PSBA Refresher Course November 2021 Batch Quiz # 1 FAR Theory

Accounting Process to Inventories

1. Which of the following is the underlying assumption of financial statements?

a. Relevance and faithful representation

b. Financial capital and physical capital
c. Going concern
d. Materiality

2. Users are assumed to have a reasonable knowledge of business and economic activities and accounting and a
willingness to study the information with reasonable diligence.

a. Relevance
b. Faithful representation
c. Understandability
d. Comparability

3. When information about two different enterprises has been prepared and presented in a similar manner, the
information exhibits the characteristic of

a. Relevance
b. Verifiability
c. Consistency
d. Comparability

4. Which of the following is not an ingredient of faithful representation?

a. Completeness
b. Confirmatory value
c. Neutrality
d. Free from error

5. Which of the following is not a characteristic of the definition of an asset under the Revised Conceptual
Framework?

a. Present economic resource

b. Right that has the potential to produce economic benefits
c. The economic resource is controlled by the entity
d. Future economic benefits will flow to the entity

6. Which of the following is not an example of a transfer of economic resource under the new definition of a
liability?

a. Rights over property, plant and equipment

b. Pay cash
c. To deliver goods
d. To provide or render services

7. The debit and credit analysis of a transaction normally takes place

a. Before an entry is recorded in a journal.

b. When the entry is posted to the ledger.
c. When the trial balance is prepared.
d. At some other point in the accounting cycle.

8. Which of the following is not a possible combination of a journal entry?

a. Increase in asset and increase in liability.

b. Increase in liability and decrease in equity
c. Decrease in asset and decrease in liability
d. Increase in asset and decrease in equity.
9. Which of the following is not a component of a complete set of financial statements?

a. Statement of financial position

b. Statement of comprehensive income
c. Income statement
d. Statement of retained earnings

10. Which of the following is not classified as a current asset?

a. Cash and cash equivalents

b. 2-year loan receivable with a remaining term of 4 months from end of reporting period
c. Property, plant and equipment
d. Equity investments held for trading

11. Liabilities that are expected to be settled within the normal operating cycle are classified as

a. Current
b. Noncurrent
c. Current or noncurrent depending on other criteria
d. Equity

12. An entity has an existing loan that is due for payment within 2 months after the reporting period. At the end
of reporting period, the entity has the right to defer settlement of this loan for at least 12 months after the end
reporting period. How should the entity classify the loan at the end of the reporting period?

a. Current liability
b. Current asset
c. Noncurrent liability
d. Noncurrent asset

13. Notes to financial statements

a. Are relatively unimportant facts

b. Document the source of financial statement facts
c. Are an integral part of financial statements
d. Are irrelevant and immaterial facts

14. Which of the following is not a related party?

a. Key management personnel
b. The daughter of the CEO of the entity
c. The uncle of the entity’s finance director
d. An associate

15. Which of the following is an adjusting event?

a. Bankruptcy of a customer after the reporting period, that may give evidence about NRV of accounts
receivable at reporting date
b. Destruction of a major production plant after the reporting period
c. Share transactions after the reporting period
d. Business combination after the reporting period

16. The financial statements are authorized for issue

a. When the board of directors reviews and authorizes them for issue.
b. When the financial statements are made available to shareholders
c. When the shareholders approve the financial statements at their annual meeting
d. When the approved financial statements are filed with a regulatory body

17. The following components of OCI should be reclassified to profit or loss, except
a. Gain or loss from translating the financial statements of a foreign operation
b. Fair value change of debt investments at FVOCI
c. Effective portion of gain or loss on cash flow hedge derivatives
d. Revaluation surplus
18. Net income differs from comprehensive income because of
a. Other comprehensive income
b. Dividend declared to shareholders
c. Interest income
d. Net sales

19. If the fair value less cost of disposal is lower than the carrying amount of a noncurrent asset held for sale, the
difference is accounted for as
a. Impairment loss
b. A direct charge to retained earnings
c. A direct deduction from shareholder’s equity
d. A liability

20. How shall assets of a disposal group classified as held for sale be presented in the statement of financial
position?

a. They shall be presented as a separate line item under current assets.

b. They shall be offset against the liabilities of the same disposal group.
c. They are classified into current and noncurrent.
d. They are immediately written off from the statement of financial position.

