AFAR Theories Reviewer For CPALE

ADVANCED FINANCIAL ACCOUNTING AND REPORTING (THEORIES)
Compiled by Vhin
MULTIPLE CHOICE QUESTIONS
1. Which of the following gain or loss on changes in the value of derivates shall be presented in other
comprehensive income with reclassification adjustment to profit or loss if already realized?
a. Gain or loss on changes of intrinsic value of derivates classified as undesignated hedge
b. Gain or loss on changes of value of derivates designated as cash flow hedge arising from its
ineffective portion
c. Gain or loss on changes of value of derivatives designated as hedge of net investment in
foreign operation arising from its effective portion
d. Gain or loss on changes of time value of derivatives designated as fair value hedge
2. Under PAS 21, what is the accounting treatment of exchange differences arising from translating
financial statement in entity's functional currency into entity's presentation currency?
a. It shall be presented and recognized in other comprehensive income with reclassification
adjustment to profit or loss.
b. It shall be presented and recognized in other comprehensive income without reclassification
c. It shall be presented and recognized in profit or loss.
d. It shall be presented and recognized as change in accounting policy in statement of changes in
equity.
3. Which of the following cash flows shall be classified as part of operating activities in the Statement of
Cash Flows of a nonprofit organization?
a. Cash payment for the acquisition of service bus of the organization
b. Cash receipt from sale of souvenir items of the organization
c. Cash payment for the matured loans payable of the organization
d. Cash receipt from donor who restricted the fund for research project of the organization
4. This phase in the national government budgetary process involves the enactment of the General
Appropriations Act by the Congress of the Philippines based on the proposed national budget submitted
by the President of the Republic of the Philippines.
a. Budget Preparation
b. Budget Legislation
c. Budget Execution
d. Budget Accountability
5. When will the equivalent unit of production computed for direct materials under FIFO Process be always
the same with the equivalent unit of production computed for direct materials under Average Process in
case Work in Process Inventory Beginning is present?
a. When all direct materials are added at the start of the production process
b. When direct materials are added evenly throughout the production process
c. When all direct materials are added at the middle of the production process
d. When all direct materials are added at the end of the production process
6. If the Parent Corporation accounts its Investment in Subsidiary using cost method in its separate financial
statements, which income item will appear in its separate statement of comprehensive income?
a. Gain on bargain purchase in case the fair value of net assets acquired is higher than the fair value
of the consideration given up for the acquisition of the investment in subsidiary
b. Dividend income from subsidiary when its right to receive dividend is established through
declaration by the board of directors of its subsidiary
c. Investment income or share in adjusted net income of its subsidiary
d. Gain on changes in fair value of investment in subsidiary
7. Under PFRS 3, what is the accounting treatment when an acquirer obtains control of a business?
a. It shall be accounted for using cost method.
b. It shall be accounted for using pooling of interest method.
c. It shall be accounted for using equity method.
d. It shall be accounted for using acquisition method.
AFAR THEORIES Compiled by Vhin
8. Under PAS 21, when translating foreign current denominated asset into entity's functional currency, what
is the exchange rate to be used for translating investment property accounted for using cost model at
each subsequent statement of financial position date?
a. Exchange rate at the date of transaction a.k.a. historical rate
b. Exchange rate at the end of reporting period a.k.a. closing rate
c. Exchange rate that existed when the fair values were determined
d. Average exchange rate for each year
9. Which of the following credits shall be settled first by the corporate liquidator in the winding up of the
affairs of a dissolved corporation?
a. Book value per share for the common stockholders of the dissolved corporation
b. Liquidation value per share for the preferred stockholders of the dissolved corporation
c. Redemption value of the stocks for the redeemable preferred stockholders of the dissolved
corporation
d. Claims of the creditors of the dissolved corporation
10. If a retiring partner receives more than his adjusted capital balance before retirement, what is the logical
reason if the capital balances of the remaining partner decrease after the said retirement?
a. Bonus is given by remaining partners to retiring partner
b. Bonus is given by retiring partner to remaining partners
c. Goodwill arising from retirement of a partner is recognized.
d. Impairment loss of an existing asset is recognized at the time of retirement.
11. Which of the following will increase the cost of goods sold during the year?
a. Increase in the salaries of inventory accountant during the year
b. Decrease in finished goods inventory during the year
c. Increase in work in process inventory during the year
d. Decrease in purchases of direct materials during the year
12. Entity A and Entity B incorporated Entity C. The contractual agreement of the incorporating entities
provides that decisions about the relevant activities of Entity require the unanimous consent of Entity A
and Entity B. The contractual agreement provides that Entity A and Entity B have rights to the assets,
and obligations for the liabilities, relating to Entity C. How shall Entity A and Entity B account their
interests in Entity C?
a. They shall be accounted for as Investment in Associate using Equity Method under PAS 28.
b. They shall be accounted for as joint operation under PFRS 11.
c. They shall be accounted for as Investment in Joint Venture using Equity Method under PFRS 11
in relation to PAS 28.
d. They shall be accounted for using acquisition method under PFRS 3 and PFRS 10.
13. Which of the following transactions will result to credit to home office account in the book of the
branch?
a. Collection by the branch of its own receivable
b. Net loss reported by the branch
c. Payment by the home office of the payable of the branch
d. Return by the branch of merchandise coming from the home office
14. The Republic of the Philippines contracted with a SLEX Incorporated to develop, operate and maintain
the grantor's skyway connecting North Luzon Expressway and South Luzon Expressway. SLEX
Incorporated has received the license or right to charge users of the skyway that it constructs and then
must operate and maintain for a period of 50 years. How shall SLEX Incorporated account its interest in
the said skyway?
a. It shall be accounted under PAS 38: Intangible Asset.
b. It shall be accounted under PFRS 9: Financial Asset classified as debt instrument.
c. It shall be accounted under PAS 16: Property, Plant and Equipment.
d. It shall be accounted under PAS 40: Investment Property.
15. The entity reported a net unfavorable direct labor variance. If the standard direct labor hours to be
rendered are higher than the direct labor hours actually rendered, which is correct?
a. The actual direct labor cost is lower than the standard direct labor cost.
b. The standard direct labor rate is lower than the actual direct labor rate.
c. The amount debited to work in process is higher to the amounted credited to salaries payable.
d. The entity debited labor efficiency variance and credited labor rate variance.
16. Under PFRS 15, when shall entity recognize revenue from contract with customers?
a. When it is probable that future economic benefits will flow to the entity and the fair value of the
revenue can be measured reliably.
b. When the entity has already collected the consideration from revenue from contract with
customers.
c. When or as the entity satisfies a performance obligation.
d. When the entity becomes a party to a contract.
17. When will the balance of construction in progress computed under cost recovery method be higher than
the balance of construction in progress computed under percentage of completion method?
a. In the year when the estimated contract price is lower than the estimated total construction cost.
b. In the year when the entity reported realized gross profit under cost recovery method.
c. In the year when entity reported realized gross loss under percentage of completion method.
d. Such scenario will never happen throughout the lifetime of the project.
18. What is the accounting treatment to the excess of the net installment receivable (installment receivable
minus deferred gross profit) over the fair value of the repossessed inventory at the date of the
repossession of inventory due to the default of the installment balance?
a. Deferred gain on repossession classified as liability
b. Loss on repossession as part of profit or loss
c. Deferred loss on repossession as part of other comprehensive income
d. Gain on repossession as part of other comprehensive income
19. Under PFRS 3, what is the accounting treatment of the costs related to the acquisition by the acquirer of
the acquiree such as finder's fee, professional fees, consulting fees and general administrative cost?
a. They shall be expensed as incurred.
b. They shall form part of the consideration given up in the business combination.
c. They shall be debited to share premium.
d. They shall be charged to goodwill or gain on bargain purchase arising from business
combination.
20. Under PFRS 15, what is measurement basis of revenue from contract with customers?
a. Historical cost of the consideration received or receivable
b. Book value of the consideration received or receivable
c. Fair value of the consideration received or receivable
d. Recoverable amount of the consideration received or receivable
21. Which of the following transactions will increase the cost of goods manufactured for the year ended?
a. Decrease in work in process inventory for the year ended
b. Decrease in total manufacturing costs for the year ended
c. Decrease in finished goods inventory for the year ended
d. Decrease in conversion cost for the year ended
22. In the liquidation of general partnership, which of the following claims shall be settled first by the
liquidating partner?
a. Capital contribution by the managing partner
b. Share in profit by the industrial partner
c. Employee benefits of workers
d. Advances made by capitalist partner to the partnership
23. In what year will the balance of construction in progress under percentage of completion method be
certainly equal to the balance of construction in progress under cost recovery method?
a. In the year when the entity recognizes realized gross loss under percentage of completion
method.
b. In the year when the entity recognizes realized gross loss under cost recovery method.
c. In the year when the entity recognizes realized gross profit under percentage of completion
method.
d. In the year when the entity recognizes realized gross profit under cost recovery method.
24. In the liquidation of a stock corporation, which of the following claims shall be settled last by the
corporate liquidator?
a. Capital contribution by preferred stockholders
b. Unsecured liability to corporate suppliers
c. Income tax liability of the corporation
d. Investment of ordinary shareholders
25. Under PFRS 15, when shall an entity recognize revenue from contracts with customers?
a. When the entity becomes a party to a contract.
b. When it is probable that any future economic benefit associate with the item of revenue will flow
to the entity and the amount of revenue can be measured reliably.
c. When (or as) the entity satisfies a performance obligation.
d. When the entity receives the cash consideration.
26. Which of the following transactions will result to debit in Investment in Pasig branch account in the
home office's book?
a. Collection of Panig branch's receivable by Pasig Branch
b. Net income reported by Panig branch
c. Payment by Pasig Branch of Panig branch's payable
d. Credit memo received by home office from Panig branch
27. What is the reason for the understatement in the branch's reported net income in its separate income
statement as compared to the branch's true net income reported in the entity's combined income
statement?
a. Overstatement of the branch's ending inventory coming from the home office
b. Overstatement of the branch's reported shipment from home office
c. Overstatement of the branch's beginning inventory coming from the home office
d. Overstatement of the branch's reported cost of sales for goods coming from home office
28. Which of the following costs is common to both prime costs and conversion costs?
a. Freight in, insurance in transit and handling costs of the main material of the product
b. Wage of the factory workers
c. Salary of the inventory accountant
d. Depreciation of the factory building and factory equipment
29. Under PFRS 15, when shall a consignor recognize revenue from consignment sales?
a. When the consignor delivers the consigned goods to the consignee.
b. When the consignor and consignee enter into a contract.
c. When the consignee actually remits to the consignor the net proceeds from the sale of consigned
goods to third persons.
d. When the consignee sells and delivers the consigned goods to third persons.
30. A partners retires from the partners and receives an amount higher than his capital balance at the time of
his retirement. Under Philippine GAAP, which of the following explanation is valid if the capital
balances of the remaining partners increase after such retirement?
a. Bonus has been given by the retiring partner to the remaining partners.
b. Asset revaluation has been recognized at the time of retirement.
c. Goodwill arising from partner's retirement has been recognized.
d. Bonus has been given by remaining partners to retiring partner.
31. Under PFRS 15, which of the criteria will justify an entity to recognize revenue from contract with
customers over a period of time?
a. When the entity’s performance creates or enhances an asset that the customer controls as
the asset is created.
b. When the entity has transferred physical possession of the asset which is the subject matter of the
performance obligation.
c. When the customer acquires the significant risks and rewards related to the ownership of the
asset upon full payment of the price.
d. When the customer obtains legal title to the asset upon the execution of the formality required by
law.
32. Under Philippine GAAP, what is the proper classification in the financial statement of deferred gross
profit account resulting from the application of installment method of revenue recognition of installment
sales?
a. Unearned revenue account in the liability section of Statement of Financial Position
b. Contra-account to installment receivable in the asset section of Statement of Financial
Position
c. Revenue account in the income section of Income Statement
d. Loss in the expense section of Income Statement
33. If the collection of the long-term note received as consideration for initial services rendered by
Franchisor to Franchisee is unlikely but not remote, what method shall be used by the franchisor to
recognize gross profit from initial franchise fee revenue?
a. Accrual basis
b. Cost recovery method
c. Installment method
d. Percentage of completion method
34. Under Normal Costing, material or significant over-application/under-application of factory overhead

