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48.

Which of the following statements about treasury shares true or false, according to PAS32
Financial Instruments:presentation?

(1) Treasury share purchases are recognized as financial assets.

(2) Any gain or loass on purchasing treasury shares is recognized in profit or loss.

Statement(1) Statement(2)

a. False False

b. False True

c. True False

d. True True

49. Are the following statements concerning the measurement of financial instruments after
initial recognition true or false, according to PAS 39 Financial Instruments: recognition and
measurement?

(1) Held-for-trading financial assets are measured at amortized cost.

(2) Held-to-maturity investments are measured at fair value.

Statement(1) Statement(2)

a. False False

b. False True

c. True False

d. True True

50. Are the following statements about dividend's true or false, according to PAS32 Financial
Instruments: presentation?

(1) Dividends in respect of ordinary shares are debited directly in equity.

(2) Dividends in respect of redeemable preference shares are debited directly in equity.

Statement(1) Statement(2)

a. False False

b. False True
c. True False

d. True True

51. The Freemade Company has issued the following two types of financial instrument to raise
capital:

(1) Convertible bonds which are redeemable for cash in five years time. The holders have the
right to request the issue of a fixed number of new ordinary shares in lieu of cash. The holders
have not yet indicated whther they will exercise the right to receive the new ordinary shares.

(2) Preference shares with no fixed date for redemption. The preference shares are redeemable
for cash at any time in the future at the option of Freemantle. Freemantle must give 6 months
written notice of its intention to redeem the preference shares and no notice has not yet been
given.

In accordnace with PAS32 Financial Instruments, presentation, the appropriate classificatiosn for
these financial instruments are Convertible bonds preference shares

a. Compound financial instrument Equity instrument

b. Financial Liability Compound financial instrument

c. Compound financial instrument Equity instrument

d. Financial Liability Compound financial instrument

52. The Proctor Company has 300 7% preference shares in issue. They are redeemable on 31
December 20X9. How will the preference shares and the related preference dividend be
presented in Proctor's financial statements for the years ended 31 December 20X6, according to
PAS32 Financial Instruments: presentation? Preference shares Preference dividend

a. Non-current liability Deducted from equity

b. Equity Deducted from equity

c. Equity Finance cost

d. Non-current liability Finance cost

53. The Greenday Company acquired 30,000 4% Government Bonds redeemable in 20X9 at the
quoted market price of P200. Greenday has no current intention to sell the Bonds and has a
policy to held them as investments unless certain corporate criteria are met and the bonds are
sold to maintain liquidity. In accordance with PAS39 Financial instruments: recognition and
measurement, which ONE of the following is the most appropriate classification for Greenday's
investment in the Government Bonds?
a. Held for trading

b. At fair value through profit or loss

c. Held for maturity

d. Available for sale

54. Are the following statements true or false, in accordance with PFRS7 Financial instruments:
disclosure?

(1) The carrying amount of held-to-maturity investments must be disclosed in the statement of
financial position.

(2) The amount of any impairment loss for each class of financial asset must be disclosed in the
statement of comprehensive income.

Statement(1) Statement(2)

a. False False

b. False True

c. True False

d. True True

55. The scope of PAS 39 includes all of the following except

a. Finacial instrument that meet the definition of a financial asset

b. Financial instrument that meet the definition of a financial liability

c. FInancial instrument issued by the entity that meet the definition of an equity instrument

d. Contracts to buy or sell non-financial items that can be settled net.

56. Which of the following is not a category of financial assets defined in PAS39?

a. Financial assets at fair value through profit or loss

b. Available-for-sale financial assets

c. Held-for-sale investments

d. Loan and receivable

57. All of the following are the characteristics of financial assets classified as held-to-maturity
investments except
a. They have fixed or determinable payments and a fixed maturity.

b. The holder can recover substantially all of its investment (unless there has been credit
deterioration)

c. They are quoted in an active market

d. The holder has a demonstrated positive intention and ability to hold to them to maturity.

