INSTRUCTIONS: Select the correct answer for each of the following questions.

Mark only one answer for each

item by shading the letter of your answer. STRICTLY NO ERASURES ALLOWED. This is a board exam
training.

1. The financial statements most frequently provided include all of the following except the
a. Statement of retained earnings.
b. Statement of financial position.
c. Income statement.
d. Statement of cash flows.

2. General-purpose financial statements are the product of

a. Financial accounting.
b. Managerial accounting.
c. Both financial and managerial accounting.
d. Neither financial nor managerial accounting.

3. What is the objective of financial reporting as indicated in the conceptual framework?

a. Provide information that is useful to those making investing and credit decisions.
b. Provide information that is useful to management.
c. Provide information about those investing in the entity.
d. All of the above.

4. The enhancing qualitative characteristics of financial reporting are

a. Comparability, verifiability, timeliness, and understandability.
b. Relevance, reliability, and faithful representation.
c. Cost-benefit and materiality.
d. Completeness, neutrality, and freedom from error.

5. When manufacturing inventory, what is the accounting treatment for abnormal freight-in costs?
a. Charge to expense for the period.
b. Charge to the finished goods inventory.
c. Charge to raw materials inventory.
d. Allocate to raw materials, work in process, and finished goods.

6. Reporting inventory at the lower of cost or net realizable value is a departure from the accounting principle
of
a. Historical cost. c. Conservatism.
b. Consistency. d. Full disclosure.

7. Accrual accounting is used because

a. Cash flows are considered less important.
b. It provides a better indication of ability to generate cash flows than the cash basis.
c. It recognizes revenues when cash is received and expenses when cash is paid.
d. None of the above.

8. An investor shall discontinue the use of the equity method from the date that
I. The investor ceases to have significant influence over an associate
II. The associate operates under severe long-term restrictions that significantly impair its ability to transfer
fund to the investor.
a. I only c. Both I and II
b. II only d. Neither I and II

9. During periods of rising prices, a perpetual inventory system would result in the same peso amount of
ending inventory as a periodic inventory system under which of the following inventory cost flow methods?
FIFO LIFO FIFO LIFO
a. Yes No b. No Yes
c. Yes Yes d. No No

10. The fundamental qualitative characteristic of faithful representation has the components of
a. Completeness, neutrality, and freedom from error.
b. Predictive value and confirmatory value.
c. Comparability, consistency, and confirmatory value.
d. Understandability, predictive value, and reliability.

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11. Jel Co., a consignee, paid the freight costs for goods shipped from Dale Co., a consignor. These freight
costs are to be deducted from Jel’s payment to Dale when the consignment goods are sold. Until Jel sells
the goods, the freight costs should be included in Jel’s
a. Cost of goods sold. c. Selling expenses.
b. Freight-out costs. d. Accounts receivable.

12. What is imputed interest?

a. Interest based on the coupon rate.
b. Interest based on the stated interest rate.
c. Interest based on the average interest rate.
d. Interest based on the implicit interest rate.

13. A company with a smaller number of very expensive inventory items may find which of the following
inventory costing methods most useful?
a. FIFO c. LIFO
b. Average Cost d. Specific Identification

14. Which is not a characteristic of a financial asset held for trading?

a. It is acquired principally for the purpose of selling or repurchasing it in the near term.
b. On initial recognition, it is part of a portfolio of financial assets that are managed together and for which
there is evidence of a recent actual pattern of short-term profit taking.
c. It is a derivative that is not designated as an effective hedging instrument.
d. It is a derivative that is designated as an effective hedging instrument.

15. To the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset, the
amount of borrowing costs eligible for capitalization on that asset should be determined as:
a. The actual borrowing costs incurred on that borrowing during the period only.
b. The estimated borrowing costs incurred on that borrowing during the period only.
c. The estimated borrowing costs incurred on that borrowing during the period less any investment
income on the temporary investment of those borrowings.
d. The actual borrowing costs incurred on that borrowing during the period less any investment
income on the temporary investment of those borrowings.

