MODULE TWO

Instruction: Choose the best answer.

1. The statement of profit or loss includes which of the following?
a. Revenue, cost of goods sold, distribution costs, general and administrative expenses and
extraordinary items.
b. Discontinued operations.
c. Gains and losses arising from treasury share transactions.
d. Other comprehensive income.

2. Assets that are classified as held for sale under PFRS 5 are
a. required under PAS 36 to be tested for impairment annually.
b. amortized over a period not exceeding 5 years.
c. depreciated.
d. not depreciated.

3. According to PFRS 5, gains and losses on remeasurement of assets held for sale are
a. recognized in profit or loss.
b. recognized in other comprehensive income.
c. recognized only for impairment losses.
d. not recognized.

4. Which of the following statements is true regarding the accounting treatment of costs to sell
under PFRS 5?
a. Costs to sell are added to the fair value when determining the measurement basis for an
asset held for sale.
b. Costs to sell are never discounted because held for sale assets should be sold within one
year.
c. Costs to sell are discounted if it is expected that the sale will be made beyond one year.
d. a and c

5. According to PFRS 5, the assets and liabilities of a disposal group are presented
a. as one line item in either current assets or current liabilities.
b. as one line item in either noncurrent assets or noncurrent liabilities.
c. separately on the face of the statement of financial position.
d. a or b

6. Exploration and evaluation assets are initially measured at

a. cost.
b. revalued amount.
c. fair value.
d. a or b

7. Exploration and evaluation assets are exploration and evaluation expenditures recognized as
a. assets in accordance with the entity’s accounting policy.
b. expenses in accordance with applicable PFRSs.
c. assets in accordance with (a) above, subject to the limitations provided under PAS 8
Accounting Policies, Changes in Accounting Estimates and Errors.
d. any of these

8. Mark Ngina’s Sari-sari Store has a sign that reads “Your credit is good but I need cash.” What
type of risk is Mr. Mark trying to avoid by putting up that sign?

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 a. credit risk
b. market risk
c. liquidity risk
d. store risk

9. How does PFRS 7 define “liquidity risk”?

a. The risk that an entity will encounter difficulty in meeting obligations associated with
financial liabilities.
b. The risk that an entity will encounter difficulty in disposing a financial asset due to lack of
market liquidity.
c. The risk that an entity will encounter difficulty in meeting cash flow needs due to cash flow
problems.
d. The risk that an entity’s cash inflows will not be sufficient to meet the entity’s cash outflows.
(Adapted)

10. ABC Co. has identified the following five operating segments: “Credit,” “Hotel,” “Transportation,”
“Grocery,” and “Events planning.” ABC Co. treats the “Hotel” and “Events planning” as a single
segment for internal reporting purposes. Each of the “Events planning” and “Transportation”
segments does not qualify under any of the quantitative thresholds of PFRS 8. How should ABC
Co. disclose its reportable segments?
a. ABC Co. shall treat each of the “Hotel,” “Credit,” and “Grocery” as reportable segments. The
other segments should not be disclosed.
b. ABC Co. shall treat each of the “Hotel,” “Credit,” and “Grocery” as reportable segments. The
other segments should be combined and disclosed in the “All other segments” category.
c. ABC Co. shall treat the “Hotel” and “Events planning” as a single reportable segment and
each of the “Credit” and “Grocery” segments also as reportable segments. The
“Transportation” segment shall be included in the “All other segments” category.
d. ABC Co. shall treat the “Hotel” and “Events planning” as a single reportable segment and
combine all the other segments and report them under the “All other segments” category.

11. An entity recently has acquired a new brand from a competitor company. The brand qualifies as
a component of an entity and represents a major line of business for which discrete financial
information is available. This operating segment does not meet any of the threshold criteria for
a reportable segment. Furthermore, this segment is unique and does not share similar
characteristics with the other operating segments of the entity. Which of the following
statements is correct?
a. The entity can disclose this new segment separately if it is a distinguishable component and
is used by management in internal reporting even though it does not meet the PFRS criteria.
b. The entity cannot voluntarily disclose this new segment separately because PFRS 8
discourages voluntary disclosure of operating segments. Operating segments are reportable
only if they either result from aggregation or qualify under any of the quantitative
thresholds.
c. The entity can disclose this new segment separately only if it can be aggregated with
another operating segment and the combined segment qualifies in all of the quantitative
thresholds.
d. The entity can disclose this new segment separately only if it can be aggregated with
another operating segment and the combined segment qualifies in any of the quantitative
thresholds.

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12. According to PFRS 8, a reportable operating segment is one which
a. management uses in making decisions about operating matters.
b. results from aggregation of two or more segments and qualify under any of the quantitative
thresholds.
c. a and b
d. none of these

13. Which of the following is not among the quantitative thresholds under PFRS 8?
a. at least 10% of total revenues (external and internal).
b. at least 10% of the higher of total profits of segments reporting profits and total losses of
segments reporting losses, in absolute amount.
c. at least 10% of total assets (inclusive of intersegment receivables).
d. at least 10% of total revenues (external only)

14. According to PFRS 8, disclosures for major customer shall be provided if revenues from
transactions with a single external customer amount to
a. at least 75% of the entity’s external and internal revenues.
b. at least 75% of the entity’s external revenues.
c. 10% or more of the entity’s external revenues.
d. less than 10% of the entity’s external revenues.

15. According to PFRS 9, it is the amount at which a financial asset or a financial liability is
measured at initial recognition minus principal repayments, plus or minus the cumulative
amortization using the effective interest method of any difference between that initial amount
and the maturity amount and, for financial assets adjusted for any loss allowance.
a. cost c. amortized cost
b. carrying amount d. fair value

16. Which of the following is measured at fair value with fair value changes recognized in profit or
loss?
a. Held to maturity investments
b. Financial assets designated at FVPL
c. FVOCI
d. All of these

17. If the entity’s business model’s objective is to hold assets in order to collect contractual cash
flows and cash flows are solely payments of principal and interest on the principal amount
outstanding, the financial asset is classified
a. according to management’s intention of holding the securities.
b. as financial asset measured at amortized cost.
c. as financial asset measured at fair value through other comprehensive income.
d. any of these

18. PFRS 12 applies to

a. contracts relating to post-employment benefit plans.
b. interest in joint arrangements that does not give the entity joint control or significant
influence over the arrangement.
c. investments measured at fair value through other comprehensive income.
d. investments accounted for under the equity method.

