PHIINMA – UNIVERSITY OF PANGASINAN

CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

MOCK PHINMA EXAMS part II

GENERAL INSTRUCTIONS: No examinees shall copy or refer to any solution, answer or work
of another or allow anyone to copy or refer to his work, nor in any manner help or ask the help of
any person or communicate with any person by means of words, signs, gestures, codes, and other
similar acts which may enable him to exchange, impart or acquire relevant information while the
examination is in progress. Select the correct answer by shading the letter of your choice on the
answer sheet. STRICTLY NO ERASURES.

1. In 20x1, Fogg, Inc., issued ₱10 par value ordinary share for ₱25 per share. No other share
transactions occurred until March 31, 20x1, when Fogg acquired some of the issued shares for
₱20 per share and retired them. Which of the following statements correctly states an effect of
this acquisition and retirement?
a. 20x1 profit is decreased.
b. 20x1 profit is increased.
c. Share premium is decreased.
d. Retained earnings is increased.

2. Redeemable preference shares are classified by the issuer as

a. financial liability
b. own equity, presented in shareholders’ equity
c. a or b
d. reduction of share capital in shareholders’ equity

3. In 20x0, Newt Corp. acquired 6,000 shares of its own ₱1 par value ordinary share at ₱18 per
share. In 20x1, Newt issued 3,000 of these shares at ₱25 per share. Newt uses the cost method to
account for its treasury stock transactions. What accounts and amounts should Newt credit in
20x1 to record the issuance of the 3,000 shares?

Treasury sh. Sh. premium Retained earnings Ordinary sh.

a. ₱54,000 ₱21,000
b. ₱54,000 ₱21,000
c. ₱72,000 ₱3,000
d. ₱51,000 ₱21,000 ₱3,000

4. On settlement (distribution) date, any difference between the carrying amounts of the property
dividend payable and the non-cash asset distributed is
a. ignored
b. recognized in profit or loss
c. recognized directly in retained earnings
d. recognized but subject to a limit

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5. Non-current assets declared as property dividends are
a. reclassified as “non-current assets held for distribution to owners” if the conditions under PFRS 5
are met.
b. reclassified as current assets.
c. not reclassified but presented separately from the other assets.
d. not reclassified but disclosed only.

6. If shareholders are given a choice of receiving either property dividends or cash dividends, the
entity shall
a. estimate the dividend payable by considering both the fair value of each alternative and the
associated probability of shareholders selecting each alternative.
b. treat the dividends declared as if they are cash dividends.
c. treat the dividends declared as if they are property dividends.
d. not account for the dividends until their final settlements.

7. Which of the following may cause a change in the total shareholders’ equity?
a. “small” share dividends d. “large” share dividends
b. share splits e. none of these
c. recapitalization

8. Imagine you are a CPA. You are preparing the financial statements of your company for the year
ended December 31, 20x1. The board of directors declared dividends on February 1, 20x2. The
dividend declaration is not subject to further approval. The financial statements were authorized
for issue on April 1, 20x2. How should the dividends declared be accounted for in the 20x1
financial statements?
a. included in current liabilities c. disclosed only
b. included in noncurrent liabilities d. neither accrued nor disclosed

9. Ray Corp. declared a 5% stock dividend on its 10,000 issued and outstanding shares of ₱2 par
value common stock, which had a fair value of ₱5 per share before the stock dividend was
declared. This stock dividend was distributed 60 days after the declaration date. By what amount
did Ray’s current liabilities increase as a result of the stock dividend declaration?
a. 0 b. 500 c. 1,000 d. 2,500
10. When shares with par value are sold, the proceeds shall be credited to the
a. Share Capital
b. Share Premium
c. Retained Earnings
d. Share capital account to the extent of the par value of the shares issued with any excess being
reflected in share premium

11. When shares without par value are sold, the excess proceeds over stated value shall be credited to
a. Income c. Share premium
b. Retained earnings d. Share capital

12. If shares are issued for a noncash consideration, the shares issued shall be measured by
a. Fair value of the shares issued
b. Par value of the shares issued

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 c. Fair value of the noncash consideration received
d. Carrying amount of the noncash consideration received

13. If shares are issued to extinguish a financial liability, what is the initial measurement of the
shares issued?
a. Par value of the shares issued
b. Fair value of the shares issued
c. Fair value of the liability extinguished
d. Book value of the shares issued

14. When shares are issued for services, the measure is equal to
a. Fair value of the services already rendered
b. Par value if the shares issued
c. Book value of the shares issued
d. Fair value of the shares issued

15. The total cost of treasury shares shall be reported as

a. Deduction from shareholder’s equity
b. Asset
c. Deduction from retained earnings
d. Deduction from share premium

