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Quiz 4
Quiz 4
ABC acquired an investment in associate for 2,000,000 many years ago. At the end of the current
reporting period, the investment has a fair value of 5,800,000. If the equity method is used, the
investment would have a current carrying amount of 5,200,000. In ABC’s separate financial
statements, the investment should be valued at:
a. 5,200.000.
b. any of these, as a matter of an accounting policy choice
c. 5,800.000.
d. 2,000.000.
If an associate has outstanding noncumulative preference shares that are held by parties other
than the investor, the investor computes its share of profits or losses by:
a. Not deducting dividends when computing share in associate’s profit or loss.
b. Deducting one-year dividend, whether declared or not before computing share in associate’s
profit or loss.
c. Adding back the dividends when declared after computing share in associate’s profit or loss.
d. Deducting dividends only when declared before computing share in associate’s profit or loss.
The equity method causes the balance in the investment account to approximate:
a. market value of the investment
b. original cost of the investment plus a proportionate share of subsequent undistributed
earnings of the investee company.
c. original cost of the investment
d. original cost of the investment minus any dividends declared and paid by the other company.
A compound financial instrument is a financial instrument that, from the issuer’s perspective,
contains both a liability and an equity component. In such case, the value assigned to liability
component is equal to the:
a. Fair value without equity feature
b. Residual amount before deducting equity feature
c. Residual amount after deducting the equity feature
d. Fair value with equity feature
These are presented in addition to consolidated financial statements or the financial statements
of an entity with an investment in associate or joint venture that is accounted for using equity
method in accordance with PAS 28.
a. Equity financial statements
b. Consolidate financial statements
c. Separate financial statements
d. Individual financial statements
Investments in associates are normally classified in the statement of financial position as:
a. current assets
b. equity account
c. fair value
d. noncurrent assets
ABC Company had a noncontributory defined benefit pension plan. The entity received the
projected benefit obligation report from the independent actuary at year-end that shows
236,250 were paid as pension benefits during the year. The entity incurred interest expense of
210,000 for the year. If the Projected Benefit Obligation on December 31 is 3,780000 using 8%
discount rate, what is the current service cost for the current year?
a. 446,250
b. 1,181.250
c. 945,000
d. 1,417.500
e. Some other answer
Under the equity method, which of the following does not decrease the investment account?
a. share in dividends declared by the associate.
b. amortization of overvaluation of asset
c. share in associate’s loss
d. amortization of undervaluation of asset.
ABC Company provided the following plan information for the current year: January 1- Projected
benefit obligation- 4,200,000; Accumulated benefit obligation, 3,120,000. During the year,
300,000 was paid as benefits to employees and the entity incurred an actuarial loss and past
service cost of 240,000 and 600,000, respectively. At December 31, the projected benefit
obligation amounted to 5,640,000 while the accumulated benefit obligation is 4,320,000.
Assuming the discount rate of 10%, what is the current service cost of ABC Company for the
current year?
a. Some other answer
b. 480,000
c. 960,000
d. 240,000
e. 900,000
At the beginning of the current year, ABC Company purchased 25% of ABZ Company. No excess
resulted from the purchase. ABC Company appropriately carried this investment at equity and
the carrying amount of the investment was 2,850,000 at year-end. ABZ Company reported net
income of 1,800,000 for the current year and paid cash dividend of 720,000 at year-end. What
amount did ABC Company pay for the 25% interest in ABZ Company?
a. 3,120,000
b. 3,480,000
c. 2,580,000
d. 3,030,000
e. Some other answer
PAS 26, Accounting and Reporting by Retirement Benefit Plans, should be applied to which one
of the following?
a. The general purpose financial reports of pension schemes
b. The financial statements relating to an actuarial business
c. The costs to companies of employee retirement benefits
d. Reports to individuals of their future retirement benefits
These are bonds that can be exchanged for shares of stocks of the issuer.
a. Convertible bonds
b. Callable bonds
c. Serial bonds
d. Redeemable bonds
Statement I: If the general price level increases, this means that the purchasing power of money
has decreased. Statement II: If the general price level decreases, this means that the purchasing
power of money has increased.
a. True, True
b. False, False
c. False, True
d. True, False
Under the equity method of accounting for investments, an investor recognizes its share of the
earnings in the period in which the:
a. Investee declares a dividend
b. None of these
c. Investor sells the investment
d. Investee pays dividend
e. Earnings are reported by the investor
Statement I: An investor starts to apply the equity method on the date it obtains significant
influence and ceases to apply the equity method on the date it loses significant influence.
