DLSU – REVDEVT

st
1 Term AY 2014 - 2015

Theory of Accounts
1.
a. Post the closing entries, take a post-closing trial balance, and journalize the closing
entries.
b. Post the journal entries to the general ledger accounts, prepare a worksheet, and then
take a trial balance.
c. Take a trial balance, prepare a worksheet, and then prepare financial statements.
d. Prepare the income statement, prepare the balance sheet and then prepare a trial
balance.

2. Which of the following is not an essential characteristic of an asset?

a. It is a result of past transaction.
b. It is measurable in terms of money.
c. Future economic benefits are expected to flow to the enterprise.
d. It is legally owned by the enterprise.

3. X Company prepares reversing entries. Which of the following adjustments should be

reversed by X?
a. The entry to record depreciation expense.
b. The entry to provide uncollectible accounts expense.
c. The entry to record the earned portion of rent received in advance.
d. The entry to record the unused supplies at the end of the accounting period.

4. Which is not a basic purpose of the Conceptual Framework for Financial Reporting?
a. To assist the Board of Accountancy in promulgating rules and regulations affecting the
practice of Accountancy in the Philippines.
b. To assist the Financial Reporting Standards Council in developing accounting standards.
c. To assist the preparers of financial statements in applying the PFRSs.
d. To assist the FRSC in evaluating and adopting International Accounting Standards.

5. Which of the following statements regarding the Conceptual Framework for Financial
Reporting is (are) true?
I. The Conceptual Framework is intended to establish the objectives and concepts for use in
developing standards of financial accounting and reporting.
II. Special purpose financial reports, for example, prospectuses and computations prepared
for taxation purposes are within the scope of the Conceptual Framework.
III. If there is a conflict between the Conceptual Framework and a PFRS, the principles in the
Conceptual Framework shall prevail.

a. Only I c. I and II
b. I and III d. I, II and III

6. It is the capacity of the information to make a difference in decision by helping users evaluate
the past and the present events and form predictions for the future.
a. Understandability c. Reliability
b. Relevance d. Comparability

7. Historical cost is a measurement basis used in financial statements. Which of the following
measurement bases is (are) currently used in financial statements?
Present value Settlement value Fair market value
a. Yes Yes Yes
b. Yes Yes No
c. No Yes Yes
d. Yes No Yes

8. Materiality depends on
a. the nature of the omission or misstatement.
b. the size of the omission or misstatement.
c. the size and nature of the omission or misstatement judged in the surrounding
circumstances.
d. the judgment of management.
 2

9. When economic benefits are expected to arise over several accounting periods and the
association with revenues can only be broadly or indirectly determined, expenses are
recognized in the statement of comprehensive income on the basis of
a. associating cause and effect c. immediate recognition
b. systematic and rational allocation d. cash disbursement

10. The accrual basis of accounting is most useful for

a. determining the amount of income tax an entity should pay.
b. predicting the short-term financial performance of an entity.
c. predicting the long-term financial performance of an entity.
d. determining the amount of dividend an entity should pay.

11. Billy Company changed from the cash basis of accounting to the accrual basis of accounting
during the current year. The cumulative effect of this change should be reported in the
financial statements as a
a. Component of income before extraordinary items.
b. Component of income after extraordinary items.
c. Prior period adjustment resulting from correction of prior period errors.
d. Prior period adjustment resulting from change in accounting policy.

12. Which of the following is least likely to be considered in determining whether or not an item is
material?
a. the size of the item compared to a related item
b. the nature of the item
c. the error judged in the particular circumstances of its omission
d. the absolute amount of the item

13. Which of the following is invalid statement regarding qualitative characteristics of accounting
information?
a. Information about complex matters should be excluded from the financial statements on
the grounds that it may be too difficult for certain users to understand.
b. Information has the quality of relevance when it influences the economic decisions of
users by helping them evaluate past, present or future events or understand.
c. If information is to represent faithfully the transactions and other events that it purports to
represent, it is necessary that they are accounted for and presented in accordance and
economic reality and not merely their legal form.
d. An important implication of the qualitative characteristic of comparability is that users be
informed of the accounting policies employed in the preparation of the financial
statements, any changes in those policies and the effects of such changes.

14. An essential qualitative characteristic of the information provided in the financial statements is
understandability. This means that
a. Information must be relevant to the decision-making needs of the users.
b. Users must be informed of the accounting policies employed in the preparation of the
financial statements, any changes in those policies and the effects of such changes.
c. Users are assumed to have a reasonable knowledge of business and economic activities
and a willingness to study the information with reasonable diligence.
d. Information must be free from material error and bias and can be depended upon by users
to represent faithfully which it purports to represent or could reasonably be expected to
represent.

