TOA Questions

TOA 1. What accounting concept justifies the use of accruals and deferrals? a. Consistency characteristics b. Arm’s length transactions c. Going concern assumption d. Corporate form of organization 2. The FRSC issues its standards in a series of pronouncements called PFRSs. These consist of i. PFRSs ii. PAPs iii. PASs iv. Philippine interpretations v. PSQCs a. I,II and III b. I,III and IV c. I,II and IV d. I,II,III,IV 3. The recognition of periodic depreciation expense on common 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. Conservatism b. Maintaining consistency c. The materiality constraints rather than the cost benefit constraint d. Providing relevant data at the expense of reliability 4. According to the conceptual framework which of the following situations violates the concept of reliability? a. Financial statements were issued 9 months late b. Report data on segments having the same expected risks and growth rates to analysts estimating future profits c. Financial statements included property with a carrying amount increased to management’s estimate of market value d. Management reports to stockholders regularly refer to new projects undertaken, but the financial statements never report project results. 5. The following statements relate to cash. Which statement is true: a. The term cash equivalent refer to demand credit instruments such as money order and bank drafts b. Compensating balances required by a bank should always be excluded from cash and cash equivalents

c. The purpose of establishing a petty cash fund is to keep enough cash on hand to cover all normal operating expenses for a period of time d. Classification of a restricted cash balance as current or noncurrent should parallel the classification of the related obligation for which the cash was restricted 6. If material, deposits in foreign bank which are subject to foreign exchange restriction and is earning interest should be classified a. As part of cash and cash equivalents b. Separately as current asset with appropriate disclosure c. Separately as other noncurrent asset with appropriate disclosure d. Separately as long term investment with appropriate disclosure 7. If the cash balance shown in a company’s accounting record is less than the correct cash balance and neither the company nor the bank has made any errors, there must be a. Deposits in transit b. Outstanding checks c. Bank charges not yet recorded by the company d. Deposits credited by the bank but not yet recorded by the company 8. Which of the following methods of determining bad debts expense does not properly match expense and revenue a. Charging bad debts as accounts are written off as uncollectible b. Charging bad debts with a percentage of sales under the allowance method c. Charging bad debts with an amount derived from aging accounts receivable under the allowance method d. Charging bad debts with an amount derived from a percentage of accounts receivable under the allowance method 9. A 90-day 15% interest bearing note receivable is sold to a bank with recourse after being held for 30 days. The proceeds are calculated using a 12% interest rate. The note receivable has been i. Discounted ii. Pledged a. I only b. Both I and II c. II only d. Neither I and II

10. If the direct origination cost is greater than the direct origination fee in the transaction of loans granted to a debtor by the financing institution, the amortization will be credited to a. Unearned interest income b. Direct origination cost c. Interest income d. Loans receivable 11. Which is correct under the maritime term “ex-ship” i. The seller bears all expenses and risk until the goods are unloaded at which the time both title and risk shall pass to the buyer ii. The seller bears all expenses and risk until the goods are loaded at which time both title and risk shall pass to the buyer a. I only b. II only c. Both I and II d. Neither I and II 12. The inventories are service provider may simply be described as a. Work in progress b. Work in process c. Contract in progress d. There really is no inventory to report 13. The following provides examples of biological assets, agricultural produce and products that are the result of processing after harvest. Which is correct combination? Biological asset Product Agricultural after harvest produce a. Trees logs, lumber felled trees b. Dairy cattle cheese milk c. Pigs carcass sausage d. Vines wine grapes 14. Theoretically, freight cost incurred in the transfer of consigned goods from the consignor to the consignee should be considered a. An expense by the consignor b. An expense by the consignee c. Inventoriable by the consignor d. Inventoriable by the consignee 15. Unrealized gains and losses on trading securities(financial asset at fair value) are a. Disregarded

b. Included in the determination of income c. Included in shareholders’ equity d. Included in income for unrealized losses and included in equity for unrealized gains 16. A financial asset is any asset that is (choose the incorrect one) a. An equity instrument of another entity b. To deliver cash or another financial asset to another entity c. Contractual right to receive cash or another financial asset from another entity d. To exchange financial assets or financial liabilities with another entity under conditions that are potentially favorable to the entity 17. An entity did not amortize the discount on its “trading” bond investment. What effect would this have on the carrying amount of the investment and on net income respectively? a. No effect, no effect b. Overstated, overstated c. Understated, overstated d. Understated, understated 18. Available for sale financial assets ( financial asset through OCI) are measured at a. Cost b. Amortized cost c. Fair value with changes in fair value classified as component of profit or loss d. Fair value with changes in fair value classified as component of other comprehensive income 19. Transaction costs that are directly attributable of the acquisition of a financial asset shall be a. Expense when incurred b. Charged to retained earnings c. Capitalized as cost of the financial asset d. Included as a component of other comprehensive income 20. Transaction costs are incremental cost that are directly attributable to the acquisition of the assets and issue of financial liabilities and this includes a. Financing costs b. Internal administrative costs c. Fees and commissions paid to agents d. Debt premiums or discounts 21. The effective interest method of amortizing discounts provides for

a. b. c. d.

