Lyceum of the Philippines University
Manila
Enhancement in Financial Accounting and Reporting
FINANCIAL ACCOUNTING AND REPORTING
Development of Financial Reporting
Framework, Standard-Setting Bodies and
Regulation of the Accountancy Profession
HISTORY, DEVELOPMENT AND FUNCTIONS OF THE
STANDARD-SETTING BODIES
1. International Financial Reporting Standards (IFRSs)
are issued by the:
A. International Accounting Standards Board
B. International Accounting Standards Committee
C. Financial Reporting Standards Board
D. Financial Accounting Standards Board
2. Financial accounting standard-setting
A. Is based solely on research.
B. Is a legislative process based on rules
promulgated by government agencies.
C. Is a democratic process in that a majority of
practicing accountants must agree with a
standard before it becomes enforceable.
D. Is a social process which incorporates political
actions of various interested user groups as
well as professional research and logic.
3. The International Accounting Standards Board was
formed to
A. Enforce IFRS in foreign countries
B. Develop a single set of high quality IFRS
C. Establish accounting standards for
multinational entities
D. Develop accounting standards for countries
that do not have standard-setting body
4. The IASB publishes standards called
A. Financial Reporting Standards
B. International Accounting Standards
C. International Financial Reporting Standards
D. Statement of Financial Accounting Standards
5. The IASB employs a "due process" system which
A. Requires that all CPAs must receive a copy of
IFRS.
B. Is an efficient system for collecting dues from
members.
C. Identifies the accounting issues that are the
most important.
D. Enables interested parties to express their
views on issues under consideration.
6. What is "due process" in the context of standard-
setting by IASB?
A. IASB operates in full view of the public.
B. Interested parties can make their views known.
C. Public hearings are held on proposed
standards.
D. All of these are part of due process in standard-
setting.
7. It is a global phenomenon intended to bring about
transparency and a higher degree of comparability in
financial reporting in order to achieve the goal of one
uniform and globally accepted financial reporting
standards.
A. Borderless accounting
B. IFRS
C. Information technology
D. World trade
FINANCIAL ACCOUNTING AND REPORTING
GEORGE R. JAMES, CPA
8. The purpose of the International Financial Reporting
Standards is to
A. Promote uniform accounting standards among
countries of the world.
B. Arbitrate accounting disputes between auditors
and international entities.
C. Issue enforceable standards which regulate the
financial accounting and reporting of
multinational entities.
D. Develop a uniform currency in which the
financial transactions of entities throughout the
world would be measured.
9. IFRIC Interpretations issued by IASB
A. Are considered authoritative and must be
followed.
B. Cover newly identified financial reporting
issues not specifically addressed.
C. Cover issues where unsatisfactory or
conflicting interpretations have developed.
D. All of these are true about IFRIC
Interpretations.
10. It is the accounting standard-setting body in the
Philippines at the present time.
A. Accounting Standards Council
B. Financial Reporting Standards Council
C. Philippine Accounting Standards Board
D. Auditing and Assurance Standards Council
11. Which of the following statements is true regarding
the FRSC?
A. The FRSC shall be composed of 15 with a
Chairman and 14 representatives.
B. The FRSC is created by PRC upon
recommendation of BOA to assist BOA in
carrying out its powers and functions under
R.A. No. 9298.
C. The Chairman and members of FRSC are
appointed by PRC upon recommendation of
BOA and shall have a term of three years
renewable for another term.
D. All of the statements are true.
12. All of the following are represented in FRSC, except
A. Board of Accountancy
B. Commission on Audit
C. Securities and Exchange Commission
D. Department of Budget and Management
13. The Philippine Financial Reporting Standards
collectively include
I. PFRS corresponding to IFRS.
II. PAS corresponding to IAS.
III. Philippine Interpretations corresponding to
IFRIC and SIC Interpretations and
Interpretations developed by PIC.
A. I only
B. I and II only
C. I and III only
D. I, II and III
14. The Philippine Interpretations Committee (PIC) was
established by the:
A. FRSC
B. PRC
C. BOA
D. IASB
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FINANCIAL ACCOUNTING AND REPORTING
15. Which of the following statements best describes
generally accepted accounting principles?
A. The accounting principles have been
formulated in the public sector.
B. The accounting principles are the same as
laws within our legal system.
C. The accounting principles do not apply to
small and medium-sized entities.
D. The accounting principles have been
developed on the basis of such factors as
usage and practical necessity.
16. Generally accepted accounting principles
A. Are accounting adaptations based on the
law of economic science.
B. Derive their credibility and authority from
legal rulings and court precedents.
C. Derive their credibility and authority from
the national government through the
financial reporting section of the SEC.
D. Derive their credibility and authority from
general recognition and acceptance by the
accountancy profession.
17. The principles which constitute the ground rules
for financial reporting are termed "generally
accepted accounting principles". To qualify as
"generally accepted," an accounting principle must
A. Receive substantial authoritative support.
B. Guide an entrepreneur of the choice of an
accounting entity like single proprietorship,
partnership or corporation.
C. Usually guide corporate managers in
preparing financial statements, which will be
understood by widely scattered
shareholders.
D. Guide corporate managers in preparing
financial statements, which will be used, for
collective bargaining agreement with trade
unions.
18. Once an accounting standard has been established
A. The standard is continually reviewed to
see if modification is necessary.
B. The principle of consistency requires that
no revisions ever be made to the
standard.
C. The standard is not reviewed unless the
Securities and Exchange Commission
makes a complaint.
D. The task of reviewing the standard to see if
modification is necessary is given to the
Philippine Institute of Certified Public
Accountants.
FINANCIAL ACCOUNTING AND REPORTING
GEORGE R. JAMES, CPA
19. Proper application of accounting principles is most
dependent upon the
A. External audit function
B. Existence of specific guidelines
C. Oversight of regulatory bodies
D. Professional judgment of the CPA
THE ACCOUNTING PROFESSION
20. Which law specifically governs the accounting
profession in the Philippines?
a. The Revised Accountancy Law (PD 682).
b. The Code of Professional Ethics for
CPAs.
c. Philippine Accountancy Act of 2004.
d. Presidential Decree 1081.
21. The Philippine Accountancy Act of 2004 shall
provide for and govern:
a. The standardization and regulation of
accounting education.
b. Examination for accreditation of Certified
Public Accountants.
c. The supervision, control, and regulation of
the practice of professions in the Philippines.
d. All of these.
22. The following statements relate to the Board of
Accountancy. Select the incorrect statement:
a. The Board consists of a Chairman and six
members.
b. The chairman and members of the Board are
appointed by the President of the Philippines
upon recommendation of the Professional
Regulation Commission.
c. The Professional Regulation Commission
may remove from the Board of Accountancy,
any member whose certificate to practice
has been revoked or suspended.
d. All sectors of accountancy practice shall as
much as possible be equitably represented in
the Board.
23. The Accredited National Professional Organization
(APO) shall submit its nominations for the Board
of Accountancy (with complete documentation) to
the Commission:
a. Not later than sixty (60) days prior to the
expiry of the term of an incumbent chairman
or member.
b. On the date of expiry of the term of an
incumbent chairman or member.
c. After the 60th day from the expiry of the term
of an incumbent chairman or member.
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FINANCIAL ACCOUNTING AND REPORTING
d. Upon request by the Commission for the
submission of nominations.
24. A member of the BOA shall, at the time of his/her
appointment, possess the following qualifications:
I. Natural-born citizen and resident of the
Philippines.
II. Duly registered CPA with at least 10 years
of work experience in any scope of practice
of accountancy.
III. Good moral character and must not have
been convicted of crimes involving moral
turpitude.
IV. Must not have any direct pecuniary interest
in any school, college, university, or
institution conferring B.S. Accountancy, or
where review classes in preparation for the
CPA Board Exams are being offered or
conducted.
V. Must not have any indirect pecuniary
interest in any school, college, university,
or institution conferring B.S. Accountancy,
or where review classes in preparation for
the CPA Board Exams are being offered or
conducted.
VI. Must not be a member of the faculty or
administration in any school, college,
university, or institution conferring B.S.
Accountancy, or where review classes in
preparation for the CPA Board Exams are
being offered or conducted, at the time of
appointment.
a. I, II, III, IV, VI.
b. I, II, III, V, VI.
c. I, II, III, IV, V, VI.
d. I, II, III, IV, V.
25. The following statements pertain to the terms of
office of the members of the Board of
Accountancy. Which statement is incorrect?
a. The Chairman and members of the Board
shall hold office for a term of three years.
b. No person who has served two (2)
successive complete terms shall be eligible
for reappointment until the lapse of two
years.
c. A person may serve the Board of
Accountancy for not more than twelve years.
d. Appointment to fill up an unexpired term is
not to be considered as a complete term.
26. The Board shall exercise the following powers,
functions and responsibilities:
FINANCIAL ACCOUNTING AND REPORTING
GEORGE R. JAMES, CPA
I. To supervise the registration, licensure and
practice of accountancy.
II. To issue, suspend, revoke, or reinstate the
Certificate of Registration for the practice of
the accountancy profession.
III. To monitor the conditions affecting the
practice of accountancy.
IV. To prescribe and/or adopt a Code of Ethics
for the practice of accountancy.
a. I, II, III. c. I, II, IV.
b. I, III, IV. d. I, II, III, IV.
27. The Board shall exercise the following powers,
functions and responsibilities:
I. To adopt an official seal of the Board.
II. To issue a cease or desist order to any
person, association, partnership, or
corporation engaged in violation of any
provision of RA9298, any accounting or
auditing standards, or rules duly
promulgated by the Board as part of the
rules governing the practice of accountancy
in the Philippines.
III. To investigate violations of RA9298
IV. To conduct an oversight into the quality of
audits of financial statements through a
review of the quality control measures
instituted by the FRSC in order to ensure
compliance with the accounting and
auditing standards and practices.
a. I, II, III. c. I, II, IV.
b. I, III, IV. d. I, II, III, IV.
28. Who is the person that has the authority to
suspend or remove a member of the Professional
Regulatory Board of Accountancy, on valid
grounds and after due process?
a. The President of the Republic of the
Philippines
b. The Chairman of the Professional Regulatory
Board of Accountancy, unless he is the one
who is under investigation
c. The Commissioner of the Professional
Regulation Commission
d. None of them.
29. The following are grounds for suspension or
removal of members of the Board of Accountancy,
except:
a. Neglect of duty or incompetence.
b. Violation or tolerance of any violation of
RA9298 and its IRR, or the Code of Ethics
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FINANCIAL ACCOUNTING AND REPORTING GEORGE R. JAMES, CPA

and technical and professional standards of C. Yes Yes No Yes

practice for CPAs. D. Yes Yes Yes Yes
c. Pending case on a crime involving moral
turpitude. 35. Which of the following statements is incorrect?
d. Manipulation or rigging of the CPA licensure a. The Board of Accountancy has the authority
examination results. to revise or exclude any of the six subjects
30. This is the accredited national professional from the CPA Board Licensure Examinations.
organization of CPAs in the Philippines. b. New subjects may be added to the CPA
a. PICPA. b. JPIA. c. CHED. d. BOA. Board Licensure Examination syllabi as the
need arises.
31. In order to maintain PICPA’s recognition as the c. To be qualified as having passed the
APO by the PRC, it must meet the following licensure examination for accountants, a
requirements (select the incorrect one): candidate must obtain a general average of
a. Its membership is open to all registered seventy-five percent, with no grades lower
CPAs without discrimination. than sixty-five percent in any given subject.
b. It shall have a creditable plan to enlist into d. A candidate with conditional credits must
active membership, within two (2) years, at take a removal examination at least two
least a majority of the CPAs in the practice years after taking the preceding
of accountancy as defined in Section 4, Rule examination.
1 of the IRR.
c. It shall have adequate chapters/regions in 36. The Board shall submit to the PRC the ratings
major areas in the Philippines to effectively obtained by each candidate within how many days
attend to the needs of its members. after the examination (unless extended for just
d. It shall have a full-time career Executive cause)?
Director who shall implement the policies a. 2 days. b. 6 days. c. 10 d. 30
promulgated by the PICPA Board of Directors days. days.
and shall have direct supervision over the 37. Under Section 23 of Republic Act No. 9298, the
PICPA secretariat. following are grounds for the refusal to issue a
certificate of registration and professional
32. A director can only represent a sector in a region identification card:
if he/she has been a member in good standing in A B C D
such sector in the region for at least ____ years • Conviction of a
at the time of his/her nomination. criminal offense
a. Two c. Four involving moral Ye Ye Ye Ye
b. Three d. Five turpitude s s s s
• Conviction for a Ye Ye
political offense No s s No
33. PICPA shall renew its certificate of accreditation
• Guilty of
once:
immoral or
a. Every 3 years c. Every 5 years
dishonorable Ye Ye Ye Ye
b. Annually d. None of these
conduct s s s s
• Unsound mind Ye Ye Ye
34. Which of the following are requirements for any s s s No
person applying for the CPA Board Examinations? • Misrepresentatio
Has not n in the
been application for Ye Ye Ye
convicte examination s No s s
d of any
Degree of criminal 38. A certificate under seal, bearing a registration
Natural Good Bachelor of offense number, issued to an individual, by the PRC, upon
-born moral Science in involving recommendation by the Board of Accountancy,
Filipino characte Accountanc moral signifying that the individual has complied with all
citizen r y turpitude the legal and procedural requirements for such
A. Yes No Yes No issuance, including, in appropriate cases, having
B. No Yes Yes Yes

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FINANCIAL ACCOUNTING AND REPORTING GEORGE R. JAMES, CPA

successfully passed the CPA licensure a. He merely holds himself out as skilled in the
examinations. science and practice of accounting and
a. Certificate of registration. qualified to render services as a CPA.
b. Certificate of accreditation. b. He merely offers to render services as a CPA
c. Certificate of identification. to the public, but does not actually render
d. Certificate of quality such services.
review. c. He offers or renders bookkeeping services to
more than one client.
39. A professional identification card bears the d. He installs and revises accounting systems
registration number, date of issuance with an for more than one client.
expiry date, due for periodic renewal, duly signed
by the Chairperson of the Commission issued by 43. CPAs may practice under the following legal
the PRC to a registered CPA upon payment of the forms of organization:
registration fees. This card has a validity of A B C D
a. 6 b. 3 c. 4 d. 2 • Sole Yes Yes Yes Yes
years. years. years. years. proprietorships
• General Yes Yes No Yes
40. All licensed certified public accountants shall partnerships
obtain and use a seal of a design prescribed by the (GP)
a. Accounting Standards Council. • Limited liability No Yes Yes Yes
b. Philippine Institute of CPAs. partnerships
c. Board of Accountancy. (LLP)
d. Professional Regulation • Corporations No No No Yes
Commission.
44. A certificate of accreditation shall be issued to
41. Which one constitutes practice in commerce and certified public accountants in public practice only
industry? upon showing, in accordance with rules and
a. A person who holds, or is appointed to a regulations promulgated by the Board and
position in an accounting professional group approved by the PRC, that such registrant has
in government or in a government-owned acquired meaningful experience in any of the
and/or controlled corporation, where areas of public practice including taxation.
decision-making requires professional According to the IRR to RA9298, how many years
knowledge in the science of accounting. of meaningful experience is required?
b. A person involved in decision-making a. Minimum of 3 years.
requiring professional knowledge in the b. Minimum of 2 years.
science of accounting, as well as the c. Maximum of 3
accounting aspects of finance and taxation, years.
or is employed in a position that requires a d. Minimum of 5 years
CPA.
c. A person who is in an educational institution 45. Certified public accountants, firms and
which involves teaching of accounting, partnerships of CPAs, engaged in the practice of
auditing, management advisory services, public accountancy, shall register with the
accounting aspect of finance, business law, Commission and the Board, such registration to be
taxation, and other technically-related renewed:
subjects. a. Every 3 years. c. Every 5 years
d. A person who holds out himself or herself as b. Annually d. None of these
one skilled in the knowledge, science and
practice of accounting, and as someone
46. Co & Garcia, CPAs applied for registration for
qualified to render professional services as a
CPA. accreditation as CPAs in public practice. The same
was approved on June 30, 2022. Pursuant to the
provisions of the IRR, the registration shall remain
42. A person is not deemed to be engaged in
in force until:
professional accounting practice if:
a. September 30, 2024.
b. December 31, 2024.
c. June 30, 2025.

