FINANCIAL ACCOUNTING THEORY TEST BANK

Pre-week Summary I Oct 2006 Page 1

FINANCIAL ACCOUNTINGAccounting and Financial Accounting Concepts

1.0 Overview of Accounting

1. Which of the following statements about the nature of accounting is not true?a. Accounting is the language of business.

b. Accounting identifies, measures and communicates financial information about economic entities for use by both external and internal users in making economic decisions

c. Before accounting can render communication services, an economic entity should first be createdd. Accounting communication services are available only to publicly accountable, medium-sized and small industries and not to micro entities 2. Which of the following statements regarding accounting theory is [are} true?

I . Accounting concepts are human made

II. Accounting Theory can be defined as a coherent set of hypothetical, conceptual and pragmatic

principles that form a general frame of reference for a field of inquiry

III. Accounting theory has developed primarily in response to government regulations.

Statement 1 Statement II Statement III Statement I Statement II Statement III a. true false true c. false true false b. true true false d. true true true 3. Which of the following statements does not properly describe the fact that the Accountancy Profession is a communication profession?

a. Financial statements should use terminology within the level of understanding of the statement user.

b. Financial statements can be expressed in the Spanish or Chinese language

c. Financial statements, as far as possible, should show information that can be verified from

documentary evidence in order to gain the confidence of statement users

d. Financial statements can be expressed in any dialect of a country4. Which one of the following is an application of the science aspect of Accounting?

a. Exercise of creative skill and judgment

b. Interpreting the information presented in the financial statements through ratios and trend analysis

c. Use of an accounting equation to express the relationship of accountable events

d. Attesting to the fairness of presentation of financial condition and operating results

5. The art aspect of accounting is applied in the following circumstances except whena. The accountant refers to a body of organized knowledge in processing accounting information.

b. A provision is recognized on the basis of the company lawyers professional opinion that there is a strong probability that the company will lose in a lawsuit in the corridor of P 5 M to P 8 M

c. The accountant chooses the most appropriate method of inventory valuation for the entity.

d.. The external auditor gives an unqualified opinion that the financial statements are fairly presented

in conformity with generally accepted accounting principles

6. Which of the following statements is incorrect?

a. General purpose financial statements were developed primarily because all outside party users have the same information needs

b. The double-entry system of accounting has been used for centuries.

c. The practice of accounting requires considerable professional judgment

d. The objective of external financial statements is to communicate the economic effects of completed transactions and other events in the entity

7. The branch of accounting that focuses on general purpose reports on financial position and results of operations is known asa. Financial accounting c. Bookkeeping

b. Auditing d. Management Accounting

8. Which of the following applies to financial accounting?

a. b. c. d Information meets specific needs of particular statement users yes no no no Emphasizes objective data yes no yes no

Future-oriented no no no yes

Basically concerned with income determination and asset valuation no yes yes no9. The following descriptions pertain to limitations of financial accounting and financial statements excepta. Historical in nature c. Centered on quantifiable information

b. Use of estimates d. Records information on the basis of business papersAccounting standard setting (institutions and process) 10. According to the Preface to International Financial Reporting Standards, which of the following are objectives of the IASB?

I. To harmonize financial reporting between IFRS and US GAAP and the European

II. To work actively with national standard setters

III. To promote the use and strict application of financial accounting standards

a. I and II b. I and III c. II and III d. I, II and III

11. Which of the following are parts of the due process of the IASB in issuing a new International Financial Reporting Standard?

I. Establishing an advisory committee to give advice

II. Developing and publishing a discussion document for public comment

III Issuance of an interpretation as authoritative guidance

IV Reviewing compliance and enforcement procedures

V Issuance of the final standard with number and title a. I II & III only b. I, II & V only c. I, II, III & IV only d. I, II, III, IV & V 12. As an assistance to the IASB and the accountancy profession and the public it serves, which of the following should IFRIC consider issuing an interpretation?

I. Newly identified financial reporting issues not specifically addressed in IFRSs

II. Issues where unsatisfactory or conflicting interpretations have developed, or seem likely to develop.

III. Accounting issues affecting specific industry or specific country jurisdictions.

IV. Issues where the IASB members cannot have a common agreement.

a. I and II only b. I, II and III c. II, III and IV only d.. I, II, III and IV only

13. Which of the following statements about international accounting standards is true?

a. Legal and psychological hurdles to achieving common reporting standards will be fully overcome by the year 2012, the time frame set for convergence between IAS and US GAAP

b. Accounting professionals in the USA consider US GAAP superior to IAS and has no intention to adopt International Accounting Standards..

c. The IASB is able to enforce its standards by prohibiting the listing of companies which do not

comply on stock exchanges which sell internationally.

d. The International Accounting Standards Board (IASB) was established with the purpose of narrowing the range of divergence in accounting standards throughout the world. 14. Which one of the following bodies is responsible for reviewing accounting issues that are likely to receive divergent or unacceptable treatment in the absence of authoritative guidance, whit a view to reaching consensus as to the appropriate accounting treatment?

a. International Financial Reporting Interpretations Committee (IFRIC) b. Standards Advisory Council (SAC)

c. International Accounting Standards Board (IASB)

d. International Accounting Standards Committee Foundation (IASC Foundation)

15. Which of the following statements relating to the FRSC and standard setting process in the Philippines. Which of these is (are) true?

I. All members of the FRSC should be CPAs

II. The Financial Reporting Standards Council (FRSC) Board of Accountancy (BOA) and

Professional Regulation Commission (PRC) are all involved in the standard setting process,

with PRC as the final approving authority.

a. Only I is true

b. Only II is true c. I and II are trued. I and II are false

16. Who among the following may be nominated for membership in Financial Reporting Standards Council?

a. A member of FINEX who is a CPA and is a Finance Officer of the company he represents

b. The BIR Commissioner who is a LAWYER

c. A director of the Securities and Exchange Commission who is not a CPA

d. A Deputy governor of the Central Bank who is not a CPA

The Conceptual Framework

17. The objectives of financial reporting for business enterprises are based on

a. the need for conservative information

b. the needs of the users of the information

c. the need to comply with financial accounting standards

d. the need to report on managements stewardship

18. Which statement is false concerning users and their information needs?

a. Lenders are interested in information that enables them to determine whether their loans and the

interest on these loans will be paid when due.

b. The providers of risk capital and their advisers are concerned with the risk inherent in and return provided by their investments.

c. Government and its agencies have an interest in information about the continuance of an enterprise, especially when they have long-term involvement or are dependent on the enterprise.

d. Employees and their representative groups are interested in information about the stability and profitability of their employees.

