National Federation of Junior Philippine Institute of Accountants

In cooperation with
Isla Lipana & Co. and CRC-ACE

National mock board examination 2014

February 15-16, 2014

THEORY OF ACCOUNTS

Instruction: On the answer sheet provided, Shade the letter representing

the best answer for each of the following questions. Necessary
computations should be made on separate sheets of paper. Avoid
making erasures. The scanning machine may invalidate your answer.

1.

2.

3.

4.

5.

6.

Which of the follo wing government sector got the biggest slice of the 2014 budget:
a. Social Serv ices
b. Defense
c. Economic
d. General
Services
Services

Public

The following Cash account tittles are included in the trial balance of a national government agency,
except
a. Petty cash
b. Cash-in Vau lt
c. Cash-Collecting
d. Cash-MDS,
Officer
Regular
All of the following are national government agencies except:
a. PUP
b. COA
c. GSIS
d. BIR
The group object code of Due to BIR using eight digit coding system is:
a. 1
b. 2
c. 3

d. 4

Which of the follo wing inco me of NGAs are classified as service inco me?
a. Passport and VISA
b. Interest
c. School Fees
Fees
Income

d. Rent/Lease
Income

Purchases without any bidding is an examp le of:

a. Unconscionable
b. Excessive

d. Irregular

c. Unnecessary

7.

Under PAS 2 Inventories, agricultural and forest products are measured at _______________ in
accordance with well-established industry practices.
a. Cost
b. NRV
c. FV les cost to
d. Lower of A and
sell
B

8.

Under IFRIC 12 Service Concession Arrangements, borrowing costs are

a. generally expensed, except in cases where the operator in a service concession
arrangement (BOT contract) receives an intangible asset representi ng a right to charge
users of the public service, in which case borrowing costs are capitalized in accordance
with PA S 23 Borrowing Costs.
b. generally expensed, except in cases where the operator in a service concession
arrangement (BOT contract) receives a financial asset representing a contractual ri ght to
charge users of the public service, in which case said costs are capitalized in accordance
with PA S 23 Borrowing Costs.
c. generally expensed, except in cases where the operator in a service concession
arrangement
(BOT contract) receives a financial asset representing a contractual right to receive cash or
other financial asset, in which case borrowing costs are capitalized in accordance with PAS
23 Borrowing Costs.
d. generally capitalized, except in cases where the operator i n a service concession
arrangement (BOT contract) receives an intangible asset repres en ting a ri ght to charge
users of the public service, in which cas e borrowing costs are expensed in accordance with
PAS 23 Borrowing Costs.

98. Exchange differences arising from translation of financial statements of a foreign enti ty
should be accounted for as
a. Accumulated translation adjus tment as a component of s tockholders equity
b. Accumulated translation adjustment as a component of net i ncome
c. Loss on foreign exchange as a component of net income
d. Retai ned earni ngs
99. The retained earnings bal ance is nil after a company undergoes
a.
Corporate reorganization
b.
Modification of terms
c.
Equi ty swap
d.
Asset swap
100. How should the assets and liabilities of a disposal group classified as held for sale be shown
in the balance sheet?
a. The assets and liabilities should be offset and presented as a single amount.
b. The assets of the disposal group should be shown separately from other assets in the
balance sheet, and the liabilities of the disposal group should be shown separately from
other liabilities in the balance sheet.
c. The assets and liabilities should be pres ented as a single amount and as a deduction
from equity.
d. There should be no separate disclosure of assets and liabilities that form part of a
disposal group.

--END OF EXAMINATION--

93. Which of the following expendi tures subs equent to acquisition cannot be added to the
carrying amount of the asset?
a. Costs of modification of a machinery that will increase its capaci ty
b. Cost of upgrading machine parts to achiev e substantial improvements in quality of output
c. Cost of extensive repairs on a building that did not increase i ts useful life.
d . Costs of adopting new production processes that enabled substanti al reduction in
operating costs
94. If the payment of employees compensation for future absences is probable, the amount can
be reasonably estimated and the obligation relates to ri ghts that vest or accumulate, the
compens ation should be
a.
Accrued if attributable to employees services not yet rendered
b.
Accrued if attributable to employees services already rendered
c.
Accrued if attributable to employees services whether already rendered or not
d.
Recognized when paid
95. In the cas e of the grants related to an asset, which of these accounting treatments (balance
sheet presentation) is prescribed by PAS 20?
a. Record the grant at a nominal value in the first y ear and write it off in the s ubsequent
year
b. Either set up the grant as deferred income or deduct it i n arriving at the carrying amount
of the asset
c. Record the grant at fair value in the first y ear and take it to income i n the s ubsequent
year
d. Take it to the income statement and disclosure it as an extraordinary gain
96. In computing diluted EPS, interes t expense on convertible bonds payable shall be
a.
Ignored
b.
Added back to net income at gross
c.
Added back to net income net of tax
d.
Deducted from net i ncome net of tax
97. Determi ne the false statement regarding PFRS 2 (Share-bas ed Payment).
a.
The entity shall recognize a correspondi ng increas e in equity if the goods and
services were received in an equity-settled share-bas ed payment transaction.
b.
The enti ty shall recognize a corresponding increase in liability if the goods and
services were received in a cash-settled share-bas ed payment transaction.
c.
When the goods or services received in a share-based payment transaction do not
qualify for recognition as assets, they shall be recognized as expens es.
d.
For a share-based payment transaction that gives the entity the choice to settle the
transaction in cash (or other assets) or by issuing equity instruments, the entity shall
account for that transaction as a cash-s ettled share-bas ed payment transaction
whether or not there is a liability incurred.

