EXAL Genesis_ CFAS Testbank PDF

CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS Introduction and Development of Standards 1. The IASB employs a due process system which a. Is an efficient system for collecting dues from members b. Enables interest parties to express their views on iss...

CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS Introduction and Development of Standards 1. The IASB employs a due process system which a. Is an efficient system for collecting dues from members b. Enables interest parties to express their views on issues under consideration c. Identifies the most important accounting issues d. Requires that all CPAs must receive a copy of IFRS 2. What is the chronological order in the evaluation of a typical standard? a. Exposure draft, Standard and Discussion Paper b. Exposure draft, Discussion paper, and Standard c. Standard, Discussion paper and Exposure draft d. Discussion paper, Exposure draft and Standard 3. What is the law regulating the practice of accountancy in the Philippines? a. R.A No. 9298 b. R.A No. 9198 c. R.A No. 9928 d. R.A No. 9892 4. What is due process in the standard setting by the IASB? a. IASB operates in full view of the public b. Public hearings are held on proposed standards c. Interested parties can make their views known d. All of these are part of the due process 5. Which statement best describes generally accepted accounting principles? a. The accounting principles have been formulated in the public sector b. The accounting principles have been developed on the basis of such factors as usage and practical necessity c. The accounting principles are the same as laws d. The accounting principles do not apply to SMEs 6. The primary responsibility of properly applying GAAP lies with a. External auditor b. Internal auditor c. Management d. National accounting organization 7. The FRSC was created by the Board of Accountancy to assist in BOA in carrying out its power and function to a. Promulgate accounting standards in the Philippines b. Promulgate auditing standards in the Philippines c. Ensure that all higher educational instructions and offering accountancy comply with the policies, standards and requirements of the council on a full time basis d. Implement the CPE program 8. Under the Philippine accountancy act of 2004, the professional regulatory Board of accountancy shall be composed of a. Chairman and six members to be appointed by the President of the Philippines  b. Chairman, Vice chairman and six members to be appointed by the president of the Philippines c. Chairman and six members to be appointed by PICPA d. Chairman and members to be appointed by PRC 9. The FRSC issues its Standards in a series of pronouncements called PFRS’. These consists of a. PFRS b. PAS c. Philippine interpretation d. All of these 10. The purpose of IASB is to a. Issue enforceable standards which regulate the financial accounting and reporting of multinational corporations b. Develop a uniform currency in which the financial transactions of companies throughout the world would be measured c. Develop a single set of high-quality IFRS d. Arbitrate accounting disputes between auditors and international companies 11. Which of the following is a characteristic of the FRSC a. Majority of the FRSC should come from CPA firms b. All FRSC members must be CPAs c. FRSC members are required to render service to the council on a full time basis d. All four sectors of the accountancy profession are represented in the FRSC 12. The IASB declared that the merits of proposed standards are assessed a. From a position of neutrality b. From a position of materiality c. Based on possible impact on behavior d. Based on arguments of a lobbyist 13. It is 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 institute of Certified Public Accountants c. Securities and Exchange Commission d. Financial Reporting Standards Council 14. IFRIC Interpretations issued by IASB a. Are considered authoritative and must be followed b. Cover newly identified financial reporting issues not specifically addressed c. Cover issues with conflicting interpretations d. All of these are true about IFRIC interpretations 15. Which of the following is correct regarding FRSC a. Any member of the ASC shall be disqualified from being appointed to the FRSC b. FRSC member are required to render service to the council on a full time basis c. FRSC members should be CPAs d. FRSC members serve for a term of three years renewable for another term 16. Which statement is true about the IASB’s development of IFRSs? a. The IASB gives precedence to the balance sheet over Profit or Loss. b. The IASB gives precedence to fair value accounting over amortized cost. c. c. Both a and b. d. Neither a nor b. 17. Certified Public Accountants are licensed by a. PICPA  b. The Securities and Exchange Commission c. The Financial executives Institute of the Philippines d. The state government 18. The IASB employs a due process system which a. Is an efficient system for collecting dues from members b. Enables interested parties to express their views on issues under consideration c. Identifies the most important accounting issues d. Requires that all CPAs must receive a copy of IFRS 19. Which statement is incorrect in relation to the practice of public accounting? a. Single practitioners for the practice of public accounting shall be registered CPAs in the Philippines b. Partners of partnership formed for the practice of public accounting shall be registered CPAs in the Philippines c. The SEC can register any corporation organized for the practice of public accounting d. A certificate of accreditation shall be issued to CPAs who have acquired at least 3 years of public practice 20. The Continuing Professional Development is required for a. Renewal of CPA license b. Accreditation to practice the accountancy profession c. Both renewal of CPA license and accreditation to practice the accountancy profession d. Neither renewal of CPA license nor accreditation to practice the accounting profession Conceptual framework 21. What is the authoritative status of the Conceptual Framework? a. The conceptual framework has the highest level of authority b. In the absence of a standard or an interpretation that specifically applies to a transaction, the Conceptual Framework shall be followed 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. The Conceptual Framework applies only when the IASB develops new standards 22. The overall Objective of financial reporting is to provide information a. That is useful for decision making b. About assets, liabilities and equity of an entity c. About financial performance during a period d. That allows owners to assess management performance 23. During a period when an entity is under the direction of a particular management, financial reporting will directly provide information about a. Both entity performance and management performance b. Management performance but not management performance c. Entity performance but not management performance d. Neither entity performance nor management performance 24. This refers to the use of caution in the exercise of judgments needed in making estimates required under conditions of uncertainty , such that assets or income are not overstated and liabilities or expenses are not understated  a. Faithful representation b. Prudence c. Consistency d. Relevance 25. Which of the following are related to the qualitative characteristic of relevance under the Conceptual Framework? I. Predictive value II. Confirmatory Value III. Timeliness IV. Materiality a. I and II b. I, II and III c. I, II and IV d. I, II, III, IV 26. For information to be more useful, the linkage between the users and the decisions made is a. Relevance b. Faithful representation c. Understandability