21. If an entity does not prepare interim financial reports

a. The year-end financial statements did not comply with PFRS.

b. The year-end financial statements’ compliance is not affected.
c. The year-end financial statements are not acceptable.
d. Interim financial reports must be included in the year-end financial statements.

22. Which test must be applied to determine if a component is a reportable segment?

a. Revenue test
b. Revenue, asset and liability test
c. Revenue, asset and profit or loss test
d. Revenue, asset, profit or loss and cash flow test

23. What is the minimum threshold for a customer to be considered a major customer?

a. At least 10% of the external revenue of all operating segments

b. At least 10% of the total segment revenue
c. At least 75% of the external revenue of all operating segments
d. At least 75% of the total segment revenue

24. Which of the following is a not component of cash and cash equivalents?

a. Savings deposit
b. 3-year time deposit that was acquired 2 months before maturity
c. Cash segregated to purchase land
d. Cash segregated to pay income taxes

25. Why is the allowance method preferred over the direct write-off method of accounting for bad debts?

a. Allowance method is used for tax purposes

b. Estimates are used
c. Determining worthless accounts under direct write-off method is difficult to do
d. Improved matching of doubtful accounts expense with revenue

26. Which of the following is included in the journal entry to record the collection of accounts receivable
previously written off when using the allowance method?

a. Debit allowance for doubtful accounts, Credit accounts receivable

b. Debit allowance for doubtful accounts, Credit doubtful accounts expense
c. Debit doubtful accounts expense, Credit allowance for doubtful accounts
d. Debit accounts receivable, Credit allowance for doubtful accounts
27. Which of the following methods focuses on asset valuation?

a. Percentage of sales method

b. Aging of accounts receivable method
c. Direct write-off method
d. None of the above

28. Which of the following will not affect the gross amount of accounts receivable?

a. Write-off of accounts
b. Recovery of accounts previously written off
c. Credit sales
d. Actual sales return

29. An entity discounts its notes receivable with recourse and treats this as a conditional sale. Which of the
following is true?

a. A contingent liability does not exist

b. Note receivable discounted is credited
c. Liability for notes receivable discounted is credited
d. Note receivable is credited

30. Which of the following stages under the “3-stage” impairment model of PFRS 9 computes interest income
based on the gross carrying amount of the debt-type financial asset?

a. Stage 1 only
b. Stage 2 only
c. Stage 2 and 3
d. Stage 1 and 2

31. An entity has an existing loan receivable. If there has been a significant decline in credit quality but no
objective evidence of impairment, an entity shall recognize

a. 12-month expected credit loss

b. Lifetime expected credit loss
c. The average of the 12-month and lifetime expected credit loss
d. The higher of 12-month and lifetime expected credit loss

32. Based on the 3-stage impairment model, if there is objective evidence of impairment, the debt-type financial
asset is under what stage?

a. Stage 1
b. Stage 2
c. Stage 3
d. Cannot be determined

33. In the statement of financial position, raw materials to be used in the production process are classified as

a. Prepaid expenses
b. Inventory
c. Receivable
d. Property, plant and equipment

34. Where should goods in transit that were recently purchased F.O.B. Destination be included in the statement
of financial position?

a. Accounts payable
b. Inventory
c. Equipment
d. Not in the statement of financial position

35. In accounting for a noncancellable purchase commitment, a gain on purchase commitment may be recognized
a. Without regard to any previous losses
b. Only up to extent of previous losses
c. Gain can never be recognized under a purchase commitment.
d. An entity can never enter into a purchase commitment.
36. Which of the following inventory methods approximates lower of cost or net realizable value?
a. Specific identification
b. Conservative method
c. FIFO
d. Average method

37. What is the effect of freight-in when using the conventional retail method?
a. Increases the cost ratio
b. Decreases the cost ratio
c. No effect on the cost ratio
d. Cannot be determined

38. Agricultural activity results in which of the following type of asset

a. Biological asset
b. Agricultural produce
c. Both biological asset and agricultural produce
d. Neither biological asset nor agricultural produce

39. What is the proper recognition of animals related to recreational activities?

a. Property, plant and equipment
b. Biological assets
c. Investment property
d. Intangible assets

