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Review School of Accountancy Theory of Accounts

Overview 7. Proponents of historical cost ordinarily maintain that in comparison with all other valuation
1. Which of the following is an ethical concern of accountants? alternatives for general-purpose financial reporting statements prepared using historical costs
A. Industry practices C. Conservative accounting are more
B. Earnings manipulation D. Compliance with reporting standards A. Relevant
B. Verifiable
Accounting Standard Setting C. Conservative
2. The IASB's standard-setting structure includes all of the following, EXCEPT D. Indicative of the entity's purchasing power
A. IFRS Advisory Council C. IFRS Interpretations Committee
B. IFRS Comparison Committee D. Trustees 8. Which is an argument against using historical cost in accounting?
A. Fair values are subjective. .
Conceptual Framework B. Historical costs are reliable.
3. In the Conceptual Framework for Financial Reporting, what provides "the why" (i.e., the C. Fair values are more relevant,
purpose) of accounting? D. Historical costs are based on an exchange transaction.
A. Objective of financial reporting
B. Elements of financial statements Accounting Process
C. Qualitative characteristics of accounting information 9. Adjusting entries are often prepared
D. Recognition, measurement, and disclosure concepts such as assumptions, principles, A. After the statement of financial position date, but dated as of that date
and constraints B. After the statement of financial, position date, and dated after that date
C. Before the statement of financial position date, but dated as of that date
4. What is a purpose of having a Conceptual Framework? D. Before the statement of financial position date, and dated after that date
A. To segregate activities among competing companies.
B. To provide comparable information for different companies. 10. Which of the following situations may give rise to unearned revenue?
C. To make sure that economic activity can be identified with a particular legal entity. A. Selling inventory.
D. To enable the profession to more quickly solve emerging practical problems and to B. Selling magazine subscriptions.
provide a foundation from which to build more useful standards. C. Providing manufacturer warranties.
D. Providing trade credit to customers. .
5. The quality of information that means the numbers and descriptions match what really existed
or happened is 11. Recording the adjusting entry for depreciation has the same effect as recording the adjusting
A. Completeness C. Neutrality entry for
B. Faithful representation D. Relevance A. A prepaid expense C. An accrued revenue
B. An accrued expense D. An unearned revenue
6. When inventory is misstated, its presentation lacks
A. Comparability C. Relevance Presentation of Financial Statements
B. Faithful representation D. All of the choices are correct 12. Which of the following is a benefit of providing financial information?
A. Auditing. C. Improved allocation of resources.
B. Disclosure to competition. D. Potential litigation.

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13. Items that are dissimilar in nature must be presented separately in financial statements, 18. Which of the following items, if it exists, does NOT have to be presented as a line item on the
unless: face of a statement of profit or loss and other comprehensive income?
A. They are immaterial A. Revenue
B. The directors approve of an aggregation of the items B. Closing inventory
C. The auditors' approval to aggregate the items is obtained C. Post-tax profit or loss of- discontinued operations
D. They are financial items in which case they can be off-set D. Profit or loss attributable to non-controlling interests

14. Application of the full disclosure principle 19. In respect to the statement of profit or loss and other comprehensive income of an entity,
A. requires that the financial 'statements be consistent and comparable. PAS 1 prescribes:
B. is violated when important financial information is buried in the notes to the financial A. the presentation of line items of revenue, but not of income
statements. B. line items that are considered to be of sufficient importance to warrant presentation
C. is theoretically desirable but not practical because the costs of complete disclosure C. the presentation of line items comprising total expenses, but not line items comprising
exceed the benefits. total revenue.
D. is demonstrated by the use of supplementary information explaining the effects of D. a fixed format for the presentation of items in the statement of profit or loss and other
financing arrangements. comprehensive income

Statement of Financial Position Statement of Cash Flows


15. The statement of financial position 20. The statement of cash flows provides answers to all of the following questions, EXCEPT
A. Omits many items that are of financial value. A. What was the cash used for during the period? .
B. Uses fair value for, most assets and liabilities. B. Where did the cash come from during the period?
C. Makes very limited use of judgments and estimates. C. What was the change in the, cash balance during the period?
D. All of the choices are correct regarding the statement of financial position. D. What is the impact of inflation on the cash balance at the end of the year?

