Cfas Midterm

Overview of Accounting and Conceptual Framework
Information that is capable of making a difference in the decisions made by users has this qualitative
characteristic.
Answer: Relevance
Under the stable monetary unit assumption, the owners of the business and the business are viewed as
a single reporting entity. Therefore, the personal transactions of the owners are recorded in the books
of accounts.
Answer: False
Free from bias toward a predetermined result is
Answer: Neutrality
Which of the following is considered a pervasive constraint by the Conceptual Framework?
Answer: cost constraint
Financial reporting standards continuously change primarily in response to
Answer: users' needs
Which of the following events is considered as an internal event?
Answer: conversion of raw materials into finished goods
The cost of inventory is recognized as expense
Answer: using the matching concept
Accountable events are those that have an effect in an entity's assets, liabilities, equity, income or
expenses.
Answer: True
The primary objective of financial reporting is to provide
Answer: all of these
An item is derecognized if it ceases to meet the definition of an asset or a liability.
Answer: True
According to the revised Conceptual Framework, an item is recognized if
Answer: a and b
The practice of accountancy in the Philippines is regulated under R.A. 9892.
Answer: False
Which of the following is not one of the decisions that primary users make?
Answer: deciding on how to run the day-to-day operations of the entity
“I say red; you say green.” The information lacks which of the following qualitative characteristics?
Answer: Relevance
The bottom part of each of Entity A’s financial statements states the following “This statement should be
read in conjunction with the accompanying notes.” This is most likely an application of which of the
following accounting concepts?
Answer: Articulation
Which of the following statements is incorrect regarding the basic accounting concepts?
Answer: The time period concept means that financial statements are prepared only at the end of the
life of a business.
Refers to the professional regulatory board created to supervise the registration, licensure and practice
of accountancy in the Philippines (full word).
Answer: Board of Accountancy
The accounting standards used in the Philippines are adapted from the standards issued by the
Answer: International Accounting Standards Board (IASB).
It is the official accounting standard setting body in the Philippines. It is composed of a chairperson and
14 members.
Answer: Financial Reporting Standards Council (FRSC)
All events and transactions of an entity are recognized in the books of accounts.
Answer: False
The proper application of accounting principles is most dependent upon the
Answer: Accountant
The measurement bases described under the Conceptual Framework are least applicable to the
measurement of
Answer: Equity
These are users of financial information who are not in a position to require a reporting entity to
prepare reports tailored to their particular information needs.
Answer: Primary user
A CPA employed as an accountant in a government agency is considered to be in
Answer: Private practice

During the lifetime of an entity, accountants produce financial statements at arbitrary points in time in
accordance with which basic accounting concept?
Answer: Periodicity assumption
Accounting has been given various definitions, which of the following is not one of those definitions?
Answer: Accounting is a systematic process of objectively obtaining and evaluating evidence regarding
assertions about economic actions and events to ascertain the degree of correspondence between these
assertions and established criteria and communicating the results to interested users.
Which of the following are considered aspects of the qualitative characteristic of relevance under the
Conceptual Framework?
Predictive value
II. Confirmatory value
III. Timeliness
IV. Materiality
Answer: I, II, III and IV
The term “recognition” as used in accounting refers to the process of incorporating the effects of an
accountable event in the statement of financial position or the statement of profit or loss and other
comprehensive income through a memo entry.
Answer: False
Accounting is often called the "language of business" because
Answer: it is fundamental to the communication of financial information.
Which of the following may result to an expense?
Answer: increase in liability
Which of the following statements about the Norwalk Agreement is correct?
Answer: The Norwalk Agreement is a convergence between the FASB and the IASB to make their existing
financial reporting standards compatible and coordinate their future work programs to ensure that once
achieved, compatibility is maintained.
Which of the following statements about materiality is not correct?
Answer: All of these are correct statements about materiality.
What is the authoritative status of the Conceptual Framework?
Answer: If there is a Standard that applies to a transaction, that Standard overrides the Conceptual

Framework. In the absence of such a Standard, the entity’s management should consider the
applicability of the Conceptual Framework in developing and applying an accounting policy that will
result in useful information.
Which of the following statements is true?
I. Loss from theft is classified as a nonreciprocal transfer.
II. Internal events are changes in economic resources by actions of other entities that do not
involve transfers of resources and obligations.
III. Nonreciprocal transfers involve the transfer of resources in only one direction, either
from an entity to other entities or from other entities to the entity.
IV. Internal events are sudden, substantial, unanticipated reductions in resources not caused
by other entities.
V. Fire, earthquake and flood are examples of accountable events classified as internal
events.
Answer: I, III and V
The accounting concept that justifies the use of accruals and deferrals is the going concern concept.
Answer: True
Entity A is making a materiality judgment. Entity A considers an item to be material, and therefore
included in the financial statements, if it pertains to a related party transaction. What type of materiality
assessment is Entity A using?
Answer: Qualitative
All of the following statements incorrectly refer to the concepts in the Conceptual Framework except
Answer: The objective of general purpose financial statements is similar to the objective of general
purpose financial reporting.
The element that is related to the measurement of an entity’s financial performance is
Answer: a and b
The Board of Accountancy consists of a chairperson and six members.
Answer: True
General purpose financial statements are
Answer: those statements that cater to the common needs of a wide range of external users.
An accountable event is an event that has an effect on the assets, liabilities or equity of an entity and its
effect can be measured reliably.
Answer: True
This refers to the use of caution in the exercise of judgments needed in making estimates required
under conditions of uncertainty, such that assets or income are not overstated and liabilities or
expenses are not understated.
Answer: Prudence
The PFRSs consist of all of the following except
Answer: Conceptual framework
The assumption that a business enterprise will not be sold or liquidated in the near future is known as
the
Answer: Going concern
The accounting process of assigning numbers, commonly in monetary terms, to the economic
transactions and events is referred to as classifying.
Answer: False
General purpose financial statements are those statements that cater to the common and specific needs
of a wide range of external users.
Answer: False
Physical concept of capital means that capital is the invested money or invested purchasing power.
Answer: False
Which of the following statements is incorrect concerning materiality?
Answer: Materiality is a quantitative matter. It should never be assessed qualitatively.
All quantitative information is also financial in nature.
Answer: False
The ability through consensus among measurers to ensure that information represents what it purports
to represent is an example of the concept of
Answer: Verifiability
The revised Conceptual Framework defines an asset as
Answer: a present economic resource controlled by the entity as a result of past events. An economic
resource is a right that has the potential to produce economic benefits.
The Conceptual Framework broadly classifies the qualitative characteristics into
Answer: fundamental and enhancing qualitative characteristics
Asset measurements in conventional financial statements
Answer: reflect several financial attributes.
The foundation of the Conceptual Framework is formed from
Answer: the objective of general purpose financial reporting

