Intermediate Accounting

Which of the following best states the objective of general purpose financial statements?

• to help users make decisions
• to disclose the market value of the firm
• to determine compliance with tax laws
• to identify shareholders

Which inventory costing method would not be appropriate for a manufacturer using a perpetual inventory system?

• FIFO
• specific identification
• combination of FIFO and specific identification
• simple weighted average

Loans and receivables are initially recognized at

• fair value plus transaction costs that are directly attributable to the acquisition
• amortized cost
• fair value
• face value

When financial statements of an associate used in applying the equity method are prepared as at the end of the reporting period that is different from that of the investor,

• the difference must be no greater than twelve months
• the difference must be no greater than three months
• the difference must be compensated by an interim financial statement
• no difference must exist

Under this agreement, the seller should pay for the freight of goods delivered.

• freight collect
• FOB destination
• FOB shipping point
• freight prepaid

Cash equivalents are short-term and highly liquid investments that are

• Readily convertible into cash and acquired one year before maturity
• Readily convertible into cash and acquired 3 months before maturity
• Readily convertible into cash and acquired 6 months before maturity
• Classified as available-for-sale securities

Which of the following statements is incorrect regarding the initial recognition of receivables?

• On initial recognition, the fair value of a long-term noninterest bearing receivable is deemed equal to the present value of future cash flows from the instrument discounted at the effective interest rate on initial recognition.
• On initial recognition, the fair value of all interest-bearing receivables is deemed equal to their face amount.
• On initial recognition, the fair value of a long-term receivable bearing a reasonable interest rate is deemed equal to its face amount.
• On initial recognition, the fair value of a short-term receivable may be equal to its face amount.

PAS 38 does not apply to all of the following, except

• insurer’s contractual rights under insurance contracts
• intangible assets classified as assets held for sale
• right to utilize another entity’s business concept
• receivables without physical substance

When accounts receivable are factored without recourse, what account does the transferor credit?

• sales
• accounts receivable
• accounts receivable assigned
• liability

Roth Company received from a customer a one-year, P500,000 note bearing annual interest of 8%. After holding the note for six months, the entity discounted the note without recourse at 10%. What amount of cash was received from the bank?

• P513,000
• P540,000
• P495,238
• P523,810

Under PAS 16, PPE includes all of the following, except

• biological assets related to agricultural activity and mineral rights
• property used in production or supply of goods and services
• property used for extraction of minerals, oil or natural gas
• property held for administrative purposes

Under this shipping cost agreement, freight is not yet paid upon shipment. The carrier collects shipping costs from the buyer upon delivery.

• FOB shipping point
• FOB destination
• freight collect
• freight prepaid

Tranvia Company had the following balances on December 31, 2018: Cash in checking account - 350,000 Cash in money market account - 750,000 Treasury bill, purchased November 1, 2018, maturing January 31, 2019 - 3,500,000 Time deposit purchased December 1, 2018, maturing March 31, 2019 - 4,000,000 What amount should be reported as cash and cash equivalents on December 31, 2018?

• 4,600,000
• 3,850,000
• 1,100,000
• 8,600,000

Which of the following least resembles a typical adjusting entry?

• Debit expense, credit liability
• Debit revenue, credit liability
• Debit asset, credit liability
• Debit asset, credit revenue

Which of the following is correct regarding the recognition of inventories?

• Inventories include only those that are readily available for sale in the ordinary course of business.
• Inventories are recognized only when legal title is obtained
• Inventories are recognized only when they meet the definition of inventory and they qualify for recognition as assets.
• Inventories are recognized only by entities engaged in trading or manufacturing operations.

Technical or commercial obsolescence arises from

• improvement in production or change in market demand for the output of the asset
• expected usage of the asset
• expected physical wear and tear
• expiry date of related lease of the asset

In calculating the carrying amount of a loan, the lender adds to the principal (Item #1) Direct loan origination; (Item #2) Loan origination fees costs incurred by the lender charged to the borrower

• Yes, No
• No, No
• Yes, Yes
• No, Yes

When payment for is deferred beyond normal credit term, the difference between the cash price and total payments is

• capitalized as cost of PPE
• interest expense over the credit period
• interest expense over the useful life of the asset
• charged to retained earnings

Which of the following is generally classified as a current liability on the balance sheet?

• Bank overdrafts
• Customer NSF checks
• Travel advances
• Postdated checks

In preparing its May 31, 2019 bank reconciliation, Dogg Co. has the following information available: Balance per bank statement, 5/31/19 P30,000 Deposit in transit, 5/31/19 5,400 Outstanding checks, 5/31/19 4,900 Note collected by bank in May 1,250 The correct balance of cash at May 31, 2019 is

• P29,250
• P35,400
• P31,750
• P30,500

Accounts receivable are classified as current assets

• only if the allowance method is used to estimate the uncollectible accounts
• only if convertible into cash within 60 days or sooner
• only if convertible into cash beyond one year
• whenever accounts receivable arise from normal sales to customers, regardless of the credit terms

Fenn Company provided the following information for the current year: Merchandise purchased for resale - 4,000,000 Freight in - 100,000 Freight out - 50,000 Purchase returns - 20,000 Interest on inventory loan - 200,000 What is the inventoriable cost of the purchase?

• P4,280,000
• P4,080,000
• P4,030,000
• P4,130,000

Which of the following is a benefit of providing financial information?

• potential litigation
• disclosure to competition
• improved allocation of resources
• auditing

When accounting for inventories,

• the form of the sales contract is more important than its substance
• the sales contract is ignored since ownership over inventories are transferred only upon receipt of delivery by the buyer
• a journal entry is made only upon receipt of the delivery by the purchaser
• the agreement between the seller and the buyer shall be considered in determining the timing of transfer of ownership over the goods

The recording phase of financial accounting covers the following steps, except

• financial statements are prepared
• transactions are journalized
• business documents are received/prepared
• transactions are posted to the ledger

Apportionment of the purchase price in a lump-sum acquisition of various assets may be based on all of these except

• tax assessment values
• relative market values
• appraised values
• book values of the assets to the seller

Which of the following provides “the why” or the goal and purpose of accounting?

• Objective of financial reporting
• Element of financial statements
• Qualitative characteristic of accounting information
• Measurement and recognition concept

Which of the following costs are not included in cost to sell?

• transport and other costs necessary to get the assets to a market
• transfer taxes and duties
• levies by regulatory agencies
• commissions to brokers and dealers

On August 1, 2018, Bamco Company purchased a new machine on a deferred payment basis. A down payment of P100,000 was made and 4 monthly installments of P250,000 each are to be made beginning on September 1, 2018. The cash equivalent price of the machine was P950,000. The entity incurred and paid installation costs amounting to P30,000. What is the amount to be capitalized as cost of the machine?

