Question 1 0 / 1 point

On January 1, 2019, Poe Construction Company changed to the percentage of completion

method from cost recovery method of income recognition. On December 31, 2018 the entity compiled
data showing that income under the cost recovery method aggregated P7,000,000.

If the percentage of completion method had been used, the accumulated income through
December 31, 2018 would have been P9,000,000. The income tax rate is 30%.

The cumulative effect of the accounting change should be reported in the 2019.

Income statement as P2,000,000 credit.

Retained earnings statement as P2,000,000 credit adjustment to the begin ning

balance.

Income statement as a P1,400,000 credit.

Retained earnings statement as a P1,400,000 credit adjustment to the beginning

balance

Question 1/1
2 point
All of the following should be treated as a change in accounting policy, except

All of these qualify as change in accounting policy.

To provide more relevant information, investment property is now being measured

at fair value, having previously been measured at cost.

A new policy resulting from a new IFRS

A new accounting policy of capitalizing

development cost as a project has

become eligible for capitalization for the first time.

Question 1/1
3 point
A change in accounting policy requires that the cumulative effect of the change should

be shown as an adjustment to

Comprehensive income for the earliest period presented.

Shareholders' equity for the period in which the change

occurred.

Beginning retained earnings for the earliest period

presented.

Net income for the current period

Question 4 1 / 1 point
During 2019, Build Company changed from the cost recovery method to the percentage of completion
method. The tax rate is 30%. Gross profit figures are:

2017 2018 2019

Cost recovery method 950,000 1,250,000 1,400,000

Percentage of completion 1,600,000 1,900,000 2,100,000 How

should this accounting change be reported in 2019?

910,000 increase in profit or loss

1,300,000 increase in retained earnings

1,300,000 increase in profit or loss

910,000 increase in retained earnings

Question 5 1 / 1 point
A change in accounting policy shall be made when

I. Required by law

II. Required by an accounting standard or an interpretation of the standard. III. The

change will result in more relevant or reliable information about the financial position,

financial performance and cash flows of the entity.

I and III only

I and II only

II and III only

I, II and III

Question 6 1 / 1 point
Effective January 1, 2019, King Company adopted the accounting policy of expensing advertising and
promotion costs when incurred. Previously, advertising and promotion costs applicable to future periods
were recorded in prepaid expenses.

The entity can justify the change which was made for both financial statement and income tax
reporting purposes.

The prepaid advertising and promotion costs totaled P600,000 on December 31, 2018.

The income tax rate is 30%

What is the adjustment for the effect of the change in accounting policy that should result in a net
charge against income for 2019?
 420,000

180,000

600,000

Question 7 1 / 1 point
Goddard Company had used the FIFO method of inventory valuation since it began operations in 2016.
The entity decided to change to the weighted average method for determining inventory cost at the
beginning of 2019. The entity provided the following year-end inventory balances under FIFO and
weighted average method:

Year FIFO Weighted average

2016 4,500,000 5,400,000

2017 7,800,000 7,100,000

2018 8,300,000 7,800,000

What pretax amount should be reported in the 2019 statement of changes in equity as the cumulative
effect of the change in accounting policy?

500,000 decrease

300,000 increase

500,000 increase

300,000 decrease

Question 8 2 / 2 points
Banko Construction Company has used the cost recovery method of accounting since it began operations
in 2016.

In 2019, for justifiable reasons, management decided to adopt the percentage of completion
method.

The following schedule, reporting income for the past 3 years, has been prepared by the entity

2016 2017 2018

Total revenue from

completed contracts 25,000,000 42,000,000 40,000,000 Less:

Cost of completed

contracts 18,000,000 29,000,000 28,000,000

Income from operations 7,000,000 13,000,000 12,000,000

Casualty loss 0 0 (2,000,000)

Income 7,000,000 13,000,000 10,000,000

Analysis of the accounting records disclosed the following income by contracts, earned in the years 2016-
2018 using the percentage of completion method.
 2016 2017 2018

Contract 1 7,000,000

Contract 2 5,000,000 8,000,000

Contract 3 3,000,000 7,000,000 2,000,000

Contract 4 1,000,000 6,000,000

Contract 5 (1,000,000)

What pretax amount should be reported as the cumulative effect of change in accounting
policy in the statement of retained earnings for 2019?

8,000,000

7,000,000

6,000,000

Question 9 1 / 1 point

In the absence of an accounting standard that applies specifically to a transaction, what is the
most authoritative source in developing and applying an accounting policy?

. Accounting literature and accepted industry practice

The requirement and guidance in the standard or interpretation dealing with

similar and related issue

The definition, recognition criteria and measurement of asset, liability, income and
expense in the Conceptual Framework

Most recent pronouncement of other standard-setting body

Question 10 1 / 1 point
Which statement is correct concerning application of a change in accounting policy?

I. An entity shall account for a change in accounting policy resulting from the initial

application of a standard or an interpretation in accordance with any transitional

provision.

II. When an entity changes an accounting policy upon initial application of a

standard or an interpretation that does not include specific transitional

provision, applying to that change, the change shall be applied

retrospectively.

III. When an entity changes an accounting policy voluntarily, the change shall be

applied retrospectively
 I and II

I,II and III

I and III

II and III

Question 11 1 / 1 point
Which is the first step within the hierarchy of guidance when selecting accounting policies?

Apply a standard from IFRS if it specifically relates to the transaction.

Consider the most recent pronouncements of other standard setting bodies

Consider the applicability of the definitions, recognition criteria and measurement

concepts in the Conceptual Framework

Apply the requirements in IFRS dealing with similar and related issue

Question 12 1 / 1 point
While preparing the financial statement for 2019, Dakila Company discovered computational
errors in the 2017 and 2018 depreciation expense.

