TOA Reviewer (3T AY1415) PDF

DE LA SALLE UNIVERSITY MANILA
RVR – COB DEPARTMENT OF ACCOUNTANCY

REVDEVT 3rd Term AY 14-15
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TOA REVIEWER
1. Which of the following would be classified as non-current asset?

I Building held for sale in the ordinary course of business
II. Building held to earn rentals under operating leases.
III. Land held for capital appreciation.
IV. Land held for undetermined future use
V. Tangible assets that are held by an enterprise for use in the production or supply of
goods or services.
A. I, II, III, IV and V C. III, IV and V
B. I, II, III and IV D. II, III IV and V
2. Which of the following results to offsetting?

A. Deducting deferred tax assets from deferred tax liabilities, for taxes imposed by only
one taxing authority.
B. Deducting accumulated amortization from the gross cost of an intangible asset.
C. Deducting allowance for uncollectible accounts from gross receivables to arrive at
the receivables’ amortized cost.
D. Deducting accumulated depreciation and impairment loss from the gross cost of
property, plant and equipment to arrive at its carrying value.
3. When the presentation or classification of items in the financial statements is revised or

amended,
A. Comparative amounts shall be reclassified at all times.
B. Comparative amounts shall be reclassified, unless the reclassification is
impracticable.
C. Comparative amounts need not be reclassified.
D. Comparative amounts need not be reclassified, but shall be presented in proforma
financial information in the notes to the financial statements.
4. For the purpose of classifying assets and liabilities as current and non-current, and the
normal operating cycle is not clearly identifiable,
A. Its duration is assumed to be twelve months.
B. Its duration is to be set by the industry in which the entity operates.
C. Its duration is to be set by the Financial Reporting Standards Council.
D. The normal operating cycle concept shall not apply.
5. Which of the following events occurring after the reporting period would require adjustments
in the financial statements?
A. Share of a bond or share capital planned before the balance sheet date.
B. Purchase of an existing business
C. Loss on an uncollectible trade receivable as a result of a customer’s deteriorating
financial condition leading to customer’s bankruptcy subsequent to balance sheet
date.
D. Decline in net realizable value of inventory as a result of fire.
6. Which of the following are ingredients of reliability?

Confirmatory value Neutrality Prudence Materiality Completeness
A. No Yes Yes No Yes
B. No Yes Yes Yes Yes
C. No Yes No No No
D. Yes NO No Yes No
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7. When economic benefits are expected to arise over several accounting periods and the
association with revenues can only be broadly or indirectly determined, expenses are
recognized in the income statement on the basis of
A. Associating cause and effect C. Immediate recognition
B. Systematic and rational allocation D. Cash disbursement
8. Which of the following is a correct computation of cash flows from operation using the
indirect method?
A. Profit less depreciation expense, add increase in accounts receivable, less increase in
accounts payable
B. Profit less depreciation expense, add decrease in accounts receivable, deduct
increase in accounts payable
C. Profit add depreciation expense, add decrease in accounts receivable, deduct
increase in accounts payable
D. Profit add depreciation expense, add decrease in accounts receivable, less decrease
in accounts payable.
9. Cash flows provided by (used in) investing activities include the following, except
A. Payments to or on behalf of employees
B. Purchase of equity instruments classified as available for sale
C. Sale of plant and equipment
D. Principal collections from loans previously granted by the enterprise.
10. PAS 7 specifies exceptions where netting of cash flows is allowed. These are for
I. Cash collections from customers and cash payments to suppliers.
II. Items with quick turnovers, large amounts, and short maturities.
III. Taxes collected on behalf of the government and remitted to taxing authority.
IV. Cash receipts and payments on behalf of customers when the cash flows reflect the
activities of the customers rather than of the enterprise.
A. I and IV C. II and IV
B. I and II D. II, III and IV
11. Which of the following is not a financial asset?

A. Inventories C. Investment in Associate
B. Trade receivables D. Held to Maturity Securities
12. Failure to record the unexpired portion of insurance premium paid would
A. Understate expenses C. Understate revenue
B. Overstate total assets D. Understate profit
13. PAS I presents two alternative methods of classifying expenses in the statement of
comprehensive income. Which of these statements is/are correct regarding presentation of
expenses?
I. Additional disclosure is required for the function of expense when the nature of expense
classification is used.
II. Additional disclosure is required for the nature of expense when the function of expense
classification is used.
A. I only C. Neither I nor II
B. II only D. Both I and II
14. The notes to the financial statements are normally presented in logical sequence to assist
users in understanding the financial statements and comparing them with financial
statements of other entities. In what normal order are the notes presented?
I A statement of compliance with PFRS.
II. A summary of significant accounting policies.
III. Supporting information for line items presented on the face of the financial
statements.
IV. Other disclosures
A. I, II, III and IV C II, I, III and IV
B. II, III, I and IV D. III, II, I and IV
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15. Under a financial concept of capital, capital is synonymous with

A. Net sales C. Total assets
B. Net assets D. Net profit
16. For a liability to exist

A. The exact amount must be known.
B. The identity of the party to whom the liability is owed must be known.
C. There must be an obligation to pay in cash in the future
D. There must be past transaction or event.
17. In accordance with IAS 41, Agriculture, inventories comprising agricultural produce that an
entity has harvested from its biological assets are measured on initial recognition at
A. Fair values at the market place
B. Fair values less estimated cost to sell at the market place.
C. Fair values at the point of harvest
D. Fair values less estimated costs to sell at the point of harvest.
18. The cost of inventories of items that are not ordinarily interchangeable shall be assigned
using
A. FIFO method C. FIFO method or weighted
average method
B. Weighted average method D. Specific identification method
19. Which of the following costs are excluded from the cost of inventories?
A. Storage costs while the goods await sale
B. Storage costs necessary in the production process before a further production stage
C. Purchase price, import duties and non-refundable purchase taxes
D. Cost of direct labor and allocated overhead
21. A company issued rights to its existing shareholders without consideration. The rights allowed
the recipients to purchase unissued ordinary share an amount in excess of par value. When
the rights are exercised, which of the following accounts will be increased?
Ordinary Share Share Premium
A. Yes Yes
B. Yes No
C. No No
D. No Yes
21. Revenue from rendering services should be recognized by reference to the stage of
completion, provided that the amount of revenue can be measured reliably, it is probable
that the economic benefits will flow to the entity, the costs incurred or to be incurred can be
measured reliably and
A. Services are substantially complete.
B. The amount of the contract price has been collected.
C. Delivery has been made.
D. The stage of completion can be measured reliably.
22. Which of the following would not be reflected in the profit or loss section of the statement of
comprehensive income?
A. Revenue
B. Income from continuing operations
C. Correction of prior period errors
D. Discontinued operations
23. Which inventory costing procedure parallels the flow of cost in a manufacturing entity
producing goods that are not specifically identifiable?
A. Weighted average C. First in- first out
B. Last-in, first out D. Specific identification
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24. Which of the following events after reporting period would require an entity to adjust the
amounts recognized in its financial statements?
A. Decline in the market value of trading securities between the balance sheet date and
the date when the financial statements are authorized for issue.
B. Declaration of dividends to holders of equity instruments
C. Major acquisition of assets
D. Settlement after the reporting period of a court case that confirms that the entity
had a present obligation at the end of the reporting period.
25. The stage of completion of a contract may be determined in a variety of ways. Depending
on the nature of the contract, the methods may include any of the following, except
A. Surveys of works completed.
B. Progress payments by the customers.
C. The proportion that contract costs incurred to date over the estimated total costs of
the project.
D. Completion of the physical proportion of the contract work.
26. How would retained earnings be affected by each of the following?

