccept
abl
eundertheConcept
ualFramework.

14.Whichofthefoll
owi
ngwi
l
lmostl
i
kel
yaf
fectt
hedet
ermi
nat
ionofwhet
heranassetora
l
iabi
li
tyexi
sts?

a.Alowprobabi
l
itythatt
heassetorl
i
abi
l
itywi
l
lcausei
nfl
owsorout
fl
owsoff
utur
e
economi
cbenefit
s.

b.Ahi
ghl
evel
ofmeasur
ementuncer
tai
ntyr
egar
dingt
heassetorl
i
abi
l
ity
.

c. Anunr
esol
veddi
sput
eov
erar
ightorobl
i
gat
ion.

d.Allofthesear
erel
evanti
ndetermi
ningtheexi
stenceofanassetoral
i
abi
l
ity
,
accordingt heConcept
ot ualFramework.

15.Ani
ncr
easei
nthecar
ryi
ngamountofanassetcoul
dnotpossi
blyr
esul
tin

a.t
her
ecogni
ti
onofani
ncome.

b.Ther
ecogni
ti
onofanexpense.

c. ani
ncr
easei
ntot
alequi
ty.

d.nochangei
ntot
alequi
ty.
PROBLEM 4:MULTI
PLECHOI
CE

1.TheConcept
ualFr
amewor
kisl
eastappl
i
cabl
einwhi
choft
hef
oll
owi
ngcases?

a.t
oaccountf
orat
ransact
iont
hati
sspeci
fi
cal
l
ydeal
twi
thbyaSt
andar
d
b.i
nresol
vi
ngi
ssuesnotaddr
esseddi
rect
lybyaSt
andar
d
c. i
ndev
el ngSt
opi andar
ds
d.i
nanal
yzi
ngandi
nter
pret
ingSt
andar
ds

2.Gener
alpur
posef
inanci
alst
atement
sar
edesi
gnedt
o

a.meetal
lthei
nfor
mat
ionneedsoft
hepr
imar
yuser
s.

b.meetal
loft
hecommonneedsofal
lpr
imar
yuser
s.

c. meetmostoft
hecommonneedsofmostpr
imar
yuser
s.

d.meetnoneoft
heneedsoft
heuser
soff
inanci
ali
nfor
mat
ion.

3.Theseareuser
soffi
nanci
alinfor
mati
onwhoar enoti
nposit
iontorequi
rear
epor
ti
ng
ent
ityt
oprepar
erepor
tstai
loredtot
heirpar
ti
cul
arinf
ormat
ionneeds.

a.Pr
imar
yuser
s c.Heav
yuser
s

b.Secondar
yuser
s d.Sl
i
ghtuser
s

4.Whichoft
hefol
l
owi
ngi
snotoneoft
hepr
imar
yuser
sli
stedi
ntheConcept
ual
Fr
amework?
a.I
nvest
ors c.Cr
edi
tor
s

b.Lender
s d.Debt
ors

5.Whichofthefol
l
owingwoul dl
eastl
i
kel
ytoneedgener
alpur
posef
inanci
alst
atement
sin
makingeconomicdeci
sions?

a.St
ockhol
der
s c.Management

b.Pot
ent
ial
inv
est
ors d.Lender
s
6.Whichofthefol
lowi
ngi
snotaf
act
ort
oconsi
derwhenappl
yi
ngt
hequal
i
tat
ive
charact
eri
sti
cs?

a.Thei
nfor
mat
ionmustbebot
hrel
evantandf
ait
hful
l
yrepr
esent
edf
ori
ttobeusef
ul.

b.Theenhanci
ngquali
tat
ivechar
act
eri
sti
csonlyenhancet
heuseful
nessof
i
nfor
mat i
onbutcannotmakeir
rel
evanti
nfor
mationorer
roneousi
nfor
mati
ont
obe
usef
ul.

c. Someti
mes,i
tmaybenecessar
ytomaketr
ade-of
fsbetweent
hequal
i
tat
ive
char
act
eri
sti
csi
nordert
oprovi
deusef
uli
nfor
mation.

d.Tobeusefuli
nformati
onneedonl
ytomeetone,
butnotnecessar
il
yal
l
,oft
he
qual
i
tat
ivecharact
eri
sti
cs.

