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"What you get by achieving your goals is not as important as what you become by achieving your goals.

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1. Financial statements include a statement of financial position, a statement of comprehensive income and a statement of
changes in equity. According to the Preface to international financial reporting standards, which TWO of the following are
also included within the financial statements?
I. A statement of cash flows III. An auditor’s report
II. Accounting policies IV. A directors’ report
A. I and II C. II and III
B. I and III D. III and IV
Answer: A

2. Which of the following statements about financial statements is incorrect?


A. They show the results of the stewardship of management of the resources entrusted to it by the capital providers
B. They are the primary responsibility of both management and the external auditor after audit
C. They are prepared at least annually and are directed to the common information needs of a wide range of statement
users
D. They provide information about the financial position, performance and cash flows of an enterprise that is useful to a
wide range of users in making economic decisions.
Answer: B

3. How should trade discounts be dealt with when valuing inventories at the lower of cost and net realizable value (NRV)
according to PAS 2 Inventories?
A. Added to cost C. Deducted from, cost
B. Deducted in arriving at NRV D. Ignored
Answer: C

4. Which of the following is identified in the revised IASB Framework as underlying assumption regarding financial
statements?
A. The financial statements are reliable
B. The entity is viewed as a going concern
C. Changes of accounting policy are neutral
D. Approximations are made based on informed judgment
E. Where any conflict arises between the Framework and an accounting standard, the requirements of the Framework
shall prevail
Answer: B

5. Daniel is the owner and manager of Guidotti Landscaping Services. Daniel purchased a new station wagon for personal
use and a dump truck to be used in the business. Which of the following assumptions, principles, or constraints would be
violated if both station wagon and dump truck are recorded as assets of the business?
A. Materiality concept D. Continuity assumption
B. Prudence concept E. Separate entity assumption
C. Time Period
Answer: E

6. All of the following statements pertain to the concept of going concern or an asset of it, except
A. The cost of an inexpensive office equipment which has a life of three years is charged to expense
B. Accruals and deferrals are recognized in accounting for accountable events
C. Assets and liabilities are classified in the balance sheet as “current” and “ non-current”
D. Disclosure of an entity’s troubled-debt restructuring and dacion en pago in the notes to financial statements.
Answer: A

7. Is a term used to refer standard or/and interpretation in the Philippines


A. PFRSs C. PASs E. PSAs
B. GAAP D. pronouncements
Answer: A

8. The amended term of the cash flow statement is


A. The same (cash flow statement) C. Statement of Cash Flows E. Statement of Net Cash Flows

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B. Statement of Cash D. Statement of Fund Movements
Answer: C

9. The FRSC has adopted most IFRSs, in some cases with modifications, and in some cases the most recent amendments to
IFRSs have not been adopted. These standards are known as Philippine Financial Reporting Standards (PFRSs) and
Philippine Accounting Standards (PASs). Philippine standards apply to all entities with public accountability. Publicly
Accountable Entities include
I. entities whose securities are listed in a public market or are in process of listing
II. all financial institutions including banks, insurance companies, security brokers, pension funds, mutual funds,
and investment banking entities
III. public utilities
IV. other economically significant entities, defined as total assets in 2004 of at least 250 million pesos or liabilities of
at least 150 million
A. I, II and III only C. I, III, and IV only E. I, II, III and IV
B. I, II and IV only D. II, III and IV only
Answer: E

10. The next statements talk about the PIC and interpretations. Evaluate them.
Statement No. 1 The Philippine Interpretations Committee's (PIC) function is to interpret the application of Philippine
Accounting Standards (PASs) and Philippine Financial Reporting Standards (PFRSs) and provide
timely guidance on financial reporting issues not specifically addressed in PASs and PFRSs, in the
context of the Conceptual Framework in Financial Reporting.
Statement No. 2 Interpretations are part of FRSC's authoritative literature.
Statement No. 3 Financial statements may not be described as complying with International Financial Reporting
Standards unless they comply with all the requirements of each applicable Standard and each
applicable Interpretation.
A. TRUE, FALSE, FALSE C. TRUE, TRUE, TRUE E. FALSE, TRUE, TRUE
B. TRUE, FALSE, TRUE D. TRUE, TRUE, FALSE
Answer: C

11. An asset is recognized when it is probable that any future economic benefit associated with the item will flow to the
entity. Which of the following is a form of future economic benefit from asset type inventory?
A. Usually cash through sale of ‘final’ product or service
B. Usually cash inflows independent from other assets
C. Cash or other financial assets received in exchange
D. All of the above
E. None of the above
Answer: C

12. Identify which type of asset does each description below refers to.
Statement I : These assets are used to generate cash returns or as a hedging instrument.
Statement II : These are for sale or used in production of items for sale or in services
Statement I Statement II
A. Intangible assets Property, Plant and Equipment
B. Inventories Non – current assets held for sale
C. Derivative instrument Indirect materials
D. Financial instruments Raw materials and Work in Process
E. Financial assets Inventories
Answer: E

13. Inventories are, (choose the incorrect one)


A. held for use in the production or supply of goods or services, for rental to others, or for administration purposes
B. materials to be used in the production for sale.
C. in the process of production for sale
D. held for sale in the ordinary course of business
E. supplies to be consumed in the production for sale
Answer: A

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14. Which condition is necessary for the recognition of a liability?
A. It is probable that an outflow of economic benefits will be required to settle an obligation
B. The amount of the obligation can be measured reliably
C. The amount of the obligation must be definite
D. It is probable that an outflow of economic benefits will be required to settle an obligation and the amount of
obligation can be measured reliably.
Answer: D

