THEORY OF ACCOUNTS

Which is(are) correct concerning the FRSC?

I. The FRSC replaces the ASC as the standard setting body in the Philippines

The FRSC is composed of 15 members with a Chairman and 14 representatives from

various sectors III. The Chairman and members of FRSC shall have a term of 2 years
renewable for another term

IV. Any member of the ASC shall be disqualified from being appointed to the FRSC

a. I and II only

b. I, II, and III only

c. III and IV only

d. I, II, III, and IV

Which of the following government agency is represented in FRSC?

a. Bureau of Fisheries
Bureau of Customs

b. CHED

c. Bureau of Internal Revenue

d.

Under the IFRS Conceptual Framework (2010), which of the following is considered a
fundamental characteristic rather than an enhancing characteristic of financial
information?

a. Timeliness b. Verifiability c. Understandability d. Faithful representation

Under SEC rules, which of the following entity may qualify as a SME?

ASAP Life, a life insurance company

ASAP Mart, a supermarket based in Caloocan City

ASAP Banking Corporation, a BSP-registered commercial bank

ASAP Waters, a water utility company servicing Metro Manila

Failure to accrue wages payable to office personnel will

a. Overstate liability b. Overstate loss

Understate admin. cost

c. Understate distribution cost

d.

Under PAS 7 (statement of cash flows), which of the following items is not being
added to profit under the

indirect method of computing operating cash flows?

a. Bad debt losses b. Depreciation

Increase in trade receivable

c. Loss on sale of equipment

d.

Under PAS 33, treasury shares are considered as anti-dilutive because

They decrease the basic earnings per share
They decrease the diluted earnings per share
They decrease the number of common shares outstanding

They increase the income available to common shareholders

The following statements are based on PFRS for SMEs:

Statement I: Listed companies may not use PFRS for SMEs no matter how small they
are.

Statement II: If a publicly accountable entity uses PFRS for SMEs, its financial
statements shall not be described as conforming to the PFRS for SMEs even if law
or regulation in its jurisdiction permits or requires PFRS for SMEs to be used by
publicly accountable entities.

Statement III: A subsidiary whose parent uses full PFRS is not prohibited from using
this PFRS for SMEs in its own FS if that subsidiary by itself does not have public
accountability.

a. True, true, true b. False, true, true

false, false

c. False, false, true

What chapter of the Conceptual Framework is still in process?

d. True,

Chapter 1 The Objective of General Purpose Financial Reporting

Chapter 2 The Reporting Entity

Chapter 3 Qualitative Characteristics of Useful Financial Information

Chapter 4 The Framework (1989): The Remaining Text

None of the above because all are already published

Which of the following does not relate to Verifiability?

Quantified information need not be a single point estimate to be verifiable. A range of

possible amounts and the related probabilities can also be verified.

Generally, the older the information is the less useful it is. However, some
information may continue to be useful long after the end of a reporting period
because, for example, some users may need to identify and assess trends.

Direct verification means verifying a representation through direct observation, for

example, by counting cash.

An example indirect verification is verifying the carrying amount of inventory by

checking the inputs and recalculating the ending inventory using the same cost flow
assumption.

This assumption was formerly considered as an underlying assumption on the

previous Conceptual Framework?

a. Going-Concern Assumption b. Accrual Assumption c. Cost Assumption d. Entity

Assumption

12.
The amount reported as Cash on a companys balance sheet normally exclude

a. Received Postdated Checks

b. Payroll account
c. Petty cash
d. Undelivered checks
13.
If a note receivable is exchanged for a PPE an no interest rate is stated, the note is to
be recorded at

a. book value of PPE

b. notes face value
c. notes maturity value
d. fair value of PPE or note

If the allowance method of recording uncollectible accounts expense is used, the

entries at the time of collection of an previously written-off account would

have no effect on profit or loss of the entity

Increase profit of the entity

have no effect on the contra account of the receivable

decrease the contra account of the receivable

15. Cash discounts permitted on the purchased direct materials (DM) are
theoretically

a. deducted from DM, whether taken or not

c.
added to other income, whether taken or not
b. deducted from DM, only if taken
d.
ignored

