Clemor Kristine Accounting Policy Pas8

Kristine T.
Clemor
BACC4A Prof. Leandro Mark Bauzon
Accounting Policies, Changes in Accounting Estimates and Errors
Theory
1. It is an adjustment of the carrying amount of an asset or a liability or the amount of

the periodic consumption of an asset that results from the assessment of the present
status and expected future benefit and obligation associated with the asset of the
liability.
a. Change in accounting estimate

b. Change in accounting policy
c. Correction of prior period error
d. Change in reporting entity
(Theory of Accounts-2010-Valix)
2. The effect of a change in accounting estimate shall be recognized prospectively by

including it in profit or loss of
a. Current period only

b. Future periods only
c. Prior periods only
d. Current period and future periods if the change affects both
3. The effect of a change in the expected pattern of consumption of economic benefits

of a depreciable asset shall be
a. Included in the determination of income or loss in the period of change only.

b. Included in the determination of income or loss in the period of change and
future periods.
c. Included in the statement of retained earnings as an adjustment of the beginning
balance.
d. Included as component of other comprehensive income.
4. Prospective recognition of the effect of a change in an accounting estimate means

that the change is applied to transactions from the
a. Date of the change in estimate

b. End of the current reporting period
c. Beginning of the year of change
d. Date of issuance of financial statements
5. A change in the measurement basis is
a. A change in accounting estimate

b. A change in accounting policy
c. A correction of an error
d. Not an accounting change
6. Prior period errors include all of the following, except
a. Effects of mathematical mistakes

b. Mistakes in applying accounting policies
c. Oversights or misinterpretation of facts and fraud
d. Effects of a change in the estimated useful life of an asset
7. An entity shall correct material prior period errors retrospectively in the first set of
financial statements after their discovery by
I. Restating the comparative amounts for the prior period presented in which the error
occurred
II. Restating the opening balances of asset, liability and equity for the earliest prior
period presented if the error occurred before the earliest prior period presented
a. I only
b. II only
c. Either I or II
d. Neither I nor II
8. These are the specific principles, base, conventions, and rules and practices applied
in the preparation and presentation of financial statements.
a. Accounting policies
b. Accounting principles
c. Accounting standards
d. Accounting concepts
9. A change in the accounting policy includes
I. Adoption of an accounting policy for events or transactions that differ in substance

from previously occurring events or transactions.
II. The adoption of a new accounting policy for events or transactions which did not
occur previously or that were immaterial.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
10. A change in the accounting policy includes all of the following, except
a. The initial adoption of a policy to carry assets at revalued amount.

b. The change from cost model to revaluation model in measuring property, plant
and equipment.
c. The change in inventory valuation from FIFO to weighted average method.
d. The change in depreciation method from sum of years’ digits to straight
line.
11. A change in accounting policy shall be made when
I. Required by an accounting standard or an interpretation of the standard.
II. The change will result in more relevant or reliable information about the financial
position, financial performance and cash flows of the entity.
a. I only
b. II only
c. Either I or II
d. Neither I nor II
12. The initial application of a policy to revalue assets is
a. A change in accounting policy

b. A change in accounting estimate
c. Correction of a prior period error
d. Not an accounting change
13. This means “applying a new accounting policy to transactions, other events and
conditions as if that policy had always been applied”.
a. Retrospective application
b. Retrospective restatement
c. Prospective application
d. Prospective restatement
14. This means “correcting the recognition, measurement and disclosure of amounts of
elements of financial statements as if a prior period error had never occurred”.
a. Retrospective application
b. Retrospective restatement
c. Prospective application
d. Prospective restatement
15. Philippine Accounting Standard 8 requires
a. A restatement of prior year’s income for a change in accounting policy.