9.

When an entity elects to prepare separate financial statements, it shall account for its
investment in associates
a. at cost
b. in accordance with PFRS 9
c. using equity method
d. A or B

10. Under the cost recovery method,

a. the initi al collections on the sal e are treated as recovery of the inventory sold. Thus, no
gross profit or interest i ncome is recognized until total collections from the s ale equals the
cost of inventory sold.
b. the ini tial collections on the sale are treated as recovery of the inv entory sold. Thus, no
gross profit is recognized until total collections from the s ale equals the cost of inventory
sold.
c. A or B
d. None of the abov e.
11. Under PAS 11 Construction Contracts, the primary issue in accounting for cons truction
contracts is
a. the determination of percentage of completion.
b. the allocation of contract rev enue to the accounting periods in which construction work is
performed.
c. the allocation of contract costs to the accounting periods in which construction work is
performed.
d. B and C.
e. All of the choices.
12. A construction company is in the middle of a two-y ear cons truction contract when it receives a
letter from the customer extendi ng the contract by a year & requiring the cons truction
company to increas e its output in proportion of the number of years of the contract to the
previous contract period. This is allowed in recognizing addi tional revenue according to PAS 11
Construction Contracts if
a. Negotiations have reached an advanced stage and i t is probable that the customer will
accept the claim.
b. The contract is sufficiently advanced and it is probable that the specified performance
standards will be exceeded or met.
c. It is probable that the cus tomer will approve the variation and the amount of rev enue
arising from the variation, and the amount of revenue can reliably measured.
d. It is probable that the cus tomer will approve the variation and the amount of rev enue
arising from the v ariation, whether the amount of revenue can be reliably measured or
not.
e. A and C
13. PFRS 3 Business combinations shall apply to
(1) businesses becoming subsidiaries of the acquirer
(2) formation of a joint arrangement
(3) net assets of combining entiti es transferred to a newly formed entity

(4) acquisition of an asset or a group of assets that does not constitute a business
(5) combination of entities or businesses under common control
(6)acquisition by an inv estment entity of an investment in a s ubsidiary wi th that subsidiary
providing services that relate to the inv estment entity's investment ac tivities
a. 1, 2, 3, 4, 5 and 6
c. 1, 3 and 6 only
b. 1 and 3 only
d. 2, 4, 5 and 6 only
14. An entity shall determine whether a transaction or other event is a business combination by
applying the definition i n PFRS 3, Business Combinations, which requires that the assets
acquired and liabilities assumed constitute a/an _________. If the assets acquired are not a/an
_________, the reporting entity shall account for the trans action or other event as a/an ___________.
a.
b.
c.
d.

operating segment, operating segment, business combination

operating segment, business, asset acquisition
business, business, asset acquisition
business, operating s egment, asset acquisition

15. BRG Corporation has issued 100 preference shares, which are classified as equity. The
preference shares give thei r holders a right to a preferenti al dividend in priority to the
payment of any dividend to the holders of ordi nary shares. Upon liquidation of BRG, the
holders of the preference shares are entitled to receive out of the assets available for
distribution the amount of Php30 per share in priori ty to the holders of ordi nary shares. The
holders of the preference shares have pro-rata rights over the remaining assets on liquidation.
PQS Corporation acquires all ordinary shares of BRG. The acquisition gives PQS control of BRG.
The acquisition-date fair value of the preference shares is P438,000 whereas the proportionate
share of BRGs recognized amounts of the identifiabl e net assets that is attributabl e to the
preference shares is P395,000. Which of the following s tatements is true on the measurement
of non-controlling interests under PFRS 3R, Business Combi nations?
a.
b.
c.
d.

BRG may opt to measure the preference shares either at thei r acquisition-date fai r value or
thei r proportionate share i n PQSs recognized amounts of the identifiable net assets.
PQS may opt to measure the preference shares either at their acquisition-date fair value or
thei r proportionate share i n BRGs recognized amounts of the identifiable net assets.
PQS can only measure the preference shares at their proportionate share in the BRGs
recognized amounts of the identifiable net assets.
PQS can only measure the preference shares at thei r acquisition-date fai r value.

16. Which of the following statements is/are false regarding business combination achieved in
stages?
I. In a business combination achieved in stages, the acquirer shall remeasure its previously
held equity interest in the acquiree at its acquisition-date fai r value and recognize any
difference in equity.

c.
d.

