Theory of Account BOA

THEORY OF ACCOUNTS

ACCOUNTING PROCESS

1. Which of the following statements is true regarding debits and credits?a. In the income statement, debits are used to increase account balances whereas in the

statement of financial position, credits are used to increase account balances.b. Before adjustments, debits will not equal credits in the trial balance.c. The rules for debit and credit and the normal balance of share capital are the same for

liabilities.d. In the income statement, revenue is increased by a debit whereas in the statement of

financial position retained earnings account is increased by a credit.

2. The trial balancea. Is a listing of all the accounts and their balances in the order the accounts appear in the

statement of financial position.b. Has as its primary purpose to prove that all journal entries were made for the period.c. Can be used to uncover errors in journalizing and posting.d. Is used to prepare the statement of financial position while the general ledger is used to

prepare the income statement.

3. Which of the following statements is false regarding adjusting entries?a. Cash is neither debited nor credited as a result of adjusting entries.b. Each adjusting entry affects one statement of financial position account and one income

statement account.c. Each adjusting entry affects one revenue account and one expense account.d. Adjusting entries involve accruals or deferrals.

4. Which of the following statements is false?a. Entities can prepare the income statement and the statement of financial position directly

from the adjusted trial balance.b. Entities can prepare the statement of cash flows directly from the adjusted trial balance.c. The adjusted trial balance proves the equality of total debits and total credits after all

adjustments.d. Each adjusting entry affects one statement of financial position account and one income

statement account.

5. Which of the following statements regarding reversing entries is incorrect?a. Deferrals are generally entered in statement of financial position accounts, thus making

reversing entries unnecessary.b. All accruals should be reversed.c. Adjusting entries for depreciation and bad debts are never reversed.d. Reversing entries change amounts reported in the statement of financial position for the

previous period.

ANSWER

1. C

2. C

3. C

4. B

5. D

Classified - Confidential

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CONCEPTUAL FRAMEWORK

6. Which of the following is not a benefit associated with the Conceptual Framework?a. A conceptual framework should increase financial statement users' understanding and

confidence in financial reporting.b. Practical problems should be more quickly solvable by reference to an existing conceptual

framework.c. A coherent set of accounting standards and rules should result.d. Business entities will need far less assistance from accountants because the financial

reporting process will be quite easy to apply.

7. Which of the following is an implication of the going concern assumption?a. The historical cost principle is credible.b. Depreciation and amortization policies are justifiable and appropriate.c. The current-noncurrent classification of assets and liabilities is justifiable and significant.d. All of these imply the going concern assumption.

8. In the Conceptual Framework, qualitative characteristicsa. Are considered either fundamental or enhancing.b. Contribute to the decision-usefulness of financial reporting information.c. Distinguish better information from inferior information for decision-making purposes.d. All of the choices are correct.

9. What is an enhancing quality described in the Conceptual Framework?a. Information must be decision-useful to all potential users of financial reporting.b. General-purpose financial reporting is the primary source of information for users of

financial reporting.c. Users need reasonable knowledge of business and financial accounting matters to

understand the information contained in financial statements.d. All of the choices are correct.

10. Which of the following is true regarding the cost-benefit constraint?a. Benefits are more difficult to quantify than costs.b. The IASB seeks input on costs and benefits as part of due process.c. Benefits to preparers may include access to capital at a lower cost.d. All of the choices are correct.

ANSWER

6. D

7. D

8. D

9. C

10. D


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STATEMENT OF FINANCIAL POSITION

11. The statement of financial positiona. Omits many items that are financial value.b. Makes very limited use of judgment and estimate.c. Uses fair value for most assets and liabilitiesd. All of these are correct regarding the statement of financial position

12. In presenting a statement of financial position, an entitya. Must make the current and noncurrent presentation.b. Must present assets and liabilities in order of liquidity.c. Must choose either the current and noncurrent or the liquidity presentation.d. Must make the current and noncurrent presentation except when a presentation based on

liquidity provides information that is reliable and more relevant.

13. What is the relationship between present value and the concept of a liability?a. Present value is used to measure certain liabilities.b. Present value is not used to measure liabilities.c. Present value is used to measure all liabilities.d. Present value is only used to measure noncurrent liabilities.

14. A financial liability that is due to be settled within twelve months after the reporting period shall be classified as noncurrenta. When it is refinanced on a long-term basis on or before the end of the reporting period.b. When the entity has the discretion to refinance for at least twelve months after year-end.c. When it is refinanced on a long-term basis after the end of reporting period.d. When it is refinanced on a long-term basis on or before the end of reporting period and when

the entity has the discretion to refinance for at least twelve months after year-end.

15. When an entity breaches an undertaking under a long-term loan agreement on or before the end of the reporting period with the effect that the liability becomes payable on demand, the liability is classified asa. Current under all circumstancesb. Noncurrent under all circumstancesc. Current if the lender has agreed after the reporting period and before the issuance of the

statements not to demand payment as a consequence of the breach.d. Noncurrent if the lender agreed after the end of the reporting period to provide a grace

period for at least twelve months after the reporting period.

ANSWER

11. A

12. D

13. A

14. D

15. C


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STATEMENT OF COMPREHENSIVE INCOME

16. Investors and creditors use income statement for all of the following, excepta. To evaluate the future performance of the entity.b. To provide a basis for predicting future performance.c. To help assess the risk and uncertainty of achieving future cash flows.d. To evaluate the past performance of the entity.

17. Which of the following components of other comprehensive income shall be reclassified subsequently to profit or loss?a. Changes in revaluation surplus b. Remeasurements of defined benefit planc. Gain and loss attributable to the credit risk of a financial liability designated at FVPLd. The effective portion of gains and losses on hedging instruments in a cash flow hedge.

18. Which of the following is not an acceptable option in presenting other comprehensive income?a. In a separate income statementb. In a single statement of comprehensive incomec. In the notes to financial statementsd. In a statement of changes in equity

19. Separate line items in an analysis of expenses by nature includea. Purchases, transport costs, employee benefits, depreciation, extraordinary items.b. Purchases, distribution costs, administrative costs, employee benefits, depreciation.c. Depreciation, purchases, transport costs, employee benefits and advertising costs.d. Cost of sales, administrative costs, transport costs and distribution costs.

20. Separate line items in an analysis of expenses by function includea. Purchases, transport costs, employee benefits, depreciation, extraordinary items.b. Purchases, distribution costs, administrative costs, employee benefits, depreciation.c. Depreciation, purchases, employee benefits and advertising costs.d. Cost of sales, administrative expenses and distribution expenses.

ANSWER

16. A

17. D

18. C

19. C

20. D


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NOTES TO FINANCIAL STATEMENTS

21. Under International Financial Reporting Standards, notes to financial statementsa. Must be quantifiable.b. Must qualify as an element.c. Amplify or explain items presented in the main body of the financial statements.d. All of the choices are correct regarding notes to financial statements.

22. Which of the following statements is incorrect regarding notes to financial statements?a. IFRS requires specific note disclosures including disaggregation of inventories into

classifications such as merchandise, production supplies, work in process and finished goods.

b. IFRS requires a maturity analysis for receivables.c. IFRS requires that all notes be clear, simple to understand and nontechnical in nature.d. All of the choices are correct regarding notes to financial statements.

23. The presentation of notes to financial statements in a systematic mannera. Is voluntaryb. Is mandatoryc. Is mandatory, as far as practicabled. Depends on the industry

24. Which of the following should not be disclosed in the summary of significant accounting policies?a. Basis of profit recognition on long-term construction contractsb. Criteria for measuring cash equivalentsc. Measurement basisd. Maturity dates associated with long-term debt

25. Which of the following is not a required minimum disclosure about related party transaction?a. The amount of related party transaction.b. The amount of the outstanding balance and the terms and conditions including guarantee.c. The amount of similar transaction with unrelated parties to establish that comparable related

party transaction has been entered at arm’s length.d. Provision for doubtful debt related to the outstanding balance

ANSWER

21. C

22. C

23. C

24. D

25. C


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ACCOUNTING CHANGES

26. What is retrospective application of a change in accounting policy?a. Applying a new accounting policy to transactions as if that policy had always been applied.b. Applying a new accounting policy to transactions occuring after the date at which the policy

is changed.c. Correcting the recognition, measurement and disclosure of amounts of elements of financial

statements as if a prior period error never occurred.d. All of these

27. Which is the reason why entities are permitted to change accounting policy?a. The change would allow the presentation of a more favorable profit pictureb. The change would result in providing more reliable and relevant information about financial

position, financial performance and cash flows c. The change is made by the internal auditor.d. The change will be long-term.

