FRAMEWORK OF ACCOUNTING
I – ACCOUNTING AND ACCOUNTANCY PROFESSION
1. Which Which accoun accountin ting g proces processs is the recogn recogniti ition on or nonrec nonrecogn ogniti ition on of busine business ss activi activitie tiess as accountable events? (a) identifying (c) communicating (b) measuring (d) summarizing A 2. These are events events that that affect the enterpri enterprise se and !nternal "#ternal (a) $es $es (c) (b) $es %o (d)
in hich other other entities entities participat participate. e. !nternal "#ternal %o %o %o $es
'. Whic Which h is an int inter erna nall even event? t? (a) asual asualty ty loss loss (b) (b) "#ch "#chan ange ge (c) %onreciprocal %onreciprocal transfer transfer beteen beteen the enterprise enterprise and its oners. (d) %onreciprocal transfer beteen the enterprise and other entities.
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. The basi basicc purpos purpose e of accoun accountin ting g is* (a) to measure periodi periodicc income of the economic economic entity. (b) to provide +uantitative +uantitative financial information about a business enterprise that is useful in ma,ing rational economic decision. (c) to provide provide informat information ion that the creditor creditorss of an econom economic ic entity entity can use in decidi deciding ng hether to ma,e additional loans to the entity. (d) to provid provide e inform informati ation on that that the managers managers of an econom economic ic entity entity need to contro controll its operations. . !t focuses on general general purpose purpose reports reports on financial financial positio position/ n/ performance performance and cash cash flos. (a) financial accounting (c) management advisory services (b) ma managerial accounting (d) auditing A 0. Which area of public public accounting accounting means means the e#aminatio e#amination n of financial financial statements statements by a A for the purpose of e#pressing as opinion as to the fairness of the statements? (a) e#ternal auditing (c) management advisory services (b) ta#ation (d) internal auditing A . 3any accountan accountants ts are employed employed in business business enterprise enterprisess in various various capacity capacity as accounting accounting staff/ chief accountant or controller. These accountants are said to be engaged in* (a) pu p ublic accounting (c) government accounting (b) financial accounting (d) private accounting & 4. They They encom encompa pass ss the the conv conven enti tion ons/ s/ rules rules// and and proce procedu dure ress nece necess ssar ary y to defi define ne hat hat is accepted accounting practice. (a) genera generally lly accept accepted ed accoun accountin ting g princi principle pless (c) +uali +ualitat tative ive charac character terist istics ics (b) a acccounting assumptions (d) recognition principles A
5. 6ne of the basic basic features features of financia financiall accountin accounting g is the* the* (a) direct direct measureme measurement nt of econom economic ic resour resources ces and obligati obligations ons terms of money and sociological and psychological impact. (b) direct direct measureme measurement nt of econom economic ic resour resources ces and obligati obligations ons terms of money. (c) direct direct measurem measurement ent of econom economic ic resour resources ces and obliga obligatio tions ns terms of money and sociological impact. (d) direct direct measureme measurement nt of econom economic ic resour resources ces and obligati obligations ons terms of money and psychological impact.
and changes changes in them them in and changes changes in them them in and changes changes in them them in and changes changes in them them in -
17. Which is not part of the accounting standard standard setting process in the hilippines? hilippines? (a) preparation and approval by a Tas, 8orce of a draft of the proposed 98A9 (b) distribution distribution of the e#posure draft draft for comment to !A members/ 8!%": members members and other interested parties (c) publication in the 6fficial ;azette or in a nespaper of general general circulation (d) approval by the rofessional ar >armon moniza izatio tion n of intern internati ationa onall accoun accountin ting g standa standards rds ill ill provid provide e benefi benefits ts to both preparers and users of financial statements. (c) As international international trade and onership onership barriers are removed/ the need for harmonization harmonization of international accounting standards ill decrease. (d) (d) 9inc 9ince e diff differ eren ence ce coun countri tries es use use fina financi ncial al state stateme ment ntss for for diff differ eren entt purp purpose oses/ s/ some some countries ill li,ely not adopt the international accounting standards. 1. The purpose of !nternational !nternational Accounting 9tandards is to*
5. 6ne of the basic basic features features of financia financiall accountin accounting g is the* the* (a) direct direct measureme measurement nt of econom economic ic resour resources ces and obligati obligations ons terms of money and sociological and psychological impact. (b) direct direct measureme measurement nt of econom economic ic resour resources ces and obligati obligations ons terms of money. (c) direct direct measurem measurement ent of econom economic ic resour resources ces and obliga obligatio tions ns terms of money and sociological impact. (d) direct direct measureme measurement nt of econom economic ic resour resources ces and obligati obligations ons terms of money and psychological impact.
and changes changes in them them in and changes changes in them them in and changes changes in them them in and changes changes in them them in -
17. Which is not part of the accounting standard standard setting process in the hilippines? hilippines? (a) preparation and approval by a Tas, 8orce of a draft of the proposed 98A9 (b) distribution distribution of the e#posure draft draft for comment to !A members/ 8!%": members members and other interested parties (c) publication in the 6fficial ;azette or in a nespaper of general general circulation (d) approval by the rofessional ar >armon moniza izatio tion n of intern internati ationa onall accoun accountin ting g standa standards rds ill ill provid provide e benefi benefits ts to both preparers and users of financial statements. (c) As international international trade and onership onership barriers are removed/ the need for harmonization harmonization of international accounting standards ill decrease. (d) (d) 9inc 9ince e diff differ eren ence ce coun countri tries es use use fina financi ncial al state stateme ment ntss for for diff differ eren entt purp purpose oses/ s/ some some countries ill li,ely not adopt the international accounting standards. 1. The purpose of !nternational !nternational Accounting 9tandards is to*
(a) issue enforceable enforceable standards standards hich regulate regulate the financial financial accounting accounting and reporting of multinational corporations. (b) develop develop a uniform uniform currency in hich the financial transaction transactionss of companies companies throughout throughout the orld ould be measured. (c) promote promote uniform accounting accounting standards standards among countries countries of the orld. (d) (d) arbi arbitr trat ate e accou account ntin ing g disp disput utes es bet bete een en aud audit itor orss and and inte intern rnat atio iona nall comp compan anie ies. s. 1. 8inancial accounting is concerned ith* (a) generalpurpose reports on financial position position and results of operations (b) specialized reports reports for inventory inventory management and control (c) specialized specialized reports reports for income ta# computation computation and recognition recognition (d) genera generall purpos purpose e rep report ortss on change changess in stoc, stoc, prices prices and and future future estimate estimatess of mar mar,et ,et position A 10. Which Which of the folloin folloing g is not an import important ant charact characteri eristi sticc or limita limitatio tion n of the financia financiall statements that accountants currently prepare? (a) the informat information ion in financ financial ial statemen statements ts is e#press e#pressed ed in units units of money money ad= ad=uste usted d for changing purchasing poer (b) financial financial statements statements articulate ith one another another because measuring financial financial position is related to measuring changes in financial position (c) the information information in financial financial statements statements is summarized summarized and classified classified to held meet users@ needs (d) financial statements can be =ustified only if the benefits they provide e#ceed the costs A 1. The branch of accounting that is concerned primarily ith ith providing information for internal users is called* (a) auditing (c) financial accounting (b) managerial accounting (d) income ta# accounting 14. 8inancial accounting can be broadly defined as the area of accounting that prepares* (a) genera generall purpos purpose e financ financial ial statemen statements ts to be used used by partie partiess intern internal al to the business business enterprise only (b) financial statements to be used by investors only (c) general purpose financial financial statements to be used by parties both internal and e#ternal e#ternal to the business enterprise (d) financial statements to be used primarily by management 15. The primary focus focus of financial financial accounting accounting has been on meeting the needs of hich of the folloing groups? (a) managers managers of an an enterprise enterprise (b) present and potential creditors creditors of an enterprise (c) national/ national/ and local local ta#ing ta#ing authorities authorities (d) independent auditors 27. The most most appro appropri priate ate e+uati e+uation on for portra portrayin ying g the relati relations onship hip of assets assets// liabil liabiliti ities/ es/ and oners@ e+uity of a corporation is* (a) assets liabilities B one ners@ rs@ e+ e+uity (c) as assets B restrict rictiion of of as assets
(b) assets B liabilities C oners@ rs@ e+uity
(d) liabilitie ties B assets one ners@ rs@ e+uity
21. Which Which of the follo folloing ing statemen statements ts reg regard arding ing the econom economic ic entity entity assumpti assumption on is most most accurate? (a) (a) the the econ econom omic ic enti entity ty assu assump mpti tion on appl applie iess only only to corp corpor orat atio ions ns and and not not to sole sole proprietorships and partnerships (b) the economic economic entity entity assumpti assumption on does not apply apply to a segmen segmentt of a firm firm (such as a division) (c) the economic entity assumption assumption recognizes recognizes the fiduciary fiduciary responsibil responsibility ity of management management to stoc,holders (d) the economic entity assumption assumption is irrelevant irrelevant to decisions regarding regarding the consolidati consolidation on of several interrelated firms 22. The financial statements prepared under ;AA* (a) do not articulate articulate ith one another another (b) reflect a single single measurement basis hich is historical cost (c) are not highly precise because many estimates and =udgments =udgments must be made made (d) contain a limited number of future pro=ects/ such as pro=ected sale