They usually have a greater material effect on financial statements than

transactions between unrel ated parties.
They usually involve irregularities

88. Accounts Receivable and Revenue can be properly recognized when

a. Goods are s hipped under terms FOB Destination, not yet received by buyer.
b. Goods are sold under lay-away terms, where goods are delivered only when buyer
makes
the final payment in a series of installments.
c. The entity ships goods subject to installation which is a significant part of the
contract and the enti ty has completed such installation.
d. Goods are shipped, not yet received by buyer, where the buy er has the right to
rescind the
purchase if the goods are not withi n the specifications in the contract
89. The following assets are recognized upon initial measurement on the basis of fair value
rather
than historical cost except
a. Investment property
c. Held-for-trading securities
b. Biological asset
d. Non-monetary asset received
through gov ernment grant
90. This creates a legal or constructive obligation that results in an enterprise having no
realistic
alternative to settling the obligation is known as
a. Obligating event
b. Res tructuring
c. Onerous contract
d. Provision
91. According to PAS 39, which of the following is no t among the criteri a for a financial asset
or liability to be classified as held for tradi ng?
a. It is a derivative
b. It is acqui red or incurred principally for the purpose of selling or repurchasing i t in the
near term.
c. It is a derivative that is a designated and effective hedging ins trument
d. It is part of a portfolio of identified financial instruments that are managed together and
for which there is evidence of a recent actual pattern of short-term profit-taking.
92. Which of the following entiti es must not describe its financial statements as being in
compliance with the PFRS for SMEs ev en if i t is allowed by l aw to prepare its financial
statements in accordance with the PFR S for SMEs?
I.
An entity whose shares are traded in a public market
II.
An entity whose debt instruments (but not i ts shares) are traded in a public market
III.
An entity that is in the process of issuing its debt instruments (but not its shares)
for trading in a public market (eg a local securities exchange).
a. I and II only
b. II and III only
c. I and III only
d. I, II and III

83. Are the following statements true or false?

(1) The Norwalk Agreement outlines the commitment of the IASB and FASB towards
harmonization of International and US Accounting Standards.
(2) IOSCO does not require mandatory preparation of financi al statements in accordance
with IFRS.
Statement (1)
Statement (2)
Statement (1) Statement (2)
a. False
False
c.
True
False
b. False
True
d.
True
True
84. For financial reporting in the Philippines, are the following statements true or false?
I. Philippine practice is to present in the balance sheet current assets before noncurrent assets, current liabilities before non-current liabilities; and equity
accounts before liabilities.
II. Notes are normally presented in the following order: summary of significant
accounting policies, statement of compliance with
PRFSs;
supporting
information for item presented on the face of the FS; and las tly, other
disclosures including contingent liabilities and non-financial disclosures
a. I true; II false b. I false; II true c. I true; II true
d. I false; II false
85. Which is incorrect concerning the qualitative characteristics of financial statements?
a. To achieve the quality of unders tandability, users are assumed to have a reasonable
knowledge of
business and economic activities and accounting, and a willingness to study the
information wi th
reasonable diligence
b. Information has the quality of rel evance when it influences the economic decisions
of users by helpi ng them evaluate pas t, present or future events or confi rming or
correcting their past evaluations
c. The need for comparability dictates that the s easonality nature of the activities of an
enti ty be disclosed in interim financial statements.
d. When information that are a result of related party transactions are shown i n the
financial statements and described as such, these financial statements lose their
reliability.
86. What concept is critical in distinguishing an enterprises return on inv estment from return
of its investment ?
a. Comprehensive income concept
c. Capital maintenance concept
b. Current operating performance concept d. Return on investment concept
87. Disclosure of rel ated-party transactions is required by GAAP becaus e
a.
They do not commonly occur i n the normal course of business
b.
They cannot be presumed to be carried out on an arms-length basis and thus, the
enterprises Financi al statements are not complete and reliabl e without such
disclosures

II. In a business combination achieved in s tages, the acquirer shall remeasure i ts previously
held equity interest in the acquiree at its acquisition -date fair value and recognize the
resulting gain or loss, if any, in profit or loss.
a.

I only

b. II only

c. I and II

d. Both are true

17. ABC has an investment, Entity K, which i t controls through holding the majori ty equity interes t
and because it has the ability to appoint the majority of the executive directors of the board of
directors of Enti ty K. Which of the following standards shall ABC apply to account for its
investment?
a.
b.
c.
d.

PFRS 12 Disclosure of Interests in Other Entities

PAS 28 (Revised) Investments in Associates and Joint Ventures
PFRS 10 Conso lidated Financial Statements
PFRS 11 Joint A rrangements

18. Which of the following entities shall prepare consolidated financial statements i n accordance
with PFRS 10?
Entity A Ltd. that has an immaterial participation of 90% in equi ty interes t of ALG Ltd.
Entity B ABC Group presents consolidated financi al statements which includes Entity B.
Entity B is its elf a parent becaus e it has controlling interests in five other enti ties. Enti ty
B does not hav e equity traded in a regul ated market but is wai ting for the approval of
listing its debt in the London Stock Exchange.
Entity C Ltd. that has an interest of 20% in equity shares of ACV Ltd.
a.
b.
c.
d.

All three should prepare consolidated financial statements under PFRS 10

Entity A and Entity B should be prepare consolidated financial statements under PFRS 10
Only Entity A should prepare consolidated financial statements under PFRS 10
None of the abov e entities should prepare consolidated financial statements under PFRS 10

19. In which of the following situations should the consolidated financial statements present non controlling interests?
a.
b.
c.
d.

HJK Bank has a holding of 90% in the equity of XYZ Pharmaceuticals, Ltd.
INH Insurance is a parent of group of four wholly-owned subsidiaries.
AFG Ltd. has an interest of 20% in equity shares of Entity D.
ABC Inc. has 5% equity interest i n PKJ, Ltd.

20. Which of the following entities is/are controlled by ABC according to PFRS 10?
I.

Entity RGH. ABC has direct interest in 17% of Entity RGH. In addition, one of ABC's
subsidiaries, ABZ, which is 60% owned, has a holding of 45% of Entity RGH. ABC's effective
share in RGH is 44% (17%+ 60% of 45%).

II.

