FINANCIAL ACCOUNTING AND REPORTING (FAR)

FIRST MONTHLY ASSESSMENT

TOPIC(s) COVERED:
FAR-AP 01 – INTRODUCTION TO ACCOUNTANCY PROFESSION
FAR-AP 02 – PREFACE TO PFRS
FAR-AP 03 – CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING
FAR-AP 04 – ACCOUNTING PROCESS
FAR-AP 07 – CASH AND CASH EQUIVALENTS

1. Accounting is a service activity. Its function is to provide quantitative

information, primarily financial in nature, about economic entities, that is
intended to be useful in making economic decision. This definition was provided by
A. Accounting Standards Council
B. American Accounting Association
C. Accounting Standards Commission
D. American Standards Council

2. Evaluate whether the following statements are true or false:

First Statement: Under the identifying process, only accountable events are
recognized. Non-accountable events are ignored at all times.
Second Statement: All transfers are external events but not all external events

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are transfers.
Third Statement: Measuring is the formal component of the accounting process

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that involves the determination of the monetary amounts at
which the elements of the financial statements are to be
recognized and carried in the financial statements.
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A. True, false, false C. False, true, false
B. False, true, true D. True, true, false
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3. Which of the following events is considered as a reciprocal transfer?

A. Declaration of cash dividends
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B. Conversion of raw materials into finished goods

C. Purchase of merchandise inventories to be sold to outside customers
D. None from the choices
C

4. Which of the following is an incorrect statement regarding the Professional

Regulatory Board of Accountancy?
A. The chairman, vice-chairman and the other members of the regulatory board are
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all appointed by the President of the Philippines.

B. The four sectors in the practice of accountancy shall as much as possible be
equitably represented in the Board of Accountancy.
C. No person who has served the regulatory board for two (2) successive complete
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terms shall be eligible for reappointment until the lapse of one (1) year.
D. Only the President of the Philippines may suspend, or remove any member of the
regulatory board.

5. Which of the following is a qualification to become a member of the Board of

Accountancy?
A. Must be a natural-born CPA and a resident of the Philippines.
B. Must be of good moral character and must not have been convicted of political
crimes.
C. Must not be a Director or Officer of the APO currently or previously.
D. Must be a duly registered CPA with at least ten years of work experience in
any scope of practice of accountancy.

6. First Statement: Taxation services represent the unique attest function of CPAs in
public practice.
Second Statement: Lawyers who are members of the Integrated Bar of the Philippines
may be allowed to teach business law and taxation subjects.
A. Only the first statement is correct.
B. Only the second statement is correct.
C. Both statements are correct.
D. None from the statements are correct.

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7. The following statements regarding the Professional Regulatory Board of Accountancy
are provided to you for your evaluation:
First Statement: Neglect of duty or incompetence and intolerance of violation
of RA 9298 are grounds for the removal of a member of the Board
of Accountancy.
Second Statement: No person shall serve the Board of Accountancy for more than
10 years.
Third Statement: Appointment to fill up an expired term is not to be considered
as a complete term.
A. Only the first statement is incorrect.
B. Only the second statement is incorrect.
C. Only the first and second statements are incorrect.
D. Only the third statement is incorrect.

8. Which of the following is NOT part of the conditions for the continuity of
accreditation of PICPA?
A. Its membership is open to all registered CPAs without discrimination.
B. It is duly registered as a stock corporation or association by the Securities
and Exchange Commission (SEC).
C. It is established for the benefit and welfare of the CPAs, the advancement of
their profession, and the attainment of other professional ends.
D. It shall have adequate chapters/regions in major areas in the Philippines to
effectively attend to the needs of its members.

9. Which of the following is incorrect about PICPA?

S1: The fifteen (15) national directors of PICPA shall be apportioned according to
sectors in the three geographic areas (Luzon, Visayas and Mindanao).

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S2: Membership in PICPA is not a bar from being a member of other professional
organizations.
A. S1 only
B. S2 only
C. Both statements
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D. None from the statements
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10. Which of the following is TRUE regarding Philippine Financial Reporting Standards
(PFRSs)?
A. PFRSs set out recognition, measurement, presentation, and disclosure
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requirements dealing with transactions and events that are important in the
preparation of specific purpose financial statements.
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B. PFRSs apply to profit-oriented and non-profit-oriented entities preparing

financial statements are directed towards the common information needs of a
wide range of users.
C. The PFRSs approved by FSRSC include bold-type and plain-type paragraphs, both
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of which have equal authority.

D. Any limitation of the scope of PFRS is made clear on a separate interpretation
issued by FSRSC.
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11. Which of the following is included in the due process of standard setting?
S1: Exposure of the proposed draft for comments and suggestion to PICPA members,
FINEX members and other interested parties.
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S2: Approval of all the members of the final PFRS.