2'. The primary measurement basis currently used to value assets in in general purpose financial statements of an enterprise is* (a) the current mar,et mar,et price if the assets currently held held by an enterprise enterprise ere sold on the open mar,et (b) the current mar,et price if the assets currently held by an an enterprise ere purchased on the open mar,et (c) the present value value of the cash flos assets assets are e#pected to general general over their remaining remaining useful lives (d) the mar,et price of the assets at the date the assets ere ac+uired & 2. Asset measurements in conventional financial statements* statements* (a) are confined confined to histori historical cal cost (b) are confined confined to historical historical cost and current current cost (c) reflect reflect several several financial financial attribute attributess (d) do not reflect output values 2. The ;AA also also apply apply to* (a) The -oard of Accountancy (b) The -ureau of !nternal
(c) The hilippine !nstitute of As (d) The rofessional
III – ACOUNTING ASSUMPTIONS
1. These are the basic notions or fundamental premises on hich the accounting process is based. (a) accounting assumptions (c) generally accepted accounting principles (b) accounting standards (d) accounting concepts A 2. The A9 conceptual frameor, specifically mentions to underlying assumption. These are* (a) accrual and going concern (c) going concern and time period (b) accrual and accounting entity (d) time period and monetary unit A '. The effects of transactions and other events are recognized hen they occur and not as cash or its e+uivalent is received or paid/ and they are recorded and reported in the financial statements of the period to hich they relate. (a) accrual (c) time period (b) going concern (d) monetary unit A . Which of the folloing statements is incorrect? (a) The accrual method/ hich builds directly on the revenue and matching principles/ ignores the timing of cash receipts or payments hen determining hen to recognize revenue or e#penses. (b) "#penses are matched ith revenue/ not the reverse. (c) !n accordance ith the unit of measure assumption/ accountants normally revise the amounts to reflects the changing purchasing poer of money due to inflation or deflation. (d) !n accordance ith the going concern assumption/ the life of a business is presumed to be indefinite. . !f a business is not being sold or closed/ the amounts reported in the accounts for assets used in the business operations are based on the cost of the assets. This practice is =ustified by* (a) accrual (c) continuity assumption (b) time period (d) accounting entity 0. Dohn 8rivs is the sole oner and manager of Ace 9ervices. Dohn purchased a car for personal use. >e uses a van in the business. Which of the folloing is violated if Dohn recorded the cost of the car as an asset of the business? (a) conservatism (c) full disclosure (b) going concern assumption (d) separate entity assumption & . What is the traditional accounting period? (a) three months (b) si# months
(c) to years (d) telve months
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4. Which underlying concept serves as the basis for preparing financial statements at regular intervals? (a) accounting entity (c) accounting period
(b) going concern
(d) stable monetary unit
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12. When a parent and subsidiary relationship e#ists/ consolidated financial statements are prepared in recognition of* (a) legal entity (c) stable monetary unit (b) economic entity (d) time period 1'. The valuation of a promise to receive cash in the future at present value on the financial statement of a business entity is valid because of the accounting concept of* (a) entity (c) going concern (b) time period (d) monetary unit 1. ontinuation of an accounting entity in the absence of evidence to the contrary is an e#ample of the basic concept of* (a) accounting entity (c) going concern (b) time period (d) accrual 1. This accounting concept =ustifies the usage of accruals and deferrals. (a) going concern (c) consistency (b) materiality (d) stable monetary unit
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10. &uring the lifetime of an entity/ accountants produce financial statements at arbitrary points in time in accordance ith hich basic accounting concepts? (a) accrual (c) unit of measure (b) periodicity (d) continuity 1. The relatively stable economic/ political and social environment supports* (a) conservatism (c) timeliness (b) materiality (d) going concern
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IV – CONCEPTUAL FRAMEWORK
A. DEFINITION, PURPOSE, AND STATUS
1. A conceptual frameor, is* (a) a statements of financial accounting standard. (b) an underlying accounting assumption. (c) a theoretical foundation hich guides the A9/ preparers and users of financial accounting information. (d) a financial statement. 2. Which is not a basic purpose of a conceptual frameor,? (a) to assist A9 in developing accounting standards. (b) to assist preparers of financial statements in applying A9 accounting standards. (c) to assist A9 in revieing and adopting !nternational Accounting 9tandards. (d) to assist the -oard of Accountancy in promulgating rules and regulations affecting the practice of accountancy in the hilippines. & '. The A9 conceptual frameor, is intended to establish* (a) generally accepted accounting principles in financial reporting by business enterprises. (b) the meaning of Epresent fairly in accordance ith generally accepted accounting principles.F (c) the ob=ectives and concepts for use in developing standards of financial accounting and reporting. (d) the hierarchy of sources of generally accepted accounting principles.
B. SCOPE – OBJECTIVES OF FINANCIAL STATEMENTS
1. Which is not included in the scope of the A9 conceptual frameor,? (a) +ualitative characteristics that determine usefulness of financial accounting information (b) definition/ recognition and measurement of the elements of financial statements (c) ob=ective of financial statements (d) generally accepted accounting principles & 2. What is the ob=ective of financial statements? (a) to disclose the mar,et value of the firm@s assets and liabilities (b) to determine compliance ith ta# las (c) to ma,e forecasts about the economy (d) to help users ma,es decisions
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'. !t is the financial fle#ibility of an enterprise. (a) li+uidity (b) solvency
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(c) financial structure (d) capacity for adaptation
. !t is the level if income earned by an enterprise through the efficient and effective utilization of resources. (a) financial position (c) positive cash flos (b) performance (d) negative cash flos . Gi+uidity is defined as the * (a) ability of the enterprise to pay currently maturing obligations. (b) ability of the enterprise to meet obligations over a longer term. (c) invested capital of the enterprise. (d) borroed capital of the enterprise.
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0. The theory of accounting hich best describes the accounting e+uation e#pressed Eassets B Giabilities C proprietorshipF is the * (a) entity theory (c) proprietary theory (b) fund theory (d) residual e+uity theory A . What theory of onership e+uity is enumerated by the folloing e+uation* assets minus liabilities minus preferred stoc, e+uity e+uals common stoc, e+uity? (a) fund (c) proprietary (b) enterprise (d) residual e+uity & 4. lassifying preferred dividends as e#pense is an application of hat concept? (a) entity (c) residual e+uity (b) proprietary (d) fund
5. The primary accounting is fair presentation of the performance of the enterprise. (a) entity (c) residual e+uity (b) proprietary (d) fund
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17. ;overnment or fiduciary accounting is an application of* (a) entity (c) residual e+uity (b) proprietary (d) fund
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11. Which of the folloing statements is incorrect? (a) the accounting theory hich e#plains ell the accounting e+uation Eassets minus liabilities e+uals capitalF is the proprietary theory (b) under the entity theory/ the ma=or accounting effort is directed toard proper valuation of assets rather than income determination (c) strict adherence to the entity concept ould not allo a parent company to ta,e up in its boo,s its proportionate share in the profits and losses of its subsidiaries (d) under the fund theory/ assets represent prospective services to the fund/ liabilities represent restriction against asses of the funds/ and invested capital represents either legal or financial restrictions on the use of assets 12. The type of money prices hich uses such concepts as present value/ discounted cash flo and value in use is ,non as* (a) price in a current purchase e#change (c) price based on future e#change (b) price in a past e#change (d) price in a current sale e#change 1'. All accounts in the financial statements are affected to a certain e#tent by inflationary conditions/ but the effect is more e#plicit in some accounts than in others. Which account is the more seriously affected by inflation? (a) property/ plant and e+uipment (c) receivables (b) merchandise inventory (d) cash A 1. The recognition of the deficiencies of historical cost accounting has led to the advocacy of the recognition of the effects of inflation in the accounts. The folloing statements characterize the recognition of the effects of inflation e#cept* (a) all accounts in the financial statements are affected to a certain e#tent by inflationary conditions/ and the effect is more e#plicit in some accounts than in others (b) restating the entire financial statements in terms of current prices is a very complicated process and re+uires considerable additional or, (c) users of financial statements advocate the recognition of the effects of inflation in the accounts because historical cost creates the impression that the business entity is more profitable than hat it really is (d) inflation affects more drastically those items in the accounts here the rate of turnover is +uite high &
C. SCOPE – QUALITATIVE CHARACTERISTICS
1. !t is the capacity of information to ma,e a difference in a decision by helping users from predictions about the outcome of past/ present and future events/ or confirm and correct prior e#pectations. (a) relevance (c) comparability (b) reliability (d) understandability A 2. The attributes of relevance include ( choose the incorrect one)* (a) predictive value (c) timeliness (b) feedbac, value (d) neutrality
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'. !t is the +uality of information that assures readers that the information is free from bias or error and faithfully represents hat it purports to sho. (a) understandability (c) reliability (b) relevance (d) comparability . Which of the folloing has the primary responsibility for the preparation/ presentation and reliability of information in the financial statements? (a) management (c) e#ternal auditor (b) internal audit staff (d) internal management accountant A . Herifiability of financial accounting information is synonymous ith* (a) faithful representation (c) prudence (b) substance over form (d) completeness