16. Which statement is incorrect concerning the depreciation methods?

a. The straight line method is particularly appropriate where the asset is expected to decline in the
usefulness as function of time and the expected use pattern of the asset is fairly constant over time.
b. The sum of year’s digit method provides for a decreasing depreciation charge
c. First year depreciation under the double declining balance method is computed as: the cost times the
double of the straight line rate.
d. Under the output method, the cost of production is constant.

17. It is a financing arrangement whereby one party informally assigns its accounts receivable to another party
in as collateral for a loan.
a. Hypotication b. Hyphothecation c. Assignment d. Hypothecation

18. If a government entity provides an interest free loan to a company and the company accounts for the grant
using the deferred revenue approach,
a. No interest expense will be recorded.
b. The interest element is amortized to Discount on Notes Payable over the term of the loan.
c. No revenue from the grant will be recoded.
d. The interest element is initially recorded as Discount on Notes Payable.

19. Lynch Printing Company determines that a printing press used in its operations has suffered impairment in
value because of technological changes. An entry to record the impairment should
a. Recognize extra depreciation expense for the period.
b. Include a credit to the equipment account.
c. Not be made if the equipment is still being used.
d. Include a credit to the equipment accumulated depreciation account.

20. When cash is involved in an exchange having no commercial substance.

a. Only gains should be recognized.
b. Only losses should be recognized.
c. A gain or loss is computed by comparing the fair value of the asset received with the fair value of the
asset given up.

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 d. Gains or losses aren’t recognized in their entirety.

21. Companies often are reluctant to record the cost of intangible assets as assets because:
a. Management and investors generally are more skeptical on the value of assets that cannot be
seen and touched.
b. Outlays for intangible assets typically provide nothing of value to the company.
c. Intangibles seldom have a useful life of more than one year.
d. Intangible assets are already incorporated in the market price of the stock and to record them
separately would include double counting.

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

a. The conceptual framework has the highest level of authority.
b. In the absence of a standard or an interpretation that specifically applies to a transaction, the
applicability of Conceptual Framework shall be considered in the selection and application of an
accounting policy.
c. In the presence of a standard or an interpretation that specifically applies to a transaction, management
shall consider the applicability of the Conceptual Framework in developing and applying an accounting
policy.
d. The Conceptual Framework applies only when the FRSC develops new or revised standards.

23. Which of the following items is not precluded from classification as financial asset at amortized cost?
a. An investment in an unquoted equity instrument.
b. An investment in a quoted equity instrument.
c. An investment in a quoted debt instrument.
d. A quoted derivative financial asset.

24. Which of the following is false?

a. The future value of a deferred annuity is the same as the future value of an annuity not deferred.
b. A deferred annuity is an annuity in which the rents begin after a specified number of periods.
c. To compute the present value of a deferred annuity, we compute the present value of an ordinary
annuity of 1 for the entire period and subtract the present value of the rents which were not received
during the deferral period.
d. If the first rent is received at the end of the sixth period, it means the ordinary annuity is
deferred for six periods.

25. When the accounts receivable of an entity are sold outright to another entity which normally buys accounts
receivable, the accounts receivable have been
a. Factored b. Pledged c. Assigned d. Collateralized

26. When the investor properly discontinues the use of the equity method
a. The carrying value of the investment at the date it ceases to be an associate shall be regarded as its
cost on initial measurement as a financial asset.
b. The investment account is adjusted and any adjustment is included in the determination of
income.
c. The investment account is adjusted and any adjustment is made to the beginning retained earnings.
d. The carrying value of the investment is adjusted to conform with its recoverable amount.

27. If annual major repairs made in the first quarter and paid for in the second quarter clearly benefitted the
entire year, when should the repairs be expensed?
a. An allocated portion in each of the last three quarters.
b. In full in the first quarter.
c. An allocated portion in each quarter of the year.
d. In full in the second quarter.

