1. Which of the following is true?

a. According to Accounting Standard Council, Accounting is a service entity. Its

function is to provide qualitative information, primarily financial in nature, about
economic entities, that is intended to be useful in making economic decision.
b. According to American Accounting Association, it is an art of recording,
classifying and summarizing in a significant manner and in terms of money,
transactions and events which are in part at least of a financial in character and
interpreting the results thereof.
c. According to Committee on Accounting Terminology of AICPA, it is the process
of identifying, measuring and communicating economic information to permit
informed judgment and decision by users of the information.
d. None of the above

2. The objectives of financial reporting for business enterprises is based on

a. The need to report on management’s stewardship
b. The needs of the users of the information
c. The need to comply with financial accounting standards
d. The need for conservative information.

3. Under the Philippine Accountancy Act of 2004 or RA9298, the Professional Regulatory
Board of Accountancy shall be composed of
a. Chairman and six members to be appointed by PRC
b. Chairman and six members to be appointed by PICPA
c. Chairman, Vice Chairman and six members to be appointed by the President of
the Philippines.
d. Chairman and six members to be appointed by the President of the Philippines.

4. Which of the following is false regarding the FRSC?

a. The FRSC is created by BOA upon recommendation of PRC to assist BOA in
carrying out its powers and functions under RA 9298.
b. The FRSC shall be composed of a Chairman and fourteen representatives.
c. The Chairman and members of FRSC are appointed by PRC upon
recommendation of BOA and shall have a term of three years renewable for
another term.
d. The approved statements of FRSC are known as the Philippine Accounting
Standards and Philippine Financial Reporting Standards

5. An optional step in the accounting cycle is the preparation of

a. Adjusting entries c. Financial statements
b. A post closing trial balance d. Closing entries
6. The accounting equation must remain in balance
a. Only when formal financial statements are prepared
b. Only at the time the trial balance is prepared
c. Throughout each step in the accounting cycle
d. Only when the journal entries are recorded

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

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 a. Increase in asset and decrease in equity
b. Decrease in liability and decrease in asset
c. Decrease in equity and increase in liability
d. Increase in asset and increase in liability

8. Which of the following is incorrect concerning the rule on offsetting?

a. An entity shall not offset asset and liabilities or income and expenses, unless
require or permitted by PFRS.
b. An entity presents gains and losses on the disposal of noncurrent assets by
deducting from the proceeds on disposal the carrying amount of the asset and
related selling expense.
c. Material gains and losses arising from a group of similar transactions are reported
on a net basis, for example, foreign exchange gains and losses arising from
trading financial instruments.
d. An entity may net expenditure related to a provision and reimbursed under a
contractual arrangement with a third party against the related disbursement.

9. Which of the following is incorrect about the financial statements?

a. An entity may use titles for the statements other than those used in the Standard
b. An entity shall present with equal prominence all of the financial statements in a
complete set of financial statements.
c. When an income statement is presented it is part of a complete set of financial
statements and shall be displayed immediately after the statement of
comprehensive income.
d. Entities may present, outside the financial statements, reports and statements such
as environmental reports and value added statements in which environmental
factors are significant and when employees are regarded as an important user
group, however these are outside the scope of PFRS.

10. PAS 1 Fair presentation and compliance with PFRS

1st statement: An entity whose financial statements comply with PFRS shall make an
explicit and unreserved statement of such compliance in the notes.
2nd Statement: An entity can rectify inappropriate accounting policies either by disclosure
of the accounting policies used or by notes or explanatory material.
3rd Statement: An entity shall describe financial statement as complying with PFRS if
they comply majority of the requirements of the PFRS
a. False, True, True c. True, False, False
b. True , True, False d. True, False, True

11. When an entity has departed from a requirement of PFRS in a prior period, and that
departure affects the amount recognized in the financial statements for the current period,
it shall make a disclosure on
a. The title of the PFRS from which the entity has departed, the nature of the
departure, including the treatment that the PFRS would require, the reason why
the treatment would be so misleading in the circumstances that it would conflict
with the objective of financial statement set out in the Framework and the
treatment adopted.