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0. !n the event of conflict beteen the economic substance of a transaction and its legal form/ the economic substance shall prevail. This concept is ,non as* (a) form over substance (c) faithful representation (b) substance over form (d) completeness . The financial accounting information is directed toard the common needs of users and is independent of presumptions about particular needs and desires of specific users. (a) relevance (c) neutrality (b) verifiability (d) completeness 4. Dohn ompany does not ,no e#actly ho long its e+uipment ill last. !t decides to use shorter rather than longer useful life for depreciating the e+uipment. What accounting concept is being applied in this decision? (a) reliability (c) materiality (b) relevance (d) conservatism & 5. !t is the e#ercise of care and caution in dealing ith uncertainties in measurement so s not to overstate assets and income and not understated liabilities and e#penses. (a) completeness (c) faithful representation (b) prudence (d) neutrality -
17. !t is the result of the standard of ade+uate disclosure. (a) faithful representation (c) neutrality (b) substance over form (d) completeness
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11. Which of the folloing improves the reliability of accounting information? (a) accounting entity (c) verifiability (b) going concern (d) time period
12. The conceptual frameor, of accounting sets out certain essential characteristics of accounting information. Which of the folloing is not as essential characteristic? (a) understandability (c) reliability (b) profitoriented (d) comparability 1'. The financial information must be comprehensible or intelligible if it to be useful. (a) relevance (c) understandability (b) reliability (d) comparability
1. Which +ualitative characteristics relate to the content of the financial statements? (a) relevance and reliability (c) relevance and understandability (b) understandability (d) reliability and comparability A 1. Which +ualitative characteristics relate to the presentation of financial statements? (a) relevance and reliability (c) relevance and understandability (b) understandability and comparability (d) reliability and comparability 10. !t is the ability to bring together for the purpose of noting similarities and dissimilarities. (a) relevance (c) understandability (b) reliability (d) comparability & 1. Which is incorrect concerning the conditions for comparability ithin a single enterprise? (a) The presentations are in the same form. (b) The contents of the statements are identical. (c) Accounting principles are not changed or if they are changed/ the financial effects of the changes are not disclosed. (d) hanges in circumstances or in the nature of underlying transactions are disclosed. 14. The A9 conceptual frameor, of accounting sets out to constraints hen implementing accounting procedures. What are they? (a) costbenefit and cost principle (c) cost principle and revenue principle (b) timeliness and revenue principle (d) costbenefit and timeliness & 15. According to the A9 conceptual frameor,/ the usefulness of providing information in financial statements is sub=ect to the constraints of* (a) consistency (c) reliability (b) costbenefit (d) representational faithfulness -
27. The ability through consensus among measures to ensure that information represents hat it purports to represents is an e#ample of the concept of* (a) relevance (c) comparability (b) verifiability (d) feedbac, value 21. Which of the folloing accounting concepts states that an accounting transaction should be supported by sufficient evidence to allo to or more +ualified individuals to arrive at essentially similar conclusions? (a) conservatism (c) periodicity (b) ob=ectivity (d) stable monetary unit 22. 6b=ectivity is assumed to be achieved hen an accounting transaction* (a) is recorded in a fi#ed amount of peso. (b) involves the payment or receipt of cash. (c) involves an arm@s length transaction beteen to independent parties. (d) Allocates revenue or e#penses in a rational and systematic manner.
2'. The principle of ob=ectivity includes the concept of* (a) summarization (c) conservatism (b) classification (d) verifiability
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2. The consistency standard of reporting re+uires that* (a) e#penses be reported as charges against the period in hich they are incurred. (b) the effect of changes in accounting upon income be properly disclosed. (c) e#traordinary gains and losses should not appear on the income statement. (d) accounting procedures be adopted hich give a consistent rate of return. 2. Accounting changes are often made and the monetary impact is reflected in the financial statements of a company even though/ in theory/ this may be a violation of the accounting concept of* (a) materiality (c) conservatism (d) ob=ectivity (b) consistency 20. Timeliness is an ingredient of* (a) reliability (b) relevance
(c) verifiability (d) ade+uate financial statements
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2. Which of the folloing situations violates the concept of reliability? (a) 8inancial statements ere issued nine months late. (b)
24. What is the underlying concept that supports the immediate recognition of a contingent loss? (a) substance over form (c) matching (b) consistency (d) conservatism & 25. What is the underlying concept governing the ;AA pertaining to recording gain contingencies? (a) conservatism (c) consistency (b) relevance (d) reliability A '7. Incertainty and ris,s inherent in business situations should be ade+uately considered in financial reporting. This statement is an e#ample of the concept of* (a) conservatism (c) neutrality (b) completeness (d) representation faithfulness A '1. An estimated loss from a loss contingency should be accrued hen* (a) !t is probable at the date of the financial statements that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. (b) The loss has been incurred on the date of the financial statements and the amount of the loss may be material. (c) !t is probable that a loss ill be incurred in a future period and the amount of the loss can be reasonably estimated. (d) !t is probable at the date of the financial statements that a loss has been incurred and the amount of the loss may be material. A '2. >o should a loss contingency that is reasonably possible and for hich the amount can be reasonably estimated be reported? (a) accrues and disclosed (c) disclosed only (b) accrued only (d) neither accrued nor disclosed ''.
(d) be accrued by debiting an e#pense account and crediting a liability account or an asset account. & '. 6n &ecember 27/2771/ an uninsured property damage loss as caused by a company car being driven on company business by a company salesman. The company did not become aare of the loss until Danuary 2/ 2772. The amount of the loss as reasonably estimable before the company@s 2771 financial statements ere issued. The company@s &ecember '1/ 2771 financial statements should report an estimated loss as* (a) a disclosure/ but not an accrual. (c) neither an accrual nor a disclosure. (b) an accrual. (d) an appropriation of retained earnings. '0. A company did not record an accrual for a contingent loss but disclose the nature of the contingency and the range of the loss. >o li,ely is the loss? (a) remote (c) probable (b) reasonably possible (d) certain '. A lasuit in connection ith a safety hazard e#ists for a manufactured product. 6ccurrence of a loss is probable and reasonably estimable. The loss contingency s hould* (a) be accrued and disclosed. (c) be disclosed. (b) be accrued only. (d) neither be accrued nor disclosed. A '4. An e#propriation of assets hich is imminent and for hich the amount of loss can be reasonably estimated should be* (a) accrued only. (c) accrued and disclosed. (b) disclosed only. (d) neither accrued and disclosed. '5. 3anagement can estimate the amount of loss that ill occur if a foreign government e#propriates some company assets. !f the appropriation is reasonably possible/ hat is the treatment of the loss contingency? (a) disclosed but not accrued as a liability (c) accrued as a liability but not disclosed (b) disclosed and accrued as a liability (d) neither accrued as a liability not disclosed A 7. A company has a probable loss that can only be reasonably estimated ithin a range of outcomes. >oever/ no single amount ithin the range is a better estimate than any other amount. The amount of the loss accrual should be* (a) zero. (c) minimum of the range. (b) ma#imum of the range (d) mean of the range. 1. A# ompany is being used for illness caused to local residents as a result of negligence on the company@s part in permitting local residents to be e#posed to highly to#ic chemicals from its plant. A#@s layer states that it is probable that A# ill loss the suit and be found liable for a =udgment costing anyhere from 77/777 to 2/77/777. >oever/ the layer states that the most probable costs is 1/777/777. As a result of the above facts/ A# should accrue* (a) a loss contingency of 77/777 and disclose a additional contingency of up to 2/777/777.
(b) a loss contingency of 1/777/777 and disclose as additional contingency of up to 1/77/777 (c) a loss contingency of 1/777/777 but not disclose any additional contingency. (d) no loss contingency but disclose a contingency of 77/777 to 2/777/777. 2. "ver ompany has consigned that mortgage note on the home of its president/ guaranteeing the indebtedness in the event that the president should default. "ver considers the li,elihood of default to be remote. >o should the guarantee be treated in "ver@s financial statements? (a) disclosed only (c) accrued and disclosed (b) accrued only (d) neither accrued and disclosed A '. The li,elihood that the future event ill or ill nor occur can be e#pressed by a range of outcome. Which range means that the future event occurring is very slight? (a) probable (c) certain (b) reasonably possible (d) remote & . ;ain contingency is usually recognized hen* (a) realized. (b) occurrence is reasonably possible and the amount is reasonably estimable. (c) occurrence is probable and the amount is reasonably estimable. (d) the amount is reasonably estimable. A . Which of the folloing is the proper accounting treatment of a gain contingency? (a) an accrued account. (b) deferred earnings. (c) an account receivable ith an additional disclosure e#plaining the nature of the transaction. (d) a disclosure only. & 0. When the occurrence of a gain contingency is probable and its amount can be reasonably estimated/ the gain contingency should be* (a) recognized in the income statement and disclosed. (b) classified as an appropriation of retained earnings. (c) disclosed/ but not recognized in the income statement. (d) neither recognized in the income statement not disclosed. . ;reat ompany operated a plant in a foreign country. !t is probable that the plant ill be e#propriated. >oever/ the foreign government has indicated that ;reat ill receive a definite amount of compensation for the plant. The amount of compensation is less than the fair mar,et value but e#ceeds the carrying amount of the plant. The contingency should be reported* (a) as a valuation alloance as a part of stoc,holdersJ e+uity. (b) as a fi#ed asset valuation alloance account. (c) in the notes to the financial statements. (d) in the income statement.
