1. Major spare parts and standby equipment which are expected to be used over a period of more than one year should be classified as: (a) property, plant and equipment (c) noncurrent investment (b) inventory (d) expense A 2. Which statement is incorrect concerning recognition of property, plant and equipment? (a) Most spare parts and servicing equipment are usually carried as inventory and recognized as expense when consumed. (b) If the spare parts and servicing equipment can be used only in connection with an item of property, plant and equipment and their use is expected to be irregular, they are accounted for as property, plant and equipment and are depreciated over their useful life of the related asset, whichever is longer. (c) An aircraft and its engines need to be treated as separate depreciable assets if the have different useful life. (d) Property, plant and equipment may be acquired for safety and environmental reasons in order for the enterprise to obtain future economic benefits from its other assets. B 3. When property is acquired in exchange for another asset and the transaction is not deemed with commercial substance, its cost is usually determined by reference to the: (a) fair value of the asset surrendered plus cash payment (if any) (b) fair value of the asset acquired plus cash payment (if any) (c) carrying amount of the asset surrendered plus cash payment (if any) (d) appraised value determined by the management C 4. A and B exchanged goods, held for resale with equal fair values. The fair values are greater than the costs of the goods. Each will use the other’s goods to promote their own products. The retail price of the car that A gave up is less than the retail price of the clothes received. What gain should A recognize for the nonmonetary exchange? (a) A gain is not recognized. (b) A gain is equal to the difference between the retail price of the clothes received and the car. (c) A gain equal to the difference between the retail price of the car and the cost of the car. (d) A gain equal to the difference between the fair value and the cost of the car. D 5. Which of the following is a characteristic of depreciable assets? (a) the market value of the assets at the time of purchase typically is greater than the amount paid to acquire them (b) the price at which the company could resell the assets immediately after their purchase typically is less than the amount paid (c) the amount of depreciation expense recorded during the period is intended to represent the decline in the market value of the asset during the period (d) most depreciable assets increase in value over time C 6. If there is a change from double declining balance to straight line method: (a) The accumulated depreciation is adjusted to its appropriate balance through retained earnings based on the straight line method.
(b) The accumulated depreciation is adjusted to its appropriate balance through net income based on the straight line method. (c) The accumulated depreciation is not adjusted but the remaining book value is allocated over the remaining life using the straight line method. (d) The accumulated depreciation is not adjusted but the remaining book value is allocated over the original life using the straight line method. C 7. The revalued amount of an item of property, plant and equipment is equal to the fair value which is usually the: (a) market value (c) value in use (b) depreciated replacement cost (d) net realizable value A 8. Which statement is incorrect concerning derecognition of property, plant and equipment? (a) The carrying amount of an item of property, plant and equipment shall be derecognized on disposal or when no future economic benefits are expected from its use or disposal. (b) The gain or loss from derecognition shall be included in equity. (c) Derecognition gains shall not be included in revenue but treated as other income. (d) If it is not practicable for an entity to determine the carrying amount of the replaced part, it may use the replacement cost as an indication of what the original cost of the replaced part was at the time it was acquired or constructed. B 9. An entity installed a new production facility and incurred a number of expenses at the point of installation. The entity’s accountant is arguing that most expenses do not qualify for capitalization. Included in those expenses are initial operating losses. These should be: (a) deferred and amortized over a reasonable period of time (b) expensed and charged to the income statement (c) capitalized as part of the cost of plant as a directly attributable cost (d) taken to retained earnings since it is unreasonable to present it as part of the current year’s income statement B 10. An entity imported machinery to install in its new factory premises before year-end. However, due to circumstances beyond its control, the machinery was delayed by a few months but reached the factory premises before year-end. While this was happening, the entity learned from the bank that it was being charged interest on the loan it had taken to fund the cost of the plant. What is the proper treatment of freight and interest expense? (a) both expenses should be capitalized (b) interest may be capitalized but freight should be expensed (c) freight charges should be capitalized but interest cannot be capitalized under these circumstances (d) both expenses should be expensed C 11. Government grants should be recognized when there is a reasonable assurance that: I. The enterprise will comply with the conditions attaching to them. II. The grants will be received. (a) I only (b) II only (c) Both I and II (d) Neither I nor II C
