ARest of Theories Par
ARest of Theories Par
ARest of Theories Par
method or the direct writeoff method is used to account for uncollectible accounts
3. When individual customers’ accounts have credit balances of material amounts, there
amounts
c. May be shown as “credit balances of customers’ accounts” in the current asset section
d. May be deducted from the debit balance in other customers’ accounts in the asest
section
4. If a company employs the gross method of recording receivables from customers, then sales
c. Sales discount forfeited in the cost of sales section of the income statement
6. When the allowance method is used, the entry which is appropriate when a particular
7. ABC Company uses the allowance method in recognizing uncollectible accounts, the entry to
9. Assuming that the ideal measure of short term receivable in the balance sheet is the
discounted value of the cash to be received in the future, failure to follow this practice usually
10. When a note payable is issued for property, the present value of the note is measured by
c. using an imputed interest rate to discount all future payments on the note
d. any of these
12. Trade receivables are classified as current assets if they are reasonable expected to be
collected
13. Which of the following statements is true in relation to presentation of receivables in the
d. Trade receivables and nontrade receivables which are currently collectible shall be
14. Long term notes receivable which normally bear no interest or an interest which is
unreasonably low shall be recognized initially at
a. Face value
b. Present value
c. Maturity value
d. Current value
a. Current liabilities
16. A method of recording bad debt loss is consistent with accrual accounting?
a. Allowance method
17. A method of estimating bad debts that focuses on the income statement whether rather than
c. Credit sales
18. Which of the following methods of determining annual bad debt expense best achieves the
matching concept?
a. Percentage of sales
d. Direct writeoff
19. A method of estimating doubtful accounts that emphasizes asset valuation rather than
c. Gross sales
20. Accounting for the imputed interest on a noninterest bearing note receivable is an example of
c. With fixed or determinable payments that are not quoted in an active market
d. Without fixed or determinable payments that are not quoted in an active market
2. After being held for 60 days, a 120-day 8% interest bearing note receivable was discounted at
3. The carrying amount of an impaired note immediately after the recognition of the impairment
loss is the
b. The book value before the impairment is recognized less accrued interest
c. Present value of remaining cash flows to be received, discounted at the current market
rate of interest
d. Present value of remaining cash flows to be received, discounted at the original interest
4. If there is an evidence that an impairment loss on loan receivable has been incurred, the loss is
equal to the excess of the
b. Carrying amount of the loan over the principal amount of the loan
c. Carrying amount of the loan receivable over the present value of the cash flows related
to the loan
d. Present value of cash flows related to the loan over the carrying amount of the loan
receivable
5. In calculating the carrying amount of a loan receivable, the lender adds to the principal
d. Direct origination cost incurred by the lender and loan origination fee charged to the
borrower.
7. If receivables are hypothecated against borrowings, the amount of receivables involved should
be
d. Excluded from the total receivables and a gain or loss is recognized between the face
value and the amount of borrowings
8. Which of the following is true when accounts receivable are factored without recourse?
b. The receivables are used as collateral for a promissory note issued to a factor
c. The factor assumes the risk of collectability and absorbs any credit losses in collecting the
accounts receivable
d. The financing cost should be recognized ratably over the collection period of the
receivables.
9. Which of the following is used to account for probable sales discount, sales returns and sales
a. Factor’s holdback
b. Recourse liability
Equity
a. A financial asset
b. A financial liability
d. A financial asset of one entity and a financial liability or equity instrument of another
entity.
2. Which of the following cannot be considered a financial asset?
a. Cash
b. A contractual right to receive cash or another financial asset from another entity.
a. Prepaid expenses
b. Cash in bank
d. Loans receivable
b. Notes payable
c. Bonds payable
I - When equity shares of the same class are acquired on different dates and different cost, the
entity shall determine the cost of shares using the average method only.
II - Dividend income from the cash dividends will be recognized on the date of payment
a. I only
b. II only
a. The contractual rights to the cash flows of the financial asset have expired.
b. The financial asset has been transferred and substantially all the risk and rewards of
c. The financial asset has been transferred and the entity has retained substantially all the
d. The financial asset has been transferred and the entity has neither retained nor
transferred substantially all the risk and rewards of ownership of the transferred asset but
7. Which of the following transfers of financial asset would qualify for derecognition?
a. A sale of a financial asset where the entity retains an option to buy the asset back at
b. A sale of a financial asset where the entity agrees to repurchase the asset in one year
a. The amount of accounting loss that the entity would incur should any party to the
d. The specific names of the parties associated with the financial instrument
10. Disclosure of information about significant concentrations of credit risk required for
11. Which of the following is not a characteristic of a financial asset held for trading?
a. It is acquired principally for the purpose of selling or repurchasing it in the near term.
together and for which there is evidence of a recent actual pattern of short-term profit
taking
a. Fees and commission paid to agent, levies by regulatory authorities, transfer taxes and
duties
c. Financing cost
a. I only
b. II only
14. Which of the statements is true concerning recognition of unrealized gains and losses?
a. Unrealized gains and losses on financial assets held for trading shall be included in profit
or loss
b. Unrealized gains and losses on financial assets measured at amortized cost are not
recognized.
c. Unrealized gains and losses on financial assets at fair value through other
I - Financial assets representing a contractual right to receive cash in the future include trade
II - Prepaid expenses, Leased assets and physical assets are not considered as financial assets
a. I only
b. II only
16. The irrevocable election to present subsequent changes in fair value in other comprehensive
a. I only
b. II only
18. What is the reclassification date for purposes of reclassifying financial assets?
b. First day of the next reporting period following the change in business model
c. Date when management decided to change the business model for managing
financial assets.
management
c. The quoted price, if an active market exists for the financial instrument
a. Equity
b. Net income
d. Retained earnings
I - Equity security encompasses any instrument representing ownership shares and rights, warrants
a. I only
b. II only
a. Amortized cost
b. Fair value
23. 1st statement: Gold Bullion deposited in bank is not a financial asset
a. True, False
b. False, False
c. False, True
d. True, True
24. 1st Statement: Financial asset representing a contractual right to receive cash in the future is
an option held by the holder to purchase shares of another entity at less than market price.
2nd Statement: The owners of equity securities are legally known as shareholders.
25. 1st statement: Equity securities include redeemable preference shares, treasury shares and
convertible debt.
26. 1st statement: A debt investment is at amortized cost if the business model is to collect
2nd statement: Equity investments are only classified as FV-PL or FV-OCI but never Amortized
cost.
27. 1st statement:Debt investment is classified as FV-OCI if the business model is to sell the financial
2nd statemetn: The best evidence of fair value in descending hierarchy is the quoted price of
identical and similar asset in an inactive market; quoted price of identical asset in an active
28. 1st statement: Any unrealized gain or loss on financial asset are recognized and is classified in
2nd statement: The accumulated unrealized gain or losses for equity investment at FV-OCI will
income.
29. 1st statement: All equity investments should be assessed for impairment.
2nd statement: All debt investments should be assessed for impairment and recognized an
30. An impairment loss is the excess of the carrying amount of the investment over the
I - Gain or loss on disposal of equity investment measured at fair value through other
II - The cumulative unrealized gain/loss – OCI will appear in the statement of changes in equity
a. I only
b. II only
32. It is the date on which the stock and transfer book of the entity is closed for registration. Only
a. Date of declaration
b. Date of record
c. Date of Payment
d. Stock dividends
a. Amortized cost
b. Face amount
c. Fair value
d. Maturity
I - if the equity security are acquired in an exchange, the first order of priority is the fair value of
the asset received.
