SOUTHERN LUZON STATE UNIVERSITY

COLLEGE OF ADMINISTRATION, BUSINESS, HOSPITALITY AND ACCOUNTNCY

BACHELOR OF SCIENCE IN ACCOUNTANCY

AEC14- CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

MIDTERM EXAMINATION
2nd semester 2019-2020

NAME: _________________________________ SCORE: _______

MULTIPLE CHOICE. Choose the letter of the correct answer.

_____ 1. Which of the following is not one of the principal issues in the accounting for PPE?
a. Recognition
b. Initial measurement as asset
c. Allocation of carrying amount over the period of use
d. Recognition of carrying amount as expense when the related revenue is recognized
_____ 2. You are the General Manager of Entity A. you have received the actuarial report for your company’s
defined benefit plan. The report shows the following information:
PV of DBO – Jan. 1, 20x1 1,500,000
FVPA – Jan. 1, 20x1 1,200,000
PV of DBO – Dec. 31, 20x1 1,800,000
FVPA, end – Dec. 31, 20x1 1,310,000
Actuarial gain 100,000
Return on plan assets 110,000
Discount rate 5%
When reporting on your company’s year-end highlights of financial summary, which of the following will you report
to the Board of Directors (the big bosses)?
a. Your company’s net liability for retirement benefits has increased by P490,000.
b. Your company’s net liability for retirement benefits has decreased by P300,000.
c. Your company’s net liability for retirement benefits has increased by P190,000.
d. I will tell them nothing.
_____ 3. Under a profit-sharing plan, Entity A agrees to pay its employees 5% of its annual profit. The bonus shall be
divided among the employees currently employed as at year-end. Relevant information follows:
Profit for the year P8,000,000
Employees at the beginning of the year 8
Average employees during the year 7
Employees at the end of the year 6
If you are an alumnus of entity A, how much bonus do you expect to receive?
a. P66,667 b. P50,000 c. P57,143 d. P0
_____ 4. The transfer of resources from the government to an entity in exchange for past or future compliance with
certain conditions is called:
a. Government grant c. Government financial assistance
b. Government assistance d. Government asset transfer
_____ 5. Entity A receives land from the government conditioned that the land will only be used in entity A’s
primary business activities and should never be sold. If in case, Entity A decides not to use the land in its primary
business activities, it shall return the land to the government. Which of the following standards is least likely to be
relevant in accounting for the land?
a. PAS 2 b. PAS 16 c. PAS 20 d. all of these are relevant
_____ 6. On December 1, 20x1, you imported a machine from a foreign supplier for $100,000, due for settlement on
January 6, 20x2. Your functional currency is the Philippine peso. The relevant exchange rates are as follows:
Dec. 1, 30x1 Dec. 31, 20x1 Jan.6, 20x2
P50:$1 P52:$1 P47:$1
The cost of the machine that will be disclosed in your December 31, 20x1 financial statements is:
a. $100,000 b. P5,000,000 c. P5,200,000 d. P4,700,000
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_____ 7. On January 1, 20x1, entity A started the construction of a qualifying asset. The qualifying asset is financed
through general borrowings. The average expenditures during the year amounted to P9,500,000. The capitalization
rate is 11%. The actual borrowing costs incurred during the period were P1,900,000. How much are the borrowing
costs eligible for capitalization?
a. P1,990,000 b. P1,045,000 c. P1,090,000 d. P990,000
_____ 8. Which of the following is not one of the aspects in the revised definition of a liability?
a. Probable outflows of economic benefits and reliable measurement of those outflows
b. Obligation
c. Transfer of an economic resource
d. Present obligation as a result of past events
_____ 9. The Conceptual Framework uses the term “ economic resources” to refer to:
a. Income b. equity c. assets d. a and c
_____ 10. According to the Conceptual Framework, the historical cost of an asset or a liability is updated for all of
the following (if applicable0, except;
a. Impairment of an asset
b. Accrual of interest, when the time value of money is considered
c. Changes in value as at the measurement date
d. Increase in an obligation relating to a contract becoming onerous
_____ 11. The revised Conceptual Framework defines a liability as:
a. A present obligation of the entity arising from past events, the settlement of which is expected to result
in an outflow from the entity of resources embodying economic benefits
b. A present obligation of the entity to transfer an economic resource as a result of past events
c. A present economic resource controlled by the entity as a result of past events. An economic resource is
a right that has the potential to produce economic benefits.
d. All of these
_____ 12. Which of the following is not considered an item of PPE?
a. Land classified as investment property
b. Land used in agricultural activity by a farming entity