• P950,000
• P980,000
• 1,130,000
• P1,100,000

Under PAS 38, intangible assets should be carried at

• cost plus a notional increase in fair value since the intangible asset is acquired
• cost less accumulated depreciation
• revalued amount less accumulated depreciation
• cost less accumulated amortiation and/or accumulated impairment

A purchased patent has a remaining legal life of 8 years. It should be

• amortized over its useful life, if less than 8 years
• amortized over a period of 10 or 20 years
• expensed in the year of acquisition
• amortized over 8 years regardless of the useful life

In order to be classified as a cash equivalent, an investment must have a maturity period of

• Six to twelve months
• Less than six months
• Three to six months
• Three months or less

The category "trade receivables" includes

• none of these
• advances to officers and employees
• claims against insurance companies for casualties sustained.
• income tax refunds receivable

At year-end, Barr Company reported net sales of P7,100,000 and allowance for doubtful accounts with debit balance of P16,000 before adjustment. The entity estimated the uncollectible accounts receivable at 2% of net sales. What is the allowance for doubtful accounts at year-end?

• P144,500
• P126,000
• P142,000
• P158,000

Cash set aside for a particular purpose (i.e. restricted)

• is still classified as current asset regardless of the purpose for its establishment
• is immediately classified as non-current
• May be classified as current or non-current depending on the purpose for its establishment
• is recorded in off-balance sheet records

Which of the following is an example of an adjusting entry?

• Recording the purchase of supplies on account
• Recording the payment of wages to employees
• Recording the billing of customers for services rendered
• Recording depreciation of a truck

Users of financial reports include all of the following except

• government agencies
• unions
• creditors
• All of these are users

A company constructed machinery for its own use. A bank loan specifically financed this property both during and after the construction. How much of the interests incurred should be reported as interest expense?

• interests incurred before completion
• zero
• all interests incurred
• interests incurred after completion

Accounting traditionally has been influenced by conservatism because of the

• difficulty in measuring net income on the accrual basis
• Probability of undetected errors in the financial statements
• large number of transactions recorded in any one period
• inherent uncertainties of many accounting measurements

Which of the following best qualifies as a "cash equivalent?"

• All of these answers.
• A firm's investment in "held to maturity" government treasury bonds that mature in 5 years.
• A firm's equity investment in an unconsolidated subsidiary of a privately held firm.
• A firm's investment in government treasury bills.
• Question 42
• Complete
• Mark 1.00 out of 1.00
• Not flaggedNot flaggedFlag question

According to PAS 41, this refers to the management by an entity of the biological transformation of biological assets for sale, into agricultural produce, or into additional biological assets.

• Agricultural activity
• Agricultural management
• Biological activity
• Biological transformation

Costs incurred by a company that may develop its own goodwill internally should be

• capitalized and amortized as the company profits increase
• capitalized and amortized over the useful life of the goodwill
• capitalized and amortized over a period not to exceed 40 years
• expensed in the period incurred

Preparation of consolidated financial statements when a parent-subsidiary relationship exists is an example of

• neutrality characteristic
• economic entity assumption
• relevance characteristics
• comparability characteristic

The cost of land most likely does not include

• special assessments
• costs of improvements with unlimited useful lives
• costs of removing old buildings
• costs of grading, filling, draining, and clearing

Which of the following is not dealt with by PAS 41 on "Agriculture"?

• The initial measurement of agricultural produce harvested from the entity's biological assets.
• The processing of agriculture produce after harvest
• The accounting for biological assets
• The accounting treatment of government grants in respect to biological assets

Bank overdraft

• Is offset against demand deposit account in another bank
• Which cannot be offset is classified as noncurrent liability
• Is a debit balance in a cash in bank account
• Which cannot be offset is classified as current liability

The adjusting entry at the end of the accounting year to reflect revenues earned but not yet collected or recorded will

• not affect income for the current period
• decrease liabilities
• increase assets
• not affect assets

In respect to information included in financial statements, the accounting concept of prudence ensures that

• An appropriate balance is achieved between the relevance and the reliability of information that has been included
• information is provided to users within the time period in which it is most likely to bear on their decisions
• the financial statements report what they purport to report
• a degree of caution in the exercise of judgments about estimates is made

Biological assets are

• Living animals only
• Living plants only
• Neither living animals nor living plants
• Both living animals and living plants

Adjusting entries involve

• Only nominal accounts
• At least one real and one nominal account
• Only real accounts
• Only capital accounts

All of the following can be classified as cash and cash equivalents, except?

• Commercial papers held and due for repayment in 90 days
• Bank overdraft
• Redeemable preference shares acquired and due in 60 days
• Equity investments

Which of the following methods of measuring the cost of goods sold most closely parallels the actual physical flow of the merchandise?

• Average cost
• Specific Identification
• FIFO
• LIFO

Which of the following is not considered cash for financial reporting purposes?

• Postdated checks and I.O.U.'s
• Money orders, certified checks, and personal checks
• Petty cash funds and change funds
• Coin, currency, and available funds

PAS 28 does not require the equity method to be applied to which of the following instance(s)? I. When an associate is acquired and held with a view to its disposal within twelve months of acquisition. There must be evidence that the investment is acquired with the intention to dispose of it and that management is actively seeking a buyer. The words ‘in the near future’ were replaced with the words ‘within twelve months’. When such an associate is not disposed of within twelve months it must be accounted for using the equity method as from the date of acquisition, except in narrowly specified circumstances under PFRS 5. II. An investor continues to have significant influence over an associate; however, the associate is operating under severe long-term restrictions that significantly impair its ability to transfer funds to the investor. III. An investor holds 10% interest in an investee; however, the interest held gives the investor significant influence over the investee. IV. An investor presents separate financial statement in accordance with PAS 27.

• I, II, III, IV
• I, III, IV
• none
• I and IV

General-purpose financial statements are the product of

• financial accounting
• neither financial nor managerial accounting
• managerial accounting
• both financial and managerial accounting

Bank reconciliations are normally prepared on a monthly basis to identify adjustments needed in the depositor's records and to identify bank errors. Adjustments should be recorded for

• book errors, bank errors, deposits in transit, and outstanding checks.
• outstanding checks and deposits in transit
• bank errors, outstanding checks, and deposits in transit.
• all items except bank errors, outstanding checks, and deposits in transit.

Spongebob Squarepants lent ₱2,000 to Squidward for one year at 10% interest, all due at maturity. He insisted the terms of the transaction be formalized in promissory note. In this situation:

• Spongebob Squarepants is considered the maker of the note and records the note as an asset in his accounting records
• Squidward is considered the maker of the note and records the note as a liability in his accounting records
• Spongebob Squarepants is considered the maker of the note and records the note as a liability in his accounting records
• the maturity value of the note is ₱2,000

A primary objective of financial reporting is to:

• assist suppliers in determining an appropriate discount to offer a particular company
• assist investors in predicting prospective cash flows
• assist banks to determine an appropriate interest rate for their commercial loans
• assist investors in analyzing the economy

All of the following would be regarded as financial instruments EXCEPT:

• Equipment
• Cash
• Notes payable
• Bank overdraft

A non-interest-bearing note receivable

• includes a specified principal amount plus specified interest
• includes an unspecified principal amount and an unspecified interest amount
• includes a specified principal amount but an unspecified interest amount
• causes no interest revenue to be recorded

The effect of closing entries is to

• change debits into credits and vice-versa
• change retained earnings
• change liabilities
• change assets

Adjusting entries are needed because an entity

• has earned revenue during the period by selling products from its central operations
• uses the cash basis of accounting rather than the accrual basis
• uses the accrual basis of accounting
• has expenses

Which of the following may PAS 38 be applied to?

