THEORY OF ACCOUNTS events that are important in general purpose financial

statements
1. Which is correct concerning the FRSC?
A. The FRSC replaces the ASC as the standard setting PFRSs are not designed to apply to not-for-profit
body in the Philippines activities in the private sector, public sector or
government.
B. The FRSC is composed of 16 members with a Chairman
and 15 representatives from various sectors A. True, True
C. The Chairman and members of the FRSC shall have a B. True, False
non-renewable term of 3 years C. False, False
D. Any member of the ASC shall be disqualified from D. False, True
being appointed to the FRSC
5. Interpretations of PFRSs are intended to give
2. Once the FRSC has adopted an accounting standard authoritative guidance on issues that are likely to
A. The standard is continually reviewed to see if receive divergent or unacceptable treatment, in the
modification is necessary absence of such guidance.
B. The standard is not reviewed unless the SEC makes Once it was established, the FRSC resolved that all
a complaint
Standards and Interpretations issued by the ASC continue
C. The task of reviewing the standard to see if to be applicable unless and until they are amended or
modification is necessary is given to the PICPA withdrawn by the FRSC.
D. The principle of consistency requires that no A. True, True
revisions ever be made to the standard
B. True, False
C. False, False
3. Due process for projects of FRSC normally includes the
following, except D. False, True
A. Consideration of pronouncement of the IASB
6. Standards approved by the FRSC include paragraphs in
B. Formation of a task force, when deemed necessary, bold type and plain type, which have equal authority.
to give advice to the FRSC
Paragraphs in plain type indicate the main principles.
C. Issuing for comment an exposure draft approved by
at least eight members of the Council; comment Any limitation of the scope of PFRSs is made clear in
period will be at least ninety days the standard.
D. Approval of a standard or an interpretation by A. True, True
majority of the Council members
B. False, True
C. False, False
4. PFRSs set out recognition, measurement, presentation and
disclosure requirements dealing with transactions and D. True, False
 D. False, True
7. Which of the following statements relating to the FRSC
and standard setting process in the Philippines. Which 10. Which of the following statements about the qualitative
of these is (are) true? characteristics are incorrect?
I. All members of the FRSC should be CPAs. I. Faithful representation is the capacity of
II. The Financial Reporting Standards Council (FRSC) information to make a difference in decision
Board of Accountancy (BOA) and Professional by helping users form prediction about
Regulation Commission (PRC)are all involved in the outcome of past, present and future events
standard setting process, with PRC as the final or confirm/correct prior expectations
approving authority. II. The quality of relevance assures readers
A. Only I is true that the financial information is free from
B. Only II is true bias and faithfully represents what it
C. I and II are true purports to show, including adequate
disclosure of significant information
D. I and II are false
III. Under the IASB Conceptual Framework,
conservatism is not a concept that is
8. Which of the following statements about the Conceptual recognized as a qualitative characteristic
Framework is (are) correct?
A. I and II only
I. The Framework deals with the qualitative
characteristics of financial statements. B. I and III only
II. The Framework normally prevails over PFRS where C. II and III only
there is a conflict between the two. D. I, II and III
III. The Framework deals with the objective of
financial reporting. 11. Accounting information that enables decision makers to
A. I and III C. I and II confirm or correct prior expectations is said to have
B. II and III D. I, II and III A. Predictive value
B. Materiality
9. Decision usefulness is the underlying theme of the C. Representational faithfulness
conceptual framework. D. Feedback value

An enhancing quality as described by the International 12. Customers

Accounting Standards Boards (IASBs) Conceptual A. Have an interest in information about the
Framework is comparability. continuance of an enterprise especially when they
A. True, True have a long-term involvement with or are dependent
B. True, False on the enterprise
C. False, False
 B. Are interested in information which enables them A. I, III and V only;
to assess the ability of the enterprise to provide B. II, III and IV only;
retirement benefits and employment opportunities C. I, II and V only;
C. Are interested in information that enables them to D. I, II, III and V only;
determine whether their loans and the interest
attaching to them will be paid when due
16. The International Accounting Standards Boards (IASB)
D. Are concerned with the risk inherent in and return conceptual framework includes which of the following
provided by their investments and need information constraints?
