FINANCIAL ACCOUNTING AND REPORTING THEORY

(VOLUME 1, 2 AND 3)

1. Which of the following errors would cause unequal totals in the trial balance?
a. The firm records P2,100 received from a customer in advance of delivery of goods as a debit
of P100 to cash and credit of P2,100 to sales.
b. The firm fails to enter the cost of the electric current used during the month as an expense and
fails to recognize the P2,200 owed to Meralco.
c. All these errors will cause unequal trial balance totals.
d. None of these errors will cause unequal trial balance totals.

2. Which of the following best qualified as a cash equivalent?

a. A firm's investment in "held to maturity" government treasury bonds that mature in 5 years.
b. A firm's equity investment in an unconsolidated subsidiary of a privately held firm.
c. A firm's investment in government treasury bills.
d. All of these answer.

3. Consider the following statements.

I. The voucher system refers to the complete use of the voucher check and of subsidiary records
of vouchers payable, voucher register and check register.
II. The simplest and most satisfactory method of handling purchase discounts under the voucher
system is to deduct the purchase discount on the face of the voucher and enter this discount in a
special column in the check register.
III. Entries in the voucher register are made in the same sequence as the numbering of the
checks – that is, in the order in which payments are made.

a. true, true, false

b. true, false, false
c. false, false, false
d. true, true, true

4. For trade receivables, the fair value is deemed equal to the

a. Exchange price between a seller and a buyer after taking into account the amount of any trade
discounts and volume rebates allowed by the entity.
b. The amount due from the buyer without adjustment for any trade discounts allowed.
c. The quoted price of the receivable in an active market.
d. The price in a binding sale agreement.

5. If a company employs the gross method of recording accounts receivable from customers, then
sales discounts taken by customers should be
a. Reported as a deduction from sales in the income statement.
b. Reported as an item of "other expense" in the income statement.
c. Reported as a deduction from accounts receivable in determining the net realizable value of
accounts receivable.
d. Reported as sales discounts forfeited in the cost of goods sold section of the income statement.

6. On July 1 of the current year, an entity received a one-year note receivable bearing interest at
the market rate. The face amount of the note receivable and the entire amount of the interest are
due on June 30 of next year. On December 31 of the current year, the entity should report in the
statement of financial position.
a. A deferred credit for interest applicable to next year.
b. No interest receivable.
c. Interest receivable for the entire amount of the interest due on June 30 of next year.
d. Interest receivable for the interest accruing in the current year.
7. In calculating the carrying amount of loan receivable, the lender adds to the principal
I. Direct original cost
II. Indirect original cost
III. Original fee charged to borrower

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

8. It is a financing arrangement whereby one party formally transfers its rights to accounts
receivable to another party in consideration for a loan.
a. Pledge
b. Assignment
c. Factoring
d. Discounting

9. When a portion of inventory has been pledge as security for a loan

a. The value of the inventory pledge should be deducted from the debt.
b. An equal amount of retained earnings should be appropriated.
c. The fact should be disclosed bur the amount of current assets should not be affected.
d. The cost of the pledged inventory should be transferred from current asset to noncurrent asset.

10. The valuation of inventory on a prime cost basis

a. Would achieve the same results as direct costing
b. Would exclude all overhead from reported inventory cost
c. Is always achieved when standard costing is adopted
d. Is always achieved when the FIFO is adopted

11. Which of the following financial attributes would not be used to measure inventory?
a. Historical cost
b. Current replacement cost
c. Net realizable value
d. Present value of future cash flows

12. If the gross profit rate is based on sales, the cost of goods sold is computed as
a. Net sales time cost ratio
b. Gross sales times cost ratio
c. Net sales divided by sales ratio
d. Gross sales divided by sales ratio

13. If the gross profit rate is based on cost, the cost of goods sold is computed as
a. Net sales time cost ratio
b. Net sales divided by sales ratio
c. Gross sales times cost ratio
d. Gross sales divided by sales ratio

