DIAGNOSTIC EXAM IN AUD PROB

Name: ____________________________

1. Under the IFRS Conceptual Framework(2010), which of the following is considered a fundamental characteristic rather than an enhancing
characteristic of financial information?
a. Timeliness
b. Verifiability
c. Understandability
d. Faithful Representation
2. Which of the following does not relate to Verifiability?
a. Quantified information need not be a single point estimate to be verifiable. A range of possible amounts and the related probabilities can
also be verified.
b. Generally, the older the information is the less useful it is. However, some information may continue to be useful long after the
end of a reporting period because, for example, some users may need to identify and assess trends.
c. Direct verification means verifying a representation through direct observation, for example, by counting cash.
d. An example indirect verification is verifying the carrying amount of inventory by checking the inputs and recalculating the ending inventory
using the same cost flow assumption.
3. Which government body is responsible for the design, preparation and approval of accounting systems of government agencies?
a. Department of Budget & Management c. COA
b. Bureau of Treasury d. Government Agencies
4. The amortization of intangible assets over their useful lives is justified by the
a. Economic entity assumption
b. Going concern assumption
c. Monetary unit assumption
d. Historical cost assumption
5. Which step in the accounting cycle is completed later than the others?
a. Posting
b. Adjustments
c. Journalizing
d. Identification and measurement of transactions
6. This accounting objective emphasizes the importance of the Income Statement as it is geared toward proper income or performance
determination of the enterprise
a. Fund theory
b. Entity theory
c. Proprietary theory
d. Residual equity theory
7. Under the Conceptual Framework for Financial Reporting(2010), which of the ff statements is NOT a feature of financial information’s
“Comparability” characteristics?
a. Comparability is uniformity
b. A comparison requires at least two items
c. Consistency, although related to comparability, is not the same.
d. Comparability is the goal; consistency helps to achieve the goal.
8. Consistency in financial reporting requires that:
a. Gains and losses should not appear in the income statement
b. Effect of changes in accounting treatment be properly disclosed
c. Accounting procedures be adopted that give a consistent rate of return
d. Expenses be reported as charges against the period in which they are incurred
9. The information provided by financial reporting pertains to:
a. Individual business enterprises, rather than to industries or an economy as a whole or to members of society as consumers
b. Business industries, rather than to individual enterprises or an economy as a whole or to members of society as consumers
c. Individual business enterprises, industries and an economy as a whole, rather than to members of society as consumers
d. An economy as a whole and to members of society as consumers, rather than to individual enterprises or industries
10. During a period when an enterprise is under the direction of particular management, financial reporting will directly provide information about:
a. Management performance but not enterprise performance
b. Enterprise performance but not management performance
c. Both enterprise performance and management performance
d. Neither enterprise performance and management performance
11. Which of the ff is most like not considered as cash for financial reporting purposes?
a. Bank drafts and money orders
b. Stale checks issued to creditors
c. Post-dated checks from customers
d. Undelivered checks to trade suppliers
12. Cash denominated in foreign currency shall be translated to Philippine peso using
a. Closing rate
b. Average rate
c. Passing rate
d. Historical rate
13. Significant deposits in a foreign bank subject to foreign bank restriction should be classified as:
a. As non-trade receivables with appropriate disclosure
b. As part of noncurrent assets with appropriate disclosure
c. As cash and cash equivalents with appropriate disclosure
d. As held-to-maturity securities with appropriate disclosure
14. Checks drawn before balance sheet date but held for later delivery (UNDELIVERED CHECKS)
a. Should be treated as trade receivable
b. Should be regarded as cash equivalents
c. Should be restored back to cash balance
d. Should be treated as outstanding checks for bank reconciliation process
15. What happens when an entity records the payment of payable made in the subsequent period as if it were made in the current period?
a. Window dressing
b. Lapping
c. Kiting
d. Fishing
16. Which of the following is an INCORRECT application of the Imprest system of cash control?
a. Cash receipts must be deposited on a regular basis
b. Cash disbursements must be made through checks, regardless of the amount
c. Material amount of cash disbursements must be made in the form of checks
d. Insignificant cash disbursements must be made out of the petty cash fund
17. What is the major purpose of an Imprest petty cash fund?
a. To ease the payment of cash to vendors
b. To effectively control cash disbursements
