Conceptual Framework and Accounting Standards

Mock Examination

1. What is working capital?

a. The collection of resources essential for maintaining operational profitability.

b. The portion of earnings continuously reinvested to sustain business growth.

c. The accumulated surplus of profits not yet allocated for specific purposes.

d. The difference of current asset and current liabilities

2. What is breach of covenant?

a. A financial gain received from a contract.

b. Company voluntarily repays the loan in the agreement.

c. Failure to meet the terms and conditions in a contract or loan agreement.

d. It is a legal action of a company for possible bankruptcy.

3. What are the two forms of statement of financial position

a. Income form and Expense form

b. Account form and Report form

c. Profit and Loss Form

d. Account form and Equity form

4. What is a noncurrent asset?

a. A financial obligation that reduces equity over time.

b. A temporary asset used for daily operational expenses.

c. An asset owned by a company that is expected to provide economic benefits beyond
one year.

d. A liability that a company must settle within the current period.

5. The primary purpose of statement of cashflow is to provide relevant information about:

a. Difference between net income and associated cash receipts and disbursement

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

6. Cash payments to acquire equity investments are:

a. Cash outflow for financing activities

b. Cash outflow for investing activities

c. Cash inflows for financing activities

d. Cash inflows for investing activities

7. Cash equivalents are:

a. Treasury bills and money market funds

b. Investments with original maturities of three months or less

c. Readily convertible to known amount of cash

d. All of these are characteristics of cash equivalents

8. According to PAS32, financial instruments that contains_______ and_______ component

shall be account separately,

a. Asset and liability

b. Asset and Equity

c. Liability and Equity

d. Equity and Expense

9. The following are examples of financial liability except:

a. Trade accounts payable

b. Income Tax Payable

c. Loans Payable

d. Bonds Payable

10. What is the accounting for issued convertible bonds?

a. The instrument should be recorded solely as bond.

b. The instrument should be recorded as either bond or equity but not both.

c. The instrument should be recorded solely as equity

d. The instrument should be recorded as partly bond and partly equity.

11. A Financial liability is:

a. Contractual obligation to deliver cash or another financial asset to another entity.

b. Must be classified as non-current liability

c. Contractual obligation to exchange financial instruments with another entity under a

condition that are potentially favorable to the entity.

d. Contractual obligation to deliver cash or any asset to another entity.

12. Under PFRS 9, the transaction cost from the financial asset at FVOCI shall be treated
as

A. It is capitalized

B. It is recognized as expense

C. It is written-off
D. Ignore

13. Which of the following is true about subsequent measurement of debt instrument?

A. Include FVPL only

B. Includes FVPL and FVOCI

C. Includes FVPL, FVOCI, and Amortized Cost

D. Includes FVOCI and Amortized Cost

14. Equity investments irrevocably accounted for at fair value through other
comprehensive income are:

A. Non-trading investments of less than 20%

B. Trading investments of less than 20%

C. Investments of between 20% and 50%

D. Investments of more than 50%

15. Split accounting refers to allocating the consideration between:

A. Asset and equity components

B. Liability and equity components

C. Asset and liability components

D. Asset, liability, and equity components

16. Preference shares are classified as equity instruments when:

A. They provide for redemption on a specific date

B. They provide for redemption on a specific date but the issuer cannot satisfy the
obligation to redeem because of a lack of funds

C. They provide for redemption at the option of the holder

D. They provide for redemption at the option of the issuer

17. When an investor uses the equity method to account for investment in ordinary shares,
the investment account shall be increased when the investor recognizes:

A. A proportionate interest in the net income of the investee

B. A cash dividend received from the investee

C. Non-cash dividend received from the investee

D. A share dividend received from the investee

18. Which statement BEST describes the significant influence.

A. The holding of a significant proportion of the shared capital in another entity

B. The contractually agreed sharing of control over an economic entity

C. The power to participate in the financial and operating policy decisions of an entity

D. The mutual sharing in the risks and benefits of a combined entity

19. Goodwill arising from an investment in Associates is:

A. Included in the carrying amount of the investment and amortized over the useful life

B. Included in the carrying amount of the investment and not amortized

C. Charged to retained earnings

D. Charged to expense immediately

20. When an investor uses the equity method to account for investment in ordinary shares,
cash dividends received by the investor from the investor are recorded as:

A. Dividend income

B. A deduction from the investment income

C. A deduction from the investment account

D. A deduction from shareholders' equity

21. When an item of inventory that was written down to net realizable value in a prior period
subsequently recovers

A) it is not appropriate to adjust the carrying amount of inventory.

