Junior Philippine Institute of Accountants – Bulacan State University

Level 1 Mock Qualifying Examination 2019

Conceptual Framework and Accounting Standards
Directions: Use ball pen only. Write your answer in the answer sheet. Strictly NO ERASURES.
1. S1: At present, the FRSC has adopted in their entirety all International Accounting Standards and International
Financial Reporting Standards.
S2: The definition given by the American Accounting Association states that accounting has a number of components,
namely:
- Identifying as the analytical component.
- Measuring as the formal component.
- Communicating as the technical component.
S3: The Securities and Exchange Commission shall not register any corporation organized for the practice of public
accountancy.
S4: Financial accounting is the accumulation and preparation of financial reports for internal users.
S5: The FRSC is the accounting standard setting body created by the Board of Accountancy upon the recommendation of
the Professional Regulation Commission.

How many statements are false?

a. One
b. Two
c. Three
d. Four

2. It is the information about the entity’s economic resources and the claims against the reporting entity.

a. Financial Position
b. Financial Performance
c. Financial Stability
d. Financial Flexibility

3. When there is agreement between a measure or description and the phenomenon it purports to represent, the
information possesses which characteristic?

a. Predictive value
b. Verifiability
c. Timeliness
d. Faithful representation

4. S1: Consolidated financial statements are the financial statements prepared when the reporting entity comprises both
the parent and its subsidiaries.
S2: A reporting entity is not necessarily a legal entity.
S3: The Conceptual Framework for Financial mentions four assumptions, namely going concern, accounting entity, time
period and monetary unit.

How many statements are true?

a. One
b. Two
c. Three
d. None

5. Under the Revised Conceptual Framework, a decrease in an asset arising from a peripheral transaction is called

a. Revenue expenditure
b. Loss
c. Cost
d. Expense

6. Which is an example of the expense recognition principle associating direct matching?

a. Sales commissions
b. Officers’ salaries
c. Allocation of insurance cost
d. Depreciation of property, plant and equipment

7. The physical capital maintenance concept requires the adoption of what measurement basis?

a. Historical cost
b. Current cost
c. Fair value
d. Present value

8. S1: PAS 1, paragraph 74, provides that the liability is classified as current even if the lender has agreed, after the
reporting period and before the statements are authorized for issue, not to demand payment as a consequence of the
breach.
S2: The noncontrolling interest is presented below share capital and reserves in the line items in statement of financial
position.
S3: In practice, there are two customary forms in presenting the statement of financial position, namely report and
account form.

How many statements are true?

a. One
b. Two
c. Three
d. None

9. Which of the following line items of other comprehensive income will be reclassified subsequently to profit or loss?

a. Unrealized gain or loss on derivative contracts designated as cash flow hedge.

b. Revaluation surplus during the year.
c. Unrealized gain or loss on equity investment measured at fair value through other comprehensive income.
d. Change in fair value attributable to credit risk of a financial liability designated at fair value through profit or loss.

10. Valix Company purchased inventory from various countries for export to other countries. The entity incurred the
following costs during the current year:

Cost of purchase based on vendors’ invoices 4,500,000

Trade discounts on purchases not yet deducted from
vendors’ invoices 100,000
Import duties 200,000
Freight and insurance on purchases 500,000
Other handling cost relating to imports 50,000
Salaries of accounting department 750,000
Brokerage commission paid to agents for arranging imports 250,000
Sales commission 175,000
After-sales warranty cost 325,000

What is the total cost of the purchase?

a. 5,400,000
b. 5,850,000
c. 5,525,000
d. 5,500,000

11. CK Company uses the direct method to prepare its statement of cash flows. CK had the following cash flows during
2018:

Cash receipts from sale of an old van P 160,000

Cash receipts from issuance of ordinary shares 2,000,000
Cash receipts from issuance of 10%, 10-year bonds 1,500,000
Cash receipts from customers 1,000,000
Cash receipts from repayment of loan made to another company 1,200,000
Cash receipts for dividends 150,000
Cash receipts as interest 150,000
Cash payments for operating expenses 650,000
Cash payments for taxes 300,000
Cash payments for equity securities bought 900,000
 Cash payments for equipment purchased 300,000
Cash payments for land acquired 1,200,000

