eR (9) ReSA- The Review School of Uccourtancy.» Theory of Uccounts May 2016 Batch TAPW - 311 ACCOUNTING ‘A primary objective of financial reporting isto 4 Assist investors in analyzing the economy b. Assist investors in predicting prospective cash flows ©. Assist banks to determine an appropriate interest rate for their commercial loans PRIMARY users: existing and potential investors, lenders and other creditors ® OTHER (secondary) users: erployees, customers 13. Under the cotsisteney principle however reguires ta, stiould there he ny ch 1X, While only ‘going concern’ is mentioned us.an underlying as imeritioned under the seetion on objectives of financial reporting in the new Framework 24. ENTITY theory (Assets = Liabilities + Equity) > emuphasis PROPRIETARY theory (Assets'~ | Vquity) > eniphasis is om proper asset RESIDUAL EQUITY theory (Assets ~Liabillies - Prefered Fquty ~ Common Eau) 26. IAS und IFRS are prineiples-based 5 « 31. Usual inistake is choice A. Instead of ng uppor trom practicing wecount of professional members, représenting varions interested user groups. 38. ‘The Bureau of Internal Revemie (IR) is of directly involved in the stundard-setting process of fin ng Standards Council, which incial Reporting Standards (PFRS) are approved subject to ions Commission (PRC) through the Board of Accountaney (BA) are those that aflevt the entity and in which other entities participate, On the oth ity are the usual examples of inter a! events ctsing entries; however, prepaid expense standards inthe country; instead, ISR is represented inthe. S-member fs the standard-setting body of the the concurrence ofthe Professo 40, External ev events do not involve other entities’ participation. Protuction and e 50. Prepaid expense recorded under the asse? acthoal is not sibject to. res ‘coord under the expense method may be reversed. 464. Retrospective upplication assumes th th 7. Prospective application means thatthe change is effected fon the date oF change 77. Choice A is more commonly knows 79, While PAS 24 requires the disclosure of par group transsetions, i€ does not req eonsolidated FS, ADDITIONAL QUESTIONS (with sugge rs) 1. Accounting concepts are NOT derived from which of the following? Financial Repor vars. id subsi c Experience Laws ofnature b. Pragmatism ¢peneticality) Inductive reasoning, Which of these qualitative charaeteristies or concepts are relates!? A a Relevance and materiality 2 mice and understandability b.- Understandability and comparability d ability ind comparability Page 9 of 10 pages ned fo the US FASB standards which are eonsidered rule i i, standards are prepared. tes the approval of accounting standards (PERS). The body is composed TAPW-311 jovermicnts and their agencies, and the public Conceptual Framework (2010), comparability is NOT unifirmity (je, accounting changes are allowed); ssury divelosures must be nption in the new Framework, ‘acerual Isis" is made, proper income determination/ineome:s/atement; vba val fe sheets based. neial reporting hand, internal new accounting policy had always been applied from the begining, ividend in arrears,” which is required (o be disclosed in the noes to the FS, relationship irrespective of any intereorapany,or intra fe disclosure of transacyions which are normally eliminated in the, prepata& % o c 8 Which ig NOT'a key element of 3 KeSU- The Review School of GecoumFancg « Theory, of Gecommts’ ‘May 2016 Batch TAPW ~ 312 CASH AND. RECEIVABLES Jf Alot the following would be regarded! as financial instruments, ENCERE a Ca Notes payable © L bo Rank overdraft C= 4 Equipment 2 Inender to be classified as a cash equivalent, on investmenit must have a mavurity’ period of: 4. Less than six months © Sixto twelve months Three to six months Three months oF tess PF Alvot the tollowing can be classified ws cash and cash equivalents. EXCEPT: 4 Bank dratts — ¢ bh equity investments vies eld du for repayment in 90 dass . Redsemable preference shares aquired and Jin 60. AL Which of the following is generally classified as a1 wer ue a, Postdated checks AC. € hb. Bank overdratis. cue d ent Hability_on the balance sheet? lustomer NSF checks *& 2a Sha) sn ea a ea lang accuse NOTA Sey key Velen ma areAR ie onion ea Hid grey apap ucla MB ENEbutn ve eh es i Shey nen be aise fe eal Suecas eae $8) cash eisrl gysiem are tne mihi and procedfes el 8 ence! That current obligations ane mt ¢ the saffguarding of cash 1 That excess gash does not ens dL. thar unised cash i invested mal ono ear ho espeti opty eas 4, Separation of duties E> Aealgtent oes fea internat control ver eine neveiphe’? Cash deposit on a regular basis b. Daily entry ina yoycherregistee ~ dbwrvemenye c.__ Daily recording of all eash receipts in the accounting records 4.) Immediate counting by the person opening the mail oF using the cash register Proper authorization imprest system MX 4 Inreconctling the bank balance with the book cash balarve, which of the following would JOT cause the bank balance shown in the bank statement to be Tower thar the unadjusted book hakanee’) an 4. Deposits intransi b, Cash on hand atthe company Interest credited to the account by the bank NSF cheeks froma customer, 98 reporied un the bank stateinent 30 Accounts: receivable usually’ appear in the balance sheet, a.” As current assets, combined with eash and cash equivalents b, AS current assets, immedvately aller cash und Cash equivalents &. Only ‘tthe balance sheet method oF estimating uncolletible accounts is used, 4.” Aveither current assets or noneiirent assets, depending on whether the allowance method or the dicect ‘write-off nethod is used! 1 a€count for uncollectible accounts M4 A.orans tind receivables are fon-dlerivgtive nancial assets With fixed or determinable payments that are quoted in an active market b. With fixed or deferminable payments that are not quoted in ai active market ©. Without fixed or determinable paymgnts that are quoted in an active market dd. Without fixed or determinable paynients that are not quoted in an active market 2B. Wien individual customers” accourit have credi7 balances of material amounts, these amou a. May de shown as “credit balanges of customers’ accounts” in the current assets section b. May be deducted fron the debit balance jn other customers’ accounts i she asset section . Must be reported separately inthe liability secrich oF the balance sheet 4d, Should be omitted from the balance sheet Page 1 of & pageseS. the Review School of Cccowrdaney TAPW-312 PREWEE 17ATERIALS in THEORY of ACCOUNTS (May 2036 Bath) Page 2 D JS. Accounts receivable are classified as current assets: EN aT veh ide itt task beyons ove Yea Te nly eon bere rt eas wit 60 dys or soo G32 Ol tba slofancs metho i seb eimai ineoletble aces dk Whenever sceounts receivable arise from “normal” sales fo eistomers less ofthe eredit terms ples primarily supports the use of allowance for doubtful accounts? LA: Which of the Foltowi yecouinting pri Continuity principle ©. Matching principle » sure principle 4. Cost principle CAF The allowance method of recognizing bad debt expense is generally considered a generally accepted accounting, be met before the allowar principle. What two conditions a ‘method ean be used? Bad debts must be relevant and reliable b, Bad debts must he expected and material . Badlebts must be probabie anc! measurable Xd, hid debis must be persistent over time andl the method used to estimate them is consistently applied X6.-\ company, which has an adequate amount in its Allowance for Doubtful Aecounts, writes off as uncollectible an ‘account receivable from a bankrupt customer. ‘This aetion will: a, Have no effect om total curent assets ¢. Reduce net income forthe period be Reduce ota current assets 4. Reduce the amount of equity © AF. WhichoF he fotlowing methods is NOT appropriate for estimating had debt expense? a. Individual or collective assessment of outstanding re b. Percentage of outstanding accounts receivable. © Aging of accounts rece wable uf ables renlaye of income © AB Whicvisa veneraly accepted method of determining the amount ofthe adjustment wo bad debts expense? a. A pereentage of sales adjusted forthe balance i the allowance B.A percentage of abcounts receivable ot adjusted for the balance in the allowance € Anamoumt derived from aging accounts receivable adjusted forthe balance inthe allowance 4d. An-amount derived from aging accounts receivable not adjusted forthe halanee in the allowance F) 49, Whieh of the following isan advantage of using the net price method for recording cash discounts on credit sales? a. Iteases communication with customers about thie bal BL uproperly reflects current period sales revenue €._Itsimplifes recording of sts retuns and allowances +k Tereqaire oss recordheeping efforts than the gross method 26. ABC Cyele Shop sels bicycle to. XYZ. a customer who uses Express Charge (a tational creditcard, but not issued by a bank). In recording this sale. ABC Cycle Shop should record: = om a. A cash receipt b, An account receivable from NY € Amaccount receivable from Express Charge 4. Asmall increase inthe allowance for doubtful accounts AAC When accounts eccivable ar factored aut eeeurse, what account des the transferor eet? a, ccounts receivable ss Liability Sales 4 Accounts receivable Se 2% A nonintrestbearing note receivable a, Catises no interest revenue to be recorded Includes a specified principal amount phis specified imerest © Includes a specified principal amount but an unspecified interest amount 4d, Ineludes an unspecified principal amount and an unspecified interest amount beg 23: Shor-serm nnsinlenest beating notes reccivableiars usually réconded a ther 3. Present value Discounted value b, Net tealizable value 4 Maturity value 4 2A. Asstiming that the ideal measure of short-term receivable in the balance shect isthe discounted value of the gash to be received in the future, failure to follow this practice usually coes NOT make the balance shect mi a. The amount of discount is not material b. Most recefvables can be sold to a bank or factor ¢. Most short-term receivables are not interest-bearing The allowance for uncollectible accounts includes discount element Page 2 of 8 pages@ ReSA - The Keriew School of Gecoudlomey TAPW-312 PREWEEK MATERIALS in THEORY of ACCOUNTS (May 2016 Bateh) - Page 3 INVENTORIES 1Y-% 2. Which of the following is EXCLUDED jn the scope of PAS 2 on Inventories? Inventories ofa service provider © Manufacturing supplies 6, Consituetion in progress 4 Raw materials JF Acrvanntgcturing company: has whieh iree Basic types of inventory”? ‘4. Finished goods, work-in-process, snd ready-to-se!l- merchandise b. Raw materials, work-in process, snd finished goods ©. Specific identification, FIFO, and average cost 4, Perpetual, periodic, and estimated FA Which of the’ following should be inotuded in inventory? a, Goods oat on consignment Gods held for pick-up by the buyer Goods held on consignment 4. Goodsrin-transit purchased FOB destination AB. What aré consigned goods? 31 Goods that are shipped but itl transfers to the receiver b. Gouids that ate shipped bur ile remains with the shippet \ Goods that have heen Segregated for Shipment to a customer 4 Goods that are sod ut payment is wot required until the zoos are sold BF Which ofthe following would NOT be included in he inycutory amotnt reported on a company’s balance sheet? ‘ents shipped cut on consignment to another company. Items shipped today FOB shi 1 invoice had been niailed to the customer. comer ems in the receiving deparment of the company: retuned hy the custome, invoice has been mailed. {Eterm purchased from a supplier wod cn route directly tn a customer of the eompany: the term is FOB destination: invoice recetved bat et Yet paid Bt lowet of cost or net tealiaabfe value (LONRW) fesults in theJeulese inventory account if applied to a. Fach itt of inventories separately ¢ & Toga invemory 4) Groups of similar inven ies 4. Any of these #:. Which ofthe following conversion costs C ANNO? be inclugedt in eos oF Inventory? 