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An entity shall measure a financial liability not designated at fair value through profit or loss at a. Fair value b. Fair value plus directly attributable transaction costs c. Fair value minus directly attributable transaction costs d. Face amount Transaction costs directly attributable to the issue of a financial liability include all of the ff. Except a. Fees & commissions paid to agents b. Levies by regulatory agencies c. Transfer taxes and duties d. Financing costs The initial fair value of a financial liability is defined as a. Amount for which a liability is settled b. Amount for which a liability is settled in an arms length transaction c. Amount for which a liability is settled between knowledgeable and willing parties. d. Amount for which a liability is settled between knowledgeable and willing parties in an arms length transaction After initial recognition, an entity shall measure a financial liability at I. Amortized cost using the effective interest method II. Fair value through profit or loss a. I only b. II only c. Either I or II d. Neither I or II Which of the ff statements is true in relation to the fair value option of measuring a financial liability? I. At initial recognition, an entity may irrevocably designate a financial liability at fair value through profit or loss. II. The financial liability is measured at every year-end and any changes in fair value are recognized in profit or loss III. The interest expense on the financial liability is recognized using the effective interest rate. a. I and II only b. I and III Only c. II and III only d. I, II and III It is a marketing scheme whereby an entity grants award credits to customers and the entity can redeem the award credits in exchange for free or discounted goods or services. a. Customer loyalty program b. Premium plan c. Marketing program
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d. Loyalty award 7. The award credits granted to customers under a customer loyalty program is often described as a. Points b. Awards c. Credits d. Royalty 8. The consideration allocated to the award credits is measured at a. Fair value of the award credits b. Carrying amount of goods to be received in exchange c. Fair value of the goods to be received in exchange d. The proportion of the fair value of the award credits relative to the total consideration received from the initial sale of the goods. 9. Under a customer loyalty program, if the entity supplies the awards itself, the consideration allocated to the award credits a. Shall be recognized as revenue immediately b. Shall be accounted for as revenue separately. c. Shall be recognized initially as deferred revenue and amortized as revenue over reasonable period not exceeding 5 yrs d. Shall be recognized initially as deferred revenue and subsequently recognized as revenue upon the redemption of the award credits 10. Under a customer loyalty program, if a third party supplies the awards and the entity is collecting the consideration for the award credits as principal in the transaction a. The entity shall not recognize revenue from the award credits b. The entity shall recognize initially deferred revenue equal to the gross consideration allocated to the award credits. c. The entity shall recognize initially a deferred revenue equal to the difference between the consideration for the award credits and the amount paid by the entity to the third party d. The entity shall recognize immediately revenue equal to the gross consideration allocated to the award credits 11. A retail store received cash and issued certificates that are redeemable in merchandise. The gift certificates lapse one year after they are issued. How would the deferred revenue account be affected by the redemption and lapse of certificates, respectively? a. Decrease and no effect c. No effect and no effect b. Decrease and decrease d. No effect and decrease 12. A retail store received cash and issued a gift certificate that is redeemable in merchandise. When the gift certificate was issued, a a. Deferred revenue accnt shall be decreased b. Deferred revenue accnt shall be increased c. Revenue accnt should be decreased d. Revenue accnt should be decreased 13. Magazine subscriptions collected in advance are treated as a. A contra accnt to magazine subscriptions recble
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b. Deferred revenue in liability section c. Deferred revenue in the SHE d. Magazine subscription refund in the income statement in the period collected 14. An entity received an advance payment for the special order goods that are to be manufactured and delivered within six months. The advance payment shall be reported in the entitys statement of fin. Position a. Deferred charge c. Current liability b. Contra asset account d. Noncurrent liability 15. An entity is a retailer of home appliances and offers a service contract on each appliance sold. The entity sells appliances on installment contracts but all service contracts must be paid in full at the time of sale. Collections received for service contracts shall be recorded as an increase in a. Deferred revenue accnt b. Sales contract receivable valuation accnt c. SHE valuation accnt d. Service revenue accnt 16. Under a royalty agreement with another entity, an entity will receive royalties from the assignment of a patent for four years. the royalties received in advance shall be reported as revenue a. In the period received b. In the period earned c. Evenly over the life of the royalty agreement d. At the date of the royalty agreement 17. In June of the current year, an entity sold refundable merchandise coupons. The entity received a certain amount for each coupon redeemable from July 1 to December 31 of the current year, for merchandise with a certain retail price. At June 30 of the current year, how should the entity report these coupon transactions? a. Unearned revenue at the merchandises retail price. b. Unearned revenue at the cash received c. Revenue at the merchandises retail price d. Revenue at the cash received 18. How would the proceeds received from the advance sale of nunrefundable tickets for a theatrical performance be reported in the sellers financial statements before the performance? a. Revenue from the entire proceeds b. Revenue to the extent of related costs expanded c. Unearned revenue to the extent of the related costs expended d. Unearned revenue for the entire proceeds 19. At the end of the current year, an entity received an advance payment of 60% of the sales price for special order goods to be manufactured and delivered within five months. At the same time, the entity subcontracted for production of the special order goods at a price equal to 40% of the main contract price. What liabilities should be reported in the entitys year-end statement of financial position?