• computer software held for sale in the ordinary course of business
• goodwill acquired in a business combination
• rights arising from exploration and evaluation assets
• web site costs

When a petty cash fund is used, which of the following is true?

• Entries that include a credit to the cash account should be recorded at the time the payment from the petty cash fund is made.
• The petty cashier summaries of petty cash payments serve as a journal entry that is posted to the appropriate general ledger account.
• The reimbursement of the petty cash fund should be credited to the cash account.
• The balance of the petty cash fund should be reported on the balance sheets as investment

Amortization of specific intangible assets results primarily from application of the

• full-disclosure principle
• cost principle
• revenue principle
• matching principle

Which of the following statements correctly relate to accounting for loans and receivables? Andres Company sold equipment to Bonifacio Company, taking in exchange a non-interest bearing note, the face amount of which was in excess of the fair value of the equipment. In a balance sheet prepared immediately after receipt of the note, Andres Company should present the note at its face value plus the anticipated net earnings to the note. Receivables denominated in a foreign currency, when reported on the year-end statement of financial position, should be translated to local currency at the rate of exchange at acquisition. The collection of an account which was previously written off through the allowance method of recognizing bad debts would affect the total current assets. Significant amounts of installment receivables should be disclosed Under PAS 1 trade receivables should be shown separately on the face of the balance sheet. Notes receivable may either be combined with or separated from accounts receivable.

• I, III, IV, V
• IV
• II, IV, V
• IV, V

If financial information that is presented in a balance sheet or income statement is misstated and it influences the economic decisions of users, that information is described as

• prudent
• faithful
• material
• reliable

Which of the following statements concerning compensating balance agreements is not true?

• They increase the effective interest rate to the borrower.
• They must be disclosed in the financial statements footnotes.
• They always involve legal restrictions on the cash received.
• They reduce the amount of cash available to the borrower.

Eureka Co. sells goods to Ancing, a customer who uses Swipe Credit Card. Eureka should record this sale as:

• an account receivable from Ancing
• an account receivable from Swipe
• cash receipt
• an increase in the allowance for doubtful accounts

Cash control systems are the methods and procedures used to ensure

• that unused cash is invested
• the safeguarding of cash
• that current obligations are met
• that excess cash does not exist

Total net income over the life of an entity is

• The same under the cash basis as under the accrual basis
• Lower under the cash basis than under the accrual basis
• Higher under the cash basis than under the accrual basis
• Not susceptible to measurement

In recording transactions

• Assets, expenses and retained earnings are debited for increases.
• The word “debit” means increase and the word “credit” means decrease.
• Liabilities, revenue and share capital are credited for increases.
• Assets, revenue and share capital are debited for decreases.

The following statements may be correctly stated as part of the acceptable accounting principles for receivables: Accounts receivable balances should be valued at their face amounts minus, if appropriate, allowances set up for doubtful accounts and impairment in value Receivable denominated in a foreign currency should be translated to local currency at the rate of exchange at balance sheet date If receivables are hypothecated against borrowings, the amount of receivables involved should be disclosed in the financial statements or notes Unearned finance charges and interests included in the face amount of the receivables are preferably shown as an addition to the related receivables Significant amount of installment receivables should be stated separately

• I, II, III, and IV only
• I, II, III, IV, and V
• I, II, III, and V only
• I, II, and III only

Biological assets are measured at

• net realizable value
• Fair value less costs to sell
• cost
• lower of cost or net realizable value

On July 1, 2018, a company obtained a two-year 8% note receivable for services rendered. At that time the market rate of interest was 10%. The face amount of the note and the entire amount of the interest are due on June 30, 2020. Interest receivable at December 31, 2018, was

• 5% of the July 1,2018, present value of the amount due June 30, 2020
• 4% of the face value of the note
• 4% of the July 1,2018, present value of the amount due June 30, 2020
• 5% of the face value of the note

Which of the following is not correct about an unadjusted trial balance?

• It is the basis for any adjustments to the account balances.
• It proves that debits and credits were properly entered in the ledger accounts.
• It proves that debits and credits of equal amounts are in the ledger.
• It supplies a listing of open accounts and their balances.

It is permissible to capitalize interest on

• inventories that routinely manufactured in large quantities on a repetitive basis
• 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
• assets under construction
• assets that already are in use or are ready for their intended use in the eraning activities on the entity

Ismael Co. recorded a bad debt recovery using the allowance method of accounting for bad debts. Compare (X) the working capital before the recovery with (Y), the working capital after the recovery.

• X is greater than Y
• X is less than Y
• X is equal to or less than Y
• X equals Y

An unearned revenue can be best be described as an amount

• Not collected and currently matched with expense
• Not collected and not currently matched with expense
• Collected and not currently matched with expense
• Collected and currently matched with expense

Which of the following is not an appropriate procedure for controlling the petty cash fund?

• The petty cash custodian files receipts by category of expenditure after their presentation to the general cashier so that variations in different types of expenditures can be monitored.
• Surprise counts of the fund are made from time to time by a superior of the petty cash custodian to determine that the fund is being accounted for satisfactorily.
• Upon receiving petty cash receipts as evidence of disbursements, the general cashier issues a company check to the petty cash custodian, rather than cash, to replenish the fund.
• The petty cash custodian obtains signed receipts from each individual to whom petty cash is paid.

Goodwill, when properly recognized, should be written off

• as soon as possible as an ordinary item
• when impairment loss occurs
• as soon as possible against retained earnings
• by systematic charges to expense over the period benefited but not more than 20 years

Which of the following investments in an associate is not within the scope of PAS 28 Investments in associates?

• An associate held by a venture capital organization and measured at fair value with changes in fair value recognized in profit or loss
• An associate held by a subsidiary and measured at fair value with changes in fair value recognized in profit or loss
• An associate held by a venture capital organization and measured at cost
• An associate held by a subsidiary and measured at cost

Under PAS 38, which of the following methods of amortization is normally not recommended for intangible assets?

• effective interest method
• units of production method
• declining balance method
• straight-line method

When the accounting policies used by the investor and the associate do not match,

• PAS 28 requires the entity to discontinue the use of the equity method
• PAS 28 requires appropriate adjustments to the associate’s financial statements to conform them to the investor’s accounting policies for reporting like transactions and other events in similar circumstances.
• In no instance should the accounting policies used by the investor and the associate be different.
• PAS 28 does not require appropriate adjustments to the associate’s financial statements to conform them to the investor’s accounting policies for reporting like transactions and other events in similar circumstances when it was not practicable to use uniform accounting policies

Eagle Company incurred the following costs in relation to a certain product: Direct materials and labor - 180,000 Variable production overhead - 25,000 Factory administrative costs - 15,000 Fixed production costs - 20,000 What is the correct measurement of the product?