7.Whichoft
hefol
l
owi
ngi
sanexampl
eofaqual
i
tat
ivef
act
orusedi
nmaki
ngmat
eri
ali
ty
j
udgements?

a.10%oft
otal
rev
enues

b.2.
5%oft
otal
asset
s

c. P25,
000ormor
e

d.Thecontextofani
tem i
nrel
ati
ont
oacur
rentcr
isi
sint
hebanki
ngandi
nsur
ance
i
ndustr
y.

8.Accor
dingtotheConcept
ualFramework,t
hisinf
ormati
onprov
idesadir
ecti
ndi
cat
ionof
howwel l
managementhasdischargedi
tsresponsi
bil
i
tiest
omakeeff
ici
entandef
fect
ive
useoftherepor
ti
ngenti
ty’
sresour
ces.

a.Thechangesi
nther
epor
ti
ngent
it
y’seconomi
cresour
cesandcl
aimst
othose
resour
ces.

b.Ther
etur
nthatt
heent
it
yhaspr
oducedf
rom i
tseconomi
cresour
ces.

c. Thel
evel
oft
heent
it
y’seconomi
cresour
cesi
nrel
ati
ont
othecl
aimst
her
eof
.

d.Theent
it
y’sl
i
qui
dit
yandsol
vency
.
 9.Whichofthefol
l
owi
ngst
atement
saboutt
heconcept
si heConcept
nt ualFr
amewor
kis
l
eastaccurat
e?

a.Gener
alpurposef
inanci
alr
epor
tsar
eint
endedt
omeetequal
l
ytheneedsofal
lty
pes
ofext
ernal
users.

b.Alowprobabi
li
tyofexpectedi
nfl
owsoroutfl
owsofeconomicbenef
it
sresul
ti
ng
f
rom anassetorl
iabi
li
ty,
butnotnecessar
il
yit
sexi
stence.

c. Ahighlevelofmeasur
ementuncer
taint
yassociat
edwithanassetorliabi
l
itycan
aff
ectthefait
hful
repr
esent
ati
onofthatassetorl
iabi
l
ity
,butnotnecessari
lyi
ts
rel
evance.

d.Recognit
ionmeansi ncludi
ngani t
em inthetotalsoft
hefi
nanci
alst
atementswhen
thati
tem meetsthedef i
nit
ionofaf i
nancial
statementel
ementandrecogni
zingi
t
wouldresul
tinusefulinfor
mation.

10.Accordingtother
evsedConcept
i ualFramewor k,
thedegreeofuncert
aintyint
he
expectedinf
lowsorout
fl
owsofeconomi cbenefi
tsfr
om anassetorli
abili
tyorthe
degreeofmeasurementuncer
tai
ntyassoci
atedwiththatassetorl
i
abil
ity

a.doesnotnecessar
il
yaffecttheconclusi
onthatanassetorli
abi
l
ityexi
sts,
alt
houghi
t
mayaffectr
ecogni
tiondecisionsabouttheassetorl
i
abil
it
y.

b.gr
eatl
yaf
fect
st heconcl
usi
onthatanassetoral
iabi
l
ityexistsi
ftheexpect
ati
onof
i
nfl
owsoroutf
lowsisloworthemeasurementuncer
taint
yi shi
gh.

c. Maynotalway
saffecttheconclusi
onthatanassetoraliabi
lit
yexist
,butwil
lmost
cer
tai
nlyr
esul
ttot
henon- r
ecogniti
onofanassetorli
abili
tyiftheexpect
ati
onof
i
nfl
owsoroutfl
owsislowort hemeasurementuncertai
ntyishigh.

d.i
srel
evant
,bot
hindetermini
ngtheexistenceofanassetoral
i
abi
l
ityandi
nmaki
ng
r
ecogni
ti
ondeci
sionsaboutthatassetorli
abi
li
ty.

