Review School of Accountancy Theory of Accounts

Conceptual Framework A. An insurance company's policy liability

1. Which of the following is an essential characteristic of a liability? B. Financial instruments carried at fair value
A. The exact amount due must be known C. Future payments under employment contracts
B. It may be the result of future transactions D. Future payments on vacant leasehold premises
C. The identity of the creditor must be known
D. It must be an obligation to transfer assets or provide services in the future 7. According to PAS 37 (Provisions, contingent liabilities and contingent assets), which TWO of
the following best describe the sources of legal obligation?
2. Which of the following is not an essential characteristic for an item to be reported as a liability A legal obligation is an obligation that derives from
on the balance sheet? A - Legislation C - A published policy
A. The liability arises from past transactions or events B - A contract D - An established pattern of past practice
B. The liability is payable to a specifically identified payee
C. The liability is the present obligation of a particular entity A. A and B C. C and D
D. The settlement of the liability requires an outflow of resources embodying economic B. A and C D. B and D
benefits
8. According to PAS 37 (Provisions, contingent liabilities and contingent assets), for which of the
Income Determination following should a provision be recognized?
3. A gain or loss from one of the following transactions should not be included in determining A. Future operating losses
income. B. Obligations under insurance contracts
A. Receipt of interest from bank deposits C. Sale of products C. Obligation for plant decommissioning costs
B. Sale of plant and equipment D. Sale of treasury shares D. Reduction in fair value of financial instruments

4. A gain or loss from one of the following transactions should nor be included in determining 9. Under PAS 37, for which of the following should a provision be recognized?
income. A. A liability to pay pension benefits if a specific employee lives to retirement.
A. Receipt of interests from bank deposits C. Sale of products B. A liability to pay any adverse judgment for a product liability case currently on appeal
B. Sale of plant and equipment D. Sale of treasury shares C. A liability to replace specific defective television set already returned to the manufacturer.
D. A liability to pay for books received by the college bookstore; terms allow for the return
Current Liabilities, Provisions & Contingencies for full refund of any books not sold.
5. Which of the following items would be excluded from current liabilities?
A. Normal accounts payable which had been assigned by the creditor to a finance company 10. Liabilities whose amounts must be estimated are disclosed in financial statements by:
B. Long-term debt callable within one year or less because the debtor violated a debt A. Including details in the footnotes
provision B. An appropriation of the retained earnings
C. A short-term debt which at the discretion of the entity can be rolled over at least twelve C. Including the amounts in the liability totals
months after the balance sheet date D. Describing the estimated liability among the liabilities on the balance sheet, but hot
D. A long-term liability callable or due on demand by the creditor even though the creditor including the amounts, in the liability totals
has given no indication that the debt will be called
11. Which of the following provides the best explanation for why warranty expense should be
6. Which of the following is within the scope of PAS 37 (Provisions, contingent liabilities and estimated and recorded in the year of the related sales?
contingent assets)? A. Full disclosure C. Materiality
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B. Matching D. Revenue recognition Debt Restructuring

17. On the part of the debtor, debt restructuring generally will result in
12. Which of the following loss contingencies is usually not accrued? A. Gain on debt restructuring C. Loss on debt restructuring
A. Non-collectability of receivables C. Product warranty obligations B. Gain on exchange D. Loss on exchange
B. Premium offer obligations D. Risk of loss from fire
Leases
13. Which of the following liabilities is nor contingent? 18. The basic accounting issue for a lessor is
A. Future operating losses A. Expense recognition during the lease term
B. Obligations under insurance contracts B. Revenue recognition during the lease term
C. Obligations for plant decommissioning costs C. Computing depreciation over the lease term
D. Reductions in fair value of financial instruments D. Determination of the cost of the leased asset

Financial Liabilities 19. Where there is a lease of land and buildings and the title to the land is not transferred, the
14. Which of the following liabilities is a financial liability? lease is generally treated as if
A. Deferred revenue A. Both land and buildings are finance leases
B. A warranty obligation B. Both land and buildings are operating leases
C. A constructive obligation C. Land is operating lease; building is finance lease
D. An obligation to deliver own shares worth a fixed amount of cash D. Land is finance lease; building is operating lease

