THEORY OF

ACCOUNTS

1. Which is(are) correct concerning the FRSC?

I. The FRSC replaces the ASC as the standard setting body in the Philippines
II. The FRSC is composed of 15 members with a Chairman and 14 representatives from
various sectors III. The Chairman and members of FRSC shall have a term of 2 years
renewable for another term
IV. Any member of the ASC shall be disqualified from being appointed to the FRSC
a. I and II only b. I, II, and III only c. III and IV only d. I, II, III, and IV

2. Which of the following government agency is represented in FRSC?

a. Bureau of Fisheries b. CHED c. Bureau of Internal Revenue d. Bureau of Customs

3. Under the IFRS Conceptual Framework (2010), which of the following is considered a
fundamental characteristic rather than an enhancing characteristic of financial
information?
a. Timeliness b. Verifiability c. Understandability d. Faithful representation

4. Under SEC rules, which of the following entity may qualify as a SME?
a. ASAP Life, a life insurance company
b. ASAP Mart, a supermarket based in Caloocan City
c. ASAP Banking Corporation, a BSP-registered commercial bank
d. ASAP Waters, a water utility company servicing Metro Manila

5. Failure to accrue wages payable to office personnel will

a. Overstate liability b. Overstate loss c. Understate distribution cost d. Understate
admin. cost

6. Under PAS 7 (statement of cash flows), which of the following items is not being added to profit
under the
indirect method of computing operating cash flows?
a. Bad debt losses b. Depreciation c. Loss on sale of equipment d. Increase in trade
receivable

7. Under PAS 33, treasury shares are considered as anti-dilutive because

a. They decrease the basic earnings per share
b. They decrease the diluted earnings per share
c. They decrease the number of common shares outstanding
d. They increase the income available to common shareholders

8. The following statements are based on PFRS for SMEs:

Statement I: Listed companies may not use PFRS for SMEs no matter how small they are.
Statement II: If a publicly accountable entity uses PFRS for SMEs, its financial statements
shall not be described as conforming to the PFRS for SMEs even if law or regulation in its
jurisdiction permits or requires PFRS for SMEs to be used by publicly accountable entities.
Statement III: A subsidiary whose parent uses full PFRS is not prohibited from using this
PFRS for SMEs in its own FS if that subsidiary by itself does not have public accountability.
a. True, true, true b. False, true, true c. False, false, true d. True, false, false

9. What chapter of the Conceptual Framework is still in process?

a. Chapter 1 The Objective of General Purpose Financial Reporting
b. Chapter 2 The Reporting Entity
c. Chapter 3 Qualitative Characteristics of Useful Financial Information
d. Chapter 4 The Framework (1989): The Remaining Text
e. None of the above because all are already published

10.Which of the following does not relate to Verifiability?

a. Quantified information need not be a single point estimate to be verifiable. A range
of possible amounts and the related probabilities can also be verified.
b. Generally, the older the information is the less useful it is. However, some
information may continue to be useful long after the end of a reporting period
because, for example, some users may need to identify and assess trends.
c. Direct verification means verifying a representation through direct observation, for
example, by counting cash.
d. An example indirect verification is verifying the carrying amount of inventory by checking the
inputs and recalculating the ending inventory using the same cost flow assumption.

11.This assumption was formerly considered as an underlying assumption on the previous Conceptual
Framework?
a. Going-Concern Assumption b. Accrual Assumption c. Cost Assumption d. Entity
Assumption
12 The amount reported as Cash on a companys balance sheet
. normally exclude
a. Received Postdated b. Payroll
Checks account c. Petty cash d. Undelivered checks
13 If a note receivable is exchanged for a PPE an no interest rate is stated, the note is to be recorded
. at
c. notes maturity d. fair value of PPE or
a. book value of PPE b. notes face value value note

14. If the allowance method of recording uncollectible accounts expense is used, the
entries at the time of collection of an previously written-off account would
a. have no effect on profit or loss of the c. have no effect on the contra account of the
entity receivable
b. Increase profit of the entity d. decrease the contra account of the
receivable

15. Cash discounts permitted on the purchased direct materials (DM) are theoretically
a. deducted from DM, whether taken or added to other income, whether
not c. taken or not
b. deducted from DM, only if taken d. ignored