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 b. For each period presented, the financial effect of the departure on each item in the
financial statements that would have been reported in complying with the
requirement.
c. That it has complied with applicable PFRS, except that it has departed from a
particular requirement to achieve a fair presentation.
d. Only A and B

12. A compensating balance is best reflected by which of the following?

a. A savings account maintained at the bank equal to the amount of all outstanding
loans
b. The portion of any demand deposit, time deposit, or certificate of deposit
maintained by an entity which constitute support for existing borrowing
arrangements of the entity with a lending institution.
c. A balance held in a time or demand deposit account that is equal to the interest
currently due on a loan.
d. A savings account maintained at the bank equal to the amount of all outstanding
loans.

13. Which of the following are considered as cash and cash equivalents
a. Preference shares with specified redemption date and acquired three months
before redemption date.
b. Sinking fund that is set aside to pay a bonds payable, when the bond payable is
due within one year after the end of the reporting period
c. Compensating balance that is legally restricted because of a formal agreement.
d. Equity securities purchased by the company three months ago.

14. Which of these items is not a typical example of credit memo in bank reconciliation?
a. Technically defective checks
b. Proceeds of bank loan credited to the account of the depositor
c. Matured time deposits transferred by the bank to the current account of the
depositor
d. Notes receivable collected by bank in favour of the depositor and credited to the
account of the depositor.

15. Which of the following is false with regards the bank reconciliation?
a. Proceeds of bank loan not recorded in the ledger will be deducted in the bank to
book reconciliation.
b. Deposit in transit will be deducted in the book to bank reconciliation.
c. A customer’s check was returned by bank marked DAIF will be deducted in the
book to bank reconciliation.
d. Proceeds from customer note collected by the bank will be ignored in the bank to
book reconciliation.

16. PAS 32 shall be applied to which of the following except:

a. To those contracts to buy or sell a nonfinancial item that can be settled net in cash
or another financial instrument, or by exchanging financial instruments, as if the
contracts were financial instruments.

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 b. To all derivatives that linked to interests in subsidiaries, associates or joint
ventures.
c. Employer’s rights and obligations under employee benefit plans.
d. To treasury shares purchased, sold, issued or cancelled in connection with
employee share option plans, employee share purchase plans and all other share
based payment arrangements.

17. A financial instrument is any contract that gives rise to

a. A financial asset only
b. A financial liability only
c. A financial asset of one entity and a financial liability or equity instrument of
another entity
d. A financial asset of one entity and a financial liability of another entity

18. The effective interest method of amortizing discount provides for:

a. Increasing amortization and increasing interest income.
b. Increasing amortization and decreasing interest income.
c. Decreasing amortization and increasing interest income.
d. Decreasing amortization and decreasing interest income.

19. Bonds usually sell at a premium

a. When the market rate of interest is greater than the stated rate of interest on the
bonds.
b. When the stated rate of interest on the bonds is greater than the market rate of
interest.
c. When the price of the bonds is greater than the market rate of interest.
d. In none of the above cases.

20. Which of the following account will affect the cost of goods sold
a. Purchase discount Lost
b. Abnormal Inventory Shortage
c. Gain on reversal of Inventory writedown
d. Loss on Purchase Commitment

21. Taxes may be included in the costs of inventory unless they are
a. Levied on the entity by a foreign government
b. Recoverable by the entity from the taxing authority
c. In respect to the raw materials component of manufactured inventory
d. In the nature of import duties

22. The weighted average inventory costing method is particularly suitable to inventory
where
a. Homogenous products are mixed together
b. Goods have distinct use by dates and the goods produced first must be sold
earliest
c. The entity carries stock of raw materials, work in process and finished goods
d. Dissimilar products are stored in separate locations

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 23. In the period of rising prices, the inventory method which tends to give the highest
reported net income is
a. Base stock
b. FIFO
c. LIFO
d. Weighted average

24. The pronouncement of FRSC provides the highest authoritative pronouncements on

accounting principles. The authority of these pronouncements rests upon
a. Their general acceptability
b. The integrity of the council
c. The rules and regulations of the SEC
d. Its management and their internal accounting staff

25. Which of the following is not a basic purpose of the Conceptual Framework?
a. To assist the FRSC in developing accounting standards that will represent
Philippine GAAP.
b. To assist the Board of FRSC in promoting harmonization of regulations,
accounting standards and procedures relating to the presentation of financial
statements by eliminating all alternative accounting treatments found in the
Philippine Accounting Standards
c. To assist preparers of financial statements in applying accounting standards and in
dealing with issues not yet covered by GAAP.
d. To provide information to those who are interested in the work of FRSC in the
formulation of PFRS.

