ARest of Theories Par

A/R
1. Accounts receivable usually appear in the balance sheet
a. As current assets, combined with cash and cash equivalents
b. As current assets, immediately after cash and cash equivalents
c. Only if the balance sheet method of estimating uncollectible accounts is used
d. As either current assets or noncurrent assets, depending on whether the allowance
method or the direct writeoff method is used to account for uncollectible accounts
2. Accounts receivable are classified as current assets
a. Only if convertible into cash beyond one year
b. Only if convertible into cash within 60 days or sooner
c. Only if the allowance method is used to estimate the uncollectible accounts
d. Whenever accounts receivable arise from “normal” sales to customers, regardless of
the credit terms
3. When individual customers’ accounts have credit balances of material amounts, there
amounts
a. Should be omitted from the balance sheet
b. Must be reported separately in the liability section of the balance sheet
c. May be shown as “credit balances of customers’ accounts” in the current asset section
d. May be deducted from the debit balance in other customers’ accounts in the asest
section
4. If a company employs the gross method of recording receivables from customers, then sales
discounts taken should be reported as
a. A deduction from sales in the income statement
b. An item of other expense in the income statement
c. Sales discount forfeited in the cost of sales section of the income statement
d. A deduction from accounts receivable in determining the net realizable value

5. Which of the following is an advantage of using the net price method for recording cash
discounts on credit sales?
a. It properly reflects current period sales revenue
b. It simplifies recording of sales returns and allowances
c. It eases communication with customers about their balances
d. It requires less record keeping efforts than the gross method
6. When the allowance method is used, the entry which is appropriate when a particular
account is written off as uncollectible should include a
a. Credit to sales revenue
b. Credit to bad debt expense
c. Debit to accounts receivable
d. Debit to allowance for doubtful accounts
7. ABC Company uses the allowance method in recognizing uncollectible accounts, the entry to
record the write off of a specified uncollectible account
a. Affects neither net income nor working capital
b. Decreases both net income and working capital
c. Affects neither net income nor accounts receivable
d. Decreases both net income and accounts receivable
8. A noninterest bearing note receivable
a. Causes no interest revenue to be recorded
b. Includes a specified principal amount plus specified interest
c. Includes a specified principal amount but an unspecified interest amount
d. Includes an unspecified principal amount and an unspecified interest amount
9. Assuming that the ideal measure of short term receivable in the balance sheet is the
discounted value of the cash to be received in the future, failure to follow this practice usually
does not make the balance sheet misleading because
a. The amount of discount is not material
b. Most receivables can be sold to a bank or factor
c. Most short term receivables are not interest bearing

d. The allowance for uncollectible accounts includes a discount element
10. 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
RECEIVABLES/PAYABLES PART 1 (RDA) 8
11. 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
12. Trade receivables are classified as current assets if they are reasonable expected to be
collected
a. Within one year
b. Within the normal operating cycle
c. Within one year or within the operating cycle, whichever is shorter
d. Within one year or within the operating cycle, whichever is longer
13. Which of the following statements is true in relation to presentation of receivables in the
statement of financial position?
a. Trade receivables and nontrade receivables are shown separately
b. Nontrade receivables are presented as noncurrent assets
c. Trade receivables and trade notes receivables shall be presented separately
d. Trade receivables and nontrade receivables which are currently collectible shall be
presented as one line item called “trade and other receivables”.
14. Long term notes receivable which normally bear no interest or an interest which is
unreasonably low shall be recognized initially at
a. Face value
b. Present value
c. Maturity value
d. Current value
15. Credit balances in accounts receivable shall be classified as
a. Current liabilities
b. Part of accounts payable
c. Long term liabilities
d. Deduction from accounts receivable
16. A method of recording bad debt loss is consistent with accrual accounting?
a. Allowance method
b. Direct write off method
c. Percent of sales method
d. Percent of accounts receivable method
17. A method of estimating bad debts that focuses on the income statement whether rather than
the statement of financial position is the allowance method based on
a. Direct write off
b. Aging the trade accounts receivable
c. Credit sales
d. The balance in the trade accounts receivable
18. Which of the following methods of determining annual bad debt expense best achieves the
matching concept?
a. Percentage of sales
b. Percentage of ending accounts receivable
c. Percentage of average accounts receivable
d. Direct writeoff
19. A method of estimating doubtful accounts that emphasizes asset valuation rather than
income measurement is the allowance method based on

a. Aging of accounts receivable
b. Direct write off
c. Gross sales
d. Credit sales less sales return and allowances
20. Accounting for the imputed interest on a noninterest bearing note receivable is an example of
what aspect of accounting theory?
a. Matching c. Substance over form
b. Verifiability d. Accounting entity
1. Loans and receivables are non-derivative financial assets
a. With fixed or determinable payments that are quoted in an active market
b. Without fixed or determinable payments that are quoted in an active market
c. With fixed or determinable payments that are not quoted in an active market
d. Without fixed or determinable payments that are not quoted in an active market
2. After being held for 60 days, a 120-day 8% interest bearing note receivable was discounted at
a bank at 12%. The amount received from the bank is equal to
a. Face value less discount rate at 8%
b. Face value less discount rate at 12%
c. Maturity value less discount rate at 8%
d. Maturity value less discount at 12%
3. The carrying amount of an impaired note immediately after the recognition of the impairment
loss is the
a. Nominal sum of remaining cash flows to be received
b. The book value before the impairment is recognized less accrued interest
c. Present value of remaining cash flows to be received, discounted at the current market
rate of interest
d. Present value of remaining cash flows to be received, discounted at the original interest
rate implicit in the note.
4. If there is an evidence that an impairment loss on loan receivable has been incurred, the loss is
equal to the excess of the
a. Principal amount of the loan over its carrying amount
b. Carrying amount of the loan over the principal amount of the loan
c. Carrying amount of the loan receivable over the present value of the cash flows related
to the loan
d. Present value of cash flows related to the loan over the carrying amount of the loan
receivable
5. In calculating the carrying amount of a loan receivable, the lender adds to the principal
a. Direct loan origination cost incurred by the lender
b. Indirect loan origination cost incurred by the lender
c. Loan origination fee charged to the borrower
d. Direct origination cost incurred by the lender and loan origination fee charged to the
borrower.
6. Why would an entity sell accounts receivable to another entity?
a. To improve the quality of its credit granting process
b. To limit its legal liability
c. To accelerate access to amounts collected
d. To comply with customer agreement
7. If receivables are hypothecated against borrowings, the amount of receivables involved should
be
a. Disclosed in the notes
RECEIVABLES/PAYABLE PART 2 (RDA) 7
b. Excluded from the total receivables, with disclosure
c. Excluded from the total receivables, with no disclosure
d. Excluded from the total receivables and a gain or loss is recognized between the face
value and the amount of borrowings
8. Which of the following is true when accounts receivable are factored without recourse?
a. The transaction may be accounted for either as secured borrowing or as a sale
b. The receivables are used as collateral for a promissory note issued to a factor
c. The factor assumes the risk of collectability and absorbs any credit losses in collecting the
accounts receivable
d. The financing cost should be recognized ratably over the collection period of the
receivables.
9. Which of the following is used to account for probable sales discount, sales returns and sales
allowances in relation to factoring of accounts receivable?
a. Factor’s holdback
b. Recourse liability
c. Both factor’s holdback and recourse liability
d. Neither factor’s holdback nor recourse liability
10. Notes receivable discounted with recourse should be
a. Included in total receivables with disclosure of contingent liability
b. Included in total receivables without disclosure of contingent liability
c. Excluded from total receivables with disclosure of contingent liability
d. Excluded from total receivables without disclosure of contingent liabiltility
Equity
1. A financial instrument is any contract that gives rise to
a. A financial asset
b. A financial liability
c. A financial asset of one entity and a financial liability of another entity
d. A financial asset of one entity and a financial liability or equity instrument of another
entity.
2. Which of the following cannot be considered a financial asset?
a. Cash
b. A contractual right to receive cash or another financial asset from another entity.
c. A contractual right to exchange financial instrument with another entity under
conditions that are potentially unfavourable
d. An equity instrument of another entity.
3. Financial assets include all of the following, except
a. Prepaid expenses
b. Cash in bank
c. Trade account receivable
d. Loans receivable
4. Financial liabilities include all of the following, except
a. Trade accounts payable
b. Notes payable
c. Bonds payable
d. Income tax payable
5. Which of the following is true?
I - When equity shares of the same class are acquired on different dates and different cost, the
entity shall determine the cost of shares using the average method only.
II - Dividend income from the cash dividends will be recognized on the date of payment
a. I only
b. II only
c. Both statements are true
d. Both Statements are false
EQUITY INVESTMENTS (RDA) 6
6. 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 asset have expired.
b. The financial asset has been transferred and substantially all the risk and rewards of
ownership of the transferred asset have also been transferred
c. The financial asset has been transferred and the entity has retained substantially all the
risk and rewards of ownership of the transferred asset.
d. The financial asset has been transferred and the entity has neither retained nor
transferred substantially all the risk and rewards of ownership of the transferred asset but
the entity has lost control of the transferred asset.
7. Which of the following transfers of financial asset would qualify for derecognition?
a. 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.
b. A sale of a financial asset where the entity agrees to repurchase the asset in one year
for a fixed priced plus interest
c. A sale of a portfolio of short-term accounts receivable where the entity guarantees to
compensate the buyer for any losses in the portfolio.
d. A loan of a security to another entity.
8. Disclosure of fair value of the financial instruments is required when
a. It is practicable to estimate the fair value
b. The entity maintains accurate cost records
c. Aggregate fair value is material
d. Individual fair value is material
9. Disclosure of credit risk of financial instrument does not include
a. The amount of accounting loss that the entity would incur should any party to the
financial instrument fail to perform.
b. The policy of requiring collateral
c. The class of financial instrument held
d. The specific names of the parties associated with the financial instrument
10. Disclosure of information about significant concentrations of credit risk required for
a. All financial instruments

b. Financial instruments with off statement of financial position credit risk
c. Financial instruments with off statement of financial position market risk
d. Financial position risk of accounting loss
11. Which of the following is not a characteristic of a financial asset held for trading?
a. It is acquired principally for the purpose of selling or repurchasing it in the near term.
b. On initial recognition, it is part of a portfolio of financial assets that are managed
together and for which there is evidence of a recent actual pattern of short-term profit
taking
c. It is a derivative that is not designated as an effective hedging instrument
d. It is a derivative that is designated as an effective hedging instrument
12. Transaction cost include
a. Fees and commission paid to agent, levies by regulatory authorities, transfer taxes and
duties
b. Debt premiums or discounts
c. Financing cost
d. Internal administrative costs
13. Which of the following statements is correct
I - Dividend on is between the date of record and the date of payment
II - Ex Dividend is between the date of declaration and the record date
a. I only
b. II only
d. Both statements are false
14. Which of the statements is true concerning recognition of unrealized gains and losses?
a. Unrealized gains and losses on financial assets held for trading shall be included in profit
or loss
b. Unrealized gains and losses on financial assets measured at amortized cost are not
recognized.
c. Unrealized gains and losses on financial assets at fair value through other
comprehensive income are not recognized in the income statement
d. All of these statements are true
I - Financial assets representing a contractual right to receive cash in the future include trade
receivables, notes receivables and loans receivables.
II - Prepaid expenses, Leased assets and physical assets are not considered as financial assets
a. I only
b. II only
c. both statements are true
d. both statements are false
16. The irrevocable election to present subsequent changes in fair value in other comprehensive
income is applicable only to
a. Investment in equity instrument that is not held for trading
b. Investment in equity instrument that is held for trading
c. Financial asset measured at amortized cost
d. Financial asset measured at fair value
I - The debt investment can be classified as FA-FVPL, FA – OCI or amortized cost
II - The equity investment can be classified as FA-FVPL or FA – OCI only
a. I only
b. II only
c. both statements are true
18. What is the reclassification date for purposes of reclassifying financial assets?
a. End of the current year reporting period
b. First day of the next reporting period following the change in business model
c. Date when management decided to change the business model for managing
financial assets.
d. No definition of reclassification date as this would depend on the judgment of
management
19. What is the best evidence of fair value of a financial instrument?
a. The original cost
b. The estimated value determined using discounted cash flow technique
c. The quoted price, if an active market exists for the financial instrument
d. The present value of the contractual cash flows less impairment
20. Unrealized gains and losses on trading investment are reported in
a. Equity
b. Net income
c. Other Comprehensive income
d. Retained earnings
I - Equity security encompasses any instrument representing ownership shares and rights, warrants
or options to acquire dispose of ownership shares at a fixed or determinable price.
II - Redeemable preference share is not an equity security but a debt security
a. I only
b. II only
22. Debt investment not held for collection are reported at
a. Amortized cost
b. Fair value
c. The lower of amortized cost and fair value
d. Net realizable value

23. 1st statement: Gold Bullion deposited in bank is not a financial asset
2nd statement: Lease assets are financial assets.
a. True, False
b. False, False
c. False, True
d. True, True
24. 1st Statement: Financial asset representing a contractual right to receive cash in the future is
an option held by the holder to purchase shares of another entity at less than market price.
2nd Statement: The owners of equity securities are legally known as shareholders.
a. True, True c. False, True
b. True, False d. False, False
25. 1st statement: Equity securities include redeemable preference shares, treasury shares and
convertible debt.
2nd statement :Transactions costs include debt premiums or discounts.
26. 1st statement: A debt investment is at amortized cost if the business model is to collect
contractual cash flows solely payment of principal and interest.
2nd statement: Equity investments are only classified as FV-PL or FV-OCI but never Amortized
cost.
27. 1st statement:Debt investment is classified as FV-OCI if the business model is to sell the financial
asset or to collect for principal and interest.
2nd statemetn: The best evidence of fair value in descending hierarchy is the quoted price of
identical and similar asset in an inactive market; quoted price of identical asset in an active
market, quoted price of similar asset in an active market.