A. S1 only C. Both statements
B. S2 only D. None from the statements

12. Regarding FSRSC and its members, determine which of the statements below is true:
A. All FSRSC members should be CPAs.
B. FSRSC members work on a full-time basis with a salary coming from the national
government.
C. The chairman should be a senior practitioner in public practice.
D. All accountancy sectors are equally represented in FSRSC by representatives
coming from PICPA.
E. None of the above

13. Determine which of the following statements are true:

I. All FSRSC members should be CPAs.
II. A standard should be approved by all members of FSRSC.
III. FSRSC members are on full-time basis and have a compensation coming from the
government.
A. I and II C. All of the statements
B. II and III D. None of the statements

14. From the below statements, determine which of them is incorrect regarding FSRSC.

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S1: The chairman should be a senior practitioner in public practice.
S2: The FSRSC replaced the AASC as the standard setting-body in the Philippines.
S3: FSRSC members serve without compensation for a term of three years, which can
be renewed for another three-year periods.
A. S1 and S2 C. S3 only
B. S2 and S3 D. S1 and S3

15. Which of the following is represented in FSRSC (formerly FRSC)?

A. B. C. D. E.
Insurance Commission Yes No Yes No Yes
PICPA Yes Yes No No No
CHED No No No No Yes

16. Which of the following statements regarding the conceptual framework of accounting
is (are) true?
I. The conceptual framework is intended to establish the objectives and concepts
for use in developing standards of financial accounting and reporting.
II. If there is a conflict between the provisions of the conceptual framework and
that of a financial accounting standard, the conceptual framework should
prevail.
III. Special purpose financial reports, for example, prospectuses, and computations
prepared for taxation purposes, are within the scope of the conceptual
framework.
A. Only I is true D. All statements are true
B. I and II are true C. I and III are true

17. Which of the following statements best describes the term "financial position"?

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A. The net income and expenses of an entity
B. The assets, liabilities and equity of an entity
C. The net of financial assets less liabilities of an entity
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D. The potential to contribute to the flow of cash and cash equivalents to the
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entity

18. Which of the following statements about materiality is not correct?

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A. An item must make a difference or it need not be disclosed.

B. Materiality is a matter of relative size or importance.
C. An item is material if its inclusion or omission would influence or change the
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judgment of a reasonable person.

D. All of these are correct statements about materiality.
C

19. Which statement is false concerning users and their information needs?
A. The providers of risk capital and their advisers are concerned with the risk
inherent in and return provided by their investment.
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B. Employees and their representative groups are interested in information about

the stability and profitability of their employees.
C. Lenders are interested in information that enables them to determine whether
their loans and the interest on these loans will be paid when due.
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D. Government and its agencies have an interest in information about the

continuance of an enterprise, especially when they have long-term involvement
or are dependent on the enterprise.

20. Which of the following is an ingredient of relevance?

A. B. C. D.
Predictive value Yes Yes Yes No
Materiality Yes No Yes Yes
Free from error Yes No No Yes

21. Which of the following statements is correct regarding the Conceptual Framework?
S1: The general purpose financial statements cannot provide all of the information
needed by its users.
S2: Consistency is not an enhancing qualitative characteristic because it is just
an ingredient of comparability.
S3: The concept of revenue encompasses both income and gains.
A. S1 and S3 only D. All of the statements
B. S2 only E. None from the statements
C. S1 and S2 only

22. ZAMBALES CORP. reported the following increase (decrease) in the account balances
for the current year:

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Cash P 50,000
Accounts receivable (100,000)
Inventory 300,000
Investments (50,000)
Equipment 300,000
Accumulated depreciation 50,000
Accounts payable (50,000)
Bonds payable 150,000
Discount on bonds payable 40,000
Unrealized gain –FVPL 30,000
Unrealized gain – FVOCI 60,000
Share capital 150,000
Share premium 50,000
During the current year, the entity declared P70,000 cash dividends and P30,000
stock dividends. Also, the entity received a land from its shareholder with a fair
value at the time of donation amounting to P50,000. Using capital maintenance
approach, how much is comprehensive income during the current year?
A. P120,000 C. P210,000
B. P150,000 D. P170,000

23. Which of the following accounts would be included in a post-closing trial balance?
A. Gain on reversal of write-down of inventories
B. Gain on retirement of treasury shares
C. Loss on factoring of receivables
D. Dividends paid on preference share with mandatory redemption

24. SM Appliance store sold some of its televisions to customers on account during the

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current period. When special journals are used, the entity enters the transaction
in the
A. Sales journal
B. General journal
C. Cash receipts journal
D. Cash payments journal
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25. Which of the following adjusting entries does not require reversal at the beginning
of the new accounting period?
A. Debit salary expense and credit salary payable
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B. Debit unearned rent and credit rent revenue

C. Debit prepaid rent and credit rent expense
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D. Debit interest receivable and credit interest income

26. Which of the following is/are true about a "credit"?

I. It is part of the double-entry procedure that keeps the accounting equation in
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balance.
II. It represents a decrease to assets.
III. It represents an increase to liabilities.
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IV. It is on the right side of a T-account.