14. Are there any circumstances when a contract that is not a financial instrument would be
accounted for as a financial instrument under PAS 32 and PFRS 9?
a. No. Only financial instruments are accounted for as financial instruments.
b. Yes. Gold, silver, and other precious metals that are readily convertible to cash are accounted
for as financial instruments.
c. Yes. A contract for the future purchase or delivery of a commodity or other nonfinancial item
(e.g., gold, electricity, or gas) generally is accounted for as a financial instrument if the contract
can be settled net.
d. Yes. An entity may designate any nonfinancial asset that can be readily convertible to cash as
a financial instrument.
15. To which of the following items is PFRS 9 Financial Instruments not applicable?
a. Unquoted debt securities.
b. Preference shares with mandatory redemption.
c. The entity’s own equity instruments.
d. The entity’s own debt instruments.

16. If the objective of an entity’s business model is to hold financial assets in order to collect
contractual cash flows, the entity may classify the financial assets
a. At amortized cost.
b. At amortized cost provided the management can demonstrate its ability to hold them until
maturity.
c. At amortized cost; however, if a significant portion of the financial assets is sold before
maturity, the remaining portion should be reclassified.
d. At amortized cost provided the fair value information and fair value changes are disclosed in
the notes.

17. If the investment is measured at amortized cost, the transaction costs are
a. Amortized to profit or loss using the effective interest method
b. Recognized in profit or loss when the asset is derecognized or becomes impaired
c. Recognized in equity when the asset is derecognized or becomes impaired
d. Expensed immediately on acquisition date

18. Use of the effective-interest method in amortizing bond premiums and discounts results in
a. A greater amount of interest income over the life of the bond issue than would result from use
of the straight-line method.
b. A varying amount being recorded as interest income from period to period.
c. A variable rate of return on the book value of the investment.
d. A smaller amount of interest income over the life of the bond issue than would result from use
of the straight-line method.

19. Depending on the business model for managing financial assets, an entity shall classify
financial assets subsequent to initial recognition at
a. Fair value
b. Amortized cost
c. Either fair value or amortized cost
d. Neither fair value nor amortized cost

20. Under the equity method of accounting for investments, an investor recognizes its share of
the earnings in the period in which the
a. Investor sells the investment
b. Investee declares a dividend
c. Investee pays dividend
d. Earnings are reported by the investee in its financial statements

21. Investment property includes all of the following, except

a. Land held for long-term capital appreciation
b. Land held for currently undetermined use
c. Building owned by the reporting entity or held by a finance lessee leased out under one
or more operating leases.
d. Property held for sale in the ordinary course of business or in the process of
construction for such sale.

22. Derivatives are measured at

a. Fair value
b. Cost
c. Fair value less cost of disposal
d. Higher between fair value and cost
23. Slate Company and Tela Company exchanged plots of land with fair value in excess of
carrying amount. In addition, Slate received cash from Tela to compensate for the difference in
land value. As a result of the exchange, Slate shall recognized
a. A gain equal to the difference between the fair value and the carrying amount of the land given
up.
b. A gain in an amount determined by the ratio of cash received to total consideration.
c. A loss in an amount determined by the ratio of cash received to total consideration.
d. Neither gain nor a loss

24. Which of the following statements is true regarding the accounting for government grant
related to an asset?
a. Depreciation expense will be higher and net income lower if the grant is recorded as deferred
income.
b. Depreciation expense will be higher and net income lower if the grant is accounted for as an
adjustment to the asset.
c. Depreciation expense will be higher if the grant is recorded as deferred income but net income
will be the same under the deferred income approach and deduction from asset approach.
d. Depreciation expense will be higher if the grant is recorded as an adjustment to the asset.

25. Interest revenue earned on specific borrowing for qualifying asset

a. Reduces the cost of the qualifying asset.
b. Reduces interest expense reported in the income statement.
c. Increases equity.
d. Must be credited to interest income.

