TEST BANK

FINANCIAL ACCOUNTING and REPORTING

THEORY

Basic accounting concepts

1. Which of the following terms best describes financial statements whose basis of accounting recognizes transactions
and other events when then occur?
A. Accrual basis of accounting
B. Cash basis of accounting
C. Going concern basis of accounting
D. Invoice basis of accounting

2. Which of the following basic accounting assumptions is threatened by the existence of severe inflation in the economy?
A. Economic entity assumption
B. Going concern assumption
C. Monetary unit assumption
D. Periodicity assumption

3. During the lifetime of an entity, accountants produce financial statements at arbitrary pints in time in accordance with
which basis accounting concept?
A. Cost and benefit constraint
B. Expense recognition principle
C. Materiality constraint
D. Periodicity assumption

Accounting process
4. Factors that shape an accounting information system include the
A. Nature of the business and size of entity
B. Size of the entity and volume of data to be handled
C. Volume of data to be handled and nature of business
D. Nature of business, size of entity and volume of data to be handled

5. Basic steps in the recording process include all of the following, except
A. Enter the transaction information in a journal
B. Analyze each transaction for the effect of the accounts
C. All of the choices are correct regarding the basis steps in the recording process
D. Transfer the journal information to the appropriate account in the statement of financial position

6. Why do entities provide trade discounts?

A. To induce prompt payment
B. To avoid frequent change in catalogs
C. To easily alter prices for different customers
D. To avoid frequent changes in catalogs and to easily alter prices for different customers

7. The trial balance

A. Can be used to uncover errors in journalizing and posting
B. Has as its primary purpose to prove that all journal entries were made for the period
C. Is a listing of all the accounts and their balances in the order the accounts appear in the statement of financial
position
D. Is used to prepare the statement of financial position while the general ledger is used to prepare the income
statement

8. An entity must make adjusting entries

A. To account for accruals or deferrals
B. Each time it prepares an income statement and a statement of financial position
C. To ensure that the revenue recognition and expense recognition principles are followed
D. All of the choices are correct regarding adjusting entries

9. The adjusting entry for depreciation has the same effect as the adjusting entry for
A. A prepaid expense C. An accrued revenue
B. An accrued expense D. An unearned revenue

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 10. Which of the following statements is false regarding adjusting entries?
A. Adjusting entries involve accruals or deferrals
B. Cash is neither debited nor credited as a result of adjusting entries
C. Each adjusting entry affects one revenue account and one expense account
D. Each adjusting entry affects one statement of financial position and one income statement account

11. The failure to properly record an adjusting entry to accrue an expense results in
A. Overstatement of expense and an understatement of asset
B. Understatement of expense and an overstatement of asset
C. Understatement of expense and an overstatement of liability
D. Understatement of expense and an understatement of liability

12. The failure to properly record an adjusting entry to accrue a revenue results in
A. Overstatement of revenue and an overstatement of asset
B. Overstatement of revenue and an overstatement of liability
C. Understatement of revenue and an understatement of asset
D. Understatement of revenue and an understatement of liability

13. A document prepared to prove the equality of debits and credits after all adjustments is the
A. Adjusted financial statements
B. Adjusted statement of financial position
C. Adjusted trial balance
D. Post-closing trial balance

14. The closing process

A. Is done each time a transaction takes place and is journalized
B. Posts all closing entries to the appropriate general ledger account
C. Transfers all income statement items to their related statement of financial position account
D. All of the choices are correct regarding the closing process

15. Reversing entries

A. Impact the income statement only
B. Are not allowed under Philippine Financial Reporting Standards
C. Impact the statement of financial position and the income statement
D. Change amounts reported in the financial statements of the preceding period

16. Which of the following statements regarding reversing entries is incorrect?

A. All accruals should be reversed
B. Adjusting entries for depreciation and bad debts are never reversed
C. Deferrals entered in statement of financial position accounts make reversing entries unnecessary
D. Reversing entries change amounts reported in the statement of financial position for the previous period

Standard setting
17. The purpose of the International Accounting Standards Board is to
A. Issue enforceable accounting standards
B. Develop a single set of high-quality IFRS
C. Develop a uniform currency for measurement
D. Arbitrate accounting disputes between auditors and international entities

18. Financial accounting standard-setting

A. Is based solely on research and empirical findings
B. Is a legalistic process based on rules promulgated by governmental agencies
C. Is democratic in the sense that a majority of accountants must agree with a standard before it becomes
enforceable
D. Can be described as a social process which reflects political actins of various interested user groups as well as a
product of research and logic

19. The IASB employs a “due process” system which

A. As an efficient system for collecting dues from members
B. Identifies the accounting issues that are the most important
C. Enables interested parties to express their views on issues under consideration
D. Requires that all accountants must receive a copy of financial accounting standards

20. What is a possible danger if politics plays too big a role in developing IFRS?
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 A. User groups become active
B. Individuals may influence the standards
C. The IASB delegates its authority to elected officials
D. Financial reporting standards are not truly generally accepted

21. The IASB declared that the merits of proposed standards are assessed
A. From a position of neutrality
B. From a position of materiality
C. Based on arguments of lobbyist
D. Based on possible impact on behavior

22. What is the chronological order in the evaluation of a typical standard?

A. Discussion paper, Exposure draft and Standard
B. Exposure draft, Discussion paper and Standard
C. Exposure draft, Standard and discussion paper
D. Standard, Discussion paper, and Exposure draft

23. IFRIC Interpretations

A. Are considered authoritative and must be followed
B. Cover newly identified financial reporting issues not specifically addressed
C. Cover issues where unsatisfactory or conflicting interpretations have developed
D. All of these are correct regarding IFRIC Interpretations

Conceptual Framework
24. The underlying theme of the Conceptual Framework is
A. Comparability
B. Decision usefulness
C. Timeliness
D. Understandability

25. Which of the following is not a benefit associated with the Conceptual Framework?
A. A coherent set of accounting standards and rules should result
B. Practical problems should be more quickly solvable by reference to an existing conceptual framework
C. A conceptual framework should increase financials statement users’ understanding and confidence in financial
reporting
D. Business entities will need far less assistance from accountants because the financial reporting process will be
quite easy to apply

26. What is the authoritative status of Conceptual Framework?

A. The Conceptual Framework has the highest level of authority
B. The Conceptual Framework applies only when new or revised standards are developed
C. In the absence of a Standard or an Interpretation that specifically applies to a transaction, the Conceptual
Framework should be followed
D. In the absence of a Standard or an Interpretation that specifically applies to a transaction, management should
consider the applicability of the Conceptual Framework in developing and applying an accounting policy that
results in information that is relevant and reliable

27. What is the objective of financial statements?

A. To prepare comparable, relevant, reliable and understandable information to investors and creditors
B. To prepare financial statements in accordance with all applicable Standards and Interpretations
C. To prepare a statement of financial position, an income statement, a statement of cash flows and a statement of
changes in equity
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

28. What is the objective of financial reporting?

A. To provide information that is useful to management
B. To provide information about those investing in the entity
C. To provide information that is useful in making investing and credit decisions
D. All of these

29. What is a major objective of financial reporting?

A. To provide information that excludes claims to the resources
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 B. To provide information that clearly portrays nonfinancial transactions
C. To provide information that is useful to management in making decisions
D. To provide information that is useful to assess the amounts, timing, and uncertainty of prospective cash receipts

30. One element of the objective of financial reporting is to provide information

A. That will attract new investors
B. About the investors in the entity
C. That is useful in assessing cash flow prospects
D. About the liquidation value of the resources held by the entity

31. The term “assessing cash flow prospects” as an objective of financial reporting means
A. Cash basis is preferred over accrual basis of accounting
B. Over the long run, trends in revenue and expenses are generally more meaningful than trends in cash receipts and
payments
C. Information about the financial effects of cash receipts and cash payments is considered the best indicator of
continuing ability to general favorable cash flows
D. All of these are correct regarding assessing ash flow prospects

32. Which of the following is an implication of the going concern assumption?

A. The historical cost principle is credible
B. Depreciation and amortization policies are justifiable and appropriate
C. The current-noncurrent classification of assets and liabilities is justifiable and significant
D. All of these are an implication of going concern

33. Which of the following is a fundamental quality of useful accounting information?

A. Comparability C. Materiality
B. Consistency D. Relevance

34. To achieve faithful representation, the financial statements

A. Must have predictive and confirmatory value
B. Are comparable, understandable, verifiable and timely
C. Must be complete, neutral and reasonably free from error
D. All of these would achieve faithful representation

35. The fundamental qualitative characteristics of faithful representation has the components of
A. Predictive value and confirmatory value
B. Understandability, predictive value and reliability
C. Completeness, neutrality, and freedom from error
D. Comparability, consistency, and confirmatory value

36. The enhancing qualitative characteristics of financial reporting are

A. Cost-benefit and materiality
B. Relevance, reliability and faithful representation
C. Completeness, neutrality, and freedom from error
D. Comparability, verifiability, timeliness and understandability

37. Which of the following is an enhancing quality that relates to both relevance and faithful representation?
A. Comparability C. Freedom from error
B. Confirmatory value D. Predictive value

38. For information to be useful, the link between the users and the decision made is
A. Materiality C. Reliability
B. Relevance D. Understandability

39. Which of the following is not a qualitative characteristics of financial statements?

A. Comparability C. Relevance
B. Materiality D. Understandability

40. Where is materiality not used in providing financial information?

A. Determining the level of disclosure
B. Applying the going concern assumption
C. Applying the revenue recognition principle
D. Determining what items to include in the financial statements

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41. What is the concept that supports the issuance of interim reports?
A. Consistency C. Relevance
B. Faithful representation D. Materiality

42. What is the underlying concept that supports estimating a fixed asset impairment charge?
A. Consistency C. Matching
B. Faithful representation D. Substance over form

43. Which of the following is true regarding the cost-benefit constraint?

A. Benefits are more difficult to quantify than costs
B. The IASB seeks inputs on costs and benefits as part of due process
C. Benefits to preparers may include access to capital at a lower cost
D. All of the choices are correct

44. The Conceptual Framework includes which of the following constraints?

A. Cost
B. Prudence
C. Conservatism
D. All of the choices are constraints in the conceptual framework

45. All of the following represent costs of providing information, except

A. Accessing capital C. Disseminating
B. Auditing D. Preparing

46. Which of the following is a benefit of providing financial information?

A. Auditing C. Improved allocation of resources
B. Disclosure to competition D. Potential litigation

47. Which of the following is not a basic element of financial statements?

A. Asset
B. Equity
C. Income
D. All of the choices are elements of financial statements

48. Which of the following is not a basic element of financial statements?

A. Asset C. Liability
B. Equity D. Statement of financial position

49. Liabilities are

A. Deferred credits
B. Any accounts with credit balances
C. Obligations to transfer ownership shares to other entities in the future
D. Present obligations arising from past events and result in an outflow of resources

50. Which of the following is not considered a characteristic of a liability?

A. Present obligation
B. Arises from past event
C. Results in an outflow of resources
D. Liquidation is reasonably expected to require the use of current assets?

51. It is defined as increase in economic benefits during the accounting period in the form of inflows or enhancements of
assets or decreases in liabilities that result in increases in equity, other than those relating to contributions from equity
participants
A. Gain C. Profit
B. Income D. Revenue

52. The process of reporting an item in the financial statement if

A. Allocation C. Realization
B. Matching D. Recognition

53. What is the requirement for incorporating an item into the income statement of statement of financial position?
A. It satisfies the criteria of capital maintenance
B. It meets the requirement of comparability and consistency
C. It meets the definition of relevance and faithful representation
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 D. It meets the definition of an element and can be measured reliably

54. The most relevant measurement of liabilities at initial recognition and fresh start measurement should always reflect
A. Historical cost
B. The credit standing of the entity
C. The expectation of the management
D. The single most likely minimum or maximum possible amount

55. Under Philippine Financial Reporting Standards

A. The cash basis of accounting is accepted
B. Events are recorded in the period in which the event occurs
C. Net income will be lower under the cash basis than accrual basis accounting
D. All of the choices are correct

PAS 1, Presentation of Financial Statements

56. Which of the following statements is incorrect in relation to fair presentation?
A. An entity shall not describe financial statements as complying with PFRS unless they comply with all the
requirements of PFRS.
B. An entity whose financial statements comply with PFRS shall make an explicit and unreserved statement of such
compliance in the notes
C. An entity can rectify inappropriate accounting polices either by disclosure of the accounting policies used or by
notes or explanatory material
D. Fair presentation requires the faithful representation of the effects of transactions in accordance with the
definition criteria for assets, liabilities, income and expenses

57. The major financial statements include all of the following, except
A. Statement of changes in equity
B. Statement of changes in financial position
C. Statement of comprehensive income
D. Statement of financial position

58. The statement of financial position is useful for all of the following, except
A. Assessing risk
B. Determining free cash flows
C. Evaluating financial flexibility
D. Evaluating liquidity

59. Which of the following is a limitation of the statement of financial position?

A. Current fair value is not reported
B. Judgment and estimate are used
C. Many items of financial value are omitted
D. All of these

60. One criticism not normally aimed at a statement of financial position is

A. An extensive use of estimate
B. Failure to reflect current value information
C. The extensive use of separate classifications
D. Failure to include items of financial value that cannot be recorded objectively

61. Which of the following is not required to be presented as a minimum information?

A. Biological asset
B. Contingent liability
C. Investment property
D. Investment accounted for under the equity method

62. Which of the following is not an acceptable major asset classification?

A. Current assets C. Investments
B. Deferred charges D. Property, plant, and equipment

63. An entity shall present current and noncurrent assets and liabilities when the
A. Entity is a public utility
B. Entity is a government entity
C. Entity supplies goods or services within a clearly identifiable operating cycle
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 D. Presentation based on liquidity provides reliable and more relevant information

64. Entities should separately report all of the following, except

A. Liabilities that differ in their amounts, timing and nature
B. Assets and liabilities with different general liquidity characteristics
C. Assets that differ in their respective function in the entity’s central operations
D. Assets and liabilities that have been financed with different types of instruments

65. The basis for classifying assets as current or noncurrent is conversion to cash within the
A. Operating cycle or one year, whichever is longer
B. Operating cycle or one year, whichever is shorter
C. Accounting cycle or one year, whichever is longer
D. Accounting cycle or one year, whichever is shorter

66. When classifying assets as current and noncurrent

A. Prepayments are included in other assets rather than as current assets
B. The amount at which current assets are carried and reported must reflect net realizable value
C. Assets are classified as current if they are reasonably expected to be realized in cash or consumed during the
normal operating cycle
D. The time period by which current asset are distinguished from noncurrent assets is determined by the seasonal
nature of the business

67. The correct order to present current assets is

A. Cash, accounts receivable, prepaid items, inventories
B. Cash, inventories, accounts receivable, prepaid items
C. Inventories, accounts receivable, prepaid items, cash
D. Inventories, prepaid items, accounts receivable, cash

68. How is the significant amount of consignment inventory reported in the statement of financial position?
A. The inventory is reported separately on the consignor’s statement of financial position
B. The inventory is reported separately on the consignee’s statement of financial position
C. The inventory is combined with other inventory on the consignor’s statement of financial position
D. The inventory is combined with other inventory on the consignee’s statement of financial position

69. Which of the following is not a long-term investment?

A. A sinking fund
B. Cash surrender value of life insurance
C. Franchise
D. Land held for speculation

70. What is the relationship between present value and the concept of a liability?
A. Present value is used to measure all liabilities
B. Present value is not used to measure liabilities
C. Present value is used to measure certain liabilities
D. Present value is only used to measure noncurrent liabilities

71. Which of the following is a characteristic of a current liability but not a noncurrent liability?
A. Unavoidable obligation
B. Transaction or other event creating the liability has already occurred
C. Settlement is expected within the normal operating cycle or within 12 months after the reporting date
D. Present obligation that entails settlement by probable future transfer or use of cash, goods or services

72. Which is a current liability?

A. Bond due in three years
B. Bond for which there is an adequate sinking fund in two years
C. Bond due in eight months and refinanced at the end of the reporting period
D. Bond for which thee is an appropriation of retained earnings due in eleven months

73. Which of the following should not be included in current liabilities?

A. Unearned revenue
B. Trade notes payable
C. Short-term zero-interest-bearing notes payable
D. All of these are included in current liabilities

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74. Under IFRS all of the following are true regarding the presentation of current liabilities, except
A. The noncurrent liabilities follow the current liabilities
B. Current liabilities are generally recorded at their full maturity value
C. Current liabilities should not be offset against the assets that will be used to liquidate them
D. Current liabilities may be listed in order or maturity, in descending order of magnitude or in order of liquidity
preference

75. Which of the following is not acceptable treatment for the presentation of current liabilities?
A. Listing current liabilities in order of maturity
B. Listing current liabilities according to amount
C. Showing current liabilities in order of liquidation preference
D. Offsetting current liabilities against assets that are to be applied to their liquidation

76. A liability due within twelve months after the end of reporting period is classified as
A. Current when it is refinanced or a long-term basis after the end of reporting period and before issuance of financial
statements
B. Noncurrent when it is refinanced on a long-term basis after the end of reporting period and before issuance of
financial statements
C. Current when the entity has the discretion to refinance for at least twelve months after the end of reporting period
under an existing loan facility
D. Partly current and partly noncurrent when the entity has the discretion to refinance for at least twelve months
after the end of reporting period under an existing loan facility

77. Which item is not a current liability?

A. Unearned liability
B. Trade accounts payable
C. Stock dividend distributable
D. The currently maturing portion of long-term debt

78. Noncurrent liabilities include

A. Deferred tax liability
B. Obligations payable at some date beyond the operating cycle
C. Obligation s not expected to be liquidated within the operating cycle
D. All of these are included in noncurrent liabilities