4. Cost of direct labor ©, Production rent and wtilities b Salaries of sales sift Factory overhead based on normal capacity 3% Which may be included as part of the cost oF inseatories under PAS 2? a. Selling costs b, Administrative costs. Costs of designing products for specitic 4. Abnormal amounts of wasted materials, labor or other production costs 3% Unider PAS 2, items of in asset are Fequired to be: gated into the ‘cos! oF yoo Sold” expense inthe period in whieh the tems are used entory that are used by business enterprise as components in 2, selfseonstructed property b. _ Expensed directly into equity in the period in which the itemsvare used oun Added t0 a “property construct . Capitalized and depreciated provision ae 94. Where the et realizable vulue of inveniory fills below cost, PAS 2 requires tha '2, The inventory continue io be carrie in the balance sheet a cost |b. The itvemtory be writen down 1 nt realioabe value © No adjsement bem, tthe diffrence betwecn net vealivable value and cost be disclosed in the notes fo the financial statements: 4, The dilerence be added tthe carrying anount of th inventory 28. fan item of inventory that was written down 10 net reelizable ¥ 4. - Previous amount ofthe write-down can he resarset h. Carrying amount of the inventory cannot be ajasted ©. Value adjustment can be recognized immediately in equity 4. Adjustment must be secoginized in a “provision for fut ue in 8 prior period subsequently recovers, then: sntory write-downs? account he specitic identification method ean be used only a. In income tax returis For financial reporting purposes but not in the income tax returns. €. When the individual items in inventory ure similar in terms oF cost unction, and sales value dd, When the actual acquisition costs of dividual units ean be determined from the aecounting records Page 3 of 8 pages ayReSU - The Review School of Ceccormtoney TAPW-312 PREWEFK MATERIALS in THEORY of ACCOUNTS (hay 2016 tateh) - Page 4 D 7. Whicl of these methods of measuring the cost of safes mont likely parallels the actual physicalflow of the woods? a LIFO Average cost Soni b. FIFO, Specific identification JB. During a period of s sinje prices, whicl of the following methods of measuring the costs of goods sold is likely fo resul in reporting the highest gross profi” 1. FIFO. Specie idemiitieation bh LIFO 4. Average cost D 40, The costing oF ventory mst be lias! until the ond of the acegumting period under whieh of the following method ‘of inventory valuation’, 2. LIPO perpetual Moving average ib. EIFQ penpetuat S Weighted average > a8 the seiehued avérage inventory Costing method is particularly suitable w inventory where: a. Giads have distinc! use-by dates and the gooxls produced first must be sold earliest t_Tho emily carries stosks of raw materials, work-in-progress and finshed goods €._Dissimilar products are stored in separate locations 4. Homogeneous provlucts are mixed together BSE 41. the specifi identification method ig more appropriate than an inventory cost flow assumption: a, Fora larue inventory of identical low-priced items by. Afeach tem inthe inventory is unique € ARpirehase costs ae fallin purchase costs are ris AX 42. Generally aeceptedsecounting principles require the selection of an inventory’ cost flow method which i. Most closely approximaies lower of cost and net realizable value for the endit bb. Most elearly reflects the periodic income © Matches the physical flow of goods from inventory with sates revenue Yields the most conservative amount of reported income © se 43. Inventory: estimation will be required forall of the following, EXCEPT a. When interim financial statements are prepared When invemory is destroyed by typhoon oF fashfloods €. As proofof reasonable accuracy of the physical inventory Inthe determination of the énding inventory to be shown in the balance sheet “fA ahee prose margin method of estimating ein inventory may be used fo lf oF he following, EXCEPT 2 Interalas well as externa interim reports b.Intemals well as externa year-end reports ©. Fatimate of inventory destroyed by fre or other casialty Routh test of the validity of an mventory eost determined under either period oF pempetua Sy is NOT affected by the inventory valuation method used by a business? ‘a, Cost of goods sold b. Net income of the business &. Amounts owed for incomie taxes ‘d.Amounts paid to acquire merchandise X46, When apes system is used: a Fwwoenities must be made when 2oods are purchased b. Contof yoods sold is residual umount, rather than an account ©. Ending. inventory is treated as an expense and hevinning inventory is treated as an asset 4. +Parchases’ account is not wsed: all inventory purchase erie ae debited to the inventory account h Jf. twa pspemalinsentory system wo yes are normally made orc ah aes ansation SEA eepDTs sales revenue andthe het recognizes cox ofthe goo sold One ent records the pl naan he other ecords the sae, Oe GREEN records the ost of gos and the ater reduces the balance inthe Inventory account Si One ey updates the subsidiary ledger andthe oer updates the general led. 48> In a perpetual inv jem, recording a sale Only Accounts Receivable bb. Accounts Receivable and Inventory ‘&Accounts Receivable and Cost of Goods Sold dd. Accouints Receivable and Cost of Goods Sold, and Inventory Page 4 of 8 pages| ReBU the Reren Rhaebof Gecourtemeg TAPW-312 PREWEEK MATERIALS in THEORY of ACCOUNTS {May 2016 Batch] Page 5 M_49. tna perpetual inventory system, recording z Sale omageount involves crediting which of the following accounts? e Sono aa ae nd Cost of Goods Sold oy T-Rles Sever acon Goods Bal 8) 26 tna pemetuslinventary system, an javentory ow asimpion is Sed primarity for determining which costs to use in a Recording sales revenue. ae b.) Recording the cost of goods sold ¢, Recording purchases of inventory J Foreeasts of future operating results, chat will be used as basis for the production budget, A At: Ina manafocturing company, the *jusé-in-time” concept of inventory munagement is best illustraied by a. Receiving deliveries of materials from suppliers just before the materials are used in the production process. 1b Anautomated factory which reduces production time below that of other companies inthe industry ; © Completing the manufacturing process just before the deadline established by the customer. 4, Selling finished products before they go out ofsiyle.* {BF Thewse of discount tost account implies that eat ofa purchased inventory item is the a. List price of the iter . tavoive price ofthe item «©. ovoiee price les the purchase discount taken om dhe item d, Invoice price less the purchase discount mot taken on the iter 75. K company divcovsred'a P20,000 Ovecstneiment ut 6 2015 ohedini inventory atler the’ financial statements for 2015 ‘wore prepared, Tha eee of thiseror on the 2018 finial statements was Carcass shee ited ad wis as dered Th Corfeot eset were uted ad income was oversted 5. Coton saci vere Ovestaled td income was overated d. Current assets were understated and income was understated p dekicuitune A; Which ofthe following is NOT dealt with by PAS 41 on “Agriwtiu ‘a. The accounting for biological asses b. The processing of agricultural produce after harvesting ©. ‘The accounting treatment of government grants in expect to biological assets. ‘The intial measurement of auricultural produce harvested from the entity's biolagieal ussets. si the accounting for Such products is dealt with by 4B. ‘where theres along aging ot maturation proces tet hu & PASAL, Agricuimre © PAS 16, Properts; Plant and Equipment b. PAS2,Imenany 4 2 PAS 40, bmvestmem Property CAB Biological assets are Living animals only © Roth living animals and fiving plants b. Living planes only Neither living animals nor ving plants Agriculuural activity. © et ae harvested product of the entity's biolowical asset b. Is the detachinent of agricultural produce trom a biologieal asset or the cessation ofa biological asset's life processes Relates tothe processes of growth, degeneration, production and procreation that ean cause changes of ‘quantitative or qualitative nature sna biological asset 4 Is the management by an entity of the biological transformation of biological assets for sale, into. ‘agricultural produce. or iniy another biolog ical asset 4\ 58. Generally speaking. biological asses flatingto agricultural a A fair velue approach b. Historical cost © Netrealizable value d, Historical cost less depreciation tess impairment ity should be meusured using {7 A. Asricultural activity inchudesall of the following, EXCE MT : a, Raising livestock © Ploriculture and aquacti b. Anmual perennial croppi Ocean fishing Page 5 of 8 pagesD ReSU - The Review School of Vccountoney, TAPW-312 PREWEEK MATERIALS in THEORY of ACCOUNTS (May 2016 Batch) - Page 6 $6. Biological assets are measured at a. Cost ©. Net realizable value b, Lower of cost or net realizable value 4, Fair value less costs to sell Lf. Which of the following costs are NOT included in costs fo sell? a. Trausfer taxes and duties. b. Levies by regulatory agencies. © Commissions to brokers and dealers, 4d. Transport and other costs necessary to get the assets to a market TiS Was le te ton) oF moacrcinen’ bas wie foc Vang biological apc, PAS It Recep tt of eure cat Reece the ee of present vale Reda ies tren ct noe cot Er isis several ve of onus 63. Which of the follosing values is UNLIKELY {0 be used in fair value measurement of biological asset? 4, Quoted price in a market b. The most recent market transaction price cc, The present value of the expected net cash flows from the External independent valuation, AA. A gain oF loss arising on the initial recognition of a biological asset and from a change in the fair value less estimated costs to sell of a biological asset should be included 1. ‘The net profit or loss for the period b. The statement of recognized wai and tosses ¢. A Separate revaluation reserve d,Aceapital reserve within equity _a6S. Yihere there is «production cycle of more than one year, PAS 41 encourages separate disclosure of the 2. Physical change only ¢. Total change in value b. Price change only 4. Physical change and price ehange $6. Where the fir Valve ofthe biological asset cannot be determined reliably, the biologleal asset should be measured at 2 Cost Cost ess accumated depreciation, Cost less accumulated depreciation and accumulated impairment losses. Net realizable value: 67 Agricultural produce is measured at a. Fair value , Fait value less costs fo sell at the point of harvest © Net realizable value 4, Net realizable value less normal profit mar harvested, the harvest should be accounted for by asi Sta 18 PAS 2, Inventories, or another lard, For the purposes of that Standard. the cost a the date of harvest is 8, When agricultural produc applicable Philippine Financial Reporting deemed to be 8 Its far value fess cost to sell at point of harvest The historical cost ofthe harvest {© The historical cost less accumulated innpaiement losses Market value related fo agricultural activity is valued a. AU fair value b. Inaccordance with PAS 16, Property, Plant, and Eiuipment, ot PAS 40, Investment Property ©. At fie value in combination with the biologieal asset that is being grown on the land d. At the fesale value separate from the biological asset that has been urown on the laid 7}. Which ofthe following CANNOT be resarded as an agriculture produce’ Cheddar cheese ©. Piglets Racing Pony d: Calves Page 6 of 8 pagesKOSA - The Review School of lecoumfanvey TAPW-312 /PREWEEK MATERIALS in THEORY of ACCOUNTS (May 2016 Batch) Page? SUGGESTED A Dd Db al ol D D dD 8 2. D B » 43.0 63. D B \ 42.8 oh A B 8 452.0. 68. -D : 41 % B 46. 8 6. ¢ D Eran) aA o7 8B 88 * OH age 68 A Che 2» 8B 4,8 oo. 8 We Bick) a 0B 0. 8 WW B eB, 12. Cy 2° 0 13 3. b 53. i “1. 8 MB Is. is A 53. 2 16 6D 56, € 17, D0 57D is ¢ BA BOA oR MoD 9° OD 20 ¢ 40, D 0. D RIPE ENP ANA HONS/CLARIFIEA TIONS TO SELECTED TFEMS 8. “Question is about cash receipts; avoucher is a written authorization to pastor disturse cash, 9. The hank statrment balance will show 3 higher amount than eash Idger halance for any interest credited to the bank aaecount by the bank without the knowledge of the depwsitor. 13. Aceounts receivable from customers. is classified as current if realizable within one year oF normal operating ey Whichever is longer 19. Net price method is preferred in aecouintine as it property retleets Current period sales revenue, net of any related cash discount that may be availed bythe customer 20. For this type of eredt card fansnetion, ARK (seer) collects the amount fron ’xpress Charge (credit card! company): then, Express Charge in turn collects the amount from XYZ (buyer) 22. Emphasizing substence over form, the note’s snspecified principal amount’ is its present or discounted value and te “unspecified interest amount isthe discount, which is computed basedon the excess of face value over present vale. Short-term non-interest bearing notes ceeivable are usually recon a their face value, which is incidentally equ to the inaturty value for a non-interest bearing Hote 32, Under PAS 2 and Cost Accounting rules. costs of designing products for specifi customers may be included in the inventory cost of @ product Al, Specific idemificoyion is more appcopriate if each item i. the javentory ig uigue so thal the actual acquisition costs of individual units can be determined fron the accounting records 42. Usual mistake is choice C, An entity must choose @ cost ow method which most clearly reflects the periodic income through the ebst qr zoos sold. 48. Inventory valuation method (¢.z.. FIFO) affects cost oF yous sold. net income including related income taxes The use of "discount lost” accouat implies that purchased inventories are recorded at nev amount; it also implies that the purchase discount sat avaiied by the buyer so that it “lost $4, PAS 41 is applied to auticalteral produce only at the point of harvest: the pro harvesting is covered by PAS 2 or other anplicabi standards. 