20.

When the payment for item property, plant and equipment is deferred beyond normal credit
terms, the difference between the cash price equivalent and the total payments shall be
recognized as
a. Interest expense of the current year
b. Component of cost of the property, plant and equipment
c. Interest expense over the credit period
d. Interest expense over the life of the asset

C. This is in accordance with IAS16. The cost of an item of property, plant and equipment is
the cash price equivalent at the recognition date. If payment is deferred beyond normal credit
terms, the difference between the cash price equivalent and the total payment is recognised as
interest over the period of credit unless such interest is capitalised in accordance with IAS 23.

21. What are the conditions for offsetting financial assets and financial liabilities?
a. A legal right to offset
b. A legal right of offset and an intention to settle net or simultaneously.
c. The existence of clearing mechanism or other market mechanism for net
settlement and an expectation of net settlement
d. A netting agreement and an expectation of net settlement.
B. The offsetting model in IAS32, Financial Instruments: Presentation, requires an entity
to offset a financial asset and financial liability, when, and only when, an entity currently
has a legally enforceable right to set-off and intends either to settle on a net basis or to
realise the financial asset and settle the financial liability simultaneously.

22. Equity instruments include all of the following, except

a. Ordinary shares
b. Preference shares
c. Warrants or options that allow the holder to purchase a fixed number of ordinary
shares of the issuing entity in exchange for a fixed amount of cash or another
financial asset.
d. Corporate bonds and other debt instruments issued by the entity.

D. Because a warrant holder can receive issuer shares, the issuer usually classifies warrants as
equity instruments and carries their value in the warrants paid-in capital account in the
stockholders’ equity section of the balance sheet.

23. Which is incorrect concerning acquisition of an item of property, plant and equipment by
self-construction?
a. The cost of self-constructed asset is determined using the same principles as for
an acquired asset.
b. Any internal profit is eliminated in arriving at the cost of self-constructed asset.
c. The cost of abnormal amount of wasted material, labor and other resources
incurred in the production of self-constructed asset is included in the cost of the
asset.
d. The cost of normal amount of wasted material, labor and other resources incurred
in the production of self constructed asset is included in the cost of the asset.

C. Answer: C. The cost of abnormal amount of wasted material, labor and other resources
incurred in the production of self-constructed asset is included in the cost of the asset
24. The cost of an item of property, plant and equipment comprises all of the following,
except
a. Purchase price
b. Import duties and non refundable purchase taxes
c. Any cost directly attributable in bringing the asset to the location and condition for
its intended use
d. Initial estimate of the cost of dismantling and removing the item and restoring the
site, the obligation for which the entity does not incur when the item was acquired

D. The present obligation must exist when the item is acquired.

25. Which of the following best describes credit risk?

a. The risk that one party to a financial instrument will cause a financial loss for other
party by failing to discharge an obligation.
b. The risk that an entity will encounter difficulty in meeting obligations associated
with financial liabilities.
c. The risk that the fair value associated with an instrument will vary due to changes
in the counterparty’s credit rating.
d. The risk that an entity’s credit facilities will be withdrawn due to cash flow
sensitivities.

A. IFRS7 Appendix A definition.Credit risk is the risk that one party to a financial instrument
will cause a loss for the other party by failing to pay for its obligation.Credit risk is the risk that
one party to a financial instrument will cause a loss for the other party by failing to pay for its
obligation.CcCccccccCDc

26. Which of the following statements in relation to the cost of an asset is true?
I. The cost includes cash equivalent paid to acquire an asset
II. The cost includes the fair value of any nonmonetary consideration
given to acquire an asset.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

27. A preference share that provides for a mandatory redemption on a specific date or at the
option of the holder is
a. A financial asset
b. A financial liability
c. An equity instrument
d. Neither a financial liability nor an equity instrument

B. If an entity issues preference shares that pay a fixed rate of dividend and that have a
mandatory redemption feature at a future date, the substance is that they are a
contractual obligation to deliver cash and therefore, should be recognised as a liability.

28. If the present value of a note issued in exchange for a plant asset is less than its face
amount, the difference shall be
a. Included in the cost of the asset
 b. Amortized as interest expense over the life of the note
c. Amortized as interest expense over the life of the asset
d. Included in interest expense in the year of issuance

B.

29. A financial liability is any liability that is a contractual obligation

I. To deliver cash or other financial asset to another entity
II. To exchange financial instruments with another entity under
conditions that art potentially unfavorable
a. I only
b. II only
c. Both I and II
d. Neither I or II

C.

