Part I.

THEORY: Choose the letter of your choice by shading the

appropriate box in the answer sheet provided.
1) Under the write-off method of accounting for uncollectible accounts:
a) The current year uncollectible accounts expense is less than the
expense would be under the allowance approach.
b) The relationship between the current period net sales and current
period uncollectible accounts expense illustrates the matching
principle.
c) The Allowance for Doubtful accounts is debited when specific
accounts receivable are determined to be worthless.
d) Accounts receivable are not stated in the balance sheet at net
realizable value, but at the balance of the Accounts Receivable
control account.
2) Which of the following actions is least likely to increase a companys
accounts receivable turnover.
a) Encouraging customers to use bank credit cards, such as Visa and
MasterCard, rather than other national credit cards, such as
American Express.
b) Offer customers larger discounts for making early payments.
c) Reduce the interest rate charged to credit customers.
d) Sell accounts receivable to a factor.
3) Which of the following best describes the application of generally
accepted accounting principles to the valuation of accounts receivable?
a) Realization Principle Accounts receivable are shown at their net
realizable value in the balance sheet.
b) Matching principle the loss due to uncollectible account is
recognized in the period in which the sale is made, not in the period
in which the account receivable is determined to be worthless.
c) Cost principle Accounts receivable are shown at the initial cost of
the merchandise to customers, less the cost the seller must pay to
cover uncollectible accounts.
d) Principle of Conservatism Accountants favor using the lowest
reasonable estimate for the amount of uncollectible accounts.
4) Accounts receivable pledged against borrowings should be
a. Included in total receivables with disclosure.
b. Included in total receivables without disclosure.
c. Excluded in total receivables with disclosure.
d. Excluded in total receivables without disclosure.
5) Which of the following is internal control will least likely apply to
receivables?
a. Personnel who maintain the accounts receivable subsidiary ledger
must not be given access to cash receipts or authority to write-off
uncollectible accounts and issue credit memorandum.
b. Separate the responsibilities for cash disbursement documentation,
check writing, signing, distribution and recording.
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c. Implement effective collection procedures to ensure timely collection

of receivables.
d. Proper approval of all credit sales by authorized personnel.
6) Which of the following scenario is an example of purchase
commitment?
a. On January 1, 2009, Bright Eyes Company expects to purchase
50,000 kilos of tobacco from Doom Sight Company, a producer of
tobacco, on January 1, 2010 at the prevailing market price on such
date. Recent market factors indicate that the market price of
tobacco per kilo within the vicinity is P150.
b. Maanyag Company produces bottled apple juice. Apple juice
concentrate is typically purchased and sold per pound. Maanyag
Company uses 50,000 pounds of apple juice concentrate each
month. On December 1, 2009, Maanyag Company entered into an
apple juice concentrate contract to purchase 50,000 pounds of
concentrate on February 1, 2010 at a fixed price of P50 per pound
of P2,500,000.
c. On December 31, 2008, Ambungan Company projects a need for
100,000units of raw material to be purchased at the middle of
2009. This supply will suffice for the production throughout the
remaining months in 2009. The raw materials is selling at P50 per
unit at December 31, 2008.Ambungan Company is concerned with
the movement of prices of the raw material between December 31,
2008 and July 1, 2009. Hence, to protect against increase in price
of the raw material, Ambungan Company entered into a purchase
option contract with a financial speculator by paying P50,000.
d. Matalino Ako Company uses Philippine peso as its functional
currency. The entity expects to purchase equipment from USA for
$10,000 on March 1, 2010. Accordingly, the entity is exposed to a
foreign currency exchange risk. To offset the possible increase in
the cost of equipment due to fluctuating peso-dollar exchange rate,
Matalino Ako entered into contract with a financial institution to
exchange P400,000 for $10,000, that is at an exchange rate of P40
to $1.
7) Which is an incorrect relative bank deposit?
a. Demand deposit is a current account or checking account or
commercial deposit where deposits are covered by deposit slips ad
where funds are withdrawable on demand by drawing check
against the bank. This is noninterest bearing.
b. Payroll deposit is normally governed by service agreement between
the bank and employers. Employees are issued with ATM cards and
check books by the bank upon opening the account. This is interest
bearing.
c. Saving deposit is interest bearing. In this type, the depositor is
given a passbook upon the initial deposit. The passbook is required
when making deposits and withdrawals.
2

