Government Accounting

FINAL EXAMINATION
1. Which of the following is not an indicator of reliable measurement for an asset?
a. Benefits can be expected on the basis of available evidence or logic.
b. Valuation method is free from material error or bias.
c. Faithful representation of the asset’s benefits.
d. Reliable information will, without bias or undue error, faithfully represent those transactions and
events.
2. It refers to the disbursement authority issued by the DBM to agencies with foreign operations allowing
them to use the income collected by their Foreign Service Posts to cover their operating requirements.
a. Notice of Cash Allocation (NCA)
b. Tax Remittance Advice (TRA)
c. Cash Disbursement Ceiling (CDC)
d. Non-Cash Availment Authority (NCAA)
3. Account titles in the Revised Chart of Accounts (RCA) are arranged according to this sequence
a. Assets, Equity, Liability, Revenue, and Expenses
b. Assets, Liability, Equity, Revenue, and Expenses
c. Assets, Expenses, Liability, Equity and Revenue
d. In no particular order.
4. Which of the following is an indication of impairment from internal sources?
a. Significant changes with an adverse effect on the entity have taken place during the period, or will
take place in the near future, in the technological, market, economic, or legal environment in which
the entity operates, or in the market to which an asset is dedicated.

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b. During the period, an asset’s market value has declined significantly more than would be expected as

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a result of the passage of time or normal use.
c. Significant changes with an adverse effect on the entity have taken place during the period, or are

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expected to take place in the near future, in the extent to which, or the manner in which, an asset is
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used or is expected to be used.

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d. Market interest rates or other market rates of return on investments have increased during the
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period, and those increases are likely to affect the discount rate used in calculating an asset’s value
in use and decrease the asset’s recoverable amount materially.
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5. Entity A, a government entity, had the following transactions during the period:
 Received Notice of Cash Allocation (NCA) amounting to ₱1,226,618.
 Earned total revenue of ₱1,598,000 from billings and collections of unbilled income.
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 Incurred total expenses of ₱791,652.

 Remitted total taxes withheld of ₱87,460 to the BIR through Tax Remittance Advice (TRA).
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 The “Cash-Modified Disbursement System (MDS), Regular” has an unused balance of ₱132,196 at
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the end of the period.

How much is the surplus (deficit) for the period?

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a. 1,988,230
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b. 1,898,230
c. 1,742,320
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d. 1,988,320
Use the following information for the next four questions:
Entity A grants a cash advance of ₱2,000 for the traveling expenses of an officer. Actual expenses amount
to ₱1,800. The officer remits the excess cash advance.
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6. The entry to record the grant of cash advance is

a. Advances to Officers and Employees 2,000
Cash – Disbursing Officer 2,000
b. Advances to Officers and Employees 2,000
Cash – Modified Disbursement
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System (MDS), Regular 2,000

c. Advances to Officers and Employees 2,000
Cash – Collecting Officer 2,000
d. Any of these.

7. The disbursement is recorded in the

a. Journal and Ledger
b. RAOD
c. ORS
d. All of these
8. The entry to record the liquidation of the cash advance is
a. Traveling Expenses – Foreign 1,800
Advances to Officers and Employees 1,800
b. Traveling Expenses – Foreign 1,800
Due to Officers and Employees 1,800
c. source was
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 Advances to Officers and Employees 1,800
d. a and c

9. The entry to record the receipt and deposit of refund of excess cash advance is
a. Cash – Collecting Officers 200
Advances to Officers and Employees 200
b. Cash – Treasury/Agency Deposit, Regular 200
Cash – Collecting Officers 200
c. a and b
d. neither a nor b
10. Which of the following is not an essential characteristic of a financial instrument?
a. There must be a contract.
b. There are at least two parties to the contract.
c. The contract gives rise to both a financial asset of one party and a financial liability or equity
instrument of another party.
d. It is subsequently measured at fair value.
11. When determining depreciation, an entity considers all of the following except
a. Initial cost
b. Useful life
c. Expected residual value at the end of the asset’s useful life
d. Whether the asset is classified as with finite or indefinite useful life.
12. Entity A spends ₱20,000 on the repair of one of its equipment. It is not clear whether the repair is a
major repair or a minor repair. In accordance with the GAM for NGAs, how should Entity A account for
the repair cost?
a. As a minor repair

