Overview of Accounting

QUIZ:

1. It refers to the process of incorporating the effects of an accountable event in the statement of
financial position or the statement of profit or loss and other comprehensive income through a
journal entry.
a. realization
b. derecognition
c. recognition
d. posting

2. All of the following are events considered as exchange or reciprocal transfer, except
a. purchase of investment in equity securities
b. sale of equipment for non-interest bearing note
c. subscription of the entity’s own equity instrument (i.e., contributions by owners)
d. exchange of a note payable for an account payable
e. borrowing of money from a bank

3. All of the following are events considered nonreciprocal transfers, except

a. declaration of cash dividends
b. declaration of stock dividends
c. payment of accounts payable
d. imposition of fines
e. theft

4. These are events involving an entity and another external party.

a. external events
b. internal events
c. transactions
d. life events

5. It is the accounting process of assigning numbers, commonly in monetary terms, to the economic
transactions and events.
a. analyzing c. classifying
b. measuring d. interpreting

6. What is the basic purpose of accounting?

a. To provide quantitative financial information about economic activities.
b. To provide all information that users need in making economic decisions.
c. To provide qualitative financial information about economic activities intended to be useful
in making economic decisions.
d. To provide quantitative financial information about economic activities intended to be useful
in making economic decisions.

7. Accounting provides which type of information?

a. quantitative
b. financial information
c. qualitative
d. all of these

8. General purpose financial statements are

a. those statements that cater to the common and specific needs of a wide range of external users.
b. those statements that cater to the common needs of a wide range of external users and internal
users.
c. those statements that cater to the common needs of a limited range of external users.
d. those statements that cater to the common needs of a wide range of external users.

9. External users are those

a. who do have the authority to demand financial reports tailored to their specific needs.
b. who do not have the authority to demand financial reports tailored to their common needs.
c. who do not have the authority to demand financial reports tailored to their specific needs.
d. who belong to countries other than the domicile country of the reporting entity

10. The primary objective of financial reporting is to provide

a. information about economic resources, claims to these resources, and changes in them.
b. information useful for investment and credit decisions.
c. information useful in predicting future cash flows.
d. all of these

11. Which of the following statements is false?

a. Accountable events are those that have an effect in an entity's assets, liabilities, equity, income
or expenses.
b. The term “recognition” as used in accounting refers to the process of incorporating the effects
of an accountable event in the statement of financial position or the statement of profit or loss
and other comprehensive income through a memo entry.
c. External events are those that involve the reporting entity and an external party.
d. The Board of Accountancy consists of a chairperson and six members.

12. Which of the following statements is true?

a. In current practice, accounting provides only quantitative information that is useful in making
economic decisions.
b. External users are those who do not have the authority to demand financial reports tailored
to their specific needs.
c. Under the stable monetary unit assumption, the owners of the business and the business are
viewed as a single reporting entity. Therefore, the personal transactions of the owners are
recorded in the books of accounts.
d. The practice of accountancy in the Philippines is regulated under R.A. 9892.

13. Which of the following statements correctly refer to the accounting process?
I. Measuring is the accounting process of analyzing business activities as to whether or not they
will be recognized in the books.
II. Recognition refers to the process of including the effects of an event in the totals of the
statement of financial position or the statement of profit or loss and other comprehensive
income through memo entries.
III. Disclosure of events in the notes to financial statement without including their effect in the
totals of the statement of financial position or statement of profit or loss and other
comprehensive income is not an application of the recognition principle.
IV. An accountable event is an event that has an effect on the assets, liabilities or equity of an
entity and its effect can be measured reliably.
V. Sociological and psychological matters are within the scope of accounting.
a. I, II, III, IV and V
b. I, II, III and IV
c. IV
d. III and IV

14. Which of the following statements is true?

I. Loss from theft is classified as a nonreciprocal transfer.
II. Internal events are changes in economic resources by actions of other entities that do not
involve transfers of resources and obligations.
III. Nonreciprocal transfers involve the transfer of resources in only one direction, either from an
entity to other entities or from other entities to the entity.
IV. Internal events are sudden, substantial, unanticipated reductions in resources not caused by
other entities.
V. Fire, earthquake and flood are examples of accountable events classified as internal events.
a. I, II, III and V
b. I, III and V
c. II, III, IV and V
d. I, III, IV and V
15. Asset measurements in conventional financial statements
a. are confined to historical cost.
b. are confined to historical cost and current cost.
c. reflect several financial attributes.
d. do not reflect output values.

16. During the lifetime of an entity, accountants produce financial statements at arbitrary points in
time in accordance with which basic accounting concept?
a. Cost/benefit constraint
b. Periodicity assumption
c. Conservatism constraint
d. Matching principle

17. What accounting concept justifies the use of accruals and deferrals?
a. Going concern assumption
b. Materiality constraint
c. Consistency characteristic
d. Monetary unit assumption

18. The assumption that a business enterprise will not be sold or liquidated in the near future is known
as the
a. economic entity assumption.
b. monetary unit assumption.
c. conservatism assumption.
d. going concern.

19. Valuing assets at their liquidation values rather than their cost is inconsistent with the
a. periodicity assumption.
b. matching principle.
c. materiality constraint.
d. historical cost principle.

20. When products or other assets are exchanged for cash or claims for cash, they are said to be
a. allocated.
b. realized.
c. recognized.
d. earned.

“A wise man will hear and increase learning, and a man of understanding will attain
wise counsel.” (Proverbs 1:5)

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Conceptual Framework for Financial Reporting
QUIZ:
1. A soundly developed conceptual framework of concepts and objectives should
a. increase financial statement users' understanding of and confidence in financial reporting.
b. enhance comparability among companies' financial statements.
c. allow new and emerging practical problems to be morea quickly soluble.
d. all of these.

