GORDON COLLEGE

COLLEGE OF BUSINESS AND ACCOUNTANCY

Kirby Pecson Quimat, CPA Theory of Accounts - Integration Page 1

Intangible Assets, Provisions, Contingent Assets, Contingent Liabilities, Financial Instruments, Leases,
Income Taxes, Employee Benefits
Source: CPA Review Schools

Choose the best answer.

Kirby Pecson Quimat, CPA Theory of Accounts - Integration Page 2

1. Which is not within of whether those revaluation, less any D. The fair value of an
the definition of an rights, are subsequent intangible asset
intangible asset? transferable or accumulated acquired in the
separable from the amortization and any business combination
A. Held for use in the entity or from other subsequent cannot be measured
production or supply rights and obligations. accumulated with sufficient
of goods or services, impairment losses. reliability separately
for rental to others, A. I only from goodwill.
or for administrative B. II only A. I only
purposes. C. Both I and II B. II only 6. Goodwill shall be
D. Neither I nor C. Either I or II recognized only when
B. Identifiable II D. Neither I nor
nonmonetary asset II A. It is purchased from
3. Under PAS 38, an
without physical another company
intangible asset that 5. Which is incorrect
substance
was acquired concerning acquisition B. It can be
C. A resource separately shall of an intangible asset established that a
controlled by an entity initially be recognized as part of a business definite benefit or
as a result of past at combination? advantage has
events. resulted to a firm
A. Recoverable A. The cost of the
from some item such
D. A resource from amount intangible asset is
as a good name,
which future based on its fair value
B. Either cost or fair capable staff, or
economic benefits are at the date of
value at the choice of reputation.
expected to flow to acquisition.
the acquirer
the entity C. It is acquired
B. If there is an active
C. Fair value through the purchase
2. An asset meets the market from the
of another business
identifiability criterion D. Cost intangible asset, the
entity.
in the definition of an fair value is equal to
intangible when 4. After initial the quoted market D. A firm reports
recognition, an price which is usually above normal
I. It is separable, intangible asset shall the current bid price. earnings for five or
meaning, the asset is be carried using the more consecutive
capable of being C. If there is no active
years.
separated from the I. Cost model, market for the
entity and sold meaning, at cost less intangible asset, the 7. Goodwill shall be
transferred, licensed, any accumulated fair value is equal to tested for impairment
rented or exchanged amortization and any the amount that
accumulated would be paid by the A. If there is an
regardless of whether
the entity intends to impairment losses. entity in an arms indication of
length transaction impairment
do so.
II. Revaluation model,
between B. Annually
II. It arises from meaning at revaluated
knowledgeable and
contractual or other amount, being the fair
willing parties. C. Every 5 years
legal rights, regardless value on the date of

Kirby Pecson Quimat, CPA Theory of Accounts - Integration Page 3

D. On the acquisition accepted accounting 13. Which of the generating the
of a subsidiary principles? following represents intangible asset.
the maximum
8. A trademark is an A. Marketing-related B. Cost of employee
amortization period
example of which mandated by GAAP benefits arising from
general category of B. Customer related the generation of
for amortizable
intangible asset that C. Artistic-related intangible assets? intangible asset.
should be recognized
D. Contract-based C. Fees to register a
separately according A. 10 years
to current generally legal right
11. Other backlogs B. 20 years
accepted accounting D. Expenditure on
and customer lists are
principles? C. 40 years training staff to
an example of which
general category of operate the asset.
A. Marketing-related D. No arbitrary cap on
intangible asset that
B. Customer-related the useful life has 16. Which statement
should be recognized been established. is incorrect
separately according
C. Artistic-related concerning internally
to current generally 14. Which of the generated intangible
D. Contract-based accepted accounting following factors asset?
principles? should not be
9. A copyright is an considered in A. To assess whether
example of which A. Marketing-related estimating the useful an internally
general category of life of intangible generated intangible
intangible asset that B. Customer-related
asset? asset meets the
should be recognized C. Artistic-related criteria for
separately according A. Legal, regulatory or recognition, an entity
to current generally D. Contract-based contractual provision classifies the
accepted accounting
12. Trade secrets and B. Expected action by generation of the
principles? asset into a research
patents are an competitors or
A. Marketing-related example of which potentials competitors phase and a
general category of development phase.
B. Customer-related intangible asset that C. Residual value
B. The cost of an
C. Artistic-related should be recognized D. Typical product internally generated
separately according
asset comprises all
D. Contract-relate3d to current generally 15. Which is not a
directly attributable
accepted accounting component of the
10. Broadcast rights costs necessary to
principles? cost of internally
and franchises are an create, produce and
generated intangible
example of which A. Marketing-related prepare the asset for
asset?
general category of its intended use.
intangible asset that B. Customer-related A. Cost of materials
C. Internally
should be recognized C. Artistic-related and services used or
generated brands,
separately according consumed in
mastheads,
to current generally D. Contract-based
publishing titles,

