ADVANCE FINANCIAL ACCOUNTING and REPORTING

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1. Under IFRS 11, how shall the cash or property dividend received by a joint A. Other comprehensive income
venturer from its venture be accounted for? B. Share premium
C. Retained earnings
A. It shall be treated as dividend income presented in profit or loss. D. Profit or loss
B. It shall be treated as dividend income presented in other comprehensive
income. 5. IFRS 3 and IFRS 10 require which types of financial statements to be
C. It shall be treated as addition to investment in joint venture account. presented by a parent corporation?
D. It shall be treated as deduction from investment in joint venture
account. A. Separate financial statements and consolidated financial statements
B. Separate financial statements and combined financial statements
C. Separate financial statements, combined financial statements and
2. Which of the following items affect both consolidated net income consolidated financial statements
attributable to parent’s stockholders and the non-controlling interest in net D. Consolidated financial statements
income?

A. Impairment loss of goodwill computed when NCI is measured initially at 6. Under IAS 27, which entities are required to present and prepare separate
proportionate share financial statements?
B. Direct cost of business combination
C. Effects of upstream transactions A. Small and medium enterprises (SMEs)
D. Dividend income from subsidiary B. Barangay Micro-business Enterprises (BMBEs)
C. Publicly listed entities
D. Does not mandate which entities produce separate financial
3. Under IAS 21, than retained earnings at functional currency shall be statements available for public use.
translated into presentation currency at

A. Historical rate 7. Under Philippine GAAP, what is the proper classification in the financial
B. Closing rate statement of deferred gross profit account resulting from the application of
C. Average rate installment method of revenue recognition of installment sales?
D. It shall not be translated
A. Unearned revenue account in the liability section of Statement of
Financial Position
4. Under IAS 21, translations adjustments arising from translating functional B. Contra-account to installment receivable in the asset section of
currency into presentation currency if realized shall be reclassified in Statement of Financial Position
C. Revenue account in the income section of Income Statement

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D. Loss in the expense section of Income Statement 11. Under IAS 21, what is the accounting treatment of foreign exchange
differences arising from translating foreign currency denominated elements
8. Under GAAP, what is the most valid reason for the incremental credit to the of financial statements to the entity's functional currency?
capital of a newly admitted partner in addition to his properly valued
contributed capital? A. It shall be presented and recognized in OCI with reclassification
adjustment to profit or loss.
A. Goodwill arising from admission of a new partner in an existing partner B. It shall be presented and recognized in OCI without reclassification
B. Asset revaluation of the existing assets of the partnership adjustment to profit or loss.
C. Impairment of the existing assets of the partnership C. It shall be presented and recognized in profit or loss.
D. Capital bonus coming from existing partners D. shall be presented and recognized as change in accounting policy in
statement of changes in equity

9. Under PFRS 15, how shall installments sales revenue of a residential property
under pre-completion stage covered by Contract to Sell be recognized by the 12. Under PFRS 15, what is the criteria before entity may recognize the
long-term construction entity? incremental costs of obtaining a contract?

A. It shall be recognized as revenue on the date of execution of the deed of A. If the entity expects to recover those costs.
absolute sale. B. If the entity receives the costs from the customer.
B. It shall be recognized as revenue on the date of full payment of the price C. If the customer signs the contract with the entity.
under cash basis method. D. If the customer violates the contract with the entity.
C. It shall be recognized as revenue at a specific point in time.
D. It shall be recognized as revenue over a period of time.
13. An arrangement for creditors to accept an amount less than the amount
owed to them is referred to as a
10. Under Government Accounting Manual, it refers to an authorization issued by
the DBM to NGAs to incur obligations for specified amounts contained in a A. Discharge agreement
legislative appropriation in the form of budget release documents. B. Composition agreement
C. Bankruptcy agreement
A. Appropriation D. Chandler agreement
B. Allotment
C. Obligation
D. Disbursement

