Chapter 1 - Pretest

CHAPTER 1 – PRETEST
1. It refers to the process of incorporating the effects of an accountable event in the statement of
financial position or the statement of profit or loss and other comprehensive income through a
journal entry.
a. realization
b. derecognition
c. posting
d. recognition
2. All of the following are events considered as exchange or reciprocal transfer, except a.
purchase of investment in equity securities
b. sale of equipment for non-interest bearing note
c. subscription of the entity’s own equity instrument (i.e., contributions by owners)
d. exchange of a note payable for an account payable
e. borrowing of money from a bank
3. All of the following are events considered nonreciprocal transfers, except
a. declaration of cash dividends
b. declaration of stock dividends
c. payment of accounts payable
d. imposition of fines
e. theft
4. These are events involving an entity and another external party.
a. Life events
b. internal events
c. transactions
d. external events
5. It is the accounting process of assigning numbers, commonly in monetary terms, to the

economic transactions and events.
a. analyzing
b. measuring
c. classifying
d. interpreting
6. What is the basic purpose of accounting?
a. To provide quantitative financial information about economic activities.
b. To provide all information that users need in making economic decisions.
c. To provide qualitative financial information about economic activities intended to be useful in

making economic decisions.
d. To provide quantitative financial information about economic activities intended to be useful in

making economic decisions.
7. Accounting provides which type of information?
a. quantitative
b. financial information
c. qualitative
d. all of these
8. General purpose financial statements are:
a. those statements that cater to the common and specific needs of a wide range of external
users.
b. those statements that cater to the common needs of a wide range of external users and
internal users.
c. those statements that cater to the common needs of a limited range of external users. d.
those statements that cater to the common needs of a wide range of external users.
9. External users are those
a. who do have the authority to demand financial reports tailored to their specific needs. b. who
do not have the authority to demand financial reports tailored to their common needs
c. who do not have the authority to demand financial reports tailored to their specific needs.
d. who belong to countries other than the domicile country of the reporting entity
10.The primary objective of financial reporting is to provide
a. information about economic resources, claims to these resources, and changes in them.
b. information useful for investment and credit decisions.
c. information useful in predicting future cash flows.
d. All of these
CHAPTER 1 - POST TEST
1. A soundly developed conceptual framework of concepts and objectives should
a. increase financial statement users' understanding of and confidence in financial reporting.
b. enhance comparability among companies' financial statements.
c. allow new and emerging practical problems to be more quickly soluble.
d. all of these.
2. The overall objective of financial reporting is to provide information
a. about an entity's assets, liabilities, and owners' equity.
b. about an entity's financial performance during a period.
c. that is useful in making economic decisions.

d. that allows owners to assess management's performance.
3. The two primary qualities that make accounting information useful for decision making are
a. comparability and consistency.
b. materiality and timeliness.
c. relevance and reliability.
d. faithful representation and relevance
4. Late information lacks this qualitative characteristic.
a. Tardiness
b. Verifiability
c. Timeliness
d. Comparability
5. Which of the following is considered a qualitative factor in making materiality judgments?
a. the context of an item in relation to the current economic state of the environment where the
entity operates.
b. 10% of profit or loss, in absolute terms
c. 5% of total revenues
d. 1% of total assets
6. PAS 1 requires an assessment of the entity’s ability to continue as a going concern each time
financial statements are prepared. Who is responsible in making this assessment?
a. Accountant
b. Auditor
c. Management
d. Government regulatory body

7. These are the end product of the financial reporting process and the means by which
information gathered and processed is periodically communicated to users.
a. Financial reporting
b. Financial statements
c. Financial products
d. Accounting statements
8. Which of the following is not one of the general features of financial statements under PAS 1?
a. Fair presentation and compliance with PFRSs
b. Going Concern
c. Cash Basis
d. Materiality and aggregation
9. Who is responsible for the preparation and the fair presentation of an entity’s financial
statements in accordance with the PFRSs?
a. Any accountant
b. Certified Public Accountant
c. Auditor
d. Management
10.This type of presentation of statement of financial position does not show distinctions
between current and noncurrent items.
a. Classified presentation
b. Unclassified presentation
c. Non-discriminating presentation
d. Awesome presentation
11.In making an economic decision, an investor needs information on the amounts of an entity’s
economic resources and claims to those resources. That investor would most likely refer to
which of the following financial statements?
a. Statement of financial position
b. Statement of comprehensive income
c. Statement of cash flows
d. Statement of changes in equity
12. Which of the following financial statements would be dated as at a certain date?
b. Statement of profit or loss and other comprehensive income
d. All of these
13.This comprises all “non-owner changes in equity.” It excludes owner changes in equity, such
as subscription, issuance, and reacquisition of share capital and declaration of dividends.
a. Other comprehensive income
b. Changes in equity
c. Total comprehensive income
d. Profit or loss
14.Which of the following is added to the cost of inventories?
a. Storage costs of part-finished goods
b. Trade discounts
c. Refundable purchase taxes
d. Administrative costs
15.Which of the following costs are included in the cost of inventories?

a. Transport costs for raw materials
b. Abnormal material usage
c. Storage costs relating to finished goods
d. Administrative and general overhead
16.How should trade discounts be dealt with when valuing inventories at the lower of cost and
net realizable value (NRV) according to PAS 2?
a. Added to cost
b. Ignored
c. Deducted in arriving at NRV
d. Deducted from cost
17. The cost of inventory should not include
I. Purchase price.
II. Import duties and other taxes.
III. Abnormal amounts of wasted materials.
IV. Administrative overhead. V. Fixed and variable production overhead.
VI. Selling costs.
a. II, III, IV, V c. I, II
b. III, IV, VI d. II, III, IV, V, VI
18.The Coronet Company has a cost card in relation to an item of goods manufactured as
follows: Materials 70 Storage costs of finished goods 18 Delivery to customers (Freight out) 4
Non-recoverable purchase taxes 6 According to PAS 2, at what figure should the item be valued
in inventory?
a. 88
b. 76
c. 98
d. 94
19.Inventories are measured at
a. Lower of cost and fair value.
b. Lower of cost and net realizable value.
c. Lower of cost and nominal value.
d. Lower of cost and net selling price.
e. Choices b and d.
20.Which of the following costs of conversion cannot be included in cost of inventory?
a. Cost of direct labor.
b. Factory rent and utilities.
c. Salaries of sales staff (sales department shares the building with factory supervisor). d.
Factory overheads based on normal capacity.
1. Entity A had the following balances at December 31, 20x1:
Cash in checking account 35,000
Cash in 90-day money market account 75,000
Treasury bill, purchased 12/1/x0, maturing 5/31/x2 150,000
How much cash and cash equivalents is reported in Entity A’s December 31, 20x1 statement of
financial position?
a. 110,000 c. 310,000
b. 235,000 d. 460,000
2. Entity A acquires equipment by issuing shares of stocks. How should Entity A report the
transaction in the statement of cash flows?
a. Operating activities
b. Investing activities
c. Financing activities
d. Not reported
3. Entity A, a financial institution, received cash dividends from its investments in marketable
securities during the year. How will the dividends be presented in Entity A’s statement of cash
flows?
a. as investing activity c. as financing activity
b. as operating activity d. a or b
4. Which of the following statements best describes a statement of cash flows?
a. The statement of cash flows is also called the statement of activities.
b. The statement of cash flows shows information on an entity’s assets, liabilities and equity.
c. The statement of cash flows shows information on an entity’s income and expenses during
the period.
d. The statement of cash flows shows historical changes of cash and cash equivalents during
the period.
5. Which of the following is presented under the investing activities section of a statement of
cash flows?
a. Collection of accounts receivable
b. Cash purchases of inventories
c. Purchase of equipment through cash
d. Issuance of share capital through cash

6. According to PAS 8, these are the specific principles, bases, conventions, rules and practices
applied by an entity in preparing and presenting financial statements.
a. Accounting policies c. Accounting standards
b. Accounting estimates d. Accounting assumptions
7. A change in the pattern of consumption of economic benefits from an asset is most likely a
a. change in accounting policy. c. error.
b. change in accounting estimate. d. any of these
8. PAS 8 permits a change in accounting policy only if the change
a. is required by a PFRS
b. results in reliable and more relevant information
c. a or b
d. PAS 8 does not permit a change in accounting policy
9. These arise from misapplication of accounting policies, mathematical mistakes, oversights or

misinterpretations of facts, or fraud.
a. Error
b. Change in accounting estimate
c. Change in accounting policy
d. Impracticable application
10.How should the following changes be treated, according to PAS 8?
I. A change is to be made in the method of calculating the provision for uncollectible

receivables.
II. Investment properties are now measured at fair value, having previously been measured at
cost.
Change (1) Change (2)
a. Change of accounting policy Change of accounting policy
b. Change of accounting policy Change of accounting estimate
c. Change of accounting estimate Change of accounting policy
d. Change of accounting estimate Change of accounting estimate
1. According to PAS 10, these are those events, favorable and unfavorable, that occur between
the end of the reporting period and the date when the financial statements are authorized for
issue.
a. Events after the reporting period c. Adjusting events
b. Non-adjusting events d. all of these
2. The Sarin Company's financial statements for the year ended 30 April 20X8 were approved
by its finance director on 7 July 20X8 and a public announcement of its profit for the year was
made on 10 July 20X8. The board of directors authorized the financial statements for issue on
15 July 20X8 and they were approved by the shareholders on 20 July 20X8. Under PAS 10,
after what date should consideration no longer be given as to whether the financial statements
to 30 April 20X8 need to reflect adjusting and non-adjusting events?
a. 7 July 20X8
b. 10 July 20X8
c. 15 July 20X8
d. 20 July 20X8
3. Which of the following is an example of a non-adjusting event?
a. Sale of inventory for less than its carrying value shortly after the reporting period
b. Amounts received in respect of an insurance claim being negotiated at the period end c.
Destruction of a machine by fire after the reporting period
d. Bankruptcy of a major customer with a balance owing at the period end

4. One of Entity A’s delivery trucks had an accident on February 14, 20x2. The truck is totally
wrecked and is uninsured. Entity A’s December 31, 20x1 current-period financial statements
were authorized for issue on March 31, 20x2. Entity A asked you if it can write- 38 off the
carrying amount of the destroyed truck from its December 31, 20x1 statement of financial
position. What will you tell Entity A?
a. Yes, go ahead. Write-off the truck because the event is an adjusting event.
b. No. Don’t write-off the truck because the event is a non-adjusting event.
c. No. Don’t write-off the truck because the event is a non-adjusting event. You should,
however, disclose the event if you deem it to be material.
d. Yes, go ahead. I will support you.
5. Which of the following is most likely to be a non-adjusting event?
a. A major customer liquidates its business after the end of the reporting period.
b. The entity announces a major restructuring after the end of the reporting period.
c. The settlement after the reporting period of a court case that confirms that the entity has a
present obligation at the end of reporting period.
d. The determination after the reporting period of the cost of asset purchased, or the proceeds
from asset sold, before the end of reporting period.
6. Entity A had the following balances at December 31, 20x1:
Cash in checking account 35,000
Cash in 90-day money market account 75,000
How much cash and cash equivalents is reported in Entity A’s December 31, 20x1 statement of
financial position?
a. 110,000
b. 235,000
c. 310,000
d. 460,000
7. Entity A acquires equipment by issuing shares of stocks. How should Entity A report the
transaction in the statement of cash flows?
a. Operating activities
b. Investing activities
c. Financing activities
d. Not reported
8. Entity A, a financial institution, received cash dividends from its investments in marketable
securities during the year. How will the dividends be presented in Entity A’s statement of cash
flows?
a. as investing activity c. as operating activity
b. as financing activity d. a or b
9. Which of the following statements best describes a statement of cash flows?
a. The statement of cash flows is also called the statement of activities.
b. The statement of cash flows shows information on an entity’s assets, liabilities and equity.
c. The statement of cash flows shows information on an entity’s income and expenses during
the period.
d. The statement of cash flows shows historical changes of cash and cash equivalents during
the period.
10.Which of the following is presented under the investing activities section of a statement of
cash flows?
a. Collection of accounts receivable
b. Cash purchases of inventories
c. Purchase of equipment through cash
d. Issuance of share capital through cash

