CHAPTER 1 THE ACCO UNTANCY PROFESSION
QUESTION 1-1 MULTIPLE CHOICE (ACP)
1. What is the law regulating the practice of
accountancy in the Philippines?
a. RA. No. 9298
b. RA. No. 9198
c. RA. No. 9928
d. RA. No. 9892
Ans: A
2. It is the body authorized by law to promulgate rules
and regulation affecting the practice of the accountancy
profession in the Philippines.
a. Board of Accountancy
b. Philippine Institute of Certified Public Accountants
c. Securities and Exchange Commission
d. Financial Reporting Standards Council
Ans: A
3. The qualifications of the members of the Board of
Accountancy include all of the following, except a. Must
be a natural-born citizen and a resident of the
Philippines.
b. Must be duly registered CPA with at least ten years of
work experience in any scope of practice of
accountancy.
c. Must be of good moral character and must not have
been convicted of crime involving moral turpitude. d.
Must have any pecuniary interest, directly or indirectly
in any school conferring an academic degree necessary
for admission to the practice of accountancy. Ans: D
4. What are the three main areas in the practice of the
accountancy profession?
a. Public accounting, private accounting and managerial
accounting.
b. Auditing, taxation and managerial amounting c.
Financial accounting, managerial accounting and
corporate accounting.
d. Public accounting, private accounting and
government accounting.
ANS: D
5. What is the primary service of CPAs in public practice?
a. Auditing
b. Taxation
c. Managerial accounting
d. Controllership
ANS:A
6. Accountants employed in entities in various capacity
as accounting staff, chief accountant or controller are
said to be engaged in
a. Public accounting
b. Private accounting
c. Government accounting
d. Financial accounting
ANS:B
7. It is the area of the accountancy profession that
encompasses the process of analyzing, classifying,
summarizing and communicating all transactions
involving the receipt and disposition of government
funds and property and interpreting the results thereof.
a. Internal auditing
b. External auditing
c. Private accounting
d. Government accounting
ANS:D
8. The Continuing Professional Development is required
for
a. Renewal of CPA license
b. Accreditation to practice the accountancy profession.
c. Both renewals of CPA license and accreditation to
practice the accountancy profession.
d. Neither renewal of CPA license nor accounting
profession accreditation to practice the accountancy
profession.
ANS: C
9. Which of the following statements is true regarding
exemptions from CPD requirements?
a. A CPA shall be permanently exempted from CPD
requirement for renewal of CPA license at the age of 65
years but not for the accreditation to practice the
accountancy profession.
b. A CPA who is working or practicing the profession
abroad shall be temporarily exempted from CPD
requirement during the period of stay abroad provided
the CPA has been out of the country for at least two
years prior to the date of renewal.
c. A CPA who is furthering studies abroad shall be
temporarily exempted from CPD requirement during
the period of stay abroad provided the CPA has been
out of the country for at least two years prior to date of
renewal.
d. All of the statements are true.
ANS:D
10. Which of the following statements is incorrect in
relation to the practice of public accounting?
a. Single practitioners for the practice of public
accounting shall be registered CPAs in the Philippines.
b. Partners of partnership formed for the practice of
public accounting shall be registered CPAs in the
Philippines.
c. The Securities and Exchange Commission can register
any corporation organized for the practice of public
accounting.
d. The Professional Regulation Commission upon
favorable recommendation of the Board of Accountancy
shall issue certificate of accreditation to CPAs in public
practice provided the registrant has acquired a
minimum of three years of meaningful experience in
public practice.
ANS:C
QUESTION 1-2 MULTIPLE CHOICE (ACP)
1. Which is the accounting standard setting body in the
Philippines at the present time?
a. Accounting Standards Council
b. Auditing and Assurance Standards Council
c. Philippine Accounting Standards Board
d. Financial Reporting Standards Council
ANS: D
2. Which statement is true regarding the FRSC? a. The
FRSC is created by Professional Regulation Commission
upon recommendation of the Board of Accountancy in
carrying out its powers and functions under RA 9298
b. The FRSC shall be composed of 15 with a Chairman
and 14 representatives.
c. The Chairman and members of FRSC are appointed by
Professional Regulation Commission upon
recommendation of the Board of Accountancy and shall
have a term of three years renewable for another
d. All of the statements are true.
ANS:D
3. All of the following are represented in FRSC, except
a. Board of Accountancy
b. Securities and Exchange Commission
c. Commission on Audit
d. Department of Budget and Management
ANS: D
4. The Philippine Financial Reporting Standards
collectively include
a. PFRS corresponding to IFRS.
b. PAS corresponding to IAS
c. Philippine Interpretations corresponding to IFRIC and b. Public hearings are held on proposed standards. c.
SIC Interpretations and Interpretations developed by
PIC.
d. All of these are included in Philippine Financial
Reporting Standards.
ANS: D
QUESTION 1-3 MULTIPLE CHOICE (IFRS)
1. The International Accounting Standards Board was
formed
a. To enforce IFRS in foreign countries
b. To develop a single set of high quality IFRS c. To
establish accounting standards for multinational
entities
d. To develop accounting standards for countries that
do not have their own standard-setting bodies ANS:B
2. The IASB declared that the merits of proposed
standards are assessed
a. From a position of neutrality
b. From a position of materiality
c. Based on possible impact on behavior
d. Based on arguments of lobbyist
ANS: A
3. What is the chronological order in the evaluation of a
typical standard?
a. Exposure draft, Standard and Discussion paper
b. Exposure draft, Discussion paper and Standard
c. Standard, Discussion paper and Exposure draft
d. Discussion paper, Exposure draft and Standard
ANS: D
4. The IASB publishes standards called
a. International Accounting Standards
b. Financial Reporting Standards
c. International Financial Reporting Standards
d. Statement of Financial Accounting
Standards ANS: C
5. The IASB employs a "due process" system which a. Is
an efficient system for collecting dues from members
b. Enables interested parties to express their views on
issues under consideration.
c. Identifies the most important accounting issues.
d. Requires that all CPAs must receive a copy of IFRS.
ANS: B
6. What is "due process" in the context of standard
setting by IASB?
a. IASB operates in full view of the public.
Interested parties can make their views known. d. All of
these are part of due process in standard setting.
ANS: D
7. What is a possible danger if politics play too big a role
in developing IFRS?
a. Financial reporting standards are not truly generally
accepted.
b. Individuals may influence the
standards. c. User groups become active.
d. The IASB delegates its authority to elected officials.
ANS: A
8. Financial accounting standard-setting
a. Can be described as a social process which reflects
political actions of various interested user groups as
well as a product of research and logic.
b. Is based solely on research and empirical findings. c.
Is a legalistic process based on rules promulgated by
governmental agencies
d. Is democratic in the sense that a majority of
accountants must agree with a standard before it
becomes enforceable.
ANS:A
9. IFRIC Interpretations issued by IASB
a. Are considered authoritative and must be followed.
b. Cover newly identified financial reporting issues not
specifically addressed.
c. Cover issues where unsatisfactory or conflicting
interpretations have developed.
d. All of these are true about IFRIC Interpretations.
ANS: D
QUESTION 1-4 MULTIPLE CHOICE (IAA)
1. Financial accounting can be broadly defined as the
area of accounting that prepares
a. General purpose financial statements to be used by
parties internal to the entity.
b. Financial statements to be used by investors. c.
General purpose financial statements to be used by
parties both internal and external to the entity. d.
Financial statements to be used primarily by
management.
ANS: C
2. Financial accounting emphasizes reporting to
a. Management
b. Regulatory bodies
c. Internal auditors
d. Creditors and investors
ANS: D
3. Managerial accounting emphasizes
a. Reporting financial information to external users b.
Reporting to the Securities and Exchange Commission
c. Combining accounting with data processing d.
Developing accounting information for use within an
entity
ANS: D
4. Which of the following statements is true regarding
the comparison of managerial and financial accounting?
a. Managerial accounting is generally more-precise. b.
Managerial accounting need not follow generally
accepted accounting principles while financial
accounting must follow GAAP.
c. Managerial accounting has a future focus. d. The
emphasis on managerial accounting is relevance and
the emphasis on financial accounting is timeliness. ANS:
B
QUESTION 1-5 MULTIPLE CHOICE (IAA)
1. Generally accepted accounting
principles a. Are accounting principles
based on law.
b. Derive their credibility and authority from law. c.
Derive their authority from regulatory authority. d.
Derive their credibility and authority from recognition
and acceptance by the accountancy profession. ANS: D
2. Which of the following statements best describes
generally accepted accounting principles?
a. The accounting principles have been formulated in
the public sector.
b. The accounting principles have been developed on
the basis of such factors as usage and practical necessity.
c. The accounting principles are the same as laws d. The
accounting principles do not apply to SMEs. ANS: B
3. Proper application of accounting principles is most
dependent upon
a. Existence of specific guidelines
b. Oversight of regulatory bodies
c. External audit function
d. Professional judgment of the accountant
ANS: D
4. Once an accounting standard has been established
a. The standard is continually reviewed to see if
modification is necessary.
b. The standard is not reviewed.
c. The task of reviewing the standard is given to a
national organization of CPAs.
d. No revisions should be made to the
standard. ANS: A
CHAPTER 2
CONCEPTUAL FRAMEWORK
Assumptions and financial reporting
QUESTION 2-1 MULTIPLE CHOICE (IAA)
1. Which of the following statements best describes the
term “going concern?
a. When current liabilities of an entity exceed current
assets
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 entity
d. The expenses exceed income
ANS: B
2. Which of the following is not an implication of the
going concern assumption?
a. The historical cost principle is credible.
b. Depreciation and amortization policies are justifiable
and appropriate.
c. The current and noncurrent classification of assets
and liabilities is justifiable and significant.
d. Amortizing research and development costs over
several periods is justifiable and appropriate. ANS: D
3. Which basic assumption may not be followed when
an entity in bankruptcy prepares financial statements?
a. Economic entity assumption
b. Going concern assumption
c. Time period assumption
d. Monetary unit assumption
ANS: D
4. The financial statements that are prepared for the
business are separate and distinct from the financial
statements of the owners.
a. Going concern assumption
b. Matching principle
c. Economic entity assumption
d. Accounting period assumption
ANS:C
5. The economic entity assumption
a. Is inapplicable to unincorporated businesses.
b.Recognizes the legal aspects of business
organizations c. Requires periodic income
measurement
d. Is applicable to all forms of business
organizations ANS: D
6. Which assumption serves as the basis for preparing
financial statements at regular artificial points in time?
a. Accounting entity
b. Going concern
c. Accounting period.
d. Stable monetary unit
ANS: C
7. Which basic accounting assumption is threatened by
the existence of severe inflation in an economy? a.
Monetary unit assumption
b. Periodicity assumption
c. Going concern assumption
d. Economic entity assumption
ANS: A
8. Which is not an important characteristic of the
financial statements that accountants currently prepare?
a. The information in financial statements is expressed
in units of money adjusted for changing purchasing
power.
b. Financial statements articulate with one another. c.
The information in financial statements is summarized
and classified to help meet users’ needs. d. Financial
statements can be justified only if the benefits exceed
the costs.
ANS: A
QUESTION 2-2 MULTIPLE CHOICE (AICPA ADAPTED)
1. The concept of accounting entity is applicable a.
Only to the legal aspects of business organizations b.
Only to the economic aspects of business organizations
c. Only to business organizations
d. Whenever accounting is involved
ANS: D
2. When a parent and subsidiary relationship exists,
consolidated financial statements are prepared in
 recognition of
a. Legal entity
b. Economic entity
c. Stable monetary unit
d. Time period
ANS: B
3. The valuation of a promise to receive cash in the
future at present value is valid because of the
accounting concept of
a. Entity
b. Time period
c. Going concern
d. Monetary unit
ANS: C
4. What is the accounting concept that justifies the
usage of accruals and deferrals?
a. Going concern
b. Materiality
c. Consistency
d. Stable monetary unit
ANS: A
QUESTION 23 MULTIPLE CHOICE (IFRS)
1. What is the authoritative status of the Conceptual
Framework?
a. The Conceptual Framework has the highest level of
authority.
b. In the absence of a standard or an interpretation that
specifically applies to a transaction, the Conceptual
Framework shall be followed.
c. In the absence of a standard or an interpretation that
specifically applies to a transaction, management shall
consider the applicability of the Conceptual Framework
in developing and applying an accounting policy that
result in information that is relevant and reliable.
d. The Conceptual Framework applies only when the
International Accounting Standard Board develops new
or revised standards.
ANS: C
2. Which of the following statements is true concerning
the Conceptual Framework for Financial Reporting? a.
The Conceptual Framework is not a reporting standard
and does not define standard for any particular
measurement or disclosure issue. b. The Conceptual
Framework is concerned with general purpose financial
statements including consolidated financial
statements.
c. Nothing in the Conceptual Framework overrides any
specific Philippine Financial Reporting Standard. d. All
of these statements are true about the Conceptual
Framework.
ANS: D
3. The Conceptual Framework deals with all of the
following, except
a. The objective of financial reporting
b. The qualitative characteristics of useful financial
information
c. The definition, recognition and measurement of the
elements of financial statements
d. Supplementary information
ANS: D
4. The Conceptual Framework it intended to establish
a. Generally accepted accounting principles. b. The
meaning of “present fairly in accordance with GAAP”
c. The objectives and concepts for use in developing
standards of financial accounting and reporting. d. The
hierarchy of sources of GAAP.
ANS: C
5. The Conceptual Framework should
a. Lead to uniformity of financial statements among
entities within the same industry.
b. Eliminate alternative accounting principles. c. Guide
multinational entities in developing generally accepted
auditing standards.
d. Define the basic objectives, terms and concepts of
accounting.
ANS: D
6. Which is not a purpose of the Conceptual Framework?
a. To provide definitions of key terms and concepts. b.
To provide specific guidelines for resolving situations not
covered by existing accounting standards. c. To assist
accountants in selecting among alternative accounting
and reporting methods.
d. To assist IASB in the standard-setting
process. ANS: B
QUESTION 2-4 MULTIPLE CHOICE (IM)
1. In the Conceptual Framework for Financial Reporting,
what provides the “why” of accounting?
a. Measurement and recognition concept
b. Qualitative characteristic of accounting
information c. Element of financial statement
d. Objective of financial reporting
 ANS: D
2. The underlying theme of the Conceptual Framework
is
a. Decision usefulness
b. Understandability
c. Timeliness
d. Comparability
ANS: A
3. Which is an important characteristic of the
Conceptual Framework?
a. To enable the accountancy profession to solve more
quickly emerging practical problems
b. To provide a foundation from which to build more
useful financial accounting standards
c. To enhance comparability of financial statements
across entities
d. All of these are important characteristics of the
Conceptual Framework
ANS: D
4. Which of the following statements is not true
concerning the Conceptual Framework?
a. The Conceptual Framework should be a basis for
standard setting.
b. The Conceptual Framework should allow practical
problems to be solved more quickly.
c. The Conceptual Framework should be based on
fundamental truth derived from the law of nature. d.
The Conceptual Framework should increase users’
understanding and confidence in financial reporting.
ANS: C
QUESTION 2-5 MULTIPLE CHOICE (IAA)
1. The primary focus of financial reporting has been on
meeting the needs of which of the following groups? a.
Management
b. Existing and potential investors, lenders and other
creditors
c. National and local taxing authorities
d. Independent CPAs
ANS: B
2. The overall objective of financial reporting is to
provide information
a. That is useful for decision making
b. About assets, liabilities and owners' equity c. About
financial performance during a period d. That allows
owners to assess management performance
ANS: A
3. Which is an objective of financial reporting? a. To
provide information that is useful to those making
investing and credit decisions.
b. To provide information that is useful to management.
c. To provide information about prospective investors.
d. To provide information about ways to solve internal
and external conflicts about the entity.
ANS: A
4. Which is an objective of financial reporting? a. To
provide information that is useful to management in
making decisions.
b. To provide information that clearly portrays non
financial transactions.
c. To provide information that is useful to assess the
amount, timing, and uncertainty of prospective cash
receipts.
d. To provide information that excludes claims against
the resources.
ANS: C
5. An objective of financial reporting is to provide a.
Information about the investors in the entity. b.
Information about the liquidation value of the
resources held by the entity.
c. Information that is useful in assessing cash flow
prospects.
d. Information that will attract new investors.
ANS: C
6. An objective of financial reporting is “assessing cash
flow prospects” which is interpreted to mean a. Cash
basis accounting is preferred over accrual basis
accounting.
b. Information about the financial effects of cash
receipts and cash payments is generally considered the
best indicator of present and continuing ability to
generate favorable cash flows.
c. Over the long run, trends in revenue and expenses
are generally more meaningful than trends in cash
receipts and disbursements.
d. All of the choices are correct regarding “assessing
cash flow prospects”.
ANS: C
QUESTION 2-6 MULTIPLE CHOICE (AICPA ADAPTED)
1. The objectives of financial reporting are based on
a. The need for conservatism
 b. Reporting on management stewardship
c. Generally accepted accounting principles
d. The needs of the users of the information
ANS: D
2. Financial reporting pertains to
a. Individual business entities rather than to industries CONCEPTUAL FRAMEWORK
or an economy as a whole or to members of society as Qualitative characteristics
consumers
b. Individual business entities and an economy as a
whole or to members of society as consumers c.
Individual business entities and an economy as a whole,
rather than to industries or to members of society as
consumers
d. Individual business entities, industries and an
economy as a whole, rather than to members of society
as consumers
ANS: A
3. During a period when an entity is under the direction
of a particular management, financial reporting will
directly provide information about
a. Both entity performance and management
performance
b. Management performance but not entity
performance
c. Entity performance but not management
performance
d. Neither entity performance nor management
performance.
ANS: C
4. Which of the following is not listed as an objective of
financial reporting?
a. Financial reporting shall provide information about
entity resources, claims to those resources and changes
in them.
b. Financial reporting shall provide information useful in
evaluating management stewardship.
c. Financial reporting shall provide information useful in
investment, credit and similar decisions.
d. Financial reporting shall provide information useful in
assessing cash flow prospects.
ANS: B
5. Which is not an objective of financial reporting? a. To
provide information about assets and claims against
those assets
b. To provide information that is useful in assessing
sources and uses of cash
c. To provide information that is useful in lending and
investing decisions
d. To provide information about liquidation value of an
entity
ANS: D
CHAPTER 3
QUESTION 8-1 MULTIPLE CHOICE (IAA)
1. What are qualitative characteristics of financial
statements?
a. Qualitative characteristics are the attributes that
make the information provided in financial statements
useful to users.
b. Qualitative characteristics are broad classes of
financial effects of transactions and other events. c.
Qualitative characteristics are non-qualitative aspects
of an entity’s position and performance and changes in
financial position.
d. Qualitative characteristics measure the extent to
which an entity has complied with all relevant standards
and interpretations.
ANS: A
2. Qualitative characteristics
a. Are considered either fundamental or enhancing. b.
Contribute to the decision-usefulness of financial
reporting information.
c. Distinguish better information from inferior
information for decision-making purposes. d. All of the
choices are correct.
ANS: D
3. The fundamental qualitative characteristics are
a. Relevance and faithful representation
b. Relevance, faithful representation and materiality
c. Relevance and reliability
d. Faithful representation and materiality
ANS: A
4. Accounting information is considered relevant when
it
a. Can be depended upon to represent the economh1
conditions and events that it is intended to represent b.
Is capable of making a difference in a decision. c. Is
understandable by reasonably informed users of
accounting information.
d. Is verifiable and neutral.
ANS: B
5. The ingredients of relevant financial information are
 a. Predictive value and confirmatory value 3. When information about two different entities
b. Predictive value, confirmatory value and timeliness c. engaged in the same industry has been prepared and
Predictive value, confirmatory value and materiality d. presented in similar manner, the information exhibits
Predictive value, confirmatory value, timeliness and the enhancing qualitative characteristic of
materiality a. Relevance
ANS: A b. Faithful representation
c. Consistency
6. What is the quality of information that gives d. Comparability
assurance that it is reasonably free from error and bias? ANS: D
a. Relevance
b. Faithful representation 4. The characteristic that is demonstrated when a high
c. Verifiability degree of consensus can be secured among
d. Neutrality independent measurers using the same measurement
ANS: B method is
a. Relevance
7. Which of the following is the best description of b. Understandability
faithful representation in relation to information in c. Verifiability
financial statements? d. Neutrality
a. Influence on the economic decision of users ANS: C
b. Inclusion of a degree of caution
c. Freedom from material error 5. Which concept of accounting holds that, to the
d. Comprehensibility to users maximum extent possible, financial statements shall be
ANS: C based on arm’s length transactions?
a. Revenue realization
8. The ingredients of faithful representation are b. Verifiability
a. Completeness and neutrality c. Monetary unit
b. Completeness and free from error d. Matching
c. Completeness, neutrality and free from ANS: B
error d. Neutrality, free from error and
conservatism ANS: C 6. An entity issuing the annual financial reports within
one month at the end of reporting period is an example
QUESTION 3-2 MULTIPLE CHOICE (IAA) of which enhancing quality of accounting information?
1. The enhancing qualitative characteristics of financial a. Neutrality
information are b. Timeliness
a. Comparability and understandability c. Predictive value
b. Verifiability and timeliness d. Representational faithfulness
c. Comparability, understandability and verifiability d. ANS: B
Comparability, understandability, verifiability and
timeliness 7. Allowing entities to estimate rather than physically
ANS: D count inventory at an interim period is an example of a
tradeoff between
2. Financial information exhibits consistency when a. a. Verifiability and comparability
Accounting procedures are adopted which smooth net b. Timeliness and comparability
income and make results consistent between years b. c. Timeliness and verifiability
Gains and losses are shown separately in the income d. Neutrality and consistency
statement. ANS: C
c. Accounting entities give similar events the same
accounting treatment each period. 8. Which of the following statements is true in relation
d. Expenditures are reported as expenses and netted to the enhancing qualitative characteristic of
against revenue in the period when paid. understandability of financial information? a. Users
ANS: C have a reasonable knowledge of business and economic
 activities and review the information with reasonable 6. An enhancing quality of financial accounting
diligence. information is that
b. Users are expected to have significant business a. Information must be decision-useful to all potential
knowledge. users of financial reporting.
c. Financial statements shall exclude complex matters. b. General-purpose financial reporting is the primary
d. Financial statements shall be free from material error. source of information for users.
ANS: A c. Users need reasonable knowledge of business and
financial accounting matters to understand the
QUESTION 3-3 MULTIPLE CHOICE (IAA) information contained in financial statements. d. All of
the choices are correct.
1. The overriding qualitative characteristic of accounting ANS: C
information is
a. Relevance 7. What is meant by comparability when discussing
b. Understandability financial accounting information?
c. Faithful representation a. Information has predictive and confirmatory value.
d. Decision usefulness b. Information is reasonably free from error.
ANS: D c. Information is measured and reported in a similar
fashion across entities.
2. Which of the following terms best describes d. Information is timely.
information that influences the economic decisions of ANS: C
users?
a. Reliable 8. What is meant by consistency when discussing
b. Prospective financial accounting information?
c. Relevant a. Information is measured and reported in a similar
d. Understandable fashion across points in time.
ANS: C b. Information is timely.
c. Information is measured similarly across the industry.
3. What is the quality of information that enables users d. Information is verifiable.
to better forecast future operations? ANS: A
a. Faithful representation
b. Materiality 9. Which of the following is not an enhancing qualitative
c. Comparability characteristic?
d. Relevance a. Understandability
ANS: D b. Profit-oriented
c. Timeliness
4. Which of the following terms best describes d. Comparability
information in financial statements that is neutral? a. ANS: B
Understandable
b. Comparable QUESTION 3-4 MULTIPLE CHOICE (IAA)
c. Relevant 1. An item would be considered material when a. The
d. Unbiased expected benefits of disclosure exceed the additional
ANS: D costs.
b. The impact on earnings is greater than 10%. c The
5. For information to be useful, the linkage between the standard definition of materiality is met. d. The
users and the decisions made is omission or misstatement of the amount would make a
a. Relevance difference to the users.
b. Faithful representation ANS: D
c. Understandability
d. Verifiability 2. Which statement about materiality is true? a. An
ANS: C item must make a difference or it need not be disclosed
b. Materiality is a matter of relative size.
 c. An item is material if the inclusion or omission would individuals to arrive at essentially similar conclusion?
influence or change the judgment of a reasonable a. Conservatism
person. d. All of these statements are true about b. Objectivity
materiality.
ANS: D
3. The Conceptual Framework includes which of the
following constraints?
a. Prudence
b. Substance over form
c. Cost
d. All of the choices are constraints
ANS: C
4. Which of the following statements best describes the systematic manner
cost and benefit constraint?
a. The benefit of the information must be greater than
the cost of providing it.
b. Financial information should be free from cost to
users of the information.
c. Cost of providing financial information is not always
evident or measurable but must be considered. d. All
of the choices are correct.
ANS: A
5. The Conceptual Framework
a. Includes prudence or conservatism which means
when in doubt, choose the solution that will be least
likely to overstate assets and income.
b. Includes prudence or conservatism which means
when in doubt, choose the solution that will be least
likely to understate liabilities and expenses. c. Includes
prudence or conservatism as a desirable but not
required quality of accounting information. d. Excludes
prudence or conservatism because it is inconsistent
with neutrality.
ANS: D
QUESTION 3-5 Multiple choice (AICPA Adapted) 1. The
ability through consensus among measurers to ensure
that information represents what it purports to
represent is an example of the concept of
a. Relevance
b. Verifiability
c. Comparability
d. Feedback value
ANS: B
2. Which of the following accounting concepts states
that an accounting transaction shall be supported by
sufficient evidence to allow two or more qualified
c. Periodicity
d. Stable monetary unit
ANS: B
3. Objectivity is assumed to be achieved when an
accounting transaction
a. Is recorded in a fixed amount of pesos
b. Involves the payment or receipt of cash
c Involves an arm’s length transaction between two
independent parties
d. Allocates revenue or expenses in a rational and
ANS: C
4. Proponents of historical costs maintain statements
prepared using historical costs are more
a. Objective
b. Relevant
c. Indicative of purchasing power
d. conservative
ANS: A
5. Which of the following statements is an argument
against historical cost?
a. Fair value is more relevant.
b. Historical cost is based on exchange transaction.
c. Historical cost is verifiable and reliable.
d. Fair value is subjective.
ANS: A
6. Which of the following situations violates the concept
of faithful representation?
a. Financial statements were issued nine months late. b.
Data on segments having the same expected risks and
growth rates are reported to analysts estimating future
profits.
c. Financial statements included an item of property,
plant and equipment with carrying amount increased to
management estimate of market value.
d. Management reports refer to new projects
undertaken but the financial statements never report
project results.
ANS: C
7. What is the underlying concept governing the
generally accepted accounting principles pertaining to
recording gain contingencies?
a. Conservatism
b. Relevance
 c. Consistency
d. Reliability
ANS: A
8. The usefulness of providing information in financial
statements is subject to the constraint of
a. Consistency
b. Cost-benefit
c. Reliability
d. Representational faithfulness
ANS: A
CHAPTER 4
CONCEPTUAL FRAMEWORK
ELEMENTS OF FINANCIAL STATEMENTS
QUESTION 4-1 MULTIPLE CHOICE (ACP)
1. Which of the following statements is true about the
elements of financial statements?
a. The elements directly related to the measurement of
financial position are asset, liability and equity. b. The
elements directly related to the measurement of
financial performance are income and expense. c. The
elements of financial position describe amounts of
resources and claims against resources at a moment in
time.
d. All of these statements are true about elements of
financial statements.
ANS: D
2. It is a resource controlled by the entity as a result of
past event and from which future economic benefits are
expected to flow to the entity.
a. Asset b. Liability c Equity d. Income
ANS: A
3. It is a present obligation of an entity arising from past
event the settlement of which is expected to result in
an outflow from the entity of resources embodying
economic benefits.
a. Asset b. Liability c. Equity d. Expense
ANS: B
4. It is the residual interest in the assets of the entity
after deducting all of the liabilities.
a. Income
b. Expense
c. Net income
d. Equity
ANS: D
5. An income is recognized when
a. It is probable that future economic benefit will flow
to the entity and the economic benefit can be measured
reliably.
b. It is possible that future economic benefit will flow to
the entity and the economic benefit can be measured
reliably.
c. The entity obtains control of the future economic
benefit.
d. The future economic benefit can be measured
reliably
ANS: A
6. An expense is recognized when
a. It is probable that a decrease in future economic
benefit has occurred.
b. The decrease in future economic benefit can be
measured reliably. .
c. It is probable that a decrease in future economic
benefit has occurred and the decrease in the future
economic benefit can be measured reliably. d. It is
probable that an increase in future economic benefit
has occurred and the increase in future economic
benefit can be measured reliably. ANS: C
7. It is the process that involves the simultaneous or
combined recognition of revenue and expenses that
result directly from the same transactions and other
events.
a. Matching of cost with revenue
b. Matching of revenue with cost
c. Systematic and rational allocation
d. Immediate recognition
ANS: A
8. When economic benefits are expected to arise over
several accounting periods and the association with
income can only be broadly or indirectly determined,
expenses are recognized on the basis of
a. Cause and effect association
b. Systematic and rational allocation
c. Immediate recognition
d. Realization
ANS: D
9. An expense is recognized immediately
a. When expenditure produces no future economic
benefit.
b. When cost incurred ceases to qualify as an asset. c.
When expenditure produces future economic benefit.
d. When expenditure produces no future economic
benefit and when cost incurred ceases to quality as an
 asset. to the entity and the amount can be measured reliably.
ANS: D c. Production is complete and there is an active market
for the product.
10. It is the process of determining the monetary d. Production is complete.
amounts at which the elements of the financial ANS: B
statements are recognized and carried in the financial
statements. 2. The revenue principle states that revenue shall be
a. Measurement b Recognition c. Presentation d. recognized at a point when
Recording a. An exchange transaction has occurred and the
ANS: A earning process is essentially complete.
b. An order for shipment of merchandise has been
QUESTION 4-2 MULTIPLE CHOICE (IAA) received.
1. Which of the following measurement attributes is the c. A contract between buyer and seller has been signed.
most relevant? d. The seller has shipped merchandise under terms that
a. Present value the customer need not pay until sold.
b. Exit value ANS: A
c. Current cost
d. Historical cost 3. Generally, revenue is recognized
Ans: A a. At the point of sale.
b. When cause and effect are associated.
2. It is the amount of cash or cash equivalent that would c. At the point of cash collection.
have to be paid if the same or an equivalent asset was d. At appropriate points throughout the operating cycle.
have to be paid if the same or an acquired currently. a. ANS: A
Historical cost
b. Current cost 4. Normally, revenue from sale of goods is recognized
c. Realizable value a. When the customer order is received.
d. Present value b. When the customer order is accompanied by a check.
ANS: B c. Only if the transaction will create an account
receivable.
3. Which of the following terms best describes assets d. When the title to the goods changes.
recorded at the amount that represents the immediate ANS: D
purchase cost of an equivalent asset?
a. Inflation-adjusted cost 5. Revenue may be recognized
b. Realizable value a. At the point of sale
c. Present value b. During production
d. Current cost c. At the end of production
ANS: D d. All of the choices may be acceptable for revenue
recognition
4. It is the amount of cash that could currently be ANS: D
obtained by selling the asset in an orderly disposal. a.
Realizable value 6. Which of the following mat not be acceptable
b. Fair value deviation from recognizing revenue at the point of sale?
c. Market value a. Upon receipt of cash
d. Present value b. During production
ANS: A c. Upon receipt of order
d. End of production
QUESTION 4-3 MULTIPLE CHOICE (IAA) ANS: C
1. Which of the following statements describes the
revenue recognition principle? 7. Which of the following is not an accepted basis for
a. Cash is received. recognition of revenue?
b. It is probable that future economic benefit will flow a. Passage of time
 b. Performance of service
c. Completion of percentage of a project
d. Upon signing of contract
ANS: D
8. Which of the following represents the least desirable
choice for the recognition of revenue?
a. During production
b. When a sale occurs
c. When cash is collected
d. When production is completed
ANS: C
9. Revenue from an artistic performance is recognized
when
a. The audience registers for the event online.
b. The tickets for the concert are sold.
c. Cash has been received from the ticket
sales. d. The event takes place.
ANS: D
QUESTION 4-4 MULTIPLE CHOICE (AICPA ADAPTED)
1. The term “revenue recognition" conventionally
means
a. The process of identifying transactions to be recorded
as revenue in an accounting period.
b. The process of measuring and relating revenue and
expenses of an entity for an accounting period. c. The
earning process which gives rise to revenue realization.
d. The process of identifying those transactions that
result in an inflow of assets from customers. ANS: A
2. Under what condition is it proper to recognize
revenue prior to the sale of the merchandise? a. When
the concept of consistency is complied with. b. When
the revenue is to be reported as an installment sale.
c. When the ultimate sale of the goods is at an assured
sales price.
d. When management has a long-established policy.
ANS: C
3. Which of the following means the process of
converting noncash resources and rights into cash or
claims to cash?
a. Allocation b. Collection c. Recognition d. Realization
ANS: D
4. Gains on assets unsold are identified in a precise
sense by the term
a. Unrecorded
b. Unrealized
c. Unrecognized
d. Unallocated
ANS: B
5. The term “recognized” is synonymous with the term
a. Recorded
b. Realized
c. Matched
d. Allocated
ANS: A
6. Which of the following statements conforms to the
realization concept?
a. Depreciation was assigned to product unit cost b.
Equipment was sold in exchange for a note receivable c.
Cash was collected on accounts receivable d. Product
unit costs were assigned to cost of goods sold
ANS: B
7. Revenue may result from
a. A decrease in an asset from primary operations. b.
An increase in an asset from incidental transactions. c.
An increase in a liability from incidental transactions.
d. A decrease in a liability from primary operations
ANS: D
QUESTION 4-5 MULTIPLE CHOICE (AICPA ADAPTED) 1.
Costs that can be reasonably associated with specific
revenue but not with specific products should be a.
Charged to expense in the period incurred. b. Allocated
to specific products based on the best estimate of the
product processing time.
c. Expensed in the period in which the related revenue
is recognized.
d. Capitalized and amortized over a reasonable period
ANS: C
2. Why are certain costs of doing business capitalized
when incurred and then depreciated or amortized over
subsequent accounting periods?
a. To reduce the income tax liability
b. To aid management in the decision-making process c.
To match the costs of production with revenue as
earned
d. To adhere to the accounting concept of conservatism
ANS: C
3. Which of the following is an example of the expense
recognition principle of associating cause and effect? a.
Allocation of insurance cost
b. Sales commission
 c. Depreciation of property, plant and CHAPTER 5
equipment d. Officers’ compensation ACCOUNTING PROCESS
ANS: B QUESTION 5-1 MULTIPLE CHOICE (1AA)

