1.

All of the following are events considered as exchange or reciprocal transfer, except

A. purchase of investment in equity securities

B. borrowing of money from a bank
C. sale of equipment for noninterest-bearing note
D. subscription on the entity’s own equity instrument

2. Which of the following correctly relates to accountable events?

I. An obsolete asset which has no use was received in exchange of an existing asset. This
transaction may be classified as an exchange.
II. An entity exchanges a non-cash asset for another non-cash asset in an exchange
transaction with commercial substance. This is a reciprocal transfer.
III. An entity issues its shares of stocks in exchange for a non-cash asset. This is a
reciprocal transfer.

A. II, III
B. I
C. I, II, III
D. II

3. The primary objective of financial reporting is to provide information:

A. About a firm's economic resources and obligations
B. About a firm's products and services
C. Useful in predicting cash flows
D. About a firm's financing and investing activities

4. Mr. Van owns a butcher shop, a restaurant, and a catering business. Separate financial
statements are prepared for each business independent of the other businesses. What
accounting principle or assumption is being applied in this situation?

A. Unit-of-measure assumption
B. Full-disclosure principle
C. Separate entity assumption
D. Time period assumption

5. Which of the following statements best reflects the accounting assumption of

periodicity or time period?

I. A fiscal year begins in any month and ends in any month but covers a period of 12 months
II. A calendar year begins on any month and ends on any month but covers a period of 12
months
III. Technically, an accounting year is synonymous with an accounting period.
IV. Accounting periods are usually equal in length.

A. I, IV
B. I, II, IV
C. II, III, IV
D. I, II, III, IV

6. An entity uses calendar year as its accounting period. The statement of financial position
prepared on December 31, 20x2 covers the period

A. From business’ inception up to December 31, 20x2

B. January 1, 20x1 to December 31, 20x2
C. December 31, 20x1 to December 31, 20x2
D. January 1, 20x2 to December 31, 20x2
7. General-purpose financial statements are the products of

A. both financial and managerial accounting.

B. financial accounting
C. managerial accounting.
D. neither financial nor managerial accounting

8. The law that regulates the practice of accounting in the Philippines is the Philippine
Accountancy Act of 2004 also known as

A. R.A. Blg. 69
B. R.A. No. 8299
C. R.A. No. 9298
D. R.A. No. 9892

9. The Board of Accountancy (BOA) shall be composed of

A. chairman and seventeen (17) members

B. chairman and fifteen (15) members
C. chairman and six (6) members for a total of seven (7) individuals
D. Six (6) members with a chairman for a total of six (6) individuals

10. In the absence of a GAAP addressing a particular transaction

A. Management may use its judgment in developing a relevant and reliable accounting policy
B. The entity should refer to its External Auditor.
C. Management should consider the most recent pronouncements of other standard-setting
bodies that use a similar conceptual framework to develop accounting standards, other
accounting literature and accepted industry practices
D. The entity should refer to the Conceptual Framework.

11. The following comments all relate to the recording process. Which of these statements
is correct?

A. The trial balance provides the primary source document for recording transactions into
the general journal.
B. The general ledger is posted from transactions recorded in the general journal.
C. The general ledger is a chronological record of transactions.
D. Transposition is the transfer of information from the general journal to the general
ledger.

12. A systematic compilation of a group of accounts; also called a “book of secondary

entry”

A. ledger
B. journal
C. worksheet
D. trial balance

13. The trial balance:

A. Is used to prove that there are no errors in the journal or ledger.

B. Provides a listing of every account in the chart of accounts.
C. Provides a listing of the balance of each account in active use.
D. Is a formal financial statement.
14. Which of the following statements about adjusting entries is/are correct?

I. Every adjusting entry impact both a balance sheet and a statement of profit or loss and
other comprehensive income account.
II. Every adjusting entry impacts comprehensive income.
III. If only year-end financial reports are prepared for both external and internal users
then adjusting entries need only to be prepared once a year.
IV. Adjusting entries are necessitated by the accrual basis accounting. If an entity uses
the pure cash basis of accounting, there is no need for adjusting entries.

A. I, II, IV
B. II, III, IV
C. I, II, III, IV
D. I, II, III

15. What is the authoritative status of the Conceptual Framework?

A. If there is a Standard or Interpretation that specifically applies to a transaction, it

overrides the Conceptual Framework. In the absence of a Standard or an Interpretation that
specifically applies, the Conceptual Framework should be followed.
B. It has the highest level of authority. In case of a conflict between the Conceptual
Framework and a Standard or Interpretation, the Conceptual Framework overrides the Standard
or Interpretation.
C. If there is a Standard or Interpretation that specifically applies to a transaction, it
overrides the Conceptual Framework. In the absence of a Standard or an Interpretation that
specifically applies to a transaction, management should consider the applicability of the
Conceptual Framework in developing and applying an accounting policy that will result in
information that is relevant and reliable.
D. The Conceptual Framework applies only when IASB develops new or revised Standards. An
entity is never required to consider the Conceptual Framework.

