TOA-PB. Sample Preboard Exam
TOA-PB. Sample Preboard Exam
TOA-PB. Sample Preboard Exam
SAMPLE PREBOARD
FINANCIAL ACCOUNTING THEORY
MUTIPLE CHOICE: MARK FULLY with PENCIL No. 2 the letter of your choice on the answer
sheet provided. Make the mark CLEAR but do not use too much pressure. ERASURES ARE
STRICTLY NOT ALLOWED.
1. Financial accounting is the area of accounting that emphasizes reporting to
a. Management
b. Regulatory authorities
c. Internal auditors
d. Creditors and investors
2. Comparability of financial information depends on which of the following
a. Consistency of accounting policies
b. Regular reporting periods
c. Consistency of accounting policies and regular reporting periods
d. Neither consistency nor regular reporting periods
3. The overall objective of financial reporting is to provide information
a. That is useful for decision making
b. About an entitys assets, liabilities and equity
c. About an entitys financial performance
d. That allows owners to assess management performance.
4. The term revenue recognition conventionally refers to
a. The process of identifying the transactions to be recorded as revenue in an accounting
period
b. The process of measuring and relating revenue and expenses
c. The earning process which gives rise to revenue realization
d. The process of identifying transactions that result in an inflow of assets from customers
5. Which statement is correct concerning the elements of the financial statements?
I. The elements directly related to the measurement of financial position are assets, liabilities
and equity.
II. The elements directly related to the measurement of performance are income and
expenses.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
6. Which of the following are internal users of an entitys financial information?
a. Board of directors
b. Shareholders in the entity
c. Holders of the entitys bonds
d. Creditors with long-term contracts with the entity.
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18. In relation to a set of 2016 financial statements, an event after the reporting period event is one
that
a. Occurs before the 2016 financial statements are issued.
b. Involves uncertainty as to possible gain or loss that will ultimately be resolved in 2014 or
later.
c. Occurs after the 2016 financial statements are issued.
d. Requires an appropriate adjusting entry to be made as of the end of 2016.
19. Nonadjusting events after statement of financial position date are accounted for by
a. Adjusting the amounts recognized in the financial statements.
b. Not adjusting the amounts in the financial statements without disclosure.
c. Not adjusting the amounts in the financial statements but with appropriate disclosure.
d. Recognizing the events directly in equity.
20. Which of the following approaches to income measurement underlies financial accounting and
reporting?
a. Transaction approach
b. Economic approach
c. Valuation approach
d. Physical capital maintenance approach
21. The concept of earnings
a. Includes changes in market value of available for sale securities.
b. Includes foreign currency translation adjustments
c. Includes gains resulting from the sale of a productive asset in an arms length transaction
d. Same as comprehensive income.
22. In the absence of an accounting standard that applies specifically to a transaction, what is the
most authoritative source in developing and applying an accounting policy?
a. The requirement and guidance in the standard or interpretation dealing with similar and
related issue.
b. The definition, recognition criteria and measurement of asset, liability, income and
expense in the conceptual framework.
c. Most recent pronouncement of other standard-setting body.
d. Accounting literature and accepted industry practice.
23. Changes in accounting policy are generally reported as
a. Adjustments to prior period statements
b. Extraordinary items
c. Adjustments to current period statements only.
d. Adjustments to current and prior period statements.
24. Which statement is correct concerning comparative information?
I. Except when a standard or an interpretation permits or requires otherwise, comparative
information shall be disclosed in the respect of the previous period for all amounts reported
in the financial statements.
II. Comparative information shall be included for narrative and descriptive information when it
is relevant to an understanding of the current periods financial statements.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
25. A significant industry segment is one, which meets any of the three criteria relating to revenue,
earnings and identifiable assets. Which of the following is the percentage used to measure
each of these criteria.
a. 15 percent
b. 10 percent
c.
5 percent
d.
1 percent
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26. The sum of there portable segments sales must be at least equal to what percentage of total
company sales?
a. 100 percent
b.
75 percent
c.
65 percent
d.
