CONCEPTUAL FRAMEWORK AND ACCOUNTING
STANDARDS
CONCEPTUAL FRAMEWORK AND ACCOUNTING
STANDARDS
1. Statement 1: An investment property shall be
measured initially at fair value.
Statement 2: Transaction costs are excluded in
the initial measurement of investment
property.
9. Statement 1: Revenue shall be measured at the
cost or fair value of the consideration received
or receivable, whichever is lower.
Statement 2: The amount of revenue arising on
a transaction is usually determined by
agreement between the entity and buyer or
user of the asset.
Correct answer: Neither of the statements is correct.
2. Carrying amount is the amount at which an
asset is recognized __________.
Correct answer:
3. “Recoverable amount” is an asset’s:
Correct answer: Higher of value in use and fair value
less cost to sell
4. A contract is wholly unperformed if
___________.
Correct answer:
5. Other borrowing costs, which cannot be
capitalized, should be recognized as expense,
and reported in the period of incurrence.
Correct answer: True
6. Significant influence is the power to participate
in the financial and operating policy decisions of
the investee but is not control or joint control of
those policies.
Correct answer: True
7. How shall an entity recognize borrowing costs
that are directly attributable to the acquisition,
construction or production of a qualifying
asset?
Correct answer: As an asset
8. What are the 3 key elements used to decide
whether an intangible asset should be
recognized?
Correct answer: Control, identifiability, economic
benefits
Correct answer: Only the second statement is correct.
10. Statement 1: If an intangible asset in a class of
revalued intangible assets cannot be revalued
because there is no active market for the asset,
the asset shall be carried at its cost less any
accumulated amortization and impairment
losses.
Statement 2: If the fair value of a revalued
intangible asset can no longer be measured by
reference to an active market, the carrying
amount of the asset shall be its revalued
amount at the date of the last revaluation by
reference to the active market less any
subsequent amortization and any subsequent
impairment losses.
Correct answer: Both statements are correct.
11. Assets classified as __________ in accordance
with PAS/IAS 1 Presentation of Financial
Statements _________ they meet the criteria to
be classified as held for sale in accordance with
PFRS/IFRS 5.
Correct answer: Non-current; shall not be reclassified
as current assets until
12. The general pool of funds used to complement
borrowings for a qualifying asset may relate just
to the subsidiary. In this case, the weighted
average cost relating to the borrowings of the
subsidiary is used.
Correct answer: True
13. Statement 1: PFRS/IFRS 5 requires that assets
that meet the criteria to be classified as held for
sale to be measured at the lower of the carrying
amount and fair value less costs to sell and that
the depreciation on such assets to continue.
Statement 2: PFRS/IFRS 5 require that assets
that meet the criteria to be classified as held for
sale to be measured at the lower of revalued
amounts less costs to sell and carrying amount
and depreciation such asset to continue.
Correct answer: Neither of the statements is correct
14. If the asset or disposal group is acquired as part
of a business combination, it shall be measured
at:
Correct answer: Fair value less cost to sell
15. If an investment in an associate becomes an
investment in a joint venture or an investment
in a joint venture becomes an investment in an
associate, the entity continues to apply the
equity method and does not remeasure the
retained interest.
Correct answer: True
16. Statement 1: PFRS/IFRS 5 require that assets
that meet the criteria to be classified as held for
sale to be presented separately in the
statement of financial position.
Statement 2: PFRS/IFRS 5 require that the
results of discontinued operations be presented
separately in profit and loss.
Correct answer: Only the first statement is correct.
17. PFRS/IFRS 5 provides unconditional
requirement that the sale of the non-current
asset held for sale should be expected to qualify
for recognition as a completed sale within one
year from the date of classification.
Correct answer: False
18. PAS/IAS 40 does not deal with the following,
except:
Correct answer: measurement in a lessee’s financial
statements of investment property interest held under
a lease accounted for as a finance lease.
19. Statement 1: The cost of a separately acquired
intangible asset comprises its purchase price,
including import duties and refundable
purchase taxes before deducting trade
discounts and rebates, and any directly
attributable costs of preparing the asset for its
intended use.
Statement 2: The cost of employee benefits
arising directly from bringing the asset to its
working condition or the cost of testing
whether the asset is functioning properly are
examples of expenditures that are not part of
the cost of intangible assets.
Correct answer: Neither of the statements is correct
20. In February 2021, Warley Corp decided to sell
its entire Plant division. The Plant division was a
major part of Warley Corp’s business and the
sale will result in a strategic change in direction
for the company.
The sale was completed in January 2022 and
resulted in a gain on disposal of P500,000. In
2021 Plant’s net losses were P350,000 and
P20,000 in 2022 up until the date of sale.
Excluding taxation, what is the net gain/(loss) to
be reported in the income statements of
Warley Corp for its Plant division?
Correct answer: 2021 (P350,000) / 2022 P480,000
21. What must be considered when an entity
chooses which depreciation method to use?
Correct answer: The method chosen should best reflect
the way the entity uses up the value of the asset over
its expected useful life.
22. Why would we need to consider the cashgenerating unit (a group of assets) rather than
an individual non-current asset when
determining the recoverable amount?
Correct answer: Individual assets often don't create
cash inflows on their own
23. If a newly acquired asset is ‘held for sale’, the
asset or disposal group will be measured at:
Correct answer: The lower of cost and fair value less
cost to sell
24. Statement 1: PAS/IAS 36 applies to inventories,
assets arising from construction contracts,
deferred tax assets, assets arising from
employee benefits, or assets classified as held
for sale.
Statement 2: The only difference between an
asset’s fair value and its fair value less costs of
disposal is the direct incremental costs
attributable to the disposal of the asset.
Correct answer: Only the second statement is correct.
25. Capitalization of borrowing cost is only started
when
Correct answer:
26. Which of the following disclosures is not
required by PAS/IAS 38?
Correct answer: Fair value of similar intangible assets
used by its competitors.
27. Which item listed below does not qualify as an
intangible asset?
Correct answer: Notebook computer
28. Which of the following disclosures must be
made when the fair value method is used when
accounting for investment property?
Correct answer: Additions resulting from acquisitions
29. Which of the following is an exception for
application of PAS/IAS 18?
Correct answer:
30. Which of the following statements does more
likely define the term “restructuring”?
Correct answer:
31. The depreciation method does not need to be
reviewed every year-end.
Correct answer: False
32. Statement 1: An entity shall capitalize
borrowing costs that are indirectly attributable
to the acquisition, construction, and production
of a qualifying asset as part of the cost of that
asset.
Statement 2: An entity shall recognize other
borrowing costs as an expense in the period in
which they are incurred.
Correct answer: Only the second statement is correct.
33. The __________ of an asset is the estimated
amount that an entity would currently obtain
from disposal of the asset, after deducting the
estimated costs of disposal, if the asset were
already of the age and in the condition
expected at the end of its useful life.
Correct answer: residual value
34. Under the equity method, on initial recognition
the investment in an associate or a joint
venture is recognised __________, and the
carrying amount is increased or decreased to
recognise the investor’s share of the profit or
loss of the investee after the date of acquisition.
Correct answer: At cost
35. Which of the following items qualify as part of
the cost of an intangible asset under PAS/IAS
38?
Correct answer: Legal costs paid to intellectual
property lawyers to register a patent.
36. Statement 1: Recoverable amount is the higher
of an asset’s (or cash-generating unit’s) fair
value less costs of disposal and its value in use.
Statement 2: It is always necessary to
determine both the asset’s fair value less costs
of disposal and its value in use since if either of
these amounts exceeds the asset’s carrying
amount, the asset is impaired.
Correct answer: Only the first statement is correct.
37. Statement 1: A substantial or majority
ownership by an investee demonstrates that
the investor has significant influence in the
financial and operating policy decision of the
investee.
Statement 2: PAS/IAS 28 prescribes the
presentation and disclosure requirements of
financial investment in associates and joint
ventures.
Correct answer: Neither of the statements is correct
38. The entity has recently completed one of its
highly publicized research and development
projects. Which statement is correct in relation
to research and development activities?