26. Which type of expenditure occurs when an entity installs a higher capacity boiler to heat its
plant?
a. Rearrangement
b. Ordinary repair and maintenance
c. Addition
d. Betterment

27. An entity acquired equipment and used the straight line depreciation with a useful life of 15
years and no residual value. After 4 years of using the asset, the remaining life of the equipment
was 6 years with no residual value. How should this change be accounted for?
a. Revising future depreciation annually to equal the original cost divided by six.
b. Revising future depreciation annually to equal the carrying amount after 4 years divided by
six.
c. Disclosing the effect of the change but maintaining the depreciation as originally determined.
d. Revising future depreciation annually to equal the depreciable amount divided by six.

28. Does PFRS 6 require an entity to recognize exploration and evaluation expenditure as an
asset?
a. Yes, but only to the extent such expenditure is recoverable in future periods.
b. Yes, but only to the extent the technical feasibility and commercial viability of extracting the
associated mineral resource have been demonstrated.
c. Yes, but only to the extent required by the entity’s accounting policy for recognizing
exploration and evaluation asset.
d. No, such expenditure is always expended as incurred.

29. The revaluation surplus that is realized because of the use of the asset or disposal of the asset
may be transferred directly to
a. Retained earning
b. Income
c. Share capital
d. Share premium
30. Which of the following terms best describes the higher of fair value less cost of disposal and
value in use?
a. Recoverable amount
b. Revalued amount
c. Depreciable amount
d. Carrying amount

31. Which of the following is not an intangible asset?

a. Trade name
b. Research and development cost
c. Franchise
d. Copyright

32. A patent should be amortized over

a. Twenty years
b. The useful life
c. The useful life or twenty years, whichever is longer
d. The useful life or twenty years, whichever is shorter

33. How should research and development costs be accounted for?

a. Must be capitalized when incurred and then amortized over the useful life.
b. Must be expensed in the period incurred.
c. May be either capitalized or expensed when incurred depending upon the materiality.
d. Must be expensed in the period incurred unless it can be clearly demonstrated that the
expenditure will have alternative future use or unless contractually reimbursable.

34. Which of the following is not one of the essential characteristics of an item to be reported as
a liability on the balance sheet?
a. It is a present obligation of a particular entity.
b. It is payable to specifically identifiable payees.
c. It involves a future sacrifice of economic benefits.
d. It is reasonably measurable in terms of money.

35. For a fixed amount a month, an entity visits the customers’ premises and performs insect
control services. If customers experience problems between regularly scheduled visits, the entity
makes service calls at no additional charge. Instead of paying monthly, customers may pay a
certain annual fee in advance. For a customers who pay a the annual fee in advance, the entity
should recognize the related revenue.
a. When the cash is collected.
b. At the end of the fiscal year.
c. At the end of the contract year as the services have been performed.
d. Evenly over the contract year as the services are performed.

36. A competitor has sued an entity for unauthorized use of its patented technology. The amount
that the entity may be required to pay to the competitor if the competitor succeeds in the lawsuit
is determinable with reliably, and according to the legal counsel it is less than probable (but more
than remote) that an outflow of the resources would be needed to meet the obligation. The entity
that was sued should at year-end:
a. Recognize a provision for this possible obligation.
b. Make a disclosure of the possible obligation in footnotes to the financial statements.
c. Make on provision or disclosure and wait until the lawsuit is finally decided and then expense
the amount paid on settlement, if any.
d. Set aside, as an appropriation, a contingency reserve, an amount based on the best estimate of
the possible liability.
37. The market price of a bond issued at a discount is the present value of its principal amount at
the market rate of interest
a. Less the present value of all future interest payments at the market rate of interest.
b. Less the present value of all future interest payments at the rate of interest stated on the bond.
c. Plus the present value of all future interest payments at the market rate of interest.
d. Plus the present value of all future interest payments at the rate of interest stated on the bond.

