1.

The reason goodwill is sometimes referred to as a master valuation account is because

a. the value of a business is computed without considerations of goodwill.
b. it represents the purchase price of a business that is about to be sold.
c. it is the only account in the financial statements that is based on fair value.
d. it is the difference between the fair value of the net identifiable assets as compared
with the purchase price of the acquired business.

2. Which of the following methods of amortization is normally used for intangible asset?
a. Double-declining balance.
b. Straight line.
c. Sum of the years’ digit.
d. Units of production.

3. Which of the following research and development related costs should be capitalized and
depreciated over current and future periods?
a. Inventory used for a specific research period.
b. Administrative salaried allocated to research and development.
c. Research findings purchased to aid a particular research project currently in process.
d. Research and development general laboratory building which can be put to
alternative use in the future.

4. Operating losses incurred during the start-up years of a new business should be
a. written off directly against retained earnings.
b. capitalized as a deferred charge and amortized over five years.
c. accounted for and reported like the operating losses of any other business.
d. capitalized as an intangible asset and amortized over a period not to exceed.

5. Which of the following statement is true about government grant?

a. Grant related to an asset is accounted for either as deferred income or deduction from
the carrying amount of asset.
b. Grant related to income is presented as other income, separate line item or a
deduction from the related expense.
c. A forgivable loan from government is treated as government grant where there is
reasonable assurance that the entity will meet the terms for the forgiveness of the loan.
d. All of these statements are true about government grant.

6. Which can be considered a government assistance?

a. Imposition of trading constraints on competitors.
b. Improved facilities, such as irrigation or water supply.
c. Free technical or marketing advice and provision of guarantee.
 d. Infrastructure by improvement to the general transport and communication network.

7. A cash generating unit is

a. the smallest business segment.
b. any group of assets that generates cash flows.
c. any group of assets that is reported separately to management.
d. the smallest group of assets that generates independent cash flows from continuing
use.

8. An impairment loss that relates to an asset that have been revalued should be recognized
in
a. profit or loss.
b. any reserve in equity.
c. opening retained earnings.
d. revaluation surplus that relates to the revalued asset.

9. Which of the following impairment losses should never be reversed?

a. Loss on goodwill.
b. Loss on inventory.
c. Loss on business segment.
d. Loss on property, plant and equipment.

10. Under PFRS 9, entities are required to measure financial assets either at fair value or
amortized cost based on all the following except,
a. the business model for managing financial asset.
b. whether the financial asset is a debt or equity investment.
c. the contractual cash flow characteristics of the financial asset.
d. all of these are considered in determining the measurement of the financial asset.

11. Which of the following statements is true?

a. The basic purpose of accounting is to provide information about economic activities
intended to be useful in making economic decisions.
b. All events and transactions of an entity are recognized the books of accounts.
c. General purpose financial statements are those statements that cater to the common and
specific needs of a wide range of external users.
d. The accounting process of assigning numbers, commonly in monetary terms, to the
economic transactions and events is referred to as classifying.

12. RA 9298 is officially known as

a. The Revised Accountancy Act
b. The Revised Accountancy Law
 c. The Philippine Accountancy Act of 2004
d. The Accountancy Law of the Philippines, 2007
13. Which of the following statements is incorrect regarding the basic accounting concepts?
a. One of ABC Co.’s delivery trucks was involved in an accident. Although no lawsuits
have yet been filed against ABC, ABC recognized a liability for the probable loss on
the event. This is an application of the prudence or conservatism concept.
b. Under the consistency concept, the financial statements should be prepared on the basis
of accounting principles which are followed consistently.
c. Under the entity theory, the business is viewed as a separate entity. Therefore, the
personal transactions of the business owners are not recorded in the business’
accounting records.
d. The time period concept means that financial statements are prepared only at the end
of the life of a business.

14. It is the branch of accounting that focuses on the general purpose reports of financial
position and operating results known as financial statements.
a. Financial accounting
b. Auditing
c. Managerial accounting
d. Taxation

15. Accounting has been given various definitions, which of the following is not one of those
definitions
a. Accounting is a service activity. Its function is to provide quantitative information,
primarily financial in nature, about economic entities that is intended to be useful in
making economic decisions.
b. Accounting is the art of recording, classifying, and summarizing in a significant manner
and in terms of money, transactions and events which are, in part of at least, of a
financial character and interpreting the results thereof.
c. Accounting is a systematic process of objectively obtaining and evaluating evidence
regarding assertions about economic actions and events to ascertain the degree of
correspondence between these assertions and established criteria and communicating
the results to interested users.
d. Accounting is the process of identifying, measuring, and communicating economic
information to permit informed judgment and decisions by users of information.