The Conceptual Framework uses the term “economic resources” to refer to
Answer: Asset
Which of the following events is considered as an external event?
Answer: payment of taxes, gifts and charitable contributions, provision of capital by owners
The basic purpose of accounting is to provide information about economic activities intended to be
useful in making economic decisions.
Answer: True
Valuing assets at their liquidation values rather than their cost is inconsistent with the
Answer: historical cost principle
Financial statements are said to be a mixture of fact and opinion. Which of the following items is
factual?
Answer: discount on capital stock
Entity A appropriates ₱1M to fund employee benefits for the last quarter of the following year. Entity A
deposits the ₱1M fund in a payroll account. This economic activity is most appropriately referred to as
Answer: Savings
It is the accounting process of assigning numbers, commonly in monetary terms, to the economic
transactions and events.
Answer: Measuring
Which of the following financial statements would not be dated as covering a certain reporting period?
Answer: Statement of financial position
The elements of faithful representation do not include
Answer: comparability
External users are those
Answer: who do not have the authority to demand financial reports tailored to their specific needs.
What is the objective of general purpose financial statements according to the Conceptual Framework?
Answer: To provide information about the financial position, financial performance, and changes in
financial position of an entity that is useful to primary users in making economic decisions.
Entity A computes for its profit or loss periodically instead of waiting until the end of the life of the
business before doing so. This is an application of which of the following accounting concepts?
Answer: time period or reporting period

You are the accountant of ABC Co. During the period, your company purchased staplers worth ₱1,500.
Although the staplers have an estimated useful life of 10 years, you have charged their cost as expense.
Which of the following is most likely to be true?
Answer: You are applying the concepts of materiality and cost-benefit consideration.
According to the Conceptual Framework, the pervasive constraint on the information that can be
provided by financial reporting is
Answer: cost-benefit
Refers to the one that is required, or chooses, to prepare financial statements.
Answer: Reporting entity
Measuring is the accounting process of analyzing business activities as to whether or not they will be
recognized in the books.
Answer: False
The process of identifying, measuring, analyzing, and communicating financial information

needed by management to plan, evaluate, and control an organization’s operations is called
Answer: Managerial accounting
It refers to the process of incorporating the effects of an accountable event in the statement
of financial position or the statement of profit or loss and other comprehensive income
through a journal entry.
Answer: Recognition
It is the branch of accounting that focuses on the preparation of general purpose financial
statements.
Answer: Financial accounting
When information about two different entities has been prepared and presented in a similar
manner, the information exhibits the characteristic of
Answer: Comparability
Decision makers vary widely in the types of decisions they make, the methods of decision
making they employ, the information they already possess or can obtain from other sources,
and their ability to process information. Consequently, for information to be useful there
must be a linkage between these users and the decisions they make. This link is
Answer: Understandability
The quality of information that gives assurance that it is reasonably free of error and bias
and provides a true, correct and complete depiction of what it purports to represent is
Answer: Faithful representation
The Filipino adage “Aanhin mo pa ang damo pag patay na ang kabayo” relates to which of
the following qualitative characteristics?
Answer: Timeliness
These are events that do not involve an external party.
Answer: Internal events
These are events involving an entity and another external party.
Answer: External events
This concept defines the area of interest of the accountant. It determines which transactions
are recognized in the books of accounts and which are not.
Answer: Separate entity concept

PAS 1, 2 AND 7
Inventories are measured at
Answer: Lower of cost and net realizable value.
Who is responsible for the preparation and the fair presentation of an entity’s financial statements in
accordance with the PFRSs?
Answer: Management
A balance sheet presentation that is based on liquidity.
Answer: Unclassified presentation
Non-financial institutions have the option of classifying interest income received as either investing or
financing activities.
Answer: False
Which of the following costs of conversion cannot be included in cost of inventory?
Salaries of sales staff (sales department shares the building with factory supervisor).
The cost of inventory is recognized as expense
Answer: using the matching concept.
Factory management cost is not included in the cost of inventory.
Answer: False
Which of the following costs are included in the cost of inventories?
Answer: Transport costs for raw materials
This comprises all “non-owner changes in equity.” It excludes owner changes in equity, such as
subscription, issuance, and reacquisition of share capital and declaration of dividends.
Answer: Total comprehensive income
PAS 1 requires an entity to provide an additional balance sheet dated as of the beginning of the
preceding period if certain instances occur. Which is not one of those instances? (Assume all of the
following has a material effect).
Answer: Change in the frequency of reporting.
In which of the following instances is a write-down of inventories to net realizable value may not be
required?
Answer: Selling prices are rising because demand has increased.
Which of the following statements is correct when an entity departs from a provision of a PFRS?
Answer: PAS 1 permits such a departure if the relevant regulatory framework requires, or otherwise
does not prohibit, such a departure and PAS 1 requires certain disclosures when an entity departs from
a provision of a PFRS.
Which of the following statements is correct regarding the classification of financial liabilities as current
or noncurrent in accordance with PAS 1?
Answer: Currently maturing obligations are presented as current liabilities even if their original term is
longer than one year and even if a refinancing agreement is completed after the end of the reporting
period but before the financial statements are authorized for issue.
The cost of inventory should not include
I. Purchase price.
II. Import duties and other taxes.
III. Abnormal amounts of wasted materials.
IV. Administrative overhead.
V. Fixed and variable production overhead.
VI. Selling costs.
Answer: III, IV, VI
Cash flows relating to investing and financing activities are presented separately at gross amounts,
unless they qualify for net presentation.
Answer: True
How should trade discounts be dealt with when valuing inventories at the lower of cost and net
realizable value (NRV) according to PAS 2?
Answer: Deducted from cost
Entity JFK, a trading entity, buys and sells Product Z. Movements in the inventory of Product Z during the
period are as follows:
Date Transaction Units Unit cost Total cost

Feb. 1 Beginning inventory 100 ₱15 ₱1,500
7 Purchase 300 18 5,400
12 Sale 320
21 Purchase 200 21 4,200
How much is the ending inventory and cost of sales under the FIFO cost formula?
Answer: Ending inventory - 5,640 Cost of sales - 5,460

In the statement of cash flows of a non-financial institution, interest income received is presented under
Answer: operating activities and investing activities
These are short-term, highly liquid investments that are readily convertible to known amounts of cash
and which are subject to an insignificant risk of changes in value.
Answer: Cash equivalents
These deal with the computation of cost of sales and cost of ending inventory.
Answer: Cost formulas
According to PAS 2, inventories are measured at net realizable value.
Answer: False
It is the time between the acquisition of assets for processing and their realization in cash or cash
equivalents.
Answer: Operating cycle
Which of the following is added to the cost of inventories?
Answer: Storage costs of part-finished goods
Which of the following is not a disclosure requirement of PAS 1?
Answer: The recognition, measurement and disclosure of specific transactions and other events.
A classified presentation of statement of financial position shall be used except when an unclassified
presentation provides information that is reliable and more relevant.
Answer: True
The information provided by financial reporting pertains to
Answer: individual reporting entities, rather than to industries, the economy as a whole or members of
society as consumers
Information on the utilization of economic resources is most useful when assessing an entity’s
Answer: management stewardship.
The Coronet Company has a cost card in relation to an item of goods manufactured as follows: Materials
80 Storage costs of finished goods 18 Delivery to customers (Freight out) 4 Non-recoverable purchase
taxes 6 According to PAS 2, at what figure should the item be valued in inventory?
Answer: 86
Entity ABC, a trading entity, buys and sells Product Y. Movements in the inventory of Product Y during
the period are as follows:

Mar. 1 Beginning inventory 100 ₱15 ₱1,500
7 Purchase 300 18 5,400
12 Sale 320
21 Purchase 200 21 4,200
How much is the ending inventory and cost of sales under the Weighted Average cost formula? (The
average is calculated as each additional purchase is made, i.e., ‘moving average’.)
Reversals of inventory write downs should exceed the amount of the original write-down previously
recognized.
Answer: False
Entity A acquires inventories and incurs the following costs:

Purchase price, gross of trade discount 100,000
Trade discount 20,000
Non-refundable purchase tax, not included
in the purchase price above 5,000
Freight-in (Transportation costs) 15,000
Commission to broker 2,000
Advertisement costs 10,000
How much is the cost of the inventories purchased?
Answer: 102,000
PAS 1 prescribes an order or format of presenting items in the financial statements.
Answer: False
An entity’s financial position or condition refers to which of the following?
Answer: The status of the entity’s assets, liabilities and equity.
Entity A buys and sells artifacts. Each artifact is unique and not ordinarily interchangeable. According to
PAS 2, the cost formula that Entity A should use is
Answer: Specific identification

An additional statement of financial position is provided if the effect of reclassification of items in the
comparative information is material as a result of a change in presentation.
Answer: True
Inventories are usually written down to net realizable value
Answer: On an item by item basis
This refers to the comparability of financial statements of the same entity but in different periods.
Answer: Intra-comparability
It shows the historical changes (i.e. sources and utilization) in cash and cash equivalents during the
period.
Answer: Statement of cash flows
The amounts reclassified to profit or loss in the current period that were recognized in other
comprehensive income in the current or previous periods.
Answer: Reclassification adjustments
These are the costs necessary in converting raw materials into finished goods, which inlcude direct labor
costs and production overhead.
Answer: Conversion costs
Write-downs of inventories to their net realizable value are recognized
Answer: in profit or loss
All financial statements shall be prepared using accrual basis of accounting.
Answer: False
A statement of financial position presentation showing distinctions between current and noncurrent
assets and current and noncurrent liabilities.
Answer: Classified presentation
Which of the following statements is incorrect regarding the use of cost formulas?
Answer: Only one formula shall be used for all inventories regardless of differences in their nature and
use.
Refers to the comparability of financial statements between different entities.
Answer: Inter-comparability
Which of the following is not one of the general features of financial statements under PAS 1?
Answer: Cash basis

Entity A had the following balances at December 31, 20x1:
Cash in checking account 35,000
Cash in 90-day money market account 75,000
Treasury bill, purchased 12/1/x0, maturing 5/31/x2 150,000 Treasury bill,
purchased 12/1/x1, maturing 2/28/x2 200,000
How much cash and cash equivalents is reported in Entity A’s December 31, 20x1 statement of financial
position?
Answer: 310,000
The statement of financial position of which of the following entities does not show current and
noncurrent distinctions among assets and liabilities?
Answer: Banks and other financial institutions
Inappropriate accounting policies can be rectified by mere disclosures.
Answer: False
Comprehensive income (or total comprehensive income) includes
Answer: profit or loss and other comprehensive income
Which of the following statements best describes a statement of cash flows?
Answer: The statement of cash flows shows historical changes of cash and cash equivalents during the
period.
Which of the following financial statements would be dated as at a certain date?
Entity EDF, a trading entity, buys and sells Product X. Movements in the inventory of Product X during
the period are as follows:

Apr. 1 Beginning inventory 100 ₱15 ₱1,500
7 Purchase 300 18 5,400
12 Sale 320
21 Purchase 200 21 4,200
How much is the ending inventory and cost of sales under the Weighted Average cost formula? (The
average is calculated on a periodic basis.)

The end product of the financial reporting process and the means by which information gathered and
processed is periodically communicated to users.
Answer: Financial statements
Entity A acquires equipment by issuing shares of stocks. How should Entity A report the transaction in
the statement of cash flows?
Answer: Not reported
What is the purpose of reporting comprehensive income?
Answer: To report a measure of the overall financial performance of an entity.
This type of presentation of statement of financial position does not show distinctions between current
and noncurrent items.
Answer: Unclassified presentation
In making an economic decision, an investor needs information on the amounts of an entity’s economic
resources and claims to those resources. That investor would most likely refer to which of the following
financial statements?
Comprehensive income excludes which of the following
Answer: Distributions to owners
Which of the following is not correct regarding the determination of the cost of an inventory?
Answer: Purchase price, gross of trade discounts, is included.
A bank entity releases loan to its borrowers.
Answer: Operating
Exchange differences in translating a foreign currency denominated cash flows.
Answer: Not presented
Purchase of office supplies on account.
Payment for acquisition of intangible assets.
Answer: Investing
Bank overdrafts that cannot be offset with cash.
Answer: Financing
Cash payments by a lessee for the reduction of the outstanding liability relating to a lease.
Answer: Financing
Collection of accounts receivables.
Answer: Operating
Purchase of a treasury bill three months before its maturity.
Cash purchase of inventories.
Answer: Operating
Cash payments on derivative assets other than those held for trading.
Answer: Investing
Cash dividends received by a financial institution from its investments in marketable securities during
the year.
Answer: Operating
Issuance of shares of stocks through cash.
Answer: Financing
Bank overdraft that can be offset with cash.
Cash receipts from contracts held for trading purposes.
Answer: Operating
Dividends paid this year although declared in a prior year.
Answer: Financing
Purchase of equipment through cash.
Answer: Investing
Acquisition of equipment through issuance of note payable.
Answer: Note payable
Cash invested in a 90-day time deposit.
Acquisition of loans from a bank.
Answer: Financing
Redemption of equity instruments through cash.
Answer: Financing
PAS 8, 10, 12, 16 & 19
Information on Entity A’s defined benefit plan is as follows:
PV of DBO – Jan. 1, 20x1

FVPA – Jan.1, 20x1
PV of DBO – Dec. 31, 20x1
FVPA, end. – Dec. 31, 20x1
Current service cost
Actuarial gain
Return on plan assets
Discount rate
How much is the total defined benefit cost for 20x1?
Answer: 228,000
These are differences that have future tax consequences.
Answer: Temporary differences
One of Entity A’s delivery trucks had an accident on February 14, 20x2. The truck is totally wrecked and
is uninsured. Entity A’s December 31, 20x1 current-period financial statements were authorized for issue
on March 31, 20x2. Entity A asked you if it can write-off the carrying amount of the destroyed truck from
its December 31, 20x1 statement of financial position. What will you tell Entity A?
Answer: No. Don't write-off the truck because the event is a non-adjusting event. You should, however,
disclose the event if you deem it to be material.