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FINANCIAL ACCOUNTING AND REPORTING GEORGE R. JAMES, CPA

d. September 30, 2025. the effectivity of the IRR displace Bam Berto from
this position?
47. Pursuant to the provisions of the IRR, it shall file a. Yes, Bam Berto will be terminated, provided
for renewal on or before: equitable benefits are available for him, and
a. September 30, 2024. the resulting vacancy will be filled in by CPAs.
b. December 31, 2024. b. No, the IRR specifically provides that the
c. June 30, 2025. provision shall not result to the deprivation
d. September 30, 2025. of the employment of incumbents to a
position.
48. Below are the names of three CPA firms and c. Yes, unless Bam Berto is able to take and
pertinent facts relative to each firm. Unless pass the CPA board examinations within two
otherwise indicated, the individuals named herein years from the effectivity of the
are CPAs and partners, and there are no other implementing rules and regulations of RA
partners. Which firm name and related facts 9298.
indicates a violation of Annex B of the IRR to d. Cannot be determined without additional
RA9298? information.
a. Clark, Peter and Bruce, CPAs (Clark died 8
years ago. Peter and Bruce are continuing 51. John Abram, CPA, is the dean of the College of
the firm). Accountancy in the First Day University. Related
b. Argo and Sabina, CPAs (the name of Alwina, to this, which of the following statements is
a third active partner, is omitted from the incorrect?
firm name). a. John Abram is considered to be in the
c. Dao and Meng, CPAs (Dao died 36 months practice of his profession.
ago, and Meng is continuing the firm as sole b. The position of the dean or the department
proprietor). chair or its equivalent that supervises the
d. Eng and Kan, CPAs (Eng died 3 years ago, B.S. Accountancy program of an educational
Tadia was admitted into the partnership 1 institution must be a duly registered CPA.
month after Eng’s death). c. John Abram is not considered in the practice
of his profession because he occupies an
Gelai Company is a business in the private sector. The administrative position.
company has several administrative positions that d. John Abram is practicing accountancy in the
require, among others: the supervision of the recording education sector (academe).
of financial transactions; preparation of financial
statements; coordination with the external auditors for 52. According to the IRR to RA No. 9298, who among
the audit of the financial statements; and other related the following may teach business law?
functions. A B C D
• Mr. X, Attorney- Yes Yes No No
49. According to the IRR to the Accountancy Law, at-law and a
these positions should be occupied by duly member of the
registered CPAs, if Gelai Company: IBP
a. Has an authorized capital of at least • Ms. Y, CPA and
P5,000,000 and/or an annual revenue of graduating law Yes No No Yes
P10,000,000. student from San
b. Has an authorized capital of at least Beda, deemed
P10,000,000 and/or an annual revenue of competent to
P5,000,000. teach business
c. Has a paid-up capital of at least P5,000,000 law
and/or an annual revenue of P10,000,000. 53. Which of the following persons are considered to
d. Has a paid-up capital of at least P10,000,000 be in the practice of accountancy in the
and/or an annual revenue of P5,000,000. government sector?
I. A person who holds or is appointed in an
50. One of the positions, the Company’s accounting professional group in
controllership, is occupied by Bam Berto, a non- government, where a civil service eligibility
CPA. Suppose that Gelai Company meets the as a certified public accountant is a pre-
criteria under the P5 million/P10 million rule. Will requisite.

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FINANCIAL ACCOUNTING AND REPORTING GEORGE R. JAMES, CPA

II. A person who holds or is appointed in an a. Two continuous years from initial
accounting professional group in a registration, or from last renewal.
government-owned and/or controlled b. Three continuous years from initial
corporation, where decision-making registration, or from last renewal.
requires professional knowledge in the c. Four continuous years from initial
science of accounting. registration, or from last renewal.
d. Five continuous years from initial
a. Both I and II. c. II only. registration, or from last renewal.
b. I only. d. Neither I nor II.
59. The CPD programs shall have these objectives:
a. To raise and maintain the professional’s
54. The Constitution of the Philippines requires this
capability for delivering professional services
Office to “keep the general accounts of the
b. To attain and maintain the highest standards
Government and for such period as may be
and quality in the practice of his profession.
provided by law, preserve the vouchers
c. To make the profession globally competitive.
pertaining thereto.”
d. All of these.
a. National Accounting
60. A registered professional shall be permanently
Office
exempted from CPD requirements upon reaching:
b. Ministry of Finance
a. The age of 60 years old.
c. Commission on Audit b. The age of 65 years old.
c. The age of 70 years old.
d. Accounting Units d. The age of 75 years old.

55. The following are the duties of the Commission
on Audit (COA), except:
a. Define the scope of its audit and
examination
b. Promulgate accounting rules and
regulations
c. Keep the general accounts of the
government
d. Assume fiscal responsibility for the
Government and its instrumentalities
56. Who appoints the members of the COA?
a. The Commissioner of the PRC
b. The Chairman of the BOA
c. The President, with the concurrence of the
Commission on Appointments
d. The Chairman of the AASC
57. Which of the following is a correct qualification of
the Chairman and Two Commissioners of the
COA?
a. A naturalized citizen of the Philippines
b. At least 40 years of age upon appointment
c. CPAs with no less than 5 years of auditing
experience or members of the Philippine
bar who have been engaged in law practice
for at least 5 years
d. Must not have been candidates for any
elective position preceding appointment
58. CPAs shall be declared delinquent if they fail to
renew their professional licenses for a period of:
61. Special / temporary permit may be issued by the
Board subject to the approval of the Commission
and payment of the fees the latter has prescribed
and charged thereof to the following persons,
except:
a. A foreign certified public accountant called
for consultation or for a specific purpose
which, in the judgment of the Board, is
essential for the development of the country;
provided, that his//her practice shall be
limited only for the particular work that
he/she is being engaged and that there is no
Filipino certified public accountant qualified
for such consultation or specific purposes
b. A foreign certified public accountant
engaged as professor, lecturer or critic in
fields essential to accountancy education in
the Philippines and his/her engagement is
confined to teaching and private practice
only.
c. A foreign certified public accountant who is
an internationally recognized expert or with
specialization in any branch of accountancy
and his/her service is essential for the
advancement of accountancy in the
Philippines.
d. Select this letter if there are no exceptions.
62. Which organization has the primary duty of
effectively enforcing the provisions of RA 9298?
I. Board of Accountancy
II. Professional Regulation Commission.

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FINANCIAL ACCOUNTING AND REPORTING GEORGE R. JAMES, CPA

III. Department of Justice. c. No fine but an imprisonment for a period not

IV. Office of the President of the Philippine exceeding two (2) years.
Republic. d. A fine of not less than fifty thousand pesos
(P50,000.00) or imprisonment for a period
a. I, II, and III. c. I and II not exceeding two (2) years, or both.
b. I, III and IV d. III and IV
66. S1 The Board must, after the expiration of two
(2) years from the date of revocation of a CPA
63. Who shall act as legal adviser to the Professional
certificate and upon application and for reasons
Regulation Commission and the Board of
deemed proper and sufficient, reinstate the
Accountancy in implementing the provisions of the
validity of a revoked CPA certificate and in so
Philippine Accountancy Act of 2004?
doing, may, in its discretion, exempt the
a. The Secretary of Justice or his duly
applicant from taking another examination.
designated representative.
S2 A new CPA certificate to replace lost,
b. The Chief Justice of the Supreme Court or his
destroyed, or mutilated certificate/license may be
duly designated representative.
issued, subject to the rules promulgated by the
c. A bonafide member of the Integrated Bar of
BOA and the PRC, upon payment of the required
the Philippines appointed by the President of
fees.
the Philippines for such purposes.
a. Correct, incorrect c. Incorrect,
d. The Secretary of the Interior.
correct
b. Correct, correct d. Incorrect,
64. Under Section 24 of Republic Act No. 9298, the
incorrect
following are grounds for the suspension or
revocation of certificate of registration and
professional identification card:
A B C D
Conceptual Framework, Accounting Process
• Causes or Yes Yes Yes No and Presentation of Financial Statements
grounds THE CONCEPTUAL FRAMEWORK
mentioned 67. Which is a basic purpose of the Conceptual
under Section Framework?
23 of RA9298. A. To assist preparers of financial statements in
• Practicing in Yes Yes No Yes applying accounting standards.
more than one B. To provide information to those interested in
field of the work of the FRSC in the formulation of
accountancy. PFRS.
C. To assist users of financial statements in
interpreting the information contained in the
financial statements.
D. All of these are considered basic purpose of
• Any the Conceptual Framework.
unprofessional or
unethical 68. Which of the following is not a purpose of the
conduct, Conceptual Framework?
malpractice, A. To provide definitions of key terms and
violation of laws Yes No Yes Yes fundamental concepts.
B. To assist the International Accounting
65. The punishment, upon conviction, for any person Standards Board in the standard-setting
who has violated any of the provisions of the process.
Accountancy Act of 2004, or any of its C. To assist accountants in selecting among
Implementing Rules and Regulations as alternative accounting and reporting
promulgated by the Board of Accountancy: methods.
a. A fine of not less than fifty thousand pesos D. To provide specific guidelines for resolving
(P50,000.00) and imprisonment for a period situations not covered by existing accounting
not exceeding two (2) years, or both. standards.
b. A fine of not less than fifty thousand pesos
(P50,000.00) but not an imprisonment. 69. What is the authoritative status of the Conceptual

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FINANCIAL ACCOUNTING AND REPORTING GEORGE R. JAMES, CPA

Framework? B. III only

A. The Conceptual Framework has the highest
level of authority.
B. In the absence of a standard or an
interpretation that specifically applies to a
transaction, the Conceptual Framework shall
be followed.
C. The Conceptual Framework applies only
when the Financial Reporting Standards
Council develops new or revised standards.
D. In the absence of a standard or an
interpretation that specifically applies to a
transaction, management shall consider the
applicability of the Conceptual Framework in
developing and applying an accounting
policy that results in information that is
relevant and reliable.
70. As regards the relationship between PFRS and the
Conceptual Framework, which of the following
statements is true?
I. The Conceptual Framework is a reporting
standard.
II. In case of conflict, the requirements of the
Conceptual Framework prevail over those of
the relevant PFRS.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
71. Which of the following statements is true
concerning the Conceptual Framework?
I. The Conceptual Framework is concerned
with general purpose financial statements
including consolidated financial statements.
II. Special purpose financial reports, for
example, prospectuses and computations
prepared for taxation purposes, are within
the scope of the Conceptual Framework.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
72. Which of the following is not true concerning the
Conceptual Framework?
I. The Conceptual Framework should be a
basis for standard setting.
II. The Conceptual Framework should allow
practical problems to be solved more quickly.
III. The Conceptual Framework should be based
on fundamental truths that are derived from
the laws of nature.
A. II only
C. I and II only
D. II and III only
73. Which of the following statements is true
concerning the Conceptual Framework for
Financial Reporting?
A. Nothing in the Conceptual Framework
overrides any specific Philippine Financial
Reporting Standard.
B. The Conceptual Framework is concerned
with general purpose financial statements
including consolidated financial statements.
C. The Conceptual Framework is not a reporting
standard and does not define standard for
any particular measurement or disclosure
issue.
D. All of these statements are true about the
Conceptual Framework.
74. The "primary users" of financial information
include
A. Existing and potential investors only
B. Existing and potential lenders and other
creditors only
C. Existing and potential investors, lenders and
other creditors.
D. User group, such as employees, customers,
governments and their agencies, and the
public
75. In the Conceptual Framework for Financial
Reporting, what provides the "why" of accounting?
A. Element of financial statement
B. Objective of financial reporting
C. Measurement and recognition concept
D. Qualitative characteristic of accounting
information
76. The underlying theme of the Conceptual
Framework is
A. Comparability
B. Decision usefulness
C. Timeliness
D. Understandability
77. The following are limitations of financial
reporting, except:
A. General purpose financial reports do not and
cannot provide all of the information that
existing and potential investors, lenders and
other creditors need.
B. General purpose financial reports are
designed to show the value of an entity

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FINANCIAL ACCOUNTING AND REPORTING GEORGE R. JAMES, CPA

C. General purpose financial reports are A. Supported by evidence that an accountant

intended to provide common information to would look into and arrive at the same
users and cannot accommodate every conclusion
request for information B. Can be used to identify and understand
D. General purpose financial reports are based similarities and differences among items
on estimates and judgments rather than C. The use of the same methods for the same
exact depiction items, either from period to period within a
company or in a single period across
78. The qualities or attributes that make financial companies
information useful to users in making economic D. Presented in a form that users understand
decisions are:
A. Qualitative characteristics 85. The Conceptual Framework mentions one
B. Attributes of financial reporting constraint on useful financial information. Which
C. Fundamentals of accounting is it?
D. Generally accepted accounting principles A. Conservatism
B. Cost
79. The fundamental qualitative characteristics C. Prudence
include: D. Going concern
A. Relevance
B. Faithful representation 86. A structured representation of historical financial
C. Comparability information, including related notes, intended to
D. Both A and B communicate an entity’s economic resources or
obligations at a point in time or the changes
80. The capacity of information to affect a decision therein for a period of time in accordance with a
A. Relevance financial reporting framework.
B. Faithful representation A. Historical financial statements
C. Verifiability B. Prospectus
D. Substance over form C. Annual report
D. Management discussion and analysis
81. The ingredients of relevance include:
A. Predictive value 87. Financial statements are prepared at least:
B. Confirmatory value A. Monthly
C. Both A and B B. Quarterly
D. Neither A nor B C. Every 6 months
D. Annually
82. The description and figures presented in the
financial reports should match what really existed 88. This is an assumption that states the reporting
or happened. entity will continue in operation for the
A. Relevance foreseeable future in the absence of evidence to
B. Faithful representation the contrary.
C. Verifiability A. Accrual basis
D. Substance over form B. Going concern assumption
C. Fair value
D. Capital maintenance

89. An entity that is required or chooses to prepare

83. The characteristics of faithful representation financial statements
include the following, except: A. Legal entity
A. Completeness B. Economic entity
B. Neutrality C. Sovereign entity
C. Free from error D. Reporting entity
D. Form over substance
90. A reporting entity could be:
84. Which of the following describes consistency? A. A single entity
B. A part of a single entity (such as a division)

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FINANCIAL ACCOUNTING AND REPORTING
C. Comprised of several entities
D. Any of these can be considered a reporting
entity.
91. How many are the elements of financial
statements?
A. Two
B. Three
C. Four
D. Five
92. The elements directly related to the
measurement of financial position are
A. Asset and liability
B. Income and expense
C. Asset, liability and equity
D. Asset, liability, equity, income and expense
93. The elements directly related to the
measurement of financial performance are
A. Asset and liability
B. Income and expense
C. Asset, liability and equity
D. Income, expense and equity
94. It is a resource controlled by the entity as a
result of past events and from which future
economic benefits are expected to flow to the
entity.
A. Asset
B. Equity
C. Income
D. Liability
95. Which of the following is an essential characteristic
of an asset?
A. An asset is tangible
B. An asset is obtained at a cost
C. An asset provides future benefits
D. The claims to an asset's benefits are legally
enforceable
96. The essential characteristics of an asset include all
of the following, except
A. The asset is tangible.
B. The asset provides future economic benefit.
C. The cost of the asset can be measured
reliably. D. The asset is the result of past
transaction or event.
97. It is a present obligation of an entity arising from
past events the settlement of which is expected
to result in an outflow from the entity of
resources embodying economic benefits.
A. Asset
FINANCIAL ACCOUNTING AND REPORTING
GEORGE R. JAMES, CPA
B. Equity
C. Expense
D. Liability
98. Which of the following best describes the term
"liability"?
A. An excess of equity over current assets
B. A present obligation arising from past event
C. Resources to meet financial commitments
when due
D. The residual interest in the assets of the entity
after deducting all of the liabilities
99. Fora liability to exist
A. The exact amount must be known.
B. There must, be a past transaction or event.
C. There must be an obligation to pay cash in the
future.
D. The identity of the party to whom the liability
is owed must be known.
100. It is the residual interest in the assets of the entity
after deducting all of the liabilities.
A. Equity
B. Expense
C. Income
D. Net income
101. It is an increase in economic benefit during the
accounting period related to an increase in asset
or a decrease in liability that results in increase in
equity other than contribution from owners.
A. Asset
B. Expenses
C. Income
D. Liability
102. This arises in the course of ordinary regular
activities of the entity and is referred to by a
variety of different names including sales, fees,
interest, dividends, royalties and rent.
A. Gain
B. Profit
C. Income
D. Revenue
103. According to the Conceptual Framework, an
entity's revenue may result from
A. A decrease in a liability from primary
operations.
B. A decrease in an asset from primary
operations.
C. An increase in a liability from incidental
transactions.
D. An increase in an asset from incidental
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FINANCIAL ACCOUNTING AND REPORTING
transactions.
104. The primary distinction between revenue and gain
is
A. The materiality of the amount.
B. The likelihood that the transaction will recur
in the future.
C. The nature of the activity that gives rise to the
transaction.
D. The cost versus the benefit of the alternative
method of disclosing the transaction.
105. It is a decrease in economic benefit during the
accounting period related to a decrease in asset
or an increase in liability that results in decrease
in equity other than distribution to owners.
A. Asset
B. Expense
C. Income
D. Liability
106. An outflow of assets from an entity based on an
activity that represents the entity's major
operations is called
A. Equity
B. Expense
C. Liability
D. Loss
107. Which of the following statements in relation to
the term "expense" is incorrect?
A. Expense is synonymous with expenditure.
B. Entities do not incur expenses per se but they
initially acquire assets.
C. All expenses and losses are expired costs but
not all expired costs are expenses or losses.
D. All expenses decrease owners' equity but not
all decreases in owners' equity are expenses.
108. A decrease in assets arising from peripheral or
incidental transactions is called
A. Capital expenditure
B. Cost
C. Expense
D. Loss
109. It is the process of incorporating or reporting in
the statement of financial position or statement of
comprehensive income an item that meets the
definition of an element of financial statements.
A. Allocation
B. Realization
C. Recognition
D. Summarization
110. An item that meets the definition of an element
FINANCIAL ACCOUNTING AND REPORTING
GEORGE R. JAMES, CPA
shall be recognized when
I. It is probable that future economic
benefits associated with the item will flow
to or from the entity.
II. The item has a cost or value that can be
measured with reliability.
A. I only
B. II only
C. Either I or II
D. Both I and II
111. An asset is recognized when
A. The cost or value of the asset can be
measured reliably.
B. It is probable that future economic benefit will
flow to the entity.
C. The entity obtains control of the rights
associated with the asset.
D. It is probable that future economic benefit will
flow to the entity and the; cost or value of the
asset can be measured reliably.
112. A liability is recognized when
A. When the entity obtains control of the
obligation.
B. The amount of the obligation can measured
reliably.
C. It is probable that an outflow of future
economic benefit will be required to settle the
obligation.
D. It is probable that an outflow of future
economic benefit will be required to settle an
obligation and the amount of the obligation
can be measured reliably.
113. An income is recognized when
A. The future economic benefit can be
measured reliably.
B. The entity obtains control of the future
economic benefit.
C. It is possible that future economic benefit
will flow to the entity and the economic
benefit can be measured reliably.
D. It is probable that future economic benefit
will flow to the entity and the economic
benefit can be measured reliably.
114. An expense is recognized when
A. The decrease in future economic benefit can
be measured reliably.
B. It is probable that a decrease in future
economic benefit has occurred.
C. It is probable that an increase in future
economic benefit has occurred and the
increase in future economic benefit can be
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FINANCIAL ACCOUNTING AND REPORTING
measured reliably.
D. It is probable that a decrease in future
economic benefit has occurred and the
decrease in the future economic benefit can
be measured reliably.
115. Historical cost is the
A. Amount of cash paid or fair value of the
consideration given at the time of acquisition.
B. Amount of cash that could currently be
obtained by selling the asset in an orderly
disposal.
C. Amount of cash that would have to be paid if
the same or an equivalent asset is acquired
currently.
D. Discounted value of the future net cash
inflows that the item is expected to generate
in the normal course of business.
116. Proponents of historical costs maintain that in
comparison with all other valuation alternatives for
general purpose financial reporting, statements
prepared using historical costs are more
A. Objective
B. Relevant
C. Conservative
D. Indicative of the entity's purchasing power
117. Which of the following is an argument against
historical cost?
A. Fair value is subjective.
B. Fair value is more relevant.
C. Historical cost is verifiable and reliable.
D. Historical cost is based on exchange
transaction.
118. It is the amount of cash or cash equivalent that
would have to be paid if the same or an equivalent
asset was acquired currently.
A. Current cost
B. Historical cost
C. Present value
D. Realizable value
119. It is the amount of cash that could currently be
obtained by selling the asset in an orderly disposal.
A. Fair value
B. Market value
C. Present value
D. Realizable value
120. Which of the following terms best describes the
discounted value of the future net cash inflows
that an item is expected to generate in the normal
course of business?
A. Fair value
FINANCIAL ACCOUNTING AND REPORTING
GEORGE R. JAMES, CPA
B. Historical cost
C. Present value
D. Residual value
121. Which of the following statements is true
concerning the concepts of capital?
I. Under the financial capital concept, a
profit is earned only if the monetary
amount of net assets at the end of the
period exceeds the monetary amount of
net assets at the beginning of the period,
after excluding any distributions to and
contributions from owners.
II. Under the physical capital concept, a
profit is earned only if the physical
productive capacity at the end of the
period exceeds the physical productive
capacity at the beginning of the period,
after excluding any distributions to and
contributions from owners.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
122. The financial capital concept requires that net
assets shall be measured at
A. Current cost
B. Historical cost
C. Current cost adjusted for changes in
purchasing power
D. Historical cost adjusted for changes in
purchasing power
123. Under the financial capital maintenance concept, a
profit is earned
A. If the monetary amount of net assets at the
beginning exceeds the monetary amount of
net assets at the end.
B. If the monetary amount of net assets at the
end exceeds the monetary amount of net
assets at the beginning.
C. If the monetary amount of net assets at the
beginning exceeds the monetary amount of
net assets at the end, after excluding
distributions to and contributions from
owners.
D. If the monetary amount of net assets at the
end exceeds the monetary amount of net
assets at the beginning, after excluding any
distributions to and contributions from
owners.
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FINANCIAL ACCOUNTING AND REPORTING GEORGE R. JAMES, CPA