shall be closed to
a. Cost of goods sold only.
b. Proportionately to ending finished goods and cost of goods sold.
c. Proportionately to ending work in process, ending finished goods and cost of goods sold.
d. Proportionately to ending raw materials, ending work in process, ending finished goods and cost
of goods sold.
35. In the absence of profit agreement, how shall the profits of the partnership be distributed to capitalist
partners assuming there is no industrial partner?
a. It shall be divided in accordance with the loss agreement ratio.
b. It shall be divided in accordance with capital contribution ratio.
c. It shall be divided equally.
d. It shall be forfeited in favor of the state.
36. What cost accounting system is ideal for just in time production system?
a. Actual costing system
b. Normal costing system
c. Standard costing system
d. Flexible costing system
37. If the net realizable value of the by-product resulting from joint production is material or significant,
how shall the entity account the net realizable value of the by-product?
a. It shall be presented as other income.
b. It shall be deducted from the total manufacturing cost of main products.
c. It shall be added to the sales revenue of main products.
d. It shall be deducted from the costs of goods sold of main products.
38. At the time of corporate liquidation, the preferred stockholders were not able to receive anything. Which
corporate creditors were certainly paid in full in the absence of other data?
I. Fully secured creditors
II. Partially secured creditors
III. Unsecured creditors with priority
IV. Unsecured creditors without priority
a. I only
b. I and III only
c. I, II and III only
d. I, II, III and IV
39. What shall be the proper basis for the computation of direct material price variance for the period
ended?
a. Actual direct materials used for the period ended.
b. Actual direct materials at the beginning of the period.
c. Actual direct materials at the end of the period.
d. Actual direct materials purchased for the period ended.
40. In the absence of other relevant data, when a new partner is admitted in an existing partnership through
the acquisition of capital interest of incumbent partners, which is always true?
a. The partnership shall recognize gain or loss as a result of the disposal of capital interest.
b. The total capital of the partnership will not change despite the admission of a new partner.
c. The total assets of the partnership will increase by the amount of the net proceeds of the disposal
of capital interest.
d. The partnership shall recognize goodwill arising from the admission of a new partner.
41. Under IFRIC 12: Service Concession Arrangements, what is the proper classification of the
infrastructure asset on the part of the operator if the latter receives a right or license to charge users of
the public service and such right to charge users of the public service is not an unconditional right to
receive cash because the amounts are contingent on the extent that the public uses the service?
a. Intangible Asset in accordance with PAS 38
b. Property, Plant and Equipment in accordance with PAS 16
c. Investment Property in accordance with PAS 40
d. Financial Asset under PFRS 9
42. Under PFRS 11, which is incorrect about the accounting treatment by non-SME Venturer of its
Investment in Joint Venture?
a. The venturer shall recognize impairment loss on Investment in Joint Venture if the book value of
the investment is lower than its recoverable amount which is the higher between value in use or
fair value less cost to sell.
b. The venturer shall recognize cash or property dividend from joint venture as dividend
income when its right to receive dividend is established.
c. The venturer shall recognize its share in the net income of the joint venture as investment income
with corresponding increase to investment in joint venture.
d. The venturer shall recognize its share in the net loss of the joint venture as investment loss with
corresponding decrease to investment in joint venture.
43. Under IFRS 10, the following are the essential elements of control of an investor (acquirer) over the
investee (acquiree), except
a. The investor has power over the investee which means that the investor has existing right that
give it the ability to direct the relevant activities of the investee.
b. The investor has exposure or rights to variable returns from its involvement with the investee.
c. The investor has the ability to use its power over the investee to affect the amount of the
investor's return.
d. The investor has ownership of more than 50% of the ordinary shares of investee.
44. Under PAS 39, which of the following statements concerning unrealized holding gain or loss on changes
in value of derivatives is correct?
a. Unrealized holding gain or loss on changes in value of derivatives designated as fair value hedge
due to its effective portion shall be presented in other comprehensive income with
reclassification adjustment to profit or loss.
b. Unrealized holding gain or loss on changes in value of derivatives designated as hedge of
net investment in foreign operation due to its effective portion shall be presented in profit
or loss.
c. Unrealized holding gain or loss on changes in value of derivatives classified as undesignated
hedge due to its effective portion shall be presented in profit or loss.
d. Unrealized holding gain or loss on changes in value of derivatives designated as cash flow hedge
due to its effective portion shall be presented in other comprehensive income without
reclassification adjustment to profit or loss.
45. What is the proper classification in the statement of financial position of a nonprofit organization of a
current fund designated by the Board of Trustees for the construction of building to be used for
charitable purposes when construction will start after a period of three years?
a. Permanently restricted net assets
b. Temporarily restricted net assets
c. Unrestricted net assets
d. Board of Trustees' net assets
46. Under Government Accounting Manual, it refers to an authorization issued by the DBM to NGAs to
incur obligations for specified amounts contained in a legislative appropriation in the form of budget
release documents.
a. Appropriation
b. Allotment
c. Obligation
d. Disbursement
47. Under PAS 21, what is the accounting treatment of foreign exchange differences arising from translating
foreign currency denominated elements of financial statements to the entity's functional currency?
a. It shall be presented and recognized in other comprehensive income with reclassification
b. It shall be presented and recognized in other comprehensive income without reclassification
c. It shall be presented and recognized in profit or loss.
d. It shall be presented and recognized as change in accounting policy in statement of changes in
equity.
48. Under PFRS 3, which of the following statements concerning the accounting treatment of the different
types of costs incurred in relation to a business combination is correct?
a. Direct costs of business combination shall form part of the consideration given up for purposes
of computation of goodwill or gain on bargain purchase.
b. Transaction costs incurred for the issuance of bonds payable classified as financial liability at fair
value through profit or loss that forms part of consideration given up shall be amortized over the
term of the bonds using effective interest method.
c. Costs incurred for the issuance of stocks issued as consideration given up for business
combination shall be initially charged to share premium arising from issuance of the
related shares.
d. Listing fees incurred for registering the stocks of a corporation to stock exchange market shall be
capitalized as goodwill arising from business combination.
49. Under PAS 21, when translating an entity's financial statements in functional currency to entity's
presentation currency, which is correct?
a. Monetary asses/liabilities shall be translated using closing rate while nonmonetary
assets/liabilities shall be translated using transaction rate.
b. Retained earnings shall be translated using average rate during the period.
c. Income and expense accounts shall be translated using closing rate.
d. Contributed capital accounts shall be translated using transaction rate.
50. Under PAS 27, if the parent corporation elected to account its investment in subsidiary using fair value
model through other comprehensive income in its separate financial statements, which is correct in the
parent's separate income statement?
a. Gain on bargain purchase will be recognized in profit or loss if the fair value of the net assets
acquired is higher than the fair value of consideration given up by the parent corporation.
b. Impairment loss on investment in subsidiary will be recognized in profit or loss if the book value
of the investment in subsidiary is lower than its recoverable amount which is the higher between
value in use or fair value less cost to sell.
c. Dividend income from subsidiary will be recognized in profit or loss when its right to
receive dividends is established.
d. Share in adjusted net income (net loss) of the subsidiary will be recognized in profit or loss from
the date the parent obtains control of the subsidiary.
51. Under PFRS 3, which of the following transactions is a measurement period adjustment that must be
retroactively adjusted to goodwill or gain on bargain purchase within the measurement period not
exceeding one year from the acquisition date?
a. Change in the fair value of contingent consideration as a result of meeting an earnings target that
occurred after the acquisition date.
b. Change in the fair value of contingent liability as a result of additional information that the
acquirer obtained after the acquisition date about facts and circumstances that existed at
the acquisition date.
c. Change in the fair value of contingent liability as a result of reaching a specified share price that
occurred after the acquisition date.
d. Change in the fair value of contingent consideration as a result of reaching a milestone on
research and development project that occurred after the acquisition date.
52. Parent Corporation has different investment in stocks consisting of investment in subsidiary, investment
in associate, investment in joint venture and investment in fair value. Under PFRS 3 and PFRS 10,
which of the following dividends from investee will be presented in the Consolidated Statement of
Comprehensive Income of the Parent Corporation if the latter account for all its investment in subsidiary
using cost method in its separate financial statements?
a. Dividend from subsidiary
b. Dividend from associate
c. Dividend from joint venture
d. Dividend from fair value investment
53. In which type of hedging transactions or relationships will there be no gain or loss on hedged item?
a. Fair value hedge of firm commitment importation using forward contract receivable.
b. Cash flow hedge of forecasted exportation using put option.
c. Undesignated hedge of foreign currency denominated accounts receivable using forward contract
payable.
d. Hedge of net investment in foreign operation using foreign currency denominated note payable.
54. Which of the following scenarios will decrease the cost of goods sold during the year?
a. Increase in direct labor costs during the year.
b. Increase in raw materials inventory during the year.
c. Decrease in work in process inventory during the year.
d. Decrease in finished goods inventory during the year.
55. When will the equivalent unit of production under FIFO Process be the same with the equivalent unit of
production under Average Process?
a. When there is no ending work in process inventory.
b. When there is no completed inventory during the period.
c. When the excess of the actual units started over the actual units completed is equal to the
ending work in process inventory.
d. When the actual units completed is higher than the actual units started.
56. Two parties enter into a joint arrangement which is structured through an incorporated entity in which
each party has a 50% ownership interest. The purpose of the arrangement is to manufacture materials
required by the parties for their own, individual manufacturing processes. The arrangement ensures that
the parties operate the facility that produces the materials to their quantity and quality specifications.
The contractual arrangement between the parties specifies the following aspects of the arrangement:
 Under the terms of the arrangement, the parties have agreed to purchase all the output produced
by the entity in a ratio of 50:50.
 The entity is not permitted to sell any of the output to third parties, unless this is approved by the
two parties to the arrangement. Because the purpose of the arrangement is to provide the parties
with output they require, such sales to third parties are expected to be uncommon and
insignificant in volume and value.
 The price of the output sold to the parties is set by both parties at a level that is designed to cover
the costs of production and administrative expenses incurred by the entity. On the basis of this
operating model, the arrangement is intended to operate at a break-even level.
Under PFRS 11, what is the proper accounting classification of this joint arrangement?
a. Joint Operation
b. Joint Venture
c. Jointly Controlled Asset
d. Jointly Controlled Entity
57. Under PFRS 15, which of the following criteria may allow an entity to recognize revenue from
customers over a period of time instead of a specific point in time?
