Theory Of Accounts Accounting Standards Basic

FINANCIAL ACCOUNTING THEORY INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one answer for each item by writing a VERTICAL LINE corresponding to the letter of your choice on the answer sheet provided. STRICTLY NO ERASURES ALLOWED. Use Pencil No. 1 or No. 2 only. 1. The International Financial Reporting Interpretations Committee (IFRIC) issues interpretations as authoritative guidance. For which TWO of the following should IFRIC consider issuing an Interpretation? A. Narrow, industry-specific issues B. Newly identified financial reporting issues not specifically addressed in IFRSs C. Issues where unsatisfactory or conflicting interpretations have developed, or seem likely to develop D. Areas where members of the IASB cannot reach unanimous agreement a. A and B b. B and C c. B and D c. C and D 2. Are the following statements true or false? (1) The Norwalk Agreement outlines the commitment of the IASB and FASB towards harmonization of International and US Accounting Standards. (2) IOSCO does not require mandatory preparation of financial statements in accordance with IFRS. Statement (1) Statement (2) Statement (1) Statement (2) a. False False c. True False b. False True d. True True 3. According to the Preface to International Financial Reporting Standards, which TWO of the following are objectives of the IASB? A) To harmonize financial reporting between IFRS and US GAAP B) To promote the use and rigorous application of accounting standards C) To harmonize financial reporting within the European Union D) To work actively with national standard setters a. A and B b. B and C c. B and D d. A and D 4. The body established by the Financial Reporting Standards Council as its support group tasked to study and deliberate on controversial issues affecting Philippine accounting practice is a. Philippine Accounting Principles Committee b. Standing Interpretations Committee c. Philippine Interpretations Committee d. International Financial Reporting Standards Committee 5. Which of the following statements about international accounting standards is false? a. Legal and psychological hurdles to achieving common reporting standards will be fully overcome by the year 2010, the time frame set for convergence between IAS and US GAAP b. International standards are enforceable only in jurisdictions where the IFRSs are either permitted or required for reporting enterprises in order to allow for judgments regarding international investments. c. The IASB is able to enforce its standards through the local standard-setters of jurisdictions that have adopted the IFRSs for external reporting. . d. The International Accounting Standards Board (IASB) was established with the purpose of narrowing the range of divergence in accounting standards throughout the world. 6. Which of the following is an incorrect statement? a. An accounting information system is designed to collect data about each transaction and event that should be recorded by an entity during a reporting year. b. Posting is a transfer process which reclassifies chronological information into account classification format in the ledger. c. In recording transactions, an external transaction is more likely to be overlooked and not recorded than is an internal transaction. d. Preparation of reversing entries is optional, as a step in the accounting cycle. 7. All of the following reporting enterprises are required to adopt PAS 1, Presentation of Financial Statements except a. commercial enterprises c. banks and financial institutions b. insurance companies d. enterprises submitting interim reports to external users 8. Which of the following entities are required to apply the PFRS for SMEs in Philippine financial reporting? a. Exelsior Enterprises with total assets of P 347M and total liabilities of P 284 M

SET A

b. c. d. 9.

ABC Noverlty Shoppe with total assets of P 30 M and total liabilities of P5 M and submits financial statements to creditors, suppliers, and regulatory bodies. ABE Insurance Company with total assets of P 340 M and total liabilities of P 195 M Rural Bank of Capistrano, Tarlac, with total assets of P 300 M and total liabilities of P 120 M

Financial statements include a statement of financial position, a statement of cash flows, and a statement of changes in equity. Which of the following are also included as components of basic financial statements? a. A statement of comprehensive income and accounting policies b. An income statement and accounting policies c. A third balance sheet as of the beginning of the period and accounting policies d. A statement of cost of goods manufactured and a statement of retained earnings