50 percent
27. An entity identified four industry segments as reportable out of a total eight business
components based on identifiable asset criterion. The total company sales excluding
intersegment sales amounted to P20 million for the year, and the sum of the sales for the four
identified reportable segments is P13 million. Given these facts, the company
a. Is not required to report on a segmental basis.
b. Must disclose only the four reportable segments.
c. Must identify one or more additional segments for segmental disclosure purposes.
d. Treat all business components as reportable.
28. A chemical entity has no overseas sales. The entity produces different products from the
process. The entity sells its product to small businesses, larger national businesses and
multinational entities. The management of the entity proposed to disclose just one business
segment. Can the entity disclose just one business segment because it sells all of its products
nationally?
a. Yes, the Standard will allow the entity to disclose a single business segment.
b. No, the entity can identify three different sets of customers and should therefore disclose
information on that basis.
c. Yes, even though there are three different groups of customers, they all present the same
risks to the entity.
d. PFRS 8 on segment reporting is silent on this matter.
29. An entity is in the entertainment industry and organizers outdoor concerts in four different areas
of the world: Europe, North America, Australia, and Japan. The entity reports to the board of
directors on the basis of each of the four regions. The records show the profitability for each of
the four regions. The concerts are of two types: popular music and classical music. What is
the appropriate basis for segment reporting in this entity?
a. The segments should be reported by class of business, that is popular and classical music.
b. The segments should be reported by region, so Australia and Japan would be combined.
c. The segment information should be reported as North America and the rest of the world.
d. Segment information should be reported for each of the four different regions.
30. Which of the following statements regarding discontinued operations is true?
a. The assets and liabilities of a disposal group classified as held for sale by an entity may be
offset and shown as a single item on the statement of financial position of the entity.
b. The assets and liabilities of a disposal group of an entity must be shown separately in the
asset and liabilities sections of the statement of financial position of the entity and cannot be
offset.
c. An adjustment in a subsequent period to the selling price of a component of an entity sold
must be reported as a retroactive adjustment in the prior-period financial statements of the
entity in which the discontinued operation was reported.
d. The gain or loss on disposal of a component of an entity classified as a discontinued
operation need not be disclosed separately from the loss from operations of the
discontinued segment.
31. Which of the following is correct?
a. Discontinued operations are shown as the last category after income from continuing
operations.
b. The discontinued operations section of the income statement consists only of the gain or
loss on disposal of the discontinued component net of the tax effect.
c. The discontinued operations section of the income statement consists only of the income
or loss from operating the discontinued component net of the tax effect.
d. The discontinued operations section of the income statement consists of the income or loss
from operating the discontinued component net of the tax effect as well as the gain or loss
on disposal of the discontinued component net of the tax effect.
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69. If there is objective evidence that the available for sale security is impaired, the cumulative loss
that had been recognized directly in equity
a. Shall not removed from equity but amortized over a reasonable period.
b. Shall not be removed from equity.
c. Shall be removed from equity and recognized in profit or loss.
d. Shall be removed from equity and recognized as an adjustment of the beginning balance
of retained.
70. When an entity reduces its interest in an investment in equity securities accounted for by the
equity method and changes in to the fair value method. What is the initial measurement of the
investment for purposes of subsequent changes in market value?
a. Carrying amount at the date of change
b. Original cost
c. Market value at the date of change
d. Market value at the date of acquisition
71. When an entity increases its interest in an investment in equity securities accounted for by the
fair value method and changes to the equity method. What is the initial carrying amount for
purposes of subsequent application of the equity method?
a. Carrying amount at the date of change
b. Market value at the date of change
c. The amount that would be reflected in the investment account had the equity method
been in use continually since the purchase of the securities.
d. Original cost of the investment
72. Which statement is true concerning stock dividends and stock rights from the viewpoint of the
investor?
a. A stock dividend received on an investment increased the per share cost of the
investment
b. The number of shares held which have been subject to a stock dividend should be more
than it was before the dividend.
c. When stock rights are received on investment shares, only a memorandum entry is made
d. From the date stock rights are issued until the date they expire, shares of stock of the
issuing corporation are said to be selling right-on
73. It is defined as property held for use in the production or supply of goods or services or for
administrative purposes; or sale in the ordinary course of business.
