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The Accountancy Profession
1. What is the law regulating the practice of accountancy in the Philippines?
a. R.A. No. 9298
b. R.A. No. 9198
c. R.A. No. 9928
d. R.A. No. 9892
2. It is the body authorized by law to promulgate rules and regulations affecting the practice of the
accountancy profession in the Philippines.
a. Board of Accountancy
b. Philippine Institute of Certified Public Accountants
c. Securities and Exchange Commission
d. Financial Reporting Standards Council
3. The qualifications of the members of the Board of Accountancy include all of the following,
except:
a. Must be natural born citizen and a resident of the Philippines.
b. Must be duly registered CPA with at least ten years of work experience in any scope of
practice of accountancy.
c. Must be of good moral character and must not have been convicted of crime involving
moral turpitude.
d. Must have any pecuniary interest , directly or indirectly, in any school conferring an
academic degree for admission to the practice of accountancy.
4. What are the three main areas in the practice of the accountancy profession?
a. Public accounting, private accounting and managerial accounting.
b. Auditing, taxation and managerial accounting.
c. Financial accounting, managerial accounting and corporate accounting.
d. Public accounting, private accounting and government accounting.
5. What is the primary service of CPA in the public practice?
a. Auditing
b. Taxation
c. Managerial Accounting
d. Controllership
6. Accountants employed in entities in various capacity as accounting staff, chief accountant or
controller are said to be engaged in:
a. Public accounting
b. Private accounting
c. Government accounting
d. Financial accounting
7. It is the area of the accountancy profession that encompasses the process of analyzing,
classifying, summarizing and communicating all transactions involving the receipt and
disposition of government funds and property and interpreting the results thereof.
a. Internal auditing
b. External auditing
c. Private accounting
d. Government accounting
8. The Continuing Professional Development is required for:
a. Renewal of CPA license
b. Accreditation to practice the accountancy profession
c. Both renewal of CPA licenses and accreditation to practice the accountancy profession
d. Neither renewal of CPA licenses nor accreditation to practice the accountancy
profession
9. Which statement is true regarding exemptions from CPD requirements?
a. A CPA shall be permanently exempted from CPD requirement for renewal of CPA license
at the age of 60 years but not for the accreditation to practice the accountancy
profession.
b. A CPA who is working or practicing the profession abroad shall be temporarily exempted
from CPD requirement during the period of stay abroad provided the CPA has been out
of country for at least two years prior to the date of renewal.
c. A CPA who is furthering studies abroad shall be temporarily exempted from CPD
requirement during the period of stay abroad provided the CPA has been out of the
country for at least two years prior to date of renewal.
d. All of the statements are true.
10. Which statement is incorrect in relation to the practice of public accounting?
a. Single practitioners for the practice of public accounting shall be registered CPA s in the
Philippines.
b. Practitioners of partnership formed for the practice of public accounting shall be
registered CPAs in the Philippines.
c. The Securities and Exchange Commission can register any corporation organized for the
practice of public accounting.
d. The Professional Regulation Commission upon favourable recommendation of the Board
of Accountancy shall issue certificate of accreditation to CPAs in public practice provided
the registrant has acquired a minimum of three years of meaningful experience in public
practice.
Answers:
1. A 6. B
2. A 7. D
3. D 8. C
4. D 9. D
5. A 10.C
11. Which is the accounting standard setting body in the Philippines at the present time?
a. Accounting Standards Council
b. Auditing and Assurance Standards Council
c. Philippine Accounting Standards Board
d. Financial Reporting Standards Council
12. Which statement is true regarding the FRSC?
a. The FRSC is created by the Professional Regulation Commission upon recommendation
of the Board of Accountancy in carrying out its powers and functions under R.A. No.
9298.
b. The FRSC shall be composed of 15 with a Chairman and 14 representatives.
