Professional Documents
Culture Documents
4. Which of the following accounting concepts best justifies the use of accruals and
deferrals?
(a) Cost/benefit constraint (c) Continuity assumption
(b) Unit-measure assumption (d) Materiality constraint
5. Which of the following most clearly states the most important quality which an
expenditure must have to be recognized as an asset on the balance sheet?
(a) It must be both material and relevant
(b) It must have reasonably certain future benefit to the business.
(c) It must be a physical object
(d) It must be used in operation of the business.
7. The basic components of financial statements include (choose the incorrect one):
(a) statement of changes in equity (c) statement of retained earnings
(b) profit (loss) statement (d) statement of cash flow
8. Which of the following reconciling items would require an adjusting journal entry on
the company’s books?
(a) outstanding checks (c) deposits in transit
(b) non-sufficient funds checks (d) cash on hand
9. In recording the bank balance with the book cash balance, which of the following
would not cause the bank balance shown on the bank statement to be lower than the
unadjusted book balance?
(a) cash on hand at the company
(b) NSF checks from a customer, as reported on the bank statement
(c) interest credited to the account by the bank
(d) deposits in transit
11. Which of these would cause the inventory turnover ratio to increase the most?
(a) increasing the amount of inventory on hand
(b) keeping the amount of inventory on hand constant but increasing sales
(c) keeping the amount of inventory on hand constant but decreasing sales
(d) decreasing the amount of inventory on hand and increasing sales
13. A large manufacturer of cosmetics sells merchandise to a retailer, which in turn sells
the goods to the public at large through its chain of retail outlets. The retailer
purchases merchandise from the manufacturer under a consignment contract. When
should revenue from the sale of merchandise to the retailer be recognized by the
manufacturer?
(a) When goods are delivered to the retailer
(b) When goods are sold by the retailer
(c) It will depend on the terms of delivery of the merchandise (i.e., CIF cost,
insurance, and freight or FOB)
(d) It will depend on the terms of payment (i.e., cash or credit)
14. When the allowance method of recognizing bad debt expense is used, the typical
write off of a specific customer’s account:
(a) has no effect on net income (c) decreases current asset
(b) decrease net income (d) decreases working capital
20. 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 will be recovered through
continuing use.
(b) The carrying amount of the asset or disposal group will be recovered through a
sale transaction.
(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.
21. Noncurrent asset or disposal group is classified as “held for sale” when the asset is
available for immediate sale and the sale is highly probable. For the sale to be highly
probable, (choose the incorrect one)
(a) Management must be committed to a plan to sell the asset.
(b) An active program to locate a buyer and complete the plan must have been
initiated.
(c) The asset must be actively marketed for sale at a reasonable price in relation to
its carrying value.
(d) The sale is expected to qualify for recognition as a completed sale within one
year from the date of classification of the asset as “held for sale”.
23. What is the treatment of gain on an initial increase in the fair value less cost to sell of
a noncurrent asset classified as held for sale?
(a) The gain shall be recognized in full.
(b) The gain shall not be recognized.
(c) The gain shall be recognized but not in excess of the cumulative impairment loss
previously recognized.
(d) The gain shall be recognized but only in retained earnings.
24. Noncurrent asset classified as for rental to others shall be presented in the statement
of financial position as:
(a) Current asset
(b) Other noncurrent asset
(c) Noncurrent investment
(d) Property, plant and equipment
25. 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 shall be offset and presented as a single amount.
(b) The assets of the disposal group shall be shown separately from other assets in
the statement of financial position, and the liabilities of the disposal group shall
be shown separately from other liabilities in the statement of financial position.
(c) The assets and liabilities shall be presented as a single amount and as a
deduction from equity.
(d) There should be no separate disclosure of assets and liabilities that form part of
a disposal group.
26. 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 the reporting period,
the subsidiary has not yet been sold, and six months have passed since its
acquisition. How will the subsidiary be valued in the statement of financial position at
the date of the first financial statements after acquisition?