4. At &ecember '1/ 2772/ ream ompany as suing a competitor for patent infringement. The aard from the probable favorable outcome could be reasonably estimated. ream@s 2772 financial statements should report the e#pected aard as a * (a) receivable and revenue. (c) receivable and deferred revenue. (b) receivable and reduction of patent. (d) disclosure only & 5. %eutrality is an ingredient of* (a) relevance (b) reliability
(c) understandability (d) comparability
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7. Which of the folloing relates to both relevance and reliability? (a) comparability (c) verifiability (b) feedbac, value (d) timeliness
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1. Inder the A9 frameor,/ the +ualitative characteristics are* (a) understandability/ relevance/ reliability and comparability (b) accrual and going concern (c) timelines/ cost and benefit and materiality (d) entity/ proprietary/ residual e+uity and fund theory
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2. The characteristic that is demonstrated hen a high degree of consensus can be secured among independent measurers the same measurement methods is* (a) relevance (c) verifiability (b) reliability (d) neutrality '. Which of the folloing are considered pervasive constraints? (a) materiality and conservatism (c) conservatism and timeliness (b) timeliness and predictive value (d) costbenefit and materiality
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D – DEFINITION, RECOGNITION AND MEASUREMENT OF ELEMENTS FROM WHICH FINANCIAL STATEMENTS ARE CONSTRUCTED
1. These are related to the economic resources (assets)/ economic obligations (liabilities)/ residual interest (e+uity) and changes in them (revenue and e#pense). (a) basic elements (c) basic ob=ectives (b) basic principles (d) basic concepts A 2. The basic elements directly related to the measurement of financial position are* (a) assets/ liabilities/ e+uity/ revenue and e#penses (b) assets/ liabilities/ and e+uity (c) revenue and e#pense (d) assets and liabilities
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'. The basic elements directly related to the measurement performance or results of operations are* (a) assets/ liabilities/ e+uity/ revenue and e#penses (b) assets/ liabilities and e+uity (c) revenue and e#pense (d) sales and cost of sales . These are resources controlled by the enterprise as a result of past transactions or events and from hich future economic benefits are e#pected to flo to the enterprise. (a) assets (c) e+uity (b) liabilities (d) revenue A . These are present obligations of an enterprise arising from past transactions or events the settlement of hich is e#pected to result in an outflo from the enterprise of resources embodying economic benefits. (a) assets (c) e+uity (b) liabilities (d) revenue 0. !t is the residual interest in the assets of the enterprise after deducting all its liabilities. (a) revenue (c) net income (b) e#penses (d) e+uity & . !t represents the gross inflos of economic benefits during the period arising in the course of ordinary activities of an enterprise hen these inflos result in increases in e+uity/ other than those relating to contributions from oners. (a) assets (c) e#pense (b) liabilities (d) revenue &
4. !t represents the gross outflos of economic benefits during the period arising in the course of ordinary activities of an enterprise hen these outflos result in decreases in e+uity/ other than those relating to distributions to oners. (a) assets (c) e#pense (b) liabilities (d) revenue 5. According to A9 conceptual frameor,/ the process of reporting an item in the financial statements of an enterprise is* (a) allocation (c) realization (b) matching (d) recognition & 17. The term ErecognizedF is synonymous ith the term* (a) recorded (c) matched (b) realized (d) allocated
A
11. Which condition is necessary for the recognition of an asset? (a) !t is probable that future economic benefits ill flo to the enterprise. (b) The cost of the asset can be measured reliably. (c) The asset is paid for. (d) !t is probable that future economic benefits ill flo to the enterprise and the cost of the asset can be measured reliably. & 12. !nternally generated goodill is* (a) recognized as an asset because the inflo of future economic benefits is highly probable and the cost of the goodill can be measured reliably. (b) not recognized as an asset because the cost cannot be measured reliably although the inflo of future economic benefits is highly probable. (c) recognized as e#pense. (d) recognized as revenue. 1'. A company needed a ne arehouse and a contractor +uoted a /777/777 price to construct it. A believed that is could build the arehouse for /'77/777 and decided to use company employees to build it. The final construction cost incurred by A company as /477/777 but the asset as recorded at /777/777. What principle is this violation of? (a) cost principle (c) matching principle (b) separate entity (d) conservatism A 1. According to ;AA/ at hat value should a company sho its assets on the balance sheet? (a) mar,et value at all times (b) cash e+uivalent of asset given up or the asset received/ hichever is more clearly evident (c) best estimate of an internal auditor (d) cash outlay only/ even if part of the consideration given as something other than cash. 1. Which of the folloing statements is not consistent ith generally accepted accounting principles as they relate to asset valuation? (a) assets are generally recorded in the accounting records at cost to the enterprise.
(b) accountants assume that assets such as supplies/ buildings and e+uipment ill be used in the business operations rather sold. (c) subtracting total liabilities from total assets results in the current mar,et value or e+uity. (d) accountants base asset valuation upon ob=ective/ verifiable evidence rather than on personal opinion. 10. The valuation basis used in conventional financial statement is* (a) replacement cost (c) original cost (b) mar,et value (d) a mi#ture of cost and value
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1. !mputing interest for certain assets and liabilities is primarily based on the concept of* (a) valuation (c) consistency (b) conservatism (d) stable monetary unit A 14. !n an arm@slength transaction/ ompany A and ompany - e#changed nonmonetary assets ith no monetary consideration involved. The e#change did not culminate an earning process for both ompany A and ompany -/ and the fair values of the nonmonetary assets ere both clearly evident. The accounting for the e#change should be based on the* (a) fair value of the asset surrendered (c) recorded amount of the asset surrendered (b) fair value of the asset received (d) recorded amount of the asset received A 15. ompany A and ompany - e#changed nonmonetary assets ith no monetary consideration involved and no impairment of value. The e#change did not culminate an earning process for either ompany A or ompany -. The accounting for the e#change should be based on the* (a) recorded amount of the asset received (c) fair value of the asset received (b) recorded amount of the asset relin+uished (d) fair value of the asset relin+uished 27.
2'. &epending on the nature of the enterprise/ revenue may be recognized based on different acceptable criteria. Which of the folloing is not an accepted basis for recognition of revenue? (a) passage of time (c) completion of percentage of a pro=ect (b) performance of service (d) upon signing of contract & 2. Which of the folloing bases of revenue recognition reflects the greatest degree of uncertainty about future events? (a) sales method applied to sales of a department store (b) cost recovery method applied to an installment sales contract (c) production method for a gold mining operation (d) percentage of completion on a construction contract 2. Inder hat methods is revenue recognized prior to delivery? (a) percentage of completion method (c) installment sales (b) cost recovery method (d) accrual method
A
20. This revenue recognition method is alloed hen a sale is insured under a forard contract or government guarantee or hen a homogenous mar,et e#ists and there is a negligible ris, of failure to sell. (a) percentage of completion method (c) cash method (b) production method (d) accrual method 2. What is an e#ample of an accounting principle? (a) The fact that one type of accounting is designed to help managers identity/ measure and control operating costs (b) The definition of hen revenue is to be recognized (c) The fact that business transactions involve a completed e#change of economic transactions. (d) The definition of assets minus liabilities e+uals shareholders@ e+uity. 24. Which of the folloing is true? (a) %et assets alays increase hen revenue is recorded. (b) ;enerally accepted accounting principles are menmade rules that never change. (c) The assumption that a business ill continue to operate until it can sell its assets to pay its creditors underlies the going concern concept. (d) The -oard of Accountancy is the body that currently has the authority to issue pronouncement of ;AA. A 25. Which of the folloing statements about e#ecutory contracts is correct? (a) They need not be disclosed. (b) They occur hen to parties agree to transfer resources or services but only one party has performed. (c) They must be recorded if material n amount. (d) They must be disclosed if material n amount. & '7. The term Erevenue recognitionF conventionally refers to*
(a) the process of identifying transactions to be recorded as revenue in an accounting period. (b) the process of measuring and relating revenue and e#penses during the period. (c) the earning process hich gives rise to revenue realization. (d) the process of identifying those transactions that result in an inflo of assets to the enterprise. A '1. Inder hat condition in it proper to recognize revenue prior to the sale of the merchandise? (a) hen the concept of internal consistency is complied ith. (b) hen the revenue is to be reported as an installment sale. (c) hen the ultimate sale of the goods is at an assured sales price. (d) hen management has a longestablished policy to do so. '2. Which of the folloing is the most precise sense means the process of converting noncash resources and rights into cash or claims of cash? (a) allocation (c) recognition (b) collection (d) realization & ''. ;ains on assets unsold are identified/ in a precise sense/ by the term* (a) unrecorded (c) unrecognized (b) unrealized (d) unallocated
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'. Which of the folloing statements conforms to the realization concept? (a) "+uipment depreciation as assigned to a production department and then to product unit cost. (b) &epreciated e+uipment as sold in e#change for a note receivable. (c) ash as collected on accounts receivable. (d) roduct unit costs ere assigned to cost of goods sold hen the units ere sold. '. According to the 8A9- conceptual frameor,/ an entity@s revenue may result from* (a) a decrease in an asset from primary operations. (b) an increase in an asset from incidental transactions. (c) an increase in a liability from incidental transactions. (d) a decrease in a liability from primary operations. & '0. !t is proper to recognize revenue prior to the sale of merchandise hen* !. The revenue ill be reported as an installment sale. !!. The revenue ill be reported under the cost recovery method. (a) ! only (c) both ! and !! (b) !! only (d) neither ! nor !!
