FATHER SATURNINO URIOS UNIVERSITY

FINANCIAL ACCOUNTING AND REPORTING

REVIEW MATERIAL #5
LIABILITIES a. Discount the amount expected cash outflows that
are necessary to liquidate the liability using the
1. Which is not considered a characteristic of a liability? market rate of interest at the date the liability was
a. Present obligation initially incurred
b. Arises from past events b. Discount the amount of expected cash outflows
c. Results in an outflow of resources that are necessary to liquidate the liability using the
d. Liquidation is reasonably expected to require use market rate of interest at the date of the financial
of existing resources classified as current assets statements
2. For a liability to exist c. Record as liability the amount of cash that would be
a. A past transaction or event must have occurred required to pay the liability in the ordinary course of
b. The exact amount must be known business on the date if the financial statements
c. The identity of the party owed must be known d. Record as liability the amount of cash actually
d. An obligation to pay cash in the future must exist received when a liability was incurred
3. Which of the following represents a liability? 11. The accrual approach in accounting for product warranty
a. The obligation to pay for goods that an entity cost
expects to order from suppliers next year a. Is required for income tax purposes
b. The obligation to provide goods that customers b. Is frequently justified on the basis of expediency
have ordered and paid for during the current year when warranty cost is material
c. The obligation to pay interest on a 5-year note c. Find the expense account being charged when the
payable that was issued at year-end seller performs in compliance with the warranty
d. The obligation to distribute an entity’s own shares d. Represents accepted practice and should be used
next year as a result of a share dividend whenever the warranty is an integral and
4. Which does not meet the definition of a liability? inseparable part of the sale
a. The signing of a 3-year employment contract at a 12. Provisions shall be recognized for all of the following,
fixed annual salary except
b. An obligation to provide goods or services in the a. Cleaning-up costs of contaminated land when an oil
future entity has a published policy that it will undertake to
c. A note payable with no specified maturity date clean-up all contamination that it causes
d. An obligation that is estimated in amount b. Restructuring costs after a binding sale agreement
5. Which is a characteristic of a current liability but not a has been signed
noncurrent liability? c. Rectification costs relating to defective products
a. Unavoidable obligation sold
b. Present obligation that entails settlement by d. Future refurbishments costs due to introduction
probable future transfer of cash, goods or services of a new computer system
c. Settlement is expected within the normal 13. Which of the following is the correct definition of a
operating cycle or within 12 months, whichever is provision?
longer a. A possible obligation arising from past events
d. The obligating event creating the liability has b. A liability of uncertain timing or amount
already occured c. A liability which cannot be easily be measured
6. What is the relationship between current liabilities and an d. An obligation to transfer funds to an entity
operating cycle? 14. A provision shall be recognized as a liability under which of
a. Liquidation of current liabilities is reasonably the following conditions?
expected within the operating cycle or one year, a. The entity has a present obligation, legal or
whichever is longer constructive, as a result if a past event
b. Current liabilities are the result of operating b. It is probable that an outflow of resources
transactions embodying economic benefits would be required
c. Current liabilities cannot exceed the amount to settle the obligation
incurred in one operating cycle c. The amount of obligation can be measured
d. There is no relationship between the two reliably
7. Which is not an acceptable presentation of current d. All of these
liabilities? 15. A legal obligation is an obligation that is derived from all of
a. Listing current liabilities in the order or maturity the following, except?
b. Listing current liabilities according to amount a. Legislation
c. Offsetting current liabilities against assets that are b. A contract
to be applied to their liquidation c. Other operation of law
d. Showing current liabilities in the order of liquidation d. An established pattern of past practice
preference 16. Provisions are accrued because the likelihood of an
8. Which of the following should be included in current unfavorable outcome is
liabilities? a. Virtually certain
a. Trade notes payable b. Greater than 50%
b. Short-term zero-interest bearing note payable c. At least 75%
c. Unearned revenue d. Possible
d. All of these are included in current liabilities 17. A contingent liability
9. According to PAS 37, which two of the following best a. Definitely exists as a liability but the amount and
describes the sources of legal obligation? due date are indeterminable
A legal obligation is an obligation that derives from b. Is accrued even though not reasonable
A - legislation estimated
C - a published policy c. Is the result of a loss contingency
B - contract d. Is not recognized in the financial statements
D - an established pattern of past practices 18. It is possible asset that arises from past event and whose
a. A and B existence will be confirmed only by the occurrence or non-
b. A and C occurrence of one or more uncertain future events not
c. C and D wholly within the control of the entity
d. C and B a. Contingent asset
10. The conceptually appropriate method of measuring a b. Intangible asset
liability is to c. Goodwill

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 FATHER SATURNINO URIOS UNIVERSITY
FINANCIAL ACCOUNTING AND REPORTING
REVIEW MATERIAL #5
d. Other asset
19. Which of the following is the proper way to report a
probable contingent asset?