Statement of Profit or Loss & Other Comprehensive Income 21. The statement of cash flows reports all of the following, EXCEPT:
16. The income statement information would help in which of the following tasks? . A. investing transactions.
A. Estimate future cash flows. B. the net change in cash, for. the period.
B. Estimate future financial flexibility. C. the cash effects of operations during the period.
C. Evaluate the liquidity of a company. D. the free cash flows generated during the period.
D. Evaluate the solvency of a company.
22. Preparing the statement of cash flows, using the indirect method, involves all of the following,
17. According to PAS 1, a required format for the presentation of the income statement is EXCEPT:
A. prescribed by the standard A. cash provided by operations.
B. not prescribed and no guidance is provided in the standard B. change in cash during the period.
C. not prescribed by the standard but details are found in the Corporations Act. C. cash collections from customers during the period
D. not prescribed but guidance is provided in the standard for a suitable format. D. cash provided by or used in investing and financing activities.

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23. In preparing a statement of cash flows, sale of treasury stock at an amount greater than cost D. Accruing a contingent liability for an ongoing lawsuit.
would be classified as a(n).
A. extraordinary activity. C. investing activity. Inventories
B. financing activity. D. operating, activity. 29. What is consigned inventory?
A. Goods that are shipped, but title-remains with the shipper.
Operating Segments B. Goods that are. shipped, but title, transfers to the receiver.
24. Under PFRS, what is a reasonable upper limit for the number of segments that a company C. Goods that have been segregated for shipment to a Customer.
must disclose? D. Goods that are sold, but payment is not required -until the goods are sold.
A. Two C. Six
B. Five D. Ten 30. Lower-of-cost-or-net realizable value as it applies to inventory is best described as the
A. assumption to determine inventory, flow.
Interim Financial Reporting B. method of determining cost of goods sold.
25. In considering interim financial reporting, how does PFRS conclude that such reporting C. change in inventory value to net realizable value.
should be viewed? D. reporting of a loss when there is a decrease in the future utility below the original cost.
A. As reporting for a separate accounting period.
B. As reporting for an. integral part of ah annual period. 31. LCNRV of inventory:
C. As a "special" type of reporting that need not follow international financial reporting, A. should always be equal to net realizable value.
standards. B. may sometimes be less than net realizable value.
D. As useful only if activity is evenly spread throughout the year so that estimates are C. is always either the net realizable value or its cost.
unnecessary. D. should be equal to net realizable value less disposal costs.

Income Determination 32. When inventory declines in value below original (historical) cost, what is the maximum
26. Which of the following items will possibly affect the profit or loss for the period? amount that the inventory can be valued at?
A. Correction of prior period errors A. Sales price
B. Revaluation of property, plant and equipment B. Historical cost
C. Unrealized gain on, available-for-sale investments C. Net realizable value
D. Cash dividend received on an investment in associate D. Sales price reduced by estimated costs to sell

