CONCEPTUAL FRAMEWORK AND ACCTG STANDARDS 1.

1. Entity B, a trustee, undertakes to manage the retirement benefit fund of Entity A for
the benefit of Entity A’s employees. When reporting to Entity A regarding the status
and performance of the fund, Entity B would most likely apply which of the following
standards?
a. PAS 19
b. PAS 24
c. PAS 26
d. PFRS 6

2. According to PAS 27, investments in subsidiaries, associates or joint ventures are

accounted for in the separate financial statements
a. at cost.
b. at fair value in accordance with PFRS 9.
c. using the equity method under PAS 28.
d. any of these, as a matter of accounting policy choice.

3. On January 1, 20x1, Entity A acquires 30% interest in Entity B for ₱600,000. Entity B
reports profit of ₱200,000 and declares dividends of ₱50,000 in 20x1. How much is
the carrying amount of the investment in associate on December 31, 20x1?
a. 600,000
b. 660,000
c. 645,000
d. 630,000

Solution:
Investment in associate
1/1/x1 600,000
Sh. in profit (200K x 30%) 60,000 15,000 Dividends (50K x 30%)
645,000 12/31/x1

4. Under constant peso accounting, items are restated using this formula:
a. Historical cost x (Current price index ÷ Average price index)
b. Historical cost x (Current price index ÷ Historical price index)
c. Revalued amount x (Current price index ÷ Historical price index)
d. Historical cost x (Current price index ÷ Historical price index*) *However, if
the historical price index is impracticable to determine, the average price
index may be used.

5. Entity A issues convertible bonds with face amount of ₱2,000,000 for ₱2,600,000.
Each ₱1,000 bond is convertible into 10 shares with par value of ₱60 per share. On
issuance date, the bonds are selling at 102 without the conversion option. What is
the value allocated to the equity component on initial recognition?
a. 2,040,000
b. 540,000
c. 560,000
d. 460,000

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 Solution:
Issue price 2,600,000
Fair value of debt instrument without equity feature (2M x 102%) (2,040,000)
Equity component 560,000

6. Entity A had 100,000, ₱10 par, 10% cumulative preference shares outstanding all
throughout 20x1. Entity A reported profit after tax of ₱2,800,000 for the year ended
December 31, 20x1. The movements in the number of ordinary shares are as
follows:
1/1/20x1 Ordinary shares outstanding 120,000
3/1/20x1 Shares issued for cash 42,000
9/30/20x1 Subscribed shares 20,000
11/1/20x1 Reacquisition of treasury shares (12,000)
Outstanding shares at the end of period 170,000

What is the basic earnings per share?

a. 18.92
b. 17.09
c. 18.07
d. 16.98

Solution:

Date No. of sh. Months outstanding Weighted average

(a) (b) (c) = (a) x (b)
1/1/20x1 120,000 12/12 120,000
3/1/20x1 42,000 10/12 35,000
9/30/20x1 20,000 3/12 5,000
11/1/20x1 (12,000) 2/12 (2,000)
158,000

Basic Profit (Loss) less Preferred dividends

=
EPS Weighted average number of outstanding ordinary shares

Basic 2,800,000 – (100,000 x ₱10 x 10%)

=
EPS 158,000

Basic EPS = ₱17.09

7. According to PAS 34, income tax expenses in interim periods are computed using
a. a weighted average annual income tax rate.
b. a substantially enacted future tax rate.
c. a uniform tax rate for all periods presented, including comparatives.
d. an imputed tax rate.

8. According to PAS 36, which of the following is an indication of impairment from

internal sources of information?
a. Significant decline in the asset’s (market) value.
b. Indications that the economic performance of an asset is, or will be, worse
than expected.

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 c. Significant changes in technological, market, economic, or legal environment
that adversely affect the recoverable amount of an asset.
d. The carrying amount of the entity’s net assets exceeds its market
capitalization.

9. If the carrying amount of an asset is less than its recoverable amount, the asset
a. is impaired.
b. should be written-down.
c. is not impaired.
d. should be written-off in profit or loss.

10. Which of the following assets is not tested for impairment in accordance with PAS
36?
a. Property, plant and equipment
b. Inventory
c. Intangible assets
d. Goodwill

11. According to PAS 37, contingent liabilities are

a. recognized and disclosed.
b. always disclosed.
c. disclosed, only if their expected occurrence is remote.
d. not disclosed if their expected occurrence is remote.

12. Which of the following assets can be measured using the revaluation model?
a. Property, plant and equipment
b. Investment property
c. Intangible assets
d. a and c
e. all of these

13. Entity A acquires a building for ₱1,000,000. The building is to be leased out under
various operating leases. The building has an estimated useful life of 10 years and
zero residual value. Entity A uses the cost model for its property, plant and
equipment and the fair value model for its investment property. At the end of Year 1,
the building is assessed to have a fair value of ₱1,080,000. How much should Entity
A recognize in profit or loss in relation to the building?
a. 80,000 gain on change in fair value
b. 100,000 depreciation
c. 180,000 gain on change in fair value
d. b and c

14. Which of the following is considered an agricultural activity under PAS 41?
a. fishing in the open seas
b. illegal logging
c. floriculture
d. farming in the computer or cellphone

15. Which of the following is accounted for under PAS 41?

a. bearer plants
b. bearer animals

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 c. government grants related to biological assets measured at cost
d. plants used in landscaping

16. Prior to the full adoption of the IFRSs in 2005, the reporting standards used in the
Philippines were primarily based on
a. US GAAP (SFASs).
b. Japanese GAAP.
c. Spaniard GAAP.
d. a combination of a, b and c and a little bit of Lapu-lapu’s accounting concepts.

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