1. Which statement is incorrect concerning the equity method? (a) The investment in associate is initially recorded at cost. (b) The investment in associate is increased or decreased by the investor’s share of the profit or loss of the investee after the date of acquisition. (c) The investor’s share of the profit or loss of the investee is not recognized in the investor’s profit or loss. (d) Distributions received from the investee reduce the carrying amount of the investment. C 2. When the investor properly discontinues the use of the equity method (a) The carrying value of the investment at the date it i t ceases to be an associate shall be regarded as its cost on initial measurement as a financial asset. (b) The investment account is adjusted and any adjustment is included in the determination of income. (c) The investment account is adjusted and any adjustment is made to the beginning retained earnings (d) The carrying value of the investment is adjusted to conform with its recoverable amount. A 3. Depreciated replacement cost is the equivalent cost of replacement of the service potential of the asset, adjusted to reflect the relative loss in its utility due to the passage of time or the fraction fraction of total productive capacity that has has already been utilized. utilized. It is also referred to as: (a) depreciated value (c) sound value (b) net book value (d) net carrying value C 4. Which of the following is least likely to be classified in property, plant and equipment? (a) Land improvements (c) Natural resources (b) Land (d) Idle land D 5. Which of the following costs generally would be capitalized to a property, plant and equipment account? (a) interest on debt incurred to purchase the item (b) property taxes relating to periods after acquisition (c) import duties incurred on purchase (d) freight-out C 6. Cash discounts taken on merchandise purchases are accounted for as: (a) financial income when payments are made (b) reduction of the cost of goods sold for the period when payments are made (c) direct reduction of purchase cost (d) direct reduction of selling price
C
7. Decreases in prices of merchandise that have been marked up above the original retail price are referred to as: (a) markup cancellations (c) markdown cancellations (b) markups (d) markdowns A
8. Which of the following refers to perpetual inventory system? (a) is more accurate than the periodic inventory system in providing timely information and is less costly
(b) is less accurate than the periodic inventory system in providing timely information and is more costly (c) is more accurate than the periodic inventory system in providing timely information and is more costly (d) is less accurate than the periodic inventory system in providing timely information and is less costly C 9. A lump sum acquisition price is sometimes called a (an): (a) indeterminable purchase (c) comparable purchase (b) basket purchase (d) blanket purchase
B
10. When an entity increases its interest in an investment in equity securities accounted for by the fair value method, and changes to the equity method, what is the initial carrying value for purposes of subsequent application of the equity method? (a) Book value at the date of the change. (b) Original cost plus or minus the net market value change since acquisition. (c) Market value at the date of the change. (d) The amount that would be reflected in the investment account had equity method been in use continually since the purchase of the investment. D 11. Goodwill arising from an investment in associate is (a) Included in the carrying amount of the investment and amortized over the useful life. (b) Included in the carrying amount of the investment and not amortized. (c) Excluded from the carrying amount of the investment but charged to retained earnings. (d) Excluded from carrying amount of the investment but charged to expense immediately. B 12. An investor uses the equity method to account for an investment in ordinary shares. After the date of acquisition, the investment account of the investor would (a) Not be affected by its share of the retained earnings or losses of the investee. (b) Not be affected by its share of the earnings of the investee but be decreased by its share of the losses of the investee. (c) Be increased by its share of the earnings of the investee, but not be affected by its share of the losses of the investee. (d) Be increased by its share of the earnings of the investee, and decreased by its share of the losses of the investee. D 13. Under the equity method of accounting for investments, an investor recognizes its share of the earnings in the period in which the (a) Investor sells the investment (b) Investee declares a dividend (c) Investee pays dividend (d) Earnings are reported by the investee in its financial statements. D 14. When an investor uses equity method to account for investment in ordinary shares, cash dividends received by the investor from the investee shall be recorded as (a) Dividend income (b) A deduction from the investor’s share of the investee’s profits (c) A deduction from the investment account (d) A deduction from the shareholders’ equity account, dividends to shareholder. C 15. An investor uses the equity method to account for investment in ordinary shares. The purchase price implies a fair value of the investee’s depreciable assets in excess of the investee’s net asset carrying values. The investor’s amortization of the excess: (a) Decreases the investment account (b) Decreases the goodwill account
(c) Increases the investment revenue account (d) Does not affect the investment account.