79. A limitation of the statement of financial position that is not a limitation of the income statement is
A. Omitted items
B. The use of judgment and estimate
C. Valuation of items at historical cost
D. The numbers are affected by the accounting method employed

80. The income statement would help which of the following?

A. Evaluate liquidity C. Estimate future cash flow
B. Evaluate solvency D. Estimate future financial flexibility

81. The income statement provides information that is useful for all of the following, except
A. To evaluate future performance of the entity
B. To provide a basis for predicting future performance
C. To assess the risk and uncertainty of achieving future cash flows
D. To predict the amount, timing and uncertainty of future cash flows

82. Limitations of the income statement include all of the following, except
A. Income measurement involves judgment
B. Items that cannot be measured reliably are not reported
C. Only actual amounts are reported in determining net income
D. Income numbers are affected by the accounting method employed

83. Which method of income measurement is used in the preparation of the income statement?
A. Capital maintenance approach
B. Cash flow approach
C. Income components approach
D. Transaction approach

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84. The major elements of the income statement are
A. Revenue, expenses, gains and losses
B. Operating, investing and financing activities
C. Revenue, cost of goods sold, distribution costs and general expense
D. Operating, non-operating, discontinued operation and cumulative effect

85. The occurrence that most likely would have no effect on net income is
A. Inventory purchase deemed worthless in the current year
B. Collection in the current year of a dividend from an investment
C. Sale in the current year of an office building contributed by a shareholder in a prior year
D. Correction of an error in the financial statements of a prior period discovered subsequent to their issuance

86. Which of the following items is required disclosure in the income statement?
A. Finance costs, tax expense and income
B. Gross profit, operating profit and net profit
C. Revenue, cost of goods sold and advertising expense
D. Operating expenses, non-operating expenses and extraordinary items

87. Which of the following may not be disclosed in the income statement?
A. Gain or loss
B. Tax expense
C. Gain or loss from extraordinary items
D. Gain or loss from discontinued operations

88. Which of the following would appear first in a statement of retained earnings?
A. Cash dividend declared C. Prior period error
B. Net income D. Share dividend issued

89. Which of the following does not appear in a statement of retained earnings?
A. Net loss C. Preference share dividend
B. Other comprehensive income D. Prior period adjustment

90. Under PAS 1, which of the following is true about PFRS requirements?
A. Income statements for three years are required
B. Prior year comparative financial statements are required
C. Statements of financial position for three years are required. Wiley 13
D. There are not specific requirements regarding comparative financial statements

91. An entity decided to extend the report period from a 12-month period to a 15-month period. Which of the following is
not required in case of change in reporting period?
A. The entity should disclose the period covered by the financial statements
B. The entity should disclose the reason for using a longer period than a period of 12 months
C. The entity should disclose that comparative amounts used in the financial statements are not entirely comparable
D. The entity should change the reporting period only if other similar entities in the geographical area in which it
generally operates have done so in the current year

92. The full disclosure principle is best described by which of the following?
A. Disclosure of any financial facts significant enough to influence the judgment of an informed reader
B. All information related to business and operating objectives is required to be disclosed in the financial statements
C. Information about each account balance appearing in the financial statements is to be included in the notes to
financial statements
D. Enough information should be disclosed in the financial statements so as person wishing to invest in the entity can
make a wise decision

93. Application of the full disclosure principle

A. Requires that the financial statements must be consistent and comparable
B. Is violated when important financial information is buried in the notes to the financial statements
C. Is demonstrated by the use of supplementary information presenting the effects of changing prices
D. Is theoretically desirable but not practical because the costs of complete disclosure exceed the benefits

94. Under International Financial Reporting Standards, notes to financial statements

A. Must be quantifiable
B. Must qualify as an element
C. Amplify or explain items presented in the body of the financial statements
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 D. All of the choices are correct regarding notes to financial statements

95. What is the purpose of the “notes to financial statements”?

A. To provide disclosures required by GAAP
B. To correct improper presentation in financial statements
C. To present management response to auditor comments
D. To provide recognition of amounts not included in the total of the financial statements

96. The notes to the financial statements should not be used to

A. Describe significant accounting policies
B. Describe depreciation method employed
C. Describe the principles and methods peculiar to the industry
D. Correct an improper presentation in the financial statements

97. Which information should be disclosed in the summary of significant accounting policies?
A. Guarantee of indebtedness of others
B. Adequacy of pension plan assets relative to vested benefits
C. Refinancing of debt subsequent to the end of reporting period
D. Criteria for determining which investments are treated as cash equivalent Becker 13

98. Which of the following should be disclosed in a summary of significant accounting policies?
A. Claims of equity holders
B. Type of executor contract
C. Depreciation method followed
D. Amount for cumulative effect of change in accounting policy

99. The summary of significant accounting policies should disclose the

A. Basis of profit recognition on long-term construction contracts
B. Adequacy of pension plan assets in relation to vested benefits
C. Pro forma effect of retroactive application of an accounting change
D. Future minimum lease payments in the aggregate and for each of the succeeding fiscal year

100. An entity has a 20% investment in another entity that it accounts for using the equity method. Which of the following
disclosures should be included in the annual financial statements?
A. The accounting policy for the investment
B. Whether the investee ins involved in any litigation
C. The reason for the decision to invest in the investee
D. The names and ownership percentages of the other shareholders in the investee

101. Which of the following information is not specifically a required disclosure?

A. Names of major shareholders of the entity
B. Level of rounding used in presenting the financial statements
C. Whether the financial statements cover the individual entity or a group of entities
D. Name of the reporting entity or other means of identification, and any change in that information from the
previous year

102. Which of the following statements in relation to financial statements is incorrect?

A. An entity shall prepare financial statements using the cash basis of accounting
B. An entity shall not offset assets and liabilities or income and expenses, unless required or permitted by PFRS
C. An entity shall present a complete set of financial statements, including comparative information, at least
annually
D. An entity shall prepare statements on a going concern basis when management either intends to liquidate the
entity or to cease trading or has no realistic alternative but to do so

103. Which of the following is not true about the presentation of financial statements?
A. Presentation of extraordinary items is required
B. Impairment of losses may be reversed in future periods
C. The LIFO cost flow assumptions is not allowed for inventories
D. A separate statement of comprehensive income and separate statement of changes in equity are required

Comprehensive Income
104. What is the purpose of reporting comprehensive income?
A. To replace a net income with a better measure
B. To report a measure of overall entity performance
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 C. To report changes in equity due to transactions with owners
D. To combine income from continuing operations with income from discontinued operations

105. Comprehensive income excludes changes in equity resulting from which of the following?
A. Prior period error correction
B. Dividends paid to shareholders
C. Loss from discontinued operations
D. Unrealized loss in investments classified as available-for-sale

106. Which of the following components of OCI will be reclassified to profit and loss when specific conditions are met?
A. Changes in revaluation surplus
B. Remeasurements of defined benefit plan
C. Gains and losses from investments in equity instruments measured at FVTOCI
D. The effective portion of gains or losses on hedging instruments in a cash flow hedge

107. Which of the following is not an acceptable way of displaying the component of other comprehensive income?
A. Second income statement
B. Combined statement of retained earnings
C. Combined statement of comprehensive income
D. All of the above are acceptable

108. Which is not acceptable in reporting other comprehensive income?

A. Notes to financial statements
B. Statement of changes in equity
C. Single statement of comprehensive income
D. Separate statement of comprehensive income

PFRS 1, First-time Adoption of IFRS

109. Upon first adoption of PFRS, an entity may elect to u se fair value as deemed cost for
A. Financial liability not held for trading
B. Intangible asset for which there is no active market
C. Any individual item of property, plant and equipment
D. Biological asset related to agricultural activity for which there is no active market

110. Under PFRS 1, how should a first-time adopter of PFRS recognize the adjustments required to present the opening
PFRS statement of financial position?
A. All of the adjustments should be recognized in profit or loss
B. All of the adjustments should be recognized directly in retained earnings or, if appropriate, in another category
of equity
C. Current adjustments should be recognized in profit or loss and noncurrent adjustments should be recognized in
retained earnings
D. Adjustments that are capital in nature should be recognized in retained earnings and adjustments that are
revenue in nature should be recognized in profit or loss

PFRS 8, Operating Segments

111. Which may be considered an operating segment?
A. Functional department
B. Postemployment benefit plan
C. Corporate headquarters that earn revenue
D. Start-up operations before earnings revenue

112. For segment reporting purposes, which tests must be applied to determine if a unit or component is a reportable
operating segment?
A. Revenue test, and asset test
B. Revenue test, asset test, and expense test
C. Revenue test, asset test, and cash flow test
D. Revenue test, asset test, and profit or loss test

113. A segment of a business is to be reported separately when the revenue of the segment exceeds then percent of the
A. Total export and foreign sales
B. Total revenue of all entity’s industry segments
C. Combined net income of all segments reporting profit
D. Total combined revenue of all segments reporting profit

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 114. An operating segment is a reportable segment if
A. The operating profit or loss is 10% or more of the entities combined profit or loss
B. The operating profit is 10% or more of the combined operating profit of profitable segments
C. The operating loss is 10% or more of the combined operating loss of unprofitable segments
D. None of these

115. An entity shall disclose information about an operating segment when

A. The segment assets are 10% or more of the combined assets of all segments
B. The segment external and internal revenue is 10% or more of the combined external and internal revenue of all
segments
C. The segment profit or loss is 10% or more of the greater between combined profit or profitable segments and
combined loss of unprofitable segments
D. All of these are correct

116. A major customer is one providing revenue which is

A. At least 90% of the consolidated entity revenue
B. 10% or more of the consolidated entity revenue
C. 10% or more of the combined internal revenue of all segments
D. 10% or more of the combined external and internal revenue of all segments

117. Segment reporting requires that an entity should report all of the following, except
A. Liquidity ratios
B. Major customers
C. Segment assets and liabilities
D. Segment profit and loss and relation information

118. In financial reporting of operating segments, an entity shall disclose all of the following, except
A. Factors used to identify a reportable segment
B. The basis of measurement of segment profit or loss and segment asset
C. The title of the chief operating decision maker of each reportable segment
D. Type of product and service from which each reportable segment derives revenue

119. Under PFRS 8, which of the following statements is true?

A. Disclosure is always required of the total assets of each reportable segment
B. The segment profit or loss should relate to the total assets attributable to that segment
C. The measurement of profit or loss for each reportable segment is defined in the standard
D. If an entity changes the way it is structured internally so that the reportable segments change, the comparative
information for earlier periods must be restated

PAS 24, Related Party Disclosures

120. Under PAS 24, key management personnel compensation includes
A. Post-employment benefits
B. Social security contribution
C. Share-based compensation
D. Social security contributions, post-employment benefit and share-based compensation

121. Which of the following is not a related party of an entity?

A. An associate of the entity
B. Key management personnel of the entity
C. An entity providing banking facilities to the entity
D. A shareholder owning 30% of the ordinary shares

122. Which of the following is not a related party?

A. A director of the entity
B. The parent of the entity
C. The son of the chief executive officer of the entity
D. A shareholder of the entity that holds 1% stake in the entity

123. If a business entity entered into a certain related party transactions, it would be required to disclose all of the
following information, except
A. Nature of the relationship between the parties to the transactions
B. Nature of any future transactions planned between the parties and the terms involved
C. Peso amount of the transactions for each of the periods for which an income statement is presented
D. Amounts due from or to related parties as of the date of each statement of financial position presented
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 124. Which of the following is not a mandated disclosure?
A. Names of all the “associates” that an entity has dealt with during the year
B. Name of the entity’s parent and, if different, the ultimate controlling party
C. Relationship between parents and subsidiaries irrespective of whether there have been transactions between
those related parties
D. If neither the entity’s parent nor its ultimate controlling entity produces financial statements available for public
use, then the name of the next most senior parent that does so

125. If there have been related party transactions during the year, which of the following is not a required minimum
disclosure?
A. The amount of the related party transactions
B. The amount of the outstanding balance along with terms and conditions
C. The amount of similar transactions with unrelated parties to establish the comparable related party transactions
have been entered into at arm’s length
D. Provisions for doubtful debts related to the amount of outstanding balance and expense recognized during the
year in respect of bad or debts due from related parties

PAS 10, Events after the Reporting Period

126. At the end of the current reporting period, an entity carried a receivable from a major customer. The customer
declared bankruptcy after the end of reporting period but prior to authorization of financial statements. How should
the entity account for this event?
A. Ignore the event
B. Make a provision for this post-reporting period event
C. Disclose in the notes the fact that the customer declared bankruptcy
D. Reverse the sale pertaining to this receivable in the comparative statement for the prior period and treat this
as an error

127. Under PAS 10, which of the following events after reporting period would require disclosure?
A. Strike of employees
B. Retirement of the entity president
C. Issue of large number of ordinary shares
D. Settlement of litigation when the event that gave rise to the litigation occurred prior to the reporting date

128. An entity deals extensively with foreign entities, and the financial statements reflect these foreign currency
transactions. Subsequent to the end of reporting period, and before the issuance of the financial statements, there
were abnormal fluctuations in foreign currency rates. How should the entity account for this event?
A. Ignore the post-reporting period event
B. Disclose the post-reporting period event as a non-adjusting event
C. Adjust the foreign exchange year-end balances to reflect the abnormal adverse fluctuations in foreign exchange
rate
D. Adjust the foreign exchange year-end balances to reflect all the abnormal fluctuations in foreign exchange rates
and not just adverse movements

129. Which of the following is a true statement regarding disclosures for subsequent events?
A. Recognize a loss for a recognized subsequent event in the current year financial statements
B. Recognize a gain or loss for any recognized subsequent event in the current year financial statements
C. Recognize a loss for all recognized and unrecognized subsequent events in the current year financial statements
D. Recognize a loss for a recognized subsequent event in the financial statements in the year when the subsequent
event occurs

PAS 7, Statement of cash flows

130. One of the benefits of the statement of cash flows is that it helps users evaluate financial flexibility. Which of the
following explanations is a description of financial flexibility?
A. The entity’s ability to pay debts on maturity
B. The nearness to cash of assets and liabilities
C. The entity’s ability to invest in a number of projects with different objectives and costs
D. The entity’s ability to respond and adapt to financial adversity and unexpected needs and opportunities

131. Cash advances and loans from bank overdrafts should be reported as
A. Operating activities C. Financing activities
B. Investing activities D. Other significant noncash activities

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 132. To arrive at net cash provided by operating activities, it is necessary to report revenue and expenses on a cash basis.
This is done by
A. Re-recording all income statement transactions that directly affect cash in a separate cash flow journal
B. Eliminating the effects of income statement transactions that did not result in a corresponding increase or
decrease in cash
C. Eliminating all transactions that have not current in future effect on cash, such as depreciation, from the net
income computation
D. Estimating the percentage of income statement transactions that were originally reported in a cash basis and
projecting this amount to the entire array of income statement transactions.

133. How should an unrealized gain on foreign currency transaction be presented in a statement of cash flows?
A. It should be ignored as it is an unrealized gain
B. As an adjustment to the net income under “operating activities”
C. As an inflow under “financing activities” because it arises from a foreign currency transaction
D. It should be disclosed in the notes to the financial statements by way of abundant precaution

134. An entity other than a financial institution receives dividends from investment in shares. How should it disclose the
dividends received in the statement of cash flows?
A. Operating cash inflow
B. Either as operating cash inflow or as investing cash inflow
C. Either as operating cash inflow or as financing cash inflow
D. As an adjustment in the “operating activities” section of the cash flow because it is included in the net income
for the year and as a cash inflows in the “financing activities” section of the statement of cash flows

135. Which of the following would affect both financing and operating activities?
A. Collection of loans to other entities C. Payment of dividends
B. Issuance of equity shares D. Redemption of debt

136. An entity purchased a building and the seller accepted payment partly in equity shares and partly in debentures of
the entity. Under PAS 7, this transaction should be treated in the statement of cash flows as which of the following?
A. The purchase of the building should be investing cash outflow and the issuance of shares and the debentures
financing cash outflows
B. The purchase of the building should be investing cash outflow and the issuance of debentures financing cash
outflow while the issuance of shares investing cash outflow
C. The transaction does not belong in a statement of cash flows and should be disclosed only in the notes to the
financial statements
D. Ignore the transaction totally since it is a noncash transaction

137. Most entities interpret that significant noncash investing and financing transactions should be reported
A. In the statement of cash flows
B. In the statement of financial position
C. In the notes to the financial statements
D. In a separate schedule which is part of the statement of cash flows

138. Which of the following statements is true concerning the statement of cash flows?
A. When pension expense exceeds cash funding, the difference is deducted from investing activities in the
statement of cash flows
B. Under IFRS, the purchase of land by issuing ordinary shares will be shown as cash outflow under investing
activities and a cash inflow under financing activities
C. The IASB requires entities to classify all income taxes paid as operating ash outflows unless the taxes can be
specifically identified with financing and investing activities
D. All of these are true concerning the statement of cash flows

Cash & cash equivalent

139. Which of the following items should not be included in “cash”?
A. Money market placement
B. Coins and currency in the cash register
C. Amounts on deposit in checking account at the bank
D. Checks from other parties presently in the cash register

140. A Cash Over and Short account

A. Is not generally accepted
B. Is a contra account to Cash
C. Is debited when the petty cash fund proves out over
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 D. Is debited when the petty cash fund proves out short

141. A cash equivalent is a short-term, highly liquid investment that is readily convertible into known amount of cash and
A. Is acceptable as a means to pay current liabilities
B. Has a current market value that is greater than original cost
C. Is so near maturity that it presents insignificant risk of change in interest rate
D. Bears an interest rate that is at least equal to the prime rate of interest at the date of liquidation

