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Theory of Accounts PDF
Theory of Accounts PDF
THEORY OF ACCOUNTS
1. Under PAS 32, which of the following assets is not a financial asset?
a. Deferred revenue
b. A warranty obligation
c. A constructive obligation
d. An obligation to deliver own shares worth a fixed amount of cash
a. A preference share that will be redeemed by the issuer for cash on the future date
b. A contract for the delivery of as many of the entity's ordinary shares as is equal in value to
P100, 000 on a future date
c. A written call option that gives the holder the right to purchase a fixed number
of the entity's ordinary shares in return for a fixed price
d. An issued perpetual debt instrument
a. The issuer shall classify a compound instrument as either a liability or equity based on
evaluation of the predominant characteristic of the contractual arrangement.
b. The issuer shall classify the liability and equity components or a compound instrument
separately as financial liability or equity instrument.
c. The issuer shall classify a compound instrument as a liability in it’s entirely, until
converted into equity component is detachable and separately transferable, in
which case the liability and equity component shall be presented separately.
d. The issuer shall classify a compound instrument as a liability in it’s entirely, until
converted equity.
6. 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. First, equity component is measured at fair value, and then the remainder of the
proceeds is allocated to the liability component.
c. First, the fair values of both the equity component and the liability component as
estimated. Then the proceeds are allocated to the liability and equity components
based on the relation between the estimated fair value.
d. The equity component is measured at its intrinsic value. The liability component
is measured at the paramount less the intrinsic value of the equity component.
7. What are the conditions for offsetting of financial assets and financial liabilities?
9. Transaction costs that are directly attributed to the “issuance of new shares” should be
a. Expensed immediately
b. Charged to retained earnings
c. Deducted from equity
d. Deducted from equity, net of any related income tax benefit
10. Costs of public offering of shares or costs that relate to the “stock market listing of
Shares” should be
a. Expensed immediately
b. Considered a component of other comprehensive income
c. Deducted from equity
d. Deducted from equity, net of any related income tax benefit
11. Transaction costs directly attributable to the issuance of new shares include all of the
following, except
a. I only
b. I and II only
c. II and III only
d. I, II and III
13. What is the treatment of “joint costs” that relate jointly to the concurrent listing and
issuance of new shares, and listing of old existing shares?
14. Joint costs related to the concurrent listing and issuance of new shares and listing of old
existing shares include all of the following, except
15. Under PAS 33, contingent ordinary shares are treated as outstanding and included in the
computation of both and diluted earnings per share if the conditions are satisfied. Which of
the statements is true?
a. I only
b. II only
c. Both I and II
d. Neither I nor II
16. Entity A has an ordinary ‘A’ class, nonvoting share, which is entitled to a fixed
dividend of 6% per annum. The “A” class ordinary share will
a. Be included in the “per share” calculation after adjustment for the fixed dividend
b. Be included in the “per share” calculation for EPS without adjustment for the
fixed dividend.
c. Not be included in the “per share” calculation for EPS
17. Earnings per share are calculated before accounting for which of the following items?
18. Ordinary shares issued as part of a business combination are included in the EPS from
a. I only
b. II only
c. Both I and II
d. Neither I nor II
20. Under PAS 34, interim financial reports shall include as a minimum
a. The year-end financial statements are deemed not to comply with PFRS
b. The year-end financial statements compliance with PRFS is not affected
c. The year-end financial statements will not be acceptable under local legislation
d. Interim financial reports should be included in the year-end financial statements
a. Inventories
b. Financial assets
c. Assets held for sale
d. Property, plant and equipment
23. The internal sources of information indicating possible impairment include all of the
following, except
24. The external sources of information indicating possible impairment include all of the
following, except
25. When deciding on the discount rate to be used in calculating value in used, which
factor should not be taken into account?
27. Where part of a cash generating unit is disposed of, the goodwill associated with the
element disposed of
28. When allocating an impairment loss, such a loss should reduce the carrying amount of
which asset first?
30. A new dot-com entity has recently completed one of its highly publicized research
and development projects. Which of the following statements is true?
a. I only
b. II only
c. Both I and II
d. Neither nor II
33. A competitor has used an entity for unauthorized use of its patented technology. The
amount that the entity may be required to pay to the competitor if the competitor
succeeds in the lawsuit is determinable with reliability, and according to the legal
counsel is less that probable but more than remote than an outflow of the resources
would be needed to meet the obligation. The entity that was issued should be year-end
35. All of the following are characteristic of financial assets classified as held-to-maturity
investments, except
36. All of the following are characteristic of financial assets classified as loans and receivables,
except
a. They have to fixed or determinable payments
b. The holder can recover substantially all of its investment unless there has been
credit deterioration.
c. They are not quoted in an active market
d. The holder has a demonstrated positive intention and ability to hold them to
maturity.
a. The contractual rights to the cash flows of the financial assets have expired.
b. The financial asset has been transferred and substantially all the risks and rewards
of ownership of the transferred asset have also been transferred.
c. The financial asset has been transferred and the entity has retained substantially
all the risks and rewards of ownership of the transferred asset.