(a) At fair value
(b) At the lower of its cost and fair value less cost to sell
(c) At carrying amount
(d) In accordance with applicable PFRS
27. An entity classified a noncurrent asset accounted for under the cost model as held
for sale on December 31, 2009. Because no offers were received at an acceptable
price, the entity decided on July 1, 2010 not to sell the asset but to continue to use it.
In accordance with PFRS 5, the asset shall be measured on July 1, 2010 at:
(a) The lower of its carrying amount and its recoverable amount
(b) The higher of its carrying amount and its recoverable amount
(c) The higher of its carrying amount on the basis that is had never been classified
as held for sale and its recoverable amount
(d) The lower of its carrying amount on the basis that it had never been classified as
held for sale and its recoverable amount
32. Which of the following is not reversed at the start of the new accounting period?
(a) expense paid in advance that is debited to the expense account at the time of
payment
(b) doubtful accounts computed using the aging schedule
(c) income earned but not yet recorded because was not yet received
(d) rent collected in advance and credited to a nominal account
33. In the equation, “Assets + Expenses = Liabilities + Revenue + Capital”, the expenses
and revenues are:
(a) contra asset and contra liability accounts, respectively, that assist analysis of the
financial progress of the firm
(b) incorrectly stated because their signs are reversed, i.e., both are contra items
that should have negative signs in the formula
(c) adjustments to capital that are postponed until the end of a specific accounting
period to determine their net effect on capital for that period
(d) incorrectly included in the formula because “Assets = Liabilities + Capital”
35. Which of the following is not an accurate statement regarding the rules of debit and
credit in recording revenue and expense transactions?
(a) revenue increases owner’s equity; since increases in owner’s equity are
recorded by credits, revenue is recorded by a credit
(b) expenses decreases owner’s equity; since decreases in owner’s equity are
recorded by debits, expenses are recorded by debits
(c) in recording revenue transactions, we debit the assets received and credit the
revenue account
(d) expenses used up assets; since decreases in assets are recorded by credits,
expenses are recorded by credits to the expense account
37. The historical cost concept measures assets on the basis of:
(a) the replacement cost of assets on the balance sheet
(b) the amount of cash for which the assets could be sold
(c) an appraisal by the auditors
(d) the fair market value of assets on the day they were acquired
39. Under the accrual basis of accounting, if cash is received prior to the sale, then:
(a) revenue is recognized when the cash is received
(b) a liability is recognized when cash is received
(c) a liability is removed from the system when the cash is received
(d) revenue is removed from the system when the services have been performed or
the goods have been delivered
40. If there is an objective evidence that AFS is impaired, the cumulative loss that
had been recognized in other comprehensive income:
(a) Shall be amortized over a reasonable period
(b) Shall remain unpaid until the financial asset is disposed of
(c) Shall be recognized in profit or loss
(d) Shall be recognized as an adjustment of the beginning balance of retained
earnings
41. A net unrealized loss on an entity’s portfolio of AFS equity securities shall be
reflected in the current financial statements as:
(a) Direct reduction of retained earnings
(b) Current loss resulting from holding equity securities
(c) Footnote or parenthetical disclosure only
(d) Component of other comprehensive income
42. What should happen when the financial statements of an associate are not
prepared as of the same date as of 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 as normal.
(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 3 months, there is no problem.
44. Land, building and equipment should be reported on the balance sheet at their
cost, less accumulated depreciation, unless:
(a) some obsolescence is known to have occurred
(b) some of the property still on hand were written down pursuant to a quasi-
organization
(c) the amount of insurance carried on the property is well in excess of its book
value
(d) not given
45. Dave started his own cheese factory on March 16, 2003. Which of the following
transactions would not be admissible in Dave’s accounting system for the month of
March?
(a) On March 18, Dave purchased a cow on account for P3,000.
(b) On March 20, Dave sold his cow to a fast food restaurant for P5,000.
(c) On March 21, Dave contracted with a local radio station to run several one-
minute advertising spots during the month of April.
(d) All of the above transactions would be admissible for Dave’s accounting system
in the month of March.