a. The entity’s performance does not create an asset with an alternative use to the entity and the
entity has does not have an enforceable right to payment for performance completed to date.
b. The entity’s performance creates or enhances an asset that the entity controls as the asset is
created.
c. The customer simultaneously receives and consumes all of the benefits provided by the
entity as the entity performs.
d. The customer has the significant risks and rewards related to the ownership of the asset
particularly upon transfer of title or ownership.
58. Under GAAP, what is the most valid reason for the incremental credit to the capital of a newly admitted
partner in addition to his properly valued contributed capital?
a. Goodwill arising from admission of a new partner in an existing partner
b. Asset revaluation of the existing assets of the partnership
c. Impairment of the existing assets of the partnership
d. Capital bonus coming from existing partners
59. An entity grants a franchisee the right to operate a restaurant in a specific market using the entity’s
brand name, concept and menu for a period of ten years. The entity has granted others similar rights to
operate this restaurant concept in other markets. The entity commonly conducts national advertising
campaigns, promoting the brand name, and restaurant concept generally. The franchisee will also
purchase kitchen equipment from the entity. The entity will receive P950,000 upfront (P50,000 for the
kitchen equipment and P900,000 for the franchise right). Under PFRS 15, how shall the entity recognize
the P950,000 transaction price as revenue from contract with customers?
a. The whole P950,000 upfront fee shall be recognized as revenue over a period of time of 10
years, the term of the contract.
b. The whole P950,000 upfront fee shall be recognized as revenue at a specific point of time which
is the date delivery of the kitchen equipment.
c. The whole P950,000 upfront fee shall be recognized as revenue at a specific point of time which
is the date of expiration of the 10-year term of the contract.
d. The P50,000 upfront fee shall be recognized as revenue at a specific point of time which is
the date of delivery of the kitchen equipment while the remaining P900,000 upfront fee
shall be recognized over a period of time of 10 years, the term of the contract.
60. Which of the following statements is correct in the year when the estimated contract price of a long-term
construction contract is lower than the estimated total construction cost of the project?
a. The cumulative gross revenue recognized as of the end of this year will be equal to the
construction in progress balance as of the end of this year.
b. The construction in progress as of the end of this year computed under percentage of
completion method will be equal to the construction in progress as of the end of this year
computed under cost recovery method.
c. The costs of construction to be presented in the statement of comprehensive income for this year
will be equal to the construction cost incurred during the year.
d. The construction in progress as of the end of this year will be equal to the percentage completed
as of the end of this year multiplied by the estimated contract price as of the end of this year
under percentage of completion method while the construction in progress as of the end of this
year will be equal to the cumulative costs incurred as of the end of this year under cost recovery
method.
61. Which of the following instances will increase the cost of goods sold for the year ended?
a. Increase in Raw Materials Inventory during the year
b. Decrease in Work in Process Inventory during the year
c. Increase in Finished Goods Inventory during the year
d. Decrease in Direct Labor Cost during the year
62. At the time of retirement of a partner, he receives an amount more than his capital balance before
retirement. Which of the following statements is correct?
a. If the assets of the partnership are properly valued at the time of retirement, the capital
balances of the remaining partners will decrease as a result of retirement.
b. If the assets of the partnership are not properly valued at the time of retirement, the capital
balances of the remaining partners will decrease as a result of retirement.
c. If the assets of the partnership are not properly valued at the time of retirement, impairment loss
of existing assets is recognized at the time of retirement.
d. All of the above.
63. At the time of liquidation of general partnership, which of the following credits shall be settled first by
the liquidating partner?
a. Those advances made by the partners to the partnership
b. Those claims of the partners regarding their capital contribution
c. Those liabilities of the partnership to third persons
d. Those claims of the partners regarding their share in partnership profit
64. At the time of corporate liquidation, the preferred stockholders were able to receive the liquidation value
of their shares but the common stockholders received nothing. Which corporate creditors were fully paid
in this scenario?
I. Fully secured creditors
II. Partially secured creditors
III. Unsecured creditors with priority
IV. Unsecured creditors without priority
a. I only
b. I and III only
c. I, II and III only
d. I, II, III and IV
65. At the time of corporate liquidation, which of the following unsecured creditors with priority shall be
settled last from the free assets of the liquidated corporation?
a. Liability for civil damages arising from corporate crime
b. Liability for civil damages arising from corporate tort or quasi-delict
c. Liability for employee benefits
d. Liability for taxes to government
66. Under PFRS 15, when shall the consignor recognize revenue from consignment sales arrangement?
a. From the moment the consignee sells the goods to final consumers
b. From the moment the consignor delivers the goods to the consignee
c. From the moment of collection by the consignee of the proceeds of the sale from final consumers
d. From the moment of remittance by the consignee to the consignor of the collection from final
consumers
67. Under PFRS 15, which of the following factors indicates that the revenue from contracts with customers
is recognized from the moment the entity satisfies the performance obligation at a point in time?
a. When the customer simultaneously receives and consumes all of the benefits provided by the
entity as the entity performs.
b. When the entity has transferred physical possession of the asset to the customer.
c. When the entity’s performance creates or enhances an asset that the customer controls as the
asset is created.
d. When the entity’s performance does not create an asset with an alternative use to the entity and
the entity has an enforceable right to payment for performance completed to date.
68. Under PFRS 15, what is the criteria before entity may recognize the incremental costs of obtaining a
contract?
a. If the entity expects to recover those costs.
b. If the entity receives the costs from the customer.
c. If the customer signs the contract with the entity.
d. If the customer violates the contract with the entity.
69. Under PFRS 15, costs incurred to fulfill a contract are recognized as an asset if and only if all of the
following criteria are met, except
a. The costs relate directly to a contract.
b. The costs generate or enhance resources of the entity that will be used in satisfying performance
obligations in the future.
c. The costs are reasonably possible to provide future economic benefits to the entity and can
be measured reliably.
d. The costs are expected to be recovered.
70. Under PFRS 15, how shall an asset recognized in respect of the costs to obtain a contract or costs to
fulfill a contract be recognized as an expense in the statement of comprehensive income?
a. It shall be expensed as incurred.
b. It shall be amortized on a systematic basis that is consistent with the pattern of transfer of
the goods or services to which the asset relates.
c. It shall be amortized on straight line basis over the term of the contract with the customers.
d. It shall not be amortized but instead subjected to annual impairment test especially if there is
indicator that the recoverable amount of the asset is lower than its book value.
71. Under PFRS 15, how shall installments sales revenue of a residential property under pre-completion
stage covered by Contract to Sell be recognized by the long-term construction entity?
a. It shall be recognized as revenue over time.
b. It shall be recognized as revenue at a point in time.
c. It shall be recognized as revenue on the date of full payment of the price under cash basis
method.
d. It shall be recognized as revenue on the date of execution of the deed of absolute sale.
72. Which of the following costs is considered prime cost, conversion cost and product cost at the same
time?
I. Wages of factory workers
II. Depreciation of machinery used to manufacture the product
III. Freight in and insurance in transit of the main materials of the product
IV. Salaries of factory foreman, factory janitors and factory security guard
a. I and IV only
b. I, II and IV only
c. I and II only
d. I only
73. What is the accounting treatment of material over-application or under-application of factory overhead
in normal costing?
a. It shall be closed to cost of goods sold only.
b. It shall be closed proportionately to raw materials ending inventory, work in process ending
inventory, finished goods inventory and cost of goods sold.
c. It shall be closed proportionately to work in process ending inventory, finished goods
inventory and cost of goods sold.
d. It shall be expensed as incurred.
74. What is the accounting treatment of net realizable value of by-product if is considered significant by the
company?
a. It shall be presented as other income by the company.
b. It shall be presented as additional sales revenue of the main products of the company.
c. It shall be presented as deduction from cost of goods sold of the main products of the company.
d. It shall be presented as deduction from total manufacturing cost of the main products of
the company.
75. If the actual direct labor cost of the company is higher than the standard direct labor cost, which of the
following relationships regarding the journal entry to record direct labor variances is always true?
a. The credit to one type of direct labor variance is higher than the debit to the other type of direct
labor variance.
b. The debit to work in process account is lower than the credit to salaries payable or cash
account.
c. The direct labor rate variance account has been debited while the direct labor efficiency variance
account has been credited.
d. The direct labor rate variance account has been credited while the direct labor efficiency variance
account has been debited.
76. What shall be the proper basis for the computation of direct material price variance for the period
ended?
a. Actual direct materials used for the period ended.
b. Actual direct materials at the beginning of the period.
c. Actual direct materials at the end of the period.
d. Actual direct materials purchased for the period ended.
77. Under generally accepted accounting principles, what is the proper financial statement presentation of
deferred gross profit as of the end of the year resulting from installment sales?
a. Other comprehensive income in the Statement of Comprehensive Income
b. Unearned revenue in the Statement of Financial Position
c. Contra installment receivable in the Statement of Financial Position
d. Profit or loss in the Statement of Comprehensive Income
78. Under PFRS 15, what is the proper measurement of revenue from contract with customers if the entity
received a non-cash consideration?
a. Stand-alone selling price of the good or service promise in the contract.
b. Fair value of the consideration received.
c. Book value of the consideration received.
d. Historical cost of the consideration received.
79. In what specific date will the balance of Construction in Progress computed under Percentage of
Completion Method be always the same with the balance of Construction in Progress under Cost
Recovery Method?
I. In the year when the entity recognizes realized gross loss under percentage of completion.
II. In the year when the entity recognizes realized gross profit under cost recovery method.
III. In the year when the estimated total costs to complete the project exceed the estimated total
contract price.
IV. In the year of completion of the project.
a. I, III and IV only
b. IV only
c. II and III only
d. III and IV only
80. What is the reason for the understatement of the net income reported by the branch in its separate
income statement?
a. Overstatement of cost of goods sold reported by the branch due to goods acquired from the
home office.
b. Overstatement of beginning inventory of the branch due to goods acquired from home office.
c. Overstatement of ending inventory of the branch due to goods acquired from home office.
d. Overstatement of purchases for the year reported by the branch for goods coming from the home
office.
81. From the standpoint of accounting theory, which of the following statements is the best justification for
the preparation of consolidated financial statements?
a. In substance the companies are separate, but in form the companies are one entity.
b. In substance the companies are one entity, but in form they are separate.
c. In substance and form the companies are one entity.
d. In substance and form the companies are separate entities.
82. In consolidation, the unamortized excess account is

