Chapter Exam#1

Which of the following is not an element that is directly related to the measurement of an entity’s
financial position?
The correct answer is: income

The time- period concept means that financial statements are prepared only at the end of the life
of a business.
The correct answer is 'False'.

Entity A appropriates ₱1M to fund employee benefits for the last quarter of the following year.
Entity A deposits the ₱1M fund in a payroll account. This economic activity is most
appropriately referred to as
The correct answer: Savings

The measurement bases described under the Conceptual Framework are least applicable to the
measurement of
The correct answer is: equity

General purpose financial statements are

The correct answer is:
those statements that cater to the common needs of a wide range of external users.

All events and transactions of an entity are recognized in the books of accounts.
The correct answer is 'False'.

Entity A computes for its profit or loss periodically instead of waiting until the end of the life of
the business before doing so. This is an application of which of the following accounting
concepts?
The correct answer is: Time period or reporting period

Which of the following statements about the Norwalk Agreement is correct?

The Norwalk Agreement is a convergence between the FASB and the IASB to make
their existing financial reporting standards compatible and coordinate their future work programs
to ensure that once achieved, compatibility is maintained.
The correct answer is:

➢ The proper application of accounting principles is most dependent upon the Accountant,
➢ When information about two different entities has been prepared and presented in a
similar manner, the information exhibits the characteristic of Comparability,
➢ The Conceptual Framework uses the term “economic resources” to refer to Assets,
➢ It is the branch of accounting that focuses on the preparation of general-purpose financial
statements. → Financial accounting,
➢ It is the accounting process of assigning numbers, commonly in monetary terms, to the
economic transactions and events. → Measuring,
 ➢ The process of identifying, measuring, analyzing, and communicating financial
information needed by management to plan, evaluate, and control an organization’s
operations is called → Managerial accounting,
➢ These are events involving an entity and another external party. → External events,
➢ This refers to the use of caution in the exercise of judgments needed in making estimates
required under conditions of uncertainty, such that assets or income are not overstated,
and liabilities or expenses are not understated. → Prudence,
➢ These are users of financial information who are not in a position to require a reporting
entity to prepare reports tailored to their particular information needs. → Primary,
➢ Refers to the professional regulatory board created to supervise the registration, licensure
and practice of accountancy in the Philippines. → Board of Accountancy,
➢ The ability through consensus among measurers to ensure that information represents
what it purports to represent is an example of the concept of → Verifiability,
➢ These are events that do not involve an external party. → Internal events,
➢ This concept defines the area of interest of the accountant. It determines which
transactions are recognized in the books of accounts and which are not. → Separate
entity,
➢ Free from bias toward a predetermined result is → Neutrality,
➢ Information that is capable of making a difference in the decisions made by users has this
qualitative characteristic. → Relevance,
➢ Refers to the one that is required, or chooses, to prepare financial statements. →
Reporting entity,
➢ It refers to the process of incorporating the effects of an accountable event in the
statement of financial position or the statement of profit or loss and other comprehensive
income through a journal entry. → Recognition,
➢ The Filipino adage “Aanhin mo pa ang damo pag patay na ang kabayo” relates to which
of the following qualitative characteristics? → Timeliness,
➢ The assumption that a business enterprise will not be sold or liquidated in the near future
is known as the → Going concern,
The accounting standards used in the Philippines are adapted from the standards issued by the →
International Accounting Standards Board (IASB)

Some items that do not meet the definition of an asset, a liability or equity may be recognized in
the statement of financial position.
The correct answer is 'False'.

Accounting is a systematic process of objectively obtaining and evaluating evidence regarding

assertions about economic actions and events to ascertain the degree of correspondence between
these assertions and established criteria and communicating the results to interested users.
The correct answer is 'True'.

The accounting process of assigning peso amounts or numbers to relevant objects and events is
called identification.
The correct answer is 'False'.
The Board of Accountancy consists of a chairperson and six members.
The correct answer is 'True'.

The PFRSs consist of all of the following except

The correct answer is:
Conceptual Framework

Which of the following is most likely to result in the recognition of a liability?

The correct answer is:
Customers become entitled to rebates for their past purchases.

The cost of inventory is recognized as expense

The correct answer is:
using the matching concept

Which of the following financial statements would not be dated as covering a certain reporting
period?
The correct answer is:
Statement of financial position

A soundly developed conceptual framework of concepts and objectives should

a.increase financial statement users' understanding of and confidence in financial reporting.
b.enhances comparability among companies' financial statements.
c. allows new and emerging practical problems to be more quickly soluble.
d.all of these

Physical concept of capital means that capital is the invested money or invested purchasing
power.
The correct answer is 'False'.