11. D 13. D
12. D 14. D
24. Financial reporting must be broadly defined as the area of accounting that prepares:
a. General purpose financial statements to be used by parties internal to the entity.
b. Financial statements to be used by the investors.
c. General purpose financial statements to be used by parties both internal and external to
the entity.
d. Financial statements to be used primarily by management.
25. Financial accounting emphasizes reporting to:
a. Management
b. Regulatory bodies
c. Internal auditors
d. Creditors and investors
26. Managerial accounting emphasizes:
a. Reports financial information to external users.
b. Reporting to the Securities and Exchange Commission.
c. Combining accounting with data processing.
d. Developing accounting information for use within an entity.
27. Which statement is true regarding managerial accounting and financial accounting?
a. Managerial accounting is generally more precise.
b. Managerial accounting need not follow generally accepted accounting principles while
financial accounting must follow GAAP.
c. Managerial accounting has a future focus.
d. The emphasis of managerial accounting is relevance and the emphasis of financial
accounting is timeliness.
24. C 26. D
25. D 27. B
28. D 30. D
29. B 31. A
32. What is the only underlying assumption mentioned in the Conceptual Framework for Financial
Reporting?
a. Going concern
b. Accounting entity
c. Time period
d. Monetary unit
33. Which statement best describes the term “going concern”?
a. When current liability of an entity exceed current assets.
b. The ability of the entity to continue in operation for the foreseeable future.
c. The potential to contribute to the flow of cash and cash equivalents to the entity.
d. The expenses exceed income.
34. Which of the following is not an implication of the going concern assumption?
a. The historical cost principle is credible.
b. Depreciation and amortization policies are justifiable and appropriate.
c. The current and noncurrent classification of assets and liabilities is justifiable and
significant.
d. Amortizing research and development costs over several periods is justifiable and
appropriate.
35. The relatively stable economic, political and social environment supports:
a. Conservatism
b. Materiality
c. Timeliness
d. Going concern
36. Which basic assumption may not be followed when an entity in bankruptcy reports financial
results?
a. Economic entity assumption
b. Going concern assumption
c. Time period assumption
d. Monetary unit assumption
37. The financial statements of the business entity are separate and distinct from the financial
statements of the owners.
a. Going concern assumption
b. Matching principle
c. Economic entity assumption
d. Accounting period assumption
38. The economic entity assumption:
a. Is inapplicable to unincorporated businesses.
b. Recognizes the legal aspects of business organizations.
c. Requires periodic income measurement.
d. Is applicable to all forms of business organizations.
39. Which underlying assumption serves as the basis for preparing financial statements at regular
arbitrary or artificial points in time?
a. Accounting entity
b. Going concern
c. Accounting period
d. Stable monetary unit
40. Which basic accounting assumption is threatened by the existence of severe inflation in an
economy?
a. Monetary unit assumption
b. Periodicity assumption
c. Going concern assumption
d. Economic entity assumption
41. Which is not an important characteristic of the financial statements that accountants currently
prepare?
a. The information in financial statements is expressed in units of money adjusted for
changing purchasing power.
b. Financial statements articulate with one another because measuring financial position is
related to measuring changes in financial position.
c. The information in financial statements is summarized and classified to help meet users’
needs.
d. Financial statements can be justified only if the benefits exceed the costs.
32. A 37. C
33. B 38. D
34. D 39. C
35. D 40. A
36. B 41. A
42. D 44. C
43. B 45. A
52. In the Conceptual Framework for Financial Reporting, what provides the “why” of accounting?
a. Measurement and recognition concept.
b. Qualitative characteristic of accounting information.
c. Element of financial statement.
d. Objective of financial reporting.
53. The underlying theme of the Conceptual Framework is:
a. Decision usefulness
b. Understandability
c. Timeliness
d. Comparability
54. Which is an important characteristic of the Conceptual Framework?
a. To provide the accountancy profession to solve more quickly emerging practical
problems.
b. To provide a foundation from which to build more useful financial accounting standards.
c. To enhance comparability of financial statements across entities.
d. All of these are important characteristics of the Conceptual Framework.