26. The six items mentioned below exhibits, violates and/or describes the underlying
accounting assumptions. Which of these items best illustrates the four different basic
accounting assumptions?

I – The operations of AAA Company are being evaluated by the Bank of Philippine
Island. During the investigation by the BPI, it has determined that there are numerous
loan made by the Company were unwise that may seriously endangered the future of the
Company.
II – AAA Company prepared financial statements adjusted for changes in purchasing
power.
III – An asset was imported in Singapore a few years ago. Because of inflation, the asset
has now a current replacement cost higher than the historical cost. The management
wanted to report it at current replacement cost.
IV – AAA Company decided to publish financial statement after two years rather than the
traditional yearly report as it experienced a drastic reduction in revenue.
V – AAA Company reported the cost of the jet plane owned by one of the directors as an
asset of the company.
VI – The idle cash of AAA Company amounting to P4.5 Million can buy as much goods
and services as five years ago.

a. I, II, III and IV c. II, IV, V, VI

b. I, II, III and V d. I, III, IV, V

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 27. The following items describe the qualitative characteristics of the financial information.
Which of these items are classified as fundamental or enhancing qualities?
I – Information that has no bearing on an economic decision to be made is useless.
II – The older the information, the less useful.
III – It requires that users have some knowledge of the complex economic
activities of entities, the accounting process and the technical terminology in the
statement.
IV – Small expenditures for tools are expenses immediately.
V – The information should be presented in a manner that facilitates
understanding and avoids erroneous implication.
VI – The description and numbers of figures must match what really existed or
happened.
I II III IV V VI
A. Fundamental Enhancing Enhancing Enhancing Enhancing Fundamental
B. Fundamental Enhancing Fundamental Fundamental Enhancing Fundamental
C. Fundamental Enhancing Enhancing Fundamental Fundamental Fundamental
D. Enhancing Fundamental Enhancing Fundamental Enhancing Fundamental

28. Adjusting entry affect

a. One nominal account and one real account
b. Two nominal accounts
c. Two real accounts
d. No particular combination of nominal and real accounts

29. Which of the following statements is false?

a. Closing entries reduce the balances of temporary accounts to zero so that they
may be used to accumulate the revenue, expenses and dividends of the next
period.
b. Post closing trial balance does not include nominal accounts
c. Reversing entries must be made at year end
d. Adjusting entries that should be reversed includes all accruals, those that debit an
asset or credit a liability.

30. Which of the following is a recordable event or item?

a. Changes in managerial policy
b. The value of human resources
c. Changes in personnel
d. None of these
31. Unearned revenue on the books of one company is likely to be
a. An accrued revenue on the books of the company that made the advance payment
b. An accrued expense on the books of the company that made the advance payment
c. An unearned revenue on the books of the company that made the advance
payment
d. A prepaid expense on the books of the company that made the advance payment.

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 32. PAS 1 states that an entity shall present additional line items, headings and subtotals in
the statement of financial position, if such, the entity makes judgement to present
additional items separately on the basis of an assessment of
a. The nature and liquidity of assets
b. The function of assets within the entity
c. The amount, nature and timing of liabilities
d. All of the above

33. An entity shall classify an asset as current when:

a. it expects to realize the asset, or intends to sell or consume it, in its normal
operating cycle
b. it holds the asset primarily for the purpose of trading
c. it expects to realize the assets beyond twelve months after the reporting period
d. the asset is cash or a cash equivalents unless the asset is restricted from being
exchanged or used to settle a liability for at least twelve months after the reporting
period.

34. Which of the following is incorrect with regards the statement of comprehensive income
a. Income and expense recognized in the period shall be presented either in a single
statement of comprehensive income or two statements – income statement and
statement of comprehensive income.
b. An entity shall present additional line items, headings and subtotals in the
statement of comprehensive income and the separate income statement, when
such presentation is relevant to an understanding of entity’s financial performance
c. An entity shall present any items of income or expense as extraordinary items, in
the statement of comprehensive income or the separate income statements or in
the notes.
d. None of the above

35. When items of income or expense are material, an entity shall disclose their nature and
amount separately. Circumstances that would give rise to the separate disclosure may
include
a. Write downs of inventories to net realizable value or of property, plant and
equipment to recoverable amount only excluding the reversal of such write
downs.
b. Disposal of items of property, plant and equipment
c. Discontinued operations
d. Litigation settlements