II - If two or more equity securities are acquired at a single price, the price is allocated to the
a. I only
b. II only
38. Transaction cost directly related to acquisition of trading bond investment are
b. Expensed immediately
a. Minus repayments
Debt Investmetn
a. effective rate
b. yield rate
c. market rate
b. coupon rate
c. stated rate
3. To compute the price to pay for a bond, what present value concept is used?
4. Bond is usually sell at a discount when investors are willing to invest in bonds
6. All of these are characteristics of financial assets classified as amortized cost, except
c. the holder has demonstrated positive intention and ability to hold them to
maturity
d. the holder can recover substantially all of its investments (unless there has been
credit deterioration
a. municipal bonds
b. redeemable preferred shares
c. treasury stock
d. warrants
8. A bond is purchased on January 1. The investor's carrying value at the end of the first
9. The investor's interest income for a period would be lowest if the bonds is purchased at
a. a discount
b. a premium
11.Under PFRS 9, which type of financial instrument is subject to business model test and
a. debt instrument
b. derivative instrument
d. equity securities
12.The effective interest rate on bond is lower than the stated rate when bonds sells
a. at maturity value
d. at face amount
13.The effective interest rate on bond is higher than the stated rate when bond sells
a. at face amount
d. at maturity value
a. the date when the investor purchased the investment and classify it according
c. the first day of the reporting period following the change in business model
d. every january 1
2nd statement: Debt investments that elects fair value option cannot be reclassified.
a. True, True
b. True, False
c. False, False
d. False, True
a. Amortized Cost
b. Face Amount
c. Fair Value
d. Maturity Value
a. Trading bond investments are held with the intention of selling them in a short
period of time
20.The interest income for the year would be higher if the bond was purchased at
a. quoted price
b. face amount
c. a discount
d. a premium
21.In accordance with PFRS 9, bond investments shall be classified as financial assets
a. straight line
b. bond outstanding
a. premium
b. discount
23.These are bonds which may be called in or redeemed by the issuing entity prior to the
date of maturity.
a. callable bonds
b. convertible bonds
c. serial bonds
d. term bonds
24.if the bond was purchased in between the interest payment date, which of the
following is correct?
a. A debit to the investment equivalent to its fair value plus the interest already
b. A debit to cash equivalent to the fair value of the investment and the interest
c. A credit to interest income from the date of last of interest payment date to the
date of acquisition
25.If a bond was purchased on March 1 with an agreement that the issuer of bond will
pay interest every August 1 and February 1. The interest receivable for the year will be
equivalent to
a. five months
b. 6 months
c. 1 month
d. 10 months
26.If the bond was classified as Trading securities, the increase in value of the bond will be
adjusted to:
27. If the bond classified as Trading securities, which of the following is correct with
investment
c. A credit to Trading securities equivalent to the selling price plus the accrued
interest
d. A credit to Trading Securities equivalent to the cash received from the issuer of
bond
Inventories
1. 1st statement: Periodic inventory system is the method of accounting for inventory in which the
2nd statement: Under the perpetual inventory method, after a physical count, inventory is
2. 1st statement: Consumable stores or supplies to be consumed in the production process are
3. 1st statement: Goods received from another entity on consignment should be excluded in
inventory.
2nd statement: Goods in transit purchased FOB shipping point should be included in inventory.
4. 1st statement: Interest on loan obtained to purchase the inventory should not be included as
cost of inventory.
5. 1st statement: Weighted average is usually used for inventory when an entity builds
townhouses.
2nd statement: The main reason why specific identification method may be considered ideal
for assigning cost to inventory and cost of goods sold because the potential manipulation of
6. 1st statement: Weighted Average method is the inventory method that measures most closely
2nd statement: In a period of rising prices, the inventory cost allocation method tends to result
7. 1st statement: Cost of goods sold is the same under periodic system as under a perpetual
2nd statement: During a period of rising prices, when the FIFO inventory cost flow method is
used, a perpetual inventory system would result the same ending inventory as a period
inventory system.
2nd statement: Net realizable value is used to measure the inventory of agricultural inventory,
9. 1st statement: When a portion of inventory has been pledged as security for a loan, the value
2nd statement: If a material amount of inventory has been ordered through a formal purchase
contract at the end of the reporting period for future delivery at firm prices, a disclosure is
required only if prices have declined since the date of the order.
10. 1st statement: Lower of cost and net realizable value gives the lowest valuation if applied to
2nd statement: In recording a loss due to a price decline in the value of inventory method only
11. 1st statement: The gross profit method is invalid when the gross profit percentage applicable to
the goods in ending inventory is different from the percentage applicable to goods sold
during the period.
2nd statement: The gross profit method is not valid when the gross margin percentage changes
12. 1st statement: The gross profit method is used to verify the accuracy of the perpetual inventory
INVENTORIES (RDA) 9
2nd statement: The gross margin method of estimating ending inventory maybe used for
13. 1st statement: The effect of net markup on the cost retail ratio when using the conservative
14. 1st statement: To defer income tax liability is not one of the main reason in using retail inventory
method.
2nd statement: The conventional retail method produces an ending inventory that
15. 1st statement: Higher retail prices would cause a decrease in the cost ratio used in the retail
inventory method.
2nd statement: Purchase returns would be included in the calculation of the goods available
16. 1st statement: The risk and rewards of ownership has been transferred when the receipt of
revenue from a particular sale is contingent on the derivation of revenue by the buyer from its
2nd statement: Inventory should include property that it holds for sale in the ordinary course of
17. 1st statement: The use of a purchase discount lost account implies that the cost of a
purchased inventory item is the invoice price less the purchase discount allowable whether
taken or not.
2nd statement: The cost of purchase inventory includes the trade discounts, rebates and other
similar items.
18. 1st statement: The amount of writedown of inventory to net realizable value and all losses of
inventory should be recognized as component of cost of sales in the period the writedown or
loss occurs.
2nd statement: Revenue will only be recognized after one month of sale when an entity offers
to refund the cost of purchase within one month after the sale if the customer is not satisfied
19. 1st statement: Bill and hold sales is when the buyer is not yet ready to take the delivery but
2nd statement: The allocation of fixed factory overhead to the cost of conversion is based on
20. 1st statement: The credit balance that arises when a loss on a purchase commitment is
2nd statement: Historical cost, current replacement cost or net realizable value can be used as
a measure to inventory.
21. 1st statement: Storage cost of part finished product should not be taken into account when
2nd statement: Cost of designing products for specific customers should be capitalized as part
of inventory cost.
22. 1st statement: The risk and rewards of ownership has been transferred when the buyer has a
right to return the goods or right to seek a refund and the seller can reliably estimate the future
2nd statement: The major advantage of the retail inventory method is that it provides a method
1. Which of the following account will affect the cost of goods sold
3. The cost of inventories in applying the valuation at lower of cost or net realizable value should
be assigned by using
at year end
6. To determine an inventory valuation that using the retail method under the average method,
a. Sales and costs of goods sold have not changed from previous years
c. The relationship between selling price and costs of goods sold is similar to prior years
8. The weighted average inventory costing method is particularly suitable to inventory where
a. The entity carries stock of raw materials, work in process and finished goods
d. Goods have distinct use by dates and the goods produced first must be sold earliest
9. Which of the following is not a basic assumption of the gross profit method?
b. The beginning inventory plus purchases equal to total goods to be accounted for.
c. The amount of purchases and the amount of sales remain relatively unchanged from
d. The sales reduced to cost basis when deduction form the sum of beginning inventory
a. Sales and cost of goods sold have not changed from previous years
c. The relationship between selling price and cost of goods sold is similar to prior years.