124. The physical capital maintenance concept requires C. Payment of an expense in cash
the adoption of which measurement basis? D. Collection of a trade account
A. Current cost receivable
B. Historical cost
C. Current cost adjusted for changes in 131. Which of the following documents does not
purchasing power initiate an entry to be made in the accounts?
D. Historical cost adjusted for changes in a. Sales invoice
purchasing power b. Purchase invoice
c. Credit memorandum
125. Which capital maintenance concept is applied d. Purchase order
respectively to currently reported net income and
comprehensive income?
A. Financial capital and financial capital 132. The “book of original entry” is the
B. Financial capital and physical capital a. Trial balance
C. Physical capital and financial capital b. Journal
D. Physical capital and physical capital c. Ledger
d. Book of Genesis

THE ACCOUNTING PROCESS 133. What function do accounting journals serve in

126. Economic data on the transactions and other the accounting process?
accountable events of an entity are collected a. Recording
bymeans of b. Classifying
a. Journals c. Summarizing
b. Accounting records d. Reporting
c. Accounts
d. Source documents
134. What function do accounting ledgers serve in
the accounting process?
127. The first step in the accounting cycle is to a. Recording
a. Record transactions in a journal b. Summarizing
b. Adjust the general ledger accounts c. Classifying
c. Analyze transactions from source d. Reporting
documents
d. Post journal entries to general ledger 135. Credits are used to record increases in
accounts a. Expenses, liabilities and equity
b. Revenues, liabilities and equity
128. The debit and credit analysis of a transaction c. Revenues, dividends and assets
normally takes place d. Assets, revenues, liabilities and equity
a. After the preparation of the financial
statements 136. Which special journal is used to record a cash
b. before an entry is recorded in the journal purchase transaction?
c. when the entry is posted to the ledger a. Sales journal
d. when the trial balance is prepared b. Cash receipts journal
c. Purchase journal
129. What is the effect of a cash purchase of d. Cash disbursements journal
inventories?
a. Total assets decrease 137. When special journals are used, adjusting,
b. Total liabilities increase closing and reversing entries are recorded in
c. Total assets remain unchanged the
d. Total shareholders’ equity decreases a. Cash disbursement journal
b. Cash receipts journal
130. Which transaction would have a net effect of c. General journal
increasing assets and equity? d. Purchases journal
A. Sale of goods on account
B. Retirement of treasury shares

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FINANCIAL ACCOUNTING AND REPORTING GEORGE R. JAMES, CPA

138. Which of the following constitutes both b. Total debit and total credit in the ledger
transposition and sliding errors? accounts are equal
a. A transaction amounting to P 1,234.00 c. All transactions have been entered in the
recorded in the journal as P 1,243.00 journal completely
b. A transaction amounting to P 325.00 d. All entries have been posted from the
posted in the ledger as P 32.50 journal to the ledger correctly
c. A transaction amounting to P 88,000
unintentionally not recorded in the journal
d. A transaction amounting to P 670.00 145. When total debit exceeds total credit in the
recorded in the journal as P 7,600.00 income statement columns of the worksheet,
thisindicates
a. Net loss
139. The term “posting” refers to the process of b. Net income
transferring information from c. Zero profit
a. Journals to general ledger accounts d. No meaningful amount
b. General ledger accounts to journals
c. Source documents to journals
d. Journals to source documents 146. When total debit exceeds total credit in
the balance sheet columns of the
worksheet, thisindicates
140. A subsidiary ledger is a. Net loss
a. A listing of accounts balances just before b. Net income
closing entries are prepared c. Zero profit
b. A listing of the components of account d. No meaningful amount
balances in the general ledger
c. A backup system to protect against 147. Adjusting entries involve
unexpected destruction of records a. Only real accounts
d. A listing of accounts of a subsidiary b. Only nominal accounts
company owned by a parent company c. Only capital accounts
d. One real and one nominal account
141. A listing of all the general ledger accounts in a
systematic form is called 148. Accrued expense is an expense that is
a. Subsidiary ledger a. Already paid and incurred
b. Voucher b. Already paid but not yet incurred
c. Chart of accounts c. Already incurred but not yet paid
d. Accounts d. Not yet incurred and not yet paid

142. An example of a nominal (temporary) and

contra account is
a. Accumulated depreciation
b. Sales discounts
c. Distribution costs
d. Discount on bonds payable

143. An example of a real (permanent) and adjunct

account is
a. Freight-in
b. Freight-out
c. Allowance for bad debts
d. Premium on bonds payable

144. A trial balance that is in balance proves that

a. No significant errors exist in the ledger
accounts

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Enhancement in Financial Accounting and Reporting

FINANCIAL ACCOUNTING AND REPORTING GEORGE R. JAMES, CPA

149. Prepaid expense can be best described as an
amount
a. Paid and matched with earnings
b. Paid but not matched with earnings
c. Not paid and not matched with earnings
d. Not paid but matched with earnings
150. The advanced receipt of rental fee is recorded
by debiting cash and crediting unearned rent,
thisapproach of recording is known as
a. Asset method
b. Expense method
c. Liability method
d. Income method
a. At the end of the accounting period
b. To correct erroneous entries made during
the period
c. To reverse the effect of certain closing
entries made at year-end
d. To simplify the subsequent recording of
certain kinds of recurring transactions
PRESENTATION OF THE FINANCIAL STATEMENTS
Statement of Financial Position
Problem 1. Use the code letters listed below (A – L)
to indicate, for each statement of financial position
item listed below the usual valuation reported on the
statement of financial position.

151. If the advanced payment of an expense 156. Share capital–ordinary.

was initially recorded in an asset account, 157. Long-term bonds payable.
then theadjusting entry will involve 158. Prepaid expenses.
a. A debit to expense and a credit to an asset 159. Land (in use).
account in the amount of the expired cost 160. Property, plant, and equipment.
b. A debit to expense and a credit to an 161. Land (future plant site).
asset account in the amount of the 162. Trade accounts receivable.
unexpiredcost 163. Patents.
c. A debit to an asset account and a credit to 164. Copyrights.
expense in the amount of the expired cost 165. Financial assets at fair value thru profit or loss.
d. A debit to an asset account and a credit 166. Merchandise inventory.
to expense in the amount of the 167. Trade accounts payable.
unexpired cost
A. Par value
B. Current cost of replacement
152. Which of the following accounts is affected by
C. Amount payable when due, less unamortized
the closing entries?
discount or plus unamortized premium
a. Asset accounts
D. Amount payable when due
b. Capital accounts
E. Market value at statement of financial position
c. Liability accounts
date
d. None of the choices
F. Net realizable value
G. Lower of cost or net-realizable value
153. When business operations result in a profit, the H. Original cost less accumulated amortization
Income Summary account is I. Original cost less accumulated depletion
a. Not used at all J. Original cost less accumulated depreciation
b. Used for adjusting entries K. Historical cost
c. Debited and the capital account is credited L. Unexpired or unconsumed cost
d. Credited and the capital account is debited

Problem 2. Typical statement of financial position

154. Which of the following accounts would not be classifications are as follows.
subject to a closing entry?
a. Gain on sale of equipment A. Investments
b. Gain on sale of treasury shares B. Plant Assets
c. Gain on sale of investment in debt C. Intangible Assets
securities D. Other Assets
d. Gain on extinguishment of financial E. Current Assets
liabilities F. Share Capital
G. Share Premium
155. Reversing entries are done

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Enhancement in Financial Accounting and Reporting

FINANCIAL ACCOUNTING AND REPORTING GEORGE R. JAMES, CPA

H. Retained Earnings
I. Non-Current Liabilities
J. Current Liabilities
K. Notes to Financial Statements
L. Not Reported on Statement of Financial
Position

Indicate by use of the above letters how each of the

following items would be classified on a statement of
financial position prepared at December 31, 2022. If a
contra account, or any amount that is negative or
opposite the normal balance, put parentheses around
the letter selected. A letter may be used more than
once or not at all.

168. Accrued salaries and wages

169. Rental revenues for 3 months collected in advance
170. Land used as plant site
171. Equity securities classified as trading
172. Cash
173. Accrued interest payable due in 30 days
174. Share premium–preference shares
175. Dividends in arrears on preference Shares
176. Petty cash fund
177. Ordinary shares
178. Bond indenture covenants
179. Allowance for doubtful accounts
180. Accumulated depreciation
181. Goodwill
182. 90-day notes payable
183. Investment in bonds of another company; will be
held to 2025 maturity
184. Land held for speculation
185. Death of company president
186. Current maturity of bonds payable
187. Trade accounts payable
188. Preference shares (P10 par)
189. Prepaid rent for next 12 months
190. Copyright
191. Accumulated amortization, patents
192. Earnings not distributed to shareholders

FINANCIAL ACCOUNTING AND REPORTING Page 17

 f -

Accounting constraint
2018 - Conceptual framework 1 . Cost constraint
-"
should less than the benefit

systematic and consumer basis for preparation of PFRS

.
2 .
Time constraint- Timeliness

ammend CF .
3
Quality constraint
-
>
Trade off reliability (Faithful representation
CF is not PFRS

if there's a
Fail Review X ammend PE
Financial Statement
conflict income in
·
Balance sheet ,
statement of comprehensive ,
changes equity
Period
cash flow notes of the FS. Reporting

Scope of Framework
,
Silent :
annually
less than1 year
:
interim

1) Objective of General purpose of financial reporting Reporting Entity

↑
Purpose >
make FS
-

area the one who

provide useful information for
.
:

-
ecomic decision-making. I legal entity
reporting entity
information provided by users'

Financial position

-
a) Point in time :
or
investors creditors lenders
condition
-
, ,

Consolidated and unconsolidated

performance of company
(users)
/i) profitability >
-
conso more useful than unconso
b) Period
i
of time
2) changes in financial positions.
management stewardship of

Elements
resources.
company

Asset resources that are controlled LIABILITY

2) Qualitative characteristic -
past transaction
-Present Obligation
-

past transaction
settlement of resources outflow
probable benefit
-

OF resources
-
measurable

PRIMARY income EQUITY

residual of the company
Relevance ↑ in equity
-

④ controls by owners
1) predictive value
2) confirmatory value a) Revenue- producinga
mainincome
3) materially b) Gain peripheral income
producing activity
-

Reco expense
Faithful representation (reliability) expenses
↑

Ia magnen imp
-
↳ in equity
1) completeness -
exclude Distribution to owners
.

2) neutrality (unbiased)
a) expenses -
incurred in main revenue
~
conservatism/prudence
~ error
(salaries expense , rent expl
Free from
b) loss -

peripheral to main income

SECONDARY
Comparability Main assumption of FS
↳ FS OID US FS New
7) GOING CONCERN
Consistency

INTRA COMPANY
Tacross
the periods)
INTER COMPANY
acros the co
same
.

year)
WI
Recognition-pinasoknaitem) measurementbashost o mosti e

verifiability
↳ 2-3
independent users

timeliness

↳ Decision making
↳ Relevance US Faithful Representation

understand ability
to have a
>
-

expect users
basic understanding of

accounting and business.