19. Which of the following statements regarding users of financial information is correct?

a. External decision makers can obtain whatever financial data they need and whenever they need it.

b. Accounting information is prepared for and useful to only outside decision makers

c. The members of the Board of Directors are not internal rather than external users of financial information

d. Managers of an entity are considered to be internal decision makers. 20. Which one of the following term best describes the amount of cash or cash equivalents that could currently be obtained by selling an asset in an orderly disposal?

a . Fair value b. Realizable value c. Residual value d. Value in use

21. Are the following statements regarding the term 'profit' true or false?

(1) Profit is any amount over and above that is required to maintain the capital at the beginning of the period.

(2) Profit is the residual amount that remains after expenses have been deducted from income.

Statement (1) Statement (2) Statement 1) Statement (2)

a. False

False c. True False

b False

True d. True True22. 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 futurec. The potential to contribute to the flow of cash and cash equivalents to the entity

d. The expenses of an entity exceed its income

23. Which of the following terms best describes the relationship of the assets, liabilities and equity of an entity?

a. Financial performance b. Financial position c. Future economic benefit d. Obligation

24. Which of the following terms best describes assets recorded at the amount that represents the immediate purchase cost of an equivalent asset?

a. Historical cost b. Realizable value c. Present value d. Current cost25. Which of the following is true of the qualitative characteristic of 'understandability' in relation to information in financial statements?

a. Users should be willing to study the information with reasonable diligenceb. Users are expected to have significant business knowledge

c. Financial statements should exclude complex matters

d. Financial statements should be fee from material error

26. Which of the following terms describing information in the financial statements are properly matched?

a. Understandable and comparable c. Prudent and relevant b. Reliable and verifiable d. Unbiased and neutral27. Which of the following is the best description of 'reliability' in relation to information in financial statements?

a. Influence on the economic decisions of users c. Inclusion of a degree of caution

b. Freedom from material error and bias d. Comprehensibility to users

28. This is the quality of information that influences the economic decisions of financial statement users?

a. Relevance b. Reliability c. Understandability d. Comparability29. According to the IASB Framework for the preparation and presentation of financial statements, which TWO of the following are examples of 'expenses'?

I. A loss on the disposal of a non-current asset

II A decrease in equity arising from a distribution to equity participants

III A decrease in economic benefits during the accounting period

IV A reduction in income for the accounting period

a. I and II b. II and III c. I and III d. III and IV30. If accounting information is timely, and has predictive as well as feedback value, then it is considered to be

a. verifiable b. relevant c. reliable d. understandable

31. Which of the following accounting concepts states that before a transaction is recorded, sufficient evidence must exist to allow two or more knowledgeable individuals to reach essentially the same conclusion about the transaction?

a. Continuity assumption c. Reliability quality

b. Separate entity assumption d. Materiality constraint

32. Which of the following statements about prudence and conservatism is (are) true?

I. Conservatism is not a concept in the IASB Conceptual Framework

II. Prudence is the same as conservatism

III. Conservatism is intentional bias --- downward bias in recognizing profits and assets and an upward bias in recognizing expenses and liabilities

IV. Prudence is the inclusion of a degree of caution in the exercise of judgments needed in making the estimates required under conditions of uncertainty

a. I, II and III only

c. I, III and IV only

b. II, III and IV only d. I, II, III and IV

33. In the first week of December, 2011, Elisa Company signs a major contract to develop an accounting information system for Edward Inc. No work is begun the current year, yet the notes to the financial statements discusses the nature and peso amount of the contract. This is an example of:

a. completeness or full disclosure c. relevance b. historical cost d. conservatism 34. A company reports only its total accounts receivable balance in its balance sheet, as opposed to a complete listing of its individual customer balances. This is an example of

a. consistency b. materiality c. cost/benefit d. conservatism

35. Which of the following statements is true with regard to the accountants concept of Materiality?

a. Materiality is the threshold of recognition as to what accountable events will be recognized in the

balance sheet and which will be recognized in the income statement. b. Materiality judgments generally may be based solely on the magnitude of the item

c. Materiality judgments generally may be made without consideration of the magnitude of the item

involved.

d. Relevant items are always material

36. According to the Conceptual Framework, which of the following is not a primary qualitative characteristic that make the information provided in financial statements useful to users?

a. Comparability b. Relevance c Materiality d Understandability

37. Are the following statements in relation to materiality true or false, according to PAS 1

(1) Materiality of items depends on their individual or collective influence on the economic decisions of users

(2) Materiality of an item depends on its absolute size and nature

(3) Materiality serves as the threshold of recognition in deciding whether a financial information is relevant to be included in the statement of financial position or to the income statement

Statement (1) Statement (2) Statement (3) a. true false true b. true true false

c. false false fakse

d. true false false

38. Comparability of financial information depends on

AB CD

ConsistencyYesYesNoNo

Regular reporting periodsYesNoNoYes

39. The recognition of periodic depreciation expense on company-owned automobiles requires estimating both salvage or residual value, and the useful life of the vehicles. The use of estimates in this case is an example of

a. providing relevant data at the expense of reliability

b. invoking the materiality constraint rather than cost benefit constraint

c. conservatism

d. maintaining consistency

40. Which of the following situations violates the concept of reliability?

a. Financial statements were issued nine months late

b. Report on segments having the same expected risks and growth rates to analysts estimating future periods

c. Financial statements included property with a carrying amount increased to managements estimate of market value

d. Management reports to stockholders regularly refer to new projects undertaken, but the financial statements never report project results.

41. Which of the following statements about the qualitative characteristics is (are) true?

I. Relevance is the capacity of information to make a difference in decision by helping users form

predictions about outcome of past, present and future events or confirm /correct prior expectations

II. The quality of reliability assures readers that the financial information is free from bias and

faithfully represents what it purports to show, including adequate disclosure of significant informationIII. Under the IASB Framework for the Preparation and presentation of financial statements,

conservatism is not a concept that is recognized as a qualitative objective.

a. I and II only b. I and III only c. II and III only d. I, II and III 42. Which TWO of the following are listed in the IASB Framework as 'underlying assumptions' regarding financial statements?

A The financial statements are prepared under the accrual basis

B. The entity can be viewed as a going concern

C. The financial statements are reliable

D Accounting policies are consistently applied a. A and B b. B and C c. B and D

d. C and D

43. Which TWO of the following statements concerning the provisions of the Conceptual Framework are correct? I. The Framework provides that transactions must be accounted for in accordance with their legal form

II. The primary responsibility for the preparation and presentation of the financial statements of the entity rests with both its management and its external auditor III. It is not proper that financial statements should exclude complex matters simply in order to

achieve understandability

IV Where any conflict arises between the Framework and an accounting standard, the requirements of the accounting standards should prevail

a. I and II b. I and IV c. II and III d. III and IVBasic Assumptions of Accounting

44. Richard Santos is the owner and manager of Santos Landscaping Services. Santos purchased a new

station wagon for personal use and a dump truck to be used in the business. Which of the following

assumptions, principles, or constraints would be violated if both station wagon and dump truck are

recorded as assets of the business?

a. Materiality constraint c. Continuity assumption

b. Conservatism constraint d. Separate entity assumption

45. Adjusting entries are needed because in reporting financial data an entity

I. Adopts the accrual assumption

II Reports on transactions that overlap accounting periods

III. Adopts the going concern assumption

a. I only b. I and II only c. II and III d. I, II and III46. Fatima Inc. is a company whose securities are traded on over-the-counter market. It controls

Portugal Corp. Consolidated financial statements are prepared in recognition of the accounting

concept of

a. Economic entity b. Materiality c. Legal entity d. Flexibility47. Which one of the following statements best describes the term going concern?

a. When current liabilities of an entity exceeds 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 of an entity exceed its incomePrinciples of Recognition and Measurement (Assets, Liabilities, Equity, Revenue, Expense)48. Are the following statements regarding recognition true or false?