INVENTORIES (RDA) 11
11. What is the effect of net mark-ups on the cost retail ratio when using the conservative retail
method?
12. What is the effect of freight in on the cost retail ratio when using the conservative retail
method?
b. Accounting policy adopted in measuring inventories, including the cost formula used
d. The carrying amount of inventories carried at fair value less cost of disposal
d. The carrying amount of inventory carried at fair value less cost of disposal
16. In the period of rising prices, the inventory method which tends to give the highest reported
net income is
a. LIFO
b. Weighted average
c. Base stock
d. FIFO
17. Dwyn Corporation incorrectly included in its ending inventory items that is holding in
consignment for Xyl Inc. the effect of this error on the cost of goods sold and net income of
a. Overstatement, understatement
c. Understatement, overstatement
d. Understatement, understatement
rendering of services
d. Used in the production or supply of goods and services for administrative purposes
19. Which of the following would be included in the merchandise inventory amount reported on
IRC Company?
b. Items purchased from a supplier and en route directly to a customer of IRC; the term
from the supplier was FOB destination; invoice received but not yet paid.
INVENTORIES (RDA) 12
c. Items sold to SMALL Company on July 2015 and accounted for using the instalment
method (equal instalment are due each month for 24 months from date of sale.
2016, the term was FOB destination; an invoice has been mailed to the customer
20. How should sales staff commission be dealt with when valuing inventories at the lower of cost
c. Added to cost
d. Ignored
21. Losses which are expected to arise from firm and noncancellable commitments for the future
a. Ignored
22. At the end of the accounting period, the current market value of a purchase commitment
was less than the fixed purchase price. Which treatment is most appropriate?
a. Describe the nature of the contract in a note to the financial statements, recognize a
c. Describe the nature of the contract in a note to the financial statements and recognize
d. Describe the nature of the contract and the estimated amount of the loss in a note
a. Selling costs
c. Normal shrinkage and scrap incurred for the manufacture of a product in ending
inventory.
d. Storage costs
25. 1st: The cost of conversion of inventories includes costs directly related to the units of
production, such as labor. They also include a systematic allocation of fixed and variable
production overheads, that are incurred in converting materials into finished goods.
2nd: The costs of purchased of inventories comprise the purchase price, import duties and
other taxes (other than those subsequently recoverable by the entity form the taxing
authorities), and transport, handling and other costs directly attributable to the acquisition of
finished goods, materials and services. Trade discounts, rebates and other similar items are
26. The following are costs excluded from the cost of inventories, except
b. Import duties
INVENTORIES (RDA) 13
d. Storage costs, unless those costs are necessary in the production process before a
27. When allocating costs to inventory produced for the period, fixed overhead should be based
upon
28. Which of the following statements regarding inventory accounting system is true?
a. The advantage of the perpetual inventory system is that the record keeping simple
inventory.
c. A disadvantage of the perpetual inventory system is that inventory amounts used for
d. A disadvantage of the periodic inventory system is that the cost of goods sold used for
financial reporting includes both the cost of inventory and inventory shortages.
29. When the cost of goods sold method is used to record inventory at NRV
c. The NRV is substituted for cost and the loss is buried in costs of goods sold
30. Net realizable value is the general rule for valuing which of the following types of inventory?
31. How is the gross profit method used as it relates to inventory valuation?
I – A special article, fabricated to order for a customer, was finished and in the shipping room
II – An entity holds lubricants that are consumed by the entity’s machinery in producing goods.
III – A vintner processes grapes harvested from its vineyard into wine in a three year production
cycle.
II – An entity rented two floors in a building. The first floor is occupied only by the production
staff. Half of the second floor is occupied by the entity’s administrative staff and the other half
I II
Selling Expense
c. The rental expense is included in the First floor part of the cost of PPE. The second
INVENTORIES (RDA) 14
Expense.
d. The rental expense is included in the
cost of inventory
34. With regards the initial measurement of inventory, which of the following is incorrect?
a. Other costs that may be appropriate to include as part of the inventory are non-
production overheads or the cost of designing products for specific customers in the
cost of inventories.
b. The cost of inventories of a service provider does not include profit margins or non-
attributable overheads that are often factored into prices charged by service
providers.
c. The cost of purchase comprise the purchase price, import duties and other recoverable
taxes, transport, handling and other cost directly attributable to the acquisition of
d. The cost of conversion of inventories include cost directly related to the units of
production, such as direct labor and the systematic allocation and variable production
b. The total carrying amount of inventories and the carrying amount in classifications
36. FIFO
a. It permits the income manipulation, by making the year end purchases designed to
b. When prices are rising, the inventory valuation will be less than the current cost and
when prices are declining, the inventory valuation will be more than the current cost.
c. Favors the income statement because there is matching of current cost against current
revenue.
d. Favors the financial position in that the inventory is stated at current replacement cost.
37. When inventory declines in value below original cost what is the maximum amount that the
a. Historical cost
c. Sales price
I – The carrying amount of sold inventories shall be recognized as expense in the period in
II – The amount of any write down of inventories to net realizable value and all losses of
inventories shall be recognized as an expense in the period of write down or loss occurs.
III – The amount of reversal of a write down of inventories, arising from increase in the net
III - The cost of actually producing the computer software from masters and packaging it for
sale.
IV – Goods held for sale for a brief period of time like emulsified asphalt that should be used
a. Biological assets related to agricultural activity and agricultural produce at the point of
harvest
b. Financial instrument
c. Work in progress arising under construction contracts, including directly related service
contracts
41. Which of the following items should be included in a company’s inventory at the balance
sheet date?
a. Goods sold to a customer which are being held for the customer to call for at the
customer’s convenience.
43. Which of the following represents the best justification for valuing the inventories at the lower
b. It is easier to keep track of market value that is to keep track of cost as market value is
c. The practice of writing inventories below cost to net realizable value is consistent with
the view that assets should not be carried in excess of amount expected to be realized
d. The balance sheet valuation of inventory is the most important consideration in the
c. Estimated selling price less estimated cost to complete and estimated cost of disposal