Kirby Pecson Quimat, CPA Theory of Accounts - Integration Page 4

customer lists and expense when it is attributable to the II. Expenditure during
item similar in incurred. development of development phase
substance shall be intangible asset. of a project may
D. If an entity cannot
recognized as sometimes be
intangible assets. distinguish the D. Availability of capitalized as an
research phase from inadequate resources intangible asset.
D. Internally the development or funding to
generated goodwill phase of an internal complete the A. I only
shall not be project to create an development and to B. II only
recognized as an intangible asset, the use or sell the C. Both I and II
D. Neither I nor
intangible asset. entity shall treat the intangible asset.
II
expenditure on that
17. Which statement 19. Which of the
project as if it were 21. At the beginning
is incorrect incurred in the following statements
of the current year, an
concerning research in relation to the term
development phase entity had capitalized
and development? only. development is
cost for new
true?
A. Research is original computer software
18. An intangible asset
and planned I. The product being product with an
arising from
investigation developed should economic life of five
development shall be
undertaken with the have already been put years. Sales from the
recognized if an entity
purpose of gaining into commercial current year were 30
can demonstrate all of
new scientific and production or use. percent of expected
the following (choose
technical knowledge total sales of the
the correct one) II. Development
and understanding. software. However,
A. The technical involves the the pattern of future
B. Development is application of sales cannot be
feasibility of
application of completing the research findings. measured reliably. At
research finding or the year end, the
intangible asset so A. I only
other knowledge to a that it will be available software had a net
B. II only
plan or design for realizable value equal
for use or sale. C. Both I and II
production of new or D. Neither I nor I to 90 percent of the
substantially B. The intention to capitalized cost. What
improved material, complete the 20. Under PAS 38,
percentage of the
device, product, intangible asset and which
original capitalized
process, system or the ability to use or statement is
cost should be
service, prior to the sell it. true?
reported as the net
commencement of amount at year-end?
C. How the intangible I. Expenditure during
commercial
asset will generate the research phase
production or use. A. 70%
probable future of a project may
C. Expenditure on economic benefits sometimes be B. 72%
research shall be and the ability to capitalized as an
intangible asset. C. 80%
recognized as an measure reliably the
expenditure D. 90%

Kirby Pecson Quimat, CPA Theory of Accounts - Integration Page 5

22. A computer alternative but to A. The event is more probable and
software purchased as settle the obligation. likely than not to measurable.
an integral part of a occur, meaning, the
A. Event after 28. A contingent asset
computer-controlled probability that the
machine that cannot reporting period event will occur is A. Disclosed where in
operate without the B. Adjusting event greater than the an inflow of economic
specific software shall probability that the benefits is probable.
be treated as C. Non-adjusting event will not occur.
event B. Disclosed where an
A. Intangible asset B. The probability that inflow of economic
D. Obligating event the event will not benefits is remote.
B. Property, plant and occur is greater than
equipment 25. For an event to be
the probability that C. Not recognized in
an obligating event, it the financial
C. Expense in the year the event will occur.
is necessary that the
incurred statement because
entity has no realistic C. The probability that this is may result in
alternative but to the event will occur is
D. Research and the recognition of
development cost settle the obligation the as the probability income that may
created by the event that the event will not never be realized.
23. Which of the and this is the case occur.
following correct D.No longer
I. Where the D. The probability that
definition of a contingent if the
provision? settlement of the the event will occur is realization of income
obligation can be 90% likely. is virtually certain.
A. A possible enforced by law.
obligation arising from 27. Which statement 29. Where there is a
II. Where the event is incorrect
past events continuous range of
creates a valid concerning contingent possible outcomes,
B. A liability of expectation in other liability? and each point in that
uncertain timing or parties that the entity range is as likely as
amount will discharge the A. A contingent
liability is not any other the range to
obligation as in the be used is the
C. A liability which case of a constructive recognized in the
cannot be easily financial statements.
obligation. A. Minimum
measured
A. I only B. A contingent B. Maximum
D. An obligation to B. II only liability is disclosed
transfer funds to an C. Either I or II only. C. Midpoint
entity. D. Neither I nor
II C. If the contingent D. Summation of the
24. It is an event that liability is remote, no minimum and
creates a legal or 26. An outflow of disclosure is maximum
constructive resources embodying necessary.
obligation because future economic 30. It is the statistical
benefits it is regarded D. A contingent method of estimating
the entity has no
other realistic as probable when liability is both a provision which

