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3. The following are included in the scope at the conceptual framework, except
a. Objective of financial statements
b. Qualitative characteristics that determine usefulness of financial accounting information
c. Definition, recognition and measurement of the elements of financial statements
d. Generally accepted accounting principles
5. Financial accounting can be broadly defined as the area of accounting that prepares
a. General purpose financial statements to be used by parties internal to the business enterprise only
b. Financial statements to be used by investors only
c. General purpose financial statements to be used by parties both internal and external to the
business enterprise
d. Financial statements to be used primarily by management
6. These include not only financial statements but also other information such as supplementary schedules in a corporate
annual report, prospectuses, and description of major products.
a. Financial statements c. Notes to financial statements
b. Financial report d. Audit reports
8. The responsibility for the proper preparation of a company’s financial statements rests with its
a. Management c. Internal auditors
b. Audit committee d. External auditors
9. Financial statement users with a direct economic interest in a specific business include
a. Financial advisers c. Stock market
b. Regulatory bodies d. Suppliers
10. They encompass the conventions, rules, and procedures necessary to define what is accepted accounting practice.
a. Generally accepted accounting principles
b. Accounting constraints
c. Conceptual framework
d. Accounting assumptions
11. What is referred to as the recognition or nonrecognition of business activities as accountable events?
a. Identifying c. Classifying
b. Measuring d. Communicating
12. Which of the following, involves the assigning of peso amounts to the accountable economic transactions and events?
a. Identifying c. Classifying
b. Measuring d. Communicating
13. It involves the examination of financial statements by an independent CPA for the purpose of expressing an opinion as
to the fairness of the statements
a. External auditing c. Internal auditing
b. Consultancy d. Taxation
14. Many CPAs join the in-house accounting staff of a business. They are said to be engaged in
a. Public accounting c. Government accounting
b. Private accounting d. Financial accounting
15. Which of the following financial statement users need financial information to enable them to assess the ability of the
enterprise to pay dividends?
a. Investors c. Creditors
b. Employees d. Suppliers
16. When a parent and subsidiary relationship exists, consolidated financial statements are prepared in recognition of
a. Legal entity c. Periodicity
b. Economic entity d. Monetary unit
17. Continuation of an accounting entity in the absence of evidence to the contrary relates to the basic concept of
a. Time period of Periodicity c. Going concern
b. Accounting entity d. Accrual
18. Accountants prepare financial statements at arbitrary points in time during the lifetime of an entity. This is in
accordance with which basic accounting concept?
a. Going concern c. Unit of measure
b. Periodicity d. Accrual
19. The business reason usually given for a business to select a fiscal year different from the calendar year is
a. The firm’s owners may have a personal preference
b. Tax laws favor firms which employ a fiscal year other than to calendar year
c. The fiscal year-end is selection to coincide with the low points in sales, production, and
inventories, which may occur awesome period other than the calendar year-end
d. Public accounting firms might not be able to handle the workload if all their clients were to
report on a calendar year-end
20. The best indication of an enterprise’s present and continuing ability to generate favorable cash flows is information
about enterprise earnings based on which of the following?
a. Cash accounting basis c. Accrual accounting basis
b. Tax accounting basis d. Unit of measure basis
21. The primary purpose of the statement of financial position of a business enterprise is to reflect
a. The fair value of the firm’s assets at some moment in time
b. The status of a firm’s assets in case of forced liquidation of the firm
c. The firm’s potential for growth in stock values in the stock market
d. Items of value, debts, and net worth
28. Under this assumption, the effects of transactions and other events are recognized when they occur and not as cash or
its equivalent is received or paid, and they are recorded in the accounting records and reported in the financial statements
of the period to which they relate
a. Going concern c. Monetary unit
b. Accrual basis d. Periodicity
29. Which of the following statements is/are incorrect concerning the Framework?
I. The Framework applies to the financial statements of all commercial, industrial, and business
reporting enterprises, whether in the public or private sector.
II. Special purpose financial reports, for example, prospectus and computations prepared for
taxation purposes, are within the scope of the framework
a. I only c. Both I and II
b. II only d. Neither I nor II
30. The theory of accounting which best describes the accounting equation expressed “Asset = Liabilities +
Proprietorship” is the
a. Proprietary theory c. Entity theory
b. Fund theory d. Residual equity theory
31. There are four phases of accounting. The phase whereby the liquidity, solvency, stability and profitability of an
enterprise are significantly portrayed is known as
a. Interpreting c. Summarizing
b. Classifying d. Recording
33. External events are those that affect the enterprise and in which other entities participate. An example of external
event is
a. Issuance of a promissory note in settlement of an account
b. Manufacture of a product out of raw materials
c. Loss of property due to flood
d. Transfer of goods from one department to another
36. Angel Locsin, the purchasing manager for the OCR Company, enters into a contract for the purchase of a computer on
December 12, 2006. The computer is delivered on December 24, 2006; the year end is December 31, 2006. The invoice
from the supplier is received on January 15, 2007, and payment for the computer is made on January 31, 2007. When
should the transaction be recognized and brought into the accounting records of OCR Company?
a. December 12, 2006 c. December 24, 2006
b. January 15, 2007 d. January 31, 2007
37. These are the attributes that make the information provided in financial statements useful to users.
a. Qualitative characteristics c. Generally accepted accounting principles
b. Underlying assumptions d. Accounting constraints
40. What quality of information assures readers that the information is free from bias or error and faithfully represents
what it purports to show?
a. Reliability c. Comparability
b. Relevance d. Understandability
41. It refers to the capacity of information to make a difference in decision by helping users form predictions about
outcome of past, present and future events or confirm and correct prior expectations
a. Reliability c. Comparability
b. Understandability d. Relevance
43. Accounting information that enables decision makers to confirm or correct prior expectations is said to have
a. Predictive value c. Feedback value
b. Representational faithfulness d. Comparability
46. The information contained in the financial statements is neutral when the information
a. Is free from the bias and error
b. Represents faithfully the transactions and other events that it purports to represent
c. Reflects the economic substance of the transactions rather than their mere legal from
d. Is complete within the bounds of materiality and cost
52. An important implication of this qualitative characteristic is that users be informed of the accounting policies
employed in the preparation of financial statements, any changes in those policies and the effects of such changes.
a. Relevance c. Understandability
b. Reliability d. Comparability
54. It refers to the inclusion of a degree of caution in the exercise of the judgments needed in making the estimates
required under conditions of uncertainty, such that assets or income are not overstated and liabilities or expenses are not
understated.
a. Faithful representation c. Completeness
b. Substance over form d. Prudence
55. Financial reporting is concerned only with information that is significant enough to affect evaluation or decision
a. Materiality c. Cost and benefit
b. Understandability d. Comparability
56. The conceptual framework of accounting sets out two constraints when implementing accounting procedures. These
are
a. Cost-benefit and materiality c. Timeliness and materiality
b. Comparability and consistency d. Cost-benefit and timeliness
58. According to the conceptual framework, the usefulness of providing information is subject to the accounting
constraint of
a. Consistency c. Representational faithfulness
b. Cost-benefit d. Reliability
59. Factors that might influence a decision maker’s judgment as to what accounting information is useful include
a. The decision to be made
b. The information already possessed
c. The decision maker’s capacity to process the information
d. All of the answers are correct
60. Angel is preparing the financial statements for her company, TGR Corporation. One of the transactions during the
year was a complex finance deal involving bonds. Tanya is of the opinion that, because the majority of financial
statements users won’t understand the transaction, she should leave it off the balance sheet. Is Tanya’s decision correct?
a. Yes c. Maybe
b. No d. I don’t care
61. Mr. X, Prudent Co’s financial accountant, is not certain about the amount by which the carrying value of inventory
should be reduced due to obsolescence. In the past, the reduction due to obsolescence has been approximately P100,000
per annum. He is of the opinion that this year the reduction should range between P15,000 and P150,000. In order to avoid
the income statement taking more losses (the company is already running at severe losses) he decides to set the reduction
at P1,500, the lowest level possible. Mr. X is violating the quality of
a. Faithful representation c. Prudence
b. Substance over form d. Completeness
62. Financial statements portray the financial effects of transactions and other events by grouping them into broad classes
according their economic characteristics. These broad classes are the
a. Basic elements c. Basic objectives
b. Basic principles d. Basic assumptions
63. The elements directly related to the measurement of financial position are
a. Assets, liabilities and equity
b. Assets, income, liabilities, expenses, and equity
c. Income and expenses
d. Assets and equity
64. The elements directly related to the measurement of performance in the income statement are
a.Income and losses c. Income and expenses
b.Revenues and expenses d. Gains and losses
66. According to the conceptual framework, which of the following is an essential characteristics of an asset?
a. The claims to an asset’s benefits are legally enforceable
b. An asset is tangible
c. An asset is obtained at a cost
d. An asset provides future benefits
68. If is frequently used a measure of performance or as the basis for other measure, such as return on investment or
earning per share.
a. Gain c. Income
b. Revenue d. Profit
69. It represents increases in economic benefits during the accounting period in the form of inflows or enhancements of
assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity
participants
a. profit c. revenue
b. income d. sales
70. They represent decreases in economic benefits during the accounting period in the form of outflows or depletions of
assets or incidences of liabilities that result in decreases in equity other than those relating to distribution of equity
participants
a. expenses c. cost of goods sold
b. losses d. depreciation
75. It involves the simultaneous or combined recognition of revenue and expenses that result directly and jointly from the
same transactions or other events
a. Matching of costs with revenue c. Immediate recognition
b. Systematic and rational allocation d. Substance over from
76. When economic benefits are expected to arise over several accounting periods and the association with income can
only be broadly or indirectly determined, expenses are recognized in the accounting periods in which the economic
benefits associated with the item are consumed or expired.
a. Immediate recognition c. Cause and effect association
b. Systematic and rational allocation d. Materiality
77. An expense is recognized immediately in the income statement when an expenditure produces no future economic
benefits or when, and to the extent that future economic benefits do not qualify or cease to qualify, for recognition in the
balance sheet as an asset.
a. Associating cause and effect c. Objectivity
b. Systematic and rational allocation d. Immediate recognition
78. It is the residual interest in the assets of the enterprise after deducting all its liabilities
a. Revenue c. Expenses
b. Liabilities d. Equity
80. Income recognized using the installment method of accounting equals cash collected multiplied by
a. Net income percentage c. Gross profit percentage
b. Operating income percentage d. Income from ordinary activities percentage
81. In accordance with the cost recovery method, gross income on an installment sale is recognized as income
a. After cash collections equal to the cost of sales have been recovered
b. On the date of sale
c. On the date the final collection is received
d. In proportion to collections
82. What revenue recognition method is allowed when a sale is assured under a forward contract or government guarantee
or when a homogenous market exists and there is negligible risk of failure to sell?
a. Percentage of completion method c. Cash method
b. Production method d. Accrual method
83. The Butiki Company is a service enterprise that requires customers to place their orders 2 weeks in advance. Butiki
bills its customers on the fifteenth day of the month following the date of service and requires that payment be made
within 30 days of the billing date. Conceptually, Butiki should recognize revenue from its services at the date when
a. A customer places and order c. A billing is mailed
b. The service is provided d. A customer’s payment is received
84. Under a royalty agreement with another enterprise, a company will received royalties from the assignment of a patent
for 2 years. The royalties received should be reported as revenue
a. At the date of the royalty agreement
b. In the period earned
c. In the period received
d. Evenly over the life of the royalty agreement
85. Cost that can be reasonably associated with specific revenues but not with specific products should be
a. Charged to expense in the period incurred
b. Allocated to specific products based on the best estimate of the production processing time
c. Expensed in the period in which the related revenue is recognized
d. Capitalized and then amortized over a period not to exceed 60 months
86. Some costs cannot be directly related to particular revenues but are incurred to obtain benefits that are exhausted in the
period in which the costs are incurred. An example of such a cost is
a. Salespersons’ monthly salaries c. Transportation to customers
b. Salespersons’ commissions d. Prepaid Insurance
87. When bad debt expense is estimated on the basis of the percentage of past actual losses from bad debts to past net
credit sales, and the percentage is adjusted for anticipated conditions, the accounting concept of
a. Matching is being followed
b. Matching is not being followed
c. Substance over form is being followed
d. Going concern is not being followed
88. Which of the following is an example of the expense recognition principle of associating cause and effect?
a. Allocation of insurance cost
b . Sales commissions
c. Depreciation of property, plant and equipment
d. Officers’ salaries
89. Which of the following is an application of the principle of systematic and rational allocation?
a. Amortization of intangible assets c. Research and development costs
b. Sales commissions d. Officers’ salaries
90. The amount of cash or its equivalent that would have to be paid if the same or an equivalent asset were acquired
currently defines the attribute of
a. Historical cost c. Current market value
b. Current cost d. Net realizable value
91. Reporting inventory at the lower of cost or net realizable value is a departure from the accounting principle of
a. Historical cost c. Consistency
b. Conservation d. Full disclosure
92. Which of the following documents does not initiate an entry to be made in the accounts?
a. Sales invoice c. Purchase order
b. Purchase invoice d. Credit memorandum
94. Which of the following is an adjunct account that should not be closed at the end of every accounting period?
a. Allowance for doubtful accounts c. Discount on bonds payable
b. Freight-in d. Share premium
95. An entity that uses special journal acquired merchandise by giving a note payable. In which journal would the
transaction be recorded?
a. Invoice register c. General journal
b. Sales journal d. Cash disbursements journal
98. If during an accounting period an expense item has been incurred but not yet paid, the adjusting entry would involve
100. An entity initially records prepayments in nominal accounts. Which of the following year-end adjusting entries
should be reversed?
a. the entry to record inventory at the year-end
b. the entry to record the portion of rental received in advance that is unearned at year-end
c. the entry to record doubtful accounts
d. the entry to record amortization of patent
2. Saigon Company held an IOU at December 31, 2005. The IOU should be reported as
a. An investment. c. Cash.
b. Petty cash. d. A receivable.