b. The reporting of the cumulative effect of a change in accounting policy as part of
profit or loss in the year of the change.
c. The reporting of the cumulative effect of a change in accounting policy as a
direct adjustment to beginning retained earnings in the year of the change.
d. The amortization of the cumulative g of a change in accounting policy over the
future periods expected to be affected by the change.
16. Which of the following is a characteristic of a change in accounting policy?
a. Requires the reporting of pro forma amounts for prior periods

b. Does not affect the financial statements of prior periods
c. Never needs to be disclosed
d. Shall be reported by retrospectively adjusting the financial statements for
all years reported, and reporting the cumulative effect of the change in
income for all preceding years as an adjustment to the beginning balance
of retained earnings for the earliest year reported
17. Which of the following is the proper time period in which to record a change in
accounting estimate?
a. Current period and future periods

b. Current period and retroactively
c. Retroactively only
d. Current period only
Theory of Accounts-2010-Valix)
18. A change from the straight line method of depreciation to an accelerated method
shall be accounted for as
a. Change in accounting policy

b. Change in an accounting estimate
c. Prior period error
d. Accounting error
19. A change in the estimated useful life of the building
a. Is not allowed by generally accepted accounting principles.

b. Affects the depreciation on the building beginning with the year of the
change.
c. Must be handled as retroactive adjustment to all accounts affected, back to the
year of the acquisition of the building.
d. Creates a new account to be recognized in the income statement reflecting the
difference in net income up to the beginning of the year of change.
20. A change in the unit depletion rate should be accounted for as
a. Correction of an accounting error.

b. Change in accounting policy.
c. Change in accounting estimate.
d. Change in accounting estimate affected through a change in accounting policy.
21. A public entity that changes an accounting policy voluntarily should

a. Inform shareholders prior to taking the decision.
b. Account for the change retrospectively.
c. Treat the effect of the change as a component of other comprehensive income.
d. Treat the change prospectively and adjust the effect of the change in the current
period and future periods.
22. Which of the following statements best describes “prospective application”?
a. Recognizing a change in accounting policy in the current and future periods

affected by the change.
b. Correcting the financial statements as if a prior period error had never occurred.
c. Applying a new accounting policy to transactions occurring after the date
at which the policy changed.
d. Applying anew accounting policy to transaction as if that policy had always been
applied.
23. An entity changes its accounting policy if
I. It is required to do so by law.
II. The change will result in providing reliable and more relevant information.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
24. How should the following changes be treated?
I. A change is to be made in the method of calculating the provision for uncollectible

receivables.
II. Investment properties are niw measured at fair value, having previously been
measured at cost.
Change I Change II
a. Change in accounting policy Change in accounting policy
b. Change in accounting policy Change in accounting estimate
c. Change in accounting estimate Change in accounting policy
d. Change in accounting estimate Change in accounting estimate
25. The draft financial statements for an entity for the year ended December 31, 2010
have been prepared. A final review of the draft reveals that closing inventory at
December 31, 2009 included items which had been sold in December 2009.
What is the effect of the adjustment to be made to the profit for the year ended
December 31, 2010 and to the profit for the year ended December 31, 2009
presented as the comparative figure in the 2010 financial statements?
Draft profit for 2010 Profit for 2009
a. Increase Decrease
b. Increase Increase
c. Decrease Increase
d. Decrease Decrease
26. An accounting policy:
a. comprises the principles applied in preparing the financial statements

b. is a judgment applied in deciding whether to recognize a transaction
c. is the application of judgment in deciding on the measurement of an item
d. is the judgment used in deciding on whether to disclose a particular item
(Theory of Accounts-RESA Reviewer)
27. The summary of significant accounting policies shall disclose
a. The composition of property, plant and equipment and the depreciation method
used
b. The composition of property, pant and equipment only
c. The depreciation method used only
d. Neither the composition of property, plant and equipment nor the depreciation
method used
28. Ana Inc. changes its method of valuation of inventories from weighted-average
method to first-in, first-out (FIFO) method. Ana Inc. should account for this change
as
a. A change in estimate and account for it prospectively

b. A change in accounting policy and account for it prospectively
c. A change in accounting policy and account for it retrospectively
d. Account for it as a correction of an error and account for it retrospectively
29. When it is difficult to distinguish between a change in estimate and in accounting

policy, then an entity should
a. Treat the entire change as a change in estimate with appropriate disclosure

b. Treat the entire change as a change in accounting policy
c. Reasonably apportion the relative amounts of change in estimate and the change
in accounting policy
d. It is best to ignore in the year of the change; the entity should then wait for the
following year to see how the change develops and treat it accordingly
30. A statement of financial position as at the beginning of the earliest comparative

period should be prepared by an entity in any of the following circumstances,
except
a. When an entity applies an accounting policy retrospectively

