MCQ With Ans

OVERVIEW OF ACCOUNTING
1. The concept of recognition is applied in which of the following instances?

a. An entity includes the effects of an event in the financial statements through a
journal entry.
b. An entity removes the effects of an event from the financial statements
through a journal entry.
c. An entity discloses only an event in the notes because its occurrence is not
probable.
d. An entity records an event through a memorandum entry.
2. Which of the following events is not considered an exchange or reciprocal

transfer?
a. Purchase of inventory on account
b. Lending money to another entity
c. Payment of a loan payable
d. Payment of taxes
3. Which of the following events is considered a nonreciprocal transfer?

a. Sale of an asset
b. Donation
c. Loss from a calamity
d. Production of finished goods
4. To be useful, accounting information should be presented using

a. Monetary amounts.
b. A common denominator.
c. Historical costs.
d. Fair values.
5. Which of the following violates the historical cost concept?

a. Recording purchases of merchandise inventory at the purchase price.
b. Recording a building at the total construction costs.
c. Measuring inventories at net realizable value.
d. Recording an equipment acquired in an instalment purchase at the cash price
equivalent.
6. Entity A values its fixed assets at their historical costs and does not restate them
for changes in the purchasing power of the Philippine peso due to inflation. Entity
A is applying which of the following accounting concepts?
a. Prudence
b. Accrual basis
c. Stable monetary unit
d. Time period
7. Entity A engages in importing and exporting activities. At the end of the period,
Entity A has assets and liabilities denominated in foreign currencies. When
preparing its financial statements, Entity A translates these assets and liabilities
to pesos. Entity A is most likely to be applying which of the following accounting
concepts?
a. Double entry
b. Accrual basis
d. Time period
8. Preparing financial statements at least annually is an application of which of the

following accounting concepts?
a. Historical concepts
b. Accrual basis
d. Time period
9. Entity A acquires merchandise inventory. Entity A initially records the acquisition

cost of the inventory as asset rather than an outright expense. When the
inventory is subsequently sold, Entity A recognizes the cost of the inventory sold
as expense, in the same period the sale revenue is recognized. This is an
application of which of the following accounting concepts?
a. Stable monetary unit
b. Materiality
c. Matching
d. Proprietary
10. On Day 1, a customer buys goods from Entity A and promises to pay the sale
price on Day 30. Entity A recognizes sales revenue on Day 1 rather than on Day
30. This an application of which of the following accounting concepts?
a. Prudence
b. Accrual basis
c. Consistency
d. Materiality
PROBLEM 3: MULTIPLE CHOICE

1. All of the following are events considered as internal events, except
a. Transfer of goods from work-in-process to finished goods inventory
b. Losses from flood, earthquake, fire and other calamities
c. Transformation of biological assets from immature to mature
d. Vandalism committed by the entity’s employee
2. Which of the following is considered an internal user of Entity A’s financial
reports?
a. Entity B, a bank, requires Entity A to submit audited financial statements in
conjunction to a loan being applied for by Entity A.
b. Mr. I is deciding whether to invest in Entity A. Mr. I uses Entity A’s financial
statements in making its investment analysis.
c. Ms. S, a shareholder of Entity A, is deciding whether to hold or sell her
shareholdings in Entity A. Ms. S uses Entity A’s financial statements in making
its “hold or sell” analysis.
d. Mr. X, a member of Entity A’s board of directors, uses financial reports to
make decisions regarding the financial and operational affairs of Entity A.
3. When resolving accounting problems not specifically addressed by current

standards, an entity shall be guided by the hierarchy of financial reporting
standards. The correct sequence of the hierarchy of financial reporting standards
in the Philippines is
I. PASs, PFRSs and Interpretations
II. Conceptual Framework
III. Judgment
IV. Pronouncement of other standard-setting bodies
a. I, III, II and IV
b. I, II, IV and III
c. I, IV, II and III
d. I, II, III and IV
4. The proper application of accounting principles is most dependent upon the

a. Management.
b. Accountant.
c. Auditor.
d. Chief executive officer.
5. Which of the following statements is correct?

a. Accounting provides quantitative information only.
b. Accounting is considered an art because it requires the use of creative skills
and judgment.
c. The only acceptable measurement basis in accounting is historical cost.
d. Qualitative information can be found only in the notes in the financial
statements.

a. All quantitative information are also financial in nature.
b. The accounting process of assigning peso amounts to economic transactions
and events is measuring.
c. The economic activity that involves using current inputs to increase the stock
of resources available for output is called savings.
d. The economic activity of using the final output of the production process is
called income distribution.
7. Which of the following statements is incorrect regarding accounting concepts?
a. Under the Accrual Basis of accounting, revenues are recognized when
earned and expenses are recognized when incurred, not when cash id
received and disbursed.
b. Under the Going concern concept, the business entity is assumed to carry on
its operations for an indefinite period of time.
c. Under the Business entity/ Separate entity/ Entity/ Accounting entity concept,
the business is treated separately from its owners.
d. Under the Time period/ Periodicity/ Accounting Period concept, the life of the
business is divided into series of reporting periods.
e. Under the Cost- benefit concept, the cost of processing and communicating
information should exceed the benefits derived from it.
8. Which of the following statements is incorrect?

a. Financial reporting standards may at times be influenced by legal, political,
business and social environments.
b. General- purpose financial statements must be prepared by a certified public
accountant.
c. General purpose financial statements are prepared primarily for the use of
external users.
d. The PFRSs are issued by the Financial Reporting Standards Council.
9. Mr. John Doe, CPA, is a professor in a university where he teaches mainly home
economics, music and physical education. Those subjects require that the
teacher must be awesome. Mr. Doe is also frequently invited as a judge in beauty
pageants and singing contests and as a referee in mixed martial arts
competitions. Mr. Doe is considered to be practicing accountancy in which of the
following sectors?
a. Academe
b. Public accounting
c. Commerce and Industry
d. None of these
10. Changes to reporting standards are primarily made in response to

a. Government regulations
b. Users’ needs
c. Global modernization
d. All of these
PROBLEM 4: FOR CLASSROOM DISCUSIION
Events
1. Entity A buys bananas and converts them into banana chips. The conversion of
bananas into banana chips is a (an)
a. Non- accountable event
b. External event
c. Non-reciprocal transfer
d. Internal event
Valuation by fact or opinion
2. Which of the following is considered valued by fact rather than by opinion?
a. Depreciation
b. Cost of goods sold
c. Discount on share capital
d. Retained earnings
Measurement bases
3. Which of the following is not one of the several measurement bases used in
accounting?
a. Historical cost
b. Fair value
c. Present value
d. All of these are used
Accounting concepts
4. Entity A is owned by Mr. X and Ms. Y. Which of the following transactions does
not violate the separate entity concept and therefore is appropriately recorded in
the accounting records of Entity A?
a. Mr. X purchases groceries for his home consumption.
b. Mr. X gives Ms. Y chocolate and flowers on Valentine’s date.
c. Ms. Y provides capital to Entity A.
d. Ms. Y provides capital to Entity B, another business entity.
5. Mr. A is assessing the ability of Entity A to generate future cash and cash
equivalents. In making the assessment, Mr. A uses not only the statement of
cash flows but also the other components of a complete set of financial
statements. This is because of which of the following concepts?
a. Going concern
b. Time period
c. Intercalation
d. Articulation
6. Entity A acquires a stapler. Instead of recognizing the cost of the stapler as an
asset to be subsequently depreciated, Entity A immediately charges it as
expense. This is an application of which of the following concepts?
a. Prudence
b. Materiality
c. Cost-benefit
d. B and C
Common branches of accounting
7. What type of users’ needs is catered by general purpose financial statements?
a. Common needs
b. Specific needs
c. A and B
d. Neither A nor B
Four sectors in the practice of accountancy
8. Which of the following is not among the Four Sectors in the practice of
accountancy as enumerated in R.A. 9298 also known as the “Philippine
Accountancy Act of 2004”?
a. Practice in Commerce and Industry
b. Practice in the Government
c. Practice in Education/ Academe
d. Practice of Private Accountancy
Accounting standards
9. The Philippine Financial Reporting Standards (PFRSs) comprise:
I. Philippine Financial Reporting Standards
II. Philippine Accounting Standards
III. Interpretations
IV. Accounting Practice Statements and Implementation Guidance
a. I, II and III
b. I, II,III and IV
c. I and II
d. I and III
10. Which of the following statements is incorrect regarding the PFRSs?

a. The PFRSs are based on IFRSs.
b. The financial reporting standards used in the Philippines are the same as
those used globally.
c. The PFRSs have higher authority than the PASs and Interpretations.
d. The PFRSs are accompanied by guidance. The use of such guidance is
sometimes mandatory and sometimes optional.
CONCEPTUAL FRAMEWORK
1. According to the conceptual framework, these are the qualitative characteristics
that that make information useful to users.
a. Fundamental
b. Enhancing
c. Relevance
d. Comparability
2. Information that is capable of making a difference in the decisions made by users

has this qualitative characteristic.
a. Relevance
b. Faithful representation
c. Timeliness
d. Verifiability
3. When making materiality judgments, the overriding consideration is

a. The ability of the item being judged to influence users’ decisions.
b. The size of the impact of the item being judged
c. The characteristics of the item being judged.
d. C and D
4. This qualitative characteristic is unique in the sense that it necessarily requires at

least two items.
a. Verifiability
c. Timeliness
d. Comparability
5. Which of the following enhances the comparability of information?

a. Making unlike things look alike.
b. Making like things look different.
c. Using different methods to account for similar transactions from period to
period.
d. Using the same technologies used by other entities in the same industry
where the reporting entity belongs.
6. Information has this qualitative characteristics if different, knowledgeable and

independent observers could reach consensus, although not necessarily
complete agreement, that a particular depiction is a faithful representation.
a. Relevance
c. Verifiability
d. Comparability
7. Entity A is assessing whether an item meets the definition of financial statement

element. Entity A is considers the transaction’s substance and economic reality
rather than merely its legal form. Entity A is applying which of the following
accounting concepts?
a. Substance over form
b. Form over substance
c. Accrual
d. Verifiability
8. Which of the following does not provide evidence of future economic benefits
from a resource?
a. The resource can be used in combination with other resources to produce
goods for sale.
b. The resource can be used to pay liabilities.
c. The resource can be distributed to the owners.
d. The resource has no resale value and is very costly to use in the entity’s
operations.
9. Which of the following does not meet the definition of an asset?

a. Equipment which the entity intends, and very certain, to acquire in the future.
b. Inventories purchased and received but not yet paid.
c. Land received from a donation.
d. A publishing title for a college textbook. The publishing title has no physical
substance, meaning you cannot see or touch it.
10. Which of the following could result to the recognition of income?