2. A Standard sometimes contains requirements that depart from the Conceptual Framework. In such
cases,
a. the requirements of the Conceptual Framework will prevail over those of the Standard.
b. the departure is explained in the ‘Basis for Conclusions’ on that Standard.
c. the entity’s management shall formulate its own accounting policy and disregards both the
requirements of the Conceptual Framework and the Standard.
d. A Standard should never depart from the Conceptual Framework.

3. The overall objective of financial reporting is to provide information

a. about an entity's assets, liabilities, and equity.
b. about an entity's financial performance during a period.
c. that is useful to primary users in making economic decisions about providing resources to the
entity.
d. that allows owners to assess management's performance.

4. The two primary qualities that make accounting information useful for decision making are
a. comparability and consistency.
b. materiality and timeliness.
c. relevance and reliability.
d. faithful representation and relevance.

5. According to the Conceptual Framework, predictive value relates to

Relevance Faithful representation
a. Yes Yes
b. No Yes
c. Yes No
d. No No

6. Which of the following is considered a qualitative factor in making materiality judgments?

a. the context of an item in relation to the current economic state of the environment where the
entity operates.
b. 10% of profit or loss, in absolute terms
c. 5% of total revenues
d. 1% of total assets

7. Which of the following statements about materiality is not correct?

a. An item must make a difference; otherwise, it need not be reported.
b. Materiality is affected by an item’s relative size and/or importance.
c. An item is material if its inclusion or omission would influence or change the judgment of a
reasonable person.
d. All of these are correct statements about materiality.

8. The Filipino adage “Aanhin mo pa ang damo pag patay na ang kabayo” relates to which of the
following qualitative characteristics?
a. Relevance
b. Timeliness
c. Faithful representation
d. Comparability

9. When information about two different entities has been prepared and presented in a similar
manner, the information exhibits the characteristic of
a. relevance.
b. reliability.
c. consistency.
d. comparability.

10. According to the Conceptual Framework, physical count of inventory is an example of

a. direct verification.
b. indirect verification.
c. timeliness.
d. relevance.

11. Information is considered relevant when it

a. can be depended on to represent the economic conditions and events that it is intended to
represent.
b. is capable of making a difference in a decision.
c. is understandable by reasonably informed users of accounting information.
d. is verifiable and neutral.

12. The quality of information that gives assurance that it is reasonably free of error and bias and
provides a true, correct and complete depiction of what it purports to represent is
a. relevance.
b. faithful representation.
c. verifiability.
d. neutrality.

13. Information is neutral if it

a. provides benefits which are at least equal to the costs of its preparation.
b. can be compared with similar information.
c. has no impact on a decision maker.
d. is free from bias toward a predetermined result.

14. Decision makers vary widely in the types of decisions they make, the methods of decision making
they employ, the information they already possess or can obtain from other sources, and their
ability to process information. Consequently, for information to be useful there must be a linkage
between these users and the decisions they make. This link is
a. relevance.
b. reliability.
c. understandability.
d. materiality.

15. Which of the following is considered a pervasive constraint by the Conceptual Framework?
a. Cost constraint
b. Verifiability
c. Conservatism
d. Cost restraint

16. Which of the following is not an element that is directly related to the measurement of an entity’s
financial position?
a. assets
b. liabilities
c. equity
d. income

17. The revised Conceptual Framework defines an asset as

a. a resource controlled by the entity as a result of past events and from which future economic
benefits are expected to flow to the entity.
b. a present economic resource controlled by the entity as a result of past events. An economic
resource is a right that has the potential to produce economic benefits.
c. a physical object that can produce economic benefits for the entity.
d. All of these.

18. Which of the following is most likely to result in the recognition of a liability?
a. Customers become entitled to rebates for their past purchases.
b. Intention to acquire inventories in a future period.
c. Entering into a purchase contract for future delivery.
d. Agreeing on an irrevocable future commitment that is not burdensome at present.

19. Which of the following is not an indication of an economic resource’s potential to produce
economic benefits for the entity?
a. The resource cannot be used in the entity’s operations but has a resale value.
b. The resource has no use to the entity but it can be exchanged for another resource with another
party.
c. The entity does not intend to sell or use the resource but instead distribute it to the owners as
dividends.
d. The economic benefits from the resource were already consumed by the entity.

20. Which of the following correctly reflects the Conceptual Framework definitions of income and
expenses?
Income Expenses
a. Increase in assets Increase in liabilities
b. Decrease in assets Decrease in liabilities
c. Owner contributions Owner distributions
d. Decrease in equity Increase in equity

“Do not be wise in your own eyes; fear the LORD and shun evil. “ (Proverbs
3:7)
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PAS 1 Presentation of Financial Statements

QUIZ 1: MULTIPLE CHOICE

1. PAS 1 requires an assessment of the entity’s ability to continue as a going concern each time
financial statements are prepared. Who is responsible in making this assessment?
a. Accountant
b. Auditor
c. Management
d. Government regulatory body

2. These are the end product of the financial reporting process and the means by which information
gathered and processed is periodically communicated to users.
a. Financial reporting
b. Financial statements
c. Financial products
d. Accounting statements

3. Which of the following is not one of the general features of financial statements under PAS 1?
a. Fair presentation and compliance with PFRSs
b. Going Concern
c. Cash Basis
d. Materiality and aggregation

4. Who is responsible for the preparation and the fair presentation of an entity’s financial statements
in accordance with the PFRSs?
a. Any accountant
b. Certified Public Accountant
c. Auditor
d. Management