11.According to PAS 8, these are the specific principles, bases, conventions, rules and
practices applied by an entity in preparing and presenting financial statements.
a. Accounting policies c. Accounting standards
b. Accounting estimates d. Accounting assumptions
12. A change in the pattern of consumption of economic benefits from an asset is most likely a
a. change in accounting policy. c. error.
b. change in accounting estimate. d. any of these
13.PAS 8 permits a change in accounting policy only if the change
a. is required by a PFRS
b. results in reliable and more relevant information
c. a or b
d. PAS 8 does not permit a change in accounting policy
14.These arise from misapplication of accounting policies, mathematical mistakes, oversights or

misinterpretations of facts, or fraud.
a. Error
b. Change in accounting estimate
c. Change in accounting policy
d. Impracticable application
15. How should the following changes be treated, according to PAS 8?
I. A change is to be made in the method of calculating the provision for uncollectible

receivables.
II. Investment properties are now measured at fair value, having previously been measured at
cost.
Change (1) Change (2)

a. Change of accounting policy Change of accounting policy
b. Change of accounting policy Change of accounting estimate
c. Change of accounting estimate Change of accounting policy
d. Change of accounting estimate Change of accounting estimate
CHAPTER 3 - PRETEST
1. These are differences that have future tax consequences.
a. Permanent differences c. Taxable differences
b. Temporary differences d. Deductible differences
2. This type of difference will give rise to deferred tax liability.
a. Taxable temporary difference
b. Permanent difference
c. Deductible temporary difference
d. Deferred difference
3. Deferred tax assets and deferred tax liabilities do not alter the tax to be paid in the current
period. However, they cause tax payments to either increase or decrease when they reverse in
a future period. The reversal of which of the following will cause an increase in tax payment?
a. Deferred tax liability c. Deferred tax expense
b. Deferred tax asset d. Deferred tax benefit
4. During the period, deferred tax assets increase by ₱400 while deferred tax liabilities increase
by ₱500. The net change of ₱100 is a
a. deferred tax expense c. deferred tax liability
b. deferred tax income d. deferred tax asset

5. At the end of the period, Entity A has taxable temporary difference of ₱100,000. Entity A’s
income tax rate is 30%. Entity A’s statement of financial position would report which of the
following?
a. 30,000 deferred tax asset
b. 30,000 deferred tax liability
c. 30,000 deferred tax expense
d. 30,000 income tax expense
6. According to PAS 16, the selection of an appropriate depreciation method rests upon the
entity’s
a. management.
b. accountant.
c. regulator.
d. all of these
7. Which of the following is not one of the essential characteristics of a PPE?
a. tangible asset
b. used in business
c. primarily held for sale
d. long-term in nature
8. PAS 16 requires an entity to review the depreciation method and the estimates of useful life
and residual value at the end of each year-end. A change in any of these is accounted for using
a. a specific transitional provision of a PFRS.
b. retrospective application.
c. prospective application.
d. any of these
9. If plotted on a graph (X-axis: time; Y-axis: ₱), the depreciation charges under the straightline
method would show
a. a straight-line.
b. an upward line sloping to the right.
c. a downward line sloping to the left.
d. a curvilinear line sloping here and there.
10.Which of the following instances does not preclude an entity from recognizing depreciation
during a certain period?
a. The asset is fully depreciated.
b. The asset is being depreciated using the units of production method and there is no
production during the period.
c. The asset is classified as held for sale under PFRS 5.
d. The asset becomes idle or is taken out of active use.
1. Imagine you are an employer (an awesome one). When should you recognize short-term
employee benefits?
a. Every 1st day of the month
b. Every 15th and 30th of the month.
c. When the employees have rendered service in exchange for the employee benefits. d. Never!
2. You are the business owner of Entity A. You have 10 employees, each earning ₱20,000 per
month. You pay salaries on a bi-monthly basis. During the month of April 20x1, none of your
employees were absent, late or have rendered overtime service. When will you recognize the
salaries expense (and at what amount) for the first payday in the month of April 20x1?
Timing of recognition Amount recognized
a. April 1 20,000
b. April 15 20,000
c. April 1 100,000
d. April 15 100,000
3. Entity A has 20 employees who are each entitled to one day paid vacation leave for each
month of service rendered. Unused vacation leaves cannot be carried forward and are forfeited
when employees leave the entity. All the employees have rendered service throughout the
current year and have taken a total of 150 days of vacation leaves. The average daily rate of the
employees in the current period is ₱1,000. However, a 5% increase in the rate is expected to
take into effect in the following year. Based on Entity A’s past experience, the average annual
employee turnover rate is 20%. How much will Entity A accrue at the end of the current year for
unused entitlements?
a. 0 c. 90,000
b. 150,000 d. 94,500
4. Under a profit-sharing plan, Entity A agrees to pay its employees 5% of its annual profit. The
bonus shall be divided among the employees currently employed as at year-end. Relevant
information follows:
Profit for the year ₱8,000,000
Employees at the beginning of the year 8
Average employees during the year 7
Employees at the end of the year 6
If the employee benefits remain unpaid, how much liability shall Entity A accrue at the end of 51
the year?
a. 400,000 c. 200,000
b. 300,000 d. 0
5. You are employed as an accountant. Your company’s retirement plan states that, upon
retirement, an employee (not less than 60 years but not more than 65 years of age) is entitled to
a lump sum payment equal to the employee’s final monthly salary level multiplied by the number
of years in service (not less than 10 years). At the end of month following the month of
retirement and every month thereafter, the retired employee is entitled to a monthly pension
equal to one-eighth (1/8) of the final monthly salary level. The monthly pensions cease upon
death of the retired employee. However, if the employee has immediate dependent(s) with age
of less than 18 years, the dependent(s) will be entitled to the monthly pensions, which will cease
when the dependent(s) reaches 18 years of age. What type of post-employment benefit plan
does your company have?
a. Defined contribution plan
b. Defined benefits plan
c. Defined pension plan
d. Cannot be determined; insufficient information!
Use the following information for the next six questions:
Information on Entity A’s defined benefit plan is as follows:
PV of DBO – Jan. 1, 20x1 1,800,000
FVPA – Jan.1, 20x1 1,440,000
PV of DBO – Dec. 31, 20x1 2,160,000
FVPA, end. – Dec. 31, 20x1 1,572,000
Current service cost 390,000
Actuarial loss 120,000
Return on plan assets 132,000
Discount rate 5%
6. How much is the net defined benefit liability (asset) in Entity A’s December 31, 20x0
statement of financial position?
a. 588,000 liability
b. 588,000 asset
c. 360,000 liability
d. 360,000 asset
7. How much is the net defined benefit liability (asset) in Entity A’s December 31, 20x1
b. 588,000 asset
d. 360,000 asset
8. How much is the total defined benefit cost for 20x1?
a. 588,000
b. 468,000
c. 348,000
d. 228,000
9. How much is the component of the total defined benefit cost to be recognized in profit or
loss?
a. 390,000
b. 408,000
c. 348,000
d. 18,000
10.How much is the component of the total defined benefit cost to be recognized in other
comprehensive income?
a. 180,000
b. (60,000)
c. 60,000
d. (180,000)
Use the following information for the next six questions:

Information on Entity A’s defined benefit plan is as follows:
PV of DBO – Jan. 1, 20x1 1,800,000
FVPA – Jan.1, 20x1 1,440,000
PV of DBO – Dec. 31, 20x1 2,160,000
FVPA, end. – Dec. 31, 20x1 1,572,000
Current service cost 390,000
Actuarial loss 120,000
Return on plan assets 132,000
Discount rate 5%
11.How much is the net defined benefit liability (asset) in Entity A’s December 31, 20x0
f. 588,000 liability
g. 588,000 asset
h. 360,000 liability
i. 360,000 asset
12.How much is the net defined benefit liability (asset) in Entity A’s December 31, 20x1
b. 588,000 asset
d. 360,000 asset
13.How much is the total defined benefit cost for 20x1?
a. 588,000
b. 468,000
c. 348,000
d. 228,000
14.How much is the component of the total defined benefit cost to be recognized in profit or
loss?
a. 390,000
b. 408,000
c. 348,000
d. 18,000
15.How much is the component of the total defined benefit cost to be recognized in other
comprehensive income?
a. 180,000
b. (60,000)
c. 60,000
d. (180,000)
CHAPTER 4 - PRETEST
1. Which of the following is considered a government grant under PAS 20?
a. Award of major government contracts
b. Cancellation of an existing loan from the government
c. Free technical advice
d. Public improvements
2. Which of the following is not considered a government grant under PAS 20?
a. Financial aid
b. Benefit of subsidized loans
c. Tax breaks
d. Forgivable loans
3. The main concept used in recognizing income from government grants is
a. capital approach
b. historical cost
c. matching
d. materiality
4. In 20x1, Entity A proposes an environmental clean-up project for a river. The government
supports this project and gives Entity A a ₱1M monetary grant conditioned that the money will
only be spent on the proposed project. The proposed project is expected to take about 2 years
to complete. Entity A starts the clean-up project in 20x2. How should Entity A recognize income
from the government grant? a. in full when Entity A receives the grant
b. over 2 years starting in 20x1
c. over the period of the project as expenses are incurred
d. the grant is not recognized as income
5. According to PAS 20, a government grant that becomes repayable is accounted for
a. retrospectively.
b. prospectively.
c. a or b
d. not accounted for
6. ABC Philippines Co. is required to file audited financial statements with the Philippine
Securities and Exchange Commission (SEC) and the Bureau of Internal Revenue (BIR). What is
the presentation currency for the financial statements to be filed with the said government
agencies?
a. Philippine peso
b. U.S. dollar
c. a or b
d. none of these
7. These are those which do not give rise to a right to receive (or an obligation to deliver) a fixed
or determinable amount of money.
a. Monetary items
b. Non-monetary items
c. Financial items
d. Non-financial items
8. On December 1, 20x1, you imported a machine from a foreign supplier for $100,000, due for
settlement on January 6, 20x2. Your functional currency is the Philippine peso. When preparing
the December 31, 20x1 statement of financial position, which of the following will you translate
to the closing rate?
a. machine
b. accounts payable
c. a and b
d. none of these
9. Use the information in Problem #4 above. The relevant exchange rates are as follows:
Dec. 1, 20x1 Dec. 31, 20x1 Jan. 6, 20x2
₱50:$1 ₱52:$1 ₱47:$1
How much foreign exchange gain (loss) will you recognize on December 31, 20x1?
a. 200,000 c. 100,000
b. (200,000) d. (100,000)
10.Which of the following costs may not be eligible for capitalization as borrowing costs under
PAS 23? a. Interest on bonds issued to finance the construction of a qualifying asset.
b. Amortization of discounts or premiums relating to borrowings that qualify for capitalization.
c. Imputed cost of equity.
d. Exchange differences arising from foreign currency borrowings to the extent they are
regarded as an adjustment to interest costs pertaining to a qualifying asset
1. On January 1, 20x1, Entity A obtained a 10%, ₱5,000,000 loan, specifically to finance the
construction of a building. The proceeds of the loan were temporarily invested and earned
interest income of ₱180,000. The construction was completed on December 31, 20x1 for total
construction costs of ₱7,000,000. How much is the cost of the building on initial recognition?
a. 7,320,000 c. 7,500,000
b. 7,000,000 d. 6,680,000
2. Which of the following may not be considered a “qualifying asset” under PAS 23?
a. A power generation plant that normally takes two years to construct.
b. An expensive private jet that can be purchased from a local vendor.
c. A toll bridge that usually takes more than a year to build.
d. A ship that normally takes one to two years to complete.
3. An asset is being constructed for an enterprise's own use. The asset has been financed with
a specific new borrowing. The interest cost incurred during the construction period as a result of
expenditures for the asset is
a. a part of the historical cost of acquiring the asset to be written off over the estimated useful
life of the asset.
b. interest expense in the construction period.
c. recorded as a deferred charge and amortized over the term of the borrowing.
d. a part of the historical cost of acquiring the asset to be written off over the term of the
borrowing used to finance the construction of the asset.
4. Which of the following costs may not be eligible for capitalization as borrowing costs under
PAS 23?
a. Interest on bonds issued to finance the construction of a qualifying asset.
b. Amortization of discounts or premiums relating to borrowings that qualify for capitalization.
c. Imputed cost of equity.
d. Exchange differences arising from foreign currency borrowings to the extent they are
regarded as an adjustment to interest costs pertaining to a qualifying asset.
5. Capitalization of borrowing costs
a. Shall be suspended during temporary periods of delay.
b. May be suspended only during extended periods of delays in which active development is
delayed.
c. Should never be suspended once capitalization commences.
d. Shall be suspended only during extended periods of delays in which active development is
delayed.
6. These are those which do not give rise to a right to receive (or an obligation to deliver) a fixed
or determinable amount of money.
a. Monetary items
b. on-monetary items
c. Financial items
d. Non-financial items
7. On December 1, 20x1, you imported a machine from a foreign supplier for $100,000, due for
settlement on January 6, 20x2. Your functional currency is the Philippine peso. When preparing
the December 31, 20x1 statement of financial position, which of the following will you translate
to the closing rate?
a. machine
b. accounts payable
c. a and b
d. none of these
8. Which of the following is considered a government grant under PAS 20?
a. Award of major government contracts
b. Cancellation of an existing loan from the government
c. Free technical advice
d. Public improvements
9. Which of the following is not considered a government grant under PAS 20?
a. Financial aid
b. Benefit of subsidized loans
c. Tax breaks
d. Forgivable loans
10. The main concept used in recognizing income from government grants is
a. capital approach c. matching
b. historical cost d. materiality
1. PAS 24 requires the disclosure of key management personnel compensation. Which of the
following is not included in this disclosure?
a. short-term employee benefits
b. termination benefits
c. share-based payment
d. reimbursements of officers’ out-of-pocket expenses
2. Which of the following is not required to be disclosed under PAS 24?
a. A parent-subsidiary relationship when there were transactions between them during the
period.
b. A parent-subsidiary relationship when there were no transactions between them during the
period.
c. Loans to officers
d. The name of the parent of the entity’s associate
3. The amount of benefits to be received by employees enrolled in a defined benefit plan is
a. dependent on the level of contributions to a fund.
b. dependent on the level of investment performance of a fund.
c. a and b
d. neither a nor b
4. Which of the following statements is correct?
a. PAS 19 encourages, but does not require, involving a qualified actuary in measuring defined
benefit obligations.
b. PAS 26 applies only to defined benefit plans but not to defined contribution plans.
c. Information on ‘excess’ or ‘deficit’ is required to be disclosed in the financial statements of a

