Jaypaul Ocampo Acidera, CPA 2016

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kv,R, ReSA s: the Review School of Acc.olintaric Theo of Accounts

October 2016 Batch ,

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TAPW — 322 -
cA$1.1 ANT) .
I. All of the following would be regarded asi -inancn,a1
• • instruments, EXCEPT: (
a. Cash c. Notes payable .
b, Bank overdraft S Equipment
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2. In order to be classified as a rash equivalent, ari, investment must have a,rnaturity period of:
a, Less than Six month c. Six to twelve months ,
Three to six months d. Three irionths or less , '

3. AB of the following can be classified as cash and cash equivalents, ,FX(',EVI -:

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a, Bank drafts
b. Equity 'investments .
• c Loan notes held clue for repayment in 90 days .
Redeemabl(,.' preference shares acquired anddue in 60 days • ,

4. Which of the following is-generally classifi ,..,d as a current liability on the balance sheet? ,
a. Postdated checks C. Customer NSF checks
'b. , Bank overdrafts d. Travel advances

5. Which o -tthe following statements concerning compensating balance agreements is NOT true? •

a. They reduce the 'amount of cash available to the borrower S -

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b. They always involve legal restrictions on the cash received , .

C.. They increase the effective interest rate to the borrower ,
d. They must be disclosed ; in the financial statements footnotes
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, 6. Cash control system are the methods and procedures used to ensure: .
— a. hat current obligations are met c. 5 15he safeguarding of cash
b. That excess cash, does not exist d. that unused cash is invested -

7, The internal control feature that is specific to petty cash - is ,

• S a. Separation of duties c. . Proper authorization ,
Assignment of rest)orisibility 'd. Ittipi.est system.
, 8. Which is NOT'. 4 key element of internal coritr()1 over cash re(-eipisr? _
a. Cash deposit on a regular basis S S•
b. Dail)1, •entry in a voucher register •
-CS Daily recording of all cash receipts in the accounting records .
d., Immediate counting by the person opening the mail or using the cash register •

9, In recoriciling the batik balance With the book cash balance, which ofthe ft)ilovvitig would N( -2,if cause the bank balance. •
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shown in the bank statement to be lower than the unadjusted book balance? • ,
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a. Deposits in transit - , •
b. Cash on hand at the company _
• _ _ c. Interest Credited to the account by the bank ,
d. NSF checks from a customer, as reported on the bank statement -
l(). Accounts receivable usually appear in the balance sheet; ••
a. • As current assets, combined with cash and cash equivalents. '
b. As current assets, immediately rifler cash .! ..1.nd cash equivalents. '
. c. Only if the balance 'sheet method ol'estitriatiilL; tinet)11(:,'etiblt," accounts is used.
d. As either current assets or noncurrent assets, depending on whether the allowance method or the direct \
write-off inethod is used to account for uricollectible accounts.
I I. Loans and receivables are nori-clerivaiii,e financial assets •
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- a. With fixed or 'determinable payments that 4re quoted in anfractive market
, b. With fixed or determinable payments that are not quoted in an active market
C. Without fixed or determinable p ayments that are quoted in an active market - • *
d. Viithput -fixed or determinable payments that are n()t quotefi in an active market ,
12. When individdal customers' account have credit balances of material amounts, these amounts:
a. May be shown as "credit balances of custonicrs' accounts" in the current assets section
b. May be deducted from the debit balance in other customers' accounts in the asset section
c. Must be reported separately in the liability section of the balance sheet S•
d. Should be omitted from the.balance sheet . • .
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13. Accounts receivable are classified as current assets: -

a. Only if convertible into cash beyond one year
b. Only if convertible into cash within 60 days or sooner
C. Only lithe allowance method is used to estimate the unCollect,ible accounts
d. Whenever accounts receivable arise from "norrrial" Sales to customers, regardless ()I the credit terms .