Increasing amortization and increasing interest income Increasing amortization and decreasing interest income Decreasing amortization and increasing interest income Decreasing amortization and decreasing interest income

b. Return of investment c. Partly dividend income and partly return of investment d. If the stock dividend are received and subsequently sold at the cash received and gain or loss is recognized

22. An investor purchased a bond as a long term investment on January 1. Annual interest was received on December 31. The investor’s interest income for the year would be lower if the bond was purchased at a. A discount b. Par c. A premium d. Face value

27. RC Company has a machinery to install in its new factory before year end. However, due to circumstances beyond its control, the machinery was delayed by a few months but reached the factory premises before year end. While this happening, the entity learned from the bank that it was being charged interest on the loan it had taken to fund the cost of the plant. What is the proper treatment of freight and interest expense under PAS16? a. Both expenses should be capitalized b. Both expenses should be expensed c. Interest may be capitalized but freight should be expressed d. Freight charges should be capitalized but interest cannot be capitalized under these circumstances

23. An investor has an investment in ordinary shares accounted for under equity method and advances to the investee. The investee has been incurring significant losses in the past years. The investor has no commitment to support the investee’s operation. The investee should a. Discontinue applying the equity method when the investment account is reduced to zero b. Discontinue applying the equity method when the investment and advances accounts are reduced to zero c. Recognize a provision for its shares of the losses of the investee when its investment account is reduced to zero d. Discontinue applying the equity method when the remaining balance of the investment is equal to the carrying amount 24. When stock rights are exercised, how much should be treated as total proceeds from the issuance of shares? a. Only the consideration received b. The total of the consideration received and the amount previously recorded for the stock rights c. The amount previously recorded for the stock rights d. The total par value of the shares 25. An investor uses the equity method to account for investment in ordinary shares. The purchase price implies a fair value of the investee’s depreciable assets in excess of the investee’s net assets carrying value. The investor’s amortization of the excess a. Decrease the investment account b. Decrease the goodwill account c. Increases the investment revenue account d. Does not affect the investment account 26. Cash in lieu of stock dividends is accounted for as a. Dividend income

28. PAS16 includes all of the following except a. Property used in the 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 purposes 29. Information to compute a depletion charge per unit includes the a. Estimated total amount of resources available for removal b. Amount of resources removed during the period c. Cumulative amount of resources removed d. Amount of resources sold during the period 30. If an asset’s carrying amount is increased as a result of a revaluation, the increase shall be credited directly to a. Revaluation surplus as component of other comprehensive income b. Unrealized gain to be amortized through profit or loss c. Retained earnings d. Revaluation surplus as component of profit or loss 31. According to PAS 23, which of the following treatment is required for borrowing costs incurred that are directly attributable to the construction of a qualifying asset? i. Recognize as an expense in the period incurred ii. Capitalize as part of the cost of the asset a. I only

b. II only c. Both I and II d. Neither I and II 32. Under PAS 36, which of the following statement is true? i. An entity shall assess at each reporting date whether there is an indication that an asset may be impaired and if any such indication exists, the entity shall estimate the recoverable amount of the asset ii. Irrespective of whether there is an indication of impairment, an entity shall test an intangible asset with indefinite useful life or an intangible asset not yet available for use, or goodwill acquired in business combination for impairment annually a. I only b. II only c. Both I and II d. Neither I and II 33. Goodwill should be recorded in the accounting records only when a. It is purchased from another company b. It is acquired through the purchase of another business entity c. A firm has reported above normal earnings for five or more consecutive d. It can be established that a definite benefit or advantage has resulted to a firm from some item such as good name, capable staff, or reputation. 34. The recognition criteria for an intangible asset include which of the following conditions? i. The asset must be measured at cost ii. The cost can be measured reliably iii. It is probable that future economic benefits will arise from its use a. I,II and III b. I and II only c. I and III only d. II and III only 35. Which statement is correct concerning the amortization of intangible assets? i. The depreciable amount of an asset with a finite useful life shall be allocated on a systematic basis over its useful life ii. An intangible asset with a definite useful life shall not be amortized but tested for impairment annually and when there is an indication that the intangible asset may be impaired

a. b. c. d.

I only II only Both I and II Neither I and II

36. According to Philippines Interpretation #19, equity instruments issued to extinguish all part of financial liability shall be measured using the second priority at a. Fair value of equity instruments issued b. Fair value of financial liability extinguished c. Par value of equity instruments issued d. Carrying amount of financial liability extinguished 37. Cali Inc. had a P4,000,000 note payable due on March 15, 2013. January 28, 2013, before the issuance of its 2012 financial statements, Cali issued long term bonds in the amount of P4,500,000. Proceeds from the bonds were used to repay the note when it came due. How should Cali, having the discretion on the refinancing, classify the note in its December 31, 2012 financial statements? a. As a current liability, with separate disclosure of the note refinancing b. As a current liability with no separate disclosure required c. As noncurrent liability with separate disclosure of the note refinancing d. As a noncurrent liability with no separate disclosure required 38. There is no substantial modification of terms of an old financial liability if the gain or loss on extinguishment is a. At least 10% of new financial liability b. At least 10% of old financial liability c. Less than 10% new financial liability d. Less than 10% of old financial liability 39. In a debt restructuring that is considered an asset swap, the gain on exchange in accordance with US GAAP is the a. Excess of the fair value of the asset over its book value b. Excess of the carrying value of the debt over the fair value of the asset c. Excess of the fair value of the asset over the carrying value of the debt d. Excess of the carrying value of the debt over the book value of the asset 40. An SMC Company has a loan for repayment in six months’ time but the SMC has the option to refinance for repayment two years later. SMC plans to refinance this loan. In which

a. b. c. d.