15. Which of the following statements about Equity is (are) correct?


I. Since equity is the excess of assets over liabilities, equity cannot be measured separately from the other
elements of the financial position.
II. Equity has no specific maturity date except upon liquidation
III. Income-related transactions as well as other comprehensive income transactions such as revaluation surplus and
unrealized holding gains and losses automatically affect equity.
A. I and II only C. II and III only
B. I and III only D. I, II, III
Answer: D

16. According to the Revenue recognition principles, which one of these activities do not generate revenue?
A. Permitting others to use enterprise resources
B. Sale of merchandise
C. Adjustment of revenue of prior periods
D. Disposing of investment in other entities
Answer :C

17. Which of the following would be matched with current revenue on a basis other than association of cause and effect?
A. Depreciation C. Sales commission
B. Cost of goods sold D. Warranty costs
Answer: A

18. Which of the following types of losses is excluded from the determination of current period net income?
A. Material losses resulting from early extinguishment of a company’s bonded indebtedness
B. Material losses resulting from adjustments specifically related to operations of prior years
C. Material losses resulting from unusual sales of assets not acquired for resale
D. Material losses resulting from the write-off of intangibles
Answer :B

19. Determine which of the following is/are within the scope of PAS 41
Dairy Cattle Harvested cane Cured Tobacco Carcass Carpet Milk
A. YES NO YES NO YES NO
B. YES YES NO YES NO YES
C. YES YES NO YES NO NO
D. YES NO NO YES NO YES
E. YES NO NO YES NO NO
Answer: B

20. The following statements relates to financial assets: Which statement/s is/are TRUE?
Statement I : Classification of financial assets into PFRS 9 is made primarily based on an entity’s business model.
Statement II : Embedded derivatives may reside in contracts other than financial instruments. Thus, judgment must be
applied to determine whether they are present in contracts.
Statement III: Financial assets subsequently measured at fair value should necessarily be assessed for impairment.
Statement IV: When management changes its intention of holding financial assets, reclassification is required.
A. I, II, and III only C. I and III only E. I, and IV only
B. I, II, and IV only D. I and II only
Answer: D

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21. Which accounting standard/s was/were superseded by Philippine Financial Reporting Standards for Small and Medium
Enterprises?
A. None C. SFAS 18 E. B and C
B. PAS 101 D. PAS 32
Answer: B

22. PAS 2, Inventories became formally effective when


A. January 1, 2007 C. January 1, 2005 E. July 1, 2006
B. July 1, 2005 D. January 1, 2006
Answer: C

23. PAS 41, Agriculture applies to


I. measurement and presentation in the financial statements of biological assets
II. accounting for land used in agricultural activities
III. initial recognition of biological assets and agricultural produce at the point of harvest
IV. accounting for biological assets and produce harvested of these assets not used in agricultural activities
V. accounting for processing of biological assets and agricultural produce
A. I, III, IV and V only C. I and III only E. I, II and III only
B. III, IV, and V only D. I, III and V only
Answer: C

24. Philippine Accounting Standard 18 is entitled,


A. Segment Reporting C. Revenue E. Presentation of Fin’l. Stmt’s.
B. Borrowing Cost D. Related Party Disclosure
Answer: C

25. The effective date of PFRS 13, Fair Value Measurement was on
A. January 1, 2011 C. July 1, 2012 E. July 1, 2013
B. January 1, 2012 D. January 1, 2013
Answer: D

26. Which of the following is not an objective of the International Accounting Standards Board (IASB)?
I. to develop, in the public interest, a single set of high quality, understandable, enforceable and globally accepted
financial reporting standards based upon clearly articulated principles. These standards should require high
quality, transparent and comparable information in financial statements and other financial reporting to help
investors, other participants in the world’s capital markets and other users of financial information make
economic decisions
II. to promote the use and rigorous application of those standards
III. to promote and facilitate adoption of IFRSs, being the standards and interpretations issued by the IASB, through
the convergence of national accounting standards and IFRSs
A. None C. II and III only E. I, II and III
B. II only D. III only
Answer: A

27. Which of the following statements relate to International Financial Reporting Standard (IFRS)?
I. IASB Standards are known as International Financial Reporting Standards.
II. All International Accounting Standards (IASs) and Interpretations issued by the former IASC and SIC continue to
be applicable unless and until they are amended or withdrawn.
III. Other financial reporting includes information provided outside financial statements that assists in the
interpretation of a complete set of financial statements or improves users' ability to make efficient economic
decisions.
IV. IFRS apply to individual company and consolidated financial statements.
A. I and II only C. I, II and IV only E. I, II, III and IV
B. I, II and III only D. I III and IV only
Answer: E

28. What is the official language of IASB discussion documents, exposure drafts, IFRSs, and Interpretations?

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A. English C. French E. Italian
B. German D. Dutch
Answer: A

29. Under the weighted average cost formula, the cost of each item is determined from the weighted average of the cost of
similar items at the beginning of a period and the cost of similar items purchased or produced during the period. The
average may be calculated on a periodic basis, or as each additional shipment is received. The latter refers to:
A. FIFO C. Simple average E. LIFO
B. Specific Identification D. Moving average
Answer: D