52. Choice A refers to agrieullural produce: choice B refers to harvest; choive C refers to biological transformation, 59. Uniler PAS 41. harvesting from unmanaged n 4 ocean fishihy and deforestation) is not an agricultural activity, Aquaculture (svhich infuses fish farming), on the other hand, would fall under the detinition of asrieultural activity 63, Exvernal independent valuation is not amine those listed as wsidetines in determining the fair value of a biological asset in PAS 41, (See related seetion of pave 14 of the TA Lecture Notes) ADDITIONAL QUESTIONS (wit te, sing of agricultural produce after suggested answers) A Wan entity incorreetly includes consignment ems in the ending inventory. the effect on the weve period's cost of Bonds sold and net income is B +a, Understatement, overstatement . Excess ofthe recoverable amount over the carrying amount of the asset €._ Exeess ofthe earying amount over the recoverable amount of the asset _Exeess ofthe earying amount over the discounted cashflows from the asset 26. The estimates of future cash flows in calculating wafue in use include all of the following, EXCEPT a. Cast inflows from the continuing use of the assct bb. _ Net cash flows from the disposal ofthe asset af the end of its useful ife Future cash outflows that are expected to arise from improving or ecahaneing the asset's perfo ‘Cash outflows necessarily incured to generate the cash inflows from the continuing use.of the asset v 26. When calculating estimates of future eash flows for value in use, which of these eash flows should NOT be included? ‘a. Cash lows from disposal b. Income tax payments. . Cash flows from the sale of assets produced by the asset d. Cash outflows on the maintenance of the asset 24. Ifa plant asset is retined before itis fully depreciated and no salvage value is received, ‘a. Again on disposal occurs ¢. Hither a gain or a loss can occur b. Aloss.on disposal occurs 4d, Neither a gain nor a oss occurs Page 2 of 8 pages @ReSU the Review School of Cccsweitamey TAPW-313 PRCWEEK MATERIALS in THEORY 51. Ta denen ets ara lotr Snr tae ity ae fo be cicero se herpes kage Or dela ta >, Bae pees Noyce arene 2 38. Cash dividends declared out of current camings were distributed to an_ investor. How will the investor's investment b account be affveted by those dividends under euch of the following accounting methods? d— aquity Method a. No effect b No fleet Decrease © Decrease Decrease 4 No effect No effect 39, A firm purchased bonds to be classed as an investment in APS. The bonds were purchased at a premium. Assume the market price of the bond is volatile. hereto ‘8. Cash interest reeeived each year b. The ending valuation allowance » cost. «The ending valuation allowance account balance will depend on ending market value and original cost adjusted for amortization of premium. The premium is ignored because the bonds are not classified as held to maturity Jess than the interest revenue recognized. balance will depend on ending market value and original D 40. A bond is purchased on January 1. ‘The investor's carrying value at the end of the first year would be highest iff the bond was purchased ata ‘Discount and amortized by the stright-ltie method b and amortized by the straight-line method n and amortized by the effective interest method )) 41. Which of the following would NOT be reported as investn ‘a, Real estate held for an undetermined future uss Property held by the entity to be leased out under,one oF more operating leases. Property owned by the entity und leased out undler one or more operating leases. 4d. Property owned by the en sat property? 48. 4 gain or loss arising from a cha ‘Be recognized in the protit or loss forthe périod in which it arises bh. Be recognized directly to equity in the period in which it arises © Be recognized as an adjustnient to retained earings atthe beginning ofthe year 4. Not be recognized in the accounts vestment property’? cash flows, of the following generally provides the be Discounted cash flow projections based on 'b. Recent prices on less active markets with adjust €. Current prices for properties ofa different nature or subject to different conditions, 4. Current prices in an active market for similar property in the same location and condition, 44 Transfers from investment property to property, plant and eguipment are appropriate ‘When there is change of use. Based on the entity's discretion, ‘Only when the entity adopts the fair value model under IAS 38, 4. The entity can never transfer property into another classification on the balance sh classified as investment property. A 4S. Derecognition of investn: ‘a. Itbecomes the subj b. Mis sold €. Itbecomes the subject ofa sale and feaseback deal d. Itbecomes the subjeet of a finance lease: once it is L property will NOT be required when of an operating lease. Cor ag? Tt id Serle eros tate san invest plpet shal Ha a. Te Vas of te property 5 STieefesertnll oF illo feise pyro’ The lomer of fle valoe ofthe propery and present value of inl lave pajnénts 2 STba pla fac veh of th pope pe pracen vlc Of ilar Jere pyrnend C, 47. The cash surrender value ofan insurance poliey on the company president would be presented on the balance sheet as a Cash > Longeterm investment b. Marketable securities. Prepaid expense Page 4 of 8 pages eaReSU - the Review School of Accourttamey TAPW-313 PREWEEK MATERIALS m THEORY of ACCOUNTS (ny 2016 Baten Popes 48. Under PFRS 9, which of the following is NOT a ealepory uf financiel ussets? a, Financial assets at amotized cost b. Financial asseis at fair value through profit ot loss inancial fair value through accumalated profit or koss inancial assets at fait value through other comprehensive ineome INTANGIBLE ASSi:ts. Identifabitity is seen as the characteristic that conceptually distinguishes other intangible assets from. a Copyright © Goodwill b. Franchise Patent $0. The following expenditures should be expensed is incurred, EXCEPE ‘a, Expenditures on advertising and promotions] uctvities, b, Payments for organization expense Expenditures in relocating or reorganizing part or all of d. Payment in advance of delivery of goods or services $1, Which of the following items qualify ws an intangible asset under PAS 38 a. Advertising and promotion on the Iatnch of a huge product, b. College tuition Rees paid to employees who decide to cnroll in an executive MBA program while working withthe company, ‘ Operating losses during the inital stages ofthe project. Legal costs paid to intellectual property lawyers to register a patent 52. Under PAS 38, intangible assets should be carried at Cost less accumulated depreciation b. ” Revalued amount less aeeumutated depreciation © Cost plus a notional increase in fai value since the imangibte asset is acquired de Cost Less accumulated amortization and/or accumulated impairment AS Amortization of speci a. merprise intangible assets results prinvrily from application of the a Fulkdisclostre principle ‘Matching principle b. Revenue principle a Cast principle A Under PAS 38, which ofthe following methods of amortization is normally NOT recommended for intangible assets? Units of production meth €. Pilective interest method b, Declining balance method (Straight-line method AS. A purchased patent has 9 remaining legal life of $ years. It should be a. Expensed in the year of acquisition b. Aniortized over a petiod of 10 or 20-years ©. Attiortized over its usefil fife, i'les¢ than ® years de> Amortized over 8 years regardless of the useful life JS, An intangible asset with an indefinite life is one where 8. There is no foreseeable limit on the period over which the asset will generute eash flows, b. The length of tie is over 20 years. The dircetors fee! thatthe intangible asset will not lose vahic in the foreseeable future cd. There is a contractaal or legal arrangement tha ‘exeess of five years 57. An intangible asset b. Amortized andl impairment test: asnually . Amortized and tested for impairment if there is 4 “trigger event? d. Amortized nad no impaimient test 3% Which of the following couters exclusive right to conduct business ina particular territory? ‘a. Pranchise Leasehold improvement be Trademark d. Patentecopyright mn 59, Which of these is expensed as incurred by the franchisee for & franchise-with un estimated useful fife often years? Legal fees paid to the franchisce’s lawyers to ebtain the franchise ‘h. Periostic payments tothe franchisor hased on the franchisce’s revenues ©. Initial amount paid to the franchisor forthe franchise 4. Any inital direct costs incurred in obtaining the fronchise BO. Costs incurred by a company that may develop its own goodwill internally should be: 8. Capitalized and amortized as the eonipany profits inereased. b. Capitalized and mnortized over the useful life of te goodwill . Expensed in the period incurred 4. Capitalized and amortized over « period not to execed 40 vears, Page 5 of 8 pages ©w bp RESO - The Review School of Cccowetoney, TAPW-313 PREWEEK MATERIALS in THEORY of ACCOUNTS (May 2016 Batch) - Page 6 A ioodil, when propery recognized, should be writin of a, By systematic charges to expense over the period benefited, but not more than 20 years b. Assoon as posible against retained caaings ©. _‘Assoon as possble as an ordinary item When impalrment toss occurs 02. of the following is most likely NOT to be amortized over the periods of estimated benefit? ‘4, Development costs that resulted in a successful product, Lease rights paid to owner of property for the usufruct &. Costs incurred in organizing a corporation d. Patent right purchased from an inventor 63. Goodwill should properly appear in the statement of financial position of « company whi 4. Has purchased an entity Consistently reports abo b. Consistently operates profitably d Meets all of the conditions normal profits its finaneci 64. A newly set up dot-com entity has engaged you highly publicized research and develops made by one of its stakeholders. Which of the following statements is accurate? ‘8, Costs incurred during the “rescarch phase” can be capitalized. b. Costs incurred during the “de\ nt phase” ean be ca feasibility of the project being established are met. ‘e. Training eosts of technicians used in research can be capitalized, 4d. Designing the jigs and tools qualify as research activities italized if criteria such as technical {A computer software purchased as an operating system for the hardware oF as an integral part of a computer controlled ‘machine tool that cannot operate without the specific software shall be treated as a, Intangible assets Inventory b. Property, plant and equipment 4. Expense “#6. Wich ofthe flowing cons related to cobnpe sofware capitalized to an intangible asset account? a ee cs and kine Cor ae 1h Developmcal ets preceding chological feasibility ©, OBR ad tetng costs ncurel i tstclogla ea mater Ik, Com Et bemoan iy but before completing the product (87. The proper accounting treatment for the costs ineurre 48, To capitalize all costs until the software is sold b. To charge research and development expense when incurred established for the product. &. To charge research and development expense only ifthe computer software has alternative future use 4. Toceapitalize all costs as incurred until a detailed program design or working model is ereated. 68. Which of the followit g is correct statement eonceming research and development (R&D) costs? a. AILR&D costs, without exception, must be charged to expense wher b. R&D can only be amortized over a life of 40 years oF ‘6, Almost any treatment is acceptable for handling R&D costs d. Notes to the financial statements must disclose total amount of R&D costs expensed during the period AP Whi oe ong mos Hy na i rea an “The total cost of a building (use li research and development projeets b. Depreciation in 2016 of the building used for research and development © The cost incured in 2016 to ensure quality control for existing production processes 4d, The eost incurred in 2016 of research welvities performed by another firm: the project is expected to bbe completed in 2017 opment expense in 20/6? 