Multiple Choice - ( Accounting Policies, Estimates and Errors)

1. Which is the first step within the hierarchy of guidance when selecting accounting

policies?

a. Apply a standard from IFRS if it specifically relates to the transaction.

b. Apply the requirements in IFRS dealing with similar and related issue.

c. Consider the applicability of the definitions, recognition criteria and measurement

concepts in the Conceptual Framework.

d. Consider the most recent pronouncement of other standard setting bodies.

2. In the absence of an accounting standard that applies specifically to a transaction,

what is the most authoritative source in developing and applying an accounting policy?

a. The requirement and guidance in the standard or interpretation dealing with similar

and related issue.

b. The definition, recognition criteria and measurement of asset, liability, income and

expense in the Conceptual Framework

c. Most recent pronouncement of other standard-setting body

d. Accounting literature and accepted industry practice

3. A change in accounting policy shall be made when

I. Required by law.

II. Required by an accounting standard.

III. The change will result in more relevant or reliable information about the

financial position, financial performance and cash flow of the entity.

a. I and III only

b. II and III only

c. I and II only

d. I, II and III

4. Why is an entity permitted to change an accounting policy?

a. The change would allow the entity to present a more favorable profit picture.

b. The change would result in the financial statements providing more reliable and

relevant information about financial position, financial performance and cash flows.

c. The change is made by the internal auditor.

d. The change is made by the CPA.

5. A change in accounting policy requires what kind of adjustment to the financial

statements?

a. Current period adjustment

b. Prospective adjustment

c. Retrospective adjustment

d. Current and prospective adjustment

6. How should the effect of a change in accounting estimate be accounted for?

a. By restating amounts reported in financial statements of prior periods

b. By reporting pro forma amounts for prior periods

c. As a prior period error

d. In the period of change and future periods if the change affects both

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

change in accounting policy, the change is treated as

a. Change in accounting estimate with appropriate disclosure

b. Change in accounting policy

c. Correction of an error

d. Change in accounting estimate with no appropriate disclosure

8. Which of the following is the proper time period to record the effect of a change in

accounting estimate?

a. Current period and prospective

b. Current period and retrospectively

c. Retrospectively

d. Current period

9. Why is retrospective treatment of change in accounting estimate prohibited?

a. A change in accounting estimate is a normal recurring correction or adjustment.

b. The retrospective treatment is not allowed.

c. Retrospective treatment of change in accounting estimate is required by IFRS.

d. IFRS is silent on the issue.

10. Which is required for a change from sum of years' digits to straight line depreciation?

a. Reported in the statement of retained earnings

b. Retrospective restatement

c. Recomputation of depreciation for current and future years

d. All of these are required.

Multiple Choice - Events after the Reporting Period

1. Financial statements are authorized for issue

a. When the board of directors reviews and authorizes the financial statements for issue.

b. When the shareholders approve the financial statements at their annual meeting.

c. When the financial statements are filed with the regulatory agency.

d. When a supervisory board made solely of nonexecutives approves the financial

statements.

2. Which event after the reporting period would require adjustment?

a. Loss of plant as a result of fire

b. Change in the market price of investment

c. Loss on inventory resulting from flood loss

d. Loss on a lawsuit the outcome of which was deemed uncertain at year-end

3. Events that occur after the current year-end but before the financial statements are

issued and affect the realizability of accounts receivable should be

a. Discussed in the management annual report.

b. Disclosed in the notes to financial statements.

c. Used to record an adjustment to bad debt expense.

d. An adjustment directly to retained earnings.

4. Nonadjusting events include all, except

a. A major business combination after reporting period

b. Announcing a plan to discontinue an operation

c. Expropriation of major asset after reporting period

d. Destruction of a major production plant by a fire before the end of the reporting period

5. Nonadjusting events include all, 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.

6. Which event after the end of reporting period would generally require disclosure?

a. Retirement of key management personnel

b. Settlement of litigation when the event that gave rise to the litigation occurred in a

prior period

c. Strike of employees

d. Issue of a large amount of ordinary shares

7. An entity build a new factory building during the current year. Subsequent to the current

year-end and before issuance of financial statements, the building was destroyed by fire

and the claim against the insurance entity proved futile because the cause of the fire

was negligence on the part of the caretaker of the building. 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 three-fourths of the carrying amount of the building

d, Disclose the non adjusting event in the notes to financial statements

Multiple Choice - Related Party Disclosure

1. A related party transaction is a transfer

a. Between related parties when a price is charged.

b. Between related parties, regardless of whether a price is charged.

c. Between unrelated parties when a price is charged.

d. Between unrelated parties, regardless of whether a price is charged.

2. Which of the following is not a required minimum disclosure about related party

transaction?

a. The amount of related party transaction

b. The amount of the outstanding balance

c. The amount of similar transaction with unrelated parties to establish that comparable

related party transaction has been entered at arm's length

d. Doubtful debt related to the outstanding balance

3. Related party transactions include all, except

a. A venturer sold goods to the joint venture.

b. Sold a car to the uncle of the entity's finance director.

c. Sold goods to another entity owned by the daughter of the entity's managing

director.

d. All of these are related party transactions.

4. All of the following are related party transactions, except

a. Transferred goods from inventory to a subsidiary

b. Sold an entity car to the wife of the managing director

c. Sold an asset to an associate

d. Took out a huge bank loan

5. An entity that entered into a related party transaction would be required to disclose all

of the following, except

a Nature of the relationship between the parties.

b. Nature of any future transactions planned between the parties and the terms

involved.

c. Peso amount of the transaction.

d. Amount due from or to related parties at the end of reporting period.

6. Which is not required as a related party disclosure?

a. The son of the chief executive officer of the entity

b. The parent of the entity

c. An entity that has a common director with the entity

d. Joint venture in which the entity is a venturer

7. All of the following are related parties, except

a. Joint venture in which the entity is a venturer

b. A postemployment benefit plan for the employees

c. An executive director of the entity

d. The partner of a key manager is a major supplier of the entity

8. Which of the following is not a related party of an entity?

a. A shareholder owning twenty percent

b. An entity providing banking facilities to the entity

c. An associate of the entity

d. Key management personnel of the entity

II. Multiple Choice Computation - ( Accounting Policies, Estimates and Errors)

1. On January 1, 2017, Flax Company purchased a machine for P5,280,000 and

depreciated it by the straight line method using an estimated useful life of eight years with

no residual value.

On January 1, 2020, the entity determined that the machine had a useful life of six years

from the date of acquisition and the residual value was P480,000.

An accounting change was made in 2020 to reflect this additional information.

What is the accumulated depreciation for the machine on December 31, 2020?

a. 2,920,000 b. 3,080,000 c. 3,200,000 d. 3,520,000

2. Samar Company reported the following events during the year ended December 31,

2020:

A counting error relating to the inventory on December 31, 2019 was discovered.

This required a reduction in the carrying amount of inventory at that date of

P280,000.

The provision for uncollectible accounts receivable on December 31, 2019 was

P300,000.

During 2020, an amount of P500,000 was written off related to the December 31,

2019 accounts receivable.

What adjustment is required to restate retained earnings on January 1, 2020?

a. 280,000 b. 300,000 c. 580,000 d. 0