i CPA REVIEW SCHOOL OF THE PHILIPPINES i Manita THEORY OF ACCOUNTS Saturday, April (8, 2015 Final Preboard Examination 8:00 a.m. to 9:30 am. SET A MULTIPLE CHOICE : MARK FULLY with Pencil No. 2 the letter of your choice on the answer sheet provided. Make the mark DARK but do not use too much pressure. ERASURES ARE STRICTLY NOT ALLOWED. 1, What is the authoritative status of the Conceptual Framework? a. The Conceptual Framework has the highest level of authority b. In the absence of a Standard or an Interpretation that specifically applies to a transaction, the Conceptual Framework should be followed. ©. In the absence of a Standard or an Interpretation that specifically applies to a transaction, ‘management should consider the applicability of the Conceptual Framework in developing and applying an accounting policy that results in information that is relevant and reliable. 4. The Conceptual Framework applies only when new or revised standards are developed. 2. Which of the following statements conceming the Conceptual Pramework is incorrect? a. The Conceptual Framework is a reporting standard, b, Primary responsibility for the preparation and presentation of the financial statements of the entity rests with management. c. Financial statements must not exclude complex matters in order to achieve understandabifity. | 4. Where any conilict arises between the Conceptual Framework and PERS, the requirements of the PFRS prevail 3. What is an enhancing quality described ia 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, a ‘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. 4, Which of the following information is not specifically a required disclosure? | a. Name of the reporting entity or other means of identification, and any change in that information from the previous year. b. Names of major shareholders of the entity ¢, Level of rounding used in presenting the financial statements. 4. Whether the financial statements cover the individual entity or a group of entities. 5. In presenting a statement of financial position, an entity a, Must make the current and noncurrent presentation. b. Must present assets and liabilities in order of liquidity. ¢. Must choose either the current and noncurrent or the liquidity presentation. d. Must inake the current and noncurrent presentation except when a presentation based on liquidity provides information that is reliabie and more relevant. 6. 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. TERS requires a maturity analysis for receivables, _ fe JERS 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.Page 2 7. Which is not within the definition of inventories? a, Used in the production or supply of goods and services for adininistrative purposes b. Held for sale in the ordinary course of business . Inthe process of production for such sale 4. Ip the form of materials or supplies to be consumed in the production process or the rendering of services 8. Which of the following costs should be included in inventory valuation? a, Administrative costs b. Abnormal material usage c. Storage costs relating to finished goods 4. Fixed production overhead 9. Why are inventories measured at lower of cost and net realizable value? To report a loss when there is a decrease in the future utility. To be conservative. To report a loss when there is a decrease in the future utility below the original cost To permit future profit to be recognized. eose 10, How should an unrealized gain on foreign currency transaction be presented in a statement of cash flows? a. As an inflow under “financing activities” because it arises from a foreign currency transaction. b. Itshould be ignored as it is an unrealized gain, c. Itshould be disclosed in the notes to the financial statements by way of abundant precaution, d. Asan adjustment to the net income under “operating activities”. 11. One of the benefits of the statement of cash flows is that it helps users evaluate financial Bexibility. Which of the following explanation is a description of financial flexibility? a, The nearness to cash of assets and liabilities. . The ability to respond and adapt to financial adversity and unexpected needs and opportunities. c, The ability to pay debts on maturity, 4. The ability to invest in a number of projects with different objectives and costs. 12, When the residual value of plant and machinery had drastically changed, the entity should a. Retrospectively change the depreciation charge based on the revised residual value. b, Change the depreciation charge and treat it as a correction of an ertor. ©. Change the annual depreciation for the current year and future years. 4d. Ignore the effect of the change on annual depreciation. 13. Which of the following should be treated as change in accounting policy? a, A new accounting policy of capitalizing development cost as a project has become eligible for capitalization for the first time. b, An entity engaged in construction contract for the first time needs an accounting policy to deal with this. c. Acchange is to be made in the method of calculating the provision for uncollectible accounts d. Investment properties are now measured at fait value, having previously been measured at cost. : 14, Which is the reason why entities are permitted to change accounting policy? a. The change would allow the presentation of a more favorable profit picture bb. 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, 4d, The change will be long-term,Page 3 15. Which of the following statements is true in relation to events after reporting period? a. Notes to financial statements should give details of material adjusting events included in those financial statements. b. Notes to financial statements should give details of material nonadjusting events which could influence the economic decision of users. cc. A decline in the market value of investments after the end of reporting period but before authorization of financial statements would normally be classified as an adjusting event. d. The settlement of a long running court case afier the end of reporting period but before authorization of financial statements would normally be classified as nonadjusting event. 16. Which of the following statements is not true regarding income taxes? a, Deferred tax liabilities are the amounts of income taxes payable in future periods in respect of taxable temporary differences. “b. Deferred tax assets are the amount of income taxes recoverable in future periods in respect of deductible permanent differences. ¢. Interest expense accrued for financial accounting but included in taxable income on a cash basis should be classified under deductible temporary differences. d. Where accumulated depreciation on an asset is greater than accumulated tax depreciation, the amount should be classified under deductible temporary differences. 17. Entities use intraperiod tax allocation for all of the following items, except a Discontinued operations b. Prior period adjustments c. Changes in accounting estimate d. Income from continuing operations 18. Which of the following statements best describes residual value? a. The estimated net amount currently obtainable if the asset were at the end of useful life ’. ‘The present value of estimated future cash flows expected to arise from the continuing use of the asset and from the ultimate disposal ¢. The amount at which the asset could be exchanged between knowledgeable, willing parties in an arm's fength transaction 4, The amount of cash or cash equivalents that could currently be obtained by selling the asset in an orderly disposal 19. Which of the following statements best describes the carrying amount of an asset? The cost or an amount substituted for cost of the asset less residual value b. The amount at which the asset is recognized after deducting any accumulated depreciation and accumulated impairment losses ©. The higher between net selling price and value in use 4, The fair value of the asset at the date of a revaluation less any subsequent accumulated impairment losses 20, Which of the following disclosures is not required for property, plant and equipment? a. The existence and amounts of restrictions on title b. A narrative discussion of future capital expenditure plans ¢. The depreciation method used 4, The measurement basis used for determining the gross carrying amount 24. When an entity chooses the revaluation model as the accounting policy for measuring property, plant and equipment, which of the following statements is trae? 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. Increase in an asset's carrying amount as a result of the first revaluation must be recognized as a component of profit or loss.