DE LA SALLE LIPA

College of Business, Economics, Accountancy and Management

Accountancy Department
Theory of Accounts – Reviewer
____________________________________________________________________________________________________________

COVERAGE:
PAS 33 : Earnings per share
PFRS 2: Share-based Payment
IFRIC 17: Property Dividend
Stockholder’s Equity
Corporation

Direction: Read and select the best answer for the following questions.

1. It is an artificial being created by operation of law, having the right of succession, and the powers, attributes, and properties expressly
authorized by law or incident to its existence.
a. Partnership
b. Corporation
c. Sole-proprietorship
d. Association
2. Under the corporation code, the minimum paid in capital for registration of a corporation which has P60,000 authorized capital is
a. P15,000
b. P3,750
c. P5,000
d. P4,000
3. PAS 38 provides that start up costs which include legal and secretarial costs in establishing a legal entity shall be
a. Charged to share premium
b. Charged to share capital
c. Charged to retained earnings
d. Expensed as incurred
4. What is the definition of subscribed share capital?
a. It is the portion of the paid in capital representing the total par or stated value of the shares issued.
b. It is the portion of the authorized share capital that has been subscribed but not yet fully paid and therefore still unissued.
c. It represents the cumulative balance of periodic earnings, dividend distributions, fundamental errors and other capital
adjustments.
d. It is the portion of the paid in capital representing excess over the par or stated value.
5. The following are the common sources of share premium, except
a. Excess over par or stated value
b. Donated capital
c. Revaluation surplus
d. Issuance of share warrants
6. The following form part of shareholder’s equity, except
a. Treasury shares
b. Conversion option
c. Retained earnings
d. Subscription receivable collectible within twelve months after the end of reporting period
7. It is a type of share wherein the shareholders have the same rights and privileges.
a. Redeemable preference shares
b. Ordinary shares
c. Preferred shares
d. Convertible preference shares

DLSL CPA Board Operation – Theory of Accounts Page 1 of 9

 8. Legal capital is the portion of the paid in capital arising from issuance of share capital which cannot be retained to the shareholders in any
form during the lifetime of the corporation. Which of the following statements is incorrect concerning legal capital?
I. In the case of par value share, the legal capital is the aggregate par value of the shares issued and subscribed.
II. In the case of no-par value share, the legal capital is the total consideration received from shareholders including the excess over the
stated value.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
9. Under this doctrine, the corporation can pay dividends to shareholders but limited only to the retained earnings balance.
a. Trust fund doctrine
b. Wasting asset doctrine
c. Retained earnings doctrine
d. Share capital doctrine
10. The Corporation Code provides that “a share shall not be issued for a consideration less than the par or stated value thereof.” In case the
issue price of share is over the par or stated value, the excess shall be credited to
a. Revaluation surplus
b. Gain on issuance of shares
c. Retained earnings
d. Share premium
11. When the equity shares are issued for noncash consideration, the share capital is recorded at an amount equal to the following in which
order of priority
a. Fair value of shares issued – Fair value of the noncash consideration received – Par value of the shares issued.
b. Fair value of noncash consideration received – Fair value of shares issued – Par value of the shares issued.
c. Par value of the shares issued – Fair value of noncash consideration received – Fair value of shares issued.
d. Fair value of shares issued – Par value of shares issued – Fair value of noncash consideration received.
12. In conformity with the legal provision and PFRS 2, if shares are issued for services, the share shall be recorded at the
a. Fair value of services rendered
b. Fair value of shares issued
c. Par value of the shares issued
d. None of the above
13. Share issuance costs such as printing of stock certificates, cost of stock and transfer book, seal of corporation, underwriting and
promotional fees, accounting and legal fees related to share issuance shall be
a. Debited to expense account
b. Debited to share premium
c. Debited to retained earnings
d. Debited to share capital
14. It is a share capital issued for inadequate or insufficient consideration in which case the asset is overstated and capital is correspondingly
overstated.
a. Watered share
b. Secret reserve
c. Liquidated share
d. Solidified share
15. It is a share issued wherein the asset is understated or liability is overstated with a consequence of understatement of capital.
a. Watered share
b. Secret reserve
c. Liquidated share
d. Solidified share
16. Secret reserve usually arises from the following, except
a. Excessive provision for depreciation, depletion, amortization and doubtful accounts.
b. Excessive writedown of receivables, inventories and investments.
c. Capital expenditures are capitalized.
d. Fictitious liabilities are recorded.