(1) An accountable item is deemed recognized if it is recorded in the journals and ledgers.

(2) Recognition is the process of determining the amounts at which elements of the financial

statements are to be recognized,

(3) Recognition is the process of incorporating in the financial statements an item that meets the

definition of an element and the criteria for recognition

Statement (1) Statement (2) Statement (3)

a. false false true b. true true false

c. true false true

d. true true true

49. Which of the following statements about accounting recognition is (are) true?

I. In accounting, there are instances when a gain / loss would arise upon initial recognition of an asset.

II. No asset can simultaneously be an asset of more than one entity

III. At times, two or more entities may share the benefits that an asset provides

IV. An appropriate basis for recognizing an asset is when a particular enterprise acquires the right to

utilize and control access to the assets benefits

a. I and II only c. I, II and III only

b. I and IV only d. I, II, III and IV

50. Which of the following is a condition necessary for the recognition of an asset?

a. It is probable that future economic benefits will flow to the enterprise and the cost of the asset can be measured accurately.

b. The cost of the asset can be measured reliably

c. It is probable that future economic benefits will flow to the enterprise and the cost of the asset can be measured reliably.

d. It is probable that future economic benefits will flow to the enterprise and the asset is paid for

51. Which one of the following is not among the essential characteristic of an asset?

a. The inflow of future economic benefits is controlled by the enterprise

b. It must be exclusively owned and must be exchangeable

c. The cost of the asset can be measured reliablyd. It is a result of either a past activity

52. Which condition is necessary for the recognition of a liability?

a. It is probable that an outflow of economic benefits will be required to settle an obligation

b. The amount of the obligation can be measured reliably

c. The amount of the obligation must be definite

d. It is probable that an outflow of economic benefits will be required to settle an obligation and the amount of obligation can be measured reliably.

53. The following statements relate to liabilities. Which statement is (are) false?

I. Liabilities may be measured by estimates of a definitive character when the amount of the

liability cannot be measured precisely

II. All monetary liabilities should be stated in the balance sheet at their present (discounted) values

III. Under current GAAP, there are instances when an increase in liability is matched with an increase in revenue.

a. I and II only b. II and III only c. I and III only d. I, II and III

54. Which of the following statements about Equity is (are) correct?

I. Since equity is the excess of assets over liabilities, equity cannot be measured separately from the

other elements of the financial position.

II. Equity has no specific maturity date except upon liquidation.

III. Income-related transactions as well as reserve or other comprehensive income transactions

such as revaluation surplus and unrealized holding gains and losses automatically affect equity.

a. I and II only b. I and III only c. II and III only d. I, II, III

55. These are gross inflows of economic benefits during the period arising the course of the ordinary activities of an enterprise when those inflows result in increases in equity, other than increases relating to contributions from equity participants.

a. Revenue b. Increase in cash flow c. Net income d. Return on net assets

56. In which of the following circumstances can revenue be normally recognized?a. When the customers order is received

b. When title to the goods changes

c. Only when a transaction creates an account receivable

d. When the customers order is accompanied by a check

57. Under the realization principle, revenue from sale of products is recognized

a. At date of delivery to the customers c. When the customers are billed

b. When the inventories are readied for shipment d. Upon receipt of cash payment

58. This revenue recognition method is allowed when a sale is assured under a forward contract or

government guarantee or when a homogeneous market exists and there is negligible risk of

failure to sell.

a. Percentage of completion method c. Cash method

b. Production method d. Accrual method

59. Which one of the following may be recognized as revenue?

a. Cash deposit received for lay-away sales

b. Cash received in payment of note receivable

c. Cash from advance magazine subscription

d. Cash reimbursement from government for calamity losses sustained (per PAS 20 Government Grants)60. According to the IASB Framework, the following are examples of expenses except a. A decrease in asset due to benefit received

b. A decrease in asset arising from distribution to equity participants c. A decline in the recoverable amount of an asset which is lower than its carrying amountd. A sale of a non-current asset below cost

61. According to the Revenue recognition principles, which one of these activities do not generate revenue?

a. Permitting others to use enterprise resources c. Adjustment of revenue of prior periods.

b. Sale of merchandise d. Disposing of investment in other entities

62. An expiration of cost which is incurred without compensation or return and is not absorbed as cost of revenue is called

a. Indirect cost b. Loss c. Deferred credit d. Deferred charge

63. Which of the following is a period cost?

a. Factory overhead b. Work in process c. Selling expense d. Direct labor

64. Which of the following statements about measurement in accounting is (are) true?

I. All assets must be initially recognized at historical cost, but the final valuation can be a mixture of

costs and other values.

II. Current selling price and net realizable value differ conceptually

III. According to PAS 29. Hyper-inflationary Economy, only non-monetary items are restated to

current price level amounts in the balance sheet

a. Only I is true c. II and III are true

b. Only II is true d. All statements are true

65. Which of the following measurement bases is also currently used in financial accounting?

Current Present Net settlement

Cost discounted value value Historical cost a. yes yes yes yes

b. yes no no yes

c. yes yes yes no d. no yes yes no 66. Which of the following statements about accounting measurement is (are) true?I. Measurement in accounting is the assignment of numbers, quantities, and

monetary amounts to objects such as property and equipment and events such as

purchases or salesII. Under current GAAP, all assets must be initially measured at historical cost.III. There are certain rare instances when price level adjusted amounts may be used in financial reporting to external users

a. I and II only b. II and III only c. I and III only d. I, II and III

67. Which of the following assets are initially and subsequently measured at Fair value?

I. Biological assets IV. Property and Equipment

II. Available for Sale Securities V. Held for Trading Securities

III. Inventories VI. Intangible Assets

a. I and II only b. I, II, and V only c. I, II, III ad V only d. I, II IV, and V only

68. Which of the following may be optionally measured at Fair value in the Statement of Financial Position?

I. Held for Trading Securities IV. Non-current Assets Held for Sale

II. Property and Equipment V. Intangible Assets

III. Biological Assets, current

a. I and II only b. II and V only c. I, II, and III only d. II, IV, and V only

2.0 Presentation of Financial Statements69. Financial statements include a statement of financial position, a statement of comprehensive income and a statement of changes in equity. According to the Preface to international financial reporting standards, which TWO of the following are also included within the financial statements?