5. This type of presentation of statement of financial position does not show distinctions between
current and noncurrent items.
a. Classified presentation
b. Unclassified presentation
c. Non-discriminating presentation
d. Awesome presentation

6. In making an economic decision, an investor needs information on the amounts of an entity’s

economic resources and claims to those resources. That investor would most likely refer to which
of the following financial statements?
a. Statement of financial position
b. Statement of comprehensive income
c. Statement of cash flows
d. Statement of changes in equity

7. Which of the following financial statements would be dated as at a certain date?

a. Statement of financial position
b. Statement of profit or loss and other comprehensive income
c. Statement of cash flows
d. All of these

8. Imagine you are a business manager. You would be most awesome as a manager in which of the
following independent scenarios?
a. Your company has an average total assets of ₱10M during the year. At the end of the year,
your company reported profit of ₱1M. The average return of other similar companies with the
same level of assets is 30%.
b. Your adoption of accounting policy has led to the immediate recognition of expenses. Those
costs could have otherwise been allocated over several periods. Accordingly, your company
did not declare dividends during the period. This resulted to a decline in the market value of
your company’s stocks while the prices of all other stocks in the stock market have increased.
c. You changed your company’s method of allocating costs from an accelerated method to a
straight-line method. The change met the requirements of the PFRSs. This led to the smoothing
of expenses, which increased your company’s profit during the period by 12%, above the
industry average.
d. You are great at closing deals, that’s why you’re a boss. Eager to increase your company’s
resources, you were able to obtain a ₱20M loan from a bank. Interest expense on the loan
during the year was ₱3.4M while the return on investments of loan proceeds was 2%.

9. This comprises all “non-owner changes in equity.” It excludes owner changes in equity, such as
subscription, issuance, and reacquisition of share capital and declaration of dividends.
a. Other comprehensive income
b. Changes in equity
c. Total comprehensive income
d. Profit or loss

10. Materiality judgment is least likely to be applied in which of the following?

a. in determining whether an item warrants separate presentation in the financial statements or
is to be aggregated with other items
b. in determining whether information could influence the decisions of users, and therefore,
must be presented in the financial statements
c. in determining whether the cost of processing and communicating information exceeds the
benefits expected to be derived from it
d. whether additional information needs to be provided, including the level of detail and
conciseness of the information’s presentation

“There is a time for everything, and a season for every activity under the
heavens;” (Ecclesiastes 3:1)

- END –
QUIZ 2: ESSAY

What is the relevance of the Conceptual Framework and the PFRSs to your future career as a business
manager or an accountant?

Pointers for grading students’ answers:

for BS Accountancy students for Non-BS Accountancy students
- The proper application of accounting - The financial statements, including the
policies (chosen by management) rests with proper selection of accounting policies, are
the accountant. the responsibility of an entity’s
management.
- The financial statements are used by users of
financial information in assessing
management’s stewardship.
PAS 2 Inventories
QUIZ:

1. Which of the following is added to the cost of inventories?

a. Storage costs of part-finished goods
b. Trade discounts
c. Refundable purchase taxes
d. Administrative costs

2. Which of the following costs are included in the cost of inventories?

a. Transport costs for raw materials
b. Abnormal material usage
c. Storage costs relating to finished goods
d. Administrative and general overhead

3. How should trade discounts be dealt with when valuing inventories at the lower of cost and net
realisable value (NRV) according to PAS 2?
a. Added to cost
b. Ignored
c. Deducted in arriving at NRV
d. Deducted from cost

4. The cost of inventory should not include

I. Purchase price.
II. Import duties and other taxes.
III. Abnormal amounts of wasted materials.
IV. Administrative overhead.
V. Fixed and variable production overhead.
VI. Selling costs.

a. II, III, IV, V

b. III, IV, VI
c. I, II
d. II, III, IV, V, VI

5. The Coronet Company has a cost card in relation to an item of goods manufactured as follows:
Materials 70
Storage costs of finished goods 18
Delivery to customers (Freight out) 4
Non-recoverable purchase taxes 6

According to PAS 2, at what figure should the item be valued in inventory?

a. 88
b. 76
c. 98
d. 94

SOLUTIONS: 70 + 6 = 76

6. Inventories are measured at

a. Lower of cost and fair value.
b. Lower of cost and net realizable value.
c. Lower of cost and nominal value.
d. Lower of cost and net selling price.
e. Choices b and d.

7. Which of the following costs of conversion cannot be included in cost of inventory?

a. Cost of direct labor.
b. Factory rent and utilities.
c. Salaries of sales staff (sales department shares the building with factory supervisor).
d. Factory overheads based on normal capacity.

Use the following information for the next three questions:

Entity A, a trading entity, buys and sells Product Z. Movements in the inventory of Product Z during
the period are as follows:

Date Transaction Units Unit cost Total cost

Feb. 1 Beginning inventory 100 ₱15 ₱1,500
7 Purchase 300 18 5,400
12 Sale 320
21 Purchase 200 21 4,200

8. How much is the ending inventory under the FIFO cost formula?
a. 6,540
b. 5,840
c. 5,640
d. 4,860

SOLUTIONS:

Date Transaction Units

Feb. 1 Beginning inventory 100
7 Purchase 300
12 Sale (320)
21 Purchase 200
Ending inventory (in units) 280

Units Unit cost Total cost

From Feb. 21 purchase 200 ₱21 ₱4,200
From Feb. 7 purchase (280 - 200) 80 18 1,440
Ending inventory (at cost) ₱5,640

9. How much is the ending inventory under the Weighted Average cost formula? (The average is
calculated on a periodic basis.)
a. 5,180
b. 5,280
c. 5,460
d. 5,580