142. Which of the following is considered part of cash and cash equivalents?
A. Bank overdraft C. Money market fund
B. Commercial paper D. Treasury bill

143. What is a compensating balance?

A. Savings account balances
B. Margin account held with brokers
C. Temporary investment serving as collateral for outstanding loan
D. Minimum deposit required to be maintained in connection with a borrowing arrangement

144. Under which classification is “cash restricted for plant expansion” reported?
A. Current assets C. Current liabilities
B. Noncurrent assets D. Equity

Receivables
145. All of the following are problems associated with the valuation of accounts receivable, except
A. Allowances granted
B. Cash discounts under the net method
C. Returns
D. Uncollectible accounts

146. Which if more theoretically correct about cash discounts related to accounts receivable?
A. Net approach
B. Gross approach
C. Allowance approach
D. All three approaches are theoretically correct

147. Which method does not properly match expense and revenue?
A. Charging bad debts as accounts are written off as uncollectible
B. Charging bad debts with a percentage of sales under the allowance method
C. Charging bad debts using aging of accounts receivable under the allowance method
D. Charging bad debts using a percentage of accounts receivable under the allowance method

148. Which of the following concepts relates to the allowance method in accounting for accounts receivable?
A. Bad debt expense is based on the actual amount determined to be uncollectible
B. Bad debt expense is an estimate that is based only on an aging of accounts receivable
C. Bad debts expense is an estimate that is based on historical and prospective information
D. Bad debt expense is management determination of which accounts will be sent to the attorney for collection
KW&W 1e

149. Which of the following is a generally accepted method of determining the amount of the adjustment to bad debt
expense?
A. A percentage of sales adjusted for the balance in the allowance
B. A percentage of sales not adjusted for the balance in the allowance
C. A percentage of accounts receivable not adjusted for the balance in the allowance
D. An amount derived from aging accounts receivable and not adjusted for the balance in the allowance
K,W&W

150. What is the presentation of accounts receivable from officers, employees or affiliated entities?
A. As offset to equity
B. By means of footnote only
C. As trade notes and accounts receivable
D. As assets but separately from other receivables

PAS 2, Inventories
151. An entity that purchases inventory from suppliers for resale to customers should record which inventory?
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 A. Finished goods inventory C. Work in process inventory
B. Merchandise inventory D. All of the choices are correct

152. When inventory is misstated, its presentation lacks

A. Comparability C. Relevance
B. Faithful representation D. All of the choices are correct

153. The failure to record a purchase of merchandise on account even though the goods are properly included in the
physical inventory results in
A. An overstatement of asset and net income
B. An understatement of asset and net income
C. An understatement of liability and an overstatement of equity
D. An understatement of cost of goods sold and liability and an overstatement of assets

154. The IASB prohibits which cost flow assumption for inventory?
A. LIFO
B. Weighted average
C. Specific identification
D. Any of these cost flow assumptions is allowed as long as the entity uses it consistently

155. What is a LIFO reserve?

A. The tax savings by using LIFO
B. Change in LIFO inventory during the year
C. The current effect of using LIFO on net income
D. The difference between the LIFO inventory and the amount used for internal reporting purposes

156. Valuation of inventories requires determination of all of the following except the
A. Costs to be included in inventory
B. Cost flow assumption to be adopted
C. Physical goods to be included in inventory
D. Cost of goods held on consignment from other entities

157. Which of the following is not true about accounting for inventory?
A. FIFO is allowed
B. Interest costs should not be capitalized
C. The weighted-average method is acceptable
D. Inventories are always valued at net realizable value

158. Net realizable value is the general rule for valuing which of the following types of inventory?
A. Commodities held by broker-traders
B. Inventories priced on an item by item basis
C. Computer components held for sale to manufacturers
D. All of the choices are held at NRV

159. Situations in which net realizable value is used to measure inventory include
A. Agricultural inventory
B. Mineral and Mineral products
C. Commodities held by broker-traders
D. All of these

160. Lower of cost and realizable value as it applies to inventory is best described as the
A. Assumption to determine inventory flow
B. Method of determining cost of goods sold
C. Change in inventory value to net realizable value
D. Reporting of a loss when there is a decrease in future utility below the original cost

161. Why are inventories measured at lower of cost and net realizable value?
A. To be conservative
B. To permit future profit to be recognized
C. To report a loss when there is a decrease in the future utility
D. To report a loss when there is a decrease in the future utility below the original cost

162. Under PAS 2, which of the following inventory items is not valued at the lower of cost and net realizable value?
A. Biological inventory C. Manufactured inventory
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 B. Industrial inventory D. Retail inventory

163. Which of the following is not an acceptable method of applying the lower of cost and net realizable value method to
inventory?
A. Individual item C. Major group of inventory
B. Inventory location D. Total of the inventory

164. When inventory declines in value below original cost, what is the maximum amount that the inventory can be valued
at
A. Sales price
B. Historical cost
C. Net realizable value
D. Sales price reduced by estimated cost of disposal

165. An inventory method which is designed to approximate inventory at LCNRV is

A. Conventional retail method C. LIFO
B. FIFO D. Specific identification

166. When the cost of goods sold method is used to record inventory at NRV
A. A loss is debited directly and credited to inventory
B. There is direct reduction in the selling price of the inventory
C. Only the portion of the loss attributable to inventory sold is recorded
D. The NRV is substituted for cost and the loss is buried in the cost of goods sold

167. Which of the following statements is incorrect regarding LCNRV?

A. In most situations, entities price inventory on a total inventory basis
B. Entities can use an allowance amount in reducing inventory at NRV
C. NRV is estimated selling price less estimate cost to complete and cost to make a sale
D. One of two method may be used to record the income effect of valuating inventory at LCNRV

168. A major advantage of the retail inventory method is that is

A. Provides reliable results
B. Hides costs from competitors and customers
C. Gives a more accurate statement of inventory cost that other method
D. Provides a method for inventory control and facilitates determination of the periodic inventory

169. How is the gross profit used as it relates to inventory valuation?

A. To estimate cost of goods sold
B. To provide a LIFO inventory value
C. Verify the accuracy of the physical inventory
D. Verify the accuracy of the perpetual inventory records

170. If a material amount of inventory has been ordered through a formal purchase contract at the statement of financial
position date for future delivery at firm prices
A. This fact must be disclosed
B. An appropriation of retained earnings is necessary
C. Disclosure is required only if prices have since risen substantially
D. Disclosure is required only if prices have declined since the date of the order

171. How is a significant amount of consignment inventory reported in the statement of financial position?
A. The inventory is reported separately on the consignee’s statement of financial position
B. The inventory is reported separately on the consignor’s statement of financial position
C. The inventory is combined with other inventory on the consignee’s statement of financial position
D. The inventory is combined with other inventory on the consignor’s statement of financial position

172. During the year, an entity transferred inventory to another entity and agreed to repurchase the merchandise early
in next year. The transferee used the inventory as collateral to borrow from a bank, remitting the proceeds to the
transferor. When the transferor repurchased the inventory, the transferee used the proceeds to repay the bank loan.
This transaction is known as
A. Assignment for the benefit of creditors
B. Consignment
C. Installment sale
D. Produce financing arrangement

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 173. Where should goods in transit that were recently purchased FOB destination be included?
A. Accounts payable
B. Equipment
C. Inventory
D. Not in the statement of financial position

174. Which if not a common disclosure for inventories?

A. Inventory composition C. Inventory financing arrangement
B. Inventory cost method D. Inventory location

PAS 41, Biological assets

175. Which of the following is not dealt with by PAS 41?
A. The accounting for biological assets
B. The processing of agricultural produce after harvesting
C. The initial measurement of agricultural produce harvested from biological assets
D. The accounting treatment of government grant received in respect of biological assets

176. When activities involve production through natural growth or aging of biological asset, revenue is earned as the plant
or living animal grows
A. Accretion approach
B. Completion of production basis
C. Cost-recovery or zero-profit approach
D. Multiple-deliverable arrangements approach

177. Which of the following is unlikely to be used in fair value measurement of biological asset?
A. Quoted market price
B. External independent valuation
C. The most recent market transactions price
D. The present value of the expected net cash flows from the asset

178. An unconditional government grant related to biological asset should be recognized as

A. Income when the grant becomes receivable
B. A deferred credit when the grant has been approved
C. A deferred credit when the grant become receivable
D. Income when the grant application has been submitted

179. If government grant related to biological asset is unconditional, the grant should be recognized as
A. Income when the grant has been approved
B. A deferred credit when the grant has been approved
C. Income when the conditions attaching to the grant are met
D. A deferred credit when the conditions attaching to the grant are met

180. Which of the following information should be disclosed in relation to agriculture?

A. There is no requirement to disclose separately any gain or loss
B. The total gain or loss from biological assets and agricultural produce
C. Separate disclosure of the gain or loss relating to biological assets and agricultural produce
D. The aggregate gain or loss arising on the initial recognition of biological assets and agricultural produce and from
the change in fair value less cost of disposal of biological assets

181. Where there is a production cycle of more than one year for a biological asset, separate disclosure is
A. Required for physical change
B. Encouraged for physical change
C. Required for physical change and price change
D. Encouraged for physical change and price change

182. Which of the following statements is true about biological assets?

A. Biological assets must be valued at cost
B. Biological assets are only fond in Biotech entities
C. Biological assets do not generally have future economic benefits
D. Biological assets are living animals or plants and must be discovered as a separate item in the statement of
financial position

18
FATP&L, FATOCI, Held-for-Collection Securities
183. Any investment may be accounted for at fair value through profit and loss when
A. It is a debt instrument
B. It is an equity instrument
C. It is traded in active market
D. The instrument matures within 2 yeas

184. Investments in trading debt investments are generally reported at

A. Amortized cost C. Fair value
B. Face value D. Maturity value

185. A “passive interest” in another entity should be accounted for by

A. Consolidation
B. Using the effective interest method
C. Using the equity method
D. Using the fair value method

186. Under the fair value option for debt instrument, entities report all changes in fair value in
A. Equity C. Other comprehensive income
B. Income D. Income or other comprehensive income

187. Which of the following is not precluded from classification as held-to-maturity?

A. A quoted derivative financial asset
B. An investment in quoted debt instrument
C. An investment in quoted equity instrument
D. An investment in unquoted debt instrument

188. Held for collection debt investment are reported at

A. Acquisition cost C. Fair value
B. Amortized cost D. Maturity value

189. Under PFRS, an entity

A. Should evaluate every investment for impairment
B. Accounts for an impairment as an unrealized loss, and includes it has a part of other comprehensive income
until realized
C. Calculates the impairment loss on debt investments as the difference between the carrying amount plus accrued
interest and the expected future cash flows discounted at the investment’s historical effective-interest rate
D. All of the choices are correct

PAS 28, Investments in Associates

190. Which of the following statements best describes the term “significant influence”?
A. The mutual sharing in the risks and benefits of a combined entity
B. The contractually agreed sharing of control over an economic entity
C. The holding of a significant proportion of the share capital in another entity
D. The power to participate in the financial and operating policy decisions of an entity

191. Under PAS 28, beyond the mere 20% threshold, the existence of significant influence is usually evidenced by
A. Participation in policy making process
B. Representation in the board of directors
C. Material transactions between the investor and the investee
D. All of these

192. When a company holds between 20% and 50% of the outstanding stock of an investee, which of the following
statements applies?
A. The investor should always use the equity method to account for its investment
B. The investor should always use the fair value method to account for its investment
C. The investor must use the fair value method unless it can clearly demonstrate the ability to exercise “significant
influence” over the investee
D. The investor should use the equity method to account for its investment unless circumstances indicate that it is
unable to exercise “significant influence” over the investee

19
 193. How is goodwill arising on the acquisition of an associate dealt with in the financial statements?
A. It is amortized
B. It is impairment tested individually
C. It is written off against profit or loss
D. Goodwill is not recognized separately within the carrying amount of the investment

194. Which of the following statements in relation to potential voting rights the investor is incorrect?
A. The potential voting rights should be currently exercisable
B. The potential voting rights are considered in assessing whether the investor has significant influence
C. The investor’s share in the profit or loss of the investee is based on the present ownership interest and the
potential ownership interest
D. All of these statements are correct

195. Under the equity method of accounting for investments, an investor recognizes the share of the earnings in the
period in which the
A. Investee pays a dividend
B. Investor sells the investment
C. Investee declares a dividend
D. Earnings are reported by the investee in the financial statements

196. What should happen when the financial statements of an associate are not prepared at the same date as the financial
statements of the investor?
A. As long as the gap is not greater than three months, there is no problem
B. The financial statements of the associate prepared up to a different date is used as normal
C. The associate should prepare financial statements for the use of the investor at the same date as that of the
investor
D. Any major transactions between the date of the financial statements of the investor and that of the associate
should be accounted for

197. How will the receipt of dividends affect the investment account under the fair value and equity method?
A. No effect under both fair value method and equity method
B. Decrease under fair value method and no effect under equity method
C. Increase under fair value method and decrease under equity method
D. No effect under fair value method and decrease under equity method

198. How is the impairment test carried out for an investment in associate?
A. The carrying amount of the investment shall be compared with the market value
B. The goodwill is separated from the rest of the investment and is impairment tested individually
C. The entire carrying amount of the investment is tested for impairment by comparing the recoverable amount
with carrying amount
D. The recoverable amounts of all investments in associates shall be assessed together to determine whether there
has been an impairment on all investments

IFRS 11, Joint Arrangements

199. Under PFRS 11, it is an arrangement of which two or more parties have joint control
A. Joint arrangement
B. Joint operation
C. Joint undertaking
D. Joint venture

200. Which of the following is a characteristic of a joint arrangement?

A. The parties are bound by a contractual arrangement
B. The contractual arrangement gives two or more parties joint control over the arrangement
C. The parties are bound by a contractual arrangement and the contractual arrangement gives the parties joint
control over the arrangement
D. None of these

201. Joint control is defined as

A. The power to govern the financial and operating policies of another entity
B. The power to participate in the financial and operating policy decisions of another entity
C. The contractually agreed sharing of control of an arrangement which exists only when decisions about relevant
activities require majority consent of the parties sharing control
D. The contractually agreed sharing of control of an arrangement which exists only when decisions about relevant
activities require unanimous consent of the parties sharing control
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 202. It is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets and
obligations for the liabilities relating to the arrangement
A. Joint asset C. Joint operation
B. Joint entity D. Joint venture

203. A joint arrangement that is structured, without a separate vehicle is a

A. Joint asset C. Joint operation
B. Joint entity D. Joint venture

204. It is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets
of the arrangement
A. Joint entity C. Joint undertaking
B. Joint operation D. Joint venture

205. It is the joint arrangement that involves the establishment of a corporation in which each party has an equity interest
in the net assets of the corporation
A. Joint venture
B. Joint operation
C. Either joint venture or joint operation
D. Neither joint venture nor joint operation

206. What is the method of accounting for investment in joint venture?

A. Consolidation method C. Equity method
B. Cost method D. Fair value method

207. When an investment in joint venture is held by a venture capital organization, mutual trust fund, unit trust and
insurance-linked fund
A. The entity must apply the equity method of accounting
B. The entity must apply the fair value method of accounting
C. The entity may elect to measure the investment of joint venture at fair value through profit or loss
D. The entity may elect to measure the investment in joint venture at fair value through other comprehensive
income

PFRS 12, Disclosure of Interests in Other Entities

208. Interests in other entities include
A. Subsidiaries
B. Joint arrangements and associates
C. Structured entities that are not controlled by the entity or unconsolidated structural entities
D. All of these are included in interests in other entities

209. An interest in another entity refers to all of the following, except

A. Typical customer supplier relationship
B. Holding of equity or debt instruments of the other entity
C. Other forms of involvement, such as provision of funding, liquidity support, credit enhancement and guarantee
D. Contractual and non-contractual involvement that exposes an entity to variability of returns from the
performance of the other entity.
210. It is an entity that has been designed so that voting rights are not the dominant factor in deciding who controls the
entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by
means of contractual arrangement.
A. Passive entity C. Structured entity
B. Restructured entity D. Uncontrolled entity

211. Under PFRS 12, an entity is required to disclose information that enables users of the financial statements to evaluate
A. The nature of risks associated with interests in other entities
B. The effects of interests in other entities on financial position, financial performance and cash flows
C. The nature of risks, associated with interests on financial position, financial performance and cash flows
D. None of these

Investment property
212. Under PAS 40, investment property is defined as
A. Property held to earn rentals or for capital appreciation
B. Property held for sale in the ordinary course of business
C. Identifiable nonmonetary asset without physical substance
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 D. Property held for use in the production and supply of goods or services and property held for administrative
purposes

213. An investment property should be measured initially at

A. Cost
B. Cost less accumulated impairment of losses
C. Fair values less accumulated impairment losses
D. Depreciable cost less accumulated impairment losses

214. Transfers from investment property to property, plant and equipment are appropriate
A. When there is change of use
B. Based on the entity’s discretion
C. Only when the entity adopts the fair value model
D. The entity can never transfer investment property into another classification

PAS 16, Property, plant & equipment

215. Which of the following is not a capital expenditure?
A. An addition
B. A betterment
C. A replacement
D. Repair and maintains an asset in operating condition

216. Which of the following is not a major characteristic of an item of property, plant and equipment?
A. Acquired for resale C. Long-term in nature
B. Acquired for use D. Possesses physical substance

217. Under PAS 16, which of the following is not a major characteristic of a plant assets?
A. Long-term in nature
B. Acquired for use in operations
C. Possesses physical substance
D. All of these are major characteristics of a plant asset

218. Fence and parking lot are reported in the statement of financial position as
A. Current assets C. Land improvements
B. Land D. Property, plant and equipment

