CFAS- DEFINITION, RECOGNITION AND MEASUREMENT OF ELEMENTS FROM WHICH FINANCIAL STATEMENTS ARE CONSTRUCTED

Question 1

1. These are related to the economic resources (assets), economic obligations (liabilities), residual interest (equity) and changes in them (revenue and expense)
   (a) basic elements (c) basic objectives
   (b) basic principles (d) basic concepts

Answer 1

(a) basic elements

Question 2

2. The basic elements directly related to the measurement of financial position are:
   (a) assets, liabilities, equity, revenue and expenses
   (b) assets, liabilities, and equity
   (c) revenue and expense
   (d) assets and liabilities

Answer 2

(b) assets, liabilities, and equity

Question 3

3. The basic elements directly related to the measurement performance or results of
   operations are:
   (a) assets, liabilities, equity, revenue and expenses
   (b) assets, liabilities and equity
   (c) revenue and expense
   (d) sales and cost of sales

Answer 3

(c) revenue and expense

Question 4

4. These are resources controlled by the enterprise as a result of past transactions or events
   and from which future economic benefits are expected to flow to the enterprise.
   (a) assets (c) equity
   (b) liabilities (d) revenue

Answer 4

(a) assets

Question 5

5. These are present obligations of an enterprise arising from past transactions or events
   the settlement of which is expected to result in an outflow from the enterprise of resources
   embodying economic benefits
   (a) assets (c)equity
   (b) liabilities (d) revenue

Answer 5

(b) liabilities

Question 6

6. It is the residual interest in the assets of the enterprise after deducting all its liabilities.
   (a) revenue (c)net income
   (b) expenses (d) equity

Answer 6

(d) equity

Question 7

7. It represents the gross inflows of economic benefits during the period arising in the
   course than those relating to contributions from owners.
   (a) assets (c) expense
   (b) liabilities (d) revenue

Answer 7

(d) revenue

Question 8

8. Tt represents the gross outflows of economic benefits during the period arising in the
   course of ordinary activities of an enterprise when these outflows result in decreases in
   equity, other than those relating to distributions to owners.
   (a) assets (c) expense
   (b)liabilities (d) revenue

Answer 8

(c) expense

Question 9

9. According to ASC conceptual framework, the process of reporting an item in the
   financial statements of an enterprise is:
   (a) allocation (c) realization
   (b) matching (d) recognition

Answer 9

(d) recognition

Question 10

10. The term”recognized is synonymous with the term:
    (a) recorded (c)matched
    (b) realized (d) allocated

Answer 10

(a) recorded

Question 11

11. Which condition is necessary for the recognition of an asset?
    (a) It is probable that future economic benefits will flow to the enterprise
    (b) The cost of the asset can be measured reliably.
    (c) The asset is paid for.
    (d) It is probable that future economic benefits will flow to the enterprise and the D cost of
    the asset can be measured reliably

Answer 11

(d) It is probable that future economic benefits will flow to the enterprise and the D cost of
the asset can be measured reliably

Question 12

12. Internally generated goodwill is:
    (a) recognized as an asset because the inflow of future economic benefits is highly probable
    and the cost of the goodwill can be measured reliably.
    (b) not recognized as an asset because the cost cannot be measured reliably although the
    Inflow of future economic benefits is highly probable.
    (c) recognized as an expense.
    (d) recognized as revenue.

Answer 12

(b) not recognized as an asset because the cost cannot be measured reliably although the
Inflow of future economic benefits is highly probable.

Question 13

13. A company needed a new warehouse and a contractor quoted a P5,000,000 price to
    construct it. A believed that is could build the warehouse for P4300,000 and decided to use
    company employees to build it. The final construction cost incurred by A company was
    PM,800,000 but the asset was recorded at P5,000,000. What principle is this violation of?
    (a) cost principle (c) matching principle
    (b) separate entity (d) conservatism

Answer 13

(a) cost principle

Question 14

14. According to GAAP, at what value should a company show its assets on the balance
    sheet?
    (a) market value at all times
    (b) cash equivalent of asset given up or the asset received, whichever is more clearly
    evident
    (c) best estimate of an internal auditor
    (d) cash outlay anly, even if part of the consideration given was something other than
    cash.