Entity X. Entity X is listed in Lisbon Stock exchange. ABC has a direct interest in 44% of
Entity X; the rest is dispersed and none of the res t of the shareholders has more than 2%.
III. Entity E. ABC has direct interest in 52% of Entity E. It signed a contractual arrangement
with ALF Limited whereby both enti ties can appoint two members each to the board of
directors. The board of directors is comprised of five members, one of whom is considered
to be independent. The decisions over the relev ant activities are taken in accordance with
majority of votes in the board of directors.
a. I and II only
b. II and III only
c. I and III only
d. I, II and III

78. Under PFRS 9 Financial Instruments, if an entity us ed its fair value option for equity
instruments, which of the following statements is incorrect?
a. dividends are to be recognized in profit or loss if said dividends are considered return
on investment
b. no recycling of fai r value changes to profit or loss on impairment, disposal or in any
other circums tances
c.
d.

impairment tes ting is requi red for this equity investment

addi tional disclosures are required for this equity inv estment

21. Which of the enti ties is/are subsidiaries of ABC?

Entity G: ABC has direct interes t in 23% of Entity G. In the beginning of this year, ABC
entered into an agreement which included an option to increase i ts holding by an additional
42% of the equi ty interests of Enti ty G in 3 years time. The exercise price of the call option is
deeply out of the money.
Entity M (a retailer): ABC has an interes t of 40% in entity M. ABC signed an agreement with
the major shareholder whereby ABC is responsible for the financial and commercial
operations of Entity M, while the main shareholder is res ponsible for the marketing
decisions and human resources department.
Entity N: ABC has 41% of Entity N and has the ri ght to veto any decision by the board of
directors to s ell a major subsidiary of Entity N.
a.
b.
c.
d.

Only Entity M should be consolidated.

Entity M and entity N should be consolidated.
All three enti ties should be consolidated.
None of the abov e entities should be consolidated.

79. Which of the following is incorrect regarding the scope of PFRS 7 Financial Instruments:
Disclosures?
a. PFRS 7 applies to recognized and unrecognized financial instruments
b. PFRS 7 applies to contracts to buy or sell a non-financial item that are within the scope of
PFRS 9
c. Recognized fi nanci al instruments include fi nancial assets and liabilities that are within
the scope of PFRS 9
d. Unrecognized financial instruments include some financial instruments that are within
the scope of PFRS 9
80. The 2014 new chat of accounts was bas ed on:
a. NGAS
b. IAS
c. IFRS

d. IPSAS

81. Which of the following statements about the bases of recognition of income and expense is
true?
a. Under cash basis accounting, only cash and property and equipment accounts are
recognized as assets
22. Under PFRS 10, Consolidated Financial Statements, what factor/s should an inv estor consider in
b. In modified cash basis of accounting, prepaid expens es and unearned income are
assessing whether it has de facto control over an enti ty?
recognized.
c. Accrual basis and modified cas h basis of accounting for income and expenses will
a.
Voting patterns at future shareholders meetings
yield the same amount of gross profit for the period.
b.
Size of the inv estors hol ding of voting rights relative to the size and dispersion of other vote holders
d. Under accrual basis of accounting, accruals and deferrals are recognized in
c.
Non-voti ng rights held by the investor or other vote holders
adjusting entries which are subsequently revers ed in the immediately succeedi ng
d.
All of the above
accounting period.
23. Parties that have joi nt control of a joint arrangement are referred to under PFRS 11 Joint
Arrangements as
a. joint operators
b. joint venturers
c. joint arrangers
d. A or B

82. Which one of the following is a purpose of adjusting entries?

I.
To apportion the proper amounts of revenue and expense to the current
accounting period.
II.
To establish the proper amounts of assets and liabilities in the balance sheet.
III.
To accomplish the objective of offs etting the rev enue of the period with all the
expens es incurred in generating that revenue.
IV.
To prepare the rev enue and expense accounts for recording trans actions of the
following period.
a. I and II only
b. II and III only
c. I, II and III only
d. All of these

71. An entity transfers a financial asset if, and only if, it

I. transfers the contractual rights to receive the cas h flows of the financial asset
II. retains the contractual rights to receive the cash flows of the financial asset, but assumes a
contractual obligation to pay the cash flows to on or more recipi ents in an arrangement that
meets all the conditions required under PFRS 9 Financial Instruments
a. I only
b. II only
c. I or II
d. I and II
72. The two main classification of fi nanci al assets under PFR S 9 Financial Instruments are
a. debt and equity instruments
c. financial assets and financial liabilities
b. fair value and amortized cost
d. FVPL and FVO CI
73. If accounts receivables are said to be hypothecated, such receivables are
a. pledged
b. assigned
c. factored

d.

discounted

74. Under SEC rules, which of the following enti ty may qualify as a SM E?
a. ASAP Life, a life insurance company
b. ASAP Mart, a supermarket based in Caloocan Ci ty
c. ASAP Banking Corporation, a BSP-registered commerci al bank
d. ASAP Waters, a water utility company servicing M etro Manila
75. Failure to accrue wages payable to office personnel will
a. Overstate
b. Overstate
c. Understate
liability
loss
distribution cost

d. Understate admin.
cost

76. Under SEC rules, a company is classified as a Small & Medium Entity (SM E) when its total
liabilities are between
a. P3M and P250M
b. P3M
and
c. P5M
and
d. P5M
and
P350M
P250M
P350M
77. Are the following statements concerning the measurement of financial instruments after
initial recognition true or false, according to PA S 39 Financial instruments: recognition and
measurement & PFRS 9 Financial Instruments ?
I. Under PAS 39, Held-for-tradi ng financial assets are measured at amortized cost.
II. Under PAS 39, Held-to-maturi ty investments are measured at fair value.
III. Under PFRS 9, If an entity holds an inv estment to collect contractual cash flows but would
sell the investment in particul ar ci rcumstances (e.g., entity needs to fund capital
expenditures, among others), the i nvestments should be classified as fair value through
profit or loss (FVPL) inves tment because the business model test was not satisfied.
IV. Under PFRS 9, there is no recycling between other comprehensive income (OCI) or profit or
loss.
a. True, False, True, b. False,False,
c. False,
False, d. False,
False,
True
True, True
False, True
False, False

