NAME: JOYCE ANNE R.

LUNA Date: 4/8/22

Professor: MR. JOH RICK GATDULA Section: BSA 801 Score:

PRELIM EXAM
1. The standard that addresses the accounting for revenues is
a. PFRS 16.
b. PFRS 18.
c. PFRS 5.
d. PFRS 15.

2. The objective of PAS 1 Presentation of Financial Statements is

a. to provide the basic principles in the presentation of general purpose financial statements to
improve comparability.
b. to provide the basic principles in the presentation of general and special purpose financial
statements to improve comparability.
c. to provide the basic principles in the presentation of general purpose financial statements to
improve consistency.
d. all of these

3. The heading of a financial statement most likely will not include

a. the name of the reporting entity.
b. the title of the financial statement.
c. the date of the financial statement.
d. the name(s) of the business owner(s).

4. According to PAS 1, an asset shall be classified as current when it satisfies any of the following
criteria, except
a. it is expected to be realized in, or is intended for sale or consumption in, the entity’s normal
operating cycle
b. it is held primarily for the purpose of being traded
c. it is expected to be realized within twelve months after the balance sheet date
d. it is cash or a cash equivalent that is restricted

5. A liability shall be classified as current when it satisfies any of the following criteria, except
a. it is expected to be settled in the entity’s normal operating cycle
b. it is held primarily for the purpose of being traded
c. it is due to be settled within twelve months after the balance sheet date
d. the entity has an unconditional right to defer settlement of the liability for at least twelve
months after the balance sheet date.

6. If an entity expects, and has the discretion, to refinance or roll over an obligation for at least
twelve months after the balance sheet date under an existing loan facility, it classifies the
obligation as non-current,
a. even if it would otherwise be due within a shorter period.
b. even if the original term was for a period longer than twelve months
 c. even if an agreement to refinance, or to reschedule payments, on a long-term basis is
completed after the reporting period and before the financial statements are authorized for
issue
d. choices b and c

7. When an entity breaches an undertaking under a long-term loan agreement on or before the end
of the reporting period with the effect that the liability becomes payable on demand, (choose the
incorrect statement)
a. The liability is classified as current, even if the lender has agreed, after the balance sheet date
and before the authorization of the financial statements for issue, not to demand payment as
a consequence of the breach.
b. The liability is classified as current because, at the balance sheet date, the entity does not
have an unconditional right to defer its settlement for at least twelve months after that date.
c. The liability is classified as non-current, even if the lender has agreed, after the balance sheet
date and before the authorization of the financial statements for issue, not to demand
payment as a consequence of the breach.
d. The liability is normally classified as current; however, the liability is classified as non-
current if the lender agreed by the balance sheet date to provide a period of grace ending at
least twelve months after the balance sheet date, within which the entity can rectify the
breach and during that period the lender cannot demand immediate repayment.

8. Material Omissions or misstatements of items are material if they could, individually or

collectively; influence the economic decisions of users taken on the basis of the financial
statements. Materiality depends on
a. the peso amount and degree of financial consequence of the omission or misstatement
judged in the surrounding circumstances
b. the size and peso amount of the omission or misstatement judged in the surrounding
circumstances
c. the peso amount and nature of the omission but not the misstatement judged in the
surrounding circumstances
d. the size and nature of the omission or misstatement judged in the surrounding
circumstances

9. In the extremely rare circumstances in which management concludes that compliance with a
requirement in a Standard or an Interpretation would be so misleading that it would conflict
with the objective of financial statements set out in the Framework, the entity shall depart from
that requirement in the manner set under PAS 1. When an entity departs from a requirement of a
Standard or an Interpretation, it shall disclose: (choose the incorrect statement)
a. that management has concluded that the financial statements present fairly the entity’s
financial position, financial performance and cash flows;
b. that it has complied with applicable Standards and Interpretations, except that it has
departed from a particular requirement to achieve a fair presentation;
c. that it has complied with other applicable standards other than those issued by FRSC or
IASB and the description of those accounting standards which the entity has complied to.
d. the title of the Standard or Interpretation from which the entity has departed, the nature of
the departure, including the treatment that the Standard or Interpretation would require, the
reason why that treatment would be so misleading in the circumstances that it would
 conflict with the objective of financial statements set out in the Framework, and the treatment
adopted; and
e. for each period presented, the financial impact of the departure on each item in the financial
statements that would have been reported in complying with the requirement.