30. Which of the following statements about measurement in accounting is (are) true?
I. All assets must be initially recognized at historical cost, but the final valuation can be a mixture of costs and
other values
II. Current selling price and net realizable value differ conceptually
III. According to PAS 29. Hyper-inflationary Economy, only non-monetary items are restated to current price – level
amounts in the balance sheet
A. Only I is true C. Only II is true
B. II and III are true D. All statements are true
C. All statements are false
Answer: B

31. IFRS 13, defines active market as


A. The market that maximizes the amount that would be received to sell the asset or minimizes the amount that would
be paid to transfer the liability, after taking into account transaction costs and transport costs.
B. A market in which transactions for the asset or liability take place with sufficient frequency and volume to provide
pricing information on an ongoing basis
C. The market with the greatest volume and level of activity for the asset or liability
D. A market where initial public offering transaction occurs.
E. None of the definition above describes active market
Answer: B

32. The price that would be received to sell an asset or paid to transfer a liability, describes
A. Fair value C. Exit price E. Settlement price
B. Nominal price D. Exchange price
Answer: C

33. IFRS 13 seeks to increase consistency and comparability in fair value measurements and related disclosures through a
'fair value hierarchy'. The hierarchy categorizes the inputs used in valuation techniques into three levels. The hierarchy
gives the highest priority to
A. quoted prices in active markets for identical assets
B. unobservable inputs for the asset or liability
C. market-corroborated inputs
D. quoted prices for similar assets or liabilities in active markets
E. quoted prices for identical or similar assets or liabilities in markets that are not active
Answer: A

34. Level 2 inputs are inputs other than quoted market prices included within Level 1 that are observable for the asset or
liability, either directly or indirectly. Level 2 inputs include (CHOOSE THE EXCEPTION):
A. quoted prices for similar assets or liabilities in active markets
B. quoted prices for identical or similar assets or liabilities in markets that are not active
C. inputs that are derived principally from or corroborated by observable market data by correlation or other means
D. interest rates and yield curves observable at commonly quoted intervals
E. entity's own data, taking into account all information about market participant assumptions that is reasonably
available.
Answer: E

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35. An entity uses valuation techniques appropriate in the circumstances and for which sufficient data are available to
measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
The objective of using a valuation technique is to estimate the price at which an orderly transaction to sell the asset or to
transfer the liability would take place between market participants and the measurement date under current market
conditions. Three widely used valuation techniques are market approach, cost approach and income approach. Of the
following choices, which one describes income approach?
A. uses prices and other relevant information generated by market transactions involving identical or comparable
assets, liabilities, or a group of assets and liabilities
B. reflects the amount that would be required currently to replace the service capacity of an asset
C. converts future amounts (cash flows or income and expenses) to a single current amount, reflecting current market
expectations about those future amounts.
D. incorporates the economic state or condition
E. the use of current replacement cost
Answer: C

36. IFRS 13 disclosure requirements are differentiated on whether the measurements are recurring or nonrecurring. It is said
to be recurring when:
I. fair value measurements required or permitted by other IFRSs to be recognized in the statement of financial
position at the end of each reporting period.
II. fair value measurements that are required or permitted by other IFRSs to be measured in the statement of
financial position in particular circumstances.
A. I and II are correctly describe recurring C. I only
B. None of the 2 describes recurring D. II only
Answer: C

37. _____________________ describes the basic concepts that underlie the preparation and presentation of financial
statements for external users.
A. Philippine Accounting Standards D. Conceptual Framework
B. Philippine Financial Reporting Standards E. Generally Accepted Accounting Principles
C. Standing Interpretations
Answer: D

38. The Conceptual Framework for Financial Reporting addresses all of the following except:
A. the objective of financial reporting
B. the qualitative characteristics of useful financial information
C. the complete set of financial statements
D. the definition, recognition and measurement of the elements from which financial statements are constructed
E. concepts of capital and capital maintenance
Answer: C

39. The following declarations are subject to you assessment:


Statement No. 1 A reporting entity's economic resources and claims are reported in the statement of financial
position.
Statement No. 2 The changes in an entity's economic resources and claims are presented in the statement of
comprehensive income.
Statement No. 3 The changes in the entity's cash flows are presented in the statement of cash flows.
Statement No. 4 The changes in an entity's economic resources and claims not resulting from financial performance
is presented in the statement of changes in equity.
A. All statements are correct D. All except statement no. 3 are correct
B. All statements are incorrect E. All except statement no. 2 are correct
C. All except statement no. 4 are correct
Answer: A

40. The following statements relate to the qualitative characteristics of useful financial information, except
A. Relevance and faithful representation are the fundamental qualitative characteristics of useful financial information.
B. Comparability, verifiability, timeliness and understandability are qualitative characteristics that enhance the
usefulness of information that is relevant and faithfully represented.

