DON HONORIO VENTURA STATE UNIVERSITY

Bacolor, Pampanga

College of Business Studies

2nd Semester A.Y 2022-2023

Conceptual Framework and Accounting Standards (ACCTG103)

Midterm Examination – Set A

Name: ____________________________________________________ Date: ____________________________

Course/Section: ____________________________________________

Directions: Read each question carefully and choose the ONE best answer. Shade
properly and in full the letter of your choice in the answer sheet provided. Any
form of erasures/alterations is considered wrong.

1. This means "applying a new accounting policy to transactions, other events and
conditions as if that policy had always been applied"
A. Retrospective application C. Prospective application
B. Retrospective restatement D. Prospective restatement

2. A complete set of financial statements comprises the following components, except

A. Statement of financial position, statement of comprehensive income and
statement of cash flows
B. A statement of changes in equity
C. Notes, including a summary of significant accounting policies and explanatory
information
D. Reports and statements such as environment reports and value-added statements

3. The assumption that connotes that an entity will not be sold or liquidated in
the near future is known as
A. Time period assumption
B. Economic assumption
C. Going concern assumption
D. Monetary unit assumption

4. When an entity changes the reporting period longer or shorter than one year, an
entity shall disclose all of the following, except
A. Period covered by the financial statements.
B. The reason for using a longer or shorter period.
C. The fact that the amounts presented in the financial statements are not
entirely comparable.
D. The fact that the similar entities in eh geographical area in which the entity
operates have done so in the current year.

5. According to PAS 16, which cost should be expensed immediately?

A. Cost opening a new facility
B. Cost of introducing a new product or service, including cost of advertising
and promotional activities
C. Cost of conducting business in a new location
D. All of these are expensed immediately

6. When an entity breaches an undertaking under a long-term loan agreement on or

before the end of the reporting period with the effect that the liability becomes
payable on demand, (choose the incorrect statement)
A. The liability is classified as current, even if the lender has agreed, after
the balance sheet date and before the authorization of the financial
statements for issue, not to demand payment as a consequence of the breach.
B. The liability is classified as current because, at the balance sheet date,
the entity does not have an unconditional right to defer its settlement for
at least twelve months after that date.

ACCTG 103: Midterm Examination – Set A Page 1 of 14

 C. The liability is classified as non-current, even if the lender has agreed,
after the balance sheet date and before the authorization of the financial
statements for issue, not to demand payment as a consequence of the breach.
D. The liability is normally classified as current; however, the liability is
classified as non-current if the lender agreed by the balance sheet date to
provide a period of grace ending at least twelve months after the balance
sheet date, within which the entity can rectify the breach and during
that period the lender cannot demand immediate repayment.

7. Events after the end of the reporting period are favorable or unfavorable events
that
A. Occur between the end of reporting period and the date of the next interim
statements.
B. Occur between the end of the reporting period and the date when the financial
statements are authorized for issue
C. Occur between the end of the reporting period and the date of the next annual
financial statements
D. Occur between the end of reporting period and the date of the next interim or
annual financial statements.

8. When an entity purchased a three-month Treasury bill, how would the purchase be
treated in preparing the statement of cash flows?
A. Not reported
B. An outflow for financing activities
C. An outflow for lending activities
D. An outflow for investing activities

9. A change in accounting policy includes all of the following, except

A. The initial adoption of a policy to carry assets at revalued amount.
B. The change from cost model to revaluation model in measuring property, plant,
and equipment.
C. The change in inventory valuation from FIFO to weighted average method.
D. The change in depreciation method from sum of years' digits to straight line.

10. The cost of purchase of inventory does not include

A.Purchase price
B.Important duties and irrecoverable taxes
C.Freight, handling and other costs directly attributable to the acquisition of
goods
D. Trade discounts, rebates, and other similar items

11. The cost of inventories may not be recoverable under all of the following
conditions, except
A. The inventories are damaged.
B. The estimated costs of completion or the estimated costs to sell have
increased.
C. The inventories have become wholly or partially obsolete.
D. The selling prices have increased.