10. According to the latest revision of PAS 1, which of the following situations will require a submission of a third balance sheet of a reporting entity as of the beginning of the earliest traceable accounting period? I. When an entity changes an accounting policy retrospectively II. When an entity reclassifies certain items in the financial statements III. When an entity makes a change in accounting estimate that has a material effect on current year’s operations a. I only b. I and II only c. II and III only d. I, II and III 11. For financial reporting in the Philippines, are the following statements true or false? I. Philippine practice is to present in the balance sheet current assets before non-current assets, current liabilities before non-current liabilities; and equity accounts before liabilities. II. Notes are normally presented in the following order: summary of significant accounting policies, statement of compliance with PRFSs; supporting information for item presented on the face of the FS; and lastly, other disclosures including contingent liabilities and non-financial disclosures a. I – true; II – false b. I – false; II – true c. I – true; II – true d. I – false; II – false 12. Which of the following statements about “other comprehensive income” section of the Statement of Comprehensive income (SOC) is /are false? I. The amount of revaluation surplus reported in the other comprehensive income section of the SOC must be the same as the amount of revaluation surplus ending balance in the general ledger II. Foreign exchange gains and losses arising from purchase of property and equipment should be reported under the other comprehensive income section of the SOC III. Unrealized gain or loss on change in value of Investment Property should be presented in other comprehensive income section of the SOC IV. Only the current year’s unrealized gain or loss on change in value of available for sale securities should be shown under other comprehensive income of the SOC. a. I and II only b. III and IV only c. I, II and III only d. I, II, III and IV 13. According to PAS 1, (2009) Presentation of Financial Statements, which of the following should be classified as extraordinary item in reporting results of operations? a. Gain resulting from the national government’s expropriation of a corporate property. b. Foreign exchange losses relating to appreciation of Japanese yen in relation to the Philippine peso. c. Losses resulting from the annual lahar flows within the Pampanga area d. None, all are ordinary gains and losses 14. Which of the following statements regarding “recognition” is [are] true? I. Recognition is the process of incorporating in the financial statements an item that meets the definition of an element. II. Recognition is the process of determining the amounts at which elements of the financial statements are to be recognized III. In accounting, the words “recognition” and “journalization” mean the same. a. I only b. III only c. I and III only d. I, II and III 15. Which of the following is an incorrect statement? a. An accounting information system is designed to collect data about each transaction and event that should be recorded by an entity during a reporting year. b. Posting is a transfer process which reclassifies chronological information into account classification format in the ledger. c. In recording transactions, an external transaction is more likely to be overlooked and not recorded than is an internal transaction. d. A trial balance is prepared after adjusting entries are recorded but before closing entries. 16. A corporation made the following entries: (1) Advertising expense 6,000 (3) Cost of Sales Cash 6,000 Merchandise Inventory (2) Accounts Payable 10,000 (4) Inventory Cash 10,000 Accounts payable 4,000 Which entry must have been made as a direct result of the matching principle? a. [1] b. [2] c. [3] d. [4]

SET A

5,000 5,000 4,000

17. Choose the correct statement about generally accepted accounting principles (GAAP): a. They are rigid laws . b. The Bureau of Internal Revenue enforces GAAP c. GAAP and tax principles are the same d. Firms that do not comply with GAAP may suffer negative economic consequences. 18. Which of the following statements about the concept of measurement or valuation in Accounting is (are) true I. Under current GAAP, as a general rule, the primary basis of measurement of assets upon acquisition is historical cost. II There are some instances when assets are initially measured on the basis of fair value III. The final valuation of assets and liabilities in the balance sheet are a mixture of costs and values IV. Under no circumstances is price-level accounting acceptable as an alternative measurement in accounting in present-day GAAP a. I and II only b. I, II and IV only c. I, II, and III only d. I, II, III and IV 19. Which of the following concepts of accounting income is incorrect? a. The comprehensive income concept allows the inclusion of unrealized holding gains and losses on available for sale securities and revaluation surplus in the computation of the net income or loss for the accounting period. b. The measurement of income is affected by the basis of accounting for revenue and expenses, that is, cash basis, modified cash or accrual basis. c. The statement of comprehensive income includes both realized and recognized gains and losses but not the effect of changes in accounting policies and prior period errors d. Under GAAP, the transactions approach is used to record revenues, expenses, gains and losses throughout the reporting period. 20. Are the following statements regarding the term 'profit' true or false? (1) Profit is any amount over and above that required to maintain the capital at the beginning of the period (2) Profit is the residual amount that remains after expenses have been deducted from profit. income. Statement (1) Statement (2) Statement (1) Statement (2) a. False False c. True False b. False True d. True True 21. Which of the following statements about financial statements is correct? a. They accurately measure the results of the stewardship of management for the resources entrusted to it by the capital providers. b. They are the primary responsibility of management and the external auditor after audit. c. PAS 1, Presentation of Financial Statements covers the overall considerations, contents and structure of basic financial statements for all businesses in their external and internal financial reporting requirements. d. They provide information about the financial position, performance and cash flows of an enterprise that is useful to a wide range of users in making economic decisions. 22. Which of the following is an internal user of a company’s financial information? a. An employee of the company c. Bank lending to the company b. The Vice President for Finance d. Union representative 23. A system of bookkeeping whereby transactions are cash book summarizing receipts and disbursements a. Double-entry system b. Single-entry system

not analyzed in terms of debits and credits. Only a is used. This is known as c. Accrual basis d. Hybrid basis