How much is the net defined benefit liability (asset) in Entity A’s December 31, 20x0 statement of
financial position?
Answer: 360,000 liability
Which of the following is not one of the essential characteristics of a PPE?

Answer: primarily held for sale
Which of the following is an example of a non-adjusting event?
Answer: Destruction of a machine by fire after the reporting period
A change in the pattern of consumption of economic benefits from an asset is most likely a
answer: change in accounting estimate
Under a profit-sharing plan, Entity A agrees to pay its employees 5% of its annual profit. The bonus shall
be divided among the employees currently employed as at year-end. Relevant information follows:
Profit for the year ₱8,000,000
Employees at the beginning of the year 8
Average employees during the year 7
Employees at the end of the year 6
If the employee benefits remain unpaid, how much liability shall Entity A accrue at the end of the year?
Answer: 400,000

How much is the net defined benefit liability (asset) in Entity A’s December 31, 20x1 statement of
financial position?
Answer: 588,000 liability
The Sarin Company's financial statements for the year ended 30 April 20X8 were approved by its finance
director on 7 July 20X8 and a public announcement of its profit for the year was made on 10 July 20X8.
The board of directors authorized the financial statements for issue on 15 July 20X8 and they were
approved by the shareholders on 20 July 20X8. Under PAS 10, after what date should consideration no
longer be given as to whether the financial statements to 30 April 20X8 need to reflect adjusting and
non-adjusting events?
Answer: 15 July 20x8
Taxable temporary differences arise when the carrying amount of an asset is greater than its tax base.
Answer: True
The estimated amount that an entity would currently obtain from disposal of the asset, after deducting
the estimated costs of disposal, if the asset were already of the age and in the condition expected at the
end of its useful life.
Answer: Residual value
Under this model, a PPE is carried at its fair value at the date of revaluation less any subsequent
accumulated depreciation and subsequent impairment losses.
Answer: Revaluation model
This type of difference will give rise to deferred tax liability.
Answer: Taxable temporary difference
Income tax expense is computed using PFRSs.
Answer: True
The systematic allocation of the depreciable amount of an asset over its useful life.
Answer: Depreciation
Termination benefits are accounted for in accordance with the short-term employee benefits if payable
beyond 12 months.
Answer: False
On December 31, 20x1, Entity A revalues the machinery costing ₱850,000 at a fair value of ₱870,000.
The residual value of the machinery is ₱50,000and the remaining useful life is 5 years.
How much is the revaluation surplus on December 31, 20x1 and how much is the depreciation expense
in 20x2?
Answer: Revaluation surplus P20,000, Depreciation expense P164,000
Deferred tax assets and liabilities are not discounted.
Answer: True
When unused sick leave is converted to cash when an employee resigns or retires, the sick leave
benefits are considered non-vesting.
Answer: False
Deferred tax assets and deferred tax liabilities do not alter the tax to be paid in the current period.
However, they cause tax payments to either increase or decrease when they reverse in a future period.
The reversal of which of the following will cause an increase in tax payment?
Answer: Deferred tax liability

According to PAS 10, these are those events, favorable and unfavorable, that occur between the end of
the reporting period and the date when the financial statements are authorized for issue.
Answer: events after the reporting period
Other long-term employee benefits are accounted for similar to defined benefit plans except that all the
components of the defined benefit cost is recognized in other comprehensive income.
Answer: False
Arise when income and expenses enter in the computation of either accounting profit or taxable profit
but not both.
Answer: Permanent differences
During the period, deferred tax assets increase by ₱400 while deferred tax liabilities increase by ₱500.
The net change of ₱100 is a
Answer: deferred tax expense
Which of the following instances does not preclude an entity from recognizing depreciation during a
certain period?
Answer: The asset becomes idle or is taken out of active use.
Taxable temporary differences arise when financial income is smaller than the taxable income.
Answer: False
Entity A acquires equipment on January 1, 2001. Information costs are as follows:
Purchase price, gross of trade discount

Trade discount available
Freight costs
Testing costs
Net disposal proceeds of samples generated during testing
PV of estimated costs of dismantling the equipment at the end of its useful life
Estimated life is 10 years, residual value of P100,000
How much is the initial cost of the equipment and how much is its carrying amount on December 31,
20x2?
Answer: Initial cost of equipment P924,000, Carrying amount on Dec. 31, 2002 P759,200
Under this model, a PPE is carried at its cost less any accumulated depreciation and any accumulated
impairment losses.
Answer: Cost model

Taxable temporary differences arise when the carrying amount of a liability is greater than its tax base.
Answer: False
According to PAS 8, these are the specific principles, bases, conventions, rules and practices applied by
an entity in preparing and presenting financial statements.
Answer: Accounting policies
Compensated absences that can be carried forward and used in future periods if not fully used in the
current period of entitlement are referred to as accumulating.
Answer: True
Imagine you are an employer. When should you recognize short-term employee benefits?
Answer: When the employees have rendered service in exchange for the employee benefits
Is profit for a period before deducting tax expense.
Answer: Accounting profit
PAS 16 requires an entity to review the depreciation method and the estimates of useful life and
residual value at the end of each year-end. A change in any of these is accounted for using
Answer: prospective application
If plotted on a graph (X-axis: time; Y-axis: ₱), the depreciation charges under the straight-line method
would show
Answer: straight-line
Current tax expense is computed using tax laws.
Answer: True
Is profit for a period, determined in accordance with the rules established by the taxation authorities.
Answer: Taxable profit
These arise from misapplication of accounting policies, mathematical mistakes, oversights or

misinterpretations of facts, or fraud.
Answer: Error
Which of the following is most likely to be a non-adjusting event?
Answer: The entity announces a major restructuring after the end of the reporting period.
Deferred tax asset are the amounts of income taxes recoverable in future periods in respect of
Answer: Deductible temporary differences, The carryforward of unused tax losses and The carryforward
of unused tax credits
PAS 8 permits a change in accounting policy only if the change
Answer: is required by a PFRS or results in reliable and more relevant information
Benefits that are due to be settled within 12 months after the end of the period in which the employees
have rendered the related service.
Answer: short-term employee benefits
At the end of the period, Entity A has taxable temporary difference of ₱100,000. Entity A’s income tax
rate is 30%. Entity A’s statement of financial position would report which of the following?
Answer: 30,000 deferred tax liability
Benefits other than termination benefits and short-term benefits that are payable after the completion
of employment.
Answer: Post-employment benefits
Benefits provided as a result of the entity’s decision to terminate the employee before normal
retirement date.
Answer: Termination benefits
Classify the following as to adjusting or non-adjusting event.
The sale of inventories after the reporting period.
Answer: Adjusting event
Dividends declared after the reporting period
Answer: Non-adjusting event
Change in fair value, foreign exchange rate, interest rate or market price after the reporting period
The settlement after the reporting period of a court case confirming a liability.
Change in tax rate enacted after the reporting period
Change in tax rate enacted before the end of the reporting period
Litigation arising solely from events occurring after the reporting period

