PHINMA EDUCATION

ACC 103 CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

FINAL EXAMINATION - SECOND SEMESTER- S.Y 2018-2019
Duration – 3 hours SET B

GENERAL INSTRUCTIONS: No examinees shall copy or refer to any solution, answer or work of another or allow
anyone to copy or refer to his work, nor in any manner help or ask the help of any person or communicate with any
person by means of words, signs, gestures, codes, and other similar acts which may enable him to exchange,
impart or acquire relevant information while the examination is in progress. Select the correct answer by shading
the letter of your choice on the answer sheet. STRICTLY NO ERASURES.

1 Which of the following is included as a component of financial statements?

a. A statement of retained earnings
b. Accounting policies
c. An auditor’s report
d. A director’s report

2 Which of the following information is not specifically a required disclosure in relation to financial
statements?
a. Name of the reporting entity or other means of identification and any change in that information
from previous year
b. Level of rounding used in presenting the financial statements
c. Names of major shareholders of the entity
d. Whether the financial statements cover the individual entity or a group of entities

3 Which of the following expenses is grouped according to its function?

a. Transport costs
b. Depreciation
c. Cost of goods sold
d. Employee benefits

4 Notes to financial statements

a. Must be quantifiable
b. Must qualify as an element
c. Amplify or explain items presented in the body of financial statements
d. B and C

5 Under PAS 2, which statement is true in relation to inventory?

a. If the quantity of goods held in inventory decreased during the period, the peso amount of ending
inventory cannot exceed the peso amount of beginning inventory
b. IFRS allows the reversal of an inventory write-down
c. The primary motivation behind LCNRV is consistency
d. All of these are true

6 Corolla Company incurred the following costs in relation to a certain product

Direct materials and labor 180,000
Variable production overhead 25,000
Factory administrative costs 15,000
Fixed production costs 20,000
What is the correct measurement of the product?
a. 205,000 B. 225,000 C. 195,000 D. 240,000

7 The primary purpose of a statement of cash flows is to provide relevant information about
a. Differences between net income and associated cash receipts and disbursements
b. An entity’s ability to generate positive net cash flows
c. The cash receipts and cash disbursements of an entity during the period
d. An entity’s ability to meet cash operating needs

8 The John Company sells its delivery truck in current year. The relevant information is given below:
Cost of delivery truck (purchased several years ago): ₱50,000
Book value of delivery truck: ₱10,000
Proceeds from sale of delivery truck: ₱8,000
Based on the above information, the investing activities section of the statement of cash flows of current
year would be affected by:
a. ₱10,000 b. ₱50,000 c. ₱8,000 d. ₱2,000

Page 1 of 11 CONCEPTUAL FRAMEWORKS SET B

 9 The following data belongs to Care Company:
Accounts receivable on December 31, 2016: ₱60,000
Accounts receivable on December 31, 2017: ₱40,000
Net sales during the year 2017 (70% are on credit): ` ₱200,000
Based on the above information, the net cash collected from customers by Care Co during the year 2017 is
a. ₱180,000 b. ₱220,000 c. ₱240,000 d. ₱160,000

10 SUFFUSE TO FILL Co. has a notes receivable earning interest. In which cash flow category does
SUFFUSE classify its interest received?
a. Operating activity
b. Financing activity
c. Investing activity
d. A or C

11 Under PAS 8, in the absence of an accounting standard that applies specifically to a transaction, what is
the most authoritative source in developing and applying an accounting policy?
a. The requirement and guidance in the standard or interpretation dealing with similar and related
issue
b. The Conceptual Framework
c. Most recent pronouncement of other standard-setting body
d. Accounting literature and accepted accounting industry practice

12 DOUBTLESS Company failed to accrue warranty cost of P40,000 on December 31, 2017. In addition, a
change from straight line to accelerated depreciation made at the beginning of 2018 resulted a cumulative
effect of P60,000 on retained earnings.
What pretax amount should be reported as a prior period error in 2018?
a. 60,000
b. 40,000
c. 100,000
d. 0

