BALIUAG UNIVERSITY

CPA REVIEW 2016-2017

THEORY OF ACCOUNTS

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SMALL AND MEDIUM-SIZED ENTITIES (SMEs)

1. Which of the following terms is not descriptive of SMEs?
a. Private entities
b. Listed companies
c. Small and medium-sized entities
d. Non-publicly accountable entities
2. Which of the following entities may describe its financial statements
as being in compliance with PFRS for SMEs?
a. Metropolitan Bank and Trust Company
b. Philippine Long Distance Telephone Company
c. SM Group of Companies
d. None of the above
3. In which of the following situations can entity that does not have
public accountability claim compliance with the PFRS for SMEs?
a. The entity prepares its financial statements in accordance with the
PFRS
b. The entity prepares its financial statements in accordance with the
PFRS, except that it applies the requirement of PFRS for SMEs for
amortization of intangible with indeterminate useful life
c. The entity prepares its financial statements in accordance with the
PFRS for SMEs
d. In both cases B and C
4. An entity that is not publicly accountable must make an explicit and
unreserved statement of compliance with the PFRS for SMEs
a. If the entity complies with all the requirements of PFRS for SMEs
b. If the entity complies with the majority of the requirements of IFRS
for SMEs
c. If the entity complies with the majority of the requirements of the
full IFRS, except that it applies a particular requirement of PFRS
for SMEs for a particular financial statement element
d. If the entity complies with the full PFRS
5. All of the following can be classified as SMEs, except
a. Commercial bank with assets of P3 million
b. Manufacturing entity with total liabilities of P3 million
c. Merchandising company with total assets of P350 million
d. Food and beverage chain with total liabilities of P250 million
6. In which of the following situations can an entity that does not have
public accountability claim compliance with the PFRS for SMEs in its
financial statements?
a. The entity prepares its financial statements in accordance with
local tax requirements that are substantially the same as the PFRS
for SMEs

BALIUAG UNIVERSITY
CPA REVIEW 2016-2017
THEORY OF ACCOUNTS

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b. The entity prepares its financial statements in accordance with

local tax requirements that are, except in name, word-for-word the
same as full PFRS
c. The entity prepares its financial statements in accordance with
local tax requirements that are, except in name, word-for-word the
same as the PFRS for SMEs
d. In both cases B and C above
7. Based on Philippine SEC rules, which of the following entities would
not normally qualify as SMEs?
a. Entities with total assets between P3 million and P350 million
b. Entities with total liabilities between P3 million and P250 million
c. Public utility companies or holders of secondary licensed issued by
a regulatory agency
d. Entities that are not in the process of filing FS for purposes of
issuing any class of instrument in a public market
8. Which set of standards shall be used by small publicly-listed entities?
a. Full PFRS
b. PFRS for SMEs
c. Either Full PFRS of PFRS for SMEs
d. Full PFRS, PFRS for SMEs, or any acceptable accounting basis
9. Under Section 34 of PFRS for SMEs, one of the following is not among
the three (3) categories of specialized activities
a. Agriculture
b. Extractive activities
c. Insurance
d. Service concessions
10.
For small and medium entities, SIRE may under certain
conditions replace which two (2) financial statements?
a. Financial Position and Income Statement
b. Income Statement and Statement of Changes in Equity
c. Financial Position and Statement of Comprehensive Income
d. Statement of Comprehensive Income and Statement of Changes in
Equity
11.
An SME whose only changes to its equity in the periods for
which financial statements are presented arise from profit or loss,
payment of dividends, corrections of prior period error and changes in
accounting policy
a. Is required to present a statement of comprehensive income
b. Should present a statement of income but not retained earnings
c. Is required to present a statement of income and retained earnings
in place of a statement of comprehensive income
d. Has the option to present a statement of income and retained
earnings in place of a statement of comprehensive income