Correct answer: Cost incurred during the “development
phase” can be capitalized if criteria such as technical
feasibility of the project being established are met.
39. Statement 1: An entity shall not recognize
contingent liability.
Statement 2: An entity shall not recognize a
contingent asset.
Correct answer: Both statements are correct.
40. Once recognized, intangible assets can be
carried at:
Correct answer: Cost less accumulated impairment and
less accumulated amortization.
41. A qualifying asset is an asset that necessarily
takes __________ to get ready for its intended
use or sale.
Correct answer: A substantial period of time
42. Under which of the following circumstances
does an entity lose significant power over the
investee?
Correct answer: When it loses the power to participate
in the financial and operating policy decisions of that
investee
43. Statement 1: An entity shall not classify as held
for sale a non-current asset that is to be
abandoned because it carrying amount will be
recovered principally through a transaction sale.
Statement 2: An entity shall not account for a
non-current asset that has been temporarily
taken out of use as if it had been abandoned.
Correct answer: Only the second statement is correct.
44. The following are examples of property, plant,
and equipment, except:
Correct answer: Property held for capital appreciation
45. Which of the following does not define
investment property?
Correct answer: Property used in the production or
supply of goods or services
46. Which of the following is not a principal issue in
accounting for property, plant and equipment?
Correct answer: Determination of fair value
47. Statement 1: After the date of acquisition, the
carrying amount of the investment in associate
or joint venture is increased or decreased to
recognize the investee’s share of the profit or
loss of the investor.
Statement 2: Distributions received by the
investor from the investee reduce the carrying
amount of the investment.
Correct answer: Only the second statement is correct.
48. A contract does not exist if ________.
Correct answer: Each party to the contract has the
unilateral enforceable right to terminate a wholly
unperformed contract without compensating the
other party
49. Statement 1: An entity shall choose either the
cost model or the revaluation model as its
accounting policy after recognition and shall
apply that policy to an individual item of
property, plant, and equipment.
Statement 2: Under the cost model, after
recognition as an asset, an item of property,
plant, and equipment shall be carried at its cost.
Correct answer: Neither of the statements is correct
50. Residual value is the estimated amount
currently obtainable if the asset is at the end of
the useful life.
Correct answer: True
51. Which of the following is not an example of
directly attributable costs?
Correct answer: Costs of conducting business in a new
location or with a new class of customer
52. Statement 1: Borrowing costs that are directly
attributable to the acquisition, construction or
production of a qualifying asset form part of the
cost of that asset.
Statement 2: Borrowing costs not directly
attributable to the acquisition, construction or
production of a qualifying asset are recognised
as an expense.
Correct answer: Both statements are correct.
53. Statement 1: A provision is a recognized liability
because it is a present obligation and it is
probable that an outflow of resources
embodying economic benefits will be required
to settle the obligation.
Statement 2: A contingent liability is a
recognized liability because it is a present
obligation that meets the recognition criteria
and it is probable that an outflow of resources
embodying economic benefits will be required
to settle the obligation.
Correct answer: Only the first statement is correct.
54. Under which of the following circumstances
shall the entity apply the equity method?
Correct answer: The ultimate or any intermediate
parent of the entity produces financial statements
available for public use that comply with PFRSs/IFRSs,
in which subsidiaries are consolidated or are measured
at fair value through profit or loss in accordance with
PFRS/IFRS 10
55. Borrowings can only be capitalized when it is
likely that they will generate future economic
benefits for the entity.
Correct answer: True
56. A revalued amount is the higher of the fair
value less costs to sell, and the value in use of
an asset or cash-generating unit.
Correct answer: False
57. Statement 1: The cost of a self-constructed
asset is determined using the same principles as
for an acquired asset; hence, if an entity makes
similar assets for sale in the normal course of
business, the cost of the asset is usually the
same as the cost of constructing an asset for
sale.
Statement 2: An exchange transaction between
items of property, plant, and equipment has
commercial value if the configuration of the
cash flows of the asset acquired differs from the
configuration of the cash flows of the asset
transferred, or the entity-specific value of the
portion affected by the transaction changes,
and the difference that the configuration and
the entity-specific value has is insignificant
relative to the fair value of the asset exchanged.
Correct answer: Only the first statement is correct.
58. Which of the following properties are
considered as investment properties and
accounted for in accordance with PAS/IAS 40?
Correct answer: Land held for indefinite use
59. Which of the following are needed to compute
the depreciation of an asset?
Correct answer: Estimated Units Produced, Depreciable
Amount, Residual Value
60. Statement 1: The cost of an item of property,
plant, and equipment shall be recognized as an
asset if, and only if, it is owned by the entity and
there is no contractual obligation associated
with it.
Statement 2: The cost of an item of property,
plant, and equipment shall be recognized as an
asset if, and only if, it is probable that future
economic benefits associated with the item will
flow to the entity.
Correct answer: Neither of the statements is correct
61. Statement 1: Property, plant, and equipment
are intangible assets that are held for use on
the production or supply of goods or services or
for administrative purposes, and are expected
to be used during one reporting period.
Statement 2: An item of property, plant, and
equipment that qualifies for recognition as an
asset shall be measured at cost.
Correct answer: Only the second statement is correct.
62. Renting out an upgraded office building that the
entity purchased is an example of an
investment property. Borrowing costs incurred
in the acquisition of the property are not
capitalizable.
Correct answer: True
63. The total cost of a qualifying asset is increased
by any progress payments received or any
government grants.
Correct answer: False
64. Statement 1: Only costs that reflect services to
date are included in costs incurred to date.
Statement 2: When the outcome of a
transaction cannot be estimated reliably and it
is not probable that the costs incurred will be
recovered, revenue is recognized and the costs
incurred are recognized as an expense.
Correct answer: Only the first statement is correct.
65. On subsequent remeasurement, provisions for
obsolete inventory and doubtful debts should
be reviewed:
Correct answer: Before the fair value less cost to sell is
remeasured
66. Assets that are ready for their intended use or
sale when acquired are not qualifying assets.
Correct answer: True
67. ________ is defined as the systematic allocation
of a predetermined amount of an asset over its
useful life.
Correct answer: Depreciation
68. Statement 1: Income encompasses revenue and
gains.
Statement 2: Revenue encompasses income
and gains.
Correct answer: Only the first statement is correct.
69. Statement 1: Dividends are charges for the use
of long-term assets of the entity, like patents,
trademarks, or copyrights.
Statement 2: Royalties are charges on the
distribution of profits to holders of equity
instruments in proportion to their holdings of a
particular class of capital.
Correct answer: Neither of the statements is correct
70. Impairment loss will arise when the carrying
amount of an asset or cash-generating unit
___________________ its recoverable amount.
Correct answer: Is greater than
71. Which of the following statements is true with
regards to an entity that discontinues the use of
the equity method from the date when its
investment ceases to be an associate or a joint
venture?
72. Statement 1: PAS/IAS 40 applies to the
measurement in a lessor’s financial statements
of investment property provided to a lessee
under an operating lease.
Statement 2: A building owned by the entity or
held by the entity under a finance lease and
leased out under one or more operating leases
is an example of an investment property.
Correct answer: Both statements are correct.
73. Statement 1: When the outcome of a
transaction involving the rendering of services
cannot be estimated reliably, the revenue
associated with the transaction shall be
recognized by reference to the stage of
completion of the transaction at the end of the
reporting period.
Statement 2: Progress payments and advances
received from customers often reflect the
services performed.
Correct answer: Neither of the statements is correct
74. Statement 1: The cost of investment property is
increased by start-up costs
Statement 2: The cost of investment property is
not increased by abnormal amounts of wasted
material, labor, and other resources in
constructing the property.
Correct answer: Only the second statement is correct.
75. Which of the following statements is correct?
I. Share warrants, share call options, debts, or equity
instruments that are convertible into ordinary share
that have the potential, if exercised or converted, to
give an entity additional voting power are disregarded
in determining significant influence.
