1.

Assignments of receivables
a. are disclosed only b. are recognized by debiting “Accounts receivable – assigned”
c. give rise to receivables from factor d. b and c
2. Factoring made on a without recourse basis
a. is prohibited b. is an outright sale
c. results to recognition of a recourse obligation d. requires an equity disclosure
3. Which of the following is an objective of inventory accounting according to PAS 2 Inventories?
a. the proper recognition of cost of inventory recognized as expense when the related revenue is recognized
b. the proper representation of cost of inventories recognized as assets in the financial statements.
c. a and b
d. none of these
4. Under this inventory system, a physical count is necessary before profit is determined
a. Perpetual b. Under no such system
c. Periodical d. Periodic
5. Under the gross method of recording purchases,
a. cash discounts are initially ignored and are recorded only when taken
b. cash discounts are deducted from the cost of inventory on initial recognition.
c. cash discounts lost are debited to “purchase discounts lost” account
d. a and c
6. ZENITH HIGHEST POINT Co. buys and sells antiques. Each product is unique. If ZENITH adopts PAS 2 Inventories,
ZENITH Co.
a. is required to use specific identification
b. is required to use FIFO
c. has the option of using either FIFO or specific identification
d. has the option of using specific identification, FIFO or the average method, but not LIFO
7. When applying the lower of cost and net realizable value (NRV), inventories are
a. usually written down to net realizable value on an item by item basis.
b. usually not written down below fair value.
c. usually written down to net realizable value on per classification basis, e.g., as finished goods, work-in-process,
and raw materials.
d. all of these
8. According to PAS 2 Inventories, the best evidence of the net realizable value of raw materials is
a. estimated selling price less costs to sell
b. estimated selling price less costs to complete and costs to sell
c. replacement cost
d. fair value less costs to sell
9. Raw materials and manufacturing supplies held for use in the production of inventories are
a. required under PAS 2 Inventories to be separately presented from the other inventories.
b. not disclosed since they are normally immaterial.
c. not written down below cost if the finished products in which they will be incorporated are expected to be sold
at or above cost.
d. all of these
10. Which of the following dividends may be recognized as revenue?
a. cash dividends b. property dividends
c. share dividends d. a and b only
11. This distinguishes an investment in associate from other types of investment
a. ownership interest of less than 20% b. ownership interest of 20% or more
c. presence of significant influence d. representation in the board of directors
12. Significant influence
a. cannot be inferred from the presence of potential voting rights
b. is presumed to exist if ownership interest is at least 10%
 c. cannot be obtained from ownership of preference shares
d. can only be obtained from ownership of shares in an incorporated entity
13. Which of the following may be classified as an agricultural produce?
a. duck b. egg powder c. table egg d. cake
14. Which of the following is not one of the common features of agricultural activities
a. accounting change b. management of change
c. capability to change d. measurement of change
15. A biological asset is initially and subsequently measured at
a. fair value b. cost
c. fair value less costs to sell d. fair value less costs to complete
16. General purpose financial statements are those statements that cater to the
a. common and specific needs of a wide range of external and internal users.
b. common needs of a wide range of external and internal users.
c. common needs of a wide range of external users.
d. specific needs of a wide range of external users
17. The purpose of general purpose financial statements is to provide information about the
a. economic resources and obligations of an entity that is useful to a wide range of users in making economic
decisions.
b. financial position and financial performance of an entity that is useful to a wide range of users in making
economic decisions.
c. financial position, financial performance, and cash flows of an entity that is useful to a limited range of users in
making economic decisions.
d. financial position, financial performance, and cash flows of an entity that is useful to a wide range of users in
making economic decisions.
18. An additional statement of financial position as at the beginning of the earliest comparative period is prepared when
an entity makes (choose the incorrect statement)
a. retrospective application b. prospective application
b. retrospective restatement d. makes reclassification adjustments.