38. Bondholders exchange their convertible bonds for ordinary shares. The carrying amount of
these bonds was lower than market value but greater than the par value of the ordinary shares
issued. If the book value method is used, which of the following correctly states an effect of the
conversion?
a. Shareholders’ equity is increased.
b. Share premium is decreased.
c. Retained earnings account increased.
d. A loss is recognized.

39. A company borrowed P10,000 on a bank note for ninety days at 12 percent interest. The
interest was included in the note. The entry to record this transaction on the company’s books
would include a
a. debit to Cash for P10,000.
b. debit to Discount on Notes Payable for P300.
c. credit to Notes Payable for P9,700.
d. credit to Discount Interest Expense for P300.

40. In a debt restructuring that is considered an asset swap, the gain on extinguishment is equal
to the
a. Excess of the fair value of the asset over its carrying amount.
b. Excess of the carrying amount of the debt over the fair value of the asset.
c. Excess of the fair value of the asset over its carrying amount of the debt.
d. Excess of the carrying amount of the debt over the carrying amount of the asset.

41. The straight-line method is frequently used to amortize non-refundable rental payments made
in advance on leased assets because:
a. PFRSs require that it be used in all situations.
b. The effective interest method may result in unreliable amounts being recognized as expense.
c. It is more theoretically sound.
d. It is less complex, therefore less costly.

42. When sale and leaseback results to operating lease, which of the following statements is
incorrect?
a. When the sale price is established at fair value, any gain or loss on the sale is recognized
immediately.
b. When the sale price is below fair value, any gain or loss on the sale is recognized immediately,
except when there is temporary loss, in which case, the loss is deferred and amortized.
c. When the sale price is above fair value, the difference between the sale price and the fair value
is differed while the difference between the fair value and the carrying amount is recognized
immediately.
d. When the sale price is above fair value, he difference between the sale price and the fair value
is recognized immediately while the difference between the fair value and the carrying amount is
deferred

43. While only certain leases are currently accounted for a s a sale or purchase, there is a
theoretical justification for considering all leases to be sales or purchases. The principal reason
that supports this idea is that:
a. A lease reflects that purchase or sale of a quantifiable right to the use of the property.
b. During the life of the lease, the lessee can effectively treat the property as if it were owned by
the lessee.
c. All leases are generally for the economic life of the property and the residual value of the
property at the end of the lease is minimal.
d. At the end of the lease, the property usually can be purchased by the lessee.

44. Lessees under finance lease recognize

a. Interest expense
b. Rent expense
c. Interest expense and depreciation expense
d. Rent expense and interest expense

45. A lessor under finance lease recognizes all of the following, except
a. Gross investment
b. Net investment
c. Unearned interest income
d. Depreciation on leased asset

46. No net deferred tax asset (i.e., deferred tax asset net of related valuation allowance) was
recognized in the 20x2 financial statements by EBONY BLACK DARK Company when a loss
from discontinued operations was carried forward for tax purposes because it was more likely
than not that none of this deferred tax asset would be realized. EBONY BLACK DARK
Company had no temporary differences. The tax benefit of the loss carried forward reduced
current taxes payable on 20x3 continuing operations. The 20x3 income statement would include
the tax benefit from the loss brought forward in
a. Income from continuing operations.
b. Gain or loss from continuing operations.
c. Extraordinary gains.
d. Cumulative effect of accounting changes.

47. When computing for its obligation in a defined benefit plan, PAS 19
a. Makes it incumbent to the entity to acquire the services of a professional actuary.
b. Encourages but does not require the use of service of a professional actuary.
c. Requires the use of services of a professional actuary if the entity has total assets exceeding
P350M
d. Does not require the use of services of a professional actuary if the entity has less than 100
employees during the year.

48. According to PAS 26 Accounting and Reporting by Retirement Benefit Plans, which of the
following may be disclosed in the financial report of a defined benefit plan but would be shown
in the financial report of a defined contribution plan?
a. Government bonds held.
b. Actuarial present value of promised retirement benefits.
c. Employee contributions.
d. Employer contributions.