30. A financial asset is any asset that is (choose the incorrect one)
a. Cash
b. A contractual right to receive cash or another financial asset from another entity
c. A contractual right to exchange financial instruments with another entity under
conditions that are potentially unfavorable.
d. An equity instrument of another entity

C. A contractual right to exchange financial assets or liabilities with another entity under
conditions that are potentially favorable to the entity.

31. An entity has issued the following two types of financial instrument to raise capital:
- Convertible bonds which are redeemable for cash in five years time. The
holders have the right to request the issue of a fixed number of new ordinary
shares in lieu of cash. The holders have not yet indicated whether they will
exercise the right to receive the new ordinary shares.

- Preference shares with no fixed date for redemption. The preference shares
are redeemable for cash at any time in the future at the option of the issuer.
The issuer must give 6 months written notice of its intention to redeem the
preference shares and no notice yet been given.

In accordance with PAS 32, what is the appropriate classification for such
financial instrument?
Convertible bonds Preference shares
a. Compound instrument Equity instrument
b. Financial liability Compound instrument
c. Equity instrument Equity instrument
d. Financial liability Compound instrument

32. The cost of an item of property, plant and equipment that is acquired in exchange for
combination of monetary and nonmonetary asset is measured at the
a. Fair value of the asset given up plus the amount of any cash and cash equivalent
transferred.
 b. Fair value of the asset received plus the amount of any cash and cash equivalent
transferred.
c. Book value of the asset given up plus the amount of any cash and cash
equivalent transferred.
d. Book value of the asset received plus the amount of any cash and cash
equivalent transferred.
A.

33. How are the proceeds from issuing a compound instrument allocated between the
liability and equity components?
a. First, liability component is measured at fair value, and then the remainder of the
proceeds is allocated to the equity component.
b. First, the equity component is measured at fair value, and then the remainder of
the proceeds is allocated to the liability component.
c. First, the fair values of both the equity component and the liability component are
estimated. Then the proceeds are allocated to the liability and equity components
based on the relation between the estimated fair values.
d. The equity component is measured at its intrinsic value. The liability component is
measured at the par amount less the intrinsic value of the equity component.

A. Source: IFRS

34. The cost of purchase of inventory does not include

a. Purchase price
b. Import duties and taxes
c. Freight, handling and other cost directly attributable to acquisition
d. Trade discount, rebate and other similar item

D.

35. The residual value of an intangible asset should be presumed zero, unless
I. There is a commitment by a third party to purchase the asset at the end of its
useful life.
II. There is an active market for the asset and residual value can be determined by
reference to that market and it is probable that such market will exist at the end of
the asset’s useful life.
a. Both I and II b. Neither I nor II c. II only d. I only
A.

36. Trade receivables are classified as current assets when they are reasonably expected to
be collected
a. Within one year
b. Within the normal operating cycle
c. Within one year or within the normal operating cycle whichever is shorter
d. Within one year or within the normal operating cycle whichever is longer

D.

37. Operating losses incurred during the start up years of a new business should be
a. Accounted for and reported like the operating losses of any other business
b. Written off directly against retained earnings
 c. Capitalized as a deferred charge and amortized over 5 years.
d. Capitalized as an intangible asset and amortized over 5 years.

A.

38. A lessee incurred costs to construct office space in a leased warehouse. The
estimated useful life of the office is 10 years. The remaining term of the
nonrenewable lease is 15 years. The cost should be
a. Capitalized as leasehold improvement and depreciated over 15 years.
b. Capitalized as leasehold improvement and depreciated over 10 years.
c. Capitalized as leasehold improvement and expensed in the year in which the
lease expires
d. Expensed as incurred

B. Shorter

39. Which of the following factors should not be considered in estimating the useful life of
intangible asset?
a. Legal, regulatory or contractual provision
b. Expected action by competitors or potential competitors
c. Residual value
d. Typical product life cycle of the asset

C. In IAS 38 paragraph 90, only residual value is not found.

40. Installments receivable arising from sales of household appliances should be

classified as
a. Current assets
b. Noncurrent assets
c. Current assets; however, the amount not realizable within one year should be
disclosed, if material
d. None of these

c. Installment receivables, for items such as household appliances, maturing beyond one
year from the balance sheet date, which are an integral part of working capital,
are includible in current assets, if the normal operating cycle of the business
extends beyond one year. The portion due after one year should be disclosed
parenthetically or by footnotes if material.