12. Which statement is incorrect concerning the depreciation methods? (a) Under the output method, the cost per unit of production is constant. (b) The straight line method is particularly appropriate where the asset is expected to decline in usefulness as a function of time and the expected use pattern of the asset is fairly constant over time. (c) The sum of year’s digit method provides for a decreasing depreciation charge. (d) First-year depreciation under the double declining balance method is computed as the depreciable amount multiplied by double the straight line rate. D 13. Exploration and evaluation expenditures are incurred: (a) When searching for an area that may warrant detailed exploration, eventhough the entity has not yet obtained the legal rights to explore a specific area. (b) When the legal rights to explore a specific area have been obtained, but the technical feasibility and commercial viability of extracting a mineral resource is not yet demonstrable. (c) When a specific are is being developed and preparations for commercial extraction are being made. (d) In extracting mineral resource and processing the resource to make it marketable or transportable. B 14. Which statement is incorrect concerning the recognition and measurement of an impairment loss? (a) If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset should be reduced to its recoverable amount. (b) Impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount. (c) An impairment loss should be recognized as expense in the income statement immediately. (d) After recognition of an impairment loss, depreciation charge for the future periods should be adjusted, allocate the revised carrying amount less its residual value, on a systematic basis over its original useful life. D 15. Which is incorrect concerning the reversal of an impairment loss? (a) The reversal of the impairment loss shall be recognized immediately as an adjustment of the opening balance of retained earnings. (b) The carrying amount of the asset shall be increased to its new recoverable amount. (c) The increased carrying amount of the asset due to a reversal of an impairment loss shall not exceed the carrying amount that would have been determined, had no impairment loss been recognized in the prior years. (d) Any reversal of an impairment loss on a revalued asset shall be treated as a revaluation increase. A 16. Investment property includes all of these, except: (a) land held for long-term capital appreciation (b) land held for currently undetermined use (c) building owned by the reporting enterprise or held by a finance lessee leased out under one or more operating leases
(d) property held for sale in the ordinary course of business or in the process of construction for such sale D 17. Owner-occupied property includes all of these, except: (a) property being constructed or developed on behalf of third parties (b) property that is being constructed and developed as investment property (c) property held for future development and subsequent use as owner-occupied property (d) building that is vacant but is held to be leased out to operating lessee D 18. Which statement is incorrect if the property is partly investment and partly owner-occupied? (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 owneroccupied 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 19. An example of contingent liability is: (a) unearned subscription revenue. (b) bond premium. (c) wages payable. (d) potential future payment on a pending breach of contract lawsuit.
D
20. 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
21. A particular warranty obligation is probable and the amount of the loss can be reasonably estimated. The particular parties that will make claims under the warranty are not identifiable. An estimated loss contingency should then be: (a) classified as an appropriation of retained earnings (b) neither accrued nor disclosed. (c) disclosed but not accrued. (d) accrued. D 22. A clearly identified appropriation of retained earnings for reasonably possible loss contingencies should be: (a) charged with all losses related to that contingency. (b) transferred to income as losses are realized. (c) classified in the liability section of the balance sheet. (d) shown within the stockholders’ equity section of the balance sheet. D 23. Gain contingencies are usually recognized on the income statement of the period when:
(a) (b) (c) (d)
realized. occurrence is reasonably possible and the amount can be reasonably estimated. occurrence is probable and the amount can be reasonably estimated. the amount can be reasonably estimated. A
24. How should a loss from the sale of used equipment for cash be reported in a cash flow statement using the indirect method? (a) in investment activities as a reduction of the cash inflow from the sale (b) in investment activities as a cash outflow (c) in operating activities as a deduction from income (d) in operating activities as an addition to income D 25. During the current year, two transactions were recorded in the Land account of Noli Industries. One involved a debit of P320,000 to the Land account; the second was a P210,000 credit to the Land account. Noli Industries’ income statement for the year reported a loss on sale of land in the amount of P25,000. All transactions involving the Land account were cash transactions. These transactions would be shown in the statement of cash flows as: (a) P320,000 cash provided by investing activities, and P210,000 cash disbursed for investing activities (b) P210,000 cash provided by investing activities, and P320,000 cash disbursed for investing activities (c) P235,000 cash provided by investing activities, and P320,000 cash disbursed for investing activities (d) P185,000 cash provided by investing activities, and P320,000 cash disbursed for investing activities D 26. Which of the following is a financing cash flow? (a) purchase of stock of another company (c) rental payments (b) dividend payments (d) interest payments