46. Jeff purchased a new register system for his grocery store, paying P1,000 in
cash and issuing a P6,000 note payable for the balance owed. As a result of this
transaction, Jeff’s balance sheet would reflect:
(a) an increase in assets and an increase in liabilities
(b) a decrease in assets and an increase in liabilities
(c) an increase in assets and a decrease in liabilities
(d) an increase in assets and an increase in owner’s equity
49. Tony owns a store specializing in bags. Tony has just completed a transaction
that caused a P12,000 increase in total assets and a P12,000 increase in liabilities.
This transaction could have been:
(a) the investment in his business of P12,000 in cash
(b) the purchase of store equipment, paying P9,000 in cash and issuing a P12,000
note payable for the balance owed
(c) the purchase of bags for his inventory, paying P4,000 in cash and issuing an
P8,000 note payable for the balance owed
(d) none of the above transactions would cause total assets and total liabilities to
increase by P12,000
50. Dean has completed the posting process for the month of June and has prepared
a trial balance in which the debits total P11,000 and the credits total P11,100. Which
of the following errors would be the most likely candidate in causing the trial balance
not to balance by P100?
(a) a P100 debit was posted as a P100 credit
(b) a P100 debit was posted as a P100 credit and a P100 credit was posted as a
P100 debit
(c) a P50 debit was posted as a P50 credit
(d) the purchase of supplies on account was never posted to the general ledger
57. Tangible goods used in the productive process and directly related to the products
being manufactured are called:
(a) factory supplies. (c) raw materials.
(b) finished goods. (d) goods in process.
C
59. Slow-moving and obsolete inventory items should be priced for balance sheet
purposes at:
(a) retail inventory price.
(b) cost or market, whichever is lower.
(c) moving average.
(d) at an amount not in excess of possible realizable value.
D
60. Subnormal or obsolete goods, either under the cost or the lower of cost or market
basis:
(a) should be taken up an unrealized inventory loss.
(b) should be valued at bona-fide selling price less direct cost of disposition.
(c) should be valued by applying an inventory method that uses a constant or
nominal value for the normal inventory level.
(d) should be adjusted in the cost of goods sold.
B
61. Merchandise which a trader contracted to purchase but which was not delivered or
identified in the year should:
(a) not be included in the inventory.
(b) be included in the inventory at cost.
(c) be included in the inventory at its probable retail value.
(d) be included in the inventory at a normal price.
A
62. The appropriate valuation of an operating lease on the statement of financial position
of a lessee is:
(a) zero
(b) the absolute sum of the lease payments
(c) the present value of the sum of the lease payments discounted at an appropriate
rate
(d) the market value of the asset at the date of the inception of the lease
A
63. When equipment held under an operating lease is subleased by the original lessee,
the original lessee would account for the sublease as:
(a) operating lease (c) direct financing lease
(b) sales-type lease (d) capital lease
A
64. Equal monthly rental payments for a particular lease should be charged to rental
expense by the lessee for which of the following?
Capital Operating Capital Operating
lease lease lease lease
(a) Yes No (c) No No
(b) Yes Yes (d) No Yes D
65. In a lease that is recorded as an operating lease by the lessee, the equal monthly
rental payments should be:
(a) allocated between a reduction in the liability for leased asset and depreciation
expense
(b) allocated between a reduction in the liability for leased asset and interest expense
(c) recorded as a reduction in the liability for leased asset
(d) recorded as rental expense D
66. Where the balance sheet indicates that a portion of property, plant and equipment
the related accumulated depreciation pertains to equipment leased to customers, it is
evident that the:
(a) operating method of accounting is used for the lease
(b) financing method of accounting is used for the lease
(c) lessor has violated GAAP
(d) lessor is using the income tax method of accounting for the lease A
67. A 20-year property lease, classified as an operating lease, provides for a 10%
increase in annual payments every five years. In the 6 th year compared to the 5th
year, the lease will cause the following expenses to increase:
Rent Interest Rent Interest
(a) Yes No (c) No No
(b) Yes Yes (d) No Yes C
70. A long-term debt falling due within one year should be reported as noncurrent liability
should be reported as noncurrent liability if the following conditions are met (choose
the incorrect one):
(a) The original term is for a period of more than one year.