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a. None b. Deferred revenue equal to 60% of the main contract price and payable to subcontractor equal to 40% of the main contract price c. Deferred revenue equal to 60% of the main contract price and no payable to subcontractor d. No deferred revenue but payable to subcontractor is reported at 40% of the main contract price 20. An entity sells appliances that include a three-year warranty. Service calls under warrant are performed by an independent mechanic under a contract with the entity. Based on experience, warranty costs are expected to be incurred for each machine sold. When should the entity recognize these warranty costs? a. Evenly over the life of the warranty b. When the service calls are performed c. When payments are made to the mechanic d. When the machines are sold 21. Estimated liabilities are disclosed in financial statements by a. Note to fin. Statements b. Showing the amount among the liabilities but not extending to the liability total c. An appropriation of the retained earnings d. Appropriately classifying them as regular liabilities in the statement of fin. Position 22. Unearned rent revenue would normally appear in the statement of fin. Position as a. Plant asset b. Current liability c. Noncurrent liability d. Current asset 23. Rent revenue collected one year in advance should be reported as a. Revenue in the year collected b. Current liability c. Separate item of SHE d. Accrued liability 24. An entity sells furnaces that include a 3-yr warranty. The entity can contract with a third party to provide these warranty services. The entity elects the fair value option for reporting fin. Liabilities. At what amount should the entity report the warranty liability? a. The cost of expected warranty services b. The present value of expected warranty costs. c. The fair value of the contract to settle the warranty services d. The fair value of the contract less the cost to provide he services 25. For a fixed amount a month, an entity visits its customers premises and performs insect control services. If customers experience problems within regularly scheduled visits, the entity makes service calls at no additional charge. Instead of paying monthly, customers may pay a certain annual fee in advance. For a customer who pays the annual fee in advance, the entity should recognize the related revenue
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a. When the cash is collected b. At the end of fiscal year c. At the end of the contract year after all of the services have been performed d. Evenly over the contract year as the services are performed 26. It is an event that creates a legal or constructive obligation because the entity has no other realistic alternative but to settle the obligation a. Obligating event b. Past event c. Subsequent event d. Current event 27. An outflow of resources embodying economic benefits its regarded as probable when a. The probability that the event will occur is greater than the probability that the event will not occur. b. The probability that the event will not occur is greater than the probability that the event will occur. c. The probability that the event will occur is the same as the probability that the event will not occur. d. The probability that the event will occur is 90% likely. 28. Where there is a continuous range of possible outcomes, and each point in that range is as likely as any other, the range to be used is the a. Minimum b. Maximum c. Midpoint d. Summation of the minimum and maximum 29. When the provision involves a large population of items, the estimate of the amount a. Reflects the weighting of all possible outcomes by their associated possibilities b. Is determined as the individual most likely outcome c. May be the individual most likely outcome adjusted for the effect of other possible outcomes d. Midpoint of the possible outcomes 30. Where the provision being measured involves a large population of items, the obligation is estimated by weighting all possible outcomes by their associated probabilities. The name for this statistical method of estimation is a. Estimated value b. Present value c. Current value d. Extrapolation 31. When the provision arises from a single obligation, the estimate of the amount a. Reflects the weighting of all the possible outcomes by their associated possibilities b. Is determined as the individual most likely outcome c. Is the individual most likely outcome adjusted for the effect of other possible outcomes