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b. As a major repair

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c. As an addition

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d. a or b eH w
13. The Statement of Comparison of Budget and Actual Amounts is dated
a. As of the reporting date

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b. For a given reporting period
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c. Either a or b
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d. Not dated

14. Entity A is a government hospital. Entity A operates a pharmacy within the hospital. Entity A would
most likely recognize revenue from sales of medicines in the pharmacy
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a. upon billing, when goods are transferred to the buyer.

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b. on a straight-line basis.
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c. by reference to the stage of completion at the reporting date.

d. in accordance with the substance of the relevant agreement which requires an in-depth analysis by
a CPA who studied accounting for four to five years, or more.
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15. Which of the following is not one of the classifications of inventory held by a government entity?
a. Inventory Held for Distribution
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b. Inventory Held for Long-term Use

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c. Inventory Held for Manufacturing

d. Inventory Held for Consumption
e. Semi-Expendable Property
16. Which of the following may not be included in the inventories of a government entity?
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a. rice and other welfare goods held for distribution

b. raw materials and work-in-process
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c. accountable forms
d. equipment costing ₱15,000
17. Entity A exchanges an item of PPE with Entity B. How should Entity A account for any cash paid or
received from the exchange?
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a. Add the cash paid to the initial measurement of the asset received.
b. Deduct the cash paid from the initial measurement of the asset received.
c. Add the cash received to the initial measurement of the asset received.
d. Account for any cash paid or received in gain or loss but not on the initial measurement of the asset
received.
18. According to the GAM for NGAs, these assets are those which have historical, cultural and
environmental significance, and are intended to be preserved for future generations.
a. Cultural assets
b. Infrastructure assets
c. Heritage assets
d. Historical assets
Use the following information for the next two questions:
At the beginning of Year 1, a government entity acquires an intangible asset for ₱100,000. The intangible
asset has a useful life of 10 years. At the end of Year 3, the entity determines an indication of impairment
and makes the following estimates:
Fair value less costs to sell 60,000
Value in use 50,000
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 19. How much is the impairment loss?
a. 10,000
b. 20,000
c. 30,000
d. 0
20. At the end of Year 6, Entity A determines an indication that the previous impairment may no longer
exist and makes the following estimates:
Fair value less costs to sell 32,000
Value in use 38,000

How much is the gain on the reversal impairment loss?

a. 3,714
b. 5,714
c. 8,714
d. 0
21. Entity A leased a new machine to Entity B on January 1, 20x1. The lease expires on January 1, 20x6.
The annual rental is ₱90,000. Additionally, on January 1, 20x1, Entity B paid ₱50,000 to Entity A as a
lease bonus and ₱25,000 as a security deposit to be refunded upon expiration of the lease. In Entity A's
20x4 statement of financial performance, the amount of rental revenue should be
a. 140,000
b. 125,000
c. 100,000
d. 90,000

22. Which of the following statements is correct regarding the presentation of financial statements by

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government entities?

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a. Changes in accounting policies may be accounted for by prospective application.

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b. Non-adjusting events are never recognized but are always disclosed.
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c. Prior period errors are corrected by retrospective application.
d. Just like business entities, government entities may (if they choose to) prepare interim financial

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statements on a quarterly basis.
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23. The notes to the financial statements is least likely to be expected to show which of the following
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information?
a. General information on the reporting entity.
b. Current and noncurrent distinctions of assets and liabilities.
c. Statement of compliance with the PPSAS and basis of preparation of financial statements.
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d. Summary of significant accounting policies.