a. Owner-occupied property
b. Investment property
c. Business property
d. Rental property
74. An issuer of bonds is required by its bond indenture agreement to use a sinking fund for the
retirement of the bonds. Cash was transferred to the sinking fund. The sinking fund cash was
then used to purchase investments. The sinking fund
a. Increases when the investments are purchased
b. Decreases when the investments are purchased
c. Increases when revenue is earned on the investments
d. Is not affected by revenue earned on the investments
75. If the cost of ordinary repairs is capitalized as an addition to the building account during the
current year
a. Net income for the current year will be understated
b. Shareholders equity at the end of the current year will be understated.
c. Total assets at the end of the current year will not be affected.
d. Total liabilities at the end of the current year will not be affected.
76. Which of the following best describes the proper treatment of cash discounts on acquired
machinery?
a. The historical cost of the machinery is the invoice price and the discount is ignored.
b. The historical cost of the machinery is net of the discount amount regardless of whether
the discount is actually taken.
c. The historical cost of the machinery is the net discount amount only of the discount is
actually taken.
d. The historical cost of the machine is the invoice price plus the discount.
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85. Under GAAP, intangible assets acquired in a basket purchase which represents the acquisition
of an entire business should be
a. Valued by allocating the total purchase price according to the relative fair values of all
assets acquired, regardless of whether the assets are separately tradeable or contract
based.
b. Valued by allocating the total purchase price according to the relative fair values only of
intangible assets that are separately tradable or contract based.
c. Valued by recording separately traded and contract based intangible assets at their
individual fair values with any unallocated purchase price being recognized as goodwill.
d. Valued by recording separately traded and contract based intangible assets at their
individual fair values with any unallocated purchase price being expensed in the year of
acquisition.
86. Goodwill should be recorded in the accounting records only when
a. It is purchase from another company.
b. It can be established that a defined benefit or advantage has resulted to a firm from some
item such as a good name, capable staff or reputation.
c. It is acquired through the purchase of another business entity.
d. A firm reports above normal earnings for five or more consecutive years.
87. Which of the following is correct?
a. The fair value of internally generated intangible assets should be estimated and recorded
on the books of the entity that developed the assets even in the absence of a business
acquisition.
b. The fair value of internally generated intangible assets may be estimated but should not
be recorded on the books or displayed on the financial statements of the entity.
c. Managers may value their own companies and recognize goodwill in the company
accounts even though an entity has not been acquired in a business acquisition.
d. Goodwill should be recognized in the accounts whenever the value of the firm increases
based on current market prices of the firms ordinary share capital.
88. Which statement is incorrect concerning useful life of an intangible asset?
a. An intangible asset is regarded as having an indefinite useful life when there is no
foreseeable limit to the period over which the asset is expected to generate net cash inflows
for the entity.
b. The useful life of an intangible asset arising from contractual or other legal rights should not
exceed the period of those rights but may be shorter depending on the period over which
the asset is expected to be used by the entity.
c. If the rights are conveyed for a limited term that can be renewed, the useful life should
include the renewal period only if there is evidence to support renewal by the entity without
significant cost.
d. There is a rebuttable presumption that the useful life of an intangible asset cannot exceed
twenty years from the date the asset is available for use.
89. The cost of purchasing a patent for a product that might otherwise have seriously competed
with the purchasers patented product should be
a. Expensed in the current period.
b. Amortized over the legal life of the purchased patent
c. Added to factory overhead and allocated to production of the purchasers product.
d. Amortized over the remaining useful life of the patent for the product whose market would
have been impaired by competition from the newly patented product.
90. Which of the following does not meet the definition of a liability?
a. The signing of a three-year employment contract at a fixed annual salary.
b. An obligation to provide goods or services in the future.
c. A note payable with no specified maturity date.
d. An obligation that is estimated amount.
91. Estimated liabilities are disclosed in financial statements by
a. A footnote to the statements
b. Showing the amount among the liabilities but not extending it to the liability total
c. An appropriation of retained earnings
d. Appropriately classifying them as regular liabilities in the statement of financial position.
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