QUIZ 5

Minimum disclosure requirements for companies using interim financial information will include which
of the following?
a. An interim statement of financial position
b. The contribution margin by product line for current quarter and the current year to date
c. Primary and fully diluted EPS for each period presented
d. Sales and cost of goods sold for the current quarter and the current year to date

On December 31. 2021, ABC Company has an item of machinery with a cost of P4,500,000 and an
accumulated depreciation of P1,800,000. On this date, the machinery is found to be impaired due to
obsolescence and a major physical damage. The entity made an assessment and test for recoverability
of the asset and determined that the machinery's estimated selling price is P2,500,000 and estimated
disposal cost is P250,000. The entity expects net future undiscounted cash flows related to the
continued use and eventual disposal of the machinery of P2,600,000. The net future discounted cash
flows related to the continued use and eventual disposal of the machinery using a discount rate of 10%
is P2,180,000. ABC should report an impairment loss in 2021 of —
a. P200,000
b. P520,000
c. P450,000
d. P100,000
e. Some other answer

Which of the following statements is true concerning interim financial reporting?

a. No income tax effect will be recognized in an interim period that incur a loss
b. The results of a disposal of a business segment maybe considered material for the interim period but
not for the annual period
c. The income tax rate to be used for an interim period is based on the estimated income tax and return
on annual income
d. An extraordinary is defined as being material based on the relationship of the item to the interim
period results

ABC Company is computing for its basic earnings per share and has gathered the following information:
Loss for the year (P800,000) Preferred dividends 50,000 Outstanding ordinary shares 100,000
There have been no changes in the number of outstanding ordinary shares during the period. What is
the basic earnings (loss) per share?
a. P-8.50
b. P8.50
c. P-7.50
d. P7.50

When computing diluted EPS, the treasury share method can be used for which of the following?
a. Contingent shares
b. Convertible preference shares
c. Convertible bonds
d. Share options
For interim financial reporting, an inventory loss from a temporary market decline in the first quarter
which can be reasonably be expected to be restored in the fourth quarter:
a. Should be recognize as a loss proportionately in each of the first second, third and fourth quarter
b. Should be recognize as a loss in the first quarter
c. Should be recognize as a loss in each of the first second and third quarter
d. Need not be recognize as a loss in the first quarter

If an assets carrying amount is decreased as a result of a revaluation, the decrease shall be recognized in
profit or loss. However, if there is a revaluation surplus account balance as a result of prior revaluation,
the decrease shall be
a. Debited directly to revaluation surplus to the extent of its balance and any remainder of the decrease
is debited to retained x earnings.
b. Debited directly to equity to the extent of the balance off revaluation surplus and any remainder of
the decrease is recognized in profit or loss.
c. Ignored.
d. Debited directly to equity for the entire amount of the decrease.

Cost not directly associated with revenue:

a. Should be recognized in the year of incurrence if they cannot be allocated among interim periods on a
reasonable basis
b. May be treated as if they were annualized cost
c. Should be allocated in a pro rata basis to all interim periods from the date of incurrence to the end of
fiscal year
d. Can be recognized in any interim period provided they are recognized in the year of incurrence

According to PAS 36, an asset is impaired if:

a. its recoverable amount exceeds its carrying amount.
b. its carrying amount exceeds its recoverable amount.
c. its carrying amount is less than its value in use.
d. its fair value less disposal costs exceeds its recoverable amount.

Which of the following EPS should be disclosed on the face of income statement?
a. Basic EPS only
b. Diluted EPS only
c. Both basic and diluted EPS
d. Neither basic nor diluted EPS

According to PAS 37, a present obligation that is possible and can be measured reliably is:
a. ignored.
b. disclosed only.
c. recognized and disclosed.
d. recognized.

Which of the following correct definition of a provision?

a. A liability which cannot be easily measured
b. A liability of uncertain timing or amount
c. A possible obligation arising from past events
d. An obligation to transfer funds to an entity
An entity owns a number of farms that harvest produced seasonally. Approximately 80% of entity's sales
are in the periods of August to October. Because the entity's business is seasonal, PAS 34 suggests:
a. Additional disclosure it the accounting policy note
b. Disclosure of the financial information for the latest and comparative 12-month period in addition to
the interim report
c. No additional disclosure
d. Additional notes be written in the interim reports about the seasonal nature of the business

Under PAS 33, treasury shares are considered as anti-dilutive because:

a. They increase the income available to common stockholders
b. They decrease the diluted earnings per share
c. They decrease the number of common shares outstanding
d. They decrease the basic earnings per share

PAS 34 states a presumption that anyone reading interim financial reports will:
a. Have access to the records of entity
b. Have access to the most recent annual report
c. Not make decisions based on the report
d. Understand all PFRS