“I say red; you say green.” The information lacks which of the following qualitative
characteristics?
The correct answer is:
Verifiability

An item is derecognized if it ceases to meet the definition of an asset or a liability.

The correct answer is 'True'.

Under the Conceptual Framework, a reporting entity must be a legal entity.

The correct answer is 'False'.

Which of the following events is considered as an internal event?

The correct answer is:
Conversion of raw materials into finished goods
Which of the following are categorized as current value measurement bases in the Conceptual
Framework?

a.Value in use
b. current cost
c.Fulfilment value
d.Fair value
e.all of the above

General purpose financial statements are those statements that cater to the common and specific
needs of a wide range of external users.
The correct answer is 'False'.
Accounting provides which type of information?

a. quantitative
b. financial information
c. qualitative
d.all of these

For an information to be relevant, it has to posses:

The correct answer is:
Either predictive or confirmatory value, or both

All of the following statements incorrectly refer to the concepts in the Conceptual
Framework except
The correct answer is:
The objective of general-purpose financial statements is similar to the objective of general
purpose financial reporting.

According to the Conceptual Framework, the pervasive constraint on the information that can be
provided by financial reporting is
The correct answer is:
cost-benefit

Asset measurements in conventional financial statements

The correct answer is:
reflect several financial attributes.

Information is neutral if it
The correct answer is:
is free from bias toward a predetermined result

Revision of Conceptual Framework will automatically lead to changes in Standards that are
inconsistent with the revised concepts.
The correct answer is 'False'.
Financial statements are said to be a mixture of fact and opinion.
Which of the following items is factual?
The correct answer is:
Discount on capital stock

Accountable events are those that have an effect in an entity's assets, liabilities, equity, income or
expenses and their effects can be measured reliably.
The correct answer is 'True'.

Which of the following is not an indication of an economic resource’s potential to produce

economic benefits for the entity?
The correct answer is:
The economic benefits from the resource were already consumed by the entity.

Materiality is a quantitative matter. It should never be assessed qualitatively.

The correct answer is 'False'.

Accounting is often called the "language of business" because

The correct answer is:
it is fundamental to the communication of financial information.
The elements of faithful representation do not include

The correct answer is:

comparability
Which of the following are considered aspects of the qualitative characteristic of relevance under
the Conceptual Framework?
I. Predictive value
II. Confirmatory value
III. Timeliness
IV. Materiality
The correct answer is:
I, II and IV

Which of the following statements is true?

I. Loss from theft is classified as a nonreciprocal transfer.
II. Internal events are changes in economic resources by actions of other entities
that do not involve transfers of resources and obligations.
III. Nonreciprocal transfers involve the transfer of resources in only one direction,
either from an entity to other entities or from other entities to the entity.
IV. Internal events are sudden, substantial, unanticipated reductions in resources not
caused by other entities.
Fire, earthquake and flood are examples of accountable events classified as internal events.
The correct answer is:
I, III and V
It is the official accounting standard setting body in the Philippines. It is composed of a
chairperson and 14 members.
The correct answer is:
Financial Reporting Standards Council (FRSC)

When products or other assets are exchanged for cash or claims for cash, they are said to be
The correct answer is:
Realized

The foundation of the Conceptual Framework is formed from

The correct answer is:
the objective of general purpose financial reporting.

The two primary qualities that make accounting information useful for decision making are
The correct answer is:
faithful representation and relevance

The term “recognition” as used in accounting refers to the process of incorporating the effects of
an accountable event in the statement of financial position or the statement of profit or loss and
other comprehensive income through a memo entry.
The correct answer is 'False'
.
For right to meet the definition of an asset, it needs to be likely that the right will produce
economic benefits for an entity.
The correct answer is 'False'
What is the objective of general purpose financial statements according to the Conceptual
Framework?
The correct answer is:
To provide information about the financial position, financial performance, and changes in
financial position of an entity that is useful to primary users in making economic decisions.
Financial reporting standards continuously change primarily in response to
The correct answer is:
user's needs
Which of the following may result to an expense?
The correct answer is:
Increase in liability
A Standard sometimes contains requirements that depart from the Conceptual Framework. In
such cases,
The correct answer is:
the departure is explained in the ‘Basis for Conclusions’ on that Standard.
Chapter Exam#2
Entity ABC, a trading entity, buys and sells Product Y. Movements in the inventory of Product Y
during the period are as follows:

Date Transaction Units Unit cost Total cost

Mar. 1 Beginning inventory 180 ₱20 ₱3,600
7 Purchase 200 22 4,400
12 Sale 310
21 Purchase 150 21 3,150
How much is the ending inventory and cost of sales under the Weighted Average cost formula?
(The average is calculated as each additional purchase is made, i.e., ‘moving average’.)
P4,624 ; P6,526

Which of the following is not correct regarding the determination of the cost of an inventory?
d.Purchase price, gross of trade discounts, is included.

Entity A buys and sells artifacts. Each artifact is unique and not ordinarily interchangeable.
According to PAS 2, the cost formula that Entity A should use is
Select one:
a. Specific identification.

Reversals of inventory write downs should exceed the amount of the original write-down
previously recognized.
Select one:
False

All financial statements shall be prepared using accrual basis of accounting.

Select one:
False

In the statement of cash flows of a non-financial institution, interest income received is presented
under
d. a or c

This type of presentation of statement of financial position does not show distinctions between
current and noncurrent items.
Unclassified presentation

Which of the following statements is correct regarding the classification of financial liabilities as
current or noncurrent in accordance with PAS 1?
Currently maturing obligations are presented as current liabilities even if their original term is
longer than one year and even if a refinancing agreement is completed after the end of the
reporting period but before the financial statements are authorized for issue.

The end product of the financial reporting process and the means by which information gathered
and processed is periodically communicated to users.
The correct answer is: financial statements

In making an economic decision, an investor needs information on the amounts of an entity’s

economic resources and claims to those resources. That investor would most likely refer to
which of the following financial statements?
Statement of financial position

PAS 1 prescribes an order or format of presenting items in the financial statements.

Select one:
False

These are short-term, highly liquid investments that are readily convertible to known amounts of
cash and which are subject to an insignificant risk of changes in value.
The correct answer is: cash equivalents

In which of the following instances is a write-down of inventories to net realizable value may not
be required?
Selling prices are rising because demand has increased.

The statement of financial position of which of the following entities does not show current and
noncurrent distinctions among assets and liabilities?
Banks and other financial institutions

These deal with the computation of cost of sales and cost of ending inventory.
Cost formulas

Refers to the comparability of financial statements between different entities.

The correct answer is: inter-comparability

Which of the following is not a disclosure requirement of PAS 1?

The recognition, measurement and disclosure of specific transactions and other events.

Inventories are measured at

Lower of cost and net realizable value.

The information provided by financial reporting pertains to

individual reporting entities, rather than to industries, the economy as a whole or members of
society as consumers

Factory management cost is not included in the cost of inventory.

False

Entity A acquires inventories and incurs the following costs:

Purchase price, gross of trade discount 110,000
Trade discount 10,000
Non-refundable purchase tax, not included in the purchase price
above 8,000
Freight-in (Transportation costs) 10,000
Commission to broker 3,000
Advertisement cost? 15,000
How much is the cost of the inventories purchased?
P 121,000

Which of the following is added to the cost of inventories?

Storage costs of part-finished goods

Entity A had the following balances at December 31, 2020:

Cash in checking account P45,000
Cash in 90-day money market account 55,000
Treasury bill, purchased 12/1/20, maturing 4/30/21 160,000
Treasury bill, purchased 12/1/20, maturing 2/28/21 180,000
How much cash and cash equivalents is reported in Entity A’s December 31, 20x1 statement of
financial position?
P 280,000

write-downs of inventories to their net realizable value are recognized

In profit or loss

Which of the following statements is correct when an entity departs from a provision of a PFRS?

b. PAS 1 permits such a departure if the relevant regulatory framework requires, or otherwise
does not prohibit, such a departure.

c. PAS 1 requires certain disclosures when an entity departs from a provision of a PFRS.

These are the costs necessary in converting raw materials into finished goods, which include
direct labor costs and production overhead.
The correct answer is: conversion costs

Non-financial institutions have the option of classifying interest income received as either
investing or financing activities.
The correct answer is 'False'.

This refers to the comparability of financial statements of the same entity but in different periods.
The correct answer is: intra-comparability

It is the time between the acquisition of assets for processing and their realization in cash or cash
equivalents.
The correct answer is: operating cycle
Entity EDF, a trading entity, buys and sells Product X. Movements in the inventory of Product X
during the period are as follows:
Date Transaction Units Unit cost Total cost
Apr. 1 Beginning inventory 180 ₱20 ₱3,600
7 Purchase 200 22 4,400
12 Sale 310
21 Purchase 150 21 3,150
How much is the ending inventory and cost of sales under the Weighted Average cost formula?
(The average is calculated on a periodic basis.)

The correct answer is: P4,629 ; P6,522

This shows the historical changes (i.e. sources and utilization) in cash and cash equivalents
during the period.
The correct answer is: statement of cash flow

Which of the following statements best describes a statement of cash flows?

The correct answer is: The statement of cash flows shows historical changes of cash and cash
equivalents during the period.

The cost of inventory should not include

I. Purchase price.
II. Import duties and other taxes.
III. Abnormal amounts of wasted materials.
IV. Administrative overhead.
V. Fixed and variable production overhead.
VI. Selling costs.

The correct answer is: III, IV, VI

Comprehensive income excludes which of the following

The correct answer is: Distributions to owners

This comprises all “non-owner changes in equity.” It excludes owner changes in equity, such as
subscription, issuance, and reacquisition of share capital and declaration of dividends.
The correct answer is: Total comprehensive income

The cost of inventory is recognized as expense

The correct answer is: using the matching concept.

A statement of financial position presentation showing distinctions between current and

noncurrent assets and current and noncurrent liabilities.
The correct answer is: classified

Which of the following costs of conversion cannot be included in cost of inventory?

The correct answer is: Salaries of sales staff (sales department shares the building with factory
supervisor).

According to PAS 2, inventories are measured at net realizable value.

The correct answer is 'False'.

The amounts reclassified to profit or loss in the current period that were recognized in other
comprehensive income in the current or previous periods.
The correct answer is: reclassification adjustments

An entity’s financial position or condition refers to which of the following?

The correct answer is: The status of the entity’s assets, liabilities and equity.

An additional statement of financial position is provided if the effect of reclassification of items

in the comparative information is material as a result of a change in presentation.
The correct answer is 'True'.

The Coronet Company has a cost card in relation to an item of goods manufactured as follows:
Materials P 85
Storage costs of finished goods 20
Delivery to customers (Freight out) 5
Non-recoverable purchase taxes 7
According to PAS 2, at what figure should the item be valued in inventory?

The correct answer is: 92

Entity JFK, a trading entity, buys and sells Product Z. Movements in the inventory of Product Z
during the period are as follows:
Date Transaction Units Unit cost Total cost
Feb. 1 Beginning inventory 180 ₱20 ₱3,600
7 Purchase 200 22 4,400
12 Sale 310
21 Purchase 150 21 3,150
How much is the ending inventory and cost of sales under the FIFO cost formula?
The correct answer is: P4,690 ; P6,460

A classified presentation of statement of financial position shall be used except when an

unclassified presentation provides information that is reliable and more relevant.
The correct answer is 'True'.

A balance sheet presentation that is based on liquidity.

The correct answer is: unclassified

The correct answer is:

Exchange differences in translating a foreign currency denominated cash flows. → not
presented,
Cash purchase of inventories. → operating,
Bank overdraft that can be offset with cash. → not presented,
Purchase of office supplies on account. → not presented,
Bank overdrafts that cannot be offset with cash. → financing,
Cash receipts from contracts held for trading purposes. → operating,
Acquisition of loans from a bank. → financing,
Purchase of a treasury bill three months before its maturity. → not presented,
Payment for acquisition of intangible assets. → investing,
Dividends paid this year although declared in a prior year. → financing,
Cash payments on derivative assets other than those held for trading. → investing,
Purchase of equipment through cash. → investing,
Cash payments by a lessee for the reduction of the outstanding liability relating to a lease. →
financing,
Acquisition of equipment through issuance of note payable. → not presented,
Issuance of shares of stocks through cash. → financing,
Collection of accounts receivables. → operating,
Cash dividends received by a financial institution from its investments in marketable securities
during the year. → operating,
A bank entity releases loan to its borrowers. → operating,
Cash invested in a 90-day time deposit. → not presented,
Redemption of equity instruments through cash. → financing

Which of the following is not one of the general features of financial statements under PAS 1?

The correct answer is: Cash Basis

PAS 1 requires an entity to provide an additional balance sheet dated as of the beginning of the
preceding period if certain instances occur. Which is not one of those instances? (Assume all of
the following has a material effect).
The correct answer is: Change in the frequency of reporting.

Which of the following costs are included in the cost of inventories?

The correct answer is: Transport costs for raw materials

What is the purpose of reporting comprehensive income?

The correct answer is: To report a measure of the overall financial performance of an entity.

Inventories are usually written down to net realizable value

The correct answer is: On an item-by-item basis
Cash flows relating to investing and financing activities are presented separately at gross
amounts unless they qualify for net presentation.
The correct answer is 'True'.

How should trade discounts be dealt with when valuing inventories at the lower of cost and net
realizable value (NRV) according to PAS 2?
The correct answer is: Deducted from cost

Which of the following financial statements would be dated as at a certain date?

The correct answer is: Statement of financial position

Entity A acquires equipment by issuing shares of stocks. How should Entity A report the
transaction in the statement of cash flows?
The correct answer is: Not reported

Reconcile the net income of P100,000 of Entity B to net cash flows from operating activities
with this additional information:
Depreciation expense 5,000
Amortization expense 2,000
Loss on sale of land 1,500
Gain on sale of equipment 1,200
Purchase of shares of stock 10,000
Acquisition of machinery 18,000
How much is the adjusted Net Income to be used for cash flows from operating activities?
The correct answer is:
P107,300

Inappropriate accounting policies can be rectified by mere disclosures.

The correct answer is 'False'.

The comparative statement of financial position of Entity C shows the following:

December 31, 2020 December 31, 2019
Accounts receivable 6,000 5,000
Inventory 8,000 10,000
Accounts payable 9,000 8,000
Dividends payable 2,000 3,000
Adjust the Net Income of P50,000 for changes in operating assets and liabilities?
The correct answer is:
P52,000

Chapter Exam#3

The correct answer is:

➢ Change in the method of recognizing revenue from long-term construction contracts. →
change in accounting policy,
 ➢ Change in depreciation method. → change in accounting estimates,
➢ Change from FIFO to the Weighted Average cost formula for inventories. → change in
accounting policy,
➢ Change in the required balance of allowance for uncollectible accounts or impairment
losses. → change in accounting estimates,
➢ Change in estimated useful life or residual value of a depreciable asset. → change in
accounting estimates,
➢ Change in the financial reporting framework, such as from PFRS for SMEs to full PFRS.
→ change in accounting policy,
➢ Change in other provisions. → change in accounting estimates,
➢ Change from cost model to the fair value model of measuring investment property. →
change in accounting policy,
➢ Change in estimated warranty obligations. → change in accounting estimates,
➢ Change from cost model to the revaluation model of measuring property, plant and
equipment and intangible assets. → change in accounting policy

Which of the following instances does not preclude an entity from recognizing depreciation
during a certain period?
The correct answer is: The asset becomes idle or is taken out of active use.

Information on Eight Street Co.’s defined benefit plan is as follows:

Present Value of Defined Benefit Obligation (PV of DBO) – Jan. 1, 2020 2,250,000
Fair Value of Plan Assets (FVPA) – Jan. 1, 2020 1,800,000
PV of DBO – Dec. 31, 2020 2,700,000
FVPA, end. – Dec. 31, 2020 1,965,000
Current service cost 487,500
Actuarial loss 150,000
Return on plan assets 165,000
Discount rate 6%
The correct answer is:
The net defined benefit liability (asset) in Eight Street Co.’s December 31, 2019 statement of
financial position. → P450,000 liability,
The net defined benefit liability (asset) in Eight Street Co.’s December 31, 2020 statement of
financial position. → P735,000 liability,
The total defined benefit cost for 2020. → P607,500,
The component of the total defined benefit cost to be recognized in profit or loss. → P514,500,
The component of the total defined benefit cost to be recognized in other comprehensive income.
→ P93,000

Taxable temporary differences arise when financial income is smaller than the taxable income.
The correct answer is 'False'.

Under a profit-sharing plan, Entity A agrees to pay its employees 15% of its annual profit. The
bonus shall be divided among the employees currently employed as at year-end. Relevant
information follows:
Profit for the year ₱5,000,000
Employees at the beginning of the year 12
Average employees during the year 9
Employees at the end of the year 10
If the employee benefits remain unpaid, how much liability shall Entity A accrue at the end of
the year?
The correct answer is: P750,000

According to PAS 10, these are those events, favorable and unfavorable, that occur
between the end of the reporting period and the date when the financial statements are authorized
for issue.
The correct answer is: Events after the reporting period

Income tax expense is computed using PFRSs.

The correct answer is 'True'.

The systematic allocation of the depreciable amount of an asset over its useful life.
The correct answer is: depreciation

Compensated absences that can be carried forward and used in future periods if not fully used in
the current period of entitlement are referred to as accumulating.
The correct answer is 'True'.

These arise from misapplication of accounting policies, mathematical mistakes, oversights or

misinterpretations of facts, or fraud.
The correct answer is: error

At the end of the period, Entity A has taxable temporary difference of ₱100,000. Entity A’s
income tax rate is 30%. Entity A’s statement of financial position would report which of the
following?
The correct answer is: 30,000 deferred tax liability

This type of difference will give rise to deferred tax liability.

The correct answer is: Taxable temporary difference

Which of the following is most likely to be a non-adjusting event?

The correct answer is: The entity announces a major restructuring after the end of the reporting
period.

PAS 8 permits a change in accounting policy only if the change

The correct answer is: a or b

➢ Is profit for a period, determined in accordance with the rules established by the taxation
authorities. → taxable profit,
➢ Prescribes the accounting for employee benefits by employers, except for share-based
payment and accounting and reporting by retirement benefit plans. → PAS 19,
 ➢ Under this model, a PPE is carried at its fair value at the date of revaluation less any
subsequent accumulated depreciation and subsequent impairment losses. → revaluation,
➢ Arise when income and expenses enter in the computation of either accounting profit or
taxable profit but not both. → permanent differences,
➢ Is the profit for a period before deducting tax expense. → accounting profit,
➢ The estimated amount that an entity would currently obtain from disposal of the asset,
after deducting the estimated costs of disposal, if the asset were already of the age and in
the condition expected at the end of its useful life. → residual value,
➢ Under this model, a PPE is carried at its cost less any accumulated depreciation and any
accumulated impairment losses. → cost,
➢ Benefits other than termination benefits and short-term benefits that are payable after the
completion of employment. → post-employment benefits,
➢ Prescribes the accounting for, and disclosures of, events after the reporting period. →
PAS 10,
➢ According to PAS 8, these are the specific principles, bases, conventions, rules and
practices applied by an entity in preparing and presenting financial statements. →
accounting policies,
➢ Prescribes the criteria for selecting, applying, and changing accounting policies. → PAS
8,
➢ Benefits provided as a result of the entity’s decision to terminate the employee before
normal retirement date. → termination benefits,
➢ Prescribes the accounting for income taxes. → PAS 12,
➢ Addresses the principal issues of recognition as assets, measurement of carrying amount
and recognition of depreciation charges. → PAS 16,
➢ Benefits that are due to be settled within 12 months after the end of the period in which
the employees have rendered the related service → short-term employee benefits
➢ Deferred tax asset are the amounts of income taxes recoverable in future periods in
respect of
The correct answer is: All of the above

When unused sick leave is converted to cash when an employee resigns or retires, the sick leave
benefits are considered non-vesting.
The correct answer is 'False'.

In the hierarchy of reporting standards, an entity must make the conceptual framework the
primary reference in accounting or recording a transaction.
The correct answer is 'False'.

Current tax expense is computed using tax laws.

The correct answer is 'True'.

A change in the pattern of consumption of economic benefits from an asset is most likely a
The correct answer is: change in accounting estimate.

The Sarin Company's financial statements for the year ended 30 April 20X8 were approved by
its finance director on 7 July 20X8 and a public announcement of its profit for the year was made
on 10 July 20X8. The board of directors authorized the financial statements for issue on 15 July
20X8 and they were approved by the shareholders on 20 July 20X8. Under PAS 10, after what
date should consideration no longer be given as to whether the financial statements to 30 April
20X8 need to reflect adjusting and non-adjusting events?
The correct answer is: 15 July 20X8

If plotted on a graph (X-axis: time; Y-axis: ₱), the depreciation charges under the straight-line
method would show
The correct answer is: a straight-line.

Other long-term employee benefits are accounted for similar to defined benefit plans except that
all the components of the defined benefit cost is recognized in other comprehensive income.
The correct answer is 'False'.

Imagine you are an employer. When should you recognize short-term employee benefits?
The correct answer is: When the employees have rendered service in exchange for the employee
benefits.

Deferred tax assets and liabilities are not discounted.

The correct answer is 'True'.

Taxable temporary differences arise when the carrying amount of an asset is greater than its tax
base.
The correct answer is 'True'.

These are differences that have future tax consequences.

*The correct answer is: temporary
PAS 16 requires an entity to review the depreciation method and the estimates of useful life and
residual value at the end of each year-end. A change in any of these is accounted for using
The correct answer is: prospective application.

➢ Dividends declared after the reporting period. → non-adjusting event,

➢ Change in tax rate enacted after the reporting period. → non-adjusting event,
➢ The bankruptcy of a customer that occurs after the reporting period. → adjusting event,
➢ Change in tax rate enacted before the end of the reporting period → adjusting event,
➢ The sale of inventories after the reporting period. → adjusting event,
➢ Litigation arising solely from events occurring after the reporting period. → non-
adjusting event,
➢ Major business combination after the reporting period. → non-adjusting event,

➢ Change in fair value, foreign exchange rate, interest rate or market price after the
reporting period → non-adjusting event
➢ The settlement after the reporting period of a court case confirming a liability. →
adjusting event,
 ➢ The discovery of fraud or errors that indicate that the financial statements are incorrect.
→ adjusting event
➢
Termination benefits are accounted for in accordance with the short-term employee benefits if
payable beyond 12 months.
The correct answer is 'False'.

During the period, deferred tax assets increase by ₱400 while deferred tax liabilities increase by
₱500. The net change of ₱100 is a
The correct answer is: deferred tax expense

Which of the following is an example of a non-adjusting event?

