THEORY QUESTIONS b) Assets increase by P20,000; Equity increase by P20,000

1. The American Institute of Certified Public Accountants defines accounting as: c) Liabilities increase by P20,000; Equity increase by P20,000
a) The art of recording, classifying, and summarizing, in a significant manner d) Assets decrease by P20,000; Liabilities increase by P20,000
and in terms of money, transactions and events which are, in part at least, of
12. What is the purpose of the chart of accounts in accounting?
a financial character, and interpreting the results thereof.
a) To list all financial transactions
b) The process of recording financial transactions pertaining to a business.
b) To create financial statements
c) Accounting is the language of business, providing essential insight into a
c) To provide a framework for organizing accounts
company’s financial health.
d) To calculate the net income
d) The process of recording financial transactions pertaining to a business. The
accounting process includes summarizing, analyzing, and reporting these 13. What is the purpose of a subsidiary ledger?
transactions to oversight agencies, regulators, and tax collection entities. a) To record all journal entries
b) To provide a detailed breakdown of accounts in the general ledger
2. The primary users of financial information include all of the following except:
c) To prepare the income statement
a) Existing shareholders
d) To calculate the net profit margin
b) Existing creditors
c) Potential shareholders. 14. If a company overstates its revenue in recording the journal entry, what will be the
d) All of them are primary users. impact on the trial balance?
a) Trial balance will still balance
3. This refers to a common set of accounting rules, standards, and procedures issued
b) Trial balance will not balance
by the Standard governing body.
c) Assets will be understated
a) Generally Accepted Accounting Principles
d) Liabilities will be understated
b) International Financial Reporting Standards
c) Interpretations 15. If a company omits the amount in the credit entry in recording the journal entry of
d) National International Revenue Code a credit sale, what will be the impact on the trial balance?
a) Trial balance will still balance
4. _________ depicts the effects of transactions and other events and circumstances
b) Trial balance will not balance
on a reporting entity’s economic resource and claims in the periods in which those
c) Assets will be understated
effects occur, even if the resulting cash receipts and payments occur in a different
d) Liabilities will be understated
period.
a) Going concern assumption 16. If a company omits the amount in the debit and credit entry in recording the journal
b) Revenue recognition entry of a purchase on account, all the following will impact the trial balance
c) Accrual accounting except:
d) Business entity theory a) Trial balance will still balance
b) Trial balance will not balance
5. According to the revised Conceptual Framework, the objective of general-purpose
c) Assets will be understated
financial reporting is
d) Liabilities will be understated
a) To provide financial information about the reporting entity’s assets,
liabilities, equity, income, and expenses that is useful to users of financial 17. Which of the following is NOT typically found in a general ledger?
statements in assessing the prospects for future net cash inflows to the a) Trial balance
reporting entity and in assessing management’s stewardship of the entity’s b) Chart of accounts
economic resources. c) Journal entries
b) To provide financial information about the reporting entity that is useful to d) Financial statements
existing and potential investors, lenders, and other creditors, in making
decisions, relating to providing resources to the company. 18. What is the primary purpose of a journal in accounting?
c) Both A and B. a) To summarize financial transactions
d) Neither A and B. b) To record transactions in chronological order
c) To prepare financial statements
6. S1: Going concern assumption means that financial statements are normally d) To calculate the balance sheet
prepares on the assumption that the reporting entity is a going concern and will
continue in operation for the unforeseeable future. 19. All of the following have a normal balance of a debit except:
S2: An information is considered to be relevant if it is capable of making a a) Assets
difference in the decision of the user of financial information. b) Expenses
a) Both statements are true c) Losses
b) Both statements are false d) Gains
c) Only statement 1 is true
d) Only statement 2 is true 20. _______ is issued by the seller to the buyer as written evidence on sale of services
or leasing of properties, as well as acknowledgement on collection of cash payment
7. The revised Conceptual Framework refers to the changes in economic resources on services rendered.
and claims, reflecting financial performance as the following: a) Official receipts
a) Assets and Liabilities b) Sales invoice
b) Income and Expenses c) Receiving Report
c) Liabilities and Equity d) Purchase order
d) Gains and losses Cap Shift
21. S1: The last step in the accounting process is to prepare financial statements.
8. It is referred to as the removal of all or part of a recognized asset or liability from S2: Recording of reversal entries is a required step to complete the accounting
an entity's statement of financial position. It occurs when an item no longer meets process.
the definition of an asset or of a liability. S3: Closing entries includes closing of all nominal accounts such as income,
a) Deconsolidation expenses, and liabilities.
b) Derecognition a) Only statements 1 and 2 are true
c) Removal accounting b) Only statements 1 and 2 are false
d) Elimination entries c) All statements are true
d) All statements are false
9. Provides monetary information about assets, liabilities and related income and
expenses using information derived, at least in part, from the price of the 22. Owner's withdrawal of cash
transaction or other event that gave rise to them. a) Decreases equity and increases liability
a) Fair value b) Decreases asset and increases liability
b) Historical Cost c) Decreases equity and decreases asset
c) Salvage value d) Increases liability and increasing asset
d) Carrying amount
23. In a double entry accounting system, a debit to an asset may have all of the
10. S1: An asset or a liability cannot be recognized in the books of the entity if the following except:
probability of an inflow or outflow of economic benefits is low. a) A credit to another asset account
S2: An item of revenue or expense can be recognized if it does not meet the b) A credit to a liability account
definition given under the Revised Conceptual Framework. c) A credit to an income account
a) Both statements are true d) All of the above
b) Both statements are false
c) Only statement 1 is true 24. Incurrence of an expense may have the effect of the following except:
d) Only statement 2 is true a) Increase in liability
b) Decrease in assets
11. If a business takes out a loan of P20,000, how does this affect the basic accounting c) Increase in equity
equation initially? d) Increase in expenses
a) Assets increase by P20,000; Liabilities increase by P20,000
25. Revenue earned may have the effect of the following except: C. Obtained a 12%, one-year bank loan of P500,000.
a) Increase in assets D. Paid one-year insurance amounting to P160,000 on September 30, 2022.
b) Decrease in liability Cersei Lannister uses the "asset method" in recording prepayments.
c) Decrease in equity E. Total service fees earned amounted to P6,000,000, one third of which was on
d) Increase in income cash basis.
F. Collected P1,800,000 of accounts receivable.
26. This refers to an account in financial reporting that increases the book value of the G. Total salaries expense paid amounted to P1,200,000.
related asset or liability account. H. Total utilities expense paid amounted to P500,000.
a) Adjunct account I. Total supplies purchased on cash basis amounted to P120,000.
b) Contra account J. Total owner's drawings amounted to P1,400,000.
c) Allowance account
d) Nominal account 5. Prepare the journal entry for transaction A.
27. A service entity differs from a manufacturing entity in that a service entity a) Dr. Accounts receivable P2,000,000; Cr. Owner's capital 2,000,000
a) Records cost of goods sold in its income statement b) Dr. Cash P2,000,000; Cr. Owner's capital 2,000,000
b) Records three different types of inventory accounts c) Dr. Cash P2,000,000; Cr. Owner's drawings 2,000,000
c) Sells a product as it is or without alteration d) Dr. Investment P2,000,000; Cr. Owner's capital 2,000,000
d) Records cost of service in its income statement
6. Prepare the journal entry for transaction B.
28. Subsidiary ledger to general ledger reconciliation aims to a) Dr. Supplies P1,000,000; Cr. Accounts payable P1,000,000
a) Ensure the completeness of all transactions recorded in the Company's b) Dr. Equipment P1,000,000; Cr. Owner's capital P1,000,000
books. c) Dr. Equipment P1,000,000; Cr. Cash P2,000,000
b) Ensure accuracy of the amounts recorded per specific transaction. d) Dr Cash P1,000,000; Cr. Equipment P1,000,000
c) Ensure that the Company is operating at an income.
d) Ensure that the accounting equation is balanced. 7. For transaction B, the net increase in asset amounted to
a) P1,000,000
29. All the following are included in a complete set of financial statements except: b) P500,000
a) Statement of financial position c) P2,000,000
b) Statement of financial performance d) Nil
c) Statement of cashflows
d) None of the above is the exception 8. Prepare the journal entry for transaction C.
a) Dr. Notes payable P500,000; Cr. Owner's capital P500,000
30. If an expense account is being increased, which rule of debit and credit is b) Dr. Accounts payable P500,000; Cr. Cash P500,000
followed? c) Dr. Cash P500,000; Cr. Notes payable P500,000
a) Debit the expense account d) Dr. Cash P500,000; Cr. Accounts payable P500,000
b) Credit the expense account
c) Debit the revenue account 9. Prepare the journal entry for transaction D.
d) Credit the revenue account a) Dr. Insurance expense P160,000; Cr. Cash P160,000
b) Dr. Prepaid insurance P160,000; Cr. Cash P160,000
PROBLEMS c) Dr. Prepaid insurance P160,000; Cr. Accounts payable P160,000
1. If total liabilities increased by P25,000 during a period of time and owner's equity d) Dr. Insurance expense P160,000; Cr. Accounts payable P160,000
decreased by P9,000 during the same period, then the amount and direction of the
period's change in total assets is a(an) 10. Prepare the journal entry for transaction E.
a) P34,000 increase a) Dr. Cash P2,000,000; Dr. Accounts receivable P4,000,000; Cr. Owner's
b) P16,000 decrease equity P6,000,000
c) P16,000 increase b) Dr. Cash P6,000,000; Cr. Service Fee P6,000,000
d) P34,000 increase c) Dr. Cash P2,000,000; Dr. Accounts receivable P4,000,000; Cr. Service fee
P6,000,000
2. Arya Company began the year with owner's equity of P30,000. During the year, d) Dr. Accounts receivable P6,000,000; Cr. Service Fee P6,000,000
Arya received additional owner investments of P42,000, recorded expenses of
P120,000, and had owner drawings of P8,000. If Arya's ending owner's equity was 11. For transaction E, the net increase in Owner's equity amounted to
P112,000, what was the Company's revenue for the year? a) P6,000,000
a) P160,000 b) P4,000,000
b) P168,000 c) P2,000,000
c) P202,000 d) Nil
d) P210,000
12. Prepare the journal entry for transaction F.
3. Jon's Company compiled the following financial information as of December 31, a) Dr. Accounts receivable P1,800,000; Cr. Cash P1,800,000
2022. b) Dr. Cash P1,800,000; Cr. Service fee P1,800,000
Revenues P340,000 c) Dr. Cash P1,800,000; Cr. Accounts receivable P1,800,000
Owner's Capital 140,000 d) Dr. Cash P1,800,000; Cr. Accounts payable P1,800,000
Equipment 80,000
Expenses 250,000 13. Prepare the journal entry for transaction G.
