DE LA SALLE LIPA

College of Business, Economics, Accountancy and Management

Accountancy Department
Fundamentals of Accounting – Theory

Direction: Read and select best answer for the following questions.

1. What is the definition of Accounting according to Accounting Standards Council?

a. It refers to a service activity with a function of providing quantitative information primarily financial in nature, about
economic entities, that is intended to be useful in making economic decision.
b. It is the examination of financial statements by independent certified public accountants for the purpose of expressing
an opinion as to the fairness with which the financial statements are prepared.
c. It includes the preparation of annual income tax returns and determination of tax consequences of certain proposed
business endeavors.
d. It refers to services to clients on matters of accounting, finance, business policies, organization procedures, product
costs, distribution and many other phases of business conduct and operations.

2. Accounting has three important activities which are identifying, measuring and communicating. Which statement pertains to
identifying?
a. It refers to the process of determining the monetary amounts at which the elements of the financial statements are to
be recognized and carried in the financial statements.
b. It refers to the recognition and nonrecognition of accountable events.
c. It refers to process of preparing and distributing accounting reports to potential users of accounting information.
d. It refers to lending credence to the financial information provided by responsible party.

3. Communicating, which is one of the three important activities of accounting, has four implied components. Which of the
following statements pertains to the classifying component?
a. It is the process of systematically maintaining a record of all economic business transactions after they have been
identified and measured and also known as journalizing.
b. It is the sorting and grouping of similar and interrelated economic transactions into their respective class and also
known as posting to the ledger.
c. It is the preparation of financial statements.
d. It is the analysis of liquidity, solvency, and financial structure of the company based on the financial statements.

4. External transactions are those economic events involving one entity and another entity. The following are examples of
external transactions or events, except
a. Borrowing of a money from a bank
b. Sale of merchandise to customer
c. Payment of salaries to employees
d. Production and casualty

5. The law that governs accountancy profession is known as the “Philippine Accountancy Act of 2004”. This statute is
denominated as
a. Republic Act 9892
b. Republic Act 9298
c. Republic Act 9982
d. Republic Act 8992

6. It refers to the body authorized by law to promulgate rules and regulations affecting the practice of the accountancy profession
in the Philippines.
a. Board of Accountancy
b. Philippine Regulation Commission
c. Financial Reporting Standards Council
d. Philippine Institute of Certified Public Accountants

7. Which of the following statements pertains to “private Accounting”?

a. It refers to the rendering of independent and expert financial services to the public such as auditing, taxation and
management advisory services.
b. It encompasses the process of analyzing, classifying, summarizing and communicating all transactions involving the
receipt and disposition of government funds and property and interpreting the results thereof.
c. It means the CPAs are employed in business entities in various capacity as accounting staff, chief accountant,
internal auditor and controller.
d. It refers to the field in which CPAs work as professors, lecturers and researchers in various universities and colleges.

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8. The following statements pertain to financial accounting, except
a. It is primarily concerned with the recording if business transactions and the eventual preparation of financial
statements.
b. It must comply with the PAS and PFRS.
c. It normally focuses on historical financial information.
d. It is the accumulation and preparation of financial reports for internal users only.

9. With the enactment of “The Philippine Accountancy Act of 2004, this body was created by the Professional Regulation
Commission as the replacement to the Accounting Standards Council as the new accounting standard setting body in the
country.
a. Board of Accountancy
b. Auditing and Assurance Standards Council
c. Financial Reporting Standards Council
d. Philippine Institute of Certified Public Accountants

10. The Financial Reporting Standards Council is composed of 15 members with a Chairman who has been or is presently a
senior accounting practitioner and 14 representative from the following, except
a. 1 from Board of Accountancy
b. 1 from Board of Customs
c. 1 from Securities and Exchange Commission
d. 1 from Bangko Sentral ng Pilipinas
e. 1 from Bureau of Internal Revenue
f. 1 from Commission on Audit
g. 1 from major organization of preparers and users of financial statements
h. 2 each from ACPACI, ACPAE, ACPAPP and GACPA.

11. It refers to a global phenomenon intended to bring about greater transparency and a higher degree of comparability in financial
reporting, both of which will benefit the investors and are essential to achieve the goal of one uniform and globally accepted
financial reporting standards.
a. Borderless Accounting
b. International Accounting Standards
c. International Financial Reporting Standards
d. Generally Accepted Accounting Standards

12. Under the old Framework, which of the following are the two mentioned underlying assumptions?
a. Monetary unit and accounting entity
b. Time period and accrual
c. Going concern and accounting entity
d. Accrual and going concern

13. Which of the following statements pertain to the assumption of going concern?
a. It means the income and expenses are recognized when earned and incurred regardless of when received and when
paid.
b. The business enterprise is separate from the owners, manages and employees of the firm.
c. The indefinite life of an entity is subdivided into time periods which are usually of equal length for the purpose of
preparing financial statements.
d. It means that the elements of financial satements should be stated in terms of a unit of measure and that the
purchasing power of the peso is stable or constant.
e. The accounting entity is viewed as continuing in operation indefinitely in the absence of evidence to the contrary.

14. Under the going concern assumption, financial statements are normally recorded at
a. Present value
b. Market value
c. Historical cost
d. Current cost

15. The conceptual framework for the preparation and presentation of financial statements is concerned with
a. Special purpose financial statements
b. General purpose financial statements and separate financial statements only
c. General purpose financial statements including consolidated financial statements
d. Interim financial statements

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16. The following are the basic purposes of the conceptual framework, except
a. It assists the FRSC in developing accounting standards that represent Philippine GAAP.
b. It assists the preparers of financial statements in applying accounting standards and in dealing with issues not yer
covered by present GAAP.
c. It assists in auditors in forming an opinion as to whether financial statements conform with Philippine GAAP.
d. It assists the Board of Accountancy in regulating the practice of Accountancy.

17. Which of the following statements concerning the authoritative status of conceptual framework is incorrect?
a. Conceptual framework is a Philippine Financial Reporting Standard.
b. In case where there is a conflict, the requirements of the PFRS shall prevail over the conceptual framework.
c. In the absence of a standard or an interpretation that specifically applies to a transaction, management shall consider
the applicability of the conceptual framework in developing and applying an accounting policy that results in
information that is relevant and reliable.
d. Conceptual framework serves as a guideline or foundation for the development of accounting standards and revision
of previously issued accounting standards.

18. The old conceptual framework deals with the following, except
a. Objective of financial statements
b. Definition, recognition and measurement of the elements of financial statements
c. Quantitative characteristics that determine the usefulness of information in the financial statements
d. Concepts of capital and capital maintenance

19. The following financial statements are covered by the conceptual framework, except
a. Separate financial statements of a private entity
b. Consolidated financial statements of a public entity
c. General purpose financial statements of a private and public entity
d. Special purpose financial reports

20. What is the objective of financial statements?

a. To provide information about the strategies of the company.
b. To provide information about the financial position, financial performance and cash flows of an entity.
c. To provide information about the products and operations of an entity.
d. To provide information about the employees and benefits provided by an entity.

21. The financial position of an entity comprises the following, except

a. Assets
b. Income and Expenses
c. Liabilities
d. Equity

22. Which of the following information pertains to financial structure?

a. It is the ability of the entity to use its available case for unexpected requirements and investment opportunities.
b. It indicates the source of financing for the assets of the entity and it is useful in predicting the future borrowing needs
and how profits and cash flows will be distributed between the creditors and owners.
c. It is the availability of cash over a long-term to meet financial commitments when they fall due.
d. It is the availability of cash in the near future to cover currently maturing obligations.
e. It refers to the assets owned by the entity.

23. The financial performance of an entity comprises the following, except

a. Revenue
b. Expenses
c. Net income or loss
d. Disclosures

24. Which of the following concepts in conjunction with the objective of financial statements pertains to proprietary theory?
a. It is geared toward proper income determination. (Assets = Liabilities+Capital)
b. It is directed toward proper valuation of assets. (Assets-Liabilities=Capital)
c. This is applicable where there are two classes of shareholders. (Assets-Liabilities-Preference Shareholder’s
Equity=Ordinary Shareholder’s Equity)
d. This accounting objective is neither proper income determination nor proper valuation of assets but the custody and
administration of funds.

25. These are the qualities or attributes that make financial accounting information useful to the users.
a. Qualitative characteristics
b. Quantitative characteristics
c. Qualitative and quantitative characteristics
d. Information characteristics

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26. Under the Old Conceptual Framework, four principal qualitative characteristics are enumerated. Which of the following
qualitative characteristics are considered primary characteristics because they relate to the content of financial statements?
a. Understandability and Comparability
b. Relevance and Reliability
c. Relevant and Understandability
d. Reliability and Comparability

27. Which of the following statements pertains to the qualitative characteristic of relevance?
a. It is the quality of information that assures users that the information is free from bias and error and faithfully
represents what it purports to represent.
b. It means the ability to bring together for the purpose of noting points of likeness and difference.
c. It requires that the financial information must be comprehensible or intelligible and is assumes that users have a
reasonable knowledge of the economic activities and accounting and a willingness to study the information with
reasonable diligence.
d. It means the capacity of information to influence a decision.