a. Selling costs
b. Administrative overheads
d. Storage cost
46. Variable production overhead are allocated to each unit of production on the basis of the
c. neither the normal capacity nor the actual use of production facilities
47. The use of a discount lost account implies that the recorded cost of an inventory is
INVENTORIES (RDA) 16
a. invoice price plus the purchase discount lost
b. invoice price
c. invoice price less the purchase discount allowable whether taken or not
48. Which of the following is not an acceptable basis for valuation of inventory?
a. Standard costs
b. Historical cost
d. Prime cost
49. Which of the following statements is true regarding writedown and reversal of writedown?
50. Losses arising from firm and noncancellable purchase commitments of inventory items, if
material, should be
c. Ignored
51. Which of the following costs of conversion cannot be included in the cost of inventory
52. PAS2 Inventories requires that when inventory are written down to net realizable value, they
53. Which statement is not valid in relation to the LCM rule for inventories?
I. Inventories are usually written down to net realizable value on an item by item basis.
II. It is appropriate to write down inventories based on a classification of inventory, for example,
a. Both I and II
b. Neither I nor II
c. I only
d. II only
54. Which of the following is not true about the perpetual inventory method?
a. The entry to record a sale includes a debit to cost of goods sold and a credit to
inventory
d. Purchase returns are recorded by debiting accounts payable and crediting purchase
55. When using the moving average method of inventory valuation, a new unit cost must be
56. When a portion of inventories has been pledged to secure the payment of indebtedness
a. The value of the portion pledged should be transferred from current assets to
noncurrent assets
INVENTORIES (RDA) 17
b. The value of the inventories shown in the current assets section of the balance sheet
remains the same but the fact of having been pledged a portion of the inventories
statements
d. The value of the portion pledged should be deducted from the value of the inventories
chain consisting of numerous different stages and facilities where different qualities and
quantities of materials in different physical conditions and different purity grades permanently
flow through the facilities. In order for the factory to function (at least function efficiently), a
minimum level of certain materials known as “core inventory” has to be maintain at all times in
Khanser Company defined “Core Inventories” based on the industry they are engaged
in, as minimum amount of materials that must be present at all times during the production
process in order to permit the first time production and subsequent production. The minimum
and cannot be separated from other inventories. The required minimum amount of materials
can only be removed when the production facilities are finally decommissioned, when the
expense.
Based on the IFRS Interpretations Committe Meeting, core inventories are classified as
a. They are classified as Inventories as they are ordinarily interchangeable with other
inventories, and thus core inventories held at a particular reporting date will be either
b. They are classified as Inventories as PAS 2 takes precedence over the scope of PAS 16,
based on the paragraph 2 of PAS 16 which states that “This standard shall be applied in
accounting for PPE except when another standard requires or permits a different
accounting treatment”.
c. They are classified as PPE as they are not held for sale or consumption; instead their
intended use is to ensure that a production facility is operating. Even though core
inventories are commingled with other ordinary inventories, the characteristic and
intended use of a particular part of inventories remain the same at each reporting
period.
58. WILDLIFE INC is in memorial park Industry. CHUMBEE is a newly hired accountant and was
tasked to prepare the financial statement of the company. What should be the inventory for
d. Inventory items used by an entity as components in self constructed property, plant and
equipment
60. COCO is a NUT FARMER and believes that the price of nuts will increase significantly in the
months following harvesting the crop. In anticipation of charging higher prices COCO stores
the harvested nuts for three months after the harvest. COCO should measure his NUTS at
a. In accordance to PAS 2, initially at cost during harvest and subsequently lower of cost
and NRV
INVENTORIES (RDA) 18
b. They are measured at net realizable value in accordance with well established
practices in that industry and subsequently any changes in the value are recognised in
c. They are measured lower of cost and NRV and if the NRV is lower than the cost, the
61. Which of the following should be form part of the cost of inventories
a. The cost of purchase comprises the purchase price, import duties and other
b. The cost of conversion which includes the allocation of fixed production overhead
using the actual capacity and the allocation of variable production overhead using
c. Other costs to the extent that they are incurred in bringing the inventories to their
a. The amount of any write down of inventories recognised as an expense for the period.
b. The amount of reversal of write down that is recognised as a reduction in the amount of
63. The weighted average inventory costing method is particularly suitable to inventory where
b. Goods have distinct use by dates and the goods produced first must be sold earliest
c. The entity carries stocks of raw materials, work in progress and finished goods
64. In a period of rising prices, the inventory method which tends to give the highest reported cost of
goods
sold is
a. Inventory composition
b. Inventory location
66. Yeah Company incorrectly included in its ending inventory of the current year P125,000 worth of
items
that is holding in consignment for EX Inc. The effect of this error on the net income and cost of goods
Agriculture
a. Leaves c. Lumber
b. Bushes d. Wine
2. Entity A had a plantation of forest that is likely to be harvested and sold in 30 years. The
b. The eventual sale proceeds should be estimated and matched to the profit and loss
c. Income should be measured annually and reported using a fair value approach that
d. The plantation forest should be valued every 5 years and the increase in value should
a. For a biological asset, there is a presumption that a fair value can be measured reliably
b. The fair value assumption on biological assets can be rebutted only on initial
recognition
c. For an agricultural produce, it is assumed that its fair value less cost to sell on initial
biological assets for sale or for conversion into agricultural produce or into additional
biological assets.
lessee under a finance lease to earn rentals or for capital appreciation or both
c. Are tangible assets which are held by an entity for use in production or supply of goods
and services, for rental to others, or for administrative purposes, and are expected to be
d. The search for mineral resources after the entity has obtained legal rights to explore in a
specific area as well as the determination of the technical feasibility and commercial
7. A gain or loss arising on the initial recognition of a biological asset and from a change in the
fair value less estimated point of sale costs of a biological asset should be included in
a. At fair value
b. In accordance with PAS 16, Property, Plant and Equipment, or PAS 40 Investment
Property
c. At fair value in combination with the biological asset that has been grown on the land
d. At the resale value separate from the biological asset that has been grown on the land.
9. Where the fair value of the biological asset cannot be determined reliably, the biological asset
should be measured at
AGRICULTURE (RDA) 4
a. Cost
10. It is the management by an entity of the biological transformation of living animals or plants for
11. Generally speaking, biological assets relating to agricultural activity should be measured using
a. Historical cost
12. Which of the following values in unlikely to be used in fair value measurement?
c. The present value of the expected net cash flows from the assets
d. External independent valuation
13. I – External independent valuation is an acceptable fair value measurement for biological
II -Contract prices are not necessarily relevant in determining fair value, and the fair value of a
biological asset or agricultural produce is not adjusted because of the existence of a contract
14. I – Fair value of agricultural produce at the point of harvest can always be measured reliably.
II – Agricultural activity is the process of enhancing or stabilizing the conditions necessary for
III – the management by an entity of the biological transformation of biological assets for sale
into agricultural produce, or into additional biological assets, is called “management” activity.
15. Consumable biological assets are those that are to be harvested as agricultural produce or
sold as biological assets. Examples of consumable biological assets are the following, except
a. Agricultural produce is measured at fair value less costs to sell at the point of harvest
18. Under PFRS, which of the following inventory items are not valued at the lower of cost or net
realizable value?
AGRICULTURE (RDA) 5
a. Separate disclosure of the gain or loss relating to biological assets and agricultural
produce
b. The aggregate gain or loss arising on the initial recognition of biological assets and
agricultural produce and from the change in fair value less cost of disposal of biological
assets.
c. The total gain or loss from biological assets and agricultural produce
23. If government grant related to biological asset is conditional, the grant should be recognized
as
c. A deferred credit when the conditions attaching to the grant are met
24. Biological assets are valued at fair value, under PFRS 13, paragraph 72, enumerates the fair
value hierarchy. Which of the following provides the correct order of fair value
III – Quoted prices for similar assets in an active market and quoted prices for identical
b. Has a remote likelihood of being sold as agricultural produce, except for incidental
scrap sales
c. Revaluation method
d. Cost model
27. Animals related to recreational acivities including the natural breeding of animals in zoos, shall
AGRICULTURE (RDA) 6
28. 1st statement: The bearer plant and the related agricultural produce are accounted as two
separate assets.