II. On initial recognition, the investment in associate or
joint venture is recognized and measured at the fair
value of the investment.
Correct answer: Neither I nor II
76. Statement 1: Financial assets and inventories
that are manufactured or otherwise produced
over a short period of time are not qualified
assets.
Statement 2: Assets that are ready for their
intended use or sale when acquired are not
qualifying assets.
Correct answer: Both statements are correct.
77. Which of the following does not define an
“asset”?
Correct answer: A resource which value in use exceeds
its historical cost
78. Farming land is purchased for its investment
potential. Planning permission has not been
obtained for building constructions of any kind.
Is this an investment property?
Correct answer: Yes
79. When an entity has an investment in an
associate, a portion of which is held indirectly
through a venture capital organization, the
entity may elect to measure that portion of the
investment in the associate at fair value
through profit or loss in accordance with
PFRS/IFRS 9 __________ the venture capital
organization has __________ over that portion
of the investment.
Correct answer: Regardless of whether; significant
influence
80. If an asset incorporates both intangible and
tangible elements, it shall be treated under
__________.
Correct answer:
81. Statement 1: An intangible asset shall be
recognized if it is probable that the expected
future economic benefits that are attributable
to the asset will flow to the entity, or the cost of
the asset can be measured reliably.
Statement 2: An intangible asset shall be
measured initially at cost.
Correct answer: Only the second statement is correct.
82. Statement 1: An entity may choose either the
fair value model or the cost model for all
investment property backing liabilities that pay
a return linked directly to the fair value of, or
returns from specified assets including that
investment property.
Statement 2: An entity shall choose as its
accounting policy either the fair value model or
the cost model, and shall apply that policy to
selected investment property.
Correct answer: Only the first statement is correct.
83. When can the impairment test be carried out
during the financial year?
Correct answer: Any time during the financial year
84. An investment property shall be measured
initially at its __________.
Correct answer: Cost
85. An entity shall not recognize a contingent
liability __________.
Correct answer:
86. Statement 1: If the disposal costs are negligible,
the recoverable amount of the revalued asset is
necessarily close to, or greater than, its
revalued amount.
Statement 2: If the disposal costs are not
negligible, the fair value less costs of disposal of
the revalued asset is necessarily less than its fair
value.
Correct answer: Both statements are correct.
87. Statement 1: A non-current asset is classified as
held for distribution to owners when the entity
is committed to distribute the asset to the
owners.
Statement 2: An entity that is committed to a
sale plan involving loss of control of a subsidiary
shall classify all the assets and liabilities of that
subsidiary as held for sale when the criteria for
classification of assets held for sale are met
regardless of whether the entity will retain a
non-controlling interest in its former subsidiary
after the sale.
Correct answer: Both statements are correct.
88. Statement 1: If there is no reason to believe
that an asset’s fair value less costs of disposal
materially exceeds is value in use, the asset's
recoverable amount may be used as its fair
value less costs of disposal
Statement 2: Cash flow projections until the
end of an asset’s useful life are estimated by
budgeting the cash flow projections based on
the economic condition using a growth rate for
prior years.
Correct answer: Neither of the statements is correct
89. PAS/IAS 36 applies to all these except:
Correct answer: Inventories
90. Statement 1: Borrowing costs are interest and
other charges that an entity incurs in the
acquisition, construction, or production of a
qualifying asset.
Statement 2: A qualifying asset is an asset that
meets the requirements of the principle of
recognition and qualifies to be recognized as an
asset.
Correct answer: Neither of the statements is correct
91. Which of the following statements is true with
regards to an investment property?
Correct answer: An investment property generates
cash flows largely independently of the other assets
held by an entity
92. The present value of future net cash inflows to
the entity from a Cash Generating Unit is the
definition of which value?
Correct answer: Value in use
93. An onerous contract is a contract in which
__________ of meeting the obligations under
the contract __________ the economic benefits
expected to be received under it.
Correct answer: Unavoidable costs; exceed
94. Statement 1: Non-current assets to be
abandoned include non-current assets that are
to be used to the end of their economic life and
non-current assets that are to be closed rather
than sold.
Statement 2: An entity shall measure a noncurrent asset classified as held for sale at the
lower of its carrying amount and fair value less
costs to sell.
Correct answer: Both statements are correct.
95. Interest on bank overdrafts, short term and
long term borrowings are the only items
included in borrowing costs.
Correct answer: False
96. The existence of which of the following in the
entity’s internal reporting does indicate that an
asset may be impaired?
97. Which is not considered to be an investment
property?
Correct answer: Empty warehouse
98. Under PAS/IAS 40 which additional disclosure
must be made when an entity chooses the cost
model as its accounting policy for investment
property?
Correct answer: The fair value of the property
99. Which of the following is an objective of
PAS/IAS 38?
Correct answer: To specify disclosure requirements
about intangible assets
CHAPTER 14-16
1. Statement 1: An entity does not need to apply
the equity method if the entity is a parent that
is exempted from preparing consolidated
financial statements and the entity’s debt or
equity instruments are not traded in a public
market.
Statement 2: An entity may elect to measure
investment in associate or joint venture at fair
value through profit or loss when the
investment is held by an entity that is a
venture-capital organization.
Correct answer: Both statements are correct.
2. The acquisition cost of an investment property
exchanged for a non-monetary asset is
measured at fair value if the exchange
transaction lacks commercial substance.
Correct answer: False
3. Statement 1: An entity may choose either the
fair value model or the cost model for all
investment property backing liabilities that pay
a return linked directly to the fair value of, or
returns from specified assets including that
investment property.
Statement 2: An entity shall choose as its
accounting policy either the fair value model or
the cost model, and shall apply that policy to
selected investment property.
Correct answer: Only the first statement is correct.
4. Revaluation is defined as the systematic
allocation of a predetermined amount of an
asset over its useful life.
Correct answer: False
5. Statement 1: Amortization of goodwill is
permitted when the goodwill is substantially
impaired.
Statement 2: Gains and losses resulting from
upstream and downstream transactions
between the entity and its associate or joint
venture are recognized in the entity’s financial
statement.
Correct answer: Only the second statement is correct.
6. Quad Company has a spare part, which it terms
as ‘insurance/backup spare’, is required to be
used along with equipment, and meets the
definition of ‘property, plant and equipment.
How does Quad Company account for this
item?
Correct answer: the spare part is required to be
recognized as part of that equipment and the
depreciation is required to be calculated along with
the equipment for which it has been used
7. Under which of the following circumstances
shall the investor recognize its share in losses
incurred?
Correct answer:
8. Statement 1: After recognition as an asset using
the revaluation model, an item of property,
plant, and equipment whose fair value can be
measured reliably shall be carried at a revalued
amount which is the fair value at the date of
initial recognition less any accumulated
depreciation and subsequent impairment
losses.
Statement 2: In the revaluation model,
revaluations shall be made with sufficient
regularity to ensure that the carrying amount
does not differ materially from that which
would be determined using the fair value at the
end of the reporting period.
Correct answer: Only the second statement is correct.
9. If an investment in an associate becomes an
investment in a joint venture or an investment
in a joint venture becomes an investment in an
associate, the entity continues to apply the fair
value method and does not remeasure the
retained interest.
Correct answer: False
10. Statement 1: If an investment in associate or
joint venture or a portion of the omvetment
meets the criteria to be classified as held for
sale, the entity shall apply the principles of
PFRS/IFRS 5 - Non Current Assets Held for
Investment and Discontinued Operations.
Statement 2: When an investment in an
associate or a joint venture previously classified
as held for sale no longer meets the criteria to
be classified as held for sale, the investment
shall be accounted for using the equity method
prospectively from the date of reclassification.
Correct answer: Only the first statement is correct.
11. Goodwill that forms part of the carrying amount
of an investment in associate or joint venture
and is not separately recognized, should be
tested for impairment separately.
Correct answer: False
12. Statement 1: After initial recognition, an entity
that chooses the fair value model shall measure
all of its investment property at fair value,
except when there is inability to measure fair
value reliably.