Cash 90,000 a) Dr. Salaries expense P1,200,000; Cr. Cash P1,200,000
Owner's Drawings 20,000 b) Dr. Salaries expense P1,200,000; Cr. Salaries payable P1,200,000
Supplies 10,000 c) Dr. Prepaid salaries P1,200,000; Cr. Cash P1,200,000
Accounts payable 40,000 d) Dr. Prepaid salaries P1,200,000;
Accounts receivable 70,000
14. For transaction G, the net effect in owner's equity is Cr.
Jon's assets as of December 31, 2022? a) Increase of P1,200,000 Salaries payable P1,200,000
a) P180,000 b) Decrease of P1,200,000
b) P250,000 c) No effect
c) P360,000 d) Cannot be determined
d) P490,000
15. Prepare the journal entry for transaction H.
4. Daenerys Consulting started the year with total assets of P60,000 and total a) Dr. Utilities expense P500,000; Cr. Utilities payable P500,000
liabilities of P15,000. During the year, the business recorded P48,000 in catering b) Dr. Utilities expense P500,000; Cr. Cash P500,000
revenues and P30,000 in expenses. Daenerys made an additional investment of c) Dr. Prepaid utilities P500,000; Cr. Cash payable P500,000
P9,000 and withdrew cash of P15,000 during the year. Owner's equity changed by d) Dr. Prepaid utilities P500,000; Cr. Utilities payable P160,000
what amount from the beginning of the year to end of the year?
a) P3,000 16. Prepare the journal entry for transaction I.
b) P9,000 a) Dr. Supplies expense P120,000; Cr. Accounts payable P120,000
c) P12,000 b) Dr. Prepaid supplies P120,000; Cr. Accounts payable P120,000
d) P45,000 c) Dr. Supplies expense P120,000; Cr. Cash P120,000
d) Dr. Prepaid supplies P120,000; Cr. Cash P120,000
Use the following information for the next 21 items Cersei Lannister Corporation
incorporated a service business and started operations on January 1, 2022. A summary of 17. For transaction I, the net increase in asset amounted to
chronological transactions during the year is provided below: a) P120,000
A. The owner invested P2,000,000 to the business. b) P60,000
B. Acquired equipment for P1,000,000 cash. c) P30,000
 d) Nil b) P2,153,000
c) P2,103,000
18. Prepare the journal entry for transaction J. d) P2,000,000
a) Dr. Owner's drawings P1,400,000; Cr. Cash P1,400,000
b) Dr. Owner's capital P1,400,000; Cr. Cash P1,400,000 Use the following information to the next three items Ghost Company, after its first year
c) Dr. Owner's drawings P1,400,000; Cr. Owner's capital P1,400,000 of operations, generated the following balances from its unadjusted trial balance.
d) Dr. Owner's capital P1,400,000; Cr. Accounts payable P1,400,000 Cash P120,000
Equipment – Cost 3,000,000
19. After posting of the transactions to the general ledger, the ending balance of Cash Equipment – Accumulated Depreciation 1,200,000
amounted to: Service Revenue 380,000
a) P1,420,000 Owner’s Capital 2,200,000
b) P1,920,000 Notes Payable 300,000
c) P3,120,000 Accounts Payable 250,000
d) P3,320,000 Depreciation Expense 175,000
Accounts Receivable 670,000
20. After posting of the transactions to the general ledger, the ending balance of Accrued Expenses 145,000
Accounts receivable amounted to Salaries Expenses 260,000
a) P4,000,000 Owner’s Drawings 50,000
b) P2,200,000 Prepaid Expenses 65,000
c) P1,800,000 Utilities Expenses 135,000
d) Nil
30. How much is the unadjusted balance of the Company's assets?
21. After posting of the transactions to the general ledger, the ending balance of a) P3,855,000
Owner's capital amounted to b) P3,790,000
a) P2,000,000 c) P2,655,000
b) P1,400,000 d) P2,590,000
c) P600,000
d) P3,500,000 31. How much is the unadjusted balance of the Company's Liabilities?
a) P695,000
22. After the preparation of the unadjusted trial balance, the total debits and credits b) P550,000
show an amount of c) P445,000
a) P8,000,000 d) P745,000
b) P7,100,000
c) P6,500,000 32. How much is the total debits and credits of the Company?
d) P8,500,000 a) P4,745,000
b) P3,275,000
23. The total unadjusted balance of the Company's Asset is c) P4,475,000
a) P4,120,000 d) P3,725,000
b) P4,240,000
c) P5,100,000 Use the following information to the next two problems
d) P5,400,000 Robb Inc. has two suppliers, Renly Enterprise and Jeoffrey Goods and Services. Robb
purchased supplies from Renly amounted to P1,000,000 on account in which half of it is
24. The total unadjusted balance of the Company's Liability is still outstanding as of yearend. On the other hand, Robb purchased goods from Jeoffrey
a) P2,000,000 amounted to P200,000 and has made a mistake of paying P250,000 (resulting to an
b) P1,400,000 overpayment of P50,000).
c) P1,900,000
d) P500,000 33. In accordance with principle of offsetting under the Revised Conceptual
Framework, how much should Robb Inc. report as accounts payable from its two
25. The total unadjusted income of the Company is: suppliers?
a) P4,300,000 a) P500,000
b) P2,900,000 b) P450,000
c) P2,400,000 c) P550,000
d) P4,180,000 d) P700,000
26. Tyrion's non-current assets are double the current assets. No long-term liabilities is
recorded in the books. The current assets are P300,000. If the capital is half of the 34. In accordance with principle of offsetting under the Revised Conceptual
total assets, then the current liabilities recorded in the balance sheet will be Framework, how much should Robb Inc. report as accounts receivable from its two
a) P600,000 suppliers?
b) P900,000 a) P250,000
c) P300,000 b) P50,000
d) P450,000 c) P200,000
d) None
27. Assets of Jamie Company in the beginning of the year is P750,000 while the
liability is P350,000. Jamie Company earned P500,000 in revenue and incurred 35. If Margaery Company has an asset of P1,550,000 and a capital deficiency of
P200,000 in expenses. The owners of Jamie Company withdrew P200,000 during P550,000, how much would be its total liabilities?
the year. If the assets of Jamie Company increased to P900,000 at the end of the a) P1,000,000
year, then the liability of the Company at the end of the year must have been b) P2,100,000
a) P300,000 c) P550,000
b) P400,000 d) P1,050,000
c) P250,000
d) P350,000 FINALS QUIZ
1. Net income plus operating expenses is equal to
28. Assets of Olena Company in the beginning of the year is P950,000 while the a) cost of goods sold
liability is P250,000. Olena Company sustained a net loss of P500,000 the owners b) cost of goods available for sale
of Olena Company invested additional capital amounted to P250,000 during the c) net sales
year. If the assets of Olena Company decreased by P400,000 at the end of the year, d) gross profit
then the liability of the Company at the end of the year must have been
a) P250,000 2. Generally, the revenue account for a merchandising business is entitled
b) P100,000 a) Sales
c) P450,000 b) Net Sales
d) P50,000 c) Gross Sales
d) Gross Profit
29. Sansa Company just incorporated its Company on January 1, 2022, with capital 3. What is the term applied to the excess of net revenue from sales over the cost of
investment of P2,000,000, all coming from its cash investment. During the first merchandise sold?
year of operations, the Company generated revenue amounted to P432,000 and a) gross profit
incurred expenses amounted to P579,000. The owners of Sansa Company invested b) income from operations
additional capital to the Company amounted to P250,000. If the liability of the c) net income
Company rose to P300,000 at the end of the year, what would be the total assets of d) gross sales
the Company after its first year of operations?
a) P2,403,000 4. The term "inventory" indicates
 a) merchandise held for sale in the normal course of business
b) materials in the process of production or held for production Use the following information to answer items 17 to 21
c) supplies Purchases P28,00
d) both (a) and (b) Merchandise Inventory (April 1) 6,500
Sales Returns and Allowances 750
5. A company using the periodic inventory system has the following account Purchases Returns and Allowances 1,000
balances: Merchandise Inventory at the beginning of the year, P4,000; Purchase Discounts 800
Transportation-In, P450; Purchases, P12,000; Purchases Returns and Allowances, Merchandise Inventory (April 30) 7,800
P2,300; Purchases Discounts, P220. The cost of merchandise purchased is equal to Sales 57,000
a) P13,930 Transportation in 880
b) P9,930
c) P9,489 17. What is the amount of cost of merchandise sold?
d) P14,520 a) 25,780
b) 23,270
6. A company, using the periodic inventory system, has merchandise inventory c) 31,220
costing P140 on hand at the beginning of the period. During the period, d) 24,020
merchandise costing P400 is purchased. At year-end, merchandise inventory
costing P180 is on hand. The cost of merchandise sold for the year is 18. What is the amount of gross profit?
a) P720 a) 31,970
b) P550 b) 30,470
c) P360 c) 25,780
d) P140 d) 56,250

7. Expenses that are incurred directly or entirely in connection with the sale of 19. What is the amount of net GP sales?
merchandise are classified as a) 25,780
a) selling expenses b) 57,000
b) general expenses c) 57,750
c) other expenses d) 56,250
d) administrative expenses
20. What is the amount of merchandise available for sale?
8. Office salaries, depreciation of office equipment, and office 9. supplies are a) 33,580
examples of what type of expense? b) 30,470
a) selling expense c) 25,780
b) miscellaneous expense d) 34,500
c) administrative expense
21. Where are selling and administrative expenses found on the multi-step income
d) other expense
statement?
9. The form of income statement that derives its name from the fact that the total of a) before gross profit
all expenses is deducted from the total of all revenues is called a b) after sales and before gross profit
a) multiple-step statement c) after net income before expenses
b) revenue statement d) after gross profit
c) report-form statement
d) single-step statement 22. Silver Co. sold merchandise to Bronze Co. on account, P23,000, terms 2/15, net
45. The cost of the merchandise sold is P18,500. Silver Co. issued a credit
10. Multiple-step income statements show memorandum for P2,500 for merchandise returned that originally cost P1,900. The
a) gross profit but not income from operations Bronze Co. paid the invoice within the discount period. What is amount of net sales
b) neither gross profit nor income from operations from the above transactions?
c) both gross profit and income from operations a) P20,090
d) income from operations but not gross profit b) P20,500
c) P3,490
11. Merchandise inventory is classified on the balance sheet as a 5: d) P23,000
a) Current Liability
b) Current Asset 23. Using a perpetual inventory system, the entry to record the sale of merchandise on
c) Long-Term Asset account includes a
d) Long-Term Liability a) debit to Sales
b) debit to Merchandise Inventory
12. Which account is not classified as a selling expense? c) credit to Merchandise Inventory
a) Sales Salaries d) credit to Accounts Receivable
b) Transportations-Out
c) Sales Discounts 24. Which of the following accounts has a normal debit balance?
d) Advertising Expense a) Accounts Payable
b) Sales Returns and Allowances
13. The primary difference between a periodic and perpetual inventory system: c) Sales
a) periodic system determines the inventory on hand only at the end of the d) Interest Revenue
accounting period
b) periodic system keeps a record showing the inventory on hand at all times 25. Merchandise is ordered on November 12; the merchandise is shipped by the seller
e) periodic system provides easy means to determine inventory shrinkage and the invoice is prepared, dated, and mailed by the seller on November 15; the
c) periodic system records the cost of the sale on the date the sale is made merchandise is received by the buyer on November 17; the entry is made in the
buyer's accounts on November 18. The credit period begins with what date?