A
16. In its financial statements, Pulham Corporation uses the equity method of accounting for its 30% ownership of Angels Corporation. At December 31, Pulham has a receivable from Angles. How should the receivable be reported in Pulham’s financial statements for the current year? (a) None of the receivable should be reported, but the entire receivable should be offset against Angles’ payable to Pulham. (b) Seventy percent of the receivable should be separately reported, with the balance offset against 30% of Angles’ payable to Pulham. (c) The total receivable should be disclosed separately. (d) The total receivable should be included as part of the investment in Angles, without separate disclosure. C 17. When an investor uses the cost method to account for investment in ordinary shares, cash dividends received by the investor from the investee should normally be recorded as (a) Deduction from the investment account (b) Dividend income (c) Addition to the investor’s share of the investee’s profit (d) Deduction from the investor’s share of the investee’s profit B 18. An investor uses the cost method to account for investment in ordinary shares. Dividends received in excess of the investor’s share of investee’s earnings subsequent to the date of investment. (a) Do not affect the investment account (b) Increase the investment account (c) Decrease the investment account (d) Increase the investment revenue account C 19. An investor owns 10% of the ordinary share capital of an investee throughout the year. The investee has no preference share capital outstanding. The investor’s share gives the right to: (a) be paid 10% of the investee’s profits in cash each year. (b) receive dividend equal to 10% of the par value each year. (c) receive dividends equal to 10% of the total dividend paid by the investee for the year to shareholders. (d) keep investee from issuing any additional shares unless the investor is willing to buy 10% of the newly issued shares. C 20. If as a result of change in intention, it becomes appropriate to carry a financial asset with a fixed maturity at amortized cost rather than at fair value, any previous gain or loss that has been recognized in equity shall be: (a) recognized in profit or loss immediately. (b) included in equity and amortized to profit or loss over the remaining life of the held to maturity security using straight line method. (c) included in equity and amortized to profit or loss over the remaining life of the held to maturity security using the effective interest method. (d) recognized as an adjustment of retained earnings. C 21. If as a result of a change in intention or ability, it is no longer appropriate to classify an investment as held to maturity, it shall be reclassified as: (a) available for sale and remeasured at fair value and the difference between fair value and carrying amount shall be accounted for as component of equity. (b) available for sale and remeasured at fair value and the difference between fair value and carrying amount shall be accounted for as component of income.
(c) trading and remeasured at fair value and the difference between fair value and carrying amount shall be included in profit or loss. (d) nonmarketable investment and its carrying amount is the initial cost. A 22. It is defined as property (land or building or part of building or both) held by an owner or finance lease to earn rentals or for capital appreciation or both. (a) investment property (c) mining property (b) owner-occupied property (d) rental property A
23. Which statement is incorrect if the property is partly investment and partly owneroccupied? (a) If the investment and owner-occupied portions could be sold or leased out separately, the portions should be accounted for separately as investment property and owner-occupied property. (b) If the investment and owner-occupied portions could not be sold or leased out separately, the property is investment property if only an insignificant portion is held for manufacturing or administrative purposes. (c) When ancillary services are provided by the enterprise to the occupants of the property and these services are relatively insignificant component of the arrangement, the property is treated as investment property. (d) A hotel is normally an investment property because services provided to the guests are an insignificant component of the arrangement. D 24. Interest in life insurance contract should be carried at: (a) NIL (c) total amount of insurance premiums paid (b) face of policy (d) cash surrender value D 25. Financial assets at fair value through profit or loss: (a) may be reclassified as available for sale investment. (b) may be reclassified as held to maturity investment. (c) may be reclassified as nonmarketable equity investment. (d) shall not be reclassified into any other investment category.