to help them determine whether they should buy or
A. Prudence
sell the investments
B. Conservatism
13. Which of the following is not an enhancing qualitative C. Cost
characteristic of financial statements according to the D. All of the choices are constraints in the IASBs
Conceptual Framework? conceptual framework
A. Timeliness
B. Understandability 17. The following definition increases in economic benefits
during the accounting period in the form of inflows or
C. Comparability
enhancements of assets or decrease of liabilities that
D. Relevance result in increases in equity, other than those relating
to contributions from equity participants is a formal
14. According to the conceptual framework, predictive and statement of the meaning of:
feedback values are ingredients of A. Expenses C. Assets
Comparability Faithful Representation
B. Liabilities D. Income
A. Yes No
B. Yes Yes 18. Which of the following equations is correct?
C. No Yes A. Profit for the period = Total revenues and gains
D. No No Total expenses and losses
B. Profit for the period = Total Revenues and gains
15. The qualitative characteristic of Faithful Total expenses and losses + Retained earnings
Representation means that the information is: Dividends paid
I. Free from error C. Profit for the period = Total Revenues and gains
II. Neutral Total expenses and losses + Paid in capital
III. Verifiable Dividends paid
IV. Costless D. Profit for the period = Total revenues and gains
V. Complete in all material respects Total expenses and losses + Total assets Total
liabilities
 D. No No No
19. Are the following statements regarding recognition 22. Under this concept, a profit is earned only if the
true or false? physical productive capacity (or operating capability)
I. An accountable item is deemed recognized if it of the enterprise (or the resources of funds needed to
is recorded in the journals and ledgers achieve that capacity) at the end of the period exceeds
II. Recognition is the process of determining the the physical productive capacity at the beginning of the
amounts at which the elements of the financial period, after excluding any distributions to, and
statements are recognized contributions from, owners during the period.
III. Recognition is the process of incorporating in the A. Financial concept of capital
FS an item that meets the definition of an element B. Physical capital maintenance
and the criteria for recognition C. Financial capital maintenance concept
Statement I Statement II Statement III D. Physical concept of capital
A. False False True
B. True True False 23. The information provided by general purpose financial
C. True False True statements include the following, except
D. True True True A. An enterprises financial position as of a given
date
20. The measurement basis net realizable value is best B. An enterprises performance for a specific period
described as: of time
A. Unamortized historical cost C. An enterprises cash flow for a specific period of
B. An assets selling price or a liabilitys time
settlement amount D. An enterprises economic decisions
C. Unadjusted initial cost
D. Time adjusted cash flow 24. Under IFRS the statement of financial position is often
referred to as the statement of changes in equity.
21. Historical cost is the most common measurement basis in
financial statements. Which of the following measurement In order to provide information that is useful in
basis is also used in accounting according to the decision making and capital allocation, the
Conceptual Framework? International Financial Reporting Standards (IFRS)
Current Cost Settlement Inflation adjusted requires all companies to use a common currency.
value cost A. True, True C. False, False
A. Yes Yes No B. False, True D. True, False
B. Yes Yes Yes
C. Yes No Yes 25. Which of the following is not an application of accrual
accounting?
 A. Recording advertising fees earned at the time the C. No No
work is done D. No Yes
B. Recording telephone expense when the monthly bill
is received 29. According to PAS 1, the calculation of total
C. Recording advertising fees earned at the time the comprehensive income includes which of the following?
cash payment is received
D. Adjusting unearned advertising fees to the proper Income from Distribution
balance at the end of the month. Continuing operations to owners
A. No No
26. Which of the following would be reported on the B. Yes No
Statement of Comprehensive Income? C. Yes Yes
A. Finance costs D. No Yes
B. Minority interest
C. Income tax payable 30. Under PAS 1, comprehensive income includes changes in
D. Correction of prior period error equity resulting from
Investments by Distributions to
27. A liability shall be classified as a current liability Owners Owners
when it satisfies any of the following criteria, except A. No No
A. It is expected to be settled in the entitys B. No Yes
normal operating cycle C. Yes No
B. It is primarily held for the purpose of being D. Yes Yes
traded
C. It is due to be settled within fifteen months 31. Which of the following would not be reflected in the
after the balance sheet date statement of comprehensive income?