3. On a company’s December 31, year 1 balance sheet, which of the following items should be included in the amount
reported as cash?
I. A check payable to the company, dated January 2, year 2, in payment of a sale made in December year 1.
II. A check drawn on the company’s account, payable to a vendor, dated and recorded in the company’s books on
December 31, year 1 but not mailed until January 10, year 2.
a. I only. c. I and II only.
b. II only. d. Neither I nor II.
7. The cash and cash equivalents reported in the current assets section of the balance sheet are
a. Unrestricted in use for the current operation.
b. Deposited in bank.
c. Set aside for the liquidation of long-term debt.
d. Availability for the purchase of property, plant and equipment.
9. Which of the following cannot qualify as cash equivalent assuming that a company’s balance sheet date is December
31, 2005?
a. One-month money market placement.
b. Six-month BSP treasury note due March 15, 2006.
c. Three-year BSP treasury note purchased on December 31, 2005 and due March 15, 2006.
d. Three-month time deposit due February 28, 2006.
10. Which of the following is not a basic characteristic of a system of cash control?
a. Use of a voucher system.
b. Combined responsibility for handling and recording cash.
c. Daily deposit of all cash received.
d. Internal audits at irregular intervals.
12. Who is responsible, at all times, for the amount of the petty cash fund?
a. The president of the company. c. The generally cashier.
b. The general office manager. d. The petty cash custodian.
13. Which of the following is not an appropriate procedure for controlling the petty cash fund?
a. The petty cash custodian files receipts by category of expenditure after their presentation to the general cashier so
that variations in different types of expenditures can be monitored.
b. Surprise counts of the fund are made from time to time by a superior of the petty cash custodian to determine that
the fund is being accounted for satisfactorily.
c. The petty cash custodian obtains signed receipts from each individual to whom petty cash is paid.
d. Upon receiving petty cash receipts as evidence of disbursements, the general cashier issues a company check to
the petty cash custodian, rather than cash, to replenish the fund.
16. An unreleased check is one that is drawn before balance sheet date but is held for later delivery to the intended payee.
It
a. Should be treated as an outstanding check
b. Should be restored to the cash balance.
c. Should be treated as an outstanding check if it is ultimately cashed.
d. Should be treated as an outstanding check if the date is shortly after the balance sheet date.
17. Bank reconciliations are normally prepared on a monthly basis to identify adjustments needed in the depositor’s
records and to identify bank errors. Adjustments should be recorded for
a. Bank errors, outstanding checks, and deposits in transits.
b. All items except bank errors, outstanding checks, and deposits in transit.
c. Book errors, bank errors, deposits in transit, and outstanding checks.
d. Outstanding checks and deposits in transit.
18. In preparing a monthly bank reconciliation, which of the following items would be added to the balance reported on
the bank statement to arrive at the correct cash balance?
a. Outstanding checks.
b. Bank service charge.
c. Deposits in transit.
d. A customer’s note collected by the bank on behalf of the depositor.
19. If the cash balance shown on a company’s accounting records is less than the correct cash balance and neither the
company nor the bank has made any errors, there must be
a. Deposits credited by the bank but not yet recorded by the company.
b. Bank charges not yet recorded by the company.
c. Deposits in transit.
d. Outstanding checks.
20. Which of the following reconciling items must be added to the cash balance per ledger in preparing a bank
reconciliation using the unadjusted to adjusted balances format?
a. Note receivable collected by the bank in favor of the depositor.
b. Erroneous bank charges.
c. NSF customer check.
d. Bank service charges.
21. If the balance shown on a company’s bank statement is less than the correct cash balance and neither the company nor
the bank has made any errors, there must be
a. Bank charges not yet recorded by the company.
b. Deposits credited by the bank but not yet recorded by the company.
c. Deposits in transit.
d. Outstanding checks.
23. Which of the items below is deducted from the bank statement balance in preparing a bank reconciliation using the
adjusted balance format?
a. Certified check. c. Deposit in transit.
b. Outstanding checks. d. Bank service charge.
TOA03- Receivables
1. These are oral promises of the buyers to pay for goods and services sold.
a. Trade receivables. c. Accounts receivable.
b. Non-trade receivables. d. Notes receivable
2. Trade receivables are classified as current assets if they are reasonably expected to be realized in cash.
a. Within one year.
b. Within the normal operating cycle.
c. Within one year or within the normal operating cycle, whichever is shorter.
d. Within one year or within the normal operating cycle, whichever is longer.
3. Non-trade receivables are classified as current assets only if they are reasonably expected to be realized in cash
a. Within the normal operating cycle.
b. Within one year or within the normal operating cycle, whichever is shorter.
c. Within one year or within the normal operating cycle, whichever is longer.
d. Within one year, the length of the operating cycle notwithstanding.
7. Long-term notes receivable which are zero-interest-bearing or those whose rates are unreasonably low may be stated
at
a. Face value. c. Maturity value.
b. Discounted value. d. Book value.
10. Which of the following methods of determining bad debts expense violates the matching principle?
a. Determining the allowance for bad debts using the percentage of receivables method.
b. Determining the allowance for bad debts using the percentage of sales method.
c. Determining the allowance for bad debts based on aged accounts receivable.
d. Charging bad debts expense as accounts are written off as uncollectible.
11. Which of the following methods of determining bad debt expense most closely matches expense to revenue?
a. Estimating the allowance for doubtful accounts by aging the accounts receivable.
b. Charging bad debts with a percentage of sales for that period.
c. Charging bad debts only as accounts become worthless or uncollectible.
d. Estimating the allowance for doubtful accounts as a percentage of accounts receivable.
12. This method of estimating bad debts is also known as the income statement approach.
a. Direct write-off method.
b. Estimating the allowance for bad debts by aging the accounts receivable.
c. Estimating bad debts based on credit sales.
d. Estimating the allowance for bad debts based on the accounts receivable balance.
13. This method of estimating bad debts is also known as the balances sheet approach.
a. Allowance method based on aging the receivables.
b. Direct write-off method.
c. Allowance method based on credit sales.
d. Allowance method based on total sales.
14. When a specific customer’s account receivable is write off as uncollectible, what will be the effect on net income
under each of the following methods or recognizing bad debts expense?
Allowance Direct write-off
a. None Decrease
b. Decrease None
c. Decrease Decrease
d. None None
15. A company uses the allowance method to recognize uncollectible accounts expense. What is the effect at the time of
the collection of an account previously written off on each of the following accounts?
Allowance for Uncollectible
Doubtful Accounts Accounts Expense
a. No effect Decrease
b. Increase Decrease
c. Increase No effect
d. No effect No effect
16. The amount of accounts receivable pledged as collateral security for a loan should be
a. Excluded from total receivables with disclosure.
b. Excluded from total receivables without disclosure.
c. Included in total receivables with disclosure.
d. Included in total receivables without disclosure.
17. This refers to a financing arrangement whereby one party formally transfers its rights to accounts receivable to
another party in consideration for a loan.
a. Pledge. c. Factoring.
b. Assignment. d. Discounting.
20. It refers to the proceeds retained by the factor to cover probable sales discounts, sales returns, and sales allowances.
a. Finance charge. c. Factor’s holdback.
b. Equity in assigned accounts. d. Loss on factoring.
21. If the buyer of an entity’s receivables withholds a certain portion or percentage of the receivables purchased, the
portion retained by the buyer.
a. Should be included in receivables of the seller.
b. Should be shown separately as non-current asset if the amount is material.
c. Should be treated as a loss.
d. Should be charged to interest expense.
27. On October 1, 2005, a company received a one-year note receivable bearing interest at the market rate. The face
amount of the note receivable and the entire amount of the interest are due on September 30, 2006. The interest
receivable account at December 31, 2005 would consist of an amount representing.
a. Three months of accrued interest income.
b. Nine months of accrued interest income.
c. One year of accrued interest income.
d. The excess at October 31, 2005 of the present value of the note receivable over its face value.
28. On July 1 of this year a company received a one-year note receivable bearing interest at the market rate. The face
amount of the note receivable and the entire amount of the interest are due on June 30 of the next year. At December
31 if this year, the company should report in its balance sheet.
a. A deferred credit for interest applicable to next year.
b. Interest receivable for the entire amount of the interest due on June 30 of next year.
c. No interest receivable.
d. Interest receivable for the interest accruing this year.
29. Most companies use receivables as a source of cash. Which of the following is not a receivable financing.
a. Hypothecation. c. Defalcation.
b. Factoring. d. Pledging.
30. A 90-day 15% interest-bearing note receivable is sold to a bank with recourse after being held for 30 days. The
proceeds are calculated using an 18% interest rate. The note receivable has been.
Discounted Pledged
a. No Yes
b. No No
c. Yes No
d. Yes Yes
31. On December 20, D Company segregated goods costing P100,000 for future shipment to one of its customers, T
Company. T was billed P175,000. Treat each of the following situations independently.
A. T is a regular customer, and D has been expecting an order for the past 2 weeks. To make sure that sufficient
goods are available when the order from T finally does come, D has segregated the goods.
B. Normal procedure is for the purchasing agent for T to sign a formal sales agreement as part of each purchase. That
agreement is then countersigned by D’s sales manager. The segregation of goods was arranged over the phone; D
plans to take care of the formal paperwork next week.
C. T has requested, in writing, that D segregate the goods. T is conducting temporary repairs to its storage
warehouse., so T has arranged to make its shipments directly from D’s warehouse for the duration of the repairs.
The goods have been carefully separated so that D employees don’t accidentally ship them to another company.
D. The sales agreement between D and T requires that all goods be subjected to a qualify control test by T engineers.
That qualify control test is not expected to occur until early January.
Which of the above situations would require recognition of sales revenue on D’s books?
a. A only. c. C only.
b. A and C only. d. B and D only.
32. A company providing maintenance services on equipment for a fixed periodic fee would
a. Recognize an equal amount of service revenue for each act.
b. Recognize service revenue over the fixed period by the straight-line method.
c. Recognize service revenue in proportion to the direct costs to the provider of the services to perform each act.
d. Recognize service revenue only when the fixed period has ended.
33. An adjusting entry in which revenue is recognized and a receivable is established indicates that revenue has been
Earned Collected
a. Yes No
b. Yes Yes
c. No Yes
d. No No
35. How should unearned discounts, finance charges, and unearned interest included in the face amount of notes
receivable be presented in the balance sheet.?
a. As a deferred credit.
b. As a deduction from the related receivables.
c. In the notes to the financial statements.
d. As a current liability.
37. Accounting for the interest in a non-interest bearing note receivable is an example of what aspect of accounting
theory?
a. Matching. c. Substance over form.
b. Verifiability. d. Accounting entity.