13 The following are examples of adjusting events according to PAS 10 Events after the Reporting Period,
except
a. The discovery of fraud or errors that indicate that the financial statements are incorrect
b. The determination after the reporting period of the cost of asset purchased, or proceeds from asset
sold, before the end of the reporting period
c. The determination after the reporting period of the amount of profit-sharing or bonus payments, if
the entity had a present legal or constructive obligation at the end of reporting period to make such
payments
d. Litigation arising solely from events occuring after the reporting period

14 Current liabilities include accrued fines and penalties with a carrying amount of P4,000. Fines and
penalties are deductible for tax purposes. Tax rate is 30%. How much is the tax base?
a. 4,000 b. 2,800 c. 1,200 d. 0

15 Which of the following statement is incorrect?

a. When there is no change in tax rates, pretax income, adjusted for permanent differences,
multiplied by the tax rate equals income tax expense
b. If there is deferred tax expense, then income tax expense is less than current tax expense
c. Current tax expense minus prepayments of income taxes equals income tax payable
d. Accounting income subject to tax minus increase in taxable temporary difference plus increase in
deductible temporary difference equals taxable income.

16 Are the following statements in relation to deferred tax true or false?

I. Deferred tax liabilities are the amounts of income taxes payable in future periods in respect of
deductible temporary differences
II. Deferred tax assets are the amounts of income taxes recoverable in future periods in respect of
deductible permanent differences.
a. False,False c. True,False
b. False, True d. True,True

17 The cost of property, plant and equipment comprises of the

following, except
a. Purchase price
b. Import duties and non-refundable purchase taxes
c. Any cost directly attributable in bringing the asset to the
location and condition for the intended use
d. Initial estimate of the cost of dismantling the asset for which
the entity has no present obligation

Page 2 of 11 CONCEPTUAL FRAMEWORKS SET B

 18 LETHERGY DROWSINESS Company acquired two items of equipment

Acquired a press at list price of P3,750,000 and trade discount of 20% subject to 5% cash discount which
was taken. Cost of freight and insurance during shipment were P50,000 and installation cost amounted to
P300,000.

Acquired a welding machine at an invoice price of P2,000,000 and trade discount of 15% subject to a 10%
cash discount which was not taken. Insurance cost for the year amounted to P100,000

Additional welding supplies were acquired at a cost of P100,000.

What is the total increase in the equipment account as a result of the transactions?
a. 4,900,000 b. 4,630,000 c. 4,730,000 d. 5,000,000

19 YAW TO SWERVE Co. disclosed that the depreciation policy on machinery is as follows:
No depreciation is taken in the year of acquisition
A full year depreciation is taken in the year of disposition
The estimated useful life is five years
The straight line method is used
On June 30, 2017, the entity sold for P2,300,000 a machine acquired in October 1, 2014 for P4,200,000.
The residual value was P600,000. What amount of gain on disposal should be recorded in 2017?
a. 440,000
b. 260,000
c. 620,000
d. 80,000

20 On January 1, 2011, BESEECH TO BEG Company purchased a new

building at a cost of P6,000,000. Depreciation was computed on the
straight line basis at 4% per year. On January 1, 2016, the building was revalued at a fair value of
P8,000,000. What is the revaluation surplus on January 1, 2016?
a. 3,072,000
b. 3,200,000
c. 3,040,000
d. 1,920,000

21 Which of the following may not be considered a qualifying asset?

a. A power generation plant that normally takes two years to
construct
b. An expensive private jet that can be purchased from a local
vendor
c. A toll bridge that usually takes more than a year to build
d. A ship that normally takes one to two years to complete

22 On January 1, 2016 SAVOR TASTE Co. borrowed P30,000,000 evidenced by a 3-year 10% note payable
and began construction of a cruise ship. Annual payments of principal and interest in the amount of
P13,000,000 are due every December 31. The entity used all the proceeds as down payment for
construction. The construction was completed on December 31, 2017.
What amount should be reported as interest expense related to the note in the income statement for 2018?
a. 3,000,000 b. 2,000,000 c. 1,000,000 d. 0

23 Which statement characterizes defined contribution plans as

compared with the defined benefit plans?
a. Defined contribution plans are less complex
b. The employee’s contribution is satisfied by making the
appropriate amount of periodic contribution
c. The investment risk is borne by the employer
d. Contributions are made in equal amounts by employer and employees