14. The inventory system employing accounting records that continuously disclose the a) November 12
amount of inventory is called b) November 15
a) retail c) November 17
b) periodic d) November 18
c) physical
d) perpetual 26. Using a perpetual inventory system, the entry to record the return from a customer
of merchandise sold on account includes a
15. When the perpetual inventory system is used, the inventory sold is shown on the a) credit to Sales Returns and Allowances
income statement as b) debit to Merchandise Inventory
a) cost of merchandise sold c) credit to Merchandise Inventory
b) purchases d) debit to Cost of Merchandise Sold
c) purchases returns and allowances
d) net purchases 27. If merchandise sold on account is returned to the seller, the seller may inform the
customer of the details by issuing a
16. Gross profit is equal to: a) sales invoice
a) sales plus (sales discounts and sales returns and allowances) plus cost of b) purchase invoice
goods sold c) credit memorandum
b) sales plus sales returns and allowances less sales discounts less cost of goods d) debit memorandum
sold
c) sales plus sales discounts less sales returns and allowances less cost of goods 28. The arrangements between buyer and seller as to when payments for merchandise
sold are to be made are called
d) sales less (sales discounts and sales returns and allowances) less cost of a) credit terms
goods sold b) net cash
 c) cash on demand
d) gross cash 42. The amount of the total cash paid to the seller for merchandise purchased would
normally include
29. In credit terms of 1/10, n/30, the "1" represents the a) only the list price
a) number of days in the discount period b) only the sales tax
b) full amount of the invoice c) the list price plus the sales tax
c) number of days when the entire amount is due d) the list price less the sales tax
d) percent of the cash discount
43. A retailer purchases merchandise with a catalog list price of P10,000. The retailer
30. Merchandise with a sales price of P500 is sold on account with term 2/10, n/30. receives a 25% trade discount and credit terms of 2/10, n/30. What amount should
The journal entry to record the sale would include a the retailer debit to the Merchandise Inventory account?
a) Debit to Cash for P500 a) P7,500
b) Debit to Sales Discounts for P10 b) P10,000
c) Credit to Sales for P500 c) P9,800
d) Debit to Accounts Receivable for P490 d) P7,350
31. Merchandise subject to terms 1/10, n/30, FOB shipping point, is sold on account to 44. A sales invoice included the following information: merchandise price, P4,000;
a customer for P15,000. The seller paid transportation costs of P1,000 and issued a transportation, P300; terms 1/10. n/eom, FOB shipping point. Assuming that a
credit memorandum for P5.000 prior to payment. What is the amount of the cash credit for merchandise returned of P600 is granted prior to payment, that the
discount allowable? transportation is prepaid by the seller, and that the invoice is paid within the
a) P160 discount period, what is the amount of cash received by the seller?
b) P150 a) P3,366
c) P140 b) P3,400
d) P100 c) P3,666
d) P3,950
32. Which of the following accounts has a normal credit balance?
a) Sales Returns and Allowances 45. Which of the following accounts usually has a debit balance?
b) Sales a) Purchase Discounts
c) Merchandise Inventory b) Sales tax Payable
d) Delivery Expense c) Allowance for Doubtful Accounts
d) Transportation-In
33. The entry to record the return of merchandise from a customer would include a
a) debit to Sales 46. Merchandise is sold for cash. The selling price of the merchandise is P2,000 and
b) credit to Sales the sale is subject to a 5% state sales tax. The journal entry to record the sale would
c) debit to Sales Returns and Allowances include
d) credit to Sales returns and Allowances a) A debit to Cash for P2,000
b) A credit to Sales for P2,100
34. Sales to customers who use bank credit cards such as MasterCard and Visa are c) A credit to Sales Tax Payable for P100
usually recorded by a d) None of the above.
a) debit to Bank Credit Card Sales, debit to Credit Card Expense, and a credit
to Sales 47. If the buyer is to pay the transportation costs of delivering merchandise, delivery
b) debit to Cash and a credit to Sales terms are stated as
c) debit to Cash, credit to Credit Card Expense, and a credit to Sales a) FOB shipping point
d) debit to Sales, debit to Credit Card Expense, and a credit to Cash b) FOB destination
c) FOB n/30
35. Sales to customers who use bank credit cards, such as MasterCard and Visa, are d) FOB buyer
generally treated as
a) sales on account 48. If the seller is to pay the transportation costs of delivering merchandise, the
b) sales returns delivery terms are stated as
c) cash sales a) FOB shipping point
d) sales when the credit card company remits the cash b) FOB destination
c) FOB n/30
36. When a buyer returns merchandise purchased for cash, the buyer may record the d) FOB seller
transaction using the following entry
a) debit Merchandise Inventory; credit Cash 49. If title to merchandise purchases passes to the buyer when the goods are shipped
b) debit Cash; credit Merchandise Inventory from the seller, the terms are
c) debit Cash; credit Sales Returns and Allowances a) n/30
d) debit Sales Returns and Allowances; credit Cash b) FOB shipping point
c) FOB destination
37. When merchandise is returned under the perpetual inventory system, the buyer d) consigned
would credit
a) Merchandise Inventory 50. Merchandise with an invoice price of P4,000 is purchased on June 2 subject to
b) Purchases Returns and Allowances terms of 2/10, n/30, FOB destination. Transportation costs paid by the seller totaled
c) Accounts Payable P150. What is the cost of the merchandise if paid on June 12, assuming the
d) depending on the inventory system used. discount is taken?
a) P4,150
38. When purchases of merchandise are made for cash, the transaction may be b) P4,070
recorded with the following entry c) P4,067
a) debit Cash; credit Merchandise Inventory d) P3,920
b) debit Merchandise Inventory; credit Cash
c) debit Merchandise Inventory; credit Cash Discounts 51. When goods are shipped FOB destination and the seller pays the transportation
d) debit Merchandise Inventory; credit Purchases charges, the buyer
a) journalizes a reduction for the cost of the merchandise
39. Using a perpetual inventory system, the entry to record the purchase of P30,000 of b) journalizes a reimbursement to the seller
merchandise on account would include c) does not take a discount
a) debit to Sales d) makes no journal entry for the transportation
b) debit to Merchandise Inventory
c) credit to Merchandise Inventory 52. Orange Co. sold Red Co. merchandise on account FOB shipping point, 2/10, net
d) credit to Sales 30, for P10,000. Orange Co. prepaid the P200 shipping charge. Using the perpetual
inventory method, which of the following entries will Red Co. make if Red Co.
40. Using a perpetual inventory system, the entry to record the return of merchandise pays within the discount period?
purchased on account includes a a) Accounts Payable-Orange Co., debit P10,000; Transportation In, credit
a) debit to Cost of Goods Sold P200; Cash, credit P9,800
b) credit to Accounts Payable b) Accounts Payable-Orange Co., debit P10,200; Merchandise Inventory, credit
c) credit to Merchandise Inventory P200; Cash, credit P10,000
d) credit to Sales c) Accounts Payable-Orange Co., debit P10,000; Transportation In, debit P200;
41. In recording the cost of merchandise sold for cash, based on data available from Cash, credit P10,200
perpetual inventory records, the journal entry is d) Accounts Payable-Orange Co., debit P10,200; Merchandise Inventory, debit
a) debit Cost of Merchandise Sold; credit Sales P200; Cash, credit P10,400
b) debit Cost of Merchandise Sold; credit Merchandise Inventory 53. A chart of accounts for a merchandising business usually
c) debit Merchandise Inventory; credit Cost of Merchandise Sold a) is the same as the chart of accounts for a service business
d) debit Accounts Receivable; credit Merchandise Inventory
 b) requires more accounts than does the chart of accounts for a service business
c) is standardized by the FASB for all merchandising businesses 65. Who pays the freight costs when the terms are FOB shipping point?
d) does not have a Cost of Goods Sold account if a perpetual inventory system a) the ultimate customer
is used b) the buyer
c) the seller
54. Robles Co. sells P1,000 of inventory to Salas Co.for cash. Robles paid P650 for the d) either the seller or the buyer
merchandise. Under a perpetual inventory system, the following journal entry(ies)
would be recorded. 66. A retailer purchases merchandise with a catalog list price of P10,000. The retailer
a) Cash 1,000 Dr, Merchandise Inventory 650 Cr receives a 25% trade discount and credit terms of 2/10, n/30. How much cash will
b) Cash 1,000 Dr. Sales 1,000 Cr. Cost of Merchandise Sold 650 Dr, be needed to pay this invoice within the discount period?
Merchandise Inventory 650 Cr a) P10,000
c) Cash 1,000 Dr. Sales 1,000 Cr b) P7,500
d) Accounts Receivable 1.000 Dr, Sales 1,000 Cr. Cost of Merchandise Sold c) P9,800
650 Dr, Merchandise Inventory 650 Cr. d) P7,350

55. Apple Co sells merchandise on credit to Zea Co in the amount of P8,000. The 67. Which of the following accounts, will only be found in the chart of accounts of a
invoice is dated on September 15 with terms of 1/15, net 45. What is the amount of merchandising company?
the discount and up to what date must the invoice be paid in order for the buyer to a) Sales
take advantage of the discount? b) Accounts Receivable
a) P160, September 30 c) Merchandise Inventory
b) P160. September 25 d) Accounts Payable
c) P80, September 30
d) P80, September 25 68. Which of the following items would affect the cost of merchandise inventory
56. Apple Co sells merchandise on credit to Zea Co in the amount of P8,000. The acquired during the period?
invoice is dated on September 15 with terms of 1/15, net 45. If Zea Co. chooses not a) quantity discounts
to take the discount, by when should the payment be made? b) cash discounts
a) September 30 c) transportation-in
b) October 30 d) all of the above
c) October 15 69. If title to merchandise purchases passes to the buyer when the goods are delivered
d) September 25 to the buyer, the terms are
57. Discounts taken by a buyer because of early payment are recorded on the seller's a) consigned
accounting records as b) n/30
a) Purchases discount c) FOB shipping point
b) Sales discount d) FOB destination
c) Trade discount 70. Title to merchandise purchases passes to the buyer when the goods are shipped
d) Early payment discount from the seller, the terms are
58. Taking advantage of a 2/10, n/30 purchases discount is equal to a savings yearly a) n/30
rate of approximately b) FOB shipping point
a) 2% c) FOB destination
b) 24% d) consigned
c) 20% 71. If the merchandise costs P4,000, insurance in transit costs P200, tariff costs P50,
d) 36% processing the purchase order by the purchasing department costs P25, and the
Based on the following information, answer items 59 to 64 company receiving dock personnel cost P15, what is the total cost charged to the
(1) P5,000 of merchandise inventory was ordered on April 2, 2007 merchandise?