DLSL CPA Board Operation – Theory of Accounts Page 2 of 9

 17. In case of delinquent subscription, the delinquent shares shall be sold in a public auction. They shall be sold to the highest bidder. Who is
the highest bidder?
a. A person who is willing to pay the offer price of the delinquent share which includes balance due on the subscription, interest
accrued on the subscription date and expenses of advertising and other costs of sale, for the highest number of shares.
b. A person who is willing to pay the offer price of the delinquent share which includes balance due on the subscription, interest
accrued on the subscription date and expenses of advertising and other costs of sale, for the lowest number of shares.
c. A person who is not willing to pay the offer price of the delinquent share which includes balance due on the subscription, interest
accrued on the subscription date and expenses of advertising and other costs of sale, for the highest number of shares.
d. A person who is not willing to pay the offer price of the delinquent share which includes balance due on the subscription, interest
accrued on the subscription date and expenses of advertising and other costs of sale, for the lowest number of shares.
18. Which of the following items can be considered as equity instruments?
I. Callable preference share at the option of the corporation.
II. Redeemable preference share that provides a mandatory redemption by the issuer for a fixed or determinable amount of a future
date.
III. Redeemable preference share that gives that holder the right to require the issuer to redeem the instrument for a fixed or
determinable amount at a future date.
a. I, II and III
b. II and III only
c. I and II only
d. I only
19. When a corporation issued preference shares with share warrants, how shall the issue price be allocated by the corporation?
a. Proportionately to preference shares and share warrants based on their relative book value.
b. Proportionately to preference shares and share warrants based on their fair market value.
c. The issue price shall be allocated first to preference share based on its fair market value and the excess of issue price to share
warrants.
d. The issue price shall be allocated first to share warrants based on its fair market value and the excess of issue price to
preference share.
20. These are an entity’s own shares that have been issued and then reacquired but not canceled.
a. Ordinary shares
b. Share warrants
c. Share options
d. Treasury shares
21. What method of accounting shall be used for treasury shares in accordance to the Corporate Code?
a. Par value method
b. Stated value method
c. Fair value method
d. Cost method
22. What does PAS 32, par. 33, provide as regards to the gain from sale of treasury shares?
a. It shall be recognized in profit or loss.
b. It shall be credited to share premium.
c. It shall be credited to share capital.
d. It shall be credited to retained earnings.
23. If the treasury shares are subsequently issued below its cost, the excess of the cost over the issue price is charged
a. First, Share premium from the original issuance and then Retained Earnings.
b. First to share premium from original issuance and then share premium from treasury shares of the same class.
c. First to share premium from original issuance, and then share premium from treasury shares of the same class and then to
retained earnings.
d. First to share premium from treasury shares of the same class and then the balance to retained earnings.
24. If treasury shares are subsequently retired and the retirement results in a loss, meaning, the cost of the treasury shares exceeds the par
value, such loss is debited or charged
a. First, Share premium from the original issuance and then Retained Earnings.
b. First to share premium from original issuance and then share premium from treasury shares of the same class.
c. First to share premium from original issuance, and then share premium from treasury shares of the same class and then to
retained earnings.
d. First to share premium from treasury shares of the same class and then the balance to retained earnings.
25. Under Application Guidance 36 of PAS 32, an entity’s own equity instruments also known as treasury shares shall be presented as
a. Financial asset
b. Financial liability
c. Deduction in the shareholder’s equity at par value or stated value
d. Deduction in the shareholder’s equity at cost