19. If the carrying amount of an asset exceeds its tax base, the difference is a
a. deductible temporary difference b. deferred tax asset
c. taxable temporary difference d. deferred tax liability
20. Revaluation surplus is equal to
a. Appraised value or depreciated replacement cost minus Carrying amount
b. Carrying amount minus Appraised value or depreciated replacement cost
c. Value in use less Present value of future cash flows
d. Present value of future cash flows less Carrying amount
21. The elements of relevance do not include
a. Predictive value b. Materiality
c. Feedback value d. Timeliness
22. According to PAS 7, interest income that is received in cash is presented in the statement of cash flows as
a. operating activities b. financing activities
c. investing activities d. a or c
23. DESULTORY UNPLANNED Co. uses a calendar period for its financial reporting. Its current financial statements
are authorized for issue on March 1, 20x1. DESULTORY’s events after the reporting period are those events that occur
a. from January 1, 20x1 to March 1, 20x1 b. from December 31, 20x1 to March 1, 20x1
c. from January 1, 20x0 to March 1, 20x1 d. from January 1, 20x0 to March 1, 20x1
24. Related party relationships between a parent and a subsidiary
a. should be disclosed only if there have been transactions between them during the period.
b. should be disclosed regardless of whether there have been transactions between them during the period.
c. should be disclosed only in the separate financial statements.
d. should not be disclosed.
25. Which of the following is an essential characteristic of an asset?
a. The claims to an asset’s benefits are legally enforceable. b. An asset is tangible.
c. An asset is obtained at a cost. d. An asset provides future benefits
26. A method of estimating uncollectible accounts that emphasizes asset valuation rather than income measurement is the
allowance method based on
 a. Aging the receivables. b. Direct write-off.
c. Gross sales. d. Credit sales less returns and allowances.
27. How should the following costs affect a retailer’s inventory?
Freight-in Interest on inventory loan
a. Increase No effect
b. Increase Increase
c. No effect Increase
d. No effect No effect
28. According to the net method, which of the following items should be included in the cost of inventory?
Freight costs Purchase discounts not taken
a. Yes No
b. Yes Yes
c. No Yes
d. No No
29. When the equity method is used to account for investments in common stock, which of the following affects the
investor’s reported investment income?
Equipment amortization Cash dividends
related to purchase from investee
a. Yes Yes
b. No Yes
c. No No
d. Yes No
30. During 2003, Bay Co. constructed machinery for its own use and for sale to customers. Inventories of machinery held
for sale are routinely manufactured. The machinery constructed for own use takes a substantial period of time
before it can be put to its intended condition for use. Bank loans financed these assets both during construction and
after construction was complete. How much of the interest incurred should be reported as interest expense in the
2003 income statement?
Interest incurred Interest incurred
for machinery for own use for machinery held for sale
a. All interest incurred All interest incurred
b. All interest incurred Interest incurred after completion
c. Interest incurred after completion Interest incurred after completion
d. Interest incurred after completion All interest incurred
31. A building suffered uninsured fire damage. The damaged portion of the building was refurbished with higher quality
materials. The cost and related accumulated depreciation of the damaged portion are identifiable. To account for
these events, the owner should
a. Reduce accumulated depreciation equal to the cost of refurbishing.
b. Record a loss in the current period equal to the sum of the cost of refurbishing and the carrying amount of the
damaged portion of the building.
c. Capitalize the cost of refurbishing and record a loss in the current period equal to the carrying amount of the
damaged portion of the building.
d. Capitalize the cost of refurbishing by adding the cost to the carrying amount of the building.
32. Which of the following is used to account for probable sales discounts, sales returns, and sales allowances?
Due from factor Recourse liability
a. Yes No
b. Yes Yes
c. No Yes
d. No No
33. A company issued a short-term note payable with a stated 12% rate of interest to a bank. The bank charged a .5% loan
origination fee and remitted the balance to the company. The effective interest rate paid by the company in this
transaction would be
a. Equal to 12.5%. b. More than 12.5%.
c. Less than 12.5%. d. Independent of 12.5%.
34. If financial assets are exchanged for cash or other consideration, but the transfer does not meet the criteria for a sale,
the transferor and the transferee should account for the transaction as a
Secured borrowing Pledge of collateral
a. No Yes
b. Yes Yes
c. Yes No
d. No No
35. According to PAS 36 Impairment of Assets, the recoverable amount of an asset is
a. fair value less costs to sell b. lower of a and b
c. value in use d. higher of a and b
36. Treasury shares are accounted for at
a. cost b. par value c. market value d. fair value
37. The entry to record the reissuance of treasury shares above their original acquisition cost includes
a. a credit to share premium b. a debit to retained earnings
c. a debit to share premium d. b and c
38. An objective of financial reporting is
a. Providing information useful to investors, creditors, donors, and other users for decision making.
b. Assessing the adequacy of internal control
c. Evaluating management results compared with standards.
d. Providing information on compliance with established procedures.
