PRE-FINALS

1. Which statement best describes significant influence?

A mutual sharing in the risks and benefits of a combined entity.
The power to participate in the financial and operating policy decisions of an entity.
The holding of a significant proportion of the share capital in another entity.
The contractually agreed sharing of control over an economic entity.

2. Which of the following is a qualifying asset?

Investment property measured at fair value
Building that is ready for its intended use upon purchase
Inventories that are routinely produced in large quantities on a continuous basis
An application software (intangible asset) that takes 3 years to develop

3. Which of the following is not one of the four basic financial statements?
balance sheet
statement of cash flows
statement of changes in financial position
income statement

4. According to PAS 23, borrowing costs are capitalized when

they relate directly to the acquisition, construction or production of a qualifying asset.
the entity chooses to capitalize them.
they are material and are expected to be incurred over more than one reporting period.
all of these

5. Which of the following statements is correct?

Some intangible assets have physical substance.
Intangible assets are always classified as noncur-rent assets even in cases where they are part
of a disposal group.
The process of recording the expiration of the economic benefits of an intangible asset is called
depletion.
Intangible assets can be obtained in one of two ways - external acquisition or internal
development.

6. Which of the following is considered an inventory rather than an agricultural produce at the point
of harvest?
Harvested cotton
Tea
Harvested cane
Picked leaves

7. It is an event that creates a legal or constructive obligation because the entity has no other
realistic alternative but to settle the obligation.
Event after reporting period
Non-adjusting event
Adjusting event
Obligating event

8. At the commencement of the lease, the lessee shall recognize a finance lease as asset and
liability at an amount equal to the
Fair value at the leased asset
Present value of the minimum lease payments
Fair value at the leased asset or present value of the minimum lease payments, whichever is
lower
Fair value at the leased asset or present value of the minimum lease payments, whichever is
higher
9. Select the correct statement.
A leasing company should treat all its assets used in providing lease services as investment
property.
Investment properties that are to be disposed of without further development are treated as
investment property until they are derecognized.
All investment properties held for capital appreciation will be classified as held for sale in the long
run.
Investment properties being re-developed as investment properties on behalf of third parties are
investment properties.

10. The minimum lease payments include all of the following except
Rental payments over the lease term
Any amount guaranteed by the lessee or by a party related to the lessee
Payment required exercising an option on the part of the lessee to purchase the asset at a price
which is expected to be sufficiently lower than its fair value at the option exercise date
Contingent rent

11. It is the date on which the lease is entitled to exercise its right to use the lease asset.
Inception of the lease
Date of lease agreement
Commencement of the lease
Date of commitment to the provision of the lease

12. Short-term employee benefits include all of the following, except

Wages, salaries and social security contributions.
Short-term compensated absences
Profit-sharing and bonuses payable in more than twelve months after the end of the period in
which the employees render the related service.
Nonmonetary benefits for current employees, such as medical care, housing, car and free and
subsidized goods.

13. The cost of a franchise is classified in the statement of financial position as a(n)
operational asset.
intangible asset.
deferred charge.
current asset.

14. Which of the following correct definition of a provision?

A possible obligation arising from past events
A liability which cannot be easily measured
A liability of uncertain timing or amount
An obligation to transfer funds to an entity.

15. Which of the following is within the scope of PAS 20?

Government assistance provided in the form of tax benefits
Free technical or marketing advice
Forgivable loan for the government
Public improvements that benefit the entire community

16. Financial assets are initially measured

at fair value
at fair value plus direct transaction costs
at fair value plus direct transaction costs, except in the case of financial assets at fair value
through profit or loss where direct transaction costs are expensed immediately
at cost, in cases where the quoted prices of the financial assets are indeterminable
17. Exploration and evaluation asset shall be classified as either tangible or intangible asset and
measured initially at cost. Which measurement model applies to exploration and evaluation asset
subsequent to initial recognition?
The cost model
Either the cost model or the revaluation model
The revaluation model
The revocable amount model

18. CPAs may practice public accountancy under the following forms of organization, except:
Sole proprietorship
Limited liability partnership
Particular partnership
Corporations

19. Exploration and evaluation assets are initially measured

at cost.
fair value
revalued amount.
a or b

20. When an investor uses the equity method to account for investment in ordinary shares, cash
dividend received by the investor from the investee are recorded as
Deduction from investment income.
Dividend income.
Deduction from shareholders equity.
None of the above.