D
26. Subsequent to initial recognition, the investment property should be measured at: (a) fair value (b) cost less any accumulated depreciation and any accumulated impairment losses (c) revalued amount (d) either fair value or cost less any accumulated depreciation and any accumulated impairment losses. D 27. Which statement is correct concerning property leased to an affiliate? I. From the perspective of the individual enterprise that owns it, the property leased to an affiliate is considered an investment property. II. From the perspective of the affiliates as a group and for purposes of consolidated financial statements, the property is treated as owner-occupied property. (a) both I and II (b) neither I nor II (c) I only (d) II only A 28. The existence of significant influence by an investor is usually evidenced by any of the following, except: (a) representation in the board of directors (b) participation in the policy making process (c) provision for essential technical information (d) substantial loan to an officer D 29. When stock dividends of different class are received? (a) no formal entry is made by but only a memorandum. (b) cash is debited and dividend income is credited. (c) A new investment account is debited and dividend income is credited.
(d) A new investment account is debited and the original investment account is credited. D 30. Nontemporary decline in value of a noncurrent marketable equity security ant the reversal of such decline should be: (a) included in the equity section of the balance sheet. (b) included in the determination of income. (c) included in the determination of income for the nontemporary decline and ignored for the reversal. (d) ignored. B 31. Qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. Examples are the following except: (a) Manufacturing plants (c) Inventories routinely produced (b) Power generating facilities (d) Investment property C
32. What is the benchmark treatment for the borrowing costs? (a) Borrowing costs should be recognized as expense in the period in which they are incurred regardless of how borrowings are applied. (b) Borrowing costs that are directly attributable to the acquisition, construction and production of a qualifying asset should be capitalized as cost of the asset. (c) Borrowing costs should be deferred and subsequently amortized over the term of the borrowing. (d) Borrowing costs should be capitalized regardless of how borrowings are applied. A 33. Borrowing costs include: I. Interest on short-term and long-term borrowings II. Amortization of discounts or premiums relating to borrowings III. Finance charges in respect of finance leases IV. Exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs (a) I only (b) I and II only (c) I, II and IV only (d) I, II, III and IV D 34. Which statement is correct concerning significant influence? I. 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. II. 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 demonstrated that this not the case. III. A substantial or majority ownership by another entity does not necessarily preclude an investor from having significant influence. (a) I, II and III (b) I and II only (c) III only (d) II only A 35. If an associate has outstanding cumulative preference share, held by outside interests, the investor computes its share of profits or losses (a) After adjusting for preference dividends which were actually paid during the year. (b) Without regard for preference dividends. (c) After adjusting for the preference dividends only when declared. (d) After adjusting for the preference dividends, whether or not the dividends have been declared. D 36. An investor shall discontinue the use of the equity method from the date that I. The investor ceases to have significant influence over an associate.
II. The associate operates under severe long-term restrictions that significantly impair its ability to transfer funds to the investor. (a) I only (b) II only (c) Both I and II (d) Neither I and II A 37. If under the equity method, an investor’s share of losses of an associate equals or exceeds the carrying amount of an investment, which of the following is not correct? (a) The investor discontinues its share of further losses. (b) Additional losses are to provide for, or a liability is recognized, to the extent that the investor has incurred legal or constructive obligations or made payments on behalf of the associates. (c) If the associate subsequently reports profits, the investor resumes its share of those profits without regard to the share of net losses not previously recognized. (d) The investment is reported at NIL value. C 38. A collection of assets that are dissimilar in nature is called: (a) composite (c) unified (b) group (d) diverse
A