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24. A change in accounting estimate is accounted for

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a. using the transitional provision, if any.

b. by retrospective application.
c. by prospective application.
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d. any of these
25. This is attached to the annual general purpose financial statements of a government entity as a cover
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letter.
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a. President’s Budget Message

b. Report on Highlights and Executive Summary
c. Statement of Management Responsibility for Financial Statements
d. Dedications, acknowledgments and best wishes.
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26. Which of the following applies to business entities but not to government entities?
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a. Accounting for biological assets at fair value less costs to sell.

b. Preparation of interim financial statements.
c. Presenting information on earnings per share.
d. Continued depreciation of idle equipment.
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27. The accounting for government entities differs from the accounting for business entities in which of the
following respects?
a. Classification of joint ventures.
b. Consolidation procedures when preparing consolidated financial statements.
c. Disclosure of events after the reporting date.
d. Impairment requirements, and reversals thereof, for noncurrent assets.
28. The statement of cash flows of government entities
a. shows the historical changes in cash and cash equivalents
b. shows prospective information on budgeted amounts of expected future cash flows
c. a and b
d. is prepared using the accrual basis of accounting
29. The classification of leases under the GAM for NGAs is based on
a. the form of the contract rather than the substance of the transaction.
b. the extent of transfer of risks and rewards incidental to ownership of the leased asset from the
lessor to the lessee.
c. the significance in value of the leased asset.
d. the significance in value of the leased asset and the length of the lease term.
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 30. Lessee enters into a lease contract with Lessor. Which of the following would most likely indicate a
substantial transfer of risks and rewards incidental to ownership of an asset?
a. The lease term is 10 years for an annual lease payment of ₱5,000,000.
b. Lessee has the option to extend the lease for the remaining half of the leased asset’s useful life for
the same amount of annual lease payment which is expected to be lower than the market rate
during the extended period.
c. The lease transfers ownership of the leased asset to the Lessee if the Lessee pays the Lessor the
leased asset’s fair value, to be determined on payment date.
d. The Lessee has the unilateral right to cancel the lease after the first 5 years of the lease term
without any significant costs.
31. Entity A, a government entity, receives notice that for the current year, the maximum amount it can
spend on maintenance and other operating expenses is ₱10B. This event can be described as
a. Notice of Cash Allocation
b. Allotment
c. Appropriation
d. Budgetication
32. Which of the following statements is incorrect regarding the accounting for unreleased checks by a
government entity?
a. The accounting procedures for unreleased checks prescribed under the GAM for NGAs apply only to
commercial checks.
b. Unreleased checks are reverted back to cash.
c. At the start of the year, a reversing entry is made for the unreleased checks in the previous year.
d. Unreleased checks are perforated.

33. On January 1, 20x1, the biological assets of Entity A consist of two 1-year old animals with fair value

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less costs to sell of ₱1,000 each.

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The following transactions occurred during the period:
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 On July 1, 20x1, two 1-year old animals are acquired for ₱1,100 each, equal to the FVLCS on this date.
 On October 1, 20x1, two animals are born. The FVLCS of a newborn on this date is ₱500.

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The FVLCS on December 31, 20x1 are as follows:
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Age FVLCS
new born ₱600
3 mos. old ₱800
1 yr. old ₱1,200
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1.5 yr. old ₱1,500

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2 yrs. old ₱2,000

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How much is the total gain from the change in FVLCS during the period?
a. 3,800
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b. 4,200
c. 4,400
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d. 4,800
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34. An office equipment representative has a machine for sale or lease. If you buy the machine, the cost is
₱7,596. If you lease the machine, you will have to sign a non-cancelable lease and make 5 payments of
₱2,000 each. At the time of the last payment you will receive title to the machine. The first payment
will be made one period after the first day of the lease. The interest rate implicit in this lease is
is

approximately
a. 10%
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b. 12%
c. Between 11% and 12%
d. 16%
35. If plotted on a graph, the periodic interest expenses recognized on bonds issued at a premium will
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show a: (X axis – time; Y axis - ₱)

a. straight line
b. downward line sloping to the right
c. upward line sloping to the right
d. curvilinear line sloping here and there
36. Which of the following information is not reported in the statement of changes in net assets/equity?
a. Effects of current period errors.
b. Surplus or deficit for the period
c. Items of revenue and expense that are recognized directly in equity
d. The balance of accumulated surpluses or deficits at the beginning of the period and at the reporting
date, and the changes during the period.
37. Which of the following is not one of the special journals prescribed by the GAM for NGAs?
a. Sales Journal
b. Cash Disbursements Journal
c. Check Disbursements Journal
d. Cash Receipts Journal
38. The 8-digit Revised Chart of Accounts (RCA) Code for revenues starts with number
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a. 1

