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CFAS Final

Financial Accounting and Reporting (University of the East (Philippines))

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BSA 2101- CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

FINAL DEPARTMENTAL EXAM REVIEWER
MULTIPLE CHOICE

1. Which statement is true about the frequency of revaluation of property, plant, and equipment?
a. Revaluation of assets must be made consistently at the end of each accounting period
b. Revaluation of assets must be made every two years
c. Revaluation of assets must be made at the discretion of management
d. There is no specific rule for the frequency of revaluation

2. Which of the following costs incurred subsequent to acquisition of property, plant and
equipment shall normally be taken to profit or loss during the period incurred?
a. Costs to modify an item of property to extend its useful life or increase its capacity
b. Costs to upgrade machine parts to improve quality of output
c. Costs of adopting of a new production process leading to large reduction in operating cost
d. Costs of servicing or overhauling plant and equipment to restore or maintain future
economic benefits

3. Which statements are correct concerning measurement of cost of property, plant and
equipment?
I. The purchase price of an item of property, plant and equipment is the cash price
equivalent at the recognition date.
II. If payment is deferred beyond normal credit terms, the difference between the cash
price equivalent and the total payment is recognized as interest expense over the life
of the asset.
III. If an item of property, plant and equipment is acquired in exchange for a nonmonetary
asset or combination of monetary and nonmonetary asset, the cost of such item is
measured at fair value unless the exchange transaction lacks commercial substance
or fair value of either the asset received or the asset given up is not reliably
determinable.
IV. If an entity is able to determine reliably the fair value of both the asset received and
the asset given up in an exchange, the fair value of the asset given up is used to
measure the cost of the asset received in exchange.

a. All statement are correct

b. I, III, and IV
c. I and IV
d. I, II, and III

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4. An entity bought a private jet. The jet is expected to be used over a period of 7 years. Its engine
has a useful life of 5 years and its tires are replaced every 2 years. What is the appropriate
depreciation period for the asset?
a. 7 years composite useful lie
b. 5 years for the engine, 2 years for the tires, 7 years for the balance of the cost of the
private jet
c. 2 years based on prudence as this is the lowest useful life of all parts of the jet
d. 5 years based on a simple average of the useful lives of the major components of the jet.

5. Which statement is incorrect concerning revaluation of property, plant and equipment?

a. When an item of property, plant and equipment is revalued, any accumulated depreciation
at the date of revaluation is restated proportionately with the change in the gross carrying
amount of the asset so that the carrying amount of the asset after revaluation should equal
its revalued amount, or eliminated against the gross carrying amount of the asset and the
net amount restated to the revalued amount of the asset.
b. Any revaluation increase should be credited to other comprehensive income and
accumulated in the equity as revaluation surplus.
c. The revaluation surplus included in the equity may be transferred directly to retained
earnings when the surplus is realized.
d. Any revaluation decrease should be debited to revaluation loss, a contra equity account.

6. An improvement made to a machine increased its fair value and its production capacity by 25%
without extending the machine’s useful life. The cost of the improvement should be
a. expensed
b. debited to accumulated depreciation
c. capitalized on the machine account
d. allocated between the accumulated depreciation and the machine account

7. Which of the following items relevant to the depreciation of an asset can be negative?
a. residual value
b. depreciable cost
c. useful life
d. cost subsequent to acquisition

8. Using the interpretations of the Philippine Interpretations Committee (PIC), when an entity
purchases land with a building on it and immediately tears down the building so that the land can
be used for the construction of a plant, the cost incurred to tear the building should be
a. expensed
b. charged to retained earnings
c. added to the cost of the plant
d. added to the cost of the land

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9. What is the treatment to property that is leased to, and occupied by, its parent or another
subsidiary?
a. The property does not qualify as investment property in the consolidated financial
statements.
b. From the perspective of the entity that owns it, the property is investment property.
c. The property is investment property in its individual financial statements.
d. All of the statements above are correct.

10. Which of the following is true for properties that comprise a portion that is held to earn rentals
or for capital appreciation and another portion that is held for use in the production or supply of
goods or services or for administrative purposes?
I. If the portions could not be sold separately, the property is owner occupied property
only if an insignificant portion is held for use in the production or supply of goods or
services or for administrative purposes.
II. If the portions could be sold separately (or leased out separately under a finance
lease), an entity accounts for the portions separately.
a. I only
b. II only
c. Both I and II
d. Neither I and II

11. Any gain or loss from the disposal of the investment property shall be determined as the
difference between
a. The total disposal proceeds and the carrying amount of the asset and shall be
recognized in equity.
b. The net disposal proceeds and the carrying amount of the asset and shall be
recognized in profit or loss.
c. The total disposal proceeds and the cost of the asset and shall be recognized in equity.
d. The net disposal proceeds and the cost of the asset and shall be recognized in profit
or loss.