16. They are interested in information that enables them to determine whether amounts owing
to them will be paid when due. They are likely to be interested in an entity over a shorter
period than lenders unless they are dependent upon the continuation of the entity as a major
customer.

A. investors
B. lenders
C. suppliers
D. public

17. This information is useful in predicting future borrowing needs and how future profits
and cash flows will be distributed among those with an interest in the entity; it is also
useful in predicting how successful the entity is likely to be in raising further finance.

A. liquidity and solvency

B. financial structure
C. performance
D. economic structure

18. It is assumed that the entity has neither the intention nor the need to liquidate or
curtail materially the scale of its operations; if such an intention or need exists, the
financial statements may have to be prepared on a different basis and, if so, the basis
used is disclosed.

A. Growing concern
B. Cash Basis
C. Going Concern
D. Accrual Basis
19. Information has this quality when it influences the economic decisions of users by
helping them evaluate past, present or future events or confirming, or correcting, their
past evaluations.

A. Understandability
B. Predictive Value
C. Reliability
D. Relevance

20. Which of the following accounting concepts states that before a transaction is recorded,
sufficient evidence must exist to allow two or more knowledgeable individuals to reach
essentially the same conclusion about the transaction?

A. Continuity assumption
B. Verifiability quality
C. Cost principle
D. Materiality constraint

21. The basic elements of the financial position of an entity include the following:

I. economic resources of an entity that are recognized in conformity with GAAP,

II. economic obligations of an entity that are recognized in conformity with GAAP,
III. gross increases in assets or gross decreases in liabilities recognized and measured in
conformity with GAAP,
IV. the interest of owners in an entity which is the excess of an entity’ assets over its
liabilities,
V. gross decreases in assets or gross increases in liabilities recognized and measured in
conformity with GAAP,

A. I, II, III, IV
B. I, II, III
C. I, II, IV
D. I, II, III, IV, V

22. When a P300 asset with a six-year estimated useful life is recorded as an expense at
the date of purchase, this is an application of the:

A. Cost principle
B. matching principle
C. separate entity assumption
D. materiality constraint

23. Owners’ equity equals

A. capital minus assets

B. assets minus liabilities
C. assets plus capital
D. capital minus liabilities

24. Increases in owners’ equity arise from

A. transfers from a business to its owners

B. net losses for a period
C. nonreciprocal transfers to an entity from other than owners
D. treasury stock acquisition

25. Under this concept, a profit is earned only if the financial (or money) amount of the
net assets at the end of the period exceeds the financial (or money)amount of net assets at
the beginning of the period, after excluding any distributions to, and contributions from,
owners during the period. It can be measured in either nominal monetary units or units of
constant purchasing power.
A. Financial capital maintenance concept
B. Concept of capital maintenance
C. Physical capital maintenance concept
D. Concept of capital

26. All of the following statements correctly refer to PAS 1 Presentation of Financial
Statements, except

A. Inappropriate accounting policies are not rectified either by disclosure of the

accounting policies used or by notes or explanatory material.
B. The application of PFRSs, with additional disclosure, when necessary, is presumed to
result in financial statements that achieve a fair presentation.
C. The objective of this Standard is to prescribe the basis for presentation of general-
purpose financial statements, to ensure comparability both with the entity’s financial
statements of previous periods and with the financial statements of other entities.
D. PAS 1 shall be applied to all-purpose financial statements prepared and presented in
accordance with Philippine Financial Reporting Standards (PFRSs).

27. Which of the following is not an implied objective of financial reporting?

A. to influence the market price of shares traded in the stock exchange

B. to reduce the risk of making economic decisions.
C. to help allocate limited resources.
D. to report on the stewardship of enterprise resources

28. The presentation of comparative financial statements is

A. a violation of PFRSs
B. required by PFRSs
C. encouraged by PFRSs
D. not required by PFRSs but permitted due to industry standards

29. In assessing whether the going concern assumption is appropriate, management takes into
account all available information about the future, which is at least, but is not limited
to,

A. 12 months to 3 years from the end of the reporting period.

B. 12 months from the end of the reporting period.
C. 3 to 5 years from the end of the reporting period.
D. at least 5 years from the end of the reporting period.

30. When the accrual basis of accounting is used, an entity recognizes items as assets,
liabilities, equity, income and expenses (the elements of financial statements)

A. when they satisfy the definitions and recognition criteria for those elements in the
Conceptual Framework and in the PFRSs.
B. when they provide relevant information to expected users
C. as cash is earned and as cash is incurred
D. as cash is received and as cash is paid

31. Under PAS 1, an entity shall present a complete set of financial statements

A. at least every three years when there are limited users.

B. on as-needed basis, with or without comparative information
C. at least annually, with or without comparative information
D. including comparative information at least annually.
32. Which of the following statements is incorrect regarding offsetting of assets and
liabilities in the statement of financial position?