D. The entity does not have an unconditional right to A. An ordinary loss
defer settlement of the liability for at least B. Cumulative effect of a change in depreciation
twelve months after the balance sheet date methods
C. Discontinued operations
28. An extraordinary item should be reported separately on D. Correction of an error in previously issued
the statement of comprehensive income as a component financial statements
Before discontinued
Net of operations of segment
32. Are the following statements true or false, according to
Income taxes of a business
PAS 1?
A. Yes Yes
B. Yes No
 (1) Provisions should be recognized in the statement of D. Income from ordinary activities
changes in equity.
(2) A revaluation surplus on non-current assets should 36. Are the following statements true or false, according to
be recognized in the statement of Comprehensive income PAS1 Presentation of financial statements?
and not in the Statement of Changes in Equity
1) Dividends paid should be recognized in the
Statement (1) Statement (2)
statement of comprehensive income
A. False False
2) A loss on disposal of assets should be
B. False True recognized in the statement of changes in
C. True False equity
D. True True Statement 1) Statement 2)
A. False False
33. Which of the following results to offsetting? B. False True
A. Deducting deferred tax assets from deferred tax C. True False
liabilities, for taxes imposed by only one taxing D. True True
authority
B. Deducting accumulated amortization from the gross 37. If a company prepares a consolidated income statement,
cost of an intangible asset. IFRS requires that net income be reported for
C. Deducting allowance for uncollectible accounts A. The majority interest only
from gross receivables to arrive at the
B. The minority interest only
receivables amortized cost
C. Both the majority interest and the minority
D. Deducting accumulated depreciation and impairment
interest
loss from the gross cost of property, plant and
equipment to arrive at its carrying value D. As a single amount only

34. Which of the following is not required to be presented 38. As defined in PAS 1 Presentation of Financial
on the income statement under IFRS? statements, which one of the following is not included
in the notes to financial statements?
A. Revenue C. Finance costs
A. Information about items that do not qualify for
B. Other gains/losses D. Tax expense
recognition in the financial statements
B. Narrative description of items disclosed in the
35. Under PAS 1, Presentation of Financial Statements, which
financial statements
of the following is not required to be presented on the
face of the income statement? C. Information presented in the balance sheet, income
statement of changes in equity and cash flow
A. Profit or loss
statement
B. Tax expense
C. Finance costs
 D. Information on disaggregations of items disclosed 42. Which of the following should be disclosed in the
in the financial statements Summary of Significant Accounting Policies?
A. Rent expense amount
39. PAS 1 presentation of financial statements, requires the B. Maturity dates of long term debt
following note disclosures in relation to dividends of C. Methods of amortizing intangibles
an entity. The:
D. Composition of plant assets
A. Amount of any cumulative preference dividends not
recognized;
43. The financial statement which summarizes operating,
B. Names of the recipients of the dividends; investing, and financing activities of an entity for a
C. Addresses of all shareholders who are entitled to period of time is the
receive the dividends A. Retained earnings statement
D. A schedule of cumulative dividends paid in prior B. Income statement
periods
C. Statement of cash flows
D. Statement of financial position
40. Disclosure of accounting policies
A. Requires description of every accounting policy
44. On the statement of cash flows, which of the following
followed by a reporting entity
items will affect both financing activities and
B. Provides a specific listing of all types of operating activities?
accounting policies which must be disclosed
A. Issuance of equity securities
C. Requires disclosure of the format for the
B. Collection of loans to other entities
statement of changes in equity
C. ]payment of dividends
D. Requires description of all significant accounting
policies to be included as an integral part of D. Redemption of debt
financial statements
45. A stock-split should be presented in the statement of
41. Which of the following should be disclosed in the cash flows as
summary of significant accounting policies? Source of cash Use of Cash
Composition of Inventory A. No Yes
Plant assets pricing B. No No
A. Yes Yes C. Yes No
B. No Yes D. Yes Yes
C. No No
D. Yes No 46. If shares-ordinary were issued to acquire an P80,000
machine, how would the transaction appear on the
statement of cash flows?
 A. It would depend on whether you are using the
direct or the indirect method
B. It would be a positive P80,000 in the financing
section and a negative P80,000 in the investing
section
C. It would be a negative P80,000 in the financing
section and a positive P80,000 in the investing
section
D. It would not appear on the statement of cash flows
but rather on a schedule of noncash investing and
financing activities
47. In preparing a statement of cash flows, which of the
following transactions would be considered a financing
activity?
