The Review School of Accountancy FIRST PREBOARD EXAMIMATION 06 February 2016 10:30 AM - 12:00 noon Theory, of Accounts INSTRUCTIONS: Select the correct answer. for each of the. following questions.. Mark only one answer for each item by shading the box corresponding to the letter of your choice on the answer sheet provided. STRICTLY NO ERASURES ALLOWED. Use pencil no. 2 only. SetB Part I: PINANCIAL ACCOUNTING & REPORTING (FAR) 1, Total receivables will remain unchanged for which of the following? a. Factoring of receivables. ® b. Assignment of receivables ¢. Note discounting without recourse d. “Collection of trade account receivable 2. Under PAS 24, it is the transfer of resources, services or obligations between related patties, regardless of whether a price is charged. 4 3: Related party transaction b. Related party disclosure ¢. Related party resources d. Related party transfer 3. Under the accrual basis of accounting, the effects of transactions and other events are ( 2 Recorded in the accounting records when they occur but reported in the financial statemerfts when cash is received or paid Recorded in the accounting records when cash is received or paid but reported in the financial statements when they occur Recorded in the accounting records and reported in the financial statement when they occur Recorded in the accounting records and reported in the financial statements when cash is paid or received 4. The phrase “more likely than not” is also known under PFRS as a. Remote 8 b. Probable ©. Highly probable d. Reasonably possible 5. An income statement prepared under the Nature of Expense method will NOT show 5 A @ Gross profit b. Depreciation expense ©. Increase in inventory d. Sales commission expense 6. An entity has 25% investment in ordinary share and 20% investment in preference share over the investee. Which of the following is TRUE? 2: Both investments may be classified as Investment in Associate b. Both investments may be classified as Investment at fair value ¢. The 208 may be classified as Investment at. amortized cost and 25% may be classified as Investment at fair value 4. The 25% interest may be Classified as Investment at fair value and 20% may be classified as Investment in AssociateeS EZ THEORY of ACCOUNTS First Preboard Examination (May 2016 Batch) 06 February 2016 * 10:30 AM to 12:00 noon Page 2 ee eer ipeineme meme ee oy | If financial information provides feedback about previous evaluations, then the information is considered to have ‘a. No value D b. Fair value c. Predictive value d. Confirmatory value @. Under PAS 1, which of the following items is NOT included in the computation of profit or loss? a. Unrealized fair value gain of available-for-sale securitie: 4». Investment income from associates under equity method ¢. Unrealized fair value gain of biological assets a. Post-tax gain on discontinued operations 9. The voucher-system is used to control transactions involving a. Cash zeceipts and disbursements b, .Cash disbursements only ¢. Cash equivalents only a. Cash receipts only 10. The impairment loss attributable to a discontinued operations is a, Not recognized b. Recognized in other comprehensive income ¢. The excess of the net recoverable value of the net assets of a discontinued operation over their carrying amount d. The excess’ of the carrying amount of the net assets of a discontinued operation over their net recoverable value igs {[Link] of the following CANNOT be shown as part of cash in the current asset section of the balance sheet? a. Customer's check in payment of past due (Q b. Cash in a special checking acco\ y ¢. Unrestricted compensating balance for a loan d. Cash deposited with a utility company for 12.A significant operating segment for seq! it repo! ng purposes is one which meets any of the three criter revenues, earnings and Ydentifiable assets. Which of the following is the percentage used to measure each of these criteria? a 10N oF more b. 20% or more. c. More than, 10% d. More than 208 13. “provisions” under PAS 37 are liabilities of a. Certain timing or amount b. Uncertain timing or amount t ¢. Certain timing but uncertain amount d. Uncertain timing but certain amount 14.11 of the following reporting entities are required to adopt PAS 1 (Presentation of Financial Statements), EXCEPT: a. Insurance companies Db. Commercial enterprises ¢. Banks and financial institutions @. Entities submitting condensed interim reports to external users’ 45. The sales journal is typically used to record transactions involving a. Cash sales only JP d+ Credit sales only ¢. “Cash and credit sales d. All types of sales‘resulting in a gain, but not loss‘ ®\ THEORY of ACCOUNTS : \ ((&S)) First Preboard Examination (May 2016 Batch) 06 February 2016 + 10:30 AM to 12:00 noon Page 3 16. The enhancing qualitative character of financial information include, (a Relevance and comparability ° c b. Verifiability and faithful representation c, Understandability and timeliness d. Relevance and verifiability ¥ [Link] the allowance iéthad of recognizing bad debts expense is used, B would increase a. Account receivable af b. Allowance for bad debts eree ¢. Net income ‘Gash d. Working capital ‘ ‘Rt 2 [Link] PFRS ‘8, even if an entity has only one reportable segment, entity-wide information is disclosed for the entity as a whole about pits Products and services b. Geographical areas and major customers ©. Major customers, products and services @. Geographical areas, major customers, products and services [Link] entity’s related party does NOT necessarily include a. Providers of finance ) >. Employee benefit plans c. Non-executive directors d. Subsidiary and holding companies - 20. Disclosure of “Accounting Policies” requires 4. Disclosure of the format for the statement of cash flows bb Description of every accounting policy followed by a : reporting entity Specific listing of ‘all types of accounting policies which must be disclosed d. Description of all significant accounting policies to be included as an integral part of the financial statements i [Link] of the following adjusting entries is an example of deferral? * “a. Debit salaries expense and credit salaries payable ‘ (© vb. Debit interest receivable and credit interest income ¢. Debit prepaid advertising and credit advertising expense d. Debit depreciation expense and credit accumulated depréciation. me 22. The Statement of financial position may include unrealized gains and losses from which type of investment securities? a. Trading’ securities only b. Available-for-sale securities only c. Held-to-maturity securities only d. Trading and Available-for-sale securities 23. Adriel Company placed P 5,000,000 in the- money market for 60 days, subject to pre-termination. This amount should be && Included as part of its trading securities without need of any disclosure b. Considered as trading securities with appropriate disclosure in the notes to the financial statements ¢. Treated as short-term receivables with appropriate disclosure in the notes to the financial statements d. Included as part of cash and cash equivalent with appropriate disaggregation in the notes to the financial statementsTHEORY of ACCOUNTS: First Preboard Examination (May 2016 Batch) 06 February 2016 10:30 AM to 12:00 noon - Page 4 * es 24. cS The entity made an adv: Which of the following items is No? sydney Company has a loan due for repayment in six-months, but it has the discretion to refinance for repayment two years later, which sydney exercised by entering into a refinancing agreement that. was Signed after the balance sheet date but before financial statements were authorized for issue. In which section of the statement of financial position should this loan be presented? a. Current assets b. Non-current assets c. Current liabilities @. Non-current liabilities Purchases of merchandise inventories are always recorded net of a, Cash discount b. Sales discount ¢. Trade discount d. Purchase discount In interim reporting, which of the following should be accounted for on a time proportion basis? s Depreciation Costs of sales c. Productivity bonus d. Inventory value decline oe ed rent payment for one year and recognized ‘an expired rent at the end of the accounting period. This transaction is an example of expense recognition principle based’ on a. Revenue realization b. Immediate recognition ¢. Cause and effect a: d. Systematic and rational allocation luded in computing the net realizable value of accounts receivable? a. Provision for bad debts b. Provision for sales returns ¢. Provision for sales discount d. Provision for purchase returns The following statements are based on PFRS 5 (Non-current Assets Held for Sale and Discontinued Operations) Statement I: An entity shall classify a non-current asset or disposal group as held for sale if its carrying amount will be recovered from continuing use rather than from a sale transaction. ‘Statement II: An entity shall measure a non-current asset or disposal group classified as held for sale at the lower of its carrying amount and value in use. a. Only statement I is false b. Only statement II is false : c. Both statements are true d. Both statements are. f. of the following is NO’ They are classified as current assets [Link] shall be recognized as dividend) income Unrealized holding gains and losses are reported in profit or loss d. Share in profit of the investee increases carrying of the investment correct regarding trading securities?Gy TORN at noc Go) FiSCmeserd tramaton oy 2015 Bt) oeatecey Gore To.30 at 1.00 oon aanas 31. The term ‘capital maintenance’ refers to: ; a. The cost of replacing non-current ass ‘ Q) >. The raising of new capital by the issue of shares ¢. The cost of maintaining non-current assets in good condition d. Retaining sufficient profits to ensure that closing net assets are at least equal to net assets at the beginning of the period x 32/Cash held by a financial institution closed by the Bangko Sentral ng Pilipinas (BSP) shall be measured at a. Fair value Ub. Face value c. Estimated realizable value d. Recoverable amount at the date of closure 33.A gain oy loss that arises from the initial recognition of agricultural produce as a result of harvest shall Not be recognized Be included in determining profit or loss Be included in determining other comprehensive income Be included in determining profit or loss or other comprehensive