I. A statement of cash flows III. An auditors report

II Accounting policies IV. A directors' report

a. I and II b. I and III c. II and III d. III and IV

70. Which of the following is (are) among the limitations of financial accounting and financial statements?

I. Use of estimates

II. Historical in nature

III. Some information that are not quantifiable but may be significant to statement users in

forming economic decisions are not given recognition.

a. I only b. I and II only c. II and III only d. I, II and III 71. Which of the following statements about financial statements is incorrect?

a. They show the results of the stewardship of management of the resources entrusted to it by

the capital providers

b. They are the primary responsibility of the external auditor after audit c. They are prepared at least annually and are directed to the common information needs of a wide

range of statement users

d. They provide information about the financial position, performance and cash flows of an enterprise that is useful to a wide range of users in making economic decisions

72. Which of the following statements is (are) false?

I. Financial accounting is the only source of information needed by those who make economic decisions about the business enterprises.

II. Financial accounting is based on the presumption that all statement users have the same information

needs

III. Financial accounting is procedural

a. Only I is false b. Only II is false c. II and III are false d. I, II and III are false 73. Under PAS 1 [2009], which of the following items is not included in the computation of net income?

a. Finance cost

b. Post-tax Gain [Loss] on discontinued operations

c. Unrealized gain in change in value of available for sale securities

d. Unrealized gain in change in value of biological assets

74. According to PAS1 Presentation of financial statements, which TWO of the following must be included in an entity's statement of financial position?

a. b. c. d

( Investment property yes yes yes yes

( Number of shares authorized no no yes yes

( Provisions yes no no yes

( Shares in an entity owned by that entity no yes no no

75. According to PAS1 Presentation of financial statements, which TWO of the following must be included in an entity's statement of financial position?

A Cash and cash equivalents

B Property, plant and equipment analyzed by class

C Share capital and reserves analyzed by class

D Deferred tax

a. A and B b. A and D c. B and C d. B and D

76. In which section of the statement of financial position should cash that is restricted to the settlement of a liability due 18 months after the reporting period be presented, according to PAS1 Presentation of financial statements? (select one answer)

a. Current assets b. Equity c. Non-current liabilities d. Non-current assets77. In which section of the statement of financial position should employment taxes that are due for settlement in 15 months' time be presented, according to PAS1 Presentation of financial statements? (select one answer)

a. Current liabilities b. Current assets c. Non-current liabilities d. Non-current assets

Notes to Financial Statements78. What is the purpose of information presented as notes to financial statements?

a. To provide disclosures required by generally accepted accounting principles

b. To correct improper presentation in the financial statements

c. To provide recognition of amounts not included in the totals of the financial statements

d. To present managements responses to auditor comments.

79. Which information is normally not included in the notes to financial statements?

a. A statement of compliance with GAAP

b. A statement of measurement basis for the financial statements and accounting policies applied

c. Supporting information for line items presented and aggregated

d. A Statement of cash flows 80. Disclosure in the financial statements is not required for which of the following?

a. Use of property by lease between a parent company and its subsidiary

b. Receipt of services by subsidiary from a principal without charge or without record of receipt of services

c. Possibility of strike

d. Guarantees for indebtedness of others if the possibility of loss is remote

81. As a significant component of the notes to financial statements, the accounting policies section should describe

a. Only the measurement basis used in preparing the financial statements

b. Only the specific accounting policies followed by the enterprise

c. Both the measurement bases and the accounting policies followed

d. The nature of the enterprises operations and its principal activities

82. Part of the notes to financial statements are events after the reporting period which pertain to those events, both favorable and unfavorable that occur

a. After balance sheet date

b. After issuance of the statements

c. Between the balance sheet date and the date when the financial statements are authorized for issue

d. After the balance sheet date but prior to issuance of financial statements

83. Adjustments of financial statements are required for those events after balance sheet date which

a. Have a material effect on a users evaluation of the information presented in the financial statements

b. Occurred prior to issuance of the financial statements

c. Are unusual and material

d. Provide additional information for determining the amounts relating to conditions existing at balance sheet date

84. Non-adjusting events after balance sheet date should be disclosed if a. Non-disclosure would affect the amounts presented in the financial statements

b. Non-disclosure would affect the ability of users of the financial statements to make proper

valuations and decisions. c. They relate to conditions existing at the balance sheet date

d. They are unusual and material

85. Are the following statements true or false, according to current PFRSs?

(1) Biological assets should be shown in the statement of financial position either in

current assets or non- current assets or both.

(2) The number of shares authorized for issue should be shown in the statement of financial

Position or the statement of changes in equity, or the notes.

Statement (1 ) Statement (2) Statement (1) Statement (2)a. false false c. true false

b. false true d. true true 86. In which section of the statement of financial position should employment taxes that are due for settlement in fifteen (15) months time be presented according to PAS 1?

a. Current liabilities c. Non-current liabilities

b. Current assets d. Non-current assets

3.0 The Accounting Process87. Which of the following statements is / are true?

I. The primary distinction between double-entry and single-entry bookkeeping system is the use of duality and equilibrium approach in double-entry while single entry recognizes only the duality principle.

II. Single entry bookkeeping recognizes only cash transactions and personal accounts.

III. Single entry bookkeeping and cash basis of accounting are one and the same.

a. I only b. II only c. I and II only d. II and III only 88. Which of the following accounts is recognized under single-entry bookkeeping?

a. Cash b. Merchandise Inventory c. Property and Equipment d. Salaries Expense

89. Which of the following statements about bookkeeping systems is (are) false?

I. Net income or loss under single entry bookkeeping is computed using the transactions approach.

II. Double-entry bookkeeping uses the direct matching approach of computing net income.

III. Double-entry bookkeeping is the generally acceptable method of bookkeeping because it

offers a more complete income measurement than single-entry.

a. Only I is false b. Only II is false c. II and III are false d. I, II and III are false

90. All of the following are disadvantages of the single-entry bookkeeping system except for the fact that

a. Accounting records are incomplete.

b. It is simple and less costly to apply. c. Internal control is inadequate

d. Financial statements are not likely to be fairly presented in accordance with GAAP.