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C. Materiality is an entity-specific aspect of relevance.
D. Financial reports are prepared for users who have less reasonable knowledge of business and economic activities and
who review and analyse the information with diligence.
E. General purpose financial reports represent economic phenomena in words and numbers,
Answer: D

41. Which of the following statements is/ are correct?


I. Gains represent increases in economic benefits and as such are no different in nature from revenue. Hence, they
are not regarded as constituting a separate element in the Conceptual Framework.
II. Expenses usually take the form of an outflow or depletion of assets such as cash and cash equivalents,
inventory, property, plant and equipment.
III. Losses represent decreases in economic benefits and as such they are no different in nature from other
expenses. Hence, they are not regarded as a separate element in the Conceptual Framework.
A. All statements are correct C. There are only 2 correct statements
B. All statements are incorrect D. There’s only 1 correct statement
Answer: A

42. Evaluate the next few statements:


Statement No. 1 Measurement involves assigning monetary amounts at which the elements of the financial
statements are to be recognized and reported.
Statement No. 2 Historical and current costs are the measurement bases most commonly used today, but it is
usually combined with other measurement bases.
Statement No. 3 The Conceptual Framework acknowledges that a variety of measurement bases are used today to
different degrees and in varying combinations in financial statements.
Statement No. 4 The Conceptual Framework includes concepts or principles for selecting which measurement basis
should be used for particular elements of financial statements or in particular circumstances.
A. All statements are correct C. There are only 2 correct statements
B. All statements are incorrect D. There are only 3 correct statements
C. There’s only 1 correct statement
Answer: C 1 and 3

43. The next three statements relate to inventory valuation. Evaluate them.
Statement No. 1 The cost of inventories shall be assigned by using the first-in, first-out (FIFO) or weighted average
cost formula. An entity shall use the same cost formula for all inventories even not having a similar
nature and use to the entity. FALSE
Statement No. 2 When inventories are sold, the carrying amount of those inventories shall be recognized as an
expense in the period in which the related revenue is recognized.
Statement No. 3 The amount of any write-down of inventories to net realizable value and all losses of inventories
shall be recognized as an expense in the period the write-down or loss occurs. The amount of loss
shall be presented as other operating expense. FALSE
Statement No. 4 The amount of any reversal of any write-down of inventories, arising from an increase in net
realizable value, shall be recognized as a reduction in the amount of inventories recognized as an
expense in the period in which the reversal occurs.
A. All statements are correct C. There are only 2 correct statements
B. All statements are incorrect D. There are only 3 correct statements
C. There’s only 1 correct statement
Answer: C

44. Costs of purchase that should be included in inventory cost (choose the correct one)
A B C D E
penalty charge for overdue payments NO NO YES YES NO
travel expenses of the purchasing department YES NO NO YES YES
forwarding charges for external transport NO YES YES YES YES
transport insurance YES YES NO YES YES
storage rental fee charged for intermediate storage NO YES NO YES NO
internal storage costs after receiving materials NO NO NO NO NO
internal transport between stock locations NO NO NO NO NO

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Answer: B

45. Items that should be capitalized as conversion cost of a manufacturing company (choose the correct one)
A B C D E
social security costs for staff in production YES NO YES YES NO
factory supplies, auxiliary material YES YES NO YES YES
external consulting (e.g. process reengineering) NO NO YES YES YES
depreciation of plant and machines YES YES YES YES YES
costs of scrap production (exceeds normal level) NO NO NO YES NO
rework of finished products (because of quality defects) NO YES YES YES NO
ordinary maintenance of the factory YES YES YES YES NO
Answer: A

46. This refers to the activities that comprise production and treatment of agricultural produce, processing of agricultural
produce, produced and treated by the entity, production and realization of foodstuff, and rendering services for
agriculture.
A. Agricultural production D. Agricultural activities
B. Biological transformation E. Management of change
C. Capability to change
Answer: D

47. Consider the given situation. Evaluate the accounting entry made by the company.
I. Entity XYZ harvested P15,000 cost of agricultural produce with fair value of P 17,500 and costs to sell of P 200.
The entry if it’s bearer biological asset is a debit to inventories and credit to gain from change in fair value.
II. Given the situation above, if it is a consumable biological asset, XYZ shall debit inventory account and credit
biological asset.
III. If it is a new born, XYZ shall debit biological asset, and credit to gain from change in fair value.
A. FALSE, TRUE, TRUE D. FALSE, TRUE, FALSE
B. FALSE, FALSE, TRUE E. TRUE, TRUE, TRUE
C. TRUE FALSE, TRUE
Answer: E

48. Which of the following statements pertaining to inventory is correct?


A. An entity may purchase quantities of items, such as stationery and supplies, that are not intended for resale but for
use in the business. Such should form part of the inventory account. FALSE (Prepaid Expense)
B. In overland shipping contracts, the term “FOB” (free on board) is widely used internationally to indicate when title
passes. TRUE
C. In consignment sale, title does not pass from the consignor to the consignee so the consigned merchandise remains
on the consignor’s balance sheet until it is sold. When goods are sold, only then the title passes to the consignee.
FALSE
D. The purchase cost of inventories includes recoverable purchase taxes. FALSE
E. None of the above
Answer: B

49. Under the retail inventory method of approximating ending inventory, which of the following is included in the
computation of the cost to retail percentage?
A. Freight-in C. Mark-down
B. Mark-up D. All of these
Answer: D

50. In accordance with PFRS7 Financial instruments disclosures, which of the following best describes the risk that an entity
will encounter if it has difficulty in meeting obligations associated with its financial liabilities?
A. Liquidity risk C. Financial risk
B. Credit risk D. Payment risk
Answer: A

51. The following relates to conversion cost. Which is the incorrect one?

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A. The allocation of fixed production overheads to the conversion costs is based on the normal capacity of the
production facilities. That is, a number of periods or seasons under normal circumstances, taking into account the
loss of capacity resulting from planned maintenance.
B. They are allocated to each unit of production on the basis of the actual use of the production facilities.
C. Unallocated production overheads result when production is less than the level needed to fully allocate all overhead
expenses. When this situation occurs, the amount of unallocated production overheads is recognized as an additional
to the cost of sales in the period in which incurred. FALSE
D. Licensing fees paid by a computer manufacturer for preloaded software such as Windows 98 should excluded from
inventory and should be accounted for as period costs on the income statement.
E. In periods of unusually high production, the amount of fixed overhead that is normally allocated to each unit of
production would result in a total allocation that is higher than the overhead cost incurred. In this case, the overhead
allocation is decreased so that inventories are not measured above cost.
Answer: C

