MIDTERM EXAM

1. Control is necessary element of an asset. Control means*

- the entity has the exclusive right over the benefits of an asset, including the ability to
prevent others from accessing those benefits.

2. An item would be considered material when *

- Omitting, misstating or obscuring the information would make a difference to the primary
users.

3. The Conceptual Framework uses the term "claims" against the reporting entity to refer to *

- liabilities and equity

4. Entity A determined that a previously recognized asset no longer meet the definition of an asset.
Accordingly, Entity A removed the carrying amount of the asset from the statement of financial
position and recognized it as an expense. Entity A is applying which of the following principles? *

- Derecognition

5. According to the Conceptual Framework, these are the qualitative characteristics that make
information useful to users. *

- Fundamental

6. Which statement is true in relation to events after reporting period? *

- Notes to the financial statements should give details of material non-adjusting events
which could influence the economic decisions of users.

7. Financial statements are authorized for issue *

- When the board of directors reviews and authorizes the financial statements for issue.

8. The statement of financial position is also called *

- Balance Sheet

9. 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. *

- Verifiability

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 allocation. *

- Function of Expense

11. Which of the following enhances the comparability of information? *

- Consistent application of accounting policies from period to period.

12. 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 *

- at least one year from the end of the reporting period

13 According to the Conceptual Framework, an item is recognized if it meets the definition of an
asset, liability, equity, income or expense and recognizing it would provide relevant and faithful
represented information. Which of the following relates to faithful representation rather than
relevance? *

- A high level of measurement uncertainty associated with the asset.

13. Entity A deliberately overstated its liabilities from PhP1M to PhP1.2M. What qualitative
characteristic is violated? *

- Faithful representation

14. 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 total assets. What type of materiality assessment is this? *

- Qualitative

15. Under IFRS, an entity can report interest paid on bank loan in the statement of cash flows *

- In operating activities

16. The Conceptual Framework (choose the incorrect statement) *

- prevails over PFRSs in cases of conflicts.

17. Why is an entity permitted to change an accounting policy? *

- The change would result in the financial statements providing more reliable and relevant
information about financial position, financial performance and cash flows.

18. PAS1 applies to which of the following *

- The preparation and presentation of general purpose financial statements.

19. 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?

- Ms. Y provides capital to Entity A.

20. In the absence of an accounting standard that applies specifically to a transaction, what is the
most authoritative source in developing and applying an accounting policy?

- The requirement and guidance in the standard or interpretation dealing with similar and
related issue.

21. The matching principle is best demonstrated by

- Associating effort with accomplishment

22. 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.

- Financial capital maintenance

23. General purpose financial statements are designed to

- meet most of the common needs of most primary users

24. How would the effect of a change in accounting estimate be accounted for?

- In the period of change and future periods if the change affects both.
25. Prior period errors

- Are omissions and misstatements in the financial statements of prior periods

26. The objective of PAS 1 is

- to ensure comparability by prescribing the basis for presentation of general purpose

financial statements.

27. Recognizing a financial statement element requires measuring it in monetary terms. Which of
the following statements is incorrect regarding measurement?

- Measurement uncertainty will always cause the nonrecognition of a financial statement

element.

28. Close family members of an individual include all, except

- Brothers and sisters of the individual

29. Which of the following is least likely to be considered when determining whether an item
meets the definition of an asset?

- whether it is probable (more likely than not) that the resource will produce economic
benefits.

30. Effective communication makes information more useful. Effective communication requires all
of the following except

- using standardized descriptions, a.k.a. 'boilerplate', rather than entity-specific

information.

31. Which of the following is not a purpose of the notes?

- Between related parties, regardless of whether a price is charged.

32. Investors and creditors use the income statement for all of the following except:

- To evaluate the future performance of an entity.

33. Which of the following is not one of the primary users listed in the Conceptual Framework?

- Debtors

34. Adjusting events are those that

- Provide evidence of conditions that existed at the end of the reporting period.

35. 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.

- Primary users

36. The minimum disclosures about related party transactions include all of the following, except

- Nature of the relationship

37. Which of the following is not an indication of an economic resource's potential to produce
economic benefits?

- The resource has no use in the entity's operations and has no resale value.

38. What is the purpose of reporting comprehensive income?

- To report a measure of overall entity performance.