15. Under a financial concept of capital, capital is synonymous with

a. net assets c. total assets
b. net sales d. net income

16. Which measurement basis is adopted for the physical capital maintenance concept?
a. historical cost c. realizable value
b. current cost d. present value

17. For a liability to exist

a. there must be a past transaction or event
b. the exact amount must be known
c. the identity of the party to whom the liability is owed must be known
d. there must be an obligation to pay cash in the future.
 3

18. Which of the following principles best describes the rationale for matching administrative
expenses with revenues of the current period?
a. associating cause and effect c. immediate recognition
b. systematic and rational allocation d. partial recognition

19. Entries in the purchase journal are posted to the

a. Accounts receivable ledger and the accounts payable ledger.
b. General ledger only
c. General ledger and the accounts payable ledger.
d. General ledger and the accounts receivable ledger.

20. Failure to record the unexpired portion of insurance premium paid would
a. understate expense
b. understate net income
c. overstate owner’s equity
d. overstate total liabilities

21. Which of the following is not a possible effect of a reportable event?

a. increase in asset and increase in liability
b. decrease in asset and decrease in owner’s equity
c. increase in liability and decrease in owner’s equity
d. decrease in asset and increase in owner’s equity

22. Which one of the following refers to the “peso magnitude” of a financial statement item?
a. Relevance c. Materiality
b. Cost-benefit constraint d. Neutrality

23. Which body authors the present International Financial Reporting Standards?
a. International Accounting Standards Board
b. International Financial Reporting Standards Board
c. International Accounting Standards Committee
d. International Accounting Standards Council

24. The objectives of financial reporting for business enterprises are based on
a. Generally accepted accounting principles
b. The need of conservatism
c. The needs of the users of information.
d. Reporting on management’s stewardship.

25. According to the IASB’s (old) Framework, prudence and substance over form are ingredients of
Relevance Reliability
a. Yes Yes
b. Yes No
c. No Yes
d. No No

26. Which one of the following is not one discussed in the Conceptual Framework?
a. Financal accounting should provide information that is useful for economic decision
making.
b. Financial accounting should address the needs of financial statement users.
c. Financial accounting should provide information that aids in the prediction of profit.
d Financial accounting should apply the accrual basis.
27. For a particular component of an entity to be classified as a discontinued operation, it must be
held for sale, or already disposed of, and meet one of the following criteria:
a. It must represent an insignificant part of a geographical area of operations.
b. It must be an immaterial component in one of the lines of the business operations.
c.. It may not have any cash flows attributable to its activities.
d.. It must be a subsidiary acquired exclusively with a view to resale.

28. If a nominal account is credited for a deferral of revenue, e.g. receipt of a three-year advance
rental, the yearend adjustment is
Debit Credit
A. Cash Unearned Rent
B. Rent Revenue Unearned Rent
C. Unearned Rent Rent Revenue
D. Cash Rent Revenue
 4

29. The IASB Conceptual Framework identifies seven user groups that are considered to be
important in determining the existence of a reporting entity. These users groups
include all of the following except:
a. investors;
b. preparers;
c lenders;
d suppliers and other trade creditors.

30. The IASB (old) Framework outlines two underlying assumptions of financial statements.
These are:
a. accrual basis and going concern assumptions
b. cash basis and insolvency assumptions
c. historical cost accounting and limited life accounting
d. fair value basis of measurement and perpetual life measurement

31. If financial information that is presented in the financial statements influences the economic
decisions of users, that information is described as:
a. reliable c. prudent
b. material d. relevant

32. The IASB (old) Framework identifies four principal qualitative characteristics that make the
information in financial statements useful to investors, creditors and others. These
characteristics are:

I. Comparability.
II. Relevance.
III. Subjectivity.
IV. Confidentiality.
V. Understandability.
VI. Reliability.

a. I, II, III and IV;

b. II, IV, V and IV.
c. I, III, IV and VI;
d. I, II, V, and VI.

33. What accounting concept is principally used to classify leases into operating and finance
lease?
a. Substance over form c. Neutrality
b. Prudence d. Materiality

34. The IASB’s 2010 Conceptual Framework discusses underlying assumption/s in the
presentation of the financial statements. This is (These are)
a. Accrual basis and going concern c. Accrual basis and accounting entity
b. Going concern d. Historical cost and accounting entity

35. If a real account is charged for a prepayment of expense, the adjusting entry is
a. Debit prepaid expense, credit expense
b. Debit expense, credit payable
c. Debit expense, credit prepaid expense
d. Debit expense, credit cash

36. Which one of the following is not a component of reliable information?

a.. Predictive value c. Substance over form
b. Representational faithfulness d. Prudence

37. Which one of the following represents the best source for assessing the consistency of a
company’s financial statements?
a. The management discussion and analysis section of the annual report.
b. The auditor’s report
c. The “summary of significant accounting policies” in the notes to the financial statements.
d. The narrative information about the company found in the annual report.
 5

38. Which of the following would not require restatement of comparative information for prior periods
presented in the financial statements?
a. Change in accounting policy
b. Change in accounting estimate
c. Correction of prior period errors and change in accounting policy
d. Correction of prior period errors

