GovREVIEWER in FINALS (Compilatioin of Assignmenst and Exercises)

REVIEWER IN FINALS
(GOVERNMENT ACCOUNTING)
CHAPTER 9
1. An entity shall capitalize as part of the cost of an investment property the operating
losses incurred before the investment property achieves the planned level of occupancy
- FALSE
2. According to GAM for NGAs, government entities may choose to use either the cost
model or the fair value model to subsequently measure investment properties. -FALSE
3. According for GAM for NGAs, an entity shall not depreciate an asset while it is classified
as investment property. -FALSE
4. Recoverable amount is the lower of an asset's fair value less cost to sell and value is
use. FALSE
5. If an asset's recoverable amount exceeds its carrying amount the asset is impaired.
False
6. An investment property with carrying amount of P10 is determined to have a fair value
less cost to sell of P7 and a value in use of P8. The impairment loss is P3. False
7. An investment property with carrying amount of P10 is sold for P7. Transaction cost on
the sale amounted to P1. The loss on depreciation is P4. True
8. An investment property that was previously impaired is determined to have new
recoverable amount of P10. Right now, the asset's carrying amount is P7. However, if no
impairment loss had been recognized in the prior year, the asset would have carrying
amount of P9 by now. The gain on reversal of impairment, therefore is P1. False
9. According to the GAM for NGAs, a government entity shall, at each reporting date,
determine the recoverable amount of an investment property and compare it with its
carrying amount. False
10. An entity need not compute for the value in use of an asset if the entity has no reason to
believe that the value in use exceeds the fair value less cost to sell. True
1. Which of the following is considered an investment property?
A. Owner-occupied property awaiting disposal.
B. Property that is leased to another entity under a finance lease.
C. Property held for use in the production or supply of goods or services or for
administrative purposes.
D. A building held by the entity under a finance lease and leased out under one or more
operating leases on a commercial basis.
2. Which of the following would not be reported as investment property?
A. Property owned by the entity and leased out under one or more operating leases.
B. Property held by the entity to be leased out under one or more operating leases
C. Real estate held with an undetermined future use.
D. Property owned by the entity and leased out to another entity under a finance lease
3. Which of the following cost may property be included in the carrying amount of an investment
property?
A. Start-up cost, such as opening cost
B. Operating losses incurred before the investment property achieves the planned level
occupancy
C. Abnormal amounts of wasted materials, labor or other resources incurred in
constructing or developing the property.
D. Accrued taxes prior to acquisition date that the entity assumes an obligation to pay
4. Entity A, a government entity, acquires a building to be leased out under various operating
leases on commercial basis. Entity A incurs the following costs on the acquisition:
Purchase price 10,000,000
Legal services and transfer taxes 10,000
Refurbishments before occupancy 30,000
Occupancy permit fees 25,000
Property taxes after occupancy 8,000
Opening costs (blessing and feng shui) 500,000
The entity to initially recognize the investment property in Entity A's books of account is
Investment Property, Land 10,065,000
Cash-Modified Disbursement
System (MDS), Regular 10,065,000
5. During the period, Entity A, a government entity, decides to use as an office one of its
building that has previously been leased out under various operating leases on commercial
basis. Information on the investment property is as follows:
Investment property - Building 1,000,000
Accumulated depreciation 800,000
At the date of change in use, the fair value of the investment property is P250, 000. How much
is the gain (loss) on the transfer? *0
6. On January 1, 20 x 1 entity a acquires a building to be held as investment property for a total
cost of P1, 500,000. The building is estimated to have a 30-year useful-life and a 5% residual
value. Entity a uses the straight-line method of depreciation. On December 31, 20 x 5, Entity A
sells the building for P1, 300,000. How much is gain (loss) on the sale?
*37,500
Use the following information for the next three questions:
Entity a determine an indication that its investment property might be impaired. Entity A then
gathers the following information:
Carrying amount of investment property P1, 000,000
fair value less cost to sell 900,000
value in use 880,000
Following the impairment, Entity A reverses its estimate of residual value to 5% of the
recoverable amount and the remaining useful life to 10 years.
7. How much is the impairment loss?
*100,000
8. How much is the annual depreciation after the impairment?
*85,000
9. Five years after the impairment, Entity A determines an indication that the impairment
may no longer exist. Entity A makes the following estimates and computations:
Fair value less costs to sell P800, 000
Value in use P750,000
The investment property would have a carrying amount of P600, 000 bye now if no impairment
loss had been recognized in the past.
How much is the gain on the reversal of impairment?
*127,500
10. During the period, one of the buildings of Entity A, a government entity, was completely
destroyed by fire. The building has a historical cost of P1, 000,000 and an accumulated
depreciation of P400,000. The building is in secured of P700,000. Which of the following
statement is correct?
* Entity A shall treat the loss event and the insurance claim as separate events.
1. Which of the following is an investment property?
* Property that is being constructed or developed for future use as investment property.
2. Which of the following is not an investment property?
* Equipment held to be leased out under one or more operating leases on a commercial basis to
external parties.
3. According to the GAM for NGAs, government entity shall measure an investment property as
follows:
*Initial- Cost
Subsequent - cost model
4. Investment property acquired through donation is initially measured
* At fair value on acquisition date
5. An entity acquired investment property in exchange for a long-term noninterest-bearing note.
Assuming all of the following are determinable with sufficient reliability but differ in amounts,
which of them is most likely to be used in the initial measurement of the investment property?
* Cash price equivalent of the investment property
6. Entity A acquires an investment property for P1, 000,000 cash. Additional costs incurred are
as follows:
Repairs & remodelling before occupancy, P50,000
Legal costs of transferring title to the property, P20,000
Repair is after occupancy, P15,000
The investment property is estimated to have a remaining useful life of 10 years and a residual
value equal to 5% of initial cost. Entity A uses the straight-line method of depreciation. How
much is the carrying amount of the investment property after one year?
*968,850
7. According to the GAM for NGAs, transfer to or from investment property shall be made only
when there is a
* Change in use
8. During the period, Entity A decide to lease out under various operating leases on commercial
basic one of a building that has previously been used as office building. Information on the
building is as follows:
Historical cost P1, 000,000
Accumulated depreciation 800,000
At the date of change in use, the fair value of the building is P250,000. Which of the following is
the correct reclassification entry?
Investment property, buildings 200,000
Accumulated depreciation- building 800, 000
Buildings 1,000,000
Use the following information for the next two questions:

On January 1, 21x1, Entity A acquires a building to be held as investment property for a total
cost of P1, 500, 000. The building is estimated to have a 30-year useful life and a 5% residual
value. Entity A uses the straight-line method of depreciation.
On December 31, 25 x 5, entity a determine that the building is impaired and makes following
estimates:
Fair value less cost to sell P900, 000
Value in use P1, 000,000
Following the impairment, Entity A revises in estimate of residual value to 5% of the recoverable
amount.
9. How much is the impairment loss on December 31, 20x5?
*262,500
10.On December 31, 20x10, Entity A determines an indication that the impairment loss
recognized in the prior period may no longer exist. Entity A makes the following estimates and
computations:
Fair value less cost to sell P1, 100,000
Value in use P1, 050,000
How much is the gain on the reversal of impairment?
*215,000
CHAPTER 10
1. The capitalization threshold for items of PPE by government entities is P15,000, which is
equal to the petty cash disbursement limit. TRUE
2. Individual items of PPE with values below the capitalization threshold but work together as a
group are recognized as P if the total cost of the group meets the capitalization threshold. TRUE
3. Items below the capitalization threshold of PPE are recognized as Semi-Expendable Property
- a separate class of PPE. FALSE
4. According to the GAM for NGAs, trade discounts a excluded from the initial measurement of
items of PPE but no cash discounts. FALSE
5. The provision for decommissioning and restoration costs of item of PPE is subsequently
measured at amortized cost. TRUE
6. According to the GAM for NGAS, government entities may choose either the cost model or
the revaluation model to subsequently measure their PPE. FALSE
7. Government entities record depreciation on a monthly basis. TRUE
8. An item of PPE with historical cost of P10, accumulated depreciation of P5 and accumulated
impairment losses of P1 is sold for P7. The gain on the sale is P2. FALSE
9. Heritage assets are measured at cost. However, they are not subsequently depreciated, but
subject to impairment. TRUE
10. Infrastructure assets are accounted for in the same manner as the other items of PPE.
However, infrastructure assets are generally assigned a residual value of zero. TRUE
11. Reforestation projects are classified as land improvements. TRUE
12. Entity A's equipment has a carrying amount of P10 before replacement of an old part. The
old part has a carrying amount of P2. The cost of the replacement part is P5. The loss on
replacement is P3. FALSE
13. Entity A acquires an equipment in exchange for another equipment owned by Entity B. The
carrying amount of Entity A's equipment is P10 while its fair value is 99. Entity B's equipment
has a fair value of only P7. However, Entity B pays Entity A P2 for the difference. If the
exchange has commercial substance, Entity A will recognize a loss of P1, on the exchange.
TRUE
14. Entity A acquires an item of PPE from an inter-agency transfer. Entity A will not recognize
any gain or loss from this transaction. TRUE
15. Government entities normally assigned items of PPE residual value of 15% of cost. FALSE
Multiple choice
1. Entity A acquires an equipment for P1M. The equipment is acquired not for active use in
the production of goods but rather as a standby equipment that will only be used if the
main equipment needs to be repaired. Does this equipment qualify for recognition as
property, plant and equipment?
a. Yes, all of the recognition criteria for a PPE are met.
b. No. The equipment does not satisfy all the recognition Criteria for a PPE.
c. No. Although, the equipment satisfies some of the recognition criteria for a PPE,
it does not satisfy all. The equipment shall be classified as “Other Assets.”
d. Yes and no. During the periods the equipment is idle, it shall be classified as
“Other Assets.” During the periods the equipment is in active use, it shall be
classified as “PPE.”
2. For government entities, the capitalization threshold for PPE is
a. P15,000 or more
b. More than P15,000
c. Not less than P25,000
d. At least P5,000
3. According to the GAM for NGAs, cash discounts not taken on Purchases of items of
PPE are
a. Included in the cost of PPE
b. Recognized as “Other Losses”
c. Ignored
d. Debited to the “Purchase Discount Lost” account
4. According to the GAM for NGAs, estimates d decommissioning and restoration costs of
an item of PPE are (choose the incorrect statement)
a. Included in the initial cost of the item of PPE at the present value of the
estimates.
b. Credited to the “Other Provisions” account at their present value.
c. Included in the initial cost of an item of PPE but not subject to subsequent
depreciation, although subject to amortization using the effective interest method.
d. Are recognized as provisions, at present value, and subsequently measured
similar to a financial liability.
5. Which of the following costs is not added to the cost of an item Of PPE?
a. Costs of site preparation
b. Initial delivery and handling costs
c. Net disposal proceeds of samples generated during testing
d. Employee benefits arising directly from the acquisition of PPE
6. Entity A acquires 5 motor vehicles for a package price of P10M. In conjunction with the
purchase, the supplier provides Entity A a promotional item of 1 motor vehicle which is
not of. The same type as those acquired. The fair value the motor vehicle is P2M. Which
of the following statements is correct?
a. For individual costing purposes, the cost of each of the 5Motor vehicles is
P1,600,000.
b. B. For individual costing purposes, the cost of each motor Vehicle acquired is
P1,666,667.
c. The promotional item is recognized as gain equal to fair value.
d. A and c
7. Entity A acquires a building through self-construction (construction by administration).
The initial cost of the building will most likely be based on which of the following?
a. The contract price.
b. The costs of direct materials, direct labor and construction excluding wastages.
c. A or b
d. fair value at the acquisition date
8. Entity A acquires a building through self-construction (construction by administration).
The construction costs incurred are
a. Initially recorded in the Registries and recorded in the books of accounts only
upon completion of the construction
b. Initially recorded in the “Construction in Progress” account.
c. Recoded in the “Buildings” account in the period they arise.
d. Initially recorded as “Receivables” during the construction period.
9. Entity A, a government entity, acquires an equipment for 1M on August 6, 20x1. The
equipment’s estimated useful life is 5 years. How much is the carrying amount of the
equipment on December 31, 20x2? - 920,833
10. Which of the following assets would most likely not be assigned a residual value by the
government entity?
a. A major part of an equipment
b. A building held as an investment property
c. A major tool
d. Infrastructure asset
11. Which of the following assets is generally not subject to depreciation?
a. Heritage assets
b. Infrastructure assets
c. Roads
d. A and B
12. Which of the following is considered a heritage asset?
a. Road networks
b. Museum
c. Bridges
d. Forest
13. Which of the following assets of the government entity is not subject to impairment?
a. Heritage assets
b. Reforestation projects
c. Idle land
d. None of these
14. A government entity derecognizes an item of PPE that is
a. Idle
b. Fully depreciated
c. Unserviceable
d. All of these
15. The national government receives a 10M grant from a foreign government conditioned
on the construction of a highway. According to the GAM for NGAs, when shall the
national government recognize revenue from the grant? When the condition is satisfied
1. Entity A acquires a rain on January 1, 20x1. Information on costs are as follows:

Purchase price 9,000,000
Import duties 200,000
Cash discount not taken 100,000
Freight costs 800,000
Testing costs 300,000
Repairs after the train is brought to its operational state 600,000
Estimated cost of dismantling the train at the end of the its 20-yeaar useful life 120,000
The current market rate of interest on acquisition date is 12%. The entry to recognize the train
on the books of account is?
Trains 10,212,440
Other losses 100,000
Cash-Modified Disbursement System (MDS), Regular 10,300,000
Other Provisions 12,440
2. During the period, Entity A starts the construction of a building by administration. Entity A
acquires construction materials for 10M. The entry to record the transaction is
Construction Materials Inventory 10,000,000
Accounts Payable 10,000,000
3. Entity A exchanged an equipment with Entity B. Entity A, however, did not recognize any
gain or loss on the exchange. Which of the following is a valid reason for this?
The exchange lacks commercial substance
4. Entity A receives a donation of the land with fair value of 1M. The donor stipulated that
the land shall only be used as a portion of a proposed highway. If in case the project is
discontinued, Entity A shall return the land to the donor. At the date of receipt of the
donation, the construction of the highway is not yet started. When should Entity A
recognize the land in its books of accounts? Upon receipt of the donation
5. During the year, Entity A, an NGA, incurred interest of 200,000 on a loan taken to
specifically finance the construction of a building. The proceeds of the loan were
temporarily invested and earned interest income of 20,000. Which of the following
entries best reflects the recognition of the interest in the books of accounts of Entity A?
Construction in Progress-Buildings and Other Structures 180,000
Interest payable 180,000
PROBLEM 10-4: FOR CLASSROOM DISCUSSION