Answer 14

(b) cash equivalent of asset given up or the asset received, whichever is more clearly
evident

Question 15

15. Which of the following statements is not consistent with generally accepted accounting
    principles as they relate to asset valuation?
    (a) assets are generally recorded in the accounting records it cost to the enterprise
    (b) accountants assume that assets such as supplies, buildings and equipment will be used
    in the business operations rather than selling.
    (c) subtracting total liabilities from total assets results in the current market value o
    equity.
    (d) accountants base asset valuation upon objective, verifiable evidence rather than on personal
    opinion

Answer 15

(c) subtracting total liabilities from total assets results in the current market value o
equity.

Question 16

16. The valuation basis used in conventional financial statement
    (a) replacement cost (c) original cost
    (b) market value (d) a mixture of cost and value

Answer 16

(d) a mixture of cost and value

Question 17

18. In an arm’s-length transaction, Compare A and Company BE exchanged nonmonetary
    assets with no monetary consideration involved. The exchange did not culminate an
    canning process for both Company and Company B, and the fair values of the
    Non monetary assets were both clearly evident. The accounting for the exchange should be
    based on the:
    (a) fair value of the asset surrendered (c)recorded amount of the asset surrendered
    (b) fair value of the asset received (d) recorded amount of the asset received

Answer 17

(a) fair value of the asset surrendered

Question 18

17. Imputing interest for certain assets and liabilities is primarily based on the concept of:
    (a) valuation (c) consistency
    (b) conservatism (d) stable monetary unit

Answer 18

(a) valuation

Question 19

19. Company A and Company B exchanged nonmonetary assets with no monetary
    consideration involved and no impairment of value. The exchange did not culminate an
    earning process for either Company A or Company B. The accounting for the exchange
    should be based on the:
    (a) recorded amount of the asset received (c) fair value of the asset received
    (b) recorded amount of the asset relinquished (d) fair value of the asset relinquished

Answer 19

(b) recorded amount of the asset relinquished

Question 20

20. Revenue is recognized when:
    (a) it is probable that future economic benefits will flow to the enterprise.
    (b) the future economic benefits can be measured reliably.
    (c) it is possible that reliably measurable future economic benefits will flow to the enterprise
    (d) It it’s probable that reliably measurable future economic benefits will flow to the enterprise

Answer 20

(d) It it’s probable that reliably measurable future economic benefits will flow to the enterprise

Question 21

21. Normally, revenue is recognized:
    (a) when the customer’s order is received
    (b) when the customer’s order is accompanied by a check.
    (c)only if the transaction will create an account receivable.
    (d) when the title to the goods changes.

Answer 21

(d) when the title to the goods changes.

Question 22

22. In accordance with the revenue principle, when should revenue be recognized?
    (a) when the goods are shipped (c) when title to the goods passes
    (b) when cash is collected (d) when goods are set aside

Answer 22

(c) when title to the goods passes

Question 23

23. Depending on the nature of the enterprise, revenue may be recognized based on
    different
    acceptable criteria. which of the following is not an accepted basis for recognition of
    revenue?
    (a) passage of time (c) completion of percentage of a project
    (b) performance of service (d) upon signing of contract

Answer 23

(d) upon signing of contract

Question 24

24. Which of the following bases of revenue recognition reflects the greatest degree of
    uncertainty about future events7
    (a) sales method applied to sales of a department store
    (b) cost recovery method applied to an instalment sales contract
    (c) production method for a gold mining operation
    (d) percentage of completion on a construction contract

Answer 24

(b) cost recovery method applied to an instalment sales contract

Question 25

25. Under what methods is revenue recognized prior to delivery? (a)percentage of completion method (c)installment sales (b) cost recovery method (d) accrual method

Answer 25

(a)percentage of completion method

Question 26

26. This revenue recognition method is allowed when a sale is insured under a forward contract or government guarantee or when a homogenous market exists and there is a negligible risk of failure to sell. (a) percentage of completion method (c) cash method (b) production method (d) accrual method

Answer 26

(b) production method

Question 27

27. What is an example of an accounting principle? (a) The fact that one type of accounting is designed to help managers identity, measure and control operating costs (b) The definition of when revenue is to be recognized (c) The fact that business transactions involve a completed exchange of economic transactions. (d) The definition of assets minus liabilities equals shareholders' equity.

