DE LA SALLE LIPA

College of Business, Economics, Accountancy and Management

Accountancy Department
Theory of Accounts - Review

COVERAGE:
PAS 1: Presentation of Financial Statements
PAS 12: Income Taxes
PAS 17: Leases
PAS 19: Employee Benefits
PAS 26: Accounting and Reporting by Retirement Benefit Plans
PAS 33: Earnings per Share
PAS 37: Provisions, Contingent Liabilities and Contingent Assets
PAS 39: Financial Instruments – Recognition and Measurement
PFRS 2: Share-based Payment

Direction: Read and select the best answer for the following questions.

1. Based on the definition of liability in the Framework for the Preparation and Presentation of Financial
Statements, the following are the essential characteristics of liability, except
a. The liability is the present obligation of a particular entity.
b. The liability arises from past transaction or event.
c. The liability should be settled using current assets.
d. The settlement of the liability requires an outflow of resources embodying economic benefits.

2. The following transactions or events will result to a liability, except

a. Receipt of cash advance or deposit from a customer.
b. Declaration of share dividends to stockholders.
c. Acquisition of merchandise inventory on account.
d. Overdraft in cash in bank.

3. PAS 39 provides that an entity shall recognize initially a financial liability at

a. Amortized cost
b. Fair value plus transaction cost that are directly attributable to the issue of the financial
liability
c. Amortized cost
d. Face value

4. After initial recognition, PAS 39 provides that an entity shall measure financial liability at
a. Amortized cost
b. Fair value plus transaction cost that are directly attributable to the issue of the financial
liability
c. Amortized cost
d. Face value

5. The following statements pertaining to measurement of liabilities are correct, except

a. Interest-bearing noncurrent liability shall be measured at face value.
b. Non-interest-bearing noncurrent liability shall be measured at present value or amortized cost.
c. Current liabilities are discounted and measured at present value or amortized cost.
d. Current liabilities are recorded and reported at their face amount.

6. PAS 1, par. 69, provides that an entity shall classify a liability as current, when, except
a. The entity has an unconditional right to defer settlement of the liability for at least twelve
months after the reporting period.
b. The liability is due to be settled within twelve months after the reporting period.
c. The entity holds the liability primarily for the purpose of trading.
d. The entity expects to settle the liability within the entity’s operating cycle.

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7. The following are examples of current liabilities, except
a. Income taxes payable
b. Deferred tax liability
c. Financial liabilities held for trading
d. Dividends payable

8. PAS 1 provides that a liability which is due to be settled within twelve months after the reporting
period is classified as current, even if
a. The original term was for a period longer than twelve months.
b. An agreement to refinance or to reschedule payment on a long-term basis is completed after
the reporting period and before the financial statements are authorized for issue.
c. The entity has the discretion to refinance or roll over an obligation for at least twelve months
after the reporting period under an existing loan facility.
d. A liability in which its conditions are breached and the lender has agreed, after the reporting
period and before the statements are authorized for issue, not to demand payment as a
consequence of the breach.

9. Under par. 54 of PAS 1, as a minimum, the face of the Statement of Financial Position shall include
the following line items for current liabilities, except
a. Trade and other payables
b. Contingent Liabilities
c. Current tax liability
d. Short-term borrowings
e. Current provisions
f. Current portion of long-term debt

10. They are obligations which exist at the end of reporting period although the amount is not definite.
a. Estimated liabilities
b. Current liabilities
c. Contingent liabilities
d. Secret liabilities

11. As a general rule, the following are considered current liabilities, except
a. Estimated premium liability
b. Valued Added Tax Payable
c. Total Finance Lease Liability
d. Payroll Liability

12. Under generally accepted accounting principles, premium expense shall be recorded
a. On the year the premium inventory is purchased.
b. On the year the sales revenue is recorded.
c. On the year the coupons are redeemed.
d. On the year the premium inventory is distributed to customers.

13. Under IFRIC 13, an entity shall account for the award credits such as “Advantage Points” as
a. A separately component of the initial sale transaction.
b. Part of the sales revenue.
c. A disclosure in the notes to financial statements.
d. An equity component.

14. Under IFIRC 13, award credits shall be measured at

a. Historical cost
b. Present value
c. Fair value
d. Face value

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15. How shall the award credits recognized as deferred revenue be realized into revenue?
a. Retrospectively by adjusting to retained earnings.
b. Prospectively based on the number of award credits that have been redeemed relative to the
total number expected to be redeemed.
c. Retrospectively based on the number of award credits that have been redeemed relative to the
total number expected to be redeemed.
d. Prospectively based on the number of award credits that have been redeemed relative to the
total number of award credits received.

16. Under generally accepted accounting principles, warranty expense shall be recorded on
a. The year the warranty is performed.
b. The year the professional who will perform the repair is called.
c. The year the warranty is paid.
d. The year the sales revenue is recorded.

17. Accounting changes pertaining to warranty and premium liability shall be treated as
a. Prospectively as a change in accounting policy
b. Retrospectively as a change in accounting policy
c. Retrospectively as a prior period error
d. Prospectively as a change in accounting estimate

18. PAS 37 defines it as an existing liability of uncertain timing or uncertain amount.

a. Contingent liability
b. Estimated liability
c. Contingent asset
d. Provision

19. PAS 37, par. 11, states that a provision can be distinguished from other liabilities in
a. Its presentation as current liability.
b. Its measurement at amortized cost
c. The sense that there is uncertainty about the timing or amount of the future expenditure
required for settlement.
d. The sense that it is a probable obligation of an entity.

20. PAS 37, par. 14, provides that a provision shall be recognized as a liability in the financial statements
under the following conditions, except
a. The entity has a present obligation, legal or constructive, as a result of a past event.
b. It is an existing liability of uncertain timing and uncertain amount.
c. It is probable that an outflow of resources embodying economic benefits would be required to
settle the obligation.
d. The amount of the obligation can be measured reliably.

21. It is an obligation arising from a contract, legislation or other operation of law.

a. Constructive obligation
b. Contractual obligation
c. Legal obligation
d. Legislative obligation

22. A constructive obligation is an obligation that is derived from an entity’s actions where:
I. The entity has indicated to other parties that it will accept certain responsibilities by reason of an
established pattern of past practice, published policy, or a sufficiently specific current statement.
II. The entity has created a valid expectation on the part of other parties that it will discharge those
responsibilities.
a. I only
b. II only
c. Either I or II
d. Both I and II

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23. It is an event that creates a legal or constructive obligation because the entity has no realistic
alternative but to settle the obligation created by the event.
a. Constructive event
b. Legal event
c. Future event
d. Obligating event

24. When is at outflow of resources considered “probable”?

a. When the event is unlikely to occur.
b. When the event is more likely than not to occur.
c. When the possibility of occurrence is 50%.
d. When it is certain that the event will occur.

25. PAS 37, par. 25, provides that the use of estimates is an essential part of the preparation of financial
statements and does not undermine their reliability. In the case of provision, what amount shall be
recognized?
a. The worst estimate of the expenditure required to settle the present obligation at the end of
reporting period.
b. The amount that an entity would rationally pay to settle the obligation at the end of reporting
period or to transfer it to a third party at that time.
c. The estimates of outcome are determined by the provisions of PAS 37.
d. The estimates of outcome cannot use the judgment of management of the entity even if
supplemented by experience of similar transactions and reports from independent experts.

26. When there is a continuous range of possible outcomes and each point in that range is as likely as any
other, what point of the range is used as amount of the provision?
a. Any point in the range
b. Highest point in the range
c. Lowest point in the range
d. Mid-point in the range

27. It is statistical method of estimation wherein the obligation is estimated by weighing all possible
outcomes by their associated possibilities.
a. Sample method
b. Expected value method
c. Mathematical method
d. Percentage method

28. Where the effect of the time value of money is material, the amount of provision shall be the present
value of the expenditure to settle the obligation. What discount rate and cash flow shall be used in
determining the present value of obligation?
a. Pre-tax discount rate and pre-tax cash flows
b. Post-tax discount rate and post-tax cash flows
c. Pre-tax discount rate and post-tax cash flows
d. Post-tax discount rate and pre-tax cash flows

29. The following items shall be taken account in measuring a provision, except
a. Risks and uncertainties that inevitably surround events and circumstances.
b. Future events where there is a sufficient evidence that they will occur.
c. Discounting of a provision when the effect is material.
d. Gains from expected disposal of assets.

30. Provisions shall be reviewed at every end of the reporting period and adjusted to reflect the current
best estimate. The change shall be treated
a. Retroactively as a prior-period adjustment
b. Prospectively as a change in accounting policy
c. Retrospectively as a change in accounting estimate
d. Prospectively as a change in accounting estimate

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31. The following statements concerning the measurement of a provision are correct, except
a. Where some or all of the expenditure required to settle a provision is expected to be reimbursed
by another party, the reimbursement shall be recognized when it is virtually certain that
reimbursement would be received if the entity settles the obligation.
b. A provision shall be used only for expenditures for which the provision was originally
recognized.
c. Provision shall be recognized for future operating losses.
d. Cash inflows from the expected disposal of assets are treated separately from the measurement
of the provision.

32. Under PAS 37, it is a contract in which the unavoidable costs of meeting the obligation under the
contract exceed the economic benefits expected to be received under it.
a. Bilateral contract
b. Commutative contract
c. Preparatory contract
d. Bilateral contract

33. If an entity has an onerous contract, the present obligation under the contract shall be recognized and
measured as a provision. PAS 37 mandates that unavoidable costs under a contract represent the
“least net cost of exiting from the contract” which is the
a. Cost of fulfilling the contract.
b. Compensation or penalty arising from the failure to full the contract.
c. Lower between the cost of fulfilling the contract and the compensation or penalty arising from
failure to fulfill the contract.
d. Higher between the cost of fulfilling the contract and the compensation or penalty arising from
failure to fulfill the contract.

34. The following are examples of a provision, except

a. Provision for environmental contamination
b. Provision for lawsuit
c. Provision for guarantee
d. Provision for goodwill

35. It refers to an obligation to dismantle, remove or restore an item of property, plant and equipment as
required by law or contract.
a. Provision for lawsuit
b. Provision for decommissioning or abandoning cost
c. Provision for guarantee
d. Provision for environmental contamination

36. Under IFRIC 1, changes in the measurement of an existing decommissioning liability shall be
accounted for as follows:
I. A decrease in the liability is deducted from the cost of the asset. If the decrease in liability exceeds
the carrying amount, the excess is recognized in profit or loss.
II. An increase in liability is added to the cost of the asset. However, the entity shall consider whether
this is an indication that the carrying amount of the asset may not be fully recoverable. If there is
such an indication, the asset should be tested for impairment.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

37. PAS 37 defines it as a “program that is planned and controlled by management and materially changes
either the scope of a business of an entity or the manner in which that business is conducted.”
a. Retrenchment
b. Restructuring
c. Reorganization
d. Relocation

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38. The following are events that may qualify as restructuring, except
a. Sale or termination of a line of business.
b. Closure of business location in a region or relocation of business activities from one location to
another or relocation of headquarters from one country to another.
c. Change in management structure, such as elimination of a layer of management or making all
functional units autonomous.
d. Fundamental reorganization of an entity that has a material and significant impact on its
operations.
e. Extinguishment of Bonds Payable using cash and cash equivalents.