The bankruptcy of a customer that occurs after the reporting period.
Major business combination after the reporting period
The discovery of fraud or errors that indicate that the financial statements are incorrect
Identify the following changes as to Change in Accounting Policy or Change in Accounting Estimate.
Change from cost model to the revaluation model of measuring property, plant and equipment and
intangible assets.
Answer: Change in Accounting Policy
Change in the method of recognizing revenue from long-term construction contracts.
Change in estimated warranty obligations
Answer: Change in Accounting Estimates
Change in other provisions
Change in the financial reporting framework, such as from PFRS for SMEs to full PFRS.
Change from cost model to the fair value model of measuring investment property
Change in estimated useful life or residual value of a depreciable asset
Change from FIFO to the Weighted Average cost formula for inventories
Change in the required balance of allowance for uncollectible accounts or impairment losses
Change in depreciation method

PAS 20, 21, 23, 24, 26, 27, 28, 29
Which of the following best describes the term ‘significant influence’ as used under PAS 28?
Answer: The power to participate in the financial and operating policy decisions of an entity
The following are the disclosures required for an entity operating in a hyperinflationary economy, except
for:
Answer: Whether the financial statements are consolidated or not
Which of the following disclosures of pension plan information would not normally be required?
Answer: The amount of past service cost changed or credited in previous years
If a business entity entered into certain related party transactions, it would be required to disclose all of
the following information except the
Answer: nature of any future transactions planned between the parties and the terms involved
When a company holds between 20% and 50% of the outstanding ordinary shares of an investee, which
of the following statements applies?
Answer: The investor should use the equity method to account for its investment unless circumstances
indicate that it is unable to exercise "significant influence" over the investee.
When funds are borrowed to pay for construction of assets that qualify for capitalization of interest, the
excess funds not needed to pay for construction may be temporarily invested in interest-bearing
securities. Interest earned on these temporary investments should be
Answer: offset against interest cost incurred during construction
These are financial statements presented in addition to consolidated financial statements or the
financial statements of an entity with an investment in associate or joint venture that is accounted for
using equity method in accordance with PAS 28.
Answer: Separate financial statements
In a related party relationship, one party has the ability, through control, significant influence or joint
control, to affect the:
Answer: Financial and operating decisions of the other party
On December 1, 2019, B Company imported a machine from a foreign supplier for $100,000, due for
settlement on January 6, 2020. B’s functional currency is the Philippine peso. When preparing the
December 31, 2019 statement of financial position, which item will be translated to the closing rate?
Answer: accounts payable
The period of time during which interest must be capitalized ends when
Answer: the asset is substantially complete and ready for its intended use
The Es Company acquired a 30% equity interest in Isla Company for P400,000 on January 1, 2019. For
the year 2019, Isla earned profits of P80,000 and paid no dividend. For the year 2020, Isla incurred
losses of P32,000 and paid total dividends of P10,000 to all shareholders. In Es' consolidated statement
of financial position at 31 December 2020, what should be the carrying amount of its interest in Isla?
Answer: 411,400
A government grant that becomes repayable is accounted for
Answer: prospectively
Which of the following is considered a government grant?
Answer: Cancellation of an existing loan from the government
Kehn Corporation accounts for its investment in the ordinary shares of Selas Company under the equity
method. Kehn Corporation should ordinarily record a cash dividend received from Selas as
Answer: reduction of the carrying value of the investment
On January 1, 2019, A Corporation obtained a 10%, ₱5,000,000 loan, specifically to finance the
construction of a building. The proceeds of the loan were temporarily invested and earned interest
income of ₱180,000. The construction was completed on December 31, 2019 for total construction costs
of ₱7,000,000. How much is the cost of the building on initial recognition?
Answer: 7,320,000
Trustee Jhon undertakes to manage the retirement benefit fund of Adam Company for the benefit of its
employees. When reporting to Adam Company regarding the status and performance of the fund,
Trustee Jhon would most likely apply which of the following standards?
Answer: PAS 26
An asset is being constructed for an enterprise's own use. The asset has been financed with a specific
new borrowing. The interest cost incurred during the construction period as a result of expenditures for
the asset is
Answer: a part of the historical cost of acquiring the asset to be written off over the term of the
borrowing used to finance the construction of the asset
On January 1, 2019, A Corporation obtained a 10%, ₱5,000,000 loan, specifically to finance the
construction of a building. The proceeds of the loan were temporarily invested and earned interest
income of ₱180,000. The construction was completed on December 31, 2019 for total construction costs
of ₱7,000,000. How much are the borrowing costs capitalized to cost of the building?
Answer: 320,000
In a defined-contribution plan, a formula is used that
Answer: requires an employer to contribute a certain sum each period based on the formula
In a defined-benefit plan, a formula is used that

Answer: defines the benefits that the employee will receive at the time of retirement
G Group acquired an investment in associate for ₱1M many years ago. At the end of the current
reporting period, the investment has a fair value of ₱2.9M. If the equity method is used, the investment
would have a current carrying amount of ₱2.6M. In G Group’s separate financial statements, the
investment should be valued at
Answer: any of these, as a matter of an accounting policy choice
ABC Philippines Co. (ABC-P) is a branch of ABC U.S. Co. ABC-P is engaged in the apparel business and
operates in a Philippine Economic Zone Authority (PEZA) Special Economic Zone. All raw materials are
imported from the main office in the U.S. and all finished products are exported directly to U.S.
customers. The U.S. customers remit payments to the U.S. main office. The U.S. main office will then
provide the Philippine branch its working capital needs. None of ABC-P’s finished products are sold in
the Philippines. The raw materials imported and finished goods exported are denominated in $. ABC-P is
required to file audited financial statements with the Philippine Securities and Exchange Commission
(SEC) and the Bureau of Internal Revenue (BIR). What is the presentation currency for the financial
statements to be filed with the said government agencies?
Answer: Philippine peso
In 2019, A Corp. proposes an environmental clean-up project for a river. The government supports this
project and gives A Corp. a ₱1M monetary grant on the condition that the money will only be spent on
the proposed project. The proposed project is expected to be completed in about 2 years. A Corp. starts
the clean-up project in 2020. How should A Corp recognize income from the government grant?
Answer: over the period of the project as expenses are incurred
PAS 29 is generally not applied by entities unless their functional currency is that of a hyperinflationary
economy. This is because of which of the following basic accounting concepts?
Answer: Stable monetary assumption
The main concept used in recognizing income from government grants is
Answer: matching
On December 1, 2019, B Company imported a machine from a foreign supplier for $100,000, due for
settlement on January 6, 2020. B’s functional currency is the Philippine peso.
The relevant exchange rates are as follows:
Dec. 1, 2019 Dec. 31, 2019 Jan. 6, 2020

₱50:$1 ₱52:$1 ₱47:$1
How much foreign exchange gain (loss) will be recognized on December 31, 2019?
Answer: (200,000)
Which of the following is required by the PAS 20?