39. To the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalization on that asset should be determined as: (a) the actual borrowing costs incurred on that borrowing during the period only. (b) the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. (c) the estimated borrowing costs incurred on that borrowing during the period only. (d) the estimated borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. B 40. To the extent that funds are borrowed generally and used for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalization should be determined by applying a capitalization rate to the expenditures on that asset. The capitalization rate should be: (a) equal to the weighted average of the borrowing costs applicable to the borrowings of the enterprise that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. (b) computed by including all borrowings of the parent and its subsidiaries when computing a weighted average of the borrowing costs. (c) equal to the weighted average of the borrowing costs for each subsidiary applicable to its own borrowings. (d) all of the above. D 41. The capitalization of borrowing costs as part of the costs of a qualifying asset should commence when: (a) expenditures for the asset are being incurred, (b) borrowing costs are being incurred, and (c) activities that are necessary to prepare the asset for its intended use or sale are in progress. Which of the following statements relating to borrowing cost do not qualify for such capitalization? (a) Borrowing costs applicable to the portion of land held for future development. (b) Borrowing costs incurred while land acquired for building purposes is held with ongoing development activity. (c) Borrowing costs incurred while land is under development. (d) All of the statements qualify the borrowing costs for capitalization. A 42. An example of estimated liability is: (a) interest payable on bonds. (b) wages payable. 43. An example of contingent liability is:
(c) allowance for uncollectible. (d) product warranties obligation. D
(a) unearned subscription revenue. (b) bond premium. (c) wages payable. (d) potential future payment on a pending breach of contract lawsuit. D 44. At the time they are recorded, most noncurrent liabilities normally are valued at: (a) the present value of future cash payment. (c) market value. (b) lower of cost or market. (d) the amount that must be paid. A 45. Which item is not a current liability? (a) unearned revenue (b) stock dividends distributable (c) the currently maturing portion of long-term debt (d) trade accounts payable
B
46. It represents all funds received by the government from taxes, grants, aids and borrowings. (a) government income (c) cash fund (b) government revenue (d) borrowings A
47. Which statement is incorrect concerning the presentation of the income statement? (a) The nature of expense method means that expenses are aggregated according to their nature, for example, depreciation, purchases, employee benefits and advertising. (b) The function of expense method classifies expenses according to their function as part of cost of sales, cost of distribution and cost of administrative activities. (c) Because the nature of expense method or the function of expense method has merit for the different types of entities, the standard requires management to select the more relevant and reliable presentation. (d) If the function of expense method is used, no additional disclosure is required about the nature of expenses. D 48. Which statement is incorrect concerning the income statement? (a) All items of income and expense recognized in a period shall be included in profit or loss unless a Standard or an Interpretation requires otherwise. (b) An entity shall present extraordinary items separately on the face of the income statement or in the notes. (c) When items of income and expense are material, their nature and amount shall be disclosed separately. (d) An entity shall disclose either on the face of the income statement or the statement of changes in equity, or in the notes, the amount of dividends as distributions to equity holders during the period and the related amount per share. B 49. Companies often are reluctant to record the costs of intangible assets as assets because: (a) outlays for intangible assets typically provide nothing of value to the company (b) intangibles seldom have a useful life of more than one year (c) management and investors generally are more skeptical on the value of assets that cannot be seen and touched
(d) intangible assets are already incorporated in the market price of the stock and to record them separately would involve double counting C 50. Goodwill is valued at: (a) the difference between the price paid for an ongoing business and the fair value of the identifiable assets acquired less liabilities assumed (b) the difference between the fair value of the identifiable assets acquired and the liabilities assumed (c) the total amount of cash paid out to acquire another company (d) the total amount of cash paid out to acquire another company, less the value of the identifiable assets acquired A 51. Which of the following expenditures subsequent to acquisition cannot be added to the carrying amount of the asset? (a) costs of modification of an item of property that will extend its useful life or increase its capacity (b) costs of upgrading machine parts to achieve substantial improvements in quality of output (c) costs of material repairs that did not increase the life of the asset nor productive capacity (d) costs of adopting new production processes that enabled substantial reduction in operating costs C 52. When the carrying amount of a revalued asset is decreased as a result of a revaluation, the decrease should be charged to: (a) expense (b) revaluation surplus (c) retained earnings (d) revaluation surplus, any remaining balance to expense D 53. The main concern is availability and use of funds for public services. (a) Commission on Audit (c) National Treasury (b) Department of Finance (d) National Budget System