28. Under the Old Conceptual Framework, the following are major ingredients of relevance, except
a. Predictive value
b. Neutrality
c. Feedback value
d. Timeliness

29. Under the Old Conceptual Framework, which of the following statements concerning relevance is incorrect?
a. Information has predictive value when it can help users increase the likelihood of correctly predicting or forecasting
outcome of events.
b. Information has feedback value when it enables users confirm or correct earlier expectations.
c. Timeliness is an important ingredient of relevance because relevant information furnished after a decision is made is
useless or of no value.
d. The predictive and confirmatory roles of information are not interrelated.

30. Under the Old Conceptual Framework, the following factors enhance the reliability of financial information, except
a. Faithful representation
b. Consistence
c. Completeness
d. Neutrality
e. Conservatism or prudence
f. Substance over form

31. Under the Old Conceptual Framework, which of the following statements pertains to prudence?
a. It means that the actual effects of the transaction should be accounted and reported in the financial statements and it
means that verifiable financial accounting information provides results that would be substantially duplicated by
independent measure using the same measurement method.
b. It means that a transaction should be accounted on its substance rather than its legal form.
c. It means that the financial statements must be free from bias or must not favor one party to the detriment of another
party.
d. It means choosing the alternative which has the least effect on equity.
e. It requires that relevant information should be presented in a way that facilitates understanding and avoids erroneous
implication and it is the result of the adequate disclosure standard.

32. Under the Old Conceptual Framework, this principle is implicit in the qualitative characteristic of comparability.
a. Consistency
b. Neutrality
c. Objectivity
d. Timeliness
33. Which of the following statements concerning the two types of comparability is correct?
I. Comparability within an entity is the quality of information that allows comparisons within a single entity through time or
from one accounting period to the next. It is also known as horizontal comparability or intracomparability.
II. Comparability across entites is the quality of information that allows comparisons between two or more entities engaged in
the same industry. It is also known as intercomparability or dimensional comparability.
a. I only
b. II only
c. Neither I nor II
d. Both I and II

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34. Which of the following statements concerning comparability is incorrect?
a. The need for comparability should not be confused with mere uniformity and should not be allowed to impediment to
the introduction of an improved accounting standard.
b. It is appropriate for an entity to leave its accounting policies unchanged when more relevant and reliable alternatives
exist.
c. An important implication of comparability is that users are informed of the accounting policies employed, any changes
in those policies and the effects of such change.
d. Comparability is complemented by adequate disclosure principle.

35. Accounting constraints are the factors that may affect the relevance and reliability of financial accounting information. They
include the following, except
a. Timeliness
b. Cost-benefit
c. Conservatism
d. Materiality
e. Balance between qualitative characteristics

36. The following statements pertain to materiality, except

a. Materiality is a quantitative threshold linked closely to relevance.
b. Materiality is a qualitative characteristic of information.
c. An item is material if knowledge of it would affect or influence the decision of the informed users of the financial
statements.
d. Materiality is affected by the relative size of the item and the nature of the item.

37. There is tradeoff between reporting relevant information in a timely manner and
a. Comparability of information
b. Reliability of information
c. Understandability of information
d. Materiality of information

38. These pertain to the quantitative information shown in the statement of financial position and income statement.
a. Qualitative Characteristics
b. Elements of Financial Statements
c. Accounting constraints
d. Capital concept

39. The following elements are directly related to the measurement of financial position, except
a. Resources controlled by the entity as a result of past transaction or events and from whicn future economic benefits
are expected to flow to the entity.
b. Increase in economic benefit during the accounting period in the form of inflow or increase in asset or decrease in
liability that results in increase in equity, other than contribution from equity participants.
c. Residual interest in the assets of the entity after deducting all of its liabilities.
d. Present obligations of the entity arising from past transactions or events the settlement of which is expected to result
in an outflow from the entity of resources embodying economic benefits.

40. It is a term which means the reporting of an asset, liability, income or expenses on the face of the financial statement of an
entity.
a. Recognition
b. Measurement
c. Presentation
d. Derecognition

41. This principle provides that an asset is recognized when it is probable that future economic benefits will flow to the entity and
the asset has a cost or value that can be measured reliably.
a. Liability recognition principle
b. Cost principle
c. Asset recognition principle
d. Matching principle

42. This principle provides that asset should be recorded initially at cash or cash equivalent or fair value of asset given up at the
date of acquisition.
a. Liability recognition principle
b. Cost principle
c. Asset recognition principle
d. Matching principle

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43. This principle provides that a liability is recognized when it is probable that an outflow of resources embodying economic
benefits will be required for the settlement of a present obligation and the amount of the obligation can be measured reliably.
a. Liability recognition principle
b. Cost principle
c. Asset recognition principle
d. Matching principle

44. This principle provides that an income is recognized when it is probable that future economic benefits will flow to the entity as
a result of an increase in an asset or a decrease in a liability and the economic benefits can be measured reliably.
a. Liability recognition principle
b. Cost principle
c. Income recognition principle
d. Matching principle

45. Which of the following statements concerning income is incorrect?

a. Income encompasses both revenue and gains.
b. Revenue encompasses both income and gains.
c. Revenue arises in the course of ordinary regular activities of an entity.
d. Gains represent other items that meet the definition of income and do not arise in the course of ordinary regular
activities of an entity.

46. PAS 18 provides the following conditions for the recognition of revenue from sale of goods, except
a. The entity has transferred to the buyer the significant risks and rewards of ownership of the goods.
b. The entity has transferred the title of the goods to the buyer.
c. The entity retains neither continuing managerial involvement nor effective control over the goods sold.
d. The amount of revenue can be measured reliably.
e. It is probable the economic benefits associated with the transaction will flow to the entity.
f. The costs incurred or to be incurred in respect of the transaction can be measured reliably.

47. PAS 18 provides the following conditions for the recognition of revenue from rendering of services, except
a. The amount of revenue can be measured reliably.
b. The entity has transferred to the buyer the significant risks and rewards of ownership of the goods.
c. It is probable that the economic benefits associated with the transaction will flow to the entity.
d. The stage of completion of the transaction at the end of reporting period can be measured reliably.
e. The costs incurred for the transaction and the costs to complete can be measured reliably.

48. As a general rule, revenue is recognized at the point of sale. Which of the following methods pertains to cost recovery
method?
a. Revenue is recognized at the point of collection wherein the revenue is determined by multiplying the gross profit rate
by the amount of collections. The reason for this approach is the uncertainty of collection.
b. It is also known as sunk cost wherein all collections are first applied to the cost of the merchandise sold then all
subsequent collections are considered revenue.
c. Revenue is recognized when received regardless of when earned.
d. Revenue is recognized by reference to the stage of completion of the contract activity.
e. This method is recognized at the point of production and it is applicable to agricultural, forest and mineral products
when a sale is assured under a forward contract or a government guarantee or when a homogeneous market exist
and there is a negligible risk of failure to sell.

49. The following statements are proper income recognition under PAS 18, except
a. Interest revenue shall be recognized on a time basis that takes into account the effective yield on the asset.
b. Royalties shall be recognized on an accrual basis in accordance with the substance of the relevant agreement.
c. Dividends shall be recognized as revenue when the shareholder’s right to receive payment is established, meaning,
when the dividends are declared.
d. Installation fees are recognized as revenue over the period of installation by reference to the stage of completion.
e. Subscription revenue should be recognized on a straight line basis over the subscription period.
f. Admission fees are recognized as revenue when the tickets are sold.
g. Tuition fees are recognized as revenue over the period in which tuition is provided.

50. It pertains to item that meets the definition of expenses and do not arise in the course of ordinary regular activities of the entity.
a. Expense
b. Loss
c. Gain
d. Revenue

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51. This principle means that those costs and expenses incurred in earning a revenue shall be reported in the same period the
revenue is recognized.
a. Expense recognition principle
b. Revenue recognition principle
c. Matching principle
d. Asset recognition principle

52. The matching principle has three applications. Which of the following pertains to systematic and rational allocation?
a. Expense is recognized when the revenue is already recognized.
b. Some costs are expensed by simply allocating them over the periods benefited.
c. The cost is incurred is expensed outright because of uncertainty of future economic benefits or difficulty of reliably
associating certain costs with future revenues.
d. This method pertains to direct write off method.