2nd statement: the agricultural produce is usually presented as current asset unless it takes
Inv in associate
1. If an entity holds, directly or indirectly, 20 per cent or more of the voting power of the investee,
it is presumed that the entity has significant influence, unless it can be clearly demonstrated
2. The existence and effect of potential voting rights that are currently exercisable or convertible,
including potential voting rights held by other entities, are not considered when assessing
3. An entity loses significant influence over an investee when it loses the power to participate in
4. When instruments containing potential voting rights in substance currently give access to the
returns associated with an ownership interest in an associate or a joint venture, the instruments
5. When an investment in an associate or a joint venture is held by, or is held indirectly through,
an entity that is a venture capital organization, or a mutual fund, unit trust and similar entities
including investment-linked insurance funds, the entity should elect to measure that
investment at fair value through profit or loss in accordance with IFRS 9.
6. An entity shall apply PFRS 5 (Noncurrent assets held for sale) to an investment, or a portion of
an investment, in an associate or a joint venture that meets the criteria to be classified as held
for sale.
shall apply the fair value method and remeasure the retained interest.
8. The gain or loss resulting from a downstream transaction involving assets that constitute a
business, as defined in IFRS 3, between an entity (including its consolidated subsidiaries) and its
9. When the end of the reporting period of the entity is different from that of the associate or joint
venture, the associate or joint venture prepares, for the use of the entity, financial statements
as of the same date as the financial statements of the entity unless it is impracticable to do so.
10. When the financial statements of an associate or a joint venture used in applying the equity
method are prepared as of a date different from that used by the entity, adjustments shall be
made for the effects of significant transactions or events that occur between that date and
11. The entity’s financial statements shall be prepared using uniform accounting policies for like
12. If an associate or a joint venture has outstanding cumulative preference shares that are held
by parties other than the entity and are classified as equity, the entity computes its share of
profit or loss after adjusting for the dividends on such shares, when the dividends had been
declared.
13. If an entity’s ownership interest in an associate or a joint venture is reduced, but the investment
continues to be classified either as an associate or a joint venture respectively, the entity shall
reclassify to profit or loss the proportion of the gain or loss that had previously been recognized
in other comprehensive income relating to that reduction in ownership interest if that gain or
loss would be required to be reclassified to profit or loss on the disposal of the related assets or
liabilities.
14. The concepts underlying the procedures used in accounting for the acquisition of a subsidiary
are not adopted in accounting for the acquisition of an investment in an associate or a joint
venture.
15. ‘Upstream’ transactions are, for example, sales of assets from an associate or a joint venture to
the investor.
a. If an investor holds, directly or indirectly, less than 20% of the voting power of the investee, it
is presumed that the investor does not have significant influence, unless such influence can
be clearly demonstrated.
b. If an investor holds, directly or indirectly, 20% or more of the voting power of the investee, it
is presumed that the investor does have significant influence, unless it can be clearly
3. When an entity holds between 20% and 50% of the voting power of an investee, which
statement is true?
b. The investor should use the equity method unless circumstances indicate that it is unable to
c. The investor must use the fair value method unless it can be clearly demonstrated that the
5. When an investor uses the equity method to account for investment in ordinary shares, cash
a. Dividend income
6. The equity method is not required when the associate has been acquired and held with a
b. The entire carrying amount of the investment is tested for impairment for impairment by
comparing the recoverable amount with carrying amount with carrying amount.
c. The carrying amount of the investment shall be compared with fair value
8. The excess of the investor’s share of the net fair value of the associate’s net assets over the
c. Recognized as income in the determination of the investors’ share of the associate’s profit
or loss
d. A deferred gain
9. What should happen when the financial statements of an associate are not prepared as of
a. The associate shall prepare financial statements at the same date as that of the investor.
b. The financial statements of the associate prepared up to a different date would be used.
c. Any major transactions during the time gap of the financial statements shall be accounted
for.
d. As long as the gap is not greater than three months, there is no problem.
10. On the loss of significant influence, the investor shall recognize in profit or loss any difference
between
a. The initial carrying amount of any retained investment, any proceeds from disposing of the
part interest and the carrying amount of the investment at the date when significant
influence is lost.
b. The fair value of any retained earnings investments and the carrying amount of the
c. Any proceeds from disposing of the part interest and the carrying amount of the
d. The fair value of any retained investments, any proceeds from disposing of the part interest
and the carrying amount of the investment at the date significant influence is lost.
Borrowing cost
1. PAS 20, government grant includes the provision of infrastructure by improvement to the
If the asset is financed by specific borrowing but a portion is used for working capital purpose
government procurement policy that is responsible for a portion of the entity’s sales.
accounting estimate.
The treatment of borrowing cost during the period of substantial technical and administrative
4. Repayment of grant related to income shall be applied first against to any amortized deferred
Repayment of grant related to asset shall be recognized by decreasing the carrying amount
of the asset or increasing the deferred income balance by the amount repayable.
comprehensive income, either separately or under a general heading such as other income.
A qualifying asset is an asset that necessarily takes a short period of time to get ready for the
6. Government grant are sometimes called by other names such as subsidies, subventions or
premiums.
Receipt of the grant itself provides conclusive evidence that the conditions attaching to the
7. The manner in which a grant is received will affect the accounting method to be adopted in
Capitalizable borrowing cost under specific borrowings is actual borrowing cost incurred less
interest Income.
8. Once a government grant is recognized, any related contingent liability or asset is treated
The two approaches for government grant are first, the capital approach, in which grant is
recognized outside the profit or loss and the income approach, in which the grant is
recognized grant in profit or loss because they are not earned but represent an incentive
One of the arguments in support of the income approach is that income and taxes are
expenses, it is logical to deal also with government grants, which are an extension of fiscal
10. If the grant of land will be given if the condition is upon the erection of a building on the site,
the grant will be recognized in the profit or loss over the life of the building.
2. These are assistance by government in the form of transfers of resources to an entity in return
for past or future compliance with certain conditions relating to the operating activities of the
entity.
3. These are government grants whose primary condition is that an entity qualifying for them
a. The benefit of a government loan at a below market rate of interest is not to be treated
as a government grant.
b. A forgivable loan from government is treated as a government grant when there is
reasonable assurance that the entity will meet the terms for forgiveness of the loan.
c. The manner in which a grant is received does not affect the accounting method to be
d. A government grant is not recognized until there is a reasonable assurance that the
entity will comply with the conditions attaching to it, and that the grant will be
received.
already incurred for the purpose of giving immediate financial support to the entity with
no future related costs shall be recognized in profit or loss after meeting certain
conditions.
b. Grants related to nondepreciable asset may also require the fulfillment of certain
obligation and would be recognized in profit or loss over the periods that bear the cost
c. Grants related to depreciable assets are usually recognized in profit or loss over the
recognized.
d. Government grants shall be recognized in profit or loss on a systematic basis over the
periods in which the entity recognizes as expenses the related costs for which the grants
a. The nature and extent of government grants recognized in the financial statements and
an indication of other forms of government assistance from which the entity has directly
benefitted.
b. The names of the government agencies that gave the grants along with the dates of
sanction of the grants by these government agencies and the date when cash was
received in case of monetary grant.
7. Which of the following methods are acceptable in presenting grants related to assets?
c. Either a or b
d. Neither a or b
PAS 20?
b. Present the grant in the income statement as other income or as a separate line item,
d. Credit the grant to sale or other revenue from operations in the income statement.
an accounting policy.
c. The excess of the repayment over the deferred credit set up should be recognized
immediately as an expense.
