CSA-B

THEORY OF ACCOUNTS

EASY
1. Which statement is correct regarding the Financial Reporting Standards Council (FRSC)
a. Established by PICPA in 2006 under the Implementing Rules and Regulations of the Philippine Accountancy of Act
of 2004.
b. The main function is to establish generally accepted auditing standards in the Philippines.
c. The Chairman and members of the FRSC are appointed by the president of the Philippines upon the
recommendation of the PRC in coordination with the APO.
d. The FRSC is the successor of the Accounting Standards Council (ASC) which was created in November 1981 by
the Philippine Institute of Certified Public Accountants (PICPA).

2. Which statement is incorrect regarding the Philippine Interpretations Committee (PIC)?

a. The PIC is responsible for reviewing accounting issues that are likely to receive divergent or unacceptable
treatment in the absence of authoritative guidance, with a view to reaching consensus as to appropriate
accounting treatment.
b. The PIC was formed by the FRSC in August 2006 to assist the FRSC in establishing and improving financial
reporting standards in the Philippines.
c. The PIC members are appointed by the FRSC and include accountants in public practice, the academe and
regulatory bodies and users of financial statements.
d. The PIC replaced the Accounting Standards Council (ASC).

3. The IASB's standard-setting structure includes all of the following except:

a. Financial Reporting Interpretations Committee
b. Standards Advisory Council
c. Standards Comparison Committee
d. Trustees

4. How IFRS standards bring transparency?

a. By enhancing the international comparability and quality of financial information, enabling investors and other
market participants to make informed economic decisions.
b. By reducing the information gap between the providers of capital and the people to whom they have entrusted
their money.
c. By helping investors to identify opportunities and risks across the world, thus improving capital allocation.
d. All of the above.

5. Which of the following helps users make good decisions?

a. A faithful representation of an irrelevant phenomenon.
b. An unfaithful representation of a relevant phenomenon.
c. Both a and b.
d. Neither a nor b.

6. Which of the following is not a PICPA Region?

a. Metro Manila c. Northern Mindanao
b. Southern Tagalog d. Southern Visayas

7. Which of the following statements reflects one of the benefits of adoption of International Financial Reporting
Standards (IFRS) by different countries?
a. Earnings management is eliminated.
b. Cost of capital is lower for firms.
c. There are no economic consequences when firms switch to IFRS from existing GAAP.

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d. Volatility of earnings calculated using IFRS is zero.

8. Which statement is correct regarding the timing of application of PFRS?

a. PFRSs apply six months from a date of publication in the Official Gazette or in newspaper of general circulation.
b. New or revised PFRSs set out transitional provisions to be applied on their initial application.
c. Both a and b.
d. Neither a nor b.

9. To meet the probability criterion, in relation to recognition of assets and liabilities, the expectation that future
economic benefits will flow to or from an entity must be
a. Certain
b. Virtually certain
c. Sufficiently certain
d. Not uncertain

10. The ingredients of faithful representation are

a. Completeness and neutrality
b. Completeness and free from error
c. Completeness, neutrality and free from error
d. Completeness, neutrality, free from error and conservatism

11. When an uncertainty arises about the collectibility of an amount already included in revenue, the uncollectible
amount or the amount in respect of which recovery has ceased to be probable is
a. An adjustment of the amount of revenue
b. Recognized as an expense
c. Recognized as a liability
d. Ignored

12. When the outcome of the transaction involving the rendering of services cannot be estimated reliably, the revenue is
recognized
a. In reference to the stage of completion of the transaction
b. Only to the extent of costs incurred that are expected to be recoverable
c. Upon cash collection
d. Upon completion of the services to be rendered

13. Which of the following are bearer plants?

a. Trees grown for use as lumber.
b. Trees that are cultivated both for their fruit and their lumber.
c. Maize and wheat.
d. None of the above.

14. Produce growing on bearer plants is

a. Biological asset.
b. Inventory
c. Property, plant and equipment.
d. Other asset.

15. In accordance with PFRS 13 Fair Value Measurement, Level 2 inputs exclude
a. Quoted prices for similar assets or liabilities in active markets.
b. Quoted prices for identical or similar assets or liabilities in markets that are not active.
c. Inputs other than quoted prices that are not observable for the asset or liability.
d. Market-corroborated inputs.