SOLUTIONS:

Date Transaction Units Unit cost Total cost

Feb. 1 Beginning inventory 100 ₱15 ₱1,500
7 Purchase 300 18 5,400
21 Purchase 200 21 4,200
Total goods available for sale 600 ₱11,100

Formula:
Weighted Total goods available for sale (TGAS) in pesos
=
ave. cost Total goods available for sale (TGAS) in units

Weighted average unit cost = ₱11,100 ÷ 600 = ₱18.50

Ending inventory (in units) - see computation above 280

Weighted average unit cost ₱18.50
Ending inventory (at cost) ₱5,180
10. How much is the ending inventory under the Weighted Average cost formula? (The average is
calculated as each additional purchase is made, i.e., ‘moving average’.)
a. 5,860
b. 5,680
c. 5,580
d. 5,380

SOLUTIONS:

Date Transaction Units Unit cost Total cost

Feb. 1 Beginning inventory 100 ₱15.00 ₱1,500.00
7 Purchase 300 18.00 5,400.00
400 17.25 (a) 6,900.00
12 Sale (320) (5,520.00)
21 Purchase 200 21.00 4,200.00
Ending inventory 280 ₱5,580.00

(a) Moving ave. cost = TGAS at cost ÷ TGAS in units

= (₱6,900 ÷ 400) = ₱17.25

Cost of sales = 320 units sold x ₱11.50 moving ave. cost = ₱5,520

“Be strong and courageous. Do not fear of be in dread of them, for it is the Lord your God
who goes with you. He will not leave you or forsake you.” (Deuteronomy 31:6)

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PAS 7 Statement of Cash Flows
QUIZ:

1. Entity A had the following balances at December 31, 20x1:

Cash in checking account 35,000
Cash in 90-day money market account 75,000
Treasury bill, purchased 12/1/x0, maturing 5/31/x2 150,000
Treasury bill, purchased 12/1/x1, maturing 2/28/x2 200,000

How much cash and cash equivalents is reported in Entity A’s December 31, 20x1 statement of
financial position?
a. 110,000 c. 310,000
b. 235,000 d. 460,000

2. Entity A acquires equipment by issuing shares of stocks. How should Entity A report the
transaction in the statement of cash flows?
a. Operating activities
b. Investing activities
c. Financing activities
d. Not reported

3. Entity A, a financial institution, received cash dividends from its investments in marketable
securities during the year. How will the dividends be presented in Entity A’s statement of cash
flows?
a. as investing activity
b. as operating activity
c. as financing activity
d. a or b

4. Which of the following statements best describes a statement of cash flows?

a. The statement of cash flows is also called the statement of activities.
b. The statement of cash flows shows information on an entity’s assets, liabilities and equity.
c. The statement of cash flows shows information on an entity’s income and expenses during the
period.
d. The statement of cash flows shows historical changes of cash and cash equivalents during the
period.

5. Which of the following is presented under the investing activities section of a statement of cash
flows?
a. Collection of accounts receivable
b. Cash purchases of inventories
c. Purchase of equipment through cash
d. Issuance of share capital through cash

“Trust in the Lord with all your heart and lean not on your own understanding; in
all your ways acknowledge him, and he will make your paths straight.” (Proverbs 3:5-6)
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PAS 8 Accounting Policies, Changes in Accounting
Estimates & Errors

1. According to PAS 8, these are the specific principles, bases, conventions, rules and practices
applied by an entity in preparing and presenting financial statements.
a. Accounting policies c. Accounting standards
b. Accounting estimates d. Accounting assumptions

2. A change in the pattern of consumption of economic benefits from an asset is most likely a
a. change in accounting policy. c. error.
b. change in accounting estimate. d. any of these

3. PAS 8 permits a change in accounting policy only if the change

a. is required by a PFRS
b. results in reliable and more relevant information
c. a or b
d. PAS 8 does not permit a change in accounting policy

4. These arise from misapplication of accounting policies, mathematical mistakes, oversights or

misinterpretations of facts, or fraud.
a. Error
b. Change in accounting estimate
c. Change in accounting policy
d. Impracticable application

5. How should the following changes be treated, according to PAS 8?

I. A change is to be made in the method of calculating the provision for uncollectible receivables.
II. Investment properties are now measured at fair value, having previously been measured at
cost.
Change (1) Change (2)
a. Change of accounting policy Change of accounting policy
b. Change of accounting policy Change of accounting estimate
c. Change of accounting estimate Change of accounting policy
d. Change of accounting estimate Change of accounting estimate

“The name of the Lord is a strong tower; the righteous run to it and are safe.”
(Proverbs 18:10)
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PAS 10 Events after the Reporting Period

1. According to PAS 10, these are those events, favorable and unfavorable, that occur between the
end of the reporting period and the date when the financial statements are authorized for issue.
a. Events after the reporting period c. Adjusting events
b. Non-adjusting events d. all of these

2. The Sarin Company's financial statements for the year ended 30 April 20X8 were approved by its
finance director on 7 July 20X8 and a public announcement of its profit for the year was made on
10 July 20X8. The board of directors authorised the financial statements for issue on 15 July 20X8
and they were approved by the shareholders on 20 July 20X8. Under PAS 10, after what date
should consideration no longer be given as to whether the financial statements to 30 April 20X8
need to reflect adjusting and non-adjusting events?
a. 7 July 20X8
b. 10 July 20X8
c. 15 July 20X8
d. 20 July 20X8
(Adapted)

3. Which of the following is an example of a non-adjusting event?

a. Sale of inventory for less than its carrying value shortly after the reporting period
b. Amounts received in respect of an insurance claim being negotiated at the period end
c. Destruction of a machine by fire after the reporting period
d. Bankruptcy of a major customer with a balance owing at the period end
(Adapted)

4. One of Entity A’s delivery trucks had an accident on February 14, 20x2. The truck is totally
wrecked and is uninsured. Entity A’s December 31, 20x1 current-period financial statements were
authorized for issue on March 31, 20x2. Entity A asked you if it can write-off the carrying amount
of the destroyed truck from its December 31, 20x1 statement of financial position. What will you
tell Entity A?
a. Yes, go ahead. Write-off the truck because the event is an adjusting event.
b. No. Don’t write-off the truck because the event is a non-adjusting event.
c. No. Don’t write-off the truck because the event is a non-adjusting event. You should, however,
disclose the event if you deem it to be material.
d. Yes, go ahead. I will support you.