40. In calculating the carrying amount of loan receivable, the lender adds to the principal
a. direct origination cost
b. direct origination cost and indirect origination cost
c. direct origination cost and origination fee charged to borrower
d. direct origination cost, indirect origination cost and origination fee charged to borrower
41. Which of the following is not objective evidence of impairment of a financial asset?
a. significant difficulty of the issuer or obligor
b. a decline in the fair value of the financial asset below the previous carrying amount
c. a breach of contract, such as a default or delinquency in interest or principal payment
d. the lender, for economic or legal reason relating to the borrower’s financial difficulty, grants to the borrower a
concession that the lender would not otherwise consider
42. If there is evidence that an impairment loss on loan receivable has been incurred, the loss is equal to the
a. excess of the carrying amount of the loan over the present value of the cash flows related to the loan
b. excess of the present value of cash flows related to the loan over the carrying amount of the loan
c. excess of the carrying amount of the loan over the principal amount of the loan
d. excess of the principal amount of the loan over the carrying amount
4. It is contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities and represents
financial asset of the holder and equity of the issue.
a. Equity instrument c. Loan and receivable
b. Debt instrument d. Death instrument
6. What are the conditions for offsetting financial assets and financial liabilities?
a. A legal right of offset.
b. A legal right of offset and an intention to settle net or simultaneously.
c. The existence of a clearing mechanism for net settlement and an expectation of net settlement.
d. A netting agreement and an expectation of net settlement.
7. Which of the following information is not required to be disclosed about exposure to risks arising from financial
instruments?
a. Qualitative and quantitative information about market risk
b. Qualitative and quantitative information about credit risk
c. Qualitative and quantitative information about operational risk
d. Qualitative and quantitative information about liquidity risk
8. Examples of financial instruments with off-statement of financial position risk include all of the following, except
a. Outstanding loan commitment written
b. Recourse obligation on receivables
c. Warranty obligation
d. Futures contract
10. It is the amount for which an asset could be exchanged or a liability settled, between knowledgeable and willing
parties in arm’s length transaction
a.Discounted value c. Fair value
b.Carrying value d. Net realizable value
12. Transaction costs that are directly attributable to the acquisition of a financial asset shall be
a. Capitalized as cost of the financial asset
b. Expensed when incurred
c. Charged to retained earnings
d. Included as a component of other comprehensive income
13. If the financial asset is held for trading or if the financial asset is measured at FVPL, transaction costs directly
attributable to the acquisition shall be
a. Capitalized as cost of the financial asset
b. Expensed immediately when incurred
c. Deferred and amortized over a reasonable period
d. Included as component of other comprehensive income
14. Depending on the business model for managing financial assets, an entity shall classify financial assets subsequent to
initial recognition at
a. Fair value
b. Amortized cost
c. Either fair value or amortized cost
d. Neither fair value nor amortized cost
15. The contractual agreement between an investor and the bond issuer is contained in a formal document known as
a. Contract of debt
b. Bond indenture
c. Bond certificate
d. Bond agreement
16. The effective interest method of amortization of bond discount provides for
a. Increasing discount amortization and increasing interest income.
b. Increasing discount amortization and decreasing interest income.
c. Decreasing discount amortization and increasing interest income.
d. Decreasing discount amortization and decreasing interest income.
18. An investor purchased a bond as a long term investment between interest dates at a premium. At the purchase date, the
cash paid to the seller is
a. The same as the face amount of the bond.
b. The same as the face amount of the bond plus accrued interest.
c. More than the face amount of the bond.
d. Less than the face amount of the bond.
19. An investor purchased a bond as a long term investment on January 1. Annual interest was received on December 31.
The investor’s interest income for the year would be higher if the bond was purchased at
a. Par
b. Face value
c. A discount
d. A premium
20. The enterprise in which the investor has significant influence is a/an
a. Subsidiary c. Equity
b.Investee d. Associate
22. Significant influence on the part of the investor can be shown by any of the following, except
a. Participation in policy making processes of the investee
b.Provision of essential technical information by the investor
c.Representation in the boar of directors
d.Substantial loan to an office
23. Under the equity method of accounting, the investment is initially recorded at cost, and
I. The carrying amount is increased or decreased to recognize the investor’s share of the investee’s profits or
losses after the date of acquisition.
II. The investor recognizes income only to the extent that distributions are received from the accumulated net
profits of the investee after the date of acquisition
a. Neither I nor II c. I only
b. Both I and II d. II only
24. If an associate has outstanding cumulative preferred stock, held by outside interests, the investor computes its share of
profits or losses
a. After adjusting for the preferred dividends only when declared
b. After adjusting for the preferred dividend which where actually paid during the year
c. Without regard for preferred dividends
d. After adjusting for the preferred dividends, whether or not the dividends have been declared.
25. An investor shall discontinue the use of the equity method from the date that
I. The investor ceases to have significant influence but retains either in whole or in part, its investment.
II.The associate operates under severe long-term restrictions that significantly impair its ability to transfer funds
to the investor.
a.I only c. Neither I nor II
b. II only d. Both I and II
26. If under the equity method, an investor’s share of losses of an associate equals or exceeds the carrying amount of the
investment, which of the following is not correct?
a. The investor ordinarily discontinue its share of further losses
b. Additional losses are provided to the extent that the investor has incurred obligations or made payments on
behalf of the associate to satisfy obligations of the associate that the investor has guaranteed or otherwise
committed
c. If the associate subsequently reports profits, the investor resumes its share of those profits without regard to the
share of net losses not previously recognized
d. The investment is reported at NIL value
27. When the investor ceases to have significant influence and properly discontinues the use of the equity accounting
method
a. The carrying value of the investment should be regarded as cost and no adjustment is required
b. The investment account is adjusted as if the cost method is used from the beginning and may adjustment is
included in the determination of income
c. The carrying value of the investment is adjusted to conform to its recoverable amount
d. The investment account is adjusted as if the cost method was used from the very beginning and any
adjustment is made to the beginning retained earnings
28. An investment in associate that is acquired and held exclusively with view to its disposal within 12 months from
acquisition shall be accounted for
a. As held-for-trading security c. As non-marketable financial asset
b. As available-for-sale security d. Using the equity method
29. How is the premium or discount on bonds purchased as a temporary investment generally reported in published
financial statements?
a. As an integral part of the cost of the asset acquired and amortized over the life of the bond issue
b. As an integral part of the cost of the asset acquired until such as the investment is sold
c. As an integral part of the cost of the asset acquired and amortized over the period the bonds are expected to
be held
d. As expense or revenue in the period the bonds are purchased.
30. An investor purchased a bond as a long-term investment between interest dates at a premium. At the purchase date, the
cash paid to the seller is
a. The same as the face amount of the bond
b. The same as the face amount of the bond plus accrued interest
c. More than the face amount of the bond
d. Less than the face amount of the bond
35. Which type of contract is unique in that it protects the owner against unfavourable movement in the price or rate while
allowing the owner to benefit from favourable movement?
a. interest rate swap c. futures contract
b.forward contract d. option
36. An embedded derivative shall be separated from the host contract when (choose the incorrect one).
a. The economic characteristics and risks of the host contract and the embedded derivative are not closely
related.
b. A separate instrument with the same terms as the embedded feature would meet the definition of a
derivative.
c. The host contract is outside the scope of PFRS 9.
d. The host contract is measured at fair value through profit or loss.
38. Gains and losses on the hedged asset or liability and the hedged instrument for a fair value hedge shall be recognized
a. In current earnings.
b. In equity.
c. On a cumulative basis from the change in expected cash flows from the hedged instrument.
d. In the statement of financial position either as an asset or a liability.
39. When gains and losses on derivatives designated as fair value hedge exceed the gains and losses on the item being
hedged, the excess
a. affects reported net income
b. is recognized as an equity adjustment.
c. is recognized as part of other comprehensive income.
d. is not recognized.
40. For which type of derivative are changes in the fair value deferred and recognized as a component of other
comprehensive income?
a. Fair value hedge c. operating hedge
b. cash flow hedge d. notional value hedge
TOA05- Inventories
4. How should cash discounts that are received from the purchase of inventory be recognized?
a. Financial revenue
b. Reduction of the cost of inventory
c. It has no impact of the measurement of inventory
d. None of the above
5. The USA segment of International, Inc. measures raw material inventory using the FIFO method. Its European segment
measures the same raw material inventory using the weighted average cost method. Is this permitted under PAS 2?
a. No. Cost formulas should be consistently applied to al inventories similar in nature
b. Yes. Different cost formulas can be applied to all inventories similar in nature as long as the methods used are
either FIFO or the weighted average
c. No. PAS 2 requires all inventories to be measured using the specific identification cost formula
d. None of the above
6. Why is WIP arising out of construction contracts outside the scope of PAS 2?
a.WIP arising out of construction contracts is not inventory
b.There is a specific standard dealing with WIP arising out of construction contracts (PAS11)
c.Contract costs may fall into different accounting periods
d.None of the above
8. Which of the following are most likely to be classified as components of inventory of an accounting firm prior to
revenue being recognized under PAS 18?
I. Salaries of the client service accountants
II. Costs of brochures sent directly to clients
III. Travel costs to client locations
IV. An allocation of salary costs of technology support staff assisting client service
accountants
V. An allocation of salary costs of the firm’s accounts payable clerk
VI.Costs of materials used to prepare client’s reports
a. I, III, IV, and VI c. I, II, IV, V, and VI
b. I, II, III, and IV d. I, II, III, IV, and Vi
11. Which of the following is not included in the cost of purchase of inventory?
a. Purchase price
b.Import duties and other taxes
c.Freight, handling and other costs directly attributable to the acquisition of goods
d.Trade discounts, rebates and other similar items
12. Which of the following is not included in the cost of conversion of inventory?
a.Direct labor c. Variable factory overhead
b.Fixed factory overhead d. Administrative overhead
13. Freight and other handling charges incurred in the transfer of goods from the consignor to consignee are
a. Inventoriable by the consignor
b. Inventoriable by the consignee
c. Expense on the part of the consignor
d.Expense on the part of the consignee
14. The use of a discount lost account implies that the cost of a purchased inventory item is its
a. Invoice price
b. List price
c.Invoice price less the purchase discount taken
d.Invoice price less the purchase discount available whether or not taken
18. Metrogate Company paid the in-transit insurance premium for consignment goods shipped to Awo Company, the
consignee. In addition, Metrogate advanced part of the commission that will be due when Awo sells the goods. Should
Metrogate inclue in-transit insurance premium and advance commission in inventory costs?
Insurance Premium Advanced Commission
a. Yes Yes
b. No No
c. Yes No
d. No Yes
19. The credit balance that arises when a net loss on a purchase commitment is recognized should be
a. Presented as a current liability
b. Subtracted from ending inventory
c.Presented in the income statement
d. Presented in the statement of changes in equity
20. What is the method of accounting for inventories in which the cost of goods sold is recorded each time a sale is made?
a. No inventory system c. Perpetual inventory system
b. Periodic inventory system d. Planned inventory system
22. Which of the following describes the agreement that the buyer will pay for the freight charge but is not legally
responsible for the same?
a. FOB destination, freight prepaid
b.FOB destination, freight collect
c. FOB shipping point, freight prepaid
d. FOB shipping point, freight collect
23. This cost formula must be employed for inventories that are not ordinarily interchangeable, and those goods and
services produced and segregated for specific projects.
a. Specific identification c. Net realizable value
b. Standard cost d. FIFO
24. Which inventory pricing method would reflect the most recently incurred purchase costs in the ending inventory?
a. FIFO c. Weighted-average
b.LIFO d. Retail
25. The unique characteristic of this costing method is that cost of goods sold is the same under a periodic system as under
a perpetual system
a. FIFO c. LIFO
b.Specific identification d. Weighted-average
26. In a period of declining price, which of the following methods would result to the most conservative net income?
a. FIFO c. Weighted-average
b. LIFO d. Specific identification
27. Total cost of goods available for sale during the period divided by the total units available for sale during the period
equals an average unit cost. Ending inventory and cost of goods sold are then priced at this average cost
a. Weighted-average (periodic) c. Specific identification
b. Weighted-average (perpetual) d. LIFO
28. The average inventory pricing method under a perpetual inventory system is called
a. Weighted-average method c. Simple average method
b. Moving average method d. Composite average method
29. Which method of inventory pricing best approximates specific identification of the actual flow of costs and units in
most manufacturing situations?
a. Weighted-average c. LIFO
b. FIFO d. Moving average
32. When the conventional retail inventory method is used, markdowns are commonly ignored in the computation of the
cost-to-retall ratio because
a. There may be no markdowns in a given year
b. This tends to give a better approximation of the lower of cost or market
c. Markups are also ignored
d. This tends to result in the showing of a normal profit margin in a period when no markdown goods have been
sold
33. If the conventional retail inventory method is used, which of the following calculation would include or exclude net
markdowns?