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AVERAGE
1. In accordance with IFRIC 13, the entitys obligation to provide free or discounted goods or services (awards) in the
future should be recognized and measured by:
a. Allocating some of the consideration received or receivable from the sales transaction to the award credits and
deferring the recognition of revenue.
b. Providing for the estimated future costs of supplying the awards.
c. Either a or b
d. Neither a nor b

2. True or false?
PAS 41 takes the view that the fair value of agricultural produce at the point of harvest can always be measured
reliably.
All costs related to biological assets that are measured at fair value are recognized as expenses when incurred, other
than costs to purchase biological assets.

a. False, True c. False, False

b. True, False d. True, True

3. Which statement is incorrect regarding bearer plants?

a. Tea bushes, grape vines, oil palms and rubber trees usually meet the definition of a bearer plant.
b. Bearer plants are within the scope of PAS 16.
c. The produce growing on bearer plants, for example, tea leaves, grapes, oil palm fruit and latex, is within the
scope of PAS 41.
d. Incidental scrap sales would prevent the plant from satisfying the definition of a bearer plant.

4. The following are costs excluded from the cost of inventories, except
a. Abnormal amounts of wasted materials, labor or other production costs;
b. Storage costs, unless those costs are necessary in the production process before a further production stage;
c. Administrative overheads that do not contribute to bringing inventories to their present location and condition;
d. Import duties

5. PAS 40 requires all entities to

a. Use the fair value model.
b. Use the cost model.
c. Measure the fair value of investment property.
d. Measure the fair value of investment property on the basis of a valuation by an independent valuer who holds a
recognized and relevant professional qualification.

6. On January 1, 2011, Crater, Inc. purchased equipment having an estimated salvage value equal to 20% of its original
cost at the end of a ten-year life. The equipment was sold December 31, 2015, for 50% of its original cost. If the
equipments disposition resulted in a reported loss, which of the following depreciation methods did Crater use?
a. Double-declining balance.
b. Sum-of-the-years digits.
c. Straight-line.
d. Composite.

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7. Under PFRS, when an entity chooses the revaluation model as its accounting policy for measuring property, plant,
and equipment, which of the following statements is correct?
a. When an asset is revalued, the entire class of property, plant, and equipment to which that asset belongs must
be revalued.
b. When an asset is revalued, individual assets within a class of property, plant, and equipment to which that asset
belongs can be revalued.
c. Revaluations of property, plant, and equipment must be made at least every three years.
d. Increases in an assets carrying value as a result of the first revaluation must be recognized as a component of
profit or loss.

8. Classification as asset held-for-sale will most likely result in an immediate charge to profit or loss for which of the
following non-current assets?
a. Biological assets
b. Intangible assets
c. Investment property measured using the cost model
d. Property, plant and equipment using the revaluation model

9. An investor must apply the requirements of PAS 39 in determining whether it is necessary to recognize any
impairment loss in the investment in an associate. How is the impairment test carried out?
a. The goodwill is separated from the rest of the investment and is impairment tested individually
b. The entire carrying amount of the investment is tested for impairment under PAS 36 by comparing its
recoverable amount with its carrying amount
c. The carrying amount of the investment should be compared with its market value
d. The recoverable amounts of all investments in associates should be assessed together to determine whether
there has been an impairment on all investments.

10. An entity shall disclose comparative information in respect of the previous period for all amounts reported in the
current periods financial statements. When an entity applies an accounting policy retrospectively, it shall present, as
a minimum
a. Three complete sets of financial statements.
b. Three statements of financial position and cash flows, two of each of the other statements, and related notes.
c. Three statements of financial position and statement of comprehensive income, two of each of the other
statements, and related notes.
d. Three statements of financial position, two of each of the other statements, and related notes.

11. Which statement is incorrect regarding transfers that do not qualify for derecognition because the entity has retained
substantially all the risks and rewards of ownership of the transferred asset?
a. The entity shall continue to recognize the transferred asset to the extent of its continuing involvement.
b. The entity shall recognize a financial liability for the consideration received.
c. In subsequent periods, the entity shall recognize any income on the transferred asset.
d. In subsequent periods, the entity shall recognize any expense incurred on the financial liability.