49. On December 1, 20x1, shares of authorized ordinary shares were issued on a subscription
basis at a price in excess of par value. A total of 20% of the subscription price of each share was
collected as a down payment on December 1, 20x1, which the remaining 80% of the subscription
price of each share due in 20x2. Collectability was reasonably assured. At December 31, 20x1,
the shareholder’s equity section of the statement of financial position would report share
premium for the excess of the subscription price over par value of the ordinary shares subscribed
and
a. Ordinary share capital issued for 20% of the par value of the ordinary shares subscribed.
b. Ordinary share capital issued for the par value of the ordinary shares subscribed.
c. Ordinary share capital subscribed for 80% of the par value of the ordinary shares subscribed.
d. Ordinary share capital subscribed for the par value of the ordinary shares subscribed.
50. For the last 10 years, DISDAINFUL PROUD CO. has owned cumulative preferred stock
issued by SUPERCILIOUS, INC. During 20x1, SUPERCILIOUS declared and paid both the
20x1 dividend and the 20x0 dividend in arrears. How should DISDAINFUL report the 20x0
dividend in arrears that was received in 20x1?
a. As a reduction in cumulative preferred dividends receivable.
b. Include in 20x1 income from continuing operations.
c. As a retroactive change of the prior period financial statements.
d. Include, net of income taxes, after 20x1 income from continuing operations.

51. Service and non-market performance conditions

a. Shall be taken into account when estimating the number of equity instruments expected to
vest. Estimates of the number of shares expected to vest shall be subsequently revised in light of
new information.
b. Shall be taken into account when estimating the number of equity instruments expected to
vest. Estimates of the number of shares expected to vest shall not be subsequently revised.
c. Do not include conditions of remaining in the company’s employ and achieving a specified
growth in profit.
d. Include conditions such as the attainment of a specified increase in the entity’s share price.

52. In accordance with PFRS 2 Share-based payment, how, if at all, should an entity recognize
the change in the fair value of the liability in respect of a cash-settled share-based payment
transaction?
a. Should recognized in the statement of changes in equity.
b. Should recognized in other comprehensive income.
c. Should recognized in profit or loss.
d. Should not recognized in the financial statements but disclose in the notes thereto.

53. For purposes of book value per share computation where there is more than one class of
share capital the balance for participation is allocated to the various classes of shares
a. Pro rata on the basis of their aggregate par value.
b. Pro rata on the basis of their aggregate fair value.
c. Either pro rata on the basis of their aggregate par value or pro rata on the basis of their
aggregate fair value, whichever is more clearly determinable.
d. Not allocated.

54. For diluted EPS computation, dividends on convertible cumulative preference shares are
a. Deducted from profit for the period.
b. Added to loss for the period only when declared.
c. Added to loss for the period only when declared or not.
d. Ignored.

55. These are the events that affect the entity and in which other entities participate.
a. Internal events
b. External events
c. Current events
d. Past events

56. The relatively stable economic, political and social environment supports
a. Conservatism
b. Materiality
c. Timeliness
d. Going concern

57. Which is incorrect concerning recognition of revenue?

a. Revenue from rendering of services shall be recognized by reference to the stage of
completion of the transaction at the end of reporting period.
b. Interest revenue shall be recognized on a time proportion basis that does not take into account
the effective yield on the asset.
c. Royalty revenue shall be recognized on an accrual basis in accordance with the substance of
the relevant in agreement.
d. Dividend revenue shall be recognized when the shareholder’s right to receive payment is
establish.
58. The principles of objectivity includes the concept of
a. Summarization
b. Classification
c. Conservatism
d. Verifiability
59. Current assets in a statement of financial position should never include
a. A receivable from a customer not collectible within one year.
b. Current Tax Asset
c. Goodwill arising in a business combination
d. Premium paid on a bond investment

60. The disclosure of accounting policies is important to financial statement users in determining
a. Net income for the year.
b. Whether accounting policies are consistently applied from year to year.
c. The value of obsolete items included in ending inventory.
d. Whether the working capital position is adequate for future operations.

