Name: JULLIE CARMELLE H.

CHATTO Class: C032 4:00-5:30 Date: 12/22/2020 ID: A

APE 1_Final Exam

True/False
Indicate whether the statement is true or false.

FALSE 1. 1. Accounting concepts and principles, in the basic sense, are guidelines that accountants follow when
recording and communicating accounting information.

TRUE 2. The application of the separate entity concept is necessary so that financial position and performance
of a business can be measured objectively.

FALSE 3. The opposite of going concern is coming concern.

FALSE 4. According to the accrual basis of accounting, a business should record a sale only when the sale price is
collected.

TRUE 5. Financial statements are prepared at least annually because of the matching concept.

FALSE 6. A reporting or accounting period starts on July 1 of the current year and ends on June 30 of the following
year is called a calendar year period.

FALSE 7. The government ordered the shutting down of Entity A’s factories because of noncompliance with
regulations. Entity A is a going concern.

TRUE 8. The accounting standards used in the Philippines are the same as the standards used internationally.

FALSE 9. The Conceptual Framework is a standard.

FALSE 10. According to the materiality concept, an item that is considered material by one business is
considered material by all other businesses.

Multiple Choice
Identify the choice that best completes the statement or answers the question.

C 11. Mr. A owns a cafe. When Mr. A drinks coffee from his cafe, he pays for it even though he is the owner. Mr.
A is most likely to be applying which of the following accounting concepts?
a. Prudence c. Separate entity
b. Accrual basis d. Coffee-drinking concept

B 12. Ms. B acquires inventories worth P100,000. However, because Ms. B acquired in bulk, the supplier gave Ms.
B a discount of P10,000. Under the historical cost concept, Ms. B should initally record the inventories
purchased at
a. 110,000 c. 90,000
b. 100,000 d. 10,000

C 13. Entity A acquires merchandise inventory. Entity A initially records the acquisition cost of the inventory as
asset rather than an outright expense. When the inventory is subsequently sold, Entity A recognizes the cost
of the inventory sold as expense, in the same period the sale revenue is recognized. This is an application of
which of the following accounting concepts?
a. stable monetary unit c. matching
b. materiality d. proprietary

B 14. On Day 1, a customer buys goods from Entity A and promises to pay the sale price on Day 30. Ent ity A
recognizes sales revenue on Day 1 rather than on Day 30. This is an application of which of the following
accounting concepts?
a. prudence c. consistency
b. accrual basis d. materiality

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C 15. Entity A is owned by Mr. X and Ms. Y. Which of the following transactions does not violate the separate
entity concept and therefore is appropriately recorded in the accounting records of Entity A?
a. Mr. X purchases groceries for his home c. Ms. Y provides capital to Entity A.
consumption.
b. Mr. X gives Ms. Y chocolate and flowers d. Ms. Y provides capital to Entity B,
on Valentine’s Day. another business entity.

B 16. You went to Aling Nena’s Sari-sari Store to buy “patis”. You don’t have cash so you promised to pay Aling
Nena next week. Upon giving you the “patis”, Aling Nena records the sale in a notebook. She even reminded
you that you have not yet paid the 1 bottle of soy sauce and 3,000 cans of sardines that you purchased last
month. By recording your unpaid purchases, Aling Nena is applying which of the accounting concepts?
a. Prudence c. Separate entity
b. Accrual basis d. Listahan concept

A 17. You went abroad and forgot to pay Aling Nena (see #6 above). Aling Nena contacted you 10,000 times in your
Facebook reminding you of your debt but you repeatedly ignored her; you even unfriended her. Feeling
hopeless and with teary eyes and stuffy nose, Aling Nena reluctantly crossed-out your dues in her notebook.
Aling Nena is applying which of the following accounting concepts?
a. Prudence c. Separate entity
b. Historical cost d. No conscience concept

C 18. Entity A, an established business, purchases two staplers costing P300 each. Entity A charges the cost of one of
the staplers as expense but recognizes the cost of the other stapler as asset. Which of the following
concepts is violated?
a. Materiality c. Consistency
b. Historical cost d. Stapler concept

C 19. Entity A, a big corporation, purchases a calculator for P500. Entity A immediately charges the cost as
expense. This is acceptable under which of the following concepts?
a. Prudence c. Materiality
b. Cost-benefit d. b and c

A 20. Accounting information is reported in the financial statements only if they are deemed useful to users. The
usefulness of information is assessed in terms of its
a. qualitative characteristics c. prettiness
b. cuteness d. All of these

A 21. Inventories are presented in the financial statements at

a. Cost c. Lower of cost or net realizable value
b. Net realizable value d. None of the above

A 22. If the perpetual inventory records show lower quantities of inventory than the physical count, an explanation of
the difference might be unrecorded
a. Purchases c. Sales discounts
b. Sales d. Purchase discounts

A 23. A client maintains perpetual inventory records in both quantities and pesos. If the assessed level of control risk
is high, an auditor will probably
a. Increase the extent of tests of controls c. Apply gross profit tests to ascertain the
relevant to the inventory cycle reasonableness of the physical counts.
b. Request the client to schedule the d. Insist that the client perform physical
physical inventory count at the end of the counts of inventory items several times
year. during the year.