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

- Equipment that the entity intends, and is very certain, to acquire in the future.

40. When it is difficult to distinguish between a change in accounting estimate and a change in
accounting policy, the change is treated as

- Change in accounting estimate with appropriate disclosure

41. Which of the following is not a related party of an entity?

- An entity providing banking facilities to the entity

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

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

43. Which is the first step within the hierarchy of guidance when selecting accounting policies?

- Apply a standard from IFRS if it specifically relates to the transaction.

44. Events after the reporting period are favorable or unfavorable events that occur between

- The end of the reporting period and the date when the financial statements are authorized
for issue.

45. When financial statements for a single year are being presented, a prior period error should

- Be shown as an adjustment of the beginning balance of retained earnings

46. Events that occur after the current year-end but before the financial statements are issued and
affect the realizability of accounts receivable should be

- Disclosed in the notes to financial statements

47. Which is not classified as an accounting change

- Error in the financial statements

48. Which of the following is accounted for as a change in accounting policy?

- A change in inventory valuation from FIFO to average method.

49. Which of the following is not one of the aspects in the revised definition of an asset?

- Probability of the expected inflows of economic benefits from the asset

50. Which of the following is not an acceptable method of presenting income and expenses?

- Presenting an income statement alone without a statement that presents comprehensive

income.

51. 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 concludes that it has decreased, Entity A's
financial information is not

- verifiable
52. According to PAS1, items of other comprehensive income are presented according to the
following groupings

- those that are subsequently reclassified to profit or loss and those that are not

53. Related parties include all of the following, except

- Two venturers simply because they share joint control over a joint venture

54. This qualitative characteristic is unique in the sense that it necessarily requires at least two
items.

- Comparability

55. The Conceptual Framework is least applicable in which of the following cases?

- to account for a transaction that is specifically dealt with by a Standard

56. A change in accounting policy requires the cumulative effect of the change for prior periods
should be reported as an adjustment to *

- Beginning retained earnings for the earliest period presented.

57. A change in accounting policy requires what kind of adjustment to the financial statements?

- Retrospective adjustment

58. What type of users' needs is catered by general purpose financial statements? *

- common needs

59. Which of the following statement is correct?

- Accounting is considered an art because it requires the use of creative skills and
judgement.

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

- An entity includes the effects of an event in the financial statements through a journal
entry.

61. According to the revised Conceptual Framework, income and expenses are classified as
either

- gains and revenue, and expenses and losses, respectively

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

- donation

63. Which of the following is the proper time period to record the effect of a change in accounting
estimate?

- Current period and prospectively

 Quiz - The Accountancy Profession

64. The important points made in the definition of accounting include all of the following, except

- Accounting information is both quantitative and qualitative.

65. Which is incorrect in relation to an accountable event?

- Sociological and psychological matters are quantifiable.

66. What is measuring component in the definition of accounting?

- The assigning of peso amounts to the accountable events.

67. The communicating process of accounting includes all of the following, except

- Interpreting

68. What is the overall objective of accounting?

- To provide quantitative financial information about an entity that is useful in making

economic decision.

69. Which statement is incorrect in relation to the practice of public accountancy?

- The Securities and Exchange Commission can register any corporation organized for the
practice of public accountancy.

70. What is the law regulating the practice of accountancy in the Philippines?

- R.A. No. 9298

71. The Philippine Financial Reporting Standards collectively include*

- PFRS corresponding to IFRS, PAS corresponding to IAS, Philippine Interpretations

corresponding to IFRIC and SIC Interpretations and Interpretations developed by PIC.

72. Accounting standard-setting has been characterized as*

- a political process

73. The standard-setting process includes in the correct order

- Exposure draft, research, discussion paper and accounting standard

74. The IASB employs a due process system which

- enables interested parties to express their views on issues under consideration.

75. Which statement is true regarding managerial and financial accounting?

- Managerial accounting need not follow generally accepted accounting principles while
financial accounting must follow GAAP.

76. Which statement best describes GAAP?

- The accounting principles have been developed on the basis of such factors as usage and
practical necessity.

77. Proper application of accounting principles is most dependent upon

- professional judgement of the accountant

78. Generally accepted accounting principles

- derive their credibility and authority from general recognition and acceptance by the
accountancy profession.