section of its statement of financial position should this loan be presented? Estimated liability Current liabilities Noncurrent liabilities Provisional liability

41. Which of the following is the correct definition of a provision? a. A possible obligation arising from past events b. A liability of uncertain timing or amount c. A liability which cannot be easily measured d. An obligation to transfer funds to an entity 42. Vadis Co. Sells appliances that include a three year warranty. Service calls under the warranty are performed by an independent mechanic under a contract with Vadis. Based on experience, warranty costs are estimated at P30 for each machine sold. When should Vadis recognize these warranty costs? a. When the machines are sold b. Evenly over the life of the warranty c. When the service calls are performed d. When the payments are made to the mechanic 43. Premium on bonds payable is an example of a. Nominal and adjunct account b. Real and adjunct account c. Nominal and contra account d. Real and contra account 44. How could the amortization of discount on bonds payable affect each of the following? Carrying value of the bond Net income a. Increase Increase b. Increase Decrease c. Decrease Increase d. Decrease Decrease 45. How are the proceeds from issuing a compound financial instrument allocated between the liability and equity components? a. First, the equity component is measured at fair value, and then the remainder of the proceeds is allocated to the liability component b. First, the liability component is measured at fair value, and then the remainder of the proceeds is allocated to the equity component

c. First, the fair values of both the equity component and the liability component are estimated. Then the proceeds are allocated to the liability and equity components based on the relation between the estimated fair value d. The equity component is measured at its intrinsic value. The liability component is measured at the face amount less the intrinsic value of the equity component 46. Which of the following situations would prima facie lead to a lease being classified as an operating lease? a. The present value of the minimum lease payments is 75% of the fair value of the asset b. Transfer of ownership to the lessee at the end of the lease term c. Option to purchase at a value below the fair value of the asset d. The lease term is for a major part of the asset’s life 47. When should a lessor recognize in income a nonrefundable lease bonus paid by a lessee on signing an operating lease? a. When received b. At the inception of the lease c. At the expiration of the lease d. Over the life of the lease 48. In the case of sale and leaseback transactions, if the sale is at below the fair value of the assets and the loss is compensated by future lease payments, then the loss is a. Recognized immediately in reserves b. Deferred until the end of the lease term c. Deferred and amortized over the useful life of the asset d. Recognized immediately in the profit and loss 49. Initial direct costs incurred by a lessor in consummating a sales-type lease are a. Charged to unearned income in the first period of the lease term b. Charge to cost of sales in the first period of the lease term c. Deferred and allocated over the lease term in proportion to the recognition of rent revenue d. Deferred and allocated over the lease term on a straight line basis 50. All of the following could lead to a finance lease, except a. The leased asset is of a specialized nature such that only the lessee can use it without major modification b. If the lessee cancels the lease, the lessor’s losses associated with the cancellation are borne by the lessor

c. Gains and losses from the fluctuation in the fair value of the residual fall to the lessee d. The lessee has the ability to continue the lease for a secondary period at a rent which is substantially lower than the market rent 51. Under the new amendment to PAS 17, which statement is true regarding land and building lease? i. A land lease with a lease term of several decades or longer will be classified as an operating lease since the title will not pass to the lessee at the end of the lease term ii. When a lease includes both land and building an entity shall determine the classification of the land lease and building lease based on the classification criteria taking into account that land normally has an economic life a. I only b. II only c. Both I and II d. Neither I and II 52. The fair value of pension plan assets is used to determine the corridor and to calculate the actual return on plan assets Corridor Actual return on plan assets a. Yes yes b. Yes no c. No yes d. No no 53. What is measured by the accumulated benefit obligation? a. The pension expense, computed by the plan formula applied to years of service to date, assuming future salary levels b. The pension expense, computed by the plan formula applied to years of service to date, using existing salary levels c. The pension obligation, computed by the plan formula applied to year of service to date, assuming future salary levels d. The pension obligation computed by the plan formula applied to years of service to date, using existing salary levels 54. Interest cost included in the net pension cost recognized by an employer sponsoring a defined benefit plan represents the a. Amortization of the discount on unrecognized past service cost

b. Increase in the fair value of plan assets due to passage of time c. Increase in the projected benefit obligation due to passage of time d. Shortage between the expected and actual return on plan assets 55. Which of the following temporary differences ordinarily creates a deferred tax asset? a. Accrued warranty cost b. Depreciation c. Installment basis d. Prepaid insurance 56. Which of the following could never be subject to interperiod tax collection? a. Interest revenue on government bonds b. Depreciation expense on operational assets c. Estimated warranty expense d. Interest revenue on loans receivable 57. As a result of differences between depreciation for financial reporting purposes and tax purposes, the financial reporting basis of a company’s plan assets rises above the tax basis. Assuming the company had no other temporary differences, the company should report a a. Current tax receivable b. Deferred tax asset c. Deferred tax liability d. Current tax payable 58. Ordinary shares issued would exceed ordinary shares outstanding as a result of a. Declaration of stock split b. Declaration of a stock dividend c. Purchase of treasury stock d. Payment in full of subscribed stock 59. If shares are issued for a consideration other than cash, the proceeds shall be measured by the a. Fair value of the share issued b. Par value of the share issued c. Fair value of the consideration received d. Book value of the consideration received 60. Gains and losses on the purchase and resale of treasury stock may be only be reflected in a. Paid-in capital accounts b. Paid-in capital and retained earnings accounts

