Theory of Accounts

A gain or loss arising from a change in the fair value of investment property shall a. Be recognized in the profit or loss for the period in which it arises b. Be recognized directly to equity in the period in which is arises c. Be recognized as an adjustment to retained earnings at the beginning of the year d. Not be recognized in the accounts

A

An intangible asset with an indefinite life is accounted for as follows: a. No amortization but tested for impairment annually b. Amortized and impairment tests annually c. Amortized and tested for impairment if there is a trigger event d. Amortized and no impairment test

A

An intangible asset with an indefinite life is one where a. There is not foreseeable limit on the period over which the asset will generate cash flow b. The length of life is over 20 years c. The directors feel that the intangible asset will not lose value in the foreseeable future d. There is a contractual or legal arrangement that lasts for a period in excess of five years.

A

Apportionment of the purchase price in a lump-sum acquisition of different assets may be based on lal of these, except; a. Book values of the assets to the seller b. Relative market values c. Tax assessment values d. Appraised values

A

Assets received in donation should a. Be depreciated based in their fair value at the time of the donation b. Be depreciated based on their book value at the time of the donation c. Should not be depreciated d. Be expensed upon receipt

A

Derecognition of investment property to property, plant and equipment are appropriate a. It becomes the subject of an operating lease b. It is sold c. It becomes the subject of a sale and leaseback deal d. It becomes the subject of a finance lease

A

Goodwill should properly appear in the statement of financial position of a company which; a. Has purchased an entity b. Consistently operates profitably c. Consistently reports above-normal profits d. Meets all of the conditions

A

If a reliable measure of fair value is no longer available and it becomes appropriate to carry a financial asset without a fixed maturity at cost rather than at fair value, the carrying amount (fair value) of the financial asset becomes the new cost basis and any previous gain or loss that has been recognized directly in equity shall a. Remain in equity until the financial asset is sold or otherwise disposed of b. Be recognized in earnings immediately c. Included in retained earnings d. Be amortized over a reasonable period of profit and loss

A

In an exchange of assets, an entity received equipment with a fair value equal to the carrying amount of equipment given up. The entity also contributed cash. As a result of the exchange, the entity shall recognized a. A loss equal to the cash given up b. A loss determined by the proportion of cash paid to the total transaction value c. A gain determined by the proportion of cash paid to the total transaction value d. Neither gain nor loss

A

In which of the following situations is the units-of-production method of depreciation most appropriate? a. An asset's service potential decline with use b. An asset's service potential declines with the passage of time c. An asset is subject to rapid obsolescence d. An asset incurs increasing repairs and maintenance with use

A

The party to a joint venture who DOSE NOT have joint control over that venture. a. Investor b. Venturer c. Shareholder d. Partner

A

The statement of financial position presentation of an urealized loss on an available-for-sale security is similar to the statement presentation of a. Treasury shares b. Bonds payable c. Allowance for doubtful accounts d. Prepaid expenses

A

These are group of divisional assets (e.g., head office building, EDP, equipment or research center) that do not generate cash inflows independently from other assets and that are usually regarded as part of cash generating unit. a. Corporate assets b. Subsidiary c. Service departments d. Exclusive cash generating unit

A

Transfer from investment property to property, plant and equipment are appropriate a. When there is change of use b. Based on the entity's discretion c. Current prices for properties of a different nature or subject to different conditions d. Current prices in an active market for similar property in the same location and condition

A

When a closely held corporation issues equity share in exchange for land, the land should be recorded at the a. Current market value of the land b. Total par value of the shares issued c. Current market value of the shares issued d. Total book value of the shares issued

A

Which of the following confers exclusive right to conduct business in a particular territory? a. Franchise b. Trademark c. Leasehold improvement d. Patent-copyright

A

A company constructed machinery for its own use. A bank loan specifically financed this property both during and after the construction. How much of the interest should be reported as interest expense? a. Interests incurred before completion b. Interest incurred after completion c. All interests incurred d. Zero