a. a contra-equity account.
b. used in allocating the amounts paid for recorded balance sheet accounts that are above or below
their fair values.
c. used in allocating the amounts paid for each asset and liability that are above or below
their book values, especially when numerous assets or liabilities are involved.
d. the excess purchase cost that is attributable to goodwill.
83. A parent company uses the equity method to account for its wholly-owned subsidiary. Which of the
following will be a correct procedure for the Investment account?
a. A debit for a subsidiary loss and a credit for dividends received
b. A credit for subsidiary income and a debit for dividends received
c. A debit for subsidiary dividends received and a credit for a subsidiary loss
d. A credit for a subsidiary loss and a credit for dividends received
84. When performing a consolidation, if the balance sheet does not balance,
a. that indicates that the Investment in Subsidiary account on the parent's books should not be
adjusted to -0-, because there is excess value represented in the investment.
b. it is frequently because of the noncontrolling interest, as these amounts do not appear on
the separate companies' general ledgers.
c. the debit and credit totals of the adjusting/eliminating columns of the consolidation working
paper should be checked to confirm that they balance, and if so, then there is no need to check
the individual line items.
d. the amount that it is "off" will always equal the noncontrolling interest in the current year net
income of the subsidiary.
85. A parent company uses the equity method to account for its wholly-owned subsidiary, but has applied it
incorrectly. In each of the past four full years, the company adjusted the Investment account when it
received dividends from the subsidiary but did not adjust the account for any of the subsidiary's profits.
The subsidiary had four years of profits and paid yearly dividends in amounts that were less than
reported net incomes. Which one of the following statements is correct if the parent company discovered
its mistake at the end of the fourth year, and is now preparing consolidation working papers?
a. The parent company's Retained Earnings will be increased by the cumulative total of the
first three years of subsidiary profit, and the Subsidiary Income account will be increased
by the profit for the current year.
b. The parent company's Retained Earnings will be increased by the cumulative total of four years
of subsidiary profits.
c. A prior period adjustment must be recorded for the cumulative effect of four years of accounting
errors.
d. The parent company's Subsidiary Income account will be increased by the cumulative total of
four years of subsidiary profits.
86. When preparing consolidated financial statements, which of the following is a deduction in the
calculation of cash flows from operating activities under the indirect method?
a. The change in the balance sheet of the common stock account
b. Noncontrolling interest dividends paid
c. Noncontrolling interest share
d. Undistributed income of equity investees
87. When preparing the consolidation working paper for a company and its controlled subsidiary, which of
the following would be used for the entities being consolidated?
a. Post-closing trial balances
b. Adjusted trial balances
c. Unadjusted trial balances
d. The adjusted trial balance for the parent and the unadjusted trial balance for all controlled
subsidiaries
88. The material sale of inventory items by a parent company to an affiliated company
a. enters the consolidated revenue computation only if the transfer was the result of arm's length
bargaining.
b. affects consolidated net income under a periodic inventory system but not under a perpetual
inventory system.
c. does not result in consolidated income until the merchandise is sold to outside parties.
d. does not require a working paper adjustment if the merchandise was transferred at cost.
89. Assume there are routine inventory sales between parent companies and subsidiaries. When preparing
the consolidated financial statements, which of the following line item is indifferent to the sales being
either upstream or downstream?
a. Consolidated retained earnings
b. Consolidated gross profit
c. Noncontrolling interest share
d. Controlling interest share of consolidated net income
90. Assume an upstream sale of machinery occurs on January 1, 2021. The parent owns 70% of the
subsidiary. There is a gain on the intercompany transfer and the machine has five remaining years of
useful life and no salvage value. Straight-line depreciation is used. Which of the following statements is
correct?
a. Noncontrolling interest share for 2021 is equal to: subsidiary income for 2021 multiplied by
30%.
b. Noncontrolling interest share for 2021 is equal to: (subsidiary income for 2021 minus the
gain on sale plus the excess depreciation expense) multiplied by 30%.
c. Noncontrolling interest share for 2021 is equal to: (subsidiary income for 2021 minus the gain on
sale) multiplied by 30%.
d. Noncontrolling interest share for 2021 is equal to: (subsidiary income for 2021 plus the excess
depreciation expense) multiplied by 30%.
91. After eliminating/adjusting entries are prepared, what was the intercompany sale impact on the
consolidated financial statements for the year ended December 31, 2021?
a. No effect on both Consolidated Net Income and Consolidated Net Assets
b. No effect on Consolidated Net Income and increased in Consolidated Net Assets
c. Decreased on both Consolidated Net Income and Consolidated Net Assets
d. Decreased on Consolidated Net Income and no effect on Consolidated Net Assets
92. With respect to exchange rates, which of the following statements is true?
a. An official exchange rate is the "market" rate resulting from the supply and demand for a
currency.
b. A floating exchange rate is the "market" rate resulting from the supply and demand for a
currency.
c. A government cannot set an exchange rate for their currency that is higher (weakens their
currency) than the quoted interbank market rate.
d. A government cannot set an exchange rate for their currency that is lower (strengthens their
currency) than the quoted interbank market rate.
93. A Philippine importer that purchased merchandise from a South Korean firm would be exposed to a net
exchange gain on the unpaid balance if the
a. Peso weakened relative to the Korean won and the won was the denominated currency.
b. Peso weakened relative to the Korean won and the Peso was the denominated currency.
c. Peso strengthened relative to the Korean won and the won was the denominated currency.
d. Peso strengthened relative to the Korean won and the Peso was the denominated currency.
94. If a U.S. company is preparing a journal entry for a recent purchase, foreign-currency-denominated
purchases must be measured in ________ at the purchase date using the foreign currency ________ rate
on the purchase date.
a. foreign currency; spot
b. foreign currency; future
c. U.S. dollars; forward
d. U.S. dollars; spot
95. When the billing for a U.S. company's sale to a company in a foreign country is denominated in U.S.
dollars, ________ is required when preparing journal entries for the sale.
a. translation to a foreign currency
b. conversion to a foreign currency
c. translation to U.S. dollars
d. no translation
96. Which of the following is a true statement regarding the recording of a transaction which involves
foreign currency?
a. A transaction is always settled in the currency in which it is denominated.
b. A transaction is always measured in the currency in which it is denominated.
c. A transaction is always settled in the currency in which it is measured.
d. A transaction is always recorded in the currency in which it is denominated.
97. Gains or losses on foreign currency transactions are recorded before the related receivable or payable is
settled when
a. the government cannot set an exchange rate for the foreign currency.
b. the foreign currency is unknown.
c. the fiscal year ends after the settlement of the receivable or payable.
d. the fiscal year ends before the settlement of the receivable or payable.
98. Which of the following statements is true regarding forward contracts, futures contracts, options and
swaps?
a. A forward contract can be purchased on the open market and is recorded at its historical cost,
then adjusted for changes in the market.
b. A futures contract is negotiated between two parties who are betting in the opposite direction on
the movement of the underlying price.
c. An option is a contract requiring the holder to either "put" or "call" an underlying asset at a
specified point in time.
d. A swap is a contract between two parties to exchange an ongoing stream of cash flows.
99. Which of the following hedging strategies would a business most likely use?
a. An importer will want to hedge his foreign denominated accounts receivable and will purchase
forward contracts to hedge an exposed net asset position.
b. An importer will want to hedge his foreign denominated accounts payable and will
purchase forward contracts to hedge an exposed net liability position.
c. An exporter will want to hedge his foreign denominated accounts receivable and will purchase
forward contracts to hedge an exposed net liability position.
d. An exporter will want to hedge his foreign denominated accounts payable and will purchase
forward contracts to hedge an exposed net liability position.
100. A highly-effective hedge of an existing asset or liability that is reported on the balance sheet would be
recorded using
a. Modified Cash Basis Accounting.
b. Critical Term Hedge Analysis.
c. Fair Value Hedge Accounting.
d. Hedge of Net Investment in Foreign Subsidiary.
101. Which of the following is not an approach appropriate for hedge accounting?
a. Cash Flow Hedge Accounting
b. Critical Term Hedge Accounting
c. Fair Value Hedge Accounting
d. Hedge of Net Investment in Foreign Subsidiary
102. If a financial instrument is classified as a cash flow hedge, then