12. What valuation method should be used to measure property, plant and equipment?
A. The cost model or the revaluation model
B. The cost model or the fair value model
C. The cost model or the fair value through profit or loss model
D. The revaluation model or the fair value model

13. Which is not included in the scope of the Framework?

A. Qualitative characteristics that determine usefulness of financial accounting
information
B. Definition, recognition and measurement of the elements of financial
statements
C. Objective of financial statements
D. Generally accepted accounting principles

ACCTG 103: Midterm Examination – Set A Page 2 of 14

14. Noncash investing and financing activities are
A. Not reported
B. Disclosed in a note or separate schedule
C. Reported only if the direct method is used
D. Reported only if the indirect method is used

15. Which of the following is not a permanent difference?

A.Dividend income
B.Fines, surcharges and penalties arising from violation of law
C.Losses and tax credits that can be carried forward and deducted from future
taxable profits.
D. Interest income on bank deposits

16. All can be classified as cash and cash equivalents, except

A. Bank Overdraft
B. Time deposit due in 60 days
C. Equity investments
D. Treasury bills due for repayment in 90 days

17. The process of establishing financial accounting standards

A. Is a democratic process in that a majority of practicing accountants must
agree with a standard before it becomes implemented.
B. Is a legislative process based on rules promulgated by government agencies.
C. Is based solely on economic analysis of the effects each standard will have
if it is implemented
D. Is a social process which incorporates political actions of various interested
user groups as well as professional research and logic.

18. An entity shall present analysis of expenses using a classification based on

A.The function of expenses
B.The nature of expenses
C.Either the nature of expenses or the function of expenses within the entity,
whichever the entity would prefer to present.
D. Either the nature of expenses or the function of expenses within the entity,
whichever provides information that is reliable and more relevant.

19. When an independent valuation expert advises an entity that the salvage value
of its plant and machinery had drastically changed and thus the change is
material, the entity should
A. Retrospectively change the depreciation charge based on the revised salvage
value.
B. Change the depreciation charge and treat it as a correction of an error.
C. Change the annual depreciation for the current year and future years.
D. Ignore the effect of the change on annual depreciation, because changes in
salvage values would normally affect the future only since these are expected
to be recovered in future.

20. In matters of doubt and great uncertainty, accounting issues should be

resolved by choosing the alternative that has the least favorable effect on net
income, assets, and owners' equity. This guidance comes from the
A. materiality constraint.
B. industry practices constraint.
C. conservatism constraint.
D. full disclosure principle.

21. Once an accounting standard has been established

A.The standard is continually reviewed to see if modification is necessary.
B.The standard is not reviewed unless the SEC makes a complaint.
C.The task of reviewing the standard to see if modification is necessary is
given to the PICPA.
D. The principle of consistency requires that no revisions ever be made to the
standard.

ACCTG 103: Midterm Examination – Set A Page 3 of 14

22. When it is difficult to distinguish a change in accounting policy from a
change in an accounting estimate, the change is treated as
A. Initial adoption of an accounting policy
B. Correction of an error
C. Change in accounting estimate with appropriate disclosure
D. Change in accounting policy

23. When applying the LCNRV, inventories are,

A.Usually are not written down below fair value
B.Usually written down to NRV on an item-by-item basis
C.Usually written down to NRV on per classification, e.g., as raw materials,
work in progress, and finished goods
D. All of the above statements are true.

24. Financial statements are authorized for issue when

A. The management reviews the financial statements and authorizes them for issue.
B. The management is required to submit the financial statements to a supervisory
body made up solely nonexecutives and the supervisory body approves the
financial statements
C. The financial statements are filed with the SEC
D. The shareholders approve the financial statements at their annual meeting.