b. When an entity makes retrospectively restatement of items in the financial
statements
c. When an entity reclassifies items in the financial statements
d. When an entity changes any of its estimates used in accounting
31. A company has included in its consolidated financial statements this year a
subsidiary acquired several years ago that was appropriately excluded from
consolidation last year. This results in
a. An accounting change that should be reported prospectively

b. An accounting change that should be reported by restating the financial
statements of all prior periods presented
c. A correction of an error
d. Neither an accounting change nor a correction of an error
32. A change in accounting estimate is considered as a
a. Irregular book adjustment

b. Normal recurring adjustment
c. Change in accounting policy
d. Correction of prior period error
33. Prospective application of the effect of change in estimate means that the change is
applied to transactions from the
a. Date of change
b. Balance sheet date
c. Beginning of the year of change
d. Date of issuance of financial statement
34. The effects of change in accounting estimate should be
a. Shown as adjustment to retained earnings

b. Treated as an extraordinary item, net of related tax
c. Accounted for in profit or loss in the prior or loss in the prior periods only
d. Accounted for in profit or loss in the period of change and future periods
35. Which is considered as a change in accounting policy rather than a change in

accounting estimate?
a. Revision of an intangible asset’s useful life

b. Change in the residual value of a building used as plant site
c. Change in inventory valuation from FIFO to weighted-average method
d. Change in depreciation method from straight line to double declining balance
method
36. If it is difficult to distinguish between a change in accounting estimate and a change

in accounting policy, then the change is treated as a
a. Change in accounting policy

b. Change in accounting estimate
c. Prior period error
d. Current period error
37. Prior period errors include all of the following, except
a. Effects of mathematical mistakes

b. Mistakes in applying accounting policies
c. Oversights or misinterpretation of facts and fraud
d. Effects of a change in the estimated useful life of an asset
38. Prior period errors discovered in the current period are reported as
a. Extraordinary items
b. Component of current income from ordinary activities
c. Component of current income from continuing operations
d. Adjustments to the opening balance of retained earnings
39. A change in reporting entity and measurement basis is generally treated as a

change in accounting
a. Policy
b. Estimate
c. Assumption
d. Concept
40. Which of the following accounting treatment is a proper for a change in reporting
entity?
a. Restatement of all financial statements presented

b. Restatement of current period financial statements
c. Note disclosure and supplementary schedules
d. Adjustment to retained earnings and note disclosure
Problem
1. During 2011, Orca Company decided to change the FIFO method of inventory
valuation to the weighted average method. Inventory balances under each method
were as follows:
FIFO Weighted Average
January 1 7,100,000 7,700,000
December 31 7,900,000 8,300,000
Ignoring income tax, in its 2011 statement of retained earnings, what amount should
Orca report as the cumulative effect of this accounting change?
a. 1,000,000 addition
b. 1,000,000 deduction
c. 600,000 addition
d. 600,000 deduction
(Practical One-2011-Valix)
FIFO Inventory- January 1 7,100,000

Weighted average inventory- January 1 7,700,000
Cumulative effect 600,000
The change from FIFO to weighted average is a change in accounting policy.
The cumulative effect of the change accounting policy is an adjustment of retained

earnings as follows:
Inventory 600,000
Retained earnings 600,000
2. Goddard Company had used the FIFO method of inventory valuation since it began
operations in 2008. Goddard decided to change to the weighted average method for
determining inventory costs at the beginning of 2011. The following schedule shows
year-end inventory balances under the FIFO and weighted average method:
Year FIFO Weighted average
2008 4,500,000 5,400,000

2009 7,800,000 7,100,000
2010 8,300,000 7,800,000
What amount, before income tax, should be reported in the 2011 statement of
retained earnings as the cumulative effect of the change in accounting policy?
a. 500,000 decrease
b. 300,000 decrease
c. 500,000 increase
d. 300,000 increase
Inventory, December 31, 2010:

FIFO 8,300,000
Weighted average 7,800,000
Decrease in inventory 500,000
The adjustment on January 1, 2011 to reflect the change in inventory method is:
Inventory 500,000
3. On January 1, 2011, Folk Company changed from the average cost method to the
FIFO method to account for its inventory. Ending inventory for each method was as
follows:
2010 2011
Average cost 500,000 900,000
FIFO cost 700,000 1,400,000
The income statement information calculated by the average cost method was as
follows:
2010 2011
Sales 10,000,000 13,000,000
Cost of goods sold 7,000,000 9,000,000
Operating expenses 1,500,000 2,000,000
Tax expense 450,000 600,000
Folk Company accrues tax expense on December 31 of each year and pay the tax in
April of the following year. The income tax rate is 30%. What is the net income to be
reported in 2011 after the change to the FIFO inventory method?
a. 1,610,000
b. 2,300,000
c. 1,750,000
d. 1,890,000
Income before tax for 2011-Average 2,000,000

Understatement of beginning inventory ( 200,000)
Understatement of ending inventory 500,000
Income before tax for 2011-FIFO 2,300,000
Income tax- 30% ( 690,000)
Net income for 2011-FIFO 1,610,000
4. On January 1, 2011, Roem Company changed its inventory method to FIFO form
LIFO for both financial and income tax reporting purposes. The change resulted in a
P500,000 increase in the January 1, 2011 inventory. The income tax rate is 30%.
The cumulative effect of the accounting change should be reported by Roem in its
2011
a. Retained earnings statement as a P350,000 addition to the beginning

balance.
b. Income statement as P350,000 cumulative effect of accounting change.
c. Retained earnings statement as P500,000 addition to the beginning balance.
d. Income statement as P500,000 cumulative effect of accounting change.
Cumulative effect 500,000

Tax (30% x 500,000) (150,000)
Net cumulative effect-addition to retained earnings 350,000
5. Banko Construction Company has used the cost recovery method of accounting
since it began operations in 2008. In 2011, for justifiable reasons, management
decided to adopt the percentage of completion method. The following schedule,
reporting income for the past 3 years, has been prepared by the entity.
2008 2009 2010
Total revenue from
completed contracts 25,000,000 42,000,000 40,000,000
Less: Cost of completed
Contracts 18,000,000 29,000,000 28,000,000
Income from operations 7,000,000 13,000,000 12,000,000
Casualty loss 0 0 0
Income 7,000,000 13,000,000 12,000,000
Analysis of the accounting records disclosed the following income by contracts,

earned in the years 2008-2010 using the percentage of completion method.
2008 2009 2010
Contract 1 7,000,000
Contract 2 5,000,000 8,000,000
Contract 3 3,000,000 7,000,000 2,000,000
Contract 4 1,000,000 6,000,000
Contract 5 (1,000,000)
Ignoring income tax, what is the cumulative effect of change in accounting policy that
should be reported in 2011 statement of retained earnings?
a. 6,000,000
b. 8,000,000
c. 7,000,000
d. 0
Percentage of completion Cost recovery method
2008 15,000,000 7,000,000
2009 16,000,000 13,000,000
2010 7,000,000 12,000,000
Total 38,000,00 32,000,000
Cumulative effect
(38,000,000-32,000,000) 6,000,000
6. Rodrigo Company had purchased an equipment on January 1, 2008 for P2,400,000.

The entity used the straight line depreciation based on a ten-year estimated useful
life with no residual value. During 2011, the entity decided that the equipment would
be used only three more years and then replaced with a technologically superior
model.
What entry should be made on January 1, 2011 to reflect this accounting change?
a. No entry
b. Debit other comprehensive income and credit accumulated depreciation for
P480,000.
c. Debit retained earnings and credit accumulated depreciation for P480,000.
d. Debit depreciation and credit accumulated depreciation for P560,000.
No entry is necessary on January 1, 2011 because a change in the useful life of an

asset is a change in accounting estimate. The change in accounting estimate should
be treated currently and prospectively.
7. Blue Company purchased a machine on January 1, 2008 for P6,000,000. At the date
of acquisition, the machine had a life of six years with no residual value. The machine
is being depreciated on a straight line basis. On January 1, 2011, Blue determined
that the machine had a useful life of eight years from the date of acquisition with no
residual value.
What is the date depreciation of the machine for 2011?
a. 750,000
b. 600,000
c. 375,000
d. 500,000
Cost 6,000,000
Accumulated depreciation (6,000,000/6x3) 3,000,000

Carrying amount-January 1, 2011 3,000,000
Depreciation (3,000,000/5 years) 600,000