Select one:
a. Bankruptcy of a major customer with a balance owing at the period end
b. Amounts received in respect of an insurance claim being negotiated at the period end
c. Sale of inventory for less than its carrying value shortly after the reporting period
d. Destruction of a machine by fire after the reporting period

XYZ Corp. acquires equipment on January 1, 20x1. Information on costs is as follows:

Purchase price, gross of 5% trade discount 1,500,000
Freight costs 25,000
Testing costs 40,000
Net disposal proceeds of samples generated during testing 20,000
Present value of estimated costs of dismantling the equipment at the end
of
its useful life (P50,000 gross, 10% discount rate) 19277
The equipment has an estimated useful life of 10 years and a residual value of ₱150,000.
XYZ Corp. uses the straight-line method of depreciation.
The correct answer is:
➢ The initial cost of the equipment. → P1,509,277,
➢ The accumulated depreciation on December 31, 20x3. → P407,783,
➢ The carrying amount of the equipment on December 31, 20x3. → P1,101,494,

On December 31, 20x3, XYZ Corp. revalues the equipment at a fair value of ₱1,200,000.
There is no change in the residual value and the remaining useful life of the asset.

➢ How much is the revaluation surplus on December 31, 20x3? → P98,506,

➢ The depreciation expense in 20x4. → P150,000,
➢ XYZ Corp. sells the equipment for ₱1,200,000 on January 1, 20x5. XYZ Corp. A incurs
selling costs of ₱30,000 on the sale. How much is the gain (loss) on the sale? P120,000
Deferred tax assets and deferred tax liabilities do not alter the tax to be paid in the current period.
However, they cause tax payments to either increase or decrease when they reverse in a future
period. The reversal of which of the following will cause an increase in tax payment?
The correct answer is: Deferred tax liability
One of Entity A’s delivery trucks had an accident on February 14, 20x2. The truck is totally
wrecked and is uninsured. Entity A’s December 31, 20x1 current-period financial statements
were authorized for issue on March 31, 20x2. Entity A asked you if it can write-off the carrying
amount of the destroyed truck from its December 31, 20x1 statement of financial position. What
will you tell Entity A?
The correct answer is: No. Don’t write-off the truck because the event is a non-adjusting event.

You should, however, disclose the event if you deem it to be material.

Taxable temporary differences arise when the carrying amount of a liability is greater than its tax
base.
The correct answer is 'False'.

Which of the following is not one of the essential characteristics of a PPE?

The correct answer is: primarily held for sale

Chapter Exam#4

The grant is recognised as income over the period necessary to match them with the related
costs, for which they are intended to compensate, on a systematic basis.
The correct answer is 'True'.

A transfer of resources, services, or obligations between related parties, regardless of whether a

price is charged.
The correct answer is: related party transaction

When an entity prepares separate financial statements, investments in subsidiaries, associates,

and jointly controlled entities are accounted for either at cost or in accordance with IFRS 9 or
PAS 39.
The correct answer is 'True'.

Due to the increasing exchange rate, the company converted P5,000,000 into Dollars on
November 25, at P48.458, and opened a dollar bank account. On December 31, the closing rate
was $ P47.564. Compute the foreign exchange gain or loss on December 31. Indicate the loss
with a negative sign, "-". Round your final answer only to the nearest whole amount.
The correct answer is: -92244.83

The objective of IAS 29 is to establish specific standards for entities reporting in the currency of
a hyperinflationary economy, so that the financial information provided is meaningful.
The correct answer is 'True'.

Foreign currency transactions need to be translated before they can be recorded in the books of
accounts.
The correct answer is 'True'.
"An entity has the following borrowings during the year when the construction of new offices
was made:
from IBANK:
10% P50,000 loan taken on February 1 20x1.
11% P65,000 loan taken of September 1, 20x1.
from UBANK:
12% P22,000 loan taken on March 1, 20x1.
12.5% P35,000 loan taken on June 1, 20x1.

Compute the capitalization rate on December 31, 20x1. Round-off ONLY the final answer to a
whole percentage (1 for 1%)."
The correct answer is: 7

The financial statements of an entity that reports in the currency of a hyperinflationary economy
should be stated in terms of the average measuring unit at the balance sheet date.
The correct answer is 'False'.

The correct answer is:

A retirement benefit plan by which employees receive benefits based on a formula usually linked
to employee earnings. → Defined benefit plan,

A retirement benefit plan by which benefits to employees are based on the amount of funds
contributed to the plan plus investment earnings thereon. → Defined contribution plan,

An arrangement by which an entity provides benefits (annual income or lump sum) to employees
after they terminate from service. → Retirement benefit plan

IAS 23 Borrowing Costs requires that borrowing costs directly attributable to the acquisition,
construction or production of a 'qualifying asset' (including those that do not necessarily takes a
substantial period of time to get ready for its intended use or sale) are included in the cost of the
asset.
The correct answer is 'False'.