25 years, completed January 1, 2016) to be used in various 70. Which of the following note diselosures is NOT required by PAS 38? . Usefil ives of the intangible assets. b. Reconciliation of carrying amount atthe beginning and the end of the year. ‘Contractual commitments forthe acquisition of intangible asses 4d. Faie value of similar intangible assets used by competivors Page 6 of 8 pages © advisor. The entity has recently completed one of its ent projects and seeks your advice on the accuraey of the following statements.RSA The Rewiew School of Cccowtanay TAPW-313° PREWEEK MATERIALS in THEORY of ACCOUNTS (May 2016 Batch) - Page 7 oD c 4D 61. D 2D c aA 62. ¢ 35: ie BOR 43. D B.A 48 4. OB 44. 8 6. B Sith 25. 1D 45. 4 65. iB 6 oD 2A 46. © 66. ¢ D.C ake 47. C o7. 2B & oD 2. D 48. C 68D ea 2 D 49. C 0. 2B 10. B 30. B $0. -D 0. D 1h Ae 3G D 1A 32D D B. OB 3. D 3. C 4. B 4B 4 1s. D 35. D 55. € 16. C 36. A 56. A 7. D 37. A 52 A 1B 38 B 8A Ww ¢ 39. ¢ 32. OB 20. A 40. D 60. C BRIEE EXPLANA LIONS/CLARIFICATIONS 10 SELLCTED ITEMS 23. Under BAS 36, the cash flows used fo measure the ‘value in use" of a property must be expressed hefore i. 39. The ending valuation allowance for AFS bond investments’ is based on the difference betwren fair value and amortizedcas. FY AC : 40. Under the sffective imterest method (scientific method), the periodic amortization of premium is lowest in the first 41. A property leased in under finance (capitul) case and leased-out under opssating ease. quali property. A property /eased out vind finance lease is not considered as an investment property. |ONAL QUESTIONS (with suggested answers) 2 ‘Accounting for tangible operational assels is primarily in conformity with the: v a. Matching principle intanstele b. Historical cost principle as an investment 2. An asset has a nine-year useful life and is 10 be depreciated under the sum of the years’ digits method. ‘The annual ‘depreciation expense would be the same ws that tinder the straight Tine method in the B a. Third year ©. Seventh year b. Fifth year 4 th year 3 Capitalization of construction period interest is based prinsarly upon the: B ‘Comparability principle e b. Matching principle 4. ‘Ateltionship characterized by the existence of a capacity B A parent-subsidiary relationship ¢ B.A joint venture 4d. Asole proprictorship 5. ‘The panicular relationship between partés that signifies the existence ofa joint venture i: d 2. Significant influence by one party over the other party . Control over the operating policies of one party by another party ‘c. Shared influence by two parties over the activities of another party 4. Joint control by the parties over the activites of an operation #C The party to a joint venture ve has joint cauteol over that venture B Investor Shareholder b. Venturer Partner 7. ‘The party to a joint venture who does NOT have joint contro} over that venture, A Investor ©. Shareholder b. Venturer de Partner _3¢ Which of following is NOT one ofthe forms of joint venture under PAS 312 b ‘& Jointly contolfed assets Jointly controlled operations b. Jointly controtted emt 9% Iisa joint venta 5 4d. Jointly controlled management that involves eslablishinent of « corporation, partnership or other entity in which each venturer has an interest. c 4. Jointly controlled operation ¢ Jointly eontrolied entity b. Jointly controlled asset d. Jointly controlled business Page 7 of 8 pages ©KeSU - the Review School of lccoumtomey TAPW-313 [PREWEEK MATERIALS in THEORY of ACCOUNTS (May 2016 Batch) -Page 8 ¢ B D 10, Under PAS 31, whats the comes treatment in accounting for an ines in jointly commolied ening?’ | a Benchmark treatment: cost method; alternat wo bb. Benchmark treatment: proportionate consolidation method; altemative method: cost method © Benchmark treatment: proportionate consolidation method: alterna it ¥ 4d. _ Benchmark treatment: equity metho; alternative method: cost method JAE Uniler PPRS 11, what ate the two types of joint arrangements (i.¢, contraetusharrangement where two oF more parties have joint controly? ‘Joint venture and joint agreement & Joint forves and joint venture bh. _Toint venture and joint oper . Joint forces and joint agreement 12, Under PFRS 11, what is the method of accounting for investment in joint venture? a Cost method ©. Fair value method b. Equity method Consolidation method 13. On January 1, 2016, ABC Company capitalized cost for a new computer software product with an ceonomic life of five years. Sales for 2016 were 30% of expected total sales of the software and the pattern of future sales CAN be measured reliably. At December 31, 2016, the software had a net realizable value equal to 90% of the capitalized cost, What pereentage ofthe original eapitalizedcost should be as the net amount on the Decetiber 31, 2016 balance sheet? % 10% 8% b oT 90% 14, On January 1, 2016, ABC Co. capitalized cost for a new computer software product with an economic life of five years. Sales for 2016 were 30% of expected total sales of the software, However, the pattern of future sales CANNOT be measured relisbly. AL December 31, 2016, the software had a net realizable value equal to 90% of the capitalized cost, What percentage of the original capitalized eost should be as the net amount on the December 31, 2016 balance sheet? a. 70% © 8% b 72% 4 906 15. Which of the following is NOT specifically excluded from the ‘4. Government assistance provided inthe form of tax bene b. Government participation in ownership of the entity © Govemument grant covered by PAS 41 <_Forgivable loan from the government 16, ‘These are government grants whose primary condition iy that an entity qualifying for them should purchase, construct, ‘or otherwise acquire long-term assets 4. Grants related to assets ©. Goverament gilt b. Grants elated to income 4. Government appropriation 17. In the case of grants related 10 an assct, which of these treatments is prescribed by PAS 202 4. Record the grant at a nominal value in the frst year and write ic off in the subsequent year 1. Either setup the grant as deferred income or deduct i in ating atthe carrying amount of the asset «. Record the grant at fair valu inthe frst year and take it to income in the subsequent year dL Take it wo the income statement and dselose it as an extraordinary gain 18, Inthe ease of grants related ro income, which of these treatments is prescribed by PAS 20? a. Credit the grant to “general reserve" under shareholders’ equi bh. Present the grant in the income statement as ‘other income’ or asa separate fine item, or deduct it from the related expenses ©. Credit the grant t ‘retuned earnings onthe balance sheet 4. Credit the grant to sales or other revenue from operations inthe income statement 19. In-ease of non-monetary grant, which ofthe following is prescribed by PAS 207 ‘a. Record the grant at a value estimated by manageie b. Record the asset at replacement cost and the grant at 3 nominal value 6 Record both the grant and the asset at fair value ofthe non-monetary asset 4. Record only the asset at fair value avd not recognize the fair value of the grant 20. ‘The internal sources of information indicating possible impairment inelude all of the following, EXCEPT -w of PAS 20 on government grants’ a. Evidence of obsolescence or physical damage of the asset b. Evidence that the economic performance of an asset will be worse than expected © Significant change in the manner/extent in which the asset is used with an adverse effect on the entity 4. Significant decrease or decline in the market value of the asset 21. ‘The external sources of inforination indicating 4. Significant value in the technological the asset is employed 'b. An increase in the interest rate oF market rate of retum on investment which will likely affect the discount rate used in caleulating value in use cc. The carrying amount of the net assets ofthe entity is more than its market capitalization d. Significant dectine in budgeted net cash flows or significant increase in budgeted loss flowing. from the asset sible impairment include all ofthe following, EXCEPT narket, legal or economic environment of the business in which END Page 8 of 8 pagesReSU- The Review School of Oaconedtaney » Theory, of leconeite Ma Batch | TAPW-314 JABILITH 1. Which of the following is an essential charaéteristic ofa liability? A a. Itmust be an obligation (o transfer assets or provide services in the future b. The identity of the creditor must be known €._Itmay be the result of future transactions The exact amount due must be known Which of the following is NOT an essential characteristic for an item to be reported as a liability on the balance sheet? c ‘8. The lability isthe present obligation of a particular entity b. The liability arises from past transactions or events €- The lability is payable to a specifically identified payee 4. The settlement of the liability requires an outflow of resources embexlying economic benefits 3. Which of the following items would be EXCLUDED from current lia D ‘4, A long-term liability callable or due on demand by the creditor e indication that the debt will be called ‘Normal accounts payable which had been assigned by the ereditor to @ finance company ©. Long-term debt callable within one year or less because the debtor violated a debt provision 4d. A short-term debt which at the discretion of the entity can be rolled over at least twelve months after the balance sheet date 4. Which of the following loss contingencies is usually NOT acerued? < a. Product warranty obligations ©. Riskof loss from fire b. Premium offer obligations 4. Non-colleetbility of receivables 5. Under PAS 37, for which of the following should a provision be recognized? lity to replace specie detective television set already retumed to the manufacturer. ity to pay pension benefits ifa specific employee lives to retirement. to pay any adverse judgment for a product liability ease currently on appeal 10 pay for books received by the college bookstore; terms allow for the return for full refund of any books not sold. 6. According to PAS 37, which TWO of the following best describe the sources of legal obligation? ‘A legal obligation is an obligation that derives from n though the ereditor has ‘A—Legislation ‘C= A published policy B~A contract D~ An established pattern of past practice A a. AandB Cand D. b. Nand ad BandD 7. Which of the following is within the scope of PAS 37 (Provisions, contingent liabilities and contingent assets)? ¢ 4 Financial instruments carried at fair value b. Future payments under employment contracts Future payments on vacant leasehold premises d. An insurance company’s policy liability 8. According to PAS 37, for which of the following should a provision be recognized since it is NOT contingent? G ‘4, Future operating losses ¢. Obligation for plant decommissioning costs b. Obligations under insurance contracts Reduction in fair value of financial instruments 9 Gains or losses from the early extinguishment of debt, if material, should be A ‘a, Recognized in income before taxes in the period of extinguishment _b. Recognized as an extraordinary item in the period of extinguishment ©. Amortized over the remaining life of the extinguished issue d. Amortized over the tile of the new issue 10. ‘The basic accounting issue for a lessor is B .. Expense recognition during the lease term —¢. Computing depreciation over the lease term Revenue recognition during the lease term determination of the cost of the leased asset 11. Ifthe lessor and lessee use different interest rat e ‘a. The lessor will use different acc b. Total expenses and revenues €. Total expenses and revenue 4d, The lessee and lessor cannot use different interest rates 12, Inthe ease of a fease of land and building where title to the land is not transferred, the lease is gen c ‘8, Both land and building are finance leases b, Both land and building are operating leases fc. Land is operating, lease; building is finance lease ly treated as if 4, Land is finance lease; building is operating lease 13. ‘The lessor must classify a sale-and-leaschack arrangement as a(n) D ‘8. Operating lease or a finance lease ‘¢. Direct financing lease or a sales-type lease b. Operating lease or a sales-type lease 4. Direct financing lease or an operating lease Page 1 of 8 pagesPASO STA Revtem Sabah o) Goce TAPW-314 ‘PREWEEK MATERIALS in THEORY of ACCOUNTS (May 2016 atch) - Page 2 14 20. B §. Which of the following is reported ‘One incentive for entering into a sale-and-leascback arrangement on substantially all of the market value of an-asset is ‘4. Tax implications are favorable for the lessor, compared with other lending