B
27. Tiny Corporation sold a fully depreciated equipment for P1,000. This transaction would be reported on the statement of cash flows as: (a) an operating activity (c) a financing activity (b) an investing activity (d) none B 28. What is the proper treatment for the increase in taxes payable when preparing the statement of cash flows? (a) it should be a negative adjustment to operating activities (b) it should be a positive adjustment to operating activities (c) it should not be a negative or positive adjustment to operating activities (d) it should not be considered for the statement of cash flows B 29. The category operating activities in preparing statement of cash flows would not include: (a) payment of dividends (b) payment of invoices for inventory purchase (c) receipt of cash collected from accounts receivable
(d) receipt of cash collected from cash sales
A
30. A deferred tax liability shall be recognized for all: (a) permanent differences (c) taxable temporary differences (b) temporary differences (d) deductible temporary differences C 31. A deferred tax asset shall be recognized for all deductible temporary differences and operating loss carryforward when: (a) It is probable that taxable income will be available against which the deferred tax asset can be used. (b) It is probable that accounting income will be available against which the deferred tax asset can be used. (c) It is possible that taxable income will be available against which the deferred tax asset can be used. (d) It is possible that accounting income will be available against which the deferred tax asset can be used. A 32. Which statement is incorrect concerning tax assets and liabilities? (a) Deferred tax assets and liabilities should be discounted. (b) Tax assets and liabilities should be presented separately from other assets and liabilities in the balance sheet. (c) Deferred tax assets and liabilities should be distinguished from current tax assets and liabilities. (d) When an entity makes a distinction between current and noncurrent assets and liabilities, it should not classify deferred tax assets and liabilities as current. A 33. An entity shall offset a deferred tax asset and deferred tax liability when: I. The deferred tax asset and deferred tax liability relate to income taxes levied by the same taxing authority. II. The entity has a legal enforceable right to set off a current tax asset against a current tax liability. (a) I only (b) II only (c) both I and II (d) neither I nor II C 34. An entity’s financial reporting basis of its plant assets exceed the tax basis because it uses a different method of reporting depreciation for financial reporting purposes and tax purposes. If it has no other temporary differences, the entity should report a: (a) current tax asset (c) deferred tax liability (b) deferred tax asset (d) current tax payable C 35. A machine with a 10-year life is being depreciated on a straight line basis for financial statement purposes and over 5 years for income tax purposes under the accelerated system. Assuming that the company is profitable and that there are no other timing differences, the related deferred income tax reported on the balance sheet at the end of the first year of the estimated useful life is a: (a) current liability (c) current asset (b) noncurrent asset (d) noncurrent liability D
36. Differences between taxable income and pretax accounting income arising from transactions that, under applicable tax laws and regulations, will not be offset by corresponding differences or “turn around” in future periods is a definition of: (a) intraperiod tax allocation (c) timing differences (b) interperiod tax allocation (d) permanent differences D 37. For the first taxable year, a nonpublic construction entity, follows the percentage of completion method for financial reporting and the cost recovery method for tax purposes. Which statement is correct? (a) The taxable income may be lower or higher than the pretax accounting income for the year. (b) The company is not required to apply deferred tax accounting. (c) The use of the two methods creates a temporary difference. (d) The company’s income on the contract should be treated as deferred income. C 38. A temporary difference which would result in a deferred tax liability is: (a) accrual of estimated litigation loss (b) accrual of estimated warranty cost (c) subscription received in advance (d) an installment sale which is included in accounting income at the time of sale and included in taxable income when collected D 39. A liability for deferred income taxes should be recorded when: (a) revenue included in income for financial reporting purposes will be taxed at a later time (b) revenue included in income for financial reporting purposes is exempt from income tax (c) straight line depreciation is used for both financial reporting and tax purposes (d) income taxes are paid in advance to avoid interest charges and late fees A 40. Income tax expense is based on: (a) pretax accounting income (b) pretax taxable income
(c) pretax gross income (d) pretax adjusted gross income
A