defined contribution plan.
d. In practice, actuarial valuations are frequently prepared every year.
5. These are those presented in addition to consolidated financial statements or the financial
statements of an entity with an investment in associate or joint venture that is accounted for
using equity method in accordance with PAS 28.
a. Individual financial statements

b. Separate financial statements
c. Consolidate financial statements
d. Equity financial statements
CHAPTER 5 – POST TEST
1. Which of the following best describes the term ‘significant influence’ as used under PAS 28?
a. The holding of 20% interest in an investee.
b. The ability to control an investee’s relevant activities through holding of significant portion of
the investee’s voting rights.
c. The power to participate in the financial and operating policy decisions of an entity.
d. The contractually agreed sharing of profits and losses in an investee.
2. Entity A owns 25% of the voting rights in Entity B. However, Entity A has no representation on
the board of directors of Entity B. Which of the following statements is correct?
a. Entity A cannot be presumed to have significant influence over Entity B because Entity A
does not have board representation.
b. Entity A is presumed to have signification influence over Entity B because it holds 25% or
more of the voting rights in Entity B.
c. Entity A is presumed to have signification influence over Entity B because it holds 20% or
more of the voting rights in Entity B.
d. Representation on an investee’s board of directors is never considered when determining the

existence of significant influence.
3. On January 1, 20x1, Entity A acquires 25% interest in Entity B for ₱800,000. Entity B reports
profit of ₱1,000,000 and declares dividends of ₱100,000 in 20x1. How much is the carrying
amount of the investment in associate on December 31, 20x1?
a. 800,000
b. 1,250,000
c. 1,000,000
d. 1,025,000
4. The Hanwell Company acquired a 30% equity interest in The Northfield Company for
CU400,000 on 1 January 20X6. In the year to 31 December 20X6 Northfield earned profits of
CU80,000 and paid no dividend. In the year to 31 December 20X7 Northfield incurred losses of
CU32,000 and paid a dividend of CU10,000. In Hanwell's consolidated statement of financial
position at 31 December 20X7, what should be the carrying amount of its interest in Northfield,
according to IAS 28 Investments in associates?
a. CU438,000
b. CU411,400
c. CU414,400
d. CU400,000
5. These are those presented in addition to consolidated financial statements or the financial
statements of an entity with an investment in associate or joint venture that is accounted for
using equity method in accordance with PAS 28.
a. Individual financial statements
b. Separate financial statements
c. Consolidate financial statements
d. Equity financial statements
6. Entity A acquired an investment in associate for ₱1M many years ago. At the end of the
current reporting period, the investment has a fair value of ₱2.9M. If the equity method is used,
the investment would have a current carrying amount of ₱2.6M. In Entity A’s separate financial
statements, the investment should be valued at
a. 1,000,000.
b. 2,600,000.
c. 2,900,000.
d. any of these, as a matter of an accounting policy choice
7. The amount of benefits to be received by employees enrolled in a defined benefit plan is

a. dependent on the level of contributions to a fund.
b. dependent on the level of investment performance of a fund.
c. a and b
d. neither a nor b
8. Which of the following statements is correct?
a. PAS 19 encourages, but does not require, involving a qualified actuary in measuring defined
benefit obligations.
b. PAS 26 applies only to defined benefit plans but not to defined contribution plans.
c. Information on ‘excess’ or ‘deficit’ is required to be disclosed in the financial statements of a

defined contribution plan.
d. In practice, actuarial valuations are frequently prepared every year.
9. PAS 24 requires the disclosure of key management personnel compensation. Which of the
following is not included in this disclosure?
a. short-term employee benefits
b. termination benefits
c. share-based payment
d. reimbursements of officers’ out-of-pocket expenses
10.Which of the following is not required to be disclosed under PAS 24?
a. A parent-subsidiary relationship when there were transactions between them during the
period.
b. A parent-subsidiary relationship when there were no transactions between them during the
period.
c. Loans to officers
d. The name of the parent of the entity’s associate

CHAPTER 6 - PRETEST
1. PAS 29 is generally not applied by entities unless their functional currency is that of a
hyperinflationary economy. This is because of which of the following basic accounting
concepts?
a. Going concern
b. Price level concept
c. Stable monetary assumption
d. Materiality
2. Which of the following is within the scope of PAS 32?
a. Assets held for sale in the ordinary course of business
b. Contracts relating to employee benefits
c. Financial instruments that are within the scope of PFRS 9
d. Investments in associates and joint ventures
3. Which of the following is not a financial asset?
a. Cash
b. Receivable
c. Inventory
d. Investment in associate
4. These are bonds that can be exchanged for shares of stocks of the issuer.
a. Exchangeable bonds
b. Callable bonds
c. Convertible bonds
d. Rock bonds
5. Which of the following is not a financial instrument?
a. Accounts receivable
b. Investment in shares of stocks
c. Accounts payable
d. All of these are financial instruments
6. Which of the following is correct regarding the provisions of PAS 34?
a. PAS 34 requires publicly listed entities to prepare at least a semi-annual financial report to be
issued not later than 60 days after the end of the interim period.
b. PAS 34 requires both publicly and non-publicly listed entities to prepare at least a semiannual
financial report to be issued not later than 60 days after the end of the interim period.
c. PAS 34 encourages publicly listed entities to prepare at least a semi-annual financial report to
be issued not later than 60 days after the end of the interim period.
d. PAS 34 encourages publicly listed entities to prepare at least three quarterly financial reports
to be issued not later than 45 days after the end of each interim period.
7. According to PAS 34, measurements in the interim period are made on
a. a discrete basis.
b. a year-to-date basis.
c. an item-by-item basis.
d. a or b, as matter of accounting policy choice
8. ________________ is “any contract that gives rise to a financial asset of one entity and a
financial liability or equity instrument of another entity.
9. ________________ is a computation made for ordinary shares. It is a form of profitability

ratio which represents how much was earned by each ordinary share during the period.
10.________________is the amount of profit for the period per share, reflecting the maximum
dilutions that would have resulted from conversions, exercises, and other contingent issuances
that individually would have decreased earnings per share and in the aggregate would have had
a dilutive effect.
1. Entity A had 100,000, ₱10 par, 10% cumulative preference shares outstanding all throughout
20x1. Entity A reported profit after tax of ₱1,200,000 for the year ended December 31, 20x1.
The movements in the number of ordinary shares are as follows:
1/1/20x1 Ordinary shares outstanding 120,000
3/1/20x1 Shares issued for cash 42,000
9/30/20x1 Subscribed shares 20,000
11/1/20x1 Reacquisition of treasury shares (12,000)
Outstanding shares at the end of period 170,000
What is the basic earnings per share?
a. 5.92
b. 6.96
c. 7.09
d. 6.13
2. Entity A is computing for its basic earnings per share and has gathered the following
information:
Loss for the year (800,000)
Preferred dividends 50,000
Outstanding ordinary shares 100,000
There have been no changes in the number of outstanding ordinary shares during the period.
What is the basic earnings (loss) per share?
a. -7.50
b. 7.50
c. -8.50
d. 8.50
3. Entity A had 200,000 ordinary shares outstanding all throughout 20x1. In 20x2, share
issuances occurred:
• On April 1, 20,000 shares were issued for cash.
• On September 30, a 10% bonus issue (share dividend) was declared.
• On November 1, a 2-for-1 share split was issued.
Entity A had the following profits: ₱1,200,000 in 20x2 and ₱900,000 in 20x1. What are the
earnings per share to be disclosed in Entity A’s 20x2 comparative financial statements?
20x2 20x1
a. 2.22 2.02
b. 2.54 2.05
c. 2.65 2.09
d. 2.78 2.12
4. Entity A has 200,000 ordinary shares outstanding on January 1, 20x1. Entity A offers rights
issue to its existing shareholders that enable them to acquire 1 ordinary share at a subscription
price of ₱120 for every 5 rights held. The rights are exercised on May 1, 20x1. The market price
of one ordinary share immediately before exercise is ₱180. Entity A reported profit after tax of
₱2,700,000 in 20x1. What is the basic earnings per share in 20x1?
a. 12.58
b. 12.67
c. 11.71
d. 11.67
5. Entity A had the following instruments outstanding all throughout 20x1:
12% convertible bonds payable issued at face amount, each ₱1,000 bond is
convertible into 30 ordinary shares ₱2,000,000
Ordinary shares, ₱10 par, 100,000 shares issued and
outstanding 1,000,000
Profit for the year is ₱1,200,000. Entity A’s income tax rate is 30%. What is the diluted earnings
per share in 20x1?
a. 8.55
b. 8.15
c. 8.05
d. 8.98
a. PAS 34 requires publicly listed entities to prepare at least a semi-annual financial report to be
issued not later than 60 days after the end of the interim period.
b. PAS 34 requires both publicly and non-publicly listed entities to prepare at least a semiannual
financial report to be issued not later than 60 days after the end of the interim period.
c. PAS 34 encourages publicly listed entities to prepare at least a semi-annual financial report to
be issued not later than 60 days after the end of the interim period.
d. PAS 34 encourages publicly listed entities to prepare at least three quarterly financial reports
to be issued not later than 45 days after the end of each interim period.
7. According to PAS 34, measurements in the interim period are made on
a. a discrete basis.
b. a year-to-date basis.
c. an item-by-item basis.
d. a or b, as matter of accounting policy choice