91. The following books of account are used in single-entry bookkeeping

a. Cashbook and subsidiary ledger b. Cash receipts book and general ledger

c. Cash receipts book , cash disbursements book, general ledger and subsidiary ledger

d. Cashbook and general ledger

92. Which accounting process is the recognition or non-recognition of business activities as accountable events

a. Identifying b. Measuring c. Recording d. Communicating

93. The manner in which the accounting records are organized and employed within a business is known as

a. Accounting system b. Business document c. Voucher system d. Special journals

94. An accounting device for accumulating increases and decreases relating to a particular accounting value such as an asset, a liability, etc.

a. Account b. Ledger c. Journal d. Book of secondary entry

95. The recording phase of financial accounting covers the following steps, except

a. Business documents are received and prepared c. Transactions are posted to the ledger

b. Transactions are journalized d. Financial statements are prepared 96. Which of the following statements about the bases of recognition of income and expense is true?a. Under cash basis accounting, only cash and property and equipment accounts are recognized as assetsb. In modified cash basis of accounting, prepaid expenses and unearned income are recognized.

c. Accrual basis and modified cash basis of accounting for income and expenses will yield the same amount of gross profit for the period. d. Under accrual basis of accounting, accruals and deferrals are recognized in adjusting entries which are subsequently reversed in the immediately succeeding accounting period.97. Which of the following is not a principal purpose of a trial balance?

a. It proves that debits and credits of equal amounts are in the ledger.

b. It is the basis for any adjustments to the account balances

c. It supplies a listing of open accounts and their balances

d. It proves that debits and credits were properly entered in the ledger accounts 98. An error which is disclosed by a trial balance is

a. An omission of a journal entry on purchases on account

b. Double-posting a credit to Sales amounting to P 210,000

c. A journal entry for salaries paid amounting to P 500,000 was not posted

d. Posting to the correct debit or credit side of a wrong account

99. Which one of the following is a purpose of adjusting entries?

I. To apportion the proper amounts of revenue and expense to the current accounting period.

II. To establish the proper amounts of assets and liabilities in the balance sheet.

III. To accomplish the objective of offsetting the revenue of the period with all the expenses incurred in generating that revenue.

IV. To prepare the revenue and expense accounts for recording transactions of the following period.

a. I and II only b. II and III only c. I, II and III only d. All of these

100. Adjusting entries are needed

a. Whenever revenue is not received in cash

b. Whenever expenses are not paid in cash

c. Primarily to correct errors in the initial recording of business transactions

d. Whenever transactions affect the revenue or expenses of more than one accounting period

101. The entry to record depreciation is an example of an adjusting entry

a. To apportion a recorded cost c . To record unrecorded expense

b. To apportion unearned revenue d. To record unrecorded revenue

102. Which one of the following items least resembles a typical adjusting entry?

a. Debit an asset and credit revenue

c. Debit revenue and credit liability

b. Debit an expense and credit liability d. Debit an asset and credit liability 103. Which one of the following concepts is least related to adjusting entries.

a. Accrual b. Approximation c. Materiality d. Matching of cost against revenue

104. Ian Company initially records prepayments in balance sheet accounts and make reversing entries when appropriate. Which of the following year-end adjusting entries should be reversed?

a. The entry to record bad debts expense for the period.

b. The entry to record service fees earned by year-end but not billed

c. The entry to record the portion of service fees received in advance that is earned by year-end

d. The entry to record supplies used during the period

105. Which of the following statements is incorrect?

a. All of the accounts of a specific business enterprise are referred to as a ledger.

b. Every adjusting entry affects both a balance sheet and an income statement

c. Transactions often overlap accounting periods

d. The fact that an expense is recognized on the income statement indicates that an equivalent outlay of cash has been made in the same period.

4.0 Income Determination

Approaches to Income Measurement/Concepts of Capital Maintenance/Comprehensive Income /Bases for recognition of Income

106. The process of identifying, measuring and relating revenue and expenses of an enterprise for an accounting period is known as

a. Revenue recognition b. Income determination c. Realization d. Expense recognition

107. Which of the following statements relating to the income determination process is (are) true?I. Revenue for the period is generally determined independently by applying the realization principles.II. Expenses are determined by applying the expense recognition principles on the basis of the relationships between acquisition costs and the independently determined revenue of the accounting period.

III. The term matching is used in accounting to describe the entire process of income determination, or in a more limited sense, to the process of expense recognition

a. I and II only b. II and III only c. I and III only d. I, II and III108. The accounting concept of matching is best demonstrated by

a. Not recognizing any expense unless some revenue is realized

b. Associating effort (cost) with accomplishment (revenue)

c. Recognizing prepaid rent received as revenue

d. Establishing a Reserve for Future Decline in Asset Values109. Which of the following statements is (are) true?

I. Net loss is the decrease in net assets of business resulting from profit-directed activities

II. Income is a net or partially net concept determined by deducting expenses from revenues. III. The income or loss which is shown as the final amount in the income statement reflects the success or failure of the business in its profit-directed activities.a. Only I is true b. I and II are true c. II and III are true d. I, II and III are true

110. Are the following statements regarding profit true or false? (1) Profit is any amount over and above that required to maintain capital at the beginning of the period.

(2) Profit is the residual amount that remains after expenses have been deducted from income

Statement (1) Statement (2)

a. false false

b. false true

c. true false

d. true true 111. What is the purpose of reporting comprehensive income?

a. To report changes in equity due to transactions with owners

b. To report a measure of overall enterprise performance

c. To replace net income with a better measure

d. To combine income from continuing operations and extraordinary items

112. Which is not included in the category of comprehensive income of an accounting entity?

a. Net income for the period c. Gain on sale of treasury stock

b. Revaluation surplus d. Increase in value of available for sale securities

113. Which of the following transactions will not be recognized in cash basis accounting?

a. Collection of account sales b. Payment of salaries

c. Purchase of equity shares in XYZ Corporation

d. Unsold inventory at the end of the period 114. Modified cash basis (or hybrid basis) differs from the accrual basis in the computation of

a. Gross Profit b. Expenses c. Depreciation d. Bad debts expense

115. Which of the following statements is incorrect?a. Accrual basis financial statements may be prepared from single entry records.

b. Single-entry accounting is synonymous with cash basis accounting

c. No adjusting entries are necessary when accounting records are kept on pure cash basis

d. Over the entire life of the business, there would be no difference between income on cash basis

and income on an accrual basis.

116. Periodic net earnings are conventionally measured by aa. Transactions approachb. Transactions approach including recognition of recognized gains and lossesc. Capital maintenance approachd. Market value approach117. The capital maintenance concept followed under present GAAP is

a. Economic capital c. Real capital

b. Financial and physical capital d. Physical capital

118. What concept is critical in distinguishing an enterprises return on investment from return of its investment?

a. Comprehensive income concept c. Capital maintenance conceptb. Current operating performance concept d. Return on investment concept

Revenue PAS 18119. One of the conditions that must be satisfied in order to recognize revenue in a transaction involving the rendering of services is that the stage of completion of the transaction at the end of the reporting period can be measured reliably. Which TWO of the following methods for determining the stage of completion of a contract involving the rendering of services are specifically referred to in PAS 18 Revenue, as being acceptable?

I Costs incurred to date as a percentage of the estimated total costs of the transaction

II Advances received to date as a percentage of the total amount receivable

III Survey of work performed

IV Revenue to date divided by total contract revenue

a. I and II b. I and III c. II and III d. III and IV

120. According to PAS 18 Revenue, which TWO of the following conditions apply to the recognition of revenue for transactions involving the rendering of services?