ABC Company had the following instruments outstanding all throughout 2021:
12% convertible bonds payable issued at face amount, P2,000,000
each P1,000 bond is convertible into 30 ordinary shares
Ordinary shares, P10 par, 100,000 shares issued 1,000,000
and outstanding
Profit for the year is P1,200,000. ABC Company's income tax rate is 30%. What is the diluted earnings
per share in 2021?
a. P8.98
b. P8.05
c. P8.55
d. P8.15

ABC Corporation owns machinery with a book value of ₱285,000. It is estimated that the machinery will
generate future cash flows of ₱300,000. The machinery has a fair value of ₱210,000. ABC should
recognize a loss on impairment of:
a. ₱ -0-
b. ₱15,000
c. ₱90,000
d. Some other answer
e. ₱75,000

Which of the following is an acceptable practice as it relates to interim financial reporting?

a. Used of the gross profit method to determine interim inventory accounts
b. Delayed recognition of inventory market declines until year end
c. Use of variable costing inventory method for determining inventory cost 
d. Delayed recognition of unplanned standard cost system variance until year end
Which of the following need not be disclosed in interim financial statements?
a. Seasonal revenue
b. Components of cost of goods sold
c. Changes in accounting principles
d. EPS

Which of the following inventory procedures cannot be applied for interim reporting?
a. Estimation of inventory using gross profit method 
b. Earnings per share presentation
c. Delayed recognition of temporary inventory market declines
d. Delayed recognition of permanent losses from inventory market declines

According to PAS 37, provisions are (choose the incorrect statement):

a. presented in the statement of financial position separately from other types of liabilities.
b. recognized and disclosed.
c. necessarily estimated because their settlement amount is not certain. 
d. disclosed only, unless their expected occurrence is remote

ABC Company has 200,000 shares of ordinary shares outstanding on January 1, 2021. On March 31,
2021, 100,000 shares of 10% convertible preference share par value of ₱10 were issued, the preference
shares are convertible into 50,000 shares of ordinary shares. On December 31, 2021, ABC Company
reported a net income of ₱1,140,000 after tax and paid dividends of ₱300,000 to ordinary and ₱100,000
to preference shareholders. What is the diluted earnings per share?
a. ₱4.38
b. ₱5.07
c. ₱4.56
d. ₱4.80

ABC Company reported an impairment loss of ₱5,000,000 in its income statement for the year 2021.
This loss was related to an item of property, plant and equipment which was acquired on January 1,
2020 with a cost of ₱30,000,000, useful life of 10 years, and a residual value of ₱3,000,000. On
December 31, 2021, ABC reported this asset at ₱19,600,000 which is the fair value on
such date. It was also determined that the asset will no longer have a residual value. On December 31,
2023, ABC determined that the fair value of its impaired asset had increased to ₱20,000,000. The
straight-line method is used in recording depreciation of this asset. What amount of gain on impairment
recovery should ABC report in its 2023 income statement?
a. ₱3,750,000
b. ₱4,500,000
c. Some other answer
d. ₱3,300,000
e. ₱5,300,000

ABC Company had 200,000 ordinary shares outstanding all throughout 2021. In 2022, share issuances
occurred: On April 1, 20,000 shares were issued for cash. On September 30, a 10% bonus issue (share
dividend) was declared. On November 1, a 2-for-1 share split was issued. ABC Company had the
following profits: ₱1,200,000 in 2022 and ₱900,000 in 2021. What are the earnings per share to be
disclosed in ABC Company’s 2022 comparative financial statements?
a. 2022- ₱2.78; 2021- ₱2.12
b. 2022- ₱2.22; 2021- ₱2.02 
c. 2022- ₱2.54; 2021- ₱2.05
d. 2022- ₱2.65; 2021- ₱2.09

In computing the basic EPS, the numerator used is the:

a. Income before interests and taxes
b. Income available to ordinary and preference shares
c. Income available to ordinary shares
d. Income after interests and taxes but before preference share dividends

Which statement is incorrect concerning recognition of a provision?

a. Provision shall be reviewed at the end of each reporting period.
b. A provision shall be used only for expenditures for which the provision was originally recognized.
c. Provision shall be recognized for future operating losses.
d. If an entity has an onerous contract, the present obligation under the contract shall be recognized and
measured as a provision.