income, at the option of the entity B poe 34. Which of the following would result to a net loss for the period? a. Credit balance in income summary account after closing income and expense account U »b. Credit balance exceeded debit balance in the income statement column of worksheet ¢. Credit balance exceeded debit balance in the balance_sheet column of worksheet d. The difference between the debit and credit in the income statement column is extended to credit balance of balance sheet column of worksheet Gr atiad c. Factored — 36. The following statements are based on PAS 34 (Interim Financial Reporting) : Statement I: An interim financial report is prepared on a © consolidated basis if the entity's most recent annual financial statements were. consolidated statements. Statement Iq: Tf an entity publishes’ a complete set of financial Statements in its Interim financial report, the form and content of those statements shall conform to the requirements of PAS 1 for a complete set of al statements. ‘Statement IZI: An entity shall apply @ifferent accounting’policies in fts interim financial statements and in its annual financial statemen: a. only statement I is true b. Only statement I is true ©. Only statement III is f2 d. All of the statements are trueTHEORY of ACCOUNTS First Preboard Examination (May 2016 Batch) 06 February 2016 * 10:30 AM to 12:00 noon Page 6 37.A change in the estimated useful life of an intangible asset, resulting from gversight of facts that’ are available on initial recognition should be accounted for as a fa. Prior period error b. Change in accounting policy ¢. Change in accounting estimate d. tnitial adoption of an accounting policy [Link] from sale of goods are recognized when all of the following conditions ere met, EXCEPT Amount of revenue can be measured reliably The entity has retained effective control of the goods Amount of cost incurred or to be incurred can be measured reliably d. Significant risk and rewards of ownership are transferred to the buyer > ove 39. Which of the following items should be treated as dividend income? a. Reverse stock split ( »- Cash received in lieu of shares _ ¢. Shares received in lieu of cash d. Cash dividend under equity method 40. For purposes of reporting in the statement of financial position, cash and receivables denominated in Euros are translated using a. Forward rate Bb! closing rate c. fistorical rate a, Average spot rate PAS 41 on Agriculture is applicable to which of the following? a. Products that are the reauit of processing after harvest bl Land and intangible assets related to agricultural activity @. living plants and animals and agricultural produce at the point of harvest a, Government grant related to biological asset measured at cost Yess any accumulated depreciation and accumulated impairment losses [Link] of the following is usually done at the beginning of the next accounting period? ka. Closing entries b. Reversing entries ¢. Adjusting entries d. Preparation of trial balance 43. What specific account is NOT allowed by PAS 1 to be classified as current? z a, Provisions b, Prepayments c. Deferred tax assets d. Cash and cash equivalents 44. Which of the following shall be included in inventory? a. Land acquired, developed and held for sale by a developex b. Land acquired and subsequently classified as held for sale 4 cl partially completed goods held by a company who p: processing services d. Machinery acquired production process. es a manufacturing entity for use in theTHEORY of ACCOUNTS >) First Preboard Examination (May 2016 Batch) 06 February 2016 * 10:30 AM to 12:00 noon Page 7 45. The effect of a change in accounting policy that is inseparable from the effect of a change in accounting estimate should be reported a. In the period of change and future periods of the change 4 affects both By restating the financial statements of all’ prior periods presented c. By showing the pro forma effects of retrospective application a. As a correction of error 46. Revenues from royalties shall be recognized using a. Installment method of accounting b. Accrual basis of accounting ¢. Cash basis of accounting d. Cost recovery method fon of the notes 47, The “summary of significant agcounting policies” se to the financial statements shall include — * : a+ Measurement basis used in preparing financial statements b. Non-adjusting events occurring after the reporting period ¢, Disaggregation of amounts included in cash’ and cash equivalents d. Related party disclosures, contingent liabilities and restriction on cash balances 48. Loans and receivable should be measured subsequent to initial récognition at a. Fair value b. Fair value plus transaction cost c. Amortized cost used the straight line method d. Amortized cost using the effective interest method [Link] analyzing “a company’s financial statements, which financial Statement would a potential investor primarily use to assess the A company’s capacity-foradaptation? — a. Balance sheet b. Income statement c. Cash flow statement d. Statement of change’ in equity ? 