16. These are events that do not involve an external party.

a. external events
b. nonreciprocal
c. internal events
d. special event

17. What is the authoritative status of the Conceptual Framework?

a. It has the highest level of authority. In case of a conflict between the Conceptual
Framework and a Standard or Interpretation, the Conceptual Framework overrides the
Standard or Interpretation.
 b. If there is a Standard or Interpretation that specifically applies to a transaction, it
overrides the Conceptual Framework. In the absence of a Standard or an Interpretation
that specifically applies, the Conceptual Framework should be followed.
c. If there is a Standard or Interpretation that specifically applies to a transaction, it
overrides the Conceptual Framework. In the absence of a Standard or an Interpretation
that specifically applies to a transaction, management should consider the applicability
of the Conceptual Framework in developing and applying an accounting policy that
will result in information that is relevant and reliable.
d. The Conceptual Framework applies only when IASB develops new or revised
Standards. An entity is never required to consider the Conceptual Framework.

18. Which of the following statements is correct?

I. Accounting provides qualitative information, financial information, and quantitative
information.
II. Qualitative information is found in the notes to the financial statements only.
III. Accounting is considered an art because it is supported by an organized body of
knowledge
IV. Accounting is considered a science because it involves the exercise of skill and
judgment.
V. Measurement is the process of assigning numbers to objects such inventories or plant
assets and to events such as purchases or sales.
VI. All quantitative information is also financial in nature.
VII. The accounting process of assigning peso amounts or numbers to relevant objects and
events is known as identification.
a. I and V
b. I, II, VI and V
c. I, II, III, IV and V
d. II, VI and V

19. Imagine you are a business manager. You would be most awesome as a manager in which
of the following independent scenarios?
a. Your company has an average total assets of ₱10M during the year. At the end of the
year, your company reported profit of ₱1M. The average return of other similar
companies with the same level of assets is 30%.
b. Your adoption of accounting policy has led to the immediate recognition of expenses.
Those costs could have otherwise been allocated over several periods. Accordingly,
your company did not declare dividends during the period. This resulted to a decline in
the market value of your company’s stocks while the prices of all other stocks in the
stock market have increased.
c. You changed your company’s method of allocating costs from an accelerated method
to a straight-line method. The change met the requirements of the PFRSs. This led to
the smoothing of expenses, which increased your company’s profit during the period
by 12%, above the industry average.
d. You are great at closing deals, that’s why you’re a boss. Eager to increase your
company’s resources, you were able to obtain a ₱20M loan from a bank. Interest
 expense on the loan during the year was ₱3.4M while the return on investments of loan
proceeds was 2%.

20. Which of the following is not directly involved in the accounting standard-setting “due
process” in the Philippines?
a. Board of Accountancy
b. Bureau of Internal Revenue
c. Professional Regulations Commission
d. Financial Reporting Standards Council
21. Materiality judgment is least likely to be applied in which of the following?
a. in determining whether an item warrants separate presentation in the financial
statements or is to be aggregated with other items
b. in determining whether information could influence the decisions of users, and
therefore, must be presented in the financial statements
c. in determining whether the cost of processing and communicating information exceeds
the benefits expected to be derived from it
d. whether additional information needs to be provided, including the level of detail and
conciseness of the information’s presentation

22. The first step in the accounting cycle is to

a. Record transactions in a journal
b. Analyze transactions from source documents
c. Post journal entries to general ledger accounts
d. Adjust the general ledger accounts

23. The accounting equation must remain in balance.

a. Throughout each step in the accounting cycle.
b. Only when journal entries are recorded.
c. Only at the time the trial balance is prepared.
d. Only when formal financial statement are prepared.

24. An entity makes a change in accounting estimate. How does the entity recognize the effects
of the change in profit or loss?
a. Prospectively in the current period
b. Prospectively in the current and future periods
c. Retrospectively starting from the earliest period presented
d. a or b

25. Materiality does not make any difference with regard to

a. the separate presentation of items in the financial statements.
b. the disclosure of additional information in the notes.
c. intentional errors.
d. level of rounding-off of amounts in the financial statements.
26. According to PAS 10, dividends declared after the reporting period, but before the financial
statements are authorized for issue, are
a. recognized as liability at the end of reporting period.
b. not recognized as liability at the end of reporting period.
c. disclosed only as an adjusting event.
d. any of these.

27. At the end of the period, Entity A has deductible temporary difference of ₱100,000. Entity
A’s income tax rate is 30%. Entity A’s statement of financial position would report which
of the following?
a. 30,000 deferred tax asset
b. 30,000 deferred tax liability
c. 30,000 deferred tax expense
d. 30,000 income tax expense

28. Under PAS 10, which of the following is classified as an adjusting event rather than a
non-adjusting event?
a. The entity announced the discontinuance of its assembly operation.
b. The entity entered into an agreement to purchase the freehold of its currently leased
office building
c. Destruction of a major production plant by fire.
d. A mistake was discovered in the calculation of the allowance for uncollectible trade
receivables resulting to an understatement of the trade receivables.

29. Non-adjusting events after the balance sheet date should be disclosed if
a. they are unusual and material.
b. they related to conditions existing at the balance sheet date.
c. non-disclosure would affect the amounts presented in the financial statements.
d. non-disclosure would affect the ability of users of the financial statements to make
proper decisions.

