Conceptual Framework and Accounting Standards

The Accountancy Profession

1. S1: “Accounting is the process of identifying, measuring and communicating economic information to permit informed
judgement and decision by users of the information”. This definition is provided by the American Accounting
Association.
S2: The subject matter of accounting is economic activity or the measurement of economic resources and obligations.
S3: An example of an internal transaction is a casualty loss.
S4: Implicit in the communicating process are the recording, classifying, summarizing and interpreting aspects of
accounting.
S5: The essence of accounting is decision-usefulness.

How many statements are incorrect?

a. One
b. Two
c. Three
d. Four

2. S1: At present, Republic Act No. 9298 is the law regulating the practice of accountancy in the Philippines. This law is
known as the “Philippine Accountancy Act of 2004”.
S2: The Board of Accountancy is responsible for preparing the Philippine CPA Licensure Examination while the
Professional Regulation Commission is responsible for grading the said examination.
S3: Auditing has traditionally been the secondary service offered by most public accounting practitioners.
S4: A CPA shall be temporarily exempted from CPD requirements upon reaching the age of 65 years.

How many statements are correct?

a. One
b. Two
c. Three
d. Four

3. Financial Reporting Standards Council consists of the following, except

a. Board of Accountancy (1)

b. Financial Executives Institute of the Philippines (1)
c. Commission on Audit (1)
d. Philippine Institute of Certified Public Accountants (1)

The Revised Conceptual Framework

4. Which of the following statements is incorrect regarding the limitation of financial reporting?

a. General purpose financial reports do not and cannot provide all of the information that existing and potential
investors, lenders and other creditors need.
b. General purpose financial reports are designed to show the value of an entity.
c. General purpose financial reports are based on judgement and estimate.
d. General purpose financial reports are intended to provide common information to users.

5. The objective of financial reporting in the Revised Conceptual Framework

a. Is the foundation for the conceptual framework.

b. Includes the qualitative characteristics that make accounting information useful.
c. Is the “how” of accounting.
d. All of the choices are correct regarding the objective of financial reporting.

6. 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 measured and reported in a similar fashion across entities.
d. Information is measured and reported in a similar fashion across points in time.

7. Which of the following best describes the cost-benefit constraint?

a. The benefit of the information must be greater than the cost of providing it.
b. Financial information should be free from cost to users of information.
c. Cost of providing financial information is not always evident or measurable but must be considered.
d. All of the choices are correct.

8. Under the Revised Conceptual Framework, the measurement bases include

a. Historical cost
b. Current cost
c. Fair value
d. Value in use

9. S1: Financial capital is defined as net assets or equity in monetary terms.

S2: The physical capital concept requires that productive assets shall be measured at current cost.

a. True, True
b. True, False
c. False, True
d. False, False

Presentation of Financial Statements

10. S1: Shareholder’s equity is the residual interest of owners in the net assets of a corporation measured by the excess
of liabilities over assets.
S2: PAS 1, paragraph 74, provides that liability is classified as noncurrent even if 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.

a. True, True
b. True, False
c. False, True
d. False, False

11. The following components of other comprehensive income include the following:

I. Changes in revaluation surplus where the revaluation method is used under PAS 16 Property, Plant and Equipment and
PAS 38 Intangible Assets
II. Remeasurements of a net defined benefit liability or asset recognized in accordance with PAS 19 Employee Benefits
III. Exchange differences from translating functional currencies into presentation currency in accordance with PAS 21
The Effects of Changes in Foreign Exchange Rates
IV. The effects of changes in the credit risk of a financial liability designated as at fair value through profit and loss under
IFRS 9.
How many components are subsequently reclassified to profit or loss when specific conditions are met?

a. One
b. Two
c. Three
d. Four

12. Using the same information in 11. How many components are subsequently reclassified to retained earnings?

a. One
b. Two
c. Three
d. Four

13. Using the natural presentation of financial statement, how should the cost of goods sold be reported?

a. As a separate line item below the net sales.

b. As a separate line item below the net sales with a proper disaggregation at the notes.
c. As a separate line item below the beginning balance of the retained earnings.
d. None of the foregoing.