219. An entity recently purchased land a usable hotel with the plan to tear down immediately the hotel and build a new
luxury hotel. The allocated cost of the old hotel should be
A. Capitalized as part of the cost of the land
B. Depreciated over the remaining useful life
C. Written off as loss in the year the hotel is torn
D. Capitalized as part of the cost of the new hotel

220. A non-recoverable purchase tax on the purchase of machinery should be charged to

A. A separate deferred charge account
B. Accumulated depreciation
C. Miscellaneous tax expense
D. The machinery account

221. Which of the following costs should be capitalized for self-constructed assets?
A. Materials and labor C. Materials, labor and overhead
B. Materials and overhead D. Labor and overhead

222. For a monetary exchange, the configuration of cash flows includes which of the following?
A. The entity-specific value of the asset
B. The estimated present value of the assets exchanged
C. The risk, timing and amount of cash flows of the asset
D. The implicit rate, maturity date of loan and amount of loan

223. The cost of a non-monetary asset acquired in exchange for another non-monetary asset with commercial substance
is usually recorded at
A. Either the fair value of the asset given, or the asset received
B. The fair value of the asset given, and a gain or loss is recognized
C. The fair value of the asset given and a gain but not a loss may be recognized
22
 D. The fair value of the asset received if it is equally reliable as the fair value of the asset given

224. Accounting recognition should be given to the gain realized on a non-monetary exchange of plant asset, except when
the exchange has
A. Commercial substance and additional cash is paid
B. No commercial substance and additional cash is paid
C. Commercial substance and additional cash is received
D. All of these cause recognition of a gain

225. Plant assets purchased on a long-term credit contract should be accounted for at
A. The total value of the future payments
B. The future amount of the future payments
C. The present value of the future payments
D. None of these

226. When accounting for property, plant and equipment, an entity

A. Must use the cost model for land
B. Must use the cost model for presenting the assets
C. May elect to use the cost model or the revaluation model on any asset class
D. May elect to use the cost model or the revaluation model on any individual asset

227. The revaluation surplus resulting from initial revaluation of property, plant and equipment should be
A. Credited to retained earnings
B. Credited to revaluation surplus
C. Released to the income statement
D. Deducted from current assets and added to the property, plant and equipment

228. When the revaluation model is used for reporting property, plant and equipment, the gain or loss should be included
in
A. Income for the period
B. Gain from revaluation in the income statement
C. An extraordinary gain or loss in the income statement
D. A revaluation surplus account in other comprehensive income

229. How it the account revaluation surplus reported?

A. As part of other comprehensive income
B. As other income in the income statement
C. It is included with Reserves in shareholder’s equity
D. The account is not presented in the financial statements

230. Under the revaluation model for accounting for property, plant and equipment
A. Asset must be revalued quarterly
B. Asset must be revalued annually
C. Asset must be revalued bi-annually
D. There is no rule regarding the frequency of revaluation

231. Which is true about the revaluation model for valuing property, plant and equipment?
A. Revaluation of assets must be made every two years
B. There is no rule for the frequency or date of revaluation
C. Revaluation of assets must be made on the same date each year
D. Revaluation of assets must be made on the last day of the fiscal year

232. When an entity chooses the revaluation model as the accounting policy for measuring property, plant and
equipment, which of the following statements is correct?
A. Revaluation of property, plant and equipment must be made at least every three years.
B. When an asset is revalued, the entire class of property, plant and equipment to which that asset belongs must
be revalued
C. Increase in an asset’s carrying amount as a result of the first revaluation must be recognized as a component of
profit or loss
D. When an asset is revalued, individual asset within a class of property, plant and equipment to which that asset
belongs can be revalued

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 233. Which of the following most accurately reflects the concept of depreciation?
A. The process of charging the decline in value of an economic resource to income in the period in which the
benefit occurred
B. A method of allocating asset cost to an expense account in a manner which closely matches the physical
deterioration of the asset
C. The process of allocating the cost of tangible asset to expense in a systematic and rational manner to those
periods expected to benefit from the use of the asset
D. An accounting concept that allocates the portion of an asset used up during the year to the contra asset account
for the purpose of properly recording the fair value of the asset

234. The term “depreciable value” or “depreciation base” refers to

A. The acquisition cost of the asset
B. The estimated fair value of the asset at the end of the useful life
C. The cost of the asset less the related depreciation recorded to date
D. The total amount to be charged to expense over an asset’s useful life

235. Depreciation is a variable expense if the depreciation method use is

A. Declining balance C. Sum of the years’ digits
B. Straight line D. Units of production

236. The activity method of depreciation

A. Is a variable charge approach
B. Results in a constant charge to depreciation expense
C. Results in a decreasing charge to depreciation expense
D. Assumes that depreciation is a function of passage of time

237. The sum-of-the-years-digit method of depreciation

A. Results in residual value being ignored
B. Means the carrying amount should not be reduced below residual value
C. Means the denominator is the years remaining at the beginning of the year
D. All of these describe the sum-of-years-digits method

238. Which of the following is not a similarity in the treatment for depreciation and depletion?
A. Both depreciation and depletion are based on time
B. The estimated life is based on economic or productive life
C. The rate may be changed upon revision of the estimated original productive life
D. Assets are reported in the same classification in the statement of financial position

239. Which of the following disclosures is not required for property, plant and equipment?
A. The depreciation method used
B. The existence and amount of restriction on title
C. A narrative discussion of future capital expenditure plans
D. The measurement basis used for determining the gross carrying amount

240. Which of the following statements is correct?

A. A gain on disposal of a noncurrent asset is classified as revenue
B. Assets are depreciated even if the fair value exceeds carrying amount
C. Land and building are not accounted for separately when acquired together
D. A noncurrent asset acquired as the result of an exchange of assets is not recognized

PFRS 6, Exploration for and Evaluation of Mineral Resources

241. Does PFRS 6 require an entity to recognize exploration and evaluation expenditures as assets?
A. No, such expenditure is always expensed in profit or loss incurred
B. Yes, but only to the extent such expenditure is recoverable in future periods
C. Yes, but only to the extent required by the entity’s accounting policy for recognizing exploration and evaluation
of assets
D. Yes, but only to the extent the technical feasibility and commercial viability of extracting the associated mineral
resources have been demonstrated

242. An entity is required to consider which of the following in developing accounting policy for exploration and evaluation
activities?
A. Recent pronouncements of standard-setting bodies
B. Whether the accounting policy results in information that is relevant and reliable
C. The requirements and guidance in PFRS dealing with similar and related issues
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 D. The definitions, recognition criteria, and measurement concepts or assets, liabilities, income and expenses in
the Conceptual Framework

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

PAS 38, Intangible Assets

244. Under PAS 38, which of the following is a criterion that must be met in order for an item to be recognized as an
intangible asset other than goodwill?
A. The fair value can be measured reliably
B. The item is identifiable and lacks physical substance
C. The item is expected to be used in the production or supply of goods or services
D. The item is part of the activities aimed at gaining new scientific or technical knowledge

245. Which characteristic is not possessed by an intangible asset

A. Identifiable
B. Physical existence
C. Results in future benefits
D. Expenses over current and future periods

246. Which of the following intangible assets might be recorded when a new entity is acquired?
A. A customer list C. A trade name
B. A patent D. All of these intangible assets

247. Which of the following costs should be capitalized when incurred?

A. Costs to internally generated goodwill
B. Filing fees for a patent
C. Organizational costs
D. Research and development costs

248. An entity that acquires an intangible asset may use the revaluation model for subsequent measurement only if
A. The intangible asset is a monetary asset
B. An active market exists for the intangible asset
C. The cost of the intangible asset can be measured reliably
D. The useful life of the intangible asset can be reliably determined

249. The reason goodwill is sometimes referred to as a master valuation account is because
A. The value of a business is computed without consideration of goodwill
B. It represents the purchase price of a business that is about to be sold
C. It is the only account in the financial statements that is based on fair value
D. It is the difference between the fair value of the net identifiable assets as compared with the purchase price of
the acquired business

250. An entity should recognize goodwill at which of the following points?

A. The fair value of assets exceeds the carrying amount
B. Costs have been incurred in the development of goodwill
C. Goodwill has been created in the purchase of a business
D. The entity expects a future benefit form the creation of goodwill

251. What is required with respect to accounting for goodwill?

A. Goodwill should be recorded and never adjusted
B. Goodwill should be amortized over a five-year period
C. Goodwill should be amortized over the expected useful life
D. Goodwill should be recorded and periodically evaluated for impairment

252. Which of the following methods of amortization is normally used for intangible assets?
A. Double-declining balance C. Sum of the years’ digits
B. Straight line D. Units of production

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Research & development costs
253. Which of the following would not be considered an R&D activity?
A. Laboratory research aimed at discovery of new knowledge
B. Conceptual formulation and design of possible product or process alternative
C. Adaptation of an existing capability to a particular requirement or customer need
D. Application of research findings or other knowledge to a plan for new product or process

254. Which of the following would be considered research and development?

A. Construction of prototype
B. Routine effort to refine an existing product
C. Periodic alternation to existing production line
D. Marketing research to promote a new product

255. Which of the following costs should be excluded from research and development expense?
A. Modification of the design of a product
B. Cost of marketing research for a new product
C. Acquisition of R&D equipment for use on a current project only
D. Engineering activity required to advance the design of a product to the manufacturing stage

256. Which of the following statements is true about accounting for development costs?
A. Development costs must be expensed
B. Development costs are recorded in other comprehensive income
C. Development costs are always deferred and expensed against future revenue
D. Development costa may be capitalized as an intangible asset in very restrictive situations

257. Which of the following research and development related costs should be capitalized and depreciated over current
and future periods?
A. Inventory used for a specific research period
B. Administrative salaries allocated to research and development
C. Research findings purchased to aid a particular research project currently in process
D. Research and development general laboratory building which can be put to alternative use in the future

258. Which of the following costs should not be capitalized?

A. Cost incurred to file for patent
B. Cost of testing prototype before economic feasibility has been demonstrated
C. Engineering costs incurred to advance the project to the full production stage
D. Acquisition cost of equipment to be used on current and future projects

Start-up costs
259. Start-up costs including legal fees incurred to organize a new entity should be
A. Expensed as incurred
B. Capitalized and never amortized
C. Capitalized and amortized over 5 years
D. Capitalized and amortized over 40 years

260. Operating losses incurred during the start-up years of a new business should be
A. Written off directly against retained earnings
B. Capitalized as a deferred charge and amortized over five years
C. Accounted for and reported like the operating losses of any other business
D. Capitalized as an intangible asset and amortized over a period not to exceed 20 years

PAS 20, Accounting for Government Grants and Disclosure of Government Assistance
261. Under PAS 20, a government grant shall be recognized when
A. The entity has complied with all the conditions attaching to the grant
B. The entity has complied with all the conditions attaching to the grant and grant will be received
C. There is reasonable assurance that the entity will comply with the conditions attaching to the government grant
D. There is reasonable assurance that the entity will comply with the conditions attaching to the grant and the
grant will be received

262. Which of the following is true regarding the income approach for government grant?
A. Depreciation is higher if the grant is an adjustment of the asset
B. Depreciation is higher and net income lower if the grant is an adjustment to the asset
C. Depreciation is higher if the grant is a deferred revenue and net income is not affected
D. Depreciation is higher and net income is lower if the grant is recorded as deferred revenue
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 263. The account deferred grant revenue is generally classified as
A. Revenue
B. Other income
C. A noncurrent liability
D. A separate component of shareholder’s equity

264. If the cost of the asset is recorded net of the government grant
A. Asset will likely be understated
B. Equity will likely be overstated
C. Liability will likely be overstated
D. Net income will likely be understated

265. Which is true regarding government grant related to asset?

A. Depreciation is higher if the grant is recorded as an adjustment to the asset
B. Depreciation is higher and net income lower if the grant is an adjustment to the asset
C. Depreciation is higher if the grant is a deferred revenue and net income is not affected
D. Depreciation is higher and net income lower if the grant is recorded as deferred revenue

266. Which of the following statements is true about government grant?

A. Grant related to an asset is accounted for either as deferred income or deduction from the carrying amount of
the asset
B. Grant related to income is presented as the other income, separate line item or a deduction from the related
expense
C. A forgivable loan from government is treated as government grant whether there is reasonable assurance that
the entity will meet the terms for the forgiveness of the loan
D. All of these statements are true above government grant

267. Which of the following statements is incorrect in relation to government grant?

A. In respect of loan from the government at zero interest rate, an imputed interest charge should be made in
profit or loss
B. Any adjusted needed when government grant becomes repayable is accounted for as a change in accounting
estimate
C. Where conditions apply to a government grant, if should only be recognized when there is reasonable assurance
that the conditions will be met
D. A government grant that becomes receivable as compensation for losses already incurred should be recognized
as income of the period in which it becomes receivable

268. Which can be considered a government assistance?

A. Imposition of trading constraints on competitors
B. Improved facilities, such as irrigation or water supply
C. Free technical or marketing advice and provision of guarantee
D. Infrastructure by improvement to the general transport and communication network

Pas 36, Impairment of Assets

269. Under PAS 36, the impairment rules for long-lived assets apply to all of the following except
A. Land
B. Financial instruments
C. Building currently used in the business
D. Minicomputers used to run a production process

270. A cash generating unit is

A. The smallest business segment
B. Any group of assets that generates cash flows
C. Any group of assets that is reported separately to management
D. The smallest group of assets that generates independent cash flows from continuing use

271. Where cash generating unit is disposed of, any goodwill associated shall
A. Be written off against retained profits
B. Be included in the calculation of gain or loss
C. Not be included in the calculation of gain or loss
D. Not be written off to the income statement entirely

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272. An entity is considering applying an impairment test to an individual asset or to the cash generating unit to which the
asset belongs. Which of the followings statements is true?
A. If the individual asset generates a significant proportion of cash inflows of the entity as a whole, the cash
generating unit should not be identified
B. If the individual asset does not generate cash inflows that are largely independent from other assets, the cash
generating unit should be identified
C. If the individual asset generates an insignificant proportion of the cash inflows of the entity as a whole, the cash
generating unit should not be identified
D. All of these statements are true

273. Value in use is

A. The market value
B. The amount at which the asset is recognized
C. The higher between fair value less cost of disposal and market value
D. The discounted value or future cash flows from the use and disposal of the asset

274. When calculating the estimates of future cash flows, which of the following cash flows should not be include?
A. Income tax payments
B. Cash flow from disposal
C. Cash flows from the sale of assets produced by the asset
D. Cash outflows incurred to generate the cash inflows from the continuing use of the asset

275. When deciding on the discount rate to be used in calculating value in use, which factor should not be taken into
account?
A. Pretax rate
B. The time value of money
C. Risk specific to the asset for which future cash flow estimated have been adjusted
D. Risk specific to the asset for which future cash flows estimates have not been adjusted

276. Which is the best evidence of fair value less cost of disposal?
A. The carrying amount of the asset
B. The price in a binding sale agreement
C. An asset that is trading in an active market
D. Information available that determines the disposal value of an asset in an arm’s length transaction

277. When an entity determined that an equipment used in operation has suffered impairment in value, the entity to
record the impairment should
A. Include a credit to equipment
B. Include a credit to accumulated depreciation
C. Not be made if the equipment is still being used
D. Recognize extra depreciation expense for the period

278. An impairment loss that relates to an asset that have been revalued should be recognized in
A. Profit or loss
B. Any reserve in equity
C. Opening retained earnings
D. Revaluation surplus that relates to the revalued asset

279. The allocation of an impairment loss should reduce the carrying amount of which asset first?
A. Current assets C. Intangible assets
B. Goodwill D. Property, plant and equipment

280. Which of the following impairment losses should never be reversed?

A. Loss on goodwill
B. Loss on inventory
C. Loss on business segment
D. Loss on property, plant and equipment

281. All of the following are true with regard to impairment testing of long-lived assets, except
A. If impairment indicators are present, the entity must conduct an impairment test
B. If the recoverable amount is lower than the carrying amount, an impairment loss is reported
C. The impairment test compares the carrying amount with the lower of fair value less cost of disposal and value
in use
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 D. If either the fair value less cost of disposal or the value in use is higher than the carrying amount, no impairment
loss is recorded

282. Under PAS 36, which of the following statements is incorrect with regard to impairment?
A. If impairment indicators are present, the entity must conduct an impairment test
B. If the recoverable amount is lower than carrying amount, an impairment loss is recognized
C. If recoverable amount is higher than carrying amount, no impairment loss is recognized
D. The impairment test compares the carrying amount with the lower of fair value less cost of disposal and value
in use

283. Which of the following statements in relation to recovery of impairment for an intangible asset is not true?
A. No recovery of impairment is allowed for goodwill
B. The recovery of impairment is reported as other income
C. The amount of recovery is limited to the carrying amount of the asset that would have been reported had no
impairment occurred
D. After a recovery of impairment had been recognized, the carrying amount of the asset reported would be higher
between fair value less cost of disposal and value in use

284. An entity has determined that the fair value of a cash generating unit exceeds carrying amount. Which of the
following statements is correct concerning this test of impairment?
A. Goodwill should be written down as impaired
B. Goodwill should be retested at the entity level
C. Impairment is not indicated, and no additional analysis is necessary
D. The assets and liabilities should be valued to determine if there has been an impairment of goodwill

PFRS 9, Financial Instruments (replacement of IAS 39)

285. Which of the following is not a financial instrument?
A. Convertible bond C. Loan receivable
B. Foreign currency contract D. Warranty provision

286. The IASB permits which of the following measurement categories for financial assets?
A. Amortized cost C. Fair value
B. Cost D. Fair value and amortized cost

287. Under PFRS 9, entities are required to measure financial assets either at fair value or amortized cost based on all of
the following, except
A. The business model for managing financial assets
B. Whether the financial asset is a debt or equity investment
C. The contractual cash flow characteristics of the financial asset
D. All of these are considered in determining the measurement of the financial asset