8. Which of the following is within the scope of PAS 32?
a. Assets held for sale in the ordinary course of business
b. Contracts relating to employee benefits
c. Financial instruments that are within the scope of PFRS 9
d. Investments in associates and joint ventures
9. Which of the following is not a financial asset?
a. Cash
b. Receivable
c. Inventory
d. Investment in associate
10. These are bonds that can be exchanged for shares of stocks of the issuer.
a. Exchangeable bonds
b. Callable bonds
c. Convertible bonds
d. Rock bonds
CHAPTER 7 - PRETEST
1. According to PAS 36, an asset is impaired if
a. its carrying amount exceeds its recoverable amount.
b. its recoverable amount exceeds its carrying amount.
c. its carrying amount is less than its value in use.
d. its fair value less disposal costs exceeds its recoverable amount.
2. According to PAS 36, when measuring an asset’s value in use, the discount rate to be used
in discounting the estimated cash flows should be the
a. pre-tax rate that reflects current assessments of the time value of money and risks.
b. post-tax rate that reflects current assessments of the time value of money and risks.
c. pre-tax rate that reflects current assessments of market-based risks for similar replacement
assets.
d. post-tax rate that reflects current assessments of market-based risks for similar replacement
assets.
3. According to PAS 36, if an asset’s fair value less disposal costs cannot be determined, its
recoverable amount would be its
a. carrying amount.
b. replacement cost.
c. value in use.
d. current cost.
4. According to PAS 36, if it is not possible to determine the recoverable amount of an individual
asset,
a. that asset is not impaired.
b. the carrying amount of that asset should be written-off in its entirety, unless a roughestimation
can be made.
c. the recoverable amount of that asset should be determined in relation to the cashgenerating
unit to which it belongs.
d. that asset is useless; it should be given away to the garbage collection guy.
5. The reversal of an impairment loss results to
a. a gain and an adjustment to the depreciation charges in subsequent periods.
b. a gain, but no adjustment to the depreciation charges in subsequent periods.
c. a loss and an adjustment to the depreciation charges in subsequent periods.

d. a loss, but no adjustment to the depreciation charges in subsequent periods.
6. According to PAS 37, a present obligation that is possible and can be measured reliably is
a. recognized.
b. recognized and disclosed.
c. disclosed only.
d. ignored.
7. According to PAS 37, provisions are (choose the incorrect statement)
a. presented in the statement of financial position separately from other types of liabilities.
c. necessarily estimated because their settlement amount is not certain.
d. disclosed only, unless their expected occurrence is remote
8. The essential elements of an intangible asset do not include
a. identifiability.
b. probable outflow of resources embodying economic benefits.
c. control.
d. future economic benefits.
9. According to PAS 38, which of the following may be recognized as cost of intangible asset?
a. Research costs incurred in self-generating an intangible asset
b. Costs of an internally generated customer lists
c. Purchase cost of an externally acquired publishing title
d. Abnormal amount of wasted labor in self-generating an intangible asset

10. On January 1, 20x1, Entity A registers a patent for a total registration and legal costs of
₱600,000. Entity A estimates that the patent has a remaining useful life of 25 years. How much
is the amortization expense for 20x1?
a. 30,000 c. 16,000
b. 24,000 d. 0
1. Which of the following qualifies for classification as an investment property?
a. Property that is currently being developed for future use as investment property
b. Investment property that is currently being developed for future use as owner-occupied
property
c. Property that is leased out to another entity under a finance lease
d. Building being rented from another entity and leased out under various operating subleases
2. The distinguishing characteristic that identifies an investment property from the other assets
of an entity is
a. changes in fair value of the asset is recognized in profit or loss.
b. the property does not derive cash flows separate from the other assets of the entity.
c. it generates separately identifiable cash flows from the other assets of the entity.
d. it earns rental as part of the ordinary operations of the entity.
3. Under this model, an investment property is measured at cost less accumulated depreciation
and accumulated impairment losses.
a. Impairment loss model c. Fair value model
b. Cost model d. Gorgeous model
Use the following information for the next two questions: Entity A acquires an investment
property for ₱1,000,000 cash. Additional costs incurred are as follows:
• Repairs and remodelling before occupancy, ₱50,000.
• Legal costs of transferring title to the property, ₱20,000.
• Repairs after occupancy, ₱15,000.
The investment property is estimated to have a remaining useful life of 10 years and a residual
value equal to 5% of initial cost.
4. Entity A uses the straight line method of depreciation. How much is the carrying amount of
the investment property under the cost model after one year?
a. 914,850 c. 968,350
b. 923,100 d. 872,100
5. Entity A uses the straight line method of depreciation. The investment property has a fair
value of ₱980,000 at the end of Year 1. How much is the carrying amount of the investment
property under the fair value model after one year?
a. 980,000 c. 986,350
b. 973,200 d. 837,900
6. The essential elements of an intangible asset do not include
b. identifiability.
c. probable outflow of resources embodying economic benefits.
d. control.
e. future economic benefits.
7. According to PAS 38, which of the following may be recognized as cost of intangible asset?
a. Research costs incurred in self-generating an intangible asset
b. Costs of an internally generated customer lists
c. Purchase cost of an externally acquired publishing title
d. Abnormal amount of wasted labor in self-generating an intangible asset

8. On January 1, 20x1, Entity A registers a patent for a total registration and legal costs of
₱600,000. Entity A estimates that the patent has a remaining useful life of 25 years. How much
is the amortization expense for 20x1?
a. 30,000 c. 16,000
b. 24,000 d. 0
9. According to PAS 37, a present obligation that is possible and can be measured reliably is
a. recognized.
c. disclosed only.
d. ignored.
10. According to PAS 37, provisions are (choose the incorrect statement)
a. presented in the statement of financial position separately from other types of liabilities.
c. necessarily estimated because their settlement amount is not certain.
d. disclosed only, unless their expected occurrence is remote.
1. An entity that presents its first PFRS financial statements is referred to under PFRS 1 as a
a. first-timer.
b. first-time adopter.
c. PFRS novice.
d. first-time PFRSer.
2. PFRS 1 requires an entity to prepare and present an
a. opening PFRS financial statements.
b. opening PFRS statement of financial position.
c. opening PFRS statement of profit or loss and other comprehensive income.
d. opening notes to the financial statements.
3. The date to transition to PFRSs is
a. the beginning of the earliest period for which an entity presents full comparative information
under PFRSs in its first PFRS financial statements.
b. the end of the earliest period for which an entity presents full comparative information under
PFRSs in its first PFRS financial statements.
c. the beginning of the first PFRS reporting period.
d. the end of the first PFRS reporting period.
4. The statement of financial position of ABC Co. as of January 1, 20x4 included an allowance
for bad debts computed using the “aging of accounts receivable” method. The “over 120 days”
category in the aging schedule included a ₱200,000 receivable which was actually written off on
January 5, 20x4 (the 20x3 financial statements were authorized for issue on March 1, 20x4).
ABC Co. could not have foreseen this event on December 31, 20x3. Does ABC Co. need to
revise its previous estimate of bad debts as of January 1, 20x4 (date of transition) on December
31, 20x5 (end of first PFRS reporting period)?
a. No. The receipt of the information on January 5, 20x4 is accounted for prospectively as a
non-adjusting event after the reporting period.
b. Yes. The receipt of the information on January 5, 20x4 is accounted for retrospectively as an
adjusting event after the reporting period.
c. No. The event should be ignored because it is within the scope of the previous GAAP and not
the PFRSs.
d. Yes. Although, PFRS 1 does not require the adjustment, other PFRSs do.
5. Under PFRS 1, the early application of PFRSs that have not yet become effective as of the
current reporting period
a. is required.
b. is permitted, but not required.
c. is required, but not permitted.
d. is prohibited.
6. PFRS 1 requires a first time adopter to do which of the following in the opening PFRS
a. Recognize all assets and liabilities whose recognition is required by PFRSs.
b. Not recognize items as assets or liabilities if PFRSs do not permit such recognition.
c. Reclassify items that it recognized in accordance with previous GAAP as one type of asset,
liability or component of equity, but are a different type of asset, liability or component of equity
in accordance with PFRSs.
d. Apply PFRSs in measuring all recognized assets and liabilities.
e. All of these
7. Retrospective application of accounting policies means
a. as if PFRSs have been used all along.
b. as if PFRSs are used only in prior periods.
c. as if PFRSs are used only in the current period.
d. restating the financial statements in order to correct all errors.
8. The “excess of the acquirer’s interest in the net fair value of acquiree’s identifiable assets,
liabilities, and contingent liabilities over cost” (formerly known as negative goodwill) should be
a. Amortized over the life of the assets acquired.
b. Reassessed as to the accuracy of its measurement and then recognized immediately in profit
or loss. c. Reassessed as to the accuracy of its measurement and then recognized in retained
earnings.
d. Carried as a capital reserve indefinitely

9. Many shares and most share options are not traded in an active market. Therefore, it is often
difficult to arrive at a fair value of the equity instruments being issued. Which of the following
option valuation techniques should not be used as a measure of fair value in the first instance?
a. Black-Scholes model.
b. Binomial model.
c. Monte-Carlo model.
d. Intrinsic value.
10. Elizabeth, a public limited company, has granted 100 share appreciation rights to each of its
1,000 employees in January 20X4. The management feels that as of December 31, 20X4, 90%
of the awards will vest on December 31, 20X6. The fair value of each share appreciation right
on December 31, 20X4, is P10. What is the fair value of the liability to be recorded in the
financial statements for the year ended December 31, 20X4?
a. P300,000
b. P10 million
c. P100,000
d. P90,000
1. The “excess of the acquirer’s interest in the net fair value of acquiree’s identifiable assets,
liabilities, and contingent liabilities over cost” (formerly known as negative goodwill) should be
a. Amortized over the life of the assets acquired.
b. Reassessed as to the accuracy of its measurement and then recognized immediately in profit
or loss.
c. Reassessed as to the accuracy of its measurement and then recognized in retained earnings.
d. Carried as a capital reserve indefinitely.
2. The acquisition date is
a. the date on which the acquirer obtains control of the acquiree.

b. the opening date.
c. the date the acquirer transfers to the acquiree the consideration in a business combination.
d. any of these
3. On January 1, 20x1, ABC Co. acquired 60% interest in XYZ, Inc. for ₱2,000,000 cash. ABC
Co. incurred transaction costs of ₱100,000 in the business combination. ABC Co. elected to
measure NCI at the NCI’s proportionate share in XYZ, Inc.’s identifiable net assets. The fair
values of XYZ’s identifiable assets and liabilities at the acquisition date were ₱6,000,000 and
₱3,500,000, respectively. How much is the goodwill (gain on a bargain purchase)?
a. 500,000
b. 478,000
c. (500,000)
d. (478,000)
4. Many shares and most share options are not traded in an active market. Therefore, it is often
difficult to arrive at a fair value of the equity instruments being issued. Which of the following
option valuation techniques should not be used as a measure of fair value in the first instance?
a.Black-Scholes model.
b.Binomial model.
c.Monte-Carlo model.
d.Intrinsic value.
5. Elizabeth, a public limited company, has granted 100 share appreciation rights to each of its
1,000 employees in January 20X4. The management feels that as of December 31, 20X4, 90%
of the awards will vest on December 31, 20X6. The fair value of each share appreciation right
on December 31, 20X4, is P10. What is the fair value of the liability to be recorded in the
financial statements for the year ended December 31, 20X4?
a. P300,000
b. P10 million
c. P100,000
d. P90,000
d. restating the financial statements in order to correct all errors
7. PFRS 1 requires an entity to prepare and present an
a. opening PFRS financial statements.
b. opening PFRS statement of financial position.
c. opening PFRS statement of profit or loss and other comprehensive income.
d. opening notes to the financial statements.
8. The date to transition to PFRSs is
a. the beginning of the earliest period for which an entity presents full comparative information
under PFRSs in its first PFRS financial statements.
b. the end of the earliest period for which an entity presents full comparative information under
PFRSs in its first PFRS financial statements.
c. the beginning of the first PFRS reporting period.
d. the end of the first PFRS reporting period
d. restating the financial statements in order to correct all errors

