The financial accounting

merchandise inventory of

Continuation of an

information is directed toward

Chronic Merchandising

accounting entity in the

the common needs of users

Corporation. The

absence of evidence to the

and is independent of

merchandise was not insured

contrary is the basic concept

presumptions about particular

with any insurance company.

needs and desires of specific

The following data were

users. Neutrality

gathered: Inventory, January

of Going concern
Which of the following
best describes the
conditions that must be
present for the
recognition of revenue?
The revenue must be
earned, measurable and
collectible.

The primary accounting

objective is fair presentation
of the financial performance
of the entity. Entity
If there is undue delay in
the reporting of
information, it may lose
its Relevance
Financial information
exhibits consistency when
Accounting entities give
similar events the same
accounting treatment
each period.
Consistency is an
important factor in
comparability within a
single entity. The
consistency standard of
reporting requires that
Changes in circumstances or
in the nature of the
underlying transactions
should be disclosed.
Which of the following is true
of the qualitative
characteristic
of understandability in
relation to information in

1 - P250, 000; Purchases,

January 1 to June 15 - P1,
500, 000; Sales, January 1 to
June 15 - P2, 000, 000;
Markup percentage on cost 25%. What is the
approximate inventory loss as
a result of the fire? P150, 000
The Savior Corporation
uses the lower of cost or
net realizable value
inventory. Data regarding
the items in work-inprocess inventory are
presented below:
Historical Cost - MarkersP24, 000 - Pens-P18, 880;
Selling Price - MarkersP36, 000 - Pens-P21, 800;
Estimated cost to
complete - Markers-P4,
800 - Pens-P4, 800;
Replacement cost Markers-P20, 800 - PensP16, 800; Normal profit
margin as a percentage of
selling price - MarkersP25% - Pens-25%. What is
the amount of pens
inventory to be reported
in Savior's balance sheet?

financial statements? Users

P17, 000

are willing to study the

It is a snapshot of a costumer

information with reasonable

diligence.
On the eve of June 15, 2008,
a fire destroy the entire

profile. Survey result

Is price part of attribute? Yes

These users require

information on risk and return
on investment and hence an
entitys ability to pay
dividends. Investors
The valuation of a
promise to receive cash in
the future at present
value is valid because of
the accounting concept of
Going concern
Which of the following
statements best describes
the term going concern?
The ability of the entity
to continue in operation
for the foreseeable future
According to the conceptual
framework, the usefulness of
providing information in
financial statements is
subject to the constraint of
Cost-benefit
Discounts are considered
what? Incentives
Where are channel
commitments discussed?
Marketing

Alca Company's inventory at

June 30, 2008 was P750,
000 based on a physical
count of goods priced at cost
and before any necessary
year-end adjustment relating
to the following: 1.) Included
in the physical count, were
goods billed to a customer
FOB Shipping point on June
30, 2008. These goods
costing P15, 000 were picked
up by carrier on July 9, 2008.
2.) Goods shipped FOB
Destination on June 28, 2008
from a vendor to Alca was
received on July 1, 2008. The
invoice cost was P25, 000.
What amount should Alca
report as inventory in its June
30, 2008 balance sheet?
P750, 000
On December 1, 2008, Hero
Company assigned P400,
000 of accounts receivable to
Halo Company as a security
for a loan of P335, 000. Hero
Company charged a 2%
commission on the amount of
loan; the interest rate on the
note was 10%. During
December, Hero collected
P110, 000 on assigned
accounts after deducting
P380 of discounts. Hero
accepted returns worth P1,
350 and wrote off assigned
accounts totaling P2, 980.
What is the carrying value of
the account receivable
assigned as of December 31,
2008? P289, 620