16.A gain or loss arising on the initial recognition of a biological asset and from a change in
the fair value less costs to sell of a biological asset should be included in
a. in P&L for the b. revaluation c. capital reserve in d. none of the
period reserve equity choices
17 Under SEC rules, a company is classified as a Small & Medium Entity (SME) when its total
. assets are between
a. P3M and P250M b. P3M and P350M c. P5M and P250M d. P5M and P350M
18 Under SEC rules, a company is classified as a Small & Medium Entity (SME) when its total
. liabilities are
between
a. P3M and P250M b. P3M and P350M c. P5M and P250M d. P5M and P350M

19.Which government body is responsible for the design, preparation and approval of
accounting systems of government agencies?
a. Department of Budget & Management b. COA c. Bureau of Treasury
d. Government Agencies

20. The following statements are based on PFRS for SMEs:

Statement I: If an entitys normal operating cycle is not clearly determinable, its duration
is assumed to be twelve (12) months.
Statement II: If an entity is unable to make a reliable estimate of the useful life of an
intangible asset, the life shall be presumed to be twenty (20) years.
Statement III: An entity shall recognize all borrowing costs as an expense in profit or loss in the
period in which
they are incurred.
a. True, true, true b. True, false, true c. False, false, false d. True, false, false

21.A cable television company receives deposits from customers, which are refunded when
service is terminated. The average customer stays with the company eight years. How
should these deposits be shown on the financial
statements?
a. Operating revenue b. Paid-in capital c. Other revenue d. Liability

22.Given a hyperinflationary economy under PAS 29, which price index is used in (A)
measuring inflation and (B) restating financial statements? Note: General price index (GPI)
and Consumer price index (CPI)
a. (A) GPI (B) GPI b. (A) CPI (B) CPI c. (A) CPI (B) GPI d. (A) GPI (B) CPI

23. The basic purpose of derivative financial instruments is to manage some kind of risk such as
all of the following,
except
a. Stock price movement b. Currency fluctuations c. Interest rate
variations d. Uncollectibility of AR
24. In consignment sales, what is the proper treatment of the consignment-related
transportation cost (a) upon bringing the consigned goods to the consignee and (b) upon
return of the consigned goods to the consignor?
a. Inventory then expense
b. Expense then inventory
c. Inventory until sold
d. Expense until sold
25. Which of the following standards shall apply in identifying and recognizing costs of
construction (e.g., borrowing
costs specifically financed for the construction)?
I. PAS 11 Construction Contracts
II. PAS 23 Borrowing Costs
a. I only b. II only c. Both I and II d. Neither I nor
II

26.Identify if the following statements are true or false regarding disclosures of franchisors:
I. Disclosure of all significant commitments and obligation resulting from franchise
agreements, including a description of services that have not yet been substantially
performed, is not required.
II. Initial resolution of uncertainties regarding collectability of franchise fees should be
disclosed.
a. True; True b. True; False c. False; True d. False; False

27.PFRS 3 defines non-controlling interest as the equity in a subsidiary not attributable,

directly or indirectly, to a parent. This definition includes not only equity shares in the
subsidiary held by other parties, but also other elements of equity in the subsidiary.
Determine how would the following instruments issued by the acquiree be measured
based on the requirements of PFRS 3:
I. Equity component of convertible debt and other compound financial instruments.
II. Preference shares not entitled to a pro rata share of net assets upon liquidation.
a. I - Proportionate share of net assets OR fair value; II - Proportionate share of net
assets OR fair value
b. I - Proportionate share of net assets OR fair value; II - Fair value
c. I - Fair value; II - Proportionate share of net assets OR fair value
d. I - Fair value; II - Fair value

28.Which of the following is not among the elements of control based on PFRS 10?
a. investors power over the investee
b. investors exposure, or rights, to variable returns from its involvement with the
investee
c. investors ability to participate in the financial and operating policy decisions of an
entity
d. investors ability to use its power over the investee to affect the amount of the
investor's returns

29.In a business combination achieved in stages, changes in fair value from the last reporting
date until the date of acquisition of the previously held investment classified as FV-OCI is
recognized as other
a. recycled in profit or loss c. comprehensive income
b. recycled directly to accumulated
profits d. reclassified to share premium