Inventories

14. Which of the following would not be reported as inventory?

a. Goods out on consignment

b. Goods in transit sold under FOB Destination
c. Goods in transit sold under FOB Seller
d. Goods purchased under a buyback agreement

15. Net realizable value

a. Is accounted if it is higher than the cost.

b. Is ignored if it is lower than the cost.
c. Is the estimated selling price in the ordinary course of business less the estimated cost of completion and the
estimated cost of disposal.
d. None of the choices are correct.

Statement of Cash Flows

16. S1: A declaration and distribution of stock dividend is classified as an operating activity.
S2: A cash payment to acquire equity instruments of other entities are classified as a financing activity.
S3: A cash payment to acquire treasury shares is classified as an investing activity.
S4: A cash receipt for securities held for trading is classified as an investing activity.

How many statements is/are incorrect?

a. One
b. Two
c. Three
d. Four

17. S1: Interest paid may be classified alternatively as a financing activity.

S2: Dividend received may be classified alternatively as an investing cash flow.
S3: Income taxes paid may be classified alternatively as an operating activity.
How many statements is/are incorrect?

a. One
b. Two
c. Three
d. None of the statements are incorrect.

Accounting Policies, Estimate and Errors

18. Accounting Policies, Estimate and Errors are found at

a. PAS 2
b. PAS 7
c. PAS 8
d. PAS 34

19. An accounting change that is not clearly distinguishable is accounted as a

a. Change in accounting policy.

b. Change in accounting estimate.
c. Prior period error.
d. A or B.

20. Prior period errors shall be corrected

a. Retrospectively.
b. Prospectively.
c. Using a note disclosure.
d. By providing a provision.

Events after the Reporting Period

21. All are adjusting events, except

a. Settlement after the reporting period of a court case that was deemed uncertain at year-end.
b. The discovery of fraud or errors that resulted to unfaithfully represented financial statements.
c. The determination after the reporting period of the cost of the asset purchased.
d. The destruction of a major plant by a fire after the reporting period but before the financial statements are authorized
for issue.

22. An entity issued share capital comprised 100,000 ordinary shares with P100 par value at P125 each. This includes a

a. Debit to cash for P12,500,000.

b. Credit to share capital for P12,500,000.
c. Credit to share premium for P10,000,000.
d. Note disclosure.

Property, Plant and Equipment

23. The subsequent measurement of a property, plant and equipment may be

a. Cost model
b. Fair value model
c. Cost or fair value model
d. Cost or revaluation model
24. The second order of priority in measuring plant, property and equipment through issuance of share capital is the

a. Fair value of the property received

b. Book value of the property received
c. Fair value of the share capital
d. Par value of the share capital

25. All of the statements are correct about fully depreciated property, except

a. A property is said to be fully depreciated when the carrying amount is equal to zero, or the carrying amount is equal
to the residual value.
b. The asset account and the related accumulated depreciation account are closed and the residual value is set up in a
separate account.
c. The cost of fully depreciated asset remaining in service and the related accumulated depreciation ordinarily shall not
be removed from the accounts.
d. Entities are required to disclose fully depreciated property.

Government Grant

26. A loss on repayment of grant is treated as a

a. Change in accounting estimate.

b. Change in accounting policy.
c. Prior period error.
d. Note disclosure.

27. Which of the following is not a government assistance.

a. Free technical or marketing advice.

b. Imposition of trading constraints on competitors.
c. Provision of guarantee.
d. Government procurement policy that is responsible for a portion of the entity’s sales.

28. A grant that is a reduction from the cost of an asset

a. Overstate net income.

b. Overstate assets.
c. Understate liabilities.
d. Understate expenses.

Borrowing Cost

29. If the qualifying asset is financed by general borrowings, the capitalizable borrowing cost is equal to

a. Actual borrowing cost incurred.

b. Total expenditures on the asset multiplied by a capitalization rate.
c. Average expenditures on the asset multiplied by a capitalization rate or actual borrowing cost incurred, whichever is
lower.
d. Average expenditures on the asset multiplied by a capitalization rate or actual borrowing cost incurred, whichever is
higher.

30. Interest income from specific borrowing is treated as a

a. reduction from cost of the qualifying asset.

b. reduction from the related borrowing or debt.
c. part of retained earnings.
d. part of other comprehensive income.

Related Party Disclosures

31. Which of the following is not an evidence of significant influence?

a. Representation in the board of directors.

b. Interchange of managerial personnel.
c. Provision of essential technical information.
d. Exclusion in policy making process.

