ADVANCED FINANCIAL ACCOUNTING - THEORY PORTION

IAS AND IFRS

IAS 21 – EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES

1. For reporting purposes, currencies are defined as

A. International and functional
B. Foreign, functional and presentation
C. Domestic and international
D. Operating, international and presentation

2. The functional currency is

A. The currency in which the entity reports earnings.
B. The currency in which the entity primarily conducts banking activities.
C. The currency in which the entity primarily operates.
D. The currency in which the entity presents the financial statement

3. Which consideration would not be relevant in determining the entity’s functional currency?
A. The currency that influences the costs of the entity.
B. The currency in which finance or fund is generated.
C. The currency in which receipts from operating activities are retained.
D. The currency that is the most internationally acceptable for trading.

IAS 29 – FINANCIAL REPORTING IN HYPERINFLATIONARY ECONOMY

4. An entity has several subsidiaries that operate in a hyperinflationary economy which uses the zloty
as its local currency. Management wishes to show the financial statements in US dollars. Many of
the operations are within countries that are not hyperinflationary and these subsidiaries use the euro
as their functional currency. What currency should the entity use to present its consolidated
financial statements?
A. The US dollar
B. The zloty
C. The euro
D. The entity may use any currency

5. Which of the following should be considered nonmonetary?

A. Trade receivables.
B. Deferred tax liabilities
C. Accrued expense and other payables
D. Taxes payable

IFRS 3 - BUSINESS COMBINATION

6. Which is incorrect regarding the acquisition method of accounting for a business combination
requires all, except
A. Identifying the acquirer.
B. Determining the acquisition date.
C. Recognizing and measuring the identifiable assets acquired, the liabilities assumed and the
noncontrolling interest in the acquiree at carrying amount.
D. Recognizing goodwill or gain from bargain purchase

7. Which of the following is not one of the steps in accounting for an acquisition?
A. Prepare proforma financial statements prior to acquisition.
B. Determine the acquisition date.
C. Identify the acquirer
D. Expense the costs and general expenses of the acquisition in the period of acquisition.
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8. What is meant by “full goodwill” method?

A. The recognition of goodwill which relates to the parent company interest.
B. The recognition of goodwill which relates to the noncontrolling interest and the controlling
interest
C. The recognition of goodwill which relates to the noncontrolling interest
D. A bargain purchase

9. Which statement is true in relation to business combination achieved in stages?

A. The pre-existing equity interest shall be remeasured at fair value with any resulting gain or loss
included in profit or loss.
B. The pre-existing equity interest shall be remeasured at fair value with any resulting gain or loss
included in other comprehensive income.
C. The pre-existing interest shall not be remeasured.
D. The pre-existing interest shall be remeasured at fair value with any resulting gain or loss
recognized in retained earning

10. How should an entity account for the incomplete information in preparing the financial statements
immediately after the acquisition?
A. Do not record the uncertain items until complete information is available.
B. Record a contra account to the investment account for the amounts involved.
C. Record the uncertain items at the carrying amount of the acquiree.
D. Record the uncertain items at a provisional amount measured at the date of acquisition.

IFRS 10 – CONSOLIDATED FINANCIAL STATEMENTS

11. Consolidated financial statements are typically prepared when one entity has a controlling financial
interest in another unless
A. The subsidiary is a finance entity.
B. The fiscal year-ends of two entities are more than three months apart.
C. Such control is likely to be temporary.
D. The two entities are in unrelated industries, such as manufacturing and real estate.

12. A parent is exempted from preparing consolidated financial statements if all of the following
conditions exist, except
A. The parent is wholly or partially owned and the owners do not object to the nonconsolidation.
B. The parent does not have any debt or equity instruments publicly traded.
C. The parent reports one class of share capital in the statement of financial position
D. The ultimate parent prepares consolidated financial statements that comply with IFRS.

13. Which of the following conditions is required to exclude a subsidiary from consolidation?
A. The other owners object to the nonconsolidation.
B. The parent makes an election not to consolidate.
C. The other owners do not object to the nonconsolidation and the subsidiary does not have any
publicly traded debt or equity instruments.
D. The parent must own 100% of the subsidiary.

14. The noncontrolling interest should be recorded at what amount?

A. The fair value of the shares held by the acquirer
B. The fair value of the shares not held by the acquirer or the proportionate share of the fair value
of net identifiable assets of the acquiree
C. The proportionate share of the carrying amount of net identifiable assets of the acquiree
D. The fair value of the shares held by the noncontrolling interest plus goodwill
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IFRS 11 – JOINT ARRANGEMENT

15. Which is a characteristic of a joint arrangement?

A. The parties are bound by a contractual arrangement.
B. The contractual arrangement gives two or more parties joint control over the arrangement.
C. The parties are bound by a contractual arrangement which gives two or more parties absolute
control over the arrangement.
D. The parties are bound by a contractual arrangement which gives two or more parties joint
control over the arrangement.

