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MILYONARYO TESTBANK

AFAR-THEORIES
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1. Which of the following gain or loss on changes in the value of derivates shall be
presented in other comprehensive income with reclassification adjustment to profit or
loss if already realized?
a. Gain or loss on changes of intrinsic value of derivates classified as undesignated
hedge
b. Gain or loss on changes of value of derivates designated as cash flow hedge
arising from its ineffective portion
c. Gain or loss on changes of value of derivatives designated as hedge of net
investment in foreign operation arising from its effective portion
d. Gain or loss on changes of time value of derivatives designated as fair value
hedge

2. Under PAS 21, what is the accounting treatment of exchange differences arising from
translating financial statement in entity's functional currency into entity's presentation
currency?
a. It shall be presented and recognized in other comprehensive income with
reclassification adjustment to profit or loss.
b. It shall be presented and recognized in other comprehensive income without
reclassification adjustment to profit or loss.
c. It shall be presented and recognized in profit or loss.
d. It shall be presented and recognized as change in accounting policy in statement
of changes in equity.

3. Which of the following cash flows shall be classified as part of operating activities in the
Statement of Cash Flows of a nonprofit organization?
a. Cash payment for the acquisition of service bus of the organization
b. Cash receipt from sale of souvenir items of the organization
c. Cash payment for the matured loans payable of the organization
d. Cash receipt from donor who restricted the fund for research project of the
organization

4. This phase in the national government budgetary process involves the enactment of the
General Appropriations Act by the Congress of the Philippines based on the proposed
national budget submitted by the President of the Republic of the Philippines.
a. Budget Preparation
b. Budget Legislation
c. Budget Execution
d. Budget Accountability
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5. When will the equivalent unit of production computed for direct materials under FIFO
Process be always the same with the equivalent unit of production computed for direct
materials under Average Process in case Work in Process Inventory Beginning is present?
a. When all direct materials are added at the start of the production process
b. When direct materials are added evenly throughout the production process
c. When all direct materials are added at the middle of the production process
d. When all direct materials are added at the end of the production process

6. If the Parent Corporation accounts its Investment in Subsidiary using cost method in its
separate financial statements, which income item will appear in its separate statement of
comprehensive income?
a. Gain on bargain purchase in case the fair value of net assets acquired is higher
than the fair value of the consideration given up for the acquisition of the
investment in subsidiary
b. Dividend income from subsidiary when its right to receive dividend is
established through declaration by the board of directors of its subsidiary
c. Investment income or share in adjusted net income of its subsidiary
d. Gain on changes in fair value of investment in subsidiary

7. Under PFRS 3, what is the accounting treatment when an acquirer obtains control of a
business?
a. It shall be accounted for using cost method.
b. It shall be accounted for using pooling of interest method.
c. It shall be accounted for using equity method.
d. It shall be accounted for using acquisition method.

8. Under PAS 21, when translating foreign current denominated asset into entity's functional
currency, what is the exchange rate to be used for translating investment property
accounted for using cost model at each subsequent statement of financial position date?
a. Exchange rate at the date of transaction a.k.a. historical rate
b. Exchange rate at the end of reporting period a.k.a. closing rate
c. Exchange rate that existed when the fair values were determined
d. Average exchange rate for each year

9. Which of the following credits shall be settled first by the corporate liquidator in the
winding up of the affairs of a dissolved corporation?
a. Book value per share for the common stockholders of the dissolved corporation
b. Liquidation value per share for the preferred stockholders of the dissolved
corporation
c. Redemption value of the stocks for the redeemable preferred stockholders of the
dissolved corporation
d. Claims of the creditors of the dissolved corporation
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10. If a retiring partner receives more than his adjusted capital balance before retirement,
what is the logical reason if the capital balances of the remaining partner decrease after
the said retirement?
a. Bonus is given by remaining partners to retiring partner
b. Bonus is given by retiring partner to remaining partners
c. Goodwill arising from retirement of a partner is recognized.
d. Impairment loss of an existing asset is recognized at the time of retirement.