30. PAS 16 Property, Plant and Equipment shall not apply to the
following, except I. The recognition and measurement of
exploration and evaluation assets.
II. Property, plant and equipment classified as held for sale.
III. Biological assets related to agricultural activity
IV. Mineral rights and mineral reserves such as oil, natural gas and similar non-
regenerative resources.
V. Property, plant and equipment used for the extraction of minerals, oil or natural gas.
a. I and II only b. I, II and IV only c. IV only d. V only e. IV and V only

31. Under the principles of PAS 16 Property, Plant and Equipment, which of the following
should be included in
the cost of an item of property, plant and equipment?
I. Initial delivery and handling cost.
II. Cost of training staff on new asset.
III. Apportioned general overhead costs.
IV. Installation and assembly cost.
a. I, II, III and IV c. II and IV only
b. I, II and III only d. I and IV only

32. Allocation of the purchase price in a lump-sum acquisition of different assets may be
based on all of the these, except
a. Book values of the assets to the c. Tax assessment
seller values
b. Relative market values d. Appraised values
33.Which statement is(are) correct regarding the scope of PAS 36 Impairment of Assets?
I. PAS 36 applies to some financial assets (i.e., investment in subsidiaries, associates, and joint
ventures).
II. PAS 36 does not apply to inventories, assets arising from construction contracts,
deferred tax assets, assets arising from employee benefits, or assets classified as held
for sale because existing PFRSs applicable to these assets contain requirements for
recognizing and measuring these assets.
III. PAS 36 applies to investment property that is measured at cost.
a. II only b. I and II only c. II and III only d. I, II, and III

34.Which of the following is incorrect regarding PAS 40 Investment Property?

a. PAS 40 requires all entities to determine the fair value of investment property.
b. An entity is encouraged, but not required, to determine measure the fair value of
investment property on the basis of a valuation by an independent valuer who
holds a recognized and relevant professional qualification and has recent
experience in the location and category of the investment property being valued.
c. With the reference in PFRS 13 Fair Value Measurement, Fair Value is defined as
the amount for which an asset could be exchanged between knowledgeable, willing
parties in an arm's length transaction.
d. An investment property shall be derecognized on disposal or when the investment
property is permanently withdrawn from use and no future economic benefits are
expected from its disposal.

35.After initial recognition, Investment property are measured using

a. fair value model b. cost model c. either A or B d. Neither A nor B

36.A newly set up dotcom entity has engaged you as its financial advisor. The entity has
recently completed one of its highly publicized research and development projects and
seeks your advice on the accuracy of the following statements made by one of its
stakeholders. Which of the following statements is accurate?
a. Costs incurred during the research phase can be capitalized.
b. Costs incurred during the development phase can be capitalized if criteria such as
technical feasibility of the project being established are met.
c. Training costs of technicians used in research can be capitalized.
d. Designing the jigs and tools qualify as research activities.

37.Which of the following note disclosure is not required by PAS 38 Intangible Assets?
a. Useful lives of the intangible assets.
b. Reconciliation of the carrying amount at the beginning and end of the year.
c. Contractual commitments for the acquisition of intangible assets.
d. Fair value of similar intangible assets used by competitors.

38.Are the following statements concerning the measurement of financial instruments after
initial recognition true or false, according to PAS 39 Financial instruments: recognition
and measurement & PFRS 9 Financial
Instruments?
I. Under PAS 39, Held-for-trading financial assets are measured at amortized cost.
II. Under PAS 39, Held-to-maturity investments are measured at fair value.
III. Under PFRS 9, If an entity holds an investment to collect contractual cash flows but
would sell the investment in particular circumstances (e.g., entity needs to fund capital
expenditures, among others), the investments should be classified as fair value through
profit or loss (FVPL) investment because the business model test was not satisfied.
IV. Under PFRS 9, there is no recycling between other comprehensive income (OCI) or profit or
loss.
a. True, False, True, True b. False, False, True, True c. False, False, False,
True d. False, False, False, False

39. In accordance with PFRS 7 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

40.The following statements are based on PAS 40 (Investment Property):