a. As an asset
b. As deferred revenue
c. As a disclosure only
d. No disclosure or accrual required
20. Which is the proper way to report a contingent asset,
receipt of which is virtually certain?
a. As an asset
b. As unearned revenue
c. As a disclosure only
d. No disclosure only
21. It is an event that create a legal or constructive obligation
because the entity has no other realistic alternative but to
settle the obligation
a. Event after reporting period
b. Adjusting event
c. Nonadjusting event
d. Obligating event
22. Where there is a continuous range of possible outcomes
and each point in that range is as likely as any other, the
range to be used is the
a. Minimum
b. Maximum
c. Midpoint
d. Summation of the minimum and maximum
23. When the provision involves a large population of items,
the best estimate of the amount
a. Reflects the weighting of all possible outcomes
by their associated probabilities
b. Is determined as the individual most likely
outcome
c. Is the individual most likely outcome adjusted
for the effect of other possible outcomes
d. Midpoint of the possible outcomes
24. When the provision arises from a single obligation, the
best estimate of the amount
a. Reflects the weighing of all possible outcomes by
their associated probabilities
b. Is determined as the individual most likely
outcome
c. Is the individual most likely outcome adjusted
for the effect of other possible outcomes
d. Midpoint of the possible outcomes
25. Which statement is incorrect where some or all of the
expenditure required to settle a provision is expected to
be reimbursed by another party?
a. The reimbursement shall be recognized only
when it is virtually certain that the
reimbursement would be received if the entity
settles the obligation
b. The amount of the reimbursement shall not
exceed the amount of the provision
c. The expense relating to the provision may be
presented net of the reimbursement
d. The reimbursement shall not be treated as a
separate asset and therefore netted against the
estimated liability for the provision
26. After initial recognition, bonds payable shall be measured
at
a. Amortized cost using the effective interest method
b. Fair value through profit or loss
c. Either amortized cost using the effective interest
method or fair value through other comprehensive
income
d. Either amortized cost using the effective interest
method or fair value through profit or loss
27. The amortized cost of bonds payable means
a. Face amount plus premium on bonds payable
b. Face amount minus discount on bonds payable
c. Face amount minus bond issue cost
d. Face amount plus premium on bonds payable,
minus discount on bonds payable and minus bond
issue cost
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28. What is the interest rate written on the face of the bond?
a. Coupon rate
b. Nominal rate
c. Stated rate
d. Coupon rate, nominal rate, stated rate
29. What is the rate of interest actually incurred?
a. Market rate
b. Yield rate
c. Effective rate
d. Market, yield or effective rate
30. It is a contract in which the unavoidable costs of meeting
the obligations under the contract exceed the economic
benefits to be received under the contract
a. Onerous contract
b. Executory contract
c. Executed contract
d. Sale contract
31. The unavoidable costs under an onerous contract
represent the “least net cost of exiting from the contract”