52. Which of the following statements about inventory valuation is incorrect?


I. Inventories are measured at the lower of cost or net realizable value, and reported at no more than the amount
expected to be realized from sale or use.
II. When the cost of inventories assigned using the weighted average cost formula, the ending inventory and the
cost of goods sold should be priced at this average cost regardless of the resulting net realizable value. FALSE
III. For items like furs, jewelry, or cars, the most appropriate and applicable valuation method is FIFO. FALSE
IV. Specific identification method matches the actual cost of the item that is sold with the revenue from that item.
A. Only 1 statement is incorrect C. Only 3 statements are incorrect E. All statements are correct
B. Only 2 statements are incorrect D. All statements are incorrect
Answer: B

53. Cost reductions may be required when: (choose the incorrect one)
I. Inventory items are damaged.
II. Inventory components have become wholly or partially obsolete.
III. Inventory selling prices have declined.
IV. Estimated costs of inventory item completion have increased.
V. Costs incurred to sell inventory items have increased.
A. II C. IV E. All are correct
B. III D. V
Answer: E

54. Determine how many of the following items should be included in inventory account.
I. Merchandise purchased that is in transit with the title passing to the owner from the shipping point
II. Merchandise sold that was counted with physical inventory
III. Merchandise sold that is in transit with the title passing when received by the buyer
IV. Merchandise on consignment in other locations that is still owned by the company taking the inventory count
V. Merchandise included in the inventory on hand that belongs to another company but is being held on
consignment
A. One C. three E. five
B. Two D. four
Answer: C 1, 3, 4

55. These are contracts that obligate a company to purchase a specified amount of merchandise or raw materials at specified
prices on or before specified dates.
A. Purchase contract C. Call option F. Put option
B. Sales commitment D. Purchase commitment
Answer: D

56. Which of the following should be reported as a change in accounting estimate?


A. Change in the reported beginning inventory amount due to a discovery of a bookkeeping error
B. Change from the completed-contract method to the percentage-of- completion method for revenue recognition on
long-term construction contracts

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C.Increase in the rate applied to net credit sales from 1 percent to 1-1/2 percent in determining losses from
uncollectible receivables
D. Change made to comply with a new accounting pronouncement
E. All of the above
Answer: C

57. Which of the following is the proper time period in which to record a change in accounting estimate?
A. Current period and future periods C. Retroactively only E. Future periods
B. Current period and retroactively D. Current period only
Answer: A

58. The correction of an error in the financial statements of a prior period should be reflected, net of applicable income
taxes, in the current
A. income statement after income from continuing operations and before finance charge.
B. income statement after income from continuing operations and after finance charge.
C. retained earnings statement after net income but before dividends.
D. retained earnings statement as an adjustment of the opening balance.
E. Income statement under other comprehensive income segment
Answer: D

59. Under the portion “Reporting Period” of PAS 1, Presentation of Financial Statements,
I. There is a presumption that financial statements will be prepared at least annually.
II. If the annual reporting period changes and financial statements are prepared for a different period, the entity
must disclose the reason for the change and state that amounts are not entirely comparable.
A. Correct, Not Correct C. Not Correct, Correct
B. Correct, Correct D. Not Correct, Not Correct
Answer: B

60. According to PAS 1, current assets are assets that are


A. expected to be realized in the entity's normal operating cycle
B. paid in advance
C. held primarily for the purpose of trading
D. expected to be realized within 12 months after the reporting period
E. cash and cash equivalents
Answer: B

61. Read and assess the following statements:


A. Profit or loss is defined as "the total of income less expenses, excluding the components of other comprehensive
income".
B. Other comprehensive income is defined as comprising "items of income and expense (including reclassification
adjustments) that are not recognized in profit or loss as required or permitted by other PFRSs".
C. Total comprehensive income is defined as "the change in equity during a period resulting from transactions and
other events, other than those changes resulting from transactions with owners in their capacity as owners".
A. FALSE, TRUE, TRUE D. FALSE, TRUE, FALSE
B. FALSE, FALSE, TRUE E. TRUE, TRUE, TRUE
C. TRUE, FALSE, TRUE
Answer: E

62. All items of income and expense recognized in a period must be included in profit or loss unless a Standard or an
Interpretation requires otherwise. Some PFRSs require or permit that some components to be excluded from profit or
loss and instead to be included in other comprehensive income. Which of the following items listed below is not
recognized outside profit or loss?
A. Changes in revaluation surplus where the revaluation method is used
B. Remeasurements of a net defined benefit liability or asset recognized
C. Exchange differences from translating functional currencies into presentation currency
D. Gains and losses on remeasuring financial assets at fair value such as trading securities
E. The effective portion of gains and losses on hedging instruments in a cash flow hedge

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Answer: D

63. __________________ means "a way to estimate the value of ending inventory on the base of percentage of gross
profit"; therefore, companies must determine the percentage of gross profit at the end of year after preparing the
financial statements.
A. Gross Margin Method C. Revenue Method E. Conservative Retail
B. Retail Inventory Method D. Inventory Valuation Method
Answer: A