24. During 2009, a company collected P 92,000 as advance payment from customers. The bookkeeper credited sales revenue as the cash was received. The goods were delivered in 2010. No adjusting entry was made at the end of 2009 on the advance payment. The failure to adjust the books would cause a. Liabilities to be understated on December 31, 2010. b. Owner’s equity to be understated on December 31,2009 and on December 31, 2010 c. Assets to be overstated on December 31, 2009 d. Owner’s equity to be overstated on December 31, 2009. 25. Which of the following statements is incorrect? A. All of the accounts of a specific business enterprise are referred to as a ledger. B. Every adjusting entry affects both a balance sheet and an income statement C. Transactions often overlap accounting periods D. The fact that an expense is recognized on the income statement indicates that an equivalent outlay of cash has been made in the same period. 26. In the equation, “Assets + Expenses = Liabilities + Revenue + Capital”, the expenses and revenues are a. Contra asset and contra liability accounts, respectively, that assist analysis of the financial progress of the firm. b. Incorrectly stated because their signs are reversed’ i.e., both are contra items that should have negative

SET A

signs in the formula. Adjustments to capital that are postponed until the end of a specific accounting period to determine their net effect on capital for that period. d. Incorrectly included in the formula because “Assets = Liabilities + Capital” c.

27. According to the Conceptual Framework for the preparation and presentation of financial statements all of the following are examples of expenses except a. A decrease in the value of inventories due to sale b. A decrease in asset arising from distribution of assets to equity participants c. A decrease in asset because of benefit received in the current period d. A loss on the disposal of non-current asset 28. It is the bringing together of separate enterprises into one economic entity as a result of one enterprise uniting with or obtaining control over the net assets and operations of another enterprise. a. Business combination b. Merger c. Consolidation d. Intercorporate investment 29. What is the best cost accumulation procedure to use when many batches, each differing as to product specification, are produced? a. Job order b. Process c. Actual d. Standard\ 30.

Which of the following statements is true with regard to the accountant’s concept of Materiality? I. Materiality is the threshold of recognition as to what accountable events will be recorded in the journals. II. Materiality is the threshold of a decision as to what information is relevant to the face or body of the financial statements and what information is relevant to be presented in the notes thereof. III. Materiality judgments are based solely on the magnitude of the item Statement I Statement II Statement III a. true true true b. false false false c. false true false d. true true false

31. Which ONE of the following statements best describes the term 'financial position'? a. The net income and expenses of an entity b. The net of financial assets less liabilities of an entity c. The potential to contribute to the flow of cash and cash equivalents to the entity d. The assets, liabilities and equity of an entity 32. Which of the following statements about the qualitative characteristics is (are) true? I. Relevance is the capacity of information to make a difference in decision by helping users form predictions about outcome of past, present and future events or confirm /correct prior expectations. II. The quality of reliability assures readers that the financial information is free from bias and faithfully represents what it purports to show, including adequate disclosure of significant information. III. Under the IASB Framework for the Preparation and presentation of financial statements, conservatism is not a concept that is recognized as a qualitative objective. a. I and II only b. I and III only c. II and III only d. I, II and III 33. Which of the following statements about measurement in accounting is (are) true? I. All assets must be initially recognized at historical cost, but the final valuation can be a mixture of costs and other values. II. Current selling price and net realizable value differ conceptually III. According to PAS 29. Hyper-inflationary Economy, only non-monetary items are restated to current price – level amounts in the balance sheet using the national price index sourced from Central Bank of the Philippines a. Only I is true b. Only II is true c. II and III are true d. All statements are true 34. Which one of the following terms best describes the amount of cash or cash equivalents that could be currently obtained by selling an asset in an orderly disposal? a. Fair value b. Realizable value c. Residual value d. Value in use 35. Which of the following statements about accounting recognition is (are) true? I. In accounting, there are instances when a gain or a loss would arise upon initial recognition of an asset. II. No asset can simultaneously be an asset of more than one entity III At times, two or more entities may share the benefits that an asset provides IV. An appropriate basis for recognizing an asset is when a particular enterprise acquires the right to utilize and control access to the asset’s benefits a. I and II only b. I and IV only c. I, II and III only d. I, II, III, IV 36. The following statements relate to liabilities. Which statement is (are) true? I. Liabilities may be measured by estimates of a definitive character when the amount of the

SET A

liability cannot be measured precisely II. All monetary liabilities should be stated in the balance sheet at their present (discounted) values III. Under current GAAP, there are instances when a decrease in liability is matched with an increase in revenue. a. I and III only b. II and III only c. I and III only d. I, II and III 37. Which of the following statements about Equity is (are) correct? I. Since equity is the excess of assets over liabilities, equity cannot be measured separately from the other elements of the financial position. II. Equity has no specific maturity date except upon liquidation. III. Income-related transactions as well as “reserve” transactions such as revaluation surplus and unrealized holding gains and losses automatically affect equity. IV. Under rare or extraordinary circumstances, a gain or loss may be recognized by an entity on transactions with its owner/s a. I and II only b. I and IV only c. I, II and III only d. I, II, III and IV 38.