Stock Dividend Stock split
A. Decrease Decrease
B. No effect Increase
C. No effect Decrease
D. Decrease No effect
A companA
27. A company issued rights to its shareholders as a result of their preemptive rights. The rights
entitle the holders to purchase one share of P100 par ordinary at P120 per right. When the
rights are exercised, how would the following be affected?
Ordinary Share Capital Additional Paid in Capital

A. No effect No effect
B. Increase Decrease
C. No effect Increase
D. Increase Increase
28. Loans and receivables shall be measured on the statement of financial position at
A. amortized cost.
B. fair value; the change in fair value taken to profit or loss
C. fair value; the change in fair value taken to equity as part of other comprehensive
income
D. face value
29. The balance in the Rent Income account for Jones Company as of December 31, 2013 is
P12,000. If Jones Company failed to record the adjusting entry for P4,000 of unearned
rent at December 31, the effect on the statement of financial position and profit or loss
for 2013 is
A. Assets understated P8,000; profit overstated P8,000
B. Liabilities understated P4,000; profit understated P4,000
C. Liabilities overstated P8,000; profit understated P8,000
D. Liabilities understated P4,000; profit overstated P4,000
30. A corporation appropriated retained earnings for future plant expansion. What is the effect
of this appropriation on total retained earnings and on total shareholders equity,
respectively?
A. No effect, no effect C. Increase, decrease
B. Decrease, no effect D. Decrease, increase
31. The Construction in Process account accumulates the following when the percentage of
completion method is used
A. Construction costs to date
B. Construction costs to date less payments received
C. Construction costs to date less billings to date
D. Construction cots to date plus gross profit earned to date
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32. Which of the following is not a purpose of the FRSC’s Conceptual Framework?
A. To assist the auditors in forming an opinion as to whether financial statements
conform with Philippine Financial Reporting Standards.
B. To assist the Professional Regulations Commission in the regulation of the practice of
Accountancy in the Philippines.
C. To assist the FRSC in the development of future PFRSs and in its review of existing
Philippine Financial Reporting Standards.
D. To assist the users of financial statements in interpreting the information contained
in financial statements prepared in conformity with PFRSs.
33. Which statement is false regarding users of financial information and their information
needs?
A. Complex transactions undertaken by an enterprise need not be reported in the
financial statements on the grounds that these may be too difficult for users to
understand.
B. Investors need information to help them determine whether they should buy, hold,
or sell.
C. Suppliers and trade creditors are interested in information that enables them to
determine whether amounts owing to them will be paid when due.
D. As investors are providers of risk capital to the entity, financial information that will
meet their needs will also meet most of the needs of other financial information
users.
34. Which of the following is true regarding financial statements?

I. The component parts of the financial statements interrelate because they reflect
different aspects of the same transactions or other events.
II. All information needs of financial information users are met by the general purpose
financial statements.
A. I only C. Neither I nor II
B. II only D. Both I and II
35. Financial statements are prepared under the accrual basis, because
A. The accrual basis considers the timing of the cash inflow and cash outflow in the
recognition of income and expenses.
B. The accrual basis is the only basis used for income tax purposes.
C. The accrual basis provides more complete information about an enterprise,
compared to the cash basis of accounting.
D. The accrual basis requires the recording of transactions in terms of debit and credit.
36. What qualitative characteristic is met if information influences the economic decisions of
users by helping them evaluate past, present or future events or confirming or correcting
their past evaluations?
A. Understandability C. Reliability
B. Relevance D. Comparability
37. Which of the following elements is directly related to measurement of performance?

I. A resource controlled by the entity as a result of past events and from which future
economic benefits are expected to flow to the entity.
II. A present obligation of the entity arising from past events, the settlement of which is
expected to result in an outflow from the entity of resources embodying economic benefits.
III. Increases in economic benefits during the accounting period in the form of
enhancements of assets or decreases of liabilities that result in increases in equity, other
than those relating from owners.
IV. Decreases in economic benefits during the accounting period in the form of outflows or
depletions of assets or incurrences of liabilities that result in decreases in equity, other those
relating to distributions to owners.
V. The residual interest in the assets of the enterprise, after deducting the interest of the
creditors.
A. I, II, III, IV and V C. III, IV and V
B. I, II and V D. III and IV
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38. Which of the following may be described as “flow” statement and reflect summarized results
of transactions over a period of time?
I. Statement of financial position
II. Statement of comprehensive income
III. Statement of cash flows
IV. Statement of changes in equity
A. III only C. II, III and IV
B. III and IV only D. I, II, III and IV
39. PAS 1, Presentation of Financial Statements, expresses preference for a presentation of

assets based on
A. Current, non-current distinction C. Maturity
B. Liquidity D. Magnitude
40. Which of the following would not be classified as current assets?

A. Debt and equity securities acquired principally for the purpose of generating a profit
from short-term fluctuations in price or dealer’s margin.
B. Cash funds that are set aside for payment of equipment to be delivered a month
after the reporting period.
C. Amounts due from customers within a period of 12 to 18 months, extended within
the usual credit terms of the enterprise.
D. Goods which are in process of production for sale, in the ordinary course of business.
41. Which of the following is a non-current liability on December 31, 2012 statement of financial
position?
A. Bonds payable maturing on March 31, 2013 which were refinanced in 2013 before
issuance of the 2012 financial statements.
B. Mortgage note payable due March 15, 2013, which was rolled over in 2013 after the
issuance of the 2012 financial statements.
C. Mortgage note payable due March 15, 2013, which was converted into shares of the
company’s ordinary share capital in 2013 before the issuance of 2006 financial
statements.
D. Mortgage note payable due March 15, 2013, in which the entity has the intention
and discretion to roll over for a period of at least 24 months from the original
maturity date.
42. Management shall use its judgment in developing and applying an accounting policy. In
making this judgment, which of the following shall be considered as the least authoritative
source?
A. The requirements of a particular PFRS or an Interpretation that specifically applies to
a transaction or a condition.
B. Accounting literature and accepted industry practices.
C. Requirements and guidance in PFRS/IFRS dealing with similar and related issues.
D. The definitions, recognition criteria and measurement concepts for assets, liabilities,
income and expenses in the Conceptual Framework.
43. If an asset is acquired on a deferred payment plan, the excess of the of the total payments
over the equivalent cash price is treated as
A. Finance cost over the credit period.
B. Finance cost in the period of purchase
C. Capitalized as part of the cost of the asset and depreciated over the asset’s useful
life.
D. Capitalized as part of the cost of the asset and depreciated over the credit period.
44. Zeus Company prepares reversing entries. Which of the following adjusting entries shall not
be reversed at the beginning of the new accounting period?
A. Debit salary expense and credit salary payable
B. Debit unearned rent and credit rent revenue
C. Debit prepaid rent and credit rent expense
D. Debit interest receivable and credit interest income
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45. PAS 1 Presentation of Financial Statements, requires the following items to appear on the
face of the statement of changes in equity:
I. The net amount of cash from the issue of any securities during the period.
II. The cumulative effect of changes in accounting policy and the correction
of errors.
III. Total comprehensive income for the period.
IV. Profit or loss for the period.
A. I, II, III and IV C. II, III and IV

B. I, III and IV D. II and IV only
46. During 2013, Lito Company filed a suit against Ray, Inc. seeking damages for patent
infringement. At December 31, 2009, Lito’s legal counsel believed that it was probable that
Lito would be successful against Ray for an estimated amount in the range of P750,000 to
P1,500,000, with all amounts in the range considered equally likely. In March 2014, Lito was
awarded P1,000,000 and received full payment thereof. In its 2013 financial statements issued
in February 2014, how should this award be reported?
A. As a receivable and revenue of P1,000,000
B. As a receivable and deferred revenue of P1,000,000
C. As a disclosure of a contingent gain of P1,000,000
D. As a disclosure of a contingent gain of an undetermined amount in the range of P750,000
to P1,500,000
47. If the payment of employees’ compensation for future absences is probable, the amount can
be reasonably estimated, and the obligation relates to rights that do not accumulate, the
compensation should be
A. Accrued if attributable to employees’ services not already rendered.
B. Accrued if attributable to employees’ services already rendered.
C. Accrued if attributable to employees’ services whether already rendered or not.
D. Recognized when employees make absences that entitle them to compensation.
48. For the issuer of a 20-year term bonds, the amount of interest expense would increase each
year using the effective interest method if the bond was sold at a
Discount Premium
A. Yes Yes
B. Yes No
C. No Yes
D. No No
49. When an inventory costing formula is changed, the change is applied