a. Increase in liability
b. Decrease in asset
c. Decrease in equity
d. Decrease in liability

1. The conceptual framework is least applicable in which of the following cases?
a. To account for a transaction that is specifically dealt with by a PFRS
b. In resolving issues not addressed directly by a Standard
c. In developing new financial reporting standards
d. In reviewing and amending existing PFRSs
2. General purpose financial statements are designed to

a. Meet all the information needs of the primary users.
b. Meet all of the common needs of all primary users.
c. Meet most of the common needs of most primary users.
d. Meet none of the needs of users of financial information.
3. This refers to the process of incorporating in the statement of financial position or

statement of comprehensive income an item that meets the definition of an
element and satisfies the recognition criteria.
a. Recognition
b. Incorporation
c. Definition
d. Celebration
4. This concept is used in the recognition criteria to refer to the degree of

uncertainty that the future economic benefits associated with an item will flow to
or from the entity.
a. Concept of Probability
b. Concept of Possibility
c. Risk Concept
d. Concept of Uncertainty
5. If the chance that an item will cause an inflow or an outflow of the future
economic benefits is lower than the chance that it will not, the inflow or outflow of
future economic benefits is
a. Probable
b. Improbable
c. Impossible
d. Verifiable
6. According to the conceptual framework, this information provides an indication of

how well management has discharged its responsibilities to make efficient and
effective use of the reporting entity’s resources.
a. The changes in the reporting entity’s economic resources and claims to those
resources.
b. The return the entity has produced from its economic resources.
c. The level of the entity’s economic resources in relation to the claims thereof.
d. The entity’s liquidity and solvency.
7. Which of the following is considered a qualitative factor in making materiality

judments?
a. 10% of total revenues
b. 2.5% of total assets
c. ₱ 25, 000 or more
d. The context of an item in relation to a current crisis in the banking and
insurance industry.
8. These are users of financial information who are not in a position to require a
reporting entity to prepare reports tailored to their particular information needs.
a. Primary users
b. Secondary users
c. Heavy users
d. Slight users
9. Which of the following is not one of the primary users listed in the conceptual
framework?
a. Investors
b. Lenders
c. Creditors
d. Debtors
10. Which of the following would least likely need general purpose financial
statement in making economic decisions?
a. Stockholders
b. Potential investors
c. Management
d. Lenders
PROBLEM 4: FOR CLASSROOM DISCUSSION

Authoritative status
1. The conceptual framework (choose the incorrect statement)
a. Is not a PFRS.
b. In the absence of a standard, shall be considered by management when
making its judgment in developing and applying an accounting policy that
results in information that is relevant and reliable.
c. Is concerned with general- purpose financial statements only.
d. Prevails over the PFRs in cases of conflicts.
Primary users
2. Which of the following statements best explains why the reporting entity’s
management and government regulators are not considered primary users under
the Conceptual Framework?
a. These users are considered related parties, and hence do not make relevant
decisions.
b. These users have the ability to curtail the operations of the reporting entity
and therefore have the ability to affect the entity’s going concern.
c. These users have the power to demand information they need directly from
the reporting entity.
d. All of these.
Information on economic resources, clams, and changes
3. Information about the reporting entity’s economic resources, claims against the
reporting entity and the effects of transactions and other events and conditions
that change those resources and claims is referred to in the Conceptual
Framework as information about the
a. Economic phenomena.
b. Entity’s return.
c. Financial performance.
d. Prospects for future cash flows.
Materiality
4. Entity A is making a materiality judgment. Entity A considers the size of the
impact of an item to be material if it exceeds 5% of the total assets. What type of
materiality assessment is this?
a. Quantitative
b. Qualitative
c. Requirement of a standard
d. Relevance
Qualitative characteristics
5. Entity A deliberately overstated its liabilities from ₱ 1M to ₱1.2M. What qualitative
characteristic is violated?
a. Relevance
c. Timeliness
d. Understandability
6. Two primary users are using the financial information of Entity A. If User #1
concludes that Entity A’s sales has increased while User #2 conludes that it has
decreased, Entity A’s financial information is not
a. Relevant.
b. Faithfully represented.
c. Comparable.
d. Verifiable.
Elements of Financial Statements
7. Which of the following is not one of the potentials of resource to provide future
economic benefits to an entity?
a. Service potential, i.e., the resource can be used to provide services in the
entity’s normal business activities.
b. The resource can be converted into cash
c. The resource has the ability to provide cost-savings to the entity.
d. The resource causes more outflows of cash from the entity than inflows.
8. Which of the following would not result to the recognition of liability?

a. Receipt of the proceeds of a bank loan.
b. Receipt of delivery of equipment purchased on credit.
c. A future commitment becomes burdensome.
d. Paying in advance the purchase price of inventories for future delivery.
9. Entity A determined that an asset has ceased to provide future economic

benefits. Accordingly, Entity A recognized immediately the carrying amount of
asset as loss. What expense recognition principle did Entity A use?
a. Systematic and rational allocation
b. Immediate recognition
c. Matching
d. Impairment loss
Concepts of Capital and Capital maintenance
10. Under this concept of capital maintenance, profit is earned if net assets
increased during the period after excluding the effects of transactions with the
owners.
a. Financial capital maintenance
b. Physical capital maintenance
c. Repairs and maintenance
d. Building maintenance
PRESENTATION OF FINANCIAL STATEMENTS
1. The objective of PAS 1 is
a. To ensure comparability by prescribing the basis for presentation of general
purpose financial statements.
b. To ensure the faithful representation of financial statements.
c. To ensure the relevance of information presented in financial statements.
d. To prescribe the recognition and measurement principles applicable to assets,
liabilities, income and expenses.
2. Entity a’s financial statements in the current period is comparable with Entity A’s
financial statements in the previous period. This type of comparability is called
a. Inter-comparability
b. Intra-comparability
c. Extra-comparability
d. Intro-comparability
3. The scope of PAS 1 is

a. The preparation and presentation of general purpose financial statements.
b. The recognition, measurement and disclosure requirements for specific
transactions and other events.
c. The presentation of general purpose financial statements as well as all other
information contained in an entity annual report.
d. All of these.
4. The statement of financial position is also called

a. Balance sheet.
b. Income statement.
c. Positions statement
d. All of these.
5. When preparing financial statements, PAS 1 requires management to assess the

entity’s ability to continue as a going concern. The assessment covers a
minimum period of
a. At least one year from the end of the reporting period.
b. At least two years from the end of the reporting period.
c. At least five years from the end of the reporting period.
d. There is no such requirement.
6. Which of the following is not considered an appropriate application of offsetting

under PAS 1?
a. Presenting a gain from the sale of a noncurrent asset net of the related selling
expense.
b. Deducting foreign exchange losses from foreign exchange gains and
presenting only the net amount.
c. Deducting unrealized losses from unrealized gains from trading securities and
presenting only the net amount.
d. Deducting accumulated depreciation from the equipment account and
presenting only the carrying amount.
7. PAS 1 requires an entity to provide and additional balance sheet dated as of the
beginning of the preceding period if certain instances occur. Which of the
following is not one of these instances? (Assume all of the following has a
material effect)
a. Retrospective application of an accounting policy.
b. Retrospective restatement
c. Reclassification of items in the financial statements
d. Change in the frequency of reporting
8. The PFRSs apply to which of the following?

a. A management’s review of the entity’s financial performance during the period
vis-à-vis its targets for that period contained in the entity’s annual report,
which also includes the entity’s financial statements.
b. Schedules, reconciliations and returns required by the Bureau of Internal
Revenue (BIR) to be filed together with the financial statements.
c. Environmental reports required by the Department of Environment and
Natural Resources (DENR) that are included in the entity’s annual report.
d. Explanatory material and other information that are disclosed in the notes to
the financial statements.
9. This is the most commonly used method of presenting a statement of financial

position. It facilitates the computation of liquidity and solvency ratios.
a. Classified presentation c. Classified as to liquidity
b. Unclassified presentation d. Based on liquidity
10. Which of the following best reflects the definition of the normal operating cycle
under PAS 1?
a. For a manufacturing entity, this is the usual time it takes for the entity to
acquire raw materials, process those raw materials into finished goods,
and sell the finished goods.
b. For a manufacturing entity, this is the usual times it takes for the entity to
acquire raw materials, process those raw materials into finished goods,
sell the finished goods on account, and collect the receivables.
c. For a manufacturing entity, this is the usual time it takes for the entity to
acquire raw materials on account and settle the acoount.
d. For a manufacturing entity, this is the usual times it takes for the entity to
sell finished goods on account and collect the receivables.

1. Who is responsible for the preparation and fair presentation of an entity’s
financial statements in accordance with the PFRSs?
a. Accountant c. Auditor
b. Management d. Government regulatory body
2. The statement of financial position may be presented either showing current/non-

current distinction (classified) or based on liquidity (unclassified). PAS 1
encourages a (an)
a. Classified presentation c. combination of a and b
b. Unclassified presentation d. none of these
3. Which of the following is a current asset?
a. Deferred tax asset expected to reverse within 3 months from the reporting
date
b. Property, plant and equipment
c. Non-trade note receivable due in 13 months
d. Accounts receivable
4. Which of the following statement is incorrect regarding the provisions of PAS 1?
a. An entity is required to present separate sections of profit or loss and

other comprehensive income
b. Presenting an income statement or statement of profit or loss in addition to

a statement of other comprehensive income is permitted when an entity
elects to use the “two-statement” presentation.
c. Presenting an income statement or statement of profit or loss alone

without a statement of other comprehensive income is allowed.
d. Presenting comprehensive income as a note disclosure only is prohibited.
5. When a separate statement of profit or loss (income statement) is presented,

a. it shall be displayed immediately before the statement presenting
comprehensive income
b. it shall be displayed immediately after the statement presenting

comprehensive income
c. it shall be displayed alone. The entity may opt not to present information
on comprehensive income.
d. Any of these.
6. Which of the following is not correct when an entity opts to use the “two-
statement presentation” of income and expenses?
a. The separate income statement forms part of a complete set of financial

statements and shall be displayed immediately before the statement
presenting comprehensive income.
b. The profit or loss section is not presented anymore in the statement

c. The profit or loss section is required to be presented in the statement

d. The separate statement presenting comprehensive income begins with

the amount of profit or loss.
7. Entity A reclassifies a gain that was previously recognized in other

comprehensive income to the current period’s profit or loss. According to PAS 1,
how should Entity A present the reclassification adjustment in the other
comprehensive income section of the statement of comprehensive income?
a. as an addition c. only at net of tax
b. as a deduction d. none of these
8. Which of the following is a current liability?
a. Deferred tax liability
b. An obligation for which the entity has an unconditional right to defer.

c. A long-term obligation that becomes payable on demand because of a
breach of loan agreement but the lender agrees before the balance sheet
date to provide a grace period for the lender to rectify the breach.
d. An obligation for which the entity has a conditional right to defer.
9. According to PAS 1, items of other comprehensive income are presented

according to the following groupings
a. ordinary and extraordinary items
b. by nature and by function
c. those that are subsequently reclassified to profit or loss and those that are
not
d. continuing and discontinued operations
10. When an entity changes the end of its reporting period and presents financial
statements for a period longer or shorter than one year, an entity shall disclose
all of the following, except
a. the period covered by the financial statements.
b. the reason for using a longer or shorter period.
c. the fact that amounts presented in the financial statements are not entirely
comparable.
d. a quantification of the possible adjustments that would eliminate the

effects of the longer or shorter reporting period.