B

A computer software purchased as an operating system for the hardware or as an integral part of a computer controlled machine tool that cannot operate without the specific software shall be treated as a. Intangible assets b. Property, plant and equipment c. Inventory d. Expense

B

A newly set up dot-com entity has engaged you as its financial advisor. The entity has recently completed one of its highly publicized research and development projects and seeks your advice on the accuracy of the following statements made by one of its stakeholders. Which of the following statements is accurate? a. Costs incurred during the "research phase" can be capitalized. b. Costs incurred during the "development phase" can be capitalized if criteria such as technical feasibility of the project being established are met. c. Training costs of technicians used in research can be capitalized d. Designing the jigs and tools qualify as research activities

B

A principal objection to the straight-line method of depreciation is that it a. Provides for the declining productivity of an aging asset b. Ignores variations in the rate of asset use c. Tends to result in a constant rate of return on a diminishing investment base d. Give smaller periodic write-offs than decreasing charge methods.

B

A relationship characterized by the existence of a capacity to share control over an economic entity is known as: a. A parent-subsidiary relationship b. A joint venture c. An investor-associate relationship d. A sole proprietorship

B

An asset has a nine-year useful life and is to be depreciated under the sum of the years' digits method. The annual depreciation expense would be the same as that under the straight line method in the a. Third year b. Fifth year c. Seventh year d. Ninth year

B

An entity installed a new production facility and incurred a number of expenses at the point of installation. The entity's accountant is arguing that most expenses do not qualify for capitalization. Included in those expenses are initial operating losses. These should be; a. Deferred and amortized over a reasonable period of time b. Expensed and charged profit or loss in the income statement c. Capitalized as part of the cost of the plant as a directly attributable cost d. Taken to retained earnings since it is unreasonable to treat it as part of profit and loss.

B

An improvement made to an old machine increased its fair market value and its production capacity by 25% without extending the machine's useful life. The cost of the improvement preferably should be; a. Expensed b. Capitalized c. Recorded as a loss d. Recorded as a liability

B

Capitalization of construction period interest is based primarily upon the a. Comparability principle b. Matching principle c. Full-disclosure principle d. Revenue principle

B

Cash dividend declared out of current earrings were distributed to an investor. How will the investor's investment account be affected by those dividends under each of the following accounting methods Cost/Fair Value Method Equity Method a. Decrease No effect b. No effect Decrease c. Decrease Decrease d. No effect No effect

B

For investment in AFS, which of the following market value changes are recognized in earnings? a. Realized losses only b. Realized gains and losses only c. Unrealized and realized gains and losses d. Unrealized and realized losses only

B

If a plant asset is retired before it is fully depreciated and no salvage value is received a. A gain on disposal occurs b. A loss on disposal occurs c. Either a gain or loss can occur d. Neither a gain nor a loss occurs

B

The party to a joint venture who does have joint control over that venture. a. Investor b. Venturer c. Shareholder d. Partner

B

The proper accounting treatment for the costs incurred in creating computer software product is a. To capitalized all costs until the software is sold b. To charge research and development expense when incurred until technological feasibility has been established for the product c. To charge research and development expense only if the computer software has alternative future use d. To capitalized all costs as incurred until a detailed program design or working model is created

B

The usual factors considered in classifying investments in securities as short term are a. Ready marketability and type of investment b. Ready marketability and management intentions c. Type of investment only d. Ready marketability only

B

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 tool bridge that usually takes more than a year to build d. A ship that normally takes one to two years to complet

B

Which of the following note disclosures is required by PAS 38? a. The total cost of a building (useful life of 25 years, completed January 1, 2014) to be used in various researched and development projects b. Depreciation in 2014 of the building used for research and development c. The cost incurred in 2014 to ensure quality control for existing production processes d. The cost incurred in 2014 of research activities performed by another firm, the project is expected to be complete in 2015