d. Time deposit is interest bearing deposit evidenced by formal

agreement embodied in an instrument called certificate of deposit.
8) A note receivable bearing a reasonable interest rate is sold to a bank
with recourse. The note receivable discounted account should be
reported as
a) Contra asset account for the proceeds from the discounting
transaction
b) Contra asset account for the face amount of the note
c) Liability account for the proceeds from the discounting transaction
d) Liability account for the face of the note
9) Which of the following is internal control will least likely apply to
receivables?
a. Personnel who maintain the accounts receivable subsidiary ledger
must not be given access to cash receipts or authority to write-off
uncollectible accounts and issue credit memorandum.
b. Separate the responsibilities for cash disbursement documentation,
check writing, signing, distribution and recording.
c. Implement effective collection procedures to ensure timely collection
of receivables.
d. Proper approval of all credit sales by authorized personnel.
10) What is the effect of amortizing direct origination cost
Unearned Income
Interest Income Carrying Value of the Loan
a. No effect
Increase
Increase
b. Decrease
Decrease
Increase
c. Decrease
Increase
Increase
d. No effect
Decrease
Decrease
11) In preparing bank reconciliations, balance per bank may be taken
from any of the following except
a) Cut-off bank statement
c.) Year-end bank statement
b) Bank confirmation
d.) General ledger
12) What is the effect of amortizing allowance for loan impairment?
Accounts receivable, net
Profit or (Loss) Accounts receivable, net
Profit or (Loss)
a) Increase
Decrease
c.) Decrease
Increase
b) Increase
Increase
d.) Decrease
Decrease
13) Determine truth or falsity of the following statements.
Statement 1: Financial structure is the source of financing for the
assets of the entity. It indicates what portion of the entitys assets
are financed by creditors, otherwise known as borrowed capital,
and how much are financed by owners, or the so called debt or
equity capital.
Statement 2: Financial structure is the ratio of equity to liabilities. It is
useful in assessing the entitys ability to raise cash at a short notice
through borrowing, issuance of securities or disposal of assets
without disrupting the operations.
3

a. Only statement 1 is true.

c. Both statements are true.
b. Only statement 2 is true.
d. Both statements are false.
14) Which of the following is not an example of current asset?
a) Deferred tax asset expected to be claimed within one year after
the balance sheet date.
b) Land classified as held for sale
c) Accounts receivable - assigned
d) Accounts receivable, normally due within 18 months
15) Which of the following statements is correct?
Statement 1: Financial capital is the absolute monetary value of the
asset contributed to shareholders and the value of the increase in
net asset resulting from earnings retained by the entity.
Statement 2: Physical capital is the quantitative measure of the
physical productive capacity to produce goods and services.
a. Only statement 1 is correct.
c.
Both
statements
are
correct.
b. Only statement 2 is correct.
d.
Both
statements
are
incorrect.
16) It is the rate that exactly discounts estimated future cash payments
or receipts through the expected life of the financial instrument or,
when appropriate, a shorter period of the net carrying amount of the
financial asset or financial liability.
a. Effective interest rate b. Nominal rate
c. Discount rate
d.
Interest rate
17) Each of the following measures strengthens internal control over
cash receipts except:
a) The use of a petty cash fund
b) Preparation of a daily listing of all checks received through the mail.
c) The deposit of cash receipts in the bank on a daily basis.
d) The use of cash registers.
18) The use of pre-numbered checks in disbursing cash is an application
of the principle of:
a. Establishment of responsibility
c. Physical, mechanical, and
electronic controls
b. Segregation of duties
d. Documentation procedures
19) In a bank reconciliation, deposits in transit are:
a. Deducted from the book balance
c. Added to the book balance
b. Added to the bank balance
d. Deducted from the bank balance
20) Which of the following items in a cash drawer at November 30 is not
cash?
a) Money orders
c. A customer check dated
December 1
b) Coins and currency
d. A company check dated
December 1
21) Internal control is used in a business to enhance the accuracy and
reliability of its accounting records and to:
a) Safeguard its assets
c. Prevent fraud
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b) Produce correct financial statements

d. Deter employee
dishonesty
22) The principles of internal control do not include:
a) Establishment of responsibility
c. Documentation
procedures
b) Management responsibility
d. Independent internal
verification
23) Physical controls do not include:
a) Safes and vaults to store cash
c. Independent
bank reconciliations
b) Locked warehouses for inventories
d. Bank safety
deposit boxes for important papers.
24) Permitting only designated personnel such as cashiers to handle
cash receipts is an application of the principle of:
a) Segregation of duties
c. Establishment of
responsibility
b) Independent internal verification
d. Other controls
25) The use of prenumbered checks in disbursing cash in an application
of the principle of:
a) Establishment of responsibility
c. Segregation of
duties
b) Physical, mechanical, and electronic controls
d.
Documentation procedures
26) Which statement correctly describes the reporting of cash?
a) Cash cannot be combined with cash equivalent
b) Restricted cash may be combined with Cash
c) Cash is listed first in the current assets section
d) Restricted cash funds cannot be reported as a current asset.
27) It is a global phenomenon intended to bring about transparency
and a higher degree of comparability in financial reporting, both of
which will benefit the investors and are essential to achieve the goal of
one uniform and globally accepted financial reporting standards.
a) IFRS
b. Borderless accounting
c. World Trade
d.
Information Technology
28) Which of the following is an example of internal transaction?
a) Investment of the owner
b) Loss from robbery
c) Payment of salaries to employees engaged in production
d) Loss from flood
29) Which of the following items should be included in the inventory
balance as at December 31, 2009 statement of financial position of an
entity?
a. A box of goods containing product costing P400,000 was placed
beside the passage in the shipping room when the physical
inventory count was taken. It was not included in the inventory
because it was marked Hold for shipping instructions. The
5