28. Why is retrospective treatment of changes in accounting estimate prohibited?a. Changes in estimate are normal recurring corrections and adjustments which are the natural

result of the accounting process.b. The retrospective treatment for any type of presentation is not allowed.c. Retrospective treatment of changes in accounting estimate is required by IFRS.d. The IFRS is silent on the issue.

29. An example of a correction of an error in previously issued financial statements is a changea. From FIFO method of inventory valuation to average cost method.b. In the service life of plant asset based on change in the economic environment.c. From cash basis of accounting to accrual basis of accounting.d. In the tax assessment related to a prior period.

30. Which of the following is not treated as a change in accounting policy?a. A change from cost model to revaluation model in measuring property, plant and equipmentb. A change from direct writeoff method of recognizing bad debt expense to allowance methodc. A change from cost model to fair value model in measuring investment propertyd. A change to new IFRS requirement

ANSWER

26. A

27. B

28. A

29. C

30. B


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ASSETS HELD FOR SALE AND DISCONTINUED OPERATION

31. An entity shall classify a noncurrent asset or disposal group as “held for sale” when

a. The carrying amount of the asset or disposal group is recovered through a sale.b. The carrying amount of the asset or disposal group is recovered through continuing use.c. The noncurrent asset or disposal group is to be abandoned.d. The noncurrent asset or disposal group is idle or retired from active use.

32. How should the assets and liabilities of a disposal group classified as held for sale be shown in the statement of financial position?

a. The assets and liabilities should be offset and presented as a single amount.b. The assets of disposal group should be shown separately from other assets and the liabilities

should be shown separately from other liabilities.c. The assets and liabilities should offset and presented as a deduction from equity.d. There should be no separate disclosure of assets and liabilities of the disposal group.

33. An entity classified a noncurrent asset accounted for under the cost model as held for sale at the current year-end. The entity decided at the end of the following year not to sell the asset but to continue to use it. The asset should be measured at the end of the following year at

a. The lower of carrying amount and recoverable amountb. The higher of carrying amount and recoverable amountc. The lower of carrying amount on the basis that it had never been classified as held for sale

and recoverable amountd. The recoverable amount

34. Which of the following is a requirement for a component of an entity to be classified as discontinued operation?

a. The activities must permanently cease prior to the financial statements being authorized for issue.

b. The component must comprise a separately reportable segment.c. The assets must have been classified as held for sale in previous financial statements.b. The component must have been a cash generating unit or group of cash generating units

while being held for use.

35. A single amount must be disclosed within the income statement for

a. The post-tax profit or loss on discontinued operation and the pretax gain or loss on disposal of discontinued operation assets.

b. The pretax profit or loss on discontinued operation and the post-tax gain or loss on disposal of discontinued operation assets.

c. The pretax profit or loss on discontinued operation and the pretax gain or loss on disposal of discontinued operation assets.

d. The post-tax profit or loss of discontinued operation and the post-tax gain or loss on disposal of discontinued operation assets.

ANSWER

31. A

32. B

33. C

34. D

35. D


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SEGMENT REPORTING36. The term chief operating decision maker

a. Refers to a manager with a specific title.b. Must be disclosed by title in the financial reporting for segments. c. Must be described in the disclosures for the financial reporting for segments.d. Refers to a function of allocating resources to the operating segments and assessing their

performance

37. When is an operating segment is reportable?a. The segment external and internal revenue is 10% or more of the combined external and

internal revenue of all operating segments.b. The segment profit or loss is 10% or more of the greater between the combined profit of all

profitable operating segments and the combined loss of all unprofitable operating segments.c. The assets of the segment are 10% or more of the total assets of all operating segments.d. Under all of these circumstances

38. Operating segments that do not meet any of the quantitative thresholds

a. Cannot be considered reportable.b. May be considered reportable and separately disclosed if management believes that

information about the segment would be useful to the users of the financial statements.c. May be considered reportable if the information is for internal use only.d. May be considered reportable and separately disclosed if this is the practice within the

economic environment in which the entity operates.

39. Which is true concerning the 75% overall size test for operating segments?a. The total external and internal revenue of all reportable segments is 75% or more of the

entity’s external revenue.b. The total external revenue of all reportable segments is 75% or more of the entity’s external

and internal revenue.c. The total external revenue of all reportable segments is 75% or more of the entity’s external

revenue.d. The total internal revenue of all reportable segments is 75% or more of the entity’s internal

revenue.

40. Which of the following statements about major customer disclosure is true?

a. A major customer is defined as one providing revenue which amounts to 10% or more of the combined external revenue of all operating segments.

b. The identities of major customers need not be disclosed.c. The entity shall disclose the total amount of revenue from major customers and the identity

of the segment reporting the revenue.d. All of these statements are true about major customer disclosure

ANSWER

36. D

37. D

38. B

39. C

40. D


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INTERIM REPORTING

41. Interim financial reports should include as a minimuma. A complete set of financial statements.b. A condensed set of financial statements and selected notesc. A condensed statement of financial position and an income statement.d. A condensed statement of financial position and statement of cash flows.

42. An entity owns a number of farms that harvest produce seasonally. What is encouraged to be done if the business is highly seasonal?a. Additional notes should be written in the interim reports about the seasonal nature.b. Disclosure of financial information for the latest and comparative 12-month period in

addition to the interim report.c. Additional disclosure in the accounting policy note.d. No additional disclosure.

43. Which of the following describes requirements regarding interim financial statements?a. Interim financial statements are required.b. If interim financial statements are presented, four basic financial statements are required.c. If interim financial statements are presented, at least a statement of financial position and a

statement of comprehensive income are required.d. Interim financial statements must be presented with the most recent annual statements.

44. All of the following statements are true regarding interim reporting, excepta. IFRS requires a complete set of financial statements at the interim reporting date.b. IFRS requires entities expense interim amount like advertising expenditures that could

benefit later interim periods c. IFRS does not mention the integral and independent view of interim reporting.d. No accruals or deferrals in anticipating of future events during the year should be reported.

45. The accounting profession indicates thata. All entities that issue an annual report should issue interim financial reports.b. The integral view is the more appropriate approach for interim financial reports.c. A complete set of financial statements must be presented for an interim period.d. The same accounting principles used for the annual report should be employed for interim

reports.

ANSWER

41. B

42. B

43. B

44. A

45. D


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CASH AND CASH EQUIVALENTS

46. A cash equivalent is a short-term, highly liquid investment that is readily convertible into known amount cash anda. Is acceptable as a means to pay current liabilities.b. Has a market value greater than original costc. Bears an interest rate that is at least equal to the prime interest rated. Is so near maturity that it presents insignificant risk of change in interest rate.

47. Highly liquid investments that are readily convertible into cash can be shown as cash equivalents if the investments have a maturity of 90 days or lessa. From the date the investments are acquired.b. From the end of reporting periodc. From the date of issue of financial statementsd. From the date the investments are acquired or from the end of reporting period

48. Which of the following could not be reported as cash or cash equivalents?a. Money market accountsb. Demand depositsc. BSP treasury bills with an original maturity of sixty days from date purchasedd. Legally restricted deposit held as compensating balance against borrowing arrangement

49. Which of the following statements in relation to petty cash fund is false?a. Each disbursement from petty cash should be supported by a petty cash voucher.b. The creation of a petty cash fund requires a journal entry to reflect the transfer of fund out of

the general cash account.c. At any time, the sum of the cash in the petty cash fund and the total of petty cash vouchers

should equal the amount for which the imprest petty cash fund was established.d. With the establishment of an imprest petty cash fund, one person is given the authority and

responsibility for issuing checks to cover minor disbursements.