12. Subsequent to initial recognition, investment property shall be

I. Fair value
II. Cost less accumulated depreciation and any accumulated impairment losses
a. I only
b. II only
c. Both I and II
d. Neither I nor II

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13. Which statements are correct concerning investment property?

I. If the property comprises portion that is held to earn rentals and another portion that is
held for use in production of goods and these portions could not be sold separately, the
property is investment property only if an insignificant portion is held for use in
production of goods.
II. When the owner of an office building provides security and maintenance services to
the lessees, the office building is an investment property because the ancillary services
are insignificant.
III. An owner-managed hotel is an investment property rather than owner-occupied
property because the services provided to the guests are significant.
IV. If a property is leased by a subsidiary to another subsidiary, the property is investment
property in the individual financial statements of the subsidiary that owns it but owner-
occupied property in the consolidated financial statements of the group.

a. I, II, III, and IV

b. I, II, and IlI
c. I, II, and IV
d. I, Ill, and IV

14. An entity shall recognize any subsequent increase in fair value less cost to sell of a non-
current asset or disposal group classified as held for sale as
a. Deferred gain as component of equity
b. Deferred gain as component of liability
c. Gain entirely to be included in profit or loss
d. Gain to be included in profit or loss but not in excess of the cumulative impairment loss
previously recognized.

15. Which of the following relating to exploration and evaluation assets are required to be
disclosed?
I. The accounting policies for exploration and evaluation expenditures, including
policies for recognition of exploration and evaluation assets.
II. The amount of assets, liabilities, income and expenses related to exploration for
and evaluation of mineral resources.
III. Reserve quantities expected to be discovered.
IV. Explanations for amounts recognized in the financial statements arising from the
exploration for and evaluation of mineral resources.

a. I, II, III and IV

b. I, II and III
c. I, II and IV
d. I, III and IV

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16. An entity put back an asset that was previously classified as “Held for Sale” into active use;
thus, the criteria for the asset to be classified as “Held for Sale” no longer apply. For accounting
purposes, the entity shall
a. Continue to classify the asset as Held for Sale, until such date that the asset is retired or
disposed of.
b. Reclassify the asset into its previous classification at the lower of fair value less cost to
sell and its carrying amount when the asset was classified as Held for Sale.
c. Continue to classify the asset as Held for Sale and resume the depreciation for the asset.
d. Reclassify the asset into its previous classification, measuring it at the lower between its
carrying value had the asset not been classified as Held for Sale and its recoverable
amount as determined under IAS 36 Impairment of Assets, and then subject the asset
to depreciation or amortization.

17. IFRS 5 states that a non-current asset that is to be abandoned should not be classified as
Held for Sale. The reason for this is because
a. Its carrying amount will be recovered principally through continuing use.
b. It is difficult to value.
c. It is unlikely that the non-current asset will be sold within 12 months.
d. It is unlikely that there will be an active market for the non-current asset.

18. If the fair value less cost to sell is higher than the carrying amount of a non-current asset
classified as Held for Sale, the difference is
a. Not accounted for.
b. Accounted for as an impairment loss.
c. Deferred gain as a component of equity.
d. Gain to be recorded in profit or loss.

19. Which of the following will not trigger impairment testing for the exploration and evaluation
assets?
a. Expiration of right to explore and the right is not likely to be renewed.
b. Insufficiency of data that indicate that the carrying amount of the exploration and
evaluation asset is not to be recovered in the future.
c. Absence of budget or plans to further explore the specific area.
d. Non-discovery of viable quantities of mineral resources for exploration.

20. Exploration and evaluation expenditures are those incurred by an entity in connection with the
exploration for the evaluation of mineral resources
a. Before technical feasibility and commercial viability of extracting a mineral resources are
demonstrable.
b. After technical feasibility and commercial viability of extracting a mineral resources are
demonstrable.

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c. Before the entity has obtained legal rights to explore a specific area for extraction of
mineral resources.
d. After the entity has obtained legal rights to explore a specific area and after technical
feasibility and commercial viability of extracting a mineral resources are demonstrable.

