Mock Qualifying Examination – Level 1

CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

1. The following are true about Continuing Professional Development except:

a. Under the new resolution, 120 CPD credit units is the amount CPAs are required to comply
with.
b. Except the credit units obtained for the doctoral degree, the excess credit units earned are not
carried over to the next three-year period.
c. A CPA with ages 65 years old and above are permanently exempted from CPD requirements
for the renewal of their CPA license but not exempted from the requirements for the
accreditation to practice accountancy profession.
d. Every three (3) years, CPAs are required to obtain CPD credit units or CPD credit hours to
renew their license and continue practicing the accountancy profession.

2. The FRSC is composed of 15 members with a Chairman who had been or is presently a senior
accounting practitioner and representative(s) from the following, except:
a. Bureau of Internal Revenue
b. Accredited national professional organizations of CPAs
c. Commission on Finance
d. Securities and Exchange Commission
3. The following are the basic purposes of the Conceptual Framework, except:
a. To assist the International Accounting Standards Board to develop IFRS based on consistent
concepts.
b. To assist preparers of financial statements to develop consistent accounting policy when no
standard applies to a particular transaction or other event or where the issue is not addressed
by an IFRS.
c. To assist all parties to understand and interpret IFRS.
d. To assist preparers of financial statements to develop accounting policy when a standard does
not allow a choice of an accounting policy.

4. Which of the following statement(s) is/are correct?

Statement 1: Financial reports are prepared for users who have no knowledge of business and
economic activities.
Statement 2: Enhancing qualitative characteristics includes Verifiability, Consistency,
Understandability, and Timeliness.
a. Only Statement 1 is true
b. Only Statement 2 is true
c. Both statements are true
d. None of the foregoing choices are correct.

5. Which of the following must be included as a line item in the statement of financial position?
a. Contingent asset
b. PPE analyzed by class
c. Share capital and reserves analyzed by class
d. Deferred tax asset

6. Working capital is
a. Assets which enable the entity to operate profitably.
b. Capital which has been reinvested in the business.
c. Unappropriated retained earnings.
d. Current assets less current liabilities.
7. All of the following components of OCI should be reclassified to profit or loss, except:
a. Gain or loss from translating the financial statements of a foreign operation
b. Gain or loss on remeasuring debt investment at fair value through other comprehensive
income
c. The effective portion of gain or loss on hedging instrument in a cash flow hedge
d. Gain or loss on remeasuring equity investment at fair value through other comprehensive
income
8. The cost of inventory does not include
a. Salaries of factory staff.
b. Storage cost necessary in the production process before a further production stage.
c. Abnormal amount of wasted materials.
d. Irrecoverable purchase taxes.

9. An entry debiting inventory and crediting cost of goods sold would be made when
a. Merchandise is returned and the perpetual inventory method is used.
b. Merchandise is returned and the periodic inventory method is used.
c. Merchandise is sold and the periodic inventory method is used.
d. Merchandise is sold and the perpetual inventory method is used.

10. Using the gross method, purchase discount lost is

a. Included in purchases
b. Added to accounts payable
c. Included in interest expense
d. Deducted from interest income

11. The primary purpose of a statement of cash flows is to provide relevant information about
a. Differences between net income and associated cash receipts and disbursements
b. An entity’s ability to generate positive net cash flows
c. The cash receipts and cash disbursements of an entity during a period
d. An entity’s ability to meet cash operating needs

12. Dividend payments to shareholders are classified as

a. Cash inflows from investing activities
b. Cash outflows for investing activities
c. Cash inflows from financing activities
d. Cash outflows for financing activities

13. An entity purchased a building and the seller accepted payment partly in equity shares and partly
in debentures of the entity. The transaction shall be treated in the statement of cash flows as which of
the following?
a. The purchase of the building is investing cash outflow and the issuance of shares and the
debentures are financing cash inflows.
b. The purchase of the building is investing cash outflow and the issuance of debentures is
financing cash inflow while the issuance of shares is investing cash inflow.
c. The transaction does not belong in a statement of cash flows and shall be disclosed only in the
notes to financial statements.
d. The transaction should be ignored totally since it is a noncash transaction.

14. A change in accounting policy shall be made when

I. Required by law.
II. Required by an accounting standard or an interpretation of the standard.
III. The change will result in more relevant or reliable information about the financial position,
financial performance and cash flows of the entity.
 a. I and II only
b. I and III
c. II and III only
d. I, II and III

15. Which statement is true in relation to events after reporting period?

a. Notes to the financial statements should give details of material adjusting events included in
those financial statements.
b. Notes to the financial statements should give details of material nonadjusting events which
could influence the economic decisions of primary users.
c. A decline in the fair value of trading investments would normally be classified as an adjusting
event.
d. The settlement of a long-running court case would normally be classified as a nonadjusting
event.