What is the net cash provided (used) from investing activities?

a. (P 1,040,000)
b. P 1,640,000
c. P 1,940,000
d. (P 2,240,000)

12. On January 1, 2015, Jamboi Company acquired equipment for 750,000 with a 10-year useful life and 100,000 residual
value. Double-declining balance method of depreciation is used. During 2019, the entity determined that the useful life
from the date of acquisition was only 7 years and the residual value would be 50,000. The depreciation method also
changed from double-declining balance to sum of the years digit method.

What is the carrying amount of the equipment on December 31, 2019?

a. 204,800
b. 178,600
c. 219,429
d. 245,760

13. At the end of the current reporting period, an entity carried a receivable from a major customer. The customer
declared bankruptcy after the end of reporting period but prior to authorization of financial statements. How should the
entity account for this event?

a. Ignore the event.

b. Make a provision for this post-reporting period event.
c. Disclose in the notes that fact that the customer declared bankruptcy.
d. Reverse the sale pertaining to this receivable in the comparative statement for the prior period.

14. Michael Bato Company owns a tract of land that it purchased for 2,000,000. The land is held as a future plant site
and has fair value of 3,000,000 on the date of exchange. Meanwhile, Jonas Manok Company also owns a tract of land.
Jonas Manok paid 3,500,000 for the land and has a fair value of 3,200,000 on the date of exchange. On the date of
exchange, Michael Bato exchanged its own land and received 200,000 from Jonas Manok. The configuration of cash
flows from land acquired is expected to be insignificantly different from the configuration of cash flows of the land
exchanged.

At what amount should Jonas Manok record the land acquired in the exchange?

a. 3,700,000
b. 2,200,000
c. 2,800,000
d. 3,300,000

15. The account deferred grant revenue is generally classified as

a. Revenue
b. Other income
c. A noncurrent liability
d. A separate component of shareholders’ equity

16. Swing Company had the following loans outstanding for 2018.

Specific construction loan 1,000,000 10%

General loan 20,000,000 12%

The entity began the self-construction of a building on January 1, 2019 and the building was completed on December 31,
2019.

The following expenditures were made during the year:

January 1 1,000,000
July 1 2,000,000
November 1 3,000,000
What is the interest expense for 2019?

a. 2,220,000
b. 2,400,000
c. 2,120,000
d. 0

17. If there have been related party transactions during the year, which of the following is not a required minimum
disclosure?

a. The amount of the related party transactions.

b. The amount of the outstanding balance along with terms and conditions.
c. The amount of similar transactions with unrelated parties to establish that comparable related party transactions have
been entered into at arm’s length.
d. Provisions for doubtful debts related to the amount of outstanding balance and expense recognized during the year in
respect of bad dets due from related parties.

18. At the beginning of current year, Clarence Company purchased 20% of Czarine Company’s ordindery shares
outstanding for 5,000,000. All assets of Czarine are fairly valued except for a land that is 200,000 greater than the
carrying amount. The land remained unsold at year-end. During the current year, the investee reported net income of
1,000,000 and paid cash dividend of 250,000.

What is the carrying amount of the investment in associate at year-end?

a. 5,200,000
b. 5,150,000
c. 4,950,000
d. 5,000,000

19. Resurreccion Corporation has the following income before tax and annual effective tax rate for the first three
quarters of the current year:

Income before tax Tax rate

First quarter 2,000,000 30%
Second quarter 2,500,000 30%
Third quarter 2,250,000 25%
Total 6,750,000

What will be the income tax expense for the third quarter?

a. 562,500
b. 675,000
c. 337,500
d. 287,500

20. Flores Company determined that the electronics division is a cash generating unit. The entity calculated the value in
use of the division to be 8,000,000. The entity reported the following assets of the cash generating unit at carrying
amount:

Building 5,000,000
Equipment 2,500,000
Goodwill 2,000,000
Total 9,500,000

What is the impairment loss on building?

a. 2,000,000
b. 1,500,000
c. 500,000
d. 0

21. 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.