11. Which of the following will increase the cost of goods sold during the year?
a. Increase in the salaries of inventory accountant during the year
b. Decrease in finished goods inventory during the year
c. Increase in work in process inventory during the year
d. Decrease in purchases of direct materials during the year

12. Entity A and Entity B incorporated Entity C. The contractual agreement of the
incorporating entities provides that decisions about the relevant activities of Entity
require the unanimous consent of Entity A and Entity B. The contractual agreement
provides that Entity A and Entity B have rights to the assets, and obligations for the
liabilities, relating to Entity C. How shall Entity A and Entity B account their interests in
Entity C?
a. They shall be accounted for as Investment in Associate using Equity Method
under PAS 28.
b. They shall be accounted for as joint operation under PFRS 11.
c. They shall be accounted for as Investment in Joint Venture using Equity Method
under PFRS 11 in relation to PAS 28.
d. They shall be accounted for using acquisition method under PFRS 3 and PFRS
10.

13. Which of the following transactions will result to credit to home office account in the
book of the branch?
a. Collection by the branch of its own receivable
b. Net loss reported by the branch
c. Payment by the home office of the payable of the branch
d. Return by the branch of merchandise coming from the home office

14. The Republic of the Philippines contracted with a SLEX Incorporated to develop, operate
and maintain the grantor's skyway connecting North Luzon Expressway and South Luzon
Expressway. SLEX Incorporated has received the license or right to charge users of the
skyway that it constructs and then must operate and maintain for a period of 50 years.
How shall SLEX Incorporated account its interest in the said skyway?
a. It shall be accounted under PAS 38: Intangible Asset.
b. It shall be accounted under PFRS 9: Financial Asset classified as debt instrument.
c. It shall be accounted under PAS 16: Property, Plant and Equipment.
d. It shall be accounted under PAS 40: Investment Property.
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15. The entity reported a net unfavorable direct labor variance. If the standard direct labor
hours to be rendered are higher than the direct labor hours actually rendered, which is
correct?
a. The actual direct labor cost is lower than the standard direct labor cost.
b. The standard direct labor rate is lower than the actual direct labor rate.
c. The amount debited to work in process is higher to the amounted credited to
salaries payable.
d. The entity debited labor efficiency variance and credited labor rate variance.

16. Under PFRS 15, when shall entity recognize revenue from contract with customers?
a. When it is probable that future economic benefits will flow to the entity and the
fair value of the revenue can be measured reliably.
b. When the entity has already collected the consideration from revenue from
contract with customers.
c. When or as the entity satisfies a performance obligation.
d. When the entity becomes a party to a contract.

17. When will the balance of construction in progress computed under cost recovery method
be higher than the balance of construction in progress computed under percentage of
completion method?
a. In the year when the estimated contract price is lower than the estimated total
construction cost.
b. In the year when the entity reported realized gross profit under cost recovery
method.
c. In the year when entity reported realized gross loss under percentage of
completion method.
d. Such scenario will never happen throughout the lifetime of the project.

18. What is the accounting treatment to the excess of the net installment receivable
(installment receivable minus deferred gross profit) over the fair value of the repossessed
inventory at the date of the repossession of inventory due to the default of the installment
balance?
a. Deferred gain on repossession classified as liability
b. Loss on repossession as part of profit or loss
c. Deferred loss on repossession as part of other comprehensive income
d. Gain on repossession as part of other comprehensive income

19. Under PFRS 3, what is the accounting treatment of the costs related to the acquisition by
the acquirer of the acquiree such as finder's fee, professional fees, consulting fees and
general administrative cost?
a. They shall be expensed as incurred.
b. They shall form part of the consideration given up in the business combination.
c. They shall be debited to share premium.
d. They shall be charged to goodwill or gain on bargain purchase arising from
business combination.
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20. Under PFRS 15, what is measurement basis of revenue from contract with customers?
a. Historical cost of the consideration received or receivable
b. Book value of the consideration received or receivable
c. Fair value of the consideration received or receivable
d. Recoverable amount of the consideration received or receivable

1. Which of the following transactions will increase the cost of goods manufactured for the
year ended?
a. Decrease in work in process inventory for the year ended
b. Decrease in total manufacturing costs for the year ended
c. Decrease in finished goods inventory for the year ended
d. Decrease in conversion cost for the year ended

2. In the liquidation of general partnership, which of the following claims shall be settled
first by the liquidating partner?
a. Capital contribution by the managing partner
b. Share in profit by the industrial partner
c. Employee benefits of workers
d. Advances made by capitalist partner to the partnership

3. In what year will the balance of construction in progress under percentage of completion
method be certainly equal to the balance of construction in progress under cost recovery
method?
a. In the year when the entity recognizes realized gross loss under percentage of
completion method.
b. In the year when the entity recognizes realized gross loss under cost recovery
method.
c. In the year when the entity recognizes realized gross profit under percentage of
completion method.
d. In the year when the entity recognizes realized gross profit under cost recovery
method.