28. 1st statement: Any unrealized gain or loss on financial asset are recognized and is classified in
the income statement as other income or other expense.
2nd statement: The accumulated unrealized gain or losses for equity investment at FV-OCI will
be reported in the statement of changes in equity and not in statement of comprehensive
income.
29. 1st statement: All equity investments should be assessed for impairment.
2nd statement: All debt investments should be assessed for impairment and recognized an
expected credit loss.
30. An impairment loss is the excess of the carrying amount of the investment over the
a. Expected cash flows
b. Present value of the expected cash flow
c. Contractual cash flow
d. Present value of the contractual cash flow
I - Gain or loss on disposal of equity investment measured at fair value through other
comprehensive income is recognized in retained earnings.
II - The cumulative unrealized gain/loss – OCI will appear in the statement of changes in equity
a. I only
b. II only
c. Both Statements are True
d. Both Statements are False

32. It is the date on which the stock and transfer book of the entity is closed for registration. Only
those shareholders registered as of this date are entitled to receive dividends.
a. Date of declaration
b. Date of record
c. Date of Payment
d. Date of Mailing the dividend check
33. Property dividends are recorded
a. As dividend income at carrying amount of the property
b. As dividend income at fair value of the property
c. As return of investment and therefore credited to investment account
d. By means of memorandum only
34. Shares received in lieu of cash dividend are recorded as
a. Income at fair value of the shares received
b. Income at par value of the shares received
c. Income at the cash dividend that would have been received
d. Stock dividends
35. What is the effect of share split up?
a. Increase in number of shares and increase in cost per share
b. Decrease in number of shares and decrease in cost per share
c. Increase in number of shares and decrease in cost per share
d. Decrease in number of shares and increase in cost per share
36. Trading bond investment are reported at
a. Amortized cost
b. Face amount
c. Fair value
d. Maturity
I - if the equity security are acquired in an exchange, the first order of priority is the fair value of
the asset received.
II - If two or more equity securities are acquired at a single price, the price is allocated to the
securities based on their cost.
a. I only
b. II only
38. Transaction cost directly related to acquisition of trading bond investment are
a. Part of the initial carrying amount
b. Expensed immediately
c. A component of other comprehensive income
d. Accounted for separately as deferred charges
39. The effective interest method of amortizing discount provides for
a. Increasing amortization and increasing interest method
b. Increasing amortization and decreasing interest income
c. Decreasing amortization and increasing interest income
d. Decreasing amortization and decreasing interest income
40. Amortized cost is the initial recognition amount
a. Minus repayments
b. Plus discount amortization or minus premiums amortization
c. Minus reduction for impairment
d. All of these are correct about amortized cost
Debt Investmetn
1. The actual interest earned by the bondholder is
a. effective rate
b. yield rate
c. market rate
d. effective rate, yield rate or market rate
2. The interest rate written on the face of bond is known as

a. nominal rate
b. coupon rate
c. stated rate
d. nominal rate, coupon rate or stated rate
3. To compute the price to pay for a bond, what present value concept is used?
a. The present value of 1
b. The present value of an ordinary annuity of 1
c. The present value of 1 and present value of an ordinary annuity of 1
d. The future value of 1
4. Bond is usually sell at a discount when investors are willing to invest in bonds
a. at the stated interest rate
b. at rate lower than the stated interest rate
c. at rate higher than the stated interest rate
d. because a capital gain is expected
5. Bond usually sell at a premium
a. when market rate is greater than a stated rate
b. when stated rate is greater than market rate
c. when the price of the bonds is greater than maturity amount
d. in none of these cases
6. All of these are characteristics of financial assets classified as amortized cost, except
a. they are quoted in an active market
b. they have fixed or determinable payments and a fixed maturity
c. the holder has demonstrated positive intention and ability to hold them to
maturity
d. the holder can recover substantially all of its investments (unless there has been
credit deterioration
7. Securities which could be classified as held to maturity are
a. municipal bonds
b. redeemable preferred shares
c. treasury stock
d. warrants
8. A bond is purchased on January 1. The investor's carrying value at the end of the first
year would be highest if the bond was purchased at a
a. discount and amortized by the straight line method
b. premium and amortized by the straight line method
c. discount and amortized by the effective interest method
d. premium and amortized by the effective interest method
9. The investor's interest income for a period would be lowest if the bonds is purchased at
INVESTMENT IN BONDS (RDA) 6
a. a discount
b. a premium
c. at the face value of the bonds
d. in between interest payment dates
10.Under PFRS 9, which of the following is not a category of financial assets
a. Financial assets at amortized cost
b. Financial assets at fair value through profit or loss
c. Financial asset at fair value through accumulated profit or loss
d. Financial assets at fair value through other comprehensive income
11.Under PFRS 9, which type of financial instrument is subject to business model test and
cash flow characteristic test?
a. debt instrument
b. derivative instrument
c. debt and equity securities
d. equity securities
12.The effective interest rate on bond is lower than the stated rate when bonds sells
a. at maturity value
b. above face amount
c. below face amount
d. at face amount
13.The effective interest rate on bond is higher than the stated rate when bond sells
a. at face amount
b. above face amount
c. below face amount
d. at maturity value
14.The interest method of amortizing discount provides for
a. increasing amortization and increasing interest income
b. Increasing amortization and decreasing interest income
c. decreasing amortization and increasing interest income
d. decreasing amortization and decreasing interest income
15.The date of reclassification of financial asset is
a. the date when the investor purchased the investment and classify it according
to its business model
b. the date on the change of business model
c. the first day of the reporting period following the change in business model
d. every january 1
16.1st statement: All equity investment cannot be reclassified
2nd statement: Debt investments that elects fair value option cannot be reclassified.
a. True, True
b. True, False
c. False, False
d. False, True
17.Trading bond securities are reported at
a. Amortized Cost
b. Face Amount
c. Fair Value
d. Maturity Value
18.Which statement is correct in regards to trading bond investments?
a. Trading bond investments are held with the intention of selling them in a short
period of time
b. Unrealized gains and losses are reported as part of net income
c. Any discount or premium is not amortized
d. all of these are correct
19.Accrued interest on bonds that are purchased between interest dates
a. is ignored by both the seller and the buyer
b. increases the amount a buyer must pay
c. is recorded as a loss on the sale of the bonds
d. decreases the amount a buyer must pay
20.The interest income for the year would be higher if the bond was purchased at
a. quoted price
b. face amount
c. a discount
d. a premium
21.In accordance with PFRS 9, bond investments shall be classified as financial assets
measured at amortized cost must used what method of amortization?
a. straight line
b. bond outstanding
c. effective interest method
d. all of the above
22.if the effective rate is lower than the nominal rate
a. premium
b. discount
c. no premium or discount if amortize cost
d. none of the above
23.These are bonds which may be called in or redeemed by the issuing entity prior to the
date of maturity.
a. callable bonds
b. convertible bonds
c. serial bonds
d. term bonds
24.if the bond was purchased in between the interest payment date, which of the
following is correct?
a. A debit to the investment equivalent to its fair value plus the interest already
earned from such investment
b. A debit to cash equivalent to the fair value of the investment and the interest
earned from the investment
c. A credit to interest income from the date of last of interest payment date to the
date of acquisition
d. none of the above
25.If a bond was purchased on March 1 with an agreement that the issuer of bond will
pay interest every August 1 and February 1. The interest receivable for the year will be
equivalent to
a. five months
b. 6 months
c. 1 month
d. 10 months
26.If the bond was classified as Trading securities, the increase in value of the bond will be
adjusted to:
a. DR: Investment in Bonds; CR: Unrealized Gain – PL
b. DR: Trading Securities; CR: Gain on Change in Fair Value

c. DR: Unrealized Gain; CR: Trading Securities
d. DR: Unrealized Loss; CR: Investment in Bonds
e. None of the above
27. If the bond classified as Trading securities, which of the following is correct with
regards the proper journal entry.
a. A credit to Trading Securities equivalent to latest carrying amount of the
investment
b. A credit to Trading securities equivalent to the selling price
c. A credit to Trading securities equivalent to the selling price plus the accrued
interest
d. A credit to Trading Securities equivalent to the cash received from the issuer of
bond
Inventories
1. 1st statement: Periodic inventory system is the method of accounting for inventory in which the
cost of goods sold is recorded each time a sale is made.
2nd statement: Under the perpetual inventory method, after a physical count, inventory is
credited for any missing inventory.
2. 1st statement: Consumable stores or supplies to be consumed in the production process are
reported as part of inventory.
2nd statement: Abnormal freight in should be charged to finished goods inventory.
3. 1st statement: Goods received from another entity on consignment should be excluded in
inventory.
2nd statement: Goods in transit purchased FOB shipping point should be included in inventory.
4. 1st statement: Interest on loan obtained to purchase the inventory should not be included as
cost of inventory.
2nd statement: Depreciation of plant equipment used in manufacturing should be included as

cost of inventory.
5. 1st statement: Weighted average is usually used for inventory when an entity builds
townhouses.
2nd statement: The main reason why specific identification method may be considered ideal
for assigning cost to inventory and cost of goods sold because the potential manipulation of
net income is reduced.
6. 1st statement: Weighted Average method is the inventory method that measures most closely
to the current cost of inventory.
2nd statement: In a period of rising prices, the inventory cost allocation method tends to result
in the lowest reported net income is FIFO.
7. 1st statement: Cost of goods sold is the same under periodic system as under a perpetual
system when an entity uses FIFO.
2nd statement: During a period of rising prices, when the FIFO inventory cost flow method is
used, a perpetual inventory system would result the same ending inventory as a period
inventory system.
8. 1st statement: Commodities of broker traders are measured at cost.
2nd statement: Net realizable value is used to measure the inventory of agricultural inventory,
minerals and commodities held by broker traders.
9. 1st statement: When a portion of inventory has been pledged as security for a loan, the value
of the inventory pledged should be deducted from the debt.
2nd statement: If a material amount of inventory has been ordered through a formal purchase
contract at the end of the reporting period for future delivery at firm prices, a disclosure is
required only if prices have declined since the date of the order.
10. 1st statement: Lower of cost and net realizable value gives the lowest valuation if applied to
the total inventory.
2nd statement: In recording a loss due to a price decline in the value of inventory method only
loss method and cost of goods sold method can be used.
11. 1st statement: The gross profit method is invalid when the gross profit percentage applicable to
the goods in ending inventory is different from the percentage applicable to goods sold
during the period.
2nd statement: The gross profit method is not valid when the gross margin percentage changes
significantly during the year.
12. 1st statement: The gross profit method is used to verify the accuracy of the perpetual inventory
record as it relates to inventory valuation.
INVENTORIES (RDA) 9
2nd statement: The gross margin method of estimating ending inventory maybe used for
internal as well as external year end reports.
13. 1st statement: The effect of net markup on the cost retail ratio when using the conservative
retail method is increase.
2nd statement: An inventory method which is designed to approximate inventory valuation at
the lower of cost and net realizable value is FIFO retail.
14. 1st statement: To defer income tax liability is not one of the main reason in using retail inventory
method.
2nd statement: The conventional retail method produces an ending inventory that
approximates the lower of average cost and net realizable value.
15. 1st statement: Higher retail prices would cause a decrease in the cost ratio used in the retail
inventory method.
2nd statement: Purchase returns would be included in the calculation of the goods available
for sale at both cost and retail inventory method.
16. 1st statement: The risk and rewards of ownership has been transferred when the receipt of
revenue from a particular sale is contingent on the derivation of revenue by the buyer from its
sale of the goods as in consignment.
2nd statement: Inventory should include property that it holds for sale in the ordinary course of
business by a property developer.
17. 1st statement: The use of a purchase discount lost account implies that the cost of a
purchased inventory item is the invoice price less the purchase discount allowable whether
taken or not.
2nd statement: The cost of purchase inventory includes the trade discounts, rebates and other
similar items.
18. 1st statement: The amount of writedown of inventory to net realizable value and all losses of
inventory should be recognized as component of cost of sales in the period the writedown or
loss occurs.
2nd statement: Revenue will only be recognized after one month of sale when an entity offers
to refund the cost of purchase within one month after the sale if the customer is not satisfied
with the product.
19. 1st statement: Bill and hold sales is when the buyer is not yet ready to take the delivery but
does take title already.
2nd statement: The allocation of fixed factory overhead to the cost of conversion is based on
either the normal capacity or actual use of the production facilities.
20. 1st statement: The credit balance that arises when a loss on a purchase commitment is
recognized should be presented in the income statement.
2nd statement: Historical cost, current replacement cost or net realizable value can be used as
a measure to inventory.
21. 1st statement: Storage cost of part finished product should not be taken into account when
determining the cost of inventories.
2nd statement: Cost of designing products for specific customers should be capitalized as part
of inventory cost.
22. 1st statement: The risk and rewards of ownership has been transferred when the buyer has a
right to return the goods or right to seek a refund and the seller can reliably estimate the future
returns based on past experience and other relevant factors.
2nd statement: The major advantage of the retail inventory method is that it provides a method
for inventory control and facilitates determination of the periodic inventory.
Multiple Choice (Theory)
1. Which of the following account will affect the cost of goods sold
a. Purchase discount Lost