39. A constructive obligation for restructuring shall be recognized when:

I. The entity has a detailed formal plan for the restructuring outlining at least the business or part of
the business being restructured.
II. The entity has raised valid expectation in the minds of those affected that the entity will carry out
the restructuring by starting to implement the plan and announcing its main features to those
affected by it.
a. I only
b. II only
c. Either I or II
d. Both I and II

40. A restructuring provision shall include the following, except

a. Direct expenditures arising from restructuring
b. Salaries of employees to be incurred after operations cease
c. Employee benefits associated with the closure of operations
d. Future operating losses

41. PAS 37 specifically excludes the following expenditures from restructuring provision, except
a. Expenditures that are necessarily incurred for restructuring
b. Cost of retraining or relocating continuing staff
c. Marketing or advertising program to promote the new company image
d. Investment in new system and distribution network

42. PAS 37, par. 10, defines a contingent liability as

I. It is a probable obligation that arises from past event and whose existence will be confirmed only
by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the
control of the entity.
II. It is a present obligation that arises from past event but is not recognized because it is not
probable that an outflow of resources embodying economic benefits will be required to settle the
obligation or the amount of the obligation cannot be measured reliably.
a. I only
b. II only
c. Either I or II
d. Neither I nor II

43. A contingent liability shall not be recognized in the financial statements but shall be disclosed only.
The required disclosures for contingent liability under PAS 37 are, except
a. Brief description of the nature of the contingent liability
b. An estimate of its financial effects and indication of the uncertainties that exist
c. Possibility of any reimbursement
d. Amount recognized and presented in the statement of financial position

44. Which of the following statements concerning the recognition of liability is incorrect?
a. When the outcome is probable, the entity shall accrue the liability.
b. When the outcome is reasonably possible, the entity shall disclose the liability.
c. When the outcome is remote, the entity shall not accrue nor disclose the liability.
d. When the outcome is reasonably possible, it is a provision and not contingent liability.

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45. Which of the following statements concerning the recognition of asset is incorrect?
a. When the outcome is probable, the entity shall disclose the asset.
b. When the outcome is virtually certain, the entity shall accrue the asset.
c. When the outcome is reasonably possible, the entity shall disclose the asset.
d. When the outcome is remote, the entity shall not accrue nor disclose the asset.

46. PAS 37, par. 10, defines it as a possible asset that arises from past event and whose existence will be
confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly
within the control of the entity.
a. Probable asset
b. Accrued asset
c. Contingent asset
d. Virtual asset

47. It is a formal unconditional promise, made under seal, to pay a specified sum of money at a
determinable future date, and to make periodic interest payment at a stated rate until the principal
sum is paid.
a. Bond
b. Promissory note
c. Bills of exchange
d. Check

48. It refers to the document which shows in detail the terms of the loan and the rights and duties of the
borrower and other parties to the contract. It is also known as the contract the bondholders and the
borrower or issuing entity.
a. Shares of stock
b. Deed of sale
c. Certificate of title
d. Bond indenture

49. Which of the following statements pertains to serial bonds?

a. Bonds with a single date of maturity.
b. Bonds with a series of maturity dates instead of a single one.
c. Bonds secured by a mortgage on real properties.
d. Bonds secured by stocks and bonds of other corporation

50. Which of the following statements pertains to junk bonds?

a. They are high-risk, high-yield bonds issued by entities that are heavily indebted or otherwise in
weak financial condition.
b. They are bonds which may be called in for redemption prior to maturity date.
c. They are bonds issued whereby another party promises to make payment if the borrower fails
to do so.
d. They are bonds that can be exchanged for shares of the issuing entity.

51. It refers to the rate appearing on the face of the bond certificate or it is that interest which the issuing
entity periodically pays to the buyer or bondholder.
a. Effective interest rate
b. Nominal rate
c. Yield rate
d. Prevailing market rate

52. After initial recognition, bonds payable shall be measured at

a. Amortized cost using straight line method
b. Fair value plus transaction cost
c. Face value
d. Amortized cost using effective interest method

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53. When the bonds are issued at face value, which of the following statements is false?
a. The issue price is equal to the amount appearing on the face of the bonds.
b. The nominal interest rate is equal to effective interest rate.
c. The interest paid is equal to interest expense.
d. There is amortization of discount or premium.

54. When the bonds are issued at premium, which of the following statements is proper?
a. The nominal interest rate is lower than effective interest rate.
b. The issue price is higher than face value of the bonds.
c. The interest paid is lower than actual interest expense.
d. The amortization of premium increases the interest expense.

55. When the bonds are issued at discount, which of the following statements is proper?
a. The effective interest rate is lower than nominal interest rate.
b. The issue price is higher than face value of the bonds.
c. The amortization of discount decreases the interest expense.
d. The amortization of discount increases the carrying value of Bonds Payable.

56. How shall the gain or loss from retirement of bonds payable prior to maturity be computed?
a. Fair value of bonds payable less retirement price
b. Face value of bonds payable less retirement price
c. Carrying value of bonds payable less retirement price
d. Fair value of bonds payable less carrying value of bonds payable

57. The gain or loss arising from retirement of bonds payable shall be presented as part of
a. Income from continuing operations in profit or loss
b. Income from discontinued operations in profit or loss
c. Other comprehensive income
d. Statement of changes in equity

58. When a bonds payable is retired, which of the following is proper?

a. Bonds payable account is credited
b. Unamortized discount on bonds payable is credited
c. Unamortized premium on bonds payable is credited
d. Cash is debited

59. What is the proper treatment of bond issue costs or transaction costs?
a. Treat as outright expense as incurred.
b. Recognized as a current asset.
c. Amortize over the life of the bond in a manner similar to a premium on bonds payable
d. Amortize over the life of the bond in a manner similar to a discount on bonds payable

60. These are an entity’s own bonds originally issued and reacquired but not cancelled.
a. Junk bonds
b. Registered bonds
c. Treasury bonds
d. Redeemable bonds

61. It is the rate the exactly discounts estimated cash future payments through the expected life of the
bonds payable or when appropriate, a shorter period to the net carrying amount of the bonds payable.
a. Effective rate
b. Coupon rate
c. Nominal rate
d. Stated rate

62. How is effective interest expense computed?

a. Face value times effective interest rate
b. Book value times stated rate
c. Fair value times stated rate
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 d. Book value times effective interest rate
63. Which of the following statements concerning amortization of premium or discount on bonds payable
is incorrect?
a. The effective interest expense increases as the time passes by when the bonds are issued at a
discount.
b. The effective interest expense decreases as the time passes by when the bonds are issued at a
premium.
c. The amortization of discount increases as the time passes by.
d. The amortization of premium decreases as the time passes by.

64. PAS 32, par. 28, defines it as a financial instrument that contains both a liability and an equity
element from the perspective of the issuer.
a. Combine financial instrument
b. Complex financial instrument
c. Compound financial instrument
d. Composite financial instrument

65. What is the proper treatment of compound financial instrument?

a. The liability and equity component shall be accounted separately in accordance with the
substance of the contractual arrangement and the definition of a financial liability and an
equity.
b. The whole instrument shall be treated as a financial liability or equity instrument at the option
of the holder.
c. The whole instrument shall be treated as a financial liability or equity instrument at the option
of the issuer.
d. The whole instrument shall be treated as a financial liability.

66. When bonds payable are issued with detachable share warrants, how shall the issue price be
allocated?
a. The issue price shall be allocated pro-rata to liability component and equity component based
on their relative fair value.
b. The issue price shall be allocated pro-rata to liability component and equity component based
on their book value.
c. The issue price shall be allocated first to the fair value of equity component and the remainder
of issue price to liability component.
d. The issue price shall be allocated first to the fair value of liability component ex-warrant and
the remainder of issue price to equity component.

67. When bonds payable are issued with non-detachable share warrants, how shall the issue price be
allocated when the fair market value of bonds ex-warrants is unknown?
a. The issue price shall be treated wholly as bonds payable.
b. The issue price shall be treated wholly as share warrants.
c. The issue price shall be allocated first to the fair value of equity component and the remainder
of issue price to liability component.
d. The issue price shall be allocated first to the liability component as the present value of
principal bond liability plus the present value of future interest payments using effective
interest rate for similar bonds without the warrants and the remainder of issue price to the
share warrants.

68. PAS 17 defines it as an agreement whereby the lessor conveys to the lease in return for a payment or
series of payments the right to use an asset for an agreed period of time.
a. Joint venture
b. Lease
c. Concession
d. Consignment

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69. What is the proper treatment of lease payments under an operating lease on the part of the lessee or
lessor?
a. They shall be recognized as an expense or revenue on a straight line basis over the lease term
unless systematic basis is more representative of the time patter of the user’s benefit.
b. They shall be recognized as an expense and revenue based on the provisions of the lease
contract.
c. They shall be recognized as an expense and revenue based on the payments or collections of
the contracting parties.
d. They shall be recognize as an expense and revenue using effective interest method of
amortization.

70. What is the proper treatment of lease bonus in addition to the periodic rental under an operating
leases on the part of the lessor?
a. It is treated as prepaid rent expense to be amortized over the lease term.
b. It is treated as prepaid rent expense to be amortized over the useful life of the leased asset.
c. It is treated as unearned rent revenue to be amortized over the lease term.
d. It is treated as unearned rent revenue to be amortized over the useful life of the leased asset.

71. The following statements concerning leasehold improvements made by the lessee under operating
lease are correct, except
a. Leasehold improvements made by the lessee shall be depreciated over the life of the
improvement or lease term, whichever is shorter.
b. Legally, the leasehold improvement becomes the property of the lessor upon the expiration of
the lease term.
c. Depreciation of leasehold improvements is recorded on the book of the lessee because they are
considered assets of the lessee.
d. The residual value of the leasehold improvement is considered in computing the depreciation,
especially when it is material.

72. What is the proper treatment of initial direct costs incurred by the lessor under operating lease?
a. They are expensed as incurred by the lessor.
b. They are presented as deferred charge to be amortized over the useful life of the leased asset or
lease term whichever is shorter.
c. They are capitalized as part of leased asset and to be depreciated over the useful life of the
leased asset.
d. They are capitalized as part of leased asset and to be depreciated over the leased term.

73. As a general rule, the lessor shall bear executory costs under operating lease. What is the proper
treatment of executory costs?
a. Capitalize as part of leased asset
b. Expense as incurred
c. Recognize as deferred charge
d. Recognize as prepaid rent

74. Any security deposit refundable upon the lease expiration shall be treated by the lessee as
a. Noncurrent liability
b. Current liability
c. Noncurrent asset
d. Current asset

75. The following income or expense items appear in the book of the lessor, except
a. Rent revenue
b. Executory cost
c. Depreciation of leasehold improvement
d. Amortization of initial direct cost

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76. What is the proper treatment of unequal rental payments under operating lease?
a. They shall be recognized as expense or revenue based on the payment or collection.
b. They shall be recognized as expense or revenue based on the provisions of the contract.
c. They shall be recognized as expense or revenue using effective interest method of amortization.
d. They shall be recognized as expense or revenue on a straight line basis over the lease term
unless another systematic basis is representative of the time pattern of the user’s benefits.

