Integrated Theory of Accounts- ACTG.

126
Prepared by: Regie R. Baoy
Evaluation Test
MULTIPLE CHOICE: Encircle the letter that corresponds to your answer.
IAS/PAS- 8 Accounting Policies, Changes in Accounting and Errors
1.

Accounting changes are often made and the monetary impact is reflected in the financial statements of a
company even though, in theory, this may be a violation of the accounting concept of
a. materiality.
c. prudence.
b. consistency.
d. objectivity.

2.

Which of the following is not classified as an accounting change by IASB?

a. Change in the accounting policy
d. All of these are classified as an accounting
b. Change in accounting estimate
change
c. Errors in the financial statements

3.

Which of the following is the best explanation for why IASB has classified accounting changes into different
categories?
a. IASB established categories based on the materiality of the changes involved.
b. IASB classifies changes in the categories because each category involves different method of recognizing
changes in the financial statements.
c. IASB established categories based on the fact that some treatment are consider GAAP and some are not.
d. IASB established the categories based on a survey of managers and their need to provide a favorable
profit picture.

4.

IASB requires companies to use which method for reporting changes in accounting policies?
a. cumulative effect approach
c. prospective approach
b. retrospective approach
d. averaging approach

5.

Which of the following is not treated as a change in accounting policy?

a. A change from average cost to FIFO for inventory valuation
b. A change to a different method of depreciation for plant assets
c. A change from full-cost to successful efforts in the extractive industry
d. A change from cost-recovery to percentage-of-completion

6.

Which of the following is not a retrospective-type accounting change?

a. Cost-recovery method to the percentage-of-completion method for long-term contracts
b. Cost-recovery method to the FIFO method for inventory valuation
c. Sum-of-the-years'-digits method to the straight-line method
d. "Full cost" method to another method in the extractive industry

7.

Which of the following is accounted for as a change in accounting policy?

a. A change in the estimated useful life of plant assets.
b. A change from the cash basis of accounting to the accrual basis of accounting.
c. A change from expensing immaterial expenditures to deferring and amortizing them as they become
material.
d. A change in inventory valuation from average cost to FIFO.

8.

A company changes from straight-line to an accelerated method of calculating depreciation, which will be
similar to the method used for tax purposes. The entry to record this change should include a
a. credit to Accumulated Depreciation.
c. debit to Deferred Tax Asset.
b. debit to Retained Earnings in the amount
d. credit to Deferred Tax Liability.
of the difference on prior years.
Which of the following disclosures is required for a change from sum-of-the-years-digits to straight-line?
a. The cumulative effect on prior years, net of tax, in the current retained earnings statement
b. Restatement of prior years income statements
c. Recomputation of current and future years depreciation
d. All of these are required.

9.

10.

Which of the following would be a reason where IASB would permit companies to change accounting policy?
a. The change would allow the company to present a more favorable profit picture.
b. The change would result in the financial statements providing more reliable and relevant information about
a company`s financial position, financial performance, and cash flows.
c. The change is made by the internal auditor.
d. The change will be long-term.

11.

If a particular transaction is not specifically addressed by IFRS, where should an accountant turn to find a
hierarchy of guidance to be consicered in the selection of an accounting policy?
a. accounting standards from other countries
c. the companys board of directors
b. IAS 8
d. the companys external auditors

12.

A company changes from percentage-of-completion to cost-recovery, which is the method used for tax
purposes. The entry to record this change should include a
a. debit to Construction in Process.
b. debit to Loss on Long-term Contracts in the amount of the difference on prior years, net of tax.
c. debit to Retained Earnings in the amount of the difference on prior years, net of tax.
d. credit to Deferred Tax Liability.

13.

Which of the following disclosures is not required for a change from average cost to FIFO?
a. Basic and diluted earnings per share for the current period and each prior period presented
b. The nature of the change in accounting policy
c. The amount of the adjustment relating to periods before those presented
d. All of these are required.

14.