28. Exploration and evaluation expenditures are incurred;

a. 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.
b. When a specific area is being developed and preparations for commercial extraction are being made.
c. In extracting mineral resource and processing the resource to make it marketable or transportable.
d. When the legal rights to explore a specific area have been obtained, but the technical feasibility
and commercial viability of extracting minerals is not yet demonstrable.

29. The costing of inventory must be deferred until the end of reporting period under which of the following
method of inventory valuation?
a. Weighted Average b. Moving average

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 c. LIFO perpetual d. FIFO perpetual

30. Which statement is incorrect concerning the recognition and measurement of an impairment loss?
a. If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset
should be reduced to its recoverable amount.
b. After recognition of an impairment loss, depreciation charge for the future periods should be
adjusted, allocate the revised carrying amount less its residual amount, on a systematic basis
over its original useful life.
c. Impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable
amount.
d. An impairment loss should be recognized as expense in the income statement immediately.

31. How should research and development costs be accounted for, according to an IASB Statement?
a. Must be capitalized when incurred and then amortized over their estimated useful lives.
b. May be either capitalized or expensed when incurred, depending upon the materiality of the amounts
involved.
c. Must be expensed in the period incurred.
d. Must be expensed in the period incurred unless it can be clearly demonstrated that the expenditure will
have alternative future uses or unless contractually reimbursable.

32. Which statement is incorrect if the property is partly investment and partly owner-occupied?
a. If the investment and owner-occupied portions could be sold or leased out separately, the portions
should be accounted for separately as investment property and owner-occupied property.
b. If the investment and owner-occupied portions could not be sold or leased out separately, the property
is investment property if only an insignificant portion is held for manufacturing or administrative
purposes.
c. When ancillary services are provided by the enterprise to the occupants of the property and these
services are relatively insignificant component of the arrangement, the property is treated as investment
property.
d. A hotel is normally an investment property because services provided to the guests are an
insignificant component of the arrangement.

33. Does PFRS 6 require an entity to recognize exploration and evaluation expenditure as an asset?
a. Yes, but only to the extent required by the entity’s accounting policy for recognizing exploration
and evaluation asset.
b. Yes, but only to the extent such expenditure is recoverable in future periods.
c. Yes, but only to the extent that technical feasibility and commercial viability of extracting the associated
mineral resource have been demonstrated.
d. No, such expenditure is always expensed in profit or loss as incurred.

34. If the balance shown on an entity’s bank statement is less than the correct cash balance and neither the
entity nor the bank has made any errors, there must be
a. Deposits credited by the bank but not yet recorded by the entity.
b. Deposit in transit
c. Outstanding check
d. Bank charges not yet recorded by the entity

35. When an accounts receivable aging schedule is prepared, a series of computations is made to determine
the estimated uncollectible accounts. The resulting amount from this aging schedule,
a. When added to the total amount written off during the year is the desired credit balance of the
allowance for doubtful accounts at year-end.
b. Is the amount of doubtful accounts expense for the year.
c. Is the amount of desired credit balance of the allowance for doubtful accounts to be reported at
year-end.
d. Is the amount that should be added to the beginning balance for doubtful accounts to get the doubtful
accounts expense for the year.

36. Accounting information is considered to be relevant when it,

a. Can be depended on to represent the economic conditions and events that it is intended to represent.
b. Is understandable by reasonably informed users of accounting information.
c. Is verifiable and neutral.
d. Is capable of making a difference in a decision.

37. Land related to agricultural activity is measured,

a. In accordance with PAS 16, Property, plant & equipment or PAS 40, investment property.

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 b. In accordance with PAS 41, Agriculture
c. At fair value in combination with the biological asset that is being grown on the land.
d. At the resale value separate from the biological asset that is being grown on the land.

38. When share dividends of different class are received?

a. A new investment account is debited and dividend income is credited.
b. A new investment account is debited and the original investment account is credited.
c. No formal entry is made but only a memorandum.
d. Cash is debited and dividend income is credited.