64. Determine the proper sequence of the enumerated steps to arrive at the ending inventory using the gross profit method.
I. Subtract the computed cost of goods sold from cost of goods available for sale.
II. Compute the gross profit rate.
III. Compute the estimated gross profit by multiplying Sales ×Gross Profit percentage.
IV. Compute the cost of goods sold by subtracting the Computed Gross Profit from Sales.
V. Compute the total cost of goods available for sale.
A. V, II, III, I, IV C. II, III, I, V, IV E. V, II, III, IV, I
B. II, V, III, IV, I D. IV, II, I, V, III
Answer: B

65. Gross profit method is used in both commercial and manufacturing companies; the gross profit method is used: (choose
the incorrect one)
A. To comply with the requirement of the standard for inventories.
B. To test the reasonability of an inventory valuation determined by some other means, such as a physical inventory
count or from perpetual inventory records.
C. To estimate the ending inventory for interim financial reports or internal reports prepared during the year when it is
impractical to count the inventory physically and perpetual inventory system is not used.
D. To estimate the cost of inventory destroyed by an accident.
E. To develop budget estimates of cost of goods sold, gross profit and inventory consistent with sales revenues budget.
Answer: A

66. Differences between the cash book and the bank statement can arise from (1) timing of the recording of the transactions
and (2) errors made by the business, or by the bank. Which one among the choices would result to timing difference?
A. A cashier may send cheques out to suppliers, some of whom may pay in the cheque at the bank immediately while
others may keep the cheque for several days before paying it in.
B. Outstanding lodgements – the firm's cashier records a receipt in the cash book as he or she prepares the bank
paying-in slip.
C. The check payment was recorded less than what is actually indicated on the face of it.
D. The bank has received a direct payment from a customer of the business.
E. Standing order and direct debit payments which the customer did not know about
Answer: C

67. In preparing bank reconciliation statement, which enumerated step is performed first?
A. The unticked items on the bank statement are entered into the bank columns of the cash book to bring it up to
date.
B. The bank columns of the cash book are now balanced to find the revised figure.
C. The remaining unticked items from the cash book will be the timing differences.
D. The cashier will tick off the items that appear in both the cash book and the bank statement.
E. The timing differences are used to prepare the bank reconciliation statement
Answer: D

68. You are given the balance as per Pass Book as the starting point and balance as per Cash Book is to be ascertained by
you. Out of the following transactions, identify from the item below which will be added to the balance of Pass Book
I. Interest allowed by Bank
II. Cheques deposited with bank and dishonoured
III. Cheques issued but not encashed
IV. Bank charges
V. Insurance premium paid by bank

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VI. Dividends on share collected by bank.
A. I, II and VI C. I and VI E. All items
B. II, III, IV and V D. IV, V and VI
Answer: C

69. The ________________ of a financial asset or financial liability is the amount at which the financial asset or financial
liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortization using
the effective interest method of any difference between that initial amount and the maturity amount, and minus any
reduction (directly or through the use of an allowance account) for impairment or uncollectibility.
A. Realizable value C. Amortized cost E. Discounted amount
B. Fair value D. Replacement cost
Answer: C

70. The interest income from financial assets at amortized costs is allocated to different accounting periods over (in general)
the contractual period of the financial asset using the effective interest method. Interest income is computed by
multiplying
A. Face value and nominal rate C. Carrying value and nominal rate E. All choices are incorrect
B. Face value and yield rate D. Carrying value and yield rate
Answer: D

71. Financial asset shall be measured at amortized cost if


I. The asset is held within a business model whose objective is to hold assets in order to collect contractual cash
flows
II. The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
A. I only C. Either I or II E. Both I and II
B. II only D. Neither I nor II
Answer: E

72. The following statements relate to impairment of financial assets measured at amortized cost. Read and evaluate.
I. Reporting entity shall review its assets at each reporting date for objective evidence that a (group of) financial
asset(s) measured at amortized cost is impaired.
II. The objective evidence of impairment is normally a result of one or more events that occurred after the initial
recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future
cash flows of the financial asset or group of financial assets that can be reliably estimated.
III. Losses expected as a result of future events, no matter how likely, are recognized. FALSE
A. Only I is correct C. Only III is correct E. All are correct
B. Only II is correct D. Only I and II are correct
Answer: D

73. To make objective evidence of a more defined concept, PAS 39 includes a list of examples of objective events that a
financial asset or group of assets is impaired which include observable data about some loss events, except
A. there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial
recognition of those assets
B. The disappearance of an active market because an entity’s financial instruments are no longer publicly traded
C. it is probable that the borrower will enter bankruptcy or other financial reorganization
D. default or delinquency in interest or principal payments, the lender, for economic or legal reasons relating to the
borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider
E. significant financial difficulty of the issuer of a loan
Answer: B

74. The amount of impairment loss is


A. the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding
future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate
B. the difference between the asset’s carrying amount and the estimated future cash flows (excluding future credit
losses that have not been incurred)

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C.the difference between the asset’s carrying amount and the present value of estimated future cash flows including
future credit losses that have not been incurred, discounted at the financial asset’s original effective interest rate
D. the difference between the asset’s face value and the present value of estimated future cash flows discounted at the
financial asset’s original effective interest rate
E. the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding
future credit losses that have not been incurred) discounted at the financial asset’s prevailing current effective
interest rate
Answer: A

