QUIZ 1

Chapters 1-7

1. Which is the best description of faithful representation in relation to information in

financial statements? Freedom from material error
2. Which is not an objective of financial reporting?
To provide information about liquidation value of an entity
3. Which concept is applied to net income and other comprehensive income?
Financial Capital
4. What is the quality of information that enables users to better forecast future operations?
Relevance
5. Once an accounting standard has been established that the standard is continually
reviewed to see if modification is necessary.
6. The primary objective of financial reporting is to provide useful information to Capital
providers.
7. Which concept of accounting holds that, to the maximum extent possible, financial
statements shall be based on arm’s length transaction? Verifiability
8. Which statement is true about current value? Fulfillment value is the present value of
the cash expected for the payment of liability.
9. Conservatism is selecting an accounting alternative that has the least favorable impact
on equity.
10. It is the present ability to direct the use of an economic resource and obtain the benefit
that may flow from it. Control
11. The ingredients of relevant financial information are predictive and confirmatory
value.
12. The write-off of a worthless patent is an example of which of the following principles?
Immediate recognition.
13. What is the primary distinction between revenue and gain? The nature of the activity
that gives rise to the transaction.
14. What is the quality of information that gives assurance that it is reasonably free from
error and bias? Faithful representation
15. Verifiability implies Consensus.
16. The financial accounting information is directed toward the common need of users.
Neutrality
17. A present obligation exists as a result of past event if the entity has already obtained
economic benefit and must transfer economic resource.
18. Which of the following represents the least desirable choice for the recognition of
revenue? Recognition of revenue when cash is collected
19. Which statement is true in relation to the enhancing qualitative characteristic of
understandability? Users have a reasonable knowledge of business and economic
activities and review the information with reasonable diligence.
20. The valuation of a promise to receive cash in the future and present value is valid because
of what accounting concept? Going concern
21. Generally accepted accounting principles
a. Derive their credibility and authority from law.
b. Are accounting principles based on law.
c. Derive their authority from regulatory authority.
d. None of the above.
22. Changing the method of inventory valuation should be reported under what quality of
information? Comparability
23. Which of the following is not a basic assumption underlying financial accounting?
a. Economic entity assumption
b. Going concern assumption
c. Periodicity assumption
d. All of these are basic assumptions of underlying financial accounting.
 24. In the Conceptual Framework for Financial Reporting, what provides the “why” of
accounting? Objective of financial reporting
25. Proponents of historical cost maintain that statements prepared using historical cost are
more objective.