(2) P2,000 of this merchandise was received on April 5, 2007 a) P4,250
(3) On April 6, 2007, an invoice dated April 4, 2007, with terms of 2/10, net 30 b) P4,285
for P2,150 which included a P150 prepaid freight cost, was received. c) P4,300
(4) On April 10, 2007, P500 of the merchandise was returned to the seller. d) P4,000
72. Under the perpetual inventory system, all purchases of merchandise are debited to
59. What would be recorded as purchases discount if the invoice is paid within the
the account entitled
discount period
a) Merchandise Inventory
a) P100
b) Cost of Merchandise Sold
b) P30
c) Cost of Merchandise Available for Sale
c) P43
d) Purchases
d) P33
73. When the perpetual inventory system is used, the inventory sold is debited to
60. What would be recorded as the cash payment if the invoice is paid within the
a) supplies expense
discount period?
b) cost of merchandise sold
a) P1,470
c) merchandise inventory
b) P1,520
d) sales
c) P2,150
d) P1,620 74. Under a perpetual inventory system
a) accounting records continuously disclose the amount of inventory
61. What would be recorded as net purchases amount after all of the transactions have
b) increases in inventory resulting from purchases are debited to Purchases
been recorded?
c) there is no need for a year-end physical count
a) P2,000
d) the purchase returns and allowances account is credited when goods are
b) P2,150
returned to vendors
c) P1,620
d) P1,470 75. The proper journal entry to record the receipt of inventory purchased on account in
a perpetual inventory system would be:
62. The entry for April 10, 2007 would include?
a) Jan 1 Inventory 250.00
a) Debit to Merchandise Inventory P500
Accounts Payable 250.00
b) Debit to Purchases Returns P500
b) Jan 1 Office Supplies 250.00
c) Credit to Merchandise Inventory P500
Accounts Payable 250.00
d) Credit to Accounts Payable P500
c) Jan 1 Purchases 250.00
63. By what date does the invoice need to be paid in order to take the advantage of the Accounts Payable 250.00
discount? d) Jan 1 Purchases 250.00
a) April 15, 2007 Accounts Receivable 250.00
b) April 16, 2007
76. Which of the following items should not be included in the cost of ending
c) April 10, 2007
merchandise inventory?
d) April 14, 2007
a) units on consignment
64. What would be the cash payment if the company decides to payment the invoice on b) purchased units in transit, shipped FOB destination
April 30, 2007 c) units on hand in the warehouse
a) P1,650 d) both (a) and (c)
b) P1,620
77. The Paula Corp. sold merchandise for cash, P6,900. The cost of the merchandise
c) P2,150
sold was P4,250. The journal entry(s) to record this transaction would be
d) P2,000
 a) Cash 6,900
Merchandise Inventory 6,900
COMS 4,250
Conceptual Framework, PAS1, PAS 7
Sales 4,250
b) Accounts Rec 6,900 1. According to the conceptual framework, the objectives of financial reporting for
Sales 6,900 business enterprises are based on
COMS 4,250 a) Generally accepted accounting principles.
Merchandise Inv 4,250 b) Reporting on management’s stewardship.
c) Cash 6,900 c) The need for conservatism.
Sales 6,900 d) The needs of the users of the information.

COMS 6,900 2. The overall objective of financial reporting is to provide information

Merchandise Inventory 6,900 a) that is useful for decision making.
d) Cash 4,250 b) about an enterprise's assets, liabilities, and owners' equity.
Sales 4,250 c) about an enterprise's financial performance during a period.
COMS 4,250 d) that allows owners to assess management's performance.
Merchandise Inventory 4,250 3. What is the objective of financial reporting as indicated in the conceptual
e) Cash 6,900
framework?
Sales 6,900
a) Provide information that is useful to those making investing and credit
COMS 4,250 decisions.
Merchandise Inventory 4,250 b) Provide information that is useful to management.
c) Provide information about those investing in the entity.
78. Inventory shortage is recorded when
d) Provide information that is useful to internal users.
a) merchandise is returned by a buyer.
b) merchandise purchased from a seller is incomplete or short. 4. The users of financial information can be divided into two major categories:
c) merchandise is returned to a seller.
external users and internal users. These two groups have somewhat different
d) there is a difference between a physical count of inventory and inventory
records. decision-making information needs because of their differing relationships with the
company providing economic information. Which of the following is not a basic
79. Which account will be included in both service and merchandising companies decision-making information need for external users?
closing entries? a) Whether to buy, to hold, or to sell investments.
a) Sales
b) To know the risk inherent in, and return provided by, their investments.
b) Cost of Merchandise Sold
c) Sales Discounts c) Whether to extend credit, maintain the credit relationship, or not extend
d) Sales Returns and Allowances credit.
d) To make operating decisions.
80. Which of the following special journals would be used in an accounting systems
for merchandising? 5. During a period when an enterprise is under the direction of a particular
a) Inventory Journal, Accounts Receivable Journal, Accounts Payable Journal, management, its financial statements will directly provide information about
Cash Journal a) Both enterprise performance and management performance.
b) Sales Journal, Purchases Journal, Cash Payments Journal, Cash Receipts b) Management performance but not directly provide information about
Journal enterprise performance.
c) Sales Journal only c) Enterprise performance but not directly provide information about
d) Sales Journal, Inventory Journal, Cash Payments Journal, Cash Receipts management performance.
Journal d) Neither enterprise performance nor management performance.
81. A merchandising business 6. Which of the following is NOT one of the qualitative characteristics of useful
a) that uses a manual accounting system usually uses only two special journals financial information according to the 2018 Revised Conceptual Framework for
b) that uses a computerized accounting system usually uses only five special Financial Reporting of IASB?
journals a) Relevance
c) is required to use a computerized accounting system because of the volume b) Faithful representation
of journal entries c) Timeliness
d) that uses a computerized accounting system usually uses no special journals d) Materiality

82. What is the major difference between a periodic and perpetual inventory system? 7. The ‘primary users’ of financial information include
a) Under the periodic inventory system, the purchase of inventory will be I. Existing and potential investors
debited to the Purchases account II. Existing and potential lenders and other creditors
b) Under the periodic inventory system, no journal entry is recorded at the time III. User group such as employees, customers, government and their
of the sale of inventory. agencies, and the public
c) Under the periodic inventory system, all adjustments such as purchases a) I only
returns and allowances and discounts are reconciled at the end of the month. b) I and II only
d) All are correct. c) I and III only
d) I, II and III
83. Which of the following accounts will not be found on the Cost of Merchandise
Sold section on the Income Statement? 8. Which is not part of the accounting standard-setting process in the Philippines?
a) Purchases a) Preparation of a draft of proposed Philippine Financial Reporting Standards
b) Transportation In (PFRS) by a Task Force organized by the Chairman.
c) Sales Returns and Allowances b) Exposure of the proposed draft for comments and suggestion to PICPA
d) Merchandise Inventory members, FINEX members and other interested parties.
c) Approval of the final PFRS by the Profession Regulation Commission.
84. Under the periodic inventory system, the journal entry to record the purchase of d) Publication in the Official Gazette or in newspaper of general circulation of
merchandise inventory will include a debit to the proposed draft.
a) Merchandise Inventory
b) Purchases 9. Which is not a specific purpose of the conceptual framework?
c) Accounts Payable a) To assist preparers of financial statement in applying the accounting
d) Cost of Merchandise Purchased standards.
b) To assist FRSC in the development of future Philippine Financial Reporting
85. Under the periodic inventory system, the journal entry to record the cost of Standards (PFRSs) and in its review of existing PFRSs.
merchandise sold at the point of sale will include the following account c) To assist users of financial statements in interpreting the
a) No entry is made. information contained in financial statements.
b) Cost of merchandise sold d) To assist the Board of Accountancy in promulgating rules and regulations
c) Inventory affecting the practice of accountancy in the Philippines.
d) Purchases sold
10. Which statement is incorrect regarding the Conceptual Framework?
a) Describes the basic concepts that underlie the preparation and presentation
86. Under a periodic inventory system, closing entries will include
of financial statements for external users.
a) Dr. Sales, Purchases Returns and Allowances, Purchases Discounts
b) Serves as a guide in developing future PFRSs and as a guide to resolving
b) Cr. Purchases, Sales Discounts, Sales Returns and Allowances
accounting issues that are not addressed directly in existing PFRSs.
c) Adjust Merchandise Inventory Account to match physical inventory
d) All are correct
 c) Is not a PFRS and hence does not define standards for any particular b) The process of determining the monetary amounts at which the elements of
measurement or disclosure issue. the financial statements are to be recognized and carried in the balance sheet
d) Prevails in cases where there is conflict with a PFRS. and income statement.
c) The removal of a previously recognized asset or liability from an entity’s
11. In the 2018 Revised Conceptual Framework, what is the primary purpose of statement of financial position.
financial reporting? d) The process of incorporating in the balance sheet or income statement an
a) To provide information about the financial position of an entity item that meets the definition of an element and satisfies the criteria for
b) To provide information about the performance of an entity recognition.
c) To provide information about the cash flows of an entity
d) To provide information that is useful to users in making economic decisions 23. Which of the following is NOT a reason for presenting financial information in the
notes to the financial statements?
12. Which of the following is an example of a constraint on the information included a) To provide further explanation of items recognized in the primary financial
in financial statements, as described in the 2018 Revised Conceptual Framework? statements
a) Relevance b) To disclose additional information that is not presented in the primary
b) Cost financial statements
c) Faithful representation c) To restate the primary financial statements using alternative measurement
d) Verifiability bases
13. Which of the following is NOT considered an enhancing qualitative characteristic d) To present information about the risks and uncertainties affecting the entity’s
of useful financial information? financial position and performance
a) Comparability 24. What is the authoritative status of the Conceptual Framework?
b) Consistency a) The Conceptual Framework ha sthe highest level of authority.
c) Verifiability b) In the absence of standard or an interpretation that specifically applies to a
d) Timeliness transaction, the Conceptual Framework shall be followed.
14. Which of the following is a key assumption underpinning financial reporting in the c) In the absence of standard or an interpretation that specifically applies to a
2018 Revised Conceptual Framework? transaction, management shall consider the applicability of the Conceptual
a) Accrual basis framework in developing and applying an accounting policy that results in
b) Materiality information that is relevant and reliable.
c) Historical cost d) The Conceptual Framework applies only when the Financial Reporting
d) Market value Standards Council develops new or revised standards.
15. Under the 2018 Revised Conceptual Framework, which of the following describes 25. Which of the following best describes a reporting entity according to the
the concept of prudence? Conceptual Framework for Financial Reporting?
a) The exercise of caution when making judgments under conditions of a) An entity that prepares financial statements for external users
uncertainty b) An entity that is subject to regulation by a financial authority
b) The inclusion of all information that is necessary for a faithful representation c) An entity that is listed on a stock exchange
of the economic phenomena d) An entity that has a legal obligation to prepare financial statements
c) The requirement that financial information should be free from material 26. Which of the following statements is true in relation to the enhancing qualitative
errors and bias characteristic of “understandability” of financial information?
d) The recognition of assets and liabilities only when they meet the definitions a) Users have a reasonable knowledge of business and economic activities and
and recognition criteria in the framework review the information with reasonable diligence.