Statement II: On the loss of significant influence, the investor shall measure on the same basis
any investment the investor retains in the former associate.
Statement III: If an investor loses significant influence over an associate, all amounts recognized
in other comprehensive income in relation to the associate shall be accounted on the same basis
as would be required if the associate had directly disposed of the related assets or liabilities.
a. All of the statements are true.
b. Only one statement is untrue.
c. There is one statement that is not untrue.
d. All of the statements are not true.
It is defined as any contract that gives rise to a financial asset of one entity and a financial liability
or equity instrument of another entity.
a. Separate financial statements
b. Financial instrument
c. Compound financial instrument
d. Equity instrument
It is defined as the power to participate in the financial and operating policy decisions of the
investee but is not control or joint control over those policies.
a. Subsidiary
b. Control
c. Associate
d. Significant influence
According to PAS 28 Investments in Associates, which of the following statements best describes
the term 'significant influence'?
a. The holding of a significant proportion of the share capital in another entity.
b. The contractually agreed sharing of control over an economic entity.
c. The power to participate in the financial and operating policy decisions of an entity.
d. The mutual sharing in the risks and benefits of a combined entity.
A financial asset and a financial liability are offset and only the net amount is presented in the
statement of financial position when the entity has:
a. a legal right of setoff only
b. either a legal right of setoff or an intention to settle the amounts on a net basis or
simultaneously
c. both a legal right of setoff and an intention to settle the amounts on a net basis or
simultaneously
d. an intention to settle the amounts on a net basis or simultaneously only Clear my choice
When an investor purchases sufficient ordinary shares to gain significant influence over the
investee, what is the proper accounting treatment of any excess of cost over the carrying
amount of the net assets acquired?
a. The excess is immediately expensed in the period in which the investment is made.
b. The excess is charged to retained earnings at the time the investor resells the investment.
c. The excess remains in the investment account until it is sold.
d. The excess is amortized over the time period that is reasonable in the light of the underlying
cause of the excess.
When an investor uses the equity method to account for investment in ordinary shares, cash
dividends received by the investor from the investee shall be recorded as:
a. Dividend income
b. A deduction from the shareholder’s equity account, dividends to shareholder
c. A deduction from the investment account
d. A deduction from the investor’s share of the investee’s profits
ABC Company provided the following information pertaining to the pension plan for the current
year: Projected benefit obligation on January 1, 3,600,000; Service cost, 7,900,000; Pension
benefits paid, 750,000. Assuming the discount rate is 12% and there is no change in actuarial
estimate occurred in the current year, what is the projected benefit obligation on December 31
of the current year?
a. 14,110,000
b. 4,182,000
c. Some other answer
d. 73,858,000
e. 3,750,000
ABC Company had a noncontributory defined benefit pension plan. The entity received the
projected benefit obligation report from the independent actuary at year-end that shows
236,250 were paid as pension benefits during the year. The entity incurred interest expense of
210,000 for the year. If the Projected Benefit Obligation on December 31 is 3,780,000 using 8%
discount rate, what is the projected benefit obligation at January 1?
a. 72,953,125
b. Some other answer
c. 73,477,600
d. 73,780,000
e. 2,625,000
At the beginning of the current year, ABC Company purchased 10% of ABZ Company’s
outstanding ordinary shares for ?4,400,000. ABC Company is the largest single shareholder in
ABZ Company and ABC Company’s officers are the majority on ABZ Company’s board of
directors. ABZ Company reported net income of 75,500,000 for the current year and paid
dividends of 1,650,000. What amount should be reported as investment in associate at year-
end?
a. 4,400,000
b. -0-
c. 74,950,000
d. Some other answer
e. 4,785,000