MIDTERM

Part 1: True or False

EXAM (201)
1. If an entity receives information after the reporting period about conditions that existed at the end of
the reporting period, it shall not update disclosures that relate to those conditions as those existed at the
end of the reporting period already. False
2. An entity may decide to include income or expenses in other comprehensive income when doing so
would result in the statement of profit or loss providing more relevant information, or providing a more
faithful representation of the entity’s performance for the period. False
3. The conceptual framework can override the requirements in a standard. False
4. The definition of control can be split in two parts: ability to direct the use of, and obtain benefits from
the asset. TRUE
5. Comprehensive income refers to all changes in equity during a period except those owners’ investments
and dividends. True
6. When assessment of when control has been transferred should be made from the perspective of the
customer. TRUE
7. Some items that do not meet the definition of an asset, a liability, or equity may be recognized in the
statement of financial position. False, Income Statement
8. Whenever comprehensive income is listed on the balance sheet, the statement of comprehensive
income must be included in the general-purpose financial statements to give external users details about
how comprehensive income is computed.
9. Only a legal entity can be a reporting entity. True
10. The accounting standards and interpretations fully observed and operating in the Philippines as issued
by the Accounting Standard Council (AS), Financial Reporting Standard Council (FRSC), Interpretations
Committee (IC), and Philippine Interpretations Committee (PIC) are practically accounting issuance and
interpretation issued by the counterpart organizations at the international level. False
11. International Accounting Standards is set of principle-based international accounting standards stating
how particular types of transactions or other business events should be reported and presented in the
financial statements. False, IFRS
12. Parallel to the worldwide development of accounting organization, the creation of the resulted in the
formation of the Financial Reporting Standards Council in the Philippines. True
13. The interpretation and guiding committee formed by the FRSC is known as the Philippine Interpretation
Committee (PIC). True
14. Both the International Standards and the Philippine Standards embody the set of theoretical concepts
and terms called Conceptual Framework.
True
 15. In the absence of a specific standard or interpretation, preparers of financial statements use the US
GAAP to develop and design accounting policies. False
16. Conceptual framework is broad in terms of perspective, scope, and application, while the PFRS/IFRS are
specific. TRUE
17. Conceptual Framework simply embodies different concepts or assumptions when preparing all-purpose
financial statements. True
18. Conceptual Framework is concerned with general-purpose financial statements including consolidated
financial statements. True
19. Special-purpose financial reports are outside the scope of the Conceptual Framework like prospectuses
and computations prepared for taxation purposes. TRUE
20. The definition of a legal entity is an entity where it is reasonable to expect that there are users
dependent on a general-purpose financial report (GPFR) to gain an understanding of the financial position
and performance of the entity, and to make decisions based on this financial information and other
information contained in the financial report. False
21. Financial statements rarely show the results of management’s stewardship of the resource entrusted
to it. False
22. Financial information is said to have confirmatory value if it can be used as an input to processes
employed by users to predict future outcomes. False, Predictive value
23. Financial statements must present truthfully the condition of the business. It must be complete, neutral,
and free from errors. Financial statements possess the qualitative characteristics of relevance. False,
Faithful Representation
24. The cost constraint is a threshold used to determine whether business transactions are important to
the financial results of a business. True
25. The materiality constraint is a GAAP constraint which stipulated that the benefits of reporting financial
information should justify and be greater than the costs imposed on supplying it. False, Cost Constraint

Part 2: Multiple Choice

1. Conceptual Framework describes prudence as

A. A Bias towards understanding liabilities or expenses
B. A mechanism for smoothing profits over time
C. A form of accounting conservatism
D. The exercise of caution when making judgments under conditions of uncertainty

2. Consolidated financial statements provide information about the assets, liabilities, equity, income, and
expenses of both the parent and its subsidiaries as
A. a single reporting entity
B. A legal entity
C. A separate reporting entities
D. A partnership

3. Income and expenses included in other comprehensive income

A. None of the given choices
B. Are always recycled into the statement of profit or loss at the need of the holding period of the related
asset of liability
 C. Are recycled into the statement of profit or loss the IASB decides that doing so results in the Statement
of profit or loss providing more relevant information, or providing a more representation of the entity;s
financial performance for that period
D. Are never reclassified (recycled) from other comprehensive income into the statement of profit or loss

4. Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets
or decreases of liabilities that result in an increase in equity, other than those relating to contributions from
equity participation.
A. Revenue
B. Gains
C. Income
D. All the given choices