16. If treasury shares are reissued for noncash consideration the proceeds shall be measured by
a. Fair value of the treasury shares
b. Fair value of the noncash consideration
c. Carrying amount of the noncash consideration
d. Book value of the treasury shares

17. Gain and loss on retirement of treasury shares shall not be included in profit or loss. If the
retirement results in a gain, such gain shall be credited to
a. Share premium
b. Retained earnings
c. Share capital
d. Income

18. Loss on retirement of treasury shares shall be debited to

a. Retained earnings
b. Share premium from treasury shares and then retained earnings
c. Share premium from treasury shares, share premium from original issuance and then retained
earnings
d. Share premium from original issuance, share premium from treasury shares and then retained
earnings(SPOS-SPTS&RE)

19. It is issuance of shares by an entity to the shareholders without consideration and under
conditions indicating that such action is prompted mainly by a desire to increase the number of
shares outstanding for the purpose of effecting a reduction in unit market price.
a. Share split c. Stock dividend

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 b. Reserve share split d. Recapitalization

20. Subscription receivable from sale of shares which are not collectible currently shall be presented
as
a. Deduction from the related subscribed share capital under shareholders’ equity
b. Current asset
c. Long-term investment
d. Other asset

21. A redeemable preference share is a preference share

I. That provides for mandatory redemption by the issuer for a fixed or determinable amount
at a future date
II. That gives the holder the right to require the issuer to redeem the instrument for a fixed or
determinable amount at a future date
a. I only c. Both I and II
b. II only d. Neither I nor II

22. A redeemable preference share must be redeemed at the option of

a. Issuer c. Either issuer or holder
b. Holder d. Neither issuer nor holder

23. A redeemable preference share is

a. An equity instrument
b. A financial liability
c. Either an equity instrument or a financial liability
d. Neither an equity instrument nor a financial liability

24. A redeemable preference share shall be classified in the statement of financial position as
a. Current liability
b. Noncurrent liability
c. Either current liability or noncurrent liability depending on redemption date
d. Component of shareholder equity

25. Dividend paid on redeemable preference share shall be accounted for as

a. Direct deduction from retained earnings
b. Interest expense as component of finance cost
c. Component of other comprehensive income
d. Deduction from share premium

26. The purchase of treasury shares

a. Decrease shares authorized
b. Decrease shares issued
c. Decrease shares outstanding
d. Has no effect on shares outstanding

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27. Treasury shares were acquired for cash at more than par value, and then subsequently sold for
cash at more than acquisition price. What is the effect on share premium from treasury shares?
Purchase of treasury shares sale of treasury shares
a. Increase Increase
b. Decrease No effect
c. No effect Increase
d. No effect No effect

28. Which of the following statements in relation to treasury shares is true?

a. No reference need be made to donated treasury shares since the acquisition of such shares
does not restrict retained earnings
b. Treasury shares and unissued shares can be reported as total shares not outstanding with no
distinguishing comments
c. Treasury shares shall be reported as a deduction, at cost, from the total paid in capital
d. Treasury shares shall be reported as a deduction, at cost, from the total shareholders’ equity,
and the restriction on retained earnings occasioned by their acquisition must also be stated

29. At the date of the financial statements, shares issued would exceed shares outstanding as a
result of
a. Declaration of share split
b. Declaration of a stock dividend
c. Purchase of treasury shares
d. Payment in full of subscribed shares

30. How would a share split affect each of the following?

Asset Shareholders’ equity
a. Increase Increase
b. No effect No effect
c. No effect Increase
d. Increase No effect

31. CONTRIBUTED CAPITAL does not include

a. Share premium on ordinary and preference shares
b. Preference share capital
c. Capital resulting from reissuance of treasury shares at a price above acquisition price
d. Capital accumulated by retention of earnings

32. Discount on share capital

a. May be recorded as either an asset or an expense
b. Shall be closed to income summary account
c. May be offset against share premium on the same class of share capital
d. None of the above

33. The issuer should charge retained earnings for the fair value of shares issued in a
a. 1 for 5 stock dividend
b. 1 for 8 stock dividend

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 c. 4 for 1 share split
d. 2 for 1 share split

34. If the issuing entity has only one class of shares capital, a transfer from retained earnings to share
capital equal to the fair value of shares issued is ordinarily a characteristic of
a. Either a stock dividend or a share split
b. Neither a stock dividend nor a share split
c. A share split but not stock dividend
d. A STOCK DIVIDEND but not a SHARE SPLIT

