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FIRST PRE-BOARD EXAMINATION
THEORY OF ACCOUNTS
Instructions: Select the best answer to each of the following questions. Mark your answer in the
answer sheet provided to you. NO ERASURE IS ALLOWED.
1
. Accounting is
I. A service activity and its function is to provide quantitative information, primarily financial in
nature, about economic entities, that is intended to be useful in making economic decision.
II. The art of recording, classifying, and summarizing in a significant manner and in terms of
money, transactions and events which are in part at least of a financial character and
interpreting the results thereof.
III. The process of identifying, measuring and communicating economic information to permit
informed judgment and decision by users of the information.
a. I, II and III b. I only c. II only d. III only
2
. Financial accounting
a. Is the examination of financial statements by an independent CPA for the purpose of
expressing an opinion as to the fairness of the financial statements.
b. Focuses on the preparation and presentation of general purpose reports known as financial
statements.
c. Has no precise coverage but is used generally to refer to services to clients on matters of
accounting, finance, business policies, organization procedures, product costs, distribution
and many other phases of business conduct and operations.
d. Is the preparation of annual income tax returns and determination of tax consequences of
certain proposed business venture.
3
. Which is not a purpose of the ASC framework?
a. To assist the ASC in developing accounting standards that represent generally accepted
accounting principles in the Philippines.
b. To assist the ASC in its review and adoption of existing International Accounting Standards.
c. To assist auditors in forming an opinion as to whether financial statements conform with
Philippine GAAP.
d. To assist the Board of Accountancy in promulgating rules and regulations affecting the
practice of accountancy in the Philippines.
4
. The ASC framework deals with (choose the incorrect one)
a. Objective of financial statements
b. Qualitative characteristics
c. Definition, recognition and measurement of the basic elements of financial statements
d. Generally accepted accounting principles
5
. These users are interested in the allocation of resources and activities of enterprises, and
therefore require information to regulate the activities of enterprises, determine taxation policies
and as a basis for national income and similar statistics.
a. Suppliers and trade creditors c. Public
b. Customers d. Governments and their agencies
6
. Information about the performance of an enterprise is required in order to assess potential
changes in the economic resources that it is likely to control in the future. This information is
primarily pictured in the
a. Cash flow statement c. Balance sheet
b. Statement of retained earnings d. Income statement
7
. The accrual basis means that
a. 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 periods to which they relate.
b. The financial statements are normally prepared on the assumption that an enterprise will
continue in operation for the foreseeable future.
c. Where parent and subsidiary relationship exists, consolidated statements for the affiliates
are prepared because the parent and the subsidiary are a single economic entity.
d. The financial statements should be stated in terms of a common financial denominator.

