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APPRAISAL 1 : DRILL 1 – GENERAL CONCEPTS

1. Class Corp. maintains its accounting records on the cash basis but restates its financial statements to the accrual method of accounting.
Class had P60,000 in cash-basis pretax income for 2010. The following information pertains to Class’s operations for the years ended
December 31, 2010 and 2009:
2010 2009
Accounts receivable P40,000 P20,000
Accounts payable 15,000 30,000
Under the accrual method, what amount of income before taxes should Class report in its December 31, 2010 income statement?
a. P25,000 b. P55,000 c. P65,000 d. P95,000
2. Which of the following is not a basic characteristic of a system of cash control?
a. Use of a voucher system
b. Combined responsibility for handling and recording cash
c. Daily deposit of all cash received
d. Internal audits at irregular intervals
3. Bank statements provide information about all of the following except
a. Checks cleared during the period.
b. NSF checks.
c. Bank charges for the period.
d. Errors made by the company.
4. If an inventory account is understated at year end, the effect is to
a. Overstate the net purchases
b. Overstate the gross margin
c. Overstate the cost of goods available for sale
d. Overstate the cost of goods sold
5. Which of the following reports is not a component of the financial statements according to IAS 1?
a. Statement of financial position.
b. Statement of changes in equity.
c. Director’s report.
d. Notes to the financial statements.
6. XYZ Inc. decided to extend its reporting period from a year (12-month period) to a 15-month period. Which of the following is not required
under IAS 1 in case of change in reporting period?
a. XYZ Inc. should disclose the reason for using a longer period than a period of 12 months.
b. XYZ Inc. should change the reporting period only if other similar entities in the geographical area in which it generally operates
have done so in the current year; otherwise its financial statements would not be comparable to others.
c. XYZ Inc. should disclose that comparative amounts used in the financial statements are not entirely comparable.
d. None of the above
7. Trade receivables are classified as current assets when they are reasonably expected to be collected
a. Within one year
b. Within the normal operating cycle
c. Within one year or within the normal operating cycle whichever is shorter
d. Within one year or within the normal operating cycle whichever is longer
8. If an inventory account is overstated at the beginning of the year, the effect is to
a. Overstate net purchases
b. Overstate gross margin
c. Overstate cost of goods available for sale
d. Understate cost of goods sold
9. At issuance date, the present value of a promissory note will be equal to its face amount if the note
a. Bears a stated rate of interest which is realistic.
b. Bears a stated rate which is less than the prevailing market rate for similar notes.
c. Is noninterest bearing and the implicit interest rate is less than the prevailing market rate for similar notes.
d. Is noninterest bearing and the implicit interest rate is equal to the prevailing market rate for similar notes.
10. IAS 24 requires disclosure of compensation of key management personnel. Which of the following would not be considered
“compensation” for this purpose?
a. Short-term benefits.
b. Share-based payments.
c. Termination benefits.
d. Reimbursement of out-of-pocket expenses.
11. To enable financial statement users to form a view about the effects of the related party transactions, IAS 24 requires certain disclosures
to be made. Which of the following disclosures is not a mandated disclosure under IAS 24?
a. Relationships between parents and subsidiaries irrespective of whether there have been transactions between those related
parties.
b. Names of all the “associates” that an entity has dealt with during the year.
c. Name of the entity’s parent and, if different, the ultimate controlling party.
d. If neither the entity’s parent nor its ultimate controlling entity produces financial statements available for public use, then the
name of the next most senior parent that does so.
12. Events after the balance sheet date are
a. 4. Adjusting events only c.Both adjusting and nonadjusting events
b. Nonadjusting events only d. Neither adjusting nor nonadjusting events
13. Adjusting events after balance sheet date include all of the following, except
a. The resolution after the balance sheet date of a court case.
b. The bankruptcy of a customer which occurs after the balance sheet date resulting to a loss on a trade receivable account.
c. The discovery of fraud or errors that show that the financial statements were incorrect.
d. Dividends to holders of equity instruments proposed or declared after balance sheet date
14. Financial statements portray the financial effects of transactions and other events by grouping them into broad classes according to their
economic characteristics. These broad classes are termed as the
a. Elements of financial statements c. Accounting constraints
b. Features of accounting d. Concepts of capital and capital maintenance
15. The IASB’s Framework for the Preparation and Presentation of Financial Statements gives qualitative characteristics that make financial
information reliable. Which of the following are examples of those qualitative characteristics?
(1) Accruals
(2) Faithful representation
(3) Going concern
(4) Neutrality
A 1 and 2 B 2 and 4 C 2 and 3 D 1 and 4
16. The overstatement of ending inventory in the current year will cause
a. Retained earnings to be understated in the current year-end statement of financial position