 Lyceum of the Philippines University
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Enhancement in Financial Accounting and Reporting
FINANCIAL ACCOUNTING AND REPORTING
Development of Financial Reporting
Framework, Standard-Setting Bodies and
Regulation of the Accountancy Profession
HISTORY, DEVELOPMENT AND FUNCTIONS OF THE
STANDARD-SETTING BODIES
1. International Financial Reporting Standards (IFRSs)
are issued by the:
A. International Accounting Standards Board
B. International Accounting Standards Committee
C. Financial Reporting Standards Board
D. Financial Accounting Standards Board
2. Financial accounting standard-setting
A. Is based solely on research.
B. Is a legislative process based on rules
promulgated by government agencies.
C. Is a democratic process in that a majority of
practicing accountants must agree with a
standard before it becomes enforceable.
D. Is a social process which incorporates political
actions of various interested user groups as
well as professional research and logic.
3. The International Accounting Standards Board was
formed to
A. Enforce IFRS in foreign countries
B. Develop a single set of high quality IFRS
C. Establish accounting standards for
multinational entities
D. Develop accounting standards for countries
that do not have standard-setting body
4. The IASB publishes standards called
A. Financial Reporting Standards
B. International Accounting Standards
C. International Financial Reporting Standards
D. Statement of Financial Accounting Standards
5. The IASB employs a "due process" system which
A. Requires that all CPAs must receive a copy of
IFRS.
B. Is an efficient system for collecting dues from
members.
C. Identifies the accounting issues that are the
most important.
D. Enables interested parties to express their
views on issues under consideration.
6. What is "due process" in the context of standard-
setting by IASB?
A. IASB operates in full view of the public.
B. Interested parties can make their views known.
C. Public hearings are held on proposed
standards.
D. All of these are part of due process in standard-
setting.
7. It is a global phenomenon intended to bring about
transparency and a higher degree of comparability in
financial reporting in order to achieve the goal of one
uniform and globally accepted financial reporting
standards.
A. Borderless accounting
B. IFRS
C. Information technology
D. World trade
FINANCIAL ACCOUNTING AND REPORTING
GEORGE R. JAMES, CPA
8. The purpose of the International Financial Reporting
Standards is to
A. Promote uniform accounting standards among
countries of the world.
B. Arbitrate accounting disputes between auditors
and international entities.
C. Issue enforceable standards which regulate the
financial accounting and reporting of
multinational entities.
D. Develop a uniform currency in which the
financial transactions of entities throughout the
world would be measured.
9. IFRIC Interpretations issued by IASB
A. Are considered authoritative and must be
followed.
B. Cover newly identified financial reporting
issues not specifically addressed.
C. Cover issues where unsatisfactory or
conflicting interpretations have developed.
D. All of these are true about IFRIC
Interpretations.
10. It is the accounting standard-setting body in the
Philippines at the present time.
A. Accounting Standards Council
B. Financial Reporting Standards Council
C. Philippine Accounting Standards Board
D. Auditing and Assurance Standards Council
11. Which of the following statements is true regarding
the FRSC?
A. The FRSC shall be composed of 15 with a
Chairman and 14 representatives.
B. The FRSC is created by PRC upon
recommendation of BOA to assist BOA in
carrying out its powers and functions under
R.A. No. 9298.
C. The Chairman and members of FRSC are
appointed by PRC upon recommendation of
BOA and shall have a term of three years
renewable for another term.
D. All of the statements are true.
12. All of the following are represented in FRSC, except
A. Board of Accountancy
B. Commission on Audit
C. Securities and Exchange Commission
D. Department of Budget and Management
13. The Philippine Financial Reporting Standards
collectively include
I. PFRS corresponding to IFRS.
II. PAS corresponding to IAS.
III. Philippine Interpretations corresponding to
IFRIC and SIC Interpretations and
Interpretations developed by PIC.
A. I only
B. I and II only
C. I and III only
D. I, II and III
14. The Philippine Interpretations Committee (PIC) was
established by the:
A. FRSC
B. PRC
C. BOA
D. IASB
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15. Which of the following statements best describes
generally accepted accounting principles?
A. The accounting principles have been
formulated in the public sector.
B. The accounting principles are the same as
laws within our legal system.
C. The accounting principles do not apply to
small and medium-sized entities.
D. The accounting principles have been
developed on the basis of such factors as
usage and practical necessity.
16. Generally accepted accounting principles
A. Are accounting adaptations based on the
law of economic science.
B. Derive their credibility and authority from
legal rulings and court precedents.
C. Derive their credibility and authority from
the national government through the
financial reporting section of the SEC.
D. Derive their credibility and authority from
general recognition and acceptance by the
accountancy profession.
17. The principles which constitute the ground rules
for financial reporting are termed "generally
accepted accounting principles". To qualify as
"generally accepted," an accounting principle must
A. Receive substantial authoritative support.
B. Guide an entrepreneur of the choice of an
accounting entity like single proprietorship,
partnership or corporation.
C. Usually guide corporate managers in
preparing financial statements, which will be
understood by widely scattered
shareholders.
D. Guide corporate managers in preparing
financial statements, which will be used, for
collective bargaining agreement with trade
unions.
18. Once an accounting standard has been established
A. The standard is continually reviewed to
see if modification is necessary.
B. The principle of consistency requires that
no revisions ever be made to the
standard.
C. The standard is not reviewed unless the
Securities and Exchange Commission
makes a complaint.
D. The task of reviewing the standard to see if
modification is necessary is given to the
Philippine Institute of Certified Public
Accountants.
FINANCIAL ACCOUNTING AND REPORTING
GEORGE R. JAMES, CPA
19. Proper application of accounting principles is most
dependent upon the
A. External audit function
B. Existence of specific guidelines
C. Oversight of regulatory bodies
D. Professional judgment of the CPA
THE ACCOUNTING PROFESSION
20. Which law specifically governs the accounting
profession in the Philippines?
a. The Revised Accountancy Law (PD 682).
b. The Code of Professional Ethics for
CPAs.
c. Philippine Accountancy Act of 2004.
d. Presidential Decree 1081.
21. The Philippine Accountancy Act of 2004 shall
provide for and govern:
a. The standardization and regulation of
accounting education.
b. Examination for accreditation of Certified
Public Accountants.
c. The supervision, control, and regulation of
the practice of professions in the Philippines.
d. All of these.
22. The following statements relate to the Board of
Accountancy. Select the incorrect statement:
a. The Board consists of a Chairman and six
members.
b. The chairman and members of the Board are
appointed by the President of the Philippines
upon recommendation of the Professional
Regulation Commission.
c. The Professional Regulation Commission
may remove from the Board of Accountancy,
any member whose certificate to practice
has been revoked or suspended.
d. All sectors of accountancy practice shall as
much as possible be equitably represented in
the Board.
23. The Accredited National Professional Organization
(APO) shall submit its nominations for the Board
of Accountancy (with complete documentation) to
the Commission:
a. Not later than sixty (60) days prior to the
expiry of the term of an incumbent chairman
or member.
b. On the date of expiry of the term of an
incumbent chairman or member.
c. After the 60th day from the expiry of the term
of an incumbent chairman or member.
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FINANCIAL ACCOUNTING AND REPORTING
d. Upon request by the Commission for the
submission of nominations.
24. A member of the BOA shall, at the time of his/her
appointment, possess the following qualifications:
I. Natural-born citizen and resident of the
Philippines.
II. Duly registered CPA with at least 10 years
of work experience in any scope of practice
of accountancy.
III. Good moral character and must not have
been convicted of crimes involving moral
turpitude.
IV. Must not have any direct pecuniary interest
in any school, college, university, or
institution conferring B.S. Accountancy, or
where review classes in preparation for the
CPA Board Exams are being offered or
conducted.
V. Must not have any indirect pecuniary
interest in any school, college, university,
or institution conferring B.S. Accountancy,
or where review classes in preparation for
the CPA Board Exams are being offered or
conducted.
VI. Must not be a member of the faculty or
administration in any school, college,
university, or institution conferring B.S.
Accountancy, or where review classes in
preparation for the CPA Board Exams are
being offered or conducted, at the time of
appointment.
a. I, II, III, IV, VI.
b. I, II, III, V, VI.
c. I, II, III, IV, V, VI.
d. I, II, III, IV, V.
25. The following statements pertain to the terms of
office of the members of the Board of
Accountancy. Which statement is incorrect?
a. The Chairman and members of the Board
shall hold office for a term of three years.
b. No person who has served two (2)
successive complete terms shall be eligible
for reappointment until the lapse of two
years.
c. A person may serve the Board of
Accountancy for not more than twelve years.
d. Appointment to fill up an unexpired term is
not to be considered as a complete term.
26. The Board shall exercise the following powers,
functions and responsibilities:
FINANCIAL ACCOUNTING AND REPORTING
GEORGE R. JAMES, CPA
I. To supervise the registration, licensure and
practice of accountancy.
II. To issue, suspend, revoke, or reinstate the
Certificate of Registration for the practice of
the accountancy profession.
III. To monitor the conditions affecting the
practice of accountancy.
IV. To prescribe and/or adopt a Code of Ethics
for the practice of accountancy.
a. I, II, III. c. I, II, IV.
b. I, III, IV. d. I, II, III, IV.
27. The Board shall exercise the following powers,
functions and responsibilities:
I. To adopt an official seal of the Board.
II. To issue a cease or desist order to any
person, association, partnership, or
corporation engaged in violation of any
provision of RA9298, any accounting or
auditing standards, or rules duly
promulgated by the Board as part of the
rules governing the practice of accountancy
in the Philippines.
III. To investigate violations of RA9298
IV. To conduct an oversight into the quality of
audits of financial statements through a
review of the quality control measures
instituted by the FRSC in order to ensure
compliance with the accounting and
auditing standards and practices.
a. I, II, III. c. I, II, IV.
b. I, III, IV. d. I, II, III, IV.
28. Who is the person that has the authority to
suspend or remove a member of the Professional
Regulatory Board of Accountancy, on valid
grounds and after due process?
a. The President of the Republic of the
Philippines
b. The Chairman of the Professional Regulatory
Board of Accountancy, unless he is the one
who is under investigation
c. The Commissioner of the Professional
Regulation Commission
d. None of them.
29. The following are grounds for suspension or
removal of members of the Board of Accountancy,
except:
a. Neglect of duty or incompetence.
b. Violation or tolerance of any violation of
RA9298 and its IRR, or the Code of Ethics
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FINANCIAL ACCOUNTING AND REPORTING GEORGE R. JAMES, CPA

and technical and professional standards of C. Yes Yes No Yes

practice for CPAs. D. Yes Yes Yes Yes
c. Pending case on a crime involving moral
turpitude. 35. Which of the following statements is incorrect?
d. Manipulation or rigging of the CPA licensure a. The Board of Accountancy has the authority
examination results. to revise or exclude any of the six subjects
30. This is the accredited national professional from the CPA Board Licensure Examinations.
organization of CPAs in the Philippines. b. New subjects may be added to the CPA
a. PICPA. b. JPIA. c. CHED. d. BOA. Board Licensure Examination syllabi as the
need arises.
31. In order to maintain PICPA’s recognition as the c. To be qualified as having passed the
APO by the PRC, it must meet the following licensure examination for accountants, a
requirements (select the incorrect one): candidate must obtain a general average of
a. Its membership is open to all registered seventy-five percent, with no grades lower
CPAs without discrimination. than sixty-five percent in any given subject.
b. It shall have a creditable plan to enlist into d. A candidate with conditional credits must
active membership, within two (2) years, at take a removal examination at least two
least a majority of the CPAs in the practice years after taking the preceding
of accountancy as defined in Section 4, Rule examination.
1 of the IRR.
c. It shall have adequate chapters/regions in 36. The Board shall submit to the PRC the ratings
major areas in the Philippines to effectively obtained by each candidate within how many days
attend to the needs of its members. after the examination (unless extended for just
d. It shall have a full-time career Executive cause)?
Director who shall implement the policies a. 2 days. b. 6 days. c. 10 d. 30
promulgated by the PICPA Board of Directors days. days.
and shall have direct supervision over the 37. Under Section 23 of Republic Act No. 9298, the
PICPA secretariat. following are grounds for the refusal to issue a
certificate of registration and professional
32. A director can only represent a sector in a region identification card:
if he/she has been a member in good standing in A B C D
such sector in the region for at least ____ years • Conviction of a
at the time of his/her nomination. criminal offense
a. Two c. Four involving moral Ye Ye Ye Ye
b. Three d. Five turpitude s s s s
• Conviction for a Ye Ye
political offense No s s No
33. PICPA shall renew its certificate of accreditation
• Guilty of
once:
immoral or
a. Every 3 years c. Every 5 years
dishonorable Ye Ye Ye Ye
b. Annually d. None of these
conduct s s s s
• Unsound mind Ye Ye Ye
34. Which of the following are requirements for any s s s No
person applying for the CPA Board Examinations? • Misrepresentatio
Has not n in the
been application for Ye Ye Ye
convicte examination s No s s
d of any
Degree of criminal 38. A certificate under seal, bearing a registration
Natural Good Bachelor of offense number, issued to an individual, by the PRC, upon
-born moral Science in involving recommendation by the Board of Accountancy,
Filipino characte Accountanc moral signifying that the individual has complied with all
citizen r y turpitude the legal and procedural requirements for such
A. Yes No Yes No issuance, including, in appropriate cases, having
B. No Yes Yes Yes

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FINANCIAL ACCOUNTING AND REPORTING GEORGE R. JAMES, CPA

successfully passed the CPA licensure a. He merely holds himself out as skilled in the
examinations. science and practice of accounting and
a. Certificate of registration. qualified to render services as a CPA.
b. Certificate of accreditation. b. He merely offers to render services as a CPA
c. Certificate of identification. to the public, but does not actually render
d. Certificate of quality such services.
review. c. He offers or renders bookkeeping services to
more than one client.
39. A professional identification card bears the d. He installs and revises accounting systems
registration number, date of issuance with an for more than one client.
expiry date, due for periodic renewal, duly signed
by the Chairperson of the Commission issued by 43. CPAs may practice under the following legal
the PRC to a registered CPA upon payment of the forms of organization:
registration fees. This card has a validity of A B C D
a. 6 b. 3 c. 4 d. 2 • Sole Yes Yes Yes Yes
years. years. years. years. proprietorships
• General Yes Yes No Yes
40. All licensed certified public accountants shall partnerships
obtain and use a seal of a design prescribed by the (GP)
a. Accounting Standards Council. • Limited liability No Yes Yes Yes
b. Philippine Institute of CPAs. partnerships
c. Board of Accountancy. (LLP)
d. Professional Regulation • Corporations No No No Yes
Commission.
44. A certificate of accreditation shall be issued to
41. Which one constitutes practice in commerce and certified public accountants in public practice only
industry? upon showing, in accordance with rules and
a. A person who holds, or is appointed to a regulations promulgated by the Board and
position in an accounting professional group approved by the PRC, that such registrant has
in government or in a government-owned acquired meaningful experience in any of the
and/or controlled corporation, where areas of public practice including taxation.
decision-making requires professional According to the IRR to RA9298, how many years
knowledge in the science of accounting. of meaningful experience is required?
b. A person involved in decision-making a. Minimum of 3 years.
requiring professional knowledge in the b. Minimum of 2 years.
science of accounting, as well as the c. Maximum of 3
accounting aspects of finance and taxation, years.
or is employed in a position that requires a d. Minimum of 5 years
CPA.
c. A person who is in an educational institution 45. Certified public accountants, firms and
which involves teaching of accounting, partnerships of CPAs, engaged in the practice of
auditing, management advisory services, public accountancy, shall register with the
accounting aspect of finance, business law, Commission and the Board, such registration to be
taxation, and other technically-related renewed:
subjects. a. Every 3 years. c. Every 5 years
d. A person who holds out himself or herself as b. Annually d. None of these
one skilled in the knowledge, science and
practice of accounting, and as someone
46. Co & Garcia, CPAs applied for registration for
qualified to render professional services as a
CPA. accreditation as CPAs in public practice. The same
was approved on June 30, 2022. Pursuant to the
provisions of the IRR, the registration shall remain
42. A person is not deemed to be engaged in
in force until:
professional accounting practice if:
a. September 30, 2024.
b. December 31, 2024.
c. June 30, 2025.

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FINANCIAL ACCOUNTING AND REPORTING GEORGE R. JAMES, CPA

d. September 30, 2025. the effectivity of the IRR displace Bam Berto from
this position?
47. Pursuant to the provisions of the IRR, it shall file a. Yes, Bam Berto will be terminated, provided
for renewal on or before: equitable benefits are available for him, and
a. September 30, 2024. the resulting vacancy will be filled in by CPAs.
b. December 31, 2024. b. No, the IRR specifically provides that the
c. June 30, 2025. provision shall not result to the deprivation
d. September 30, 2025. of the employment of incumbents to a
position.
48. Below are the names of three CPA firms and c. Yes, unless Bam Berto is able to take and
pertinent facts relative to each firm. Unless pass the CPA board examinations within two
otherwise indicated, the individuals named herein years from the effectivity of the
are CPAs and partners, and there are no other implementing rules and regulations of RA
partners. Which firm name and related facts 9298.
indicates a violation of Annex B of the IRR to d. Cannot be determined without additional
RA9298? information.
a. Clark, Peter and Bruce, CPAs (Clark died 8
years ago. Peter and Bruce are continuing 51. John Abram, CPA, is the dean of the College of
the firm). Accountancy in the First Day University. Related
b. Argo and Sabina, CPAs (the name of Alwina, to this, which of the following statements is
a third active partner, is omitted from the incorrect?
firm name). a. John Abram is considered to be in the
c. Dao and Meng, CPAs (Dao died 36 months practice of his profession.
ago, and Meng is continuing the firm as sole b. The position of the dean or the department
proprietor). chair or its equivalent that supervises the
d. Eng and Kan, CPAs (Eng died 3 years ago, B.S. Accountancy program of an educational
Tadia was admitted into the partnership 1 institution must be a duly registered CPA.
month after Eng’s death). c. John Abram is not considered in the practice
of his profession because he occupies an
Gelai Company is a business in the private sector. The administrative position.
company has several administrative positions that d. John Abram is practicing accountancy in the
require, among others: the supervision of the recording education sector (academe).
of financial transactions; preparation of financial
statements; coordination with the external auditors for 52. According to the IRR to RA No. 9298, who among
the audit of the financial statements; and other related the following may teach business law?
functions. A B C D
• Mr. X, Attorney- Yes Yes No No
49. According to the IRR to the Accountancy Law, at-law and a
these positions should be occupied by duly member of the
registered CPAs, if Gelai Company: IBP
a. Has an authorized capital of at least • Ms. Y, CPA and
P5,000,000 and/or an annual revenue of graduating law Yes No No Yes
P10,000,000. student from San
b. Has an authorized capital of at least Beda, deemed
P10,000,000 and/or an annual revenue of competent to
P5,000,000. teach business
c. Has a paid-up capital of at least P5,000,000 law
and/or an annual revenue of P10,000,000. 53. Which of the following persons are considered to
d. Has a paid-up capital of at least P10,000,000 be in the practice of accountancy in the
and/or an annual revenue of P5,000,000. government sector?
I. A person who holds or is appointed in an
50. One of the positions, the Company’s accounting professional group in
controllership, is occupied by Bam Berto, a non- government, where a civil service eligibility
CPA. Suppose that Gelai Company meets the as a certified public accountant is a pre-
criteria under the P5 million/P10 million rule. Will requisite.

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II. A person who holds or is appointed in an a. Two continuous years from initial
accounting professional group in a registration, or from last renewal.
government-owned and/or controlled b. Three continuous years from initial
corporation, where decision-making registration, or from last renewal.
requires professional knowledge in the c. Four continuous years from initial
science of accounting. registration, or from last renewal.
d. Five continuous years from initial
a. Both I and II. c. II only. registration, or from last renewal.
b. I only. d. Neither I nor II.
59. The CPD programs shall have these objectives:
a. To raise and maintain the professional’s
54. The Constitution of the Philippines requires this
capability for delivering professional services
Office to “keep the general accounts of the
b. To attain and maintain the highest standards
Government and for such period as may be
and quality in the practice of his profession.
provided by law, preserve the vouchers
c. To make the profession globally competitive.
pertaining thereto.”
d. All of these.
a. National Accounting
60. A registered professional shall be permanently
Office
exempted from CPD requirements upon reaching:
b. Ministry of Finance
a. The age of 60 years old.
c. Commission on Audit b. The age of 65 years old.
c. The age of 70 years old.
d. Accounting Units d. The age of 75 years old.