39. When assets and liabilities on the statement of financial position are not classified into current and
non-current classification, then they should be presented broadly
a. In the order of maturity c. Alphabetically
b In the order of liquidity d. In the order of magnitude

40. A trial balance is useful because it indicates

a. That there are no errors committed in the journalizing and posting processes.
b. That total assets are equal to total liabilities and equity
c. That profit is measured correctly.
d. That total debits equal total credits

41. Which of the following is NOT a valid statement regarding presentation of financial statements?
a. An entity shall present assets and liabilities in order of liquidity only when liquidity
presentation provides information that is reliable and is more relevant than a current, non-
current presentation.
b. An entity whose financial statements comply with PFRS need not make a statement of such
compliance in the notes to the financial statements.
c. Applying the concept of materiality means that a specific disclosure requirement in Philippine
Financial Reporting Standard need not be satisfied if the information is not material.
d. An enterprise shall not present any item of income or expense as extraordinary on the face
of the income statement.

42. Which of the following accounts would not be included in a post-closing trial balance?
a. Premium on Bonds Payable c. Accumulated Depreciation
b. Unrealized Gains/Losses on d. Unrealized Gains/Losses on Avaiable for
Trading Securities Sale Securities

43. Which of the following is likely to be an incorrect closing entry?

a. Debit dividends, credit retained earnings
b. Debit sales revenue, credit income summary
c. Debit income summary, credit rent expense
d. Debit income summary, credit retained earnings

44. Who among the following is a direct user of accounting information?

a. Securities and Exchange Commission c. Enterprise’s shareholders
b. Labor association d. Financial Adviser

45. Which of the following uncertainty should be recognized on the face of the financial
statements?
a. Gain contingency, inflow of economic benefits is probable and amount can be reliably
measured.
b. Loss from pending lawsuit, amount is reasonably estimable, and outflow of resources is
reasonably possible.
c. Loss from pending lawsuit, amount is reasonably estimable and outflow of resources is
probable.
d. Loss from pending lawsuit, outflow of resources is remote.

46. Dividends declared after the reporting period but before the financial statements are authorized
for issue
A. Meet the criteria for recognition as a liability.
B. Satisfy the criteria for recognition as an expense.
C. Are recognized on the statement of financial position as they meet the definition of
equity.
D. Do not meet the IAS 37 criteria of a present obligation as of the end of the reporting
period.

47. Comprehensive income includes all of the following, except

a. revenues from sale of merchandise c. dividends declared
b. loss on sale of equipment d. unrealized loss on available for sale securities
 6

48. Which of the following would not be reflected in the statement of comprehensive income?
a. revenues
b. loss on disposal of a business segment
c. income tax from continuing operations
d. correction of prior period errors

49. Under the voucher system, a check register is

a. A journal for cash disbursements. c a summary of cash transactions
b. A ledger for cash disbursements d. an authorization to disburse cash

50. Oli Company omits some adjustments at the end of 2012. Which of the following
adjustments would result to understatement in net income?
a. Omission of a batch of merchandise in the physical count of inventory.
b. Omission of unpaid salaries at the end of 2012.
c. Understatement of depreciation expense in 2011.
d. Overstatement of prepaid insurance at the end of 2012.

51. Which of the following is NOT a valid statement regarding the presentation of statement of
comprehensive income?
a. Entities classifying expenses by function shall disclose additional information on the
nature of expenses, including depreciation and amortization expense and employee
benefit expense.
b. The allocation of profit or loss between the minority interest and the equity holders of
the parent shall be disclosed on the face of consolidated income statement.
c. Entities classifying expenses by nature shall disclose additional information on the
function of expenses.
d. When items of income and expenses are material, their nature and amount shall be
disclosed separately.

52. Under PAS 8, management shall use its judgment in developing and applying an accounting
policy. In making this judgment, which of the following shall be considered as the least
authoritative source?
a. The requirements of a particular PFRS or an Interpretation that specifically applies to a
transaction or a condition.
b. Accounting literature and popular industry practices.
c. Requirements and guidance in PFRS/IFRS dealing with similar and related issues.
d. The definitions, recognition criteria and measurement concepts for assets, liabilities,
income and expenses in the Framework.

53. If the classification of expenses by function method is used for the presentation of an
income statement, additional information on the following items must be disclosed:
a. revenue;
b. gains on disposal of assets;
c. gains on revaluation of assets;
d. depreciation and amortization expense.