40. An adjusting entry to accrue wages incurred but not yet paid is an example of

a. Aligning recorded costs with appropriate accounting periods

b. Aligning recorded revenue with appropriate accounting periods
c. Reflecting unrecorded expenses incurred during an accounting period
d. Reflecting unrecorded revenue earned during an accounting period

41. Which of the following adjusting entries can never be reversed?

a. Deferred income
b. Accrued interest
c. Doubtful accounts
d. Prepaid rent

42. According to the Conceptual Framework, the following are enhancing qualitative characteristics, except

a. Comparability
b. Faithful representation
c. Understandability
d. Timeliness

43. The characteristic that is demonstrated when a high degree of consensus can be secured among independent
measurers using the same measurement method is

a. Relevance
b. Understandability
c. Verifiability
d. Neutrality

44. Inflation is ignored in accounting due to

a. Economic entity assumption

b. Going concern assumption
c. Monetary unit assumption
d. Time period assumption
45. When an entity decided to sell a business component, the loss on disposal should be

a. Presented as other expense

b. Presented as a debit adjustment to retained earnings
c. Added to the loss from operations of the component as part of discontinued operations
d. Included in other comprehensive income

46. Which of the following is required for a change from double-declining balance to straight-line method of
depreciation?

a. The cumulative effect on prior years is reported directly in retained earnings

b. Retrospective restatement
c. Recomputation of depreciation for current and future years
d. The change is completely ignored

47. Under PFRS 8 Operating Segments, what is the minimum threshold for revenue, profit or loss or assets for
an operating segment to be reportable?

a. 10%
b. 15%
c. 20%
d. 75%

48. The approach used in segment reporting is known as

a. Segment approach
b. Revenue approach
c. Management approach
d. Enterprise approach

49. Cash equivalents do not include

a. Certificate of deposit
b. Money market funds
c. Shares of another entity held for trading
d. Commercial papers

50. Which of the following is false about factoring of accounts receivable with recourse?

a. A recourse liability equal to the fair value of the recourse obligation shall be recognized
b. Due from factor that is debited is a receivable
c. Due from factor debited is a loss
d. Any service fee will be part of the loss on factoring

51. Discounting of notes receivable with recourse may be accounted for as

a. Conditional sale with contingent liability only

b. Secured borrowing only
c. Absolute sale of note receivable only
d. Either conditional sale with contingent liability or secured borrowing

52. Which of the following cost flow assumptions is prohibited by IAS 2?

a. FIFO
b. LIFO
c. Specific identification
d. Weighted average

53. In using FIFO cost flow assumption, cost of goods sold is measured by using

a. Recent cost of goods

b. Earlier cost of goods
c. Average cost of goods
d. Specifically identified cost of goods
54. According to IAS 2, lower of cost and net realizable value (LCNRV) measurement is applied

a. Item by item
b. By classification
c. By total
d. By segment

55. When the cost of goods sold method (direct method) is used to record inventory at net realizable value

a. There is a direct deduction in the estimated selling price that results in a loss
b. A loss is only recorded by directly crediting inventory
c. Only the portion of the loss attributable to inventory sold during the period is recorded
d. The net realizable value for ending inventory is substituted for cost and the loss is buried in cost of
goods sold

56. Which of the following retail inventory methods include both net markup and net markdown in determining
the cost ratio?

a. Conventional method
b. Average retail
c. Conservative method
d. LCNRV method

57. How are biological assets subsequently measured according to IAS 41?

a. At fair value less cost of disposal

b. At acquisition cost
c. At present value of future cash flows
d. At current cost

58. Which of the following is false about bearer plants?

a. Used in the production or supply of goods and services

b. Expected to bear produce for less than one period
c. Remote likelihood of being sold as agricultural produce except for incidental scrap sales
d. Classified as property, plant and equipment

59. It is an adjustment of the carrying amount of an asset or a liability or the amount of the periodic consumption
of an asset that results from the assessment of the present status and expected future benefit and obligation
associated with the asset and liability.

a. Change in accounting estimate

b. Change in accounting policy
c. Correction of a prior period error
d. Change in reporting entity

60. When an entity changes an accounting policy voluntarily, it has to

a. Inform shareholders prior to taking the decision.

b. Account for it retrospectively
c. Treat the effect of the change as an extraordinary item
d. Treat it prospectively

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