A The amount of revenue can be measured reliably

B The entity retains neither continuing managerial involvement nor effective control over

the transaction

C The significant risks and rewards of ownership have been transferred to the buyer

D The costs incurred for the transaction and the costs to complete the transaction can be

measured reliably

a. A and B b. C and D c. B and D d. A and D121. According to PAS 18 Revenue, which of the following is not a criterion to be satisfied before revenue from the sale of goods should be recognized in profit or loss?

a. Revenue can be reliably measured

b. Control over the goods sold has been relinquished but management maintains

continuing involvement over the goods sold

c. C The risks and rewards of ownership has been transferred to the buyer

d. D The outcome of the transaction is probable

122. According to PAS 18 Revenue, which TWO of the following criteria must be satisfied before revenue from the sale of goods should be recognized in profit or loss?

A Ownership has been transferred to the buyer

B The outcome of the transaction is certain

C Revenue can be reliably measured

D Managerial control over the goods sold has been relinquished

a. A & B b. B & C c. C & D d. A & D

123. According to PAS18 Revenue, which of the following conditions apply to the recognition of revenue for transactions involving the rendering of services?

A The significant risks and rewards of ownership have been transferred to the buyer

B The amount of revenue can be measured reliably

C The entity retains neither continuing managerial involvement nor effective control over the transaction

D The costs incurred for the transaction and the costs to complete the transaction can be measured

reliably

a. A & B b. B & D c. C & D d. B, C & D

124. One of the conditions that must be satisfied in order to recognize revenue in a transaction involving the rendering of services is that the stage of completion of the transaction at the end of the reporting period can be measured reliably. Which of the following methods for determining the stage of completion of a contract involving the rendering of services are specifically referred to in PAS18 Revenue, as acceptable?

I - Costs incurred to date as a percentage of the estimated total costs of the transaction

II - Advances received to date as a percentage of the total amount receivable

III - Surveys of work performed

IV - Revenue to date divided by total contract revenue

a. I and II b. I & III c. II and III d. III & IV

125. Micrium, a computer chip manufacturing company, sells its products to its distributors for onward sales to the ultimate customers. Due to frequent fluctuations in market price for these goods, Micrium has aprice protection clause in the distributor agreement that entitles it to raise additional billings in case of upward price movement. Another clause in the distributors agreement is that Micrium can at any time, reduce its inventory by buying back goods at the cost at which it sold the goods to the distributor. Distributors pay for the goods within 60 days from the sale of goods to them. When should Micrium recognize revenue on the sale of these goods to the distributors?

a. When the distributor sells goods to the ultimate customers and there is no uncertainty with respect to the price protection clause or the buyback of goods.

b. When the goods are sold to the distributors

c. When the distributors pay to Micrium the cost of goods (i.e., after 60 days of the sale of goods to the distributors

d. When the goods are sold to the distributor provided estimated additional revenue is also booked under the protection clause based on past experience.

126. Revenues are considered to have been earned when

a. Goods are shipped , not yet received by buyer, under terms sale on trial

b. Goods are sold under lay-away terms, where goods are delivered only when buyer makes the

final payment in a series of installments.

c. Goods are shipped, not yet received by buyer, where the buyer has the right to rescind the purchase if the goods are not within the specifications in the contract

d. The entity ships goods subject to installation which is a significant part of the contract and the entity has completed such installation. 127. Revenue , under proper circumstances may be recognized at all of the following moments in time

EXCEPT

a. After the earning process has been completed and an exchange has taken place

b. Upon the receipt of cash from the customer

c. As certain stages of completion of production are attained

d. When goods are shipped under terms sale on approval 128. How should earned but unbilled revenues at the balance sheet date on a long-term construction

contract be disclosed if the percentage of completion method of revenue recognition is used?

a. In a footnote to the financial statements until the customer is formally billed for the portion of the

work completed.

b. As a receivable in the noncurrent asset section of the balance sheet

c. As construction in progress in the noncurrent asset section of the balance sheet

d. As construction in progress in the current asset section of the balance sheet

129. Company R is a retailer that offers layaway sales to its customers. Company R retains the merchandise sets it aside in its inventory, and collects a cash deposit from the customer. Company R does not require the customer to enter into an instalment note or other fixed payment commitment or agreement when the initial deposit is received. The merchandise is not released to the customer until the customer pays the full purchase price. In the event that the customer fails to pay the remaining purchase price within two years, the customer forfeits its cash deposit. In the event the merchandise is lost, damaged, or destroyed, Company R either must refund the cash deposit to the customer or provide replacement merchandise. The revenue from layaway sales should be recognized by Company R when

a. the goods are delivered to the customer

b. 50% of the purchase price is paid by the customer

c. a substantial portion of the purchase price is paid by the customer

d. the last installment payment is made by the customer

130. Expenses may be best described asa. Costs which have no discernible benefit to future operations

b. The consideration given to acquire goods or services

c. Costs that are associated with revenues of a given period

d. Gross decreases in owners equity

131. Which of the following statements is true?a. Expenses are synonymous with expenditures

b. Not all expenses are expired costs

c. All expired costs are expenses

d. Expense, in the broadest sense, includes expired costs and losses that are deducted from revenue, in a narrow sense, expense is distinguished from loss

132. An expiration of cost which is incurred without compensation and is not absorbed as costs of revenue is calleda. Loss b. Deferred charge c. Indirect costs d. Deferred credit

133. Which of the following transactions would require the recording of an expense?

a. Cash paid to a supplier in settlement of a previously recorded promise to pay when some advertising supplies were purchased.

b. Cash paid to office employees for services rendered during the month

c. Cash paid to acquire a new truck to be used in the business

d. Cash paid to settle an unrecorded liability for factory supplies received and already consumed

134. In expense recognition principle, which of the following is not an important class of expense?

a. Expenditures to acquire assets

b. Expenses from on-reciprocal transfers and casualties

c. Cost of asset other than products disposed of

d. Declines in market prices of inventories held for sale

135. Expenses cannot arise from

a. External events other than transfers c. Production

b. Non-reciprocal transfers to owners d. Casualties 136. Which of the following best describes the distinction between expenses and losses?a. Losses are reported net-of-related-tax effect whereas expenses are not reported net-of-tax

b. Losses are extraordinary charges whereas expenses are ordinary charges

c. Losses are material items whereas expenses are immaterial items

d. Losses result from peripheral or incidental transactions whereas expenses result from ongoing major or central operations of the entity.