10. Identify the incorrect statement.

a. When an entity has departed from a requirement of a Standard or an Interpretation in a prior
period, and that departure affects the amounts recognized in the financial statements for the
current period, it shall disclose the (a) title of the Standard or Interpretation from which the
entity has departed and the (b) impact of such departure.
b. In the extremely rare circumstances in which management concludes that compliance with a
requirement in a Standard or an Interpretation would be so misleading that it would conflict
with the objective of financial statements set out in the Framework, but the relevant regulatory
framework prohibits departure from the requirement, the entity shall, to the maximum extent
possible, reduce the perceived misleading aspects of compliance by disclosing:(a) the title of
the Standard or Interpretation in question and (b) for each period presented, the adjustments
to each item in the financial statements that management has concluded would be necessary
to achieve a fair presentation.
c. Financial statements shall be prepared on a going concern basis unless management either
intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so.
d. PAS 1 requires an entity preparing financial statements, to make an assessment of the
entity’s ability to continue as a going concern. In assessing whether the going concern
assumption is appropriate, management takes into account all available information about
the future, which is at least, but is not limited to, five years from the balance sheet date.

11. Identify the incorrect statement.

a. The final stage in the process of aggregation and classification is the presentation of
condensed and classified data, which form line items on the face of the financial statements.
b. PAS 1 sometimes uses the term ‘disclosure’ in a broad sense, encompassing items presented
on the face of the balance sheet, statement of profit or loss and other comprehensive income,
statement of changes in equity and cash flow statement, as well as in the notes.
c. Applying the concept of materiality means that a specific disclosure requirement in a
Standard or an Interpretation need not be satisfied if the information is not material.
d. An entity shall prepare its financial statements, including cash flow information, using the
accrual basis of accounting.
e. PAS 1 requires an entity presenting its current year financial statements to also present its
financial statements for the previous year.

12. The ledger of SCHOLIAST COMMENTATOR Co. as of December 31, 20x1 includes the
following:
Assets  
Cash 10,000
Trade accounts receivable (net of ₱10,000 credit balance in
accounts) 40,000
Held for trading securities 80,000
Financial assets designated at FVPL 30,000
Investment in equity securities at FVOCI 70,000
 Investment in bonds measured at amortized cost (due in 3 years) 60,000
Prepaid assets 10,000
Deferred tax asset (expected to reverse in 20x2) 12,000
Investment in Associate 36,000
Investment property 46,000
Sinking fund 38,000
Property, plant, and equipment 100,000
Goodwill 28,000
Totals 560,000

How much is the total current assets?

a. 220,000
b. 180,000
c. 340,000
d. 164,000
e.
13. The ledger of PERNICIOUS DEADLY Co. as of December 31, 20x1 includes the following:
Liabilities  
Bank overdraft 10,000
Trade accounts payable (net of ₱10,000 debit balance in
accounts) 40,000
Notes payable (due in 20 semi-annual payments of ₱4,000) 80,000
Interest payable 30,000
Bonds payable (due on March 31, 20x2) 70,000
Discount on bonds payable (30,000)
Dividends payable 10,000
Share dividends payable 12,000
Deferred tax liability (expected to reverse in 20x2) 36,000
Income tax payable 44,000
Contingent liability 100,000
Reserve for contingencies 28,000
Totals 430,000

How much is the total current liabilities?

a. 192,000
b. 186,000
c. 212,000
d. 178,000
14.
Share capital 200,000
Share premium 40,000
Retained earnings, appropriated 36,000
Retained earnings, unappropriated 84,000
Revaluation surplus 60,000
Remeasurements of the net defined benefit liability (asset) - gain 30,000
Cumulative net unrealized gain on fair value changes of investment
in FVOCI 46,000
 Effective portion of losses on hedging instruments in a cash
flow hedge 20,000
Cumulative translation loss on foreign operation 10,000
Treasury shares, at cost 26,000

How much is the total shareholders’ equity?

a. 460,000
b. 440,000
c. 420,000
d. 390,000
Use the following information for the next two questions:
15. GUILE DECEITFULNESS Co. was incorporated on January 1, 20x1. The following were the
transactions during the year:
- Total consideration from share issuances amounted to ₱2,000,000.
- A land and building were acquired through a lump sum payment of ₱400,000. A mortgage
amounting to ₱100,000 was assumed on the land and building.
- Total payments of ₱80,000 were made during the year on the mortgage assumed on the land and
building, The payments are inclusive of interest amounting to ₱10,000.
- Additional capital of ₱200,000 was obtained through bank loans. None of the bank loans were
paid during the year. Half of the bank loans required a secondary mortgage on the land and
building.
- There is no accrued interest as of year-end.
- Dividends declared during the year but remained unpaid amounted to ₱60,000.
- No other transactions during the year affected liabilities.
- Retained earnings as of December 31, 20x1 is ₱120,000.