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8
. Qualitative characteristics
a. Are the attributes that make the information provided in financial statements useful to users.
b. Are the generally accepted accounting principles.
c. Are the basic notions and fundamental premises on which the accounting process is based.
d. Refer to the definition, recognition and measurement of the elements from which financial
statements are constructed.
9
. What are the primary qualities of financial accounting information that pertain to the content
rather than to the presentation of financial information?
a. Relevance and reliability c. Relevance and comparability
b. Understandability and comparability d. Reliability and understandability
10
. Information has the quality of relevance when
a. It influences the economic decisions of users by helping them evaluate past, present or
future events or confirming or correcting their past evaluations.
b. It is free from bias and error and can be depended upon by users to represent faithfully that
which it either purports to represent or could reasonably be expected to represent.
c. Users are assumed to have a reasonable knowledge of business and economic activities
and accounting and a willingness to study the information with reasonable diligence.
d. Users are informed of the accounting policies employed, any changes in those policies and
the effects of such changes.
11
. Financial statements portray the financial effects of transactions and other events by grouping
them into broad classes according to their economic characteristics. These broad classes are
termed as the
a. Elements of financial statements c. Accounting constraints
b. Features of accounting d. Concepts of capital and capital maintenance
12
. The elements directly related to the measurement of financial position are
a. Assets, liabilities, equity, revenue and expenses
b. Assets, liabilities, equity and revenue
c. Assets, liabilities and equity
d. Revenue and expenses
13
. Asset is
a. A resource controlled by the enterprise as a result of past events and from which future
economic benefits are expected to flow to the enterprise.
b. A present obligation of the enterprise arising from past events the settlement of which is
expected to result in an outflow from the enterprise of resources embodying economic
benefits.
c. The residual interest in the assets of the enterprise after deducting all its liabilities.
d. Equivalent to all financial resources of the enterprise.
14
. It is the process of incorporating in the balance sheet or income statement an item that meets
the definition of an element of financial statements.
a. Recognition b. Allocation c. Realization d. Summarization
15
. It is the process of determining the monetary amounts at which the elements are to be
recognized and carried in the balance sheet and income statement.
a. Measurement b. Recognition c. Reporting d. Interpreting
16
. Technically, this arises in the course of the ordinary activities of an enterprise and is referred to
by a variety of different names including sales, interest, dividends, royalties and rent.
a. Income b. Gain c. Profit d. Revenue
17
. This process involves the simultaneous or combined recognition of revenues and expenses
that result directly and jointly from the same transactions or other events on the basis of direct
association between the costs incurred and the earning of specific items of income.
a. Matching of revenues with costs c. Systematic and rational allocation
b. Matching of costs with revenues d. Immediate recognition
18
. All cash receipts are deposited intact and all cash disbursements are made by means of check.
This internal control is known as
a. Administrative control c. Accounting control
b. Imprest system d. Auditing control

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19
. Entries to record the replenishment of petty cash fund result in a debit to various expense
accounts and a credit to cash in bank. This accounting procedure typically exemplifies the
a. Imprest petty cash system c. Internal control
b. Fluctuating petty cash system d. Administrative control
20
. What is the major purpose of an imprest petty cash fund?
a. To effectively plan cash inflows and outflows
b. To ease the payment of cash to vendors
c. To determine the honesty of the employees
d. To effectively control cash disbursements
21
. A cash over or short account
a. Is not generally accepted
b. Is debited when the petty cash fund proves out over
c. Is debited when the petty cash fund proves out short
d. Is a contra account to cash
22
. The payments of accounts payable made subsequent to the close of the accounting period are
recorded as if they were made at the end of the current period.
a. Window dressing b. Kiting c. Lapping d. Imprest system
23
. Bank reconciliation
a. Is the process of transferring money in or out of a bank account.
b. Requires that every transaction which will result in a cash payment be verified, approved
and recorded before a bank check is prepared.
c. Is an analysis that reflects the bank transactions made by a depositor.
d. Explains the difference between the bank balance and the balance shown in the depositors
records.
24
. If the cash balance shown in a companys 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. Deposits in transit
c. Outstanding checks
d. Bank charges not yet recorded by the company
25
. If the cash balance in a companys bank statement 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. Outstanding checks
c. Bank charges not yet recorded by the company
d. Deposits in transit
26
. The journal entries for a bank reconciliation
a. Are taken from the balance per bank only
b. May include a debit to office expense for bank service charges
c. May include a credit to accounts receivable for an NSF check
d. May include a debit to accounts payable for an NSF check
27
. When preparing a bank reconciliation, bank credits are
a. Added to the bank statement balance
b. Deducted from the bank statement balance
c. Added to the balance per book
d. Deducted from the balance per book
28
. Bank overdrafts, if material, should
a. Be reported as a deduction from the current asset section.
b. Be reported as a deduction from cash.
c. Be netted against cash and a net cash amount reported.
d. Be reported as a current liability.
29
. Receivables denominated in a foreign currency should be
a. Translated to local currency using the exchange rate at the time the receivables arise
b. Shown at face value of the foreign currency