Revised life 8 years
Years expired 3
Remaining useful life 5 years
8. On January 1, 2008, Flax Company purchased a machine for P5,280,000 and

depreciated it by the straight line method using an estimated life of eight years with
no residual value. On January 1, 2011, Flax determined that the machine had a
useful life of six years from the date of acquisition and will have a residual value of
P480,000. An accounting change was made in 2011 to reflect these additional data.
What is the accumulated depreciation for the machine on December 31, 2011?
a. 2,920,000
b. 3,080,000
c. 3,200,000
d. 3,520,000
Acquisition cost-January 1, 2008 5,280,000

Accumulated depreciation for 2008,
2009 and 2010 (5,280,000/8x3) 1,980,000
Carrying amount 3,300,000
Accumulated depreciation-January 1, 2011 1,980,000

Depreciation for 2011 (3,300,000-480,000/3) 940,000
Accumulated depreciation-December 31, 2011 2,920,000
Revised life 6 years

Years expired 3
Remaining revised life 3 years
9. During 2011, Kerr Company determined that machinery previously depreciated over
a seven-year life had a total estimated useful life of only five years. An accounting
change was made in 2011 to reflect the change in estimate. If the change had been
made in 2010, accumulated depreciation would have been P800,000 on December
31, 2010, instead of P600,000. As a result of this change, the 2011 depreciation
expense was P50,000 greater. The income tax rate was 30%.
What amount should be reported in Kerr’s income statement for the year ended
December 31, 2011 as the cumulative effect on prior years of changing the estimated
useful life of the machinery?
a. 0
b. 130,000
c. 150,000
d. 200,000
The change in estimated useful life is a change in accounting estimate. Accordingly,

there is no cumulative effect.
10. On January 1, 201, the management of Milan Company determined that a revision
in the estimate associated with the depreciation of storage facilities was appropriate.
The facilities, purchased on January 1, 2009, for P6,000,000, had been depreciated
using the straight line method with an estimated residual value of P600,000 and an
estimated useful life of 20 years. Management has determined that the expected
remaining useful life of the storage facilities is 10 years and the estimated residual
value is P800,000.
What is the depreciation for 2011?
a. 270,000
b. 546,000
c. 466,000
d. 582,500
Cost- January 1, 2009 6,000,000

Accumulated depreciation-January 1, 2011
(6,000,000-600,000/20x2) 540,000
Carrying amount-January 1. 2011 5,460,000
Depreciation for 2011(5,460,000-800,000/10) 466,000
11.On January 1, 2007, Roma Company purchased heavy duty equipment for
P4,000,000. On the date of installation, it was estimated that the equipment has a
useful life of 10 years and a residual value of P400,000.
On January 1, 2011, the entity decided to review the useful life of the equipment and
its residual value and technical experts were consulted. The experts have
determined that the useful life of the equipment was 12 years from the date of
acquisition and its residual value was P460,000.
What is the depreciation of the equipment for 2011?
a. 175,000
b. 262,500
c. 360,000
d. 300,000
Cost- January 1, 2007 4,000,000

Accumulated depreciation-January 1, 2011
(4,000,000-400,000/10x4) 1,440,000
Carrying amount-January 1. 2011 2,560,000
12. Acute company was incorporated on January 1, 2008. In preparing its financial
statements for the year ended December 31, 2010, Acute Company used the
following original cost and useful lives for its property, plant and equipment:
Original cost Useful life
Building 15,000,000 15 years
Machinery 10,500,000 10 years
Furniture 3,500,000 7 years
On January 1, 2011, the entity determined that the remaining useful life is 10 years
for the building, 7 years for the machinery and 5 years for the furniture.
Acute Company uses the straight line method of depreciation with no residual value.
What is the total depreciation for 2011?
a. 2,650,000
b. 3,700,000
c. 2,550,000
d. 3,500,000
Cost-January 1, 2008 Building Machinery Furniture

Accumulated depreciation: 15,000,000 10,500,000 3,500,000
15,000,000/15x3 3,000,000
10,500,000/10x3 3,150,000
3,500,000/ 7x3 1,500,000
Carrying amount-
January 1, 2011 12,000,000 7,350,000 2,000,000
Depreciation for 2011:

Building (12,000,000/10) 1,200,000
Machinery (7,350,000/7) 1,050,000
Furniture (2,000,000/5) 400,000
2,650,000
13. Canyon Company determined that the amortization rate on its patents is
unacceptably low due to current advances in technology. The entity decided at the
beginning of 2011 to decrease the estimated useful life on all existing patents from
10 years to 8 years. Patents were purchased on January 1, 2006 for P3,000,000.
The estimated residual value is zero.
Canyon Company decided on January 1, 2011 to change its depreciation method

for manufacturing equipment from an accelerated method to straight line method.
On January 1, 2011, the total historical cost of depreciable assets is P8,000,000

and the accumulated depreciation on those assets is P3,400,000. The expected
remaining useful life of depreciable assets on January 1, 2011 is 10 years and the
expected residual value is P200,000. What is the total charge against 2011 income
as a result of the accounting changes?
a. 940,000
b. 960,000
c. 627,500
d. 647,500
Patents- January 1, 2006 3,000,000

Accumulated amortization (3,000,000/10x5) 1,500,000
Amortization of patents for 2011 (1,500,000/3) 500,000

Total charge against 2011 income 940,000
14. On January 1, 2008, Charisma Company bought a machine for P1,500,000. At that
time, this machine had an estimated useful life of 6 years, with no residual value. As
a result of additional information, Charisma determined on January 1, 2011, that the
machine had an estimated useful life of 8 years from the date it was acquired, with
no residual value. Accordingly, the appropriate accounting change was made in
2011.
What amount of depreciation expense for this machine should Charisma record for
the year ended December 31, 2011, assuming the straight line method of
depreciation is used?
a. 125,000
b. 150,000
c. 187,500
d. 250,000
Machine-January 1, 2008 1,500,000

Accumulated depreciation (1,500,000/6x3) 750,000
Carrying amount-January 1, 2011 750,000
Depreciation for 2011 (750,000/5) 150,000
Revised remaining useful life (8 minus 3 years expired) 5 years
15. On January 1, 2009, Brazilia Company purchased for P4,800,000 a machine with a
useful life of 10 years and a residual value of P200,000. The machine was
depreciated by the double declining balance and the carrying amount of the machine
was P3,072,000 on December 31, 2010. Brazilia Company changed to the straight
line method on January 1, 2011. The residual value did not change. What is the
depreciation expense on this machine for the year ended December 31, 2011?
a. 287,200
b. 384,000
c. 460,000
d. 359,000
16. On January 1, 2010, Kevin Company purchased a machine for P2,750,000. The
machine was depreciated using the sum of years’ digits method on a useful life of 10
years with no residual value. On January 1, 2011, Kevin Company changed to the
straight line method of depreciation. Kevin Company can justify the change. What is
the depreciation of the machine for 2011?
a. 180,000
b. 220,000
c. 250,000
d. 275,000
SYD (1+2+3+4+5+6+7+8+9+10) 55
Cost – January 1, 2010 2,750,000

Accumulated depreciation – January 1, 2011
(10/55x2,750,000) ( 500,000)
Straight line depreciation for 2011

(2,250,000/9 years remaining) 250,000
17. Xavier Company purchased a machine on January 1, 2008 for P7,200,000. The
machinery has useful life of 10 years with no residual value and was depreciated
using the straight line method. In 2011, a decision was made to change the
depreciation method from straight line to sum of years’ digits method. The estimates
of useful life and residual value remained unchanged. What is the depreciation for
2011?
a. 1,260,000
b. 1,440,000
c. 916,360
d. 720,000
Cost-January 1, 2008 7,200,000

Accumulated depreciation – January 1, 2011
(7,200,000/10x3) 2,160,000
Carrying amount – January 1, 2011 5,040,000
SYD for the remaining life of 7 years