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19. According to PFRS 12, interest in another entity refers to
a. only contractual involvement that exposes an entity to variability of returns from the
performance of another entity.
b. only non-contractual involvement that exposes an entity to variability of returns from the
performance of another entity.
c. contractual and non-contractual involvement that exposes an entity to variability of returns
from the performance of another entity.
d. a typical customer-supplier relationship.

20. Which of the following are not considered transaction costs or costs to sell?
a. commissions to brokers
b. levies by regulatory agencies and commodity exchanges
c. transfer taxes and duties
d. transport costs

21. According to PFRS 14, rate-regulation is

a. a framework for establishing the prices that can be charged to customers for goods or
services and that framework is subject to oversight and/or approval by a rate regulator.
b. the balance of any expense (or income) account that would not be recognized as an asset or
a liability in accordance with other Standards, but that qualifies for deferral because it is
included, or is expected to be included, by the rate regulator in establishing the rate(s) that
can be charged to customers.
c. an authorized body that is empowered by statute or regulation to establish the rate or a
range of rates that bind an entity. The rate regulator may be a third-party body or a related
party of the entity, including the entity’s own governing board, if that body is required by
statute or regulation to set rates both in the interest of the customers and to ensure the
overall financial viability of the entity.
d. all of these

22. According to PFRS 14, an entity presents regulatory deferral accounts in the statement of
financial position
a. showing those with debit balances separately from those with credit balances.
b. showing only the net debit or the net credit balance of the accounts.
c. a or b, as a matter of accounting policy choice
d. An entity shall not present regulatory deferral accounts in the statement of financial
position, but only disclose them in the notes.

23. Arrange the following steps of revenue recognition in accordance with PFRS 15.
I. Identify the performance obligations in the contract
II. Recognize revenue when (or as) the entity satisfies a performance obligation
III. Determine the transaction price
IV. Identify the contract with the customer
V. Allocate the transaction price to the performance obligations in the contract
a. IV, I, V, III, II c. III, IV, I, V, II
b. IV, I, III, V, II d. IV, III, I, V, II

24. Certain criteria must be met before a contract with a customer is accounted for under PFRS 15.
Which of the following precludes a contract from being accounted for under PFRS 15?

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 a. The consideration is collected in advanced.
b. The contract is made orally.
c. The contract does not result to a change in the risk, timing or amount of the entity’s future
cash flows.
d. The contract is neither oral nor written but rather implied by the entity’s business practices.

Use the following information for the next three questions:

Entity A, a manufacturing entity, obtains insurance against product liability from Entity B, an
insurance company. Entity B then cedes the insurance contact with Entity C, another insurance
company.

25. How does Entity B account for the insurance contract with Entity A?
a. General model
b. Premium Allocation Approach
c. a or b
d. Not accounted for under PFRS 17

26. How does Entity C account for the insurance contract ceded by Entity B?
a. General model
b. Premium Allocation Approach
c. a or b
d. Modification to general model for reinsurance contracts held

27. How does Entity B account for the insurance contract ceded to Entity C?
a. General model
b. Premium Allocation Approach
c. a or b
d. Modification to general model for reinsurance contracts held

28. The "premium allocation approach" cannot be applied to which of the following insurance
contracts?
a. insurance contracts issued
b. reinsurance contracts issued
c. reinsurance contacts held
d. insurance contracts with significant variability in their fulfillment cash flows.

29. The unearned profit from a group of insurance contracts is referred to under PFRS 17 as
a. fulfillment cash flows.
b. contractual service margin.
c. onerous contracts.
d. discretionary participation feature.

30. Which of the following is a report presented outside the financial statements and hence, not
covered by PFRSs?
(Item #1) Environmental Reports; (Item #2) Explanatory Notes; (Item #3)Value added statements
a. Yes, Yes, Yes c. No, Yes, Yes
b. Yes, No, Yes d. Yes, Yes, No
(AICPA)

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31. The accounting terminology for earned surplus under current PFRSs is
a. retained earnings reservation
b. additional paid-in capital
c. capital contribution in excess of par value
d. retained earnings
(RPCPA)

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

a. to help allocate limited resources
b. to influence the market price of shares traded in the stock exchange
c. to reduce the risk of making economic decisions
d. to report on the stewardship of enterprise resources
(Adapted)

General features
33. The general features of financial statement presentation as prescribed under PAS 1 Presentation
of Financial Statements includes
I. Fair presentation and compliance with PFRS
II. Going concern
III. Accrual basis of accounting
IV. Materiality and aggregation
V. Offsetting
VI. Frequency of reporting
VII. Comparative information
VIII. Consistency of presentation
a. I, II, III, IV b. I, II, III, IV, V c. I, II, III, IV, V, VIII d. all of these

34. Which of the following is not included among the general features of financial statement
presentation?
a. Growing concern c. Frequency of reporting
b. Accrual basis d. Comparative information

35. A company is issuing its comparative financial statements for years 20x1 and 20x2. If the
company is required to issue an additional statement of financial position, such statement
should be dated
a. as of Jan. 1, 20x1 c. as of Dec. 31, 20x2
b. as of Jan. 1, 20x2 d. as of Dec. 31, 20x1

36. During the year, an accountant omitted centavos in the amounts recognized in the journals.
Such omissions were considered individually immaterial and were treated as a normal
company practice. However, it was found out as of year-end that the sum of the centavos
omitted, when totaled, is material. The omission is
a. considered immaterial, hence, requires no adjustment
b. considered material, hence, requires no adjustment
c. considered immaterial but no adjustment is necessary
d. considered material, hence, requires an adjustment

37. Omissions or misstatements of items are material if they could, individually or collectively;
influence the economic decisions of users taken on the basis of the financial statements.
Materiality depends on

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 a. the peso amount of financial consequence of the omission or misstatement judged in the
surrounding circumstances
b. the size and peso amount of the omission or misstatement judged in the surrounding
circumstances
c. the peso amount and nature of the omission but not the misstatement judged in the
surrounding circumstances
d. the size and nature of the omission or misstatement judged in the surrounding
circumstances

38. The presentation of comparative financial statements is

a. encouraged by PFRSs
b. required by PFRSs
c. not required by PFRSs but permitted due to industry standards
d. a violation of PFRSs

39. According to PAS 1, in virtually all circumstances, a fair presentation is achieved by compliance
with applicable PFRSs. A fair presentation also requires an entity (choose the incorrect
statement).
a. to select and apply accounting policies in accordance with PAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors.
b. to present information, including accounting policies, in a manner that provides relevant,
reliable, comparable and understandable information.
c. to have its financial statements examined by an external party
d. to provide additional disclosures when compliance with the specific requirements in PFRSs
is insufficient to enable users to understand the impact of particular transactions, other
events and conditions on the entity’s financial position and financial performance.