35. Total shareholders’ equity remains the same when there is

a. Issuance of preference shares in exchange for convertible debentures
b. Issuance of nonconvertible bonds with share warrants
c. Declaration of a stock dividend
d. Declaration of a cash dividend

36. Liquidating dividends

a. Are prohibited under PFRS
b. Require a credit to share capital
c. Reduce amounts paid in by shareholders
d. All of the choices are correct

37. A retained earnings appropriation is used to

a. Absorb a fire loss when an entity is self-insured
b. Provide for a contingent loss that is probable and measurable
c. Smooth periodic income
d. Restrict earnings available for dividends

38. An appropriation of retained earnings for future plant expansion will result in
a. The establishment of a fund to help finance future plant expansion
b. The setting aside of cash to be used for future plant expansion
c. A decrease in cash with an equal increase in investment fund
d. The disclosure that management does not intend to distribute in the form of dividends assets
equal to the amount of the appropriation

39. The heading of a financial statement most likely will not include
a. the name of the reporting entity.
b. the title of the financial statement.
c. the date of the financial statement.
d. the name(s) of the business owner(s).

40. Notes to financial statements are beneficial in meeting the disclosure requirements of financial
reporting. The notes to financial statements should not be used to
a. Describe significant accounting policies
b. Describe depreciation methods employed by the entity
c. Describe the principles and methods peculiar to the industry in which the entity operates
when these principles and methods are predominantly followed by the industry

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 d. Correct an improper presentation in the financial statements

41. Indicate the proper order of presenting the notes to financial statements.
I. Statement of compliance with PFRS (1)
II. Other disclosures, such as contingent liabilities, unrecognized contractual commitments
and nonfinancial disclosures(4)
III. Supporting information for items presented on the face of the financial statements(3)
IV. Summary of significant accounting policies (2)
a. I, II, III, and IV
b. I, IV, III, and II
c. I, III, IV, and II
d. I, IV, II, and III

42. According to PAS 16, the selection of an appropriate depreciation method rests upon the entity’s
a. management.
b. accountant.
c. regulator.
d. all of these

43. Which of the following is not one of the essential characteristics of a PPE?
a. tangible asset
b. used in business
c. primarily held for sale
d. long-term in nature

44. PAS 16 requires an entity to review the depreciation method and the estimates of useful life and
residual value at the end of each year-end. A change in any of these is accounted for using
a. a specific transitional provision of a PFRS.
b. retrospective application.
c. prospective application.
d. any of these

45. If plotted on a graph (X-axis: time; Y-axis: ₱), the depreciation charges under the straight-line
method would show
a. a straight-line.
b. an upward line sloping to the right.
c. a downward line sloping to the left.
d. a curvilinear line sloping here and there.

46. Which of the following instances does not preclude an entity from recognizing depreciation
during a certain period?
a. The asset is fully depreciated.
b. The asset is being depreciated using the units of production method and there is no production
during the period.
c. The asset is classified as held for sale under PFRS 5.

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 d. The asset becomes idle or is taken out of active use.

47. Which of the following is not a capital expenditure?

a. Repairs that maintain an asset in operating condition
b. An addition
c. A betterment
d. A replacement

48. Plant assets purchased on long-term credit contracts should be accounted for at
a. the total value of the future payments.
b. the future amount of the future payments.
c. the present value of the future payments.
d. none of these.

49. When a plant asset is acquired by issuance of common stock, the cost of the plant asset is properly
measured by the
a. par value of the stock.
b. stated value of the stock.
c. book value of the stock.
d. market value of the stock.

50. Fences and parking lots are reported on the balance sheet as
a. current assets.
b. land improvements.
c. land.
d. property and equipment.

51. The debit for a sales tax properly levied and paid on the purchase of machinery preferably would be a
charge to
a. the machinery account.
b. a separate deferred charge account.
c. miscellaneous tax expense (which includes all taxes other than those on income).
d. accumulated depreciation--machinery.

52. If a corporation purchases a lot and building and subsequently tears down the building and uses the
property as a parking lot, the proper accounting treatment of the cost of the building would depend on
a. the significance of the cost allocated to the building in relation to the combined cost of
the lot and building.
b. the length of time for which the building was held prior to its demolition.
c. the contemplated future use of the parking lot.
d. the intention of management for the property when the building was acquired.

53. The cost of land does not include

a. costs of grading, filling, draining, and clearing.
b. costs of removing old buildings.
c. costs of improvements with limited lives.
d. special assessments.

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54. The cost of land typically includes the purchase price and all of the following costs except
a. grading, filling, draining, and clearing costs.
b. street lights, sewers, and drainage systems cost.
c. private driveways and parking lots.
d. assumption of any liens or mortgages on the property.