INVENTORIES (RDA) 10
b. Loss on Purchase Commitment
c. Abnormal Inventory Shortage
d. Gain on reversal of Inventory writedown
2. Taxes may be included in the costs of inventory unless they are
a. In respect to the raw materials component of manufactured inventory
b. Levied on the entity by a foreign government
c. Recoverable by the entity from the taxing authority
d. In the nature of import duties
3. The cost of inventories in applying the valuation at lower of cost or net realizable value should
be assigned by using
a. FIFO only c. Average method only
b. Either FIFO or average method d. LIFO only
4. When using a perpetual inventory system
I. No purchases account is used.
II. A cost of goods sold account is used.
III. Two entries are required to record a sale.
a. I and II only b. II only c. II and III only d. I, II and III
5. Which would not require an estimate of inventory?
a. Proof of the reasonable accuracy of the physical count
b. Inventory destroyed by typhoon
c. Determination of ending inventory to be reported in the statement of financial position
at year end
d. Interim financial statements are prepared
6. To determine an inventory valuation that using the retail method under the average method,
the computation of the cost to retail percentage should
a. Include markdowns but not mark-ups

b. Exclude mark-ups and markdowns
c. Include mark-ups but not markdowns
d. Include mark-ups and markdowns
7. The use of the gross profit method assumes
a. Sales and costs of goods sold have not changed from previous years
b. The amount of gross profit is the same as in prior years.
c. The relationship between selling price and costs of goods sold is similar to prior years
d. Inventory values have not increased from previous years
8. The weighted average inventory costing method is particularly suitable to inventory where
a. The entity carries stock of raw materials, work in process and finished goods
b. Dissimilar products are stored in separate locations
c. Homogenous products are mixed together
d. Goods have distinct use by dates and the goods produced first must be sold earliest
9. Which of the following is not a basic assumption of the gross profit method?
a. Goods not sold must be on hand
b. The beginning inventory plus purchases equal to total goods to be accounted for.
c. The amount of purchases and the amount of sales remain relatively unchanged from
the comparable previous period.
d. The sales reduced to cost basis when deduction form the sum of beginning inventory
and purchases would result to inventory on hand
10. The use of the gross profit method assumes
a. Sales and cost of goods sold have not changed from previous years
b. The amount of gross profit is the same as in prior years.
c. The relationship between selling price and cost of goods sold is similar to prior years.
d. Inventory value has not increased from previous years.
11. What is the effect of net mark-ups on the cost retail ratio when using the conservative retail
method?
a. No effect on the cost retail ratio
b. Increases the cost retail ratio
c. Decreases the cost retail ratio
d. Depends on the amount of the net mark-ups
12. What is the effect of freight in on the cost retail ratio when using the conservative retail
method?
a. No effect on the cost retail ratio
b. Increases the cost retail ratio
c. Decreases the cost-retail ratio
d. Depends on the amount of the net mark-ups
13. Which is not a mandated disclosure in relation to inventory?
a. The carrying amount of each item of inventories
b. Accounting policy adopted in measuring inventories, including the cost formula used
c. The amount of inventories recognized as expense during the period
d. The carrying amount of inventories carried at fair value less cost of disposal
14. Which is not a mandated disclosure in relation to inventory?
a. The amount of any reversal of inventory writedown
b. The amount of inventory writedown recognized as an expense
c. The fair value less cost of disposal of inventory pledged as security.
d. The circumstances that led to reversal of inventory writedown
15. Which is not a mandated disclosure in relation to inventory
a. The carrying amount of each item of inventory
b. Accounting policy adopted in measuring inventory
c. The amount of inventory recognized as expense during the period
d. The carrying amount of inventory carried at fair value less cost of disposal
16. In the period of rising prices, the inventory method which tends to give the highest reported
net income is
a. LIFO
b. Weighted average
c. Base stock
d. FIFO
17. Dwyn Corporation incorrectly included in its ending inventory items that is holding in
consignment for Xyl Inc. the effect of this error on the cost of goods sold and net income of
the succeeding period is
a. Overstatement, understatement
b. Overstatement, automatically correct
c. Understatement, overstatement
d. Understatement, understatement
18. Inventories are defined, except
a. In the process of production for such sale
b. In the form of materials or supplies to be consumed in the production process or the
rendering of services
c. Held for sale in the ordinary course of business
d. Used in the production or supply of goods and services for administrative purposes
19. Which of the following would be included in the merchandise inventory amount reported on
IRC Company?
a. Items in IRC warehouse on consignment from another company
b. Items purchased from a supplier and en route directly to a customer of IRC; the term
from the supplier was FOB destination; invoice received but not yet paid.
c. Items sold to SMALL Company on July 2015 and accounted for using the instalment
method (equal instalment are due each month for 24 months from date of sale.
d. Items shipped to a customer on December 2015 with delivery expected on January
2016, the term was FOB destination; an invoice has been mailed to the customer
20. How should sales staff commission be dealt with when valuing inventories at the lower of cost
and NRV, according to PAS 2 inventories?

a. Deducted in arriving at NRV
b. Deducted from cost
c. Added to cost
d. Ignored
21. Losses which are expected to arise from firm and noncancellable commitments for the future
purchase of inventory items, if material should be
a. Ignored
b. Charged to retained earnings
c. Recognized in the accounts by debiting loss on purchase commitments and crediting
estimated liability for loss on purchase commitments
d. Disclosed in the notes
22. At the end of the accounting period, the current market value of a purchase commitment
was less than the fixed purchase price. Which treatment is most appropriate?
a. Describe the nature of the contract in a note to the financial statements, recognize a
loss and recognize a reduction in inventory equal to the amount of loss
b. Neither describe the purchase obligation nor recognize a loss
c. Describe the nature of the contract in a note to the financial statements and recognize
a liability for the accrued loss.
d. Describe the nature of the contract and the estimated amount of the loss in a note
23. Which costs may be capitalized as cost of inventories?
a. Selling costs
b. Foreign exchange differences which arises directly on the recent acquisition of
inventories invoiced in a foreign currency.
c. Normal shrinkage and scrap incurred for the manufacture of a product in ending
inventory.
d. Storage costs
24. Theoretically, cash discounts permitted on purchased raw materials should be
a. Added to other income, only if taken
b. Added to other income, whether taken or not

c. Deducted from inventory, only if taken
d. Deducted from inventory, whether taken or not
25. 1st: The cost of conversion of inventories includes costs directly related to the units of
production, such as labor. They also include a systematic allocation of fixed and variable
production overheads, that are incurred in converting materials into finished goods.
2nd: The costs of purchased of inventories comprise the purchase price, import duties and
other taxes (other than those subsequently recoverable by the entity form the taxing
authorities), and transport, handling and other costs directly attributable to the acquisition of
finished goods, materials and services. Trade discounts, rebates and other similar items are
deducted in determining the costs of purchase.
a. False, False c. True, True
b. False, True d. True, False
26. The following are costs excluded from the cost of inventories, except
a. Administrative overheads that do not contribute to bringing inventories to their present
location and condition
b. Import duties
c. Abnormal amounts of wasted materials, labor or other production costs
d. Storage costs, unless those costs are necessary in the production process before a
further production stage
27. When allocating costs to inventory produced for the period, fixed overhead should be based
upon
a. the normal capacity of production facilities
b. the actual amounts of goods produced during the period
c. the lowest production levels in the last three periods
d. the highest production levels in the last three periods
28. Which of the following statements regarding inventory accounting system is true?
a. The advantage of the perpetual inventory system is that the record keeping simple
b. An advantage of the periodic system is that it provides a continuous record of
inventory.
c. A disadvantage of the perpetual inventory system is that inventory amounts used for
interim reporting purposes are estimate amounts.
d. A disadvantage of the periodic inventory system is that the cost of goods sold used for
financial reporting includes both the cost of inventory and inventory shortages.
29. 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. The NRV is substituted for cost and the loss is buried in costs of goods sold
d. Only the portion of the loss attributable to inventory sold is recorded
30. Net realizable value is the general rule for valuing which of the following types of inventory?
a. Commodities held by broker traders
b. All of the choices are held at NRV
c. Inventories priced on an item by item basis
d. Computer components held for sale to manufacture
31. How is the gross profit method used as it relates to inventory valuation?
a. To estimate the cost of goods sold
b. To provide a LIFO inventory value
c. Verify the accuracy of the perpetual inventory
d. Verify the accuracy of the physical inventory
32. Which of the following is/are considered as inventory?
I – A special article, fabricated to order for a customer, was finished and in the shipping room
II – An entity holds lubricants that are consumed by the entity’s machinery in producing goods.
III – A vintner processes grapes harvested from its vineyard into wine in a three year production
cycle.
IV – Materials in transit shipped FOB Shipping point.

a. I, II, III and IV c. III and IV
b. II, III and IV d. IV
33. Based on the following scenario, which of the following is true?
I – An entity stores its finished goods in a rented warehouse.
II – An entity rented two floors in a building. The first floor is occupied only by the production
staff. Half of the second floor is occupied by the entity’s administrative staff and the other half
is occupied by the sales team.
I II
a. The rental expense is not included in
the cost of inventory
First floor is part of the cost of inventory. The
second floor will be charged to Admin and
Selling Expense
b. The rental expense is not included in
the cost of inventory
The whole building is part of the cost of
Property, Plant and Equipment.
c. The rental expense is included in the First floor part of the cost of PPE. The second
cost of inventory. floor will be charged to Admin and Selling
Expense.
d. The rental expense is included in the
cost of inventory
The whole building is part of the cost of
Property, Plant and Equipment.
34. With regards the initial measurement of inventory, which of the following is incorrect?
a. Other costs that may be appropriate to include as part of the inventory are non-
production overheads or the cost of designing products for specific customers in the
cost of inventories.
b. The cost of inventories of a service provider does not include profit margins or non-
attributable overheads that are often factored into prices charged by service
providers.
c. The cost of purchase comprise the purchase price, import duties and other recoverable
taxes, transport, handling and other cost directly attributable to the acquisition of
finished goods, materials and services.
d. The cost of conversion of inventories include cost directly related to the units of
production, such as direct labor and the systematic allocation and variable production
overheads that are incurred in converting materials into finished goods.
35. The financial statement shall disclose the following, except:
a. The amount of inventories recognised as an expense during the period
b. The total carrying amount of inventories and the carrying amount in classifications
appropriate to the entity.

c. The fair value amount of inventories pledged as security for liabilities
d. The carrying amount of inventories recognised as an expense during the period.
36. FIFO
a. It permits the income manipulation, by making the year end purchases designed to
preserve existing inventory layers.
b. When prices are rising, the inventory valuation will be less than the current cost and
when prices are declining, the inventory valuation will be more than the current cost.
c. Favors the income statement because there is matching of current cost against current
revenue.
d. Favors the financial position in that the inventory is stated at current replacement cost.
37. When inventory declines in value below original cost what is the maximum amount that the
inventory can be valued at?
a. Historical cost
b. Sales price reduced by estimated cost of disposal
c. Sales price
38. The following statements relate to inventories under PAS 2:
I – The carrying amount of sold inventories shall be recognized as expense in the period in
which the related revenue is recognized.
II – The amount of any write down of inventories to net realizable value and all losses of
inventories shall be recognized as an expense in the period of write down or loss occurs.
III – The amount of reversal of a write down of inventories, arising from increase in the net
realizable value, shall be recognized as a reduction in the amount of inventories recognized as
expense in which the reversal occurs.
a. I, II and III c. III
b. II and III d. I and II
39. Which of the following is/are considered as inventory?
I – Finished goods out on approval
II – Materials in transit shipped, FOB shipping point

III - The cost of actually producing the computer software from masters and packaging it for
sale.
IV – Goods held for sale for a brief period of time like emulsified asphalt that should be used
within a few hours after its receipt.
a. I only c. I, II and III
b. I and II only d. I, II, III and IV
40. PAS 2 (Inventories) applies to all inventories except:
a. Biological assets related to agricultural activity and agricultural produce at the point of
harvest
b. Financial instrument
c. Work in progress arising under construction contracts, including directly related service
contracts
d. All of the above
41. Which of the following items should be included in a company’s inventory at the balance
sheet date?
a. Goods sold to a customer which are being held for the customer to call for at the
customer’s convenience.
b. Goods in transit which were purchased FOB shipping point.
c. Goods in transit which were purchased FOB destination.
d. Goods received from another company for sale on consignment.
42. Inventories are required to be stated at the
a. Lower of cost and fair value
b. Lower of cost and net realizable value
c. Lower of FIFO cost and net realizable value
d. Lower of cost and recoverable value
43. Which of the following represents the best justification for valuing the inventories at the lower
of cost and net realizable value?

a. Cost loses its relevance for the determination of costs of goods sold if the cost of
inventory has been incurred in an earlier accounting period.
b. It is easier to keep track of market value that is to keep track of cost as market value is
available from any supplier.
c. The practice of writing inventories below cost to net realizable value is consistent with
the view that assets should not be carried in excess of amount expected to be realized
from their sale or use.
d. The balance sheet valuation of inventory is the most important consideration in the
preparation of financial statement.
44. Net realizable value is
a. Estimated selling price
b. Current replacement cost
c. Estimated selling price less estimated cost to complete and estimated cost of disposal
d. Estimated selling price less estimated cost to complete
45. The following may be included in the cost of inventories, except
a. Selling costs
b. Administrative overheads
c. Wasted materials, labor and other production cost
d. Storage cost
46. Variable production overhead are allocated to each unit of production on the basis of the
a. actual use of the production facilities
b. normal capacity of the production facilities
c. neither the normal capacity nor the actual use of production facilities
d. either the normal capacity or the actual use of production facilities
47. The use of a discount lost account implies that the recorded cost of an inventory is
a. invoice price plus the purchase discount lost
b. invoice price
c. invoice price less the purchase discount allowable whether taken or not
d. invoice price less the purchase discount taken
48. Which of the following is not an acceptable basis for valuation of inventory?
a. Standard costs
b. Historical cost
c. Current selling price less cost to complete and cost to sell
d. Prime cost
49. Which of the following statements is true regarding writedown and reversal of writedown?
a. Separate reporting of reversal of inventory writedown is required
b. Entities are required to record inventory writedown in a separate loss accont
c. Reversal of inventory writedown is prohibited
d. All of the choices are true
50. Losses arising from firm and noncancellable purchase commitments of inventory items, if
material, should be
a. Charged to retained earnings
b. Recognized in the accounts by debiting loss on purchase commitments and crediting
estimated liability for loss on purchase commitments.
c. Ignored
d. Disclosed in the notes
51. Which of the following costs of conversion cannot be included in the cost of inventory
a. Costs of direct labor c. Salaries of sales staff
b. Factory rent and utilities d. Factory overhead based on normal capacity
52. PAS2 Inventories requires that when inventory are written down to net realizable value, they
are written down
a. On an item by item basis
b. According to geographical segment within the entity
c. On a class by class basis

d. On the basis of industry segment
53. Which statement is not valid in relation to the LCM rule for inventories?
I. Inventories are usually written down to net realizable value on an item by item basis.
II. It is appropriate to write down inventories based on a classification of inventory, for example,
finished goods or all inventories in a particular industry or geographical segment.
a. Both I and II
b. Neither I nor II
c. I only
d. II only
54. Which of the following is not true about the perpetual inventory method?
a. The entry to record a sale includes a debit to cost of goods sold and a credit to
inventory
b. Purchases are recorded as debits to the inventory account
c. After a physical count, inventory is credited for any missing inventory
d. Purchase returns are recorded by debiting accounts payable and crediting purchase
returns and allowances
55. When using the moving average method of inventory valuation, a new unit cost must be
computed after each
a. Month end c. Issuance from inventory
b. Purchase and issuance of inventory d. Purchase
56. When a portion of inventories has been pledged to secure the payment of indebtedness
a. The value of the portion pledged should be transferred from current assets to
noncurrent assets
b. The value of the inventories shown in the current assets section of the balance sheet
remains the same but the fact of having been pledged a portion of the inventories
should be disclosed in the financial statements or notes.