40. In virtually all circumstances, a fair presentation is achieved by compliance with applicable
PFRSs. A fair presentation also requires an entity: (choose the incorrect statement)
a. to select and apply accounting policies in accordance with PAS 8
b. to provide additional disclosures when compliance with the specific requirements in PFRSs
is insufficient to enable users to understand the impact of particular transactions
c. to establish a system of internal control, the responsibility for which is the entity’s auditor.
d. to present information, including accounting policies, in a manner that provides relevant,
reliable, comparable and understandable information.

41. In the extremely rare circumstances in which management concludes that compliance with a
requirement in a PFRS would be so misleading that it would conflict with the objective of
financial statements set out in the Conceptual Framework and the relevant regulatory
framework requires, or otherwise does not prohibit, such a departure, the entity need not
disclose which of the following?
a. that management has concluded that the financial statements present fairly the entity’s
financial position, financial performance and cash flows
b. that it has complied with applicable PFRSs, except that it has departed from a particular
requirement to achieve a fair presentation
c. that it has complied with other applicable standards other than those issued by the IASB
and adopted by the FRSC and the description of those accounting standards which the entity
has complied to.
d. the title of the PFRS from which the entity has departed, the nature of the departure,
including the treatment that the PFRS would require, the reason why that treatment would

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 be so misleading in the circumstances that it would conflict with the objective of financial
statements set out in the Conceptual Framework, and the treatment adopted
e. for each period presented, the financial effect of the departure on each item in the financial
statements that would have been reported in complying with the requirement.

42. Identify the incorrect statement.

a. When an entity has departed from a requirement of a Standard or an Interpretation in a
prior period, and that departure affects the amounts recognized in the financial statements
for the current period, it shall disclose the (a) title of the Standard or Interpretation from
which the entity has departed and the (b) impact of such departure.
b. In the extremely rare circumstances in which management concludes that compliance with
a requirement in a Standard or an Interpretation would be so misleading that it would
conflict with the objective of financial statements set out in the Conceptual Framework, but
the relevant regulatory framework prohibits departure from the requirement, the entity
shall, to the maximum extent possible, reduce the perceived misleading aspects of
compliance by disclosing:(a) the title of the Standard or Interpretation in question and (b)
for each period presented, the adjustments to each item in the financial statements that
management has concluded would be necessary to achieve a fair presentation.
c. Financial statements shall be prepared on a going concern basis unless management either
intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so.
d. PAS 1 requires an entity preparing financial statements, to make an assessment of the
entity’s ability to continue as a going concern. 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, five years from the balance sheet date.

43. Identify the incorrect statement.

a. An entity shall prepare its financial statements, including cash flow information, using the
accrual basis of accounting.
b. The final stage in the process of aggregation and classification is the presentation of
condensed and classified data, which form line items on the face of the balance sheet,
income statement, statement of changes in equity and cash flow statement, or in the notes.
c. Applying the concept of materiality means that a specific disclosure requirement in a
Standard or an Interpretation need not be satisfied if the information is not material.
d. PAS 1 requires that an entity presenting its current year financial statements to also present
its financial statements for the previous year.

44. Which of the following statements is incorrect?

a. The choice of method of presenting expenses is not irrevocable. If the other method is
expected to present more relevant information, a change should made. However, changes
between permitted accounting policies should not be made so often so as not to violate the
principle of consistency.
b. In a single-statement presentation, all items of income and expense are presented together
in one statement.
c. In a two-statement presentation, the first statement (‘income statement’) presents income
and expenses recognized in profit or loss and the second statement (‘statement of
comprehensive income’) begins with profit or loss and presents, in addition, items of
income and expense that PFRSs require or permit to be recognized outside profit or loss.
d. Dividends received from investments in associates accounted for using the equity method
are not recognized in profit or loss but may be recognized in other comprehensive income.

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45. Which of the following statements is incorrect?
a. An investor in an associate may present in its other comprehensive income its share in the
associate’s other comprehensive income.
b. An investor in an associate shall present in profit or loss its share in the associate’s profit or
loss.
c. An investor in an associate shall not recognize dividends received from the associate in its
profit or loss but may recognize the dividends received in its other comprehensive income.
d. Dividends received by an investor from its associate are accounted for as reduction in the
investment in associate account.

46. Which of the statements is false?

a. A loss caused by impairment in the value of an intangible asset should be classified as an
extraordinary item.
b. If a franchise becomes worthless prior to the end of its estimated useful life, the
unamortized balance in the franchise account should be immediately written off as an
impairment loss.
c. A lease bonus payment made in advance should be debited to a leasehold account, which is
an asset account.
d. Leasehold improvements should be amortized over the shorter of the term of the lease or
the useful life of the improvements.
(AICPA)

47. Which of the following statements is(are) correctly stated?

I. The write-off of intangible assets generally should be reported as part of continuing
operations but disclosed in the notes as an extraordinary item.
II. For an item to be disclosed in the notes as extraordinary but presented as part of continuing
operations in the profit or loss, the event or transaction which gave rise to it should either
be unusual in nature or infrequency of occurrence.
III. An income statement is usually not sufficient to describe total change in equity during a
period.
IV. The income statement of a period should include and properly describe all items of income
and expenses that do not result from transactions with owners.
V. An income statement is sufficient to describe the total change in owners’ equity during a
period because changes arise from sources other than profit oriented activities.
a. I, III, IV b. I, III, V c. III, IV d. III only