A gain or loss arising on the initial recognition of a biological asset and from a change
in the fair value less costs to sell of a biological asset should be included in

a. in P&L for the period

b. revaluation reserve
c. capital reserve in equity
d. none of the choices
17.
Under SEC rules, a company is classified as a Small & Medium Entity (SME) when
its total assets are between

a. P3M and P250M

b. P3M and P350M
c. P5M and P250M
d. P5M and P350M
18.
Under SEC rules, a company is classified as a Small & Medium Entity (SME) when
its total liabilities are

between

a. P3M and P250M

b. P3M and P350M
c. P5M and P250M
d. P5M and P350M

Which government body is responsible for the design, preparation and approval of
accounting systems of government agencies?

a. Department of Budget & Management b. COA

Government Agencies

c. Bureau of Treasury

d.

The following statements are based on PFRS for SMEs:

Statement I: If an entitys normal operating cycle is not clearly determinable, its

duration is assumed to be twelve (12) months.

Statement II: If an entity is unable to make a reliable estimate of the useful life of an
intangible asset, the life shall be presumed to be twenty (20) years.

Statement III: An entity shall recognize all borrowing costs as an expense in profit or
loss in the period in which

they are incurred.

a. True, true, true

b. True, false, true

c. False, false, false d. True, false, false

A cable television company receives deposits from customers, which are refunded
when service is terminated. The average customer stays with the company eight
years. How should these deposits be shown on the financial

statements?

a. Operating revenue

b. Paid-in capital

c. Other revenue

d. Liability

Given a hyperinflationary economy under PAS 29, which price index is used in (A)
measuring inflation and (B) restating financial statements? Note: General price index
(GPI) and Consumer price index (CPI)

a. (A) GPI (B) GPI

b. (A) CPI (B) CPI

c. (A) CPI (B) GPI

d. (A) GPI (B) CPI

23. The basic purpose of derivative financial instruments is to manage some kind of
risk such as all of the following,except

a. Stock price movement b. Currency fluctuations c. Interest rate variations d.

Uncollectibility of AR
In consignment sales, what is the proper treatment of the consignment-related
transportation cost (a) upon bringing the consigned goods to the consignee and (b)
upon return of the consigned goods to the consignor?

Inventory then expense

Expense then inventory
Inventory until sold

Expense until sold

25. Which of the following standards shall apply in identifying and recognizing costs
of construction (e.g., borrowing

costs specifically financed for the construction)?

I. PAS 11 Construction Contracts

II. PAS 23 Borrowing Costs

a. I only b. II only

c. Both I and II d. Neither I nor II

Identify if the following statements are true or false regarding disclosures of

franchisors:

Disclosure of all significant commitments and obligation resulting from franchise

agreements, including a description of services that have not yet been substantially
performed, is not required.

II. Initial resolution of uncertainties regarding collectability of franchise fees should be

disclosed.

a. True; True b. True; False c. False; True d. False; False

PFRS 3 defines non-controlling interest as the equity in a subsidiary not attributable,

directly or indirectly, to a parent. This definition includes not only equity shares in
the subsidiary held by other parties, but also other elements of equity in the
subsidiary. Determine how would the following instruments issued by the acquiree be
measured based on the requirements of PFRS 3:

I. Equity component of convertible debt and other compound financial instruments.

Preference shares not entitled to a pro rata share of net assets upon liquidation.

I - Proportionate share of net assets OR fair value; II - Proportionate share of net

assets OR fair value

I - Proportionate share of net assets OR fair value; II - Fair value

I - Fair value; II - Proportionate share of net assets OR fair value

I - Fair value; II - Fair value

Which of the following is not among the elements of control based on PFRS 10?

investors power over the investee

investors exposure, or rights, to variable returns from its involvement with the
investee

investors ability to participate in the financial and operating policy decisions of an

entity
investors ability to use its power over the investee to affect the amount of the
investor's returns

In a business combination achieved in stages, changes in fair value from the last
reporting date until the date of acquisition of the previously held investment
classified as FV-OCI is

a. recycled in profit or loss

c.
recognized as other comprehensive income
b. recycled directly to accumulated profits
d.
reclassified to share premium

PAS 16 Property, Plant and Equipment shall not apply to the following, except I. The
recognition and measurement of exploration and evaluation assets.