B

Which of these is expensed as incurred by the franchisee for a franchise with an estimated useful life of ten years? a. Legal fees paid to the franchisee's lawyers to obtain the franchise b. Periodic payments to the franchisor based on the franchisee's revenues c. Initial amount paid to the franchisor for the franchise d. Any initial direct costs incurred in obtaining the franchise

B

When calculating estimates of future cash flows for value, which of these cash flows should not be included? a. Cash flows from disposal b. Income tax payments c. Cash flows from the sale of assets produced by the asset d. Cash outflows on the maintenance of the asset

B * Under PAS 36, the cash flows used to measure the 'value in use' of a property must be expressed before tax

A purchased patent has a remaining legal life of 8 years. It should be a. Expensed in the year of acquisition b. Amortized over a period of 10 or 20 years c. Amortized over its useful life, if less than 8 years d. Amortized over 8 years regardless of the useful life

C

A trading security (TS) is a. A security which has been purchased recently b. A security held in the account of a brokerage firm c. A security which is held for resale in the near future d. A security which will be transferred in exchange for another security

C

Amortization of specific intangible assets results primarily from application of the a. Full-disclosure principle b. Revenue principle c. Matching principle d. Cost principle

C

Costs incurred by a company that may develop its own goodwill internally should be: a. Capitalized and amortized as the company profits increased b. Capitalized and amortized over the useful life of the goodwill c. Expensed in the period incurred d. Capitalized and amortized over a period not to exceed 40 years

C

Identifiablilty is seen as the characteristic that conceptually distinguishes other intangible assets from a. Copyright b. Franchise c. Goodwill d. Patent

C

If an impairment of PPE is indicated, any impairment losses is recorded at an amount equal to the a. Excess of the carrying amount over the fair value of the asset b. Excess of the recoverable amount over the carrying amount of the asset c. Excess of the carrying amount over the recoverable amount of the asset d. Excess of the carrying amount over the discounted cash flows from the asset

C

Ignoring tax effects, accelerated depreciation methods a. Provide funds for the earlier replacement of fixed assets b. Increase funds provided by operations c. Tend to offset steadily increasing repair and maintenance costs d. Tend to decrease the fixed assets turnover ration

C

In the case of a nonmonetary grant, which of the following accounting treatments is prescribed by PAS 2o? a. Record the asset at replacement cost and the grant at a nominal value b. Record the grant and the asset at fair value of the nonmonetary grant c. Record both the grant and the asset at a fair value of the nonmonetary grant d. Record only the asset at fair value; do not recognize the fair value of the grant

C

It is a joint venture that involves establishment of a corporation, partnership or other entity in which each venturer has an interest a. Jointly controlled operation b. Jointly controlled assets c. Jointly controlled entity d. Jointly controlled business

C

The cash surrender value of an insurance policy on the company president would be presented on the balance sheet as: a. Cash b. Marketable securities c. Long-term investment d. Prepaid expense

C

The estimates of future cash flows in calculating value in use include all of the following, except a. Cash inflows from the continuing use of the asset b. Net cash flows from the disposal of the asset at the end of its useful life c. Future cash outflows that are expected to arise from improving or enhancing the asset's performance d. Cash outflows necessarily incurred to generate the cash inflows from the continuing use of the asset

C

The initial cost of a property held under a lease and classified as an investment property shall be a. The fair value of the property b. The present value of the minimum lease payment c. The lower of fair value of the property and present value of minim lease payments d. The higher of fair value of the property and present value of minimum lease payments

C

Under PAS 38, which of the following methods of amortization is normally not recommended for intangible assets? a. Units of production method b. Declining balance method c. Effective interest method d. Straight line method

C

Under PFRS 9, which of the following is not a catergory of financial assets? a. Financial assets at amortized cost b. Financial assets at fair value through profit or loss c. Financial assets at fair value through accumulated profit or loss d. Financial assets at fair value through other comprehensive income

C

What is the minimum book value to be shown in the balance sheet for a plant asset which is expected to be sold for a reasonable amount at end of its useful life. a. Zero b. Depreciable cost c. Salvage value d. Accumulated depreciation