14, Which of the following accounting principles primarily supports the use of allowance for doubtful accounts?
a. Continuity principle • c. Matching principle • . -
b. Full-disclosure principle d. Cost principle

15. The allowance method of recognizing bad debt expense is generally considered a generally accepted accounting
principle, What tvvo.conditi()ns must be met before the allowance method can be used?
- a. Bad debts must be relevant and reliable -
b, Bad debts must be expected and material .
C. Bad debts must be probable and measurable ,
d Bad debts must be persistent over time and the method used to estii -nate them is consistently applied

16 A company, which has an adequate amount in its Allowance for Doubtful Accounts, 'writes, off as uncollectible an '
account receivable from a bankrupt customer. This action'will ,
a. Have no effect on total current assets
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C. Reduce net income for the period
. b. 'Reduce tOtal current assets . d. Reduce the amount of equity • •

17. Which (.)f thc,' Ibllowing methods is NOT appropriate for estimating bad debt expense? . •
' a. Individual or collective assessment of outstanding receivables •-
- b. IPercentage of outstanding accounts receivable ,
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' C. Aging of accounts receivable
d.(Percenta('ie of iric()rne -

18. Which is a generally accepted method ()f determining the amount of:the,-adjustmeni to bad debts expense? .
a. A percentage of sales adjusted for the balance in the /allowance
b. A percentage of accounts receivable not adjusted for the balance in the allowance
c. An amount derived froi-ii aging accounts receivable adjusted for the balarice in the allowance
- d. - An amount derived from aging accounts receivable not adjusted for the balance in the allowance .

19. Which ()f the following iS an advantage of using the net price method for recording cash discounts on credit sales?
a. It eases communication with customers about their balances
b. It properly reflects current period sales revenue
c. It simplifies
, recording ()f sales
_ returns and allowances _
d. It requires less record-keeping efforts than the gross method

20. ABC Cycle Shop sells a bicycle t() XYZ,- a customer who .uses Express Charge (a national credit card. but not issued ,Ipy
' a bank). In recordirig this sale, ABC Cycle Shop should record: •

- a. A cash receipt -
12. An account receivable from XYZ .
C. An account receivable from Express Charge
d. A small increase in the allowance for doubtful accounts -

21. When accounts receivable are factored without recourse, what account does the transferor credit?
- a. Accounts receivable assigned c. Liability
- b. Safes d. Accounts receivable

\ 22. A non-interest-bearing note receivable: '

a. Causes rio interest revenue to be recorded
b. Includes a specified principal amount plus specified interest -
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C. Includes a specified principal amount but an unspecified interest amount _

- (1. Includes an- unspecified principal amount and an unspecified interest amount

23. Short-term non-interest bearing notes receivable are usually recorded at their:
, a. Present value c.' Discounted value
b. Net realizable value d. Maturity value -
24. Assuming that the ideal measure of short-term receivable in the balance sheet is the discounted value of the cash to be ,
received in the future, failure to follow this 'practice usually does NOT make the balance sheet misleading because
a. The amount of discount is not material
b. Most receivables can be sold to a bank or factor _
C. Most short-term receivables are not interest-bearing
d. The allowance for tincollectible accounts includes a discount element J.
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-PREWEEK MATERIALS in THEORY of ACCOUNTS (October 2016 Batch) - Page 3 • )
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INVENTORIES .„ ,
' 25 Which of the followin ,, is EXCIliDFD in the•scope c)t'f)AS , /on Inventories?
a. Inventories of a service provider ' C. Manufacturingtipplies •
' b. Construction in progress d. Raw materials .

26, A manufacturing company has which three basic types of inventory? '
, a • Finished goods work-in-process, and ready4o-sell 7 merchandise
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b. Raw rnaterial,s', work-in process, and finished goods ,
C. Specific identification, FIF(); and average cost • • s •
d. Perpetual periodic and estimated • •
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27. Which of'the following should be included) in inventory?
L• Goods, out on consignment • c. Goods held for pick up by the buyer _
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b. Goods held on consignment • 'd. • (1.1o(:)ds-in-transit purchased, FOB destination

28. What are consigned goods?

- a., Goods that are shipped but title transfers to the receiver ,
b. Goods that are shipped but, title remains with the shipper
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C.. Goods that have been segregated for shipment to a customer
d. Goods that are sold but payment is not required until the goods are sold

29. Which (:) .1 the following would NOT be in91u,(led in tliq inventory amount . reported on a company's balance sheet?
a. Items shipped out on 'consignment to another company. .‘
- b. Items shipped today FOB shipping point: invoice had been mailed to the customer.-
c. Items in the receiving department of the company; returned by the customer, invoice has been mailed. ,
d. Items purchased 'froiri a supplier and en route directly to a customer of the company; the term is F013
, • destination; invoice received but not yet paid. •,
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• 30. The lower-of cost or net realizable value ( .1_,CNRV) results in the lowest inventory account if applied to
' a. Each item of inventories Separately . c. *1'(.. )tal inventory • .
b. Groups of similar inventory items Any,(.)f these