Answer: Resources acquired through government grants must be accounted for using the income
approach.
When computing the amount of interest cost to be capitalized, the concept of "avoidable interest"
means
Answer: that portion of total interest cost which would not have been incurred if expenditures for asset
construction had not been made.
Winsor Corp. received a grant from the government of P160,000 to acquire P800,000 of delivery
equipment on January 2, 2019. The delivery equipment has a useful life of 4 years. Winsor Corp. uses
the straight-line method of depreciation. The delivery equipment has a zero-residual value. Instructions:
For December 31, 2019, what is the carrying amount of the delivery equipment on the Balance Sheet
and amount of grant revenue on the income statement? For 2020, what is the amount of depreciation
expense related to the delivery equipment?
Answer: 2019 2020 P600,000, P40,000 P 200,000
Capitalization of borrowing costs
Answer: Shall be suspended only during extended periods of delays in which active development is
delayed.
Which of the following items are restated in a hyperinflationary economy:
Answer: Non-monetary items measured at cost
Which of the following is not a condition that must be satisfied before interest capitalization can begin
on a qualifying asset?
Answer: The interest rate is equal to or greater than the company's cost of capital
Which of the following assets do not qualify for capitalization of interest costs incurred during
construction of the assets?
Answer: Assets not currently undergoing the activities necessary to prepare them for their intended use.
PAS 24 requires the disclosure of key management personnel compensation. Which of the following is
not included in this disclosure?
Answer: reimbursements of officers’ out-of-pocket expenses
ABC Philippines Co. (ABC-P) is a branch of ABC U.S. Co. ABC-P is engaged in the apparel business and
operates in a Philippine Economic Zone Authority (PEZA) Special Economic Zone. All raw materials are
imported from the main office in the U.S. and all finished products are exported directly to U.S.
customers. The U.S. customers remit payments to the U.S. main office. The U.S. main office will then
provide the Philippine branch its working capital needs. None of ABC-P’s finished products are sold in
the Philippines. The raw materials imported and finished goods exported are denominated in $. What is
ABC-P’s functional currency?
Answer: US dollar
Vested benefits
Answer: are those that the employee is entitled to receive even if fired
Which of the following are not related parties under PAS 24?
Answer: A shareholder who holds 2% interest in the voting rights of the entity
Which of the following is not required to be disclosed under PAS 24?
Answer: The name of the parent of the entity’s associate
Coney Co. owns 25% of the voting rights in Dong Corp. However, Coney Co. has no representation on
the board of directors of Dong Corp. Which of the following statements is correct?
Answer: Coney Co. is presumed to have signification influence over Dong Corp. because it holds 20% or
more of the voting rights in Dong Corp.
On January 1, 2019, C Inc. acquires 25% interest in D Corp. for ₱800,000. D Corp reports profit of
₱1,000,000 and declares dividends of ₱100,000 in 2019. How much is the carrying amount of the
investment in associate on December 31, 2019?
Answer: 1,025,000
According to PAS 27, investments in subsidiaries, associates or joint ventures are accounted for in the
separate financial statements
Answer: any of these, as a matter of accounting policy choice
Which of the following statements is true regarding capitalization of interest?
Answer: The amount of interest cost capitalized during the period should not exceed the actual interest
cost incurred.
I Corp operates in a hyperinflationary economy. HI Corp has the following assets before restatement on
December 31, 2019:
Investment in bonds (amortized cost) ₱700,000
Land 1,000,000
The land was acquired on May 21, 2017. The general price indices are as follows:
May 21, 2017 100 Average – 2019 180
December 31, 2018 160 December 31, 2019 220
What are the restated amounts of the assets?
Answer: Investment in bonds Land

700,000 2,200,000
Under the equity method of accounting for investments, an investor recognizes its share of the earnings
in the period in which the
Answer: earnings are reported by the investee in its financial statements
Which of the following is not true with regard to the accounting for government grants?
Answer: Companies may use either the capital or income approach to account for the asset and the
grant.
Under constant peso accounting, items are restated using this formula:
Answer: Historical cost x (Current price index ÷ Historical price index*) *However, if the historical price
index is impracticable to determine, the average price index may be used.
Items that do not give rise to a right to receive or an obligation to deliver a fixed or determinable
amount of money.
Answer: Non-monetary items
The amount of benefits to be received by employees enrolled in a defined benefit plan is
Answer: neither A nor B
Borrowing Costs
Answer: PAS 32
Financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows
of the parent and its subsidiaries are presented as those of a single economic entity
Answer: Consolidated Financial Statement
General increase in prices and decrease in purchasing power of money
Answer: Inflation
Exchange rate for immediate delivery or on a given date
Answer: Spot Exchange Rate
Related Part Disclosures
Answer: PAS 24
Financial Reporting In Hyperinflationary Economies
Answer: PAS 29
Entity over which the investor has significant influence
Answer: Associate
Investments in Associates and Joint Ventures
Answer: PAS 28
Accounting for Government Grants and Disclosure of Government Assistance
Answer: PAS 20
Assistance received from the government in the form of transfers of resources in exchange for
compliance with certain conditions
Answer: Government Grants
Transactions related to import or export activities that are to be settled in a foreign currency.
Answer: Foreign Currency Transactions
Accounting and Reporting by Retirement Benefit Plans
Answer: PAS 26
Present value of the expected payments by a retirement benefit plan to existing and past employees,
attributable to the service already rendered
Answer: Actuarial Present Value of Promised Retirement Benefit Plan
Separate Financial Statements
Answer: PAS 27
Method used for recording the Investments in Associates
Answer: Equity Method
Currency of the primary economic environment in which the entity operates, or in which the entity’s
cash inflows and outflows are normally denominated.
Answer: Functional Currency
Costs that are directly attributable to the acquisition, construction or production of a qualifying asset
and are capitalized as cost of that asset
Answer: Borrowing Costs
Parties involved wherein one party has the ability to affect the financial and operating decisions of the
other party through control, significant influence or joint control.
Answer: Qualifying Asset
The Effects of Changes In Foreign Exchange Rates
Answer: PAS 21
PAS 32, 33, 34, 36
On December 31, 20x1, RAB Co. determines that its building is impaired. The following information is
gathered:
Building 2,000,000
Accumulated depreciation 600,000
Fair value less costs of disposal (FVLCD) 900,000
Value in use (VIU) 1,080,000
After the impairment, the building is assessed to have a remaining useful life of six years and no
residual value.
On December 31, 20x2, RAB Co. determines an indication that the impairment loss recognized in the
prior period may no longer exist. The revised recoverable amount of the building on December 31,
20x2 is 1,280,000. If no impairment loss had been recognized in the prior period, the carrying amount
of the building on December 31, 20x2 would have been 1,200,000.
How much is the gain on reversal of impairment and the revaluation increase on December 31,
20x2?
Answer: gain on reversal 300,000; revaluation increase 80,000
Which of the following is correct regarding the provisions of PAS 34?
Answer: PAS 34 encourages publicly listed entities to prepare at least a semi-annual financial report to
be issued not later than 60 days after the end of the interim period.
According to PAS 36, which of the following is an indication of impairment from internal sources of
information?
Answer: Indications that the economic performance of an asset is, or will be, worse than expected
Which of the following is not a financial asset?
Answer: Inventory
Which of the following is classified as an equity instrument rather than a financial liability?
Answer: Shares issued but were subsequently reacquired
According to PAS 36, if an asset’s fair value less disposal costs cannot be determined, its recoverable
amount would be its
Answer: value in use