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'. ash collection is a critical event for income recognition in the* ost recovery method !nstallment method (a) %o %o (b) $es $es (c) %o $es (d) $es %o
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'4. 8or financial statements purposes/ the installment method of accounting may be used if the* (a) collection period e#tends over more than 12 months. (b) installment are due n different years. (c) ultimate amount collectible is indeterminate. (d) percentage of completion method is inappropriate. '5. !ncome recognized using the installment method of accounting generally e+uals cash collected multiplied by the* (a) net operating profit percentage. (b) net operating profit percentage ad=usted for e#pected uncollectible accounts. (c) gross profit percentage. (d) gross profit percentage ad=usted for e#pected uncollectible accounts. 7. According to the installment method of accounting/ gross profit on an installment sale is recognized in income* (a) on the date of sale. (b) on the date the final cash collection is received. (c) in proportion to the cash collection. (d) after cash collections e+ual to the cost of sales have been received. 1. According to the cost recovery method of accounting/ gross profit on an installment sale is recognized in income* (a) after cash collections e+ual to the cost of sales have been received. (b) in proportion to the cash collections. (c) on the date the final cash collection is received. (d) on the date of sale. A 2. Art ompany is engaged in e#tensive e#ploration for ater. !f upon discovery of ater/ the company need not recognize any revenue from ater sales e#ceed the costs of e#ploration/ the basis of revenue recognition being employed is the* (a) production method (c) sales or accrual basis (b) cash or collection basis (d) sun, cost or cost recovery method & '. Art ompany sells e+uipment on installment contracts. Which of the statements best =ustifies the use of the cost recovery method of revenue recognition to account for these installment sales? (a) The sales contract provides that title to the e+uipment only passes to the purchase hen all payments have been made. (b) %o cash payments are due until one year from the date of sales. (c) 9ales are sub=ect to a high rate of return. (d) There is no reasonable basis for estimating collectibility. & . : ompany produces e#pensive e+uipment for sale on installment contracts. Where there is doubt about eventual collectibility/ the income recognition method least li,ely to overstate income is* (a) at the time the e+uipment is completed. (c) the cost recovery method.
(b) the installment method.
(d) at the time of delivery.
. When costs can be reasonably associated ith specific revenue but not ith specific product/ the cost should be* (a) e#pensed in the period incurred. (b) allocated to the specific produced based on the best estimate of the product processing time. (c) e#pensed in the period in hich the related revenue is recognized. (d) capitalized and then amortized over a reasonable period. 0. Why are certain costs of doing business capitalized hen incurred and then depreciated or amortized over the periods benefited? (a) to adhere to the concept of conservatism (b) to reduce income ta# liability (c) to aid management in decision ma,ing process (d) to properly match costs of production ith revenue earned & . Which of the folloing is an e#ample of the e#pense recognition principle of associating cause and effect? (a) allocation of insurance cost (c) depreciation of property/ plant and e+uipment (b) sales commissions (d) officers@ salaries 4. Which of the folloing principles best describes the conceptual rational for the method of matching depreciation ith revenue? (a) associating cause and effect (c) immediate recognition (b) systematic and rational allocation (d) partial recognition 5. Which of the folloing is e#pensed under the principle of systematic and rational allocation? (a) salesmens@ monthly salaries (c) transportation to customers (b) insurance premiums (d) electricity to light office building 7. Which of the folloing ould be matched ith current revenue on a basis other than association of cause and effect? (a) goodill (c) sales commission (b) cost of goods sold (d) arranty cost A 1. A patent ith a tenyear life as determined to be orthless. The rite off of the asset is an e#ample of hich of the folloing principles? (a) associating cause and effect (c) profit ma#imization (b) immediate recognition (d) classification 2. Which of the folloing is not a theoretical basis for the allocation of e#pense? (a) immediate recognition (c) cause and effects association (b) systematic and rational allocation (d) profit ma#imization
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'. 9ome costs cannot be directly related to particular revenues but are incurred to obtain benefits that are e#hausted in the period in hich costs are incurred. An e#ample of such costs is* (a) sales commissions (c) freight in (b) sales salaries (d) prepaid insurance . This measurement basis is the discounted value of future net cash inflos that an asset is e#pected to generate in the normal course of business. (a) historical cost (c) realizable value (b) current cost (d) present value & . >istorical cost is a measurement base currently used in financial accounting. Which of the folloing measurement bases is also currently used in financial accounting? urrent selling price &iscounted cash flo
. According to the 8A9- conceptual frameor,/ hich of the folloing attributes ould not be used to measure inventory? (a) historical cost (c) net realizable value (b) replacement cost (d) present value of future cash flos & 4. Which of the most common measurements basis in accounting? (a) historical cost (c) realizable value (b) current cost (d) present value
A
5. A present obligation should be accrued hen* (a) it is probable at the date of the financial statements that a liability has been incurred and the amount can be reasonably estimated (b) the obligation has been incurred on the date of the financial statements and the amount may be material (c) it is probable that the obligation ill be incurred in a future period and the amount can be reasonably estimated (d) it is probable at the date of the financial statements that an obligation has been incurred and the amount may be material A
07. >o should a present obligation that is not probable and for hich the amount can be reasonably estimated be reported? (a) accrued and disclosed (c) disclosed only (b) accrued only (d) neither accrued nor disclosed 01. A present obligation that is probable and for hich the amount can be reasonably estimated should* (a) not be accrued but should be disclosed in the notes to the financial statements (b) be accrued by debiting an appropriated retained earnings account and crediting a liability account (c) be accrued by debiting an e#pense account and crediting an appropriated retained earnings account (d) be accrued by debiting an e#pense account and crediting a liability account & 02. Abe ompany is being sued for illness caused to local residents as a result of negligence on the company@s part in permitting the local residents to be e#posed to highly to#ic chemicals from its plant. Abe@s layer states that it is probable that Abe ill lose the suit and be found liable for a =udgment costing anyhere from 77/777 to 2/77/777. >oever/ the layer states that the most probable cost is 1/777/777. As a result of the above facts/ Abe should accrue* (a) a loss of 77/777 and disclose an additional contingency of up to 2/777/777 (b) a loss of 1/777/777 and disclose an additional contingency of up to 1/77/777 (c) a loss of 1/777 but not disclose any additional contingency (d) no loss but disclose a contingency of 77/777 to 2/77/777 0'. ontingent assets are usually recognized hen* (a) realized (b) occurrence is reasonably possible and the amount can be reasonably estimated (c) occurrence is probable and the amount can be reasonably estimated (d) the amount can be reasonably estimated A 0. Which of the folloing is the proper accounting treatment of a contingent asset? (a) an accrued amount (b) deferred earnings (c) an account receivable ith an additional disclosure e#plaining the nature of the transaction (d) a disclosure only & 0. When the occurrence of a contingent asset is probable and its amount can be reasonably estimated/ the gain contingency should be* (a) recognized in the income statement and disclosed. (b) classified as an appropriation of retained earnings. (c) disclosed/ but not recognized in the income statement. (d) neither recognized in the income statement not disclosed.
V. FINANCIAL REPORTING
1. What is the ob=ective of financial reporting? (a) to provide the necessary information for the management of an enterprise to managers of that enterprise. (b) to provide information that the creditors of an enterprise can use in deciding hether to ma,e additional loans to the enterprise. (c) to measure the periodic net income of an enterprise. (d) to provide e#ternal users ith financial information that is useful in ma,ing rational investment/ credit and similar decisions. & 2. These include not only financial statements but also other information such as financial highlights/ analysis of financial statements/ description of ma=or products and list of directors and officers. (a) audit reports (c) note to financial statements (b) financial reports (d) financial statements '. Which uses need financial information to enable them to asses the ability of the enterprise to provide renumeration/ retirement benefits and employment opportunities? (a) customers (c) public/ in general (b) government and its agencies (d) employees & . The ob=ectives of financial reporting for business enterprise are based on* (a) the need for conservatism. (b) reporting on management@s steardship. (c) generally accepted accounting principles. (d) the needs of the users of the information.
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. The information provided by financial reporting pertains to* (a) individual business enterprises/ rather than to industries or an economy as a hole or to members of society as consumers. (b) individual business enterprises and an economy as a hole or to members of society as consumers. (c) individual business enterprises and n economy as a hole/ rather than to industries or to members of society as consumers.