Stone Company changed its method of pricing inventories from average cost to FIFO. What type of accounting
change does this represent?
a. A change in accounting estimate for which the financial statements for prior periods included for
comparative purposes should be presented as previously reported.
b. A change in accounting policy for which the financial statements for prior periods included for comparative
purposes should be presented as previously reported.
c. A change in accounting estimate for which the financial statements for prior periods included for
comparative purposes should be restated.
d. A change in accounting policy for which the financial statements for prior periods included for comparative
purposes should be restated.

15.

Which type of accounting change should always be accounted for in current and future periods?
a. Change in accounting policy
c. Change in accounting estimate
b. Change in reporting entity
d. Correction of an error

16.

Which of the following is (are) the proper time period(s) to record the effects of a change in accounting
estimate?
a. Current period and prospectively
c. Retrospectively only
b. Current period and retrospectively
d. Current period only

17.

When a company decides to switch from the double-declining balance method to the straight-line method, this
change should be handled as a
a. change in accounting policy.
c. prior period adjustment.
b. change in accounting estimate.
d. correction of an error.

18.

The estimated life of a building that has been depreciated 30 years of an originally estimated life of 50 years
has been revised to a remaining life of 10 years. Based on this information, the accountant should
a. continue to depreciate the building over the original 50-year life.
b. depreciate the remaining book value over the remaining life of the asset.
c. adjust accumulated depreciation to its appropriate balance, through net income, based on a 40-year life,
and then depreciate the adjusted book value as though the estimated life had always been 40 years.
d. adjust accumulated depreciation to its appropriate balance through retained earnings, based on a 40-year
life, and then depreciate the adjusted book value as though the estimated life had always been 40 years.

19.

Which of the following statements is correct?

a. Changes in accounting policy are always handled in the current or prospective period.
b. Prior statements should be restated for changes in accounting estimates.
c. A change from expensing certain costs to capitalizing these costs due to a change in the period benefited,
should be handled as a change in accounting estimate.
d. Correction of an error related to a prior period should be considered as an adjustment to current year net
income.

20.

Why does IASB prohibit retrospective treatment of changes in accounting estimates?

a. The IASB view changes in estimates as normal recurring corrections and adjustments, which are the
natural result of the accounting process.
b. The IASB does not allow the retrospective treatment for any type of presentation.
c. The IASB prohibits retrospective treatment of changes in accounting estimates because IFRS requires it.
d. IASB does not prohibit retrospective treatment of changes in accounting estimates, but is silent on this
issue

21.

All of the following statements are true regarding IASBs guideline that companies must demonstrate change
in accounting policy as preferable or as an improvement, except:
a. Diversity in situations and characteristics of the items encountered in practice require the use of
professional judgment.
b. Changes in accounting policy are appropriate only when a company demonstrates that the newly adopted
generally accepted accounting policy is more relevant and reliable than the existing one.
c. Changes in accounting policy are appropriate only when a company demonstrates an improved income tax
effect alone.
d. None of these; all statements are true.

22.

Each of the following errors will overstate 2012 net income except:
a. Equipment
purchased
in
2011
was
c. Equipment
purchased
in
2012
was
expensed.
expensed.
b. Wages payable were not recorded at
d. 2012 ending inventory was overstated
12/31/12.

23.

Yee Construction Co. had follwed the practice of expensing all materials assigned to a construction job without
recognizing any residual inventory. On December31, 2012, it was determained that residual inventory should
be valued at PHP56,000. Of this amount,PHP23,000 arose during the current year. Based on this information,
all of the following statements is true regarding the affect on the financial statements to be prepared at the
end of 2012 except:
a. PHP23,000 should be reported in the 2012 statements as a reduction of materials cost.
b. PHP33,000 should be reported as an adjustment to the beginning balance of retained earnings in the 2012
financial statements.
c. This change should be handled as a correction of an error.
d. This change should be handled as a change in accounting estimate.

24.

An
a.
b.
c.
d.

25.