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c. Translated to local currency using the exchange rate at balance sheet date
d. Translated to local currency using the exchange rate when the balance sheet is issued
30
. Trade receivables are classified as current assets when they are reasonably expected to be
collected
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
31
. Nontrade receivables are classified as current assets only if they are reasonably expected to
be realized in cash
a. Within one year or normal operating cycle, whichever is shorter.
b. Within the normal operating cycle
c. Within one year or the normal operating cycle, whichever is longer
d. Within one year, the length of the operating cycle notwithstanding
32
. Installments receivable arising from sales of household appliances should be classified as
a. Current assets
b. Noncurrent assets
c. Current assets; however, the amount not realizable within one year should be disclosed, if
material
d. None of these
33
. In the case of long-term installments receivable (real estate installment sales) where a major
portion of the receivables will be collected beyond the normal operating cycle
a. The entire receivables are classified as current without disclosure of the amount not
currently due
b. The entire receivables are classified as noncurrent
c. Only the portion currently due is classified as current and the balance as noncurrent
d. The entire receivables are classified as current with disclosure of the amount not currently
due
34
. Receivables from subsidiaries and affiliates, if significant should be classified as
a. Current assets
b. Noncurrent assets
c. Either as noncurrent or current depending on the expectation of realizing them within one
year or over one year
d. Intangible assets
35
. Receivables from officers, directors and employees for goods sold or services rendered in the
ordinary course of business
a. Are considered current if proper control is exercised in granting credit and the accounts are
currently collectible
b. Are not included in trade accounts receivable
c. Are included in current assets even if the receivables are actually loans and advances and
the collection is unlikely within a year
d. Are always classified as noncurrent
36
. Credit balances in accounts receivable should be classified as
a. Current liability
b. Part of accounts payable
c. Noncurrent liability
d. Deduction from accounts receivable
37
. A method of estimating doubtful accounts that focuses on the income statement rather the
balance sheet is the allowance method based on
a. Direct writeoff c. Credit sales
b. Aging of trade accounts receivable d. Balance of accounts receivable
38
. A method of estimating doubtful accounts that emphasizes asset valuation rather than income
measurement is the allowance method based on
a. Aging of receivables
b. Direct writeoff

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c. Gross sales
d. Credit sales less sales returns and allowances
39
. A company uses the allowance method for recognizing doubtful accounts. The entry to record
the write off of a specific uncollectible account
a. Affects neither net income nor working capital
b. Affects neither net income nor accounts receivable
c. Decreases both net income and working capital
d. Decreases both net income and accounts receivable
40
. When the allowance method of recognizing bad debt expense is used, the entries at the time of
collection of an account previously written off would
a. Decrease the allowance for doubtful accounts
b. Increase net income
c. Have no effect on the allowance for doubtful accounts
d. Have no effect on net income
41
. When a specific customers account receivable is written off as uncollectible, what will be the
effect on net income under each of the following methods of recognizing bad debt expense?

Allowance Direct writeoff


a. None Decrease
b. Decrease None
c. Decrease Decrease
d. None None
42
. If receivables are hypothecated against borrowings, the amount of receivables involved should
be
a. Disclosed in the statements or notes
b. Excluded from the total receivables, with disclosure
c. Excluded from the total receivables, with no disclosure
d. Excluded from the total receivables and a gain or loss is recognized between the face value
and the amount of borrowings
43
. It is a predetermined amount withheld by a factor as a protection against customer returns,
allowances and other special adjustments.
a. Equity in assigned accounts c. Commission
b. Service charge d. Factors holdback
44
. Which of the following is true when accounts receivable are factored without recourse?
a. The transaction may be accounted for as either a secured borrowing or as a sale.
b. The receivables are used as collateral for a promissory note issued to the factor by the
owner of the receivables.
c. The factor assumes the risk of collectibility and absorbs any credit losses in collecting the
receivables.
d. The financing cost should be recognized ratably over the collection period of the
receivables.
45
. Notes receivable discounted with recourse should be
a. Included in total receivables with disclosure of contingent liability
b. Included in total receivables without disclosure of contingent liability
c. Excluded from total receivables with disclosure of contingent liability
d. Excluded from total receivables without disclosure of contingent liability
46
. Which of the following items should be included in a companys inventory at the balance sheet
date?
a. Goods in transit which were purchased FOB destination.
b. Goods received from another company for sale on consignment.
c. Goods sold to a customer which are being held for the customer to call for at the
customers convenience.
d. Goods in transit which were purchased FOB shipping point.
47
. Which statement is incorrect with respect to inventories under PAS No. 2?
a. Inventories should be measured at the lower of cost and net realizable value.