41. When should a lessor recognize as income a nonrefundable lease bonus paid by a lessee on signing an operating lease? (a) when received (c) over the life of the lease (b) at the lease inception (d) at the lease expiration C 42. As an inducement to enter a lease, Graf Company, granted Zep Company, a lessee, 12 months of free rent under a 5-year operating lease. The lease was effective on January 1, 2004 and provides for monthly rental payments to begin on January 1, 2005. Zep made the first rental payment on December 30, 2004. In its 2004 income statement, Graf should report rental revenue in an amount equal to: (a) zero (b) cash received during 2004 (c) 1/4 of the total cash to be received over the life of the lease (d) 1/5 of the total cash to be received over the life of the lease D
43. Lease A does not contain bargain purchase option, but the lease term is equal to 90% of the estimated economic life of the leased property. Lease B does not transfer ownership of the property to the lessee by the end of the lease term, but the lease term is equal to 75% of the estimated economic life of the leased property. How should the lessee classify these leases? Lease A Lease B Lease A Lease B (a) operating capital (c) capital capital (b) operating operating (d) capital operating C 44. During January 2007, Vail Company made long-term improvements to a recently leased building. The leased agreement provides for neither a transfer of title to Vail nor a bargain purchase option. The present value f the minimum lease payments equals 85% of the building’s market value, and the lease term equals 70% of the building’s economic life. Should assets be recognized for the building and the lease improvements? Leasehold Leasehold Building improvement Building improvements (a) Yes No (c) No No (b) Yes Yes (d) No Yes D 45. What is the cost basis of an asset acquired by a lease which is in substance an installment purchase? (a) the net realizable value of the asset determined at the date of the lease agreement plus the sum of the future minimum lease payments under the lease (b) the sum of the future minimum lease payments under the lease (c) the present value of the amount of the future minimum lease payments under the lease discounted at an appropriate rate (d) the present value of the market price of the asset discounted at an appropriate rate as an amount to be received at the end of the lease C 46. When measuring the discounted amount of future rentals to be capitalized as part of the purchase, identifiable payments to cover taxes, insurance and maintenance should be: (a) included with future rentals to be capitalized (b) excluded from future rentals to be capitalized (c) capitalized but at a different discount rate and for a relevant period that tends to be different from the future rental payments (d) capitalized but at different discount rate and recorded in a different account from future rental B 47. When measuring the discounted amount of future rentals to be capitalized as part of the purchase, identifiable payments to cover taxes, insurance and maintenance should be: (a) included with future rentals to be capitalized (b) excluded from future rentals to be capitalized (c) capitalized but at a different discount rate and for a relevant period that tends to be different from the future rental payments (d) capitalized but at different discount rate and recorded in a different account from future rental B 48. At the inception of a finance lease, the guaranteed residual value should be:
(a) included as part of minimum lease payments at present value (b) included as part of minimum lease payments at future value (c) included as part of minimum lease payments only to the extent guaranteed residual value to exceed estimated residual value (d) excluded from minimum lease payments A 49. For a finance lease, the amount recorded initially by the lessee as a liability should: (a) exceed the present value at the beginning of the lease term of minimum lease payments during the lease term (b) exceed the total of the minimum lease payments during the lease term (c) not exceed the fair value of the leased property at the inception of the lease (d) equal the total of the minimum lease payments during the lease term C 50. A 6-year finance lease entered into on December 31, 2004 specified equal minimum annual lease payments due on December 31 of each year. The first minimum annual lease payment paid on December 31, 2004 consist of which of the following? Interest Lease Interest Lease expense liability expense liability (a) Yes No (c) No No (b) Yes Yes (d) No Yes D 51. A 6-year finance lease entered into on December 31 of the current year specified equal minimum annual lease payments due on December 31 of each year, the first payment being made on December 31 of the current year. The portion of the third minimum payment applicable to which of the following increased over the corresponding second minimum payment? I. Interest expense II. Reduction of liability (a) I only (b) II only (c) both I and II (d) neither I nor II B 52. A 6-year finance lease expiring on December 31 specifies equal minimum annual lease payments. Part of this payment represents interest and part represents a reduction in the lease liability. The portion of the minimum payment in the fifth year applicable to the reduction of the net lease liability should be: (a) less than in the 4th year (c) the same as in the 6th year th (b) more than in the 4 year (d) more than in the 6th year B 53. Under the direct financing method of accounting for leases, the excess of aggregate rentals over the cost of leased property should be recognized as revenue of the lessor: (a) in increasing amounts during the term of the lease (b) in constant amounts during the term of the lease (c) in decreasing amounts during the term of the lease (d) after the cost of the leased property has been fully recovered through rentals C 54. The excess of the fair value of leased property at the inception of the lease over its cost or carrying amount should be classified by the lessor as: (a) unearned income from a sales-type lease (b) unearned income from a direct financing lease