According to PAS 1 – Presentation of FS, an asset should be classified as current when I. It is expected to be realized or held for sale or consumption in the normal course of the enterprise’s operating cycle. II. It is held primarily for trading purposes or for the short-term and expected to be realized within twelve months of the balance sheet date or the operating cycle, whichever is longer. III. It is cash or a cash equivalent asset which is not restricted in use. a. I, II and III b. I and II only c. I and III only d. III only

39. According to PAS 1 - Presentation of Financial Statements, which of the following is not among the criteria in classifying a liability as a current ? a. Expected to be settled in the entity’s normal operating cycle. b. Due to be settled within twelve months after the balance sheet date. c. The entity has an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date d. It is held primarily for the purpose of being traded 40.

When an entity breaches an undertaking under a long-term loan agreement, on or before balance sheet date, such liability continues to be classified as non-current if the lender has agreed a. after balance sheet date, before the FS are authorized for issue, not to demand payment b. before balance sheet date, before the FS are authorized for issue, not to demand payment c. by the balance sheet date, before the FS are authorized for issue, to provide a grace period of at least twelve months after the balance sheet date d. after the balance sheet date, before the FS are authorized for issue, to provide a grace period of at least twelve months after the balance sheet date

41.

Which of the following accounting concepts states that before a transaction is recorded, sufficient evidence must exist to allow two or more knowledgeable individuals to reach essentially the same conclusion about the transaction? a. Continuity assumption c. Cost principle b. Separate entity assumption d. Reliability quality

42. The recognition of periodic depreciation expense on company-owned automobiles requires estimating both salvage or residual value, and the useful life of the vehicles. The use of estimates in this case is an example of: a. Conservatism b. Maintaining consistency c. Invoking materiality rather than cost-benefit constraint d. Providing relevant data at the expense of reliability 43. Which is incorrect concerning the qualitative characteristics of financial statements? a. To achieve the quality of understandability, users are assumed to have a reasonable knowledge of business and economic activities and accounting, and a willingness to study the information with reasonable diligence b. Information has the quality of relevance when it influences the economic decisions of users by helping them evaluate past, present or future events or confirming or correcting their past evaluations c. The need for comparability dictates that the seasonality nature of the activities of an entity be disclosed in interim financial statements. d. When information that are a result of related party transactions are shown in the financial statements and described as such, these financial statements lose their reliability. 44. Which of the following statements pertaining to PAS 7, Statement of Cash Flows is (are) true? I. In a statement of cash flows using the indirect approach for operating activities an increase in inventories should be presented as a deduction from net income. II. In a Statement of Cash Flows, banks and financial institutions are allowed to report their receipts and disbursement transactions at net, III. Non – cash financing and investing activities need not be reported in the financial statements.

SET A

IV.

When records are kept under the cash basis, the net cash inflows (outflows) from operating activities in the Cash Flows Statements will be equal to the net income (loss) in the Income Statement. a. I and II only b. I, III, and IV only c. I II and IV only d . I, II, III, and IV 45.

A parent is not required to present consolidated financial statements a. When the parent is wholly owned subsidiary. b. When the parent is virtually wholly owned provided parent does not obtain the approval of the owners of the minority interest. c. When the parent and the subsidiary are engaged in dissimilar activities. d. When there is a three-month time lag in the fiscal periods of the parent and its subsidiary.

46. When applying the provisions of PAS 18, Revenue , which of the following is not among the situations in which an enterprise may retain the significant risks and rewards of ownership on the goods? a. When the receipt of revenue from a particular sale is contingent on the derivation of revenue by the buyer from its sale of goods. b. When the enterprise retains an obligation for unsatisfactory performance covered by normal warranty provisions. c. When the goods are shipped subject to installation and is a significant part of the contract which has not yet been completed by the enterprise. d. When the buyer has the right to rescind the purchase for a reason specified in the sales contract and the enterprise is uncertain about the possibility of return. 47. Revenue may, under proper circumstances, be recognized in which of the following circumstances? a. When goods marked at 150 percent gross margin on cost are delivered to the consignee b. When an entity’s loan from government is forgiven c. When at least fifty percent of the selling price is received in a “lay-away sale” d. When accounts receivable are assigned on a with recourse basis 48. Which of the following involves recognizing an expense? a. A machinery is used in the production of goods for sale b. A delivery truck is used in complying with the company’s sales policy of FOB Destination c. A sales discount is granted to customer who pays within the discount period d. Previously unrecorded wages are paid to laborers engaged in constructing a building for a company’s own use 49. Are the following statements true or false, according to PAS 2, Inventories ? [1] Cost of factory management should be included in the cost of inventory [2] At the end of each accounting period, the value of inventory is adjusted for increases and decreases in net realizable values Statement (1) Statement (2) Statement [1] Statement [2] a. false false c. true false b. false true d. true true 50. The following statements, are applications of the basic features of financial accounting except a. A parent corporation and its subsidiaries are treated as a single enterprise b. The basic financial statements contain the same underlying data and made use of the same measurement rules, and are therefore fundamentally related c. Estimates used in accounting are based on informed judgment. d. Financial statements are prepared at periodic intervals of time of equal length 51. The accounting concept of matching is best demonstrated by a. Recognizing prepaid rent received as revenue b. Not recognizing any expense unless some revenue is realized c. Establishing an allowance for possible market declines in inventory value d. Recognizing ending inventory in the computation of the cost of sales to be deducted from Sales 52. During the year to December 31, 2010 the following events occurred in relation to Sancho Company. (1) A counting error relating to the inventory at 31 December 2009 was discovered. This required a reduction in the carrying amount of inventory at that date of P 28,000. (2) The provision for uncollectible receivables at 31 December 2009 was P 30,000. During 2010 P 50,000 was written off the 31 December 2009 receivables. According to PAS 8 Accounting policies, changes in accounting estimates and errors, what adjustment is required to restate Sancho's retained earnings at 31 December 2009? a. 0 b. P 28,000 c. P 30,000 d. P 58,000 53. Which one of the following changes in accounting policy may be accounted for prospectively? a. Arlene Company changed from FIFO to Weighted Average method of inventory valuation because management deemed it more appropriate in the circumstances.