36. An entity sells an item on account, which of the following is incorrect in recording the
transaction under different freight terms.
Freight Terms Accounts Allowance for Cash Freight Out Sales
Receivable Freight Charge
A. FOB Destination, Freight Collect Debit Credit NA Debit Credit
FOB Shipping Point, Freight
B. Debit NA NA NA Credit
Collect
C. FOB Destination, Freight Prepaid Debit Credit NA Debit Credit
FOB Shipping Point, Freight
D. Debit NA Credit NA Credit
Prepaid

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 37. In which account are post dated checks received classified?
a. Receivables c. Cash
b. Prepaid Expenses d. Payables

38. Which of the following is true when accounts receivable are factored without recourse?
a. The financing cost (interest expense) should be recognized ratably over the
collection period of the receivables
b. The factor assumes the risk of collectability and absorbs any credit losses in
collecting the receivables
c. The receivables are used as collateral for a promissory note issued to the factor by
the owner of the receivable
d. The transaction may be accounted for either as secured borrowing or as a sale,
depending upon the substance of the transaction.

39. The following statements relate to cash. Which of the following is incorrect?
a. The term “cash equivalent” refers to demand credit instruments such as money
order and bank drafts.
b. Compensating balances required by a bank may be included in “cash and cash
equivalent”.
c. Classification of a restricted cash balance as current or noncurrent should parallel
the classification of the related obligation for which the cash was restricted
d. The purpose of establishing a petty cash fund is to pay small expenses which
cannot be paid conveniently by means of check.

40. If the equity security are acquired in an exchange, the acquisition cost is determined by
reference to the following order of priority:
a. Carrying amount of asset given; fair value of asset received; fair value of asset
given
b. Fair value of asset received; carrying amount of asset given; fair value of asset
received
c. Fair value of asset given; fair value of asset received; carrying amount of asset
given
d. Fair value of asset received; fair value of asset given; carrying amount of asset
given

41. Under PAS 28, significance influence means

a. The power to participate in the financial and operating policy decisions of an
entity
b. The holding of significant proportion of the share capital in another entity
c. The contractually agreed sharing of control over an economic entity
d. The mutual sharing in the risks and benefits of a combined entity.

42. Which of the following is correct if cash dividends received by the investor from the
investee under the cost method and equity method, respectively?
a. A deduction from the investment account; dividend income
b. An addition to the investor’s share of the associates profit; dividend income
c. Dividend income; an addition to the investor’s share of the associates profit

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 d. Dividend income; a deduction from the investment account

43. If the investor ceases to have significant influence over an associate, how should the
investment be treated?
a. It should still be treated using equity method
b. It should be treated in accordance with PAS 39
c. The investment should be frozen at the date at which the investor ceases to have
significant influence
d. The investment should be treated at cost

44. Dwyn Corporation incorrectly included in its ending inventory items that is holding in
consignment for Xyl Inc. the effect of this error on the cost of goods sold and net income
of the succeeding period is
a. Understatement, overstatement
b. Understatement, understatement
c. Overstatement, understatement
d. Overstatement, automatically correct

45. Inventories are defined, except

a. Held for sale in the ordinary course of business
b. Used in the production or supply of goods and services for administrative
purposes
c. In the process of production for such sale
d. In the form of materials or supplies to be consumed in the production process or
the rendering of services

46. Which of the following would be included in the merchandise inventory amount reported
on IRC Company?
a. Items sold to SMALL Company on July 2015 and accounted for using the
instalment method (equal instalment are due each month for 24 months from date
of sale.
b. Items shipped to a customer on December 2015 with delivery expected on
January 2016, the term was FOB destination; an invoice has been mailed to the
customer
c. Items in IRC warehouse on consignment from another company
d. Items purchased from a supplier and en route directly to a customer of IRC; the
term from the supplier was FOB destination; invoice received but not yet paid.

47. How should sales staff commission be dealt with when valuing inventories at the lower of
cost and NRV, according to PAS 2 inventories?
a. Added to cost
b. Ignored
c. Deducted in arriving at NRV
d. Deducted from cost

48. Generally accepted accounting principles

a. Derived their credibility and authority from general recognition and acceptance by
the accountancy profession.