25. An entity paid the in-transit insurance premium for consignment goods shipped
to a consignee. In addition, the entity advanced part of the commission that
will be due when the consignee sells the goods. What amount should be included
by the entity as part of inventory cost?
A. Insurance premium
B. Advanced commission
C. Both insurance premium and advanced commission
D. Neither Both insurance premium nor advanced commission

26. In accordance with PAS 12, it is the total amount included in the determination
of profit or loss for the period.
A. Current tax expense C. Deferred tax expense
B. Income tax expense D. Deferred tax benefit

27. All of the following events would be classified as nonadjusting events after
reporting period, except
A. The entity announced the discontinuation of an operation.
B. The entity entered into an agreement to purchase the leased building.
C. Destruction of a major production plant by fire.
D. A mistake in the calculation of allowance for uncollectible accounts
receivable.

28. Technically, offsetting in the financial statements is accomplished when

A. The allowance for doubtful accounts is deducted from accounts receivable
B. The accumulated depreciation is deducted from property, plant and equipment.
C. The total liabilities are deducted from total assets to arrive at net assets.
D. Gains or losses from disposal of noncurrent assets are reported by deducting
from the proceeds the carrying amount of the assets and the related disposal
cost.

29. Accounting information is considered to be relevant when it

A. can be depended on to represent the economic conditions and events that it is
intended to represent.
B. is capable of making a difference in a decision.
C. is understandable by reasonably informed users of accounting information.
D. is verifiable and neutral.

ACCTG 103: Midterm Examination – Set A Page 4 of 14

30. Statement of financial position analysis is useful in assessing an entity's
liquidity which is ability to
A. Satisfy short-term obligations
B. Maintain profitable operations
C. Maintain past levels of preference and ordinary dividends
D. Survive a major economic downturn

31. The purchase cost of inventories includes all of the following, except
A. Import duties
B. Freight cost incurred in bringing the inventory to its intended location
C. Vat paid by a vat registered entity
D. Purchase price

32. The matching principle is best demonstrated by

A. Not recognizing any expense unless some revenue is realized
B. Associating effort with accomplishment
C. Recognizing prepaid rent received as revenue
D. Establishing an appropriation for contingency

33. Which of the following situations violates the concept of faithful

representation?
A. Financial statements were issued nine months late.
B. Data on segments having the same expected risks and growth as rates are
reported to analysis estimating future profits.
C. Financial statements included an item of property, plant and equipment with
carrying amount increased to management estimate of market value.
D. Management reports refer to new projects undertaken but the financial
statements never report project results.

34. Dividend payments to shareholders are classified as

A. Cash outflows for financing activities
B. Cash inflows from financing activities
C. Cash inflows from investing activities
D. Cash outflows for investing activities

35. Which of the following statements describes Conceptual Framework for Financial
Reporting?
A. The Conceptual Framework describes the objective of financial reporting and
the concepts for general purpose financial statements.
B. In cases of conflict, the requirements of the relevant IFRS prevail over those
of the Conceptual Framework.
C. The Conceptual Framework is not a Standard.
D. All of the above statements describe the Conceptual Framework.

36. An entity purchases a building and the seller accepted payment partly in
equity shares and partly in debentures of the entity. This transaction should
be treated in the statement of cash flows as follows:
A. The purchase of the building should be investing cash outflow and the issuance
of shares and the debentures financing cash outflows.
B. The purchase of the building should be investing cash outflow and the issuance
of debentures as financing cash outflows while the issuance of shares as
investing cash outflow.
C. This does not belong in a cash flow statement and should be disclosed only in
the footnotes to the financial statements.
D. Ignore the transaction totally since it is a noncash transaction. No mention
is required in either the cash flow statement or anywhere else in the financial
statements.

37. This type of difference will give rise to deferred tax liability
A. Deferred difference C. Deductible temporary difference
B. Permanent difference D. Taxable temporary difference

ACCTG 103: Midterm Examination – Set A Page 5 of 14

38. Which is not a characteristic of property, plant and equipment?
A. Used in production, for rental or for administrative purposes
B. Expected to be used over a period of more than one year
C. Subject to depreciation
D. Tangible asset

39. Which of the following are true statements about statement of cash flows?
A. The statement of cash flows is a component of financial statements summarizing
the operating, investing and financing activities of an entity
B. The statement of cash flows is an integral part of the financial statements
for each period for which the financial statements are presented.
C. The statement of cash flows provides information about the cash receipts and
cash payments of an entity during a period.
D. All of the above statements are true about statement of cash flows.