D
54. If there is any excess of the investor’s share of the net fair value of the associate’s identifiable assets and liabilities over the cost of the investment, that is, negative goodwill, how should that excess be treated? (a) It should be included in the carrying amount of the investment. (b) It should be written off against retained earnings. (c) It should be included as income in the determination of the investor’s share of the associate’s profit or loss for period. (d) It should be disclosed separately as part of the investor’s equity. C 55. He is principally responsible for the fiscal administration of the local government. (a) locarl chief executive (c) provincial treasurer (b) municipal accountant (d) commission on audit A 56. Exchange differences arising from long-term foreign currency items should: (a) charged to income of the current year (b) deferred and amortized over the life of the obligation (c) charged to income of the current year for the amount relating to the maturing portion, and deferred and amortized over the life of the obligation for the amount relating to the remaining portion (d) none of the above C 57. Exchange difference arising from intercompany monetary item should be: (a) charged to income of the current year
(b) deferred and amortized over a reasonable period (c) separately shown in the equity section of the balance sheet as “accumulated translation adjustment” (d) part of retained earnings C 58. Exchange difference arising from foreign currency loan incurred designated as an effective economic hedge of a net investment in a foreign entity should be: (a) charged to foreign exchange loss (b) charged to deferred foreign exchange loss and amortized over a reasonable period (c) reported in the equity section of the balance sheet (d) part of additional paid in capital C 59. In translating the financial statements of a foreign entity for the purpose of incorporation in the financial statements of an enterprise, assets and liabilities, both monetary and nonmonetary are translated at: (a) closing rate (c) average rate (b) spot rate (d) forward rate A 2. Which of the following regarding cash dividends distributed to the stockholders of a corporation is true? (a) they are deductible by the corporation in the determination of its net income (b) they are deductible by the recipients in the determination of their taxable income (c) they represent income to the recipients which has already been included in the corporation’s income (d) the represent income to the recipients which has not already been included in the corporation’s income C 60. Organization costs incurred in the process of forming a corporation are normally written off: (a) when incurred (c) for tax but not for financial purposes (b) over the life of the organization (d) over a minimum of 5 years A 61. Which of the following regarding convertible preferred stock is true? (a) stockholders owning convertible preferred stock may convert their shares into common stock at a stated rate and time (b) a corporation, at its option, may convert shares of convertible preferred stock into common shares at a stated rate and time (c) a corporation, at its option, may convert shares of common stock into convertible preferred shares at a stated rate and time (d) all of these A
62. Contributed capital consists of the following major components: (a) legal and stated capital (b) retained earnings and legal capital (c) additional paid in capital and retained earnings (d) legal capital and additional paid in capital
D
63. It is an amount committed to be paid by the government arising from an act of a duly authorized administrative officer and which binds the government to the immediate and eventual payment of money. (a) obligation (c) allotment (b) appropriation (d) commitment A 64. Who may contract or guarantee foreign loans on behalf of the Republic of the Philippines with the prior concurrence of the Monetary Board and subject to such limitations as may be provided by law? (a) President of the Republic of the Philippines (b) President of the Senate (c) Speaker of the House of Representatives
(d) Chief Justice of the Supreme Court A 65. Exchange differences arising from short-term foreign currency items should: (a) be charged against income of the current year (b) not be recognized (c) be deferred and amortized over a reasonable period (d) none of the above A 66. Donated capital is recorded: (a) as an accounting gain in the period it is received (b) as an accounting loss in the period it is received (c) at its fair market value in the period it is received (d) as an increase in legal capital in the period it is received
C
67. Which of the following is not typically a right of a common stockholder? (a) the right to attend stockholders’ meetings (b) the preemptive purchase right (c) the right to disposal of shares and to transfer shares (d) the right to appoint senior management
D