arrangements Improvement in cash flow for the lessor . Improvement in cash flow for the lessee Entire gain appears on lessee income statement in sale year The vested benefits of an employee represent a. Benefits to be paid to the retired employee in the current year 'b. Benefits to be paid to the retired employee in the subsequent year Benefits accumulated in the hands of an independent trustee 4. Benefits that are not contingent on the employer's contin If payment of employees’ compensation for future absences is probable ‘and the obligation relates to rights that vest or accumulate, the compensat ‘a. Accrued if attributable to employees’ services not yet rendered b. Accrued if attributable to employees" services already rendered. , Accrued if atributable to employees’ serviees whether or not already rendered d. Recognized when paid ‘An entity maintains a defined benefit pensior pension cost is measured using the a, Projected benefit obligation ©. Unfunded vested benefit obligation 'b. Expected return on plan assets d. Unfunded accumulated benefit obligation in the service of the employer nd the amount can be reasonably estimated should be lan for its employees. The service cost component of the net periodic interest expense? a. Pension cost interest Post retirement health eare benefit interest cc. Imputed interest on non-interest-bearing note dd, _ Interest incurred to finance construction of machinery for own use Under PAS 19, plan assets include all of the following, except a. Assets held by a long-term employee benefit fund b. Qualifying insurance policies cc. Assets that are available to be used only to pay furld employee benefits and are not available for payments to creditors even in bankruptcy dd, Non-transferable financial instruments issued by the reporting, prise Under PAS 26, investments held by retirement benefit plans should be stated at which of the following values in their ‘Statement of net asset a. Net realizable value ‘6. Original cost less impairment b. Fair value Value in'use PAS 26 (Accounting and reporting by retirement benelit plan ¢ following? a. The costs to companies of employee retirement ber b. Reports to individuals of their future retirement be ¢. The financial statements relating to an actuarial bu 4. The general purpose fi r According 10 PAS 26 (Accounting, an disclosed in the financial report of a de contribution plan’? a. Government bonds held bb. Actuarial present value of promised retirement benefits ©. Employee contributions 4d. Employer contribut roporting by retirement benetit plans), which of the following may be xed henet plan but would not be shown in the financial report of a defined ‘Which of the following is the best description of the current PERS approach to interperiod tax alloeat a, An application of the matching concept ©. The enacted method b. Partial allocation 4d. The asset-iability method Which could NEVER be subject to interperiod tax allocation? a. Rent revenue Estimated warranty expense b. Depreciation expense on assets dd, Interest revenue on municipal bonds ‘A deferred tax liability uses a. The current tax laws, regardless of expected or enacted future tax laws b. Expected future tax law, regardless of whether those expected laws have been ©. Current tax laws, unless enacted future ta laws are different 4. Either current of expected future tax laws, reganiless of whether those expected laws have been enacted Which of the following differences would result in future taxable amounts? Expenses or losses that are deductible after they are recognized n financial income b. Revenues of gains that are taxable before they are recognized n financial income . _ Expenses of losses that are deductible before they are recognize n financial income 4. Revenues of pains that are recognized in financial income hut ure never included in taxable it ted Page 2 of 8 pagesReSU - the Reriew School of lecomedtamen, TAPW-314 PREWEEK MATERIALS in THEORY of ACCOUNTS (May 2016 Batch) - Page 2 27. ABC Company’s financial reporting basis of its plant assets exceeded the tux basis because it uses a different method of reporting depreciation for financial reporting purposes and tax purposes. If there is no other temporary differences, ABC should report a D a. Clirment tax asset Deferred tax. b. Current tax payable d. Deferred tax liability 28, Which of the following statements is correct regarding the provision for income taxes in the financial statements ofa 1¢ axes should be based on business income using individ 1b. ‘The provision for income taxes should be based on business income using corporate tax rates ©. The provision for income taxes should be based on the proprictor’s total taxable income, allocated to the proprietorship at the percentage that business income bears to the proprietor’s total income 4. No provision for income taxes is required Which of the following liabilities is @ financial liability? a Deferred revenui b. A warranty obligation A constructive obligation 4. An obligation to deliver own shares worth a fixed amount of cash. 30. What is the principle of accounting for a compound instrument (e.g., an issued convertible debt instrument)? B 4. The issuer shall classily a compound instrument as either a liability or equity based on an evaluation of the predominant characteristics of the contractual arrangement 1b. ‘The issuer shall classify the ‘and equity components of a compound instrument separately as financial liabilities, financial assets or equity instruments The issuer shall classify a compound instruments as a liability in into entirety, until converted into, equity, unless the equity components shall be presented separately 4d. The issuer shall classify a compound instrument as a liability in its entirety, until converted into equity SHAREHOLDERS EQUITY & EARNINGS PER SHARE (EPS) 1. Major factors contributing to the growth of corporation-business includes all of the follow: D ‘a. The facility to accumulate large amounts of resources, b. Easy transferability of the share of ownership imited fiability of the sharcholders 4d. The luck of government regulation 2. Its an equity instrument that is subordinate to all other classes of equity instrument A a. Ordinary share © 0 b. Potential ordinary share 4. Warrants 3. Capital stock is said to be watered when B a. Liabilities are overstated €. It is sold ata price in excess of book value b. Assets are overstated dd. Tis issued for aysets other than cash 4. Common shares issued would exceed common shares outstanding as a result of . ‘a, Declaration of stock spi ©. Purchase of treasury stock b. Declaration of. sock dividend d. Payment in full of subscribed stock ‘A gain o Joss from one of the following transactions should NOT be included in determining income. a. Receipt of interest from bank deposits Sale of plant and equipment b. Sale of treasury shares d. Sale of products 6. When rights are issued to current shareholders, the number of rights to be issued per existing share will c a. Be the number of rights needed to obtain one additional share multiplied by the number of shares already held b. Vary depending on the number per share already held, as determined and announced by the corporation ©. Usually be only one right per share already held 4d. Depend on the number purchased by existing shareholders 7. Companies that earry no insurance against insurable casualty loss sometimes use an account called reserve for self insurance. In preparing a balance shect, this account should be reported us A a. Appropriated retained earings © Liability b. Deferred a 4d. Unappropriated retained earnings 8. The peso amount of total shareholders’ equity remains the same when there is c a, Issuance of preferred stock in exchange for convertible debentures 'b. Issuance of nonconvertible bonds with detachable stock purchase warrants Declaration of a stock dividend, dd. Declaration ofa cash dividend 9. Which best describes the net effect on retained earings of the purchase and subsequent sale of treasury stock? A Retained earnings may never be increased but sometimes decreased ined earnings may never be increased or decreased ctuined eamings may never be decreased but sometimes increased Retained earnings is always affected unless the reissue price is exactly equal to cost Page 3 of 8 pages ©RESO - The Review School of lccourtancry TAPW-314 PREWEEK MATERIALS in THEORY of ACCOUNTS (May 2016 Bitch) -Page 10, Afler a quasi-reorganization where a deficit is removed, the balance of retained earings will a a. Increase Remain the same b Decrease 4 Fithor increase or deerease 1. What do an appropriation of reained eamings and « declaration of a eash dividend (for the same amount) have in “ ‘4. Both increase the amount of appropriated retained earnings b. Both have the same consequences for shareholders ‘c, Both result in decrease in unappropriated retained caring, 4. Both permanently reduce future ability wo pay dividends 12, ‘The type of share capital that normally carries the most rights is: A ‘Ordinary shares ©. Cumulative preference shares (nonvoti '. Convenible preference shares (nonvoting) _d._Partiipating preference shares (nonvoting) 13. Preference share that has the most restrictive features i: ¢ Fully participating, nonvoting €, Noncumulative, nonparticipating, nonvoting b. Nonpartcipating, cumulative, nonvoting _d_ Noncumulative fully participating, nonvoting 14, In accordance with PFRS 2 (Share-based payment), how should an entity reeognize the change in the fair value ofthe liability in respeet ofa eash-settled share-bosed payment transaction c ‘a. Recognize inthe statement of changes in equity b. Recognize in other comprehensive income ©. Recognize in profit or toss d, Do not recognize in the financial statements but disclose in the notes thereto 15. Which of the following transactions involving the issuance of shares does NOT come within the definition of a ‘share~ based!” payment under PERS 2? a, Employee share purchase plans b, Employee share option plans €. Share-hased payment relating to an acquisition of a subsidiary 4. Share appreciation rights 16, In what circumstances is compensation expense immediately ree! c ‘a. Inall circumstances 'b. _ Incircumstances when options are exercisable within 2 years tor services rendered over the next 2 years €. Incircumstances when options are granted for prior service, and the options are immediately exercisable 4d, Inno circumstances is compensation expense immediately recognized 17. In aceouinting for share-based compensation under PFRS 2, what interest rate is used to discount both the exereise price of the option and the future dividend stre c ‘8, The firm's known incremental borrowing rate b. ‘The current market rate that firms in that particular industry use to discount eash flows €. The risk-free interest rate dd. Any rate that firms can justify as being reasonable 18, Which of the following would be most indicative of a simple capital structure? c ‘a, Common stock, preferred stock, and convertible securities outstanding 1b. Eamings derived from one primary line of the business ‘c. Ownership interests consisting solely common stock d._ Fequity represented materially by liquid assets 19, When EPS is computed, dividends on preferred stock are c a. Added because they represent earnings to preferred shareholders b. Reported separately on the income statement ©. Subtracted because they represent earings to prefered sh <4. Ignored because so they do not pertain to the common stoc! 20. The weighted average number of shares outstanding during the period for all periods (other than conversion of potential common shares) shall be adjusted for A ‘a. Any change in the number of ordinary shares without a change in resources b. Any prior-year adjustment cc. Any new issue of shares for cash d. Any convertible instrument settled in eash ized under PERS 2? olders, ERROR CORRECTION, CASH BASIS vs. ACCRUAL BASIS, SINGL ENTRY SYSTEM 1 ©. Cash borrowed on a short-term note 4d. Sale of operational asset for eash 2. Which of the following would NOT represent cash inflow nor outflow? B a. Cash dividend paid ¢ hase of treasury shares b. Share dividends declared andl issued 4. Ordinary shares issued Incorrect accounting records using only a cash book is a characteristic of c ‘a. Cash basis ¢. Single entry system 1b. Accrual basis, d. Double Page 4 of 8 pagesReSQ - the Review School of lccountarey, TAPW-314 PREWEEK MATERALSn THEORY of ACCOUNTS (ay 208 ath) ages 4, Accrual basis of accounting b ‘4. Omits adjusting atthe end ofthe petiod Leads tothe reporting of more complete information than does cash basfy accounting ©. Is not acceptable under GAAP d. Results in higher income than cash basis accounting, 