50. At the end of the current year, an entity had cash accounts at three different banks. One account is segregated solely for payment into a bond sinking fund. A second account, used for branch operations, is overdrawn. The third account, used for regular corporate operations, has a positive balance. How should these accounts be reported?

a. The segregated account should be reported as a noncurrent asset, the regular account should be reported as a current asset, and the overdraft should be reported as a current liability.

b. The segregated and regular accounts should be reported as current assets, and the overdraft should be reported as a current liability.

c. The segregated account should be reported as a noncurrent asset, and the regular account should be reported as a current asset net of the overdraft.

d. The segregated and regular accounts should be reported as current assets net of the overdraft.

ANSWER

46. D

74. A

48. D

49. D

50. A


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RECEIVABLES

51. The ideal measure of short-term receivables is the discounted value of cash to be received in the future. Failure to follow this practice usually does not make the statement of financial position misleading because

a. Most short-term receivables are noninterest bearing.b. The allowance for uncollectible accounts includes a discount element.c. The amount of the discount is not material.d. Most receivables can be sold to a bank or factor.

52. Estimation of uncollectible accounts receivable based on a percentage of salesa. Emphasizes measurement of net realizable value of accounts receivable.b. Emphasizes measurement of bad debt expensec. Emphasizes measurement of total assetsd. Is only acceptable for tax purposes

53. Which of the following concepts relates to the allowance method in accounting for accounts receivable?a. Bad debt expense is an estimate that is based on historical and prospective information.b. Bad debt expense is based on the actual amounts determined to be uncollectible.c. Bad debt expense is an estimate that is based only on an aging analysis of accounts

receivabled. Bad debt expense is management's determination of which accounts will be sent to the

attorney for collection.

54. Which of the following statements is incorrect regarding how the impairment assessment is to be performed on receivables?

a. Receivables that are individually significant should be considered for impairment separately or individually.

b. Receivables that are not individually significant should be assessed for impairment individually.

c. Any receivable individually assessed as not impaired should be included with the other receivables that are not individually significant and collectively assessed.

d. Any receivables not individually significant should be collectively assessed for impairment.

55. An entity factored accounts receivable without recourse with a bank. The entity received cash as a result of the transaction which is best described asa. Loan from bank collateralized by the entity’s accounts receivable.b. Loan from bank to be repaid by the proceeds from the entity’s accounts receivable.c. Sale of the entity’s accounts receivable to the bank with the risk of uncollectible accounts

retained by the entity.d. Sale of the entity’s accounts receivable to the bank with the risk of uncollectible accounts

transferred to the bank.

ANSWER

51. C

52. B

53. A

54. B


55. D

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INVENTORY

56. Entities must allocate the cost of all goods available for sale betweena. The cost of goods on hand at the beginning and the cost of goods acquired during the periodb. The cost of goods on hand at the end and the cost of goods acquired during the period.c. The income statement and the statement of financial positiond. All of the choices are correct.

57. LCNRV of inventorya. Is always either the net realizable value or costb. Should always be equal to net realizable valuec. May sometimes be less than net realizable valued. Should always be equal to estimated selling price less cost to complete

58.When the cost of goods sold method is used to record inventory at net realizable valuea. There is a direct reduction in the selling price of the product that results in a loss.b. A loss is recorded by debiting loss on inventory and crediting inventory c. Only the portion of the loss attributable to inventory sold during the period is recorded.d. The NRV is substituted for cost and the loss is buried in cost of goods sold.

59.Why are inventories stated at lower of cost and net realizable value?a. To report a loss when there is a decrease in the future utility.b. To be conservative.c. To report a loss when there is a decrease in the future utility below the original cost.d. To permit future profit to be recognized.

60. Which of the following statements is true regarding inventory writedowns and recovery of writedown?a. Recovery of inventory writedown is prohibited under IFRS.b. IFRS requires separate reporting of reversal of inventory writedown.c. IFRS requires entities to record writedown in a separate loss account.d. All of the choices are correct.

ANSWER

56. C

57. A

58. D

59. C

60. B


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BIOLOGICAL ASSET

61. All of the following must be satisfied before a biological asset can be recognized, excepta. The entity controls the asset as a result of past event.b. It is probable that future economic benefits relating to the asset will flow to the entity.c. An active market for the asset exists.d. The fair value or cost of the asset can be measured reliably.

62. Which of the following statements is true regarding agricultural produce?a. In all cases, an entity shall measure agricultural produce at fair value less cost of disposal at

the point of harvest.b. The fair value of agricultural produce at the point of harvest can always be measured

reliably.c. The fair value measurement of agricultural produce stops at the time of harvest.d. All of these statements are true regarding agricultural produce.

63. An entity had a plantation forest that is likely to be harvested and sold in 30 years. How should income be accounted for?

a. No income should reported annually until first harvest and sale in 30 years.b. Income should be measured annually and reported using a fair value approach that

recognizes and measures biological growth.c. The eventual sale proceeds should be estimated over the 30-year period.d. The plantation forest should be valued every five years.

64. Animals related to recreational activities, for example, game parks and zoos, including the natural breeding of animals in zoos, shall be accounted for under what standard?

a. PAS 41 – Agricultureb. PAS 16 – Property, plant and equipmentc. PAS 40 – Investment propertyd. Either PAS 41 or PAS 16

65. According to IASB, bearer plants, such as grape vines, rubber trees and oil palms which are used solely to grow produce over several periods should be accounted for as

a. Biological assets with disclosure b. Biological assets without disclosurec. Property, plant and equipmentd. Noncurrent investments

ANSWER

61. C

62. D

63. B

64. B

65. C


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FINANCIAL ASSETS

66. IFRS requires entities to measure financial assets based on all of the following, excepta. The entity’s business model for managing its financial assets.b. Whether the financial asset is a debt or equity investment.c. The contractual cash flow characteristics of the financial asset.d. All of the choices are PFRS requirements.

67. An entity may make an irrevocable election to present in other comprehensive income changes in fair value ofa. An investment in equity instrument that is held for trading.b. An investment in equity instrument that is not held for tradingc. A financial asset measured at amortized costd. A financial asset measured at fair value through profit or loss.

68. A financial asset shall be measured subsequently at amortized cost a. By irrevocable electionb. When the debt investment is managed and evaluated on a document risk-management

strategy.c. When the debt investment is held for tradingd. When the business model is to collect contractual cash flows that are solely payments of

principal and interest.

69. Under the fair value option, an entity maya. Irrevocably designate a financial asset as measured at fair value through profit or loss even if

the amortized cost measurement is satisfied.b. Irrevocably designate a financial asset as measured at fair value through other

comprehensive income.c. Revocably designate a financial asset as measured at fair value through profit or loss even if

the amortized cost measurement is satisfied.d. Designate all instruments as measured at fair value through profit or loss.

70. Equity investments acquired by an entity which are accounted for by recognizing unrealized holding gains or losses as component of other comprehensive income area. Nontrading where an entity has holdings of less than 20%.b. Trading investments where an entity has holdings of less than 20%.c Investments where an entity has holdings of between 20% and 50%.d. Investments where an entity has holdings of more than 50%.

71. Entities account for transfers of investments between categoriesa. Prospectively, at the end of the period after the change in the business model.b. Prospectively, at the beginning of the period after the change in the business model.c. Retroactively, at the end of the period after the change in the business model.d. Retroactively, at the beginning of the period after the change in the business model.

72. The characteristics of a derivative include all of the following, excepta. The value changes in response to the change in a specified underlying.b. It requires a large investment at the inception of the contract.c. It is settled at a future date.d. All of these are characteristics

73. All of the following statements regarding derivatives are correct, except a. The derivatives should be recognized as assets and liabilities.b. The derivatives should be reported at fair value.c. Gains and losses resulting from speculation should be deferred.


d. Gains and losses resulting from fair value hedge are reported immediately.

