Theory of Accounts
Technically, offsetting in financial statements is accomplished
1. Which of the following statements is incorrect in relation to
accountable events?
a. An event is accountable when it has an effect on
asset, liability or equity.
b. The subject matter of accounting is the
measurement of economic resources and
obligations.
c. Only economic activities are emphasized and
recognized in accounting.
d. Sociological and psychological matters are
quantifiable.
2. Which of the following is not an implication of the going
concern assumption?
a. The historical cost principle is credible.
b. Depreciation and amortization policies are justifiable
and appropriate.
c. The current and noncurrent classification of assets
and liabilities is justifiable and significant.
d. Amortizing research and development costs over
several periods is justifiable and appropriate.
3. Which of the following statements is true in relation to the
enhancing qualitative characteristic of understandability of
financial information?
a. Users have a reasonable knowledge of business and
economic activities and review the information with
reasonable diligence.
b. Users are expected to have significant business
knowledge.
c. Financial statements shall exclude complex matters.
d. Financial statements shall be free from material
error.
4. Revenue from sale of goods shall be recognized when all of
the following conditions have been satisfied, except
a. The entity has transferred to the buyer the
significant risks and rewards of ownership of the
goods.
b. The entity retains either continuing managerial
involvement or effective control over the goods
sold.
c. The amount of revenue can be measured reliably.
d. It is probable that economic benefits will flow to the
entity.
5. In an accrual accounting system
a. All accounts have normal debit balances.
b. A debit entry is recorded on the left-hand side of an
account.
c. Liability, share capital and dividend all have normal
credit balances.
d. Revenue is recorded only when cash is received.
6.
when
a. The allowance for doubtful accounts is deducted
from accounts receivable.
b. The accumulated depreciation is deducted from
property, plant and equipment.
c. The total liabilities are deducted from total assets to
arrive at net assets.
d. Gains or losses from disposal of noncurrent assets
are reported by deducting from the proceeds the
carrying amount of the assets and the related
disposal cost.
7. When classifying assets as current or noncurrent for
reporting purposes.
a. The amounts at which current assets are carried,
and reported must reflect realizable cash value.
b. Prepayments for items such as insurance or rent are
included in other assets rather than as current
assets.
c. The time period by which current assets are
distinguished from noncurrent assets is determined
by the seasonal nature of the business.
d. Assets are classified as current if these are
reasonably expected to be realized in cash or
consumed during the normal operating cycle.
8. An example of an inventory accounting policy that should be
disclosed in a summary of significant accounting policies is
the
a. Composition of inventory into raw materials, goods
in process and finished goods.
b. Major backlog of inventory orders.
c. Method used for pricing inventory
d. All of these should be disclosed in the summary of
significant accounting policies.
9. Related parties include all of the following, except
a. Affiliates
b. Associates
c. Individuals owning, directly or indirectly, an interest
in the voting power of the reporting entity that gives
them significant influence over the entity.
d. Two entities that have a common director.
10. All of the following events would be classified as
nonadjusting events after reporting period, except
a. The entity announced the discontinuance of the
assembly operation.
b. The entity entered into an agreement to purchase
the freehold of the currently leased office building
c. Destruction of a major production plant by fire.
d. A mistake was discovered in the calculation of the
allowance for uncollectible accounts receivable.
11. Which of the following changes during a period is not a
component of other comprehensive income?
a. Remeasurement of defined benefit plan
b. Treasury share, at cost
c. Foreign currency translation adjustment
d. Unrealized gain on equity instrument measured at
fair value through other comprehensive income.
12. What is the treatment of any gain on a subsequent increase
in the fair value less cost of disposal of a noncurrent asset
classified as held for sale?
a. The gain shall be recognized in full.
b. The gain shall not be recognized.
c. The gain shall be recognized but not in excess of the
cumulative impairment loss previously recognized.
d. The gain shall be recognized but only in retained
earnings.
13. How should the assets and liabilities of a disposal group
classified as held for sale be reported in the statement of
financial position?
a. The assets and liabilities shall be offset and
presented as a single amount.
b. The asset of the disposal group shall be reported
separately from other assets and the liabilities of the
disposal group shall be reported separately from
other liabilities.
c. The assets and liabilities shall be presented as a
single amount and as a deduction from equity.
d. There should be no separate disclosure of assets and
liabilities that form part of a disposal group.
14. Which is incorrect concerning the presentation of
discontinued operation in the statement of financial
position?
a. Assets of the component held for sale are presented
separately from all other assets of the entity.
b. Assets of the component held for sale are measured
at the higher between fair value less cost of disposal
and carrying amount.
c. Liabilities of the component held for sale are
presented separately from all other liabilities of the
entity.
d. Depreciable assets of the component held for sale
shall not be depreciated.