1. Which of the following is not one of the characteristics of property, plant and equipment?
a. It is a tangible asset.
b. It is held for use in the production or supply of goods, services or program
outputs, for rental to others, or for administrative purposes.
c. It is expected to be used for more than one reporting period.
d. It is intended for resale in the ordinary course of operations.
2. Which of the following does not result to the recognition of PPE?
a. A single purchase of equipment costing P15,000.
b. Purchases of equipment that work together as a group, individually costing
P1,000 to P5,000 but with a sum total cost of more than P15,000.
c. Bulk acquisitions of small items of PPE with aggregate cost of more than
P15,000.
d. Acquisition of a building for P10M intended to be leased out under various
operating leases on commercial basis.
3. Entity A acquires an equipment on account with the following terms: P500,000 list price,
20%, 10%, 2/10, n30. Entity A incurs the following additional costs:
Non-refundable purchase taxes (not yet included in the list price above) P10,000
Installation costs P100,000
Estimated costs of dismantling the equipment at the end of its 10-year useful 20,000
The current market rate of interest on acquisition date is 10%.
How much is the initial cost of the equipment?

a. 468,713
b. 470,511
c. 472,341
d. 489,313
4. Entity A acquires 5 motor vehicles for a package price of P10M. In conjunction with the
purchase, the supplier provides Entity A a promotional item of 1 motor vehicle which is
the same as those acquired. The fair value the motor vehicle is P2M. Which of the
following statements is correct?
a. For individual costing purposes, the cost of each motor vehicle acquired is
P2,000,000.
b. For individual costing purposes, the cost of each motor vehicle acquired is
P1,666,667.
c. The promotional item is recognized as gain equal to fair value.
d. b and c
5. Entity A acquires a building by awarding a construction contract to a contractor. The
initial cost of the building will most likely be based on which of the following?
a. The contract price.
b. The costs of direct materials, direct labor and construction overhead,
excluding wastages.
c. A or b
d. Fair value at the acquisition date.
Entity A exchanged equipment with Entity B. Pertinent data are shown below:
Entity A Entity B
Carrying amount 85,000 130,000
Fair value 95,000 115,000
Cash paid by Entity A to Entity B 15,000
6. If the exchange has commercial substance, how much is the initial measurement of the
equipment received by Entity A?
a. 95,000
b. 110,000
c. 115,000
d. 85,000
7. If the exchange has commercial substance, how much is the gain (loss) recognized by
Entity A in the exchange?
a. 10,000
b. (10,000)
c. (15,000)
d. 15,000
8. Entity A incurs costs in repairing an item of PPE. It is not clear whether the repair is a
minor or a major repair. Entity A shall
a. Recognize the repair costs as expense
b. Capitalize the repair costs
c. A or b
d. None of these
9. A, a government entity, acquires an equipment for PIM on August 26, 20x1. The
equipment’s estimated useful life is 5 years. How much is the accumulated depreciation
of the Equipment on December 31, 20x1?
a. 66,666
b. 63,333
c. 83,333
d. 79,167
Use the following information for the next three questions: At year-end, Entity A determines an
indication that an equipment with carrying amount of P400,000 is impaired. This equipment was
acquired 5 years earlier and was originally estimated to have a useful life of 10 years and a 5%
residual value. Entity A determines the following information:
Fair value less costs to sell........... P350,000
Replacement cost………………….P700,000
10. How much is the impairment loss assuming Entity A computes for the value in use using
the Depreciated Replacement Cost Approach?
a. 32,667
b. 32,500
c. 50,000
d. 37,500
11. Assume the indication of impairment is physical damage to the equipment. Entity A
estimates that it would cost P10,000 to restore the equipment’s service potential to the
level before the physical damage. How much is the impairment loss under the
Restoration Cost Approach?
a. 42,667
b. 42,500
c. 50,000
d. 47,500
12. Assume the indication of impairment is a significant decline in the expected output of the
equipment, which Entity A estimates to be 10%. How much is the impairment loss under
the Service Units Approach?
a. 62,667
b. 62,500
c. 50,000
d. 69,250
13. Which of the following statements is correct?

a. Heritage assets are initially measured at cost and subsequently measured at cost
less accumulated depreciation and accumulated impairment losses.
b. Infrastructure assets are accounted for similar to the other items of PPE.
However, they are generally assigned a 10% residual value.
c. Reforestation projects are not considered PPE.
d. Fully depreciated PPE are derecognized.
14. Which of the following is derecognized?
a. Idle PPE
b. Fully depreciated PPE
c. Unserviceable PPE
d. Partially damaged PPE
15. How do government entities account for borrowing costs?
a. Capitalized if the borrowing costs relate to the acquisition or construction of a qualifying
asset.
b. Expensed even if the borrowing costs relate to the acquisition or construction of a
qualifying asset.
c. Choice (a) for the national government; choice (b) for National government agencies.
d. Choice (a) for national government agencies; choice (b) for the national government.
CHAPTER 11
1. If it is not clear whether an expenditure is a research for a development costs, it is treated as
development cost.
False
2. The development cost of an internally generated intangible asset may be capitalized if certain
conditions are met.
False
3. A government entity does not amortize intangible assets.
False
4. Government entities amortize all of their intangible asset over a period of 2 to 10 years,
unless a more appropriate estimate of useful life is available.
False
5. For subsequent measurement, government entities classify intangible assets into those with
finite and indefinite useful life , similar to business entities .
True
6. Government entities normally assign their intangible assets a residual value of 5% of cost.
False
7. Subsequent expenditures on recognized intangible assets are generally expense unless it is