a. it is classified as a held-to-maturity asset.
b. its gains or losses are reported in the income statement if a fiscal year-end occurs before the
settlement date.
c. its gains or losses are reported in the balance sheet if a fiscal year-end occurs before the
settlement date.
d. it does not require a notional amount.
103. When a cash flow hedge is appropriate, the effective portion of the gain or loss on the derivative is
a. deferred using other comprehensive income.
b. recognized immediately at the time the agreement is made.
c. recognized over time, amortized over the period of the agreement.
d. recognized over time, offset by the fluctuation in the value of the hedged asset or liability.
104. A forward contract used as a cash flow hedge will be recorded as an asset if
a. the holder is expecting to receive a payment as a result of the contract.
b. the holder is accounting for the hedged instrument as a fair value hedge.
c. the holder is hedging the net investment in a foreign entity.
d. the holder is using the alternate accounting method and deferring all gains or losses from the
hedge.
105. A fair value hedge differs from a cash flow hedge because a fair value hedge
a. cannot be used for firm purchase or sales commitments.
b. is not recorded unless it is a highly-effective hedge.
c. records gains or losses in the value of the derivative directly to earnings of the company.
d. defers the gains or losses in the value of the derivative using Other Comprehensive Income.
106. When preparing their year-end financial statements, the Warner Company includes a footnote
regarding their hedging activities during the year. Which of the following is NOT required to be
disclosed?
a. How hedge effectiveness is determined and assessed
b. The specific types of risks being hedged, and how they are being hedged
c. Alternative hedging options declined
d. The net gain or loss reported for the period for fair value hedges and where in the financial
statements it is reported
107. A U.S. firm has a Belgian subsidiary that uses the British pound as its functional currency. According
to GAAP, the U.S. dollar from Belgian unit's point of view will be
a. its only foreign currency.
b. its local currency.
c. its current rate method currency.
d. its reporting currency.
108. Selvey Inc. is a wholly-owned subsidiary of Parsfield Incorporated, a U.S. firm. The country where
Selvey operates is determined to have a highly inflationary economy according to GAAP definitions.
Therefore, for purposes of preparing consolidated financial statements, the functional currency is
a. its reporting currency.
b. its current rate method currency.
c. the US dollar.
d. its local currency.
109. All of the following factors would be used to define a foreign entity's functional currency, except:
a. high volume of intercompany transactions.
b. foreign entity's status as a local tax haven for transfer pricing purposes.
c. expenses for foreign entity primarily driven by local factors.
d. financing for foreign entity denominated in local currency.
110. The primary goal behind consolidating financial statements of a controlled subsidiary is
a. representing the company's underlying economic condition.
b. representing the conversion of statements at the historical exchange rate.
c. assuring that the individual nature of the subsidiary entity is not lost in the consolidation.
d. assuring that the subsidiary financial statements are the same under the temporal method or the
current rate method.
111. Pelmer has a foreign subsidiary, Sapp Corporation of Germany, whose functional currency is the euro.
Sapp's books are maintained in euros. On December 31, 2014, Sapp has an account receivable
denominated in British pounds. Which one of the following statements is true?
a. Because all accounts of the subsidiary are translated into U.S. dollars at the current rate, the
Account Receivable is not adjusted on the subsidiary's books before translation.
b. The Account Receivable is remeasured into the functional currency, thus eliminating the need for
translation.
c. The Account Receivable is first adjusted to reflect the current exchange rate in euros and
then translated at the current exchange rate into dollars.
d. The Account Receivable is adjusted to euros at the current exchange rate, and any resulting gain
or loss is included as a translation adjustment in the stockholders' equity section of the
subsidiary's separate balance sheet.
112. A foreign entity is a subsidiary of a U.S. parent company and has always used the current rate method
to translate its foreign financial statements on behalf of its parent company. Which one of the following
statements is false?
a. The U.S. dollar is the functional currency of this company.
b. Changes in exchange rates between the subsidiary's country and the parent's country are not
expected to affect the foreign entity's cash flows.
c. Translation adjustments are shown in stockholders' equity as increases or decreases in other
comprehensive income.
d. Translation adjustments are not shown on the income statement.
113. Assume the functional currency of a foreign entity is the U.S. dollar, but the books are kept in euros.
The objective of remeasurement of a foreign entity's accounts is to
a. produce the same results as if the foreign entity's books were maintained in the currency of the
largest customer.
b. produce the same results as if the foreign entity's books were maintained solely in the local
currency.
c. produce the same results as if the foreign entity's books were maintained solely in the U.S.
dollar.
d. produce the results reflective of the foreign entity's economics in the local currency.
114. Which of the following statements about the Current Rate method is false?
a. Translation involves restating the functional currency amounts into the reporting currency.
b. All assets and liabilities are translated at the current rate.
c. If the subsidiary maintains their books in their functional currency, the current rate method is
used.
d. The effect of exchange rate changes are reported on the income statement as a foreign
exchange gain or loss.
115. Accounts representing an allowance for uncollectible accounts are converted into Philippine Peso at
a. historical rates when the Philippine Peso is the functional currency.
b. current rates only when the Philippine Peso is the functional currency.
c. historical rates regardless of the functional currency.
d. current rates regardless of the functional currency.
116. At the time of a business acquisition,