Bonds & Notes Payable 20. Solar Company leases a warehouse with adjoining land for a period of 15 years. The fair
15. Gains or losses from the early extinguishment of debt, if material, should be values of the leasehold interests in the land and of the warehouse are P 502,000 and P
A. Amortized over the life of the new issue 251,000, respectively. The land has an indefinite economic life whereas the warehouse has a
B. Amortized over the remaining life of the extinguished issue useful life of 15 years. Title to the land is not expected to pass at the end of the lease.
C. Recognized in income before taxes in the period of extinguishment Under PAS 17 Leases, what is the accounting treatment of these leased assets?
D. Recognized as an extraordinary item in the period of extinguishment A. B. C. D.
Land Finance lease Finance lease Operating lease Operating lease
Compound Financial Instrument Warehouse Finance lease Operating lease Finance lease Operating lease
16. What is the principle of accounting for a compound instrument (e.g., an issued convertible
debt instrument)? 21. As an inducement to enter a lease, a lessor granted a lessee 12 months of free rental under
A. The issuer shall classify a compound instrument as a liability in its entirety, until a 5-year operating lease. The lease was effective on January 1, 2012, and provides for
converted into equity monthly rental payments to begin January 1, 2013. The lessee made the first rental payment
B. The issuer shall classify the liability and equity components of a compound instrument on December 31, 2012. In its 2012 income statement, the lessor should report rental
separately as financial liabilities, financial assets or equity instruments revenue in an amount equal to
C. The issuer shall classify a compound instrument as a liability in into entirety, until A. Zero
converted into equity, unless the equity components shall be presented separately B. Cash, received during 2012
D. The issuer shall classify a compound instrument as either a liability or equity based on C. One-fifth of the total cash to be received over the life of the lease
an evaluation of the predominant characteristics of the contractual arrangement D. One-fourth of the total cash to be received over the life of the lease