4. Which of the following principles best describes, the 1. What is the last step in the accounting cycle
conceptual rationale for the method of matching considering the following?
depreciation with revenue? a. Prepare a post-closing trial balance
a. Associating cause and effect b. Journalize and post-closing entries
b. Systematic and rational allocation c. Prepare financial statements
c. Immediate recognition d. Journalize and post adjusting entries
d. Partial recognition ANS: A
ANS: B
2. Which is done first in the accounting
5. Which of the following is an application of the process? a. Financial statements are prepared
principle of systematic and rational allocation? a. b. Adjusting entries are recorded
Amortization of intangible asset c. Nominal accounts are closed
b. Sales commissions d. A post-closing trial balance is prepared
c. Research and development cost ANS: B
d. Officers’’ salaries
ANS: A 3. What is the logical order of the following steps in the
6. Which of the following should be expensed under the accounting cycle?
principle of systematic and rational allocation? a. a. Post the journal entries to the ledger accounts,
Salesman’s monthly salaries prepare a worksheet, and then take a trial balance. b.
c. Freight out Journalize the closing entries, post the closing entries,
d. Electricity to light office building and then take a post-closing trial balance.
ANS: B c. Prepare the income statement, prepare the
statement of financial position and then prepare a
7. Which of the following would be match with current worksheet.
revenue on a basis other than association of cause and d. Post the closing entries, take a post-closing trial
effect? balance, and then journalize the closing entries. ANS: B
a. Goodwill
b. Sales commission 4. An optional step in the accounting cycle is the
c. Cost of goods sold preparation of
d. Purchases on account a. Adjusting entries
ANS: A b. Posting to the ledger and unadjusted trial
balance c. Closing entries
8. The matching principle is best demonstrated by a. d. Post-closing trial balance and reversing
Not recognizing any expense unless some revenue is entries ANS: D
realized
b. Associating effort with accomplishment QUESTION 5-2 MULTIPLE CHOICE (IAA)
c. Recognizing prepaid rent received as 1. In recording transactions
revenue d. Establishing an appropriation for a. The word 'debit” means increase and the word credit
contingency ANS: B means decrease
b. Assets, expenses, and drawing accounts are debited
9. Which of the following is not a theoretical basis for for increases
the allocation of expense? c. Liabilities, revenue and drawing accounts are debited
a. Summarization for increase
b. Classification d. Assets, expenses, and capital accounts are debited
c. Profit maximization for increases.
d. Immediate recognition ANS: B
ANS: C
 2 Which is false concerning the rules of debit and credit? 7. The normal balance of an account is on the
a. The left side of an account is always the debit side and a. Debit side of the account
the right side is always the credit side b. Credit side of the account
b. Increases in assets and expenses are debit entries, c. Side represented by increases in the account balance
and decreases in liabilities, equity and revenue are d. Side represented by decreases in the account balance
credit entries ANS: C
c. The normal balance of any account appears on the
side for recording increases 8. The double entry accounting system means a. Each
d. The word “debit” means to increase and the word transaction is recorded with two journal entries. b. Each
“credit” means to decrease. item is recorded in a journal entry and then in a general
ANS: D ledger account.
c. The dual effect of each transaction is recorded with a
3. Debits debit and a credit.
a. Increase assets and decrease expenses, liabilities, d. All of these describe the double entry system.
revenue and equity. ANS: C
b. Increase assets and expenses and decrease liabilities,
revenue and equity. QUESTION 5-3 MULTIPLE CHOICE (1AA)
c. Increase assets and equity and decrease liabilities, 1. The trial balance
expenses and revenue. a. Proves that debits are greater than credits when the
d. Decrease assets and expenses and increase liabilities, entity has net income
revenue and equity. b. Uncovers any errors in journalizing and posting prior
ANS: B to preparation of the statement of financial position.
c. Is useful in preparing the statement of financial
4. Which statement is true regarding debits and credits? position.
a. In the income statement, debits are used to increase d. All of the choices are correct.
account balances, whereas in the statement of financial ANS: C
position, credits are used to increase account balances.
b. Before adjustments, debits will not equal credits in 2. Which of the following is a not principal purpose of
the trial balance. an unadjusted trial balance?
c. The rules for debit and credit and the normal balance a. It proves that debits and credits of equal amounts are
of an equity are the same as for liability. in the ledger
d. In the income statement, revenue is increased by a b. It is the basis for any adjustments to the account
debit whereas in the statement of financial position, balances.
retained earnings account is increased by a credit. ANS: c. It supplies a listing of open accounts and their
C balances.
d. It proves that debits and credits were properly
5. The debit and credit analysis of a transaction entered in the ledger accounts.
normally take place ANS: D
a. Before an entry is recorded in a journal.
b. When the entry is posted to the ledger. 3. Which of the following statements is true regarding
c. When the trial balance is prepared. the trial balance?
d. At some other point in the accounting cycle. a. Preparation of the trial balance ensures that all
ANS: A amounts have been posted to the correct accounts. b.
Preparation of the trial balance is a step in the
6. Which of the following is not a possible combination recording process.
of a journal entry? c. Preparation of the trial balance determines that total
a. Increase in asset and increase in liability. debits equal total credits.
b. Decrease in equity and increase in liability. d. Preparation of the trial balance determines that total
c. Decrease in liability and decrease in asset. debits equal total credits and that all amounts have
d. Increase in asset and decrease in equity. been posted to the correct accounts.
ANS: D ANS: C
 4. Which of the following statements regarding a trial ANS: D
balance is incorrect?
a. A trial balance 1s a test of the equality of the debit 2. If an expense has been incurred but not yet recorded,
and credit balances 1n the ledger. the adjusting entry would involve
b. A trial balance is a list of all of the open accounts in a. A liability and an asset
the ledger with their balances. b. A liability and revenue
c. A trial balance proves that no errors of any kind have c. An expense and an asset
been made in the accounts during the accounting d. An asset and revenue
period. ANS: C
d. A trial balance helps to localize errors within an
identifiable time period. 3. The adjusting entry for depreciation has the same
ANS: C effect as the adjusting entry for
a. An unearned income
5. An unadjusted trial balance b. A prepaid expense
a. Provides information that is helpful when making c. An accrued expense
adjusting entries d. An accrued income
b. Proves that no errors have been made in the ANS: B
accounting records
c. Usually contains the account balances that should 4. An adjusting entry to accrue wages incurred but not
appear in the financial statements yet paid is an example of
d. Is a summary taken directly from the general journal a. Aligning recorded costs with appropriate accounting
ANS: A periods
6. The trial balance b. Aligning recorded revenue with appropriate
a. Is a listing of all the accounts and their balances in the accounting periods
order the accounts appear in the statement of financial c. Reflecting unrecorded expenses incurred during an
position. accounting period
b. Has as the primary purpose of proving that all journal d. Reflecting unrecorded revenue earned during an
entries were made for the period. accounting period
c. Can be used to uncover errors in journalizing and ANS: C
posting.
d. Is used to prepare the statement of financial position 5. An adjusting entry should never include
while the general ledger is used to prepare the income a. A debit to revenue and a credit to liability
statement. b. A debit to expense anda credit to liability
ANS: C c. A debit to liability and a credit to revenue
d. A debit to expense and a credit to revenue
7. A trial balance may prove that debits and credits are ANS: D
equal, except
a. An amount could be entered in the wrong account. 6. Adjusting entries
b. A transaction could have been entered twice. c. A a. Are often prepared after the end of reporting period
transaction could have been omitted. but dated as of the end of reporting period b. Are
d. All of these may prove that debits and credits are necessary to enable the financial statements to
equal conform with standards.
ANS: D c. Include both accruals and deferrals.
d. All choices are correct about adjusting entries
QUESTION 5-4 MULTIPLE CHOICE (1AA) ANS: D