16. A living plant with a dual use is classified as

a. Bearer plant
b. Biological asset
c. Investment property
d. Inventory

17. All of the following are classified as agricultural produce, except:

a. Sugar
b. Wool
c. Cotton
d. Milk

18. What is the key principle in determining the acquirer in a business combination under PFRS 3?
a. The entity that has the majority of the voting rights.
b. The entity that has the majority of the ownership interest.
c. The entity that has the majority of the control.
d. The entity that has the majority of the assets.

19. What is the primary accounting difference between accounting for a subsidiary that is dissolved
and one that retains its incorporation?
a. If the subsidiary is dissolved, it will not be operated as a separate division.
b. If the subsidiary is dissolved, assets and liabilities are consolidated at their book values.
c. If the subsidiary retains its incorporation, there will be no goodwill associated with the
acquisition.
d. If the subsidiary retains its incorporation, assets and liabilities are consolidated at their book
values.
20. What is the primary characteristic of a business combination that should be accounted for as an
acquisition?
a. The combination must involve the exchange of equity securities only.
b. The combination must involve the acquisition of a subsidiary that continues to operate
separately.
c. The combination must involve the acquisition of a subsidiary that is dissolved.
d. The combination must involve the acquisition of assets.
21. How should a contingent liability be reported in the financial statements when it is reasonably
possible?
a. As a deferred liability
b. As an accrued liability
c. As a disclosure only
d. As an account payable
22. For the sale of a noncurrent asset to be highly probable, which of the following statements is
incorrect?
a. Management must be committed to a plan to sell the asset.
b. An active program to locate a buyer and complete plan must have been initiated.
c. The asset must be actively marketed for sale at a reasonable price in relation to the current fair
value.
d. The sale is expected to qualify for recognition as a completed sale within two years from the
date of classification of the asset as held for sale.

23. What is the accounting treatment for expenditures incurred during the evaluation phase under
PFRS 6?
a. These expenditures are capitalized as mineral resource assets.
b. These expenditures are expensed as incurred.
c. These expenditures are capitalized as mineral resource assets if the evaluation indicates that
the resource is technically and economically feasible.
d. These expenditures are capitalized as mineral resource assets if the evaluation indicates that
the resource is probable and economically feasible.
24. Which of the following is an element of control under PFRS 10?
a. Ability to affect return
b. Power to direct activities
c. Exposure to variable returns
d. All of the above

25. What is the classification of the joint arrangement when the arrangement is structured without a
separate vehicle such as when the rights of each party to the total assets and obligations for total
liabilities relating to the arrangement are clearly established?
a. It shall be classified as joint venture
b. It shall be classified as joint operation
c. Neither joint venture nor joint operation
d. It can be either a joint operation or joint venture depending on the company policy of the
parties to the joint arrangement

26. What is the underlying concept governing the GAAP pertaining to recording gain
contingencies?
a. Conservatism
b. Relevance
c. Consistency
d. Reliability
27. Noncurrent asset classified as held for sale shall be presented as
a. Current asset
b. Other noncurrent asset
c. Current investment
d. Property, plant and equipment
28. Which of the following statements about fully depreciated property is incorrect?
a. A property is considered fully depreciated when its carrying amount is zero or matches the
residual value.
b. The asset and its accumulated depreciation accounts are closed, with the residual value
recorded in a separate account.
c. Typically, the cost and accumulated depreciation of a fully depreciated asset still in use should
remain in the accounts.
d. Entities must disclose fully depreciated property.
29. As per PAS 16, who is responsible for selecting an appropriate depreciation method for an entity?
a. accountant
b. management
c. regulator
d. all of these

30. Which of the following scenarios does not prevent an entity from recording depreciation for a
given period?
a. The asset has been fully depreciated.
b. The asset is depreciated using the units of production method, but there is no production
during the period.
c. The asset is idle or not in active use.
d. The asset is classified as held for sale under PFRS 5.

31. Which approach to accounting for government grants involves recognizing the grant outside profit
or loss or in equity?
a. Expense approach
b. Revenue approach
c. Capital approach
d. Income approach

32. Which of the following is not a noncurrent investment?

a. Cash surrender value
b. Franchise
c. Land held for speculation
d. A sinking fund

33. Which of the following disclosures is not required by PAS 23?

a. The amount of borrowing costs capitalized during the period.
b. The capitalization rate used to determine the capitalizable borrowing costs.
c. Separate presentation of qualifying assets from other assets either on the face of the statement
of financial position or in the notes.
d. All of these are required by PAS 23.