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22. If the lessor and lessee use different interest rates to account for a finance lease, then D. Excess of tax depreciation over financial accounting depreciation
A. Total expenses and revenues will be equal
B. Total expenses and revenues will be different 29. Which of the following differences would result in future taxable amounts?
C. The lessee and lessor cannot use different interest rates A. Revenues or gains that are taxable before they are recognized n financial income
D. The lessor will use different account titles to record the leasing transaction B. Expenses or losses that are deductible after they are recognized n financial income
C. Expenses or losses that are deductible before they are recognized n financial income
23. One incentive for entering into a sale-and-leaseback arrangement on substantially all of the. D. Revenues or gains that are recognized in financial income but are never included in
Market value of an asset is taxable income
A. Improvement in cash flow for the lessor
B. Improvement in cash flow for the lessee 30. ABC Company's financial reporting basis of its plant assets exceeded the tax basis because
C. Entire gain appears on lessee income statement in sale year it uses a different method of reporting depreciation for financial reporting purposes and tax
D. Tax implications are favorable for the lessor, compared with other lending arrangements purposes. If there is no other temporary differences, ABC should report a
A. Current tax asset C. Deferred tax asset
24. The lessor must classify a sale-and-leaseback arrangement as a(n) B. Current tax payable D. Deferred tax liability
A. Operating lease or a finance lease
B. Operating lease or a sales-type lease 31. A deferred tax liability uses
C. Direct financing lease or a sales-type lease A. Current tax laws, unless enacted future tax laws are different
D. Direct financing lease or an operating lease B. The current tax laws, regardless of expected or enacted future tax laws
C. Expected future tax law, regardless of whether those expected laws have been enacted
Income Taxes D. Either current or expected future tax laws, regardless of whether those expected laws
25. Which of the following is the best description of the current PFRS approach to inter-period tax have been enacted
allocation?
A. An application of the matching concept C. The asset-liability method 32. According to PAS 12, deferred tax assets and liabilities should be reported in the balance
B. Partial allocation D. The enacted method sheet
A. As non-current asset and non-current liability
26. Which could never be subject to inter-period tax allocation? B. Always net non-current asset or net non-current liability
A. Depreciation expense on assets C. Interest revenue on municipal bonds C. As current and non-current depending on the order of liquidity or maturity
B. Estimated warranty expense D. Rent revenue D. As current and not-current assets and liabilities depending the balance sheet
classification of the related tax basis of the temporary difference
27. The deferred tax consequence attributable to a deductible temporary difference and
operating loss carry forward is known as 33. Which of the following statements is correct regarding the provision for income taxes in the
A. Current tax C. Tax expense financial statements of a sole proprietorship?
B. Tax asset D. Tax liability A. No provision for income taxes is required
B. The provision for income taxes should be based on business income using individual tax
28. A temporary difference that would result in a deferred tax asset is rates
A. Accrued warranty expense C. The provision for income taxes should be based on business income using corporate tax
B. Accrual commission income rates
C. Interest revenue on government bonds D. The provision for income taxes should be based on the proprietor's total taxable income,
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Review School of Accountancy
allocated to the proprietorship at the percentage that business income bears to the
proprietor's total income
Employee Benefits
34. The vested benefits of an employee represent
A. Benefits accumulated in the hands of an independent trustee
B. Benefits to be paid to the retired employee in the current year
C. Benefits to be paid to the retired employee in the subsequent year
D. Benefits that are not contingent on the employer's continuing in the service of the
employer
35. If payment of employees' compensation for future absences is probable and the amount can
be reasonably estimated and the obligation relates to rights that vest or accumulate, the
compensation should be
A. Recognized when paid
B. Accrued if attributable to employees' services not yet rendered
C. Accrued if attributable to employees' services already rendered
D. Accrued if attributable to employees' services whether or not already rendered
36. Under PAS 19, which of the following terms best describes benefits which are payable as a
result of an entity's decision to end an employee's employment before the normal retirement
date?
A. Defined benefit plans C. Termination benefits
B. Post-employment benefits D. Retrenchment benefits
37. Post-employment benefits are employee benefits
A. That are payable after the completion of employment
B. Provided following an entity's decision to terminate an employee's employment before
the normal retirement date
C. Provided following an employee's decision to accept an offer of benefits in exchange for
the termination of employment
D. That are expected to be settled wholly before twelve months after the end of reporting
period during which the employees render the related service.
38. An entity contributes to an industrial pension plan and provides a pension arrangement for its
employees. A large number of other employees also contribute to the pension plan, and the
entity makes contributions in respect of each employee. These contributions are kept
separate from corporate assets and are used together with any investment income to
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Theory of Accounts
purchase annuities for retired employees. The only obligation of the entity is to pay the
annual contributions.
This pension scheme is a
A. Defined benefit plan only
B. Defined contribution plan only
C. Multiemployer plan and a defined benefit scheme
D. Multiemployer plan and a defined contribution scheme
39. Under a defined contribution plan, any unpaid contribution at the end of the period should be
A. Ignored
B. Recognized as a prepaid expense
C. Recognized as an accrued expense
D. Recorded through a memorandum entry
40. An entity maintains a defined benefit pension plan for its employees. The service cost
component of the net periodic pension cost is measured using the
A. Expected return on plan assets C. Unfunded accumulated benefit obligation
B. Projected benefit obligation D. Unfunded vested benefit obligation
41. Interest cost included in the net pension cost recognized by an employer sponsoring a
defined benefit pension plan represents the
A. Increase in the benefit obligation due to passage of time
B. Increase in the fair value of plan assets due to passage of time
C. Amortization of the discount on unrecognized prior service cost
D. Shortage between the expected and actual return on plan assets
42. Which of the following components of the defined benefit (pension) costs shall be recognized
in the other comprehensive income (rather than profit or loss)?
A. Service cost
B. Net interest on the net defined benefit liability
C. Remeasurements of the net defined benefit liability
D. All of these items are required to be recognized in the profit or loss
43. Remeasurements of the net defined benefit liability shall be composed of
A. Actuarial gains and losses
B. Return on plan assets, excluding amounts included in the net interest
C. Any change in the effect of the asset ceiling, excluding amount included in the net
interest
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D. All of the choices A. Fully participating, nonvoting