Statement I: An investment property is a property held to earn rentals or for capital
appreciation or both. Statement II: An investment property shall be measured initially at
costs. Transaction costs shall be excluded in the initial measurement.
Statement III: Under the cost model, a gain or loss arising from a change in the fair value of
investment property
shall be recognized in profit or loss for the period in which it arises.
a. True, true, true b. True, false, false c. True, false, true d. True, true,
false
41.Which of the following is not an appropriate basis for measuring the historical cost of fixed
assets?
a. The purchase price, freight costs, and installation costs of a productive asset should be
included in the assets cost
b. Proceeds obtained in the process of readying land for its intended purpose, such as
from the sale of cleared timber, should be recognized immediately in income
c. The costs of improvement to equipment incurred after its acquisition should be added
to the assets cost if they provide future service potential
d. All costs incurred in the construction of a plant building, from excavation to completion
of a plant building, from excavation to completion, should be considered as part of the
assets cost

42.Which of the following is an internal user of a companys financial information?

a. A holder of the companys bonds
b. A holder of the companys stocks
c. A member of the board of directors
d. A member of the family of an incorporator

43.Which of the financial statement should an investor primarily use to assess the amounts,
timing, and uncertainty of investing and financing activities of ABC Company?
a. Statement of comprehensive income
b. Statement of financial position
c. Statement of changes in equity
d. Statement of cash flows

44.Under the National Government Accounting System (NGAS), allotments of the government
general appropriation are recorded in the registries
a. At the beginning of the year
b. At the end of the year
c. Semiannually
d. Quarterly

45.When it is impracticable to determine the effect of an error for all prior periods, the entity
a. Restates comparative information prospectively from the earliest date practicable
b. Restates comparative information prospectively up to the latest date practicable
c. Restates comparative information retrospectively from the earliest date practicable
d. Restates comparative information retrospectively up to the latest date practicable

46.A call option on a common share is more valuable when there is a lower
a. Exercise price on the option
b. Time to maturity on the option
c. Market value of the underlying share
d. Variability of market price on the underlying share

47.A direct labor overtime premium is charged to a specific job when the overtime is caused
by
a. Increased overall level of activity
b. Customers requirement for early completion of job
c. Managements failure to include the job in the production schedule
d. Managements requirement that the job be completed before the annual factory
vacation closure

48.The physical capital maintenance concept is consistent with

a. Historical cost/nominal peso and historical cost/constant peso
b. Historical cost/nominal peso and current cost/constant peso
c. Current cost/nominal peso and historical cost/constant peso
d. Current cost/nominal peso and current cost/constant peso

49.The amortization of intangible assets over their useful lives is justified by the
a. Economic entity assumption
b. Going concern assumption
c. Monetary unit assumption
d. Historical cost assumption
50.The following statements are based on PFRS for SMEs:
Statement I: If an entity has no items of other comprehensive income, it may present only
an Income Statement.
Statement II: If an entity has no items of other comprehensive income, it may present a
Statement of
Comprehensive Income in which the bottom line is profit or loss.
Statement III: If only changes to equity arise from profit or loss, payments of dividends,
corrections of prior period errors, and changes in accounting policy, the entity may
present a single Statement of Income and
Retained Earnings in lieu of separate statements of comprehensive income and changes in
equity.
a. True, true, true b. True, false, false c. True, false, true d. True, true,
false

51.In calculating diluted earnings per share (EPS), which of the following should not be considered?
a. The weighted number of shares outstanding
b. The amount of cash dividends declared on ordinary shares
c. The amount of dividends declared on cumulative preference shares
d. The number of ordinary shares resulting from the assumed conversion of debentures
outstanding
52.A bank reconciliation is prepared monthly in order for the enterprise to
a. Arrive at the correct cash balance
b. Unearth any undetected cash fraud
c. Correct bank errors
d. Correct book errors

53.The publisher of a popular magazine offers a special discounted price for a three-year
subscription. At the balance sheet date, the revenue, which has already been collected
but pertains to future periods, is best to referred to as
a. Accrued subscription revenue(an asset account)
b. Unearned subscription revenue (a liability account)
c. Earned subscriptions revenue (a revenue account)
d. Pre-collected subscriptions receivable (a deferred asset account)

54.From the viewpoint of the investor, which of the following securities provides the least risk?
a. Mortgage bond
b. Subordinated debenture
c. Income bond
d. Debentures