B) the previous amount of the write down may be reversed and taken to retained earnings.

C) the previous amount of the write down may be reversed and taken to profit or loss.

D) the previous amount of the write down may be reversed and taken to other
comprehensive income.

22. A property developer must classify properties that it holds for sale in the ordinary
course of business as

A) Inventory

B) Property, plant and equipment

C) Financial asset

D) Investment property

23. Which of the following types of interest cost incurred in connection with the purchase
or manufacture of inventory should be capitalized as a product cost?

A) Purchase discounts lost

B) Interest incurred during the production of discrete projects such as ships or real estate
projects

C) Interest incurred on notes payable to vendors for routine purchases made on a

repetitive basis

D) All of these should be capitalized.

24. How shall the fair value of biological assets physically attached to land be determined?

A) The fair value of biological assets may be deducted from the fair value of the combined
assets to arrive at fair value of the raw land and land improvements.
B) The fair value of raw land and land improvements may be deducted from the fair value
of the combined assets to arrive at the fair value of biological assets.

C) It cannot be determined.

D) The fair value of raw land and land improvements may be added to the fair value of
biological assets to arrive at the fair value of the combined assets.

25. Which of the following is not considered as an agricultural activity?

A) Raising livestock

B) Annual perennial cropping

C) Floriculture and aquaculture, including fishing

D) Farmville

26. Which of the following is NOT a disclosure requirement under PAS 41?

A) The aggregate gain or loss arising during the current period on initial recognition of
biological assets

B) The carrying amount of agricultural produce

C) The methods and significant assumptions applied in determining fair value

D) The historical cost of biological assets

27. According to PAS 36, an asset is impaired if its carrying amount exceeds its recoverable
amount. Recoverable amount is the asset's:

a. fair value less costs of disposal.

b. value in use.

c. higher of a and b

d. lower of a and b

28. The impairment loss on which of the following assets is never reversed?
a. Intangible assets with indefinite useful life

b. Goodwill

c. Intangible assets not yet available for use

d. All of these

29. Which of the following assets is not tested for impairment in accordance with PAS 36?

a. Investment property measured under the cost model

b. Investment in associate

c. Goodwill

d. Accounts receivable

30.A property, plant, and equipment should be derecognize when:

a. When asset is fully depreciated but still in use

b. When the asset is sold or no future economic benefits

c. When assets is revalued based on its fair value

d. When assets are ready for repurchase

31. What are the subsequent measures of Property, Plant, and Equipment?

a. Cost Model and Impairment Model

b. Historical Cost and Fair Value Model

c. Cost Model and Revaluation Model

d. Cost Model and Amortization Model

32. Which factor is not considered in determining the useful life of an asset?

a. Initial purchase price

b. Expected usage of the asset

c. Legal or contractual limits

d. Physical wear and tear

33. Government grant shall recognize when there is reasonable assurance that:

A. The entity will comply with the conditions of the grant

B. The grant will be received

C. The entity will comply with the conditions of the grant and the grant will be received

D. The grant must have been received

34. It is a government grant whose primary condition is that an entity qualifying for it should
purchase, construct, or otherwise acquire long-term asset.

A. Grant related to asset

B. Grant related to income

C. Government gift

D. Government appropriation

35. In the case of grants related to income, which of the following accounting treatment is
prescribed?

A. Credit the grant to equity

B. Present the grant in the income statement as other income or as a separate line item, or
deduct it from the related expense

C. Credit the grant to retained earnings

D. Credit the grant to sale revenue

36. Borrowing cost is defined as:

a. Interest expense using the effective interest method

b. Finance charges in respect of finance lease

c. Interest and other cost that an entity incurs in connection with borrowing funds

d. Exchange difference arising from foreign currency borrowing to the extent that this is
regarded as an adjustment to interest cost

