Question 1

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A change in reporting entity is actually a change in
accounting

Select one:
a.
policy
b.
concept
c.
estimate
d.
method
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Question 2
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Items reported as prior period adjustments

Select one:
a.
do not affect the presentation of prior period
comparative financial statements.
b.
do not require further disclosure in the body of the
financial statements.
c.
are reflected as adjustments of the opening
balance of retained earnings of the earliest period
presented.
d.
do not include the effect of a mistake in the
application of accounting policy as this is
accounted for as a change in accounting policy
rather than as a prior period error.
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Question 3
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This means applying a new accounting policy to
transactions, other events and conditions as if that
policy had always been applied.

Select one:
a.
prospective application
b.
prospective restatement
c.
retrospective restatement
d.
retrospective application
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Question 4
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Which of the following is a characteristic of a
change in accounting policy?

Select one:
a.
does not affect the financial statements of prior
periods.
b.
shall be reported by retrospectively adjusting the
financial statements for all years reported, and
reporting the cumulative effect of the change in
income for all preceding years as an adjustment to
the beginning balance of retained earnings for the
earliest year reported.
c.
never ends to be disclosed.
d.
requires the reporting of prior year’s income for a a
change in accounting policy.
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Question 5
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Which of the following statements is true?

Select one:
a.
When an entity discovers an error in its financial
statements of a prior period, it must immediately
withdraw those financial statements and reissue
them with the error corrected.
b.
To the extent practicable, an entity must correct a
prior period error retrospectively in the first
financial statements authorized for issue after its
discovery.
c.
The effect of a change in accounting estimate is
recognized retrospectively.
d.
To the extent practicable, an entity must correct a
prior period error prospectively in the first financial
statements authorized for issue after its discovery.
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Question 6
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The effect of change in the expected pattern of
consumption of economic benefits of a depreciable
asset shall be

Select one:
a.
included in the statement of retained earnings as
an adjustment of the beginning balance
b.
included in the determination of income or loss in
the period of change and future periods

c.
included as component of other comprehensive
income
d.
included in the determination of income or loss in
the period of change only
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Question 7
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Red Company which began operations on January
2019 has elected to use cash basis accounting for
tax purposes and accrual basis accounting for
financial statements. The entity reported sales of P
1,750,000 and P 800,000 in the tax returns for
years ended December 31, 2020 and 2019,
respectively. The entity reported accounts
receivable of P 300,000 and P 500,000 on
December 31, 2020 and 2019, respectively.
What amount should be reported as sales in the
income statement for 2020?

Select one:
a.
P 1,950,000
b.
P 2,050,000
c.
P 1,450,000
 d.
P 1,550,000
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Question 8
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Which of the following statements best describes
prospective application?

Select one:
a.
Applying a new accounting policy to transactions
as if that policy had always been applied.
b.
Recognizing a change in accounting policy in the
current and future periods affected by the change.
c.
Applying a new accounting policy to transactions
occurring after the date at which the policy is
changed.
d.
Correcting the financial statements as if a prior
period error had never occurred.
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Question 9
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A change in measurement basis is

Select one:
a.
not an accounting change
b.
a change in accounting policy
c.
a correction of error
d.
a change in accounting estimate
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Question 10
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Tiny Company started operations at the beginning
of current year. The entity failed to recognize
accruals and prepayments at end of the reporting
period. The income before tax, accrual and
prepayments at the end of the current year are:
Income before tax
P 1,400,000
Prepaid insurance
20,000
Accrued wages
25,000
Rent revenue collected in advance
30,000
Interest receivable
50,000
What is the corrected income before tax?
Select one:
a.
P 1,415,000
b.
P 1,400,000
c.
P 1,375,000
d.
P 1,385,000
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Question 11
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Where the financial statements for a single year
are being presented, a prior period error
recognized in the current year ordinarily should

Select one:
a.
be shown in the current year’s statement of
changes in equity.
b.
be included in the statement of recognized gains
and losses.
c.
be shown as an adjustment of the balance of
retained earnings at the start of the current year.
d.
affect net income of the current year.
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Question 12
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The effect of a change in accounting estimate shall
be recognized prospectively by including it in profit
or loss of

Select one:
a.
prior periods only
b.
current period only
c.
future periods only
d.
current period and future periods if the change
affects both
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Question 13
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On December 31, 2019, CAL Company sold
merchandise for P 750,000 to Biday Company. The
terms of the sale were net 30, F.O.B. shipping point.
The merchandise was shipped on December 31,
2019, and arrived at Biday on January 5, 2020.
Due to a clerical error, the sale was not recorded
until January 2016 and the merchandise sold at a
25% markup on cost was included in inventory on
December 31, 2019.
What was the effect of the errors on cost of goods
sold for 2019?

Select one:
a.
correctly stated
b.
understated by P 600,000.
c.
understated by P 150,000.
d.
understated by P 750,000.
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Question 14
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Change in accounting policy does not include

Select one:
a.
change from the practice of paying as Christmas
bonus one month’s salary to the new practice of
paying one half month’s salary.
b.
change in method of inventory valuation from
weighted average to FIFO.
c.
change in method of inventory valuation from FIFO
to weighted average.
d.
change in estimated useful life of an asset.
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Question 15
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During 2020, an entity discovered that ending
inventory reported in its 2019 financial statements
was understated. How should the entity account for
this understatement?