Kirby Pecson Quimat, CPA Theory of Accounts - Integration Page 6

means that where the obligation shall be that is planned and 35. Which is a cost of
provision being reflected in the controlled by the restructuring?
measured involves a amount of the management that
A. cost of retraining or
large population of provision where there materially changes
items, the obligation is sufficient evidence either the scope of a relocating continuing
staff
is estimated by that future events will business of an entity
weighting all occur. or the manner in B. Marketing or
possible outcomes by which that business is advertising cost
their associated D. Gains from conducted.
disposal of assets C. Investment in new
possibilities.
shall be taken into A. Restructuring system and
A. Extrapolation account in measuring distribution network
B. Liquidation
a provision.
B. Weighted average D. Cost of relocating
32. Which statement C. Recapitalization
C. Simple average business activities
is incorrect D. Corporate revamp from one location to
D. Expected value concerning another
recognition of a 34. Examples of
31. Which statement provision? events that qualify as 36. Which of the
is incorrect restructuring include following cost should
concerning the A. Provision shall be all of the following, be included in the
measurement of a reviewed at the end except restructuring
provision? of each reporting provision?
period. A. Sale or termination
A. The risk and of business A. Retraining staff
uncertainties that B. A provision shall be continuing to be
used only for B. Closure of business
inevitably surround employed
may events and expenditures for location in a region or
which the provision relocation of business B. Relocation cost
circumstances shall be
taken into account in was originally from one location to relating to staff
recognized. another moving to other
reaching the best
estimate of a divisions.
C. Provision shall be C. Change in
provision. recognized for future management C. Future operating
B. The amount of operating losses. structure such as losses of the division
elimination of a layer being closed up to the
provision shall be D. If an entity has an
present value of the of management date of closure
onerous contract, the
obligation where the present obligation D. Fundamental D. Salaries and
effect of the time reorganization of an benefits of
under the contract
value of money is shall be recognized entity that has an retrenched
material. immaterial and employees to be
and measured as a
provision. insignificant impact incurred after
C. Future events that
may affect the on its operations. operation cease ant
33. This is defined as that are associated
amount of the a structured program