40. Which of the following transfer of financial asset would qualify for derecognition?
41. Which of the following is not a relevant consideration when evaluating whether to
derecognize a financial liability?
42. What is the best evidence of the fair value of a financial instrument?
43. Which of the following is not objective evidence of impairment of a financial asset?
a. It is acquired or incurred by the entity for the purpose of generating a profit from
short-term fluctuations in market factors.
b. Its value changes in response to the change in a specified underlying.
c. It requires no initial investment or an initial net investment.
d. It is settled at a future date.
46. This is defined as a "purchase or sale of a financial asset under a contract whose terms
require delivery of the asset within the time frame established generally be regulation or
convention in the market place concerned".
47. What is the meaning of "trade date accounting" in relation to regular way purchase or sale of
financial asset?
I. The recognition of the asset to be received and the liability to be paid on the date on which
the entity commits itself to purchase or sell an asset.
II. The recognition of the asset on the date received by the entity or derecognition of the asset
on the date by the entity.
a. I only
b. II only
c. Either I or II
d. Neither I nor II
a. Cost
b. Cost less accumulated depreciation and impairment losses.
c. Depreciable cost less accumulated impairment losses.
d. Fair value less accumulated impairment losses.
49. A gain arising from a change in the fair value of an investment property for which an entity
has opted to use the fair value model is recognized in
a. Historical cost
b. Historical cost less depreciation less impairment
c. A fair value approach
d. Net realizable value
52. An entity had a plantation forest that is likely to be harvested and sold in thirty years.
The income should be accounted for in which of the following way?
a. No income should reported annually until first harvest and sale in thirty 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 and matched to the profit and
loss account over the 30-year period
d. The plantation forest should be measured every five years and the increase in
value should be shown in the statement of recognized of gains and losses
53. Which of the following information shall be disclosed in relation to biological assets
and agricultural produce?
54. Where there is a production cycle of more than one year for biological asset, separate
disclosure is encouraged for
55. An unconditional government grant related to a biological asset that has been
measured at fair value less cost to sell should be recognized as
56. If a government grant related to a biological asset is conditional on certain events, the
grant should recognized as
58. An entity that presents its first PFRS financial statements known as
a. An originating entity
b. A provisional presenter
c. A first-time adopter
d. An initial reporter
60. Which of the following statements best describes the “date of transition to PFRS”?
a. The beginning of the latest period presented in the entity’s most recent annual
financial statements under previous GAAP
b. The end of the latest period presented in the entity’s most recent annual
financial under previous GAAP
c. The beginning of the earliest period for which an entity presents full comparative
information under PFRS in its first PFRS financial statements
d. The end of the earliest period for which an entity presents full comparative information
under PFRS in its first PFRS financial statements
61. Which of the following transaction involving the issuance of shared does not come within
the definition of a “share-based” payment under PFRS 2?
a. Reload feature
b. Reload option
c. Share option
d. Equity option
64. Under PFRS 3, which of the following examples is unlikely to meet the definition of
an intangible asset?
65. Which of the following would not contribute to the creation of negative goodwill?
a. Errors in measuring the fair value of the acquirer’s net identifiable assets or the
costs of the business combination
b. A bargain purchase
c. A requirement in PFRS to measure net assets acquired at the value other than
fair value
d. Making acquisitions at the top of a “bull” market for shares
66. PFRS 4 defines a reinsurance contract as a issued by one insurer, the reinsure, to
Compensate another insurer for losses on one or more contracts issued by the cedant.
What is the meaning of “cedant” in a reinsurance contract?
67. The recognition of unrealized gain or loss on the measurement of the financial assets
and insurance liabilities as a component of other comprehensive income is described
in insurance parlance as
a. Guaranteed benefits
b. Unconditional benefits
c. Proceeds of policy
d. Executory benefits
a. Insurance asset
b. Insurance liability
c. Reinsurance asset
d. Reinsurance liability
70. Which of the following accounting practices has been outlawed in relation to
insurance contracts?
a. Shadow accounting
b. Catastrophe provisions
c. A test for the adequacy or recognized insurance liabilities
d. An impairment test for reinsurance assets
71. All of the following are requirements for insurance contracts, except
72. Which of the following types of contracts would probably not be covered by PFRS 4?
a. Motor insurance
b. Life insurance
c. Medical insurance
d. Pension plan
73. Under PFRS 5, how should the assets and the 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 the disposal group should be shown separately from other assets
and the liabilities of the disposal group should be shown separately from other
liabilities
c. The assets and the liabilities should be presented as a single amount and as a
deduction from equity
d. There should be no separate disclosure assets and liabilities that form part of a
disposal group
74. An entity acquires a subsidiary exclusively with a view to selling it. The subsidiary
Meets the criteria to be classified as held for sale. At the end of reporting period, the
subsidiary has not yet been sold and six months have passed since its acquisition.