27. Which of the following is an example of managing earnings down? 33. How is a. significant amount of consignment inventory reported in the statement of financial
A. Not writing off obsolete inventory. position?
B. Reducing research and development expenditures, A. The inventory is reported separately on the consignor's statement of financial position.
C. Changing estimated bad debts from 3% to 2.5% of sales. B. The inventory is reported separately on the consignee's statement of financial' position.
D. Revising the estimated life of equipment from 10 years to 8 years. C. The inventory is combined with other inventory on the consignee's statement of financial
position.
28. Which of the following is an example of managing earnings up? D. The inventory is combined with other inventory on the consignor's statement of financial
A. Writing off obsolete inventory. position.
B. Underestimating warranty claims.
C. Decreasing estimated salvage value of equipment.
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Biological Assets 39. Amortized cost is the initial recognition amount of the investment minus
34. PAS 41 applies to the accounting for the following when they relate to agricultural activity:' A. repayments plus or minus cumulative amortization.
I Agricultural produce. B. repayments and net of any reduction for uncollectibility.
II. Biological assets. C. cumulative, amortization and net of any reduction for uncollectibility.
III. Land related to agricultural activity D. repayments plus or minus cumulative amortization, and net of any reduction for
IV. Government grants uncollectibility.
A. I, II and III C. I, III and IV
B. I, II and IV D. II, III and IV Investment in Associates
40. Equity investments acquired by a corporation which are accounted for by recognizing
35. When determining the fait value of biological assets and there is no market price for that unrealized holding gains or losses as other comprehensive income and as a separate
asset in its present condition, PAS 41 requires that: component of equity are:
A. The entity uses sector benchmarks A. non-trading where a company has holdings of less than 20%.
B. The entity measure the asset at cost B. investments where a company has holdings of more than 50%.
C. The entity uses the contract prices for recent sales of similar assets adjusted for the C. trading investments where a company has holdings of less than 20%
effects, of biological transformation D. investments where a company has holdings of between 20% and 50%. ,
D. The entity uses, the present value of expected net cash flows from the asset discounted
at a current market-determined pre-tax- rate Investment Property
41. What is the best evidence of fair value of an investment property?
Financial Assets at Fair Value A. Quoted price in active market for a similar asset
36. Debt investments not held for collection are reported at: B. Quoted price in inactive market for a similar asset
A. Amortized cost C. Lower of amortized cost or fair value C. Quoted price in active market for an identical asset
B. Fair value D. Net realizable value D. Quoted price in inactive market for an identical asset

37. When a company has acquired a "passive interest" in another corporation, the acquiring Property, Plant & Equipment
company should account for the investment 42. To be consistent with the historical cost principle, overhead costs incurred by an enterprise
A. by consolidation. constructing its own building should be:
B. by using the equity method. A. allocated on an opportunity cost basis.
C. by using the fair value method. B. allocated on. the basis of lost production.
D. by using the effective interest method. C. eliminated completely from the cost of the asset.
D. allocated on a pro rata basis between the asset and normal operations.
Financial Assets at Amortized cost
38. Debt investments that meet the business model and contractual cash flow tests are reported 43. Depreciation is normally computed on the basis of the nearest
at: A. day and to the nearest peso.
A. Amortized cost C. Lower of amortized cost or fair value B. day and to the nearest centavo.
B. Fair value D. Net realizable value C. full month and to the nearest peso.
D. full month and to the nearest centavo.

44. A graph is set up with 'yearly depreciation expense" on the vertical axis and "time" on the
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horizontal axis. Assuming linear relationships, how would the graphs for straight-line and 50. Which of the following is NOT a condition necessary to exclude a short-term obligation from
sum-of-the-years'-digits depreciation, respectively, be drawn? current liabilities?
A. Vertically and sloping up to the right A. Obligation must be due within one year.
B. Horizontally and sloping up to the right B. Intend to refinance the obligation on a long-term basis.
C. Vertically, and sloping down to the right C. Subsequently refinance the obligation on a long-term basis,
D. Horizontally and sloping down to the right D. Unconditional right to defer settlement of the liability for at least 12 months.