(b) The enterprise intends to refinance the obligation on a long-term basis.
(c) The intent to refinance is supported by an agreement to refinance which is
completed before the issuance of the financial statements.
(d) The intent to refinance is supported by an agreement to refinance which is
completed after the issuance of the financial statements.
D
71. Which will demonstrate an agreement to refinance (choose the incorrect one)?
(a) Long-term obligation has in fact been issued before the issuance of the financial
statements for the purpose of refinancing.
(b) Equity security has in fact been issued before the issuance of the financial
statements for the purpose of refinancing.
(c) Before the issuance of the financial statements, the enterprise has in fact entered
into a financing agreement that clearly permits the enterprise to refinance the
currently maturing long-term debt on a long-term basis.
(d) Preferred stock has in fact been issued before the issuance of financial
statements for the purpose of obtaining working capital.
D
72. Some obligations that are due to be repaid within the next operating cycle and
expected to be refinanced or “rolled over” should be classified as noncurrent:
(a) If the refinancing or “rolling over” is at the discretion of the enterprise and the
refinancing agreement has been reached before the issuance of the statements.
(b) If the refinancing or “rolling over” is at the discretion of the enterprise regardless
of whether a refinancing agreement has been reached or not before the issuance
of the statements.
(c) If the refinancing or “rolling over” is not at the discretion of the enterprise.
(d) Subject to no conditions. A
75. If the pattern in which the economic benefits from the asset are consumed cannot be
predicted reliably, the method of amortization for an intangible asset should be:
(a) straight line (c) declining balance
(b) output method (d) sum of years’ digits A
77. Which of the following is not considered in estimating the useful life of intangible
assets?
(a) expected usage of the asset by the enterprise
(b) stability of the industry in which the intangible asset operates
(c) salvage value of the asset
(d) level of maintenance expenditure required to obtain the future economic benefit
from the asset
C
84. Dave started his own cheese factory on March 16, 2003. Which of the following
transactions would not be admissible in Dave’s accounting system for the month of
March?
(e) On March 18, Dave purchased a cow on account for P3,000.
(f) On March 20, Dave sold his cow to a fast food restaurant for P5,000.
(g) On March 21, Dave contracted with a local radio station to run several one-
minute advertising spots during the month of April.
(h) All of the above transactions would be admissible for Dave’s accounting system
in the month of March.
C
85. Jeff purchased a new register system for his grocery store, paying P1,000 in cash
and issuing a P6,000 note payable for the balance owed. As a result of this
transaction, Jeff’s balance sheet would reflect:
(a) an increase in assets and an increase in liabilities
(b) a decrease in assets and an increase in liabilities
(c) an increase in assets and a decrease in liabilities
(d) an increase in assets and an increase in owner’s equity
A
88. Tony owns a store specializing in bags. Tony has just completed a transaction that
caused a P12,000 increase in total assets and a P12,000 increase in liabilities. This
transaction could have been:
(a) the investment in his business of P12,000 in cash
(b) the purchase of store equipment, paying P9,000 in cash and issuing a P12,000
note payable for the balance owed
(c) the purchase of bags for his inventory, paying P4,000 in cash and issuing an
P8,000 note payable for the balance owed
(d) none of the above transactions would cause total assets and total liabilities to
increase by P12,000
B
89. Dean has completed the posting process for the month of June and has prepared a
trial balance in which the debits total P11,000 and the credits total P11,100. Which
of the following errors would be the most likely candidate in causing the trial balance
not to balance by P100?