QUIZ - PAS 2, 16, 20, 23, 28

79. Which of the following is not an acceptable choice of depreciation method under PAS 16*

-a method that is based on the levels of revenue earned.

80. Which of the following approaches is used in the accounting for government grants under PAS
20? *

-Income approach

81. In which of the following instances is a write-down of inventories to net realizable value may
not be required? *

-the estimated costs to complete or costs to sell have increased

82. Conversion costs do not include which of the following costs? *

- Direct materials, Direct labor, Production

83. Which of the following is not classified as property, plant and equipment?

- Minor spare parts and short-lived stand-by equipment

84. Which of the following instances precludes an entity from recognizing depreciation?

- the fair value of the asset exceeds its carrying amount but the asset's residual value does
not exceed its carrying amount.

85. Depreciation does not cease in which of the following instances?

- The item of PPE becomes idle or is retired from active use.

86. Which of the following does not form part of the initial cost of an item of Property, Plant and
Equipment (PPE)?

- Advertising and promotional costs

87. Under the equity method, which of the following decreases the carrying amount of an
investment in associate or joint venture?

- share in the dividends declared by the investee

88. It is an entity over which the investor has significant influence.

- Associate

89. 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?

- FIFO or Weighted Average

90. In which of the following cases is an asset not considered to be fully depreciated? *

- When the asset's cost is equal to its carrying amount.

91. In which of the following instances is the capitalization of borrowing costs under PAS 23 would
most likely be suspended?

- Active development is stopped to give time for the engineers to reevaluate a desgin flaw.

92. According to PAS 23, borrowing costs are capitalized when*

- they relate directly to the acquisition, construction or production of a qualifying asset

93. According to PAS 16, an entire class of PPE is subsequently measured under the

- cost model or revaluation model

94. Which of the following does not affect the determination of depreciation charges on an item of
PPE?

- Repairs and maintenance

95. Which of the following is not included as part of the cost of an inventory?

- Selling Cost

96. Inventories are usually written down to net realizable value

- on an item by item basis.

97. Which of the following statements is incorrect regarding the use of cost formulas? *

- Only one formula shall be used for all inventories regardless of differences in their nature
and use

98. Which of the following items of PPE is most likely to be derecognized?

-a PPE that is donated to an external party.

99. According to PAS 28, significant influence is presumed to exist when the investor

- holds 20% or more of the voting power of the investee

100. Which of the following is a qualifying asset?

- An application software (intangible asset) that takes 3 years to develop.

101. The depreciation method prescribed by PAS 16 is

- Diminishing Balance

102. According to PAS 23, borrowing costs that do not directly relate to the acquisition,
construction or production of a qualifying asset are

- expensed

103. An entity starts the capitalization of borrowing costs to the cost of a qualifying asset when

- expenditures for the asset are being incurred, borrowing costs are being incurred ,
activities necessary to prepare the asset for its intended use or sale are being undertaken.
 QUIZ - DECEMBER 3

104. A deferred tax liability shall be recognized for all

- Taxable temporary differences

105. Which condition must be met for an item to be recognized as an intangible asset other than
goodwill?

- The item is non-monetary, identifiable and lacks physical substance.

106. Which is not classified as a financial instrument?

- Warranty provision

107. An asset is reviewed for impairment

- When circumstances indicate that the carrying amount of an asset might not be
recoverable.

108. All of the following can be considered bearer plant, except

- Tree in a forest plantation to be harvested and sold as log or lumber

109. Which is the proper treatment of contingent asset?

- A disclosure only

110. Which statement best describes impairment loss?

- The amount by which the carrying amount of an asset exceeds the recoverable amount.

111. Biological assets

- Are living animals or living plants and must disclosed as a separate line item in the
statement of financial position.

112. Accounting income is

- The income for a period before deducting tax expense.

113. The cost of an internally generated intangible assets includes all of the following, except

- Expenditure on training staff to operate the asset.

114. Gain or loss from disposal of investment property shall be determine as the difference
between the*

- Net disposal proceeds and carrying amount

115. Agricultural activity includes all of the following, except

- Ocean fishing

116. A contract that evidences a residual interest in the entity's asset after deducting all of its
liabilities is classified as

- an equity instrument

117. An investment property shall be measured initially at *

- Cost
118. A financial instrument is any contract that gives rise to*

- A financial asset of one entity and a financial liability or equity instrument of another
entity.