Kirby Pecson Quimat, CPA Theory of Accounts - Integration Page 7

with the closure of 39. Under PAS 32, proceeds is allocated D. Financial
the division. which of the following to the equity instruments
statements about component.
37. A provision for 42. When interest
accounting for
restructuring is compound instrument II. The proceeds are expense is
required when allocated to the calculated using
is true?
liability and equity the effective
I. The entity has a I. The issuer shall components based on interest
detailed plan for classify a compound the relative fair value amortization
restructuring instrument as either of both the liability method, interest
II. The entity has financial liability or and equity expense
raised valid equity based on the components. (assuming that
expectation in the predominant interest is paid
characteristics of the A. I only annually) always
mind of those B. II only
affected that the contractual equal the
C. Either I or II
entity will carry out arrangement. D. Neither I nor
A. Actual amount
the restructuring by II
II. The issuer shall of interest paid.
announcing its main classify the liability or 41. These
features to those B. Carrying
equity components of instruments
affected by it. a compound amount of the
provide the
bonds multiplied
A. I only instrument separately holder with the
as financial liability by the stated
B. II only contractual right
interest rate.
C. Both I and II and equity to receive,
D. Neither I nor components. payments on C. Carrying
II account of amount of the
A. I only
38. A bond or similar B. II only interest at fixed bonds multiplied
instrument C. Both I and II dates extending by the effective
convertible by the D. Neither I nor into the indefinite interest rate.
holder into a fixed II future, either with
a right or no right D. Maturity value
number of ordinary 40. Under PAS 32, to return of of the bonds
shares of the entity is how are the proceeds principal. multiplied by the
A. A compound from issuing a effective interest
financial instrument compound instrument A. Perpetual debt rate.
allocated between the instruments
B. A primary financial liability and equity 43. It is a contract
instrument components? B. Compound that transfers
financial substantially all
C. A derivative I. First, the liability instruments the risk and
financial instrument component is rewards incidental
C. Derivative
measured at fair to ownership of
D. An equity financial
value, and then the an asset, although
instruments
remainder of the title may or may

Kirby Pecson Quimat, CPA Theory of Accounts - Integration Page 8

 not eventually be provisions of the finance lease, asset and liability
transferred. lease except at an amount
equal to the
A. Lease C. The earlier of A. The lease
the date of the transfer A. Fair value at
B. Finance Lease lease agreement ownership of the the leased asset
C. Operating lease and the date of asset to the lease
commitment by at the end of the B. Present value
D. Lease purchase of the minimum
the parties to the lease term.
principal lease payments
44. It is the date B. The lessee has
provisions of the C. Fair value at
on which the the option to
lease. the leased asset
lease is entitled to purchase the
exercise its right or present value
D. The later of the asset at the price
to use the lease date of the lease that is expected of the minimum
asset. lease payments,
agreement and to be
the date of the approximately whichever is
A. Inception of lower
commitment by equal to the fair
the lease
the parties to the value at exercise D. Fair value at
B. principal date. the leased asset
Commencement provisions of the or present value
C. The lease term
of the lease lease of the minimum
is for a major part
46. The of economic life of lease payments,
C. Date of lease
whichever is
agreement classification of a the asset even if
lease is normally the title is not higher
D. Date of carries out transferred. 49. It is that
commitment to
A. At the end of D. The present portion of the
the provision of
lease payments
the lease the lease term value of the
minimum lease that is not fixed in
45. Which of the B. After a cooling amount but is
payments
following dates is off period of one amounts to at based on the
used to identify year future amount of
least substantially
the inception of a all of the fair a factor that
C. At the changes other
lease? value of the asset
inception of the
at the inception of than the passage
A. The date of the lease of time, for
the lease.
lease agreement example,
D. When the
entity deems it to 48. At the percentage of
B. The date of the
be necessary commencement future sales.
commitment by
of the lease, the
the parties to the A. Contingent
47. All of the lessee shall
principal rent
following would recognize a
normally lead to a finance lease as B. Executory cost

Kirby Pecson Quimat, CPA Theory of Accounts - Integration Page 9

 C. Bargain by a party related C. Useful life of A. I only
purchase option to the lessor. the asset or lease B. II only
term, whichever is C. Both I and II
D. Accrued rent A. Residual value D. Neither I nor
shorter
II
50. The minimum B. Guaranteed D. Useful life of
lease payments residual value 55. In case of land and
the asset or lease
include all of the building lease, the
C. Unguaranteed term, whichever is
following except minimum lease
residual value longer
payments should be
A. Rental 54. Under the split between the land
payments over D. Minimum lease
payment new amendment lease and building
the lease term to PAS 17, which lease
B. Any amount 52. These are statement is true
incremental costs A. According to the
guaranteed by the regarding land
that are directly fair value of the two
lessee or by a and building
attributable to elements
party related to lease?
the lessee negotiating and B. Based on the useful
arranging a lease. I. A land lease
life of the two
C. Payment with a lease term
A. Initial direct elements
required of several decades
costs or longer may be C. Using the sum of
exercising an
option on the part classifies as a digits method
B. Transaction
of the lessee to finance lease even
costs D. According to any
purchase the if title will not
C. Costs of pass to the lessee fair value devised by
asset at a price
services at the end of the the entity.
which is expected
to be sufficiently lease term.
D. Executory costs 56. Under a sales type
lower than its fair lease, what is the
II. When a lease
value at the 53. If there is an includes both land meaning of gross
option exercise reasonable investment in the
and building, an
date certainly that entity shall be lease on the part of
lessee will obtain determine the lessor?
D. Contingent
ownership by the classification of
rent A. Present value of
end of the lease the land lease and
term, the minimum lease
51. It is that building lease
depreciation of payments
portion of the based on the
residual value of the leased asset is classification B. Present value of
the leased asset, based on the criteria taking minimum lease
the realization of into account that payments and present
A. Useful life of
which by the land normally has value of unguaranteed
the asset
lessor is not an indefinite residual value
assured or is B. Lease term economic life.
guaranteed solely