An entity is preparing half-yearly financial information in line with PAS 34. The period to be covered by
the financial statements is the six months to June 30, 2021. A new IFRS has been published that is
effective for periods beginning on or after January 1, 2021. The entity must adopt the PFRS:
a. At its own discretion
b. In its interim financial statements to June 30, 2021, only
c. In the financial statements for the year to December 31, 2021, only
d. In its interim financial statements to June 30, 2021 and its annual financial statements to December
31, 2021

According to PAS 34, measurements in the interim period are made on:
a. any of these, because it is a matter of accounting policy choice
b. a discrete basis
c. a year-to-date basis
d. an item-by-item basis

Which of the following is correct regarding the provisions of PAS 34?

a. PAS 34 encourages publicly listed entities to prepare at least three quarterly financial reports to be
issued not later 45 days after the end of each interim period.
b. PAS 34 requires publicly listed entities to prepare at least a semi-annual financial report to be issued
not later than 60 days after the end of the interim period.
c. PAS 34 requires both publicly and non-publicly listed entities to prepare at least a semi-annual
financial report to be issued not later than 60 days after the end of the interim period.
d. PAS 34 encourages publicly listed entities to prepare at least a semi-annual financial report to be
issued not later than days after the end of the interim period.

According to PAS 36, if an asset's fair value less disposal costs cannot be determined, its recoverable
amount would be its:
a. current cost
b. value in use
c. carrying amount
d. replacement cost
According to PAS 36, when measuring an asset's value in use, the discount rate to be used in discounting
the estimated cash flows should be the:
a. pre-tax rate that reflects current assessments of market-based risks for similar replacement assets.
b. post-tax rate that reflects current assessments of market-based risks for similar replacement assets.
c. post-tax rate that reflects current assessments of the time value of money and risks.
d. pre-tax rate that reflects current assessments of the time value of money and risks.

What is the inherent justification underlying the concept of potential ordinary shares (diluters) in EPS
computation?
a. Cost-benefit
b. Substance over form
c. Materiality
d. Timeliness

According to PAS 36, if it is not possible to determine the recoverable amount of an individual asset
a. that asset is not impaired.
b. the recoverable amount of that asset should be determined in relation to the cash-generating unit to
which it belongs
c. the carrying amount of that asset should be written-off in its entirety, unless a rough estimation can
be d. that asset is useless; it should be given away to the garbage collector.

Interim financial report shall include as a minimum:

a. A condensed balance sheet, income statement, and cash flow statement only
b. A complete set of financial statements complying with PAS 1
c. A condensed set of financial statements and selected notes
d. A balance sheet and income statement only

It is the statistical method of estimating a provision which means that where the provision being
measured involves a large population of items, the obligation is estimated by 'weighting-all possible
outcomes by their associated possibilities.
a. Weighted average
b. Simple average
c. Expected value
d. Extrapolation

What is the correct treatment of a stock dividend issued in midyear when computing the weighted
average number of ordinary shares outstanding for earnings per share purposes?
a. The stock dividend should be weighted as if the additional shares were issued at the beginning of the
year.
b. The stock dividend should be weighted by the length of time that the additional shares are
outstanding during the period.
c. The stock dividend should be ignored since no additional capital was received.
d. The stock dividend should be included in the weighted average number of ordinary shares
outstanding only if the additional shares result in a decrease of 3% or more in earnings per share.

To compute basic EPS, the amount of preferred dividends on noncumulative preferred stock should be:
a. Disregarded
b. Deducted from net income, only when declared
c. Deducted from net income, whether declared or not
d. Added to net income, only when declared

ABC Company has 200,000 ordinary shares outstanding on January 1, 2021. ABC Company offers rights
issue to its shareholders that enable them to acquire 1 ordinary share at a subscription price of P120 for
every 5 rights held. The exercised on May 1, 2021. The market price of one ordinary share immediately
before exercise is P180. ABC Company r profit after tax of P2,700,000 in 2021. What is the basic earnings
per share in 2021?
a. P12.67
b. P12.58
c.P11.71
d. P11.67

Which statement is incorrect concerning the measurement of a provision?

a. The amount of provision shall be present value of the obligation where the effect of the time value of
money
b. Gains from disposal of assets shall be taken into account in measuring a provision.
c. Future events that may affect the amount of the obligation shall be reflected in the amount of the
provision where there is sufficient evidence that future events will occur.
d. The risk and uncertainties that inevitably surround may events and circumstances shall be taken into
account in the best estimate of a provision.

If an entity does not prepare interim financial reports, then:

a. The year-end financial statements will not be acceptable under local legislation
b. The year-end financial statements' compliance with PFRS is not affected
c. The year-end financial statements are deemed not to comply with PFRS
d. Interim financial reports should be included in the year-end financial statements

ABC Company had 100,000, P10 par, 10% cumulative preference shares outstanding all throughout
2021. ABC reported profit after tax of P1,200,000 for the year ended December 31. 2021. The
movements in the number of ordinary shares are as follows:
1/1/2021 Ordinary shares outstanding 120,000
3/1/2021 Shares Issued for cash 42,000
9/30/2021 Subscribed shares 20,000
11/1/2021 Reacquisition of treasury shares (12,000)
Outstanding shares at the end of period 170,000
What is the basic earnings per share:
a. P6.13
b. P5.92
c. P7.09
d. P6.96