119. Which is not an equity instrument ?

- Bonds Payable

120. It is the amount of income tax payable related to taxable income *

- Current tax income

121. Under IFRS, assets classified as investment property are *

- Held for rental income.

122. Which is the correct definition of a provision?

- A liability of uncertain timing or amount

123. What is the recoverable amount of an asset?

- Fair value less cost of disposal or value in use, whichever is higher.

124. One factor that is not considered in determining the useful life of an intangible asset is*

- Residual value

125. Where the fair value of the biological asset cannot be determined reliably, the asset shall be
measured at *

- Cost less accumulated depreciation and impairment loss

126. If the fair value less cost of disposal cannot be determined

- The recoverable amount is the value in use.

127. These are differences that do not have future tax consequences.

- Permanent differences

128. An investment property is derecognized when *

- It is disposed to a third party, It is permanently withdrawn from use, No future economic

benefits are expected from the disposal.

129. An intangible asset is identifiable when*

- It is either separable or it arises from contractual and other legal right.

130. It is an event that creates a legal or constructive obligation because the entity has no other
realistic alternative but to settle the obligation. *

- Obligating event

131. Which should be classified as financial asset?

- Trade account receivable

132. In computing the deferred tax asset or liability, which tax rate is used?

- Enacted future tax rate

 QUIZ- CONCEPTUAL FRAMEWORK

133. Which is an objective of financial reporting?

-To provide information that is useful in making investing and credit decisions.

134. Which is not within the new definition of an asset?

- Future economic benefit is expected to flow to the entity.

135. Which of the following criteria need not be satisfied for a liability to exist?

- The settlement is expected to result in an outflow of economic benefit.

136. A present obligation exists as a result of past event if *

- The entity has already obtained economic benefit and must transfer economic resource.

137. Rights that have the potential to produce economic benefits and correspond to an obligation
of another entity include all, except

- Right over property, plant and equipment.

138. An economic resource could produce economic benefit if an entity is entitled to all, except *

- To receive contractual cash flows

139. It is the present ability to direct the use of an economic resource and obtain the benefit that
may flow from it. *

- Control

140. It is a duty or responsibility that an entity has no practical ability to avoid. *

- Obligation

141. Obligation to transfer an economic resource include all, except *

- Obligation to transfer an economic resource even if a specified future event does not
occur

142. Which statement is not true about income and expense? *

- Income and expenses are the elements that relate to financial position.

143. This new term refers to the statement of profit or loss and a statement presenting other
comprehensive income.

- Statement of Financial Performance

144. It is the process of capturing for inclusion in the financial statements an item that
meets the definition of the elements of financial statements. *

- Recognition

145. An item is recognized in the financial statements if *

- It meets the definition of an asset, liability, equity, income and expense.

146. Recognition of an element is appropriate when information results in *

- Both relevance and faithful representation

147. It is removal of all or part of a recognized asset or liability from the statement of
financial position. *

- Derecognition

148. Derecognition normally occurs when *

-An item no longer meets the definition of an asset or a liability, The entity loses control of
the asset, The entity no longer has a present obligation for the liability.

149. Revenue recognition conventionally refers to *

-The process of identifying transactions to be recorded as revenue in an accounting period.

150. The term "recognized" is synonymous with the term *

- Recorded

151. Which of the following is an example of the cause and effect association principle? *

-Sales commission

152. Which of the following should be expensed under the principle of systematic and rational
allocation? *

- Insurance premiums

153. Which statement is true about current value? *

- (ALL OF THESE) Fair value of an asset is the price that would be received to sell an asset in an
orderly transaction between market participants at the measurement date, Value in use is the
present value of the cash flows expected to be derived from the use and ultimate disposal of an
asset, Fulfillment value is the present value of the cash expected to be transferred for the payment
of liability.

154. Which measurement attribute is not currently used in practice? *

- Inflation Adjusted cost

155. 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 principles? *

-Substance over form

156. Recognizing a financial statement element requires measuring it in monetary terms. Which
of the following statements is incorrect regarding measurement? *

-Measurement uncertainty will always cause the non-recognition of a financial statement

element.