c. The fact of a portion having been pledged should be disclosed in the notes to financial
statements
d. The value of the portion pledged should be deducted from the value of the inventories
shown in the current assets section of the balance sheet
57. Khanser Company is in the industry of a production process characterized by a production
chain consisting of numerous different stages and facilities where different qualities and
quantities of materials in different physical conditions and different purity grades permanently
flow through the facilities. In order for the factory to function (at least function efficiently), a
minimum level of certain materials known as “core inventory” has to be maintain at all times in
the different stages of the production process.
Khanser Company defined “Core Inventories” based on the industry they are engaged
in, as minimum amount of materials that must be present at all times during the production
process in order to permit the first time production and subsequent production. The minimum
amount of materials is physically commingled with ordinary inventories on an ongoing basis
and cannot be separated from other inventories. The required minimum amount of materials
can only be removed when the production facilities are finally decommissioned, when the
production facility is overhauled or during the production process at considerable financial
expense.
Based on the IFRS Interpretations Committe Meeting, core inventories are classified as
a. They are classified as Inventories as they are ordinarily interchangeable with other
inventories, and thus core inventories held at a particular reporting date will be either
consumed or sold in the next period.
b. They are classified as Inventories as PAS 2 takes precedence over the scope of PAS 16,
based on the paragraph 2 of PAS 16 which states that “This standard shall be applied in
accounting for PPE except when another standard requires or permits a different
accounting treatment”.
c. They are classified as PPE as they are not held for sale or consumption; instead their
intended use is to ensure that a production facility is operating. Even though core
inventories are commingled with other ordinary inventories, the characteristic and
intended use of a particular part of inventories remain the same at each reporting
period.
d. Either Inventory or PPE
58. WILDLIFE INC is in memorial park Industry. CHUMBEE is a newly hired accountant and was
tasked to prepare the financial statement of the company. What should be the inventory for
this kind of business?
a. The number of buried dead people c. Gravestone
b. The land d. None
59. Which of the following is not recognized as an expense in accordance to PAS 2?
a. Costs of goods sold
b. Write down of inventories to net realizable value
c. Reversal of writedowns to net realizable value
d. Inventory items used by an entity as components in self constructed property, plant and
equipment
60. COCO is a NUT FARMER and believes that the price of nuts will increase significantly in the
months following harvesting the crop. In anticipation of charging higher prices COCO stores
the harvested nuts for three months after the harvest. COCO should measure his NUTS at
a. In accordance to PAS 2, initially at cost during harvest and subsequently lower of cost
and NRV
b. They are measured at net realizable value in accordance with well established
practices in that industry and subsequently any changes in the value are recognised in
profit or loss in the period of the change.
c. They are measured lower of cost and NRV and if the NRV is lower than the cost, the
changes will be recognised in the statement of financial position as an allowance for
inventory write down.

d. The nuts should be valued at fair value less cost to sell at the time of harvest and any
changes of the fair value will be ignored.
61. Which of the following should be form part of the cost of inventories
a. The cost of purchase comprises the purchase price, import duties and other
recoverable taxes, transportation, handling costs directly attributable to the delivery of
finished products to the customer.
b. The cost of conversion which includes the allocation of fixed production overhead
using the actual capacity and the allocation of variable production overhead using
the normal capacity.
c. Other costs to the extent that they are incurred in bringing the inventories to their
present location and condition.
d. All of the above
62. Which of the following is not a required disclosure of inventory
a. The amount of any write down of inventories recognised as an expense for the period.
b. The amount of reversal of write down that is recognised as a reduction in the amount of
inventories recognised as expense in the period.
c. The circumstances or events the led to write down of inventories.
d. The circumstances or events that led to the reversal of inventory writedown.
63. The weighted average inventory costing method is particularly suitable to inventory where
a. Homogeneous products are mixed together
b. Goods have distinct use by dates and the goods produced first must be sold earliest
c. The entity carries stocks of raw materials, work in progress and finished goods
d. Dissimilar products are stored in separate locations
64. In a period of rising prices, the inventory method which tends to give the highest reported cost of
goods
sold is
a. Base stock c. Last in, Last out
b. First in, first out d. weighted average

65. Which of the following is not the common disclosure for inventories
a. Inventory composition
b. Inventory location
c. Inventory financing arrangements
d. Inventory costing methods employed
66. Yeah Company incorrectly included in its ending inventory of the current year P125,000 worth of
items
that is holding in consignment for EX Inc. The effect of this error on the net income and cost of goods
sold of the succeeding period is
a. Overstatement, automatically correct c. Understatement, understatement
b. Overstatement, understatement d. understatement, overstatement
Agriculture
1. Measured at fair value less cost to sell at the point of harvest
a. Leaves c. Lumber
b. Bushes d. Wine
2. Entity A had a plantation of forest that is likely to be harvested and sold in 30 years. The
income should be accounted for in the following way
a. No income should be reported until first harvest and sale in 30 years.
b. The eventual sale proceeds should be estimated and matched to the profit and loss
account over the 30 year period
c. Income should be measured annually and reported using a fair value approach that
recognizes and measures biological growth
d. The plantation forest should be valued every 5 years and the increase in value should
be shown in the statement of recognized gains and losses.
3. Measured at lower of cost and net realizable value
a. Sugar c. Fruit trees
b. Wool d. Dairy Cattle

4. Where there is a production cycle of more than one year for a biological asset, PAS 41
encourages separate disclosure of
a. Total change in value c. Physical change only
b. Physical change and price change d. Price change only
5. Choose the incorrect statement
a. For a biological asset, there is a presumption that a fair value can be measured reliably
b. The fair value assumption on biological assets can be rebutted only on initial
recognition
c. For an agricultural produce, it is assumed that its fair value less cost to sell on initial
recognition can always be measured reliably.
d. Quantified description of each group of biological assets is required by PAS 41.
6. Which of the following is true about IAS 41
a. The management by an entity of the biological transformation and harvest of
biological assets for sale or for conversion into agricultural produce or into additional
biological assets.
b. Property (land or building or part of a building or both) held by an owner or by the
lessee under a finance lease to earn rentals or for capital appreciation or both
c. Are tangible assets which are held by an entity for use in production or supply of goods
and services, for rental to others, or for administrative purposes, and are expected to be
used during more than one period.
d. The search for mineral resources after the entity has obtained legal rights to explore in a
specific area as well as the determination of the technical feasibility and commercial
viability of extracting the mineral resources.
7. A gain or loss arising on the initial recognition of a biological asset and from a change in the
fair value less estimated point of sale costs of a biological asset should be included in
a. The net profit or loss for the period
b. The statement of recognized gains and losses
c. A separate revaluation reserve

d. A capital reserve within equity
8. Land that is related to agricultural activity is measured
a. At fair value
b. In accordance with PAS 16, Property, Plant and Equipment, or PAS 40 Investment
Property
c. At fair value in combination with the biological asset that has been grown on the land
d. At the resale value separate from the biological asset that has been grown on the land.
9. Where the fair value of the biological asset cannot be determined reliably, the biological asset
should be measured at
AGRICULTURE (RDA) 4
a. Cost
b. Cost less accumulated depreciation
c. Cost less accumulated depreciation and accumulated impairment loss
10. It is the management by an entity of the biological transformation of living animals or plants for
sale into agricultural produce or into additional biological assets
a. Agricultural activity c. Development Activity
b. Biological activity d. Development activity
11. Generally speaking, biological assets relating to agricultural activity should be measured using
a. Historical cost
b. Historical cost less depreciation less impairment
c. Net realizable value
d. A fair value approach
12. Which of the following values in unlikely to be used in fair value measurement?
a. Quoted market price in a market
b. The most recent market transaction price
c. The present value of the expected net cash flows from the assets
d. External independent valuation
13. I – External independent valuation is an acceptable fair value measurement for biological
assets and agricultural produce.
II -Contract prices are not necessarily relevant in determining fair value, and the fair value of a
biological asset or agricultural produce is not adjusted because of the existence of a contract
a. True, True b. False, True c. True, False d. False, False
14. I – Fair value of agricultural produce at the point of harvest can always be measured reliably.
II – Agricultural activity is the process of enhancing or stabilizing the conditions necessary for
the biological transformation to take place
III – the management by an entity of the biological transformation of biological assets for sale
into agricultural produce, or into additional biological assets, is called “management” activity.
a. False, True, False c. False, False, False
b. True, False, False d. True, True, True
15. Consumable biological assets are those that are to be harvested as agricultural produce or
sold as biological assets. Examples of consumable biological assets are the following, except
a. Trees being grown for lumber
b. Livestock held for sale
c. Livestock from which milk is produced
d. Livestock intended for the production of meat
16. Which statement is incorrect concerning biological asset?
a. Agricultural produce is measured at fair value less costs to sell at the point of harvest
less normal profit margin
b. Biological assets are measured at fair value less costs to sell
c. Agricultural activity is the management by an entity of the biological transformation of
biological asset into agricultural produce or additional biological asset
d. Biological assets are living animals and living plants
17. Which of the following are not included in costs to sell?
a. Commissions to brokers and dealers
b. Transport and other cost necessary to get the assets to a market

c. Transfer taxes and duties
d. Levies by regulatory agencies
18. Under PFRS, which of the following inventory items are not valued at the lower of cost or net
realizable value?
a. Manufacturing inventory items
b. Retail inventory items
AGRICULTURE (RDA) 5
c. Biological Inventory items
d. Industrial inventory items
19. All of the following would be classified as biological asset, except?
a. Dairy cattle b. Chickens c. Eggs d. Trees
20. Which of the following is not dealt with by PAS 41?
a. The accounting for biological assets
b. The initial measurement of agricultural produce harvested from biological assets
c. The processing of agricultural produce after harvesting
d. The accounting treatment of government grant received in respect of biological assets
21. Which of the following information should be disclosed in relation to agriculture?
a. Separate disclosure of the gain or loss relating to biological assets and agricultural
produce
b. 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.
c. The total gain or loss from biological assets and agricultural produce
d. There is no requirement to disclose separately any gain or loss.
22. 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 becomes receivable

c. Income when the grant application has been submitted
d. A deferred credit when the grant has been approved
23. If government grant related to biological asset is conditional, the grant should be recognized
as
a. Income when the conditions attaching to the grant are met
b. Income when the grant has been approved
c. A deferred credit when the conditions attaching to the grant are met
d. A deferred credit when the grant has been approved
24. Biological assets are valued at fair value, under PFRS 13, paragraph 72, enumerates the fair
value hierarchy. Which of the following provides the correct order of fair value
I – Unobservable inputs are for the assets.
II – Quoted prices in an active market for identical assets
III – Quoted prices for similar assets in an active market and quoted prices for identical
or similar assets in a market that is not active.
a. I, II and III c. III, II and I
b. II, III and I d. I, III and II
25. A bearer plant is a living plant that
a. Is used in the production of supply of agricultural produce
b. Has a remote likelihood of being sold as agricultural produce, except for incidental
scrap sales
c. Is used to bear produce for more than one period.
d. All of the above
26. Mature bearer plant is measured using
a. Either cost or fair value method
b. Either cost or revaluation method
c. Revaluation method
d. Cost model
27. Animals related to recreational acivities including the natural breeding of animals in zoos, shall
be accounted for under what standard?