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b. Cost of goods sold to be understated in the income statement of next year.
c. Cost of goods sold to be overstated in the income statement of the current year.
d. Statement of financial position not to be misstated in the next year end.
17. Accounting is
I. A service activity and its function is to provide quantitative information, primarily financial in nature, about economic entities,
that is intended to be useful in making economic decision.
II. The art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which
are in part at least of a financial character and interpreting the results thereof.
III. The process of identifying, measuring and communicating economic information to permit informed judgment and decision by
users of the information.
a. I, II and III b. I only c. II only d. III only
18. Financial accounting
a. Is the examination of financial statements by an independent CPA for the purpose of expressing an opinion as to the fairness of the
financial statements.
b. Focuses on the preparation and presentation of general purpose reports known as financial statements.
c. Has no precise coverage but is used generally to refer to services to clients on matters of accounting, finance, business policies,
organization procedures, product costs, distribution and many other phases of business conduct and operations.
d. Is the preparation of annual income tax returns and determination of tax consequences of certain proposed business venture.
19. Financial statements portray the financial effects of transactions and other events by grouping them into broad classes according to their
economic characteristics. These broad classes are termed as the
a. Elements of financial statements c. Accounting constraints
b. Features of accounting d. Concepts of capital and capital maintenance
20. The elements directly related to the measurement of financial position are
a. Assets, liabilities, equity, revenue and expenses
b. Assets, liabilities, equity and revenue
c. Assets, liabilities and equity
d. Revenue and expenses
21. Asset is
a. A resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to
the enterprise.
b. A present obligation of the enterprise arising from past events the settlement of which is expected to result in an outflow from the
enterprise of resources embodying economic benefits.
c. The residual interest in the assets of the enterprise after deducting all its liabilities.
d. Equivalent to all financial resources of the enterprise.
22. It is the process of incorporating in the balance sheet or income statement an item that meets the definition of an element of financial
statements.
a. Recognition b. Allocation c. Realization d. Summarization
23. Cash is always measured for the balance sheet at
a. historical transaction value.
b. current market price.
c. realizable future value.
d. historical cost.
24. At the middle of the year, an entity paid for insurance premium for the current year and debited the amount to prepaid insurance. At the
year end, the bookkeeper forgot to record the amount expired. In the financial statements prepared at year end, the omission
a. Overstates owner’s equity
b. Understates assets
c. Understates net income
d. Overstates liabilities
25. Failure to record the expired amount of prepaid rent expense would not
a. Understate expense
b. Overstate net income
c. Overstate owner’s equity
d. Understates liabilities
26. Which of the following material events after the reporting date and before the financial statements are approved are adjusting events?
(1) A valuation of property providing evidence of impairment in value at the reporting date.
(2) Sale of inventory held at the reporting date for less than cost.
(3) Discovery of fraud or error affecting the financial statements.
(4) The insolvency of a customer with a debt owing at the reporting date which is still outstanding.
A 1, 2 and 4 only B 1, 2, 3 and 4 C 1 and 4 only D 2 and 3 only
27. Which of the following statements about sales tax is/are true?
(1) Sales tax is an expense to the ultimate consumer of the goods purchased
(2) Sales tax is recorded as income in the accounts of the entity selling the goods
A 1 only B 2 only C Both 1 and 2 D Neither 1 nor 2
28. On February 1, 2011, Tory began a service proprietorship with an initial cash investment of P2,000. The proprietorship provided P5,000
of services in February and received full payment in March. The proprietorship incurred expenses of P3,000 in February, which were paid
in April. During March, Tory drew P1,000 against the capital account. In the proprietorship’s financial statements for the two months
ended March 31, 2011, prepared under the cash basis method of accounting, what amount should be reported as capital?
a. P1,000 b. P3,000 c. P6,000 d. P7,000
29. Which of the following statements is true?
A The interpretation of an entity’s financial statements using ratios is only useful for potential investors
B Ratios based on historical data can predict the future performance of an entity
C The analysis of financial statements using ratios provides useful information when compared with previous performance or
industry averages
D An entity’s management will not assess an entity’s performance using financial ratios
30. Which of the following calculates a sole trader’s net profit for a period?
A Closing net assets + drawings – capital introduced – opening net assets
B Closing net assets – drawings + capital introduced – opening net assets
C Closing net assets – drawings – capital introduced – opening net assets
D Closing net assets + drawings + capital introduced – opening net assets