(1+2+3+4+5+6+7) 28
Depreciation for 2011 (5,040,000x7/28) 1,260,000
18. On January 1, 2005, Paragon Company paid P6,000,000 to acquire a new barge. In
the belief that it was entitled to a refund of purchase taxes on the acquisition of the
barge, the entity claimed and was refunded P600,000 by the local government.
However, in late 2011 the entity repaid the fund when it became apparent that it had
made an error in making the claim to the local government as it had not been
entitled to the refund of purchase taxes on acquisition of the barge. The useful life of
the barge is 15 years from the date of acquisition. The residual value of the barge is
NIL.
In 2011, the period over which the barge is expected to be economically usable
increased from 15 to 26 years. However, the entity expects to dispose of its barge
after using it for 20 years from the date of acquisition. On December 31, 2011, the
entity assessed the residual value of the barge at P800,000. What is the carrying
amount of the barge on December 31, 2011?
a. 3,600,000
b. 3,400,000
c. 3,460,000
d. 3,420,000
Correct cost-January 1, 2005 6,000,000

Accumulate depreciation-January 1, 2011
(6,000,000/15x6 years) (2,400,000)
Depreciation for 2011
(3,600,000-800,000/14 years) 200,000
Carrying amount-December 31, 2011 3,400,000
Remaining useful life (20 minus 6 years expired) 14
19. Effective January 1, 2011, King Company adopted the accounting policy of
expensing advertising and promotion costs as they are incurred. Previously,
advertising and promotion costs applicable to future periods were recorded in
prepaid expenses. King can justify the change, which was made for both financial
statement and income tax reporting purposes. King’s prepaid advertising and
promotion costs totaled P600,000 on December 31, 2011. The income tax rate is
30%.
What is the net charge against income in the income statement for 2011 as aresult
of the change?
a. 600,000
b. 180,000
c. 420,000
d. 0
The entity committed as error of deferring advertising and promotion costs. A prior
period error is not included in profit or loss but treated as an adjustment of the
beginning balance of retained earnings.
20. On January 1, 2010, Aker Company acquired a machine at a cost of P2,000,000.

The machine is depreciated on the straight line method over a 5 year period with no
residual value. Because of a bookkeeping error, no depreciation was recognized in
Aker’s 2010 financial statements. The oversight was discovered during the
preparation of Aker’s 2011 financial statements. What is the depreciation expense
on the machine for 2011?
a. 800,000
b. 400,000
c. 500,000
d. 0
Depreciation for 2011 (2,000,000/5) 400,000
21. The draft financial statements for Savior Company for the year ended December 31,
2012 have been prepared. A final review of the draft reveals an overvaluation of the
ending inventory of P2,000,000 on December 31, 2011. Further investigation shos
that there was an overvaluation of ending inventory on December 31, 2010 of
P1,200,000.
What adjustment should be made to the profit for the year ended December 31,
2011 presented as the comparative figure in the 2012 financial statements?
a. 2,000,000 decrease
b. 1,200,000 decrease
c. 800,000 decrease
d. 0
Overvaluation of December 31, 2011 inventory (2,000,000)

Overvaluation of December 31, 2010 inventory 1,200,000
Net decrease in 2011 profit ( 800,000)
22. Extracts from the statement of financial position of Animus Company showed the
following:
December 31, 2012 December 31, 2011
Development costs 8,160,000 5,840,000
Amortization (1,800,000) (1,200,000)
The capitalized development costs relate to a single project that commenced in

2009. It has now been discovered that one of the criteria for capitalization has never
been met. What adjustment is required to restate retained earnings on January 1,
2012?
a. 6,360,000
b. 1,720,000
c. 4,640,000
d. 0
Development costs-December 31, 2011 5,840,000
Amortization (1,200,000)
Carrying amount 4,640,000
23. During the year ended December 31, 2011, the following events occurred at Harbor
Company:
 It was decided to write off P800,000 from inventory which was over 2 years old
as it was obsolete.
 Sales of P600,000 had been omitted from the financial statements for the year
ended December 31, 2010.
What total amount should be reported as prior period error in the financial
statements for the year ended December 31, 2011?
a. 1,400,000
b. 600,000
c. 800,000
d. 200,000
Only the unrecorded sale of P600,000 on December 31, 2010 is treated as prior
period error in the 2011 financial statements. The write off of the inventory of
P800,000 is included in 2011 profit or loss.
24. After the issuance of its 2011 financial statements, Narra Company discovered a
computational error of P150,000 in the calculation of its December 31, 2011
inventory. The error resulted in a P150,000 overstatement in the cost of goods sold
for the year ended December 31, 2011. In October 2010, Narra paid the amount of
P500,000 in settlement of litigation instituted against it during 2011. Ignore income
tax. In the 2012 financial statements, what is the adjustment of the retained earnings
on January 1, 2012?
a. 150,000 credit
b. 350,000 debit
c. 500,000 debit
d. 650,000 credit
Inventory-January 1, 2012 150,000