Cost-to-retail ratio Ending inventory at retail
a. Include Include
b. Include Exclude
c. Exclude Include
d. Exclude Exclude
34. The gross profit method of estimating ending inventory may be used for all of the following, except
a. Rough test of the validity of an inventory cost determined under either periodic
perpetual system
b. Internal as well as external year-end reports
c. Internal as well as external interim reports
d. Estimates of inventory destroyed by the fire of other casualty
4. Biological transformation results from asset changes through all of the following, except
a. Growth
b. Degeneration
c. Procreation
d. Production of agricultural produce
5. When the fair value of the biological asset cannot be determined reliably, the biological asset shall be measured at
a. Cost
b. Cost less accumulated depreciation
c. Cost less accumulated depreciation and accumulated impairment losses
d. Net realizable value
9. An unconditional government grant related to a biological asset that has been measured at fair value less cost to
sell shall be recognized as
a. Income when the grant becomes receivable.
b. A deferred credit when the grant becomes receivable.
c. Income when the grant application has been submitted.
d. A deferred credit when the grant has been approved.
10. All of the following criteria must be satisfied before a biological asset can be recognized in an entity’s financial
statements, except
a. The entity controls the asset as a result of past event.
b. It is probable that future economic benefits relating to the asset will flow to the entity.
c. An active market for the asset exists.
d. The fair value or cost of the asset can be measured reliably.
TOA07- Property, Plant, and Equipment
3. Major spare parts and standby equipment which are expected to be used over a period of more than one year should be
classified as
a. Property, plant and equipment c. Investment property
b. Inventory d. Expense
4. Which of the following statements concerning recognition of property, plant and equipment is incorrect?
a. Most spare parts and servicing equipment are usually carried as inventory and recognized as expense when
incurred
b. An entity should recognize in the carrying amount of an item of property, plant and equipment the costs of the
day-to-day servicing of the item
c. An aircraft and its engines need to be treated as separate depreciable assets if they have different useful lives
d. Property, plant and equipment may be acquired for safety and environmental reasons in order for the
enterprise to obtain future economic benefits from its other assets.
5. The cost of an item of property, plant and equipment comprises its purchase price, including import duties and
nonrefundable purchase taxes, and
a. The estimated residual value of the asset
b. The market value of any noncash asset surrendered to acquired the asset
c. The implied interest to the debt to finance the purchase
d. All directly attributable costs necessary to bring the asset to working condition for its intended use
7. When payment for an item of property, plant and equipment is deferred beyond normal credit terms, the difference
between the cash price equivalent and the total payments should be recognized as
a. Interest expense over the life of the asset
b. Interest expense of the current year
c. Interest expense over the credit period
d. Component of cost of property, plant and equipment
8. Which of the following statements concerning acquisition of an item of property, plant and equipment by
self-construction is incorrect?
a. Any internal profits are eliminated in arriving at the cost of self-constructed asset
b. The cost of self-constructed asset is determined using the same principles as for an acquired asset
c. The cost of abnormal amount of wasted materials, labor and other resources incurred in the production of
self-constructed asset is included in the cost of the asset
d. The cost normal amount of wasted materials, labor and other resources incurred in the production of
self-constructed asset is included in the cost of the asset
9. When a corporation issues preferred stock for land, the land should be recorded at the
a. Total par value of the preferred stock issued
b. Total book value of the preferred stock issued
c. Fair value of the land acquired
d. Total liquidating value of the preferred stock issued
10. An entity purchased land to be used as the site for the construction of a plant. Timber was cut from the building site so
that construction of the plant could begin. The proceeds from the sale of the timber should be
a. Classified as other income
b. Netted against the costs to clear the land and expensed as incurred
c. Deducted from the cost of the plant
d. Deducted from the cost of land
11. In a “basket” or “lump-sum” purchase of assets, which of the following best describes the process by which the
historical cost of the various assets acquired should be determined?
a. Recording of the individual assets at their original historical cost to the seller with a gain or loss recognized for
the difference between the total of the original historical cost figures and the price paid in the basket
purchased.
b. Allocation of the total cost to the individual assets on the basis of the market value of the individual assets at
the time of the basket purchase
c. Allocation of the total cost to the individual assets on the basis of the historical cost of the individual assets to
their original owner
d. Recording of the individual assets to their current value with recognition of a gain or loss for the difference
between the price paid for the assets and the total value of the individual assets
13. In an exchange of assets, X company received equipment with a fair value equal to the carrying amount of equipment
given up. X also contributed cash. As a result of the exchange, X shall recognize
a. A loss equal to the cash given up
b. A gain determined by the proportion of cash paid to the total transaction value
c. A loss determined by the proportion of cash paid to the total transaction value
d. Neither gain nor loss
14. On November 1, 2005, a company purchased new machinery that it does not have to pay for until November 1, 2008.
The total payment on November 1, 2008, will include both principal and interest. Assuming interest at a 10% rate, the cost
of the machine would be the total payment multiplied by what time value of money factor
a. Present value of an annuity of 1 c. Future amount of an annuity of 1
b. Present value of 1 d. Future amount of 1
15. When an enterprise is the recipient of a donated asset, the account credited may be
a. Common stock account c. Deferred revenue account
b. Revenue account d. Retained earnings account
16. The cost of an item of PPE acquired in a non-monetary exchange is measured at the
a. Carrying amount of the asset given up
b. Fair value of the asset given up
c. Carrying amount of the asset received
d. Fair value of the asset received
17. Subsequent cost relating to an item of PPE shall be added to the carrying amount of the asset when
a. It is probable that future economic benefits associated with the subsequent cost will flow to the enterprise
b. It is possible that future economic benefits associated with the subsequent cost will flow to the enterprise
c. It is probable that future economic benefits associated with the subsequent cost will flow to the enterprise and
the subsequent cost can be measured reliably
d. It is possible that future economic benefits associated with the subsequent cost will flow to the enterprise and
the subsequent cost can be measured reliably
18. Which of the expenditure occurs when a company installs a higher capacity boiler to heat its plant?
a. Rearrangement c. Addition
b . Ordinary repair and management d. Betterment
19. An improvement made to a machine increased its fair market value and its production capacity by 25% without
extending the machine useful life. The cost of the improvement should be
a. Expensed
b. Debited to accumulated depreciation
c. Capitalized in the machine account
d. Allocated between accumulated depreciation and the machine account
20. Which of the following would ordinarily be treated as a revenue expenditure rather than a capital expenditure?
a. Repair and maintenance on building
b. Rearrangement cost that is expected to provide discernible future benefit
c. An addition to an existing building
d. The replacement of a major component of building
21. Borrowing cost are interest and other costs incurred by an entity in connection with borrowing of funds. Which of the
following is not a borrowing cost?
a. Interest on short-term and long-term borrowings
b. Amortization of discounts or premiums relating to borrowings
c. Amortization of ancillary costs incurred in connection with the arrangement of
borrowings
d. Stock issue costs
23. When funds are borrowed specifically for the purpose of obtaining a qualifying asset, the amount of borrowing costs
eligible for capitalization on that asset should be equal to
a. Actual borrowing costs incurred
b. Actual borrowing costs incurred during the construction period
c. Actual borrowing costs incurred less any investment income to the temporary investment of those borrowings
d. Actual borrowing costs during the construction period less any investment income on the temporary
investment of those borrowings
24. When funds are borrowed generally and used for the purpose of obtaining a qualifying asset, the amount of borrowing
costs eligible for capitalization should be equal to
a. Actual borrowing costs incurred
b. Actual borrowing costs incurred less any investment income to the temporary investment of those borrowings
c. Average expenditure on the asset multiplied by a capitalization rate or actual borrowing costs incurred,
whichever is higher
d. Average expenditure on the asset multiplied by a capitalization rate or actual borrowing costs incurred,
whichever is lower
25. Gains or losses arising from the disposal of an item of PPE should be determined as the difference between
a. Gross disposal proceeds and the cost of the asset
b. Gross disposal proceeds and the carrying amount of the asset
c. Net disposal proceeds and the cost of the asset
d. Net disposal proceeds and the carrying amount of the asset
26. An item of PPE that is retired from active use and held for disposal is measured at
a. Carrying amount
b. Fair value less cost to sell
c. Carrying amount or fair value less cost to sell, whichever is lower
d. Carrying amount of fair value less cost to sell, whichever is higher
31. Which of the following is not considered in determining the useful life of an item PPE?
a. Expected usage of the asset
b. Expected physical wear and tear
c. Technical obsolescence
d. Residual value
32. The useful life of an item of PPE should be reviewed periodically and if expectations are significantly different from
previous estimates, the depreciation charge for which of the following periods should be adjusted
a. Current period only c. Prior periods
b. Future periods only d. Current and future periods
33. Which of the following statements concerning the residual value of an item of PPE is incorrect?
a. The depreciable amount is determined after deducting the residual value of the asset
b. In practice, the residual value of an asset is often insignificant and therefore immaterial in the calculation of
the depreciable amount
c. The residual value of an asset may increase to an amount equal to or greater than the asset’s carrying amount
d. The residual value of an asset be reviewed at least at each financial year-end and if expectation differs from
previous estimate, the change shall be accounted for as a change in accounting policy
34. The depreciation method applied to PPE items should be reviewed periodically, and if there has been a significant
change in the expected pattern of consumption of economic benefits from those assets, the change should be
a. Accounted for as a change in accounting policy
b. Ignored
c. Accounted for as a change in accounting estimate
d . Accounted for as a correction of a prior error
36. Which of the following depreciation methods is not based on the passage of time?
a. Sum of units method
b. Sum of year’s digits method
c. Double declining balance method
d. Straight line method
37. In which of the following depreciation methods is residual value not a factor in determining depreciation charge for
early years of the asset’s life?
a. Straight line method
b. Service hours method
c. Productive output method
d. Double declining balance method
39. Which of the following statements concerning the frequency of revaluation of PPE is incorrect?
a. Some items of PPE may experience significant and volatile movements in fair value thus necessitating annual
revaluation
b. When the fair value of a revalued asset differs materiality from its carrying amount, a further revaluation is
necessary
c. The frequency of revaluation depends upon the movements in the fair value of the items of PPE.
d. Frequent revaluation is unnecessary for items of PPE with only insignificant movements in fair value and instead,
revaluations every six to 10 years may be sufficient
41. When a PPE item’s carrying amount is increased as a result of a revaluation, the increase should be credited directly to
a.Income c. Retained earnings
b.Revaluation surplus d. Deferred income
42. When the revaluation surplus is realized because of the use of the asset by the enterprise or disposal of the asset, it
may be transferred directly to
a.Retained earnings c. Common stock
b.Income d. Additional paid in capital
43. It is a fall in the market value of an asset so that its recoverable amount is now less than its carrying amount in the
balance sheet
a. Impairment c. Amortization
b. Depreciation d. Decline in value
45. The internal sources of information indicating possible impairment include all of the following except,
a. Evidence of obsolescence or physical damage of an asset
b. Significant change in the manner or extent in which the asset is used with an adverse effect on the enterprise
c. Evidence that the economic performance of an asset will be worse than expected
d. Significant decrease or decline in the market value of the asset
47. What is the best evidence of fair value less cost to sell?
a. Sales in price in a binding sale agreement in an arm’s length transaction
b. Market value or fair value in an active market
c. Best estimate of knowledgeable, willing parties in an arm’s length transaction
d. Sales price in a binding sale agreement in an arm’s length transaction or fair value in an active market,
whichever is higher
51. Which of the following statements concerning the estimation of future cash flows is incorrect?
a. Future cash flows should be based on reasonable and supportable assumptions
b. Future cash flows should be based on the most recent budgets of financial forecasts, usually up to maximum of
5 years
c. Foreign currency future cash flows should be forecast in the currency in which they will arise and will be
discounted using a rate appropriate to the enterprise
d. The discount rate used in estimating future cash flows should be the current rate after tax
52. The following statements relate to the recognition and measurement of an impairment loss. Which is incorrect?
a. An impairment loss should be recognized as expense in the income statement immediately
b. Impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount
c. If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset should
be reduced to its recoverable amount
d. After the recognition of an impairment loss, depreciation charge for the future period should be adjusted to
allocate the revised carrying amount, less its residual value, on a systematic basis over its original life
53. It is the smallest identifiable group of assets that generate cash inflows from continuing use that are largely
independent of the cash inflows from other assets or group of assets.
a. Cash generating unit c. Corporate asset
b. Goodwill d. The enterprise as a whole
55. Which of the following statements concerning the reversal of an impairment loss is false?
a. The reversal of an impairment loss should be recognized immediately as an adjustment of the cash generating
unit to which the corporate asset belongs is determined and compared with the carrying amount of the cash
generating unit
b. Essentially, corporate assets generate cash inflows independently from other assets
c. Corporate assets are group or divisional assets such as head office building EDP, equipment or a research
center
d. The recoverable amount of an individual corporate asset cannot be determined unless management has
decided to dispose of the asset
56. Under PAS 36, Impairment of Assets, impairment losses for assets shall be reported
a. As a change in accounting estimate
b. As an equity item
c. As a component of income from continuing operations
d. As a component of discounted operation
57. Which statement is correct about the carrying amount of a depreciable item of PPE after an impairment loss has been
recognized?