PROBLEM 5:FORCLASSROOM DI
SCUSSI
ON

Pur
pose

1.Whichoft
hefol
l
owi
ngst
atement
sisi
ncor
rectr
egar
dingt
hepur heConcept
poseoft ual
Fr
amework?
a.TheConceptualFr
ameworki
sint
endedt
opr
ovi
deaf
oundat
ionf
ort
hedev
elopment
ofgl
obal
lyaccept eSt
abl andar
ds.
b.Global
lyaccept
ableStandardscontr
ibutet
oeconomiceff
ici
encybyl
ower
ingt
he
costofcapit
alandreducingint
ernat
ionalr
epor
ti
ngcosts.

c. Gl
oball
yaccept eSt
abl andardsreducesthei
nfor
mati
ongapbet
weenf
inanci
al
st
atementuser
sandt
hereport
ingenti
ty’
smanagement
.
 d.TheConceptualFr
ameworkprescr
ibest
heconcept
sforbot
hgener
alpur
poseand
speci
fi
cpurposefi
nanci
alr
eporti
ng.

St
atus

2.TheConcept
ualFr
amewor
k(chooset
hei
ncor
rectst
atement
)

a.i
snotaPFRS.

b.i
ntheabsenceofaPFRS,shal
lbeconsi
der
edbymanagementwhenmaki
ngit
s
j
udgementindevel
opi
ngandapply
inganaccount
ingpol
i
cyt
hatr
esul
tsi
nusef
ul
i
nfor
mati
on.

c. i
sconsi
der
edwi
thgener
alpur
posef
inanci
alr
epor
ti
ngonl
y.

d.pr
evai
l
sov
ert
hePFRSsi
ncasesofconf
li
cts.

Scope

3.whi
choft
hef
oll
owi
ngi
sexcl
udedf
rom t heConcept
hescopeoft ualFr
amewor
k?
a.Theobj
ect
iveoff
inanci
alr
epor
ti
ng.

b.Qual
i
tat
ivechar
act
eri
sti
csofusef
ulf
inanci
ali
nfor
mat
ion.

c. Thecomponentsofacompl
etesetoff
inanci
alst
atement
sandt
hei
rpr
esent
ati
on
requi
rement
s.

d.Def
ini
ti
ons,
recogni
ti
oncr
it
eri
aandder
ecogni
ti
onoff
inanci
alst
atementel
ement
s.

e. Descr
ipt
ionsoft
hemeasur
ementbasesusedi
nfi
nanci
alr
epor
ti
ng.

Theobj
ect
iveoff
inanci
alr
epor
ti
ng

4.Whi
choft
hef
oll
owi
ngi
sincor
rectr
egar
dingt
heobj
ect
iveofgener
alpur
posef
inanci
al
r
epor
ti
ng?

a.Theobj
ect
iveofgener
alpur
posef
inanci
alr
eport
ingi
stoprov
ideinfor
mati
onthati
s
usef
ult
opri
maryusersinmaki
ngdecisi
onsaboutpr
ovi
dingr
esourcestot
heenti
ty.

b.Decisi
onsaboutprovi
dingr
esour
cestotheenti
tydependont heusers’
expected
ret
urns,whi
chinturn,
dependonassessmentsoftheenti
ty’
sprospectsforf
uturenet
cashinfl
owsandmanagementstewardshi
p.

c. Theobjecti
veofgener
alpur
posef
inanci
alr
epor
ti
ngf
ormst
hef
oundat
ionoft
he
ConceptualFr
amework.
d.Generalpur
posefinanci
alrepor
ti
ngprovi
desinfor
mati
onaboutanentit
y’seconomi
c
resour
ces,cl
aims,andchangesinthoseresour
cesandcl
aims,butnotonthe
uti
li
zati
onofthoseresourcesbytheent
it
y’smanagement
.
Pr
imar
yuser
s

5.Whichoft
hefol
lowingstatement
sbestexpl
ainswhyt
herepor
ti
ngenti
ty’
smanagement
andgover
nmentregul
atorsarenotconsi
der
edpri
maryuser heConcept
sundert ual
Framewor
k?
a.Theseusersar
econsi
der
edr
elat
edpar
ti
es,
andhencedonotmaker
elev
ant
deci
sions.

b.Theseuser
shavet
heabil
i
tyt
ocur t
ail
theoperat
ionsoft
herepor
ti
ngent
it
yand
ther
efor
ehavet
heabi
l
ityt
oaffectt
heenti
ty’
sgoingconcer
n.

c. Theseuser
shav et
hepowert
odemandi
nfor
mat
iont
heyneeddi
rect
lyf
rom t
he
repor
ti
ngenti
ty.

d.Al
loft
hese.