B. Nonparticipating, cumulative, nonvoting
44. Under PAS 19, plan assets include all of the following, except C. Noncumulative, nonparticipating, nonvoting
A. Qualifying insurance policies D. Noncumulative, fully participating, nonvoting
B. Assets held by a long-term employee benefit fund
C. Non-transferable financial instruments issued by the reporting enterprise 50. The type of share capital that normally carries the most rights is:
D. Assets that are available to be used only to pay fund employee benefits and are not A. Ordinary shares
available for payments to creditors even in bankruptcy B. Convertible preference shares (nonvoting)
C. Cumulative preference shares (nonvoting)
45. PAS 26 (Accounting and reporting by retirement benefit plans) should be applied to which D. Participating preference shares (nonvoting)
one of the following?
A. Reports to individuals of their future retirement benefits 51. It is an equity instrument that is subordinate to all other classes of equity instrument.
B. The costs to companies of employee retirement benefits A. Options C. Potential ordinary share
C. The financial statements relating to an actuarial business B. Ordinary share D. Warrants
D. The general purpose financial reports of pension schemes
52. When shares are issued for services received, the measure should be the
46. Under PAS 26, investments held by retirement benefit plans should be stated at which of the A. Book value of shares issued C. Fair value of such services
following values in their statement of net assets? B. Fair value of shares issued D. Par value of shares issued
A. Fair value C. Original cost less impairment
B. Net realizable value D. Value in use 53. Capital stock is said to be watered when
A. Assets are overstated C. It is issued for assets other than cash
47. According to PAS 26 (Accounting and reporting by retirement benefit plans), which of the B. Liabilities are overstated D. It is sold at a price in excess of book value
following may be disclosed in the financial report of a defined benefit plan but would not be
shown in the financial report of a defined contribution plan? 54. Common shares issued would exceed common shares outstanding as a result of
A. Employer contributions A. Declaration of a stock dividend C. Payment in full of subscribed stock
B. Employee contributions B. Declaration of stock split D. Purchase of treasury stock
C. Government bonds held
D. Actuarial present value of promised retirement benefits 55. When rights are issued to current shareholders, the number of rights to be issued per existing
share will
Shareholders' Equity A. Usually be only one right per share already held
48. Major factors contributing to the growth of corporation-business includes all of the following, B. Depend on the number purchased by existing shareholders
except: C. Vary depending on the number per share already held, as determined and announced by
A. Limited liability of the shareholders the corporation
B. The lack of government regulation D. Be the number of rights needed to obtain one additional share multiplied by the number
C. Easy transferability of the share of ownership of shares already held
D. The facility to accumulate large amounts of resources
56. The bonus issue of shares (i.e., stock dividend) has the following impact on the equity of a
49. Preference share that has the most restrictive features is: company
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A. Total equity increases 62. Which of the following transactions involving the issuance of shares does not come within the
B. Total equity decreases definition of a 'share-based' payment under PFRS 2?
C. Only the amount of issued share capital changes A. Share appreciation rights
D. One equity account increases and another equity account decreases by an equal B. Employee share option plans
amount C. Employee share purchase plans
D. Share-based payment relating to an acquisition of a subsidiary
57. Companies that carry no insurance against insurable casualty loss sometimes use an
account called reserve for self-insurance. In preparing a balance sheet, this account should 63. A company-issued share option is an instrument that gives the holder the right but not the
be reported as obligation to
A. Appropriated retained earnings C. Liability A. Receive a certain dividend declared by the company on a specific date
B. Deferred credit D. Unappropriated retained earnings B. Receive a bonus issue of shares in a proportion as notified by the company
C. Sell a certain number of shares in the company by a specified date at a stated price
58. What do an appropriation of retained earnings and a declaration of a cash dividend (for the D. Buy a certain number of shares in the company by a specified date at a stated price
same amount) have in common?
A. Both have the same consequences for shareholders 64. Royal Prince Company has issued a range of share options to employees. Under PFRS 2
B. Both permanently reduce future ability to pay dividends (Share-based payment), what type of share-based payment transaction does this represent?
C. Both increase the amount of appropriated retained earnings A. Cash-settled share-based payment transaction
D. Both result in a decrease in unappropriated retained earnings B. Equity-settled share-based payment transaction
C. Liability-settled share-based payment transaction
59. The peso amount of total shareholders' equity remains the same when there is D. Account-settled share-based payment transaction
A. Declaration of a cash dividend
B. Declaration of a stock dividend 65. In accounting for share-based compensation under PFRS 2, what interest rate is used to
C. Issuance of preferred stock in exchange for convertible debentures discount both the exercise price of the option and the future dividend stream?
D. Issuance of nonconvertible bonds with detachable stock purchase warrants A. The risk-free interest rate
B. The firm's known incremental borrowing rate
60. Which of the following best describes the net effect on retained earnings of the purchase and C. Any rate that firms can justify as being reasonable
subsequent sale of treasury stock? D. The current market rate that firms in that particular industry use to discount cash flows