(c) manufacturer’s or dealer’s profit from a sales-type lease (d) manufacturer’s or dealer’s profit from a direct financing lease
C
55. In a lease that is recorded as a sales-type lease by the lessor, interest revenue: (a) does not arise (b) should not be recognized over the period of the lease using the interest method (c) should be recognized over the period of the lease using the straight line method (d) should be recognized in full as revenue at the lease’s inception B 56. Able sold its headquarters building at a gain, and simultaneously leased back the building. The lease was reported as a capital lease. At the time of sale, the gain should be reported: (a) operating income (b) an extraordinary item, net of income tax (c) a separate component of stockholders’ equity (d) an asset valuation allowance D 57. Lease payments under an operating lease shall be recognized as an expense in the income statement on: (a) straight line basis over the lease term unless another systematic basis is representative of the time pattern of the user’s benefit (b) diminishing balance basis (c) sum of units basis (d) cash basis A 58. The situations which would normally lease to a lease being classified as a finance lease include all of the following, except: (a) The lease transfers ownership of the asset to the lessee by the end of the lease term. (b) The lessee has the option to purchase the asset at a price which is expected to be sufficiently higher than the fair value at the date the option becomes exercisable. (c) The lease term is for the major part of the economic life of the asset even if the title is not transferred. (d) The present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset at the inception of the lease. B 59. Indicators of situations which individually or in combination could also lead to a lease being classified as finance lease include all of the following, except: (a) The leased asset is of a specialized nature such that only the lessee can use it without major modification. (b) If the lessee cancels the lease, the lessor’s losses associated with the cancellation are borne by the lessee. (c) Gains or losses from the fluctuation in the fair value of the residual fall to the lessee. (d) The lessee has the ability to continue the lease for a secondary period at a rent which is substantially the same as the market rent. D 60. At the commencement of the lease term, the lessee shall recognize a finance lease as asset and liability at an amount equal to the: (a) fair value of the leased asset (b) present value of the minimum lease payments
(c) fair value whichever (d) fair value whichever
of the leased asset or present value of the minimum lease payments, is lower of the leased asset or present value of the minimum lease payments, is higher C
61. It is that portion of the lease payments that is not fixed in amount but is based on a factor other than just the passage of time, for example, percentage of sales, amount of usage, price index and market rate of interest. (a) variable rent (c) bargain purchase option (b) contingent rent (d) executory cost B 62. The term revenue recognition 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 expenses during a period (c) the earning process which gives rise to revenue realization (d) the process of identifying those transactions that result in an inflow of assets to the enterprise A 63. Choose the incorrect statement. (a) An enterprise should present, either on the face of the income statement or in the notes to the income statement, an analysis of expenses using a classification based on either the nature of expenses or their function within the enterprise. (b) As a minimum, the face of the income statement should include line items which present the following amounts for revenue, results of operating activities, finance costs, share of income and losses (equity method), and extraordinary items among others. (c) Income from ordinary activities summarizes the revenue and expenses of the company’s central operations. (d) In preparing the income statement, the realization and matching principles provide the basis in recognizing the expenses and revenues, respectively. D 64. Normally, all items of income and expenses recognized in a period are included in profit or loss. However, circumstances may warrant their exclusion. The following are excluded from the income statement except: (a) revaluation surplus (b) gains and losses arising on translating the financial statements of a foreign operation (c) effects of changes in accounting estimates (d) gains or losses on remeasuring available-for-sale financial assets C 65. This method is simple to apply in many smaller enterprises. Expenses are aggregated in the income statement such as depreciation, purchases of materials, transportation costs, wages and salaries, and advertising costs. (a) functional analysis (c) cost of sales method (b) nature of expense analysis (d) matching principles method B 66. Revenue is recognized when: I. It is probable that future economic benefits will flow to the enterprise. II. The future economic benefits can be measured reliably.