SET A

b. Cecile Inc., after complying with the requirements of PAS 16 changed the valuation of its property and equipment from cost basis to revalued amounts c. Rachelle Corporation changed from cash basis to accrual basis of accounting for revenue and expenses and has decided that it is impracticable to compute the cumulative effect of the change in accounting policy. d. Anthony Enterprise changed from expensing to capitalizing borrowing costs as allowed by an accounting standard. 54. Lino Company is facing a lawsuit filed in November 2010 which remain unsettled at balance sheet date. Company lawyers believe that there is a probability that Lino will lose in lawsuit, but the amount can not as yet be determined. The lawyers opined that the amount of loss can be in the range of P 4.00 to P 4,000,000, How much provision for loss should management set up in its December 31 2010 balance sheet? a. P 4,000,000 b. P 2,000,002 c. P 2 d. P 0 55. Mikey Inc. is facing a lawsuit for product liability damages which remains unsettled on balance sheet date, December 31, 2010. Company lawyers estimate a probable loss amounting to P 1,000,000. Mikey’s insurance adjuster however, has opined that recovery from the insurance company amounting to P 700,000 is virtually certain. Under PAS 37, how should these situations be presented in the financial statements, Dec. 31,2010? a. Contingent Loss of P1,000,000; Contingent Liability of P 1,000,000 b. Loss, net of gain, P300,000; Liability, net of Asset of P 300,000 c. Loss, net of gain, P 300,000; Asset, P 700,000; Liability, P 1,000,000 d. Loss, P 1.000,000; Liability, P1,000,000; Contingent Asset, P 700,000; Contingent Liability, P1,000,000 56. Which of the following statements is (are) true? I. A legal obligation is one that arises only from legislation II. When an enterprise, by an established pattern of past practice, or a sufficiently specific current statement has indicated to other parties that it will accept certain responsibilities, it incurs a constructive obligation III. A contingent asset should be recognized in the books of account if it is probable that economic resources will flow to the enterprise. a. Only I is true b. Only II is true c. I and II are true d. II and III are true 57. Garcia Corporation is in the process of preparing a single period statement. Which of the following should be reflected as an adjustment to the opening balance of retained earnings? a. Effect of a decrease in the estimated useful life of depreciable equipment b. Effect of a change from 5% to 10% estimated rate for uncollectible accounts c. Cumulative effect of change from accelerated method to straight-line depreciation d. Cumulative effect of change of inventory valuation from FIFO method to Weighted Average method method. 58. Which of the following situations will require disclosure as a related party? a. In consolidated financial statements in respect to intra-group transactions b. In related party relationships where control exists, irrespective of whether there have been transactions between related parties c. In financial statements of state-controlled enterprises of transactions with other state-controlled enterprises d. In parent financial statements when they are made available or published with the consolidated financial statements 59. Disclosure of related-party transactions is required by GAAP because a. They do not commonly occur in the normal course of business b. They cannot be presumed to be carried out on an arms-length basis and thus, the enterprise’s Financial statements are not complete and reliable without such disclosures c. They usually have a greater material effect on financial statements than transactions between unrelated parties. d. They usually involve irregularities 60. On October 1, 2009, Bona Company contracted to buy foreign goods requiring payment in dollars one month after their receipt at Nova’s factory. Title to the goods passed on December 28, 2009. The goods were still in transit on December 31, 2009. Exchange rates of the peso to the dollar were P 68. P 76, and P 80 on Oct. 1, Dec. 28, and Dec. 31, respectively. According to PAS 1, Nova should account for the exchange rate fluctuation in 2009 as a. A loss included in net income from operating activities b. A loss included in net income after operating activities but before net income from ordinary activities c. An extraordinary loss d. A gain included in net income after operating activities but before net income from ordinary activities. 61. Which of the following statements regarding Cash and Cash equivalents is false? a. Not all items included in cash constitute legal tender