68. Fully participating preferred stock means that: (a) the common stockholders receive a dividend rate per share equal to the preferred and all excess dividends are given to the common stockholders (b) the common stockholders receive a dividend rate per share equal to the preferred and all excess dividends go to the preferred (c) the common stockholders receive a dividend rate per share equal to the preferred and all excess dividends are share proportionately between the two classes (d) the preferred stockholders receive their full dividend and any excess dividends go to common stockholders C 69. Choose the correct statement. (a) A worksheet is not a part of the basic accounting records of the entity. (b) No adjusting entries should be necessary for the inventory account if the periodic inventory system is used. (c) Examples of accrued expenses include wages payable and depreciation expense. (d) Accrued items are those for which recognition of the related revenue or expense occurs in an accounting period after the entity pays or receives cash, respectively. A 70. Which of the following statement is false? (a) Depreciation expense, bad debt expense, and warranty expense are estimated expenses because they all depend upon future events. (b) The balance sheet is sometimes called the statement of financial position. (c) Depreciation expense and accrued revenues are examples of deferred items. (d) When a company records reversing entries, adjusting entries for deferred expenses recorded initially as assets upon payment of cash generally are not reversed. C
71. Which of the following statements is true? (a) The income statement and the balance sheet reflect the internal events of a company; the information included in the footnotes refers to external events only. (b) A post closing trial balance has balances in the temporary accounts. (c) Income summary is a clearing or suspense account that is often used to hold the balances of revenue and expense accounts; its balance is closed to the retained earnings account only. (d) Financial statements cannot be prepared properly until adjusting entries are posted to the ledger. C 72. Which of the following statements is correct? (a) The use of a general journal implies that there is no need for special journals.
(b) Each subsidiary ledger has a related control account in the general journal. (c) Assume a company always records deferred expenses as assets upon payment of cash, and deferred revenues as liabilities upon receipt of cash. If this company records reversing entries, generally only adjusting entries for accrued expenses and accrued revenues should be reversed. (d) All entries in the general journal are supported by details contained in the special journals. C 73. PAS 28 (Associates) does not require the equity method to be applied when the associate has been acquired and held with a view to its disposal within a certain time period. What is the period within which the associate must be disposed of? (a) Six months (b) Twelve months (c) Two years (d) In the near future. B 74. Coco Corporation retired 15% of its P5 par common stock at a repurchase price of P20 per share. Its original issue price had been P22 per share. Which of the following is true? (a) cash is increased (b) retained earnings is increased (c) income has decreased (d) paid in capital from the retirement of common stock has increased D 75. The retirement of capital stock will never cause which of the following conditions to occur? (a) an increase in retained earnings (c) a decrease in retained earnings (b) an increase in earnings per share (d) a decrease in shares outstanding A 76. When a non-interest bearing note receivable is accepted at the time of a sale: (a) the sale is recorded then for the amount to be collected when the note matures (b) the sale is not recorded until the proceeds of the note are collected (c) a discount on notes receivable is recorded for the amount of the unearned implicit interest on the note (d) a discount on notes receivable is recorded for the excess of the total cash payment to be received over the original cost for the products sold C 77. How is goodwill arising on the acquisition of an associate dealt with in the financial statements? (a) It is amortized. (b) It is impairment tested individually. (c) It is written off against profit or loss. (d) Goodwill is not recognized separately within the carrying amount of the investment. B 78. Which of the following best expresses the primary purpose of the general ledger? (a) The general ledger provides a record of transactions classified by account. (b) The general ledger provides a record from which the journal entries are later posted. (c) The general ledger provides a listing of the dates of transactions affecting each account, in what amounts, and the ending balances of each account. (d) The general ledger eliminates the need for control accounts. (e) The general ledger houses only accounts which are supported by subsidiary ledgers. C
79. Which one of the following complete descriptions of a transaction is not possible? (a) increase asset, decrease owner’s equity
(b) increase asset, increase liability (c) decrease asset, decrease liability (d) increase liability, decrease owner’s equity
A
80. To post in accounting means to: (a) copy the information about account changes from the ledger and place it into the journal. (b) copy the information about account changes from the journal, place it into the ledger, then delete it from the journal. (c) copy the information about account changes from the journal, and place it into the ledger. (d) copy the information about account changes from the source documents, and record it in the ledger. C
** END OF THE EXAMINATION**