Use the follo wing fact pattern for i tems 24 to 26

Aria and Ezra entered into a joint arrangement to form A team Corporation which shall
manufacture materials requi red by Aria and Ezra for thei r own, individual manufacturing
processes. The arrangement ensures that the parties operate the facility that produces the
materials to the quality specifications of the parti es.
Each party shall have 50% ownershi p interest in A team Corporation. A team Corporation
shall have its own assets, incurs its own obligations, generate its own income, and incurs its
own expenses.
24. Assuming there are no other facts available, which of the following statement is correct?
a. Since the arrangement is structures in a separate vehicle, the joint arrangement shall be
classified as a joint operation.
b. Since the arrangement is structures in a separate vehicle, the joint arrangement shall be
classified as a joint venture.
c. Since the arrangement is structures in a separate v ehicle and that the parties obtain
rights to the net assets of the joi nt arrangement, the joint arrangement shall be classified
as a joint operation.
d. Since the arrangement is structures in a separate vehicle and that the parti es obtain
rights to the net assets of the joint arrangement, the joi nt arrangement shall be classified
as a joint venture.
25. In addition to the facts stated in the fact pattern, it was agreed further that:
Aria and Ezra s hall purchase all of the output produced by A team Corporation in a ration
of 50:50. A team Corporation cannot sell any of its output to thi rd parties, unless this is
approved by Ari a and Ezra.
The price of the output sold to the parties is set by both parties at a lev el that designed to
cover the costs of production and administrative expenses incurred by A team
Corporation. On the basis of this operating model, the arrangement is intended to operate a t
a break-even level.
Which of the following s tatements is incorrect?
a. The obligation of the parti es to purchase all of the output produced by A team
Corporation refl ects the exclusive dependence of A team Corporation upon the parties
for the generation of cash flows. Therefore, the parties have an obligation to fund the
settlement of the liabilities of A team Corporation.
b. The fact that the parties have rights to all the output produced by A team Corporation
means that the parties are consuming, and therefore have ri ghts to all the economic
benefits of the assets of A team Corporation.
c. The facts and circumstances indicate that the arrangement is a joint operation.
d. The facts and circumstances indicate that the arrangement is a joint v enture.

26. (Refer also to the facts in i tem 25 in addition to the fact pattern.) If the parti es changed the
terms of the contractual arrangement so that A team Corporation was able sell output to
third parti es, this would result in A team Corporation assuming dem and, inventory and
credi t risks. Which of the following statements is correct?
a. The changed facts and circumstances indicate that the arrangement is a joint operation.
b. The changed facts and circumstances indicate that the arrangement is a joint venture.
c. The change in facts and circumstances indicate that the arrangement may either be classified as joint
operation or joint venture.
d. The investment shall be classified as an inv estment other than a joint operation or joint venture.
27. The following are the Authorized Government Depository Banks (AGDB) in the Philippines,
except:
a. Philippine Postal Savings Bank
c. Land Bank
b. Development Bank of the Philippines
d. Philippine National Bank
28. Which of the following describes an operating segment?
I.
A component of an entity that engages in business activities from which it may earn
revenues and incur expenses
II.
A component of an entity whose operating results are regul arly reviewed by the entity's
chief operating decision maker to make decisions about resources to be allocated to the
segment and assess its performance
III.
A component of an entity for which no discrete financi al information is availabl e
a.
b.
c.
d.

I only
I and II only
I and III only
All of the above

65. Which of the following is incorrect regarding purchase commitments?

a. No journal entry is required to record an asset and liability at the commitment date.
b. It is an executory contract.
c. In a cancellable purchase commi tment, when price decline takes place after the commitme
is outstanding at the end of an accounting period, es timated loss is recognized.
d. Gain on recovery in a purchase commitment can only be recognized to the extent of the e
previously recognized.

66. Which of the following does not relate to gross profi t method estimation technique?
a. It is an inventory estimation technique based on a relationship between gross profi t and
assumed to be fairly stable.
b. Its use is not appropri ate for financial reporti ng purposes.
c. It takes into account the normal l evels of materials and supplies, labor, efficiency
utilization.
d. It can serv e a us eful purpos e when approximation of ending inventory is needed.
67. Which of the following is not a principal purpose of a trial bal ance?
a.
b.
c.
d.