21. Subsequent changes in fair values of a financial asset classified as fair value through profit or
loss are
recognized in profit or loss
recognized in other comprehensive income and
recognized in other comprehensive income accumulated in equity
ignored

22. What is the objective of financial statements according to the Conceptual Framework?
To provide information about the financial position, performance, and changes in financial
position of an entity that is useful to a wide range of users in making economic decisions.
To prepare and present a balance sheet, an income statement, a cash flow statement, and a
statement of changes in equity.
To prepare and present comparable, relevant, reliable, and understandable information to
investors and creditors.
To prepare financial statement in accordance

23. The statement of profit or loss includes which of the following?

Revenue, cost of goods sold, distribution costs, general and administrative expense and
extraordinary items
Discontinued operations
Gains or losses arising from treasury share transactions
Other comprehensive income
24. Which statement is true concerning fair presentation of financial statements?
I.​ Fair presentation requires the faithful representation of the effects of transactions, other
events and condition.
II.​ In virtually all circumstances, an entity achieves a fair presentation by compliance with
applicable SEC and tax regulations.
l only
Both I and II
Il only
Neither I nor II
25. Which of the following concepts of cash is not appropriate to use in preparing the statement of
cash flows?
cash
cash and cash equivalents
cash and money market funds
cash and treasury bonds

26. What is a consigned inventory?

Goods that are shipped and title transfer to the consignee.
Goods that are sold but payment is not required until the goods are sold
Goods that are shipped but title remains with the consignor
Goods that are sold but payment is not required until the goods are sold

27. The primary users of financial statements under the Conceptual Framework include
I.​ Existing and potential investors
II.​ Employees
III.​ Lenders and other creditors
IV.​ Suppliers and other trade creditors
V.​ Customers
VI.​ Governments and their agencies
VII.​ Public
VIII.​ Professional accountants, including auditors

I and III
I, II, IlI, IV, V, VI, VII
all of these

28. 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
according to management's intention of holding the securities
as financial asset measured at amortized cost
as financial asset measured at fair value
any of these

29. Which of the following best defines an accrual?

Adjusting entries where cash flows precedes revenue or expense recognition
Adjusting entries where revenue or expense recognition precedes cash flow
Adjusting entries where cash flow and revenue or expense recognition are simultaneous
Adjusting entries where revenue and expenses are recognized in the absence of cash flow

30. A donated plant asset for which the fair value has been determined, and for which incidental
costs were incurred in acceptance of the asset, should be recorded at an amount equal to its
incidental costs incurred.
fair value.
book value on books of donor. incurred.
book value on books of donor and incidental costs

31. The cost of inventory is the sum of:

Costs of purchase and costs of conversion
Direct costs, indirect costs, and other costs (allo-cated production overheads)
Cost of purchase, costs of conversion (allocated production overheads) and other costs incurred
in bringing the inventory to their present location and condition
Cost of Inventory
32. It is a contract that transfers substantially all the risk and rewards incidental to ownership of an
asset, although title may or may not eventually be transferred.
Lease
Operating lease
Finance Lease
Lease purchase

33. Property, plant, and equipment may properly include

deposits on machinery not yet received.
idle equipment classified as held for sale asset under PFRS 5.
land held for speculation, rather than for use in the entity's normal business activities.
none of these.

34. Which of the following would not be reported as investment property?

Property owned by the entity and leased out under one or more operating leases.
Property held by the entity to be leased out under one or more operating leases
Real estate held for an undetermined future use.
Property owned by the entity and leased out to another entity under a finance lease.

35. A cost may be capitalized (capital expenditure) if

it clearly increases the useful life of an asset.
it increases the quantity of an asset.
it clearly increases the quality of an asset beyond its original state.
Any of these

36. A firm using the perpetual inventory method retuned defective merchandise costing P5,000 to
one of its suppliers. The entry to record this transaction will include a debit to
Accounts receivable
Purchase returns and allowances
Inventory
Accounts payable

37. A property is classified as investment property if

it is leased out under a finance lease.
the owner-occupied portion of the property is sig-nificant.
the entity provides relatively insignificant ancillary services (e.g., security, janitorial services, and
the like) to the occupants of the property.
it is rented between a parent entity and a subsidiary and consolidated financial statements are
prepared for the group.

38. The statement of cash flows reports

cash flows from operating activities
total changes in stockholder's equity
total assets
changes in retained earnings

39. It is that portion of the lease payments that is not fixed in amount but is based on the future
amount of a factor that changes other than the passage of time, for example, percentage of future
sales.
Contingent rent
Bargain purchase option
Executory cost
Accrued rent
40. Financial statements are structured representation of the financial position and financial
performance of an entity. To meet the objective of providing information about financial position,
financial performance and cash flows of an entity, financial statements should provide information
about all of the following, except
Assets, liabilities and equity
Income and expenses, including gains and losses
Contributions by and distribution to owners in their capacity as owners.
Nature of the entity's business activities