10. Nonmonetary grants such as land or other resources are usually accounted for at
12. If a government grant is conditional on certain events, then the grants should be recognized
as
c. A deferred credit when the conditions attached to the government grant are met
a. Receipt of a grant, in itself, provides conclusive evidence that the conditions attaching
reasonable assurance that the enterprise will meet the terms of forgiveness of the loan
c. The manner in which a grant is received affects the accounting method to be adopted
d. Grant received in cash and grant as a reduction a liability to the government should be
accounted differently
14. In the case of the grants related to an asset, which of these accounting treatments is
a. Record the grant at a nominal value in the first year and write off in the subsequent
year.
b. Either set up the grant as deferred income or deduct it in arriving at the carrying
c. Record the grant at fair value in the first year and take it to income in the subsequent
year.
financial support, with no future related costs, should be recognized as income in the
c. Grants related to depreciable assets should be recognized as income over the periods
16. Which of the following statements about the capitalization of borrowing costs as part of the
a. If funds come from general borrowings, the amount to be capitalized is based on the
incurred.
17. Which of the following borrowing costs may not be eligible for capitalization of borrowing
costs?
capitalization
PPE
9. 1st statement: Carrying amount is the amount at which an asset is recognized after deducting
2nd statement: Depreciable amount is the cost of an asset, or other amount substituted for cost,
10. 1st statement: Impairment loss is the systematic allocation of the depreciable amount of an asset
2nd statement: Fair value is the amount of cash or cash equivalents paid or the value of the other
11. 1st statement: Property, Plant and Equipment are intangible items that are held for use in the
production or supply of goods or services, for rental to others, or for administrative purposes or
2nd statement: Recoverable amount is the lower of an asset’s fair value less cost of disposal and
12. 1st statement: Residual value of an asset is the estimated amount that an entity would currently
obtain from the disposal of an asset, after deducting the estimated cost of disposal.
2nd statement: Spare parts are classified as inventory otherwise it will be classified as property,
13. 1st statement: The installation of new chemical handling processes to comply with the
environmental requirements for the production and storage of dangerous chemicals can be
classified as asset even though it will not directly increase the future economic benefit from a
2nd statement: The cost of the day to day servicing of the item is included in the carrying amount
14. 1st statement:An item of property, plant and equipment that qualifies for recognition as an asset
2nd statement: Costs of opening a new facility is an example of directly attributable cost.
15. 1st statement: Administration and other general overhead costs are not part of the cost of
2nd statement: An entity shall choose either the cost model or the fair value model in measuring
16. 1st statement: The frequency of the revaluations of the assets depend upon the changes in fair
2nd statement: At the date of the revaluation, the accumulated depreciation is eliminated
17. 1st statement: If an item of property plant and equipment is revalued, any item within the class
2nd statement: The revaluation surplus will be transferred to the retained earnings account when
18. 1st statement: The property, plant and equipment shall be depreciated as a whole and not on
per item or parts basis even such part or item is significant in cost.
19. Which of the following is still within the cost of property, plant and equipment
b. Biological asset related to agricultural activity other than the bearer plants.
c. The property, plant and equipment used to develop or maintain the asset of mineral
rights and mineral reserves such as oil, natural gas and similar non-regenerative resources.
asset and from its disposal at the end of its useful life or expects to incur when settling a liability.
a. The lower between the fair value less cost of disposal and its value in use
c. The higher between the fair value less cost of disposal and its value in use
a. The period over which an asset is expected to be available for use by an entity
b. The number of production or similar units expected to be obtained from the asset by an
entity.
d. Either A or B
e. Neither A nor B
23. Which of the following is not cost of an item of property, plant and equipment?
a. Purchase price, including import duties and non-refundable purchase taxes, after
b. Initial estimate of dismantling and removing the item and restoring the site on which it is
located.
24. Which of the following costs are included in the carrying amount of property, plant and
equipment?
a. Cost incurred while an item capable of operating in the manner intended by the
management has yet to be brought into use or is operated at less than full capacity.
25. Incidental operations that occur before or during construction that resulted to income should
be
27. If the property, plant and equipment is acquired through exchange of non-monetary assets, the
b. The fair value of neither assets received nor given up is reliably measurable
d. Either A or B
e. Neither A nor B
a. The configuration (risk, timing and amount) of the cash flows of the asset received differs
b. The entity specific value of the portion of the entity’s operations affected by the
c. The difference between a and b is insignificant relative to the fair value of the assets
exchanged
d. None of the above
29. If an asset’s carrying amount is increased as a result of a revaluation, the increase shall be
recognized in
b. Profit or loss
e. Not reported
32. Which of the following is not a factor being considered in determining the useful life of an asset
33. If the cost of land includes the costs of site dismantlement, removal and restoration, the portion
b. Not depreciated
c. Expense immediately
35. Which of the following method used to allocate the depreciable of an asset is preferred by the
standard?
36. The gain or loss arising from the derecognition of an item of property, plant and equipment shall
be determined as the
d. Difference between the net proceeds and the original cost of the asset.
37. Compensation from third parties for items of property, plant and equipment were impaired, lost
38. If there is a change in depreciation method, which of the following is not a necessary disclosure
requirement?
b. Residual values
c. Useful lives
d. Depreciation methods
Investment Property
a. The owner
d. Both A or B
b. Start up cost
d. Purchase price
5. If the investment property is acquired through exchange and such transaction lacks commercial
substance, the investment property will be measured at
7. If subsequently, the entity uses the cost model for investment property the guidance to be followed
a. Based on PFRS 5
b. Based on PFRS 16
c. Based on PAS 16
8. Under the standard, there is a rebuttable presumption that an entity can reliably measure the fair
c. On continuous basis
determinable.
I – the variability in the range of reasonable fair value measurements is not significant for that asset
II – the probabilities of the various estimates within the range can be reasonably assessed and
b. II only d. Either I or II
10. Which of the following is correct in determining the carrying amount of an investment property?
a. If an office is leased on furnished basis, the fair value of the investment property will
b. Lifts and air-conditioning is included as part of the investment property rather than PPE.
a. Inception of a finance lease to another party, for a transfer from inventories to investment
property.
property to inventories.
12. When an entity decides to dispose an investment property without development, the property will
b. Inventory d. Either a, b or c
13. For a transfer from investment property carried at fair value to owner occupied property, the
14. The difference between the carrying amount and the fair value of an asset when there is a change
of use from inventories to investment property at fair value, will be treated as?
d. There is no difference in amount as the asset will continue to value it at cost at the date
of change in use.
III – Property that is being constructed or developed for future use as an investment property
whole (for instance, the building owner supplies security and maintenance services to
the lesses), then the enterprise treat the property as investment property
c. Where the services provided are more significant (such as the case of an owner-
18. AB Corporation is preparing its consolidated financial statement. The company owns an office
building where nine out of ten floors are leased out to an affiliated company under an operating
lease, while the 10th floor is occupied by AB Corporation as its head office. What is the proper
a. Nine floors are reported as Investment property while the 10th floor as Property and
Equipment
b. Nine floors are reported as Property and Equipment while the 10th floor as Investment
Property
19. Which of the following is false with regards the measurement of transfers for investment property?
a. When the entity uses the cost model, transfers between investment property, owner
the difference between fair value and the carrying amount of the property shall be
d. A transfer from investment property carried at fair value to owner occupied property or
inventory shall be accounted for at fair value which becomes the deemed cost for
subsequent accounting.
e.