24 Information on CASTIGATE PUNISH Co.’s defined benefit plan is

shown below:
Fair value of plan assets, Jan. 1 8,000,000
Present value of defined benefit obligation, Jan. 1 6,000,000
Current service cost 2,400,000
Net loss on settlement of plan during the year 160,000
Actuarial losses during the period 80,000
Actual return on plan assets 960,000
Discount rate 10%
How much is the defined benefit cost?
a. 2,600,000 b. 2,440,000 c. 2,360,000 d. 2,040,000

Page 3 of 11 CONCEPTUAL FRAMEWORKS SET B

 25 Which of the following about PAS 26 is incorrect?
a. PAS 26 states that hybrid plans are considered defined contribution
plans
b. PAS 26 defines funding as the transfer of assets to an entity
(the fund)separate from the employer’s accounting entity to meet
future obligations for the payment of retirement benefits
c. PAS 26 is applied to the financial reporting of a fund whether or not such fund is created and regardless
of whether there are
trustees
d. All of the above statements are correct

26 In case of grant related to asset, which accounting treatment is prescribed?

a. Record the grant at nominal value in first year and write it off next year
b. Either set up the grant as deferred income or deduct the grant from the carrying amount of the
asset
c. Record the grant at fair value and take it to income next year
d. Record the grant as income immediately

27. On January 1, 2016 BESET To TROUBLE Co. received a grant of P25,000,000 from Philippine
government in order to defray safety and environmental costs within the area where the entity is located.
The safety and environmental costs are expected to be incurred over four years, respectively, P2,000,000,
P4,000,000, P6,000,000 and P8,000,000.
What amount of grant income should be recognized in 2018?
a. 5,000,000
b. 25,000,000
c. 7,500,000
d. 6,250,000

28. X trading purchased goods from Y, a company based in France for 1,200,000 Euros (€). The exchange
rate at this time is P1=€16. X paid 30 days later when the prevailing exchange rate is P1=€12.5. How much
is the foreign currency gain/(loss) on the books of X?
a. 21,000 forex gain
b. 21,000 forex loss
c. 4,200,000 forex loss
d. 0 forex gain or loss

29. Under PAS 21, what is the subsequent measurement of monetary items?
a. Closing rate
b. Transaction rate
c. Average rate
d. Monthly rate

30. PAS 21, provides that exchange differences (gain/loss) arising on the translation of foreign currency operation
shall be recognized in
a. Profit or loss
b. Other comprehensive income
c. Share premium
d. Retained earnings

31. According to PAS 29, which of the following are restated in case an entity’s functional currency is that of
hyperinflationary economy?
a. Physical assets
b. Intangible assets
c. Non-monetary assets
d. Monetary assets

32. According to PAS 27, which of the following entities is required to present separate financial statements?
a. A publicly-listed entity
b. A parent
c. An entity with an investment in associate
d. None of these

33. Which of the following provide evidence to support the existence of significant influence by an investor?
I. Representation on board of directors
II. Provision of essential technical information
III. Material transactions between the investor and the investee
IV. Interchange of managerial personnel
a. I and IV
b. I, II and III
c. I, II, and IV
d. I, II, III and IV
Page 4 of 11 CONCEPTUAL FRAMEWORKS SET B
 34. 51. OSTENTATIOUS SHOWY Co. had 100,000 ordinary shares outstanding. TARRY TO DELAY Co.
acquired 30,000 shares of OSTENTATIOUS SHOWY for P120 per share in 2014 representing 30%
interest.
Changes in retained earnings for OSTENTATIOUS SHOWY for 2016 and 2017 are as follows:
Retained earnings (deficit), January 1, 2016 (500,000)
Net income 2016 700,000
Retained earnings, December 31,2016 200,000
Net income 2017 800,000
Cash dividend paid on December 31, 2017 (400,000)
Retained earnings, December 31, 2017 600,000

What is the carrying amount of the investment in associate on December 31, 2016?
a. 3,660,000
b. 3,930,000
c. 3,780,000
d. 4,080,000