4. In the liquidation of a stock corporation, which of the following claims shall be settled
last by the corporate liquidator?
a. Capital contribution by preferred stockholders
b. Unsecured liability to corporate suppliers
c. Income tax liability of the corporation
d. Investment of ordinary shareholders

5. Under PFRS 15, when shall an entity recognize revenue from contracts with customers?
a. When the entity becomes a party to a contract.
b. When it is probable that any future economic benefit associate with the item of
revenue will flow to the entity and the amount of revenue can be measured
reliably.
c. When (or as) the entity satisfies a performance obligation.
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d. When the entity receives the cash consideration.

6. Which of the following transactions will result to debit in Investment in Pasig branch
account in the home office's book?
a. Collection of Panig branch's receivable by Pasig Branch
b. Net income reported by Panig branch
c. Payment by Pasig Branch of Panig branch's payable
d. Credit memo received by home office from Panig branch

7. What is the reason for the understatement in the branch's reported net income in its
separate income statement as compared to the branch's true net income reported in the
entity's combined income statement?
a. Overstatement of the branch's ending inventory coming from the home office
b. Overstatement of the branch's reported shipment from home office
c. Overstatement of the branch's beginning inventory coming from the home office
d. Overstatement of the branch's reported cost of sales for goods coming from
home office

8. Which of the following costs is common to both prime costs and conversion costs?
a. Freight in, insurance in transit and handling costs of the main material of the
product
b. Wage of the factory workers
c. Salary of the inventory accountant
d. Depreciation of the factory building and factory equipment

9. Under PFRS 15, when shall a consignor recognize revenue from consignment sales?
a. When the consignor delivers the consigned goods to the consignee.
b. When the consignor and consignee enter into a contract.
c. When the consignee actually remits to the consignor the net proceeds from the
sale of consigned goods to third persons.
d. When the consignee sells and delivers the consigned goods to third persons.

10. A partners retires from the partners and receives an amount higher than his capital
balance at the time of his retirement. Under Philippine GAAP, which of the following
explanation is valid if the capital balances of the remaining partners increase after such
retirement?
a. Bonus has been given by the retiring partner to the remaining partners.
b. Asset revaluation has been recognized at the time of retirement.
c. Goodwill arising from partner's retirement has been recognized.
d. Bonus has been given by remaining partners to retiring partner.
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11. Under PFRS 15, which of the criteria will justify an entity to recognize revenue from
contract with customers over a period of time?
a. When the entity’s performance creates or enhances an asset that the
customer controls as the asset is created.
b. When the entity has transferred physical possession of the asset which is the
subject matter of the performance obligation.
c. When the customer acquires the significant risks and rewards related to the
ownership of the asset upon full payment of the price.
d. When the customer obtains legal title to the asset upon the execution of the
formality required by law.

12. Under Philippine GAAP, what is the proper classification in the financial statement of
deferred gross profit account resulting from the application of installment method of
revenue recognition of installment sales?
a. Unearned revenue account in the liability section of Statement of Financial
Position
b. Contra-account to installment receivable in the asset section of Statement of
Financial Position
c. Revenue account in the income section of Income Statement
d. Loss in the expense section of Income Statement

13. If the collection of the long-term note received as consideration for initial services
rendered by Franchisor to Franchisee is unlikely but not remote, what method shall be
used by the franchisor to recognize gross profit from initial franchise fee revenue?
a. Accrual basis
b. Cost recovery method
c. Installment method
d. Percentage of completion method

14. Under Normal Costing, material or significant over-application/under-application of

factory overhead shall be closed to
a. Cost of goods sold only.
b. Proportionately to ending finished goods and cost of goods sold.
c. Proportionately to ending work in process, ending finished goods and cost of
goods sold.
d. Proportionately to ending raw materials, ending work in process, ending finished
goods and cost of goods sold.