a. identifiable assets and liabilities are allocated the portion of the translation or remeasurement
adjustment that existed on the date of acquisition.
b. a foreign entity's assets and liabilities are translated into Philippine Peso using the current
exchange rate in effect on that date.
c. the difference between investment fair value and translated net assets acquired is treated as a
remeasurement gain or loss on the income statement.
d. the difference between investment fair value and translated net assets acquired is recorded as a
cumulative translation adjustment on the balance sheet.
117. When translating foreign subsidiary income statements using the current rate method, why are some
accounts translated at an average rate?
a. This approach improves matching.
b. This approach accentuates the conservatism principle.
c. This approach smoothes out highly volatile exchange rate fluctuations.
d. This approach approximates the effect of transactions which occur continuously during the
period.
118. Exchange gains or losses from remeasurement appear

a. in the continuing operations section of the consolidated income statement.
b. as an extraordinary item on the consolidated income statement.
c. as other comprehensive income typically reported in a statement of stockholders' equity.
d. as an adjustment to the beginning balance of retained earnings on the consolidated Statement of
retained earnings.
119. A U.S. parent corporation loans funds to a foreign subsidiary to be used to purchase equipment. The
loan is denominated in U.S. dollars and the functional currency of the subsidiary is the euro. This
intercompany transaction is a foreign currency transaction of
a. neither the subsidiary nor the parent, as it is eliminated as part of the consolidation procedure.
b. the subsidiary but not the parent.
c. both the subsidiary and the parent.
d. the parent but not the subsidiary.
120. A foreign subsidiary's accounts receivable balance should be translated for the consolidated financial
statements at
a. the appropriate historical rate.
b. the prior year's forecast rate.
c. the future rate for the next year.
d. the spot rate at year-end.
121. If a U.S. company wants to hedge a prospective loss on its investment in a foreign entity that may
result from a foreign currency fluctuation, the U.S. company should
a. purchase a forward to swap currency of the foreign entity's local country for U.S. currency.
b. purchase a call option to buy currency of the foreign entity's local country.
c. issue a loan in the foreign entity's local country.
d. borrow money in the foreign entity's local country.
122. If the partnership agreement provides a formula for the computation of a bonus to the partners, the
bonus would be computed
a. next to last, because the final allocation is the distribution of the profit residual.
b. before income tax allocations are made.
c. after the salary and interest allocations are made.
d. in any manner agreed to by the partners in the partnership agreement.
123. Which of the following procedures is acceptable when accounting for a deficit balance in a partner's
capital account during partnership liquidation, if the partner with a negative capital balance is personally
insolvent?
a. The partner with a negative capital balance must contribute personal assets to the partnership that
are sufficient to bring the capital account to zero.
b. The negative capital balance may be absorbed by those partners having a positive capital balance
according to the residual profit and loss sharing ratios that apply to all the partners.
c. The negative capital balance may be absorbed by those partners having a positive capital
balance according to the residual profit and loss sharing ratios that apply to those partners
having positive balances.
d. The partner with a negative capital balance must contribute personal assets to the partnership that
are sufficient to bring the capital account to the same level of the other partners' capital accounts.
124. Gains and losses incurred at liquidation are distributed to the partners using the residual profit and loss
sharing ratios because
a. using ownership percentages would permit solvent partners to not share profits with insolvent
partners.
b. these amounts represent profits and losses from prior periods that would have been shared
using the residual profit and loss ratios.
c. using the established profit and loss sharing ratios is not permitted.
d. the residual profit and loss ratios represent the ownership percentages.
125. In partnership liquidation, how are partner salary allocations treated?