34. How do entities account for dividends from a subsidiary, joint venture, or associate under PAS 27?
a. Recognize dividends in profit or loss unless the entity elects to use the equity method.
b. Recognize dividends as a reduction from the carrying amount of the investment.
c. Recognize dividends as a separate line item in the statement of financial position.
d. Recognize dividends as a separate line item in the statement of comprehensive income.

35. Close family members of an individual encompass all of the following, except:
a. The individual's spouse and children
b. The children of the individual's spouse
c. The individual's brothers and sisters
d. Dependents of the individual or the individual's spouse

36. What is deducted from profit (loss) when calculating basic earnings per share?
a. Income tax expense.
b. Preferred dividends.
c. Both income tax expense and preferred dividends.
d. Neither income tax expense nor preferred dividends.
37. Under which of the following circumstances does an entity lose significant power over the
investee?
a. When it forfeits the ability to engage in the financial and operational policy decisions of that
investee
b. When it possesses less than 10% of the voting rights of the investee
c. When its investment no longer qualifies as an associate or a joint venture
d. Any of the above

38. How can a company record income from associates at the end of the period?
a. Debit the income from associates account and credit the investment in associates account.
b. Debit the investment in associates account and credit the income from investments account.
c. Debit the investment in associates account and credit the income from investments account.
d. Debit the investment in associates account and credit the income from associate account.

39. If an entity does not prepare interim financial reports:

a. The year-end financial statements are deemed not to comply with IFRS.
b. The year-end financial statements' compliance with IFRS is not affected.
c. The year-end FS shall not be acceptable under local jurisdiction.
d. Interim financial reports shall be included in the year-end financial statements.

40. Statement 1: The recoverable amount of an asset is the fair value less cost of disposal or value in
use, whichever is higher.
Statement 2: Value in use is measured as the present value or discounted value of future net cash flows
expected to be derived from an asset.
a. True, True.
b. True, False.
c. False, True.
d. False, False.

41. Under PAS 36 Impairment of Assets, which of the following terms best describes the higher of an
asset's fair value less costs of disposal and its value in use?
a. Revalued amount
b. Depreciable amount
c. Recoverable amount
d. Carrying amount

42. When should all other assets be tested for impairment under PAS 36?
a. Annually.
b. Semi-annually.
c. Only when there is any indication that the asset may be impaired.
d. Only at the discretion of the company's management.

43. Which of the following disclosures regarding intangible assets is not required?
a. Useful lives of the intangible assets.
b. Reconciliation of carrying amount at the beginning and the end of the year.
c. Contractual commitments for the acquisition of intangible assets.
d. Fair value of similar intangible assets used by competitors.

44. Which of the following items would qualify as an intangible asset?

a. Advertising and promotion on the launch of a huge product.
b. College tuition fees paid to employees who decide to enroll in an executive M.B.A program at
Harvard University while working with the entity.
c. Legal costs paid to intellectual property lawyers to register a patent.
d. Operating losses during the initial stages of the project.
45. Which of the following would not qualify as an investment property?
a. Land held for long-term capital appreciation.
b. Land that is vacant but is held to be leased out under an operating lease.
c. Land held for currently undetermined use.
d. Property that is being constructed or developed for future use as investment property.

46. Which of the following statements is incorrect concerning the initial measurement of an
investment property?
a. The cost of the purchased investment property includes its purchase price and any directly
attributable expenditure.
b. The initial cost of a property interest held under a lease and classified as an investment
property shall be the lower of the fair value of the property and the present value of the
minimum lease payments.
c. The investment property shall be measured initially at fair value.
d. If payment for an investment property is deferred, its cost is the cash price equivalent.

47. What are the two underlying assumptions for the preparation of financial statements?
a. Cash basis and going concern
b. Accrual basis and cash basis
c. Accrual basis and going concern
d. Going concern and conservatism

48. Why are transactions between owners not considered as investments by owners in accounting?
a. Because they do not involve any transfer of resources to business entity.
b. Because they do not affect the financial position of the business.
c. Because they are not recorded in the financial statements.
d. Because they are considered as liabilities of the business.

49. What factors are considered when selecting a measurement basis for an asset or liability, as well as
for related income and expenses?
a. Only the historical cost of the asset or liability.
b. Only the market value of the asset or liability.
c. Only the preferences of the business owners.
d. The nature of the information that the measurement basis will produce, as well as other
factors.

50. It is the law mandating and strengthening the continuing professional development program for all
regulated professions, including the accountancy profession.
a. R.A. 10912
b. R.A. 9298
c. R.A. 10178
d. None of the above