customers order was dated December 18, but the box was shipped
and the customer was billed on January 8, 2010.
b. Merchandise costing P150,000 was received on January 6, 2010,
and the related purchase invoice was recorded January 5. The
invoice showed the shipment was made on December 29, 2009,
FOB destination.
c. Merchandise costing P550,000 was sold on an installment basis on
December 15. The customer took possession of the goods on that
date. The merchandise was included in the inventory because the
entity still holds the legal title. Historical experience suggests that
full payment on installment sale was received approximately 99%
of the time.
d. Merchandise costing P800,000 was received on December 29, 2009,
and the invoice was recorded. The invoice was in the hands of the
purchasing agent; it was marked On consignment.
30) Which of the following statements is correct relative to the public
practice of accountancy profession in the Philippines pursuant to
Republic Act No. 9298?
a. The practice of public accountancy shall constitute in a person who
is a staff member or a partner in an accounting or auditing firm,
skilled in knowledge, science and practice of accounting and offer
services to the public on a free basis.
b. A Certified Public Accountant who opts to engage into public
practice shall secure certificate of accreditation from the Board of
Accountancy and Securities and Exchange Commission upon
showing in accordance with its rules and regulations that such
registrant has acquired a minimum of three years meaningful
experience in any areas of private practice including taxation.
c. The Securities and Exchange Commission may register any
corporation organized for the practice of public accountancy.
d. The PRC upon favorable recommendation of the Board of
Accountancy shall issue Certificate of Registration to public practice
accountancy which shall be valid for three years and renewable
every three years upon payment of required fees.
31) Sayon Lang Lage Ang Exam Company (SLLAECo) is a manufacturer
of leading and finest grape wine in the world. The company purchased
seeds of the sweetest grape variety and planted these in the
companys fifty-hectare fertile land. Fruits were harvested and juices
were extracted and stored in cork barrels. After five years (at the
minimum) of storage and fermentation process, the extracts were
packed in well crafted wine bottles. Finish products are picked-up by
distributors at SLLAECos distribution warehouse with n/30 terms.
Highest Kho Sa Midterm Company, an accredited distributor of Sayon
Lang Lage Ang Exam Company (SLLAECo), delivered the wines
picked-up from the latters warehouse direct to its SuperStore.
They sell the wines on cash basis. The wines are highly saleable
6

and normally sold out in less than two month from date of
purchase.
The above scenarios contrast the entities
a. Method of management
c. Business concerns
b. Operating cycle
d. Merchandising and trading
concerns
32) The primary purpose for using an inventory cost flow assumption is
to:
a) Parallel the physical flow of units of merchandise.
b) Offset against revenue an appropriate cost of goods sold.
c) Minimize income taxes
d) Maximize the reported amount of net income.
33) Which of the following should not be included in the physical
inventory of the company?
a) Goods in transit from another company shipped FOB shipping point
b) Goods held on consignment from another company
c) Goods shipped on consignment to another company
d) Goods in transit to another company shipped FOB destination
34) An accounting principle that calls for the use of the same method of
inventory pricing from year to year, with full disclosure of the effects
of any change in method. Intended to make financial statements
comparable.
a) Comparability
b) Standard of adequate disclosure.
c) Consistency
d) Completeness
35) It is the average time period between the purchase of
merchandising is the average time period between the purchase of
merchandise and the conversion of this merchandise back into cash.
a) Inventory turnover
b. Receivable turnover
c. Just-intime inventory
d. Operating cycle
36) The two basic approaches to accounting for inventory and the cost
of goods sold are the perpetual inventory system and the periodic
inventory system. The following statements are true, except?
a) Most large merchandising companies and manufacturing businesses
use periodic inventory systems.
b) As a practical matter, a grocery store or a large department store
could not maintain a perpetual inventory system without the use of
point-of-sale terminals.
c) In a perpetual inventory system, the Cost of Goods Sold account is
debited promptly for the cost of merchandise sold.
d) In a periodic inventory system, the cost of goods sold is not
determined until a complete physical inventory is taken.
37) Mark and Amanda Carter own an appliance store and a restaurant.
The appliance store sells merchandise on a 12 month installment plan;
the restaurant sells only for cash. Which of the following statement is
false?
7

a) The appliance store has a longer operating cycle than the

restaurant.
b) The appliance store probably uses a perpetual inventory system,
whereas the restaurant probably uses a periodic system.
c) Both businesses require subsidiary ledgers for accounts receivable
and inventory.
d) Both businesses probably have subsidiary ledgers for accounts
payable.
38) How should prompt payment discount be dealt with when valuing
inventories at the lower of cost and net realizable value?
a) Added to the cost
c. Deducted in arriving at NRV
b) Ignored
d. Deducted from cost
39) Regarding the choice of measurement basis used for valuing
biological assets, PAS 41.
a) Sets out several ways of measuring fair value
b) Recommends the use of historical cost
c) Recommends the use of current cost
d) Recommends the use of present value
40) Which of the following is not dealt with by PAS 41 on agriculture?
a) The accounting for biological assets.
b) The initial measurement of agricultural produce harvested from the
entitys biological assets.
c) The processing of agricultural produce after harvesting.
d) The accounting treatment of government grants received in respect
of biological assets.
41) Bill and hold sales, in which delivery is delayed at the buyers
request but the buyer assumes title and accepts invoicing, should be
recognized when
a) The buyer makes an order
b) The seller starts manufacturing the goods
c) The title has been transferred but the goods are kept on the sellers
premises.
d) It is probable that the delivery will be made, payment terms have
been established, and the buyer has acknowledged the delivery
instructions.
42) Goods shipped FOB destination, received at the end of the
accounting period should be included in the inventory balance of the
a) Seller
b. Common Carrier
c. Buyer
d. Bank
43) Which factor would not affect the gross profit rate?
a) An increase in the sale of luxury items
b) An increase in the use of discount pricing to sell merchandise
c) An increase in the price of inventory items
d) An increase in the cost of heating the store.
44) The gross profit rate is equal to:
a) Net income divided by sales
b) Cost of goods sold divided by sales
8