a. Salary allocations take precedence over creditor payments.
b. Salary allocations take precedence over amounts due to partners with respect to their capital
interests, but not profits.
c. Salary allocations take precedence over amounts due to partners with respect to their capital
profits, but not capital interests.
d. Salary allocations are disregarded.
126. A simple partnership liquidation requires

a. periodic payments to creditors and partners determined by a safe payments schedule.
b. partnership assets to be converted into cash with full payment made to all outside creditors
before remaining cash is distributed to partners.
c. only creditors to be paid in an orderly manner.
d. periodic payments to partners as cash becomes available.
127. If conditions produce a debit balance in a partner's capital account when liquidation losses are
allocated, then
a. the partner receives further allocations of liquidation losses, but not gains.
b. the partner receives further allocations of liquidation gains, but not losses.
c. the partner has an obligation of personal net assets to the other partners.
d. the partner is no longer obligated to partnership creditors.
128. What is the proper disposition of a partnership loan that was made from a partner who has a debit
balance in the capital account?
a. The loan is ignored in liquidation.
b. The loan is offset against the debit balance in the capital account.
c. The loan is charged off to the capital accounts of all the partners in their profit and loss sharing
ratios.
d. The loan is held for payment after all other capital accounts are covered.
129. In partnership liquidations, what are safe payments?

a. The amounts of distributions that can be made to the partners, after all creditors have been paid
in full.
b. The amounts of distributions that can be made to the partners with assurance that such
amounts will not have to be returned to the partnership.
c. The amounts of distributions that can be made to the partners, after all non-cash assets have been
adjusted to fair market value.
d. The amounts of distributions that can be made to the partners during the liquidation based on the
partner's contributed capital return.
130. If all partners are included in the first installment of an installment liquidation, then in future
installments
a. cash will be distributed according to the residual profit and loss sharing ratios.
b. cash should not be distributed until all non-cash assets are converted into cash.
c. vulnerability rankings for each partner should be prepared.
d. a cash distribution plan must be prepared so that partners will know when they will be included
in cash distributions.
131. In a schedule of assumed loss absorptions

a. the partner with lowest loss absorption is eliminated last.
b. it is necessary to have a cash distribution plan first.
c. the least vulnerable partner is eliminated first.
d. the most vulnerable partner is eliminated first.
132. Which partner is considered the most vulnerable as a result of a computation of vulnerability rankings?
a. The partner who has the lowest loss absorption potential
b. The partner who has the highest loss absorption potential
c. The partner with the highest capital account balance
d. The partner with the lowest capital account balance
133. Creditors of the partnership may seek the personal assets of the partners to satisfy amounts owed.
When this happens
a. creditors may only file against partnership assets.
b. creditors must file against all partners and recover their claims based on the individual partner's
profit and loss distribution percentage.
c. creditors must file against all partners and recover their claims based on the individual partner's
percentage ownership.
d. creditors may file against an individual partner to recover their claims, or against any
combination of partners.
134. Which of the following is not true?

a. A not-for-profit entity operates for purposes other than to provide goods or services at a profit.
b. A not-for-profit entity may be governmental or non-governmental.
c. A not-for-profit entity may possess ownership interests like a corporation.
d. A not-for-profit entity receives resources from resource providers who do not expect
commensurate or proportionate pecuniary return.
135. A donor gives a Voluntary Health and Welfare Organization(VHWO) ₱100,000 cash that is restricted
for a research project. What account does the VHWO credit when the VHWO receives the money?
a. Non-operating Revenue
b. Temporarily Restricted Support
c. Permanently Restricted Revenue
d. Unrestricted Support
136. For a Voluntary Health and Welfare Organization, what entry is prepared when the restriction on a
cash donation is met?
a. Debit Temporarily Restricted Net Assets - Reclassifications out, Credit Unrestricted Net
Assets - Reclassifications in
b. Debit Restricted Fund Balance, Credit Unrestricted Fund Balance
c. Debit Unrestricted Fund Balance, Credit Restricted Fund Balance
d. Debit Unrestricted Net Assets, Credit Restricted Net Assets
137. Under GAAP, for nonprofit, nongovernmental entities, an unconditional transfer of cash or other assets
to an entity, or a settlement or cancellation of its liabilities in a voluntary, non-reciprocal transfer, is
called a(n)
a. unconditional promise to give.
b. contribution.
c. conditional promise to give.
d. residual equity transfer.
138. For nonprofit, nongovernmental organizations, unconditional promises to give that include promises of
payments due in future periods (next year or later) are reported as
a. unrestricted revenues.
b. unrestricted support.
c. deferred revenues until payment is received.
d. restricted support.
139. A gift-in-kind, for which the not-for-profit entity has no discretion on disposition, should be accounted
for by the not-for-profit, nongovernmental entity as
a. a special purpose contribution.
b. an exchange transaction.
c. an agency transaction.
d. a conditional promise to give.
140. Voluntary health and welfare organizations must report expenses classified by
a. restriction.
b. function and natural classification.
c. restriction and natural classification.
d. restriction, function and natural classification.
141. Which one of the following statements is not required for voluntary health and welfare organizations?
a. A statement of financial position
b. A statement of activities
c. A statement of changes in net assets
d. A statement of functional expenses
142. Voluntary health and welfare organizations classify fund-raising costs as

a. costs of services sold.
b. program services.
c. auxiliary expenses.
d. supporting services.
143. Voluntary health and welfare organizations (VHWO) measure contributions at fair value unless
a. fair value is less than the original cost of the item.
b. the contributed item is not intended to be re-sold by the VHWO.
c. fair value cannot be reasonably determined.
d. the contributions are not in cash or cash equivalents.
144. The gift shop of a nonprofit, private hospital has cash revenue of ₱240,000. What account will the
hospital credit?
a. Unrestricted support
b. Unrestricted revenue
c. Temporarily restricted revenue
d. Other operating revenue – unrestricted
145. In a nonprofit, nongovernmental hospital, courtesy allowances are

a. charity care services.
b. revenue deductions.
c. expenses.
d. revenues earned even if the standard charge is above or below the allowance.
146. In a nongovernmental, nonprofit hospital, contractual adjustments are