53. The following expenses are matched using cause and effect association, except
a. Bad debts expense
b. Warranty expense
c. Sales commission
d. Impairment loss

54. The following expenses are matched using systematic and rational allocation, except
a. Depreciation expense
b. Amortization expense
c. Cost of sales
d. Allocation of prepaid rent

55. The following expenses are matched using immediate recognition, except
a. Administrative and selling department salaries
b. Loss on disposal of building
c. Allocation of insurance expense
d. Loss from lawsuit

56. It is the process of determining the monetary amounts at which the elements of the financial statements are to be recognized
and carried in the statement of financial position and income statement.
a. Recognition
b. Measurement
c. Realization
d. Classification

57. Which of the following statements pertains to current cost?

a. It is the amount of cash or cash equivalent paid or fair value of asset given up to acquire at asset at the date of
acquisition.
b. It is the amount of cash or cash equivalent that would have to be paid if the same or equivalent asset was acquired
currently.
c. It is the amount of cash or cash equivalent that could currently be obtained by selling the asset in an orderly disposal.
d. It is the discounted value of the future net cash inflows that the item is expected to generate in the normal course of
business.

58. Present value is based on

a. Past purchase exchange price
b. Current purchase exchange price
c. Current sale exchange price
d. Future exchange price
59. The old framework provides for the two approaches in computing financial performance which are
I. Transaction approach which is the traditional preparation of an income statement.
II. Capital maintenance approach means that net income occurs only after the capital used from the beginning of the period
is maintained.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
60. Which of the following combinations of capital maintenance is proper?
a. Financial capital – current cost and physical capital – historical cost
b. Physical capital – current cost and financial capital – current cost
c. Financial capital – historical cost and physical capital – current cost

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 d. Physical capital – historical cost and financial capital – historical cost
1. These refer to the statements intended to meet the needs of users who are not in a position to require an entity to prepare
reports tailored to their particular information needs.
a. General purpose operational reports
b. Special purpose financial statements
c. General purpose financial statements
d. General purpose tax reports

2. PAS 1 provides that when an entity changes the end of its reporting period and presents financial statements for a period
longer or shorter than one year, an entity shall disclose the following, except
a. The period covered by the financial statements.
b. The reason for using a longer or shorter period.
c. The fact that amounts presented in the financial statements are not entirely comparable.
d. The fact that amounts presented in the financial statements are entirely comparable.

3. It is a term which means the process of reporting an asset, liability, income or expense on the face of the financial statements
of an entity.
a. Measurement
b. Recognition
c. Reporting
d. Presentation

4. The accounts in the statement of financial position use different measurement bases or financial attributes. Which of the
following statements pertaining such attribute is inaccurate?
a. Historical cost is the amount of cash or cash equivalent paid or the fair value of the consideration given to acquire an
asset at the time of acquisition and it is also known as “past sale exchange price”.
b. Current cost is the amount of cash and cash equivalent that would have to be paid if the same or an equivalent asset
was acquired currently and it is also known as “current purchase exchange price.”
c. Realizable value is the amount of cash or cash equivalent that could currently be obtained by selling the asset in an
orderly disposal and it is also known as “exit value”.
d. Present value is the discounted value of the future net cash inflows that the item is expected to generate in the
normal course of business and it is also known as “future exchange price.”

5. Users of financial statements need information in order to satisfy their different needs for information. Which of the following
statements concerning the financial statements users is accurate?
a. Employees are interested with the risk inherent in and return provided by their investments.
b. Customers have an interest in information about the continuance of an entity especially when they have a long-term
commitment with or are dependent on the entity.
c. Suppliers and other trade creditors are interested in information which enables them to determine whether their loans
and interest thereon will be paid when due.
d. Government and their agencies are interested to information about trends and recent developments in the prosperity
of the entity and the range of its activities.

6. Which of the following statements concerning the concept of going concern is inaccurate?
a. Going concern means that the accounting entity is viewed as continuing in operation indefinitely in the absence of
evidence to the contrary.
b. In making the assessment about the going concern assumption, management shall take into account all available
information about the future which is at least twelve months from the end of reporting period.
c. If the financial statements are not prepared on a going concern basis, such fact shall be disclosed together with the
measurement basis and the reason therefore.
d. As a general rule, assets are normally recorded at the market value estimated by management.

7. PAS 1 provides that the financial statements shall present fairly the financial position, financial performance and cash flows of
an entity. Which of the following statements is false?
a. Virtually, in all circumstances, fair presentation is achieved if the financial statements are prepared in accordance with
the PFRS.
b. An entity whose financial statements comply with PFRS shall make an explicit and unreserved statement of such
compliance in the notes.
c. Fair presentation is defined as the unfaithful representation of the effects of transactions and other events in
accordance with the definitions and recognition criteria for assets, liabilities, income and expenses laid down in the
framework.
d. An entity cannot rectify inappropriate accounting policies either by disclosure of the accounting policies used or by
notes or explanatory information.

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8. PAS 1 provides that in the extremely rate circumstances in which management concludes that compliance with a requirement
in a Standard or an Interpretation would be so misleading that it would conflict with the objective of financial statements, the
entity shall depart from that requirement provided the relevant regulatory framework requires, or otherwise does not prohibit,
such a departure. In such circumstances, it is incumbent upon the entity to disclose the following, except
a. The management has concluded that the financial statements present fairly the entity’s financial position, financial
performance and cash flows.
b. That it has complied with applicable Standards and Interpretation, except that it has departed from a particular
requirement to achieve a fair presentation.
c. For each period presented, the financial impact of the departure on each item in the financial statements that would
have been reported in complying with the requirement.
d. The title of the Standard or Interpretation from which the entity has departed, the nature of departure, excluding the
treatment that the Standard or Interpretation that would require and the reason why that treatment would be so
misleading in the circumstances that it would conflict with the objective of financial statements, and the treatment
adopted.

9. Who has the primary responsibility for the preparation and presentation of financial statements?
a. External Auditor of the company
b. Securities and Exchange Commission
c. Stockholders of the company
d. Management of the company

10. Which of the following statements concerning materiality, aggregation and offsetting is correct?
a. An entity shall present aggregately each material class of similar items.
b. An entity shall present separately items of dissimilar nature or function unless they are immaterial.
c. Assets and liabilities, and income and expenses, when material shall be offset against each other.
d. The measurement of assets net of valuation allowance is not permitted because technically it is offsetting.

11. The following statements concerning comparable information and consistency of presentation are incorrect, except
a. Except when permitted or required otherwise by PFRS, an entity shall disclose comparative information in respect of
the previous period for all amounts reported in the current period’s financial statements.
b. The presentation and classification of financial statement items shall not be uniform from one accounting period to the
next.
c. A change in the presentation and classification is not allowed even it is required by another PFRS and even when a
significant change in the nature of the entity’s operations or a review of the financial statements will demonstrate a
more appropriate presentation and classification.
d. It is appropriate for an entity to leave its accounting policies unchanged when more relevant and reliable alternatives
exist.

12. PAS 1 requires that each component of the financial statements shall be clearly identified. In addition, the following information
shall be prominently displayed, excepy
a. The name of the reporting entity.
b. Whether the financial statements cover the individual entity or a group of entities.
c. The name of the major stockholder.
d. The level of rounding used in the amounts in the financial statements.

13. PAS 1 provides that a statement of financial position is a formal statement showing the three elements comprising financial
position, namely assets, liabilities and equity. This financial statement is analyzed by users of financial statements to evaluate
different factors. Which of the following statements is incorrect?
a. Information about financial structure is useful in predicting future borrowing needs and how profits and how profits
and cash flows will be distributed between creditors and owners.
b. Information about liquidity and solvency is useful in predicting the ability of the entity to comply with its future financial
commitments.
c. Capacity for adaptation is the financial flexibility of the entity to use its available cash for unexpected requirements
and investment opportunities.
d. Solvency is the ability of the entity to meet currently maturing obligations.

14. Which of the following statements concerning the presentation and classification of assets and liabilities in the statement of
financial position is correct?
a. For financial institutions, the current and noncurrent classification provides information that is reliable and relevant
than a current and noncurrent presentation.
b. PAS 1, paragraph 60, provides that an entity shall not present current assets and noncurrent assets separately in the
statement of financial position.
c. The separate classification of current and noncurrent assets and liabilities is a useful information when an entity
supplies goods or services within a clearly identified operating cycle.
d. PAS 1 requires all entity to use the current and noncurrent presentation and classification in the statement of financial
position.

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15. The following are essential characteristics of an asset, except
a. The asset is controlled by the entity and a result of past transaction.
b. The asset is subject to depreciation.
c. The asset provides future economic benefits.
d. The cost of the asset can be measured reliably.

16. PAS 1, paragraph 66. provides that an entity shall classify an asset as current when, except
a. The asset is cash or cash equivalent which is restricted from being exchanged or used to settle a liability for at least
twelve months after the reporting period.
b. The entity holds the asset primarily for the purpose of trading.
c. The entity expects to realize the asset within twelve months after reporting period.
d. The entity expects to realize the asset or intends to sell or consume it within the entity’s normal operating cycle.