54. Under PAS 10, Events After Reporting Period which of the following events after the reporting
period would require an entity to adjust the amounts recognized in its financial statements?
a. Settlement after the reporting perioid of a court case that confirms that the entity had a
present obligation at the end of the reporting period.
b. Decline in the market value of trading securities between the end of the reporting period
and the date when the financial statements are authorized for issue.
c. Declaration of dividends to holders of equity instruments
d. Major acquisition of assets

55. XYZ’s financial year ends December 31 and the company presents financial statements for
the second quarter of 2012. Under PAS 34, Interim Reporting, which is NOT correct regarding
the presentation of the current interim period financial information and comparative
information?
a. Statement of financial position at June 30, 2012 and as at December 31, 2011.
b. Statements of Comprehensive Income for the quarter ended June 30, 2012 and for the
quarter ended June 30, 2011.
Statements of Comprehensive Income for the six months ended June 30, 2012 and for
the six months ended June 30, 2011.
c. Cash flow statement for the six months ended June 30, 2012 and for the six months
ended June 30, 2011.
 7

d. Statement of changes in equity for the six months ended June 30, 2012 and for the year
ended December 31, 2011.

56. Events after the reporting period are those events, both favorable and unfavorable, that occur
a. Before the end of the reporting period and the date when the financial statements are
authorized for issue.
b. After the reporting period and the date when the financial statements are authorized for
issue.
c. After the end of the reporting period but before the next year-end.
d. Any date after the reporting period.

57. When a public shareholding company changes an accounting policy voluntarily, it has to
a Inform shareholders prior to taking the decision.
.
b Account for it retrospectively.
.
c Account for it prospectively and adjust the effects of the change in the current period and
. future periods.
d Account for it prospectively and adjust the effects of the change in the current period and
. prior periods.

58. On August 31, 2012, Heart Company decided to change from the FIFO method to weighted
average method of measuring cost of inventory. Heart is on a calendar year basis, and presents
comparative financial statements for the preceding year. On its comparative financial
statements, the cumulative effect of change shall be determined
a. As of January 1, 2011
b. As of December 31, 2011
c. During the eight months ending Aug. 31, 2012 by a weighted average of the purchases.
d. On December 31, 2012

59. How would the effect of a change in accounting estimate be accounted for?
a. By restating amounts reported in financial statements of prior periods.
b. By reporting proforma amounts for prior periods.
c. As a prior period adjustment to beginning retained earnings.
d. In the period of change and future periods if the change affects both.

60. Which of the following will not take the form of a normal adjusting entry?
a. Debit asset, credit liability c. Debit liability, credit income
b. Debit asset, credit income d. Debit expense, credit asset

61. XYZ Company follows the practice of preparing reversing entries. Which of the following
adjusting entries will be subject to reversal?
a. Prepaid Rent c. Supplies Expense
Rent Expense Supplies Inventory
b. Bad Debts Expense d. Unearned Commission
Allowance for Bad Debts Commission Income

62. Which of the following transactions will be recorded in the cash receipts journal?
a. Sale of merchandise, receiving a promissory note.
b. Investment of merchandise by the owner.
c. Cash refund for merchandise returned to a supplier.
d. Cash refund for merchandise returned by a customer.

63. Under the voucher system, the check register is used in lieu of
a. Purchase journal c. Cash receipts journal
b. General journal d. Cash disbursements journal

64. Which of the following is not an external user of a company’s financial information?
a. Labor union c. Government
b. Creditor d. Corporate treasurer
 8

65. According to the IASB’s (old) Framework, the practical exceptions to the application of
sound accounting theory are
a. Timeliness, balance between benefit and cost and balance between qualitative
characteristics
b. Materiality, balance between benefit and cost, and balance between qualitative
characteristics
c. Timeliness, materiality, and balance between benefit and cost
d. Timeliness, materiality and balance between qualitative characteristics

67. Which of the following is not required for the recognition of revenue?
a. Receipt of cash by the seller at the time of sale.
b. Seller must receive an item ultimately realizable in cash or non-cash resources
c. The earnings process must be essentially complete
d.. The transaction must create a measurable financial statement element which can be
reliably measured.

68. What is the objective of financial statements according to the Conceptual Framework?
a To prepare and present a statement of financial position, an income statement, a cash
flow statement and a statement of changes in equity.
b. To prepare financial statements in accordance with all applicable Standards and
Interpretations.
c. To prepare financial statements in accordance with all applicable Standards and
Interpretations.
d. To provide information about the financial position, performance, and changes in financial
position of an entity that is useful to a wide range of users in making economic decisions.

69. For 2011, C Company estimated its two-year equipment warranty costs based on P1,100 per unit
sold in 2011. Experience during 2012 indicated that the estimate should have been based on
P1,300 per unit. The effect of this P200 difference from estimate is reported
a. In statement of changes in equity, as an adjustment to Retained Earnings of January 1,
2012.
b. In 2012 statement of comprehensive income as part of continuing operations.
c. As an accounting change, net of tax, in the income statement after income from continuing
operations.
d. As a correction of prior period error requiring 2006 financial statements to be restated.

70. When the effect of a change in accounting policy cannot be separated and distinguished from a
change in accounting estimate, the change is treated
a. By restating the financial statements of all prior periods presented.
b. As a correction of prior period error.
c. As a component of income from continuing operations in the period of change and future
periods, if the change affects both.
d. As a separate component of income after income from continuing operations, in the
period of change and in future periods, if the change affects both.