32. All are example of a related party transaction, except

a. Leases.
b. Guarantee and collateral.
c. License agreement.
d. Settlement of liabilities of the parent entity.

Investment in Associate

33. An undervaluation of the investee’s nondepreciable asset that remained unsold at year-end will

a. Reduce the carrying amount of the investment.

b. Increase the carrying amount of the investment.
c. Increase the investment income for the year.
d. None of the choices are correct.

34. If the investment ceases to have significant influence over an associate, the investor shall account for the investment
as

a. Financial asset at fair value through profit or loss.

b. Financial asset at fair value through other comprehensive income.
c. Nonmarketable investment at cost or investment in unquoted equity instrument.
d. All of these may be used in accounting the investment.

Interim Financial Reporting

35. The following information is available to you:

I. Advertising costs of 90,000.

II. Depreciation charge of 120,000 for the year.
III. Amortization table totalling to 50,000 for the year.
IV. Year-end bonuses of 1,200,000 for the year.
V. Dividend paid from an investor amounting to 125,000.

Which of the following costs is/are not expensed outright?

a. I, II and III
b. II, III and IV
c. III, IV and V
d. I, III and IV
36. Interim financial reports are presented

a. Annually.
b. Semi-annually.
c. Quarterly.
d. Whenever the entity wishes to.

Impairment of Assets

37. Composition of estimates of future cash flows include all, except

a. Projections of cash inflows from the continuing use of the asset.

b. Projections of cash outflows necessarily incurred to generate the cash inflows from the continuing use of the asset.
c. Net cash flows received or paid on the disposal of the asset.
d. Future cash flows relating to restructuring to which the entity is not yet committed.

38. S1: The recoverable amount of an asset is the fair value less cost of disposal or value in use, whichever is higher.
S2: Value in use is measured as the present value or discounted value of future net cash flows expected to be derived
from an asset.

a. True, True.
b. True, False.
c. False, True.
d. False, False.

Intangible Assets

39. The cost of a separately acquired intangible comprises of

a. Purchase price.
b. Import duties.
c. Nonrefundable purchase tax.
d. All of these are included as the cost of a separately acquired intangible asset.

40. S1: PAS 38, paragraph 63, explicitly provides that internally generated brand, masthead, publishing title, customer
list and other item similar in substance shall be recognized as intangible asset.
S2: PAS 38, paragraph 48, provides that internally generated goodwill shall not be recognized as an asset.
S3: An example of an identifiable intangible asset is a customer list.

How many statements are incorrect?

a. One
b. Two
c. Three
d. None

Investment Property

41. Which of the following would not qualify as an investment property?

a. Land held for long-term capital appreciation.

b. Land that is vacant but is held to be leased out under an operating lease.
c. Land held for currently undetermined use.
d. Property that is being constructed or developed for future use as investment property.
42. It is defined as property held for use in the production or supply of goods or services or for administrative purposes;
or sale in the ordinary course of business.

a. Owner-occupied property
b. Investment property
c. Business property
d. Rental property

Agriculture

43. Which of the following is accounted under PAS 41?

a. Chicken in a cockpit arena.

b. Processed whip cream.
c. Agricultural land.
d. Carcass of a pig.

44. A plant with dual use is reported under

a. PAS 41.
b. PAS 16.
c. PAS 2.
d. PFRS 9.

Reporting in Hyperinflationary Economy

45. S1: Hyperinflation is a matter of judgement.

S2: Constant peso accounting is the restatement of historical financial statements in terms of the current purchasing
power of the peso through the use of index number.
S3: The index number used for restatement is known as general price index constructed by the Philippine Stock
Exchange.

How many statements are correct?

a. One
b. Two
c. Three
d. None

46. Examples of monetary items include all of the following, except

a. Financial assets held for trading.

b. Receivables under finance lease.
c. Bonds payable.
d. Accrued expenses.

Provision, Contingent Liability and Asset

47. S1: When the provision involves a large population of all items, the estimate of the amount reflects the weighting of
all possible outcomes by their associated probabilities.
S2. When the provision arises from a single obligation, the estimate of the amount is the midpoint of the possible
outcomes.
S3: The amount recognized as a provision should be the best estimate of the expenditure required to settle the present
obligation at the end of the reporting period.
How many statements are not incorrect?

a. One.
b. Two.
c. Three.
d. None.