A. Retained earnings may never be increased or decreased
B. Retained earnings may never be decreased but sometimes increased 66. In accordance with PFRS 2 (Share-based payment), how should an entity recognize the
C. Retained earnings may never be increased but sometimes decreased change in the fair value of the liability in respect of a cash-settled share-based payment
D. Retained earnings is always affected unless the reissue price is exactly equal to cost transaction?
A. Recognize in profit or loss
Quasi-reorganization B. Recognize in other comprehensive income
61. After a quasi-reorganization where a deficit is removed, the balance of retained earnings will C. Recognize in the statement of changes in equity
A. Decrease C. Remain the same D. Do not recognize in the financial statements but disclose in the notes thereto
B. Increase D. Either increase or decrease
67. In what circumstances is compensation expense immediately recognized under PFRS 2?
Share-Based Payment A. In all circumstances
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B. In no circumstances is compensation expense immediately recognized
C. In circumstances when options are exercisable within 2 years for services rendered over
the next 2 years
D. In circumstances when options are granted for prior service, and the options are
immediately exercisable
Earnings per Share
68. Which of the following would be most indicative of a simple capital structure?
A. Equity represented materially by liquid assets
B. Ownership interests consisting solely common stock
C. Earnings derived from one primary line of the business
D. Common stock, preferred stock, and convertible securities outstanding
69. Earnings per share are calculated before accounting for which of the following items?
A. Minority interest C. Preference dividend for the period
B. Ordinary dividend D. Taxation
70. When EPS is computed, dividends on preferred stock are
A. Reported separately on the income statement
B. Ignored because so they do not pertain to the common stock
C. Added because they represent earnings to preferred shareholders
D. Subtracted because they represent earnings to preferred shareholders
71. The weighted average number of shares outstanding during the period for all periods (other
than conversion of potential common shares) shall be adjusted for
A. Any prior-year adjustment
B. Any new issue of shares for cash
C. Any convertible instrument settled in cash
D. Any change in the number of ordinary shares without a change in resources
72. What is the effect on EPS and shareholders' equity with the reacquisition by an entity of its
own stock?
A. No effect on EPS and increase in shareholders' equity
B. Increase in EPS and decrease in shareholders' equity
C. Decrease in EPS and increase in shareholders' equity
D. Decrease in EPS and decrease in shareholders' equity
Single Entry System, Cash Basis & Accrual Basis
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Theory of Accounts
73. Incorrect accounting records using only a cash book is a characteristic of
A. Accrual basis C. Double entry system
B. Cash basis D. Single entry system
74. Which of the following is not a source of cash?
A. Cash borrowed on a short-term note C. Depreciation expense
B. Collection of a short-term receivable D. Sale of operational asset for cash
75. Which of the following would not represent cash inflow nor outflow?
A. A purchase of treasury shares C. Ordinary shares issued
B. Cash dividend paid D. Share dividends declared and issued
76. Accrual basis of accounting
A. Is not acceptable under GAAP
B. Omits adjusting at the end of the period
C. Results in higher income than cash basis accounting
D. Leads to the reporting of more complete information than does cash basis accounting
77. Compared to the accrual basis of accounting, the cash basis of accounting understates
income by net decrease during the accounting period of
A. Accounts receivable but not of accrued expenses
B. Accrued expenses but not of accounts receivable
C. Both accounts receivable and accrued expenses
D. Neither accounts receivable nor of accrued expenses
Correction of Errors
78. Which of the following could result in overstatement of both current assets and shareholders'
equity?
A. An understatement of accrued sales commission
B. Annual depreciation on manufacturing machinery is understated
C. Noncurrent note receivable principal is misclassified as current asset
D. Holiday pay expense for administrative employees is misclassified as factory overhead
79. Which among the following errors could cause an understatement of owners' equity and
overstatement of liabilities?
A. Failure to record interest accrued on a note payable
B. Making the adjusting entry for depreciation expense twice
C. Failure to record the earned portion of fees received in advance
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D. Failure to make the adjusting entry to record revenue which had been earned but not yet 87. Which of the following is not a derivative instrument?
billed to customers A. Credit indexed contracts C. Interest rate swaps
B. Futures contracts D. Variable annuity contracts
Accounting For Derivatives & Disclosures For Financial Instruments (PFRS 7)
80. Derivatives are financial instruments that derive their value from changes in a benchmark 88. Derivatives are measured at
("underlying") based on any of the following, except A. Cost C. Fair value less cost to sell
A. Commodity prices C. Mortgage and currency rates B. Fair value D. Higher between fair value and cost
B. Discount on accounts receivable D. Stock prices
89. Changes in fair value on a derivative instrument that is not designated as a hedging
81. Which of the following is not a distinguishing characteristic of a derivative instrument? instrument are
A. No initial net investment A. Not recognized
B. Must be " highly effective" throughout its life B. Recognized in earnings immediately
C. Terms that require or permit net settlement C. Recognized in equity section of the balance sheet
D. One or more underlyings and notional amounts D. Recognized in earnings only when realized through sale