55. The following are the duties of the Commission
on Audit (COA), except:
a. Define the scope of its audit and
examination
b. Promulgate accounting rules and
regulations
c. Keep the general accounts of the
government
d. Assume fiscal responsibility for the
Government and its instrumentalities
56. Who appoints the members of the COA?
a. The Commissioner of the PRC
b. The Chairman of the BOA
c. The President, with the concurrence of the
Commission on Appointments
d. The Chairman of the AASC
57. Which of the following is a correct qualification of
the Chairman and Two Commissioners of the
COA?
a. A naturalized citizen of the Philippines
b. At least 40 years of age upon appointment
c. CPAs with no less than 5 years of auditing
experience or members of the Philippine
bar who have been engaged in law practice
for at least 5 years
d. Must not have been candidates for any
elective position preceding appointment
58. CPAs shall be declared delinquent if they fail to
renew their professional licenses for a period of:
61. Special / temporary permit may be issued by the
Board subject to the approval of the Commission
and payment of the fees the latter has prescribed
and charged thereof to the following persons,
except:
a. A foreign certified public accountant called
for consultation or for a specific purpose
which, in the judgment of the Board, is
essential for the development of the country;
provided, that his//her practice shall be
limited only for the particular work that
he/she is being engaged and that there is no
Filipino certified public accountant qualified
for such consultation or specific purposes
b. A foreign certified public accountant
engaged as professor, lecturer or critic in
fields essential to accountancy education in
the Philippines and his/her engagement is
confined to teaching and private practice
only.
c. A foreign certified public accountant who is
an internationally recognized expert or with
specialization in any branch of accountancy
and his/her service is essential for the
advancement of accountancy in the
Philippines.
d. Select this letter if there are no exceptions.
62. Which organization has the primary duty of
effectively enforcing the provisions of RA 9298?
I. Board of Accountancy
II. Professional Regulation Commission.

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III. Department of Justice. c. No fine but an imprisonment for a period not

IV. Office of the President of the Philippine exceeding two (2) years.
Republic. d. A fine of not less than fifty thousand pesos
(P50,000.00) or imprisonment for a period
a. I, II, and III. c. I and II not exceeding two (2) years, or both.
b. I, III and IV d. III and IV
66. S1 The Board must, after the expiration of two
(2) years from the date of revocation of a CPA
63. Who shall act as legal adviser to the Professional
certificate and upon application and for reasons
Regulation Commission and the Board of
deemed proper and sufficient, reinstate the
Accountancy in implementing the provisions of the
validity of a revoked CPA certificate and in so
Philippine Accountancy Act of 2004?
doing, may, in its discretion, exempt the
a. The Secretary of Justice or his duly
applicant from taking another examination.
designated representative.
S2 A new CPA certificate to replace lost,
b. The Chief Justice of the Supreme Court or his
destroyed, or mutilated certificate/license may be
duly designated representative.
issued, subject to the rules promulgated by the
c. A bonafide member of the Integrated Bar of
BOA and the PRC, upon payment of the required
the Philippines appointed by the President of
fees.
the Philippines for such purposes.
a. Correct, incorrect c. Incorrect,
d. The Secretary of the Interior.
correct
b. Correct, correct d. Incorrect,
64. Under Section 24 of Republic Act No. 9298, the
incorrect
following are grounds for the suspension or
revocation of certificate of registration and
professional identification card:
A B C D
Conceptual Framework, Accounting Process
• Causes or Yes Yes Yes No and Presentation of Financial Statements
grounds THE CONCEPTUAL FRAMEWORK
mentioned 67. Which is a basic purpose of the Conceptual
under Section Framework?
23 of RA9298. A. To assist preparers of financial statements in
• Practicing in Yes Yes No Yes applying accounting standards.
more than one B. To provide information to those interested in
field of the work of the FRSC in the formulation of
accountancy. PFRS.
C. To assist users of financial statements in
interpreting the information contained in the
financial statements.
D. All of these are considered basic purpose of
• Any the Conceptual Framework.
unprofessional or
unethical 68. Which of the following is not a purpose of the
conduct, Conceptual Framework?
malpractice, A. To provide definitions of key terms and
violation of laws Yes No Yes Yes fundamental concepts.
B. To assist the International Accounting
65. The punishment, upon conviction, for any person Standards Board in the standard-setting
who has violated any of the provisions of the process.
Accountancy Act of 2004, or any of its C. To assist accountants in selecting among
Implementing Rules and Regulations as alternative accounting and reporting
promulgated by the Board of Accountancy: methods.
a. A fine of not less than fifty thousand pesos D. To provide specific guidelines for resolving
(P50,000.00) and imprisonment for a period situations not covered by existing accounting
not exceeding two (2) years, or both. standards.
b. A fine of not less than fifty thousand pesos
(P50,000.00) but not an imprisonment. 69. What is the authoritative status of the Conceptual

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Framework? B. III only

A. The Conceptual Framework has the highest
level of authority.
B. In the absence of a standard or an
interpretation that specifically applies to a
transaction, the Conceptual Framework shall
be followed.
C. The Conceptual Framework applies only
when the Financial Reporting Standards
Council develops new or revised standards.
D. In the absence of a standard or an
interpretation that specifically applies to a
transaction, management shall consider the
applicability of the Conceptual Framework in
developing and applying an accounting
policy that results in information that is
relevant and reliable.
70. As regards the relationship between PFRS and the
Conceptual Framework, which of the following
statements is true?
I. The Conceptual Framework is a reporting
standard.
II. In case of conflict, the requirements of the
Conceptual Framework prevail over those of
the relevant PFRS.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
71. Which of the following statements is true
concerning the Conceptual Framework?
I. The Conceptual Framework is concerned
with general purpose financial statements
including consolidated financial statements.
II. Special purpose financial reports, for
example, prospectuses and computations
prepared for taxation purposes, are within
the scope of the Conceptual Framework.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
72. Which of the following is not true concerning the
Conceptual Framework?
I. The Conceptual Framework should be a
basis for standard setting.
II. The Conceptual Framework should allow
practical problems to be solved more quickly.
III. The Conceptual Framework should be based
on fundamental truths that are derived from
the laws of nature.
A. II only
C. I and II only
D. II and III only
73. Which of the following statements is true
concerning the Conceptual Framework for
Financial Reporting?
A. Nothing in the Conceptual Framework
overrides any specific Philippine Financial
Reporting Standard.
B. The Conceptual Framework is concerned
with general purpose financial statements
including consolidated financial statements.
C. The Conceptual Framework is not a reporting
standard and does not define standard for
any particular measurement or disclosure
issue.
D. All of these statements are true about the
Conceptual Framework.
74. The "primary users" of financial information
include
A. Existing and potential investors only
B. Existing and potential lenders and other
creditors only
C. Existing and potential investors, lenders and
other creditors.
D. User group, such as employees, customers,
governments and their agencies, and the
public
75. In the Conceptual Framework for Financial
Reporting, what provides the "why" of accounting?
A. Element of financial statement
B. Objective of financial reporting
C. Measurement and recognition concept
D. Qualitative characteristic of accounting
information
76. The underlying theme of the Conceptual
Framework is
A. Comparability
B. Decision usefulness
C. Timeliness
D. Understandability
77. The following are limitations of financial
reporting, except:
A. General purpose financial reports do not and
cannot provide all of the information that
existing and potential investors, lenders and
other creditors need.
B. General purpose financial reports are
designed to show the value of an entity

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C. General purpose financial reports are A. Supported by evidence that an accountant

intended to provide common information to would look into and arrive at the same
users and cannot accommodate every conclusion
request for information B. Can be used to identify and understand
D. General purpose financial reports are based similarities and differences among items
on estimates and judgments rather than C. The use of the same methods for the same
exact depiction items, either from period to period within a
company or in a single period across
78. The qualities or attributes that make financial companies
information useful to users in making economic D. Presented in a form that users understand
decisions are:
A. Qualitative characteristics 85. The Conceptual Framework mentions one
B. Attributes of financial reporting constraint on useful financial information. Which
C. Fundamentals of accounting is it?
D. Generally accepted accounting principles A. Conservatism
B. Cost
79. The fundamental qualitative characteristics C. Prudence
include: D. Going concern
A. Relevance
B. Faithful representation 86. A structured representation of historical financial
C. Comparability information, including related notes, intended to
D. Both A and B communicate an entity’s economic resources or
obligations at a point in time or the changes
80. The capacity of information to affect a decision therein for a period of time in accordance with a
A. Relevance financial reporting framework.
B. Faithful representation A. Historical financial statements
C. Verifiability B. Prospectus
D. Substance over form C. Annual report
D. Management discussion and analysis
81. The ingredients of relevance include:
A. Predictive value 87. Financial statements are prepared at least:
B. Confirmatory value A. Monthly
C. Both A and B B. Quarterly
D. Neither A nor B C. Every 6 months
D. Annually
82. The description and figures presented in the
financial reports should match what really existed 88. This is an assumption that states the reporting
or happened. entity will continue in operation for the
A. Relevance foreseeable future in the absence of evidence to
B. Faithful representation the contrary.
C. Verifiability A. Accrual basis
D. Substance over form B. Going concern assumption
C. Fair value
D. Capital maintenance

89. An entity that is required or chooses to prepare

83. The characteristics of faithful representation financial statements
include the following, except: A. Legal entity
A. Completeness B. Economic entity
B. Neutrality C. Sovereign entity
C. Free from error D. Reporting entity
D. Form over substance
90. A reporting entity could be:
84. Which of the following describes consistency? A. A single entity
B. A part of a single entity (such as a division)

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C. Comprised of several entities
D. Any of these can be considered a reporting
entity.
91. How many are the elements of financial
statements?
A. Two
B. Three
C. Four
D. Five
92. The elements directly related to the
measurement of financial position are
A. Asset and liability
B. Income and expense
C. Asset, liability and equity
D. Asset, liability, equity, income and expense
93. The elements directly related to the
measurement of financial performance are
A. Asset and liability
B. Income and expense
C. Asset, liability and equity
D. Income, expense and equity
94. It is a resource controlled by the entity as a
result of past events and from which future
economic benefits are expected to flow to the
entity.
A. Asset
B. Equity
C. Income
D. Liability
95. Which of the following is an essential characteristic
of an asset?
A. An asset is tangible
B. An asset is obtained at a cost
C. An asset provides future benefits
D. The claims to an asset's benefits are legally
enforceable
96. The essential characteristics of an asset include all
of the following, except
A. The asset is tangible.
B. The asset provides future economic benefit.
C. The cost of the asset can be measured
reliably. D. The asset is the result of past
transaction or event.
97. It is a present obligation of an entity arising from
past events the settlement of which is expected
to result in an outflow from the entity of
resources embodying economic benefits.
A. Asset
FINANCIAL ACCOUNTING AND REPORTING
GEORGE R. JAMES, CPA
B. Equity
C. Expense
D. Liability
98. Which of the following best describes the term
"liability"?
A. An excess of equity over current assets
B. A present obligation arising from past event
C. Resources to meet financial commitments
when due
D. The residual interest in the assets of the entity
after deducting all of the liabilities
99. Fora liability to exist
A. The exact amount must be known.
B. There must, be a past transaction or event.
C. There must be an obligation to pay cash in the
future.
D. The identity of the party to whom the liability
is owed must be known.
100. It is the residual interest in the assets of the entity
after deducting all of the liabilities.
A. Equity
B. Expense
C. Income
D. Net income
101. It is an increase in economic benefit during the
accounting period related to an increase in asset
or a decrease in liability that results in increase in
equity other than contribution from owners.
A. Asset
B. Expenses
C. Income
D. Liability
102. This arises in the course of ordinary regular
activities of the entity and is referred to by a
variety of different names including sales, fees,
interest, dividends, royalties and rent.
A. Gain
B. Profit
C. Income
D. Revenue
103. According to the Conceptual Framework, an
entity's revenue may result from
A. A decrease in a liability from primary
operations.
B. A decrease in an asset from primary
operations.
C. An increase in a liability from incidental
transactions.
D. An increase in an asset from incidental
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transactions.
104. The primary distinction between revenue and gain
is
A. The materiality of the amount.
B. The likelihood that the transaction will recur
in the future.
C. The nature of the activity that gives rise to the
transaction.
D. The cost versus the benefit of the alternative
method of disclosing the transaction.
105. It is a decrease in economic benefit during the
accounting period related to a decrease in asset
or an increase in liability that results in decrease
in equity other than distribution to owners.
A. Asset
B. Expense
C. Income
D. Liability
106. An outflow of assets from an entity based on an
activity that represents the entity's major
operations is called
A. Equity
B. Expense
C. Liability
D. Loss
107. Which of the following statements in relation to
the term "expense" is incorrect?
A. Expense is synonymous with expenditure.
B. Entities do not incur expenses per se but they
initially acquire assets.
C. All expenses and losses are expired costs but
not all expired costs are expenses or losses.
D. All expenses decrease owners' equity but not
all decreases in owners' equity are expenses.
108. A decrease in assets arising from peripheral or
incidental transactions is called
A. Capital expenditure
B. Cost
C. Expense
D. Loss
109. It is the process of incorporating or reporting in
the statement of financial position or statement of
comprehensive income an item that meets the
definition of an element of financial statements.
A. Allocation
B. Realization
C. Recognition
D. Summarization
110. An item that meets the definition of an element
FINANCIAL ACCOUNTING AND REPORTING
GEORGE R. JAMES, CPA
shall be recognized when
I. It is probable that future economic
benefits associated with the item will flow
to or from the entity.
II. The item has a cost or value that can be
measured with reliability.
A. I only
B. II only
C. Either I or II
D. Both I and II
111. An asset is recognized when
A. The cost or value of the asset can be
measured reliably.
B. It is probable that future economic benefit will
flow to the entity.
C. The entity obtains control of the rights
associated with the asset.
D. It is probable that future economic benefit will
flow to the entity and the; cost or value of the
asset can be measured reliably.
112. A liability is recognized when
A. When the entity obtains control of the
obligation.
B. The amount of the obligation can measured
reliably.
C. It is probable that an outflow of future
economic benefit will be required to settle the
obligation.
D. It is probable that an outflow of future
economic benefit will be required to settle an
obligation and the amount of the obligation
can be measured reliably.
113. An income is recognized when
A. The future economic benefit can be
measured reliably.
B. The entity obtains control of the future
economic benefit.
C. It is possible that future economic benefit
will flow to the entity and the economic
benefit can be measured reliably.
D. It is probable that future economic benefit
will flow to the entity and the economic
benefit can be measured reliably.
114. An expense is recognized when
A. The decrease in future economic benefit can
be measured reliably.
B. It is probable that a decrease in future
economic benefit has occurred.
C. It is probable that an increase in future
economic benefit has occurred and the
increase in future economic benefit can be
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measured reliably.
D. It is probable that a decrease in future
economic benefit has occurred and the
decrease in the future economic benefit can
be measured reliably.
115. Historical cost is the
A. Amount of cash paid or fair value of the
consideration given at the time of acquisition.
B. Amount of cash that could currently be
obtained by selling the asset in an orderly
disposal.
C. Amount of cash that would have to be paid if
the same or an equivalent asset is acquired
currently.
D. Discounted value of the future net cash
inflows that the item is expected to generate
in the normal course of business.
116. Proponents of historical costs maintain that in
comparison with all other valuation alternatives for
general purpose financial reporting, statements
prepared using historical costs are more
A. Objective
B. Relevant
C. Conservative
D. Indicative of the entity's purchasing power
117. Which of the following is an argument against
historical cost?
A. Fair value is subjective.
B. Fair value is more relevant.
C. Historical cost is verifiable and reliable.
D. Historical cost is based on exchange
transaction.
118. It is the amount of cash or cash equivalent that
would have to be paid if the same or an equivalent
asset was acquired currently.
A. Current cost
B. Historical cost
C. Present value
D. Realizable value
119. It is the amount of cash that could currently be
obtained by selling the asset in an orderly disposal.
A. Fair value
B. Market value
C. Present value
D. Realizable value
120. Which of the following terms best describes the
discounted value of the future net cash inflows
that an item is expected to generate in the normal
course of business?
A. Fair value
FINANCIAL ACCOUNTING AND REPORTING
GEORGE R. JAMES, CPA
B. Historical cost
C. Present value
D. Residual value
121. Which of the following statements is true
concerning the concepts of capital?
I. Under the financial capital concept, a
profit is earned only if the monetary
amount of net assets at the end of the
period exceeds the monetary amount of
net assets at the beginning of the period,
after excluding any distributions to and
contributions from owners.
II. Under the physical capital concept, a
profit is earned only if the physical
productive capacity at the end of the
period exceeds the physical productive
capacity at the beginning of the period,
after excluding any distributions to and
contributions from owners.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
122. The financial capital concept requires that net
assets shall be measured at
A. Current cost
B. Historical cost
C. Current cost adjusted for changes in
purchasing power
D. Historical cost adjusted for changes in
purchasing power
123. Under the financial capital maintenance concept, a
profit is earned
A. If the monetary amount of net assets at the
beginning exceeds the monetary amount of
net assets at the end.
B. If the monetary amount of net assets at the
end exceeds the monetary amount of net
assets at the beginning.
C. If the monetary amount of net assets at the
beginning exceeds the monetary amount of
net assets at the end, after excluding
distributions to and contributions from
owners.
D. If the monetary amount of net assets at the
end exceeds the monetary amount of net
assets at the beginning, after excluding any
distributions to and contributions from
owners.
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124. The physical capital maintenance concept requires C. Payment of an expense in cash
the adoption of which measurement basis? D. Collection of a trade account
A. Current cost receivable
B. Historical cost
C. Current cost adjusted for changes in 131. Which of the following documents does not
purchasing power initiate an entry to be made in the accounts?
D. Historical cost adjusted for changes in a. Sales invoice
purchasing power b. Purchase invoice
c. Credit memorandum
125. Which capital maintenance concept is applied d. Purchase order
respectively to currently reported net income and
comprehensive income?
A. Financial capital and financial capital 132. The “book of original entry” is the
B. Financial capital and physical capital a. Trial balance
C. Physical capital and financial capital b. Journal
D. Physical capital and physical capital c. Ledger
d. Book of Genesis