clear that expenditures meet the recognition criteria for intangible assets.
True
8. A government entity acquires an intangible asset with indefinite useful life of P100. Assuring
the entity uses the maximum amortization period for intangible assets under the GAM for NGAs,
the appropriate annual amortization expense on the intangible asset is P10.
False
9. The amortisation of an intangible asset is credited directly to the intangible asset account,
according to the GAM for NGAs.
False
10. An entity determines an indication of impairment for its intangible asset with carrying amount
of P100. Entity calculates a fair value less cost to sell of P90 and value in use of P105 .The
Impairment loss is P5.
False
1. In which of the following instances is an asset not considered to be identifiable?
The asset can only be transferred if the entity is liquidated
2. Which of the following is most likely to be recognized as intangible asset by a government
entity?
Publishing title acquired as a donation
3. Subsequent expenditures on recognize intangible assets are
Generally, expense, unless they meet the definition of intangible asset and the asset recognition
criteria
4 According to the GAM for NGAs, government entities shall use this measurement model in
subsequently measuring intangible assets.
Cost model
5. Intangible assets held by government entities are measured as follows:
Initial- cost
Subsequent- cost less accumulated amortization and impairment losses
6. The default amortization method for intangible assets with finite useful life is
straight line method
7. Which of the following statements is incorrect regarding the accounting for impairment of
intangible assets under the GAM for NGAs?
Intangible assets are subject to amortization using the straight-line method over a period of 2 to
10 years but are not subject to impairment.
On December 1, 20x1, Entity A acquired a computer software for P1, 000,00 and incurred the
following costs:
 Non-refundable purchase taxes of P30,000, not included in the purchase price above.
 Professional fees incurred in the installation of software, P100,000.
 Modifications to the software before it was brought to the condition intended a
management for use, P60,000.
 Cost of testing the software, P10,000.
 Training cost of staff who will be using the software, P200,000.
 Cost of abating the software after it was available for use in the condition originally
intended by management, P5,000.
 Administrative and other general overhead costs incurred on the acquisition and
installation of the software, P15,000.
The software's useful life is five years.
8. The entry to initially recognize the software is
Computer software 1,200,000
Cash Modified Disbursement System (MDS), Regular 1,200,000
9. The entry to recognize the amortization expense for the current year is
Amortization-Intangible Assets 240,000
Accumulated Amortization-Computer Software 240,000
10. On December 31, 20x2, Entity A assessing an indication of impairment and makes the
following estimates:
fair value less costs to sell P700,000
value in use P800,000
the entry to recognize the event is
Impairment loss intangible assets 140,000
accumulated impairment losses- computer software 140,000
1. Which of the following is not one of the essential elements of an intangible asset?
Held for use in the production or supply of goods
2. An intangible asset is identifiable if it
a. Is a parable
b. Arises from binding arrangements
c. Is a non-monetary assets without physical substance.
d. a or b
3. Which of the following is an indicator of control?
a. The ability of an entity to benefit from an asset.
b. The ability of an entity to deny or regulate the access of others to the benefit of an asset.
c. An entity can, depending on the nature of the asset, exchange it, use it to provide goods
or services, exact a price for others' use of it, use it to settle liabilities, hold it, or perhaps
even distribute it to the owners.
d. All of these
4. Which of the following is most likely not an intangible asset?
Computer
5. A purchase intangible asset is initially measured at
cost
6. The development cost of an internally generated intangible asset can be capitalized if certain
conditions are met. Which of the following is not one of those conditions?
Existence of similar asset in the market for economic environment where the entity
operates.
7. Internally generated brand, mastheads, publishing titles, lists of users of a service, and items
similar in substance are not recognized as intangible assets
because this cannot be distinguished from the cost of developing the entity’s operation
as a whole.
8. Government entities normally assign their intangible assets a residual value of
Zero
9. Which of the following intangible assets is not amortized?
Intangible asset not yet available for use
10. An entity shall test for impairment and intangible asset with finite useful life
only when an indication of impairment exists.
1. An active market is a market in which all the following conditions exist, except
the price is most advantageous
2. A government entity acquires an intangible asset with finite useful life for ₱100.
Assuming the entity uses the maximum amortization period and the estimate of residual
value allowed under the GAM for NGAs, the appropriate annual amortization expense on
the intangible asset is
₱10
(100 ÷ 10 yrs.) = 10
3. According to the GAM for NGAs, to qualify as intangible asset, an item must possess all
of the following elements except
Held for distribution
4. According to the GAM for NGAs, an intangible asset is identifiable when it
a. a and b
b. arises from binding arrangements including contractual or other legal rights, regardless
of whether those rights are transferable or separable from the entity or from other rights
and obligations.
c. a or b
d. is separable, i.e., capable of being separated and divided from the entity and sold,
transferred, licensed, rented, or exchanged, either individually or together with a related
contract, identifiable asset or liability, regardless of whether the entity intends to do so.
5. It is the systematic allocation of the depreciable amount of an intangible asset over its
useful life.
Amortization
6. Goodwill is considered an unidentifiable asset because
a. it does not arise from contractual rights.
b. it has physical substance.
c. a and b
d. it cannot be sold separately and therefore not separable.
7. It refers to the application of research findings or other knowledge to a plan or design for
the production of new or substantially improved materials, devices, products, processes,
systems, or services before the start of commercial production or use.
Development
8. A government entity acquires an intangible asset with finite useful life for ₱100,000 on
October 20, 20x1. The intangible asset is estimated to have a useful life of 5 years. The
accumulated amortization on December 31, 20x1 is
(100,000 x 2 mos. /60 mos.) = 3,333
9. 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
How much is the impairment loss?
(100,000 x 7/10) – 60,000 = 10,000
10. Use the information in #9 above. At the end of Year 6, Entity A determines an indication
that the previous impairment may no longer exist and makes the following estimates:
Value in use 45,000
How much is the gain on the reversal impairment loss?
Recoverable amount (VIU – higher): 45,000
CA had no I.L. been recognized in previous period:
(100,000 x 4/10) = 40,000
CA after the I.L: (60,000 x 4/7) 34,286
Gain on reversal of I.L. = (40,000 – 34,286) = 5,714
CHAPTER 12
PROBLEM 12-1: TRUE OR FALSE
1. Legal obligations arise only from law.
FALSE
2. A financial liability cannot arise from constructive obligation.
TRUE
3. Financial liabilities, except financial liabilities classified to be subsequently measured at
fair value through surplus or deficit, are initially measured at fair value plus transaction
costs.
FALSE
Entity A issues 10-year, term bonds with face amount of P20 for P12 and incurs transaction cost
of P1 on the issuance.
4. The initial carrying amount of the bond is P13.
FALSE
5. The nominal rate of the band is higher than the effective interest rate.
FALSE
6. If in year 1, the interest payment is P1.50 while the interest expense is P2, the carrying
amount of the bonds at the end of the period must be P11.50.
TRUE
7. If one or more of the liability recognition criteria are not met, the item is a contingent
liability.
TRUE
8. A provision is a liability of uncertain timing or amount.
TRUE
9. Provisions are never discounted to their present value.
FALSE
10. The obligation under an onerous contract is recognized as a provision.
TRUE
PROBLEM 12-2: MULTIPLE CHOICE
1. Financial liabilities, other than those that are classified to be subsequently measured at
fair value through surplus or deficit, are measured as follows:
Initial- fair value minus transaction costs
Subsequent- amortized cost
2. Which of the following is not a financial liability?
Due to BIR
3. Transaction costs on issuing bonds are
Deducted from the initial carrying amount of the bonds
4. An entity issues term bonds at a discount. If the bonds are subsequently measured at
amortized cost, which of the following statements is not correct?
The carrying amount of the bonds decreases each period
5. The carrying amount of bonds payable in the prior year's financial statement is
P100,000. This year, the carrying amount of the same bond issuance is P102, 000.
Which of the following assumptions is least likely to be valid?
The interest expense during the period is P10,000 while the interest payment is P12,000
6. Entity A issues 5-year bonds at a discount. At the beginning of the 3rd year, Entity A
retires the bonds at a premium. Which of the following statement is correct?
Entity A recognizes loss on the retirement
On January 1, 20x1, the BTr issues of 5-year, 5%, P3, 000,000 bonds for P 2,640,656. Interest
payments are due every December 31 but the principal is due only at maturity date. The
effective interest rate is 8%.
7. The entry on December 31, 20x1 to recognize interest expense is
Interest Expense 211, 252
Discount On Bonds Payable-
Domestic 61, 252
Cash In Bank Local Currency,
Bangko Sentral Ng Pilipinas 150,000
8. The carrying amount of the bonds on December 31, 20x1 is
2,701,909
9. The unamortized bond discount on December 31, 20x2 is
231,939
10. A provision is measured at
the entity's best estimate of the settlement amount
1. Which of the following may result to the recognition of a liability in Entity A's December
31, 20x1 statement of financial position?
A lawsuit is filed against Entity A on January 3, 20x2. Apparently, Entity A's geodetic
engineer miscalculated area of the lot where Entity A has started constructing an office
building in December 20x1. This resulted to the encroachment of an adjacent lot owned
by private individual. Entity A has offered to settle the case out of court for P1M;
however the defendant wants payment of P1.2M. Both parties agreed to a settlement of
P1.050M on January 31, 20x1.
2. Entity A purchases office supplies and receives delivery thereof. Entity A recognizes a
liability from this transaction because of which of the following of the obligating events?
Legal obligation
3. Entity A obtain a 6%, 5-year, P10M face amount loan. Entity A pays transaction costs
(service charge) of 3%. How much is the carrying amount of the loan payable on initial
recognition?
9.7M
On January 1, 20x1, the BTr issues a 5-year, 6%, P2, 000,000 bonds for P1, 900,000.
Transaction cost on the issuance (bond issue costs) amount to P59,708. Interest payment or
due every December 31 but the principal is due only at maturity date. The effective interest rate
adjusted for both the bond discount and bond issue costs is 8%.
4. How much is the carrying amount of the bonds on initial recognition?
1,840,292
5. How much is the interest expense for 20x1?
147,223
6. How much is the carrying amount of the bonds on December 31, 20x1?
1,867,515
7. Which of the following distinguishes a provision from other types of liabilities?
A provision is a necessarily needs to be estimated because it is a liability of uncertain
timing or amount
8. A present obligation whose cost can be measured reliably but with improbable outflow of
resources embodying economic benefits or service potential is most likely to be
disclosed only
9. Which of the following is correct regarding contingent assets?
Contingent assets are only disclosed if probable
10. Which of the following statements is correct regarding reimbursement of provisions?
The expense related to the provision may be presented in the statement of financial
performance net of the reimbursement
CHAPTER 13
1. If a lease transfers ownership of the property to the lessee by the end of the lease term,
it will be classified as a finance lease by the lessor. TRUE
2. Minimum lease payments include any amount to be paid for bargain purchase options
and guaranteed residual values. TRUE
3. Any lease that contains a purchase option must be treated as a finance lease by the
lessor. FALSE
4. The lessee depreciates the leased asset under a finance lease. TRUE
5. The inception of the lease is defined as the date of the lease agreement or the date of
an earlier written commitment. TRUE
6. The commencement of the lease term is defined as the date on Which the leased
property is actually transferred to the lessee. TRUE
7. A lessor under a finance lease recognizes a net investment in the lease measured at the
present value of the lease payments and unguaranteed residual value, if any. TRUE
8. Interest rate implicit in the lease is the discount rate that, at the inception of the lease,
causes the aggregate present value of the minimum lease payments and the
unguaranteed residual value to be equal to the sum of the fair value of the leased asset
and any initial direct costs of the lessor. . TRUE
Use the following information for the next two questions: Entity A (lessor) enters into a
10-year finance lease with Entity B. Lease payments of P100 are due at the start of
each year. The interest rate implicit in the lease is 10%.
9. At the commencement date, Entity A will recognize a ret investment in the lease
computed as P100 x PV of ordinary annuity @10%, n-10. FALSE
10. Entity A will recognize interest income in Year 1 computed as follows: (present value of
lease payments first payment) x 10%. TRUE
1. A government entity, which is a lessee under a finance lease, recognizes an asset
acquired under a finance lease, and the related lease liability, measured at
a. The fair value of the leased property at inception date
b. The present value of the minimum lease payments at inception date
c. The lower of a and b
d. The higher of a and b
2. Entity A acquires an asset under a finance lease. The lease does not transfer
ownership or contain any purchase option.
Which of the following statements is correct?
a. The lease cannot qualify for accounting as finance lease.
b. Entity A will depreciate the leased asset over the shorter of the asset’s useful
life and the lease term.
c. Entity A will depreciate the leased asset over its useful life.
d. Entity A will not depreciate the asset.
3. In accounting for finance leases, lease payments are discounted using
a. The interest rate implicit in the lease.
b. Lessee’s incremental borrowing rate.
c. A or b
d. A, if this is determinable; if not, then b.
4. On December 30, 20x5, Entity A leased a new machine from Gregg Corp. The following
data relate to the lease transaction at the inception of the lease:
Lease term 10 years
Annual rental payable at the end of each lease year P100,000
Useful life of machine Fair value of the machine 12 years
Implicit interest rate 10%
Fair Value of the machine P700,000
The lease has no renewal option, and the possession of the machine reverts to Gregg when
the lease terminates. At the inception of the lease, Entity A should record a lease liability of
a. 0
b. 615,000
c. 630,000
d. 676,000
5. On January 2, 20x6, Entity A entered into a ten-year non cancellable lease requiring
year-end payments of P100,000. Entity A’s incremental borrowing rate is 12% while the
lessor’s implicit interest rate, known to Entity A, is 10%. Ownership of the property
remains with the lessor at expiration of the lease. There is no bargain purchase option.
The leased property has an estimated economic life of 12 years. What amount should
Entity A capitalize for this leased property on January 2, 20x6?
a. 1,000,000
b. 614,500
c. 565,000
d. 0
6. Entity A entered into a nine-year finance lease on a warehouse on December 31, 20x1.
Lease payments of P52,000, which include real estate taxes of P2,000, are due
annually, beginning on December 31, 20x1, and every December 31 thereafter. Entity A
does not know the interest rate in the lease; Entity A’s incremental borrowing rate is
9%. What amount should Entity A report as finance lease liability at December 31,
20x1?
a. 280,000
b. 291,200
c. 450,000
d. 468,000
7. On January 2, 20x9, Entity A (lessee) entered into a 5-year lease for drilling equipment.
Entity A accounted for the acquisition as a finance lease for P240,000, which includes a
P10,000 bargain purchase option. At the end of the lease, Entity A expects to exercise
the bargain purchase option. Entity A estimates that the equipment’s fair value will be
P20,000 at the end of its 8-year life. Entity A regularly uses straight-line depreciation on
similar equipment. For the year ended December 31, 20x9, what amount should Entity
A recognize as depreciation expense on the leased asset?
a. 48,000
b. 46,000 (AICPA)
c. 30,000
d. 27,500
8. Entity A leases computer equipment to customers under direct-financing leases. The
equipment has no residual value at the end of the lease and the leases do not contain
bargain purchase options. Entity A wishes to earn 8% interest on a five-year lease of
equipment with a fair value of P323,400. The first rental payment is due at the lease
commencement. What is the total amount of interest revenue that Entity A will earn over
the life of the lease?
a. 51,600
b. 75,000
c. 129,360
d. 139,450
9. On June 1, 20x0, Entity A entered into a five-year nonrenewable lease, commencing on
that date, for office space and made the following payments to Cant Properties:
Bonus to obtain lease 30,000
First month’s rent 10,000
Last month’s rent 10,000
In its statement of financial performance for the year ended June 30, 20x0, what amount
should Entity A report as rent expense?
a. 10,000
b. 10,500
c. 40,000
d. 50,000
10. On July 1, 20x6, Entity A leased a delivery truck from Entity B under a 3-year operating
lease. Total rent for the term of the lease will be P36,000, payable as follows:
12 months at P 500 = P 6,000
12 months at P 750 = 9,000
12 months at P1,750 =21,000
All payments were made when due. In Entity B’s June 30, 20x8, balance sheet, the accrued rent
receivable should be reported as
a. 0
b. 9,000
c. 12,000
d. 21,000
1. Entity A entered into two lease contracts. Lease #1 transfers substantially all the risks
and rewards incidental to ownership of the leased asset. Lease #2 does not transfer
substantially all the risks and rewards incidental to ownership of the leased asset. How
should Entity A classify the leases? (Lease #1); (Lease #2)
a. Finance, Operating
b. Operating, Finance
c. Finance, Finance
d. Operating, Operating
2. Any asset or liability arising from a lease is initially recognized at the
a. Inception of the lease
b. Conception of the lease
c. Commencement of the lease term
d. A or c
3. This lease gives rise to the recognition of an asset and a Liability at the commencement
date.
a. Finance lease by lessors
b. Finance lease by lessees
c. Operating lease by lessors
d. Operating lease by lessees
Fact pattern:
On January 1, 20x1, Lessor leases out a machinery to Lessee under a 3-year lease. Annual
rent of P50,000 is payable at the end of each year. The implicit interest rate, known to Lessee,
is 12%. The machinery has a remaining useful life of 4 years and a historical cost of P400,000
and an accumulated depreciation of P279,908 in the books of Lessor.
4. The entry in the books of Lessee to initially recognize the lease is
Leased Assets, Machinery & Equipment 120,092
Finance Lease Payable 120,092
5. The entry in the books of Lessor to initially recognize the lease is:
Finance Lease Receivable 150,000
Accumulated Depreciation 279,908
Deferred Finance Lease Revenue 29,908
Machinery 400,000
6. The entry in the books of Lessee to recognize the first rental payment is:
Interest Expense 14,411
Finance Lease Payable 35,589
Cash- Modified Disbursement system(MDS),Regular 50,000
7. The entry in the books of Lessor to recognize the first rental collection is:
Cash-Collecting Officers 50,000
Deferred Finance Lease Revenue 14,411
Interest Income 14,411
Finance Lease Receivable 50,000
8. The entry in the books of Lessee to recognize the depreciation. On the leased asset
after the end of the first year of the lease is:
Depreciation-Leased Assets, Machinery & Equipment 40,031
Accumulated Depreciation-Leased Assets, Machinery & Equipment 40,031
9. Assume the lease is an operating lease, the entry in the books of Lessee to recognize
the first rental payment is:
Rent/Lease Expense 50,000
Cash-Modified Disbursement System(MDS), Regular 50,000
A. Lessee recognizes a higher amount of total expenses over the lease term if
the lease is classified as a finance lease rather than an operating lease.
B. Lessee recognizes a lower amount of total expenses over the lease term if the
lease is classified as a finance lease rather than an operating lease.
C. Lessor recognizes a higher amount of net surplus over the lease term if the
lease is classified as a finance lease rather than An operating lease.
D. Regardless of whether the lease is classified as finance) lease or operating
lease, the net effect of the lease in Lessee’s or Lessor’s surplus or deficit over
the lease term is the same.
1. According to the GAM for NGAs, government entities shall present financial statements
at least annually. TRUE
2. The statement of financial position is dated as at the reporting date. TRUE
3. According to the GAM for NGAs, a Condensed Statement of Financial Position is one
that presents line items only rather than all the accounts used by the entity. TRUE
4. The GAM for NGAs requires government entities to present expenses in the statement
of financial performance according to the function of those expenses. FALSE
5. Government entities present information on other comprehensive income, just like
business entities. FALSE
6. The statement of financial performance of a government entity is the exact equivalent of
the statement of comprehensive income of a business entity. FALSE
7. Non-adjusting events are never recognized but are always disclosed. FALSE
8. Prior period errors are corrected by retrospective restatement. TRUE
9. In the first instance, changes in accounting policies are accounted for by retrospective
application. FALSE
10. Unlike business entities, government entities are required to prepare interim financial
statements on a quarterly basis. TRUE
1. Which of the following is not one of the components of a complete set of general
purpose financial statements of government entities?
a. Notes to the Financial Statements
b. Statement of Appropriations, Allotments, Obligations, Disbursements and
Balances
c. Statement of Comparison of Budget and Actual Amounts
d. Statement of Changes in Net Assets/Equity
2. Which of the following is most likely applicable to a government entity but not to a
business entity?
a. Presenting a classified statement of financial position showing distinctions
between current and noncurrent assets and liabilities.
b. Presenting additional disclosures in the notes when expenses are presented in
the statement of financial performance by function.
c. Presenting cash flows from operating activities in the statement of cash flows
using the direct method.
d. Presenting a statement of financial position in a detailed format.
3. Additional disclosures shall be made in the notes if an entity presents expenses by

a. Nature
b. Function
c. Current/noncurrent
d. All of these
4. The statement of financial performance of a government entity differs from the statement
of profit or loss of a business entity in which of the following respects?
a. The use of the term “surplus or deficit” rather than “profit or loss.”
b. The use of the term “surplus or deficit” rather than “comprehensive income.”
c. The use of the term “revenues” rather than “income.”
d. The presentation of expenses by nature rather than by function.
5. The closing of the “Cash-Treasury/Agency Deposit, Regular account to the
“Accumulated Surplus (Deficit)” account is presented in the statement of changes in
equity
a. As an adjustment to the opening balance of equity.
b. As part of operating activities.
c. Under the “Adjustment of net revenue recognized directly in net assets/equity”
line item.
d. Not presented.
6. The GAM for NGAs requires which of the following methods of presenting cash flows
from (used in) operating activities in the statement of cash flows?
a. Direct method
b. Indirect method
c. A. Or B
d. Neither a nor b
7. A government entity presents payments for purchases of inventories in the statement of
cash flows
a. Under investing activities.
b. Net of withholding taxes.
c. Gross of withholding taxes.
d. As footnote disclosure only.
8. Which of the following cash flows is presented in the Financing section of a statement of
cash flows?
a. Lease payments under an operating lease
b. Lease payments under a finance lease
c. Receipt of repayment of loan.
d. Amortization of a finance lease liability
9. The Notice of Cash Allocation (NCA) is least likely to be reported in which of the
following financial statements?
a. Statement of financial position
b. Statement of financial performance
c. Statement of cash flows
d. Notes to the financial statements
10. Which of the following is an adjusting event?
a. Settlement of a court case that evidences a present Obligation after the reporting
date.
b. Bankruptcy of a debtor caused solely by an event that Occurred after the
reporting date.
c. Sale of inventories that evidences the correct NRV of inventories at the reporting
date.
d. Destruction of a building due to fire that occurred after the Reporting date.