77. It is an arrangement whereby one party sells a property to another party and then immediately leases
the property back from its new owner.
a. Finance lease
b. Direct finance lease
c. Sale and leasaback
d. Sales-type lease

78. PAS 17 provides the following rules if the leaseback is an operating lease, except
a. If the sale and leaseback is clearly established at fair value, the loss on sale and leaseback is
recognized immediately but the gain shall be deferred and amortized over the lease term.
b. If the sales price is below fair value, any gain or loss on sale and leaseback shall be recognized
immediately.
c. If the sales price is below fair value, any loss is deferred and amortized in proportion to the
lease payments over the period for which the asset is expected to be used if the loss is
compensated by future lease rental at below market value.
d. If the sales price is above fair value, the excess of price over fair value is deferred and amortized
over the period for which the asset is expected to be used.

79. Which of the following statements is the proper treatment of gain or loss on sale and leaseback if the
leaseback is a finance lease?
a. Any gain or loss on sale and leaseback is immediately recognized.
b. Any gain or loss on sale and leaseback is deferred and amortized over the lease term.
c. Any gain is immediately recognized and any loss is deferred and amortized over the lease term.
d. Any loss is immediately recognized and any gain is deferred and amortized over the lease term.

80. The following are required disclosures for operating lease on the part of the lessor, except
a. Implicit rate or incremental borrowing rate used by the lessor.
b. Future minimum lease payments under noncancelable operating lease in the aggregate for not
later than one year, later than one year but not later than 5 years and later than 5 years.
c. Contingent rents recognized as income in the period.
d. A general description of the lessor’s leasing arrangement.

81. PAS 17 defines it as a lease that transfers substantially all the risks and rewards incident to
ownership of an asset.
a. Finance lease
b. Capital lease
c. Operating lease
d. Sale and leaseback

82. Under PAS 17, a lease is a finance lease or an operating leases based on the
a. Form of the contract rather than the substance of the transaction.
b. Substance of the transaction rather than the form of the contract.
c. Provisions of the Civil Code rather than the substance of the transaction.
d. Provisions of the Civil Code rather than the form of the contract.

83. Under PAS 17, any of the following situations would normally lead to a lease being classified as a
finance lease, except
a. The lessee transfers ownership of the leased asset to the lessee at the end of the lease term.
b. The lessee has bargain purchase option.
c. The lease term is at least 50% of the economic life of the asset even if the title is not
transferred.
d. The present value of minimum lease payment amounts to 90% of the fair value of the lease
asset at the inception of the lease.
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84. The following are the other criteria that individually or in combination could also lead to a lease being
classified as finance lease, except
a. The leased asset is of such specialized nature that only the lessee can use it without major
modification.
b. If the lessee can cancel the lease, the lessor’s losses associated with the cancellation are borne
by the lessee.
c. Gains or losses from the fluctuation in the fair value of the residual accrue to the lessee.
d. The lessee has the ability to continue the lease for a secondary period at a rent that is
substantially higher than market rent.

85. PAS 17 provides that a cancelable lease is deemed noncancelable and thus classified as finance lease,
when, except
a. The lease can be canceled only upon the occurrence of some remote contingency.
b. The lease can be canceled without the permission of the lessor.
c. The lessee, upon cancellation, enters into a new lease for the same or equivalent asset with the
same lessor.
d. The lease can be cancelled only upon payment of an additional amount or penalty of such
magnitude that the lessee shall be discouraged from canceling the lease.

86. The following statements pertain to the inception of the lease, except
a. It is the date which the lessee is entitled to exercise its right to use the leased asset and
consequently the initial recognition of the assets, liabilities, income or expenses resulting from
the lease.
b. It is the earlier of the date of the lease agreement and the date of commitment by the parties to
the principal provisions of the lease.
c. It is the date when a lease is classified as either an operating lease or a finance lease.
d. It is the date when the amounts to be recognized are determined for a finance lease.

87. PAS 17 as amended provided the following rules concerning a land and building lease, except
a. A land with an indefinite economic life normally is classified as an operating lease unless at the
end of the lease term title is expected to pass to the lessee.
b. A land lease with a lease term of several decades or longer may be classified as finance lease
even if title will not pass to the lessee at the end of the lease term.
c. When a lease includes both land and building, an entity should determine the classification of
land lease and building lease based on the classification criteria taking into account the fact
that land normally has an indefinite economic life.
d. If the lease payments cannot be allocated reliably between the land lease and building lease,
the entire lease is classified as a finance lease, unless it is clear that both elements are
operating leases.

88. PAS 17 as amended provides that separate measurement of land and building elements is not required
when the lessee’s interest in both land and building is classified as investment property. How shall the
minimum lease payments be allocated between the land and building components?
a. In proportion to the relative book value of the leasehold interests in the land and building
elements at the inception of the lease.
b. In proportion to the relative cost of the leasehold interests in the land and building elements at
the inception of the lease.
c. In proportion to the relative recoverable amount of the leasehold interests in the land and
building elements at the inception of the lease.
d. In proportion to the relative fair value of the leasehold interests in the land and building
elements at the inception of the lease.

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89. If the lease is classified as a finance lease, how much is the amount initially recognized as leased asset
and lease liability on the part of the lessee in case of the absence of initial direct cost?
a. Book value of the leased property at the inception of the lease or the present value of minimum
lease payments, whichever is lower.
b. Fair value of the leased property at the inception of the lease or the present value of minimum
lease payments, whichever is higher.
c. Book value of the leased property at the inception of the lease or the present value of minimum
lease payments, whichever is higher.
d. Fair value of the leased property at the inception of the lease or the present value of minimum
lease payments, whichever is lower.

90. In calculating the present value of the minimum lease payments, the discount factor is the interest
rate implicit in the lease, if this is practicable to determine. Otherwise, the lessee’s incremental
borrowing rate is used. Which of the following is the definition of implicit rate in the lease?
a. It is the discount rate that causes the aggregate present value of the minimum lease payment
and the unguaranteed residual value equal to the fair value of the leased asset and initial
direct cost of the lessor.
b. It is the discount rate that causes the aggregate present value of the minimum lease payment
and the unguaranteed residual value equal to the fair value of the leased asset and initial
direct cost of the lessee.
c. It is the rate of interest that the lessee would have to pay on a similar lease.
d. It is the rate the lessee would incur by borrowing funds to purchase the asset over a similar
term and similar security.

91. The following can be considered part of minimum lease payments, except
a. Periodic rental payments required during the lease term.
b. Contingent rent and executory costs.
c. Any payment required under a bargain purchase option.
d. Any guaranteed residual value made by the lessee or party related to the lessee in the absence
of bargain purchase option.

92. What is the proper treatment of initial direct costs incurred by the lessee under a finance lease?
a. They are expensed as incurred.
b. They are amortized over the lease term.
c. They are capitalized as part of the amount recognize as an asset under the lease.
d. They are part of the lease liability.

93. Under finance lease, if there is reasonable certainty that the lessee will obtain ownership by the end of
the lease term such as when there is transfer of ownership or when there is bargain purchase option,
how shall the depreciation on the leased asset be computed?
a. Depreciation is based on the lease term.
b. Depreciation is based on the useful life of the leased asset.
c. Depreciation is based on the lease term or useful life of the leased asset, whichever is shorter.
d. Depreciation is based on the lease term or useful life of the leased asset, whichever is longer.

94. If there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term
such as when the finance lease qualifies under the 75% and 90% criteria, how shall the depreciation
on the leased asset be computed?
a. Depreciation is based on the lease term.
b. Depreciation is based on the useful life of the leased asset.
c. Depreciation is based on the lease term or useful life of the leased asset, whichever is shorter.
d. Depreciation is based on the lease term or useful life of the leased asset, whichever is longer.

95. Under a finance lease, effective interest method of amortization is used. The interest expense incurred
by the lessee is
a. Increasing throughout the lease term.
b. Decreasing throughout the lease term.
c. Equal throughout the lease term.
d. Cannot be determined without proper data.

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96. Under a finance lease, the current portion of total lease liability at the end of the first year is
a. Periodic rental payment on the 2nd year.
b. Periodic rental payment on the 1st year.
c. Periodic rental payment on the 2nd year less the interest expense on the 1 st year.
d. Periodic rental payment on the 2nd year less the interest expense on the 2nd year.

97. Under a finance lease, the noncurrent portion of total lease liability at the end of 2 nd year is
a. Total lease liability at the end of 2nd year minus the periodic rental payment on the 3rd year.
b. Total lease liability at the end of 2nd year.
c. Total lease liability at the end of 3rd year.
d. Total lease liability at the end of 4th year.

98. If there is bargain purchase option, the lease liability at the end of the lease term is equal to the
bargain purchase option. However, if the bargain purchase option is not exercised, the lessee shall
a. Recognize loss equal to the difference between the fair value of the leased asset and the lease
liability.
b. Recognize loss equal to the difference between the carrying amount of the leased asset and the
lease liability.
c. Recognize gain equal to the difference between the fair value of the leased asset and the
carrying amount of the leased asset.
d. Recognize loss equal to the difference between the fair value of the leased asset and the
carrying amount of the leased asset.

99. If there is guaranteed residual value by the lessee, the remaining amount of the asset at the end of the
lease term should be equal to the guaranteed residual value. However, if the fair value of the leased
asset is less than the guaranteed residual value, the lessee shall
a. Not account for the difference.
b. Report a gain on the difference.
c. Make up for the difference with a cash payment and report a loss on the difference.
d. Recognize a prepaid asset.

100. If there is guaranteed residual value by the lessee, the remaining amount of the asset at the
end of the lease term should be equal to the guaranteed residual value. However, if the fair value of the
leased asset is less than the guaranteed residual value, the lessee shall
a. Not account for the difference.
b. Report a gain on the difference.
c. Make up for the difference with a cash payment and report a loss on the difference.
d. Recognize a prepaid asset.

101. When an entity actually purchases an asset that it has been leasing under a finance lease, the
cost of the asset purchased is equal to
a. Fair value of the asset purchased.
b. Carrying amount of the leased asset plus cash payment plus the balance of the lease liability.
c. Carrying amount of the leased asset minus cash payment plus the balance of the lease liability.
d. Carrying amount of the leased asset plus cash payment minus the balance of the lease liability.

102. Under a direct financing lease, the following statements on the part of the lessor are proper,
except
a. Gross investment or gross lease receivable is equal to the gross rentals for the entire lease term
plus the absolute amount of the residual value, whether guaranteed or unguaranteed.
b. Net investment is equal to the cost of the asset minus the initial direct cost paid by the lessor.
c. Unearned interest income or total financial revenue is the difference between the gross
investment and net investment in the lease.
d. Initial direct cost paid by the lessor is added to the cost of the asset to get the net investment in
the lease.

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103. Which of the following is the effect of initial direct cost incurred by the lessor?
a. It will decrease the net investment of the lessor.
b. It will increase the total financial revenue of the lessor.
c. It will increase the gross investment or gross receivable.
d. It will decrease the implicit interest rate.