(d) individual business enterprises/ industries and an economy as a hole/ rather than to members of society as consumers. A 0. &uring a period hen an enterprise is under the direction of a particular management/ financial reporting ill directly provide information about* (a) both enterprise performance and management performance. (b) management performance but not enterprise performance. (c) enterprise performance but not management performance. (d) neither enterprise performance nor management performance. . What is the ob=ective of financial reporting? (a) assist investor in analyzing the economy. (b) assist inventor in predicting future cash flos. (c) assist supplier in determining an appropriate discount to offer a particular company. (d) enable ban,s to determine an appropriate interest rate on their guaranteed investment certificates. 4. The overall ob=ective of financial reporting is to* (a) provide information that is useful for decision ma,ing by e#ternal users (b) provide information for income ta# preparation and payment (c) provide information only for stoc,holders (d) provide information for management to ma,e decisions for controlling the operations A 5. Which one of the folloing items is not listed as a ma=or ob=ective of financial reporting? (a) financial reporting should provide information about enterprise resources/ claims to those resources/ and changes in them (b) financial reporting should provide information useful in evaluating management@s steardship (c) financial reporting should provide information useful in investment/ credit/ and similar decisions (d) financial reporting should provide information useful in assessing cash flo pro=ects 17. 8inancial reporting is concerned only ith information that is significant enough to affect evaluation or decision. (a) timeliness (c) materiality (b) cost and benefit (d) comparability . roponents of historical costs maintain that in comparison ith all other valuation alternatives for generalpurpose financial reporting/ statements prepared using historical costs are more* (a) ob=ective (c) indicative of the entity@s purchasing poer (b) relevant (d) conservative A . !t is the +uality of information that allos comparisons ithin a single enterprise through time or from one accounting period to the ne#t.
(a) horizontal comparability (b) dimensional comparability
(c) reliability (d) uniformity
A
0. When information about to different enterprises engaged in the same industry has been prepared and presented in similar manner/ the information e#hibits the +ualitative characteristic of* (a) relevance (c) consistency (b) reliability (d) comparability &
SOURCES & REFERENCES:
Hali#/ onrado T./ T>"6<$ 68 A6I%T9 2771 "dition/ ;! "nterprises K o./ !nc./ 2771
1. Accounting is* !. A service activity and its function is to provide +uantitative information/ primarily financial in nature/ about economic entities/ that is intended to be useful in ma,ing economic decision. !!. The art of recording/ classifying/ and summarizing in a significant manner and in terms of money/ transactions/ and events hich are in part at least of a financial character and interpreting the results thereof. !!!. The process of identifying/ measuring/ and communicating economic information to permit informed =udgment and decision by users of the information. (a) ! only (c) ! and !!! (b) ! and !! (d) !/ !!/ and !!! & 2. Which is true concerning the A9 frameor,? !. The frameor, sets out the concepts that underlie the preparation and presentation of financial statements for e#ternal users. !!. The frameor, is not a 9tatement of 8inancial Accounting 9tandards and hence does not define standard for any particular measurement or disclosure issue. !!!. The frameor, is concerned ith generalpurpose financial statements including consolidated financial statements. (a) ! only (c) ! and !!! (b) ! and !! (d) !/ !!/ and !!! & '. 9uppliers and other trade creditors are interested in information* (a) that enables them to determine hether amounts oing to them ill be paid hen due. (b) about the continuance of an enterprise/ especially hen they have a longterm involvement ith or are dependent on the enterprise.
(c) in order to regulate the activities of the enterprise/ determine ta#ation policies and as the basis for national income and similar statistics. (d) about the stability and profitability of the enterprise. A . !nformation about financial structure is useful in* !. redicting future borroing needs and ho future profits and cash flos ill be distributed among those ith an interest in the enterprise. !!. redicting the ability of the enterprise to meet its financial commitments as they fall due. (a) both ! and !! (c) !! only (b) ! only (d) neither ! nor !! . Inder this assumption/ the effects of transactions and other events are recognized hen they occur and not as cash or its e+uivalent is received or paid/ and they are recorded in the accounting records and reported in the financial statements of the period to hich they relate. (a) accrual basis (c) monetary unit (b) going concern (d) time period A 0. These are the attributes that ma,e the information provide in financial statements useful to users. (a) +ualitative characteristics (c) underlying assumptions (b) +uantitative characteristics (d) ;AA A . An essential +uality of the information provided in financial statements is that it is readily understandable by users. 8or this purpose/ users are* !. Assumed to have a reasonable ,noledge of business and economic activities and accounting and a illingness to study the information ith reasonable diligence. !!. !nformed of the accounting policies employed/ any changes in those policies and the effects of such changes. (a) ! only (c) both ! and !! (b) !! only (d) neither ! nor !! A 4. !nformation has the +uality of relevance* !. When it influences the economic decision of users by helping them evaluate past/ present and future events or confirming or correcting their past evaluations. !!. When it is free from material error and bias and can be depended upon by users to represent faithfully that hich it purports to represent or could reasonably be e#pected to represent. (a) ! only (c) both ! and !! (b) !! only (d) neither ! nor !! A 5. The information contained in the financial statements is neutral hen the information* (a) is free from bias and error. (b) is complete ithin the bounds of materiality and cost. (c) reflects the economic substance of the transactions rather than their mere legal form. (d) represents faithfully the transactions and other events that it purports to represent. A
17. Which is incorrect concerning comparability of financial information? (a) Isers must be able to compare the financial statements of an enterprise through time in order to identify trends in its financial position and performance. (b) Isers must be able to compare the financial statements of different enterprises in order to evaluate their relative financial position/ performance and cash flos. (c) !t is appropriate for an enterprise to leave its accounting policies unchanged hen more relevant and reliable alternatives e#ist. (d) !t is important that financial statements sho financial information for the preceding period because users ish to compare the financial position/ performance and cash flos of an enterprise over time. 11. The elements that directly related to the measurement of financial position are* (a) assets/ liabilities and e+uity. (c) income and e#penses. (b) assets and liabilities. (d) assets/ liabilities/ e+uity/ income and e#penses. A 12. The elements directly related to the measurement of performance are* (a) income and e#penses. (c) assets and liabilities. (b) assets/ liabilities and e+uity. (d) income/ e#penses and e+uity. A
1'. An asset is* (a) a resource controlled by the enterprise as a result of past events and from hich future economic benefits are e#pected to flo the enterprise. (b) a present obligation of the enterprise arising from past events/ the settlement of hich is e#pected to result in an outflo from the enterprise of resources embodying economic benefits. (c) the residual interest in the assets of the enterprise after deducting all its liabilities. (d) the e#cess of revenues over e#penses. A 1.
10. "#penses are recognized in the income statement on the basis of a direct association beteen the cost incurred and the earning of specific items of income. This process is commonly referred to as* (a) matching of costs ith revenues (c) revenue recognition (b) matching of revenues ith costs (d) cost allocation A 1. When economic benefits are e#pected to arise over several accounting periods and the association ith income can only be broadly or indirectly determined/ e#penses are recognized in the income statement on the basis of* (a) cause and effect association (c) immediate recognition (b) systematic and rational allocation (d) profit ma#imization 14. An e#pense is recognized immediately in the income statement* !. When an e#penditure produces no future economic benefits. !!. When cost incurred ceases to +ualify for recognition as an asset in the balance sheet. (a) ! only (c) both ! and !! (b) !! only (d) neither ! nor !! 15. Which statement is incorrect concerning the A9 frameor,? !. The frameor, applies to the financial statements of all commercial/ industrial/ and business reporting enterprises/ hether in public and private sector. !!. 9pecial purpose financial reports/ for e#ample/ prospectuses and computations prepared for ta#ation purposes/ are ithin the scope of the frameor,. (a) both ! and !! (c) ! only (b) neither ! nor !! (d) !! only &
27. urrent cost is the* (a) amount of cash paid or fair value of the consideration given at the time of ac+uisition. (b) amount of cash that ould have to be paid if the same or an e+uivalent asset is ac+uired currently. (c) amount of cash that could currently be obtained by selling the asset in an orderly disposal. (d) present discounted value of the future net cash inflos that the item is e#pected to generate in the normal course of business. 21. >istorical cost is the* (e) amount of cash paid or fair value of the consideration given at the time of ac+uisition. (f) amount of cash that ould have to be paid if the same or an e+uivalent asset is ac+uired currently. (g) amount of cash that could currently be obtained by selling the asset in an orderly disposal. (h) present discounted value of the future net cash inflos that the item is e#pected to generate in the normal course of business. A 22. These are also ,non as postulates. (a) accounting concepts (b) accounting standards
(c) accounting principles (d) accounting assumptions
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2'. Which subse+uent event re+uires ad=ustment? (a) loss on trade receivable hich is confirmed by the ban,ruptcy of a customer (b) sale of common stoc, (c) settlement of litigation (d) loss of plant as a result of fire
A
2. !mportant subse+uent events should be disclosed because they* (a) may affect the interpretation of the current period financial statements. (b) describe change in accounting period. (c) occur immediately after the current period. (d) reveal losses that have a high probability of occurring in the future.