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 b. 5
c. 2
d. None of these
39. Guil College, a private not-for-profit college, received the following cash inflows:
 $400,000 from students for tuition.
 $200,000 from a donor who stipulated that the money be invested indefinitely and the earnings
used for student scholarships.
 $100,000 from a donor who stipulated that the money be spent according to the wishes of the
Board of Trustees.

Which amounts of these cash flows should be shown on the cash flow statement as cash from operating
activities?
a. $700,000.
b. $400,000.
c. $600,000.
d. $500,000.
40. On December 30, 19X4, Leigh Museum, a not-for-profit organization, received a $7,000,000 donation of
Day Co. shares with donor stipulated requirements as follows:
 Shares valued at $5,000,000 are to be sold with the proceeds used to erect a public viewing
building.
 Shares valued at $2,000,000 are to be retained with the dividends used to support current
operations.

Leigh adopted of FASB Statement No. 117, Financial Statements of Not-for-Profit Organizations. As a

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consequence of the receipt of the Day shares, how much should Leigh report as temporarily restricted net

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assets on its 19X4 statement of financial position?

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a. $0 eH w
b. $2,000,000
c. $5,000,000

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d. $7,000,000
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Amount charged to patients $500,000
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Revenue from newsstand 15,000

Undesignated gifts 40,000
Contractual adjustments 70,000
Interest income 12,000
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Salaries expense – nurses 120,000

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Bad debts 8,000

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What is the hospital’s net patient service revenue?

a. $422,000
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b. $430,000
c. $500,000
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d. $540,000
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41. Home Care, Inc., a nongovernmental voluntary health and welfare organization, received two
contributions in 2003. One contribution of $250,000 was restricted for use as general support in 2004.
The other contribution of $200,000 carried no donor restrictions. What amount should Home Care
report as temporarily restricted contributions in its 2003 statement of activities.
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a. $450,000
b. $250,000
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c. $200,000
d. $0
42. The Weyman Hospital, a private, not-for-profit institution, reported the following information:
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Gross patient service revenue $1,000,000

Allowance for discounts to hospital employees 20,000
Bad debt expense 40,000
Contractual adjustments 100,000

What amount should the hospital report as net patient service revenue?
a. 840,000
b. 900,000
c. 880,000
d. 980,000
43. A private not-for-profit hospital provided $150,000 in charity care for the current year. The hospital
should report this charity care as
a. Net patient service revenue of $150,000 and patient care expense of $150,000.
b. Net patient service revenue of $150,000 on the statement of operations.
c. Only in the notes to the financial statements.
d. As an unpaid accounts receivable on the balance sheet.
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 44. The Johnson Hospital, a private not-for-profit hospital, received the following revenues in the current
year:
Proceeds from sales of the Hospital’s flower shop $60,000
Dividends and interest revenue not restricted $20,000
Cash contributions for the renovation of the children’s ward in the Hospital $200,000

Which of these amounts should be reported as other revenues and gains (other revenue) on the Statement
of Operations?
a. $280,000
b. $60,000
c. $80,000
d. $260,000
45. A hospital has the following account balances:
Revenue from newsstand $ 50,000
Amounts charged to patients 800,000
Interest income 30,000
Salary expense – nurses 100,000
Bad debts 10,000
Undesignated gifts 80,000
Contractual adjustments 110,000
What is the hospital’s net patient service revenue?
a. $880,000
b. $800,000
c. $690,000
d. $680,000

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46. Electra, a not-for-profit performing arts organization, held some donor restricted endowment funds