39. Which of the following statements is incorrect?

a. The accounting function should be separated from the custodianship of asset.
b. Certain clerical personnel should be rotated among various jobs.
c. The responsibility for receiving merchandise and paying for it should be given to one person.
d. An entity’s personnel should be given well-defined responsibilities.

40. With respect to inventories, which of the following shall be disclosed in the financial statements?
I – The accounting policies adopted in measuring inventories, including the cost formula used.
II – The total carrying amount of inventories and the carrying amount in classifications appropriate to the
entity.
III – The carrying amount of the inventory carried at fair value less cost of disposal.
IV – The amount of inventory recognized as expense during the period.
V – The cost per unit of the inventory
VI – The amount of any inventory writedown
VII – The amount of reversal of writedown that is recognized in other comprehensive income
VIII – The circumstances or events that led to reversal of a writedown of inventories.
a. All of the above
b. I, II, III, IV, VI, VII and VIII only
c. I, II, III and IV only
d. I, II, III, IV, VI, and VIII only

41. Which of the following type of adjustments does not require a reversing entry?
a. Accrual of earned income
b. Unearned revenues using income method
c. Unearned revenues using liability method
d. Accrual of incurred expenses

42. It is the standard setting body in the Philippines at the present time.
a. Philippine Accounting Standards Board
b. Accounting Standards Council
c. Financial Reporting Standards Council
d. Auditing and Assurance Standards Council

43. What is the law regulating the practice of accountancy in the Philippines?
a. R.A. No. 9928 b) R.A. No. 9198 c) R.A. No. 9298 d) R.A. No. 9892

44. Which of the following is not considered as a book of original entry

a. Cash receipts journal c. CPA Journal
b. General Journal d. Voucher register

45. Which of the following is not a book reconciling item?

a. Bank Charges c. Bank error
b. Credit Memo from the bank d. Book error

46. These are the basic notions or fundamental premises on which the accounting process is based.
a. Generally accepted accounting principles
b. Accounting standards
c. Accounting assumptions
d. Qualitative characteristic of financial information

47. The adjustment for that portion of revenue received in advance which now has been earned is to debit
a. Service Revenues and credit Unearned Revenues
b. Unearned Revenues and credit Cash
c. Unearned revenues and credit Service Revenues
d. Cash and credit Unearned Revenues

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48. An entity uses the allowance method for recognizing doubtful accounts. The entry to record the write-off of
a specific uncollectible account
a. Decreases net income only.
b. Decreases both net income and accounts receivable
c. Affects neither net income nor net accounts receivable
d. Increases both net income and accounts receivable

49. Failure to record the entry for accrued salaries results in

Salaries Payable Salaries Expense Total Assets
a. Overstated Understated No effect
b. Overstated Overstated Overstated
c. Understated Understated No effect
d. Understated Understated Understated

50. An entity owns a number of herds of cattle. Where the changes in the fair value of the herd of cattle should
be recognized in the financial statements?
a. In other comprehensive income.
b. In profit or loss or other comprehensive income depending on the initial designation.
c. In profit or loss only.
d. In the statement of cash flows.

51. An entity is permitted to depart from a particular standard if all of the following conditions are satisfied,
EXCEPT?
a. When departure from the standard is necessary to achieve fair presentation.
b. When management concludes that compliance with the standard would be misery.
c. When the regulatory Conceptual Framework may not prohibit such departure.
d. In extremely rare circumstances.

52. An entity must disclose information for

a. The previous comparable period for all amounts reported.
b. The previous comparable amount period for all amounts reported and for all narrative and
descriptive information that is relevant to the current year.
c. The previous comparable period for all amounts reported and for all narrative and descriptive
information presented from the previous year.
d. The previous two comparable periods for all amounts reported.

