VALUCON – Valuation and Concepts - Quiz 1

QUIZ 1 VALUCON – Valuation and Concepts June 14, 2024 Instructions: 1. On a separate answer sheet, shade the letter of your answer. DO NOT WRITE ANYTHING ON THE TEST QUESTIONNAIRE. 2. Use permanent ink only when encircling the letter of your final answer. 3. Avoid erasures, it will invalidate your answer. 4. Follow specific instructions for each section of the exam. PART I – TRUE OR FALSE: Shade A if the statement is TRUE, and shade B if the statement is FALSE. 1. The Conceptual Framework may be revised from time to time. Revisions in the Conceptual Framework automatically result to changes in the Standards. 2. According to the revised Conceptual Framework, the asset is the right, while the liability is the obligation, rather than the ultimate inflows or outflows of economic benefits resulting from the asset or liability. 3. Legal enforceability of a right, for example ownership, is necessary for control over an economic resource to exist. 4. According to the revised Conceptual Framework, an asset can exist even if the probability that it will provide inflows of future economic benefits is low, and even if the asset is subject to a high measurement uncertainty. 5. The Conceptual Framework defines income and expenses in terms of changes in assets and liabilities. 6. According to the revised Conceptual Framework, what the entity controls is the right, and not the ultimate inflows of future economic benefits that the economic resource may produce. 7. Not all items that meet the definition of a financial statement element are recognized; they are recognized only if recognizing them will also result in relevant and faithfully represented information. 8. Measuring an asset at historical cost will always result in the same carrying amount of the asset from period to period. 9. According to the Conceptual Framework, amortized cost measurement relates to historical cost, rather than current value. 10. Although the use of a single measurement basis improves the understandability of the financial statements, this may not always lead to useful information. Thus, the Standards require different measurement bases for different assets, liabilities, income and expenses 11. PAS 1 encourages, but does not require, the disclosure of an entity's domicile and legal form, its country of incorporation and the address of its registered office and a description of the nature of its operations and its principal activities. 12. An entity may omit the notes when presenting general purpose financial statements. 13. PAS 1 prescribes an order or format of presenting items in the financial statements. 14. According to PAS 1, the line item "Cash and cash equivalents" should always be presented first in the statement of financial position. 15. According to PAS 1, PFRSs apply to financial statements as well as to other information presented in an annual report, a regulatory filing, or another document. 16. Value pertains to how much a particular object is worth to a particular set of eyes. 17. Methods to value for real estate may be different on how to value an entire business. 18. Businesses treat capital as a scarce resource that they should compete to obtain and efficiently manage. 19. Valuation includes the use of forecasts to come up with reasonable estimate of value of an entity's assets or its equity. 20. Valuation techniques may differ across different assets, but all follows similar fundamental principles that drives the core of these principles that drives the core of these approaches. PART II – MULTIPLE CHOICE THEORIES: Shade the letter that corresponds to the best answer. 21. The Conceptual Framework is least applicable in which of the following cases? a. to account for a transaction that is specifically dealt with by a Standard b. in resolving issues not addressed directly by a Standard c. in developing Standards d. in analyzing and interpreting Standards 22. General purpose financial statements are designed to a. meet all the information needs of the primary users. b. meet all of the common needs of all primary users. c. meet most of the common needs of most primary users. d. meet none of the needs of users of financial information. 23. These are users of financial information who are not in a position to require a reporting entity to prepare reports tailored to their particular information needs. a. Primary users c. Heavy users b. Secondary users d. Slight users 24. Which of the following is not one of the primary users listed in the Conceptual Framework? a. Investors c. Creditors b. Lenders d. Debtors Valuation and Concepts Third Term, A.Y. 2023 - 2024 Quiz 1 John Miller E. Gubot 1 of 3 25. Which of the following would least likely to need general purpose financial statements in making economic decisions? a. Stockholders c. Management b. Potential investors d. Lenders 26. Which of the following is not a factor to consider when applying the qualitative characteristics? a. The information must be both relevant and faithfully represented for it to be useful. b. The enhancing qualitative characteristics only enhance the usefulness of information but cannot make irrelevant information or erroneous information to be useful. c. Sometimes, it may be necessary to make trade-offs between the qualitative characteristics in order to provide useful information. d. To be useful, information need only to meet one, but not necessarily all, of the qualitative characteristics. 27. Which of the following is an example of a qualitative factor used in making materiality judgments? a. 10% of total revenues b. 2.5% of total assets c. PHP 25,000 or more d. The context of an item in relation to a current crisis in the banking and insurance industry. 