A. Prospectively and the adjustment taken through the current profit or loss.
B. Prospectively and the adjustment recognized directly in equity.
C. Retrospectively and the adjustment recognized as a gain or loss in the income
statement.
D. Retrospectively and the adjustment taken through the opening balance of
accumulated profits.
50. The change in fair value less cost to sell of biological assets, shall be
A. Recognized in profit or loss in the period of change.
B. Recognized in profit or loss in the period of sale
C. Ignored, as the biological assets are measured at cost less accumulated
depreciation.
D. Recognized in equity as part of comprehensive income
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51. Noel Company issued bonds with non-detachable ordinary share warrants. The warrants’ fair
value cannot be reasonably estimated. The actual proceeds from the issuance of the bonds
exceed the amount for which the bonds would sell without the warrants. How would the
proceeds be accounted for in the books of Noel?
A. The entire proceeds is treated entirely as initial carrying value of the bonds.
B. The excess of issue price over the fair value of the bonds without warrants is credited
to profit or loss.
C. The excess of the issue price over the fair value of the bonds without the warrants is
credited to an additional paid in capital.
D. The excess of issue price over the fair value of the bonds without the warrants is
credited to Interest Expense.
52. In 2010, Flute, Inc. issued P10 par value ordinary share for P25 per share. No other share
capital transactions occurred until March 31, 2013, when Flute acquired some of the issued
shares for P28 per share and retired them. Which of the following statements correctly states
an effect of the acquisition and retirement?
A. 2013 profit is decreased.
B. Additional paid in capital is decreased.
C. Retained earnings is decreased
D. Legal capital, additional paid in capital and retained earnings decreased.
53. Which of the following statements best describes the principle for classifying an issued financial
instrument as either a financial liability or equity?
A. Issued instruments are classified as liabilities or equity in accordance with the substance
of the contractual arrangement and the definitions of a financial liability, financial asset,
and an equity instrument.
B. Issued instruments are classified as liabilities or equity in accordance with the legal form
of the contractual arrangement and the definitions of a financial liability and an equity
instrument.
C. Issued instruments are classified as liabilities or equity in accordance with management’s
designation of the contractual arrangement.
D. Issued instruments are classified as liabilities or equity in accordance with the risk and
rewards of the contractual arrangement.
54. The ability of a company to generate sufficient cash flows to maintain its productive capacity and
still meet interest and principal payments on long-term debt refers to
A. capital structure.
B. maturity structure.
C. solvency.
D. liquidity.
55. When an entity makes a voluntary change to its accounting policies that has an effect on the
current period, it is required to disclose:
I. The reasons why the change will provide more relevant information.
II. The amount of the adjustment for each financial statement line item
affected.
III. The nature of the change.
IV. The reasons why the previous policy no longer provides reliable information.
A. I, II and III only C. I, III and IV only

B. I, II and IV only D. I, II, III and IV
56. Which of the following items would be presented in a cash flow statement?
A. Declaration and distribution of share dividends.
B. Acquisition of an investment in subsidiary by issuing debt instruments and
exchanging non-current assets.
C. Sale of debentures
D. Refinancing of long-term debt maturing currently
57. In a consolidated statement of financial position, the non-controlling interest is shown

A. Separately in equity C. Between liabilities and equity
B. As part of liabilities D. As deduction from total assets
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58. Which of the following would increase the balance of Accounts Receivable?
A. Collection of a customer’s account
B. Receipt of promissory note in settlement of a customer’s account
C. Declaration of a customer (with open account) of bankruptcy.
D. Dishonor by a customer of a promissory note.
59. An item of merchandise was omitted from the recorded purchases during the year 2012.
This merchandise was also not included in the physical count of inventories at the end of
2012. How would these errors affect assets and liabilities at the end of 2012 and the net
income for the year 2012, respectively?
A. No effect, no effect, no effect C. Understated, no effect, no effect
B. Understated, understated, no effect D. No effect, no effect, understated
60. Corona Company, a big wholesale-retail company purchased a computer mouse in 2013 for
P1,000. The computer mouse is expected to be useful for 5 years, but Corona recorded the
purchase price as an expense. Corona applied the concept of
A. Prudence C. Completeness
B. Cost-benefit constraint D. Materiality
61. Some borrowing agreements incorporate undertakings by the borrower which have the effect
that the liability becomes payable on demand if certain conditions related to the borrower’s
financial position are breached. In these circumstances the liability is classified as
A. Current, unless the lender has agreed, before the end of the reporting period, not to
demand payment as a consequence of the breach or violation, and it is not probable
that further breaches or violations will occur within twelve months from the end of
the reporting period.
B. Current, unless the lender has agreed, prior to the approval of the financial
statements, not to demand payment as a consequence of the breach or violation,
and it is not probable that further breaches or violations will occur within twelve
months from the end of the reporting period.
C. Current, unless it is not probable that further breaches or violations will occur within
twelve months from the end of the reporting period.
D. Non-current
62. After posting the closing entries

A. All the accounts in the general ledger have zero balances.
B. The income accounts, expense accounts and income summary accounts have zero
balances.
C. The asset, liability and equity accounts have zero balances.
D. The income accounts, expense accounts, income summary accounts and retained
earnings accounts have zero balances.
63. When goods and services from entities, other than employees, are received by the enterprise
in exchange for shares issued, the transaction shall be recorded at
A. Fair value of the goods and services received.
B. Fair value of the equity instruments issued.
C. Fair value of the goods and services received or the fair value of the shares issued,
whichever is lower.
D. Carrying value of the equity instruments issued.
64. Which of the following would not require restatement of comparative information for prior periods
presented in the financial statements?
A. Change in accounting policy
B. Change in accounting estimate
C. Correction of prior period errors
D. Change in accounting estimate and correction of prior period errors.
65. The measurement and display of the financial effect of like transactions and other events must be
carried out in a consistent way throughout an enterprise and over time for that enterprise and in a
consistent way for different enterprises. This achieves the qualitative characteristic of
A. Understandability C. Reliability
B. Relevance D. Comparability
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66. Which of the following adjustments to convert net income to cash provided by operating activities
is correct?
Add to Net Income Deduct from Net Income
A. Accounts Receivable increase decrease
B. Prepaid Expenses increase decrease
C. Inventory decrease increase
D. Accounts Payable decrease increase
67. Which of the following is not a contingent liability?

A. An obligation that arises from past events and whose likelihood of existence is probable
and the amount of the obligation can be reasonably estimated.
B. A possible obligation that arises from past events and whose likelihood of existence is
reasonably possible and the amount of the obligation can be reasonably estimated.
C. A present obligation that arises from past events but is not recognized because it is not
probable that an outflow of resources embodying economic benefits will be required to
settle the obligation
D. A possible obligation that arises from past events whose likelihood of existence is remote.
68. For a manufacturer of television units, the operating cycle represents the period of time
A. Between selling the product on credit and collecting cash from customers.
B. Between producing the product, selling it on credit, and collecting cash from customers.
C. Required to purchase raw materials, produce the product, sell the product on credit and
collect cash from customers.
D. Required to purchase raw materials, produce the product and sell the product on credit.
69. Lyn Company issued a note solely in exchange for cash. Assuming that the items below differ in
amount, the present value of the note on the date of its issuance is equal to the
A. Proceeds received
B. Proceeds received discounted at the prevailing interest rate for similar notes.
C. Face amount
D. Face amount discounted at the prevailing interest rate for similar notes.
70. Which of the following should be recognized?

Contingent assets Contingent liabilities Provisions
A. Recognized Recognized Recognized
B. Recognized Not recognized Not recognized
C. Not recognized Not recognized Recognized
D. Not recognized Recognized Recognized
71. The adoption of an accounting policy for an event or a transaction that differs in substance
from previously occurring events or transactions should be treated as
A. A change in accounting policy
B. A change in accounting estimate.
C. Neither a change in accounting policy nor a change in accounting estimate.
D. Either a change in accounting policy or a change in accounting estimate.
72. The currently reported net income on the income statement is based on what concept of capital?
A. Borrowed capital
B. Financial capital
C. Invested capital
D. Physical capital
73. One of the following errors may be disclosed by a trial balance

A. Account omitted from trial balance
B. Journal entry not posted
C. Omission of journal entry
D. Posting a correct debit to debit of a wrong account
74. Which of the following steps may be omitted in the completion of the accounting cycle?
A. Entries are posted to the ledger.

