L-NU AA-23-02-01-18

LYCEUM-NORTHWESTERN UNIVERSITY
Tapuac District, Dagupan City

COLLEGE OF BUSINESS EDUCATION

FINALS EXAMINATION – CAE 4 Conceptual Framework and Accounting Standards

2nd Semester, AY 2020– 2021
Prepared by: Amie Jane R. Miranda, CPA

Name:_____________________________________ Score:____________________

Student No.: _______________ Year/Section:___________ Date of Exam: ____________

I. MULTIPLE CHOICES. Choose the best answer from the choices and encircle your answer.
Strictly “NO ERASURES”.

1. In computations of weighted average of shares outstanding, when a stock dividend or stock split
occurs, the additional shares are
a. weighted by the number of days outstanding.
b. weighted by the number of months outstanding.
c. considered outstanding at the beginning of the year.
d. considered outstanding at the beginning of the earliest year reported.
2. What effect will the acquisition of treasury stock have on stockholders' equity and earnings per
share, respectively?
a. Decrease and no effect
b. Increase and no effect
c. Decrease and increase
d. Increase and decrease
3. When computing diluted earnings per share, convertible bonds are
a. Ignored
b. assumed converted whether they are dilutive or antidilutive.
c. assumed converted only if they are antidilutive.
d. assumed converted only if they are dilutive.
4. Dilutive convertible securities must be used in the computation of
a. basic earnings per share only.
b. diluted earnings per share only.
c. diluted and basic earnings per share.
d. none of these.
5. In the diluted earnings per share computation, the treasury stock method is used for options
and warrants to reflect assumed reacquisition of common stock at the average market price
during the period. If the exercise price of the options or warrants exceeds the average market
price, the computation would
a. fairly present diluted earnings per share on a prospective basis.
b. fairly present the maximum potential dilution of diluted earnings per share on a prospective
basis.
c. reflect the excess of the number of shares assumed issued over the number of shares
assumed reacquired as the potential dilution of earnings per share.
d. be antidilutive.
6. In applying the treasury stock method to determine the dilutive effect of stock options and
warrants, the proceeds assumed to be received upon exercise of the options and warrants
a. are used to calculate the number of common shares repurchased at the average market
price, when computing diluted earnings per share.
b. are added, net of tax, to the numerator of the calculation for diluted earnings per share.
c. are disregarded in the computation of earnings per share if the exercise price of the options
and warrants is less than the ending market price of common stock.
d. none of these.
7. When applying the treasury stock method for diluted earnings per share, the market price of the
common stock used for the repurchase is the

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 a. price at the end of the year.
b. average market price.
c. price at the beginning of the year.
d. none of these.
8. Antidilutive securities
a. should be included in the computation of diluted earnings per share but not basic earnings
per share.
b. are those whose inclusion in earnings per share computations would cause basic earnings
per share to exceed diluted earnings per share.
c. include stock options and warrants whose exercise price is less than the average market
price of common stock.
d. should be ignored in all earnings per share calculations.
9. Assume there are two dilutive convertible securities. The one that should be used first to
recalculate earnings per share is the security with the
a. greater earnings adjustment.
b. greater earnings per share adjustment.
c. smaller earnings adjustment.
d. smaller earnings per share adjustment.
10. Hill Corp. had 600,000 shares of common stock outstanding on January 1, issued 900,000 shares
on July 1, and had income applicable to common stock of Php1,680,000 for the year ending
December 31, 2012. Earnings per share of common stock for 2012 would be
a. Php2.80.
b. Php1.33.
c. Php1.60.
d. Php1.87.
11. At December 31, 2012, Hancock Company had 500,000 shares of common stock issued and
outstanding, 400,000 of which had been issued and outstanding throughout the year and
100,000 of which were issued on October 1, 2012. Net income for the year ended December 31,
2012, was Php1,530,000. What should be Hancock's 2012 earnings per common share, rounded
to the nearest peso?
a. Php3.03
b. Php3.82
c. Php3.60
d. Php3.40
12. Milo Co. had 800,000 shares of common stock outstanding on January 1, issued 126,000 shares
on May 1, purchased 63,000 shares of treasury stock on September 1, and issued 54,000 shares
on November 1. The weighted average shares outstanding for the year is
a. 851,000.
b. 872,000.
c. 893,000.
d. 914,000.
13. If there is any excess of the investor's share of the net fair value of the associate's identifiable
assets and liabilities over the cost of the investment, that is, negative goodwill, how should that
excess be treated?
a. It should be written off against retained earnings.
b. It should be included in the carrying amount of the investment.
c. It should be included as income in the determination of the investor's share of the
3associate's profit or loss for the period.
d. It should be disclosed separately as part of the investor's equity.
14. An investor uses the equity method to account for an investment in ordinary shares. After the
date of acquisition, the investment account of the investor would
a. Be increased by its share of the earnings of the investee, and decreased by its share of the
losses of the investee
b. Be increased by its share of the earnings of the investee, but not be affected by its share of
the losses of the investee
c. Not be affected by its share of the earnings of the investee, but be decreased by its share of
the losses of the investee
d. Not be affected by its share of the earnings or losses of the investee