c)
d)
45)
a)

Net sales minus cost of goods sold, divided by net sales

Sales minus cost of goods sold, divided by cost of goods sold
In periods of rising prices, LIFO will produce:
Higher net income than FIFO
c. Lower net income
than FIFO
b) The same net income than FIFO
d. Higher net income
than average costing
46) Midterm-Exam-Na-Jud Companys ending inventory is understated
by P4,000. The effects of this error on the current years cost of goods
sold and net income, respectively, are:
a) Understated and overstated
c. Overstated and overstated
b) Overstated and understated
d. Understated and
understated
47) Considerations that affect the selection of an inventory costing
method do not include:
a. Tax effects
c. Balance sheet effects
b. Income statement effects
d. Perpetual versus periodic
inventory system
48) Which of the following measurement attributes is not currently used
in practice?
a) Present value
c. Current replacement cost
b) Net realizable value
d. Inflation-adjusted cost
49) Which of the following is not a purpose of the framework for the
preparation and presentation of financial statements?
a) To provide definitions of key terms and fundamental concepts.
b) To provide specific guidelines for resolving situations not covered by
existing accounting standards.
c) To assist accountants and others in selecting among alternative
accounting and reporting methods.
d) To assist the FRSC in the standard-setting process.
50) Disclosure requirements for financial reporting are strictest in
a) The United Kingdom b. Germany
c. The United States
d. France
51) Proper application of accounting principles is most dependent upon
the
a) Existence of specific guidelines
c. External audit
function
b) Oversight of regulatory bodies
d. Professional
judgment of the accountant.
52) The primary focus of financial accounting has been meeting the
needs of which of the following groups?
a) Management
c. National and local taxing
authorities
b) Present and potential creditors
d. Independent auditors
53) Which of the following is listed in the Framework as underlying
assumption regarding the financial statements?
a) The financial statements are reliable
9

b) Any changes of accounting policy are neutral.

c) The financial statements are prepared under the accrual basis.
d) The entity can be viewed as a liquidating concern.
54) Which of the following terms best describes the removal of an asset
from an entitys statement of financial position?
a) Derecognition
b. Impairment
c. Write-off
d.
Depreciation
55) Under PAS 36, which of the following statements relating to an
active market is true?
I The items traded within the market are homogenous.
II Willing buyers and sellers are usually found.
III Prices are available at the public
a) I, II and III
b. I and II only
c. I and III only
d.
II and III only
56) Which of the following categories of expenses is subject to
immediate recognition in the income statement?
a) Utilities expense for the production line of a manufacturer
b) Repairs and maintenance incurred on production equipment of a
manufacturer
c) The salary of the production foreman
d) The salary of the entity president
57) An example of direct matching of an expense with revenue would be
a) Depreciation expense
b) Office salaries expense
c) Direct labor costs incurred to produce inventory sold during a
period.
d) Advertising expense
58) Which statement about users of accounting information is incorrect?
a) Management is considered an internal user.
b) Taxing authorities are external user
c) Present creditors are considered external users.
d) Regulatory authorities are considered internal users.
59) Valuing assets at their fair market value rather that at their cost is
inconsistent with the:
a) Time period assumption
c. Economic entity
consumption
b) Cost principle
d. Materiality
60) The lower of cost or market rule of inventory is an example of the
application of:
a. Conservatism
b. Historical cost principle c. Materiality
d. Economic entity
61) The quality of information that allows comparison between two or
more entities engaged in the same industry.
a. Horizontal comparability
c. Intracomparability
b. Vertical comparability
d. Dimensional
comparability
10