Intangible Assets 51. Which of the following terms is associated with recognizing a provision?
45. The major problem of accounting for intangibles is determining: A. Likely C. Probable
A. Fair value C. Separability B. Possible but not probable D. Remote.
B. Salvage value D. Useful life
52. Assume that a manufacturing company has (1) good quality control, (2) a one-year operating
46. Which of the following costs incurred internally to create an intangible asset is generally cycle, (3) a stable pattern of annual sales, and (4) a continuing policy of guaranteeing new
expensed? products- against defects for three years that has resulted in material and stable warranty
A. Filing costs C. Research phase costs repair and- replacement costs. Any liability for the warranty:
B. Legal costs D. All of .the choices are correct A. need not be disclosed.
B. should be reported as current.
47. When subsequent expenditure on intangible assets occurs the costs are generally C. should be reported. as non-current.
A. Capitalized D. should be reported as part current and part non-current.
B. Immediately expensed
C. Transferred to a reserve account Bonds & Notes Payable
D. Recognized directly in retained earnings 53. Bond issuance costs, including the printing costs and legal fees associated with the issuance,
should be
Current Liabilities, Provisions & Contingencies A. expensed in the period when the debt is issued.
48. What is the relationship between present value and the concept of a liability? B. recorded as a reduction in the carrying value of bonds payable
A. Present values are used to measure all liabilities. C. reported as an expense in the period the bonds' mature or are retired.
B. Present values are not used to measure liabilities. D. accumulated in a. deferred charge account and amortized over the life of the bonds.
C. Present values are used to measure certain liabilities.
D. Present values are only used to measure non-current' liabilities. 54. Which of the following is correct about the effective-interest method of amortization?
A. Amortization of a premium decreases from period to period.
49. What is the relationship between current liabilities and a company's operating cycle? B. Amortization of a. discount decreases from period to period.
A. There is no relationship between the two. C. The effective-interest method applied to debt investments is different from that applied to
B. Current liabilities are the result of operating transactions. bonds payable.
C. Current, liabilities can't exceed 'the amount incurred in one operating cycle. D. The effective-interest method applies the effective-interest rate to the beginning carrying
D. Liquidation of current liabilities is reasonably expected within the company's operating amount for each interest period.
cycle, (or one year if more) .

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55. When the effective-interest method is used to amortize bond premium or discount, the Income Taxes
periodic amortization will 60. The differences between the carrying amounts of an entity's net assets determined under
A. increase if the bonds were issued at a discount. accrual accounting standards and the tax bases of those net assets are described as
B. increase if the bonds were issued at a premium. A. Current income tax liability C. Tax losses
C. decrease if "the bonds were issued at a premium. B. Permanent differences D. Temporary differences
D. increase if the bonds were issued at either a discount or a premium.
Employee Benefits
Compound Financial Instruments 61. The interest rate used on the defined benefit obligation component of pension expense
56. A corporation issues bonds with detachable warrants. The amount to be recorded as share A. may be stated implicitly or explicitly when reported.
premium is preferably B. reflects the incremental borrowing rate of the employer.
A. zero. C. is the same rate used to compute the interest revenue on plan assets.
B. equal to the market-value of the warrants D. reflects the rates at which pension benefits could be effectively settled.
C. calculated as the excess of the proceeds over the face value of the bonds.
D. calculated as the excess' of the proceeds over the fair valued of the bonds. Shareholders’ equity
62. Total shareholders' equity represents:
57. The major difference between convertible debt and share warrants is that upon exercise of A. a claim to specific assets contributed by the owners.
the warrants: B. a claim against a portion of the total assets of an enterprise.
A. no share premium can be a part of the transaction. C. the maximum amount that can be borrowed by the enterprise.
B. the holder has to pay a certain, amount, of cash to obtain the shares. D. only the amount of earnings that have been retained in the business.
C. the shares involved are restricted and can only be sold by the recipient after a set period
of time. 63. Shareholders of a business, enterprise are said to be the residual owners. The term residual
D. the shares are held by the company for a defined period of time before they are issued to owner means that shareholders
the warrant holder. A. have the rights to specific assets of the business.
B. can negotiate individual contracts on behalf of the enterprise,
Troubled-Debt Restructuring C. are entitled to a dividend, every year in which the business earns a profit.
58. In a debt extinguishment in which the debt is continued with modified terms and the carrying D. bear the ultimate risks and uncertainties and receive the benefits of enterprise
value of. the debt is more than the fair value of the debt: ownership.
A. a gain should be recognized by the debtor.
B. a: loss should be recognized by the debtor. 64. The residual interest in a corporation belongs to the
C. a new effective-interest rate must be computed. A. creditors. C. ordinary shareholders .
D. no interest expense should be recognized in the future. B. management. D. preference shareholders.