DLSL CPA Board Operation – Theory of Accounts Page 3 of 9

 26. What shall be the proper treatment of donated shares from stockholders?
a. They shall be credited to share premium at cost at the date of donation.
b. They shall be credited to share premium at fair value at the date of donation.
c. They shall be credited to share premium at par value at the date of donation.
d. They are recorded by memorandum entry at the date of donation but the reissue or resale of donated shares increases assets
and donated capital from share premium.
27. When a corporation received a noncash asset from a stockholder, what is the proper treatment?
a. The share premium shall be credited for the fair value of the noncash asset.
b. The share premium shall be credited for the book value of the noncash asset.
c. The income account shall be credited for the fair value of the noncash asset.
d. The income account shall be credited for the book value of the noncash asset.
28. When a corporation received a noncash asset from a nonstockholder, what is the proper treatment?
a. The share premium shall be credited for the fair value of the noncash asset.
b. The share premium shall be credited for the book value of the noncash asset.
c. The income account shall be credited for the fair value of the noncash asset.
d. The income account shall be credited for the book value of the noncash asset.
29. It is a transaction whereby the original shares are called in for cancellation and replaced by a larger number accompanied by a reduction in
the par value or stated value.
a. Split up
b. Split down
c. Reverse split up
d. Share right
30. It represents the cumulative balance of periodic net income or loss, dividend distributions, prior period errors, changes in accounting policy
and other capital adjustments.
a. Share capital
b. Share premium
c. Retained earnings
d. Revaluation surplus
31. When a retained earnings has a debit balance, it is called as
a. Deficiency
b. Deficit
c. Net loss
d. Accumulated profit
32. These refer to distributions of earnings or capital to the shareholders in proportion to their shareholdings.
a. Net income
b. Withdrawal
c. Dividends
d. Total comprehensive income
33. Under IFRIC 17 “Distribution of noncash assets to owner” par. 10, the liability to pay dividend shall be recognized at
a. Date of declaration
b. Date of record
c. Date of payment
d. Date of distribution
34. Under IFRIC 17 “Distribution of noncash assets to owner” par. 11, the entity shall measure a liability to distribute noncash assets as a
dividend to its owners at
a. Book value of the asset to be distributed
b. Fair value of the asset to be distributed
c. Recoverable amount of the asset to be distributed
d. Cost of the asset to be distributed
35. IFRIC 17, par. 13, further provides that at the end of each reporting period and at the date of settlement, the entity shall review and adjust
the carrying amount of the dividend payable with any change recognized in
a. Share premium
b. Share capital
c. Profit or loss
d. Retained earnings

DLSL CPA Board Operation – Theory of Accounts Page 4 of 9

 36. IFRIC 17, par. 14, provides that when an entity settles the dividends payable, the difference between the carrying amount of the dividends
payable and the carrying amount of the asset distributed shall be recognized in
a. Share premium
b. Share capital
c. Profit or loss
d. Retained earnings
37. When is a share dividend considered a large stock dividend?
a. If it is 20% or more share dividend.
b. If it is more than 20% share dividend.
c. If it is 10% or more share dividend.
d. If it is more than 20% share dividend.
38. If an entity declares a small share dividend, what amount shall be debited to retained earnings?
a. Par value of the shares.
b. Fair value of the shares.
c. Book value of the shares
d. Cost of the shares.
39. If an entity declares a large share dividend, what amount shall be debited to retained earnings?
a. Par value of the shares.
b. Fair value of the shares.
c. Book value of the shares
d. Cost of the shares.
40. These refer to the dividends out of share capital.
a. Liquidating dividend
b. Share dividend
c. Property dividend
d. Cash dividend
41. PAS 32, par. 36, provides that distribution to holders of an equity instrument classified as financial liability are recognized as
a. Dividends deductible directly against Retained Earnings
b. Dividends deductible directly against Share Premium
c. Dividends deductible directly against Share Capital
d. Interest expense and presented in the Profit or Loss
42. In the absence of evidence to the contrary, all the retained earnings of an entity can be declared as dividends. In order to limit or restrict
the payment of dividends, a corporation makes appropriations of retained earnings. Appropriation for treasury shares is what type of
retained earnings appropriation?
a. Contractual appropriation
b. Voluntary appropriation
c. Legal appropriation
d. Discretionary appropriation
43. The following items affect the retained earnings account, except
a. Net Income or loss for the period
b. Prior period errors
c. Realization of revaluation surplus
d. Effect of change in accounting estimate
44. It is a permissive but not a mandatory procedure under which a financially troubled entity restates its accounts and establishes a fresh start
in accounting sense.
a. Restructuring
b. Quasi-reorganization
c. Incorporation
d. Corporate liquidation
45. PFRS 2 defines it as a compensation arrangement established by the entity whereby the entity’s employees shall receive shares of capital
in exchange for their services or the entity incurs liabilities to the employees in amounts based on the price of its shares.
a. Defined benefit plant
b. Defined contribution plan
c. Share-based compensation plan
d. Cash-based compensation plan