B 24. The tour of the manufacturing plant may best assist the auditor in identifying which of the following:
a. That all purchases are authorized. c. Management's impairment strategy.
b. Machinery that is inoperative in the d. Estimates of depreciation expense.
production cycle.

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C 25. To achieve good internal accounting control, which department should perform the activities of matching
shipping documents with sales orders and preparing daily sales summaries?
a. Sales c. Shipping
b. Credit d. Billing

D 26. Which of the following is not classified as property, plant and equipment?
a. Land held for future plant site c. Equipment held for environmental and
safety reasons
b. Building used in business d. Minor spare parts and short-lived
stand-by equipment

D 27. Which of the following does not form part of the intial cost of an item of PPE?
a. Purchase price, net of trade discounts and c. Installation and testing costs
rebates

b. Freight costs d. Advertising and promotional costs

D 28. Depreciation does not cease in which of the following instances?

a. The item of PPE is classified as held for c. The item of PPE is fully depreciated
sale or included in a disposal group in
accordance with PFRS 5
b. The item of PPE is derecognized through d. The item of PPE becomes idle or is
disposal. retired from active use.

D 29. In which of the following cases is an asset not considered to be fully depreciated?
a. When the asset’s cost is equal to its c. When the asset’s carrying amount is
carrying amount. equal to its residual value.
b. When the asset’s carrying amount is d. When the sum of the asset’s accumulated
zero. depreciation, accumulated impairment
losses and residual value is equal to its
cost.

B 30. The depreciation method prescribed by PAS 16 is

a. none c. diminishing balance
b. straight-line d. units of production

D 31. Entity A acquires equipment on January 1, 2017. Information on costs is as follows:

Purchase price, gross of P10,000 trade discount P800,000

Non-refundable purchase taxes 20,000
Delivery and handling costs 40,000
Installation costs 30,000
Present value of decommissioning and restoration costs 10,000

How much is the initial cost of the equipment? (5 points)

a. P820,000 c. P890,000
b. P870,000 d. P900,000

SOLUTION:
Purchase price, gross of P10,000 trade discount P800,000
Non-refundable purchase taxes 20,000
Delivery and handling costs 40,000
Installation costs 30,000
Present value of decommissioning and restoration costs 10,000
Total Cost of Equipment P900,000

c 32. (Use the information in problem #31.) Assume the equipment has a useful life of 10 years and a residual value
of P90,000. Entity A uses the straight line method of depreciation. How much are the depreciation
expense in 2017 and the carrying amount of the equipment on December 31, 2018, respectively? (5 points)

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Depreciation expense; Carrying amount-12/31/2018

a. 80,000; 810,000 c. 81,000; 819,000
b. 80,000; 730,000 d. 81,000; 738,000
SOLUTION:

ANNUAL DEPRECIATION= Cost of Asset- Residual Value

Estimated Life
ANNUAL DEPRECIATION= 900,000 – 90,000
10
ANNUAL DEPRECIATION=810,000
10
ANNUAL DEPRECIATION=P 81,000
CARRYING AMOUNT= 900,000 – 81,000=P 819,000

A 33. (Use the information in problems nos. 31 and 32.)

Assume the equipment has a useful life of 10 years and a residual value of P90,000 Entity A uses the
straight-line method of depreciation.

On December 31, 2018, Entity A revalues the equipment at a fair value of P820,000. There is no change in
the residual value and the remaining useful life of the asset. How much are the revaluation surplus on
December 31, 2018 and revised depreciation expense in 2019 and in subsequent periods, respectively? (5
points)

Revaluation surplus; Revised annual depreciation

a. 82,000; 91,250 c. 90,000; 91,250
b. 89,000; 91,050 d. 92,000; 92,150

REVALUATION SURPLUS:
P 820,000 / 10 = P 82,000

REVISED ANNUAL DEPRECIATION:

P 820,000 – 90,000
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= P 91, 250

300,000 34. XYZ sells a machine that is classified as PPE for P2,000,000. XYZ pays the broker a 10% commission.
Information on the machine is as follows:

Carrying amount P1,900,000

Revaluation surplus 400,000

How much is the gain (loss) from the sale? (5 points)

a. (280,000) c. 400,000
b. (370,000) d. 0

SOLUTION:

Fair Value P 2,000,000

Carrying Amount ( 1,900,000)
Total P 100,000
Revaluation Surplus 400,000
P 500,000
Less: Brokerage Commission (2,000,000 x 10%) (200,000)

GAIN P 300,000

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