APPRAISAL 1 : DRILL 2 –INVENTORIES AND BIOLOGICAL ASSETS

1. Agricultural activity is the management of the biological transformation of biological assets:


(I) For sale.
(II) Into agricultural produce.
(III) Into additional biological assets.
a. i b. i-ii c. i-iii d. i-iv e. i-v

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2. Agricultural activity covers a diverse range of activities; for example:
(i) Raising livestock.
(ii) Forestry.
(iii) Annual or perennial cropping.
(iv) Cultivating orchards and plantations.
(v) Floriculture, and aquaculture (including fish farming).
(vi) Food processing.
a. i b. i-ii c. i-iii d. i-iv e. i-v
3. An active market is a market where all the following conditions exist:
(i) The items traded within the market are homogeneous.
(ii) Willing buyers, and sellers, can normally be found at any time.
(iii) Prices are available to the public.
(iv) The market trades every day.
a. i b. i-ii c. i-iii d. i-iv
4. An undertaking should record a biological asset, or agricultural produce, only when:
(i) The undertaking controls the asset, as a result of past events.
(ii) Future benefits, associated with the asset, will flow to the undertaking.
(iii) The fair value, or cost, of the asset can be measured reliably.
a. i only b. i and ii only c. all of the statements d. ii and iii only
5. Point-of-sale costs include:
i. Commissions to brokers and dealers.
ii. Levies by regulatory agencies.
iii. Levies by commodity exchanges.
iv. Transfer taxes and duties.
v. Transport, and other costs, necessary to transport assets to a market.
a. i b. i-ii c. i-iii d. i-iv e. i-v
6. An onerous contract will generate:
a. A profit.
b. A breakeven.
c. A loss.
d. None of these
7. In determining fair value, if an active market does not exist use:
(i) The most recent market transaction price, provided that there has not been a significant change in circumstances
between the date of that transaction, and the balance sheet date.
(ii) Market prices for similar assets, with adjustment to reflect differences; and
(iii) Sector benchmarks.
(iv) Contract prices.
a. i b. i-ii c. i-iii d. i-iv
8. The information sources may suggest different conclusions as to the fair value of a biological asset, or agricultural produce. Use:
a. The most reliable estimate.
b. The lowest figure
c. The average figure.
d. The highest figure
9. Market-determined prices may not be available for a biological asset in its present condition. In these circumstances, use:
a. Contract price.
b. The present value of expected net cash flows from the asset, discounted at a current market, pre-tax rate in determining
fair value.
c. The present value of expected net cash flows from the asset, discounted at a current market, post-tax rate in determining
fair value.
d. None of these
10. The definition of the present condition of a biological asset:
a. Excludes any increases in value from additional biological transformation, and future activities of the undertaking.
b. Includes any increases in value from additional biological transformation, and future activities of the undertaking.
c. Includes any increases in value from additional biological transformation, and excludes future activities of the undertaking.
d. None of the above
11. Inventories, are defined as:
a. Only tangible products being held for sale, being prepared for sale or materials to be used in the production process.
b. Tangible goods lying in the store, which are not being sold.
c. Assets being held for sale, being prepared for sale or materials to be used in the production process or provision of services.
d. None of these
12. Net realisable value is defined as:
a. The estimated selling price, in the ordinary course of business, plus costs of completion, and less selling costs.
b. The estimated selling price, in the ordinary course of business, less costs of completion, and less selling costs.
c. Either a or b
d. Niether a nor b
13. Fair value is defined as the value for which:
a. An asset could be sold, or a liability extinguished, between willing independent traders.
b. An asset could be sold, or a liability extinguished, between coerced independent traders.
c. Both a and b
d. Niether a nor b
14. The difference between Net Realisable Value and Fair Value is that:
a. Net realisable value relies on the specific business of the firm that is the subject of the financial statements. Fair value relates to
the market, rather than to individual contracts
b. Fair value relies on the specific business of the firm that is the subject of the financial statements. Net Realisable value relates to
the market, rather than to individual contracts
c. Niether a nor b
d. Either a or b