21. Which of the following activities would result in exploration and evaluation expenditures as
defined in IFRS 6?
I. Trenching
II. Activities in relation to evaluation the technical feasibility and commercial viability of
extraction.
III. Development of mineral resources and items of property, plant and equipment used
to develop exploration and evaluation assets.
IV. Exploratory drilling.

a. I, II, III and IV

b. I, III and IV
c. I, II and IV
d. I and II

22. Exploration and evaluation assets shall initially be recognized at

a. cost
b. cost plus all other costs incurred for the development of the assets
c. a nominal amount plus all other cost incurred for the development of the assets
d. fair value

23. The conceptually appropriate method of measuring a liability is to

a. Discount the amount of expected cash outflows that are necessary to liquidate the
liability using the market rate of interest at the date the liability was initially incurred.
b. Discount the amount of expected cash outflows that are necessary to liquidate the
liability using the market rate of interest at the date of the financial statements.
c. Record as liability the amount of cash that would be required to pay the liability in the
ordinary course of business on the date of the financial statements.
d. Record as liability the amount of cash actually received when a liability was incurred.

24. If a long-term debt becomes callable due to the violation of a loan covenant
a. The debt may continue to be classified as long term if the entity believes the covenant
can be renegotiated.
b. The debt must be reclassified as current.
c. Cash must be reserved to pay the debt.
d. Retained earnings must be restricted equal to the amount of the debt.

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25. All of the following are current liabilities except?

a. Deposits on special orders from customers to be filled within one year
b. Property dividends issuable, to be paid in inventory of the issuing firm within one year from
the current statement of financial position date
c. Serial bonds maturing within two years which are to be paid from sinking fund which is
classified as non-current
d. Accounts payable to be paid from cash on hand.

26. A ten-year bond was issued at a premium with a call provision to retire the bond. When the
bond issuer exercised the call provision on an interest date, the call price exceeded the carrying
amount of the bond. The amount of bond liability removed from the accounts should have equaled
the
a. Cash paid
b. Face amount plus unamortized premium
c. Call price plus unamortized premium
d. Current market price

27. Alaska Corporation is a wine distiller, with five-year normal wine-fermentation period. The
following are found in the trial balance of Alaska Corporation at December 31, 2019:
I. Trade notes payable due on March 31,2021
II. Long term notes payable, due March 31, 2020. (Alaska already completed
negotiation on December 31, 2019 for refinancing of the note on a long- term
basis.)
III. Bonds payable due June 30,2022
IV. Bonds payable due June 30, 2021, settlement is expected to be financed by a
sinking fund.

Which of the foregoing shall be classified as non-current liabilities at December 31, 2019.
a. I,II, III and IV
b. II,III and IV
c. III only
d. III and IV

28. If a long-term debt becomes callable due to the violation of a loan covenant
a. The debt may continue to be classified as long term if the entity believes the covenant can
be renegotiated.
b. The debt must be reclassified as current.
c. Cash must be reserved to pay the debt.
d. Retained earnings must be restricted equal to the amount of the debt.

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29. How would the amortization of discount on bonds payable affect each of the following?
Carrying amount of bond Net Income
a. Increase Decrease
b. Increase Increase
c. Decrease Decrease
d. Decrease Increase

30. On August 1, 2019, ABC Company borrowed cash and signed a one-year interest-bearing
note on which both the principal and interest are payable on August 1, 2020. How will the note
payable and the accrued interest be classified in the statement of financial position at December
31, 2019?
Note Payable Accrued Interest
a. Current Liability Non-Current Liability
b. Non-Current Liability Current Liability
c. Current Liability Current Liability
d. Non-Current Liability Not presented

31. The conceptually appropriate method of measuring a liability is to

a. Discount the amount of expected cash outflows that are necessary to liquidate the liability
using the market rate of interest at the date the liability was initially incurred.
b. Discount the amount of expected cash outflows that are necessary to liquidate the liability
using the market rate of interest at the date of the financial statements.
c. Record as liability the amount of cash that would be required to pay the liability in the
ordinary course of business on the date of the financial statements.
d. Record as liability the amount of cash actually received when a liability was incurred.

32. Which one of the following is not a current liability?

a. Estimated income taxes payable
b. Share dividends issuable
c. Bonus obligation to employees
d. Unearned rent revenue

33. Which of the following statements regarding noninterest-bearing notes is false?

a. The face amount of a non-interest bearing note my include both the principal and interest
as a single amount to be paid back at maturity date
b. The principal amount of a noninterest-bearing note is its future cash flows discounted at
its effective interest rate
c. The effective rate on a short-term noninterest-bearing note, with a specified term, cannot
be determined unless it is given on the face of the note.
d. Noninterest-bearing is not a descriptive designation for this type of note because such
notes do bear interest.