Kirby Pecson Quimat, CPA Theory of Accounts - Integration Page 10

C. Absolute amount of 59. The interest rate B. II only 63. It is the profit
the minimum lease implicit in the lease is C. Either I or II for a period
payments the discount rate that D. Neither I nor determined in
causes the aggregate II accordance with
D. Aggregate of of the present value the rules
minimum lease 61. If a sale and
of the minimum lease established by
payments and leaseback transaction
payments and the taxation
guaranteed residual results in an operating
unguaranteed residual authorities upon
value lease and the sale
value to be equal to which income
price is above fair
57. Net investment in the taxes are payable.
value, the excess of
the lease is equal to A. Fair value of the the sale price over fair A. Accounting
the value shall be
lease asset profit
A. Gross investment B. Fair value of the A. Recognized B. Taxable profit
in the lease less immediately
lease asset and initial
unearned finance direct costs of the C. Net profit
income B. Deferred and
lessor. D. Accounting
amortized over the
B. Gross investment in C. Fair value of the period for which the profit before tax
the lease less dealers asset is expected to
lease asset and initial 64. It is the
profit direct costs of the be used.
amount of income
C. Minimum lease lessee. taxes payable in
C. Deferred and
payments D. Gross investment in amortized over the respect of taxable
remaining life of the profit.
D. Minimum lease the lease
asset.
payments less 60. If a sale and A. Current tax
guaranteed residual D. Deferred and expense
leaseback transaction
value. results in a finance amortized over the
B. Tax expense
lease, any excess of shorter of lease term
58. Lessors shall
sale proceeds over the and remaining life of C. Deferred tax
recognize asset held
carrying amount shall the asset. expense
under a finance lease
as a receivable at an be
62. It is the net profit D. Deferred tax
amount equal to the or loss for a period benefit
I. Recognized
immediately as before deducting tax
A. Gross investment 65. It is the
income by the seller- expense.
B. Net investment in aggregate amount
lessee.
A. Accounting profit included in the
the lease
II. Deferred and determination of
B. Taxable profit
C. Gross rentals amortized as income profit or loss for a
by the seller-lessee C. Gross profit period in respect
D. Residual value, of current tax and
over the lease term.
whether guaranteed D. Net profit deferred tax.
or unguaranteed A. I only

Kirby Pecson Quimat, CPA Theory of Accounts - Integration Page 11

 A. Tax expense A. Deferred tax levied by the sabbatical leave
assets and same taxing and long-term
B. Current tax liabilities should authority. disability benefits
expense not be
discounted. II. The entity has a D. Share-based
C. Deferred tax legal enforceable payments
expense B. Tax assets and right to offset a
liabilities should current tax asset 70. Short-term
D. Deferred tax employee benefits
benefit represent against a current
separately from tax liability. include all of the
66. These are following, except
other assets and
differences that liabilities. A. I only
B. II only A. Wages, salaries
result in future and social security
C. Deferred tax C. Both I and II
deductible D. Neither I nor
assets and contributions.
amounts in II
determining liabilities should B. Short-term
taxable profit in be distinguished 69. Under PAS 19, compensated
future periods from current tax employee benefits absences
when the carrying assets and are all forms of
amount of the liabilities. consideration C. Profit-sharing
given by an entity and bonuses
asset or liability is D. When an entity
recovered or in exchange for payable in more
makes a than twelve
settled. service rendered
distinction months after the
by employees and
A. Taxable between current end of the period
include all of the
temporary and noncurrent in which the
following, except
differences assets and employees render
liabilities it A. Short-term the related
B. Deductible should classify employee benefits service.
temporary deferred tax
differences assets and B. D. Nonmonetary
liabilities as Postemployment benefits for
C. Permanent benefits, such as
current. current
differences pension, defined employees, such
68. An entity shall contribution as medical care,
D. Timing
offset a deferred plans, defined housing, car and
differences
tax asset and benefit plans, free and
67. Which deferred tax postemployment subsidized goods.
statement is liability when insurance and
incorrect postemployment 71. These are
I. The deferred tax compensated
concerning tax medical care
asset and absences that are
asset and
deferred tax C. other long-term carried forward
liabilities?
liability relate to benefits, including and can be used
income taxes long-service leave, in future periods