15. The cost of inventories:


a. Comprises all costs of production, costs of conversion, and other costs incurred in bringing the inventories to their present
location and condition.
b. Comprises only the costs of production, and no costs of conversion or other costs incurred in bringing the inventories to their
present location and condition.
c. Comprises all costs of production, costs of conversion, but not the costs incurred in bringing the inventories to their present
location and condition.
d. Niether a nor b nor c
16. The purchase price, transport and handling costs. Taxes and import duties are all examples of:

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a. Costs of conversion
b. Costs of purchase
c. 2 and 3
d. Neither
17. Variable Production overheads are:
a. Those direct and indirect costs that vary directly with different levels of production, such as direct and indirect labour.
b. Variable production overheads are those indirect costs that vary directly with different levels of production, such as
indirect labour and indirect materials.
c. Either a or b
d. Niether a nor b
18. How would unallocated overheads be recognised?
a. Unallocated overheads are recognised as an expense in the income statement, in the period that they are incurred.
b. Unallocated overheads are recognised as income in the income statement, in the period that they are incurred.
c. Unalloated overheads are recognized as an expense in the Other Comprehensive Income, in the period that they had
incurred.
d. Neither of the above, since unallocated overheads are ignored.
19. As opposed to fixed production overheads, variable production overheads are:
a. Allocated to all the units of production, as one whole.
b. Allocated to each unit of production, based on the actual usage of facilities.
c. Either a or b
d. Allocated to all units sold
20. Other costs are to be:
a. Ignored from the cost of inventory despite being incurred in bringing the inventories to their present location and
condition.
b. May be included in the cost of inventory if they are incurred in bringing the inventories to their present location and
condition.
c. Either a or b depending on management’s intention
d. none of these
21. Examples of costs expensed in the period they are incurred are:
a. Selling costs, storage costs for finished goods and general administration costs.
b. Costs of purchase and conversion.
c. Abnormal amounts of wasted materials, labour and other production costs.
d. 2 and 3
e. 1 and 3
f. 1, 2 and 3
22. Standard costs or the ‘retail method’ is used as a tool of measurement of cost. The retail method is:
a. Sales price less profit margin.
b. Sales price plus profit mark up.
c. Either a or b
d. Niether a nor b
23. Reasons for inventories being sold for less than their cost could be:
a. A general fall in market price, damage to goods and obsolescence.
b. Additional costs needed to complete manufacture.
c. Falling costs of production.
d. 2 and 3 only
e. 3 only
f. 1 and 2 only
24. If the price at which they will be sold is less than the current cost, allowing for completion costs, the value of the inventory will be
reduced to its:
a. Fair value b. Net realizable value c. Current Replacement cost d. None of these
25. When inventories are sold, the carrying amounts of the inventories are recognised as:
a. An expense in the period that the revenue is recognised.
b. An income in the period that the revenue is recognized.
c. An addition in the OCI section
d. A deduction in the OCI section
26. An item of inventory purchased this period for P15.00 has been incorrectly written down to its current replacement cost of P10.00.
It sells during the following period for P30.00, its normal selling price, with disposal costs of P3.00 and normal profit of P12.00. Which
of the following statements is not true?
a. The cost of sales of the following year will be understated.
b. The current year's income is understated.
c. The closing inventory of the current year is understated.
d. Income of the following year will be understated.
27. When inventory declines in value below original (historical) cost, and this decline is considered other than temporary, what is the
maximum amount that the inventory can be valued at?
a. Sales price
b. Net realizable value
c. Historical cost
d. Net realizable value reduced by a normal profit margin
28. Net realizable value is
a. acquisition cost plus costs to complete and sell.
b. selling price.
c. selling price plus costs to complete and sell.
d. selling price less costs to complete and sell.
29. Which of the following is true about lower of cost or market?
a. It is inconsistent because losses are recognized but not gains.
b. It usually understates assets.
c. It can increase future income.
d. All of these.
30. The primary basis of accounting for inventories is cost. A departure from the cost basis of pricing the inventory is required where
there is evidence that when the goods are sold in the ordinary course of business their
a. selling price will be less than their replacement cost.
b. replacement cost will be more than their net realizable value.
c. cost will be less than their replacement cost.
d. future utility will be less than their cost.