c. Income, paid-in capital and retained earnings d. Income and paid-in capital accounts 61. Retained earnings is debited based on par value of shares issued in a a. 1 for 4 stock split b. 1 for 7 stock split c. 1 for 5 stock dividend d. 1 for 8 stock dividend 62. How would the declaration of a liquidating dividend by a wasting asset corporation affect each of the following? Contributed capital Total shareholders’ equity a. Decrease no effect b. No effect decrease c. No effect no effect d. Decrease decrease 63. Statement 1: the primary purpose of quasi-reorganization is to give the entity the opportunity to obtain relief from its creditors Statement 2: when an entity goes through a quasireorganization its statement of financial position carrying amounts are stated at fair value a. Both statement are true b. Both statement are false c. Statement 1 is true while statement 2 is false d. Statement 1 is false while statement 2 is true 64. Which of the following is true regarding the requirements of PFRS2? a. Private companies are exempt b. Small companies are exempt c. There are no exemptions from PFRS 2 d. Subsidiaries using their parent entity’s shares as consideration for goods and services are exempt 65. On June 1, 2010, PLDT Company offered its employees share potions subject to the shareholders. The award was approved by a meeting on October 1, 2010. The entity’s year end is June 30. The employees were to receive the share options on June 30, 2012. At which date should the fair value of the share options be valued for the purposes of PFRS2? a. June 1, 2010 b. October 1, 2010 c. June 30, 2010 d. June 30,2012

66. The entity has entered into a contract with another entity. The latter will supply the former with a range of services. The payment for those services will be in cash and based upon the price of former’s ordinary shares on completion of the contract. In accordance with PFRS2, what type of share based payment transaction does this represent? a. Asset settled share based payment transaction b. Liability settled share based payment transaction c. Cash settled share based payment transaction d. Equity settled share based payment transaction 67. What is the inherent justification underlying the concept of potential diluters in an earnings per share computation? a. Form over substance b. Matching principles c. Substance over form d. Reliability 68. Statement 1: preference as to assets, the preference shareholders are entitled to payment not only for the liquidation value but also for the dividends in arrears Statement 2: preference as to dividends means that if dividends are declared the preference shareholders have the right to receive dividends first before the ordinary shareholders are paid a dividend a. Both statements are true b. Both statements are false c. Statement 1 is true while statement 2 is false d. Statement 1 is false while statement 2 is true 69. Under PAS 33, which of the following statements about an ordinary share is true? i. An ordinary share is an equity instrument that is superior to all other classes of equity instrument ii. A potential ordinary share is an equity instrument or other contract that may entitle its holder to ordinary shares a. I only b. II only c. Both I and II d. Neither I and II 70. Under accrual system a. Payment must be made after the transaction b. Payment must be made before the transaction c. Payment is made before, after or on the date of the transaction d. Payment must be made at the time of the transaction

71. Statement 1: a post closing trial is prepared to verify the equality of the debits and credits for all nominal accounts Statement 2: the post closing trial balance is prepared immediately after all adjustments have been journalized and posted Statement 1 Statement 2 a. True true b. True false c. False true d. False false 72. As a general rule, which of the following is not subject to reversal? a. Accrued expenses b. Accrued revenue c. Prepaid expenses recorded as assets upon payment d. Deferred revenues recorded as revenue upon receipt 73. As a minimum, the statement of financial position shall include line items that present all of the following, except a. Intangible assets b. Biological assets c. Contingent assets d. Total of assets classified as held for sale and assets included in disposal group classified as held for sale 74. Which of the following generally is considered a limitation of the statement of financial position? a. The statement of financial position reflects the current value of the business b. Due to measurement problems, some resources and obligations of the entity are not reported in the statement of financial position c. Statement of financial position formats and classifications do not vary to reflect industry differences d. The statement of financial position reflects the instability of the peso 75. A public utility reports noncurrent assets as the first item on its statement of financial position. This is an example of a. Improper statement presentation b. Industry practice c. Conservatism d. Substance over form 76. What is the purpose of reporting comprehensive income? a. To report changes in equity due to transactions with owners

b. To combine income from continuing operations and irregular items c. To replace net income with a better measure d. To report a measure of overall enterprise performance 77. Which of the following equations is correct? a. Profit for the period= total revenues and gains- total expenses and losses b. Profit for the period= total revenues and gains – total expenses and losses+ retained earnings-dividends paid c. Profit for the period= total revenues and gains- total expenses and losses+ paid-in capital- dividends paid d. Profit for the period= total revenues and gains- total expenses and losses+ total assets- total liabilities 78. Which of the following statements regarding the term “profit” is true? i. Profit is any amount over and above that required to maintain the capital at the beginning of the period ii. Profit is the residual amount that remains after expenses have been deducted from income a. I only b. II only c. Both I and II d. Neither I and II 79. In the cash flow statement, alternatively dividend payment may be classified as cash flow from a. Operating activities b. Financing activities c. Investing activities d. Revenue activities 80. Noncash investing and financing transactions include all of the following, except a. The acquisition of asset either by assuming directly related liability or by means of a finance lease b. The acquisition of an entity by means of an equity issue c. The conversion of debt to equity d. Noncash items such as depreciation, deferred taxes, and unrealized foreign currency gains and losses 81. In a cash flow statement, which of the following would increase reported cash flows from operating activities using direct method? a. Dividends received from investments b. Gain on sale of equipment c. Gain on early retirement bonds d. Change from straight line to accelerated depreciation