a. the discounted rate given to hospital employees.
b. discounts arranged with third-party payors.
c. recorded as a deduction from revenue or as an expense.
d. additional amounts paid by select group participants.
147. An alumnus of a nonprofit, nongovernmental university establishes an endowment of ₱500,000. When

the university receives the endowment from the donor, what account will the university credit?
a. Temporarily restricted revenues
b. Temporarily restricted support
c. Permanently restricted revenues
d. Permanently restricted support
148. Not-for-profit, private colleges classify student unions, dining halls, and residence halls as
a. educational and general services.
b. auxiliary enterprises.
c. independent operations.
d. restricted enterprises.
149. An alumnus made a donation of adjoining land to a not-for-profit, non-governmental university. The
donor made no specifications regarding the time period or use of the land. The university would record
the gift as
a. an endowment asset.
b. temporarily restricted revenue.
c. unrestricted revenue.
d. permanently restricted support.
150. In a not-for-profit, private university, the government grant funds given directly to students for
financial aid are an example of
a. a bequest.
b. an agency transaction.
c. unrestricted revenue.
d. a restricted contribution.
151. The Government Accounting Manual enumerates the following components of the General Purpose
Financial Statements of National Government Agencies, except
a. Statement of Financial Performance
b. Statement of Retained Earnings
c. Statement of Changes in Net Assets/Equity
d. Statement of Comparison of Budget and Actual Amounts
152. The books of accounts of National Government Agencies under the GAM shall consist of the
following, except
a. General Journal
b. Cash Receipts Journal
c. Regular Agency and National Government Books
d. General Ledgers
153. It refers to the registry maintained by NGA unit to monitor the revenue and other receipts
estimated/budgeted, collected and remitted/deposited.
a. Registries of Revenue and Other Receipts. (RROR)
b. Registry of Appropriations and Allotments. (RAPAL)
c. Registries of Allotments, Obligations and Disbursements (RAOD)
d. Registries of Budget, Utilization and Disbursements (RBUD)
154. It refers to registry maintained by NGA unit to show the original, supplemental and final budget
for the year and all allotments received charged against the corresponding appropriation.
155. It refers to registry maintained by NGA unit to show the allotments received for the year, obligations
incurred against the corresponding allotment and the actual disbursements made.
156. It refers to registry maintained by NGA unit to record the approved special budget and the
corresponding utilizations and disbursements charged to retained income authorized under them law and
other retained income collection of a national government agency with similar authority.
157. The following are the classifications of different RAPAL, RAOD and RBUD, except
a. RAPAL/RAOD/RBUD – Financial Expenses
b. RAPAL/RAOD/RBUD – Noncash Expenses
c. RAPAL/RAOD/RBUD – Personnel Services
d. RAPAL/RAOD/RBUD – Maintenance and Other Operating Expenses
158. Which of the following statements concerning the period of validity of Notice of Cash Allocations
(NCAs) is incorrect?
a. NCA issued and credited to the Regular MDS Sub-Accounts of agencies/OUs for their
regular operations, shall be valid until the last working day of the 3rd month of that quarter
pursuant to DBM Circular Letter (CL) No. 2013-12.
b. NCA issued and credited to the Special MDS Accounts of agencies specifically for payment of
RG/TL benefits shall be valid until the last working day of the following month when the NCA
was issued, except when issued in December, pursuant to DBM Budget Circular No. 2013-1
c. NCA issued to the BTr for working funds of agencies shall be valid until the last working
day of the year.
d. NCA, regardless of source, shall be valid only for a period of 1-month from the date of
receipt.
159. This summarized an agency’s fiscal year plans and performance targets. It shows the agency’s physical
and financial plan, monthly cash program, estimate of monthly income, and list of obligations that are
not year due and demandable.
a. Special Allotment Release Order
b. Statement of Approved Budget, Utilizations, Disbursements and Balances
c. Aging of Due and Demandable Obligations
d. Budget Execution Documents (BEDs)
160. It is an authorization issued by the DBM to NGAs to incur obligations. It is also referred to as
Obligational Authority.
a. Appropriation
b. Allotment
c. Budget call
d. Budget hearings
161. It refers to the amount contracted by a duly authorized administrative officer for which the government
is held liable.
a. Appropriation
b. Allotment
c. Obligation
d. Disbursement
162. Which of the following best describes the Notice of Cash Allocation (NCA)?
a. It is a form of legislative authorization in the allocation of funds for specified purposes.
b. It is a form of authorization to a government agency to incur obligations on behalf of the
government.
c. It is a form of authorization to a government agency to make disbursements out of
government funds.
d. It is a notice received from the Congress that cash is allocated for the payment of
planned expenditures.
163. Which of the following is not one of the necessary closing entries of a government entity?
a. Closing of the “Cash-Treasury/Agency Deposit, Regular” account to the “Accumulated
Surplus/(Deficit)” account.
b. Closing of the “Subsidy from National Government” account to the “Revenue and Expense
Summary” account.
c. Closing of income and expense accounts to the “Revenue and Expense Summary” account.
d. Closing of the net balance of “Revenue and Expense Summary” account to the “Subsidy
from National Government” account.
164. A government entity pays an accounts payable. The entry to record the payment will most likely
include a
a. Debit to the “Cash-Modified Disbursement System (MDS), Regular” account.
b. Credit to the “Due to BIR” account.
c. Credit to the “Cash-Treasury/Agency Deposit, Regular” account.
d. None of these. The event is recorded only in the Registries and the Obligation Request and
Status.
165. In accordance with the GAM for NGAs and the Revised Chart of Accounts, how does a government
entity recognize the uncollectibility of accounts receivable?
a. By debiting the “Bad Debts Expense” account.
b. By debiting the “Impairment Loss-Loans and Receivables” account.
c. By debiting the “Allowance for Impairment-Accounts Receivable” account.
d. B and C
166. The “Subsidy from National Government” account is credited when recording a
a. Receipt of Notice of Cash Allocation (NCA)
b. Reversion of unused NCA
c. constructive remittance of customs duties or taxes withheld through Tax Remittance Advice
(TRA)
d. Both A and C
167. This is used to recognize the constructive remittance of taxes withheld to the BIR or customs duties
withheld to the Bureau of Customs.
a. Tax Remittance Advice (TRA)
b. Notice of Tax Allocation (NTA)
c. Tax and Customs Remittance Advice (TCRA)
d. Notice of Tax Remittance Advisory (NTRA)
168. Which of the following does not affect the amount of surplus or deficit that is reported in the statement
of financial performance?
a. Receipt of NCA
b. Constructive remittance of taxes withheld through TRA
c. Closing of the “Cash-Treasury/Agency Deposit, Regular” account
d. Adjustment of the “Cash-Modified Disbursement System (MDS), Regular” account for the
unused Notice of Cash Allocation.
169. The entries to record the constructive remittance of taxes withheld through Tax Remittance Advice
include all of the following, except
a. A debit to the “Cash-Tax Remittance Advice” account
b. A credit to the “Cash-Tax Remittance Advice” account
c. A debit to the “Subsidy from National Government” account
d. A debit to the “Due to BIR” account
170. Which of the following is a non-exchange transaction?

a. Leasing
b. Collection of taxes
c. Rendering of legal services
d. Collection of tuition fees

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ADVANCED FINANCIAL ACCOUNTING AND REPORTING (THEORIES)

MULTIPLE CHOICE QUESTIONS

34. Under Normal Costing, material or significant over-application/under-application of factory overhead

82. In consolidation, the unamortized excess account is

102. If a financial instrument is classified as a cash flow hedge, then

116. At the time of a business acquisition,

118. Exchange gains or losses from remeasurement appear

125. In partnership liquidation, how are partner salary allocations treated?

126. A simple partnership liquidation requires

129. In partnership liquidations, what are safe payments?

131. In a schedule of assumed loss absorptions

134. Which of the following is not true?

142. Voluntary health and welfare organizations classify fund-raising costs as

145. In a nonprofit, nongovernmental hospital, courtesy allowances are

146. In a nongovernmental, nonprofit hospital, contractual adjustments are

147. An alumnus of a nonprofit, nongovernmental university establishes an endowment of ₱500,000. When

170. Which of the following is a non-exchange transaction?

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