35. Which of the following will cause an increase on both investment in associate and investment income?
I. Share in associate’s profit
II. Share in associate’s dividends
III. Share in associate’s gain to be included in OCI
a. I only
b. I and III
c. III only
d. I, II and III

36. If an associate has outstanding non-cumulative preference shares held by outside interests, the investor
computes share of profit or loss
a. After adjusting for preference dividends which were actually paid during the year
b. Without regard for preference dividends
c. After adjusting for the preference dividends only when declared
d. After adjusting for the preference dividends, whether or not the dividends have been declared

37. It is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument
of another entity
a. Equity instrument B. Financial instrument C. Financial asset D. Financial liability

38. Which of the following is/are not financial instruments?

I. Cash and cash equivalents
II. Investments in associates and joint ventures
III. The entity’s own equity instrument
IV. Receivables
V. Security deposits and other returnable deposits
a. II and III B. III only C. III and V D. All are financial instruments

39. Present obligation may arise from either legal or constructive obligation. Legal obligation may arise from
a. Provisions of law C. Provisions of contracts
b. A or B D. Provisions of entity’s policy

40. How should the proceeds from the issuance of debt securities with detachable warrants be accounted for?
a. As debt only C. As warrants only
b. As either debt or warrants, but not as both D. As both debt and warrants

41. The following are taken from the records of LOYAL DISHONEST Co. as of year-end.
Accounts payable P 4,000
Utilities payable 7,000
Accrued interest expense 6,000
Advances from customers 1,000
Cash dividends payable 3,000
SSS contributions payable 2,000
Property dividends payable 2,500
Unearned rent 9,000
Warranty payable 10,000
Advances to customers 1,000
Callable preference shares issued 3,500
Redeemable preference shares issued 4,000
Share dividends payable 2,000

Determine the amount of financial liabilities to be disclosed in the notes.

a. 22,000 b. 24,000 c. 25,000 d. 23,000

Page 5 of 11 CONCEPTUAL FRAMEWORKS SET B

 42. PFRS 7 Financial Instruments: Disclosures applies to financial instruments that are within the scope
of what standard?
a. PFRS 10
b. PAS 19
c. PFRS 9
d. PFRS 2

43. PFRS 7 requires disclosure of the nature and extent of risks arising from financial instruments. Which of
the following is not included in this disclosure?
a. Qualitative and quantitative information about credit risk
b. Qualitative and quantitative information about liquidity risk
c. Qualitative and quantitative information about market risk
d. Qualitative and quantitative information about operational risk

44. For diluted EPS computation, dividends on convertible cumulative preference shares are
a. Deducted from profit for the period
b. Added to loss for the period only when declared
c. Added to loss for the period whether declared or not
d. Ignored

45. Which of the following may be used to approximate the value of one right?
a. (Market value of share selling right-on minus subscription price) divided by (number of rights
needed to purchase one share minus 1)
b. (Subscription price minus Market value of share selling right-on) divided by (number of rights
needed to purchase one share plus 1)
c. (Market value of share selling right-on minus subscription price) divided by (number of rights
needed to purchase one share plus 1)
d. (Subscription price minus Market value of share selling right-on) divided by (number of rights
needed to purchase one share minus 1)

46. An entity preparing interim financial statements should

a. Defer recognition of seasonal revenue
b. Use the same accounting principles followed in preparing the latest annual financial statements
c. Allocate revenue and expenses evenly over the quarters, regardless of occurence
d. Disregard permanent decreases in the market value of inventory

47. Which of the following statements is/are false?

I. If impairment indicators are present, the entity must conduct an impairment test
II. If the recoverable amount is lower than carrying amount, an impairment loss is recognized
III. If value in use is higher than carrying amount but fair value less cost of disposal is lower than
carrying amount, no impairment loss is recognized
IV. An impairment loss that relates to an asset that has been revalued shall be recognized in
revaluation surplus that relates to the revalued asset
a. II, III and IV
b. III only
c. III and IV
d. None of the above are false statements

48. Gold Company operates a production line which is treated as cash generating unit for impairment review
purposes. At year-end, the carrying amounts of the non-current assets are as follows:
Goodwill 1,300,000
Machinery 2,200,000
The value in use of the production line is estimated at P2,700,000 at this time while the fair value of the
production line amounted to P2,800,000. Cost to dispose the production line is P200,000.
What is the revised carrying amount of goodwill after recognition of impairment?
a. 500,000 B. 1,040,000 C. 600,000 D. 1,002,857