1. Adjusting entries involve 7. Which statement is incorrect regarding adjusting

a. Only real accounts entries?
b. Only nominal accounts a. Cash is neither debited nor credited.
c. Only capital accounts b. Each adjusting entry affects one statement of
d. One real and one nominal account financial position account and one income statement
 account.
c. Each adjusting entry affects one revenue account and
one expense account
d. Adjusting entries involve accruals or deferrals.
ANS: C
8. An entity must make adjusting entries
a. To ensure that the revenue recognition and expense
recognition principles are followed.
b. Each time it prepares an income statement and a
statement of financial position.
c. To account for accruals or deferrals.
d. All of the choices are correct regarding adjusting
entries.
ANS: D
9. Which statement best defines an accrual? a.
Adjusting entries where cash flow precedes revenue or ANS:
expense recognition
b. Adjusting entries where revenue or expense
recognition precedes cash flow
c. Adjusting entries where cash flow and revenue or
expense recognition are simultaneous
d. Adjusting entries where revenue or expenses are
recognized in the absence of cash flow evidence ANS: B c. Posts all closing entries to the appropriate general
QUESTION 5-5 MULTIPLE CHOICE (IAA)
1. Closing entries
a. Are optional step in the accounting cycle
b. Affect only real accounts
c. Permit an entity to analyze routine and repetitive
transactions the same way all the time
d. Remove the balances from the temporary accounts
ANS: D
2. Which of the following closing procedures is unique
to a corporation?
a. Close each revenue account to the income summary
account
b. Close each expense account to the income summary
account
c. Close the income summary account to the retained
earnings account
d. Close the owner’s drawing account to the owner’s
capital account
ANS: C
3. After the accounts have been closed
a. All the accounts have zero balances.
b. The asset, liability and shareholders’’ equity accounts
have zero balances.
c. The revenue, expense, income summary and retained
earnings accounts have zero balances.
d. The revenue, expense and income summary accounts
have zero balances.
ANS: D
4. Which of the following statements best describes the
purpose of closing entries?
a. To facilitate posting and taking a trial balance. b. To
determine the amount of net income or net loss for the
period.
c. To reduce the balances of temporary accounts to zero
so that these are used to accumulate the revenue,
expenses and dividends of the next period. d. To
complete the record of various transactions those were
started in a prior period.
C
5. The closing process
a. Is done each time a transaction takes place and is
journalized.
b. Transfers all income statement items to their related
statement of financial position account.
ledger account.
d. All of the choices are correct regarding the closing
process.
ANS: C
6. The post-closing trial balance
a. Provides a convenient listing of account balances that
can be used to prepare the financial statements. b.
Does not include nominal accounts.
c. Is identical to the statement of financial position.
d. Proves that accounts have been closed properly.
ANS: B
7. The post-closing trial balance
a. Consists of statement of financial position accounts
only.
b. Will balance if a transaction is not journalized and
posted or if a transaction is journalized and posted
twice.
c. Shows that the accounting equation is in balance at
the end of the accounting period.
d. All of the choices are correct regarding the post
closing trial balance.
ANS: D
QUESTION 5-6 MULTIPLE CHOICE (IAA)
 1. Reversing entries 7. A reversing entry should never be made for an
a. Are normally prepared for accruals and prepayments. adjusting entry that
b. Are necessary to achieve a proper matching of a. Accrues unrecorded revenue.
revenue and expense. b. Adjusts expired costs from an asset account to an
c. Are desirable to exercise consistency and establish expense account.
standardized procedures. c. Accrues unrecorded expenses.
d. Must be made at year-end. d. Adjusts unexpired costs from an expense account to
ANS: C an asset account.
ANS: B
2. Reversing entries
a. Impact the income statement only. 8. If an entity initially records prepayments in real
b. Impact the statement of financial position and the accounts and makes reversing entries when appropriate,
income statement. which of the following adjusting entries should be
c. Are not allowed under Philippine Financial Reporting reversed?
Standards.
d. Change amounts reported in the financial statements a. The adjusting entry to record depreciation for the
of the preceding period. period
ANS: B b. The adjusting entry to record the portion of service
fees received in advance that IS earned by year-end c.
3. Which of the following statements regarding The adjusting entry to record supplies used during the
reversing entries is incorrect? period
a. Deferrals entered in statement of financial position d. The adjusting entry to record service fees earned by
accounts make reversing entries unnecessary. b. All year-end but not billed
accruals should be reversed. ANS: D
c. Adjusting entries for depreciation and doubtful
accounts are never reversed. 9. If an entity initially records prepayments in nominal
d. Reversing entries change amounts reported in the accounts, which of the following adjusting entries
statement of financial position for the previous period. should be reversed?
ANS: D a. The adjusting entry to record inventory at year-end
b. The adjusting entry to record the portion of rental
4. Reversing entries apply to received in advance that is unearned at year-end c. The
a. All adjusting entries adjusting entry to record doubtful accounts d. The
b. All deferrals adjusting entry to record amortization of patent ANS: B
c. All accruals
d. All closing entries CHAPTER 6
ANS: C
FINANCIAL STATEMENTS
5. Reversing entries apply to all of the following, QUESTION 6-1 MULTIPLE CHOICE (PAS 1)
except a. Unearned revenue
b. Accrued wages 1. A complete set of financial statements includes the
c. Prepaid insurance following components, except
d. Depreciation a. Statement of financial position, statement of
ANS: D comprehensive income and statement of cash flows. b.
Statement of changes in equity
6. Adjusting entries that should be reversed c. Notes, comprising a summary of significant
include a. All accrued revenue accounting policies and other explanatory information
b. All accrued expenses d. Reports and statements such as environmental
c. Those that debit an asset or credit a liability reports and value added statements.
d. All of these adjusting entries require reversal ANS: D
ANS: D
2. What is the objective of financial statements? a. To
 provide information about the financial position, c. In virtually all circumstances, a fair presentation is
financial performance and changes in financial position achieved by compliance with applicable PFRS. d. An
of an entity that is useful to a wide range of users in entity whose financial statements comply with PFRS
making economic decisions. shall not make an explicit and unreserved statement of
b. To prepare and present a statement of financial such compliance in the notes. ANS: D
position, statement of comprehensive income,
statement of cash flows and statement of changes in 2. Which of the following cannot be considered fair
equity. presentation?
c. To prepare and present relevant, reliable, comparable a. To select and apply accounting policies in accordance
and understandable information to investors and with applicable PFRS.
creditors. b. To present information in a manner that provides
d. To prepare and present financial statements in relevant, reliable, comparable and understandable
accordance with all applicable PFRS and Interpretations. information.
ANS: A c. To provide additional disclosures when compliance
with specific PFRS is insufficient to understand the
3. To meet the objective of providing information about entity’s financial position and financial performance. d.
financial position, financial performance and cash flows To rectify inappropriate accounting policies either by
of an entity, financial statements should provide disclosure of the accounting policies used or by notes or
information about all of the following, except explanatory information.
a. Assets, liabilities and equity ANS: D
b. Income and expenses, including gains and losses c.
Contributions by and distribution to owners in their 3. Financial statements must be prepared at
capacity as owners. least a. Annually
d. Nature of business activities b. Quarterly
ANS: D c. Semiannually
d. Every two years
4. Which of the following statements is true concerning ANS: A
financial statements? 4. It is the presentation and classification of financial
a. Financial statements do not provide all the statement items on a uniform basis from one
information that users may need to make economic accounting period to the next.
decisions since these largely portray the financial effects a. Comparable information
of past events and do not necessarily provide b. Consistency of presentation
nonfinancial information. c. Aggregation
b. Financial statements show the results of the d. Accrual basis
stewardship of management or the accountability of ANS: B
management for the resources entrusted to it. c. The
primary responsibility for the preparation and 5. Technically, offsetting in financial statements is
presentation of the financial statements of an entity is accomplished when
reposed in the management of the entity. a. The allowance for doubtful accounts is deducted
d. All of these statements are true concerning financial from accounts receivable.
statements. b. The accumulated depreciation is deducted from
ANS: D property, plant and equipment.
c. The total liabilities are deducted from total assets to
QUESTION 6-2 MULTIPLE CHOICE (PAS 1) arrive at net assets.
d. Gains or losses from disposal of noncurrent assets are
1. Which of the following statements is incorrect reported by deducting from the proceeds the carrying
concerning fair presentation of financial statements? a. amount of the assets and the related disposal cost.
Fair presentation requires the faithful representation of ANS: D
the effects of transactions and other events. b. Financial
statements shall present fairly the financial position, 6. A third statement of financial position as at the
financial performance and cash flows of an entity. beginning of the earliest comparative period is required
 a. When an entity applies an accounting policy
retrospectively.
b. When an entity makes a retrospective restatement of
items in the financial statements.
c. When an entity reclassifies items in the financial
statements.
d. In all of the above cases.
ANS: D
7. An entity shall prepare how many statements of
financial position as a result of retrospective application,
retrospective restatement and reclassification of items
in the financial statements?
a. Two
b. Three
c. Four
d. One
ANS: B
QUESTION 6-3 MULTIPLE CHOICE (IFRS)
1. Items of dissimilar nature or function
a. Must always be presented separately.
b. Must not be presented separately.
c. Must be presented separately in financial statements d. Notes to the financial statements
if these items are material.
d. Must be presented separately in financial statements
even if these items are immaterial.
ANS: C
2. Materiality depends on
a. The nature of the omission or misstatement. b. The
absolute size of the omission or misstatement. c. The
relative size and nature of the omission or
misstatement judged in the surrounding circumstances.
d. The judgment of management.
ANS: C
3. An entity must disclose comparative information for
a. The previous comparable period for all amounts
reported.
b. The previous comparable period for all amounts
reported and for all narrative and descriptive
information.
c. The previous comparable period for all amounts
reported, and for all narrative and descriptive
information when it is relevant to an understanding of
the financial statements of the current period.
d. The previous two comparable periods for all amounts
reported.
ANS: C
4. When the classification of items in the financial
statements is changed, the entity
a. Must not reclassify the comparative amounts. b. Can
choose whether to reclassify the comparative amounts.
c. Must reclassify the comparative amounts, unless it is
impracticable to do so.
d. Must reclassify the current year amounts only.
ANS: C
5. An entity shall present
a. The statement of cash flows more prominently than
the other statements.
b. The statement of financial position more
prominently than the other statements.
c. The statement of comprehensive income more
prominently than the other statements.
d. Each financial statement with equal prominence.
ANS: D
QUESTION 6-4 MULTIPLE CHOICE (IFRS)
1. Which is not a component of the financial statements?
a. Statement of financial position
b. Statement of changes in equity
c. Board of directors' report
ANS: C
2. Which of the following is included in a complete set
of financial statements?
a. A statement by the board of directors of compliance
with local legislation
b. A statement of changes in equity
c. Statements of financial position for the last five years
d. Value added statement
ANS: B
3. Which of the following is included as a component of
financial statements?
a. A statement of retained earnings
b. Accounting policies
c. An auditor’s report
d. A directors’ report
ANS: B
4. When an entity changed the end of the reporting
period longer or shorter than one year, an‘ entity shall
disclose all of the following, except
a. Period covered by the financial statements. b. The
reason for using a longer or shorter period. c. The fact
that amounts presented in the financial statements are
not entirely comparable.
 d. The fact that similar entities in the geographical area ANS: D
in which the entity operates have done so in the current
year. QUESTION 7-2 MULTIPLE CHOICE (PAS 1)
ANS: D 1 An entity shall classify an asset as current under all of
the following conditions, except
5. Which of the following information is not specifically a. The entity expects to realize the asset or intends to
a required disclosure in relation to financial statements? sell or consume it within the entity’s normal operating
a. Name of the reporting entity or other means of cycle.
identification and any change in that information from b. The entity holds the asset for the purpose of trading.
the previous year c. The entity expects to realize the asset within twelve
b. Names of major shareholders of the entity c. Level of months after the reporting period.
rounding used in presenting the financial statements d. The asset is cash or a cash equivalent that is
d. Whether the financial statements cover the individual restricted to settle a liability for more than twelve
entity or a group of entities months after the reporting period.
ANS: B ANS: D