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14. Which of the following statement is incorrect? Control exist even if the parent A. Deferred tax asset increases
own less than half of the voting power of an entity when there is: B. Deferred tax liability increases
C. A temporary taxable difference reverses
A. Power to govern the financial and operating policies of the entity under D. A temporary deductible difference arises
an agreement.
B. Power to appoint or remove employees of the company.
C. Power to cast the majority votes at meetings of the board of directors. 18. The excess of the amount offered in an acquisition over the prior stock price
D. Power over more than half of the voting rights by virtue of an of the acquired entity is:
agreement with other investors.
A. Goodwill
B. Gain on bargain purchase
15. In the final settlement of the contingent consideration classified as equity, C. Bonus
the amount: D. Control Premium

A. Shall be remeasured at fair value with any gain or loss included in Other
Comprehensive Income. 19. Which of these considerations would not be relevant in determining the
B. Shall not be remeasured but instead recognized as part of equity. entity's functional currency?
C. Shall be remeasured at fair value with any gain or loss included in profit
or loss. A. The currency in which finance is generated.
D. Shall be remeasured at fair value with any gain or loss is included in B. The currency in that influences the costs if the entity.
retained earnings. C. The currency that is the most internationally acceptable for trading.
D. The currency in which receipts from operating activities are retained.

16. Failure to eliminate intercompany sales would result in an overstatement of:

20. On January 1, 2019, Piston, Inc. acquired Spur Corp. While recording the
A. Consolidated Gross Profit acquisition Piston established a deferred tax liability. It is most likely that this
B. Consolidated Net Income account was created because
C. Consolidated Cost of Sales
D. All of the above A. The transaction was a tax-free exchange to Piston.
B. Piston had not paid all of the income taxes due the government when
acquiring Spur.
17. When a subsidiary's assets are revalued up to fair value on consolidation the C. The transaction was a tax-free exchange to Spur
following effects occurs: D. Spur had not paid all of the income taxes due the government prior to
the acquisition by Piston.

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21. Williard Corporation regularly sells inventory items to its subsidiary, Petty, Inc. A. multiplying the partner's capital balance by his or her
If unrealized profits in Petty's 20X1 year-end inventory exceed the unrealized profitand-loss-sharing percentage.
profits in its 20X2 year-end inventory, combined B. multiplying distributable assets by the partner's profit-sharing
percentage.
A. cost of sales will be less than consolidated cost of sales in 20X2. C. dividing the partner's capital balance by his or her percentage interest in
B. gross profit will be greater than consolidated gross profit in 20X2. capital.
C. cost of sales will be greater than consolidated cost of sales in 20X2. D. dividing the partner's capital balance by his or her profit-and
D. sales will be less than consolidated sales in 20X2. loss-sharing percentage.

22. Which of the following would be least likely to be used as a means of

allocating profits among partners who are active in the management of the 25. A partnership records a partner's investment of assets in the business at
partnership?
A. The market value of the assets invested
A. Salaries B. A special value set by the partners
B. Bonus as a percentage of net income before the bonus C. The partner's book value of the assets invested
C. Bonus as a percentage of sales in excess of a targeted amount D. Any of the above, depending upon the partnership agreement
D. Interest on average capital balances

26. IFRS 11 Joint Arrangements provide that joint control exists where:
23. If a partnership has only non-cash assets, all liabilities have been properly
disbursed, and no additional liquidation expenses are expected, the A. No one party may be appointed as the manager of the joint
maximum potential loss to the partnership in the liquidation process is: arrangement.
B. No single party is in a position to control the activity unilaterally.
A. the fair market value of the non-cash assets C. The decisions in areas essential to the goals of arrangement do not
B. the book value of the non-cash assets require consent of the parties.
C. the estimated proceeds from the sale of the assets less the book value D. One party alone has the power to control the strategic operating
of the non-cash assets. decisions of the joint arrangements
D. none of the above

24. A partner's maximum loss absorbable is calculated by

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(IFRS for SMEs) B. Entity B has public accountability and Entity A applies Full IFRS Standards
27. Entity A, a manufacturing company, acquired a controlling interest in a rugby in its consolidated financial statements.
club. Entity A’s management decided to exclude the rugby club from
consolidation on the grounds that its activities are dissimilar from those of C. Entity A has public accountability and applies Full IFRS Standards in its
Entity A’s normal operations. How should Entity A account for its investment consolidated financial statements.
in the rugby club in its main financial statements?
D. Entity B has public accountability and applies Full IFRS Standards in its
A. because the activities of the rugby club are dissimilar from the activities consolidated financial statements.
of Entity A (manufacturing), it will be accounted for using the equity
method.