• P240,000
• P205,000
• P225,000
• P195,000

On an entity’s December 31, 2018 statement of financial position which of the following items should be included in the amount reported as cash? I. A check payable to the enterprise, dated January 2, 2019, in payment of a sale made in December 2018. II. A check drawn on the enterprise’s account, payable to a vendor, dated and recorded in the company’s books on December 31, 2018 but not mailed until January 10, 2019.

• I and II only
• II only
• I only
• Neither I nor II

A cash equivalent is a short-term, highly liquid investment that is readily convertible into known amount of cash and

• Is acceptable as a means to pay current liabilities
• Has a current market value that is greater than original cost
• Bears an interest rate that is at least equal to the prime rate of interest at the date of liquidation
• Is so near maturity that it presents insignificant risk of change in interest rate

Which is a logical order in the accounting cycle?

• Posting, financial statements and unadjusted trial balance
• Financial statements, adjusting entries and recording
• Financial statements, closing entries and reversing entries
• Closing entries, reversing entries and adjusting entries

On October 31, 2018, Dingo, Inc. had cash accounts at three different banks. One account balance is segregated solely for a November 15, 2018 payment into a bond sinking fund. A second account, used for branch operations, is overdrawn. The third account, used for regular corporate operations, has a positive balance. How should these accounts be reported in Dingo’s October 31, 2018 classified balance sheet?

• The segregated account should be reported as a noncurrent asset, and the regular account should be reported as a current asset net of the overdraft.
• The segregated account should be reported as a noncurrent asset, the regular account should be reported as a current asset, and the overdraft should be reported as a current liability.
• The segregated and regular accounts should be reported as current assets net of the overdraft.
• The segregated and regular accounts should be reported as current assets, and the overdraft should be reported as a current liability.

Cost of goods sold is understated if

• ending inventory is understated
• net purchases is overstated
• beginning inventory is overstated
• ending inventory is overstated

The information below was taken from the bank transfer schedule prepared during the audit of Fox Co.’s financial statements for the year ended December 31, 2018. Assume all checks are dated and issued on December 30, 2018. Which of the checks might indicate kiting?

• #101 and #303
• #202 and #303
• #101 and #404
• #202 and #404

Ownership over inventories is normally transferred from the seller to the buyer I. When the significant risks and rewards of ownership are transferred to the buyer II. The seller retains continuing managerial involvement to the degree usually associated with neither ownership nor effective control over the goods sold III. The seller retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold

• I, III
• II, III
• I, II, III
• I, II

In the accounting cycle, a worksheet is prepared

• as a substitute for financial statements
• after adjusting entries are entered in the journal and posted to the ledger
• only for the purpose of preparing reversing entries
• before adjusting entries are entered in the journal and posted to the ledger

Figaro Company acquired land and paid in full by issuing P600,000 10 percent bonds payable and 40,000 ordinary shares with par value of P10. The share was selling at P19 and the bonds were trading at 102. What amount should be recorded as cost of the land?

• P988,000
• P1,372,000
• P1,000,000
• 1,3872,000

If a company incorrectly includes consignment items in the ending inventory, the net effects on the cost of goods sold and profit for the period, respectively, are

• Understatement, Overstatement
• Overstatement, Understatement
• Overstatement, overstatement
• The next period’s account will be correct

Which of the following is most likely not to be amortized over the periods of estimated benefit?

• costs incurred in organizing a corporation
• patent right purchased from an investor
• development costs that resulted in a successful product
• lease rights paid to owner of property for the usufruct

A cash-generating unit is:

• the smallest group of assets that generates independent cash flows from continuing use
• any group of assets which forms part of the management reporting structure
• a reporting segment
• any group of assets that has independent cash flows

Which of these is expensed as incurred by the franchisee for a franchise with an estimated useful life of 10 years?

• legal fees paid to the franchisee's lawyers to obtain the franchise
• any initial direct costs incurred in obtaining the franchise
• periodic payments to the franchisor based on franchisee's revenues
• Initial amount paid to the franchisor for the franchise

Identify the incorrect statement regarding goods in transit.

• Depending on the terms of sales contract, goods in transit may form part of the inventories of the buyer or the seller or, in rare cases, both the buyer and the seller.
• Goods in transit form part of the inventory of the entity who holds legal title to the goods
• Accounting for goods in transit are normally performed by trading or manufacturing entities but not by service oriented entities.
• Accounting procedures for goods in transit are normally performed only on inventory cut-off.

Which of the following may be classified under loans and receivables?

• Non-derivative debt instrument acquired with definite payments that are not quoted
• An interest acquired in a pool of assets that are not loans or receivables.
• Non-derivative equity securities which are not quoted
• An interest acquired in mutual fund

Which of the following terms best describes the removal of an asset from an entity's statement of financial position?

• Write-off
• Depreciation
• Derecognition
• Impairment

Which of the following is incorrect in relation to accounting for note receivables?

• when accounting for noninterest-bearing note, the legal form of the instrument takes precedence over its substance
• a long-term note that is interest-bearing may nonetheless be discounted if it bears an unreasonable interest rate
• the unearned interest income on a noninterest-bearing note receivable represents the total interest income to be recognized over the life of the note
• the present value factor using a period (‘n’) of zero is 1

PAS 16 shall be applied to which of the following?

• biological assets related to agricultural activity
• land held for future plant site
• equipment held for sale under PFRS 5
• building not used in normal operations but is being leased out under operating lease

Which of the following confers exclusive right to conduct business in a particular territory?

• leasehold improvement
• franchise
• trademark
• patent-copyright

Daddeh Co. owns 20% interest in Bebeh Co. During the year, Daddeh sold inventory to Bebeh at 20% gross profit. As of year-end Bebeh still holds 100% of the inventory. How much share in the profit from the transaction will Daddeh recognize for the year? Assume income tax rate of 30%.

• 80%
• 2.8%
• 14%
• none

Which of the following is incorrect regarding the accounting for receivables?

• Impairment loss on note receivables may be recorded as a direct deduction to the impaired asset’s account or through an allowance account.
• The percentage-of- credit sales method is principally oriented toward achieving the best possible matching of revenues and expenses. Aging the accounts is more oriented toward the presentation of the correct net realizable value of the trade receivables in the statement of financial position.
• Impairment testing on receivables is normally triggered by loss events.
• Direct origination costs are deducted while direct origination fees are added to the carrying amount of a loan receivable.

Posting

• Is done only for income statement activity because activity related to the statement of financial position does not require posting.
• Is done once every year.
• Accumulates the effects of ledger entries and transfers them to the general journal.
• Transfers journal entries to the ledger accounts.

Theoretically, the amount of estimated future returns and allowances on credit sales should be recorded during the period of the sale so as not to overstate sales and ending accounts receivable. In practice, these estimates are rarely recorded because:

• such estimates are not allowed according to generally accepted accounting principles
• the amount of such returns and allowances tends to fluctuate too greatly from period to period.
• the amount of such returns and allowances is usually not material
• there is too much uncertainty surrounding such estimates.

Under PAS 28, it refers to the carrying amount of the investment in the associate under the equity method together with any long-term interests that in substance, form part of the investor’s net investment in the associates.