55. Which of the following is not a major characteristic of a plant asset?

a. Possesses physical substance
b. Acquired for resale
c. Acquired for use
d. Yields services over a number of years

56. Which of these is not a major characteristic of a plant asset?

a. Possesses physical substance
b. Acquired for use in operations
c. Yields services over a number of years
d. All of these are major characteristics of a plant asset.

57. Humble Company incurred the following costs during 2017:

Quality control during commercial production, including routine
testing of products P500,000
Laboratory research aimed at discovery of new knowledge 700,000
Testing for evaluation of new products 300,000
Engineering follow-through in an early phase
commercial production 1,000,000
Adaptation of an existing capability to a particular requirement or
customer’s need as part of continuing commercial activity 200,000
Trouble-shooting in connection with breakdowns during
commercial production 800,000
Searching for application of new research findings 450,000
What was Humble Company’s research and development expense for 2017?
a. 2,150,000 c. 1,450,000
b. 700,000 d. 1,150,000

58. Which of the following does not qualify as investment property?

a. Land held for long-term capital appreciation rather than short-term sale in the ordinary course of
business
b. Property that is being conducted or developed for future use as investment property
c. Property that is leased to another entity under finance lease
d. Land held for a currently undetermined future use

59. For diluted EPS computation, dividends on convertible cumulative preference shares are
a. Deducted from profit for the period
b. Added to loss for the period only when declared
c. Added to loss for the period whether declared or not
d. Ignored

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60. Which of the following may be used to approximate the value of one right?
a. (Market value of share selling right-on minus subscription price) divided by (number of rights
needed to purchase one share minus 1)
b. (Subscription price minus Market value of share selling right-on) divided by (number of
rights needed to purchase one share plus 1)
c. (Market value of share selling right-on minus subscription price) divided by (number of rights
needed to purchase one share plus 1)
d. (Subscription price minus Market value of share selling right-on) divided by (number of
rights needed to purchase one share minus 1)

61. WALA AKONG Company acquired two items of equipment

Acquired a press at list price of P3,750,000 and trade discount of 20% subject to 5% cash
discount which was taken. Cost of freight and insurance during shipment were P50,000 and
installation cost amounted to P300,000.

Acquired a welding machine at an invoice price of P2,000,000 and trade discount of 15% subject
to a 10% cash discount which was not taken. Insurance cost for the year amounted to P100,000

Additional welding supplies were acquired at a cost of P100,000.

What is the total increase in the equipment account as a result of the transactions?
a. 4,900,000 b. 4,630,000 c. 4,730,000 d. 5,000,000

62. CAYAPA NAMAN Co. disclosed that the depreciation policy on machinery is as follows:
No depreciation is taken in the year of acquisition
A full year depreciation is taken in the year of disposition
The estimated useful life is five years
The straight line method is used
On June 30, 2017, the entity sold for P2,300,000 a machine acquired in October 1, 2014 for
P4,200,000. The residual value was P600,000. What amount of gain on disposal should be
recorded in 2017?
a. 440,000
b. 260,000
c. 620,000
d. 80,000

63. On January 1, 2011, BESEECH TO BEG Company purchased a new

building at a cost of P6,000,000. Depreciation was computed on the
straight line basis at 4% per year. On January 1, 2016, the building was revalued at a fair value of
P8,000,000. What is the revaluation surplus on January 1, 2016?
a.3,072,000
b.3,200,000
c.3,040,000
d. 1,920,000

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 64. Which of the following may not be considered a qualifying asset?
a. A power generation plant that normally takes two years to
construct
b. An expensive private jet that can be purchased from a local
vendor
c. A toll bridge that usually takes more than a year to build
d. A ship that normally takes one to two years to complete

65. On January 1, 2016 SAVOR TASTE Co. borrowed P30,000,000 evidenced by a 3-year 10% note
payable and began construction of a cruise ship. Annual payments of principal and interest in the
amount of P13,000,000 are due every December 31. The entity used all the proceeds as down
payment for construction. The construction was completed on December 31, 2017.
What amount should be reported as interest expense related to the note in the income statement
for 2018?
a. 3,000,000 b. 2,000,000 c. 1,000,000 d. 0

66. PAS 33 is intended to apply to which of the following?

a. Publicly-listed entities
b. Non-publicly listed entities
c. Financial institutions
d. All entities using the PFRSs

67. Earnings per share is not required to be computed on

a. profit or loss from continuing operations.
b. results of discontinued operations.
c. profit or loss for the year.
d. other comprehensive income.