75. The following statements relate to subsequent reversal of an impairment.


Statement No. 1 If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognized, the previously
recognized impairment loss shall be reversed either directly or by adjusting an allowance account.
Statement No. 2 The reversal shall not result in a carrying amount of the financial asset that exceeds what the
amortized cost would have been had the impairment not been recognized at the date the
impairment is reversed.
Statement No. 3 The amount of the reversal shall be recognized as reduction from the opening balance of the
accumulated profits/ losses.
A. FALSE, TRUE, TRUE D. TRUE, TRUE, FALSE
B. FALSE, FALSE, TRUE E. TRUE, TRUE, TRUE
C. TRUE FALSE, TRUE
Answer: D

76. Which of the following statements is incorrect?


A. All equity investments in scope of PFRS 9 are to be measured at fair value in the statement of financial position, with
value changes recognized in profit or loss, except for those equity investments for which the entity has elected to
present value changes in 'other comprehensive income'.
B. If reclassification is appropriate, it must be done retrospectively from the reclassification date which is defined as the
first day of the first reporting period following the change in business model.
C. If an equity investment is not held for trading, an entity can make an irrevocable election at initial recognition to
measure it at FVTOCI with only dividend income recognized in profit or loss.
D. For financial assets, reclassification is required between FVTPL, FVTOCI and amortized cost, if and only if the entity's
business model objective for its financial assets changes so its previous model assessment would no longer apply.
E. PFRS 9 does not allow reclassification for equity investments measured at FVTOCI
Answer: B

77. Financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity
instrument of another entity. Financial asset is any asset that is: (choose the incorrect one)
A. cash
B. an equity instrument of another entity
C. a contractual right to receive cash or another financial asset from another entity
D. a contract that will or may be settled in the entity's own equity instruments and is a non-derivative for which the
entity is or may be obliged to receive a variable number of the entity's own equity instruments
E. a contractual obligation to deliver cash or another financial asset to another entity
Answer: E

78. The term cash and cash equivalents includes the following except
A. Currency and coins
B. checks received but not yet deposited
C. checking accounts and savings accounts,
D. restricted cash held by the bank as compensating balance but related to short term obligation
E. short-term, highly liquid investments with a maturity of three months or less at the time of purchase
Answer: D

79. The succeeding statements which relate to bank reconciliation are subject to your assessment..
Statement No. 1 A bank reconciliation should be prepared by the individual responsible for cash receipts and
disbursements.

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Statement No. 2 In a bank reconciliation statement, the amount of a not-sufficient-funds check must be added to the
depositor's cash balance in determining the correct cash balance.
Statement No. 3 In a bank reconciliation statement, an outstanding check must be subtracted from the bank
statement balance in determining the correct cash balance.
A. FALSE, TRUE, TRUE D. TRUE, TRUE, FALSE
B. FALSE, FALSE, TRUE E. TRUE, TRUE, TRUE
C. TRUE FALSE, TRUE
Answer: B

80. Evaluate the following statements below:


Statement No. 1 Deposits in foreign banks are always reported as receivables.
Statement No. 2 A cash overdraft should be reported as a current liability.
Statement No. 3 Compensating balance requirements as a result of short-term financing arrangements are reported
separately in the investment section of the balance sheet.
A. FALSE, TRUE, FALSE D. TRUE, TRUE, FALSE
B. FALSE, FALSE, TRUE E. TRUE, TRUE, TRUE
C. TRUE FALSE, TRUE
Answer: A

81. On October 31, 2014, Dingo, Inc. had cash accounts at three different banks. One account balance is segregated solely
for a November 15, 2014 payment into a bond sinking fund. A second account, used for branch operations, is overdrawn.
The third account, used for regular corporate operations, has a positive balance. How should these accounts be reported
in Dingo’s October 31, 2014 classified balance sheet?
A. The segregated account should be reported as a noncurrent asset, the regular account should be reported be
reported as a current liability.
B. The segregated and regular accounts should be reported as current assets, and the overdraft should be reported as
a current liability.
C. The segregated account should be reported as a noncurrent asset, and the regular account should be reported as a
current asset net of the overdraft.
D. The segregated and regular accounts should be reported as current assets net of the overdraft.
Answer: A

82. On Merf’s April 30, 2014 balance sheet a note receivable was reported as a noncurrent asset and its accrued interest for
eight months was reported as a current asset. Which of the following terms would fit Merf’s note receivable?
A. Both principal and interest amounts are payable on August 31, 2014, and August 31, 2015.
B. Principal and interest are due December 31, 2014.
C. Both principal and interest amounts are payable on December 31, 2014, and December 31, 2015.
D. Principal is due August 31, 2015, and interest is due August 31, 2014, and August 31, 2015.
Answer: D

83. On August 15, 2014, Benet Co. sold goods for which it received a note bearing the market rate of interest on that date.
The four-month note was dated July 15, 2014. Note principal, together with all interest, is due November 15, 2014.
Assume Benet did not elect the fair value option for reporting the note. When the note was recorded on August 15, which
of the following accounts increased?
A. Unearned discount. C. Prepaid interest.
B. Interest receivable. D. Interest revenue.
Answer: B

84. A method of estimating uncollectible accounts that emphasizes asset valuation rather than income measurement is the
allowance method based on
A. Aging the receivables. C. Gross sales.
B. Direct write-off. D. Credit sales less returns and allowances.
Answer: A

85. A company uses the allowance method to recognize uncollectible accounts expense. What is the effect at the time of the
collection of an account previously written off on each of the following accounts?
Allowance for Uncollectible