48. Which of the following items belong to the classes of expenses?

I. expenditures to acquire assets
II. distribution to owners
III. costs of assets used to produce revenue
IV. costs of assets ceasing to provide future economic benefits
V. costs of assets that have expired during the period
a. all of these c. III, IV and V only
b. I, III, IV and V only d. III and IV only
(RPCPA)

49. The method of income determination which measures the results of enterprise transactions and
involves the determination of the amount of revenue earned by an entity during a given period
and the amount of expenses applicable to that revenue is known as the:
(Item #1) Transaction approach; (Item #2) Economic approach

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a. no, yes b. yes, no c. no, no d. yes, yes
(AICPA)

50. Conventionally, accountants measure income

a. as a change in the value of owners’ equity
b. by applying a value-added concept
c. by using a transaction approach
d. by equity method
(AICPA)

51. According to current standards, profit or loss for the period

a. Is the same as comprehensive income.
b. Excludes certain income and expenses that are included in comprehensive income.
c. Include certain income and expenses that are excluded from comprehensive income.
d. Include certain losses that are excluded from comprehensive income.
(AICPA)

52. Comprehensive income includes which of the following?

(Item #1) Operating income; (Item #2) Investments by owners
a. Yes, No b. Yes, Yes c. No, Yes d. No, No
(AICPA)

53. Comprehensive income includes which of the following?

(Item #1)Gross margin; (Item #2) Operating income
a. Yes, No b. Yes, Yes c. No, Yes d. No, No
(AICPA)

54. Comprehensive income includes which of the following?

(Item #1) Fair value gains; (Item #2) Gross Margin
a. Yes, No b. Yes, Yes c. No, Yes d. No, No
(AICPA)

55. Comprehensive income includes which of the following?

(Item #1) Loss on Discontinued Operations; (Item #2) Investment by Owners
a. Yes, No b. Yes, Yes c. No, Yes d. No, No
(AICPA)

56. Periodic net earnings are conventionally measured by a

a. Transactions approach.
b. Transactions approach including recognition of unrealized gains and losses in other
comprehensive income.
c. Capital maintenance approach.
d. Market value approach including recognition of all realized gains and some unrealized
losses.
(AICPA)

57. Are the following statements true or false, according to PAS1 Presentation of Financial
Statements?
I. Dividends paid should be recognized in the statement of profit or loss and other
comprehensive income.

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 II. A loss on disposal of assets should be recognized in the statement of changes in equity.
a. False, False b. False, True c. True, False d. True, True
(ACCA)

58. Elements in the equity section is normally reported in order of:

a. Classes of share capital c. Permanency
b. Time to maturity d. Liquidity
(AICPA)

59. Which of the following statements is incorrect?

a. The principles of accounting, as used in reporting standards, refer not only to accounting
principles but also the methods of applying them.
b. Aspects of financial position presented in the balance sheet are related to changes in
financial position presented in the income statement, statement of changes in equity, and
statement of cash flows.
c. Asset valuation accounts are neither assets nor liabilities.
d. The cash basis of accounting is acceptable primarily in enterprises that do not have
substantial credit transactions or inventories.
(RPCPA)

60. Are the following statements in relation to materiality true or false, according to PAS1
Presentation of Financial Statements?
I. Materiality of items depends on their individual or collective influence on the economic
decisions of users.
II. Materiality of an item depends on its absolute size and nature.
a. False, False b. False, True c. True, False d. True, True
(ACCA)

61. The following statements relate to various financial accounting topics:

I. reporting deferred income taxes in the balance sheet is an example of intraperiod tax
allocation
II. a lease that is in substance a purchase is termed a direct financing or a sales-type lease by
the lessor and a finance lease by the lessee
III. earnings per share information are required on the income statements of publicly-held
corporations for each of the following (a) income from continuing operations, (b) results of
discontinued operations, and (c) net income
IV. accounting is responsible for providing standards that insure accurate financial information
that cannot be manipulated or improperly reported.

State whether the foregoing statements are false:

a. all of the statements are false c. only two statements are false
b. only one statement is false d. three statements are false
(RPCPA)

62. Which of the following should be disclosed in a summary of significant accounting policies?
a. Basis of profit recognition on long-term construction contracts.
b. Future minimum lease payments in the aggregate and for each of the five succeeding fiscal
years.
c. Depreciation expense.
d. Composition of sales by segment.

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(AICPA)

63. Which of the following should be disclosed in the summary of significant accounting policies?
(Item #1) Maturity dates of long-term debt; (Item #2) Composition of inventories
a. Yes, Yes b. Yes, No c. No, No d. No, Yes
(AICPA)

64. Which of the following should be disclosed in the summary of significant accounting policies?
(Item #1) Composition of plant assets; (Item #2) Inventory pricing
a. Yes, Yes b. No, Yes c. No, No d. Yes, No
(AICPA)

65. Which of the following information should be disclosed in the summary of significant
accounting policies?
a. Refinancing of debt subsequent to end of reporting period.
b. Guarantees of indebtedness of others.
c. Criteria for determining which investments are treated as cash equivalents.
d. Adequacy of pension plan assets relative to vested benefits.
(AICPA)

66. Which of the following facts concerning fixed assets should be included in the summary of
significant accounting policies? (Item #1) Depreciation method (Item #2) Composition
a. No, Yes b. Yes, Yes c. Yes, No d. No, No
(AICPA)

67. The summary of significant accounting policies should disclose the

a. Pro forma effect of retroactive application of an accounting change.
b. Basis of profit recognition on long-term construction contracts.
c. Adequacy of pension plan assets in relation to vested benefits.
d. Future minimum lease payments in the aggregate and for each of the five succeeding fiscal
years.
(AICPA)

68. Which of the following information should be included in FRACTIOUS TROUBLESOME, Inc.’s
20x1 summary of significant accounting policies?
a. Property, plant, and equipment is recorded at cost with depreciation computed principally
by the straight-line method.
b. During 20x1, the UNRULY component was sold.
c. Business component 20x1 sales are QUARRELSOME ₱1M, IRRITABLE ₱2M, and
RECALCITRANT ₱3M.
d. Future ordinary share dividends are expected to approximate 60% of earnings.
(AICPA)

69. An entity purchases a building and pays in equity shares of the entity. This transaction should
be treated in the statement of cash flows as follows:
a. The purchase of the building should be financing cash outflow and the issuance of shares as
financing cash outflows
b. The purchase of the building should be investing cash outflow and the issuance of shares as
financing cash outflows