28. According to the Conceptual Framework, this information provides a direct indication of how well management has discharged its responsibilities to make efficient and effective use of the reporting entity's resources a. the changes in the reporting entity's economic resources and claims to those resources. b. the return that the entity has produced from its economic resources. c. the level of the entity's economic resources in relation to the claims thereof. d. the entity's liquidity and solvency. 29. Which of the following statements about the concepts in the Conceptual Framework is least accurate? a. General purpose financial reports are intended to meet equally the needs of all types of external users. b. A low probability of expected inflows or outflows of economic benefits resulting from an asset or liability may affect the recognition of that asset or liability, but not necessarily its existence. c. A high level of measurement uncertainty associated with an asset or liability can affect the faithful representation of that asset or liability, but not necessarily its relevance. d. Recognition means including an item in the totals of the financial statements when that item meets the definition of a financial statement element and recognizing it would result in useful information. 30. According to the revised Conceptual Framework, the degree of uncertainty in the expected inflows or outflows of economic benefits from an asset or liability or the degree of measurement uncertainty associated with that asset or liability a. does not necessarily affect the conclusion that an asset or a liability exists, although it may affect recognition decisions about the asset or liability. b. greatly affects the conclusion that an asset or a liability exists if the expectation of inflows or outflows is low or the measurement uncertainty is high. c. may not always affect the conclusion that an asset or a liability exists but will most certainly result to the non- recognition of an asset or liability if the expectation of inflows or outflows is low or the measurement uncertainty is high. d. is irrelevant, both in determining the existence of an asset or a liability and in making recognition decisions about that asset or liability. 31. Which of the following statements is not an objective of financial reporting? a. Provide information that is useful in investment and credit decisions. b. Provide information about enterprise resources, claims to those resources, and changes to them. c. Provide information on the liquidation value of an enterprise. d. Provide information that is useful in assessing cash flow prospects. 32. One objective of financial reporting is to provide a. information about the investors in the business entity. b. information about the liquidation values of the resources held by the enterprise. c. information that is useful in assessing cash flow prospects. d. information that will attract new investors. 33. Accrual accounting is used because a. cash flows are considered less important. b. it provides a better indication of ability to generate cash flows than the cash basis. c. it recognizes revenues when cash is received and expenses when cash is paid. d. none of the above. 34. The process of identifying, measuring, analyzing, and communicating financial information needed by management to plan, evaluate, and control an organization’s operations is called a. financial accounting. c. tax accounting. b. managerial accounting. d. auditing. Valuation and Concepts Third Term, A.Y. 2023 - 2024 Quiz 1 John Miller E. Gubot 2 of 3 35. All the following are differences between financial and managerial accounting in how accounting information is used except to a. plan and control company's operations. b. decide whether to invest in the company. c. evaluate borrowing capacity to determine the extent of a loan to grant. d. all the above. 36. Which of the following represents a form of communication through financial reporting but not through financial statements? a. Balance sheet. c. Income statement. b. President's letter. d. Notes to financial statements. 37. Entity A reclassifies a gain that was previously recognized in other comprehensive income to the current period's profit or loss. According to PAS 1, how should Entity A present the reclassification adjustment in other comprehensive income section of the statement of comprehensive income? a. as an addition. c. only net of tax. b. as a deduction. d. none of these. 38. Which of the following is a current liability? a. Deferred tax liability. b. An obligation for which the entity has an unconditional right to defer. c. A long-term obligation that becomes payable on demand because a breach of loan agreement but the lender agrees before the balance sheet date to provide a grace period for the lender to rectify the breach. d. An obligation for which the entity has a conditional right defer. 39. When making materiality judgments, the overriding Consideration is a. the ability of the item being judged to influence users decisions. b. the size of the impact of the item being judged. c. the characteristics of the item being judged. d. the size of the impact and the characteristics of the item being judged. 40. Which of the following enhances the comparability of information? a. Making unlike things look alike. b. Making like things look different. c. Using different methods to account for similar transactions from period to period. d. Consistent application of accounting policies from period to period. For additional 5 points, write an open letter of feedback to your professor on the space provided below. Be as honest as you can be. -- NOTHING FOLLOWS -- Valuation and Concepts Third Term, A.Y. 2023 - 2024 Quiz 1 John Miller E. Gubot 3 of 3