10.Under PFRS 1, the early application of PFRSs that have not yet become effective as of the
current reporting period
a.is required.
b.is permitted, but not required.
c.is required, but not permitted.
d.is prohibited
CHAPTER 9 - PRETEST
1. The statement of profit or loss includes which of the following?
a. Revenue, cost of goods sold, distribution costs, general and administrative expenses and
extraordinary items.
b. Discontinued operations.
c. Gains and losses arising from treasury share transactions.
d. Other comprehensive income.
2. Assets that are classified as held for sale under PFRS 5 are
a. required under PAS 36 to be tested for impairment annually.
b. amortized over a period not exceeding 5 years.
c. depreciated.
d. not depreciated.
3. According to PFRS 5, gains and losses on remeasurement of assets held for sale are
a. recognized in profit or loss.
b. recognized in other comprehensive income.
c. recognized only for impairment losses.
d. not recognized.
4. Which of the following statements is true regarding the accounting treatment of costs to sell
under PFRS 5?
a. Costs to sell are added to the fair value when determining the measurement basis for an
asset held for sale.
b. Costs to sell are never discounted because held for sale assets should be sold within one
year.
c. Costs to sell are discounted if it is expected that the sale will be made beyond one year.
d. a and c
5. According to PFRS 5, the assets and liabilities of a disposal group are presented
a. as one line item in either current assets or current liabilities.
b. as one line item in either noncurrent assets or noncurrent liabilities.
c. separately on the face of the statement of financial position.
d. a or b
6. Exploration and evaluation assets are initially measured at
a. cost. c. fair value
b. revalued amount. d. a or b
7. Exploration and evaluation assets are exploration and evaluation expenditures recognized as
a. assets in accordance with the entity’s accounting policy.
b. expenses in accordance with applicable PFRSs.
c. assets in accordance with (a) above, subject to the limitations provided under PAS 8
Accounting Policies, Changes in Accounting Estimates and Errors.
d. any of these
8. Mark Ngina’s Sari-sari Store has a sign that reads “Your credit is good but I need cash.” What
type of risk is Mr. Mark trying to avoid by putting up that sign?
a. credit risk
b. market risk
c. liquidity risk
d. store risk
9. How does PFRS 7 define “liquidity risk”?
a. The risk that an entity will encounter difficulty in meeting obligations associated with financial
liabilities.
b. The risk that an entity will encounter difficulty in disposing a financial asset due to lack of
market liquidity.
c. The risk that an entity will encounter difficulty in meeting cash flow needs due to cash flow
problems.
d. The risk that an entity’s cash inflows will not be sufficient to meet the entity’s cash outflows
10.According to PFRS 8, a reportable operating segment is one which
a. management uses in making decisions about operating matters.
b. results from aggregation of two or more segments and qualify under any of the quantitative
thresholds.
c. a and b
d. none of these
1. According to PFRS 9, it is the amount at which a financial asset or a financial liability is

measured at initial recognition minus principal repayments, plus or minus the cumulative
amortization using the effective interest method of any difference between that initial amount
and the maturity amount and, for financial assets adjusted for any loss allowance.
a. cost
b. carrying amount
c. amortized cost
d. fair value
2. Which of the following is measured at fair value with fair value changes recognized in profit or
loss?
a. Held to maturity investments
b. Financial assets designated at FVPL
c. FVOCI
d. All of these
3. If the entity’s business model’s objective is to hold assets in order to collect contractual cash
flows and cash flows are solely payments of principal and interest on the principal amount
outstanding, the financial asset is classified
a. according to management’s intention of holding the securities.
b. as financial asset measured at amortized cost.
c. as financial asset measured at fair value through other comprehensive income.
d. any of these
4. Tech Co. and Robotics Co. are joint venturers of Mecha Co., a producer of high tech
machinery. Tech and Robotics, each have a 50% interest in the net assets of Mecha Co. During
the year, Tech Co. earns revenue of ₱1,000,000 from its own operations while Mecha Co.
reports revenue of ₱400,000. How much total revenue shall be reported in Tech Co.’s statement
of profit or loss for the year?
a. ₱1,000,000
b. ₱1,200,000
c. ₱1,400,000
d. Either a or b
5. Entity A acquires 50% interest in a joint venture for ₱1M and appropriately records the
transaction under an investment account. At the end of the period, the joint venture reports profit
of ₱1M and makes a total distribution of ₱600,000 to the owners. How much is the net effect of
the transaction in Entity A’s profit or loss for the current year?
a. ₱.5M
b. ₱.3M
c. ₱.2M
d. 0
6. ABC Co. has identified the following five operating segments: “Credit,” “Hotel,”
“Transportation,” “Grocery,” and “Events planning.” ABC Co. treats the “Hotel” and “Events
planning” as a single segment for internal reporting purposes. Each of the “Events planning” and
“Transportation” segments does not qualify under any of the quantitative thresholds of PFRS 8.
How should ABC Co. disclose its reportable segments?
a. ABC Co. shall treat each of the “Hotel,” “Credit,” and “Grocery” as reportable segments. The
other segments should not be disclosed.
b. ABC Co. shall treat each of the “Hotel,” “Credit,” and “Grocery” as reportable segments. The
other segments should be combined and disclosed in the “All other segments” category.
c. ABC Co. shall treat the “Hotel” and “Events planning” as a single reportable segment and
each of the “Credit” and “Grocery” segments also as reportable segments. The “Transportation”
segment shall be included in the “All other segments” category.
d. ABC Co. shall treat the “Hotel” and “Events planning” as a single reportable segment and
combine all the other segments and report them under the “All other segments” category.
7. An entity recently has acquired a new brand from a competitor company. The brand qualifies
as a component of an entity and represents a major line of business for which discrete financial
information is available. This operating segment does not meet any of the threshold criteria for a
reportable segment. Furthermore, this segment is unique and does not share similar
characteristics with the other operating segments of the entity. Which of the following
statements is correct?
a. The entity can disclose this new segment separately if it is a distinguishable component and
is used by management in internal reporting even though it does not meet the PFRS criteria.
b. The entity cannot voluntarily disclose this new segment separately because PFRS 8
discourages voluntary disclosure of operating segments. Operating segments are reportable
only if they either result from aggregation or qualify under any of the quantitative thresholds.
c. The entity can disclose this new segment separately only if it can be aggregated with another
operating segment and the combined segment qualifies in all of the quantitative thresholds.
d. The entity can disclose this new segment separately only if it can be aggregated with another
operating segment and the combined segment qualifies in any of the quantitative thresholds.
8. According to PFRS 8, a reportable operating segment is one which
a. management uses in making decisions about operating matters.
b. results from aggregation of two or more segments and qualify under any of the quantitative
thresholds.
c. a and b
d. none of these
9. Which of the following is not among the quantitative thresholds under PFRS 8?
a. at least 10% of total revenues (external and internal).
b. at least 10% of the higher of total profits of segments reporting profits and total losses of
segments reporting losses, in absolute amount.
c. at least 10% of total assets (inclusive of intersegment receivables).
d. at least 10% of total revenues (external only)
10. According to PFRS 8, disclosures for major customer shall be provided if revenues from
transactions with a single external customer amount to
a. at least 75% of the entity’s external and internal revenues.
b. at least 75% of the entity’s external revenues.
c. 10% or more of the entity’s external revenues.
d. less than 10% of the entity’s external revenues

CHAPTER 10 - PRETEST
1. PFRS 12 applies to
a. contracts relating to post-employment benefit plans.
b. interest in joint arrangements that does not give the entity joint control or significant influence
over the arrangement.
c. investments measured at fair value through other comprehensive income.
d. investments accounted for under the equity method.
2. According to PFRS 12, interest in another entity refers to
a. only contractual involvement that exposes an entity to variability of returns from the
performance of another entity.
b. only non-contractual involvement that exposes an entity to variability of returns from the
performance of another entity.
c. contractual and non-contractual involvement that exposes an entity to variability of returns

from the performance of another entity.
d. a typical customer-supplier relationship
3. Which of the following are not considered transaction costs or costs to sell?
a. commissions to brokers
b. levies by regulatory agencies and commodity exchanges
c. transfer taxes and duties
d. transport costs
4. There are multiple active markets for a financial asset with different observable market prices:
Market Quoted Price Transaction Costs A ₱76 ₱5 B ₱74 ₱2 There is no principal market for the
financial asset. What is the fair value of the asset?
a. 71
b. 72
c. 74
d. 76
5. According to PFRS 14, an entity presents regulatory deferral accounts in the statement of
financial position
a. showing those with debit balances separately from those with credit balances.
b. showing only the net debit or the net credit balance of the accounts.
c. a or b, as a matter of accounting policy choice
d. An entity shall not present regulatory deferral accounts in the statement of financial position,
but only disclose them in the notes.
6. Arrange the following steps of revenue recognition in accordance with PFRS 15.
I. Identify the performance obligations in the contract
II. Recognize revenue when (or as) the entity satisfies a performance obligation
III. Determine the transaction price
IV. Identify the contract with the customer
V. Allocate the transaction price to the performance obligations in the contract
a. IV, I, V, III, II c. III, IV, I, V, II
b. IV, I, III, V, II d. IV, III, I, V, II
7. Certain criteria must be met before a contract with a customer is accounted for under PFRS
15. Which of the following precludes a contract from being accounted for under PFRS 15?
a. The consideration is collected in advanced.
b. The contract is made orally.
c. The contract does not result to a change in the risk, timing or amount of the entity’s future
cash flows.
d. The contract is neither oral nor written but rather implied by the entity’s business practices.
8. How does Entity B account for the insurance contract with Entity A?
a. General model
b. Premium Allocation Approach
c. a or b
d. Not accounted for under PFRS 17
9. How does Entity C account for the insurance contract ceded by Entity B?
a. General model
c. a or b
d. Modification to general model for reinsurance contracts held
10.How does Entity B account for the insurance contract ceded to Entity C?
a. General model
c. a or b
d. Modification to general model for reinsurance contracts held
1.On January 1, 20x1, Entity X enters into a 3-year lease of equipment for an annual rent of
₱100,000 payable at the end of each year. The equipment has a remaining useful life of 10
years. The interest rate implicit in the lease is 10% while the lessee’s incremental borrowing rate
is 12%. Entity X uses the straight-line method of depreciation. The relevant present value
factors are as follows:
- PV of an ordinary annuity of ₱1 @10%, n=3………… 2.48685
- PV of an ordinary annuity of ₱1 @12%, n=3………… 2.40183 155

How much is the lease liability to be recognized by Entity X on initial recognition?
a. 240,183 c. 252,314
b. 248,685 d. 0
2.Assume the lease in problem #1 above qualifies for accounting under the recognition
exemption under PFRS 16. Which of the following statements is correct?
a. Entity X recognizes annual depreciation of ₱80,061 on the right-of-use asset.
b. Entity X recognizes a lease liability of ₱252,314 at the lease commencement date.
c. Entity X recognizes a lease liability of ₱200,000 at the lease commencement date.
d. Entity X recognizes lease expense of ₱100,000 in the first year of the lease.
3.Use the information in problem #1 above. Assume the lease is a finance lease. The lessor will
recognize a net investment in the lease at the lease commencement equal to
a. 240,183. c. 252,314.
b. 248,685 . d. 0.
4.Use the information in problem #1 above. Assume the lease is an operating lease. The lessor
will recognize a net investment in the lease at the lease commencement equal to
a.240,183. c. 200,000.
b.248,685 . d. 0..
5.How does Entity B account for the insurance contract with Entity A?
a.General model
b.Premium Allocation Approach
c.a or b
d.Not accounted for under PFRS 17
6.How does Entity C account for the insurance contract ceded by Entity B?
a.General model
c.a or b
d.Modification to general model for reinsurance contracts held
7.How does Entity B account for the insurance contract ceded to Entity C?
a.General model
c.a or b
d.Modification to general model for reinsurance contracts held
8.The "premium allocation approach" cannot be applied to which of the following insurance
contracts?
a. insurance contracts issued
b. reinsurance contracts issued
c. reinsurance contacts held
d. insurance contracts with significant variability in their fulfillment cash flows.
9.The unearned profit from a group of insurance contracts is referred to under PFRS 17 as
a. fulfillment cash flows.
b. contractual service margin.
c. onerous contracts.
d. discretionary participation feature.
10.According to PFRS 14, rate-regulation is
a. a framework for establishing the prices that can be charged to customers for goods or
services and that framework is subject to oversight and/or approval by a rate regulator.
b. the balance of any expense (or income) account that would not be recognized as an asset or
a liability in accordance with other Standards, but that qualifies for deferral because it is
included, or is expected to be included, by the rate regulator in establishing the rate(s) that can
be charged to customers.
c. an authorized body that is empowered by statute or regulation to establish the rate or a range
of rates that bind an entity. The rate regulator may be a third-party body or a related party of the
entity, including the entity’s own governing board, if that body is required by statute or regulation
to set rates both in the interest of the customers and to ensure the overall financial viability of
the entity.
d. all of these
PRELIM EXAM
1. Which of the following statements is true?
a. The basic purpose of accounting is to provide information about economic activities intended
to be useful in making economic decisions.
b. All events and transactions of an entity are recognized the books of accounts.
c. General purpose financial statements are those statements that cater to the common and
specific needs of a wide range of external users.
d. The accounting process of assigning numbers, commonly in monetary terms, to the economic
transactions and events is referred to as classifying.
2. The accounting standards used in the Philippines are adapted from the standards issued by
the
a. Federal Accounting Standards Board (FASB).
b. International Accounting Standards Board (IASB).
c. Philippine Institute of Certified Public Accountants (PICPA).
d. Democratic People's Republic of Korea Accounting Standards Committee (DPKRASC).