55. Which statement is not true concerning the Conceptual Framework?
a. The Conceptual Framework should be a basis for standard setting.
b. The Conceptual Framework should allow practical problems to be solved more quickly.
c. The Conceptual Framework should be based on the fundamental truth derived from law
of nature.
d. The Conceptual Framework should increase users’ understanding and confidence in
financial reporting.
52. D 54. D
53. A 55. C
56. The primary focus of financial reporting has been on meeting the needs of which of the
following groups?
a. Management
b. Existing and potential investors, lenders and other creditors.
c. National and local taxing authorities.
d. Independent CPAs.
57. The overall objective of financial reporting is to provide information:
a. That is useful for decision making.
b. About assets, liabilities and owners’ equity.
c. About financial performance during a period.
d. That allows owners to assess management performance.
56. B 59. C
57. A 60. C
58. A 61. C
72. What is the quality of information that gives assurance that is reasonably free from error and
bias?
a. Relevance
b. Faithful representation
c. Verifiability
d. Neutrality
73. Which of the following is the best description of faithful representation in relation to information
in financial statements?
a. Influence on the economic decision of users.
b. Inclusion of a degree of caution.
c. Freedom from material error.
d. Comprehensibility to users.
74. The ingredients of faithful representation are:
a. Completeness and neutrality.
b. Completeness and free from error.
c. Completeness, neutrality and free from error.
d. Completeness, neutrality, free from error and conservatism.
75. The financial accounting information is directed toward the common needs of users and is
independent of presumptions about particular needs and decisions of specific users.
a. Relevance
b. Verifiability
c. Neutrality
d. Completeness
87. Which of the following terms best describes information in financial statements that is
unbiased?
a. Understandable
b. Comparable
c. Relevant
d. Neutral
88. For information to be useful, the linkage between users and the decisions made is:
a. Relevance
b. Faithful representation
c. Understandability
d. Verifiability
89. An enhancing quality of financial accounting information is that:
a. Information must be decision-useful to all potential users of financial reporting.
b. General-purpose financial reporting is the primary source of information for users.
c. Users need reasonable knowledge of business and financial accounting matters to
understand the information contained in financial statements.
d. All of the choices are correct.
90. What is meant by comparability when discussing financial accounting information?
a. Information has predictive and confirmatory value.
b. Information is reasonably free from error.
c. Information is measured and reported in a similar fashion across entities.
d. Information is timely.
91. What is meant by consistency when discussing financial accounting information?
a. Information is measured and reported in a similar fashion across points in time.
b. Information is timely.
c. Information is measured similarly across the industry.
d. Information is verifiable.
92. Which of the following is not an enhancing qualitative characteristic?
a. Understandability
b. Profit-oriented
c. Timeliness
d. Comparability
93. D 96. A
94. D 97. B
95. C 98. D
99. The ability through consensus among measurers to ensure that information represents what it
purports to represent is an example of the concept of:
a. Relevance
b. Verifiability
c. Comparability
d. Feedback value
100. Which of the following accounting concepts states that an accounting transaction shall
be supported by sufficient evidence to allow two or more qualified individuals to
arrive at essentially similar conclusion?
a. Conservatism
b. Objectivity
c. Periodicity
d. Feedback value
101. Objectivity is assumed to be achieved when an accounting transaction:
a. Is recorded in a fixed amount of pesos.
b. Involves the payment or receipt of cash.
c. Involves an arm’s length transaction between two independent parties.
d. Allocates revenue or expenses in a rational and systematic manner.
102. Proponents of historical costs maintain statements prepared using historical costs are
more:
a. Objective
b. Relevant
c. Indicative of a purchasing power
d. Conservative
103. Which statement is an argument against historical cost?
a. Fair value is more relevant.
b. Historical cost is based on exchange transaction.
c. Historical cost is verifiable and reliable
d. Fair value is subjective.
