Midterm EXAM

Name: Mary Grace P. Ebesa Class Schedule 9:00-10:30 (TTH)

True or False:

True 1. Non-accountable events are not recognized but disclosed only in the notes, if they have
accounting relevance.

False 2.When measurement is affected by estimates, the items measured are said to be valued by fact.

True 3.Under the Business entity/Separate entity/Entity/ Accounting entity Concept, the business is
treated separately from its owners.

True 4.Under the Accrual Basis of accounting, revenue is recognized when earned and expenses are
recognized when incurred, not when cash is received and disbursed.

True 5.Under the Time Period/Periodicity/Accounting Period concept, the life of the business is divided
into series of reporting periods.

False 6. Under the Cost-benefit concept, the cost of processing and communicating information should
exceed the benefits derived from it.

False 7. The only acceptable measurement basis in accounting is historical cost.

False 8. The financial reporting standards used in the Philippines are the same as those used globally.

True 9.The PFRSs are accompanied by guidance. The use of such guidance is sometimes mandatory and
sometimes optional.

False 10.The economic activity that involves using current inputs to increase the stock of resources
available for output is called savings.

True 11. The accounting process of assigning peso amounts to economic transactions and events is
measuring.

True 12. Under the concept of Financial capital maintenance, profit is earned if the net assets at the
end of the period exceeds the net assets at the beginning of the period, after excluding any distributions
to , and contributions from, owners during the period.

True 13.The decisions of primary users are based on assessments of an entity’s prospects for future net
cash inflows and management stewardship.

False 14.Direct verification involves checking the inputs to a model or formula and recalculating the
outputs using the same methodology (e.g, checking the debits and credits in the cash ledger and
recalculating the ending balance).

True 15.To help users of financial statements in evaluating changes and trends, financial statements
also provide comparative information for at least one preceding reporting period.

True 16. An obligation is a duty or responsibility that an entity has no practical ability to avoid.

True 17.Contributions from, and distributions to, the entity’s owners are income, and expenses, but
rather direct adjustments to equity.

True 18.General purpose financial statements are those statements that cater to the common needs of
a wide range of primary (external users).

True 19. The statement of financial position may be presented either showing current/non-current
distinction (classified) or based on liquidity (unclassified). PAS 1 encourages the classified presentation.
 True 20.Other comprehensive income comprises items of income and expenses (including
reclassification adjustments) that are not recognized in profit or loss as required or permitted by other
PFRS.

Multiple Choices: Encircle the letter of the correct answer. No Erasure.

1. 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

2 If an entity changes its reporting period to a period longer or shorter than one year, which of the
following shall be disclosed by the entity?

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. All of the above

3. Which of the following is a non-current asset?

a. Investment in Associate

b. Prepaid assets

c. Held for trading securities

d. All of the above

4. Which of the following is not a component of other comprehensive income?

a. Changes in revaluation surplus

b. Remeasurements of the net defined benefit liability (asset)

c. finance costs

d. Gains and losses on arising from translating the financial statements of a foreign operation

5. Which of the following best reflects the definition of 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 time 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 the manufacturing entity, this is the usual time it takes for the entity to acquire raw materials on
account and settle the account.

d. For the manufacturing entity, this is the usual time it takes for the entity to sell finished goods on
account and collect the receivables.
6. 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.

7. A consistently using same measurement bases for same items, either from period to period within
the single entity or within a single period across different entities.

a. Understandability

b. Verifiability

c. Comparability

d. Faithful Representation

8. Entity A is assessing whether an item meets the definition of a financial statement element. Entity A
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. Form over substance

b. Accrual

c. Verifiability

d. Substance over form

9. Increases in Assets, or decreases in liabilities, that result in increases in equity, other than those
relating to contributions from holders of equity claims.

a. Expenses

b. Income

c. Asset

d. Equity

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

a. Receipt of the proceeds of a bank loan

b. Receipt of delivery of equipment purchased on credit.

c. A commitment for future execution becomes burdensome.

d. Paying in advance the purchase price of inventories for future delivery