d. Verifiability 27. Technically, when an entity applies the same accounting treatment to similar events from period to period, the entity is exhibiting which quality a. Verifiability b. Consistency c. Predictive value d. Comparability 28. Recognizing expected loss immediately but deferring expected gain is an example of a. Materiality b. Conservatism c. Cost effectiveness d. Timeliness 29. An item would be considered material when a. The expected benefits exceed additional costs b. The impact on earnings is greater than 10% c. The standard definition of materiality is met d. The omission or misstatement would make a difference to the primary users 30. Which underlying assumption serves as the basis for preparing statements at artificial points in time? a. Accounting entity b. Going concern c. Accounting period d. Stable monetary unit 31. What is the accounting concept that justifies the usage of accruals and deferrals? a. Going concern b. Materiality c. Consistency d. Stable Monetary unit 32. It is an increase in asset or a decrease in liability that results in increase in equity other than contributions from equity holders a. Asset b. Liability c. Income  d. Expense 33. Which is not within the new definition of an asset? a. An asset is a present economic resource b. The economic resource is a right that has potential to produce economic benefits c. The economic resource is controlled by the entity as a result of past event d. Future economic benefit is expected to flow to the entity 34. Which of the following represents the least desirable choice for the recognition of revenue? a. Recognition of revenue during production b. Recognition of revenue when a sale occurs c. Recognition of revenue when cash is collected d. Recognition of revenue when production is completed 35. Costs that can be reasonably associated with specific revenue but not with specific product should be a. Expensed in the period incurred b. Allocated to the specific product based on the best estimate of the product processing time c. Expensed in the period in which the related revenue is recognized d. Capitalized and then amortized over a reasonable period 36. Financial information provided in general purpose financial reports does not include information about a. The resources of the entity b. The claims against the entity c. How effectively and efficiently the entity's governing board has discharged its responsibilities d. How Effectively and efficiently the entity’s shareholders have discharged their responsibility to use the entity’s resources 37. Which of the following is not a characteristic of faithful representation a. The financial information must have predictive value and confirmatory value b. The financial information must be complete within the pounds of materiality and cost c. The financial information contained in the financial statements must be free from bias d. The phenomena described in the financial statements and the process used to produce the reported information must be free from error 38. The objective of financial reporting in the Revised Conceptual Framework a. Is the foundation for the Conceptual Framework. b. Includes the qualitative characteristics that make accounting information useful. c. Is the “how” of accounting. d. All of the choices are correct regarding the objective of financial reporting 39. What is meant by comparability when discussing financial accounting information? a. Information has predictive and feedback value. b. Information is reasonably free from error. c. Information is measured and reported in a similar fashion across entities. d. Information is measured and reported in a similar fashion across points in time 40. Which of the following statements is false regarding the limitation of financial reporting?  a. General purpose financial reports do not and cannot provide all of the information that existing and potential investors, lenders and other creditors need. b. General purpose financial reports are designed to show the value of an entity. c. General purpose financial reports are based on judgment and estimate. d. General purpose financial reports are intended to provide common information to users 41. Which of the following best describes the cost-benefit constraint? a. The benefit of the information must be greater than the cost of providing it. b. Financial information should be free from cost to users of information. c. Cost of providing financial information is not always evident or measurable but must be considered. d. All of the choices are correct. 42. Assessing cash flow prospects is interpreted to mean a. Cash basis accounting is preferred over accrual basis b. Information about cash receipts and payments is generally the best indicator to generate favorable cash flows c. Over the long run, trends in revenue and expenses are generally more meaningful than trends in cash receipts and disbursements d. All of the choices are correct regarding assessing cash flow prospects 43. The enhancing qualitative characteristics of financial information are a. Comparability and understandability b. Verifiability and timeliness c. Comparability, understandability and verifiability d. Comparability, understandability, verifiability and timeliness 44. Verifiability implies a. Legal evidence b. Logic c. Consensus d. Legal verdict 45. Which of the following is not a basic assumption underlying financial accounting? a. Economic entity assumption b. Going concern assumption c. Periodicity assumption d. Historical cost assumption 46. Which of the following statements regarding comparability is incorrect? a. The usefulness of financial information is greatly enhanced if it can be compared with information produced by another entity or with similar information prepared in previous periods b. Comparability and consistency are interrelated but they are not the same. Comparability is the means while consistency is the goal c. Information is comparable if it is prepared and presented consistently d. Comparability and consistency are interrelated but they are not the same. Comparability is the goal while consistency is the means. 47. Which of the following is not an implication of the going concern assumption? a. The historical cost principle is credible b. Depreciation and amortization policies are justifiable and appropriate c. The current and noncurrent classification of assets and liabilities is justifiable and significant d. Amortizing research and development costs over several periods is justifiable and appropriate 48. Recognizing a financial statement element requires measuring it in monetary terms. Which of the following statements is incorrect regarding measurement? a. The Conceptual Framework only describes measurement bases used in financial reporting but does not specify how a particular financial statement element should be measured - this is addressed by the standards b. The Conceptual Framework broadly classifies the measurement bases used in financial reporting into two, namely, historical cost and current value c. Measurement uncertainty will always cause the non-recognition of a financial statement element d. Measuring a financial statement element often requires estimation 49. Under this concept, a profit is earned only if the financial (or money amount of the net assets at the end of the period exceeds the financial or money) amount of net assets at the beginning of the period, after excluding any distributions to, and contributions from, owners during the period. It can be measured in either nominal monetary units or units of constant purchasing power. a. Concept of capital b. Concept of capital maintenance c. Financial capital maintenance concept d. Physical capital maintenance concept 50. Which of the following represents a liability? a. The obligation