I
nfor
mat
iononeconomi
cresour
ces,
clai
ms,
andchanges

6.I
nf or
mationabouttherepor
ti
ngent
it
y’seconomicresources,cl
aimsagai
nstthe
report
ingenti
tyandchangesint
hoseresourcesandclai
msi srefer
redt
ointhe
ConceptualFr
amewor kasthe

a.economi
cphenomena.

b.ent
it
y’sr
etur
n.

c. f
inanci
alper
for
mance.

d.pr
ospect
sforf
utur
ecashf
lows.

Qual
it
ati
vechar
act
eri
sti
cs

7.Enti
tyAdeliber
atel
yov er
stat
edi
tsl
i
abi
l
iti
esf
rom P1M t
oP1.
2M.Whatqual
i
tat
ive
charact
eri
stici
sv i
olat
ed?

a.Rel
evance c.Ti
mel
i
ness

b.Fai
thf
ulr
epr
esent
ati
on d.Under
standabi
l
ity

8.Twopr i
maryuser
sareusingthefinanci
ali
nfor
mationofEnt
ityA.I
fUser#1concl
udes
thatEnt
it
yA’ssal
eshasincreasedwhileUser#2concl
udesthati
thasdecr
eased,Ent
it
y
A’sfi
nanci
ali
nfor
mati
onisnot

a.r
elev
ant
. c.compar
abl
e.

b.f
ait
hful
l
yrepr
esent
ed. d.v
eri
fi
abl
e.

Mat
eri
ali
ty

9.Enti
tyAismakingamat eri
ali
tyjudgement
.Enti
tyAconsi
der
st hesi
zeoft
heimpactof
anitem t
obemat er
ial
ifitexceeds5%oftotal
asset
s.Whattypeofmater
ial
i
ty
assessmenti
sthis?
 a.Quant
it
ati
ve c.Requi
rementofaSt
andar
d

b.Qual
i
tat
ive d.Rel
evance

Fi
nanci
alst
atement
sandt
heRepor
ti
ngent
it
y

10.Whichoft
hefol
l
owi
ngi
sincor
rectr
egar
dingt
heobj
ect
iveofgener
alpur
posef
inanci
al
st
atement
s?

a.General
purposefi
nanci
alst
atement
sshowinfor
mat
ionont
her
epor
ti
ngent
it
y’s
asset
s,l
iabi
li
ti
es,
equit
y,i
ncomeandexpenses.

b.Gener
alpur
posef
inanci
alst
atement
sar
eint
endedt
oshowt
hev
alueoft
her
epor
ti
ng
ent
it
y.

c. Gener
alpurposefi
nanci
alst
atementsprovi
dei
nformat
iont
hati
susef
uli
nassessi
ng
t
heentit
y’sabi
li
tyt
ogenerat
ef ut
urenetcashi
nfl
ows.

d.Gener
al purposef
inanci
alstat
ementsprovi
deinf
ormati
onthatisusef
ulinassessi
ng
t
heentity’
smanagementst ewardshi
pinrel
ati
ontotheuseoftheenti
ty’
seconomic
r
esources.

TheEl
ement
sofFi
nanci
alSt
atement
s

11.Whichofthef
oll
owingi
sleastl
i
kel
ytobeconsi
der
edwhendet
ermi
ningwhet
herani
tem
meetsthedef
ini
ti
onofanasset
?

a.whet
herther
eisapresenteconomi
cresour
ce,
whi
chi
sar
ight
,thathasr
esul
ted
f
rom pastev
ents.

b.whet
herther
ighthaspot
ent
ial
topr
oduceeconomi
cbenef
it
s,ev
idencedbyatl
east
oneci
rcumst
ance.