3. Entity A appropriates ₱1M to fund employee benefits for the last quarter of the following year.
Entity A deposits the ₱1M fund in a payroll account. This economic activity is most appropriately
referred to as
a. production.
b. savings.
c. exchange.
d. investment.
4. It is the branch of accounting that focuses on the general purpose reports of financial position
and operating results known as financial statements.
a. Financial accounting
b. Auditing
c. Managerial accounting
d. Taxation
5. These are events that do not involve an external party.
a. external events
b. nonreciprocal
c. internal events
d. special event
6. Entity A computes for its profit or loss periodically instead of waiting until the end of the life of
the business before doing so. This is an application of which of the following accounting
concepts?
a. historical cost
b. stable monetary unit
c. accrual basis
d. time period
7. This refers to the use of caution in the exercise of judgments needed in making estimates
required under conditions of uncertainty , such that assets or income are not overstated and
liabilities or expenses are not understated.
a. faithful representation
b. prudence
c. consistency
d. relevance
8. The bottom part of each of Entity A’s financial statements states the following “This statement
should be read in conjunction with the accompanying notes.” This is most likely an application of
which of the following accounting concepts?
a. articulation
b. consistency
c. accrual basis
d. time period
9. Entity A’s asset has a carrying amount of ₱1M. At year end, Entity A obtains information that
the asset became obsolete, and therefore its usefulness has declined. Entity A estimates that
the asset has a recoverable amount of only ₱800K. Entity A recognizes a loss of ₱200K for the
difference. Although this accounting treatment is required, it violates which of the following
concepts?
a. historical cost
b. stable monetary unit
c. accrual basis
d. time period
10.Which of the following events is considered as an internal event?
a. sale of inventory on account
b. provision of capital by owners

c. borrowing of money
d. conversion of raw materials into finished goods e. payment of liabilities
11.Which of the following events is considered as an external event?
a. production
b. payment of taxes
c. gifts and charitable contributions
d. provision of capital by owners
e. b, c and d
12.Financial statements are said to be a mixture of fact and opinion. Which of the following
items is factual?
a. cost of goods sold
b. discount on capital stock
c. retained earnings
d. patent amortization expense
13.The most common form of business organization is a
a. corporation
b. sole proprietorship
c. partnership
d. cell phone stand
14.This concept defines the area of interest of the accountant. It determines which transactions
are recognized in the books of accounts and which are not.
a. Articulation
b. Matching
c. Separate entity
d. Full disclosure
15. A CPA employed as an accountant in a government agency is considered to be in
a. private practice.
b. public practice.
c. academe.
d. service.
16.Which of the following statements is correct?
I. Accounting provides qualitative information, financial information, and quantitative

information.
II. Qualitative information is found in the notes to the financial statements only.
III. Accounting is considered an art because it is supported by an organized body of knowledge

IV. Accounting is considered a science because it involves the exercise of skill and judgment.
V. Measurement is the process of assigning numbers to objects such inventories or plant assets
and to events such as purchases or sales.
VI. All quantitative information is also financial in nature.
VII. The accounting process of assigning peso amounts or numbers to relevant objects and
events is known as identification.
a. I and V
b. I, II, VI and V
c. I, II, III, IV and V
d. II, VI and V
17.Which of the following statements about the Norwalk Agreement is correct?

a. The Norwalk Agreement requires all domestic companies in the U.S. to prepare financial
statements in accordance with the IFRSs.
b. The Norwalk Agreement is a short-term convergence between the FASB and the IASB which
has long-time been abolished.
c. The Norwalk Agreement is a convergence between the FASB and the IASB to make their
existing financial reporting standards compatible and coordinate their future work programs to
ensure that once achieved, compatibility is maintained.
d. The Norwalk Agreement does not affect the financial reporting standards in the Philippines.
18.The process of identifying, measuring, analyzing, and communicating financial information

needed by management to plan, evaluate, and control an organization’s operations is called
a. financial accounting.
b. tax accounting.
c. managerial accounting.
d. auditing.
19.The PFRSs consist of all of the following except
a. PFRSs.
b. PASs.
c. Interpretations.
d. Conceptual Framework.
20.It is the official accounting standard setting body in the Philippines. It is composed of a
chairperson and 14 members.
a. Financial Reporting Standards Committee (FRSC)
b. Financial Reporting Standards Council (FRSC)
c. Accounting Standards Committee (ASC)
d. Accounting Standards Council (ASC)

21.Financial reporting standards continuously change primarily in response to
a. users’ needs.
b. political influence.
c. government regulations.
d. changes in social environments.
22.Accounting is often called the "language of business" because
a. it is easy to understand.
b. it is fundamental to the communication of financial information.
c. all business owners have a good understanding of accounting principles.
d. accountants in many companies share financial information.
23.You are the accountant of ABC Co. During the period, your company purchased staplers
worth ₱1,500. Although the staplers have an estimated useful life of 10 years, you have charged
their cost as expense. Which of the following is most likely to be true?
a. You are applying the concept of matching.
b. You are applying the concepts of materiality and cost-benefit consideration.
c. You are applying the concept of verifiability.
d. You are just lazy to compute for the periodic depreciation.
24.The foundation of the Conceptual Framework is formed from
a. the qualitative characteristics that makes information useful to users.
b. the objective of general purpose financial reporting.
c. the concept of reporting entity.
d. the various measurement requirements which results to fair presented financial information.
25.Under the Conceptual Framework, qualitative characteristics are sub-classified into

a. primary and secondary qualitative characteristics
b. major and minor qualitative characteristics
c. fundamental and enhancing qualitative characteristics
d. not sub-classified
26.Under this qualitative characteristic, users are assumed to have a reasonable knowledge of
business and economic activities and accounting and a willingness to study the information with
reasonable diligence. However, information about complex matters that should be included in
the financial statements because of its relevance to the economic decision making needs of
users should not be excluded merely on the grounds that it may be too difficult for certain users
to understand.
a. Relevance
b. Reliability
c. Understandability
d. Comparability
27.The Conceptual Framework sets out general recognition principles of financial statement
elements which include all of the following except
a. asset recognition
b. equity recognition
c. liability recognition
d. expense recognition
28.Which of the following is most likely expensed under the ‘immediate recognition’ principle?
a. cost of inventories
b. impairment loss
c. cost of equipment
d. rentals paid
29.A secondary objective of financial statements
a. is to show information regarding assets and liabilities of an entity
b. is to show information regarding an entity’s financial position, performance, and changes in

financial position
c. is to show the results of the stewardship of management.
d. b and c
30.Which of the following statements is incorrect concerning materiality?
a. Materiality can be assessed quantitatively or qualitatively
b. There are no specific materiality thresholds provided under the PFRSs
c. Materiality is a matter of judgment
d. Materiality is a quantitative matter. It should never be assessed qualitatively.
31.The elements of faithful representation do not include
a. Comparability
b. Neutrality
c. Completeness
d. Free from error
32.The ability through consensus among measurers to ensure that information represents what
it purports to represent is an example of the concept of
a. Relevance
b. Comparability
c. Verifiability
d. Feedback value
33.According to the Conceptual Framework, it is a pervasive constraint on the information that

can be provided by financial reporting
a. materiality
b. historical
c. cost
d. going concern
34.The elements directly related to the measurement of performance
a. income
b. expenses
c. a and b
d. neither a nor b
35.Assets and liabilities are recognized if
a. they meet the definition of an element.
b. have probable future economic benefits and have cost or value that are measured reliably.
c. a and b
d. neither a nor b
36.The cost of purchases of inventory is recognized as expense
a. immediately.
b. using the matching concept.
c. by systematic allocation.
d. any of these as a matter of accounting policy choice
37.“I say red, you say green.” The information lacks which of the following qualitative
characteristics?
a. Relevance
b. Verifiability
c. Timeliness
d. Colorfulness
38.Which of the following is not one of the decisions that primary users make?
a. deciding on how to run the day-to-day operations of the entity
b. deciding on whether to hold or sell investment in stocks
c. deciding on whether to buy investment in stocks
d. deciding on whether to extend loan to the reporting entity
39.Entity A is making a materiality judgment. Entity A considers an item to be material, and

therefore needs to be disclosed in the notes to the financial statements, if the item pertains to a
related party transaction. What type of materiality assessment is Entity A using?
a. quantitative
b. qualitative
c. faithful representation
d. relevance
40. Which of the following financial statements would not be dated as covering a certain
reporting period?
b. Statement of profit or loss and other comprehensive income
d. Statement of changes in equity
41.Comprehensive income (or total comprehensive income) includes
a. Profit or loss
b. Other comprehensive income
c. Transactions with owners

d. a and b
e. All of these
42.Comprehensive income excludes which of the following
a. Revaluation surplus
b. Gains and losses from investments measured at fair value through profit or loss
c. Income tax expense
d. Distributions to owners
43.Entity A needs guidance in accounting for its inventories. Entity A should refer to which of the
following?
a. PAS 1
b. PAS 2
c. PAS 7
d. PAS 8
44.Entity A needs guidance in preparing its statement of changes in equity. Entity A should refer
to which of the following?
a. PAS 1
b. PAS 2
c. PAS 7
d. PAS 8
45.Which of the following concepts is violated when measuring inventories at the lower of cost
and net realizable value?
a. The concept that assets shall not be carried at an amount in excess of its recoverable
amount.
b. Historical cost concept

c. Prudence or conservatism concept
d. Offsetting concept
46.At the end of the period, Entity A has deductible temporary difference of ₱100,000. Entity A’s
income tax rate is 30%. Entity A’s statement of financial position would report which of the
following?
a. 30,000 deferred tax asset
b. 30,000 deferred tax liability
c. 30,000 deferred tax expense
d. 30,000 income tax expense
47.You are a business manager. During the period, you have authorized the acquisition of a
machine that will be used in your company’s manufacturing activities in the next 5 years. In your
selection of an appropriate accounting policy for the recognition and measurement of the
machine, which of the following reporting standards is most relevant?
a. PAS 1
b. PAS 2
c. PAS 16
d. PAS 32
48.Which of the following is not one of the principal issues in the accounting for PPE?
a. Recognition.
b. Initial measurement as asset.
c. Allocation of carrying amount over the period of use.
d. Recognition of carrying amount as expense when the related revenue is recognized
49.On January 1, 20x1, Entity A started the construction of a qualifying asset. The qualifying
asset is financed through general borrowings. The average expenditures during the year
amounted to ₱9,500,000. The capitalization rate is 11%. The actual borrowing costs 165
incurred during the period were ₱1,990,000. How much are the borrowing costs eligible for
capitalization?
a. 1,990,000
b. 1,045,000
c. 1,090,000
d. 990,000
50.The transfer of resources from the government to an entity in exchange for past or future
compliance with certain conditions relating to the operating activities of the entity is called
a. Government grants.
b. Government assistance.
c. Government financial assistance.
d. Government asset transfers
MIDTERM EXAM
1. Which of the following is correct regarding asset recognition?
a. Items that do not meet all the requirements for recognition are always ignored.
b. Before an entity recognizes an item as an asset, the item must be owned by the entity.
c. Physical form is necessary for an item to be recognized as an asset.
d. Costs are recognized as assets if they meet the definition of an asset as well as the
recognition criteria of “probable future economic benefits” and “reliable measurement of cost or
other value.”
2. Which of the following is one of the fundamental qualitative characteristics?
a. Relevants
b. Comparability
c. Reliability
d. Faithful representation
3. According to the Conceptual Framework, the correct classifications of Relevance and