Scope
1. PAS 1 applies to which of the following?
a. The preparation and presentation of general purpose financial statements.
b. The recognition and measurement of specific assets, liabilities, income

and expenses.
c. The disclosure requirements for specific transactions and other events.
d. All of these.
General features
2. In 20x3, Entity A makes a retrospective application of an accounting policy that
has a material effect on the information in the statement of financial position as at
the beginning of the preceding period. Entity A wishes to provide comparative
information in addition to the minimum requirement of PAS 1, i.e., Entity A will be
presenting its 20x3 financial statements together with the 20x2 and 20x1 financial
statements. In this case, the additional statement of financial position required by
the PAS 1 will be dated
a. as at January 1, 20x1. c. as at January 1, 20x3.
b. as at January 1, 20x2. d. for the period ended 20x1.
3. Entity A wants to change the presentation of, and the classification of some items
in, its financial statements. Which of the following statements is incorrect?
a. Entity A can make the change if it is required by a PFRS.
b. Entity A can make the change if the change is expected to result in reliable
and more relevant information to the users of its financial statements.
c. Entity A may be required to provide an additional balance sheet dated as

at the beginning of the preceding period.
d. Entity A can make the change only if it makes an irrevocable promise not
to make another change within the next five years.
4. The financial statement of Entity A shows line items described as “Other current
assets,” “Other noncurrent liabilities,” and “Miscellaneous expenses.” Which of
the following is correct?
a. Entity A considers the items included in these line items as dissimilar and
cannot be included in material classes of similar items and are also
individually immaterial to warrant separate presentation.
b. Entity A considers the items included in these line items as individually

material but with dissimilar nature or function.
c. Entity A considers the items included in these line items as comprising a
material class of similar items.
d. This manner of presenting items in unacceptable under PAS 1.
Complete set of financial statements

5. According to PAS 1, a complete set of financial statements includes which of the
following?
a. Income tax return
b. Director’s reports
c. Notes
d. All of these
Additional Statement of financial position

6. PAS 1, requires an entity to present an additional statement of financial position
as at the beginning of the preceding period when an entity makes any of the
following, except
a. the retrospective application of an accounting policy.
b. the retrospective restatement of items in the financial statements.
c. the reclassification of items in the financial statements.
d. the prospective application of a change in accounting estimate.
Statement of financial position

7. The statement of financial position of which of the following entities does not
show current and noncurrent distinctions among assets and liabilities?
a. Banks and other financial institutions
b. Mining companies
c. Trading enterprises
d. Manufacturing firms
8. The principles of PAS 1 in relation to the classification of liabilities as current or

noncurrent favor the current classification. PAS 1 provides stricter conditions for
classifying liabilities as noncurrent. Which of the following statements best
reflects a valid reason?
a. Noncurrent liabilities are usually more material in terms of size compared

to current liabilities.
b. Most primary users are concerned more with an entity’s current liabilities
when making economic decisions because of the shorter duration of time
before they cause an outflow of economic resources.
c. The stricter conditions for noncurrent classification address the potential

misuse of classification in order to present favorably the entity’s liquidity.
d. All of these.
Statement of profit or loss and other comprehensive income

9. Which of the following is not an acceptable method of presenting income and
expenses?
a. Presenting income and expenses that affect profit or loss and those that
are components of other comprehensive income in a single statement.
b. Presenting an income statement in addition to a statement that presents

comprehensive income.
c. Presenting income statement alone without a statement that presents

comprehensive income.
d. All of those are acceptable methods of presentation.
10. This method of presenting expenses is more difficult to apply but has the
potential of providing more relevant information to users. Its downside, however,
is that it involves considerable judgment and may require arbitrary allocations.
a. Nature of expense c. Classified presentation
b. Function of expense d. Based on liquidity
Notes
11. Which of the following is not a purpose of the notes?
a. to present information about the basis of preparation of the financial

statements and the specific accounting policies
b. to disclose the information required by PFRS that is not presented
elsewhere in the financial statements
c. to provide information that is not presented elsewhere in the financial

statements but is relevant to an understanding of any of the financial
statements
d. to rectify inappropriate accounting policies.
PAS 2 Inventories
1. Which of the following is not included as part of the cost of an inventory?
a. Purchase cost, net of trade discount
b. Direct labor cost
c. Freight in
d. Selling cost
2. Conversion costs do not include which of the following costs?
a. Direct materials c. Production
b. Direct labor d. All of these are included
3. These deal with the computation of cost of sales and cost of ending inventory.
a. net realizable value c. cost formulas
b. perpetual inventory system d.. costing
4. Entity A’s inventories consist of items that are ordinarily interchangeable.

According to PAS 2, which of the following cost formulas shall Entity A use?
a. Specific identification c. Weighted Average
b. FIFO d. b or c
5. Which of the following statements is incorrect regarding the use of cost formulas?
a. PAS 2 requires the use of specific identification of costs for inventories

that are not ordinarily interchangeable.
b. Entities may choose between FIFO and Weighted Average cost formulas
for inventories that are ordinarily interchangeable.
c. Different cost formulas may be used for each class of inventory with
dissimilar nature and use.
d. Only one formula shall be used for all inventories regardless of differences
in their nature and use.
6. Entity A’s buys and sells two types of products – Product A and Product B. Items
of Product A are not ordinarily interchangeable while items of Product B are
ordinarily interchangeable. According to PAS 2, what cost formula shall Entity A
use? (specific identification ‘SI’, first-in, first-out ‘FIFO’, weighted average ‘WA’)
Product A Product B
a. SI FIFO or WA
b. SI, FIFO, or WA SI, FIFO, or WA
c. FIFO WA
d. SI SI
7. Entity A is a distributor of oil. Entity A’s inventories are ordinarily interchangeable.

Entity A maintains a specific level of inventory such that the latest purchases are
the ones dispatched first to the sales outlets. Consequently, the latest purchases
are sold first. Which of the following cost formulas shall be used by Entity A?
a. Last-in. first-out (LIFO) c. Weighted Average
b. FIFO d. b or c
8. In which of the following instances is a write-down of inventories to net realizable

value may not be required?
a. the inventories are damaged
b. the inventories have become wholly or partially obsolete

c. the estimated costs to complete or costs to sell have increased
d. selling prices are rising because demand has increased
9. Write-downs of inventories to their net realizable value are recognized
a. in profit or loss c. directly in equity
b. in other comprehensive income d. any of these
10. Inventories are usually written-down to net realizable value
a. on an item by item basis.
b. on the basis of their classification, for example, as all finished goods, all
work in process and all raw materials and supplies.
c. every year.
d. on the basis of their relative stand-alone selling prices.

Cost of Inventories
1. Which of the following is correct regarding the determination of the cost of an
inventory?
a. Import duties and non-refundable taxes are included.
b. Insurance costs while the inventory is in transit are included.
c. Purchase price, gross trade discounts, is included.
d. Purchase price, net of trade discounts, is included.
Cost formula
Information on Entity A’s inventory of Product A is as follows:
Units Unit Cost Total Cost
P3,0 19.5 58,65
Balance at Jan. 1
00 5 0
Purchases:
10,20 21.5 219,30
Jan. 6
0 0 0
2,25 20.6 46,35
Jan. 26
0 0 0
Sales
2,70
Jan. 7
0
7,20
Jan. 31
0
2. How much are the ending inventory and cost of sales under the FIFO cost
formula?
Ending Inventory Cost of Sales
a. 117,300 207,000
b. 120,300 204,000
c. 121,300 203,000
d. 124,300 200,000
3. How much are the ending inventory and cost of sales under the Weighted
Average cost formula? (The average is calculated on a periodic basis)
a. 116,495 324,300
b. 118,685 205,615
c. 116,495 207,805
d. 118,685 324,300
4. How much are the ending inventory and cost of sales under the Weighted
Average cost formula? (The average is calculated as each additional purchase is
made, i.e., ‘moving average’)

a. 116,832 207,918
b. 116,382 207,918
c. 118,685 205,615
d. 116,495 207,805
Lower of Cost and NRV

5. Information on ABC Co.’s December 31, 20x1 inventory is shown below:
Product A Product B Product C

P100,0 250,000.0 300,00
Purchase price
00 0 0
12,00 30,00 36,00
Freight-in
0 0 0
210,00 300,000.0 570,00
Selling price
0 0 0
10,50 75,000.0 11,40
Freight-out
0 0 0
6,30 9,00 17,10
General overhead costs
0 0 0
How much is the valuation of ABC’s total inventory on December 31, 20x1?
a. 983,100
b. 938,100
c. 763,000
d. 673,000
PAS 7 Statement of Cash Flows

1. Entity A had the following balances at December 31, 20x1:
P35,0
Cash in bank
00
75,00
Cash in 90-day money market account
0
350,00
Treasury bill, purchased 11/1/x1; maturing 1/31x2
0
400,00
0
How much is the cash and cash equivalents to be reported in Entity A’s
December 31, 20x1 statement of financial position?
a. 110,000 c. 460,000
b. 385,000 d. 860,000
2. Which of the following cash flows is presented in the operating activities section
of a statement of cash flows?
a. cash receipts from issuing shares or other equity instruments and ash
payments to redeem them
b. cash receipts from issuing notes, loans, bonds and mortgage payable and
other short-term or long-term borrowings, and their repayments
c. cash receipts from the sale of goods, rendering of services, or other forms
of income
d. cash payments by a lessee for the reduction of the outstanding liability

relating to a lease
3. In the statement of cash flows of a non-financial institution, interest expense paid

is presented under
a. operating activities c. financing activities
b. investing activities d. a or c
4. Which of the following is presented in the activities section of the statement of

cash flows?
a. Purchase of a treasury bill three months before its maturity date.
b. Exchange differences from translating foreign currency denominated cash

flows.
c. Acquisition of equipment through issuance of note payable.
d. Bank overdrafts that can be offset.
5. Entity A acquires equipment by paying a 10% down payment and issuing a note
payable for the balance. How should Entity A report the transaction in the
statement of cash flows?
Down payment Note payable

a. Investing activities None
b. Investing activities Financing activities
c. Financing activities None
d. None None

Cash and Cash Equivalents
1. Entity A had the following balances at December 31, 20x2:
P300,0
Cash on Hand
00
700,00
Cash in bank
0
500,00
Cash in 90-day money market account
0
1,600,00
0
1,000,00
Treasury bond, purchased 3/1/x2; maturing 2/28x3
0
How much cash and cash equivalents is reported in Entity A’s December 31,
20x2 statement of financial position?
a. 3, 800,000 c. 2, 800, 000
b. 3, 100,000 d. 1, 500, 000
Presentation
2. Which of the following is included in the investing activities section of statement
of cash flows?
a. Acquisition and sale of investments in held for trading securities.
b. Acquisition and sale of items of property, plant and equipment that are
routinely manufactured in the entity’s ordinary course of business and are to
be held for rentals and reclassified to inventories when the assets cease to be
rented and become held for sale.
c. Acquisition and sale of short-term investments in cash equivalents.
d. Cash inflow from repayment of loan.