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 b. Derived their credibility and authority from the national government through SEC
c. Derived their credibility and authority from legal ruling and court precedents
d. Are accounting adaptations based on law of economic science

49. An entity’s revenue may result from

a. Decrease in asset – primary operations
b. Increase in an asset – incidental transactions
c. Increase in a liability - incidental transactions
d. Decrease in a liability – primary operations

50. Which is correct regarding financial concept of capital

a. The profit is earned only if the physical productive capacity of the entity at the
end of the period exceeds the physical productive capacity at the beginning of the
period.
b. It requires the adoption of the current cost basis of measurement.
c. If the main concern of users of financial statement is with the operating capability
of the entity.
d. If the main concern of users of financial statements is with the maintenance of
nominal invested capital or purchasing power of invested capital.

51. Which of the following is incorrect about the Conceptual Framework

I – The conceptual framework is a reporting standard and defines standard for any
particular measurement or disclosure
II – The basic purpose of Conceptual Framework is to promulgate rules and regulations
affecting the practice of the accountancy profession in the Philippines.
III – The Conceptual Framework are based on fundamental truth derived from the law of
nature.
IV - The Conceptual Framework of Financial reporting deals with Supplementary
Information
V – In cases of conflict, the requirements of the Conceptual Framework prevail over
those of the relevant PFRS.
VI – Conceptual Framework does not enhance the comparability of financial statement of
different entities.

a. Only three statements are incorrect

b. Only four statements are incorrect
c. Only five statements are incorrect
d. All of the statements are incorrect

52. Basic steps in the recording process include all of the following, except
a. Transfer the journal information to the appropriate account in the statement of
financial position
b. Analyze each transaction for the effect on the accounts
c. Enter the transaction information in a journal
d. All of the choices are correct regarding the basic steps in the recording process

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 53. The failure to properly record an adjusting entry to accrue a revenue results in
a. Understatement of revenue and an understatement of asset
b. Overstatement of revenue and an overstatement of asset
c. Overstatement of revenue and an overstatement of liability
d. Understatement of revenue and an understatement of liability

54. If ending balance of accounts receivable exceeds the beginning accounts receivable
a. Cash collections during the period exceed the amount of revenue earned
b. Net income for the period is less than the amount of cash basis income
c. No cash was collected during the period
d. Cash collections during the period are less than the amount of revenue earned

55. What is the chronological order in the evaluation of a typical standard?

a. Exposure draft, standard and discussion paper
b. Exposure, draft, discussion paper and standard
c. Standard, discussion paper and exposure draft
d. Discussion paper, exposure draft and standard

56. An entity presents the notes in the following order, to assist users to understand the
financial statements and to compare them with financial statements of other entities

I – Supporting information for items presented in the financial statements, in the

sequence in which each statement and each line item is presented.
II – Summary of significant accounting policies applied
III – Statement of compliance with PFRS
IV – Other disclosures

a. I, II, III, and IV c. III, II, I, and IV

b. II, III, I, and IV d. III, I, II and IV

57. Which is not included in the computation of other comprehensive income?

a. Unrealized loss from derivative contracts designated as fair value hedge
b. Loss from translating the financial statements of a foreign operation
c. Unrealized changes in the balance of revaluation surplus
d. Unrealized gain on available for sale financial asset

58. The components of other comprehensive income include

I – Changes in revaluation surplus
II – Remeasurements of defined benefit plans
III – Gains and losses arising from translating the financial statements of a foreign
operation
IV – Gains and losses from investments in equity instruments classified as held for
trading
V – Ineffective portions of gains and losses on hedging instruments in a cash flow hedge
a. I, II , III, IV and V c. I, II and III
b. I, II, III and V d. I, II and IV

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 59. If the cash balance shown in a company’s accounting records is less than the correct cash
balance and neither the company nor the bank has made any errors, there must be
a. Deposits in transit
b. Outstanding checks
c. Deposits credited by the bank but not yet recorded by the company
d. Bank charges not yet recorded by the company.

60. Accounts receivable are normally reported at the:

a. Present value of future cash receipts
b. Expected amount to be received
c. Current value less expected collection costs
d. Current value plus accrued interest

61. Which is more theoretically correct about cash discounts related to accounts receivable?
a. Net approach
b. Gross approach
c. Allowance approach
d. All three approaches are theoretically correct

62. Which method does not properly match expense and revenue?
a. Charging bad debts as accounts are written off as uncollectible
b. Charging bad debts using aging of accounts receivable under the allowance
method
c. Charging bad debts using a percentage of accounts receivable under the allowance
method
d. Charging bad debts with percentage of sales under the allowance method