15. In the absence of profit agreement, how shall the profits of the partnership be distributed
to capitalist partners assuming there is no industrial partner?
a. It shall be divided in accordance with the loss agreement ratio.
b. It shall be divided in accordance with capital contribution ratio.
c. It shall be divided equally.
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d. It shall be forfeited in favor of the state.

16. What cost accounting system is ideal for just in time production system?
a. Actual costing system
b. Normal costing system
c. Standard costing system
d. Flexible costing system

17. If the net realizable value of the by-product resulting from joint production is material or
significant, how shall the entity account the net realizable value of the by-product?
a. It shall be presented as other income.
b. It shall be deducted from the total manufacturing cost of main products.
c. It shall be added to the sales revenue of main products.
d. It shall be deducted from the costs of goods sold of main products.

18. At the time of corporate liquidation, the preferred stockholders were not able to receive
anything. Which corporate creditors were certainly paid in full in the absence of other
data?
I. Fully secured creditors
II. Partially secured creditors
III. Unsecured creditors with priority
IV. Unsecured creditors without priority
a. I only
b. I and III only
c. I, II and III only
d. I, II, III and IV

19. What shall be the proper basis for the computation of direct material price variance for
the period ended?
a. Actual direct materials used for the period ended.
b. Actual direct materials at the beginning of the period.
c. Actual direct materials at the end of the period.
d. Actual direct materials purchased for the period ended.

20. In the absence of other relevant data, when a new partner is admitted in an existing
partnership through the acquisition of capital interest of incumbent partners, which is
always true?
a. The partnership shall recognize gain or loss as a result of the disposal of capital
interest.
b. The total capital of the partnership will not change despite the admission of a
new partner.
c. The total assets of the partnership will increase by the amount of the net proceeds
of the disposal of capital interest.
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d. The partnership shall recognize goodwill arising from the admission of a new
partner.

1. Under IFRIC 12: Service Concession Arrangements, what is the proper classification of
the infrastructure asset on the part of the operator if the latter receives a right or license to
charge users of the public service and such right to charge users of the public service is
not an unconditional right to receive cash because the amounts are contingent on the
extent that the public uses the service?
a. Intangible Asset in accordance with PAS 38
b. Property, Plant and Equipment in accordance with PAS 16
c. Investment Property in accordance with PAS 40
d. Financial Asset under PFRS 9

2. Under PFRS 11, which is incorrect about the accounting treatment by non-SME Venturer
of its Investment in Joint Venture?
a. The venturer shall recognize impairment loss on Investment in Joint Venture if the
book value of the investment is lower than its recoverable amount which is the
higher between value in use or fair value less cost to sell.
b. The venturer shall recognize cash or property dividend from joint venture as
dividend income when its right to receive dividend is established.
c. The venturer shall recognize its share in the net income of the joint venture as
investment income with corresponding increase to investment in joint venture.
d. The venturer shall recognize its share in the net loss of the joint venture as
investment loss with corresponding decrease to investment in joint venture.

3. Under IFRS 10, the following are the essential elements of control of an investor
(acquirer) over the investee (acquiree), except
a. The investor has power over the investee which means that the investor has
existing right that give it the ability to direct the relevant activities of the investee.
b. The investor has exposure or rights to variable returns from its involvement with
the investee.
c. The investor has the ability to use its power over the investee to affect the amount
of the investor's return.
d. The investor has ownership of more than 50% of the ordinary shares of
investee.

4. Under PAS 39, which of the following statements concerning unrealized holding gain or
loss on changes in value of derivatives is correct?
a. Unrealized holding gain or loss on changes in value of derivatives designated as
fair value hedge due to its effective portion shall be presented in other
comprehensive income with reclassification adjustment to profit or loss.
b. Unrealized holding gain or loss on changes in value of derivatives designated
as hedge of net investment in foreign operation due to its effective portion
shall be presented in profit or loss.
c. Unrealized holding gain or loss on changes in value of derivatives classified as
undesignated hedge due to its effective portion shall be presented in profit or loss.
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d. Unrealized holding gain or loss on changes in value of derivatives designated as

cash flow hedge due to its effective portion shall be presented in other
comprehensive income without reclassification adjustment to profit or loss.