3. Which of the following is included in the financing activities section of the
statement of cash flows?
a. cash payment for purchases of goods and services
b. cash receipt and cash payments in the acquisition and disposal of

property, plant and equipment, investment property, intangible assets and
other noncurrent assets
c. loans to other parties and collections thereof (other than loans made by a
financial institution)
d. cash receipts from issuing shares or other equity instruments and cash
payments to redeem them
4. This method of presenting cash flows from (used in) operating activities involves
adjusting accrual basis profit or loss for the effects of changes in operating
assets and liabilities and effects of non-cash items?
a. Direct method c. Inverse method
b. Indirect method d. Reverse method
5. Entity A declares cash dividends in 20x1 and pays the dividends in 20x2. How
should Entity A report the dividends paid in the statement of cash flows for
20x1 20x2
a. Operating activities None
b. Financing activities None
c. None Financing activities
d. None Operating activities
PAS 8 Accounting policies, Changes in Estimates and Errors

1. A change in measurement basis is most likely a
a. change in accounting policy. c. error
b. change in accounting estimate. d. any of these.

2. A correction of prior period error is accounted for by
a. retrospective application. c. prospective application
b. retrospective restatement. d. impracticable application
3. Which of the following is a change in accounting estimate?
a. Change from the cost model to the fair value model of measuring
investment property.
b. Change in business model for classifying financial assets resulting to the

reclassification of a financial asset from being measured at amortized cost
to fair value.
c. Change in the method of recognizing revenue from long-term construction

contracts.
d. Change in depreciation method, useful life or residual value of an item of

property, plant and equipment.
4. These result from new information or new developments.
a. Changes in accounting estimates
b. Changes in accounting policies
c. Correction of errors
d. All of these.
5. The effect of which of the following is presented in profit or loss in the current
period (or current and future periods, if both are affected) rather than as an
adjustment to the opening balance of retained earnings.
a. Correction of a prior period error.
b. Change in accounting policy
c. Change in accounting estimate.
d. All of these

1. According to PAS 8, in the absence of a PFRS that specifically deals with a
transaction, management shall
a. refer to the concepts under the Conceptual Framework.
b. adopt the provisions of the US GAAP.
c. use its judgment in developing and applying an accounting policy that

results in information that is relevant and reliable.
d. Consider the applicability of relevant accounting literature.
2. According to PAS 8, a change in accounting policy is accounted for
a. using a transitional provision, if any.
b. retrospectively.
c. prospectively, if retrospective application is impracticable.
d. a, b, or c, whichever is most appropriate.
3. This refers to applying a new accounting policy to transactions, other events and
conditions as if that policy had always been applied.
a. Retrospective application c. Prospective application
b. Retrospective restatement d. Impracticable application
4. According to PAS 8, a change in accounting estimate is accounted for
a. using a transitional provision, if any.
b. retrospectively.
c. prospectively, if retrospective application is impracticable.
d. a, b, or c, whichever is most appropriate.
5. Entity A changes its inventory cost formula from FIFO to weighted average. How
should Entity A account for this change?
a. by retrospective restatement, as a change in accounting policy

b. by prospective application, as a change in accounting estimate
c. by retrospective application, as a change in accounting policy
d. as a correction of prior period error.
EVENTS AFTER THE REPORTING PERIOD
PROBLEMS
PROBLEM1: MULTIPLE CHOICE
1. ABC Co. completes the draft of its December 31, 20x1 year-end financial statements
on January 31, 20x2. On March 1, 20x2, the management of ABC Co. authorizes the
financial statements for issue to its supervisory board. The supervisory board is
made up solely of non-executives and includes representatives of employees and
other outside interest. The supervisory board approves the financial statements on
March 10, 20x2. The financial statements are made available to shareholders and
others on March14, 20x2. The shareholders approve the financial statements at their
annual meeting on March 23, 20x2 and the financial statements are then filed with a
regulatory body on April 1, 20x2. For purpose as PAS 10, what is the date of
authorization of the financial statements?
a. March 1, 20x2 c. March 14, 20x2

b. March 10, 20x2 d. March 23, 20x2
2. According to PAS 10, these are events that provide evidence of conditions that
existed at the end of the reporting period.
a. Events after the reporting period c. Adjusting events

b. Non-adjusting events d. all of these
3. Which of the following events after the reporting period are treated as adjusting
events?
a. A significant decline in the fair value of investments in stocks.

b. A litigation arising from an accident that occurred after the reporting period.
c. Declaration of dividends after the reporting period.
d. Discovery of prior-period fraud or errors.
4. Entity A’s inventories on December 31, 20x1 have a cost of ₱100,000 and the net
realizable value ₱80,000. Shortly after December 31, 20x1, but before the financial
statements where authorized for issue, the inventories were sold for net sale
proceeds of ₱70,000.the correct valuation of entity A’s inventories in the December
31, 20x1 financial statements is
a. 100,000 c. 70,000
b.80,000 d. any of these
5. According to PAS 10, non-adjusting events after the reporting period
a. require adjustments of amounts in the financial statements

b. do not require adjustments of amounts in the financial statements, but are
disclosed in the notes
c. do not require adjustments of amounts in the financial statements, but are
disclosed on the notes if they are material.
d. are ignored

1. ABC Co. completes the drafts of its December 31, 20x1 year-end financial
statements on January 31, 20x2. On February 5, 20x2, the board of director reviews
the financial statements and authorizes them for issue. The entity announces its profit
and selected other financial information on February 23, 20x2. The financial
statements are made available to shareholders and others on March 1, 20x2. The
share holders approve the financial statements at their annual meeting on March 18,
20x2 and the approve financial statements are then filled with a regulatory body on
April 1, 20x2. Events after the reporting period are those occurring
a. from December 31, 20x1 to February 5, 20x2.

b. from January 1, 20x2 to February 5 20x2.
c. from January 1, 20x2 to February 23 20x2.
d. from January 1, 20x2 to March 18, 20x2.
2. These are events that are indicative of conditions that arose after the reporting
period.
a. Events after the reporting period c. Adjusting events

b. Non-adjusting events d. all of these
3. Entity A recognized a provision for a pending litigation amounting to ₱50,000 on

December 31, 20x1 (end of current reporting period). This amount is reflected in
Entity A’s reported profit of ₱600,000 for the year 20x1. Shortly after December 31,
20x1but before the financial statements were uthorized for issue, the litigation is
settled for ₱40,000. The correct profit in 20x1 is
a. 600,000 b. 610,000 c. 640,000 d. 590,000
4. Which of the following is an example of an adjusting event?
a. Major business combination after the reporting period.

b. A building is totally razed by fire after the reporting period.
c. sale of inventories after the reporting period that gives evidence to their net
realizable value at the end of reporting period.
d. Issuance of shares of stocks after the reporting period.
5. Which is the following is an example of a non-adjusting event?
a. Bankruptcy of a customer after the reporting period that indicates that the carrying
amount of a trade receivable at the end of the reporting period is impaired.
b. Evidence indicating that an asset is impaired as at the end of the reporting period.
c. Legal proceedings after the reporting period for an incident that occurred before
the end of the reporting period.
d. Significant decline in foreign exchange rates after the reporting period resulting to
massive losses on recognized foreign currency denominated financial instruments.
PAS 12 Income Taxes

1. In layman’s term, to “defer” means to postpone. Thus, a deferred tax liability.
a. increase in tax payment in the current period.

b. increase in tax payment in a future period.
c. decrease in tax payment in the current period.
d. decrease in tax payment in a future period.
2. If the change in deferred tax asset exceeds the change in deferred tax liability during
the period, the net change is referred to as
a. deferred tax expense.

b. deferred tax income.
c. deferred tax benefit.
d. deferred tax asset.
3. Entity A reports an income tax expense of ₱1,000 and a current tax expense of ₱800
during the period. The difference between these amounts is best describe as
a. deferred tax expense. c. deferred tax liability.

b. deferred tax income. d. deferred tax asset.
4. Entity A computes a current tax expense of ₱700 using relevant tax law. If the change
in deferred tax asset exceeds the change in deferred tax liabilities during the period
by ₱100, A’s income tax expense is
a. ₱800. c. ₱700
b. ₱600. d. none of these
5. Which of the following is not correct regarding the recognition of a deferred tax asset
or a deferred tax liability?
a. A deferred tax liability will ultimately result to a higher tax payment in a future
period.
b. A deferred tax asset is expected to cause a reduction in the tax payment in the
future period.
c. Recognizing deferred tax assets and liabilities results to proper matching of items
in the financial statements.
d. Recognizing a deferred tax asset reduce the tax payment in the current period,
below the amount that would have to be paid if only the tax law are used to
compute for the tax due.
6. If the economic benefits from an asset will not be taxable when they are recovered,
the tax base of the asset is equal to
a. its carrying amount. c. a or b

b. zero. d. neither a nor b
7. PAS 12 requires the use of this method in accounting for deferred taxes.
a. Asset-liability method c. Straight-line method

b. Income statement method d. Discounted method
8. Deferred tax assets and deferred tax liabilities do not alter the the tax to be paid in
the current period. However, they cause tax payments to either increase or decrease
when they reserve in a future period. The reversal of which the following will cause a
decrease in tax payment?
a. Deferred tax liability c. Deferred tax expense

b. Deferred tax asset d. Deferred tax benefit
9. Which of the following is correct regarding the presentation of deferred tax assets
and deferred tax liabilities in the statement of financial position?
a. Deferred tax and deferred tax liabilities are presented as either current or
noncurrent items depending on their expected reversal dates.
b. Deferred tax and deferred tax liabilities are generally offset unless they qualify for
separate presentation.
c. Deferred tax and deferred tax liabilities are generally presented separately unless
they qualify for offsetting.
d. Deferred tax and deferred tax liabilities are off-balance sheet items, meaning they
are not recognized but disclosed only in the notes.
10. According to PAS 12, the tax effects of transaction or other events are recognized in
a. profit or loss. c. directly in equity.