B. Adjusting entries are journalized.
C. Financial statements are prepared.
D. Certain adjusting entries are reversed.
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75. External events are those that affect the enterprise and in which other entities participate.
An example of an external event is
A. transfer of goods from one department or another.
B. Issuance of a promissory note in settlement of an account.
C. Loss of property due to flood.
D. Manufacture of a product out of raw materials
76. An unrealized holding gain on a company’s available for sale equity securities should be
reflected in the current financial statements as
A. a direct credit to retained earnings
B. an unrealized gain in the income statement
C. A note or parenthetical disclosure
D. As a component of other comprehensive income in the statement of comprehensive
income
77. Which of the following entries records the replenishment of petty cash fund?
A. Debit petty cash, credit cash C. Debit petty cash, credit expenses
B. Debit expenses, credit cash D. Debit cash, credit petty cash
78. Which one of the following statements is incorrect?

A. The accounting function should be separated from the custodianship of a company’s
assets.
B. Certain clerical personnel in a company should be routed among various jobs.
C. A company’s personnel should be given well-defined responsibilities.
D. The responsibility for receiving merchandise and paying for it should usually be given
to one person.
79. Jersey Company is a retailer of home appliances and offers a service contract on each appliance
sold. Jersey sells appliances on installment contracts, but all service contracts must be paid in
full at the time of sale. Collections received for service contracts should be recorded as an
increase in
A. Deferred revenue account C. Stockholders’ valuation account
B. Sales contracts receivable valuation D. Service revenue account
account
80. The amount reported as “Cash” on a company’s statement of financial position should
exclude
A. Postdated checks payable to the C. Undelivered checks written and
company signed by the company
B. Cash in payroll account D. Petty cash
81. The transaction approach to determining income is a concept in which

A. The financial effects of business events are classified as revenues, gains, expenses,
and losses, which are used to measure and define income.
B. Income is measured as the amount that an equity could consume during a period
and be as well off at the end of that period as it was at the beginning.
C. Market values adjusted for the effects of inflation or deflation are used to calculate
income.
D. Income equals the change in market value of the firm’s outstanding ordinary shares
for the period.
82. Under PAS 11, Construction Contracts, all of the following are included in contract costs except
A. Costs that relate directly to the specific contract.
B. Costs that are attributable to contract activity in general and can be allocated to the
contract.
C. Costs specifically chargeable to the customer under the future terms of the contract.
D. Costs that are specifically chargeable to the customer under the terms of the contract.
83. When the outcome of a construction contract cannot be reliably estimated,

A. No revenue from the contract will be recognized until the year of completion of the project.
B. Revenue shall be recognized only to the extent of recoverable contract costs.
C. Contract costs shall be recognized as an asset and shall be transferred to expense in the
year of completion.
D. All costs incurred related to the contract shall be recognized as expenses.
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84. For 2013, Pac Co estimated its two-year equipment warranty costs based on P100 per unit sold in
2012. Experience during 2013 indicated that the estimate should been based on P120 per unit.
The effect of this P20 difference from the estimate is reported
A. In 2013 income from continuing operations
B. As an accounting change, net of tax, below 2013 income from continuing operations.
C. As an accounting change requiring the 2012 financial statements to be restated.
D. As a correction of an error requiring 2012 financial statements to be restated.
85. In analyzing a company’s financial statements, which financial statement would a potential investor
primarily use to assess the company’s liquidity and financial flexibility?
A. Statement of financial position C. Statement of retained earnings
B. Income statement D. Statement of cash flows
86. During 2013, the management of West, Inc. decided to dispose of some of its older equipment and
machinery. By yearend, December 31, 2013, these assets had not been sold, although the
company was negotiating their sale to another company. The sale is considered to be highly
probable and is expected to be consummated within the year 2014. On the December 31, 2013
statement of financial position of West, Inc. this equipment and machinery should be reported at
A. Fair value
B. Carrying amount
C. The lower of carrying amount or fair value
D. The lower of carrying amount or fair value less cost to sell
87. In 2012, a contract dispute between Doll Company and Brooks Company was submitted to binding
arbitration. In 2012, each party’s attorney indicated privately that the probable award in Doll’s
favor could be reasonably estimated. In 2013, the arbitrator decided in favor of Doll. When
should Doll and Brooks recognize their respective gain and loss?
Doll’s gain Brook’s loss
A. 2012 2012
B. 2012 2013
C. 2013 2012
D. 2013 2013
88. Which of the following is a definition of accounting?

I. Accounting is a service activity. It aims to provide quantitative information, primarily
financial in nature, about economic entities, that is intended to be useful in making
economic decisions.
II. Accounting is the process of identifying, measuring and communicating economic
information to permit informed judgment and decision by users of the information.
III. Accounting is the art of recording, classifying, summarizing in a significant manner and in
terms of money, transactions and events which are in part, at least of a financial character
and interpreting the results thereof.
A. I only C. I and III

B. I and II D. I, II and III
89. Which of the following statements about financial statements is incorrect?

A. They show the results of the stewardship of management for the resources entrusted to it by
the capital providers.
B. They are the primary responsibility of the management of the enterprise
C. They are prepared at least annually and are directed to both the common and specific
information needs of a wide range of statement users.
D. They provide information about the financial position, performance and cash flows of an
enterprise that is useful to a wide range of users in making economic decisions.
90. Which of the following is not one of ingredients of relevant information?

A. The information enables users to predict the ability of the enterprise to take advantage of
opportunities and its ability to react to adverse situations
B. The information enables users to confirm earlier expectations
C. The information is capable of being duplicated by independent measures using the same
measurement methods
D. The amount of information is large enough that its omission could influence the economic
decision of users.
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91. Which of the following involves recognizing an expense?

A. Factory supplies are consumed in production
B. Office supplies are consumed in operations
C. A sales discount is granted to customer who pays within the discount period
D. Previously unrecorded wages are paid to laborers engaged in constructing a building for a
company’s own use
92. The end product of financial accounting process is/are

A. Financial statements C. Ledger
B. Audit report D. t- account
93. The term “comprehensive income”

A. Includes all changes in equity during a period except those resulting from investment by and
distribution to owners
B. Is the net change in owners’ equity for the period
C. Is synonymous with the term “net income”
D. Must be reported on the face of the income statement
94. A Corporation uses a calendar year financial and tax reporting purposes and has a P100 million of
mortgage bonds due on January 15, 2014. By January 10, 2014, A intends to refinance this debt
with new long-term mortgage bonds and has entered into a financing agreement that clearly
demonstrates its ability to consummate the refinancing. This debt is to be
A. Classified as a current liability on the statement of financial position at December 31, 2013.
B. Classified as a non-current liability on the statement of financial position at December 31,
2013.
C. Retired as of December 31, 2013.
D. Considered off-balance sheet debt.
95. Which of the following is not an appropriate procedure for controlling the petty cash fund?
A. The petty cash custodian files receipts by category of expenditures after their presentation to
the general cashier so that variations in different types of expenditures can be monitored.
B. Surprise counts of the fund are made from time to time by a superior of the petty cash
custodian to determine that the fund is being accounted for satisfactorily.
C. The petty cash custodian obtains signed receipts from each individual to whom petty cash is
paid.
D. Upon receiving petty cash receipts as evidence of disbursements, the general cashier issues a
company check to the petty cash custodian, rather than cash to replenish the fund.
96. For a company that has only ordinary share capital outstanding, total shareholders’ equity divided
by the number of shares outstanding represents the
A. Return on equity
B. Stated value per share
C. Book value per share
D. Price-earnings ratio
97. The concepts of earnings and comprehensive income have the same broad components, but they
are not the same because certain classes of gains and losses are included in comprehensive
income but are excluded in earnings. One of the items included in comprehensive income but
excluded from earnings is
A. A gain on discontinued operations.
B. Actuarial gains and losses on defined benefit plans
C. A loss from the obsolescence of a material amount of inventory
D. A gain from insurance settlement
98. How should the income from discontinued operations be presented on the statement of
A. The entity should disclose a single amount on the face of the statement of comprehensive
income, with analysis in the notes or a section of the statement of comprehensive income
separate from continuing operations.
B. The amounts from discontinued operations should be broken down over each category of
revenue and expense.
C. Discontinued operations should be shown as a movement on retained earnings.
D. Discontinued operations should be shown as a line item after gross profit with the taxation
being shown as part of income tax expense.
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99. Which of the following is not a measurement basis for financial statement elements, as
enumerated in the Conceptual Framework?
A. Inflation adjusted cost C. Historical cost
B. Current cost D. Present value
100. Long-term payables are measured using