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b. The cost of inventories should comprise all costs of purchase, costs of conversion and
other costs incurred in bringing the inventories to their present location and condition.
c. The cost of inventories of a service provider consists primarily of labor and other costs of
personnel directly engaged in providing the service, including supervising personnel and
attributable overhead.
d. The costs of conversion of inventories include costs directly related to the units of
production such as direct labor, and a systematic allocation of variable production
overhead.
48
. The inventories of a service provider may simply be described as
a. Work in progress c. Unbilled receivables
b. Billed receivables d. Deferred costs
49
. The cost of purchase of inventory does not include
a. Purchase price
b. Import duties and taxes
c. Freight, handling and other cost directly attributable to acquisition
d. Trade discount, rebate and other similar item
50
. The cost of inventories that are not ordinarily interchangeable and goods or services produced
and segregated for specific projects should be assigned by using
a. LIFO b. FIFO c. Average method d. Specific identification
51
. Which costs may be capitalized as cost of inventories?
a. Normal shrinkage and scrap incurred for the manufacture of a product in ending inventory.
b. Storage costs
c. Selling costs
d. Foreign exchange differences which arises directly on the recent acquisition of inventories
invoiced in a foreign currency.
52
. Net realizable value is
a. Current replacement cost
b. Estimated selling price
c. Estimated selling price less estimated cost to complete
d. Estimated selling price less estimated cost to complete and estimated cost to sell
53
. The cost of inventories in applying the valuation at lower of cost or net realizable value should
be assigned by using
a. FIFO only c. Average method only
b. LIFO only d. Either FIFO or average method
54
. Reporting inventory at the LCM is a departure from the accounting principle of
a. Historical cost b. Conservatism c. Consistency d. Full disclosure
55
. Which statement is not valid in relation to the LCM rule for inventories?
I. Inventories are usually written down to net realizable value on an item by item basis.
II. It is appropriate to write down inventories based on a classification of inventory, for
example, finished goods or all inventories in a particular industry or geographical segment.
a. I only b. II only c. Both I and II d. Neither I nor II
56
. The original cost of an inventory item is below both replacement cost and net realizable value.
The net realizable value less normal profit margin is below the original cost. Under LCM
method, the inventory item should be valued at
a. Replacement cost
b. Net realizable value
c. Net realizable value less normal profit margin
d. Original cost
57
. When agricultural crops have been harvested or mineral ores have been extracted and a sale
is assured under a forward contract or government guarantee, such inventories are measured
at
a. Net realizable value c. Standard cost
b. Cost d. Relative sales price

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58
. The cost of inventories may not be recoverable under all of the following conditions, except
a. The estimated costs of completion or the estimated costs to be incurred to make the sale
have increased.
b. The inventories have become wholly or partially obsolete.
c. The inventories are damaged
d. The selling prices of the inventories have increased.
59
. Which of the following is not an acceptable basis for valuation of inventories in published
financial statements?
a. Historical cost
b. Standard cost
c. Prime cost
d. Current selling price less cost to complete and cost to sell
60
. Theoretically, freight and warehousing costs incurred in the transfer of consigned goods from
the consignor to the consignee should be considered
a. An expense by the consignor c. Inventoriable by the consignor
b. An expense by the consignee d. Inventoriable by the consignee
61
. Goods on consignment should be included in the inventory of
a. The consignor but not the consignee c. Both the consignor and the consignee
b. The consignee but not the consignor d. Neither the consignor nor the consignee
62
. All of the following costs should be charged against revenue in the period, except
a. Manufacturing overhead costs for a product manufactured and sold in the same accounting
period.
b. Costs which will not benefit any future period.
c. Costs from idle manufacturing capacity resulting from an unexpected plant shutdown.
d. Costs of normal shrinkage and scrap incurred for the manufacture of a product in ending
inventory.
63
. The use of a discounts lost account implies that the recorded cost of a purchased inventory
item is its
a. Invoice price
b. Invoice price plus the purchase discount lost
c. Invoice price less the purchase discount taken
d. Invoice price less the purchase discount allowable whatever taken or not
64
. The use of purchase discounts account implies that the recorded cost of a purchased inventory
item is its
a. Invoice price
b. Invoice price plus any purchase discount lost
c. Invoice price less the purchase discount taken
d. Invoice price less the purchase discount allowable whether taken or not
65
. Theoretically, cash discounts permitted on purchased raw materials should be
a. Added to other income, whether taken or not
b. Added to other income, only if taken
c. Deducted from inventory, whether taken or not
d. Deducted from inventory, only if taken
66
. When a portion of inventories has been pledged as security on a loan
a. The value of the portion pledged should be subtracted from the debt
b. An equal amount of retained earnings should be appropriated
c. The fact should be disclosed but the amount of current assets should not be affected
d. The cost of the pledged inventory should be transferred from current to noncurrent asset
67
. If a material amount of inventory has been ordered through a formal purchase contract at
balance sheet date for future delivery at firm prices
a. This fact must be disclosed
b. Disclosure is required only if prices have declined since the date of the order
c. Disclosure is required only if prices have since risen substantially.
d. An appropriation of retained earnings is necessary.