b. other comprehensive income. d. a, b or c

1. If it is probable that recovery or settlement of a carrying amount of an asset or
liability will make future tax payments larger than they would be if such recovery or
settlement were to have no tax consequences, an entity shall recognize a
a. deferred tax asset c. a or b

b. deferred tax liability. d. neither a nor b
2. These are differences that do not have future tax consequences.
a. Permanent differences c. Taxable differences

b. Temporary differences d. Deductible differences
3. This type of difference will give rise to deferred tax asset.
a. Taxable temporary difference c. Permanent difference

b. Deductible temporary differences d. No difference
4. Income computed using PFRSs is ₱100,000 while income computed using tax laws
is ₱80,000. The ₱20,000 difference is a
a. Taxable temporary difference c. Permanent difference

b. Deductible temporary difference d. No difference
5. During the period, deferred tax assets increased by ₱500 while deferred tax laws is
₱600. The net change of ₱100 is a
a. deferred tax expense c. deferred tax liability

b. deferred tax income d. deferred tax asset
PAS 16 Property, Plant and Equipment

Problems
1. Which of the following is not classified as property, plant, and equipment?
a. Land held for future plant site

b. Building used in business
c. Equipment held for environmental and safety reasons
d. Minor spare parts and short-lived stand-by equipment
2. Which of the following dies not form part of the initial cost of an item of PPE?
a. Purchase price, net of trade discounts and rebates

b. Freight cost
c. Installation and testing cost
d. Advertising and promotional cost
3. Depreciation does not cease in which of the following instances?
a. The item of PPE is classified as held for sale and included in a disposal group in
accordance with PFRS 5.
b. The item of PPE is derecognized through disposal.
c. The item of PPE is fully depreciated
d. The item of PPE becomes idle or is retired from active use.
4. In which of the following cases is an asset not considered to be fully depreciated?
a. When the asset’s carrying amount is zero

b. When the asset’s carrying amount is equal to its residual value.
c. When the sum of the asset’s accumulated depreciation, accumulated impairment
losses and residual value is equal to its cost.
d. When the asset’s cast is equal to its carrying amount.
5. Which of the following instances precludes an entity from recognizing depreciation?

a. the fair value of the asset exceeds its carrying amount but the asset’s residual
value does not exceed its carrying amount but the asset’s residual value does not
exceed its carrying amount.
b. the asset is subsequently measured under the revaluation mode.
c. the asset comprises several significant and insignificant parts.
d. the asset is classified as held for the sale under PFRS 5.
6. Which of the following does not affect the determination of depreciation charges on
an item of PPE?
a. Useful life c. Residual value

b. Cost d. Repairs and maintenance
7. The depreciation method prescribed by PAS 16 is
a. straight-line. c. unit of production.

b. diminishing balance. d. none
8. Which of the following is not an acceptable choice of depreciation method under

PAS 16?
a. a method that results to the same amount of depreciation charge from period to
period
b. a method that is based in the levels of revenue earned
c. a composite method that is applied to a group of items of PPE
d. a retirement method that recognizes deprecation when a small item of PPE is
retired
9. According to PAS 16, an entire class of PPE is subsequently measured under the
a. cost model. c. fair value model.

b. revaluation model. d. a or b
10. Which of the following items of PPE is most likely to be derecognized?
a. A fully depreciated PPE.

b. A damaged PPE with a scrap value.
c. A PPE that is idle and withdrawn from active use.
d. A PPE that is donated to an external party.

Initial measurement
1. Entity A acquires equipment on January 1, 20x1. Information on costs is as follows:
Purchase price, gross of ₱10,000 trade discount 800,000

Non-refundable purchase taxes 20,000
Delivery and handling costs 40,000
Installation costs 30,000
Present value of decommissioning and restoration costs 10,000
How much is the initial cost of the equipment?

a. 900,000 c. 870,000
b. 820,000 d. 890,000
Subsequent measurement – cost model

2. (Use the information in problem #1.) Assume the equipment has a useful life of 10
years and a residual value ₱90,000. Entity A uses the straight line method of
depreciation. How much are the depreciation expense in 20x1 and the carrying
amount of the equipment on December 31, 20x2, respectively?
Depreciation expense Carrying amount – 12/31/x2

a. 80,000 810,000
b. 80,000 730,000
c. 80,000 640,000
d. 80,000 580,000
Subsequent measurement – Revaluation model

3. (Use the information in problem #’s 1 and 2) Assume the equipment has a useful life
of 10 years and a residual value of ₱90,000. Entity A uses the straight line method of
depreciation. On December 31, 20x2, Entity A revaluates the equipment at a fair
value of ₱820,000. There is no change in the residual value and the remaining
useful life of the asset. How much are the revaluation surplus on December 31, 20x2
and revised depreciation expense in 20x3 and in subsequent periods, respectively?
Revaluation surplus Revised annual depreciation

a. 83,000 90,250
b. 89,000 91,050
c. 90,000 91, 250
d. 92,000 92,150
Derecognition
4. Entity A sells a machine that is classified as PPE for ₱1,700,000. Entity A pays the
broker a 10% commission. Information on the machine is as follows:
Carrying amount ₱1,900,000

Revaluation surplus 400,000
How much is the gain (loss) from the sale?

a. (200,000) c. (30,000)
b. (370,000) d. 30,000
PAS 19 Employee Benefits

Problems
PROBLEMS 1: MULTIPLE CHOICE
1. Entity A’s employee are entitled to six days paid sick leaves per year. Any unused
sick leave is converted to cash when the employee resigns or retires. The sick
benefits are considered
a. vesting. c. non-accumulating.
b. non-vesting. d. monetizing
2. Compensated absences that can be carried forward and used in future periods is not
fully used in current period of entitlement are referred to as
a. contributory. c. accumulating.
b. non-contributory. d. venting.
3. Under a profit-sharing plan, Entity A agrees to pay its employees 5% of its annual
profit. The bonus shall be divided among the employees currently employed as at
year-end. Relevant information follows:
Profit for the year ₱8,000,000

Employees at the beginning of the year 8
Average employees during the year 7
Employees at the end of the year 6
If you are one of the employees of Entity A, how much bonus do you expect to receive?
a. 66,667 c. 50,000
b. 57,143 d. 0
4. Under this post-employment benefit plan, the retirement benefit cost is equal to the
contribution due for the period.
a. Defined contribution plan c. State plan

b. Defined benefit plan d. Multi-employer plan
5. Arrange the following steps in the accounting for defined benefit plans in the correct
order.
I. Determine the components of the defined benefit cost to be recognized in P/L

and OCI.
II. Determine the net defined benefit liability (asset)
III. Determine the deficit or surplus
a. I, III and II
b. III, II and I
c. II, III and I
d. I, II and III
6. Actuarial gains or losses result from the accounting for which of the following
employee benefits?
a. Short-term compensated absences

b. Post-employment defined contribution plans
c. Post-employment defined benefit plans
d. Profit sharing and bonus plans
7. Which of the following factors is least likely to affect the amount of retirement benefit
under a defined benefit plan?
a. The age of the retiring employee.

b. The level of the employee’s compensation.
c. The employee’s length of service.
d. The amount of employer contribution to a fund.
8. Information on the defined benefit plan of Entity A as of December 31, 20x1 is as
follows:
 Fair value of plan assets ₱ 800,000
 Present value of the defined benefit obligation ₱1,000,000
How much is (are) presented in Entity A’s December 21, 20x1 statement of financial
position in relation to its post-employment benefits plan?
a. ₱800,000 in noncurrent assets and ₱1M in noncurrent liabilities
b. ₱200,000 net defined benefit asset in noncurrent assets
c. ₱200,000 net defined benefit liability in noncurrent liabilities
d. ₱1M in noncurrent liabilities
9. The actuarial valuation report of Entity A’s post-employment benefit plan shows the
following information:
Service post 300,000

Net interest on the net defined benefit liability (asset) 90,000
Remeasurements of the net defined benefit liability (20,000)
Total defined benefit cost 370,000
How much will be shown in profit or loss and in other comprehensive income?
Profit or loss Other comprehensive income
a. 370,000 0
b. 300,000 70,000
c. 390,000 (20,000)
d. 0 370,000
10. According to PAS 19, how are other long-term benefits accounted for?
a. similar to defined benefit plans.

b. similar to short-term employee benefits except that the cash flows are discounted.
c. similar to defined benefit plans except that all the components of the defined
benefit cost is recognized in other comprehensive income.
d. similar to defined benefit plans except that all the components of the defined
benefit cost is recognized in profit or loss.
PROBLEMS

1. Which of the following approaches is used in the accounting for government grants
under PAS 20?
a. Capital approaches c. Gentle approaches

b. income approaches d. Direct approaches
2. Which of the following principles applies most to the accounting for government
grants?
a. accruals basis c. materiality

b. cash basis d. prudence
3. On September 1, 20x1, Entity A, a private university, receives ₱1M cash as

government grant conditioned on the acquisition of computers to be used in Entity
A’s I.T. department. Entity A acquires the computers on November 1, 20x1, at which
date the computers are available for their intended use. Entity A recognizes
depreciation on a monthly basis. When should Entity A starts Recognizing income
from the government grant?
a. September 1, 20x1 c. November 30, 20x1

b. November 1, 20x1 d. December 31, 20x1
4. Monetary grants are measured at
a. the amount of cash received

b. the fair value of the amount receivable
c. nominal amount
d. a or b, whichever is more appropriate
5. According to PAS 20, government grants are presented in the financial statements
using
a. a gross presentation. c. a or b
b. a net presentation. d. a functional presentation

Measurement
1. Non-monetary grants are measured at
a. the fair value of the non-monetary asset.
b. nominal amount
c. the amount of cash received or receivable.
d. a or b
Presentation
Use the following information for the next three questions:
On January 1, 20x1, Entity A received land with fair of ₱200,000 from the government
conditioned on the construction of a building on the lot. Entity A started immediately the
construction and it was completed on December 31, 20x1 for a total cost of ₱1,000,000.
The building has an estimated useful life of 10 years and zero residual value.
2. How much is the income from government grant 20x1 and 20x2, respectively?
20x1 20x2
a. 0 200,000
b. 200,000 0
c. 0 20,000
d. 20,000 20,000
3. How much is the carrying amount of the building on December 31, 20x2 under the
following presentations?
Gross Presentation Net Presentation
a. 1,000,000 800,000
b. 900,000 720,000
c. 800,000 640,000
d. 800,000 533,333
4. How much is the depreciation expense recognized in 20x3 under the following
presentations?
Gross Presentation Net Presentation
a. 100,000 80,000
b. 100,000 100,000
c. 80,000 100,000
d. 80,000 80,000
5. On January 1, 20x1, Entity A receives a financial aid from the government amounting
to ₱1M as compensation for losses it has incurred on a recent calamity. How much
income from government grant will Entity A recognize in 20x1?
a. 1,000,000
b. 100,000
c. 53,334
d. 0
PROBLEMS (PAS 21)