5. What is the proper classification in the statement of financial position of a nonprofit

organization of a current fund designated by the Board of Trustees for the construction of
building to be used for charitable purposes when construction will start after a period of
three years?
a. Permanently restricted net assets
b. Temporarily restricted net assets
c. Unrestricted net assets
d. Board of Trustees' net assets

6. Under Government Accounting Manual, it refers to an authorization issued by the DBM

to NGAs to incur obligations for specified amounts contained in a legislative
appropriation in the form of budget release documents.
a. Appropriation
b. Allotment
c. Obligation
d. Disbursement

7. Under PAS 21, what is the accounting treatment of foreign exchange differences arising
from translating foreign currency denominated elements of financial statements to the
entity's functional currency?
a. It shall be presented and recognized in other comprehensive income with
reclassification adjustment to profit or loss.
b. It shall be presented and recognized in other comprehensive income without
reclassification adjustment to profit or loss.
c. It shall be presented and recognized in profit or loss.
d. It shall be presented and recognized as change in accounting policy in statement
of changes in equity.

8. Under PFRS 3, which of the following statements concerning the accounting treatment of
the different types of costs incurred in relation to a business combination is correct?
a. Direct costs of business combination shall form part of the consideration given up
for purposes of computation of goodwill or gain on bargain purchase.
b. Transaction costs incurred for the issuance of bonds payable classified as financial
liability at fair value through profit or loss that forms part of consideration given
up shall be amortized over the term of the bonds using effective interest method.
c. Costs incurred for the issuance of stocks issued as consideration given up for
business combination shall be initially charged to share premium arising
from issuance of the related shares.
d. Listing fees incurred for registering the stocks of a corporation to stock exchange
market shall be capitalized as goodwill arising from business combination.
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9. Under PAS 21, when translating an entity's financial statements in functional currency to
entity's presentation currency, which is correct?
a. Monetary asses/liabilities shall be translated using closing rate while nonmonetary
assets/liabilities shall be translated using transaction rate.
b. Retained earnings shall be translated using average rate during the period.
c. Income and expense accounts shall be translated using closing rate.
d. Contributed capital accounts shall be translated using transaction rate.

10. Under PAS 27, if the parent corporation elected to account its investment in subsidiary
using fair value model through other comprehensive income in its separate financial
statements, which is correct in the parent's separate income statement?
a. Gain on bargain purchase will be recognized in profit or loss if the fair value of
the net assets acquired is higher than the fair value of consideration given up by
the parent corporation.
b. Impairment loss on investment in subsidiary will be recognized in profit or loss if
the book value of the investment in subsidiary is lower than its recoverable
amount which is the higher between value in use or fair value less cost to sell.
c. Dividend income from subsidiary will be recognized in profit or loss when its
right to receive dividends is established.
d. Share in adjusted net income (net loss) of the subsidiary will be recognized in
profit or loss from the date the parent obtains control of the subsidiary.

11. Under PFRS 3, which of the following transactions is a measurement period adjustment
that must be retroactively adjusted to goodwill or gain on bargain purchase within the
measurement period not exceeding one year from the acquisition date?
a. Change in the fair value of contingent consideration as a result of meeting an
earnings target that occurred after the acquisition date.
b. Change in the fair value of contingent liability as a result of additional
information that the acquirer obtained after the acquisition date about facts
and circumstances that existed at the acquisition date.
c. Change in the fair value of contingent liability as a result of reaching a specified
share price that occurred after the acquisition date.
d. Change in the fair value of contingent consideration as a result of reaching a
milestone on research and development project that occurred after the acquisition
date.