• interest in ownership
• investment in associate
• interest in the associate
• none

Which is not a possible combination of a journal entry?

• Increase in asset and decrease in equity
• Increase in asset and increase in liability
• Decrease in liability and decrease in asset
• Decrease in equity and increase in liability

Agricultural activity

• Relates to the processes of growth, degeneration, production and procreation that can cause changes of quantitative or qualitative nature in a biological asset
• is the management by an entity of the biological transformation of biological assets for sale, into agricultural produce, or into another biological asset
• is the harvested product of the entity's biological asset
• is the detachment of agricultural produce from a biological asset or the cessation of a biological asset's life processes

An entity shall apply PAS 28

• to account for investments in associates in the entity’s separate financial statements
• any of these
• to investments which give the entity significant influence over the investee
• even when significant influence is lost

Closing entries

• Affect only the real accounts
• Are optional
• Permit an entity to analyze routine and repetitive transactions the same way all the time
• Remove the balances from the entity’s temporary accounts

All of the following are essential characteristics of an intangible asset, except

• Future economic benefits
• Identifiability
• Control
• Subject to amortization

Which of the following is incorrect regarding the accounting for inventories?

• Legal title over inventories normally passes when possession over of the goods is transferred.
• Transfer of ownership over inventories may precede, coincide with, or follow the transfer of physical possession of the goods.
• Transfer of ownership over inventories may coincide with or follow but never precedes the transfer of physical possession of the goods.
• Ownership over inventories may be transferred to the buyer even when legal title to the goods is retained by the seller.

Which of the following items qualify as an intangible asset under PAS 38?

• advertising and promotion on the launch of a huge project
• operating losses during the initial stages of the project
• college tuition fees paid to employees who decide to enroll in an executive MBA program while working with the company
• legal costs paid to intellectual property lawyers to register a patent

Agricultural activity covers a diverse range of activities. Such diverse range of activities have common features which includes all of the following except

• Capability to change
• Management of change
• Measurement of change
• Recognition of change

What links the decision makers and the decisions they make so that financial information would be useful?

• reliability
• materiality
• relevance
• understandability

It is the detachment of produce from a biological asset or the cessation of a biological asset’s life processes.

• Death
• Harvest
• Cultivation
• Decease

Jay Company provided the following data relating to accounts receivable for the current year: Accounts receivable, January 1 - 650,000 Credit sales - 2,700,000 Sales returns - 75,000 Accounts written off - 40,000 Collections from customers - 2,150,000 Estimated future sales returns at December 31 - 50,000 Estimated uncollectible accounts at 12/31 per aging - 110,000 What amount should be reported as net realizable value of accounts receivable on December 31?

• P1,085,000
• P1,200,000
• P925,000
• P1,125,000

Agricultural activity includes all of the following, except

• ocean fishing
• annual perennial cropping
• floriculture and aquaculture
• raising livestock

Which of the following is excluded in the scope of PAS 2 on Inventories?

• construction in progress
• inventories of a service provider
• manufacturing supplies
• raw materials

Which of the following terms describing information in the financial statements are properly matched?

• understandable and comparable
• unbiased and neutral
• reliable and verifiable
• prudent and relevant

Corolla Company incurred the following costs: Materials - 700,000 Storage costs of finished goods - 180,000 Delivery to customers - 40,000 Irrecoverable purchase taxes - 60,000 At what amount should the inventory be measured?

• P940,000
• P760,000
• P980,000
• P880,000

Discounts given for early payment of credit purchases of operational assets should be

• recorded as interest expense at purchase date
• capitalized as a cost of the asset acquired and subsequently allocated to depreciation expense
• deducted from the invoice price when determining the cost of the asset
• recorded as interest revenue at purchase date

In reconciling a business cash book with the bank statement, which of the following items could require a subsequent entry in the cash book? 1. Checks presented after date. 2. A check from a customer which was dishonored. 3. An error by the bank. 4. Bank charges. 5. Deposits credited after date. 6. Standing order entered in bank statement.

• 1, 2, 5 and 6
• 1, 3 and 5
• 2, 4 and 6
• 2, 3, 4 and 6

When individual customers' accounts have credit balances of material amounts, these amounts

• may be deducted from the debit balance in other customers' accounts in the asset section
• should be omitted from the balance sheet
• may be shown as "credit balances of customers' accounts" in the current assets section
• must be reported separately in the liability section of the balance sheet

Which of the following costs of conversion cannot be included in cost of inventory?

• Factory overheads based on normal capacity
• Salaries of sales staff (sales department shares the building with factory supervisor)
• Factory rent and utilities
• Cost of direct labor

When there is a long aging or maturation process after harvest, the accounting for such products is dealt with by

• PAS 2 Inventory
• PAS 41 Agriculture
• PAS 40 Investment Property
• PAS 16, Property, Plant and Equipment

The objective of financial reporting in the Conceptual Framework

• Is not found in the Conceptual Framework.
• All of the choices are correct regarding the objective of financial reporting.
• Includes the qualitative characteristics that make accounting information useful.
• Is the foundation for the Conceptual Framework.

The double entry accounting system means

• All of these are choices regarding double entry system.
• Each transaction is recorded with two journal entries.
• The dual effect of each transaction is recorded with a debit and a credit.
• Each item is recorded in a journal entry and then in a general ledger.

Immediately prior to recognition of impairment loss, the carrying amount of an impaired note is

• the present value of the note discounted at the current market rate on the date of impairment testing
• the total expected cash flows from the note
• the carrying amount of the note plus any accrued interest recorded prior to impairment testing
• the future value of the note

Assets received in donation should

• should not be depreciated
• be depreciated based on their fair value at the time of the donation
• be depreciated based on their book value at the time of the donation
• be expensed upon receipt

In replenishing a petty cash fund, which one of the following entries is required?

• Debit Petty Cash, credit Cash in bank
• Debit individual expense accounts, credit Cash in bank
• Debit Petty Cash, credit individual expense accounts
• Debit Cash in bank, credit Petty Cash

Which of the following items must be added to the cash balance per ledger in preparing a bank reconciliation which ends with adjusted balance?

• NSF customer check
• Erroneous bank credit
• Note receivable collected by the bank in favor of the depositor and credited to the account of the depositor.
• Service charge

Inventories are assets (choose the incorrect one)

• Held for sale in the ordinary course of business.
• In the form of materials or supplies to be consumed in the production process or in the rendering of services.
• Held for use in the production or supply of goods or services.
• In the process of production for sale.