APPRAISAL 1 : DRILL 3 – LIABILITIES-GENERAL

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1. Arise when, before the corresponding liability to the bank is paid, the goods are released to the buyer in behalf of the bank which
advanced the money for importation
a. Acceptances Payable c. Estimated Liabilities
b. Liabilities under trust receipts d. Accrued expenses payable
2. Obligation supported by drafts drawn by the supplier on the purchaser of goods and accepted by such purchaser.
a. Acceptances Payable c. Estimated Liabilities
b. Liabilities under trust receipts d. Accrued expenses payable
3. Liabilities for expenses incurred on or before the balance sheet date but payable at a later date usually to specific persons, the amount
determinable with reasonable accuracy.
a. Acceptances Payable c. Estimated Liabilities
b. Liabilities under trust receipts d. Accrued expenses payable
4. Accrued liabilities which can be determined only approximately or the specific persons to whom payment will be made may not be
identified definitely but the existence of the liability is certain
a. Acceptances Payable c. Estimated Liabilities
b. Liabilities under trust receipts d. Accrued expenses payable
5. Cash dividends that have been declared but not yet paid as the balance sheet date.
a. Dividends in arrears c. Stock dividends payable
b. Scrip dividends payables d. Cash dividends payable
6. Arise from advance payments received from regular customers for merchandise to be delivered or services to be performed in the
future, or from overpayments, errors and other causes.
a. Customers' accounts with credit balance c. Advances payable
b. Accounts Payable d. Deposits payable
7. Consists of cash or property received but which are returnable to the depositor or which have been collected or otherwise
accumulated to be remitted to third parties.
a. Customers' accounts with credit balance c. Advances payable
b. Accounts Payable d. Deposits payable
8. Consist of billed or uncollected revenues that are not recognized as income pending completion of the earning process.
a. Estimated Liabilities c. Contingent Liabilities
b. Deferred Liabilities d. Deferred Credits
9. Portion of bonds, mortgages and other long-term indebtedness which are to be paid within one year from the balance sheet date and
which are not payable out of the special retirement fund or from the proceeds of a new bond issue or by conversion into capital stock.
a. Current maturities of long-term debts c. Current Liabilities
b. Non-current liabilities d. Deferred Liabilities
10. Obligation extending beyond the current operating cycle or one year, whichever is longer, or through payable within one year will
not be liquidated out of the existing current assets.
a. Current maturities of long-term debts c. Current Liabilities
b. Non-current liabilities d. Deferred Liabilities
Bonds Payable
11. Columbia Company issued bonds with a maturity amount of P200,000 and a maturity of ten years from date of issue. If the bonds
were issued at a premium, this indicates that
a. the yield (effective or market ) rate of interest exceeded the nominal (or coupon ) rate.
b. the nominal rate of interest exceeded the yield rate
c. the yield rate and nominal rate of interest coincided
d. no necessary relationship exists between the two rates
12. If bonds are initially issued at a discount and the straight line method of amortization is issued, interest expense in the earlier years
a. will exceed that which would have been had the scientific or compound interest method of amortization been used
b. will be less than what it would have been had the scientific method of amortization been used.
c. will be the same as what would have been had the scientific method of amortization been used
d. will be less than the coupon rate of interest
13. The bonds outstanding method of amortization of the premium or discount on bonds
a. provides for a uniform rate of interest expense based on declining book balance of debt
b. is an application of the straight line method
c. is desirable when interest payments dates do not coincide with the accounting period dates
d. is necessary when there is a partial redemption of the bonds before maturity
14. Convertible subordinated debentures
a. have priority over other indebtedness
b. are usually secured by a first or second mortgages
c. do not earn interest
d. can be exchanged for other securities
15. When the interest payment dates of a bond are May 1 and November 1 and the bond issue is sold on June 1, the amount of cash
received by the issuer will be
a. decreased by accrued interest from June 1 to November 1
b. decreased by accrued interest from May 1 to June 1
c. increased by accrued interest from June 1 to November 1
d. increased by accrued interest from May 1 to June 1
Other Liabilities
16. A situation where the creditor for economic or legal reasons related to the debtor's financial difficulties grants a concession to the
debtor that it would not otherwise consider.
a. Troubled debt restructuring c. Captive finance companies
b. Off balance sheet financing d. Economic defeasance
17. The deliberate non-disclosure by companies of all their debt in order to make their financial position look stronger
a. Troubled debt restructuring c. Captive finance companies
b. Off balance sheet financing d. Economic defeasance
18. Wholly owned subsidiaries created by parent companies to assist in their financing activities.
a. Troubled debt restructuring c. Captive finance companies
b. Off balance sheet financing d. Economic defeasance
19. The restructuring of debt may take the form of
a. suspension of interest payments for a period of time
b. A reduction in the interest rates or extension of maturity date of the debt
c. An exchange of assets or equity securities for the debt
d. Any of these
20. Which of the following types of troubled debt restructuring is not considered a significant economic transaction?
a. Transfer of assets in full settlement (asset swap)
b. Grant of equity interest in full settlement (equity swap)
c. Modification of terms: total payment under new structure exceeds debt carrying value
d. Modification of terms: total payment under new structure is less than debt carrying value
Provisions