16. In the 2018 Revised Conceptual Framework, which of the following is NOT a b) Users are expected to have significant business knowledge.
necessary component for an item to meet the definition of an asset? c) Financial statements shall exclude complex matters.
a) The item is a present economic resource d) Financial statements shall be free from material error.
b) The entity has control over the item 27. Which of the following approaches to capital maintenance focuses on maintaining
c) The item is the result of a past event the purchasing power of an entity’s equity?
d) The item has a future economic benefit a) Financial capital maintenance in nominal monetary units
17. In the context of the 2018 Revised Conceptual Framework, which of the following b) Financial capital maintenance in units of constant purchasing power
best describes the concept of offsetting? c) Physical capital maintenance
a) The presentation of assets and liabilities as net amounts in the statement of d) Operating capital maintenance
financial position
b) The recognition of gains and losses from changes in the value of assets and PAS 1 Presentation of Financial Statements (15 items)
liabilities
c) The measurement of assets and liabilities at their historical cost 28. Which of the following is not an important characteristic of the financial
d) The application of the accrual basis of accounting statements that accountants currently prepare?
a) The information in financial statements is expressed in units of money
18. Which of the following is NOT a factor that affects the relevance of financial adjusted for changing purchasing power.
information, according to the 2018 Revised Conceptual Framework? b) Financial statements articulate with one another because measuring financial
a) Predictive value position is related to measuring changes in financial position.
b) Confirmatory value c) The information in financial statements is summarized and classified to help
c) Materiality meet users’ needs.
d) Verifiability d) Financial statements can be justified only if the benefits they provide exceed
the costs.
19. Which of the following financial statement elements is typically recognized when
an entity satisfies a performance obligation by transferring a promised good or 29. What is the primary purpose of the notes to the financial statements?
service to a customer? a) To provide a summary of the entity’s accounting policies
a) Revenue b) To provide additional information and explanations necessary for
b) Expense understanding the financial statements
c) Liability c) To present the entity’s financial performance during the reporting period
d) Asset d) To present the entity’s financial position at the end of the reporting period
20. When is an asset derecognized from an entity’s financial statements according to 30. Historical cost is
the framework? a) The amount of cash or cash equivalent paid or the consideration to acquire
a) When the entity loses control of the asset an asset.
b) When the asset’s carrying amount becomes zero b) The amount of cash or cash equivalent that would have to be paid if the
c) When the asset is fully depreciated same or an equivalent asset is acquired currently.
d) When the asset is no longer used in the entity’s operations c) The amount of cash or cash equivalent that could currently be obtained by
selling the asset in an orderly disposal.
21. Which of the following is an example of a disclosure that provides information d) The discounted value of the future net cash inflow that an asset is expected
about the assumptions and judgments made by management in preparing financial to generate in the normal course of business.
statements?
a) Accounting policies 31. Which of the following is NOT a required disclosure in the notes to the financial
b) Contingent liabilities statements?
c) Segment information a) Contingencies
d) Earnings per share b) Accounting policies
c) Key management personnel compensation
22. The Conceptual Framework defines ‘recognition’ as d) Management’s strategic plan
a) The grouping, into broad classes, of the financial effects of transactions and
other events according to economic characteristics. 32. An asset shall be classified as current asset when it satisfies any of the following
criteria, except
 a) It is expected to be realized or held for sale or consumption in the normal d) One year
course of the entity’s normal operating cycle.
b) It is held primarily for the purpose of being traded 43. What is the primary objective of PAS 1 Presentation of Financial Statements?
c) It is expected to be realized within twelve months after the end of the a) To ensure that an entity’s financial statements are prepared in accordance
reporting period with the applicable accounting standards.
d) It is cash or cash equivalent that is restricted from being exchanged or used b) To prescribe the basis for the presentation of general-purpose financial
to settle a liability for at least twelve months after the end of the reporting statements.
period c) To provide guidance on the recognition and measurement of financial
statement items.
33. A liability shall be classified as a current liability when it satisfies any of the d) To specify all disclosure requirements for financial statements.
following criteria, except
a) It is expected to be settled in the entity’s normal operating cycle 44. According to PAS 1, a complete set of financial statements should include which of
b) It is primarily held for the purpose of being traded the following components?
c) It is due to be settled within twelve months after the end of the reporting a) Statement of financial position, statement of profit or loss, statement of
period changes in equity, and notes to the financial statements.
d) The entity has an unconditional right to defer settlement of the liability for at b) Statement of financial position, statement of profit or loss, statement of cash
least twelve months after the end of the reporting period. flows, and notes to the financial statements.
c) Statement of financial position, statement of profit or loss, statement of
34. Income is recognized in the income statement when changes in equity, statement of cash flows, and notes to the financial
a) An increase in future economic benefits related to an increase in an asset or a statements.
decrease of a liability has arisen that can be measured reliably. d) Statement of financial position, statement of comprehensive income,
b) A decrease in future economic benefits related to a decrease in an asset or an statement of changes in equity, statement of cash flows, and notes to the
increase of a liability has arisen that can be measured reliably. financial statements.
c) It is probable that the future economic benefits will flow to the entity and the
item has a cost or value that can be measured reliably. 45. According to PAS 1, when is it appropriate to offset assets and liabilities in the
d) It is probable that an outflow of resources embodying economic benefits will statement of financial position?
result from the settlement of a present obligation and the amount at which a) When a legal right of set-off exists and the entity intends to settle on a net
the settlement will take place can be measured reliably. basis.
b) When the assets and liabilities relate to the same transaction or event.
35. Which of the following is NOT a requirement for the presentation of comparative c) When the assets and liabilities are immaterial.
information in financial statements? d) Offsetting is never allowed in the statement of financial position.
a) Comparative information must be presented for all amounts reported in the
financial statements. 46. What is the purpose of disclosing the accounting policies in the notes to the
b) Comparative information must be presented for the preceding period. financial statements according to IAS 1?
c) Comparative information must be presented for a minimum of three years. a) To provide a basis for comparing the entity’s financial statements with those
d) Comparative information must be presented for all notes to the financial of other entities.
statements. b) To help users understand the basis for the recognition, measurement, and
presentation of assets, liabilities, equity, income, and expenses.
36. Which of the following should be disclosed in the notes to the financial statements c) To provide information about the entity’s financial performance during the
regarding an entity’s accounting policies? reporting period.
a) The reasons for selecting the accounting policies d) To provide information about the entity’s financial position at the end of the
b) The methods used to apply the accounting policies reporting period.
c) The judgments made in applying the accounting policies
d) All of the above 47. Which of the following is a required component of the statement of changes in
equity according to PAS 1?
37. For a liability to exist, a) Total comprehensive income for the period
a) there must be a past transaction or event. b) Dividends declared and paid during the period
b) the exact amount must be known. c) A reconciliation of the carrying amount of each class of equity at the
c) the identity of the party to whom the liability is owed must be known. beginning and end of the period
d) there must be an obligation to pay cash in the future. d) All of the above
38. Which of the following would not be classified as a current asset on a classified 48. In the context of PAS 1, what is the purpose of the statement of financial position?
balance sheet? a) To present an entity’s financial performance during a reporting period
a) Investment securities (trading). b) To present an entity’s financial position at the end of a reporting period
b) Short-term investments. c) To present an entity’s cash flows during a reporting period
c) Prepaid expenses. d) To present an entity’s changes in equity during a reporting period
d) Intangible assets.
49. According to PAS 1, which of the following is not a required disclosure in the
39. A complete set of financial statements should include: notes to the financial statements?
a) Statement of Financial Position ”at the end of the period”, a) Information about the basis of preparation of the financial statements
b) Single Statement of Profit or Loss and Other Comprehensive Income “for b) Information about the entity’s operating segments
the period” (or two statements: Statement of Profit and Loss and Statement c) Information about the entity’s accounting policies
of Other Comprehensive Income), d) Information about judgments and estimates made in the application of
c) Statement of changes in equity ”for the period” accounting policies
d) Statement of Cash Flows
e) All of the above. 50. Which of the following is a required disclosure about the entity’s capital
management according to PAS 1?
40. Statement 1. IAS 1 requires that an entity prepare its financial statements, except a) The entity’s objectives, policies, and processes for managing capital
for cash flow information, using the accrual basis of accounting. b) The entity’s capital structure
Statement 2. The presentation and classification of items in the financial statements c) The entity’s dividend policy
shall be retained from one period to the next unless a change is justified either by a d) All of the above
change in circumstances or a requirement of a new IFRS.
a) Both statements are correct 51. Which of the following is not a required component of the statement of
b) Both statements are wrong comprehensive income according to PAS 1?
c) Only Statement 1 is correct a) Revenue
d) Only Statement 2 is correct b) Finance costs
c) Earnings per share
41. Statement 1. Assets and liabilities, and income and expenses, must not be offset d) Income tax expense
unless required or permitted by IFRS.
Statement 2. The presentation and classification of items in the financial statements 52. According to IAS 1, which of the following is not an acceptable method for
shall be retained from one period to the next unless a change is justified either by a presenting items of other comprehensive income (OCI)?
change in circumstances or a requirement of a new IFRS. An entity must normally a) Presenting OCI items net of tax
present a classified statement of financial position, separating current and b) Presenting OCI items before tax, with a single amount for the aggregate tax
noncurrent assets and liabilities. relating to those items
a) Both statements are correct c) Presenting OCI items net of related non-controlling interests
b) Both statements are wrong d) Presenting OCI items before tax, with separate disclosure of the related tax
c) Only Statement 1 is correct for each item
d) Only Statement 2 is correct
Use the following information to answer next five (5) questions.
42. What is the minimum required reporting period for financial statements?
a) One month Alpha Inc. is a publicly traded entity operating in the heavy machinery industry, with a
b) Three months global presence in multiple countries. The company has been using the International
c) Six months Financial Reporting Standards (IFRS) for financial reporting purposes for the past ten
years. The company's management is now conducting a thorough review of the
company's accounting policies and financial statements to ensure compliance with the c) It highlights changes in managerial strategy regarding investments and
2018 Revised Conceptual Framework of the International Accounting Standards Board finances.
(IASB). d) It measures the profitability of an entity.
During the review, the management identified the following key issues: 62. Which of the following statements is NOT true?
a) The statement of cash flows provides details as to how the cash account
 The company has been using historical cost as the primary basis for measuring its changed during a period.
property, plant, and equipment. However, some stakeholders suggested that the b) The statement of cash flows does not replace the statement of
company should consider using the revaluation model for better transparency. comprehensive income.