c. Equipment manufactured or acquired primarily to be held for rentals
d. All of these
_____ 13. Which of the following assets may not be depreciated?
a. Building that is measured under the revaluation model
b. Equipment that becomes idle or retired from active use
c. Land
d. Landfill site
_____ 14. A change in depreciation method, estimate of useful life or residual value is accounted for as a:
a. Change in accounting policy c. Change in accounting estimate
b. Correction or error d. any of these
_____ 15. Entity A exchange its equipment for Entity B’s equipment. If the exchange has commercial substance,
Entity A should measure the equipment received from Entity B on initial recognition at:
a. The fair value of the equipment received
b. The fair value of the equipment given up
c. The carrying amount of the equipment received
d. The carrying amount of the equipment given up
_____ 16. In accounting parlance, depreciation means:
a. The decline in the value of an asset during the period
b. The amount derived by dividing the cost of an asset over its useful life
c. The amount derived by multiplying the cost of an asset by its useful life
d. The systematic allocation of the depreciable amount of an asset over its useful life
_____ 17. Grants are normally recognized at:
a. Current value c. Fair value
b. Market value d. net realizable value
_____ 18. On January 1, 20x1, entity A obtained a 10%, P5,000,000 loan, specifically to finance the construction of a
building. The proceeds of the loan were temporarily invested and earned interest income of P180,000. The
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construction was completed on December 31, 20x1 for a total construction costs P P7,000,000. How much are the
borrowing costs capitalized to cost of the building?
a. P320,000 b. P300,000 c. P500,000 d. P680,000
_____ 19. Which of the following are not related parties under PAS 24?
a. A parent and its subsidiaries
b. An investor and its associate
c. Family member of a Chief Executive Officer and the entity
d. A shareholder who holds 2% interest in the voting rights of the entity
_____ 20. According to PAS 27, investments in subsidiaries, associates or joint ventures are accounted for in the
separate financial statements:
a. At cost c. using the equity method under PAS 28
b. At fair value in accordance with PFRS 9 d. any of these, as a matter of accounting policy choice
_____ 21. On January 1, 20x1, Entity A acquires 30% interest in entity B for P600,000. Entity B reports profit of
P200,000 and declares dividends of P50,000 in 20x1. How much is the carrying amount of the investment in
associate on December 31, 20x1?
a. P600,000 b. P660,000 c. P645,000 d. P630,000
_____ 22. Entity A had 100,000, P10 par, 10% cumulative preference shares outstanding all throughout 20x1. Entity
A reported profit after tax of P2,800,000 for the year ended December 31, 20x1. The movements in the number of
ordinary shares are as follows:
1/1/20x1 Ordinary shares outstanding 120,000
3/1/20x1 Shares issued for cash 42,000
9/30/30x1 Subscribes shares 20,000
11/1/20x1 Reacquisition of treasury shares (12,000)
Outstanding shares at the end of period 170,000
What is the basic earnings per share?
a. P18.92 b. P17.09 c. P18.07 d. P16.98
_____ 23. According to PAS 34, income tax expenses in interim periods are computed using:
a. A weighted average annual income tax rate
b. A substantially enacted future tax rate
c. A uniform tax rate for all periods presented, including comparatives
d. An imputed tax rate
_____ 24. If the carrying amount of an asset is less than its recoverable amount, the asset:
a. Is impaired c. is not impaired
b. Should be written-down d. should be written-off in profit or loss
_____ 25. Which of the following assets is not tested for impairment in accordance with PAS 36?
a. Property, plant and equipment c. Intangible assets
b. Inventory d. Goodwill
_____ 26. According to PAS 37, contingent liabilities are:
a. Recognized and disclosed
b. Always disclosed
c. Disclosed, only if their expected occurrence is remote
d. Not disclosed if their expected occurrence is remote
_____ 27. Which of the following assets can be measured using the revaluation model?
a. Property, plant and equipment d. a and c
b. Investment property e. all of these
c. Intangible assets
_____ 28. Entity A acquires a building for P1,000,000. The building is to be leased out under various operating
leases. The building has an estimated useful life of 10 years and zero residual value. Entity A uses the cost model for
its property, plant and equipment and the fair value model for its investment property. At the end of Year 1, the
building is assessed to have a fair value of P1,080,000. How much should entity A recognize in profit or loss in
relation to the building?
a. P80,000 gain on change in fair value c. P180,000 gain on change in fair value
b. P100,000 depreciation d. b and c
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_____ 29. Which of the following is considered an agricultural activity under PAS 41?