Entity A is computing for its basic earnings per share and has gathered the following information:
Loss for the year (800,000)
Preferred dividends 50,000
Outstanding ordinary shares 100,000
There have been no changes in the number of outstanding ordinary shares during the period. What is
the basic earnings (loss) per share?
Answer: (8.50)
Which of the following is not a financial instrument?
Answer: All of these are financial instruments
On December 31, 20x1, LAD Co. determines that its building is impaired. The following information is
gathered:
Building 3,000,000
Accumulated depreciation 900,000
Fair value less costs of disposal (FVLCD) 1,350,000
Value in use (VIU) 1,620,000
After the impairment, the building is assessed to have a remaining useful life of six years and no
residual value. How much is the impairment loss?
Answer: 480,000
According to PAS 36, if it is not possible to determine the recoverable amount of an individual asset,
Answer: the recoverable amount of that asset should be determined in relation to the cash-generating
unit to which it belongs
Entity B uses a calendar year accounting period. On June 1, 20x1, Entity B acquires an intangible asset
with an indefinite usefulness. According to PAS 36, the first impairment testing of the asset is
Answer: on or before December 31, 20x1
The following are classified as financial liability, except
Answer: Taxes payable
Entity A had 100,000, ₱10 par, 10% cumulative preference shares outstanding all throughout 20x1.
Entity A reported profit after tax of ₱2,800,000 for the year ended December 31, 20x1. The movements
in the number of ordinary shares are as follows:
1/1/20x1 Ordinary shares outstanding 120,000

3/1/20x1 Shares issued for cash 42,000
9/30/20x1 Subscribed shares 20,000
11/1/20x1 Reacquisition of treasury shares (12,000)
Outstanding shares at the end of period 170,000
What is the basic earnings per share?
Answer: 17.09
Entity A has 200,000 ordinary shares outstanding on January 1, 20x1. Entity A offers rights issue to its
existing shareholders that enable them to acquire 1 ordinary share at a subscription price of ₱120 for
every 5 rights held. The rights are exercised on May 1, 20x1. The market price of one ordinary share
immediately before exercise is ₱180. Entity A reported profit after tax of ₱2,700,000 in 20x1. What is the
basic earnings per share in 20x1?
Answer: 11.71
These are bonds that can be exchanged for shares of stocks of the issuer.
Answer: Convertible bonds
According to PAS 36, an asset is impaired if
Answer: its carrying amount exceeds its recoverable amount
Which of the following assets is not tested for impairment in accordance with PAS 36?
Answer: Inventory
Entity A issues convertible bonds with face amount of ₱2,000,000 for ₱2,600,000. Each ₱1,000 bond is
convertible into 10 shares with par value of ₱60 per share. On issuance date, the bonds are selling at
102 without the conversion option. What is the value allocated to the equity component on initial
recognition?
Answer: 560,000
Entity A had the following instruments outstanding all throughout 20x1:
12% convertible bonds payable issued at face amount,
each ₱1,000 bond is convertible into 30 ordinary shares ₱2,000,000
Ordinary shares, ₱10 par, 100,000 shares issued and outstanding 1,000,000
Profit for the year is ₱800,000. Entity A’s income tax rate is 30%.
What is the diluted earnings per share in 20x1?
Answer: 6.05
The reversal of an impairment loss results to
Answer: a gain and an adjustment to the depreciation charges in subsequent periods

Entity A had 200,000 ordinary shares outstanding all throughout 20x1. In 20x2, share issuances
occurred:
· On April 1, 20,000 shares were issued for cash.
· On September 30, a 10% bonus issue (share dividend) was declared.
· On November 1, a 2-for-1 share split was issued.
Entity A had the following profits: ₱1,200,000 in 20x2 and ₱900,000 in 20x1. What are the earnings per
share to be disclosed in Entity A’s 20x2 comparative financial statements?
Answer: 20x2 - 2.54; 20x1 - 2.05
The amount at which an asset is recorded in the books of accounts minus any accumulated depreciation
and accumulated impairment losses is referred to as
Answer: carrying amount
According to PAS 34, measurements in the interim period are made on
Answer: a year-to-date basis
According to PAS 36, when measuring an asset’s value in use, the discount rate to be used in discounting
the estimated cash flows should be the
Answer: pre-tax rate that reflects current assessments of the time value of money and risks
CBA Corp. publishes quarterly interim financial reports. CBA’s annual depreciation for items of PPE is
240,000. At the end of the first quarter, CBA’s inventories have a cost of 1,200,000 and a net realizable
value of 1,000,000. CBA expects that the total employee bonuses (13th month pay) that will be paid at
year-end will amount to 120,000. How much is the total amount of expense to be recognized from the
items described above in ABC Corp.’s first quarter statement of profit or loss?
Answer: 290,000
Which of the following is within the scope of PAS 32?
Answer: Financial instruments that are within the scope of PFRS 9
Which of the following is correct regarding the provisions of PAS 34?
Answer: PAS 34 does not require any entity to publish interim reports, and how often
If the carrying amount of an asset is less than its recoverable amount, the asset
Answer: is not impaired
According to PAS 36, the following are regarded as costs of disposal that are deducted in measuring fair
value less costs of disposal, except
Answer: Termination benefits and costs associated with reorganizing a business following disposal of an
asset
The following are considered as equity instrument except for
Answer: Redeemable preference shares
If a cash-generating unit (CGU) is impaired, the impairment loss is allocated first to
Answer: the goodwill in that CGU
PAS 33 is intended to apply to which of the following?
Answer: Publicly-listed entities
The impairment loss on which of the following assets is never reversed?
Answer: Goodwill
Which of the following analysis on asset impairment is most likely to have been made by a CPA? (where:
RA = recoverable amount; FVLCD = fair value less costs of disposal; VIU = value in use; CA = carrying
amount; IL = impairment loss; > = greater than; < = less than)
Answer: if “FVLCD > VIU,” then, “RA = FVLCD,” now, if “CA > RA,” then “IL = RA – CA”
You are the sole proprietor of Entity A. As a requisite to your business loan application, you were
required by the bank to submit audited financial statements. During the audit of your financial
statements, the auditor questioned the carrying amount of your land. The auditor believes that the
carrying amount is overstated and needs to be written down to its recoverable amount. In your
discussions with your auditor, the auditor would most likely refer to this standard in her report?
Answer: PAS 36
According to PAS 34, income tax expenses in interim periods are computed using
Answer: a weighted average annual income tax rate
Which of the following is not considered a potential ordinary share?
Answer: Common share