55.The measurement basis often used to report a long-term payable requiring a commitment
to pay money at a determinable future date is
a. Current cost
b. General price level
c. Net realizable value
d. Present value of future cash flows

56.The Victoria Company acquired 30,000 4% Government Bonds redeemable in 2013 at the
quoted market price of P200. Victoria has no current intention to sell the Bonds and has a
policy to hold them as investments unless certain corporate criteria are met and the
bonds are sold to maintain liquidity. In accordance with PAS 39 Financial instruments:
Recognition and Measurement, which one of the following is the most appropriate
classification for Victoria's investment in the Government Bonds?
a. Held for trading b. Available for sale c. Held to maturity
investment d. Loans and receivables

57.Under PFRS 9 Financial Instruments, if an entity used its fair value option for equity
instruments, which of the following statements is incorrect?
a. dividends are to be recognized in profit or loss if said dividends are considered return on
investment
b. no recycling of fair value changes to profit or loss on impairment, disposal or in any
other circumstances
c. impairment testing is required for this equity investment
d. additional disclosures are required for this equity investment

58.Which of the following is incorrect regarding the scope of PFRS 7 Financial Instruments:
Disclosures?
a. PFRS 7 applies to recognized and unrecognized financial instruments
b. PFRS 7 applies to contracts to buy or sell a non-financial item that are within the scope
of PFRS 9
c. Recognized financial instruments include financial assets and liabilities that are within
the scope of PFRS 9
d. Unrecognized financial instruments include some financial instruments that are within
the scope of PFRS 9
59. Which step in the accounting cycle is completed later than the others?
a. Posting b. Adjustments c. Journalizing d. Identification and measurement of
transactions

60. In reconciling net income on an accrual basis to net cash provided by operating activities.
What adjustment is needed to net income because of (1) an increase during the period in
prepaid expenses, and (2) the periodic depreciation expense of company properties?
a. (1) Add (2) Add b. (1) Add (2) Deduct c. (1) Deduct (2) Add d. (1) Deduct (2) Deduct

61. This accounting objective emphasizes the importance of the Income Statement as it is
geared toward proper income or performance determination of the enterprise.
a. Fund theory b. Entity theory c. Proprietary theory d. Residual equity theory

62.An automobile manufacturer should normally recognize revenue when an

a. Order is received from a dealer
b. Automobile comes off of the assembly line
c. Automobile is shipped to a dealer serving as a sales agent
d. Automobile is shipped to a dealer on a non-consignment basis

63.Jon Co. uses the equity method to account for its investment in Lee Co. stock. How should
Jon record a 2% stock dividend received from Lee?
a. As dividend revenue at Lees carrying value of the stock
b. As dividend revenue at the market value of the stock
c. As a reduction in the total cost of stock investment
d. As a memorandum entry reducing the unit cost of stock investment

64.In accounting for a business combination, which of the following intangibles should not be
recognized as an asset apart from goodwill?
a. Trademarks b. Lease agreements c. Employee quality d. Patents

65. The application of factory overhead costs under job order costing would be reflected in the
general ledger as an increase in
a. Factory overhead control b. Finished goods control c. Work in process
control d. Cost of goods sold

66.Which of the following is incorrect regarding the loss of significant influence under the revised PAS
28?
a. An entity loses significant influence over an investee when it loses the power to partake in
the financial and operating policy decisions of that investee
b. The loss of significant influence can occur with or without a change in absolute or relative
ownership levels
c. When an associate becomes subject to the control of a government, court, administrator
or regulator, significant influence is unaffected because of the potential rights on the
investment in associate
d. Loss of significant influence could occur as a result of a contractual arrangement

67.Which of the following statements is(are) true regarding equity method under the revised PAS 28?
I. Under the equity method, on initial recognition the investment in an associate or a joint
venture is recognized at cost.
II. Distributions received from an investee reduce the carrying amount of the investment.
III. Adjustments to the carrying amount may also be necessary for changes in the investor's
proportionate interest in the investee arising from changes in the investee's other
comprehensive income (e.g., revaluation surplus).
IV. When potential voting rights exist, an entity's interest in an associate or a joint venture is
determined by reflecting the possible exercise or conversion of potential voting rights.
V. An entity need not apply the equity method to its investment in an associate or a joint venture if
the entity is a subsidiary that is exempt from preparing consolidated financial statements by the
scope exception in PFRS 10 Consolidated Financial Statements.
a. I, II, III and V only b. I, II and III only c. I, II, III and V only d. I, II, III, IV and V

