Conceptual Framework and Accounting Standards
Long Exam Chapter 7-10
INSTRUCTIONS: Write the letter of your choice before the number. The exam is good for 1
hour. Don’t forget to write your name at the upper left portion of this paper. God bless!
1. Inventories are defined by all of the following, except
a. Held for sale in the ordinary course of business
b. In the process of production for such sale
c. In the form of materials or supplies to be consumed in the production process or
the rendering of services
d. Used in the production or supply of goods and services for administrative
purposes
2. The cost of inventory is the sum of
a. Cost of purchase and cost of conversion.
b. Direct cost, indirect cost and other cost.
c. Cost of purchase, cost of conversion and other cost incurred in bringing the
inventory to the present location and condition.
d. Cost of conversion and other cost incurred in bringing the inventory to the
present location and condition.
3. Which of the following should not be taken into account when determining the cost
of inventory?
a. Storage cost of part-finished goods
b. Trade discount
c. Freight cost on purchase
d. Import duty on shipping of inventory inward
4. Which of the following would not be reported as inventory?
a. Land acquired for resale by a real estate firm
b. Shares and bonds held for resale by a brokerage firm
c. Partially completed goods
d. Machinery acquired for use in the production process
5. In a period of declining prices, the inventory method which tends to give the highest
amount of cost of goods sold is
a. Specific identification
b. Average cost
c. FIFO
d. LIFO
6. Which of the following statement is/are correct? - bonus
Statement I: IFRS requires manufacturers to disclose their inventory components on
the statement of financial position or in related notes.
Statement II: Goods in transit, shipped f.o.b. shipping point, are included in the
buyer’s statement of financial position at the time of delivery to the common carrier.
Statement III: Both merchandising and manufacturing companies normally have
multiple inventory accounts.
a. Only Statement I and II
b. Only Statement I and III
c. Only Statement II and III
d. All are correct
7. Computers-For-You is a retailer specializing in selling computers and related
equipment. Which of the following would not be reported in the merchandise
inventory account reported on the statement of financial position for Computers-For-
You at December 31, 2022?
a. Computer purchased for resale during November 2022.
b. Shelving materials purchased during December 2022.
c. Freight costs related to the computers purchased in November.
d. All of the choices are included in the merchandise inventory account at
December 31, 2022.
8. Which of the following statement is/are correct?
Statement I: A disadvantage of the gross profit method is that it uses past
percentages in determining the markup.
Statement II: PFRS requires inventory to be written down below its original cost in
some situations, but inventory cannot be written up above its original cost.
Statement III: Under PFRS, LIFO is permitted for financial reporting purposes if the
company’s host country permits it for tax purposes.
a. Statement I and II
b. Statement I and III
c. Statement II and III
d. All are correct
9. Lower-of-cost-or-net realizable value as it applies to inventory is best described as
the
a. reporting of a loss when there is a decrease in the future utility below the original
cost.
b. method of determining cost of goods sold.
c. assumption to determine inventory flow.
d. change in inventory value to net realizable value.
10. Shake Company’s inventory experienced a decline in value necessitating a write-
down to lower-of-cost-or-net realizable value (LCNRV) of €230,000. This amount is
material to Shake’s income statement and the company follows IFRS. Where should
Shake Company report this decline in value according to IFRS?
I. As a loss on the income statement.
II. As a separate component of other comprehensive income on the
statement of comprehensive income.
III. As part of cost of goods sold on the income statement.
a. Shake must use I.
b. Shake must use I, II or III.
c. Shake must use I or III.
d. Shake must use III.
11 Under International Financial Reporting Standards (IFRS), which of the following is true
regarding inventory write-downs and/or recovery of a write-down?
a. Recovery of inventory write-downs is prohibited under IFRS.
b. IFRS requires separate reporting of reversals of inventory write-downs.
c. IFRS requires companies to record write-downs in a separate loss account.
d. All of the choices are correct.
12. Which of the following is a characteristic of a perpetual inventory system?
a. Inventory purchases are debited to a Purchases account.
b. Inventory records are not kept for every item.
c. Cost of goods sold is recorded with each sale.
d. Cost of goods sold is determined as the amount of purchases less the change in
inventory.
13 What is consigned inventory?
a. Goods that are shipped, but title transfers to the receiver.
b. Goods that are sold, but payment is not required until the goods are sold.
c. Goods that are shipped, but title remains with the shipper.
d. Goods that have been segregated for shipment to a customer.
14. Which of the following items should be included in a company's inventory at the
statement of financial position date?
a. Goods in transit which were purchased f.o.b. destination.
b. Goods received from another company for sale on consignment.
c. Goods sold to a customer which are being held for the customer to call for at his
or her convenience.
d. None of these are correct.
15 Valuation of inventories requires the determination of all of the following except
a. the costs to be included in inventory.
b. the physical goods to be included in inventory.
c. the cost of goods held on consignment from other companies.
d. the cost flow assumption to be adopted.
16 Which of the following statement is/are incorrect?
Statement I: Assets classified as property, plant, and equipment can be either
acquired for use in operations, or acquired for resale.