48. S1: A gain contingency that is probable should be disclosed.

S2: A loss contingency that is possible should not be disclosed.
S3: A probable and measurable loss contingency is called a provision.
S4: The individual most likely outcome is used for a continuous range of outcomes.

How many statements are correct?

a. One
b. Two
c. Three
d. Four

Financial Instruments – Presentation

49. Which of the following is a financial instrument?

a. Cash in the form of checks.

b. Note and loan.
c. Debt security.
d. All of these are financial instruments.

50. S1: Share warrants attached to a bond may be detachable or nondetachable.

S2: Accordingly, the issuance of convertible bonds shall be accounted for as partly liability and partly equity.

a. True, True
b. True, False
c. False, True
d. False, False

Income Taxes

51. Permanent differences include all of the following, except

a. Interest income on deposits.

b. Dividends received.
c. Life insurance premium.
d. All of these are classified as permanent differences.

52. Accounting income being greater than the taxable income implies a

a. Deferred tax asset.

b. Deferred tax liability.
c. Income tax benefit.
d. None of the choices are correct.
Employee Benefits

53. The fair value of plan assets is increased by the following, except

a. Actual return on plan assets.

b. Contribution to the plan.
c. Interest income.
d. All of these increase the fair value of plan assets.

54. S1: If the actual return is higher than interest income, the difference is a remeasurement gain.
S2: Current service cost is the increase in the present value of the defined benefit obligation.
S3: Net interest on defined benefit liability or asset is the change in the defined benefit obligation, plan assets and asset
ceiling as a result of the passage of time.

How many statements are true?

a. One
b. Two
c. Three
d. None

Earnings per Share

55. S1: Where share dividends or share splits create a change in the capital structure, the increase or decrease in the
number of shares shall be recognized prospectively.
S2: Dilution arises when the inclusion of the potential ordinary shares decreases the basic earnings per share or
increases the basic loss per share.

a. True, True
b. True, False
c. False, True
d. False, False

56. S1: If the entity has a net loss, only the diluted loss per share is computed and reported.
S2: If there is a convertible preference share, the computation of diluted earnings per share also assumes that the
preference share is converted into ordinary share.

a. True, True
b. True, False
c. False, True
d. False, False

First Time Adoption of PFRS

57. This is defined as the first annual financial statements in which an entity adopts PFRS by an explicit and unreserved
statement of compliance with PFRS.

a. PFRS financial statements

b. First PFRS financial statements
c. Opening PFRS statement of financial position
d. First audited PFRS statements
58. S1: A first time adopter is an entity that presents for the first time its financial statements in conformity with
Philippine Financial Reporting Standards.
S2: The date of transition to PFRS depends on only one factor, the date of adoption of PFRS.

a. True, True
b. True, False
c. False, True
d. False, False

Share-based Payment

59. For transactions with employees, the fair value of the share options is measured on

a. Exercise date.
b. Grant date.
c. Vesting date.
d. Beginning of the year of grant.

60. It is the difference between the fair value of the shares to which the counterparty has the right to subscribe and the
price the counterparty is required to pay for those shares.

a. Fair value
b. Intrinsic value
c. Market value
d. Book value

61. An entitlement to receive cash which is equal to the excess of the market value of the entity’s share over a
predetermined price for a stated number of shares on settlement or exercise date.

a. Share options
b. Share appreciation right
c. Share-based payment
d. None of the choices are correct

Noncurrent Asset Held for Sale

62. S1: PFRS 5, paragraph 6, provides that a noncurrent asset or disposal group is classified as held for sale if the carrying
amount will be recovered principally through a sale transaction rather than through continuing use.
S2: A disposal group is a group of assets to be disposed of, by sale or otherwise, together as a group in a single
transaction, and liabilities directly associated with those assets that will be transferred in the transaction.
S3: PFRS 5, paragraph 13, provides that an entity shall not classify as held for sale a noncurrent asset or disposal group
that is to be abandoned.