58. What is the principle for recognition of a financial asset or a financial liability in PAS 39?

a. A financial asset is recognized when and only when, it is probable that future economic
benefits will flow to the entity and the cost or value of the instrument can be measured reliably.

b. . A financial asset is recognized when and only when, the enitity obtains control of the
instrument and has the ability to dispose of the financial assets independent of the actionof
others.

c. . A financial asset is recognized when and only when, the entity obtains teh risks and rewards
of ownership of the financial asset and has the ability to dispose the financial asset.

d. . A financial asset is recognized when and only when, the entity becomes a party to the
contractual provisions of the instrument

59. At what amount is a financial asset or financial liability measured on initial recognition?

a. Fair value. For items that are not measured at fair value through profit or loss, transaction
costs are also included in the initial measurement

b. The consideration paid or received for the financial asset of financial liability.

c. Acquisition cost, which is the consideration paid or received plus any directly attributable
transaction costs to the acquisition or issuance of the financial asset or financial liability

d. Zero

60. What is the best evidence of the fair value of a financial instrument?

a. Its cost, including transaction costs directly attributable to its purchase, origination or issuance

b. Its estimated value determined using discounted cash flow techniques, option pricing models,
etc.

c. Its quoted price,if an active market exists for the financial instrument

d. The present value of the contractual cash flows less impairment.

61. In which of the following circumstances is derecognition of a financial asset not appropriate?
a. The contractual rights the cash flows of the financial has expired

b. The financial asset has been transferred and substantially all the risks and rewards of the
ownership has also been transferred.

c. The financial asset has been transferred and the enitity has retained substantially all the risks
and rewards of ownership of the transferred asset.

d. The financial asset has been transferred and the entity has neither retained nor transferred
substantially all the risks and rewards of ownership of transferred asset. In addition, the entity
has lost control of the transferred asset.

62. In accordance with PFRS 7 Financial Instrument disclosures, which of the following best
describes the risk that an equity will encounter if it has difficulty in meeting obligations
associated with its financial liabilities?

a. Liquidity risk

b. Credit risk

c. Financial risk

d. Payment risk

63. In accordance with PFRS 7 Financial Instrument disclosures, which of the following best
describes the credit risk?

a. The risk that one party to a financial instrument will cause a financial loss for the other party
by failing to discharge an obligation

b. The risk that an entity will encounter difficulty in meeting obligations associated with financial
liabilities

c. The risk that the fair value associated with an instrument will vary due to changes in the
counterparty's credit rating

d. The risk that an entity's credit facilities will be withdrawn due to cash flow sensitivities

64. Are the following statements true or false according to PAS 32, Financial Statement
presentation?

(1) Transaction costs of issuing equity instruments are charged against income

(2) The components of a compound financial instrument are classified separately in accordance
with their substance

Statement(1) Statement(2)
a. False False

b. False True

c. True False

d. True True

65. In accordance with PFRS 7, Financial Instrument disclosures, which of the following are
components of market risk?

a. Credit risk and Currency risk

b. Currency risk and interest rate risk

c. Interest rate risk and Liquidity risk

d. Credit risk and Liquidity risk

66. The Amber Company acquired an available for sale financial instrument for P80 on March 31,
2010. The direct acquisition costs incurred were P14. On December 31, 2010, the fair value of
the instrument was P110 and the transaction costs that would be incurred on sale were
estimated at P12. Per PAS 39, what gain would be recognized in the financial statements for the
year ended, December 31, 2010?

a. Zero

b. P 4

c. P 16

d. P 42

68. The Scholari Company has issued the following two types of financial instruements to raise
capital.

(1) Convertible bonds which are redeemable for cash in five years time. The holders have the
right to request the issue of a fixed number of new ordinary shares in lieu of cash. The holders
have not yet indicated whether they will exercise the right to receive the new ordinary shares.

(2) Preference shares with no fixed date for redemption. The preference shares are redeemables
for cash at any time in the future at the option of the Scholari. Scholari must give 6 months
written notice of its intention to redeem the preference shares and no notice has not yet been
given.