1. Which of the following is least relevant in determining an entity's functional currency?
a. The currency that influences the entity's sale prices and cost.
b. The currency in which the entity generates financing cash flows.
c. The currency in which cash flows from operating activities are retained.
d. The currency of the country in which the entity is located.
2. Once determined, the functional currency is

a. not changed unless there is a change in underlying transactions, events and
conditions.
b. changed at the discretion of the entity's management.
c. changed everytime a new PFRS is issued.
d. b or c

a. An entity can only have one functional currency but it can have as many
presentation currencies as it wishes.
b. A foreign operation (e.g., a branch) that is essentially an extension of the entity

(e.g., the home office) would have the same functional currency as that of the
entity.
c. A foreign currency transaction is initially recognized at the spot exchange rate at
the date of the transaction.
d. Subsequent to initial recognition, both monetary and non-monetary items arising

from a foreign currency transaction are translated at the closing rate.
4. According to PAS 21, exchange differences arising from the translation of monetary
items arising from foreign currency transactions are recognized in
a. profit or loss.
b. other comprehensive income.
c. directly in equity.
d. any of these
5. According to PAS 21, exchange differences arising from the translation of financial
statements to a presentation currency are recognized in
a. profit or loss.
b. other comprehensive income.
c. directly in equity.
d. any of these

Foreign currency transactions
Use the following information for the next two questions:
On December 1, 20x1, Entity A sells goods to Entity B, on credit, for a total sale price of
$1,000. Entity B settles the account on January 6, 20x2. Entity A's functional currency is
the Philippine peso (₱). The relevant exchange rates are as follows:
Dec .1, 20 x 1 Dec .31, 20 x 1 Jan .6,20 x 2
₱ 50 :$ 1 ₱ 52 : $ 1 ₱ 47 : $ 1
1. How much is the foreign exchange gain (loss) to be recognized by Entity A on
December 31, 20x1?
a. 2,000 c. 1,000
b. (2,000) d. (1,000)
2. How much is the foreign exchange gain (loss) to be recognized by Entity A on
January 6, 20x2?
a. 3,000 c. 5,000
b. (3,000) d. (5,000)
Translation of financial statements

Use the following information for the next three questions:
Entity A started its operations on January 1, 20x1. On this date, Entity A's equity
consisted of ₱2M share capital, which were issued also on this date. Entity A functional
currency is the Philippine peso (₱). However, it wishes to present its 20x1 financial
statements into Chinese Yuan (¥). The following information was gathered on December
31, 20x1, after a year of operations.
Total assets ₱10M
Total liabilities ₱5M
Share capital 2M
Retained earnings 3M
Total liabilities and equity ₱10M
Income ₱7M
Expenses (4M)
Profit ₱3M
Relevant exchange rates:

January 1, 20x1 (historical rate for the share capital) ₱5: ¥1
Average rate: ₱8: ¥1
December 31, 20x1 (closing rate) ₱10: ¥1
3. How much is the translated equity?

a. 50,000,000 c. 1,000,000
b. 25,000,000 d. 500,000
4. How much is the translated profit or loss?
a. 375,000 c. 24,000,000
b. 500,000 d. 25,000,000
5. How much is the foreign exchange difference arising from the translation?
a. 275,000 loss c. 1,750,000 gain
b. 275,000 gain d. 1,750,000 loss
PROBLEMS (PAS 23)

1. According to PAS23, borrowing costs are capitalized when
a. they relate directly to the acquisition, construction or production of a qualifying
asset.
b. the entity chooses to capitalize them.
c. they are material and are expected to be incurred over more than one
reporting period.
d. all of these
2. According to PAS 23, borrowing costs that do not directly relate to the acquisition,
construction or production of a qualifying asset are
a. capitalized as cost of the qualifying asset.
b. expensed.
c. expensed, except when the borrowing costs relate to other assets.
d. any of these as a matter of accounting policy choice
3. Which of the following is a qualifying asset?
a. Investment property measured t fair value
b. Building that is ready for its intended use upon purchase
c. Inventories that are routinely produced in large quantities on a continuous
basis
d. An application software (intangible asset) that takes 3 years to develop
4. An entity starts the capitalization of borrowing costs to the cost of a qualifying asset
when
a. expenditures for the asset are being incurred.
b. borrowing costs are being incurred.
c. activities necessary to prepare the asset for its intended use or sale are being
undertaken.
d. all of the above conditions are met.
5. In which of the following instances is the capitalization of borrowing costs under PAS
23 would most likely be suspended?
a. Construction is temporarily stopped for the curing of concrete.
b. Active development is stopped to give time for the engineers to reevaluate a
design flaw.
c. The construction of a bridge is disrupted by troubled waters.
d. The construction of a building is discontinued because it is condemned by the
government. The resumption of development is uncertain.

1. Which of the following is a qualifying asset?
a. Biological asset measured at fair value less costs to sell
b. A multi-million dollar executive jet plane that is ready for its intended use upon
purchase
c. A second-hand heavy machinery that takes 2 years to refurbish and customize
for its intended use
d. A long-term note receivable (financial asset)
2. On January 1, 20x1, Entity A obtained 12%, ₱6,000,000 loan, specifically to finance
the construction of a building. The proceeds of the loan were temporarily invested and
earned interest income of ₱180,000. The construction was completed on December 31,
20x1. How much borrowing costs are capitalized to the cost of the constructed building?
a. 540,000 c. 720,000
b. 480,000 d. 0
On January 1, 20x1, Entity A had the following general borrowings. A part of the
proceeds was used to finance the construction of a qualifying asset:
Principal
12% bank loan (1.5 years) P 1,000,000
10% bank loan (3-year) 8,000,000
Expenditures made on the qualifying asset were as follows:
Jan. 1 P 5,000,000
March 1 4,000,000
August 31 2,000,000
Construction was completed on December 31, 20x1.
3. How much borrowing costs are capitalized to the cost of the constructed qualifying
asset?
a. 1,045,000 c. 1,026,667
b. 971,111 d. 920,000
4. How much is the cost of the qualifying asset on initial recognition?
a. 13,010,000 c. 14,920,000
b. 15,045,000 d. 14,971,111
5. PAS 23 does not require which of the following disclosures?
a. The amount of borrowing costs capitalized during the period.
b. The capitalization rate used to determine the capitalizable borrowing costs.
c. Separate presentation of qualifying assets from other assets either on the face of the
statement of financial position or in the notes.
d. PAS 23 requires the disclosure of all of these information.
PROBLEMS (PAS 24)

1. Which of the following best indicates that two parties are related for purposes of PAS
24?
a. One party is larger than the other.
b. The parties are a parent and a subsidiary.
c. One party has the ability to affect the financial and operating decisions of the
other party through control, significant influence or joint control.
d. One party is in the private sector and the other is a government regulatory
body.
2. Which of the following are not related parties?
a. A parent and its subsidiary
b. Two or more subsidiaries with the same parent
c. A company and its Chief Executive Officer
d. Two co-ventures of a common joint venture business
3. Which of the following is not a required disclosure under PAS 24?
a. Relationships between parents and subsidiaries
b. Key management personnel compensation
c. Related party transactions (in the separate financial statements)
d. Related party transactions (in the consolidated financial statements)

1. According to PAS 24, related party disclosures are necessary
a. because related party transactions may have resulted to assets and liabilities
that were recognized in the financial statements of the reporting entity.
b. to notify users of financial statements of the fact that related party transactions
may not have been made on arm’s length basis.
c. to indicate the possibility that an entity’s financial position and performance
might have been affected by the existence of such relationship.
d. in order to eliminate or minimize the effects of related party transactions on the
financial statements of the reporting entity.
2. What is overriding consideration when determining the existence of a related party
relationship?
a. The ability of one party to affect decisions of another party regarding relevant
activities through the existence of control, joint control or significant influence.
b. The presence of relationship either by consanguinity or affinity.
c. The presence of a significant interest by one party over the other.
d. The presence of significant business transactions and economic dependence
between the parties.
3. Mr. Y and Ms. Z share joint control over Ventures, Inc. Which of the following are
related parties?
a. Mr. Y and Ms. Z c. Ventures, Inc. and PAS 24
b. Ventures, Inc. and Mr. Y d. none of these
4. Entity A is the parent company of Entity B. Which of the following is required to be
disclosed in the group’s (Entity A and B’s) consolidated financial statements?
a. the related party relationship between Entity A and Entity B
b. the related party transactions during the period
c. the outstanding balances in (c)
d. all of these
PROBLEMS (PAS 26)

1. According to PAS 26, a hybrid plan is accounted for as
a. defined benefit plan. c. a or b
b. defined contribution plan. d. partly a and partly b
2. In a defined benefit plan, if the actuarial present value of promised retirement benefits
exceeds the net assets available for benefits, there is
a. excess. c. retirement benefits.
b. deficit. d. income.
3. The amount of benefits to be received by employees enrolled in defined contribution
plan is
a. dependent on the contributions and investment income of the fund.
b. an amount that can be determined by reference to the plan formula.
c. equal to the contributions made to the plan.
d. the actuarial present value of all contributions to the fund, adjusted for
investment income and costs of managing the fund.
4. The financial statements of a retirement benefit plan, whether defined contribution
plan or defined benefit plan, does not include which of the following?
a. statement of cash flows
b. net assets available for benefits
c. statement of changes in net assets available for benefits
d. note disclosures

1. PAS 26 is applied in which of the following?
a. The determination by employers of the cost of providing retirement benefits to

employees.
b. The preparation of financial statements of a retirement benefit plan only when

it is held by a trustee.
c. The reporting of the individual benefits rights of participants to either a defined

contribution plan or defined benefit plan.
d. The preparation of financial statements of a retirement benefit plan, whether

funded or unfunded.
2. What is the main difference between the financial statements of a defined

contribution plan and a defined benefit plan?
a. The financial statements of a defined contribution plan include a statement of

net assets available for benefits.
b. The financial statements of a defined benefit plan include a statement of

changes in net assets available for benefits.
c. The financial statements of a defined contribution plan show information on

the actuarial present value of promised retirement benefits.
d. The financial statements of a defined benefit plan show information on the

actuarial present value of promised retirement benefits.
PROBLEMS (PAS 27)