68. INTEGRITY Company had 100,000, ₱10 par, 10% cumulative preference shares outstanding all
throughout 20x1. INTEGRITY Company reported profit after tax of ₱1,200,000 for the year ended
December 31, 20x1. The movements in the number of ordinary shares are as follows:
1/1/20x1 Ordinary shares outstanding 120,000
3/1/20x1 Shares issued for cash 42,000
9/30/20x1 Subscribed shares 20,000
11/1/20x1 Reacquisition of treasury shares (12,000)
Outstanding shares at the end of period 170,000

What is the basic earnings per share?

a. 5.92
b. 6.96
c. 7.09
d. 6.13

69. YESBAKASYONNA Company is computing for its basic earnings per share and has gathered the
following information:
Loss for the year (800,000)
Preferred dividends 50,000
Outstanding ordinary shares 100,000

There have been no changes in the number of outstanding ordinary shares during the period. What is the
basic earnings (loss) per share?

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a. -7.50
b. 7.50
c. -8.50
d. 8.50

70. PROFESSIONALISM Company had 200,000 ordinary shares outstanding all throughout 20x1. In
20x2, share issuances occurred:
 On April 1, 20,000 shares were issued for cash.
 On September 30, a 10% bonus issue (share dividend) was declared.
 On November 1, a 2-for-1 share split was issued.

PROFESSIONALISM Company had the following profits: ₱1,200,000 in 20x2 and ₱900,000 in 20x1.
What are the earnings per share to be disclosed in PROFESSIONALISM Company’s 20x2 comparative
financial statements?
20x2 20x1
a. 2.22 2.02
b. 2.54 2.05
c. 2.65 2.09
d. 2.78 2.12

71. COMMITMENT Company had the following instruments outstanding all throughout 20x1:

12% convertible bonds payable issued at face amount, each

₱1,000 bond is convertible into 30 ordinary shares ₱2,000,000
Ordinary shares, ₱10 par, 100,000 shares issued and
outstanding 1,000,000

Profit for the year is ₱1,200,000. Entity A’s income tax rate is 30%.

What is the diluted earnings per share in 20x1?

a. 8.55
b. 8.15
c. 8.05
d. 8.98

72. Notes to financial statements

a. Must be quantifiable
b. Must qualify as an element
c. Amplify or explain items presented in the body of financial statements
d. B and C

73. Which of the following information is not specifically a required disclosure in relation to financial
statements?
a. Name of the reporting entity or other means of identification and any change in that
information from previous year
b. Level of rounding used in presenting the financial statements
c. Names of major shareholders of the entity
d. Whether the financial statements cover the individual entity or a group of entities

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 74. The cost of property, plant and equipment comprises of the following, except
a. Purchase price
b. Import duties and non-refundable purchase taxes
c. Any cost directly attributable in bringing the asset to the location and condition for the
intended use
d. Initial estimate of the cost of dismantling the asset for which the entity has no present
obligation

75. The users of financial statements under the Conceptual Framework include
I. Existing and potential investors
II. Employees
III. Lenders and other creditors
IV. Suppliers and other trade creditors
V. Customers
VI. Governments and their agencies
VII. Public
VIII. Professional accountants, including auditors

a. I and III
b. I, II, III, IV, V, VI, VII
c. I, II, III, IV, V, VI
d. all of these

76. VASSAL SERVANT Company provided the following account balances at year-end:
Cash P 1,100,000
Accounts Receivable 1,600,000
Inventory, including goods received on
consignment P200,000 3,200,000
Financial Asset at fair value through profit or loss 500,000
Bond investment at amortized cost 1,200,000
Investment in Associate 1,500,000
Equipment and Furniture 2,500,000
Accumulated Depreciation 1,500,000
Patent 400,000
Deferred Tax Asset, to be reversed next year 100,000
Equipment classified as held for sale 2,000,000
Financial Asset at fair value through OCI 500,000

What total amount should be reported as current assets at year-end

a. 8,000,000
b. 8,200,000
c. 8,300,000
d. 8,800,000

77. What total amount should be reported as non-current assets at year-end?

a. 4,300,000 B. 5,700,000 C. 4,700,000 D. 4,800,000

78. To be relevant, information should have which of the following?

a. Verifiability.
b. Confirmatory value.
c. Understandability.

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 d. Costs and benefits.

79. The disclosure of accounting policies is important to financial statements users in determining
a. Net income for the year
b. Whether accounting policies are consistently applied form year to year
c. The value of the obsolete items included in ending inventory
d. Whether the working capital position in adequate for future operations
80. Accounting policies disclosed in the notes to financial statements typically include all of the
following, except
a. The cost flow assumption used c. Significant estimate made
b. The depreciation method used d. Significant inventory purchasing policies

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