50. Which of the following falls within the definition of related parties as defined in PAS 24? nemien ev a a. Government departments and agencies 6 The husbana of the first female chief executive officer €. Providers of finance in the course of their normal dealings with an enterprise d. A supplier with whom the reporting entity has a one-year contract for the supply of raw materials [Link] of the following items is NOT presented under the equity Section of the statement of financial position? B a. Share dividends payable/distributable b. Share appreciation rights payable @_ Share warrants outstanding @! Share options outstanding 52. The dépa within-the accounting field that has as main purpose serving the information needs of parties outside the reporting organization. ® a. Managerial “a¢counting b. Financial accounting c. Internal auditing @. External auditingTHEORY of ACCOUNTS: First Preboard Examination (May 2016 Batch) 06 February 2016 © 10:30 AM to 12:00 noon Page 8 The main author of International Financial Reporting Standards (IFRS). a. IFRS Advisory Council Db. ters Foundation TFRIC d. IASB [Link] of the following terms would NOT result to recognition of Freight-In on the books of the buyer? FOB Buyer FOB Seller b c. FOB Shipping point, freight prepai d, FOB Shipping point, freight collect a [Link] on PAS 10, which of the following is NOT considered as an adjusting event (i,e., Type I event)? er a. A Case Filed against the company still pending in the Court of Appeals b. Sale of inventories after the balance sheet date may give evidence of net realizable value c¢. The determination after the balance sheet date of the amount of profit-sharing or bonus payments d. Receipt of notice of bankruptcy of a customer a Part IT: ADVANCED FINANCIAL ACCOUNTING & REPORTING (AFAR) [Link] installment meth acceptable i a. An unrealized of recording profit for accounting purposes is fit account is credit Bb. Collection of the sales price is not reasonably assured c. The method is consistently used for all sales of similar merchandi ses d. Collection in the year of sale do not exceed 30% of the total sales price 57.A partnership is formed by two individuals who were previously sole proprietors. Property other than cash that is part of the initial investment in ‘the partnership would be recorded for financial # reporting purposes at the a. Fair value of the property at the date of the investment b. Proprietor’ book values of property at the date of the investment ¢. Proprietor’s book values or the fair values of thé property at the date of the investment, whichever is lower d. Proprietor’s book values or the fair values of ‘the property at the date of the investment, whichever is higher In reporting a company that is to bé liquidated, assets are shown at a. Book value b. Historical cost ¢. Net realizable value d. Present value calculated us. g an appropriate effective rate 59. Construction firms must use the reliable estimates are avail C “a. Costs b, Revenues ¢. Cash flows d. Progress toward completion rcentage-of or each completion method when the ‘following, EXCEPT: [Link] PFRS 3, an entity shal by applying the for each business combinationTHEORY of ACCOUNTS First Preboard Examination (May 2016 Batch) 06 February 2016 * 10:30 AM to 12:00 noon Page 9 a. Cost method ; C >. Equity method ¢. Acquisition method d, Pooling of interest method 61.A partner's drawing account is, in substance, a. A capital account g 2 A contra-capital account c. A salary expense account d. A loan account (a loan from the partnership) 62. The theoretical support for using the percentage-of-completion method of accounting for long-term construction projects is that it a. More closely conforms to’ cost principle Cb. Is more conservative that the cost recovery method Produces a realistic matching of expenses with revenues Reports a lower net income figure than the cost recovery method 63. Under the cost recovery method of revenue recognition, a. Income is recognized immediately ) P+ Income is recognized on a proportionate basis as the cash is received on the sale of the product Income is recognized when the cash received from sale of the product is lower than the cost of the product Income is recognized when the cash received from sale of the product is higher than the cost of the product 64.0n January 1, 2016, Cd and CR formed a partnership. CJ contributed cash, CR, previously a sole’ proprietor, contributed propérty other than cash, including realty subject to a mortgage, which the © partnership assumed. CR’s capital account at January 1, 2016 should be recorded at: a. The fair value of the property at January 1, 2016 b. OR’s book value of the property at January 1, 2016 ¢. The fair value of the property less than the mortgage payable at January 1,- 2016 , cR’s book value of the property less than the mortgage payable at January 1, 2016 65, The “Home Office” ledger account in the accounting records of a branch is-hest described as: b a. An equity account b. A revenue account c. A liability account d. A deferred income account 66. Under the BONUS method, the admission of a new partner will result in a bonus to : : a. The new partner ‘énly D.. bl the old partners only @. Both the new pactner and old partners 4. either the new partner or old partners, but not both [Link] are liabilities classified