to pay for goods that an entity expects to order from suppliers next year b. The obligation to provide goods that customers have ordered and paid for during the current year c. The obligation to pay interest on a five-year note payable that was issued the last day of the current year d. The obligation to distribute an entity's own shares next year as a result of a stock dividend declared near the end of the current year 51. Statement 1: The underlying theme of Conceptual Framework is preparation of financial statements Statement 2: Conceptual Framework is intended to assist auditors in applying the standards in the preparation of financial statements a. Only the first statement is true b. Only the second statement is true c. Both statements are true d. Both statements are false 52. An item that meets the definition of an element shall be recognized when I. It is probable that future economic benefits associated with the item will flow to or from the entity. II. The item has a cost or value that can be measured with reliability. a. I only b. Il only c. Either I or II d. Both I and II 53. Which of the following characteristics enhances the quality of information? a. Relevant - Yes; Timely - No; Reliable - No  b. Relevant - No; Timely - Yes; Reliable - No c. Relevant - Yes; Timely - No; Reliable - Yes d. Relevant - No; Timely - No; Reliable - No e. Relevant - Yes; Timely - Yes; Reliable - Yes 54. Which of the following statements is incorrect concerning materiality? a. Materiality is dependent on professional judgment because no threshold limit is defined in the Conceptual b. Materiality is not a fundamental qualitative characteristic but rather a threshold or cut off point in determining useful information c. Materiality depends on the absolute size of the item or error judged in the particular circumstances of the omission or misstatement d. Information is material if the omission or misstatement could influence the economic decisions that users make on the basis of the financial information about entities 55. The Conceptual Framework (choose the incorrect statement) a. Is not a PFRS b. in the absence of a standard, shall be considered by management when making its judgment in developing and applying an accounting policy that result in information that is relevant and reliable c. is concerned with general-purpose financial statements only d. prevails over the PFRSs in cases of conflicts 56. Which of the below presentation of information is correct regarding the purpose of Conceptual Framework? I. Assist USERS of Financial Statements - in forming opinion II. Assist PREPARERS of Financial Statements - in applying PFRSs III. Assist FRSC - in reviewing existing standards a. I only b. II only c. I and III d. II and III e. None from A, B, C and D 57. Statement 1: Conceptual framework applies in the preparation and presentation of general purpose financial statement geared toward the specific needs of wide range of users. Statement 2: Conceptual framework is an integral part of Philippine Financial Reporting Standards (PFRS) and applies specifically to not-for-profit entities. a. Only the first statement is true b. Only the second statement is true c. Both statements are true d. Both statements are false 58. Effective communication makes information more useful. Effective communication requires all of the following except: a. Focusing on presentation and disclosure objectives and principles rather than focusing on rules b. Classifying information in a manner that groups similar items and separates dissimilar items  c. Aggregating information in such a way that it is not obscured either by unnecessary detail or by excessive aggregation d. Using standardized descriptions, a.k.a. "boilerplate", rather than entity specific information 59. Which of the above statements) is (are) incorrect? I. The Framework notes that other parties may find general purpose financial reports useful However, they are not considered primary users and general purpose financial reports are not primarily directed to them. II. The providers of risk capital and their advisers are concerned with the risk inherent in, and return provided by, their investments. a. I only b. II only c. Both I and II d. Neither I nor II 60. It is the process of incorporating in the statement of financial position or statement of comprehensive income an item that meets the definition of an element of financial statements. a. Allocation b. Measurement c. Realization d. Recognition PAS 1 PRESENTATION OF FINANCIAL STATEMENTS 61. A complete set of financial statements include all, except a. Statement of financial position b. Statement of changes in equity c. Notes to financial statements d. Environmental reports 62. The heading of a financial statement most likely will not include a. The name of the reporting entity b. The title of the financial statements c. The date of the financial statement d. The name(s) of the business owner(s) 63. If an entity expects, and has the discretion, to refinance or roll over an obligation for at least twelve months after the balance sheet date under an existing loan facility, it classifies the obligation as non-current a. Even if it would otherwise be due within a shorter period b. Even if the term was for a period longer than twelve months c. even if an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting period and before the financial statements are authorized for issue d. Both B and C 64. Expenses are presented in the statement of comprehensive income using a. Nature of expense method b. Function of expense method c. Single-statement presentation d. Two-statement presentation 65. The major financial statements include all, except a. Statement of financial position b. Statement of changes in financial position c. Statement of comprehensive income d. Statement of changes in equity 66. Which of the following cannot be considered fair presentation of financial statements? a. To present information in a manner that provides relevant and faithfully represented financial information b. To provide additional disclosures when compliance with specific PFRS is insufficient to understand the financial position and financial performance c. To select and apply accounting policies in accordance with applicable PFRS d. To rectify inappropriate accounting policies either by disclosure of the accounting policies used or by notes or explanatory information 67. Which of the following statements is false? a. An entity shall not present any items of income or expense as extraordinary items anywhere in the financial statements b. An entity shall present, either in the statement of changes in equity or in the notes, the amount of dividends recognized as distributions to owners during the period, and the related amount per share c. Under the natural presentation, an entity aggregates expenses within profit or loss according to their nature and reallocate them among functions within the entity d. An entity classifying expenses by function shall disclose additional enformation on the nature of expenses 68. In analyzing a company’s financial statements, which financial statement would a potential investor primarily use to assess the company’s liquidity and financial flexibility? a. Balance sheet b. Income statement c. Statement of retained earnings d. Statement of cash flows 69. Which of the following statements is true? a. An entity shall present all assets and liabilities in order of liquidity b. An entity shall not present any items of income or expense as extraordinary items, in the statement of comprehensive income or the separate income statement c. An entity shall disclose reclassification adjustments relating to components of other comprehensive income d. An entity is precluded from presenting additional line items, headings