49. An item found in the books of MANDATE ORDER Co. which is not considered as a contingent liability is
a. A notes receivable discounted
b. An accommodation endorsement on a customer’s note
c. An estimated claim under service warranty sales
d. A possible additional compensation payable to farm laborers due to claim now under arbitration

50. RELIANT DEPENDENT Co. is being sued for illness caused to local residents as a result of negligence on
the company’s part in permitting the local residents to be exposed to highly toxic chemicals from its plant.
RELIANT’s lawyer states that it is probable that RELIANT will lose the suit and be found liable for a
judgment costing RELIANT anywhere from P500,000 to P2,500,000. However, the lawyer states that the
most probable cost is P1,000,000. As a result of the above facts, RELIANT should accrue
a. A loss contingency of P500,000 and disclose an additional contingency of up to P2,000,000
b. A loss contingency of P1,000,000 and disclose an additional contingency of up to P1,500,000
c. A loss contingency of P1,000,000 and not disclose any additional contingency
d. No loss contingency but disclose a contingency of P500,000 to P2,000,000
Page 6 of 11 CONCEPTUAL FRAMEWORKS SET B
 51. The following information relate to Merck Company. Company Merck’s statement of financial position date
is December 31, 2016. Assume that company Merck’s financial statements are authorized for issue on
March 31,2017.
• An amount of P350,000 owing to Company Z for services rendered during December, 2016.
• Long-service leave, estimated to be P5,000,000, owing to employees in respect of past services.
• Costs of P2,300,000 estimated to be incurred for relocating an employee from Merck’s head office
location to another city. The staff member will physically relocate during January 2017.
• Provision of P200,000 for the overhaul of a machine. The overhaul is needed every five years
and the machine was five years old as of December 30, 2016.
• Damages awarded against Merck Company resulting from a court case decided on December 20, 2016.
The judge has announced that the amount of damages will be set at a future date, expected to be in April
2017. Merck Company has received advice from its lawyers that the amount of the damages could be
anything between P4,000,000 and P5,000,000
How much is Merck Company’s provision in its December 31, 2016 statement of financial position?
a. 4,500,000 c. 9,850,000
b. 9,500,000 d. 12,000,000

52. Which is not an intangible asset?

a. Secret process
b. Subscription list
c. Non-competition agreement
d. Leasehold improvement

53. Humble Company incurred the following costs during 2017:

Quality control during commercial production, including routine
testing of products P500,000
Laboratory research aimed at discovery of new knowledge 700,000
Testing for evaluation of new products 300,000
Engineering follow-through in an early phase
commercial production 1,000,000
Adaptation of an existing capability to a particular requirement or
customer’s need as part of continuing commercial activity 200,000
Trouble-shooting in connection with breakdowns during
commercial production 800,000
Searching for application of new research findings 450,000
What was Humble Company’s research and development expense for 2017?
a. 2,150,000 c. 1,450,000
b. 700,000 d. 1,150,000

54. Which of the following does not qualify as investment property?

a. Land held for long-term capital appreciation rather than short-term sale in the ordinary course of
business
b. Property that is being conducted or developed for future use as investment property
c. Property that is leased to another entity under finance lease
d. Land held for a currently undetermined future use

55. Investment property is subsequently measured using

a. Cost model
b. Revaluation model
c. Either cost model or revaluation model
d. Either cost model or fair value model

56. Biological transformation comprises the processes of growth, degeneration, production, and procreation
that cause qualitative or quantitative changes in a biological asset. It may result in different type of
outcomes except which of the following?
a. Production of agricultural produce
b. Increase in quantity or improvement of an animal or plant
c. Decrease in the quantity or deterioration in quality of an animal or plant
d. Creation of additional living animals or plants

57. Which of the following is not within the scope of PAS 41, Agriculture?
a. Biological assets
b. Agricultural produce at the point of harvest
c. Unconditional government grant related to a biological asset
d. Land related to agricultural activity