PROBLEM: MULTIPLE CHOICE
1. According to PAS 27, which of the following is required to present separate financial
statements?
a. A publicly-listed entity
b. A parent
c. An entity with an investment in associate
d. None of these
1. According to PAS 27, investments in subsidiaries, associates or joint ventures are
accounted for in the separate financial statements
a. at cost.
b. in accordance with PFRS 9 Financial Instruments
c. using the equity method under PAS 28 Investments in Associates and Joint
Ventures.
d. any of these, as a matter of accounting policy choice.
PROBLEMS (PAS 28)

1. According to PAS 28, significant influence is presumed to exist when the investor
a. holds 10% or more of the voting power of the investee.
b. holds 20% or more of the voting power of the investee.
c. holds 51% or more of the voting power of the investee.
d. has the ability to appoint a majority of the investee’s board of directors.
2. PAS 28 requires the use of the equity method. Under this method, an investment
in associate or joint venture is initially and subsequently measured at
Initial measurement Subsequent measurement

a. fair value initial cost, adjusted for the investor’s
. share in the investee’s changes in equity
b. cost cost, adjusted for the investor’s share

in . the investee’s changes in equity
c. fair value plus fair value

transaction cost
d. fair value plus initial cost, adjusted for the investor’s
transaction costs share in the investee’s changes in equity
3. Under the equity method, which of the following decreases the carrying amount
of an investment in associate or joint venture?
a. share in the profit of the investee
b. share in other comprehensive income of the investee
c. share in the dividends declared by the investee
d. a decline in the fair value of the investment
4. Entity A acquired 20% interest in Entity B on March 31, 20x1 for P500,000. Entity
B reports profit of P1M in 20x1, which was earned evenly throughout the period,
and declares dividends of P300,000 at year-end. In 20x2, entity reports loss of
P200,000 and declares no dividends. What is the carrying amount of the
investment in associate on December 31,20x2?
a. 550,000 c. 600,000
b. 590,000 d. 640,000

1. On January 1, 20x1, Entity A acquires 30% interest in Entity B for P600,000.
Entity B reports profit of P200,000 and declares dividends of P50,000 in 20x1.
How much is the carrying amount of the investment in associate on December
31, 20x1?
a. 600,000 c. 645,000
b. 660,000 d. 630,000
2. Entity A uses the equity method in accounting for its 20% interest in Entity B.
Entity B reports profit of P4M for the period. Entity B has outstanding 5%
cumulative preference shares with an aggregate per value of P10M. Entity A
holds none of the preference shares. Entity B did not declare dividends on the
preference shares in the last three years, including the current year. How much is
Entity A’s share in the profit of Entity B?
a. 800,000 c. 600,000
b. 700,000 d. 500,000
3. Entity A acquires 20% interest in Entity B on September 1, 20x1. On November
20, 20x3, because of a short-fall in cash flows, Entity A sells one-half of the
investment in Entity B. The remaining shares held do not give Entity A significant
influence over Entity B. Entity A uses a calendar year’ accounting period. During
what period should Entity A apply the equity method of PAS 28?
Start Cease
a. Earliest period presented November 30,20x3
b. September 1, 20x1 November 30,20x1
c. January 1, 20x1 November 30,20x3
d. Entity A should not apply the equity method.
(PAS 29)
1. PAS 29 applies only in case of
a. inflation c. hyperinflation
b. deflation d. foreign operation
2. According to PAS 29, which of the following are restated in case an entity’s
functional currency is that of a hyperinflation economy?
a. monetary items c. physical assets
b. nonmonetary items d. intangible assets
3. Entity A acquires land for P800,000 on February 14, 1998 Entity A’s functional
currency is that of a hyperinflationary economy. The general price indices are
as follows;
February 14, 1998 100

Average – 20x2 180
December 31, 20x2 190
What is the restated amount of the land on December 31, 20x2?
a. 1,520,000 c. 1,467,649
b. 844,444 d. 800,000
1. Entity A operates in a hyperinflationary economy. Entity A has the following
assets before restatement on December 31, 20x1
Accounts Receivable, net P300,000

Building, net 900,000
The building was acquired on May 21, 20x0. The general price indices as
follows:
May 21, 20x0 100
What are the restated amounts of the assets?
Accounts receivable Building
a. 250,000 1,350,000
b. 286,667 1,478,932
c. 300,000 1,350,000
d.
e. 300,000 900,000
2. Entity A operates in a hyperinflationary economy. Entity A has total sales

revenue of P1,200,000 before restatement on December 31, 20x1. The sales
were earned evenly during the period. The general price indices are as
follows:

What is restated amount of the sales?
a. 1,333,333 c. 2,400,000
b. 1,300,000 d. 1,200,000
PAS 32
Problem 1: Multiple Choice
1. Which of the following is within the scope of PAS 32?
a. Financial assets in the form of investments in subsidiaries associates and

joint ventures.
b. Contracts for the delivery or receipt of commodity and other non-financial

items that can be settled net in cash or other financial assets.
c. Physical assets, such as inventories and PPE.
d. Liabilities arising from constructive obligations.
2. A contract that evidences a residual interest in the entity’s assets after deducting
all of its liabilities is classified as
a. a financial liability
b. an equity instrument
c. a or b
d. d. neither a nor b
a. The PAS 32 definition of “equity” reflects the basic accounting equation of

“Assets –Liabilities= Equity.”
b. According to PAS 32, a contract is an equity instrument if it may result in the

receipt or delivery of the entity’s own equity instruments.
c. Entity A issues a compound financial instrument for ₱1M. If the fair value of
the liability component without the equity feature is ₱.8M, the value to be
assigned to the equity component is ₱.2M.
d. An intention to settle a financial asset and a financial liability on a net basis

without the legal right to do so is not sufficient to justify offsetting because the
rights and obligations associated with individual financial asset and financial
liability remain unaltered.
4. Entity A issues an instrument that is re-purchasable by delivering cash or another
financial asset. However, Entity A’s contractual obligation to repurchase the
instrument is conditional on the holder (the counterparty) exercising its right to
redeem. Which of the following statements is correct from the perspective of
Entity A?
a. The instrument is a financial liability because when the holder exercises its
redemption right, Entity A does not have the unconditional right to avoid
making the payment.
b. The instrument is an equity instrument because Entity A’s contractual

obligation to deliver cash or another financial asset is conditional on the
holder exercising its right to payment.
c. Entity A initially classifies the instrument as an equity instrument. However,

when the holder exercises its redemption right, the instrument is reclassified
to financial liability.
d. The instrument is classified as a financial liability only up to the extent of the

probability that the holder will exercise its right to redeem the instrument.
5. A gain or loss may arise from which of the following?
a. The initial recognition of the debt and equity components of a compound

financial instrument.
b. The purchase, sale, issue or cancellation of the entity’s own equity

instruments.
c. The conversion of bonds into the entity’s own equity instrument.
d. The settlement of a liability at an amount below or above its carrying amount.

Financial Instruments
1. A contract that will be settled by the entity (receiving or) delivering a fixed number
of its own equity instruments in exchange for a fixed amount of cash or another
financial asset is most likely to be classified by the issuer as
a. a financial liability
b. an equity instrument
c. a or b
d. d. neither a nor b
Presentation
2. Which of the following is classified as an equity instrument rather than a financial
liability?
a. Preference shares that are mandatory redeemable
b. A contract that is settled by the delivery of a variable number of the entity’s

own equity instruments in exchange for a fixed amount of cash or another
financial asset.
c. A contract that is settled by the delivery of a fixed number of the entity’s own
equity instruments in exchange for a variable amount of cash or another
financial asset.
d. Shares issued but were subsequently reacquired.
Compound Instruments
3. Entity A issues convertible bonds with face amount of ₱2,000,000 for ₱2,600,000.
Each ₱1,000 bond is convertible into 10 shares with par value of ₱60 per share.
On issuance date, the bonds are selling at 102 without the conversion option.
What is value allocated to the equity component on initial recognition?
a. 2,040,000
b. 560,000
c. 540,000
d. 460,000
Treasury shares, Interest, Dividends, Losses and Gains

4. Which of the following statement is correct?
a. Entity A reacquires its own shares for ₱10,000. The shares were originally
issued for ₱4,000. Entity A recognizes a loss of ₱6,000.
b. Gains and losses arising from a financial liability are recognized in directly in
equity.
c. Entity A declares dividends. Entity A will recognize the amount of the

dividends as expense in profit or loss.
d. Entity A settles a liability with carrying amount of ₱100,000 for ₱85,000. This
transaction results to a ₱15,000 gain that is recognized in profit or loss.
Offsetting
5. Entity A has an account receivable of ₱200,000 from Entity B. In addition, Entity
A also has an account payable of ₱160,000 to Entity B. The account receivable is
due in 30 days while the account payable is due in 90 days. Entity A intends to
settle first the account receivable. If Entity A has a legal right to set off, how much
amount receivable will be shown in its statement of financial position?
a. 200,000
b. 40,000
c. 160,000
d. a or b
PAS 33
Problems
Problem 1: Multiple Choice
1. PAS 33 is intended to apply to which of the following?
a. Publicly-listed entities
b. Non-publicly listed entities
c. Financial institutions
d. All entities using the PFRSs

2. Which of the following does not result to retrospective adjustment of prior-period
EPS information?
a. share dividends c. issuance of shares for cash
b. share split d. issuance of stock rights
3. Earnings per share is not required to be computed on
a. Profit or loss from continuing operations.
b. Results of discontinued operations.
c. Profit or loss for the year.
d. Other comprehensive income.