It proves that debits and credits of equal amounts are in the ledger.
It is the basis for any adjus tments to the account balances
It supplies a listing of open accounts and thei r bal ances
It proves that debits and credits were properly entered in the l edger accounts

68. Xander Company and Yona Company own 60% and 40% respectively of the equity of
Winter Company. Xander and Yona have signed an agreement whereby all the
strategic decisions in res pect of Wi nter are to be taken with the agreement of them
both. Are the following statements true or false, according to PAS 27 Separate
Financial Statements, PA S 28 Investments in Associates and Joint Ventures and PFR S
11 Joint Arrangements?
I. Xander shoul d classify its investment in Winter as an i nvestment in a subsidi ary.
II. Yona should classify its investment in Wi nter as an inves tment in an Associate.
a. True, True
b. True, False
c. False, True
d. False, Fal

29. Which statement is correct concerning interim financial reporting?

I.
An entity shall apply the same accounti ng policies in its interim financial statements as are
applied in its annual financial statements, except for accounting policy changes made after
the date of the mos t recent annual financial statements that are to be reflected in the next
annual financial statements.
II.
If an entitys interim financi al report is in compliance with PAS 34, Interim Financial
69. Under PAS 40 Investment Property, in determining the fair value of an investment
Reporting, that fact shall be disclosed.
property, which of the following should not be considered?
a. I only
b. II only
c. I and II
d. Both are incorrect
a. contingent rent
c. furni ture included in rented property
b. future capital expenditure
d. air-conditioni ng in a rental building
30. Which of the following represent a requirement for reporting foreign currency cash flows
according to PAS 7, Statement of Cash Flows ?
70. If the Balance Sheet columns of the worksheet do not balance, the error is mos t
a
.

Cash flows arising from transactions in a forei gn currency shall be recorded in an entitys
functional currency by applying to the foreign currency amount the exchange rate between
the functional currency and the forei gn currency at the date the financial statements are
pres ented.

likely to exist in the:

a. general journal.
b. general ledger.

c. last 6 columns of the worksheet.

d. first 6 columns of the worksheet.

62. Which of the following is incorrect regarding the loss of significant influence under the
revised PA S 28?
a. An entity loses significant influence over an i nvestee when it loses the power to
partake in the fi nanci al and operating policy decisions of that inves tee
b. The loss of significant influence can occur with or wi thout a change in absolute or
relative owners hip levels
c.
d.

I.
II.
III.
IV.
V.

When an associate becomes subject to the control of a government, court,

administrator or regulator, significant influence is unaffected because of the potential
rights on the inv estment in associate
Loss of significant influence could occur as a result of a contractual arrangement

63. Which of the following s tatements is(are) true regarding equity method under the
revised PA S 28?
Under the equity method, on initi al recognition the inv estment in an associate or a joint
venture is recognized at cost.
Distributions received from an inv estee reduce the carrying amount of the investment.
Adjustments to the carrying amount may also be necessary for changes in the inv estor's
proportionate interest in the inves tee arising from changes in the inv estee's other
comprehensive income (e.g., rev aluation surplus).
When potential voting ri ghts exist, an enti ty's interest in an associate or a joint venture is
determined by reflecting the possible exercise or conversion of potential voting ri ghts.
An entity need not apply the equi ty method to its investment i n an associate or a joint
venture if the entity is a subsidiary that is exempt from preparing consolidat ed fi nancial
statements by the scope exception in PFRS 10 Consolidated Financial Statements.
a. I, II, III and V only
c. I, II and III only
b. I, II, III and IV only
d. I, III, II, IV and V only

64. Based on the definition of terms of the most updated PAS 2 Inventories, which of the
following statements is (are) true?

b.
c.

d.

31. It refers to authorizations made by law for payments to made with gov ernment funds under
specified conditions for specified purposes.
a. Appropriations
b. Allotments
c. Allocation
d. Obligation
32. Which of the following is false?
a.

c.

d.

a. I only

II

c. Both I and II

d. Both are incorrect

If the total external rev enue reported by operating segments constitutes less than 75% of
the entity's revenue, additional operating s egments shall be identified as reportable
segments (even if they do not meet the quantitative threshold as provided in PFRS 8,
Operating Segments) until at leas t 75% of the entity's rev enue is included in reportable
segments.
An entity cannot combine information about operating segments that do not meet the
quantitative thresholds with i nformation about other operating segments that do not meet
the quanti tative thres holds.
Operating segments that do not meet any of the quantitative thresholds may be considered
reportable, and separately disclosed, if management believes that information about the
segment would be useful to us ers of the financial statements.
An entity shall disclose information to enable users of its financial statements to evaluate the
nature and financial effects of the business activities in which it engages and the economic
environments in which i t operates.

b.

I. Net realizable value is the estimated selling price in the ordinary course of business less
the estimated costs of completion and the estimated costs necessary to make the s ale.
II. Fair v alue is the amount for which an asset could be exchanged, or a liability settled,
between knowledgeable, willing parties in an arms length transaction.
b. II only

Cash flows arising from transactions in a foreign currency shall be recorded in an enti ty's
functional currency by applying to the forei gn currency amount the exchange rate between
the functional currency and the forei gn currency at the date of the cash flow.
The effect of exchange rate changes on cash and cash equivalents held or due in a forei gn
currency is reported in the cash flow statement in order to reconcile cash and cash
equivalents at the beginning and the end of the period. This amount is reported as part of
operating activities.
The cash flows of a forei gn subsidiary shall be translated at the exchange rates between the
functional currency and the foreign currency at the balance sheet date.

33. Which of the following s tatements is correct?

III
a.