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d. Midpoint of the possible outcomes 32. Which statement is incorrect where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party? a. The reimbursement shall be recognized only when it is virtually certain that the reimbursement would be received if the entity settles the obligation b. The amount of the reimbursement shall not exceed the amount of provision c. In the income statement, the expense relating to the provision may be presented net of the reimbursement. d. The reimbursement shall not be treated as separate asset and therefore netted against the estimated liability for the provision. 33. For an event to be an obligating event, it is necessary that the entity has no realistic alternative but to settle the obligation created by the event and this is the case only: I. Where the settlement of the obligation can be enforced by law II. Where the event creates valid expectation in other parties that the entity will discharge the obligation as in the case of constructive obligation a. I only b. II only c. Either I or II d. Neither I or II 34. Which of the ff statements is true concerning the measurement of a provision? I. The amount recognized as a provision should be the best estimate of the expenditure required to settle the present obligation at the end of reporting period. II. The best estimate of the expenditure required to settle the present obligation is the amount that an entity would be rationally pay to settle the obligation at the end of reporting period or to transfer it to a third party at that time. a. I only c. Both I and II b. II only d. Neither I nor II 35. The likelihood that the future event will or will not occur can be expressed by a range of outcome. Which range means that the future event occurring is very slight? a. Probable c. Certain b. Reasonably possible d. Remote 36. An entity did not record an accrual for a present obligation but disclose the nature of the obligation and the range of the loss. How likely is the loss? a. Remote c. Probable b. Reasonably possible d. Certain 37. A present obligation that is probable and for which the amount can be reliably measured shall a. Not be accrued but shall be disclosed in the notes to the financial statements b. Be accrued by debiting an appropriated retained earning accnt and crediting a liability accnt c. Be accrued by debiting an epense accnt and crediting an appropriated retained earnings accnt d. Be accrued by debiting an expense accnt and crediting a liability acccnt
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38. An item that is not a contingent liability a. Premium offer to customers for labels or box tops b. Accommodation endorsement on customer note c. Additional compensation that may be payable on a dispute now being arbitrated d. Pending lawsuit 39. An entity has a self-insurance plan. Each year, the entity appropriated retained earnings for contingencies in an amount equal to insurance premiums saved less recognized losses from lawsuits and other claims. As a result of an accident in the current year, the entity is a defendant in a lawsuit which it will probably have to pay the measurable amount of damages. What are the effects of this lawsuits probable outcome on the entitys fin. Statements for the current year? a. An increase in expenses and no effect on liabilities b. An increase in both expenses and liabilities c. No effect on expenses and an increase in liabilities d. No effect in either expenses or liabilities 40. Contingent assets are usually recognized when a. Realized b. Occurrence is reasonably possible and the amount can be reliably measured c. Occurrence is probable and the amount can be reliably measured d. The amount can be reliably measured 41. Which of the ff is the proper accntng treatment of a ontingent asset? a. An accrued account b. Deferred earnings c. An account recble with an additional disclosure explaining the nature of the transaction d. A disclosure only 42. When the occurrence of a contingent asset is probable and its amount can be reliably measured, the contingent asset shall be a. Recognized in the statement of fin. Position and disclosed b. Classified as an appropriation of RE c. Disclosed but not recognized in the statement of fin. Position d. Neither recognized in the statement of fin. Position nor disclosed. 43. Unamortized debt discount shall be reported in the statement of fin. Position of the issuer as a a. Direct deduction from the face value of the debt b. Direct deduction from the PV of the debt c. Deferred charge d. Part of the issue cost 44. The issuer of a 10-yr term bond sold at par 3 yrs ago with interest payable May 1 and November 1 each year, shall report in its Dec 31 statement of fin. Position a. Liability for accrued interest b. Addition to bonds payable c. Increase in deferred charges
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d. Contingent liability 45. When the interest payment dates of a bond are May 1 and November 1, and a bond issue is sold on June 1, the amount of cash received by the issuer will be a. Decreased by the accrued interest from June 1 to Nov 1 b. Decreased by the accrued interest from May 1 to June 1 c. Increased by the accrued interest from June 1 to Nov 1 d. Increased by the accrued interest from May 1 to June 1 46. A bond issued on June 1 of the current year has interest payment dates of April 1 and October 1. Bond interest expense for the current year ended Dec 31 is for a period of a. Three months b. Four months c. Six months d. Seven months 47. The market price of a bond issued at a discount is the present value of its principal amount at the market rate of interest a. Less the PV of all the future interest payments at the market rate of interest b. Less the PV of all future interest payments at the rate of interest stated on the bond c. Plus the PV of all