At December 31, before adjusting and closing the accounts had occurred, the Allowance for Doubtful Accounts of Wise Corporation showed a debit balance of P5,300. An aging of the accounts receivable indicated the amount probably uncollectible to be P3,900. Under these circumstances, a year-end adjusting entry for uncollectible accounts expense would include a:

• credit to the Allowance for Doubtful Accounts for P1,400
• debit to the Allowance for Doubtful Accounts for P1,400
• debit to Uncollectible Accounts Expense, P9,200
• debit to Uncollectible Accounts Expense, P3,900

After impairment testing, the carrying amount of the impaired note is

• the future value of the expected cash flows from the note
• the amortized cost of the note ignoring impairment loss since the loss is only recognized in profit or loss
• the present value of the expected cash flows from the note, discounted at the original effective rate
• the present value of the expected cash flows from the note, discounted at the current market rate

Accumulated depreciation, as used in accounting, represents

• funds set aside to replace assets
• earnings retained in the business that will be used to purchase another operational asset when the related asset becomes fully depreciated
• the portion of the asset cost written off as an expense since the acquisition date
• an expense on the income statement

Which among the following is the last step in the accounting cycle?

• Preparation of financial statements
• Preparation of the post-closing trial balance
• Journalizing and posting of closing entries
• Preparation of reversing entries

Which of the following would be reported as Investment Property?

• Property available for lease.
• Owned-occupied property awaiting sale.
• Property that is being constructed or developed for future use as owner-occupied property.
• Property that is leased to another entity under a finance lease.

Which of the following statements is incorrect?

• If the estimate of the bad debt expense is made on the basis of net realizable value of the accounts receivable the balance of the account, "Allowance for Doubtful Accounts," is adjusted so that the adjusted balance reflects the computed amount needed to properly value the receivables.
• If the allowance for doubtful accounts has been underestimated, a sale of the related receivables to a factor is more likely to result in a gain than in loss.
• If credit terms to customers were 2/10, n/30, a two percent discount will be granted if payment is made within 10 days of the date of sale.
• If the estimate of bad debt expense is made on the basis of net credit sales, an entry is made each period to the account, "Allowance for Doubtful Accounts," without regard to the prior balance in that account.

Under the imprest petty cash system, expenses out of the petty cash fund are recorded

• upon disbursement
• at the end of the reporting period
• whenever the entity wishes
• upon replenishment

Which of the following is true regarding non-interest bearing note receivables?

• they include an unspecified principal and an unspecified interest
• they include a specified principal and specified interest
• they are always discounted to their present value on initial recognition
• they include a specified principal amount but an unspecified interest amount

A control device that helps minimize and localize accounting errors is known as

• worksheet
• chart of accounts
• subsidiary ledger
• trial balance

The Conceptual Framework is intended to assist

• Financial Reporting Standards Council
• Users of financial statements
• All of these
• CPAs in public practice

A manufacturing has these three basic types of inventory.

• Perpetual, periodic and estimated
• raw materials, work-in-process, and finished goods
• finished goods, work-in-process, and ready-to-sell merchandise
• specific identification, FIFO and average cost

A simple journal entry

• Contains more than two accounts
• Consists of one debit and one credit
• Consists of one debit and two credits
• Consists of two debits and one credit

It is an accounting device for accumulating increases and decreases relating to a particular accounting value such as an asset or a liability.

• account
• trail balance
• worksheet
• journal

If ending inventory is understated, (choose the incorrect statement)

• profit for the year is understated
• net purchases is unaffected
• profit for the year is overstated
• cost of goods sold is overstated

A bank reconciliation is

• A schedule that accounts for the difference between an entity’s cash balance as shown in the bank statement and the cash balance shown in the general ledger.
• A statement sent by the bank to depositor on a monthly basis.
• A formal statement that lists all of the bank account balances of the entity.
• A merger of two banks that previously were competitors.

Thor Company provided the following data on December 31, 2018: Checkbook balance - 4,000,000 Bank statement balance - 5,000,000 Cash in sinking fund - 2,000,000 Check drawn on Thor’s account, payable to supplier, dated and recorded on December 31, 2018 but not mailed until January 15, 2019 amounted to P500,000. On December 31, 2018, what amount should be reported as “cash” under current assets?

• 4,500,000
• 5,500,000
• 3,500,000
• 6,500,000

Under the periodic system, which of the following statements is correct?

• If purchase returns is understated, cost of goods sold is understated
• If purchase returns is understated, ending inventory is unaffected
• If purchase returns is understated, net purchases is unaffected
• If purchase returns is understated, beginning inventory is understated

Jellyfish Co. lent P10,000 to a major supplier in exchange for a noninterest-bearing note due in three years and a contract to purchase a fixed amount of merchandise from the supplier at a 10% discount from prevailing market prices over the next three years. The market rate for a note of this type is 10%. On issuing the note, Jellyfish should record (Item #1) Deferred charge; (Item #2) Discount on note receivable

• No, Yes
• Yes, Yes
• Yes, No
• No, No

Short-term non-interest-bearing notes receivable are usually recorded at their

• net realizable value
• present value
• discounted value
• maturity value

PAS 38 states that an asset meets the identifiability criterion in the definition of an intangible asset when it: I. is separable, i.e., capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, asset or liability II. arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.

• II
• I or II
• none
• I

A proof of cash

• is a four-column bank reconciliation showing reconciliation of cash balances per book and per bank at the beginning and end of the current month and reconciliation of cash receipts and cash disbursement of the bank and the depositor during the current month.
• is a physical count of currencies on hand at the end of reporting period.
• is a formal statement showing the total cash receipts during the year.
• is a summary of cash receipts and cash payments.

Appari Bank granted a loan to a borrower on January 1, 2018. The interest rate on the loan is 10% payable annually starting December 31, 2018. The loan matures in five years on December 31, 2022. Principal amount - 4,000,000 Origination fee received from borrower - 350,000 Direct origination cost incurred - 61,500 The effective rate on the loan after considering the direct origination cost incurred and origination fee received is 12%. What is the interest income for 2018?

• P445,380
• P400,000
• P558,000
• P529,380

Plant assets may properly include

• Self-constructed assets currently in use
• idle equipment awaiting sale
• land held for undetermined future use
• property held for investment purposes

Regarding the choice of measurement basis used for valuing biological assets, PAS 41

• recommends the use of present value
• recommends the use of historical cost
• recommends the use of current cost
• sets out several ways of measuring fair value

Accruals are

• Adjusting entries where cash flow precedes revenue or expense recognition
• Adjusting entries where revenue or expense recognition precedes cash flow
• Adjusting entries where cash flow and revenue or expense recognition are simultaneous
• Adjusting entries where revenue or expenses are recognized in the absence of cash flow evidence

When the percentage of credit sales method is used in determining doubtful accounts, the amount computed represents the

• bad debt expense
• required balance after adjustments for write-offs, recoveries and changes in the balance of the allowance for doubtful accounts
• required balance
• bad debt expense after adjustments for write-offs, recoveries and changes in the balance of the allowance for doubtful accounts

Which of the following may not be considered a "qualifying asset"?

• a power generation plant that normally takes two years to construct
• a ship that normally takes one to two years to complete
• an expensive private jet that can be purchased from a local vendor
• a tool bridge that usually takes more than a year to build

Accounts receivable usually appear in the balance sheet

• as either current assets or noncurrent assets, depending on whether the allowance method or the direct write-off method is used to account fro uncollectible accounts
• as current assets, immediately after cash and cash equivalents
• only if the balance sheet method of estimating uncollectible accounts is used
• as current assets, combined with cash and cash equivalents

The overall objective of financial reporting is to provide information

• About asset, liability and equity
• About financial performance
• That is useful for decision making
• That allows owners to assess management performance

Loans receivable are normally reported in the financial statements at

• proceeds extended
• amortized cost
• fair value
• cost

Which of the following should be included in inventory?