40. An entity built a new factory building during the current year. Subsequent to
the current year-end and before the financial statements are issued, the building
was destroyed by fire and the claim against the insurance entity proved futile.
What should be reported at the current year-end?
A. Write off the carrying amount of the building
B. Make a provision for one-half of the carrying amount of the building
C. Make a provision for the entire carrying amount of the building
D. Disclose this non adjusting event in the notes

41. The deferred tax expense is equal to

A. Increase in deferred tax asset less the increase in deferred tax liability.
B. Increase in deferred tax liability less the increase in deferred tax asset.
C. Increase in deferred tax asset.
D. Increase in deferred tax liability.

42. The financial statements prepared under GAAP

A. Do not articulate with one another.
B. Reflect a single measurement bias which is historical cost.
C. Are not highly precise because many estimates and judgements must be made.
D. Contain a limited number of future projections, such as projected sale.

43. An entity is large manufacturer of machines. A major customer has placed an

order for a special machine for which it has given a deposit to the entity. The
parties have agreed on a price for the machine. As per the terms of sale
agreement, it is free on-board contract and the title passes to the buyer when
goods are loaded into the ship at the port. When should the revenue be recognized
by the entity?
A. When the customer orders the machine
B. When the deposit is received
C. When the machine is loaded at the port
D. When the machine has been received by the customer

44. Which of the following is not a justification for a change in depreciation

method?
A. A change in the estimated useful life of an asset as a result of unexpected
obsolescence.
B. A change in the pattern of receiving the estimated future benefits from an
asset.
C. To conform with the depreciation method prevalent in a particular industry.
D. A change in the estimated future benefits from the asset.

45. Material Omissions or misstatements of items are material if they could,

individually or collectively; influence the economic decisions of users taken
on the basis of the financial statements. Materiality depends on
A. the peso amount and degree of financial consequence of the omission or
misstatement judged in the surrounding circumstances

ACCTG 103: Midterm Examination – Set A Page 6 of 14

 B. the size and peso amount of the omission or misstatement judged in the
surrounding circumstances
C. the peso amount and nature of the omission but not the misstatement judged in
the surrounding circumstances
D. the size and nature of the omission or misstatement judged in the surrounding
circumstances

46. When an accounting for property, plant and equipment, an entity

A.Must use the cost model for land
B.Must use the cost model for presenting the asset
C.May elect to use the cost model or the revaluation model on any individual
asset
D. May elect to use the cost model or the revaluation mode

47. The conservative approach in the measurement of financial position is best

illustrated in which of the following?
A. Arbitrary reduction of a property item to report a conservative asset
position.
B. Recognition of a fictitious liability.
C. Inventory is measured at cost or net realizable value, whichever is lower.
D. An intangible asset is measured at nominal amount.

48. Which of the following costs should be expensed immediately?

A. Cost of conducting business in a new location, including cost of staff training
B. Cost of opening a new facility
C. Cost of introducing a new product, including advertising and promotion
D. All of the above statements are expensed immediately.

49. The expenses are classified according to their function, as part of cost of
sales, distribution costs, administrative activities and other operating
activities.
A. Cost of sales method C. Account form
B. Nature of expense method D. Report form

50. Which of the following is incorrect?

A. Transactions must be accounted for in accordance with their economic substance
rather than legal form.
B. Primary responsibility for the preparation and presentation of the financial
statements rests with management.
C. Financial statements must exclude complex matters in order to achieve
understandability.
D. The information contained in the financial statements must be free from bias.