37. Which state is true concerning capitalization of borrowing cost:

I. If the borrowing cost is directly attributable to a qualifying asset, the borrowing cost is
required to be capitalized as cost of the asset

II. If the borrowing cost is not directly attributable to a qualifying asset , the borrowing cost
shall be expensed as incurred.

a. I only

b. II only

c. Both I and II

d. Neither I nor II

38. Borrowing cost can be capitalized as cost of the asset when:

a. The asset is a qualifying asset.

b. The asset is a qualifying asset and it is not probable that the borrowing cost will result in
future economic benefit to the entity.

c. The asset is a qualifying asset and it is probable that the borrowing cost will result in
future economic benefit to the entity but the cost cannot be measured reliably.

d. The asset is a qualifying asset and it is probable that the borrowing cost will result in
future economic benefit to the entity and the cost can be measured reliably.

39. The capitalization of borrowing costs as part of the cost of a qualifying asset shall
commence when the following three conditions are present:

I. When the entity incurs expenditures for the asset.

II. When the entity incurs borrowing costs.

III. When the entity undertakes activities that are necessary to prepare the asset for the
intended use or sale.

a. I only

b. I and II

c. I, I and II

d. II and III

40. Which intangible assets should be reported as a separate line item in the Statement of
Financial Position?

A. Goodwill

B. Franchise

C. Patent

D. Trademark

41. The cost of purchasing rights for a product that might otherwise have seriously
competed with the purchaser's patented product should be:

A. Charged off in the current period

B. Amortized over the legal life of the purchased asset

C. Added to factory overhead

D. Amortized over the remaining useful life of the patent for the product whose market
would have been impaired by competition from the newly patented product

42. One factor that is not considered in determining the useful life on a detachable asset
is:

A. Residual value

B. Provision for renewal or extension

C. Legal life
D. Expected action of competitors

43. Which of the following properties falls under the definition of investment property?

I. Land held for long-term capital appreciation

II. Property occupied by an employee paying rent at market rate

III. Property being constructed on behalf of third parties

IV. A building owned by an entity and leased out under an operating lease

a. I and II

b. II and III

c. I and IV

d. II, III and IV

44. According to PAS 40, transfers to or from investment property shall be made only when
there is a:

a. change in management's intention.

b. change in use.

c. change in business model.

d. change in classification.

45. Which of the following assets may be classified as investment property?

a. Land held for long-term capital appreciation

b. Equipment held for lease

c. Intangible asset held for lease

d. Building held for lease

e. a and d only

46. When is a change in accounting policy allowed?

a) Whenever the management decides to change it

b) When the change provides more relevant and faithfully represented financial
information

c) Only when required by law

d) When it results in a higher profit

47. How should prior period errors be corrected?

a) By adjusting the opening balances of retained earnings and affected assets and
liabilities retrospectively

b) By making a correction in the current period’s profit or loss

c) By adjusting only the current year’s financial statements

d) By ignoring minor errors and correcting only major ones

48. Under the full cost method of accounting for exploration costs, how are unsuccessful
exploration costs treated?

a) Expensed immediately in the period incurred

b) Expensed only if the exploration proves unsuccessful in the long run

c) Capitalized as part of the successful resource discovery cost

d) Written off as a loss over time

49. Which of the following expenditures would never qualify as an exploration and
evaluation asset?

a) Expenditure for acquisition of rights to explore

b) Expenditure for exploratory drilling

c) Expenditures related to the development of mineral resources

d) Expenditures for activities in relation to evaluating the technical feasibility and

commercial viability of extracting a mineral resource
50. When is a noncurrent asset presented as a current asset in the statement of financial
position according to PFRS 5?

a. When it is fully depreciated

b. When it qualifies to be classified as held for sale

c. When it is acquired

d. When it is impaired

51. PFRS 5 does not apply to?

a. Property and Plant

b. Investment property and other assets measured at fair value (fair value model)

c. Investment property and other assets measured at cost (cost model)

d. Equipment

52. Under what conditions is an asset classified as held for sale according to PFRS 5?

a. When the carrying amount will be recovered through continuing use

b. When the sale is highly probable and the asset is available for immediate sale

c. When the asset is fully depreciated

d. When the carrying amount will be recovered principally through a sale transaction rather
than through continuing use