288. What is the correct valuation approach for financial asset?

A. Not held for collection at fair value and held for collection at fair value
B. Not held for collection at amortized cost and held for collection at fair value
C. Not held for collection at fair value and held for collection at amortized cost
D. Not held for collection at amortized cost and held for collection at amortized cost

289. “Gains trading” or “cherry picking” involves

A. Moving investments whose value has decreased since acquisition from non-trading to held for collection in
order to avoid reporting losses
B. Reporting investments at fair value but liabilities at amortized cost
C. Selling investments whose value has increased since acquisition while holding those whose value has decreased
since acquisition
D. All are considered methods of “gains trading” or “cherry picking”

PAS 39, Financial Instruments: Recognition & Measurement

290. Under PAS 39, what is the principle for recognition of a financial asset?
A. A financial asset is recognized when the entity obtains control of the instrument
B. A financial asset is recognized when the entity becomes a party to the contractual provisions of the instrument
C. A financial asset is recognized when it is probable that future economic benefits will flow to the entity and the
cost or value of the instrument can be measured reliably
D. A financial asset is recognized when the entity obtains the risks and rewards of ownership of the financial asset
and has the ability to dispose the financial asset

29
 291. Which of the following is not a relevant consideration when to derecognize a financial liability?
A. Whether the obligation has expired
B. Whether the obligation has been cancelled
C. Whether the obligation has been discharged
D. Whether substantially all of the risks and rewards o the obligations have been transferred

292. Which of the following transfers of financial asset would quality for derecognition?
A. A loan of a security to another entity
B. A sale of a financial asset where the entity agrees to repurchase the asset in one year for a fixed price plus
interest
C. A sale of a financial asset where the entity retains an option to buy the asset back at current fair value on the
repurchase date
D. A sale of a portfolio of short-term accounts receivable where the entity guarantees to compensate the buyer
for any losses in the portfolio

293. In which of the following circumstances is derecognition of a financial asset not appropriate?
A. The contractual rights to the cash flows of the financial assets have expired
B. The financial asset has been transferred and the entity has lost control of the transferred asset
C. The financial asset has been transferred and the entity has retained substantially all of the risks and rewards of
ownership of the transferred asset
D. The financial asset has been transferred and substantially all of the risks and rewards of ownership of the
transferred asset have also been transferred

PAS 32, Financial Instruments: Presentation

294. Which of the following is not a financial asset?
A. Cash
B. Prepaid expense
C. A contractual right to receive cash
D. An equity instrument of another entity

295. Which of the following is a financial liability?

A. Deferred revenue
B. A warranty obligation
C. A constructive obligation
D. An obligation to deliver own shares worth a fixed amount of cash

296. Under PAS 32, which of the following would not be classified as a financial liability?
A. A preference share that will be redeemed by the issuer for cash on a future date
B. A contract for the delivery of as many of the entity’s ordinary shares as are equal in value to a fixed amount on
a future date
C. A written call option that gives the holder the right to purchase a fixed number of the entity’s ordinary shares
in return for a fixed price
D. An issued perpetual debt instrument

297. For financial liabilities designated as at fair value through profit or loss, the amount of the change in fair value that is
attributable to change in the credit risk is
A. Included in profit or loss
B. Recognized directly in retained earnings
C. Component of other comprehensive income
D. All of these

298. What is the principal accounting for a compound instrument?

A. The issuer shall classify a compound instrument as a liability in its entirety
B. The issuer shall classify a compound instrument as either a liability or equity
C. The issuer shall classify a compound instrument as a liability in tis entirely until converted into equity
D. The issuer shall classify the liability and equity components of a compound instrument separately as liability or
equity instrument

299. How are the proceeds from issuing a compound instrument allocated between the liability and equity components
A. The proceeds are allocated to the liability and equity components based on fair value
B. First, the liability component is measured at fair value and then the remainder is allocated to the equity
component
C. First, the equity component is measured at fair value and then the remainder is allocated to the liability
component
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 D. The equity component is measured at intrinsic value and the liability component is measured at par amount less
the intrinsic value of the equity component

300. What are the conditions for offsetting of financial assets and financial liabilities?
A. A legal right of set-off
B. The existence of a clearing mechanism for net settlement
C. A netting agreement and an expectation of net settlement
D. A legal right of set-off and an intention to settle the net or simultaneously

PFRS 7, Financial Instrument: Disclosures

301. Under PFRS 7, the risks arising from financial instruments that are required to be disclosed include all of the following,
except qualitative and quantitative information about
A. Credit risk C. Market risk
B. Liquidity risk D. Operational risk

302. Which of the following best describes credit risk?

A. The risk that an entity’s credit facilities will be withdrawn due to cash flow sensitivities
B. The risk that an entity would encounter difficulty in meeting obligations associated with financial liabilities
C. The risk that the fair value associated with an instrument would vary due to changes in the counterparty’s credit
rating
D. The risk that one party to a financial instrument would cause a financial loss for the other party by failing to
discharge an obligation

303. The components of market risks are

A. Credit risk and liquidity risk
B. Currency risk and credit risk
C. Interest rate risk and currency risk
D. Liquidity risk and currency risk

Derivative & Hedging Activities

304. The basic purpose of derivative financial instruments is to manage some kind of risk such as all of the following,
except
A. Currency fluctuation
B. Interest rate variation
C. Stock price movement
D. Uncollectibility of accounts receivable

305. All of the following are characteristics of a derivative, except

A. It is settled at a future date
B. It requires no initial investment or an initial small net investment
C. Its value changes in response to the change in a specified underlying
D. It is acquired for the purpose of generating a profit from short-term fluctuations

306. Which of the following is an underlying?

A. A credit rating C. An average daily temperature
B. A security price D. All of these could be underlyings

307. An example of a notional amount is

A. Currency swap C. Number of barrels of oil
B. Interest rate D. Stock price

308. Entities that attempt to exploit inefficiencies in various derivative markets by attempting to lock in profits by
simultaneously entering into transactions in two or more markets are called
A. Arbitrageurs C. Hedgers
B. Gamblers D. Speculators

309. Which embedded derivative should not be accounted for separately?

A. An investment in a convertible bond that is classified as available-for-sale
B. An investment in a bond whose interest payments are linked to the price of gold and the bond is classified as
available-for-sale
C. An investment in a bond whose interest payments are linked to the price or silver and the bond is classified as
at fair value through profit or loss
D. A call option in an investment in an equity instrument that allows the issuer to repurchase the instrument

31
 310. It is a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time
frame established by regulation or convention in the market place
A. Firm commitment C. Forward contract
B. Forecast transaction D. Regular way contract

PFRS 13, Fair Value Measurement

311. Which of the following is an assumption used in fair value measurements?

A. The asset must be in-use
B. The asset is in its higher and best use
C. The asset must be considered in-exchange
D. The most conservative estimate must be used

312. Which of the following describes a principal market for establishing fair value of an asset?
A. Any broker or dealer market that buys or sells the asset
B. The market in which the amount received would be maximized
C. The most observable market in which the price of the asset is minimized
D. The market that has the greatest volume and level of activity for the asset

313. It is defined as 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
A. Active market C. Principal market
B. Global market D. Stock market

314. Under PFRS 13, the fair value of an asset or a liability is measured as
A. The appraised value of the lease or liability
B. The cost of the asset less accumulated depreciation or the carrying amount of the liability on the date of sale
C. The price that would be paid to acquire the asset or received to assume the liability in an orderly transaction
between market participants
D. The price that would be received when selling an asset or paid when transferring a liability in an orderly
transaction between market participants

315. The fair value at initial recognition is

A. The price paid to acquire the asset
B. The price paid to transfer or sell the asset
C. The carrying amount of the asset acquired
D. The price paid to acquire the asset less transaction cost

316. Valuation techniques for fair value that include the Black-Scholes-Merton formula, a binomial model, or discounted
cash flows are examples of which valuation technique?
A. Cost approach C. Market approach
B. Income approach D. Residual value approach

317. When measuring fair value, which level has the highest priority for valuation inputs?
A. Level 1 C. Level 3
B. Level 2 D. Level 4

PFFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations

318. Under PFRS 5, how should assets and liabilities of a disposal group classified as held for sale be reported in the
statement of financial position?
A. The assets and liabilities should be offset and presented as a single amount
B. The assets and liabilities should be presented as a noncurrent single amount
C. There should be no separate disclosure of assets and liabilities of a disposal group
D. The assets of a disposal group should be reported separately from other assets and the liabilities of the disposal
group should be reported separately from other liabilities

319. An entity has an asset that was classified as held for sale. However, the criteria for it to remain as held for sale no
longer apply. What is the proper treatment of the asset?
A. Remeasure the noncurrent asset at fair value
B. Leave the noncurrent asset at current carrying amount
C. Recognize the noncurrent asset at its carrying amount prior to its classification as held for sale, adjusted
subsequent depreciation, amortization or revaluation

32
 D. Measure the noncurrent asset at the lower of its carrying amount before the asset was classified as held for
sale, adjusted for subsequent depreciation, amortization, or revaluations, and its recoverable amount at the
date of the decision not to sell

320. When a component of a business has been discontinued, the loss on disposal should
A. Be reported as an operating item
B. Be reported as an extraordinary item
C. Exclude operating loss during the period
D. Include operating loss of the current period

321. Which of the following statements relating to a discontinued operation is true?

A. To be classified as held for sale, the discontinued operation must be sold within twelve months from the end of
the reporting period
B. The net cash flows attributable to the operating, investing and financing activities of a discontinued operation
shall be presented separately
C. When the discontinued criteria are met after the end of reporting period, the operation shall retrospectively be
presented as a discontinued operation
D. All of these statements are true

PAS 37, Provisions, Contingent Liabilities and Contingent Assets

322. Under PAS 37, a “provision” is recognized
A. When there is a possible obligation arising from past event
B. When management decides that it is essential that a provision be made
C. When there is a legal obligation arising from a past event, the probability of the outflow of resources is less than
probably, and a reliable estimate can be made
D. When there is a constructive obligation as a result of a past event, the outflow of resources is probably, and a
reliable estimate can be made of the amount of the obligation

323. Which of the following accounts would not be considered a “provision”?

A. Bad debts C. Taxes payable
B. Note payable D. Warranty liability

324. For which of the following should a provision be recognized?

A. Future operating losses
B. Obligations under insurance contracts
C. Obligations for plant decommissioning costs
D. Reductions in fair value of financial statements

325. Provisions shall be recognized for all of the following, except

A. Rectification costs relating to defective products already sold
B. Restructuring costs after a binding sale agreement has been signed
C. Future refurbishment costs due to introduction of a new computer system
D. Cleaning up costs of contaminated land when an oil entity has a published policy that it will undertake to clean
up all contamination that is causes

326. An entity operated chemical plant and has a published policy of making good any damage caused to the environment.
Which of the following would give rise to a provision?
A. It is likely that a chemical spill which would result to pay penalty will occur next year
B. A chemical spill from a chemical plant has caused harm to the surrounding wildlife
C. The government has a plan for a law requiring all environmental damage to be rectified
D. Research suggests that there is a possibility that the entity’s action may cause damage to surrounding wildlife

327. Which of the following is not considered when evaluating whether or not to record a liability for pending litigation?
A. The type of litigation involved
B. The probability of an unfavorable outcome
C. Time period in which the underlying cause of action occurred
D. The ability to make a reasonable estimate of the amount of the loss

328. A contingency is described as

A. An estimated liability
B. A potential small liability
C. A potentially large liability
D. An event which is not recognized because it is not probable that an outflow will be required, or the amount
cannot be reasonably estimated
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 329. Which of the following should be disclosed in the financial statements as a contingent liability
A. The entity has not yet paid certain claims under sales warranty
B. The entity is involved in a legal case which it may possibly lose
C. The entity has accepted liability at year-end for unfair dismissal of an employee
D. The entity has received a letter from a supplier complaining about an old unpaid invoice

330. Contingent assets need not be disclosed when considered

A. Likely
B. Possible
C. Probable
D. Virtually certain

Bonds payable & notes payable

331. When a note payable is issued for property, the present value of the note is measured by
A. The fair value of the note
B. The fair value of the property
C. Using an imputed interest rate to discount all future payments on the note
D. Any of these

332. When a note payable is issued for property, goods or services, the present value of the note is measured by
A. The fair value of the note
B. The fair value of the property, goods or services
C. Using an imputed interest rate to discount all future payments on the note
D. Any of these

333. A debt instrument with no ready market is exchanged for real property whose fair value is currently indeterminable.
When such a transaction takes place
A. The present value of the debt instrument must be approximated using an imputed-interest rate
B. The debt instrument should not be recorded on the books of either party until the fair value of the property
become evident
C. The board of directors of the entity receiving the property should estimate a value for the property that will
serve as a basis for the transaction
D. The directors of both entities involved int eh transaction should negotiate a value to be assigned to the property

334. A discount on note payable is charged to interest expense

A. Equally over the life of the note
B. Only in the year the note is issued
C. Only in the year the note matures
D. Using the effective interest method

335. Income bonds

A. Are high-risk and high yield
B. Are unsecured as to principal
C. Pay no interest unless the issuer is profitable
D. Are bonds for which the owners’ names are not registered with the issuer

336. What method may be used to report the bonds payable at year-end?
A. Amortized cot
B. Fair value through other comprehensive income
C. Amortized cost and fair value through other comprehensive income
D. Amortized cost and fair value through profit or loss

337. Bond issuance costs should be

A. Expensed in the period when the debt is issued
B. Recorded as a reduction in the carrying amount of bonds payable
C. Reported as an expense in the period the bonds mature or are retired
D. Accumulated in deferred charge account and amortized over the life of the bonds

338. When bonds are issued with detachable warrants, what amount is recorded as share premium?
A. Zero
B. The market value of the warrants
C. The excess of the proceeds over the fair value of the bonds
D. The excess of the proceeds over the face value of the bonds
34
 339. When the effective-interest method is used to amortize bond premium or discount, the periodic amortization would
A. Increase if the bonds were issued at a discount
B. Increase if the bonds were issued at a premium
C. Decrease if the bonds were issued at a premium
D. Increase if the bonds were issued at either a discount or a premium

340. Where is debt callable by the creditor reported in the debtor’s financial statements?
A. Current liability
B. Noncurrent liability
C. Current liability if the creditor intends to call the debt within the year
D. Current liability if it is probable that creditor will call the debt within the year

341. If a long-term debt becomes callable due to the violation of a loan covenant
A. Cash must be reserved to pay the debt
B. The debt must be reclassified as current
C. Retained earnings must be restricted in the amount of the debt
D. The debt may continue to be classified as long-term if the entity believes the covenant can be renegotiated

342. Note disclosures for long-term debt generally include all of the following except
A. Assets pledged as security
B. Names of specific creditors
C. Restrictions imposed by the creditor
D. Call provision and conversion privileges

PAS 23, Borrowing Costs

343. Under PAS 23, borrowing costs can be capitalized as part of the asset when
A. The asset is a qualifying asset
B. The asset is a qualifying asset and it is not probable that the borrowing costs will result in future economic
benefits to the entity
C. The asset is a qualifying asset and it is probable that the borrowing costs will result in future economic benefits
to the entity and the costs can be measured reliably
D. The asset is a qualifying asset and it is probable that the borrowing cots will result in future economic benefits
to the entity, but the costs cannot be measured reliably

344. When computing capitalizable interest cost, what is the concept of “avoidable interest”?
A. A cost of capital charge for equity
B. The total interest cost actually incurred
C. That portion of average accumulated expenditures on which no interest cost was incurred
D. That portion of total interest cost which would not have been incurred if expenditures for asset construction
had not been made

345. Interest cost that is capitalized should

A. Be written off over the remaining term of the debt
B. Not be written off until the related asset is fully depreciated or disposed of
C. Be accumulated in a deferred charge account and written off equally over a 40-year period
D. None of these

346. Which of the following statements is true regarding capitalization of interest?

A. Interest cost capitalized in connection with the purchase of land to be used as a building site should be debited
to the land account and not the building account
B. The amount of interest cost capitalized during the period should not exceed the actual interest cost incurred
C. When excess borrowed funds not immediately needed for construction are temporarily invested, any interest
earned should be recorded as interest revenue
D. The minimum amount of interest to be capitalized is determined by multiplying a weighted-average interest
rate by the amount of average accumulated expenditures on qualifying asset during the period

347. Which of the following costs may not be eligible for capitalization as borrowing costs?
A. Imputed cost of equity
B. Interest on bonds issued to finance the construction of a qualifying asset
C. Amortization of discounts or premiums relating to borrowings that qualify for capitalization
D. Exchange differences arising from foreign currency borrowings to the extend these are regarded as an
adjustment to interest costs pertaining to a qualifying asset

35
 348. Which of the following statements about the capitalization of borrowing costs as part of the costs of qualifying asset
is true?
A. Capitalization always continues until the asset is brought into use
B. Capitalization always commences as soon as expenditure of the asset is incurred
C. Capitalization always commences as soon as interest on relevant borrowings is being incurred
D. If funds come from general borrowings, the amount to be capitalized is based on the weighted average cost of
borrowing

PAS 17, Leases

349. The concept that is principally used to classify leases into operating and finance is
A. Completeness C. Prudence
B. Neutrality D. Substance over form

350. The classification of a lease is normally carried out

A. At the end of the lease term
B. At the inception of the lease
C. When the entity deems it necessary
D. After a “cooling off” period of one year

351. Under PAS 17, which of the following situations would prima facie lead to a lease being classified as an operating
lease?
A. The lease is for a major part of the asset’s life
B. Option to purchase at a value below the fair value of the asset
C. Transfer of ownership to the lessee at the end of the lease term
D. The present value of the minimum lease payments is 50% of the fair value of the asset