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DIAGNOSTIC EXAM IN AUD PROB
c. To effectively plan cash inflows and outflows
d. To determine the honesty of the petty cashier
18. Under the Imprest fund system, the ‘petty cash fund’ account is debited
a. Only when the fund is created
b. When the fund is created and every time it is replenished
c. When the fund is created and when the size of the fund is increased
d. When the fund is abolished and when the size of the fund is decreased
19. IOUs found in the petty cash drawer at the time of replenishment should be reported as part of
a. Inventories
b. Receivables
c. Trading securities
d. Cash and cash equivalents
20. An employee asks for an authorized reimbursement of transportation charges out of the Imprest petty cash fund. To document this
transaction, the petty cashier should
a. Debit ‘transportation expense’
b. Debit ‘receivable from employee’
c. Credit ‘cash and cash equivalents’
d. Prepare the petty cash voucher only
21. A debit balance (i.e., shortage) in the ‘Cash Short or Over’ account at the end of the period that can be attributed to the fault of the petty
cashier is treated as a
a. Receivable from employee
b. Miscellaneous expense
c. Miscellaneous income
d. Payable to employee
22. Balance per bank is LESS than correct balance. Assuming no error was committed, there must be
a. Deposits in transit
b. Outstanding checks
c. Erroneous bank debit
d. Deposits credited by the bank but not yet recorded by the company
23. Which will NOT require an adjusting entry in the depositor’s books?
a. Bank service charge
b. No-sufficient-Fund (NSF) check from customer
c. Deposits of another company is credited to the account of the depositor
d. Check for payment amounting to P 690 is recorded by the depositor as P 6,900
24. Statement I: TRADE receivables are classified as current assets if they are to be collected within one year or within the normal operating
cycle, whichever is shorter.
Statement II: NON-TRADE receivables are classified as current assets if they are to be collected within one year or within the normal
operating cycle, whichever is longer.
a. Both Statements are true c. Only statement I is true
b. Both Statements are false d. Only statement I is false
25. What is an example of TRADE receivables?
a. Claims in litigation c. Amounts due from customers
b. Loans to employees d. Amounts due to customers
26. Which of the ff accounts is considered as a form of receivable?
a. Accrued Income c. Prepaid Expense
b. Accrued Expense d. Unearned Income
27. Uncollectible account expense:
a. Represents the loss in accounts receivable that eventually turn out to be uncollectible
b. Is the amount an entity must pay whenever a customer fails to pay his or her account
c. Should not occur if a company properly investigates customers based on credit history
d. Is the amount an entity must pay to a collection agent to recover amounts on overdue accounts
28. The advantage of relating bad debt experience to accounts receivable is that this approach
a. Does not require knowledge of the balance in the allowance for doubtful accounts
b. Gives a reasonably correct amount of receivables in the balance sheet
c. Does not require estimates of uncollectible accounts
d. Relates bad debt expense to period of sale
29. Which method of recording bad debt loss is consistent with accrual accounting?
a. Allowance Method c. Percent of sales method
b. Direct Write-off method d. Percent of accounts receivable
30. Under the allowance method, the entry to recognize bad debt expense:
a. Increases net income c. Has no effect on current assets
b. Decreases current assets d. Has no effect on net income
31. Under the allowance method, the allowance for doubtful accounts would decrease when:
a. Specific account receivable is collected
b. Accounts previously written off is collected
c. Specific uncollectible account is written off
d. Account previously written off becomes collectible
32. Under the allowance method, the entry to record the write-off of a specific account would:
a. Decrease both accounts receivable and net income
b. Increase the allowance for uncollectible accounts and decrease net income
c. Decrease both accounts receivable and the allowance for uncollectible accounts
d. Decrease accounts receivable and increase the allowance for uncollectible accounts
33. Under the allowance method, entries at the time of collection of an account previously written off would:
a. Increase net income
b. Have no effect on net income
c. Decrease the allowance for doubtful accounts
d. Have no effect on the allowance for doubtful accounts
34. Statement I: Interest bearing long-term receivables shall be stated at face value.
Statement II: Non-interest bearing long-term receivables shall be stated at present value
Statement III: Short term receivables, interest bearing or not, are generally stated at face value.
a. All statements are true
b. All statements are false
c. Only statement II is false
d. Only statement III is false
35. Which accounting principle or concept permits the direct write-off method of accounting for bad debts?
a. full-disclosure principle b. business entity concept
c. matching principle d. materiality principle

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