The disappearance of an active market because an entity's financial instruments are no

longer publicly traded is considered evidence of impairment.
A financial asset or a group of financial assets is impai red and impai rment losses are
incurred if, and only if, there is objective evidence of impairment as a result of one or more
events that occurred after the initial recogni tion of the asset (a 'loss event') and that loss
event (or ev ents) has an impact on the estimated future cash flows of the financial asset or
group of financial assets that can be reliably estimated
A significant or prolonged decline in the fair value of an investment in an equi ty instrument
below its cost is also objective evidence of impairment.
II only
b. I and II only
c. I and III only
d. II and III only

34. Which of the following would indicate that an entity is acting as an agent?
a. The amount the entity earns is predetermined, bei ng ei ther a fixed fee per transaction or a
stated percentage of the amount billed to the customer.
b. The enti ty has the primary responsibility for providing the goods or services to the
customer or for fulfilling the order.
c. The entity has inventory risk before or after the customer order, during shipping or on
return.
d. The entity has lati tude in establishing prices, either directly or indirectly, for example by
providing additional goods or services.
35. Which of the following is not an i ndicator of situations that would indi vidually or in
combination lead to a leas e being classified as a fi nance lease?
a. The leased assets are of such a specialized nature that only the l essee can use them without
major modifications.
b. Gains or losses from the fluctuation in the fai r value of the residual accrue to the lessor.
c. The lessee has the ability to continue the l ease for a secondary period at a rent that is
substantially lower than market rent.
d. If the lessee can cancel the l ease, the l essor's losses associated with the cancellation are
borne by the lessee.
36. Which of the following is an internal user of a companys financial information?
a. A employee of the
b. Bank lending to the
c. VP
d. Union
Co.
Co.
Finance
repres entative
37. Which of the following concepts of accounti ng income is incorrect?
a.
b.
c.
d.

The comprehensive income concept allows the inclusion of unrealized holding gai ns
and losses on available for sal e securiti es and revaluation s urplus in the computation
of the net income or loss for the accounting period.
The measurement of income is affected by the basis of accounting for rev enue and
expens es, that is, cash basis, modified cash or accrual basis.
The statement of comprehensive income includes both realized and recognized gai ns
and losses but not the effect of changes in accounting policies and prior period errors
Under GAAP, the trans actions approach is used to record revenues, expenses, gai ns
and losses throughout the reporting period.

38. Choose the correct statement about generally accepted accounti ng principles (GAAP):
a.
b.
c.
d.

They are rigid laws .

The Bureau of Internal Revenue enforces GAAP
GAAP and tax pri nciples are the same
Firms that do not comply with GAAP may suffer negative economic consequences

100

25%

10%

110

0%

20%

120

0%

40%

130

10

75%

30%

56. Which market is the principal market based on PFR S 13 Fair Value Measurement?
a.

Market D

b. Market E

c.

Market F

d.

Market G

57. Which market is the most advantageous market based on PFR S 13 Fair Value Measurement?
a.

Market G

b. Market F

c.

Market E

d.

Market D

58. Occupying a suite in Makati, serving as a satellite office (tasked to perform only coordination
and liaison activities), wi th 9 regular employees backed up by 18 casual and 18 contractual
employees. Expenditure of this kind at P176,670 per month of an autonomous region is
considered:
a.

Irregular

b. Unconscionable

c.

Excessive

d.

Unnecessary

59. LGUs maintain the following general types of fund, except

a.

Trust Fund

b. General Fund

c.

Fiduciary Fund

d.

Special Education Fund

60. In accounting for a business combination, which of the following intangibles should not be
recognized as an asset apart from goodwill?
a. Trademarks

b. Lease agreements

c. Employee quality

d. Patents

61. The application of factory overhead costs under job order cos ting would be reflected i n the
general ledger as an increas e in
a. Factory
control

overhead

b. Finished
control

goods

c. Work in process
control

d. Cost of goods
sold

Use the follo wing information for the next two items
There are three markets in which Entity M can sell its fruit produce: M arkets A, B and C. Entity
M has the ability to transact in all three markets (and has historically done so).
Volumes and prices in the respective markets are as follows:
Market

Price

Trans action

per box

costs

of

market

fruit

(P)

in

the

Trans portation

The

costs

volume for the

market-

(P per box)

asset

based

(P per box)

entitys
in

the

Total

market

(based

volume

on

history

for

and/or i ntent)

asset

20

60%

15%

15

25%

75%

10

15%

10%

the

Market A

b. Market B

c.

Market C

d.

Market A

b. Market B

c.

Market C

d.

Market A and B

Market A and B

There are four markets in which Entity C can s ell its vehicles: Markets D, E, F and G. Entity C
has the ability to transact i n three of these markets (Market D, F and G) but, historically, has
only transacted in M arkets D and G.
Volumes and prices in the respective markets are as follows:
Price per

Trans action

vehicle

costs

(P)

market

in

the

(P per vehicle)

c. Steady

d. Cannot be determined

40. Which of the following will meet the definition of a small and medium-sized entity ?
a.
CJ Foodhaus retails food. It is in the process of issuing securities in a domestic stock
exchange.
b.
A small, private, unlisted manufacturer
c.
A large private unlisted commercial bank
d.
A manufacturing company with total assets of P600 million and total liabilities of P 200
million

(1) Earnings per share amounts should not be presented if they are negative, i.e. losses per
share.
(2) Earnings per share amounts calculated for discon tinued operations should be pres ented.
a. False, False
b. False, True
c. True, False
d. True, True
43. In a quality control program, which of the following is(are) categorized as internal failure
costs?