a. PAS 41 – Agriculture c. PAS 40 – Investment property
b. PAS 16 – PPE d. PAS – Inventory
AGRICULTURE (RDA) 6
28. 1st statement: The bearer plant and the related agricultural produce are accounted as two
separate assets.
2nd statement: the agricultural produce is usually presented as current asset unless it takes
more than one year to mature.
a. Both statements are true c. Only 1st statement is true
b. Both statements are false d. Only 2nd statement is true
29. Bearer animals are accounted for as
a. PAS 41 – Agriculture c. PAS 40 – Investment property
b. PAS 16 – PPE d. PAS – Inventory
Inv in associate
1. If an entity holds, directly or indirectly, 20 per cent or more of the voting power of the investee,
it is presumed that the entity has significant influence, unless it can be clearly demonstrated
that this is not the case.
2. The existence and effect of potential voting rights that are currently exercisable or convertible,
including potential voting rights held by other entities, are not considered when assessing
whether an entity has significant influence.
3. An entity loses significant influence over an investee when it loses the power to participate in
the financial and operating policy decisions of that investee.
4. When instruments containing potential voting rights in substance currently give access to the
returns associated with an ownership interest in an associate or a joint venture, the instruments
are not subject to PFRS 9.
5. When an investment in an associate or a joint venture is held by, or is held indirectly through,
an entity that is a venture capital organization, or a mutual fund, unit trust and similar entities
including investment-linked insurance funds, the entity should elect to measure that
investment at fair value through profit or loss in accordance with IFRS 9.
6. An entity shall apply PFRS 5 (Noncurrent assets held for sale) to an investment, or a portion of
an investment, in an associate or a joint venture that meets the criteria to be classified as held
for sale.
7. According to PAS 28, if an investment in an associate becomes an investment in a joint
venture or an investment in a joint venture becomes an investment in an associate, the entity
shall apply the fair value method and remeasure the retained interest.
8. The gain or loss resulting from a downstream transaction involving assets that constitute a
business, as defined in IFRS 3, between an entity (including its consolidated subsidiaries) and its
associate or joint venture is not recognized in the investor’s financial statements.
9. When the end of the reporting period of the entity is different from that of the associate or joint
venture, the associate or joint venture prepares, for the use of the entity, financial statements
as of the same date as the financial statements of the entity unless it is impracticable to do so.
10. When the financial statements of an associate or a joint venture used in applying the equity
method are prepared as of a date different from that used by the entity, adjustments shall be
INVESTMENT IN ASSOCIATE (RDA) 6
made for the effects of significant transactions or events that occur between that date and
the date of the entity’s financial statements.
11. The entity’s financial statements shall be prepared using uniform accounting policies for like
transactions and events in similar circumstances.
12. If an associate or a joint venture has outstanding cumulative preference shares that are held
by parties other than the entity and are classified as equity, the entity computes its share of
profit or loss after adjusting for the dividends on such shares, when the dividends had been
declared.
13. If an entity’s ownership interest in an associate or a joint venture is reduced, but the investment
continues to be classified either as an associate or a joint venture respectively, the entity shall
reclassify to profit or loss the proportion of the gain or loss that had previously been recognized
in other comprehensive income relating to that reduction in ownership interest if that gain or
loss would be required to be reclassified to profit or loss on the disposal of the related assets or
liabilities.
14. The concepts underlying the procedures used in accounting for the acquisition of a subsidiary
are not adopted in accounting for the acquisition of an investment in an associate or a joint
venture.
15. ‘Upstream’ transactions are, for example, sales of assets from an associate or a joint venture to
the investor.
Exercise 16 -2. Multiple Choice. Choose the best answer
1. It is an entity over which the investor has significant influence.
a. Associate c. Venture capital organization
b. Investee d. Mutual fund
2. Which statement is true concerning significant influence?
a. If an investor holds, directly or indirectly, less than 20% of the voting power of the investee, it
is presumed that the investor does not have significant influence, unless such influence can
be clearly demonstrated.
b. If an investor holds, directly or indirectly, 20% or more of the voting power of the investee, it
is presumed that the investor does have significant influence, unless it can be clearly
demonstrated that this is not the case.
c. A substantial or majority ownership by another investor does not necessarily preclude an
investor from having significant influence.
d. All of these statements are true about significance influence.
3. When an entity holds between 20% and 50% of the voting power of an investee, which
statement is true?
a. The investor must use the equity method.
b. The investor should use the equity method unless circumstances indicate that it is unable to
exercise significant influence over the investee.
c. The investor must use the fair value method unless it can be clearly demonstrated that the
investor has significant influence over the investee,

d. The investor must use the fair value method.
4. An investor shall discontinue the equity method when
a. The investor ceases to have significant influence over the associate.
b. The associate operates under severe long-term restrictions.
c. The investor ceases to have control over the associate.
d. The business activities of the investor and associate are dissimilar.
5. When an investor uses the equity method to account for investment in ordinary shares, cash
dividends received by the investor from the investee shall be recorded as
a. Dividend income
INVESTMENT IN ASSOCIATE (RDA) 7
b. A deduction from the investor’s share of the investee’s profits
c. A deduction from the investment account
d. A deduction from the shareholders’ equity account, dividends to shareholder.
6. The equity method is not required when the associate has been acquired and held with a
view to disposal within what time period?
a. Six months from the end of reporting period
b. Twelve months from the end of reporting period
c. Twelve months from date of classification as held for sale
d. In the near future
7. How is the impairment test carried out for an investment in associate?
a. The goodwill is tested individually.
b. The entire carrying amount of the investment is tested for impairment for impairment by
comparing the recoverable amount with carrying amount with carrying amount.
c. The carrying amount of the investment shall be compared with fair value
d. The recoverable amounts of all investments in associates shall be assessed together.
8. The excess of the investor’s share of the net fair value of the associate’s net assets over the
cost of the investment is

a. Included in other comprehensive income
b. Credited to retained earnings
c. Recognized as income in the determination of the investors’ share of the associate’s profit
or loss
d. A deferred gain
9. What should happen when the financial statements of an associate are not prepared as of
the same date as the financial statements of the investor?
a. The associate shall prepare financial statements at the same date as that of the investor.
b. The financial statements of the associate prepared up to a different date would be used.
c. Any major transactions during the time gap of the financial statements shall be accounted
for.
d. As long as the gap is not greater than three months, there is no problem.
10. On the loss of significant influence, the investor shall recognize in profit or loss any difference
between
a. The initial carrying amount of any retained investment, any proceeds from disposing of the
part interest and the carrying amount of the investment at the date when significant
influence is lost.
b. The fair value of any retained earnings investments and the carrying amount of the
investment at the date significant influence is lost.
c. Any proceeds from disposing of the part interest and the carrying amount of the
investment at the date significant influence is lost.
d. The fair value of any retained investments, any proceeds from disposing of the part interest
and the carrying amount of the investment at the date significant influence is lost.
Borrowing cost
1. PAS 20, government grant includes the provision of infrastructure by improvement to the
general transport and communication network.
If the asset is financed by specific borrowing but a portion is used for working capital purpose
the capitalization of borrowing cost shall be treated as General Borrowing.

2. An example of assistance that cannot be distinguished from the normal trading transactions is
the free technical or marketing advice and the provision of guarantees.
An example of assistance that cannot be reasonably have a value placed upon is a
government procurement policy that is responsible for a portion of the entity’s sales.
3. A government grant that becomes repayable shall be accounted for as a change in
accounting estimate.
The treatment of borrowing cost during the period of substantial technical and administrative
work is carried out is to expense it.
4. Repayment of grant related to income shall be applied first against to any amortized deferred
credit recognized in respect to the grant.
Repayment of grant related to asset shall be recognized by decreasing the carrying amount
of the asset or increasing the deferred income balance by the amount repayable.
5. Grant related to income are sometimes presented as credit in the statement of
comprehensive income, either separately or under a general heading such as other income.
A qualifying asset is an asset that necessarily takes a short period of time to get ready for the
intended use or sale.
6. Government grant are sometimes called by other names such as subsidies, subventions or
premiums.
Receipt of the grant itself provides conclusive evidence that the conditions attaching to the
grant have been or will be fulfilled.
7. The manner in which a grant is received will affect the accounting method to be adopted in
regards to the grant.
Capitalizable borrowing cost under specific borrowings is actual borrowing cost incurred less
interest Income.
8. Once a government grant is recognized, any related contingent liability or asset is treated
under PAS 20.
The two approaches for government grant are first, the capital approach, in which grant is
recognized outside the profit or loss and the income approach, in which the grant is
recognized in profit or loss over one or more periods.

9. One of the arguments in support of the capital approach is that it is inappropriate to
recognized grant in profit or loss because they are not earned but represent an incentive
provided by government without related costs.
One of the arguments in support of the income approach is that income and taxes are
expenses, it is logical to deal also with government grants, which are an extension of fiscal
policies, in profit or loss.
GOVERNMENT GRANT AND BORROWING COST (RDA) 6
10. If the grant of land will be given if the condition is upon the erection of a building on the site,
the grant will be recognized in the profit or loss over the life of the building.
A government grant that becomes repayable because of noncompliance with conditions
shall be accounted for as change in accounting policy.
1. It is an action by government design to provide an economic benefit specific to an entity or
range of entities qualifying under certain criteria
a. Government premium c. Government grant
b. Government subvention d. Government Assistance
2. These are assistance by government in the form of transfers of resources to an entity in return
for past or future compliance with certain conditions relating to the operating activities of the
entity.
a. Government premium c. government grant
b. Government subvention d. government assistance
3. These are government grants whose primary condition is that an entity qualifying for them
should purchase, construct or otherwise acquire long term assets.
a. Grants related to assets c. government grants
b. Grants related to income d. government assistance
4. Which of the following statement is incorrect?
a. The benefit of a government loan at a below market rate of interest is not to be treated
as a government grant.
b. A forgivable loan from government is treated as a government grant when there is
reasonable assurance that the entity will meet the terms for forgiveness of the loan.
c. The manner in which a grant is received does not affect the accounting method to be
adopted in regard to the grant.
d. A government grant is not recognized until there is a reasonable assurance that the
entity will comply with the conditions attaching to it, and that the grant will be
received.
5. Which of the following accounting for government grant is incorrect?
a. A government grant that becomes receivable as compensation for expenses or losses
already incurred for the purpose of giving immediate financial support to the entity with
no future related costs shall be recognized in profit or loss after meeting certain
conditions.
b. Grants related to nondepreciable asset may also require the fulfillment of certain
obligation and would be recognized in profit or loss over the periods that bear the cost
of meeting the obligation.
c. Grants related to depreciable assets are usually recognized in profit or loss over the
periods and in the proportions in which depreciation expense on those assets is
recognized.
d. Government grants shall be recognized in profit or loss on a systematic basis over the
periods in which the entity recognizes as expenses the related costs for which the grants
are intended to compensate.
6. Which of the following disclosures is not required by PAS 20?
a. The nature and extent of government grants recognized in the financial statements and
an indication of other forms of government assistance from which the entity has directly
benefitted.
b. The names of the government agencies that gave the grants along with the dates of
sanction of the grants by these government agencies and the date when cash was
received in case of monetary grant.
c. Unfulfilled conditions and other contingencies attaching to government assistance.
d. The accounting policy adopted for government grants, including methods of
presentation adopted in the financial statements.
7. Which of the following methods are acceptable in presenting grants related to assets?
a. Reported as deferred income
b. Deducted in arriving the carrying amount of the asset
c. Either a or b
d. Neither a or b
8. In case of grants related to income, which of these accounting treatments is prescribed by
PAS 20?
a. Credit the grant to general reserve under shareholders equity
b. Present the grant in the income statement as other income or as a separate line item,
or deduct it from the related expense
c. Credit the grant to retained earnings on the balance sheet
d. Credit the grant to sale or other revenue from operations in the income statement.
9. Which of the following is false concerning the repayment of government grants?
a. A government grant that becomes repayable should be accounted for as a revision to
an accounting policy.
b. Repayment of a grant related to income should be applied first against any
unamortized deferred credit set up in respect of the grant.
c. The excess of the repayment over the deferred credit set up should be recognized
immediately as an expense.
d. All of the above
10. Nonmonetary grants such as land or other resources are usually accounted for at
a. Cost c. Fair value

b. Nominal amount d. Both B and C
11. Government in PAS 20 refers to
a. Local Government c. International Government
b. National Government d. Any of the above
12. If a government grant is conditional on certain events, then the grants should be recognized
as
a. Income when the conditions attaching to the grant are met
b. Income when the grant has been approved
c. A deferred credit when the conditions attached to the government grant are met
d. A deferred credit when the grant is approved.
13. Which statement is correct regarding the government grant
a. Receipt of a grant, in itself, provides conclusive evidence that the conditions attaching
to the grant have been or will be fulfilled.
b. Forgivable loan from government is treated as a government grant when there is
reasonable assurance that the enterprise will meet the terms of forgiveness of the loan
c. The manner in which a grant is received affects the accounting method to be adopted
in regard to the grant.
d. Grant received in cash and grant as a reduction a liability to the government should be
accounted differently
14. In the case of the grants related to an asset, which of these accounting treatments is
prescribed by PAS 20?
a. Record the grant at a nominal value in the first year and write off in the subsequent
year.
b. Either set up the grant as deferred income or deduct it in arriving at the carrying
amount of the asset.
c. Record the grant at fair value in the first year and take it to income in the subsequent
year.
d. Take it to the income statement and disclosure it as an extraordinary gain.