A
2. These users re+uire financial information in order to regulate the activities of an enterprise/ determine ta#ation policies and as basis for nation income and similar statistics. (a) lenders (c) investors (b) public (d) governments and their agencies & 20. The providers of ris, capital and their advisers* (a) have an interest in information about the continuance of an enterprise especially hen they have a longterm involvement ith or are dependent on the enterprise. (b) are interested in information that enables them to determine hether their loans and the interest attaching to them ill be paid hen due. (c) are interested in information about the stability and profitability of the enterprise. (d) are concerned ith the ris, inherent in and return provided by their investments and need information to help them determine hether they should buy or sell. &
2. Which statement is incorrect concerning financial statements? (a) 8inancial statements are prepared and presented at least annually and are directed toard the specific information needs of a ide range of users. (b) The ob=ective of financial statements is to provide information about financial position/ performance and cash flos of an enterprise that is useful to a ide range of users in ma,ing economic decisions. (c) 8inancial statements also sho the results of the steardship of management of the accountability of management for the resources entrusted to it. (d) The management of an enterprise has the primary responsibility for the preparation and presentation of the financial statements of the enterprise. 24. !nformation about economic resources controlled by the enterprise and its capacity to modify these resources is useful in predicting* (a) the ability of the enterprise to meet its financial commitments as they fall due over a longer term. (b) the ability of the enterprise to meet currently maturing financial commitments. (c) the future borroing needs and ho future profits and cash flos ill be distributed among those ith an interest in the enterprise. (d) the ability of the enterprise to generate cash and cash e+uivalents in the future.
25. !nformation about the performance of an enterprise is re+uired in order to assess potential changes in the economic resources that is li,ely to control in the future. This information is primarily provided in the* (a) cash flo statement (c) balance sheet (b) statement of retained earnings (d) income statement '7. Which statement is incorrect concerning the +ualitative characteristic of relevance? (a) The relevance of information is affected by its nature and materiality. (b) To be useful/ information must be relevant to the decision ma,ing needs of users. (c) !nformation about financial position and past performance is fre+uently used as basis for predicting future financial position and performance and other matters such as dividend and age payments and ability of the enterprises to meet its financial commitments as they fall due. (d) The predictive and confirmatory roles of information are not interrelated. & '1. Which statement is incorrect concerning the +ualitative characteristic of reliability? (a) The information in financial statements must be ithin the bounds of materiality and cost. (b) To be reliable/ information must represent faithfully the transactions and other events it either purports to represent or could reasonably be e#pected to represent. (c) The information should be accounted for in accordance ith their substance and economic reality and not merely their legal form. (d) rudence is the inclusion of a degree of caution in the e#ercise of =udgment needed in ma,ing an estimate re+uired under conditions of uncertainty/ such that assets or income are overstated and liabilities or e#penses are understated. & '2. The folloing statements relate to the constraints on relevant and reliable information. Which statement is incorrect? (a) The benefits derived from the information should e#ceed the cost of providing it. (b) !n achieving a balance beteen relevance and reliability/ the overriding consideration is ho best to satisfy the economic decisionma,ing needs of users. (c) !f there is undue delay in the reporting of information/ it may lose its relevance and reliability. (d) To provide information on a timely basis/ it may often be necessary to report before all aspects of a transaction or other event are ,non/ thus impairing reliability. ''. asualty loss from an earth+ua,e is* (a) not recognized (b) e#ternal transaction
(c) deferred loss (d) internal transaction
'. The future economic benefit embodied in an asset is the potential to contribute directly or indirectly to the flo of cash and cash e+uivalent to the enterprise. 9uch potential may* !. be a productive one that is part of the operating activities of the enterprise. !!. ta,e the form of convertibility into cash or cash e+uivalents. !!!. ta,e the form of a capability to reduce cash outflos/ such as hen an alternative manufacturing process loers the costs of production. (a) ! only (c) !!! only (b) ! and !! only (d) !/ !! and !!! &
'. Which statement is incorrect concerning liabilities? (a) A decision by the management of an enterprise to ac+uire assets in the future in itself does not give rise to a present obligation. (b) 6bligation may be legally enforceable as a conse+uence of a binding contract or statutory re+uirement. (c) An essential characteristic of a liability is that the enterprise has a present obligation. (d) !f an enterprise decides as a matter of policy to rectify faults in its products even hen these become apparent after the arranty period has e#pired/ the amounts that are e#pected to be e#pended in respect of goods already sold are liabilities. A '0. Which statement is incorrect concerning the elements directly related to the measurement of performance? (a) ;ains represent other items that meet the definition of income and may or may not arise in the course of ordinary activities. (b) Gosses represent other items that meet the definition of e#penses and may or may not arise in the course of ordinary activities. (c) The definition and e#penses encompasses losses as ell as those e#penses that arise in the course of ordinary activities. (d) The definition of revenue encompasses both income and gains. & '. Which statement is correct concerning the recognition of the elements of financial statements? (a) An asset is recognized hen it is possible that future economic benefits ill flo to the enterprise and the cost of the asset can be measured reliably. (b) A liability is recognized hen it is possible that an outflo of resources embodying economic benefits ill result from the settlement of an obligation that can be measured reliably. (c) !ncome is recognized hen an increase in future economic benefits related to a decrease in asset or an increase in liability has arisen and the increase in economic benefits can be measured reliably. (d) "#penses are recognized hen a decrease in future economic benefits related to a decrease in asset or increase in liability has occurred and the decrease in economic benefits can be measured reliably. & '4. Which statement is correct concerning materiality? !. !nformation is material if its omission or misstatement could influence the economic decisions of users ta,en on the basis of the financial statements. !!. 3ateriality depends on the size of the item or error =udged in the particular circumstances of its omission or misstatement. !!!. 3ateriality is a primary +ualitative characteristic rather than a threshold or cut off point for useful information. (a) !/ !! and !!! (c) ! and !!! only (b) ! only (d) ! and !! only & '5. A contingent liability is a*
!. possible obligation that arises from past event and hose e#istence ill be confirmed only by the occurrence and nonoccurrence of one or more uncertain future events not holly ithin the control of the enterprise. !!. present obligation that arises from past and it is probable that an outflo of resources embodying economic benefits ill be re+uired to settle the obligation and the amount of the obligation can be measured reliably. (a) ! only (c) both ! and !! (b) !! only (d) neither ! nor !! A 7. The present obligation is not a contingent liability but should be recognized as a provision hen* (a) amount is reasonably estimable and event occurs infre+uently. (b) amount is reasonably estimable and occurrence of event is probable. (c) event is unusual in nature and occurrence of event is probable. (d) event is unusual in nature and event occurs infre+uently. 1. Which statement is incorrect concerning contingent liability? (a) A contingent liability is not recognized in the financial statements. (b) A contingent liability is disclosed only. (c) !f the contingent liability is remote/ no disclosure is re+uired. (d) A contingent liability is both probable and measurable.