Answer 27

(b) The definition of when revenue is to be recognized

Question 28

28. Which of the following is true? (a) Net assets always increase when revenue is recorded. (b) Generally accepted accounting principles are men-made rules that never change. (c) The assumption that a business will continue to operate until it can sell its assets to pay its creditors underlies the going concern concept. (d) The Board of Accountancy is the body that currently has the authority to issue pronunciation of GAAP.

Answer 28

(a) Net assets always increase when revenue is recorded.

Question 29

29. Which of the following statements about executory contracts is correct? (a) They need not be disclosed. (b) They occur when two parties agree to transfer resources or services but only one party has performed. (c) They must be recorded of material n amourt. (d) They must be disclosed if material in amount.

Answer 29

(d) They must be disclosed if material in amount.

Question 30

30. The term "revenue recognition conventionally refers to: (a) the process of identifying transactions to be recorded as revenue in an accounting period (b) the process of measuring and relating revenue and expenses during their period. (c) the learning process which gives rise to revenue realization. (d) the process of identifying those transactions that result in an inflow of assets to the enterprise

Answer 30

(a) the process of identifying transactions to be recorded as revenue in an accounting period

Question 31

31. Under what condition is it proper to recognize revenue prior to the sale of the merchandise? (a) when the concept of internal consistency is complied with. (b) when the revenue is to be reported as an installment sale. (c) when the ultimate sale of the goods is at an assured sales price (d) when management has a long-established policy to do so.

Answer 31

(c) when the ultimate sale of the goods is at an assured sales price

Question 32

32. Which of the following in the most precise sense means the process of converting noncash resources and rights into cash or claims of cash? (a) allocation (c) recognition (b) collection (d) realization

Answer 32

(d) realization

Question 33

33. Gains on assets unsold are identified, in a precise sense, by the term: (a) unrecorded (c)unrecognized (b) unrealized (d) unallocated

Answer 33

(b) unrealized

Question 34

34. Which of the following statements conforms to the realization concept? (a) Equipment depreciation was assigned to a production department and then to product unit cost. (b) Depreciated equipment was sold in exchange for a note receivable. (c) Cash was collected on accounts receivable. (d) Product unit costs were assigned to the cost of goods sold when the units were sold. B

Answer 34

(b) Depreciated equipment was sold in exchange for a note receivable.

Question 35

35. According to the FASB conceptual framework, an entity's revenue may result from: (a) a decrease in an asset from primary operations. (b) an increase in an asset from incidental transactions. (c) an increase in liability from incidental transactions. (d) a decrease in a liability from primary operations

Answer 35

(d) a decrease in a liability from primary operations

Question 36

36. It is proper to recognize revenue prior to the sale of merchandise when: I. The revenue will be reported as an installment sale. II. The revenue will be reported under the cost recovery method. (a) I only (c) both I and I1 (b) II only (d) neither I nor II(d) a decrease in a liability from primary operations

Answer 36

(d) neither I nor II

Question 37

37. Cash collection is a critical event for income recognition in the: Cost recovery method / Installment Method (a) No No (b) Yes Yes (c) No Yes (d) Yes No

Answer 37

(b) Yes Yes

Question 38

38. For financial statements purposes, the installment method of accounting may be used if the: (a) collection period extends over more than 12 months. (b) installments are due in different years. (c) ultimate amount collectible is indeterminate. (d) percentage of completion method is inappropriate.

Answer 38

(c) ultimate amount collectible is indeterminate.

Question 39

39. Income recognized using the installment method of accounting generally equals cash collected multiplied by the: (a) net operating profit percentage. (b) net operating profit percentage adjusted for expected uncollectible accounts. (c) gross profit percentage. (d) gross profit percentage adjusted for expected uncollectible accounts.

Answer 39

(c) gross profit percentage.