How many statements are true?

a. One
b. Two
c. Three
d. None

63. A noncurrent asset that is already classified as held for sale shall be presented separately as

a. Current asset.
b. Noncurrent asset.
c. Either a or b.
d. Cannot be classified.
Discontinued Operation

64. S1: PFRS 5, paragraph 12, prohibits the retroactive classification as a discontinued operation when the discontinued
criteria are met after the end of reporting period.
S2: PFRS 5, paragraph 33, provides that an entity shall disclose a single amount comprising the total of pre-tax profit or
loss of the discontinued operation.
S3: An impairment loss is recognized when the fair value less cost of disposal of the discontinued operation is higher
than the carrying amount of the net assets.

How many statements are incorrect?

a. One
b. Two
c. Three
d. None

65. When an entity decided to sell a business component, the gain on the disposal should be

a. Presented as other income.

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

Exploration and Evaluation of Mineral Resources

66. Which of the following expenditures are included in the exploration and evaluation expenditures?

a. Expenditures incurred before an entity has obtained the legal right to explore a specific area.
b. Expenditures incurred after the technical feasibility and commercial viability of extracting a mineral resource are
demonstrable.
c. Both a and b.
d. Neither a nor b.

67. The following expenditures were given to you:

I. Acquisition of rights to explore.

II. Exploratory drilling.
III. Trenching.
IV. Sampling.
V. Activities in relation to evaluating the technical feasibility and commercial viability of extracting a mineral resource.

Which of the following activities are not exploration and evaluation expenditures?

a. I, II and III
b. I, II, III and IV
c. I, II, III, IV and V
d. All of these activities are exploration and evaluation expenditures.

Operating Segments

68. The overall size test should be at least

a. 75%
b. 80%
c. 85%
d. 90%
69. To be considered a reportable segment,

a. The segment revenue, including both sales to external customers and intersegment sales or transfers, is 10% or more
of the combined revenue, internal and external, of all operating segments.
b. The relative amount of profit or loss of the segment is 10% or more of the greater in relative amount of combined
profit or loss of all operating segments that reported a profit.
c. The assets of the segment are 5% or more of the combined assets of all operating segments.
d. None of these are true.

70. An entity should disclose all of the following about a major customer, except the

a. Total amount of revenue from major customer.

b. Identity of the segment reporting the revenue.
c. Fact of reliance on major customer
d. Identity of major customer

Financial Instruments

71. Which of the following statements regarding financial asset at fair value through profit or loss is correct?

a. Transaction costs are capitalized.

b. Unrealized gains or losses will go directly to retained earnings.
c. It is also called trading securities.
d. None of the choices are correct.

72. Investments of 20% to 50% shall be accounted using the

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

Fair Value Measurement

73. The market participants are the buyers and sellers in the principal market who are

a. Dependent parties.
b. Knowledgeable or having a reasonable understanding of the transaction.
c. Willing or motivated because of vitiation to enter into the transaction.
d. Related parties.

74. The highest and best use of the asset should possess the following characteristics, except

a. Physically possible
b. Legally permissible
c. Financially feasible
d. Substantially acceptable

Revenue from Contracts with Customers

75. PFRS 15 applies to all contracts with customers, except

a. Leases under PFRS 16.

b. Insurance contracts under PFRS 17.
c. Financial instruments under PFRS 9.
d. All of these statements are exception to PFRS 15 application.
76. The last step of the five-step model is the

a. Identification of the transaction price.

b. Identification of the performance obligation.
c. Allocation of the transaction price.
d. Recognition of revenue.

Leases

77. A lessee shall depreciate the right of use asset over the useful life of the underlying asset under the following
conditions, except

a. The lease transfer ownership of the underlying asset to the lessee at the end of lease term.
b. The lessee is reasonably certain to exercise a purchase option.
c. Both a and b.
c. Neither a nor b.

78. Measurement of lease liability is computed at

a. The future value of the lease payments.

b. The present value of the lease payments.
c. The future value of the right of use asset.
d. The present value of the right of use asset.

IFRIC Interpretations

79. The distribution of noncash asset to owners is a

a. payment of an existing obligation.

b. payment of property dividend to shareholders.
c. payment of share options.
d. payment of share appreciation rights.

80. The least priority in an equity swap is the

a. Fair value of the equity instrument issued.

b. Fair value of the liability extinguished.
c. Carrying amount of liability extinguished.
c. Par value of the equity instrument issued.

END