16. How much is the profit for the year?

a. 120,000
b. 160,000
c. 180,000
d. 220,000

17. How much is the total assets as of December 31, 20x1?

a. 2,410,000
b. 2,520,000
c. 2,380,000
d. 2,420,000

18. The ledger of DEROGATORY DEGRADING Co. in 20x1 includes the following:
Cash 200,000
Accounts receivable 400,000
1,000,00
Inventory 0
Accounts payable 300,000
Note payable 100,000
During the audit of DEROGATORY’s 20x1 financial statements, the following were noted by the
auditor:
- Cash sales in 20x2 amounting to ₱20,000 were inadvertently included as sales in 20x1.
DEROGATORY recognized gross profit of ₱6,000 on the sales.
- A collection of a ₱40,000 accounts receivable in 20x2 was recorded as collection in 20x1. A cash
discount of ₱2,000 was given to the customer.
- During January 20x2, a short-term bank loan of ₱50,000 obtained in 20x1 was paid together with
₱5,000 interest accruing in January 20x2. The payment transaction in 20x2 was inadvertently
included as 20x1 transaction.

How much is the adjusted working capital as of December 31, 20x1?

a. 1,651,000
b. 1,014,000
c. 1,450,000
d. 1,201,000

19. According to PAS 1 Presentation of Financial Statements, expenses are presented using
a. Nature of expense method
b. Function of expense method
c. a or b
d. Classified and Unclassified

Use the following information for the next two questions:

Anne Jeng Inc.’s accounts show the following balances:

Cost of goods sold ₱320,000

Insurance expense 75,000
Advertising expense 25,000
Freight-out 30,000
Loss on sale of equipment 7,000
Rent expense (one-half pertains sales department) 80,000
Salaries expense (1/4 pertains to non-sales personnel) 150,000
Sales commission expense 10,000
Bad debts expense 5,000
Interest expense 5,000

20. How much is the total distribution costs (selling expenses)?

a. 198,000
b. 210,500
c. 217,500
d. 221,500

21. How much is the total administrative expenses?

a. 157,500
b. 156,500
 c. 147,500
d. 175,500

22. Entity A has the following information:

Inventory, beg. 80,000

Inventory, end. 128,000
Purchases 320,000
Freight-in 16,000
Purchase returns 8,000
Purchase discounts 11,200

How much is Entity A’s cost of sales?

a. 286,800
b. 292,800
c. 288,600
d. 268,800

23. A correct dating of financial statements is

Statement of financial position Statement of comprehensive income
a. as of a point in time for a period of time
b. for a period of time as of a point in time
c. for a period of time for a period of time
d. time after time time and time again

24. Which of the following is considered revenue?

a. gain on sale of equipment
b. service fees
c. other income
d. other comprehensive income

25. Which of the following items is likely to be presented in the statement of comprehensive income
of a merchandising business but not of a service business?
a. Service fees c. Cost of sales
b. Salaries expense d. Income tax expense

26. A statement of comprehensive income that presents cost of sales separately from other expenses
is prepared under the
a. single-step method. c. multi-step method.
b. single-presentation. d. two-statement presentation.

27. In a two-statement presentation, information on profit or loss and other comprehensive income
is shown
 a. in two separate statements, a statement of profit or loss and a statement showing other
comprehensive income.
b. in two separate statements, a statement of profit or loss and an income statement.
c. in two separate statements, a single-step statement and a multi-step statement.
d. in a single statement called “statement of comprehensive income.”

28. Expenses are presented in the statement of comprehensive income using

a. nature of expense method.
b. function of expense method.
c. single or two-statement method.
d. a or b

29. Under this presentation method, expenses are presented in the statement of comprehensive
income without distinctions as to their functions within the entity.
a. nature of expense method
b. function of expense method
c. single-statement presentation
d. two-statement presentation

30. Under this presentation, expenses are classified as either operating or non-operating item. At a
minimum, cost of sales is presented separately.
a. nature of expense method
b. function of expense method
c. single-statement presentation
d. two-statement presentation

31. In a statement of comprehensive income showing expenses according to their function, which of
the following is included in the line item “Distribution costs” or “Selling costs?”
a. Insurance expense c. Freight-in
b. Legal and accounting fees d. Advertising expense

32. In a statement of comprehensive income showing expenses according to their function, which of
the following is included in the line item “Administrative expenses?”
a. Salaries of sales personnel
b. Cost of sales
c. Freight-out
d. Legal and accounting fees

Use the following information for the next five questions:

The nominal accounts of Rommel SP Corp. on December 31, 20x1 have the following balances:

Accounts Dr. Cr.