CHAPTER 7 2. An entity shall classify a liability as current when

STATEMEN T OF FINANCIAL POSITION
QUESTION 7-1 MULTIPLE CHOICE (IAA)
1. The statement of financial position is useful for all of c. The liability is due to be settled within twelve months
the following, except
a. To compute rate of return
b. To analyze cash inflows and outflows for the period settlement of the liability for at least twelve months
c. To evaluate capital structure
d. To assess future cash flows
ANS: B
2. Which criticism is not normally aimed at a statement
of financial position?
a. Failure to reflect current value information
b. The extensive use of separate classifications
c. An extensive use of estimate
d. Failure to include items of financial value
ANS: B
3. The statement of financial position
a. Omits many items that are of financial value b.
Makes very limited use of judgment and estimate
c. Uses fair value for most assets and liabilities d.
All of the choices are correct
ANS: A
4. Which is a limitation of the statement of financial
position?
a. Many items that are of financial value are omitted.
b. Judgment and estimate are used.
c. Current fair value is not reported.
d. All of these are a limitation of the statement of
financial position
under all of the following conditions, except a. The
entity expects to settle the liability within the entity’s
normal operating cycle.
b. The entity holds the liability primarily for the purpose
of trading.
after the reporting period.
d. The entity has an unconditional right to defer
after the reporting period.
ANS: D
3. Current and noncurrent presentation of assets and
liabilities provides useful information when the entity
a. Supplies goods or services within a clearly identifiable
operating cycle
b. Is a financial institution
c. Is a public utility
d. Is a nonprofit organization
ANS: A
4. In presenting a statement of financial position, an
entity
a. Must make the current and noncurrent presentation.
b. Must present assets and liabilities in order of liquidity.
c. Must choose either the current and noncurrent or the
liquidity presentation, meaning free choice of
presentation.
d. Must make the current and noncurrent presentation,
except when a presentation based on liquidity provides
information that is reliable and more relevant. ANS: D
5. In the Philippines, the common practice is to present
in the statement of financial position
 a. Current assets before noncurrent assets, current, 2. In which section of the statement of financial position
liabilities before noncurrent liabilities and equity after should employment taxes that are due for settlement in
liabilities. 15 months' time be presented?
b. Noncurrent assets before current assets, noncurrent
liabilities before current liabilities and equity after a. Current liabilities
liabilities. b. Current assets
c. Current assets before noncurrent assets, noncurrent c. Noncurrent liabilities
liabilities before current liabilities and equity after d. Noncurrent assets
liabilities. ANS: A
d. Noncurrent assets before current assets, current
liabilities before noncurrent liabilities and equity after3. An entity has a loan due for repayment in six months’
liabilities. time but the entity has the option to refinance for
ANS: A repayment two years later. The entity plans to refinance
this loan. In which section of the statement of financial
6. A financial liability due within twelve months after position should this loan be presented?
the reporting period shall be classified as noncurrent a a. Current liabilities
When it is re-enhanced on a long-term basis before the b. Current assets
issue of financial statements. c. Noncurrent liabilities
b. When the entity has no discretion to refinance for at d. Noncurrent assets
least twelve months. ANS: C
c. When it is refinanced on a long-term basis after the
end of reporting period. 4. Which of the following must be included on the face
d. When it is refinanced on a long-term basis on or of the statement of financial position?
before the end of reporting period. a. Investment property
ANS: D b. Number of shares authorized
c. Contingent asset
7. When an entity breaches under a long-term loan d. Shares in an entity owned by that entity
agreement on or before the end of the reporting period ANS: A
with the effect that the liability becomes payable on
demand, the liability is classified as 5. Which of the following is not required to be
a. Current under all circumstances presented as minimum information on the face of the
b. Noncurrent under all circumstances statement of financial position?
c. Current if the lender has agreed after the reporting a. Investment property
period and before the issuance of the statements not to b. Investment accounted under the equity method
demand payment as a consequence of the breach. d. c. Biological asset
Noncurrent if the lender agreed after the reporting d. Contingent liability
period to provide a grace period for at least twelve ANS: D
months after the reporting period.
ANS: C 6. Which of the following must be included as a line
item in the statement of financial position? a.
QUESTION 7-3 MULTIPLE CHOICE (IFRS) Contingent asset
b. Property, plant and equipment analyzed by class
1. In which section of the statement of financial position c. Share capital and reserves analyzed by class d.
should cash that is restricted for the settlement of a Deferred tax
liability due 18 months after the reporting period be ANS: D
presented?
a. Current assets 7. Which of the following statements about the
b. Equity statement of financial position is not true? a. Biological
c. Noncurrent liabilities assets should be reported in the statement of financial
d. Noncurrent assets position.
ANS: D b. The number of shares authorized for issue should be
 reported in the statement of financial position or the b. Prepayments for items such as insurance or rent are
statement of changes in equity or in the notes. c. included in other assets rather than as current assets. c.
Provisions should be recognized in the statement of The time period by which current assets are
financial position. distinguished from noncurrent assets is determined by
d. A revaluation surplus on noncurrent assets in the the seasonal nature of the business.
current year should be recognized in the statement of d. Assets are classified as current if these are reasonably
changes in equity. expected to be realized in cash or consumed during the
ANS: D normal operating cycle.
ANS: D
QUESTION 7-4 MULTIPLE CHOICE (AICPA ADAPTED)
7. The operating cycle concept
1. In analyzing financial statements, which financial a. Causes the distinction between current and
would a potential investor primarily use to assess noncurrent to depend on cash realization within one
liquidity and financial flexibility? year.
a. Statement of financial position b. Permits some assets to be classified as current even
b. Income statement though these are more than one year removed from
c. Statement of retained earnings becoming cash.
d. Statement of cash flows c. Has become obsolete.
ANS: A d. Affects the income statement but not the statement
of financial position.
2. Which is an essential characteristic of an asset? ANS: B
a. The claims to the benefits are legally enforceable
b. An asset is tangible 8. The basis for classifying assets as current or
c. An asset is obtained at a cost noncurrent is the period of time normally elapsed from
d. An asset provides future benefits the time the entity expends cash to the time it converts
ANS: D
a. Inventory back into cash or 12 months, whichever is
3. Conceptually; asset valuation accounts are shorter.
a. Assets b. Receivables back into cash or 12 months, whichever
b. Neither assets nor liabilities is longer.
c. Part of shareholders’’ equity c. Tangible fixed assets back into cash or 12 months,
d. Liabilities whichever is longer.
ANS: B d. Inventory back into cash or 12 months, whichever is
longer.
4. Working capital is ANS: D
a. Assets which enable the entity to operate profitably.
b. Capital which has been reinvested in the business c. QUESTION 7-5 MULTIPLE CHOICE (AICPA ADAPTED)
Unappropriated retained earnings.
d. Current assets less current liabilities. 1. Which should be classified as current asset? a. Trade
ANS: D installment accounts receivable normally collectible in
18 months
5. The term “net assets” represents b. Cash designated for the redemption of callable
a. Retained earnings preference shares
b. Current assets less current liabilities c. Cash surrender value of a life insurance policy d. A
c. Total contributed capital deposit on machinery ordered, delivery of which will be
d. Total assets less total liabilities made within six months
ANS: D ANS: A

6 When classifying assets as current and noncurrent a. 2. Which should not be considered as a current asset?
The amounts at which current assets are reported must a. Installment notes receivable due over 18 months in
reflect realizable cash value. accordance with normal trade practice
 b. Prepaid taxes the following, except
c. Trading securities a. The asset is the result of past event.
d. Cash surrender value of life insurance policy b. The asset provides future economic benefit. c.
ANS: D The cost of the asset can be measured reliably.
d. The asset is tangible.
3. Current assets should never include ANS: D
a. A receivable not collectible within one year
b. Current tax asset QUESTION 7-6 MULTIPLE CHOICE (IAA)
c. Goodwill arising in a business combination
‘ d. Premium paid on a bond investment 1. Which of the following would likely prepare the most
ANS: C accurate financial forecast for a corporate entity based
on empirical evidence?
4. Equity investments held to finance construction of a. Investors using statistical models to generate
additional plant should be classified as forecasts
a. Current assets b. Corporate management
b. Property, plant, and equipment c: Financial analysts
c. Intangible assets d. Independent certified public accounts
d. Noncurrent investments ANS: B
ANS: D
2. What is the most useful information in predicting
5. Which of the following is not a noncurrent future cash flows?
investment? a. Information about current cash flows
a. Cash surrender value of life insurance policy b. Current earnings based on accrual accounting c.
b. Franchise Information regarding the accounting policies used d.
c. Land held for speculation Information regarding the results obtained by using a
d. A sinking fund wide variety of accounting policies
ANS: B ANS: B

6. Accrued revenue would normally appear in the 3. The accrual basis of accounting is most useful for
statement of financial position under a. Determining the amount of income tax.
a. Noncurrent assets b. Predicting the short-term financial performance.
b. Current liabilities c. Predicting the long-term financial performance.
c. Long-term liabilities d. Determining the amount of dividends.
d. Current assets ANS: C
ANS: D
4. The financial statements prepared under GAAP
7. Which should be classified as a noncurrent asset? a. Do not articulate with one another.
a. Plant expansion fund b. Reflect a single historical cost measurement basis. c.
b. Prepaid rent Are not highly precise because estimate and judgment
c. Supplies must be made.
d. Goods in process d. Contain a limited number of future projections.
ANS: A ANS: C

8. The term “deficit” refers to CHAPTER 8

a. An excess of current assets over current liabilities
b. An excess of current liabilities over current assets
c. A debit balance in retained earnings
d. A prior period error
ANS: C
9. The essential characteristics of an asset include all of
NOTES TO FINANCIAL STATEMENTS
QUESTION 8-1 MULTIPLE CHOICE (PAS 1)
1. Which is a purpose of the notes to financial
statements?
a. To present information about the basis of
 preparation of the financial statements and the specific ANS: B
accounting policies used.
b. To disclose the information required by Philippine 3. Disclosure of information about key sources of
Financial Reporting Standards that is not presented estimation uncertainty
elsewhere in the financial statements. a. Is voluntary
c. To provide additional information which is not b. Is mandatory
presented on the face of the financial statements but c. Is either voluntary or mandatory
that is necessary for a fair presentation. d. Depends on the industry
d. All of these can be considered a purpose of the notes ANS: B
to financial statements.
ANS: D 4. Disclosure of information about judgments
a. Is voluntary
2. Which is the first item in presenting the notes to b. Is mandatory
financial statements? c. Is either voluntary or mandatory
a. Statement of compliance with PFRS d. Depends on the industry
b. Other disclosures, such as contingent liabilities, ANS: B
unrecognized contractual commitments and non
financial disclosures QUESTION 8-3 MULTIPLE CHOICE (AICPA ADAPTED)
c. Supporting information for items presented on the
face of the financial statements 1. What is the purpose of information present in the
d. Summary of significant accounting policies notes to financial statements?
ANS: A a. To provide disclosures required by generally accepted
accounting principles
3. An entity is required to disclose all of the following b. To correct improper presentation in the financial
nonfinancial information, except statements
a. A description of the nature of the entity’s operations c. To provide recognition of amounts not included in the
and the principal activities financial statements
b. The name of the parent entity and the ultimate d. To present management response to auditor
parent comments
c. Domicile and legal form of the entity, the country of ANS: A
incorporation and address of the registered office. d.
Names and addresses of directors and officers. ANS: D 2. The notes to financial statements should not be used
to
QUESTION 8-2 MULTIPLE CHOICE (IFRS) a. Describe significant accounting policies.
b. Describe depreciation methods employed. c.
1. The presentation of the notes to financial statements Describe the principles and methods peculiar to the
in a systematic manner industry in which the entity operates.
a. Is voluntary d. Correct an improper presentation in the financial
b. Is mandatory statements.
c. ls mandatory, as far as practicable ANS: D
d. Depends on the industry
ANS: C 3. An entity shall disclose in the summary of significant
accounting policies
2. The cross-reference between each line item in the a. The measurement basis used in preparing the
financial statements and any related information financial statements.
disclosed in the notes to financial statements b. All the measurement bases irrespective of whether
used by the entity.
a. Is voluntary c. The measurement basis used in preparing the
b. Is mandatory financial statements and the accounting policies used.
c. Depends on the industry d. All of the measurement bases and the accounting
d. Is either voluntary or mandatory policy choices available to the entity irrespective of
 whether used. 1. Notes to financial statements
ANS: C
a. Must be quantifiable.
4. Which of the following information should be b. Must qualify as an element.
disclosed in the summary of significant accounting c. Amplify or explain items presented in the body of
policies? financial statements.
a. Refinancing of debt subsequent to the reporting d. All of these are characteristics of notes to financial
period statements.
b. Guarantee of indebtedness of others ANS: C
c. Criteria for determining which investments are
treated as cash equivalents 2. Which is incorrect regarding notes to financial
d. Adequacy of pension plan assets relative to vested statements?
benefits
ANS: C a. IFRS requires specific note disclosures including
disaggregation of inventories into classifications such as
5. The summary of significant accounting policies should merchandise, production supplies, goods in process,
disclose and finished goods.
a. Proforma effect of retroactive application of an b. IFRS requires a maturity analysis for receivables. c.
accounting change IFRS requires that all notes should be clear, simple to
b. Basis of profit recognition on long term construction understand and nontechnical 1n nature.
contracts d. All of the choices are correct regarding notes to
c. Adequacy of pension plan assets in relation to vested financial statements.
benefits ANS: C
d. Future lease payments
ANS: B 3. The disclosure of accounting policies is important to
financial statement users in determining
6. The summary of significant accounting policies should a. Net income for the year.
disclose b. Whether accounting policies are consistently applied
a. The composition of property, plant and equipment from year to year.
and the depreciation method used c. The value of obsolete ending inventory.
b. The composition of property, plant and equipment d. Whether the working capital position is adequate for
only future operations.
c. The depreciation method used only ANS: B
d. Neither the composition of property, plant and
equipment nor the depreciation method used ANS: C 4. Significant accounting policies may not be
a. Selected on the basis of judgment
7. Which of the following should be included in the b. Selected from existing acceptable alternatives
summary of significant accounting policies? a. Property, c. Unusual or innovative in application
plant and equipment recorded at cost with the d. Omitted from financial statement disclosure
depreciation computed principally by straight line ANS: D
method
b. A business component was sold during the current 5. Which of the following is not a required disclosure of
year accounting policies?
c. Breakdown of sales attributable to business a. The measurement basis used in the financial
components statements
d. Future ordinary share dividends are expected to b. Key management personnel involved in preparing the
approximate sixty percent of earnings summary of significant accounting policies c.
ANS: A Disclosures required by IFRS
d. The nature of operations and the policies that the
QUESTION 8-4 MULTIPLE CHOICE (IAA) users of the financial statements would expect to be
disclosed
 ANS: B ANS: D

6. The standard of adequate disclosure is best described 3. Close family members of an individual include all of
by which of the following? the following, except
a. All information related to operating objectives must a. Brothers and sisters of the individual
be disclosed in the financial statements. b. The individual’s spouse and children
b. Information about each account balance appearing in c. Children of the individual’s spouse
the financial statements is included in the notes to d. Dependents of the individual or individual’s spouse
financial statements ANS: D
c. Enough information should be disclosed in the
financial statements m order that a prospective investor QUESTION 9-2 MULTIPLE CHOICE (IFRS)
can make a wise decision. 1. Which is not a mandated related party disclosure? a.
d. Disclosure of any financial facts significant enough to Relationship between parent and subsidiaries b. Names
influence the judgment of an informed user. ANS: D of all the associates that an entity has dealt with during
the year
7. Application of the full disclosure principle a. Is c. Name of the entity’s parent and the ultimate
theoretically desirable but not practical because the controlling party
cost of complete disclosure exceeds the benefit. b. Is d. If neither the entity’s parent nor the ultimate
violated when important financial information is buried controlling entity produces financial statements
in the notes to the financial statements. c. Is available for public use, then the name of the next most
demonstrated by the use of supplementary information senior parent that does so
presenting the effects of changing prices. d. Requires ANS: B
that the financial statements be consistent and
comparable. 2. Which is not a required minimum related party
ANS: C disclosure?

CHAPTER 9 a. The amount of the related party transaction b. The

amount of the outstanding balance and the terms and
RELATED PARTY DISCLOSURES conditions
c. The amount of similar transaction with unrelated
QUESTION 9-1 MULTIPLE CHOICE (PAS 24) parties to establish that comparable related party
transactions have been entered into at arm’s length d.
1. Related parties include all of the following, except Allowance for doubtful accounts related to the
a. Affiliates outstanding balance
b. Associates ANS: C
c. Individuals owning, directly or indirectly, an interest
in the voting power of the reporting entity that gives 3. An entity that entered into a related party
them significant influence over the entity transaction would be required to disclose all of the
d. Two entities that have a common director following information except
ANS: D a. Nature of the relationship between the parties. b.
Nature of any future transaction planned between the
2. Unrelated parties include all of the following, except parties and-the terms involved.
a. Providers of finance in the course of their normal c. Peso amount of the transaction.
dealings with an entity by virtue only of those dealings. d. Amount due from or to related parties at the end of
b. Two ventures simply because they share joint control reporting period.
over a joint venture. ANS: B
c. Single customer with whom an entity transacts a 4. Which of the following would not be considered key
significant volume of business merely by virtue of the management personnel compensation?
resulting economic dependence. a. Short-term benefits
d. Key management personnel and close family b. Share-based payments
members of such individuals. c. Termination benefits
 d. Reimbursement of out of-pocket expenses
ANS: D
QUESTION 9-3 MULTIPLE CHOICE (IFRS)
1. All of the following fall within the definition of an
entity related party, except
a. Joint venture in which the entity is a venturer b. A
postemployment benefit plan for the benefit of the
employees
c. An executive director of the entity
d. The partner of a key manager is a major supplier of
the entity
ANS: D
2. Which of the following is not specified as a separate
related party disclosure?
a. Entity with joint control or significant influence over
the entity
b. The parent of the entity
c. An entity that has a common director with the entity
d. Joint venture in which the entity is a venturer ANS:
C b. Accrued only
3. Which of the following is .not a related party of an
entity?
a. The son of the chief executive officer of the entity
b. A bank providing loan to the entity
c. An associate of the entity
d. Director of the entity
ANS: B
4. Which of the following is included in key
management personnel compensation?
a. Social security contribution
b. Post-employment benefit
c. Social security contribution and post-employment
benefit
d. Neither social security contribution nor post
employment benefit
ANS: C
QUESTION 9-4 MULTIPLE CHOICE (AICPA ADAPTED)
1. Financial statements shall include disclosure of
material transactions between related parties, except a. Provide evidence of conditions that existed at the end
Nonmonetary exchange by affiliates
b. Sales of inventory by a subsidiary to the parent when b. Are favorable and indicative of conditions that arose
consolidated financial statements are prepared.
c. Expense allowance for executives which exceed
normal business practice
d. An entity’s agreement to act as surety for a loan to
the chief executive officer
ANS: B
2. Which should be disclosed as related party transaction
in the entity’s separate financial statements? a. Key
management personnel compensation b. Sales to
affiliated entities
c. Key management personnel compensation and sales
to affiliated entities.
d. Neither key management personnel compensation
nor sales to affiliated entities
ANS: C
3. An entity has signed the mortgage note on the home
of its president guaranteeing the indebtedness in the
event that the president should default. The entity
considers the likelihood of default to be remote. How
should the guarantee be treated in the financial
statements?
a. Disclosed only
c. Accrued and disclosed
d. Neither accrued nor disclosed.
ANS: A
CHAPTER 10
EVENTS AFTER THE REPORTING PERIOD
QUESTION 10-1 MULTIPLE CHOICE (IFRS)
1. Events after the end of reporting period are favorable
or unfavorable events that
a. Occur between the end of the reporting period and
the date of the next annual financial statements. b.
Occur between the end of the reporting period and the
date of the next interim or annual financial statements.
c. Occur between the end of the reporting period and
the date when the financial statements are authorized
for issue.
d. Occur between the end of reporting period and the
date of the next interim financial statements. ANS: C
2. Adjusting events are events that
a.
of the reporting period.
after the end of the reporting period.
c. Are unfavorable and indicative of conditions that
arose after the end of the reporting period. d. Provides
conditions that existed after the date the financial
 statements were authorized for issue. ANS: A to the litigation occurred prior to the end of reporting
period
3. When after the end of reporting period an event c. Strike of employees
occurs that is indicative of conditions that arose after d. Issue of large amount of ordinary shares
the end of reporting period ANS: D
a. The entity shall disclose the nature and effect of the
event in the financial statements. 5. Events after reporting period that provides evidence
b. The entity shall adjust the related amount in the about conditions that existed at the current year-end
financial statements. and affect the realizability of accounts receivable should
c. The entity shall disclose the nature and effect of the be
event and adjust the related amount. a. Discussed only in the management
d. The entity shall disclose the nature but not the effect commentary b. Disclosed only in the notes.
of the event. c. Used to record an adjustment to doubtful account
ANS: A expense.
d. Used to record an adjustment to retained earnings.
QUESTION 10-2 MULTIPLE CHOICE (1AA) ANS: C
1. The financial statements are authorized for issue a.
When the board of directors reviews the financial 6. All of the following events would be classified as non
statements and authorizes them for issue. adjusting events after reporting period, except a. The
b. When the financial statements are made available to entity announced the discontinuance of the assembly
shareholders. operation
c. When the shareholders approve the financial b. The entity entered into an agreement to purchase
statements at their annual meeting. the currently leased office building
d. When the approved financial statements are filed c. Destruction of a major production plant by fire d. A
with a regulatory body. mistake was discovered in the calculation of the
ANS: A allowance for uncollectible accounts receivable ANS: D