ASSETS, LIABILITIES, EQUITYCash and Receivables

137. Which of the following cannot be shown as part of cash in the current assets section of the balance sheet?

a. Compensating balance not legally restricted b. Regular Payroll accountc. Cash deposit with utility company

d. Check paid by depositor in payment of past due account 138. Which of the following statements regarding Cash and Cash equivalents is false?

a. Petty cash fund of P 8,000 composed of currency and coins of P 2,100 and unreplenished petty cash vouchers of P 5,900 should be shown in the current asset section at P2,100 only.

b.. Legally restricted Compensating cash balance for payment of a current liability is shown as part of

Cash and Cash Equivalent provided the restriction is disclosed.

c. If a bank or financial institution holding funds of a reporting entity is in bankruptcy or financial difficulty such cash should be written down to estimated realizable value if the amount is lower than face value

d. Not all items included in cash constitute legal tender money.139. Which of the following is a key element of internal control over cash payments?

a. Making daily bank deposits for all cash receipts

b. Periodically reconciling the cash account balance on the companys books to the bank statement balance. c. Requiring that all petty cash vouchers be approved by two signatories

d. Authorizing and verifying that all cash payments are recorded daily

140. LMN Company issued a note solely in exchange for cash. Assuming that the items below differ in

amount the present value of note at issuance is equal to the

a. Proceeds received

b. Face amount

c. Proceeds received, discounted at the prevailing interest rate for similar notesd. Face amount discounted at the prevailing interest rate for similar notes141. Accounts Receivable and Revenue can be properly recognized when

a. Goods are shipped under terms FOB Destination, not yet received by buyer.

b. Goods are sold under lay-away terms, where goods are delivered only when buyer makes

the final payment in a series of installments.

c. The entity ships goods subject to installation which is a significant part of the

contract and the entity has completed such installation. d. Goods are shipped, not yet received by buyer, where the buyer has the right to rescind the

purchase if the goods are not within the specifications in the contract

142. When a specific customers account is written off by a company using the allowance method, the effect on net income and the net realizable value []NRV] of the accounts receivable is

Net income NRV of Accounts Receivable

a. Decrease Decrease

b. Increase Increase

c. Decrease None

d. None None143. Supsup Company received two one-year notes in payment for merchandise sold. One note, was interest bearing, with a face amount of P 3,000 at an annual rate of 18 percent. The other note had a face amount of P 3,540 and was non- interest bearing. Its implied interest rate was 18 percent. Based on the above information, which of the following statements is true?

a. The total amount of cash ultimately to be received will be more for the interest bearing note.

b. Both notes will cause the same amount of total interest to be recognized.

c. The amount of interest revenue which should be recognized is more for the interest-bearing note.

d. The amount which should be credited to sales revenue is more for the non-interest-bearing note.

144. Which of the following would indicate that Cecil Companys note receivable or other loan is impaired?

a. When the note receivable is written off..

b. When there is an increasing number of default or delinquency in interest or principal payments

c. When the market value of the note falls below its book value due to interest rate changes

d. When the maker of the note is experiencing financial difficulties.

Inventories 145. According to the net method , which of the following items should be included in cost of inventory?

a b c d

Freight costs yes yes no no

Purchase discounts not taken no yes yes no

146. Which TWO of the following should be taken into account when determining the cost of inventories per PAS 2 Inventories?

I. Storage costs of part-finished goods III. Recoverable purchase taxes

II. Trade discounts IV Administrative costs

a. I and II b. II and III c. III and IV d. I and IV

147. According to IAS2 Inventories, which TWO of the following costs should be included in inventory valuations?

I Transport costs for raw materials III. Storage costs relating to finished goods

II Abnormal material usage IV. Fixed production overheads

a. I and II b. II and III c. I and IV d. III and IV

148. How should import duties be dealt with when valuing inventories at the lower of cost and net realisable value (NRV) according to IAS2 Inventories? (select one answer)

a. Added to cost b. Deducted in arriving at NRV c. Deducted from cost d. Ignored 149. How should sales staff commission be dealt with when valuing inventories at the lower of cost and net realisable value (NRV), according to PAS2 Inventories? (select one answer)

a. Added to cost b. Deducted in arriving at NRV c. Deducted from cost d. Ignored

150. How should trade discounts be dealt with when valuing inventories at the lower of cost and net realizable value (NRV) according to PAS 2 Inventories? a. Added to cost b. Deducted in arriving at NRV c. Deducted from, cost d. Ignored 151. Inventory estimates will be required for the following except a. when interim financial statements are prepared

b. when inventory is destroyed by typhoon or lahar flow

c. as proof of reasonable accuracy of the physical inventory

d. in the determination of the ending inventory to be shown on the balance sheet at year end.

152. Under the retail inventory method of approximating ending inventory, which of the following is included in the computation of the cost to retail percentage?

a. Freight-in b. Mark-up c. Mark-down d. All of these

Agriculture (PAS 41)153. According to PAS 41 Agriculture, biological assets and agricultural produce held for regular sale

should be valued at

a. Cost c. Lower of cost or net realizable value

b. Net realizable value d. Fair value less point of sale costs 154. Which one of these is not within the range of activities considered as agricultural activity

a. Capability of change c. Production of change b. Management of change d. Measurement of change

Financial Instruments (Basics) PAS 39

155. Which of the following is not a financial asset?

a. Cash

b. An equity instrument of another entity

c. A contractual right to receive cash

d. A contractual right exchange financial assets or financial liability with another entity under

conditions that are potentially favorable or unfavorable to the entity

156. Which of the following is not among the categories of financial assets?

a. Held-to-maturity investments c. Financial assets at fair value through profit or loss b. Loans and receivables d. Non-monetary assets157. In accordance with IAS39 Financial instruments: recognition and measurement, which ONE of the following terms best describes a compound financial instrument component of a hybrid instrument that also includes a non-derivative host contract?

a. An available-for-sale financial asset c. A held-to-maturity investment

b. An embedded derivative d. A financial asset held for trading

158. In accordance with IFRS7 Financial instruments: disclosures, which of the following best describes the risk that an entity will encounter if it has difficulty in meeting obligations associated with its financial liabilities? a. Liquidity risk b. Credit risk c. Financial risk d. Payment risk

159. Unrealized gains and losses for available for sale securities are

a. Included in the determination of income

b. Included in income for unrealized gains and included in equity for unrealized losses

c. Included in income fpr unrealized losses and included in equity for unrealized gains

d. Included in other comprehensive income and stockholders equity 160. The Rissa Company has entered into a contract on June 1, 20X3 that requires it to issue its own ordinary shares with a value of P 250,000 on 31 May 20X6. In accordance with PAS32, Financial instruments: presentation, Tootakk should classify the contract as (select one answer)

a. financial asset b. a financial liability c. an equity instrument d. an embedded derivative

161. Which TWO of the following are types of hedging relationship as defined by PAS39 Financial instruments: recognition and measurement?