61. An entity carried out the following transactions during the current year. All of the following
are related party transaction, except
a. Transferred goods from inventory to a shareholder owning 40% of the entity’s ordinary shares.
b. Sold an entity car to the wife of the managing director.
c. Sold an asset to an associate.
d. Took out at huge bank loan.

62. The noncontrolling interest is reported in the income statement

a. Below net income
b. Below income from operations
c. Above other income and expense
d. Above income tax

63. Which of the following statements is true in relation to events after reporting period?
I. A decline in the market value of investments should normally be classified as an adjusting
event.
II. The settlement of a long-running court case should normally be classified as a nonadjusting
event.

a. I only
b. II only
c. Both I and II
d. Neither I nor II

64. If the fair value less cost of disposal is lower than the carrying amount of a noncurrent asset
classified as held for sale, the difference is
a. Not accounted
b. Accounted for as an impairment loss
c. Charged to depreciation
d. Debited to retained earnings
65. Which of the following is characteristics of a change in an accounting estimate?
a. It usually need not be disclosed
b. It does not effect the financial statements of prior period
c. It should be reported through the restatement of the financial statements
d. It makes necessary the reporting of proforma amounts for prior periods

66. If it is impracticable to determine the cumulative effect of an accounting change to any of the
prior periods, the accounting change should be accounted for
a. As a prior adjustment
b. On a prospective basis
c. As a cumulative effect change on the income statement
d. As an adjustment to retained earnings in the first period presented

67. Interim financial report means a financial report containing

a. A complete set of financial statements
b. A condensed set of financial statements
c. Either a complete set or condensed set of financial statements
d. Neither a complete set or condensed set of financial statements

68. Which of the following statements is incorrect 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 expense 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.

69. The major customer disclosure includes all of the following, except
a. The fact of the entity’s reliance on major customers.
b. The total amount of revenue from major customers.
c. The identity of the segment reporting the revenue from major customers.
d. The identity of the major customer.

70. An entity must disclose all of the following about each reportable segment if the amounts are
used by the chief operating decision maker, except
a. Depreciation expense
b. Allocated expense
c. Interest expense
d. Income tax expense

71. What is the definition of major customers?

a. Those customers that individually account for revenue of 10% or more of the entity external
revenue.
b. Those customers that individually account for revenue of 10% or more of the entity external
revenue and internal revenue.
c. Those customers that individually account for revenue of 90% of the entity revenue.
d. Those customers who have been dealing with the entity for at least 5 years regardless of the
volume of revenue.

72. Total net income over the life of an entity is

a. Higher under the cash basis than under the accrual basis.
b. Lower under the cash basis than under the accrual basis.
c. The same under the cash basis than under the accrual basis.
d. Not susceptible to measurement.

73. Incomplete accounting records using only a cash book is an characteristic of

a. Cash basis
b. Accrual basis
c. Single entry system
d. Double entry system

74. When the current year’s ending inventory is overstated

a. The current year’s cost of good is overstated.
b. The current year’s total assets are understated.
c. The current year’s net income is overstated.
d. The next year’s net income is overstated.

75. If at end of period an entity erroneously excluded some goods from the ending inventory and
also erroneously did not record the purchase of these goods in the accounting records, these
errors would cause
a. The ending inventory, cost of goods available for sale and retained earnings to be understated.
b. The ending inventory, cost of goods sold and retained earnings to be understated.
c. No effect on net income, working capital and retained earnings.
d. Cost of goods available for sale, cost of goods sold and net income to be understated.

76. Cash receipts from royalties, fees, commissions and other revenue are
a. Cash outflow for operating activities
b. Cash inflow for operating activities
c. Cash inflow from investing activities
d. Cash outflow for financing activities

77. Under the direct method of preparing the statement of cash flows, which of the following
would represent cash paid?
a. Loss on sale of plant asset
b. Gain on sale of plant asset
c. Interest expense, adjusted for changes in interest payable and amortization of bond premium or
discount.
d. Depreciation expense, adjusted for change in depreciation method.