 In the past, the company had recognized contingent liabilities for possible future c) The statement of cash flows includes transactions that are not already
losses relating to ongoing legal disputes. The management is now questioning reflected in the balance sheet and statement of comprehensive income.
whether this recognition is in line with the revised Conceptual Framework. d) The statement of cash flows sheds some light on a company's ability to
 The company has recently entered into a complex lease agreement for a new generate income in the future.
manufacturing facility. The management is uncertain about the appropriate
accounting treatment for the lease under the revised Conceptual Framework. 63. Those transactions and events that enter into the determination of net income are
 The company's financial statements have been criticized for being difficult to reported under which section of the statement of cash flows?
understand due to the complexity and volume of information provided. The a) Significant noncash investing and financing activities
management is considering ways to improve the understandability of the financial b) Financing activities
statements. c) Investing activities
d) Operating activities
Based on the above and the result of your audit, answer the following questions:
64. Which of the following is the typical sequencing of activities on the statement of
53. According to the 2018 Revised Conceptual Framework, which of the following cash flows?
measurement bases is NOT mentioned as a possible basis for measuring assets and a) Operating, investing, and financing
liabilities? b) Operating, financing, and investing
a) Historical cost c) Investing, operating, and financing
b) Fair value d) Investing, financing, and operating
c) Revaluation
d) Replacement cost 65. Which of the following would be reported as a cash flow from financing activities?
a) Cash receipts from the sale of equipment
54. In light of the revised Conceptual Framework, should Alpha Inc. recognize b) Cash receipts from interest on notes receivable
contingent liabilities relating to ongoing legal disputes? c) Cash receipts from dividends on long-term investments
a) Yes, if it is probable that the company will have to pay out in the future d) Cash receipts from the issuance of long-term debt
b) Yes, if it is more likely than not that the company will have to pay out in the
future 66. These are short-term, highly liquid investments that are readily convertible to
c) No, because contingent liabilities are not recognized under the revised known amounts of cash and which are subject to an insignificant risk of changes in
Conceptual Framework value.
d) No, because legal disputes are not considered financial liabilities a) Cash equivalents
b) Cash
55. According to the 2018 Revised Conceptual Framework, which of the following c) Investment in stocks
factors should Alpha Inc. consider when determining the appropriate accounting d) Preferred shares
treatment for the new lease agreement?
a) The substance of the transaction 67. Primarily derived from the principal revenue-producing activities of the entity
b) The legal form of the lease agreement resulting from the transactions and other events that enter into the determination of
c) The company's previous accounting treatment for similar lease agreements profit or loss.
d) The impact on the company's key financial ratios a) Operating cash flows
b) Investing cash flows
56. Which of the following fundamental qualitative characteristics of useful financial c) Financing cash flows
information should Alpha Inc. focus on to improve the understandability of its d) Earnings cash flows
financial statements?
a) Timeliness 68. Examples of cash flows arising from financing activities include the following,
b) Relevance except:
c) Understandability a) cash advances and loans made to other parties (other than advances and
d) Faithful representation loans made by a financial institution)
b) cash proceeds from issuing shares or other equity instruments
57. If Alpha Inc. decides to adopt the revaluation model for its property, plant, and c) cash payments to owners to acquire or redeem the entity’s shares
equipment, which of the following qualitative characteristics of useful financial d) cash proceeds from issuing debentures, loans, notes, bonds, mortgages and
information may be enhanced? other short-term or long-term borrowings
a) Comparability e) cash repayments of amounts borrowed
b) Faithful representation
c) Relevance 69. Statement 1. Cash flows exclude movements between items that constitute cash or
d) Verifiability cash equivalents because these components are part of the cash management of an
entity rather than part of its operating, investing and financing activities.
58. The objective of financial reporting places most emphasis on: Statement 2. Dividends paid may be classified as a financing cash flow because
a) reporting to capital providers. they are a cost of obtaining financial resources. Alternatively, dividends paid may
b) reporting on stewardship. be classified as a component of cash flows from operating activities in order to
c) providing specific guidance related to specific needs. assist users to determine the ability of an entity to pay dividends out of operating
d) providing information to individuals who are experts in the field. cash flows.
59. According to IAS 1, which of the following is a general principle for the order of a) Both statements are correct
presenting notes to the financial statements? b) Both statements are wrong
a) Notes should be presented in the order of the related line items in the balance c) Only Statement 1 is correct
sheet d) Only Statement 2 is correct
b) Notes should be presented in the order of their significance 70. What is the purpose of having a conceptual framework?
c) Notes should be presented in the order of the related line items in the income a) To make sure that economic activity can be identified with a particular legal
statement entity.
d) Notes should be presented in a systematic manner that provides the most b) To segregate activities among different companies.
relevant information first c) To provide comparable information for different companies.
60. The statement of cash flows d) To enable the profession to more quickly solve emerging practical problems
a) Is a required statement only for those companies using cash-basis accounting and to provide a foundation from which to build more useful standards.
b) Provides a connecting link between two consecutive statement of 71. What is meant by comparability in discussing financial accounting information?
comprehensive incomes a) Information has predictive or confirmatory value
c) Is intended primarily to provide necessary information for assessing the b) Information is reasonably free from error.
profitability of an entity c) Information is measured and reported in a similar fashion across companies.
d) Summarizes all cash inflows and outflows of an entity for a given period of d) Information is timely.
time
72. What is meant by consistency when discussing financial accounting information?
61. Which of the following is NOT a purpose of the statement of cash flows? a) Information presented by a company applies the same accounting treatment
a) It provides information about an entity's cash receipts and payments over a to similar events, from period to period.
period of time. b) Information is timely.
b) It provides investors with information about the investing and financing c) Information is classified, characterized, and presented clearly and concisely.
activities of an entity. d) Information is verifiable.
73. Neutrality means that information
a) Provides benefits which are at least equal to the costs of its preparation. Based on the above and the result of your audit, answer the following questions:
b) Can be compared with similar information about an enterprise at other points 80. According to IAS 1, which of the following is a general principle for the order of
in time. presenting notes to the financial statements?
c) Would have no impact on a decision maker.  Notes should be presented in the order of the related line items in the balance
d) Cannot favor one set of interested parties over another. sheet
74. What is the authoritative status of the framework?  Notes should be presented in the order of their significance
a) It has the highest level of authority. In case of conflict between the  Notes should be presented in the order of the related line items in the income
Framework and a Standard or Interpretation, the Framework overrides the statement
Standard or Interpretation.  Notes should be presented in a systematic manner that provides the most
b) If there is a Standard or Interpretation that specifically applies to a relevant information first
transaction, it overrides the Framework. In the absence of a Standard or 81. How should SEJONGWAVE Manufacturing Inc. present information about its
Interpretation that specifically applies, the Framework should be followed. liquidity position in the financial statements according to IAS 1?
c) If there is a standard or interpretation that specifically applies to a a) By presenting a classified balance sheet
transaction, it overrides the Framework. In the absence of a standard or b) By disclosing the liquidity position in the notes to the financial statements
interpretation that specifically applies to a transaction, management should c) By including a statement of cash flows as part of the financial statements
consider the applicability of the Framework in developing and applying an d) By presenting a statement of changes in equity
accounting policy that results in information that is relevant and reliable.
d) The Framework applies only when IASB develops new or revised Standards. 82. Is SEJONGWAVE Manufacturing Inc. required to present separate financial
An entity is never required to consider the Framework. information for its non-material subsidiary in the financial statements?
a) Yes, because IAS 1 requires separate presentation for each subsidiary
75. A company has a factory building that originally cost the company P300,000. The b) Yes, because the subsidiary operates in a different industry
current fair value of the factory building is P5M. the president would like to report c) No, because the subsidiary is not material to the group's financial
the difference as a gain. The write up would represent a violation of which performance
accounting assumption or principle? d) No, because IAS 1 does not require separate presentation for subsidiaries
a) Revenue recognition
b) Going concern 83. According to IAS 1, which of the following is a general principle for the order of
c) Historical cost presenting notes to the financial statements?
d) Monetary unit a) Notes should be presented in the order of the related line items in the balance
sheet
76. During the current year, an entity purchased a parcel of land outside principal place b) Notes should be presented in the order of their significance
of operations. The management expects to be operating at that location within 20 c) Notes should be presented in the order of the related line items in the income
years if the company does not buy the land now, it would be unable to find a statement
suitable land when needed later. The land should be classified on the current d) Notes should be presented in a systematic manner that provides the most
statement of financial position under the caption- relevant information first
a) Other assets
b) Deferred charges 84. How should SEJONGWAVE Manufacturing Inc. present the gain from the disposal
c) Investments of a discontinued operation in the income statement according to IAS 1?
d) Current assets a) As a separate line item within profit or loss from continuing operations
e) Property, plant and equipment b) As a separate line item within operating profit
c) As a separate line item within profit or loss from discontinued operations
77. The basis for classifying assets as current or noncurrent is the period of time d) As a separate line item within other comprehensive income
normally required by the accounting entity to convert cash invested in:
a) tangible operational assets back into cash, or 12 months, whichever is longer. 85. Yuka Company had a beginning cash balance of P1,875. In addition, Yuka
b) Inventory to receivables and back to cash, or 12 months, whichever is Company reported the following items from its cash flow statement:
longer. Operating activities P6,450
c) Inventory back to cash, or 12 months, whichever is shorter. Investing activities (P4,735)
d) Receivables back to cash, or 12 months, whichever is longer. Financing activities (P1,200)
78. According to PAS 1, which of the following is a general principle for the order of Given this information, Yuka Company's ending cash balance is
presenting notes to the financial statements? a) P515
a) Notes should be presented in the order of the related line items in the balance b) P2,390
sheet c) P2,480
b) Notes should be presented in the order of their significance d) P3,590
c) Notes should be presented in the order of the related line items in the income
86. The following financial information is available for the year 2018:
statement
Operating activities P 309,800
d) Notes should be presented in a systematic manner that provides the most
Investing activities (P118,000)
relevant information first
Financing activities (P190,000)
79. The acquisition of land by issuing ordinary shares is Ending cash balance P 5,600
a) a non-cash transaction which is not reported in the body of a statement of
Given this information, what is the beginning cash balance?
cash flows.
a) P1,800
b) a cash transaction which is reported in the body of a statement of cash flows.
b) P3,800
c) a non-cash transaction which is reported in the body of a statement of cash
c) P72,600
flows.
d) P112,400
d) only reported if the statement of cash flows is prepared using the direct
method. 87. Which statement is correct? The statement of cash flows
a) is prepared instead of an income statement under generally accepted
Use the following information to answer next five (5) questions.
accounting principles.
SEJONGWAVE Manufacturing Inc. is a publicly traded entity operating in the b) is used to assess an entity's ability to pay dividends and meet obligations.
manufacturing industry. The company has been using the International Financial c) is prepared from comparative income statements.
Reporting Standards (IFRS) for financial reporting purposes. SEJONGWAVE d) shows a snap shot of the cash position at a particular point of time.
Manufacturing Inc.'s management is currently evaluating the company's financial
88. The statement of cash flows reports each of the following except the
statements to ensure compliance with IAS 1 Presentation of Financial Statements.
a) cash receipts during a period.
During the evaluation, the management identified the following key issues: b) cash payments during a period.
c) net change in cash during a period.
 The company's income statement combines various revenue and expense items in a d) amount of liabilities owing for the period
single line without providing sufficient disaggregation.