31. , Which of the following conversion costs CANNOT be included in cost of irivent()ry`?
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• c. Production rent and utilities
a. Cost of direct labor
- - b. Salaries of sales staff d.. Factory overhead based on normal capacity

32. Which may be included as part of the cost of inventories under PAS 2? •
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a. Selling costs •
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b. Administrative costs S •
c. Costs of designing products fbr specific customers .
' d, Abnormal amounts of ,wasted materials, labor or other production costs '
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33.- tinder PAS 2, irr te ts of i nventory that are used by business enterprise as components in a self-constructed property
asset are required to be: , • -
• a. Aggregated into the cost of goods sold' expense in the period in which the items tire used
b. Expensed directly into equity' in the period in which the items are used ,
C. Added to a 'property construction' provision account . ,
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d, Capitalized and depreciated .
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34, Where the net realizable value of inventory falls below cost, PAS 2 requires that:
a. The inventory continue , to he, carried in the balance sheet at cost • -
b. The inventory be written down to net realizable value • S • •
c. - No adjustment be made, but the difference between net i .ealizable- valiie and cost be disclosed in the
notes to the fina,ricial statements
.• d. The difference, be added to the carrying amount ol`the inventory' ,
35, Ilan item of inventaiN that was wi .itten down to net realizable value in a ,prier period subsequently recovers, then:
a. Previous amount ofthe write-down can be reversed \ •
' b. Carrying amount of _the inventory cannot be adjusted
c, Value adjustment can be recognized immediately in equity -
d. Adjustment niust be ,recognized in a 'provision for future inventory write-downs' account . -
36. The specific identification method can be used only . * ,•
* a. In income tax returns •
• b. For financial reporting purposes but not ip the income tax returns ' J. O. A.
c. When the individual items - in inventory are - sintilar in terms of cost:function, and sales value
• d. When the actual acquisition costs of individual units can he determined from the accounting records •
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, TAPW ' 322
PREWEEK MATERIALS in THEORY of ACCOUNTS (October 201' 6 ) Page 5
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49. In a perpetual inventory system, recording a sale on :lecount involves crediting which of-the following accounts?
a. Only Sales
b. ' Sales and Inventory
- C. Sales and Cost of Goods Sold .
„ Sales, Inventory, and Cost‘of Goo& Sotd
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. 50, In a perpetualinventory 'iystem, an inventory flow assuniption is used 'primarily for determining which costs to use in:
. a. , Recording sales revenue.
b. Recording the cost of goods sold.
c. Recording purthass'of inventory,
d. -Forecasts of future operating results, that will be used as basis for the production budget
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... 1 I n a manufacturing company, the lust-in time' concept of inventory management is best illustrated by:
a. Receiving deliveries, of materiJs from suppliers just before the materials are used in the production
process.
b . An automated factory which reduces production time below that of other companies in the industry.
c. Completing the manufacturing process just before the deadline established by the customer.
d. Selling finished products before they go out of style.- \,

52. The use of discount lost account mplies that cost of a purchased inventory item is the '
a. List price of the item
b Invoice price of the item ,
c. Invoice price less the purchase discount taken on the item
d. Invoice price less the purchase discount'not taken on the item

535 A company discovered a P 20,000 overstatement of its 201'5 ending inventory after the financial statements tor 2015
were prepared. The effect of this error ()tithe 2015 financiaistatements was:
. a. Current assets were overstated and income was understated •
, b. Current assets were understated and income was overstated
c. Current assets were overstated and income was overstated
d. Current assets were. understated and income was understated •

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AQRICUL,TURE
54. Which of thejollowing is NOT dealt with by MS 4 1 on - Agri u tire") S •
a, The accounting for biological assets.'
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b. The processing of agricultural produce Mkt harvesting,
C. The accounting treatment of government grants in respect to biological assets.
d. The initial measurement of agricultural produce harvested from the entity's biological, assets.