71. The discontinued operations section of the statement of comprehensive income is comprised of
which one of the following?
a. Profit from operation of the discontinued component of an entity and gain or loss from the
disposal of the discontinued component.
b. Post-tax profit or loss from the operation of the discontinued component, and post-tax gain
or loss recognized on the measurement to realizable value of net assets held for sale.
c. Post-tax gain or loss from the operation of the discontinued component, and gain or loss
from the disposal of the discontinued component.
d. Post-tax profit or loss of the discontinued operations of the component and post-tax gain or
loss on the measurement to realizable value of assets held for sale or post-tax gain or loss
on the disposal of the assets of the discontinued operations.

72. Accumulated other comprehensive income should be reported on the statement of financial
position as a component of
Accumulated Profits (RE) Share Premium
a. Yes Yes
b. No Yes
c. Yes No
d. No No
 9

73. Compared to the accrual basis of accounting, the cash basis of accounting understates
income by the net decrease during the accounting period of
Prepaid Expenses Accrued Expenses
a. Yes Yes
b. Yes No
c. No Yes
d. No No

74. If financial information that is presented in the financial statements is misstated, and it
influences the economic decisions of users, that information is described as
a. Reliable c. Prudent
b. Material d. Faithful

75. In respect to information included in financial statements, the accounting concept of “prudence”
ensures that
a. Information is provided to users within the time period in which it is most likely to bear on
their decisions.
b. An appropriate balance is achieved between the relevance and the reliability of
information that has been included.
c. A degree of caution in the exercise of judgments about estimate is made.
d. The financial statements report what they purport to report.

76. An item cannot be recognized in the statement of financial position or the income statement
unless it meets the two criteria of
Criterion 1 Criterion 2
a. Materiality Relevance to the users
b. Completeness Measurement reliability
c. Neutrality Representational faithfulness
d. Probable economic benefits Measurement reliability

77. Which of the following groups uses accounting information for planning a company’s profitability
and liquidity?
a. Management c. Creditors
b. Investors d. Economic planners

78. Generally accepted accounting principles

a. Define accounting practice at a point in time.
b. Are similar in nature to the principles of chemistry or physics.
c. Rarely change
d. Are not affected by changes in the ways business operate.

79. Financial reporting provides information that is useful in each of the following, except
a. Making investment and credit decisions.
b. Assessing cash flow prospects.
c. Making employment decisions.
d. Assessing business resources, claims to those resources, and changes in them.

80. What treatment should be accorded to events after the reporting period that provide
evidence of conditions that existed at the end of the reporting period?
a note disclosure only, in the financial statements;
b recognition in the financial statements;
c adjustment in the cash flow statement;
d ratification by shareholders at an annual meeting.

81. What treatment should be accorded to events after the reporting period that are indicative
of conditions that arose after the reporting period?:
a recognition in the statement of comprehensive income;
b recognition in the statement of financial position;
c recognition in the cash flow statement;
d no recognition on the face, but may or may not require note disclosure
 10

82. The statement of financial position of a reporting entity presents a structured summary of
the:
a. revenue and expenses arising during the reporting period;
b. assets, liabilities and equity at reporting date;
c. profits and losses not reported in income of the period;
d. receipts and payments of cash during the period.

83. The profit or loss of a period and the other comprehensive income are presented in the:
a. statement of financial position;
b. statement of comprehensive income;
c. statement of changes in equity.
d statement of comprehensive income and statement of changes in equity.

84. The profit or loss attributable to a non-controlling interest is required, under IAS 1
Presentation of Financial Statements, to be presented on the face of the:
a. cash flow statement;
b. statement of financial position;
c. statement of comprehensive income;
d statement of changes in equity.

85. The following is no longer an allowable line item for presentation on the face of an
statement of comprehensive income :
a extraordinary items.
b finance costs.
c pre-tax loss attributable to discontinuing operations.
d tax expense.

86. If the classification of expenses by function method is used for the presentation of a
statement of comprehensive income, additional information on the following items must
be disclosed:
a revenue;
b gains on disposal of assets;
c gains on revaluation of assets;
d depreciation and amortization expense.

87. IAS 1 Presentation of Financial Statements requires disclosure in the statement of

financial position of the following items:
a a statement of compliance with IFRS;
b the measurement basis used for the revaluation of assets;
c the carrying amount of property, plant and equipment;
d information about the key assumptions used in the depreciation of assets.

88. IAS 1 Presentation of Financial Statements, requires the following note disclosures in
relation to dividends of an entity.
a amount of any cumulative preference dividends not recognized;
b names of the recipients of the dividends;
c addresses of all shareholders who are entitled to receive the dividends;
d a schedule of cumulative dividends paid in prior periods.