Page 15

74. A contract that conveys to a second entity a right to future collections of accounts receivable from first entity isa. A financial instrument b. A derivative instrument c. Both a financial instrument and derivative instrumentd. Neither a financial instrument nor a derivative instrument

75. The risk of a significant number of unsecured accounts receivable with entities in the same industry is referred to asa. Concentration of market riskb. Concentration of credit riskc. Concentration of currency riskd. Concentration of market risk, credit risk and currency risk

ANSWER

66. B 71. B

67. B 72. B

68. D 73. C

69. A 74. A

70. A 75. B


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INVESTMENT IN ASSOCIATE

76. When an entity holds between 20% and 50% of the outstanding ordinary shares, which of the following statements is true?a. The investor must use the equity method.b. The investor should use the equity method unless circumstances indicate that it is unable to

exercise significant influence over the investee.c. The investor must use the fair value method.d. The investor should use the fair value method unless it can clearly demonstrate an ability to

exercise significant influence over the investee.

77. Goodwill arising from an investment in associate isa. Included in the carrying amount of the investment and amortized over the useful life.b. Included in the carrying amount of the investment and not amortized.c. Excluded from carrying amount of the investment but charged to retained earnings.d. Excluded from carrying amount of the investment but charged to expense immediately.

78. How is the impairment test carried out for an investment in associate?

a. The goodwill is separated from the rest of the investment and is impairment tested individually.

b. The entire carrying amount of the investment is tested for impairment by comparing the recoverable amount with the carrying amount.

c. The carrying amount of the investment should be compared with the market value.d. The recoverable amounts of all investments in associates should be assessed together to

determine whether there has been an impairment on all investments.

79. What should happen when the financial statements of an associate are not prepared at the same date as the financial statements of the investor?a. The associate shall prepare financial statements for the use of the investor at the same date as

that of the investor.b. The financial statements of the associate prepared up to a different date shall be used.c. Any major transactions between the date of the financial statements of the investor and that

of the associate shall be accounted for.d. As long as the gap is not greater than three months, there is no problem.

80. An investor used the equity method for a 30% interest in an investee. How should the investor report a receivable from the investee at year-end?a. None of the receivable should be reported but offset against the investee’s payable to the

investorb. Only 70% of the receivable should be reported and the balance is eliminated.c. The total receivable should be reported separately.d. The total receivable should be included as part of investment in associate without separate

disclosure.

ANSWER

76. B

77. B

78. B

79. A


80. C

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INVESTMENT PROPERTY

81. Under IFRS, which of the following best describes investment property?a. Held for rental incomeb. To be sold at a quick profitc. Held for rental income or to be sold at a quick profitd. Held for sale in the ordinary course of business

82. Transfers from investment property to property, plant and equipment are appropriatea. When there is change of use.b. Based on the entity’s discretion.c. Only when the entity adopts the fair value model.d. The entity can never transfer property into another classification once it is classified as

investment property.

83. Which of the following disclosures must be made when the cost model is used for investment property?a. Fair value of propertyb. Present value of propertyc. Value in use of propertyd. Net realizable value of property

84. Which of the following disclosures must be made when the fair value model is used for investment property?a. Depreciation methodb. The amount of impairment loss recognizedc. Useful life or depreciation rated. Net gains or losses from fair value adjustments

85. Which of the following statements regarding investment property is correct?a. If the entity elects the fair value model, no depreciation expense is taken.b. Gains and losses from fair value adjustments under the fair value model are reported in the

income statement.c. In the entity elects the cost model, depreciation should be recognized.d. All of these statements are correct regarding investment property.

ANSWER

81. C

82. A

83. A

84. D

85. D


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PROPERTY, PLANT AND EQUIPMENT

86. Which of the following nonmonetary exchange transactions has commercial substance?a. Exchange of assets with no difference in future cash flows.b. Exchange of assets by entities in the same line of business.c. Exchange of assets with difference in future cash flows.d. Exchange of an equivalent interest in similar productive assets that causes the entities

involved to remain in essentially the same economic position.

87. The configuration of cash flows of the assets exchanged includes which of the following?a. The implicit interest rate, maturity of loan and amount of loan.b. The risk, timing and amount of cash flows of the assets.c. The entity-specific value of the asset which is equal to fair value.d. The estimated present value of the assets exchanged.

88. What is the best theoretical support for accelerated depreciation?a. Assets are more efficient in early years and initially generate more revenue.b. Expenses should be allocated in a manner that “smooths” earnings.c. Repairs will probably increase in later periods so depreciation should decrease.d. Accelerated depreciation provides easier replacement.

89. An expenditure made in connection with a machine being used by an entity should bea. Expensed if it merely extends the useful life but does not improve the quality.b. Expensed if it merely improves the quality but does not extend the useful life.c. Capitalized if it maintains the machine in normal operating condition.d. Capitalized if it increases the quantity of units produced by the machine.

90. Under the revaluation model in accounting for property, plant and equipmenta. Assets must be revalued quarterly.b. Assets must be revalued annually.c. Assets must be revalued at the discretion of managementd. There are no specific rules regarding the frequency of revaluation

91. When an entity chooses the revaluation model as the accounting policy for measuring property, plant and equipment, which of the following statements is true?

a. When an asset is revalued, the entire class of property, plant and equipment to which that asset belongs must be revalued.

b. Individual asset within a class of property, plant and equipment to which that asset belongs can be revalued.

c. Revaluation of property, plant and equipment must be made at least every three years.d. Increase in an asset’s carrying amount as a result of the first revaluation must be recognized

as a component of profit or loss.

92. What is the accounting treatment when replacing an asset in which the cost of the old asset is known?

a. Replace the old carrying amount with the capitalized cost of the new assetb. Reduce accumulated depreciation of the asset to increase carrying amountc. Reduce accumulated depreciation of the asset to decrease carrying amountd. None of these


93. If an old asset’s life is extended but not improved, and the carrying amount of the specific old asset is not known, what happens to the amount spent to extend the life of the old asset?

a. Charged to the accumulated depreciation of the asset b. Capitalizedc. Expensedd. Recognized in retained earnings

Page 19

94. Which of the following costs would be capitalized as cost of land?

a. Filling in dirt to level the property prior to excavationb. Excavating costsc. Costs incurred to construct sidewalks and fencesd. All of these are capitalized as cost of land

95. An entity purchased land with the intention of building new administrative headquarters on the site. Which of the following should be charged to land improvements?

a. Clearing of trees and gradingb. Architect feec. Installation of a septic systemd. Cost of demolishing an old building

ANSWER

86. C 91. A

87. B 92. A

88. A 93. A

89. D 94. A

90. D 95. C


Page 20

GOVERNMENT GRANT AND BORROWING COST

96. In the case of grant related to an asset, which accounting treatment is prescribed? a. Record the grant at a nominal value in the first year and write it off in the subsequent year. b. Either as deferred income or deduction from the carrying amount of the asset. c. Record the grant at fair value in the first year ad take it to income in the subsequent year. d. Take it to income immediately.

97. Government assistance includes all the following, excepta. Free technical and marketing adviceb. Provision of guaranteec. Government procurement policy that is responsible for a portion of the entity’s sales.d. Improved irrigation water system or infrastructure for the benefit of an entire local

community and imposition of trading constraints

98. Assets that qualify for interest capitalization includea. Assets under construction for an entity’s own use.b. Assets that are ready for their intended use.c. Assets that are not currently being used because of excess capacity.d. All of these assets qualify for interest capitalization.

99. Which of the following is not a condition that must be satisfied before interest capitalization can begin on a qualifying asset?a. Interest cost is being incurred.b. Expenditures for the assets have been made.c. The interest rate is equal to or greater than the entity’s cost of capital.d. Activities that are necessary to get the asset ready for the intended use are in progress.