(a) a P100 debit was posted as a P100 credit
(b) a P100 debit was posted as a P100 credit and a P100 credit was posted
as a P100 debit
(c) a P50 debit was posted as a P50 credit
(d) the purchase of supplies on account was never posted to the general
ledger C
92. Zinc Company recorded office supplies as an asset account when the supplies were
purchased. Failure to make an adjusting entry reflecting the use of these supplies
will result in:
(a) an understatement of assets
(b) an overstatement of owner’s equity
(c) an understatement of liabilities
(d) an understatement of owner’s equity B
BPS/EPS
93) Under PAS 33, EPS disclosures are required for
I. Entities whose ordinary shares or potential ordinary shares are publicly traded.
II. Entities that are in the process of issuing ordinary shares in the public market.
a. I only b. II only c. Both I and II
d. Neither I nor II
94) Under PAS 33, which of the following statements about an ordinary share
is true?
I. An ordinary share is an equity instrument that is superior to all other classes of
equity instrument.
II. A potential ordinary share is a financial instrument or other contract that may
entitle its holder to ordinary shares.
a. I only b. II only c. Both I and II
d. Neither I nor II
subordinate
95) Which of the following statements is true?
I. Earnings per share amounts should not be presented if they are negative, i.e.
loss per share.
II. Earnings per share amounts calculated for discontinued operations should be
presented.
a. I only b. II only c. Both I and II
d. Neither I nor II
96) When computing diluted EPS for an entity with a complex capital
structure, what is the denominator in the computation?
a. Number of ordinary shares outstanding at year-end
b. Weighted average number of ordinary shares outstanding
c.Weighted number of ordinary shares outstanding plus all other potentially antidilutive
securities.
d. Weighted average number of ordinary shares outstanding plus all other
potentially dilutive securities
103) For a company that has only ordinary share outstanding , total
shareholder’s equity divided by the number of shares outstanding represents the:
a. return on equity
c. stated value per
share
b. book value per share
d. price-earnings ratio
Sharebased
105) The entity has issued a range of share options to employees. In
accordance with PFRS 2, what type of share-based payment transaction does this
represent?
a. Equity-settled share-based payment transaction
b. Asset-settled share-based payment transaction
c.Cash-settled share-based payment transaction
d. Liability-settled share-based payment transaction
106) In accordance with PFRS2, how should an entity recognize the change in
the fair value of the liability in respect of a cash-settled share-based payment
transaction?
a. Should not recognize in the financial statements but disclose in the notes
thereto
b. Should recognize in the statement of changes in equity
c.Should recognize in profit or loss
d. Should recognize in other comprehensive income
c. Equity
b. A noncurrent asset
d. A
liability
108) An entity has entered into a contract with another entity. The latter will
supply the former with a range of services. The payment for those services will be in
cash and based upon the price of former’s ordinary shares on completion of the
contract. In accordance with PFRS 2, what type of share-based payment transaction
does this represent?
a. Asset-settled share-based payment transaction
b. Cash-settles share-based payment transaction
c.Liability-settled share-based payment transaction
d. Equity-settled share-based payment transaction
109) If share-based payment transaction provides that employees have the
right to choose the settlement whether in cash or shares, the entity is deemed to have
issued
a. An equity instrument
b. A liability instrument
c.A compound financial instrument
d. Either an equity instrument or liability instrument but not both
110) Under PFRS 2 share – based Payment, the method that must be used to
measure employee stock options and other payments given to employees in the form
of equity securities, is:
a. Initial cost
c. Fair value
b. Discounted cash flows
d. Selling price
111) Many shares and most share options are not traded in an active market.
Therefore, it is often difficult to arrive at a fair value of the equity instruments being
issued. Which of the following option valuation techniques should not be used as a
measure of fair value in the first instance?
a. Black – Scholes model
c. Monte – Carlo model
b. Binomial model
d. Intrinsic
value
112) It is the difference between the fair value of the shares to which the
counterparty has the right to subscribe and the price the counterparty is required to
pay for those shares.
a. fair value
c. Market value
b. Intrinsic value
d. Book
value
113) These are transactions in which the entity receives goods or services as
consideration for equity instruments of the entity including shares and share options.