The IASB has declared, as part of its conceptual framework, that it will assess the merits of proposed
standards
a. from a position of neutrality.
c. based on the possible impact on behavior.
b. from a position of materiality.
d. based on lobbyist arguments.

example of a correction of an error in previously issued financial statements is a change

from the FIFO method of inventory valuation to the average cost method.
in the service life of plant assets, based on changes in the economic environment.
from the cash basis of accounting to the accrual basis of accounting.
in the tax assessment related to a prior period.

IAS/PAS 38- Intangible Assets

26. Which of the following does not describe intangible assets?
a. They lack physical existence.
b. They are monetary assets.
27.

c.
d.

They provide long-term benefits.

They are classified as long-term assets.

Which of the following characteristics do intangible assets possess?

a. Physical existence.
c. Long-lived.
b. Claim to a specific amount of cash in the
d. Held for resale.
future.

28.

29.

Which characteristic is not possessed by intangible assets?

a. Physical existence.
b. Identifiable.

c.
d.

Result in future benefits.

Expensed over current and/or future years.

Costs incurred internally to create intangibles are

a. capitalized.
b. capitalized if they have an indefinite life.

c.
d.

expensed as incurred.
expensed only if they have a limited life.

30.

Which of the following costs incurred internally to create an intangible asset is generally expensed?
a. Research phase costs.
c. Legal costs.
b. Filing costs.
d. All of the above.

31.

The major problem of accounting for intangibles is determining

a. fair value.
c.
b. separability.
d.

32.

Copyrights should be amortized over

a. their legal life.
b. the life of the creator plus fifty years.
c. twenty years.

salvage value.
useful life.

d.

their useful life or legal life, whichever is

shorter.

d.

its useful life or twenty years, whichever is

shorter.

c.
d.

acquisition cost.
liquidation value.

33.

A patent should be amortized over

a. twenty years.
b. its useful life.
c. its useful life or twenty years, whichever is
longer.

34.

Limited-life intangibles are reported at their

a. replacement cost.
b. carrying amount unless impaired.

35.

Which of the following methods of amortization is normally used for intangible assets?
a. Sum-of-the-years'-digits
c. Units of production
b. Straight-line
d. Double-declining-balance

36.

The cost of an intangible asset includes all of the following except

a. purchase price.
c. other incidental expenses.
b. legal fees.
d. all of these are included.

37.

Factors considered in determining an intangible assets useful life include all of the following except
a. the expected use of the asset.
b. any legal or contractual provisions that may limit the useful life.
c. any provisions for renewal or extension of the assets legal life.
d. the amortization method used.

38.

Under current accounting practice, intangible assets are classified as

a. amortizable or unamortizable.
c. specifically identifiable or goodwill-type.
b. limited-life or indefinite-life.
d. legally restricted or goodwill-type.

39.

Companies should evaluate indefinite life intangible assets at least annually for:
a. recoverability.
c. impairment.
b. amortization.
d. estimated useful life.
One factor that is not considered in determining the useful life of an intangible asset is
a. salvage value.
c. legal life.
b. provisions for renewal or extension.
d. expected actions of competitors.
Which intangible assets are amortized?
Limited-Life
Indefinite-Life
a.
Yes
Yes
b.
Yes
No
c.
No
Yes
d.
No
No

40.
41.

42.

The cost of purchasing patent rights for a product that might otherwise have seriously competed with one of
the purchaser's patented products should be
a. charged off 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 purchaser's product.
d. amortized over the remaining estimated life of the original patent covering the product whose market
would have been impaired by competition from the newly patented product.

43.

Broadway Corporation was granted a patent on a product on January 1, 2000. To protect its patent, the
corporation purchased on January 1, 2011 a patent on a competing product which was originally issued on
January 10, 2007. Because of its unique plant, Broadway Corporation does not feel the competing patent can
be used in producing a product. The cost of the competing patent should be
a. amortized over a maximum period of 20 years.
b. amortized over a maximum period of 16 years.
c. amortized over a maximum period of 9 years.
d. expensed in 2011.

44.