5. Which of the following is most likely to be a non-adjusting event?

a. A major customer liquidates its business after the end of the reporting period.
b. The entity announces a major restructuring after the end of the reporting period.
c. The settlement after the reporting period of a court case that confirms that the entity has a
present obligation at the end of reporting period.
d. The determination after the reporting period of the cost of asset purchased, or the proceeds
from asset sold, before the end of reporting period.

“For the Lord gives wisdom; from his mouth come knowledge and understanding.”
(Proverbs 2:6)
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PAS 12 Income Taxes

1. These are differences that have future tax consequences.

a. Permanent differences c. Taxable differences
b. Temporary differences d. Deductible differences

2. This type of difference will give rise to deferred tax liability.

a. Taxable temporary difference
b. Permanent difference
c. Deductible temporary difference
d. Deferred difference

3. Deferred tax assets and deferred tax liabilities do not alter the tax to be paid in the current period.
However, they cause tax payments to either increase or decrease when they reverse in a future
period. The reversal of which of the following will cause an increase in tax payment?
a. Deferred tax liability c. Deferred tax expense
b. Deferred tax asset d. Deferred tax benefit

4. During the period, deferred tax assets increase by ₱400 while deferred tax liabilities increase by
₱500. The net change of ₱100 is a
a. deferred tax expense c. deferred tax liability
b. deferred tax income d. deferred tax asset

5. At the end of the period, Entity A has taxable temporary difference of ₱100,000. Entity A’s income
tax rate is 30%. Entity A’s statement of financial position would report which of the following?
a. 30,000 deferred tax asset
b. 30,000 deferred tax liability
c. 30,000 deferred tax expense
d. 30,000 income tax expense

“Do not be anxious about anything, but in everything by prayer and supplication
with thanksgiving let your requests be made known to God. And the peace of God,
which surpasses all understanding, will guard your hearts and your minds in Christ
Jesus.” (Philippians 4:6-7)

- END -
PAS 16 PPE

1. According to PAS 16, the selection of an appropriate depreciation method rests upon the entity’s
a. management.
b. accountant.
c. regulator.
d. all of these

2. Which of the following is not one of the essential characteristics of a PPE?

a. tangible asset
b. used in business
c. primarily held for sale
d. long-term in nature

3. PAS 16 requires an entity to review the depreciation method and the estimates of useful life and
residual value at the end of each year-end. A change in any of these is accounted for using
a. a specific transitional provision of a PFRS.
b. retrospective application.
c. prospective application.
d. any of these

4. If plotted on a graph (X-axis: time; Y-axis: ₱), the depreciation charges under the straight-line
method would show
a. a straight-line.
b. an upward line sloping to the right.
c. a downward line sloping to the left.
d. a curvilinear line sloping here and there.

5. Which of the following instances does not preclude an entity from recognizing depreciation
during a certain period?
a. The asset is fully depreciated.
b. The asset is being depreciated using the units of production method and there is no production
during the period.
c. The asset is classified as held for sale under PFRS 5.
d. The asset becomes idle or is taken out of active use.

Use the following information for the next five questions:

Entity A acquires equipment on January 1, 20x1. Information on costs is as follows:

Purchase price, gross of trade discount 1,000,000

Trade discount available 10,000
Freight costs 20,000
Testing costs 30,000
Net disposal proceeds of samples generated
during testing 5,000
Present value of estimated costs of dismantling the
equipment at the end of its useful life 6,209

6. How much is the initial cost of the equipment?

a. 1,061,209
b. 1,051,209
c. 1,041,209
d. 1,031,209

7. The equipment has an estimated useful life of 10 years and a residual value of ₱200,000. Entity A
uses the straight line method of depreciation. How much is the carrying amount of the equipment
on December 31, 20x3?
a. 788,846
b. 802,846
c. 795,846
d. 764,846

8. On December 31, 20x3, Entity A revalues the equipment at a fair value of ₱820,000. There is no
change in the residual value and the remaining useful life of the asset. How much is the
revaluation surplus on December 31, 20x3?
a. 17,154
b. 24,154
c. 55,154
d. 31,154

9. How much is the depreciation expense in 20x4?

a. 102,500
b. 117,143
c. 136,667
d. 88,571

10. Entity A sells the equipment for ₱870,000 on January 1, 20x5. Entity A incurs selling costs of
₱20,000 on the sale. How much is the gain (loss) on the sale?
a. 118,571
b. 132,500
c. 147,143
d. 152,673

“The heart of the discerning acquires knowledge, for the ears of the wise seek it out.”
(Proverbs 18:15)

- END –

Solutions:

6. Solution
Purchase price, net of trade discounts (1M – 10K) 990,000
Freight costs 20,000
Testing costs 30,000
Net disposal proceeds of samples generated
during testing (5,000)
Present value of dismantlement costs 6,209
Initial measurement 1,041,209

7. A (1,041,209 – 200,000) ÷ 10 yrs. = 84,121;

1,041,209 – (84,121 x 3) = 788,846

8. D 820,000 – 788,846 = 31,154

9. D (820,000 – 200,000) ÷ 7 yrs. = 88,571

10. A (870,000 – 20,000) – (820,000 – 88,571) = 118,571

PAS 19 Employee Benefits

1. Imagine you are an employer (an awesome one). When should you recognize short-term
employee benefits?
a. Every 1st day of the month
b. Every 15th and 30th of the month.
c. When the employees have rendered service in exchange for the employee benefits.
d. Never!