53. All of the following are required to achieve fair presentation of financial statements, EXCEPT?
a. To present information in a manner that provides relevant and reliable financial information.
b. To provide disclosures about erroneous accounting policies were used in preparing
financial statements.
c. To provide additional disclosures when compliance with specific PFRS is insufficient to understand
the entity’s financial statements.
d. To select and apply accounting policies in accordance with applicable PFRS.

54. The statement of financial position is useful for analyzing all of the following, EXCEPT?
a. Liquidity. c. Solvency.
b. Viability. d. Financial structure.

55. Within the statement of financial position companies should separately report all of the following EXCEPT?
a. Assets and liabilities with different general liquidity characteristics.
b. Assets and liabilities that have been financed with different types of instruments.
c. Assets that differ in their expected function in the company’s central operations.
d. Liabilities that differ in their amounts, timing, and nature.

56. The full disclosure principle, as adopted by the accounting profession, is best described by which of the
following?
a. Necessary information relevant and will cause financial statements to be fairly presented are to be
disclosed.
b. Disclosure of all financial facts significant enough to influence the judgment of an informed
reader.
c. Information about each account balance appearing in the financial statements is to be included in
the notes to the financial statements.
d. Enough information should be disclosed in the financial statements so a person wishing to invest in
the shares of the company can make a profitable decision.
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57. What is the proper order of presenting the notes to financial statements?
I. Statement of compliance with PFRS
II. Other disclosures
III. Supporting information for items presented on the face of the financial statements
IV. Summary of significant accounting policies
a. I, II, III & IV c. I,III,IV & II
b. I,IV,III & II d. I,IV,II & III

58. Which of the following are the standards effective starting January 1, 2013 but are still needed approval
from BOA/PRC?
a. PFRS 13: Fare Value Measurement
b. PFRS 11: Joint Arrangement
c. PFRS 12: Disclosures of Shares in Other Entities
d. PFRS 10: Consolation Financial Statement

59. Which of the following do not belong to the group in the notes to financial statement?
a. The financial statements have been prepared on the basis of historical cost. Measurement Basis
b. The financial statements have been prepared in compliance with the PFRS and SEC.
c. The inventories are measured at the lower of FIFO cost or net realizable value. Inventories
d. All expenditures for research and development are charged to expense in the year incurred.
Research and Development.

60. Which of the following statements is true concerning disclosure of related party transactions?
I. Transactions with government that has control, joint control or insignificant influence over the entity
must be disclosed, from its amount, outstanding balances with their terms and conditions and if secured
or unsecured.
II. Transactions between members of joint ventures will be disclosed in the financial statements of each of
the venturers.
a. I only c. Both I & II
b. II only d. Neither I nor II

61. Which of the following is a related party?

a. Parent, subsidy and other subsidies
b. Association
c. Entities with interlocking directors
d. Government that has control over the entity

62. What are those events, whether favorable or unfavorable, that occurs between the end of the reporting
period and the date on which the financial statements are authorized for issue?
a. Important events c. Subsequent events
b. Removal events d. Significant event

63. The income statement reveals

a. Net earnings of a firm at a point in time.
b. Net earnings of a firm for a period of time.
c. Resources and equities of a firm at a point in time.
d. Resources and equities of a firm for a period of time.

64. An entity is preparing the financial statements for the year ended June 30, 2013. The management reviewed
the final draft financial statements and authorized them for issue to supervisory board on August 15, 2013
which approves the financial statements on September 1, 2013. The financial statements are issued to
shareholders on September 15, 2013 and approved by shareholders on September 30, 2013. The period in
respect of which the entity would consider events after the reporting period are from June 30, 2013 to?
a. August 15, 2013 c. September 15, 2013
b. September 1, 2013 d. September 30, 2013

65. Other comprehensive income includes all of the following EXCEPT?

a. Unrealized gain or loss on a derivative contract designated as cash flow hedge
b. Loss from translating the financial statements of a foreign operation
c. Actuarial gain on defined benefit plan that is fully recognized.
d. Unrealized gain or loss from increase in fair value of financial assets at fair value through
income statement.