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 c. The purchase of the building should be operating cash outflow and the issuance of shares
financing cash outflows
d. This does not belong in a cash flow statement and should be disclosed only in the notes to
the financial statements
(ACCA)

70. Both the direct and indirect methods require cash flows to be classified according to operating,
investing, and financing activities. The difference in presentation between the two methods:
a. affects the investing section only. The operating and financing sections do not differ
between the two presentations
b. affects the financing section only. The investing and operating sections do not differ
between the two presentations
c. affects the operating and investing sections. The financing section does not differ between
the two presentations
d. affects the operating section only. The investing and financing sections do not differ
between the two presentations
(ACCA)

71. In relation to cash flow statements, which, if any, of the following are correct?
I. The direct method of calculating net cash from operating activities leads to a different figure
from that produced by the indirect method, but this is balanced elsewhere in the cash flow
statement.
II. A company making high profits must necessarily have a net cash inflow from operating
activities.
III. Profits and losses on disposals of non-current assets appear as items under cash flows from
investing activities in the cash flow statement or a note to it.
a. Item 1 only b. Item 2 only c. Item 3 only d. None of the items.
(ACCA)

72. A cash flow statement prepared in accordance with PAS 7 opens with the calculation of cash
flows from operating activities from the net profit before taxation. Which of the following lists
of items consists only of items that would be added to net profit before taxation in that
calculation?
a. Decrease in inventories, depreciation, profit on sale of non-current assets.
b. Increase in trade payables, decrease in trade receivables, profit on sale of non-current
assets.
c. Loss on sale of non-current assets, depreciation, increase in trade receivables.
d. Decrease in trade receivables, increase in trade payables, loss on sale of non-current assets.
(ACCA)

73. How should the amortization of bond discount on long-term debt be reported in a statement of
cash flows prepared using the indirect method?
a. As a financing activities inflow
b. As a financing activities outflow
c. In operating activities as a deduction from income
d. In operating activities as an addition to income
(ACCA)

74. Which of the following information should be disclosed as supplemental information in the
statement of cash flows? (Item #1) Cash flow per share; (Item #2) Conversion of debt to equity

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 a. Yes, Yes b. Yes, No c. No, Yes d. No, No
(AICPA)

75. Which of the following would be subtracted in converting net earnings to cash provided by
operations in the current period in a consolidated statement of cash flows?
a. Amortization of premium on bonds payable.
b. Amortization of patent.
c. Increase in deferred income tax liability.
d. Minority interest's share of net earnings.
(AICPA)

76. In a statement of cash flows of a financial institution, which of the following items is reported as
a cash outflow from financing activities?
I. Payments to retire mortgage notes.
II. Interest payments on mortgage notes.
III. Dividend payments
a. I, II, and III. b. II and III. c. I only. d. I and III.
(AICPA)

77. How should a gain from the sale of used equipment for cash be reported in a statement of cash
flows using the indirect method?
a. In investment activities as a reduction of the cash inflow from the sale.
b. In investment activities as a cash outflow.
c. In operating activities as a deduction from income.
d. In operating activities as an addition to income.
(AICPA)

The next two items are based on the following:

A company acquired a building, paying a portion of the purchase price in cash and issuing a
mortgage note payable to the seller for the balance.
78. In a statement of cash flows, what amount is included in investing activities for the above
transaction?
a. Cash payment. c. Zero.
b. Acquisition price. d. Mortgage amount.
(AICPA)

79. In a statement of cash flows, what amount is included in financing activities for the above
transaction?
a. Cash payment. c. Zero.
b. Acquisition price. d. Mortgage amount.
(AICPA)

80. In a statement of cash flows, receipts from sales of property, plant, and equipment and other
productive assets should generally be classified as cash inflows from
a. Operating activities. c. Investing activities.
b. Financing activities. d. Selling activities.
(AICPA)

81. In a statement of cash flows, which of the following would increase reported cash flows from
operating activities using the direct method? (Ignore income tax considerations.)

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 a. Dividends received from investments.
b. Gain on sale of equipment.
c. Gain on early retirement of bonds.
d. Change from straight-line to accelerated depreciation.
(AICPA)

82. Which of the following cash flows per share should be reported in a statement of cash flows?
a. Primary cash flows per share only.
b. Fully diluted cash flows per share only.
c. Both primary and fully diluted cash flows per share.
d. Cash flows per share should not be reported.
(AICPA)

83. LIBIDINOUS LUSTFUL Co. uses the direct write-off method to account for uncollectible accounts
receivable. During an accounting period, LIBIDINOUS’ cash collections from customers equal
sales adjusted for the addition or deduction of the following amounts: (Item #1) Accounts
written-off; (Item #2) Increase in accounts receivable balance
a. Deduction, Deduction c. Deduction, Addition
b. Addition, Deduction d. Addition, Addition
(AICPA)

84. On September 1, 20x1, PRESUMPTUOUS OVERSTEPPING Co. sold used equipment for a cash
amount equaling its carrying amount for both book and tax purposes. On September 15, 20x1,
PRESUMPTUOUS replaced the equipment by paying cash and signing a note payable for new
equipment. The cash paid for the new equipment exceeded the cash received for the old
equipment. How should these equipment transactions be reported in PRESUMPTUOUS’s 20x1
statement of cash flows?
a. Cash outflow equal to the cash paid less the cash received.
b. Cash outflow equal to the cash paid and note payable less the cash received.
c. Cash inflow equal to the cash received and a cash outflow equal to the cash paid and note
payable.
d. Cash inflow equal to the cash received and a cash outflow equal to the cash paid.
(AICPA)

85. APERCU OUTLINE Co. purchased a three-month Treasury bill. How should this purchase be
reported in APERCU's statement of cash flows?
a. As an outflow from operating activities.
b. As an outflow from investing activities.
c. As an outflow from financing activities.
d. Not reported in activities.
(AICPA)

86. Which of the following is not disclosed on the statement of cash flows when prepared under the
direct method, either on the face of the statement or in a separate schedule?
a. The major classes of gross cash receipts and gross cash payments.
b. The amount of income taxes paid.
c. A reconciliation of the components of cash and cash equivalents.
d. A reconciliation of ending retained earnings to net cash flow from operations.
(AICPA)