which is equal to the
a. Cost of fulfilling the contract
b. Penalty arising from failure to fulfil the contract
c. Lower of cost fulfilling the contract or the
penalty from failure to fulfil the contract
d. Higher of cost fulfilling the contract or the
penalty from failure to fulfil the contract
32. A structured program that is planned and controlled by
the management that materially changes the scope of a
business or the manner in which that business in
conducted
a. Restructuring
b. Liquidation
c. Recapitalization
d. Corporate revamp
33. Events that qualify as restructuring include all of the
following, except
a. Sale or termination of business
b. Closure of business location or relocation of
business from one location to another
c. Change in management structure such as
elimination of a layer of management
d. Fundamental reorganization that has an
immaterial and insignificant impact on
operations
34. Which is a cost of restructuring?
a. Cost of retraining or relocating continuing staff
b. Marketing or advertising cost
c. Investment in new system and distribution
network
d. Cost if relocating business activities from one
location to another
35. A bond convertible by the holder into a fixed number of
ordinary shares of the entity is
a. A compound financial instrument
b. A primary financial instrument
c. A derivative financial instrument
d. An equity
36. A compound financial instrument shall be classified as
a. Financial liability
b. Equity
c. Either financial liability or equity based on
predominant characteristics
d. Separately as financial liability and equity
37. How are the proceeds from issuing a compound
instrument allocated between the liability and equity
component?
a. First, the liability component is measured at fair
value, and then the remainder of the proceeds
is allocated to the equity component
b. The proceeds are allocated to the liability and
equity based on relative fair value
c. The proceeds are allocated to the liability and
equity based on carrying amount
d. The proceeds are not allocated because the
compound instrument is accounted for either as
liability or equity
 FATHER SATURNINO URIOS UNIVERSITY
FINANCIAL ACCOUNTING AND REPORTING
REVIEW MATERIAL #5
38. These instruments provide the holder with the contractual
right to receive payments on account of interest at fixed
dates extending into the indefinite future, either with a
right or no right to a return of principal
a. Perpetual debt instruments
b. Compound financial instruments
c. Derivative financial instruments
d. Financial instruments
39. The proceeds from the sale of a bond will be equal to
a. The face amount of the bond
b. The present value of the face amount of the
bond plus the present value of the interest
payments
c. The face amount of the bond plus the present
value of the interest payments
d. The sum of the face amount of the bond and the
periodic interest payments
40. Which is true when the effective interest method of
amortizing bond discount is used?
a. Interest expense varies from period to period
b. Interest expense remains constant for each
period
c. Interest expense increases each period
d. The interest rate decreases each period
41. Under the effective interest amortization, the periodic
interest expense us equal to
a. The stated rate of interest multiplied by the face
value of the bonds
b. The market rate of interest multiplied by the
face value of the bonds
c. The stated rate multiplied by the beginning
carrying amount of bonds payable
d. The market rate multiplied by the beginning
carrying amount of bonds payable
42. Bearer bonds are
a. Bonds for which the owners’ names are not
registered with the issuer
b. Bonds that are unsecured
c. Bonds that pay no interest unless the issuer is
profitable
d. High-risks and high-yield issued by heavily
indebted or weak entities
43. Under IFRS, a lessee is required to recognize
a. Right of use asset and lease liability
b. Right of use asset only
c. Lease liability only
d. Right of use asset and sometimes a lease liability
44. The lessee may apply the operating lease model under
a. Short term lease
b. Low value lease
c. Both short term lease and low value lease
d. Under all circumstances
45. The right of use asset is reported as
a. Noncurrent as separate line item
b. PPE
c. Intangible asset
d. Investment property
46. The accounting concept that is principally used to classify
leases into operating and finance is
a. Substance over form
b. Prudence
c. Neutrality
d. Completeness
47. It is a contract that transfers substantially all the risks and
rewards incidental to ownership of an asset, although title
may or may not eventually be transferred
a. Lease
b. Finance lease
c. Operating lease
d. Lease purchase
48. It is the date on which the lessee is entitled to exercise its
right to use the leased asset
a. Inception of the lease
b. Commencement of the lease
c. Date of lease agreement
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d. Date of commitment to the provision of the
lease
49. Which of the following dates is used to identify the
inception of the lease?
a. The date of the lease agreement
b. The date of the commitment by the parties to
the principal provisions of the lease
c. The earlier of the date of the lease agreement
and the date of commitment by the parties to
the principal provisions of the lease
d. The later of the date of the lease agreement and
the date of commitment by the parties to the
principal provisions of the lease
50. Which of the following statements is correct regarding the
lease capitalization criteria?