51. Which of the following statement is incorrect regarding PAS 1?

A. When an entity has departed from a requirement of a Standard or an
Interpretation in a prior period, and that departure affects the amounts
recognized in the financial statements for the current period, it shall
disclose the (a) title of the Standard or Interpretation from which the entity
has departed and the (b) impact of such departure.
B. In the extremely rare circumstances in which management concludes that
compliance with a requirement in a Standard or an Interpretation would be so
misleading that it would conflict with the objective of financial statements
set out in the Framework, but the relevant regulatory framework prohibits
departure from the requirement, the entity shall, to the maximum
extent possible, reduce the perceived misleading aspects of compliance by
disclosing:(a) the title of the Standard or Interpretation in question and
(b) for each period presented, the adjustments to each item in the financial
statements that management has concluded would be necessary to achieve a fair
presentation.
C. Financial statements shall be prepared on a going concern basis unless
management either intends to liquidate the entity or to cease trading, or has
no realistic alternative but to do so.

ACCTG 103: Midterm Examination – Set A Page 7 of 14

 D. PAS 1 requires an entity preparing financial statements, to make an
assessment of the entity’s ability to continue as a going concern.
In assessing whether the going concern assumption is appropriate, management
takes into account all available information about the future, which is at
least, but is not limited to, five years from the balance sheet date.

52. During a period when an entity is under the direction of a particular

management, financial reporting will directly provide information about
A. Both entity performance and management performance
B. Management performance but not entity performance
C. Entity performance but not management performance
D. Neither entity performance nor management performance

53. Their costing method is appropriate for inventions that are segregated for a
specific project and inventories that are not ordinarily interchangeable.
A. Specific identification C. Relative sales price
B. Standard cost D. Net realizable value

54. Which of the following is not classified as an accounting change?

A. Error in the financial statements
B. Change in accounting estimate
C. Change in accounting policy
D. All of these are classified as an accounting change.

55. Accounting information is considered relevant when it

A. Is verifiable and neutral
B. Can be depended on to represent the economic conditions that is intended to
represent
C. Is capable of making a difference in a decision
D. Is understandable by reasonably informed users of accounting information

56. Under these shipping terms, the buyer pays for the freight, which legally
must be borne by the seller.
A. FOB shipping point, freight prepaid
B. FOB destination, freight collect
C. FOB shipping point, freight collect
D. FOB destination, freight prepaid

57. Which of the following items would normally be excluded from computation of
working capital?
A. Advances from customers
B. The portion of long-term debt that matures within one year after the reporting
period and will be paid from the regular cash account
C. Prepaid insurance
D. Cash surrender value of life insurance

58. A principal objection to the straight-line method of depreciation is that it

A. Technical obsolescence
B. Residual value
C. Expected physical wear and tear
D. Expected usage of asset

59. The valuation of inventory on a prime cost basis

A. Would achieve the same results as direct costing
B. Would exclude all overhead from reported inventory cost
C. Is always achieved when standard costing is adapted
D. Is always achieved when the FIFO cost flow assumption is adopted

60. Financial information exhibits consistency when

A. Accounting procedures are adopted which smooth net income and make results
consistent between years
B. Gains and losses are shown separately on the income statement

ACCTG 103: Midterm Examination – Set A Page 8 of 14

 C. Accounting entities give similar events the same accounting treatment each
period
D. Expenditures are reported as expenses and netted against revenue in the period
which they are paid

61. Freight and other handling charges incurred in the transfer of goods from the
consignor to consignee are
A. Expense on the part of the consignor
B. Expense on the part of the consignee
C. Inventoriable by the consignor
D. Inventoriable by the consignee

62. Under these shipping terms, the buyer pays for the freight, which legally
must be borne by the buyer.
A. FOB shipping point, freight prepaid
B. FOB destination, freight collect
C. FOB shipping point, freight collect
D. FOB destination, freight prepaid

63. Which of the following is true about depreciation accounting?

A. Depreciation is part of the matching of expense and revenue.
B. Depreciation retains funds by reducing income and tax and dividend.
C. Depreciation is not a matter of valuation.
D. All of the above statements are true.

64. Which of the following statements concerning the objectives of financial

reporting is correct?
A. The objectives are intended to be specific in nature.
B. The objectives are directed primarily toward the needs of internal users of
accounting information.
C. The objectives are the end result of the conceptual framework project.
D. The objectives encompass not only financial statement disclosures but other
information as well.