5. Compared to the accrual basis of accounting, the eash basis of cco the accounting period of b 4 Both accounts receivable and acerued expenses bh. Accrued expenses but not of accounts receivable ©. Neither accounts receivable nor of accrued expenses 41. Accounts receivable but not of acerued expenses 6. Which of the following could result in overstatement of both current assets and shareholders’ equity? Dd An understatement of acerued sales commission }. Noncurrent note receivable principal is misclassified as current asset ©. Annual depreciation on manufacturing machinery i understated Holiday pay expense for administrative employees is misclassified as factory overhead 7. Which among the following errors could cause an understatement of owiers” equity and overstatement of Hiabi D ft, Failure to record interest accrued om i rote payable b, Making the adjusting entry for depreciation expense twice €. Failure to make the adjusting eniry 0 record revenue which had been carted but not yet billed to customers 4. Failure t record the earned portion of fees received in advance ting understates income by net decrease during HED Derivatives are financial instruments that derive their value from changes in a benchmark (“underlying”) based on any of the following, EXCEPT: c a. Stock prices © Discount on accounts receivable b. Commodity prices 4. Mortgage and currency rates 2. Itis aright and NOT an obligation to purchase or sell an asset, B a. Equity contracts Forward contracts b. Option contracts 4. Swap contracts 3. What is the type of financial risk involved when entities have outstanding purchase commitments? A a. Price risk ©. Interest rate risk b. Credit risk d. Foreign currency risk 4. A derivative that usually requires alittle or small initial net investment as a protection against unfavorable movements in price. A Option c. Forward contract b. Swap Future contract 5. Allofthe following are derivative financial instruments, EXCEPT D a, Currency futures © Stock index futures b. Interest rate swaps Treasury bills and notes 6. Which of the following, is NOT a derivative instrament? D ‘a. Futures contracts Interest rate swaps b. Credit indexed contracts 4. Variable annuity contracts 7. Derivatives are measured at A a. Fair value Fair value tess cost to sell b. Cost 4d. Hligher between fair value and cost 8. Changes in Fair value on « derivative instrument that is not designated as a hedging instrument are B ‘a, Not recognized Recognized in carnings immediately €. Recognized in equity section of the balance sheet 4, Recognized in earnings only when realized through sale 9, An interest rate swap in which a company has a ixed rate of interest and pays a variable rate is called B a. Cash flow hedge b. Pair value hedge ©. Deferred hedge dd. Hedge of forcign curreney exposure of net investment in foreign operations 10. Which of the following is NOT a distinguishing characteristic of a derivative instrument? B a, Terms that require or permit net settlement b. Must be“ highly effective” throughout its Tife No initial net investment d. One ot more underlyings and notional amounts I. Hedge accounting is permitted for all of the following types of hedges, EXCEPT A a. Trading securities ©. Available-for-sale securities b. Unrecognized firm commitments 4d. Net investments in forcign operations Page 5 of 8 pagesReSU - the Review School of Gccountoncy, TAPW-314 [PREWEEK MATERIALS in THEORY of ACCOUNTS (May 2016 Batch) - Page © 12, A hedge of the exposure (o changes in the fair value of a recognized asset or liability, oF an unrecognized firm classified aa A value hedue © curreney hedge Cash flow hedge d. Underlying 1B 1c of a derivative instrument determined to be an effective fair value hedge shall A a. Be recognized in profit or loss ©. Be included in retained earnings b. Be recognized d 14, Changes in fair value ofa deri tly in equity. d. Not be recognized strument that is determined to be an effective cash flow hedge shall iained earings d. Not be recognized features that separately meet the definition of a derivative instrument, These B a. Be recognized in profit or loss ©. Bejincluded in b. Be recognized directly in equi &—Bibedded derivative instruments 6. Underlying istrument duic to possible failure of another party to perform according to terms of the contract ce a. Offebalance-sheet risk Credit risk bb. Market risk d. Investment risk 2. Which of the following types of inform from financial instruments is not required tw be disclosed by PFRS 7? « 8, Qualitative and quantitative information about market risk bh. Qualitative and quantitative information about credit risk © Qualitative and quantitative information about operational risk ive und quantitative information about liquidity risk on about expostres to risks arisi veting obligations associated with financial liabi ulty in disposing a financial asset due to lack of market liquidity ulty in meeting cash flow needs due to cash flow problems, «d.__anentity’s cash inflows will not be sufficient to meet the entity’s cash outflows, 4, In accordance with PERS 7 (Financial Instrument Disclosures), which of the following best deseribes the risk that entity will encounter if t has diffu! ting obligations associated with its financial liabilities? A a. Liquidity risk ©. Financial risk b. Credit risk d Payment risk Under PERS 7, credit risk refers ‘a. The risk that one party to a financial instrument will cause a financial loss for the other party by {ailing (0 discharge an obligation b, The risk that an entity will encounter difficulty inn di with financial ing! obligations assoc of a financial instrument will fluctuate because of rest rate risk and other price risk) ~ market risk 41> The fk eas hi exe ees dre eae UI ess operation 6, Under PERS 7 (Financial Instruments Disclosures), whieh two of the following are components of market risk? B a. Credit risk and Currency risk Interest rate risk and Liquidity risk b. Currency risk and interest rate risk a. sk und Liquidity risk 7. Which ofthe following types of information des PERS 7 NOT require 0 be disclosed about the significance of inancial instruments? dD a Fai ee oC Ee dace aura 'b. Information about the use of hedge accounting, ¢. Carrying amounts of categories of financial instruments d, Information about financial instruments, contracts, and obligations under share-based payment transactions 8, (OLD) Which types of entities are required to apply PAS 30 (Disclosures in the FS of banks and nstitutions) c a. Allentities 1b. Banks, insurance companies and other financial institutions that are subject to prudential supervision by regulators Banks and similar financial institutions, one of whose principal activities is to take deposits and borrow with the objective of lending and investing, and which are within the scope of banking or similar legistation 4, Internationally active banks and similar Financial in 9. (OLD) What information does PAS 30 require to he disclosed about the concentrat D a. Concentration of credit risk ‘Concentration of liquidity risk oft of assets and liailitic b, & items: Page 6 of 8 pagesReSO - the Review School of Cccowmntoney, TAPW-314 PREWEEK MATERIALS in THEORY of ACCOUNTS (May 2016 Batch) - Page 7 10. (OLD) The regulator of Bank A requires the bank to set aside an amount equal to a fixed percentage of its loan assets, ‘asa reserve for possible future impairment losses. How should Bank A account for the charge in this reserve under PAS 30? A 4 Within equity as an appropriation of retained eamings b. Asan adjustment to the earrying amount of loan assets with the increase in the reserve reported as an ‘expense in profit of loss © Asan adjustinent to the carrying amount of loan assets with the increase in the reserve reported directly in equity 4. In profit or loss, but the balance sheet is not affected INSURANCE CONTRACTS (PFRS 4) & MINERAL RESOURCES (PERS 6} 1. The rationale for the issuance of PFRS 4 (Insurance Contracts) is A a. To ensure that insurance companies could comply with Philippine Financial Reporting Standards b, To completely overhaul insurance accounting ©. Asa response to recent seandals within the insurance industry 4d. Because of pressure from financial services authorities ins several countries 2. Which of the following types of insurance contracts would probably not be covered by PFRS 4? D a. Motor insurance ©. Medical insurance b. Life insurance d. Pension plan 3. Which of the following accounting practices has been outlawed by PERS 4? B a. Shadow accounting b. Catastrophe provisions € Atest for the adequacy of recognized insurance abilities 4. An impairment test for reinsurance assets 4A. The recognition of unrealized gain or loss on the measu component of other comprehensive income is described sment of the financial assets and insurance liabilities as a insurance parlance as D Phi value accounting Hedge accounting b. Current value accounting, d. Shadow accounting 5. An entity should apply PERS 4 (Insurance contracts) to which of the following? D a Contingent consideration receivable in a business combination . _Prodlct warranties issued by an entity which is a manufacturer «. Employer's assets and liabilities under employment benefit plans 4. Reinsurance contracts issued by the entity 6. Under PERS 4, “cedant” is D Insurer under an insurance contract € Policyholder under an insurance contract erunler an reinsurance contract d._—_-Polieyholder under a reinsurance contract to recognize exploration and evaluation expenditure of a: Yes, but only to the extent required by the entity's accounting policy for recogni ‘evaluation assets . Yes, but omy (othe extent that such expenditure is recoverable in future periods ©. Yes, but only tothe extent required by the entity's accounting policy for recogsi 4. No. such expenditure is always expensed in profit or loss as incurred 8. Which of the following expenditires would never qualify as an exploration and cvahution asset? ¢ a. Expenditure for acquisition of rights to explore >. Expenditure for exploratory drilling ©. Expenditures related to the development of mineral resources 44. Expenditure for activities in relation o evaluating the technical feasibility and commercial viability of ‘xiracting a mineral resources 9. PERS 6 applies to expenditures incurred B ‘a, When searching for an area that may want detailed exploration, even though the en obiained the legal rights to explore a specie area 'b. When the legal rights to explore a specific area have been obtained, but the technical feasibility and commercial viability of extracting a mineral resource are not yet demonstrable «When a specific area is being developed and preparations for commercial extraction are being made ing exploration and hhas not yet 4. Inextracting mineral resources and processing, the resource to make it marketable or transportable 10. Which of the following is not a disclosure requirement by PFRS 6? A Information about commercial reserve quantities b. Accounting policies for exploration and evaluation expenditures including the recognition of exploration and evaluation assets & The amounts of assets, liabilities, income and expense, from the exploration and evaluation of mineral resources d. Information that identifies and explains the amounts recognized in the financial statements ari from the exploration of mineral resources Page 7 of 8 pages © id operating and investing cash flows arising neReSQ - The Review School of lccowmanen TAPW-314 PREWEEK MATERIALS in THEORY of ACCOUNTS (May 2016 Batch) - Page 8 A 9. An SME whose only changes tits equity in the periods for which SMALL & MEDIUM-SIZED ENTITIES (SMEs 1. All ofthe following ean be clasifed as SME, except Commercial bank with total assets of P3 million b. Manufacturing entity with total liabilities of P 3 million © Merchandising company with total assets of P 350 million 4d, Food and beverage chain with total liabilities of P 250 million In which ofthe following situations can an entity that does not have public accountability claim compliance with the PERS for SMEs init financial statements? a. ‘The entity prepares its financial statements in accordance with local tax requirements that are substantially the same asthe PFRS for SMI b. The entity prepares its financial statements in accordance with local tax requirements that are, except in ‘name, word-for-word the same as the PERS for SMEs. ©. The entity prepares its financial statements in uecordance with focal tax requirements that are, except in name, wordefor-word the same as full PFRS. 4. Im both cases (b) and (c) above. 