a. A grant receivable as compensation for costs already incurred or for immediate
financial support, with no future related costs, should be recognized as income in the
period in which it is receivable.
b. Grants related to nondepreciable assets requiring fulfillment of certain conditions should
be recognized as income immediately after meeting the condition.
c. Grants related to depreciable assets should be recognized as income over the periods
and in proportion to the depreciation of the related assets
d. Grants in recognition of specific expenses should be recognized as income over the
period of the related expense.
16. Which of the following statements about the capitalization of borrowing costs as part of the
cost of a qualifying asset is true?
a. If funds come from general borrowings, the amount to be capitalized is based on the
weighted average cost of borrowing
b. Capitalization always continue until the asset is brought into use
c. Capitalization always commences as soon as expenditure of the asset is incurred.
d. Capitalization always commences as soon as interest on relevant borrowings is being
incurred.
17. Which of the following borrowing costs may not be eligible for capitalization of borrowing
costs?
a. Interest on bonds issued to finance the construction of a qualifying asset
b. Amortization of discounts or premiums relating to borrowings that qualify for
capitalization
c. Imputed cost of equity

d. Exchange differences arising from foreign currency borrowings to the extent these are
regarded as an adjustment to interest costs pertaining to a qualifying asset.
18. Capitalization of borrowing costs shall be suspended
a. Only during temporary periods of delay
b. Only during extended periods of delay in which active development is delayed
c. Only upon agreement by management and the construction company
d. At no instance at all as capitalization has already commenced
PPE
9. 1st statement: Carrying amount is the amount at which an asset is recognized after deducting
the accumulated depreciation and accumulated impairment losses.
2nd statement: Depreciable amount is the cost of an asset, or other amount substituted for cost,
less residual value.
10. 1st statement: Impairment loss is the systematic allocation of the depreciable amount of an asset
over its useful life.
2nd statement: Fair value is the amount of cash or cash equivalents paid or the value of the other
consideration given to acquire an asset at the time of its acquisition or construction.
11. 1st statement: Property, Plant and Equipment are intangible items that are held for use in the
production or supply of goods or services, for rental to others, or for administrative purposes or
expected to be used during more than one period.
2nd statement: Recoverable amount is the lower of an asset’s fair value less cost of disposal and
its value in use.
12. 1st statement: Residual value of an asset is the estimated amount that an entity would currently
obtain from the disposal of an asset, after deducting the estimated cost of disposal.
2nd statement: Spare parts are classified as inventory otherwise it will be classified as property,
plant and equipment.
13. 1st statement: The installation of new chemical handling processes to comply with the
environmental requirements for the production and storage of dangerous chemicals can be
classified as asset even though it will not directly increase the future economic benefit from a
particular property, plant and equipment.
2nd statement: The cost of the day to day servicing of the item is included in the carrying amount
of an item in property, plant and equipment.
14. 1st statement:An item of property, plant and equipment that qualifies for recognition as an asset
shall be measured at its cost.
2nd statement: Costs of opening a new facility is an example of directly attributable cost.
15. 1st statement: Administration and other general overhead costs are not part of the cost of
property, plant and equipment.
2nd statement: An entity shall choose either the cost model or the fair value model in measuring
the property, plant and equipment after the recognition.
16. 1st statement: The frequency of the revaluations of the assets depend upon the changes in fair
values of the items of property, plant and equipment being revalued.
2nd statement: At the date of the revaluation, the accumulated depreciation is eliminated
against the net carrying amount of the asset.
17. 1st statement: If an item of property plant and equipment is revalued, any item within the class
may be revalued, depending on the circumstance.
2nd statement: The revaluation surplus will be transferred to the retained earnings account when
the asset recognized at the revaluation date.
18. 1st statement: The property, plant and equipment shall be depreciated as a whole and not on
per item or parts basis even such part or item is significant in cost.
2nd statement: The depreciable amount should be allocated on a systematic basis.
19. Which of the following is still within the cost of property, plant and equipment
a. Property, plant and equipment classified as held for sale
b. Biological asset related to agricultural activity other than the bearer plants.
c. The property, plant and equipment used to develop or maintain the asset of mineral
rights and mineral reserves such as oil, natural gas and similar non-regenerative resources.
d. None of the above, all are beyond the scope of PPE
e. A, B and C are within the scope of PAS 16

20. It is the present value of the cash flows an entity expects to arise from the continuing use of an
asset and from its disposal at the end of its useful life or expects to incur when settling a liability.
a. Cost c. Fair Value
b. Depreciable Amount d. Entity- Specific Value
21. Recoverable amount is
a. The lower between the fair value less cost of disposal and its value in use
PAS 16 (PPE) - RDA 8
b. The higher between the cost and the revalued amount
c. The higher between the fair value less cost of disposal and its value in use
d. The lower between the cost and the revalued amount.
22. Useful life is
a. The period over which an asset is expected to be available for use by an entity
b. The number of production or similar units expected to be obtained from the asset by an
entity.
c. Should be both A and B
d. Either A or B
e. Neither A nor B
23. Which of the following is not cost of an item of property, plant and equipment?
a. Purchase price, including import duties and non-refundable purchase taxes, after
deducting the trad discounts and rebates.
b. Initial estimate of dismantling and removing the item and restoring the site on which it is
located.
c. Initial delivery and handling cost
d. Cost of introducing a new product or service
24. Which of the following costs are included in the carrying amount of property, plant and
equipment?
a. Cost incurred while an item capable of operating in the manner intended by the
management has yet to be brought into use or is operated at less than full capacity.
b. Initial operating losses
c. Cost of relocating or reorganizing part or all of an entity’s operations.
d. None of the above
25. Incidental operations that occur before or during construction that resulted to income should
be
a. Deducted to the total cost of the property, plant and equipment
b. Added to the cost of the property, plant and equipment
c. Recognized as income in the profit or loss
d. Recognized as other income in other comprehensive income
26. Bearer plants
a. Are accounted as self-constructed items thus a property, plant and equipment
b. Are accounted as inventory
c. Are accounted as biological assets
d. Are accounted as agricultural produce
27. If the property, plant and equipment is acquired through exchange of non-monetary assets, the
cost of such an item will be measured at fair value unless
a. The exchange lacks commercial substance
b. The fair value of neither assets received nor given up is reliably measurable
c. Should be both A and B
d. Either A or B
e. Neither A nor B
28. An exchange transaction has a commercial substance, which is incorrect?
a. The configuration (risk, timing and amount) of the cash flows of the asset received differs
from the configuration of the cash flows of the assets transferred
b. The entity specific value of the portion of the entity’s operations affected by the
transaction changes as a result of the exchange
c. The difference between a and b is insignificant relative to the fair value of the assets
exchanged
29. If an asset’s carrying amount is increased as a result of a revaluation, the increase shall be
recognized in
a. Statement of financial position
PAS 16 (PPE) - RDA 9
b. Profit or loss
c. Other comprehensive income
d. Statement of cash flow
e. Not reported
30. Depreciation of an asset begins
a. Upon purchase c. At the beginning of the year
b. At the end of the current year. d When it is available for use
31. Depreciation of an asset ceases
a. When the asset is classified as held for sale
b. When the asset is derecognized
c. Whichever is earlier between A and B
d. Upon management discretion
32. Which of the following is not a factor being considered in determining the useful life of an asset
a. The expected usage of an asset
b. The expected physical wear and tear
c. Technical or commercial obsolescence
d. Legal or similar limits on the use of asset
33. If the cost of land includes the costs of site dismantlement, removal and restoration, the portion
of the land asset is
a. Depreciated over the period of benefits obtained by incurring those costs.
b. Not depreciated
c. Expense immediately
d. No guidance on such matter
34. The change in depreciation method is accounted as
a. A change in accounting policy c. A prior period error
b. A change in accounting estimate d. Correction of current error
35. Which of the following method used to allocate the depreciable of an asset is preferred by the
standard?
a. Straight line method c. Units of production method
b. Diminishing balance method d. None
36. The gain or loss arising from the derecognition of an item of property, plant and equipment shall
be determined as the
a. Difference between the cost and carrying amount
b. Difference between the carrying amount and net proceeds
c. Difference between the residual value and the carrying amount
d. Difference between the net proceeds and the original cost of the asset.
37. Compensation from third parties for items of property, plant and equipment were impaired, lost
or given up shall be included
a. In profit or loss when the compensation becomes receivable
b. In other comprehensive income when the compensation becomes receivable
c. In profit or loss upon receipt of compensation
d. In other comprehensive income upon receipt of compensation
38. If there is a change in depreciation method, which of the following is not a necessary disclosure
requirement?
a. Accumulated depreciation at the end of the period.
b. Residual values
c. Useful lives
d. Depreciation methods
Investment Property
1. The entity’s main intention for investment property is to
a. Use in the production or supply of goods or services
b. Use for administrative purposes
c. To earn rental or for capital appreciation
d. To sell in the ordinary course of business
2. Investment property and owner occupied are properties held by
a. The owner
b. By the lessee as a right of use asset
c. By the lessor in a finance lease
d. Both A or B
3. Which of the following is not an investment property?
a. Property that is leased to another entity under a finance lease
b. Property that is leased to another entity under an operating lease
c. Property that is being constructed for future use as investment property
d. Land held for a currently undetermined future use.
4. Which of the following is not part of the cost of investment property?
a. Professional services for legal services
b. Start up cost
c. Property transfer taxes
d. Purchase price
5. If the investment property is acquired through exchange and such transaction lacks commercial
substance, the investment property will be measured at
a. Fair value of the asset given up
b. Fair value of the asset received
c. Carrying amount of the asset given up
d. Carrying amount of the asset received
6. Subsequently, investment property will be measured at
a. Cost model or revaluation model
b. Cost model or fair value model
c. Fair value model or revaluation model
d. Carrying amount or Net realizable value
7. If subsequently, the entity uses the cost model for investment property the guidance to be followed
in measuring the investment property will be
a. Based on PFRS 5
b. Based on PFRS 16
c. Based on PAS 16
d. Either A, B or C depending the property’s classification.
8. Under the standard, there is a rebuttable presumption that an entity can reliably measure the fair
value of an investment property
a. On initial recognition only
b. On subsequent measurement only
c. On continuous basis
d. There is no rebuttable presumption as mentioned in the standard, fair value is always
determinable.
9. The fair value of an asset is measured reliably if:
I – the variability in the range of reasonable fair value measurements is not significant for that asset
II – the probabilities of the various estimates within the range can be reasonably assessed and
used when measuring fair value.
a. I only c. Both I and II
INVESTMENT PROPERTY - RDA 4
b. II only d. Either I or II
10. Which of the following is correct in determining the carrying amount of an investment property?
a. If an office is leased on furnished basis, the fair value of the investment property will
include the furniture
b. Lifts and air-conditioning is included as part of the investment property rather than PPE.
c. Both A and B are correct
d. Both A and B are incorrect
11. Which of the following is not an example of evidence of a change in use?
a. Inception of a finance lease to another party, for a transfer from inventories to investment
property.
b. Commencement of a development with a view to sale, for a transfer from investment
property to inventories.
c. Both A and B are examples of change in use
d. Both A and B are not examples of change in use
12. When an entity decides to dispose an investment property without development, the property will
be classified as ______ until derecognition.
a. Investment property c. Owner occupied
b. Inventory d. Either a, b or c
13. For a transfer from investment property carried at fair value to owner occupied property, the
property’s deemed cost for subsequent reporting will be the
a. Carrying amount of the asset at year end
b. Carrying amount of the asset at the date of change in use
c. Fair value of the asset at year end
d. Fair value of the asset at the date of change in use
14. The difference between the carrying amount and the fair value of an asset when there is a change
of use from inventories to investment property at fair value, will be treated as?
a. Addition to the cost of the asset
b. Shall be treated as revaluation surplus and be reported in other comprehensive income
c. Shall be recognized in profit or loss
d. There is no difference in amount as the asset will continue to value it at cost at the date
of change in use.
15. The depreciation method used is
a. A general disclosure requirement for all investment property.
b. An additional disclosure requirement if an investment property uses fair value model
c. An additional disclosure requirement if an investment property uses cost model
d. An additional disclosure requirement if an investment property uses revaluation model.
16. Investment property excludes
I – Property being constructed or developed on behalf of third parties
II – Property that is being redeveloped for continuing use as investment property
III – Property that is being constructed or developed for future use as an investment property
IV – Property leased to another entity under a finance lease
a. II only c. II and III only
b. I and IV only d. I, III and IV only

17. Which of the following is (are) correct if the enterprise provides ancillary services to the occupants
of a property held by the enterprise?
a. The appropriateness of classification as investment property is determined by the
significance of the services provided.
b. If the services provided are relatively insignificant component of the arrangement as a
whole (for instance, the building owner supplies security and maintenance services to
the lesses), then the enterprise treat the property as investment property
c. Where the services provided are more significant (such as the case of an owner-
managed hotel), the property should be classified as owner occupied.
d. All of the above
18. AB Corporation is preparing its consolidated financial statement. The company owns an office
building where nine out of ten floors are leased out to an affiliated company under an operating
lease, while the 10th floor is occupied by AB Corporation as its head office. What is the proper
accounting treatment for this in AB’s financial statements?
a. Nine floors are reported as Investment property while the 10th floor as Property and
Equipment
b. Nine floors are reported as Property and Equipment while the 10th floor as Investment
Property
c. The entire building is reported as Investment Property
d. The entire building is reported as Property and equipment
19. Which of the following is false with regards the measurement of transfers for investment property?
a. When the entity uses the cost model, transfers between investment property, owner
occupied property and inventory must be made at carrying amount.