Use the follo wing information for the next two items

Market

b. Down

42. Are the following statements true or false, according to PAS 33Earnings per share ?

55. Which market is the most advantageous market based on PFR S 13 Fair Value Measurement?
a.

a. Up

41. Which of the following entities mus t not describe its financial statements as being
incompliance with the PFRS for SMEs even if it is allowed by law to prepare its fi nancial
statements in accordance with the PFRS for SMEs ?
I. An entity whose shares are traded in a public market
II. An entity whose debt instruments (but not i ts shares) are traded in a public market
III. An entity that is in the process of issuing i ts debt instruments (but not its shares)
fortrading in a public market (eg a local securi ties exchange).
a. I and II only
b. II and III only
c.I and III only
d. I, II and III

54. Which market is the principal market based on PFR S 13 Fair Value Measurement?
a.

39. The amortization of premium ov er the life of the bond is an adjustment of interest income in
the inv estors books

Trans portation

The

costs

volume

(P per vehicle)

asset

enti tys
for
in

market-

the

based

market (based on

volume

history

for

intent)

asset

d. I, II, and III

44. Inves tments in activity-based costing systems are jus tified only if they lead to

Total

the

and/or

I. Rework.
II. Responding to cus tomer complaints.
III. Statistical quality control procedures.
a. I only
b. II only
c.III only

the

a.
b.

More accurate inventory values

Better management decisions

c. Better cost-driver analysis

d. More accurate product costs

45. The management of Baby Queen Pickle Factory budgeted production of 700,000 units at a
cost of P1,450,000. If actual produc tion was 700,000 units at a cost of P1,490,000, then Baby
Queens production supervisor was:
a.
Effective
c. Both A and B

b.

Efficient

d. None of the choices

46. Company R is a retailer that offers layaway sales to i ts customers. Company R retains the
merchandise sets it aside in its inventory, and collects a cash deposit from the customer.
Company R does not require the cus tomer to enter into an instalment note or other fixed
payment commitment or agreement when the i nitial deposit is received. The merchandise is not
released to the customer until the customer pays the full purchase price. In the event that the
customer fails to pay the remaining purchase price wi thin two years, the customer forfei ts its
cash deposit. In the event the merchandise is lost, damaged, or destroy ed, Company R either
must refund the cash deposit to the customer or provide replacement merchandise. The
revenue from lay away sales should be recognized by Company R when
a.
b.
c.
d.

the goods are delivered to the customer

50% of the purchase price is paid by the customer
a substantial portion of the purchase price is paid by the customer
the las t installment payment is made by the customer

47. Micrium, a computer chi p manufacturi ng company, sells its products to its distributors for
onward sales to the ul timate customers. Due to frequent fluctuations in market price for these
goods, Micrium has aprice protection claus e in the distributor agreement that entitles it to
raise addi tional billings in case of upward price movement. Another clause i n the distributors
agreement is that Micrium can at any time, reduce its i nventory by buying back goods at the cost
at which it sold the goods to the distributor. Distributors pay for the goods withi n 60 days from
the sale of goods to them. When shoul d Micrium recognize revenue on the sale of these goods to
the distributors?
a. When the distributor sells goods to the ultimate customers and there is no uncertainty
with respect to the price protection clause or the buyback of goods.
b. When the goods are sold to the distributors
c. When the distributors pay to Micrium the cost of goods (i.e., after 60 days of the s ale of
goods to the distributors
d. When the goods are sold to the distributor provided estimated additional revenue is also
booked under the protection clause based on past experi ence.
48. A voluntary health and welfare organization received a cash donation in the prior year which
contai ned a donor-impos ed restriction which stipulated that the donation could not be spent
until the current year. The organization s pent the donation in the current year for fund raising
activities. In the s tatement of activities for the current year, the expiration of the time restriction
would result in reporting
a.
b.
c.
d.

Increase i n temporarily restricted net assets

Reclassification which decreased temporarily res tricted net assets
Increase i n unres tricted net assets
Expens e which decreased temporarily res tricted net assets.

49. A not-for-profit organization receives an asset for which it has little or no discretion over the
use of the asset. The organization s hall report the asset as
a.
b.
c.
d.

Contribution
Agency trans action
Exchange
Condi tional transfer

50. The demolition (or the physical teari ng down) of the old building to give way for the
construction of the replacement building will have related costs, referred to as demolition costs.
Demolition costs of the old building can be considered as part of cos ts of site preparation and,
therefore, may be capitalized. Although there is no clear guidance as to what account such
demolition costs should be capitalized, it is preferable to capitalize the demolition costs as part of
a. land

b. old building

c.

new building

d.

allocated between A and B

51. According to PAS 41, Agriculture, which of the following is true in determining the fair value
of a biological asset or agriculture product?
a.

The present condition of a biological asset includes increases in value from additional
biological transformation and future activities of the entity.
The entity should ignore the mos t advantageous price in the accessible markets i n
determining fair value.
Use the present value of expected net cash flows for financing the assets, taxation or
reestablishing biological assets after harvest.
A detailed hierarchy is not provided by the Standard in cases where no active market
exists.

b.
c.
d.

52. The following statements relate to the definition of business. Which of the s tatements is
incorrect?
Statement I - A business consists of inputs and processes applied to thos e inputs that have
the ability to create outputs.
Statement II - Outputs are required for an i ntegrated set to qualify as a business.
a. I only
b. II only
c. I and II
d. None of the choices
53. According to the fai r value hierarchy in PFRS 13, Fair Value Measurement, quoted prices
(unadjusted) in active markets for identical assets or liabilities that the entity can access at the
measurement date belong to what lev el?
a.

Level 1

b. Level II

c.

Level III

d.

None of the choices