A. Sale of equipment at book value
B. Sale of merchandise on credit
C. Declaration of a cash dividend
D. Issuance of bonds payable at a discount
48. The following event(s) will appear in the cash flows
from investing activities section of the statement of
cash flows?
A. Cash purchases of equipment
B. Cash purchases of bonds issued by another company
C. Cash received as repayment for funds loaned
D. All of the above
49. Significant financing and investing activities that do
not affect cash are not reported in the statement of
cash flows or any other place.
Under IFRS non-cash activities are reported as either
investing or financing activities in the body of the
statement of cash flows.
A. True, True C. False, False
B. False, True D. True, False
50. In which method of preparing the statement of cash flows
can proceeds from sale of equipment be seen?
A. Direct method only
B. Indirect method only
C. Direct and indirect method
D. Neither direct nor indirect method
51. When it is impracticable to determine the cumulative
effect, at the beginning of the current period, of
applying a new accounting policy to all prior periods,
the entity shall adjust the comparative information to
apply the new accounting policy prospectively from the
earliest date practicable.
When a Standard or an Interpretation specifically
applies to a transaction, other event or condition, the
accounting policy or policies applied to that item shall
be determined by applying the Standard or Interpretation.
A. True, True C. False, False
B. False, True D. True, False
52. A change in accounting principle requires what king of
adjustment to the financial statements?
A. Current period adjustment
B. Prospective adjustment
C. Retrospective adjustment
D. Current and prospective adjustment
53. A change in accounting principle requires that the
cumulative effect of the change for prior periods be
shown as an adjustment to
 A. Beginning retained earnings for the earliest C. Prior period adjustment
period presented D. Extraordinary item
B. Net income for the period in which the change
occurred 58. A correction of an error in prior periods income will
C. Comprehensive income for the earliest period be reported
presented In the income statement Net of Tax
D. Stockholders equity for the period in which the A. Yes Yes
change occurred B. No No
C. Yes No
54. Which of the following is the proper time period in D. No Yes
which to record a change in accounting estimate?
A. Current period and future periods 59. A company recognizes a change in estimate by making a
B. Current period and retroactively retrospective adjustment to the financial statements.
C. Retroactively only
D. Current period only Prior period adjustments can either be added or
subtracted in the Retained Earnings Statement.
55. Changes in estimates affect reported amounts A. True, True C. False, False
A. Retrospectively only B. False, True D. True, False
B. Prospectively only
C. Currently and prospectively
60. Earnings per share relate to
D. Currently and retrospectively
A. Preference shares only
56. Prior years income statements are not restated for B. Ordinary shares only
A. Changes in accounting principle C. Both preference and ordinary shares
B. Changes in estimates D. Neither preference nor ordinary shares
C. Correction of errors
61. Given the following income statement line items:
D. Any of the above
Income from operations
Income before income taxes
57. A company changes from the declining-balance method of Income from continuing operations
depreciation for previously recorded assets to the Income from discontinued operations
straight-line method. The cumulative effect of the Net Income
change should be reported separately as a How many earnings per share amounts are required
A. Component of income after discontinued operations to be disclosed?
B. Component of income from continuing operations A. 5 C. 3
 B. 4 D. 2 B. Dividends on ordinary shares
C. Potential diluters
62. Earnings per share should always be shown separately for D. Number of shares of nonconvertible cumulative
A. Net income and gross profit preference shares
B. Net income and pretax income
C. Income from continuing operations 66. The effect of the closing entries is to:
D. Discontinued operations and prior period A. Change assets
adjustments B. Change liabilities
C. Change retained earnings
63. Undeclared dividends are deducted from net income in the D. Change the debit balances of all accounts into
earnings per share computation for which type of credits and vice versa
preference shares?
A. Non-cumulative only 67. Which of the following is not an example of a special
B. Cumulative only journal?
C. Neither non-cumulative nor cumulative A. Merchandise sales on credit journal
D. Both non-cumulative and cumulative B. Merchandise purchases on credit journal
C. General journal
64. When computing basic earnings per share on ordinary D. Cash receipts journal
shares, dividends on cumulative, nonconvertible,
preference shares should be 68. In a bank reconciliation statement, an outstanding check
A. Deducted from net income only if the dividends must be subtracted from the bank statement balance in
were declared or paid in the current period determining the correct cash balance.