17. Which of the following statements concerning operating cycle is incorrect?

a. It is the time between the acquisition of assets for processing and their realization in cash or cash equivalent.
b. It is significant as it is the basis of determining the proper classification of assets into either current or noncurrent.
c. All assets that are expected to be realized, sold or consumed within the normal operating cycle are current.
d. It is always longer than 12 months.

18. The following items are considered as noncurrent assets, except

a. Deferred tax asset
b. Noncurrent asset held for sale
c. Investment property
d. Biological asset

19. The following items are considered as current assets, except

a. Financial assets at fair value through profit or loss
b. Inventories
c. Cash set aside for the acquisition of Land within 12 months after reporting period
d. Trade and other receivables

20. The essential characteristics of liability are as follows, except

a. The liability is the present obligation of a particular entity.
b. The liability arises from past transaction.
c. The liability shall be settled using current asset.
d. The settlement of the liability requires an outflow of resources embodying economic benefits.

21. PAS 1, paragraph 69, provides that an entity shall classify a liability as current when, except
a. The entity expects to settle the liability within the entity’s normal operating cycle.
b. The entity has an unconditional right to defer settlement of the liability for at least 12 months after the reporting
period.
c. The entity holds the liability primarily for the purpose of trading.
d. The liability is due to be settled within twelve months after the reporting period.

22. PAS 1 provides that a liability which is due to be settled within the twelve months after the end of reporting period is classified
as current, even if:
I. The original term was for a period longer than twelve months.
II. An agreement to refinance or to reschedule payment on a long-term basis is completed on or before
the end of reporting period.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

23. Which of the following liabilities shall be considered as noncurrent liabiltity?

a. If certain conditions relating to the borrower’s financial situation are breached and the lender has agreed after the end
of reporting period and before the statements are authorized for issue, not to demand payment as a consequence of
the breach.
b. A current liability on which the lender has agreed on or before the end of reporting period to provide a grace period
ending at least twelve months after the end of reporting period.
c. A current liability which is refinanced between the end of reporting period and the date the financial statements are
authorized for issue.
d. Trade payables and accruals for employees due to be settled within the entity’s normal operating cycle.

10
24. The following are examples of current liabilities, except
a. Accounts payables
b. Estimated premium liability
c. Dividends payable
d. Deferred tax liability which will reverse within 12 months

25. What is working capital?

a. Total assets – total liabilities
b. Total assets – total equity
c. Total current assets – total current liabilities
d. Total current assets – total liabilities

26. Which of the following statements concerning the recognition of a provision, contingent liability and contingent asset is correct?
a. Contingent asset shall be disclosed when it is reasonably possible to occur.
b. Contingent liability shall be disclosed when the possibility of occurrence is remote.
c. Provision shall be accrued when the range of outcome is probable.
d. Contingent liability shall not be disclosed when the outcome of event is reasonably possible.

27. It represents the cumulative balance of periodic net income or loss, dividend distributions, prior period errors, changes in
accounting policy and other capital adjustments.
a. Reserves
b. Retained earnings
c. Contributed capital
d. Total shareholder’s equity

28. PAS 1, paragraph 54, states that as a minimum, the face of the statement of financial position shall include line item which
present the following amounts, except
a. Noncontrolling interest
b. Biological asset
c. Provisions
d. Contingent liability

29. Which of the following items shall not be included in the Stockholder’s Equity Section of the Statement of Financial Position?
a. Subscription receivable collectible beyond one year
b. Bonds Premium
c. Treasury Shares
d. Revaluation Surplus

30. The format of a statement of financial position is not specified in PAS 1. In practice, there are two customary forms in
presenting the statement of financial position. What form sets forth the three major sections of financial position in a downward
sequence of assets, liabilities and equity?
a. Simple form
b. Account form
c. Report form
d. Natural form

31. PAS 1, paragraph 112, provides that the notes to financial statements shall do the following, except
a. Present information about the financial position, financial performance and cash flows of an entity.
b. Present information about the basis of preparation of the financial statements and the specific accounting policies
used.
c. Disclose the information required by PFRS that is not presented in the financial statements.
d. Provided additional information which is not presented in the financial statements but is relevant to an understanding
of the financial statements.

32. PAS 1, paragraph 114, provides that an entity normally presents notes to financial statements in what order?
I. Summary of significant accounting policies used
II. Other disclosures, such contingent liabilities, unrecognized contractual commitments and nonfinancial
disclosures.
III. Statement of compliance with PFRS
IV. Supporting computations
a. III – I – IV – II
b. III – IV – I – II
c. III – II – I – IV
d. III – IV – I – II

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33. These are defined as the specific principles, methods, practices, rules, bases and conventions adopted by an entity in
preparing and presenting financial statements.
a. Accounting principles
b. Accounting estimates
c. Accounting methods
d. Accounting policies

34. The summary of significant accounting policies shall disclose the following:
I. The measurement basis used in preparing the financial statements.
II. The accounting policies used that are relevant to an understanding of the financial statements.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

35. PAS 1, paragraphs 137 and 138 provide that an entity shall disclose the following, except
a. The amount of any cumulative preference dividends not recognized.
b. The amount of dividends declared after the financial statements are authorized for issue.
c. A description of the nature of the entity’s operations and its principal activities.
d. The name of the parent and the ultimate parent of the group.

36. PAS 24, paragraph 9 provides that are parties are considered related if one party has, except
a. The ability to control the other party.
b. The ability to exercise the significant influence over the other party.
c. Joint control over the entity.
d. The contract to provide finance or service in the course of normal dealings.

37. Which of the following statements concerning PAS 24: Related Party is incorrect?
a. Related party transaction is a transfer of resources or obligation between related when a price is charged.
b. Disclosure is required of related party relationships where control exists irrespective of whether there have been
transactions between the related parties.
c. The disclosure of related party transactions and outstanding balances in the separate financial statements of a
parent, subsidiary, associate or venturer is required.
d. Intragroup related party transactions and outstanding balances are eliminated in the preparation of consolidated
financial statements of the group.

38. Under the amended version of PAS 24, a state-controlled entities that transact with other state-controlled entities are required
to disclose the following:
I. The name of the government and the nature of its relationship with the reporting entity.
II. The information on the nature and amount of each individually significant transaction with the
government.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

39. PAS 10, paragraph 3 defines them as those events, whether favorable or unfavorable, that occur between the end of reporting
period and the date on which the financial statements are authorized for issue.
a. Subsequent events
b. Events after reporting period
c. Events after the balance sheet date
d. Prior events

40. Which of the following statements concerning PAS 10 is incorrect?

I. Adjusting events after the reporting period are those that provide evidence of conditions that exist at
the end of reporting period.
II. Non-adjusting events after reporting period are those that are indicative of conditions that arise after
the end of reporting period.

a. I only
b. II only
c. Both I and II
d. Neither I nor II

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41. The following are examples of non-adjusting events, except
a. Destruction of a major production plant by fire after the reporting period.
b. Discovery of fraud or errors that show the financial statements were incorrect.
c. Commencing major litigation arising solely from events that occurred after the reporting period.
d. Plan to discontinue an operation.

42. The following are examples of adjusting events, except

a. Bankruptcy of a customer which occurs after the reporting period.
b. Settlement after reporting period of a court case because it confirms that the entity already had a present obligation
at the end of reporting period.
c. Sale of inventories after the reporting period may give evidence about the net realizable value at reporting period.
d. Major purchase and disposal of asset or expropriation of major asset by government after the reporting period.

43. When are the financial statements authorized for issue?

a. When the auditor already submitted and prepared the audit report.
b. When the management approves the financial statements for audit.
c. When the board of directors reviewed and authorized the financial statements for issue.
d. At the end of reporting period.

44. What is a development stage entity?

I. An organization that is devoting substantially all of its effort to establishing a new business and that
has not begun planned principal operations.
II. An organization that has begun planned principal operations but has not yet generated significant
revenue from those operations.
a. Either I or II
b. Neither I nor II
c. I only
d. II only

45. It refers to a change in equity during a period resulting from transactions and other events, other than changes resulting from
transactions with owners in their capacity as owners.
a. Profit or Loss
b. Net Income
c. Other Comprehensive Income
d. Comprehensive Income

46. Which of the following are considered as components of other comprehensive income?
I. Realized gain or loss on investment in equity instruments measured at fair value through other
comprehensive income.
II. Gain or loss from translating the financial statements of foreign operation
III. Realization of revaluation surplus
IV. Unrealized gain or loss from derivative contracts designated as fair value hedge.
V. Actuarial gain or loss on defined benefit plan in accordance with full recognition approach.
a. II – III – V
b. I – III – IV
c. I – II – V
d. II – V

47. These are amounts reclassified to profit or loss in the current period that were recognized in other comprehensive income in
the current or previous periods.
a. Prior period errors
b. Change in accounting policy
c. Reclassification adjustment
d. Change in accounting estimate