• Goods out on consignment
• Goods held for pick-up by the buyer
• Goods-in-transit purchased FOB destination
• Goods held on consignment

The following expenditures should be expensed as incurred, except

• expenditures in relocating or reorganizing part or all of the enterprise
• expenditures on advertising and promotional activities
• payment in advance of delivery of goods or services
• payments for organization expense

The internal control feature that is specific to petty cash is

• proper authorization
• separation of duties
• assignment of responsibility
• imprest system

Which of the following shall not be considered “cash” for financial reporting purposes?

• Money orders, certified and bank drafts
• Postdated checks and IOUs
• Coin, currency and available funds
• Petty cash funds and change funds

PAS 28 applies to which of the following?

• investments in associates held by a venture capital organization or mutual fund measured at fair value through profit or loss
• an interest in a partnership which gives the investor significant influence over the partnership
• a 20% investment in preference shares
• a 60% investment in ordinary shares of another entity

Hamilton Company has cash in bank of P10,000, restricted cash in a separate account of P3,000, and a bank overdraft in an account at another bank of P1,000. Hamilton should report cash of

• P13,000
• P12,000
• P10,000
• P9,000

A cash refund to a customer for sales returns should be entered in

• purchases journal
• sales journal
• cash receipts journal
• cash disbursements journal

Which statement is not a specific objective of financial reporting?

• To provide information that is useful in assessing cash flow prospects.
• To provide information that is useful in investment and credit decisions.
• To provide information about entity resources, claims against those resources and changes in those resources.
• To provide information on the liquidation value of an entity.

The normal balance of an account is on the

• Side represented by the increase in the account balance
• Side represented by the decrease in the account balance
• Credit side
• Debit side

Which of the following statements is(are) correct? I. The normal operating cycle of a business is disregarded when classifying nontrade receivables as current or noncurrent. II. Trade receivables which are collectible beyond one year or beyond the normal operating cycle, whichever is longer, are presented under the current assets section III. Nontrade receivables which are collectible beyond one year, notwithstanding the normal operating cycle, are presented under the non-current assets section. IV. A financial asset and a financial liability shall be offset and the net amount presented in the balance sheet when, and only when, an entity currently has a legally enforceable right to set off the recognized amounts

• I, III
• II, III and IV
• I, II, III and IV
• I, III, IV

Ownership over inventories is normally transferred to the buyer

• when the purchase price is fully paid
• when legal title to the inventories is transferred
• upon shipment of the goods by the seller to the buyer
• upon filling-up the sales order

An improvement made to an old machine increased its fair market value and its production capacity by 25% without extending the machine's useful life. The cost of the improvement preferably should be

• recorded as a loss
• expensed
• recorded as a liability
• capitalized

Which is not a key element of internal control over cash receipts?

• Immediate counting by the person opening the mail or using the cash register
• daily recording of all cash receipts in the accounting records
• daily entry in a voucher register
• cash deposit on a regular basis

Accounting recognition should be given to some or all of the gain realized on a nonmonetary exchange of plant assets except

• when the exchange is one with no commercial substance and no cash is involved and that no impairment losses are needed to be recognized.
• when the exchange is one with no commercial substance whether or not there is cash involved and that no impairment losses are needed to be recognized.
• where the assets exchanged are dissimilar and additional cash is received
• where the assets exchanged are dissimilar and additional cash is paid

Adjusting entries affect

• One nominal account and one real account
• No particular combination of nominal and real accounts
• Two real accounts
• Two nominal accounts

In accounting for inventories, which of the following statements is incorrect?

• On inventory cut-off, an entity shall include in its inventory only those goods which are on hand.
• In daily transactions, strict adherence to the passing of legal title is not practicable.
• Regardless of location, an entity shall report in its financial statements all inventories over which it holds legal title to or has gained control of the related economic benefits.
• Goods that are in transit as of inventory cut-off date may be included as part of inventory.

Identifiability is seen as the characteristic that conceptually distinguishes other intangible assets from

• franchise
• copyright
• goodwill
• patent

When testing loans and note receivables for impairment, the rate that should be used is

• the weighted average rate over the total life of the note
• the weighted average rate on the remaining term before maturity of note
• the original effective rate of the note
• the current market rate as of date of impairment testing

In an exchange of assets, an entity received equipment with a fair value equal to the carrying amount of equipment given up. The entity also contributed cash. As a result of the exchange, the entity shall recognize

• a loss determined by the proportion of cash paid to the total transaction value
• a loss equal to the cash given up
• A gain determined by the proportion of cash paid to the total transaction value
• Neither gain nor loss

The specific identification method can be used only:

• when the actual acquisition costs of individual units can be determined from the accounting records
• in income tax returns
• for financial reporting purposes(but not in income tax returns)
• when the individual items in inventory are similar in terms of cost, function, and sales revenue

When a closely held corporation issues equity shares in exchange for land, the land should be recorded at the

• total par value of the shares issued
• total book value of the shares issued
• current market value of the land
• current market value of the shares issued

Which of the following is most likely not considered as cash for financial reporting purposes?

• Post-dated checks from customers
• Stale checks issued to creditors
• Bank drafts and money orders
• Undelivered checks to trade suppliers

Generally speaking, biological assets relating to agricultural activity should be measured using

• a fair value approach
• historical cost
• net realizable value
• historical cost less depreciation less impairment

These refer to interest and other costs incurred by an entity in connection with the borrowing of funds.

• borrowing costs
• cost of qualifying asset
• interest income
• borrowed costs

The financial statements most frequently provided include all of the following except the

• income statement
• statement of cash flows
• balance sheet
• statement of retained earnings

Which of the following is not an ingredient of faithful representation according to Conceptual Framework for Financial Reporting?

• Freedom from error
• Completeness
• Neutrality
• Confirmatory value

A trial balance may prove that debits that debits and credits are equal, except

• A transaction could have been entered twice.
• A transaction could have been omitted.
• All of these may prove that debits and credits are equal.
• An amount could be entered in the wrong account.

If purchase returns is understated,

• ending inventory is overstated
• cost of goods sold is understated
• profit for the period is overstated
• profit for the period is understated

In reconciling the bank balance with the book cash balance, which of the following would not cause the bank shown in the bank statement to be lower than the unadjusted book balance?

• interest credited to the account by the bank
• cash on hand at the company
• deposits in transit
• NSF checks from a customer, as reported on the bank statement

It refers to the activities geared towards the search for mineral resources after the entity has obtained legal rights to explore in a specific area.

• development
• probe and investigation
• adventure and conquest
• exploration and evaluation

Arrange the following steps in their correct order: I. Financial statements are prepared. II. Adjusting entries are recorded. III. Nominal accounts are closed.

• II, III, I
• II, I and III
• III, II and I
• I, II and III

Which of the following expenditures subsequent to property acquisition cannot be added to asset's carrying amount?