 SEJONGWAVE Manufacturing Inc. has recently experienced a significant decline 89. Financing activities involve
in its liquidity position, and the management is concerned about how to present this a) lending money to other entities and collecting on those loans.
information in the financial statements. b) cash receipts from sales of goods and services.
 The company has a subsidiary that operates in a different industry, and its results c) long-term liability and owners' equity items.
are not material to the group's financial performance. The management is unsure d) a. and c.
whether they need to present separate financial information for the subsidiary. 90. The best measure of a company's ability to generate sufficient cash to continue as a
 The company is required to make certain disclosures in the notes to the financial going concern is net cash provided by
statements. However, the management is uncertain about the order in which these a) financing activities.
disclosures should be presented. b) investing activities.
 SEJONGWAVE Manufacturing Inc. has recognized a significant gain from the c) operating activities.
disposal of a discontinued operation during the year, and the management is d) the closing bank balance.
considering how to present this gain in the income statement.
91. The acquisition of land by issuing ordinary shares is e) R.A. No. 9892
a) a non-cash transaction which is not reported in the body of a statement of
cash flows. 104. It is the body authorized by law to promulgate rules and regulations affecting the
b) a cash transaction which is reported in the body of a statement of cash flows. practice of the accountancy profession in the Philippines.
c) a non-cash transaction which is reported in the body of a statement of cash a) Board of Accountancy
flows. b) Philippine Institute of Certified Public Accountants
d) only reported if the statement of cash flows is prepared using the direct c) Securities and Exchange Commission
method. d) Financial Reporting and Standards Council

92. Investing activities include 105. Accountants employed in various capacity as accounting staff, chief accountant or
a) collecting cash on loans made. controller are said to be engage in
b) obtaining cash from creditors. a) Public Accounting
c) obtaining capital from owners. b) Private Accounting
d) repaying money previously borrowed. c) Government Accounting
d) Financial Accounting
93. If an entity has both an inflow and outflow of cash related to property, plant, and
equipment, in the statement of cash flows the 106. It is the accounting standard setting body created by Professional Regulation
a) two cash effects can be netted and presented as one item in the investing Commission upon recommendation of the Board of Accountancy to assist the
activities section. Board of Accountancy in carrying out its powers and functions under R.A. No.
b) cash inflow and cash outflow should be reported separately in the investing 9298.
activities section. a) Accounting Standards Council
c) two cash effects can be netted and presented as one item in the financing b) Auditing Assurance Standards Council
activities section. c) Philippine Accounting Standards Board
d) cash inflow and cash outflow should be reported separately in the financing d) Financial Reporting Standards Council
activities section. 107. Which is not required to be represented in the FRSC?
94. In calculating cash flows from operating activities using the indirect method, a gain a) Bangko Sentral ng Pilipinas
on the sale of equipment is b) Bureau of Internal Revenue
a) added to profit. c) Commission on Audit
b) deducted from profit. d) Department of Budget and Management
c) ignored because it does not affect cash. 108. The Philippines Financial Reporting Standards collectively include
d) reported as a cash inflow from investing activities. I. PFRS corresponding to IFRS.
95. Which of the following would be considered a “use” of cash for purposes of II. PAS corresponding to IAS.
constructing a statement of cash flows? III. Philippine Interpretations corresponding to IFRIC and SIC
a) a decrease in accounts receivable. Interpretations and Interpretations developed by PIC.
b) an increase in accounts payable. a) I only
c) an increase in common stock. b) I and II only
d) a decrease in bonds payable. c) I and III only
d) I, II and III
96. According to the FASB conceptual framework, the usefulness of providing
information in financial statements is subject to the constraint of 109. Which statement is correct regarding the Financial Reporting Standards Council
a) Consistency. (FRSC)
b) Cost-benefit. a) Established by PICPA in 2006 under the Implementing Rules and
c) Reliability. Regulations of the Philippine Accountancy of Act of 2004.
d) Representational faithfulness. b) The main function is to establish generally accepted auditing standards in the
Philippines.
97. According to the conceptual framework, the process of reporting an item in the c) The Chairman and members of the FRSC are appointed by the president of
financial statements of an entity is the Philippines upon the recommendation of the PRC in coordination with
a) Allocation the APO.
b) Matching d) The FRSC is the successor of the Accounting Standards Council (ASC)
c) Realization which was created in November 1981 by the Philippine Institute of Certified
d) Recognition. Public Accountants (PICPA).
98. Accounting is a service activity and its function is to provide quantitative 110. The FRSC was created by the Board of Accountancy (BOA) to assist the BoA in
information primarily financial in nature, about economic entities, that is intended carrying out its power and function to
to be useful in making economic decision. This accounting definition is given by a) Promulgate accounting standards in the Philippines.
a) Accounting Standards Council b) Promulgate auditing standards in the Philippines.
b) AICPA Committee on Accounting Terminology c) Ensure that all higher educational instruction and offering of accountancy
c) American Accounting Association comply with the policies, standards and requirements of the course
d) Board of Accountancy prescribed by CHED.
99. The basic purpose of accounting is d) Implement the CPE program.
a) To provide information that the managers of an economic entity need to 111. Which of the following is correct regarding FRSC?
control its operations. a) Any member of the ASC shall be disqualified from being appointed to the
b) To provide information that the creditors of an economic entity can use in FRSC.
deciding whether to make additional loans to the entity. b) FRSC members are required to render service to the Council on a full-time
c) To measure the periodic income of the economic entity. basis.
d) To provide quantitative financial information about an entity that is useful in c) FRSC members should be CPAs.
making rational economic decision. d) FRSC members serve for a term of three years renewable for another term.
100. General-purpose financial statements are the product of 112. Financial Reporting Standards Council (FRSC) has
a) financial accounting. a) 14 members with a Chairman
b) managerial accounting. b) 15 members with a Chairman
c) both financial and managerial accounting. c) 16 members with a Chairman
d) neither financial nor managerial accounting. d) 8 members with a Chairman
101. Users of financial reports include all of the following except: 113. The chairman of FRSC should have been or presently a senior practitioner in
a) creditors. a) Public accountancy
b) government agencies. b) Commerce and industry
c) unions. c) Academe
d) All of these are users. d) Any scope of accounting practice
102. These are the events that affect the entity and in which other entities participate. 114. Which of the following is represented in FRSC?
a) Internal events a) Financial Executives Institute of the Philippines
b) External events b) Bureau of Fisheries
c) Current events c) Insurance Commission
d) Past events d) Commission on Higher Education
103. What is the law regulating the practice of accountancy in the Philippines? 115. The FRSC issues its Standards in a series of pronouncements called PFRSs. These
a) R.A. No. 9298 consist of
b) R.A. No. 9198 a) PFRSs
c) R.A. No. 9928 b) Philippine Interpretations
d) R.A. No. 9928 c) PASs
 d) All of these d) Neither I nor II
116. Which statement is incorrect regarding PFRSs? 128. The old Framework for the Preparation and Presentation of Financial Statements is
a) PFRSs set out recognition, measurement, presentation and disclosure now replaced by a complete, comprehensive and single document called
requirements dealing with transactions and events that are important in a) Conceptual Framework for Financial Reporting
general purpose financial statements. b) Conceptual Framework for Financial Statements
b) PFRSs may also set out such requirements for transactions and events that c) Conceptual Framework for Business Entities
arise mainly in specific industries. d) Conceptual Framework
c) PFRSs are based on the Framework, which addresses the concepts
underlying the information presented in general purpose financial 129. Which is not a basic purpose of the Conceptual Framework?
statements. a) To assist the Financial Reporting Standards Council in developing
d) PFRSs are designed to apply to not-for-profit activities in the private sector. accounting standards.
b) To assist preparers of financial statements in applying accounting standards.
117. The FRSC employs a "due process" system which c) To assist the Financial Reporting Standards Council in reviewing and
a) Is an efficient system for collecting dues from members. adopting International Accounting Standards.
b) Enables interested parties to express their views on issues under d) To assist Board of Accountancy in promulgating rules and regulations
consideration. affecting the practice of accountancy in the Philippines.
c) Identifies the accounting issues that are the most important.
d) Requires that all accountants must receive a copy of financial standards. 130. The Conceptual Framework is intended to establish
a) Generally accepted accounting principles in financial reporting by entities.
118. What is the only underlying assumption mentioned in the new Conceptual b) The meaning of “present fairly in accordance with GAAP”
Framework for Financial Reporting? c) The objectives and concepts for use in developing standards of financial
a) Going concern accounting and reporting.
b) Accounting entity d) The hierarchy of sources of GAAP.
c) Time period
d) Monetary unit 131. Which of the following is true concerning the Conceptual Framework?
I. The Conceptual Framework is concerned with general purpose
119. The Conceptual Framework includes all of the following, except: financial statements including consolidated financial statements.
a) Objective of financial reporting. II. Special purpose financial reports, for example prospectuses and
b) Qualitative characteristics of accounting information. computations prepared for taxation purposes, are within the scope of
c) Elements of financial statements. the Conceptual Framework.
d) Supplementary information a) I only
b) II only
120. Which of the following statements best describes the term “going concern”? c) Both I and II
a) When current liabilities of an entity exceed current assets d) Neither I nor II
b) The ability of the entity to continue in operation for the foreseeable future
c) The potential to contribute to the flow of cash and cash equivalents to the 132. Which is not included in the scope if the Conceptual Framework?
entity a) Qualitative characteristics of useful financial information
d) The expenses of an entity exceed its income b) Definition, recognition and measurement of the elements of financial
statements
121. If a business is not being sold or closed, the amounts reported for assets used in the c) Objective of financial reporting
business operations are based on the cost of the assets. This practice is justified by d) Generally accepted accounting principles
a) Accrual
b) Continuity assumption 133. As regards the relationship between PFRS and the Conceptual Framework, which
c) Time period of the following statements is true?
d) Accounting entity I. The Conceptual Framework is a reporting standard.
II. In case of conflict, the requirements of the Conceptual Framework
122. Continuation of an accounting entity in the absence of evidence to the contrary is prevail over those of the relevant PFRS.
an example of the basic concept of a) I only
a) Accounting entity b) II only
b) Time period c) Both I and II
c) Going concern d) Neither I nor II
d) Accrual
134. What are the qualitative characteristics of financial statements?
123. Which of the following is not an implication of the going concern assumption? a) Qualitative characteristics are the attributes that make the information
a) The historical cost principle is credible. provided in financial statements useful to users.
b) Depreciation and amortization policies are justifiable and appropriate. b) Qualitative characteristics are broad classes of financial effects of
c) The current and noncurrent classification of assets and liabilities is transactions and other events.
justifiable and significant. c) Qualitative characteristics are non-qualitative aspects of an entity’s position
d) Amortizing research and development costs over several periods is and performance and changes in financial position.
justifiable and appropriate. d) Qualitative characteristics measure the extent to which an entity has
124. The decisions of the ‘primary users’ involve complied with all relevant standards and interpretations.
a) Buying equity and debt instruments. 135. What is an entity-specific aspect of relevance?
b) Selling or holding equity and debt instruments a) Predictive value
c) Providing or settling loans and other forms of credit. b) Confirmatory value
d) All of the above. c) Timeliness
125. Which statements is false concerning users and their information needs? d) Materiality
a) Lenders are interested in information that enables them to determine whether 136. Which statement is correct regarding ‘materiality’?
their loans and the interest on these loans will be paid when due. a) Information is material if omitting it or misstating it could influence
b) The providers of risk capital and their advisers are concerned with the risk decisions that users make on the basis of financial information about a
inherent in, and return provided by their investment specific reporting entity.
c) Government and its agencies have an interest in information about the b) Materiality is based on the nature or magnitude, or both, of the items to
continuance of an enterprise especially when they have long-term which the information relates in the context of an individual entity’s
involvement or are dependent on the enterprise. financial report.
d) Employees and their representative groups are interested in information c) The IASB does not specify a uniform quantitative threshold for materiality
about the stability and profitability of the entity. or predetermine what could be material in a particular situation.