c. whet
hert
heent
it
ycont
rol
sther
ight

d.whetheri
tispr
obabl
e(mor
eli
kel
ythannot
)thatt
her
esour
cewi
l
lpr
oduceeconomi
c
benefi
ts

12.Ther
evi
seddef
ini
ti
onsofanassetandal
i
abi
l
ityemphasi
zet
hat

a.anassetisari
ght,andali
abi
li
tyi
sanobligat
ion,
thathast
hepot
ent
ial
topr
oduce,
or
causethetr
ansferof,
economicbenef
it
s.

b.anasseti
sacont
rol
ledresour
ce,
andali
abi
li
tyi
sanobl
i
gat
ion,
thati
sexpect
edt
o
causei
nfl
owsandoutf
lowsofeconomi
cbenefi
ts.

c. anasseti
sthephysicalobj
ectandthel
i
abi
l
ityi
sul
ti
mat
eout
fl
owofeconomi
c
benef
it
sfrom set
tl
ingtheobli
gati
on.

d.Al
loft
hesear
eemphasi
zedi
nther
evi
seddef
ini
ti
ons.
 13.Whi
choft
hef
oll
owi
ngi
scor
rectwhendet
ermi
ningt
heexi
stenceofanassetoral
i
abi
l
ity
?

a.Anassetorali
abi
li
tyexi
stsi
ftheassoci
atedr
ightorobl
i
gat
ionar
isesf
rom l
egal
or
cont
ract
ualr
equir
ements.

b.Anassetorali
abi
li
tyexi
stsonl
yoft
heexpectedi
nfl
owsoroutf
lowsofeconomic
benefi
tsf
rom t
heassetorthel
i
abi
li
tyar
eprobabl
e,meani
ngtheyar
emor eli
kel
y
thannott
ooccur.

c. Anassetoral i
abili
tycanexistevenifit
spotenti
altoproduce,orcauseat r
ansferof
,
economicbenef i
tsisnotcertai
norev enli
kel
y,whatisimportanti
sthattherightor
theobli
gati
onexistsinthepresentandt hati
natleastonecircumstanceitwil
l
produce,orcauseat r
ansferof,economicbenefi
ts.

d.Al
loft
hesear
ecor
rect
.

14.Cont
rol
isnecessar
yel
ementofanasset
.Cont
rol
means

a.theent
it
yhast heexcl
usiver
ightovert
hebenef
it
sofanasset
,incl
udi
ngt
heabi
l
ityt
o
prev
entother
sf r
om accessi
ngthosebenef
it
s.

b.thatt
heent
it
ycanensur
ethatt
her
esour
cewi
l
lpr
oduceeconomi
cbenef
it
sinal
l
cir
cumst
ances.

c. theenti
tyhast
heexcl
usi
ver
ightov
ert
heent
ir
eeconomi
cresour
ce,
andnotonl
ya
port
ionofit
.

d.al
egal
l
yenf
orceabl
eri
ghtconf
err
edt
otheent
it
ybyal
aworot
heroper
ati
onofl
aw.

15.Anasseti
saneconomicresour
ceandaneconomi cresourcei
sar i
ghtthathasthe
pot
enti
altopr
oduceeconomicbenefi
ts.Whichofthefoll
owingisnotoneofthe
pot
enti
alofaneconomicr
esourcetoproduceeconomi cbenef
it
sforanent i
ty?

a.Ser
vicepotential
,i
.e.
,theresour
cecanbeusedt
opr
ovi
deser
vicesi
ntheent
it
y’s
nor
mal businessacti
viti
es.

b.Ther
esour
cecanbeconv
ert
edi
ntocash.

c. Ther
esour
cehast
heabi
l
ityt
opr
ovi
decost
-sav
ingst
otheent
it
y.

d.Ther
esour
cecausesmor
eout
fl
owsofcashf
rom t
heent
it
ythani
nfl
ows.

