REVIEWER FOR CFAS 14.

Financial accounting emphasizes reporting to

CHAPTERS 1-7: o Creditors and investors
1. Law regulating practice of accountancy of the Philippines
o RA 9298 15. Which statement is true regarding managerial accounting
and financial accounting
2. Body authorized by law to promulgate rules and regulations o Managerial accounting need not follow generally
affecting the practice of accountancy profession in the accepted accounting principles while financial accounting must
Philippines follow GAAP
o Board of Accountancy
16. Which statement best describes GAAP
3. The qualifications of the members of BOA include all of the o The accounting principles have been developed on the
following, except: basis of such factors as usage and practical necessity
o Must have any pecuniary interest, directly or indirectly,
in any school conferring an academic degree necessary for 17. What is the only underlying assumption mentioned in the
admission to the practice of accountancy conceptual framework for financial reporting
o Going concern
4. What are the 3 main areas in the practice of the accountancy
profession? 18. Which statement best describes the term “going concern”
o Public Accounting, Private Accounting, and Government o The ability of the entity to continue in operation for the
Accounting foreseeable future

5. What is the primary service of CPAs in public practice? 19. Which of the following is not an implication of the going
o Auditing concern assumption
o Amortizing research and development costs over several
6. Accountants employed in entities in various capacity as periods is justifiable and appropriate
accounting staff, chief accountant or controller are engaged in
o Private Accounting 20. The relatively stable economic political and social
environment supports
7. Area of the accountancy profession that encompasses the o Going concern
process of analyzing, classifying, summarizing, and
communicating all transactions involving receipt and 21. The financial statements of the business entity are separate
disposition of government funds and property and interpreting and distinct from the financial statements of the owners
the results thereof: o Economic entity assumption
o Government Accounting
22. The economic entity assumption
8. The Continuing Professional Development is required for: o Is applicable to all forms of business organizations
o Both renewal of CPA License and accreditation to
practice the accountancy profession 23. Which underlying assumption serves as the basis for
preparing financial statements at regular arbitrary or artificial
9. Which statement is incorrect in relation to practice of public points in time
accounting o Accounting period
o The Securities and Exchange Commission can register
any corporation organized for the practice of public accounting 24. Which is not an important characteristic of the financial
statements that accountants currently prepare
10. All of the following are represented in FRSC, except o The information in financial statements is expressed in
o Department of Budget and Management units of money adjusted for changing purchasing power

11. The IASB was formed 25. The Concept of accounting entity is applicable
o To develop a single set of high-quality IFRS o Whenever accounting is involved

12. The IASB employs a “due process” which 26. When a parent and subsidiary relationship exists
o Enables interested parties to express their views on consolidated financial statements are prepared and recognition
issues under consideration of
o Economic entity
13. What is a possible danger if politics plays too big of a role in
developing IFRS 27. What is the accounting concept that justifies the usage of
o Accounting standards are not truly generally accepted accruals and deferrals
o Going concern
28. The conceptual framework is intended to establish 42. Financial information exhibits consistency when
o Objectives and concepts for use in developing standards o Accounting entities gives similar events the same
of financial accounting and reporting accounting treatment each period

29. Which is not a purpose of the conceptual framework 43. When information about two different entities engaged in
o To provide specific guidelines for resolving situations not the same industry has been prepared and presented in similar
covered by existing accounting standards manner, the information exhibits the enhancing qualitative
characteristic of
30. In the conceptual framework for financial reporting, what o Comparability
provides the why of accounting
o Objective of financial reporting 44. The characteristic that is demonstrated when a high degree
of consensus can be secured among independent measurers
31. The Primary focus of financial reporting has been on using the same measurement method is
meeting the needs of which of the following groups o Verifiability
o Existing and potential investors, lenders and other
creditors 45. An item would be considered material when
o The omission or misstatement of the amount would
32. Which is an objective of financial reporting make a difference to the users’ decisions
o To provide information that is useful to those making
investing and credit decisions 46. Conservatism is best described as selecting an accounting
alternative that
33. “Assessing cash flow prospects” as an objective of financial o Has the least favorable impact on equity
reporting is interpreted to mean
o Over the long-run, trends in revenue and expenses are 47. It is an increase in economic benefit during the accounting
generally more meaningful than trends and cash receipts and period related to an increase in asset or decrease in liability
disbursements that results in increase and equity other than contribution from
owners
34. What are qualitative characteristics of financial statements o Income
o Qualitative characteristics are the attributes that make
the information provided in financial statements useful to users 48. An asset is recognized when
o It is probable that future economic benefit will flow to
35. The fundamental qualitative characteristics are the entity and the cost or value of the asset can be measured
o Relevance and faithful representation reliably