Sales ₱739,000
Interest income 45,000
Gains 15,000
Inventory, beg. ₱65,000
Purchases 180,000
 Freight-in 10,000
Purchase returns 5,000
Purchase discounts 9,000
Freight-out 30,000
Sales commission 45,000
Advertising expense 25,000
Salaries expense 240,000
Rent expense 30,000
Depreciation expense 50,000
Utilities expense 25,000
Supplies expense 15,000
Transportation and travel expense 15,000
Insurance expense 10,000
Taxes and licenses 60,000
Interest expense 5,000
Miscellaneous expense 3,000
Loss on the sale of equipment 5,000

Additional information:
a. Ending inventory is ₱90,000.
b. One-fourth of the salaries, rent, and depreciation expenses pertain to the non-sales department.
The sales department does not share in the other expenses.

33. How much is the net purchases?

a. ₱185,000 c. ₱194,000
b. ₱176,000 d. ₱192,000
34. How much is the “change in inventory” in 20x1?
a. ₱90,000 increase c. ₱25,000 decrease
b. ₱65,000 decrease d. ₱25,000 increase

35. How much is the cost of goods sold?

a. ₱151,000 c. ₱169,000
b. ₱95,000 d. ₱127,000

36. How much is the total selling expense?

a. ₱420,000 c. ₱180,000
b. ₱260,000 d. ₱340,000

37. How much is the total general and administrative expense?

a. 280,000 c. 330,000
b. 320,000 d. 208,000
38. One of the conditions that must be satisfied in order to recognize revenue in a transaction
involving the rendering of services over a contractual period is that the stage of completion of
the transaction at the end of the reporting period can be measured reliably. Which of the
following methods for determining the stage of completion of a contract involving the rendering
of services are specifically referred to in PFRS 15 as being acceptable?
I. Costs incurred to date as a percentage of the estimated total costs of the transaction
 II. Advances received to date as a percentage of the total amount receivable
III. Surveys of work performed
IV. Revenue to date divided by total contract revenue
a. I, III, IV b. I, III c. I, II, IV d. I, II, III

39. The Grand Company placed an order with The Little Company for new specialist machinery.
The order was non-cancellable once signed and Grand agreed to pay for the machinery at the
time the order was signed on 1 February 20X7. Little held the machinery to Grand's order from 1
June 20X7, the date on which it was completed. Grand commenced using the machinery on 1
August 20X7 when Little completed the installation process. The installation is not distinct. Little
had staff on standby to deal with any operating problems until the warranty period ended on 1
November 20X7. The warranty does not provide service in addition to assurance that the
machinery complies with agreed-upon specifications. Under PFRS15 Revenue, Little should
recognize the revenue from the sale of this specialist machinery on
a. 1 February 20X7 c. 1 August 20X7
b. 1 June 20X7 d. 1 November 20X7

40. Which is incorrect concerning recognition of revenue?

a. Revenue from rendering of services over an extended contractual period shall be recognized
by reference to the stage of completion of the transaction at balance sheet date.
b. Interest revenue shall be recognized on a time proportion basis that does not take into
account the effective yield on the asset.
c. Royalty revenue shall be recognized on an accrual basis in accordance with the substance of
the relevant agreement,
d. Dividend revenue shall be recognized when the stockholder’s right to receive payment is
established.

41. In a normal sale, generally the most uncertain factor in the revenue recognition process is
a. the seller's fulfillment of its responsibility in the transaction
b. the measurability of the resource or item received by the seller
c. the realizability of the resource or item received by the seller
d. the relevance of the resource or item received by the seller

42. Which of the following methods of service revenue recognition usually would be most
appropriate for a business engaged in packing, loading, transporting and delivering freight
(where each of the processes is an input to a combined output specified by the customer)?
a. Proportional performance method (i.e., over time as the entity progresses towards the
complete satisfaction of the performance obligation)
b. Completed performance method (i.e., at a point in time when the entity completes the output
specified in the contract)
c. Specific performance method (i.e., when the customer pays for the completion of a single
specific activity)
d. Collection method (i.e., when cash is collected)

43. An entity is a large manufacturer of machines. A major customer has placed an order for a
special machine for which it has given a deposit to the entity. The parties have agreed on a price
for the machine. As per the terms of the sale agreement, it is FOB (tree on board) contract and
 the title passes to the buyer when goods are loaded into the ship at the port. When should the
revenue be recognized by the entity?
a. When the customer orders the machine.
b. When the deposit is received.
c. When the machine is loaded on the port.
d. When the machine has been received by the customer.