1. These refer to financial statements intended to meet the needs of users who are not in
a position to demand reports tailored to meet their particular information needs.
a. All-Purpose Financial Statements
b. General Purpose Financial Statements
c. Managerial Reports
d. Financial Reports
2. Which of the following is an objective of the general purpose financial statements of
government entities?
a. To information about the entity’s financial position, financial performance, and
cash flows that is to a wide range of users in making economic decisions.
b. To demonstrate the accountability of the entity for the resources entrusted to it.
c. To provide information needed in the day-to-day management of an entity.
d. A and b
3. According to the GAM for NGAs, the responsibility over financial statements rests with
the entity’s management, particularly the
a. Head of the Entity
b. COA Auditor
c. A and b
d. Head of Finance/Accounting
4. Which of the following is a peculiar general purpose financial statement of government
entities?
a. Statement of Financial Performance
b. Statement of Appropriations, Allotments, Obligations, Disbursements and
Balances
c. Statement of Comparison of Budget and Actual Amounts
d. Statement of Changes in Net Assets/Equity
5. Amounts in the statement of financial position show
a. cumulative balances for the reporting period.
b. cumulative balances from the formation of the entity up to the reporting date.
c. Amounts pertaining to the reporting period.
d. Cumulative balances from the start of the reporting period up to the reporting
date.
6. According to the GAM for NGAS, the statement of financial position is presented in
comparative form and in
a. A condensed format
b. b. A detailed format
c. A classified format
d. All of these
7. The effect of which of the following is recognized directly in equity rather than in surplus
or deficit
a. Correction of current period errors
b. Effect of changes in accounting estimates
c. Gains or losses on remeasuring available-for-sale financial assets
d. All of these.
8. Finance lease payments pertaining to the reduction of the outstanding finance lease
liability are classified in the statement of cash flows as
a. Operating activities.
b. Investing activities
c. Financing activities
d. Not presented
9. Entity A presents its cash flows from operating activities using the direct method. Entity
A holds foreign currencies. These are appropriately translated to the spot exchange
rates at the reporting date. How should Entity A present the translation differences in
the statement of cash flows?
a. As an adjustment to surplus or deficit in the operating activities.
b. As a reconciliation of the cash and cash equivalents at the beginning and end of
the period, presented separately from the operating, investing and financing
activities.
c. As a cash flow from either investing or financing activities but not operating
activities.
d. As a reconciliation of the cash and cash equivalents at the beginning and end of
the period, presented in the notes but not on the face of the statement of cash
flows.
10. Which of the following is not among the other reports required to be submitted by
government entities to the COA?
a. Pre-closing trial balance
b. Schedules showing the regional breakdowns of income and expenses
c. Post-closing trial balance
d. A completed 14-column worksheet in yellow color
CHAPTER 15
Use the following information for the next two questions: Entity A, a government entity,
enters into a service concession arrangement with a private entity. Under the
arrangement, the operator undertakes to provide the grantor a tangible service
concession asset. In return, Entity A will compensate the operator by making payments
of P10 per year in the next 20 years.
1. If the appropriate present value factor is 3.50, Entity A will recognize the service
concession asset, and the related financial liability, at P35. TRUE
2. In subsequent periods, Entity A will recognize depreciation expense on the asset and
interest expense on the liability. TRUE
3. Entity A is a joint venturer in a joint venture that is classified as jointly controlled assets.
Entity A owns 50% interest in the Joint venture. At the end of the period, Entity A has
total assets of P100 while the joint venture has total assets of 950.Entity A will report
total assets of P125 in its current year) financial statements. TRUE
Use the following information for the next five questions: Entity A, a government entity,
acquired inventory from a foreign company for $10, on account, when the spot
exchange rate was $1:950. At the reporting date, the exchange rate was $1:P52. Entity
A settled the purchase after the reporting date when the exchange rate was $1:P49.
4. If the inventory is consumed by the reporting date, the carrying amount of the inventory
charged as expense is P500. TRUE
5. If the inventory remains unsold at the reporting date, its carrying amount in the
statement of financial position is P520. FALSE
6. Entity A reports an accounts payable of P520 at the reporting date. TRUE
7. Entity A recognizes a foreign exchange loss of 20 at the reporting date. TRUE
8. Entity A recognizes a net foreign exchange gain of 930 from the transaction. FALSE
reports total assets of P100, total liabilities of P80, total revenues of P10 and total
expenses of P6 for the current year. Entity A wants to translate its financial statements
into dollars. The following are the exchange rates:
Dec. 31 (reporting date)...............$1:P10 Average rate for the
Year..............$1:P8
9. The translated total assets is P1,000. TRUE
10. The translated total equity is P200. TRUE
1. Under this type of concession arrangement, the private entity awarded with the contract
undertakes to complete the construction of a facility, assuming cost overruns, delays,
and specified performance risks. Upon completion, the facility is immediately transferred
to the government. However, the private entity operates the facility on behalf of the
government under an agreement.
a. Build-operate-and-transfer (BOT)
b. Build-transfer-and-operate (BTO)
c. Develop-operate-and-transfer (DOT)
d. Develop-operate-and-never transfer (DON’T)
2. Service concession arrangements in the Philippines have a fixed term of
a. Not more than 50 years
b. At least 50 years
c. 25 to 50 years
d. No fixed term
3. Entity A, a government entity, enters into a service concession arrangement with a
private entity. Under the arrangement, the private entity (operator) undertakes to finance
the construction of a public infrastructure and shall operate it for a period of 50 years. At
the end of the contract term, ownership over the public infrastructure shall be transferred
to Entity A. In exchange for the agreement, Entity A shall make specified periodic
payments to the operator over a period of 10 years. Entity A reserves its right to collect
fees from users of the public infrastructure but shall pay management fees to the
operator. How should Entity A account for the service. concession arrangement?
a. Entity A should recognize an unearned revenue to be subsequently amortized to
income when earned, in accordance with the substance of the agreement.
b. Entity A should recognize an intangible asset to be amortized over the 50-year
contract term.
c. Entity A should recognize a financial liability for the agreed periodic payments to
be subsequently measured at amortized cost. Entity A shall recognize the
management fees as expenses when they are incurred.
d. A and b
4. The grantor in a service concession arrangement recognizes a service concession asset
if all of the following are met except
a. The grantor controls or regulates what services the operator must provide with
the asset and to whom it must provide them.
b. The grantor has complete control of the price even though management
functions are delegated to the operator.
c. The grantor regulates the price which the operator charges the users of the
service.
d. The grantor controls, through ownership, beneficial entitlement or otherwise, any
significant residual interest in the asset at the end of the term of the arrangement.
5. A service concession asset is an asset used provide public services in a service
concession arrangement that
a. Is owned by the operator but it undertakes to provide to the grantor.
b. The operator undertakes to construct and provide to the grantor.
c. is an existing asset of the grantor that it temporarily transfers to the operator for
an upgrade.
d. Any of these.
6. Entity A acquires 50% interest in a joint venture for PIM and appropriately records the
transaction under an investment account. At the end of the period, the joint venture
reports profit of P1M and makes a total distribution of P600,000 to the owners. How
much is the net effect of the transaction in Entity A’s surplus or deficit for the current
year?
a. P.5M
b. P.3M
c. P.2M
d. None of these
7. A foreign currency transaction is initially measured by translating the foreign currency
amount into the functional currency using the
a. Spot rate at the date of transaction
b. Closing rate at the reporting date
c. Average rate for the year
d. Any of these
acquires a machine for $1,000 on November 1, 20x1, on account, and settles the
account on January 3, 20x2. The machine is estimated to have a useful life of 5 years
and a residual value of 5% of cost. Entity A uses the straight line method of
depreciation. The exchange rates are as follows:
November 1, 20x1 $1:P50
December 31, 20x1 $1:P40
January 3, 20x2 $1:945
8. How much depreciation expense is recognized on the machine in 20x1?

a. 1,583
b. 1,425
c. 9,500
d. 0
9. How much is the foreign exchange gain (loss) to be recognized in the 20x2 surplus or
deficit?
a. P10,000
b. (P10,000)
c. (P5,000)
d. P5,000
10. When translating financial statements into a presentation currency,
a. Assets and liabilities are translated using the closing rate at the reporting date.
b. Revenues and expenses are translated at the exchange rates at the dates of the
transactions.
c. All resulting exchange differences are recognized in equity.
d. All of these
1. Under a service concession arrangement, service concession asset to provide
a. Public service
b. Private service
c. Concession service
d. A or B
2. The operator in a service concession arrangement is a
a. Government entity
b. Private entity
c. Controlled entity
d. A or b
3. The operator in a service concession arrangement undertakes to provide the grantor a
service concession asset. If the grantor regulates what services the operator must
provide with the service concession asset, to whom it must provide them, and at what
price, and the grantor controls significant residual interest in the asset, the service
concession asset is initially measured at
a. Cost
b. Fair value
c. Either a or b
d. Cost less accumulated depreciation
4. The grantor subsequently accounts for a service concession asset as
a. PPE
b. Intangible asset
c. A or b
d. None of these
5. Which of the following is a joint venture that is classified as “jointly controlled
operations’?
a. Two parties agree to coproduce a product using their existing facilities. Each
party bears its own costs but share in the revenue from sales of the coproduced
product.
b. Two parties agree to contribute resources to acquire a warehouse. Each of the
parties shall have equal rights over the use of the warehouse but shall share in
the maintenance costs.
c. Two parties agree to contribute capital in incorporating a new entity. The new
entity will issue shares of stocks to the parties representing their respective
interests in the new entity.
d. Two parties agree to contribute money to acquire a piece of land and subdivide it
after the acquisition.
6. Entity A acquires 50% interest in a joint venture for PIM and appropriately records the
transaction under an investment. Account. At the end of the period, the joint venture
reports profit of PIM and distributes P600,000 to the owners. How much is the carrying
amount of the investment account in Entity A’s current year financial statements?
a. P1.3M
b. P1.2M
c. PIM
d. None of these
7. The exchange differences arising from the translation of monetary items are recognized
in
a. Surplus or deficit
b. Equity
c. A or b
d. Not recognized
8. Entity A, a government entity, acquires a machine for $10,000 on September 1, 20x1,

on account, and settles the account on October 31, 20x1. Entity A classifies the
machine as PPE. The exchange rates are as follows:
September 1, 20x1 $1:P50
October 31, 20x1 $1:P45
December 31, 20x1 $1:P40
In Entity A’s December 31, 20x1 statement of financial position, how much is the
reported cost of the machine?
a. P500,000
b. P450,000
c. P400,000
d. $10,000
9. Entity A, a government entity, submits financial statements to the COA using the
Philippine peso. However, Entity A also wants to prepare financial statements in North
Korean won. Which of the following statements is correct?
a. Entity A may translate its financial statements to any currency as there are no
restrictions regarding presentation currency.
b. Entity A may translate its financial statements in North Korean won only if this is
Entity A’s functional currency.
c. Entity A shall only present financial statements using a single currency, which is
the entity’s functional currency.
d. A and c
10. When translating financial statements into a presentation currency other than the
entity’s functional currency, assets and liabilities are translated using the
a. Closing rate at the reporting date.