62) Which of the following statements best describes the date of

transition to PFRS?
a) The beginning of the latest period presented in the entitys most
recent annual financial statements under previous GAAP.
b) The end of the latest period presented in the entitys most recent
annual financial statements under previous GAAP.
c) The beginning of the earliest period for which an entity presents full
comparative information under PFRS in its first PFRS financial
statements.
d) The end of the earliest period for which an entity presents full
comparative information under PFRS in its first PFRS financial
statements.
63) What is the function of the Financial Reporting Standards Council
(FRSC)?
a) To assist the BOA in the attainment of the objective of continuously
upgrading the accountancy education in the Philippines to make the
Filipino CPAs globally competitive.
b) To formulate and publish in the public interest accounting standards
to be observed in the preparation and presentation of financial
statements around the world.
c) To promulgate rules and regulations affecting the practice of the
accountancy profession in the Philippines.
d) To assist the BOA in carrying out its powers and functions provided
under R.A. 9298, otherwise known as the Philippine Accountancy
Act of 2004.
64) Which of the following would most likely reduce the risk of lapping?
a) A bank lockbox system.
c.
Prenumbered
remittance advices.
b) Monthly bank reconciliations.
d. Daily deposit of cash
receipts.
65) Which of the following infringe reliability of financial statements?
a. Obsolete, slow-moving and shopworn goods are written down to its
net realizable value.
b. The damaged inventory of a department store is being written
down. The manager bases the write-down on his own subjective
opinion in order to minimize income tax.
c. After starting a business, a mining entity keeps no accounting
records. The entity is waiting until mine is exhausted to determine
the success or failure of the business.
d. Assets recorded at cost by a manufacturing entity are written up to
their fair value at the year-end.
66) A document kept by the company in its safety deposit box placed
P175,000
Valencia
City, Philippines
August 1, 2009
inside
the premises of its
depository
bank states as follows:
Ninety days after date, I promise to pay to the order of
Sayon Kaayo Ang Financial Accounting Credit Union,
One Hundred Seventy-five Thousand and xx/100 pesos
for value received with simple interest at 12% per annum.

11
Due: October 30, 2009

Perpek Langba Kaya-Uy

Which is incorrect relative to the above document?

a. It is a conditional promise made by Perpek Langba Kaya-Uy to pay
the stated amount to the payee on or before due date.
b. The principal amount of P175,000 appearing on the face of the note
is referred to as face value of the note.
c. The annual rate of 12% which appears on the face f the note will be
the basis of computing interest charges to the maker.
d. A promissory note may be negotiable when properly endorsed and
can be transferred or sold to another person or a bank which is not
a party to the original loan.
67) Which of the following should be excluded in initial recognition of
biological asset?
a) Purchase cost of hay in cattle farming.
C.
Depreciation of harvest truck in a banana plantation.
b) Purchase cost of fertilizer in a pineapple plantation.
D. Cost
of repair of a pigpen.
68) Which statement is correct?
a) Auditing is one of the areas of accounting specialization, therefore,
auditing embraces accounting.
b) The Accounting Standards Council is the first accredited Professional
education in the Philippines.
c) The International Accounting Standards Committee was legally
formed in 1973.
d) One of the factors why FRSC moved towards IAS is for the
improvement of international accounting standards nd having free
choices of accounting treatments.
69) Instead of taking a physical inventory count on the cut-off date of
statement of financial position, an entity may take a physical count
prior to year-end if internal control is adequate and
a) Computerized records of perpetual inventory are maintained.
b) Inventory is slow-moving.
c) Computer error reports are generated for missing prenumbered
inventory tickets.
d) Obsolete inventory items are segregated and excluded.
70) The following statements are correct, except
a) Transposition error occurs when figures are interchanged.
b) Counterbalancing error will automatically counterbalance or selfcorrect in the following accounting period when not detected.
c) Non-counterbalancing error will not counterbalance or self-correct in
the following accounting period when not detected.
d) Transreplacement error occurs when there is erroneous placement
of the decimal point.
12

71) Which of the following is not an important characteristic of the

financial statements that accountants currently prepare?
a. The information in the financial statements are summarized and
classified to help meet users needs.
b. The information in the financial statements is expressed in units
of money adjusted for changing purchasing power.
c. Financial statements can be justified only if the benefits they
provide exceed the cost.
d. Financial statement articulate with one another because
measuring financial position is related to measuring changes in
financial position.
72) Which of the following is not an implication of the going concern
assumption?
a. The historical cost is credible.
b. The current and non-current classification of assets and liabilities
is justifiable and significant.
c. Amortizing research and development costs over several periods
is justifiable and appropriate.
d. Depreciation and amortization policies are justifiable and
appropriate.
73) Four types of money prices are used in measuring resources in
financial accounting. The type which uses such concepts as present
value, discounted cash flow and value in use is known as
a. Price in a current purchase exchange.
c. Price in a
current sale exchange.
b. Price in past purchase exchange.
d. Price based on
future exchange.
74) Under Generally Accepted Accounting Principles
a. Income and expenses, assets and liabilities are measured based
on the occurrence of changes in the economic resources and
obligations.
b. Financial position and financial performance are measured on the
basis of cash received and cash paid.
c. Assets and liabilities are measured on the basis of their
liquidation value.
d. Income and expenses are recognized on the basis of cash
receipts and payments, including depreciation of property, plant,
and equipment.
75) The process of establishing financial accounting standards
a. Is based solely on economic analysis of the effects each standard
will have if it implemented.
b. Is a social process which incorporates political action of various
interested user groups as well as professional research and logic.
c. Is a democratic process in that a majority of practicing
accountants must agree with a standard before it can be
implemented.
13