and subtotals in the statement of comprehensive income and the separate income statement (if presented) 70. Which of the following statements is not true? a. The operating cycle of an entity is the time between the acquisition of assets for processing and their realization in chas or cash equivalents b. When the entity’s normal operating cycle is not clearly identifiable it is assumed to be twelve months c. An entity shall classify a liability as current when he does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period d. Reclassification adjustments may arise from revaluation surplus 71. Which is the first item in presenting the notes to financial statements? a. Explicit and unreserved statement of compliance with PFRS  b. Other disclosures, such as contingent liabilities and non financial disclosures c. Supporting information for items present on the face of the financial statements d. Summary of significant accounting policies 72. Notes to financial statements a. Must be quantifiable b. Must qualify as an element c. Amplify items presented in the financial statements d. All of these are characteristics of notes to financial statements 73. The term deficit refers to a. An excess of current assets over current liabilities b. An excess of current liabilities over current assets c. A debit balance in retained earnings d. A prior period error 74. The statement of financial position is useful for analyzing all of the following except a. Liquidity b. Solvency c. Profitability d. Financial flexibility 75. Which of the following statements is false a. An entity shall prepare all its financial statements using the accrual basis of accounting b. An item that is not sufficiently material to warrant a separate presentation in the financial statements may warrant separate presentation in the notes c. An entity need not provide a specific disclosure required by an IFRS if the information is not material d. Measuring assets net of valuation allowance is not offsetting 76. Financial statements must be prepared at least a. Annually b. Quarterly c. Semiannually d. Every two years 77. A third statement of financial position as at beginning of the earliest comparative period presented is required a. When an entity applies an accounting policy retrospectively b. When an entity makes a retrospective restatement of items in the financial statement c. When an entity reclassifies items in the financial statements d. Under all of these circumstances 78. Which would likely prepare the most accurate financial forecast for an entity based on empirical evidence a. Investors using statistical models b. Corporate management c. Financial analysts d. Independent certified public accountants 79. The financial statement prepared under GAAP a. Do not articulate one another b. Reflect a single measurement which is historical cost c. Are not highly precise because estimate and judgment must be made d. Contain a limited number of future projection  80. When the classification of items in the financial statements is changed the entity a. Must not reclassify the comparative amounts b. Can choose whether or not to reclassify c. Must reclassify the comparative amounts to do so d. Must reclassify the current year amounts only PAS 7 CASH FLOWS 81. The primary purpose of a statement of cash flows is to provide relevant information about a. Differences between net income and associated cash receipts and disbursements b. An entity’s ability to generate positive net cash flows c. The cash receipts and cash disbursements of an entity during a period d. An entity’s ability to meet cash operating needs 82. Cash advances and loans made by financial institutions are usually classified as a. Operating activities b. Investing activities c. Financing activities d. Component of cash and cash equivalents 83. Which of the following transactions affects cash and cash equivalents? a. The acquisition of assets either by assuming directly related liabilities or by means of a lease b. The acquisition of an entity by means of an equity issue c. The conversion of debt to security d. Recognition of depreciation and amortization e. None of the above 84. Which of the following is false? a. Prospective financial information may be prepared for general or limited users b. The responsible party is the only limited user c. The financial projection may contain assumptions not necessarily expected to occur d. The financial projection may be expressed as a range of dollars 85. Which classification of the cash flow arising from the proceeds from an earthquake disaster settlement would be most appropriate? a. Cash flows from operating activities b. Cash flows from investing activities c. Cash flows from financing activities d. Does not appear in the statement of cash flows 86. Which of the following is not true? a. Prospective financial information may be prepared for general or limited users b. The responsible party is the only limited user c. The financial projection may contain assumptions not necessarily expected to occur d. The financial projection may be expressed as a range of dollars 87. What is the treatment of a three-month treasury bill? a. Not reported b. An outflow for financing activities c. An outflow for lending activities d. An outflow for investing activities 88. All of the following could potentially be classified as either operating or investing cash flow, except a. Interest received  b. Dividend received c. Taxes paid specifically identified with investing d. Dividend paid 89. When preparing a statement of cash flows using the indirect method, the amortization of patent is reported as a. Increase in cash flows from investing activities b. Reduction in cash flows from investing activities c. Increase in cash flows from operating activities d. Reduction in cash flows from operating activities 90. Prospective financial information is defined as a. Any financial about the past, present, or futures b. Any financial information about the present or future c. Any financial information about the future related to the day-to-day operations d. Any financial information about the future 91. Free cash flow is calculated as net cash provided by operating activities less a. Capital expenditures b. Dividends and depreciation c. Capital expenditures and dividends d. Capital expenditures and depreciation 92. Noncash investing and financing activities are a. Reported only if the direct method is used b. Reported only if the indirect method is used c. Disclosed in a note or separate schedule accompanying the statement of cash flows d. Not reported 93. Marketing and collecting loans are a. Operating activities b. Investing activities c. Financing activities d. Liquidity activities 94. The statement of cash flows reports all, except a. The net change in cash for the period b. The cash flows from operations during the period c. The free cash flow generated during the period d. Investing transactions 95. Cash advances and loans made by a financial institution are usually classified as a. Operating activities b. Investing activities c. Financing activities d. Component of cash and cash equivalents 96. All can be classified as cash and cash equivalents, except a. Redeemable preference shares due in 60 days b. Treasury bills due for repayment in 90 days c. Equity investments d. A bank overdraft 97. How should a loss on sale of machinery be presented in a statement of cash flows using indirect method? a. A deduction from net income b. An addition to net income c. An inflow and outflow of cash d. An outflow of cash 98. Supplemental disclosures required only when the statement of cash flows is prepared using the indirect method include  a. A schedule reconciling net income with net cash flows from operating activities b. Amounts paid for interest and taxes c. Amounts