53. What happens to depreciation (amortization) when an asset is classified as held for
sale?

a. It ceases during the period the asset is classified as held for sale

b. It continues as usual

c. It is reversed

d. It increases
54. What is a discontinued operation according to PFRS 5?

a. A subsidiary that is not profitable

b. A component of an entity that has been disposed of or is classified as held for sale

c. A component of an entity that is newly acquired

d. A component of an entity that is not generating cash flows

55. How should the results of discontinued operations be presented in the financial
statements according to PFRS 5?

a. as part of profit or loss from continuing operations

b. as separate line items for each discontinued operation

c. as a single amount, net of tax, after profit or loss from continuing operations

d. as part of assets held for sale

56. What costs should be recognized as part of discontinued operations according to PFRS
5?

a. Costs directly associated with the decision to dispose a component

b. Costs related to employee training

c. Costs related to research and development

d. Costs related to marketing the component

57. Liabilities arise from either legal or constructive obligations. Which of the following is a
source of constructive obligations?

a. contract

b. quasi-contract

c. an established pattern of past practice

d. law
58. According to PAS 37, provisions are measured at

a. the expected value of the settlement amount

b. the entity's best estimate of the settlement amount

c. the mid-point amount of a range of estimates

d. any of these, whichever is most appropriate

59. According to PAS 37, a provision is:

a. a present obligation that cannot be measured reliably.

b. a possible obligation that arises from past events.

c. a liability of uncertain timing or amount.

d. all of these

60. Which of the following statements is correct?

a. A provision is recognized only when it represents a present obligation.

b. An event or transaction that meets both the “probable outflow of economic benefits”
and “reliable measurement” criteria is always recognized.

c. A contingent asset that is possible is ignored.

d. A contingent liability that is possible is ignored.

61. According to PAS 37, contingent liabilities are:

a. recognized and disclosed.

b. always disclosed.

c. disclosed only, if their expected occurrence is probable.

d. not disclosed if their expected occurrence is remote.

62. It is a lease that does not transfer substantially all the risks and rewards incidental to
ownership of underlying assets

a) Finance lease

b) Operating lease

c) Capital lease

d) Sales-type lease

63. What is the measurement of lease liability?

a. The present value of lease payments.

b. The carrying amount of the leased asset

c. The present value of fixed payments

d. The fair value of underlying asset

64. In operating lease recorded by the lessee, the equal monthly payments should be
recorded as

a. Lease liability

b. Depreciation expense

c. Interest expense

d. Lease expense

65. I. The short-term lease is a lease with a term of twelve months or less.

II. The low value lease is a matter of professional judgement.

a. Both statements are true

b. Both statements are false

c. Statement I is true, and Statement II is false

d. Statement I is false, and Statement II is true

66. Deferred tax assets and deferred tax liabilities do not alter the tax to be paid in the
current period. However, they cause tax payments to either increase or decrease when
they reverse in a future period. The reversal of which of the following will cause an increase
in tax payment?

a. Deferred tax liability

b. Deferred tax asset

c. Deferred tax expense

d. Deferred tax benefit

67. When is a deferred tax liability (asset) recognized in income tax accounting?

a. When there are taxable temporary differences

b. When tax laws require recognition of DTL

c. Whenever recovery or settlement of the carrying amount of an asset or liability would

make future tax payments

d. When there are deductible temporary differences

68. How are permanent differences in income tax accounting presented in the Statement
of Financial Position?

a. Not specifically presented

b. Presented as current liabilities

c. Presented as current assets

d. Presented as operating expenses

69. Which is true regarding deferred income taxes?

a. Deferred tax asset is always netted against deferred tax liability

b. Deferred taxes of one jurisdiction are offset against another jurisdiction in the netting
process
c. Deferred tax asset and liability may only be classified as noncurrent

d. Deferred tax asset and liability are classified as current and noncurrent based on
expiration date