d. Is a legislative process based on rules promulgated by

government agencies.
76) One of the basic features of financial accounting is the
a. Direct measurement of economic resources and obligations and
changes in them in terms of money and sociological and
psychological impact.
b. Direct measurement of economic resources and obligations and
changes in them in terms of money and psychological impact.
c. Direct measurement of economic resources and obligations and
changes in them in terms of money.
d. Direct measurement of economic resources and obligations and
changes in them in terms of money and sociological impact.
77) Which qualitative characteristics relate to the content of financial
statements?
a. Relevance and reliability
c. Relevance and
understandability
b. Understandability and comparability
d. Reliability
and comparability
78) Which of the following accounting concepts states that an
accounting transaction shall be supported by sufficient evidence to
allow two or more qualified individuals to arrive at essentially similar
conclusions?
a. Periodicity
b. Stable monetary unit
c.
Conservatism
d. Objectivity
79) Recording of the purchase price of the pencil sharpener with an
estimated useful life of 10 years as an expense of the current period is
justified by the
a. Going concern assumption
c. Comparability
principle
b. Matching principle
d. Materiality constraint
80) Revenue from sale of goods shall be recognized when all of the
following conditions have been satisfied, except
a. It is probable that economic benefits will flow to the entity.
b. The entity has transferred to the buyer the significant risks and
rewards of ownership of the goods.
c. The entity retains either continuing managerial involvement or
effective control over the goods sold.
d. The amount of revenue can be measured reliably.
81) Which of the following represents the least desirable choice in terms
of realization and recognition of revenue?
a. Recognition of revenue when a sale occurs.
b. Recognition of revenue when production is completed.
c. Recognition of revenue during production.
d. Recognition of revenue when cash is collected.
82) Which of the following characteristics may result in the classification
of a liability as current?
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a. Debts to be liquidated from funds that have been accumulated

and are reported as non-current assets.
b. Violations of provisions of a debt agreement.
c. Short term obligations refinanced with long term debt on balance
sheet date.
d. Obligations for advance collections that involve long-term
deferment of the delivery of goods and services.
83) When an entity breaches a covenant under long term loan
agreement on or before balance sheet date with the effect that the
liability becomes payable on demand, the liability is classified as noncurrent when
I. The lender has agreed after the balance sheet date and before
the financial statements is authorized for issue not to demand
payment as a consequence of the breach.
II. The lender has agreed on or before the balance sheet date to
provide a grace period ending at least 12 months after the
balance sheet date.
a. I only
b. II only
c. Both I and II
d. Neither I
nor II
84) Which is false concerning measurement of cash and cash
equivalent?
a. If a bank or financial institution holding the funds of the company
is in bankruptcy or financial difficulty, cash should be written
down to estimated realizable value.
b. Cash is measured at face value.
c. Cash equivalents should be measured at maturity value, meaning
face value plus interest.
d. Cash in foreign currency is measured at the current exchange
rate.
85) When a petty cash fund is used, which of the following is true?
a. The petty cashiers summary of petty cash payments serves as a
journal entry that is posted to the appropriate general ledger
account.
b. The balance of the petty cash fund should be reported on the
balance sheet as long term investment.
c. Entries that include a credit to the cash account should be
recorded at the time the payments from the petty cash funds are
made.
d. The reimbursement of the petty cash fund should be credited to
the cash account.
86) Cash equivalents are
a. Short term highly liquid investments that are readily convertible
into cash with remaining maturity of three months.
b. Short term highly liquid investments that are readily convertible
into cash and acquired three months before maturity.
c. Short term and highly liquid marketable equity securities.
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d. Short term and highly liquid investments that are readily

convertible into cash.
87) Bank overdraft
a. Is offset against demand deposit account in another bank.
b. Which cannot be offset is classified as current liability.
c. Which cannot be offset is classified as non-current liability.
d. Is a debit balance in cash in bank account.
88) Unrealeased checks (checks drawn before balance sheet date but
held for later delivery to creditors)
a. Should be treated as outstanding checks if they are ultimately
encashed.
b. Should be treated as outstanding check.
c. Should be restored to the cash balance.
d. Should be treated as outstanding check if the date is shortly after
balance sheet date.
89) The petty cash fund account under the imprest fund system is
debited
a. When the cash fund is created and when the size of the fund is
increased.
b. When the fund is created and every time it is replenished.
c. When the fund is created and when the fund is decreased.
d. Only when the fund is created.
90) Which of the following is considered cash?
a. Money market savings certificates
c. Postdated checks
b. Certificates of deposit
d. Checking accounts
91) Which of the following statements is incorrect?
a. Certain clerical personnel in a company should be rotated among
various jobs.
b. The responsibility for receiving merchandise and paying for it
should usually be given to one person.
c. A companys personnel should be given well-defined
responsibilities
d. The accounting function should be separated from the
custodianship of a companys assets.
92) At December 31 of the current year, an entity had cash accounts at
three different banks. One account is segregated solely for payment
into a bond sinking fund. A second account, used for branch
operations, is overdrawn. The third account, used for regular corporate
operations, has a positive balance. How should these accounts be
reported in the December 31 classified balance sheet?
a. The segregated account should be reported as a non-current
asset, the regular account should be reported as a current asset,
and the overdraft should be reported as a current liability.
b. The segregated account and regular account should be reported
as a current asset, and the overdraft should be reported as a
current liability.
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c. The segregated account should be reported as a non-current