How will the subsidiary be valued at the date of the first financial statements after
acquisition?
a. Leave the noncurrent asset in the financial statements at its current carrying
amount
b. Premeasured the noncurrent asset at fair value
c. Measure the noncurrent asset at the lower of its carrying amount before the
asset was classified as held for sale adjusted for subsequent depreciation,
amortization or revaluation, and its recoverable amount at the date of the
decision not to sell
d. Recognize the noncurrent asset at its carrying amount prior to its classification
as held for sale adjusted for subsequent depreciation, amortization or
revaluation.
76. How should the income from discontinued operation be presented in the income
statement?
a. The entity should disclose a single amount on the face of the income statement
with analysis in the notes or s section of the income statement separate from
continuing operations.
b. The amounts from discontinue operations should be broken down over each
category of revenue and expense.
c. Discontinue operation should be shown as a movement on retained earnings
d. Discontinue operation should be shown as a line item after gross profit with the
taxation being shown as part of income tax expense
77. Which of the following criteria does not have to be met in order for an operation to be
classified as discontinued?
78. Does PFRS 6 require an entity to recognize exploration and evaluation expenditure as
asset?
a. Yes, but only to the extent such expenditure is recoverable in future periods
b. Yes, but only to the extent the technical feasibility and commercial viability of
extracting the associated mineral resource have been demonstrated
c. Yes, but only to the extent required by the entity’s accounting policy for
recognizing exploration and evaluation asset
d. No, such expenditure is always expensed in profit or loss as incurred
79. An entity is required to consider which of the following in developing accounting policies for
exploration and evaluation activities?
80. Which of the following would never qualify as an exploration and evaluation asset?
81. Which of the following is not a disclosure required in relation to exploration and
evaluation expenditures?
82. Which is not a characteristic of the “full cost” method of accounting in the oil and gas
industry?
a. All costs incurred in acquiring, exploring and developing within a defined cost
center are capitalized and amortized
b. Costs are capitalized even if a specific project in a cost center was a failure
c. Costs of unsuccessful acquisition and exploration activities are charged to
expense
d. Exploration and evaluation asset is classified either as tangible asset or an
intangible asset according to the nature of the asset
83. Under PFRS 7, the risks arising from financial instruments that are required to be disclosed
include all of the following, except
84. This defined as “the risk that one party to a financial instrument will cause a financial loss to
the other party by falling to discharge an obligation”
a. credit risk
b. liquidity risk
c. market risk
d. operational risk
85. Which of the following best describes “the risk that an entity will encounter if it has
difficulty in meeting obligations associated with its financial liabilities?
a. liquidity risk
b. credit risk
c. Financial risk
d. Payment risk
a. credit risk
b. liquidity risk
c. market risk
d. operational risk
88. Disclosure of information about significant concentration of credit risk is required for
I. The segment external and internal revenue in 10% or more of the combined
external and internal revenue of all operating segments
II. The segment profit or loss is 10% or more of the greater between the combined
external profit of all operating segments that reported profit and the combined loss
of all operating segments that reported loss
III. The assets of the segment are 10% or more of the total assets of all operating
segments
a. I and II only
b. I and III only
c. II and III only
d. I, II, and III
90. Which of the following statements is true about major costumer disclosure?
a. I only
b. II only
c. Both I and II
d. Neither I nor II
91. Under SIC 15, what is the treatment of operating lease incentives upfront cash,
reimbursement of costs incurred by lessee and rent-free period granted by the lessor to
the lessee?
I. The lessor shall recognize the aggregate cost of the incentives as a reduction of
the rent income over the lease term on s straight line basis
a. I only
b. II only
c. Both I and II
d. Neither I nor II
92. Under IFRIC 2, members shares in cooperatives may give the holder the right to
request redemption for cash or other financial asset. Such members shares shall be
accounted for as
a. Equity
b. Liability
c. Either as equity or liability
d. Party equity and party liability
I. If the entity has the unconditional right to refuse redemption of members shares
II. If the redemption of members shares is unconditionally prohibited by law
a. I only
b. II only
c. Both I and II
d. Neither I nor II
95. Which of the following describes a principal market for establishing fair value of an
asset?
a. The market that has the greatest volume and level of activity for the asset
b. Any broker or dealer market thay buys or sells the asset
c. The most observable market in which the price of the asset is minimized
d. The market in which tha amount received would be maximized
96. Which of the following would meet the qualifications as market participants?
98. Which of the following is not a valuation technique used in fair value estimates?
a. Income approach
b. Residual value approach
c. Market approach
d. Cost approach
99. Valuation techniques for fair value that include the Black-Scholes formula, a
binomial model, or discounted cash flows are examples of which valuation technique?
a. Income approach
b. Market approach
c. Cost approach
d. Exit value approach
100. The market approach valuation technique for measuring fair value requires which of
the following?