A. Historical cost.
B. Current market value.
C. Net realizable value.
D. Present value of future cash flows.
101. When the market rate of interest is above the nominal rate, a bond sells at
A. PAR.
B. A PREMIUM.
C. A DISCOUNT.
D. stated value
102. A rise in the market rate of interest will cause the value of a financial instrument such as a bond to
a. rise.
b. fall.
c. remain the same.
d. Unable to determine from the information provided.
103. Which one of the following must be accrued at the end of the reporting period?
a. The likely loss on a lawsuit that the firm's attorneys believe will be dropped.
b. The probable loss on a lawsuit that the firm's attorneys believe will be settled for P500,000.
c. The reasonably possible loss on a lawsuit that the firm's attorneys believe will be dropped.
d. The reasonably possible loss on a lawsuit that the firm's attorneys believe will be settled for
P500,000.
104. Corporations which issue preference shares do so because preference share is

a. more risky than debt.
b. less risky than debt.
c. treated as debt rather than equity.
d. a better tax advantage than bonds.
105. Sanicare Company prepares reversing entries at the beginning of the accounting period. Which
of the following adjusting entries prepared by Sanicare should be reversed?
a. The entry to take up the expired portion of the insurance premium paid in advance.
b. The entry to take up the earned portion of rent collected in advance.
c. The entry to take up the unused supplies at the end of the period
d. The entry to provide doubtful accounts expense.
106. Royal Company omits some adjustments at the end of 2012. Which of the following adjustments
would result to understatement in profit?
a. Omission of a batch of merchandise in the physical count of inventory.
b. Omission of unpaid salaries at the end of 2012.
c. Understatement of depreciation expense in 2011.
d. Overstatement of prepaid insurance at the end of 2012.
107. Which of the following cash items should be reported as current assets?
a. Cash segregated for payment of equipment to be delivered next month.
b. Cash segregated for payment of long-term debt.
c. Cash segregated for payment of payroll
d. Cash segregated for redemption of preference shares in 24 months
108. Which of the following reconciling items would require an adjusting entry on the books of the
depositor?
a. outstanding checks
b. a check issued for P4,500 paid and recorded by bank at P5,400
c. deposit in transit
d. bank credit memo for a customer’s note collected by bank
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109. Which of the following would increase the balance of accounts receivable?
a. collection of a customer’s account
b. receipt of promissory note in settlement of a customer’s account
c. declaration by a customer (with open account) of bankruptcy.
d. Dishonor by a customer of a promissory note
110. An item of merchandise was omitted from the recorded purchases during the year 2012. The
item was also not included in the ending inventory of 2012. These errors would
a. Understate net income and understate liabilities.
b. Understate net income and understate total assets.
c. Overstate net income and understate liabilities.
d. Not affect net income, understate total assets and understate total liabilities.
111. Assuming that there was no change in prices of goods and cost of goods sold was higher than
the amount of purchases,
a. Ending inventory is higher than beginning inventory.
b. Ending inventory is lower than beginning inventory
c. Ending inventory is equal to the beginning inventory.
d. There is no valid relationship between the amount of ending inventory and beginning
inventory.
112. Corona Company purchased a computer mouse in June 2012 for P750. The mouse is expected
to be used for four years. However, Corona expensed the cost of the mouse during 2012.
Corona Company applied the concept
a. estimation c. materiality
b. completeness d. prudence
113. The statement of changes in equity should present the following except
a. the dividends declared during the period
b. net income or loss for the period
c. issuance of ordinary share capital
d. discontinued operations
114. Applying which of the following would not necessarily result to fair presentation of financial
statements?
a. Selecting and applying accounting policies in accordance with tax laws and regulations.
b. Selecting and applying accounting policies in accordance with the Philippine Financial
Reporting Standards.
c. Presenting information in a manner which provides relevant and representationally
faithful information.
d. Providing additional disclosures when the requirements in PFRS’s are insufficient to
enable users to understand the impact of a particular transaction or events on the
enterprise’s financial position and financial performance.
115. In the absence of a specific PFRS and an Interpretation, management uses its judgment in
developing an accounting policy that provides the most useful information to users. In making this
judgment, management considers all of the following, except
a. the requirements and guidance in IFRS dealing with similar and related issues
b. the definitions, recognition and measurement criteria for the elements of the financial
statements set out in the Conceptual Framework.
c. Pronouncements of the FASB, even if they are not consistent with existing PFRS and
Framework.
d. pronouncements of the IAS Board.
116. Which of the following is not a financial asset?

a. Cash c. Inventory
b. Accounts receivable d. Investment in Equity Instrument
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117. Some borrowing agreements incorporate undertakings by the borrower which have the effect that
the liability becomes payable on demand if certain conditions related to the borrower’s financial
position are breached. In these circumstances the liability is classified as
a. Non-current
b. Current, unless the lender has agreed on or before the end of the reporting period not to
demand payment as a consequence of the breach or violation and it is not probable that
further breaches or violations will occur within twelve months from the end of the
reporting period.
c. Current, unless it is not probable that further breaches or violations will occur within
twelve months of the end of the reporting period.
d. Current, unless the lender has agreed, prior to the approval of the financial statements,
not to demand payment as a consequence of the breach or violation and it is not
probable that further breaches or violations will occur within twelve months from the end
of the reporting period.
118. According to PAS 1, Presentation of Financial Statements, notes to financial statements are
presented normally in what order?
a. Statement of accounting policies, statement of compliance with PFRS, supporting
information for items presented on the face of each financial statement, other disclosures.
b. Statement of compliance with PFRS, statement of accounting policies and measurement
bases, supporting information for items presented on the face of each financial
statement, other disclosures.
c. Supporting information for items presented on the face of each financial statement, other
disclosures, statement of accounting policies and measurement bases, statement of
compliance with PFRS.
d. Supporting information for items presented on the face of each financial statement,
statement of accounting policies and measurement bases, statement of compliance with
PFRS, other disclosures.
119. Which of the following is not an accurate statement about the financial statements?
a. All the information needs of the users can be met by the financial statements, because
financial statements are general purpose financial reports.
b. The management of an enterprise has the primary responsibility for the preparation and
presentation of the financial statements.
c. Financial statements show the results of the stewardship of management, or the
accountability of the management for the resources entrusted to it.
d. The component parts of the financial statements interrelate because they reflect different
aspects of the same transactions or other events.
120. All of the following are elements presenting financial performance of an enterprise, except
a. Increases in economic benefits during the accounting period in the form of inflows or
enhancements of assets or decreases of liabilities that result in increases in equity, other
than those relating to contributions from owners.
b. Increases in economic benefits during the accounting period in the form of inflows or
enhancements of assets or decreases of liabilities that result from contributions from
owners
c. Decreases in economic benefits during the accounting period in form of depletion of
assets or incidences of liabilities that arise in the course of ordinary activities of the
enterprise, other than those relating to distributions to owners.
d. Decreases in economic benefits during the accounting period in the form of depletion of
assets or incidences of liabilities that may or may not arise in the course of the ordinary
activities of the enterprise, other than those relating to distributions to owners.
121. When economic benefits are expected to arise over several accounting periods and the
association with income can only be broadly or indirectly determined, expenses are recognized in
the statement of comprehensive income on the basis of
a. direct matching
b. systematic and rational allocation
c. cash disbursement
d. immediate recognition.
122. Measuring property, plant and equipment and intangible assets at revalued amount less
subsequent accumulated depreciation and impairment losses is a response to the inability of the
historical cost accounting model to deal with the effects of changing prices of non-monetary
assets. In these cases, the measurement basis used is
a. acquisition cost c. realizable value
b. current cost d. present value
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123. The selection of the appropriate concept of capital by an enterprise should be based on the
needs of the users of its financial statements. What concept of capital should be adopted if the
users of the financial statements are primarily concerned with the maintenance of nominal
invested capital or the purchasing power of invested capital?
Financial concept of capital Physical concept of capital
a. Yes Yes
b. No Yes
c. Yes No
d. No No
124. Which of the following does not initiate an entry to be made in the books of accounts?
a. purchase invoice c. sales invoice
b. purchase order d. official receipt
125. In preparing a worksheet for a merchandising firm