B. because the activities of the rugby club are dissimilar from the activities 29. On February 18, 2017 SME A purchased all of the equity interests in SME B.
of Entity A (manufacturing), it will be accounted for at cost less The consideration payable was P100,000 at the date of acquisition and a
accumulated impairment. further amount that was dependent upon post-acquisition sales; either zero,
P5,000 or P10,000, depending on the sales recognized by SME B during the
C. the rugby club must be consolidated. There is no exception from three years to December 31, 2019. At the date of acquisition, SME A
consolidation simply because the investor and the subsidiary partake estimated that it is more likely than not that P5,000 would be payable. Also,
in dissimilar activities. at the date of acquisition, SME B was being sued by a third party. In
accounting for the acquisition of SME B in its consolidated financial
D. because the activities of the rugby club are dissimilar from the activities statements, SME A estimated it is more likely than not that it would win the
of Entity A (manufacturing), it will be accounted for using the fair value court case and that the acquisition date fair value of the contingent liability is
method. about P2,000.

On December 31, 2018, SME B:

(IFRS for SMEs) • revised upwards its estimate of the amount of further consideration
28. Entity A owns all the issued share capital of, and controls, Entity B. Entity B payable to P10,000 (it is more likely than not that an additional P10,000 will
owns 70% of the issued share capital of, and controls, Entity C. In which of the be paid); and
following scenarios may Entity A not apply the IFRS for SMEs Standard in its • concluded that it is more likely than not that it will lose the court case and
separate financial statements? that the best estimate to settle the case at 31 December 2018 is P12,500.

A. none of the entities has public accountability and Entity A applies the In its consolidated financial statements for the year ended December 31,
local GAAP of its jurisdiction in its consolidated financial statements. 2018, SME A should:

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A. adjust goodwill for the change in estimate of contingent consideration
and for the change in estimate for the provision for the court case. 32. An entity grants a franchisee the right to operate a restaurant in a specific
market using the entitys brand name, concept and menu for a period of ten
B. adjust goodwill for the change in estimate of contingent consideration years. The entity has granted others similar rights to operate this restaurant
and recognize the change in estimate for the provision for the court concept in other markets. The entity commonly conducts national advertising
case as an expense in arriving at profit or loss. campaigns, promoting the brand name, and restaurant concept generally.
The franchisee will also purchase kitchen equipment from the entity. The
C. recognize the change in estimate for the contingent consideration as an entity will receive P950,000 upfront (P50,000 for the kitchen equipment and
expense in arriving at profit or loss and adjust goodwill for the change in P900,000 for the franchise right). Under PFRS 15, how shall the entity
estimate for the provision for the court case. recognize the P950,000 transaction price as revenue from contract with
customers?
D. recognize as an expense in arriving at profit or loss the change in
estimate for the contingent consideration and the change in estimate A. The whole P950,000 upfront fee shall be recognized as revenue over a
for the provision for the court case. period of time of 10 years, the term of the contract.

B. The whole P950,000 upfront fee shall be recognized as revenue at a

30. Under Standard Costing System, if the journal entry to record usage of direct specific point of time which is the date delivery of the kitchen
materials include a credit to direct material usage variance, it means that equipment.

A. Actual price of direct material is higher than the standard price C. The whole P950,000 upfront fee shall be recognized as revenue at a
B. Actual price of direct material is lower than the standard price specific point of time which is the date of expiration of the 10-year term
C. Actual direct materials used is higher than the standard quantity of of the contract.
direct materials
D. Actual direct materials used is lower than the standard quantity of D. The P50,000 upfront fee shall be recognized as revenue at a specific
direct materials point of time which is the date of delivery of the kitchen equipment
while the remaining P900,000 upfront fee shall be recognized over a
period of time of 10 years, the term of the contract.
31. Which of the following factory overhead variances is pure variable?