36. Accounting information is considered relevant when it 49. Which statement describes the revenue recognition
o Is capable of making a difference in a decision principle
o It is probable that future economic benefit will flow to
37. The ingredients of relevant financial information are the entity and the amount can be measured reliably
o Predictive value and confirmatory value
50. which of the following is not an accepted basis for
38. Which of the following is the best description of faithful recognition of revenue
representation in relation to financial information in financial o Upon signing of contract
statements
o Freedom from material error CHAPTERS 8-10:

39. The ingredients of faithful representation are 51. The statement of financial position is useful for all of the
o Completeness, neutrality and free from error following, except
o To analyze cash inflows and outflows for the period
40. The financial accounting information is directed toward the
common needs of users and its independent of presumptions 52. Which criticism is not normally aimed at a statement of
about particular needs and desires of specific users financial position
o Neutrality o The extensive use of separate classification

41. The enhancing qualitative characteristics of financial 53. Which is a limitation of the statement of financial position
information are o All of these are a limitation of the statement of financial
o Comparability, understandability, verifiability, and position
timeliness
54. The operating cycle of an entity o Current assets less current liabilities
o Is the time between the acquisition of materials entering
into a process and their realization in cash 66. The operating cycle concept
o Permits some assets to be classified as current even
55. An entity shall classify a liability as current when under all though these are more than one year removed from becoming
of the following conditions except cash
o The entity has an unconditional right to defer settlement
of the liability for at least 12 months after the reporting period 67. Which should be classified as current asset
o Trade installment accounts receivable normally
56. Current and noncurrent presentation of assets and collectible in 18 months
liabilities provides useful information when the entity
o Supplies goods or services within a clearly identifiable 68. Current assets should never include
operating cycle o Goodwill arising in a business combination

57. In the Philippines, the common practice is to present in the 69. Which of the following is not a non current investment
statement of financial position o Franchise
o Current assets before non current assets, current
liabilities before non-current liabilities and equity after 70. What is the most useful information in predicting future
liabilities cash flows
o Current earnings based on accrual accounting
58. When an entity breaches under a long term loan agreement
on or before the end of the reporting period, with the effect 71. The financial statements prepared under GAAP
that the liability becomes payable on demand, the liability is o Are not highly precise because estimate and judgment
classified as must be made
o Current if the lender has agreed after the reporting
period and before the issuance of the statements not to 72. Which should be classified as a non-current asset
demand payment as a consequence of the breach o Plant expansion fund

59. Assets to be sold, consumed or realized as a part of the 73. The essential characteristics of an asset include all of the
normal Operating cycle are following except
o Current assets o The asset is tangible

60. In which section of the statement of financial position 74. It is the total of income less expenses, including the
should cash that is restricted for the settlement of a liability components of other comprehensive income
due 18 months after the reporting period be presented o Profit or loss
o Noncurrent assets
75. Earnings
61. An entity has a loan due for repayment in six months time o Exclude certain gains and losses included in
but the entity has the option to refinance for repayment 2 comprehensive income
years later. The entity plans to refinance this loan. In which
section of the statement of financial position should this loan 76. Which of the following components of OCI should be
be presented reclassified to retained earnings
o Non-current liabilities o All of these components of OCI should be reclassified to
retained earnings
62. Which of the following is not required to be presented as
minimum information on the face of the statement of financial 77. Total comprehensive income for the period is presented
position o Showing separately the total amount attributable to
o Contingent Liability owners of the parent and the non controlling interest

63. Which statement about the statement of financial position 78. Separate line items In an analysis of expenses by nature
is not true? include
o A revaluation surplus on a noncurrent asset in the o Depreciation, purchases, transport costs, employee
current year should be recognized in the income statement benefits and advertising costs.