a. the beginning inventory is extended as a debit on the balance sheet columns and as a
credit on the income statement columns.
b. the beginning inventory is extended as a credit on the balance sheet columns and as a
debit on the income statement columns.
c. the ending inventory is extended as a debit on the balance sheet columns and as a
credit on the income statement columns.
d. the ending inventory is extended as a credit on the balance sheet columns and as a debit
on the income statement columns.
126. After posting the closing entries

a. all the accounts have zero balances.
b. The income accounts, expense accounts and income summary accounts have zero
balances.
c. The asset, liability and equity accounts have zero balances.
d. The income accounts, expense accounts, income summary accounts and retained
earnings account have zero balances.
127. A statement of cash flows typically would not disclose the effects of
a. share capital issued at more than par value.
b. a purchase and immediate retirement of treasury share.
c. cash dividends paid.
d. share dividends declared.
128. Which of the following steps may be omitted in the completion of the accounting cycle?
a. Entries are posted to the ledger.
b. Adjusting entries are journalized.
c. Financial statements are prepared.
d. Certain adjustments are reversed.
129. The adoption of an accounting policy for an event or a transaction that differs in substance from
previously occurring events or transactions should be treated as
a. a change in accounting estimate.
b. a change in accounting policy
c. neither a change in accounting estimate nor a change in accounting policy
d. either a change in accounting estimate or a change in accounting policy.
130. When preparing a statement of cash flows using the indirect method, an increase in ending
inventory over beginning inventory will result in an adjustment to reported profit because
a. cash was increased while cost of goods sold was decreased.
b. cost of goods sold on an accrual basis is lower than on a cash basis.
c. acquisition of inventory is an investment activity.
d. inventory purchased during the period was less than inventory sold resulting in a net cash
increase.
131. A publicly held corporation is required to have its financial statements audited by an independent
external auditor. The three purposes of these financial statements are to provide useful information
(1) For credit and investment decisions, (2) About the firm’s resources, and (3) for
a. Determining the impact of inflation.
b. Long-lived asset replacements.
c. Assessing market value of assets.
d. Evaluating prospective cash flows.
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132. The information reported in the statement of cash flows should help investors, creditors and others
to assess all of the following except the
a. Amount, timing, and uncertainty of prospective net cash inflows of a firm.
b. Company’s ability to pay dividends and meet obligations.
c. Company’s ability to generate future cash flows.
d. Management of the firm with respect to the efficient and profitable use of its resources.
133. A statement of financial position is intended to help investors and creditors

a. Assess the amount, timing, and uncertainty of prospective net cash inflows of a firm.
b. Evaluate economic resources and obligations of a firm.
c. Evaluate economic performance of a firm.
d. Evaluate changes in the ownership equity of a firm.
134. The accounting system should be designed

a. To meet external reporting requirements.
b. To balance management information needs with the cost of obtaining that information.
c. To eliminate fraud by accounting personnel.
d. By persons not directly involved with the system, such as consultants.
135. If the going-concern assumption is no longer valid for a company

a. Land held as an investment would be valued at its liquidation value.
b. All prepaid assets would be completely written off immediately.
c. Total contributed capital and retained earnings would remain unchanged.
d. The allowance for uncollectible accounts would be eliminated.
136. One of the ingredients of the primary quality of relevance is

a. Verifiability.
b. Confirmatory value.
c. Neutrality.
d. Due process.
137. Accounting information that enables decision makers to confirm or correct prior expectations is
said to have
a. Predictive value
b. Materiality.
c. Representational faithfulness.
d. Confirmatory value.
138. The historical cost of assets and liabilities is generally retained in accounting records because this
information has the qualitative characteristics of
a. Neutrality and verifiability
b. Reliability and relevance.
c. Decision usefulness, reliability, and neutrality.
d. Timeless, verifiability, and relevance.
139. The concepts of earnings and comprehensive income have the same broad components, but they
are not the same because certain classes of gains and losses are included in comprehensive
income but are excluded in earnings. One of the items included in comprehensive income but
excluded from earnings is
a. A gain on discontinued operations.
b. Unrealized increment from revaluation of property plant and equipment
c. A loss from the obsolescence of a material amount of inventory
d. A gain from insurance settlement
140. Revenues of an entity are normally measured by the exchange values of the assets or liabilities
involved. Recognition of revenue does not occur until
a. The revenue is realized and assured of collection.
b. The revenue is realized or realizable and earned.
c. Products or services are exchanged for cash or claims to cash.
d. The entity has substantially accomplished what it agreed to do.
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141. How should the income from discontinued operations be presented on the statement of
a. The entity should disclose a single amount on the face of the statement of comprehensive
income, with analysis in the notes or a section of the statement of comprehensive income
separate from continuing operations.
b. The amounts from discontinued operations should be broken down over each category of
revenue and expense.
c. Discontinued operations should be shown as a movement on retained earnings.
d. Discontinued operations should be shown as a line item after gross profit with the taxation
being shown as part of income tax expense.
142. Although a transfer of ownership has not occurred, the percentage-of-completion method is
acceptable under the revenue recognition principle because
a. The assets are readily convertible into cash.
b. The production process can be readily divided into definite stages.
c. Cash have been received from customer.
d. The earning process is completed at various stages.
143. Long-term payables are measured using

a. Historical cost.
b. Current market value.
c. Net realizable value.
d. Present value of future cash flows.
144. How will net income be affected by the amortization of a premium on bonds payable?
a. Interest revenue is decreased, so net income is decreased.
b. Interest expense is increased, so net income is decreased.
c. Interest revenue is increased, so net income is increased.
d. Interest expense is decreased, so net income is increased.
145. Which of the following is an invalid statement regarding liabilities?

A. A currently maturing financial liability that is refinanced after the end of the reporting period
but before the issuance of the financial statements shall be classified as current liabilities.
B. A disclosure note is required for all material loss contingencies for which the probability of
loss is reasonable possible.
C. Not all accounting liabilities represent contractual obligations.
D. It is necessary to know the identity of the party to whom the obligation is owed for it to qualify
as a liability.
146. Which of the following is not a characteristic of a liability?

A. It represents a probable, future sacrifice of economic benefits.
B. It must be payable in cash.
C. It arises from present obligation to other entities.
D. It results from past transactions or events.
147. Which of the following is a correct presentation of assets and liabilities on the statement of
financial position?
A. current then non-current
B. non-current, then current
C. based on liquidity
D. any of the above, provided the presentation is most relevant to the users.
148. Under the gross method of recording accounts payable, cash discounts not taken by the entity
A. are not separately recognized, and hence included in the cost of purchases.
B. are deducted from purchases in the cost of goods sold section of the statement of
comprehensive income.
C. are reported as finance costs.
D. are charged to Purchase Discounts Lost.
149. A non-interest bearing note payable is measured on the statement of financial position at
A. face value, reduced by the balance of Premium on Notes Payable.
B. face value reduced by the balance of Discount on Notes Payable.
C. face value plus accrued interest.
D. face value.
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150. The ledger balance of Premium on Notes Payable indicates

A. the issue by the enterprise of a non-interest bearing note.
B. that the enterprise issued a note bearing an interest rate equal to the market rate of interest.
C. that the enterprise issued a note bearing an interest rate lower than the market rate of
interest.
D. that the value of the consideration received in exchange for the note exceeds the face value
of the interest- bearing note issued.
151. Which of the following does not create a liability?