65. When classifying assets as current or noncurrent

A. The amounts at which current assets are carried out reported must reflect
realizable cash value.
B. Prepayments for items such as insurance or rent are included in other assets
rather than as current assets.
C. The time period by which current assets are distinguished from noncurrent
assets is determined by the seasonal nature of the business.
D. Assets are classified as current if these are reasonably expected to be
realized in cash or consumed during the normal operating cycle.

66. When determining the unit cost of an inventory item, which of the following
should not be included?
A. Interest on loan obtained to purchase the item
B. Commission paid when purchased
C. Labor cost of the item when manufactured
D. Depreciation of plant equipment used in manufacturing the item

67. LCNRV of inventory

A. Is always either the net realizable value or cost.
B. Should always be equal to net realizable value.
C. May sometimes be less than the net realizable value.
D. Should always be equal to the estimated selling price less cost to complete.

68. An entity installed a new production facility and incurred a number of expenses
at the point of installation. The entity’s accountant is arguing that most
expenses do not qualify for capitalization. Included in those expenses are
initial operating losses. These should be
A. Deferred and amortized over a reasonable period of time.

ACCTG 103: Midterm Examination – Set A Page 9 of 14

 B. Expensed and charged to the income statement.
C. Capitalized as part of the cost of the plant as a directly attributable cost.
D. Taken to retained earnings since it is unreasonable to present it as part of
the current year’s income statement

69. Where financial statements for a single year are being presented, a prior
period error recognized in the current year ordinarily should
A. Be shown as an adjustment of the balance of retained earnings at the start of
the current year
B. Affect net income of the current year
C. Be shown in the current year's statement of changes in equity
D. Be included in the statement of recognized gains and losses.

70. At the end of the current reporting period, an entity carried a receivable
from a major customer who declared bankruptcy after the end of reporting period
and before the issuance of financial statements. What should be reported at the
current year-end?
A. Disclose the fact that the customer has declared bankruptcy
B. Make a provision for the event after reporting period in the financial
statements
C. Ignore the event and wait for the outcome of the bankruptcy
D. Reverse the sale pertaining to the receivable in the comparative statement
for the prior period

71. Which of the following represents an inflow of cash and therefore would be
reported on the statement of cash flows?
A. Acquisition of treasury stock
B. Declaration of stock dividends
C. Issuance of long-term debt
D. Appropriation of retained earnings

72. When the classification of items in the financial statement is changed, the
entity
A. Must not reclassify the comparative amounts.
B. Can choose whether to reclassify the comparative amounts.
C. Must reclassify the comparative amounts, unless it is impracticable to do so.
D. Must reclassify the current amounts only.

73. An entity has a loan due for repayment in six months time but the entity has
the option to refinance for repayment two years later. The entity plans to
refinance this loan. In which section of the statement of financial position
should this loan be presented?
A. Current liabilities C. Noncurrent liabilities
B. Current assets D. Noncurrent assets

74. Other comprehensive income includes all of the following, except

A. Unrealized gain in forward contract designed as cash flow hedge
B. Loss from translating the financial statements of a foreign operation
C. Actuarial gain on defined benefit plan that is fully recognized
D. Dividend paid to stakeholders

75. In accounting parlance, depreciation means

A.the amount derived by dividing the cost of an asset over its useful life.
B.the amount derived by multiplying the cost of an asset by its useful life.
C.the systematic allocation of the depreciable amount of an asset over its
useful life.
D. the decline the in the value of an asset during the period.

76. When an entity changed the expected service life of an asset, which of the
following should be reported?
A. Cumulative effect of change in accounting policy
B. Proforma effect of retroactive application

ACCTG 103: Midterm Examination – Set A Page 10 of 14

 C. Prior period error
D. An accounting change that should be reported in the period of
change and future periods

77. The primary responsibility for the preparation of financial statements is

reposed in
A. Chief Accountant C. Internal auditor
B. Management of the entity D. External auditor