3, Fair presentation, in accordance with the PERS for SMEs, is presumed to result from Compliance with the PFRS for SMEs by an entity that has public accountability. Compliance with the PERS for SMEs, with additional disclosures where necessary, by an entity that has public accountability ‘©. Compliance with the PFRS for SMEs by an entity that does not have public accountability. ‘Compliance with the PFRS for SMEs, with additional disclosures where necessary, by an entity that docs not have pablic accountability. 4. In accordance with the PFRS for SMEs, in prescating a statement of financial position, an entity a. Must make the currentnon-current presentation distinction, bh. Must present assets and liabilities in onder of liquidity ©. Must choose either the current/aon-current or the lig presentation format). dity presentation formats (ic,, @ “free” choice of <4. Must make the curenvnon-current presentation distinction exeept when a presentation based on liquidity provides information that is reliable and more rel 5. Under PFRS for SMBs the financial statement that preseats an emtty’s assets, liabilities and equity ata point in time ‘a, Must be titled the statement of financial position ‘b, —Must be titled the halance sheet © Could be titled the statement of Financial position or the balanee sheet 4, Could be titled the statemient of financial position, the balance sheet or any other title that i not misleading. An entity that is considered as SME shall disclose in the summary of significant accounting poti 4, The measurement basis (or bases) used in preparing the financial statements, b. All the measurement hases specified in the PI'RS for SMEs irrespective of whether they were used by the ‘entity in preparing its financial statements, ©. The measurement basis (or bases) used in preporing the fina used that are relevant fo an understanding ofthe Financial statements 4, Allo the measurement bases and the aecounting policy choices available to the entity (as specified inthe PERS for SMEs) irespective of whether they were used by the entity in preparing is FS. 7. For SMEs, whieh ofthe following gains and losses are recognized in other comprehensive income (i. in total ¢ income outside of profit und loss)? and losses from discontinued operations 6 translating the financial statements of a foreign operation ins on the revaluation of property. plant and equipment ns and losses that management considers extraordinary items jal statements and the accounting policies & Which of the following gains and losses can an entity elect (ic., an accounting policy choice) to recognize in other ‘comprehensive incom (i cumprehe x outside of profit oF foss)? a. Losses from discontinued operations b. Gains and losses arising on transating the financial stat © Actuarial gains and losses of defined benefit plans <4 Gains and losses that management considers extraordinary items uncial statements are pres ‘or oss, payment of dividends, coreetions of prior period errr and changes in accounting poly ‘a. Has the option to present a statement of income and retained earings in place of a statement of ‘comprehensive income b. Is required to present a statement of income and retained camings in place of « statement of comprehensive ineame ‘Should present om statement of income Is required to presenta statement of comprehensive ineome ments of a foreign operation ted arise from profit 1 HEN Dw Page 8 of 8 pages ®RLSU- The Review Schoobe} Oaconrtony. » Theory of Oeconnite May 2016 Batch TAPW -315 CONCEPTUAL FRAME k, FINANCL ING STANDARDS & BASIC ACCOUNTING PROCESS 1 basi purpose ofthe Concepua Framework of Fiaancial Reporting? To develop a single sct of high quality International Financial Reporting Standards (IFRS) b. To promulgate rules and regulations affecting the practice of the Philippine Accountancy profession ©. To address accounting issues with divergem ancl «macceptable treatments in the absence o authoritative guidance issued by FRSC ; 4. To assist preparers of financial statements in applying accounting standards and in dealing with issues °C that have yet to form the subject of accounting standards Auaitos {In the Conceptual Framework for Financial Reporting, what provides “the why” (i... the purpose) of accounting? Yer varhe a, Objective of financial reporting C- oncert b. Elements of financial statements Gr byecnue © Qualitative characteristics of accounting information wolrarve 4. _Recogntot, mesioenest ad declare cones sucha assumptions, principe, nd constrains 5 ‘What is a basic assumption under the PFRS Conceptual Framework? a b 4 Rerores, ‘The Hnmcil satemens ae oomplee, neural and fee fem error fob Sol te GIN Gane The financial statements have predictable value and confirmatory value Geie wenyce ‘The financial statements are comparable, understandable, verifiable and timely Gs\ ore!) ‘The financial statements are normally prepared on the basis that the entity will continue in operation forthe foresceable future 4. Which of the following has the highest authoritative support? Framework for Financial Reporting © Infemational Financial Reporting Standards b, International Accounting Standards Interpretations of the IFRIC 'S. Which organization is NOT directly represented in the 15-member Financial Reporting Standards Council (FRSC)? a, Commission on Audit (COA) Securities and Exchange Commission (SEC) b. Bureau of Internat Revenue (BIR) 4. Professional Regulations Commission (PRC) 6. All of the following represent costs of providing financial information, EXCEPT a. Auditing ©. Disseminating b Preparing 4. Accessing capital 7. Which accounting process is the recogni 38 activities as accountable events? a Identifying b. Measuring unicating 8. A voucher system is usually used for transactions involving A Gash receipts © Cash receipts and disbursements b. Cash disbursements 4. Parehases on account 9D equals the sum of the debit column of a firt’s unadjusted tril balances Which of the Following statements is comes?” 1D equals C, there is no chance thatthe company committed a recording error ', FD does not equal C, itis possible that no errors were committed ©. _Dypically does not equal C because the adjusting entries have not yet been recorded 4. D does ot equal the stim ofall account increascs during the period 10, Which one of the following items LEAST resembles atypical adjusting entry? and C equals the sum of the credit column. 4 Debit an asset and credit revenue & Debit revenue and credit ability b. Debit an expense and credit lability 4 Debit an asset and credit Hiabitity — £4! vetlel porn ecb 11. Which one of the following concepts is LEAST related to adjusting curs? ce wna By a. Acerval Sas © Materiality pevexine” b. Approximation ~ Yod evi 4d Maiching of cost against revenue se 12, Which of the following adjusting entries CANNOT be subject 19 reversing entries? | Aowali Cite ‘Accrual of income sc Defemif of income under the income method wcpnd b, Accrual of expense 4. Deferral ofexpense under the asset method 2. Se\fo~! "re 15. Which of the following is an example of an agcrues-expense? pa a. Property taxes tiecurred during the year, to be paid in the first. quarter of the subsequent year. b. Office supplies purchased at the beginning of the year and debited to an expense account © Rent cared during the period, to be received atthe end of the year Depreciation expense 5 14, At the time a company prepays a cost Feet eeentd bat It debits an asset account to show the service or benefit it will receive in the futur. It debits an expense account to match the expense against revenues earned. Accrwecd +P ¢ Hcredits.a abuty account to show the obligation to pay for the service inthe future, Aave + ae 4. Iedebits an expense account and credits cash when adjusted 15. Recording the adjusting entry for depreciation has the sante effect as recordin th aA prepaid expense & — Anacorued revere b Anuneamed revenue 4d. Anaccrued expense Page 1 of 13 pages (He (> AD pepe Fa adjusting entry for0 eB a € ReSU - the Review School of Gecouetancey TAPW-315 PREWEEK MATERIALS in THEORY of ACCOUNTS (May 2016 Batch) - Page 2 INANCL STATEMENTS 1. The major financial statements include all of the following, EXCEPT | Statement of financial position © Statement of comprehensive income b, Statement of changes in equity d. Statement of changes i financial position “The single-step income statement cmmphasizes a. The gross profit figure by Total revenues and total expenses The various components of income from continuing operations __-4__ Adjustments of financial statements are requised for those events after balance sheet date which a : Are unusual and material : b. Occurred prior to issuance ofthe financial statements Have material effector uscr’s evaluation ofthe information prescnted in the financial statements 4 Provide additional information for determining amounts relating fo conditions existing on the BS date oe 5. Ana Inc. changes its method of valuation of invemories from weighted-average method 10 first-in, first-out (FIFO) tuethod. Ana Ine. should account for this change as a. A change in estimate and account fo it prospectively % bAcchunge in accounting policy and account for it prospectively & A change in accounting policy and account for it retrospectively 4. Account for it asa cortection ofan error and account fr tretrospectively he 6. When itis difficult to distinguish between a change in estima ond in accounting policy. then an entity should ‘a. Treat the emire change asa change in estimate with appropriate disclosure Ecbusnte UL ‘Treat the entire change asa change in account policy oS Of change 1n estimate and the change in accounting policy should then wait for the following year to see how b © Reasonably apportion the relative amiou 4. Wis best 10 ignore in the vear of change. the en the change develops and reat accordingly t 7. A company has inelided in its consolidated-Mniancial statements this \was appropriately excluded from consotiition last year This results in ‘a. An accounting charige that should be reported prospectively atts mega b. Anaccounting change that should be reported by restating the FS ofall prior periods presented Pe © Accorrection ofan eror 4. Neither an accounting change nor a correction ofan error 8. Which among the following conditions results ina musleading co a, No change in accounting principles The same stems from underlying accounting records are ctasfied under same captions € Thearrangemient within the financial statements ts identical 4. Changes inthe nature on the underiing transactions arc uot disclosed 9. Anentty shall roport for each reportable operating soument a measure ofall ofthe following, EXCEPT wa subsidiary acquired seve years ago that a Profit or loss Reso moral 1b Total assots ee ras eee ir wal ©. Liglities sf such amounts regularly provided to the chief operating decision mast dd. Not assots ot teat fol a9 10, PERS 8 now requites information to be disclosed about transactions with aoe rs, Which of the Following statements 1s TRUE about major customer? Statement I- A major customer is defined as one that provides reve! which amounts to 10% of more of combined “injomal.and external revenue ofall operating segments Statement I: The identities of major customers must be disclosed —7 fs pigene ‘Statement f only © Both statements | and tT b. Statement tl only None ofthe forevoing statements Bale Statement f: An interim financial report may consist of a complete set of financial statements — p" Statement Il: An interim financial report may consist of a condensed set of financial statements a True, trie False, uc bru, false ao Fa 12, an entity publishes a complete set of financial staicments in iS interim financial report, the form those statements should conform to a. PAS 34 (Interim Financial Reporting) © PAS | (Presentation of Financial Statements) b. PAS 27(Separme Financial Statements) PERS 10 (Consofidation of Financial Statements) $e PAC #4 ind content of Page 4 of 13 pagesA ROSU - the Review School of Goccounaneg TAPW-315 PREWEEK MATERIALS in THEORY of ACCOUNTS (May 2046 Batch) Page 5 CASH. RECEIVABL 1. Which of the following is NOT considered cash for financial reporting purposes? Postdated checks and 1OUs © Com, currency, and available funds Petty cash funds and change funds 4d. Maney orders, certified checks & personal checks 2. A bank statement provides information about all of the following. EXCER_ ‘a. Check cleared during the period © Bank charges for the period b. NSF checks: d.