a. Equity settled share-based payment transactions
b. Cash settled share-based payment transactions
c. Equity payment transactions
d. Cash payment transactions
SHE
117) Under IFRIC 17, a property dividend declared before the end of the
reporting period should be recognized as liability at the end of the reporting period at
a. Carrying amount of the asset to be distributed
b. Fair value of the asset on the date of declaration
c.Fair value of the asset at the end of reporting period
d. Fair value of the asset at the date of distribution
119) Gains and losses on the purchase and resale of treasury stock may be
only be reflected in
a. Paid-in capital accounts
b. Paid-in capital and retained earnings accounts
c.Income, paid-in capital and retained earnings
d. Income and paid-in capital accounts
121) Which of the following statements best describes the net effect on
retained earnings of the purchase and subsequent sale of treasury stock?
a. retained earnings may never be increased , but sometimes decreased.
b. Retained earnings may never be increased or decreased
c. Retained earnings may be increased but never be decreased.
d. Retained earnings account is always affected unless the selling price is exactly
equal to cost
122) When stock rights are exercised, how much should be treated as total
proceeds from the issuance of shares?
a. only the consideration received
b. The total of the consideration received and the amount previously recorded for the
stock rights
c. the amount previously recorded for the stock rights
d. The total par value of the shares
127) An entity issued what is called a “12% stock dividend” on its share capital.
At what amount per share, if any, should retained earnings be reduced for this
transaction?
a. Zero because no entry is made
b. Par value
c. Market value at the declaration
d. Market value at the date of issuance
128) The peso amount of total shareholders’ equity remains the same when
there is
a. Issuance of preference share in exchange for convertible debentures
b. Issuance of nonconvertible bonds with share warrants
c.Declaration of a stock dividend
d. Declaration of a cash dividend
Income taxes
129) Justification for the method of determining periodic deferred tax expense
is based on the concept of
a. Matching of periodic expense to periodic revenue
b. Objectivity in the calculation of periodic expense
c. Recognition of asset and liability
d. Consistency of tax expense measurement with the actual tax planning strategies.
c. Equity
b. Tax expense
d. Cash
132) Under PAS 12 Income Taxes, deferred tax assets and liabilities are
measured at the tax rates that:
a. Applied at the beginning of the reporting period
b. At the end of the reporting period
c.At the rates that prevail at the reporting date
d. Are expected to apply when the asset or liability is settled
140) Which of the following differences would result in future taxable amounts?
a. Expenses or losses that are deductible after they are recognized in financial
income.
b. Revenue or gains that are taxable before they are recognized in financial income.
c. Revenues or gains that are recognized in financial income but are never included
in taxable income.
d. Expenses and losses that are deductible before they are recognized in financial
income.
Benefits
141) Which of the following is not one of the six components of pension
expense (or part of a component)?
a. Initial transition asset
b. Amortization of unrecognized gain or loss
c.Expected return on plan assets
d. Growth (interest cost) in PBO/ABO since the beginning of the period
143) Under which category should lump sum benefit of 1% of the final salary
for each year of service and actuarial gains be accounted for?
a. Lump sum benefits should be accounted for under defined benefit plans.
Actuarial gains should be accounted for under defined benefit plans.
b. Lump sum benefit should be accounted for under short term employee
benefits
Actuarial gains should be accounted for under defined benefit plans.
c.Lump sum benefit should be accounted for under defined benefit plans
Actuarial gains should be accounted for under defined contribution plans
d. Lump sum benefit should be accounted for under short term employee
benefits
Actuarial gains should be accounted for under defined contribution plans
144) Investments held by retirement benefit plans should be stated in the
statement of net assets at
a. Net realizable value
c. Original cost less
impairment
b. Fair value
d. Value in use
c. Either I or II irrevocably
b. II only
d. Either I or II revocably
151) The present value of pension benefits accrued to date using assumptions
as to future compensation levels is the
a. Prior service cost.
c. Projected
benefit obligation.
b. Accumulated benefit obligation.
d. Accrued pension cost.
152) Interest cost included in the net pension cost recognized by an employer
sponsoring a defined benefit plan represents the:
a. amortization of the discount on unrecognized past service cost
b. increase in the fair value of plan assets due to passage of time
c. increase in the projected benefit obligation due to passage of time
d. shortage between the expected and actual return on plan assets