66. Which of the following is NOT included in the definition of a highly probable sale?

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 a. The management is committed to sell the asset or disposal group
b. Sale is expected to be completed within 15 months; the country is experiencing great drought
currently until the 4th month.
c. The entity will continue using the asset if the company will be able to reverse its previous
years losses.
d. The asset was actively marketed for a sale price that is reasonable in relation its fair value.

67. An entity acquires a subsidiary exclusively with a view to resale. The subsidiary meets the criteria to be
classified as held for sale. At the end of the reporting period, the subsidiary has not yet been sold, and 15
months have passed since its acquisition and it has been 3 months that a tsunami hit the country. How will
the subsidiary be measured in the statement of financial position at the date of the first financial statements
after acquisition?
a. At fair value
b. At the lower of cost and fair value less cost of disposal
c. At the carrying amount
d. In accordance with other applicable standard.

68. Which of the following is NOT treated as a change in accounting policy?

a. A change to a different method of depreciation for plant assets
b. A change from average cost to FIFO for inventory valuation.
c. A change from full-cost to successful efforts in the extractive industry
d. A change from cost-recovery to percentage-of-completion

69. Which of the following is NOT a retrospective-type accounting change?

a. Cost-recovery method to the percentage-of-completion method for long-term contracts
b. Cost-recovery method to the FIFO method for inventory valuation
c. "Full cost" method to another method in the extractive industry
d. Sum-of-the-years'-digits method to the straight-line method

70. An SME entity must measure its investment property after initial recognition:
a. Either at fair value or using the cost-depreciation-impairment model (same accounting policy for all
investment property).
b. Either at fair value or using the cost-depreciation-impairment model (elected item by item).
c. At fair value, for those properties that fair value can be measured reliably without undue cost
or effort on an ongoing basis and cost-depreciation-impairment for all other investment
property.
d. At fair value.

71. On January 1, 2011 an SME entity acquired a tract of land for an undetermined purpose. On January 1, 2014
the entity began to construct a building on the land for use as its administrative headquarters. On January 1,
2018 the entity’s administrative staff moved out of the building and into newly acquired premises. The building
was immediately renovated and improved to be used as additional plant. On December 31, 2019 the entity
accepted an unsolicited offer from the tenant to purchase the building from the entity with immediate effect.
The fair value of the building can be determined reliably without undue cost or effort on an ongoing basis.
The entity should account for the building as:
a. Investment property from the date of acquisition (1 January 2011) to the date of disposal (31
December 2019).
b. Investment property during 2011–2013 and as property, plant and equipment during 2014–
2019.
c. Investment property during 2011–2013 and 2018–2019 and as property, plant and equipment during
2014–2017.
d. Property, plant and equipment during 2011–2017 and as investment property during 2018–2019.

72. Which of the following statements is FALSE in relation to interim financial reporting?
I. PAS 34 prescribes the minimum content of a financial report and the principles for recognition and
measurement in complete or condensed financial statements for an annual period.
II. Interim financial accounting may be presented monthly, quarterly, or semiannually. Quarterly interim
reports are the most common.
a. I only c. Both I & II
b. II only d. Neither I nor II

73. An entity is sued over an alleged violation of patent in one its products on the second quarter of the current
year. At that time, it is most likely estimated to retroactively pay a 5% royalty on all sales of the product
including the prior years to which the patent applies. But, the entity settles the litigation on the fourth quarter
of the current year at 6% royalty on all sales. Which of the following is valid?

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 a. All the royalty expenses related to the patent violation shall be recognized at the fourth quarter.
b. The company will recognize a provision of 5% royalty on sales from the prior years until settlement
date at 2nd quarter and the difference in settlement shall be included in the fourth quarter.
c. The company will recognize a provision at 5% royalty on all sales the patent applies from the prior
years to the date the entity was sued at 2nd quarter.
d. The company will recognize a provision of 5% royalty on sales from the prior years until the
case aroused at 2nd quarter and the difference in settlement shall be included in the fourth
quarter.