100. Which of the following is the recommended approach to handling interest incurred in financing the construction of property, plant and equipment?a. Capitalize only the actual interest costs incurred during construction.b. Charge construction with all costs of funds employed, whether identifiable or not.c. Capitalize no interest during construction.d. Capitalize interest costs equal to the prime interest rate times the estimated cost of the asset

being constructed.

ANSWER

96. B

97. D

98. A

99. C

100. A


Page 21

IMPAIRMENT OF ASSETS

101. If the fair value less cost of disposal cannot be determineda. The asset is not impaired.b. The recoverable amount is the value in use.c. The net realizable value is used.d. The carrying amount of the asset remains the same.

102. If the asset is to be disposed ofa. The recoverable amount is the fair value less cost of disposal.b. The recoverable amount is the value in use.c. The asset is not impairedd. The recoverable amount is the carrying amount.

103. The estimates in calculating value in use include all of the following, excepta. Cash inflows from continuing use of the asset.b. Cash outflows incurred to generate the cash inflows from continuing use of the asset.c. Net cash flows from the disposal of the asset at end of useful life.d. Income tax payments

104. Which of the following is not relevant in determining value in use?a. The expected future cash flows from the asset.b. The carrying amount of the asset.c. Expectation about possible variation in the amount and timing of future cash flows.d. The time value of money.

105. Which of the following impairment losses should never be reversed?a. Loss on property, plant and equipmentb. Loss on goodwillc. Loss on business segmentd. Loss on inventory

ANSWER

101. B

102. A

103. D

104. B

105. B


Page 22

EXPLORATION AND EVALUATION OF MINERAL RESOURCES

106. Exploration and evaluation expenditures are incurreda. When searching for an area that may warrant detailed exploration even though the entity has

not yet obtained the legal rights to explore a specific area.b. When the legal rights to explore an area have been obtained but the technical feasibility and

commercial viability of extracting a mineral resource are not yet demonstrable.c. When preparations for commercial extraction are being made.d. In extracting mineral resource and processing the resource to make it marketable.

107. Exploration and evaluation asset shall be classified as either tangible or intangible asset and measured initially at cost and subsequently at

a. Cost model b. Revaluation model c. Cost model or the revaluation model d. Cost model or fair value model

108. Depletion expensea. Is usually part of cost of goods sold.b. Includes tangible equipment cost in the depletion base.c. Excludes intangible development cost from the depletion base.d. Excludes restoration cost from the depletion base.

109. Which of the following is not part of depletable cost?a. Acquisition cost of the mineral resource depositb. Exploration costc. Tangible equipment cost associated with machinery used to extract the mineral resourced. Intangible development cost such as drilling, tunnel and shaft

110. Which of following is not a similarity in the treatment for depreciation and depletion?a. The estimated life is based on economic or productive life.b. Assets are reported in the same classification in the statement of financial position.c. The rate may be changed upon revision of the estimated productive life.d. Both depreciation and depletion are based on time.

ANSWER

106. B

107. C

108. A

109. C

110. D


Page 23

INTANGIBLE ASSETS

111.Which of the following must be met for an item to be recognized as an intangible asset other than goodwill?a. The fair value can be measured reliably.b. The item is part of an activity aimed at gaining new scientific or technical knowledge.c. The item is expected to be used in the production or supply of goods or services.d. The item is identifiable and lacks physical substances

112. An entity that acquired an intangible asset may use the revaluation model for subsequent measurement only when a. The useful life of the intangible asset can be reliably determined.b. An active market exists for the intangible asset.c. The cost of the intangible asset can be measured reliably.d. The intangible asset is a monetary asset.

113. Under current accounting practice, intangible assets are classified asa. Amortizable or unamortizable.b. Limited life or indefinite life.c. Specifically identifiable or goodwill type.d. Legally restricted or goodwill type.

114. The major problem of accounting for intangible asset is determininga. Fair valueb. Separabilityc. Residual valued. Useful life

115. Which disclosure is not required with respect to intangible assets?a. Useful life of the intangible assetb. Reconciliation of carrying amount at the beginning and the end of the yearc. Contractual commitment for the acquisition of intangible assetd. Fair value of similar intangible asset used by the competitor

ANSWER

111. D

112. B

113. B

114. D

115. D


Page 24

RESEARCH AND DEVELOPMENT COST

116. Which of the following is not one of the criteria which must be met before development costs can be capitalized?a. The entity has sufficient financial resources to complete the project.b. The entity intends to complete the project and either use or sell the intangible asset.c. The entity can reliably identify the research costs incurred to bring the project to economic

feasibility.d. The project has achieved technical feasibility.

117. Under IFRS, which of the following statements is true about accounting for development costs.a. Development costs must be expensed.b. Development costs are always deferred and expensed against future revenue.c. Development costs may be capitalized as an intangible asset in very restrictive situations.d. Development costs are recorded in other comprehensive income.

118. Which of the following research and development costs should be capitalized and amortized over current and future periods?a. Labor and material costs incurred in building a prototype model.b. Cost of testing equipment that will also be used in another separate research and

development project scheduled to begin next year.c. Administrative salaries allocated to research and development.d. Research findings purchased from another company to aid a particular research project

currently in process.

119. Which of the following costs should be excluded from research and development expense?a. Modification of the design of a productb. Acquisition of R and D equipment for use in current project onlyc. Cost of marketing research for a new productd. Engineering activity to advance the design of product to the manufacturing stage

120.The accounting for costs incurred in creating computer software products is toa. Capitalize all costs until the software is sold.b. Charge research and development expense when incurred until technological feasibility has

been established for the product.c. Charge research and development expense only if the computer software has alternative

future use.d. Capitalize all costs as incurred until a detailed program design or working model is created.

ANSWER

116. C

117. C

118. B

119. C


120. B

Page 25

FINANCIAL LIABILITIES

121. A financial liability a. Must be classified as noncurrent liability.b. Is a contractual obligation to deliver cash or another financial asset to another entity.c. Is a contractual obligation to exchange financial assets or financial liabilities with another

entity under conditions that are potentially favorable to the entityd. Is a contractual obligation to deliver cash or any asset to another entity.

122. Financial liabilities include all of the following, excepta. Trade accounts payableb. Bonds payablec. Loans payabled. Income taxes payable

123. Which of the following liabilities is a financial liability?a. Deferred revenueb. A warranty obligationc. A constructive obligationd. An obligation to deliver own shares worth a fixed amount of cash

124. Which of the following is not classified as a financial instrument?a. Convertible bondb. Foreign currency contractc. Warranty provisiond. Loan receivable

125. How should preference shares that are redeemable mandatorily be presented in the statement of financial position?

a. Noncurrent financial liability b. Current financial liability c. Equity d. Either current or noncurrent financial liability depending on redemption date

ANSWER

121. B

122. D

123. D

124. C

125. D


Page 26

COMPOUND FINANCIAL INSTRUMENTS AND BONDS

126.What is the principal of accounting for a compound instrument?

a. The issuer shall classify a compound instrument as either liability or equity.b. The issuer shall classify the liability and equity components of a compound instrument

separately as liability or equity instrument.c. The issuer shall classify a compound instrument as liability in its entirety until converted

into equity.d. The issuer shall classify a compound instrument as a liability in its entirety.

127. How are the proceeds from issuing a compound instrument allocated between the liability and equity components?

a. First, the liability component is measured at fair value, and then the remainder of the proceeds is allocated to the equity component.

b. The proceeds are allocated to the liability and equity based on relative fair value. c. The proceeds are allocated to the liability and equity based on carrying amount.d. The proceeds are not allocated because the compound instrument is accounted for either as

liability or equity.

128. Proceeds from an issue of bonds with share warrants should not be allocated between liability and equity features whena. The fair value of the warrants is not readily available.b. Exercise of the warrants within the next few fiscal periods seems remote.c. The warrants issued with the bonds are nondetachable.d. Proceeds should be allocated between liability and equity for all of these.