deducted for depreciation and amortization d. Significant noncash investing and financing activities 99. In a statement of cash flows using indirect method, a decrease in prepaid expenses is a. Reported as an outflow and inflow of cash b. Reported as an outflow of cash c. Deducted from net income d. Added to net income 100. Dividends received from an equity investee should be presented in the statement of cash flows as a. Deduction from cash flows from operating activities b. Addition to cash flows from investing activities c. Addition to cash flows from operating activities d. Deduction from cash flows from investing activities PAS 2 INVENTORIES 101. Which of the following should not be taken into account when determining the cost of inventory? i. Storage costs of part-finished goods ii. Trade discounts iii. Recoverable purchase taxes iv. Import duties on shipping of inventory inward v. Compensation of factory workers vi. Abnormal amount of wasted material vii. Distribution cost viii. Interest on inventory loan ix. Selling and Administrative costs a. I, ii, iv, v b. Iii,v, i, ix c. Iii, vi, vii, viii, ix d. Iii, vi, vii, ix only 102. Inventories shall be measured at: a. The lower of cost and net realizable value b. The higher of cost and net realizable value c. Cost d. Net realizable value 103. Inventories are usually written down to NRV a. By segment b. By total c. By classification d. Item by item 104. Cash discounts permitted should be: a. Cash discounts permitted should be: b. Added to other income, only if taken c. Deducted from inventory, whether taken or not d. Deducted from inventory, only if taken 105. Which of the following should not be reported as inventory? a. Land acquired for resale by a real estate company  b. Shares and bonds held for resale by a stockbroker c. Partially completed (WIP) goods held by a manufacturing entity d. Machinery acquired by a manufacturing entity for production 106. The valuation of inventory on a prime cost basis: a. Would achieve the same results as direct costing b. Would exclude all overhead from inventory cost c. Is always achieved when standard costing is used d. Is always achieved when FIFO is used 107. Which of the following generally would not be separately accounted for in the computation of cost of goods sold? a. Trade discounts b. Cash discounts c. Purchase returns and allowances d. Freight-in 108. Which is not acceptable for the valuation of inventory? a. Historical cost b. Current replacement cost c. Prime cost d. Estimated selling price less cost of disposal 109. LCNRV of inventory a. Is always either net realizable value or cost b. Must equal to net realizable value c. May sometimes be less than net realizable value d. Must be equal to estimated selling price less expected cost to complete and disposal 110. In a period of falling prices, which cost flow method would typically result in the highest COGS a. FIFO b. LIFO c. Moving Average d. Specific identification 111. In a period of rising prices, the inventory cost flow method that would typically result in the highest gross profit is a. FIFO b. LIFO c. Moving average d. Weighted average 112. During a period of inflation, when the FIFO method is used, a perpetual inventory system would a. Not be permitted b. Result in a higher ending inventory than a periodic inventory system c. Result in a lower ending inventory than a periodic inventory system d. Result in the same ending inventory as a periodic inventory system 113. Identify which of the statements is/are true/false i. Inventories should be written down on an item by item basis when its cost is higher than its NRV ii. II. Y acquires merchandise from Z in an arrangement whereby Z is obligated to repurchase the merchandise at a future date. Y shall include such merchandise acquired from Z in its inventory iii. III. With FIFO, Ending Inventories are reported on the balance sheet at or near their current value  a. False, false true b. True, false, false c. False, true, false d. True, false, true 114. The purchase cost of inventories includes all except a. Purchase price b. Import duties and non-refundable taxes c. Freight cost incurred in bringing the inventory to its intended location d. Value added taxes (VAT) paid by a VAT registered taxpayer 115. What is consigned inventory? a. Goods that are shipped but title remains with the shipper b. Goods that are shipped and title transfers to the receiver c. Goods segregated for shipment to a specific customer d. Goods that are sold but payment is not required until a later date 116. Which should be excluded in an entity’s inventories a. Merchandise displayed in the store b. Goods in the warehouse c. Goods purchased in transit FOB Shipping point d. Goods purchased in transit FOB Destination 117. An exception to the general rule that costs should be charged to expense in the period incurred is: a. Sales commission and salary costs incurred in connection with sale of inventory b. General and administrative costs incurred in connection with the purchase of inventory c. Interest cost for financing inventories d. Factory overhead costs incurred on a product manufactured but not sold during the period 118. Which inventory measurement procedure is not allowed to measure the cost of inventories for annual reporting purposes? a. FIFO b. Gross profit method c. Moving average method d. Retail inventory method 119. The cost of inventories that are not ordinarily interchangeable and goods or services produced are segregated for specific projects shall be measured using a. FIFO b. Average method c. LIFO d. Specific Identification 120. What is the inventory pricing procedure in which the oldest costs rarely have an effect on ending inventory? a. LIFO b. FIFO c. Moving average d. Weighted average PAS 16 PROPERTY PLANT AND EQUIPMENT 121. Which of the following is within the scope of PAS 16, Property, plant and equipment i. Bearer plants related to agriculture ii. Land being developed to be rented out under operating lease in the future iii. Equipment rented out under operating lease a. I and III b. II and III c. I and II d. I,II,III e. Answer not given 122. Which of the following is/are true or false i. when an item of property plant and equipment is acquired by issuing equity shares, the best basis for establishing the historical cost of the acquired asset is the fair value of the shares issued even if the assets fair value is clearly determinable ii. donated equipment for which the fair value has been determined shall be reported as a debit to the equipment account and a credit to income if the source of donation is a non-related party iii. if an exchange transaction has commercial substance gain or loss on exchange is computed as the difference between the fair value of the asset given up plus or minus cash given or received and the carrying amount of the asset given up iv. if an exchange electron has no commercial substance getting or loss on exchange is not recognized a. True, false, false, true b. False, true, true, false c. True, true, false, true d. False, true, false, true e. True, true, true, false 123. Property plant and equipment are defined as a. tangible assets held for sale in the ordinary course of business b. tangible assets held to earn rentals or for capital appreciation or both c. tangible assets held for use in the production or supply of goods or services and expected to be used during more than one reporting period d. Tangible assets held for use in the production or supply of goods or services for rental to others or for administrative purposes and expected to be used during more than one reporting period. 