39. The FRSC recognizes that in a limited number of cases there may be a conflict between the Framework and a
Philippine Financial Reporting Standard. In those cases where there is a conflict,
a. the requirements of the Philippine Financial Reporting Standard prevail over those of the Framework
b. the requirements of the Framework prevail over those of the Philippine Financial Reporting Standard
c. the professional judgment of the accountant should prevail and this may necessitate disclosure in the notes.
d. the provisions of standards issued by FASB will prevail
40. This information is useful in assessing an entity’s its investing, financing and operating activities during the reporting
period.
a. economic resources controlled by the entity b. changes in the financial position
c. financial structure d. performance
41. External financial statements, according to the Conceptual Framework, should provide all of the following
information except
a. Information that is useful to present and potential investors and creditors and other users in making rational
investment, credit and other decisions.
b. Information that is comprehensible to those who have a reasonable understanding of business and economic
activities and are willing to study the information with reasonable diligence.
c. information for planning the future of the entity, implementing those plans, and for controlling daily operations.
d. information to help, present and potential investors and creditors and other users in assessing the amounts,
timing and uncertainty of prospective cash receipts.
e. Information about the economic resources of an enterprise, the claims to those resources and the effects of
transactions, events and circumstances that change resource and claims to those resources.
42. What is the purpose of information presented in notes to the financial statements?
a. To provide disclosures required by generally accepted accounting principles.
b. To correct improper presentation in the financial statements.
c. To provide recognition of amounts not included in the totals of the financial statements.
d. To present management's responses to auditor comments.
43. An enterprise with total assets of 100,000,000 and net profit of 9,000,000 purchases staplers with an estimated life of
10 years for 1,000. In connection with the purchase, the enterprise debits miscellaneous expense. This scenario is most
closely associated with which of the following concepts or principles?
a. Materiality and going concern, b. Reliability and comparability.
c. Relevance and neutrality. d. Materiality and the balance between cost and benefit
44. A decrease in net accounts receivable should be presented in a statement of cash flows (indirect approach) as a (an):
a. inflow and outflow of cash b. outflow of cash
c. deduction from net income d. addition to income from continuing operations
45. In a statement of cash flows in which the operating activities section is prepared under the indirect method, a gain on
the sale of long-term investment should be presented as a (an):
a. deduction from net income b. addition to net income
c. inflow and outflow of cash d. outflow of cash
46. Which of the following would most likely be found in an adjusting entry?
a. Prepaid expenses b. Cash dividend paid
c. Accounts receivable d. Cash dividend declared
47. All of the following correctly describe the average cost inventory cost flow method, except
a. A moving average cost is used with a perpetual inventory system only.
b. The average cost methods are based on the view that the cost of inventory on hand and the cost of goods sold
during a period should be representative of all purchase costs available for the period.
c. A weighted average unit cost is used with a periodic inventory system only.
d. A moving average cost is used with either a periodic or a perpetual inventory system.
48. For investments in Trading Securities, which of the following market value changes are recognized in earnings?
a. Realized gains only b. Unrealized gains only
c. Realized losses only d. Unrealized and realized gains and losses.
49. Cash dividends declared out of current earnings were distributed to an investor. How will the investor’s investment
account be affected by those dividends under each of the following accounting methods?
Fair value method Equity method
a. Decrease No effect
b. No effect Decrease
c. Decrease Decrease
d. No effect No effect
50. An exchange of assets with no cash exchanged
a. Records the cost of the asset received at the book value of the asset given.
b. Records the asset received at the market value of the asset given.
c. Culminates an earning process.
d. Results in recognition of a loss or gain to each party.
51. It is permissible to capitalize interest on
a. Assets that are not being used in earning activities of the entity and that are not undergoing the activities
necessary to get them ready for such use.
b. Inventories that are routinely manufactured in large quantities on a repetitive basis.
c. assets that already are in use or are ready for their intended use in the earnings activities on the entity.
d. Assets under construction.
52. After determining which equity items on the balance sheet properly comprise the basis of interest capitalization for
operational asset under construction, the interest calculation is based on the
a. Accumulated borrowings used only for the construction.
b. Accumulated expenditures on qualifying assets as of the start of the construction period.
c. Average accumulated expenditures on qualifying assets during the construction period.
d. Accumulated expenditures on qualifying assets as of the end of the construction period.