129.The proceeds from the sale of a bond will be equal to a. The face amount of the bond. b. The present value of the face amount of the bond plus the present value of the interest

payments to be made during the life of the bond. c. The face amount of the bond plus the present value of the interest payments. d. The sum of the face amount of the bond and the periodic interest payments.

130. When the effective-interest method is used to amortize bond premium or discount, the periodic amortization woulda. Increase if the bonds were issued at a discount.b. Decrease if the bonds were issued at a premium.c. Increase if the bonds were issued at a premium.d. Increase if the bonds were issued at either a discount or a premium.

ANSWER

126. B


127. A

128. D

129. B

130. D

Page 27

PROVISIONS

131. When the provision involves a large population of items, the best estimate of the amounta. Reflects the weighting of all possible outcomes by their associated probabilities.b. Is determined as the individual most likely outcome.c. May be the individual most likely outcome adjusted for the effect of other possible

outcomes.d. Midpoint of the possible outcomes

132. When the provision arises from a single obligation, the best estimate of the amount a. Reflects the weighting of all possible outcomes by their associated probabilities.b. Is determined as the individual most likely outcome.c. Is the individual most likely outcome adjusted for the effect of other possible outcomes.d. Midpoint of the possible outcomes

133. An entity is closing one of its operating divisions. At the current year-end, the entity has announced the formal plan publicly and is calculating the restructuring provision. Which of the following costs should be included in the restructuring provision?a. Retraining staff continuing to be employedb. Relocation costs relating to staff moving to other divisionsc. Contractually required costs of retiring staff being made redundant from the division being

closedd. Future operating losses of the division being closed up to the date of closure

134. Provisions shall be recognized for all of the following, excepta. Cleaning-up costs of contaminated land when an oil entity has a published policy that it will

undertake to clean up all contamination that it causes.b. Restructuring costs after a binding sale agreement has been signedc. Rectification costs relating to defective products already soldd. Future refurbishment costs due to introduction of a new computer system

135. An entity operates chemical plants and has a commitment of making good any damage caused to the environment by its operations. Which of the following scenarios relating to the entity would give rise to an environmental provision?a. On past experience it is likely that a chemical spill which would result in having to pay fines

and penalties will occur in the next year.b. Recent research suggests there is a possibility that the entity's actions may damage

surrounding wildlife.c. The government has outlined plans for a new law requiring all environmental damage to be

rectified.d. A chemical spill from one of the entity's plants has caused harm to the surrounding area and

wildlife.

ANSWER


131. A

132. C

133. C

134. D

135. D

Page 28

LEASES

136. Which of the following situations would prima facie lead to a lease being classified as an operating lease?

a. Transfer of ownership to the lessee at the end of the lease term.b. Option to purchase at a value below the fair value of the asset.c. The lease term is for a major part of the asset’s life.d. The present value of the minimum lease payments is 50% of the fair value of the asset.

137. Which of the following is a correct statement of one of the lease capitalization criteria?a. The lease transfers ownership of the property to the lessor.b. The lease contains a purchase option.c. The lease term is equal to or more than 75% of the economic life of the leased property.d. The minimum lease payments excluding executory costs equal or exceed 90% of the fair

value of the leased property.

138. Which of the following criteria must be met for a lease to be accounted for as a finance lease?I. The lease contains a bargain purchase option.II. The lease transfers title to the lessee at the expiration of the lease.III. The lease term is 75% or greater than the life of the asset.IV. The present value of the lease payments is 90% or more of the fair value of the leased

asset at the inception of the lease.

a. All four of the criteriab. Any three of the criteriac. Any two of the criteriad. Any one of the criteria

139. In computing depreciation of a leased asset, the lessee should subtracta. A guaranteed residual value and depreciate over the term of the lease.b. An unguaranteed residual value and depreciate over the term of the lease.c. A guaranteed residual value and depreciate over the life of the asset.d. An unguaranteed residual value and depreciate over the life of the asset.

140. The interest rate implicit in the lease is the discount rate that causes the aggregate of the present value of the minimum lease payments and the unguaranteed residual value to equal the

a. Fair value of the leased assetb. Fair value of the leased asset and initial direct costs of the lessor.c. Fair value of the leased asset and initial direct costs of the lessee.d. Gross investment in the lease.

ANSWER

136. D


137. C

138. D

139. A

140. B

Page 29

INCOME TAXES

141. Which of the following typically would a result in a deferred tax liability?a. Warranty expenseb. Bad debt expensec. Installment sales method for tax purposes and accrual accounting for financial reportingd. Unearned rental income

142. The deferred tax expense is thea. Increase in deferred tax asset minus the increase in deferred tax liability.b. Increase in deferred tax liability minus the increase in deferred tax asset.c. Increase in deferred tax asset plus the increase in deferred tax liability.d. Decrease in deferred tax asset minus the increase in deferred tax liability.

143. An entity shall offset a deferred tax asset and deferred tax liability a. When the deferred tax asset and deferred tax liability relate to income taxes levied by the

same taxing authority.b. When the entity has a legal enforceable right to offset a current tax asset against a current

tax liability.c. When the deferred tax asset and deferred tax liability relate to income taxes lexied by the

same taxing authority and the entity has a legal enforceable right to offset a current tax asset against a current tax liability.

d. Under all circumstances.

144. Which of the following statements is true about intraperiod tax allocation?a. It arises because certain revenue and expense items appear in the income statement either

before or after they are included in the tax return.b. It is required for the cumulative effect of accounting changes but not for prior period

adjustments.c. The purpose is to allocate income tax expense evenly over a number of accounting periods.d. The purpose is to relate the income tax expense to the items which affect the amount of tax.

145. Entities use intraperiod tax allocation for all of the following items, excepta. Discontinued operationsb. Prior period adjustmentsc. Changes in accounting estimated. Income from continuing operations

ANSWER

141. C

142. B


143. C

144. D

145. C

Page 30

EMPLOYEE BENEFITS

146. In a defined contribution plan, a formula is used thata. Defines the benefits that the employee will receive at the time of retirement.b. Ensures that pension expense and the cash funding amount will be different.c. Requires an employer to contribute a certain sum each period based on the formula.d. Ensures that employers are at risk to make sure funds are available at retirement.

147. In a defined benefit plan, the process of funding refers toa. Determining the defined benefit obligation.b. Determining the accumulated benefit obligation.c. Making the periodic contributions to a funding agency to ensure that funds are available to

meet retirees' claims.d. Determining the amount that might be reported for pension expense.

148. Remeasurements of defined benefit plan includea. The difference between actual return and interest income on plan assets.b. Actuarial gain or loss on projected benefit obligation c. Change in the effect of asset ceiling minus interest expense on the beginning effect of asset ceilingd. All of these are included in remeasurements of defined benefit plan

149. The return on plan assets

a. Is equal to the change in the fair value of the plan assets during the year.b. Includes interest, dividends and changes in the fair value of the fund assets.c. Is equal to the expected rate of return times the beginning fair value of the plan assetsd. All of these are included in return on plan assets

150. Vested benefits

a. Usually require a certain minimum number of years in service.b. Are those that the employee is entitled to receive even if fired.c. Are not contingent upon additional service under the pland. Are defined by all of these.

ANSWER

146. C

147. C

148. D

149. B

150. D


Page 31

SHAREHOLDERS’ EQUITY

151. The term residual interest means that ordinary shareholdersa. Are entitled to a dividend every year in which the entity earns a profit.b. Have the right to specific assets of the entity.c. Bear the ultimate risks and uncertainties and receive the benefits of ownership.d. Can negotiate individual contracts on behalf of the entity.

152. When ordinary shares are issued in payment for services, the least appropriate basis for recording the transaction is thea. Fair value of the services receivedb. Par value of the shares issuedc. Fair value of the shares issuedd. Any of these provides an appropriate basis for recording the transaction

153. The cumulative feature of preference sharesa. Limits the amount of cumulative dividends to the par value of the preference shares.b. Requires that dividends not paid in any year must be made up in a later year before

dividends are distributed to ordinary shareholders.c. Means that the shareholder can accumulate preference shares equal to the par value of

ordinary shares.d. Enables a preference shareholder to accumulate dividends equal to the par value of the

shares and receive the shares in place of the cash dividends.