78. Wages paid to a timekeeper in a factory are

I. Prime Cost
II. Conversion Cost

a. Neither I nor II
b. II only
c. I only
d. Both I and II

79. In current cost financial statements

a. General price level gains or losses are recognized on net monetary items.
b. Amounts are always stated in common purchasing power unit of measurement.
c. All items in the statement of financial position are different from historical cost.
d. Holding gains are recognized.

80. Which of the following SMEs is not exempted from the mandatory adoption of the PFRD for
SMEs?
a. Subsidiary of a parent reporting under full PFRS.
b. Branch office of foreign entity reporting under full PFRS.
c. Subsidiary that is mandated to report under full PFRS.
d. An entity with concrete plans to conduct an initial public offering within the next five years.
81. An entity that is not publicly accountable must make an explicit and unreserved statement of
compliance with the PFRS for SMEs
a. If the entity complies with all the requirements of PFRS for SMEs.
b. If the entity complies with the vast majority of the requirements of PFRS for SMEs.
c. If the entity complies with the national GAAP based on PFRS for SMEs with some specific
differences.
d. If the entity complies with full PFRS.

82. The statement of changes in equity, the effects of the correction of a prior period error are
presented
a. Separately for each component of equity.
b. In aggregate for total equity.
c. In aggregate for total equity and separately for the total amount attributable to owners of the
parent and to noncontrolling interest.
d. Separately for the total amount attributable to owners of the parent and to noncontrolling
interest.

83. According to PFRS for SMEs, which of the following is not a related party of an entity?
a. A shareholder of the entity owning thirty percent of the ordinary shares.
b. An entity providing banking facilities to the entity.
c. An associate of the entity.
d. Key management personnel of the entity.

84. These are the specific principles, bases, conventions, rules and practices applied in preparing
and presenting financial statements.
a. Accounting principles
b. Accounting standards
c. Accounting policies
d. Accounting concepts

85. An SME may use techniques for measuring cost of inventories if the results approximate
cost. Accepted techniques include all the following, except
a. Standard cost
b. Retail method
c. Most recent purchase price
d. Gross profit method

86. Revenue from sale of goods shall be recognized when all of the following conditions have
been satisfied, except
a. The entity has transferred to the buyer the significant risks and rewards of ownership of the
goods.
b. The entity retains either continuing managerial involvement or effective control over the
goods sold.
c. The amount of revenue can be measured reliably.
d. It is probable that economic benefits will flow to the entity.

87. All of the following financial instruments are basic financial instruments, except
a. Investments in nonconvertible nonputtable preference shares.
b. Financial instruments that meet the definition of an entity’s own equity.
c. A fixed interest fixed term loan from a bank.
d. Investments in nonputtable ordinary shares.

88. An SME owns 30% of the ordinary shares that carry voting rights at al general meeting of
shareholders. In the absence of evidence to the contrary, the SME
a. Has significant influence over the investee.
b. Has significant influence over the investee, provided that it does not have joint control over
the investee.
c. Has significant influence over the investee, provided that it does not have control over the
investee.
d. Has significant influence over the investee, provided that it does not have control or joint
control over the investee.

89. A property interest held by an SME under an operating lease may be accounted for as
investment property if all of the following conditions are met, except
a. The property interest would otherwise meet the definition of an investment property.
b. The fair value of the property interest can be measured reliably without undue cost or effort on
an ongoing basis.
c. The classification is done on a property by property basis.
d. All qualifying property interests must be accounted for as investment property.

90. Borrowing costs do not include

a. Dividends declared to equity holders
b. Interest incurred on bank overdraft
c. Incremental administrative fee incurred in connection with loan
d. Finance charge related to finance holders

91. An intangible asset is identifiable when

a. It is separable.
b. It arises from contractual and other legal rights.
c. It is separable or it arises from contractual and other legal rights
d. It is identified with a business combination and it arises from contractual and other legal
rights.