352. Which of the flowing best describes current practice in accounting for leases?
A. All leases are capitalized
B. Leases are not capitalized
C. All long-term leases are capitalized
D. Leases similar to installment purchases are capitalized

353. Which of the following is a correct statement of one of the lease capitalization criteria?
A. The lease contains a purchase option
B. The lease transfers ownership of the property to the lessor
C. The lease term is equal to or more than 75% of the economic life of the property
D. The minimum lease payments equal or exceed 90% of the fair value of the property

354. Which of the following is not one of the ways to accomplish the goal avoiding leased asset capitalization?
A. Write in a bargain purpose option
B. Use a third party to guarantee the asset’s residual value
C. Set the lease term at less than 75% of the estimated useful life of the property
D. Ensure that the lease term does not specify transfer of title of the property to the lease

355. Where there is a lease of land and building and the title to the land is not transferred, generally the lease is treated
as if
A. The land is a finance lease and building is a finance lease
B. The land is a finance lease and the building is an operating lease
C. The land is an operating lease and the building is a finance lease
D. The land is an operating lease and the building is an operating lease

356. Which of the following statements in relation to initial direct costs is correct?
A. In a direct financing lease, initial direct costs are added to the net investment in the lease
B. In a sales-type lease, initial direct costs are expensed in the year of incurrence
C. For operating lease, initial direct costs are deferred and allocated over the lease term
D. All of the statements are correct

357. Under PAS 17, minimum lease payments may include

A. Bargain purchase option
B. Guaranteed residual value
C. Penalty for failure to renew
D. Any of these

36
 358. For lease of land and building, the minimum lease payments should be split
A. According to the relative fair value of two elements
B. By the entity based on the useful life of the two elements
C. Using the sum of the digits method
D. According to any fair method devised by the entity

359. What is the interest rate used by a lease to capitalize a finance lease when the implicit rate cannot be determined?
A. The prime rate
B. The lessor’s published rate
C. The lessee’s average borrowing rate
D. The lessee’s incremental borrowing rate

360. The lease liability account should be reported as

A. All current
B. All noncurrent
C. Deferred credit
D. Current portion in current liabilities and the remainder in noncurrent liabilities

361. In computing depreciation of a leased asset, the lessee should subtract

A. A guaranteed residual value and depreciate over the life of the asset
B. A guaranteed residual and depreciate over the term of the lease
C. An unguaranteed residual value and depreciate over the life of the asset
D. An unguaranteed residual value and depreciate over the term of the lease

362. Under a sales-type lease

A. The sale price includes the present value of the unguaranteed residual value
B. The gross profit is the same whether the residual value is guaranteed or unguaranteed
C. The present value of guaranteed residual is deducted to determine the cost of goods sold
D. None of these

363. The profit on a finance lease for lessors who are manufacturers or dealers should
A. Only be recognized at the end of the lease term
B. Not be recognized separately from finance income
C. Be recognized in the normal way on the transaction
D. Be allocated on a straight-line basis over the life of the lease

364. Which of the following would not be included in the lease receivable account?
A. A bargain purchase option
B. Guaranteed residual value
C. Unguaranteed residual value
D. All would be included

365. The lease receivable in a direct financing lease is best defined as

A. The present value of minimum lease payments
B. The difference between the lease payments receivable and the fair value of the leased property
C. The amount of funds the lessor has tied up in the asset which is the subject of the direct-financing lease
D. The total carrying amount of the asset less any accumulated depreciation recorded by the lessor prior to the
lease agreement

PAS 12, Income Taxes

366. Entities use intra-period tax allocation for all of the following items, except
A. Changes in accounting estimate
B. Discontinued operations
C. Income from continuing operations
D. Prior period adjustments

367. Income taxes are allocated to all of the following, except

A. Continuing operation C. Gross profit
B. Discontinued operation D. Prior period adjustments

368. Entities allocate income tax expense or benefit to all of the following except
A. Discontinued operation C. Other comprehensive income
B. Gross profit D. Prior period adjustment

37
 369. Which of the following is true about intra-period tax allocation?
A. The purpose is to relate the income tax expense to the items which affect income tax
B. The purpose is to allocate income tax expenses evenly over a number of accounting periods
C. It is required for the cumulative effect of accounting changes but not prior period adjustments
D. It arises because certain revenue and expense items appear in the income statement either before or after they
are included in the tax return

370. Which temporary difference would result in a deferred tax asset?

A. Tax penalty or surcharge
B. Dividend received on share investment
C. Excess tax depreciation over accounting depreciation
D. Rent received in advance included in taxable income but deferred for financial accounting

371. Under PAS 12, which temporary difference would result in a deferred tax liability?
A. Accrual of warranty expense
B. Interest revenue on municipal bonds
C. Subscription revenue received in advance
D. Excess tax depreciation over financial depreciation

372. Taxable income of a corporation

A. Is reported on the income statement
B. Is based on international financial reporting standards
C. Differs from accounting income due to differences in inter-period allocation between the two methods of
income determination
D. Differs from accounting income due to differences in inter-period allocation and permanent differences
between the two methods of income determination

373. Total tax expense is based on

A. Taxable income
B. Financial income
C. Financial income excluding temporary and permanent differences
D. Financial income excluding permanent differences but including temporary differences

374. The deferred tax expense is the

A. Increase in deferred tax asset plus the increase in deferred tax liability
B. Increase in deferred tax asset minus the increase in deferred tax liability
C. Increase in deferred tax liability minus the increase in deferred tax asset
D. Decrease in deferred tax asset minus the increase in deferred tax liability

375. All of the following would result in a deferred tax asset, except
A. The tax base of an asset is greater than carrying amount
B. Interest expense is accrued but included in taxable income on a cash basis
C. The financial accumulated depreciated is greater than tax accumulated depreciation
D. Development costs have been capitalized and amortized but were included in determining taxable income in
the period incurred

376. Which of the following is correct about the presentation of deferred tax assets and liabilities?
A. Deferred tax assets are never netted against deferred tax liabilities
B. Current deferred tax assets are netted against current deferred tax liabilities
C. All noncurrent deferred tax assets are netted against noncurrent deferred tax liabilities
D. Deferred tax assets are netted against deferred tax liabilities if these relate to the same taxing authority

PAS 19R, Employee Benefits

377. Which of the following is not a characteristic of a defined-contribution pension plan?
A. The employer’s contribution each period is based on a formula
B. The accounting for a defined-contribution plan is straightforward and uncomplicated
C. The benefit of gain or the risk of loss from the assets contributed to the pension fund are borne by the employee
D. The benefits to be received by employees are usually determined by an employee’s three highest years of salary
defined by the terms of the plan

378. An entity contributes to an industrial pension plan that provides a pension arrangement for the employees. A large
number of their employees also contribute to the pension plan, and the entity makes contributions in respect of each
employee. These contributions are kept separate from corporate assets and are used together with any investment

38
 income to purchase annuities for retired employees. The only obligation of the entity is to pay the annual
contributions. This pension scheme is a
A. Defined benefit plan only
B. Defined contribution plan only
C. Multiemployer plan and a defined benefit scheme
D. Multiemployer plan and a defined contribution scheme

379. In rare circumstances, when a retirement benefit plan has attributes of both defined contribution plan and defined
benefit plan, it is deemed
A. Defined benefit plan
B. Defined contribution plan
C. Either defined benefit plan or defined contribution plan
D. Neither defined benefit plan nor defined contribution plan

380. In a defined benefit plan, the process of funding refers to

A. Determining the projected benefit obligation
B. Determining the accumulated benefit obligation
C. Determining the amount that might be reported for pension expense
D. Making the periodic contributions to a funding agency to ensure that funds are available to meet claims of
retirees

381. Vested benefits

A. Are not contingent upon additional service under the plan
B. Are those that an employee is entitled to received even if fired
C. Usually require a certain minimum number of years of service
D. Are defined by all of those

382. In accounting for a defined-benefit pension plan

A. The expense recognized each period is equal to the cash contribution
B. The liability is determined based upon known variables that reflect future salary levels promised to employees
C. The employer’s responsibility is simply to make a contribution each year based on the formula established in
the plan
D. An appropriate funding pattern must be established to ensure that enough monies will be available at
retirement to meet the benefits promised

383. Which measure requires the use of future salaries in the computation of pension obligation?
A. Accumulated benefit obligation
B. Defined benefit obligation
C. Restructured benefit obligation
D. Vested benefit obligation

384. The interest on the defined benefit obligation component of pension expense
A. Is the same as the expected return on plan assets
B. May be stated implicitly or explicitly when reported
C. Reflects the incremental borrowing rate of the employer
D. Reflects the rate at which pension benefits could be effectively settled

385. Which of the following is taken into account when determining the discount rate?
A. Investment or actuarial risk
B. Specific risk associated with the entity’s business
C. Risk that future experiences may differ from actuarial assumptions
D. Market yields at the end of reporting period on high-quality corporate bonds

386. The computation of pension expense includes all of the following except
A. Past service cost
B. Interest income on plan assets
C. Interest on projected benefit obligation
D. Current service cost component measured using current salary levels

387. A pension liability would result at the end of the year if the
A. Amount of employer contribution exceeds the pension expense
B. Fair value of the plan assets exceeds the projected benefit obligation
C. Projected benefit obligation exceeds the fair value of the plan assets
D. Amount of pension expense exceeds the amount of employer contribution
39
 388. An entity has decided to improve its defined benefit pension scheme. The benefit payable will be determined by
reference to 60 years of service rather than 80 years of service. As a result, there is an increase in the defined benefit
pension liability. How should the increase in the pension liability be treated in the financial statements?
A. The past service cost should not be recognized
B. The past service cost should be charged against retained earnings
C. The past service cost should be charged against profit or loss for the year
D. The past service cost should be allocated over the remaining service period

389. When the fair value of plan assets exceeds the defined benefit obligation, PAS 19R
A. Requires recognition of an asset
B. Does not permit recognition of an asset
C. Recommends but does not require recognition of an asset
D. Requires recognition of an asset if the excess fair value of plan assets exceeds the corridor amount

390. Which of the following disclosures of pension plan information would not be required?
A. The major components of pension expense
B. The rate used in measuring the benefit amount
C. The amount of past service cost charged in previous years
D. The funded status of the plan and the amounts recognized in the financial statements

391. Which is not included in service cost?

A. Current service cost C. Past service cost
B. Interest cost D. Plan settlement gain or loss

PAS 26, Accounting and Reporting by Retirement Benefit Plans

392. Under PAS 26, the report of a defined contribution plan shall contain
A. A statement of net assets available for benefits
B. A description of the funding policy
C. Either a statement of net assets available for benefits or a description of funding policy
D. Both a statement of net assts available for benefits and a description of funding policy

393. Plan assets include

A. Only assets reported as pension fund
B. Plan assets still under the control of the entity
C. Contributions made by the employer and contributions made by the employee when a contributory plan is
involved
D. None of these

394. The report of a defined benefit plan shall contain

A. A statement showing net assets available for benefits, the present value of promised benefits and the
resulting excess or deficit
B. A statement of net assts available for benefits including a note disclosing the present value of promised
benefits
A. I only C. Both I and II
B. II only D. Either I or II

395. Which of the following may be disclosed in the financial report of a defined benefit plan but would not be shown in
the financial report of a defined contribution plan?
A. Employer contributions
B. Employee contributions
C. Government bonds held
D. Actuarial present value of promised retirement benefits

Other Employee Benefits

396. What are compensated absences?
A. A form of healthcare C. Payroll deductions
B. Paid time off D. Unpaid time off

PFRS 2, Share-based Payment

397. Under PFRS 2, which of the following is true regarding share-based payment transactions?
A. There are no exemptions
B. Small entities are exempt
C. Private entities are exempt
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 D. Subsidiaries using their parent entity’s shares as consideration for goods and services are exempt

398. The measurement date for the compensation in a share option plan is the date on which the employee
A. Exercises the option
B. Is granted the option
C. May first exercise the option
D. Has performed all conditions precedent to exercising the option

399. An entity has entered into a contract with another entity which will supply a range of services. The payment for those
services will be in cash and based upon the price of the entity’s ordinary shares on completion of the contract. What
type of share-based payment transaction does this represent?
A. Asset-settled share-based payment transaction
B. Cash-settle share-based payment transaction
C. Equity-settled share-based payments transaction
D. Liability-settled share-based payment transaction

400. Which of the following option valuation techniques should not be used as a measure of fair value of share options in
the first issuance?
A. Binomial model C. Intrinsic value
B. Black-Scholes model D. Monte-Carlo model

401. How should an entity recognize the change in the fair value of the liability in respect of cash-settled share-based
payment transaction?
A. In profit or loss
B. Disclosure in the notes
C. In other comprehensive income
D. In the statement of changes in equity

Shareholder’s equity
402. Transaction costs directly attributable to the issuance of new shares include
A. Documentary stamp tax C. Underwriting fee
B. SEC registration fee for new shares D. All of these

403. Transaction costs that are directly attributable to the issuance of new shares should be
A. Deducted from equity
B. Expensed immediately
C. Charged to retained earnings
D. Deducted from equity, net of any related income tax benefit

404. Costs of public offering or listing of shares include

a. Public relations consultant fee C. Stock listing fee
b. Road show presentation D. All of these

405. Costs of public offering or stock market listing of shares should be

A. Deducted from equity
B. Expensed immediately
C. Considered as component of other comprehensive income
D. Deducted from equity, net of any related income tax benefit

406. The features frequently associated with preference shares include all of the following, except
A. Nonvoting
B. Convertible into ordinary shares
C. Callable at the option of the shareholders
D. Preference as to assets in the event of liquidation

407. Which feature makes a preference share more like debt than an equity instrument?
A. Noncumulative C. Redeemable
B. Participating D. Voting

408. Which of the following is not a method that may be used to account for treasury shares?
A. Constructive retirement method C. Par value method
B. Cost method D. Retained earnings method

41
 409. Cash dividends are paid on the basis of the number of shares
A. Authorized
B. Issued
C. Outstanding
D. Outstanding less the number of treasury shares

410. Which dividends do not reduce equity?

A. Cash dividends C. Property dividends
B. Liquidating dividends D. Share dividends

411. At the date of declaration of a small ordinary share dividend, the entry should not include
A. A debit to retained earnings
B. A credit to share dividend payable
C. A credit to share premium
D. All of these are acceptable

412. Which of the following statements about property dividends is not true?
A. A property dividend is also called a dividend in kind
B. A property dividend is usually in the form of securities of other entities
C. The accounting for a property dividend should be based on the carrying amount of the nonmonetary asset
transferred
D. All of these statements are true

413. Dividends representing a return of capital to shareholders are not uncommon among entities which
A. Use accelerated depreciation method
B. Use straight-line depreciation method
C. Recognize both functional and physical factors in depreciation
D. None of these

414. The distribution of share rights to existing ordinary shareholders would increase share premium at
A. Date of issuance of rights C. Date of expiration of rights
B. Date of exercise of rights D. All of these are correct choice

Revenue & Expense Recognition

415. Which of the following must be met to recognize revenue from the sale of goods, except
A. The amount of revenue can be measured reliably
B. It Is possible that the economic benefits will flow to the entity
C. The costs incurred or to be incurred can be estimated reliably
D. The entity has transferred to the buyer the significant risks and rewards of ownership

416. Generally, revenue from sales should be recognized at a point when

A. Management decides it is appropriate to do so
B. The product is available for sale to the ultimate consumer
C. The entire amount receivable has been collected from a customer and there remains no further warranty
liability
D. None of these

417. Under PAS 18, which of the following criteria must not be satisfied before revenue from the sale of goods should be
recognized?
A. Ownership has been transferred to the buyer
B. The amount of revenue can be measured reliably
C. The costs incurred or to be incurred can be measured reliably
D. The entity has transferred to the buyer significant risks and rewards of ownership of the goods

418. Which may not be an acceptable deviation from recognizing revenue at the point of sale?
A. During production C. Upon receipt of cash
B. End of production D. Upon receipt of order

419. Which of the following is one of the conditions that must exist for an entity to recognize revenue on separate units
under a multiple-deliverable arrangement?
A. The delivered item is not returnable
B. Collection has occurred for all of the separate items
C. The delivered item has value on a stand-alone basis and can be sold separately
D. The separate units must be delivered within 90 days of the end of the accounting period
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420. An entity has come out with an offer to refund the cost of purchase within one month of sale if the customer is not
satisfied with the product. When should the entity recognize the revenue?
A. After a month of sale
B. When goods are sold to the customers
C. Only if goods are not returned by the customers after the period of one month
D. At the time of sale along with an offset to revenue of the liability of the same amount for the possibility of the
return

421. Sales in which the buyer is not yet ready to take delivery, but does not take title are
A. Barter Sales C. Layaway sales
B. Bill-and-hold sales D. Sales with buyback

422. Bill and hold sales, in which delivery is delayed 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 premises
D. It is probable that the delivery will be made, payment terms have been established, and the buyer has
acknowledged the delivery instructions

423. Sales where the goods are delivered only when the buyer makes final payment are
A. Layaway sales
B. Bill-and-hold sales
C. Consignment sales
D. Sales subject to installation or inspection

424. Layaway sales are sales

A. On consignment
B. With the right to repurchase
C. Where the goods are delivered only when the buyer makes final payment
D. In which the buyer is not yet ready to take delivery but does take title to the goods

425. The criteria for recognition of revenue at the completion of production of precious methods include which of the
following?
A. Units are interchangeable
B. Sale price is reasonably assured
C. No significant costs are involved in distributing the product
D. All of these

426. For which of the following products is it appropriate to recognize revenue at the completion of production even
though no sale has been made?
A. Automobiles C. Precious metals
B. Large appliances D. Single family residential units