15. The effect of a change in the expected pattern of
consumption of economic benefit of a depreciable asset shall
be
a. Included in the determination of income or loss in
the period of change.
b. Included in the determination of income or loss in
the period of change and future periods.
c. Included in the statement of retained earnings as an
adjustment of the beginning balance.
d. Included as component of other comprehensive
income.
16. Which of the following should be treated as change in
accounting policy?
a. A change is made in the method of calculating the
provision for uncollectible accounts receivable
b. Investment properties are now measured at fair
value having previously been measured at cost.
c. An entity engaging in construction contract for the
first time needs on accounting policy to deal with
this.
d. All of these qualify as a change in accounting policy
17. An entity is preparing interim financial statements for six
months ended June 30, 2015. In the interim financial
statement for six months, a statement of financial position on
June 30, 2015 and a statement of comprehensive income for
six months ended June 30, 2015 shall be presented. In
addition, all of the following shall be presented, except
a. Statement of financial position on June 30, 2014
b. Statement of financial position on December 31,
2014.
c. Statement of comprehensive income for six months
ended June 30, 2014.
d. Statement of cash flows for six months ended June
30, 2014.
18. An entity shall disclose information about an operating
segment when the absolute amount of its profit or loss is
a. 10% or more of the absolute amount of the
combined profit or loss of all operating segments.
b. 10% or more of the absolute amount of the
combined profit of all operating segments that
reported a profit.
c. 10% or more of the absolute amount of the
combined loss of all operating segments that
reported a loss.
d. 10% or more of the greater in absolute amount
between the combined profit of all operating
segments that reported a profit, and the combined
loss of all operating segments that reported a loss.
19. Which of the following is not considered as a cash
equivalent?
a. A three-year treasury note maturing on January 31
of the next year purchased by the entity on
December 1, of the current year.
b. A three-year treasury note maturing on January 31
of the next year purchased by the entity on October
1 of the current year.
c. A 90-day T-bill
d. A 60-day money market placement.
20. Which of the following statements is true in relation to
presentation of receivables in the statement of financial
position?
a. Trade receivables and nontrade receivables must be
shown separately.
b. Nontrade receivables are presented as noncurrent
assets.
c. Trade accounts receivable and trade notes
receivable shall be presented separately.
d. Trade receivables and nontrade receivables which
are currently collectible shall be presented as one
line item called trade and other receivables
21. An entity uses the installment method to recognize revenue
from installment sales. Customers pay the installment notes
in 24 equal monthly amounts which include 12% interest.
What is the installment notes receivable balance six months
after the sale?
a. 75% of the original sales prince
b. Less than 75% of the original sales prince
c. The present value of the remaining monthly
payments discounted at 12%
d. Less than the present value of the remaining
monthly payments discounted at 12%.
22. Which of the following is not a component of the conceptual
framework?
a. Concepts of capital and capital maintenance.
b. Objective of financial reporting.
c. Qualitative characteristics which make financial
information useful to users
d. All of the above are components of conceptual
framework.
23. Which of the following methods of recognizing revenue is the
most conservative?
a. Cash basis c. Installment method
b. Accrual basis d. Cost recovery method
24. Which of the following is classified as current asset?
a. Sinking fund for the acquisition of an investment
property to be used within 12 months from the
balance sheet date.
b. Cash surrender value of a life insurance policy
c. Sinking fund for the payment of liabilities due within
12 months from the balance sheet date.
d. None of the above.
25. Discussions on going concern and contingent liabilities are
found in which part of the notes to financial statements
a. Statement of Compliance to PFRS
b. Summary of Significant Accounting Policies
c. Disaggregation.
d. Other Disclosures
26. Which of the following are related parties in a joint venture?
a. The venturers
b. Two or more joint ventures having a common
venturer
c. Each of the venture and the joint venture
d. Venturers of different joint ventures having a
common venturer
27. An error discovered after the financial statements are
authorized for issue is
a. An adjusting subsequent event
b. A non-adjusting subsequent event.
c. A prior period error
d. An error which should be accounted for currently
and prospectively.
28. A non-current asset held for sale
a. Is a current asset subject to depreciation.
b. Is a current asset not subject to depreciation
c. Is a non-current asset subject to depreciation
d. Is a non-current asset not subject to depreciation.
29. A change from First In First Out to Last In First Out
a. Is a change in accounting estimate
b. Is a change in accounting policy
c. Is a correction of error
d. Is not permitted by the standard nor will make the
financial statements more useful.
30. Management approach is a method of determining
a. Operating segments
b. Reportable segments
c. The number of operating segments
d. The number of reportable segments
31. Which of the following is not to be included as cash?
a. Unreleased checks of the company
b. Postdated checks issued by the company
c. 60-day Treasury Notes
d. Bank drafts
32. All receivables are recorded at their
a. Face value c. Fair value
b. Present value d. Realizable value