__ Errors made by the company 3. A compensating balance is best reflected by’ whieh of the following? ‘2. A savings acconnt mainiained at the bank equal to the amount ofall outstanding loans b. An amount of capital stock held in the company’s treasury equal {o outstanding loan commitments ©. The portion of any demand deposit, time deposit, or certificate of deposit maintained by au catty ‘which constitute support for existing borrowing arrangements of the entity witha lending institution nn Se bales hel i tne oF demand deposit acount that sequal othe interest currently due ona Toan (4) attorthe following are characteristics of financial asses classified as “loan and reccivables,” EXCEPT a. They have fixed or determinable payments. '. The holder can recover substantially all ofits investmaent (unless there has been credit deterioration), © They are not quoted in an active market Her suastedl, Her 4d. _ The holder has demonstrated positive intention and ability to hold them to maturity 5. ABC Company uses the allowance method in recognizing uncollectible accounts. Ignoring deferred taxes, the entry to record the write-off ofa specific uncollectible account a. Alfects neither net income nor working capital ee b. Decreases both net income and accounts receivable ¢. Affects neither net income nor accounts reccivable 4. Decreases both net income and working capital 6 PAS 2 Inventories requires that whew inventories are written down to net realizable value, they are writen-down a Onaclass-by-class basis b, Omthe basis of industry sezment © Onan tem-by-item basis 4, According to geographical segment within the entity 7. Which ofthe following costs of conversion CANNOT be included in the cost of inventory? a. Cost of direct labor © Factory rent and utilities b. Salaries of sags stat 44. Factory overteads based on normal capacity A company’s inventory cost was lower in FIFO that it would have been using LIFO. Assumi inventory. in what direction did the cost of purchases move during the period? a Up © Steady b. Down 4. Cannot be determined 9. Losses arising from firm and non-cancellable purchase commitments of inventory items, if material, should be 8 Recognized nthe actuals by dein loss on purchase commitments and crediting estimated ability for loss on parchase commitments too cer b Charged to retained earnings 4° © Disclosed in the notes 4. Ignored 10, According to PAS 41 (Agriculture, which ofthe following crite recognized in an enity’ financial statements? 1. The entity controls the asset asa result of past events U. _ 1tis probable that economic benefits relating to the asset wil low to the entity no beginning must be satisfied before a biological asset can be IIL Anactive market for the asset exists IV. The asset comes from a homogenous biological group a Land Ilonly LM, and IV only b. Hand lit only 4. Ul, and 1V only 11, ABC Company owns a number of herds of cattle. Where changes in,the fiir value of a herd of cattle should be recognized in the financial statements, according to PAS 4) (Agriculture)? % a In profit or loss only’ © In profit or oss or other comprehensive income b. _ Inother comprehensive income only 4, In the statement of cash flows only 7 12, ABC Company fu a plantation forest that is lkely 10 be-barested and sold in 30 years. The income should be accounted for tn the following way ‘No income should be reported until fist harvest and sale in 30 years Income should be measured anmually and reported using a fair value approach that recognizes and measures biological growth & The eventual sile proceeds should be estimated a year period 4. The plantation forest should be valued every 5 years and the increase in y statement of recognized gain and losses ‘matched to the profit and loss account over the 30- should be shown in the Page 5 of 13 pagesKeSU - The Review School of ecourtoneg TAPW-315 PREWEEK MATERIALS in THEORY of ACCOUNTS (May 2026 Batch) - Page 6 FINANCIAL STMENT IN ASSOCIATES NOTE: PAS 39 shall still be followed nnless i is specifically indicated thot PERS 9 shall be used 1 Which ofthe following is NOT a category of financialassets defined in PAS 39? {Loans and receivables 6, Held-for-sale financial assets b. Ayailable-for-sale financial assets dd, Financial assets at fair value through profit oF loss 2. Which one of the following is NOTclassified-as-a-financial instrument under PAS 32 (Financial Instruments)? a. Convertible bond © Warranty provision b. Foreign currency contract Loan receivable {s measured at fair value in the balance sheet? Loans and receivables 4G 3. Which of the following categones of finan a. Available-for-sile financial asscis bb Held-to-maturny investments AC 4 Taxestments in unquoted equity instruments Cor 4. All ofthese are characteristics of financial assets classified as “hold-to-maturity investments,” EXCEPT st They live fixed or determinable payments and a xed maturity spe eee b The holder can recover substantially all of its investment (unless there has been cred © They are quoted in an active market a d. The holder has demonstrated positive intention and ability to hold them to maturity 5, Debt investments NOT held for-collection are reported at deterioration, ‘, a Fair value © Net realizable value Amortized cost Lower of amortized cost or fair value 6, Debt investments that meet the business model and contractual cash flow tests under PFRS 9 are reported at: a. Pair value © Net realizable value b. Amortized cost 4. Lower of amortized cost or fair value Under PAS 39, what is the best evidence of fair value of a financial nsteume a, {is cost, including transaction costs directly attributable to its purchase, origination or issuance 'b Its estimated value determined using discounted cash flow techniques. option pricing models, ete cI quoted price, ifan active market exists for the Financial instrument 4. The present value of the contractual cash flows less impairment 8 ‘which could be classified as held-to-maturty are HAM ope a Redeemable preferred shares © Municipal bonds b. Warrants ‘Treasury stock 9. Organization to which PAS 28 Investments in Associates appliss melude Be « Boris ‘4, Unincorporated entities © Matual funds £ Sri SO Nag Venture capital organi ations 4 Umitimsis 7 10, ‘The accounting method applicd to investments in associates. knows" as the equity method, is also known as the Entity method of consotidation © Multiple tine consolidation method Paruatg b__ Proprietary method of consolidation d. One-line consolidation method be Lins by fine 11. PAS 28 does NOT require the equity method to be applied by an, associate acquired and held with a view (o its disposal within a certain period Per PFRS 5, what is the time period within which the associate must be disposed of” Six months Two ¥ b_ Twelve months foun the dale ok y 12, Ifthe investor ceases to have significanL influence over an asso It should sill be treated using cquity method 'b. It-should be treated in accordance sith PAS 39 ©The investment should be frozen at the date at which th 4d. ‘The investment should be treated at cost INVESTMENT PROPERTY, PROPERTY, PLANT & EQUIPMENT & INTANGIBLE ASSETS 1A gaimarising from a change i the fair value of an investinent property for which an entity fas opted to use the fair Value model is recognized in Net profit or oss forthe year © Vatuation reserve in the st } General reserve inthe sharcholders* equity d. None ofthe above 2. Which two of the following statements best describe “owner-occupied property’ under P ‘A. Property held for sale inthe ordinary course of business to BB. Property held for use in the production and supply of goods and services © Property held to earn rentals D. Property hold for administrative purposes a, Aand 8 © Band c b Band @ Cand D 3. When an owner-occupied property 1s transferred to investment property amount of the property to its fir the date of transfer Is recognized in profit and loss, or, fora revalued property, c the extent ofits credit balance b. Is recognized in profit an loss tall umes Is absorbed by retained carn Is carried directly to equity investor ceases to have significant influence holders’ equity 40 (Investment property)? fair value. a decrease in the carving nst the revaluation surplus (0 Page 6 of 13 pagesReSU - The Review School of CccormToneg TAPW-315 PREWEEK MATERIALS in THEORY of ACCOUNTS (May 2016 Batch) - Page 7 J, 4. Whats the measurement basis of an asset that is acquired in non-monetary exchange? With commerctal substance With no commercial subxiance a. Fair value of asset given up ‘Carrying amount of asset given up b, Carrying amount of asset given up Carrying amount of asset given up © Carrying amount of asset given up Fait value of asset given up Fair value of asset given up Fir value of asst given up P 5. When a balance is carried in an ‘revaluation surplus? account in relation fo am asset that fas been derecoxnized, itis acceptable under PAS 16 to: transfer the balance to ‘share capital’ account b. transfer the balance to retained earnings ‘& _ recognize the balance in profit or loss of the period in which the asset was derecognized transfer the balance to a provision account for future asset revaluations 2S 6. A lessee incurred costs t© construct office space in a leased warchouse. The estimated useful life of the office is ten years. The remaining term of the renewable lease is fifteen years, The cost should be Capitalized as leasehold improvements and depreciated over fifteen yoars b. Capitalized as leasehold improvements and depreciated over ten years ©. Capitalized as leasshold improvements and expensed in the year in which the lease expires 4 _Expensed as incurred 2 7. Depreciation is computed on the original cost without deducting estimated salvage value under this method. a. Output method only ©. Both output and declining balance methods Declining batance method only 4. Neither output nar dectining balance method 8. Borrowing costs related to a qualifying asset shall be B as (Cabtelized a Y= qualifying = Experce 'b. Expensed in the period incurred re ©. Neither capitaized ior expensed i the period incurred 4. Capitalized or expensed in the period incurred, whichever is more convenient B 9. Capitalization of borrowing costs shall be suspended ‘a, Only during temporary periods of delay Only during extended periods of delay in which active development is delayed © Only upon agreement by management and the construction company 4. _Atno instance at all as capitalization has already cormmenced A 10. Under PAS 23, which statement about capitalization of borrowing costs in the cost of a qualifying asset is,TRUE? 4 Iffunds come from general borrowin ‘of borrowing Capitalization always continues until the asset is brought into use € Capitalization always commences as soon 1s expenditure of the asset is incurred 4. Capitalization always commences as soon as interest on relevant borrowings is being incurred C11, PAS 23 defines qualifying assets as assets that necessarily takes a substantial period of time to get it ready for its intended use or sale. Which ofthe following is NOT a qualifsing asst? a Building tha will ake three yeas 10 construct c b. Inventories such as wine and cigars Machinery that is purchased under a ree-year installment period ~ ¢ 4, Manufacturing plant and power generation facilities Cc 12. Which of the following is NOT a disclosure requirement under PAS 23? Accounting policy adopted for borrowing costs Amount of borrowing costs capitalized during the period Segregation of assets that are “qualifying assets” on the balance sheet asa disclosure in the FS motes 4 Capitalization ate used to determine the amount of borrowing costs eligible for capitalization ‘the amount capitalized is based on the weighted average Cost 4qery koa! p 7 D 15. What isthe best evidence an asset's fair value fess costs f0 sell or dispose (ie. wet selling price)? ‘a. The carrying value of the asset ©. The bost estimate of knowledgeable parties b._ The fair value in an active market 4. The selling price in a binding sale agreement 2 14, PAS 36 (Impairment of assets) should be applied in accounting for the impairment of which type of asset? a Non-current assets held for sale Assets arising from construction contracts PA ¢ )) b. Non-current assets measured at cost 4. _ Investment properties measured a fair Value 4915. Which of the following examples is unlikely 10 mec the definition ofan intangible asse Marketing related, such as trademarks and internet domain names b. Customer related, such as Customer lists and contracts ; ©. Technology based, such as computer software and databases en se 4. Pure sescarch based, such as general expenditure on research — © ® 16. ‘The initial application ofa policy to revalue assets in accordance with PAS 16 (Property, Plant & Equipment) or PAS 28 (Intangible Assets) must Par eds ‘must be accounted for as a change in accounting policy . must not be accounted for as a change in accounting policy may be accounted for in accordance with the requirements of the Conceptual Framework must be treated as an extraordinary event Page 7 of 13 pages