Basic EPS
1. Entity A had 100,000, ₱10, 10% cumulative preference shares outstanding all
throughout 20x1. Entity A reported profit after tax of ₱2,800,000 for the year
ended December 31, 20x1. The movements in the number of ordinary shares are
as follows:
1/1/20x1 Ordinary shares outstanding 120,000

3/1/20x1 Shares issued for cash 42,000
9/30/20x1 Subscribed shares 20,000
11/1/20x1 Reacquisition of treasury shares (12,000)
Outstanding shares at the end of period 170,000
What is the basic earnings per share?

a. 18.92 c. 17.09
b. 18.07 d. 16.98
Basic loss per share

2. Entity A is computing for its basic earnings per share and has gathered the
following information:
Loss for the year (1,000,000)

Preferred dividends 50,000
Outstanding ordinary shares 100,000
There have been no changes in the number of outstanding ordinary shares
during the period. What is the basic earnings (loss) per share?
a. -10.50 c. -9.50
b. 10.50 d. 9.50
Restatement of EPS information

3. Entity A had 200,000 ordinary shares outstanding all throughout 20x1. In 20x2,
the following share issuances occurred:
 On April 1, 20,000 shares were issued for cash.
 On September 30, a 10% bonus issue (share dividends) was declared.
 On November 1, a 2-for-1 share split was issued.
Entity A had the following profits: ₱2,200,000 in 20x2 and ₱1,800,00 in 20x1. What are
the earnings per share to be disclosed in Entity A’s 20x2 comparative financial
statements?
20x2 20x1
a. 4.22 4.02
b. 4.37 4.07
c. 4.65 4.09
d. 4.78 4.12
Rights issue
4. Entity A has 200,000 ordinary shares outstanding on January 1, 20x1. Entity A
offers rights issue to its existing shareholders that enable them to acquire 1
ordinary share at a subscription price of ₱120 for every 5 rights held. The rights
are exercised on May 1, 20x1. The market price of one ordinary share
immediately before exercise is ₱180. Entity A reported profit after tax of
₱2,900,000 in 20x1. What is the basic earnings per share in 20x1?
a. 12.58
b. 12.67
c. 11.92
d. 17.67
Diluted EPS
5. Entity A had the following instruments outstanding all throughout 20x1:
12% convertible bonds payable issued at face amount, each ₱ 1,000 bond is convertible
into 30 ordinary shares ₱2,000,000 Ordinary shares, ₱10 par, 10,000 shares issued and
outstanding 1,000,000
Profit for the year is ₱800,000. Entity A’s income tax rate is 30%.
What is the diluted earnings per share in 20x1?
a. 6.28 c. 6.05
b. 6.15 d. 5.98
PAS 34
1. Entity A wants to publish quarterly interim financial reports. Which of the
following standards may Entity A apply in preparing and presenting its interim
financial reports?
a. PAS 1 c. PFRS 1
b. PAS 34 d. a or b
2. If an entity does not prepare interim financial reports,
a. Its annual financial statements would not conform to the PFRSs.
b. Its annual financial statements should not be described to have been

prepared in accordance with PFRSs.
c. the conformance of its annual financial statements with the PFRSs is not
affected.
d. a and b

1. Which of the following is correct regarding the provisions of PAS 34?
a. All entities should publish quarterly interim reports.
b. All publicly-listed entities should publish quarterly interim reports.
c. All publicly-listed entities should publish semi-annual interim reports.
d. PAS 34 does not require any entity to publish interim reports, and how
often.
2. Interim financial reports prepared in accordance with PAS 34 shall, at a

minimum, include
a. semi-annual interim financial statements
b. complete set of financial statements.
c. condensed set of financial statements.
d. a statement of financial position and an income statement.
3. Entity A publishes quarterly interim financial reports. Entity A’s annual

depreciation for items of PPE is ₱120,000. At the end of the first quarter, Entity
A’s inventories have a cost of ₱600,000 and a net realizable value of ₱510,000.
Entity A expects that the total employee bonuses (13 th month pay) that will be
paid at year-end will amount to ₱60,000. How much is the total amount of
expense to be recognized from the items described above in Entity A’s first
quarter statement of profit or loss?
a. 120,000 c. 30,000
b. 135,000 d. 270,000
PAS 36
1. Which of the following assets is not tested for impairment in accordance with
PAS 36?
a. Investment property measured under the cost model
b. Investment in associate
c. Goodwill
d. Accounts receivable
2. According to PAS 36, an asset is impaired if its carrying amount exceeds its
recoverable amount. Recoverable amount is the asset’s
a. Fair value less costs of disposal.
b. Value in use.
c. Higher of a and b
d. Lower of a and b
3. Entity A uses a calendar year accounting period. On May 21, 20x1, Entity A
acquires an intangible asset with an indefinite useful. According to PAS 36, the
first impairment testing of the asset is
a. On May 21, 20x2.
b. Anytime between May 21, 20x1 to May 21, 20x2.
c. On or before December 31, 20x1.
d. When an indication of impairment is assessed to exist for the asset.
4. The impairment loss on which of the following assets is never reversed?
a. Intangible assets with indefinite useful life
b. Goodwill
c. Intangible assets not yet available for use
d. All of these

1. On December 31, 20x1, Entity A determines that its building is impaired. Entity A
gathers the following information:
Building 2,000,000
Accumulated depreciation 600,000
Fair value less costs of disposal (FVLCD)
900,000
Value in use (VIU) 1,080,000
After the impairment, the building is assessed to have a remaining useful life to six
years and no residual value. How much is the impairment loss?
a. 320,000 c. 500,000
b. 180,000 d. 270,000
2. On December 31, 20x2, Entity A determines an indication that the impairment

loss recognized in the prior period may no longer exist. The revised recoverable
amount of the building on December 31, 20x2 is ₱1,280,000. If no impairment
loss had been recognized in the prior period, the carrying amount of the building
on December 31, 20x2 would have been ₱1,200,000. How much is the gain on
reversal of impairment on December 31, 20x2?
a. 314,351 c. 303,315
b. 312,156 d. 300,000
PAS 37
1. Liabilities arise from either legal or constructive obligation.

Which of the following is a source of constructive obligation?
a. contract c. quasi-contract
b. law d. an established pattern of past practice
2. According to PAS 37, provisions are measured at

a. the entity’s best estimate of the settlement amount
b. the expected value of the settlement amount.
c. the mid-point amount of a range of estimates
d. any of these, whichever is most appropriate
3. According to PAS 37, a provision does not arise from

a. restructuring. c. product warranties
b. future operating losses. d. constructive obligation.

1. According to PAS 37, a provision is
a. A present obligation that cannot be measured reliably.
b. A possible obligation that arises from past events.
c. A liability of uncertain timing or amount.
d. All of these
2. According to PAS 37, contingent liabilities are
a. Recognized and disclosed.
b. Always disclosed.
c. Disclosed only, if their expected occurrence is probable.
d. Not disclosed if their expected occurrence is remote.
a. A provision is recognized only when it represents a present obligation.
b. An event or transaction that meets both the “probable outflow of economic
benefits” and “reliable measurement” criteria is always recognized.
c. A contingent asset that is possible is ignored.
d. A contingent liability that is possible is ignored.
PAS 38
PROBLEMS
1. According to PAS 38, intangible assets are measured as follows:
Initial measurement Subsequent measurement

a. Cost fair value
b. Cost cost model or revaluation model
c. Cost cost model or fair value model
d. Fair value cost model or revaluation model
2. According to PAS 38 , research and development costs incurred in self-

generating an intangible asset are recognized as follows:
Research costs Development costs

a. Expensed expensed
b. Capitalized capitalized
c. Expensed capitalized
d. Expensed expensed, but may be capitalized in
some circumstances
3. According to PAS 38, which of the following intangible assets are not
subsequently amortized?
a. Internally generated intangible assets
b. Intangible assets that were impaired
c. Intangible assets measured under the revaluation model
d. Intangible assets with indefinite useful life
e. All intangible assets are amortized

1. On January 1, 20x1, Entity A registers a patent for a total registration and legal
costs of ₱600,000. Entity A estimates that the patent has a remaining useful life
of 25 years. How much is the carrying amount of the patent on December 31,
20x1?
a. 576,000 c. 564, 000
b. 570,000 d. 580,000
2. Entity A incurred the following costs during 20x1:

 Testing in search for, or evaluation of , product or process alternative
300,000
 Adaption of existing capability to a particular requirement or customer’s
need 420,000
 Design, construction, and testing of preproduction prototypes and models
620,000
 Routine design of tools, jigs, molds, and dies
380,000
How much is the research and development expense in 20x1
a. 620,000 c. 1,300,000
b. 920,000 d. 1,340,000
3. If it is not clear whether an expenditure is a research or a development cost, it is

treated as a (an)
a. research cost. c. regular expense.
b. development cost. d. ignored.
MEMBERS:
JAMELA FAYE BERAME
MARIJOY CABRAS
MARVIN DE CASTRO
NYKKA ANDREA CORTES
REALEE GABARRA

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OVERVIEW OF ACCOUNTING

1. The concept of recognition is applied in which of the following instances?

2. Which of the following events is not considered an exchange or reciprocal

3. Which of the following events is considered a nonreciprocal transfer?

4. To be useful, accounting information should be presented using

5. Which of the following violates the historical cost concept?

8. Preparing financial statements at least annually is an application of which of the

9. Entity A acquires merchandise inventory. Entity A initially records the acquisition

PROBLEM 3: MULTIPLE CHOICE

3. When resolving accounting problems not specifically addressed by current

4. The proper application of accounting principles is most dependent upon the

5. Which of the following statements is correct?

6. Which of the following statements is correct?

8. Which of the following statements is incorrect?

10. Changes to reporting standards are primarily made in response to

10. Which of the following statements is incorrect regarding the PFRSs?

2. Information that is capable of making a difference in the decisions made by users

3. When making materiality judgments, the overriding consideration is

4. This qualitative characteristic is unique in the sense that it necessarily requires at

5. Which of the following enhances the comparability of information?

6. Information has this qualitative characteristics if different, knowledgeable and

7. Entity A is assessing whether an item meets the definition of financial statement

9. Which of the following does not meet the definition of an asset?

10. Which of the following could result to the recognition of income?

PROBLEM 3: MULTIPLE CHOICE

2. General purpose financial statements are designed to

3. This refers to the process of incorporating in the statement of financial position or

4. This concept is used in the recognition criteria to refer to the degree of

6. According to the conceptual framework, this information provides an indication of

7. Which of the following is considered a qualitative factor in making materiality

PROBLEM 4: FOR CLASSROOM DISCUSSION

8. Which of the following would not result to the recognition of liability?

9. Entity A determined that an asset has ceased to provide future economic

3. The scope of PAS 1 is

4. The statement of financial position is also called

5. When preparing financial statements, PAS 1 requires management to assess the

6. Which of the following is not considered an appropriate application of offsetting

8. The PFRSs apply to which of the following?

9. This is the most commonly used method of presenting a statement of financial

a. Classified presentation c. Classified as to liquidity

b. Unclassified presentation d. Based on liquidity

PROBLEM 3: MULTIPLE CHOICE

b. Management d. Government regulatory body

2. The statement of financial position may be presented either showing current/non-

a. Classified presentation c. combination of a and b

b. Unclassified presentation d. none of these

3. Which of the following is a current asset?

b. Property, plant and equipment

c. Non-trade note receivable due in 13 months

4. Which of the following statement is incorrect regarding the provisions of PAS 1?

a. An entity is required to present separate sections of profit or loss and

b. Presenting an income statement or statement of profit or loss in addition to

c. Presenting an income statement or statement of profit or loss alone

d. Presenting comprehensive income as a note disclosure only is prohibited.

5. When a separate statement of profit or loss (income statement) is presented,

b. it shall be displayed immediately after the statement presenting

a. The separate income statement forms part of a complete set of financial

b. The profit or loss section is not presented anymore in the statement

c. The profit or loss section is required to be presented in the statement

d. The separate statement presenting comprehensive income begins with

7. Entity A reclassifies a gain that was previously recognized in other

a. as an addition c. only at net of tax

b. as a deduction d. none of these