63. If the company is using the equity method and the investor pays more than the carrying
amount of the net assets acquired, the excess will be
a. If the excess is attributable to undervaluation of depreciable asset, it is amortized
over the life of the depreciable asset.
b. If the excess is attributable to undervaluation of land, a debit to investment
income and a credit to investment in associate will be made.
c. If the excess is attributable to inventory, the amount is expensed when the
inventory is sold.
d. If the excess is attributable to goodwill, it is not included in the carrying amount
of the investment and must be amortized

64. In investment in equity, the dividend income will be credited under the following scenarios
Property Liquidating Stock Shares in lieu of Cash in lieu of
Dividend Dividend Dividend cash dividend stock dividend
A Yes Yes No No Yes
B Yes No No Yes No
C Yes Yes Yes No Yes
D Yes No No No Yes

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 65. Under PAS 39, what is the best evidence of fair value of a financial instrument?
a. Its cost, including transaction costs directly attributable to its purchase,
origination and issuance
b. Its estimated value determined using discounted cash flow techniques, option
pricing models
c. Its quoted price, if an active market exists for the financial instrument
d. The present value of the contractual cash flows less impairment

66. Under PAS 39, what is the principle for recognition of a financial asset?
a. A financial asset is recognized when the entity becomes a party to the contractual
provisions of the instrument
b. A financial asset is recognized when it is probable that future economic benefits
will flow to the entity and the costs or value of the instrument can be measured
reliably.
c. A financial asset is recognized when the entity obtains control of the instrument
d. A financial asset is recognized when the entity obtains the risks and rewards of
ownership of the financial asset and has the ability to dispose the financial asset.

67. Losses which are expected to arise from firm and noncancellable commitments for the
future purchase of inventory items, if material should be
a. Recognized in the accounts by debiting loss on purchase commitments and
crediting estimated liability for loss on purchase commitments
b. Disclosed in the notes
c. Ignored
d. Charged to retained earnings

68. At the end of the accounting period, the current market value of a purchase commitment
was less than the fixed purchase price. Which treatment is most appropriate?
a. Describe the nature of the contract in a note to the financial statements and
recognize a liability for the accrued loss.
b. Describe the nature of the contract and the estimated amount of the loss in a note
c. Describe the nature of the contract in a note to the financial statements, recognize
a loss and recognize a reduction in inventory equal to the amount of loss
d. Neither describe the purchase obligation nor recognize a loss

69. Which of the following statements regarding inventory accounting system is true?
a. A disadvantage of the perpetual inventory system is that inventory amounts used
for interim reporting purposes are estimate amounts.
b. A disadvantage of the periodic inventory system is that the cost of goods sold
used for financial reporting includes both the cost of inventory and inventory
shortages.
c. The advantage of the perpetual inventory system is that the record keeping simple
d. An advantage of the periodic system is that it provides a continuous record of
inventory.

70. When the cost of goods sold method is used to record inventory at NRV
a. The NRV is substituted for cost and the loss is buried in costs of goods sold

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 b. Only the portion of the loss attributable to inventory sold is recorded
c. A loss is debited directly and credited to inventory
d. There is direct reduction in the selling price of the inventory

71. In relation to the recognition principle of an item in the financial statements

a. Assets can only be recognized where there is a high probability of future
economic benefits flowing to the entity.
b. Items of equity must satisfy both the probability and measurement criteria before
they can be recognized.
c. For liabilities, they must first satisfy the definition of an element and then meet
both the probability and measurement requirements in relation to recognition.
d. Income is recognized when it is probable that an increase in future economic
benefit related to an increase in asset or liability has arisen and that increase in
economic benefits can be measured reliably.

72. In relation to the elements of the financial statements

a. A resource controlled by the entity as a result of past events and from which
present economic benefits are expected to flow the entity.
b. Are decreases in economic benefits during the period in the form of outflows or
depletions of assets or incurrence of liabilities that result in increase in equity,
other than those relating to distributions to equity participants.
c. A present obligation of the entity arising from past events, the settlement of which
is expected to result in an outflow from the entity of resources embodying
economic obligation.
d. Increases in economic benefits during the accounting period in the form of
inflows or enhancements of assets or decreases in liabilities that result in increases
in equity, other than those relating to contributions from equity participants.