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15. Under the equity method of accounting for investments, an investor recognizes its share of the
earnings in the period in which the
a. Investor sells the investment
b. Investee pays dividend
c. Invested declares a dividend
d. Earnings are reported by the investee in its financial statements
16. An investor uses the cost method to account for investment in ordinary shares. Dividends
received in excess of the investor's share of investee's earnings subsequent to the date of
investment
a. Increase the investment revenue account
b. Increase the investment account
c. Do not affect the investment account
d. Decrease the investment account
17. The equity method causes the balance in the investment account to approximate:
a. original cost of the investment
b. original cost of the investment plus any dividends declared and paid by the investee
company
c. original cost of the investment plus a proportionate share of subsequent undistributed
earnings of the investee company
d. market value of the investment
18. The equity method of accounting for an investment in the common stock of another company
should be used when the investment:
a. is obtained by an exchange of stock for stock.
b. is composed of common stock and it is the investor’s intent to vote the common stock.
c. ensures a source of supply such as raw materials.
d. enables the investor to exercise significant influence over the investee.
19. Goodwill arising from an investment in associate is
a. Included in the carrying amount of the investment and not amortized.
b. Included in the carrying amount of the investment and amortized over the useful life.
c. Excluded from the carrying amount of the investment but charged to retained earnings.
d. Excluded from the carrying amount of the investment but charged to expense immediately.
20. Under the equity method of accounting for investments, an investor recognizes its share of the
earnings in the period in which the
a. Investor sells the investment
b. Investee pays dividend
c. Investee declares a dividend
d. Earnings are reported by the investee
21. At the beginning of the current year, an investor acquired 30% of the ordinary shares of another
entity. In the current year, the investee has net earnings which exceeded dividends paid. The
investor mistakenly recorded these transactions using the cost method instead of the equity
method of accounting. What effect would this have on investment account, net earnings and
retained earnings, respectively?
a. Understate, understate, understate
b. Understate, overstate, understate
c. Overstate, understate, understate
d. Overstae, overstate, overstate
22. An investor uses the equity method to account for investment in ordinary shares. The purchase
price implies a fair value of the investee’s depreciable asset in excess of the investee’s net asset
carrying amount. The investor’s amortization of the excess
a. Decreases the investment account
b. Decreases the goodwill account
c. Increases the investment revenue account
d. Does not affect the investment account
23. According to PAS 29 Financial reporting in hyperinflationary economies, which of the following
would indicate that hyperinflation exists?
I. Non-monetary items increase in value, but not monetary items do not.
II. The cumulative inflation rate over three years in approaching, or exceeds, 100%
III. The general population prefers to keep its wealth in non- monetary assets