104. Under a direct financing lease, if the leased asset will revert back to the lessor at the end of the
lease term, the gross receivable or gross investment
a. Will not include the residual value of the leased asset when unguaranteed.
b. Will include the residual value of the leased asset, whether guaranteed or unguaranteed.
c. Will not include the residual value of the leased asset, whether guaranteed or unguaranteed.
d. Will only include the residual value of the leased asset when it is guaranteed.

105. Under a direct financing lease, if the leased asset will not revert back to the lessor at the end of
the lease term, the gross receivable or gross investment
a. Will not include the residual value of the leased asset when unguaranteed.
b. Will include the residual value of the leased asset, whether guaranteed or unguaranteed.
c. Will not include the residual value of the leased asset, whether guaranteed or unguaranteed.
d. Will only include the residual value of the leased asset when it is guaranteed.

106. The main difference of a sales type lease and direct financing lease on the part of the lessor is
a. The computation of gross investment or gross lease receivable
b. The use of implicit rate before incremental borrowing rate
c. The computation of unearned interest income
d. The existence of manufacturer’s profit on sales type lease

107. Under a sales type lease, the following statements are proper on the part of the lessor, except
a. The amount of sales is equal to the amount of the net investment in the lease or fair value of
the asset, whichever is higher.
b. The amount of gross investment is equal to the gross rentals for the entire lease term plus the
absolute amount of the residual value whether guaranteed or unguaranteed.
c. Net investment in the lease is equal to the present value of the gross rentals plus the present
value of the residual value, whether guaranteed or unguaranteed.
d. Unearned interest income or total financial revenue is the differene between the gross
investment and net investment in the lease.

108. Under a sales type lease, the initial direct cost paid by the lessor
a. Forms part of gross lease receivable.
b. Decreases the unearned interest income.
c. Forms part of the cost of sales.
d. Increases the profit on sale.

109. Under a sales type lease, the following amounts on the part of the lessor are the same
regardless of whether the residual value is guaranteed or unguaranteed, except
a. Sales and cost of sales
b. Gross lease receivable
c. Unearned interest income
d. Profit on sale

110. When a lessor actually sells an asset that it has been leasing under a finance lease, the lessor
shall
a. Not account for any gain or loss on actual sale.
b. Recognize in profit or loss the difference between the selling price and the face value of the
lease receivable.
c. Recognize in profit or loss the difference between the selling price and the carrying amount of
the lease receivable.
d. Recognize in profit or loss the difference between the selling price and the fair value of the asset
leased.

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111. PAS 12 provides that deferred tax accounting is applicable to
I. Public entities
II. Non-public entities
a. I only
b. II only
c. Neither I nor II
d. Both I and II

112. Which of the following statements is incorrect?

I. Accounting Income or financial income is the net income for the period before deducting income
tax expense.
II. Taxable income is the income for the period determined in accordance with the rules established
by the taxation authorities upon which income taxes are payable or recoverable.
a. Neither I nor II
b. Both I and II
c. I only
d. II only

113. PAS 12 enumerates two types of differences between accounting income and taxable. Those are
a. Real differences and nominal differences
b. Permanent and temporary differences
c. Primary and secondary differences
d. Qualitative and quantitative differences

114. These are items of revenue and expense which are included in either accounting income or
taxable income but will never be included in the other.
a. Real differences
b. Nominal differences
c. Permanent differences
d. Temporary differences

115. Permanent differences do not give rise to deferred tax asset and liability because they have no
future tax consequences. The following are examples of permanent differences, except
a. Interest income on deposits
b. Dividends received
c. Tax penalties, surcharges and fines
d. Life insurance premium when the family of the company officer is the beneficiary

116. These are differences between the carrying amount of an asset or liability and its tax base and
they include timing differences between accounting income and taxable income that originate in one
period and reverse in one or more subsequent periods.
a. Real differences
b. Nominal differences
c. Permanent differences
d. Temporary differences

117. Temporary differences give rise either to a deferred tax asset or deferred tax liability. The two
kinds of temporary difference are
I. Taxable temporary difference is the temporary difference that will result in future taxable amount
in determining taxable income of future periods when the carrying amount of the asset or liability
is recovered or settled.
II. Deductible temporary difference is the temporary difference that will result in future deductible
amount in determining taxable income if future periods when the amount of the asset or liability is
recovered or settled.
a. Both I and II
b. I only
c. II only
d. Neither I nor II

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118. It refers to the amount of income tax payable in future periods with respect to a taxable
temporary difference or it is the deferred tax consequence attributable to a taxable temporary
difference or future taxable amount.
a. Deferred tax liability
b. Deferred tax asset
c. Income tax payable
d. Prepaid income tax

119. A deferred tax liability arises from the following, except

a. When the accounting income is higher than taxable income.
b. When the carrying amount of an asset is lower than its tax base.
c. When the carrying amount of a liability is lower than its tax base.
d. When the tax base of an asset is lower than its carrying amount.

120. It is the amount of asset or liability that is recognized or allowed for tax purposes.
a. Carrying amount
b. Book value
c. Tax base
d. Law base

121. The following are examples of future taxable amounts which will result to deferred tax liability,
except
a. Development cost capitalized and amortized over future periods in determining taxable income
in the period in which it is paid.
b. Straight line depreciation for tax purposes and accelerated depreciation for accounting
purposes.
c. Installment sales
d. Prepaid expenses which are already deducted on a cash basis in determining taxable income of
the current period.

122. The following are other taxable temporary differences that technically are not timing differences
but nevertheless give rise to deferred tax liability, except
a. Asset is revalued upward and no equivalent adjustment is made for tax purposes.
b. An impairment loss is recognized for accounting purposes but ignored for tax purposes until
the asset is sold.
c. The carrying amount of investment in subsidiary, associate or joint venture is higher than its
tax base because the subsidiary, associate or joint venture has not distributed its entire
income to the parent or investor.
d. The cost of a business combination that is accounted for as purchase is allocated to the
identifiable assets and liabilities acquired at fair value and no equivalent adjustments is made
for tax purposes.

123. What is the recognition principle of deferred tax liability under PAS 12?
a. Deferred tax liability shall be recognized for all deductible temporary differences.
b. Deferred tax liability shall be recognized for all deductible temporary differences when it is
probable that taxable income will be available against which the deferred tax liability can be
used.
c. Deferred tax liability shall be recognized for all taxable temporary differences.
d. Deferred tax liability shall be recognized for all taxable temporary differences when it is
probable that accounting income will be available against which the deferred tax liability can
be used.

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124. PAS 12 provides that a deferred tax liability is not recognized when the taxable temporary
difference arises from the following, except
a. Accelerated depreciation for tax purposes and straight line depreciation for accounting
purposes.
b. Goodwill resulting from a business combination and which is nondeductible for tax purposes.
c. Initial recognition of an asset or liability in a transaction that is not a business combination
and affects neither accounting income nor taxable income.
d. Undistributed profit of subsidiary, associate or joint venture when the parent, investor or
venturer is able to control the timing of the reversal of the temporary difference and it is
probable that the temporary difference will not reverse in the foreseeable future.

125. It is the amount of income tax recoverable in future periods with respect to deductible
temporary difference and operating loss carryforward.
a. Deferred tax asset
b. Deferred tax liability
c. Income tax payable
d. Prepaid tax asset

126. A deferred tax asset is the deferred tax consequence attributable to a future deductible amount
and operating loss carryforward. A deferred tax asset arises from the following, except
a. When the taxable income is lower than accounting income because of timing difference.
b. When the tax base of asset is higher than its carrying amount.
c. When the tax base of a liability is lower than its carrying amount.
d. When the accounting income is lower than taxable income because of timing difference.

127. The following items will result to deferred tax asset, except
a. Rent received in advance is taxable at the time of receipt but deferred in future periods for
accounting purposes.
b. A probable and measurable litigation loss is recognized for accounting purposes but deducted
in determining taxable income when actually incurred or paid.
c. Development cost capitalized and amortized over future periods in determining accounting
income but deducted in determining taxable income in the period in which it is paid.
d. Estimated product warranty cost is recognized for accounting purposes in the current period
but deducted in determining taxable income when actually incurred or paid.

128. What is the recognition principle of deferred tax asset?

a. Deferred tax asset shall be recognized for all deductible temporary differences and operating
loss carry forward.
b. Deferred tax asset shall be recognized for all taxable temporary differences when it is probable
that taxable income will be available against which the deferred tax liability can be used.
c. Deferred tax asset shall be recognized for all deductible temporary differences and operating
loss carry forward when it is probable that accounting income will be available against which
the deferred tax asset can be used.
d. Deferred tax asset shall be recognized for all deductible temporary differences and operating
loss carry forward when it is probable that taxable income will be available against which the
deferred tax asset can be used.

129. It refers to an excess of tax deductions over gross income in a year that may be carried forward
to reduce taxable income in a future year.
a. Net loss
b. Operating loss carry forward
c. Other comprehensive loss
d. Discontinued operation loss

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130. What accounting approach is mandated by PAS 12?
I. Income Statement Approach
II. Statement of Financial Position Approach
a. Either I or II
b. Neither I nor II
c. I only
d. II only

131. PAS 12 provides that deferred tax asset and deferred tax liability shall be presented as
a. Current asset or current liability if it will reverse within twelve months.
b. Current asset or current liability.
c. Noncurrent asset or noncurrent liability, regardless of its reversal.
d. Noncurrent asset and noncurrent liability if it will not reverse within twelve months.

132. Current tax liability or income tax payable shall be measured using what tax rate?
a. Tax rate enacted and effective at the end of the reporting period.
b. Tax rate enacted and effective at the previous year.
c. Projected tax rate.
d. Tax rate to be enacted and effective in the next year.

133. How shall the current tax liability or income tax expense be computed?
a. Accounting Income times tax rate
b. Accounting Income subject to tax times tax rate
c. Taxable Income times tax rate
d. Total Income Tax Expense plus Net Deferred Tax Expense

134. How shall the net deferred tax expense be computed?

a. Decrease in deferred tax liability minus the increase in deferred tax asset
b. Current tax expense minus total income tax expense
c. Increase in deferred tax liability minus the decrease in deferred tax asset
d. Current tax expense plus net deferred benefit

135. How shall the total income tax expense be computed?

a. Accounting Income times tax rate
b. Accounting Income subject to tax times tax rate
c. Taxable Income times tax rate
d. Current tax expense minus deferred tax expense

136. Under PAS 1, assets and liabilities shall not be offset unless required or permitted by another
standard. PAS 12 provides that an entity shall offset a deferred tax asset against a deferred tax liability
when:
I. The deferred tax asset and deferred tax liability relate to income taxes levied by the same tax
authority.
II. The entity has a legal enforceable right to set off a current tax asset against a current tax liability.
a. Both I and II
b. Either I or II
c. I only
d. II only

137. The following statements pertain to measurement and presentation of deferred tax liability and
deferred tax asset, except
a. A deferred tax liability or deferred tax asset shall be measured using the tax rate that has been
enacted by the end of the reporting period and expected to apply to the period when the asset
is realized or the liability is settled.
b. A deferred tax asset or deferred tax liability shall be discounted.
c. Deferred tax asset shall be classified as noncurrent asset regardless of reversal period.
d. Deferred tax liability shall be classified as noncurrent liability regardless of reversal period.