74. Which of the following is true concerning segment reporting?

I. An operating segment identified as a reportable segment in the immediately preceding period shall not
continue to be reported separately in the current period if it no longer meets any of the quantitative
thresholds and if management of the entity judges the segment to be not of continuing significance.
II. If an operating segment is identified as reportable segment in the current period in accordance with the
quantitative thresholds, prior segment data presented for comparative purposes shall be restated to
reflect the newly reportable segment even if that segment did not satisfy any of the quantitative thresholds
in the prior period.
a. I only c. Both I and II
b. II only d. Neither I nor II

75. Which of the following must be added to accrual purchases in computing the cash basis purchases?
a. Purchases on account in current year.
b. Purchase on account from past year.
c. Payment of purchases.
d. Purchase returns, discounts and allowances

76. 1st statement – Short term debt obligations are classified as current liabilities unless an agreement to
refinance is completed before the financial statements are issued.
2nd statement – For purposes of recognizing a provision, “probable’ is defined as more likely than not.
a. True; True c. False; False
b. True; False d. False; True

77. Under what conditions is an employer required to accrue a liability for sick pay?
a. Sick pay benefits can be reasonably estimated.
b. Sick pay benefits equal 100% of the pay.
c. Sick pay benefits accumulate.
d. Sick pay benefits vest.

78. Which of the following is not considered a characteristic of a liability?

a. Present obligation.
b. Arises from past events.
c. Liquidation is reasonably expected to require use of existing resources classified as current
assets.
d. Results in an outflow of resources.

79. A company has not declared a dividend on its cumulative preference shares for the past three years. What
is the required accounting treatment or disclosure in this situation?
a. Record a liability for cumulative amount of preference shares dividends not declared.
b. Disclose the amount of the dividends in arrears.
c. Record a liability for the current year's dividends only.
d. No disclosure or recognition is required.

80. Which of the following is the proper way to report a contingent asset, receipt of which is virtually certain?
a. No disclosure or accrual required.
b. As an asset.
c. As unearned revenue.
d. As a disclosure only.

81. Taxable income of a corporation

a. Is based on international financial reporting standards.
b. Is reported on the corporation's income statement.
c. Differs from accounting income due to differences in intraperiod allocation between the two
methods of income determination.
d. Differs from accounting income due to differences in interperiod allocation and permanent
differences between the two methods of income determination.

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82. Vested benefits
a. Usually require a certain minimum number of years of service.
b. Are those that the employee is entitled to receive even if fired.
c. Are not contingent upon additional service under the plan.
d. Are defined by all of these.

83. Which of the following represents the total number of shares that a corporation may issue under the terms
of its charter?
a. Issued shares c. Outstanding shares
b. Unissued shares d. Authorized shares

84. Which of the following statements is correct regarding permanent differences under PFRS?
a. Permanent differences result from items that enter into pretax financial income but never into
taxable income.
b. Permanent differences result from items that enter into taxable income but never into pretax
financial income.
c. Permanent differences affect only the period in which they occur.
d. All of the choices are correct.

85. A primary source of shareholders' equity is

a. Income retained by the corporation.
b. Appropriated retained earnings.
c. Contributions by shareholders.
d. Both income retained by the corporation and contributions by holders.

86. The conversion of preference shares into ordinary shares requires that any excess of the par value of the
ordinary shares issued over the carrying amount of the preference shares being converted should be
a. Treated as a prior period adjustment.
b. Treated as a direct reduction of retained earnings.
c. Reflected currently in income.
d. Reflected currently in other comprehensive income.

87. Reich, Inc. issued bonds with a maturity amount of P 200,000 and a maturity ten years from date of issue.
If the bonds were issued at a premium, this indicates that
a. The effective yield or market rate of interest exceeded the stated (nominal) rate.
b. The nominal rate of interest exceeded the market rate.
c. The market and nominal rates coincided.
d. No necessary relationship exists between the two rates.