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 IV. Inflation rates have exceeded interest rates in three successive years
a. I and II only
b. I, II, and III only
c. II and III only
d. I, II, III and IV
24. According to PAS 29 Financial reporting in hyperinflationary economies, which of the following
would not indicate that hyperinflation exists?
a. Sales on credit are at lower prices than cash sales
b. Inflation is approaching, or exceeds, 20% per year
c. Monetary items do not increase in value
d. People prefer to keep their wealth in non-monetary assets or a stable foreign currency
25. Which of the following statements is (are) false, in relation to hyperinflationary economies?
I. Gain or loss on Purchasing Power arise from non-monetary assets and non-monetary
liabilities
II. The gain or loss on the net monetary position is included in net income
III. Excess of monetary assets over monetary liabilities would yield a purchasing power gain
IV. In the income statement, all amounts need to be restated into the measuring unit
current at balance sheet date by applying a general price index
a. I and II only
b. III and IV only
c. I and III only
d. I, III and IV only
26. An entity is trying to determine which assets and which liabilities are monetary and non-
monetary. Which of the following assets or liabilities are non-monetary?
a. Trade receivables
b. Accrued expenses and other payables
c. Deferred tax liabilities
d. Taxes payable
27. Money loses purchasing power at such a rate that comparison of amounts from transactions
and events that have occurred at different times, even within the same accounting period, is
misleading. This financial accounting problem is addressed through
a. Fair value accounting
b. Price level accounting
c. Revaluation of Property
d. Peso accounting
28. An entity owns a number of farms that harvest produce seasonally. Approximately 80% of the
entity’s sales are in the period August to October. Because the entity’s business is seasonal, PAS
34 suggests
a. Additional disclosure in the notes about the seasonal nature of the business
b. Disclosure of the seasonal nature of the business and disclosure of financial information for
the latest and comparative 12-month period in addition to the interim report
c. Additional disclosure in the accounting policy note
d. No additional disclosure
29. Are the following statements in relation to an interim financial report true or false, according to
PAS34 Interim financial reporting?
(1)An interim financial report may consist of a complete set of financial statements.
(2)An interim financial report may consist of a condensed set of financial statements.
Statement (1) Statement (2)
a. False False
b. False True
c. True False
d. True True
30. Are the following statements with respect to interim report true or false, according to PAS34
Interim financial reporting?
(1)It is necessary to count inventories in full at the end of each interim accounting period.
(2)The net realizable value of inventories is determined by reference to selling prices at the
interim date.
Statement (1) Statement (2)

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 a. False False
b. False True
c. True False
d. True True
31. The Aconite Company is preparing interim financial statements for six months to 30 June 2010 in
accordance with the minimum requirements of PAS 34 Interim financial reporting. Its accounting
year ends on 31 December each year. In the interim financial statements for the six months to
30 June 2010, a statement of financial position at 30 June 2010 and a statement of
comprehensive income for the six months to 30 June 2010 will be presented. In addition, which
TWO of the following should be presented?
A. Statement of financial position at 30 June 2009
B. Statement of financial position at 31 December 2009
C. Statement of comprehensive income for the half year to 30 June 2009
D. Statement of comprehensive income for the half year to 31 December 2009
a. A and B
b. A and C
c. B and C
d. C and D
32. Under PAS 36 Impairment of assets, which ONE of the following statements best describes
‘value in use’?
a. The present value of estimated future cash flows expected to arise from the continuing use
of an asset from its ultimate disposal
b. The amount of cash or cash equivalents that could currently be obtained by selling an asset
in an orderly disposal
c. The net amount which an entity expects to obtain for an asset at the end of its useful life
d. The amount at which an asset could be exchanged between knowledgeable, willing parties
in arm’s length transaction
33. Under PAS36 Impairment of assets, which ONE of the following statements best describes the
term ‘impairment loss’?
1) Willing buyers and sellers are usually found
2) Prices are available to the public

Statement (1) Statemen t (2)

a. False False
b. False True
c. True False
d. True True
34. Under PAS36 Impairment of assets, which ONE of the following statements best describes the
term “impairment loss”?
a. The removal of an asset from an entity’s statement of financial position
b. The amount by which the carrying amount of an asset exceeds its recoverable amount
c. The systematic allocation of an asset’s cost less residual value over its useful life
d. The amount by which the recoverable amount of an asset exceeds its carrying amount
35. According to PAS 36 Impairment of assets, which ONE of the following terms is defined as: “The
smallest identifiable group of assets that generates cash inflows that are largely independent of
the cash inflows from other assets”?
a. Non-current assets
b. A cash-operating unit
c. An operating segment
d. A cash-generating unit
36. PAS36 Impairment of assets should be applied in accounting for the impairment of which of the
following types of asset?
a. Assets arising from construction contracts
b. Non-current assets held for sale
c. Investment properties measured at fair value
d. Non-current assets measured at cost
37. According to PAS36 Impairment of assets, which TWO of the following are relevant in
determining a non-current asset’s ‘value in use’?