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which are invested in stocks that are listed on the NY Stock Exchange, so the fair values are readily

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determinable. Most of the investments represent amounts between 2% and 5% of the outstanding
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common stock of the investee corporations. However, Electra does own stock in one company that
gives it the ability to exercise significant influence over the operating and financing policies of the

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investee company. How should these two types of investments be reported on Electra’s Statement of
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Financial Position at year end?
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Equity Securities Equity Securities

2% - 5% ownership significant influence
a. Fair value Fair value
b. Equity method Equity method
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c. Fair value Equity method

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d. Fair value Carrying value

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47. Gerlack College, a private, not-for-profit institution, received a donation of $2,000,000 as a challenge
grant. If the college raises an additional $2,000,000 within the next two years, it may keep the
donation. If it fails, the $2,000,000 must be returned to the donor. How would the college record the
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receipt of the grant?

a. Unrestricted revenue.
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b. Temporarily restricted revenue.

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c. Note to the financial statement.

d. Refundable advance.
48. Which of the following transactions of a private voluntary health and welfare organization would
increase temporarily restricted net assets in the statement of activities for the current year?
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I. Received a contribution of $20,000 from a donor in the current year who stipulated that the money
not be spent until the following year.
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II. Spent $25,000 for fund raising during the current year from a donation from the previous year.
a. I only
b. I & II
c. II only
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d. Neither

49. The entry to record the receipt of a disbursement authority in the form of Cash Disbursement Ceiling
(CDC) is
a. Cash-Constructive Income Remittance xxx
Subsidy from National Government xxx
b. Accounts Payable xxx
Subsidy from National Government xxx
c. Accounts Payable xxx
Cash-Modified Disbursement System (MDS), Regular xxx
d. Cash-Modified Disbursement System (MDS), Regular xxx
Subsidy from National Government xxx
50. Which of the following statements is incorrect?
a. The various registries maintained by government entities primarily serve as internal control for
controlling and monitoring the conformance of actual results with the approved budget.
b. The GAM for NGAs requires the Collecting Officer to issue an official receipt to acknowledge the
receipt of the Notice of Cash Allocation.
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 c. A check disbursement is normally recorded as a credit to the “Cash-Modified Disbursement System
(MDS), Regular” account.
d. Both the ORS and RAOD are updated each time an obligation is incurred, a payable is recorded for
the obligation incurred, and disbursements are made to settle the recorded payables.
e. At the end of each year, an adjustment is made to revert any unused NCA of a government entity.
51. This type of budget is prepared in such a way that estimated revenues exceed estimated expenditures.
a. Balanced budget
b. Obligations budget
c. Excess budget
d. Budget meal

52. Which of the following reflects a Non-Cash Availment Authority (NCAA) mode of disbursement?
a. Accounts Payable xxx
Cash-Constructive Income
Remittance xxx
b. Accounts Payable xxx
Cash – Modified Disbursement
System (MDS), Regular xxx
c. Accounts Payable xxx
Subsidy from National Government xxx
d. None of these.

53. Arrange the following steps in the budget process according to the sequence that they appear in the

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budget cycle.

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I. Allotment eH w
II. Bicameral deliberations
III. Budget accountability reports

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IV. President’s enactment of the GAA
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V. Budget hearings with the DBM
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a. V, IV, II, I and III

b. II, V, II, I and III
c. V, II, IV, I and III
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d. V, I, II, IV and III

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54. Arrange the following steps in the budget process according to the sequence that they appear in the
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budget cycle.

I. Allotment
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II. Disbursement authority

III. Disbursement
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IV. Appropriation
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V. Incurrence of obligation

a. IV, I, II, V and III

b. IV, I, V, II and III
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c. IV, I, V, III and II

d. IV, V, I, II and III
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55. It is an authorization issued by the DBM to NGAs to incur obligations. It is also referred to as
Obligational Authority.
a. Appropriation
b. Budget call
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c. Allotment
d. Budget hearings

“You will eat the fruit of your labor; blessings and prosperity will be yours.”
(Psalm 128:2)

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