82. What is the purpose of information presented in notes to the financial statements? a. To provide disclosures required by PFRSs b. To present management’s responses to auditor comments c. To correct improper presentation in the financial statements d. To provide recognition of amounts not included in the totals of the financial statements 83. What is the “first item” presented in the notes to financial statements? a. Statement of compliance with PFRS b. Summary of significant accounting policies c. Supporting information for items presented in the notes of financial statements d. Other disclosures, including contingent liabilities, unrecognized contractual commitments and nonfinancial disclosures 84. An entity’s financial statements for the year ended April 30, 2011 were approved by its finance director on July 7, 2011 and a public announcement of its profit for the year was made on July 10, 2011. The board of directors authorized the financial statements for issue on July 15, 2011 and the financial statements were approved by the shareholders on July 20, 2011. After what date should consideration no longer be given as to whether the financial statements on April 30, 2011 need to reflect adjusting and non-adjusting events? a. July 7, 2011 b. July 10, 2011 c. July 15,2011 d. July 20, 2011 85. Change in accounting policy does not include a. Change in useful life from 10 years to 7 years b. Change of method of valuation of inventory from FIFO to weighted average c. Change of method of valuation of inventory from weighted average to FIFO d. Change the practice (convention) of paying as Christmas bonus one month’s salary to staff before the end of the year to the new practice of paying one-half month’s salary only 86. When an independent valuation expert advises an entity that the residual value of its plant and machinery had drastically changed and the change is material, the entity should

a. Change the annual depreciation for the current year and future years b. Change the depreciation charge and treat it as a correction of an error c. Retrospectively change the depreciation charge based on the revised residual value d. Ignore the effect of the changes on annual depreciation because change in residual value would normally affect future only since this is expected to be recovered in the future 87. Which of the following changes should be treated as change in accounting policy? i. A change is made in the method of calculating the provision for uncollectible accounts receivable ii. Investments properties are now measured at fair value, having previously been measured at cost a. I only b. II only c. Both I and II d. Neither I and II 88. If an entity does not prepare interim financial reports, then a. The year-end financial statements are deemed not to comply with PFRS b. The year-end financial statements compliance with PFRS is not affected c. The year-end financial statements will not be acceptable under local legislation d. Interim financial reports should be included in the year-end and financial statements 89. Interim financial reports shall be included as a minimum a. Complete set of financial statements b. A condensed set of financial statements and selected notes c. A statements of financial position and an income statement only d. A condensed statement of financial position, income statement and the statement of cash flows 90. Under PAS34, interim financial reports should be published a. On a quarterly basis b. Whenever the entity wishes c. Once a year at any time in that year d. Within a month of the half year-end 91. Statement 1: the term segment manager identifies a function not necessarily a manager with a specific title

Statement 2: a single manager may be the segment manager for more than one operating segment a. Both statements are false b. Both statements are true c. The 1st statement is false and the 2nd statement is true d. The 1st statement is true and the 2nd statement is false 92. Which statements is correct concerning the 75% overall size test for operating segments? a. The total internal and external revenue of all reportable segments is at least 75% of the entity internal and external revenue b. The total external revenue of all reportable segments is at least 75% of the entity external revenue c. The total external revenue of all reportable segments is at least 75% of the entity internal and external revenue d. The total internal and external revenue of all reportable segments is at least 75% of the entity external revenue 93. Magnolia Company shall disclose information about an operating segment when the absolute amount of profit or loss of segment is a. 10% or more of the combined profit or loss of operating segments b. 10% or more of the combined profit of all operating segments that reported a profit c. 10% or more of the combined loss of all operating segments that reported a loss d. 10% or more of the greater between the combined profit of all operating segments that reported a profit and the combined loss of all operating segments that reported a loss 94. Under the cash basis of accounting a. Accounts receivable would appear in the statement of financial position b. Revenue is recorded when earned c. The matching principle is ignored d. Depreciation of assets having an economic life of more than one year is not recognized 95. Why are certain costs of doing business capitalized when incurred and then depreciated or amortized over subsequent accounting cycles? a. To reduce the income tax liability b. To aid management in cash flow analysis c. To adhere to the accounting constraint of conservatism d. To match the costs of production with revenues as earned

96. Total net income over the life of an entity is a. The same under the cash as under the accrual basis b. Higher under the cash basis than under the accrual basis c. Lower under the cash basis than under the accrual basis d. Not susceptible to measurement 97. Core Co. changed from cash basis of accounting to the accrual basis of accounting during 2011. The cumulative effect of this change should be reported in Core’s 2011 financial statement as a a. Component of income after extraordinary item b. Component of income before extraordinary item c. Prior period adjustment resulting from the correction of an error d. Prior period adjustment resulting from the change in accounting principle 98. Failure to record accrued salaries at the end of an accounting period results in a. Overstated assets b. Overstated revenue c. Understated retained earnings d. Overstated retained earnings 99. If the ending inventory is overstated, net income of the same period a. Would be overstated b. Would be understated c. Would be unaffected d. Cannot be determined from the information 100. The entity has issued a range of share options to employees. In accordance with IFRS2, what type of sharebased payment transaction does this represent? a. Asset-settled share-based payment transaction b. Equity-settled share-based payment transaction c. Cash-settled share-based payment transaction d. Liability-settled share-based payment transaction 101. EPS disclosures are a. Required for all public and non-public enterprises b. Required for public enterprises and encouraged for nonpublic enterprises c. Encouraged for public enterprises and required for nonpublic enterprises d. Encouraged for all enterprises 102. A 300% share dividend will have the same impact on the number of shares outstanding as a:

a. b. c. d.