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uncollectible accounts accounts expense
A. No effect Decrease
B. Increase Decrease
C. Increase No effect
D. No effect No effect
Answer: C

86. Which of the following is a method to generate cash from accounts receivables?
Assignment Factoring
A. Yes No
B. Yes Yes
C. No Yes
D. No No
Answer: B

87. Gar Co. factored its receivables. Control was surrendered in the transaction which was on a without recourse basis with
Ross Bank. Gar received cash as a result of this transaction, which is best described as a
A. Loan from Ross collateralized by Gar’s accounts receivable.
B. Loan from Ross to be repaid by the proceeds from Gar’s accounts receivable.
C. Sale of Gar’s accounts receivable to Ross, with the risk of uncollectible accounts retained by Gar.
D. Sale of Gar’s accounts receivable to Ross, with the risk of uncollectible accounts transferred to Ross.
Answer: D

88. 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 repurchase agreement.
C. The transferor maintains continuing involvement.
D. The transferee can pledge or sell the transferred receivables.
Answer: C

89. Which of the following is not an objective for each entity accounting for transfers of financial assets?
A. To derecognize assets when control is gained.
B. To derecognize liabilities when extinguished.
C. To recognize liabilities when incurred.
D. To derecognize assets when control is given up.
Answer: A

90. If financial assets are exchanged for cash or other consideration, but the transfer does not meet the criteria for a sale,
the transferor and the transferee should account for the transaction as a
Secured borrowing Pledge of collateral
A. No Yes
B. Yes Yes
C. Yes No
D. No No
Answer: B

FOR THE NEXT 2 REQUIREMENTS:


During 2014 Elway Corporation transferred inventory to Howell Corporation and agreed to repurchase the merchandise early
in 2015. Howell then used the inventory as collateral to borrow from Norwalk Bank, remitting the proceeds to Elway. In 2015
when Elway repurchased the inventory, Howell used the proceeds to repay its bank loan.

91. This transaction is known as a(n)


A. consignment.
B. installment sale.
C. assignment for the benefit of creditors.
D. product financing arrangement.
Answer: D

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92. On whose books should the cost of the inventory appear at the December 31, 2014 balance sheet date?
A. Elway Corporation
B. Howell Corporation
C. Norwalk Bank
D. Howell Corporation, with Elway making appropriate note disclosure of the transaction
Answer: A

93. Which of the following recording procedures would result in the highest net income for 2004?
1. Recording purchases at gross amounts
2. Recording purchases at net amounts, with the amount of discounts not taken shown under "other expenses" in
the income statement
A. 1
B. 2
C. Either 1 or 2 will result in the same net income.
D. Cannot be determined from the information provided.
Answer: C

94. When using the periodic inventory system, which of the following generally would not be separately accounted for in the
computation of cost of goods sold?
A. Trade discounts applicable to purchases during the period
B. Cash (purchase) discounts taken during the period
C. Purchase returns and allowances of merchandise during the period
D. Cost of transportation-in for merchandise purchased during the period
Answer: A

95. If a company employs the gross method of recording accounts receivable from customers, then sales discounts taken
should be
A. reported as a deduction from sales in the income statement.
B. reported as an item of "other expense" in the income statement.
C. reported as a deduction from accounts receivable in determining the net realizable value of accounts receivable.
D. reported as sales discounts forfeited in the cost of goods sold section of the income statement.
Answer: A

96. Assuming that the ideal measure of short-term receivables in the balance sheet is the discounted value of the cash to be
received in the future, failure to follow this practice usually does not make the balance sheet misleading because
A. most short-term receivables are not interest-bearing.
B. the allowance for uncollectible accounts includes a discount element.
C. the amount of the discount is not material.
D. most receivables can be sold to a bank or factor.
Answer: C

97. Which of the following is true when accounts receivable are factored without recourse?
A. The transaction may be accounted for either as a secured borrowing or as a sale, depending upon the substance of
the transaction.
B. The receivables are used as collateral for a promissory note issued to the factor by the owner of the receivables.
C. The factor assumes the risk of collectibility and absorbs any credit losses in collecting the receivables.
D. The financing cost (interest expense) should be recognized ratably over the collection period of the receivables.
Answer: C

98. Which of the following information should be disclosed under PAS 41?
A. Separate disclosure of the gain or loss relating to biological assets and agricultural produce.
B. The aggregate gain or loss arising on the initial recognition of biological assets and agricultural produce and the
change in fair value less estimated point-of-sale costs of biological asset.
C. The total gain or loss from biological assets, agricultural produce, and from changes in fair value less estimated
point-of-sale costs of biological assets.
D. There is no requirement in the Standard to disclose separately any gain or losses.

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Answer: C

99. An unconditional government grant related to a biological asset that has been measured at fair value less point-of-sale
costs should be recognized as
A. income when the grant becomes receivable.
B. a deferred credit when the grant becomes receivable.
C. income when the grant application has been submitted.
D. a deferred credit when the grant has been approved.
Answer: A

100. Which of the following statements in relation to accounting for petty cash fund is false?
A.Each disbursement from petty cash should be supported by a petty cash voucher.
B.The creation of a petty cash fund requires a journal entry to reflect the transfer of fund out of the general cash
account.
C. At any time, the sum of the cash in the petty cash fund and the total of petty cash vouchers should equal the
amount for which the imprest petty cash fund was established.
D. With the establishment of an imprest petty cash fund, one person is given the authority and responsibility for issuing
checks to cover minor disbursements.
Answer: D

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