THE ACCOUNTING PROCESS 133. What function do accounting journals serve in

126. Economic data on the transactions and other the accounting process?
accountable events of an entity are collected a. Recording
bymeans of b. Classifying
a. Journals c. Summarizing
b. Accounting records d. Reporting
c. Accounts
d. Source documents
134. What function do accounting ledgers serve in
the accounting process?
127. The first step in the accounting cycle is to a. Recording
a. Record transactions in a journal b. Summarizing
b. Adjust the general ledger accounts c. Classifying
c. Analyze transactions from source d. Reporting
documents
d. Post journal entries to general ledger 135. Credits are used to record increases in
accounts a. Expenses, liabilities and equity
b. Revenues, liabilities and equity
128. The debit and credit analysis of a transaction c. Revenues, dividends and assets
normally takes place d. Assets, revenues, liabilities and equity
a. After the preparation of the financial
statements 136. Which special journal is used to record a cash
b. before an entry is recorded in the journal purchase transaction?
c. when the entry is posted to the ledger a. Sales journal
d. when the trial balance is prepared b. Cash receipts journal
c. Purchase journal
129. What is the effect of a cash purchase of d. Cash disbursements journal
inventories?
a. Total assets decrease 137. When special journals are used, adjusting,
b. Total liabilities increase closing and reversing entries are recorded in
c. Total assets remain unchanged the
d. Total shareholders’ equity decreases a. Cash disbursement journal
b. Cash receipts journal
130. Which transaction would have a net effect of c. General journal
increasing assets and equity? d. Purchases journal
A. Sale of goods on account
B. Retirement of treasury shares

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138. Which of the following constitutes both b. Total debit and total credit in the ledger
transposition and sliding errors? accounts are equal
a. A transaction amounting to P 1,234.00 c. All transactions have been entered in the
recorded in the journal as P 1,243.00 journal completely
b. A transaction amounting to P 325.00 d. All entries have been posted from the
posted in the ledger as P 32.50 journal to the ledger correctly
c. A transaction amounting to P 88,000
unintentionally not recorded in the journal
d. A transaction amounting to P 670.00 145. When total debit exceeds total credit in the
recorded in the journal as P 7,600.00 income statement columns of the worksheet,
thisindicates
a. Net loss
139. The term “posting” refers to the process of b. Net income
transferring information from c. Zero profit
a. Journals to general ledger accounts d. No meaningful amount
b. General ledger accounts to journals
c. Source documents to journals
d. Journals to source documents 146. When total debit exceeds total credit in
the balance sheet columns of the
worksheet, thisindicates
140. A subsidiary ledger is a. Net loss
a. A listing of accounts balances just before b. Net income
closing entries are prepared c. Zero profit
b. A listing of the components of account d. No meaningful amount
balances in the general ledger
c. A backup system to protect against 147. Adjusting entries involve
unexpected destruction of records a. Only real accounts
d. A listing of accounts of a subsidiary b. Only nominal accounts
company owned by a parent company c. Only capital accounts
d. One real and one nominal account
141. A listing of all the general ledger accounts in a
systematic form is called 148. Accrued expense is an expense that is
a. Subsidiary ledger a. Already paid and incurred
b. Voucher b. Already paid but not yet incurred
c. Chart of accounts c. Already incurred but not yet paid
d. Accounts d. Not yet incurred and not yet paid

142. An example of a nominal (temporary) and

contra account is
a. Accumulated depreciation
b. Sales discounts
c. Distribution costs
d. Discount on bonds payable

143. An example of a real (permanent) and adjunct

account is
a. Freight-in
b. Freight-out
c. Allowance for bad debts
d. Premium on bonds payable

144. A trial balance that is in balance proves that

a. No significant errors exist in the ledger
accounts

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149. Prepaid expense can be best described as an
amount
a. Paid and matched with earnings
b. Paid but not matched with earnings
c. Not paid and not matched with earnings
d. Not paid but matched with earnings
150. The advanced receipt of rental fee is recorded
by debiting cash and crediting unearned rent,
thisapproach of recording is known as
a. Asset method
b. Expense method
c. Liability method
d. Income method
a. At the end of the accounting period
b. To correct erroneous entries made during
the period
c. To reverse the effect of certain closing
entries made at year-end
d. To simplify the subsequent recording of
certain kinds of recurring transactions
PRESENTATION OF THE FINANCIAL STATEMENTS
Statement of Financial Position
Problem 1. Use the code letters listed below (A – L)
to indicate, for each statement of financial position
item listed below the usual valuation reported on the
statement of financial position.

151. If the advanced payment of an expense 156. Share capital–ordinary.

was initially recorded in an asset account, 157. Long-term bonds payable.
then theadjusting entry will involve 158. Prepaid expenses.
a. A debit to expense and a credit to an asset 159. Land (in use).
account in the amount of the expired cost 160. Property, plant, and equipment.
b. A debit to expense and a credit to an 161. Land (future plant site).
asset account in the amount of the 162. Trade accounts receivable.
unexpiredcost 163. Patents.
c. A debit to an asset account and a credit to 164. Copyrights.
expense in the amount of the expired cost 165. Financial assets at fair value thru profit or loss.
d. A debit to an asset account and a credit 166. Merchandise inventory.
to expense in the amount of the 167. Trade accounts payable.
unexpired cost
A. Par value
B. Current cost of replacement
152. Which of the following accounts is affected by
C. Amount payable when due, less unamortized
the closing entries?
discount or plus unamortized premium
a. Asset accounts
D. Amount payable when due
b. Capital accounts
E. Market value at statement of financial position
c. Liability accounts
date
d. None of the choices
F. Net realizable value
G. Lower of cost or net-realizable value
153. When business operations result in a profit, the H. Original cost less accumulated amortization
Income Summary account is I. Original cost less accumulated depletion
a. Not used at all J. Original cost less accumulated depreciation
b. Used for adjusting entries K. Historical cost
c. Debited and the capital account is credited L. Unexpired or unconsumed cost
d. Credited and the capital account is debited

Problem 2. Typical statement of financial position

154. Which of the following accounts would not be classifications are as follows.
subject to a closing entry?
a. Gain on sale of equipment A. Investments
b. Gain on sale of treasury shares B. Plant Assets
c. Gain on sale of investment in debt C. Intangible Assets
securities D. Other Assets
d. Gain on extinguishment of financial E. Current Assets
liabilities F. Share Capital
G. Share Premium
155. Reversing entries are done

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FINANCIAL ACCOUNTING AND REPORTING GEORGE R. JAMES, CPA

H. Retained Earnings
I. Non-Current Liabilities
J. Current Liabilities
K. Notes to Financial Statements
L. Not Reported on Statement of Financial
Position

Indicate by use of the above letters how each of the

following items would be classified on a statement of
financial position prepared at December 31, 2022. If a
contra account, or any amount that is negative or
opposite the normal balance, put parentheses around
the letter selected. A letter may be used more than
once or not at all.

168. Accrued salaries and wages

169. Rental revenues for 3 months collected in advance
170. Land used as plant site
171. Equity securities classified as trading
172. Cash
173. Accrued interest payable due in 30 days
174. Share premium–preference shares
175. Dividends in arrears on preference Shares
176. Petty cash fund
177. Ordinary shares
178. Bond indenture covenants
179. Allowance for doubtful accounts
180. Accumulated depreciation
181. Goodwill
182. 90-day notes payable
183. Investment in bonds of another company; will be
held to 2025 maturity
184. Land held for speculation
185. Death of company president
186. Current maturity of bonds payable
187. Trade accounts payable
188. Preference shares (P10 par)
189. Prepaid rent for next 12 months
190. Copyright
191. Accumulated amortization, patents
192. Earnings not distributed to shareholders

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Problem 3 (Adapted) REQUIRED:

3. What amount should be reported as current assets on
The relevant accounts and adjusted balances shown below December 31, 2022?
were taken from Auckland Company’s trial balance on
December 31, 2022. 4. What amount should be reported as current liabilities
on December 31, 2022?
Cash deposit in banks P 600,000
Gold bullion deposited in banks 4,000,000 5. What is the net income for 2022?
Trade accounts receivable 2,800,000
Investment in debt instruments 6,000,000 6. What amount should be reported as total shareholders’
Investment in equity instruments 3,200,000 equity on December 31, 2022?
Investment in equity instruments,
with significant influence 4,800,000
Prepaid expenses 240,000 PROBLEM 5 (Adapted) – Comprehensive
Finance lease obligation 500,000
Deferred revenue 240,000 The following statement of financial position was prepared
Trade payables 1,300,000 by the bookkeeper for Kraus Company as of December 31,
Provision for estimated litigation loss 840,000 2022.
Issued debt instrument 3,600,000
Issued equity instruments 4,800,000 Kraus Company
Statement of Financial Position
REQUIRED:
as of December 31, 2022
1. What total amount of financial instrument-assets
should Auckland Company report for the year 2022? Investments P 76,300
a. P 9,800,000 Equipment (net) 96,000
b. P12,600,000 Patents 32,000
c. P12,840,000 Inventories 57,000
d. P17,400,000 Accounts receivable (net) 52,200
Cash 80,000
2. What total amount of financial instrument-liabilities TOTAL P393,500
should Auckland Company report for the year 2022?
a. P1,300,000 Shareholders' equity P218,500
b. P3,600,000 Non-current liabilities 100,000
c. P4,900,000 Accounts payable 75,000
d. P3,740,000 TOTAL P393,500

The following additional information is provided:

Problem 4 (Adapted) – Comprehensive Problem 1. Cash includes the cash surrender value of a life
insurance policy P9,400, and a bank overdraft of
The following trial balance of an entity on December 31, P2,500 has been deducted.
2022 has been adjusted except for income tax expense.
2. The net accounts receivable balance includes:
Cash P6,000,000 (a) accounts receivable—debit balances P60,000;
Accounts receivable 14,000,000 (b) accounts receivable—credit balances P4,000;
Inventory 10,000,000 (c) allowance for doubtful accounts P3,800.
Property, plant and
equipment 25,000,000 3. Inventories do not include goods costing P3,000
Accounts payable P9,000,000 shipped out on consignment. Receivables of P3,000
Income tax payable 6,000,000 were recorded on these goods.
Preference share capital 3,000,000
Ordinary share capital 15,000,000 4. Investments include investments in share capital–
Share premium 4,000,000 ordinary, trading P19,000 and available-for-sale
Retained earnings –
P48,300, and franchises P9,000.
January 1 9,000,000
Net sales and other
revenue 80,000,000
5. Equipment costing P5,000 with accumulated
Cost of goods sold 48,000,000 depreciation P4,000 is no longer used and is held for
Expenses 12,000,000 sale. Accumulated depreciation on the other equipment
Income tax expense 11,000,000 __________ is P40,000.
P126,000,000 P126,000,000
REQUIRED:
During the year, estimated tax payments of P5,000,000 7. Prepare a statement of financial position in good form
were charged to income tax expense. The tax rate is 30% (shareholders' equity details can be omitted.)
on all types of revenue. Inventory and accounts payable
included goods purchased in transit, FOB destination,
costing P500,000, and unsold goods held on consignment PROBLEM 6 – Working Capital.
at year-end, costing P300,000. The perpetual system is
used. The preference share capital is redeemable Earl’s Auto Repair Company provided the following data on
mandatorily on December 31, 2023. December 31, 2022:

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Manila
Enhancement in Financial Accounting and Reporting

FINANCIAL ACCOUNTING AND REPORTING GEORGE R. JAMES, CPA

Cash P2,000,000 11. How much should be reported in Basic’s December 31,
Accounts receivable 3,000,000 2022 statement of financial position as current and
Inventory 1,900,000 non-current liabilities, respectively?
Prepaid expenses 100,000 a. P1,552,000 and P1,104,000
Accounts payable, net of debit b. P1,732,000 and P1,296,000
balance of P50,000, 2,450,000 c. P1,832,000 and P1,280,000
Interest payable 150,000 d. P1,832,000 and P1,296,000
Income tax payable 300,000

Money claim of the union pending PROBLEM 8 – Classification

final decision 500,000
Mortgage payable, due in four annual At December 31, 2021, Vander Company’s liabilities include
installments 2,000,000 the following:

The cash of P2,000,000 included cash in bank of
P1,650,000, a customer check of PI00,000 marked NSF, an
employee IOU of P50,000 and P200,000 deposited with the
court for a case under litigation. The cash in bank of
P1,650,000 is the balance per bank statement. On
December 31, 2022, outstanding checks amounted to
P250,000.
The accounts receivable of Earl included the following:
Customers' debit balances P1,600,000
Advances to subsidiary 400,000
Advances to suppliers 200,000
Receivable from E. Garcia, officer 300,000
Allowance for doubtful accounts (100,000)
Selling price of merchandise invoiced
at 120% of cost, undelivered and
excluded from inventory 600,000
REQUIRED:
8. What amount should be reported as total current
assets?
9. What amount should be reported as total current
liabilities?
PROBLEM 7 – Current/Non-Current
The accounts and balances shown below were taken from
Boombox Company’s trial balance on December 31, 2022.
Assume that all needed adjusting entries have been made.
Wages Payable, P500,000; Cash, P350,000; Bonds
Payable, P1,200,000; Dividends Payable, P280,000;
Prepaid Rent, P272,000; Inventory, P1,640,000;
Investment in - Sinking Fund Assets, P1,050,000;
Investment in FVPL, P306,000; Premium on Bonds
Payable, P96,000; Investment in Subsidiary, P2,040,000;
Taxes Payable, P456,000; Accounts Payable, P496,000;
Accounts Receivable, P732,000; Property, Plant, &
Equipment, P2,400,000; Patents–net, P300,000;
Accumulated Depreciation–PPE, P800,000; Land held for
future business site, P1,800,000.
REQUIRED:
10. How much should be reported in Boombox Company’s
December 31, 2022 statement of financial position as
current and non-current assets, respectively?
a. P3,300,000 and P4,750,000
b. P3,300,000 and P6,790,000
c. P3,600,000 and P4,450,000
d. P3,600,000 and P7,590,000
a. A 10%, P4 million note payable due on March 31, 2026.
A debt covenant requires Vander to maintain current
assets at least equal to 150% of its current liabilities.
On December 31, 2021, Vander is in violation of this
covenant. On the same date, Vander obtained a waiver
until June 2022, from Billmoko Bank, having convinced
the bank that the company’s normal current ratio of
2:1 will be re-established during the first half of 2022.
b. P18 million of non-cancelable 13% bonds issued at face
value on September 30, 2012. The bonds mature on
August 31, 2022.
Sufficient cash is expected to be available to retire the
bonds at maturity.
c. P30 million of 10% bonds issued for P30 million on
June 30, 2002. The bonds mature on June 30, 2026,
but bondholders have the option of calling the bonds
on June 30, 2022.
It is probable that the bondholder will be exercising
their option on the said date.
d. P14 million in short-term commercial papers. On
December 31, 2021, Vander intends to refinance the
commercial paper by issuing long-term debt. However,
because of existence of excess cash, P6 million of these
liabilities were liquidated in February, 2022.
On March 1, 2022, Vander issued P18 million of long-
term bonds, the proceeds of which were used as
follows:
(1) P6 million for replenishing working capital (due to
the payment of the P6 million in February, 2022);
(2) P8 million paid for the remaining balance of the
commercial paper due within the year
(3) P4 million for acquisition of new equipment.
Vander’s December 31, 2021 year-end financial
statements were issued on March 13, 2022.
REQUIRED:
12. What is the classification of debt callable by the
creditor?
A. Current liability
B. Noncurrent liability
C. Current liability if the creditor intends to call the
debt within one year.
D. Current liability if it is probable that the creditor
will call the debt within one year. FA 2 © 2014

13. How much from the items above (a – d) should be

presented as current?

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 Lyceum of the Philippines University
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Enhancement in Financial Accounting and Reporting

FINANCIAL ACCOUNTING AND REPORTING GEORGE R. JAMES, CPA

a. P33,000,000 19. What net amount in OCI should be presented as “may

b. 18,000,000 not be recycled to profit or loss?
c. 11,000,000 20. What amount should be reported as net income?
d. 9,000,000 21. What amount should be reported as comprehensive
income?

PRESENTATION OF THE FINANCIAL STATEMENTS PRESENTATION OF THE FINANCIAL STATEMENTS

Statement of Comprehensive Income Statement of Changes in Equity

Problem 9 (Adapted) – Common Computations PROBLEM 11 (Adapted)

Mount lsarog Company provided the following data for the Braza Company provided the following information on
current year: December 31, 2022:

Retained earnings, January 1 P3,000,000 Share capital P6,000,000

Dividends 1,000,000
Share premium 3,500,000
Sales 8,350,000 Cumulative translation adjustment –
Dividend income 100,000 debit 2,000,000
Inventory, January 1 1,040,000
Changes translation adjustment –
Purchases 3,720,000
debit 600,000
Salaries 1,540,000
Contribution to employees' pension fund 280,000 Treasury shares, at cost 700,000
Delivery 205,000 Retained earnings 1,500,000
Miscellaneous expense 125,000 Cumulative unrealized gain on option
Doubtful accounts expense 10,000 contract designated as cash flow
Depreciation expense 85,000 hedge 600,000
Loss on sale of securities 40,000 Unrealized gain on option contract
Loss on inventory write-down 150,000 designated as fair value hedge 500,000
Income tax 735,000
REQUIRED:
Inventory on December 31 was valued at P700,000 22. What is the shareholders’ equity on December 31,
(P850,000 less P150,000 write-down of obsolete 2022?
inventory).