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87. The management of an entity completes draft financial statements for the year to December 31,
20x1 on February 28, 20x2. On March 18, 20X2, the board of directors reviews the financial
statements and authorizes them for issue. The entity announces its profit and selected other
financial information on March 19, 20x2. The financial statements are made available to
shareholders and others on April 1, 20x2. The shareholders approve the financial statements at
their annual meeting on May 15, 20x2 and the approved financial statements are then filed with
a regulatory body on May 17, 20x2. For purposes of PAS 10 Events after the reporting period, the
financial statements are authorized for issue on
a. March 18, 20x2 d. May 15, 20x2
b. March 19, 20x2 e. May 17, 20x2
c. April 1, 20x2
(Adapted)

88. On March 18, 20x2, the management of an entity authorizes financial statements for issue to its
supervisory board. The supervisory board is made up solely of non-executives and may include
representatives of employees and other outside interests. The supervisory board approves the
financial statements on March 26, 20x2. The financial statements are made available to
shareholders and others on April 1, 20x2. The shareholders approve the financial statements at
their annual meeting on May 15, 20x2 and the financial statements are then filed with a
regulatory body on May 17, 20x2. For purposes of PAS 10 Events After the Reporting Period, the
financial statements are authorized for issue on
a. March 18, 20x2 d. May 15, 20x2
b. March 19, 20x2 e. May 17, 20x2
c. April 1, 20x2
(Adapted)

89. PAS 10 Events after the Financial Reporting Period defines the extent to which events after the
balance sheet date should be reflected in financial statements. Five such events are listed below.
1. Merger with another company.
2. Insolvency of a customer.
3. Destruction of a major non-current asset.
4. Sale of inventory held at the balance sheet date for less than cost.
5. Discovery of fraud.

Which of the listed items are, according to PAS 10, normally to be classified as adjusting?
a. 1, 2 and 3 b. 2, 4 and 5 c. 1, 2 and 5 d. 1, 4 and 5
(Adapted)

90. VOCATION OCCUPATION Company decided to operate a new amusement park that will cost ₱1
million to build in the year 20x1. Its financial year-end is December 31, 20x1. VOCATION has
applied for a letter of guarantee for ₱700,000. The letter of guarantee was issued on March 31,
20x2. The audited financial statements have been authorized to be issued on April 18, 20x2. The
adjustment required to be made to the financial statement for the year ended December 31,
20x1, should be
a. Booking a ₱700,000 long-term payable.
b. Disclosing ₱700,000 as a contingent liability in 2005 financial statement.
c. Increasing the contingency reserve by ₱700,000.
d. Do nothing.
(Adapted)

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91. A new drug was introduced by OBNOXIOUS HARMFUL Inc. in the market on December 1, 20x1.
OBNOXIOUS’ financial year ends on December 31, 20x1. It was the only company that was
permitted to manufacture this patented drug. The drug is used by patients suffering from an
irregular heartbeat. On March 31, 20x2, after the drug was introduced, more than 1,000
patients died. After a series of investigations, authorities discovered that when this drug was
simultaneously used with another drug used to regulate hypertension, the patient’s blood
would clot and the patient suffered a stroke. A lawsuit for ₱100,000,000 has been filed against
OBNOXIOUS Inc. The financial statements were authorized for issuance on April 30, 20x2.
Which of the following options is the appropriate accounting treatment for this post–balance
sheet event under PAS 10?
a. The entity should provide ₱100,000,000 because this is an “adjusting event” and the
financial statements were authorized to be issued after the accident.
b. The entity should disclose ₱100,000,000 as a contingent liability because it is an “adjusting
event.”
c. The entity should disclose ₱100,000,000 as a “contingent liability” because it is a present
obligation with an improbable outflow.
d. Assuming the probability of the lawsuit being decided against OBNOXIOUS Inc. is remote,
the entity should disclose it in the footnotes, because it is a nonadjusting material event.
(Adapted)

92. At the balance sheet date, December 31, 2005, BELIE Inc. carried a receivable from TO
DISGUISE Corporation, a major customer, at ₱10 million. The “authorization date” of the
financial statements is on February 16, 2006. TO DISGUISE Corporation declared bankruptcy on
Valentine’s Day (February 14, 2006). BELIE Inc. will
a. Disclose the fact that TO DISGUISE Corporation has declared bankruptcy in the notes.
b. Make a provision for this post–balance sheet event in its financial statements (as opposed to
disclosure in notes).
c. Ignore the event and wait for the outcome of the bankruptcy because the event took place
after the year-end.
d. Reverse the sale pertaining to this receivable in the comparatives for the prior period and
treat this as an “error” under PAS 8.
(Adapted)

93. TITTILLATE TO TICKLE Inc. built a new factory building during 20x1 at a cost of ₱20 million. At
December 31, 20x1, the net book value of the building was ₱19 million. Subsequent to year-end,
on March 15, 20x2, the building was destroyed by fire and the claim against the insurance
company proved futile because the cause of the fire was negligence on the part of the caretaker
of the building. If the date of authorization of the financial statements for the year ended
December 31, 20x1, was March 31, 20x2, TITTILLATE. should
a. Write off the net book value to its scrap value because the insurance claim would not fetch
any compensation.
b. Make a provision for one-half of the net book value of the building.
c. Make a provision for three-fourths of the net book value of the building based on prudence.
d. Disclose this nonadjusting event in the footnotes.
(Adapted)

94. DERELICT VAGRANT BUM Inc. deals extensively with foreign entities, and its financial
statements reflect these foreign currency transactions. Subsequent to the balance sheet date,
and before the “date of authorization” of the issuance of the financial statements, there were
abnormal fluctuations in foreign currency rates. DERELICT Inc. should

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 a. Adjust the foreign exchange year-end balances to reflect the abnormal adverse fluctuations
in foreign exchange rates.
b. Adjust the foreign exchange year-end balances to reflect all the abnormal fluctuations in
foreign exchange rates (and not just adverse movements).
c. Disclose the post–balance sheet event in footnotes as a nonadjusting event.
d. Ignore the post–balance sheet event.
(Adapted)