&
2. !t is a possible asset that arises from past event and hose e#istence ill be confirmed only by occurrence or nonoccurrence of one or more uncertain future events not holly ithin the control of the enterprise. (a) contingent asset (c) suspense account (b) other asset (d) current asset A '. Which statement is incorrect concerning a contingent asset? (a) A contingent asset is not recognized in the financial statements because this may result to recognition of income that may never be realized. (b) When the realization of income is virtually certain/ the related asset is no longer contingent asset and its recognition is appropriate. (c) A contingent asset is only disclosed hen the occurrence of the future event is possible or remote. (d) The related gain arising from the contingent asset is recognized usually hen it is realized. . These are events/ hether favorable or unfavorable/ that occur beteen the balance sheet date and the date on hich the financial statements are authorized for issue. (a) events after balance sheet date (c) past events (b) current assets (d) future uncertain events A . Ad=usting entries after balance sheet date include all of the folloing/ e#cept* (a) resolution after balance sheet date of a court case because it confirms that the enterprise had already a present obligation (b) ban,ruptcy of customer hich occurs after the balance sheet date (c) discovery of fraud or errors that sho that the financial statements ere incorrect
(d) business combination after the balance sheet date
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0. %onad=usting events after balance sheet date hich re+uire disclosure include all of the folloing/ e#cept* (a) plan to discontinue an operation (b) ma=or purchase and disposal of asset or e#propriation of ma=or asset by government (c) destruction of a ma=or production plant by a fire after the balance sheet date (d) determination after balance sheet date of the cost of assets purchased or proceeds sold before the balance sheet date & . Which of the folloing is most li,ely to prepare the most accurate financial forecast for a corporate enterprise based on empirical evidence? (a) investors using statistical models to generate forecasts (b) corporate management (c) financial analysts (d) independent As -
4. The overriding criterion by hich accounting information can be =udged is that of* (a) usefulness for decision ma,ing (c) timeliness (b) freedom from bias (d) comparability
A
5. Which concept of accounting holds that/ to a ma#imum e#tent possible/ financial statements should be based on arm@s length transactions? (a) revenue realization (c) monetary unit (b) verifiability (d) matching 7. Alloing firms to estimate rather than physically count inventory at interim periods is an e#ample of a tradeoff beteen* (a) verifiability and reliability (c) timeliness and verifiability (b) reliability and comparability (d) neutrality and consistency . Which of the folloing relates to both relevance and reliability? (a) faithful representation (c) substance over form (b) feedbac, value (d) costbenefit constraint
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4. Which of the folloing financial attributes of assets is generally considered to be the most relevant? (a) present value (c) current cost (b) current e#it value (d) historical cost A 5. The conservative approach in the measurement of financial position is best illustrated in hich of the folloing? (a) arbitrary reduction of property items to report a conservative asset position (b) recognition of fictitious liabilities (c) inventories valued at cost or mar,et/ hichever is loer (d) intangible asses are valued at nominal amounts
07. An e#ample of subse+uent event hich re+uires ad=ustment of financial statements is* (a) settlement of litigation hen the event giving rise to the claim too, place subse+uent to the balance sheet date (b) decline in mar,et value of investment beteen the balance sheet date and date on hich financial statements are issued (c) loss on trade receivable hich is confirmed by the ban,ruptcy of a customer occurring after the balance sheet date (d) loss of inventories as a result of flood 01. "vents after balance sheet date are those hich occur beteen the balance sheet date and the date on hich the financial statements are issued. Which subse+uent event re+uires ad=ustment as opposed to mere disclosure in the financial statements? (a) material decline in mar,et value of inventory (b) loss of plant as a result of fire (c) material riteoff of receivables resulting from customer@s ma=or casualty after the balance sheet date (d) payment to -!< of disputed income ta# assessment & 02. Inder the accrual basis of accounting/ cash receipts and disbursements may* (a) precede/ coincide ith/ or follo the period in hich revenue and e#penses are recognized (b) precede or coincide ith/ but never follo the period in hich revenue and e#penses are recognized (c) coincide ith or follo/ but never precede the period in hich revenue and e#penses are recognized (d) only coincide ith the period in hich revenue and e#penses are recognized A 0'. 8inancial statements portray the financial effects of transactions and other events by grouping them into broad classes according to their economic characteristic. These broad classes are termed as* (a) audit reports (c) notes to financial statements (b) financial reports (d) elements of financial statements & 0. !t is the process of incorporating in the balance sheet or income statement an item that meets the definition of an element of financial statement. (a) measurement (c) allocation (b) realization (d) recognition & 0. What is another term for e+uity? (a) net assets (b) net loss
(c) revenue (d) liability
00. The elements of financial statements should be measured in* (a) constant pesos (c) fi#ed pesos (b) nominal pesos (d) fle#ible pesos 0. ;enerally/ revenue from sales should be recognized at a point hen* (a) management decides it is appropriate to do so
A
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(b) the product is available for sale to the ultimate consumer (c) the entire amount receivable has been collected from the customer and there remains no further arranty liability (d) the enterprise has transferred to the buyer the significant ris,s and reards of onership of the goods & 04. Which of the folloing represents the least desirable choice in terms of realization and recognition of revenue? (a) recognition of revenue during production (b) recognition of revenue hen a sale occurs (c) recognition of revenue hen a cash is collected (d) recognition of revenue hen production is completed 05. Which accounting principle is being observed hen an accountant charges to e#pense a cost that contributed to revenue during a period? (a) revenue realization (c) monetary unit (b) matching (d) conservatism 7. The costs of selling and administration in a manufacturing firm are an e#ample of* (a) direct matching (c) asset valuation (b) systematic and rational allocation (d) immediate recognition
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1. A decrease in net assets arising from peripheral or incidental transactions is called* (a) capital e#penditure (c) loss (b) cost (d) e#pense
2. An outflo of assets from an entity based on an activity that represents the entity@s ma=or operations is called* (a) loss (c) e#pense (b) liability (d) e+uity '. Which of the folloing is not among the economic resources of a business enterprise? (a) money (c) obligations to pay money (b) products or output of the enterprise (d) onership interest in other enterprises . The folloing statements relate to the concept of asset. Which is false? (a) the primary characteristic of an asset is its capacity to provide the enterprise ith probable economic benefits (b) there is an e#piration of economic benefits hen an asset is used up in the production of another asset (c) a business entity may recognize an asset even if it does not possess legal title (d) the assets of an enterprise result from past transactions or other past events . The folloing statements relate to the concept of revenue. Which statement is not true? (a) income determination is technical term that refers to the process of identifying/ measuring and relating revenue and e#penses during an accounting period (b) transactions li,e issuance of capital stoc, and payment of dividends beteen the business entity and its oners cannot give rise to revenue
(c) deferred revenue is synonymous ith unrealized revenue (d) the definition of income encompasses both revenue and gains
0. ;ross decreases in assets or gross increases in liabilities recognized and measured in conformity ith ;AA that result from those types of profitdirected activities of an enterprise that can change oners@ e+uity refer to* (a) e#penses (c) revenue (b) results of operations (d) net income A . The folloing statements relate to the concept of e#pense. Which of the folloing is false? (a) all e#penses and loss are e#pired costs/ but not all e#pired cots are e#penses or losses (b) all e#penses decrease oners@ e+uity/ but not all decreases in oners@ e+uity are e#penses (c) e#pense is synonymous ith e#penditure (d) business enterprise do not incur e#penses per se but they initially ac+uire assets 4. An e#piration of cost hich is incurred ithout compensation or return and not absorbed as cost of revenue is called* (a) deferred credit (c) loss (b) deferred charge (d) indirect cost 5. The alloance for cash discounts hich ould appear as a deduction from accounts receivable on a balance sheet and ould be based on an estimate of cash discounts to be ta,en on accounts receivable is an effect of the application of* (a) matching (c) materiality (b) consistency (d) ob=ectivity A 47. 9ome costs cannot be directly related to particular revenue but are incurred to obtain benefits in the period in hich the costs are incurred. An e#ample of such cost is* (a) telephone e#penses (c) cost of merchandise sold (b) sales commissions (d) transportation in A 41. This represents the appro#imation of the e#change price in transfers in hich money or promises to pay money are not involved. (a) fair value (c) selling price (b) estimated value (d) transfer price A 42. Which transaction indicates compliance ith the concept of ob=ectivity? (a) the accounting transaction that furthers the ob=ectives of the enterprise (b) the accounting transaction hich involves the allocation of revenue or e#pense items in a rational and systematic manner (c) an arm@s length transaction beteen to independent parties (d) the accounting transaction hich is promptly recorded in a fi#ed amount 4'. Which of the folloing accounting theory =ustifies the use of historical cost in the preparation of the financial statements? (a) conservatism (c) relevance (b) ob=ectivity (d) comparability -
4.
A
40. The restatement of historical peso financial statements in terms of current prices results in presenting assets at* (a) loer of cost or mar,et value (b) current appraisal value (c) current replacement cost (d) costs ad=usted for purchasing poer changes 4. The folloing statements relate to current value accounting. Which statement is correct? (a) the ob=ective of current value accounting is to report the effects of general price changes rather than specific price changes (b) the term current value may mean current replacement cost/ net realizable value or net present value of e#pected future cash flos (c) all items in a current value balance sheet are difference in amount from hat they ould be in a historical cost balance sheet (d) both purchasing poer and holding gains and losses are recognized in current value accounting 44. The main function is to establish and improve accounting standards that ill be generally accepted in the hilippines. (a) !A (c) < (b) -oard of Accountancy (d) A9 & 45. "#penses are recognized hen* (a) !t is probable that an outflo of future economic benefits has occurred. (b) The outflo of future economic benefits can be measured reliably. (c) !t is probable that a reliably measurable outflo of future economic benefits has occurred. (d) !t is possible that a reliably measurable outflo of future economic benefits has occurred. 57. The re+uirement that e#penses be reported in the same accounting period as the revenues earned as a result of those e#penses is* (a) revenue principle (c) cash basis of accounting (b) cost principle (d) matching principle &
51. 9ome costs are recognized as e#penses on the basis of a presumed direct association ith specific revenue. (a) associating cause and effect (c) immediate recognition (b) systematic and rational allocation (d) income ta# method A 52. !f an asset provides benefits for several periods/ its cost is allocated on the periods benefited in the absence of a more direct basis for relating the cost to revenue. (a) associating cause and effect (c) immediate recognition (b) systematic and rational allocation (d) installment method 5'. Which of the folloing is not a basis for the immediate recognition of a cost during a period? (a) The cost provides no discernible future benefit. (b) The cost recorded in a prior period no longer provides discernible benefit. (c) The income ta# savings using the immediate riteoff method e#ceed the savings obtained by allocating the cost to several periods. (d) Allocation of the cost on the basis of association ith revenue among several accounting periods is considered to serve no useful purpose. 5. When costs can be reasonably associated ith specific revenues but not ith specific products/ the costs should be* (a) charged to e#pense in the period incurred (b) allocated to specific products based on the best estimate of the product processing time (c) e#pensed in the period in hich the related revenue is recognized (d) capitalized and then amortized over a reasonable period 5. Why are certain costs of doing business capitalized hen incurred and then depreciated or amortized over subse+uent accounting cycles? (a) to reduce the income ta# liability (b) to aid management in the decision ma,ing process (c) to mach the costs of production ith revenue as earned (d) to adhere to the accounting concept of conservatism 00. Which of the folloing is e#pensed under the principle of systematic and rational allocation? (a) amortization of intangible assets (c) research and development costs (b) sales commissions (d) officers@ salaries A 50.
SOURCES & REFERENCES:
