Quizzes Answers 15 29

MIDTERM TOPICS
Chapter 14 – INVENTORIES – PAS 2

15 - Property, Plant and Equipment - PAS 16
16 - Government Grant - PAS 20
17 - Borrowing Costs - PAS 23
18 - Investment in Associates - PAS 28
19 - Impairment of Assets - PAS 36
20 - Intangible Assets - PAS 38
21 - Investment Property - PAS 40
22 - Agriculture - PAS 41
23 - Provision, Contingent Liability and Asset - PAS 37
24 - Financial Instruments - Presentation - PAS 32
25 - Income Taxes - PAS 12
26 - Employee Benefits - PAS 19
27 - Earnings Per Share - PAS 33
28 - Interim Financial Reporting - PAS 34
29 - Reporting in Hyperinflationary Economy - PAS 29
Chapter 15 – 24
 How are the proceeds from issuing a compound instrument allocated

between the liability and equity? The liability component is measured at
fair value and the remainder of the proceeds is allocated to the equity
component.
 Princess Limited created a provision for P100,000 against a certain event
which never materialized. During the financial year, another event costing
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P80,000 occurred. May Princess Limited use part of the P100,00 provision
against the new event? No
 If an intangible asset is revalued upwards, the increase in value should be
credited to Equity under “Revaluation Surplus”
 Statement 1: The critical feature of IAS 32 is that financial instruments
should be presented according to their substance not merely on their legal
form.
Statement 2: The main principle of a liability is an obligation to transfer
economic benefit. Both statements are false
 If an investor pays more than the carrying amount of the net assets
acquired, the difference can be either attributed to the undervaluation of
the investee's assets or goodwill. If the excess is attributable to goodwill,
the excess is to be included in the carrying amount of the investment and
not amortized over the useful life
 If the qualifying assets is financed by specific borrowing, the capitalizable
borrowing cost is equal to Actual borrowing cost incurred up to completion
of asset minus any investment income from the temporary investment of
the borrowing
 Statement 1: An investor has a significant influence over an entity if he
holds directly or indirectly through subsidiaries 20% or more of the voting
power of the investee.
Statement 2: Significant influence is the power to participate in the
financial and operating policy decisions of the associate and control or
joint control over those policies. Only statement 1 is true
 If equity method was used by the investor to account for its investment in
ordinary shares, the investment account will increase when the investor
recognizes a proportionate interest in the net income of the investee
 A transfer from investment property carried at fair value to owner-
occupied property shall be accounted for at Fair value which becomes the
deemed cost for subsequent accounting
 Agricultural activity includes all of the following, except Ocean fishing
 The following properties fall under the definition of investment property
except Property occupied by an employee paying market rent
 When a reversal of an impairment loss occurs, which of the following
adjustments are to be made? Recognize in the income statement and
adjust the depreciation for future periods
 Which of the following measurement models is not permitted for the
subsequent measurement of intangible assets under IAS 38? Capital
Assets Pricing Model
 Statement 1: Goodwill and intangible assets with indefinite useful lives
must be tested for impairment at least every five years.
Statement 2: An impairment loss on goodwill is never reversed, just as
internally generated goodwill cannot be recognized as an asset. Only
statement 2 is true
 According to IASB, bearer plants, such as grapevines, rubber trees, and oil
palms which are used solely to grow produce over several periods should
be accounted for as Property, plant and equipment
 Which of the following should not be considered a qualifying asset? An
expensive jet that can be purchased from a vendor
 An intangible asset with a finite useful life should be amortized over Its
expected useful life
 Subsequent to initial recognition, the investment property shall be
measured at Either at fair value or cost less any accumulated depreciation
and any accumulated impairment loss
 At the beginning of the current year, an entity received Grant One to give
financial assistance to the entity for start-up costs already incurred, and
Grant Two to subsidize the cost of purchasing computer software over a 5-
year period. Which of the following statements concerning recognition of
income from the two grants is true? Income from Grant One should be
recognized immediately in the current year and income from Grant Two
should be recognized over 5 years
 Contingent assets should be recognized in the financial statements when
they are Received
 Which of the following is an external indication of impairment? Decline in
market value
 The amount of a provision shall be the _________ of the expenditures
expected to be required to settle the obligation. Present value
 An asset is said to be impaired if Its carrying amount exceeds its
recoverable amount
 In the equity method of accounting for investments, an investor
recognizes its share of the earnings in the period in which the investee
has reported earnings
 An investor has 30% preference share in an entity, is it presumed that the
investor has significant influence to the entity? No
 In case of property held under an operating lease and classified as
investment property, The entity has to use the fair value model only
 Government grant related to non-depreciable asset that requires
fulfillment of certain conditions Should be recognized as income over the
periods which bear the cost of meeting the conditions
 Where there is a production cycle of more than one year for a biological
asset, IAS 41 encourages separate disclosure of the Physical change and
price change
 After initial recognition of property, plant and equipment at cost, in what
valuation model can an entity subsequently use to measure its property,
plant and equipment? at either cost model or revaluation model
 When property is acquired by the issuance of equity shares, which of the
following is the best basis for establishing the historical cost of the asset
acquired? Fair value of the asset received
 Animals related to recreational activities, for examples games parks and
zoos, including the natural breeding of animals in zoos, shall be accounted
for under what standard? PAS 16, Property, Plant and Equipment
 If the qualifying asset is financed by general borrowing, the capitalizable
borrowing cost is equal to Average expenditures on the asset multiplied
by a capitalization rate or actual borrowing cost incurred, whichever is
lower
 A repayment of government grant related to an asset shall be recorded by
All of these
 Statement 1: An entity is permitted to use the revaluation model for the
initial recognition of an intangible asset.
Statement 2. A company may internally generate an intangible asset.
Only statement 1 is true
 Janaya Inc. wishes to create a provision for future operating losses. Is this
allowed under PAS 37? No
 Statement 1: Depreciation is not a matter of valuation but of cost
allocation.
Statement 2: If the carrying amount of an asset is less than the residual
value, depreciation is not charged. Statements 1 and 2 are true
 Capitalization of borrowing cost Shall be suspended only during extended
period of delay in which active development is delayed
 The following are indications that the debts are an asset of the seller
except; There is no recourse to the seller for losses.
 Transfer from investment property to property plant and equipment is
appropriate When there is a change in use
 Where is a contingent liability contained in the financial statements? A
note to the financial statements
 Where there is a long-aging or maturation process after harvest, the
accounting for such products shall be dealt with PAS 2, Inventories
 A contract that evidences a residual interest in the entity’s assets after
deducting all of its liabilities is classified as an equity instrument
 Which of the following is not a requirement to capitalise development
costs under IAS 38 – Intangible Assets? The commercial feasibility for the
asset may be uncertain
 Under IAS 36, when it is not possible to calculate the recoverable amount
of a single asset, what should be done? The recoverable amount of its
cash generating unit should be calculated
 Which of the following are not classified as financial instruments under IAS
32 Financial Instruments: Presentation? Intangible Assets
 Which of the following is a disclosure requirement in relation to borrowing
cost? Borrowing cost capitalized during the period and capitalization rate
used to determine the borrowing cost to be capitalized
 Which of the following statements is incorrect when a government
provides an interest-free loan to an entity? The deferred grant income is
amortized over the term of the loan using the straight line method
 Which statement is not correct with respect to depreciation? Depreciation
is not recognized if the fair value of an asset exceeds carrying amount.
 The following statements are true about property, plant and equipment:
1. Property, plant and equipment shall be recognized as an asset when It
is probable that economic benefits will flow to the entity.
2. The carrying amount of property, plant and equipment shall be
unrecognized on disposal and when no future economic benefits are
expected from the use of the asset. No, only statement 2 is true
 This is government grant whose primary condition is that the entity
qualifying for the grant shall purchase, construct or otherwise acquire
long-term asset Grant related to asset
Chapter 25-29
 Postemployment employee benefits include all of the following, except
Long-term disability benefits
 If ordinary shares are only partly paid, they should not be included as part
of a Basic EPS calculation. False
 These are compensated absences that are carried forward and can be
used in future periods and the employees are entitled to a cash payment
for unused entitlement on leaving the entity. Accumulating and vesting
 There is a presumption that anyone reading interim financial reports shall
Have access to the most recent annual report
 Which of the following securities do not influence diluted EPS Ordinary
preference shares
 A taxable temporary difference gives rise to: deferred tax liability
 If liquidation of carrying amounts will make future tax payments larger or
smaller, IAS 12 generally requires an undertaking to record a: Deferred
tax liability or asset
 Interim financial statements can be described as emphasizing Timeliness
over reliability
 During a period of inflation, an account balance remains constant. With
respect to this account, a purchasing power loss will be recognized if the
account is a Monetary asset
 During a period of deflation, an entity would have the greatest gain in
general purchasing power by holding Cash
 Temporary differences arise: when the carrying amount of an asset or
liability differs from its tax base
 Interim financial reports shall include as a minimum
A condensed set if financial statements and selected notes
 Private companies must present EPS on the face of their financial
statements. False
 When the business is highly seasonal, what does the standard suggest?
Disclosure of financial information for the latest and comparative 12-
month period in addition to the interim report
 It is an insurance policy the proceeds from which are used to pay only
employee benefits Qualifying insurance policy
 Permanent differences require adjustments in the periods relating to the
transaction
 Purchasing power gain or loss results from Monetary asset and monetary
liability
 All of the following are monetary items, except Administration costs paid
in cash
 Interim financial reports shall be published Whenever the entity wishes
 Where should basic EPS be presented in the financial statements?
Statement of Comprehensive Income
 In a hyperinflationay economy, monetary items Are not restated because
they are already expressed in terms of the measuring unit current at year-
end
 PAS 12 prescribes the accounting treatment for income taxes, and the tax
consequences of
I. Transactions of the current period that are recorded in an undertaking’s FS
II. The future liquidation of the assets and liabilities that are recorded in an
undertaking’s statement of FS
III. Tax planning opportunities I and II only
 A contract which gives rise to a financial asset in one entity and a
financial liability in another entity is called: A financial instrument
 Princess Company provided the following information:
January 1 Fair value of plan assets P 9,960,000
During the year Actual return on plans assets 1,050,000
Contribution made to the plan 750,000
Pension benefits paid 500,000
What is the fair value of plan assets on Dec 31? P11,260,000

 Short-term employee benefits include all, except Profit-sharing and
bonuses payable in more than twelve months after the end of the
reporting period
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Quizzes Answers 15 29

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MIDTERM TOPICS

Chapter 14 – INVENTORIES – PAS 2

 How are the proceeds from issuing a compound instrument allocated

What is the fair value of plan assets on Dec 31? P11,260,000

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