C

When payment for is deferred beyond normal credit terms, the difference between the cash price and total payments is a. Capitalized as cost of PPE b. Charged to retained earnings c. Interest expense over the credit period d. Interest expense over the useful life of the asset

C

Which of the following costs related to computer software is capitalized to an intangible asset account? a. Cost to duplicate discs and manuals for sale b. Development costs preceding technological feasibility c. Coding and testing costs incurred after technological feasibility but before completing the product master d. Cost of customer service

C

Which of the following expenditures subsequent to property acquisition cannot be added to asset carrying amount? a. Costs of modification of an item of property that will extend its useful life b. Costs of upgrading parts to achieve substantial improvement in quality of output c. Costs of material repairs that did not increase the asset life nor productive capacity d. Costs of adopting new production processes that enable substantial reduction in operating costs

C

Which of the following is most likely not to be amortized over the periods of estimated benefit? a. Development costs that resulted in a successful product b. Lease rights paid to owner of property for the usufruct c. Costs incurred in organizing a corporation d. Patent right purchased from an inventor

C

A firm purchased bonds to be classified as an investment in AFS. The bonds were purchased at a premium. Assume the market price of the bond is volatile. Therefore, a. Cash interest received each year is less than the interest revenue recognized b. The ending valuation allowance account balance will depend on ending market value and original cost c. The ending valuation allowance account balance will depend on ending market value and original cost adjusted for amortization of premium d. The premium is ignored because the bonds are not classified as held to maturity

C * The ending valuation allowance for AFS bond investments is based on the difference between fair value and amortized cost.

A net unrealized loss on a company's AFS portfolio of marketable equity securities should be reflected in the current financial statements as a. An extraordinary item shown as a direct reduction of retained earnings b. A current loss resulting from holding marketable equity securities c. A footnote or parenthetical disclosure only d. A valuation allowance and include in the equity section of the statement of financial position

D

A security available for sale is a. A security which is currently held for resale b. A debt security not intended to be held to maturity c. A debt security but not an equity security d. A security accounted for by the fair value method but is not a trading security

D

Accounting for tangible operational assets is primarily in conformity with the: a. Matching principle b. Historical cost principle c. Matching principle and realization principle d. Matching principle and historical cost principle

D

Accumulated depreciation, as used in accounting, represents a. Funds set aside to replace assets b. Earning retained in the business that will be used to purchase another operational asset when the related asset becomes fully depreciated c. An expense on the income statement d. The portion of the asset cost written off as an expense since the acquisition date.

D

Discounts given for early payment of credit purchases of operational assets should be a. Recorded as interest expense at purchase date b. Capitalized as a cost of the asset acquired and subsequently allocated to deprecation expense c. Recorded as interest revenue at purchase date d. Deducted from the invoice price when determining the cost of the asset

D

Financial assets include all of the following, except a. Cash in bank b. Trade accounts and note receivable c. Loans receivable d. Inventories and prepaid items

D

For investments in trading securities, which of the following market value changes are recognized in earnings? a. Realized gains only b. Realized losses only c. Unrealized losses only d. Realized and unrealized gains and losses

D

Goodwill, when properly recognized should be written off: a. By systematic charges to expense over the period benefited, but not more than 20 years b. As soon as possible against retained earnings c. As soon as possible as an ordinary item d. When impairment loss occurs

D

It is permissible to capitalized interest on; a. Assets that are not being used in earning activities of the entity and that are not undergoing the activities necessary to get them ready for such use b. Inventories that routinely manufactured in large quantities on a repetitive basis c. Assets that already are in use or are ready fot their intended use in the earning activities on the entity d. Assets under construction

D

PAS 16 requires that revaluation surplus resulting from initial revaluation of property, plant and equipment should be treated in one of the following ways. Which of the four options mirrors the requirements of PAS 16? a. Credited to retained earnings as this is an unrealized gain b. Deducted from current assets and added to property, plant and equipment c. Released to the income statement an amount equal to the difference between the depreciation calculated on historical cost vis-a-vis revalued amount d. Debited to the class of property, plant and equipment that is being revalued and credited to a reserve captioned "revaluation surplus" which is presented equity