Wriglee, Inc. went to court this year and successfully defended its patent from infringement by a competitor.
The cost of this defense should be charged to
a. patents and amortized over the legal life of the patent.
b. legal fees and amortized over 5 years or less.
c. expenses of the period.
d. patents and amortized over the remaining useful life of the patent.

45.

Which of the following is not an intangible asset?

a. Trade name
b. Research and development costs

c.
d.

Franchise
Copyrights

46.

Which of the following intangible assets should not be amortized?

a. Copyrights
d. All of these intangible assets should be
b. Customer lists
amortized.
c. Perpetual franchises

47.

When a patent is amortized, the credit is usually made to

a. the Patent account.
b. an Accumulated Amortization account.

48.

When a company develops a trademark the costs directly related to securing it should generally be capitalized.
Which of the following costs associated with a trademark would not be allowed to be capitalized?
a. Attorney fees.
c. Research and development fees.
b. Consulting fees.
d. Design costs.

49.

In a business combination, the excess of the cost of the purchase over the fair value of the identifiable net
assets purchased is:
a. other assets.
c. goodwill.
b. indirect costs.
d. a bargain purchase.

50.

Goodwill may be recorded when:

a. it is identified within a company.
b. one company acquires another in a business combination.
c. the fair value of a companys assets exceeds their cost.
d. a company has exceptional customer relations.

51.

When a new company is acquired, which of these intangible assets, unrecorded on the acquired companys
books, might be recorded in addition to goodwill?
a. A trade name.
c. A customer list.
b. A patent.
d. All of the above.
Which of the following intangible assets could not be sold by a business to raise needed cash for a capital
project?
a. Patent.
c. Goodwill.
b. Copyright.
d. Trade name.

52.

c.
d.

an Accumulated Depreciation account.

an expense account.

53.

The reason goodwill is sometimes referred to as a master valuation account is because

a. it represents the purchase price of a business that is about to be sold.
b. it is the difference between the fair value of the net identifiable assets as compared with the purchase
price of the acquired business.
c. the value of a business is computed without consideration of goodwill and then goodwill is added to arrive
at a master valuation.
d. it is the only account in the financial statements that is based on value, all other accounts are recorded at
an amount other than their value.

54.

Purchased goodwill should

a. be written off as soon as possible against retained earnings.
b. be written off as soon as possible as an other expense item.
c. be written off by systematic charges as a regular operating expense over the period benefited.
d. not be amortized.

55.

The intangible asset goodwill may be

a. capitalized only when purchased.
b. capitalized either when purchased or created internally.
c. capitalized only when created internally.
d. written off directly to retained earnings.

IAS/PAS 40 Investment Property

56. Investment property excludes
a. Land held for long-term capital appreciation.
b. Building leased out under an operating lease.
c. Property held for future use for administrative purposes.
d. None of the above.
57. Investment property includes
a. Property being constructed or developed on behalf of third parties.
b. Property that is being constructed or developed for use as an investment property.
c. Property leased to another entity under a finance lease.
d. Property that is being redeveloped for continuing use as investment property.
58. A property interest that is held by a lessee under an operating lease may be classified and accounted for as
investment property provided that:
I.
The rest of the definition of investment property is met.
II.
The operating lease is accounted for as if it were a finance lease.
III.
The lessee uses the cost model.
a. I only
b. I and II only
c. I and III only
d. I, II and III
59. Which of the following is incorrect if the owner uses part of the property for its own use, and part to earn rentals
or for capital appreciation?
a.
If the portions can be sold or leased out separately, they are accounted for separately.
b.
If the portions can be sold or leased out separately, the part that is rented out is investment property.
c.
If the portions cannot be sold or leased out separately, the property is investment property only if the owneroccupied portion is insignificant.
d.
None of the above.
60. Which statement is correct concerning property leased to an affiliate?
I.
From the perspective of the individual enterprise that owns it, the property leased to an affiliate is considered
an investment property.
II.
From the perspective of the affiliates as a group and for purposes of consolidated financial statements, the
property is treated as owner-occupied property.
a. Both I and II
b. Neither I nor II
c. I only
d. II only
-END OF EXAMINATION-