12. Parent Corporation has different investment in stocks consisting of investment in

subsidiary, investment in associate, investment in joint venture and investment in fair
value. Under PFRS 3 and PFRS 10, which of the following dividends from investee will
be presented in the Consolidated Statement of Comprehensive Income of the Parent
Corporation if the latter account for all its investment in subsidiary using cost method in
its separate financial statements?
a. Dividend from subsidiary
b. Dividend from associate
c. Dividend from joint venture
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d. Dividend from fair value investment

13. In which type of hedging transactions or relationships will there be no gain or loss on
hedged item?
a. Fair value hedge of firm commitment importation using forward contract
receivable.
b. Cash flow hedge of forecasted exportation using put option.
c. Undesignated hedge of foreign currency denominated accounts receivable using
forward contract payable.
d. Hedge of net investment in foreign operation using foreign currency denominated
note payable.

14. Which of the following scenarios will decrease the cost of goods sold during the year?
a. Increase in direct labor costs during the year.
b. Increase in raw materials inventory during the year.
c. Decrease in work in process inventory during the year.
d. Decrease in finished goods inventory during the year.

15. When will the equivalent unit of production under FIFO Process be the same with the
equivalent unit of production under Average Process?
a. When there is no ending work in process inventory.
b. When there is no completed inventory during the period.
c. When the excess of the actual units started over the actual units completed is
equal to the ending work in process inventory.
d. When the actual units completed is higher than the actual units started.

16. Two parties enter into a joint arrangement which is structured through an incorporated
entity in which each party has a 50% ownership interest. The purpose of the arrangement
is to manufacture materials required by the parties for their own, individual
manufacturing processes. The arrangement ensures that the parties operate the facility
that produces the materials to their quantity and quality specifications.

The contractual arrangement between the parties specifies the following aspects of the
arrangement:
Under the terms of the arrangement, the parties have agreed to purchase all the output
produced by the entity in a ratio of 50:50.
The entity is not permitted to sell any of the output to third parties, unless this is
approved by the two parties to the arrangement. Because the purpose of the arrangement
is to provide the parties with output they require, such sales to third parties are expected
to be uncommon and insignificant in volume and value.
The price of the output sold to the parties is set by both parties at a level that is designed
to cover the costs of production and administrative expenses incurred by the entity. On
the basis of this operating model, the arrangement is intended to operate at a break-even
level.
Under PFRS 11, what is the proper accounting classification of this joint arrangement?
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a. Joint Operation
b. Joint Venture
c. Jointly Controlled Asset
d. Jointly Controlled Entity

17. Under PFRS 15, which of the following criteria may allow an entity to recognize revenue
from customers over a period of time instead of a specific point in time?
a. The entity’s performance does not create an asset with an alternative use to the
entity and the entity has does not have an enforceable right to payment for
performance completed to date.
b. The entity’s performance creates or enhances an asset that the entity controls as
the asset is created.
c. The customer simultaneously receives and consumes all of the benefits
provided by the entity as the entity performs.
d. The customer has the significant risks and rewards related to the ownership of the
asset particularly upon transfer of title or ownership.

18. Under GAAP, what is the most valid reason for the incremental credit to the capital of a
newly admitted partner in addition to his properly valued contributed capital?
a. Goodwill arising from admission of a new partner in an existing partner
b. Asset revaluation of the existing assets of the partnership
c. Impairment of the existing assets of the partnership
d. Capital bonus coming from existing partners

19. An entity grants a franchisee the right to operate a restaurant in a specific market using
the entity’s brand name, concept and menu for a period of ten years. The entity has
granted others similar rights to operate this restaurant concept in other markets. The
entity commonly conducts national advertising campaigns, promoting the brand name,
and restaurant concept generally. The franchisee will also purchase kitchen equipment
from the entity. The entity will receive P950,000 upfront (P50,000 for the kitchen
equipment and P900,000 for the franchise right). Under PFRS 15, how shall the entity
recognize the P950,000 transaction price as revenue from contract with customers?
a. The whole P950,000 upfront fee shall be recognized as revenue over a period of
time of 10 years, the term of the contract.
b. The whole P950,000 upfront fee shall be recognized as revenue at a specific point
of time which is the date delivery of the kitchen equipment.
c. The whole P950,000 upfront fee shall be recognized as revenue at a specific point
of time which is the date of expiration of the 10-year term of the contract.
d. The P50,000 upfront fee shall be recognized as revenue at a specific point of
time which is the date of delivery of the kitchen equipment while the
remaining P900,000 upfront fee shall be recognized over a period of time of
10 years, the term of the contract.
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20. Which of the following statements is correct in the year when the estimated contract price
of a long-term construction contract is lower than the estimated total construction cost of
the project?
a. The cumulative gross revenue recognized as of the end of this year will be equal
to the construction in progress balance as of the end of this year.
b. The construction in progress as of the end of this year computed under
percentage of completion method will be equal to the construction in
progress as of the end of this year computed under cost recovery method.
c. The costs of construction to be presented in the statement of comprehensive
income for this year will be equal to the construction cost incurred during the
year.
d. The construction in progress as of the end of this year will be equal to the
percentage completed as of the end of this year multiplied by the estimated
contract price as of the end of this year under percentage of completion method
while the construction in progress as of the end of this year will be equal to the
cumulative costs incurred as of the end of this year under cost recovery method.