89. Under IAS 1, Presentation of Financial Statements, which is not to be considered in

determining whether a liability shall be classified as current liability?
a. The classification of assets that are available for the payment of the obligation.
b. The maturity date of the obligation.
c. Whether the obligation is expected to be settled within the entity’s normal
operating cycle.
d. Whether the enterprise does not have an unconditional right to postpone the
settlement of the obligation for at least twelve months after the statement of
financial position date.
 11

90. When converting from cash basis to accrual basis of accounting, which of the following
adjustments should be made to cash payments to suppliers to determine accrual basis
purchases?
a. Add ending accounts payable and deduct beginning accounts payable
b. Add ending merchandise inventory and deduct beginning merchandise inventory.
c. Add beginning accounts payable and deduct ending accounts payable
d. Add beginning merchandise inventory and deduct ending merchandise inventory.

91. Blue Company uses the indirect method of presenting cash flows from operations in its
cash flow statement. Both merchandise inventory and unearned income increased from
January 1, 2012 to December 31, 2012. To obtain cash flow from operations, how would
these increases be added to or deducted from the profit from operations?
Merchandise Inventory Unearned Income
a. Added Added
b. Added Deducted
c. Deducted Added
d. Deducted Deducted

92. All of the following are cash equivalents except:

a. money market investments
b. commercial paper
c. notes receivable
d. investments in Philippine Government Treasury bills

93. Which of the following activities increase and decrease the non-current assets available
to a company?
a. operating activities
b. investing activities
c. financing activities
d. warehousing activities

94. Cash received from customers would be reported on the statement of cash flows under:
a. investing activities
b. operating activities
c. financing activities
d. in the schedule of noncash investing and financing activities

95. The issuance of bonds for cash would be reported on a statement of cash flows under the:
a. operating activities
b. investing activities
c. financing activities
d. no activities because issuing bonds for cash would not be reported on a statement of
cash flows

96. After a business is up and running, information about which of the following business
activities is most important?
a. operating activities
b. investing activities
c. financing activities
d. warehousing activities

97. Which of the following would appear on a direct method statement of cash flows?
a. Depreciation Expense
b. loss on sale of assets
c. increase in Accounts Receivable
d. cash payments for inventory

98. All of the following would appear on a direct method statement of cash flows except:
a. cash payments for interest and taxes
b. cash purchase of equipment
c. cash receipts from customers
d. net income
 12

99. The direct method of preparing the statement of cash flows:

a. reports where cash came from and how it was spent on operating activities
b. is much easier for companies to compute
c. is preferred by IASB
d. includes both a and c

100. All of the following would be reported in the financing activities section under the direct
method statement of cash flows except:
a. issuing a stock dividend
b. paying a cash dividend
c. issuing ordinary shares
d. purchasing treasury stock

101. On an indirect method statement of cash flows, a gain on the sale of plant assets is:
a. reflected in the investing activities section
b. reflected in the financing activities section
c. added to net income
d. deducted from net income

102. All of the following might appear as adjustments to net income on an indirect method
statement of cash flows except:
a. depreciation expense
b. an increase in Accounts Receivable
c. gain on sale of plant assets
d. distribution of property dividends

103. On an indirect method statement of cash flows, a decrease in inventory would be:
a. netted against any decreases in accounts payable
b. deducted from net income
c. reflected in the investing activities section
d. added to net income

104. The amount of cash paid for dividends for the current year can be calculated by the
following formula:
a. beginning dividends payable minus ending dividends payable plus dividends
declared
b. beginning dividends payable plus ending dividends payable plus dividends declared
c. beginning dividends payable minus ending dividends payable minus dividends
declared
d. beginning dividends payable plus ending dividends payable minus dividends
declared

105. An entity acquires a building by issuing equity shares and issuing debentures. This
transaction should be treated in the cash flow statement as
a. An investing cash outflow for the purchase price of the building and a financing cash
outflow for the issuance of the debentures.
b. An investing cash outflow for the purchase price of the building,, a financing cash
outflow for the debentures issued, and an investing cash outflow for the equity
shares issued.
c. This does not belong in a cash flow statement and should be disclosed only in the
footnotes to the financial statements.
d. Ignore the transaction totally since it is a non-cash transaction. No mention is
required in either the cash flow statement or anywhere else in the financial
statements.

106. The following cash flow activities are regarded as investing cash flows:
a income taxes paid;
b interest paid;
c acquisition of subsidiary net of cash acquired;
d proceeds from issue of debentures.
 13

107. Which of the following items would be presented in a statement of cash flows?
a payment of dividends through a share investment scheme;
b acquisition of an investment in a subsidiary for consideration consisting of an
exchange of non-current assets and liabilities;
c proceeds from the issue of debentures;
d refinancing of long-term debt.

108. The following item would not appear in a cash flow statement:
a receipts of cash from customers;
b conversion of preference shares to ordinary shares;
c payment of creditors;
d proceeds on disposal of non-current assets.