REQUIRED: PROBLEM 12 – Total distribution costs

14. What is the cost of goods sold?
15. What is the income from continuing operations? Brock Company reported operating expenses in two
16. What is the balance of retained earnings on categories, namely distribution and general and
December 31? administrative. The adjusted trial balance at year-end
included the following expense and loss accounts for
current year:
PROBLEM 10 (Adapted) – Common Computations
Accounting and legal fees P1,200,000
An entity reported the following data for the current year: Advertising 1,500,000
Freight out 800,000
Net sales P 9,500,000 Interest 700,000
Cost of goods sold 4,000,000 Loss on sale of long-term investment 300,000
Selling expenses 1,000,000 Officers' salaries 2,250,000
Administrative expenses 1,200,000 Rent for office space 2,200,000
Interest expense 700,000 Sales salaries and commissions 1,400,000
Gain from expropriation of land 500,000
Income tax 800,000 One-half of the rented premises is occupied by the sales
Income from discontinued operations 600,000 department.
Unrealized gain on equity investment at
FVOCI 900,000 REQUIRED:
Unrealized loss on futures contract 23. What amount should be reported as total distribution
designated as a cash flow hedge 400,000 costs?
Increase in projected benefit obligation
due to actuarial assumptions
300,000
Foreign translation adjustment – debit 100,000 PROBLEM 13 General & administrative expenses
Revaluation surplus 2,500,000
Lee Company reported the following data for the current year:
REQUIRED:
17. What amount should be reported as income from Legal and audit fees P1,700,000
continuing operations? Rent for office space 2,400,000
18. What net amount should recognized in other Interest on inventory loan 2,100,000
comprehensive income for the year? Loss on abandoned data processing equipment 350,000

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Enhancement in Financial Accounting and Reporting

FINANCIAL ACCOUNTING AND REPORTING GEORGE R. JAMES, CPA

Salaries of sales
The office space is used equally by the sales and personnel 670,000
accounting departments. Interest expense 340,000
Advertising
REQUIRED: expense 320,000
24. What amount should be classified as general and Research and
administrative expenses? development
expense 180,000
Directors'
remuneration 2,000,000
PROBLEM 14 (Adapted) – Reconstruction Cases
Salaries of
administrative
Case 1: Mang-Inasal Company showed cost of goods sold personnel 520,000
of P4,320,000 in its statement of comprehensive income
Rent expense 280,000
after the first year of operations. The total manufacturing cost Depreciation
comprised 50% materials used, 30% direct labor incurred, and expense 160,000
20% manufacturing overhead. Goods in process at year-end Commission
were 10% of the total manufacturing cost. Finished goods at expense 1,100,000
year-end amounted to 20% of the cost of goods Impairment loss
manufactured. on financial
assets 190,000
REQUIRED: Insurance
25. What is the amount of the direct labor cost incurred? expense 50,000
Income tax
expense 2,000,000
Case 2: Tactful Company reported that the operating Unrealized gain
expenses other than interest expense for the current year on equity
amount to 40% of cost of sales but only 20% of sales. securities -FVOCI 200,000
Gain on change
Interest expense is 5% of sales. The amount of
in fair value -
purchases is 120% of cost of sales. Ending inventory is
Cash flow hedge 30,000
twice as much as the beginning inventory. The income
after tax of 30% for the current year is P560,000. Totals P15,510,000 P22,730,000

REQUIRED: Additional Information:

26. What is the amount of sales for the current year? • Ending inventory amounts to P1,200,000.
• One-half of the rent expense pertains to the sales
department.
Case 3: Ronalyn Company reported that the financial • The impairment loss on financial assets pertains to
records were destroyed by fire at the end of the current impairment of receivables recognized on contract with
year. However, certain statistical data related to the income customers.
statement are available. • The items of other comprehensive income are net of
tax.
Interest expense P20,000 • The gain on change in fair value on the cash flow hedge
Cost of goods sold 2,000,000 represents the effective portion.
Sales discount 100,000
REQUIRED:
The beginning inventory was P400,000 and decreased 20% 28. Prepare the statement of profit or loss and other
during the year. Administrative expenses are 25% of cost of comprehensive income of ABC Co. using the single
goods sold but only 10% of gross sales. Four-fifths of the statement presentation and the function of
operating expenses relate to sale activities. expense method. Make a proper heading for the
financial statement. Apply the general feature of
REQUIRED: “materiality and aggregation.”
27. Ignoring income tax, what is the net income for the
current year?
Additional Material:
Cash to Accrual and Single Entry Records
PROBLEM 15 (Adapted) – Function of expense
method PROBLEM 16 (Adapted and Modified)

The records of ABC Co. on December 31, 2022 show the Sakura Corporation uses the cash basis of accounting.
following information: Sakura collected P1,400,000 from its customers during the
year. The company had P100,000 in Accounts Receivable
Debits Credits at the beginning of the year, and P180,000 in Accounts
Sales P22,000,000 Receivable at the end of the year. Sakura also had
Beginning P40,000 and P50,000 of allowance for bad debts at the
inventory P1,700,000 beginning and at the end of the year, respectively.
Purchases 5,600,000
Purchase returns 500,000 Required: Solve for the following—
Freight in 400,000 29. Sakura’s Sales Revenue under the accrual basis of
accounting

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Enhancement in Financial Accounting and Reporting

FINANCIAL ACCOUNTING AND REPORTING GEORGE R. JAMES, CPA

Accounts
30. Sakura’s Sales Revenue under the accrual basis of payable 12,000 15,000
accounting assuming that the company wrote-off Wages
P30,000 of its accounts during the year and recovered payable 5,000 3,000
P10,000 from previously written-off accounts
The following cash flow information are also available:
31. Sakura’s Sales Revenue under accrual basis of a. Cash collected from credit customers amounted to
accounting assuming that the company had sales P80,000
discount amounting to P50,000 and sales returns (all
before collection) amounting to P70,000 b. Cash paid for insurance amounted to P5,000.

c. Cash paid to suppliers of inventories amounted to

PROBLEM 17 (Adapted and Modified) P60,000. The accounts payable account pertains to
purchase of inventories.
MENAT Company uses the cash basis accounting. The
company made P1,000,000 in payments to its suppliers d. Cash paid to employees for salaries amounted to
during the year. Menat’s beginning inventory was P10,000
P40,000, and its ending Inventory was P70,000.
Moreover, Menat had a beginning Accounts Payable of Required: Solve for the following, under the accrual
P100,000 and an ending Accounts Payable of P140,000. basis of accounting—
36. Sales Revenue

Required: Solve for the following— 37. Purchases

32. Menat’s purchases for the year under the accrual
basis of accounting 38. Cost of Goods Sold

33. Menat’s cost of goods sold for the year under the 39. Insurance Expense
accrual basis of accounting.
40. Wages Expense

PROBLEM 18 (Adapted and Modified) PROBLEM 20 (Adapted and Modified)

Under the accrual basis, rental income of VEGA COMPANY
for the calendar year 2022 is P1,200,000. VEGA also
acquires patent rights from other enterprises and pays
advance royalties in some cases, and in others, royalties
are paid within 90 days after year-end. During 2022,
Vega remitted royalties of P900,000. The following data
are included in Vega’s December 31, balance sheets:
The Fei Long Corporation began operations in 2022. The
company purchases computer equipment from
manufacturers and then sells to retail stores. During
2022, the bookkeeper used a check register to record all
cash receipts and cash disbursements. No other journals
were used. The following is a summary of the cash
receipts and disbursements made during the year.

12.31.2021 12.31.2022 Cash receipts:

Unearned rental P100,000 P150,000 Sale of share capital P100,000
income Collections from customers 640,000
Accrued rent 60,000 80,000 Borrowed from a local bank 80,000
income Total cash receipts P820,000
Prepaid royalties 165,000 135,000
Royalties payable 240,000 225,000 Cash disbursements:
Purchase merchandise P440,000
Required: Solve for the following— Payment of salaries 160,000
34. Rental income under the cash basis of accounting Purchase of equipment 60,000
Payment of rent on building 28,000
35. Royalty expense under the accrual basis of accounting Miscellaneous expenses 20,000
Total cash disbursements P708,000

PROBLEM 19 (Adapted and Modified) You are called in to prepare the financial statements at
December 31, 2022. The following additional information
The selected balance sheet information for the Charlie were provided to you:
Nash Company at November 30, and December 31, 2022,
is presented below. The company uses the perpetual 1) Customers owed the company P44,000 at year
inventory system and all sales to customer were made on end. Of this amount, it was anticipated that
credit. P6,000 would probably not be collected. There
November 30 December 31 were no actual bad debt write-offs in 2022.
Debit Credit Debit Credit
Accounts P10,000 P3,000 2) At year end, P60,000 was still due to suppliers of
receivable merchandise purchased on credit.
Prepaid
insurance 5,000 7,500 3) At December 31, 2022, merchandise inventory
Inventory 7,000 6,000 costing P100,000 still remained on hand.

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Enhancement in Financial Accounting and Reporting

FINANCIAL ACCOUNTING AND REPORTING GEORGE R. JAMES, CPA

Decrease in accounts receivable P300,000

4) Salaries owed to employees at year-end Increase in accounts payable 400,000
amounted to P10,000. Increase in notes receivable 100,000
Increase in notes payable – trade and
5) On December 1, P6,000 in rent was paid to the non-trade 20,000
owner of the building used by Fei Long. This Accounts written off during the year 50,000
represented rent for the months of December Cash recovered from previous write-offs 10,000
2022 through February 2023. Increase in merchandise inventory 262,000

6) The borrowing from the bank was made April 1 Required: Solve for the following under the accrual
and a promissory note was signed, requiring basis—
principal and interest at 12% to be paid on March 51. Sales
31, 2023.
52. Purchases
7) The equipment, which has a 10-year life and no
salvage value, was purchased on January 1, 53. Cost of sales
2022. Straight-line depreciation is used.
54. Gross Profit
Required: Solve for the adjusted balances of the
following—
41. Sales Revenue PROBLEM 22 (Adapted and Modified)

42. Cost of Goods Sold Your audit of Pax Bisonica Company revealed that your
client kept very limited records. Purchases of merchandise
43. Salaries Expense were paid for by check, but most other items were paid
out of cash receipts. The company’s collections were
44. Rent Expense deposited weekly.

45. Profit No record was kept of cash in the bank, nor was a record
kept of sales. Accounts receivable were recorded only by
46. Total current assets keeping copy of tickets, and these copies were given to
the customers when paying their accounts.
47. Total non-current assets
Pax Bisonica started its operations on January 2, 2022 and
48. Total current liabilities issued 216,000 ordinary shares with 100 par, for cash,
P3,600,000; a building worth P32,400,000; and land worth
49. Total non-current liabilities P10,800,000. The building has a useful life of 15 years.

50. Total owners’ equity
PROBLEM 21 (Adapted and Modified)
Blanka Company is in retailing laundry supplies. The
company kept very limited records and most of the
company’s transactions are summarized in cash records.
Blanka Company presented to you the following
information, in line with your audit:
Total cash receipt from customers,
based on cash records P1,152,000
Proceeds from a bank loan (note
payable – non trade)
Total cash payments to suppliers, based
on cash records
Total cash payments for other operating
expenses
Credit memos issued, for returns and
allowances
Total refund for goods received as
returns, based on cash records
Sales discount
Credit memos received, for returns
Total refund for goods returned to
suppliers, based on cash records
Purchase discounts
An analysis of the bank statements showed total deposits,
including original cash investment, of P25,200,000. The
balance in the bank statement on December 31, 2022,
was P1,800,000. but there were checks amounting to
P360,000 dated in December but not paid by the bank
until January 2023. Cash on hand on December 31, 2022
was P900,000. This includes customers’ deposit of
P270,000.
During the year, Pax Bisonica borrowed P3,600,000 from
the bank and repaid P900,000 and P180,000 interest. In
addition, disbursements paid in cash during 2022 were as
follows: Utilities, P720,000; Salaries, P720,000; Supplies,
P1,440,000, and; Dividends, P1,080,000.
200,000
An inventory of merchandise taken on December 31, 2019
598,000 showed P5,436,000 of merchandise. The tickets for
accounts receivable totaled P6,480,000 but P360,000 of
288,000 that amount may prove uncollectible as of December 31,
2022. Unpaid supplier invoices for merchandise amounted
100,000 to P2,520,000.
50,000 Equipment with a cash price of P2,880,000 was purchased
80,000 in early January on one-year installment basis. During
90,000 2022, checks for the down payment and all maturing
installments totaled P3,204,000. The equipment has a
30,000 useful life of five years and is depreciated using the
60,000 straight-line method.

Further investigation revealed the following: Required: Solve for the following as of and for the year
ended December 31, 2022—

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 Lyceum of the Philippines University
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Enhancement in Financial Accounting and Reporting

FINANCIAL ACCOUNTING AND REPORTING GEORGE R. JAMES, CPA

55. Payments for merchandise purchases kitchen equipment of the Dakak restaurant and recognized
a pretax gain of PI5,000 on the disposal. The income tax
56. Collections from customers, including advances rate is 30%.

57. Total sales on accrual basis Required:

63. What amount should be reported as income or loss
58. Total purchases on accrual basis from discontinued operation for 2024?

59. Cost of goods sold

60. Profit for the year PRESENTATION OF THE FINANCIAL STATEMENTS

Statement of Cash Flows

PROBLEM 23: (Discontinued operations) PROBLEM 26 (Adapted) – Classifying transactions

into cash flow activities
Sky Company reported the following data for the current
year: REQUIRED: Classify the following cash flows according to
Income from continuing operations P700,000 activities: In case there are two possible related activities,
Net income 500,000 then identify the (BT) benchmark treatment vs (AT)
Selling and administrative expenses 2,250,000 alternative treatment
Income before income tax 1,000,000
256. Proceeds from issuance of debt and equity instrument
Required: 257. Payments to acquire trading securities
61. What amount should be reported as income or loss 258. Payments to acquire securities other than trading
from discontinued operations? securities
259. Payment to acquire PPE, intangibles and other long
term assets
PROBLEM 24 (Direct costs associated to decision to 260. Receipts from sale of goods, and rendering of services
dispose a component) 261. Payments to owners to acquire or redeem shares

On May 1, 2024, Harlet Company approved a plan to
dispose of a business segment. It is expected that the sale
will occur on March 31, 2025. On December 31, 2024, the
carrying amount of the assets of the segment was
P2,000,000 and the fair value less cost of disposal was
PI,800,000. During 2024, the entity paid employee
severance and relocation costs of P100,000 as a direct
result of the discontinued operation. The revenue and
expenses of the discontinued segment during 2024 were:
262. Receipts from royalties, fees, commission and other
revenues
263. Payment to acquire interest in joint ventures
264. Payment to suppliers for goods and services
265. Loans and advances to parties made by non-financial
entities
266. Payment by a lessee for a finance lease liability
267. Receipts from future, forward, option and swap
contracts

268. Interest payments to creditor

Revenue Expenses 269. Dividend payments to owners
January 1 to April 30 P1,500,000 P2,000,000 270. Interest received from debtors
May 1 to December 31 700,000 900,000 271. Dividend receipts from investees
272. Income tax payments and refunds
Required:
62. What amount should be reported as loss from the
discontinued segment for 2024? PROBLEM 27 (Adapted) – Indirect Method

Required: Identify the treatment of the following items in

PROBLEM 25 (Discontinued operations) the computation of operating cash flows using the
INDIRECT METHOD.
Jazz Company operates two restaurants, one in Boracay
and one in Dakak. The operations and cash flows of each Indicate (+) if added to net income, (-) if deducted from
of the two restaurants are clearly distinguishable. During net income or (0) if not considered to be considered at all:
2024, the entity decided to close the restaurant in Dakak
and sell the property. It is probable that the disposal will be 273. Depreciation of building
completed early next year. The revenue and expenses for 274. Impairment of held to maturities securities
2024 and for the preceding two years are as follows: 275. Increase in trade payables
276. Decrease in accounts receivable
277. Payment to interest on bond indebtedness
278. Increases in inventories

279. Decrease in trade accrued expenses

280. Depletion of wasting assets
281. Receipt of dividend from associate
The other expenses do not include income tax expense. 282. Amortization of bond discount (bonds payable)
During the latter part of 2024, the entity sold some of the 283. Loss on sale of property
284. Gain of sale of long term investment

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Enhancement in Financial Accounting and Reporting

FINANCIAL ACCOUNTING AND REPORTING GEORGE R. JAMES, CPA

B. 745,000
C. 1,125,000
PROBLEM 28 (Adapted) – Operating Activities – D. 1,870,000
Direct Method

Blacky Company reported the following information for the PROBLEM 31 (Adapted) – Investing Activities
current year:
Riverside Company provided the following information for
Sales 2,800,000 the current year:
Cost of goods sold 1,000,000
Distribution costs 400,000 • Purchased a building for P1,200,000. Paid P400,000
Administrative expenses 350,000 and signed a mortgage with the seller for the
Depreciation 250,000 remaining P800,000.
Interest expense 80,000
Income tax expense 280,000 • Executed a debt-equity swap and replaced a P600,000
loan by giving the lender ordinary shares worth
All sales were made for cash and all expenses other than P600,000 on the date the swap was executed.
depreciation and bond premium amortization of P20,000
were paid in cash. All current assets and current liabilities • Purchased land for PI,000,000. Paid P350,000 and
remained unchanged. issued ordinary shares worth P650,000.