A. Collection of value added tax from customers.
B. Collection of advances from customers for goods or services to be delivered in the future.
C. Signing a cancelable purchase commitment.
D. Withholding income taxes on employees’ compensation.
152. Revenue associated with gift certificates is recognized

A. evenly during the period between the sale and redemption of the gift certificates.
B. upon sale of gift certificates.
C. upon expiration of gift certificates.
D. upon redemption and expiration of the gift certificates.
153. Note disclosure is required for material potential losses that are at least reasonably possible
A. only if the amount is reasonably estimable.
B. only if the amount is definite.
C. unless the amount is not reasonably determinable.
D. even if the amount is not reasonably estimable.
154. D’Perfect Company issues a product recall due to an apparently pre-existing material defect
discovered in the design of its product after the end of the reporting period but before the
issuance of the financial statements. The cost for the recall can be reasonably estimated. How
would the financial statements for the year just ended be affected by this recall?
A. The entity shall disclose the information only in the notes to the financial statements.
B. The entity shall present a provision for the recall on the face of the financial statements.
C. The entity shall present a provision for this recall on the face of the financial statements and
explain the nature in the notes to the financial statements.
D. The entity shall neither disclose this information in the notes nor accrue a provision on the
face of the financial statements.
155. Interest expense, for accounting purposes, is

A. the effective interest e rate x the beginning carrying value of the liability.
B. the effective interest rate x the face value of the liability.
C. the stated interest rate x the beginning carrying value of the liability.
D. the stated interest rate x the face value of the liability.
156. How would the carrying value of the bonds be affected by the amortization of premium and
discount, respectively?
A. increase, decrease
B. decrease, increase
C. increase, increase
D. decrease, decrease
157. When bonds were originally issued at a premium and the effective interest method of amortization
is used, at interest date the interest expense is
A. equal to the cash paid for interest.
B. more than the cash paid for interest.
C. less than the cash paid for interest.
D. increasing each period.
158. Patrick Company issued 5% debenture bonds that are convertible into the company’s ordinary
shares. The issue price shall be recorded as
A. partly debt and partly equity.
B. debt only.
C. equity only.
D. partly debt and partly income.
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159. Which one of the following represents the best source for assessing the consistency of a
company’s financial statements?
A. The management discussion and analysis section of the annual report.
B. The auditor’s report
C. The “summary of significant accounting policies” in the notes to the financial statements.
D. The narrative information about the company found in the annual report.
160. Earnings-per-share disclosures are required

a. Only if the entity has a complex capital structure.
b. For an entity that changes its capital structure.
c. If an entity has issued publicly traded potential ordinary shares.
d. In statements of wholly owned subsidiaries.
161. Which one of the following generally accepted accounting principles most directly supports the
preparation of consolidated financial statements when parent-subsidiary relationship exists?
A.. Going concern assumption C. Materiality
B. Reliability D. Accounting Entity
162. Under the voucher system, a check register is

A. A journal for cash disbursements. C. a summary of cash transactions
B. A ledger for cash disbursements D. an authorization to disburse cash
163. Under IAS 1, Presentation of Financial Statements, which is not to be considered in determining
whether a liability shall be classified as current liability?
A. The classification of assets that are available for the payment of the obligation.
B. The maturity date of the obligation.
C. Whether the obligation is expected to be settled within the entity’s normal operating cycle.
D. Whether the enterprise does not have an unconditional right to postpone the settlement of
the obligation for at least twelve months after the end of the reporting period.
164. Janet, Inc. is a retailer of appliances and offers a service contract on each appliance sold. Janet
sells appliances on installment contracts, but all service contracts must be paid in full at the time
of sale of appliance. Collections received for service contracts should be recorded as an
increase in
A. Deferred revenue account C. Service revenue account
B. Shareholders’ equity valuation account D. Sales contracts receivable valuation
account
165. Compared to the accrual basis of accounting, the cash basis of accounting overstates profit by
the net decrease during the accounting period of
Prepaid Expenses Accrued Expenses
A. Yes Yes
B. Yes No
C. No Yes
D. No No
166. Blue Company uses the indirect method of presenting cash flows from operations in its cash flow
statement. Both merchandise inventory and unearned income decreased from January 1, 2012
to December 31, 2012. To obtain cash flow from operations, how would these decreases be
added to or deducted from the profit from operations?
Merchandise Inventory Unearned Income
A. Added Added
B. Added Deducted
C. Deducted Added
D. Deducted Deducted
167. On August 31, 2012, Heart Company decided to change from the FIFO method to weighted
average method of measuring cost of inventory. Heart is on a calendar year basis, and presents
comparative financial statements for the preceding year. On its comparative financial
statements, the cumulative effect of change shall be determined
A. As of January 1, 2011
B. As of December 31, 2012
C. During the eight months ending Aug. 31, 2012 by a weighted average of the purchases.
D. On December 31, 2012
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168. How would the effect of a change in accounting estimate be accounted for?
A. By restating amounts reported in financial statements of prior periods.
B. By reporting proforma amounts for prior periods.
C. As a prior period adjustment to beginning retained earnings.
D. In the period of change and future periods if the change affects both.
169. For 2012, C Company estimated its two-year equipment warranty costs based on P1,100 per
unit sold in 2012. Experience during 2013 indicated that the estimate should have been based
on P1,300 per unit. The effect of this P200 difference from estimate is reported
A. In statement of changes in equity, as an adjustment to Retained Earnings of January 1,
2013.
B. In 2013 statement of comprehensive income as part of continuing operations.
C. As an accounting change, net of tax, in the profit or loss section of the statement of
comprehensive income after income from continuing operations.
D. As a correction of prior period error requiring 2012 financial statements to be restated.
170. When the effect of a change in accounting policy cannot be separated and distinguished from a
change in accounting estimate, the change is treated
A. By restating the financial statements of all prior periods presented.
B. As a correction of prior period error.
C. As a component of income from continuing operations in the period of change and future
periods, if the change affects both.
D. As a separate component of income after income from continuing operations, in the period
of change and in future periods, if the change affects both.
171. The discontinued operations section of the profit or loss is comprised of which one of the
following?
A. Profit from operation of the discontinued component of an entity and gain or loss from the
disposal of the discontinued component.
B. Post-tax profit or loss from the operation of the discontinued component, and post-tax gain
or loss recognized on the measurement to realizable value of net assets held for sale.
C. Post-tax gain or loss from the operation of the discontinued component, and gain or loss
from the disposal of the discontinued component.
D. Post-tax profit or loss of the discontinued operations of the component and post-tax gain
or loss on the measurement to realizable value of assets held for sale or post-tax gain or
loss on the disposal of the assets of the discontinued operations.
172. The accumulated balance of other comprehensive income should be reported on the statement
of financial position as a component of
Accumulated Profits (RE) Share Premium
A. Yes Yes
B. No Yes
C. Yes No
D. No No
173. Which of the following information should be disclosed in the Notes to Financial Statements
under “Summary of Significant Accounting Policies”?
A. Refinancing of debt after balance sheet date
B. Guarantee of indebtedness of others, outflow of economic benefits is reasonably possible
C. Criteria to determine which financial instruments are treated as cash equivalents
D. Reconciliation of beginning balances of Property, Plant and Equipment to their ending
balances.
174. IAS I, Presentation of Financial Statements, requires that an entity must disclose the following:
I. A description of the entity’s operations
II. The legal form of the entity
III. The name of the entity’s ultimate parent
IV. The address of the registered office
A. None of the above C. II and IV only
B. I, II, III and IV D. I, II and IV
22
175 An accounting policy

A. Comprises the principles applied in preparing the financial statements.
B. Is a judgment applied in deciding whether or not to recognize s transaction.
C. Is the application of judgment in deciding on the measurement of an item.
D. Is the judgment used in deciding whether or not to disclose a particular information.
176. When an entity makes a voluntary change in accounting policies that has an effect on the current
period, it is required to disclose
I. The reason why the change will provide more relevant information.
II. The amount of the adjustment for each financial statement line item affected.
III. The nature of the change.
IV. The reason why previous policy no longer provides reliable information.
A. I, II, and III only C. I, II, and IV only
B. II, III and IV only D. III and IV only
177. Where a material error occurs in the recording process in a prior period, an adjustment
A. Must be made to the prior period comparative balances.
B. May be recognized directly in retained earnings.
C. May be deferred and recognized in a later accounting period.
D. Is not necessary, but the item must be fully explained in the notes to the financial
statements.
178. Who among the following is a direct user of accounting information?

A. Securities and Exchange Commission C. Enterprise’s shareholders
B. Labor association D. Financial Adviser
179. Dividends declared after the reporting period but before the financial statements are authorized
for issue
A. Meet the criteria for recognition as a liability.
B. Satisfy the criteria for recognition as an expense.
C. Are recognized on the balance sheet as they meet the definition of equity.
D. Do not meet the IAS 37 criteria of a present obligation as of the end of the reporting
period.
180. Under IAS 37, Provisions, Contingent Liabilities and Contingent Assets, what is the proper
accounting treatment for future operating losses?
A. No recognition in the financial statements.
B. Determine a reasonable estimate of the cost and provide for the future liability.
C. Determine the cost and charge directly against retained earnings.
D. Measure on the basis of estimated future cash outflows.
181. Which of the following is a financial asset?