b. Exchange rates at the dates of the transactions,
c. Average rate during the period.
d. Spot exchange rates.
CHAPTER 16
a. The PFRSs are not applicable to non-profit organizations.
b. The financial statements of non-profit entities need not be audited.
c. The preparation of a complete set of financial statements is optional for non-profit
organizations.
d. Although the PFRSS are designed to be applied by business entities, they can
also be applied by non-profit organizations.
2. It is an organization that carries out socially desirable needs of the community or its
members without the intention of making profit.
a. NPO
b. NFP
c. NPO
d. All of these
3. According to PAS 1 Presentation of Financial Statements, a non-profit entity that
applies the PFRSS
a. Must adopt all of the terminologies and principles under the PFRSs without any
exception.
b. need not present an additional statement of financial position in cases where the
entity applies an accounting policy retrospectively, restate its financial statements
retrospectively, or make reclassification adjustments during the period.
c. May need to amend the descriptions used for particular line items in the financial
statements and for the financial statements themselves.
d. May suffer negative consequences.
4. According to the Preface to International Financial Reporting standards, non-profit
entities
a. Are prohibited from using the IFRSs
b. Are discouraged from using the IFRSs
c. May find the IFRSs appropriate
d. None of these
5. Which of the following principles used by business entities is not applicable to non-profit
organizations?
a. Accrual basis of accounting
b. Going concern
c. Use of fair value measurement
d. Disclosure of earnings per share
6. For a non-profit entity, the operating activities section of the statement of cash flows can
be prepared using
a. direct method
b. indirect method
c. a or b
d. not prepared
7. Which of the following financial statements are prepared by non-profit organizations?
I. Statement of financial position
II. Statement of activities
III. Statement of cash flows
IV. Notes
a. I, and II
b. I, III and IV
c. I, II, and IV
d. All of these
8. In current practice, the financial reporting for non-profit organizations (choose the
incorrect statement)
a. is essentially similar to that of business entities
b. focuses on fund accounting
c. focuses on the reporting entity concept
d. adopts PFRS principles
9. The statement of cash flows of a non-profit entity classifies cash flows into
a. program services and support activities
b. unrestricted, temporarily restricted, and permanently restricted
c. direct and indirect
d. operating, investing, and financing activities
10. Which of the following is not applicable to non-profit entities?
a. The statement of cash flows classifies movements in cash and cash equivalents
during the period into operating activities, investing activities and financing
activities.
b. Use of accrual basis of accounting
c. Presenting cash flows from operating activities in the statement of cash flows
using either direct or indirect method
d. Measuring investments in equity securities using the lower of cost and market
value.
11. Which of the following is not applicable to non-profit organizations?
a. Depreciating an equipment using the sum-of-the-years digits method.
b. Amortizing an intangible asset with finite useful life
c. Recognizing impairment loss when an asset’s carrying amount exceeds its
recoverable amount.
d. Reporting extraordinary items in the financial statements.
12. Which of the following is not applicable to non-profit organizations?
a. Accounting for combinations of entities using thep rinciples provided under PFRS
3 Business Combinations.
b. Measuring investments in marketable securities at fair value and recognizing
changes in fair values as unrealized gains and losses in the statement of
activities.
c. Use of present value techniques for financial assets and financial liabilities.
d. Treating organization costs as assets to be amortized over a period not
exceeding 5 years.
13. Which of the following may appropriately be applied by a non-profit organization when
accounting for a lease contract that does not qualify as a donation?
a. SFAS No. 116
b. SFAS No. 117
c. PFRS 16
d. All of these
14. According to SFAS No. 116, restricted contributions received by an NPO are
recognized
a. When the performance of the condition is reasonably certain
b. Only in the notes
c. as liabilities
d. As restricted revenues
15. According to SFAS No. 116, a restricted fund for the acquisition of a plant asset which
was disbursed during the period
a. increases temporarily restricted net assets
b. decreases unrestricted net assets
c. Decreases temporarily restricted net assets
d. Does not affect unrestricted net assets
Instruction: Use U.S. GAAP principles in answering the succeeding questions.
1. What is the current-period effect of a fund received in the previous period that was
restricted for the payment of salaries of personnel which was totally disbursed in the
current
a. Net increase in temporarily restricted net assets
b. Net decrease in unrestricted net assets
c. Net decrease in permanently restricted net assets
d. Zero net effect on unrestricted net assets
2. Unconditional promises to give contributions are recognized by the donee NPO
a. When the promise is received from the donor.
b. When the condition becomes
c. When the performance of the condition is reasonably certain.
d. B or C
3. Conditional promises to give are recognized by the done NPO
a. When the promise is received from the donor.
b. When the condition becomes unconditional.
c. When the performance of the condition is reasonably certain
d. B or C
4. Contributions are measured at
a. cost to the donor
b. fair value
c. lower of cost or fair value
d. fair value less costs to sell
5. Cash and other non-cash assets received as contributions are recognized by a non-
profit organization as
a. Asset
b. Revenue
c. A and b
d. Not recognized
6. Donation of services that enhance a non-financial asset or require specialized skills are
recognized by a non-profit organization as
a. Asset
b. Revenue
c. Expense
d. b and c
7. Services received as donations that do not enhance a non financial asset or were not
provided by a professional are recognized by a non-profit organization as
a. Asset
b. Revenue
c. Expense
d. Not recognized
8. Contributions received by a non-profit organization in the form of works of art and
similar items
a. are always capitalized
b. need not be capitalized if they do not meet the recognition criteria for an asset.
c. are expensed immediately if they do not meet the recognition criteria for an
asset.
d. B or c
9. Contributions received by an NPO acting as an agent are recognized as
a. Asset
b. Revenue
c. A and b
d. liability
10. These refer to costs incurred by a non-profit organization on activities that directly result
to the fulfillment of the organization’s purpose
a. Program services
b. Supporting activities
c. Losses
d. Cost of goods sold
11. Restricted assets acquired during the period that are used for long-term purposes
because of donor restrictions are classified in an NPO’s statement of cash flows as
a. Operating
b. Investing activities
c. Financing activities.
d. Supporting activities
12. Which of the following is a deducted when computing for a health care organization’s
net patient revenue?
a. Contractual adjustments
b. Tuition refunds on cancelled enrolments
c. Uncollectible accounts
d. Direct costs on capitation agreements
13. Dividends received by a health care organization is classified in the statement of
operations as
a. Net patient revenue
b. Premium revenue
c. Other revenues
d. Any of these
14. Which of the following is deducted when computing for a private, non-profit, college or
university’s net revenues on tuition and fees?
a. contractual adjustments.
b. charity care
c. tuition refunds on cancelled enrolments:
d. uncollectible accounts
15. Scholarships and fellowships granted by a private, non-profit college or university are
deducted when computing for net revenues on tuition and fees when
a. The scholarship and fellowships were granted as compensation for services
rendered by the grantee.
b. The scholarships and fellowships were granted to faculty members or their
dependents.
c. The scholarships and fellowships were granted because of academic excellence
rather than as compensation for services rendered.
d. Scholarship grants are not deducted but rather recognized as expenses.

Accounting for contributions
Use the following information for the next seven questions: Budoy Organization, a non-profit
organization, received the following donations during the period:
 January 1, 20x1: Land with fair value of P4,000,000 to be used at the discretion of
Budoy Organization.
 February 15, 20x1: Cash of P8,000,000, restricted for the acquisition of a truck. The
truck will be used in Budoy Organization’s outreach programs.
 March 1, 20x1: Investment in equity securities with fair value. Of P2,000,000 to be held
indefinitely. Only the investment income shall be used by Budoy Organization in its
current operations.
 May 1, 20x1: JPIA members from various universities contributed services in a tree-
planting activity initiated by Budoy Organization. Although the volunteers rendered their
services for free, Budoy Organization estimates that the fair value of these services
would amount to P20,000.
On June 30, 20x1, Budoy Organization acquired a truck for P8,000,000 and received dividends
of P240,000 from the equity securities.
1. How much is the unrestricted contributions revenue? 4,000,000
2. How much is the temporarily restricted contributions revenue? 8,000,000
3. How much is the permanently restricted contributions? 2,000,000
4. How much is the “net assets released from restrictions” in 20x1? 8,000,000
5. How much is the net effect of the transactions in the year-end unrestricted net assets?
Ignore depreciation. Increase (Decrease) 12,240,000
6. How much is the net effect of the transactions in the year-end temporarily restricted net
assets? Ignore depreciation. Increase (Decrease) 0
7. How much is the net effect of the transactions in the year-end restricted net assets?
Increase (decrease) 2,000,000
Classification of contributions
Doggy Organization, a not-for-profit entity, disclosed the following in its 20x1 notes to the
financial statements:
 Received shares valued at P8,000,000 to be retained with the

 Dividends used to support current operations.
 Net resources of P4,000,000 invested in plant assets.
 Received equipment valued at P20,000,000 which is to be sold with the proceeds used
to renovate the children’s playground.
 Board-designated funds of P2,400,000.
 Received P80,000 cash from a donor who did not specify any use restrictions on the
contribution; however, the donor specified that the donation should not be used until
20x2.
 Received P3,200,000 from a donor who stipulated that the contribution shall be invested
indefinitely and that the earnings shall be used for scholarships. Investment income in
20x1 amounted to P200,000.
8. How much is included in the unrestricted net assets? 6,400,000
9. How much is included in the temporarily restricted net assets? 20,280,000
10. How much is in the permanently restricted net assets? 11,200,000
Non-cash assets
Bogart Organization, a not-for-profit entity, received the following donations during 20x1:
 Land with fair value P40,000,000 to be sold to acquire a bus.

 Shares of stocks with fair value of P12,000,000 to be retained indefinitely. The dividends
from the shares will be used to support current operations.
11. As a result of the donations above, how much should Bogart report as increase in
temporarily restricted net assets? 40,000,000
Services
12. A short-circuit destroyed the offset printing machine of Scooby Organization, a not-for-
profit entity. Mr. Doug, a professional offset mechanic, repaired the machine for free.
The fair value of the services is estimated at P40,000. The entry to record the
transaction includes debit to expense and credit to contributions revenue for 40,000
Contributions revenue
13. Aw-aw Organization, a non-profit entity, received the following during 20x1:
 P80,000 restricted by the donor to be used as allowances of members of Aw-aw’s choir.
 P480,000 proceeds from sales of calendars, mugs, T-shirts, and other souvenir items.
The fair value of the items sold is P300,000 while the cost is P200,000.
 P4,000,000 to be used only upon the completion of a new jam room that was only 40%
complete as of December 31, 20x1, If the facility is not completed by May 21, 20x2, the
cash shall be returned to the donor.
How much contribution revenue shall Aw-aw recognize from the cash receipts listed
above? 260,000
Net assets released from restrictions.
Use the following information for the next two questions: Arf-arf Organization, a non-profit entity,
received the following contributions during 20x1:
 P400,000 cash restricted for the purchase of equipment.

 P1,000,000 cash restricted for the renovation of an old building owned by Arf-arf
Organization.
Arf-arf made the renovation in 20x2 and acquired the equipment in 20x3.
14. How much revenue is recognized on the contributions in 20x1? 1,400,000
15. How much “net assets released from restrictions” is reported in Arf-arf’s 20x2 statement
of activities? 1,000,000
Net effect on net assets
K9 Organization, a non-profit entity, had the following transactions during 20x1:
 Received contribution of P800,000 to be used for student scholarships. Of this amount,

P480,000 was expended during the year.
 Expended P200,000 for student scholarships from a $240,000 grant received in previous
year.
16. What is the net effect of the transactions above in ‘s 20x1 unrestricted net assets?
Increase (decrease) 0
17. What is the net effect of the transactions above in K9’s 20x1 temporarily restricted net
assets? Increase (decrease) 120,000
Receipt of resources as an Agent
18. Green Leaves Organization, a not-for-profit entity, received relief goods to be distributed
to typhoon victims in a specified area. Green Leaves has no discretion in determining
the parties to be benefited; it must deliver the resources to the specified beneficiaries
(i.e., typhoon victims). The relief goods have a fair value of P400,000 and a cost of
P250,000.
How much contributions revenue shall be recognized on the goods received? 0
Intermediary between donor and donee
19. Astig Organization, a non-profit entity, is formed to oversee the welfare of battered
husbands. Astig encourages these pitiful husbands to seek legal advice. To provide
these services, Astig develops and maintains a list of lawyers and law firms that are
interested in providing free legal services to victims. Astig then encourages individuals in
need of these services to contact Astig for referral to lawyers that may be willing to serve
them. The lawyer decides on whether and how to serve a specific individual.
During the year, Astig Organization referred Mr. Darrell, Mr. Raymund, Mr. Rex, and Mr.
Rhad Vic, all suffering from serious physical injuries inflicted by their respective wives, to
Macmod & Areno Law Firm, which provided these husbands free legal services. The
husbands would have paid a total of P10M if they asked legal advice from other lawyers.
How much is the contributions revenue to be recognized by Astig Organization for the legal
services provided to the victims? 0
Restricted contributions
20. Schneider Hospital, a non-profit entity, had the following receipts during the year:
Sales from canteen 1,000,000
Investment income 200,000
Contributions for the renovation of the Hospital 300,000
How much shall be reported as other revenues on the statement of operations? 1,200,000
Unconditional and Conditional promises to give
Use the following information for the next five questions: On December 31, 20x1, Kulasa
Organization, a not-for-profit entity, had the following transactions:
 Ms. Alpha made an unconditional pledge to give Kulasa Organization P48,000 each year
over the next five years starting on December 31, 20x2. The appropriate discount rate is
10%.
 Ms. Beta promised to provide half of the funds needed to construct a new building if
Kulasa can get the remaining half of the needed funds from other donors by March 1,
20x2. As of December 31, 20x1, Kulasa has already accumulated 48% of the needed
construction funds. Kulasa’s Board of Trustees strongly believes that the remaining 2%
will be received by the end of January 20x2. The estimated total costs of construction is
P4,000,000.
 Mr. Charlie promised to give Kulasa Organization a used offset printing equipment if
Kulasa acquires a paper cutting machine. The offset printing equipment has a fair value
of P4,800,000. Because of recent cash flow problems, Kulasa’s Board of Trustees
believes that it will not be able to acquire a paper cutting equipment in the near term.
 Mr. Delta gave Kulasa Organization cash of P2,000,000 as a challenge grant. Kulasa
Organization can keep the P2,000,000 if it can raise an additional P2,000,000 by the end
of March 20x2. If Kulasa Organization fails to comply with the condition, it shall return
the amount received to Mr. Delta.
1. How should the transaction with Ms. Alpha be accounted for by Kulasa?
a. As an unrestricted support for P181,958
b. As a temporarily restricted support for P181,958
c. As asset and liability measured at 181,958
d. Not accounted for but disclosed only in the notes
2. How should the transaction with Ms. Beta be accounted for by Kulasa?
a. As an unrestricted support for P2,000,000
b. As a temporarily restricted support for P2,000,000
c. as asset and liability measured at P2,000,000
3. How should the transaction with Mr. Charlie be accounted for by Kulasa?
a. as an unrestricted support for P4,800,000
b. as a temporarily restricted support for P4,800,000
c. As asset and liability measured at P4,800,000
4. How should the transaction with Mr. Delta be accounted for By Kulasa?
a. As an unrestricted support for P2,000,000
b. As a temporarily restricted support for P2,000,000
c. As an asset and a liability, each measured at P2,000,000
5. What is the total net effect of the transactions above in Kulasa’s net assets?
a. Increase in temporarily restricted net assets
b. Decrease in temporarily restricted net assets
c. Decrease in unrestricted net assets.
d. No effect on net assets
Endowments
During 20x1 Black Organization, a not-for-profit entity, received the following donations:

On October 1, 20x1, Mr. Meow established a P4,000,000 endowment fund in favor of
Blacky Organization by appointing Whitey Bank and Trust Co. As the trustee. The
income from the fund is to be paid to Blacky Organization for use in its current
operations. Income from the fund ist dependent on the investment performance of the
fund.
 On December 31, 20x1, Blacky Organization received P400,000 in cash from Ms.
Mingming Too under a charitable remainder annuity trust agreement designating Blacky
Organization as the trustee and charitable remainder beneficiary. The terms of the trust
agreement require Blacky Organization, as trustee, to invest the trust assets and pay
$20,000 each year, starting on December 31, 20x2, to Mr. Cute Puppy, the annuitant
(i.e., income beneficiary) for the remainder of Mr. Cute Puppy’s life. Upon death of Mr.
Cute Puppy, Blacky Organization may use its remainder interest for any purpose
consistent with its mission. The appropriate discount rate is 10% and the life expectancy
of Mr. Cute Puppy is 5 years.
6. What is the total net effect of the transactions above in Blacky’s net assets?
a. Increase in temporarily restricted net assets by P324,184
b. Increase in temporarily restricted net assets by P4,324,184
c. Increase in temporarily restricted net assets by P75,816
d. No effect
Functional classification of expenses
Use the following information for the next seven questions:
Ranger Organization, a non-profit entity, had the following expenditures during the year:
Child care services provided for indigent families 560,000
Work to help elderly citizens 600,000
Administrative salaries 200,000
Fund-raising costs 100,000
7. How much is classified as “program” expenses? 1,160,000
8. How much is classified as “support” expenses? 300,000
Net patient service revenue
9. Gary Hospital, a non-profit entity, rendered $2,400,000 in services to patients, P2,000,000 of
which is charged to PhilHealth. It is estimated that only P2,120,000 will be collected. Of the
P280,000 difference, P140,000 is the estimated contractual adjustments with PhilHealth,
P20,000 is allowance for discounts to hospital employees, P80,000 is charity care, and
P40,000 is the uncollectible accounts. How much is the net patient service revenue?
a. 2,120,000
b. 2,260,000
c. 2,160,000
d. 2,180,000
Capitation agreement
10. Sparky Hospital, a non-profit entity, signed an agreement with Melay, Inc. To provide
medical services to each of Melay’s 100 employees for P2,000 per month, per employee.
During the month of April 20x1, only 20 employees availed of the medical services. How
much is the premium revenue recognized in April 20x1?
a. 200,000
b. 40,000
c. 60,000
d. 0
Other revenues
11. Heart Hospital, a non-profit entity, had the following:
 Transactions during the period: Sales of P480,000 from gift shop and cafeteria.
 Received P80,000 dividends from donated shares. Use of the dividends is unrestricted.
 A computer consultant provided free services on the upgrading of Heart’s information
system. Heart would have paid P200,000 for these services if they had not been
donated.
 Purchased medicines from a pharmaceutical company for P40,000. However, the
pharmaceutical company did not charge Heart Hospital for the purchase because the
medicines were being donated to Heart Hospital.
How much is classified as other revenues in Heart Hospital’s statement of operations?
a. 520,000
b. 600,000
c. 800,000
d. 0
Net patient service revenue
12. Umpong Hospital, a non-profit entity, had the following receipts during the year:
Billings to patients 4,800,000
Sales from canteen 1,000,000
Undesignated gifts (Unrestricted contributions) 200,000
Contractual adjustments 1,200,000
Billings on capitation agreements 240,000
Interest income 80,000
Uncollectible accounts 400,000
Salaries of doctors 1,400,000
How much is the net patient service revenue? 3,600,000
Net revenues from tuition and fees
13. For the current semester, Piper University, a non-profit entity, assessed its students
P4,000,000 for tuition and fees. The following information was also determined:
Refunds for class cancellations and withdrawals of enrolment 80,000
Student scholarships granted to academic scholars 200,000
Student scholarships granted to student assistants 480,000
Student scholarships granted to faculty members
enrolled in the post-graduate program 120,000
Student scholarships granted to faculty members’ dependents 240,000
Estimated uncollectible accounts 320,000
How much is the net revenues from tuition and fees? 3,720,000
Accounting for marketable securities
14. Pipita Organization, a non-profit entity, acquired short-term investment in shares of stocks
for P800,000 using unrestricted net assets. During the year, Pipita received cash dividends
of P40,000. At year-end, the shares have a fair value of 9880,000. What is the effect of the
transactions described above on the year-end statement of activities of Pipita?120,000
Depreciation
15. On January 1, 20x1, Toby Organization, a non-profit entity,had the following transactions:
 Purchased a vehicle costing P600,000 using unrestricted cash
 Received a vehicle with fair value of P480,000 from donation
Both vehicles have estimated useful lives of 5 years and no residual value. Toby has an
accounting policy implying a time restriction on gifts of long-lived assets. In Toby’s 20x1
statement of activities, what amount of total depreciation expense should be included under
changes in unrestricted net assets? 216,000
Statement of cash flows
Brownie Organization, a non-profit entity, had the following cash flows during the year:
P200,000 unrestricted contributions.
P2,400,000 from fundraising activities to support current operations.
P400,000 from a donor who stipulated that the money be spent in accordance with the wishes
of Brownie’s governing board. P800,000 cash dividends restricted for the purchase of
equipment.
P800,000 expenditure to acquire equipment with the cash dividends above.
P1,200,000 from a donor who stipulated that the contribution shall be invested indefinitely.
Income from the contribution may be used in furtherance of Brownie’s mission.
16. How much is the net cash flows from operating activities? 3,000,000
17. How much is the net cash flows from investing activities? (800,000)
18. How much is the net cash flows from financing activities? 2,000,000

Recognition and measurement
1. An NPO receives unconditional donations of P300,000 cash and equipment with fair value
of P2,000,000 and carrying amount of P1,000,000. What is the journal entry to record the
receipt of the donations?
Cash 300k
Equipment 2M
Contri. revenue-unrestricted support 2.3M

2. On January 1, 20x1, an NPO receives the following donations:
 Cash of P3,000,000 to be used to acquire an equipment.
 Investment in equity securities with fair value of P1,000,000 to be held indefinitely. Only
the investment income shall be used by the entity in its operations. .
Cash 3M
Contri. Revenue- temporary restricted support 3M
Investment in equity securities 1M

Contri. Revenue- permanently restricted support 1M
On December 31, 20x1, the entity acquires an equipment for P3,000,000 and receives cash
dividends of P50,000 from the equity securities.
Equipment 3M
Cash 3M
Cash 50K
Dividend income 50K
Unconditional and Conditional promises
3. On January 1, 20x1, Entity A receives the following promises:
 Donor X promises to give an unconditional donation of P200,000 on January 15,
20x1.
 Donor Y promises to donate construction materials with fair value of P300,000 if
Entity A starts the construction of A children’s playground.
Entity A receives the donation of Donor X on January 15, 20x1 and the donation of donor Y on
February 1. 20x1, although the construction of the playground is not yet started.
Requirement: Provide the journal entries.
Fund accounting
4. Entity A receive the following donations:
 Cash of P2M to be used at the discretion of Entity A’s management
 Cash of P3M restricted for the acquisition of equipment.
 Trust fund of P5M which Entity A shall never use; only the income therefrom
Entity A acquires an equipment for P3M and receives cash dividends of P200,000 from the
investment at the end of the period
Requirements:
a. Record the transactions above under a Fund Accounting system
b. Compute for the ending balances of unrestricted, temporarily restricted, and
permanently restricted net
assets.
Other forms of contributions.

5. The receipt of which of the following will give rise to the recognition of a revenue by a non-
profit organization?
a. Services in-kind provided by non-professionals.
b. Donation of work of art to be held for public exhibition, must be preserved and never to
be sold.
c. Services in-kind that enhance a non-financial asset or require specialized skills.
d. Relief goods to be distributed to flood in a specified area.
6. Which of the following financial statements is generally not required of non-profit
organizations?
a. Statement of activities
b. Statement of changes in equity
c. Statement of cash flows
d. Notes
7. According to SFAS No. 117, the functional classifications of expenses of non-profit
organizations are
a. Program services and Supporting activities
b. Selling and Administrative costs
c. Nature and Function expenses
d. Cash and Non-cash expenses
8. According to SFAS No. 117, this functional classification of expenses of non-profit
organizations pertains to activities that result in goods and services being distributed to
beneficiaries, customers, or members that fulfill the purposes or mission for which the
organization exists.
a. Distribution costs
b. Program services
c. Supporting activities
d. Consumption activities
9. ABC Hospital, a non-profit entity , had the following receipts during the year:
Billings to the patients 1,200,000
Sales from canteen 250,000
Undesignated gifts (unrestricted contributions) 50,000
Contractual adjustments 300,000
Billings on capitation agreements 60,000
Uncollectible accounts 100,000
Employee discounts 50,000
Charity care, included in billings 20,000
How much is the net patient service revenue?
(1.2 -300k-50k-20k) = 830,000
10. A Health Care Organization uses revenues and gains over expenses and losses as its
performance indicator. Which of the following items would be included in the calculation of
this indicator?
I. Sales from the hospital’s canteen
II. Unrealized gains on marketable securities
III. Net assets released from restriction used for operating expenses
IV. Contributions received from a donor in the current year that cannot be spent until the
following year.
a. I and III
b. I and II
c. I, III and IV
d. I, III and IV
11. For the current semester, a non-profit university, assessed its students P2,000,000 for
tuition and fees. Additional information follows:
Refunds for class cancellations and withdrawals of enrolment 40,000
Student scholarships granted to academic scholars 100,000
Student scholarships granted to student assistants 240,000
Student scholarships granted to faculty members enrolled in the
post-graduate program 60,000
Student scholarships granted to faculty members’ dependents 120,000
Estimated uncollectible accounts 160,000
How much is the net revenues from tuition and fees?
Total assessment of tuition and fees 2,000,000
Student scholarships granted to academic scholars (100,000)
Refund for class cancellations and withdrawals of enrolment ( 40,000)
NET REVENUES FROM TUITION AND FEES 1,860,000
QUIZZES
CHAPTER 10
1. All of the following are directly attributable costs in the acquisition or construction of
an item of PPE except
Cost of staff training
2. All of the following are expensed outright and do not form part of the cost of an item
of PPE except
Insurance costs while a purchased equipment is in-transit.
3. Which of the following is included in the initial cost of an item of PPE?
Present value of the estimates of decommissioning and restoration costs
4. According to the GAM for NGAs, the costs incurred during the construction of an
asset are
capitalized in a construction in progress account.
5. Government entities recognize depreciation
on a weekly basis.
Entity A exchanged equipment with Entity B. Pertinent data are shown below:
Entity Entity
A B
Carrying amount 85,000130,000
Fair value 95,000115,000
Cash paid by Entity A to Entity B15,000

6. If the exchange has commercial substance, how much is the initial measurement of
the equipment received by Entity B?
(115,000 - 15,000) = 100,000
7. If the exchange has commercial substance, how much is the gain (loss) recognized
by Entity B in the exchange?
115,000 fair values of asset given up – 130,000 carrying amount = (15,000) loss
8. Entity A, a government entity, acquires an equipment on December 16, 20x1. Which
of the following is correct?
The equipment will not be depreciated in the current year.
At year-end, Entity A determines an indication that an equipment with a carrying amount
of ₱400,000 is impaired. This equipment was acquired 5 years earlier and was originally
estimated to have a useful life of 10 years and a 5% residual value. Entity A determines the
following information:

Fair value less costs to sell…………….₱320,000
Replacement cost……………………….₱700,000
Assume the indication of impairment is physical damage to the equipment. Entity A
estimates that it would cost ₱10,000 to restore the equipment’s service potential to the level
before the physical damage.
9. How much is the impairment loss under the Restoration Cost Approach?
Replacement cost 700,000
Accumulated depreciation - (700K x 95% x 5/10) (332,500)
Depreciated Replacement Cost – Value in use 367,500

Depreciated replacement cost 367,500
Less: Restoration cost (10,000)
Value in use 357,500

Recoverable service amount (VIU - higher) 357,500
Carrying amount (400,000)
Impairment loss (42,500)
10. Assume the indication of impairment is a significant decline in the expected output
of the equipment, which Entity A estimates to be 10%. How much is the impairment
loss under the Service Units Approach?
Depreciated replacement cost (see solution above) 367,500
Multiply by: 90%
Value in use 330,750

Recoverable service amount (VIU - higher) 330,750
Carrying amount (400,000)
Impairment loss (69,250)

CHAPTER 12
1. A financial liability may arise from which of the following obligating events?
Financial liabilities arise from contractual obligations and contractual obligations are
considered legal obligations.
Legal obligation
2. Legal obligation may arise from which of the following?
a. Contract
b. All of these
c. Quasi-delict
d. Quasi-contract
e. Law
3. A legal obligation to restructure exists if, at the reporting date,
the entity has entered into a binding agreement to sell or transfer an operation.
4. On January 1, 20x1, the BTr issues a 5-year, 6%, ₱2,000,000 bonds for ₱1,900,000.
Transaction costs on the issuance (bond issue costs) amount to ₱59,708. Interest
payments are due every December 31 but the principal is due only at maturity date. The
bonds are subsequently measured at amortized cost. How much is the total interest
expense over the term of the bonds?
B – Concept: Total interest expense over the term of the bonds equals total interest
payments plus the amount of discount on initial recognition (or minus the amount of
premium on initial recognition) plus transaction costs on the issuance.

Discount (2M - 1.9M) 100,000
Transaction costs 59,708
Interest payments (2M x 6% x 5
yrs.) 600,000
Total interest expense 759,708
5. Entity A issues 5-year bonds at a premium. At the beginning of the 3 rd year, Entity A
retires the bonds equal to face amount. Which of the following statements is correct?
Entity A recognizes a gain on the retirement.
6. If plotted on a graph, the periodic interest expenses recognized on bonds issued at a
discount will show a: (X axis – time; Y axis - ₱)
upward line sloping to the right
7. A provision may be recognized on all of the following except
future operating net deficit
8. It is a program that is planned and controlled by management, and materially changes
either the scope of an entity’s activities or the manner in which those activities are
carried out.
Restructuring
9. Transaction costs incurred in issuing financial liabilities are
deducted from the carrying amount of the financial liability
10. Interest expense on financial liabilities are recognized using the
effective interest method
CHAPTER 13
1. A lessor’s gross investment in a finance lease is computed as

minimum lease payments plus unguaranteed residual value
2. A lessee under a finance lease recognizes the leased asset and the corresponding
finance lease liability at the
a. Fair value of leased property
b. Present value of minimum lease payments
c. lower of a and b
d. higher of a and b
3. Which of the following will lead to finance lease classification?
a. Transfer of ownership
b. Bargain purchase option
c. Lease term is at least 75% of the leased asset’s useful life
d. Present value of minimum lease payments is at least 90% of the fair value of the
leased asset
e. any of these
4. 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 on the first day of
the lease. The interest rate implicit in this lease is approximately
PV = Cash flows x PV factor
7,596 = 2,000 x PV annuity due @ x%, n=5

First trial @ 12%:
(2,000 x PV annuity due @ 12%, n=5) = 7,596
(2,000 x 4.0373) = 7,596
8,075 is not equal to 7,596

We need a lower amount. Therefore, we will increase
the rate. Let us try 16%.