A. Spending Variance (Joint Arrangements)

B. Controllable Variance 33. Two parties enter into a joint arrangement which is structured through an
C. Efficiency Variance incorporated entity in which each party has a 50% ownership interest. The
D. Volume Variance purpose of the arrangement is to manufacture materials required by the
parties for their own, individual manufacturing processes. The arrangement

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ensures that the parties operate the facility that produces the materials to remaining 25% of the shares in its subsidiary at their fair value of P60,000.
their quantity and quality specifications. Under IFRS for SMEs, how would the group present the parent’s acquisition
of 25% of the equity of its subsidiary from the non-controlling interest in its
The contractual arrangement between the parties specifies the following consolidated statement of changes in equity?
aspects of the arrangement:
A. The entity would show a separate line item in which P25,000 would be
*Under the terms of the arrangement, the parties have agreed to purchase all shown as an increase in the non-controlling interest.
the output produced by the entity in a ratio of 50:50.
B. The entity would show a separate line item in which P60,000 would be
*The entity is not permitted to sell any of the output to third parties, unless shown as an increase in the non-controlling interest.
this is approved by the two parties to the arrangement. Because the purpose
of the arrangement is to provide the parties with output they require, such C. The entity would show a separate line item in which P60,000 would be
sales to third parties are expected to be uncommon and insignificant in shown as a reduction in the non-controlling interest.
volume and value.
D. The entity would show a separate line item in which P25,000 would be
*The price of the output sold to the parties is set by both parties at a level shown as a increase in the non controlling interest and P35,000 would
that is designed to cover the costs of production and administrative expenses be shown as a increase in retained earnings.
incurred by the entity. On the basis of this operating model, the arrangement
is intended to operate at a break-even level.
(SMEs - Revenue Recognition)
Under PFRS 11, what is the proper accounting classification of this joint 35. A construction contractor builds a house under a contract with a fixed price
arrangement? of P1,000,000. The contractor incurred contract costs of P10,000, P890,000
and P200,000 in 2019, 2020 and 2021 respectively. At the end of 2019, the
A. Joint Operation outcome of the transaction cannot be estimated reliably however it is
B. Joint Venture probable that the costs incurred in 2019 will be recoverable. At the end of
C. Jointly Controlled Asset 2020, the contractor can estimate the outcome of the contract reliably and
D. Jointly Controlled Entity estimates costs to complete the contract at P200,000. The contract was
completed in 2021.

(IFRS for SMEs) The contractor determines the stage of completion of the construction
34. The reporting entity (parent), owned 75% of a subsidiary from the contract by reference to the proportion that costs incurred for work
subsidiary’s inception. An independent third party owns the other 25%. In the performed to date bear to the estimated total costs. Under IFRS for SMEs, in
current reporting period when the subsidiary’s equity was P100,000 (share 2020, the contractor must:
capital of P1,000 and retained earnings of P99,000) the parent acquired the

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A. recognize contract revenue of P818,182 and contract costs of P900,000.
C. The entertainment should not be consolidated and should appear as an
B. recognize contract revenue of P808,182 and contract costs of P890,000. investment in the group accounts

C. recognize contract revenue of P808,182 and contract costs of D. The entertainment company should not be consolidated and details
P908,182. should be disclosed in the financial statements.
38. In which type of hedging transactions or relationships will there be no gain or
D. recognize contract revenue of P808,182 and contract costs of P900,000. loss on hedged item?