48. PAS 1, paragraph 81, provides that an entity may present comprehensive income as:
I. Two statements presenting an income statement which shows the components of profit or loss and a
statement of comprehensive income beginning with profit or loss as shown in the income statements
plus or minus the components of other comprehensive income.
II. Single statement of comprehensive income showing the components of profit or loss and components
of other comprehensive income in a single statement.
a. I only
b. II only
c. Neither I nor II
d. Both I and II

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49. Which of the following statements concerning the approach used by an entity in measuring its financial performance is
incorrect?
I. Capital maintenance approach is the conventional or traditional preparation of income statement in
conformity with PFRS.
II. Transaction approach means that net income occurs only after the capital used from the beginning of
the period is maintained.
a. Both I and II
b. Neither I nor II
c. I only
d. II only

50. Which of the following combination is correct regarding the capital maintenance approach?
a. Financial capital – current cost; Physical capital – historical cost
b. Financial capital – historical cost; Physical capital – current cost
c. Financial capital – historical cost; Physical capital – historical cost
d. Financial capital – current cost; Physical capital – current cost

51. PAS 1, paragraph 87, specifically mandates that an entity shall present any item of infrequent and unusual income or
expenses as
a. Post- tax and after income from continuing operations
b. Pre-tax and after income from continuing operations
c. Post-tax and before income from continuing operations
d. Pre-tax and before income from continuing operations

52. Which of the following shall be disclosed on the face of the income statement and statement of comprehensive income for the
period?
I. Profit or loss attributable to noncontrolling interest and owners of the parent.
II. Total comprehensive income attributable to noncontrolling interest and owners of the parent
a. I only
b. II only
c. Both I and II
d. Neither I nor II

53. PAS 1, paragraph 82, provides that as a minimum, the income statement and comprehensive income shall include the line
items which present the following amounts, except
a. Income tax expense
b. Extraordinary items
c. Finance cost
d. A single amount for discontinued operation

54. What presentation of the income statement on the basis of expenses is allowed by PAS 1, paragraph 99?
a. Only functional presentation
b. Only natural presentation
c. Neither A nor B
d. Either A or B

55. An entity classifying expenses by function shall disclose additional information on which of the following?
a. Depreciation, amortization and employee benefit cost
b. Cost of Sales
c. Distribution cost
d. Administrative expense
e.
56. Which of the following transactions will not result to an income?
a. Rendering of services
b. Use of entity resources
c. Existence of probable contingent asset
d. Disposal of resources other than products

57. PAS 1 provides that an entity shall present a statement of changes in equity showing the following, except
a. Total comprehensive income for the period
b. Effects of changes in accounting policies and correction of errors
c. Dividends payable at the end of the year
d. Profit or loss for the period

14
58. PAS 8 defines it as an adjustment of the carrying amount of an asset or a liability or the amount of the periodic consumption of
an asset that results from the assessment of the present status of and expected future benefit and obligation associated with
the asset and liability.
a. Change in accounting estimate
b. Change in accounting policy
c. Change in accounting principle
d. Change in accounting method

59. Change in accounting policies shall be made only when:

I. Required by an accounting standard or an interpretation of the standard.
II. The change will result in less relevant and reliable information about the financial position, financial
performance and cash flows of the entity.

a. I only
b. II only
c. Both I and II
d. Neither I nor II

60. The following are examples of change in accounting estimate, except

a. Change of method of estimating bad debts.
b. Change in the depreciation method of PPE
c. Change in the fair value of financial assets and financial liabilities
d. Change in the method of inventory pricing from FIFO to average method

61. The following are not changes in accounting policy, except

a. The application of an accounting policy for events or transactions that differ in substance from previously occurring
events or transactions.
b. Change from cost model to fair value model in measuring investment property and PPE.
c. The application of a new accounting policy for events or transactions which did not occur previously or that were
immaterial.
d. Change in the periodic consumption of an asset.

62. The effect of a change in accounting estimate shall be recognized

a. Only in the period of change.
b. Retroactively by restating the prior year’s balances.
c. Both in the period of change and future change if the change affects both.
d. Prospectively by restating the prior year’s balances.

63. If there is doubt or difficulty in determining whether a change refers to accounting policy or accounting estimate, PAS 8
requires the entity to treat the change as
a. Change in accounting policy without appropriate disclosures
b. Change in accounting estimate with appropriate disclosures
c. Change in accounting policy with appropriate disclosures
d. Change in accounting estimate without appropriate disclosures

64. Which of the following statements concerning PAS 8 is incorrect?

a. Retrospective application is applying a new accounting policy to transactions , other events and conditions as if that
policy had always been applied.
b. Prospective application means that the new accounting policy is applied to events and transactions occurring before
the date of change.
c. Retrospective restatement refers to the process of correcting the beginning balance of the assets, liabilities and
equity.
d. When it is impracticable for an entity to apply a new accounting policy retrospectively because it cannot determine the
cumulative effect of applying the policy to all periods, the entity shall apply the new policy prospectively from the
earliest period practicable.

65. What is the proper treatment of change in accounting policy?

a. Retrospectively regardless of transitory provision.
b. Prospectively regardless of transitory provision.
c. If the change is required by a standard with a transitional provision, the change shall be applied retrospectively and if
the change is voluntary or without transitory provision, the change shall be applied in accordance with the transitional
provisions.
d. If the change is required by a standard with a transitional provision, the change shall be applied in accordance with
the transitional provision and if the change is voluntary or without transitory provision, the change shall be applied
retroactively.

15
66. PAS 8 specifies the hierarchy of guidance which the management may use in case of absence of an accounting standard that
specifically applies to a transaction or event. What is the proper order of priority?
I. Definition, recognition, criteria and measurement concepts of assets, liabilities, income and expenses
provided in the Framework.
II. Most recent pronouncements of other standard-setting bodies that use a similar framework.
III. Requirements of current standards dealing with similar matters.
a. III – I – II
b. I – II – III
c. III – II – I
d. II – III – I

67. Prior period errors are omissions from and misstatement in the financial statements for one or more periods arising from a
failure to use or misuse of reliable information that:
I. Were available when financial statements for those periods were authorized for issue.
II. Could reasonable be taken to have been obtained and taken into accounting in the preparation and
presentation of those financial statements.
a. Both I and II
b. Either I or II
c. I only
d. II only

68. What is the proper treatment for prior period errors?

a. Retrospective restatement with disclosures
b. Prospective restatement disclosures
c. Retrospective restatement without disclosures
d. Prospectively restatement disclosures

69. PAS 8 provides that an entity shall disclose for prior period errors the following, except
a. Nature of the prior period error
b. The amount of correction at the beginning of the earliest prior period presented.
c. If retrospective restatement is impracticable for a particular prior period, the circumstances that led to the existence of
that condition and a description of how and from when the error has been corrected.
d. Comparative amount to financial statement line item without error or correction

70. Under this basis of accounting, income is recognized when received regardless of when earned, and expense is recognized
when paid regardless of when incurred.
a. Accrual basis
b. Cash basis
c. Modified cash basis
d. Going concern basis

71. Under this system, the records maintained are represented by the so-called “bare essentials” and normally these include a
record of cash, accounts receivable, accounts payable, PPE and taxes paid. The records of the company are incomplete.
a. Double entry system
b. Triple entry system
c. Single entry system
d. Compound entry system

72. Which of the following statements concerning prior period error is incorrect?
a. They include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or
misinterpretation of facts and fraud.
b. Prior period error shall be corrected by retrospective restatement.
c. The correction of a prior period error shall be included in the profit or loss of the period in which it is discovered.
d. The correction of a prior period error is an adjustment of beginning balance of retained earnings of the earliest period
presented.

73. These errors only affect real or permanent accounts.

a. Income statement errors
b. Mixed errors
c. Prior period error
d. Statement of financial position error
74. These errors are those which, if not detected, are automatically counterbalanced or corrected in the next account period.
a. Transplacement error
b. Transposition error
c. Non-counterbalancing error
d. Counterbalancing error

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75. The following errors will be offset or corrected over two period or these errors correct themselves over two periods, except
a. Overstatement of Ending Inventory
b. Understatement of Depreciation Expense
c. Overstatement of Unearned Revenue
d. Understatement of Accrued Expense

76. PAS 7, paragraph 7, that an investment normally qualifies as a cash equivalent only when
a. It is acquired 12 months before its maturity.
b. It is acquired 12 months before the end of reporting period.
c. It is acquired 3 months before its maturity.
d. Its remaining term is 3 months.

77. As a general rule, the following cash flows shall be presented in the operating activities, except
a. Interest paid
b. Interest received
c. Dividends paid
d. Dividends received

78. The following are examples of cash flows from investing activities, except
a. Cash payments for future contract, forward contract, option contract and swap contract
b. Cash received from the exercise of share options by the company officials.
c. Cash receipts from sale of debt instruments of another entity.
d. Nontrade advances and loans to other parties.