asset, the regular account should be reported as a current asset
net of the overdraft
d. The segregated and regular accounts account should be reported
as a current asset net of the overdraft.
93) Which will not require an adjusting entry on the depositors books?
a. Bank service charge
b. NSF check from the customer
c. Check in payment of an account payable amounting to P50,000 is
recorded by the depositor as P5,000.
d. Deposit of another entity is credited to the account of the
depositor.
94) In preparing a monthly bank reconciliation, which of the following
items would be added to the balance per bank statement to arrive at
the correct cash balance?
a. Deposits in transit
b. Outstanding checks
c. Bank service charge
d. A customers note collected by the bank in behalf of the
depositor.
95) A proof of cash would be useful for
a. Discovering cash receipts that have not been recorded in the
journal
b. Discovering cash receipts that have been recorded but have not
been deposited.
c. Discovering an inadequate separation of incompatible duties of
employees.
d. Discovering time log in making deposits.
96) Which of the following is false?
a. A certified check is one drawn by a bank upon itself.
b. A certified check is a liability of the bank certifying it.
c. A certified check should not be included in the outstanding check.
d. A certified check will be accepted by many persons who would
not otherwise accept a personal check.
97) After being held for 40 days, a 120-day 12% interest bearing note
receivable was discounted at a bank at 15%. The proceeds received
from the bank equal
a. Face value less the discount at 12%
c.
Maturity value less the discount at 12%
b. Face value less discount at 15%
d. Maturity
value less the discount at 15%
98) A note receivable bearing a reasonable interest rate is sold to a
bank with recourse. At the date of the discounting transaction, the
notes receivable discounted account should be
a. Increased by the proceeds from the discounting transaction.
b. Increased by the face amount of the note.
c. Decreased by the face amount of the note.
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d. Decreased by the proceeds from the discounting transaction.

99) When the accounts receivable of a company are sold outright to a
company which normally buys accounts receivable, the accounts
receivable have been
a. Collaterized
b. Factored
c. Assigned
d.
Pledged
100) If a note receivable is discounted without recourse
a. Note receivable should be credited
b. The contingent liability may be disclosed in either a contra
account to note receivable or in a note to financial statements.
c. The transaction should be accounted for as a borrowing as
opposed to a sale.
d. Liability for notes receivable discounted should be credited.
101) Inventories encompasses all of the following, except
a. Finished goods produced
b. Merchandise purchased by a retailer
c. Land and other property not held for sale
d. Materials and supplies awaiting use in the production process
102) Costs that are incurred in bringing the inventories to their present
location and condition are capitalized as cost of inventories and these
include
a. Selling cost
b. Storage cost not necessary in the production process before a
further production stage
c. Abnormal amount of wasted material, labor, and production cost
d. Cost of designing products for specific customers
103) The amount of any write-down of inventory to net realizable value
and all losses of inventory shall be
a. Recognized as other expense in the period the write-down or loss
occurs.
b. Recognized as component of cost of sales in the period the writedown or loss occurs.
c. Deferred until the related inventory is sold.
d. Recognized as operating expense I the period the write-down or
loss occurs.
104) Merchandise shipped FOB shipping point on the last day of the year
should ordinarily be included in
a. Bothe the buyers and sellers inventory balance.
c.
The buyers inventory balance.
b. Neither the buyers nor sellers inventory balance.
d. The
sellers inventory balance
105) Which of the following would not be reported as inventory?
a. Shares and bonds held for resale by a brokerage firm
b. Land acquired for resale by a real estate firm
c. Machinery acquired by a manufacturing company for use in the
production process
d. Partially completed goods held by a manufacturing company
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106) Which of the following is not true of the perpetual inventory

method?
a. Purchases are recorded as debit to the inventory account.
b. Purchase returns are recorded by debiting Accounts Payable and
crediting Purchase Returns and Allowances.
c. The entry to record a sale includes a debit to cost of goods sold
and a credit to inventory.
d. After a physical inventory count, inventory is credited for any
missing inventory.
107) The costing of inventory must be deferred until the end of the
accounting period under which of the following method of inventory
valuation?
a. Weighted Average
b. Moving Average
c. LIFO Perpetual
d. FIFO Perpetual
108) When a portion of inventories has been pledged as security on a
loan
a. The fact should be disclosed but the amount of current assets
should not be affected.
b. The cost of the pledged inventories should be transferred from
current assets to non-current assets.
c. The value of the portion pledged should be subtracted from the
debt.
d. An equal amount of retained earnings should be appropriated.
109) How should the following cost affect a retailers inventory?
Freight In
Interest on Inventory Loan
a. Increase
No Effect
b. Increase
Increase
c. No Effect
Increase
d. No Effect
No Effect
110) The credit balance that arises when a net loss on a purchase
commitment is recognized should be
a. Presented in the income statement
b. Presented as an appropriation of retained earnings
c. Presented as a current liability
d. Subtracted from ending inventory
111) If an entity incorrectly includes consignment items in the ending
inventory, the effect on the next periods cost of goods sold and net
income is
a. Understatement, Overstatement
b. Overstatement, Understatement
c. Overstatement, Overstatement
d. The next periods account will be correct
112) A gain or loss on the initial recognition of a biological asset and from
a change in the fair value less cost to sell of a biological asset shall be
included in
a. A capital reserve within entity
b. A separate revaluation reserve
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c. The statement of recognized gain or loss