SET A

b. Cash should be valued at fair value c. Compensating cash balance that are legally restricted for the payment of a current liability can be shown as part of Cash and Cash Equivalent provided the restriction is disclosed. d. If a bank or financial institution holding funds of a reporting entity is in bankruptcy or financial difficulty such cash should be written down to estimated realizable value if the amount is lower than face value, 62. Alice Company assigned its receivable to MC Bank on a without-recourse basis. Control was surrendered in the transaction to MC Bank. Alice received cash as a result of the transaction, which is best described as a. Loan from MC Bank collateralized by Alice’s accounts receivable b. Loan from MC Bank to be repaid by the proceeds from Alice’s accounts receivable c. Sale of Alice’s accounts receivable to Joy, with the risk of uncollectible accounts retained by MC Bank. d. Sale of Alice’s accounts receivable to Joy, with the risk of uncollectible accounts transferred to MC Bank 63. When a specific customer’s account is written off by a company using the allowance method, the effect on net income and the net realizable value []NRV] of the accounts receivable is Net income NRV of Accounts Receivable Net Income NRV of Accounts Receivable a. None None c. Increase Increase b. Decrease Decrease d. Decrease None 64. According to PAS 41 – Agriculture, biological assets and agricultural produce held for regular sale should be valued at a. Cost , at initial recognition and Fair Value less point of sale cost at balance sheet date b. Fair value less point-of-sale costs both at initial recognition and at balance sheet date. c. Cost less accumulated amortization at initial recognition and at balance sheet date d. Fair value less point of sale costs at initial valuation and cost less accumulated amortization at balance sheet date 65. When fair value is used in the measurement of assets in the financial statements, current GAAP provides the following references as basis of fair value except a. Price in an active market b. Price in a more recent transaction c. Price based on the assessed value of governmental bodies d. Price taken from industry or sector benchmarks 66. Inventory estimates will be required for the following except a. when interim financial statements are prepared b. when inventory is destroyed by typhoon or lahar flow c. as proof of reasonable accuracy of the physical inventory d. in the determination of the ending inventory to be shown on the balance sheet at year end. 67. According to PAS 2 – Inventories, . which of the following will be included in the computation of the cost ratio when estimating inventories by the average retail method? a. Purchase returns b. Mark-up, net c. Mark-down, net d. All of these 68. The following assets are recognized upon initial measurement on the basis of fair value rather than historical cost except a. Investment property c. Held-for-trading securities b. Biological asset d. Non-monetary asset received through government grant 69. The amortization of premium over the life of the bond is an adjustment of interest income in the investor’s books a. Up b. Down c. Steady d. Cannot be determined 70. Which of the following gains and losses should be taken to profit and loss? I. Unrealized gain or loss on change in value of available-for-sale securities II . Unrealized gain or loss on initial recognition of biological asset III. Gain or loss on conversion of Investment Property to Inventories IV. Unrealized gain or loss on change in value of trading securities a. I and II only b. I, II and IV only c. II, III and IV only d. I, II, III and IV 71. Alps Co. received a cash dividend from a common stock investment. Should Alps report an increase in the investment account if it has classified the stock as available-for-sale or uses the equity method of accounting Available for sale Equity method instrument Available for sale Equity method instrument a. No No c. Yes No b. Yes Yes d. No Yes 72. According to PAS 28, which of the following will not fall under the situation of “ existence of significant influence by an investor in the financial and operating policy decisions of the investee but not control of these decisions” a. Participation in policy making process b. Material intercompany transactions

SET A

c.

Power to govern the financial and operating policy decisions of an enterprise so as to obtain benefits from its activities d. Technological dependency 73. According to PAS 39, which of the following is not among the criteria for a financial asset or liability to be classified as “held for trading”? a. It is a derivative b. It is acquired or incurred principally for the purpose of selling or repurchasing it in the near term. c. It is a derivative that is a designated and effective hedging instrument d. It is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. 74. According to PAS 16 – PPE 2005, which of the following statements about exchanges of property and equipment is (are) true? I. The cost of a property item acquired in a dissimilar asset exchange is measured at the fair value of the asset received adjusted by the amount of any cash or cash equivalents transferred. II. No gain nor loss should be recognized in exchanges of assets with no commercial value III. Asset restoration and dismantling costs to be incurred in the future according to the terms of a contract should be capitalized at present value to the asset cost upon initial recording of the asset a. Only I is true c. II and III are true b. I and II are true d. All statements are true 75.