73. Which of the following best describes Employees as users of financial information?
a. Those who are providers of risk capital and concerned on the risk inherent in and
its return.
b. Those who have interest in information about the continuance of an entity,
especially when they have a long term involvement with, or dependent on, the
entity.
c. Those who are interested in information about the stability and profitability of the
entity.
d. Those who are interested on the trends and recent developments in the prosperity
of the entity and the range of its activities.

74. In relation to measurement elements of financial statements

a. The framework adopts a mixed attribute accounting model
b. Net realizable value is the preferred basis for measurement of assets
c. The framework acknowledges that a variety of measurement bases are used to
different degrees and in varying combinations in financial statements
d. The framework includes detailed concepts and principles for selecting which
measurement basis should be used for particular elements of financial statements

75. The adjusting entry for depreciation has the same effect as the adjusting entry for

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 a. An unearned revenue c. An accrued revenue
b. A prepaid expense d. An accrued expense

76. Which of the following statements regarding the term “profit” is true?
I – Profit is any amount over and above that required to maintain the capital at the
beginning of the period.
II – Profit is the residual amount that remains after expenses have been deducted from
income.

a. I only c. Both I and II

b. II only d. Neither I nor II

77. Which of the following statements is false regarding adjusting entries?

a. Cash is neither debited nor credited as a result of adjusting entries
b. Each adjusting entry affects one statement of financial position account and one
income statement account
c. Each adjusting entry affects one revenue account and one expense account.
d. Adjusting entries involve accruals or deferrals

78. A voucher system is usually used for transaction involving

a. Cash receipts c. Cash receipts and disbursements
b. Cash disbursements d. Purchases on account

79. In relation to “Retained Earnings”, PAS 1 Presentation of Financial Statements the

following disclosures except
a. Any changes during the reporting period
b. The related tax adjustments in respect to any changes during the period
c. The beginning balance
d. The balance at reporting date

80. According to PAS 1 – Presentation of Financial Statements, which of the following is not
among the criteria in classifying a liability as a current?
a. Expected to be settled in the entity’s normal operating cycle
b. Due to be settled within twelve months after the balance sheet date
c. It is held primarily for the purpose of being traded
d. The entity has an unconditional right to defer settlement of the liability for at least
twelve months after the balance sheet date.

81. Big Company decided to extend its reporting period from a year (12 month period) to a
15 month period. Which of the following is not required under PAS 1 in case change in
reporting period?
a. Big Company should disclose the fact that amounts presented in the financial
statements are not entirely comparable.
b. Big Company should disclose that comparative amounts used in the financial
statements are not entirely comparable.
c. Big Company should change the reporting period only if other similar entities in
the geographical area in which it generally operates have done so in the current
year; otherwise its financial statements would not be comparable to others.

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 d. Big Company should disclose the reason for using a longer period than a period of
12 months.

82. The operating cycle of an entity

a. Is usually assumed to be more than 12 months due to business cycle
b. Has a maximum period of twelve months
c. Is the time between the acquisition of assets for processing and their realization in
cash or cash equivalents.
d. Is the same as the operating cycle of other entities

83. A cash short and over account

a. Is a contra account to cash
b. Is debited when the petty cash fund proves out short
c. Is debited when the petty cash fund proves out over
d. Is not generally accepted

84. Which of the following concepts relates to the allowance method in accounting for
accounts receivable?
a. Bad debt expense is management determination of which accounts will be sent to
the attorney for collection.
b. Bad debt expense is an estimate that is based only on an aging of accounts
receivable
c. Bad debt expense is based on the actual amount determined to be uncollectible
d. Bad debt expense is an estimate that is based on historical and prospective
information

85. Which of the following are characteristics of financial assets classified as loan and
receivables, except:
a. They have fixed or determinable payments
b. The holder can recover substantially all of its investment (unless there has been a
credit deterioration)
c. They are not quoted in an active market
d. The holder has demonstrated positive intention and ability to hold them to
maturity.

86. REY Company uses the allowance method in recognizing uncollectible accounts.
Ignoring deferred taxes, the entry to record the write off of a specific uncollectible
account
a. Affects neither net income nor working capital
b. Decrease both net income and accounts receivable
c. Affects neither net income nor accounts receivable
d. Decreases both net income and working capital

87. What is the effective interest rate of a debt instrument measured at amortized cost?
a. The stated coupon rate of the debt instrument
b. The interest rate currently charged by the entity or by others for similar debt
instrument

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 c. The interest rate that exactly discounts estimated future cash payments through
the expected life of the debt instrument to the net carrying amount of the
instrument
d. The basic, risk free interest rate that is derived from observable price.