Reliability, respectively, are
a. Fundamental, Enhancing
b. Fundamental, Fundamental
c. Enhancing, Fundamental
d. Fundamental, None
4. The qualitative characteristics that enhance the usefulness of financial information includes
all of the following, except
a. Comparability
b. Verifiability
c. Timeliness
d. Materiality
5. The elements related to relevance do not include
a. Predictive value
b. Materiality
c. Feedback or Confirmatory value
d. Timeliness
6. Information has this quality when it influences the economic decisions of users by helping
them evaluate past, present or future events or confirming, or correcting, their past evaluations.
a. Predictive Value
b. Reliability
c. Relevance
d. Understandability
7. Which of the following is an element of the financial position of an entity?
a. income
b. loss
c. gains
d. none of these
8. Which of the following transactions results to the recognition of an asset?
a. An entity forecasts a purchase of inventory in the coming month. The purchase is highly
probable.
b. An entity enters into firm commitment to purchase inventory in the coming month. The entity
cannot cancel the commitment without paying a penalty. The contract is not onerous
c. During the period, one of the buildings of an entity was destroyed by a calamity.
d. An entity receives a non-monetary grant from the government.
9. These are events that result to a sudden or unanticipated loss from fortuitous events.
a. Internal Events
b. External Events Other Than Transfers
c. Non-reciprocal transfers
d. Casualty
10.The manner in which the accounting records are organized and employed within a business
is referred to as
a. Accounting system
b. Voucher system
c. Business document
d. Special journals
11.The process of converting non-cash resources and rights into cash or equivalent claims to
cash is called
a. realization
b. recognition
c. allocation
d. disposition
12.A concept that states that all the components of a complete set of financial statement are
interrelated
a. Entity
b. Concept of Articulation
c. Accounting Process
d. Principle of Fair Presentation
13.PFRSs are adopted from the standards issued by the
a. IASC
b. IASCF
c. IASB
d. FASB
14. Choose the correct statement
a. Financial accounting is a social science and cannot be influenced by changes in legal,

political, business and social environments.
b. Financial accounting is an information system designed to provide information primarily to

internal users.
c. General-purpose financial statements must be prepared by a certified public accountant.
d. The preparation of general-purpose financial statements is usually based on the assumption

that the primary users of the information are external decision makers.
15. What type of users’ needs is catered by general purpose financial statements?
a. common needs
b. specific needs
c. a and b
d. neither a nor b
16. The issuance of financial reporting standards in the Philippines is the responsibility of the
a. PICPA
b. FRSC
c. AASC
d. CPE Council
17. Reporting entities commonly place the sentence “See notes to the financial statements” or
“See accompanying notes to the financial statements” or a similar sentence on the face of the
financial statements. This practice is most in keeping with what accounting concept?
a. Articulation
b. Materiality
c. Separate entity
d. Full disclosure
18.Comprehensive income excludes which of the following
a. Gains and losses arising from translation of foreign operation
b. Gains and losses from investments measured at fair value through other comprehensive
income
c. Correction of prior period error
d. Share in the profit or loss of an associate that is accounted for using the equity method.
19. Which of the following is not included among the general features of financial statement
presentation?
a. Growing concern
b. Accrual basis
c. Frequency of reporting
d. Comparative information
20. A company is issuing its comparative financial statements for the years 20x1 and 20x2. If
the company is required to issue an additional statement of financial position, such statement
should be dated
a. as of Jan. 1, 20x1.
b. as of Jan. 1, 20x2.
c. as of Dec. 31, 20x2.
d. as of Dec. 31, 20x1.
21.According to PAS 2, inventories are measured at
a. cost
b. fair value less costs to sell
c. net realizable value
d. lower of a and b
22.This method of presenting cash flows from (used in) operating activities shows each major
class of gross cash receipts and gross cash payments.
a. Direct method
b. Inverse method
c. Indirect method
d. Straight method
23.According to PAS 10, this is the date when management authorizes the financial statements
for issue regardless of whether such authorization is final or subject to further approval.
a. Date of authorization of the financial statements
b. Date of declaration
c. Date of events after the reporting period
d. Adjustment date
24. Entity A’s inventories on December 31, 20x1 have a cost of ₱100,000 and a net realizable
value of ₱80,000. Accordingly, Entity A recognized a write-down of inventories of ₱20,000.
Shortly after December 31, 20x1, but before the financial statements were authorized for issue,
the inventories were sold for a net sale proceeds of ₱70,000. The correct amount of inventory
write-down to be reported in Entity A’s December 31, 20x1 financial statements is
a. 20,000
b. 0
c. 30,000
d. any of these
25. Which of the following is not considered an item of PPE?
a. land classified as investment property
b. land used in agricultural activity by a farming entity
c. equipment manufactured or acquired primarily to be held for rentals
d. all of these
26. Which of the following assets may not be depreciated?
a. Building that is measured under the revaluation model.
b. Equipment that becomes idle or is retired from active use.
c. Land
d. Landfill site
27. A change in depreciation method, estimate of useful life or residual value is accounted for as
a
a. change in accounting policy
b. correction or error
c. change in accounting estimate
d. any of these
28. On January 1, 20x1, Entity A obtained a 10%, ₱5,000,000 loan, specifically to finance the
construction of a building. The proceeds of the loan were temporarily invested and earned
interest income of ₱180,000. The construction was completed on December 31, 20x1 for a total
construction costs of ₱7,000,000. How much are the borrowing costs capitalized to cost of the
building?
a. 320,000
b. 300,000
c. 500,000
d. 680,000
29. Entity B, a trustee, undertakes to manage the retirement benefit fund of Entity A for the
benefit of Entity A’s employees. When reporting to Entity A regarding the status and
performance of the fund, Entity B would most likely apply which of the following standards?
a. PAS 19
b. PAS 24
c. PAS 26
d. PFRS 6
30.According to PAS 27, investments in subsidiaries, associates or joint ventures are accounted
for in the separate financial statements
a. at cost.
b. at fair value in accordance with PFRS 9.

c. using the equity method under PAS 28.
d. any of these, as a matter of accounting policy choice.
profit of ₱200,000 and declares dividends of ₱50,000 in 20x1. How much is the carrying amount
of the investment in associate on December 31, 20x1?
a. 600,000
b. 660,000
c. 645,000
d. 630,000
32.Entity A issues convertible bonds with face amount of ₱2,000,000 for ₱2,600,000. Each
₱1,000 bond is convertible into 10 shares with par value of ₱60 per share. On issuance date,
the bonds are selling at 102 without the conversion option. What is the value allocated to the
equity component on initial recognition?
a. 2,040,000
b. 540,000
c. 560,000
d. 460,000
33. According to PAS 34, income tax expenses in interim periods are computed using
a. a weighted average annual income tax rate.
b. a substantially enacted future tax rate.
c. a uniform tax rate for all periods presented, including comparatives.
d. an imputed tax rate
34. If the carrying amount of an asset is less than its recoverable amount, the asset
a. is impaired.
b. should be written-down.
c. is not impaired.
d. should be written-off in profit or loss.
35.Which of the following assets is not tested for impairment in accordance with PAS 36?
a. Property, plant and equipment
b. Inventory
c. Intangible assets
d. Goodwill
36.According to PAS 37, contingent liabilities are
a. recognized and disclosed.
b. always disclosed.
c. disclosed, only if their expected occurrence is remote.
d. not disclosed if their expected occurrence is remote.
37.Which of the following assets can be measured using the revaluation model?
a. Property, plant and equipment
b. Investment property
c. Intangible assets
d. a and c
e. all of these
38.Entity A acquires a building for ₱1,000,000. The building is to be leased out under various
operating leases. The building has an estimated useful life of 10 years and zero residual value.
Entity A uses the cost model for its property, plant and equipment and the fair value model for
its investment property. At the end of Year 1, the building is assessed to have a fair value of
₱1,080,000. How much should Entity A recognize in profit or loss in relation to the building?
a. 80,000 gain on change in fair value
b. 100,000 depreciation
c. 180,000 gain on change in fair value
d. b and c
39.Which of the following is considered an agricultural activity under PAS 41?
a. fishing in the open seas
b. illegal logging
c. floriculture
d. farming in the computer or cellphone
40.Which of the following is accounted for under PAS 41?
a. bearer plants
b. bearer animals
c. government grants related to biological assets measured at cost
d. plants used in landscaping
41.Prior to the full adoption of the IFRSs in 2005, the reporting standards used in the Philippines
were primarily based on
a. US GAAP (SFASs)
b. Japanese GAAP
c. Spaniard GAAP
d. combination of a, b and c
42. Which of the following assets of an acquiree may not be included when computing for the
goodwill arising from a business combination?
a. capitalized kitchen utensils and equipment

b. intangible assets not previously recorded
c. research and development costs charged as expenses
d. goodwill recorded by the acquiree prior to the business combination
43.Imagine you are an awesome auditor. Your “not-so-awesome” client does not know when to
classify assets and liabilities as current or non-current. Which of the following standards would
you suggest your client should refer to?
a. PAS 1
b. PAS 24
c. PAS 34
d. PFRS 1000
44. Imagine you are an awesome accountant. You client, Entity A which is engaged in farming
activities, asked you for an advice on how it will account for its agricultural land. Which of the
following standards would you advise Entity A should use?
a. PAS 7
b. PAS 16
c. PAS 40
d. PAS 41
45. Provisions, contingent liabilities and contingent assets are accounted for using
a. PAS 37
b. PFRS 6
c. PAS 29
d. PAS 8
46. To account for additions and disposals of items of property, plant and equipment, a CPA
would most likely refer to the accounting and disclosure requirements of
a. PAS 2
b. PAS 40
c. PFRS 5
d. PAS 16
47. Entity X acquires 90% interest in Entity Y in a business combination. The most relevant
Standard to be applied to this transaction is
a. PAS 28
b. PAS 3
c. PFRS 5
d. PFRS 3
48. Inventories are accounted for under
a. PAS 1
b. PAS 2
c. PFRS 1
d. PFRS 2
49. You are a member of the board of directors of ABC Co. Your company acquired a building
to be held solely for rentals. You are tasked in selecting an appropriate accounting policy for the
building. In this regard, you will most likely refer to which of the following standards?
a. PAS 17
b. PAS 39
c. PAS 40
d. PAS 41
50. You are the sole proprietor of Entity A. As a requisite to your business loan application, you
were required by the bank to submit audited financial statements. During the audit of your
financial statements, the auditor questioned the carrying amount of your land. The auditor
believes that the carrying amount is overstated and needs to be written down to its recoverable
amount. In your discussions with your auditor, the auditor would most likely refer to this
standard in her report?
a. PAS 36
b. PFRS 1
c. PAS 26
d. PAS 12
FINAL EXAM
1. To be relevant, information should have which of the following?
a. Verifiability.
b. Confirmatory value.
c. Understandability.
d. Costs and benefits.
2. The PFRSs do not apply to
a. sole proprietorships.
b. partnerships.
c. cooperatives.
d. non-profit organizations.
e. The PFRSs apply to all of these entities.
3. "Aanhin mo pa ang damo kung patay na ang kabayo.”
a. Materiality
b. Relevance
c. Timeliness
d. Biological asset - Horse
4. This refers to financial statements that are intended to meet the needs of users who are not in
a position to require an entity to prepare reports tailored to their particular information needs.
a. All-purpose financial statements
b. General purpose financial statements
c. Managerial reports
d. Unisex financial statements
5. A complete set of financial statements does not include a
a. statement of financial position
b. statement of comprehensive income
c. statement of retained earnings
d. notes
6. Which of the following is an acceptable method of reporting other comprehensive income and
its components?
a. In a statement of profit or loss and other comprehensive income.
b. In a statement of changes in equity
c. In the notes only.
d. All of these
7. Which of the following may be included in the cost of inventories?
a. Storage costs of part-finished goods
b. Abnormal amount of wasted costs of materials, labor and factory overhead
c. Recoverable purchase taxes

d. Administrative costs
8. Which of the following cost formulas is not allowed under PAS 2?
a. FIFO
b. Weighted average
c. Specific identification
d. LIFO
9. Interest expense that is paid in cash is presented in the statement of cash flows under
a. operating activities.
b. investing activities
c. financing activities
d. a or c
10. When it is difficult to distinguish a change in accounting policy from a change in accounting
estimate, the change is treated as
a. a change in an accounting estimate.
b. a change in an accounting policy.
c. a correction of prior period error.
d. not accounted for.
11. ABC Co. completes the draft of its December 31, 20x1 year-end financial statements on
January 31, 20x2. On February 5, 20x2, the board of directors reviews the financial statements
and authorizes them for issue. The entity announces its profit and selected other financial
information on February 23, 20x2. The financial statements are made available to shareholders
and others on March 1, 20x2. The shareholders approve the financial statements at their annual
meeting on March 18, 20x2 and the approved financial statements are then filed with a
regulatory body on April 1, 20x2. Events after the reporting period are those occurring
a. from December 31, 20x1 to February 5, 20x2.