LAD Inc. determines that one of its cash-generating units is impaired. The following information was
gathered:
Carrying amount of CGU:
Assets Carrying Amount
Inventory 250,000
Investment property at cost model 500,000
Building 700,000
Goodwill 400,000
Total 1,850,000
Fair value less cost of disposal of CGU 950,000
Value in use of CGU 1,200,000
What is the impairment loss for the CGU?
Answer: 650,000
LAD Inc. determines that one of its cash-generating units is impaired. The following information was
gathered:
Carrying amount of CGU:
Assets Carrying Amount
Inventory 250,000
Investment property at cost model 500,000
Building 700,000
Goodwill 400,000
Total 1,850,000
Fair value less cost of disposal of CGU 950,000
Value in use of CGU 1,200,000
What is the amount of impairment loss allocated to Inventory, Investment in property, Building and
Goodwill?
Answer: Inventory-0; Investment-104,167; Building-145,833; Goodwill-400,000
A form of profitability ratio which provides a measure of how much profit (loss) each ordinary share has
earned (incurred) during the period
Answer: Earnings per share

A contract that evidences a residual interest in the entity’s assets after deducting all of its liabilities
Answer: Equity instrument
It represents the excess of the carrying amount of an asset over its recoverable amount
Answer: Impairment loss
A financial instrument or other contract that may entitle its holder to ordinary shares
Answer: Potential ordinary shares
An equity instrument that is subordinate to all other classes of equity instruments
Answer: Ordinary share
It has preference over other classes of shares like preference over dividends
Answer: Preference share
The sum of subscribed and issued shares less treasury shares
Answer: Outstanding share
An amount higher of an asset’s fair value less costs of disposal and value in use
Answer: Recoverable amount
The present value of the future cash flows expected to be derived from an asset or cash-generating unit
Answer: Value in use
The smallest identifiable group of assets that generates cash inflows that are largely independent of the
cash inflows from other assets or group of assets
Answer: Cash-Generating Unit
A contractual obligation to pay cash or exchange financial instrument under unfavorable condition
Answer: Financial liability
Incremental costs directly attributable to the disposal of an asset or cash-generating unit, excluding
finance costs and income tax expense
Answer: Cost of Disposal
A contractual right to receive cash or to exchange financial instrument under favorable condition
Answer: Financial asset
Any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument
of another entity
Answer: Financial instrument

When converted or exercised, they decrease the basic earnings per share or increase basic loss per
share
Answer: Dilutive Potential Ordinary Share
A pre-tax rate that reflects current assessments of the time value of money and risks for which the
future cash flow estimates have not been adjusted
Answer: Discount Rate
Financial statements prepared for a period of less than one year
Answer: Interim Financial Statements
It is computed when an entity has potential ordinary shares that are dilutive
Answer: Dilutive Earnings Per Share
Financial instruments that give the holder the right to purchase ordinary shares
Answer: Options and Warrants
Financial statements that provide only the minimum information required under PAS 34
Answer: Condensed Financial Statement

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Overview of Accounting and Conceptual Framework

Free from bias toward a predetermined result is

Which of the following is considered a pervasive constraint by the Conceptual Framework?

Answer: cost constraint

Financial reporting standards continuously change primarily in response to

Answer: users' needs

Which of the following events is considered as an internal event?

Answer: conversion of raw materials into finished goods

The cost of inventory is recognized as expense

Answer: using the matching concept

The primary objective of financial reporting is to provide

Answer: all of these

An item is derecognized if it ceases to meet the definition of an asset or a liability.

According to the revised Conceptual Framework, an item is recognized if

The practice of accountancy in the Philippines is regulated under R.A. 9892.

Answer: deciding on how to run the day-to-day operations of the entity

Answer: Board of Accountancy

Answer: International Accounting Standards Board (IASB).

Answer: Financial Reporting Standards Council (FRSC)

The proper application of accounting principles is most dependent upon the

Answer: Primary user

A CPA employed as an accountant in a government agency is considered to be in

Answer: Private practice

Answer: Periodicity assumption

II. Confirmatory value

Answer: I, II, III and IV

Accounting is often called the "language of business" because

Answer: it is fundamental to the communication of financial information.

Which of the following may result to an expense?

Answer: increase in liability

Which of the following statements about the Norwalk Agreement is correct?

Which of the following statements about materiality is not correct?

Answer: All of these are correct statements about materiality.

What is the authoritative status of the Conceptual Framework?

Answer: If there is a Standard that applies to a transaction, that Standard overrides the Conceptual

I. Loss from theft is classified as a nonreciprocal transfer.

Answer: I, III and V

The element that is related to the measurement of an entity’s financial performance is

The Board of Accountancy consists of a chairperson and six members.

General purpose financial statements are

The PFRSs consist of all of the following except

Answer: Conceptual framework

Answer: Going concern

Which of the following statements is incorrect concerning materiality?

Answer: Materiality is a quantitative matter. It should never be assessed qualitatively.

All quantitative information is also financial in nature.

The revised Conceptual Framework defines an asset as

The Conceptual Framework broadly classifies the qualitative characteristics into

Answer: fundamental and enhancing qualitative characteristics

Asset measurements in conventional financial statements

Answer: reflect several financial attributes.

The foundation of the Conceptual Framework is formed from

Answer: the objective of general purpose financial reporting

Which of the following events is considered as an external event?

Answer: historical cost principle

Answer: discount on capital stock

Answer: Statement of financial position

The elements of faithful representation do not include

External users are those

Answer: time period or reporting period

Refers to the one that is required, or chooses, to prepare financial statements.

Answer: Reporting entity

The process of identifying, measuring, analyzing, and communicating financial information