a. The lease transfers ownership of the underlying
asset to the lessor
b. The lease contains a purchase option
c. The lease term is equal to at least 75% of the
economic life of the underlying asset
d. The lease payments are at least 90% of the fair
value of the underlying asset
51. All of the following would normally lead to a finance lease,
except
a. The lease transfers ownership of the asset to the
lessee at the end of the lease term
b. The lessee has the option to purchase the asset
at a price that is expected to be approximately
equal to the fair value at exercise date
c. The lease term is for a major part of the
economic life of the asset even if the title is not
transferred
d. The present value of the minimum lease
payments amounts to at least substantially all
of the fair value of the asset at the inception
date of the lease
52. All of the following could lead to a finance lease, except
a. The leased asset is of specialized nature such
that only the lessee can use it without major
modifications
b. If the lessee cancels the lease, the lessor’s losses
associated with the cancelation are borne by the
lessee
c. Gains and losses from the fluctuation in the fair
value of the residual fall to the lessee
d. The lessee has the ability to continue the lease
for a secondary period at a rent which is
substantially the same as the market rent
53. The lessee shall recognize a finance lease as asset and
liability at an amount equal to the
a. Fair value at the leased asset
b. Present value of the minimum lease payments
c. Fair value of the leased asset or present value
of the minimum lease payments, whichever is
lower
d. Fair value of the leased asset or present value of
the minimum lease payments, whichever is
higher
54. It is that portion of the lease payments that is not fixed in
amount but is based in the future amount of a factor that
changes other than the passage of time
a. Contingent rent
b. Executory cost
c. Bargain purchase option
d. Accrued rent
55. The minimum lease payments include all of the following,
except
a. Rental payments over the lease term
b. Any amount guaranteed by the lessee or by a
party related to the lessee
c. Payment required to exercise an option on the
part of the lessee to purchase the asset at a price
which is expected to be sufficiently lower than
the fair value at the exercise date
d. Costs for services and taxes to be paid by and
reimbursed to the lessor
 FATHER SATURNINO URIOS UNIVERSITY
FINANCIAL ACCOUNTING AND REPORTING
REVIEW MATERIAL #5
56. It is that portion of the residual value of the leased asset, c. Fair value of the leased asset or present value
the realization of which by the lessor is not assured or is of the minimum lease payments accruing to the
guaranteed solely by a party related to the lessor lessor, whichever is lower
a. Residual value d. Fair value of the leased asset or present value of
b. Guaranteed residual value the minimum lease payments accruing to the
c. Unguaranteed residual value lessor, whichever is higher
d. Minimum lease payment 65. Lease payments under an operating lease shall be
57. Initial direct cost incurred by the lessee in a finance lease recognized as expense using the
are a. Cash method
a. Expensed immediately b. Sum of year’s digits method
b. Added to the amount recognized as an asset c. Declining balance method
c. Added to the finance lease liability d. Straight line method, unless another systematic
d. Charged to retained earnings basis is representative of the time pattern of
58. A lessee with a finance lease containing a bargain the user’s benefit
purchase option should be depreciate the leased asset 66. Initial direct costs incurred by a lessor in an operating
over the lease should be
a. Asset’s remaining economic life a. Added to the carrying amount of the leased
b. Term of the lease asset and recognized as expense over the lease
c. Life of the asset or the term of the lease, term in the same basis as lease income
whichever is shorter b. Expensed immediately
d. Life of the asset or the term of the lease, c. Capitalized as cost of the leased asset and
whichever is longer depreciated over the life of the asset
59. A cancellable lease is deemed noncancelable under all of d. Capitalized as cost of the leased asset and
the following conditions, except depreciated over the lease term
a. The lease can be cancelled only upon the 67. It is the net profit or loss for a period before deducting tax
occurrence of a remote contingency expense
b. The lease can be cancelled without the a. Accounting profit
permission of the lessor b. Taxable profit
c. The lessee, upon cancelation, enters into a new c. Gross profit
lease for the same or an equivalent asset with d. Net profit
the same lessor 68. It is the profit for a period determined in accordance with
d. The lease can be cancelled only upon payment of the rules established by taxation authorities upon which
a penalty if such magnitude that the lessee shall income taxes are payable