A. Cash flow hedge of forecasted exportation using put option.

36. Entity X controls an overseas Entity Y. Because of exchange controls, it is B. Fair value hedge of firm commitment importation using forward
difficult to transfer funds out of the the country to the parent entity. X owns contract receivable.
100% of the voting power of Y. How should Y be accounted for? C. Undesignated hedge of foreign currency denominated account
receivable using forward contract payable
A. It should be excluded from consolidation and the equity method should D. Hedge of net investment in foreign operation using foreign currency
be used. denominated note payable.
B. It should be excluded from consolidation and states at cost.
C. It should be excluded from consolidation and accounted for in
accordance with IFRS 9. 39. If the net realizable value of the by-product resulting from joint production is
D. It is not permitted to be excluded from consolidation because control material or significant, how shall the entity account the net realizable value of
is not lost. the by-product?

A. It shall be presented as other income.

37. A manufacturing group has just acquired a controlling interest in an B. It shall be added to the sales revenue of main products.
entertainment company that is listed on a stock exchange. The management C. It shall be deducted from the total manufacturing cost of main
of the manufacturing group wishes to exclude the entertainment company products.
from the consolidated financial statements on the ground that its activities D. It shall be deducted from the costs of goods sold of main products.
are dissimilar. How should the entertainment company be accounted for?

A. The entertainment company should be consolidated as there is no

exemption from consolidation on the ground of dissimilar activities.

B. The entertainment company should not be consolidated using the

acquisition method but should be consolidated using the equity method.

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40. In installment liquidation, which of the following statements is correct 43. When will the average process costing method produce the same cost of
regarding the partial settlement of the partners’ claims? goods manufactured as the FIFO process costing method?

A. The claims of the partners and outside creditors are partially settled in A. When materials are added at 100% at the end of the process
proportion B. When the beg. WIP inventory and ending WIP are equal
B. The carrying amount of unsold non cash assets is treated as loss C. When materials are added at 100% a the beginning of the process
C. No distribution is made to the partners until after all non cash assets are D. When there is no beg. WIP inventory
realized
D. Estimates of future liquidation costs do not affect the distribution to the
partners 44. Which is not a basic financial report that non-profit organization must
prepare?

41. What is the proper treatment of unrealised foreign exchange gains? A. SFP
B. SCI
A. They should be recognized in profit or loss on the date the exchange C. SCF
rate changes. D. Statement of Activity
B. They should not be recorded until cash is received and the exchange
transaction is completed.
C. The principle of conservatism requires that they should never be 45. The converged standard on revenue recognition
recognized.
D. They should be deferred on the statement of financial position until cash A. Simplifies revenue recognition practices across entities and industries
is received B. Recognizes and measures revenue based on changes in assets and
liabilities
C. Increases the complexity of financial statement preparation
42. Which of the following balances appears in a consolidated statement of D. Reduces the number of disclosures required for revenue reporting
financial position?

A. Investment in subsidiary 46. A change in the exchange rate of two currencies may not be known as:
B. Subsidiary share capital
C. loans to subsidiary from the parent A. Amortization
D. Parent company’s bank balance P50000 and the subsidiary company’s B. Appreciation
bank overdraft P50000 C. Depreciation
D. Devaluation

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A. When the customer acquires risks and rewards related to the ownership
47. Which of the following factors is used as multiplier of super profits in of the asset upon full payment
valuation of goodwill of a business? B. When the entity’s performance enhances an asset that the customer
controls as the asset is created.
A. Number of years’ purchase C. When the customer obtains title to the asset upon the execution of the
B. Normal profits. formality required by law.
C. Normal rate of return D. When the entity transferred possession of the asset which is the subject
D. Average capital employed in the business matter of the obligation.
E. Simple profits

48. It is an additional amount paid to the contractor if specified performance

standards are met or exceeded

A. Claim
B. Incentive payment
C. Variation
D. Bonus

49. The calculation of the income recognized in the third year of a five-year
construction contract accounted for using the percentage-of-completion
method includes:

A. Costs incurred in year 3 to total estimated costs.

B. Total costs incurred to date to total estimated costs.
C. Total costs incurred to date to total billings to date.
D. Costs incurred in year 3 to total billings to date.

50. Under PFRS 15, which of the criteria will justify an entity to recognize revenue
from contract with customers over a period of time?

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