Which of the following statement(s) regarding property and equipment is (are) false? I. When the carrying amount of a depreciable asset equals its scrap value, there is zero depreciation for that particular accounting period. II. Start-up and similar pre-production costs are components of the cost of property and equipment III. If a component of a property item has a useful life which is different from that of the property item to which it relates, it should be depreciated as a separate asset. a. Only statement I is false c. Statements I and II are false b. Only statement II is false d. All statements are false

76. Depreciation is computed on the original cost without deducting the estimated salvage value under which of the following depreciation methods? Double-Declining Balance Productive-Output Double-Declining Balance Productive Output a. No No c. Yes Yes b. No Yes d. Yes No 77. Which of the following statements is the assumption on which straight-line depreciation is based? a. The operating efficiency of the asset decreases in later years b. Service value declines as a function of time rather than use c. Service value declines as a function of obsolescence rather than time d. Physical wear and tear are more important than economic obsolescence. 78. When the carrying amount of a revalued asset is decreased as a result of a revaluation, the decrease should be charged to a. Expense c. Retained Earnings b. Revaluation surplus d. Revaluation surplus first,. If any, then, remaining balance, to expense 79. Which of the following expenditures subsequent to acquisition cannot be added to the carrying amount of the asset? a. Costs of modification of a machinery that will increase its capacity b. Cost of upgrading machine parts to achieve substantial improvements in quality of output c. Cost of extensive repairs on a building that did not increase its useful life. d . Costs of adopting new production processes that enabled substantial reduction in operating costs 80. According to PAS 1, Presentation of FS, which of the following is[are] true? I. A statement comprehensive income may be reported either as one statement or two separate statements II. All of the contents in the statement of comprehensive income is closed to Income and Expense summary III. When an entity changes an accounting policy as allowed in PAS 8, it shall prepare a “third balance sheet” of the earliest traceable period a. I only b. II only c. I and II only d. I, II and III 81. Which of the following statements is (are) true regarding impairment of assets? I. An impairment loss should be recognized both for an individual asset or for a cash-generating unit if, and only if, its recoverable amount is less than its carrying amount. II. The impairment loss should be allocated, first, to corporate assets, then allocated to the individual assets comprising the cash-generating unit, on a pro-rata basis based on their carrying amounts, and then to goodwill. III. To ensure uniformity of practice, the formula used in computing impairment loss is the same for all assets.

SET A

IV.

The increased carrying amount of an asset due to a reversal of an impairment loss should not exceed the carrying amount that would have been determined, had no impairment loss been recognized in prior year a. I and II only b. I and IV only c. I III and IV only d. I, II, III and IV

82. Which of the following should be amortized over the periods of estimated benefit? a. Development costs that resulted in a successful product for commercial sale b. Goodwill arising from the purchase of an existing business c. Costs incurred in organizing a corporation d. Legal cost in successful defense of a patent infringement suit. 83. Diamante Corporation is developing a new production process. During 2010, P100,000, was incurred, of which P 70,000 was incurred before September 1, 2010 and P 30,000 was incurred between October 1 and December 31, 2010. The enterprise is able to demonstrate that on September 1, 2010, the production process met the criteria for recognition as an intangible asset. During 2011, expenditures incurred by Diamante on the development process amounted to P 60,000. At the end of 2011 the recoverable amount of the know-how embodied in the process (including future cash outflows to complete the process before it is available for use) is estimated to be P 87,000. The amount of impairment loss to be shown in the 2011 income statement is a. P 57,000 b. P 27,000 c. P 3,000 d. Zero 84. When an owner-occupied property is transferred to investment property at fair value, a decrease in the carrying amount of the property to its fair value at the date of transfer a. Is recognized in profit and loss, or, for a revalued property, charged against revaluation surplus to the extent of its credit balance b. Is recognized in profit and loss at all times c. Is absorbed by Retained Earnings, but only if the property is accounted for under the Revaluation Model d. Is carried directly to Equity 85. Citadel Corporation owns an office building along Makati Avenue. The first and second floor are occupied by Citadel as Head Office, but an insignificant space in the first floor is being rented out to a watch repairer. The third up to the tenth floor are occupied by a third party under an operating lease. What is the proper accounting treatment for this in Citadel’s financial statements? a. The first and second floors are reported as Property and Equipment; third to tenth floors are reported as Investment Property. b. The major portion of the first floor and the entire second floor is reported as Property and Equipment while a small portion of the first floor reported as Investment Property. The rest of the floors are are reported as Investment Property c. The entire building is reported as Investment Property d. The entire building is reported as Property and Equipment 86. Which of the following statements about PFRS 5, non-current assets held for sale and discontinued operations is (are) true? I. In order for a non-current asset to be classified as held for sale, the sale must be probable, which means that the future sale is likely to occur. II. Assets designated as held for sale should not be depreciated III. An entity should classify a segment as “discontinued operations” at the date the operation meets the criteria to be classified as held for sale or when the entity has disposed of the operation IV. Assets classified as held for sale are carried at lower of carrying amount or fair value less cost to sell a. I and III only b. II and III only c. II, III and IV d. I, II, III and IV 87. If the payment of employees’ compensation for future absences is probable, the amount can be reasonably estimated and the obligation relates to rights that vest or accumulate, the compensation should be a. Accrued if attributable to employees’ services not yet rendered b. Accrued if attributable to employees’ services already rendered c. Accrued if attributable to employees services whether already rendered or not d. Recognized when paid 88. How would the declaration and subsequent issuance of a 30% stock dividend by the issuer affect each of the following the market value of the share exceeds the par value of the stock? Common Stock Additional paid-in capital Retained Earnings Stockholders’ Equity a. No effect No effect No effect No effect b. No effect Increase Decrease No effect c. Increase No effect Decrease Decrease d. Increase No effect Decrease No effect 89. How would a stock split affect each of the following? Asset Total stockholders’ equity Additional paid in capital a. Increase Increase No effect b. No effect No effect No effect c. No effect No effect Increase d. Decrease Decrease Decrease