I. The reduced carrying amount of the asset may be increased in subsequent years if the impairment loss has
been recovered
II. The reduced carrying amount of the asset represents the amount that should be depreciated over the asset’s
remaining useful life
a. I only c. Both I and II
b. II only d. Neither I nor II
58. At December 31 of the current year, MM Company was holding long-lived assets which it intended to sell. The
company appropriately recognized a loss in the current year related to these assets. On MM’s income statement for the
current year ended December 31, this loss should be reported as a
a. Component of equity
b. Component of income from continuing operations before income tax
c. Separate component of selling and administrative expenses, disclosed net of tax
d. Component of gain or loss from discontinued operation
59. Government assistance is action by government aimed at providing an economic benefit to an enterprise or group of
enterprises qualifying under certain criteria. Government assistance does not include
a. Government grants related to assets
b. Government grants related to income
c. A forgivable loan from a government
d. Benefits provided only indirectly through action affecting general trading
conditions
60. Government grants are assistance by government in the form of transfers of resources to an enterprise in return for
past or future compliance with certain conditions relating to the operating activities of the enterprise. They exclude
a. Those forms of government assistance that cannot reliably be valued
b. Transactions with government that cannot be distinguished from the normal trading transactions of the
enterprise
c. A and B
d. Neither A nor B
61. Those government grants whose primary condition is that an enterprise qualifying for them should acquire (either
purchase or construct) a long-term asset or assets are referred to as
a. Forgivable loans c. Grants related to income
b. Grants related to assets d. Government assistance
62. Government grants should not be recognized until there is reasonable assurance that
I. The enterprise will comply with the conditions attaching to the grant
II. The grant(s) will be received
a. I only c. Both I and II
b. II only d. Neither I nor II
63. What approach is required by PAS 20 with respect to the accounting treatment of government grants?
a.Capital approach c. Balance sheet approach
b.Income approach d. Income statement approach
TOA08- Investment Property, Intangible Assets, Research & Development Cost, Noncurrent Assets Held for Sale
1. It is defined as property (land or building or part of building or both) by an owner or finance lessee to earn rental or for
capital appreciation or both, rather than for use in the production or supply of goods or services for administrative
purposes or sale in the ordinary course of business.
a. Investment property c. Leased property
b. Owner-occupied property d. Inventory
6. The following statements relate to the initial measurement of an investment property. Which is incorrect?
a.The investment property should be measured initially at cost
b. The cost of self-constructed investment property is its cost at the date the
construction or development is complete
c. The cost of the purchased investment property includes its purchase price and any
directly attributable expenditure
d. If payment for an investment property is deferred, its cost is the total payments
during the credit period
7. Directly attributable costs related to investment property include
a. Professional fees for legal services, property transfer taxes and other transaction costs
b. Abnormal amounts of wasted material, labor and other resources incurred in constructing or developing the
property
c. Initial operating losses incurred before the investment property achieves the planned level of occupancy
d. Start up costs
13. The following statements relate to the separate acquisition of an intangible asset. Which is incorrect?
a. the cost of an intangible asset comprises its purchase price and any directly attributable expenditure to prepare the
asset for its intended use
b. if an intangible asset is acquired separately the cost the cost of the intangible asset can usually be measured
reliably
c. if payment for an intangible asset is deferred beyond normal credit terms its cost is the cash price equivalent
d. if an intangible asset is acquired in exchange for non monetary asset or a combination of monetary and non
monetary asset, the cost is measured at the book value of the asset given up unless the exchange lacks commercial
substance
15. Which of the following is not included in the cost of an internally generated intangible asset?
a. fees to register a legal right
b. amortization of patents and licenses that are used to generate the intangible asset
c. cost of materials and services used in generating the intangible ass et
d. identified inefficiencies and initial losses incurred before the asset achieves planned performance
16. Subsequent expenditure on an intangible asset after its purchase or completion may be added to cost of the intangible
asset when.
a. it is probable that future economic benefits associated with the subsequent expenditure will flow to the entity
b. the subsequent expenditure can be measured reliably
c. both A and B
d. neither A nor B
18. An intangible asset with limited or finite life is amortized over its useful life
An intangible asset with indefinite useful life is not amortized but is tested for impairment every 3 to 5 years.
a. both statements are true
b. first statements is true; second statement is false
c. first statement is false; second statement is true
d. both statements are false
19. The systematic allocation of the cost or revalued amount of an intangible asset, less any residual value, as an expense
over the asset’s useful life is called
a. Amortization c. Allocation
b. Revaluation d. Immunization
20. The amortization method for an intangible asset with finite useful life should reflect the pattern in which the asset’s
economic benefits are consumed by the entity. If such pattern cannot be determined reliably, the appropriate amortization
method is
a. Straight line method
b. Units of production method
c. Diminishing balance method
d. Ratio of current year’s sales to the total expected sales
21. The residual value of an intangible asset should be presumed to be zero, unless
a. There is a commitment by a third party to purchase the asset at the end of its useful life
b. There is an active market for the asset and residual value can be determined by reference to that market and it
is probable that such market will exist at the end of the asset’s useful life
c. Both A and B
d. Neither A nor B
23. Development is defined as original and planned investigation undertaken with the prospect of gaining scientific or
technical knowledge
Research is the application of research findings or other knowledge to a plan or design for the production of a new
product prior to commencement of commercial production.
a. First statement is true; second statement is false c. Both statements are true
b. First statement is false; second statement is true d. Both statements are false
26. What is the proper accounting for the costs incurred in creating a computer software product?
a. to capitalized all costs until the software is sold
b. to charge research and development expense when incurred until technological feasibility has been established
for the product
c. to capitalized all costs as incurred until a detailed program design or working model is created
d. to charge research and development expense only if the computer software has alternative future use.
27. A computer software acquired as an operating system for the hardware or as an integral part of a computer controlled
machine tool that cannot operate without the specific software should be treated as a/an
a. Intangible asset c. Property, plant and equipment
b. Inventory d. Expense
29. Which of the following should be expected as incurred by the franchise for a franchise with an estimated useful life of
ten years?
a. Periodic payments to the franchisor based on the franchise’s revenue
b. Legal fees paid to the franchisee’s lawyer to obtain the franchise
c. Amount paid to the franchisor for the franchise
d. Payment of a company, other than franchisor, for that company’s franchise
30. A lessee incurred costs to construct walkways and landscaping costs to improve leased property. The estimated useful
life of the walkways and landscaping costs is 15years. The remaining term of the non-renewable lease is 20years. The
walkways and landscaping costs should be
a. Expensed as incurred
b. Capitalized as leasehold improvements and expensed over 15 years
c. Capitalized as leasehold improvements and expensed over 20 years
d. Capitalized as leasehold improvements and expensed in the year in which the lease expires
31. Goodwill represents the excess of the cost of an acquired company over the
a. Sum of the fair value assigned to identifiable assets acquired less liabilities assumed
b. Sum of the fair values assigned to tangible assets acquired less liabilities assumed
c. Sum of the fair values assigned to intangible assets acquired less liabilities assumed
d. Sum of the fair values assigned to non-current assets acquired less liabilities assumed
33. Which of the following is not considered a research and development entity?
a. Routine on-going effort to refine, enrich or improve the quality of an existing product
b. Design, construction and operation of a pilot plant
c. Conceptual formulation and design of possible product or process
d. Laboratory research aimed at discover of new knowledge
34. Which statement is incorrect concerning presentation of noncurrent asset or disposal group classified as held for sale?
a. An entity shall present a noncurrent asset held for sale and the assets of a disposal group classified as held for sale
separately from other assets
b. The liabilities of a disposal group classified as held for sale shall be presented separately from other liabilities
c. The assets and liabilities a disposal group classified as held for sale shall not be offset as a single amount
d. An entity shall depreciate a noncurrent asset classified as held for sale or while it is part of a disposal group
classified as held for sale
35. Noncurrent asset classified as held for sale shall be presented in the statement of financial position as
a. Current asset
b. Other noncurrent asset
c. Noncurrent investment
d. Property, plant and equipment
36. How should the assets and liabilities of a disposal group classified as held for sale be reported in the statement of
financial position?
a. The assets and liabilities shall be offset and presented as a single amount.
b. The assets of the disposal group shall be reported separately from other assets in the statement of financial
position, and the liabilities of the disposal group shall be reported separately from other liabilities in the statement
of financial position.
c. The assets and liabilities shall be presented as a single amount as a deduction from equity.
d. There should be no separate disclosure of assets and liabilities that form part of a disposal group.
37. An entity classified a noncurrent asset accounted for under the cost method as held for sale at the current year end.
Because no offers were received at an acceptable price, the entity decided at the end of the next year not to sell the
asset but to continue to use it. The asset shall be measured at the end of next year at what amount?
a. The lower of its carrying amount and its recoverable amount
b. The higher of its carrying amount and its recoverable amount
c. The lower of its carrying amount on the basis that it had never been classified as held for sale and its recoverable
amount
d. The higher of its carrying amount on the basis that it had never been classified as held for sale and its recoverable
amount
38. What is the presentation of the results from discontinued operation in the income statement?
a. The entity shall disclose a single amount on the face of the income statement below the income from continuing
operations.
b. The amounts from discontinued operations shall be broken down over each category of revenue and expense
c. Discontinued operations shall be shown as a movement on retained earnings.
d. Discontinued operations shall be shown as a line item after gross profit with the taxation being shown as part of
income tax expense.
39. Which is incorrect concerning the presentation of the discontinued operation in the statement of financial position?
a. Assets of the component held for sale are presented separately from all other assets of the entity
b. Assets of the component held for sale are measured at the higher of fair value less cost to sell and their carrying
amount
c. Liabilities of the component held for sale are presented separately from all other liabilities of the entity
d. Depreciable assets of the component held for sale shall not be depreciated
40. An entity manufactures and sells household products. The entity experienced losses associated with its small
appliance group. Operations and cash flows for this group can be clearly distinguished from the rest of the entity’s
operations. The entity plans to sell the small appliance group with its operations. What is the earliest point at which
the entity shall report the small appliance group as a discontinued operation?
a. When the entity classifies it as held for sale.
b. When the entity receives an offer for the segment.
c. When the entity first sells any of the assets of the segment.
d. When the entity sells the majority of the assets of the segment.
41. Which of the following is a requirement for a component of an entity to be classified as a discontinued operation?
a. Its activities must cease permanently prior to the financial statements being authorized for issue by management.
b. It must comprise a separately reportable segment in accordance with PFRS 8
c. Its assets must have been classified as held for sale in the previous financial statements
d. It must have been a cash generating unit or a group of cash generating units while being held for use
42. A component of an entity was discontinued during the current year. The entity’s loss on disposal should
a. Exclude the associated employee relocation cost
b. Exclude operation loss for the period
c. Include associated employee termination cost
d. Exclude associated lease cancellation cost
43. At the beginning of the current year, an entity agreed to sell a business component in the same year. The gain on the
disposal should be
a. Presented as other income
b. Presented as an adjustment to retained earnings
c. Netted with the loss from operations of the component as a part of discontinued operations
d. None of the above
44. Which of the following most likely would be considered a discontinued operation?
a. Shifting production or marketing function from one location to another.
b. A sporting goods manufacturer has a bicycle division that meets the definition of a component of the entity and
decides to outsource the manufacture of its bicycles.
c. The unprofitable brands of a beauty products component of an entity that manufactures and sells consumer
products are discontinued.
d. An entity that is a franchisor in the quick-service restaurant business also operates company-owned restaurants
that are unprofitable in a certain region and, as a result, the entity decides to exit bot the quick-service business as
well as the company-owned restaurants in that region.