82. Financial instruments sometimes contain features that separately meet the definition of a 90. Hedge accounting is permitted for all of the following types of hedges, except
derivative instrument. These features are classified as A. Available-for-sale securities C. Trading securities
A. Embedded derivative instruments C. Swaptions B. Net investments in foreign operations D. Unrecognized firm commitments
B. Notional amounts D. Underlyings
91. An interest rate swap in which a company has a fixed rate of interest and pays a variable rate
83. It is a right and not an obligation to purchase or sell an asset. is called
A. Equity contracts C. Option contracts A. Deferred hedge
B. Forward contracts D. Swap contracts B. Cash flow hedge
C. Fair value hedge
84. What is the type of financial risk involved when entities have outstanding purchase D. Hedge of foreign currency exposure of a net investment in foreign operations
commitments?
A. Credit risk C. Interest rate risk 92. A hedge of the exposure to changes in the fair value of a recognized asset or liability, or an
B. Foreign currency risk D. Price risk unrecognized firm commitment, is classified as a
A. Cash flow hedge C. Foreign currency hedge
85. A derivative that usually requires a little or small initial net investment as a protection against B. Fair value hedge D. Underlying
unfavorable movements in price.
A. Forward contract C. Option 93. Changes in fair value of a derivative instrument determined to be an effective fair value
B. Future contract D. Swap hedge shall
A. Be included in retained earnings C. Be recognized in profit or loss
86. All of the following are derivative financial instruments, except B. Be recognized directly in equity D. Not be recognized
A. Currency futures C. Stock index futures
B. Interest rate swaps D. Treasury bills and notes 94. Changes in fair value of a derivative financial instrument that is determined to be an effective
cash flow hedge shall
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A. Be included in retained earnings C. Be recognized in profit or loss being made