22. Darwin Ltd. Purchased an investment property on January 1, 2017 for 2,200,000. The property had a useful life of 40
years and on December 31, 2019 had a fair value of 3,000,000. On December 31, 2019 the property was sold for net
proceeds of 2,900,000.

What is the gain or loss to be recognized for the year ended December 31, 2019 regarding the disposal of the property
using cost and revaluation method, respectively?

a. 865,000 gain, 100,000 loss

b. 865,000 loss, 100,000 gain
c. 865,000 gain, 100,000 gain
d. 865,000 loss, 100,000 loss

23. Biological transformation results from asset changes through all of the following, except

a. Growth
b. Degeneration
c. Procreation
d. Production of agricultural produce

24. S1: Any revaluation surplus recognized previously is eliminated in a hyperinflationary economy.
S2: Nonmonetary items are restated by applying the general price index from the date of acquisition to the end of
reporting period.
S3: Advances from customers and deferred revenue are monetary items.

a. True, True, True.

b. True, False, True
c. True, True, False
d. False, True, True

25. S1: When the provision involves a large population of all items, the estimate of the amount reflects the weighting of
all possible outcomes by their associated probabilities.
S2. When the provision arises from a single obligation, the estimate of the amount is the midpoint of the possible
outcomes.
S3: The amount recognized as a provision should be the best estimate of the expenditure required to settle the present
obligation at the end of the reporting period.

a. Only one statement is true.

b. Only two statements are true.
c. All statements are true.
d. None of the foregoing choices are correct.

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

27. Accounting income is

a. The income for a period before deducting tax expense.

b. The income for a period determined in accordance with tax law.
c. The income for a period after deducting tax expense.
d. The income after current tax expense determined in accordance with tax law.

28. At the beginning of current year, RV Company reported fair value of plan assets at 6,500,000 and projected benefit
obligation at 7,500,000.

During the current year, the entity determined that the current service cost was 1,200,000 and the actual return on plan
assets was 800,000 during the year.

The entity provided the following information during the year related to the defined benefit plan:
 Contribution to the plan 1,200,000
Benefits paid to retirees 1,500,000
Decrease in projected benefit obligation due to change in 200,000
actuarial assumptions
Discount rate 10%

What is the projected benefit obligation on December 31?

a. 7,750,000
b. 8,700,000
c. 9,250,000
d. 7,950,000

29. Pamela Company reported the following capital structure:

2015 2016
Outstanding shares:
Ordinary shares 110,000 110,000
Convertible preference shares 10,000 10,000

During 2015, the entity paid preference dividends of P3 per share. The preference shares are convertible into 20,000
ordinary shares. Net income for 2015 was P850,000. The income tax rate is 30%. What amount should be reported as
diluted earnings per share for 2015?

a. 6.31
b. 6.54
c. 7.08
d. 7.45

30. Julie Company is a first-time adopter of PFRS. The most recent financial statements it presented under previous
GAAP were on December 31, 2019. The entity adopted PFRS for the first time and intended to present the first PFRS
financial statements on December 31, 2020. The entity plans to present a two-year comparative information for years
2018 and 2019. Julie Company’s operation commenced on January 1, 2017. The opening PFRS statement of financial
position should be prepared on

a. January 1, 2019
b. January 1, 2017
c. January 1, 2018
d. January 1, 2020

31. On January 1, 2015, an entity granted to employees 10,000 share options. On January 1, 2016, the entity granted to
employees an additional 20,000 share options.

Date Fair value of share

January 1, 2015 20
December 31, 2015 22
January 1, 2016 25
December 31, 2016 30

The shares vest at the end of a four-year period. There are no forfeitures. What amount should be recorded as
compensation expense for 2016?

a. 175,000
b. 205,000
c. 225,000
d. 500,000

32. Keisser Company accounted for noncurrent assets using the cost model. On October 30, 2019, the entity classified an
equipment as an asset held for sale. At that date, the carrying amount was 1,500,000, the fair value was estimated at
1,100,000 and the cost of disposal at 150,000 while its value in use was estimated at 925,000. On November 20, 2019,
the asset was sold for net proceeds of 1,000,000.
What amount should be reported as loss on disposal in 2019?

a. 550,000
b. 700,000
c. 150,000
d. 0

33. Rose Anne Company committed to sell the comic book division, a component of the business, on September 1, 2019.
The carrying amount of the division was 4,000,000 and the fair value was 3,900,000. The disposal date is expected on
June 1, 2020. The division reported an operating loss of 200,000 for the year ended December 31, 2019.