Second trial @ 16%:
(2,000 x PV annuity due @ 16%, n=5) = 7,596
(2,000 x 3.7982) = 7,596
7,596 is equal to 7,596. Therefore, the implicit interest rate is 16%.
5. A lessor’s unearned interest income in a finance lease is computed as
a. minimum lease payments plus unguaranteed residual value
b. present value of (a)
c. difference between (a) and (b)
d. sum of (a) and (b)
6. A lessor’s net investment in a finance lease is computed as
a. minimum lease payments plus unguaranteed residual value
b. present value of (a)
a. difference between (a) and (b)
b. sum of (a) and (b)
7. Initial direct costs incurred on leases are
generally capitalized except those incurred by lessors under sales type leases which are
expensed immediately.
8. Minimum lease payments (MLP) exclude which of the following?
Executory costs and contingent rents
9. The discount rate used in accounting for finance leases is the (assume all of the
following are determinable)
interest rate implicit in the lease
10. When the lease qualifies as a finance lease under the “major part of the economic life”
criterion, the leased asset is depreciated
a. over its useful life
b. over the lease term
c. over the shorter of a and b
d. not depreciated
CHAPTER 14
1. Which of the following does not lead to the classification of a liability as current?
It is cash or a cash equivalent, unless it is restricted from being exchanged or used to settle
a liability for at least 12 months after the reporting date.
2. A government entity recognizes the effect of this item in surplus or deficit rather than
directly in equity.
Receipt of Notice of Cash Allocation
3. The presentation requirements for statement of cash flows of government entities differ
from the requirements of a business entity in which of the following respects?
The presentation of cash flows from (used in) operating activities using the direct method
only; the choice of using the indirect method is not available.
4. These differences between the ‘actual amounts on comparable basis’, presented in the
statement of comparison of budget and actual amounts, and amounts presented in the
other components of financial statements occur when the approved budget is prepared
on a basis other than the accounting basis.
Basis Differences
5. When an entity presents expenses in the statement of financial performance by function,
it shall provide additional disclosures in the notes that include all of the following except
capital outlays
6. The GAM for NGAs requires all of the following information to be displayed prominently
and repeatedly on the face of the financial statements, except
Name of the related Registries used
7. A government entity presents payments for purchases of items of PPE in the statement
of cash flows
net of withholding taxes.
8. Changes in accounting policies are accounted for
a. using the transitional provision, if any.
b. by retrospective application.
c. by prospective application
d. any of these
9. Which of the following information is not reported in the statement of changes in net
assets/equity?
Effects of changes in accounting estimates.
10. According to the GAM for NGAs, government entities shall present expenses in the
statement of financial performance according to the
a. function of those expenses
b. nature of those expenses
c. a or b, as a matter of accounting policy choice
d. neither a nor b
CHAPTER 15
1. During the period, Entity A acquires an item of PPE in a foreign currency transaction. As
at the reporting date, the payment for the purchase is not yet settled; however, the item
of PPE was already delivered and accepted by Entity A. Which of the following would
need to be translated at the reporting date?
The related payable.
2. According to the PPSAS, a service concession asset is an asset used to provide public
services in a service concession arrangement that
a. the operator constructs, develops, or acquires from a third party
b. is an existing asset of the operator
c. is an existing asset of the grantor
d. any of these
3. A separate set of books of accounts would most likely be established in this type of joint
venture.
Jointly controlled entities
4. According to the GAM for NGAs, a service concession asset is initially measured at
a. cost
b. fair value
c. fair value less costs to sell
d. either a or b
5. According to the GAM for NGAs, exchange differences on nonmonetary items are
recognized in
a. surplus or deficit
b. equity
c. a or b
d. not recognized
6. Entity A, a government entity, acquires a machine for $10,000 on November 1, 20x1, on
account, and settles the account on January 3, 20x2. The machine is estimated to have
a useful life of 5 years and a residual value of 5% of cost. Entity A uses the straight line
method of depreciation. The exchange rates are as follows:
November 1, 20x1 $1:₱50

December 31, 20x1 $1:₱40
January 3, 20x2 $1:₱45
How much is the net foreign exchange gain (loss) recognized in surplus or deficit from
the transaction?
[$1,000 x (₱50 - ₱45)] = 5,000 gain
7. Which of the following is not one of the forms of joint ventures under the GAM for
NGAs?
Jointly controlled net assets
8. According to the GAM for NGAs, spot exchange rate is
the exchange rate for immediate delivery.
9. The grantor in a service concession arrangement is a
government entity
10. Which of the following is a joint venture that is classified as ‘jointly controlled assets’?
Two parties agree to contribute resources to acquire a warehouse. Each of the parties shall
have equal rights over the use of the warehouse but shall share in the maintenance costs.
CHAPTER 16
1. A non-profit organization receives donation of services in-kind from an accountant who

was consulted regarding the NPO’s financial reporting system. The NPO will most likely
recognize those services as
expenses and revenues
2. Financial accounting (financial reporting) applies to which of the following?
a. Businesses
b. Governments
c. Non-profit organizations
d. All of these
3. Use the following information for the next three questions:
An NPO disclosed the following in its 20x1 notes to financial statements:

Received shares valued at ₱2,000,000 to be retained with the dividends used to support
current operations.
Net resources of ₱1,000,000 invested in plant assets.
Received equipment valued at ₱5,000,000 which is to be sold with the proceeds used to
renovate the children’s playground.
Board-designated funds of ₱600,000.
Received ₱20,000 cash from a donor who did not specify any use restrictions on the
contribution; however, the donor specified that the donation should not be used until
20x2.
Received ₱800,000 from a donor who stipulated that the contribution shall be invested
indefinitely and that the earnings shall be used for research purposes. Investment
income in 20x1 amounted to ₱50,000.
How much is included in unrestricted net assets?

(b) Net resources invested in plant assets 1,000,000
(d) Board-designated funds 600,000
Unrestricted net assets 1,600,000
4. How much is included in temporarily restricted net assets?
(c) Equipment to be sold, proceeds used for renovation 5,000,000

(e) Cash donation with time restriction 20,000
(f) Investment income for research purposes
50,000
Temporarily restricted net assets 5,070,000
5. How much is included in permanently restricted net assets?
(a) Shares to be retained 2,000,000
(f) Contribution to be invested indefinitely 800,000
Permanently restricted net assets 2,800,000
6. Private not-for-profit organizations should report a statement of cash flows using the
a. Direct method.
b. Indirect method
c. Working capital method
d. a or b
7. On December 1, 20x1, ABC Organization, a non-profit entity, had the following
transactions:
Purchased a vehicle costing ₱150,000 using unrestricted cash

Received a vehicle with fair value of ₱120,000 from donation
ABC estimates that both of the vehicles have useful lives of 5 years and no residual
value. ABC has an accounting policy implying a time restriction on gifts of long-lived
assets.
In ABC’s 20x1 statement of activities, what amount of depreciation expense should be
included under changes in unrestricted net assets?
4,500 [(150,000 + 120,000) ÷ 5] x 1/12
8. According to US GAAP, the accounting requirement unique to Voluntary Health and
Welfare Organizations (VHWO) is the
provision of a statement of functional expenses that reports expenses by both functional
and natural classifications.
9. On the statement of operations of a health care organization, expenses are deducted
from (use SFAS 117 in answering this question)
Unrestricted revenues.
10. ABC Organization, a non-profit entity, acquired shares of stocks to be held as
investment for ₱200,000 using unrestricted net assets. During the year, ABC received
cash dividends of ₱10,000. At year-end, the shares have a fair value of ₱220,000.
What is the effect of the transactions described above on the year-end statement of
activities of ABC? increase (decrease)
Dividend income - increase in unrestricted net assets 10,000
Unrealized gain on change in fair value - increase in
unrestricted net assets (220K – 200K) 20,000
Total increase in unrestricted net assets
30,000
11. On the statement of activities of a private university, expenses are reported by (use
SFAS 117 in answering this question)
Function
12. The machine of ABC Organization, a not-for-profit entity, has malfunctioned. Mang
Tony, a professional mechanic, repaired the machine for free. The fair value of the
services is estimated at ₱10,000. Which of the following statements is correct?
This event has a zero net effect on ABC’s net assets.
13. ABC Organization, a not-for-profit entity, received the following donations during 20x1:
Land with fair value of ₱10,000,000 to be sold to acquire a bus.
Shares of stocks with fair value of ₱3,000,000 to be retained indefinitely. The dividends
from the shares will be used to support current operations.

As a result of the donations above, how much should ABC report as increase in temporarily
restricted net assets?
10,000,000. The shares of stocks are considered permanently restricted (amount never to
be spent).
14. Use the following information for the next two questions:
An NPO received the following contributions in 20x1: ₱100,000 cash for the purchase of
equipment.
₱250,000 cash restricted for the renovation of an old building owned by the NPO.
None of the contributions were used in 20x1. However, in 20x2, the entity acquired an
equipment for ₱110,000.
How much contributions revenue is recognized in 20x1?

₱350,000 as restricted support.
15. How much “net assets released from restrictions” is reported in the 20x2 statement
of activities?
100,000
Use the following information for the next four questions:
On December 31, 20x1, ABC Organization, a not-for-profit entity, received the following
donations:
Ms. Alpha made a pledge (promise) to give ₱12,000 to ABC Organization each year for the
next five years starting on December 31, 20x2. The appropriate discount rate is 10%. The
pledge is unconditional.
Ms. Beta made a pledge (promise) to provide half of the funds needed to construct a new
building for ABC Organization if ABC could get the remaining half of the needed funds from
other donors by March 1, 20x2. As of December 31, 20x1, ABC has already accumulated
47% of the needed construction funds from donations and ABC’s Board of Trustees strongly
believes that the remaining 3% will be received by the end of January 20x2. The estimated
total costs of construction is ₱1,000,000.
Mr. Charlie made a pledge (promise) to give ABC Organization a used offset printing
equipment if ABC acquires a paper cutting equipment. The offset printing equipment has a
fair value of ₱1,200,000. Because of recent cash flow problems, ABC’s Board of Trustees
believes that it will not be able to acquire a paper cutting equipment in the near term.
Mr. Delta gave ABC Organization ₱500,000 as a challenge grant. ABC Organization can
keep the ₱500,000 if it can raise an additional ₱500,000 by the end of March 20x2. If ABC
Organization fails to comply with the condition, it shall return the amount received to Mr.
Delta.
16. The entry to record the promise of Ms. Alpha is
Contributions receivable 45,490
Contributions revenue – 45,490
temporarily restricted support
17. The entry to record the promise of Ms. Beta is

Contributions receivable 500,000
Contributions revenue – 500,000
Temporarily restricted support
18. The entry to record the promise of Mr. Charlie is
a. Contributions receivable 1,200,000
Contributions revenue – 1,200,000
b. Equipment 1,200,000
Contributions revenue – 1,200,000
c. Equipment 1,200,000
Liability for refundable advance 1,200,000
d. None of these.
19. The entry to record the promise of Mr. Delta is
Cash 500,000
Refundable advance (liability) 500,000
20. According to SFAS 117, the financial statements of a not-for-profit entity should focus on
the
Basic information on the organization as a whole.
FINAL EXAM REVIEW QUESTIONS
1. On December 1, 20x1, ABC Organization, a non-profit entity, had the following transactions:
Purchased a vehicle costing ₱150,000 using unrestricted cash
Received a vehicle with fair value of ₱120,000 from donation
ABC estimates that both of the vehicles have useful lives of 5 years and no residual value. ABC
has an accounting policy implying a time restriction on gifts of long-lived assets.
In ABC’s 20x1 statement of activities, what amount of depreciation expense should be included
under changes in unrestricted net assets?
a) 54,000
b) 4,500
c) 13,312
d) 0
Solution:
Answer: 4,500 [(150,000 + 120,000) ÷ 5] x 1/12
2. Which of the following is not true?
a) Temporarily restricted net assets increased by $125,000.
b) Permanently restricted net assets increased by $325,000.
c) When the money is spent for salaries, unrestricted net assets increase and decrease
by the same amount.
d) When the money is spent for salaries, temporarily restricted net assets decrease.
3. Cash flows from a public university bookstore would appear on the statement of cash flows
as
a) Cash flows from operations.
b) Cash flows from investing activities.
c) Cash flows from financing activities.
d) Cash flows from noncapital financing
4. Electra, a not-for-profit performing arts organization, held some donor restricted endowment
funds which are invested in stocks that are listed on the NY Stock Exchange, so the fair values
are readily determinable. Most of the investments represent amounts between 2% and 5% of
the outstanding 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 investee company. How should these two types of investments be
reported on Electra’s Statement of Financial Position at year end?
Equity Securities Equity Securities
2% - 5% ownership significant influence
a) Fair value Fair value
b) Equity method Equity method
c) Fair value Equity method
d) Fair value Carrying value
5. Which of the following statements is incorrect?
a) For subsequent measurement, government entities classify intangible assets into
those with finite and indefinite useful lives, similar to business entities.
b) Subsequent expenditures on recognized intangible assets are generally expensed
unless it is clear that the expenditures meet the recognition criteria for intangible assets.
c) A government entity acquires an intangible asset with indefinite useful life for ₱100.
Assuming the entity uses the maximum amortization period for intangible assets under
the GAM for NGAs, the appropriate annual amortization expense on the intangible asset
is ₱0.
d) The amortization of an intangible asset is credited directly to the intangible asset
account, according to the GAM for NGAs.
6. Government entities recognize depreciation

a) on a weekly basis.
b) only at year-end.
c) any of these as a matter of accounting policy choice.
7. According to the GAM for NGAs, an intangible asset is identifiable when it

