1.

The effects of a change in accounting principle should be recorded on a prospective basis

when the change is from the
a. The correction of an error in the determination of the last year’s inventory
b. Straight line method of depreciation to the double declining balance method.
c. Cost recovery method of accounting to the percentage of completion method.
d. Presentation of statements of individual entities in consolidated statements.

2. A change in the residual value of an asset depreciated on a straight-line basis arising because
additional information has been obtained is
a. A correction of an error
b. Not an accounting change
c. An accounting change that should be reflected in the period of change and future periods
if the change affects both
d. An accounting change that should be reported by restating the financial statements of all
prior periods presented.

Page 3
3. Presenting consolidated financial statements this year when statements of individual entities
were presented last year is
a. An accounting change that should be reported by restating the financial statements of all
prior periods presented.
b. An accounting change that should be reported prospectively
c. Not an accounting change
d. A correction of an error

4. During the current year, the entity voluntarily changed its accounting method because the
new method will provide more reliable and relevant information. The entity can estimate the
effects of the change. How should the entity treat the change in accounting policy?
a. On a prospective basis
b. By restating the financial statements
c. By a cumulative adjustment on the income statement
d. On a retrospective basis

5. An entity changed from an accounting principle that is not generally accepted to one that is
generally accepted. The effect of the change should be reported, net of tax, in the current
a. Retained earnings statement as an adjustment of the opening balance
b. Retained earnings statement after net income but before dividends
c. Income statement after extraordinary items
d. Income statement after income from continuing operations

6. Which of the following describes a change in reporting entity?

a. A manufacturing entity expands its market from regional to nationwide.
 b. An entity presents consolidated financial statements in place of individual financial
statements.
c. An entity acquires additional shares of an investee and changes to the equity method of
accounting
d. An entity discontinues a product line

7. In which of the following situations should an entity report a prior period adjustment?
a. The correction of a mathematical error in the calculation of prior years’ depreciation
b. A change in the estimated useful life of property, plant and equipment purchased in prior
years
c. A switch from the straight line to double declining balance method of depreciation
d. The scrapping of an asset prior to the end of the expected useful life

8. Under IFRS, changes in accounting policies may occur

a. Either when a change is required by an IFRS or when it provides reliable and more
relevant information
b. Neither when a change is required by an IFRS nor when it provides reliable and more
relevant information
c. Only when a change is required by an IFRS
d. Only when a change provides reliable and more relevant information

9. Under IFRS, a change in accounting estimate is accounted for

a. Retrospectively
b. As a cumulative effect of an accounting change in the income statement
c. Currently in the financial statements.
d. Prospectively in the period of change and future periods.

10. When an investor uses the equity method to account for an investment in ordinary shares and
the fair value option of reporting financial assets is not elected after the date of acquisition.
the investment account of the investor would
a. Be increased by its share of the earnings of the investee but would not be affected by its
share of the losses of the investee.
b. Be increased by its share of the earnings of the investee and decreased by its share of the
losses of the investee.
c. Not be affected by its share of the earnings or losses of the investee.
d. Not be affected by its share of the earnings of the investee but would be decreased by its
share of the losses of the investee.

Page 4
11. An entity purchased shares of another entity and classified the investment as trading
securities. The entity should report these trading securities at
a. Lower of cost or market with holding gains included in earnings only to the extent of
previously recognized holding losses.
 b. Lower of cost or market with holding gains and losses included in earnings.
c. Fair value, with holding gains and losses included in earnings.
d. Fair value with holding gains included in earnings only to the extent of previously
recognized holding losses.

12. An investor uses the equity method to account for investments in ordinary shares. The
purchase price implies a fair value of the investee’s depreciable asset in excess of the
investee’s net asset carrying amounts. The investor’s amortization of the excess
a. Decreases the investment account
b. Decreases the goodwill account
c. Does not affect the investment account
d. Increases the investment revenue account

13. The composite depreciation method

a. Does not recognize gain or loss on the retirement of single asset in the group
b. Does not subtract residual value from the base of the depreciation calculation
c. Is an accelerated method of depreciation
d. Is applied to a group of homogenous assets

14. Which depreciation method is computed in the same way as depletion?

a. Productive output
b. Sum of the years’ digits
c. Straight line
d. Double declining balance

15. What valuation model should an entity use to value property, plant and equipment?
a. The revaluation model or the fair value model
b. The cost model or the revaluation model
c. The cost model or the fair value through profit or loss model
d. The cost model or the fair value model

16. An asset is being constructed for an entity’s own use. The asset has been financed with a
specific new borrowing. The interest cost incurred during the construction period is
a. A part of the historical cost of acquiring the asset to be written off over the estimated
useful life of the asset
b. A prepaid asset to be written off over the estimated useful life of the asset
c. A part of the cost of the asset to be written off over the term of the borrowing
d. Interest expense in the construction period

17. When should a long-lived asset be tested for recoverability?

a. When external financial statements are being prepared.
When ev