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68
. The credit balance that arises when a net loss in a purchase commitment is recognized should
be
a. Presented as a current liability
b. Subtracted from ending inventory
c. Presented as an appropriation of retained earnings
d. Presented in the income statement
69
. When using a perpetual inventory system
I. No purchases account is used.
II. A cost of goods sold account is used.
III. Two entries are required to record a sale.
a. I and II only b. II only c. II and III only d. I, II and III
70
. Which one of the following inventory costing method lends itself most to manipulation of
reported net income among periods.
a. LIFO perpetual b. FIFO perpetual c. LIFO periodic d. FIFO periodic
71
. During periods of arising prices, when the FIFO inventory cost flow method is used, a perpetual
inventory system would
a. Not be permitted
b. Result in a higher ending inventory than a periodic system inventory system
c. Result in the same ending inventory as a periodic system
d. Result in a lower ending inventory than a periodic inventory system
72
. Generally, which inventory costing method approximates most closely the current cost for each
of the following:
Cost of goods sold Ending inventory
a. LIFO FIFO
b. LIFO LIFO
c. FIFO FIFO
d. FIFO LIFO
73
. To produce an inventory valuation which approximates the lower of average cost or market
using the conservative retail inventory method, the computation of the ratio of cost to retail
should
a. Include markups but not markdowns c. Include markups and markdowns
b. Ignore both markups and markdowns d. Include markdowns but not markups
74
. The gross margin method of estimating ending inventory may be used for all of the following
except
a. Internal as well as external interim reports
b. Internal as well as external year-end reports
c. Estimate of inventory destroyed by fire or other casualty
d. Rough test of the validity of an inventory cost determined under either periodic or perpetual
system.
75
. The gross profit method of inventory valuation is invalid when
a. A portion of the inventory is destroyed.
b. There is substantial increase in inventory during the year.
c. There is no beginning inventory because it is the first year of operation.
d. The gross profit percentage applicable to goods in the ending inventory is different from the
percentage applicable to goods sold during the period.
76
. An item of property, plant and equipment should be recognized as an asset when
I. It is probable that future economic benefits associated with the asset will flow to the
enterprise.
II. The cost of the asset to the enterprise can be measured reliably.
a. Both I and II b. Neither I nor II c. I only d. II only
77
. Which is not an essential characteristic of property, plant and equipment?
a. The property, plant and equipment are subject to depreciation.
b. The property plant and equipment are tangible assets.
c. The property, plant and equipment are used in production or supply of goods and services,
for rental and administrative purposes.
d. The property, plant and equipment are expected to be used over a period of more than one
year.