64. Which is an essential characteristic of an asset 79. Under IFRS, the extraordinary item presentation
o An asset provides future benefits o Has been eliminated

65. Working capital is 80. Which of the following changes during a period is not a
component of other comprehensive income? 13. A bank statement is a device which brings into agreement
o Treasury share, at cost the cash balance per book and cash balance per bank
o False
IA THEORIES CHAPTERS 1-3:
14. Debit memos refer to items already debited by the bank to
1. To be reported as cash, an item must be unrestricted in use the account of the depositor, but not yet recorded in the cash
o True ledger of the depositor
o True
2. Four-year BSP treasury bill purchased four months before
the maturity date may be classified as cash equivalents 15. Deposit in transit is a bank reconciling item
o False o True

3. Preference shares without specified redemption date can be 16. Which of the following should not be considered cash
classified as cash equivalents o IOUs
o False
17. What is a compensating balance
4. If the term is more than three months but within one year, o Minimum deposit required to be maintained in
investment of excess cash in time deposit is classified as short- connection with a borrowing arrangement
term investment and presented separately as current asset
o True 18. All of the following may be included in “cash” except
o Money market instruments
5. Cash in foreign currency should be translated to Philippine
currency using average exchange rate 19. Which of the following is not considered a cash equivalent
o False o A three-year treasury note maturing on Jan 31 of the
next year purchased by the entity on October 16 of current
6. Tax fund set aside in current operations is classified year
separately as cash and cash equivalents
o False 20. Petty cash fund is
o Money kept on hand for making minor disbursements of
7. A cash fund set aside for the acquisition of delivery coin and currency rather than by writing checks
equipment should be classified as noncurrent asset
o True 21. What is the major purpose of an imprest petty cash fund
o To effectively control cash disbursements
8. A bank overdraft is classified as noncurrent liability and
should not be offset against other bank accounts with debit 22. Which statement in relation to an imprest petty cash is
balances incorrect
o False o The petty cash account is debited when the fund is
replenished
9. If the deposit is legally restricted because of a formal
compensating balance agreement, the compensating balance is 23. Which of the following items must be added to the cash
classified separately as current asset if the related loan is short- balance per ledger in preparing a bank reconciliation which
term ends with adjusted cash balance
o True o Interest income credited by the bank

10. Postdated checks received from the customer at the end of 24. Which of the following must be deducted from the bank
the accounting period cannot be classified as cash and cash statement in preparing a bank recon which ends with adjusted
equivalents cash balance
o True o Outstanding checks

11. Fluctuating fund system is a system of control of cash which 25. If the balance shown in the bank statement is less than the
requires that all cash receipts should be deposited intact and all correct cash balance and neither the entity nor the bank has
cash disbursements be made by means of check made any errors, there must be
o False o Deposits in transit

12. Under the fluctuating fund system, if payment of expense is 26. Bank recons are normally prepared on a monthly basis to
made out of the petty cash fund, no formal journal entry is identify adjustments needed in the depositor’s records and to
made identify bank errors. Adjustments on the part of the depositor
o False should be recorded for
o All items except bank errors, outstanding checks, and DIT 40. Under gross sales method, sales discount forfeited can be
used if the customer paid beyond the discount period
27. Bank statements provide information about all of the o False
following, except
o Errors made by the depositor 41. Generally accepted accounting principles require the use of
the direct write-off method in accounting for bad debts
28. Essentially, a proof of cash because it conforms with the matching principle
o Is a to-date bank reconciliation o False