A. I and II. C. I, II, and III.
B. IV only. D. I, II, III, and IV.
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27. Receiving assets from customers before services are performed results in:
A. Prepaid Assets. C. Unearned Revenues.
B. Service Revenue. D. Accounts Receivable

28. The following statements relate to cash. Which statement is incorrect?

A. Compensating balances required by a bank may be included in "cash and cash
equivalent".
B. The term "cash equivalent" refers to demand credit instruments such as money
order and bank drafts.
C. The purpose of establishing a petty cash fund is to pay small expenses which
cannot be paid conveniently by means of check.
D. Classification of a restricted cash balance as current or noncurrent should
parallel the classification of the related obligation for which the cash was
restricted.

29. Which of the following is true regarding cash and cash equivalents?
A. Not all items included in cash constitute legal tender money.
B. Time deposit is part of cash.
C. A Cash Over and Short account is debited when the petty cash fund proves out
over.
D. With the establishment of an imprest petty cash fund, one person is given the
authority and responsibility for issuing checks to cover minor disbursements.

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30. Which of the following information is NOT provided by a bank statement?
A. Bank service charge
B. Interest income credited by the bank on the depositor’s account
C. Deposit in transit
D. Erroneous credit by the bank on the depositor’s account

31. Which of the following should be excluded from cash and cash equivalents?
A. A three-year treasury note maturing on March 30 next year purchased by the
entity on December 31 of the current year.
B. Preference shares with a specified redemption date of February 28 next year
acquired on November 30 of the current year.
C. A 60-day money market placement
D. Time deposit which matures in one year as of the current year-end.

32. The controller of the FURION INC. is trying to determine the amount of Cash and
cash equivalents to be reported on its December 31, 2014, statement of financial
position. The following information is provided:
1 Balances in the company's accounts at the BPI BANK:
Checking account—P540,000
Savings account— P884,000
2 Undeposited customer checks of P208,000.
3 Currency and coins on hand of P23,200.
4 Savings account at the BDO BANK with a balance of P350,000.This account is
being used to accumulate cash for future plant expansion (in 2016).
5 P800,000 balance in a checking account at the BDO BANK. In exchange for a line
of credit, FURION has agreed to maintain a minimum balance of P100,000 in this

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account.
6 Treasury bills; 30-day maturity bills totaling P600,000, and 180-day bills
totaling P800,000.
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What total amount of "cash and cash equivalents" should be reported in the current
asset section of the 2014 statement of financial position?
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A. P3,055,200 C. P2,455,200
B. P2,955,200 D. P2,355,200
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33. The cash account in the current asset section of the balance sheet for EARTHSHAKER
CORP. showed a balance of P 555,000. It was found to include the following items:
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Petty cash fund (P 1,000 is in the form of paid vouchers), P 5,000; Checking account
balance, per bank statement (A P 25,000 check is still outstanding), P 255,000;
Undeposited receipts (including a post-dated check tor P 5,000). P 120,000;
Currencies and coins awaiting deposit, P 55,000; Bond sinking fund - cash, P 100,000;
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Check drawn by manager, returned by bank marked NSF, P 20,000

What is the correct cash balance for EARTHSHAKER’s balance sheet?
A. P 404,000 C. P 430,000
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B. P 429,000 D. P 529,000

34. LUNA MOONFANG CORP. had the following account balances on December 31, 2024:
Petty cash fund P50,000
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Cash in bank - current account 4,000,000

Cash in bank - sinking fund 2,000,000
Cash on hand 500,000
Cash in bank - restricted account for plant addition,
expected to be disbursed in 2025 1,500,000
Treasury bills 1,000,000
The petty cash fund included unreplenished December 2014 petty cash expense vouchers
of P10,000 and employee IOU of P5,000. The cash on hand included a P100,000 check
payable to LUNA dated January 15, 2025. In exchange for a guaranteed line of credit,
the entity has agreed to maintain a minimum balance of P200,000 in its unrestricted
current bank account. The sinking fund is set aside to settle a bond payable that
is due on June 30, 2025. What total amount should be reported as "cash and cash
equivalents" on December 31, 2024?
A. P4,435,000 C. P5,535,000
B. P5,435,000 D. P7,435,000