II. Property, plant and equipment classified as held for sale. III. Biological assets
related to agricultural activity

IV. Mineral rights and mineral reserves such as oil, natural gas and similar nonregenerative resources.

V. Property, plant and equipment used for the extraction of minerals, oil or natural
gas.
a. I and II only
only

b. I, II and IV only

c. IV only

d. V only

e. IV and V

31. Under the principles of PAS 16 Property, Plant and Equipment, which of the
following should be included in

the cost of an item of property, plant and equipment?

I. Initial delivery and handling cost.

II. Cost of training staff on new asset.

III. Apportioned general overhead costs.

IV. Installation and assembly cost.

a.

I, II, III and IV c. II and IV only

b. I, II and III only

d. I and IV only

Allocation of the purchase price in a lump-sum acquisition of different assets may be

based on all of the these, except

a. Book values of the assets to the seller

c.
Tax assessment values
b. Relative market values

d.
Appraised values

Which statement is(are) correct regarding the scope of PAS 36 Impairment of

Assets?

I. PAS 36 applies to some financial assets (i.e., investment in subsidiaries,

associates, and joint ventures).

PAS 36 does not apply to inventories, assets arising from construction contracts,
deferred tax assets, assets arising from employee benefits, or assets classified as
held for sale because existing PFRSs applicable to these assets contain requirements
for recognizing and measuring these assets.

III. PAS 36 applies to investment property that is measured at cost.

a. II only

b. I and II only c. II and III only

d. I, II, and III

Which of the following is incorrect regarding PAS 40 Investment Property?

PAS 40 requires all entities to determine the fair value of investment property.

An entity is encouraged, but not required, to determine measure the fair value of
investment property on the basis of a valuation by an independent valuer who holds
a recognized and relevant professional qualification and has recent experience in the
location and category of the investment property being valued.

With the reference in PFRS 13 Fair Value Measurement, Fair Value is defined as the
amount for which an asset could be exchanged between knowledgeable, willing
parties in an arm's length transaction.

An investment property shall be derecognized on disposal or when the investment

property is permanently withdrawn from use and no future economic benefits are
expected from its disposal.

After initial recognition, Investment property are measured using

a. fair value model

b. cost model

c. either A or B d. Neither A nor B

A newly set up dotcom entity has engaged you as its financial advisor. The entity has
recently completed one of its highly publicized research and development projects
and seeks your advice on the accuracy of the following statements made by one of
its stakeholders. Which of the following statements is accurate?

Costs incurred during the research phase can be capitalized.

Costs incurred during the development phase can be capitalized if criteria such as
technical feasibility of the project being established are met.

Training costs of technicians used in research can be capitalized.

Designing the jigs and tools qualify as research activities.

Which of the following note disclosure is not required by PAS 38 Intangible Assets?

Useful lives of the intangible assets.

Reconciliation of the carrying amount at the beginning and end of the year.

Contractual commitments for the acquisition of intangible assets.

Fair value of similar intangible assets used by competitors.

Are the following statements concerning the measurement of financial instruments

after initial recognition true or false, according to PAS 39 Financial instruments:
recognition and measurement & PFRS 9 Financial Instruments?

I. Under PAS 39, Held-for-trading financial assets are measured at amortized cost.

II. Under PAS 39, Held-to-maturity investments are measured at fair value.

Under PFRS 9, If an entity holds an investment to collect contractual cash flows but
would sell the investment in particular circumstances (e.g., entity needs to fund
capital expenditures, among others), the investments should be classified as fair

value through profit or loss (FVPL) investment because the business model test was
not satisfied.