be discourage from cancelling the lease a. Accounting profit
60. Initial direct costs incurred by a lessor in a sales type lease b. Taxable profit
are c. Net profit
a. Charged to unearned income in the first period d. Accounting profit before tax
of the lease term 69. It is the amount of income taxes payable in respect of
b. Charged to expense immediately when the taxable profit
selling profit is recognized a. Current tax expense
c. Deferred and allocated over the lease term in b. Tax expense
proportion to the recognition of rent revenue c. Deferred tax expense
d. Deferred and allocated over the lease term on a d. Deferred tax benefit
straight line basis 70. It is the aggregate amount included in the determination
61. Under a sales type lease, what is the meaning of “gross of profit or loss for a period in respect of current tax and
investment in the lease”? deferred tax
a. Present value of minimum lease payments a. Tax expense
b. Present value of minimum lease payments and b. Current tax expense
unguaranteed residual value c. Deferred tax expense
c. Absolute amount if the minimum lease payment d. Deferred tax benefit
d. Aggregate if minimum lease payments and 71. It is the amount attributed to an asset or liability for tax
unguaranteed residual value purposes
62. Lessors shall recognized asset held under a finance lease a. Carrying amount
as a receivable at an amount equal to b. Tax base
a. Gross investment in the lease c. Measurement
b. Net investment in the lease d. Taxable amount
c. Gross rentals 72. It is the income tax payable on future periods in respect of
d. Residual value, whether guaranteed or taxable temporary differences
unguaranteed a. Deferred tax liability
63. The interest rate implicit in the lease is the discount rate b. Deferred tax asset
that causes the aggregate of the present value of the c. Current tax liability
minimum lease payments and the unguaranteed residual d. Current tax asset
value to equal the 73. Deferred tax asset is the amount of income tax
a. Fair value of the leased asset recoverable in future periods in respect of
b. Fair value of the leased asset and initial direct a. Deductible temporary differences only
cost of the lessor b. Permanent differences
c. Fair value of the leased asset and initial direct c. Carryforward of unused tax losses
cost to the lessee d. Deductible temporary differences and carryforward
d. Gross investment in the lease of unused tax losses
64. The sales revenue recognized at the commencement of 74. A deferred tax asset shall be recognized when
the lease by a manufacturer or dealer lessor is equal to the a. It is probable that taxable income will be available
a. Fair value of the leased asset against which the deferred tax asset can be used
b. Present value of the minimum lease payments b. It is probable that accounting income will be available
accruing to the lessor against which the deferred tax asset can be used
c. It is possible that accounting income will be available
against which the deferred tax asset can be used

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 FATHER SATURNINO URIOS UNIVERSITY
FINANCIAL ACCOUNTING AND REPORTING
REVIEW MATERIAL #5
d. It is possible that taxable income will be available
against which the deferred tax asset can be used
75. An entity shall offset a deferred tax asset and deferred tax
liability
a. When the deferred tax asset and deferred tax liability
relate to income taxes levied by the same taxing
authority
b. When the entity has a legal enforceable right to offset
a current tax asset against a current tax liability
c. When the deferred tax asset and deferred tax
liability relate income taxes levied by the same
taxing authority and the entity has a legal
enforceable right to offset a current tax asset against
current tax liability
d. Under all circumstances
76. Initial direct costs incurred by a lessor in an operating
lease should be
e. Added to the carrying amount of the leased asset
and recognized as expense over the lease term in
the same basis as lease income
f. Expensed immediately
g. Capitalized as cost of the leased asset and
depreciated over the life of the asset
h. Capitalized as cost of the leased asset and
depreciated over the lease term
77. Which is correct about deferred tax assets and liabilities?
a. Current deferred tax assets are netted against current
deferred tax liabilities
b. All noncurrent deferred tax assets are netted against
noncurrent deferred tax liabilities
c. Deferred tax assets are never netted against deferred
tax liabilities
d. Deferred tax assets are netted against deferred tax
liabilities if the relate to the same tax authority
78. Justification for the method of determining periodic
deferred tax expense is based on the concept of
a. Matching of periodic expense to periodic revenue
b. Objectivity in the calculation of periodic expense
c. Recognition of asset and liability
d. Consistency of tax expense measurement with actual
tax planning strategies

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