It is a computation of the

understate liabilities and

project's total revenues and

expenses. Prudence

total costs for one period or

fiscal year, thereby arriving at
the concern's net income or
deficit within the period,
together with its performance
in terms of profitability and
cost control Income
Statement
Part of the product
lifecycle wherein the
foremost metric is
profitability Maturity
Accounting for inventory
by applying the lower of
cost or net realizable
value is an example of
the application
of Conservatism
When information about two
different entities engaged in
the same industry has been
prepared and presented in
similar manner, the
information exhibits the
qualitative characteristic of
Comparability
This arises in the course of
ordinary regular activities of
the entity and is referred to by
a variety of different names
including sales, fees, interest,
dividends, royalties and rent.
Revenue
It is the exercise of care and
caution in dealing with
uncertainties in measurement
so as not to overstate assets
and income and not to

An expense is recognized
immediately in the income
statement I. When an
expenditure produces no
future economic benefits. II.
When cost incurred ceases to
qualify for recognition as an
asset in the balance
sheet._____" Either I or II
What theory of ownership
equity is enumerated by the
following equation: assets
minus liabilities minus
preference share equity
equals ordinary share equity?
Residual equity
The closing materials
inventory of Castle Building
Manufacturing Company
amounted to P450, 000 at
December 31, 2008. This
total includes an item of raw
material (material Zip) with a
cost of P150, 000 with a
replacement cost of P120,
000. Immediately after the
balance sheet date, material
Zip was applied to production
and the cost of finished
product where material Zip
was applied revealed that its
net selling price is lower than
the cost of producing the
finished goods. As of
December 31, 2008, what
amount of raw material
inventory should Castle

Building Company report?

much should be included for

P420, 000

the sale of this machine?

Maxim Company sold its

inventory for P300, 000 to
Maxwell on January 2,
2008 and received a oneyear note bearing an
interest rate of 12% for
the full amount. On
December 31, 2008,
Maxim determined based
on Maxwell's recent
financial crisis, that the
amount due on January 2,
2009 will not be collected
and that only P210, 000
of the principal will be
collected with some delay
until the end of 2010.
What is the carrying value
of the notes receivable on
Maxim's 2008 balance
sheet? P167, 412
Gallant Corporation, a
distributor of machinery,
bought a machine from the
manufacturer in November
2008 for P200, 000. On
December 30, 2008, Gallant
sold this machine to Accord
Company for P300, 000
under the following terms: 2%
discount if paid within 30
days; 1% discount if paid
after 30 days but within 60
days, or payable in full within
90 days if not paid within the
discount period. However,
Accord Company had the
right to return this machine to
Gallant if Accord's obligation
to Gallant would be
cancelled. In Gallant's net
sales for the year ended
December 31, 2008, how

None
On January 2, 2008, Play
Company sold equipment
with a carrying amount of
P480, 000 in exchange for
a P600, 000 non-interestbearing note due on
January 2, 2011. There
was no established
exchange price for the
equipment. The prevailing
rate of interest for a note
of this type at January 2,
2008 was 10%. The
present value of 1 at 10%
for three periods is
0.7513. How much should
Play Company report as
interest income in its
2008 income statement?
P45, 078

individual or collective
influence on the
economic decisions of
users. II. Materiality of an
item depends on its
absolute size and nature.
_____" I only
Bonus: What color should the
feasibility study be
bookbound? Dark Blue

It is a systematic
presentation of cash
receipts and
disbursements for a
given operating period
or fiscal year. Cash&

The measurement basis most

commonly adopted by entities
in preparing financial
statements is Historical cost

What is the law regulating the

practice of accountancy in
the Philippines? R.A. No.
9298

The secondary qualitative

The attributes of relevance

include all of the following
except Neutrality

Which of the following terms

What is another term for

characteristics of accounting
information are Comparability
and understandability
best describes information in
financial statements that is
neutral? Unbiased

equity? Net assets

The principles which

It is the capacity of
information to make a
difference in decision by
helping users form
predictions about
outcome of past, present
and future events or
confirm and correct prior
expectations. Relevance

financial reporting are termed

The following statements

relate to materiality.
Which statement is true?
I. Materiality of items
depends on their

constitute the ground rules for

generally accepted
accounting principles. To
qualify as generally
accepted, an accounting
principle must Receive
substantial authoritative
support.
Which statement is correct
concerning the recognition of
income and expense? I.