These errors resulted in overstatement of each year's income by P25,000, net of income
tax. The net income for 2019 is correctly reported at P500,000.

The following amounts were reported in the previously issued financial statements:

2017 2018

Retained earnings, January 1 700,000 500,000

Net income 150,000 200,000

Retained earnings, December 31 850,000 700,000

What is the balance of retained earnings on December 31, 2019?

1,325,000

1,400,000

1,300,000

1,350,000

Question 13 0 / 1 point

During the year December 31, 2018, Samar Company revealed the following events:

A counting error relating to inventory on December 31, 2018 was discovered. This required a reduction
in the carrying amount of inventory on that date of P280,000.
 The provision for uncollectible accounts receivable on December 31, 2018 was P300,000.
During 2019, an amount of P50,000 was written off the December 31, 2018 accounts receivable What
adjustment is required to restate retained earnings on January 1, 2019?

300,000

580,000

280,000

Question 14 1 / 1 point

Natasha Company reported net income of P700,000 for 2019.

The entity declared and paid dividends of P150,000 in 2019 and P300,000 in 2018. In the

financial statements for the year ended December 31, 2018, the entity reported retained

earnings of P1,100,000 on January 1, 2018. The net income for 2018 was P600,000.

In 2019, after the 2018 financial statements were approved for issue, the entity discovered
an error in the December 31, 2019 financial statements.

The effect of the error was a P650,000 overstatement of net income for the year ended

December 31, 2018 due to underdepreciation.

What amount should be reported as retained earnings on December 31, 2019?

1,950,000

1,650,000

2,900,000

1,300,000

Question 15 1 / 1 point
On January 1, 2019, Black Company changed the inventory cost flow method to FIFO from LIFO for both
financial statement and income tax reporting purposes.

Retained earnings statement as a P600,000 credit adjustment to the beginning Income statement
as a balance. P600,000 credit

Retained earnings statement as a P600,000 debit adjustment to the beginnin

g balance

Income statement as a P600,000 debit

1/1
 Question 16
point Natasha Company reported net income of P700,000 for 2019.
The entity declared and paid dividends of P150,000 in 2019 and P300,000 in 2018. In the

financial statements for the year ended December 31, 2018, the entity reported retained

earnings of P1,100,000 on January 1, 2018. The net income for 2018 was P600,000.

In 2019, after the 2018 financial statements were approved for issue, the entity discovered
an error in the December 31, 2019 financial statements.

The effect of the error was a P650,000 overstatement of net income for the year ended

December 31, 2018 due to underdepreciation.

What amount was reported as retained earnings on December 31, 2018?

2,000,000

1,700,000

2,100,000

1,400,000

Question 17 1 / 1 point

After the issuance of the 2018 financial statements, Narra Company discovered a
computational error of P150,000 in the calculation of the December 31, 2018 inventory.

The error resulted in a P150,000 overstatement in the cost of goods sold for the year ended December
31, 2018.

In October 2019, the entity paid the amount of P500,000 in settlement of litigation instituted
against it during 2018.

In the 2019 financial statements, what is the pretax adjustment to retained earnings on January 1, 2019?

350,000 debit

650,000 credit

150,000 credit

500,000 debit

Question 18 1 / 1 point
In reviewing the draft financial statements for the year ended December 31, 2019, Bituin
Company decided that market conditions were such that the provision for inventory obsolescence
on December 31, 2019 should be increased by P3,000,000.

If the same basis of calculating inventory obsolescence had been applied on December
31, 2018, the provision would have been P1,800,000 higher than the amount recognized in
statement of comprehensive income.

What adjustment should be made to net income of 2019?

 1,200,000 decrease

1,200,000 increase

3,000,000 increase

3,000,000 decrease

Question 19 1 / 1 point
Which of the following is not a change in reporting entity?

Changing the entities included in combined financial statements

Changing specific subsidiaries that constitute the group of entities for which

consolidated financial statements are presented

Disposition of a subsidiary or other business unit

Presenting consolidated statements in place of the statements of individual

entities

Question 20 1 / 1 point A change in accounting policy includes all of the following except

The change in inventory valuation from FIFO to weighted average.

The initial adoption of a policy to carry assets at revalued amount.

The change in depreciation method from sum of years' digits to straight

line.

The change from cost model to fair value method of measuring investment property.

Question 21 1 / 1 point

Which is the best explanation why accounting changes are classified into change in accounting

policy and change in accounting estimate?

The accounting changes involve different method of recognition in the financial statements

The materiality of the changes involved

The fact that some methods are considered GAAP

Management decision

Question 22 1 / 1 point
During 2019, Orca Company decided to change from the FIFO method of inventory valuation to the
weighted average method. Inventory balances under each method were as follows:

FIFO Weighted average

January 1 7,200,000 7,700,000

December 31 7,900,000 8,300,000

What amount should be reported as the pretax effect of the accounting change in the statement of
changes in equity for 2019?

500,000 deduction

900,000 deduction

900,000 addition

500,000 addition

Question 23 1 / 1 point
Animus Company provided the following information at year-end:

December 31, 2019 December 31, 2018

Development costs 8,160,000 5,840,000

Amortization (1,800,000) (1,200,000)

The capitalized development costs relate to a single project that commenced in 2016. It has now been
discovered that one of the criteria for capitalization has never been met.

What adjustment is required to restate retained earnings on January 1, 2019?

1,720,000

4,640,000

. 0

6,360,000

Question 24 1 / 1 point
Prior period errors

Do not require further disclosure in the body of the financial statements.

Do not affect the presentation of prior period comparative financial statements.

Do not include the effect of a mistake in the application of accounting policy

Are reflected as adjustments of the opening balance of retained earnings of the earliest

period presented.