Statement 2: A gain or loss arising from change
in the fair value of investment property shall be
recognized in comprehensive income for the
period in which it arises.
Correct answer: Only the first statement is correct.
13. Gains and losses resulting from ‘upstream’ and
‘downstream’ transactions involving assets that
do not constitute a business, as defined in
PFRS/IFRS 3 Business Combinations, between
an entity and its associate or joint venture
__________.
Correct answer: Shall be recognized in the entity’s
financial statements only to the extent of unrelated
investors’ interests in the associate or joint venture
14. An entity may choose the cost model or the fair
value model to account for its investment
property, and it can apply these models to each
investment property separately.
Correct answer: False
15. Statement 1: If an investment in an associate
becomes an investment in joint venture or vice
versa, the entity shall discontinue to apply the
equity method and has to remeasure the
retained interest.
Statement 2: When the entity discontinues the
use of the equity method, the entity shall
account for all amounts previously recognized
in other comprehensive income in relation to
that investment on the same basis as would
have been if the investee has directly disposed
of the related assets or liabilities.
Correct answer: Only the second statement is correct.
16. When the revaluation model is used for
reporting plant, property, and equipment, the
gain or loss should be included in:
Correct answer: Other comprehensive income if it is a
revaluation surplus
17. Statement 1: The gain or loss arising from the
derecognition of an item of property, plant, and
equipment shall be determined as the
difference between the net disposal proceeds,
if any, and the carrying amount of the item.
Statement 2: If an entity recognizes in the
carrying amount of an item of property, plant,
and equipment the cost of a replacement for
part of the item, then it derecognizes the
carrying amount of the replaced parts
regardless whether the replaced parts have
been depreciated separately.
Correct answer: Both statements are correct.
18. Transfers from investment property to
property, plant, and equipment are appropriate
________________.
Correct answer: When there is change of use
19. An investment property should be measured
initially at:
Correct answer: Cost
20. Potential voting rights not currently exercisable
or convertible are considered when assessing
whether an entity has significant influence.
Correct answer: False
21. The applicable Standard for a property being
constructed or developed for future use as
investment property is:
Correct answer: PAS/IAS 16, Property, Plant, and
Equipment, until construction is complete and then it
is accounted for under PAS/IAS 40, Investment
Property
22. Statement 1: When an item of property, plant,
and equipment is revalued, any accumulated
depreciation at the end of the revaluation is
restated proportionately with the change in
gross carrying amount of the asset so that the
carrying amount of the asset after revaluation
equals its revalued amount.
Statement 2: When an item of property, plant,
and equipment is revalued, any accumulated
depreciation at the end of the revaluation is
eliminated against the gross carrying amount of
the asset and the net amount restated to the
revalued amount of the asset.
Correct answer: Both statements are correct.
23. PAS/IAS 16 applies to produce of bearer plants
but it does not apply on bearer plants.
Correct answer: False
24. Statement 1: If an item of property, plant, and
equipment is revalued, the individual item of
property, plant, and equipment shall be
revalued.
Statement 2: If an asset’s carrying amount is
increased as a result of a revaluation, the
increase shall be recognized in other
comprehensive income and accumulated in
equity under the heading of revaluation surplus.
Correct answer: Only the second statement is correct.
25. Residual value is the estimated amount
currently obtainable at the current stage of the
asset’s useful life.
Correct answer: False
26. Statement 1: When a property interest held by
a lessee under an operating lease is classified as
an investment property, the fair value model
shall be applied.
Statement 2: The presumption that the fair value of
investment property under construction can be
measured reliably can be rebutted only on initial
recognition.
Correct answer: Both statements are correct.
27. Statement 1: For a transfer investment property
carried at fair value to owner-occupied property
or inventories the property’s deemed cost for
subsequent accounting shall be its fair value at
the date of change in use.
Statement 2: An investment property shall be
derecognized on disposal or when the
investment property is temporarily withdrawn
from use.
Correct answer: Only the first statement is correct.
28. The following statements are correct, except:
Correct answer: The entity selects the methods of
depreciation that most closely reflects the expected
pattern of consumption of the future economic
benefits embodied in the asset, and the method is
applied consistently from period to period
notwithstanding the change in the expected pattern of
consumption of those future economic benefits.
29. The following statements are correct, except:
Correct answer: The fair value of the retained interest
in the former associate shall be recognized at its fair
value on subsequent recognition as a financial asset.
30. Statement 1: If an entity has previously
measured an investment property at fair value,
it shall continue to measure the property at fair
value until disposal even if comparable market
transactions become less frequent or market
prices become less readily available.
Statement 2: An entity is required to transfer a
property from investment property to
inventories when, and only when, there is a
change in use, evidenced by commencement of
development with a view to sale.
Correct answer: Both statements are correct.
CHAPTER 17-19
1. Property under construction or development
for future use as an investment property is
covered under PAS/IAS 40 and should be
measured at fair value during the construction
period, if the fair value method is the
accounting policy of the entity for investment
property. Can borrowing costs attributable to
the investment property measured at fair value
be capitalized?
Correct answer: Yes.
2. Statement 1: The amount of borrowing costs
that an entity capitalized during a period shall
not exceed the amount of borrowing costs it
concurred in that period.
Statement 2: When the carrying amount or the
expected ultimate cost of the qualifying asset
exceeds its recoverable amount or net
realizable value, the carrying amount is written
down or written off in accordance with the
requirements of other Standards.
Correct answer: Neither of the statements is correct
3. Capitalization is suspended if active
development of an asset is suspended for an
extended period of time.
Correct answer: True
4. An entity shall classify a non-current asset (or
disposal group) as held for sale if:
Correct answer: its carrying amount will be recovered
principally through a sale transaction rather than
through continuing use
5. Praksh Ltd intends to sell its property after it
completes the renovations to the property to
increase the property’s sales value. Which of
the following statements is correct?
Correct answer: the asset cannot be classified as held
for sale
6. Discontinued operation means a component of
an entity that either has been disposed of or is
classified as held for sale which:
Correct answer: all of the above
7. Statement 1: The impairment loss recognized
for a disposal group shall reduce the carrying
amount of the non-current assets in the group
that are within the scope of the measurement
requirements.
Statement 2: A gain or loss not previously
recognized by the date of the sale of a noncurrent asset shall be recognized at the date of
derecognition.
Correct answer: Both statements are correct.
8. Statement 1: An entity shall capitalize
borrowing costs that are indirectly attributable
to the acquisition, construction, and production
of a qualifying asset as part of the cost of that
asset.
Statement 2: An entity shall recognize other
borrowing costs as an expense in the period in
which they are incurred.
Correct answer: Only the second statement is correct.
9. Statement 1: An entity shall recognize an
impairment loss for subsequent but not for
initial write-down of the asset to fair value less
costs to sell to the extent that it has not been
recognized.
Statement 2: An entity shall recognize a gain or
loss for any subsequent increase in fair value
less costs to sell of an asset but not in excess of
the cumulative impairment loss that has been
recognized.
Correct answer: Only the second statement is correct.
10. Happy Company has acquired a 5G license. The
license could be sold or licensed to a third
party. However, management intends to use it
to operate a wireless network. Development of
the network starts when the license is acquired.
Should borrowing costs on the acquisition of
the 5G license be capitalized until the network
is ready for its intended use?
Correct answer: Yes. As the license has been
exclusively
11. Statement 1: If the asset or disposal group is
acquired as part of a business combination, it
shall be measured at transaction cost.
Statement 2: Any increase in the present value of the
costs to sell that arises from the passage of time shall
be presented in the statement of comprehensive
income as a financing cost.
Correct answer: Neither of the statements is correct
12. Statement 1: Cash-generating units shall be
identified consistently from period to period for
the same asset or types of assets, unless a
change is justified.
Statement 2: The carrying amount of a cashgenerating unit does not include the carrying
amount of any recognized liability, unless the
recoverable amount of the cash-generating unit
cannot be determined without consideration of
this liability.
Correct answer: Both statements are correct.
13. Capitalization of borrowing cost is also allowed
on assets being held, with no present activity,
for future development.