B. Be recognized directly in equity D. Not be recognized
95. Which of the following types of information about exposures to risks arising from financial
instruments is not required to be disclosed by PFRS 7?
A. Qualitative and quantitative information about credit risk
B. Qualitative and quantitative information about liquidity risk
C. Qualitative and quantitative information about market risk
D. Qualitative and quantitative information about operational risk
Insurance Contracts (PFRS 4)
96. The rationale for the issuance of PFRS 4 (Insurance Contracts) is
A. To completely overhaul insurance accounting
B. As a response to recent scandals within the insurance industry
C. Because of pressure from financial services authorities in several countries
D. To ensure that insurance companies could comply with Philippine Financial Reporting
Standards
97. Which of the following types of insurance contracts would probably not be covered by PFRS
4?
A. Life insurance C. Motor insurance
B. Medical insurance D. Pension plan
98. Which of the following accounting practices has been outlawed by PFRS 4?
A. Shadow accounting
B. Catastrophe provisions
C. An impairment test for reinsurance assets
D. A test for the adequacy of recognized insurance liabilities
99. An entity should apply PFRS 4 (Insurance contract's) to which of the following?
A. Reinsurance contracts issued by the entity
B. Contingent consideration receivable in a business combination
C. Product warranties issued by an entity which is a manufacturer
D. Employer's assets and liabilities under employment benefit plans
Mineral Resources (PFRS 6)
100. PFRS 6 applies to expenditures incurred
A. When a specific area is being developed and preparations for commercial extraction are
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B. In extracting mineral resources and processing the resource to make it marketable or
transportable
C. When searching for an area that may want detailed exploration, even though the entity
has not yet obtained the legal rights to explore a specific area
D. When the legal rights to explore a specific area have been obtained, but the technical
feasibility and commercial viability of extracting a mineral resource are not yet
demonstrable
101. Does PFRS 6 require an entity to recognize exploration and evaluation expenditure of asset?
A. No, such expenditure is always expensed in profit or loss as incurred
B. Yes, but only to the extent that such expenditure is recoverable in future periods
C. Yes, but only to the extent required by the entity's accounting policy for recognizing
assets
D. Yes, but only to the extent required by the entity's accounting policy for recognizing
exploration and evaluation assets
102. Which of the following expenditures would never qualify as an exploration and evaluation
asset?
A. Expenditure for exploratory drilling
B. Expenditure for acquisition of rights to explore
C. Expenditures related to the development of mineral resources
D. Expenditure for activities in relation to evaluating the technical feasibility and commercial
viability of extracting a mineral resources
103. Which measurement model applies to exploration and evaluation assets subsequent to initial
recognition?
A. The cost model
B. The revaluation model
C. The recoverable amount model
D. Either the cost model or the revaluation model
104. Which of the following is not a disclosure requirement by PFRS 6?
A. Information about commercial reserve quantities
B. Accounting policies for exploration and evaluation expenditures including the recognition
of exploration and evaluation assets
C. Information that identifies and explains the amounts recognized in the financial
statements arising from the exploration of mineral resources
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D. The amounts of assets, liabilities, income and expense, and operating and investing
cash flows arising from, the exploration and evaluation of mineral resources
Small & Medium-Sized Entities (SMEs)
105. All of the following can be classified as SMEs, except
A. Commercial bank with total assets of P 3 M
B. Manufacturing entity with total liabilities of P 3 M
C. Merchandising company with total assets of P 350 M
D. Food and beverage chain with total liabilities of P 250 M
106. In which of the following situations can an entity that does not have public accountability
claim compliance with the PFRS for SMEs in its financial statements?
A. The entity prepares its financial statements in accordance with local tax requirements
that are substantially the same as the PFRS for SMEs.
B. The entity prepares its financial statements in accordance with local tax requirements
that are, except in name, word-for-word the same as full PFRS.
C. The entity prepares its financial statements in accordance with local tax requirements
that are except in name, word-for-word the same as the PFRS for SMEs.
D. In both cases (b) and (c) above.
107. Fair presentation requires a faithful representation of the effect of transactions, other events
and conditions in accordance with the definitions and recognition criteria for assets, liabilities,
income and expenses. Fair presentation, in accordance with the PFRS for SMEs, is
presumed to result from
A. Compliance with the PFRS for SMEs by an entity that has public accountability.
B. Compliance with the PFRS for SMEs by an entity that does not have public
accountability.
C. Compliance with the PFRS for SMEs, with additional disclosures where necessary, by an
entity that has public accountability.
D. Compliance with the PFRS for SMEs, with additional disclosures where necessary, by an
entity that does not have public accountability.
108. In accordance with the PFRS for SMEs, in presenting a statement of financial position, an
entity
A. Must present assets and liabilities in order of liquidity.
B. Must make the current/non-current presentation distinction.
C. Must choose either the current/non-current or the liquidity presentation formats (i.e., a
'free' choice of presentation format).
October 2013, Preweek
Theory of Accounts
D. Must make the current/non-current presentation distinction except when a presentation
based on liquidity provides information that is reliable and more relevant.
109. In accordance with the PFRS for SMEs, the financial statement that presents an entity's
assets, liabilities and equity at a point in time
A. Must be titled the balance sheet
B. Must be titled the statement of financial position
C. Could be titled the statement of financial position or the balance sheet
D. Could be titled the statement of financial position, the balance sheet or any other title that
is not misleading.
110. An entity shall disclose in the summary of significant accounting policies:
A. The measurement basis (or bases) used in preparing the financial statements.
B. All the measurement bases specified in the PFRS for SMEs irrespective of whether they
were used by the entity in preparing its financial statements.
C. The measurement basis (or bases) used in preparing the financial statements and the
accounting policies used that are relevant to an understanding of the financial
statements.
D. All of the measurement bases and the accounting policy choices available to the entity
(i.e., specified in the PFRS for SMEs) irrespective of whether they were used by the
entity in preparing its financial statements.
111. Which of these terms cannot be used to describe a line item in the statement of
comprehensive income?
A. Extraordinary item C. Profit before tax
B. Gross profit D. Revenue
112. For SMEs, which of the following gains and losses are recognized in other comprehensive
income (i.e., in total comprehensive income outside of profit and loss)?
A. Gains and losses from discontinued operations
B. Gains on the revaluation of property, plant and equipment
C. Gains and losses that management considers extraordinary items
D. Gains and losses arising on translating the financial statements of a foreign operation
113. Which of the following gains and losses can an entity elect (i.e., an accounting policy choice)
to recognize in other comprehensive income (i.e., in total comprehensive income outside of
profit or loss)?
A. Losses from discontinued operations
Review School of Accountancy Theory of Accounts