d. The profit or loss for the period
113) Where the fair value of the biological assets cannot be determined
reliably, the biological asset shall be measured at
a. Net Realizable Value
c. Cost less Accumulated
depreciation and impairment
b. Cost
d. Cost less Accumulated
Depreciation
114) Where there is a long aging or maturation process after harvest,
the accounting for such products shall be dealt with by
a. PAS41, Agriculture
c. PAS 16, Property, Plant
and Equipment
b. PAS 2, Inventories
d. PAS 40, Investment
Property
115) The retail inventory method would include which of the following in
the calculation of the goods available for sale at both cost and retail?
a. Mark-ups
b. Markdowns
c. Freight in
d.
Purchase returns
116) This method is often used for convenience for measuring inventories
of large number of rapidly changing items with similar margins for
which it is impracticable to use other costing methods.
a. Gross Profit Method
b. Standard Cost
c. Retail Method d.
Relative Sales Price
117) The use of use profit method assumes
a. The relationship between selling price and cost of goods sold is
similar to prior years.
b. The amount of gross profit is same as in prior years.
c. Inventory values have not increased from previous years.
d. Sales and cost of goods sold have not changed from previous
years.
118) It is the management by an entity of the biological transformation
of living animals or plants for sale into agricultural produce or into
additional biological assets.
a. Development Activity
c. Economic Activity
b. Biological Activity
d. Agricultural Activity
119) Which statement is true?
a. An error made by the bank by charging an amount to the
depositors account requires a correcting entry in the depositors
own records.
b. The cash amount shown in the balance sheet must be the
balance reported in the bank statement.
c. Bank service charge will cause the cash balance per ledger to be
higher than the reported by the bank, all other thing being equal.
d. Outstanding checks will cause the cash balance per ledger to be
greater than the balance reported by the bank, all other things
being equal.
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120) What is the treatment of Direct Origination Cost incurred in

connection with Loans and Receivables?
a. Part of the initial carrying amount of the loans receivable and
amortized using the effective interest method.
b. Part of the initial carrying amount of the loans receivable and
amortized using the straight line method.
c. Included in profit or loss.
d. Charged directly to retained earnings.
121) To be reported as cash and cash equivalent, the cash and cash
equivalent must be
a. Set aside for the liquidation of long-term debt
b. Unrestricted in use for current operations
c. Deposited in bank
d. Available for the purchase of property, plant, and equipment
122) Long-term receivables which nominally bear no interest or an
interest which is unreasonably low shall be recognized initially at
a. Current value b. Maturity value
c. Face value
d.
Present value
123) The physical maintenance concept requires the adoption of which
measurement basis?
a. Present value b. Current cost
c. Historical cost
d.
Realizable value
124) When it is difficult to distinguish between a change in accounting
policy and a change n accounting estimate, the change is treated as
a. Change in accounting policy
c. Change in accounting
estimate
b. Prior period error
d. Not an accounting change
125) It is a financing agreement whereby one party formally transfer its
accounts receivable to another party in consideration for a loan
a. Discounting
b. Pledge
c. Assignment
d.
Factoring
126) If there is evidence that an impairment loss on loans and
receivables has been incurred, the amount of the loss is equal to the
a. Excess of the principal amount of the loan over its carrying
amount.
b. Excess of the carrying amount of the loan over the principal
amount of the loan.
c. Excess of the carrying amount of the loan receivable over the
present value of the cash flows related to the loan.
d. Excess of the present value of cash flows related to the loan over
the carrying amount of the loan receivable.
127) An entity shall present a statement of changes in equity showing all
of the following, except
a. Profit or loss for the period
b. Changes in cash and cash equivalents during the period
c. Retained earnings balance and changes therein
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d. Each item of income or expense recognized directly in equity as

required by the standard
128) Bank statement provide information about all of the following,
except
a. NSF Checks
c. Checks cleared during the
period
b. Errors made by the depositor
d. Bank charges for the
period
129) Assuming that the ideal measure of short-term receivable in the
balance sheet is the discounted value of the cash to be received in the
future, failure to follow this practice usually does not make the balance
sheet misleading because
a. Most receivables can be sold to a bank or a factor.
b. The amount of the discount is not material.
c. Most short-term receivables are not interest-bearing.
d. The allowance for doubtful accounts includes a discount element.
130) The transaction approach in determining income is a concept in
which
a. Market values adjusted for the effects of inflation or deflation are
used to calculate income.
b. Income equals the change in market value of the entitys
outstanding share capital for the period.
c. Income is measured as the amount that an entity could consume
during a period and be as well off at the end of that period as it
was at the beginning.
d. The financial statement effects of business events are classified
as revenue, gains, expenses and losses, which are used to
measure and define income.

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