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21. Examples of restructuring are:
i sale, or termination, of a line of business;
ii the closure of business locations in a country or region, or the relocation of business activities from one country or
region to another;
iii changes in management structure;
iv fundamental reorganisations, that have a material impact on the nature, and focus, of the undertaking’s operations;
v change of company name.
a. i+iii+iv b. i – iii c. i – iv d. i-v
22. Onerous contracts indicate a need to:
a. Test for impairment.
b. Consider making a contingent asset.
c. Consider making a contingent liability
d. all of the above
23. A restructuring provision covers:
a. Retraining, or relocating continuing staff.
b. Marketing.
c. Investment in new systems and distribution networks.
d. Redundancy costs.
24. When can a provision be recognized in accordance with IAS 37?
a. When there is a legal obligation arising from a past (obligating) event, the probability of the outflow of resources is more
than remote (but less than probable), and a reliable estimate can be made of the amount of the obligation.
b. When there is a constructive obligation as a result of a past (obligating) event, the outflow of resources is probable, and a
reliable estimate can be made of the amount of the obligation.
c. When there is a possible obligation arising from a past event, the outflow of resources is probable, and an approximate
amount can be set aside toward the obligation.
d. When management decides that it is essential that a provision be made for unforeseen circumstances and keeping in mind this
year the profits were enough but next year there may be losses.
25. Amazon Inc. has been served a legal notice on December 15, 20X1, by the local environmental protection agency (EPA) to fit smoke
detectors in its factory on or before June 30, 20X2 (before June 30 of the following year). The cost of fitting smoke detectors in its
factory is estimated at P250,000. How should Amazon Inc. treat this in its financial statements for the year ended December 31, 20X1?
a. Recognize a provision for P250,000 in the financial statements for the year ended December 31, 20X1.
b. Recognize a provision for P125,000 in the financial statements for the year ended December 31, 20X1, because the other
50% of the estimated amount will be recognized next year in the financial statement for the year ended December 31, 20X2.
c. Because Amazon Inc. can avoid the future expenditure by changing the method of operations and thus there is no present
obligation for the future expenditure, no provision is required at December 31, 20X1, but as there is a possible obligation, this
warrants disclosure in the footnotes to the financial statements for the year ended December 31, 20X1.
d. Ignore this for the purposes of the financial statements for the year ended December 31, 20X1, and neither disclose nor
provide the estimated amount of P250,000.
Challenging
26. An entity shall measure initially a financial liability not designated at fair value through profit and loss at
a. Fair Value c. Fair Value plus directly attributable transaction costs
b. Fair Value minus directly attributable transaction costs d. Face amount
27. Which of the following statements is true in relation to the fair value option of measuring a financial liability?
I. At initial recognition, an entity may irrevocably designate a financial liability at fair value through profit and loss.
II. The financial liability is measured at every year end and any changes in the fair value are recognized in the profit or loss.
III. The interest expense on the financial liability is recognized using the effective interest rate.
a. I and II b. I and III c. II and III d. I, II and III
28. How would the proceeds received from the advance sale of non refundable tickets for a theatrical performance be reported in the
seller’s financial statements before the performance?
a. Revenue for the entire proceeds
b. Revenue to the extent of related costs expended
c. Unearned Revenue to the extent of related costs expended
d. Unearned Revenue for the entire proceeds
29. Estimated Liabilities are disclosed in financial statements by
a. Note to financial statements
b. Showing the amount among the liabilities but not extending to the liability total
c. An appropriation of Retained Earnings
d. Appropriately classifying them as regular liabilities in the statement of financial position
30. An entity sells furnaces that include a three year warranty. The entity can contract with a third party to provide these warranty
services. The entity elects the fair value option for reporting financial liabilities. At what amount should the entity report the warranty
liability?
a. The cost of expected warranty services
b. The present value of the expected warranty costs
c. The fair value of the contract to settle the warranty services.
d. The fair value of the contract less the cost to provide the services