12. An entity operates a bed and breakfast from a building it owns. The entity also provides its guests with other services
including housekeeping, satellite television and broadband internet access. The daily room rental is inclusive of these
services. Furthermore, upon request, the entity conducts tours of the surrounding area for its guests. Tour services
are charged for separately. The entity should account for the building as:
a. Inventory
b. Investment property
c. Property, plant and equipment
d. Other non-current asset

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13. Which of the following is an example of a temporary difference that could result in a deferred tax asset?
a. Prepayments of expenses in year of payment; recognition of expense for accounting purposes in a later year.
b. Use of straight-line depreciation for accounting purposes and an accelerated rate for income tax purposes.
c. Gross margin on installment sales is recognized for accounting purposes before it is included in taxable income in
the income tax return.
d. Gain on disposal of an asset when included in taxable profit before it is included in accounting profit.

14. The deferred tax expense is the

a. Increase in balance of deferred tax asset minus the increase in balance of deferred tax liability.
b. Increase in balance of deferred tax liability minus the increase in balance of deferred tax asset.
c. Increase in balance of deferred tax asset plus the increase in balance of deferred tax liability.
d. Decrease in balance of deferred tax asset minus the increase in balance of deferred tax liability.

15. The periodic unwinding of the discount in relation to decommissioning liability shall be recognized
a. In profit or loss as a finance cost as it occurs.
b. In profit or loss as depreciation.
c. As part of the carrying amount of the related asset.
d. Either a or c depending on the entitys accounting policy.

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DIFFICULT
1. In accordance with PFRS 13, which of the following is not relevant when measuring fair value?
a. The particular asset or liability being measured.
b. For a non-financial asset, the highest and best use of the asset and whether the asset is used in combination with
other assets or on a stand-alone basis.
c. The market in which an orderly transaction would take place for the asset or liability.
d. The entitys intention to hold an asset or to settle or otherwise fulfill a liability.

2. In an exchange of assets that is deemed to lack commercial substance, PRTC Co. received equipment with a fair
value equal to the carrying amount of equipment given up. PRTC also contributed cash. As a result of the exchange,
PRTC recognized
a. A loss equal to the cash given up.
b. A loss determined by the proportion of cash paid to the total transaction value.
c. A gain determined by the proportion of cash paid to the total transaction value.
d. Neither gain nor loss.

3. Items of property, plant and equipment acquired for safety or environmental reasons
a. Qualify as assets because the acquisition of such property, plant and equipment directly increases the future
economic benefits of existing item of property, plant and equipment.
b. Qualify as assets because they enable an entity to derive future economic benefits from related assets in excess
of what could be derived had those items not been acquired.
c. Do not qualify as assets because the acquisition of such property, plant and equipment does not directly increase
the future economic benefits of existing item of property, plant and equipment.
d. Do not qualify as assets because the acquisition of such property, plant and equipment is not necessary for an
entity to obtain the future economic benefits from its other assets.

4. Which statement is incorrect when an entity, in the course of its ordinary activities, routinely sells items of property,
plant and equipment that it has held for rental to others?
a. The entity shall transfer such assets to inventories at their carrying amount when they cease to be rented and
become held for sale.
b. The proceeds from the sale of such assets shall be recognized as revenue in accordance with PAS 18.
c. PFRS 5 does not apply when assets that are held for sale in the ordinary course of business are transferred to
inventories.
d. The difference between the net disposal proceeds and the carrying amount of the item is recognized as other
income in profit or loss.

5. Which statement is incorrect regarding presentation of exploration and evaluation assets?

a. An entity shall classify exploration and evaluation assets as tangible or intangible according to the nature of the
assets acquired and apply the classification consistently.
b. Some exploration and evaluation assets are treated as intangible (eg drilling rights), whereas others are tangible
(eg vehicles and drilling rigs).
c. To the extent that a tangible asset is consumed in developing an intangible asset, the amount reflecting that
consumption is part of the cost of the intangible asset.
d. Using a tangible asset to develop an intangible asset changes a tangible asset into an intangible asset.

6. If the cost of land includes the costs of site dismantlement, removal and restoration, that portion of the land asset is
a. Depreciated in a manner that reflects the benefits to be derived from land.
b. Depreciated on a straight-line basis over the expected life of the land.
c. Depreciated over the period of benefits obtained by incurring those costs.
d. Not depreciated.