92. It is the smallest identifiable group of assets that generate cash inflows from continuing use
that are largely independent of the cash inflows from other assets or group of assets.
a. Cash generating unit
b. Goodwill
c. Corporate asset
d. The entity as a whole

93. An SME measures a provision at the best estimate of the amount required to settle the
obligation at the reporting date. When the provision involves a large population of items, the
estimate of the amount
a. Reflects the weighting of all possible outcomes by their associated probabilities.
b. Is determined as the individual most likely outcomes.
c. May be the individual most likely outcome adjusted for the effect of other possible outcomes.
d. Midpoint of the possible outcomes.

94. An SME entered, as lessee, into a 5 days noncancelable lease of a motor vehicle that has an
economic life of 5 years and nil residual value. Lease payments are on a daily basis. At the end
of the lease term, the lessee returns the motor vehicle to the lessor. The lease is accounted for
a. As a finance lease
b. Either as a finance lease or an operating lease
c. As an operating lease
d. Neither as a finance lease or an operating lease

95. A profit-sharing plan requires an entity to pay a specified proportion of the cumulative profit
for a five-year period to employers who serve throughout the five-year period. What is the profit-
sharing plan?
a. A short-term employee benefits
b. A postemployment benefits
c. Other long-term employer benefits
d. A termination benefits
96. What is the correct treatment regarding discounting of income tax assets and liabilities?
a. Current tax assets and liabilities are discounted. Deferred tax assets and liabilities are not
discounted.
b. Current tax assets and liabilities are not discounted. Deferred tax assets and liabilities are not
discounted.
c. Current tax assets and deferred tax assets and liabilities are discounted.
d. Current tax assets and deferred tax assets and liabilities are not discounted.

97. When an entity distributes asset other than cash as dividend to the owners, the entity shall
a. Not recognized a liability
b. Recognize a liability equal to the fair value of the asset to be distributed.
c. Recognize a liability equal to the carrying amount of the asset to be distributed.
d. Do nothing.

98. For transactions with employees and other providing similar services, the fair value of the
equity instrument granted is measured on
a. Exercise date
b. Grant date
c. End of reporting period
d. Beginning of the year of grant

99. On the part of the private operator, the infrastructure asset shall be recognized as
a. Property, plant and equipment
b. Financial asset
c. Intangible asset
d. Either financial asset or intangible asset

100. A subsidiary shall be excluded from consolidation when

a. The inventor is a venture capital organization, mutual find, unit trust or similar entity.
b. The business activities of the subsidiary are dissimilar from those of the other entities within
the group.
c. The subsidiary is acquired with the intention to dispose of it within twelve months from date
of acquisition.
d. The subsidiary is operating under severe long-term restrictions that significant impair its
ability to transfer funds to the parent.

GOD BLESS!
 FAR THEORY (ASSET, LIABILITY AND EQUITY)
ANSWER KEY

1. A 31. B 61. D 91. C

2. C 32. D 62. A 92. A
3. C 33. D 63. D 93. A
4. B 34. B 64. B 94. C
5. B 35. D 65. B 95. C
6. D 36. B 66. B 96. D
7. A 37. C 67. C 97. B
8. B 38. A 68. A 98. B
9. C 39. B 69. D 99. D
10. B 40. D 70. B 100.C
11. D 41. D 71. A
12. A 42. D 72. C
13. B 43. A 73. C
14. C 44. C 74. C
15. C 45. D 75. C
16. A 46. A 76. B
17. A 47. B 77. C
18. B 48. B 78. B
19. C 49. D 79. D
20. D 50. B 80. D
21. D 51. A 81. A
22. D 52. C 82. A
23. A 53. A 83. B
24. C 54. D 84. C
25. A 55. B 85. D
26. D 56. D 86. B
27. B 57. B 87. B
28. C 58. D 88. D
29. A 59. C 89. D
30. A 60. B 90. A