In accordance with PAS 32 Financial Instruments presentation, the appropriate classifications for
these financial instruments are:
Convertible Bonds Preference Shares

a. Compound financial instrument Equity instrument

b. Financial Liability Compound financial instrument

c. Compound financial instrument Equity instrument

d. Financial Liability Compound financial instrument

69. The Verdi Company acquired 30,000, 4% Government Bonds redeemable in 2012 at the
quoted market price of P200. Verdi has no current intention to sell the bonds and has a policy to
hold them as investments unless certain corporate criteria are mt and the bonds are sold to
maintain liquidity. In accordance with PAS 39, Financial Instruments recognition and
measurement, which of the following is the most appropriate classification for Verdi's
investment in the Government Bonds?

a. Held for trading

b. Available for sale

c. Held to maturity

d. At fair value through profir or loss

70. Ysobelle Company has an account receivable from Silver Corp. of P55,000. Ysobelle also has
an account payable to Silver of P15,000. Local law allows the enforceable right of the recognized
amounts. It is however, not normal practice to settle the amounts net. At what amount should
the accounts receivable and account payable be presented in Ysobelle's Statement of Financial
Position per PAS 32?

Accounts Receivable Accounts Payable

a. P55,000 P15,000

b. P55,000 nil

c. P40,000 nil

d. nil P15,000

71. A compensating balance is best reflected by which of the following?

a. A savings account maintained at the bank equal to the amount of all outstanding loans

b. An amount of capital stock held in the company's treasury equal to outstanding laon
commitments
c. The portion of any demand deposit, time deposit, or certificate of deposit maintained by a
corporation which constitute support for existing borrowing arrangements of the corporation
with the lending institution.

d. A balance held in a time or demand deposit account that is equal to the interest currently due
on a loan

72. Which of the following is false?

a. Not all items included in cash constitute legal tender

b. Cash may be offset against a liability if the deposit of funds in a restricted account clearly
constitutes the legal discharge of the liability.

c. Petty cash fund of P5,000 composed of currency and coins of P1,400 and uinreplenished petty
cash vouchers of P3,600 should be shown in the current asset section at P1,400 only.

d. Marketable securities and commercial papers may be shown as part of cash provided this is
disclosed.

73. What is the proper accounting for credit card sales if the credit card company is

Affiliated with a bank Not affiliated with a bank

a. Sale on account Cash sales

b. Sale on account Sale on account

c. Cash sale Cash sale

d. Cash sale Sale on account

74. JB Company uses the allowance method in recognizing uncollectible accounts. Ignoring
deferred taxes, the entry to record the write-off of a specific uncollectible account

a. Affects neither net income not working capital

b. Decreases both net income and accounts receivable

c. Affects neither net income nor accounts receivable

d. Decreases both net income and working capital

75. Shakey's Co. uses the installment sales method to recognize revenue. Customers pay the
installment notes in 24 equal monthly amounts, which include 12% interest. What is the
installment notes receivable balance six months after the sale?

a. 75% of the original sales price


b. Less than 75% of the original sales price

c. The present value of the remaining monthly payments discounted at 12%

d. Less than the present value of the remaining monthly payments discounted at 12%

76. All but one of the following are required before a transfer of receivables can be recorded as a
sale

a. The transferred receivables are beyond the reach of the transferor and its creditors

b. The transferor has not kept effective control over the transferred receivables through a
replacement agreement

c. The transferor maintains continuing involvement

D. The transferee can pledge or sell the transferred receivable

77. A net unrealized loss on a company's available-for-sale portfolio of marketable equity


securities should be reflected in the current financial statements as

a. An extraordinary item shown as a direct reduction of retained earnings

b. A current loss resulting from holding marketable equity securities

c. A footnot or parenthical disclosure only

d. A valuation allowance and included in the equity section of the statement of financial position

78. In accordance with PAS 39, which among the following is not among the criteria in classifying
Financial Assets at fair value through profit or loss?