2-for-1 share split 3-for-1 share split 4-for-1 share split 5-for-1 share split

103. To avoid leased asset capitalization, companies can devise lease agreement that fail to satisfy any of the four leasing criteria. Which of the following is not one of the ways to accomplish this goal? a. Lessee uses a higher interest rate than that used by the lessor b. Set the lease term at something less than 75% of the estimated useful life of the property c. Write in a bargain purchase option d. Use a third party to guarantee the asset’s residual value 104. The primary difference between a direct-financing lease and a sales-type lease is the a. Manner in which rental receipts are recorded as rental income b. Amount of the depreciation recorded each year by the lessor c. Recognition of the manufacturer’s or dealer’s profit at the inception of the lease d. Allocation of initial direct costs by the lessor to periods benefited by the lease arrangements 105. Under PAS19, which of the following statement is true i. Current service cost is the decrease in the present value of the defined benefit obligation resulting from employees service in the current period ii. Past service cost is the increase in the present value of the defined obligation for employee service in prior periods, resulting in the current period from the introduction or amendment of a defined benefit plan iii. Interest cost is the increase in the present value of the defined benefit obligation which arises because benefits are one period closer to settlement a. I and II only b. II and III only c. I and III only d. I, II and III 106. What is incorrect concerning return on plan assets? a. The actual return on plan assets is one component of the expense recognized in the income statement

b. The difference between the expected return and actual return on plan asset is an actuarial gain or loss c. In determining the expected and actual return on plan assets, an entity shall deduct expected administration costs and tax payable by the plan itself d. The actual return on plan assets is one component of the expense recognized in the income statement 107. Healthy Inc. bought a private yacht for the use of its top-ranking officials. The cost of the private yacht is 15 million and can be depreciated either using a composite useful life or useful lives of its major components. It is expected to be used over a period of 7 years. The engine of the yacht has a useful life of 5 years. The private yacht’s propeller is replaced every 2 years. The private yacht will depreciate using the straight-line method over a. 7 years composite useful life b. 5 years useful of the engine, 2 years useful of the propeller, and 7 years useful life applied to the balance of the yacht c. 2 years useful life based on conversation(lowest useful life of all the parts of the yacht) d. 5 years useful life based on a simple average of the useful lives of all major components of the yacht 108. On January 1, 2011, Selecta Corporation commenced trading to provide key skills education facilities in a region identified for technology development. Also on January 1, 2011, Selecta received two grants from its government for setting up its operations in this location: Grant 1- financial Grant 2- subsidized costs of purchasing computer software over the five-year period The Selecta is almost certain to keep the facilities operational for the next five years. The entity’s accounting year-end is December 31. What is the correct recognition of the income from the two government grants? a. Grant 1 and 2 should be recognized in full in 2011 b. Grant 1 and 2 should be recognized at the end of 5 years c. Grant 1 and 2 should be recognized equally over 5 years d. Grant 1 should be recognized in full in 2011 and grant 2 should be recognized equally over 5 years 109. NESTLE Corporation has a machinery to install in its new factory before year-end. However, due to circumstances beyond its control, the machinery was delayed by a few months but reached the factory premises before year-end. While this was happening, the NESTLE learned from the bank that it was being charged interest on the loan it had taken to fund the cost of the plant. What is

a. b. c. d.

the proper treatment of freight and interest expense under PAS16? Both expense should be capitalized Interest may be capitalized but freight should be expressed Freight charges should be capitalized but interest cannot be capitalized under these circumstances Both expenses should be expensed

110. SMC Company is commencing a new construction project which is to be financed by borrowing. The key dates for the current year as follows: May 15 loan interest relating to the project starts to be incurred June 3 technical site planning commences June 12 expenditures on the project start to be incurred July 18 construction work commences From what date can SMC commence the capitalization of borrowing costs? a. May 15 b. June 3 c. June 12 d. July 18 111. It is a fall in the market value of an asset so that its recoverable amount is now less than its carrying amount in the statement of financial position a. Amortization b. Depreciation c. Decline in value d. Impairment 112. PFRS5 states that a noncurrent asset that is to be abandoned shall not be classified as held for sale because a. Its carrying amount will be recovered principally through continuing use b. It is difficult to value c. It is unlikely that the noncurrent asset will be sold within 12 months d. It is unlikely that there will be an active market for the noncurrent asset 113. Which of the following criteria does not have to be met in order for an operation to be classified as discontinued a. The operation shall represent a separate major line of business or geographical area

b. The operation is part of a single plan to dispose of a separate major line of business or geographical area c. The operation is a subsidiary acquired exclusively with a view to resale d. The operation must be sold within three months of the year-end 114. Interim financial presented on a a. Monthly basis b. Quarterly basis c. Semi-annual basis d. Nine-month basis

statements

are

usually

115. For interim financial reporting, an expropriation gain occurring in the second quarter shall be a. Recognized ratably over the last three quarters b. Recognized ratably over all four quarters with the first quarter being restated c. Recognized in the second quarter d. Disclosed by footnote in the second quarter 116. If annual major repairs made in the first quarter and paid for in the second quarter clearly benefit the entire year, when should the repairs be expensed? a. An allocated portion in each of the last three quarters b. An allocated portion in each quarter of the year c. In full in the first quarter d. In full in the second quarter 117. An inventory loss from a market price decline occurred in the first quarter. However, in the third quarter the inventory had a market price recovery that exceeded the market decline that occurred in the first quarter. For interim financial reporting, the peso amount of net inventory should a. Decrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of the market price recovery b. Decrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of decrease in the first quarter c. Not be affected in the first quarter and increase in the third quarter by the amount of the market price recovery that exceeded the amount of the market price decline d. Not be affected in either the first quarter or the third quarter