BALIUAG UNIVERSITY
CPA REVIEW 2016-2017
THEORY OF ACCOUNTS

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12.
An entity is not publicly accountable must take an explicit and
unreserved statement of compliance with the PFRS for SMEs if the
entity complies with
a. Full PFRS
b. All the requirements of PFRS for SMEs
c. The majority of the requirements of PFRS for SMEs
d. The national GAAP based on PFRS for SMEs with some specific
differences
13.
The following statements are based on PFRS for SMEs:
STATEMENT I: SMEs are entities that do not have public
accountability
STATEMENT II: SMEs are entities that publish general purpose
financial statements for external users
STATEMENT III: SMEs are entities that publish special purpose
financial statements for internal users
a. True, True, False
b. True, False, False
c. False, True, True
d. False, True, False
14.
The following statements are based on PFRS for SMEs:
STATEMENT I: If an entitys normal operating cycle is not clearly
determinable, its duration is assumed to be twelve (12) months
STATEMENT II: If an entity is unable to make a reliable estimate of
the useful life of an intangible asset, the life shall be presumed to be
twenty (20) years
STATEMENT III: An entity shall recognize all borrowing costs as an
expense in profit or loss in the period in which they are incurred
a. True, True, True
b. True, False, False
c. True, False, True
d. False, False, False
15.
The following statements are based on PFRS for SMEs:
STATEMENT I: The PFRS for SME is organized by topic, with each
topic presented in a separate numbered section
STATEMENT II: All of the paragraphs in the PFRS for SMEs, which
has a total of 35 sections, have equal authority
STATEMENT III: Some sections include appendices of implementation
guidance that are not part of the PFRS but, rather, are guidelines for
applying it
a. True, True, True
b. True, False, False
c. False, False, True
d. False, False, False
16.
The following statements are based on PFRS for SMEs:

BALIUAG UNIVERSITY
CPA REVIEW 2016-2017
THEORY OF ACCOUNTS

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STATEMENT I: An entity has public accountability if its debt or equity

instruments are traded in a public market
STATEMENT II: An entity has public accountability if it is in the
process of issuing debt or equity instruments for trading in a public
market
STATEMENT III: An entity has public accountability if it holds assets
in a fiduciary capacity for a broad group of outsiders as one of its
primary businesses
a. True, True, True
b. True, True, False
c. True, False, True
d. True, False, False
17.
Which of the following is not among the qualitative
characteristics of information in the FS of SMEs?
a. Balance between benefit and cost
b. Consistency
c. Materiality
d. Prudence
18.
Fair presentation requires a faithful representation of the effect
of transactions, other events and conditions in accordance with the
definitions and recognition criteria for assets, liabilities, income and
expenses. Fair presentation in accordance with the PFRS for SMEs, is
prescribed to result from compliance with the PFRS for SMEs, is
prescribed to result from compliance with the PFRS for SMEs
a. By an entity that has public accountability
b. With additional disclosures where necessary, by an entity that has
public accountability
c. By an entity that does not have public accountability
d. With additional disclosures where necessary, by an entity that does
not have public accountability
19.
In accordance with the PFRS for SMEs, the financial statement
that presents an entitys assets, liabilities and equity at a point in time
a. Must be titled the balance sheet
b. Must be titled the statement of financial position
c. Could be titled the statement of financial position or the balance
sheet
d. Could be titled the statement of financial position, the balance
sheet, or any other title that is not misleading
20.
In accordance with the PFRS for SMEs, in presenting a
statement f financial position, an entity must
a. Present assets and liabilities in order of liquidity
b. Make the current/noncurrent presentation distinction
c. Choose either the current/noncurrent or the liquidity presentation
formats (i.e., a free choice of presentation format)

BALIUAG UNIVERSITY
CPA REVIEW 2016-2017
THEORY OF ACCOUNTS

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d. Make the current/noncurrent presentation distinction except when

a presentation based on liquidity provides information that is
reliable and more relevant.
21.
Which of the following is not used in accounting for investment
in associate and interest in jointly controlled entities of SMEs?
a. Cost model
b. Equity model
c. Fair value model
d. Revaluation model
22.
Under the cost model, the investment in associate is
subsequently measured at?
a. Cost
b. Cost less accumulated impairment losses
c. Fair value
d. Fair value less cost to sell
23.
Under the fair value model, the investment in associate is
subsequently measured at?
a. Cost less accumulated impairment losses
b. Equity
c. Fair value less cost to sell
d. Fair value
24.
A small and medium-sized entity must measure its property,
plant and equipment after initial recognition at
a. Cost
b. Cost plus the cost of day to day servicing
c. Cost less any accumulated depreciation less any accumulated
impairment losses
d. Cost less any accumulated depreciation less any accumulated
impairment losses plus the cost of day to day servicing
25.
Which of the following is specifically required to be reported as
lie item for an SME but not under full PFRS
a. Financial assets
b. Investment in joint venture
c. Non-current assets held for sale
d. Property, plant and equipment
26.
An SME shall capitalize all of the following as cost of property,
plant and equipment, except
a. Transport cost
b. Loan raising cost
c. Installation cost
d. Nonrefundable purchase tax
27.
An entity shall measure all government grants at
a. The amount of cash or cash equivalents received