58. Under PFRS 1, the first annual financial statements in which an entity adopts PFRS by an explicit and
unreserved statement of compliance with PFRS is called
a. PFRS financial statements C. First PFRS financial statements
b. Opening PFRS statement of financial position D.VFirst audited financial statements
Page 7 of 11 CONCEPTUAL FRAMEWORKS SET B
 59. An entity that presents first annual financial statements that conform with PFRS is known as
a. An originating entity C. A provisional presenter
b. A first time adopter D. An initial reporter

60. A first time adopter should prepare how many statements of financial position for two comparative
periods?
a. Two B. Three C. Four D. Five

61. If there are no vesting conditions, the fair value of employee share options
a. Is recognized immediately as expense and an increase in equity at grant date
b. Is recognized immediately as expense and an increase in liability at grant date
c. Is recognized as expense and increase in equity over the vesting period
d. Is recognized as expense and increase in liability over the vesting period

62. Are the following statements about share options granted to employees in exchange for their services true
or false, according to PFRS 2 Share-based Payment?
I. The services received should be measured at the fair value of the employee’s services
II. Fair value should be measured at the date options vest
a. False, False B. False, True C. True, False D. True, True

63. Which of the following is true regarding the requirements of PFRS 2?

a. Private companies are exempt
b. “Small” companies are exempt
c. Subsidiaries using their parent entity’s shares as consideration for goods and services are exempt
d. There are no exemptions from PFRS 2

64. According to PFRS 3, how does an acquirer account for negative goodwill?
a. as an asset
b. as a deferred credit (liability), but only after reassessment of the identifiable net assets acquired
c. as gain in profit or loss on the acquisition date
d. as gain in profit or loss in the period of business combination but only after reassessment of the
identifiable net assets acquired

64. On January 1, 20x1, ABC Co. acquired 75% interest in XYZ, Inc. for ₱2,500,000 cash. ABC Co. incurred
transaction costs of ₱250,000 for legal, accounting and consultancy fees in negotiating the business
combination. ABC Co. elected to measure NCI at the NCI’s proportionate share in XYZ, Inc.’s identifiable
net assets. The carrying amounts and fair values of XYZ’s assets and liabilities at the acquisition date were
as follows:
Assets Carrying amounts Fair values
Cash in bank 25,000 25,000
Accounts receivable 425,000 300,000
Inventory 1,300,000 875,000
Equipment – net 2,500,000 2,750,000
Goodwill 250,000 50,000
Total assets 4,500,000 4,000,000
Liabilities
Payables 1,000,000 1,000,000
How much is the goodwill (gain on a bargain purchase)?
a. 422,500 b. 278,500 c. 287,500 d. 264,500

65. Which of the following assets of an acquiree may not be included when computing for the goodwill
arising from a business combination?
a. capitalized kitchen utensils and equipment
b. intangible assets not previously recorded
c. research and development costs charged as expenses
d. goodwill recorded by the acquiree prior to the business combination

66. Entity X acquires 40% interest in Entity Y in a business combination. Entity X has previously equity
interest of 20% over Entity Y. The most relevant Standard to be applied to this transaction is
a. PAS 28 b. PAS 3 c. PFRS 5 d. PFRS 3

67. An entity shall classify a non-current asset held for sale or disposal group as held for sale when
a. The carrying amount of the asset or disposal group is recovered through a sale transaction
b. The carrying amount of the asset or disposal group is recovered through a continuing use
c. The non-current asset or disposal group is abandoned
d. The non-current asset or disposal group is idle or retired from active use

Page 8 of 11 CONCEPTUAL FRAMEWORKS SET B

 68. When an entity discontinued an operation and disposed of the discontinued operation, the transaction
should be reported in the income statement as
a. A prior period error
b. Other income and expense item
c. An amount after income from continuing operations and before net income
d. A bulk sale of plant assets included in income from continuing operations

69. Which is not a disclosure required in relation to exploration and evaluation expenditures?
a. Information about commercial reserve quantities
b. Accounting policy for exploration and evaluation expenditures
c. The amounts of assets, liabilities, income and expense, and operating and investing cash flows
arising from exploration and evaluation of mineral resources
d. Information that identifies and explains the amounts recognized in the financial statements