B. Actuarial gains and losses of defined benefit plans

C. Gains and losses that management considers extraordinary items
D. Gains and losses arising on translating the financial statements of a foreign operation

114. Which of the following are presented in the statement of changes in equity of SMEs?
A. Investment by owners
B. Distributions to owners
C. Changes in ownership interests in subsidiaries that do not result in a loss of control
D. All of the choices

115. An SME whose only changes to its equity in the periods for which financial statements are
presented arise from profit or loss, payment of dividends, corrections of prior period error and
changes in accounting policy
A. Should present on a statement of income
B. Is required to present a statement of comprehensive income
C. Has the option to present a statement of income and retained earnings in place of a
statement of comprehensive income
D. Is required to present a statement of income and retained earnings in place of a
statement of comprehensive income

116. In 2013, after an entity's 2012 financial statements were approved for issue, the entity
discovered an error in the calculation of depreciation expense. The error occurred during
2011. The entity presents comparative figures among several years. The effect of the
correction of the error in the entity's financial statements will be:
A. Recognized in the entity's profit or loss for the year ended 31 December 2012
B. Recognized in the entity's profit or loss for the year ended 31 December 2013
C. Recognized outside of total comprehensive income, in the statement of changes in
equity as an adjustment to retained earnings at January 1, 2012
D. Recognized outside of total comprehensive income, in the statement of changes in
equity as an adjustment to retained earnings at January 1, 2013

October 2013, Preweek