Income is recognized when

an increase in future
economic benefit related to
an increase in an asset or a
decrease in liability has
arisen that can be measured
reliably. II. Expense is
recognized when a decrease
in future economic benefit
related to a decrease in an
asset or an increase in
liability has arisen that can be
measured reliably._____"
Both I and II
Users are assumed to have a
reasonable knowledge of
business and economic
activities and accounting and
a willingness to study the
information with reasonable
diligence. Understandability
On January 2, 2008, Play
Company sold equipment
with a carrying amount of
P480, 000 in exchange for a
P600, 000 non-interestbearing note due on January
2, 2011. There was no
established exchange price
for the equipment. The
prevailing rate of interest for a
note of this type at January 2,
2008 was 10%. The present
value of 1 at 10% for three
periods is 0.7513. What is the
carrying value of the note
receivable as of December
31, 2008 balance sheet?
P495, 858

The closing inventory of

Gender Company
amounted to P284, 000 at
December 31, 2008. This
total includes two
inventory lines about
which the inventory taker
is uncertain. Item 1 - 500
items which had cost P15
each and which were
included at P7, 500.
These items were found
to have been defective at
the balance sheet date.
Remedial work after the
balance sheet date cost
P1, 800, 000 and they
were then sold for P20
each. Selling expense
were P400. Item 2 - 100
items that had cost P10
each but after the
balance sheet date, these
were sold for P8 each
with selling expense of
P150. What figure should
appear in Gender's
balance sheet for
inventory?
P283, 650
Is quality part of
attribute? Yes
Sad Company accepted a
P200, 000, 90-day, 12%
interest bearing note
dated November 15, 2008
from a customer/ On
December 15, 2008, Sad
discounted the note at
Finance Company at 15%
discounted rate. Sad
Company informed the
maker of the note
regarding the discounting
arrangement. On maturity
date, the maker of the
note did not pay the note
and as a result Finance
Company charged Sad
Company for the total
amount due plus P2, 000
protest fee. What amount

of interest income should

Sad Company recognize
related to the notes
receivable in its
December 31, 2008
balance sheet? P3, 000
Thesaurus Inc. reported a
balance of P43, 000 in its
Cash account at the end
of the month. There were
P20, 000 deposits in
transit and P15, 000
outstanding checks. The
bank statement showed a
balance of P50, 000,
including a note with a
face value of P15, 000
and a P6, 000 service
charge. How much is the
interest on the note
collected by the bank? P3,
000
Proponents of historical
costs maintain that in
comparison with all other
valuation alternatives for
general purpose financial
reporting, statements
prepared using historical
costs are more Objective
Which of the following
accounting concepts states
that an accounting
transaction shall be
supported by sufficient
evidence to allow two or more
qualified individuals to arrive
at essentially similar
conclusions? Objectivity
Once an accounting standard
has been established The
standard is continually
reviewed to see if
modification is necessary
Which of the following
statements is not
consistent with generally

accepted accounting
principles as they relate
to asset valuation?
Subtracting total liabilities
from total assets results in
the current market value of
an equity
The conceptual framework of
accounting sets out certain
qualitative characteristics of
accounting information.
Which of the following is not a
qualitative characteristic?
Profit-oriented
The revenue principle
states that revenue shall
be recognized at a point
when An exchange
transaction involving goods
and services has occurred
and the earnings process is
essentially complete.
Where do you do the
environmental impact
analysis in a feasibility study?
Socio&
The physical manifestation of
a business idea. Fixed assets
It is the accounting
standard setting body
created by PRC upon
recommendation of the
Board of Accountancy to
assist the Board of
Accountancy in carrying
out its power and
functions under R.A. No.
9298. Financial Reporting
Standards Council
Objectivity is assumed to
be achieved when an
accounting transaction
Involves an arms length