2. Which of the following events after the reporting 7. Which is a true statement regarding events after the
period would require adjustment before issuance of the end of reporting period?
financial statements? a. Recognize a loss for all recognized and unrecognized
a. Loss of plant as a result of tire subsequent events in the current year.
b. Change in the quoted market price of financial asset b. Recognize a gain or loss for any recognized
held as an investment subsequent event in the current year.
c. Loss on inventory resulting from a storm surge d. Loss c. Recognize a loss for a recognized subsequent event in
on a lawsuit the outcome of which was deemed the financial statements in the year when the
uncertain at year-end. subsequent event occurs.
ANS: D d. Recognize a loss for a recognized subsequent event in
the current year financial statements.
3. Non-adjusting events after reporting period that ANS: D
require disclosure include all of the following, except a.
A major business combination after reporting period b. QUESTION 10-3 MULTIPLE CHOICE (IFRS)
Announcing a plan to discontinue an operation c.
Expropriation of major asset after reporting period d. 1. At the end of the current reporting period, an entity
Destruction of a major production plant by a fire before carried a receivable from a major customer. The
the end of the reporting period customer declared bankruptcy after the end of
ANS: D reporting period but before the issuance of financial
4. Which of the following events after the reporting statements. What should be reported at the current
period would require disclosure in the financial year-end?
statements? a. Disclose the fact that the customer has declared
a. Retirement of the president bankruptcy.
b. Settlement of litigation when the event that gave rise b. Make a provision for this post-reporting period event.
 c. Ignore the event 2. It is the total of income less expenses, excluding the
d. Reverse the sale pertaining to this receivable. components of other comprehensive income. a.
ANS: B Comprehensive income
b. Profit or loss
2. An entity built a new factory building during the c. Accounting income
current year. Subsequent to the current year-end and d. Economic income
before the financial statements are issued, the building ANS: B
was destroyed by fire and the claim against the
insurance entity proved futile. What should be reported 3. This term comprises items of income and expense
at the current year-end? including reclassification adjustments that are not
a. Write off the carrying amount of the building b. Make recognized in profit or loss as required or permitted by
a provision for one-half of the carrying amount of the PFRS.
building a. Comprehensive income
c. Make a revision for the entire carrying amount of the b. Other comprehensive income
building c. Profit or loss
d. Disclose this non-adjusting event in the notes d. Retained earnings
ANS: D ANS: B

3. An entity deals extensive in foreign currency 4. Earnings

transactions. Subsequent to the reporting period and a. Include certain gains and losses excluded from
before the date of authorization for the issue of the comprehensive income
financial statements, there were abnormal fluctuations b. Are the same as comprehensive income
in foreign currency rate. What should be reported at the c. Exclude certain game and loss included in
current year-end? comprehensive income
a. Adjust the foreign exchange year-end balances to d. Include certain losses excluded from comprehensive
reflect the abnormal adverse fluctuations. income
b. Adjust-the foreign exchange year-end balances to ANS: C
reflect all the abnormal fluctuations and not just
adverse movements. 5. All of the following components of OCI should be
c. Disclose the post-reporting period event in the notes reclassified to profit or loss except
as a non-adjusting event. a. Gain or loss from translating the financial statements
d. Ignore the post-reporting period event. of a foreign operation
ANS: C b. Gain or loss from re-measuring debt investment at
FVOCI
CHAPTER 11 c. The effective portion of gain or loss on hedging
instrument in a cash flow hedge
STATEMENT 0F COMPREHENSIVE INCOME d. Gain or loss on re-measuring equity investment at
Statement of changes in equity FVOCI
Statement of retained earnings ANS: D

QUESTION 11-1 MULTIPLE CHOICE (PAS L) 6. Which of the following components of OCI should be
reclassified to retained earnings?
1. It is the change in equity during a period resulting a. Revaluation surplus
from transactions and other events, other than changes b. Re-measurements of defined benefit plan c. Gain or
resulting from transactions with owners in their loss attributable to credit risk of a financial liability
capacity as owners. designated at FVPL
a. Comprehensive income d. All of these components of OCI should be reclassified
b. Other comprehensive income to retained earnings
c. Profit or loss ANS: D
d. Retained earnings
ANS: A 7. The two-statement approach of presenting
comprehensive income is preparing c. Depreciation, purchases, transport costs, employee
a. A comparative statement of comprehensive income benefits and advertising costs.
b. A combined statement of comprehensive income and d. Cost of goods sold, administrative and distribution
retained earnings costs
c. A combined income statement and a statement of ANS: D
changes in equity
d. A separate income statement and a separate 4 Under IFRS, the extraordinary item presentation
statement of comprehensive income
ANS: D a. Has not changed from current rules.
b Has been eliminated.
8. Total comprehensive income for the period is c. Has been eliminated from the net of tax presentation.
presented d Has been eliminated from EPS reporting. ANS: B
a. Showing separately the total amount attributable to
owners of the parent and the non-controlling interest. QUESTION 11-3 MULTIPLE CHOICE (AICPA ADAPTED)
b. Showing separately an analysis of expenses by
function. 1. What is the purpose of reporting comprehensive
c. Showing separately an analysis of expenses by nature. income?
d. Showing separately profit or loss and the total of a. To report transactions with owners.
other comprehensive income. b. To report a measure of overall entity performance. c.
ANS: A To replace net income with a better measure. d. To
combine income from continuing operations with
Question11-2 Multiple choice (IFRS) income from discontinued operations.
1. An entity shall present an analysis of expenses using a ANS: B
classification based on
a. The nature of expenses 2. Which of the following changes during a period is not
b. The function of expenses. a component of other comprehensive income? a. Re-
c. Either the nature of expenses or the function of measurement of defined benefit plan b. Treasury share,
expenses, whichever provides information that is at cost
reliable and more relevant c. Foreign currency translation adjustment d d.
d. Either the nature of expenses or the function of Unrealized gain on equity instrument measured at fair
expenses, whichever the entity would prefer to present value through other comprehensive income ANS: B
ANS: C
3. Other comprehensive income includes all of the
2. Separate line items in an analysis of expenses by following, except
nature include a. Unrealized gain on forward contract designated as
a. Purchases, transport costs, employee benefits cash flow hedge
depreciation, extraordinary items b. Loss from translating the financial statements of a
b. Purchases, distribution costs, administrative costs, foreign operation
employee benefits, depreciation, taxes c. Actuarial gain on defined benefit obligation
c. Depreciation, purchases, transport costs, employee d. Dividend paid to shareholders
benefits and advertising costs ANS: D
d. Cost of goods sold, administrative and distribution
costs 4. All of the following are a component of other
ANS: C comprehensive income, except
a. Foreign currency translation adjustment b.
3. Separate line items in an analysis of expenses by Unrealized gain and loss on financial asset held for
function include trading
a. Purchases, transport costs, employee benefits, c. Deferred loss on derivative financial instrument
depreciation, extraordinary items. designated as cash flow hedge
b. Purchases, distribution costs, administrative costs, d. Change in revaluation surplus
employee benefits, depreciation, taxes. ANS: B
 5. Which of the following is not an acceptable option of provide needed goods and services
reporting other comprehensive income? b. Use by labor unions to examine earnings closely as a
a. In a separate statement of comprehensive income basis for salary discussions
b. In a single statement of comprehensive income c. c. Use by government to formulate tax policy d.
In the notes Use by investors interested in financial position
d. In a statement of changes in equity ANS: D
ANS: C
3. The income statement would help in which of the
6. When a complete set of financial statements is following?
presented, comprehensive income and the components a. Evaluate liquidity
should b. Evaluate solvency
a. Appear as a part of discontinued operations. b. Be c. Estimate amount, timing and uncertainty of future
reported net of related income tax effect, in total and cash flows
individually. d. Estimate future financial flexibility
c. Appear in a supplemental schedule in the notes. d. Be ANS: C
displayed in a statement that has the same prominence
as other financial statements. 4. Investors and creditors use income statement
ANS: D information for each of the following, except

7. Why is reclassification adjustment used when
reporting other comprehensive income?
a. To reclassify an item of comprehensive income as
another item of comprehensive income
b. To avoid double counting of items
c. To make net income equal comprehensive income
d. To adjust the income tax effect
ANS: B
a. To evaluate the future performance of an entity. b.
To provide a basis for predicting future performance. c.
To help assess the risk and uncertainty of achieving
future cash flows.
d. To evaluate the past performance of an
entity. ANS: A
QUESTION 11-5 MULTIPLE CHOICE (AICPA ADAPTED)