Litigation loss 500,000

Cash 500,000
25. During the year ended December 31, 2012, the following events occurred in relation
to Samar Company.
 A counting error relating to the inventory on December 31, 2011 was discovered.
This required a reduction in the carrying amount of inventory at that date of
P280,000.
 The provision for uncollectible accounts receivable on December 31, 2011 was
P300,000. During 2012, P500,000 was written off the December 31, 2011
accounts receivable.
What adjustment is required to restate retained earnings on January 1, 2012?
a. 280,000
b. 300,000
c. 580,000
d. 0
The reduction in the carrying amount of inventory on December 31, 2011 of

P280,000 is a prior period error to be presented in the 2012 statement of retained
earnings.
The provision for uncollectible accounts receivable is a change in accounting

estimate and therefore has no effect on retained earnings.

Clemor Kristine Accounting Policy Pas8

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Clemor Kristine Accounting Policy Pas8

Uploaded by

Copyright:

Available Formats

Kristine T.

Accounting Policies, Changes in Accounting Estimates and Errors

1. It is an adjustment of the carrying amount of an asset or a liability or the amount of

a. Change in accounting estimate

2. The effect of a change in accounting estimate shall be recognized prospectively by

a. Current period only

3. The effect of a change in the expected pattern of consumption of economic benefits

a. Included in the determination of income or loss in the period of change only.

4. Prospective recognition of the effect of a change in an accounting estimate means

a. Date of the change in estimate

5. A change in the measurement basis is

a. A change in accounting estimate

6. Prior period errors include all of the following, except

a. Effects of mathematical mistakes

9. A change in the accounting policy includes

I. Adoption of an accounting policy for events or transactions that differ in substance

a. The initial adoption of a policy to carry assets at revalued amount.

11. A change in accounting policy shall be made when

I. Required by an accounting standard or an interpretation of the standard.

12. The initial application of a policy to revalue assets is

a. A change in accounting policy

15. Philippine Accounting Standard 8 requires

a. A restatement of prior year’s income for a change in accounting policy.

16. Which of the following is a characteristic of a change in accounting policy?

a. Requires the reporting of pro forma amounts for prior periods

a. Current period and future periods

a. Change in accounting policy

19. A change in the estimated useful life of the building

a. Is not allowed by generally accepted accounting principles.

20. A change in the unit depletion rate should be accounted for as

a. Correction of an accounting error.

21. A public entity that changes an accounting policy voluntarily should

22. Which of the following statements best describes “prospective application”?

a. Recognizing a change in accounting policy in the current and future periods

23. An entity changes its accounting policy if

24. How should the following changes be treated?

I. A change is to be made in the method of calculating the provision for uncollectible

Draft profit for 2010 Profit for 2009

26. An accounting policy:

a. comprises the principles applied in preparing the financial statements

(Theory of Accounts-RESA Reviewer)

27. The summary of significant accounting policies shall disclose

(Theory of Accounts-RESA Reviewer)

a. A change in estimate and account for it prospectively

(Theory of Accounts-RESA Reviewer)

29. When it is difficult to distinguish between a change in estimate and in accounting

a. Treat the entire change as a change in estimate with appropriate disclosure

(Theory of Accounts-RESA Reviewer)

30. A statement of financial position as at the beginning of the earliest comparative

a. When an entity applies an accounting policy retrospectively

(Theory of Accounts-RESA Reviewer)

a. An accounting change that should be reported prospectively

(Theory of Accounts-RESA Reviewer)

32. A change in accounting estimate is considered as a

a. Irregular book adjustment

(Theory of Accounts-RESA Reviewer)

34. The effects of change in accounting estimate should be

a. Shown as adjustment to retained earnings

(Theory of Accounts-RESA Reviewer)

35. Which is considered as a change in accounting policy rather than a change in

a. Revision of an intangible asset’s useful life

(Theory of Accounts-RESA Reviewer)

36. If it is difficult to distinguish between a change in accounting estimate and a change