b. If an inventory is transferred to investment property that is to be carried at fair value, the
remeasurement to fair value shall be included in profit or loss.
c. If owner occupied is transferred to investment property that is to be carried at fair value,
the difference between fair value and the carrying amount of the property shall be
accounted for in the profit or loss.
d. A transfer from investment property carried at fair value to owner occupied property or
inventory shall be accounted for at fair value which becomes the deemed cost for
subsequent accounting.
e.
20. Which of the following noncurrent assets may not be classified as investment property?
a. Land c. Machinery
b. Building d. All of them may qualify
21. Determine if it is Investment Property (IP), Owner Occupied (PPE) or Inventory (Inv) or Others
a. Land held for capital appreciation
b. Land held for undecided future use
c. Building lease as operating lease and lease out under operating lease
d. Building lease under operating lease out as finance lease
e. Land lease as finance lease and lease out as operating lease
f. Land lease as finance lease and lease out as finance lease
g. Property held for use in the production or supply of goods or services
h. Property held for administrative purposes
i. Property held for sale in the ordinary course of business
j. Property held in process of construction or development for sale
k. Property held for future use as owner occupied
l. Property held for future development and subsequent use as owner occupied
m. Property occupied by employees
n. Owner occupied awaiting for disposal
o. Machinery purchased with the intention to leased it out to other companies.
p. Building that is being constructed or developed for use as an investment property
q. Constructed a hotel building but will be managed by others with the condition that the
company will provide the laundry services.
r. Constructed a hotel building with the intention to manage the hotel while the laundry
services will be outsource from other company.
s. Constructed a condotel building with the plan to sell every room and manage it like a
hotel administered by the buyers of the condotel
t. A machinery owned by the Parent Company to be rented out by the Subsidiary under
an operating lease. (under consolidated FS)
u. A machinery owned by the Subsidiary Company to be rented out by the Parent under
an operating lease. (under Subsidiary Company FS)
v. A land owned by the Parent Company to be rented out by the Subsidiary under an
operating lease. (under Parent Company’s FS)
w. A land owned by the Subsidiary Company to be rented out by the Parent under an
operating lease (under Consolidated FS)
x. A building lease by the company under operating lease with an intention for rent. The
company uses cost method under lease
y. A machinery lease by the company under operating lease with an intention for rent.
The company uses fair value method under lease
Wasting Asset
6. Which of the following is false about Exploration and Evaluation Expenditures
a. When the legal rights to explore a specific area have been obtained but the technical
feasibility and commercial viability of extracting a mineral resource are not yet
demonstrable.
b. It will be recognized as an asset but only to the extent of the technical feasibility and
commercial viability of extracting the associated mineral resource have been
demonstrated.
c. Expenditures related to the development of mineral resources would never qualify as an
exploration and evaluation asset.
d. Exploration and evaluation asset will use revaluation model only in measuring the asset
subsequent to initial recognition.
7. Which of the following is false about Depletion
a. The most common method of computing depletion is production method
b. Depletion expense is usually part of cost of goods sold
c. To compute a depletion charge per unit includes the estimated total amount of
resources available for removal
8. PFRS 6 applies to expenditures incurred
a. In extracting mineral resources and processing the resources to make it marketable or
transportable
WASTING ASSET - RDA 4
b. When a specific area is being developed and preparations for commercial extraction
are being made
c. When the legal rights to explore a specific area have been obtained, but the technical
feasibility and commercial viability of extracting a mineral resources are not yet
demonstrable
d. When searching for an area that may warrant detailed exploration, even though the
entity has not yet obtained the legal rights to explore a specific area
9. What is an entity required to be considered in developing accounting policies for exploration
and evaluation activities?

a. Whether the accounting policy results in information that is relevant and reliable
b. Recent pronouncements of standard setting bodies, accounting literature and
accepted industry practice
c. The definitions, recognition criteria, and measurement concepts for assets, liabilities,
income and expenses in the framework
d. The requirements and guidance in standards and interpretations dealing with similar and
related issues.
10. Which of the following is not disclosure required in PFRS 6?
a. Information that identifies and explains the amounts recognized in the financial
statement arising from the exploration for and evaluation of mineral resources
b. Information about commercial reserve quantities
c. Accounting policies for exploration and evaluation expenditures, including the
recognition of exploration and evaluation assets
d. The amounts of assets, liabilities, income and expense and operating and investing cash
flows arising from the exploration for and evaluation of mineral resources.
Intangibles
1. Research and development costs must be expensed in the period incurred unless it can be
clearly demonstrated that the expenditure will have alternative future use or unless
contractually reimbursable.
Amortization method is one of the factors considered in determining the useful life of an
intangible asset.
2. Cost of testing prototype before economic feasibility has been demonstrated must be
capitalized.
An entity that acquires an intangible asset may use the revaluation model for subsequent
measurement if the useful life of the intangible asset can be reliably determined.
3. Website development costs incurred for the purpose of promoting and advertising an entity’s
product or service should be recognized as an asset with a definite life.

Intangible assets with indefinite useful life are tested for impairment quarterly at the quarterly
reporting date
4. Development is application of research finding or other knowledge to a plan or design for the
production of new or substantially improved product or process prior to the commencement
of commercial production or use.
A brand name that was acquired separately shall be initially recognized at fair value.
5. Cost of marketing research for a new product should be excluded from research and
development expense.
Amortization of an intangible asset with a finite useful life shall commence when it is
available for the intended use.
6. A patent should be amortized over the useful life or twenty years, whichever is longer.
Reconciliation of carrying amount at the beginning and end of the year is one of the
disclosures needed for intangible assets.
7. Perpetual franchise is an example of intangible assets that should not be amortized.
A trademark is amortized and tested for impairment whenever there is an indication of
impairment.
8. A copyright is an example of contract based general category of intangible asset.
The cost of successfully defending a patent from infringement by a competitor should be
charged to expense of the period.
9. Order backlogs and customer lists are an example of market related general category of
intangible assets.
Purchased goodwill should be written off by systematic charge as operating expense over the
period benefited or amortized.
10. Legal fees paid to the franchisee’s lawyers to obtain the franchise must be expensed
immediately.
Goodwill shall be recognized only when it is acquired through the purchase of another entity.
11. An intangible asset is an identifiable both monetary and nonmonetary asset without physical
substance.
INTANGIBLE ASSET - RDA 6
The cost of internally generated intangible asset shall include the compensation costs of
personnel directly engaged in generating the asset.
12. The fair value of an identifiable intangible asset acquired in a business combination cannot be
measured with sufficient reliability separately from goodwill.
Amortization is the systematic allocation of the amortizable amount of an intangible asset
over the useful life.
13. Residual value is one of the factors that need to be considered in determining the useful life of
an intangible asset.
Development activities include laboratory activities aimed at obtaining new knowledge.
14. The entity can reliably identify the research cost incurred to bring the project to economic
feasibility is a criterion which must be met before development cost can be capitalized.
Engineering cost incurred to advance the product to the full production stage should be
capitalized.
15. Adaptation of an existing capability to a particular requirement or customer need is now
considered research and development activity.
Modification of the design of the product is included as part of research and development
expense.
1. An intangible asset is defined as
a. An identifiable nonmonetary asset without physical substance
b. An identifiable monetary and nonmonetary asset without physical substance
c. An identifiable asset without physical substance
d. A nonmonetary asset without physical substance
2. Which of the following does not describe an intangible asset?
a. Provides long term benefit
b. Classified as noncurrent
c. Lacks physical substance
d. Monetary
3. Which of the following is/are considered as intangible assets?
I – An entity has a team of skilled employees and it can identify the incremental staff skills
leading to future economic benefits that will flow from training that it has provided to its
employees. The entity does not expect that any of its employees will leave the entity, and as a
result their skills are expected to remain available to the entity for the foreseeable future.
II – An entity that trades transferable fishing licenses acquires 1,000 licenses, each of which
entitles the holder to catch one tonne of fish in a specified jurisdiction’s waters. The entity does
not own a boat and does not intend to catch any fish. It has advertised the licenses for sale at
a price to achieve a 40 percent gross profit margin.
III – An entity owns and operates an interactive Internet site on which everyone can post
material related to a particular subject. The entity generates revenue by selling advertising
space on the site. The domain name is protected legally through registration with the
appropriate parties.
IV – An entity operates twenty MYBUS license in Cebu City. The MYBUS licenses are transferable
to other qualified taxi operators.
a. I, II, III and IV c. III and IV e. None of the above
b. II, III and IV d. IV
4. An entity developed a successful brand that allows the entity to charge a premium for its
products. The entity continues to spend large amounts on maintaining the brand and on
developing the brand further through sponsoring local sports events, sponsoring select cultural
events and advertising. Which of the following is true?
a. All the cost of developing the brand is recognized as an expense as they are incurred.
b. All the cost of developing the brand is recognized as part of the cost of intangible
asset.
c. The cost of developing the brand is initially recognized as part of the cost of an
intangible asset however, further development cost such as advertising and sponsorship
should be accounted as expense.
d. All of the above may be applicable depending on the availability of the information.
5. Which of the following is a characteristic of an intangible asset?
a. Long lived
b. Held for resale
c. Physical existence
d. Claim to a specific amount of cash in the future
6. An intangible asset is identifiable when
a. It is either separable or it arises from contractual and other legal right
b. It is neither separable nor it arises from contractual and other legal right
c. It is separable
d. It arises from contractual and other legal rights
7. In 2016, a candle manufacturer incurred the following expenses on raw materials and labour
to invent a new wax that enables to burn for substantially longer:
I – Cost of experimenting with chemicals to discover enhanced wax compounds.
II – Cost to evaluate the suitability of the different wax compound invented.
III – Patent registration costs for the most effective wax compound discovered
IV – Cost to develop and test the pre-production prototypes.
Which of these costs must be capitalized and formed part of the intangible asset?
a. I, II, III and IV c. II, III and IV
b. III and IV d. III
8. Which of the following is false with regards the development and operations of the company’s
website for internal or external access?
a. Purchasing, developing and operating hardware of a website is accounted for under
PAS 16 and not of PAS 38.
b. The application and infrastructure development stage, the graphical design stage and
the content development stage, to the extent that content is developed for purposes
other than to advertise and promote an entity’s own products and services, are similar
in nature to the development phase and expenses are recognised as part of intangible
asset.
c. Content development includes creating, purchasing, preparing and uploading
information, either textual or graphical in nature, on the website before the completion
of the web site’s development.
d. None of the above.
9. Which item listed below does not quality as an intangible asset?
a. Copyrights that are protected
b. Notebook computer
c. Computer software
d. Registered patent
10. An intangible asset shall be recognized if, and only if
a. It is probable that the expected future economic benefits that are attributable to the
asset will flow to the entity
b. The cost of the asset can be measured reliably.
c. Both a and b
d. Neither a nor b
a. An intangible asset acquired by an issuance of share capital should be generally be
valued at fair value of the intangible asset.
b. An unidentifiable asset developed internally is never recognized in the accounts as an
asset.
c. All annual payments made by a franchisee to the franchisor for assistance should be
capitalized as part of the cost of franchise.
d. Amortization of intangible asset involves adjusting entry that should not be reversed in
the next accounting period.

12. The appropriate method of amortizing intangible asset is best described by which of the
following?
a. Management can make subjective amount of periodic amortization without regard to
any particular method.
b. The straight line method, unless the pattern in which the asset’s economic benefits are
consumed by the enterprise can be determined reliably.
c. The double declining method in all circumstances
d. The straight line method in all circumstances
13. Once recognized, intangible assets can be carried at
a. Revalued amount less accumulated amortization
b. Cost plus a notional increase in fair value since the intangible asset is acquired
c. Cost less accumulated amortization
d. Cost less accumulated amortization and impairment losses
14. The cost of a separately acquired intangible asset comprises its purchase price, including
import duties and non-refundable purchase taxes and
a. Administration and other general overhead costs
b. Directly attributable costs of preparing the asset for the intended use
c. Cost of introducing a new product or service
d. Cost of conducting a business in a new location
15. Which of the following statement is false with regards the intangible assets
a. If an intangible asset has a finite useful life it must be amortized over that life.
b. As a general rule, unless otherwise demonstrated the residual value of an intangible
asset is presumed to be zero.
c. Technical feasibility is achieved when a prototype or model is produced.
d. When internally generated assets meets the recognition criteria, the appropriate
treatment of costs previously expenses is to capitalized it and adjust the opening
balance of retained earnings.

16. Items such as market knowledge, effective advertising programs, fundraising capabilities and
trained staff are not regarded as assets because they
a. Are not controlled by the entity
b. Are too difficult to manage
c. Are monetary items
d. Cannnot be measured
17. Directly attributable costs of preparing the intangible asset for the intended use include all of
the following, except.
a. Cost of testing whether the asset is functioning properly
b. Initial operating losses
c. Cost of employee benefits arising directly from bringing the asset to its working
condition
d. Professional fees arising directly from bringing the asset to its working condition
18. Cost incurred internally to create an intangible asset are
a. Expensed as incurred
b. Expense if the intangible asset has a limited
c. Capitalized
d. Capitalized if the intangible asset has an indefinite life
19. Which of the following is true?
a. If a competitive patent is acquired to protect an original patent, the cost of the
competitive patent shall be amortized over the legal life or the useful life of the old
patent whichever is shorter.
b. A copyright is an exclusive right granted by a private individual or company to the
author, composer or artist enabling the grantee to publish, sell or otherwise benefit from
the literary, musical or artistic work.
c. Leasehold and leasehold improvement are both classified as intangible asset.
d. Infrastructure asset like expressway should be recognized by the concession operator

when the operator received the right or a license to charge the users for public use and
its revenue is dependent on the use of the asset and not agreed upon.
20. Which of the following is an example of Development activities?
a. Searching for application of research finding and other knowledge.
b. Design, construction and testing of a chosen alternative for new or improved product
or process
c. Testing in search for product or process alternative
d. Laboratory research aimed at obtaining or discovering new knowledge
21. Goodwill may be recorded when
a. The fair value of assets exceeds cost
b. An entity has exceptional customer relations
c. It is identified within an entity
d. One entity acquires another in a business combination
22. A trademark is an example of which category of intangible asset?
a. Artistic related
b. Contract based
c. Marketing related
d. Customer related
23. Where part of the cash – generating unit is disposed of, the goodwill associated with the
element disposed of
a. Shall be written off against retained profits
b. Shall be included in the calculation of gain or loss on disposal
c. Shall not be included in the calculation of gain or loss on disposal
d. Shall be written off to the income statement entirely.