What amount should be reported as pretax loss from discontinued operation in 2019?

a. 100,000
b. 200,000
c. 300,000
4. None of these

34. Which type of expenditure is included in exploration and evaluation of mineral resources?

a. The extraction and processing of mineral resource for transport to market.

b. The commercial review of possible areas for mineral extraction before bidding for the legal right to explore a specific
area.
c. The expenditure incurred after the technical feasibility and commercial viability of extracting a mineral resource are
demonstrable.
d. None of the foregoing choices are included in exploration and evaluations expenditures.

35. Bernard Company and its divisions are engaged solely in manufacturing operations. The entity reported the following
external segment revenues for the current year. The entity’s external revenue is 4,300,000.

Segment X 2,900,000
Segment Y 100,000
Segment Z 325,000
Segment XX 275,000
Segment YY 250,000
Segment ZZ 150,000

How many are reportable operating segments?

a. One
b. Two
c. Three
d. Four

36. S1: Financial asset at fair value through profit and loss is measured initially at fair value plus transaction costs directly
attributable to the acquisition of the financial asset.
S2: The term equity security encompasses any instrument representing ownership shares and right, warrants or options
to acquire or dispose of ownership shares at a fixed or determinable price.
S3: A debt security does not have a maturity date but it does have a maturity value.

a. Only one statement is true

b. Only two statements are true
c. All statements are true
d. All statements are false

37. S1: The highest and best use of the asset should be physically permissible, legally possible and financially feasible.
S2: The best evidence of fair value is the quoted prices in an active market for identical asset or liability.
S3: Cost approach relies on the current replacement cost to replace the asset with a comparable asset.

a. Only one statement is true

b. Only two statements are true
c. All statements are true
d. All statements are false
38. The five-step model comprises of

I. Identifying a contract
II. Determine the transaction price
III. Recognition of revenue
IV. Allocation of the transaction price
V. Identify the performance obligation

The correct order of the five-step model is

a. I, V, II, IV, III

b. II, V, IV, I, III
c. I, II, IV, V, III
d. III, I, V, IV, II

39. On January 1, 2018, an entity signed a 7-year finance lease for a building. The fair value of the building was
8,415,000. The entity made the first annual lease payment of 1,530,000 on January 1, 2018. The entity’s incremental
borrowing rate was 12% and the interest rate implicit in the lease was 9% and known to the lessee. The present value of
an annuity due for 7 periods at 12% is 5.10 and the present value of an annuity due for 7 periods at 9% is 5.50.

What amount should be reported as lease liability on December 31, 2018?

a. 8,415,000
b. 6,885,000
c. 5,974,650
d. 6,273,000

40. S1: Decommissioning liability is an obligation to dismantle, remove and restore an item of property, plant and
equipment as required by the law or contract.
S2: When an entity settles the dividend payable, the difference between the carrying amount of the dividend payable
and the carrying amount of the asset distributed shall be recognized as gain or loss on distribution of property dividend.
S3: The first order of priority in extinguishing financial liabilities is the fair value of equity instrument issued.
S4: If the entity does not have an unconditional right to refuse redemption of the members’ shares, the shares are
classified as a liability.

How many statements are true?

a. One
b. Two
c. Three
d. Four

END
“Cast all your anxiety on him because he cares for you.” – 1 Peter 5:7
Name: Date:

Course, Year & Section: Score:

1. 11. 21. 31.

2. 12. 22. 32.
3. 13. 23. 33.
4. 14. 24. 34.
5. 15. 25. 35.
6. 16. 26. 36.
7. 17. 27. 37.
8. 18. 28. 38.
9. 19. 29. 39.
10. 20. 30. 40.