Correct answer: False
14. Statement 1: An impairment loss shall be
recognized immediately in profit or loss, unless
the asset is carried at its revalued amount.
Statement 2: Any impairment loss of a revalued
asset shall be treated as a revaluation decrease
and is recognized in other comprehensive
income.
Correct answer: Both statements are correct.
15. If assets are to be disposed of
Correct answer: The recoverable amount is the
carrying value.
16. Statement 1: After the recognition of an
impairment loss, the accumulated depreciation
charge for the asset shall be adjusted in future
periods to allocate the asset’s revised carrying
amount, less its residual value, if any, on a
systematic basis over its entire useful life.
Statement 2: The recoverable amount of an
individual asset can easily be determined if the
asset’s value in use can be estimated to be close
to its carrying amount less costs of disposal and
the asset generates cash flows that are largely
independent of those from other assets.
Correct answer: Neither of the statements is correct
17. Statement 1: Estimates of cash flows shall
include cash inflows and outflows from
financing activities.
Statement 2: The discount rate shall be a posttax rate that reflects future market assessment
of the time value of money and the risk specific
for the asset for which future cash flow
estimates have been adjusted.
Correct answer: Neither of the statements is correct
18. An adjustment to the carrying amount of a noncurrent asset that ceases to be classified as
‘held for sale’, is recorded in:
Correct answer: Income from continuing operations
19. Quando Corporation has incurred expenses for
the acquisition of a permit allowing the
construction of a building. It has also acquired
equipment that will used for the construction of
various buildings. Can the borrowing costs on
the acquisition of the permit and the equipment
be capitalized until the construction of the
building is complete?
Correct answer: capitalizable for the permit but not for
the equipment
20. Statement 1: The entity shall measure a noncurrent asset that ceases to be classified as held
for sale at the lower of its carrying amount
before the asset was classified as held for sale
as adjusted that would have been recognized
had the asset not been classified as held for sale
and its carrying amount.
Statement 2: A component of an entity
comprises operations and cash flows that can
be clearly distinguished operationally and for
financial reporting purposes from the rest of
the entity.
Correct answer: Only the second statement is correct.
21. When does the entity include all borrowings of
the parent and its subsidiaries when computing
for the weighted average of the borrowings
costs?
Correct answer: If the major ‘borrowings are
made centrally and cost also met centrally and
passed through individual group companies via
inter-company accounts and inter-group loans.
22. PAS/IAS 36 applies to assets held for sale if the
carrying cost of the asset exceeds its
recoverable amount.
Correct answer: False
23. Statement 1: Non-current assets to be
abandoned include non-current assets that are
to be used to the end of their economic life and
non-current assets that are to be closed rather
than sold.
Statement 2: An entity shall measure a noncurrent asset classified as held for sale at the
lower of its carrying amount and fair value less
costs to sell.
Correct answer: Both statements are correct.
24. PAS/IAS 36 applies to which of the following
assets?
Correct answer: Property, plant, and equipment
25. Statement 1: An entity shall begin capitalizing
borrowing costs as part of the cost of the
qualifying asset on the date of recognition.
Statement 2: Expenditures of a qualifying asset
include only those expenditures that have
resulted in payment of cash, transfers of other
assets, or the assumption of interest-bearing
liabilities.
Correct answer: Both statements are correct.
26. Which of the following is true if the fair value
less costs to sell cannot be determined?
Correct answer: The recoverable amount is the valuein-use
27. Value-in-use is:
Correct answer: The discounted present value of future
cash flows arising from use of the asset and its
subsequent disposal
28. Statement 1: If, and only if the recoverable
amount of an asset is less than its carrying
amount, the carrying amount of the asset shall
be reduced to its recoverable amount. That
reduction is considered an impairment loss.
Statement 2: If, and only if, the carrying amount
of an asset is less than its recoverable amount,
the recoverable amount of the asset shall be
reduced to its carrying amount. That reduction
is considered an impairment loss.
Correct answer: Only the first statement is correct.
29. Statement 1: An entity shall suspend
capitalization of borrowing costs during
extended periods in which it suspends active
development of a qualifying asset.
Statement 2: When an entity completes the
construction of a qualifying asset in parts, and
each part is not capable of being used while
construction continues on other parts, the
entity shall cease capitalizing borrowing costs
when it completes partly the activities.
Correct answer: Only the second statement is correct.
30. Statement 1: An entity that borrows funds
specifically for the purpose of obtaining a
qualifying asset shall determine the amount of
borrowing costs eligible for capitalization by
applying a capitalization rate to the expenditure
of that asset.
Statement 2: An entity that borrows funds
generally and uses them for the purpose of
obtaining a qualifying asset shall determine the
amount of borrowing costs eligible for
capitalization as the actual borrowing costs
incurred on that borrowing during the period
less any investment income on the temporary
investment of those borrowings.
Correct answer: Only the second statement is correct.
CHAPTER 20-22
1. Statement 1: Gains from the expected disposal
of the asset shall not be taken into account in
measuring a provision.
Statement 2: In the statement of
comprehensive income, the expense relating to
a provision may be presented net of the
amount recognized for a reimbursement.
Correct answer: Both statements are correct.
2. Which of the following statements are correct?
Correct answer: The use by others of entity assets gives
rise to revenue in the form of interest, royalties, and
dividends.
3. Statement 1: The amount recognized as a
contingent liability shall be the best estimate of
the expenditure required to settle the present
obligation at the end of the reporting period.
Statement 2: The amount recognized as a
provision shall be the best estimate of the
expenditure required to settle the present
obligation at the end of the reporting period.
Correct answer: Only the second statement is correct.
4. Statement 1: Some intangible asset arising from
research from the research phase of an internal
project shall be recognized.
Statement 2: Expenditure on research or on the
research phase of an internal project shall be
recognized as an expense when incurred.
Correct answer: Only the second statement is correct.
5. An intangible asset is recognized by the entity
when it is identifiable, the entity has control
over the asset, and future economic benefits
are expected to flow into the entity.
Correct answer: True
6. Statement 1: An example of a situation in which
the entity may retain the significant risks and
rewards of ownership is when the receipt of the
revenue from a particular sale is contingent on
the derivation of revenue by the buyer from its
sale of the goods.
Statement 2: An example of a situation in which
the entity may retain the significant risks and
rewards of ownership is when the buyer does
not have the right to rescind the purchase for a
reason specified in the sale contract and the
entity is certain about the probability of return.
Correct answer: Only the first statement is correct.
7. A contract is wholly unperformed if the entity
has not yet received any consideration in
exchange for promised goods or services
Correct answer: True
8. Research costs can be capitalized:
Correct answer: Never
9. Statement 1: A contingent liability usually arises
from planned or other expected events that
give rise to the possibility of an inflow of
economic benefits to the entity.
Statement 2: A contingent asset usually arises
from planned or other expected events that
give rise to the possibility of an outflow of
economic benefits to the entity.
Correct answer: Neither of the statements is correct
10. The following items have to be considered in
the financial statements of an entity:
A. The company gives warranties on its products.
Historical data shows about 5% of sales give rise
to a warranty claim.
B. The company has guaranteed the overdraft of
another company. The likelihood of a liability
arising under the guarantee is assessed as
possible.
How should the entity disclose these items in their
financial statements?
Correct answer: Create a provision for the warranty
claims and disclose the liability from the guarantee in
the notes
11. All development costs are capitalized while all
research costs are expensed.
Correct answer: False
12. Statement 1: Only costs that reflect services to
date are included in costs incurred to date.
Statement 2: When the outcome of a
transaction cannot be estimated reliably and it
is not probable that the costs incurred will be
recovered, revenue is recognized and the costs
incurred are recognized as an expense.
Correct answer: Only the first statement is correct.
13. Statement 1: If an intangible asset in a class of
revalued intangible assets cannot be revalued
because there is no active market for the asset,
the asset shall be carried at its cost less any
accumulated amortization and impairment
losses.