24. Which of the following impairment losses should never be reversed?
a. Loss on inventory
b. Loss on a business segment
c. Loss on goodwill
d. Loss on property, plant and equipment
25. Entities should evaluate indefinite life intangible assets at least annually for
a. Impairment
b. Estimated useful life
c. Recoverability
d. Amortization
26. When a patent is amortized, the credit is usually made to
a. An accumulated depreciation account
b. An expense account
c. The patent account
d. An accumulated amortization account
27. Goodwill should be tested periodically for impairment
a. At the operating level or one level below
b. At the industry segment level
c. At the subsidiary level
d. For the entity as a whole
28. Development expenditure
a. Are capitalized as product costs
b. Are ALWAYS charged to expense
c. Are ALWAYS capitalized as intangible assets
d. May be charged to expense or may be capitalized
29. One factor that is not considered in determining the useful life of an intangible asset is
a. Legal life
b. Expected actions of competitors

c. Residual value
d. Provision for renewal or extension
30. Which of the following statements in relation to development is not true?
a. The product being developed should have already put into commercial production
b. Development involves the application of research findings
c. Expenditure during the development phase of a project may sometimes be capitalized
as an intangible asset
d. All of these statements are not true
31. All costs incurred to establish the technological feasibility of a computer software product to
be marketed or leased should be
a. Charged to expense when incurred
b. Capitalized as property, plant and equipment
c. Capitalized as an inventory
d. Capitalized as an intangible asset
32. Research expenditures
a. Are always charged to expense
b. Are always capitalized as intangible asset
c. May be charged to expense or may be capitalized
d. Are capitalized as product cost
33. Cebu Pacific Airlines purchased airline gate rights at MCIAA for P2,000,000 with a legal life of 5
years. However, Cebu Pacific has the right to extend the right indefinitely but does not have
the ability to do so. Over what period of time should Cebu Pacific amortize the gate rights?
a. 5 years c. 10 years
b. The rights should not be amortized d. 15 years
34. Which is true about accounting for development costs of the company
a. They must be expensed
b. They are always deferred and expensed against future revenues

c. They may be capitalized as in intangible asset in very restrictive situations
d. They are recorded in other comprehensive income
35. Intangible assets with indefinite life are tested for impairment
a. When indications of impairment are observed
b. With sufficient regularity
c. Annually at the annual reporting date
d. There are no guidelines when they are tested for impairment
36. What is the legal life of a trademark?
a. 10 years c. 20 years
b. indefinite d. 50 years
37. Which is not an intangible asset
a. Customer list c. Trademark
b. Computer d. Leasehold
38. Which is (are) incorrect concerning the initial measurement of an intangible asset?
a. If an intangible asset is acquired in business combination that is an acquisition, the cost
is based on its fair value at the date of acquisition.
b. If payment for an intangible asset is deferred beyond normal credit terms, its cost is
equal to the total payments over the credit period.
c. If an intangible asset is acquired separately, the cost comprises its purchase price,
including import duties and taxes and any directly attributable expenditure of
preparing the asset for its intended use
39. Which statement is correct concerning internally generated intangible asset?
a. To assess whether an internally generated intangible asset meets the criteria for
recognition, the entity classifies the generation of asset as research phase.
b. Internally generated goodwill shall be recognized as intangible asset

c. Internally generated brands, mastheads, publishing titles, customer lists and other similar
in substance shall not be recognized as intangible assets.
d. The cost of internally generated asset comprises all directly attributable costs necessary
to create only the asset for its intended use.
40. PAS 38 shall be applied in accounting for intangible asset, except
a. Mineral rights and expenditure on the exploration for, or development and extraction
of, minerals, oil, natural gas and similar non-regenerative resources.
b. Financial assets, as defined in PAS 39
c. Intangible assets that are within the scope of another standard
d. All of the above
41. TAPORCO Company is in a service concession arrangement with the Duterte Government in
its plan to construct a 2,000 kilometre Mindanao Railway System which will start in 2017. The
project will be executed in two phases but two different contracts awarded both to TAPORCO
COMPANY.
The first phase, the operator TAPORCO COMPANY will receive an unconditional
contractual right to received a specified or determinable amount of cash or another financial
asset from the DUTERTE GOVERNMENT in return for constructing the Mindanao Railway System
and then operating and maintaining it for a specified period of time. It also includes
guarantees by the government to pay for any shortfall between amounts from users of the
public service and specified or determinable amounts.
The second phase, the operator TAPORCO COMPANY will receive a right to charge for
use of the MINDANAO RAILWAY SYSTEM that it constructs and then must operate and maintain
for a specified period of time. How will TAPORCO Company will account these two contracts?
a. TAPORCO COMPANY will recognise both contracts as a financial asset as it received a
contractual right to receive cash and to charge the public for the use of the Railway
System.
b. TAPORCO COMPANY will recognise both contracts as INTANGIBLE ASSETS as the
company received only the rights.

c. The first phase will be recognised as Financial Asset while the second phase will be
recognised as Intangible Asset.
d. The first phase will be recognised as Intangible Asset while the second phase will be
recognised as Financial Asset.
42. (intangible assets) Based on the above scenario, TAPORCO COMPANY how will the operator
measures the service concession agreement.
a. Both agreements will be measured at Fair Value
b. The first agreement will be at Fair Value, the second agreement will be at Cost
c. The first agreement will be at Cost, the second agreement will be at Fair Value
d. Both agreements will be measured at Cost
43. (intangible assets) The residual value of an intangible asset with a finite useful life shall be
assumed zero, except
a. When there is a commitment by a third party to purchase the asset at the end of the
useful life.
b. When there is an active market for the asset and it is probable that such market will exist
at the end of the useful life.
c. Either a or b
d. There are no exceptions
44. NIZA Company created and developed its own website for external and internal access. The
following costs were incurred during the period.
I – The cost of obtaining a domain name, purchasing and developing hardware and
operating software, installing developed applications and stress testing.
II – The cost of purchasing, developing and operating hardware which includes the web
servers, staging servers, production servers and internet connections of a web site.
III – The cost of an Internet service provider hosting the entity’s web site.
How are these costs be accounted for?
a. All costs should be form part of Intangible Assets in accordance to PAS 38.
b. All costs should be form part of Property, Plant and Equipment in accordance to PAS 16.
c. All costs should be form part of Expense under the PAS1 and the Framework when the
services are received.
d. The three costs should be classified as part of Intangible Asset; Property, Plant and
Equipment and as Expense respectively.
e. The correct answer is not among the choices given
45. (intangible assets) Which of the following assets is regarded as meeting the identifiability
criteria for recognition as an identifiable intangible asset that can be recorded as acquired in
a business combination?
a. Strong and favourable employee relations
b. Ongoing recruitment programs
c. Royalty agreements
d. Customer base
46. (intangible assets) For an asset to be classified as an identifiable intangible, PAS 38 requires
that it meet which of the following criteria?
I – it arises from a contractual or legal right
II – its fair value must be able to be reliably measured
III – It is separable from the entity
IV – Its cost must be reliably measurable
a. I or IV only c. I or II only
b. I or III only d. II or III only
47. According to the definition provided in PAS 38 Intangibles, activities undertaken in the
“research” phase of the generation of an asset may include;
a. Using knowledge to materially improve a manufacturing device.
b. The use of research findings to create a substantially improved product
c. Original and planned investigation with the prospect of gaining new scientific
knowledge
d. The application of knowledge to a design for the production of new materials
48. (intangible assets) Which of the following costs would be capitalized?
a. Salaries of research staff
b. Cost of research to determine whether a market for the product exists
c. Engineering costs incurred to advance the product to the full production stage
d. Acquisition cost of equipment to be used on current research project only
49. (intangible assets) Which is/ are incorrect concerning the recognition and measurement of an
intangible asset?
a. If payment for an intangible asset is deferred beyond normal credit terms, its cost is
equal to the total payments over the credit period.
b. If an intangible asset is acquired in a business combination that is an acquisition, the
cost is based on its fair value at the date of acquisition.
c. If an intangible asset is acquired separately, the cost comprises its purchase price,
including import duties and taxes and any directly attributable expenditure of
preparing the asset for its intended use
d. All of the above
50. (intangible assets) Legal fees to obtain a franchise and legal fees to defend a trademark,
which of these two legal fees should be capitalized, respectively?
a. Yes, Yes c. No, No
b. Yes, No d. No, Yes
COmpund
26. Which of the following is within the scope of PAS 37 Provisions, contingent liabilities and
contingent assets?
a. An insurance company’s policy liability
b. Financial instruments carried at fair value
c. Future payments under employment contracts

d. Future payments on vacant leasehold premises
27. Under IFRIC 13, the award credits granted to customers under a “customer loyalty program” is
often describe as
a. Awards c. Points
b. Credits d. Royalty
28. Which of the following is most likely to be regarded as an estimated liability that is subject to
provision?
a. Current portion of long term debt
b. Deferred revenue
c. Payroll liabilities
d. Vacation pay liability
Employee Benefits
11. The accounting standard make it incumbent upon the plan to use annual actuarial valuation.
12. PAS 36 is the standard that deals with accounting and reporting by retirement benefit plans
13. PAS 19R is the accounting standard for Employee Benefits
14. In the transition period for employee benefits, any transitional effect of the application of the
amendment shall be accounted for as adjustment of the beginning balance of retained
earnings.
15. Employee Benefit Expense will be reported in the profit or loss
16. Net Remeasurement Gain or Loss will be reported in other comprehensive income
17. Defined Contribution Plan is a postemployment benefit plan under which an entity pays an
indefinite contribution and will received a definite benefit
18. Under Defined Contribution Plan once the contribution is paid by the entity, the employer has
no more obligation under the plan
19. The acturial and investment risk under defined benefit plan falls to the entity/employer
20. Under defined benefit plan, it is normally accounted in a undiscounted amount and the
accounting is straight forward.
21. The projected unit credit method, sometimes known as the accrued benefit method, shall be
used in determining the future value of the defined benefit obligation and the related current
service cost and where applicable, past service cost.
22. Current Service Cost is the increase in the present value of the defined benefit obligation
resulting from employee service in the current and past period.
23. Net interest on defined benefit liability or asset is the change in the defined benefit obligation
and plan assets as a result of the passage of time.
24. Net interest is the difference between the interest expense on the fair value of plan assets and
the interest income on the defined benefit obligation.
25. Accumulated Benefit Obligation is the actuarial present value of all benefits attributed by the
pension benefit formula to employee service rendered before a specified date based on
current compensation level.
26. Projected Benefit Obligation is the actuarial present value of all benefits attributed by the
pension benefit formula to employee service rendered before a specified date based on future
compensation level.
27. Actuarial Gains or Losses include changes in the present value of the defined benefit obligation
because of the introduction, amendment, curtailment or settlement of the benefit plan.
28. If the actual benefit obligation is higher than the estimated amount, there is an actuarial gain.
29. The interest expense in the change in the effect of asset ceiling is reported in profit or loss
30. The change in the effect of asset ceiling less the interest expense is reported in other
comprehensive income.
31. Interest income of the plan asset is added to the Beginning Balance of the Fair Value of the Plan
asset.
32. Interest Expense of the plan asset is added to the Beginning Balance of projected benefit
obligation.
33. The Current Service Cost and the Past service cost is included in the computation of employee
benefit expense and fair value of plan asset.
34. The benefits paid to the employees is deducted both to projected benefit obligation and fair
value of plan asset
35. If the Fair Value of Plan Asset is more than the Projected Benefit Obligation the plan is
underfunded and therefore there is a prepaid benefit cost, a noncurrent asset.
EMPLOYEE BENEFITS - RDA 9
36. If the Fair Value of Plan Asset is less than the Projected Benefit Obligation plan the plan is
overfunded and therefore there is an accrued benefit cost, a noncurrent liability
37. The gain or loss on settlement is the difference between the settlement price and the present
value of the defined benefit obligation on the date of settlement.
38. The asset ceiling is the present value of any economic benefits available in the form of refunds
from the plan or reductions in future contributions to the plan.
39. Any increase in the effect of the asset ceiling is a measurement gain and any decrease is a
remeasurement loss.
40. The interest on the effect of the asset ceiling is part of the total change in the effect of the asset
ceiling.
41. A noncontributory plan, is a plan wherein only the employer will make the contributions to the
retirement benefit plan
42. An unfunded pension plan, is a plan wherein the employer will retain the obligation for the
payment of retirement benefits without establishment of a separate fund.

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A/R

1. Accounts receivable usually appear in the balance sheet

a. As current assets, combined with cash and cash equivalents

b. As current assets, immediately after cash and cash equivalents

c. Only if the balance sheet method of estimating uncollectible accounts is used

d. As either current assets or noncurrent assets, depending on whether the allowance

2. Accounts receivable are classified as current assets

a. Only if convertible into cash beyond one year

b. Only if convertible into cash within 60 days or sooner

c. Only if the allowance method is used to estimate the uncollectible accounts

d. Whenever accounts receivable arise from “normal” sales to customers, regardless of

the credit terms

a. Should be omitted from the balance sheet

b. Must be reported separately in the liability section of the balance sheet

discounts taken should be reported as

a. A deduction from sales in the income statement

b. An item of other expense in the income statement

d. A deduction from accounts receivable in determining the net realizable value

discounts on credit sales?

a. It properly reflects current period sales revenue

b. It simplifies recording of sales returns and allowances

c. It eases communication with customers about their balances

d. It requires less record keeping efforts than the gross method

account is written off as uncollectible should include a

a. Credit to sales revenue

b. Credit to bad debt expense

c. Debit to accounts receivable

d. Debit to allowance for doubtful accounts

record the write off of a specified uncollectible account

a. Affects neither net income nor working capital

b. Decreases both net income and working capital

c. Affects neither net income nor accounts receivable

d. Decreases both net income and accounts receivable

8. A noninterest bearing note receivable

a. Causes no interest revenue to be recorded

b. Includes a specified principal amount plus specified interest

c. Includes a specified principal amount but an unspecified interest amount

d. Includes an unspecified principal amount and an unspecified interest amount

does not make the balance sheet misleading because

a. The amount of discount is not material

b. Most receivables can be sold to a bank or factor

c. Most short term receivables are not interest bearing

a. The fair value of the note

b. the fair value of the property

RECEIVABLES/PAYABLES PART 1 (RDA) 8

11. 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

a. Within one year

b. Within the normal operating cycle

c. Within one year or within the operating cycle, whichever is shorter

d. Within one year or within the operating cycle, whichever is longer

statement of financial position?

a. Trade receivables and nontrade receivables are shown separately

b. Nontrade receivables are presented as noncurrent assets