1. Which of the following instances will increase the cost of goods sold for the year
ended?
a. Increase in Raw Materials Inventory during the year
b. Decrease in Work in Process Inventory during the year
c. Increase in Finished Goods Inventory during the year
d. Decrease in Direct Labor Cost during the year

2. At the time of retirement of a partner, he receives an amount more than his

capital balance before retirement. Which of the following statements is correct?
a. If the assets of the partnership are properly valued at the time of
retirement, the capital balances of the remaining partners will
decrease as a result of retirement.
b. If the assets of the partnership are not properly valued at the time of
retirement, the capital balances of the remaining partners will decrease as
a result of retirement.
c. If the assets of the partnership are not properly valued at the time of
retirement, impairment loss of existing assets is recognized at the time of
retirement.
d. All of the above.

3. At the time of liquidation of general partnership, which of the following credits

shall be settled first by the liquidating partner?
a. Those advances made by the partners to the partnership
b. Those claims of the partners regarding their capital contribution
c. Those liabilities of the partnership to third persons
d. Those claims of the partners regarding their share in partnership profit
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4. At the time of corporate liquidation, the preferred stockholders were able to

receive the liquidation value of their shares but the common stockholders
received nothing. Which corporate creditors were fully paid in this scenario?
I. Fully secured creditors
II. Partially secured creditors
III. Unsecured creditors with priority
IV. Unsecured creditors without priority
a. I only
b. I and III only
c. I, II and III only
d. I, II, III and IV

5. At the time of corporate liquidation, which of the following unsecured creditors

with priority shall be settled last from the free assets of the liquidated
corporation?
a. Liability for civil damages arising from corporate crime
b. Liability for civil damages arising from corporate tort or quasi-delict
c. Liability for employee benefits
d. Liability for taxes to government
6. Under PFRS 15, when shall the consignor recognize revenue from consignment
sales arrangement?
a. From the moment the consignee sells the goods to final consumers
b. From the moment the consignor delivers the goods to the consignee
c. From the moment of collection by the consignee of the proceeds of the
sale from final consumers
d. From the moment of remittance by the consignee to the consignor of the
collection from final consumers

7. Under PFRS 15, which of the following factors indicates that the revenue from
contracts with customers is recognized from the moment the entity satisfies the
performance obligation at a point in time?
a. When the customer simultaneously receives and consumes all of the
benefits provided by the entity as the entity performs.
b. When the entity has transferred physical possession of the asset to
the customer.
c. When the entity’s performance creates or enhances an asset that the
customer controls as the asset is created.
d. When the entity’s performance does not create an asset with an
alternative use to the entity and the entity has an enforceable right to
payment for performance completed to date.

8. Under PFRS 15, what is the criteria before entity may recognize the incremental
costs of obtaining a contract?
a. If the entity expects to recover those costs.
b. If the entity receives the costs from the customer.
c. If the customer signs the contract with the entity.
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d. If the customer violates the contract with the entity.

9. Under PFRS 15, costs incurred to fulfill a contract are recognized as an asset if
and only if all of the following criteria are met, except
a. The costs relate directly to a contract.
b. The costs generate or enhance resources of the entity that will be used in
satisfying performance obligations in the future.
c. The costs are reasonably possible to provide future economic
benefits to the entity and can be measured reliably.
d. The costs are expected to be recovered.