124. During the current year ABC company acquired an equipment to be used for its production operations determine which of the below costs can be capitalized as cost of the new equipment a. cost of base such as cost of safety rail and platform surrounding the equipment b. insurance cost after delivery of the equipment c. cost of training the staff who will operate the equipment d. none of the above 125. The cost of an item of PPE comprises all of the following except a. purchase price after deducting trade discounts rebates and other similar deductions  b. any cost directly attributable in bringing the asset to the location and condition for its intended use c. import duties and transportation cost to bring the asset to its intended location d. initial estimate of the cost of dismantling and removing the item and restoring the site where the entity is not obliged to restore the site at the end of its life 126. Costs that are expensed immediately include all the following except a. Cost of opening a new facility b. Cost of testing whether the asset is functioning properly c. Cost of conducting business in new location including cost of staff training d. Cost of introducing a new product or service including cost of advertising and promotional activities 127. Which of the following is or arc characteristics of PPE i. physical existence ii. reduction in cost due to depreciation iii. long lived a. I and II b. II and III c. I and III d. I, II, III 128. The cost of razing an old building is a. accounted for depending on the reason for the demolition b. added to the cost of a new building constructed gross of salvage proceeds c. added to the cost of the new building constructed net of salvage proceeds d. added to the cost of the land plus any salvage proceeds 129. In an exchange of assets and an an entity received equipment with a fair value equal to the carrying amount of the equipment given up the entity also contributed cash as a result of the exchange the entity shall recognize: a. neither gain nor loss b. loss equal to the cash given up c. a gain determined by the proportion of cash paid to the total transaction value d. a loss determined by the proportion of cash paid to the total transaction value 130. cost of a newly constructed building includes the following except a. excavation cost b. safety inspection fee c. cost of permanent fences d. interest expense 131. Which of the following is/are true or false i. Initial cost of PPE includes purchase cost directly attributable costs and estimated cost of dismantling where the entity has no obligation to restore the site at the end of the useful life of the PPE ii. costs that are expensed immediately include the cost of testing whether the asset is functioning properly iii. Trade discounts are always deducted in computing the initial cost of PPE a. True, False, True b. False, False, False c. True, False, False d. False, False, True e. true true true 132. If an entity purchased a lot and an old building and immediately demolished the  old building and used the property as a parking lot the proper accounting treatment of the carrying amount of the old building would depend on a. contemplated future use of the parking lot b. the length of time for which the building was held prior to demolition c. the intention of management for the property when the building was acquired d. the significance of the cost allocated to the building in relation to the combined cost of the lot and building 133. when assets are acquired by issuing an entity's own equity instruments the assets acquired are measured using the following order of priority i. par value of shares issued ii. fair value of asset received iii. fair value of shares issued a. I, II, III b. II, III, I, c. III, I, II d. III, II, I e. II, I, III 134. In an exchange transaction with commercial substance the cost of property acquired should be measured at a. fair value of asset given minus cash given to equalize fair values b. fair value of asset received less cash given to equalize fair values c. fair value of asset given without deducting or adding the cash given or received to equalize fair values d. carrying amount of asset given plus cash given to equalize fair values 135. Which of the following is/are true or false i. When assets are acquired on account the cost shall exclude trade and cash discount ii. if an item of PPE is acquired on a deferred charge basis and it any cost to be capitalized is exclusive of imputed interest since the basis is cash selling price a. true, false b. false, true c. true, true d. false, false 136. Identify which of the following statement is/are true i. income earned from incidental operations before an asset is put to use is accounted for as a reduction in cost of the asset. ii. savings from self constructing a building are recognized immediately in profit or loss a. only the first statement is true b. only the second statement is true c. both statements are true d. none of the statements are true 137. When land and an old building are acquired the cost of immediately demolishing the old building to prepare the land for the intended use should be a. accounted for as deferred charge b. charge to retained earnings c. charge to the land  d. expense immediately 138. the acquisition cost of items of property plan and equipment purchased on a lump sum price is allocated to the individual assets based on their a. relative fair values b. relative book values c. need not be allocated d. relative useful lives 139. Which of the following is/are true or false`? I. An asset is said to be fully depreciated when its carrying amount is zero or equal to its residual value II. In using group or composite method gain or loss may be recognized as the difference of the net disposal price and carrying amount of the disposed item of PPE of the group III. variable charge methods of depreciation is based on the philosophy that new assets are generally capable of producing more revenue in the earlier years than in the later years IV. When an estimate of an assets used for life is changed only the depreciation expense in the remaining years is changed V. depreciation stops when an item of PPE is they recognize or becomes temporarily idle whichever comes first a. True, false, false, false, true b. False, false, true, true, false c. True, false, false, true, false d. False, true, false, false, true e. True, true, false, true, false f. None of the above choices are correct 140. I. If a revalued asset is non-depreciable, a portion of revaluation surplus is periodically transferred to retained earnings. II. Whether the revalued asset is depreciable or non-depreciable the revaluation surplus will ultimately be transferred to retained earnings. a. Only the first statement is correct b. only the second statement is correct c. both statements are correct d. none of the statements are correct PAS 23 BORROWING COSTS 141. During the current year ABC has constructed a building. In relation to this, the following activities are under consideration: January 31- finalize the blueprint of the building and the technical site planning. March 1 - ABC borrowed from a bank to finance the construction of its own building. April 1- purchase the construction materials. May 1 - started the construction.From what date can the entity start the capitalization of borrowing cost? a. March 1 b. April 1 c. May 1 d. None of the above 142. Which of the following shows the correct computation of the capitalizable borrowing cost? I. if the asset is financed by specific borrowing the capitalizable borrowing cost is equal to the lower amount between the average expenditures of the asset during the period multiplied by the capitalization rate and the actual borrowing costs during the year II. If the asset is financed by specific borrowing the capitalizable borrowing cost is equal to the actual borrowing cost incurred up to the date of completion minus investment income from temporary investment