(a) I only
(b) II only
(c) I and II
(d) neither I nor II
C
67. Revenue may arise from the following except: (a) sale of goods (c) excess of issue price over par value of stock (b) rendering of services (d) use by others of entity assets C 68. Revenue shall be recognized on the following bases: Type of revenue Recognition basis (a) Interest Accrual (b) Royalties Effective method (c) Sales When goods are produced (d) Dividends When the right to receive is established
D
69. Which of the following statements is correct? (a) The amounts collected on behalf of the principal are revenues. (b) If the entity retains significant risks of ownership, the transaction is not a sale and revenue is not recognized. (c) If the entity retains only an insignificant risk of ownership, the transaction is not a sale and revenue is not recognized. (d) When the outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue shall not be recognized. B 70. As a minimum, the face of the income statement shall include line items that present the following amounts for the period, except: (a) finance costs (c) extraordinary items (b) tax expense (d) share in the profit of an associate C 71. Expenses are recognized in the income statement on the basis of a direct association between the cost incurred and the earning of specific items of income. This process is commonly referred to as: (a) matching of costs with revenues (c) revenue recognition (b) matching of revenues with costs (d) cost allocation A 72. These are revenues from the use of enterprise resources and disposal of other resources. Also, these are revenues and gains from peripheral or incidental transactions of the enterprise. (a) principal revenues (c) sales of merchandise to customers (b) rendering of services (d) other operating revenues D 73. Which of the following is an “other operating revenue”? (a) sale of merchandise to customers (c) insurance agency commission (b) professional fee (d) interest revenue
D
74. Under the capital maintenance approach, net income or loss is computed as: (a) beginning net assets minus ending net assets. (b) ending net assets minus beginning net assets. (c) ending net assets plus withdrawals minus beginning net assets minus additional investments.
(d) ending net assets plus additional investments minus beginning net assets minus withdrawals. C 75. Which capital maintenance concept is applied to currently reported net income, and which is applied to comprehensive income? Currently reported net income Comprehensive income (a) Financial capital Physical capital (b) Physical capital Physical capital (c) Financial capital Financial capital (d) Physical capital Financial capital C 76. This capital concept considers the all price changes affecting assets and liabilities in the measurement of net income. Accordingly, capital is equal to the net assets of the enterprise valued at current cost, rather than historical cost. (a) physical capital (c) capital maintenance approach (b) financial capital (d) net assets approach A 77. Which of the following shall be disclosed on the face of the income statement as allocations of profit or loss for the period: (a) those that are attributable to minority interest (b) those that are attributable to equity holders of the parent (c) all of these (d) none of these C 78. What is the appropriate title for nonmarketable equity securities? (a) marketable securities (c) investment in debt securities (b) current investments (d) investment in equity securities
D
79. Nonmarketable equity securities are measured at: (a) cost (b) amortized cost using effective interest method (c) fair value (d) amortized cost using straight line method
A
80. The financial assets include all of the following, except: (a) prepaid expenses (c) trade accounts receivable (b) cash in bank (d) loans receivable
A
81. Financial liabilities include all of the following, except: (a) trade accounts payable (c) bonds payable (b) notes payable (d) income tax payable
D
82. Equity instruments include all of the following, except: (a) Ordinary shares (b) Preference shares (c) Warrants or options that allow the holder to purchase a fixed number of ordinary shares of the issuing entity in exchange for a fixed amount of cash or another financial asset (d) Corporate bonds and other debt instruments issued by the entity D