79. The following are examples cash flows from financing activities, except
a. Cash payments for bonds payable
b. Cash receipts from issuance of treasury shares
c. Cash payments by a lessee for the reduction of the outstanding liability relating to a finance lease.
d. Cash payments for trading securities

80. Investing and financing transactions that do not require use of cash or cash equivalents shall be presented
a. In the statement of cash flows
b. In the statement of financial position
c. In the statement of comprehensive income
d. In the notes to financial statements

81. PAS 7, paragraph 35, provides that cash flows arising from this shall be separately disclosed as cash flows from operating
activities?
a. Interest paid
b. Income taxes paid
c. Interest received
d. Dividends received

82. Which of the following activities in the statement of cash flows allow the use of indirect method?
a. Operating activities
b. Financing and investing activities
c. Operating and financing activities
d. Operating and investing activities
83. Which of the following items shall be added in the accrual basis net income in determining the net cash flows from operating
activities under the indirect method?
a. Gain on sale of PPE.
b. Investment income from Investment in Associate.
c. Amortization of discount on bonds payable
d. Amortization of discount on bonds receivable.

84. Which of the following items shall be deducted in the accrual basis net income in determining the net cash flows from
operating activities under the indirect method?
a. Depreciation expense
b. Impairment loss on goodwill
c. Amortization of premium on bonds payable
d. Amortization of premium on bonds receivable

85. The purchase of a cash equivalent shall be presented in what portion of statement of cash flows?
a. Operating activities
b. Investing activities
c. Financing activities
d. Not presented
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86. External events include all of the following, except
a. Sale of merchandise
b. Borrowing money from the bank
c. Donation received from shareholder
d. Casualty loss caused by flood, earthquake or other natural disaster.

87. What is the proper order of the following steps in the accounting cycle?
I. Preparing the reversing entries
II. Preparing adjusting entries
III. Posting
IV. Analyzing business transactions
V. Preparing closing entries
VI. Preparing unadjusted trial balance
VII. Preparing financial statements
VIII. Preparing post-closing trial balance
IX. Journalizing
a. IV-IX-III-VI-II-VII-V-VIII-I
b. IV-IX-III-VI-II-V-VIII-VII-I
c. IV-IX-III-VI-II-VII-V-I-VIII
d. IV-IX-III-VI-II-VII-I-V-VIII

88. It is an optional step in the accounting cycle and may be made to facilitate the preparation of the financial statements.
a. Preparing trial balance
b. Worksheet
c. Financial statement analysis
d. Preparing reversing entries

89. These pertain to the original source materials evidencing a transaction.

a. Journal
b. Ledger
c. Source documents
d. Audit trail

90. The following are examples of business or source documents, except

a. Sales invoice
b. Debit and credit memorandum
c. Purchase requisition form
d. Check stubs and minutes book
91. This pertains to the book of original entry.
a. Journal
b. Ledger
c. Source documents
d. Audit trail

92. This pertains to the book of final entry.

a. Journal
b. Ledger
c. Source documents
d. Audit trail

93. This type of journal entry consists of one debit and one credit.
a. Simple journal entry
b. Complex journal entry
c. Basic journal entry
d. Compound journal entry

94. What is a compound journal entry?

a. A journal entry with at least one debit and one credit.
b. A journal entry with at least one nominal and one real account.
c. A journal entry with at least two real accounts.
d. A journal entry consisting of two or more debits or two or more credits.

95. The following statements pertaining to special journals are correct, except
a. Only sales of merchandise on account are recorded in the sales journal.
b. Receipts of cash from any source are recorded in the cash receipts journal.
c. All payments of cash for any purpose are recorded in cash disbursements journal.
d. Only purchases of merchandise on account are recorded in the purchases journal.
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96. Adjusting entries, closing entries and reversing entries are recorded in the
a. Sales journal
b. Cash receipts journal
c. General journal
d. Purchases journal

97. It is an accounting device used in summarizing the effects of transactions on each asset, liability, equity, revenue and expense.
a. Journal
b. Account
c. Ledger
d. Trial balance

98. It refers to a listing of all the entity’s general ledger accounts in a systematic form. The accounts are usually numbered to
permit easy identification and cross-referencing with the journals.
a. Trial balance
b. Chart of accounts
c. General ledger
d. General journal

99. It is a device used in storing the details or breakdown of certain general ledger accounts.
a. Subsidiary ledger
b. Special journals
c. General ledger
d. General journal

100.What is the controlling account of customer’s subsidiary ledger?

a. Accounts payable
b. Accounts receivable
c. Common stock
d. Cash account

101.What is a real account?

a. It represents assets, liabilities and equity account and it is also known as permanent or statement of financial position
account. It is normally carried from one accounting period to another and remains in the post-closing trial balance.
b. It is offset account and it is deducted from the related account.
c. It is added to the related account.
d. It represents revenue and expense account and it is also known as temporary or income statement accounts. It is
closed at the end of every accounting period and has zero balance in the post-closing trial balance.

102.Which of the following is an example of real-adjunct account?

a. Allowance for bad debts
b. Freight In
c. Sales discount
d. Premium on Bonds Payable

103.This is a system of internal control over all cash disbursements wherein a voucher must be prepared for every cash
disbursement that is to be made.
a. Imprest system
b. Voucher system
c. Check register system
d. Cash register system

104.What is a voucher?
a. It is the business document or written authorization for every cash disbursement.
b. It is the journal where all vouchers are recorded in numerical sequence.
c. It is the journal where all checks issued for payments are recorded.
d. It is the subsidiary where all unpaid vouchers are filed after the vouchers are entered in the voucher register.

105.It is a list of general ledger accounts with their respective debit or credit balance.
a. Worksheet
b. Chart of accounts
c. Trial balance
d. Financial statements

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106.Which of the following statements pertaining to a trial balance is incorrect?
a. It is a control device that helps to minimize accounting errors.
b. It is normally prepared at the end of every accounting period after all transactions for the period have been recorded
and posted to the general ledger.
c. It provides evidence that the total debits equal the total credits.
d. If it is in balance it signifies the absence of errors in the journalizing and posting of transactions.

107.What is transposition error?

a. It is an error in placing the decimal point and also known as slide error.
b. It is an error of nonrecording a transaction.
c. It is an error which if not detected is automatically counterbalanced or corrected in the following accounting period.
d. It is an error wherein the figures are interchanged.

108.What is the purpose of adjusting entries?

a. To simplify the accounting process and make a fresh accounting start.
b. To apply the realization concept to transactions which affect at least two accounting periods.
c. To close the nominal accounts for preparation of post-closing trial balance.
d. To initially record transactions or events.

109.Which of the following is a proper combination for an adjusting entry?

a. Debit asset and credit liability
b. Debit liability and credit revenue
c. Debit liability and credit equity
d. Credit equity and debit asset

110.In preparing a worksheet, which of the following statements is true?

a. If the total credits in the Income Statement Column exceed the total debits in the Income Statement Column, there is
a net loss.
b. If the total debits in the Balance Sheet Column exceed the total credits in the Balance Sheet Column, there is a net
income.
c. If the total credits in the Income Statement Column exceed the total debits in the Balance Sheet Column, there is a
net income.
d. If the total debits in the Balance Sheet Column exceed the total credits in the Income Statement Column, there is a
net loss.

111.After the closing entries have been prepared, which of the following will have zero balance?
a. Purchase discount
b. Allowance for bad debts
c. Share premium
d. Discount on bonds payable

112.In closing the income summary account of a corporation that is profitable, which of the following statements is true?
a. Share premium account is debited.
b. Retained earnings account is debited
c. Retained earnings account is credited
d. Income summary account is credited

113.It is a listing of general ledger accounts and their balances and it consists only of real or permanent accounts.
a. Unadjusted trial balance
b. Adjusted trial balance
c. Income statement
d. Post-closing trial balance

114.These entries are made at the beginning of the new accounting period in order to simplify recording of certain kinds of
recurring transactions.
a. Closing entries
b. Reversing entries
c. Journal entries
d. Realization entries

115.The following adjusting entries will require reversing entries, except

a. Accrued expenses
b. Accrued income
c. Prepaid expense using expense method
d. Unearned income using liability method

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116.Which of the following statements concerning debit and credit sides of an account are true?
a. Debit represents the increase of an account.
b. Credit represents the increase of an account.
c. Credit is the normal balance of asset and expense accounts while debit is the normal balance of liability, equity and
income accounts.
d. Normal balance of an account represents the increase side of an account.

117.In preparing the worksheet, which of the following statements concerning merchandise inventory account is proper?
a. Merchandise inventory, end is extended to debit column in the income statement column.
b. Merchandise inventory, end is extended to debit column in the balance sheet column.
c. Merchandise inventory, beg. is extended to credit column in the income statement column.
d. Merchandise inventory, beg. is extended to credit column in the balance sheet column.

118.The following are the purposes of worksheet, except

a. It provides a place where adjusting entries can be made informally before they are journalized and posted.
b. It ensures the elimination of errors in the journalizing and posting of transactions.
c. It provides an orderly means whereby each account can be classified according to the financial statement in which it
will appear.
d. It provides a balancing mechanism that helps to uncover accounting errors.