A Cash flow hedge C. Interest rate hedge

B. Credit risk hedge D. Fair value hedge

a. A and B b. B and C c. A and D d. C and D

Investments in Associate (PAS 28)

162. An investor uses the equity method of accounting for an investment in the common stock of another company when the investment

a. Is composed of common stock and it is the investors intent to vote the common stock

b. Ensures a source of supply such as raw materials

c. Enables the investor to exercise significant influence over the investee

d. Is obtained by an exchange of stock for stock

163. According to PAS 28, which of the following will not fall under the situation of existence of significant influence by an investor in the financial and operating policy decisions of the investee but not control of these decisions

a. Participation in policy making process

b. Material intercompany transactions

c. Power to govern the financial and operating policy decisions of an enterprise so as to obtain

benefits from its activities

d. Technological dependency

Property, Plant and Equipment (PAS 16)164. According to PAS 16, Property, plant and equipment includes all of the following except

a. Property used in production or supply of goods and services

b. Property used for extraction of minerals, oil or natural gas

c. Biological assets related to agricultural activity and mineral rights

d. Property for rental purposes and administrative purposes165. Which ONE of the following statements best describes 'residual value'?

a. The estimated net amount currently obtainable if the asset were at the end of its useful lifeb. The present value of estimated future cash flows expected to arise from the continuing use of the asset and from its ultimate disposal

c. The amount at which the asset could be exchanged between knowledgeable, willing parties in an arm's length transaction

d. The amount of cash or cash equivalents that could currently be obtained by selling the asset in an orderly disposal

166. Which ONE of the following terms best describes the cost (or an amount substituted for cost) of an asset less its residual value?

a. Revalued amount b. Carrying amount c. Recoverable amount d. Depreciable amount167. Sophia Company purchased heavy equipment from Ana Company on September 30, 2011, with payment due on March 31, 2012. If Sophias 2011 net income included no foreign exchange transaction gain or loss, then the transaction could have

a. Resulted in an extraordinary gain

b. Been denominated in Philippine pesos

c. Caused a foreign currency gain to be reported as a contra account against the heavy equipment

d. Caused a foreign currency translation gain to be reported in equity

168. Which of the following statements best describes the carrying amount of an asset?

a. The cost (or an amount substituted for cost) of the asset less its residual value

b. The amount at which the asset is recognized in the statement of financial position after deducting any accumulated depreciation and accumulated impairment lossesb. The higher of the asset's net selling price and its value in use

c. The fair value of the asset at the date of a revaluation less any subsequent accumulated impairment losses

169. Which of the following terms best describes the removal of an asset from an entity's statement of financial position?

a. Derecognition b. Impairment c. Write-off d. Depreciation

170. The carrying amount of property, plant and equipment subsequent to acquisition is the

a. Historical cost less accumulated depreciation

b. Revalued amount less accumulated depreciation and accumulated impairment losses thereon

c. Fair value less accumulated impairment losses thereon

d. Amount at which an asset is recognized in the balance sheet less accumulated depreciation and

accumulated impairment losses thereon 171. According to PAS16 Property, plant and equipment, which of the following items should be capitalized into the cost of property, plant and equipment?

A. Cost of preparing the site for installation

B. Cost of testing whether the asset works correctly

C. Cost of excess materials resulting from a purchasing error

D. Initial operating losses while demand builds up

a. A and B b. A and C c. A, B and C d. A, B, C and D

172. As generally used in accounting, what is depreciation?

a. It is a process of asset valuation for balance sheet purposes.

b. It applies only to long-lived intangible assets.

c. It is used to indicate a decline in market value of long-lived asset

d. It is an accounting process which systematically allocates long-lived asset cost to accounting periods. 173. Which TWO of the following statements are correct per PAS16 Property, plant and equipment?

A. Assets are depreciated even if their fair value exceeds their carrying amount

B. Land and buildings are accounted for separately, even when acquired together C A non-current asset acquired as the result of an exchange of assets is not recognized

D. A gain on disposal of a non-current asset is classified as revenue

a. A and B b. A and C c. A and D d. B and D

PAS 38 Intangibles:

174. Which of the following should be amortized over the periods of estimated benefit?

a. Patent registration cost for a successfully developed product for commercial sale b. Goodwill arising from the purchase of an existing business

c. Costs incurred in organizing a corporation

d. Legal cost in successful defense of a patent infringement suit. 175. Which of the following factors should not be considered in determining the useful life of an intangible

asset?

a. Effects of obsolescence, changes in market demand for the product

b. Expected actions of competitors and potential competitors

c. The period of control over the asset and legal or similar limits on the use of the asset, such as

expiry dates of related leases or contractual or regulatory provisions

176. Which of the following should not be amortized over the periods of estimated benefit?

a. Trademarks

b.. Computer software costs

c. Costs incurred in organizing a corporation d.. Patent right purchased from an inventor

177. Under PAS 38, Intangible Assets, legal fees incurred by a company in defending its patent rights should be capitalized when the outcome of the litigation is

Successful Unsuccessful

Successful Unsuccessful a. Yes Yes

c. No No

b. Yes No

d. No Yes

178. Are each of the following factors relevant, according to PAS38 Intangible assets, in determining the annual amortization expense on an intangible asset?

(1) The cost.

(2) The amortization method.

Factor (1) Factor (2) Factor (1) Factor (2)a. Not relevant

Not relevant c. Relevant Not relevantb. Not relevant

Relevant d. Relevant RelevantLiabilities Provisions, Contingent Liabilities and Contingent Assets179. Which of the following is not an essential characteristic for an item to be reported as a liability on the balance sheet?

a. The liability is the present obligation of a particular enterprise

b. The liability arises from past transactions or events

c. The liability is payable to a specifically identified payee d. The settlement of the liability requires an outflow of resources embodying economic benefits

180. Current liabilities include

a. Only obligations which are expected to be settled within the normal operating cycle

b. Only obligations which are to be settled within one year from balance sheet date

c. Obligations which are expected to be settled within the normal operating cycle and obligations which are due to be settled within one year from balance sheet date

d. Refinanced long-term debt falling within one year from balance sheet date for which the entity has the discretion to refinance

181. According to PAS 37, Provisions, Contingent Liabilities and Contingent Assets, a liability of uncertain timing or amount is known as

a. Provision

c. Constructive obligation b. Obligating event

d. Contingent liability 182. This creates a legal or constructive obligation that results in an enterprise having no realistic

alternative to settling the obligation is known as

a. Obligating event b. Restructuring c. Onerous contract d. Provision

Stockholders Equity183. This is the residual interest in the economic resources of a company that remains after deducting

economic obligations:

a. Productive resources

c. Net income

b. Owners interest

d. Net cash balance

184. A companys plan to raise the unit market price of its shares and reduce the number of shares

outstanding may be accomplished by means of a

a. Reverse split b. Property dividend declaration c. Stock split d. Purchase of treasury stock

185. Sagana Corp.. declared and paid a liquidating dividend of P100,000. This distribution resulted in a decrease in Saganas

Paid-in Capital Retained Earnings

Paid-in Capital Retained Earnings

a.

No

Yes

c.

Yes No b. Yes

Yes

d.

No Yes 186. Allied Corporation declared a 10% stock dividend. The declaration