• costs of material repairs that did not increase the asset life nor productive capacity
• costs of modification of an item of property that will extend its useful life
• costs of adopting new production processes that enable substantial reduction in operating costs
• costs of upgrading parts to achieve substantial improvements in quality of output

Loans and receivables are measured, subsequent to initial recognition, at

• historical cost
• effective value
• amortized cost
• fair value

Which term best describes information that influences the economic decision of users?

• understandable
• reliable
• relevant
• prospective

Investments in associates are normally classified in the statement of financial position as

• fair value
• noncurrent assets
• current assets
• equity account

In which of the following does X have significant influence?

• X owns 80% of Y, and Y owns 40% of Z. In Y’s separate financial statements, the investment in Z is classified as “held for sale” in accordance with PFRS 5.
• X owns 30% of the preference shares of Z Co.
• X owns 30% of the voting shares of ABC Co., the other 60% is held by Y and all seats on the board of directors are appointed by Y.
• X owns 15% of the voting shares of ABC Co., all other shares are held in very small blocks and therefore X has representatives in the board of directors.

If the gross amount of receivables includes unearned interest or finance charges

• these should be presented in the statement of financial position as liability
• these should be ignored
• these should be deducted in arriving at the net amount to be presented in the statement of financial position
• these should be added in arriving at the net amount to be presented in the statement of financial position.

In preparing the bank reconciliation, certified checks should be excluded from outstanding checks. The rationale for this treatment is

• the bank, when certifying checks, automatically debits the company’s account
• the bank, when certifying checks, assumes the obligation to pay the drawee when the check is presented for payment
• the bank, when certifying checks, automatically credits the company’s account
• the bank, when certifying checks, draws the check in its account

When the opening balance of inventory or net purchases during the period is overstated, profit for the period is

• no effect
• overstated
• either a or b
• understated

Which of the following is not a characteristic of receivables?

• They are not quoted in an active market
• The holder has a demonstrated positive intention and ability to hold them to maturity
• They have fixed or determinable payments.
• The holder can recover substantially all of its investment (unless there has been credit deterioration)

Which of the following methods is not appropriate for estimating bad debt expense?

• percentage of outstanding accounts receivable
• aging of accounts receivable
• percentage of income
• individual or collective assessment of outstanding receivables

Under PAS 20, it is action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria. It does not include benefits provided only indirectly through action affecting general trading conditions, such as the provision of infrastructure in development areas or the imposition of trading constraints on competitors.

• Grants related to assets
• Government grants
• Government assistance
• Grants related to income

When an entity elects to prepare separate financial statements, it shall account for its investment in associates

• in accordance with PFRS 9
• at cost
• using the equity method
• any of these

Which statement is true about the Conceptual Framework for Financial Reporting?

• In cases of conflict, the requirements of the relevant IFRS prevail over those of the Conceptual Framework.
• All of these statements are true about the Conceptual Framework.
• The Conceptual Framework is not a Standard.
• The Conceptual Framework describes the objective of financial reporting and the concepts for general purpose financial statements.

Which of the following is considered cash?

• Certificates of deposit (CDs)
• Postdated checks
• Money market checking accounts
• Money market savings certificates

Cash equivalents are

• Short-term and highly liquid investments that are readily convertible into cash with remaining maturity of three months
• Short-term and highly liquid marketable equity securities
• Short-term and highly liquid investments that are readily convertible into cash
• Short-term and highly liquid investments that are readily convertible into cash and acquired three months before maturity

Which one of these is not among the criteria to consider an event as accountable?

• its amount can be measured reliably.
• it must increase or decrease an element of the financial statements.
• it must be classified as an external event rather than an internal event.
• it must have already happened.

An entity installed a new production facility and incurred a number of expenses at the point of installation. The entity's accountant is arguing that most expenses do not qualify for capitalization. Included in those expenses are initial operating losses. These should be

• deferred and amortized over a reasonable period of time
• Taken to retained earnings since it is unreasonable to treat it as part of profit or loss
• capitalized as part of the cost of the plant as a directly attributable cost
• expensed and charged in profit or loss in the income statement

An intangible asset with an indefinite life is one where

• there is no foreseeable limit on the period over which the asset will generate cash flows
• the length of life is over 20 years
• there is a contractual or legal arrangement that lasts for a period in excess of five years
• the directors feel that the intangible asset will not lose value in the foreseaable future

Consider the following statements. I. The voucher system refers to the complete use of the voucher check and of subsidiary records of vouchers payable, voucher register and check register II. The simplest and most satisfactory method of handling purchase discounts under the voucher system is to deduct the purchase discount on the face of the voucher and enter this discount in a special column in the check register III. Entries in the voucher register are made in the same sequence as the numbering of the checks – that is, in the order in which payments are made.

• false, false, false
• true, false, false
• true, true, true
• true, true, false

An intangible asset with an indefinite life is accounted for as follows

• Amortized and no impairment test
• no amortization but tested for impairment annually
• amortized and impairment tests annually
• Amortized and tested for impairment if there is a "trigger event"

If a 12%, 3-month note receivable is acquired from a customer in settlement of an existing account receivable of ₱10,000, the entry on initial recognition of the note receivable includes a

• credit to interest income for ₱300
• debit to note receivable for ₱11,200
• debit to note receivable for ₱10,300
• debit to note receivable for ₱10,000 and no entry for interest

What is the valuation basis used in conventional financial statements?

• market value
• original cost
• a mixture of costs and values
• replacement cost

What is the minimum book value to be shown in the balance sheet for a plant asset which is expected to be sold for a reasonable amount at end of its useful life?

• accumulated depreciation
• zero
• salvage value
• depreciable cost

Mr. Golf Champ maintains the accounts receivable records, authorizes the write-off of uncollectible accounts, issues credit memoranda to customers, and handles cash receipts from customers. When customers are late in paying their accounts, Mr. Golf Champ often writes off the account as uncollectible and abstracts the cash received from the customer. This fraud should come to light if an employee other than Mr. Golf Champ.

• reconciles the accounts receivable subsidiary ledger to the controlling account
• reconciles credit memoranda for sales returns to the returned merchandise accepted by the receiving department
• reconciles the bank statement to the accounting records
• none of the above

Under existing accounting rules, cash is considered as a

• Financial asset
• Non-monetary asset
• Depreciable asset
• Fixed asset

Which of the following statements is correct?

• The primary accounting principle supporting use of the allowance for doubtful accounts is the cost principle.
• When a specified bad debt which has already been written off is later collected, sales revenue is increased by the amount of the recovery.
• The net realizable value of the total amount of accounts receivable is defined as the gross amount billed to customers less any cash and trade discounts.
• An estimate of bad debt expense based upon credit sales rather than total sales will likely be more in conformity with the matching principle.

All of the following can be classified as cash and cash equivalents EXCEPT:

• Loan notes held due for repayment in 90 days
• Redeemable preference shares acquired and due in 60 days
• Equity investments
• Bank overdrafts

It is an identifiable non-monetary asset without physical substance.

• financial asset
• ghost asset
• dream asset
• intangible asset