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138. Which of the following statements is incorrect?
I. Intraperiod tax allocation is the allocation of income tax expense to the various revenues that
brought about the tax.
II. Interperiod tax allocation is the recognition of a deferred tax asset or deferred tax liability.
a. Neither I nor II
b. Both I and II
c. I only
d. II only

139. It is an unconditional promise in writing made by one person to another, signed by the maker,
engaging to pay on demand or at a fixed or determinable future time a sum certain in money to order
or to bearer.
a. Bill of exchange
b. Promissory note
c. Check
d. Negotiable instrument

140. It is a situation where the creditor, for economic or legal reasons related to the debtor’s
financial difficulties, grants to the debtor concession that would not be granted in a normal business
relationship.
a. Debt conversion
b. Debt extinguishment
c. Debt restructuring
d. Debt liquidation

141. The following are types of debt restructuring, except

a. Liability swap
b. Asset swap
c. Equity swap
d. Modification of terms

142. It is the transfer by the debtor to the creditor of any asset, such as real estate, inventory,
receivables and investment, in full payment of an obligation.
a. Liability swap
b. Asset swap
c. Equity swap
d. Modification of terms

143. PAS 39, par. 41, provides that the gain or loss on debt restructuring through asset swap shall
be presented in the profit or loss. How shall the gain or loss be computed?
a. Carrying amount of the financial liability less fair value of the asset.
b. Carrying amount of the financial liability less fair value of the liability.
c. Carrying amount of the asset less fair value of the asset.
d. Carrying amount of the financial liability less carrying amount of the asset.

144. It is a transaction whereby a debtor and creditor may renegotiate the terms of a financial
liability with the result that the liability is fully or partially extinguished by the debtor issuing equity
instruments to the creditor.
a. Liability swap
b. Asset swap
c. Equity swap
d. Modification of terms

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145. IFRIC 19 provides that when equity instruments issued to extinguish all or part of a financial
liability are recognized initially, an entity shall measure the equity instrument in what order of
priority?
I. Fair value of the financial liability
II. Carrying value of the financial liability
III. Fair value of the equity instrument
a. I-II-III
b. III-I-II
c. II-III-I
d. I-III-II

146. The difference between the carrying amount of the financial liability and the initial
measurement of the equity instrument under equity swap shall be recognized in
a. Profit or loss
b. Share premium
c. Share capital
d. Retained earnings

147. Under equity swap, which of the following statements is false?

a. Share premium will be credited.
b. Gain or loss on debt extinguishment will never arise.
c. Share capital will be credited.
d. The liability account will be debited.

148. PAS 39 provides that a substantial modification of terms of an existing financial liability shall
be accounted for as an extinguishment of the old financial liability and the recognition of a new
financial liability. Under Application Guidance 62 of PAS 39, there is substantial modification of terms
if the gain or loss on extinguishment is
a. At least 5% of the old financial liability
b. At least 20% of the new financial liability
c. At least 10% of the old financial liability
d. At least 10% of the new financial liability

149. In discounting the cash flows of the new financial liability in case of substantial modification of
terms, what rate shall be used?
a. Original nominal rate
b. Prevailing effective interest rate
c. New nominal rate
d. Original effective interest rate

150. In case there is no substantial modification of terms, the entity

a. Shall recognize gain on debt extinguishment.
b. A new liability is assumed by the entity.
c. The old liability is simply continued but with modified interest charges.
d. The difference between the old and new liability shall be credited to retained earnings.

151. They are all forms of consideration given by an entity in exchange for services rendered by
employee.
a. Remuneration
b. Employee benefits
c. Fringe benefits
d. Compensation

152. PAS 19 enumerates the following types of employee benefits, except

a. Short-term employee benefits
b. Fringe benefits
c. Post-employment benefits
d. Termination benefits
e. Long-term employee benefits, other than post-employment benefits

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153. These are employee benefits other than termination benefits which are due to be settled within
twelve months after the end of the period in which the employees rendered the related service.
a. Short-term employee benefits
b. Fringe benefits
c. Post-employment benefits
d. Long-term employee benefits, other than post-employment benefits

154. The following are examples of short-term employee benefits, except

a. Salaries, wages and social security contributions
b. Short-term compensated absences such as paid annual leave and sick leave
c. Profit sharing and bonuses payable within twelve months
d. Nonmonetary benefits, such as medical care, housing, car and free or subsidized goods payable
beyond twelve months

155. The following are the basic accounting principles and practice pertaining to short-term
employee benefits, except
a. Unpaid short-term employee benefits at the end of the accounting period shall be recognized as
accrued expense.
b. Any short-term benefits paid in advance shall be recognized as a prepayment, to the extent,
that it will lead to a reduction in future payments or a cash refund.
c. The cost of the short-term benefits shall be recognized as expense in the period when the
economic benefit is given, except when such cost may be included within the cost of an asset.
d. Actuarial gain or loss is recognized in short-term employee benefits because they are measured
on a discounted basis.

156. What are vesting, accumulating compensated absences?

a. Those that are carried forward and can be used in future periods if the current period’s
entitlement is not used in full and entitle employees to a cash payment for unused entitlement
on leaving the entity.
b. Those that are not carried forward and can be used in future periods if the current period’s
entitlement is not used in full and do not entitle employees to a cash payment for unused
entitlement on leaving the entity.
c. Those that are carried forward and can be used in future periods if the current period’s
entitlement is not used in full and do not entitle employees to a cash payment for unused
entitlement on leaving the entity.
d. Those that are not carried forward and can be used in future periods if the current period’s
entitlement is not used in full and entitle employees to a cash payment for unused entitlement
on leaving the entity.

157. When shall liability from profit-sharing and bonus plans be recognized?
a. When the entity has paid for the profit-sharing and bonus plans.
b. When the entity has a future obligation to make such payments.
c. When the entity cannot reliably estimate the amount of obligation.
d. When the entity has a present or constructive obligation to make such payments as a result of
past events and a reliable estimate of the obligations can be made.

158. These employee benefits are those which are payable after completion of employment, other
than termination benefits.
a. Retirement benefits, such as pensions
b. Post-employment life insurance
c. Long-term employee benefits
d. Post-employment medical care

159. These are formal and informal arrangements under which an entity provides post-employment
benefits for one or more years.
a. Post-employment benefit plan
b. Termination benefit plan
c. Long-term benefit plan
d. Short-term benefit plan

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160. What is a contributory and funded benefit plan?
a. It is a benefit plan wherein the employer and employee make contributions to the retirement
benefit plan and wherein the entity sets aside funds for future retirement benefits by making
payments to a funding agency, such as a trustee, bank or insurance company.
b. It is a benefit plan wherein the only the employer makes contributions to the retirement benefit
plan and wherein the entity sets aside funds for future retirement benefits by making
payments to a funding agency, such as a trustee, bank or insurance company.
c. It is a benefit plan wherein the employer and employee make contributions to the retirement
benefit plan and wherein the entity retains the obligation for the payment of retirement benefits
without the establishment of a separate fund.
d. It is a benefit plan wherein only the employer makes contributions to the retirement benefit
plan and wherein the entity retains the obligation for the payment of retirement benefits
without the establishment of a separate fund.

161. PAS 19 defines it is a post-employment benefit plan under which an entity pays fixed
contributions into a separate entity known as the fund, and will have no legal or constructive
obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee
benefits relating to employee service in the current and prior periods.
a. Defined benefit plan
b. Defined expense plan
c. Defined contribution plan
d. Defined fund plan

162. The following statements pertain to accounting procedures for a defined contribution plan,
except
a. The contribution shall be recognized as expense in the period it is payable.
b. Any unpaid contribution at the end of the period shall be recognized as accrued expense and
any expense contribution shall be recognized as prepaid expense but only to the extent that the
prepayment will
c. The obligations are normally undiscounted unless they do not fall wholly within twelve months
after the end of the period in which the employees render the related service.
d. The entity recognizes actuarial gains or losses and uses actuarial assumptions.

163. PAS 19 defines it as a post-employment plan other than defined contribution plan. In this type
of plan, an entity’s obligation is to provide the agreed benefits to employees.
a. Defined benefit plan
b. Defined expense plan
c. Defined payment plan
d. Defined fund plan

164. The following statements pertain to accounting procedures for a defined benefit plan, except
a. The accounting is complex because actuarial assumptions are required to measure the
obligation and the expense and there is a possibility of actuarial gains and losses.
b. The obligations are measured on a discounted basis.
c. The amount recognized as expense is not necessarily the amount of contribution but the
amount computed through the use of complex formula.
d. The defined benefit plan must be fully funded.

165. This is a defined contribution plan or defined benefit plan that pools the assets contributed by
various entities that are not under common control and uses those assets to provide benefits to
employees of more than one entity.
a. Multiemployer plan
b. Consolidated plan
c. Merger plan
d. Joint venture plan

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166. PAS 19 enumerates the following components of defined benefit plan that will be recognized as
defined benefit expense for the period, except
a. Current service cost must be added.
b. Interest cost must be added.
c. Actual return on plan assets must be deducted.
d. Amortization of actuarial gain must be deducted while amortization of actuarial loss must be
added.
e. Amortization of past service cost must be added.
f. Effect of any curtailment or settlement.

167. The measurement of the expense components in a defined benefit plan cannot be done by a
CPA who lacks the expertise and training in making actuarial assumptions which is usually made by
an actuary. What is the requirement of PAS 19 regarding the engagement of actuary?
a. PAS 19 require an entity to involve a qualified actuary in the measurement of a defined benefit
obligation.
b. PAS 19 does not require and does not encourage an entity to involve a qualified actuary in the
measurement of a defined benefit obligation.
c. PAS 19 encourages but does not require an entity to involve a qualified actuary in the
measurement of a defined benefit obligation.
d. PAS 19 mandates an entity not to involve qualified actuary in the measurement of a defined
benefit obligation.

168. What valuation method shall be used in determining the present value of the defined benefit
obligation and the related current service cost and where applicable, past service cost?
a. Accumulated benefit method
b. Projected unit credit method
c. Cash basis method
d. Expected value method

169. It is the increase in the present value of the defined benefit obligation resulting from employee
service in the current period.
a. Interest cost
b. Past service cost
c. Actuarial loss
d. Current service cost

170. Interest cost is the increase during a period in the present value of the defined benefit
obligation which arises because the benefits are one period closer to settlement. How is it computed?
a. Beginning fair value of plan assets times expected return on plan assets.
b. Ending fair value of plan assets times expected return on plan assets.
c. Beginning projected benefit obligation times settlement discount rate.
d. Ending projected benefit obligation times settlement discount rate.

171. Plan assets include assets held by a long-term benefit fund and qualifying insurance policies.
The conditions for assets held by a long-term benefit fund are, except
a. The assets are held by an entity, the fund itself, that is legally separate from the reporting
entity.
b. The assets are available to pay only employee benefits.
c. The assets are available to the reporting entity’s own creditors even in bankruptcy and can be
declared as dividends.
d. The assets cannot be returned to the reporting entity or can be returned only to the reporting
entity if the remaining assets of the fund are sufficient to meet all employee benefit obligations
or the assets are returned to the reporting entity to reimburse it for employee benefits already
paid.