10. Under PFRS 15, how shall an asset recognized in respect of the costs to obtain a
contract or costs to fulfill a contract be recognized as an expense in the
statement of comprehensive income?
a. It shall be expensed as incurred.
b. It shall be amortized on a systematic basis that is consistent with the
pattern of transfer of the goods or services to which the asset
relates.
c. It shall be amortized on straight line basis over the term of the contract
with the customers.
d. It shall not be amortized but instead subjected to annual impairment test
especially if there is indicator that the recoverable amount of the asset is
lower than its book value.

11. Under PFRS 15, how shall installments sales revenue of a residential property
under pre-completion stage covered by Contract to Sell be recognized by the
long-term construction entity?
a. It shall be recognized as revenue over time.
b. It shall be recognized as revenue at a point in time.
c. It shall be recognized as revenue on the date of full payment of the price
under cash basis method.
d. It shall be recognized as revenue on the date of execution of the deed of
absolute sale.

12. Which of the following costs is considered prime cost, conversion cost and
product cost at the same time?
I. Wages of factory workers
II. Depreciation of machinery used to manufacture the product
III. Freight in and insurance in transit of the main materials of the product
IV. Salaries of factory foreman, factory janitors and factory security guard
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a. I and IV only
b. I, II and IV only
c. I and II only
d. I only

13. What is the accounting treatment of material over-application or under-

application of factory overhead in normal costing?
a. It shall be closed to cost of goods sold only.
b. It shall be closed proportionately to raw materials ending inventory, work in
process ending inventory, finished goods inventory and cost of goods sold.
c. It shall be closed proportionately to work in process ending
inventory, finished goods inventory and cost of goods sold.
d. It shall be expensed as incurred.

14. What is the accounting treatment of net realizable value of by-product if is

considered significant by the company?
a. It shall be presented as other income by the company.
b. It shall be presented as additional sales revenue of the main products of
the company.
c. It shall be presented as deduction from cost of goods sold of the main
products of the company.
d. It shall be presented as deduction from total manufacturing cost of
the main products of the company.

15. If the actual direct labor cost of the company is higher than the standard direct
labor cost, which of the following relationships regarding the journal entry to
record direct labor variances is always true?
a. The credit to one type of direct labor variance is higher than the debit to
the other type of direct labor variance.
b. The debit to work in process account is lower than the credit to
salaries payable or cash account.
c. The direct labor rate variance account has been debited while the direct
labor efficiency variance account has been credited.
d. The direct labor rate variance account has been credited while the direct
labor efficiency variance account has been debited.

16. What shall be the proper basis for the computation of direct material price
variance for the period ended?
a. Actual direct materials used for the period ended.
b. Actual direct materials at the beginning of the period.
c. Actual direct materials at the end of the period.
d. Actual direct materials purchased for the period ended.
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17. Under generally accepted accounting principles, what is the proper financial
statement presentation of deferred gross profit as of the end of the year resulting
from installment sales?
a. Other comprehensive income in the Statement of Comprehensive Income
b. Unearned revenue in the Statement of Financial Position
c. Contra installment receivable in the Statement of Financial Position
d. Profit or loss in the Statement of Comprehensive Income

18. Under PFRS 15, what is the proper measurement of revenue from contract with
customers if the entity received a non-cash consideration?
a. Stand-alone selling price of the good or service promise in the contract.
b. Fair value of the consideration received.
c. Book value of the consideration received.
d. Historical cost of the consideration received.

19. In what specific date will the balance of Construction in Progress computed
under Percentage of Completion Method be always the same with the balance of
Construction in Progress under Cost Recovery Method?
I. In the year when the entity recognizes realized gross loss under
percentage of completion.
II. In the year when the entity recognizes realized gross profit under cost
recovery method.
III. In the year when the estimated total costs to complete the project exceed
the estimated total contract price.
IV. In the year of completion of the project.
a. I, III and IV only
b. IV only
c. II and III only
d. III and IV only

20. What is the reason for the understatement of the net income reported by the
branch in its separate income statement?
a. Overstatement of cost of goods sold reported by the branch due to
goods acquired from the home office.
b. Overstatement of beginning inventory of the branch due to goods acquired
from home office.
c. Overstatement of ending inventory of the branch due to goods acquired
from home office.
d. Overstatement of purchases for the year reported by the branch for goods
coming from the home office,
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