83. A preference share that provides for mandatory redemption on a specific date or at the option of the holder is: (a) a financial asset (c) an equity instrument (b) a financial liability (d) neither a financial liability nor an equity instrument B 84. Which of the following is not a financial instrument? (a) cash deposited in bank (b) gold bullion deposited in bank (c) a perpetual debt instrument, meaning no maturity date, that pays interest annually extending into the indefinite future (d) ordinary share capital issued by the entity B 85. Transaction costs include: (a) fees and commission paid to agent, levies by regulatory authorities, transfer taxes and duties (b) debt premiums or discounts (c) financing costs (d) internal administrative costs A 86. Under PAS 39, which of the following is not a category of financial assets? (a) financial assets at fair value through profit or loss (b) available for sale investments (c) held to maturity investments (d) held for sale investments
D
87. Financial assets at fair value through profit or loss include: I. Financial assets that are held for trading. II. Financial assets that are designated on initial recognition as at fair value through profit or loss. (a) I only (b) II only (c) both I and II (d) neither I nor II C 88. Available for sale financial assets are measured at: (a) fair value with changes in fair value classified as component of income. (b) fair value with changes in fair value classified as component of other comprehensive income as part of equity (c) cost (d) amortized cost B 89. Held to maturity investments subsequent to initial recognition are measured at: (a) cost (b) fair value (c) amortized cost using the effective interest method (d) amortized cost using the straight line method
C
90. All of the following are characteristics of financial assets classified as held to maturity, except: (a) they have fixed or determinable payments and a fixed maturity.
(b) the holder can recover substantially all of its investment unless there has been credit deterioration. (c) they are quoted in an active market. (d) the holder has demonstrated a positive intention and ability to hold them to maturity. C 91. Investments in equity instruments that do not have a quoted price in an active market and whose fair value cannot be reliably determined are subsequently measured at: (a) cost (b) amortized cost using the straight line method (c) amortized cost using the effective interest method (d) fair value A 92. Which of the following is true? (a) Trading securities can be classified as current or noncurrent depending on management’s intent. (b) Held to maturity securities shall not be classified as current under any circumstance. (c) Trading securities shall not be classified as current under any circumstance. (d) Available for sale securities can be classified as current or noncurrent depending on management’s intent. D 93. 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
94. 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 95. 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 96. If in the rare circumstance that a reliable measure of fair value is no longer available, it becomes appropriate to carry a financial asset without a fixed maturity at cost, the fair
value carrying amount of the financial asset becomes the new cost basis and any previous gain or loss that has been recognized directly in equity shall: (a) remain in equity until the financial asset is sold or otherwise disposed of (b) be recognized in earnings immediately (c) included in retained earnings (d) be amortized over a reasonable period to profit or loss A 97. Under a defined contribution plan, the retirement benefit expense is equal to the: (a) enterprise’s contribution to the plan with respect to the services in a particular period (b) retirement benefits actually paid during the year (c) present value of the retirement benefits with respect to services rendered in the current period (d) present value of the retirement benefits with respect to services rendered in prior period A 98. It is the cost to an enterprise under a retirement benefit plan for services rendered by employees in prior periods resulting from the introduction of the retirement benefit plan or amendment of an existing plan. (a) current service cost (c) experience adjustment (b) past service cost (d) actuarial assumption B 99. It is the cost to an enterprise under a retirement benefit plan for services rendered in the current period by participating employees. (a) current service cost (c) experience adjustment (b) past service cost (d) actuarial assumption A 100. It occurs when an enterprise discharges its retirement obligation or when a lump sum cash payment is made to plan participants in exchange for their rights to receive specified retirement benefits. (a) curtailment (c) termination (b) settlement (d) discontinuance B