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172. It is an insurance policy issued by an insurer that is not a related party of the reporting entity
and the proceeds of the policy can be used only to pay employee benefits and are not available to the
reporting entity’s own creditors even in bankruptcy.
a. Required insurance policy
b. Fire insurance policy
c. Qualifying insurance policy
d. Life insurance policy

173. The proceeds of the qualifying insurance policy cannot be paid to the reporting entity, except
I. When the proceeds represent surplus assets not needed for the policy to pay employee benefits.
II. When the proceeds are returned to the reporting entity to reimburse it for employee benefits.
a. Either I or II
b. Neither I nor II
c. I only
d. II only

174. It is the interest, dividend and other revenue derived from the plan assets, together with
realized and unrealized gains or losses on the plan assets, less any plan administration costs to the
extent not included in actuarial assumptions used to measure defined benefit obligation, and less any
tax payable by the plan itself.
a. Return on benefit obligation
b. Return on plan assets
c. Actuarial gain
d. Actuarial loss

175. It is the actuarial present value of all benefits attributed by the pension benefit formula
employee service rendered before a specified date based on future compensation level.
a. Accumulated benefit obligation
b. Fair value of plan asset
c. Projected benefit obligation
d. Accrued benefit cost

176. How shall the ending projected benefit obligation be computed?

a. Beginning PBO plus current service cost plus interest cost plus contribution less benefits paid.
b. Beginning PBO plus current service cost plus interest cost less benefits paid.
c. Beginning PBO plus current service cost less benefits paid.
d. Beginning PBO plus current service cost plus interest cost plus past service cost less benefits
paid.

177. How shall the ending fair value of plan assets be computed?
a. Beginning FVPA plus expected return on plan assets plus contribution less benefits paid.
b. Beginning FVPA plus actual return on plan assets plus contribution less benefits paid.
c. Beginning FVPA plus actual return on plan assets plus actuarial gain less benefits paid.
d. Beginning FVPA plus actual return on plan assets plus contribution plus actuarial gain less
benefits paid.

178. It is he cost to an entity under a defined benefit plan for services rendered by employees in
prior periods resulting from the introduction of a retirement benefit plan or amendment of existing
plan.
a. Current service cost
b. Past service cost
c. Interest cost
d. Actuarial loss

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179. Past service cost shall be expensed immediately when additional benefits are vested or not
conditional on future employment. If the benefits are not vested, how shall the past service cost
amortized?
a. Using effective interest method of amortization.
b. Using straight line method over the defined benefit term.
c. Using straight line method over the period until the benefits become vested or vesting period.
d. Using straight line method over useful life of the plan asset.

180. The following are rules concerning the determination of actuarial gain or loss, except
a. If the actual return on plan assets is higher than the expected return, there is an actuarial
gain.
b. If the actual return on plan assets is lower than the expected return, there is an actuarial loss.
c. If the actual benefit obligation is higher than the expected obligation, there is an actuarial loss.
d. If the expected benefit obligation is lower than the actual benefit obligation, there is an
actuarial gain.

181. Which of the following is the allowed treatment of actuarial gains and losses according to PAS
19?
I. Corridor approach – This is the deferral approach required by the standard.
II. Full recognition approach – This is an option available when fluctuations are so great that deferral
is not deemed to be wise.
a. I only
b. II only
c. Either I or II
d. Neither I nor II

182. Under the corridor approach, what is the corridor to be used for computing the amortization of
actuarial gain or loss?
a. 10% of the lower between the FVPA, beg and PBO, beg.
b. 10% of the higher between the FVPA, beg and PBO, beg
c. 10% of the lower between the FVPA, end and PBO, end
d. 10% of the lower between the FVPA, end and PBO, end

183. PAS 19, par. 93, provides that an entity may adopt any systematic method that results in
faster recognition of actuarial gains and losses provided the same basis is applied to both gains and
losses and the basis is applied consistently from period to period. In such case, the full recognition of
actuarial gains or losses shall be recognized and presented in the
a. Income from Continuing Operations in the Profit or loss in the Statement of Comprehensive
Income
b. Other comprehensive income in the Statement of Comprehensive Income
c. Retained earnings in the Statement of Changes in Equity
d. Income from Discontinued Operations in the Profit or loss in the Statement of Comprehensive
Income

184. It refers to the excess of the fair value of plan assets over the present value of the defined
benefit obligation.
a. Accrued benefit cost
b. Surplus
c. Benefit expense
d. Contribution

185. How shall the accrued benefit cost be computed under the defined benefit plan computed?
a. PBO, end plus Unamortized Actuarial Gain plus Unamortized Past Service Cost less FVPA, end.
b. PBO, end less Unamortized Actuarial Gain less Unamortized Past Service Cost less FVPA, end.
c. PBO, end plus Unamortized Actuarial Gain less Unamortized Past Service Cost less
Unamortized Actuarial loss less FVPA, end.
d. PBO, end plus Unamortized Actuarial Gain plus Unamortized Past Service Cost less
Unamortized Actuarial loss less FVPA, end.

26
186. What discount rate shall be used in making actuarial assumptions?
a. Market yield at the balance sheet date on high quality bonds.
b. Market yield at the balance sheet date on government bonds.
c. Market yield at the balance sheet date on junk bonds.
d. Market yield at the balance sheet date on publicly traded bonds.

187. The following shall be considered by the entity in making actuarial assumptions, except
a. Actuarial assumptions shall be biased and mutually compatible.
b. Actuarial assumptions comprise of demographic and financial assumptions.
c. Post-employment benefit obligations shall be measured on a basis that reflects estimated
future salary increase.
d. Demographic assumptions deal with mortality, rate of employee turnover, disability, early
retirement and claim rates under medical plans while financial assumptions deal with discount
rate, future salary and benefit levels, future medical costs and expected return on plan assets.

188. PAS 19 provides that prepaid benefit cost or also known as surplus must not exceed
a. Total of any cumulative unrecognized net actuarial losses and past service cost.
b. Total of any cumulative unrecognized net actuarial losses and present value of any economic
benefits available in the form of refunds from the plan or reduction in future contributions.
c. Total of any unrecognized past service cost and present value of any economic benefits
available in the form of refunds from the plan or reduction in future contributions.
d. Total of any cumulative unrecognized net actuarial losses, unrecognized past service cost and
present value of any economic benefits available in the form of refunds from the plan or
reduction in future contributions.

189. If the prepaid benefit cost or surplus exceeds the limit provided by PAS 19, the excess shall
a. Be charged directly to retained earnings
b. Be charged to share premium
c. Be part of employee benefit expense
d. Be charged to fair value of plan assets

190. Which of the following elements shall be presented in the financial statements of an entity
providing defined benefit plan to its employees?
a. Prepaid/(Accrued) benefit cost and Employee benefit expense
b. Prepaid/(Accrued) benefit cost, Employee benefit expense, FVPA-end and PBO-end
c. Prepaid/(Accrued) benefit cost, Employee benefit expense, FVPA-end, PBO-end, and
Unamortized net actuarial gain
d. Prepaid/(Accrued) benefit cost, Employee benefit expense, FVPA-end, PBO-end, Unamortized
net actuarial gain and Unamortized past service cost.

191. Which of the following transactions will require adjusting entry on the part of an entity
providing defined benefit plan to its employees?
a. Benefits paid to employees, employee benefits expense and contribution to the plan asset.
b. Benefits paid to employees and employee benefit expense.
c. Employee benefits expense and contribution to the plan asset.
d. Employee benefits expense, contribution to the plan asset and actuarial gain or loss.

192. An entity shall recognize gains or losses on the curtailment or settlement of a defined benefit
plan when the curtailment or settlement occurs. The gain or loss on curtailment or settlement shall
comprise the following, except
a. Any resulting change in the present value of the defined benefit obligation.
b. Any resulting change in the fair value of the plan assets.
c. Any related actuarial gains and losses and past service cost that had not previously been
recognized.
d. Any resulting change in the prepaid/(accrued) benefit cost.

27
193. A curtailment occurs when an entity
I. Is demonstrably committed to make a material reduction in the number of the employees covered
by the plan.
II. Amends the terms of the defined benefit plan such that a material element of future service by
current employees will no longer qualify for benefits, or will qualify only for reduced benefits.
a. Neither I nor II
b. Both I and II
c. I only
d. II only

194. It occurs when an entity enters into a transaction that eliminates all further legal or
constructive obligation for part or all of the benefits provided under a defined benefit plan.
a. Curtailment
b. Extinguishment
c. Settlement
d. Payment

195. These are employee benefits payable as a result of an entity’s decision to terminate an
employee’s employment before the normal retirement, or an employee’s decision to accept voluntary
redundancy in exchange for those benefits.
a. Long-term employee benefits
b. Short-term benefits
c. Termination benefits
d. Post-employment benefits

196. On first adopting PAS 19, an entity shall determine its transitional liability for a defined benefit
plan at that date as follows: (except)
a. The present value of the obligation at the date of adoption.
b. Minus the fair value of plan assets at the date of adoption.
c. Minus any unamortized past service cost.
d. Plus the expected return on plan assets.

197. If the transitional liability is more than the liability that would have been recognize at the same
date under the entity’s previous accounting policy, this increase is treated as transition loss. How shall
this transition loss on first adopting PAS 19 be accounted for?
a. Recognize the transition loss as expense immediately to be included in the total benefit expense
for the current period.
b. Amortize the transition loss on a straight line basis over a maximum of 5 years.
c. Do not account for the transition loss.
d. The entity shall make a irrevocable choice to recognize the transition loss as expense
immediately to be included in the total benefit expense for the current period or amortize the
transition loss on a straight line basis over a maximum of 5 years.

198. If the transition liability is lower than the liability that would have been recognized at the same
date under the entity’s previous accounting policy, the decrease shall be treated as transition gain.
How shall the transition gain on first adopting PAS 19 be accounted for?
a. Recognize the transition gain immediately.
b. Amortize the transition gain on a straight line basis over a maximum of 5 years.
c. Do not account for the transition gain.
d. The entity shall make a irrevocable choice to recognize the transition gain immediately for the
current period or amortize the transition gain on a straight line basis over a maximum of 5
years.

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199. PAS 26 deals with accounting and reporting by retirement benefit plans. It is the standard for
the preparation of general purpose financial statements or financial reports of retirement plans which
may be a defined contribution plan or defined benefit plan. In rare circumstances, a retirement benefit
plan may contain characteristics of both defined contribution plan and defined benefit plan. For
purpose of PAS 26, such a hybrid plan is deemed to be a
a. Defined benefit plan
b. Defined contribution plan
c. Either defined benefit plan or contribution plan at the option of the company
d. Neither defined benefit plan nor defined contribution plan

200. The report of defined contribution plan shall contain a statement of net assets available for
benefits and a description of the funding policy. In preparing the “Statement of Net Assets Available for
Benefits”, the plan investments shall be carried at
a. Book value
b. Present value
c. Amortized cost
d. Fair value

201. The report of a defined benefit plan shall contain

I. A statement that shows the net assets available for benefits, the actuarial present value of
promised benefits, distinguishing between vested and nonvested benefits, and the resulting excess
or deficit.
II. A statement of net assets available for benefits, including either a note disclosing the actuarial
present value of promised vested and nonvested benefits or a reference to this information in an
accompanying actuarial report.
a. Either I or II
b. Neither I nor II
c. I only
d. II only

202. The plan investments in a defined benefit plan shall be carried at

a. Book value
b. Present value
c. Amortized cost
d. Fair value

203. It is an artificial being created by operation of law, having the right of succession, and the
powers, attributes, and properties expressly authorized by law or incident to its existence.
a. Partnership
b. Corporation
c. Sole-proprietorship
d. Association

204. Under the corporation code, the minimum paid in capital for registration of a corporation
which has P60,000 authorized capital is
a. P15,000
b. P3,750
c. P5,000
d. P4,000

205. PAS 38 provides that start up costs which include legal and secretarial costs in establishing a
legal entity shall be
a. Charged to share premium
b. Charged to share capital
c. Charged to retained earnings
d. Expensed as incurred

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206. What is the definition of subscribed share capital?
a. It is the portion of the paid in capital representing the total par or stated value of the shares
issued.
b. It is the portion of the authorized share capital that has been subscribed but not yet fully paid
and therefore still unissued.
c. It represents the cumulative balance of periodic earnings, dividend distributions, fundamental
errors and other capital adjustments.
d. It is the portion of the paid in capital representing excess over the par or stated value.

207. The following are the common sources of share premium, except
a. Excess over par or stated value
b. Donated capital
c. Revaluation surplus
d. Issuance of share warrants

208. The following form part of shareholder’s equity, except

a. Treasury shares
b. Conversion option
c. Retained earnings
d. Subscription receivable collectible within twelve months after the end of reporting period

209. It is a type of share wherein the shareholders have the same rights and privileges.
a. Redeemable preference shares
b. Ordinary shares
c. Preferred shares
d. Convertible preference shares

210. Legal capital is the portion of the paid in capital arising from issuance of share capital which
cannot be retained to the shareholders in any form during the lifetime of the corporation. Which of the
following statements is incorrect concerning legal capital?
I. In the case of par value share, the legal capital is the aggregate par value of the shares issued and
subscribed.
II. In the case of no-par value share, the legal capital is the total consideration received from
shareholders including the excess over the stated value.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

211. Under this doctrine, the corporation can pay dividends to shareholders but limited only to the
retained earnings balance.
a. Trust fund doctrine
b. Wasting asset doctrine
c. Retained earnings doctrine
d. Share capital doctrine

212. The Corporation Code provides that “a share shall not be issued for a consideration less than
the par or stated value thereof.” In case the issue price of share is over the par or stated value, the
excess shall be credited to
a. Revaluation surplus
b. Gain on issuance of shares
c. Retained earnings
d. Share premium

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213. When the equity shares are issued for noncash consideration, the share capital is recorded at
an amount equal to the following in which order of priority
a. Fair value of shares issued – Fair value of the noncash consideration received – Par value of the
shares issued.
b. Fair value of noncash consideration received – Fair value of shares issued – Par value of the
shares issued.
c. Par value of the shares issued – Fair value of noncash consideration received – Fair value of
shares issued.
d. Fair value of shares issued – Par value of shares issued – Fair value of noncash consideration
received.

214. In conformity with the legal provision and PFRS 2, if shares are issued for services, the share
shall be recorded at the
a. Fair value of services rendered
b. Fair value of shares issued
c. Par value of the shares issued
d. None of the above

215. Share issuance costs such as printing of stock certificates, cost of stock and transfer book, seal
of corporation, underwriting and promotional fees, accounting and legal fees related to share issuance
shall be
a. Debited to expense account
b. Debited to share premium
c. Debited to retained earnings
d. Debited to share capital

216. It is a share capital issued for inadequate or insufficient consideration in which case the asset
is overstated and capital is correspondingly overstated.
a. Watered share
b. Secret reserve
c. Liquidated share
d. Solidified share

217. It is a share issued wherein the asset is understated or liability is overstated with a
consequence of understatement of capital.
a. Watered share
b. Secret reserve
c. Liquidated share
d. Solidified share

218. Secret reserve usually arises from the following, except

a. Excessive provision for depreciation, depletion, amortization and doubtful accounts.
b. Excessive writedown of receivables, inventories and investments.
c. Capital expenditures are capitalized.
d. Fictitious liabilities are recorded.

219. In case of delinquent subscription, the delinquent shares shall be sold in a public auction.
They shall be sold to the highest bidder. Who is the highest bidder?
a. A person who is willing to pay the offer price of the delinquent share which includes balance
due on the subscription, interest accrued on the subscription date and expenses of advertising
and other costs of sale, for the highest number of shares.
b. A person who is willing to pay the offer price of the delinquent share which includes balance
due on the subscription, interest accrued on the subscription date and expenses of advertising
and other costs of sale, for the lowest number of shares.
c. A person who is not willing to pay the offer price of the delinquent share which includes
balance due on the subscription, interest accrued on the subscription date and expenses of
advertising and other costs of sale, for the highest number of shares.
d. A person who is not willing to pay the offer price of the delinquent share which includes
balance due on the subscription, interest accrued on the subscription date and expenses of
advertising and other costs of sale, for the lowest number of shares.
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220. Which of the following items can be considered as equity instruments?
I. Callable preference share at the option of the corporation.
II. Redeemable preference share that provides a mandatory redemption by the issuer for a fixed or
determinable amount of a future date.
III. Redeemable preference share that gives that holder the right to require the issuer to redeem the
instrument for a fixed or determinable amount at a future date.
a. I, II and III
b. II and III only
c. I and II only
d. I only

221. When a corporation issued preference shares with share warrants, how shall the issue price be
allocated by the corporation?
a. Proportionately to preference shares and share warrants based on their relative book value.
b. Proportionately to preference shares and share warrants based on their fair market value.
c. The issue price shall be allocated first to preference share based on its fair market value and
the excess of issue price to share warrants.
d. The issue price shall be allocated first to share warrants based on its fair market value and the
excess of issue price to preference share.

222. These are an entity’s own shares that have been issued and then reacquired but not canceled.
a. Ordinary shares
b. Share warrants
c. Share options
d. Treasury shares

223. What method of accounting shall be used for treasury shares in accordance to the Corporate
Code?
a. Par value method
b. Stated value method
c. Fair value method
d. Cost method

224. What does PAS 32, par. 33, provide as regards to the gain from sale of treasury shares?
a. It shall be recognized in profit or loss.
b. It shall be credited to share premium.
c. It shall be credited to share capital.
d. It shall be credited to retained earnings.

225. If the treasury shares are subsequently issued below its cost, the excess of the cost over the
issue price is charged
a. First, Share premium from the original issuance and then Retained Earnings.
b. First to share premium from original issuance and then share premium from treasury shares
of the same class.
c. First to share premium from original issuance, and then share premium from treasury shares
of the same class and then to retained earnings.
d. First to share premium from treasury shares of the same class and then the balance to
retained earnings.

226. If treasury shares are subsequently retired and the retirement results in a loss, meaning, the
cost ofthe treasury shares exceeds the par value, such loss is debited or charged
a. First, Share premium from the original issuance and then Retained Earnings.
b. First to share premium from original issuance and then share premium from treasury shares
of the same class.
c. First to share premium from original issuance, and then share premium from treasury shares
of the same class and then to retained earnings.
d. First to share premium from treasury shares of the same class and then the balance to
retained earnings.

32
227. Under Application Guidance 36 of PAS 32, an entity’s own equity instruments also known as
treasury shares shall be presented as
a. Financial asset
b. Financial liability
c. Deduction in the shareholder’s equity at par value or stated value
d. Deduction in the shareholder’s equity at cost

228. What shall be the proper treatment of donated shares from stockholders?
a. They shall be credited to share premium at cost at the date of donation.
b. They shall be credited to share premium at fair value at the date of donation.
c. They shall be credited to share premium at par value at the date of donation.
d. They are recorded by memorandum entry at the date of donation but the reissue or resale of
donated shares increases assets and donated capital from share premium.

229. When a corporation received a noncash asset from a stockholder, what is the proper
treatment?
a. The share premium shall be credited for the fair value of the noncash asset.
b. The share premium shall be credited for the book value of the noncash asset.
c. The income account shall be credited for the fair value of the noncash asset.
d. The income account shall be credited for the book value of the noncash asset.

230. When a corporation received a noncash asset from a nonstockholder, what is the proper
treatment?
a. The share premium shall be credited for the fair value of the noncash asset.
b. The share premium shall be credited for the book value of the noncash asset.
c. The income account shall be credited for the fair value of the noncash asset.
d. The income account shall be credited for the book value of the noncash asset.

231. It is a transaction whereby the original shares are called in for cancellation and replaced by a
larger number accompanied by a reduction in the par value or stated value.
a. Split up
b. Split down
c. Reverse split up
d. Share right

232. It represents the cumulative balance of periodic net income or loss, dividend distributions,
prior period errors, changes in accounting policy and other capital adjustments.
a. Share capital
b. Share premium
c. Retained earnings
d. Revaluation surplus

233. When a retained earnings has a debit balance, it is called as

a. Deficiency
b. Deficit
c. Net loss
d. Accumulated profit

234. These refer to distributions of earnings or capital to the shareholders in proportion to their
shareholdings.
a. Net income
b. Withdrawal
c. Dividends
d. Total comprehensive income

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235. Under IFRIC 17 “Distribution of noncash assets to owner” par. 10, the liability to pay dividend
shall be recognized at
a. Date of declaration
b. Date of record
c. Date of payment
d. Date of distribution

236. Under IFRIC 17 “Distribution of noncash assets to owner” par. 11, the entity shall measure a
liability to distribute noncash assets as a dividend to its owners at
a. Book value of the asset to be distributed
b. Fair value of the asset to be distributed
c. Recoverable amount of the asset to be distributed
d. Cost of the asset to be distributed

237. IFRIC 17, par. 13, further provides that at the end of each reporting period and at the date of
settlement, the entity shall review and adjust the carrying amount of the dividend payable with any
change recognized in
a. Share premium
b. Share capital
c. Profit or loss
d. Retained earnings

238. IFRIC 17, par. 14, provides that when an entity settles the dividends payable, the difference
between the carrying amount of the dividends payable and the carrying amount of the asset
distributed shall be recognized in
a. Share premium
b. Share capital
c. Profit or loss
d. Retained earnings

239. When is a share dividend considered a large stock dividend?

a. If it is 20% or more share dividend.
b. If it is more than 20% share dividend.
c. If it is 10% or more share dividend.
d. If it is more than 20% share dividend.

240. If an entity declares a small share dividend, what amount shall be debited to retained
earnings?
a. Par value of the shares.
b. Fair value of the shares.
c. Book value of the shares
d. Cost of the shares.

241. If an entity declares a large share dividend, what amount shall be debited to retained earnings?
a. Par value of the shares.
b. Fair value of the shares.
c. Book value of the shares
d. Cost of the shares.

242. These refer to the dividends out of share capital.

a. Liquidating dividend
b. Share dividend
c. Property dividend
d. Cash dividend

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243. PAS 32, par. 36, provides that distribution to holders of an equity instrument classified as
financial liability are recognized as
a. Dividends deductible directly against Retained Earnings
b. Dividends deductible directly against Share Premium
c. Dividends deductible directly against Share Capital
d. Interest expense and presented in the Profit or Loss

244. In the absence of evidence to the contrary, all the retained earnings of an entity can be
declared as dividends. In order to limit or restrict the payment of dividends, a corporation makes
appropriations of retained earnings. Appropriation for treasury shares is what type of retained
earnings appropriation?
a. Contractual appropriation
b. Voluntary appropriation
c. Legal appropriation
d. Discretionary appropriation

245. The following items affect the retained earnings account, except
a. Net Income or loss for the period
b. Prior period errors
c. Realization of revaluation surplus
d. Effect of change in accounting estimate

246. It is a permissive but not a mandatory procedure under which a financially troubled entity
restates its accounts and establishes a fresh start in accounting sense.
a. Restructuring
b. Quasi-reorganization
c. Incorporation
d. Corporate liquidation

247. PFRS 2 defines it as a compensation arrangement established by the entity whereby the
entity’s employees shall receive shares of capital in exchange for their services or the entity incurs
liabilities to the employees in amounts based on the price of its shares.
a. Defined benefit plant
b. Defined contribution plan
c. Share-based compensation plan
d. Cash-based compensation plan

248. PFRS 2 sets out the measurement principles and specific requirements for accounting of the
share-based compensation. The following statements concerning the two types of share-based
compensation are inappropriate
I. Equity-settled share based compensation means the entity issues equity instruments in
consideration for services received, for example, share options.
II. Cash-settled share based compensation means the entity incurs a liability for services received and
the liability is based on the entity’s equity instruments, for example, share appreciation rights.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

249. What is the measurement method of compensation expense provided by PFRS 2 for share-
based compensation?
I. Fair value method which means that the compensation is equal to the fair value of the share
options on the date of grant.
II. Intrinsic value method which is equal to the excess of the market value of the share over the option
price if the fair value of the share option cannot be measured reliably.
a. I only
b. II only
c. Neither I nor II
d. Both I and II

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250. Share options are granted to officers and key employees to enable them to acquire shares of the
entity during a specified period upon fulfillment of certain conditions at a specified price. PFRS 2
provides the following rules for the recognition of compensation expense:
I. If the share options vest immediately, the employee is not required to complete a specified period of
service before unconditionally entitled to the share options. In this case, on grant date, the entity
shall recognize the compensation as expense in full with corresponding increase in equity.
II. If the share options do not vest until the employee completes a specified service period, the
compensation is recognized as expense over the service period or vesting period, meaning, from the
date of grant to the date on which the options can first be exercised.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

251. PFRS 2, par. 24, provides that if the fair value of the share options cannot be estimated
reliably, the entity shall measure the share options at their intrinsic value initially and subsequently
at each reporting date and at the date of final settlement, with any change in intrinsic value recognized
in
a. Other comprehensive income
b. Profit or loss
c. Retained earnings
d. Share capital

252. What is the effect of equity-settled share based compensation?

a. It will decrease share premium.
b. It will increase the retained earnings.
c. It will increase the profit or loss for the period.
d. It does not affect total shareholder’s equity.

253. If an entity cancels or settles a grant of share options during the vesting period, the entity shall
account for the cancellation or settlement as an acceleration of vesting. The accounting procedures are
I. The entity shall recognize immediately the compensation expense that otherwise would have been
recognized for services received over the remainder of the vesting period.
II. Any payment made to the employee on the cancellation or settlement of the grant shall be
accounted for as the repurchase of equity interest, meaning, deduction from equity.
a. Both I and II
b. Neither I nor II
c. I only
d. II only

254. Under IFRIC 11, share-based payment transactions in which the employees of a subsidiary are
granted to the equity instruments of the parent shall be accounted for as
a. Cash settled share based compensation
b. Equity settled share based compensation
c. Liability settled share based compensation
d. Asset settled share based compensation

255. Under IFRIC 11, how shall the subsidiary measure the services received from its employees
who are granted to the equity instruments of the parent?
a. Fair value of the share options at the date of grant
b. Book value of the share options at the date of grant
c. Intrinsic value of the share options at the date of grant
d. Fair value of the services at the date of grant

256. PFRS 2 provides that for a cash settled share-based compensation, the entity shall measure
the services acquired and the liability incurred at the
a. Book value of the liability
b. Fair value of the liability
c. Fair value of the services

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 d. Recent cost of the services
257. What is the compensation expense for a share appreciation rights?
a. Excess of the market value of the share over a book value per share at the end of reporting
period.
b. Excess of price of the share over a book value per share at the end of reporting period.
c. Excess of the market value of share over a predetermined price for a given number of shares
over a definite vesting period.
d. Excess of the market value of the share over the earnings per share.

258. Changes in the compensation expense for share-based compensation transactions shall be
accounted
a. Retrospectively as a change in accounting policy
b. Prospectively as a change in accounting estimate
c. Prospectively as a change in accounting policy
d. Retrospectively as prior period error adjustment

259. If a share-based compensation has cash alternative and share alternative and the entity has
the choice of settlement, the entity shall account for the instrument initially
a. Either as liability or equity.
b. By separating the liability and equity components.
c. Both as liability and equity instruments.
d. Neither as liability nor equity.

260. If a share-based compensation has cash alternative and share alternative and the employees
have the choice of settlement, the entity shall account for the instrument initially
a. Either as liability or equity.
b. By separating the liability and equity components.
c. Both as liability and equity instruments.
d. Neither as liability nor equity.

261. It is the amount that would be paid on each share assuming the entity is liquidated and the
amount available to shareholders.
a. Earnings per share
b. Dividends per share
c. Book value per share
d. Price per share

262. How shall the book value per share be computed?

a. Total comprehensive income divided by number of shares outstanding
b. Profit or loss divided by number of shares outstanding
c. Other comprehensive income divided by number of shares outstanding
d. Total shareholder’s equity divided by number of shares outstanding

263. Which of the following statements pertains to participating dividends?

a. It is one which the right to receive dividends is forfeited in any one year in which the dividends
are not declared.
b. It is one which is entitled to receive dividends in excess of the basic or fixed rate.
c. It is one that is entitled to receive only the dividend equal to the fixed rate.
d. It is one which any undeclared dividends accumulate each year until paid.

264. PAS 33 titled as “Earnings per Share” is mandatory for

I. Public entities
II. Non-public entities
a. I only
b. II only
c. Both I and II
d. Neither I nor II

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265. What are the two types of earnings per share covered by PAS 33?
a. Basic earnings per share and diluted earnings per share
b. Basic earnings per share and liquidation earnings per share
c. Simple earnings per share and complex earnings per share
d. Compound earnings per share and liquidation earnings per share

266. Which of the following statements concerning earnings per share under PAS 33 are correct?
I. An entity shall present on the face of the income statement basic and diluted earnings per share
for income or loss from continuing operations.
II. An entity that reports a discontinued operation shall disclose the basic and diluted amounts per
share for the discontinued operation either on the face of the income statement or in the notes to
the financial statements.
a. Neither I nor II
b. Both I and II
c. I only
d. II only

267. PAS 33 provides that when an entity presents both consolidated financial statements and
separate financial statements, the disclosures required by this standard need be presented
a. On both consolidated financial statements and separate financial statements.
b. Only on the separate financial statements.
c. Only on the consolidated financial statements.
d. Neither on consolidated financial statements nor separate financial statements.

268. The following are the uses of earnings per share, except
a. It is the determinant of the market price of ordinary share.
b. It is the measure of performance of management in conducting operations.
c. It is the basis of dividend policy of an entity.
d. It is used in computing book value per share.

269. It is a financial instrument or other contract that may entitle its holder to ordinary shares.
a. Potential preference shares
b. Potential ordinary shares
c. Potential bonds payable
d. Potential notes payable

270. What is the formula for computing basic earnings per share?
a. Net income divided by number of shares outstanding
b. Total assets divided by number of shares outstanding
c. Total liabilities divided by number of shares outstanding
d. Total shareholder’s equity divided by number of shares outstanding

271. If the entity has a preference share is cumulative, the preference dividend for the current year
is deducted from the net income for computation of earnings per share
a. When the entity declared the preference dividend.
b. Whether such dividend is declared or not.
c. When the entity has retained earnings.
d. When the entity has a deficit.

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272. In computing weighted number of shares outstanding for purposes of earnings per share,
which of the following statements is false?
a. Ordinary shares issued as part of the purchase consideration of a business combination that is
an acquisition are included in the weighted average number of shares from the date of the
acquisition.
b. In the case of stock dividend or a share split, the number of ordinary shares outstanding before
the event is adjusted for the proportionate change in the number of ordinary shares
outstanding as if the event had occurred at the beginning of the earliest period reported.
c. Ordinary shares that will be issued upon the conversion of a mandatory convertible instrument
are included in the calculation of basic earnings per share from the date the contract is entered
into.
d. Subscribed ordinary shares are not included in EPS even if they are entitled to participate in
dividends.

273. It arises when the inclusion of the potential ordinary shares decreases the basic earnings per
share or increases the basic loss per share.
a. Dilution
b. Anti-dilution
c. Non-dilution
d. Dissolution

274. In case of convertible bonds payable, how shall it be accounted for in computing diluted
earnings per share?
a. Adjustments shall be made only to the net income.
b. Adjustments shall be made only to the ordinary shares outstanding.
c. The net income is adjusted by adding back the interest expense on the bond payable, before
tax and decreasing the number of ordinary shares outstanding.
d. The net income is adjusted by adding back the interest expense on the bond payable, net of tax
and increasing the number of ordinary shares outstanding.

275. In case of convertible preference shares, how shall it be accounted for in computing diluted
earnings per share?
a. The net income shall be reduced by the preference shares.
b. The ordinary shares outstanding shall be increased.
c. The net income shall not be reduced by the dividends on preference shares and the number of
ordinary shares outstanding shall be increased.
d. The net income shall be reduced by the dividends on preference shares and the number of
ordinary shares outstanding shall be increased.

276. When are the share options and warrants considered dilutive?
a. Exercise price or option price is equal to the average market price of the ordinary share.
b. Exercise price or option price is less than the average market price of the ordinary share.
c. Exercise price or option price is more than the average market price of the ordinary share.
d. Share options and warrants cannot be considered dilutive.

277. When are written put options considered dilutive?

a. If these contracts are “out the money.”
b. If the exercise or settlement price is higher than the average market price.
c. If the exercise or settlement price is lower than the average market price.
d. If the exercise or settlement price is equal to the average market price.

278. In case the entity has reported a net loss during the year, the entity shall report
a. Both basic loss per share and diluted loss per share.
b. Only diluted loss per share.
c. Only basic loss per share because potential ordinary shares are always antidilutive.
d. Neither basic loss per share nor diluted loss per share.

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