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 A.) The expected future cash flows from the asset
B.) The carrying amount of the asset
C.) The future annual depreciation expense in respect of the asset
D.) The time value of money
a. A and B
b. C and D
c. B and C
d. A and D
38. Under PAS 36 Impairment of Assets, the following assets are subject to impairment testing:
I II III IV
Inventory Yes Yes No No
Assets arising from
construction contracts Yes Yes No No
Assets arising from
employee benefits No Yes No Yes
Property, plant and equipment No Yes Yes No
a. I
b. II
c. III
d. IV
39. Which of the following statements is/are true?
I. Cash generating unit is the smallest identifiable group of assets that generate cash flows
from continuing use that are largely independent of the cash inflows from other assets
or group of assets.
II. Corporate assets are assets other than goodwill that contribute to future cash flows of
both the cash generating unit under review and other cash generating unit.
III. An impairment loss on an asset, whether carried at cost or revalued amounts shall be
taken to profit and loss immediately
a. I and II only
b. I and III only
c. II and III only
d. I, II and III
40. According to PAS 36, which of the following is the best evidence of net selling price?
a. Sales price in a building sale agreement in an arm’s length transaction adjusted for
incremental costs directly attributable to disposal of asset
b. Best estimate of knowledgeable, willing parties in arm’s length transaction less cost to sell
c. Best estimate of a knowledgeable subject specialist less direct cost of disposal
d. Fair value in an active market less selling expenses
41. Which of the following is (are) internal sources of information about a possible impairment of an
asset?
I. Evidence of obsolescence or physical damage of the asset
II. Significant change with an adverse effect on the enterprise to the extent or manner in
which an asset is used or expected to be used
III. Available evidence that the economic performance of an asset is, or will be worse than
expected
a. I and II only
b. I and III only
c. II and III only
d. I, II and III
42. When allocating an impairment loss, such loss should be reduce the carrying amount of which
asset first?
a. Property, plant and equipment
b. Goodwill
c. Intangible assets
d. Current assets
43. When assessing the recoverable amount of assets that have previously been subject to an
impairment loss, which of the following indicators assist in providing external evidence that an
impairment loss has reversed?

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 a. The asset’s market value has decreased significantly during the period;
b. significant changes with an adverse effect on the entity have taken place;
c. market interest rates have decreased during the period;
d. internal reporting sources indicate that the economic performance of the asset will not be
as good as expected
44. According to PAS 37 Provisions, contingent liabilities and contingent assets, which TWO of the
following best describe the sources of a legal obligation?
A legal obligation is an obligation that derives from
A. Legislation
B.A contract
C.A published policy
D.An established pattern of past practice
a. A and B
b. C and D
c. A and C
d. B and D
45. Are the following statements in relation to a contingent liability true or false, according to PAS
37 Provisions, contingent liabilities and contingent assets?
1) A obligation as a result of the entity creating a valid expectation that it will discharge its
responsibilities is a contingent liability
2) A present obligation that arises from past events but cannot be reliably measured is a
contingent liability
Statement (1) Statemen t (2)
a. False False
b. False True
c. True False
d. True True
46. Which of the following is within the scope of PAS37 Provisions, contingent liabilities and
contingent assets?
a. Financial instrument carried at fair value
b. Future payments under employment contracts
c. Future payments on vacant leasehold premises
d. An insurance company’s policy liability
47. According to PAS37 Provisions, contingent liabilities and contingent assets, for which of the
following should a provision be recognized?
a. Future operating losses
b. Obligations under insurance contract
c. Reductions in fair value of financial instruments
d. Obligations for plant decommissioning costs
48. For which TWO of the following should be provisions be recognized under PAS37 Provisions,
contingent liabilities and contingent assets?
A.) Divisional closure costs before a public announcement is made.
B.) Restructuring costs after a binding sale agreement has been signed.
C.) Rectification costs relating to defective products already sold.
D.) Future refurbishment costs due to introduction of a new computer system.
a. A and B
b. A and C
c. B and C
d. A and D
49. The Dipper Company operates chemical plants. Its published policies include a commitment to
making good any damage caused to the environment by its operations. It has always honored
this commitment. Which of the following scenarios relating to Dipper would give rise to an
environmental provision as defined by PAS37 Provisions, contingent liabilities and contingent
assets?
a. On past experience it is likely that a chemical spill which would result in Dipper having to
pay fines and penalties will occur in the next year.
b. Recent research suggests there is a possibility that the company’s actions may damage
surrounding wildlife.

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 c. The government has outlined plans for a new law requiring all environmental damage to be
rectified.
d. A chemical spill from one of the company’s plants has caused harm to the surrounding area
and wildlife.
50. Which of the following is not classified as a financial instrument in accordance with PAS 32
Financial Instruments?
a. Convertible bond
b. Warranty provision
c. Foreign currency contract
d. Loan receivable
ajmiranda
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Goodluck and Godbless

Reviewed and Checked by:

Dr. Genoveva Y. Reyes, CPA, FRIAcc

Dean, College of Business Education

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