16. Two entities established a business. The contractual agreement provided that the relevant activities
of the business will require unanimous consent of the two parties. The business is not incorporated
before SEC. The two parties equally own interest in the said business. How should the two parties
account for their investment?
A. Proportionate consolidation
B. Joint operation
C. Joint venture
D. Business combination

17. Two entities established a joint arrangement in an incorporated entity. The assets and liabilities of
the entity will be in the name of the incorporated entity. The activities of the arrangement will be
decided by its own board of directors. The rights of the two parties are limited only to the net assets
of incorporated entity. How should the two parties account for their investment?
A. Proportionate consolidation
B. Joint venture
C. Joint operation
D. Investment in trading securities

IFRS 15 – REVENUE FROM CONTRACTS WITH CUSTOMERS

18. When shall an entity recognize revenue from contracts with customers?
A. When it is probable that future economic benefits will flow to the entity and the revenue can be
measured reliably.
B. When or as the entity satisfies the performance obligation.
C. When the entity collected the cash from the customers.
D. When the entity and the customers sign the contracts.

19. What is the accounting treatment of the transaction price when a contract with a customer has
multiple performance obligations?
A. The transaction price shall be recognized as revenue of the most important performance
obligation.
B. The transaction price shall be allocated equally to the different performance obligations.
C. The transaction price shall be allocated to the different performance obligations by reference to
their relative standalone selling prices.
D. The transaction price shall be recognized as revenue only at the end of completion of all
performance obligations.

FRANCHISE ACCOUNTING - FRANCHISOR

20. Franchise fee revenue shall be recognized when all material services or conditions have been
substantially performed or satisfied by the franchisor. Substantial performance means

A. Franchisor has no remaining obligation or intent to refund money or forgive unpaid debt.
B. Substantially all initial services have been performed.
C. No other material conditions or obligations exist.
D. All of these define substantial performance by the franchisor.
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21. Continuing franchise fees should be recorded by the franchisor

A. As revenue when earned and receivable from the franchisee.
B. As revenue when received.
C. In accordance with the accounting procedures specified in the franchise agreement.
D. As revenue only after the balance of the initial franchise fee has been collected.

CONSTRUCTION CONTRACT

22. Contract revenue in construction contract comprises

A. The initial amount of revenue agreed in the contract
B. Variation in contract work, claim and incentive payment
C. The initial amount of revenue agreed in the contract, variation in contract work, claim and
incentive payment.
D. The initial amount of revenue agreed in the contract and progress billings.

23. Contract costs of a construction contract comprise all of the following, except
A. Costs that directly relate to the specific contract.
B. Costs that are attributable to contract activity in general and can be allocated to the contract.
C. Such other costs that are specifically chargeable to the customer under the terms of the
contract.
D. General administration costs for which reimbursement is not specified in the contract.

24. The percentage of completion of a construction is based on all of the following, except
A. The proportion that contract costs incurred for work performed to date bear to the estimated
total contract costs.
B. Survey of work performed
C. Completion of physical proportion of the contract work
D. Progress payments and advances received from customers

25. When it is probable that total contract costs on a fixed price contract will exceed total contract
revenue, the expected loss should be
A. Set off against profit on other contracts
B. Recognized as expense immediately unless revenue to date exceeds costs to date
C. Apportioned to the years of the contract according to the stage of completion
D. Recognized as expense immediately

COST ACCOUNTING
26. In a job order cost system, the use of direct materials previously purchased usually is recorded
as an increase in
A. Work in process control
B. Factory overhead applied
C. Factory overhead control
D. Stores control

27. In a job order cost system, the use of indirect materials previously purchased is recorded usually
as an increase in
A. Stores control
B. Work in process control
C. Factory overhead control
D. Factory overhead applied

28. In a job order system, direct labor costs usually are recorded initially as an increase in
A. Factory overhead applied
B. Factory overhead control
C. Finished goods control
D. Work in process control
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29. In a job order cost system, the application of factory overhead would usually be reflected in
A. Factory overhead control
B. Finished goods control
C. Work in process control
D. Cost of goods sold

30. Overapplied overhead will always result when predetermined overhead rate is employed and
A. Production is greater than defined capacity
B. Actual overhead cost is less than expected
C. Defined capacity is less than normal capacity
D. Overhead incurred is less than overhead applied

NONPROFIT ORGANIZATION

31. Which categories are used in the statement of financial position of a nonprofit organization?
A. Net assets, income and expenses
B. Income, expenses and unrestricted net assets
C. Assets, liabilities and net assets
D. Changes in unrestricted, temporarily restricted and permanently restricted net assets

32. Which classification is required for reporting of expenses by all nonprofit organizations?
A. Natural classification in the statement of activities or notes to financial statements
B. Functional classification in the statement activities or notes to financial statements
C. Functional classification in the statement of activities and natural classification in a matrix
format in a separate statement
D. Functional classification in the statement of activities and natural classification in the notes to
financial statements

33. How should a nonprofit organization report depreciation in the statement of activities?
A. It should not be included.
B. It should be included as a decrease in unrestricted net assets.
C. It should be included as an increase in temporarily restricted net assets.
D. It should be reclassified from unrestricted net assets to temporarily restricted net assets,
depending on donor-imposed restrictions on the assets.