41. Under PAS 19, employee benefits are all forms of consideration given by an entity in exchange
for service rendered by employees and include all of the following, except
Short-term employee benefits
Postemployment benefits, such as pension, defined contribution plans, defined benefit plans,
postemployment insurance and postemployment medical care
other long-term benefits, including long-service leave, sabbatical leave and long-term disability
benefits
Share-based payment

42. All of the following statements incorrectly refer to the Conceptual Framework except
The framework is concerned with all-purpose financial statements including consolidated
financial statements.
Financial statements are prepared and presented at least annually and are directed toward the
common and specific information needs of a wide range of users.
Prospectuses and computations prepared for taxation purposes are outside the scope of the
framework.
Financial statements include such items as reports by directors, statements by the chairman,
discussion and analysis by management, and similar items that may be included in an annual
report.
The framework applies to the financial statements of all commercial, industrial and business
reporting entities, but only for the private sector.

43. In the case of a nonmonetary grant, which of the following accounting treatments is prescribed
by PAS 20?
Record the asset at replacement cost and the grant at a nominal value.
Record the grant at a value estimated by management
Record both the grant and the asset at fair value of the nonmonetary asset.
Record only the asset at fair value; do not recognize the fair value of the grant

44. Which of the following statements is true?

The capitalizable costs of patents are legal fees and other registration costs.
An identifiable tangible asset developed internally is never recognized in the accounts as an
asset.
Intangible assets usually have a residual value that must be considered in the amortization of
cost.
An intangible asset is usually amortized by a credit to an income account.

45. PPE purchased on long-term credit contracts should be initially recognized at

the total amount of the future payments.
the present value of the future payments.
the future amount of the future payments.
none of these.

46. Intangible assets have all of the following characteristics, except:

their ownership confers rights, but no physical substance.
they have no physical substance.
they are relatively long-lived.
they provide benefits to current operations only.
47. These are incremental costs that are directly attributable to negotiating and arranging a lease.
Initial direct costs
Costs of services
Transaction costs
Executory costs

48. Which of these is not a major characteristic of a PPE?

Possesses physical substance
Yields services over a number of years
Acquired for use in operations
All of these are major characteristics of a PPE.

49. Which of the following statements is incorrect regarding the accounting for biological assets?
Agricultural land used in growing agricultural produce can never qualify for recognition as
biological asset.
Biological asset is living animal or plant.
Agricultural produce is harvested product from a biological asset before any processing.
PAS 41 is used to account for both consumable and bearer plants

50. All of the following do not qualify as investment property, except

Machineries that are held for lease
Hotels or motels
Agricultural land purchased for appreciation purposes
Equipment purchased for an indeterminate purpose

51. The debit for a non-refundable sales tax properly levied and paid on the purchase of machinery
preferably would be a charge to
the machinery account.
a separate deferred charge account.
miscellaneous tax expense (which includes all taxes other than those on income).
accumulated depreciation--machinery.

52. A certificate of accreditation shall be issued to CPAs in public practice only upon showing, in
accordance with rules and regulations promulgated by the Board and approved by the PRC, that
such registration has acquired a minimum of years of meaningful experience in any of the areas of
public practice including taxation.
2
4
3
5

53. It is the net profit or loss for a period before deducting tax expense.
Accounting profit
Gross profit
Taxable profit
Net profit

54. According to PFRS 9, a financial instrument is recognized

when the instrument has probable economic benefits that can be measured reliably
only when the entity becomes party to the contractual provisions of the instrument
when the entity enters to a binding contract to deliver a variable number of its own equity
instrument​
only when the instrument requires receipt of another financial instrument under conditions which
are potentially favorable
55. It is the profit for a period determined in accordance with the rules established by taxation
authorities upon which income taxes are payable.
Accounting profit
Net profit
Taxable profit
Accounting profit before tax

56. Exploration and evaluation expenditures are incurred

When searching for an area that may warrant detailed exploration even though the entity has not
yet obtained the legal rights to explore a specific area
When the legal rights to explore a specific area have been obtained but the technical feasibility
and commercial viability of extracting a mineral resource are not yet demonstrable
When a specific are is being developed and preparations for commercial extractions are being
made

57. Under the equity method of accounting for investments, an investor recognizes its share of the
earnings in the period in which the
Investee declares an asset dividend.
Investee reported a profit.
Investor sells the investment in associates

58. LCNRV of inventory:

Is always either the net realizable or cost
Must be equal to net realizable value
May sometimes be less than net realizable value complete
Must be equal to estimated selling price less cost to

59. The cost of inventories that are not ordinarily interchangeable and goods produced and
segregated for specific projects shall be measured using:
FIFO
LIFO
Average method
Specific identification

60. Assets that are classified as held for sale under PFRS 5 are
Required under PAS 36 to be tested for impairment
Depreciated annually
Not depreciated
Amortized over a period not exceeding 5 years