ANSWER KEY CONCEPTUAL FRAMEWORK

MORSE TYPE

A. TRUE TRUE

B. TRUE FALSE

C. FALSE FALSE

D. FALSE TRUE

C D B A D D D

D D C D B B A

C C B A A D C

B D D C D B B

D A D A C D D

A C D B D B

1. The conceptual framework is not a PFRS. In case of a conflict between the two, PFRS prevails since
this is primarily concerned with the general purpose financial reporting.

Costs that provide future economic benefits, also called as capitalizable costs are recognized as assets,
liabilities and part of equity. This are revenue expenditures which shall be presented in the current
period.

2. If the degree of occurrence is 50%, then it is fairly treated as "more likely than not".

The carrying amount of a liability based on historical costs shall be the consideration received (net of
transaction costs) for taking on the unfulfilled part of the liability, increased by excess of estimated cash
outflows over considerationm received.

3. According to PFRS, recognition is the process of incorporating in the balance sheet or income
statement an item that meets the definition of an element and satisfies the criteria for recognition.
Failure to recognize an item that meets the requirements for recognition can be rectified by a note
disclosure.

Gains represent other items that meets the definition of income and may only arise in the ordinary
course of business.

4. Accountant's primary task is to supply financial information to statement users so that they could
make informed judgment and better decision.
 The accounting standards used in the Philippines are the PFRSs, which are based on IFRS. The PFRSs
comprise the following: (1) PFRSs, (2) PASs, (3)Interpretations and (4)IPSAS.

5. The first PFRS financial statements include (1) at least one-year comparative information and (2)
opening and closing PFRs statement of financial position at the date of transition to PFRSs.

In most cases, no single factor will determine which measurement basis should be selected. The relative
importance of each factor will depend on facts and circumstances.

6. The presence of outcome uncertainty or existence uncertainty may sometimes contribute to

measurement uncertainty.

Understandability depends partly on how many different measurement bases are used and on whether
they change over time.

7. For tax purposes, branches shall be considered as a separate unit from the main office while
subsidiaries shall be treated as one with their parent. This is an application of the entity- separation
clause.

The carrying amount of an asset based on historical cost includes the transaction costs, to the extent of
the unconsumed or uncollected and recoverable.

8. Borrowing costs also known as interests or finance costs are those incurred in relation to the
borrowing of funds. This may include actual or imputed costs for a much more comprehensive costing of
the qualifying assets.

FRSC is composed of 15 members with a chairman who had been or is presently a senior accounting
practitioner with 2 members each from the 4 scopes of accounting practice.

9. General purpose financial reports are designed to show the value of a reporting entity and they
provide information to help existing and potential investors lenders and other creditors to estimate the
value of the entity.

Financial information has predictive value when it can be used as an input to processes employed by
users to predict future outcomes. Furthermore, there is a predictive value when there is an assessment
or confirmation about (confirms or changes) on the previous valuation.

10. The Board can specify a uniform quantitative threshold for materiality or predetermine what could
be material in a particular session.

Correction of error and the effect of changes in accounting policies are accounted for as adjustment of
the beginning balance of retained earnings.

11. Unusual and infrequent items of income and expenses are considered component of income from
continuing operations.
IASB is the global phenomenon intended to bring about great transparency and a higher degree of
comparability in financial reporting.

12. The exercise of prudence implies a need for asymmetry, for example, a systematic need for more
persuasive evidence to support the recognition of assets or income than the recognition of liabilities or
expenses.

In some cases, a trade-off between the fundamental qualitative characteristics may need to be made in
order to meet the objective of financial reporting, which is to provide useful information about economic
phenomonena. For example, the most irrelevant information about the phenomenon may be a highly
uncertain estimate.

13. Uncertainties regarding the ability of the entity to continue as a going concern shall be fully
disclosed.

Information about a reporting entity is more useful if it can be compared with similar information about
other entities with similar information of different entities for another period or another date.

14. Comparability is the quantitative characteristic that enables users to identify and understand
similarities in, and differences among, items.

Comparability is uniformity. For information to be comparable, like things must look alike and different
things must look different.

15. Value changes on historical costs are not recognized except for impairment. For value changes in
financial assets- income and expenses shall be recognized from changes in estimated cash flows.

A faithful representation of a relevant economic phenomenon should naturally possess some degree of
comparability with a faithful representation a similar relevant economic phenomenon by the same
reporting entity.

16. Direct verification means checking inputs to a model, formula or other technique and recalculating
the outputs using the same methodology.

Adjusting events include bankruptcy of customers and sale of inventories that gives the evidence about
its net realizable value.

17. Applying the enhancing qualitative characteristics is an iterative process that follows a prescribed
order. Sometime, one enhancing qualitative characteristics may have to be diminished to maximise
another qualitative characteristics.

Income or expenses may arise if the market in which an asset is acquired is different from the market
that is the source of the prices used when measuring the fair value of the asset.
18. Providers of financial information expend most of the effort involved in collecting,processing,
verifying and disseminating financial information, but users bear those costs in the form of increased
returns.

Verifiability is enhanced by using measurement bases that result in measures that can be independently
corroborated either directly or indirectly.