154.Which of the following is not a legal restriction related to profit distribution?a. The amount distributed must be in compliance with the laws governing corporations.b. The amount distributed can never exceed the net income reported for the year.c. Profit distribution must be formally approved by the board of directors.d. Dividends must be in full agreement with the capital contracts as to preferences.

155. Trading on the equity isa. The ratio of the cash dividend to net income.b. A return on assets that is higher than the cost of financing these assets.c. The amount each share would receive if the entity were liquidated.d. The revaluation surplus.

ANSWER

151. C

152. B

153. B


154. B

155. B

Page 32

SHARE BASED COMPENSATION156. The entity has issued a range of share options to employees. What type of share-based payment

transaction does this represent?a. Asset-settled share-based payment transactionb. Equity-settled share-based payment transactionc. Cash-settled share-based payment transactiond. Liability-settled share-based payment transaction

157. Which of the following statements in relation to share options granted to employees in exchange for their services is true?a. The services received shall be measured at the fair value of the employees' services.b. Fair value shall be measured at the date the options vest.c. Fair value shall be measured at the date of exercise.d. None of these

158. Which of the following option valuation techniques should not be used as a measure of fair value of share options in the first instance?a. Black-Sholes modelb. Binomial modelc. Monte-Carlo modeld. Intrinsic value

159. An entity has entered into a contract with another entity for the latter to supply a range of services. The payment for those services will be in cash and based upon the price of the entity's ordinary shares on completion of the contract. What type of share-based payment transaction does this represent?a. Asset-settled share-based payment transactionb. Liability-settled share-based payment transactionc. Cash-settled share-based payment transactiond. Equity-settled share-based payment transaction

160. If share-based payment transaction provides that the employees have the right to choose the settlement whether in cash or shares, the entity is deemed to have issued

a. A compound financial instrument b. An equity instrument c. A liability instrument d. Either an equity instrument or liability instrument but not both

ANSWER

156. B


157. D

158. D

159. C

160. A

Page 33

EARNINGS PER SHARE161. EPS disclosures are required for

a. Entities whose ordinary shares and potential ordinary shares are publicly traded.b. Entities that are in the process of issuing ordinary shares in the public market.c. All entitiesd. Entities whose ordinary shares and potential ordinary shares are publicly traded or entities

that are in the process of issuing ordinary shares in public market.

162. Earnings per share should always be shown separately fora. Net income and gross profitb. Net income and pretax incomec. Income from continuing operationsd. Discontinued operations and prior period adjustments

163. For an entity having several different issues of convertible securities, and share options and warrants, the standard requires selection of the combination of securities producinga. The lowest possible earnings per share.b. The highest possible earnings per share.c. The EPS figure midway between the lowest possible and the highest possible EPS.d. Any EPS figure between the lowest possible and the highest possible EPS.

164. When calculating basic EPS, which of the following is correct regarding the calculation of weighted average ordinary shares outstanding?a. Convertible preference shares that were converted during the period are included in the

calculation of weighted average ordinary shares outstanding, and time-weighted.b. Convertible preference shares are ignored if not converted during the year.c. Stock dividends declared during the year are treated as if outstanding at the beginning of the

year.d. All of these statements are correct.

165. Which of the following statements is correct regarding a net loss for the period as it related to the numerator of the EPS calculation?

I. In the event of a net loss for the period, declared dividends on noncumulative preference shares are added to the net loss even if the dividend was not paid.

II. In the event of a net loss for the period, current year dividends on cumulative preference shares are added to the net loss regardless of whether the dividends have been declared.

a. I onlyb. II onlyc. Both I and IId. Neither I nor II


ANSWER

161. D

162. C

163. A

164. D

165. C

Page 34

CASH AND ACCRUAL BASIS

166. Under International Financial Reporting Standardsa. The cash basis method of accounting is accepted.b. Events are recorded in the period in which the events occur.c. Net income will be lower under the cash basis than accrual basis accounting.d. All of the choices are correct.

167. Which of the following correctly describes the difference between accrual accounting and cash basis accounting as it relates to revenue?

I. Under accrual accounting, if the earnings process is not complete, revenue is nevertheless recorded if the cash has already been received.

II. Under the cash basis, if cash has been collected, revenue can be recorded even if the earnings process is not complete.

a. I onlyb. II onlyc. Both I and IId. Either I nor II

168. If ending balance of accounts receivable exceeds the beginning balance of accounts receivablea. Cash collections during the period exceed the amount of revenue earned.b. Net income for the period is less than the amount of cash basis income.c. No cash was collected during the period.d. Cash collections during the year are less than the amount of revenue earned.

169. When converting from cash basis to accrual basis accounting, which of the following adjustments should be made to cash receipts from customers to determine accrual basis revenue?a. Subtract ending accounts receivableb. Subtract beginning unearned service revenuec. Add ending accounts receivabled. Add cash sales

170. When converting from cash basis to accrual basis accounting, which of the following adjustments should be made to cash paid for operating expenses to determine accrual basis operating expenses?a. Add beginning accrued liabilitiesb. Subtract beginning prepaid expensec. Subtract ending prepaid expensed. Subtract interest expense


ANSWER

166. B

167. B

168. D

169. C

170. C

Page 35

ERROR CORRECTION

171. The failure to record a purchase of merchandise on account even though the goods are properly included in the physical inventory results in

a. An overstatement of asset b. An understatement of asset and net income.c. An understatement of cost of goods sold and liability and an overstatement of assetd. An understatement of liability and an overstatement of equity.

172. An entity received merchandise on consignment at year-end and had recorded the transaction as a purchase and included the goods in inventory. The effect of this on the financial statements would be

a. No effect.b. Net income was correct and current assets and current liabilities were overstated.c. Net income, current assets and current liabilities were overstated.d. Net income and current liabilities were overstated.

HYPERINFLATION

173. During a period of inflation in which a liability account balance remains constant, which of the following occurs?a. A purchasing power loss if the item is a nonmonetary liability.b. A purchasing power gain if the item is a nonmonetary liability.c. A purchasing power loss if the item is a monetary liabilityd. A purchasing power gain if the item is a monetary liability.

174. Which method of measuring prices and price changes ignores asset appreciation but adjusts for changes in the purchasing power of the peso?a. Historical cost/constant pesob. Historical cost/nominal pesoc. Current cost/nominal pesod. Current cost/constant peso

175. Which method of measuring prices and the effects of price changes involves adjustment for both purchasing power and appreciation of assets?a. Historical cost/constant pesob. Historical cost/nominal pesoc. Current cost/nominal pesod. Current cost/constant peso

ANSWER


171. D

172. B

173. D

174. A

175. D

Page 36

STATEMENT OF CASH FLOWS

176. The primary purpose of the statement of cash flows is to provide informationa.About the operating, investing, and financing activities of an entity during a period.b. That is useful in assessing cash flow prospects.c.About the cash receipts and cash payments of an entity during a period.d. About the entity’s ability to meet its obligations, its ability to pay dividends, and its needs

for external financing.

177. One of the benefits of the statement of cash flows is that it helps users evaluate financial flexibility. Which of the following explanations is a description of financial flexibility?a. The nearness to cash of assets and liabilities.b. The ability to respond and adapt to financial adversity and unexpected needs and

opportunities.c. The ability to pay debts on maturity.d. The ability to invest in a number of projects with different objectives and costs.

178. Free cash flow is calculated as net cash provided by operating activities lessa. Capital expendituresb. Dividendsc. Capital expenditures and dividendsd. Capital expenditures and depreciation

179. Which of the following statements is correct?a. The indirect method starts with income before income tax.b. The direct method is known as the reconciliation method.c. The direct method is more consistent with the primary purpose of the statement of cash

flows.d. All of these statements are correct.