b. from January 1, 20x2 to February 5, 20x2.
c. from January 1, 20x2 to February 23, 20x2.
d. from January 1, 20x2 to March 18, 20x2.
12. These are differences that do not have future tax consequences.
a. Permanent differences
b. Taxable differences
c. Temporary differences
d. Deductible differences
13. This type of difference will give rise to deferred tax asset.
a. Taxable temporary difference
b. Permanent difference
c. Deductible temporary difference
d. No difference
14. In accounting parlance, depreciation means
a. the amount derived by dividing the cost of an asset over its useful life.
b. the amount derived by multiplying the cost of an asset by its useful life.
c. the systematic allocation of the depreciable amount of an asset over its useful life.
d. the decline the in the value of an asset during the period.
15. It is a type of retirement plan where the employer assures a definite amount of benefit to be
received by the employee. The risk that funds needed to pay the agreed benefits may be
insufficient is retained by the employer.
a. Defined contribution plan
b. Defined benefit plan

c. Leche plan
d. Plan vs. zombies
16. According to PAS 23, borrowing costs are capitalized when
a. they relate directly to the acquisition, construction or production of a qualifying asset.
b. the entity chooses to capitalize them.
c. they are material and are expected to be incurred over more than one reporting period.
d. all of these
17. Which of the following are not related parties?
a. A parent and its subsidiary
b. Two or more subsidiaries with the same parent
c. A company and its Chief Executive Officer
d. Two co-venturers of a common joint venture business
18. According to PAS 27, which of the following is required to present separate financial
statements?
a. A publicly-listed entity
b. A parent
c. An entity with an investment in associate
d. None of these
profit of ₱1,000,000 and declares dividends of ₱100,000 in 20x1. How much is the carrying
amount of the investment in associate on December 31, 20x1?
a. 800,000
b. 1,250,000
c. 1,000,000
d. 1,025,000
20. Entity A issues convertible bonds with face amount of ₱2,000,000 for ₱2,600,000. Each
₱1,000 bond is convertible into 10 shares with par value of ₱60 per share. On issuance 177
date, the bonds are selling at 102 without the conversion option. What is value allocated to the
equity component on initial recognition?
a. 2,040,000
c. 540,000
d. 560,000
e. 460,000
a. All entities should publish quarterly interim reports.
b. All publicly-listed entities should publish quarterly interim reports.
c. All publicly-listed entities should publish semi-annual interim reports.
d. PAS 34 does not require any entity to publish interim reports, and how often.
22. If a cash-generating unit (CGU) is impaired, the impairment loss is allocated first to
a. the goodwill in that CGU.
b. the noncurrent assets in that CGU.
c. the current assets in that CGU.
d. a and b
23. The amount at which an asset is recorded in the books of accounts minus any accumulated
depreciation and accumulated impairment losses is referred to as
a. fair value.
b. cost.
c. carrying amount.
d. amortized cost.
24. Which of the following is considered a bearer plant?
a. Palm oil
b. Corn oil
c. Baby oil
d. Oil palm
25. According to PFRS 5, assets held for sale are measured at a. fair value. b. fair value less
costs to sell. c. carrying amount. d. lower of b and c 26.After recognition, exploration and
evaluation assets are accounted for under the
a. cost model
b. fair value model
c. revaluation model
d. a or c
27. Entity A acquires a legal right to search for mineral resources in a specific area. What PFRS
should Entity A apply in accounting for the costs it incurs on its exploration and evaluation
activities?
a. PAS 26
b. PFRS 4
c. PFRS 5
d. PFRS 6
28. Which of the following properly describes credit risk?
a. The possibility that Entity A will not be able to settle its financial liabilities when they become
due.
b. The possibility that Entity A will incur loss on its foreign-currency denominated financial
instruments when there is an adverse change in foreign exchange rates.
c. The possibility that Entity A cannot collect on its receivables.
d. The possibility that Entity A will be required to pay higher interest on its variable-rate loan
when market interest rates increase.
29. Andrix Domingo’s Sari-sari Store has a sign that reads “Your credit is good but I need cash.”
What type of risk is Mr. Andrix trying to avoid by putting up that sign?
a. credit risk
b. market risk
c. liquidity risk
d. store risk
30. Rex Banggawan Co. acquires investment in stocks of Darrell Joe Asuncion. The investment
will be held for trading and it gives Rex neither significant influence nor control over Darrell. Rex
will most likely measure the investment
a. at fair value through profit or loss.
b. using the equity method.
c. at amortized cost.
d. at historical cost
31. According to PFRS 10, which of the following is not an element of control?
a. power
b. exposure, or rights, to variable returns
c. major holdings
d. ability to affect return.
32. Which of the following is a peculiar characteristic of a joint arrangement?
a. significant influence
b. joint control
c. control
d. joint venture
33. This PFRS provides a single framework for measuring the fair value of an asset, liability or
equity when other PFRSs require or permit measurement at fair value or fair value less costs to
sell. It also prescribes the disclosures related to fair value measurement.
a. PFRS 3
b. PAS 1
c. PFRS 9
d. PFRS 13
34. The tenant (as opposed to the landlord) in a lease contract is referred to as the
a. Lessor
b. Lessee
c. Leasee
d. Tenor
35. Which of the following is a characteristic of a finance lease?
a. The lease term is substantially less than the estimated economic life of the leased property.
b. The lease contains a bargain-purchase option.
c. The present value of the minimum lease payments at the beginning of the lease term is 75%
or more of the fair value of the property at the inception of the lease.
d. The lease obligation does not appear in the balance sheet of the lessee.
36. Leases are accounted for under
a. PAS 16
b. PFRS 14
c. PFRS 15
d. PFRS 16
37. PFRS 8 relates to which of the following?
a. Disclosure of operating segments
b. Disclosure of related party relationships and transactions
c. Disclosure of events after the reporting period
d. Interim financial reporting
38. You are the accountant of ABC Co. During the period, ABC Co. acquired short-term
investment in stocks, which of the following financial reporting standards would most likely be
relevant in accounting for the transaction? a. PFRS 8 b. PFRS 9 c. PAS 28 d. b or c 180 39.You
are a CPA and were engaged to audit the annual financial statements of ABC Co., a mining
company. Which of the following standards is most likely relevant to ABC Co.?
a. PFRS
4 b. PAS 34
c. PAS 41
d. PFRS 6
40. You are the accountant of ABC Co. During the period, your company acquired majority
holdings in XYZ, Inc. This transaction gave rise to goodwill. Which of the following standards will
be referred to in your company’s notes to the financial statements under summary of significant
accounting policies?
a. PFRS 3
b. PFRS 10
c. PAS 36
d. All of these
41. You are the accountant of Entity X. The board of directors asked you for an advice because
they feel like the company’s financial statements do not properly reflect the company’s financial
position. The board noted out that the company’s properties (i.e., land) are absurdly stated at
their historical cost. The properties were acquired 50 years ago and the market prices of the
properties have more than tripled since then. In providing your professional advice, you will
most certainly quote the provisions of which of the following standards?
a. PAS 7
b. PAS 33
c. PAS 16
d. All of these
42. When determining whether an investor controls an investee, the investor should refer to
a. PAS 21
b. PFRS 10
c. PAS 10
d. PAS 1
43. When measuring the fair value of an asset or a liability, an entity refers to
a. PFRS 13
b. PAS 28
c. PFRS 1
d. PFRS 7
44. Non-current assets held for sale and discontinued operations are accounted for under
a. PFRS 4 181
b. PAS 41
c. PFRS 5
d. PFRS 8
45. The equity method of accounting for investments is discussed under

a. PAS 28
b. PAS 29
c. PAS 21
d. PFRS 2
46. The computation of employee retirement benefits expense is addressed in this standard.
a. PAS 17
b. PFRS 7
c. PAS 19
d. PFRS 9
47. This standard deals with the recognition and measurement of financial instruments.
a. PAS 32
b. PFRS 7
c. PFRS 9
d. PFRS 3
48. Joint arrangements are discussed under
a. PFRS 1
b. PFRS 11
c. PAS 20
d. PAS 24
49. Entity A is preparing its first PFRS financial statements. Which of the following standards is
most relevant to Entity A?
a. PFRS 1
b. PAS 12
c. PAS 8
d. PFRS 9
50. This standard is most relevant to insurance companies.
a. PFRS 14
b. PFRS 15
c. PFRS 16
d. PFRS 17

Chapter 1 - Pretest

Uploaded by

Copyright:

Available Formats

Chapter 1 - Pretest

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chapter 1 - Pretest

Uploaded by

Copyright:

Available Formats

CHAPTER 1 – PRETEST

b. sale of equipment for non-interest bearing note

c. subscription of the entity’s own equity instrument (i.e., contributions by owners)

d. exchange of a note payable for an account payable

e. borrowing of money from a bank

3. All of the following are events considered nonreciprocal transfers, except

a. declaration of cash dividends

b. declaration of stock dividends

c. payment of accounts payable

4. These are events involving an entity and another external party.

5. It is the accounting process of assigning numbers, commonly in monetary terms, to the

6. What is the basic purpose of accounting?

a. To provide quantitative financial information about economic activities.

b. To provide all information that users need in making economic decisions.

c. To provide qualitative financial information about economic activities intended to be useful in

d. To provide quantitative financial information about economic activities intended to be useful in

7. Accounting provides which type of information?

8. General purpose financial statements are:

9. External users are those

10.The primary objective of financial reporting is to provide

b. information useful for investment and credit decisions.

c. information useful in predicting future cash flows.

CHAPTER 1 - POST TEST

1. A soundly developed conceptual framework of concepts and objectives should

a. increase financial statement users' understanding of and confidence in financial reporting.

b. enhance comparability among companies' financial statements.

c. allow new and emerging practical problems to be more quickly soluble.

2. The overall objective of financial reporting is to provide information

a. about an entity's assets, liabilities, and owners' equity.

b. about an entity's financial performance during a period.

c. that is useful in making economic decisions.

a. comparability and consistency.

b. materiality and timeliness.

c. relevance and reliability.

d. faithful representation and relevance

4. Late information lacks this qualitative characteristic.

5. Which of the following is considered a qualitative factor in making materiality judgments?

b. 10% of profit or loss, in absolute terms

d. Government regulatory body

a. Fair presentation and compliance with PFRSs

d. Materiality and aggregation

b. Certified Public Accountant

a. Statement of financial position

b. Statement of comprehensive income

c. Statement of cash flows

d. Statement of changes in equity

a. Statement of financial position

b. Statement of profit or loss and other comprehensive income

c. Statement of cash flows

a. Other comprehensive income

c. Total comprehensive income

14.Which of the following is added to the cost of inventories?

a. Storage costs of part-finished goods

c. Refundable purchase taxes

15.Which of the following costs are included in the cost of inventories?

b. Abnormal material usage

c. Storage costs relating to finished goods

d. Administrative and general overhead

c. Deducted in arriving at NRV