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34. Which feature of preference share makes it more of a liability than an equity account?
a. Callable
b. Convertible
c. Participating
d. Redeemable

35. Which of the following is an essential characteristic of a liability?

I. It is a present obligation that requires settlement by probable future transfer or use of
cash, goods or services
II. The liability must be an unavoidable obligation.
III. The transaction or other event creating the obligation must have already occurred.
IV. The obligation must be settled to a specifically identifiable party.

a. I, II, III and IV

b. I, II, and IV
c. II, III, and IV
d. I,II, and III

36. ABC Company failed to amortize discount on outstanding 10-year bonds payable. What is the
effect of the failure to record amortization on interest expense, profit and bond carrying value,
respectively?
a. Understate, overstate, understate
b. Overstate, understate, overstate
c. Understate, overstate, overstate
d. Overstate, understate, understate

37. After initial recognition, bond payable shall be measured at

a. Amortized cost using the effective interest method.
b. Fair value through profit or loss
c. Either amortized cost using the effective interest method or fair value through other
comprehensive income.
d. Either amortized cost using the effective interest method or fair value through profit or
loss.

38. Treasury share is appropriately presented on the statement of financial position as a

a. Financial asset at fair value
b. Deduction at cost from total shareholders’ equity
c. Deduction at cost from total contingent liabilities
d. Deduction at par from total shareholders’ equity

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39. What does the par value of share capital represent?

a. Liquidation value of the share capital.
b. Book value of the share capital.
c. Legal nominal value assigned to the share capital.
d. Amount received by the corporation when the share was originally issued.
40. The entry to record the issuance of ordinary shares for fully paid subscription is
a. A memorandum entry.
b. Ordinary Share Subscribed
Ordinary Share Capital
Share Premium – Ordinary Share
c. Ordinary Share Subscribed
Subscribed Receivable
d. Ordinary Share Subscribed
Ordinary Share Capital

41. When shares without par value are sold, the excess proceeds over stated value shall be
credited to
a. Income
b. Retained earnings
c. Share premium
d. Share capital

42. How would a share split affect asset and shareholder’s equity, respectively?
a. Increase and Increase
b. No effect and No effect
c. No effect and Increase
d. Increase and No effect

43. The cumulative feature of preference shares

a. limits the amount of cumulative dividends to the par value of the preference shares
b. requires that dividends not paid in any year must be made up in a later year before
dividends are distributed to ordinary shareholders
c. means that the shareholders can accumulate preference shares equal to the par value
of ordinary shares at which time the preference shares can be converted into ordinary
shares
d. enables a preference shareholder to accumulate dividends equal to the par value of
the shares

44. Which statement is incorrect concerning retained earnings?

a. appropriated retained earnings shall be clearly distinguished from unappropriated retained
earnings
b. a deficit is a debit balance in retained earnings
c. a deficit in retained earnings shall be presented as an asset

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d. when the deficit exceeds the total of the other capital account balances, the excess is a
capital deficiency

45. Only a memorandum entry is made when

a. Entities grant share warrants to executives and employees as a form of compensation.
b. Entities include share warrants to make a security more attractive.
c. Entities issue rights to existing shareholders.
d. All of the choices are correct.

46. When the total shareholders’ equity is smaller than the amount of contributed capital, the
deficiency is called
a. A net loss
b. A dividend
c. A liability
d. A deficit

47. An entity declared a dividend, a portion of which was liquidating. How would this declaration
affect contributed capital and retained earnings, respectively?
a. Decrease and No effect
b. Decrease and Decrease
c. No effect and Decrease
d. No effect and No effect

48. An entity shall review and adjust the carrying amount of the dividend payable at the end of
each reporting period and at the date of settlement with any changes in the carrying amount of
the dividend payable recognized
a. In equity as adjustment to the amount of distribution
b. In profit or loss
c. As adjustment of share premium
d. As component of other comprehensive income

49. Cash dividends are paid on the basis of the number of shares
a. Authorized
b. Issued
c. Outstanding
d. Outstanding less the number of treasury shares

50. Unlike a share split, a share dividend requires a formal journal entry in the accounting records
because
a. Share dividends increase the relative book value of an individual’s shareholdings.
b. Share dividends increase the shareholders’ equity in the issuing entity.
c. Share dividends are payable on the date declared.
d. Share dividends represent a transfer from retained earnings to share capital.

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ANSWERS
1. D 26. B
2. A 27. D
3. B 28. B
4. B 29. A
5. D 30. C
6. C 31. A
7. A 32. B
8. C 33. C
9. D 34. D
10. B 35. D
11. B 36. A
12. C 37. D
13. C 38. B
14. D 39. C
15. C 40. D
16. D 41. C
17. A 42. B
18. A 43. B
19. B 44. C
20. A 45. C
21. C 46. D
22. A 47. B
23. A 48. A
24. B 49. C
25. C 50. D

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