180. All of the following could potentially be classified as either operating or investing cash flows, excepta. Interest receivedb. Dividends receivedc. Taxes paid that are specifically identified with investingd. Dividends paid

ANSWER

176. C


177. B

178. C

179. C

180. D

Page 37

SMALL AND MEDIUM-SIZED ENTITIES

181. If an SME that uses the PFRS for SMEs in the current year breaches the ceiling of the size criteria at the end of the current year, the entity isa. Required to transition to full PFRS at the current year-end.b. Required to transition to full PFRS at the current year-end if the event that caused the

change is significant and continuing.c. Required to transition to full PFRS in the next year if the event that caused the change is

significant and continuingd. Not required to transition to full PFRS.

182. All of the following can be done by a first-time adopter of PFRS for SMEs in the opening statement of financial position, excepta. Recognize all assets and liabilities whose recognition is required by PFRS for SMEs.b. Recognize all assets and liabilities required by full PFRS even if the PFRS for SMEs does

not require such recognition.c. Reclassify items that it recognized under a previous accounting framework as one type

of asset, liability or equity but a different type of asset, liability or equity under PFRS for SMEs.

d. Apply PFRS for SMEs in measuring all recognized assets and liabilities.

183. An SME whose only changes to equity in the periods for which financial statements are presented arise from profit or loss, payment of dividends, corrections of prior period errors, and changes in accounting policya. Is required to present a statement of income and retained earnings in place of a statement

of comprehensive income and a statement of changes in equity.b. Is permitted but not required to present a statement of income and retained earnings in

place of statement of comprehensive income and a statement of changes in equity.c. Must choose to present either a statement of comprehensive income or a statement of

changes in equity.d. That chooses to present a statement of income and retained earnings must also present a

statement of comprehensive income and a statement of changes in equity.

184. Which of the following statements is true about subsequent measurement of basic financial instruments?a. Basic debt instruments are measured at amortized cost using the effective interest

method.b. Investments in nonputtable ordinary shares are measured at fair value through profit or

loss if the shares are publicly traded or if the fair value can be measured reliably.c. Investments in nonconvertible and nonputtable preference shares which are not publicly

traded or whose fair value cannot be measured reliably are measured at cost less impairment.


d. All of these statements are true.

185. The reconciliation of equity under the previous reporting framework to the equity under PFRS for SMEs is made ata.The date of transition to PFRS for SMEs.b. The end of current reporting period.c.The date of transition to PFRS for SMEs and at the end of current reporting period.d. The end of the preceding comparative period.

ANSWER181. C

182. B

183. B

184. D

185. C

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BUSINESS COMBINATION

186. The acquisition method of accounting for a business combination requires all of the following, excepta. Identifying the acquirer.b. Determining the acquisition date.c. Recognizing and measuring the identifiable assets acquired, the liabilities assumed and

the noncontrolling interest in the acquiree at carrying amount.d. Recognizing goodwill or gain from bargain purchase.

187. Which statement is incorrect concerning an acquirer?a.In a business combination effected by transferring cash or other assets, the acquirer is

usually the entity that transfers the cash or other assets.b. In a business combination effected by issuing equity interest, the acquirer is usually the

entity that issues the equity interest.c.The acquirer is usually the combining entity whose relative size is significantly greater than

that of the combining entity or entities.d. If a new entity is formed to issue equity interests to effect a business combination, the new

entity formed is necessarily the acquirer.

188. How should an entity account for the incomplete information in preparing the financial statements immediately after the acquisition?a. Do not record the uncertain items until complete information is available.b. Record a contra account to the investment account for the amounts involved.c. Record the uncertain items at the carrying amount of the acquiree.d. Record the uncertain items at a provisional amount measured at the date of acquisition.

CONSOLIDATED FINANCIAL STATEMENTS

189. Which of the following is not a valid condition that will exempt an entity from preparing consolidated financial statements?a. The parent entity is a wholly owned subsidiary of another entity or partially owned and

the other owners do not object to the nonconsolidation.b. The parent entity’s debt or equity capital is not traded on the stock exchange.c. The ultimate parent entity produces consolidated financial statements available for public

use that comply with PFRS.d. The parent entity is in the process of filing its financial statements with a securities

commission for the purpose of issuing any class of instruments in a public market.


190. Which of the following conditions is required to exclude a subsidiary from consolidation?a. The other owners object to the nonconsolidation.b. The parent makes an election not to consolidate.c. The other owners do not object to the nonconsolidation and the subsidiary does not have

any publicly traded debt or equity instruments.d. The parent must own 100% of the subsidiary.

191. The noncontrolling interest should be recorded at what amount?a. The fair value of the shares held by the acquirerb. The fair value of the shares not held by the acquirer or the proportionate share of the fair

value of net identifiable assets of the acquireec. The proportionate share of the carrying amount of net identifiable assets of the acquireed. The fair value of the shares held by the noncontrolling interest plus goodwill

Page 39

FOREIGN CURRENCY

192. For reporting purposes, currencies are defined asa. International and functionalb. Foreign, functional and presentationc. Domestic and internationald. Operating, international and presentation

193. If the functional currency is the same as the presentation currency, any translation gain or loss is generally reported asa. A gain or loss in the income statement b. A gain or loss in other comprehensive incomec. A gain or loss directly in retained earnings d. An extraordinary item in the income statement

194. Which of the following is not a requirement regarding foreign currency translation?a. Nonmonetary items measured at historical cost are translated at the historical rate.b. Monetary items are translated at the year-end spot rate.c. If the functional currency is the same as the presentation currency, gains or losses are

reported in profit and loss for the period.d. If the functional currency is not the same as the presentation currency, gains or losses are

deferred to future periods.

195. A sale of goods denominated in a currency other than the entity’s functional currency resulted in a receivable that was fixed in terms of the amount be received. What is the treatment of any resulting gain when exchange rates between the functional currency and the currency in which the transaction was denominated changed?a. Translation gain as component of other comprehensive incomeb. Translation gain as component of income from continuing operationsc. Transaction gain as component of other comprehensive incomed. Transaction gain as component of income from continuing operations

ANSWER

186. C 191. B

187. D 192. B

188. D 193. A


189. D 194. D

190. C 195. D

Page 40

GOVERNMENT ACCOUNTING

196. What is the legal basis of the COA in prescribing the New Government Accounting System?a.Presidential Decreeb. Legislative Actc.Constitution of the Republic of the Philippinesd. Recommendation of the International Monetary Fund

197. With regard to the objective of governmental reporting, the idea that government should be accountable to the public by demonstrating that resources allocated for a specific purpose are used for that purpose is described asa. Operational accountabilityb. Fiscal accountabilityc. Both operational and fiscal accountabilityd. Neither operational nor fiscal accountability

NONPROFIT ORGANIZATION

198. A successful alumnus of a private university has recently donated a certain amount to the university for the purpose of funding a “center for the study of sports ethics”. This donation

is conditional upon the university raising an amount matching the donation within twelve months. The university administrators estimate that they have a 50% chance of raising the additional money. How should this donation be accounted for?

a. As a temporarily restricted supportb. As unrestricted supportc. As a refundable advanced. As a memorandum entry reported in the notes.

199. All of the following are classified as financing activities of a nonprofit organization, except

a. Cash contribution to be permanently invested.b. Cash dividend and interest to be used for the acquisition of computer equipment.c. Cash contribution restricted by donor for faculty developmentd. Cash contribution from a donor who stipulated that the money be spent in accordance with

the decision of the governing board.

200. During the current year, a storm damaged the roof of Homeless Shelters, a nonprofit voluntary health welfare organization. One supporter of Homeless Shelters, a one-time homeless man


himself, now a trained professional roofer, repaired the roof at no charge. In the statement of activities for the current year, the damage and repair of the roof should be reported asa.Note disclosure onlyb. Increase in net assets and contributionsc.Increase in both expenses and contributionsd. Nothing to be reported at all

ANSWER

196. C

197. B

198. C

199. D

200 C

E N D


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