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