68. Which of the following formula is correct?

a. Assets to be realized less liabilities to be liquidated equals net asset at the beginning of the
period
b. Assets to be realized less liabilities to be liquidated equals net asset at the end of the period
c. Assets not realized less liabilities not liquidated equals net asset at the beginning of the
period
d. Assets not realized less liabilities liquidated equals net asset at the beginning of the period
69.Are the following statements true or false, according to PFRS 11 Joint Arrangement?
Statement I: A joint arrangement is an arrangement of which two or more parties
have joint control. Statement II: A joint arrangement is either a joint operation or
a joint venture.
Statement III: A joint control is the contractually agreed sharing of control of an arrangement,
which exists only when decisions about the relevant activities require the majority
consent of the parties sharing control.
a. True, true, true b. True, false, false c. True, false, true d. True, true, false

70. Which of the following is the allowed method of accounting for interest in joint venture of a joint
venturer under IFRS
11 Joint Arrangement?
a. proportionate consolidation
b. equity method
c. fair value model
d. cost model

71.The following are true about the differences on financial statements prepared for partnerships
and those prepared for corporations, except
a. In the statement of financial position, ownership equity for a partnership will be
partners capital balances; in a corporation, share capital, share premium, and
accumulated profits & losses.
b. In lieu of a statement of accumulated profits & losses done for corporations,
partnerships present a statement of partners capital in support of its ownership equity
on the statement of financial position.
c. In the statement of partners capital, generally, salaries, interest, & bonuses paid to
partners are excluded from the operating expenses of the partnerships.
d. In the statement of comprehensive income, some partnerships are treating partners
remunerations as operating expenses rather than as distribution of net profits.

72.Which of the following can qualify as an asset of an entity?

a. Freely circulating air in the school campus university
b. An oxygen tank donated to Makati Medical Center
c. Good order by Nolasco Trading from XYZ Corp.
d. The position of a public highway fronting Jollibee in Dagupan City

73.Government assistance includes all of the following, except

a. Free technical advice
b. Provision for Guarantee
c. Government procurement policy that is responsible for a portion of the entitys sales
d. Improved irrigation water system for the benefit of an entire local community

74.Supplemental disclosures required only when the statement of cash flows is prepared
using the indirect method include
a. A schedule reconciling net income with net cash flows from operating activities
b. Amounts paid for interest and taxes
c. Amounts deducted for depreciation and amortization
d. Significant noncash investing and financing activities

75.It is a continuing appropriation for an indefinite period in excess of one fiscal year
a. Annual appropriation b. Continuing appropriation c. Multi-year
appropriation d. No-year appropriation

76.For which of the following purposes should an appropriation for possible loss contingencies be
established?
a. To match applicable costs with current revenue.
b. To reduce fluctuations in net income in order to lend stability of the entity.
c. To charge operations in periods of rising prices for the losses which may
otherwise be absorbed in periods of falling prices.
d. To inform shareholders that a portion of retained earnings should e set aside
from amounts available for dividends because of such contingencies.

77.The dividends declared account is a nominal account and

a. Carried forward o the next accounting period
b. Closed directly to retained earnings
c. Closed directly to income summary
d. Closed directly to capital
78.Determine the false statement.
a. A material used and made part of the finished good is part of the products prime cost.
b. Labor cost for factory supervisors is part of the products prime and conversion cost.
c. A material used but not part of the finished good is part of the products conversion
cost.
d. Plant overhead cost may be applied to products using normal or standard costing
system.

79.When the right to receive dividend is forfeited in any one year in which dividend is not
declared, the preference share is said to be
a. Cumulative b. Non-cumulative c. Participating d. Non-
participating

80.Which of the following standards may apply in accounting for financial assets and financial
liabilities?
III. PAS 39 Financial Instruments: Recognition and Measurement
IV. PFRS 9 Financial Instruments
a. I only b. II only c. Both I and II d. Neither I nor II

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