COLLEGE OF BUSINESS ADMINISTRATION

Final Examination in
CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS
(ACCN03B)
GENERAL INSTRUCTION: On the separate answer sheet provided, legibly write (use Capital Letters) the best letter
that corresponds to your answer for each of the following theoretical questions. For the problem solving part, indicate
the unit of measure for every answer (ex. ₱ or $, %, “units” or any other measure as appropriate).

I. MULTIPLE CHOICE - THEORETICAL (40 points)

1. Financial accounting is shaped to a significant extent, by the environment, and in particular all of the
following, except
a. The characteristics and limitations of financial accounting and financial statements
b. The many uses and users which it serves
c. The overall organization of economic activity in society
d. The means of measuring economic activity

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

a. About a firm’s financing and investing activities
b. About a firm’s economic resources and obligations
c. About a firm’s products and services
d. Useful in predicting cash flows

3. The body of rules that dictates that entire profit must be recognized at the moment and in the period of sale is
called
a. Cost convention c. Realization convention
b. Going concern convention d. Conservatism

4. Which of the following is not an objective of using present value in accounting measurements?
a. to capture the value of an asset or a liability in the context of a particular entity
b. To estimate fair value
c. To capture the economic difference between sets of future cash flows
d. To capture the elements that taken together would comprise a market price if one existed

5. Which of the following is true of the qualitative characteristic of understandability in relation to information in
financial statements?
a. Users should be willing to study the information with reasonable diligence
b. Users are expected to have significant business knowledge
c. Financial statements should exclude complex matters
d. Financial statements should be free from material error

6. Which of the following terms best describes the amount of cash or cash equivalent that could currently be
obtained by selling an asset in an orderly disposal?
a. Fair value b. Realizable value c. Residual value d. Value in use

7. The process of establishing financial accounting standards

a. is a democratic process in that a majority of practicing accountants must agree with a standard before it
becomes implemented.
b. is a legislative process based on rules promulgated by government agencies.
c. is based solely on economic analysis of the effects each standard will have if it is implemented.
d. is a social process which incorporates political actions of various interested user groups as well as
professional research and logic.

8. Proper application of accounting principles is most dependent upon the

a. Existence of specific PFRS c. External audit function
b. Oversight of regulatory bodies d. Professional judgment of the accountant

9. The implementation constraints include all of the following except

a. Materiality b. Conservatism c. Cost-benefit d. Separate entity

10. What is the quality of information that gives assurance that it is reasonably free of error and bias?
a. Relevance b. Faithful representation c. Verifiability d. Neutrality

11. Uncertainty and risk inherent in business situations should be adequately considered in financial reporting.
This statement is an example of the concept of
a. Disclosure b. Completeness c. Neutrality d. Conservatism

12. Imputing interest for certain assets and liabilities is primarily based on the concept of
a. Conservatism b. Valuation c. Consistency d. Stable monetary unit

13. Verifiability of accounting information is synonymous with

Prepared by: Sir Orly Manalang CFAS FINALS - Page 1 of 4

 a. Faithful representation c. Prudence
b. Substance over form d. Completeness

14. Which of the following statements concerning the objectives of financial reporting is correct?
a. The objectives are intended to be specific in nature
b. The objectives encompass not only financial statement disclosures but other information as well
c. The objectives are the end result of the conceptual framework project
d. The objectives are directed primarily toward the needs of internal users of accounting information

15. The financial statements prepared under GAAP

a. Do not articulate with one another
b. Reflect a single measurement basis which is historical cost
c. Are not highly precise because many estimates and judgments must be made
d. Contain a limited number of future projections, such as projected sale

16. The primary measurement basis currently used to value assets in general purpose financial statements of an
entity is
a. The current market price if the assets currently held by an entity were sold on the open market
b. The current market price if the assets currently held by an entity were purchased on the open market
c. The present value of the cash flows assets are expected to generate over their remaining useful lives
d. The market price of the assets at the date the assets were acquired

17. Asset measurements in conventional financial statements

a. Are confined to historical cost c. Reflect several financial attributes
b. Are confined to historical cost and current cost d. Do not reflect output values

18. Which of the following financial attributes of assets is generally considered to be the most relevant?
a. Present value b. Current exit value c. Current cost d. Historical cost

19. Choose the correct statement about generally accepted accounting principles
a. They are laws
b. The Bureau of Internal Revenues enforces GAAP
c. Firms that do not comply with GAAP may suffer negative economic consequences
d. GAAP and tax principles are the same