Leases 65. The pre-emptive right of an ordinary shareholder is the right to


59. A sale and leaseback transaction, involves the sale of an asset that is then leased back to A. exclude preference, shareholders from voting rights.
the: B. share proportionately in corporate assets upon liquidation.
A. Acquiring entity C. Original owner C. share, proportionately in any hew issues of stock of the same class.
B. Lessor D. Purchaser D. receive cash dividends before they are distributed to preference shareholders.

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66. Equity is generally classified into two major categories: D. May increase net income if the cost method is used.
A. earned capital and contributed, capital.
B. retained earnings and unearned capital. 73. Which of the following is NOT a legal restriction related to profit distributions by a
C. appropriated capital and retained earnings. corporation?
D. contributed, capital and appropriated capital. A. Profit distributions must be formally approved by the board of directors.
B. The amount distributed in any one year can never exceed the net Income reported for
67. Categories of equity include all of the following, EXCEPT that year.
A. Treasury shares. C. Dividends must be in full agreement with the capital contracts as to preferences and
B. Liquidating dividends. participation.
C. Non-controlling interest. D. The amount distributed to owners, must, be in compliance with the laws governing
D. Accumulated other comprehensive income. corporations.

68. Which of the following features of preference shares makes the security more like debt than 74. An entry is NOT made on the
an equity instrument? A. Date of record
A. Noncumulative C. Redeemable B. Date of payment
B. Participating D. Voting C. Date of declaration.
D. Dates of declaration, record and payment
69. Which of the following represents the total number of shares that a corporation may issue
under the terms of its charter? 75. A feature common to both share splits and share dividends is
A. authorized shares C. outstanding shares A. that there is no effect on total equity.
B. issued shares D. unissued shares B. a transfer to earned capital of a corporation.
C. an increase in total liabilities of a corporation.
70. Shares that have a fixed per share amount printed on each share certificate are called. D. a reduction in the contributed capital of a corporation.
A. fixed value shares. C. stated value shares.
B. par value, shares. D. uniform value shares. 76. ABC Corporation owns 4,000,000 shares of XYZ Corporation. On December 31, 2014.
ABC. distributed these shares as a dividend to its shareholders. This is an example of a
71. Under PAS 32 and PIC rules, any transaction costs attributed to the issuance of NEW shares A. Cash dividend C. Property dividend
shall be B. Liquidating dividend D. Share dividend
A. expensed immediately.
B. deducted from equity, net of any related income tax benefit, 77. The balance in Ordinary Share Dividend Distributable should be reported as a(n)
C. deducted from equity, gross of any related income tax benefit. A. current liability. C. addition to share capital - ordinary.
D. charged to retained earnings, net- of any related income tax benefit. B. contra current asset. D. deduction from share capital - ordinary.

72. Which of the following best describes a possible result of treasury share transactions, by a 78. A "secret reserve" will be created if
corporation? A. liabilities are understated.
A. May decrease, but not increase net income. B. shareholders' equity is overstated.
B. May decrease but not increase retained earnings. C. a capital expenditure is charged to expense.
C. May increase but not decrease retained earnings. D. inadequate depreciation is charged to income.
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Share-Based Compensation D. Gain on disposal of discontinued operation, net of tax.


79. Compensation expense resulting from a compensatory share option plan is generally:
A. recognized in the period of exercise; 85. Undeclared dividends are deducted from net income in the earnings per share computation
B. recognized in the period of the grant. for which type of preference shares?
C. allocated over the periods of the employee's service life to retirement. A. Cumulative only. C. Both non-cumulative and cumulative.
D. allocated to the periods- benefited by the employee's required service. B. Non-cumulative only. D. Neither non-cumulative-'nor cumulative.