34. The assets in a quasi-endowment fund should be included in which of the following
classifications?
A. Temporarily restricted net assets
B. Unrestricted net assets
C. Permanently restricted net assets
D. Either temporarily or permanently restricted net assets depending upon the term of the quasi-
endowment

35. In the nonprofit university’s statement of cash flows for the current year, all of the following cash
inflows shall be reported as operating activities, except
A. From tuition fees
B. From a donor who stipulated that the money be invested indefinitely
C. From a donor who stipulated that the money be spent in accordance with the wishes of the
university’s governing board.
D. From unrestricted cash contribution

GOVERNMENT ACCOUNTING

36. What is the legal basis of the COA in prescribing the Government Accounting Manual?
A. Presidential Decree
B. Legislative Act
C. Constitution of the Republic of the Philippines
D. Recommendation of the International Monetary Fund
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37. The financial reporting for the National Government is under the Statutory responsibility of all
the following, except
A. Bureau of Treasury
B. Department of Budget and Management
C. Commission on Audit
D. Congress of the Republic of the Philippines

38. What is the paramount objective of financial reporting by national and local government?
A. Reliability
B. Consistency
C. Transparency
D. Accountability

39. It is the authorization issued by the Department of Budget and Management to National
Government Agency to incur obligations for specified amounts contained as a legislative
appropriation in the form of budget release documents.
A. Appropriation
B. Allotment
C. Obligation
D. Expenditure

40. It is the authority issued by the DBM to an agency to pay operating expenses, purchases of
materials and supplies and other authorized disbursement to through the use of Modified
Disbursement System checks.
A. Notice of Cash Allocation
B. Noncash Availment Authority
C. Notice of Transfer Allocation
D. Modified Disbursement System

HEDGING
41. Hedge accounting is permitted for all of the following, except
A. Trading investment
B. Unrecognized firm commitment
C. Forecasted transaction
D. Net investment in foreign operation

42. A cash flow hedge and a hedge of a net investment are accounted for by
A. Not recognizing gains and losses
B. Recognizing gains and losses in other comprehensive income
C. Recognizing gains and losses in profit and loss
D. Recognizing gains and losses when the hedge is closed out

43. Unrealized holding gain or loss arising from changes in fair value of derivatives designated as
cash flow hedge pertaining to effective portion shall be recognized in
A. Other comprehensive income with reclassification adjustment
B. Other comprehensive income without reclassification adjustment
C. Retained earnings
D. Profit or loss

IFRIC 12 SERVICE CONCESSION – BUILD, OPERATE AND TRANSFER

44. On the part of the private operator, the infrastructure asset in a service concession shall be
recognized as
A. Property, plant and equipment
B. Financial asset
C. Intangible asset
D. Either financial asset or intangible asset
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45. The private operator in a service concession shall recognize the infrastructure asset as financial
asset
A. When the private operator has an unconditional contractual right to receive a specified
amount of cash over the life of the arrangement.
B. When the private operator has received a right to charge users for the public service.
C. When the revenue receivable is not agreed upon in advance but is dependent on the use of the
asset.
D. Under all circumstances

PARTNERSHIP
46. How should the net profit or net loss of the partnership be divided among the partners, whether
capitalist or industrial?
A. In accordance with their capital contribution ratio
B. In accordance with just and equitable sharing taking into account the circumstances of the
partnership
C. Equally
D. In accordance with the partnership agreement

47. In the absence of partnership profit agreement to the contrary, how shall industrial partner
share in partnership profit?
A. Equal to the share of the least capitalist partner
B. Equal to the share of the highest capitalist partner
C. Just and equitable share
D. Equal to the average share capitalist partners

48. In the absence of partnership profit agreement to the contrary, how shall the remaining
partnership profit be distributed to the capitalist partners after distributing the share of industrial
partner?
A. Based on capital contribution ratio
B. Based on loss agreement ratio
C. Equally
D. Equal to share of industrial partner

CORPORATE LIQUIDATION
49. At the time of corporate liquidation, which of the following unsecured claims with priority shall
be settled first?
A. Liability for taxes
B. Liability for corporate crime
C. Liability for employee benefits
D. Liability for corporate torn

50. In corporate liquidation of a closed bank, which of the following unsecured credits is classified as
without priority?
A. Claims of bank depositors
B. Claims of bank employees
C. Claims of local government for local taxes
D. Claims for violation of Anti-Money Laundering Law
Suggested Answers:

1. B 11. C 21. A 31. C 41. A

2. C 12. C 22. C 32. B 42. B
3. D 13. C 23. D 33. B 43. A
4. D 14. B 24. D 34. B 44. D
5. B 15. D 25. D 35. B 45. A
6. C 16. B 26. A 36. C 46. D
7. A 17. B 27. C 37. D 47. C
8. B 18. B 28. D 38. D 48. A
9. A 19. C 29. C 39. B 49. C
10. D 20. D 30. D 40. A 50. A

END