8. Which of the following is not generally accepted in 1. Income determination is arrived at by

presenting the income statement?
a. Including prior period errors in determining income
b. The condensed income statement
c. The consolidated income statement
d. Including discontinued operations in determining
income
ANS: A
QUESTION 11-4 MULTIPLE CHOICE (IAA)
1. The limitations of the income statement include all of Included as component of other comprehensive income
the following, except
a. Items that cannot be measured reliably are not
reported.
b. Only actual amounts are reported in net income. c. ANS: A
Income measurement involves judgment. d. Income
numbers are affected by the accounting method.
ANS: B
2. Which of the following would represent the least
likely use of an income statement?
a. Use by customers to determine an entity’s ability to
a. Measuring the change in owner’s’ equity b.
Identifying the change in the purchasing power
c. Using a transaction approach
d. Applying the value added concept
ANS: C
2. How should exchange gain or loss resulting from
foreign currency transaction be accounted for? a.
Included as component of income from continuing
operations for the period in which the rate changes. b.
for the period in which the rate changes. c. Included in
the statement of financial position as a deferred item
d. Included in net income for gain but deferred for loss.
3. Unusual and infrequent gain and loss are reported a.
As an extraordinary item net of tax below income from
continuing operations.
b. As an extraordinary item net of tax within income
from continuing operations.
c. As a separate line item within income from
continuing operations. a. Net income
d. As a separate line item below income from b. Prior period error
continuing operations. c. Cash dividend
ANS: C d. Share dividend
ANS: B
QUESTION 11-6 MULTIPLE CHOICE (IFRS)
3. Which of the following would not appear in the
1. In the statement of changes in equity, the effect of statement of retained earnings?
the retrospective application of a change in accounting a. Net loss
policy is presented b. Prior period adjustment
a. Separately for each component of equity. c. Discontinued operation
b. In aggregate for total equity. d. Dividend declared
c. In aggregate for total equity and separately for the ANS: C
total amount attributable to owners of the parent and
the non-controlling interest. 4. Corrections of errors in prior period are included in
d. Separately for the total amount attributable to a. Retained earnings
owners of the parent and the non-controlling interest. b. Other comprehensive income
ANS: A c. Net-income
d. Share premium
2. In the statement of changes in equity, the effect of ANS: A
the correction of a prior period error is presented a.
Separately for each component of equity. b. In QUESTION 11-8 MULTIPLE CHOICE (IFRS)
aggregate for total equity. 1. The financial capital concept requires that net assets
c. In aggregate for total equity and separately for the shall be measured at
total amount attributable to owners of the parent and a. Current cost
the non-controlling interest. b. Historical cost
d. Separately for the total amount attributable to c. Historical cost adjusted for changes in purchasing
owners of the parent and the non-controlling interest. power
ANS: A d. Current cost adjusted for changes in purchasing
power
3. Which of the following should be presented in the ANS: B
statement of changes in equity?
a. Investments by owners 2. The physical capital concept requires the adoption of
b. Distributions to owners which measurement basis?
c. Change in ownership interest in subsidiary that does a. Historical cost
not result in a loss of control b. Current cost
d. All of these should be presented in the statement of c. Realizable value
changes in equity
d. Present value
ANS: D
ANS: B
QUESTION 11-7 MULTIPLE CHOICE (1AA)
3. Which capital maintenance concept is applied
1. Which of the following does not appear in a respectively to net income and comprehensive income?
statement of retained earnings? a. Financial capital and financial capital
a. Net loss b. Physical capital and physical capital
b. Prior period error c. Financial capital and physical capital
c. Preference share dividend d. Physical capital and financial capital
d. Other comprehensive income ANS: A
ANS: D
4. Which statement regarding the term “profit” is true?
2. Which of the following would appear first in a a. Profit is any amount over and above that required to
statement of retained earnings? maintain the capital at the beginning of the period b.
Profit is the residual amount that remains after 4. An entity shall measure a noncurrent asset or
expenses have been deducted from income disposal group classified as held for sale at a. Carrying
c. Profit is the equivalent of net income under IFRS d. amount
All of these statements are true about the term profit b. Fair value less cost of disposal
ANS: D c. Lower of carrying amount and fair value less cost of
disposal.
CHAPTER 12 d. Higher of carrying amount and fair value less cost of
disposal.
NON-CURREN T ASSETS HELD FOR SALE ANS: C
DISCONTI NUED OPERATIONS
5. How should the assets and liabilities of a disposal
QUESTION 12-1 MULTIPLE CHOICE (PFRS 5 group classified as held for sale be reported in the
statement of financial position?
1. It is group of assets to be disposed of by sale or a. The assets and liabilities shall be offset and presented
otherwise, together as a group in a single transaction, as a single amount.
and liabilities directly associated with those assets that b. The assets of the disposal group shall be reported
will be transferred in the transaction. separately as current assets and the liabilities of the
a. Disposal group disposal group shall be reported separately as current
b. Discontinued operation liabilities.
c. Noncurrent asset c. The assets and liabilities shall be presented as a single
d. Cash generating unit amount and as a deduction from equity.
ANS: A d. There should be no separate disclosure of assets and
liabilities that form part of a disposal group. ANS: B
2. An entity shall classify a noncurrent asset or disposal
group as held for sale when 6. At current year-end, an entity was holding long-lived
assets that it intended to sell. The entity appropriately
a. The carrying amount of the asset or disposal group is recognized a loss in the current year related to these
recovered through a sale transaction. assets. In the income statement for the current year,
b. The carrying amount of the asset or disposal group is the loss should be reported as
recovered through continuing use. a. Extraordinary item
c. The noncurrent asset or disposal group is abandoned. b. Component of income from continuing operations
d. The noncurrent asset or disposal group is idle or before tax
retired from active use. c. Component of discontinued operations net of tax
ANS:A d. Component of selling or administrative expenses
ANS: B
3. Non-current asset or disposal group is classified as
held for sale when the asset is available for immediate 7. What is the treatment of any gain on a subsequent
sale and the sale is highly probable. For the sale to be increase in the fair value less cost of disposal of a
highly probable, which of the following statements is noncurrent asset classified as held for sale? a. The gain
incorrect? shall be recognized in full.
a. Management must be committed to a plan to sell the b. The gain shall not be recognized.
asset. c. The gain shall be recognized but not in excess of the
b. An active program to locate a buyer and complete cumulative impairment loss previously recognized. d.
the plan must have been initiated. The gain shall be recognized but only in retained
c. The asset must be actively marketed for sale at a earnings.
reasonable price in relation to the current fair value. d. ANS: C
The sale is expected to qualify for recognition as a
completed sale within one year from the end of 8. A noncurrent asset that is to be abandoned shall not
reporting period. be classified as held for sale because
ANS: D a. The carrying amount is recovered principally through
continuing use.
b. It is difficult to value. 2. An entity manufactures and sells household products.
c. It is unlikely that the noncurrent asset is sold within The entity experienced losses associated with the small
twelve months. appliance group. Operations and cash flows for this
d. It is unlikely that there is an active market for the group can be clearly distinguished from the rest of the
noncurrent asset. entity’s operations. The entity decided to sell the small
ANS: A appliance group. What is the earliest point at which the
entity shall report the small appliance group as a
9. An entity classified a noncurrent asset accounted for discontinued operation?
under, the cost model as held for sale at the current
year-end. Because no offers were received at an a. When the entity classifies it as held for sale. b. When
acceptable price, the entity decided at the end of next the entity receives an offer for the segment. c. When
year not to sell the asset but to continue to use it. The the entity first sells any of the assets of the segment.
asset shall be measured at the end of next year at what d. When the entity sells the majority of the assets of the
amount? segment.
a. The lower of carrying amount and recoverable ANS: A
amount
b. The higher of carrying amount and recoverable 3. Which of the following is a requirement for a
amount component of an entity to be classified as a
c. The lower of carrying amount on the basis that the discontinued operation?
asset had never been classified as held for sale and a. The activities must cease permanently prior to the
recoverable amount financial statements being authorized for issue. b. The
d. The higher of carrying amount on the basis that the component must be a reportable segment. c. The
asset had never been classified as held for sale and assets must have been classified as held for sale in the
recoverable amount previous financial statements.
ANS: C d. The component must have been a cash generating
unit while being held for use.
10. An entity recently moved to a new building. The old ANS: D
building is being actively marketed for sale, and the
entity expects to complete the sale in four months. 4. What is the presentation of the results from
Which of the following statements is incorrect regarding discontinued operation in the income statement? a.
the old building? The entity shall disclose a single amount on the face of
a. It will be reclassified as an asset held for sale. the income statement below the income from
b. It will be classified as a current asset. continuing operations.
c. It will no longer be depreciated. b. The amounts from discontinued operations shall be
d. It will be measured at historical cost. broken down over-each category of revenue and
ANS: D expense.
c. Discontinued operations shall be shown as a
QUESTION 12-2 MULTIPLE CHOICE (IFRS) movement on retained earnings.
d. Discontinued operations shall be shown as a line item
1. Which of the following criteria does not have to be after gross income with the related tax being shown as
met in order for an operation to be classified as part of income tax expense.
discontinued? ANS: A
a The operation shall represent a separate major line of
business or geographical area. 5. Which is incorrect concerning the presentation of the
b. The operation is part of a single plan, to dispose of a discontinued operation in the statement of financial
separate major line of business or geographical area c. position?
The operation is a subsidiary acquired exclusively with a a. Assets of the component held for sale are presented
view to resale. separately from all other assets of the entity. b. Assets
d. The operation must be sold within three months of of the component held for sale are measured at the
the year-end. higher between fair value less cost of disposal and
ANS: D carrying amount.
c. Liabilities of the component held for sale are
presented separately from all other liabilities of the
entity.
d. Depreciable assets of the component held for sale
shall not be depreciated.
ANS: B
QUESTION 12-3 MULTIPLE CHOICE (AICPA ADAPTED)
1. Which of the following criteria is not required for the
results of a component of an entity to be classified as
discontinued operations?
a. Management must have entered into a sale
agreement.
b. The component is available for immediate sale. c.
The operations and cash flows of the component shall
be eliminated from the operations of the entity as a
result of the disposal.
d. The entity shall not have any significant continuing
involvement in the operations of the component after
disposal.
ANS: A
2. Which disposal could qualify as discontinued
operation?
a. Disposal of a component that is similar in nature to
other components but has operations and cash flows
distinguishable from the rest of the entity.
b. Disposal of a component due to a major change in
business strategy.
c. Disposal of a small component within the current
business strategy.
d. Disposal of a component with distinguishable
operations and cash flows from the rest of the entity.
ANS: B
3. When a component of an entity was discontinued
during the current year, the loss on disposal should a.
Exclude the associated employee relocation cost. b.
Exclude operating loss for the period.
c. Include associated employee termination
cost. d. Exclude associated lease cancelation
cost. ANS: C
4. When an entity decided to sell a business component, a. By restating amounts reported in financial statements
the gain on the disposal should be
a. Presented as other income.
b. Presented as an adjustment to retained earnings. c. As a prior period adjustment to beginning retained
Netted against the loss from operations of the
component as a part of discontinued operations. d.
Included in other comprehensive income. ANS: C
5. When a component of a business has been
discontinued during the year, the loss on disposal
should
a. Include operating loss of the current period.
b. Exclude operating loss during the period. c.
Be classified as an extraordinary item.
d. Be classified as an operating item.
ANS: A
6. When a component of a business has been
discontinued during the year, the component’s
operating loss of the current period should be included
in
a. Income statement as part of revenue and expenses.
b. Income statement as part of the loss on disposal of
the discontinued component.
c. Income statement as part of the income from
continuing operations.
d. Statement of retained earnings as a direct decrease
in retained earnings.
ANS: B
7. When an entity discontinued an operation and
disposed of the discontinued operation, the transaction
should be reported in the income statement as a. A
prior period error
b. Other income and expense item
c. An amount after income from continuing operations
and before net income
d. A bulk sale of plant assets included in income from
continuing operations.
ANS: C
CHAPTER 13
ACCOUNTING CHANGES
Prior period errors
QUESTION 13-1 MULTIPLE CHOICE (AICPA ADAPTED)
1. How should the effect of a change in accounting
estimate be accounted for?
prior periods
b. By reporting proforma amounts for prior periods c.
earnings
d. In the period of change and future periods if the
change affects both
ANS: D
2. Which of the following is characteristic of a change in Cumulative effect of change in accounting policy b.
an accounting estimate? Proforma effect of retroactive application c. Prior
a. It usually need not be disclosed period error
b. It does not affect the financial statements of prior d. An accounting change that should be reported
period currently and prospectively
c. It should be reported through the restatement of the ANS: D
financial statements
d. It makes necessary the reporting of proforma 7. When an entity changed the expected service life of
amounts for prior periods an asset, which of the following should be reported?
ANS: B a. Cumulative effect of change in accounting policy
b. Proforma effect of retroactive application c.
3. A change in the periods benefited by a deferred cost Prior period error
because of additional information has been obtained is d. An accounting change that should be reported in the
a. An accounting change that should be reported in the period of change and future periods
period of change and future periods if the change ANS: D
affects both.
b. An accounting change that should be reported by QUESTION 13-2 MULTIPLE CHOICE (IAA)
restating the financial statements of all prior periods
presented 1. Accounting changes are often made even though this
c. A correction of an error may be a violation of the accounting concept of a.
d. Not an accounting change Materiality
ANS: A b. Consistency
c. Prudence
4. A change in the residual value of an asset arising d. Objectivity
because additional information has been obtained is a. ANS: B
An accounting change that should be reported in the
period of change and future periods if the change 2. Which is not classified as an accounting change?
affects both a. Change in accounting policy
b. An accounting change that should be reported by b. Change in accounting estimate
restating the financial statements of all prior periods c. Error in the financial statements
presented d. All of these are classified as an accounting change
c. A correction of an error ANS: C
d. Not an accounting change
ANS: A 3. Which of the following is the best explanation why
accounting changes are classified into change in
5. The effect of a change in accounting policy that is accounting policy and change in accounting estimate?
inseparable from the effect of a change in accounting a. The materiality of the change.
estimate should be reported b. Each change involves different method of recognition
a. By restating the financial statements of all prior in the financial statements.
periods presented. c. The fact that some treatments are considered GAAP
b. As a correction of an error. and some are not.
c. As a component of income from continuing d. The need to provide a favorable profit picture.
operations, in the period of change and future periods if ANS: B
the change affects both.
d. As a separate disclosure after income from 4. Why is retrospective treatment of a change in
continuing operations. accounting estimate prohibited?
ANS: C a. Change in accounting estimate is a normal recurring
correction or adjustment which is the natural result of
6. When an entity changed from the straight line the accounting process.
method of depreciation to the double declining balance b. The retrospective treatment for any type of
method, which of the following should be reported? a. presentation is not allowed.
c. Retrospective treatment of a change in accounting a. The initial adoption of a policy to carry assets at
estimate is prohibited under existing standard. d. The revalued amount.
existing standard is silent on the issue. ANS: A b. A change in measurement
c. The change in inventory valuation from FIFO to
QUESTION 13-3 MULTIPLE CHOICE (PAS 8) weighted average method.
d. All of these qualify as change in accounting policy.
1. Which is the first step within the hierarchy of ANS: D
guidance when selecting accounting policies? a. Apply a
standard from IFRS if it specifically relates to the 5. Which of the following should be treated as change in
transaction. accounting policy?
b. Apply the requirements in IFRS dealing with similar a. A change is made in the method of calculating the
and related issue provision for uncollectible accounts receivable.
c. Consider the applicability of the definitions, b. Investment properties are now measured at fair
recognition criteria and measurement concepts in the value, having previously been measured at cost. c. An
Conceptual Framework. entity engaging in construction contract for the time
d. Consider the most recent pronouncements of other needs on accounting policy to deal with this. d. All of
standard setting bodies. these qualify as change in accounting policy. ANS: B
ANS: A
6. A change in accounting policy includes
2. In the absence of an accounting standard that applies I. Adoption of an accounting policy for events or
specifically to a transaction, what is the most transactions that differ in substance from previously
authoritative source in developing and applying an occurring events or transactions.
accounting policy? II. The adoption of a new accounting policy for events or
transactions which did not occur previously or that
a. The requirement and guidance in the standard or were immaterial.
interpretation dealing with similar and related issue. b.
The definition, recognition criteria and measurement of a. I only
asset, liability, income and expense in the Conceptual b. II only
Framework. c. Both I and II
c. Most recent pronouncement of other standard d. Neither I nor II
setting body. ANS: D
d. Accounting literature and accepted industry
practice. ANS: A 7. A change in accounting policy requires what kind of
adjustment to the financial statements?
3. A change in accounting policy shall be made when a. Current period adjustment
I. Required by law. b. Prospective adjustment
II. Required by an accounting standard or an c. Retrospective adjustment
interpretation d. Current and prospective adjustment
of the standard. ANS: C
III. The change will result in more relevant or reliable
information about the financial position, financial QUESTION 13-4 MULTIPLE CHOICE (IFRS)
performance and cash flows of the entity.
1. An entity that changed an accounting policy
a. I and III only voluntarily should
b. II and III only a. Inform shareholders prior to taking the decision.
c. I and II only b. Account for the change retrospectively.
d. I, II and III c. Treat the effect of the change as a component of
ANS: B other comprehensive income.
d. Treat the change prospectively and adjust the effect
4. A change in accounting policy includes which of the of the change in the current period and future periods
following? ANS: B
2. Which of the following statements is true about cumulative effect of the change for prior periods should
applying a new accounting policy? be reported as an adjustment to
a. Prospective application is applying a new accounting a. Beginning retained earnings for the earliest period
policy to transactions occurring after the date at which presented.
the policy is changed. b. Net income for the current period.
b. Retrospective application is applying a new c. Other comprehensive income for the earliest period
accounting policy to transactions as if that policy had presented.
always been applied. d. Shareholders’ equity for the current period.
c. Retrospective restatement means correcting the ANS: A
recognition, measurement and disclosure of the
amounts in the financial statements as if a prior period 4. When it is difficult to distinguish between a change in
error had never occurred. accounting estimate and a change in accounting policy,
d. All of these statements are true about applying a new the change is treated as
accounting policy. a. Change in accounting estimate with disclosure
ANS: D b: Change in accounting policy
c. Correction of an error
3. All of the following should be treated as a change in d. Change in accounting estimate with no disclosure
accounting policy, except ANS: A
a. A new accounting policy of capitalizing development
cost as a project has become eligible for capitalization QUESTION 13-6 MULTIPLE CHOICE (AICPA ADAPTED)
for the first time.
b. A new accounting policy resulting from the 1. If it is impracticable to determine the cumulative
requirement of a new IFRS. effect of an accounting change to any of the prior
c . Items of property, plant and equipment are now periods, the accounting change should be accounted for
being measured at fair value, whereas they had a. As a prior period adjustment.
previously been measured at cost. b. On a prospective basis.
d. All of these qualify as change in accounting policy. c. As a cumulative effect change on the income
ANS: A statement.
d. As an adjustment to retained earnings.
QUESTION 13-5 MULTIPLE CHOICE (1AA) ANS: B
1. Why is an entity permitted to change an accounting
policy? 2. Where it is impracticable to determine the period
a. The change would allow the entity to present a more specific effect of the change on comparative
favorable profit picture. information for one or more prior periods presented,
b. The change would result' in the financial statements the retrospective application or restatement is applied
providing more reliable and relevant information a. Retrospectively only to the extent that it is
c. The change is made by the internal auditor. practicable
d. The change is made by the CPA. b. Prospectively only to the extent it is practicable c.
ANS: A Retrospectively to the extent that estimates can be
made
2 Under IFRS, a change in accounting policy may occur d. Prospectively to the extent that estimates can be
a. Either when a change is required by an IFRS or when made
it provides reliable and more relevant information. b. ANS: A
Neither when a change is required by an IFRS nor when
it provides reliable and more relevant information. c. 3. Applying a requirement of a Standard or an
Only when a change is required by an IFRS. d. Only Interpretation is impracticable when the entity cannot
when a change provides reliable and more relevant apply it after making every effort to do so. Which of the
information. following is not included in the definition of
ANS: A “impracticable”?
a. The effect of the retrospective application is not
3. A change in accounting policy requires that the determinable.
b. The retrospective application requires assumptions
about what management intention would have been at
the time.
c. The retrospective application requires significant
estimate.
d. The entity would find the determination of the effect
to be immaterial
ANS: D
QUESTION 13-7 MULTIPLE CHOICE (AICPA ADAPTED)
1. When financial statements for a single year are being
presented, a prior period error should
a. Be shown as an adjustment of the balance of retained
earnings at the start of the current year
b. Affect net income of the current year
c. Be shown in the statement of changes in equity
d. Be included in other comprehensive income.
ANS: A
that is not generally accepted to one that is generally
accepted should report the effect of the change, net of
applicable income tax, in the current
a. Income statement as component of income from
continuing operations
b. Income statement as component of discontinued
operations
c. Statement of retained earnings as an adjustment of
the opening balance
d. Statement of retained earnings after net income but
before dividends
ANS: C
QUESTION 13-8 MULTIPLE CHOICE (IFRS)
1. During the current year, an entity discovered that
ending inventory reported in the financial statements
for the prior year was understated. How should the
entity account for this understatement?

2. Items reported as prior period errors a. Adjust the beginning inventory in the prior year. b.
a. Do not include the effect of a mistake in the Restate the financial statements withcorrected
application of accounting policy. balances for all periods presented. c. Adjust the ending
b. Do not affect the presentation of prior period balance in retained earnings at current year-end.
comparative financial statements. d. Make no entry because the error will self-correct
c. Do not require further disclosure in the body of the ANS: B
financial statements.
d. Are reflected as adjustment of the opening balance of 2. On March 25, 2018, the entity discovered that
retained earnings of the earliest period presented. ANS: depreciation expense for 2017 was overstated. The
D 2017 financial statements were authorized for issue on
April 1, 2018. What must the entity do?
3. An example of a correction of an error in previously a. Correct the 2017 financial statements before issuing
issued financial statements is a change them.
a. From FIFO method of inventory valuation to the b. Reduce depreciation for 2018.
average method. c. Restate the depreciation expense, reported for 2017
b. In the service life of property, plant and equipment. in the comparative figures of the 2018 financial
c. From cash basis to accrual basis of accounting. d. In statements.
the tax assessment related to a prior period. ANS: C d. Do nothing.
ANS: A
4. An entity that changed from cash basis to accrual
basis of accounting during the current year should 3. On March 25, 2018, the entity discovered that
report depreciation expense for 2017 was overstated. The
a. Prior period adjustment resulting from the correction 2017 financial statements were authorized for issue on
of an error. March 1, 2018. What must the entity do?
b. Prior period adjustment resulting from the change in a. Reissue the 2017 financial statements with the
accounting policy. correct depreciation expense.
c. Component of income from continuing operations. b. Reduce depreciation for 2018.
d. Component of income from discontinued operations. c. Restate the depreciation expense reported for 2017
ANS: A in the comparative figures of the 2018 financial
statements.
5. An entity that changed from an accounting principle d. Do nothing.
ANS: C b. An accounting change that should be reported
retrospectively
QUESTION 13-9 MULTIPLE CHOICE (AICPA ADAPTED) c. A correction of an error
1. A change in reporting entity is actually a change in d. Neither an accounting change nor a correction of an
a. Accounting policy error
b. Accounting estimate ANS: B
c. Accounting method
d. Accounting concept CHAPTER 14
ANS: A
INTERIM FINANCIAL REPORTING
2. Which of the following does not represent a change
in reporting entity? QUESTION 14-1 MULTIPLE CHOICE (PAS 34)
a. Changing the entities included in combined financial
statements 1. Which of the following statements is true regarding
b. Disposition of a subsidiary or other business unit interim reporting?
c. Presenting consolidated statements in place of the a. The independent view is required for interim financial
statements of individual entities statements.
d. Changing specific subsidiaries that constitute the b. Interim reports are required on a quarterly basis.
group of entities for which consolidated financial c. Interim reports are not required.
statements are presented. d. Interim reports require the preparation of only a
ANS: B statement of earnings and a statement of financial
position.
3. Which of the following statements is correct ANS: C
regarding accounting changes that result in financial
statements that are in effect the statements of a 2. An interim financial report contains
different reporting entity? a. A complete set of financial statements
a. Cumulative-effect adjustments should be reported as b. A condensed set of financial statements
separate line item in the financial statements. b. No c. Either a complete set or condensed set of financial
restatements or adjustments are required if the statements
changes involve consolidation method of accounting. c. d. Neither a complete set nor condensed set of financial
No restatements or adjustments are required if the statements
changes involve the equity method of accounting. d. ANS: C
The financial statements of all prior periods presented
are adjusted retrospectively. 3. Which basic financial statements are prepared as a
ANS: D minimum for interim financial reporting?

4. What is the proper accounting treatment for a a. Statement of financial position and income statement
change in reporting entity? b. Statement of financial position, income statement
a. Restatement of financial statements of all prior and statement of comprehensive income
periods presented c. Statement of financial position, statement of
b. Restatement of current period financial statements comprehensive income and statement of cash flows d.
c. Note disclosure and supplementary schedule d. Statement of financial position, statement of
Adjustment of retained earnings and note disclosure comprehensive income, statement of cash flows and
ANS: A statement of changes in equity
ANS: D
5. An entity has included in the consolidated financial
statements this year a subsidiary acquired several years 4. Publicly traded entities are encouraged to provide
ago that was appropriately excluded from consolidation interim financial reports
last year. How should this change be reported?
a. An accounting change that should be reported a. At least at the end of the half year and within 60 day
prospectively of the end of the interim period.
b. Within a month of the half year-end.
c. On a quarterly basis.
d. Whenever the entity wishes.
ANS: A
5. An entity is preparing interim financial statements for
six months ended June 30, 2017. In the interim financial
statements for six months, a statement of financial
position on June 30, 2017 and a statement of
comprehensive income for six months ended J une 30,
2017 shall be presented. In addition, all of the following
shall
be presented, except
a. Statement of financial position on June 30, 2016 b.
Statement of financial position on December 31, 2016
c. Statement of comprehensive income for six months
ended June 30, 2016
d. Statement of cash flows for six months ended June
30, 2016
ANS: A
QUESTION 14-2 MULTIPLE CHOICE (IFRS)
4. There is a presumption that anyone reading interim
financial reports shall
a. Understand all International Financial Reporting
Standards.
b. Have access to the records of the entity. c.
Have access to the most recent annual report.
d. Not make decisions based on the report.
ANS: C
5. An entity owns a number of farms that harvest
produce seasonally. Approximately 80% of the sales are
in the period August to October. Because the business is
seasonal, what does the standard suggest?
a. Additional notes be written in the interim reports
about seasonal nature of the business.
b. Disclosure of financial information for the latest and
comparative 12-month period in addition to the interim
report.
c. Additional disclosure in the accounting policy note.
d. No additional disclosure.
ANS: B