APPRAISAL 1 : DRILL 4 –COMPREHENSIVE


1. ABC company grants credit terms to its customers ranging from 6 months to 18 months. As of yearend, its receivables from customers for
goods sold include claims that are due with 18 months after the year end. How should ABC’s accounts receivable be classified on its
statement of financial position?
a. The total amount of accounts receivable shall be classified as current assets, with a disclosure of the amount not collectible within
twelve months after the reporting period.
b. The total amount of accounts receivable shall be classified as current assets, with no additional disclosures necessary.
c. The amount collectible within 12 months after the reporting period shall be classified as current assets, the remainder shall be
classified as non-current assets.
d. The ABC company shall present its assets and liabilities not using the current, non-current classification
2. Which of the following may be described as flow statement and reflect summarized results of transactions over a period of time?
I. Statement of financial position
II. Statement of comprehensive income
III. Statement of cash flows
IV. Statement of changes in Equity
a. III only b. III and IV only c. II, III and IV d. All of the statements
3. When bonds and non-detachable share warrants are issued at a lump sum price.
a. The issue price is considered entirely as issue price of the bonds.

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b. The issue price is to be allocated between the bonds and the warrants based on the relative market values
c. A price is to be allocated to the warrants equal to the excess of the lump sum price over the market value of the bonds, if
sold without warrants.
d. The allocation of the lump sum price is postponed until such time that the market prices are determinable for both the
bonds and the warrants.
4. Which is not within the scope of PAS 2, Inventories?
a. Goods purchased by retailer and held for resale
b. Work in Progress arising under construction contracts
c. Work in process produced by a manufacturing entity
d. Cost of service of a service provider, for the enterprise has not recognized the related revenue
5. Which inventory measurement procedure is not allowed to measure the cost of inventories for annual reporting purposes?
a. Gross Profit Method c. FIFO
b. Retail Inventory Method d. Moving Average method
e. All of these are allowed
6. Under the voucher system, a check register is
a. A journal for cash disbursements c. A summary of cash transactions
b. A ledger for cash disbursements d. An authorization to disburse cash
7. Under PFRS 2, the method that must be used to measure employee stock options and other payments given to employees in the form of
equity securities is:
a. Fair value on the date of grant c. Fair value on the reporting date
b. discounted cash flows d. selling price
8. Statement 1- The accounting treatment of revaluations generally follows the broad principle that any revaluation surplus forms part of
earnings and is realized.
Statement 2- PAS 16 takes an undivided approach to depreciation---the property, plant and equipment are depreciated as a
whole.
a. False, False b. False, True c. True, True d. True, False
9. Which of these statements is not true about the measurement of assets held for sale?
a. Costs to sell is defined as the incremental costs directly attributable to the disposal of an asset or a disposal group, excluding
finance costs and income tax expense.
b. Any write-down after reclassification is treated as an impairment loss, and subsequent reversals (if the fair value minus
costs to sell increases) are limited to the loss previously recognized.
c. Non current assets in the disposal group cease to be depreciated.
d. Assets held for sale cease to be depreciated unless they are still in use.
10. SIA Inc., owns a parcel of land in Cebu that has been held for several years as an investment but is now for sale
a. This remains an investment property until it is sold
b. This is an item of property, plant and equipment
c. This is an item of inventory
d. There is not enough information to make a determination
11. Which item in the list below is covered by PAS 41, Agriculture?
a. Mineral Rights c. Ocean fishing for tuna
b. The land on which an olive grower’s trees reside d. Financial government grant to grow soy beans
12. Company A, a listed company, has an obligation to deliver to Company B as many of company A’s own ordinary shares as will equal
1,000,000. Company A’s financial instrument will be classified as
a. Financial Asset b. Financial Liability c. Equity Instrument d. Compound Financial
Instrument
13. Company A issues preference shares to Company B. The terms of which entitle Company B to redeem the preference shares for cash if
company A’s revenues fall below P100 million. Company A’s financial instrument will be classified as
a. Financial Asset b. Financial Liability c. Equity Instrument d. Compound Financial
Instrument
14. Under PFRS 9, which category includes only equity securities?
a. Financial Assets at amortized cost c. Financial Assets- FVOCI
b. Financial Assets –FVPL d. Financial Assets- FVPL designated
15. ABC limited paid P7,452 to purchase 6,000 stock options on the shares of Review Inc. How should this investment be classified on ABC’s
balance sheet?
a. Held for trading financial asset c. Available for sale financial asset
b. Held to maturity financial asset d. Loans and Receivables
16. Which level has the highest priority for valuation inputs?
a. Level 1 b. Level 2 c. Level 3 d. Level 4
17. Fair value is defined as
I. The price that will be received to sell an asset in an orderly transaction between market participants at the measurement
date.
II. The price that would be paid to transfer a liability in orderly transaction between market participants at the measurement
date.
a. I only b. II only c. Both I and II d. Niether I nor II
18. Entities that attempt to exploit inefficiencies in various derivative markets by attempting to lock in profits by simultaneously entering into
transactions in two or more markets are called
a. Arbitrageurs b. Gamblers c. Hedgers d. Speculators
19. Transfers between categories
a. result in entities omitting recognition of fair value in the year of transfer
b. Are accounted for at fair value for all transfers
c. Are considered unrealized and unrecognized if transferred out of held to maturity into trading
d. Will always result in an impact on net income
20. When an entity holds between 20% and 50% of the outstanding ordinary shares of an investee, which of the following statements applies?
a. The investor should always use the equity method to account for its investment