118. The Securities and Exchange Commission and Philippine Stock Exchange require entities covered by the reportorial requirements of the revised securities act to file a. Quarterly interim financial reports within 45 days after the end of each of the first three quarters b. Quarterly interim financial reports within 30 days after the end of each of the first three quarters c. Semi-annual interim financial reports within 45 days after the end of the first six months d. Semi-annual interim financial reports within 30 days after the end of the first six months 119. Which may be considered an operating segment? a. Start-up operations before earning revenue b. Corporate headquarters that earn revenue c. Functional department d. Postemployment benefit plans 120. What is the approach prescribed by PFRS8 in identifying an operating segment? a. Management approach b. Risks and rewards approach c. Matrix approach d. Geographical segment approach 121. Who could be the chief operating decision maker? a. Chief operating officer b. Chief executive officer c. Group of executive directors d. All those mentioned depending on who within the organization is responsible for the allocation of resources and assessing the performance of operating segments 122. An entity shall disclose information about an operating segment when a. Its reported external and internal revenue is 10% or more of the combined external revenue of all operating segments b. Its reported external revenue is 10% or more of the combined external and internal revenue of all operating segments c. Its reported external revenue is 10% or more of the combined external revenue of all operating segments d. Its reported external and internal revenue is 10% or more of the combined external and internal revenue of all operating segments

123. What is the practical limit to the number of reportable operating segments? a. Five segments b. Ten segments c. No precise limit but if the number increases above five, the entity shall consider whether a practical limit has been reached d. No precise limit but if the number increases above ten, the entity shall consider whether a practical limit has been reached 124. An entity shall disclose information about an operating segment when a. Its assets are 10% or more of the combined assets of all operating segments b. Its net assets are 10% or more of the combined assets of all operating segments c. Its net assets are 10% or more of the combined net assets of all operating segments d. Its assets are 10% or more of the total assets of the entity 125. Which of the following is not true regarding interim financial reporting? a. Decline in inventory shall be deferred to future interim periods b. Use of the gross margin method for computing cost of goods sold must be disclosed c. Costs and expenses not directly associated with interim revenue must be allocated to interim periods on a reasonable basis d. Gains and losses that arise in an interim period shall be recognized in the interim period in which they arise if they would not normally be deferred at year-end 126. For a company that has only ordinary share outstanding, total shareholder’s equity divided by the number of shares outstanding represents the: a. Return on equity b. Stated value per share c. Book value per share d. Price-earnings ratio 127. A convertible bond issue should be included in the diluted earnings per share computation as if the bonds had been converted into ordinary share, the effect of its inclusion is: a. Dilutive: yes Antidilutive: yes b. Dilutive: yes Antidilutive: no c. Dilutive: no Antidilutive: yes

d. Dilutive: no

Antidilutive: no

128. All of the following items must be disclosed, according to IAS33 except a. Forecast earnings per share for the following financial year b. Instrument that could potentially dilute basic earnings per share in the future but were not included in the diluted earnings per share because they are antidilutive in the current period c. The weighted average number of ordinary shares used to calculate earnings per share d. The earnings figures used in calculating basic and diluted per share 129. For purposes of computing the weighted average number of shares outstanding in EPS calculation, a midyear that must be treated as occurring at the beginning of the year is the a. Issuance of the share warrants b. Purchase of treasury shares c. Issuance of new shares from share split d. Issuance of share certificates 130. Under PFRS2, which of the following statements is true if there is an “acceleration of vesting”? i. The entity shall recognize immediately the compensation expense that otherwise would have been recognized for services received over the remainder of the vesting period. ii. Any payment made to the employees on the cancellation or settlement of the grant shall be accounted for as repurchase of equity interest and any payment in excess of the fair value of share options shall be recognized as equity. a. I only b. II only c. Both I and II d. Neither I nor II 131. Corona Company recently has experienced declining profits, liquidity problems, and an unfavorable trend in its debt to equity relationship. The company completed its negotiations in 2010 for a creditor to accept 50,000 shares of Corona common stock in settlement of a note payable for 300,000. Market value of the shares was 200,000. In accounting for this troubled debt restructuring, the appropriate treatment for Corona is to: a. Reduce liabilities and increase paid-in capital by 300,000 b. Reduce liabilities by 300,000, increase paid-in capital by 200,000 and recognize a gain of 100,000