A. Financial assets and financial liabilities shall be offset if the entity has both the
legal right of offset and the intention of settling the asset and liabilities at a net
basis.
B. Offsetting does not give rise to gain or loss recognition, which distinguishes it from
the derecognition of an instrument,
C. Assets and liabilities in the statement of financial position may be offset in general.
D. An entity shall not offset assets and liabilities or income and expenses, unless required
or permitted by a PFRS.

33. Which of the following financial statements is concerned with the entity at a point in
time?

A. Balance sheet
B. Cash flow statement
C. Statement of changes in financial position
D. Income Statement

34. The statement of financial position may be presented

I. based on current and noncurrent classification,

II. based on liquidity,
III. mixture of current and noncurrent and liquidity

A. I, II, III
B. II
C. I, II
D. I

35. An asset shall be classified as current when it satisfies any of the following criteria,
except

A. it is cash or a cash equivalent that is restricted,

B. it is expected to be realized in, or is intended for sale or consumption in, the
entity’s normal operating cycle,
C. it is expected to be realized within twelve months after the balance sheet date,
D. it is held primarily for the purpose of being traded,

36. A liability shall be classified as current when it satisfies any of the following
criteria, except

A. it is held primarily for the purpose of being traded

B. it is due to be settled within twelve months after the balance sheet date
C. it is expected to be settled in the entity’s normal operating cycle
D. the entity has an unconditional right to defer settlement of the liability for at
least twelve months after the balance sheet date.

37. Which of the following item is not an element of working capital?

A. temporary investments
B. cash in bank
C. treasury stock
D. good-in process

38. In which section of the statement of financial position should employment taxes that
are due for settlement in 15 months' time be presented, according to PAS1 Presentation of
Financial Statements?
A. Non-current liabilities
B. Non-current assets
C. Current assets
D. Current liabilities

39. Which of the following accounts would not be classified under current assets on the
balance sheet?

A. 2-year Note Receivable

B. 90-day Note Receivable
C. Prepaid Insurance
D. Supplies

40. A corporation paid a six-year insurance premium on January 1, Year 1, for P12,000. It
recorded the prepayment in two asset accounts –one with a P2,000 debit balance and one with
a P10,000 debit balance. Under which of the following captions should the account with the
P10,000 balance be classified on a balance sheet dated January, Year 1?

A. Operational assets
B. Other assets
C. Deferred charges
D. Current assets

41. The cost of a depreciable long-lived asset is expensed

A. as the asset benefits the company.

B. in the period in which it is acquired.
C. when it is paid for.
D. in the period in which it is disposed of.

42. Amortization is the process of

A. writing down an asset to its fair value each reporting period.

B. valuing an asset at its fair value.
C. allocating the cost of an asset to expense over its useful life in a rational and
systematic manner.
D. increasing the value of an asset over its useful life in a rational and systematic
manner.

43. The statement of changes in equity may prominently display all of the following, except

A. Dividends to owners
B. Effect of changes in accounting policies
C. Correction of prior period errors
D. Components of comprehensive income for the period

44. The statement of changes in equity is prepared

A. as needed
B. as an integral part of the financial statements and as a supporting document for the
income statement
C. as an integral part of the financial statements and as a supporting document for the
statement of financial position
D. as a supporting document for the financial statements but not an integral part thereof
45. All of the following correctly relate to the notes, except

A. present the breakdown of aggregated items on the face of the statement and to rectify
any inappropriate accounting policies.
B. provide information that is not presented elsewhere in the financial statements but is
relevant to an understanding of any of them.
C. present information about the basis of preparation of the financial statements and the
specific accounting policies used
D. disclose the information required by PFRSs that is not presented elsewhere in the
financial statements

46. An entity shall disclose all of the following in the notes, except

A. the name of the parent and the ultimate parent of the group.
B. the amount of dividends proposed or declared before the financial statements were
authorized for issue but not recognized as a distribution to owners during the period, and
the related amount per share
C. the domicile and legal form of the entity and a list of its incorporators.
D. the amount of any cumulative preference dividends not recognized.

47. Which of the following is an acceptable method of reporting other comprehensive income
and its components?

A. All of these
B. In a statement of profit or loss and other comprehensive income.
C. In a statement of changes in equity
D. In the notes only.

48. According to PAS1 Presentation of financial statements, which TWO of the following
must be included in an entity's statement of financial position?

A. Share capital and reserves analyzed by class

B. Deferred tax
C. Cash and cash equivalents
D. Property, plant and equipment analyzed by class

49. Which information is normally not included in the “notes to financial statements”?

A. Supporting information for line items presented and aggregated

B. A statement of compliance with GAAP
C. A Statement of cash flows
D. A statement of measurement basis for the financial statements and accounting policies
applied

50. Which of the following statements about financial statements is incorrect?

A. They provide information about the financial position, performance and cash flows of an
enterprise that is useful to a wide range of users in making economic decisions
B. They show the results of the stewardship of management of the resources entrusted to it
by the capital providers
C. They are prepared at least annually and are directed to the common information needs of
a wide range of statement users
D. They are the primary responsibility of the external auditor after audit