427. When activities involve production through natural growth or aging of biological assets, revenue is earned as the
plant or living animal grows
A. Accretion approach
B. Completion-of-production basis
C. Cost recovery of zero-profit approach
D. Percentage-of-completion approach

428. The accretion approach of recognizing revenue means

A. The outcome of rendering services can be measured reliably
B. The outcome of rendering services cannot be measured reliably
C. The activities involve production through natural growth or aging of biological asset
D. The sale price is reasonably assured, no significant distribution cost is involved, and the units are inter-
changeable

429. Which of the following conditions does not apply to the recognition of revenue for transactions involving rendering
of services?
A. The amount of revenue can be measured reliably
B. It is probable that payment for services shall be received
C. The significant risks and rewards of ownership have been transferred to the buyer
43
 D. The costs incurred and the costs to complete can be measured reliably

430. Revenue from an artistic performance is recognized once

A. The event takes place
B. The tickets for the concert are sold
C. The audience register for the event online
D. Cash has been received from ticket sales

431. If the outcome of rendering services cannot be estimated reliably, when revenue recognition method is required?
A. Completed-contract method
B. Cost-recovery method
C. Installment method
D. Percentage-of-completion method

432. If an entity cannot estimate reliably the outcome of a transaction involving the providing of a service, it should
recognize revenue
A. Only to the extent of the expenses recoverable
B. Straight line over the period of the service contract
C. By recording an equal amount of revenue for each service performed
D. By using the percentage-of-completion method based on costs incurred compared to total estimated costs

433. The milestone method of accounting may be used to recognize revenue for
A. Franchise agreements
B. Long-term construction contracts
C. Multiple-deliverable products services
D. Research and development arrangements

434. The milestone method of revenue recognition provides that if substantive milestone is achieved, what amount of
revenue is recognized?
A. Contingent revenue is recognized in its entirety
B. Revenue is recognized up to the amount of cash collected
C. A pro rata revenue based upon the percentage delivered to date
D. A percentage of total revenue based on the separate units delivered

435. Which of the following is not an accurate statement concerning revenue recognition?
A. Revenue from selling products is recognized at the date of sale
B. Revenue from disposing of assets other than products is recognized at the date of sale
C. Revenue from permitting others to used entity asset is recognized as time passes or as the assets are used
D. Revenue from services rendered is recognized when cash is received or when services have been performed

436. Under a royalty agreement for the assignment of a patent for three years, the royalties paid should be reported as
expense
A. In the period paid
B. In the period incurred
C. At the date royalty agreement expired
D. At the date the royalty agreement began

PAS 33, Earnings per Share

437. The earnings per share computation is not required for
A. Discontinued operation
B. Income from continuing operation
C. Income from operations
D. Net income

438. Earnings per share is calculated before accounting for which of the following items?
A. Minority interest
B. Ordinary dividend
C. Preference dividend for the period
D. Taxation

439. Under PAS 33, the weighted average number of shares outstanding for all periods shall be adjusted for
A. Any prior period error
B. Any issue of shares for cash
C. Any convertible instruments settled in cash
44
 D. Any change in the number of ordinary shares without change in resources

440. In computing weighted-average shares outstanding, when a stock dividend 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 reported

441. An ordinary nonvoting share which is entitled to a fixed dividend should

A. Not be included in EPS calculation
B. Be included in the calculation of diluted EPS
C. Be included in EPS calculation after adjustment of the fixed divided
D. Be included in EPS calculation without adjustment of the fixed dividend

442. When computing diluted EPS, convertible bonds are

A. Ignored
B. Assumed converted if dilutive
C. Assumed converted if anti-dilutive
D. Assumed converted whether dilutive or anti-dilutive

443. When there are two dilutive convertible securities, the one that should be used first to recalculate earnings per share
is the security with the
A. Greater earnings adjustment
B. Smaller earnings adjustment
C. Greater earnings per share adjustment
D. Smaller earnings per share adjustment

444. Under PAS 33, contingent ordinary shares are treated as outstanding and included in the computation if the condition
is satisfied for
A. Both basis and diluted EPS from date of agreement
B. Both basis and diluted EPS from the beginning of the year
C. Both basic and diluted EPS from the date of the condition is satisfied
D. Basic EPS from the date of the condition is satisfied and for diluted EPS from beginning of the year or date of
agreement, if later

445. When applying the treasury share method for diluted earnings per share, the market price of the ordinary shares
used for the purchase is the
A. Average market price
B. Price at the beginning of the year
C. Price at the end of the year
D. None of these

446. If a bonus issue occurs between the year-end and the date that the financial statements are authorized
A. Diluted EPS only is adjusted
B. No adjustment is made to EPS
C. EPS for the current year only is adjusted
D. EPS both for the current and the previous year are adjusted

447. All of the following items must be disclosed in relation to earnings per share, except
A. Forecast earnings per share for the following financial year
B. The earnings figures used in calculating basic and diluted earnings per share
C. The weighted-average number of ordinary shares used to calculate earnings per share
D. Instrument that could potentially dilute basic earnings per share in the future but were not included in the
diluted EPS because these are anti-dilutive in the current period

Quality of earnings
448. An entity recognized a large restructuring expense in the current year and had experience a constantly rising earnings
since that time. This would most nearly represent an example of
A. Cookie jar reserve
B. Creative acquisition accounting
C. Big bath accounting
D. Using transactions to increase reported earnings

45
 449. Deferring the recognition of revenue for which the earning process is complete is an example of
A. A change in accounting estimate
B. Big bath accounting
C. Cookie jar reserve
D. Strategic matching

PAS 34, Interim Financial Reporting

450. The accounting profession indicates that
A. All entities that issue an annual report should issue interim financial reports KW&W 1e
B. The integral view is the most appropriate approach for interim financial reports
C. A complete set of financial statements must be presented for an interim period
D. The same principles used for the annual report should be employed for interim reports

451. There is presumption that anyone reading interim financial reports would
A. Have access to the records of the entity
B. Not make decisions based on the report
C. Have access to the most recent annual report
D. Understand all Philippine Financial Reporting Standards

452. Which of the following describes requirements regarding interim financial statements?
A. Interim financial statements are required
B. Interim financial statements must be presented with the most recent annual statements
C. If interim financial statements are presented, four basic financial statements are required
D. If interim financial statements are presented, at least a statement of financial position and a statement of
comprehensive income are required

453. Publicly traded entities are encouraged to provide interim financial reports
A. On a quarterly basis
B. Whenever the entity wishes
C. Within a month of the half year-end
D. At least at the end of half year and within 60 days of the end of interim period

454. If an entity does not prepare interim financial reports

A. The year-end financial statements are deemed to comply with PFRS
B. The year-end financial statements’ compliance with PFRS is not affected
C. The year-end financial statements will not be acceptable under local legislation
D. Interim financial reports should be included in the year-end financial statements

455. For interim reporting the income tax expense for the second quarter should be computed using
A. Statutory tax rate for the year
B. Effective tax rate expected to be applicable for the second quarter
C. Effective tax rate expected for the full year as estimated at the end of the first quarter
D. Effective tax rate expected for the full year as estimated at the end of the second quarter

456. Which of the following statements is true regarding interim financial reporting?
A. Interim reports are not required
B. Interim reports are required on a quarterly basis
C. The discrete view is required for interim financial statements
D. Interim reports require the preparation of only a statement of comprehensive income and a statement of
financial position

457. Under PAS 34, which of the following statements is true?

A. An interim financial report may consist of a complete set of financial statements
B. An interim financial report may consist of a complete set of financial statements or condensed set of financial
statement with selected notes
C. A complete set of financial statements is required at interim reporting date
D. A condensed set of financial statements with selected notes is required at interim date

458. All of the following statements are true regarding interim financial reporting, except
A. PFRS does not mention the integral and independent view of interim reporting
B. PFRS requires a complete set of financial statements at the interim reporting date
C. No accruals or deferrals in anticipation of future events during the year should be reported
D. PFRS requires entities to expense interim amount like advertising expenditures that could benefit later interim
periods
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Other comprehensive basis of accounting
459. If ending balance of accounts receivable exceeds the beginning accounts receivable
A. No cash was collected during the period
B. Net income for the period is less than the amount of cash basis income
C. Cash collections during the period exceed the amount of revenue earned
D. Cash collections during the period are less than the amount of revenue earned

460. When converting from cash basis to accrual basis, which of the following adjustments should be made to cash
receipts from customers to determine accrual basis service revenue?
A. Add cash sales
B. Add ending accounts receivable
C. Subtract ending accounts receivable
D. Subtract beginning unearned service revenue

461. When converting from cash basis to accrual basis which of the following adjustments should be made to cash paid
for expenses to determine accrual basis expense?
A. Subtract interest expense
B. Add beginning accrued liabilities
C. Subtract ending prepaid expense
D. Subtract beginning prepaid expense

462. If an entity uses the modified cash basis of accounting, the modifications from the pure cash basis should have
substantial support which requires that
A. No modifications are allowed
B. The modifications must be the same as GAAP and not illogical
C. The modifications must be the same as those required by tax law
D. The financial statements have only minor modifications from GAAP

PAS 8, Accounting changes, policies, errors and estimates

463. Which is the best explanation why accounting changes are classified into different categories?
A. The materiality of the changes involved
B. The fact that some treatments are considered GAAP, and some are not
C. A survey of managers and their need to provide a favorable profit picture
D. Each category involved different method of recognizing changes in the financial statements

464. Under PAS 8, which of the following is the first step within the hierarchy of guidance when selecting accounting
policies?
A. Apply the requirements in PFRS dealing with similar and related issues
B. Consider the most recent pronouncements of other standard setting bodies
C. Apply a standard from PFRS if it specifically relates to the transaction, other event or condition
D. Consider the applicability of the definitions, recognition criteria and measurement concepts in the Conceptual
Framework

465. Changes in accounting policy are

A. Required for all material transactions
B. Permitted if the change will result in a more reliable and more relevant presentation of the financial statements
C. Required if an alternate accounting policy gives rise to a material change in assets, liabilities or the current year
net income
D. Permitted if the entity encounters new transactions, events or conditions that are substantively different from
existing or previous transactions

466. A voluntary change in accounting policy may only be made if

A. Management prefers the new policy
B. There is on prohibition for the change
C. A new standard mandates change in policy
D. The new policy provides reliable and more relevant information

467. Which of the following is accounted for as a change in accounting policy?

A. A change in the estimated useful life of plant assets
B. A change in inventory valuation from average cost to FIFO
C. A change from the cash basis of accounting to the accrual basis of accounting
D. A change from expensing immaterial expenditures to deferring and amortizing them

47
468. Changes in accounting policy are reported
A. On a prospective basis
B. On a retrospective basis
C. By restating the financial statements
D. By a cumulative adjustment in the income statement

469. An entity changed the method of valuation of inventories from weighted-average method to first-in, first-out
method. The entity should account for this changes as
A. A change in estimate and account for it prospectively
B. A correction of an error and account for it retrospectively
C. A change in accounting policy and account for it prospectively
D. A change in accounting policy and account for it retrospectively

470. Which of the following is not a retrospective-type accounting change?

A. Sum of years’ digits method to the straight-line method
B. Cost recovery method to the FIFO method for inventory valuation
C. Full cost method to successful effort method in the extractive industry
D. Cost recovery method to the percentage of completion method for long-term contracts

471. A change in accounting policy requires that the cumulative effect of the change for prior periods be shown as an
adjustment to
A. Net income for the period in which the change occurred
B. Comprehensive income for the earliest period presented
C. Beginning retained earnings for the earliest period presented
D. Shareholders’ equity for the period in which the change occurred

472. If it is impracticable to determine the cumulative effect of an accounting change to any of the prior periods the
accounting change should be accounted for
A. As a prior adjustment
B. On a prospective basis
C. As a cumulative effect change in the income statement
D. As an adjustment to retained earnings in the first period presented

473. A change in accounting policy does not include

A. Change in useful life of a depreciable asset
B. Change of method of valuation of inventory from FIFO to weighted-average
C. Change of method of valuation of inventory from weighted-average to FIFO
D. Change from the practice of paying as Christmas bonus one-month salary to the new practice of paying one-half
month salary

474. Which of the following statements is correct regarding accounting changes that result in financial statements that
are in effect the statements of a different reporting entity?
A. The financial statement of all prior periods presented are adjusted retrospectively
B. No restatements or adjustments are required if the changes involve consolidation method of accounting for
subsidiaries
C. No restatements or adjustments are required if the changes involve the cost or equity methods of accounting
for investments
D. Cumulative-effect adjustments should be reported as separate item in the financial statements pertaining to
the year of change

475. An entity is required to prepare a third statement of financial position at the beginning of the earliest comparative
period when the entity
A. Applies an accounting policy retrospectively
B. Reclassifies items in the financial statements
C. Makes a retrospective restatement of items in the financial statements
D. All of these

476. When the residual value of plant and machinery has drastically changed, the entity should
A. Ignore the effect of the change on annual depreciation
B. Change the annual depreciation for the current year and future years
C. Change the depreciation charge and treat it is a correction of an error
D. Retrospectively change the depreciation charge based on the revised residual value

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 477. Correction of errors are reported in
A. Other comprehensive income
B. Other income
C. Retained earnings
D. Shareholders’ equity

478. An example of correction of an error in previously issued financial statements is a change

A. In the service life of plant assets
B. In the tax assessment related to a prior period
C. From the cash basis of accounting to the accrual basis of accounting
D. From the FIFO method of inventory valuation to the average cost method

PAS 11, Construction Contracts

479. A construction entity signed a contract a build a theater over a period of two years and also signed a maintenance
contract for five years. Both contracts are negotiated as a single package. Under PAS 11, how should the two
contracts be accounted for?
A. Combined and treated as a single contract
B. Recognized under the cost recovery method
C. Segmented and considered two separate contracts
D. Treated differently, the building contract under the cost recovery method and the maintenance contract under
the percentage of completion method

480. Contract revenue in construction contract comprises

A. The initial amount of revenue agreed in the contract
B. Variation in contract work, claim and incentive payment
C. The initial amount of revenue agreed in the contract and progress billings
D. The initial amount of revenue agreed in the contract, variation in contract work, claim and incentive payment

481. All of the following could be valid reasons why the expected revenue from a fixed price construction contract has
increased from the original contract price, except
A. The contractor has agreed variation to the contract with the client
B. The contractor has incurred additional costs due to errors made by its employees
C. The contractor would receive an incentive payment if work continues ahead of schedule
D. The costs in the contract have increased and the contract includes cost escalation clauses

482. When it is probable that contract costs exceed contract revenue, the expected loss should be
A. Recognized as an expense immediately
B. Set off against profit of other contracts where available
C. Apportioned to the years of the contract according to the stage of completion
D. Recognized as an expense immediately, unless revenue to date exceeds costs to date

483. In relation to construction contracts, all of the following shall be disclosed, except
A. The method used to determine the stage of completion
B. Total amount of contract revenue recognized in the period
C. The method used to determine the contract revenue in the period
D. Advances received in cash analyzed according to each material contract

PAS 21, The Effects of Changes in Foreign Exchange Rates

484. For reporting purposes, currencies are defined as
A. Domestic and international
B. International and functional
C. Foreign, functional and presentation
D. Operating, international and presentation

485. Under PAS 21, where a foreign operation functions independently from the parent, the functional currency is
A. That of the parent
B. That of the country of incorporation
C. The same as the presentation currency
D. Determined using the guidance for determining an entity’s functional currency

486. Which of the following considerations would not be relevant in determining the entity’s functional currency?
A. The currency that influences the costs of the entity
B. The currency in which finance or fund is generated
C. The currency that is the most internationally acceptable for trading
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 D. The currency is which receipts from operating activities are retained

487. An entity has a subsidiary that operates in a country where the exchange rate fluctuates wildly and there are seasonal
variations in the income and expenditure patterns. Which of the following rates of exchange would probably be sued
to translate the foreign subsidiary’s income statement?
A. Year-end spot rate
B. Average for the year
C. Average for the quarter-end rate
D. Average rate for each individual month of the year

488. At which rate should noncurrent assets be translated when the functional currency figures are being translated into
a different presentation currency?
A. The average rate
B. The closing rate
C. The historical exchange rate
D. The spot exchange rate

PAS 29, Financial Reporting in Hyperinflationary Economies

489. An entity has several subsidiaries that operates in a “hyperinflationary economy” which uses the zloty as the local
currency. Management wishes to show the financial statements in US dollars. Many of the operations are within
countries that are not hyperinflationary, and these subsidiaries use the euro as the functional currency. Under PAS
29, what currency should the entity use to present the consolidated financial statements?
A. The US dollar C. The euro
B. The zloty D. The entity may use any currency

490. An entity has a subsidiary that operates in a hyperinflationary economy. The subsidiary’s financial statements are
measured in terms of the local currency, which is the zloty. The parent is located in the United States and prepares
the consolidated financial statements in U.S. dollars. Which procedure is correct in terms of the consolidation of the
subsidiary’s financial statements?
A. The subsidiary’s financial statements should be deconsolidated
B. The subsidiary’s financial statements should be retranslated to USA dollars
C. The subsidiary’s financial statements should be restated in accordance with PAS 29 and retranslated to USA
dollars
D. The subsidiary’s financial statements should be remeasured in USA dollars and restated in accordance with PAS
29

491. Which of the following should be considered nonmonetary?

A. Trade receivables
B. Deferred tax liabilities
C. Accrued expense and other payables
D. Taxes payable

492. All of the following are monetary items, except

A. Administration costs paid in cash
B. Loan payable at par value
C. Trade payables
D. Trade receivables

493. An entity is reporting in a hyperinflationary economy. The monetary assets exceed the monetary liabilities. Which of
the following statements is true?
A. There is a loss on the net monetary position
B. There is a gain on the net monetary position
C. The gain or loss on the net monetary position is recognized in other comprehensive income
D. All of these statements are true