119. There is no specific standard dealing with cash. The only guidance is found in PAS 1 which provides that in order for a cash or
cash equivalent to be current, it must be
a. Unrestricted from being exchanged or used to settle a liability for at least 3 months after the end of reporting period.
b. Unrestricted from being exchanged or used to settle a liability for at least 12 months after the end of reporting period.
c. Restricted from being exchanged or used to settle a liability for at least 3 months after the end of reporting period.
d. Restricted from being exchanged or used to settle a liability for at least 3 months after the end of reporting period.

120. The following items may qualify as cash equivalents, except

a. Redeemable preference shares
b. Ordinary shares
c. Held to maturity bonds receivable
d. Money market placement

121.The following fund may form part of cash and cash equivalents, except
a. Interest fund
b. Cash surrender value
c. Sinking fund for bonds payable due within 12 months
d. Payroll fund

122. Which of the following statements concerning compensating balance is incorrect?

a. If the compensating balance is not legally restricted as to withdrawal, it is part of cash.
b. If the compensating balance is legally restricted as to withdrawal for a short-term loan, it is not part of cash but
presented as short-tem investment.
c. If the compensating balance is legally restricted as to withdrawal for a long-term loan, it is not part of cash but
presented as long-term investment.
d. The agreements regarding compensating balance shall not be disclosed in the notes to financial statements.

123. Under the imprest fund system, the petty cash fund account shall be debited or credited under the following transactions,
except
a. When the petty cash fund is replenished.
b. When the petty cash fund is created.
c. When the petty cash fund is increased.
d. When the petty cash fund is adjusted at the end of the period.

124. The following are bank reconciling items, except

a. Deposit in Transit
b. Bank Error
c. Notes Receivable Collected
d. Outstanding checks

125. The following are book reconciling items that require adjusting entries in the book of depositor, except
a. Erroneous bank credit
b. Bank service charge
c. Interest earned
d. NSF Check

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126. The adjusted bank balance is higher than the unadjusted book balance. Which of the following items is not yet reconciled?
a. Bank service charge
b. Deposit in transit
c. Outstanding check
d. Interest earned

127. The adjusted book balance is lower than the unadjusted bank balance. Which of the following items is not yet reconciled?
a. Bank service charge
b. Deposit in transit
c. Outstanding check
d. Interest earned

128. Which of the following statements concerning the presentation of receivables are incorrect?
a. Trade receivables which are expected to be realized in cash within the normal operating cycle or one year, whichever
is longer, are classified as current assets.
b. Nontrade receivables which are expected to be realized in cash within one year, the length of the operating cycle
notwithstanding, are classified as current assets.
c. Trade receivables and nontrade receivable which are currently collectible shall be presented on the face of the
statement of financial position as one line item called trade and other receivables.
d. Trade and nontrade receivables which are currently collectible shall be separately presented on the face of the
statement of financial position.

129. The following non-trade receivables are generally classified as current, except
a. Advances to shareholders, employees or officers.
b. Advances to supplier for acquisition of merchandise.
c. Accrued income receivables such as dividends receivable, rent receivables and royalty receivables.
d. Advances to affiliates and associates.

130. The following non-trade receivable may form part of the asset section, except
a. Claims receivable
b. Subscription receivable collectible beyond one year
c. Advances to subsidiary collectible beyond one year
d. Special deposits on contracts

131. Customer credit balances shall be presented as

a. Current asset as part of trade and other receivables by offsetting it customer accounts with debit balances.
b. Current asset as part of short-term investment.
c. Current liability by removing it from the trade and other receivables
d. Both part of current asset and current liability

132. What is the proper treatment of bank overdraft?

a. As a general rule, it shall form part of cash and cash equivalents.
b. It shall form part of trade and other receivables.
c. As a general rule, it shall form part of current liabilities unless it can be offsetted to another bank account.
d. It shall be disclosed in the notes to financial statements.

133.Accounts receivable shall be subsequently measured at

a. Face value
b. Present value
c. Amortized cost
d. Net realizable value

134. If the shipping term is FOB Shipping Point – Freight Collect, who shall pay and who actually paid the freight, respectively?
a. Seller – Buyer
b. Seller – Seller
c. Buyer – Buyer
d. Buyer – Seller

135. If the company uses the gross method of recording credit sales, which of the following accounts shall not appear?
a. Accounts receivable
b. Sales discount
c. Sales discount forfeited
d. Sales

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136. If the company uses the net method of recording credit sales, which of the following is true?
a. The total sales may be recorded at gross amount.
b. The sales discount account may be presented in the Income Statements.
c. Sales discount forfeited is presented as a contra-sales account.
d. The total credit sales is always recorded at net amount.

137. Which of the following methods of recording bad debts does not conform to the matching principle mandated by GAAP?
a. Direct write off method
b. Percent of sales method
c. Percent of accounts receivable method
d. Aging method

138. Which of the following methods of recording bad debts favors the income statement and result to proper matching of
expenses to revenue?
a. Direct write off method
b. Percent of sales method
c. Percent of accounts receivable method
d. Aging method

139. The amount initially computed under aging method of estimating bad debts is the amount
a. Bad debt expense
b. Ending balance of allowance for bad debts
c. Written off accounts receivable
d. Beginning balance of accounts receivable

140. The following transactions will result to credit to allowance for bad debts account, except
a. Bad debts expense
b. Recovery of accounts previously written off
c. Adjustment to increase the bad debts expense
d. Write off of accounts receivable

141. The following transactions decrease the accounts receivable account, except
a. Credit memo issued to customer
b. Credit sales
c. Sales discount
d. Factoring of accounts receivable

142. As a general rule, bad debts expense shall be classified in the Income Statement as
a. Selling Expense or Distribution Cost
b. Administrative expense
c. Finance cost
d. Other expense

143. The allowance for bad debts account has debit balance, what does it indicate?
a. It is possible because it may be the policy of the entity to adjust the allowance for bad debts at the end of the period
and record accounts written off during the year.
b. It is not possible.
c. It is not allowed because allowance for bad debts is a contra-asset account and must have a credit balance.
d. The debit balance indicates that the allowance is inadequate.
144.PAS 2 defines it as asset which is held for sale in the ordinary course of business, in the process of production for such sale or
in the form of materials or supplies to be consumed in the production process or in the rendering of services.
a. Investment
b. Inventories
c. Property, plant and equipment
d. Intangible asset

145.The following items are considered inventory, except

a. House and lot for sale of Real Estate Company
b. Car under production of Honda Car Manufacturing
c. Fruits in the SM Supermarket
d. Land classified as held for sale of ABS-CBN

146.The following classes of inventories pertain to manufacturing concern, except

a. Raw materials
b. Work in process
c. Finished goods
d. Merchandise inventory

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147.Which of the following types of inventory is the least saleable?
a. Raw materials
b. Work in process
c. Finished goods
d. Merchandise inventory

148.What is the type of inventory of a service provider?

a. Raw materials
b. Work in process
c. Finished goods
d. Merchandise inventory

149.As a general rule, when can an entity recognize an inventory in its statement of financial position?
a. When the goods are in transit
b. When the entity holds title over the goods
c. When the goods are already paid
d. When the goods are not yet delivered

150.Based on the Civil Code, what transfers ownership or title?

a. Payment of purchase price
b. Delivery whether actual or constructive
c. Execution of contract
d. Breach of contract
151.As a rule, the entity that holds the goods owns the goods. The following are the exceptions to that rule, except
a. When the contract is consignment of goods.
b. When the contract involves sale on trial or approval.
c. When the contract involves sale or return.
d. When the goods in the warehouse is specifically segregated and fabricated per sale contract to a certain customer.

152.When the goods are in transit, and the bill of lading shows that the shipping term is FOB-Destination – freight collect, who shall
pay and who paid the freight, respectively?
a. Buyer and buyer
b. Seller and seller
c. Seller and buyer
d. Buyer and seller

153.The inventories shall be presented as one line item in the statement of financial position but the details of the inventories shall
be disclosed in the notes to financial statements. They are classified and presented in the statement of financial position as
a. Current liabilities
b. Current assets
c. Non-current assets
d. Non-current liabilities

154.The following statements pertain to periodic inventory system, except

a. There is no maintenance of records called stock cards that usually offer a running summary of the inventory inflow
and outflow.
b. The purchase, purchase return and purchase discount are used instead of merchandise inventory account.
c. The cost of inventory is only known at the time of physical count.
d. It is used by entity which sells high-value and low-volume products.