29. Which of the following would be deducted to the balance 42. Under the allowance method of accounting for bad debts,
per bank statement to arrive at the cash balance per ledger accounts written of decrease the accounts receivable and
o Note collected by bank on behalf of depositor allowance for doubtful accounts balance
o True
30. Which of the following would be deducted to the cash
balance per ledger to arrive at balance per bank statement 43. The allowance for doubtful accounts normally has a credit
o DIT balance
o True
CHAPTERS 4-7:
44. Discounted notes receivable should be removed from the
31. Notes receivable are open accounts arising from sale of notes receivable account and transferred to accounts
goods and services in the ordinary course of business and not receivable
supported by promissory notes o False
o False
45. Initially, long-term interest bearing notes are measured at
32. Trade receivables which are expected to be realized and face amount
cash within the normal operating cycle or one year, whichever o True
is longer, are classified as current assets
o True 46. Which method of recording bad that loss is consistent with
accrual accounting
33. Non trade receivables which are expected to be realized in o Allowance method
cash within one year or normal operating cycle, are classified as
current 47. A method of estimating bad debts that focuses on the
o False income statement rather than the statement of financial
position is the allowance method based on
34. Unless collectable currently, subscription receivable should o Credit sales
be shown as a deduction from subscribed share capital
o True 48. A method of estimating uncollectible accounts that
emphasizes asset valuation rather than income measurement is
35. Creditors’ accounts with debit balances are classified as the allowance method based on
current assets o Aging of accounts receivable
o True
49. The advantage of relating the bad debt expense to accounts
36. Accounts receivable shall be recognized initially at receivable is that this approach
discounted value o Gives a reasonably accurate measurement of receivables
o False in the statement of financial position

37. The term FOB destination means that the ownership of the 50. When a specific customer account receivable is written off
goods purchased is vested in the buyer upon shipment thereof as uncollectible, what will be the effect on net income under
o False the allowance and direct write off method
o No effect under allowance method and decrease under
38. The term freight prepaid means that the freight charge on direct write off method
the goods shipped is already paid by the seller
o True 51. When the allowance method of recognizing uncollectible
accounts is used, the entry to record the write off of a specific
39. Trade discount is a contra sales account account would
o False o Decrease both accounts receivable and the allowance for
uncollectible accounts
52. When an entity uses the allowance method for recognizing 62. The amount of account receivable is included in total
uncollectible accounts, the entry to record the write off of a receivables with appropriate disclosures when
specific uncollectible account o Pledge (Yes); Assigned (Yes); Factored (No)
o Affects neither net income nor working capital
63. The assignor’s equity in assigned accounts that is required
53. When the allowance method of recognizing bad debt to be disclosed in the notes to the FS is equal to the
expense is used, the entries at the time of collection of an o Assigned accounts receivable minus the bank loan
account previously written off would balance
o Have no effect on net income
64. Factoring of receivables is usually done on a
54. An entity uses the allowance method to recognize doubtful o Without recourse, notification basis
accounts expense. What is the effect of collection of an account