IV. Under PFRS 9, there is no recycling between other comprehensive income (OCI) or
profit or loss.

a. True, False, True, True b. False, False, True, True c. False, False, False, True
d. False, False, False, False

39. In accordance with PFRS 7 Financial instruments: disclosures, which of the

following best describes the risk that an entity will encounter if it has difficulty in
meeting obligations associated with its financial liabilities

a. Liquidity risk b. Credit risk

c. Financial risk

d. Payment risk

The following statements are based on PAS 40 (Investment Property):

Statement I: An investment property is a property held to earn rentals or for capital

appreciation or both. Statement II: An investment property shall be measured initially
at costs. Transaction costs shall be excluded in the initial measurement.

Statement III: Under the cost model, a gain or loss arising from a change in the fair
value of investment property

shall be recognized in profit or loss for the period in which it arises.

a. True, true, true

b. True, false, false

c. True, false, true d. True, true, false

Which of the following is not an appropriate basis for measuring the historical cost of
fixed assets?

The purchase price, freight costs, and installation costs of a productive asset should
be included in the assets cost

Proceeds obtained in the process of readying land for its intended purpose, such as
from the sale of cleared timber, should be recognized immediately in income

The costs of improvement to equipment incurred after its acquisition should be

added to the assets cost if they provide future service potential

All costs incurred in the construction of a plant building, from excavation to

completion of a plant building, from excavation to completion, should be considered
as part of the assets cost
Which of the following is an internal user of a companys financial information?

A holder of the companys bonds

A holder of the companys stocks

A member of the board of directors

A member of the family of an incorporator

Which of the financial statement should an investor primarily use to assess the
amounts, timing, and uncertainty of investing and financing activities of ABC
Company?

Statement of comprehensive income

Statement of financial position

Statement of changes in equity

Statement of cash flows

Under the National Government Accounting System (NGAS), allotments of the

government general appropriation are recorded in the registries

At the beginning of the year

At the end of the year
Semiannually
Quarterly

When it is impracticable to determine the effect of an error for all prior periods, the
entity
Restates comparative information prospectively from the earliest date practicable
Restates comparative information prospectively up to the latest date practicable

Restates comparative information retrospectively from the earliest date practicable

Restates comparative information retrospectively up to the latest date practicable

A call option on a common share is more valuable when there is a lower

Exercise price on the option

Time to maturity on the option

Market value of the underlying share
Variability of market price on the underlying share

A direct labor overtime premium is charged to a specific job when the overtime is
caused by
Increased overall level of activity
Customers requirement for early completion of job

Managements failure to include the job in the production schedule

Managements requirement that the job be completed before the annual factory
vacation closure

The physical capital maintenance concept is consistent with

Historical cost/nominal peso and historical cost/constant peso

Historical cost/nominal peso and current cost/constant peso
Current cost/nominal peso and historical cost/constant peso

Current cost/nominal peso and current cost/constant peso

The amortization of intangible assets over their useful lives is justified by the
Economic entity assumption

Going concern assumption

Monetary unit assumption

Historical cost assumption
The following statements are based on PFRS for SMEs:

Statement I: If an entity has no items of other comprehensive income, it may present

only an Income Statement II: If an entity has no items of other comprehensive
income, it may present a Statement of

Comprehensive Income in which the bottom line is profit or loss.

Statement III: If only changes to equity arise from profit or loss, payments of
dividends, corrections of prior period errors, and changes in accounting policy, the
entity may present a single Statement of Income and Retained Earnings in lieu of
separate statements of comprehensive income and changes in equity.

a. True, true, true

b. True, false, false

c. True, false, true

d. True, true, false

In calculating diluted earnings per share (EPS), which of the following should not be
considered?

The weighted number of shares outstanding

The amount of cash dividends declared on ordinary shares

The amount of dividends declared on cumulative preference shares

The number of ordinary shares resulting from the assumed conversion of debentures
outstanding

A bank reconciliation is prepared monthly in order for the enterprise to

Arrive at the correct cash balance

Unearth any undetected cash fraud

Correct bank errors

Correct book errors

The publisher of a popular magazine offers a special discounted price for a three-year
subscription. At the balance sheet date, the revenue, which has already been
collected but pertains to future periods, is best to referred to as

Accrued subscription revenue(an asset account)

Unearned subscription revenue (a liability account)