104. Which of the following situations violates the concept of faithful representation?
a. Financial statements were issued nine months late.
b. Data on segments having the same expected risks and growth rate are reported to
analysts estimating future profits.
c. Financial statements included an item of property, plant and equipment with carrying
amount increased to management estimate of market value.
d. Management reports refer to new projects undertaken but the financial statements
never report project results.
105. What is the underlying concept governing the generally accepted accounting principles
pertaining to recording gain contingencies?
a. Conservatism
b. Relevance
c. Consistency
d. Reliability
106. The usefulness of providing information in financial statements is subject to the
constraint of:
a. Consistency
b. Cost-benefit
c. Reliability
d. Representational faithfulness.
99. B 103. A
100.B 104. C
101. C 105. A
102. A 106. B
107. The elements directly related to the measurement of financial position are:
a. Assets, liabilities, equity, income and expenses.
b. Assets, liabilities and equity.
c. Income expense
d. Assets and liabilities
108. The elements directly related to the measurement of financial performance are:
a. Assets, liabilities, equity, income and expenses.
b. Assets, liabilities and equity
c. Income and expense
d. Sales, and cost of goods sold
109. It is a resource controlled by the entity as a result of past event and from which future
revenue from which future economic benefits are expected to flow to the entity?
a. Asset
b. Liability
c. Equity
d. Income
110. It is a present obligation of an entity arising from past event the settlement of which is
expected to result in an outflow from the entity of resources embodying economic benefits.
a. Asset
b. Liability
c. Equity
d. Income
111. It is the residual interest in the assets of an entity after deducting all of the liabilities.
a. Income
b. Expense
c. Net income
d. Equity
112. It is an increase in economic benefit during the accounting period related to an increase
in asset or a decrease in liability that results in increase in equity other than contribution from
owners.
a. Asset
b. Liability
c. Income
d. Expense
113. It is a decrease in economic benefit during the accounting period related to a decrease
in asset or an increase in liability that results in decrease in equity other than contribution from
owners.
a. Asset
b. Liability
c. Income
d. Expense
114. This arises in the course of ordinary regular activities and is referred to by a variety of
different names including sales, fees, interest, dividends, royalties and rent.
a. Income
b. Revenue
c. Profit
d. Gain
115. Which statement in relation to income is true?
a. Income encompasses both revenue and gain.
b. Revenue encompasses both income and gain.
c. Gain encompasses both income and revenue.
d. Income is the same as revenue.
117. When should an item that meets the definition of an element be recognized?
a. When it is probable that any future economic benefit associated with the item will flow
to or from the entity.
b. When the element has a cost or value that can be measured with reliability.
c. When the entity obtains control of the rights or obligations associated with the item.
d. When it is probable that any future economic benefit associated with the item will flow
to or from the entity and the item has a cost or value that can be measured with
reliability.
118. An asset is recognized when:
a. It is probable that future economic benefit will flow to the entity.
b. The cost or value of the asset can be measured reliably.
c. The entity obtains control of the rights associated with the asset.
d. It is probable that future economic benefit will flow to the entity and the cost or value of
the asset can be measured reliably.
119. A liability is recognized when:
a. It is probable that an outflow of future economic benefit will be required to settle the
obligation.
b. The amount of the obligation can be measured reliably.
c. It is probable that an outflow of future economic benefit will be required to settle an
obligation and the amount of the obligation can be measured reliably.
d. When an entity obtains control of the obligation.
120. An income is recognized when:
a. It is probable that future economic benefit will flow to the entity and the economic
benefit can be measured reliably.
b. It is possible that future economic benefit will flow to the entity and the economic
benefit can be measured reliably.
c. The entity obtains control of the future economic benefit.
d. The future economic benefit can be measured reliably.
121. An expense is recognized when:
a. It is probable that a decrease in future economic benefit has occurred.
b. The decrease in the future economic benefit can be measured reliably.
c. It is probable that a decrease in future economic benefit has occurred and the decrease
in the future economic benefit can be measured reliably.
d. It is probable that an increase in future economic benefit has occurred and the increase
in the future economic benefit can be measured reliably.