2. You are the business owner of Entity A. You have 10 employees, each earning ₱20,000 per month.
You pay salaries on a bi-monthly basis. During the month of April 20x1, none of your employees
were absent, late or have rendered overtime service. When will you recognize the salaries expense
(and at what amount) for the first payday in the month of April 20x1?
Timing of recognition Amount recognized
a. April 1 20,000
b. April 15 20,000
c. April 1 100,000
d. April 15 100,000

3. Entity A has 20 employees who are each entitled to one day paid vacation leave for each month of
service rendered. Unused vacation leaves cannot be carried forward and are forfeited when
employees leave the entity. All the employees have rendered service throughout the current year
and have taken a total of 150 days of vacation leaves. The average daily rate of the employees in
the current period is ₱1,000. However, a 5% increase in the rate is expected to take into effect in
the following year. Based on Entity A’s past experience, the average annual employee turnover
rate is 20%. How much will Entity A accrue at the end of the current year for unused entitlements?
a. 0 c. 90,000
b. 150,000 d. 94,500

4. Under a profit-sharing plan, Entity A agrees to pay its employees 5% of its annual profit. The
bonus shall be divided among the employees currently employed as at year-end. Relevant
information follows:

Profit for the year ₱8,000,000

Employees at the beginning of the year 8
Average employees during the year 7
Employees at the end of the year 6

If the employee benefits remain unpaid, how much liability shall Entity A accrue at the end of the
year?
a. 400,000 c. 200,000
b. 300,000 d. 0

5. You are employed as an accountant. Your company’s retirement plan states that, upon retirement,
an employee (not less than 60 years but not more than 65 years of age) is entitled to a lump sum
payment equal to the employee’s final monthly salary level multiplied by the number of years in
service (not less than 10 years). At the end of month following the month of retirement and every
month thereafter, the retired employee is entitled to a monthly pension equal to one-eighth (1/8)
of the final monthly salary level. The monthly pensions cease upon death of the retired employee.
However, if the employee has immediate dependent(s) with age of less than 18 years, the
dependent(s) will be entitled to the monthly pensions, which will cease when the dependent(s)
reaches 18 years of age. What type of post-employment benefit plan does your company have?
a. Defined contribution plan
b. Defined benefits plan
c. Defined pension plan
d. Cannot be determined; insufficient information!

Use the following information for the next six questions:

Information on Entity A’s defined benefit plan is as follows:
PV of DBO – Jan. 1, 20x1 1,800,000
FVPA – Jan.1, 20x1 1,440,000
PV of DBO – Dec. 31, 20x1 2,160,000
FVPA, end. – Dec. 31, 20x1 1,572,000
Current service cost 390,000
Actuarial loss 120,000
Return on plan assets 132,000
Discount rate 5%

6. How much is the net defined benefit liability (asset) in Entity A’s December 31, 20x0 statement of
financial position?
a. 588,000 liability
b. 588,000 asset
c. 360,000 liability
d. 360,000 asset

7. How much is the net defined benefit liability (asset) in Entity A’s December 31, 20x1 statement of
financial position?
a. 588,000 liability
b. 588,000 asset
c. 360,000 liability
d. 360,000 asset

8. How much is the total defined benefit cost for 20x1?

a. 588,000
b. 468,000
c. 348,000
d. 228,000

9. How much is the component of the total defined benefit cost to be recognized in profit or loss?
a. 390,000
b. 408,000
c. 348,000
d. 18,000

10. How much is the component of the total defined benefit cost to be recognized in other
comprehensive income?
a. 180,000
b. (60,000)
c. 60,000
d. (180,000)

“The heart of the discerning acquires knowledge, for the ears of the wise seek it out.”
(Proverbs 18:15)

- END –
Solutions:
2. D (₱20,000 x 10 employees x ½) = 100,000

3. A The paid vacation leaves are non-accumulating and are therefore not accrued. Choice (b) is wrong
because this represents the cost of vacation leaves taken during the year. The requirement in the
problem is the amount to be accrued for unused (rather than used) vacation leaves.

4. A 8M x 5% = 400,000

6. C 1,800,000 – 1,440,000 = 360,000 liability

7. A 2,160,000 – 1,572,000 = 588,000 liability

8. B Solution:

Service cost:
(a) Current service cost 390,000
(b) Past service cost -
(c) Any (gain) or loss on settlement -
390,000
Net interest on the net defined benefit liability (asset):
(a) Interest cost on the DBO (1.8M, beg. x 5%) 90,000
(b) Interest income on plan assets (1.44M, beg. x 5%) (72,000)
(c) Interest on the effect of the asset ceiling -
18,000
Remeasurements of the net defined benefit liability (asset):
(a) Actuarial (gains) and losses 120,000
(b) Difference between interest income on plan assets and
return on plan assets (72,000 – 132,000) (60,000)
(c) Difference between the interest on the effect of the asset
-
ceiling and change in the effect of the asset ceiling
60,000
Total Defined Benefit Cost 468,000