BALIUAG UNIVERSITY
CPA REVIEW 2016-2017
THEORY OF ACCOUNTS

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b. The amount of cash or cash equivalents received or receivable

c. The fair value of the assets received or receivable
d. Nil
28.
An SME must recognize government grant received before the
income recognition criteria are satisfied
a. In income when the grant proceeds are received
b. In equity
c. As a liability
d. None of the above
29.
All of the following are considered line item in the statement of
financial position of an SME, except
a. Provisions
b. Revaluation surplus
c. Non-controlling interest
d. Equity attributable to the owners of parent
30.
Which of these terms cannot be used to describe a line item in
the statement of comprehensive income?
a. Extraordinary item
b. Gross profit
c. Profit before tax
d. Revenue
31.
Which is not considered as Other Comprehensive Income (OCI)
for SMEs?
a. Some actuarial gains and losses
b. Some foreign exchange translation gains and losses
c. Some changes in fair values of hedging instruments
d. Some gains and losses on available-for-sale securities
32.
For SME, which of the following gains and losses are recognized
in other comprehensive income (i.e., in total comprehensive income
outside of profit or loss)?
a. Gains and losses from discontinued operations
b. Gains on the revaluation of property, plant and equipment
c. Gains and losses that management considers extraordinary income
d. Gains and losses arising on translating the financial statements of a
foreign operation
33.
Which of the following gains and losses can an entity elect (i.e.,
an accounting policy choice) to recognize in other comprehensive
income (i.e., in total comprehensive income outside of profit or loss)
a. Losses from discontinued operations
b. Actuarial gains and losses of defined benefit plans
c. Gains and losses that management considers extraordinary items
d. Gains and losses arising on translating the financial statements of a
foreign operation

BALIUAG UNIVERSITY
CPA REVIEW 2016-2017
THEORY OF ACCOUNTS

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34.
Which of the following are presented in the statement of
changes in equity of SMEs?
a. Distribution to owners
b. Investment by owners
c. Changes in ownership interests in subsidiaries that do not result in
a loss of control
d. All of the choices
35.
In 2016, after an entitys 2015 financial statements were
approved for issue, the entity discovered an error in the calculation of
depreciation expense. The error occurred during 2014. The entity
presents comparative figures among several years. The effect of the
correction in the entitys financial statements will be recognized
a. In the entitys profit or loss for the year ended December 31, 2015
b. In the entitys profit or loss for the year ended December 31, 2016
c. Outside of total comprehensive income, in the statement of
changes in equity as an adjustment to retained earnings at January
1, 2015
d. Outside of total comprehensive income, in the statement of
changes in equity as an adjustment to retained earnings at January
1, 2016
36.
An SME whose only changes to its equity in the periods for
which financial statements are presented arise from profit or loss,
payments of dividends, correction of prior period error and changes in
accounting policy
a. Should present on a statement of income
b. Is required to present a statement of comprehensive income
c. Has the option to present a statement of income and retained
earnings in place of a statement of comprehensive income
d. Is required to present a statement of income and retained earnings
in place of a statement of comprehensive income
37.
Consolidated financial statements of SMEs must include the
financial statements of the entity and its
a. Associates
b. Subsidiaries
c. Controlled special purpose entities
d. Subsidiaries and controlled special purpose entities
38.
Which method is used by SMEs in recognizing revenue from
rendering services?
a. Accrual method
b. Cost recovery method
c. Installment method
d. Percentage-of-completion method
39.
Which of the following cannot be accounted by SMEs under the
cost method?

BALIUAG UNIVERSITY
CPA REVIEW 2016-2017
THEORY OF ACCOUNTS
a.
b.
c.
d.
40.
a.
b.