Statement 2: If the fair value of a revalued
intangible asset can no longer be measured by
reference to an active market, the carrying
amount of the asset shall be its revalued
amount at the date of the last revaluation by
reference to the active market less any
subsequent amortization and any subsequent
impairment losses.
Correct answer: Both statements are correct.
14. Which of the following statements is incorrect?
Correct answer: When the inflow of cash or cash
equivalent in a transaction is deferred, the fair value of
the consideration may be more that the nominal
amount of cash received or receivable.
15. Entity shall recognise revenue to depict the
transfer of promised goods or services to
customers in the net amount that reflects the
consideration to which the entity expects to be
entitled in exchange for those goods or services.
Correct answer: False
16. Statement 1: An obligating event is an event
that creates a legal or constructive obligation
that results in an entity having no realistic
alternative to settling that obligation.
Statement 2: For an event to be an obligating
event, it is necessary that the entity has no
realistic alternative to settling the obligation
created by the event.
Correct answer: Both statements are correct.
17. Statement 1: When the outcome of a
transaction involving the rendering of services
cannot be estimated reliably, the revenue
associated with the transaction shall be
recognized by reference to the stage of
completion of the transaction at the end of the
reporting period.
Statement 2: Progress payments and advances
received from customers often reflect the
services performed.
Correct answer: Neither of the statements is correct
18. Revenue and income are interchangeable
terms.
Correct answer: False
19. Statement 1: An entity shall not recognize a
contingent liability.
Statement 2: An entity shall not recognize a
contingent asset.
Correct answer: Both statements are correct.
20. Statement 1: For a liability to qualify for
recognition, there must be not only a present
obligation but also the probability of an outflow
of resources embodying economic benefits
required to settle the obligation.
Statement 2: An entity shall recognize a
contingent liability provided the requirements
for recognition have been fully met.
Correct answer: Only the first statement is correct.
21. Statement 1: When the selling price of a
product includes an identifiable amount for
subsequent servicing, the amount is deferred
and recognized as revenue over the period
during which the service is performed.
Statement 2: If the entity retains significant
risks of ownership, the transaction is not a sale
and revenue is not recognized.
Correct answer: Both statements are correct.
22. The following costs are directly attributable
costs of an internally-generated intangible
asset, except:
Correct answer: Identified inefficiencies and initial
operating losses incurred before the asset achieves
planned performance.
23. Statement 1: Where an entity is jointly and
severally liable for an obligation, the part of the
obligation that is expected to be met by other
parties is treated as a provision.
Statement 2: The entity recognizes a provision
for the part of the obligation for which an
outflow of resources embodying economic
benefits is probable, except in extremely rare
circumstances where no reliable estimate can
be made.
Correct answer: Only the second statement is correct.
24. Statement 1: Expenditure on an intangible item
that was initially recognized as an expense shall
be recognized as part of the cost of an
intangible asset at a later date.
Statement 2: Expenditure on an intangible item
shall be recognized as an expense when it is
incurred unless it forms part of the cost of an
intangible asset that meets the recognition
criteria.
Correct answer: Only the second statement is correct.
25. The following are examples of research
activities, except:
Correct answer: The design, construction, and testing
of pre-production on pre-use prototypes and models.
26. PAS/IAS 38 prescribes the accounting treatment
for intangible assets that are dealt with
specifically in another Standard.
Correct answer: False
27. Statement 1: A provision shall be recognized
when an entity has a present obligation as a
result of past events and it is probable that an
inflow of resources embodying economic
benefits will be required to settle the
obligation.
Statement 2: It is only those obligations arising
from past events existing independently of an
entity’s future actions that are recognized as
Correct answer: Only the second statement is correct.
Statement 1: When goods or services are exchanged or
swapped for goods or services which are of similar
nature and value, the exchange is regarded as a
transaction which generates revenue.
Statement 2: When goods are sold or services
are rendered in exchange for dissimilar goods or
services, the exchange is not regarded as a
transaction which generates revenue.
Correct answer: Neither of the statements is correct
28. Impairment on goodwill can be reversed once
the recoverable amount exceeds the carrying
amount of the asset.
Correct answer: False
PRELIM EXAM
1. Statement 1: A gain or loss on initial recognition
of a biological asset at fair value less costs to
sell and from a change in fair value less costs to
sell of a biological asset shall be included in
profit or loss for the period in which it arises.
Statement 2: A gain or loss arising on initial
recognition of agricultural produce at carrying
value less costs to sell shall be included in profit
or loss for the period in which it arises.
Correct answer: Only Statement 1 is correct
2. When an entity continues to recognise an asset
to the extent of its continuing involvement, the
entity shall not recognise an associated liability.
Correct answer: False
3. _____ is the management by an entity of the
biological transformation and harvest of
biological assets for sale or for conversion into
agricultural products or into additional
biological assets.
Correct answer: Agricultural activity
4. Contracts, and thus financial instruments, may
take a variety of forms and need not be in
writing.
Correct answer: True
5. In order to perform a fair value measurement,
an entity needs to undertake an in-depth or
exhaustive search of all possible markets to
identify the principal market or, in the absence
of a principal market, the most advantageous
market.
Correct answer: False
6. PAS 41 covers the recognition of biological
assets, agricultural produce, and processed
products after harvest.
Correct answer: False
7. Which of the following shall an entity disclose
for loans payable recognized at the end of the
reporting period?
Correct answer:
8. PFRS/IFRS 13 notes that highest and best use
(HBU) is:
Correct answer: The use of a non-financial asset by
market participants that would maximize the value of
the asset or the group of assets and liabilities within
which the asset would be used.
9. Under which of the following conditions shall an
entity discontinue prospectively the hedge
accounting?
Correct answer:
10. The date of transition to PFRSs/IFRSs is the
beginning of the earliest period for which an
entity presents full comparative information
under PFRSs/IFRSs in its first PFRS/IFRS financial
statements.
Correct answer: True
11. Transport costs, as defined in PFRS/IFRS 13, are:
Correct answer: ‘the costs that would be incurred to
transport an asset from its current location to its
principal (or most advantageous) market.’
12. Which of the following liabilities is a financial
liability?
Correct answer: An obligation to deliver own shares
worth a fixed amount of cash
13. Under this formula, it is assumed that the items
of inventory that were purchased or produced
first are sold first, and consequently, the items
remaining in inventory at the end of the period
are those most recently purchased or produced.
Correct answer: FIFO formula
14. A biological asset is measured at its carrying
value less cost to sell, except when it cannot be
measured reliably, then fair value is used.
Correct answer: False
15. GAAP PFRSs/IFRSs affected its reported
financial position, financial performance and
cash flows.
Correct answer: True
16. In an entity’s opening statement of financial
position, assets, liabilities, and equity
recognized in accordance with previous GAAP
shall be reclassified if it falls under a different
type in accordance with the PFRSs/IFRSs.
Correct answer: True
17. Normal capacity is the production expected to
be achieved on average over a number of
periods or seasons under normal circumstances,
taking into account the loss of capacity resulting
from planned maintenance.
Correct answer: True
18. An entity is required to disclose the quantities
of its consumable and bearer biological assets in
the statement of financial position.
Correct answer: False
19. Which of the following is not a financial asset?
Correct answer: A contract that will or may be settled
in the entity’s own equity instruments and is a nonderivative for which the entity is or may be obliged to
deliver a variable number of the entity’s own equity
instruments
20. An equity instrument is any contract that
evidences a residual interest in the assets of an
entity after deducting all of its liabilities.
Correct answer: True
21. PFRS/IFRS recommends that the LIFO (last in,
first out) method is used in assigning costs of
inventories.
Correct answer: False
22. XYZ Company’s previous financial statements
contained an explicit statement of compliance
with some, but not all, PFRSs/IFRSs. The
financial statements of XYZ Company for the
year contain an explicit and unreserved
statement of compliance with all PFRSs/IFRSs.
Which of the following is correct?
Correct answer: The financial statements for the year
are the entity’s first PFRS/IFRS financial statements
and entity B applies PFRS/IFRS 1.
23. Which of the following defines the term ‘fair
value’?