20. Which of the following noncurrent assets may not be classified as investment property?
a. Land c. Machinery
21. Determine if it is Investment Property (IP), Owner Occupied (PPE) or Inventory (Inv) or Others
c. Building lease as operating lease and lease out under operating lease
l. Property held for future development and subsequent use as owner occupied
m. Property occupied by employees
q. Constructed a hotel building but will be managed by others with the condition that the
r. Constructed a hotel building with the intention to manage the hotel while the laundry
s. Constructed a condotel building with the plan to sell every room and manage it like a
t. A machinery owned by the Parent Company to be rented out by the Subsidiary under
u. A machinery owned by the Subsidiary Company to be rented out by the Parent under
v. A land owned by the Parent Company to be rented out by the Subsidiary under an
w. A land owned by the Subsidiary Company to be rented out by the Parent under an
x. A building lease by the company under operating lease with an intention for rent. The
y. A machinery lease by the company under operating lease with an intention for rent.
Wasting Asset
a. When the legal rights to explore a specific area have been obtained but the technical
feasibility and commercial viability of extracting a mineral resource are not yet
demonstrable.
b. It will be recognized as an asset but only to the extent of the technical feasibility and
demonstrated.
d. Exploration and evaluation asset will use revaluation model only in measuring the asset
c. To compute a depletion charge per unit includes the estimated total amount of
transportable
b. When a specific area is being developed and preparations for commercial extraction
c. When the legal rights to explore a specific area have been obtained, but the technical
feasibility and commercial viability of extracting a mineral resources are not yet
demonstrable
d. When searching for an area that may warrant detailed exploration, even though the
entity has not yet obtained the legal rights to explore a specific area
c. The definitions, recognition criteria, and measurement concepts for assets, liabilities,
d. The requirements and guidance in standards and interpretations dealing with similar and
related issues.
a. Information that identifies and explains the amounts recognized in the financial
statement arising from the exploration for and evaluation of mineral resources
d. The amounts of assets, liabilities, income and expense and operating and investing cash
flows arising from the exploration for and evaluation of mineral resources.
Intangibles
1. Research and development costs must be expensed in the period incurred unless it can be
clearly demonstrated that the expenditure will have alternative future use or unless
contractually reimbursable.
Amortization method is one of the factors considered in determining the useful life of an
intangible asset.
2. Cost of testing prototype before economic feasibility has been demonstrated must be
capitalized.
An entity that acquires an intangible asset may use the revaluation model for subsequent
measurement if the useful life of the intangible asset can be reliably determined.
3. Website development costs incurred for the purpose of promoting and advertising an entity’s
reporting date
4. Development is application of research finding or other knowledge to a plan or design for the
A brand name that was acquired separately shall be initially recognized at fair value.
5. Cost of marketing research for a new product should be excluded from research and
development expense.
Amortization of an intangible asset with a finite useful life shall commence when it is
6. A patent should be amortized over the useful life or twenty years, whichever is longer.
Reconciliation of carrying amount at the beginning and end of the year is one of the
impairment.
9. Order backlogs and customer lists are an example of market related general category of
intangible assets.
Purchased goodwill should be written off by systematic charge as operating expense over the
10. Legal fees paid to the franchisee’s lawyers to obtain the franchise must be expensed
immediately.
Goodwill shall be recognized only when it is acquired through the purchase of another entity.
11. An intangible asset is an identifiable both monetary and nonmonetary asset without physical
substance.
INTANGIBLE ASSET - RDA 6
The cost of internally generated intangible asset shall include the compensation costs of
12. The fair value of an identifiable intangible asset acquired in a business combination cannot be
13. Residual value is one of the factors that need to be considered in determining the useful life of
an intangible asset.
14. The entity can reliably identify the research cost incurred to bring the project to economic
feasibility is a criterion which must be met before development cost can be capitalized.
Engineering cost incurred to advance the product to the full production stage should be
capitalized.
Modification of the design of the product is included as part of research and development
expense.
b. Classified as noncurrent
d. Monetary
3. Which of the following is/are considered as intangible assets?
I – An entity has a team of skilled employees and it can identify the incremental staff skills
leading to future economic benefits that will flow from training that it has provided to its
employees. The entity does not expect that any of its employees will leave the entity, and as a
result their skills are expected to remain available to the entity for the foreseeable future.
II – An entity that trades transferable fishing licenses acquires 1,000 licenses, each of which
entitles the holder to catch one tonne of fish in a specified jurisdiction’s waters. The entity does
not own a boat and does not intend to catch any fish. It has advertised the licenses for sale at
III – An entity owns and operates an interactive Internet site on which everyone can post
material related to a particular subject. The entity generates revenue by selling advertising
space on the site. The domain name is protected legally through registration with the
appropriate parties.
IV – An entity operates twenty MYBUS license in Cebu City. The MYBUS licenses are transferable
4. An entity developed a successful brand that allows the entity to charge a premium for its
products. The entity continues to spend large amounts on maintaining the brand and on
developing the brand further through sponsoring local sports events, sponsoring select cultural
a. All the cost of developing the brand is recognized as an expense as they are incurred.
b. All the cost of developing the brand is recognized as part of the cost of intangible
asset.
c. The cost of developing the brand is initially recognized as part of the cost of an
intangible asset however, further development cost such as advertising and sponsorship
should be accounted as expense.
d. All of the above may be applicable depending on the availability of the information.
a. Long lived
c. Physical existence
b. It is neither separable nor it arises from contractual and other legal right
c. It is separable
7. In 2016, a candle manufacturer incurred the following expenses on raw materials and labour
III – Patent registration costs for the most effective wax compound discovered
Which of these costs must be capitalized and formed part of the intangible asset?
8. Which of the following is false with regards the development and operations of the company’s
b. The application and infrastructure development stage, the graphical design stage and
the content development stage, to the extent that content is developed for purposes
other than to advertise and promote an entity’s own products and services, are similar
in nature to the development phase and expenses are recognised as part of intangible
asset.
information, either textual or graphical in nature, on the website before the completion
b. Notebook computer
c. Computer software
d. Registered patent
a. It is probable that the expected future economic benefits that are attributable to the
c. Both a and b
d. Neither a nor b
asset.
c. All annual payments made by a franchisee to the franchisor for assistance should be
d. Amortization of intangible asset involves adjusting entry that should not be reversed in
following?
b. The straight line method, unless the pattern in which the asset’s economic benefits are
b. Cost plus a notional increase in fair value since the intangible asset is acquired
14. The cost of a separately acquired intangible asset comprises its purchase price, including
b. Directly attributable costs of preparing the asset for the intended use
15. Which of the following statement is false with regards the intangible assets
a. If an intangible asset has a finite useful life it must be amortized over that life.
d. When internally generated assets meets the recognition criteria, the appropriate
d. Cannnot be measured
17. Directly attributable costs of preparing the intangible asset for the intended use include all of
c. Cost of employee benefits arising directly from bringing the asset to its working
condition
d. Professional fees arising directly from bringing the asset to its working condition
a. Expensed as incurred
c. Capitalized
competitive patent shall be amortized over the legal life or the useful life of the old
author, composer or artist enabling the grantee to publish, sell or otherwise benefit from
its revenue is dependent on the use of the asset and not agreed upon.