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Intangible assets
Investment property
Investment in associates
Property, plant and equipment
An SME must assign the cost of inventories by
The LIFO cost formula
Specific identification of individual costs for inventories that are
not ordinarily interchangeable and, for inventories that are
ordinarily interchangeable, the FIFO or the weighted average cost
formula
c. Specific identification of individual costs for inventories that are
ordinarily interchangeable, and for inventories that are not
ordinarily interchangeable, the FIFO or the weighted average cost
formula
d. The FIFO cost formula
41.
An SME may use techniques for measuring cost of inventories if
the results approximate cost. Accepted techniques include all of the
following, except
a. Standard cost
b. Retail method
c. Most recent purchase price
d. Gross profit method
42.
The impairment loss of an inventory of SMEs refer to the excess
of
a. Cost over NRV
b. NRV over cost
c. Carrying amount over recoverable amount
d. Recoverable amount over carrying amount
43.
In accounting for financial instruments, the SME shall apply
I. Sections 11 and 12 of PFRS for SMEs
II.
The recognition and measurement provisions of PFRS 9 and
the disclosure requirements of Sections 11 and 12 of PFRS
for SMEs
a. I only
b. II only
c. Either I or II
d. Both I and II
44.
All of the following are considered basic financial instruments,
except
a. Cash
b. Investment in bonds
c. Accounts receivable
d. Investment in convertible preference shares

BALIUAG UNIVERSITY
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THEORY OF ACCOUNTS

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45.
For a basic financial instrument measured at cost less
impairment
I. The impairment loss is the difference between the carrying
amount and the best estimate of the amount that would be
received if the asset were sold
II.
The impairment loss is the difference between the carrying
amount of the asset and the present value of estimated future
cash flows at market rate of interest for similar asset
a. I only
b. II only
c. Both I and II
d. Neither I nor II
46.
All of the following are considered basic financial instruments,
except
a. Demand and fixed term deposits
b. Option and forward contracts
c. Loans from subsidiaries that are due on demand
d. A debt instrument that becomes payable on demand if the issuer
defaults on interest or principal payments
47.
Which of the following items in an SMEs statement of financial
position is a financial asset or financial liability?
a. A liability for an amount due to a supplier for a past receipt of
goods
b. An asset for a prepayment made to a supplier for the rent of a
machine for two months
c. A liability for a fine for the late payment of income tax by the entity
d. None of the above
48.
Which of the following is not considered a basic financial
instrument for SMEs?
e. Bonds and loans payable
f. Cash and bank accounts
g. Commercial paper and bills
h. Options and warrants
49.
Which of the following is not considered as other financial
instrument for SMEs?
a. Derivatives
b. Hedging instruments
c. Investments in convertible and puttable shares
d. Investments in non-convertible and non-puttable shares
50.
Investment in associates must be tested for impairment if the
entity uses
a. The cost method or the equity method
b. The cost method or the fair value model
c. The equity method or the fair value model

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THEORY OF ACCOUNTS

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d. The cost method, equity method or fair value model

51.
Under defined benefit plans for SMEs, all actuarial gains and
losses during the year are fully recognized
a. In either profit or loss or OCI
b. In profit or loss
c. In other comprehensive income
d. Using the corridor approach
52.
How do you call an SME that presents its first financial
statements that conform to PFRS for SMEs?
a. First-time adopter
b. First-time compiler
c. First-time presenter
d. First-term reporter
53.
The statement of financial position at the date of transition to
PFRS for SMEs is best described as
a. Closing statement of financial position
b. Opening statement of financial position
c. Transitional statement of financial position
d. Provisional statement of financial position
54.
An entity shall disclose in the summary of significant accounting
policies:
a. The measurement basis (or bases) used in preparing financial
statements
b. All the measurement bases specified in the PFRS for SMEs
irrespective of whether they were used by the entity in preparing
its financial statements
c. The measurement basis (or bases) used in preparing the financial
statements and the accounting policies used that are relevant to an
understanding of the financial statements
d. All of the measurement bases and the accounting policy choices
available to the entity (i.e., specified in the PFRS for SMEs)
irrespective of whether they were used by the entity in preparing
its financial statements
55.
PFRS for SMEs strictly requires disclosure of information about
a. Earnings per share
b. Interim financial reports
c. Related party transactions
d. Segment information
56.
When did PFRS for SMEs take into effect in the Philippines?
a. January 1, 2008
b. January 1, 2009
c. January 1, 2010
d. January 1, 2011

BALIUAG UNIVERSITY
CPA REVIEW 2016-2017
THEORY OF ACCOUNTS

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