Correct answer: The price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the
measurement date
24. PAS/IAS 41 shall be applied to account for
biological assets, except for bearer plants, when
they relate to agricultural activity.
Correct answer: True
25. An entity’s first PFRS/IFRS financial statements
shall include at least __________, __________,
two separate statements of profit or loss (if
presented), two statements of cash flows, two
statements of changes in equity and
____________, including comparative
information for all statements presented.
Correct answer: Three statements of financial position;
two statements of profit or loss and other
comprehensive income; related notes
26. fair values, an entity shall group financial assets
and financial liabilities into classes, but
__________.
Correct answer: Shall offset them only to the extent
that their carrying amounts are offset in the statement
of financial position
27. Which of the following does not define a
“bearer plant”?
Correct answer:
28. The principles of PAS/IAS 32 __________ the
principles for recognizing and measuring
financial assets and financial liabilities in
PFRS/IFRS 9 - Financial Instruments, and for
disclosing information about them in PFRS/IFRS
7 - Financial Instruments: Disclosures.
Correct answer: Complement
29. An entity shall follow the guidelines of
PFRS/IFRS 41 in its first PFRS/IFRS financial
statements.
Correct answer: False
30. _____ production overheads are those costs of
production that vary directly, or nearly directly,
with the volume of production.
Correct answer: Variable
31. Trade discounts, rebates, and other similar
items are excluded in determining the costs of
purchase.
Correct answer: False
32. is an exception to the application of PAS/IAS 2
- Inventories?
Correct answer: financial instruments
33. Which of the following conversion costs cannot
be included in the cost of inventory?
Correct answer: Salaries of sales staff if the sales
department shares the building with factory
supervisor
34. Which of the following is considered an
agricultural produce?
Correct answer: wool from sheep
35. Which of the following is not dealt with by
PAS/IAS 41?
Correct answer: The processing of agricultural produce
after harvesting.
36. Which of the following does PFRS/IFRS 1 require
an entity to do in the opening PFRS/IFRS
statement of financial position that it prepares
as a starting point for its accounting under
IFRSs?
Correct answer:
37. An entity shall prepare and present an opening
PFRS/IFRS statement of financial position at the
date of transition to PFRSs/IFRSs. This is the
starting point for its accounting in accordance
with PFRSs/IFRSs.
Correct answer: True
38. Non-production overhead, such as design costs,
may be accounted for as part of inventory cost
if the incurrence of the cost was necessary in
bringing the inventories to their present
location and condition.
Correct answer: True
39. PAS/IAS applies only to agricultural produce at
the point of harvest.
Correct answer: True
40. The actual level of production may be used if it
__________ normal capacity.
Correct answer: approximates
41. Estimates made in accordance with the
previous GAAP shall be retained on the date of
transition to the PFRSs/IFRSs, unless there is
objective evidence that the estimates were in
error.
Correct answer: True
42. The objective of PFRS/IFRS1 is to ensure that an
entity’s first PFRS/IFRS financial statements, and
its interim financial reports for part of the
period covered by those financial statements,
contain high quality information that:
Correct answer: all of the above
43. Which of the following is not a type of hedging
relationship?
Correct answer: Interest risk hedge
44. ‘Principal market’ is defined as:
Correct answer: The market with the greatest volume
and level of activity for the asset or liability.
45. Which of the following is/are considered
exception/s to the retrospective application of
PFRSs/IFRSs?
Correct answer: All except C
46. Generally speaking, biological assets relating to
agricultural activity should be measured using:
Correct answer: Fair value less costs to sell
47. Where there is a long aging or maturation
process after harvest, the accounting for such
products should be dealt with by:
Correct answer: PAS/IAS 2 – Inventory
48. When a first-time adopter restates assets,
liabilities, and equity in its opening statement of
financial position, a difference between the
carrying amounts under previous GAAP and
those under PFRSs/IFRSs will arise. For example,
a first-time adopter may re-measure investment
properties to fair value under PFRSs/IFRSs or
restate some of its financial assets. Where
should the adjusting entry be recorded?
Correct answer: a first-time adopter should recognize
those adjustments directly in retained earnings or, if
appropriate, another category of equity.
49. The entity is allowed to apply different versions
of the PFRS/IFRS which were effective from
earlier dates from the date of its transition.
Correct answer: False
50. Agricultural produce is measured at fair value
less cost to sell at the point of harvest.
Correct answer: True
51. ‘Most advantageous market’ is defined as:
Correct answer: The market that maximizes the
amount that would be received to sell the asset or
minimizes the amount that would be paid to transfer
the liability, after taking into account transaction costs
and transport costs.
52. The measurement and disclosure requirements
of PFRS/IFRS 13 do not apply to:
Correct answer: All of the above
53. When a functional currency has no reliable
general price index available to all entities with
transactions and balances in the currency and
exchangeability between the currency and a
relatively stable foreign currency does not exist,
an entity may opt to measure assets and
liabilities at fair value.
Correct answer: True
54. ABC Ltd. wants to assess its functional currency.
From which date should company ABC Ltd.
assess its functional currency?
Correct answer: retrospectively
55. Regarding the choice of measurement basis
used for valuing biological assets, PAS/IAS 41:
Correct answer: Recommends the use of fair value
56. Which of the following is not considered an
agricultural produce?
Correct answer: Lumber from trees
57. The amount of any write-down of inventories to
net realizable value and all losses of inventories
shall be recognized as an expense in the period
the write-down or loss occurs.
Correct answer: True
58. Highest and best use (HBU) applies only to nonfinancial assets.
Correct answer: True
59. Which of the following is the starting point for
an entity accounting in accordance with
PFRSs/IFRSs?
Correct answer: The date of transition to PFRSs/IFRSs
60. PAS/IAS 41 applies to:
Correct answer: biological assets
61. Agricultural produce is the harvested produce
of the entity’s biological assets.
Correct answer: True
62. A financial asset is any asset that is:
Correct answer: All of the above
63. PFRS/IFRS 1 also applies to changes in policies
made by an entity that already applies
PFRSs/IFRSs.
Correct answer: False
64. Which of the following items are excluded from
the scope of IAS 2 – Inventories?
Correct answer: Agricultural produce at the point of
harvest
65. Jabber Co. had inventory with a cost of P10,000
at the end of the financial period, December 31,
2019. It estimated the net realizable value of
this inventory was P9,000 at December 31. One
week later, the inventory was sold for P7,000. If
their financial statements were finalized on
February 14, 2020, what value should be
assigned to this inventory?
Correct answer: P7,000
66. Far East Inc. manufactures and sells paper
envelopes. The stock of envelopes was included
in the closing inventory as of December 31,
2020, at a cost of P50 each per pack. During the
final audit, the auditors noted that the
subsequent sale price for the inventory on
January 15, 2021, was P40 each per pack.
Furthermore, inquiry reveals that during the
physical stock take, a water leakage has created
damages to the paper and the glue. In the
following week, the company spent a total of
P15 per pack for repairing and reapplying glue
to the envelopes. The net realizable value and
inventory write-down (loss) amount to:
Correct answer: P25 and P25 respectively
67. The principal (or most advantageous market) is
entity-specific. Two different entities offering
the same item can have separate principal
markets for that same item.
Correct answer: True
68. A financial asset measured at amortized cost
may be designated as a hedging instrument in a
hedge of foreign currency risk.
Correct answer: True
69. Financial statements presented in accordance
with the PFRS/IFRS are an entity’s first
PFRS/IFRS financial statements if the entity has
previously issued PFRS/IFRS compliant financial
statements containing an explicit statement of
compliance of all PFRS/IFRS.
Correct answer: False
70. Which of the following statements define the
term ‘net realizable value’?
Correct answer: The estimated selling price in the
ordinary course of business less the estimated costs of
completion and the estimated costs necessary to make
the sale
71. When an entity transfers a financial asset, it
shall evaluate the extent to which it retains the
risks and rewards of ownership of the financial
asset.
Correct answer: True
72. The measurement and disclosure requirements
of PFRS/IFRS 9 do not apply to hedge
instruments within the scope of PFRS/IFRS 9 Financial Instruments.