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7. Which statement is incorrect regarding changes in the measurement of an existing decommissioning and similar
liability that result from changes in the estimated timing or amount of the outflow of resources embodying economic
benefits required to settle the obligation, or a change in the discount rate, if the related asset is measured using the
cost model?
a. Changes in the liability shall be added to, or deducted from, the cost of the related asset in the current period.
b. The amount deducted from the cost of the asset shall not exceed its carrying amount.
c. If a decrease in the liability exceeds the carrying amount of the asset, the excess shall be recognized immediately
in profit or loss.
d. If the adjustment results in an addition to the cost of an asset, the entity shall test the asset for impairment by
estimating its recoverable amount, and shall account for any impairment loss, in accordance with PAS 36.

8. Which statement is incorrect regarding impairment of assets classified as held-for-sale in accordance with PFRS 5?
a. Impairment must be considered both at the time of classification as held for sale and subsequently.
b. Immediately prior to classifying an asset as held for sale, any impairment loss is recognized in profit or loss
unless the asset had been measured at revalued amount under PAS 16 or PAS 38, in which case the impairment
is treated as a revaluation decrease.
c. After classification as held for sale, impairment loss is the difference between the adjusted carrying amounts of
the asset and fair value less costs to sell.
d. Any impairment loss that arises by using the measurement principles in PFRS 5 must be recognized in profit or
loss, except for assets previously carried at revalued amounts.

9. Which of the following is true regarding the alternative ways to apply the income approach to accounting of resources
acquired through government grants?
a. Expenses will be higher and net income lower if the grant is recorded as deferred income.
b. Expenses will be higher and net income lower if the grant is accounted for as an adjustment to the asset.
c. Depreciation expense will be higher if the grant is recorded as an adjustment to the asset, but net income will be
the same under the two alternatives.
d. Depreciation expense will be higher if the grant is recorded as deferred income, but net income will be the same
under the two alternatives.

10. Which of the following is incorrect regarding expected credit losses on financial assets in accordance with PFRS 9?
a. Expected credit losses are a probability-weighted estimate of credit losses (ie the present value of all cash
shortfalls) over the expected life of the financial instrument.
b. A cash shortfall is the difference between the cash flows that are due to an entity in accordance with the contract
and the cash flows that the entity expects to receive.
c. Expected credit losses consider the amount and timing of payments.
d. A credit loss cannot arise if the entity expects to be paid in full even if later than when contractually due.

11. Which statement is incorrect if a grant of equity instruments is cancelled or settled during the vesting period?
a. The entity shall account for the cancellation or settlement as an acceleration of vesting, and shall therefore
recognize immediately the amount that otherwise would have been recognized for services received over the
remainder of the vesting period.
b. Any payment made to the employee on the cancellation or settlement of the grant shall be accounted for as the
repurchase of an equity interest.
c. Any payment made to the employee on the cancellation or settlement of the grant that exceeds the fair value of
the equity instruments granted, measured at the repurchase date shall be recognized as an expense.
d. If the share-based payment arrangement included liability components, the entity shall remeasure the fair value
of the liability and equity components at the date of cancellation or settlement.

12. When the effective-interest method is used to amortize bond premium or discount, the periodic amortization will
a. Increase if the bonds were issued at a discount.
b. Decrease if the bonds were issued at a premium.
c. Increase if the bonds were issued at a premium.
d. Increase if the bonds were issued at either a discount or a premium.

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13. Which statement is incorrect regarding accounting for financial liabilities in accordance with PAS 39 and PFRS9?
a. An entity shall recognize a financial liability in its statement of financial position when, and only when, the entity
becomes party to the contractual provisions of the instrument.
b. An entity shall remove a financial liability from its statement of financial position when, and only when, it is
extinguished.
c. An entity shall classify all financial liabilities as subsequently measured at amortized cost using the effective
interest method, except as specified in PAS 39 and PFRS 9.
d. An entity may reclassify financial liabilities when, and only when, it changes its business model for managing
financial liabilities.

14. Which statement is incorrect regarding IFRS 16 Leases?

a. IFRS 16 eliminates the classification of leases as either operating leases or finance leases as required by IAS 17
and, instead, introduces a single lessee accounting model.
b. A lessee is required to recognize assets and liabilities for all leases with a term of more than 12 months, unless
the underlying asset is of low value.
c. A lessee is required to recognize depreciation of lease assets separately from interest on lease liabilities in the
income statement.
d. A lessor shall classify its leases as operating leases.

15. Which of the following is not likely an effect of IFRS 16 on lessees financial statements?
a. Increase in assets and liabilities.
b. Increase in finance costs
c. Increase in operating expenses.
d. Increase in financing cash outflows.

- end -

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