1. Interim financial reports shall be published 6. An interim financial report shall include as a
a. Once a year at any time during the year. minimum all of the following components, except a.
b. Within a month of the half year-end. Condensed statement of financial position and
c. On a quarterly basis. statement of comprehensive income
d. Whenever the entity wishes. b. Condensed statement of cash flows
ANS:D c. Condensed statement of changes in equity
d. Accounting policies and explanatory notes
2. If an entity does not prepare interim financial reports ANS: D
a. The year-end financial statements are deemed not to
comply with IFRS. 7. Which of the following statements is true regarding
b. The year-end financial statements' compliance with interim financial statements?
IFRS is not affected. a. Interim financial statements are required. b. If
c. The year-end financial statements shall not be interim financial statements are presented, four basic
acceptable under local legislation. financial statements are required.
d. Interim financial reports shall be included in the year c. If interim financial statements are presented, only a
end financial statements. statement of financial position and a statement of
ANS: B comprehensive income are required.
d. Interim financial statements must be presented with
3. Interim financial reports shall include as a minimum the most recent annual financial statements. ANS: B
a. A complete set of financial statements.
b. A condensed set of financial statements and selected QUESTION 14-3 MULTIPLE CHOICE ICPA ADAPTED)
notes.
c. A condensed statement of financial position and an 1. Interim financial statements are usually presented on
income statement. a
d. A condensed statement of financial position, income a. Monthly basis
statement and statement of cash flows. b. Quarterly basis
ANS: B c. Semiannual basis
d. Nine-month basis
ANS: B be affected in the first quarter and increase in the third
quarter by the amount of the market price recovery
2. For interim reporting, an inventory loss from a that exceeded the amount of the market price decline.
market decline in the second quarter shall be d. Not be affected in either the first quarter or the third
recognized as a loss quarter.
a. In the fourth quarter ANS: B
b. Proportionately in each of the second, third and
fourth quarters 7. Due to a decline in market price in the second quarter,
c. Proportionately in each of the first, second, third and an entity incurred an inventory loss. The market price is
fourth quarters expected to return to previous level by the end of the
d. In the second quarter year. At the end of the year, the decline had not
ANS: D reversed. When should the loss be reported in the
interim income statement?
3. For external reporting purposes, it is appropriate to a. Ratably over the second, third and fourth
use estimated gross profit rate to determine the cost of quarters b. Ratably over the third and fourth
goods sold for quarters c. In the second quarter
a. Interim reporting d. In the fourth quarter
b. Year-end reporting ANS: C
c. Interim reporting and year-end reporting d.
Neither interim reporting nor year-end reporting 8. How is income tax expense for the third quarter
ANS: A interim period computed?
a. The annual rate multiplied by the third quarter pretax
4. For interim financial reporting, an expropriation gain earnings.
occurring in the second quarter shall be b. The estimated tax for the first three quarters based
a. Recognized ratably over the last three quarters b. on an annual rate less a similar estimate for the first
Recognized ratably over all four quarters with the first two quarters.
quarter being restated c. The rate applicable during the third quarter
c. Recognized in the second quarter multiplied by four times the third quarter pretax
d. Disclosed in the second quarter earnings.
ANS: C d. One-half of the difference between total estimated
annual income tax expense and the income tax for the
5. Advertising costs incurred shall be deferred to first two quarters.
provide an appropriate expense in each period for a. ANS: B
Interim reporting
b. Year-end reporting 9. Conceptually, interim financial statements can be
c. Interim reporting and year-end reporting d. described as emphasizing
Neither interim reporting nor year-end reporting a. Timeliness over reliability
ANS: D b. Reliability over relevance
c. Relevance over comparability
6. An inventory loss from a market price decline d. Comparability over neutrality
occurred in the first quarter. However, in the third ANS: A
quarter the inventory had a market price recovery that
exceeded the market decline that occurred in the first 10. Interim financial reporting should be viewed a. As a
quarter. For interim financial reporting, the amount of special type of reporting that need not follow financial
inventory should reporting standards.
a. Decrease in the first quarter by the amount of the b. As useful only if activity is evenly spread throughout
market price decline and increase in the third quarter the year so that estimates are unnecessary. c. As
by the amount of the market price recovery. b. reporting for an integral part of an annual period. d.
Decrease in the first quarter by the amount of the As reporting for a separate accounting period. ANS: C
market price decline and increase in the third quarter
by the amount of decrease in the first quarter. c. Not QUESTION 14-4 MULTIPLE CHOICE (IAA)
1. Which statement about interim reporting in true? a. the consolidated financial statements of a group. d.
All entities that issue an annual report should issue Neither the separate financial statements of an entity
interim financial report. nor the consolidated financial statements of a group.
b. The integral view is the appropriate approach in ANS: C
preparing interim financial report.
c. A complete set of financial statements must be 2. If a financial report contains both the consolidated
presented for an interim period. financial statements of a parent and the parent’s
d. The same accounting principles used for the annual separate financial statements, segment information is
report should be employed for interim report. ANS: D required in
a. The separate financial statements only
2. Which of the following statements is incorrect b. The consolidated financial statements only c. Both
regarding interim financial reporting? the separate and consolidated financial statements
a. A complete set of financial statements at the interim d. Neither the separate nor the consolidated financial
reporting date is required. statements
b. Interim amount like advertising that could benefit ANS: B
later interim periods is expensed immediately. c. The
integral and independent view is the two approaches of 3. An operating segment is a component of an entity a.
interim financial reporting. That engages in business activities from which it may
d. No accruals or deferrals in anticipation of future earn revenue and incur expenses, including revenue
events during the year should be reported. and expenses relating to transactions with other
ANS: A components of the same entity.
b. Whose operating results are regularly reviewed by
3. Entities should disclose all of the following in interim the entity’s chief operating decision maker to make
financial report, except decisions about resources to be allocated to the
a. Basic and diluted earnings per share segment and assess its performance.
b. Change in accounting policy c. For which discrete information is available. d.
c. Events after the end of reporting period All of these characterize an operating segment.
d. Seasonal revenue cost or expenses. ANS: D
ANS: C
4. Which quantitative threshold is not a requirement in
4. For interim financial reporting, the income tax qualifying a reportable segment?
expense for the second quarter should be computed by a. The segment revenue both external and internal, 10%
using the or more of the combined external and internal revenue
a. Statutory tax rate for the year. of all operating segments.
b. Effective tax rate expected to be applicable for the b. The segment profit or loss is 10% or more of the
second quarter. greater between the combined profit of profitable
c. Effective tax rate expected to be applicable for the segments and combined loss of unprofitable segments.
full year as estimated at the end of the first quarter. d. c. The segment assets are 10% or more of the combined
Effective tax rate expected to be applicable for the full assets of all operating segments.
year as estimated at the end of the second quarter. d. The segment assets are 20% or more of the combined
ANS: A assets of all operating segments.
ANS: D
CHAPTER 15
5. Which is true concerning the 75% overall size test for
0PERATING SEGMENTS reportable segments?
QUESTION 15-1 MULTIPLE CHOICE (PFRS 8) a. The total external and internal revenue of all
reportable segments is 75% or more of the entity’s
1. Segment reporting shall apply to external revenue.
a. Separate financial statements of an entity only. b. b. The total external revenue of all reportable segments
Consolidated financial statements of a group only. c. is 75% or more of the entity's external and internal
Both the separate financial statements of an entity and revenue.
c. The total external revenue of all reportable segments
is 75% or more of the entity’s external revenue. d. The
total internal revenue of all reportable segments is 75%
or more of the entity’s internal revenue. ANS: C
6. The term chief operating decision maker a. Refers to
a manager with a specific title. b. Must be disclosed by
title in the financial reporting for segments.
c. Must be described in the disclosures for the financial
reporting for segments.
d. Refers to a function of allocating resources to the
operating segments and assessing their performance.
ANS: D
3. Segment reporting requires that an entity should
provide reconciliations of segment information. Which
is not a required reconciliation?
a. The total of the reportable segments’ revenue to the
entity revenue
b. The total of the reportable segments’ profit or loss to
the entity profit or loss before tax expense and
discontinued operations
c. The total number of major customers of all segments
to the total number of major customers of the entity d.
The total of the reportable segments’ assets to the
entity assets
ANS: C

7. Which statement is not true with respect to a chief QUESTION 15-3 MULTIPLE CHOICE (PFRS 8)
operating decision maker?
a. The term chief operating decision maker identifies a l. Entity-wide disclosures include all, except
function and not necessary a manager with a specific a. Information about products and services
title. b. Information about geographical areas
b. In some cases, the chief operating decision maker c. Information about major customers
could be the chief operating officer. d. Information about intersegment sales or transfers
c. The board of directors acting collectively could qualify ANS: D
as the chief operating decision maker.
d. The chief internal auditor who reports to the board of2. Which of the following statements is true in relation
directors usually plays a very important role and would to major customer disclosure?
generally qualify as chief operating decision maker. a. A major customer is defined as one of providing
ANS: D revenue which amounts to 10% or more of combined
external revenue of all operating segments. b. The
QUESTION 15-2 MULTIPLE CHOICE (PFRS 8) identities of major customers need not be disclosed.
c. The entity shall disclose the total amount of revenue
1. What are the disclosures required in relation to from major customers.
operating segments? d. All of these statements are true about major
a. General information about the operating segment. b. customer disclosures.
Information about segment profit or loss, including ANS: D
specified revenue and expenses included in profit or
lose, segment assets and segment liabilities. c. 3. Operating segments that do not meet any of the
Reconciliations of total segment revenue, total segment quantitative thresholds
profit or loss, total segment assets and total segment a. Cannot be considered reportable.
liabilities to the corresponding amounts in the entity’s b. May be considered reportable and separately
financial statements. disclosed if management believes that information
d. All of these are required to be disclosed. about the segment would be useful to the statement
ANS: D users.
c. May be considered reportable and separately
2. An entity shall disclose which of the following general disclosed if the information is for internal use only. d.
information? May be considered reportable and separately disclosed
a. Factors used to identify the reportable segments if this is the practice within the economic environment.
b. Types of products and services ANS: D
c. Factors used to identify the reportable segments and
types of products and services 4. In financial reporting for operating segments, an
d. Names of the board of directors entity shall disclose all of the following, except a. Types
ANS: C of products and services from which each reportable
segment derives its revenue. revenue of all segments.
b. The title of the chief operating decision maker. c. b. Segment assets are 10% or more of the combined
Factors used to identify the reportable segments. d. assets of all segments.
The basis of measurement of segment profit or loss c. Segment liabilities are 10% or more of the combined
ANS: B liabilities of all segments.
d. Absolute amount of a segment profit or loss is 10% or
QUESTION 15-4 MULTIPLE CHOICE (PFRS 8) more of the combined profit of all segments that did
not incur a loss.
1. An entity shall disclose for each reportable segment a ANS: C
measure of all of the following, except
a. Profit or loss 2. For segment reporting purposes, which tests must be
b. Total assets if such amount is regularly provided to applied to determine if a component is a reportable
the chief operating decision maker operating segment?
c. Total liabilities if such amount is regularly provided to a. Revenue test and asset test
the chief operating decision maker b. Revenue test, asset test and profit or loss test
d. Net assets c. Revenue test, asset test and expense test d.
ANS: D Revenue test, asset test and cash flow test ANS:
B
2. An entity shall disclose for each reportable segment
all of the following specified amounts included in the 3. An entity must disclose all of the following about
measure of profit or loss, except each reportable segment if the amounts are used by the
a. Revenue from external customers chief operating decision maker, except
b. Revenue from transactions with other operating a. Unusual items
segments of the same entity b. Income tax expense
c. Interest revenue c. Intersegment revenue
d. Gain on disposal of investment d. Cost of goods sold
ANS: D ANS: D

3. An entity shall disclose for each reportable segment 4. The approach used in segment reporting is known
all of the following specified amounts included in the as a. Segment approach
measure of profit or loss, except b. Revenue approach
a. Depreciation and amortization c. Management approach
b. The entity’s interest in the profit or loss of associate d. Enterprise approach
and joint venture accounted for by the equity method. ANS: C
c. Income tax expense
d. General corporate expenses 5. Which of the following entities are required to report
ANS: D on business segments?
a. Publicly traded entities
4. What is the practical limit to the number of b. Not for profit entities
reportable operating segments? c. Joint ventures
a. Five segments d. Nonpublic entities
b. Ten segments ANS: A
c. Six segments
d. Four segments 6. An entity must disclose all of the following about
ANS: B each reportable segment if the amounts are used by
the chief operating decision maker, except
QUESTION 15-5 MULTIPLE CHOICE (AICPA ADAPTED) a. Depreciation expense
b. Allocated expense
1. An industry segment is considered reportable when c. Interest expense
any of the following conditions is met, except a. d. Income tax expense
Segment revenue is 10% or more of the combined ANS: B
7. Entity-wide disclosures are required for publicly held near maturity that it presents insignificant risk of
entities with change in interest rate.
a. One reportable segment ANS: D
b. More than one reportable segment
c. One reportable segment and more than reportable 4. All of the following can be classified as cash and cash
segment equivalents, except
d. At least ten segments a. Redeemable preference shares acquired and due in
ANS: C 60 days
b. Commercial papers held and due for repayment in 90
8. Which of the following is a required enterprise-wide days
disclosure regarding external customers? c. Equity investments
a. The identity of any external customer considered to d. A bank overdraft
be “major” by management ANS: C
b. The identity of any external customer providing 10%
or more of a particular operating segment revenue c. 5. Deposits in foreign bank which are subject to foreign
Information on major customers is not required in exchange restriction should be classified
segment reporting a. Separately as current asset, with appropriate
d. The fact that transactions with a particular external disclosure.
customer constitute at least 10% of the total entity b. Separately as noncurrent asset with appropriate
revenue disclosure.
ANS: D c. Be written off as loss.
d. As part of cash and cash equivalents.
CHAPTER 16 CASH AND CASH ANS: B