3. Under PAS 1, a currently maturing long-term debt should be classified as noncurrent when
a. The lender has the discretion to refinance or roll over the liability for at least 12
months after the balance sheet date under the existing loan facility
b. The borrower has the discretion to refinance or roll over the liability for at least
12 months after the balance sheet date under the existing loan facility
c. An agreement to reschedule payment on a long-term basis is completed after the
balance sheet date and before the statements are authorized for issue
d. Equity security has in fact been issued after the balance sheet date and before the
statements are authorized for issue the proceeds from which are used to settle the
liability on the date of maturity
4. A loan agreement may contain covenants which have the effect that the liability becomes payable on demand if certain
conditions related to the covenants are breached. In these circumstances, the liability is classified as noncurrent when
a. The lender has agreed after the balance sheet date and before the statements are
authorized for issue to provide a grace period ending at least 12 months after the
balance sheet date.
b. It is not probable that further breaches or violations will occur within 12 months
of the balance sheet date
c. The lender has agreed, prior to the approval of the financial statements, not to
demand payment as a consequence of the breach
d. The lender has agreed on or before the balance sheet date to provide a grace
period ending at least 12 months after the balance sheet date
6. The following are the recognition criteria for a provision. Which is incorrect?
a. An enterprise has a present obligation as a result of a past event
b. It is probable that an outflow of resources embodying economic benefits will be
required to settle the obligation
c. A reliable estimate can be made of the amount of the obligation
d. It is possible that an outflow of resources has created a valid expectation in other
parties that it will discharge those responsibilities
8. An event that creates a legal or constructive obligation because the enterprise has no other realistic alternative but to
settle the obligation is a/an
a. Obligating event c. Event after the balance sheet date
b. Past event d. Main event
10. Where the provision being measured involves a large population of items, the obligation is estimated by “weighting”
all possible outcomes by their associated probabilities. This statistical method of estimation is called
a. Expected value method c. Present value method
b. Current value method d. Weighting method
11. The following statements relate to the measurement of a provision. Which is false?
a. Where the effect of the time value of money is material, the amount of a provision
should be the present value of the expenditure expected to settle the obligation
b. The risks and uncertainties that inevitably surround many events and
circumstances should be taken into account in reaching the best estimate of a
provision
c. Future events that may affect the amount required to settle the obligation should
be reflected in the amount of the provision where there is sufficient objective
evidence that the future events will occur
d. Gains from expected disposal of assets should be taken into account in measuring
a provision
12. Which of the following statements is incorrect where some or all of the expenditure required to settle a provision is
expected to be reimbursed by another party?
a. In the income statement, the expense relating to the provision may be presented
net of the reimbursement
b. The amount of the reimbursement should not exceed the amount of the provision
c. The amount of reimbursement may exceed the amount of the provision
d. The reimbursement should be recognized only when it is virtually certain that the
reimbursement will be received if the enterprise settles the obligation
13. The following statements relate to the recognition of a provision. Which is incorrect?
a. If an enterprise has an onerous contract, the present obligation under the contract
should be recognized and measured as a provision
b. Provisions should be reviewed at each balance sheet date and adjusted to reflect
the current best estimate
c. Provisions should be recognized for future operating losses
d. A provision should be used for expenditures for which the provision was
originally recognized
14. A contingent liability is possible obligation that arises from past event and whose existence will be confirmed only by
the occurrence or nonoccurrence of one or more uncertain events not wholly within the control of the enterprise.
A contingent liability is a present obligation that arises from past event and it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation and that the amount of the obligation can measured
reliably
16. A possible asset that arises from past event and whose existence will be confirmed only by the occurrence or
nonoccurrence of one or more uncertain future events not wholly confirmed within the control of the enterprise is a/an
a. Contingent asset c. Uncertain asset
b. Contingent gain d. Confirmatory asset
18. Tabachingching Company has a self-insurance plan. Each year, retained earnings is appropriated for contingencies in
an amount equal to insurance premiums saved less recognized losses from lawsuits and other clams. As a result of an
accident in the current year, Tabachingching is a defendant in a lawsuit in which it will probably have to pay damage of
1,000,000. What are the effects of this lawsuit in which will probable outcome on Tabachingching’s financial statements
for the current year?
a. No effect on either expenses or liabilities
b. An increase in both expenses and liabilities
c. An increase in expenses and not effect on liabilities
d. No effect on expenses and an increase in liabilities
19. Takawchingching Company sells appliances that include a three-year warranty. Service calls are performed by an
independent mechanic engaged by the company. Based on experience, warranty costs are estimated at P500 for each
machine sold. When should Takawchingching recognize these warranty costs?
a. Evenly over the life of the warranty
b. When the repair service is performed
c. When payments are made to the machine
d. When the machines are sold
20. A retail store received cash and issued a gift certificate that is redeemable in merchandise. When the gift certificate
was issued a
a. Revenue account should be increased
b. Deferred revenue account should be increased
c. Revenue account should be decreased
d. Deferred revenue account should be decreased
TOA10- Bonds Payable, Notes Payable, and Debt Restructuring
3. Bonds payable issued with scheduled maturities at various dates are called
Serial Bonds Term Bonds
a. No Yes
b. No No
c. Yes No
d. Yes Yes
5. The issuer of a 10-year term bond sold at par three years ago with interest payable May 1 and November 1 each year,
should report on its December 31 balance sheet
a. Liability for accrued interest
b. Addition to bonds payable
c. Increase in deferred charges
d. Contingent liability
6. When the interest payment dates of a bond are May 1 and November 1, and a bond issue is sold on June 1, the amount
of cash received by the issued will be
a. Decreased by accrued interest from June 1 to November 1
b. Decreased by accrued interest from May 1 to November 1
c. Increased by accrued interest from June 1 to November 1
d. Increased by accrued interest from May 1 to November 1
7. The market price of a bond issued at a discount is the present value of its principal amount at the market (effective) rate
of interest
a. Less the present value of all future interest payments at the market rate of interest
b. Less the present value of all future interest payments at the rate of interest stated
on the bond
c. Plus the present value of all future interest payments at the market rate of interest
d. Plus the interest value of all future interest payments at the rate of interest stated
on the bond
8. How would the carrying value of a bond payable be affected by amortization of each of the following?
Discount Premium
a. No effect No effect
b. Increase No effect
c. Increase Decrease
d. Decrease Increase
9. How would the amortization of premium on bonds payable affect each of the following?
Carrying Value of Bond Net Income
a. Increase Decrease
b. Increase Increase
c. Decrease Decrease
d. Decrease Increase
10. How would the amortization of discount on bonds payable effect each of the following?
Carrying Value of Bond Net Income
a. Increase Decrease
b. Increase Increase
c. Decrease Decrease
d. Decrease Increase
11. In current accounting practice, the valuation method used for bonds payable is
a. Historical cost
b. Discounted cash-flow valuation at current yield rates
c. Maturity amount
d. Discounted cash-flow valuation at yield rates at issuance
12. The proceeds from a bond issued with detachable stock purchase warrants should be accounted for
a. Entirely as bonds payable
b. Entirely as stockholder’s equity
c. Partially as unearned revenue, and partially as bonds payable
d. Partially as stockholders’ equity, and partially as bonds payable
13. For a bond issue which sells for less than its par value, the market rate of interest is
a. Dependent on rate stated on the bond
b. Equal to rate stated on the bond
c. Less than rate stated on the bond
d. Higher than rate stated on the bond
14. What is the market rate of interest for a bond issue which sells for more than its par value?
a. Less than rate stated on the bond
b. Equal to rate stated on the bond
c. Higher than rate stated on the bond
d. Independent of rate stated on the bond
15. What is the preferred method of handling unamortized discount, issue cost, and redemption premium on bonds
refunded?
a. Expense them in the period the bonds are refunded
b. Amortize them over the life of the new issue
c. Amortize them over the remaining life of the issue retired
d. Charge them to retained earnings
16. A 20-year bond was issued at a premium with a call provision to retire the bonds. When the bond issuer exercised the
call provision on an interest date, the call price exceeded that carrying value of the bonds. 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
17. During the current year, MeAnn Company’s bondholders exchanged their convertible bonds for common stock. The
carrying amount of these bonds on MeAnn’s book was less than the market value but greater the par value of the common
stock issued. If MeAnn used the book value of accounting for the conversion, which of the following statements correctly
states an effect of this conversion?
a. Stockholder’s equity is increased
b. Additional paid-in capital decreased
c. Retained earnings is increased
d. An extraordinary loss is recognized
19. The presence of unamortized debt discount indicates that at the time of issuance, the underlying obligation
a. Carried interest at the prevailing market rate
b. Carried interest below the prevailing market rate
c. Carried interest above the prevailing market rate
d. Was noninterest-bearing
20. For the issuer of a 10-year bond, the amount of amortization using the interest method would increase each year if the
bond was sold at a
a. Discount c. Both A and B
b. Premium d. Neither A nor B
21. On January 1 of the current year, CC Company issued bonds at a discount. CC incorrectly used the straight-line
method instead of the effective interest method to amortize the discount. How were the following amounts as of
December 31 of the current year affected by the error?
Bond Carrying Amount Retained Earnings
a. Overstated Overstated
b. Understated Understated
c. Overstated Understated
d. Understated Overstated
23. If the present value of a note issued in exchange for a property is less than its face amount, the difference should be
a. Included in the cost of the asset
b. Amortized as interest expense over the life of the note
c. Amortized as interest expense over the life of the asset
d Included in the interest expense in the year of issuance
24. Lucky Company issued a note solely in exchange for cash. Assuming that the items listed below differ in amount, the
present value of the note at issuance is equal to
a. Face amount
b. Face amount discounted at the prevailing interest rate
c. Proceeds received
d. Proceeds received discounted at the prevailing interest rate
26. Which of the following situations that arise because of a debtor’s financial difficulties and would not otherwise be
acceptable to the creditor must be accounted for as troubled debt restructuring?
a. Because of a court order, a creditor accepts as full satisfaction of its receivable a building the fair value of
which equals the creditor’s recorded investment in the receivable
b. As part of a negotiated settlement, a creditor accepts as full satisfaction of its receivable a building the fair
value of which equals the debtor’s carrying amount of the payable
c. Because of a court order, a creditor reduces the stated interest rate for the remaining original life of the
debt
d. As part of a negotiated settlement designed to maintain a relationship with a debtor, a creditor reduces the
effective interest rate on debt outstanding to reflect the lower market interest the currently applicable to
debt of that risk class
27. It is a debt restructuring arrangement whereby the debtor issues common stock to the creditor in full satisfaction
of the debt
a. Asset swap c. Modification of terms
b. Equity swap d. Tender of payment
28. In a debt restructuring that is considered an asset swap, the gain on debt restructuring is the
a. Excess of the fair value of the asset over its cost or book value
b. Excess of the carrying value of the debt over the fair value of the asset
c. Excess of the fair value of the asset over the carrying value of the debt
d. Excess of the carrying value of the debt over the cost or book value of the asset
TOA11- Income Tax
1. These are differences that will result in future taxable amount in determining taxable profit of future periods when
the carrying amount of the asset or liability is recovered or settled.
a. Temporary differences
b. Taxable temporary differences
c. Deductible temporary differences
d. Permanent differences
3. A deferred tax asset shall be recognized for all deductible temporary differences and operating loss carryforward
when
a. It is probable that taxable income will be available against which the deferred tax asset can be used.
b. It is probable that accounting income will be available against which the deferred tax asset can be used.
c. It is possible that taxable income will be available against which the deferred tax asset can be used.
d. It is possible that accounting income will be available against which the deferred tax asset can be used.
4. Which of the following statements is incorrect concerning tax assets and liabilities?
a. Deferred tax assets and liabilities shall be discounted.
b. Tax asset and liabilities shall be presented separately from other assets and liabilities in the statement of
financial position.
c. Deferred tax assets and liabilities shall be distinguished from current tax assets and liabilities.
d. When an entity makes a distinction between current and noncurrent assets and liabilities, it shall not
classify deferred tax asset and liabilities as current.
6. At the most recent year-end, an entity had a deferred tax liability arising from accelerated depreciation that
exceeded a deferred asset relating to rent received in advance which is expected to reverse in the next year. Which
of the following shall be reported in the entity’s most recent year-end statement of financial position?
a. The excess of the deferred tax liability over the deferred tax asset as a noncurrent liability.
b. The excess of the deferred tax liability over the deferred tax asset as a current liability.
c. The deferred tax liability as a noncurrent liability.
d. The deferred tax liability as a current liability.
7. An entity’s financial reporting basis of its plant assets exceeded the tax basis because it uses a different method of
reporting depreciation for financial reporting purposes and tax purposes. If it has no other temporary differences,
the entity shall report a
a. Current tax asset
b. Deferred tax asset
c. Deferred tax liability
d. Current tax payable
8. The amount of income tax applicable to transactions that are not reported in the continuing operations section of
the income statement is computed
a. By multiplying the item by the effective income tax rate.
b. As the difference between the tax computed based on taxable income without including the item and the
tax computed based on taxable income including the item.
c. As the difference between the tax computed on the item based on the amount used for financial reporting
and the amount used in computing taxable income.
d. By multiplying the item by the difference between the effective income tax rate and the statutory income
tax rate.