Earned subscriptions revenue (a revenue account)
Pre-collected subscriptions receivable (a deferred asset account)

From the viewpoint of the investor, which of the following securities provides the
least risk?
Mortgage bond

Subordinated debenture
Income bond

Debentures

The measurement basis often used to report a long-term payable requiring a

commitment to pay money at a determinable future date is

Current cost
General price level

Net realizable value

Present value of future cash flows

The Victoria Company acquired 30,000 4% Government Bonds redeemable in 2013 at

the quoted market price of P200. Victoria has no current intention to sell the Bonds
and has a policy to hold them as investments unless certain corporate criteria are
met and the bonds are sold to maintain liquidity. In accordance with PAS 39
Financial instruments: Recognition and Measurement, which one of the following is
the most appropriate

classification for Victoria's investment in the Government Bonds?

a. Held for trading

and receivables

b. Available for sale c. Held to maturity investment d. Loans

Under PFRS 9 Financial Instruments, if an entity used its fair value option for equity
instruments, which of the following statements is incorrect?

dividends are to be recognized in profit or loss if said dividends are considered return
on investment
no recycling of fair value changes to profit or loss on impairment, disposal or in any
other circumstances

impairment testing is required for this equity investment

additional disclosures are required for this equity investment

Which of the following is incorrect regarding the scope of PFRS 7 Financial

Instruments: Disclosures?

PFRS 7 applies to recognized and unrecognized financial instruments

PFRS 7 applies to contracts to buy or sell a non-financial item that are within the
scope of PFRS 9

Recognized financial instruments include financial assets and liabilities that are
within the scope of PFRS 9

Unrecognized financial instruments include some financial instruments that are

within the scope of PFRS 9

59. Which step in the accounting cycle is completed later than the others?

a. Posting
b. Adjustments c. Journalizing
transactions

d. Identification and measurement of

In reconciling net income on an accrual basis to net cash provided by operating

activities. What adjustment is needed to net income because of (1) an increase
during the period in prepaid expenses, and (2) the periodic depreciation expense of
company properties?

a. (1) Add (2) Add

(2) Deduct

b. (1) Add (2) Deduct

c. (1) Deduct (2) Add

d. (1) Deduct

This accounting objective emphasizes the importance of the Income Statement as it

is geared toward proper income or performance determination of the enterprise.

a. Fund theory
theory

b. Entity theory

c. Proprietary theory

d. Residual equity

An automobile manufacturer should normally recognize revenue when an

Order is received from a dealer

Automobile comes off of the assembly line

Automobile is shipped to a dealer serving as a sales agent

Automobile is shipped to a dealer on a non-consignment basis

Jon Co. uses the equity method to account for its investment in Lee Co. stock. How
should Jon record a 2% stock dividend received from Lee?

As dividend revenue at Lees carrying value of the stock

As dividend revenue at the market value of the stock

As a reduction in the total cost of stock investment

As a memorandum entry reducing the unit cost of stock investment

In accounting for a business combination, which of the following intangibles should

not be recognized as an asset apart from goodwill?

a. Trademarks

b. Lease agreements c. Employee quality d. Patents

The application of factory overhead costs under job order costing would be reflected
in the general ledger as an increase in

a. Factory overhead control b. Finished goods control

d. Cost of goods sold

c. Work in process control

Which of the following is incorrect regarding the loss of significant influence under
the revised PAS 28?

An entity loses significant influence over an investee when it loses the power to
partake in the financial and operating policy decisions of that investee

The loss of significant influence can occur with or without a change in absolute or
relative ownership levels

When an associate becomes subject to the control of a government, court,

administrator or regulator, significant influence is unaffected because of the potential
rights on the investment in associate
Loss of significant influence could occur as a result of a contractual arrangement

Which of the following statements is(are) true regarding equity method under the
revised PAS 28?

I. Under the equity method, on initial recognition the investment in an associate or a

joint venture is recognized at cost.

Distributions received from an investee reduce the carrying amount of the

investment.

Adjustments to the carrying amount may also be necessary for changes in the
investor's proportionate interest in the investee arising from changes in the
investee's other comprehensive income (e.g., revaluation surplus).