88. What is the method of accounting for investment in joint venture?

a. Cost method
b. Equity method
c. Consolidation method
d. Fair value method

89. Which of the following is false about the classification of financial assets under PFRS 9?
a. The classification depends on the business model whether to hold investment in
order to realize fair value changes or in order to collect contractual cash flows.
b. Financial assets at amortized cost includes both equity and debt securities
c. Financial assets at fair value through other comprehensive income include both
equity and debt securities
d. Financial assets at fair value through profit or loss include both equity and debt
securities.

90. Which of the following is incorrect about the measurement of financial assets?
a. Initial recognition of financial asset shall be measured at fair value plus
transaction cost that are directly attributable to the acquisition of the financial
asset, except those held for trading.
b. Transaction costs include debt premiums or discounts, financing costs or holding
costs.
c. Financial assets will be subsequently measured through profit or loss, other
comprehensive income or amortized cost.
d. The fair value of a financial asset at initial recognition is normally the transaction
price or the fair value of the consideration given.

91. Net realizable value is the general rule for valuing which of the following types of
inventory?
a. Inventories priced on an item by item basis
b. Computer components held for sale to manufacture
c. Commodities held by broker traders
d. All of the choices are held at NRV

92. How is the gross profit method used as it relates to inventory valuation?
a. Verify the accuracy of the perpetual inventory
b. Verify the accuracy of the physical inventory
c. To estimate the cost of goods sold
d. To provide a LIFO inventory value

93. Current cost as defined in the Conceptual Framework is

a. The amount of cash or cash equivalent that would have to be paid if the same or
an equivalent asset is acquired currently.

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 b. The amount of cash or cash equivalent paid or the consideration to acquire an
asset.
c. The discounted value of the future net cash inflow that an asset is expected to
generate in the normal course of business.
d. The amount of cash or cash equivalent that could currently be obtained by selling
the asset in an orderly disposal.

94. What is meant by comparability when discussing financial accounting information?

a. Information has predictive and feedback value
b. Information is reasonably free from error
c. Information is measures and reported in a similar fashion across entities
d. Information is timely

95. Z equals the sum of the debit column of a company’s unadjusted trial balances, and Y
equals the sum of the credit column. Which of the following statement is correct?
a. If Z equals Y, there is no chance that the company committed a recording error
b. IF Z does not equal Y, it is possible that no errors were committed.
c. Z typically does not equal Y because the adjusting entries have not yet been
recorded
d. Z does not equal the sum of all account increases during the year

96. Which of the following adjusting entries cannot be subject to reversing entries?
a. Accrual of income c. Deferral of income under the income method
b. Accrual of expense d. Deferral of expense under the asset method

97. Which one of the following concepts is least related to adjusting entry?
a. Accrual c. Materiality
b. Approximation d. Matching of cost against revenue

98. Which of the following is correct about the financial assets measured at fair value
through profit or loss
a. Financial assets measured at fair value through profit or loss by option includes
financial assets held for trading or popularly known as trading securities
b. Financial assets measured at fair value through profit or loss by default includes
debt instruments that do not satisfy the requirement at amortized cost and the fair
value through other comprehensive income
c. Financial assets measured at fair value through profit or loss by requirement
includes all other investment in quoted equity instrument.
d. Financial assets measured at fair value through profit or loss by consequence are
financial assets that are irrevocably designated on initial recognition at fair value
through profit or loss.

99. Which of the following is incorrect about the reclassification of financial asset?
a. When reclassification occurs, the entity shall apply the reclassification
retrospectively from the reclassification date.
b. The reclassification of financial asset only happens when it changes its business
model for managing the financial asset.

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 c. The reclassification date is the first day of the reporting period following the
change in business model that results in an entity reclassifying financial asset.
d. When an entity reclassifies financial asset from FVTPL to amortized cost, the fair
value at the reclassification date becomes the new carrying amount of the
financial asset at amortized cost.

100. Miller Company pledged some accounts receivable to Milan Financing

Corporation in return for a loan. Which of the following statements is correct?
a. Milan Financing will take title to the accounts receivable and will return title to
Miller after the loan is paid
b. Milan Financing cannot take title to the accounts receivable if Miller does not
repay the loan
c. Miller will retain control of the accounts receivable
d. Milan Financing will assume the responsibility of collecting the receivables.

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