10. An item that would create a permanent difference in pretax financial income and taxable income would be
a. Using accelerated depreciation for tax purposes and straight line depreciation for book purposes.
b. Purchasing equipment previously leased under an operating lease in prior years.
c. Using the percentage of completion method on long-term construction contracts.
d. Paying fines for violation of laws.
11. Recognizing tax benefit in a loss year due to a loss carryforward requires
a. Only a footnote disclosure
b. Creating a new carryforward for the next year
c. Creating a deferred tax asset
d. Creating a deferred tax liability
12. In computing the change in deferred tax asset or liability, which tax rate is used?
a. Current tax rate
b. Estimated future tax rate
c. Enacted future tax rate
d. Prior tax rate
15. When an entity amends a pension plan, past service cost should be
a. Treated as a prior period adjustment because no future periods are benefited.
b. Amortized over the remaining service period of employees.
c. Recorded in other comprehensive income
d. Reported as an expense in the period the plan is amended.
18. Interest cost included in the net pension cost recognized under a defined benefit plan represents the
a. Shortage between the expected and actual return on plan assets.
b. Change in the nature of benefits.
c. Increase in the projected benefit obligation due to the passage of time.
d. Increase in the fair value of plan assets due to the passage of time.
19. When may an entity net assets and liabilities of several pension plans?
a. When the estimated cash inflows and outflows are similar in pattern.
b. When the assets and liabilities are both financial.
c. Assets and liabilities are always netted.
d. Assets and liabilities may be netted when there is a legally enforceable right to use the assets of one plan
to settle the obligations of another plan.
20. Under which category should lump sum benefit and actuarial gains be accounted for?
a. Lump sum benefit and actuarial gains should be accounted for under defined benefit plan.
b. Lump sum benefit should be accounted for under short term employee benefits and actuarial gains should
be accounted for under defined benefit plan.
c. Lump sum benefit should be accounted for under defined benefit plan and actuarial gains should be
accounted for under defined contribution plan.
d. Lump sum benefit should be accounted for under short term employee benefits and actuarial gains should
be accounted for under defined contribution plan.
21. Which of the following criteria is not required for the recognition of a liability for compensated absences?
a. The amount of obligation must be estimable.
b. Payment of the obligation must be probable.
c. Payment of the obligation will require the use of current assets.
d. The compensation either vests with the employee or can be carried forward to subsequent years.
23. A profit-sharing plan requires an entity to pay a specified proportion of the cumulative profit for a five-year
period to employees who serve throughout the five-year period. What is the profit-sharing plan?
a. A short-term employee benefit
b. A postemployment benefit
c. Other long-term employee benefit
d. A termination benefit
24. If the payment of employees’ compensation for future absences is probable, the amount can be reasonably
estimated and the obligation relates to rights that accumulate, the compensation should be
a. Accrued if attributable to employees’ services not yet rendered.
b. Accrued if attributable to employees’ services already rendered.
c. Accrued if attributable to employees’ services whether already rendered or not.
d. Recognized when paid.
25. An employer offered for a short period of time special termination benefits to some employees. The employees
accepted the offer which provided for immediate lump sum payments and future payments at the end of the next
two years. The amounts can be reasonably estimated. The amount of expense recognized in the current year
should include
a. The lump sum payments and the total of the future payments.
b. One third of the lump sum payments and one third of the present value of the future payments.
c. Only the lump sum payments.
d. The lump sum payments and the present value of the future payments.
TOA13- Leases
3. Which statement concerning residual value guarantee is appropriate for the lessee?
a. The asset and related liability should be increased by the absolute amount of the residual value.
b. The asset and related liability should be decreased by the absolute amount of the residual value.
c. The asset and related liability should be decreased by the present value of the residual value.
d. The asset and related liability should be increased by the present value of the residual value.
4. In computing depreciation of a right of use asset under a lease, the lessee should deduct
a. The residual value guarantee and depreciate over the lease term.
b. An unguaranteed residual value and depreciate over the lease term.
c. The residual value guarantee and depreciate over the useful life of the asset.
d. An unguaranteed residual value and depreciate over the useful life of the asset.
5. The lessee’s lease liability for a finance lease would be periodically reduced by
a. Lease payment plus the depreciation of the asset
b. Lease payment less the depreciation of the asset
c. Lease payment less the portion allocable to interest
d. Lease payment
6. A six-year finance lease entered into on December 31 of the current year specified equal annual lease payments
due on December 31 of each year. The first annual lease payment paid on December 31 of the current year
consists of which of the following?
a. Interest expense
b. Lease liability
c. Both interest expense and lease liability
d. Neither interest expense nor lease liability
7. A ten-year operating lease provides for a 10% increase in annual rent every five years. In the sixth year compared
to the fifth year, what could be the effect on the expenses?
a. Rent and interest expense will both increase
b. Interest expense will increase but not rent expense
c. Rent expense will increase but not interest expense
d. No increase in both rent and interest expense
8. The lessor should report the underlying asset under an operating lease and income therefrom as which of the
following?
a. The asset should be kept off the statement of financial position and the lease income should go to other
comprehensive income
b. The asset should be kept off the statement of financial position and the lease income should go to the
income statement
c. The asset should be reported in the statement of financial position according to its nature and the lease
income should go to other comprehensive income
d. The asset should be reported in the statement of financial position according to its nature and the lease
income should go to the income statement
9. The lease of land and building when split causes difficulty in the allocations of the lease payments. In this case,
the lease payments should be split
a. According to the relative fair value of two elements.
b. Based on the useful life of the two elements.
c. Using the sum of the digits method.
d. According to any fair method advised by the entity.
10. Where there is a lease of land and building and the title to the land is not transferred, generally the lease is treated
as if
a. The land is finance lease and the building is a finance lease.
b. The land is a finance lease and the building is an operating lease.
c. The land is an operating lease and the building is a finance lease.
d. The land is an operating lease and the building is an operating lease.
13. Which is the correct accounting treatment for a finance lease in the accounts of the lessor?
a. Treat as a noncurrent asset equal to net investment in lease and recognize all finance payments in income
statement.
b. Treat as a receivable equal to gross amount receivable on lease and recognize finance payments in cash
by reducing debt.
c. Treat as a receivable equal to net investment in the lease and recognize finance payments by reducing
debt and taking interest to income statement.
d. Treat as a receivable equal to net investment in the lease and recognize finance payments in cash by
reduction of debt.
14. Under a direct financing lease, the excess of aggregate rentals over the cost of the underlying asset should be
recognized as income of the lessor
a. In increasing amounts during the term of the lease
b. In constant amounts during the term of the lease
c. In decreasing amounts during the term of the lease
d. After the cost of the underlying asset has been fully recovered through rentals
16. The sales revenue recognized at the commencement of the lease by a manufacturer or dealer lessor is the
a. Fair value of the asset
b. Present value of the lease payments
c. Fair value of the asset or present value of the lease payments, whichever is lower.
d. Fair value of the asset or present value of the lease payments, whichever is higher.
TOA14- Share Capital & Retained Earnings
1. If shares are issued for a noncash consideration, the shares issued shall be measured by
a. Fair value of the shares issued
b. Par value of the shares issued
c. Fair value of the noncash consideration received
d. Carrying amount of the noncash consideration received
2. If shares are issued to extinguish a financial liability, what is the initial measurement of the shares issued?
a. Par value of the shares issued
b. Fair value of the shares issued
c. Fair value of liability extinguished
d. Book value of the shares issued
5. Transaction costs directly attributable to the issuance of new shares include all of the following, except
a. Documentary stamp tax
b. Underwriting fee
c. SEC registration fee for new shares
d. Road show presentation
6. When an entity calls in all of the preference shares for more than the original issue price, the excess paid above
the original issue price should be
a. Accounted for as loss on exchange
b. Charged against share premium on ordinary shares
c. Charged to discount on preference shares
d. Charged against retained earnings
7. When preference shares are purchased and retired by the issuing entity for less than original issue price, proper
accounting for the retirement
a. Increases amount of dividends to ordinary shareholders
b. Increases the contributed capital of the ordinary shareholders
c. Increases reported income for the period
d. Increases the treasury shares
11. When shareholders may elect to receive cash in lieu of share dividend, the amount to be charged to retained
earnings is equal to
a. Optimal cash dividend
b. Fair value of the shares
c. Par value of the shares
d. Book value of the shares
12. Treasury shares may be reissued as dividends, in which cash what amount should be charged to retained earnings?
a. Cost of the treasury shares
b. Par value of the treasury shares
c. Fair value of the treasury shares on the date of declaration
d. Fair value of the treasury shares on the date of issuance
14. 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
15. If the issuing entity has only one class of share capital, a transfer from retained earnings to share capital equal to
the fair value of the shares issued is ordinarily a characteristic of
a. Either a share dividend or a share split
b. Neither a share dividend nor a share split
c. A share split but not a share dividend
d. A share dividend but not a share split
17. An appropriation of retained earnings for future plant expansion will result in
a. The establishment of a fund to help finance future plant expansion.
b. The setting aside of cash to be used for future plant expansion.
c. A decrease in cash with an equal increase in the investment in fund.
d. The disclosure that management does not intend to distribute in the form of dividends assets equal to the
amount of the appropriation.
19. Which of the following is not a legal restriction related to profit distribution?
a. The amount distributed must be in compliance with the laws governing corporations.
b. The amount distributed can never exceed the net income reported for the year.
c. Profit distribution must be formally approved by the board of directors.
d. Dividends must be in full agreement with the capital contracts as to preferences.
1. When issuing share options to employees, which of the following factors is most relevant in determining the
accounting treatment?
a. The par value of the shares issued
b. The market value of the shares issued
c. The authorized number of shares
d. Whether the share options are issued in lieu of salary
2. In what circumstances is compensation expense immediately recognized under a share option plan?
a. In all circumstances.
b. In circumstances when the options are exercisable within two years for services rendered over the next
two years.
c. In circumstances when the options are granted for prior service and the options are immediately
exercisable.
d. In no circumstances is compensation expense immediately recognized.
4. For share appreciation rights, the measurement date for computing compensation is the
a. Date the rights mature
b. Date the share reaches a predetermined amount
c. Date of grant
d. Date of exercise
6. Which feature of preference share would most likely be opposed by ordinary shareholders?
a. Convertible
b. Callable
c. Redeemable
d. Participating
7. An entity has outstanding ordinary shares and nonparticipating, noncumulative preference shares. The liquidation
value of the preference shares is equal to the par value. The book value per ordinary share is unaffected by
a. The declaration of a share dividend on preference shares payable in preference shares when the market
price of the preference share is equal to the par value.
b. The declaration of a share dividend on ordinary shares payable in ordinary shares when the market price
of the ordinary shares is equal to the par value.
c. The payment of a previously declared cash dividend on the ordinary shares.
d. A 2 for 1 split of the ordinary shares.
9. Preference shares participate ratably with the ordinary shareholders in any profit distribution beyond the
prescribed preference rate.
a. Cumulative feature
b. Participating feature
c. Callable feature
d. Redeemable feature
10. How should cumulative preference dividends in arrears be reported in the statement of financial position?
a. Note disclosure
b. Increase in shareholders’ equity
c. Increase in current liabilities
d. Increase in current liabilities for the amount expected to be declared within the year or operating cycle,
and increase in noncurrent liabilities for the balance.
11. In computing basic earnings per share, the amount of preference dividends on noncumulative preference shares
should be
a. Deducted from net income whether declared or not
b. Deducted from net income only when declared
c. Added to net income only when declared
d. Ignored
12. In computing basic loss per share, the annual preference dividend on cumulative preference shares should be
a. Ignored
b. Deducted from the net loss whether declared or not
c. Added to the net loss whether declared or not
d. Added to the net loss only when declared
13. Earnings per share shall be calculated before accounting for which of the following?
a. Preference dividend for the period
b. Ordinary dividend
c. Taxation
d. Minority interest
14. Under IFRS, where ordinary shares are issued but not fully paid, the ordinary shares are treated in the calculation
of basic EPS
a. In the same way as fully paid ordinary shares.
b. As a fraction of an ordinary share to the extent that the shares are entitled to participate in dividends.
c. In the same way as warrants or options and are included only in diluted EPS.
d. Are ignored.
15. What is the correct treatment of a share dividend issued in mid-year when computing the weighted average
number of ordinary shares outstanding for earnings per share purposes?
a. The share dividend should be weighted by the length of time that the additional shares are outstanding
during the period.
b. The share dividend should be included in the weighted average number of shares outstanding only if the
additional shares result in a decrease of three percent or more in earnings per share.
c. The share dividend should be weighted as if the additional shares were issued at the beginning of the year.
d. The share dividend should be ignored since no additional capital was received.