IV.
When potential voting rights exist, an entity's interest in an associate or a
joint venture is determined by reflecting the possible exercise or conversion of
potential voting rights.

An entity need not apply the equity method to its investment in an associate or a
joint venture if the entity is a subsidiary that is exempt from preparing consolidated
financial statements by the scope exception in PFRS 10 Consolidated Financial
Statements.

a. I, II, III and V only

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

Which of the following formula is correct?

Assets to be realized less liabilities to be liquidated equals net asset at the beginning
of the period

Assets to be realized less liabilities to be liquidated equals net asset at the end of the
period

Assets not realized less liabilities not liquidated equals net asset at the beginning of
the period

Assets not realized less liabilities liquidated equals net asset at the beginning of the
period

Are the following statements true or false, according to PFRS 11 Joint Arrangement?

Statement I: A joint arrangement is an arrangement of which two or more parties

have joint control. Statement II: A joint arrangement is either a joint operation or a
joint venture.

Statement III: A joint control is the contractually agreed sharing of control of an

arrangement, which exists only when decisions about the relevant activities require
the majority consent of the parties sharing control.

a. True, true, true

b. True, false, false c. True, false, true d. True, true, false

70. Which of the following is the allowed method of accounting for interest in joint
venture of a joint venturer under IFRS 11 Joint Arrangement?

a. proportionate consolidation

c. fair value model

b. equity method

d. cost model

The following are true about the differences on financial statements prepared for
partnerships and those prepared for corporations, except

In the statement of financial position, ownership equity for a partnership will be

partners capital balances; in a corporation, share capital, share premium, and
accumulated profits & losses.

In lieu of a statement of accumulated profits & losses done for corporations, partnerships
present a statement of partners capital in support of its ownership equity on the
statement of financial position.

In the statement of partners capital, generally, salaries, interest, & bonuses paid to
partners are excluded from the operating expenses of the partnerships.

In the statement of comprehensive income, some partnerships are treating partners

remunerations as operating expenses rather than as distribution of net profits.

Which of the following can qualify as an asset of an entity?

Freely circulating air in the school campus university
An oxygen tank donated to Makati Medical Center
Good order by Nolasco Trading from XYZ Corp.
The position of a public highway fronting Jollibee in Dagupan City

Government assistance includes all of the following, except

Free technical advice

Provision for Guarantee

Government procurement policy that is responsible for a portion of the entitys sales
Improved irrigation water system for the benefit of an entire local community

Supplemental disclosures required only when the statement of cash flows is prepared
using the indirect method include

A schedule reconciling net income with net cash flows from operating activities
Amounts paid for interest and taxes

Amounts deducted for depreciation and amortization

Significant noncash investing and financing activities

It is a continuing appropriation for an indefinite period in excess of one fiscal year

a. Annual appropriation b. Continuing appropriation

d. No-year appropriation

c. Multi-year appropriation

For which of the following purposes should an appropriation for possible loss
contingencies be established?

To match applicable costs with current revenue.

To reduce fluctuations in net income in order to lend stability of the entity.

To charge operations in periods of rising prices for the losses which may otherwise be
absorbed in periods of falling prices.

To inform shareholders that a portion of retained earnings should e set aside from
amounts available for dividends because of such contingencies.

The dividends declared account is a nominal account and

Carried forward o the next accounting period

Closed directly to retained earnings

Closed directly to income summary

Closed directly to capital

Determine the false statement.

A material used and made part of the finished good is part of the products prime
cost.

Labor cost for factory supervisors is part of the products prime and conversion cost.

A material used but not part of the finished good is part of the products conversion
cost.

Plant overhead cost may be applied to products using normal or standard costing
system.

When the right to receive dividend is forfeited in any one year in which dividend is
not declared, the preference share is said to be

a. Cumulative

b. Non-cumulative c. Participating

d. Non-participating

Which of the following standards may apply in accounting for financial assets and
financial liabilities? III. PAS 39 Financial Instruments: Recognition and Measurement

IV. PFRS 9 Financial Instruments

a. I only b. II only

c. Both I and II d. Neither I nor II

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