in the Statement of Financial Affairs hepa eae peo vaes of Corporate Liquidation? a. Secured and unsecured. b. Current and noncurrent ©. Historic and futuristic d. Monetary and nonmonetaryteoRy of accouns GS) FAs tramaton tay 2016 sac) 06 February 2016 10:30 AM to 12:00 noon Page 10 6@.What is the preferred method of resolving a partner's deficit balance? a. The partnership must sell assets in order to cover the deficit balance Db. the other partners mist contribute personal assets to cover the deficit balance c. The partner with a deficit balance must contribute personal assets to cover the deficit, regardiess of personal condition d. The partner with a deficit balance must contribute personal assets to cover the deficit only if the partner's personal assets exceed personal liabilities 69. Under the installment method of revenue recognition, when interest is charged, each cash collection made after the sale is composed of: 0 a. Cost and profit b. Cost and interest €. Interest and profit d. Gost, interest and profit - [Link] is one of the more popular input mea used to determine the progress toward completion in the percentage-of-completion method? a. Progress completion basis Vb. Revenue percentage basis ¢. Cost percentage basis d. Cost-to-cost basis 7a. If the partnership ag of a be 0 @ ement. provides a formula for the computation jonus to the partners, the bonus would be computed Next to last, because the final allocation is the distribution of the residval profit b. After the salary and interest allocations are made c. a. 72. Horizontal business combinations oc of the Before the income tax allocations made In any manner agreed to by the partners r when an entity purchases which followin’ a. A supplier See A customer ¢. A competitor d. A prospective customer [Link] pa: partne: pooeay Boney = 14, Franch: income EXCEPT ¢ a. b. rtnership liquidation, the final cash distribution to the rs should be made in accordance with — Partners’ profit ‘and loss ratio Balances of the partners’ capital accounts Ratio of capital conbributions by the partners Ratio of capital contributions less withdrawals by the partners ise fees received upon contract signing shall be recognized as by the franchisor when the following conditions are met, Substantial performance required under the contract is done Period of refund for any amount received under the contract has expired : Franchise operations have ‘earned considerable income to defray frarichising expenses Collectibility of any promisso mote arising from the franchise agreement is reasonably assuredGE. THEORY of ACCOUNTS (4) First Preboard Examination (May 2016 Batch) 06 February 2016 * 10:30 AM to 12:00 noon } Page 11 75. Under the installment method of accounting for installment sales, a. Gross profit is not recognized until the amount of cash received exceeds the cost of the dtem sold b. Revenué, *costs, and gross profit are recognized proportionate ic to the cash that is received from the sale of the product c. Gross profit is deferred proportionate to cash uncollected from sale of the product, but total revenues and costs are recognized at the point of sale d. Revenues and costs are recognized proportionate to the cash received from the sale of the product, but gross profit is deferred until all cash is received [Link] should the balances in Progress Billings (PB) and Construction- in- Progress (CIP) be shown at reporting dates prior to the completion of a long-term construction contract? (C “a. PB as incone while CIP as inventory b. PB as deferred income while CIP as deferred expense ¢. Net, as current asset (debit balance) or as current liability (credit balance) Net, as loss from construction (debit balance) or gain from construction (credit balance) 77,1n preparing the combined financial statements of the home office and its various branches: a. Both reciprocal and nonreciprocal accounts are combined (bd. Both reciprocal and nonreciprocal accounts are eliminated ¢. Reciprocal accounts are éliminated but nonreciprocal accounts are combined Reciprocal accounts are combined but nonreciprocal accounts are eliminated 78. The method most commonly used to report defaults and repossessions is a. Recdid the repossessed merchandise at book value, recording 0 no gain or loss ts b. Provide no basis for the repossessed asset, thereby recognizing a loss . Record the repossessed merchandise at fair value, without recognizing a gain or loss Record the repossessed merchandise at fair value, recording a gain or loss if appropriate 79,Which of the following Statements is TRUE with regard to a withdrawing partner? | 4 A-bonus may be paid to the retiring partner b. A bonus must be paid to the retiring partner c. Recognizing a bonus is not appropriate when a partner retires d. A bonus must be paid to the retiring partner or the remaining partners [Link] PFRS 15 (effective January 1, 2017), revenue! from contracts with customers rage ee ). 4: 1s recognized when the customer receive the right to receive consideration b. Is recognized even if the contract is wholly unperformed c. Can be recognized even when a contract is still pending d. Cannot be recognized until a contract exists - END of EXAMINATION —