109. IAS 7 Statement of Cash Flows, requires that investing and financing transactions that do
not require the use of cash or cash equivalents should be:
a excluded from a cash flow statement;
b included in a cash flow statement before operating, investing and financing
activities;
c presented in the cash flow statement after operating activities and before
investing and financing activities;
d presented in a cash flow statement after the operating, investing and financing
activities have been presented.

110. Under PAS 7, Cash Flow Statement, cash payment for interest is classified
a. Either under operating activities or under financing activities
b. Either under financing activities or investing activities
c. Either under operating activities or investing activities
d. Under operating activities only.

111. Which of the following adjustments to convert net income to cash provided by operating
activities is correct?
Add to Net Income Deduct from Net Income
a. Accounts Receivable increase decrease
b. Prepaid Expenses increase decrease
c. Inventory decrease increase
d. Accounts Payable decrease increase

112. Which of the following items is not part of the cash flows from financing activities?
a. Proceeds from sale of the company’s ordinary shares.
b. Proceeds from issuing bonds, mortgages, and notes
c. Proceeds from other short-term or long-term borrowings
d. Proceeds from sale of inventories

113. The currently reported net income on the income statement is based on what concept of capital?
a. Borrowed capital c. Invested Capital
B. Financial capital d. Physical Capital

114. Which of the following subsequent events requires disclosure and adjustment of the financial
statements?
a. Loss of a plant due to flood c. Loss on a receivable due to bankruptcy
of a customer
b. Sales of bond issue d. Purchase of a business

115. Which of the following information should be disclosed in the Notes to Financial Statements
under “Summary of Significant Accounting Policies”?
a. Refinancing of debt after statement of financial position date
b. Guarantee of indebtedness of others, outflow of economic benefits is reasonably possible
c. Criteria to determine which financial instruments are treated as cash equivalents
d. Reconciliation of beginning balances of Property, Plant and Equipment to their ending
balances.
 14

116. IAS I, Presentation of Financial Statements, requires that an entity must disclose the
following:
I. A description of the entity’s operations
II. The legal form of the entity
III. The name of the entity’s ultimate parent
IV. The address of the registered office
a. None of the above c. II and IV only
b. I, II, III and IV d. I, II and IV

117. An accounting policy

a. Comprises the principles applied in preparing the financial statements.
b. Is a judgment applied in deciding whether or not to recognize s transaction.
c. Is the application of judgment in deciding on the measurement of an item.
d. Is the judgment used in deciding whether or not to disclose a particular
information.

118. IAS I, Presentation of Financial Statements, requires the following items to appear on the
face of the statement of changes in equity:
I. The net amount of cash from the issue of any securities during the period
II. The cumulative effect of changes in accounting policy and the correction of
prior period errors.
III. Items of income and expenses that are recognized in other comprehensive
income.
IV. Profit or loss for the period.
a. I, II, III and IV c. I, III and IV only
b. II, III and IV only d. II and IV only

119. When an entity makes a voluntary change in accounting policies that has an effect on
the current period, it is required to disclose
I. The reason why the change will provide more relevant information.
II. The amount of the adjustment for each financial statement line item affected.
III. The nature of the change.
IV. The reason why previous policy no longer provides reliable information.
a. I, II, and III only c. I, II, and IV only
b. II, III and IV only d. III and IV only

120. Where a material error occurs in the recording process in a prior period, an adjustment
a. Must be made to the prior period comparative balances.
b. May be recognized directly in retained earnings.
c. May be deferred and recognized in a later accounting period.
d. Is not necessary, but the item must be fully explained in the notes to the financial
statements.

121. Which of the following is true in recognizing revenue from sale of goods?
a. Under layaway sales, revenue is recognized when the buyer has paid at least
50% of the selling price.
b. Under consignment sales, revenue is recognized by the consignor upon receipt
of the goods by the consignee.
c. Under installment sales when collection is reasonably assured, revenue is
recognized at the date of sale.
d. Under sale on approval, revenue is recognized when consideration is received by
the seller.

122. Which of the following is false in recognizing revenue from rendering of services?
a. Installation fees are recognized by reference to the stage of completion.
b. Origination fees received on issuing financial liabilities are recognized as revenue
when such liabilities are issued.
c. After sales support fees are deferred and recognized as revenue over the service
period.
d. Media commissions are recognized as revenue when the advertisement appears
before the public.
 15

123. So long as it is probable that the economic benefits will flow to the enterprise and the
amount of revenue can be measured reliably, revenue from royalties should be recognised
on:
a an accruals basis;
b the cash basis of accounting;
c the net present value of cash flows method;
d a percentage of completion basis.

124. According to IAS 18 Revenue, the revenue from ‘interest’ should be recognised using the
following measurement basis:
a the accrual basis;
b the cash basis;
c the historical cost basis;
d a time proportionate basis that takes into account, the effective yield.