transaction between two

independent parties
The revenue principle
states that revenue shall
be recognized at a point
when An exchange
transaction involving goods
and services has occurred
and the earnings process is
essentially complete.
Which underlying concept
serves as the basis for
preparing financial
statements at regular
intervals? Accounting period
An asset is recognized in the
statement of financial position
when I. It is probable that
future economic benefits will
flow to the entity. II. The asset
has a cost or value that can
be measured reliably._____"
Both I and II
It is a global
phenomenon intended to
bring about transparency
and a higher degree of
comparability in financial
reporting, both of which
will benefit the investors
and are essential to
achieve the goal of one
uniform and globally
accepted financial
reporting standards. IFRS
Shown below is the bank
reconciliation for Central
Company for May 2008:
Balance per bank, May
31, 2008 = P300, 000,
Deposit in transit = 48,
000, Outstanding checks
= (56, 000), Bank credit
recorded in error = (20,

000), Cash Balance per

book, May 31, 2008 =
P272, 000. The bank
statement for June 2008
contains the following
data: Total deposits =
P220, 000, Total charges,
including an NSF of P16,
000 and service charge of
P800 = P192, 000. All
outstanding checks on
April 30, including the
bank credit, were cleared
in the bank on May 31.
There were outstanding
checks of P60, 000 and
deposits in transit of P76,
000 on May 31, 2008.
What is the cash balance
per bank on June 30,
2008? P328, 000
Rich Company had the
following bank reconciliation
at March 31, 2008: Balance
per bank statement, March
31, 2008 = P46, 500 Add:
Deposit in Transit = 10, 300
Total = P56, 800 Less:
Outstanding checks = 12,
600 Grand Total = 44, 200.
Data per bank statement for
the month of April, 2008
follow: Deposits = P58, 400,
Disbursement = 49, 700. All
reconciliation items at March
31, 2008 cleared through the
bank in April. Outstanding
checks at April 30, 2008
totaled P7, 500. What is the
amount of cash
disbursements per book in
April? P44, 600
Part of the product
lifecycle wherein the

foremost metric is sales

growth Growth

accepted accounting
principles? They have

The following information is

been developed on the basis

of such factors as usage and
practical necessity.

available for Color Me

Company for year 2008: Net
Sales = P3, 600, 000;
Freight-in = P90, 000;
Purchase discounts = P50,
000; Ending inventory =
P240, 000. The gross margin
is P40% of net sales. What is
the cost of goods available
for sale? P2, 400, 000

Bruno received from a

customer a one-year,
P375, 000 note bearing
annual interest of 8%.
After holding the note for
six months, Bruno
discounted the note at
Super Bank at an
effective interest rate of
10%. How much did
Bruno receive from the
bank? P384, 750 .00
Which accounting process is
the recognition or
nonrecognition of business
activities as accountable
events. Identifying

The primary
measurement basis
currently used to value
assets in external
financial statements of
an entity is The market

price of the assets held by an

entity at the date the assets
were acquired.

Which f the following

statements best
describes generally

What are qualitative

characteristics of financial
statements? Qualitative
characteristics are the
attributes that make the
information provided in
financial statements useful to
users.

It is the quality of
information that
assures readers that
the information is free
from bias or error and
faithfully represents
what it purports to
show. Reliability

These users are

interested in information
in order to regulate the
activities of an entity,
determine taxation
policies and provide a
basis for national
statistics. Governments and
their agencies

Which statement is
correct? Income

encompasses both revenue

and gain.
Under the conceptual
framework,
representational
faithfulness is an
ingredient of Relevance =
No Reliability = Yes
On June 1, 2008, Pants
Corporation loaned Shorts
Company P500, 000 on 12%

Financial accounting can be

broadly defined as the area
of accounting that prepares
General purpose financial
statements to be used by
parties both internal and
external to the entity.

note, payable in five annual

The principles which

constitute the ground
rules for financial
reporting are termed
generally accepted
accounting principles. To
qualify as generally
accepted, an accounting
principle must Receive
substantial authoritative
support.

amount held in escrow

What is an example of an
accounting principle? The
definition of when income is
to be recognized.