126. The relatively stable economic, political and social environment supports d) All the statements are correct.
a) Conservatism 137. The ingredients of faithful representation are
b) Materiality a) Completeness and neutrality
c) Timeliness b) Completeness and free from error
d) Going concern c) Completeness, neutrality and free from error
127. Which of the following statements in relation to underlying assumptions is true? d) Completeness, neutrality, free from error and conservatism
I. In accordance with the unit of measure assumption, accountants 138. Information is neutral if it
normally revise the amounts to reflect the changing purchasing power a) Is free from bias toward a predetermined result
of money due to inflation or deflation. b) Would have no impact on a decision maker
II. In accordance with the going concern assumption, the life of an entity c) Provides benefits which are at least equal to the costs of its preparation
is presumed to be indefinite. d) Can be compared with similar information about an enterprise at other points
a) I only in time
b) II only
c) Both I and II 139. Which of the following helps users make good decisions?
 a) A faithful representation of an irrelevant phenomenon. a) Relevance
b) An unfaithful representation of a relevant phenomenon. b) Faithful representation
c) Both a and b. c) Consistency
d) Neither a nor b. d) Comparability
140. The enhancing qualitative characteristics of financial information are 152. Which of the following enhances the usefulness of financial information?
a) Comparability and understandability a) Accounting entity
b) Verifiability and timeliness b) Going concern
c) Comparability, understandability and verifiability c) Verifiability
d) Comparability, understandability, verifiability and timeliness d) Time period
141. The conceptual framework includes a cost-benefit constraint. Which of the 153. The Conceptual Framework sets out certain enhancing qualitative characteristics of
following best describes the cost-benefit constraint? accounting information. Which of the following is not an enhancing qualitative
a) The benefits of the information must be greater than the costs of providing it. characteristic?
b) Financial information should be free from cost to users of the information. a) Understandability
c) Costs of providing financial information are not always evident or b) Profit-oriented
measurable, but must be considered. c) Timeliness
d) All of the choices are correct. d) Comparability
142. What is the meaning of “relevance”? 154. The characteristic that is demonstrated when a high degree of consensus can be
I. The capacity of information to make a difference in the decisions secured among independent measurers using the same measurement method is
made by users. a) Relevance
II. The financial reports represent economic phenomena or transactions b) Understandability
in words and numbers. c) Verifiability
a) I only d) Neutrality
b) II only
c) Both I and II 155. Which concept of accounting holds that, to the maximum extent possible, financial
d) Neither I nor II statements shall be based on arm’s length transactions?
a) Revenue realization
143. The ingredients of relevant financial information are b) Verifiability
a) Predictive value and confirmatory value c) Monetary unit
b) Predictive value, confirmatory value and timeliness d) Matching
c) Predictive value, confirmatory value and materiality
d) Predictive value, confirmatory value, timeliness and materiality 156. Allowing entities to estimate rather than physically count inventory at interim
periods is an example of a tradeoff between
144. Which of the following statements is incorrect concerning materiality? a) Verifiability and comparability
a) Information is material if its omission or misstatement could influence the b) Timeliness and comparability
economic decisions that users make on the basis of the financial information c) Timeliness and verifiability
about entities. d) Neutrality and consistency
b) Materiality depends on the relative size of the item or error judged in the
particular circumstances of its omission or misstatement. 157. Which of the following statements in relation to the enhancing qualitative
c) Materiality is a fundamental qualitative characteristic rather than a threshold characteristics of “comparability” is true?
or cut off point in determining useful information. I. For information to be more useful, it is important that it be compared
d) Materiality is dependent on professional judgment because no threshold with similar information of previous periods or with that produced by
limit is defined in the Conceptual Framework. another entity.
II. For information to be comparable, it should be consistently prepared.
145. Which of the following is the best description of “faithful representation” in a) I only
relation to information in financial statements? b) II only
a) Influence on the economic decisions of users c) Both I and II
b) Inclusion of a degree of caution d) Neither I nor II
c) Freedom from material error
d) Comprehensibility to users 158. Which statement is incorrect regarding general purpose financial statements?
146. In the event of conflict between the economic substance of a transaction and its a) General purpose financial statements are those intended to meet the needs of
legal form, the economic substance shall prevail. This concept is known as users who are not in a position to require an entity to prepare reports tailored
a) Form over substance to their particular information needs.
b) Substance over form b) Many existing and potential investors, lenders and other creditors are the
c) Faithful representation primary users to whom general purpose financial reports are directed.
d) Completeness c) General purpose financial reports do not and cannot provide all of the
information that existing and potential investors, lenders and other creditors
147. The financial accounting information is directed toward the common needs of users need.
and is independent of presumptions about particular needs and desires of specific d) General purpose financial reports are designed to show the value of a
users. reporting entity since they provide information to help existing and potential
a) Relevance investors, lenders and other creditors to estimate the value of the reporting
b) Verifiability entity.
c) Neutrality
d) Completeness 159. What is the only underlying assumption mentioned in the new Conceptual
Framework for Financial Reporting?
148. It is the exercise of care and caution in dealing with uncertainties in measurement a) Going concern
so as not to overstate assets and income or not to understate liabilities and b) Accounting entity
expenses. c) Time period
a) Completeness d) Monetary unit
b) Prudence
c) Faithful representation 160. “Recognition” is defined in the Conceptual Framework as
d) Neutrality a) The grouping, into broad classes, of the financial effects of transactions and
other events according to economic characteristics.
149. The enhancing qualitative characteristics of financial information are b) The process of determining the monetary amounts at which the elements of
a) Comparability and understandability the financial statements are to be recognized and carried in the balance sheet
b) Verifiability and timeliness and income statement.
c) Comparability, understandability and verifiability c) The removal of a previously recognized asset or liability from an entity’s
d) Comparability, understandability, verifiability and timeliness statement of financial position.
150. Financial information exhibits consistency when d) The process of incorporating in the balance sheet or income statement an
a) Accounting procedures are adopted which smooth net income and make item that meets the definition of an element and satisfies the criteria for
results consistent between years. recognition.
b) Gains and losses are shown separately in the income statement. 161. Which of the following capital maintenance concept requires the adoption of the
c) Accounting entities give similar events the same accounting treatment each current cost basis of measurement?
period. a) The financial capital concept
d) Expenditures are reported as expenses and netted against revenue in the b) The physical capital concept
period in which they are paid. c) Both a and b
151. When information about two different entities engaged in the same industry has d) Neither a nor b
been prepared and presented in similar manner, the information exhibits the 162. Which of the following concepts relates to separating the reporting of business and
enhancing qualitative characteristic of personal economic transactions?
 a) Cost Concept Statement 2. The unit of account is the right or the group of rights, the obligation or
b) Unit of Measure Concept the group of obligations, or the group of rights and obligations, to which
c) Business Entity Concept recognition criteria and measurement concepts are applied.
d) Objectivity Concept a) Both statements are true.
b) Both statements are false.
163. All of the following represent costs of providing financial information except c) Only statement 1 is true.
a) Preparing d) Only statement 2 is true.
b) Auditing.
c) Disseminating. 172. It is an element defined under the Framework as increases in assets, or decreases in
d) Accessing capital. liabilities, that result in increases in equity, other than those relating to
contributions from holders of equity claims.
164. Financial statements a) Income
a) Are a structured representation of the financial position and financial b) Expense
performance of an entity. c) Gains
b) Provide information about the financial position, financial performance and d) Losses
cash flows of an entity that is useful to a wide range of users in making
economic decisions.
c) Show the results of the management’s stewardship of the resources entrusted
to it.
d) All of the above.
165. A complete set of financial statements comprises:
i. Statement of Financial Position
ii. Statement of Profit or Loss and Other Comprehensive Income
iii. Statement of Changes in Equity
iv. Statement of Cash Flows
v. Notes to the Financial Statements
a) I, II and II
b) I and II
c) I, II, III and IV
d) I, II, III, IV and V
166. Statement of financial position as at the beginning of the earliest comparative
period is not required when an entity
a) Applies an accounting policy retrospectively.
b) Makes a retrospective restatement of items in its financial statements.
c) Reclassifies items in its financial statements.
d) Changes an accounting estimate.
167. An item that meets the definition of an element should be recognized if:
a) It is probable that any future economic benefit associated with the item will
flow to or from the entity.
b) The item has a cost or value that can be measured with reliability.
c) Both a and b.
d) Neither a nor b.
168. How did the Conceptual Framework define ‘asset’?
a) 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.
b) A present obligation of the entity arising from past events, the settlement of
which is expected to result in an outflow from the entity of resources
embodying economic benefits.
c) Increases in economic benefits during the accounting period in the form of
inflows or enhancements of assets or decreases of liabilities that result in
increases in equity, other than those relating to contributions from equity
participants.
d) Decreases in economic benefits during the accounting period in the form of
outflows or depletions of assets or incurrences of liabilities that result in
decreases in equity, other than those relating to distributions to equity
participants.
169. The elements of financial statements defined in the Conceptual Framework are:
I. assets, liabilities and equity, which relate to a reporting entity's
financial position; and
II. income and expenses, which relate to a reporting entity's financial
performance.

a) I only
b) II only
c) Both I and II
d) Neither I nor II
170. How did the Conceptual Framework define ‘asset’?
a) An asset is a present economic resource controlled by the entity as a result of
past events. An economic resource is a right that has the potential to produce
economic benefits.
b) A present obligation of the entity arising from past events, the settlement of
which is expected to result in an outflow from the entity of resources
embodying economic benefits.
c) Increases in economic benefits during the accounting period in the form of
inflows or enhancements of assets or decreases of liabilities that result in
increases in equity, other than those relating to contributions from equity
participants.
d) Decreases in economic benefits during the accounting period in the form of
outflows or depletions of assets or incurrences of liabilities that result in
decreases in equity, other than those relating to distributions to equity
participants.
171. Statement 1. An executory contract is a contract, or a portion of a contract, that is
equally unperformed—neither party has fulfilled any of its obligations, or both
parties have partially fulfilled their obligations to an equal extent.