20. The following expenditures should be expensed as incurred, except

a. Expenditures on advertising and promotional activities
b. Payments for organization expense
c. Expenditures in relocating or reorganizing part or all of the enterprise
d. Payment in advance of delivery of goods or services

21. Which accounting assumption or principle is being violated if a company provides financial reports in
connection with a new product introduction?
a. Economic entity b. Periodicity c. Revenue recognition d. Full disclosure

22. The valuation basis used in conventional financial statement is

a. Replacement cost c. Original cost
b. Fair value d. A mixture of cost and value

23. The information provided by financial reporting pertains to

a. Individual business enterprises and an economy as a whole or to members of society as consumers
b. Individual business enterprises and an economy as a whole, rather than to industries or to members of
society as consumers
c. Individual business enterprises, rather than to industries or an economy as a whole or to members of
society as consumers
d. Individual business enterprises, industries and an economy as a whole, rather than to members of society
as consumers

24. During a period when an entity is under the direction of a particular management, financial reporting will
directly provide information about
a. Both entity performance and management performance
b. Management performance but not entity performance
c. Entity performance but not management performance
d. Neither entity performance nor management performance

25. The following are not considered items of “Cash and Cash equivalents”, except
a. Certificate of time deposit
b. Three-month treasury note maturing on January 31 of the succeeding year purchased from the entity on
November 15 of the current year
c. Three-year treasury note maturing on January 31 of the succeeding year sold by the entity on November
15 of the current year
d. Post-dated checks issued on the balance sheet date

26. Accounting for inventories applying the lower of cost of net realizable value is an example of the application of
a. Materiality b. Conservatism c. Comparability d. Consistency
27. Reporting inventory at the lower of cost or net realizable value is a departure from the accounting principle of
a. Historical cost b. Consistency c. Conservatism d. Full disclosure

28. Under PAS 38, which of the following is not part of the definition of intangible assets?
a. Identifiable non-monetary assets c. Future economic benefits
b. Lacking physical substance d. With finite life

29. The cost of intangible asset acquired by way of government grant is recorded at
a. Fair value c. Either “a” or “b”
b. Nominal amount plus direct costs d. Neither “a” nor “b”

30. Which of the following factors is not considered in determining the useful life of an intangible asset?
a. Initial cost c. Expected usage of the asset
b. Legal or contractual provisions d. Expected actions of competitors

31. If there is evidence that an impairment loss on loan receivable has been incurred, the loss is equal to the
a. Excess of the present value of cash flows related to the loan over the carrying amount of the loan
receivable
b. Excess of the carrying amount of the loan receivable over the present value of the cash flows related to
the loan
c. Excess of the carrying amount of the loan over the principal amount of the loan
d. Excess of the principal amount of the loan over its carrying amount

32. Amortization of intangible assets results primarily from application of the

a. Full disclosure principle c. Matching principle
b. Revenue principle d. Cost principle

33. Which of the following should not be amortized over the periods of estimated benefit?
a. Development costs that resulted in a successful product
b. Lease rights paid to owner of property for the usufruct
c. Costs incurred in organizing a corporation
d. Patent right purchased from an inventor

34. For which of the following assets is it most appropriate to test for impairment at least annually?
a. Land
b. A patent with a legal life of 20 years
c. A trademark with an expected indefinite life
d. A building wherein declining balance method of depreciation is being used

35. An entity has a portfolio of marketable equity securities which it does not intend to sell in the near term. How
should the entity classify these securities and how should it report unrealized gains and losses from these
securities?
a. Trading securities and component of income
b. Financial assets at fair value through other comprehensive income and component of shareholders’ equity
c. Trading securities and component of shareholders’ equity
d. Financial assets at fair value through other comprehensive income and component of income

36. The option to designate financial assets at FVPL and the election to classify financial assets at FVOCI are
available to an entity’s management
a. On initial recognition and subsequent thereof c. On initial recognition only
b. Subsequent to initial recognition only d. Not available

37. The option to designate financial assets at FVPL and the election to classify financial assets at FVOCI are
a. Revocable c. Irrevocable
b. Mandatory d. Revocable under certain circumstances

38. The cost of property acquired by installment is equal to

a. List price b. Cash purchase price c. Invoice price d. Installment price

39. This is the estimated amount that an entity would currently obtain from disposal of the asset, after deducting
the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end
of its useful life
a. Value in use c. Salvage value
b. Fair value less costs to sell d. Depreciable value