Statement II: Assets classified as property, plant, and equipment must be both long-
term in nature and possess physical substance.
Statement III: When land with an old building is purchased as a future building site,
the cost of removing the old building is part of the cost of the new building.
a. Statement I and II
b. Statement I and III
c. Statement II and III
d. All are incorrect
17 Which of the following are recorded as cost of land
I. Special assessments for local improvements such as street lights and sewers
II. Land with an old building is purchased as a future building site, the cost of
removing the old building
III. Private driveways and parking lots.
a. I and II only
b. I only
c. III only
d. I and III only
18 The cost of land does not include
a. costs of grading, filling, draining, and clearing.
b. costs of removing old buildings.
c. costs of improvements with limited lives.
d. special assessments.
19 Plant assets may properly include
a. deposits on machinery not yet received.
b. idle equipment awaiting sale.
c. land held for possible use as a future plant site.
d. None of these answer choices are correct.
20 Which of the following costs are capitalized for self-constructed assets?
a. Materials and labor only
b. Labor and overhead only
c. Materials and overhead only
d. Materials, labor, and overhead
21 Which of the following assets do not qualify for capitalization of interest costs incurred
during construction of the assets?
a. Assets under construction for a company's own use.
b. Assets intended for sale or lease that are produced as discrete projects.
c. Assets financed through the issuance of long-term debt.
d. Assets not currently undergoing the activities necessary to prepare them for their
intended use.
22 The period of time during which borrowing costs must be capitalized ends when
a. the asset is substantially complete and ready for its intended use.
b. no further interest cost is being incurred.
c. the asset is abandoned, sold, or fully depreciated.
d. the activities that are necessary to get the asset ready for its intended use have
begun.
23 Which of the following most accurately reflects the concept of depreciation as used in
accounting?
a. The process of charging the decline in value of an economic resource to income
in the period in which the benefit occurred.
b. The systematic allocation of the depreciable amount of an asset over its useful
life.
c. A method of allocating asset cost to an expense account in a manner which
closely matches the physical deterioration of the tangible asset involved.
d. An accounting concept that allocates the portion of an asset used up during the
year to the contra asset account for the purpose of properly recording the fair
market value of tangible assets.
24 The major difference between the service life of an asset and its physical life is that
a. service life refers to the time an asset will be used by a company and physical life
refers to how long the asset will last.
b. physical life is the life of an asset without consideration of residual value and
service life requires the use of residual value.
c. physical life is always longer than service life.
d. service life refers to the length of time an asset is of use to its original owner,
while physical life refers to how long the asset will be used by all owners.
25 Use of the double-declining balance method
a. results in a decreasing charge to depreciation expense.
b. means residual value is not deducted in computing the depreciation base.
c. means the book value should not be reduced below residual value.
d. All of these answer choices are correct.
26 Which of the following is true regarding residual value?
a. It is the amount considered the historical cost of the asset, including possible
future inflation effects.
b. It is the amount a company writes down or depreciates the asset during its useful
life.
c. It is the amount the company will receive when it sells or removes the asset from
service.
d. It is the amount that is systematically allocated over an asset’s useful life.
27 All of the following are true with regard to impairment testing of long-lived assets except:
a. If impairment indicators are present, the company must conduct an impairment
test.
b. The impairment test compares the asset’s carrying value with the lower of its fair
value less cost to sell and its value-in-use.
c. If the recoverable amount is lower than the carrying value, an impairment loss will
be reported on the period’s income statement.
d. If either the fair value less cost to sell or the value-in-use is higher than the
carrying amount, no impairment loss will be recorded.
28 All of the following are true of the recoverable amount used in the impairment test of a
long-lived asset except:
a. An asset’s recoverable amount is the lower of its value-in-use and its fair value
less cost to sell.
b. An asset’s value-in-use is the present value of net expected cash flows from
future use and sale of the asset.
c. The recoverable amount is calculated as the asset’s value in use if it exceeds fair
value less costs to sell.
d. If an asset’s recoverable amount is higher than the carrying amount, no
impairment loss will be reported on the period’s income statement.
29 Which of the following statements is/are correct?
Statement I: Revaluation surplus is a temporary account which is closed to Retained Earnings
at the end of an accounting period.
Statement II: Companies using revaluation accounting must revalue the assets on an annual
basis.
Statement III: Assets held for disposal should be reported at the lower-of-cost-or-net
realizable value.
a. Statement I and III only
b. Statement II and III only
c. Statement III only
d. Statement II only
30. Economic factors that shorten the service life of an asset include
a. obsolescence.
b. supersession.
c. inadequacy.
d. All of these answer choices are correct.
31. Investment property includes all of the following, except
a. Land held for capital appreciation
b. Land held for currently undetermined use
c. Building owned by the reporting entity leased out under
an operating lease
d.Property held for sale in the ordinary course of business
32. Which statement is true if the property is partly investment and partly owner-occupied?
I. If the investment and owner-occupied portions could be sold or leased out
separately, the portions shall be accounted for separately as investment property
and owner-occupied property.