DLSL CPA Board Operation – Theory of Accounts Page 5 of 9

 46. PFRS 2 sets out the measurement principles and specific requirements for accounting of the share-based compensation. The following
statements concerning the two types of share-based compensation are inappropriate
I. Equity-settled share based compensation means the entity issues equity instruments in consideration for services received, for
example, share options.
II. Cash-settled share based compensation means the entity incurs a liability for services received and the liability is based on the
entity’s equity instruments, for example, share appreciation rights.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
47. What is the measurement method of compensation expense provided by PFRS 2 for share-based compensation?
I. Fair value method which means that the compensation is equal to the fair value of the share options on the date of grant.
II. Intrinsic value method which is equal to the excess of the market value of the share over the option price if the fair value of the share
option cannot be measured reliably.
a. I only
b. II only
c. Neither I nor II
d. Both I and II
48. Share options are granted to officers and key employees to enable them to acquire shares of the entity during a specified period upon
fulfillment of certain conditions at a specified price. PFRS 2 provides the following rules for the recognition of compensation expense:
I. If the share options vest immediately, the employee is not required to complete a specified period of service before unconditionally
entitled to the share options. In this case, on grant date, the entity shall recognize the compensation as expense in full with
corresponding increase in equity.
II. If the share options do not vest until the employee completes a specified service period, the compensation is recognized as expense
over the service period or vesting period, meaning, from the date of grant to the date on which the options can first be exercised.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
49. PFRS 2, par. 24, provides that if the fair value of the share options cannot be estimated reliably, the entity shall measure the share options
at their intrinsic value initially and subsequently at each reporting date and at the date of final settlement, with any change in intrinsic value
recognized in
a. Other comprehensive income
b. Profit or loss
c. Retained earnings
d. Share capital
50. What is the effect of equity-settled share based compensation?
a. It will decrease share premium.
b. It will increase the retained earnings.
c. It will increase the profit or loss for the period.
d. It does not affect total shareholder’s equity.
51. If an entity cancels or settles a grant of share options during the vesting period, the entity shall account for the cancellation or settlement as
an acceleration of vesting. The accounting procedures are
I. The entity shall recognize immediately the compensation expense that otherwise would have been recognized for services received
over the remainder of the vesting period.
II. Any payment made to the employee on the cancellation or settlement of the grant shall be accounted for as the repurchase of equity
interest, meaning, deduction from equity.
a. Both I and II
b. Neither I nor II
c. I only
d. II only
52. Under IFRIC 11, share-based payment transactions in which the employees of a subsidiary are granted to the equity instruments of the
parent shall be accounted for as
a. Cash settled share based compensation
b. Equity settled share based compensation
c. Liability settled share based compensation
d. Asset settled share based compensation

DLSL CPA Board Operation – Theory of Accounts Page 6 of 9

 53. Under IFRIC 11, how shall the subsidiary measure the services received from its employees who are granted to the equity instruments of
the parent?
a. Fair value of the share options at the date of grant
b. Book value of the share options at the date of grant
c. Intrinsic value of the share options at the date of grant
d. Fair value of the services at the date of grant
54. PFRS 2 provides that for a cash settled share-based compensation, the entity shall measure the services acquired and the liability incurred
at the
a. Book value of the liability
b. Fair value of the liability
c. Fair value of the services
d. Recent cost of the services
55. What is the compensation expense for a share appreciation rights?
a. Excess of the market value of the share over a book value per share at the end of reporting period.
b. Excess of price of the share over a book value per share at the end of reporting period.
c. Excess of the market value of share over a predetermined price for a given number of shares over a definite vesting period.
d. Excess of the market value of the share over the earnings per share.
56. Changes in the compensation expense for share-based compensation transactions shall be accounted
a. Retrospectively as a change in accounting policy
b. Prospectively as a change in accounting estimate
c. Prospectively as a change in accounting policy
d. Retrospectively as prior period error adjustment
57. If a share-based compensation has cash alternative and share alternative and the entity has the choice of settlement, the entity shall
account for the instrument initially
a. Either as liability or equity.
b. By separating the liability and equity components.
c. Both as liability and equity instruments.
d. Neither as liability nor equity.
58. If a share-based compensation has cash alternative and share alternative and the employees have the choice of settlement, the entity
shall account for the instrument initially
a. Either as liability or equity.
b. By separating the liability and equity components.
c. Both as liability and equity instruments.
d. Neither as liability nor equity
59. It is the amount that would be paid on each share assuming the entity is liquidated and the amount available to shareholders.
a. Earnings per share
b. Dividends per share
c. Book value per share
d. Price per share
60. How shall the book value per share be computed?
a. Total comprehensive income divided by number of shares outstanding
b. Profit or loss divided by number of shares outstanding
c. Other comprehensive income divided by number of shares outstanding
d. Total shareholder’s equity divided by number of shares outstanding
61. Which of the following statements pertains to participating dividends?
a. It is one which the right to receive dividends is forfeited in any one year in which the dividends are not declared.
b. It is one which is entitled to receive dividends in excess of the basic or fixed rate.
c. It is one that is entitled to receive only the dividend equal to the fixed rate.
d. It is one which any undeclared dividends accumulate each year until paid.
62. PAS 33 titled as “Earnings per Share” is mandatory for
I. Public entities
II. Non-public entities
a. I only
b. II only
c. Both I and II
d. Neither I nor II