78. An entity reported deferred tax assets and deferred tax liabilities at the
end of the prior year and at the end of the current year. For the current year,
the entity should report deferred income tax expense or benefit equal to the
A. Decrease in the deferred tax assets
B. Increase in deferred tax liabilities
C. Amount of the current liability plus the sum of the net changes in deferred
tax assets and deferred tax liabilities
D. Sum of the net changes in deferred tax assets and deferred tax liabilities

79. 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 C. Deferred tax expense
B. Deferred tax asset D. Deferred tax benefit

80. In preparing the financial statements of Fabregas Corporation for the

financial year ended 30 June 2022, the following were considered. In accordance
with PAS 1 Presentation of Financial Statements, PAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors and PAS 10 Events After the Reporting
Period, which of the following items would be included in the determination of
profit after income tax?
A. The loss from a major fire that closed the plant during April 2022
B. A reassessment of the useful life of the plant and equipment in December 2021
C. A major currency realignment on 11 July 2022 that affected the amount of
Fabregas foreign currency receivables.
D. A change in accounting estimate related to the determination of the bad debts
write-off for the 2021 financial statements

81. According to the Framework, the usefulness of providing information in

financial statements is subject to the constraint of
A. Consistency C. Reliability
B. Cost-benefit D. Representational faithfulness

82. An entity that changed from an accounting principle that is not generally
accepted to one that is generally accepted should report the effect of the
change, net of applicable income tax, in the current
A. Income statement as component of income from continuing operations
B. Income statement as component of discontinued operations
C. Statement of retained earnings as an adjustment of the opening balance
D. Statement of retained earnings after net income but before dividends

83. According to PAS 2, the best evidence of the NRV of raw materials is
A. Replacement Cost
B. Fair value less cost to sell
C. Estimated selling price less costs to sell
D. Estimated selling price less costs to complete and costs to sell

84. Which event after the reporting period would require adjustments before
issuance of the financial statements?
A. Loss on inventory resulting from major flood loss
B. Loss of plant as a result of fire
C. Loss on a lawsuit the outcome of which was deemed uncertain at year end

ACCTG 103: Midterm Examination – Set A Page 11 of 14

 D. Changes in the quoted market prices of securities held as an investment

85. When it is difficult to distinguish between a change in estimate and a change

inaccounting policy, an entity shall
A.Treat the entire change as a change in estimate with appropriate disclosure.
B.Apportion on a reasonable basis the relative amounts of change in estimate
and the change in accounting policy and treat each one accordingly.
C. Treat the entire change as a change in accounting policy.
D. Ignore it in the year of the change and then wait for the following year to
see how the change develops and then treat it accordingly.

86. Which method is required for reporting a change in accounting policy?

A. Prospective approach
B. Cumulative effect approach
C. Retrospective approach
D. Averaging approach

87. Taxable income

A.Is reported in the income statement
B.Is based on international financial reporting standards
C.Differs from accounting income due to differences in inter-period tax
allocation
D. Differs from accounting income due to differences in inter-period tax
allocation and permanent differences

88. Because Jab Co. uses different methods to depreciate equipment for financial
statement and income tax purposes, Jab has temporary differences that will
reverse during the next year and add to taxable income. Deferred income taxes
that are based on these temporary differences should be classified in Jab’s
balance sheet as a
A. Contra account to current assets.
B. Contra account to non-current assets.
C. Current liability.
D. Non-current liability.

89. During the period, deferred tax assets increase by Php400 while deferred tax
liabilities increase by Php500. The net change of Php100 is a
A. deferred tax expense C. deferred tax liability
B. deferred tax income D. deferred tax asset

90. It is the process of capturing for inclusion in the statement of financial

position or the statement of financial performance an item that meets the
definition of an element of financial statements.
A. Disclosure C. Measurement
B. Recognition D. Derecognition

91. PAS 12 permits an entity to recognize deferred tax assets when,

A. It is possible that taxable profits will be available
B. Only when it is probable that taxable profits will be available against which
the deductible temporary differences can be utilized or there is sufficient
taxable temporary differences that are expected to reverse in the same period
that the deductible temporary differences are expected to reverse.
C. Only when it is not probable that taxable profits will be available against
which the deductible temporary differences can be utilized or there is
sufficient taxable temporary differences that are expected to reverse in the
same period that the deductible temporary differences are expected to reverse.
D. It is not possible that taxable profits will be available

ACCTG 103: Midterm Examination – Set A Page 12 of 14

92. The operating cycle
A. Measures the time elapsed between cash disbursement for inventory and cash
collection of the sales price.
B. Refers to the seasonal variations experienced by business entities.
C. Should be used to classify assets and liabilities as current if it is less
than one year.
D. Cannot exceed one year.