D

Plant assets may properly include: a. Idle equipment awaiting sale b. Property held for investment purposes c. Land held for undetermined future use d. Self-constructed assets currently in use

D

Technical or commercial obsolescence arises from a. Expected usage of the asset b. Expected physical wear and tear c. Expiry date of related lease of the asset d. Improvement in production or change in market demand for the output of the asset

D

The following expenditures should be expensed as incurred, except a. Expenditures on advertising and promotional activities b. Payments for organization expense c. Expenditures in relocating or reorganizing part or all of the enterprise d. Payment in advance of delivery of goods or services

D

The particular relationship between parties that signifies the existence of a joint venture is: a. Significant influence by one party over the other party b. Control over the operating policies of one party by another party c. Shared influence by two parties over the activities of another party d. Joint control by the parties over the activities of an operation

D

Under PAS 16, PPE includes all of the following except; a. Property held for administrative purposes b. Property used for extraction of minerals, oil or natural gas c. Property used in production or supply of goods and services d. Biological assets related to agricultural activity and mineral rights.

D

Under PAS 38, intangible assets should be carried at a. Cost less accumulated depreciation b. Revalued amount less accumulated depreciation c. Cost plus a notional increase in fair value since the intangible asset is acquired d. Cost less accumulated amortization and/or accumulated impairment

D

Which of the following generally provides the best evidence of fair value of an investment property a. Discounted cash flow projections based on reliable estimates of future cash flows b. Recent prices on less active markets with adjustments to reflect changes in economic conditions c. Current prices for properties of a different nature or subject to different conditions d. Current prices in an active market for similar property in the same location and condition

D

Which of the following is a correct statement concerning research and development (R & D) costs? a. All R & D costs, without exception, must be charged to expense when incurred b. R & D can only be amortized over a life of 40 years or more c. Almost any treatment is acceptable for handling R & D costs d. Notes to the financial statements must disclose total amount of R & D costs expensed during the period

D

Which of the following is not an indication of possible asset impairment? a. Significant decrease or decline in the market value of the asset b. Evidence of obsolescence or physical damage of an asset c. Evidence that the economic performance of an asset will be worse than expected d. The use of accelerated method of depreciation of the asset

D

Which of the following is not one of the forms of joint venture under PAS 31? a. Jointly controlled assets b. Jointly controlled entities c. Jointly controlled operations d. Jointly controlled management

D

Which of the following items qualify as an intangible asset under PAS 38? a. Advertising and promotion on the launch of huge product b. College tuition fees paid to employees who decide to enroll in an executive MBA program while working with the company c. Operating losses during the initial stages of the project d. Legal costs paid to intellectual property lawyers to register a patent

D

Which of the following note disclosures is NOT required by PAS 38? a. Useful lives of the intangible assets b. Reconciliation of carrying amount at the beginning and the end of the year c. Contractual commitments for the acquisition of intangible assets d. Fair value of similar intangible assets used by competitors

D

Which of the following would not be reported as investment property a. Real estate held for an undetermined future use b. Property held by the entity to be leased out under one or more operating leases c. Property owned by the entity and leased out under one or more operating leases d. Property owned by the entity and leased out to another entity under a finance lease

D A PROPERTY LEASED IN under finance (capital) lease and LEASED OUT under operating lease qualifies as an investment property. A PROPERTY LEASED OUT under finance lease is not considered as an investment property.

A bond is purchased on January 1. The investor's carrying value at the end of the first year would be highest if the bond was purchased at a a. Discount and amortized by the straight-line method b. Discount and amortized by the effective interest method c. Premium and amortized by the straight-line method d. Premium and amortized by the effective interest method

D Under the effective interest method (scientific method), the periodic amortization of premium is lowest in the first period but it increases over the subsequent periods.