70. Which of the following is NOT considered a short-term employee benefit?

a. Salaries and wages

b. Retirement benefits

c. Paid absences

d. Profit-sharing bonuses payable within 12 months

71. Under a defined contribution plan, the employer's obligation is:

a. To guarantee a specific benefit amount to employees upon retirement

b. To assume the investment risk associated with the funds

c. Limited to the amount of contributions made to the plan

d. To adjust future contributions based on fund performance

72. Which of the following is a characteristic of a defined benefit plan?

a. The employer assumes the investment risk

b. The contribution is definite, but the benefit is indefinite

c. The employer has no further obligation once contributions are made

d. Contributions are always equal to the benefits paid

73. Which of the following best describes a defined contribution plan?

a) The employer guarantees a specific benefit amount to the employee upon retirement.

b) The employer makes a specific contribution to a separate entity without guaranteeing

the final benefit amount.
c) The employer assumes the investment risk and is responsible for funding shortfalls.

d) The benefit is defined, but the contribution is indefinite.

74. Which of the following best defines accounting policies?

a) The methods used for recording business transactions without any standard rules.

b) The principles, conventions, rules, and practices applied by an entity in preparing and
presenting financial statements.

c) The set of financial standards that only large organizations must follow.

d) The informal guidelines that companies use for financial reporting without legal
enforcement.

75. Which of the following best defines accounting policies?

a) The methods used for recording business transactions without any standard rules.

b) The principles, conventions, rules, and practices applied by an entity in preparing and
presenting financial statements.

c) The set of financial standards that only large organizations must follow.

d) The informal guidelines that companies use for financial reporting without legal
enforcement.

76. How should a change in accounting estimate be reported?

a) Retrospectively by adjusting past financial statements.

b) By restating prior period financial statements to reflect the change.

c) Prospectively, affecting only current and future financial statements.

d) By adjusting retained earnings from previous years.

77. What is the definition of events after the reporting period according to PAS 10?

a) Events that occur within the reporting period and affect financial statements.
b) Events that occur after the end of the reporting period but before the financial
statements are authorized for issue.

c) Events that occur anytime in the future and require adjustments in financial statements.

d) Events that are planned and forecasted within the financial period.

78. Which of the following is an example of an adjusting event?

a) Business combination after the reporting period.

b) The discovery of fraud or errors that show the financial statements were incorrect.

c) Major share transaction after the reporting period.

d) Announcing or commencing the implementation of a major restructuring.

79. Which of the following is an example of a non-adjusting event?

a) Bankruptcy of a customer occurring after the reporting period.

b) Sale of inventories after the reporting period providing evidence about net realizable
value.

c) Destruction of a major production plant by a fire after the reporting period.

d) Determination of the cost of an asset purchased before the end of the reporting period.

80. Which is not considered as related parties?

a. An entity has the ability to control the other party

b. An entity has the ability to exercise significant influence over the other party

c. Joint control over the reporting entity

d. Two entities have no control over each other.

81. The following are related parties, except:

a. The major supplier of the entity

b. The parent and its subsidiary

c. An entity and its joint partners

d. Key management personnel and their close family members.

82. Which is not included in Key Management Personnel Compensation?

a. Reimbursement of business-related expenses

b. Share-based payments

c. Post-employment benefits

d. Other Long-term benefits

83. The disclosures for earnings per share is

a. Encouraged for public entities and required for nonpublic entities

b. Required for public entities and encouraged for nonpublic entities

c. Required for all public and nonpublic entities

d. Encouraged for all entities

84. In computing basic earnings per share, the amount of preference dividends on
noncumulative preference shares should be

a. Deducted from net income only when declared

b. Deducted from net income whether declared or not

c. Added to net income only when declared

d. Ignored

85. An entity that reports a discontinued operation shall present basic and diluted earnings
per share for the discontinued operation

a. Only on the face of the income statement.

b. Only in the notes to financial statements.

c. Either on the face of the income statement or in the notes to financial statements.

d. Only if management chooses to do so.