Pants Corporation received

installments of P100, 000

beginning January 2, 2009. In
connection with this loan,
Short was required to deposit
P5, 000 in a non-interest
bearing escrow account. The
account is to be returned to
Short after all principal and
interest payments have been
made. Interest on the note is
payable on the first day of
each month beginning July 1,
2008. Short made timely
payments through November
1, 2008. On January 2, 2009,
payment on the first principal
installment plus all interest

due. How much would be

Pants' interest receivable on
the loan to Shorts at
December 31, 2008? P10,
000
On November 2, Creation
Company recorded
purchases of inventory of
P80, 000 and P100, 000
under credit terms of 2/15,
n/30. The payment due on
the P80, 000 purchase was
remitted on November 14.
The payment due on the
P100, 000 purchase was
remitted on November 29.
Under the net method and
the gross method, these
purchases should be
included at what respective
net amounts in the
determination of cost of
goods available for sale? Net
Method-P176, 400; Gross
Method-P178, 400

It shows the assets

derived by the project
from corresponding
liabilities and equities.
Balance sheet

Is image part of value?

Yes
In the gap analysis - if
supply exceeds demand,
how do you enter a
market? Better price
The purpose of the
International Financial
Reporting Standards is to
Promote uniform accounting
standards among countries of
the world.

Which of the following

financial attributes of
assets is generally
considered to be the most
relevant? Present value

These users need

information on trends and
recent developments
where an entity makes a
substantial contribution
to the local economy
providing employment
and using local suppliers.
The public
The singularly unique
function performed by
Certified Public
Accountants is The attest
function
The conceptual
framework specifically
mentions two underlying
assumptions, namely
Accrual and going concern
The valuation of a promise to
receive cash in the future at
present value is valid
because of the accounting
concept of
Going concern
At January 1, 2008, Queen
Co. had a receivable from A
Company of P400, 000 that
has been outstanding for
quite some time. Initial
investigation revealed that A
Company is in deep financial
dilemma. At present A
Company is unable to settle
all outstanding obligations but
further investigation revealed
that F Company is taking

over to run and operate the

business affairs of A
Company. However, F
Company is more than willing
to assume only 75% of A
Company's financial
obligations and by the end of
2009, all the assumed
financial obligations of A
Company will be settled. As
of December 31, 2008 Queen
Company expects to collect
P300, 000 that is due from A
Company. At the time the
receivable was recognized,
the prevailing effect rate of
interest for a similar financial
asset is 14%. What amount
of bad debt/impairment loss
should Queen Company
recognize related to its
accounts receivable in 2008?
P263, 157

Bruno received from a

customer a one-year,
P375, 000 note bearing
annual interest of 8%.
After holding the note
for six months, Bruno
discounted the note at
Super Bank at an
effective interest rate
of 10%. If the
discounting is treated
as a sale, what amount
of loss on discounting
should Bruno
recognize? P5, 250
The Savior Corporation uses
the lower of cost or net
realizable value inventory.
Data regarding the items in
work-in-process inventory are

presented below: Historical

Cost - Markers-P24, 000 Pens-P18, 880; Selling Price
- Markers-P36, 000 - PensP21, 800; Estimated cost to
complete - Markers-P4, 800 Pens-P4, 800; Replacement
cost - Markers-P20, 800 Pens-P16, 800; Normal profit
margin as a percentage of
selling price - Markers-P25%
- Pens-25%. What is the
amount of markers inventory
to be reported in Savior's
balance sheet? P24, 000
Lark Company sells its
merchandise at a gross
profit of 30%. The
following figures are
among those pertaining
to Lark operations for the
six months ended June
30, 2008: Sales - P200,
000; Beginning inventory
- P50, 000; Purchases P130, 000. On June 30,
2008, all of Lark inventory
was destroyed by fire.

What is the estimated

cost of this destroyed
company? P40, 000
Historical cost is the Amount
of cash paid or fair value of
the consideration given at the
time of acquisition.
It is the process that
involves the simultaneous
or combined recognition
of revenue and expenses
that result directly and
jointly from the same
transactions or other
events. Matching of cost
with revenue
It is the process of
incorporating in the
statement of financial
position or income
statement an item that
meets the definition of an
element of the financial
statements. Recognition