122. It is the process that involves the simultaneous or combined recognition of revenue and
expenses that result directly from the same transactions and other events.
a. Matching of cost with revenue
b. Matching of revenue with cost
c. Systematic and rational allocation
d. Immediate recognition
123. When economic benefits are expected to arrive over several accounting periods and the
association with income can only be indirectly determined, expenses are recognized on the basis
of:
a. Cause and effect association
b. Systematic and rational allocation
c. Immediate recognition
d. Realization
116. A 121. C
117. D 122. A
118. D 123. B
119. C 124. D
120. A 125. A
144. Income recognized using the instalment method of accounting equals cash collected
multiplied by:
a. Net profit rate
b. Net profit rate adjusted for uncollectible accounts.
c. Gross profit rate
d. Gross profit rate adjusted for uncollectible accounts.
145. Under the instalment of accounting, gross profit on instalment sale is recognized in
income:
a. On the date of sale
b. On the date the final cash collection is received
c. In proportion to the cash collection
d. After cash collections equal to the cost of goods sold have been received.
146. Under the cost recovery method of accounting, gross profit on instalment sale is
recognized:
a. After cash collections equal cost of goods sold have been received.
b. In proportion to the cash collection.
c. On the final cash collection is received
d. On the date of sale.
147. Which statement justifies the use of the cost recovery method to account for instalment
sales?
a. The sales contract provides that title only passes to the purchaser when all payments
have been made.
b. No cash payments are due until one year.
c. Sales are subject to a high rate of return.
d. There is no reasonable basis for estimating collectability.
144. C 146. A
145. C 147. D
148. A 150. D
149. C 151. A
161. Costs that can be reasonably associated with specific revenue but not with specific
products should be:
a. Charged to expense in the period incurred.
b. Allocated to specific products based on the best estimate of the product processing
time.
c. Expensed in the period in which the related revenue is recognized.
d. Capitalized and then amortized over reasonable period.
162. Why are certain costs of doing business capitalized when incurred and then depreciated
or amortized over subsequent accounting periods?
a. To reduce the income tax liability
b. To aid management in the decision-making process
c. To match the cost of production with revenue
d. To adhere to the accounting concept of conservatism.
163. Which of the following is an example of the expense recognition principle of associating
cause and effect?
a. Allocation of insurance cost
b. Sales commissions
c. Depreciation of property, plant and equipment
d. Officers’ salaries
164. Which principle best describes the conceptual rationale for the method of matching the
depreciation with revenue?
a. Associating cause and effect
b. Systematic and rational allocation
c. Immediate recognition
d. Partial recognition
165. Which of the following is an application of the principle of systematic and rational
allocation?
a. Amortization of intangible assets
b. Sales commissions
c. Research and development costs
d. Officers’ salaries
166. Which of the following should be expensed under principle of systematic and rational
allocation?
a. Salesman’s monthly salaries
b. Insurance premiums
c. Freight out
d. Electricity to light office building
167. Which of the following would be matched with current revenue on a basis other than
association of cause and effect?
a. Goodwill
b. Sales commission
c. Cost of goods sold
d. Purchases on account
168. Which of the following is not a theoretical basis for the allocation of expense?
a. Summarization
b. Classification
c. Profit maximization
d. Immediate recognition
169. What is an example of cost that cannot be directly related to particular revenue but
incurred to obtain benefits that are exhausted in the period when the cost is incurred?
a. Sales commission
b. Sales salary
c. Freight in
d. Prepaid insurance
177. What is the general approach as to when product costs are recognized as expenses?
a. In the period when the expenses are paid
b. In the period when the expenses are incurred
c. In the period when the vendor invoice is received
d. In the period when the related revenue is recognized.
178. When should expenditure be recorded as an asset rather than an expense?
a. Never
b. Always
c. If the amount is material
d. When future benefit exists
179. C
180. C
181. C
182. C