5. The IASB declared that the merits of proposed standards are assessed
A. Based on arguments of lobbyist
B. Based on possible impact on behavior
C. From the position of neutrality
D. From a position of materiality

6. All of the following components of other comprehensive income (OCI) are reclassified to retained earnings,
except
A. Unrealized gain or loss on debt investment measure at FVOCI
B. Remeasurement of defined benefit plan
C. Unrealized gain or loss on equity instrument measure at FVOCI
D. Revaluation surplus

7. The due process system in developing financial accounting standards

A. Is an efficient system for collecting dues from members
B. Requires that all accountants must receive a copy of the financial accounting standards
C. Enables interested parties to express their views on issues under consideration
D. Identifies the accounting issues that are most important

8. Which of the following is not true?

A. The Statement of Comprehensive Income is best used to develop an understanding of the total cash
flows for the firm
B. The Balance Sheet is best used to develop an understanding of the operating performance of the firm
C. The Statement of Cash Flows is best used to develop an understanding of the earnings quality of the
firm

9. A current asset of liability is expected to be recovered or settled within

A. 12 months
B. 18 months
C. 24 months
 D. 6 months

10. Which of the following is not a liability

A. Rebates payable
B. Debentures
C. Amounts owed to stockholders as capital
D. Governments grants repayable

11. Under IAS 1, which of the following must be disclosed on the face of the statement of financial position?
A. All the choices given
B. Total assets classified as held for sale and assets included in disposal groups, classified as held for sale
C. Provisions
D. Non-controlling interest

12. Which of the following is not a requirement of a current liability?

A. Entity holds an unconditional right to defer settlement for over 12 months after the reporting date
B. Expected to be realized within 12 months from reporting date
C. Expected to be settled in the entity’s operating cycle
D. Held primarily for trading

13. Which of the following is not a requirement in the financial statements under IAS 1?
A. Name of entity
B. Presentation currency
C. Whether accounts cover a single entity or a group
D. Director’s commentary on performance

14. Which of the following is not a minimum item on the face of statement of comprehensive income?
A. Revenue
B. Profit or loss
C. Finance cost
D. Deferred Tax

15. What is the term used to describe the time between the acquisition of assets for processing and their
realization inc ash or cash equivalent?
A. Turnover
B. Processing cycle
C. Turnaround
D. Operating cycle

16. Accumulated profits (minus any losses) held by an entity are called
 A. Retained earnings
B. Provisions
C. Shareholders’ equity
D. Equity

17. Which is the best description of faithful representation?

A. Inclusion of a degree of caution
B. Influence on the economic decisions of users
C. Comprehensibility of users
D. Freedom from material error and bias

18. Which of the following statements about materiality is not correct?

A. All item is material if omitting, misstating, or obscuring it could reasonably be expected to influence
the economic decisions of primary users
B. Materiality is a subquality of relevance
C. Materiality is a matter of absolute size
D. An items must make a difference or it need not be disclosed

19. Coffee is
20. Making my

21. Which is not true about derecognition?

A. Derecognition of a liability normally occurs when the entity no longer has a present obligation fot the
recognized liability
B. Derecognition is the removal of a recognized income or expense from the income statement
C. Derecognition is the removal of a recognized asset of liability from the statement of financial position
D. Derecognition for an asset normally occurs when the entity loses control of the recognized asset

22. Hand shake

23. The primary responsibility for the preparation of the financial statements is reposed in
A. Entity’s management
B. Internal auditor
C. External auditor
D. Chief accountant

24. How many formats are permitted for income and expense items under IAS 1?
A. One
B. Three
C. Four
D. Two
25. So much

26. Which of the following is not a component of the statement of financial position?
A. Deferred tax
B. Inventories
C. Cost of goods manufactures
D. Retained earnings

27. Which of the following is not contained in the notes to the financial statements under IAS 1?
A. Number of employees
B. Details of specific accounting policies used
C. A statement of compliance with IFRS
D. Measurement basis used

28. Aym zori huhu

29. Where should extraordinary items appear in an entity’s Statement of Comprehensive Income?
A. Not shown in the statement
B. Notes
C. Income statement
D. Other comprehensive income

30. The disclosure of accounting policies is important to financial statements readers in determining
A. Whether accounting policies are consistently applied from year to year
B. Net income for the year
C. The value of obsolete items included in ending inventory
D. Whether the working capital position is adequate for future operations

31. A newly acquired plant asset is to be depreciated over its useful life. The rationale for this process is the
A. Economic entity assumption
B. Monetary unit assumption
C. Going concern assumption
D. Materiality assumption