70. Which of the following is a peculiar characteristic of a joint arrangement?

a. significant influence b. joint control c. control d. joint venture

71. Which of the following is outside the scope of PFRS 12?

a. Investment in associate C. Investment in subsidiary
b. Investment in joint venture Held for trading securities

72. This PFRS provides a single framework for measuring the fair value of an asset, liability or equity when
other PFRSs require or permit measurement at fair value or fair value less costs to sell. It also
prescribes the disclosures related to fair value measurement.
a. PFRS 3 b. PAS 1 c. PFRS 9 d. PFRS 13

73. It is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date
a. Cost B. Carrying amount C. Fair value D. Fare value

74. According to PFRS 14, rate-regulation is

a. a framework for establishing the prices that can be charged to customers for goods or services and that
framework is subject to oversight and/or approval by a rate regulator.
b. the balance of any expense (or income) account that would not be recognized as an asset or a liability in
accordance with other Standards, but that qualifies for deferral because it is
included, or is expected to be included, by the rate regulator in establishing the rate(s) that can be charged
to customers.
c. an authorized body that is empowered by statute or regulation to establish the rate or a range of rates
that bind an entity. The rate regulator may be a third-party body or a related party of the entity, including
the entity’s own governing board, if that body is required by statute or regulation to set rates both in the
interest of the customers and to ensure the overall financial viability of the entity.
d. all of these

75. Arrange the following steps of revenue recognition in accordance with PFRS 15.
I. Identify the performance obligations in the contract
II. Recognize revenue when (or as) the entity satisfies a performance obligation
III. Determine the transaction price
IV. Identify the contract with the customer
V. Allocate the transaction price to the performance obligations in the contract
a. IV, I, V, III, II c. III, IV, I, V, II
b. IV, III, I, V, II d. IV, I, III, V, II

76. Certain criteria must be met before a contract with a customer is accounted for under PFRS 15.
Which of the following precludes a contract from being accounted for under PFRS 15?
a. The consideration is collected in advanced.
b. The contract is made orally.
c. The contract does not result to a change in the risk, timing or amount of the entity’s future cash flows.
d. The contract is neither oral nor written but rather implied by the entity’s business practices.

77. Certain criteria must be met before a contract with a customer is accounted for under PFRS 15. Which of the
following precludes a contract from being accounted for under PFRS 15?
A. The consideration is collected in advanced.
B. The contract is made orally.
C. The contract does not result to a change in the risk, timing or amount of the entity’s future cash flows.
D. The contract is neither oral nor written but rather implied by the entity’s business practices.

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 78. Which of the following is true concerning leases?
A. A lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of
payments the right to use an asset for an agreed period of time.
B. All leases shall be recognized as an expense on a straight line basis over the lease term unless another
systematic basis is more representative of the time pattern of the user’s benefit.
C. Any lease is actually a “lease purchase”.
D. All of the statements are correct.

79. It is a contract that transfers substantially all the risks and rewards incidental to ownership of an asset, although
title may or may not be eventually transferred.
A. Lease B. Finance lease C. Operating lease D.Lease purchase

80. Which is the correct accounting treatment for a finance lease in the accounts of a lessor?
A. Treat as a noncurrent asset equal to net investment in lease. Recognize all finance payments in income
statement.
B. Treat as a receivable equal to gross amount receivable on lease. Recognize finance payments in cash by
reducing debt.
C. Treat as a receivable equal to net investment in the lease. Recognize finance payments by reducing debt
and taking interest to income statement.
D. Treat as a receivable equal to net investment in the lease. Recognize payments in cash by reduction of
debt.

81. Any of the following will lead to a finance lease classification, except
A. Transfer of ownership
B. Leased asset is of ordinary nature
C. Bargain purchase option
D. Lease term is at least 75% of the useful life of the leased asset

82. PFRS 17 Insurance Contracts applies to

A. Insurance and reinsurance contracts issued by an insurer
B. Reinsurance contracts held by an insurer
C. Investment contracts with discretionary participation features issued by an insurer
D. PFRS 17 applies to all of the above-mentioned contracts.