40. Which of the following is not a major characteristic of a plant asset?

a. Possesses physical substance c. Acquired for use
b. Acquired for resale d. Yields services over a number of years
II. PROBLEM SOLVING (30 points)
CASE 1:
SIMULANNGTAMA Company shows the following account balances in their financial records as of December
31, 2019
Checking account at Morgan Bank ₱ (20,000)
Checking account at Land Bank 500,000
Payroll account at National Bank 100,000
Foreign bank account – restricted 750,000
Postage stamps 22,000
Employees’ post-dated check 30,000
I.O.U. from president’s brother 75,000
Traveller’s check 50,000
No-Sufficient-Fund Check 18,000
Petty cash fund (₱16,000 in currency, and expenses receipts for ₱84,000) 100,000
Cashier’s checks 36,000
What is the correct cash balance to be reported in the balance sheet of SIMULANNGTAMA Company on
December 31, 2019? (3 points) ₱702,000

CASE 2:
The cash account in the current asset section of the balance sheet for WAGSAYANGIN Corporation showed a
balance of ₱555,000. It was found to include the following items:
Petty cash fund (₱1,000 is in the form of paid vouchers), ₱5,000;
Checking account balance, per bank statement (a ₱25,000 check is still outstanding), ₱255,000;
Undeposited receipts (including a post-dated check for ₱5,000), ₱120,000;
Currencies and coins awaiting deposit ₱55,000;
Bond sinking fund, ₱100,000;
Check drawn by manager, returned by bank marked NSF, ₱20,000.
What is the correct cash balance for WAGSAYANGIN Corp.’s balance sheet? (3 points) ₱404,000

CASE 3:
During 2011, GUSTOMOTOEH Company held 30,000 shares of WEH Company’s 100,000 outstanding shares,
wherein GUSTOMOTOEH has insignificant influence over WEH, and 6,000 shares of DINGA Company’s 300,000
outstanding shares. During the year, GUSTOMOTOEH received ₱300,000 cash dividend from WEH, ₱15,000
cash dividend and 3% stock dividend from DINGA. The closing price of DINGA share is ₱150. What amount
should be reported as dividend revenue for 2011 by GUSTOMOTOEH Company? (3 points) ₱315,000

CASE 4:
DONT Corp. issued rights to subscribe to its stock, the ownership of 4 shares entitling the shareholders to
subscribe for 1 share at ₱110. GIVEUP Co. owned 50,000 shares of DONT Corp. with total cost of ₱5,000,000.
The share is quoted right-on at ₱125. The stock rights are accounted for separately. What is the cost of the
new investment if all of the stock rights are exercised by GIVEUP Co.? (3 points) ₱1,525,000

CASE 5:
You have been instructed by LABANLANG Company, a high-flying conglomerate, to conduct a purchase review
of WAGSUKO Co.’s books to determine a possible purchase price for WAGSUKO Co.’s net assets. You found
the following information:
Total identifiable assets of WAGSUKO Co. at fair market value ₱ 5,000,000
Liabilities 1,200,000
Average rate of return on net assets for WAGSUKO Co.’s industry 15%
Forecasted earnings per year based on past earnings figures 700,000
Determine the purchase price on the basis of the following assumptions:
1. Goodwill is equal to 3 years’ excess earnings. (4 points) ₱4,190,000
2. Goodwill is equal to the present value of excess earnings discounted at 15% for 3 years. (the present
value factor of an ordinary annuity of 1 at 15% for 3 periods is 2.28323) (4 points) ₱4,096,820
3. Goodwill is equal to the capitalization of excess earnings at 15%. (4 points) ₱4,666,667

CASE 6:
On June 1, 2010, HANGGANGDULO Mining Corporation acquired the rights to a coal mine containing an
estimated reserves of 2,000,000 tons of coal. The company estimated that 25,000 tons of cost would be
extracted and sold each month. Cost allocable to coal was ₱7,000,000.
Also on June 1, 2010, the company purchased an equipment to be used in the production, costing ₱190,000
which has an estimated useful life of 10 years. The equipment was expected to become obsolete after all the
coal deposits had been extracted from the mine and only ₱10,000 selling price of the equipment could be
expected. Production was in full blast since June 2, 2010.
1. What would be the depletion expense for the year ended December 31, 2010? (3 points) ₱612,500
2. What would be the depreciation expense on the new equipment for the year ended December 31, 2010?
(3 points) ₱15,750
“The only true wisdom is in knowing you know nothing.”
-Socrates
“Failure doesn’t really exist, not until the time you believe it does”
-Orlando D. Manalang, CPA, REB

Prepared by: Sir Orly Manalang CFAS FINALS - Page 4 of 4