REQUIRED: • Borrowed P550,000 under a long-term loan

285. What is the net cash provided by operating activities for agreement. Used the cash from the loan proceeds as
the current year? follows: PI50,000 for purchase of additional
A. 440,000 inventory, P3 00,000 to pay cash dividend, and PI00,000
B. 670,000 to increase the cash balance.
C. 690,000
D. 710,000 REQUIRED:
288. What amount should be reported as net cash used in
investing activities in the statement of cash flows?
PROBLEM 29 (Adapted) – Operating Activities – A. 400,000
Indirect Method B. 750,000
C. 1,200,000
White Company reported net income of P800,000 and D. 2,200,000
depreciation of P200,000 for 2024. All sales were for cash
except a P50,000 sale resulting in the acceptance of one-
year 12% note receivable and a P100,000 sale resulting in PROBLEM 32 (Adapted) – Financing Activities
the acceptance of a tract of land valued at P100.000.
Accrued salaries on December 31, 2023 and 2024 were During the current year, ABC Company had the following
P50,000 and P40,000 respectively. Interest expense activities related to financial operations:
included P5,000 of amortization of bond discount. Income
tax expense included P50,000 of deferred tax liability. Payment for the early retirement of long-term
bonds payable (carrying amount P7,400,000) 7,500,000
REQUIRED: Distribution in the current year cash dividend
286. What is the net cash provided by operating activities declared in prior year to preference shareholders 620,000
for the current year? Carrying amount of convertible preference shares
A. 695,000 converted into ordinary shares 1,200,000
B. 895,000 Proceeds from sale of treasury shares
C. 935,000 (carrying amount at cost, P860,000) 950,000
D. 1,045,000
REQUIRED:
289. In the statement of cash flows for the current year, what
PROBLEM 30 (Adapted) – Operating Activities – amount should be reported as net cash used in
Indirect Method financing activities?
A. 5,350,000
Rainbow Company reported the following information in the B. 5,970,000
financial statements for the current year: C. 7,160,000
D. 7,170,000
Capital expenditures 1,000,000
Finance lease payments 125,000
Income taxes paid 325,000 PROBLEM 33 (Adapted)
Dividends paid 200,000
Net interest payments 220,000 Megamall Company gathered the following information
about changes which took place during the current year:
REQUIRED:
287. What total amount should be reported as supplemental Cash (150,000)
disclosures in the statement of cash flows prepared Accounts receivable, net 300,000
using the indirect method? Inventory 1,500,000
A. 545,000 Property, plant and equipment 500,000

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Enhancement in Financial Accounting and Reporting

FINANCIAL ACCOUNTING AND REPORTING GEORGE R. JAMES, CPA

Accumulated depreciation (180,000) B. I, III, IV and II

Intangible asset, net of amortization 275,000 C. I, IV, II and III
Accrued expenses (50,000) D. I, IV, III and II
Accounts payable (320,000)
Note payable - short-term debt (700,000) 295. The presentation of the notes to financial statements
Bonds payable (250,000) in a systematic manner
Ordinary share capital, PI0 par (125,000) A. Depends on the industry
Share premium (200,000) B. Is mandatory
Retained earnings (600,000) C. Is voluntary
D. Is mandatory, as far as practicable
Equipment which had originally cost P200,000 and had a
carrying amount of zero was tin-own away. Equipment with 296. Close family members of an individual include all of the
a cost of P150,000 and accumulated depreciation of following, except
P100,000 was sold for P50,000. Some new equipment was A. Children of the individual's spouse
purchased during the year. An intangible asset was B. The individual's spouse and children
acquired during the year for 25,000 ordinary shares. Each C. Brothers and sisters of the individual
share was selling for P13 at that time. The entity retired D. Dependents of the individual or individual's
P2,500,000 of 10% bonds at par and issued P2,750,000 of spouse
8% bonds at par. The income statement reported revenue
of P7,000,000 and expenses of P5,000,000. 297. Which of the following is not a related party?
A. A director of the entity
REQUIRED: B. The parent of the entity
290. What is the net cash provided by operating activities? C. The son of the chief executive officer of the entity
A. 1,000,000 D. A shareholder of the entity that holds 1% stake
B. 1,050,000 in the entity
C. 1,100,000
D. 1,800,000
Problem 34 (Order of presenting the notes)
291. What is the net cash used in investing activities?
A. 800,000 The following are typical disclosures that would appear in
B. 850,000 the notes to financial statements. For each of the following
C. 900,000 item listed, indicate were the disclosure would likely
D. 950,000 appear. Use the letter corresponding to the following
items.
292. What is the net cash used in financing activities?
A. 125,000 (A) Summary of significant accounting policies.
B. 250,000 (B) Supporting information for items presented on the face
C. 450,000 of the financial statements.
D. 950,000 (C) Other Disclosures

298. Merger after the accounting period.

PRESENTATION OF THE FINANCIAL STATEMENTS
Notes to the Financial Statements
293. Which of the following statements in relation to the
standard of adequate disclosure is true?
I. In complying with the standard of adequate
disclosure, accountants are guided by the
doctrine that more information is always better
than less.
II. Adequate disclosure is concerned not only with
the kind of information contained in financial
statements but also with the manner in which
that information is presented.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
294. Indicate the proper order of presenting the notes to
financial statements.
I. Statement of compliance with PFRS
II. Other disclosures, such as contingent liabilities,
unrecognized contractual commitments and
nonfinancial disclosures.
III. Supporting information for items presented on
the face of the financial statements.
IV. Summary of significant accounting policies.
A. I, II, III and IV
299. Criteria used by the company to determine instruments
classified as cash equivalents.
300. Significant leasing arrangements entered during the
reporting period.
301. Measurement bases for different classes of property,
plant, and equipment.
302. Composition of property, plant, and equipment.
303. Lawsuit filed against the company after the reporting
period.
304. Useful lives of property, plant, and equipment.
305. Characteristics of asset classified as investment
property
306. Use of the FIFO to determine cost of inventory
307. Items comprising trade and other receivables
PROBLEM 35 (Date of authorization of the
financial statements)
Case 1: The preparation of the financial statements of
Excellent Corp. for the accounting period ended
December 31, 2025, was completed by the management
on March 15, 2026. The draft financial statements were
considered at the meeting of the board of directors held
on March 20, 2026, on which date the board approved
them and authorized them for issuance. The annual general
meeting (AGM) was held on April 10, 2026, after allowing

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 Lyceum of the Philippines University
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Enhancement in Financial Accounting and Reporting
FINANCIAL ACCOUNTING AND REPORTING
for printing and the requisite notice period mandated by
the corporate statute. At the AGM the shareholders
approved the financial statements. The approved
financial statements were filed by the corporation with
the Company Law Board (the statutory body of the
country that regulates corporations) on April 20, 2026.
Required:
308. Given these facts, what is the “authorization date” in
terms of IAS 10?
Case 2: Suppose in the above-cited case, the management
of Excellent Corp. was required to issue the financial
statements to a supervisory board (consisting solely of
nonexecutives including representatives of a trade union).
The management of Excellent Corp. had issued the draft
financial statements to the supervisory board on March 16,
2026. The supervisory board approved them on March
17, 2026, and the shareholders approved them in the
AGM held on April 10, 2026. The approved financial
statements were filed with the Company Law Board on April
20, 2026.
Required:
309. Would the new facts have any effect on the date of
authorization?
PROBLEM 36 (Types of events after the reporting
period)
Indicate ‘AE’ if the post-BS event is classified as an
Adjusting event; otherwise, indicate ‘NE’ (non-adjusting
event)
310. A debtor of the entity files for bankruptcy. The entity
has an outstanding accounts receivable from the
debtor.
311. Settlement of a pending lawsuit at an amount greater
than the provision recognized as of the end of reporting
period.
312. Declaration of dividends.
313. Sale of inventory which provides information that the
estimate of net realizable value as at the end of the
reporting period is understated.
314. Discovery of a prior period error.
315. Filing a lawsuit against the entity for an accident that
occurred after the end of the reporting period.
316. Building is razed by fire.
317. Sale of equipment at a loss which provides information
that the equipment’s carrying amount as at the end of
the reporting exceeds the recoverable amount.
318. Significant decline in the fair value of held for trading
securities.
319. Issuance of ordinary shares.
PROBLEM 37 (Accounting for adjusting events)
An entity reports total current assets of P3,000,000, total
noncurrent assets of P7,000,000, total liabilities of
P4,000,000, and profit of P2,000,000 for the year ended
December 31, 2021. The entity’s financial statements are
authorized for issue on April 3, 2022. The following events
took place after December 31, 2021:
a. Equipment with carrying amount of P300,000 was sold
for P380,000 on January 2, 2022. Because of the sale,
the entity included the equipment in the current assets
FINANCIAL ACCOUNTING AND REPORTING
GEORGE R. JAMES, CPA
section of the December 31, 2021 statement of
financial position. As of December 31, 2021, the
entity’s management has no plan on selling the
equipment. The sale is properly recorded in 2022.
b. A notice of collection was received from a bank on
January 31, 2022. Apparently, the debtor, defaulted in
its 3rd and 4th quarter payments in 2021. The bank is
collecting P500,000 from the entity.
c. The entity has an outstanding account payable of
USD1,000. The account payable was converted to its
peso equivalent of P40,000 using the exchange rate on
December 31, 2021. On February 16, 2022, the
exchange rate significantly increased to P60;USD1.
d. On March 1, 2022, the entity receives notice that its
loan application amounting to P2,000,000, which was
file on December 18, 2021, was approved. The loan is
a long-term loan.
e. A building with carrying amount of P1,200,000 at the
start of 2021 was inappropriately depreciated during
the year using an estimated useful life of 5 years
instead of 15 years. The entity uses the straight line
method of depreciation with no residual value.
Required: Compute for the following :
320. Adjusted current assets
321. Adjusted noncurrent assets
322. Adjusted liabilities
323. Adjusted equity
324. Adjusted profit
PROBLEM 38: (Separate and Consolidated financial
statements)
The following relates to the transactions of ABC Company
during 2021:
Directors and officers remuneration P 2,000,000
Post-employment benefits of officers 400,000
Fringe benefits in the form of housing
assistance to directors and officers 10,000,000
Share options granted to officers 600,000
Officers’ expenses on travels,
representation and entertainment
subject to liquidation and
reimbursement 200,000
Loans to directors and officers 6,000,000
Sales to related entities 20,000,000
Required:
325. Determine the amount of related party disclosures on
ABC’s (a) separate financial statements and (b) the
group’s consolidated financial statements.
PROBLEM 39 (Adapted) – Weighted Average
Number of Shares Outstanding
At the beginning of current year. Toyota Company had
100,000 ordinary shares outstanding. During the current
year, the following events occurred:
March 1 2 for 1 share split
June 1 Issued 30,000 additional shares
September 1 20% stock dividend
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Enhancement in Financial Accounting and Reporting

FINANCIAL ACCOUNTING AND REPORTING GEORGE R. JAMES, CPA

2023, the entity issued 400,000 noncumulative and

Required: nonconvertible preference shares. During 2023, the entity
326. What is the weighted average number of shares declared and paid P200,000 cash dividend on the ordinary
outstanding for the year? share and P110,000 annual dividend on the preference
share. Net income for 2023 was P750,000.

PROBLEM 40 (Adapted) – Weighted Average REQUIRED:

Number of Shares Outstanding 331. What amount should be reported as basic earnings per
share?
Illiad Company provided the following share transactions for
the current year:
PROBLEM 44 (Adapted) – Basic Earnings Per Share
January 1 Shares outstanding 44,000
February 1 Issued for cash 56,000 Yaso Company showed the following information for 2021:
May 1 Acquired treasury shares 25,000
August 1 25% stock dividend Income from continuing operations 3,765,000
September 1 Resold treasury shares 10,000 Loss from discontinued operations ( 540,000)
November 1 Issued 3 for 1 share split Net income 3,225,000
Retained earnings - January 1 1,000,000
REQUIRED: Dividends paid on 12% preference shares (120,000)
327. What is the weighted average number of shares Dividends paid on ordinary shares ( 700,000)
outstanding for the year? Retained earnings - December 31 3,405,000

On December 31,2021, the entity had outstanding 140,000

ordinary shares, and 10,000 preference shares with P100
PROBLEM 41 (Adapted) – Weighted Average par value. On April 1, 2021, the entity issued 20,000
Number of Shares Outstanding ordinary shares.
REQUIRED:
Jupiter Company had 250,000 ordinary shares outstanding 332. What amount should be reported as basic earnings per
at the beginning of 2022. share?

March 1, 2022 Sold 24,000 shares

July 1, 2022 Issued a 20% stock dividend PROBLEM 45 (Adapted) – Basic loss per share
October 1, 2022 Sold 16,000 shares
December 1, 2022 Purchased 15,000 treasury During the current year, Innova Company had outstanding
shares 200,000 ordinary shares and 20,000 cumulative preference
June 1, 2023 Issued a 3 for 1 share split shares with a P10 per share dividend. Each preference
September 1, 2023 Sold 60,000 shares share is convertible into five ordinary shares. The entity had
a P3,000,000 net loss for the year. No dividends were paid
or declared.
REQUIRED:
328. What is the weighted average number of shares for REQUIRED:
2022 for comparative financial statements at the end 333. What is the amount of basic loss per share?
of 2023?
329. What is the weighted average number of shares for
2023 for comparative financial statements at the end
of 2023? PROBLEM 46 (Adapted) – With stock rights
exercised

PROBLEM 42 (Adapted) – Cumulative Preference
Shares
On December 31, 2023 and 2022, Grow Company had
100,000 ordinary shares and 10,000 cumulative preference
shares of 5%, P100 par value. No dividends were declared
on either the preference or ordinary share in 2023 or 2022.
Net income for the current year was P900,000.
On January 1, 2022, Gina Company had 300,000 ordinary
shares outstanding, P100 par or a total par value of
P30,000,000. During 2022, the entity issued rights to
acquire one ordinary share at P100 in the ratio of one share
for every 5 rights held. The rights are exercised on March
31, 2022. The market value of each ordinary share
immediately prior to March 31, 2022 was P160. The net
income for the year was P6,000,000.

REQUIRED: REQUIRED:
330. What amount should be reported as basic earnings per 334. What amount should be reported as basic earnings per
share? share?

PROBLEM 43 (Adapted) – Non-cumulative PROBLEM 47 (Adapted) – Preference Shares

Preference Shares
Malaya Company had 500,000 ordinary shares issued and
outstanding on December 31, 2022. During 2023, no
additional ordinary shares were issued. On January 1,
During 2022, Bala Corporation had the following two classes
of share capital issued for the entire year:
• 200,000 ordinary shares, P1 par.

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Enhancement in Financial Accounting and Reporting

FINANCIAL ACCOUNTING AND REPORTING GEORGE R. JAMES, CPA

• 2,000 of 4% cumulative, preference shares, P100 par,
convertible share for a share into ordinary share.
Bay’s 2022 profit was P1,800,000 and its income tax rate
for the year was 35%.
permitting them to acquire 6,000 ordinary shares at P9 per
share. At the time of the issuance, an ordinary share was
selling for P9. The market price of ordinary share was P23
on September 1, 2022, and the average price for 2009 was
P25.

REQUIRED: Computation of – Profit for 2022 was P156,700. Terms of the option make
335. Basic earnings per share them currently exercisable. On September 1, 2022, options
336. Diluted earnings per share to acquire 2,000 shares were exercised. The other 4,000
337. Assume that the dividend rate on the preference shares options are still outstanding at December 31, 2022.
is 12% instead of 4%, what are the basic and diluted
earnings per share? REQUIRED:
340. Computation of the basic and diluted earnings per
share for the year ended December 31, 2022.
PROBLEM 48 (Adapted) – Convertible Bonds 341. Assume that all of the share options were exercised on
September 1, 2022, determine the basic earnings per
Case 1: On January 1, 2021, Virgilio Company issued share for the year 2022.
4,000,000 convertible bonds at face value of P10 or a total
of P40,000,000. The bonds mature in 3 years and can be
converted into two ordinary shares for each bond. The PROBLEM 50 (Adapted) – Multiple Potential
entity can settle the principal amount of the bonds in Ordinary Shares:
ordinary shares or in cash but the entity is likely to settle
the contract by issuing shares. Camarines Company reported the following capital
structure on December 31, 2021:
When the bonds are issued, the interest rate for a similar
debt without conversion rights is 10% and the market value Ordinary share capital 110,000 shares
of an ordinary share is P4. The profit attributable to ordinary Convertible noncumulative
shareholders for 2013 is P33,000,000 and there are preference share capital 20,000 shares
10,000,000 ordinary shares outstanding during the current 10% convertible bonds payable P2,000,000
year. The income tax rate is 30%. The proceeds from the
issuance of the bonds are allocated as follows: Share options to purchase 20,000 shares at P15 were
outstanding. Market price of Camarines share was P22 at
Liability component 30,000,000 December 31, 2021 and averaged P20 during the year. No
Equity component 10,000,000 value was assigned to the share options. The entity paid the
Total proceeds 40,000,000 annual dividend of P5 on the preference share. The
preference shares are convertible into 40,000 ordinary
REQUIRED: shares. The 10% bonds are convertible into 30,000 ordinary
338. What amount should be reported as diluted earnings shares. The net income for 2021 is P650,000. The income
per share? tax rate is 30%.

REQUIRED:
Case 2: On June 30, 2021, Lanta, Inc. issued twenty What amount should be reported as diluted earnings per
P100,000, 7% bonds at face value. Each bond was share?
convertible into 200 ordinary shares. On January 1, 2022,
10,000 ordinary shares were outstanding. The bondholders
converted all the bonds on July 1, 2022. On the bonds’
issuance date, the average bond yield was 7%, hence, the
bonds were assigned an issue price equal to face value. The
following amounts were reported in Lanta’s statement of
comprehensive income for the year ended December 31,
2022.

Revenues P9,808,500
Operating expenses 9,200,000
Interest on bonds 70,000
Income before tax 538,500
Income tax at 35% 188,475
Net income P 350,025

REQUIRED:
339. Computation of the basic and diluted earnings per
share for 2022.

PROBLEM 49 (Adapted) – Stock Options

As of January 1, 2022, the Laban Company had 30,000 of

P5 par ordinary shares outstanding. The company had
issued share options in 2021 to its management personnel

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