Execut
orycont
ract
s

16.Ent
it
yAent er
sintoapur chasecommit
mentwithEnt
it
yB( asel
ler
).Nei
therpart
y
per
formsit
sobligat
ionont hecontr
act
,i.
e.,
Ent
it
yAdidnotyetpaythepurchasepr
ice,
whi
leEnti
tyBdidnoty etdeli
vert
hegoods.Whi
chofthefol
lowi
ngisincorr
ect?
 a.Thecontr
actisexecutor
y.Ent
it
yAhasacombi
nedr
ightt
orecei
vet
hegoodsandan
obl
igat
iontopayforthem.

b.Ent
it
yAr ecognizesnei
theranassetnoral
iabi
l
ityexceptwhenthecontr
actbecomes
bur
densome, suchaswhent hegoodsbecomeobsol et
ebefor
et heyar
edeli
vered.

c. IfEnt
it
yBper
for
msi t
sobl
i
gat
ionf
ir
st,
Ent
it
yA’
scombi
nedr
ight
sandobl
i
gat
ion
changest
oali
abi
li
ty.

d.IfEnt
it
yAper
formsitobl
i
gat
ionf
ir
st,
Ent
it
yA’
scombi
nedr
ightandobl
i
gat
ion
changest
oali
abil
i
ty.

Recogni
ti
onandDer
ecogni
ti
on

17.Accor
dingt
other
evsedConcept
i ualFr
amewor
k,ani
tem i
srecogni
zedi
f

a.i
tmeet
sthedef
ini
ti
onofaf
inanci
alst
atementel
ement
.

b.r
ecogni
zi
ngi
twoul
dpr
ovi
deusef
uli
nfor
mat
ion,

c. i
tisprobabl
ethatt
hei
tem wi
ll
resul
ttoani
nfl
oworout
fl
owofeconomi
cbenef
it
s
andit
scostcanbemeasuredrel
i
abl
y.

d.aandb

18.Accordi
ngtot heConcept ualFramework,
ani t
em isr
ecogni
zedifi
tmeetst
hedefi
nit
ion
ofanasset,li
abil
i
ty,equit
y ,
incomeorexpense, andr
ecogni
zi
ngitwoul
dprovi
derel
evant
andfait
hful
lyrepresentedinfor
mat i
on.Whichofthefol
l
owingrel
atedt
ofai
thf
ul
repr
esentat
ionratherthanr el
evance?

a.I
tiswhet
hert
heassetexi
sts.

b.Theassetexi
stsbutt
hepr
obabi
l
ityt
hati
twi
l
lpr
oducei
nfl
owsoreconomi
cbenef
it
s
i
slow.

c. Ahi
ghl
evel
ofmeasur
ementuncer
tai
ntyassoci
atedwi
tht
heasset
.

d.Noneofthese.Ani
tem t
hatmeet
sthedef
ini
ti
onofanasseti
sal
way
srecogni
zedas
anasset
.

19.Whichofthef
oll
owi
ngwi
l
lmostl
i
kel
ytocauset
henon-
recogni
ti
onofanassetora
l
iabi
li
ty?

a.Thepr
obabil
it
yofani
nfl
ows(
out
fl
ow)off
utur
eeconomi
cbenef
it
sfr
om t
heasset
(l
i
abi
li
ty)i
slow.

b.Ther
eisameasur
ementuncer
tai
ntyr
egar
dingt
heassetorl
i
abi
l
ity
.
 c. I
tisuncer
tai
nwhet
hert
heassetorl
i
abi
l
ityexi
sts.

d.Recogni
zi
ngt
heassetorl
i
abi
l
itywoul
dnotpr
ovi
der
elev
antandf
ait
hful
l
y
repr
esent
edi
nfor
mati
on.

20.Whi
choft
hef
oll
owi
ngwoul
dnotr
esul
ttot
her
ecogni
ti
onofal
i
abi
l
ity
?

a.Recei
ptoft
hepr
oceedsofabankl
oan.

b.Recei
ptofdel
i
ver
yofequi
pmentpur
chasedoncr
edi
t.

c. Acommi
tmentf
orf
utur
eexecut
ionbecomesbur
densome.

d.Pay
ingi
nadv
ancet
hepur
chasepr
iceofi
nvent
ori
esf
orf
utur
edel
i
ver
y.