86. In computing basic earnings per share, the full amount of the required preference
dividends on cumulative preference shares for the period should be

a. Deducted from net income whether declared or not

b. Deducted from net income only when declared

c. Added to net income whether declared or not

d. Ignored

87. Publicly traded entities are encouraged to provide interim financial reports:

a. At least at the end of the half-year and within 60 days of the end of the interim period

b. Within a month of the half year-end

c. On a quarterly basis

d. Whenever the entity wishes

88. What is the purpose of interim reports according to the reference text?

a. To replace annual reports

b. To provide an update on significant events and transactions

c. To provide future projections

d. To provide historical data

89. What is the significance of materiality in interim measurements according to PAS 34?

a. Materiality is not considered in interim measurements

b. Materiality is less important in interim measurements

c. Materiality is only relevant in annual financial data

d. Materiality is more significant in interim measurements

90. What disclosures are required in interim financial statements according to the
reference text?

a. Only events after the reporting period

b. Multiple disclosures including accounting policies, seasonality, unusual items, changes

in estimates, and more

c. Only changes in accounting estimates

d. Only segment information

91. PFRS 8 requires which of the following approaches in identifying operating segments?

a. manager's approach

b. gentle approach

c. direct approach

d. management approach

92. According to PFRS 8, a reportable operating segment is one which:

a. management uses it in making decisions about operating matters.

b. results from aggregation of two or more segments and qualify under any of the
quantitative thresholds.

c. a and b

d. none of these

93. Which of the following is NOT among the quantitative thresholds under PFRS 8?

a. At least 10% of total revenues (external and internal).

b. At least 10% of the higher of total profits of segments reporting profits and total losses of
segments reporting absolute amount.

c. At least 10% of total assets (inclusive of intersegment receivables).

d. At least 10% of total revenues (external only).

94. According to PFRS 8, disclosures for major customer shall be provided if revenues from
transactions with a single external customer amount to:

a. at least 75% of the entity's external and internal revenues.

b. at least 75% of the entity's external revenues.

c. 10% or more of the entity's external revenues.

d. less than 10% of the entity's external revenues.

95. For cash settled share-based payment transactions, until the liability is settled, the
entity is required to remeasure the fair value of the liability of each reporting date and at
the date of settlement and any changes in fair value are?

A) recognized in profit or loss for the period.

B) included in retained earnings.

C) treated as component of equity.

D) Not recognized.

96. If a company originally grants options with a ₱100 exercise price but later reduces it to
₱80, what happens?

A) The company recognizes an additional expense based on the increase in fair value.

B) No adjustment is needed since the options were already granted.

C) The company must reverse all previously recognized expenses.

D) The employees must immediately exercise their options.

97. Which of the following statements about share-based payments is FALSE?

A) Cash-settled share-based payments create a liability instead of equity.

B) The fair value of equity-settled share-based payments is measured at grant date and
does not change.

C) When an employee leaves before vesting, the expense for their share-based payment
is kept in equity.

D) Market-based performance conditions (like stock price targets) do not affect the
recognition of expense.

98. Which of the following is considered an unobservable input under PFRS 13?

A) Quoted prices in active markets for identical assets

B) Adjusted market prices for similar assets

C) Entity-specific assumptions

D) Market-corroborated inputs

99. What should an entity do if there is no principal market for an asset or liability?

A) Use the market with the highest price

B) Use the market of highest and best use of an asset

C) Use the most advantageous market

D) Use the market with the greatest volume and level of activity

100. If the stock is measured using a valuation technique that involves significant
adjustments to quoted prices, what level might it be categorized under?

A) Level 1

B) Level 2

C) Level 3

D) A and C is correct.
 Answer Key

1. D 26. D 51. B 76. C

2. C 27. C 52. D 77. B
3. B 28. B 53. A 78. B
4. C 29. D 54. B 79. C
5. C 30. B 55. C 80. D
6. B 31. C 56. A 81. A
7. D 32. A 57. C 82. A
8. C 33. C 58. B 83. B
9. B 34. A 59. C 84. A
10. D 35. B 60. C 85. C
11. A 36. D 61. D 86. A
12. A 37. C 62. B 87. A
13. C 38. D 63. A 88. B
14. A 39. C 64. D 89. D
15. B 40. A 65. C 90. B
16. D 41. D 66. A 91. D
17. A 42. D 67. C 92. C
18. C 43. C 68. A 93. D
19. B 44. B 69. C 94. C
20. C 45. E 70. B 95. A
21. C 46. B 71. C 96. A
22. A 47. A 72. A 97. C
23. B 48. C 73. B 98. C
24. B 49. C 74. B 99. C
25. D 50. B 75. A 100. C