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78
. The depreciable amount of an item of property, plant and equipment is the
a. Cost of the asset, or other amount substituted for cost in the financial statements, less its
residual value.
b. Net amount which the enterprise expects to obtain for an asset at the end of its useful life
after deducting the expected costs of disposal.
c. Amount of cash or cash equivalent paid or the fair value of other consideration given to
acquire an asset at the time of its acquisition or construction.
d. Amount at which an asset is recognized in the balance sheet after deducting any
accumulated depreciation and accumulated impairment losses thereon.
79
. It is the amount for which an asset could be exchanged between knowledgeable, willing parties
in an arms length transaction.
a. Cost c. Realizable value
b. Sales price d. Fair value
80
. Which is incorrect concerning recognition of property, plant and equipment?
a. Most spare parts and servicing equipment are usually carried as inventory and recognized
as an expense when consumed.
b. Major spare parts and stand-by equipment qualify as property, plant and equipment when
the enterprise expects to use them during more than one period.
c. If spare parts and servicing equipment can be used only in connection with an item of
property, plant and equipment, they are accounted for as property, plant and equipment and
are depreciated over the useful life of the related asset.
d. Property, plant and equipment acquired for safety and environmental reasons qualify for
recognition as assets.
81
. The cost of an item of property, plant and equipment includes all of the following, except
a. Trade discount and rebates
b. Purchase price
c. Import duties and nonrefundable purchase taxes
d. Directly attributable costs of bringing the asset to working condition for its intended use.
82
. Directly attributable costs of bringing the asset to working condition for its intended use include
all, except
a. Initial operating losses incurred prior to an asset achieving planned performance
b. Cost of site preparation
c. Delivery, handling and installation costs
d. Estimated cost of dismantling and removing the asset and restoring the site, to the extent
that it is recognized as a provision
83
. Examples of costs that are expensed rather than recognized as an element of cost of property,
plant and equipment include all of the following, except
a. Cost of employee benefits arising directly from the construction on acquisition of an item of
property, plant and equipment.
b. Cost of opening a new facility
c. Cost of introducing a new product or service, including cost of advertising and promotion.
d. Cost of relocating or reorganizing part or all of an entitys operations.
84
. Which is correct concerning measurement of property, plant and equipment?
I. An entity shall choose either the cost model or the revaluation model as its accounting
policy and shall apply that policy to an entire class of property, plant and equipment.
II. The cost model means that property, plant and equipment are carried at cost less any
accumulated depreciation and any accumulated impairment loss.
III. The revaluation model means that property, plant and equipment are carried at revalued
amount, being the fair value at date of revaluation less any accumulated depreciation and
subsequent accumulated impairment loss.
a. I, II and III b. I only c. II and III only d. II only
85
. The cost of an item of property, plant and equipment acquired in exchange for a nonmonetary
asset or a combination of monetary and nonmonetary asset is measured at
a. Fair value of asset given plus cash payment
b. Fair value of asset received plus cash payment
c. Book value of asset given plus cash payment