125. “Bill and hold” sales in which delivery is made at the buyer’s request but the buyer assumes title
and accepts invoicing, should be recognized when
a. The buyer makes an order.
b. The seller starts manufacturing the goods.
c. The title has been transferred but the goods are kept on the seller’s premise.
d. It is probable that the delivery will be made, payment terms have been established, and the
buyer has acknowledged the delivery instructions.

126. According to PAS 18, Revenues, the revenue from interest should be recognized using the
following measurement basis:
a. The accrual basis
b. The cash basis
c. The historical cost basis
d. A time proportionate basis that takes into account the effective yield.

127. Under PAS 11, Construction Contracts, all of the following are included in contract costs except
a. Costs that relate directly to the specific contract.
b. Costs that are attributable to contract activity in general and can be allocated to the
contract.
c. Costs specifically chargeable to the customer under the future terms of the contract.
d. Costs that are specifically chargeable to the customer under the terms of the contract.

128. Under PAS 11, the use of the percentage of completion method requires that the stage of
completion be estimated at the end of the reporting period. Which among the following is not a
valid basis to estimate the percentage of completion?
a. Proportion of cash collected over the total contract price
b. Proportion of costs incurred over the total estimated costs
c. Units of output method
d. Architects’ or engineers’ estimates

129. When the outcome of a construction contract cannot be reliably estimated,

a. No revenue from the contract will be recognized until the year of completion of the project.
b. Revenue shall be recognized only to the extent of recoverable contract costs.
c. Contract costs shall be recognized as an asset and shall be transferred to expense in the
year of completion.
d. All costs incurred related to the contract shall be recognized as expenses.

130. Under PAS 11, Construction Contracts, the Construction in Process account accumulates the
following when the percentage of completion method is used
a. Construction costs to date
b. Construction costs to date less payments received
c. Construction costs to date less billings to date
d. Construction cots to date plus gross profit earned to date

131. At the end of the reporting period, an entity has a 180-day note payable outstanding. The
entity has followed the policy of replacing the note rather than repaying it over the last
three years. The entity’s treasurer says that this policy is expected to continue
indefinitely and the arrangement is acceptable to the bank to which the note was
issued. How will the entity classify the note in the statement of financial position?
 16

a. Classification is dependent on management intention.

b. Classification is dependent on actual liability to refinance.
c. Current liability, unless specific refinancing criteria are met.
d. Non-current liability

132. Under PFRS 8, Operating Segments, which of the following is NOT a correct statement for
identifying a reportable segment?
a. The segment’s assets are 10% or more of the total assets of all segments.
b. The segment result, whether income or loss, is 10% or more of the combined result of all
segments in profit, or the combined result of all segments in loss, whichever is greater in
absolute amount.
c. Its revenue from sales to external customers is 10% or more of the total revenue, external
and internal, of all segments.
d. Its revenue from sales to external customers and from transactions with other segments is
10% or more of the total revenue , external and internal, of all segments.

133. If an operating segment is identified as reportable in the current year, segment data for
the prior year presented for comparative purposes shall
a. Be restated to reflect the newly reportable segment even if that segment did not
satisfy any of the criteria in the prior year.
b. Not be restated because it was not reportable in the prior year.
c. Restated only if the segment achieves majority of the quantitative thresholds in
the current year.
d. Be ignored because IFRS 8 does not mention anything.

134. Which of the following will be the basis for identifying a customer as major customer for
purposes of operating segment disclosure?
a. Entity’s revenue appearing on the statement of comprehensive income.
b. Combined revenue of all operating segments
c. External revenue of all reportable segments
d. Total income including incidental income of the entity.

135. The if-converted method of computing earnings per share data assumes conversion of convertible
securities as of the
a. Beginning of the earliest period reported (or at time of issuance, if later)
b. Beginning of the earliest period reported (regardless of the time of issuance)
c. Middle of the earliest period reported( regardless of time of issuance)
d. Endingof the earliest period reported (regardless of time of issuance)

136. In determining earnings per share, interest expense, net of applicable income taxes, on
convertible debt that is dilutive should be
a. Added back to weighted average common shares outstanding for diluted earnings per
share.
b. Added back to net income for diluted earnings per share.
c. Deducted from net income for diluted earnings per share.
d. Deducted from weighted average common shares outstanding for diluted earnings per
share.

139 Under IAS 33, Earnings Per Share applies to

a. all public and non-public enterprises.
b. entities whose ordinary shares or potential ordinary shares are publicly traded
or in the process of issuing shares in the public markets.
c. entities whose ordinary shares are or potential ordinary shares are publicly
traded.
d. Entities who issue ordinary shares and potential ordinary shares.

140. In computations of weighted average of shares outstanding, when a bonus issue or

share split occurs, the additional shares are
a. Weighted by the number of days outstanding
b. Weighted by the number of months outstanding
c. Considered outstanding at the beginning of the year
d. Considered outstanding at the beginning of the earliest year or at the date of the
issuance of the related shares, whichever comes later..

**************************