B. Deducted from net income regardless of whether the
dividends were not paid or declared in the period In a bank reconciliation statement, the items found
C. Deducted from net income only if net income is immediately below the Balance per bank statement
greater than the dividends caption needs journal entries.
D. Ignored A. True; False
B. True; True
65. A company with a simple capital structure for purposes C. False; True
of computing earnings per share would include which of D. False; False
the following in the computation of basic earnings per
share? 69. Which of the following items would be likely to be paid
A. Dividends on nonconvertible cumulative preference out of petty cash?
shares 1) Payments to window cleaner P600
 2) Payment for a delivery van P600,000
3) A payment for a postage stamps P500
4) A payment to a supplier for goods bought on credit
of P3,500
A. All of the above
B. 1, 3 and 4
C. 1 only
D. 1 and 3
70. JB Company prepares an accounts receivable aging
schedule with a series of computations as follows: 2% of
the total peso balance of accounts from 1-60 days past
due, plus 5% of the total peso balance of accounts from
61-120 days past due and so on. How would you describe
the total of the amounts determined in this series of
computations?
A. It is the amount of bad debts expense for the year
B. It is the amount that should be added to the
allowance for doubtful accounts at year-end
C. It is the amount of the desired credit balance of
the allowance for doubtful accounts to be reported
in the year-end financial statements
D. When added to the total of accounts written off
during the year, this new sum is the described
credit balance of the allowance account
71. Costs excluded from cost of inventory and recognized as
expenses in period when incurred are
A. Taxes and import duties
B. Borrowing costs incurred for inventories that
require a substantial period of time to bring them
to a salable condition
C. Selling costs
D. Freight and handling costs in acquiring goods
72. A company uses the retail method to estimate inventory
for interim reporting purposes. Which of the following
describes the proper treatment of net markups and
markdowns in the cost-to-retail ratio calculation if the
retail method is based on FIFO approach?
A. Net markdowns should be included in the ratio; net
markups should be excluded
B. Net markups should be included in the ratio; net
markdowns should be excluded
C. Both net markups and markdowns should be included
in the ratio calculation
D. Both net markups and markdowns should be excluded
in the ratio calculation
73. Changes in fair value of a biological assets or an
agricultural produce are
A. Ignored
B. Included in the determination of income of the
current period
C. Included in equity
D. Included in retained earnings
74. Which statements is incorrect regarding initial
measurement of PPE?
A. PPE should be initially recorded at cost, which
includes all costs necessary to bring the asset to
working condition for its intended use
B. If payment for an item of property, plant and
equipment is deferred, interest at a market rate
must be recognized or imputed
C. If an asset is acquired in exchange for another
asset the cost will be measured at the fair value
D. If an asset is acquired in exchange for another
asset is not measured at fair value, its cost is
 measured at the carrying amount of the asset 78. Directly attributable expenditures related to investment
received property include
A. Professional fees for legal services, property
75. Cumulus Inc. purchased certain plant assets under a transfer taxes and other transaction costs
deferred payment contract. The agreement was to pay B. Start-up costs
P30,000 per year for ten years. The plant assets should
C. Initial operating losses incurred before the
be valued at
investment achieves the planned level of operation
A. P300,000
D. Abnormal amounts of wasted material, labor and
B. P300,000 plus imputed interest other resources incurred in constructing or
C. Present value of P30,000 annuity for ten years at developing the property
an imputed interest rate
D. Future value of P30,000 annuity for ten years at 79. In relation to the amortization of intangible assets, if
an imputed interest rate an intangible asset has a finite useful life:
A. It must be amortized over a period not exceeding
76. The cost of land does not include 40 years;
A. Cost of grading , filling, draining, and clearing B. It must be amortized across a period not exceeding
B. Costs of removing old buildings 5 years;
C. Costs of improvements with limited lives C. It is not subject to an annual amortization charge;
D. Special assessments D. It must be amortized over that life

77. Investment property includes 80. Legal fees incurred in successfully defending a patent
I. Property being constructed or developed on behalf suit should be capitalized when the patent has been
of third parties Internally Purchased from
II. Property that is being redeveloped for continuing Developed an Inventor
use as an investment property A. Yes No
III. Property that is being constructed or developed B. Yes Yes
for use as an investment property C. No Yes
IV. Property leased to another entity under a finance D. No No
lease
A. I and II only
B. III only
C. II and III only
D. II, III and IV only