of excess funds. a. I only b. II only c. Both I and II d. Neither 143. Which of the following can be classified as a qualifying asset? i. building purchased ready for its intended purpose ii. biological assets not yet ready for harvest iii. investment property not yet ready for its intended purpose measured under cost model a. I and II b. II and III c. III only d. I, II and III 144. All of the following is a required disclosure under pas 23 except i. The capitalized borrowing cost ii. Segregation of qualifying assets from other asset iii. The weighted average expenditures in relation to general borrowing a. I and II b. II and III c. I and III d. II only 145. Determine whether the following statements are true or false: i. capitalization of borrowing costs shall be suspended during temporary period of delay ii. borrowing costs related to non-qualifying assets are not capitalized and presented in profit or loss iii. if the asset is financed by specific borrowing but a portion is used for working capital purposes the borrowing shall be treated as a general borrowing in determining capitalizable borrowing cost a. False, true, true b. true, true, true c. false true false d. true true false 146. When computing the amount of interest costs to be capitalized the concept of avoidable interest refers to a. cost of capital b. the total interest cost actually incurred c. that portion of average accumulated expenditures on which no interest cost was incurred d. that portion of total interest costs which would not have been incurred if  expenditures for asset construction had not been made 147. If the qualifying asset is financed by specific borrowing the capitalizable borrowing cost is equal to a. Zero b. actual borrowing costs incurred c. actual borrowing costs incurred up to completion of asset d. actual borrowing costs incurred up to the completion of asset minus any investment income from the temporary investment of the borrowing 148. Which of the following can be a qualifying asset i. investment properties under fair value model ii. bearer plants iii. loans and receivables a. I and II b. I,II, III c. I only d. II only e. III only f. I,III 149. Which of the following is not a condition that must be satisfied before the interest capitalization can begin on a qualifying asset? a. interest is being incurred b. expenditures for the asset have been made c. the interest rate is equal to or greater than the entity’s cost of capital d. activities that are necessary to get the asset ready for the intended use are in progress 150. Which of the following statements concerning borrowing cost is false a. Borrowing costs are interest and other costs incurred by an enterprise in relation to borrowed funds b. Per PAS 23, the benchmark treatment for borrowing cost is to capitalize it as part of the cost of the asset to which it relates c. Borrowing costs generally include interest costs of bank overdrafts, amortization of discount or premium related to borrowings, finance charges with respect to finance leases d. Borrowing cost include amortization of ancillary cost incurred in connection with arrangement of borrowings as well as exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest cost 151. Borrowing costs are defined as a. Finance charges in respect of finance lease b. Interest expense using the effective interest method c. Interest and other costs that an entity incurs in connection with borrowing funds d. Exchange differences arising from foreign currency borrowings to the extent that these are regarded as an adjustment to interest cost 152. I. interest expense in relation to qualifying asset is not capitalized and expensed outright II. cost of retained earnings forms part as borrowing costs to be capitalized as cost of a qualifying asset  a. True, True b. True, False c. False,True d. False, False 153. If the qualifying asset is financed by general borrowing the capitalizable borrowing cost is equal to a. Actual borrowing cost incurred b. Total expenditures on the asset multiplied by capitalization rate c. Average expenditures on the asset multiplied by a capitalization rate or actual borrowing costs incurred whichever is lower d. Average expenditures on the asset multiplied by a capitalization rate or actual borrowing costs incurred whichever is higher 154. For purposes of capitalization of borrowing cost, which of the following is not a qualifying asset a. Investment property b. Manufacturing plant c. Power generation facility d. Asset that is ready for the intended use or sale 155. I. Depending on the circumstance inventories can be qualifying assets II.A qualifying asset is one which is ready for its intended purpose a. Only the first statement is true b. Only the second statement is true c. Both of these statements are true d. None of the statements are true 156. Capitalization of borrowing cost a. Shall be suspended during temporary period of delay b. Shall never be suspended once capitalization commences c. May be suspended only during extended period of delay in which active development is delayed d. Shall be suspended only during extended period of delay in which active development is delayed 157. I. In pas 23 paragraph 44 it provides that if the asset is financed by specific borrowing the capitalizable borrowing cost is equal to the average expenditures of the asset during the period multiplied by the capitalization rate II. If the asset is financed by specific borrowing but a portion is used for working capital purposes the borrowing shall be treated as a general borrowing in determining capitalizable borrowing cost a. Only the first statement is true b. Only the second statement is true c. Both statements are true d. None of the statements are true 158. An entity shall disclose i. The borrowing costs capitalized during the year ii. Asset segregated as qualifying assets a. I only  b. II only c. Both I and II d. Neither 159. Interest revenue earned on specific borrowing for qualifying asset a. increases equity b. must be credited to interest income c. reduces the cost of qualifying asset d. reduces interest expense reported in the income statement 160. Borrowing costs can be capitalized as cost of the asset when a. the asset is a qualifying asset b. the asset is a qualifying asset and it is not probable that the borrowing costs will result in future economic benefits to the entity c. the asset is a qualifying asset and it is probable that the borrowing costs will result in future economic benefits to the entity but the costs cannot be measured reliably d. the asset is a qualifying asset and it is probable that the borrowing costs will result in future economic benefits to the entity and the costs can be measured reliably PAS 8 Accounting Policies, Changes in Accounting Estimates, Erros 161. How should the effect of a change in accounting estimate be accounted for? a. by restating amounts reported in prior periods b. by reporting pro forma amounts for prior periods c. as a prior period adjustment of retained earnings d. in the period of change and future periods if the change affects both 162. Which is characteristic of a change in accounting estimat? a. it usually need not be disclosed b. it does not affect the financial statements of prior period c. It should be reported through the restatement of financial statements d. it makes necessary the reporting of pro forma amounts 163. Which should be reported when an entity changed from straight line depreciation to double declining method of depreciation a. cumulative effect of change in accounting policy b. proforma effect of retroactive application c. prior period error d. an accounting change that should be reported currently and prospectively 164. A change in accounting policy requires what kind of adjustment to the financial statements