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d. Book value of asset received plus cash payment
86
. Which statement is incorrect regarding initial measurement of PPE?
a. PPE should be initially recorded at cost, which includes all costs necessary to bring the
asset to working condition for its intended use.
b. If payment for an item of property, plant, and equipment is deferred, interest at a market
rate must be recognized or imputed.
c. If an asset is acquired in exchange for another asset the cost will be measured at the fair
value.
d. If an asset acquired in exchange for another asset is not measured at fair value, its cost is
measured at the carrying amount of the asset received.
87
. If the exchange transaction lacks commercial substance, the acquired item of property, plant
and equipment is measured at
a. Fair value of asset given plus cash payment
b. Fair value of asset received plus cash payment
c. Carrying amount of asset given plus cash payment
d. Carrying amount of asset received plus cash payment
88
. When payment for an item of property, plant and equipment is deferred beyond normal credit
terms, its cost is the
a. Cash price equivalent c. Invoice price
b. Installment price d. List price
89
. If an asset is acquired on credit or by installment, the difference between the total payments
and cash price, if any, should be
a. Considered interest expense of the current year
b. Included as part of the asset cost
c. Amortized as interest expense over the life of the asset
d. Amortized as interest expense over the credit period
90
. Which is incorrect concerning self-constructed asset?
a. The cost of self-constructed asset is determined using the same principles as for an
acquired asset.
b. Any internal profits from construction are eliminated in arriving at the cost of self-
constructed asset.
c. The cost of abnormal amounts of wasted material, labor or other resources incurred in the
production of a self- constructed asset is included in the cost of asset.
d. The cost of normal amounts of wasted material, labor or other resources incurred in the
production of a self-constructed asset is included in the cost of the asset.
91
. Which is not within the definition of an intangible asset?
a. Held for use in the production or supply of goods or services, for rental to others, or for
administrative purposes.
b. Identifiable nonmonetary asset without physical substance.
c. A resource controlled by an enterprise as a result of past events.
d. A resource from which future economic benefits are expected to flow to the enterprise.
92
. Which is incorrect concerning the recognition and measurement of an intangible asset?
a. If an intangible asset is acquired separately, the cost comprises its purchase price,
including import duties and taxes and any directly attributable expenditure of preparing the
asset for its intended use.
b. If an intangible asset is acquired in a business combination that is an acquisition, the cost is
based on its fair value at the date of acquisition.
c. If an intangible asset is acquired free of charge or by way of government grant, the cost is
equal to its fair value.
d. If payment for an intangible asset is deferred beyond normal credit terms, its cost is equal
to the total payments over the credit period.
93
. The appropriate method of amortizing intangible asset is best described by which of the
following?
a. The straight line method, unless the pattern in which the assets economic benefits are
consumed by the enterprise can be determined reliably.
b. The double declining balance in all circumstances

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c. Management can make a subjective amount of periodic amortization without regard to any
particular method
d. The straight line method in all circumstances
94
. The best definition of useful life of an intangible asset is
a. The legal life of the intangible.
b. The period over which management believes the intangible asset will contribute to the
revenue-producing process.
c. Twenty years.
d. The period over which the cost of the asset can be deducted for income tax purposes.
95
. Which of the following factors should not be considered in estimating the useful life of intangible
asset?
a. Legal, regulatory or contractual provision
b. Expected action by competitors or potential competitors
c. Residual value
d. Typical product life cycle of the asset
96
. It is the systematic allocation of the cost of an intangible asset less any residual value as an
expense over the assets useful life?
a. Depreciation c. Depletion
b. Realization d. Amortization

. The residual value of an intangible asset should be presumed zero, unless


97

I. There is a commitment by a third party to purchase the asset at the end of its useful life.
II. 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 assets useful
life.
a. Both I and II b. Neither I nor II c. II only d. I only
98
. Which one of the following is not a component of the cost of internally generated intangible
asset?
a. Cost of materials and services used or consumed in generating the intangible asset.
b. Cost of employee benefits arising from the generation of the intangible asset.
c. Fees to register a legal right
d. Expenditure on training staff to operate the asset.
99
. Which statement is incorrect concerning internally generated intangible asset?
a. To assess whether an internally generated intangible asset meets the criteria for
recognition, an enterprise classifies the generation of the asset into a research phase and a
development phase.
b. The cost of an internally generated asset comprises all directly attributable costs necessary
to create, produce and prepare the asset for its intended use.
c. Internally generated brands, mastheads, publishing titles, customer lists and items similar in
substance should not be recognized as intangible assets.
d. Internally generated goodwill may be recognized as an intangible asset.
100
. The following expenditures should be expensed when incurred, except
a. Advance payment for delivery of goods or rendering of services
b. Relocation costs
c. Advertising and promotion costs
d. Organization and other start up costs

-END-

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ANSWER KEY:

01. 21. 41. 61.


02. 22. 42. 62.
03. 23. 43. 63.
04. 24. 44. 64.
05. 25. 45. 65.
06. 26. 46. 66.
07. 27. 47. 67.
08. 28. 48. 68.
09. 29. 49. 69.
10. 30. 50. 70.
11. 31. 51. 71.
12. 32. 52. 72.
13. 33. 53. 73.
14. 34. 54. 74.
15. 35. 55. 75.
16. 36. 56. 76.
17. 37. 57. 77.
18. 38. 58. 78.
19. 39. 59. 79.
20. 40. 60. 80.

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