19. Measures determined applying historical cost measurement basis are generally well understood and
in many cases, verifiable.

Going concern is relevant when management shall make an estimate of the expected outcome of future
events, such as recoverability of Accounts Receivable and useful life of noncurrent assets.

20. The Board of Directors seeks to consider costs and benefits in relation to individual reporting entities.
Differences may be appropriate because of different sizes of entities, different ways of raising
capitals,differen users' needs or other factors.

Exploration, evaluation asset, mineral rights and resources held for sale and biological assets are
separate line items. PAS 16 on PPE does not apply to them.

21. An entity whose financial statements comply with PFRS shall make an explicit and unreserved
statements of such compliance in the notes.

Abandoned property and long-term refundable deposits are other non current assets.

22. Financial statements provide information about transactions viewed from the perspective of a
particular group of the entity's existing or potential investors, lenders or other creditors.

A reporting entity can be a single entity but cannot be a portion of an entity or those that comprise more
than one entity. A reporting entity is necessarily a legal entity in order for it to be recognized under the
provisions of the country it which it operates.

23. Interest income on current cost are recognized at current rates while interest income on historical
costs are at historical rates updated if the asset bears variable interest.

Interest income based on market-participant assumptions and entity- specific assumptions can be
identified separately.

24. Income or expenses may arise on the initial recognition of a liability incurred or taken or not on
market terms.

If a reporting entity comprises two or more entities that are all linked by a parent-subsidiary relationship,
the reporting entity's financial statements are referred to as " combined financial statements".

25. Rights that do not correspond to an obligation of another party includes rights over physical objects,
such as property,plant and equipment or inventories and rights to benefit from an obligation of another
party to transfer an economic resource if a specified uncertain future event occurs.
The enhancing qualitative characteristics have implications for the selection of a measurement basis.

26. A change in measurement basis can make financial statements less understandable. However, a
change may be justified if other factors outweigh the reduction in understandability.

An entity can have a right to obtain economic benefits from itself. Hence, debt instruments or equity
instruments issued by the entity and repurchased and held by it- for example, treasury shares- are
economic resources of that entity.

27. Income received is often equal to the consideration received but will depend on the measurement
basis used for any related liability.

Income or expenses may arise on the initial recognition of an asset not acquired on market terms.

28. A right cannot meet the definition of an economic resource, hence it can never be an asset when its
probability to produce economic benefits is low.

Impairment based on historical costs and current costs shall no longer be recoverable while for those
based on fair value and value in use shall reflected in income and expenses from changes in fair value
and value in use respectively.

29. According to the Conceptual Framework, there is a close association between incurring expenditures
and acquiring assets, hence the two should necessarily coincide.

Control includes the past, present and future ability to prevent others from directing the use of the
economic resources and from obtaining the economic benefits that may flow from it.

30. The obligation to transfer an economic resource is not a criterion for the recognition of a liability.

Valuation techniques, sometimes including the use f cash-flow-based measurement techniques, may be
needed to estimate fair value when it cannot be observed directly in an active market and are generally
needed when determining value in use and fulfilment value.

31. As a rule, a present obligation cannot exist even if a transfer of economic resources cannot be
enforced until some point in the future.

The framework shall exclude special-purpose report such as prospectuses and tax computation.

32. The immediate recognition of expense reflects conservatism and prudence.

An asset or liability cannot exist if the probability of an inflow or outflow of economic benefits is low.

33. Unlike current value, historical costs does not reflect changes in values, including those changes
related to impairment of an asset or a liability becoming onerous.
If there have been transactions between those related parties, an entity shall disclose the nature of the
related party relationship as well as information about the amount of transactions, outstanding
balances, provision for doubtful accounts and expenses recognized in the current year necessary for an
understanding of the potential effect of the relationship on the Financial Statements.

34. Related party transactions and outstanding balances are eliminated in the preparation of the
Consolidated Financial Statements.

Unlike historical costs, the current value of an asset or liability is derived, even in part, from the price of
the transaction or other event that gave rise to the asset or liability.

35. The goods sold on installment are included in the inventory of the seller and excluded from that of
the seller.

Non-adjusting events shall include changes in tax rates.

36. Profit or loss is the bottom line in the traditional income statement.

The periodic inventory procedure is commonly used where the inventory items treated individually
represent a relatively large peso investment such as jewelry and cars.

37. For inventory valuation, storage costs for goods in process are expensed but storage costs on finished
goods are capitalized.

Materiality is relativity and nature of an item.

38. Contingent asset is only disclosed when it is probable. If it is only possible or remote, no disclosure is
required.

Other Comprehensive income shall include unrealized gain/loss from derivative contracts designated as
cash flow hedge.

39. In the perpetual inventory system, cost of goods sold is determined as the amount of purchases less
the change in inventory.

Goods in transit which were purchased FOB Shipping Point is excluded in the inventory of the buyer and
included in the inventory of the seller.

40. Financial statements largely portrays the financial effects of past events and do not necessarily
provide nonfinancial information.

Biological Assets and agricultural produce at the point of harvest are accounted using PAS 2.

41. PAS 41 shall be used to account for the processing of grapes into wine.

Consumption of the asset is typically reported through cost of sales, depreciation or amortization.