DLSL CPA Board Operation – Theory of Accounts Page 7 of 9

 63. What are the two types of earnings per share covered by PAS 33?
a. Basic earnings per share and diluted earnings per share
b. Basic earnings per share and liquidation earnings per share
c. Simple earnings per share and complex earnings per share
d. Compound earnings per share and liquidation earnings per share
64. Which of the following statements concerning earnings per share under PAS 33 are correct?
I. An entity shall present on the face of the income statement basic and diluted earnings per share for income or loss from continuing
operations.
II. An entity that reports a discontinued operation shall disclose the basic and diluted amounts per share for the discontinued operation
either on the face of the income statement or in the notes to the financial statements.
a. Neither I nor II
b. Both I and II
c. I only
d. II only
65. PAS 33 provides that when an entity presents both consolidated financial statements and separate financial statements, the disclosures
required by this standard need be presented
a. On both consolidated financial statements and separate financial statements.
b. Only on the separate financial statements.
c. Only on the consolidated financial statements.
d. Neither on consolidated financial statements nor separate financial statements.
66. The following are the uses of earnings per share, except
a. It is the determinant of the market price of ordinary share.
b. It is the measure of performance of management in conducting operations.
c. It is the basis of dividend policy of an entity.
d. It is used in computing book value per share.
67. It is a financial instrument or other contract that may entitle its holder to ordinary shares.
a. Potential preference shares
b. Potential ordinary shares
c. Potential bonds payable
d. Potential notes payable
68. What is the formula for computing basic earnings per hare?
a. Net income divided by number of shares outstanding
b. Total assets divided by number of shares outstanding
c. Total liabilities divided by number of shares outstanding
d. Total shareholder’s equity divided by number of shares outstanding
69. If the entity has a preference share is cumulative, the preference dividend for the current year is deducted from the net income for
computation of earnings per share
a. When the entity declared the preference dividend.
b. Whether such dividend is declared or not.
c. When the entity has retained earnings.
d. When the entity has a deficit.
70. In computing weighted number of shares outstanding for purposes of earnings per share, which of the following statements is false?
a. Ordinary shares issued as part of the purchase consideration of a business combination that is an acquisition are included in the
weighted average number of shares from the date of the acquisition.
b. In the case of stock dividend or a share split, the number of ordinary shares outstanding before the event is adjusted for the
proportionate change in the number of ordinary shares outstanding as if the event had occurred at the beginning of the earliest
period reported.
c. Ordinary shares that will be issued upon the conversion of a mandatory convertible instrument are included in the calculation of
basic earnings per share from the date the contract is entered into.
d. Subscribed ordinary shares are not included in EPS even if they are entitled to participate in dividends.
71. It arises when the inclusion of the potential ordinary shares decreases the basic earnings per share or increases the basic loss per share.
a. Dilution
b. Anti-dilution
c. Non-dilution
d. Dissolution

DLSL CPA Board Operation – Theory of Accounts Page 8 of 9

 72. In case of convertible bonds payable, how shall it be accounted for in computing diluted earnings per share?
a. Adjustments shall be made only to the net income.
b. Adjustments shall be made only to the ordinary shares outstanding.
c. The net income is adjusted by adding back the interest expense on the bond payable, before tax and decreasing the number of
ordinary shares outstanding.
d. The net income is adjusted by adding back the interest expense on the bond payable, net of tax and increasing the number of
ordinary shares outstanding.
73. In case of convertible preference shares, how shall it be accounted for in computing diluted earnings per share?
a. The net income shall be reduced by the preference shares.
b. The ordinary shares outstanding shall be increased.
c. The net income shall not be reduced by the dividends on preference shares and the number of ordinary shares outstanding shall
be increased.
d. The net income shall be reduced by the dividends on preference shares and the number of ordinary shares outstanding shall be
increased.
74. When are the share options and warrants considered dilutive?
a. Exercise price or option price is equal to the average market price of the ordinary share.
b. Exercise price or option price is less than the average market price of the ordinary share.
c. Exercise price or option price is more than the average market price of the ordinary share.
d. Share options and warrants cannot be considered dilutive.
75. When are written put options considered dilutive?
a. If these contracts are “out the money.”
b. If the exercise or settlement price is higher than the average market price.
c. If the exercise or settlement price is lower than the average market price.
d. If the exercise or settlement price is equal to the average market price.
76. In case the entity has reported a net loss during the year, the entity shall report
a. Both basic loss per share and diluted loss per share.
b. Only diluted loss per share.
c. Only basic loss per share because potential ordinary shares are always antidilutive.
d. Neither basic loss per share nor diluted loss per share.

DLSL CPA Board Operation – Theory of Accounts Page 9 of 9