88. An electronics store is running a promotion where for every video game purchased, the customer receives
a coupon upon checkout to purchase a second game at a 50% discount. The coupons expire in one year.
The store normally recognized a gross profit margin of 40% of the selling price on video games. How would
the store account for a purchase using the discount coupon?
a. The reduction in sales price attributed to the coupon is recognized as premium expense.
b. The difference between the cost of the video game and the cash received is recognized as
premium expense.
c. Premium expense is not recognized.
d. The difference between the cost of the video game and the selling price prior to the coupon is
recognized as premium expense.

89. If bonds are issued between interest dates, the entry on the books of the issuing corporation could include
a
a. Debit to Interest Payable. c. Credit to Interest Receivable.
b. Credit to Interest Expense. d. Credit to Unearned Interest.

90. An SME shall measure a provision at the best estimate of the amount required to settle the obligation at the
reporting date. When a provision may arise from a continuous range of possible outcomes and each point
in that range is as likely as any other, the estimate of the amount
a. Reflects the weighting of all possible outcomes by their associated probabilities.
b. Is determined by using the midpoint of the range.
c. Is determined as the individual most likely outcome.
d. May be the individual most likely outcome. However, the entity should also consider the other
possible outcomes.

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91. Which dividends do not reduce equity?
a. Share dividends c. Property dividends
b. Cash dividends d. Liquidating dividends

92. While only certain leases are currently accounted for as a sale or purchase, there is theoretic justification
for considering all leases to be sales or purchases. The principal reason that supports this idea is that
a. A lease reflects the purchase or sale of a quantifiable right to the use of property.
b. All leases are generally for the economic life of the property and the residual value of the property
at the end of the lease is minimal.
c. At the end of the lease the property usually can be purchased by the lessee.
d. During the life of the lease the lessee can effectively treat the property as if it were owned by the
lessee.

93. In general, companies recognize revenue

a. At the point of sale. c. When cash is received.
b. At completion of production. d. After all costs are recognized.

94. 1st statement – In a defined contribution plan, the employer must make up any shortfall in the accumulated
assets held by the defined contribution trust.
2nd statement – IFRS encourages, but does not require, companies to use actuaries in the measurement of
the pension amounts.
a. False; True c. True; False
b. False; False d. True; True

95. Assuming a 30% statutory tax rate applies to all years involved, which of the following situations will give
rise to reporting a deferred tax liability on the statement of financial position?
I. A revenue is deferred for financial reporting purposes but not for tax purposes.
II. A revenue is deferred for tax purposes but not for financial reporting purposes.
III. An expense is deferred for financial reporting purposes but not for tax purposes.
IV. An expense is deferred for tax purposes but not for financial reporting purposes.
a. Items II and III only c. Item II only
b. Items I and IV only d. Items I and II only

96. Dividends are not paid on

a. Noncumulative preference shares. c. Treasury shares.
b. Nonparticipating preference shares. d. Dividends are paid on all of these.

97. 1st statement – Under the operating method, the lessor records each rental receipt as part interest revenue
and part rental revenue.
2nd statement – In computing the annual lease payments, the lessor deducts only a guaranteed residual
value from the fair value of a leased asset.
a. True; True c. False; False
b. False; True d. True; False

98. An entity which was incorporated on the year 2009 and immediately starts its operations and prepare
financial statements by which it applies the PFRS for SMEs. The entities transition date is
a. None
b. January 1, 2008
c. January 1, 2009
d. January 1, 2010

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99. When a company’s activities involve production through natural growth or aging of biological assets (plant
or living animal), the company earns revenue as the plant or living animal grows. This revenue recognition
procedure is referred to as
a. Completion-of-production basis.
b. Multiple-deliverable arrangements approach.
c. Accretion approach.
d. Cost-recovery (zero-profit) approach.

100. The rate of interest actually earned by bondholders is called the

a. Stated rate.
b. Virtual rate.
c. Effective yield or market rate.
d. Intrinsic rate.

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