9. B 390,000 + 18,000 = 408,000

PAS 20 Accounting for Government Grants and Disclosure of
Government Assistance

1. Which of the following is considered a government grant under PAS 20?

a. Award of major government contracts
b. Cancellation of an existing loan from the government
c. Free technical advice
d. Public improvements

2. Which of the following is not considered a government grant under PAS 20?
a. Financial aid
b. Benefit of subsidized loans
c. Tax breaks
d. Forgivable loans

3. The main concept used in recognizing income from government grants is

a. capital approach
b. historical cost
c. matching
d. materiality

4. In 20x1, Entity A proposes an environmental clean-up project for a river. The government
supports this project and gives Entity A a ₱1M monetary grant conditioned that the money will
only be spent on the proposed project. The proposed project is expected to take about 2 years to
complete. Entity A starts the clean-up project in 20x2. How should Entity A recognize income from
the government grant?
a. in full when Entity A receives the grant
b. over 2 years starting in 20x1
c. over the period of the project as expenses are incurred
d. the grant is not recognized as income

5. According to PAS 20, a government grant that becomes repayable is accounted for
a. retrospectively.
b. prospectively.
c. a or b
d. not accounted for

“The fear of the LORD is the beginning of knowledge, but fools despise wisdom and
instruction.” (Proverbs 1:7)

- END –
PAS 21 The Effects of Changes in Foreign Exchange Rates

Use the following information for the next two questions:

You are an auditor. ABC Philippines Co., your client, is not sure on what to disclose in its financial
statements as its functional currency. Relevant information follows:

ABC Philippines Co. is a branch of ABC U.S. Co. ABC Philippines operates in a Philippine Economic
Zone Authority (PEZA) Special Economic Zone. ABC Philippines is engaged in the apparel business.
All of its raw materials are imported from the main office in the U.S. and all of its finished products
are exported directly to U.S. customers. The U.S. customers remit payments to the U.S. main office.
The U.S. main office will then provide the Philippine branch its working capital needs. None of ABC
Philippines Co.s’ finished products are sold in the Philippines. The raw materials imported and
finished goods exported are denominated in U.S. dollars.

1. What is ABC Philippines Co.’s functional currency?

a. Philippine peso
b. U.S. dollar
c. a or b
d. none of these

2. ABC Philippines Co. is required to file audited financial statements with the Philippine Securities
and Exchange Commission (SEC) and the Bureau of Internal Revenue (BIR). What is the
presentation currency for the financial statements to be filed with the said government agencies?
a. Philippine peso
b. U.S. dollar
c. a or b
d. none of these

3. These are those which do not give rise to a right to receive (or an obligation to deliver) a fixed or
determinable amount of money.
a. Monetary items
b. Non-monetary items
c. Financial items
d. Non-financial items

4. On December 1, 20x1, you imported a machine from a foreign supplier for $100,000, due for
settlement on January 6, 20x2. Your functional currency is the Philippine peso. When preparing
the December 31, 20x1 statement of financial position, which of the following will you translate to
the closing rate?
a. machine
b. accounts payable
c. a and b
d. none of these

5. Use the information in Problem #4 above. The relevant exchange rates are as follows:
Dec. 1, 20x1 Dec. 31, 20x1 Jan. 6, 20x2
₱50:$1 ₱52:$1 ₱47:$1

How much foreign exchange gain (loss) will you recognize on December 31, 20x1?
a. 200,000 c. 100,000
b. (200,000) d. (100,000)

“The discerning heart seeks knowledge, but the mouth of a fool feeds on folly.”
(Proverbs 15:14)

- END –
SOLUTIONS:
1. Using the primary factors under PAS 21, ABC Philippines Co.’s functional currency is the U.S. dollar
because this is the currency that mainly influences ABC Philippines Co.’s sale prices and costs.
Additionally, ABC Philippines Co. is essentially an extension of the U.S. main office. Therefore, ABC
Philippines Co.’s functional currency is the U.S. dollar, i.e., the same with the main office’s functional
currency.

2. ABC Philippines Co.’s presentation currency is the Philippine peso. ABC Philippines Co.’s annual
financial statements to be filed with the Philippine SEC and the BIR shall be presented in Philippine
pesos.

5. B [$100,000 x (52 – 50)] = 200,000 loss (increase in payable)

PAS 23 Borrowing Costs

1. On January 1, 20x1, Entity A obtained a 10%, ₱5,000,000 loan, specifically to finance the
construction of a building. The proceeds of the loan were temporarily invested and earned interest
income of ₱180,000. The construction was completed on December 31, 20x1 for total construction
costs of ₱7,000,000. How much is the cost of the building on initial recognition?
a. 7,320,000 c. 7,500,000
b. 7,000,000 d. 6,680,000

2. Which of the following may not be considered a “qualifying asset” under PAS 23?
a. A power generation plant that normally takes two years to construct.
b. An expensive private jet that can be purchased from a local vendor.
c. A toll bridge that usually takes more than a year to build.
d. A ship that normally takes one to two years to complete.
(Adapted)

3. An asset is being constructed for an enterprise's own use. The asset has been financed with a
specific new borrowing. The interest cost incurred during the construction period as a result of
expenditures for the asset is
a. a part of the historical cost of acquiring the asset to be written off over the estimated useful
life of the asset.
b. interest expense in the construction period.
c. recorded as a deferred charge and amortized over the term of the borrowing.
d. a part of the historical cost of acquiring the asset to be written off over the term of the
borrowing used to finance the construction of the asset.
(Adapted)