SET A

90. Araya Commercial obtained an interest-free loan of P 500,000 and a cash grant of P 400,000 from the City of Albay. The cash grant is a partial subsidy for the annual salary of five of its employees for the year 2008 . How should Araya Commercial account for these events? a. Only the cash grant should be taken to Equity, as additional paid-in capital b. Only the cash grant should be recognized as income c. Both the cash grant and the interest-free loan should be taken to Equity, as additional paid-in capital d. Both the cash grant and the interest-free loan should be recognized as income 91. If annual major repairs made in the second quarter and paid for in the third quarter clearly benefit the rest of the year, when should the repairs be recognized? a. An allocated portion in each of the last three quarters c. In full in the second quarter b. An allocated portion in each quarter of the year d. In full in the last quarter 92. Exchange differences arising from translation of financial statements of a foreign entity should be accounted for as a. Accumulated translation adjustment as a component of stockholders equity b. Accumulated translation adjustment as a component of net income c. Loss on foreign exchange as a component of net income d. Retained earnings 93. VCSS Company’s four business segments have revenues and identifiable assets expressed as percentage of VCSS’s total revenues and total assets as follows: Revenue Assets Aphat 64% 66% Err 14% 18% Rham 14% 4% Sam 8% 12% 100% 100% 94. Which of these business segments are deemed to be reportable segments? a. Aphat only c. Aphat, Err and Rham only b. Aphat and Err only d. Aphat, Err, Rham and Sam 95. Which of the following statements is true? a. Temporary differences occur because accounting standards and income tax laws differ as to when they recognize assets, liabilities, owners’ equity, revenues, gains, expenses and losses b. The term “future taxable amount” relates to a deferred tax asset c. “Future taxable amounts” include revenues and gains that are included in the tax return before they are recognized for accounting purposes. d. “Future deductible amounts” include expenses and losses that are included in the tax return before they are recognized for accounting purposes. 96. The Citri Company’s financial year end was October 31, 2009. Between the date on which the financial statements for this year were completed and the date on which they were due to be authorized for issue a number of events took place. Which TWO of the following four events should be classified as nonadjusting events requiring disclosure only? [1] The Citri Company announced the discontinuation of an assembly operation [2] The Citri Company entered into an agreement to purchase the freehold of its currently leased office buildings [3] The Citri Company received P 150,000 in respect of an insurance claim measured in the October 31 2009 financial statements at P 90,000. [4] A mistake was discovered in the calculation of the allowance for uncollectible trade receivables leading to it being understated by P 220,000 in the October 31, 2009 financial statements a. (1) and (2) b. (3) and (4) c. (1) and (3) d. (2) and (3) 97. In January 2009, Kris Co. made long-term improvements to a recently leased building. The lease agreement provides for neither a transfer of title to Kris nor a bargain purchase option. The present value of the minimum lease payments is not a substantial portion of the building’s market value, and the lease term is half of the building’s economic life. Should assets be recognized for the building and the leasehold improvements? Building Leasehold improvements Building Leasehold Improvements a. Yes Yes c. Yes No b. No Yes d. No No 98. In a a. b. c. d.

lease that is recorded as a sales-type lease by the lessor, interest revenue Should be recognized in full as revenue at the lease’s inception. Should be recognized over the period of the lease using the straight-line method. Should be recognized over the period of the lease using the interest method. Does not arise.

99. Which one of the following is not one of the six components of pension expense (or part of it?) a. Amortization of unrecognized gain or loss

SET A

b. Initial transition asset c. Actual return on plan assets d. Growth (interest cost) in pension obligation since the beginning of the period 100. With respect to the computation of earnings per share, which of the following would be most indicative of a simple capital structure? a. Common stock, preferred stock, and convertible securities outstanding b. Earnings derived from one primary line of the business c. Ownership interests consisting solely common stock d. Equity represented materially by liquid assets. Good luck and God bless you!

SET A