a. Acquired principally for the purpose of trading it in the near term

b. Designated by the entity upon initial recognition as at fair value through profit or loss

c. Non derivative financial assets with fixed or deternminable payments that are not quoted in
an active market

d. A derivative that meets the definition in PAS 39

79. MMR Company placed P1.5M in the money market for 60 days subject to pre-termination.
The P1.5M should be

a. Included as part of cash and cash equivalent with appropriate disaggregation in the notes to
the financial statements

b. Included as part of its marketable securities without need of any disclosure


c. Treated as short-term receivables with the appropriate disclosure in the notes to financial
statements

80. PAS 32 defines various risk terminologies. Which of the following definitions is (are) correct?

I. Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation
and cause the other party to incur a financial loss.

II. Liquidity risk (or funding risk) is the risk that an entity will encounter difficulty in raising funds
to meet commitments associated with financial instruments.

III. Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will
fluctuate because of changes in market interest rates

a. I and II only

b. I and III only

c. II and III only

d. I, II, III

81. Which of the following types of information is about exposure to risks arising from financial
instruments is not a rquired disclosure?

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

82. Which of the following liablities is a financial liability?

a. Deferred revenue

b. A warranty obligation

c. A constructive obligation

d. An obligation to deliver own shares worth a fixed amount of cash

83. What is the principle of accounting for a compound instrument (e.g., an issued convertible
debt instrument)?

a. The issuer shall classify a compound instrument as either a liability or equity based on an
evaluation of the predominant characteristics of the contractual arrangement.
b. The issuer shall classify the liability and equity components of a compound instrument
separately as financial liabilities, financial assets, or equity instruments.

c. The issuer shall classify a compound instrument as a liability in its entirety, until converted
into equity, unless the equity component is detachable and separately transferable, in which
case the liability and equity components shall be presented separately.

d. The issuer shall classify a compound instrument as a liability in its entirety, until converted into
equity.

INVENTORIES (PAS 2)

84. Costs excluded from cost of inventory and recognized as expenses in the period when
incurred are

a. Storage costs, unless necessary in the production process.

b. Borrowing costs incurred for inventories that requires a substantial period of time to bring
them to a salable condition

c. Foreign exchange differences which result from severe devaluation of a currency against which
there is no hedging and that effects liablilities directly arising from the recent acquisition of
inventories

d. Freight and handling costs in acquiring goods.

85. On November 4, 2010, Bona Company contracted to buy foreign goods requiring payment in
dollars one month after their receipt at Nova's factory. Title to the goods passed on December
15, 2010. The goods were still in transit on December 31, 2010. Exchange rates of the peso to
the dollar were P 34 and P 38, and P 40 on Nnov. 4, Dec 15, and Dec 31, respectively. According
to PAS 1, Nova should account for the exchange rate fluctuation in 2010 as

a. A loss included in net income from operating activities

b. A loss included in net income after operating activities but before net income from ordinary
activities.

c. An extraordinary loss

d. An gain included in net income after operating activities but before net income from ordinary
activities

86.Excel Corp. manufactures and sells paper envelopes. The stock of envelopes was included in
the closing inventory as of December 31, 2007, at a cost of P50 each per pack. During the final
audit, the auditors noted that the subsequent sale price for the inventory at January 15, 2008
was P40 each per pack. Furthermore, inquiry reveals that during the physical count, a water
leakage has created damages to the paper and the glue.
Accordingly, in the following, Excel has spent a total of P15 per pack for repairing and reapplying
glue to the envelopes. The net realizable value and inventory write-down (loss) amount to:

a. P 40 and P 10 respectively

b. P 45 and P 10 respectively

c. P 25 and P 25 respectively

d. P 30 and P 15 respectively

87. If the average retail inventory method is used, which of the following calculations would
include or exclude net markdowns?