55. Where there is a long aging or maturation process after harvest, the accounting for such products is dealt with by
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a.- I AS 41, Agricuhure C. PAS 16, Property, Plant and Equipment ,
b. PAS 2, Inventor d. PAS 40, Investment Property •

,56. Biological assets ate

a. Living animals only Both living animals and living plants
bl . Living plants only. Neither living animals nor
,._ living,g_ plants
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57. Agricultural activity
a. Is the harvested product of the entity's biological asset
ID. Is the detachment of agricultural produce from a biological asset or the cessation of a biological
asset's life processes
. Relate,Oo the processes of growth, degeneration, production and proCreation that can cause changes of
quantitative or qualitative nature in a biological asset
. Is the management by an entity of the biological transformation of biological assets for - ale into
agricultural produce, or into another biological asset
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58. G enerally speaking, biological assets relating to agri - Rural activity shouldbe measured , using
a. , A fair value approach -
b. 'Historical cost
c. Net realizable value ,
. Historical /cost less depreciation Jess i pa Ineri

,59. Agricultural activity includes all of the following. EXCEPT

a. Raising livestock • C. Floricu lture and aquaculture
b. Annual perennial cropping d. Ocean fishing J. O. A.
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PREWEEK MATERIALS in THEORY of ACCOUNTS (October 2016 Batch) - Page 7

51.;(7:`,(.11:'.1STED •
I. D 21. D 41. B 1)
• 2. 22. 1-.) • - 42„ 13 62. .
3. 13 23. I) 43., - 63. E)
4 B• 24. A / 44, B , 64, A ,
• . 5, B 25, B 45. 1) - 65. . •
6. C 26. 13 46, B • 66. C - • '
7, I) 27. A 47. A 67, 13
, 8. , B 28. , 13 48. C ' ' 68. A
C 29. B 49, B . 69. B
10. B • • - 30., A 50 B • 70. A
'Ii, 13 31 B 51. A
* 17. .,. . C 32• . C 52. 1)
13 1) 33- 1.) . 53. C
14. C 34. B 54. B
• • 15. CY. 35. A 55. B
. 16. A 36, f,) • 56. C '
17. D 37. D - 57. • , -
/ 18. • 'C 38: A , 58. A
19 B 39, 1) 59. 1) .
- C• 40. 1-,) (i0. I)

BRIEF EXPI ANATIONSiCIAFIFICA 3-11(_)NS rro SI:I"ED ITEMS _

r 8. Question si about cash receipts; z,t. voucher is written authorization to pay or disburse cash. ,
9. The bank statement balance will show a higher amount than cash ledger balance for any interest credited to the bank
account by the bank without the knowledge of the - depositc)r. , .
' 13. Accounts receivable from customers is classified as current if realizable within one year or normal operating cycle,
whichever is longer.
19 Net price method is preferred in accounting as it properly reflects current period sales revenue, net (:)f any related cash
discount that may be availed by the customer. ,
20. For this type of credit card transaction, ABC,' (seller) collects the amount from Express Charge (credit card ccimpan)) - .„. •
then Express Charge
, in turn collects the amount from :s(YZ (buyer).
22. Emphasizing substance over fortn., the rii)te's 'unspecified principal amount' is its present or discounted value and the
- 'unspecified interest amount' is the discount, which is computed based on the excess of face value over present Value.
- 23/ Short-term non-interest bearing notes receivable are usually recorded at their face value, which is incidentally equal t6
the maturity value for a 1101i-interest bearing note.
, 32. Under PAS 2 and Cost Accounting rules, costs of designing products for specific customers may be included . in the
inventory cost of a product. s
41. Specific icic?litilicati()n is more appropriate if each iteal in the inventory is unique so that the actual acquisition cbsts of
individual units can be determined from the accounting records.
, 42. Usual mistake is choice C. An entity must choose a cost flow method which most clearly reflects the periodic income
through the cost of goods sold.
45. Inventory valuation method (e.,.•g., FIFO) affects cost of goods sold, net income including related iticorri,e taxes.
52. The use of 'discount lost' account implies that purchased inventories are recorded at net amount; it also implies that "
. _ the purchase discount is not availed by the buyer so that itis "lost." ,
\ 54. PAS 41 is _applied to agricultural produce only at the point of harvest; the processing of agricultural produce after
2 harvesting is covered by PAS 2 or other applicable standards, -
57. Choice A refers to agricultural produce. choice B refers to harvest; choice C refers to biological , transiiirtn(.ition,
59, Under PAS 41, harvesting unmanaged resources (such as ocean fishing and deforestation) is not an agricultural
' activity. Aquactilti.ire (which includes fish farming), on the other hand, \you'd fall ttncler the definition of agricultural
activity. L .
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63. External inclependetit valutz tiori i s NOT among those listed as guidelines in determining the fair value of a biological
' asset in PAS 41. (See related section of page 14 ()1 the 'IA Lecture Notes)
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All,)DITIONAI.,,_Qt_IFS.ff stuested - ,
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1. If an entity incorrectly includes consignment items in the ending inventory, the effect on the next period's cost of
goods sold, and net income is ' • '
. B • a. Understatement, overstatement c. Overstatement, overstatement
13.•Overstatement, t.inderstaternent d. The next period's account will be correct
At certain stages of production, inventories ofagricukural forest and mineral products are measured at
,