44. A company manufacturing and selling consumable products has come out with an offer to
refund the cost of purchase within one month of sale if the customer is not satisfied with the
product. When should the company recognize the revenue?
a. When goods are sold to the customers.
b. After one month of sale.
c. Only if goods are not returned by the customers after the period of one month.
d. At the time of sale along with an offset to revenue for the refund liability for the products
expected to be returned.

45. A computer chip manufacturing company sells its products to its distributors for onward sales
to the ultimate customers. Due to frequent fluctuations in the market prices for these goods, the
company has a “price protection” clause in the distributor agreement that entitles it to raise
additional billings in case of upward price movement, Another clause in the distributor’s
agreement is that the company can at any lime reduce its inventory by buying back goods at the
cost at which it sold the goods to the distributors. Distributors pay for the goods within 60 days
from the sale of goods to them. When should the company recognize revenue on sale of goods to
the distributors?
a. When the goods are sold to the distributors.
b. When the distributors pay to the company the cost of the goods.
c. When goods are sold to the distributors provided estimated additional revenue is also
booked under the “protection clause” based on past experience,
d. When the distributors sell goods to the ultimate customers and there is no uncertainty with
respect to the “price protection” clause or the buyback of goods.

46. An entity manufactures and sells standard machinery. One of the conditions in the sale contract
is that installation of machinery will be undertaken by the entity. During December of the
current year, the entity received a special onetime contract from a customer to manufacture,
install and maintain customized machinery. It is the first time the entity will be producing this
kind of machinery, and it is expecting numerous changes that would need to be made to the
machine after the installation is completed, which one period is described in the contract of sale
as the “maintenance period.” The maintenance services are an input to a combined output
specified in the contract. The total cost of making the changes during the maintenance period
cannot be reasonably estimated at the time of the installation. Costs incurred are not recoverable
if, during the maintenance period, the machinery is discovered as non-compliant with agreed-
upon specifications and the non-compliance is beyond remediation. The customer shall signify
its acceptance of the machinery at the end of the maintenance period. When should revenue
from the sale of the special machine most likely be recognized?
a. When the machinery is produced.
b. When the machinery is produced and delivered.
c. When the installation is complete
 d. When the maintenance period as per the contract of sale expires.

47. Revenue is recognized at the time of sale under the:

a. cost recovery method (i.e., the outcome of a performance obligation cannot be reasonably
measured but the entity expects to recover the costs incurred in satisfying the performance
obligation)
b. collection method (i.e., when cash is collected)
c. percentage-of-completion method (i.e., the performance obligation is satisfied over time)
d. sales method when goods are sold on credit (i.e., the performance obligation is satisfied
when the goods are transferred to the customer).

The next three items are based on the following information:

Lake Corporation’s accounting records showed the following investments at January 1, 20x3:
Ordinary shares:
Kar Corp. (1,000 shares) 10,000
Aub Corp. (5,000 shares) 100,000

Real estate:
Parking lot (leased to Day Co.) 300,000

Other:
Trademark (at cost, less accumulated
amortization) 25,000
435,00
Total investments
0

Lake owns 1% of Kar and 30% of Aub. The Day lease, which commenced on January 1, 20x1, is for
ten years, at an annual rental of ₱48,000. In addition, on January 1, 20x1, Day paid a nonrefundable
deposit of ₱50,000, as well as a security deposit of ₱8,000 to be refunded upon expiration of the lease.
The trademark was licensed to Barr Co. for royalties of 10% of sales of the trademarked items.
Royalties are payable semiannually on March 1 (for sales in July through December of the prior
year), and on September 1 (for sales in January through June of the same year).

During the year ended December 31, 20x3, Lake received cash dividends of ₱1,000 from Kar, and
₱15,000 from Aub, whose 20x3 net incomes were ₱75,000 and ₱150,000, respectively. Lake also
received ₱48,000 rent from Day in 20x3 and the following royalties from Barr:

March 1 September 1
20x2 3,000 5,000
20x3 4,000 7,000

Barr estimated that sales of the trademarked items would total ₱20,000 for the last half of 20x3.

48. In Lake’s 20x3 income statement, how much should be reported for dividend revenue?
a. 16,000
b. 2,400
c. 1,000
 d. 150

49. In Lake’s 20x3 income statement, how much should be reported for royalty revenue?
a. 14,000
b. 13,000
c. 11,000
d. 9,000

50. In Lake’s 20x3 income statement, how much should be reported for rental revenue?
a. 43,000
b. 48,000
c. 53,000
d. 53,800
ANSWER