QUIZ 2

Chapters 8-13

1. If it is difficult to distinguish a change in accounting estimate and a change in accounting

policy, the change is treated as change in accounting policy with appropriate disclosure.
False.
2. The effect of a change in accounting estimate shall be recognized currently and
retrospectively by including it in income or loss of:
(a) The period of change if the change affects that period only.
(b) The period of change and future periods if the change affects both.
False.
3. All of the following are a component of other comprehensive income except, unrealized
gain and loss on financial asset held for trading.
4. The change in accounting policy shall be made only when,
(1) Required by an accounting standard.
(2) The change will result in more relevant and faithfully represented information about
the financial position, management operational performance and cash flows of the
entity.
False.
5. During the year, ABC Corp. received from BIR a tax refund of P20,000. Generally, this
refund should be part of financing activity in the statement of cash flows. False.
6. After ABC Corp’s 2022 financial statements had been finalized but before the
authorization of the Board for issuance, ABC Corp. announced on March 5, 2023 that it
will terminate most of its employees as a result of the closure of its major branch
(restructuring) in 2023. In this case, the restructuring event shall be disclosed in the 2022
financial statement of ABC Corp. True.
7. The two-statement approach of presenting comprehensive income is preparing a separate
income statement and a separate comprehensive income.
8. In order to settle its bonds payable, ABC Corp. decided to pay its bond holders thru
issuance of its share capital instead of paying in cash. In this case, the transaction should
be reflected under financing activity in the statement of cash flows. False.
9. Comprehensive income includes all, except investment by owners.
10. On February 20, 2023, the 2022 financial statements of ABC Corp. were submitted by the
management to the Board of Directors for review. The Board of Directors authorized the
financial statements for issuance on March 1, 2023. Before the financial statements were
submitted to the BIR and SEC, they were submitted first to the shareholders for review
and approval. The shareholders approved the financial statements for issuance on March
30, 2023. In this case, when is the date the financial statements were authorized for
issuance? March 1, 2023.
11. Banks should classify interest paid and received under operating cash flows. True
12. The statement of financial position is useful for analyzing all of the following, except
Profitability.
13. Adjusting events after the reporting period are those that provide evidence of conditions
that exist after the reporting period. False.
14. Retrospective application means that any resulting adjustment from the change in
accounting policy shall be reported as an adjustment to the ending balance of retained
earnings. False.
15. When classifying assets as current and concurrent assets are classified as current if
reasonably expected to be realized in cash or consumed during the normal operating
cycle.
16. Comprehensive income always could be greater than or less than net income.
17. ABC Corp. sold its 20 units of its inventory under warranties in 2022. ABC did not
recognize warranty obligation since it is certain that its products are free from damages.
In 2023, ABC discovered a major damage in the products it sold in 2022. In this case,
ABC should recognize warranty obligation in its 2023 financial statements because the
damages were discovered only in 2023. False.
18. Which statement about the statement of financial position is not true? A revaluation
surplus on concurrent asset in the current year should be recognized in the income
statement.
19. Under IFRS, the extraordinary item presentation has been eliminated.
20. The termination benefits of the CEO of ABC Corp. is a required disclosure in the
financial statements of ABC Corp. True.
21. Which should be classified as current asset? Trade account receivable normally
collectible in 18 months.
22. Cash equivalents are short-term highly liquid investments that are readily convertible to
known amount of cash and which are subject to a significant risk of change in value.
False.
23. Working capital is current assets less current liabilities.
24. Equity investments held to finance construction of additional plant should be classified as
Noncurrent investments.
25. Notes to financial statements provide narrative description or disaggregation of items
presented in the financial statements and information about items that qualify for
recognition. False.
26. ABC Corp and DEF Corp. both employ Mr. X as one of their directors. Are ABC and
DEF considered related parties because they both employ Mr. X? No.
27. A and C formed a joint venture which they called AC Company. In this scenario, A and C
are related parties. False.
28. Based on the information given in the preceding question, A and AC company are related
parties. True.
29. ABC Corp’s warehouse was destroyed by fire which took place in 2022. As of December
31, 2022, the total cost of destruction can’t be estimated reliably. However, in March
2023, before the financial statements were authorized for issuance, the total cost of
destruction was determined. In the same month, an earthquake happened which destroyed
another building. The cost of the destruction from the earthquake can be determined
reliably. The cost of destruction from fire shall be recognized in the 2022 financial
statements while the cost of destruction from earthquake should be disclosed in the
2022 financial statements.
30. PFRS 75 (Just a made up standard) is a new standard without transitional provision. ABC
Corp., in this case, shall apply the standard retrospectively by default. True.
31. ABC Corp. decided to change its model for valuation of its PPE from cost to revaluation
model. In that case, if comparative information is presented, there is no need to restate the
prior year’s financial statements. False
32. Mr. Sy owns 26% of the outstanding ordinary shares of ABC Corp. is his son, Sy Jr.,
considered as related party of ABC Corp.? Yes.
33. The auditors of ABC Corp. discovered a material error in the prior year financial
statements of ABC. The error was discovered after the financial statements have been
authorized for issuance and submitted to BIR and SEC. In this case, the error should be
accounted for retrospectively by adjusting the beginning balance of retained earnings
only. False.
34. Assuming that in the immediately preceding question, the error was detected after the
reporting period in which the error occurred but before the financial statements for that
year were authorized for issuance. In this case, the error should be corrected in the year
when the error was made. True.
35. A presentation of assets and liabilities in increasing or decreasing the order of liquidity
provides information that is reliable and more relevant than a current and concurrent
presentation for a financial institution.
36. In auditing, the difference between error and fraud is the intent. True.
37. Change in warranty obligation during the year is considered a change in accounting
policy. False.
38. ABC Corp was sued by DEF Corp in 2022 because of a copyright infringement. In
January of 2023, before the financial statements were authorized for issuance, the court
decided that ABC Corp. will pay DEF Corp. P30,000 for damages. Should ABC Corp.
recognize the provision in its December 31, 2022 financial statements? Yes.
39. ABC Corp recognized P10,000 doubtful accounts expense from its transaction with a
related party. In this case, the amount is a required disclosure in the financial statement of
ABC Corp. True.
40. ABC Corp. has P10,000 receivable at the end of the 2022 from one of its customers, DEF
Corp. in February of the next year, the receivable has not yet been paid and DEF Corp.
 was declared bankrupt by the court in January. In this case, ABC Corp. shall right off the
receivable from DEF Corp. in its 2023 financial statements. False