32. An objective of financial accounting is

A. Evaluating the management results compared with standards
B. Providing information on compliance with established procedures
C. Assessing the adequacy of internal control
 D. Providing information useful to investors, creditors, donors, and other users for decision making

33. The management of ABC Corporation is analyzing the financial statements of XYZ Corporation because ABC
is strongly considering the purchasing a block of XYZ ordinary shares that would give ABC significant influence
over XYZ. Which financial statement should ABC primarily use to assess the amounts, timing, and certainty of
future cash flows of XYZ Company?
A. Statement of Cash Flows
B. Statement of Financial Position
C. Statement of Changes in Equity
D. Income Statement

34. Suppose that an entity has paid one of its liabilities twice during the year, in error. The effect of this
mistake would be
A. Assets and liabilities are understated
B. Assets, net income, equity are unaffected
C. Assets, liabilities, and equity are understated
D. Assets, equity and net income are understated, liabilities are overstated

35. You encounter an adjusting journal entry recorded at year end that contains a debit to rental revenue and
a credit to unearned rental revenue. The purpose of this journal entry is to record
A. Unexpired cost
B. Accrued revenue
C. Deferred revenue
D. Expired cost

36. Aqualife. Inc. Has raised 10% loan in Jan. 2019 from the Security Bank in the amount of P2,000,000 for a
period of five years. Liquidity of the company has improved in one year’s time and it has negotiated with the
bank to pre-terminate the loan on Dec. 31 2020. The agreement was modified on May 31, 2020, and the financial
statements were authorized to be issued on June 30, 2020. How should the loan balance be presented in the
Statement of Financial Position as of June 30, 2020?
A. Current asset
B. Current liability
C. Non-current liability
D. Non0current asset

37. In October 2020, Zayco Corporation bought equipment on credit from Thomas Machines Company with
credit terms of three months. Installation cost was billed in November and was paid in cash. The corporation
paid the equipment account in January 2021. Zayco Corporation should show in its December 31, 2020 financial
reports the account as
A. Trade payable
B. Trade receivable
C. Non-current liability
 D. Current asset

38. The company breach the terms of its long-term loan. It becomes payable on demand. The statement of
Financial Position date is June 30. The bank agrees not to demand payment as a consequence of the breach
prior to June 30, giving the company at least 12 months grace period to rectify the breach. The long-term loan
is shown as
A. Contingent liability
B. Deferred liability
C. Current liability
D. Non-current liability

39. Recognition of income occurs at the same time as

A. The derecognition of an asset, or a decreased in the carrying amount of an asset
B. All the choices given
C. The initial recognition of an asset, or an increase in the carrying amount of an asset
D. The initial recognition of a liability, or an increase in the carrying amount of a liability

40. The recognition of a particular asset or liability and any resulting income, expenses or changes in equity
may not always provide relevant information when
i. It is uncertain whether an asset of liability exist
ii. An asset or liability exists, but the probability of an inflow or outflow of economi benefits is low
iii. Both A and B
iv. Either A nor B
A. i
B. Iv
C. Ii
D. Iii

41. Instead of fulfilling an obligation to transfer an economic resource to the party that has a right to receive
that resource, entities sometimes decide to
i. Settle the obligation by negotiating a release from the obligation
ii. Replace that obligation to transfer an economic resource with another obligation by entering into a
new transaction
iii. Either a and b
iv. Neither a nor b
A. i
B. Iii
C. Ii
D. Iv

42. What provides “the why” or the foal and purpose of accounting?
A. Measurement and recognition concept
B. Objective of financial reporting
C. Element of financial reporting
 D. Qualitative characteristics of accounting information

43. The expectation gap is the difference between

A. What the public thinks accountants should do and what accountants think they can do
B. What the users of financial statements want from the government and what is provided
C. What financial information management provides and what users want
D. What the government agencies want from standard-setting and what the standards- setters provide

44. The publisher of a popular magazine offers special discounted price for a 3-year subscription. At the end of
the reporting period, the amount that has been collected but pertains to future period is best referred to as
A. Deferred subscription revenue (liability)
B. Accrued subscription revenue (asset)
C. Earned subscription revenue (income)
D. Pre-collected subscription receivable (asset)

45. Which of the following best describes the steps in correct order of the accounting cycle
A. Posting, closing, adjusting, reversing
B. Posting, adjusting, closing, reversing
C. Posting, reversing, adjusting, closing
D. Adjusting, posting, closing, reversing