Kirby Pecson Quimat, CPA Theory of Accounts - Integration Page 12

 and the C. Defined benefit are one period actuarial loss and
employees are plan closer to the present value
entitled to a cash settlement of available
D. Multi-employer
payment for future refund or
unused plan A. I and II only reduction in
B. I and III only
entitlement on 73. Under PAS 19, future
C. II and III only
leaving the entity. which of the D. I, II and III contribution.
following
A. Accumulating 74. It is the excess 76. The amount
and vesting statement is true? recognized as a
of the fair value of
I. Current service plan assets over defined benefit
B. Accumulating liability shall be
cost is the the present value
and nonvesting
increase in the of the projected the net total of
C. present value of benefit obligation. the following
Nonaccumulating the defined amounts
A. Surplus
and vesting benefit obligation A. The present
resulting from B. Excess of fair
D. value of the
employee service value over PBO defined benefit
Nonaccumulating in the current
and nonvesting obligation at the
period. C. Accrued benefit
end of reporting
cost
72. It is a benefit II. Past service period
plan under which D. Unamortized
cost in the B. Plus any
an entity pays a increase in the past service cost
fixed contribution actuarial gains,
present value of less any actuarial
into a separate 75. The surplus
the defined
entity (fund) and or resulting asset losses not
benefit obligation recognized
will have no legal under a defined
for employee
or constructive benefit plan must
service in prior C. Plus any past
obligation to pay not exceed the
periods, resulting service cost not
further in the current A. Unrecognized yet recognized
contribution if the period from the past service cost
fund becomes D. Minus the fair
introduction or
insufficient to pay amendment of a B. Unrecognized value of plan
employee net actuarial loss assets at the end
defined benefit
benefits. plan. of reporting
C. Total of period
A. unrecognized past
III. Interest cost is
Postemployment the increase in the service cost and 77. These are the
benefit plan net actuarial loss entitys best
present value of
the defined estimates of the
B. Defined D. Total of variables that will
contribution plan benefit obligation
unrecognized determine the
which arises
past service cost, ultimate cost of
because benefits
unrecognized net
Kirby Pecson Quimat, CPA Theory of Accounts - Integration Page 13
 providing B. 10% of FVPA at maximum of 5
postemployment the beginning of years
benefits. the year
C. Credited to
A. Actuarial C. 10% of PBO or retained earnings
assumptions FVPA at the
D. Credited to
beginning of the
B. Demographic year, whichever is equity
assumptions lower
C. Financial D. 10% of PBO or
assumptions FVPA at the
D. Actuarial beginning of the
computations year, whichever is
higher
78. Demographic
actuarial 80. Any transition
assumptions deal loss on first
with all of the adopting PAS 19
following, except shall be
recognized
A. Morality, both
during and after I. As expense
employment immediately

B. Rate of II. As expense

employee over a maximum
turnover of 5 years

C. Disability and A. I only

B. II only
early retirement
C. Either I or II
D. Expected rate irrevocably
of return on plan D. Either I or II
assets revocably

79. The corridor 81. Any transition

in the recognition gain on first
of actuarial gain adopting PAS 19
or loss is equal to shall be

A. 10% of PBO at A. Recognized

the beginning of immediately
the year B. Deferred and
amortized over a

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Kirby Pecson Quimat, CPA Theory of Accounts - Integration Page 15