II. If the investment and owner-occupied portions could not be sold or leased out
separately, the property is investment property if only an insignificant portion is
held for manufacturing or administrative purposes.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
33. If an entity owns and manages a hotel, services provided to guests are a significant
component of the arrangement as a whole. In such a case, the hotel is classified as
a. Investment property
b. Owner-occupied property
c. Partly investment property and partly owner-occupied property
d. Neither investment property nor owner-occupied property
34. Which statement in true concerning property leased to an affiliate?
I. From the perspective of the individual entity that owns it, the property leased to an
affiliate is considered an Investment property.
II. From the perspective of the affiliates as a group and for purposes of consolidated
financial statements, the property is treated as owner-occupied property.
a. Both I and II
b. Neither I nor II
c. I only
d. Il only
35. Subsequent to initial recognition, the investment property shall be measured using
a. Fair value model or revaluation model
b. Fair value through profit or loss model
c. Cost model or fair value model
d. Cost model or revaluation model
36. A transfer from investment property carried at fair value to owner-occupied property shall
be accounted for at
a. Fair value, which becomes the deemed cost
b. Carrying amount
c. Historical cost
d. Fair value less cost of disposal
37. If owner-occupied property is transferred to investment property that is to be carried at
fair value, the difference between the carrying amount and fair value shall be
a. Included in profit or loss
b. Included in retained earnings
c. Included in other comprehensive income
d. Accounted for as revaluation of property
38. If an inventory is transferred to investment property to be carried at fair value, the
remeasurement to fair value is
a. Included in profit or loss
b. Included in other comprehensive income
c. Included in retained earnings
d. Accounted for as revaluation surplus
39. An investment property is derecognized when
a. It is disposed to a third party.
b. It is permanently withdrawn from use.
c. No future economic benefits are expected from the disposal.
d. In all of these cases
40. Gain or loss from disposal of investment property shall
be determined as the difference between the
a. Net disposal proceeds and carrying amount.
b. Gross disposal proceeds and carrying amount.
c. Fair value and carrying amount of the asset.
d. Gross disposal proceeds and fair value of the asset.
41. An entity shall classify an asset as held for sale when
a. The carrying amount of the asset or disposal group is recovered through a sale
transaction.
b. The carrying amount of the asset or disposal group is recovered through
continuing use.
c. The noncurrent asset or disposal group is abandoned.
d. The noncurrent asset or disposal group is idle or retired from active use.
42. For the sale of a noncurent asset to be highly probable, which of the following
statements is incorrect?
a. Management must be committed to a plan to sell the asset
b. An active program to locate a buyer and complete the plan must have been
initiated.
c. The asset must be actively marketed for sale at a reasonable price in relation to
the current fair value.
d. The sale is expected to qualify for recognition as a completed sale within two years
from the date of classification of the asset as held for sale.
43. Non current asset classified as held for sale shall be presented as
a. Current asset
b. Other noncurrent asset
c. Noncurrent investment
d. Property, plant and equipment
44. If the fair value less cost of disposal is lower than the carrying amount of a noncurrent
asset classified as held for sale, the difference is
a. Not accounted for.
b. Accounted for as an impairment loss.
c. Charged to depreciation.
d. Debited to retained earnings.
45. What is the treatment of any gain on a subsequent increase in the fair value less cost of
disposal of a noncurrent asset classified as held for sale?
a. The gain shall be recognized in full.
b. The gain shall not be recognized.
c. The gain shall be recognized but not in excess of the cumulative impairment loss
previously recognized
d. The gain shall be recognized but only in retained earnings.
46. Which criterion does not have to be met in order for an operation to be classified as
discontinued?
a. The operation shall represent a separate major line of business or geographical
area.
b. The operation is part of a single plan to dispose of a separate major line of
business or geographical area.
c. The operation is a subsidiary acquired exclusively with a view to resale.
d. The operation must be sold within three months after the end of reporting period.
47. What is the presentation of the results from discontinued operation in the income
statement?
a. The entity shall disclose a single amount on the face of the income statement
below the income from continuing operations.
b. The amounts from discontinued operations shall be broken down over each
category of revenue and expense.
c. Discontinued operations shall be shown as a movement on retained earnings.
d. Discontinued operations shall be shown as a line item after gross income with the
related tax being shown as part of income tax expense.
48 An entity manufactures and sells household products. The entity experienced losses
associated with the small appliance group. Operations and cash flows for this group can be
clearly distinguished from the rest of the entity's operations. The entity decided to sell the
small appliance group.
What is the earliest point at which the entity shall report the small appliance group as a
discontinued operation?
a. When the entity classifies it as held for sale.
b. When the entity receives an offer to the segment
c. When the entity first sells any of the assets of the segment
d. When the entity sells the majority of the assets of the segment
49. When an entity discontinued an operation, the transaction should be reported as
a. A prior period error
b. Other income and expense item
c. An amount after income from continuing operations and before net income
d. Bulk sale of assets included in income from continuing operations.
50. What is the title of PFRS 5
a. Property, Plant and Equipment
b. Investment Property
c. Discontinued Operation
d. Non-Current Asset held for sale and Discontinued Operation