EQUIVALENTS QUESTION 16-1 MULTIPLE 6. Bank overdraft generally should be

a. Reported as a deduction from current
CHOICE (IAA) assets. b. Reported as a deduction from cash.
c. Netted against cash and a net cash amount
reported. d. Reported as a current liability.
1. Which of the following should not be considered cash? ANS: D
a. Petty cash fund
b. Money orders 7. What is a compensating balance?
c. Coin and currency a. Saving account balance
d. IOUs b. Demand deposit account balance
ANS: D c. Temporary investment serving as collateral for
outstanding loan
2. Which of the following is usually considered d. Minimum deposit required to be maintained in
cash? a. Certificate of deposit connection with a borrowing arrangement ANS: D
b. Checking account
c. Money market saving certificate 8. A compensating balance
d. Postdated check a. Must be included in cash and cash equivalent. b.
ANS: B Which is legally restricted and related to a long-term
loan is classified as current asset.
3. A cash equivalent is a short-term, highly liquid c. Which is legally restricted and related to a short-term
investment that is readily convertible into known loan is classified separately as current asset. d. Which is
amount of cash and not legally restricted as to withdrawal is classified
a. Is acceptable as a means to pay current liabilities. b. separately as current asset.
Has a current market value that is greater than the ANS: C
original cost.
c. Bears an interest rate that is at least equal to the QUESTION 16-2 MULTIPLE CHOICE (IAA)
prime interest rate at the date of liquidation. d. Is so 1. Which of the following should not be considered
“cash”? overdrawn. The third account, used for regular
a. Change fund corporate operations, has a positive balance. How
b. Certified check should these accounts be reported?
c. Personal check a. The segregated account should be reported as a
d. Postdated check noncurrent asset, the regular account should be
ANS: D reported as a current asset, and the overdraft should be
reported as a current liability
2. All of the following may be included in “cash”, except b. The segregated and regular accounts should be
a. Currency reported as current assets and the overdraft should be
b. Money market instrument reported as a current liability
c. Checking account balance c. The segregated account should be reported as a
d. Saving account balance noncurrent asset and the regular account should be
ANS: B reported as a current asset net of the overdraft d. The
segregated and regular accounts should be reported as
3. Deposits held as compensating balance current assets net of the overdraft ANS: A
a. Usually do not earn interest.
b. If legally restricted and held against short-term credit QUESTION 16-8 MULTIPLE CHOICE (1AA)
may be included as cash.
c. If legally restricted and held against long-term credit 1. Petty cash fund is
may be included among current assets. a. Separately classified as current asset
d. None of these b. Money kept on hand for making minor disbursement
ANS: D of coin and currency rather than by writing checks c. Set
aside for the payment of payroll
4. Which of the following is not considered as a cash d. Restricted cash
equivalent? ANS: B
a. A three-year treasury note maturing on January 31 of
the next year purchased by the entity on December1 of 2. The internal control feature specific to petty cash is
the current year a. Separation of duties
b. A three-year treasury note maturing on January 31 of b. Assignment of responsibility
the next year purchased by the entity on October 1 of c. Proper authorization
the current year d. Imprest system
c. A 90-day T-bill ANS: D
d. A 60-day money market placement
ANS: B 3. What is the major purpose of an imprest petty cash
fund?
5. Which of the following should not be included in a. To effectively plan cash inflows and outflows
“cash” in the current year-end statement of financial b. To ease the payment of cash to vendors c. To
position? determine the honesty of the petty cashier d.
a. US $20,000 cash. To effectively control cash disbursements ANS:
b. Past due promissory note issued in favor of the entity D
by the President.
c. Another entity’s P150, 000 check payable to the 4. The petty cash fund account under the imprest fund
entity dated December 15 of the current year. d. The system is debited
entity’s undelivered check payable to a supplier dated a. Only when the fund is created.
December 31 of the current year. b. When the fund is created and every time it is
ANS: B replenished.
c. When the fund is created and when the size of the
6. At the end of the current year, an entity had cash fund is increased.
accounts at three different banks. One account is d. When the fund is created and when the fund is
segregated solely for payment into a bond sinking fund. decreased.
A second account, used for branch operations, is ANS: C
5. A Cash Over and Short account 1. Which of the following items must be added to the
a. Is not generally accepted. cash balance per ledger in preparing a bank
b. Is debited when the petty cash fund proves out over. reconciliation which ends with adjusted cash balance?
c. Is debited when the petty cash fund proves out short. a. Note receivable collected by bank in favor of the
d. Is a contra account to cash. depositor and credited to the account of the depositor
ANS: C b. NSF customer check
c. Service charge
6. Which of the following statements in relation to an d. Erroneous bank debit
imprest petty cash is incorrect? ANS: A
a. The imprest petty cash system in effect adheres to
the rule of disbursement by check. 2. In preparing bank reconciliation, interest paid by the
b. Entries are made to the petty cash account only to bank on the combined current and saving account is a.
increase or decrease the size of the fund or to adjust Added to the bank balance
the balance if not replenished at year-end. c. The petty b. Subtracted from the bank balance
cash account is debited when the fund is replenished. c. Added to the book balance
d. The petty cash fund is reported as part of current d. Subtracted from the book balance
assets. ANS: C
ANS: C
3. In preparing monthly bank reconciliation, which of
7 When an imprest petty cash fund is used, which of the the following would be added to the balance per bank
following statements is true? statement to arrive at the correct cash balance? a.
Outstanding check
a. The balance of the petty cash fund should be b. Bank service charge
reported in the statement of financial position as a long c. Deposit in transit
term investment. d. A customer’s note collected by the bank on behalf of
b. The petty cashier’s summary of petty cash payments the depositor
serves as a journal entry that is posted to the ANS: C
appropriate general ledger account. 4. Which of the following must be deducted from the
c. The reimbursement of the petty cash fund should be bank statement balance in preparing a bank
credited to the cash account. reconciliation which ends with adjusted cash balance?
d. Entries that include a credit to the cash account a. Deposit in transit
should be recorded at the time the payments from the b. Outstanding check
petty cash fund are made. c. Reduction of loan charged to the account of the
ANS: C depositor
d. Certified check
8. Which of the following statements in relation to petty ANS: B
cash fund is false?
a. Each disbursement from petty cash should be 5. If the balance shown in the bank statement is less
supported by a petty cash voucher. than the correct cash balance and neither the entity nor
b. The creation of a petty cash fund requires a journal the bank has made any errors, there must be a.
entry to reflect the transfer of fund out of the general Deposits credited by the bank but not yet recorded by
cash account. the entity
c. At any time, the sum of the cash in the petty cash b. Outstanding checks
fund and the total of petty cash vouchers should equal c. Deposits in transit
the amount for which the imprest petty cash fund was d. Bank charges not yet recorded by the entity
established. ANS: C
d. With the establishment of an imprest petty cash fund,
one person is given the authority and responsibility for 6. If the cash balance shown in the accounting records is
issuing checks to cover minor disbursements. ANS: D less than the correct cash balance and neither the entity
nor the bank has made any errors, there must be a.
QUESTION 16-4 MULTIPLE CHOICE (1AA) Deposits credited by the bank but not yet recorded by
the entity
b. Deposits in transit
c. Outstanding checks
d. Bank charges not yet recorded by the entity
ANS: A
7. Bank reconciliations are normally prepared on a
monthly basis to identify adjustments needed in the
depositor’s records and to identify bank errors.
Adjustments on the part of the depositor should be
recorded for
a. Bank errors, outstanding checks and deposits in
transit. b. All items except bank errors, outstanding
checks and deposits in transit.
c. Book errors, bank errors, deposits in transit and
outstanding checks.
d. Outstanding checks and deposits in transit.
ANS: B
8. Bank statements provide information about all of the
following, except
a. Checks cleared during the period
b. NSF checks
c. Bank charges for the period
d. Errors made by the depositor
ANS: D
CHAPTER 17
ACCOUNTS AND NOTES RECEIVABLE
QUESTION 17-1 MULTIPLE CHOICE (IAA)
1. Trade receivables are classified as current assets if d. The receivables are not recognized.
these are reasonably expected to be collected a. Within ANS: A
one year.
b. Within the normal operating cycle.
c. Within one year or within the operating cycle,
whichever is shorter.
d. Within one year or within the operating cycle,
whichever is longer.
ANS: D
2. Nontrade receivables are classified as current assets balance as noncurrent.
only if these are reasonably expected to be realized 1n d. The entire receivables are shown as current with
cash
a. Within one year or within the operating cycle,
whichever is shorter.
b. Within one year or within the operating cycle,
whichever is longer.
c. Within the normal operating cycle.
d. Within one year, the length of the operating cycle
notwithstanding
ANS: D
3. If the ideal measure of short-term receivables in the
statement of financial position is the discounted
amount of the cash to be received in the future, failure
to follow this practice usually does not make the
statement of financial position misleading because
a. Most short-term receivables are noninterest-bearing.
b. The allowance for doubtful accounts includes a
discount element.
c. The amount of the discount is not material. d.
Most receivables can be sold to a bank or factor.
ANS: C
4. Credit balances in accounts receivable are classified
a. Current liabilities
b. Part of accounts payable
c. Long term liabilities
d. Deduction from accounts receivable
ANS: A
5. Where the operating cycle extends beyond one year
because of normal credit terms as in the case of
installment sales of household appliances
a. It is proper to classify the entire receivables as
current assets with disclosure of the amount not
realizable within one year, if material.
b. The entire receivables are shown as noncurrent
assets.
c. The portion due in one year is shown as current and
the balance as noncurrent.
6. In the case of long-term installments receivable as in
real estate installment sales where a major portion is
collected beyond the normal operating cycle a. The
entire receivables are shown as current without
disclosure of the amount not currently due. b The
entire receivables are shown as noncurrent. c. Only the
portion currently due is shown as current and the
disclosure of the amount not currently due. ANS: C
QUESTION 17-2 MULTIPLE CHOICE (AICPA ADAPTED)
1. Which method of recording bad debt loss is
consistent with accrual accounting?
a. Allowance method
b. Direct write-hjgoff method
c. Percent of sales method
d. Percent of accounts receivable method
ANS: A
2. A method of estimating bad debts that focuses on the
income statement rather than the statement of
financial position is the allowance method based on a.
Direct write-off
b. Aging the trade accounts receivable
c. Credit sales
d. The balance in the trade accounts receivable
ANS: C
3. A method of estimating uncollectible accounts that
emphasizes asset valuation rather than income
measurement is the allowance method based on a.
Aging of accounts receivable.
b. Direct write-off
c. Gross sales
d. Credit sales less returns and allowances
ANS: A
4. The advantage of relating the bad debt experience to
accounts receivable is that this approach
a. Gives a reasonably accurate measurement of
receivables in the statement of financial position. b.
Relates bad debt expense to the period of sale. c. Is the
only generally accepted method for measuring
accounts receivable.
d. Makes estimates of uncollectible accounts
unnecessary.
ANS: A
5. When a specific customer account receivable is c. Increase in allowance for doubtful accounts and no
written off as uncollectible, what will be the effect on effect on doubtful accounts expense
net income under the allowance and direct write-off d. Increase in allowance for doubtful accounts and
method?
a. No effect under both allowance method and direct
write-off method
b. Decrease under both allowance method and direct
write-off method
c. No effect under allowance method and decrease
under direct write-off method
d. Decrease under allowance method and no effect
under direct write-off method
ANS: C
6. When the allowance method of recognizing
uncollectible accounts is used, the entry to record the c. Is the amount that should be added to the beginning
write-off of a specific account would
a. Decrease both accounts receivable and the allowance accounts expense for the year
for uncollectible accounts.
b. Decrease accounts receivable and increase the
allowance for uncollectible accounts.
c. Increase the allowance for uncollectible accounts and
decrease net income.
d. Decrease both accounts receivable and net income.
ANS: A
7. When an entity uses the allowance method for
recognizing uncollectible accounts, the entry to record
the write-off of a specific uncollectible account a.
Affects neither net income nor working capital b.
Affects neither net income nor accounts receivable c.
Decreases both net income and accounts receivable d.
Decreases both net income and working capital ANS: A
8. When the allowance method of recognizing bad debt
expense is used, the entries at the time of collection of
an account previously written off would
a. Decrease the allowance for doubtful accounts
b. Increase net income
c. Have no effect on the allowance for doubtful
accounts
d. Have no effect on net income
ANS: D
9. An entity uses the allowance method to recognize
doubtful accounts expense. What is the effect of a
collection of an account previously written off?
a. No effect on both allowance for doubtful accounts
and doubtful accounts expense
b. No effect on allowance for doubtful accounts and
decrease in doubtful accounts expense
decrease in doubtful accounts expense
ANS: C
10. When an accounts receivable aging schedule is
prepared, a series of computations is made to
determine the estimated uncollectible accounts. The
resulting amount from this aging schedule
a. When added to the total accounts written of during
the year is the desired credit balance of the allowance
for doubtful accounts at year-end
b. Is the amount of doubtful accounts expense for the
year
allowance for doubtful accounts to get the doubtful
d. Is the amount of desired credit balance of the
allowance for doubtful accounts to be reported at year
end
ANS: D
QUESTION 17-3 MULTIPLE CHOICE (1AA)
1. Which of the following methods of determining bad
debt expense does not match expense and revenue? a.
Charging bad debts with a percentage of sales under
the allowance method
b. Charging bad debts with a percentage of accounts
receivable under the allowance method
c. Charging bad debts with an amount derived from
aging the accounts receivable under the allowance
method
d. Charging bad debts as accounts are written off as
uncollectible
ANS: D
2. Which of the following methods of determining bad
debt expense most closely matches expense to revenue?
a. Charging bad debts only as accounts are written off as
uncollectible.
b. Charging bad debts with a percentage of sales for
that period.
c. Estimating the allowance for doubtful accounts as a
percentage of accounts receivable.
d. Estimating the allowance for doubtful accounts by
aging the accounts receivable.
ANS: B
3. Which of the following concepts relates to the
allowance method in accounting for uncollectible d. Estimated uncollectible receivables are too
accounts receivable?
a. Bad debt expense is an estimate based on historicaI
and prospective information.
b. Bad debt expense is the actual amount determined to a. Should never occur.
be uncollectible.
c. Bad debt expense is an estimate based only on aging large enough allowance in order to manage earnings c.
of accounts receivable.
d. Bad debt expense is management determination of uncollectible accounts.
which accounts are considered doubtful.
ANS: A
4. Why is the allowance method preferred over the
direct write-off method of accounting for bad debts? a. 9. Which of the following is not permitted in accounting
the allowance method is used for tax purposes. b.
Estimates are used.
c. Determining worthless accounts under direct write
off method is difficult to do.
d. Improved matching of bad debt expense with
revenue is achieved.
ANS: D
5. Which of the following is not acceptable in estimating
uncollectible accounts receivable?
a. The estimate of uncollectible accounts is based on a
percentage of sales for the period.
b. The estimate of uncollectible accounts is based on a
percentage of the accounts receivable at the end of a
period.
c. The estimate of uncollectible accounts is based on an
aging schedule.
d. No estimate of uncollectible accounts is made but
accounts are written off when it is determined that the
accounts cannot be collected.
ANS: D
6. The estimate of uncollectible accounts receivable
based on a percentage of sales
a. Emphasizes measurement of the net realizable value
of accounts receivable.
b. Emphasizes measurement of bad debt expense.
c. Emphasizes measurement of total assets. d. Is
only acceptable for tax purposes.
ANS: B
7. The entity debiting accounts receivable and crediting
allowance for doubtful accounts would be made when
a. A customer pays an account balance.
b. A customer defaults on an account.
c. A previously defaulted customer-pays the
outstanding balance.
low. ANS: C
8. A debit balance in the allowance for doubtful account.
b. Is always the result of management not providing a
May occur before the end-of-period adjustment for
d. May exist even after the end-of-period adjustment
for uncollectible accounts.
ANS: C
for uncollectible accounts receivable?
a. Aging of accounts receivable
b. Percentage of accounts receivable
c. Percentage of sales
d. Direct write-off method d. Less than the present value of the remaining monthly
ANS: C payments discounted at 12%.
ANS: C
10. When the direct write-off method of recognizing
bad debt expense is used, the entry to write off a 4 What in imputed interest?
specific customer account would a. Internet based on the stated interest rate b.
a. Increase net income Interest based on the implicit interest rate c.
b. Have no effect on net income Interest based on the average interest rate d.
c. Increase accounts receivable and increase net income Interest based on the bank prime interest rate
d. Decrease accounts receivable and decrease net ANS: B
income
ANS: D 5. Accounting for the interest in a non- interest bearing
note receivable is an example of what aspect of
accounting theory?
QUESTION 17-4 MULTIPLE CHOICE (AICPA ADAPTED) a. Matching
b. Verifiability
1. On October 1 of the current year, an entity received a c. Substance over form
one-year note receivable bearing interest at the market d. Form over substance
rate. The face amount of the note receivable and the ANS: C
entire amount of the interest are due on September 30
of next year. The interest receivable on December 31 of 6. On July 1 of the current year, an entity received a
the current year would consist of an amount one-year note receivable bearing interest at the market
representing rate. The face amount of the note receivable and the
a. Three months of accrued interest income entire amount of the interest are due in one year. The
b. Nine months of accrued interest income interest receivable account would show a balance on
c. Twelve months of accrued interest income d. The a. July 1 but not December 31
excess on October 1 of the present value of the note b. December 31 but not July 1
receivable over its face amount c. July 1 and December 31
ANS: A d. Neither July 1 nor December 31
ANS: B
2. On July 1 of the current year, an entity obtained a
two-year 8% note receivable for services rendered. At 7. On July 1 of the current year, an entity received a
that time, the market rate of interest was 10%. The face one-year note receivable bearing interest at the market
amount of the note and the entire amount of interest rate. The face amount of the note receivable and the
are due on the date of maturity. Interest receivable on entire amount of the interest are due in one year. When
December 31 of the current year is the note receivable was recorded on July 1, which of the
a. 5% of the face amount-of the note following was debited?
b. 4% of the face amount of the note a. Interest receivable
c. 5% of the present value of the note b. Unearned discount on note receivable
d. 4% of the present value of the note c. Interest receivable and unearned discount on note
ANS: B receivable
d. Neither interest receivable nor unearned discount on
3. An entity uses the installment method to recognize note receivable
revenue from installment sales. Customers pay the ANS: D
installment notes in 24 equal monthly amounts which
include 12% interest. What is the installment notes 8. On August 15, an entity sold goods for which it
receivable balance six months after the sale? received a note bearing the market rate of interest on
a. 75% of the original sales price. that date. The four-month note was dated July 15. Note
b. Less than 75% of the original sales price. c. The principal, together with all interest, is due November 15.
present value of the remaining monthly payments When the note was recorded on August 15, which of
discounted at 12%. the following accounts increased?
a. Unearned discount c. Assignment and factoring
b. Interest receivable d. Assignment, factoring and discounting
c. Prepaid interest ANS: C
d. Interest revenue
ANS: B 3. The practice of realizing cash from trade receivables
prior to maturity date is widespread. Which term is not
9. On July 1 of the current year, an entity received a associated with this practice?
one-year note receivable bearing interest at the market a. Hypothecation
rate. The face amount of the note receivable and the b. Factoring
entire amount of the interest are due on June 30 of next c. Defalcation
year. On December 31 of the current year, the entity d. Pledging
should report in the statement of financial position ANS: C
a. A deferred credit for interest applicable to next year
b. No interest receivable 4. When the accounts receivable are sold outright, the
c. Interest receivable for the entire amount of the accounts receivable have been
interest due on June 30 of next year a. Pledged
d. Interest receivable for the interest accruing in the b. Assigned
current year c. Factored
ANS: D d. Collateralized
ANS: C
10. An entity received a seven-year zero interest bearing
note on February 1, 2017 in exchange for property sold. 5. It is a predetermined amount withheld by a factor as
There was no established exchange price for the a protection against customer returns, allowances and
property and the note has no ready market. The other special adjustments.
prevailing rate 'of interest for a note of this type was 7% a. Equity in assigned accounts
on February 1, 2017, 6% on December 31, 2017, 8% on b. Service charge
February 1, 2018, and 9% on December 31, 2018. What c. Factor’s holdback
interest rate should be used to calculate the interest d. Loss on factoring
revenue from the transaction for the years ended ANS: C
December 31, 2017 and 2018, respectively?
6. If a note receivable is discounted with recourse
a. O% and 0% a. A contingent liability does not exist.
b. 7% and 7% b. Note receivable discounted is credited.
c. 7% and 9% c. Note receivable must be credited.
d. 6% and 9% d. Liability for note receivable discounted is credited.
ANS: B ANS: B
QUESTION 17-5 Multiple Choice (IAA)
7. The note receivable discounted account is reported
1. Why would an entity sell accounts receivable to as
another entity? a. Contra asset account for the proceeds from the
a. To improve the quality of credit granting discounting transaction
process b. To limit its legal liability b. Contra asset account for the face amount of the note
c. To accelerate access to amount c. Liability account for the proceeds from the
collected d. To comply with customer discounting
agreements d. Liability account for the face amount of the note
ANS: C ANS: B

2. Which of the following is a method to generate cash 8. If a note receivable is discounted without recourse
from accounts receivable? a. The contingent liability may be disclosed b.
a. Assignment Liability for note receivable discounted is credited c.
b. Factoring Note receivable is credited
d. The transaction shall be accounted for as a secured
borrowing as opposed to a sale
ANS: C
9. Note receivable discounted with recourse should be
a. Excluded from total receivables without disclosure of
contingent liability
b. Excluded from total receivables with disclosure of
contingent liability
c. Included in total receivables without disclosure of
contingent liability
d. Included in total receivables with disclosure of
contingent liability
ANS: B
QUESTION 17-6 MULTIPLE CHOICE (AICPA ADAPTED) 1.
When an entity factored accounts receivable without
recourse with a bank, the transaction is best described
as
a. Bank loan collateralized by the accounts receivable.
b. Bank loan to be repaid by the proceeds from the
accounts receivable.
c. Sale of the accounts receivable to the bank, with risk
of uncollectible accounts retained by the entity. d. Sale
of the accounts receivable to the bank with the risk of
uncollectible accounts transferred to the bank. ANS: D
2. Which of the following statements is true when
accounts receivable are factored without recourse? a.
The transaction may be accounted for either as secured
borrowing or sale, depending upon the substance of
transaction.
b. The accounts receivable are used as collateral for a
promissory note issued to the factor.
c. The factor assumes the risk of collectability and
absorbs any credit losses in collecting the accounts
receivable.
d. The financing cost should be recognized ratably over
the collection period.
ANS: C
3. All but one of the following are required before a
transfer of accounts receivable can be recorded as a
sale.
a. The transferred accounts receivable are beyond the
reach of the transferor and the creditors.
b. The transferor has not kept effective control over the
transferred accounts receivable through a repurchase
agreement.
c. The transferor maintains continuing involvement. d.
The transferee can pledge or sell the transferred
accounts receivable.
ANS: C
4. If financial assets are exchanged for cash and other
consideration but the transfer does not meet the
criteria for a sale, the transaction should be accounted
for as
a. Secured borrowing
b. Pledge of collateral
c. Both secured borrowing and pledge of collateral d.
Neither secured borrowing nor pledge of collateral
ANS: C
5. Which of the following in used to account for
probable sale discounts, sales returns and sales
allowances?
a. Due from factor
b. Recourse liability
c. Both due from factor-and recourse liability
d. Neither due from factor nor recourse liability
ANS: A
6. After being held for 40 days, a 120-day 12% interest
bearing note receivable was discounted at a bank at
15%. The net proceeds from discounting are equal to a.
Maturity value less the discount at 12%
b. Maturity value less the discount at 15%
c. Face value less the discount at 12%
d. Face value less the discount at 15%
ANS: B
7. A note receivable bearing a reasonable interest rate
is sold to a bank with recourse. At the date of the
discounting transaction, the note receivable discounted
account should be
a. Decreased by the proceeds from the discounting
b. Increased by the proceeds from the discounting
c. Increased by the face amount of the note d.
Decreased by the face amount of the note ANS: C
8. If receivables are hypothecated against borrowings,
the amount of receivables involved should be a.
Disclosed in the notes
b. Excluded from the total receivables with disclosure
c. Excluded from the total receivables with no
disclosure d. Excluded from the total receivables and a
gain or loss is recognized between the face amount
and the amount of borrowings
ANS: A