the future interest payments at the market rate of interest d. Plus the PV of all future interest payments at the rate of interest stated on he bond 48. In theory, the proceeds from the sale of a bond would be equal to a. The face amount of bond b. The PV of the principal amount due at the end of the life of the bond plus the PV of the interest payments made during the life of the bond c. The face amount of the bond plus the PV of the interest payments made during the life of the bond d. The sum of the face amount of the bond and the periodic interest payments 49. Under the international accounting standard, the valuation method used for bonds payable is a. Historical cost b. Discounted cash flow valuation at current yield rate c. Maturity value d. Discounted cash flow valuation at yield rate at issuance 50. What is the effective interest rate of a bond measured at amortized cost? a. The stated rate of the bond b. The interest rate currently charged by the entity or by others for similar bond. c. The interest rate that exactly discounts estimated future cash payments through the expected life of the bond or when appropriate, a shorter period to the net carrying amount of the bond d. The basic risk-free interest rate rate that is derived from observable government bond prices 51. For a bond issue which sells for less than its face value, the market rate of interest is a. Dependent on rate stated on the bond
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b. Equal to the rate stated on the bond c. Less than rate stated on the bond d. Higher than the rate stated on the bond 52. What is the market rate of interest for a bond issue cost which sells for more than its face value? a. Less than rate stated on the bond b. Equal to rate stated on the bond c. Higher than rate stated on the bond d. Independent of rate stated on the bond 53. If bonds issued at a premium, this indicates that a. The yield rate of interest exceeds the nominal rate b. The nominal rate of interest exceeds the yield rate c. The yield and nominal rate coincide d. No necessary rel exists 54. Which of the ff is true for a bond maturing on a single date when effective interest method of amortizing bond discount is used? a. Interest expense as a percentage of the bonds carrying mount varies from period to period b. Interest expense increases each six-month period c. Interest expense remains constant each six-month period d. Nominal interest rate exceeds effective interest rate 55. How would the amortization of the premium on bonds payable affect each of the ff? CA of bond Net income a. Increase Decrease b. Increase Increase c. Decrease Decrease d. Decrease Increase 56. How would the amortization of discount on bonds payable affect each of the ff? CA of bond Net Income a. Increase Decrease b. Increase Increase c. Decrease Decrease d. Decrease Increase 57. An entity issued a bond with a stated rate of interest that is less than the effective interest rate on the date of issuance. The bond was issued on one of the interest payment dates. What should the entity report on the first interest payment date? a. An interest expense that is less than the cash payment made to bondholders b. An interest expense that is greater than the cash payment made to bondholders c. A debit to the unamortized bond discount d. A debit to the unamortized bond premium 58. A bond or similar instrument convertible by the holder into a fixed number of ordinary shares of the entity is a. Compound financial instrument b. A primary financial instrument
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c. A derivative financial instrument d. An equity instrument 59. When the bonds are issued with share purchase warrants a potion of the proceeds should be allocated to equity when the bonds are issued with I. Detachable share purchase warrants II. Nondetachable share purchase warrants a. I only c. Both I and II b. II only d. Neither I nor II 60. Bondholders exchange their convertible bonds for the entitys ordinary shares. The carrying amount of these bonds was lower than the market value but greater than the par value of ordinary shares issued. If the book value method is used, which of the ff correctly states an effect of the conversion? a. SHE is increased b. Share premium is decreased c. RE increased. d. A loss is recognized 61. Under the fair value option, an entity shall measure the NP initially at a. Face amount b. Fair value plus transaction costs c. Fair value minus transaction costs d. Fair value, excluding transaction costs 62. Which of the ff statements is incorrect in relation to the fair value option of measuring note payable? a. An initial recognition, an entity may irrevocably designate the note payable as at fair value through profit or loss b. At initial recognition, an entity may irrevocably designate the note payable as at fair value through other comprehensive income c. The interest expense on the note payable is recognized using the nominal or stated interest rate d. After initial recognition, the note payable is remeasured at fair value at every year-end and any changes in fair value are recognized in profit or loss 63.

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