b. Design, construction and testing of a chosen alternative for new or improved product
or process
a. Artistic related
b. Contract based
c. Marketing related
d. Customer related
23. Where part of the cash – generating unit is disposed of, the goodwill associated with the
element disposed of
a. Loss on inventory
c. Loss on goodwill
25. Entities should evaluate indefinite life intangible assets at least annually for
a. Impairment
c. Recoverability
d. Amortization
b. An expense account
29. One factor that is not considered in determining the useful life of an intangible asset is
a. Legal life
a. The product being developed should have already put into commercial production
as an intangible asset
31. All costs incurred to establish the technological feasibility of a computer software product to
c. Capitalized as an inventory
33. Cebu Pacific Airlines purchased airline gate rights at MCIAA for P2,000,000 with a legal life of 5
years. However, Cebu Pacific has the right to extend the right indefinitely but does not have
the ability to do so. Over what period of time should Cebu Pacific amortize the gate rights?
a. 5 years c. 10 years
34. Which is true about accounting for development costs of the company
35. Intangible assets with indefinite life are tested for impairment
a. 10 years c. 20 years
b. indefinite d. 50 years
b. Computer d. Leasehold
38. Which is (are) incorrect concerning the initial measurement of an intangible asset?
b. If payment for an intangible asset is deferred beyond normal credit terms, its cost is
c. If an intangible asset is acquired separately, the cost comprises its purchase price,
including import duties and taxes and any directly attributable expenditure of
a. To assess whether an internally generated intangible asset meets the criteria for
d. The cost of internally generated asset comprises all directly attributable costs necessary
a. Mineral rights and expenditure on the exploration for, or development and extraction
41. TAPORCO Company is in a service concession arrangement with the Duterte Government in
its plan to construct a 2,000 kilometre Mindanao Railway System which will start in 2017. The
project will be executed in two phases but two different contracts awarded both to TAPORCO
COMPANY.
The first phase, the operator TAPORCO COMPANY will receive an unconditional
asset from the DUTERTE GOVERNMENT in return for constructing the Mindanao Railway System
and then operating and maintaining it for a specified period of time. It also includes
guarantees by the government to pay for any shortfall between amounts from users of the
The second phase, the operator TAPORCO COMPANY will receive a right to charge for
use of the MINDANAO RAILWAY SYSTEM that it constructs and then must operate and maintain
for a specified period of time. How will TAPORCO Company will account these two contracts?
contractual right to receive cash and to charge the public for the use of the Railway
System.
d. The first phase will be recognised as Intangible Asset while the second phase will be
42. (intangible assets) Based on the above scenario, TAPORCO COMPANY how will the operator
b. The first agreement will be at Fair Value, the second agreement will be at Cost
c. The first agreement will be at Cost, the second agreement will be at Fair Value
43. (intangible assets) The residual value of an intangible asset with a finite useful life shall be
a. When there is a commitment by a third party to purchase the asset at the end of the
useful life.
b. When there is an active market for the asset and it is probable that such market will exist
c. Either a or b
44. NIZA Company created and developed its own website for external and internal access. The
I – The cost of obtaining a domain name, purchasing and developing hardware and
II – The cost of purchasing, developing and operating hardware which includes the web
servers, staging servers, production servers and internet connections of a web site.
III – The cost of an Internet service provider hosting the entity’s web site.
How are these costs be accounted for?
a. All costs should be form part of Intangible Assets in accordance to PAS 38.
b. All costs should be form part of Property, Plant and Equipment in accordance to PAS 16.
c. All costs should be form part of Expense under the PAS1 and the Framework when the
d. The three costs should be classified as part of Intangible Asset; Property, Plant and
45. (intangible assets) Which of the following assets is regarded as meeting the identifiability
criteria for recognition as an identifiable intangible asset that can be recorded as acquired in
a business combination?
c. Royalty agreements
d. Customer base
46. (intangible assets) For an asset to be classified as an identifiable intangible, PAS 38 requires
a. I or IV only c. I or II only
47. According to the definition provided in PAS 38 Intangibles, activities undertaken in the
c. Original and planned investigation with the prospect of gaining new scientific
knowledge
d. The application of knowledge to a design for the production of new materials
c. Engineering costs incurred to advance the product to the full production stage
49. (intangible assets) Which is/ are incorrect concerning the recognition and measurement of an
intangible asset?
a. If payment for an intangible asset is deferred beyond normal credit terms, its cost is
c. If an intangible asset is acquired separately, the cost comprises its purchase price,
including import duties and taxes and any directly attributable expenditure of
50. (intangible assets) Legal fees to obtain a franchise and legal fees to defend a trademark,
COmpund
26. Which of the following is within the scope of PAS 37 Provisions, contingent liabilities and
contingent assets?
27. Under IFRIC 13, the award credits granted to customers under a “customer loyalty program” is
often describe as
a. Awards c. Points
b. Credits d. Royalty
28. Which of the following is most likely to be regarded as an estimated liability that is subject to
provision?
b. Deferred revenue
c. Payroll liabilities
Employee Benefits
11. The accounting standard make it incumbent upon the plan to use annual actuarial valuation.
12. PAS 36 is the standard that deals with accounting and reporting by retirement benefit plans
14. In the transition period for employee benefits, any transitional effect of the application of the
earnings.
16. Net Remeasurement Gain or Loss will be reported in other comprehensive income
17. Defined Contribution Plan is a postemployment benefit plan under which an entity pays an
18. Under Defined Contribution Plan once the contribution is paid by the entity, the employer has
19. The acturial and investment risk under defined benefit plan falls to the entity/employer
20. Under defined benefit plan, it is normally accounted in a undiscounted amount and the
21. The projected unit credit method, sometimes known as the accrued benefit method, shall be
used in determining the future value of the defined benefit obligation and the related current
22. Current Service Cost is the increase in the present value of the defined benefit obligation
23. Net interest on defined benefit liability or asset is the change in the defined benefit obligation
24. Net interest is the difference between the interest expense on the fair value of plan assets and
25. Accumulated Benefit Obligation is the actuarial present value of all benefits attributed by the
pension benefit formula to employee service rendered before a specified date based on
26. Projected Benefit Obligation is the actuarial present value of all benefits attributed by the
pension benefit formula to employee service rendered before a specified date based on future
compensation level.
27. Actuarial Gains or Losses include changes in the present value of the defined benefit obligation
28. If the actual benefit obligation is higher than the estimated amount, there is an actuarial gain.
29. The interest expense in the change in the effect of asset ceiling is reported in profit or loss
30. The change in the effect of asset ceiling less the interest expense is reported in other
comprehensive income.
31. Interest income of the plan asset is added to the Beginning Balance of the Fair Value of the Plan
asset.
32. Interest Expense of the plan asset is added to the Beginning Balance of projected benefit
obligation.
33. The Current Service Cost and the Past service cost is included in the computation of employee
34. The benefits paid to the employees is deducted both to projected benefit obligation and fair
35. If the Fair Value of Plan Asset is more than the Projected Benefit Obligation the plan is
underfunded and therefore there is a prepaid benefit cost, a noncurrent asset.
36. If the Fair Value of Plan Asset is less than the Projected Benefit Obligation plan the plan is
37. The gain or loss on settlement is the difference between the settlement price and the present
38. The asset ceiling is the present value of any economic benefits available in the form of refunds
39. Any increase in the effect of the asset ceiling is a measurement gain and any decrease is a
remeasurement loss.
40. The interest on the effect of the asset ceiling is part of the total change in the effect of the asset
ceiling.
41. A noncontributory plan, is a plan wherein only the employer will make the contributions to the
42. An unfunded pension plan, is a plan wherein the employer will retain the obligation for the