previously written off 65. Which is a correct presumption regarding receivable
o Increase in allowance for doubtful accounts and factoring and note discounting in the absence of a contrary
decrease in doubtful accounts expense statement
o Receivable factoring (without recourse); Note
55. When an accounts receivable aging schedule is prepared, a discounting (with recourse)
series of computations is made to determine the estimated
schedule uncollectible accounts. The resulting amount from 66. Note receivable discounted with recourse should be
this aging o Excluded from total receivables with disclosure of the
o Is the amount of desired credit balance of the allowance contingent liability
for doubtful accounts to be reported at year end
67. Why would an entity factor account receivable
56. What is imputed interest o To accelerate access to amount collected
o Interest based on the implicit interest rate
68. Which of the following is a method to generate cash from
57. Accounting for the interest in a non interest bearing note accounts receivable
receivable is an example of what aspect of accounting theory o Assignment and factoring
o Substance over form
69. The practice of realizing cash from accounts receivable prior
58. On July 1 of the current year, an entity received a one-year to maturity date is widespread. Which term is not associated
note receivable bearing interest at the market rate. The face with this practice?
amount of the note receivable and the entire amount of the o Defalcation
interest are due in one year. The interest receivable account
would show a balance on 70. When the accounts receivable are sold outright, the
o December 31 but not July 1 accounts receivable have been
o Factored
59. On July 1 of the current year, an entity received a one-year
note receivable bearing interest at the market rate. The face 71. Which of the following is used to account for probable sales
amount of the note receivable and the entire amount of the discounts, sales returns and sales allowances in a factoring
interest are due in one year. When the note receivable was arrangement?
recorded on July 1, which of the following was debited o Factor holdback
o Neither interest receivable nor unearned discount on
notes receivable 72. When an entity factored accounts receivable without
recourse with a bank, the transaction is best described as
60. On August 15, an entity sold goods for which it received a o Sale of the AR to the bank, with the risk of uncollectible
note bearing the market rate of interest on that date. The four- accounts transferred to the bank
month note was dated July 15. Note principal, together with all
interest, is due November 15. When the note was recorded on 73. Which statement is true when accounts receivable are
August 15, which of the following accounts increased factored without recourse
o Interest Receivable o The factor assumes the risk of collectability and absorbs
any credit losses in collecting the accounts receivable
CHAPTERS 8-9:
74. All but one of the following are required before a transfer
61. The amount of receivables that are pledged against of accounts receivable can be recorded as sale
borrowings should be o The transferor maintains continuing involvement
o Included in total receivables with disclosure
75. If financial assets are exchanged for cash but the transfer 90. When determining the cost of an inventory, which of the
does not meet the criteria for a sale, the transaction should be following should not be included
accounted for as o Interest on loan obtained to purchase the inventory
o Both secured borrowing and pledge of collateral
91. Why is inventory included in the computation of net
76. If a notes receivable is discounted with recourse income
o Notes receivable discounted is credited o To determine the cost of goods sold