21.Enti
tyAdeterminedt hataprevi
ousl
yr ecognizedassetnol
ongermeett hedef
ini
ti
onof
anasset.Accordi
ngly,Enti
tyAremov edthecar r
yingamountoftheassetfr
om the
stat
ementoff i
nancialposi
tionandrecognizeditasanexpense.Enti
tyAisapplyi
ng
whichofthefoll
owingpr i
ncipl
es?

a.Mat
chi
ng c.Der
ecogni
ti
on

b.Recogni
ti
on d.pr
esent
ati
onanddi
scl
osur
e

Measur
ement

22.Recogni
zi
ngaf i
nanci
alstat
ementrequi
resmeasur
ingi
tinmonet
aryt
erms.Whi
choft
he
fol
l
owingstat
ementsincorr
ectr
egardi
ngmeasurement
s?

a.TheConcept
ualFrameworkonlydescr
ibesthemeasur ementbasesusedinfi
nanci
al
repor
ti
ngbutdoesnotspecif
yhowapar ti
cularf
inanci
alst
atementelementshoul
dbe
measured–thi
sisaddressedbytheStandards.
b.TheConceptualFr
ameworkbroadlyclassi
fi
esthemeasurementbasesusedi
nfi
nanci
al
repor
ti
ngint
ot wo,namel
y,hi
stor
icalcostandcurr
entv
alue.

c. Measur
ementuncer
tai
nlywi
l
lal
way
scauset
henon-
recogni
ti
onofaf
inanci
alst
atement
el
ement.

d.Measur
ingaf
inanci
alst
atementel
ementof
tenr
equi
resest
imat
ion.

Pr
esent
ati
onandDi
scl
osur
e

23.Effect
ivecommuni
cati
onmakesinf
ormat
ionmor
eusef
ul.Ef
fect
ivecommuni
cat
ion
requir
esalloft
hef
oll
owingex
cept

a.f
ocusi
ngonpresent
ati
onanddi
scl
osur
eobj
ect
ivesandpr
inci
plesr
athert
han
f
ocusi
ngonrul
es.

b.cl
assi
fyi
ngi
nfor
mat
ioni
namannert
hatgr
oupssi
mil
ari
temsandsepar
ates
 di
ssi
mil
ari
tems.

c. aggregat
ingi
nformati
oninsuchawayt
hati
tisnotobscur
edei
therbyunnecessar
y
detai
lorbyexcessi
veaggregat
ion.

d.usi
ngst
andar
dizeddescr
ipt
ions,
a.k.
a.‘
boi
l
erpl
ate’
,r
athert
hanent
it
y-speci
fi
c
i
nfor
mati
on.

24.Accor
dingt
other
evsedConcept
i ualFr
amewor
k,i
ncomeandexpensesar
ecl
assi
fi
edas
ei
ther

a.r
ecogni
zedi
npr
ofi
torl
ossori
not
hercompr
ehensi
vei
ncome.

b.gai
nsandr
evenues,
andexpensesandl
osses,
respect
ivel
y.

c. cont
ri
but
ionsf
rom,
ordi
str
ibut
iont
o,t
heent
it
y’sowner
s.

d.i
ncr
easesordecr
easesi
ntheent
it
y’sasset
sofl
i
abi
l
iti
es.

Concept
sofCapi
talandCapi
talmai
ntenance

25.Undert
hisconceptofcapi
tal
maint
enance,pr
ofi
tisear
nedifnetasset
sincr
easeddur
ing
theper
iodaft
erexcl
udingt
heeff
ectsoftr
ansact
ionswit
htheowner s.

a.Fi
nanci
alcapi
tal
mai
ntenance

b.Phy
sical
capi
tal
mai
ntenance

c. Repai
rsandmai
ntenance

d.Bui
l
dingmai
ntenance

Pr
obl
em 6:Act
ivi
ty

Requi
rement
s:
1.Makealistofy
ourassetsandexplai
nwhyt heit
emsinyourl
istmeett
hedefi
nit
ionofan
asset
.Besuretoconsi
derall
thethreeaspectsi
nthedef
ini
ti
onofanasset
.

2.Assesswhethereachitem i
nthel
istqual
if
iesf
orr
ecognit
ioniny
ourper
sonal
stat
ement
offi
nanci
alposit
ion.Expl
ainwhyanitem i
sori
snotrecogni
zed.