35. KAOLIN CORP. had the following items included as cash at December 31, 2023:
Bond sinking fund P500,000
Balance of checking account in FIRST BANK in the books of KAOLIN
(A P20,000 check is still outstanding per bank statement) 120,000
Balance of savings account in SECOND BANK in the books of KAOLIN
(the account has a long-term restriction under the

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provision of a certain contract) 80,000
Petty cash fund 15,000
Undeposited collections
(including a customer post-dated check amounting to P5,000) 25,000
Money market placement (due date: June 30, 2024), 50,000
Savings account in THIRD BANK (10,000)

The petty cash fund account includes the following items:

Coins and currencies P6,000
Paid vouchers:
Transportation 1,200
Gasoline 1,000
Office supplies 2,300
Donation to charity 1,500
Check drawn by the entity to the order of petty cash custodian 3,000
Total P15,000

Based on the above information, which of the following statements is CORRECT?

A. The adjusted balance of petty cash fund to be reported in the statement of
financial position is at P6,000.
B. The item tagged as money market placement is NOT part of cash but part of cash
equivalents.
C. The savings account in SECOND BANK is NOT part of cash but still presented
within the current asset section of the statement of financial position.
D. The total amount of cash, based on the above information is P149,000.

36. The books of MERCURIAL SERVICE, INC. disclosed a cash balance of P68,757 on June

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30. The bank statement as of June 30 showed a balance c P54,780. Additional
information that might be useful in reconciling the two balances follows:

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a. Check number 748 for P3,000 was originally recorded on the book as P4,500.
b. A customer's note dated March 25 was discounted on April 12. The note was
dishonored on June 29 (maturity date). The bank charged MERCURIAL's account
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for P14,265, including a protest fee of P42.
c. The deposit of June 24 was recorded on the books as P2,895, but was actually a
deposit of P2,700.
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d. Outstanding checks totaled P9,885 as of June 30.

e. There were bank service charges for June of P210 not yet recorded on the books.
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f. MERCURIAL's account had been charged on June 26 for a customer's NSF check for
P1,296.
g. MERCURIAL properly deposited P600 on June 3 that was not recorded by the bank.
h. Receipts of June 30 for P13,425 were recorded by the bank on July 2.
C

i. A bank memo stated that a customer's note for P4,500 and interest of P165 had
been collected on June 27, and the bank charged a P36 collection fee.
What is the adjusted cash in bank on March 31?
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A. P65,320 C. P50,800
B. P43,820 D. P58,920
37. BALANAR CORP. provided the August bank statement which showed a balance of
P1,800,000. Additional information is provided in relation to the most recent bank
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reconciliation prepared by the entity:

Deposits in transit 500,000
Outstanding checks (including certified checks amounting to P15,000) 225,000
Bank service charges for the current month 20,000
Note collected by bank in the current month in behalf of BALANAR 40,000
Amount erroneously credited by bank to BALANAR’s account 5,000
Charges to BALANAR’s account erroneously debited by the
bank to another client’s account 12,000
August NSF checks (of which P10,000 had
been redeposited and cleared by August 27) 35,000
A customer check for P200,000 was recorded by the BALANAR as 20,000
Customer's check charged back by bank for absence
of counter signature 25,000
A creditor check for P30,000 was incorrectly
recorded in the depositor's book as 300,000
What is the cash balance per ledger on August 31?
A. P2,073,000 C. P1,653,000
B. P1,678,000 D. P1,663,000

MORTRED COMPANY developed the following reconciling information in preparing its

December bank reconciliation:

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Cash balance per bank, 12/31 P13,000
Note receivable collected by bank (including interest of P100) 6,000
Outstanding checks (including P500 certified checks) 8,000
Deposits-in-transit 4,500
Bank service charge 75
NSF check (P100 of which was redeposited and cleared on January 5) 1,200
Deposit of MORTY CORP. credited by bank
to MORTRED's account 400
A creditor check for P3,000 was incorrectly recorded in
the depositor's book as 300

38. What is the adjusted cash in bank on December 31?

A. P9,900 C. P9,100
B. P9,300 D. P9,600

39. Using the above information, how much is the cash balance per books (before
adjustments) for the MORTRED COMPANY?
A. P7,575 C. P12,000
B. P7,475 D. P13,000

40. Based on the given information, evaluate the following statements:

First Statement: The deposit in transit is to be recorded as part of the
adjusting entries on the depositor’s journal.
Second Statement: The erroneous recording of creditor check by the depositor
results to a credit in cash in bank account.
A. Only the first statement is correct.
B. Only the second statement is correct.

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C. Both statements are correct.
D. None from the statements is correct.

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- END OF ASSESSMENT EXAMINATION -
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