16. In the computation of weighted average number of shares outstanding when there is a share split, the additional
shares are
a. Weighted by the number of days outstanding.
b. Weighted by the number of months outstanding.
c. Considered outstanding at the beginning of the year.
d. Considered outstanding at the beginning of the earliest year reported.
18. A written put option is a contract that required an entity to repurchase its own ordinary shares at a specified price.
Which statement is incorrect if the written put options are “in the money”?
a. It is assessed that at the beginning of the period sufficient ordinary shares will be issued at the average
market price to raise the proceeds to satisfy the contract.
b. It is assumed that the proceeds from the issue are used to buy back the ordinary shares covered by the
written put options.
c. The resulting incremental ordinary shares shall be included in computing diluted earnings per shares.
d. The resulting incremental ordinary shares shall be included in computing basic earnings per share.
20. The “if converted” method of computing earnings per share assumes conversion of convertible bonds payable at
a. Beginning of the earliest period reported or at time of issuance, if later.
b. Beginning of the earliest period reported regardless of time of issuance.
c. Middle of the earliest period reported regardless of the time of issuance
d. Ending of the earliest period reported regardless of the time of issuance.
21. When there are multiple dilutive convertible securities, the one that should be used first to calculate dilutive
earnings per share is the security with the
a. Largest earnings adjustment
b. Largest earnings per share adjustment
c. Smallest earnings adjustment
d. Smallest earnings per share adjustment
22. An entity already has calculated the basic earnings per share. In determining diluted earnings per share, the annual
dividend on convertible cumulative preference share which is dilutive should be
a. Added back to the numerator of basic EPS whether declared or not.
b. Deducted from the numerator of basic EPS only if declared.
c. Added back to the numerator of basic EPS only if declared.
d. Deducted from the numerator of basic EPS whether declared or not.
TOA16- Financial Statements
1. To meet the objective of providing information about financial position, financial performance and cash flows of
an entity, financial statements should provide information about all of the following, except
a. Assets, liabilities and equity
b. Income and expenses, including gains and losses
c. Contributions by and distribution to owners in their capacity as owners
d. Nature of business activities
3. A third statement of financial position as at the beginning of the earliest comparative period is required
a. When an entity applies an accounting policy retrospectively.
b. When an entity makes a retrospective restatement of items in the financial statements.
c. When an entity reclassifies items in the financial statements.
d. In all of the above cases.
4. When the classification of items in the financial statements is changed, the entity
a. Must not reclassify the comparative amounts
b. Can choose whether to reclassify the comparative amounts.
c. Must reclassify the comparative amounts unless it is impracticable to do so.
d. Must reclassify the current year amounts only.
5. Which of the following information is not specifically a required disclosure in relation to financial statements?
a. Name of the reporting entity or other means of identification and any change in that information from the
previous year
b. Names of major shareholders of the entity
c. Level of rounding used in presenting the financial statements
d. Whether the financial statements cover the individual entity or a group of entities
7. Which obligations are classified as current even if these are due to be settled after more than twelve months from
the end of the reporting period?
a. Trade payables and accruals for employee and other operating cost
b. Current portion of interest-bearing liabilities
c. Bank overdrafts
d. Dividends payable
8. A presentation of assets and liabilities in increasing or decreasing order of liquidity provides information that is
reliable and more relevant than a current and noncurrent presentation for
a. Financial institution
b. Public utility
c. Manufacturing entity
d. Service provider
10. Which statement about the statement of financial position is not true?
a. Biological assets should be reported in the statement of financial position.
b. The number of shares authorized for issue should be reported in the statement of financial position or the
statement of changes in equity or in the notes.
c. Provisions should be recognized in the statement of financial position.
d. A revaluation surplus on a noncurrent asset in the current year should be recognized in the income
statement.
14. Equity investments held to finance construction of additional plant should be classified as
a. Current assets
b. Property, plant and equipment
c. Intangible assets
d. Noncurrent investments
19. Which of the following should be included in the summary of significant accounting policies?
a. Property, plant and equipment recorded at cost with the depreciation computed principally by straight line
method
b. A business component was sold during the current year
c. Breakdown of sales attributable to business components
d. Future ordinary share dividends are expected to approximate sixty percent of earnings
26. Why is reclassification adjustment used when reporting other comprehensive income?
a. To reclassify an item of comprehensive income as another item of comprehensive income
b. To avoid double counting of items
c. To make net income equal comprehensive income
d. To adjust the income tax effect
27. Which of the following would represent the least likely use of an income statement?
a. Use by customers to determine an entity’s ability to provide needed goods and services
b. Use by labor unions to examine earnings closely as a basis for salary discussions
c. Use by government to formulate tax policy
d. Use by investors interested in financial position
30. Which of the following would not appear in the statement of retained earnings?
a. Net loss
b. Prior period adjustment
c. Discontinued operation
d. Dividend declared
31. Which capital maintenance concept is applied respectively to net income and comprehensive income?
a. Financial capital and financial capital
b. Physical capital and physical capital
c. Financial capital and physical capital
d. Physical capital and financial capital
TOA17- Interim FInancial Reporting; Operating Segments; Cash & Accrual Basis
3. An entity is preparing interim financial statements for six months ended June 30, 2019. In the interim financial
statements for six months, a statement of financial position on June 30, 2019 and a statement of comprehensive
income for six months ended June 30, 2019 shall be presented. In addition, all of the following shall be presented,
except
a. Statement of financial position on June 30, 2018
b. Statement of financial position on December 31, 2018
c. Statement of comprehensive income for six months ended June 30, 2018
d. Statement of cash flows for six months ended June 30, 2018
4. An entity owns a number of farms that harvest produce seasonally. Approximately 80% of the sales are in the
period August to October. Because the business is seasonal, what does the standard suggest?
a. Additional notes be written in the interim reports about seasonal nature of the business.
b. Disclosure of financial information for the latest and comparative 12-month period in addition to the
interim report.
c. Additional disclosure in the accounting policy note.
d. No additional disclosure.
7. An inventory loss from a market price decline occurred in the first quarter. However, in the third quarter the
inventory had a market price recovery that exceeded the market decline that occurred in the first quarter. For
interim financial reporting, the amount of inventory should
a. Decrease in the first quarter by the amount of the market price decline and increase in the third quarter by
the amount of the market price recovery.
b. Decrease in the first quarter by the amount of the market price decline and increase in the third quarter by
the amount of decrease in the first quarter.
c. Not be affected in the first quarter and increase in the third quarter by the amount of the market price
recovery that exceeded the amount of the market price decline.
d. Not be affected in either the first quarter or the third quarter.
8. How is income tax expense for the third quarter interim period computed?
a. The annual rate multiplied by the third quarter pretax earnings.
b. The estimated tax for the first three quarters based on an annual rate less a similar estimate for the first
two quarters.
c. The rate applicable during the third quarter multiplied by four times the third quarter pretax earnings.
d. One-half of the difference between total estimated annual income tax expense and the income tax for the
first two quarters.
10. For interim financial reporting, the income tax expense for the second quarter should be computed by using the
a. Statutory tax rate for the year.
b. Effective tax rate expected to be applicable for the second quarter.
c. Effective tax rate expected to be applicable for the full year as estimated at the end of the first quarter.
d. Effective tax rate expected to be applicable for the full year as estimated at the end of the second quarter.
12. Which statement is true concerning the 75% overall size test for reportable segments?
a. The total external and internal revenue of all reportable segments is 75% or more of the entity’s external
revenue.
b. The total external revenue of all reportable segments is 75% or more of the entity’s external and internal
revenue.
c. The total external revenue of all reportable segments is 75% or more of the entity’s external revenue.
d. The total internal revenue of all reportable segments is 75% or more of the entity’s internal revenue.
13. Which statement is not true with respect to a chief operating decision maker?
a. The term chief operating decision maker identifies a function and not necessarily a manger with a specific
title.
b. In some cases, the chief operating decision maker could be the chief operating officer.
c. The board of directors acting collectively could qualify as the chief operating decision maker.
d. The chief internal auditor who reports to the board of directors usually plays a very important role and
would generally qualify as chief operating decision maker.
15. Segment reporting requires that an entity should provide reconciliations of segment information. Which is not a
required reconciliation?
a. The total of the reportable segments’ revenue to the entity revenue
b. The total of the reportable segments’ profit or loss to the entity profit or loss before tax expense and
discontinued operations
c. The total number of major customers of all segments to the total number of major customers of the entity
d. The total of the reportable segments’ assets to the entity assets
16. Operating segments that do not meet any of the quantitative thresholds
a. Cannot be considered reportable.
b. May be considered reportable and separately disclosed if management believes the information about the
segment would be useful to the statement users.
c. May be considered reportable and separately disclosed if the information is for internal use only.
d. May be considered reportable and separately disclosed if this is the practice within the economic
environment.
17. In financial reporting for operating segments, an entity shall disclose all of the following, except
a. Types of products and services from which each reportable segment derives its revenue.
b. The title of the chief operating decision maker.
c. Factors used to identify the reportable segments.
d. The basis of measurement of segment profit or loss.
18. An entity shall disclose for each reportable segment a measure of all of the following except
a. Profit or loss
b. Total assets if such amount is regularly provided to the chief operating decision maker
c. Total liabilities if such amount is regularly provided to the chief operating decision maker
d. Net assets
19. An entity shall disclose for each reportable segment all of the following specified amounts included in the
measure of profit or loss, except
a. Depreciation and amortization
b. The entity’s interest in the profit or loss of associate and joint venture accounted for by the equity method.
c. Income tax expense
d. General corporate expense
20. For segment reporting purposes, which tests must be applied to determine if a component is a reportable segment?
a. Revenue test and asset test
b. Revenue test, asset test and profit or loss test
c. Revenue test, asset test and expense test
d. Revenue test, asset test and cash flow test
21. Which of the following is a required enterprise-wide disclosure regarding external customers?
a. The identity of any external customer considered to be “major” by management
b. The identity of any external customer providing 10% or more of a particular operating segment revenue
c. Information on major customers is not required in segment reporting
d. The fact that transactions with a particular external customer constitute at least 10% of the total entity
revenue
22. Which statement regarding accrual versus cash basis of accounting is true?
a. The cash basis is appropriate for some smaller entities.
b. The cash basis is less useful in predicting the timing and amounts of future cash flows.
c. Application of the cash basis results in an income statement reporting revenue and expenses.
d. The cash basis requires a complete set of records.
25. If ending balance of accounts receivable exceeds the beginning balance of accounts receivable
a. Cash collections during the period exceed the amount of revenue earned.
b. Net income for the period under accrual basis is less than the amount of cash basis income.
c. No cash was collected during the period.
d. Cash collections during the year are less than the amount of revenue earned.
26. When converting from cash basis to accrual basis of accounting, which of the following adjustments should be
made to cash paid for operating expenses to determine accrual basis operating expenses?
a. Add beginning accrued liabilities
b. Subtract beginning prepaid expense
c. Subtract ending prepaid expense
d. Subtract interest expense
27. Compared to cash basis net income for the current year, an entity’s accrual basis net income increased when it
a. Declared a cash dividend in the prior year that it paid in the current year
b. Wrote off more accounts receivable than it reported as uncollectible accounts expense in the current year
c. Had lower accrued expenses at the end of the current year than at the beginning of year
d. Sold used equipment for cash at a gain in the current year
28. Compared to the accrual basis of accounting, the cash basis understates income by the net decrease during the
accounting period of
a. Both accounts receivable and accrued expenses
b. Accrued expenses but not of accounts receivable
c. Neither accounts receivable nor of accrued expenses
d. Accounts receivable but not of accrued expenses
29. The premium on a three-year insurance policy expiring on December 31, 2020 was paid in total on January 1,
2018. The original payment was initially debited to a prepaid asset account. The appropriate adjusting entry had
been recorded on December 31, 2018. The balance in the prepaid asset account on December 31, 2018 should be
a. Zero
b. The same as it would have been if the original payment had been debited initially to an expense account
c. The same as the original payment
d. Higher than if the original payment had been debited initially to an expense account
30. The premium on a four-year insurance policy expiring on December 31, 2021 was paid in total on January 1, 2018.
If the original payment was recorded as a prepaid asset, the balance in the prepaid asset on December 31, 2019
would be
a. Lower than the balance on December 31, 2018
b. Lower than the balance on December 31, 2020
c. The same as the balance on December 31, 2020
d. The same as the original payment