a) is separable, i.e., capable of being separated and divided from the entity and sold,
transferred, licensed, rented, or exchanged, either individually or together with a related
contract, identifiable asset or liability, regardless of whether the entity intends to do so.
b) arises from binding arrangements including contractual or other legal rights,
regardless of whether those rights are transferable or separable from the entity or from
other rights and obligations.
c) a or b
d) a and b
8. Goodwill is considered an unidentifiable asset because
a) it cannot be sold separately and therefore not separable.
b) it does not arise from contractual rights.
c) it has physical substance.
d) a and b
9. The Weyman Hospital, a private, not-for-profit institution, reported the following information:
Gross patient service revenue $1,000,000
Allowance for discounts to hospital employees 20,000
Bad debt expense 40,000
What amount should the hospital report as net patient service revenue?
a) 840,000
b) 900,000
c) 880,000
d) 980,000
10. 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 c) $80,000
b) $60,000 d) $260,000
11. Any asset or liability arising from a lease is initially recognized at the
a) Inception of the lease
b) Conception of the lease
c) Commencement of the lease term
d) A or C
12. Which of the following applies to business entities but not to government entities?
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.
13. Transaction costs on issuing bonds are
a) Expensed outright
b) Added to the initial carrying amount of the bonds
c) Deducted from the initial carrying amount of the bonds
d) Subsequently amortized as expense using the straight line method
14. Which of the following is not a financial liability?
a) Accounts payable
b) Notes payable
c) Electricity bill payable
d) Due to BIR
15.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
Solution:
[90,000 + (50,000 ÷ 5 years)] = 100,000
16. Which of the following applies to business entities but not to government entities?
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.
17. If plotted on a graph, the periodic interest expenses recognized on bonds issued at a
discount will 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
18. 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 on the first day of the lease. The interest rate implicit in
this lease is approximately
a) 10% c) Between 10% and 12%
b) 12% d) 16%
Solution:
7,596 = 2,000 x PV annuity due @ x%, n=5
First trial @ 12%:
(2,000 x PV annuity due @ 12%, n=5) = 7,596
(2,000 x 4.0373) = 7,596
8,075 is not equal to 7,596
We need a lower amount. Therefore, we will increase the rate. Let us try 16%.
Second trial @ 16%:
(2,000 x PV annuity due @ 16%, n=5) = 7,596
(2,000 x 3.7982) = 7,596
7,596 is equal to 7,596. Therefore, the implicit interest rate is 16%.
19. Which of the following does not affect the amount of surplus or deficit that is reported in the
statement of financial performance?
a) receipt of NCA
b) constructive remittance of taxes withheld through TRA
c) closing of the “Cash-Treasury/Agency Deposit, Regular”
d) adjustment of the “Cash-Modified Disbursement System (MDS), Regular” account for
the unused Notice of Cash Allocation.
20. An NPO received the following contributions in 20x1: ₱100,000 cash for the purchase of
equipment. ₱250,000 cash restricted for the renovation of an old building owned by the NPO.
None of the contributions were used in 20x1. However, in 20x2, the entity acquired an
equipment for ₱110,000.
How much contributions revenue is recognized in 20x1?
a) 100,000
b) 250,000
c) 350,000
21. Which of the following statements is correct regarding reimbursements of provisions?
a) A reimbursement asset is recognized and presented net of the provision in the
statement of financial position.
b) The provision is presented net of the related reimbursement asset in the statement of
financial position.
c) The expense related to the provision may be presented in the statement of financial
performance net of the reimbursement.
d) The amount recognized for the reimbursement may be in excess of the amount of the
provision.
22. On December 30, 19X4, Leigh Museum, a not-for-profit organization, received a P7,000,000
donation of Day Co. shares with donor stipulated requirements as follows:
• Shares valued at P5,000,000 are to be sold with the proceeds used to erect a public viewing
building.
• Shares valued at P2,000,000 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 consequence of the receipt of the Day shares, how much should Leigh
report as temporarily restricted net assets on its 19X4 statement of financial position?
a) P0
b) P2,000,000
c) P5,000,000
d) P7,000,000
23. Vista, a voluntary health and welfare organization, received a donation of $100,000 to be
spent in accordance with the wishes of the institution’s Board of Trustees. This donation should
be reported on the statement of activities as:
a) Unrestricted revenue.
b) Other income – gifts.
c) Temporarily restricted revenue
d) Permanently restricted revenues
a) PPE
b) Intangible asset
c) a or b
d) none of these
25. A foreign currency transaction is initially measured by translating the foreign currency
amount into
the functional currency using the
a) spot exchange rate at the date of transaction
b) closing rate at the reporting date
c) average rate for the year
d) any of these
26. Changes in accounting policies are accounted for
a) using the transitional provision, if any.
b) by retrospective application.
c) by prospective application
d) any of these
27. 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:
Value in use 50,000
How much is the impairment loss?
a) 10,000
b) 20,000
c) 30,000
d) 0
Solution:
(100,000 x 7/10) – 60,000 = 10,000
28. The taxable event for Value added tax (VAT) is the
a) undertaking of a taxable activity.
b) earning of taxable income.
c) movement of dutiable goods or services across the customs boundary.
d) any of these
29. 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.
30. During the period, Entity A acquires an item of PPE in a foreign currency transaction. As at
the
reporting date, the payment for the purchase is not yet settled; however, the item of PPE was
already delivered and accepted by Entity A. Which of the following would need to be translated
at the
reporting date?
a) The related payable.
b) The cost of the PPE.
c) The depreciation expense.
d) All of these.
31. According to the GAM for NGAs, a service concession asset is initially measured at
a) Cost
b) fair value
c) fair value less costs to sell
d) either a or b
32. Which of the following is an indication of impairment of investment property from internal
sources?
a) Significant changes with an adverse effect on the entity have taken place during the
period, or are expected to take place in the near future, in the extent to which, or the
manner in which, an asset is used or is expected to be used.
b) During the period, an asset’s market value has declined significantly more than would
be expected as a result of the passage of time or normal use.
c) Market interest rates or other market rates of return on investments have increased
during theperiod, 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.
d) 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.
33) In November 20x1 Gilmore Heating and Air Conditioning Service repaired the air
conditioning system for GenCare, a voluntary health and welfare organization and mailed an
invoice for $3,000. OnDecember 25, a note was received by GenCare indicating that Gilmore
was canceling the invoice andthat repairs were being donated. For the year ended, December
31, 20x1, GenCare should report thesecontributed services as:
a) A footnote.
b) No disclosure is required but a thank-you note was mailed to Gilmore.
c) An increase in unrestricted revenues and an increase in expenses on the statement of
activities.
d) An increase in temporarily restricted net assets in the statement of activities.
34. Which of the following types of health care organizations recognize depreciation expense?
Investor-Owned Not-for-Profit Organizations Governmental Health Care
Health Care Enterprises Organizations
a) Yes Yes No
b) Yes No Yes
c) No No Yes
d) Yes Yes Yes
35. Under a service concession arrangement, the operator uses the service concession asset to
provide
a) Public service
b) Private service
c) Concession service
d) a or b
36. When translating financial statements into a presentation currency other than the entity’s
functional currency, assets and liabilities are translated using the
a) closing rate at the reporting date
b) exchange rates at the dates of the transactions
c) average rate during the period
d) spot exchange rates
37. 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.
38. Which of the following may not be included in the inventories of a government entity?
a) rice and other welfare goods held for distribution
b) raw materials and work-in-process
c) accountable forms
d) equipment costing ₱15,000
39. Which of the following is a joint venture that is classified as ‘jointly controlled assets’?
a) Two parties agree to contribute money to acquire a piece of land and subdivide it after
the acquisition. Each party will get title to its share in the subdivided lot.
b) Two parties agree to contribute capital in incorporating a new entity. The new entity
will issue shares of stocks to both parties, representing each party’s interest in the new
entity.
c) Two parties agree to coproduce a product using their existing facilities. Each party
bears its own costs but share in the revenue from sales of the coproduced product.
d) Two parties agree to contribute resources to acquire a warehouse. Each of the parties
shall have equal rights over the use of the warehouse but shall share in the maintenance
costs.
40) Entity A, a government entity, acquires a machine for $10,000 on November 1, 20x1, on
account, and settles the account on January 3, 20x2. The machine is estimated to have a useful
life of 5 years and a residual value of 5% of cost. Entity A uses the straight line method of
depreciation. The exchange rates are as follows:
November 1, 20x1 $1:₱50
December 31, 20x1 $1:₱40
January 3, 20x2 $1:₱45
How much is the net foreign exchange gain (loss) recognized in surplus or deficit from the
transaction?
a) ₱10,000
b) (₱10,000)
c) (₱5,000)
d) ₱5,000
Solution:
[$1,000 x (₱50 - ₱45)] = 5,000 gain
a) PPE c) a or b
b) Intangible asset d) none of these
42. 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.
Solution:
400,000 tuition + 100,000 unrestricted = 500,000
43. This refers to valid and legal obligations of NGAs/OUs, for which, goods/services/projects
have been delivered/rendered/completed and accepted, regardless of the year when these
obligations were incurred.
a) Accounts Payable c) Not Yet Due and Demandable
b) Obligations d) Liability
44. 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.
45. 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 approximately
a) 10% c) Between 11% and 12%
b) 12% d) 16%
Solution:
7,596 = 2,000 x PV ordinary annuity @ x%, n=5
First trial @ 10%:
(2,000 x PV ordinary annuity @ 10%, n=5) = 7,596
(2,000 x 3.7908) = 7,582
7,582 approximates 7,596; a difference of only 14
46. Ellen College, a private not-for-profit institution, received a $100,000 grant for faculty
research in 20x1.
The grant money was not spent until 20x2. For 20x1, Ellen College should report the
contribution as:
a) Unrestricted revenue
b) Temporarily restricted revenue.
c) Other operating revenue.
d) Other non-operating revenue.
47. An NPO hospital has the following account balances:
Amount charged to patients $500,000
Revenue from newsstand 15,000
Undesignated gifts 40,000
Salaries expense – nurses 120,000
Bad debts 8,000
What is the hospital’s net patient service revenue?
a) $422,000
b) $430,000
c) $500,000
d) $540,000
Solution:
(500,000 – 70,000) = 430,000
48. 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.
a) $450,000
b) $250,000
c) $200,000
d) $0
49. Which of the following statements is correct regarding reimbursements of provisions?
a) A reimbursement asset is recognized and presented net of the provision in the
statement of financial position.
b) The provision is presented net of the related reimbursement asset in the statement of
financial position.
c) The expense related to the provision may be presented in the statement of financial
performance net of the reimbursement.
d) The amount recognized for the reimbursement may be in excess of the amount of the
provision.
50. A present obligation whose cost can be measured reliably but with improbable outflow of
resources embodying economic benefits or service potential is most likely to be
a) Recognized
b) Disclosed only
c) Recognized and disclosed
d) Ignored
51. 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.
52. On the statement of activities for a private not-for-profit institution, the account, net assets
releasedfrom restrictions, would be shown under revenues, gains, and other support as a (use
SFAS 117 in answering this question)
a) Decrease in permanently restricted and an increase in temporarily restricted net
assets.
b) Decrease in restricted and an increase in temporarily restricted net assets
c) Decrease in temporarily restricted and increase in permanently restricted net assets.
d) Decrease in temporarily restricted and increase in unrestricted net assets.
53. A hospital has the following account balances:
Revenue from newsstand P 50,000
Amounts charged to patients 800,000
Salary expense – nurses 100,000
Bad debts 10,000
Undesignated gifts 80,000
What is the hospital’s net patient service revenue?
a) P880,000
b) P800,000
c) P690,000
d) P680,000
54. A private not-for-profit performing arts center receives the following three donations:
• A gift of $90,000 which is unrestricted.
• A gift of $125,000 restricted for payment of salaries.
• A gift of $200,000 that is restricted forever but the income from the gift may be used for current
expenditures.
Which one of the following is not a required financial statement for a private voluntary health
and welfare organization?
a) Statement of Financial Position
b) Statement of Activities and Changes in Net Assets
c) Statement of Fund Balance
d) Statement of Cash Flows
e) Statement of Functional Expense
55. Gerlack College, a private, not-for-profit institution, received a donation of P2,000,000 as a
challenge grant. If the college raises an additional P2,000,000 within the next two years, it may
keep the donation. If it fails, the P2,000,000 must be returned to the donor. How would the
college record the receipt of the grant?
a) Unrestricted revenue.
b) Temporarily restricted revenue.
c) Note to the financial statement.
d) Refundable advance.
56. 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?
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.
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
d) Neither
57. Which of the following measurement bases is acceptable for the subsequent measurement
of an investment property held by a government entity?
a) fair value
b) fair value less costs to sell
c) cost less accumulated impairment losses
d) none, all of these are unacceptable.
58) The distinguishing characteristic that identifies an investment property from the other assets
of an entity is?
a) Changes in fair value of the asset is recognized in surplus or deficit.
b) The property does not derive cash flows separate from the other assets of the entity.
c) Generates separately identifiable cash flows from the other assets of the entity.
d) Earns rental as part of the ordinary operations of the entity.
59. Under this model, investment properties are measured at cost less accumulated
depreciation and accumulated impairment losses.
a) Impairment loss model c) Fair value model
b) Cost model d) Gorgeous model
60. Which of the following qualifies for classification as an investment property?

a) Property that is currently being developed for future use as investment property
b) Investment property that is currently being developed for future use as owner-
occupied property
c) Property that is leased out to another entity under a finance lease
d) Building being rented from another entity under an operating lease and leased out
under various operating leases.

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GovREVIEWER in FINALS (Compilatioin of Assignmenst and Exercises)

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REVIEWER IN FINALS

Use the following information for the next two questions:

1. Entity A acquires a rain on January 1, 20x1. Information on costs are as follows:

PROBLEM 10-4: FOR CLASSROOM DISCUSSION

How much is the initial cost of the equipment?

13. Which of the following statements is correct?

7. Subsequent expenditures on recognized intangible assets are generally expense unless it is

3. Additional disclosures shall be made in the notes if an entity presents expenses by

PROBLEM 14-4: FOR CLASSROOM DISCUSSION

8. How much depreciation expense is recognized on the machine in 20x1?

8. Entity A, a government entity, acquires a machine for $10,000 on September 1, 20x1,

a. Closing rate at the reporting date.

PROBLEM 16-3: MULTIPLE CHOICE

 Received shares valued at P8,000,000 to be retained with the

 Land with fair value P40,000,000 to be sold to acquire a bus.

 P400,000 cash restricted for the purchase of equipment.

 Received contribution of P800,000 to be used for student scholarships. Of this amount,

PROBLEM 16-5: FOR CLASSROOM DISCUSSION

Contri. revenue-unrestricted support 2.3M

Contri. Revenue- temporary restricted support 3M

Investment in equity securities 1M

Other forms of contributions.

1. A lessor’s gross investment in a finance lease is computed as

November 1, 20x1 $1:₱50

1. A non-profit organization receives donation of services in-kind from an accountant who

An NPO disclosed the following in its 20x1 notes to financial statements:

How much is included in unrestricted net assets?

(c) Equipment to be sold, proceeds used for renovation 5,000,000

Purchased a vehicle costing ₱150,000 using unrestricted cash

How much contributions revenue is recognized in 20x1?

17. The entry to record the promise of Ms. Beta is

FINAL EXAM REVIEW QUESTIONS

6. Government entities recognize depreciation

7. According to the GAM for NGAs, an intangible asset is identifiable when it

60. Which of the following qualifies for classification as an investment property?

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