155.Which of the following accounts cannot be found in a perpetual inventory system?

a. Accounts receivable
b. Merchandise Inventory
c. Sales return
d. Purchase discount

156.This type of discount is given to encourage trading or increase sales and it is considered deduction from the list or catalog
price.
a. Cash discount
b. Purchase discount
c. Trade discount
d. Sales discount

157.The following statements pertain to cash discount, except

a. Its purpose is to encourage prompt payment.
b. It is recorded as purchase discount by the buyer and sales discount by the seller.
c. It is deducted from purchases to arrive at net purchases or deducted from sales to arrive at net sales revenue.
d. It is not recorded or journalized.
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158.The following accounts can be found in net method of recording purchases, except
a. Purchase discount
b. Purchase
c. Accounts payable
d. Purchase discount lost

159.The following are cost components of inventories, except

a. Cost of purchase
b. Cost of relocation of workers
c. Cost of conversion
d. Other cost incurred in brining the inventories to their present location and condition

160.The cost of purchase of inventory includes the following, except

a. Import duties and nonrefundable taxes
b. Freight, insurance while in transit and handling cost
c. Purchase price
d. Recoverable value added tax

161.The following cost shall not be included in cost of purchase, except

a. Foreign exchange difference which arise directly from the recent acquisition of inventories involving a foreign
currency.
b. Interest expense in case of purchases under deferred settlement terms.
c. Organization costs
d. Directly attributable costs to the acquisition of inventory

162.The following are components of costs of conversion, except

a. Administrative overhead
b. Factory overhead
c. Direct labor cost
d. Cost of direct materials used

163.The following costs are excluded from the cost of inventories and recognized as expenses in the period in which they are
incurred, except
a. Storage costs of finished goods but not those of raw materials and work in process.
b. Normal amounts of wasted materials, labor and other production costs.
c. Administrative overhead
d. Distribution or selling costs

164.PAS 2 provides that inventories shall be measured initially at

a. Historical cost
b. Current cost
c. Realizable value
d. Fair value

165.PAS 2, par. 9, provides that inventories shall be measured subsequently or presented in the statement of financial position at
a. Higher of cost or net realizable value
b. Lower of cost or market value
c. Lower of cost or fair value
d. Lower of cost or net realizable value

166.What is net realizable value of inventory?

a. Estimated selling price less cost to sell
b. Estimated selling price less cost to complete
c. Estimated selling price less cost to complete and less cost to sell
d. Fair value less cost to complete and cost to sell

167.PAS 2 expressly provides that the cost of inventories shall be determined using
a. FIFO or LIFO
b. FIFO or weighted average
c. LIFO or weighted average
d. FIFO, LIFO or weighted average

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168.The use of FIFO favors the statement of financial position in that inventory is stated at current replacement cost. Under FIFO,
in a period of inflation or rising prices
a. The net income will be lower.
b. The cost of sales will be higher.
c. The ending inventory will be lower.
d. The net income will be higher.

169.Under FIFO costing, which of the following statements is true?

a. FIFO cost under perpetual system will be lower than FIFO periodic system.
b. FIFO cost under perpetual system will be equal to the FIFO periodic system.
c. FIFO cost under perpetual system will be higher than FIFO periodic system.
d. Without the data, the higher cost is undeterminable.

170.Under the periodic inventory system, the average method is known as

a. Weighted average method
b. Moving average method
c. Simple average method
d. Complex average method

171.Under this method of inventory costing, the specific costs are attributed to identified items of inventory.
a. FIFO method
b. LIFO method
c. Moving average method
d. Specific identification

172.Which of the following statements concerning net realizable value of inventory is incorrect?
a. Inventories are usually written down to net realizable value on an item by item or individual basis.
b. It is appropriate to write down inventories based on a classification of inventory.
c. Materials and other supplies used held for use in production are not written down below cost if the finished goods in
which they will be incorporated are expected to be sold at or above cost.
d. The cost of inventories may also not be recoverable if those inventories are damaged or if they become wholly or
partially obsolete or if their selling prices have declined.

173.When difference inventories or commodities are purchased at a lump sum, the single cost is apportioned among the
commodities or inventories based on their
a. Sales price or fair value
b. Book value
c. Net realizable value
d. Fair value less cost to sell

175. PAS 16 defines it as tangible assets which are held by an entity for use in production or supply of goods and services, for
rental for others, or for administrative purposes, and are expected to be used during more than one period.
a. Investment property
b. Property, plant and equipment
c. Intangible asset
d. Inventory

176. The following are the major characteristics of property, plant and equipment, except
a. They are tangible assets, meaning with physical substance.
b. They are used in business, meaning used in production or supply of goods and services, for rental purposes and for
administrative purposes.
c. They are subject to depreciation and impairment.
d. They are expected to be used over a period of more than one year.

177. The following statements concerning depreciation are correct, except

a. It is the systematic allocation of the depreciable amount of an asset over its useful life.
b. It is the portion of the cost or other amount substituted for cost allocated or charged as expense during an accounting
period.
c. The objective of depreciation is to have each period benefiting from the use of the asset bear an equitable share of the
asset cost.
d. It is a matter of asset valuation rather than a cost allocation.

178. What shall the depreciation of an item of property, plant and equipment begin?
a. When the asset is derecognized.
b. When the asset is available for use.
c. When the asset is classified as held for sale under PFRS 5.
d. When the asset is classified as inventory under PAS 2.

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 179. As a general rule, the following factors are necessary to compute depreciation except
a. Depreciable amount
b. Residual value
c. Useful life
d. Fair value

180. It refers to cost of an asset or other amount substituted for cost, less its residual value.
a. Depreciable amount
b. Book value
c. Fair value
d. Recoverable amount

181. It refers to the estimated amount that an entity would currently obtain from disposal of the asset, after deducting the estimated
cost of disposal, of the asset were already of the age and condition expected at the end of its useful life.
a. Book value
b. Depreciable amount
c. Fair value less cost to sell
d. Residual value

181. It refers to either the period over which an asset is expected to be available for use by the entity or the number of production
or similar units expected to be obtained from the asset by the entity.
a. Residual value
b. Historical cost
c. Useful life
d. Depreciable amount

182. The following factors shall be considered as determining the useful life an asset, except
a. Expected usage of the asset or its legal limits
b. Residual value of the asset
c. Technical or commercial obsolescence
d. Expected physical wear and tear

183. This method of depreciation provides for a constant charge over the useful life of the asset.
a. Straight line
b. Declining balance method
c. Units of production method
d. Sum of the year’s digit method

184. The following methods of depreciation are based on the passage of time, except
a. Straight line
b. Declining balance method
c. Units of production method
d. Sum of the year’s digit method

185. The method of depreciation is appropriate when the asset is considered more productive in the early part of its useful life.
a. Straight line
b. Group method
c. Units of production method
d. Sum of the year’s digit method

186. Which method of depreciation does not normally use residual value in computing depreciation especially in the early years?
a. Straight line
b. Declining balance method
c. Units of production method
d. Sum of the year’s digit method

187. Indicate the normal balance of the following:

Asset
Liability
Equity
Income
Expense

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188. Which of the following is an incorrect combination of journal entry?
a. Increase in asset and increase in equity h. Decrease in asset and increase in expense
b. Increase in asset and increase in liability i. Increase in liability and decrease in equity
c. Increase in asset and increase in income j. Decrease in liability and increase in equity
d Increase in asset and decrease in expense k. Decrease in liability and increase in expense
e. Decrease in asset and decrease in equity l. Increase in liability and decrease in expense
f. Decrease in asset and decrease in liability m. Decrease in equity and increase in expense
g. Decrease in asset and decrease in income n. Increase in equity and decrease in expense
o. Increase in equity and decrease in income
p. Decrease in equity and decrease in income

189. Indicate the amount or term computed by the following formulas in merchandising business:
a. Beg. Merchandise Inventory + Gross Purchases – Purchase returns, allowance and discount + Freight In
b. Total Goods Available for Sale – Ending Merchandise Inventory
c. Net Sales – Cost of Sales
d. Net Sales – Gross Profit
e. Cost of Sales + Gross Profit
f. Total Goods Available for Sale – Cost of sales
g. Cost of sales + Ending Merchandise Inventory

190. Indicate the amount or term computed by the following formulas in manufacturing business:
a. Beg. Raw Materials + + Gross Purchases – Purchase returns, allowance and discount + Freight In – Ending Raw Materials
b. Raw Materials Used + Direct Labor + Factory Overhead
c. Raw Materials Used + Direct Labor
d. Factory Overhead + Direct Labor
e. Total Manufacturing Cost + Work in process Inv. Beg.
f. Total Goods Put into process – Work in process Inv End.
g. Total cost of goods manufactured + Beg. Finished Goods
h. Total goods available for sale – End Finished Goods

191. What amount replaces net purchases in a manufacturing concern?

a. Cost of goods put into process
b. Cost of goods manufactured
c. Cost of sales
d. Total manufacturing cost

192. The following are deductions to gross payroll of an employee, except

a. Withholding income tax
b. SSS or GSIS premium
c. Philhealth Contribution
d. Pag-ibig Contribution
e. Value added tax or other business taxes

----Good Luck and God Bless in your qualifying exam.----

----“Do not settle for less. Always aim for the best.”----

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