80. The date on which total compensation expense is computed in a share option plan is the date PFRS for SMEs
A. of grant 86. PFRS for SMEs strictly requires disclosure of information about:
B. of exercise A. Earnings per share C. Related party transactions
C. that the market-price exceeds the option price B. Interim financial reports D. Segment information
D. that the market price coincides with the option price
Product Costing
81. In accounting for share-appreciation rights plans, compensation expense is generally 87. In comparison with firms that use plant-wide overhead rates and departmental overhead
A. recognized in the period of exercise. rates, companies that have adopted activity-based costing will typically use:
B. recognized in the period of the grant. A. More cost pools and more cost drivers
C. allocated over the service period of the employees. B. More cost pools and fewer cost drivers
D. not recognized because no excess of market price over the option price exists at the C. Fewer cost pools and more cost drivers
date of grant. D. Fewer cost pools and fewer cost, drivers

Earnings per Share 88. Joint product costs are generally allocated using the
82. Earnings per share relate to A. Additional costs after split-off C. Relative profitability
A. ordinary shares only. B. Direct labor hours D. Relative sales value
B. preference shares only.
C. both preference and ordinary shares. 89. Standard cost variances are not closed to
D. neither preference nor ordinary shares. A. Costs of goods sold C. Finished goods
B. Direct materials D. Work-in-process
83. Which of the following earnings per share figures must be disclosed on the face of the
income statement? Foreign Currency Transactions & Translations
A. EPS for gross profit. 90. When translating foreign currency denominated financial statements into the functional
B. EPS for income before taxes. currency, the exchange differences are recognized
C. The effect on EPS from unusual items. A. as a deferred asset or liability
D. EPS for income from continuing operations. B. as a separate component of equity
C. directly in the retained earnings account.
84. The earnings per share computation, is NOT required for: D. as an item of gain or loss in the statement of profit or loss & other comprehensive
A. Net income. income.
B. Income from operations.
C. Income from continuing operations.
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Derivatives & Hedging Activities Government Accounting


91. An option to convert a convertible bond into ordinary shares is a(n): 97. How frequent shall a government unit covered, by NGAS prepare financial reports?
A. embedded derivative. C. host security. A. Annually C. Quarterly
B. fair value hedge. D. hybrid security. B. Monthly D. Semi-annually

92. Under PFRS 2, which of the following valuation techniques should NOT be used as a first- 98. Under NGAS, the standard residual value of depreciable assets is
instance measure of fair value for shares and share options NOT traded in an active market? A. Zero C. P 5,000
A. Binomial model C. Intrinsic model B. P1,000 D. 10% of cost
B. Black-Scholes model D. Monte-Carlo model
Service Concession Arrangements
93. Gains or losses on cash flow hedges are: 99. Build-operate-transfer "BOT" arrangements under the scope of IFRIC 12 are usually made
A. ignored completely. between (among):
B. reported directly in, net income. A. The government (grantor) and a private entity (operator)
C. reported directly in retained earnings, B. The government (operator) and. a private entity ('grantor')
D. recorded in equity, as part of other comprehensive income. C. The government (grantor), general public (operator) and a, private entity (co-operator)
D. General public (grantor), a private, entity (operator) and the government (co-operator)
Business Combination
94. Which of the following is considered as part of consideration transferred in a business 100. Under a build-operate-transfer (BOT) scheme covered by IFRIC 12, any borrowing costs
combination? incurred by the private operator for infrastructure projects shall be:
A. Contingent considerations A. B. C. D.
B. Cost of issuing debt and equity securities Financial asset model Capitalized Capitalized Expensed Expensed
C. Indirect costs (e.g., costs of maintaining an acquisition department) Intangible asset model Capitalized Expensed Capitalized Expensed
D. Direct costs (e.g., legal fees; finder's fees; brokerage fees; audit fees)

Not-for-Profit Organization
95. Nonprofit organizations (NPO) include all of the following, EXCEPT:
A. Hospitals
B. Universities
C. Professional associations
D. Government-owned & controlled companies

96. A voluntary health and welfare organization is required to prepare a:


A. Statement of changes in equity
B. Statement of functional expenses
C. Statement of comprehensive income
D. Statement of management responsibility

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