‘, a. Cost c, Relative sales price

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b. Standard cost d. Net realizable value
3. Which one of tliefoll()Aing would cause a decrease in the cost ratio as used in the retail inventory method? ,
. A a. Higher retail prices •° C. More employee discotints_given J. O. A.
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b. 1,..,(:)vver net inark..ups d. 1 lig,her freight-in charges
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4. A major advantage of the retail inventory method is that it ,

D • a. Hides costs from customers and emplt)ytes , .
b, Gives t more accurate statement of inventory cost than other methods - .
c. Permits companies which use it to avoid taking an annual physical inventory ,
d. Povides a method for inventory control and facilitates determination of the periodic inventory
5. Lower of cost or net realizable value as it/applies to . inventory is best described as the
A a. Reporting Of a loss when there is a decrease in the future utility below the original cost .
b. Change in inventory value to net realizable value
C. Method of determining cost of goods sold , - -
d. Assumption to determine inventory -flow
6. The carrying value of an impaired note immediately= after the recognitionof . the impairment
, loss is the - •-
C • a. Nominal sum of remaining cash flows to be received. s, ■

b Present value of rernaining casti,flows to be received, discounted at the current market rate of interest.
c. Present value of l'ernainiug cash flows to be reCeived, discounted at the original interest rate implicit in .
the note, . ,
, d. The book value before the impairment is recognized less accrued interes t . '
rhee carrying value of an impaired note befi)re recognizing a loan impairment:
Th
- A a. Includes accrued interest ,
b. Excludes accrued interest s • -
- e. Is less than the carrying value after recognizing the impairment ,
d. Is the same as' the carrying value after rectignizirig'the impairment
8. After being held for 30 days-, a 90-day, 15 percent interest-bearing note receivable was discounted at a bank at 18 .
perc e nt. The proceeds received from.
the bank - upon discounting would be the: ,
C a. Face value less the discount at 18`)//0 • c. Maturity value less the discount at 18 ",/0
b. Face value less the discount at 15% - di Maturity :value less the discount at 15 °//0 - •
. 9 Which one of the following is INCLUDED in the scope of1),AS 2 but EXCLUDED from the measurement rule?
C a., Land held fbr resale by subdivision company or real estate developer z. (
b. Damaged niel-eharidise inveritt)ry of a retailer
c. Biological assets held for regular sale , • s
d. Finished goods produced S - •,
10. Agricultural activity results in which ol'tlie following types of assets? .
' C a, B i ological assets only
b. Agricultural -produce only
C.• Both
, biological assets and agricultural produce '
d. Financial assets, contingent assets and agricultural produce s• ,
I. Which one ot'the' following items would be classified as agricultural produce, according to PAS 41•Agricuiture?
- a. Tree S S C. Butter
b. Bush - - d. Apple
12. According to PAS 41 Agriculture, which of the following items would be classified as biological asset? \
B a. Oranges S c. Eggs
b. Chicic.-ns d. Land in mango orchard
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1 53. An entity had a plantation forest that is likely to be harvested and sold in 30 years. The income should be accounted
- for in which of the following?
B, a. No income should be reported annually until first harvest and sale in 30 years
b. Income should, be measured annually and reported using a fair value approach that recognizes and
measures biological growth - '
c. '1"he eventual' sale proceeds should be estimated and iriatcheci'to the profit and loss account over the
30-year period
d: The plantati6n forest should be valued every 5 years and the increase in value should be shown in the -
'statement of recognized gains and losses - . .
. 14. An unconditional government grant related to a biological asset that has been measured at fair value less 'costs to sell
should be recognized as
A a. Income when the grant becomes receivable - s- '
b. A deferred credit when the grant becomes receivable
c. Income when the grant application has been submitted
d. A deferreci credit when the grant has-beep approv,ed
15. If a _goverrimerit grant related to biological asset is -canditional on certain events, then the grant should be recognized as
A a. Inc()rne when the conditions attaching to the grant are met -
b. Income when the grant has been approved
. c. A deferred credit when the conditions attached to the government orant are met '
d. A deferred credit when the grant is approved '

N J. O. A.

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