95. Raymunda is a director of and an owner of 25% interest in the NCPAR Company. She also owns
65% of the PH Care, Inc. and is a director of the Cebu CPAR Corporation. Raymunda's husband
is the sole owner of the Beauty Parlor, Inc. Raymunda's daughter holds 5% of the shares in the
Feminine Products Company. The only involvement she has in the company is to receive
dividends. Which companies would be classified under PAS 24 Related Party Disclosures as
related parties of NCPAR?
I. PH Care, Inc.
II. Cebu CPAR
III. Beauty Parlor, Inc.
IV. Feminine Products Company
a. I and III b. I, II and III c. II and III d. all of these
(ACCA)

96. According to PAS 24 Related Party Disclosures, which of the following fall within the definition
of an entity's related party?
I. Another entity in which the entity owns 5% of the voting rights
II. A post-employment benefit plan for the benefit of the employees of the entity's parent
III. An executive director of the entity
IV. The partner of a key manager in a major supplier to the entity
a. I, II and III b. II and III c. III only d. II, III, and IV
(ACCA)

97. Which of the following payments by a company should be disclosed in the notes to the financial
statements as a related party transaction?
I. Royalties paid to a major shareholder as consideration for patents purchased from the
shareholder.
II. Key officers' salaries.
a. I only. b. II only. c. Both I and II. d. Neither I nor II.
(AICPA)

98.Which of the following is not a related party as envisaged by PAS 24?

a. A director of the entity.
b. The parent company of the entity.
c. A shareholder of the entity that holds 1% stake in the entity.
d. The son of the chief executive officer of the entity.
(Adapted)

99. PAS 24 requires disclosure of compensation of key management personnel. Which of the
following would not be considered “compensation” for this purpose?
a. Short-term benefits.
b. Share-based payments.
c. Termination benefits.

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 d. Reimbursement of out-of-pocket expenses.
(Adapted)

100. APATHETIC Company has a 70% subsidiary, INDIFFERENT, Inc. and is a venturer in
IMPARTIAL, a joint venture company. During the financial year to December 31, 20x1,
APATHETIC sold goods to both companies. Consolidated financial statements are prepared
combining the financial statements of APATHETIC and INDIFFERENT. Under PAS 24 Related
Party Disclosures, in the separate financial statements of APATHETIC for 20x1, disclosure is
required of transactions with
a. neither INDIFFERENT nor IMPARTIAL
b. INDIFFERENT only
c. IMPARTIAL only
d. both INDIFFERENT and IMPARTIAL
(ACCA)

101. Toenable financial statement users to form a view about the effects of the related party
transactions, PAS 24 requires certain disclosures to be made. Which of the following disclosures
is not a mandated disclosure under PAS 24?
a. Relationships between parents and subsidiaries irrespective of whether there have been
transactions between those related parties.
b. Names of all the “associates” that an entity has dealt with during the year.
c. Name of the entity’s parent and, if different, the ultimate controlling party.
d. If neither the entity’s parent nor its ultimate controlling entity produces financial
statements available for public use, then the name of the next most senior parent that does
so.
(Adapted)

102. OBLITERATE TO ERASE Co. included interest expense in its determination of segment
profit, which OBLITERATE's chief financial officer considered in determining the segment's
operating budget. OBLITERATE is required to report the segment's financial data under PFRS 8.
Which of the following items should OBLITERATE disclose in reporting segment data? (Item
#1) Interest expense; (Item #2) Segment revenues
a. No, No b. No, Yes c. Yes, No d. Yes, Yes
(AICPA)

103. In financial reporting for segments of a business enterprise, which of the following should
be taken into account in computing the amount of an industry segment's identifiable assets?
(Item #1) Accumulated depreciation; (Item #2) Marketable securities valuation allowance
a. No, No b. No, Yes c. Yes, Yes d. Yes, No
(AICPA)

104. Which of the following is not required under current standards for disaggregated
information relating to geographic area information?
a. Revenues from external customers from the home country of the firm and from all foreign
countries in total.
b. The total of long-lived assets located in the firm's home country and located in foreign
countries.
c. Operating profits from external customers from the home country of the firm and from all
foreign countries in total.

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 d. Revenues for any foreign country for which the revenues from that country are material to
the firm.
(AICPA)

105. Entity-wide disclosures include disclosures about

(Item #1) Geographic areas; (Item #2) Allocated costs
a. Yes, Yes b. Yes, No c. No, Yes d. No, No
(AICPA)

106. Entity-wide disclosures are required by publicly held companies with

(Item #1) Only one reportable segment; (Item #2) More than one reportable segment
a. Yes, Yes b. Yes, No c. No, Yes d. No, No
(AICPA)

107. An entity must disclose all of the following about each reportable segment if the amounts
are used by the chief operating decision maker, except
a. Depreciation expense c. Interest expense
b. Allocated expenses d. Income tax expense.
(AICPA)
108. In financial reporting for segments of a business, an enterprise shall disclose all of the
following except
a. Types of products and services from which each reportable segment derives its revenues.
b. The title of the chief operating decision maker of each reportable segment.
c. Factors used to identify the enterprises reportable segments.
d. The basis of measurement of segment profit or loss and segment assets.
(AICPA)

109. In financial reporting for segments of a business enterprise, segment data may be
aggregated
a. Before performing the 10% tests if a majority of the aggregation criteria are met.
b. If the segments do not meet the 10% tests but meet all of the aggregation criteria.
c. Before performing the 10% tests if all of the aggregation criteria are met.
d. If any one of the aggregation criteria are met.
(AICPA)

110. A corporation issues quarterly interim financial statements and uses the lower of cost or net
realizable value to measure its inventory in its annual financial statements. Which of the
following statements is correct regarding how the corporation should value its inventory in its
interim financial statements?
a. Inventory losses should be recognized in the interim statements.
b. Inventory write-downs should be made only in the annual financial statements.
c. Only the cost method of valuation should be used.
d. Gains from valuations in previous interim periods should be fully recognized.
(AICPA)

111. Are the following statements in relation to an interim financial report true or false,
according to PAS 34 Interim Financial Reporting?
I. An interim financial report may consist of a complete set of financial statements.
II. An interim financial report may consist of a condensed set of financial statements.
a. False, False b. False, True c. True, False d. True, True

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(ACCA)