30. All of the following can be classified as cash and cash equivalents, except
a. bank drafts
b. equity investments.
c. loan notes held due for repayment in 90 days.
d. redeemable preference shares acquired and due in 60 days.

31. A manufacturing company has which three basic types of inventory?

a. Perpetual, periodic and estimated.
b. Specific identification, FIFO and averaged cost.
c. Raw materials, work in process, and finished goods.
d. Finished goods, work-in-process, and ready-to-sell-merchandise.

32. The weighted-average inventory costing method is particularly suitable to inventory

where
a. homogenous products are mixed together.
 b. dissimilar products are stored in separate locations.
c. the entity carries stocks of raw materials, work-in-process and finished goods.
d. goods have distinct used-by dates and the goods produced first must be sold earliest.

33. PAS 2, Inventories, requires that when inventories are written down to net realizable
value, they are written-down
a. on a class-by-class basis.
b. on an item-by-item basis.
c. on the basis of industry segment.
d. according to the geographical segment within the entity.

34. You are a CPA and were engaged to audit the annual financial statements of ABC Co., a
mining company. Which of the following standards is most likely relevant to ABC Co.?
a. PFRS 4
b. PAS 34
c. PAS 41
d. PFRS 6

35. Entity A is preparing its first PFRS financial statements. Which of the following standards
is most relevant to Entity A?
a. PFRS 1
b. PAS 12
c. PAS 8
d. PFRS 9

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

a. The present value of the contractual cash flows less impairment.
b. Its quoted price, if an active market exists for the financial instrument.
c. Its cost, including transaction costs directly attributable to its purchase, origination or
issuance.
d. Its estimated value determined using discounted cash flow techniques, option pricing
models, etc.

37. The investor’s interest income for a period would be lowest if the bonds is purchased at
a. a discount
b. a premium
c. at the face value of the bonds
d. in between interest payment dates.

38. The equity method of accounting is specifically required for investment in

a. Associates.
b. FVOCI securities
c. amortized cost debt securities.
d. trading debt securities.

39. Under PFRS 9, which of the following is not a category of financial assets?
 a. Financial assets at amortized cost.
b. Financial assets at fair value through profit or loss
c. Financial assets at fair value through accumulated profit or loss
d. Financial assets at fair value through other comprehensive income.

40. The computation of employee retirement benefits expense is addressed in this standard.
a. PAS 17
b. PFRS 7
c. PAS 19
d. PFRS 9

41. Agricultural activity results in which of the following types of assets?

a. Biological assets only.
b. Agricultural produce only.
c. Both biological assets and agricultural produce.
d. Financial assets, contingent assets, and agricultural produce.

42. According to PAS 41, Agriculture, which of the following items would be classified as
biological asset?
a. Chickens.
b. Eggs.
c. Land in mango orchard.
d. Oranges.

43. Land that is related to agricultural activity is valued

a. at fair value.
b. at fair value in combination with the biological asset that is being grown on the
land.
c. at the resale value separate from the biological asset that has been grown on the
land.
d. in accordance with PAS 16, Property, Plant and Equipment, or PAS 40,
Investment Property.

44. Biological assets are measured at

a. cost
b. fair value less cost to sell
c. lower of cost or net realizable value
d. net realizable value

45. Non-current assets held for sale and discontinued operations are accounted for under
a. PFRS 4
b. PAS 41
c. PFRS 5
d. PFRS 8

46. Agricultural activities

 a. is the harvested product of the entity’s biological asset.
b. is the detachment of agricultural produce from a biological asset or the cessation
of a biological asset’s life processes.
c. is the management by an entity of the biological transformation of biological
assets for sale, into agricultural produce, or into another biological asset.
d. relates to the processes of growth, degeneration, production and procreation that
can cause changes of quantitative nature in a biological asset.

47. This standard deals with the recognition and measurement of financial instruments.
a. PAS 32
b. PFRS 7
c. PFRS 9
d. PFRS 3

48. Under PAS 41, any gain arising from the initial recognition of biological assets (e.g.,
when a calf is born) shall
a. recognized in the profit or loss.
b. recognized in the other comprehensive income.
c. not be recognized although note disclose is required.
d. deferred and amortized over the life of the biological asset.

49. A property developer must classify properties that it holds for sale in the ordinary course
of business as
a. financial asset.
b. inventory.
c. investment property.
d. property, plant and equipment.

50. Which of the following items is an example of investment property?

a. Property that is leased to another entity under a financial lease.
b. Property held for short-term sale in the ordinary course in business.
c. Property that is being constructed or developed on behalf of third parties.
d. Property that is being constructed or developed for future use as investment
property.

51. In case of property held under an operating lease and classified as investment property,
the entity
a. has to use the fair value model only.
b. has the choice between the cost model and the fair value model.
c. has to account for the investment property under the cost model only.
d. needs only to disclose the fair value and can use the cost model under PAS 38.