PFRS 3, Business Combinations

494. Under PFRS 3, which of the following would not contribute to negative goodwill?
A. A bargain purchase
B. Making acquisitions at the top of a “bull” market for shares
C. Errors in measuring the fair value of the acquiree’s net identifiable assets
D. A requirement to measure net assets acquired at a value other than fair value

495. In a business combination, what is the accounting treatment if an acquirer’s interest in the fair value of the net assets
acquired exceeds the considerations transferred?
50
 A. Recognize the excess immediately in profit or loss
B. Recognize the excess immediately in other comprehensive income
C. Reassess the recognition and measurement of the net assets acquired, and the consideration transferred and
then recognize the excess immediately in profit or loss
D. Reassess the recognition and measurement of the net assets acquired, and the consideration transferred and
then recognize the excess immediately in other comprehensive income

496. Which costs should be included in the consideration transferred in a combination?

A. Fees paid to accountants
B. Cost of maintaining an acquisition department
C. Both of cost of maintaining an acquisition department and fees paid to accountants
D. Neither cost of maintaining an acquisition department nor feeds paid to accountants

497. During the current year, an entity acquired another entity in a transaction properly accounted for as a business
acquisition. At the time of the acquisition, some of the information for valuing assets was incomplete. How should
the acquirer account for the incomplete information in preparing the financial statements immediately after the
acquisition?
A. Record the uncertain items at the carrying amount of the acquire
B. Do not record the uncertain items until complete information is available
C. Record a contra account to the investment account for the amount involved
D. Record the uncertain item at a provisional amount measured at the date of acquisition

498. When does the measurement period end for a business combination in which there was incomplete accounting
information on the date of acquisition?
A. Thirty days from the date of acquisition
B. On the final date when all contingencies are resolved
C. At the end of the reporting period in the year of acquisition
D. When the acquirer receives the information or one year from the acquisition date, whichever occurs earlier

PFRS 10, Consolidated Financial Statements

499. Under PFRS 10, an investor controls an investee if the investor has all of the following, except
A. The power over the investee
B. Exposure or rights to variable returns from the involvement with the investee
C. The ability to use the power over the investee to affect the amount of the investor’s returns
D. All of these indicate control

500. If the investor owns 60% of the investee’s outstanding ordinary shares, the investor should generally account for this
investment under the
A. Consolidation method C. Cost method
B. Consolidated equity method D. Fair value method

501. The noncontrolling interest should be recorded at what amount?

A. The fair value of the shares not held by the acquirer
B. The fair value of the shares not held by the acquirer or the proportionate share of the fair value of net
identifiable assets of the acquire
C. The proportionate share of the carrying amount of net identifiable assets of the acquire
D. The fair value of the shares held by the non-controlling interest plus goodwill

502. Which of the following conditions are required to exclude a subsidiary from consolidation?
A. The parent must own 100% of the subsidiary
B. The parent makes an election not to consolidate
C. The other owners do not object to the non-consolidation
D. The other owners do not object to the consolidation and the subsidiary does not have any publicly traded debt
or equity instruments

PFRS 4, Insurance Contracts

503. PFRS 4 defines a reinsurance contract as a contract issued by one insurer, the reinsurer, to compensate another
insurer for losses on one or more contracts issued by the cedant. What is the meaning of “cedant” in a reinsurance
contract?
A. Insurer under an insurance contract
B. Reinsurer under a reinsurance contract
C. Policyholder under an insurance contract
D. Policyholder under a reinsurance contract

51
 504. This is defined as “the payments to which a particular policyholder has an unconditional right that is not subject to
the contractual discretion of the insurer.”
A. Executory benefits C. Proceeds of policy
B. Guaranteed benefits D. Unconditional benefits

505. It is the insurer’s net contractual right under an insurance contract

A. Insurance asset C. Reinsurance asset
B. Insurance liability D. Reinsurance liability

506. Which of the following accounting practices has been outlawed in relation to insurance contracts?
A. Shadow accounting
B. Catastrophe provisions
C. An impairment test for reinsurance assets
D. A test for the adequacy of recognized insurance liabilities

507. Which of the following types of contracts would probably not be covered by PFRS 4?
A. Life insurance C. Motor insurance
B. Medical insurance D. Pension plan

IFRIC 2, Members’ Share in Cooperative Entities & Similar Instruments

508. Under IFRIC 2, members’ shares in cooperatives may give the holder the right to request redemption for cash or
other financial asset. Such member’s shares shall be accounted for as
A. Equity C. Either as equity or liability
B. Liability D. Partly equity and partly liability

509. Members’ shares in cooperatives shall be classified as equity when

A. The redemption of members’ shares is unconditionally prohibited by law
B. The entity has the unconditional right to refuse redemption of members’ shares
C. Either the entity has the unconditional right to refuse redemption of member’s shares or the redemption of
members’ shares is unconditionally prohibited by law
D. None of these

IFRIC 12, Service Concession Arrangements

510. Under IFRIC, this is an arrangement whereby a public sector entity grants a private concession operator to provide
services that give the public access to major infrastructure
A. Government assistance C. Loan
B. Government grant D. Service concession

511. The private concession operator shall recognize the infrastructure asset as
A. Financial asset
B. Intangible asset
C. Either intangible asset or financial asset
D. Neither an intangible asset or a financial asset

Not-for-profit organizations
512. Which of the following categories are used in a nongovernmental nonprofit organization’s statement of financial
position?
A. Assets, liabilities and net assets
B. Net assets, income and expenses
C. Income, expenses and unrestricted net assets
D. Changes in unrestricted, temporarily restricted and permanently restricted net assets

513. Which of the following would result in an increase in unrestricted net assets for the current year?
A. A private nonprofit hospital earned interest on investments that were board-designated
B. A nonprofit organization received cash distribution from a donor who stipulated that the money should not be
spent until next year
C. A nonprofit organization received cash contribution from a donor who stipulated that the money be spent for
equipment, none of which was acquired in the current year
D. A nonprofit organization received unconditional promises to give which will not be received until next year and
the donor placed no restriction on the use of the donation

Government Accounting
514. What is the paramount objective of financial reporting by the local and national government?
52
 A. Accountability C. Faithful representation
B. Comparability D. Relevance

515. General income accounts of the government include all of the following, except
A. Dividend income from investments
B. Filing fees in a court of law
C. Fines and penalties
D. Grants and donations

IFRS for SMEs

516. An SME can recognize which of the following either as component of profit or loss or component of other
comprehensive income?
A. Revaluation surplus
B. Actuarial gain or loss
C. Translation gain or loss
D. Change in fair value of hedging instrument

517. Which of the following statements is true in relation to an SME?

A. All intangible assets have finite useful life and must be amortized
B. Investment property is measured at fair value if the fair value can be measured reliably without undue cost or
effort on an ongoing basis
C. Investment in associate shall be accounted for using any of the cost model, fair value model and equity model
and using the same accounting policy for all investments in associate
D. All of these statements are true

Regulatory Environment
518. Under the Philippine Accountancy Act of 2004 or RA 9298, the Professional Regulatory Board of Accountancy shall
be composed of
A. Chairman and six members to be appointed by PRC
B. Chairman and six members to be appointed by PICPA
C. Chairman and six members to be appointed by the President of the Philippines
D. Chairman, Vice-Chairman and six members to be appointed by the President of the Philippines

519. The qualification of the members of BOA include all of the following, except
A. Must be a natural-born citizen and a resident of the Philippines
B. Must be of good moral character and must not have been convicted of crime involving moral turpitude
C. Must be duly-registered CPA with at least ten years of work experience in any scope of practice of accountancy
D. Must have any pecuniary interest, directly or indirectly, in any school conferring an academic degree necessary
for admission to the practice of accountancy

520. Which of the following statements is true regarding the term of office of the chairman and members of BOA?
A. The Chairman and members of BOA shall hold office for a term of three years
B. Any vacancy occurring within the term of a member shall be filled up for the unexpired portion of the term only
C. No person who has served two successive complete terms shall be eligible for reappointment until the laps of
one year
D. All of the statements are true

521. The qualifications of applicants for the CPA examinations include all of the following, except
A. Filipino citizen
B. Of good moral character
C. Holder of the degree of BSA conferred by a school recognized and accredited by CHED or other authorized
government office
D. Convicted of any criminal offense involving moral turpitude

522. Which of the following statements is true regarding the rating in the CPA licensure examination?
A. To be qualified as having passed the CPA licensure examination, a candidate must obtain a general average of
75% with not grades lower than 65% in any subject
B. In the event a candidate obtains the rating of 75% and above in at least a majority of subjects (at least 4), the
candidate shall receive “conditional credit” for the subjects passed
C. The “conditioned” candidate shall take an examination in the remaining subjects failed within two years from
the preceding examination
D. All of the statements are true

53
523. Any candidate who fails in two complete CPA Board Examination shall be
A. Disqualified from taking another CPA Board examination
B. Qualified to take another CPA Board examination for humanitarian reason
C. Qualified to take another CPA Board examination upon proper recommendation of BOA
D. Disqualified from taking another CPA Board examination, unless the candidate submits evidence to the
satisfaction of BOA that he enrolled in and completed at least 24 units of the subjects given in the licensure
examination

524. All of the following are legal bases for the implementation of Continuing Professional Education or CPE. Which is the
primary legal basis?
A. The Philippine Constitution of 1987
B. The Philippine Accountancy Act of 2004 or RA 9298
C. The Professional Regulation Commission Modernization Act of 2000 or RA 8981
D. The Executive Order No. 220 issued by PRC and the various professional regulatory boards

525. How many CPA credit units or CPE credit hours are required for the renewal of CPA license?
A. 15 credit units each year for three years
B. 20 credit units each year for three years
C. 60 credit units each year for three years
D. 60 credit units for three years, provided that a minimum of 15 credit units shall be earned each year

526. Which of the following is created to implement the CPA provision of RA 9298?
A. SEC
B. PRC
C. PICPA
D. PRC CPE Council for Accountancy and PICPA CPE Council

527. The PRC CPE Council for Accountancy is composed of

A. Chair and two members
B. Chair and eight members
C. Chair, Vice-Chair and five members
D. Chair, Vice-Chair and three members

528. Which of the following statements is true regarding the PRC CPE Council for Accountancy?
A. The Chair shall be chosen among the members of the Board of Accountancy
B. The first member shall be the president of PICPA or in his absence, any officer chosen by the board of directors
of PICPA
C. The second member shall be the president of the organization of deans or department heads of schools that
offer Bachelor of Science in Accountancy or in his absence, any officer of the organization
D. All of these statements are true

529. Which of the following statements is true regarding the term of office of PRC CPE Council for Accountancy?
A. The term of office of the Chair is co-terminus with his incumbency in the PRC
B. The term of office of the first member is co-terminus with his incumbency as officer of PICPA
C. The term of office of the second member is co-terminus with his incumbency as officer of the organization of
deans or department heads
D. All of the statements are true

530. The PICPA CPA Council is composed of

A. Chair and ten members
B. Char and eight members
C. Chair, Vice-Chair and ten members
D. Chair, Vice-Chair and eight members

531. The PICPA national board of directors appoints the Chair, Vice-Chair and eight members of the PICPA CPE Council for
a term of
A. One year
B. Three years
C. One year, renewable every year for three years
D. Three years, renewable for another three years

532. Which of the following statements is true regarding the FRSC?

A. The FRSC shall be composed of 15 with a Chairman and 14 representatives

54
 B. The FRSC is created by PRC upon recommendation of BOA to assist BOA in carrying out its powers and functions
under RA 9298
C. The Chairman and members of FRSC are appointed by PRC upon recommendation of BOA and shall have a term
of three years renewable for another term
D. All of the statements are true

533. All of the following are represented in FRSC, except

A. Board of Accountancy
B. Department of Budge and Management
C. Commission on Audit and Bangko Sentral ng Pilipinas
D. Securities and Exchange Commission and Bureau of Internal Revenue

55
 TEST BANK
FINANCIAL ACCOUNTING and REPORTING
THEORY

KEY ANSWERS

1. A 26. D 51. B 76. A

2. C 27. D 52. D 77. C
3. D 28. C 53. D 78. D
4. D 29. D 54. B 79. C
5. D 30. C 55. B 80. C
6. D 31. B 56. C 81. A
7. A 32. D 57. B 82. C
8. D 33. D 58. B 83. D
9. A 34. C 59. D 84. A
10. C 35. C 60. C 85. D
11. D 36. D 61. B 86. A
12. C 37. A 62. B 87. C
13. C 38. D 63. C 88. C
14. B 39. B 64. D 89. B
15. C 40. B 65. A 90. B
16. D 41. C 66. C 91. D
17. B 42. B 67. C 92. A
18. D 43. D 68. A 93. C
19. C 44. A 69. C 94. C
20. D 45. A 70. C 95. A
21. A 46. C 71. C 96. D
22. A 47. D 72. D 97. D
23. D 48. D 73. D 98. C
24. B 49. D 74. A 99. A
25. D 50. D 75. D 100. A

TEST BANK
FINANCIAL ACCOUNTING and REPORTING
THEORY

KEY ANSWERS

101. A 126. B 151. B 176. A

102. A 127. C 152. B 177. B
103. A 128. B 153. C 178. A
104. B 129. D 154. A 179. C
105. B 130. A 155. D 180. D
106. D 131. A 156. D 181. D
107. B 132. B 157. D 182. D
108. A 133. B 158. A 183. C
109. C 134. B 159. D 184. C
110. B 135. D 160. D 185. D
111. D 136. C 161. D 186. B
112. D 137. C 162. A 187. B
113. B 138. C 163. B 188. B
114. D 139. A 164. C 189. C
115. D 140. D 165. A 190. D
116. B 141. C 166. D 191. D
117. A 142. A 167. A 192. D
118. C 143. D 168. D 193. D
119. D 144. B 169. D 194. C
120. D 145. B 170. A 195. D
121. C 146. A 171. B 196. C
122. D 147. A 172. D 197. D
123. B 148. C 173. D 198. C
124. A 149. B 174. D 199. A
125. C 150. D 175. B 200. C

56
 TEST BANK
FINANCIAL ACCOUNTING and REPORTING
THEORY

KEY ANSWERS

201. D 226. C 251. D 276. B

202. C 227. B 252. B 277. B
203. C 228. D 253. C 278. D
204. D 229. A 254. A 279. B
205. A 230. D 255. B 280. B
206. C 231. B 256. D 281. C
207. C 232. B 257. D 282. D
208. D 233. C 258. B 283. D
209. A 234. D 259. A 284. C
210. C 235. D 260. C 285. D
211. C 236. B 261. D 286. B
212. A 237. B 262. C 287. B
213. A 238. A 263. C 288. C
214. A 239. C 264. A 289. C
215. D 240. B 265. C 290. B
216. A 241. C 266. D 291. D
217. D 242. B 267. A 292. C
218. C 243. A 268. C 293. C
219. C 244. B 269. B 294. B
220. D 245. B 270. D 295. A
221. C 246. D 271. B 296. C
222. C 247. B 272. D 297. D
223. B 248. B 273. D 298. B
224. B 249. D 274. A 299. B
225. C 250. C 275. C 300. D

TEST BANK
FINANCIAL ACCOUNTING and REPORTING
THEORY

KEY ANSWERS

301. D 326. B 351. D 376. D

302. D 327. A 352. D 377. D
303. C 328. D 353. C 378. D
304. D 329. B 354. A 379. A
305. D 330. B 355. C 380. D
306. D 331. D 356. D 381. D
307. C 332. D 357. D 382. D
308. A 333. A 358. A 383. B
309. C 334. D 359. D 384. D
310. D 335. C 360. D 385. D
311. B 336. D 361. B 386. D
312. D 337. B 362. B 387. C
313. A 338. C 363. C 388. C
314. D 339. D 364. D 389. A
315. A 340. A 365. A 390. C
316. B 341. B 366. A 391. B
317. A 342. B 367. C 392. D
318. D 343. C 368. B 393. C
319. D 344. D 369. A 394. D
320. D 345. D 370. D 395. D
321. B 346. B 371. D 396. B
322. D 347. A 372. D 397. A
323. B 348. D 373. B 398. B
324. C 349. D 374. C 399. B
325. C 350. B 375. D 400. C

57
 TEST BANK
FINANCIAL ACCOUNTING and REPORTING
THEORY

KEY ANSWERS

401. A 431. B 461. C 491. – 521. D

402. D 432. A 462. B 492. A 522. D
403. D 433. D 463. D 493. A 523. D
404. D 434. A 464. C 494. B 524. A
405. B 435. D 465. B 495. C 525. D
406. C 436. B 466. D 496. D 526. D
407. C 437. C 467. B 497. D 527. A
408. D 438. B 468. B 498. D 528. D
409. C 439. D 469. D 499. D 529. D
410. D 440. D 470. A 500. A 530. D
411. D 441. A 471. C 501. B 531. B
412. C 442. B 472. B 502. D 532. D
413. D 443. D 473. A 503. D 533. B
414. B 444. D 474. A 504. B
415. B 445. A 475. D 505. A
416. D 446. D 476. B 506. B
417. A 447. A 477. C 507. D
418. D 448. C 478. C 508. C
419. C 449. C 479. A 509. C
420. B 450. D 480. D 510. D
421. B 451. C 481. B 511. C
422. D 452. C 482. A 512. A
423. A 453. D 483. D 513. A
424. C 454. B 484. C 514. A
425. D 455. D 485. D 515. C
426. C 456. A 486. C 516. B
427. A 457. B 487. D 517. D
428. C 458. B 488. B 518. C
429. C 459. D 489. D 519. D
430. A 460. B 490. C 520. D

58