77. The NR discounted account is reported as 92. Which is a characteristic of a perpetual inventory method
o Contra asset account for the face amount of the note o Cost of goods sold is recorded with each sale

78. If a notes receivable is discounted without recourse 93. Which is incorrect about the perpetual inventory method
o Notes Receivable is credited o Purchase returns are recorded by debiting accounts
payable and crediting purchase returns and allowances
79. NR discounted with recourse should be
o Excluded from total receivables with disclosure 94. An entry debiting inventory and crediting COGS would be
made when
80. After being held for 40 days, a 120-day 12% interest bearing o Merchandise is returned under perpetual inventory
note receivable was discounted at a bank at 15%. The net
proceeds from discounting are equal to 95. In a periodic system, the beginning inventory is
o Maturity value less the discount at 15% o Goods available for sale minus net purchases

CHAPTER 10-14 96. Theoretically, cash discounts permitted should be

o Deducted from inventory, whether taken or not
81. Which of the following should not be taken into account
when determining the cost of inventory 97. Which of the following generally would not be separately
o Recoverable purchase taxes accounted for in the computation of COGS?
o Trade discounts applicable to purchases
82. The cost of inventory does not include
o Abnormal amount of wasted materials 98. The use of purchase discount account implies that the
recorded cost of a purchased inventory is
83. Which of the following costs of conversion cannot be o Invoice price
included in the cost of inventory
o Salaries of sales staff 99. The use of discount lost account implies that cost of a
purchased inventory is
84. Which of the following should be taken into account when o Invoice price less the purchase discount allowable
determining the cost of inventory whether or not taken
o Storage cost of part-finished goods
100. The valuation of inventory on a prime cost basis
85. Costs incurred in bringing the inventory to the present o Would exclude all overhead from inventory cost
location and condition include
o Cost of designing product for specific purposes 101. IFRS prohibits which cost flow assumption
o LIFO
86. Inventories encompass all of the following, except
o Land and other property not held for sale 102. What is the inventory pricing procedure in which the
oldest costs rarely have an effect on the ending inventory
87. A property developer must classify properties that it holds o FIFO
for sale in the ordinary course of business as
o Inventory 103. In a period of falling prices which inventory method
generally provides the lowest amount of ending inventory
88. Factory supplies to be consumed in the production process o FIFO
are reported as
o Inventory 104. Which inventory cost flow assumption would consistently
result in the highest income in a period of rising prices or
89. Which of the following should not be reported as inventory inflation
o Machinery acquired by a manufacturing entity o FIFO
105. The costing of inventory must be deferred until the end of o Deducted in arriving at NRV
reporting period under which of the following method of
inventory valuation 119. How should import duties be dealt with when valuing
o Weighted average inventories at LCNRV
o Added to cost
106. Cost of goods sold is the same under periodic system and
perpetual system using 120. NRV is defined as
o FIFO o Estimated selling price less estimated cost to complete
and estimated cost of disposal
107. The cost of inventories that are not ordinarily
interchangeable and goods produced and segregated for 121. The gross profit method assumes that
specific projects shall be measured using o The relationship between selling price and COGS is
o Specific identification similar in prior years

108. Which is the reason why specific identification method 122. The gross profit method is not valid when
may be considered ideal for assigning cost to inventory and o The gross margin percentage changes significantly
cost of goods sold
o The cost flow matches the physical flow 123. Which statement is not valid about the gross profit
method
109. IFRS requires the specific identification method in certain o It may be used for annual statements
circumstances. Which of the following is likely to be a
circumstance where the specific identification method can be 124. Which is not a basic assumption of the gross profit
used method
o Inventory turnover is low o The amount of purchases and the amount of sales
remain relatively unchanged from the previous method
110. Which cost flow assumption is used for inventory when an
entity builds townhouses 125. How is the gross profit method used in relation to
o Specific identification inventory
o To verify the accuracy of the perpetual inventory record
111. Net realizable value is
o Estimated selling price less estimated cost to complete 126. An advantage of the retail inventory method is that it
and cost of disposal o Provides a method for inventory control and facilitates
determination of the periodic inventory
112. Inventories are usually written down to NRV
o Item by item 127. To produce an inventory valuation which approximates
the lower of cost and NRV using the retail method, the
113. LCNRV is best described as computation of the ratio of cost to retail should
o Reporting of a loss when there is a decrease in the future o Include markup but not markdown
utility below the original cost
128. When the conventional retail inventory method is used,
114. LCNRV of inventory markdowns are commonly ignored in the computation of cost
o Is always either the NRV or cost to retail ratio because
o This tends to give a better approximation of the Lower of
115. Which statement is true regarding inventory writedown average cost and NRV
and reversal of writedown
o Separate reporting of reversal of inventory writedown is 129. The retail inventory method would include which of the
required following in the calculation of goods available for sale at both
cost and retail
116. How should trade discounts be dealt with when valuing o Purchase return
inventories at the LCNRV
o Deducted in arriving at cost 130. With regard to the retail inventory method, which is the
most accurate statement
117. How should prompt payment discount be dealt with when o The retail method results in a lower ending inventory if
valuing inventories at LCNRV net markups are included but net markdowns are excluded in
o Ignored computing the cost ratio

118. How should sales staff commission be dealt with when 131. The conventional retail method produces an ending
valuing inventories at LCNRV inventory that approximates
o Lower of average cost and net realizable value

132. If the conservative retail inventory method is used, which

of the following calculations would include or exclude net
markdowns
o Exclude Cost Ratio, Include Ending Inventory at Retail

133. Which of the following is not a reason why the retail

inventory method is used widely
o To defer income tax liability

134. An inventory method designed to approximate inventory

valuation at the LCNRV
o Conservative retail method

135. The retail method is based on the assumption that

o Final inventory and the total goods available for sale
contain the same proportion of high cost and low cost ratio of
goods