a. current period adjustment b. prospective adjustment c. retrospective adjustment d. current and prospective adjustment 165. A change in accounting policy requires that the cumulative effect of the change for prior periods should be reported as an adjustment to a. Beginning retained earnings for the earliest period presented b. net income for the period in which the change occurred c. comprehensive income for the earliest period presented d. shareholders equity for the period in which the change occurred 166. Which of the following is accounted for as a change in accounting policy a. a change in the estimated useful life of property plant and equipment b. a change from cash basis to accrual basis of accounting c. a change from expensing in material expenditures to deferring and amortizing them when material d. a change of depreciation method e. a change of a residual value of property plant and equipment f. a change in inventory valuation from FIFO to average method 167. Which of the following should be treated as a change in accounting policy a. a change is made in the method of calculating the provision for doubtful accounts b. a change from cost model to fair value model in measuring investment property c. an entity engaging in construction contract for the first time needs an accounting policy to deal with this transaction d. all of these qualify as a change in accounting policies 168. which describes applying a new accounting policy to transactions as if that policy had always been applied a. retrospective application b. retrospective restatement c. prospective application d. prospective restatement 169. which statement best describes prospective application a. recognizing a change in accounting policy in the current and future periods affected by the change b. correcting the financial statements as if a prior. Error had never occurred c. applying a new accounting policy to transactions occurring after the date the policy is changed d. applying a new accounting policy to transactions as if the policy had always been applied 170. If it is impracticable to determine the cumulative effect of an accounting change to any of the prior periods the accounting change should be accounted for a. as a prior period error b. on a prospective basis c. as a cumulative effect change in the income statement d. as an adjustment of retained earnings 171. When it is difficult to distinguish between a change in accounting estimate and a change in accounting policy the change is treated as a. change in accounting estimate with appropriate disclosure b. change in accounting policy c. correction of an error d. change in accounting estimate with no appropriate disclosure 172. S1: Changes in accounting policy are always accounted for retrospectively S2: if a change in accounting policy is caused by a new pronouncement by an authoritative accounting body the cumulative effect must always be reported by retrospective application  a. Only the first statement is correct b. only the second statement is correct c. both statements are correct d. neither is correct Changes in accounting policy is GENERALLY accounted for retrospectively UNLESS it is impracticable to do so… So not ALWAYS. There is an exception or an UNLESS provision. 173. S1: a change in reporting entity is actually a change in accounting policy S2: how are you effect of a change in accounting estimate shall be recognized prospectively ALWAYS a. Only the first statement is correct b. only the second statement is correct c. both statements are correct d. neither statement is correct 174. The correction of an error in the financial statements of a prior. Should be reflected, net of applicable income taxes, in the current a. income statement after income from continuing operations and before extraordinary items b. income statement after income from continuing operations and after extraordinary items c. retained earnings statement after net income but before dividends d. retained earnings statement as an adjustment of the opening balance 175. If a company incorrectly includes consignment items in the ending inventory (i.e., the ending inventory is overstated) and the net effects on the next period's cost of goods sold and profit respectively are: a. Overstatement, understatement b. understatement, overstatement c. Overstatement, overstatement d. None of the above 176. S1: retrospective application of a change in accounting policy shall be made as at the earliest period practicable S2: changes in accounting estimates are considered to be part of the normal accounting process and not corrections or changes of past periods a. only the first statement is true b. only the second statement is true c. both statements are true d. neither is true 177. Why is retrospective treatment of change in accounting estimate prohibited? a. a change in accounting estimate is a normal recurring correction or adjustment b. the retrospective treatment is not allowed c. retrospective treatment of a change in accounting estimate is required by IFRS d. IFRS is silent on this issue 178. In the absence of an accounting standard that applies specifically to a transaction, what is the most authoritative source in developing and applying an accounting policy?  a. accounting literature and accepted industry practice b. most recent pronouncement of other standard setting body c. the requirement and guidance in the standard or interpretation dealing with the similar and related issue d. the definition, recognition criteria and measurement of asset, liability, income and expense in the conceptual framework 179. What is the proper accounting statement for a change in reporting entity? a. restatement of current period financial statements b. restatement of financial statements of all prior periods presented c. provide adequate note disclosure d. adjustment of retained earnings and note disclosure 180. Which of the following is not a change in accounting policy? I. change in the method of inventory valuation from FIFO to weighted average method ii. change from cost model to revaluation model in measuring intangible asset iii. the initial adoption of policy to carry property plant and equipment at revalued amount to be dealt with as a revaluation iv. Change from cost model to fair value model in measuring investment property v. change to a new policy resulting from requirement of a new PFRS a. iv and i only b. ii and iii only c. iv and ii only d. iii and I only e. ii and i only f. i and iv only g. None of the above. ANSWER KEY Introduction and Conceptual PAS 16 Development of Framework PAS 7 Standards 136. D 46. B 91. C 137. C 1. B 47. D 92. C 138. A 2. D 48. C 93. B 139. C 3. A 49. C 94. C 140. B 4. D 50. B 95. A 5. B 51. D 96. C 6. C 52. D 97. B 7. A 53. B 98. B PAS 23 8. A 54. C 99. D 9. D 55. D 100. C 141. B 10. C 56. D 142. B 11. D 57. D PAS 2 143. C 12. A 58. D 144. B 13. A 59. D 101. C 145. A 14. D 60. D 102. A 146. D 15. D 103. D 147. D 16. D PAS 1 104. C 148. D 17. D 105. D 149. C 18. B 61. D 106. B 150. B 19. C 62. D 107. A 151. C 20. C 63. A 108. C 152. D 64. A 109. A 153. C Conceptual 65. B 110. A 154. D Framework 66. D 111. A 155. A 67. C 112. D 156. C 21. C 68. A 113. D 157. B 22. A 69. C 114. D 158. A 23. A 70. D 115. D 159. C 24. B 71. A 116. D 160. D 25. C 72. C 117. B 26. C 73. C 118. D 27. B 74. C 119. D PAS 23 28. B 75. A 120. B 29. D 76. A 161. D 30. C 77. D PAS 16 162. B 31. A 78. B 163. D 32. C 79. C 121. A 164. C 33. D 80. C 122. D 165. A 34. C 123. D 166. F 35. C PAS 7 124. A 167. B 36. D 125. D 168. A 37. A 81. C 126. B 169. C 38. A 82. A 127. C 170. B 39. C 83. E 128. B 171. A 40. B 84. B 129. B 172. D 41. A 85. A 130. C 173. C 42. C 86. B 131. D 174. D 43. D 87. A 132. C 175. A 44. C 88. D 133. B 176. C 45. D 89. C 134. D 177. A 90. D 135. C 178. C 179. B 180. G