Select one:
a.
Restate the financial statements with corrected
balances for all prior periods presented.
b.
Adjust the ending balance in the 2020 retained
earnings account.
c.
Make no entry because the error will self-correct.
d.
Adjust the beginning inventory in 2019.
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Question 16
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Brent Corp. beginning inventory on January 1 was
understated by P 260,000 and the ending inventory
was overstated by P 520,000.
What was the effect of the errors on the cost of
goods sold for the current year?

Select one:
a.
P 780,000 overstated
b.
P 260,000 overstated

c.
P 260,000 understated
d.
P 780,000 understated
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Question 17
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Corrections of error are reported in

Select one:
a.
other income or expense
b.
Shareholders’ equity
c.
retained earnings
d.
other comprehensive income
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Question 18
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During the year ended December 31, 2020, Zoila
Company paid interest totaling P 100,000. The
prepaid interest expense is P 23,500 and P 18,000
respectively on December 31, 2019 and 2020. The
interest payable is P 45,000 and P 53,500,
respectively on December 31, 2019 and 2020.
What amount of interest expense should be
reported in 2020?

Select one:
a.
P 97,000
 b.
P 103,000
c.
P 114,000
d.
P 86,000
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Question 19
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Prior period errors are omissions from and
misstatements in the financial statements of one or
more periods arising from a failure to use or misuse
of reliable information that
I. was available when financial statements for
those periods were authorized for issue.
II. could reasonably be expected to have been
obtained and taken into account in the preparation
and presentation of those financial statements.

Select one:
 a.
Both I and II
b.
II only
c.
I only
d.
Either I or II
Either I or II
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Question 20
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An entity that changed its method of inventory
valuation from weighted average to FIFO shall
account for the change as

Select one:
a.
a change in estimate and account for it
prospectively.
 b.
a change in accounting policy and account for it
prospectively.
c.
a correction of an error and account for it
retrospectively.
d.
a change in accounting policy and account for it
retrospectively.
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Question 1
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Quezon Company, a calendar-year entity, had the
following income before tax provision and effective
annual tax rate for the first three quarters of the
current year:

Income before tax Tax

rate
First quarter
P 6,000,000
30%
Second quarter
7,000,000
30%
Third quarter
8,000,000
25%
What is the income tax provision in the interim
income statement for the third quarter?

Select one:
a.
P 2,000,000
b.
P 1,350,000
c.
P 5,250,000
 d.
P 2,400,000
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Question 2
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Which of the following statements in relation to
interim financial reporting is true?
I. An interim report may consist of a complete set
of financial statements.
II. An interim financial report may consist of a
condensed set of financial statements.

Select one:
a.
Only first statement is true
b.
Both statements are true
c.
Both statements are false
d.
Only second statement is true
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Question 3
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Interim financial reports shall include as a
minimum

Select one:
a.
A statement of financial position and an income
statement only

b.
A condensed statement of financial position,
income statement
c.
A condensed set of financial statements and
selected notes
 d.
A complete set of financial statements
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Question 4
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An interim financial report shall include, as a
minimum, all of the following components, except

Select one:
a.
Condensed statement of financial position and
statement of comprehensive income
b.
Accounting policies and explanatory notes

c.
Condensed statement of cash flows
 d.
Condensed statement of changes in equity
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Question 5
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Which of the following statements is true
concerning interim financial reporting?
I. An entity shall apply the same accounting
policies in its interim financial statements as are
applied in its annual financial statements.
II. If an entity’s interim financial report is in
compliance with PFRS, that fact shall be disclosed.

Select one:
a.
Both I and II
b.
I only
c.
Neither I nor II
d.
II only
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Question 6
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Which of the following statements is incorrect
regarding interim financial reporting?

Select one:
a.
Gains and losses that arise in an interim period
shall be recognized in the interim period in which
they arise if they would not normally deferred at
year-end.
b.
Use of the gross margin method for computing
cost of goods sold must be disclosed.
c.
Costs and expenses not directly associated with
interim revenue must be allocated to interim
periods on a reasonable basis.

d.
Decline in inventory shall be deferred to future
interim periods.
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Question 7
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For interim financial reporting, an expropriation
gain occurring in the second quarter shall be

Select one:
a.
recognized ratably over the last three quarters.
b.
recognized ratably over all four quarters with the
first quarter being restated.
 c.
disclosed by footnote in the second quarter
d.
recognized in the second quarter
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Question 8
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Interim financial report means a financial report
containing
I. A complete set of financial statements
II. A set of condensed financial statements.

Select one:
a.
Neither I nor II
b.
I only
c.
Either I or II
d.
II only
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Question 9
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For interim reporting, an inventory loss from a
market decline in the second quarter shall be
recognized as a loss

Select one:
a.
in the second quarter.
b.
in the fourth quarter
c.
proportionately in each of the first, second, third
and fourth quarters.
d.
proportionately in the second, third and fourth
quarters.
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Question 10
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Winner Company has estimated that total
depreciation expense for the year ended December
31, 2020 will amount to P 500,000, and that 2020
year-end bonuses to employees will total P
1,200,000.
In the interim income statement for the six months
ended June 30, 2020, what amount of theses
expenses should be reported?

Select one:
a.
P 1,100,000
b.
P 1,700,000
c.
P 500,000
d.
P 850,000
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