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b. The investor should use the equity method to account for its investment unless circumstances indicate that it is unable to
exercise significant influence over the investee.
c. The investor must use the fair value method unless it can clearly demonstrate the ability to exercise significant influence
over the investee.
d. The investor should always use the fair value method to account for its investment.
21. Entities account for transfers of investments between categories
a. Prospectively,at the end of the period after the change in the business model.
b. Prospectively, at the beginning of the period after the change in the business model
c. Retroactively, at the end of the period after the change of the business model
d. Retroactively, at the beginning of the period after the change in the business model
22. PFRS requires entities to measure financial assets based on all of the following, except
a. The entity’s business model for managing its financial assets
b. Whether the financial asset is a debt or equity investment.
c. The contractual cash flow characteristics of the financial asset
d. All of the choices are PFRS requirements
23. Equity investments acquired by an entity which are accounted for by recognizing unrealized holding gains or losses as component of other
comprehensive income are
a. Nontrading where an entity has holdings of less than 20%
b. trading where an entity has holdings of less than 20%
c. Investments where an entity has holdings of between 20% and 50%
d. Investments where an entity has holdings of more than 50%
24. It is the increase in the present value of the defined benefit obligation resulting from employee service in the current period.
c. Past service cost c. Current service and interest cost
d. Current service cost d. Interest cost
25. Which statement is true concerning depreciation?
I. When a change in depreciation method is necessary to reflect the new pattern of economic benefits the change should be accounted for
as a change in accounting estimate and the depreciation charge for the current and future periods should be adjusted.
II. The useful life of an item of property, plant and equipment should be reviewed periodically and if expectations are significantly different
from previous estimates, the depreciation for the current and future periods should be adjusted.
a. I only b. II only c. Both I and II d. Neither I nor II
26. All of the following factors are considered in determining the useful life of an asset, except
a. Expected usage of the asset by the enterprise c. Expected physical wear and tear
b. Technical obsolescence d. Residual value
27. The sum of units method of depreciation results in
a. Constant charge over the useful life of the asset c. Decreasing charge over the useful life of the asset
b. Increasing charge over the useful life of the asset d. Charge based on the expected use or output of the asset
28. Technical obsolescence arises from
a. Expected usage of the asset
b. Expected physical wear and tear
c. Expiry date of related lease of the asset
d. Change or improvements in production or change in the market demand for the product output of the asset.
29. The cost of fully depreciated asset remaining in service and the related accumulated depreciation
a. Should be removed from the accounts and excluded from property, plant and equipment
b. Should not be removed from the accounts and therefore included in property, plant and equipment with disclosure
c. Should not be removed from the accounts and therefore included in property, plant and equipment without disclosure
d. Should be adjusted to conform with new estimated useful life
30. Enterprises are encouraged to disclose all of the following amounts, except
a. Gross carrying amount of fully depreciated property that is still in use.
b. Carrying amount of property, plant and equipment retired from active use and held for disposal.
c. Fair value of property, plant and equipment when the fair value is not materially different from the carrying amount.
d. Carrying amount of temporarily idle property, plant and equipment.

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