Cost ratio Ending Invty. at retail

a. Include Include

b. Include Exclude

c. Exclude Include

d. Exclude Exclude

88. Losses which are expected to arise from firm and non-cancellable commitments for the
future purchase of inventory items, if onerous or material should be

a. Recognized in the accounts by debiting loss on purchase commitments and crediting


estimated liability for loss on purchase commitments

b. Disclosed in the notes to financial statements only

c. Ignored, because the contract is still executory, thus there are no values exchanges

d. Charged to retained earnings

89. In a perpetual inventory system, two entries are normally made to record each sales
transaction. The purpose is best described by which the following statements?

a. One entry records the purchase of merchandise and the other, records the sale.

b. One entry records the cost of goods gold and the other reduces the balance in the invetory
account.

c. One entry updates the subsidiary ledger, and the other updates the general ledger.

d. One entry recognizes the sales revenue the sales revenue and the other recognizes the cost of
goods sold
90. According to PAS 28, which of the following will not fall under the situation of "existence of
significant influence by an investor in the financial and operating policy decisions of the investee
but not control of these decisions"

a. Participation in policy making process

b. Material intercompany transactions

c. Power to govern the financial and operating policy decisions of an enterprise so as to obtain

d. Technological dependency

91. Delta Corp. purchased 7,400 shares of Maiden Company's common stock and classified it as
available for sale. The purchase price was P362,000, which is equal to 50% of Maiden Company's
retained earnings balance. Maiden Company's P46,000 shares of common stock are actively
traded. Delta should account for this using the

a. Cost method

b. Equity method

c. Cost method subject to fair value valuation in the balance sheet

d. Market value method subject to fair value valuation in the balance sheet

92. Arlene, Inc, owns 40% of the outstanding stock of Anthony Company, and opted to account
for its investment in Anthony under the equity method. During 2011, Arlenec received a P4,000
cash dividend from Anthony. What effect did this dividend have on Arlene's 2011 financial
statement?

a. Increased total assets

b. Decreased total assets

c. Increased income

d. Decreased investment account

93. Lino Co. received a cash dividend from a common stock investment. Should Lino report
increase in the investment account if it has classified the stock as vailable-for-sale or uses the
equity method of accounting?

Available for sale Equity method instrument

a No No

b. Yes Yes
c. Yes No

d. No Yes

94. Larry Coporation has bought a 25% share in Bing Company with a view to selling that
investment within six months. The investment has been classified as held for sale in accordance
with PFRS 5. How should the investment be treated in the final year accounts?

a. It should be accounted for under the equity method

b. The assets and liabilities should be presented separately from other assets in the balance
sheet as provided for under PFRS 5.

c. The investment should be dealt with under PAS 39

d. Purchase accounting should be used for this investment

95. PAS 28 does not require the equity method to be applied with an associate that has been
acquired and held with a view to its disposal within a certain time period. Per guidance from
PFRS 5, what is this time period within which the associate must be disposed of?

a. Six months

b. Twelve months

c. Two years

d. In the near future

96. On April 1, 2010 Becky, Inc. issued bonds which Joy Corp. purchased as a long term
investment between interest dates at a discount. Ignoring documentary stamp charges, broker's
commission and other expenses for the sale, how much cash should Joy pay Becky?

a. More than the face value of the bond

b. Less than the face value of the bond plus accrued interest

c. The same as the face value of the bond

d. The same as the face value of the bond plus accrued interest

INVESTMENT PROPERTY (PAS40)

97. Which TWO of the following statements best describe 'owner-occupied property' according
to PAS40 Investment property

A Property held for sale in the ordinary course of business

B Property held for use in the production and supply of goods and services
C Property held to earn rentals

D Property held for administrative purposes

a. A and B

b. B and C

c. C and D

d. B and D

98. Which ONE of the following terms best describes property held to earn rentals of for capital
appreciation?

a. Freehold property

b. Leasehold property

c. Owner-occupied property

d. Investment property

99. Under PAS 40 Investment property, which of the following additional disclosures must be
made when an entity chooses the cost model as its accounting policy for investment property?

a. The fair value of the property