4. Which of the following costs may not be eligible for capitalization as borrowing costs under PAS
23?
a. Interest on bonds issued to finance the construction of a qualifying asset.
b. Amortization of discounts or premiums relating to borrowings that qualify for capitalization.
c. Imputed cost of equity.
d. Exchange differences arising from foreign currency borrowings to the extent they are regarded
as an adjustment to interest costs pertaining to a qualifying asset.
(Adapted)

5. Capitalization of borrowing costs

a. Shall be suspended during temporary periods of delay.
b. May be suspended only during extended periods of delays in which active development is
delayed.
c. Should never be suspended once capitalization commences.
d. Shall be suspended only during extended periods of delays in which active development is
delayed.
(Adapted)

“The roots of education are bitter, but the fruit is sweet.” – Aristotle
- END –

SOLUTION:

1. A (5M x 10%) – 180,000 = 320,000 capitalizable borrowing costs + 7,000,000 construction costs =
7,320,000
PAS 24 Related Party Disclosures

1. PAS 24 requires the disclosure of key management personnel compensation. Which of the
following is not included in this disclosure?
a. short-term employee benefits
b. termination benefits
c. share-based payment
d. reimbursements of officers’ out-of-pocket expenses

2. Which of the following is not required to be disclosed under PAS 24?

a. A parent-subsidiary relationship when there were transactions between them during the
period.
b. A parent-subsidiary relationship when there were no transactions between them during the
period.
c. Loans to officers
d. The name of the parent of the entity’s associate

“An investment in knowledge pays the best interest.” - Benjamin Franklin

- END –
PAS 26 Accounting and Reporting by Retirement Benefit
Plans
1. The amount of benefits to be received by employees enrolled in a defined benefit plan is
a. dependent on the level of contributions to a fund.
b. dependent on the level of investment performance of a fund.
c. a and b
d. neither a nor b

2. Which of the following statements is correct?

a. PAS 19 encourages, but does not require, involving a qualified actuary in measuring defined
benefit obligations.
b. PAS 26 applies only to defined benefit plans but not to defined contribution plans.
c. Information on ‘excess’ or ‘deficit’ is required to be disclosed in the financial statements of a
defined contribution plan.
d. In practice, actuarial valuations are frequently prepared every year.

“Develop a passion for learning. If you do, you will never cease to grow.” - Anthony J. D'Angelo

- END –
PAS 27 Separate Financial Statements

1. These are those presented in addition to consolidated financial statements or the financial
statements of an entity with an investment in associate or joint venture that is accounted for using
equity method in accordance with PAS 28.
a. Individual financial statements
b. Separate financial statements
c. Consolidate financial statements
d. Equity financial statements

2. Entity A acquired an investment in associate for ₱1M many years ago. At the end of the current
reporting period, the investment has a fair value of ₱2.9M. If the equity method is used, the
investment would have a current carrying amount of ₱2.6M. In Entity A’s separate financial
statements, the investment should be valued at
a. 1,000,000.
b. 2,600,000.
c. 2,900,000.
d. any of these, as a matter of an accounting policy choice

“Ask and it will be given to you; seek and you will find; knock and the door will be opened
to you. For everyone who asks receives; the one who seeks finds; and to the one who
knocks, the door will be opened.” (Matthew 7:7-8)

- END –
PAS 28 Investments in Associates and Joint Ventures

1. Which of the following best describes the term ‘significant influence’ as used under PAS 28?
a. The holding of 20% interest in an investee.
b. The ability to control an investee’s relevant activities through holding of significant portion of
the investee’s voting rights.
c. The power to participate in the financial and operating policy decisions of an entity.
d. The contractually agreed sharing of profits and losses in an investee.

2. Entity A owns 25% of the voting rights in Entity B. However, Entity A has no representation on
the board of directors of Entity B. Which of the following statements is correct?
a. Entity A cannot be presumed to have significant influence over Entity B because Entity A does
not have board representation.
b. Entity A is presumed to have signification influence over Entity B because it holds 25% or
more of the voting rights in Entity B.
c. Entity A is presumed to have signification influence over Entity B because it holds 20% or
more of the voting rights in Entity B.
d. Representation on an investee’s board of directors is never considered when determining the
existence of significant influence.

3. On January 1, 20x1, Entity A acquires 25% interest in Entity B for ₱800,000. Entity B reports profit
of ₱1,000,000 and declares dividends of ₱100,000 in 20x1. How much is the carrying amount of the
investment in associate on December 31, 20x1?
a. 800,000
b. 1,250,000
c. 1,000,000
d. 1,025,000

4. The Hanwell Company acquired a 30% equity interest in The Northfield Company for CU400,000
on 1 January 20X6. In the year to 31 December 20X6 Northfield earned profits of CU80,000 and
paid no dividend. In the year to 31 December 20X7 Northfield incurred losses of CU32,000 and
paid a dividend of CU10,000. In Hanwell's consolidated statement of financial position at 31
December 20X7, what should be the carrying amount of its interest in Northfield, according to IAS
28 Investments in associates?
a. CU438,000
b. CU411,400
c. CU414,400
d. CU400,000
(Adapted)

“The Spirit of the Lord will rest on him— the Spirit of wisdom and of understanding,
the Spirit of counsel and of might, the Spirit of the knowledge and fear of the Lord.“
(Isaiah 11:2)
- END –

SOLUTION:
3. Solution:
Investment in associate
1/1/x1 800,000
Sh. in profit (1M x 25%) 250,000 25,000 Dividends (100K x 25%)
1,025,000 12/31/x1

4. Solution:
Investment in associate
1/1/x6 400,000
Sh. in P (80K x 30%) 24,000 - Dividends
9,600 Sh. in L (32K x 30%
3,000 Dividends (10K x 30%)
411,400 12/31/x2