a. Fishing in the open seas c. floriculture
b. Illegal logging d. Farming in the computer or cellphone
_____ 30. Which of the following is accounted for under PAS 41?
a. Bearer plants c. government grants related to biological assets measured at cost
b. Bearer animals d. Plants used in landscaping
_____ 31. Imagine you are an awesome accountant. Your client, entity A which is engaged in farming activities,
asked you for an advice on how it will account for its agricultural land. Which of the following standards would you
advise Entity A should use?
a. PAS 7 b. PAS 16 c. PAS 40 d. PAS 41
_____ 32. Provisions, contingent liabilities and contingent assets are accounted for using:
a. PAS 37 b. PFRS 6 c. PAS 29 d. PAS 8
_____ 33. To account for additional and disposals of items of property , plant and equipment, a CPA would most
likely refer to the accounting and disclosure requirements of:
a. PAS 2 b. PAS 40 c. PFRS 5 d. PAS 16
_____ 34. You are a member of the board of directors of BC Co. your company acquired a building to be held solely
for rentals. You are tasked in selecting an appropriate accounting policy for the building. In this regard, you will most
likely refer to which of the following standards?
a. PAS17 b. PAS 39 c. PAS 40 d. PAS 41
_____ 35. You are the sole proprietor of Entity A. As a requisite to your business loan application, you were
required by the bank to submit audited financial statements. During the audit of your financial statements, the
auditor questioned the carrying amount of your land. The auditor believes that the carrying amount is overstated
and needs to be written down to its recoverable amount. In your discussions with your auditor, the auditor would
most likely refer to this standard in her report?
a. PAS 36 b. PFRS 1 c. PAS 26 d. PAS 12
_____ 36. According to PAS 23, borrowing costs are capitalized when:
a. They relate directly to the acquisition, construction or production of a qualifying asset
b. The entity chooses to capitalize them
c. They are material and are expected to be incurred over more than one reporting period
d. All of these
_____ 37. Which of the following are not related parties?
a. A parent and its subsidiary
b. Two or more subsidiaries with same parent
c. A company and its Chief Executive Officer
d. Two co-venturers of a common joint venture business
_____ 38. According to PAS 27, which of the following is required to present separate financial statements?
a. A publicly-listed entity c. an entity with an investment in associate
b. A parent d. none of these
_____ 39. On January 1, 20x1, Entity A acquires 25% interest in Entity B for P800,000. Entity B reports profit of
P1,000,000 and declares dividends of P100,000 in 20x1. How much is the carrying amount of the investment in
associate on December 31, 20x1?
a. P800,000 b. P1,250,000 c. P1,000,000 d. P1,025,000
_____ 40. Entity A had the following instruments outstanding all throughout 20x1:
12% convertible bonds payable issued at face amount, each P1,000 bond is convertible into
30 ordinary shares, P2,000,000
Ordinary shares, P10 par, 100,000 shares issued and outstanding, P1,000,000
Profit for the year is P800,000. Entity A’s income tax rate is 30%
What is the diluted earnings per share in 20x1?
a. P6.28 b. P6.05 c. P6.15 d. P5.98
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_____ 41. Which of the following statements is correct?
a. A provision is recognized only when it represents a present obligation
b. An event or transaction whose outflow of economic benefits is probable and can be measured reliably is
always recognized
c. A contingent asset that is possible is usually ignored
d. A contingent liability that is possible is ignored
_____ 42. Which of the following properties meets the definition of investment property?
I. Land held for long-term capital appreciation
II. Property occupied by an employee paying rent at market rate
III. Property being constructed on behalf of third parties
IV. A building owned by an entity and leased out under an operating lease
a. I and Ii b. I and IV c. II and IV d. II, III and IV
_____ 43. Which of the following is considered a bearer plant?
a. Palm oil b. Corn oil c. baby oil d. oil palm
_____ 44. The equity method of accounting for investments is discussed under:
a. PAS 28 b. PAS 29 c. PAS 21 d. PFRS 2
_____ 45. Entity A pays salaries on a bi-monthly basis. Entity A has 10 employees, each earning P20,000 per month.
During the month of April 20x1, none of the employees were absent, late or have rendered overtime service. Which
of the following is correct regarding the timing of recognition and the amount of salaries expense recognized on the
first payday in the month of April 20x1?
Timing of recognition Amount recognized
a. April 1 P20,000
b. April 15 P200,000
c. April 17 P100,000
d. April 15 P100,000

GOD BLESS…
MBVILLON04172020

“ Education is not just about going to school and getting a degree. It’s about widening your knowledge and absorbing
the truth about life” – Shakuntala Devi