93. The standard on adequate disclosure is best described by which of the following
statements
A. All information related to operating objectives must be disclosed in the
financial statements.
B. Information about each account balance appearing in the financial statements
is included in the notes to financial statements.
C. Enough information should be disclosed in the financial statements in order
that a prospective investor can make wise decision.
D. Disclosure of any financial facts significant enough to influence the judgment
of an informed user.

94. At the end of the period, Entity A has deductible temporary difference of
Php100,000. Entity A’s income tax rate is 30%. Entity A’s statement of financial
position would report which of the following?
A. 30,000 deferred tax asset
B. 30,000 deferred tax liability
C. 30,000 deferred tax expense
D. 30,000 income tax expense

95. Ethan Inc. bought a private jet for the use of its top-ranking officials. The
cost of the private jet is $15 million and can be depreciated either using a
composite useful life or useful lives of its major components. It is expected
to be used over a period of 7 years. The engine of the jet has a useful life of
5 years. The private jet’s tires are replaced every 2 years. The private jet
will be depreciated using the straight-line method over
A. 7 years composite useful life.
B. 5 years useful life of the engine, 2 years useful life of the tires, and 7
years useful life applied to the balance cost of the jet.
C. 2 years useful life based on conservatism (the lowest useful life of all the
parts of the jet).
D. 5 years useful life based on a simple average of the useful lives of all major
components of the jet

96. Marvel Corporation made a very large arithmetical error in the preparation of
its year-end financial statements by improper placement of a decimal point in
the calculation of depreciation. The error caused the net income to be reported
at almost double the proper amount. Correction of the error when discovered in
the next year should be treated as
A. an increase in depreciation expense for the year in which the error is
discovered.
B. a component of income for the year in which the error is discovered, but
separately listed on the income statement and fully explained in a note to
the financial statements.
C. an extraordinary item for the year in which the error was made.
D. a prior period adjustment.

97. At the beginning of the current year, an entity sold used equipment for a
cash amount equaling its carrying amount for both book and tax purposes. During
the year, the entity replaced the equipment by paying cash and signing a note
payable for new equipment. The cash paid for the new equipment exceeded the cash
received for the old equipment. How should these equipment transactions be
reported in the entity's statement of cash flows?
A. Cash outflow equal to the cash paid less the cash received
B. Cash outflow equal to the cash paid and note payable less the cash received

ACCTG 103: Midterm Examination – Set A Page 13 of 14

 C. Cash inflow equal to the cash received and a cash outflow equal to the cash
paid and note payable
D. Cash inflow equal to the cash received and a cash outflow equal to the cash
paid

98. Costs that are incurred in bringing the inventories to their present location
and condition are capitalized as cost of inventories and these include
A. Cost of designing products for specific customers
B. Abnormal amount of wasted material, labor, and production cost
C. Storage cost not necessary in the production process before a further
production stage
D. Distribution cost

99. During the current year, an entity discovered that ending inventory
reported in the financial statements for the prior year was understated.
How should the entity account for this understatement?
A. Adjust the beginning inventory in the prior year.
B. Restate the financial statements with corrected balances for all periods
presented.
C. Adjust the ending balance in retained earnings at current year-end.
D. Make no entry because the error will self-correct.

100. When information about two different entities engaged in the same industry
has been prepared and presented in similar manner, the information exhibits the
qualitative characteristic of
A. Relevance C. Consistency
B. Reliability D. Comparability

"Success is not final, failure is not fatal: it is the courage to continue that counts."
-Winston Churchill

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