c. Reduce liabilities by 300,000, increase paid-in capital by 200,000 and increase retained earnings directly for 100,000 d. Reduce liabilities by 300,000 and create a separate paid-in capital section entitled “equity of former creditors-300,000” 132. Under a debt restructuring involving substantial modification of terms, the future cash flows under the new terms should be discounted using a. Market rate of interest b. Original effective interest rate c. Interest rate under the new terms d. Prime interest rate 133. On January 1 of the current year, an entity issued bonds at a discount. The entity incorrectly used the straight line method instead of the effective interest method to amortize the discount. How were the following amounts, as of December 31 of the current year affected by the error? a. Bond carrying: overstated Retained earnings: overstated b. Bond carrying: understated Retained earnings: understated c. Bond carrying: understated Retained earnings: overstated d. Bond carrying: overstated Retained earnings: understated 134. In 2004, Jeremy Corporation issued 1,000 of its 8% P1,000 bonds for 1,040,000. The bonds were due on December 1, 2007. Jeremy did not elect the fair value option for reporting financial liabilities. On October 1, 2010, as part of its normal financing management strategy, Jeremy Corporation redeemed the bonds at a time when the carrying value of the bonds was P50,000 more than the cash paid to retire the bonds. Jeremy should report the P50,000 gain as a. Extraordinary gain on early extinguishment of debt b. Discontinued operation c. Interest income from the bond d. Other income 135. Cloud Corporation prepares its financial statements in accordance with IFRS. Which of the following is true regarding reporting Cloud’s deferred income taxes in its 2011 financial statements? a. Deferred tax assets and liabilities may only be classified as noncurrent

b. Deferred taxes of one jurisdiction are offset against another jurisdiction in the netting process c. Deferred tax assets and liabilities are classified as current and noncurrent based on their expiration dates d. Deferred tax assets are always netted with deferred tax liabilities to arrive at one amount presented on the statement of financial position 136. Assuming a 30% statutory tax rate applies to all years involved, which of the following situations will give rise to reporting a deferred tax liability on the balance sheet? i. A revenue is deferred for financial reporting purposes but not for tax purposes ii. A revenue is deferred for tax purposes but not for financial reporting purposes iii. An expense is deferred for financial reporting purposes but not for tax purposes iv. An expense is deferred for tax purposes but not for financial reporting purposes a. II only b. I and II only c. II and III only d. I and IV only 137. Houser Corporation owns 4,000,000 shares of stock in Baha Corporation. On December 31, 2010, Houser distributed these shares of stock as a dividend to its stockholders. This is an example of a a. Property dividend b. Stock dividend c. Liquidating dividend d. Cash dividend 138. As an inducement to enter a lease, a lessor granted a lessee 12 months of free rent under a four year operating lease. The lease was effective on January 1 of the current year and provides for monthly rental payments to begin January 1 of next year. The lessee made the first rental payment on December 31 of the current year. In its current year’s income statement, the lessor should report rental revenue in an amount equal to a. Zero b. Cash received during current year c. One fourth of the total cash received over the life of the lease d. One third of the total cash to be received over the life of the lease

139. At the commencement of the lease, the lessee shall recognize a finance lease as asset and liability at an amount equal to the a. Fair value at the leased asset b. Present value of the minimum lease payments c. Fair value of the leased asset or present value of the minimum lease payments, whichever is lower d. Fair value of the leased asset or present value of the minimum lease payments, whichever is higher 140. For a sales-type lease a. The sales price includes the present value of the unguaranteed residual value b. The present value of the guaranteed residual value is deducted to determine the cost of goods sold c. The gross profit will be the same whether the residual value is guaranteed or unguaranteed d. None of these 141. Under which category should lump sum benefit of 2% of the final salary for each year of service and actuarial gains be accounted for? a. Lump sum benefits should be accounted for under defined benefit plans Actuarial gains should be accounted for under defined benefit plans b. Lump sum benefit should be accounted for under short term employee benefits Actuarial gains should be accounted for under defined benefit plans c. Lump sum benefit should be accounted for under defined benefit plans Actuarial gains should be accounted for under defined contribution plans d. Lump sum benefit should be accounted for under short term employee benefits Actuarial gains should be accounted for under defined contribution plans 142. Any transition loss on first adopting PAS19 shall be recognized i. As expense immediately ii. As expense over a maximum of 5 years a. I only b. II only c. Either I or II irrevocably d. Either I or II revocable

143. Company A and Company B exchanged nonmonetary assets with no monetary consideration involved and no impairment of value. The exchange did not result in the cash flows of the new asset being significantly different than the cash flows of the old asset. The accounting should be based on the a. Fair value of the asset received b. Fair value of the asset relinquished c. Recorded amount of the asset received d. Recorded amount of the asset relinquished 144. To which type of asset do the measurement provisions of PFRS apply? a. Financial asset b. Intangible development asset c. Investment property accounted for at fair value 145. Which of the following is a requirement for a component of an entity to be classified as a discontinued operation? a. Its activities must cease permanently prior to the financial statements being authorized for issue by management b. It must comprise a separately reportable segment in accordance with PFRS 8 operating segments c. Its assets must have been classified as held for sale in the previous financial statements d. It must have been a cash generating unit or a group of cash generating units while being held for use 146. Conceptually, interim financial statements can be described as emphasizing a. Timeliness over reliability b. Reliability over relevance c. Relevance over comparability d. Comparability over neutrality 147. The amount to be recorded as the cost of an asset under capital lease is equal to the a. Present value of the minimum lease payments b. Present value of the minimum lease payments or the fair value of the asset, whichever is lower c. Present value of the minimum lease payments plus the present value of any unguaranteed residual value d. Carrying value of the asset on the lessor’s books