83.The Philippine Financial Reporting Standards collectively include

A. PFRS corresponding to IFRS
B. PAS corresponding to IAS
C. Philippine Interpretations corresponding to IFRIC and SIC Interpretations and Interpretations developed by
PIC
D. All of these are included in the Philippine Financial Reporting Standards

84. What is the body authorized by law to promulgate rules and regulations affecting the practice of the
accountancy profession in the Philippines?
A. Board of Accountancy
B. Philippine Institute of Certified Public Accountants
C. Securities and Exchange Commission
D. Financial Reporting Standards Council

85. Statement I: is primarily concerned in processing historical data.

Statement II: Financial accounting deals with the needs of the management rather than strict compliance
with generally accepted accounting principles.
Statement III: External auditing refers to the examination of financial statements implemented by the
management with the purpose of expressing an opinion as to fairness of presentation and compliance with
GAAP.
Which statement is true?
A. I B. II C. III D. All of the statements are correct.

86. What accounting concept justifies the use of accruals and deferrals?
A. Going concern assumption C. Materiality constraint
B. Consistency characteristic D. Monetary unit assumption

87. When products or other assets are exchanged for cash or claims for cash, they are said to be
A. allocated. B. realized. C. recognized. D. earned.

88. Which is not an objective of financial reporting?

a. To provide information about assets and claims against those assets
b. To provide information about liquidation value of an entity
c. To provide information that is useful in assessing sources and uses of cash
d. To provide information that is useful in lending and investing decisions

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 89. Which of the following is not a direct user?
a. Financial press or reporting agency C. Customer
b. Taxing authority D. Potential owner

90. The users of financial statements under the Conceptual Framework include
I. Existing and potential investors
II. Employees
III. Lenders and other creditors
IV. Suppliers and other trade creditors
V. Customers
VI. Governments and their agencies
VII. Public
VIII. Professional accountants, including auditors
a. I and III b. I, II, III, IV, V, VI, VII c. I, II, III, IV, V, VI d. all of these

91. Which of the following relates to both relevance and reliability?

a. Timeliness B. Feedback value
c. Comparability d. Verifiability

92. What is the correct order of the four-step materiality process?

a. Identify, review, assess, organise C. Identity, organise, assess, review
b. Identify, assess, organise, review D. Identify, organise, review, assess

93. The following are enhancing qualitative characteristics, except

a. Timeliness B. Completeness C. Verifiability D. Neutrality

94. Which of the following statements is true about revenue?

a. An increase in a liability from incidental transactions.
b. An increase in an asset from incidental transactions.
c. A decrease in a liability from primary operations.
d. A decrease in an asset from primary operations.

95. An expiration of cost which is incurred without compensation or return and is not absorbed as cost of
revenue is called
a. Indirect cost b. Deferred charge c. Deferred credit d. Loss

VASSAL SERVANT Company provided the following account balances at year-end:

Cash P 1,100,000
Accounts Receivable 1,600,000
Inventory, including goods received on
consignment P200,000 3,200,000
Financial Asset at fair value through profit or loss 500,000
Bond investment at amortized cost 1,200,000
Investment in Associate 1,500,000
Equipment and Furniture 2,500,000
Accumulated Depreciation 1,500,000
Patent 400,000
Deferred Tax Asset, to be reversed next year 100,000
Equipment classified as held for sale 2,000,000
Financial Asset at fair value through OCI 500,000

96. What total amount should be reported as current assets at year-end

a. 8,000,000 B. 8,200,000 C. 8,300,000 D. 8,800,000

97. What total amount should be reported as non-current assets at year-end

a. 4,300,000 B. 5,700,000 C. 4,700,000 D. 4,800,000

98. This accounting concept justifies the usage of accruals and deferrals
a. Materiality B. Consistency C. Going concern D. Recognition principles

99. Which of the following is not a condition for standard fair presentation?
a. All tax laws are followed
b. Changes in generally accepted accounting principles have been appropriately disclosed
c. The information in the underlying records is properly reflected in the statements
d. Generally accepted accounting principles have been applied

“Your hardest times often lead to the greatest moments of your life. Keep going.
Tough situations build strong people in the end.”

Page 11 of 11 CONCEPTUAL FRAMEWORKS SET B