Correct answer: True
73. PAS/IAS 1 requires that government grants
related to agricultural activity shall be disclosed
by the entity.
Correct answer: False
74. How may the value of biological assets attached
to land be determined?
Correct answer: By deducting the fair value of the land
from the combined asset value
75. Which of the following is/are excluded from the
cost of inventories?
Correct answer: All except B
76. Give an example of an agricultural activity.
_____
Correct answer: raising livestock,forestry,annual
cropping,perennial cropping,cropping,cultivating
orchards,cultivation,plantation,
floriculture,aquaculture
77. Which of the following shall an entity disclose in
case it holds collateral and is permitted to sell
or repledge the collateral in the absence of
default by the owner of the collateral?
Correct answer: All of the above
78. Statement 1: PAS/IAS 2 provides guidance on
the determination of the inventory’s cost and
its subsequent recognition as an expense,
including write-down to net realizable value.
Statement 2: PAS/IAS2 prescribes the cost
formulas that are used to assign costs to
inventories.
Correct answer: Both statements are correct
79. Asset changes through growth is the creation of
additional living creatures or plants.
Correct answer: False
80. PFRS/IFRS 7 applies to contracts to buy or sell a
non-financial item that are outside the scope of
PFRS/IFRS 9.
Correct answer: False
CHAPTER 5 AND 6
1. Statement 1: Interim period tax expense is
accrued using the estimated average annual
effective income tax rate applied to the pre-tax
income of the interim period.
Statement 2: If the financial reporting and the
income tax year differ, the income tax expense
for the reporting periods of that financial
reporting year is measured using a separate
weighted average estimated at effective tax
rates for each of the incoming years.
Correct answer: Both statements are correct.
2. Statement 1: In its interim financial report, an
entity is discouraged to publish a complete set
of financial statements.
Statement 2: If the entity’s most recent annual
financial statements were consolidated
statements, an interim financial report is
prepared on a condensed basis.
Correct answer: Neither of the statements is correct
3. Statement 1: Events after the reporting period
include all events up to the date when the
financial statements are authorized for issue,
but note those events after the public
announcement of profit or of other selected
financial information.
Statement 2: The date when financial statements are
authorized for issue is important because the financial
statements do not reflect events after this date.
Correct answer: Only the second statement is correct.
4. Which of the following statements is correct?
I. In deciding how to recognize, measure, classify, or
disclose an item for interim financial reporting
purposes, materiality shall be assessed in relation to the
interim period financial data.
II. In making an assessment of materiality, it shall be
recognized that interim measurements may rely on
estimates to a lesser extent than measurements of
annual financial data.
Correct answer: I only
5. Statement 1: An entity shall disclose the date
when the financial statements were authorized
for issue notwithstanding who gave that
authorization.
Statement 2: If the entity’s owners or others
have the power to amend the financial
statements after the issue, the entity shall
disclose that fact.
Correct answer: Only the second statement is correct.
6. Which of the following statements is correct?
I. An entity shall not adjust the amounts recognized in
its financial statements to reflect non-adjusting events
after the reporting period.
II. If an entity declares dividends to holders of equity
instruments before the reporting period, the entity shall
not recognize those dividends as a liability at the end of
the reporting period.
Correct answer: Statement I only
7. Statement 1: In case the entity is required to
submit its financial statements to its
shareholders for approval after the financial
statements have been issued, the authorized
date for issue is the date when the shareholders
approve the financial statements.
Statement 2: In case the management of an
entity is required to issue its financial
statements to a supervisory board made up
solely of non-executives for approval, the
authorized date for issue is the date when the
management authorizes them for issue to the
supervisory board.
Correct answer: Only the second statement is correct.
8. Which of the following statements is correct?
I. Interim financial reports shall include interim financial
statements which can either be condensed or complete.
II. If the entity’s interim financial report is in compliance
with the requirements of PAS/IAS 34, that fact need not
be disclosed anymore in the notes.
Correct answer: I only
9. Statement 1: While measurements in both
annual and interim financial reports are often
based on reasonable estimates, the preparation
of interim financial reports will generally
require a lesser use of estimation methods than
annual financial reports.
Statement 2: A change in accounting policy,
other than the transition covered by a new
PAS/IAS, shall be reflected by restating the
financial statements of prior interim periods of
the current financial year and the comparable
interim periods of any prior financial year that
will be restated in the annual financial
statements.
Correct answer: Only the second statement is correct.
10. Statement 1: Depreciation and amortization for
an interim period are based only on assets
owned during that interim period. It also takes
into account asset acquisition or disposition
planned for later in the financial year.
Statement 2: An entity is required to
apply/comply the same measurement
impairment testing, recognition, and reversal
criteria at an interim date as it would at the end
of the fiscal year.
Correct answer: Both statements are correct.
11. Statement 1: Pension cost for an interim period
is calculated on a year-to-year basis by using the
effective pension cost rate at the end of the
prior financial year adjusted for significant
market fluctuations since that time.
Statement 2: An entity shall apply the definition
and recognition criteria for an intangible asset
in the same way in an interim period as in an
annual period.
Correct answer: Only the second statement is correct.
12. The following are examples of non-adjusting
events after the reporting period that would
generally result in disclosure, except:
Correct answer: The receipt of information after the
reporting period indicating that an asset was impaired
at the end of the reporting period.
13. Statement 1: An entity shall adjust the amounts
recognized in its financial statements to reflect
adjusting events after the reporting period.
Statement 2: The determination after the
reporting period of the cost of assets
purchased, or the proceeds from assets sold,
before the end of the reporting period is an
adjusting event.
Correct answer: Both statements are correct.
14. Which of the following statements is correct?
I. Events after the reporting period are those events
that occur after the end of the accounting period.
II. Events after the reporting period are those events
that occur after the end of the date the financial
statements are authorized for issue.
Correct answer: Neither I nor II
15. Which of the following statements is correct?
I. An entity shall not prepare its financial statements on
a going-concern basis if management determines after
the reporting period that it intends either to liquidate
the entity or to cease trading, or that it has no realistic
alternative but to do so.
II. If a going concern is no longer appropriate, it requires
a fundamental change in the basis of accounting rather
than an adjustment to the amounts recognized within
the original basis of accounting.
Correct answer: Both I and II
16. Statement 1: The objective of PAS/IAS 34 is to
prescribe the maximum content of an interim
financial report and the principles for
recognition and measurement in complete or
condensed financial statements for an interim
period.
Statement 2: Publicly traded entities are
encouraged to prived interim financial reports
that conform to the recognition, measurement,
and disclosure principles set out in PAS/IAS 34.
Correct answer: Only the second statement is correct.
17. The following are examples of adjusting events
after the reporting period that require an entity
to adjust the amounts recognized in the
financial statements, except:
Correct answer: The decline in fair value of
investments between the end of the reporting period
and the date when the financial statements are
authorized for issue.
18. Statement 1: Revenues that are received
seasonally, cyclically, or occasionally within a
financial year may be anticipated or deferred as
of an interim date if anticipation or deferral
would not be appropriate at the end of the
entity’s financial year.
Statement 2: Costs that are incurred unevenly
during an entity’s financial year shall be
anticipated or deferred for interim reporting
purposes.
Correct answer: Neither of the statements is correct
19. Statement 1: The objective of PAS/IAS 10 is to
prescribe when an entity should adjust its
financial statements for events after the
reporting period.
Statement 2: The objective of PAS/IAS 10 is to
prescribe the disclosures that an entity should
give when financial statements are not
prepared on a going-concern basis.
Correct answer: Only the first statement is correct.
20. Which of the following statements is correct?
I. In the statement that presents the components of
profit or loss for an interim period, an entity shall
present basic and diluted earnings per share for that
period when the entity is within the scope of PAS/IAS 33
- Earnings per Share.
II. Reversal of any provisions for the cost of
restructuring requires disclosure in the interim financial
report if it is considered as significant events and
transactions.
Correct answer: Both I and II