A. Ordinary shares of the issuer C. accounts receivable
B. Inventory D. shares reacquired by the entity
182. Cash payments to manufacture or acquire assets held for rental to others and subsequently held
for sale are cash flows from
A. operating activities.
B. investing activities.
C. financing activities.
D. either operating or investing activities, provided the presentation is consistent from period
to period.
183. What treatment should be accorded to events after the reporting period that provide evidence of
conditions that existed at the end of the reporting period?:
A. note disclosure only, in the financial statements;
B. recognition in the financial statements;
C. adjustment in the cash flow statement;
D. ratification by shareholders at an annual meeting.
184. What treatment should be accorded to events after the reporting period that are indicative of
conditions that arose after the reporting period?:
A. recognition in the statement of comprehensive income;
B. recognition in the statement of financial position;
C. recognition in the cash flow statement;
D. no recognition on the face, but may or may not require note disclosure
23
185. The profit or loss attributable to a non-controlling interest is required, under IAS 1 Presentation of
Financial Statements, to be presented on the face of the:
A. cash flow statement;
B. statement of cash flows;
C. statement of comprehensive income;
D statement of changes in equity.
186. The following cash flow activities are regarded as investing cash flows:
A income taxes paid;
B interest paid;
C acquisition of subsidiary net of cash acquired;
D proceeds from issue of debentures.
187. Which of the following items would be presented in a statement of cash flows?
A. payment of dividends through a share investment scheme;
B. acquisition of an investment in a subsidiary for consideration consisting of an exchange of
non-current assets and liabilities;
C. proceeds from the issue of debentures;
D. refinancing of long-term debt.
188. The following item would not appear in a cash flow statement:
A receipts of cash from customers;
B conversion of preference shares to ordinary shares;
C payment of creditors;
D proceeds on disposal of non-current assets.
189. IAS 7 Cash Flow Statements, requires that investing and financing transactions that do not
require the use of cash or cash equivalents should be:
A Excluded from a cash flow statement;
B Included in a cash flow statement before operating, investing and financing activities;
C Presented in the cash flow statement after operating activities and before investing and
financing activities;
D Presented in a cash flow statement after the operating, investing and financing activities
have been presented.
190. What are the conditions for offsetting (net presentation) of financial assets and financial
liabilities?
A. A legal right of set-off
B. The existence of a clearing mechanism or other market mechanism for net settlement and
an expectation of net settlement.
C. A netting agreement and an expectation of set settlement.
D. A legal right of set-off and an intention to settle net or simultaneously.
191. What is the effective interest rate of a bond or other debt instrument measured at amortized
cost?
A. The interest rate that exactly discounts estimated future cash payments or receipts
through the expected life of the debt instrument or, when appropriate, a shorter period to
the net carrying amount of the instrument.
B. The basic, risk-free interest rate that is derived from observable government bond prices.
C. The stated coupon rate of the debt instrument
D. The interest rate currently charged by the entity or by others for similar debt instruments
192. For a particular component of an entity to be classified as a discontinued operation, it must be
held for sale, or already disposed of, and meet one of the following criteria:
A. It must represent an insignificant part of a geographical area of operations.
B. It must be an immaterial component in one of the lines of the business operations.
C. It may not have any cash flows attributable to its activities.
D. It must be a subsidiary acquired exclusively with a view to resale.
193. If a real account is charged for a prepayment of expense, the adjusting entry is
A. Debit prepaid expense, credit expense
B. Debit expense, credit payable
C. Debit expense, credit prepaid expense
D. Debit expense, credit cash
24
194. Under IAS 7 Statement of Cash Flows Interest paid to lenders shall be presented in the statement of
cash flows under
A. Operating activities.
B. Investing activities.
C. Financing activities.
D. Operating or financing activities, provided the presentation is consistent from period to period.
195. Under IAS 1 Presentation of Financial Statements, a statement of financial position as at the
beginning of the earliest comparative period is required to be presented as a component of financial
statements when an entity
I. applies an accounting policy retrospectively.
II. makes a retrospective restatement of items in its financial statements.
III. reclassifies items in its financial statements.
IV. effected a change in accounting estimate.
A. Any of I, II, III and IV.
B. Any of I, II and III.
C. All of I and II.
D. All of I, II and III.
196. A statement of comprehensive income may be prepared using

I. single statement presenting profit or loss and other comprehensive income.
II. 2 statement approach, with the income statement being displayed after the statement of
III. 2 statement approach, with the income statement being displayed before the statement of
A. Any of I, II and III.
B. I or II
C. II or III
D. I or III
197. An entity whose financial statements comply with IFRS

A. Shall make an explicit and unreserved statement of such compliance in the notes.
B. Need not make an explicit and unreserved statement of such compliance in the notes.
C. Shall make an explicit and unreserved statement of such compliance during the first year of
compliance with IFRS.
D. shall not make an explicit and unreserved statement of such compliance if it has complied
with IFRS during the preceding 5 years.
918. Inappropriate accounting policies adopted in the previously issued financial statements are rectified
by
A. Disclosing the accounting policies in the notes.
B. Notes or explanatory material.
C. Restating the comparative amounts for the prior periods presented.
D. Adjusting the amounts in the current period to absorb any misstatement in the prior periods.
199. Compensation cost relating to the grant of share options shall be recorded as expense
A. At the date of grant.
B. At the date the options vest.
C. During each year in the vesting period.
D. Upon exercise of the share options.
200. Compensation cost relating to the grant of share options shall be measured
A. At the intrinsic value of the options at the date of grant.
B. At the intrinsic value of the options at the end of each reporting period .
C. At the fair value of the options at the date of grant.
D. At the intrinsic value of the options at the end of each reporting period.
********************************
25

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DE LA SALLE UNIVERSITY MANILA

RVR – COB DEPARTMENT OF ACCOUNTANCY

1. Which of the following would be classified as non-current asset?

2. Which of the following results to offsetting?

3. When the presentation or classification of items in the financial statements is revised or

6. Which of the following are ingredients of reliability?

11. Which of the following is not a financial asset?

15. Under a financial concept of capital, capital is synonymous with

16. For a liability to exist

26. How would retained earnings be affected by each of the following?

Ordinary Share Capital Additional Paid in Capital

34. Which of the following is true regarding financial statements?

37. Which of the following elements is directly related to measurement of performance?

39. PAS 1, Presentation of Financial Statements, expresses preference for a presentation of

40. Which of the following would not be classified as current assets?

A. I, II, III and IV C. II, III and IV

49. When an inventory costing formula is changed, the change is applied

A. I, II and III only C. I, III and IV only

57. In a consolidated statement of financial position, the non-controlling interest is shown

62. After posting the closing entries

67. Which of the following is not a contingent liability?

70. Which of the following should be recognized?

73. One of the following errors may be disclosed by a trial balance

A. Entries are posted to the ledger.

78. Which one of the following statements is incorrect?

81. The transaction approach to determining income is a concept in which

83. When the outcome of a construction contract cannot be reliably estimated,

88. Which of the following is a definition of accounting?

A. I only C. I and III

89. Which of the following statements about financial statements is incorrect?

90. Which of the following is not one of ingredients of relevant information?

91. Which of the following involves recognizing an expense?

92. The end product of financial accounting process is/are

93. The term “comprehensive income”

100. Long-term payables are measured using

104. Corporations which issue preference shares do so because preference share is

116. Which of the following is not a financial asset?

125. In preparing a worksheet for a merchandising firm

126. After posting the closing entries

133. A statement of financial position is intended to help investors and creditors

134. The accounting system should be designed

135. If the going-concern assumption is no longer valid for a company

136. One of the ingredients of the primary quality of relevance is

143. Long-term payables are measured using

145. Which of the following is an invalid statement regarding liabilities?

146. Which of the following is not a characteristic of a liability?

150. The ledger balance of Premium on Notes Payable indicates

151. Which of the following does not create a liability?

152. Revenue associated with gift certificates is recognized

155. Interest expense, for accounting purposes, is

160. Earnings-per-share disclosures are required

162. Under the voucher system, a check register is

175 An accounting policy

178. Who among the following is a direct user of accounting information?

181. Which of the following is a financial asset?

196. A statement of comprehensive income may be prepared using

197. An entity whose financial statements comply with IFRS

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