QUIZ 3

Chapters 14-17

1. ABC Company is engaged in the manufacturing of machineries. Input VAT from the
purchase of materials necessary to produce the machinery will form part of the cost of
inventories. False
2. Cost of the rent where the inventories are being manufactured should form part of the
overhead cost of inventories. True
3. The salary of accountant working for the corporate office where he/she is engaged solely
for bookkeeping and her services not attributed to the any of the inventories being
manufactured should form part of the cost of inventories. False
4. The commission of sales agent who is engaged in selling a specific product of the
company should form part of the cost of inventories. False
5. Michael Jordan asked Nike to produce sneakers with diamonds and with his name
engraved on its shoelaces. In this case, what is best cost formula to be used by Nike in
accounting for the cost of the sneakers? Specific Identification
6. ABC Corp. has materials which are near their maturity dates. The aggregate cost of the
materials is P60. Once converted into their finished state, the selling price of the product
is P100. It is estimated that the company will have to incur additional P50 in labor and
overhead in order to convert the materials into final product and P10 in order to sell the
finished product. As of the end of the year, how much should be the value of these
materials in books of ABC Corp.? P40.00
7. Under the allowance method, the loss on inventory writedown will not form part of the
cost of goods sold. False
8. ABC Corp. constructed a new machinery in which it hired a machinery specialist in order
to test whether the machine is operating for its intended use. The compensation given to
the machinery specialist should not form part of the cost of the machine. False
9. ABC Corp. acquired a new machinery on account. The list price of the machinery is
P100,000. The supplier gave ABC a trade discount of 2% based on the list price. If the
 full amount will be paid on or before 20 days from the date of purchase, the supplier will
give ABC additional 2% discount based again on list price. ABC paid the supplier 30
days from the date of purchase. In this case, how much should be the cost of machinery
upon acquisition? P96,000.00
10. ABC Corp. purchased a machinery with a cash price equivalent of P50,000 and list price
of P60,000. ABC made a promise to the supplier to pay 2 years from the date of purchase.
Because of longer pay term, ABC and the supplier agreed to pay the supplier P80,000 2
years from the date of purchase. How much should be recorded as the cost of machinery
upon acquisition? P50,000.00
11. In relation to question #10, how much will be the interest expense to be recorded over the
two-year period? P30,000.00
12. Ayala Corp. acquired a machinery with fair value of P300,000. To pay for the machinery,
Ayala issued its 20,000 shares with fair value per share of P20 and par value per share of
P10. How much should be recorded as the cost of machinery upon acquisition?
P300,000.00
13. In relation with question number 12, what will be the cost of machinery assuming that the
fair value of shares issued is not available? P300,000.00
14. In relation with question number 12, what will be the cost of the machinery assuming that
fair value of the machinery received is not available? P400,000.00
15. Ayala Corporation acquired a machinery by issuing bonds payable. The fair value of the
machinery to be acquired is P300,000 while the bonds payable has fair value of 350,000
and face value of P370,000. What should be the cost of the machinery upon acquisition?
P350,000.00
16. In relation with question number 15, that is the cost of the machinery assuming that the
fair value of machinery acquired is not available? P350,000.00
17. ABC Corp. suffered a huge loss because of the recent earthquake that struck its location.
Because of this, the local government provided an immediate financial assistance
amounting to P1 million. In this case, how should ABC Corp. treat the amount received?
Income
18. Because of the recent law passed by the congress and approved by the president, the
competitor of ABC Corp. will no longer be able to manufacture its products due to its
 hazardous effect to the local community. How should ABC Corp. treat this event? Should
ABC Corp. treat this event as a government assistance? No.
19. ABC Corp. was chosen by the government to manufacture face masks for distribution to
its local residents. This is estimated to comprise 20% of the sale of ABC corp. next year.
Is this event a form of government assistance? Yes.
20. ABC Corp. is a manufacturer of wines. Because of the fermentation process,
manufacturing a bottle of wine will take 2 years. Are the wines being manufactured can
be classified as qualifying assets? No.
21. ABC Corp. acquired a building for the purpose of using the said building to warehouse its
inventories. In order to acquire the building, ABC Corp. borrowed P100 million from the
bank. The building can be immediately used to house the inventories. Is this case, is the
building can be categorized as a qualifying asset? No.
22. ABC Corp. is currently constructing the a building for use in its business. The funds used
to construct the building were borrowed from the bank. Because it will take another 6
months to complete the building, it temporarily used a space in the building for paid
parking. Because of this, it was able to generate income. How should ABC corp. treat the
income from temporary leasing a portion of the lot? As deduction from borrowing cost.
23. Tariff cost necessary to ship the property plant and equipment in the Philippines where it
can be used should not form part of the cost of the said PPE. False.
24. ABC Corp. constructed a machinery. Once in every 3 years for use in its construction as
PPE. During the year, because of the recent strike against the company by its employees,
the cost incurred in constructing its machinery is P100,000 higher than its normal cost.
How should the entity account for this excess? As an expense/loss
25. ABC Corp. installed a machinery for the mining of metals in a location. The government
required ABC to dismantle the said machinery after the metals have been mined. The
estimated cost of dismantling is P40,000 after a 3-year period. How should ABC treat the
cost? Should form part of the cost of machinery.
26. Inventories shall be measured at lower of cost and net realizable value.
27. Factory supplies to be consumed in the production process are included in inventory.
28. Inventories encompasses all of the following, except land and other property not held
for sale.
29. The specific identification method is required for inventory that is not interchangeable
and goods produced and segregated for specific project.
30. Which of the following should not be reported in inventory? Equipment
31. In a period of rising prices, which inventory method provides the highest amount of net
income? FIFO
32. Change in useful life of a machinery should be accounted for prospectively.
33. Change in the method of inventory valuation/costing from FIFO to weighted average
should be accounted for retrospectively.
34. IFRS prohibits which of the following cost flow assumptions? LIFO
35. Which disclosure is not required about government grant? The name of the government
agency that gave the grant.
36. Government grant related to depreciable asset is usually recognized as income over the
useful life of the asset and in proportion to the depreciation of the asset.
37. Government grant in recognition of specific cost is recognized as income over the same
period as the relevant expense.
38. Government grant related to nondepreciable asset that requires fulfillment of certain
conditions should be recognized as income over the period which bear the cost of
meeting conditions.