112. Are the following statements with respect to interim reporting true or false, according to
PAS 34 Interim Financial Reporting?
I. It is necessary to count inventories in full at the end of each interim accounting period.
II. The net realizable value of inventories is determined by reference to selling prices at the
interim date.
a. False, False b. False, True c. True, False d. True, True
(ACCA)
113. REPREHEND CRITICIZE Company is preparing interim financial statements for the six
months to June 30, 20x1 in accordance with the minimum requirements of PAS 34 Interim
Financial Reporting. Its accounting year ends on December 31 each year. In the interim financial
statements for the six months to June 30, 20x1, a statement of financial position at June 30,
20x1 and a statement of profit or loss and other comprehensive income for the six months to
June 30, 20x1 will be presented. In addition, which of the following should be presented?
I. Statement of financial position at June 30, 20x1
II. Statement of financial position at December 31, 20x1
III. Statement of profit or loss and other comprehensive income for the half year to June 30,
20x1
IV. Statement of profit or loss and other comprehensive income for the half year to December
31, 20x1
a. I, II, and III b. II and III c. I and II d. all of these
(ACCA)

114. The terms and conditions of employment with the EXPOSTULATE DISCUSS include
entitlement to share in the staff bonus system, under which 5% of the profits for the year before
charging the bonus are allocated to the bonus pool, provided the annual profits exceed P50
million. The profits (before accrual of any bonus) for the first half of 20x1 amount to ₱40
million and the latest estimate of the profits (before accrual of any bonus) for the year as a
whole is ₱60 million. How much should be recognized in profit or loss in respect of the staff
bonus for the half year to June 30, 20x1, according to PAS 34 Interim financial reporting?
a. 60M x 5% x 6/12 c. 40M x 5%
b. (60M – 50M) x 5% x 6/12 d. Nil
(ACCA)

115. INEFFICACIOUS INEFFECTIVE Company's profit before tax for the six months to September
30, 20x1 was ₱5 million. However, the business is seasonal and profit before tax for the six
months to March 31, 20x2 is almost certain to be ₱9 million. Profit before tax equals taxable
profit for this company. INEFFICACIOUS operates in a country where income tax on companies
is at a rate of 30% if annual profits are below ₱11 million and a rate of 35% where annual
profits exceed ₱11 million. These tax rates apply to the entire profit for the year. Under PAS 34
Interim Financial Reporting, what should be the income tax expense in INEFFICACIOUS' interim
financial statements for the half year to September 30, 20x1?
a. 5M x 35% c. 14M x 35% x 6/12
b. {[(11M x 30%) + (3M x 35%)] ÷ 14M} x 5M d. Indeterminable
(ACCA)

116. PUERILE CHILDISH SILLY Company is preparing its financial statements for the first half of
its financial year ending December 31, 20x1. One class of inventory has a cost per unit of ₱5.00
and a net realizable value at June 30, 20x1 of ₱4.80 per unit. The business is seasonal and the

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 net realizable value at December 31, 20x1 is expected to be ₱5.50. PUERILE's budget for the
year scheduled a major refurbishment project for April to June 20x1. For legal reasons the
contract for the refurbishment was not signed until July 8, 20x1, on which date the work was
started. Are the following statements true or false, according to PAS 34 Interim Financial
Reporting?
I. The inventory should be carried at its cost per unit of ₱5.00 at June 30, 20x1.
II. The cost of the major refurbishment project should be accrued at June 30, 20x1.
a. False, False b. False, True c. True, False d. True, True
(ACCA)

117. An entity is considered in the development stage if it is devoting substantially all of its
efforts to establishing a new business and
I. planned principal operations have not begun
II. if operations have begun, there has been no significant revenue therefrom.
a. I or II b. I only c. II only d. neither I nor II
(AICPA)

118. A development stage entity

a. Issues a statement of profit or loss and other comprehensive income that shows only
cumulative amounts from the enterprise's inception.
b. Issues a statement of profit or loss and other comprehensive income that is the same as an
established operating enterprise, but does not show cumulative amounts from the
enterprise's inception as additional information.
c. Issues a statement of profit or loss and other comprehensive income that is the same as an
established operating enterprise, and shows cumulative amounts from the enterprise's
inception as additional information.
d. Does not issue a statement of profit or loss and other comprehensive income.
(AICPA)

119. Financial reporting by a development stage enterprise differs from financial reporting for
an established operating enterprise in regard to note disclosures
a. Only.
b. And expense recognition principles only.
c. And revenue recognition principles only.
d. And revenue and expense recognition principles.
(AICPA)

120. The primary distinction between the financial statements of a development stage company
and those of a company which has passed the development stage is that the statements of the
former:
a. can report losses properly as deferred charges
b. are more likely to reflect goodwill among the assets
c. are more likely to show continually increasing profits
d. will reflect specified cumulative amounts arising from the date of the company's inception.
(AICPA)

121. A development stage enterprise should use the same generally accepted accounting
principles that apply to established operating enterprises for
(Item #1)Deferral of costs; (Item #2) Expensing of costs when incurred
a. Yes, Yes b. Yes, No c. No, No d. No, Yes

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(AICPA)

122. Deficits accumulated during the development stage of a company should be

a. Reported as organization costs.
b. Reported as a part of stockholders' equity.
c. Capitalized and written off in the first year of principal operations.
d. Capitalized and amortized over a five-year period beginning when principal operations
commence.
(AICPA)

123. Operating losses incurred during the start-up years of a new business should be
a. accounted for and reported like the operating losses of any other business.
b. written off directly against retained earnings.
c. capitalized as a deferred charge and amortized over five years.
d. capitalized as an intangible asset and amortized over a period not to exceed 20 years.
(AICPA)

124. Which of the following does not comprise organization costs of a company?
a. cost of printing stock certificates c. first year loss from operation
b. incorporation fees d. none of the above
(AICPA)

125. When does a general purchasing power loss occur, and when is it recognized?
a. It occurs when holding net monetary assets during inflation and is recognized in constant
peso financial statements.
b. It occurs when holding net monetary liabilities during inflation and is recognized in
constant peso financial statements.
c. It occurs when holding net monetary assets during inflation and is recognized in nominal
peso financial statements and in constant peso financial statements.
d. It occurs when holding net monetary liabilities during inflation and is recognized in nominal
peso financial statements and in constant peso financial statements.
(AICPA)

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