Capitalization should be suspended when substantially all of the activities necessary to prepare
the asset for its intended use or sale are complete
The correct answer is 'False'.

The following approach recognizes grants in profit or loss over one or more periods.
The correct answer is: income approach

At each subsequent balance sheet date non-monetary items carried at fair value should be
reported at the rate that existed when the fair values were determined
The correct answer is 'True'.

"The construction for the new office building stated at the later end of the year. The following
payments to the contractor were made for the year:
June 5. 500,000; Sept 5. 450,000; Oct 5. 250,000.
Compute the average expenditure for the year.
The correct answer is: 215000

At each subsequent balance sheet date non-monetary items carried at historical cost should be
reported using the exchange rate at the date of the transaction
The correct answer is 'True'.

The currency in which financial statements are presented.

The correct answer is: Presentation Currency

Entity A purchased new equipment on account of the construction. The equipment costs
$750,000. The equipment was delivered on June 26. The equipment can be payable in three
installments: September 26, $250,000, December 26, $250,000 and March 26, $250,000.
Determine the amount to be recorded in the books of account, given the peso-dollar exchange
rate on the dates are as follows: June 26: P47.845; September 26: P48.754; December 26:
P48.654; Average: P48.154; December 31: P47.258.

Compute the balance of accounts payable at December 31.

The correct answer is: 11814500

A grant is only recognized when there is reasonable assurance that the entity will comply with
any condition attached to the grant.
The correct answer is 'False'.

"The financial statements of V Company reports the following:

Cash - 23,000; Inventory - 1,500; Accounts payable - 2,500; Sales - 25,000;

Determine how the following accounts should be translated into the presentation currency.
Choose 4 answers.
The correct answers are:
➢ Cash is restated using the closing rate at the date of the statement of financial position,
➢ Inventory is restated using the closing rate at the date of the statement of financial
position,
➢ Accounts payable is restated using the closing rate at the date of the statement of
financial position,
➢ Sales is restated using the exchange rate at the date of the transaction or the average
yearly rate
Regardless of whether there have been transactions between a parent and a subsidiary, an entity
must disclose the name of its parent and, if different, the ultimate controlling party.
The correct answer is 'True'.

On January 1, Company C purchased 35% share in Company D. During the year, Company D
reported net income of P3,500,000. Additional data on Company D revealed the following:

5% cumulative prefer share dividends of P450,000

4% non-cumulative prefer share dividends of P50,000 declared.

On December 31, Company C received a cash dividend of P120,000.

Compute investment balance after adjustment.

The correct answer is: 6380000

On January 1, 20x1, B Company purchased 2,000 shares of the 8,000 shares outstanding of A
Company for a total of P2,700,000. The purchase was equal to 25% of the net assets of A
Company. During the year, A Company reported a net income of P1,450,000 and declared
dividends of P650,000.

Compute income from investment for the period.

The correct answer is: 200000

The report of a defined contribution plan should contain a statement of net assets available for
benefits and a description of the funding policy.
The correct answer is 'True'.

Retirement benefit plan investments need not be carried at fair value.

The correct answer is 'False'.

Entity B operates in a hyperinflationary economy. At the end of the year, the total sales of Entity
B reached P400,000, while the balance of accounts receivable was at P75,000. During the year,
it was recorded that equipment costing P150,000 was purchased on October 1 where the price
index recorded was 120. The equipment was not yet paid at the end of December 31. Assuming
that the sales activity was relatively even during the entire year, how should the following be
restated?
Determine which among these listed below are true. You may choose 4 answers.
The correct answers are:
➢ Sales should be restated using the average price index,
➢ Accounts receivable does not need to be restated,
➢ Equipment should be restated using the October 1 price index,
➢ Accounts payable should not be restated

At initial recognition, a purchase of equipment is recorded using the

The correct answer is: spot exchange rate at the date of transaction
An entity recognises a dividend from a subsidiary, joint venture or associate in profit or loss in
its separate financial statements when its right to receive the dividend in established.
The correct answer is 'True'.

The financial statements of an entity that does not have a subsidiary, associate or joint venturer's
interest in a joint venture are not separate financial statements.
The correct answer is 'True'.

Which of the following is considered a related party:

The correct answer is: a close member of that person's family that has control or joint control
over the reporting entity

IAS 27 mandates which entities produce separate financial statements The correct answer is
'False'.

Financial statements in which the equity method is applied are separate financial statements.
The correct answer is 'False'.

A grant related to assets presents the income from the grants as a deduction from the related
expenses
The correct answer is 'False'.

Which among the three statements are true:

Top of Form

a.Grants related to depreciable assets are recognized in profit or loss over the periods and in the
proportion in which depreciation expense on those assets is recognized.
b.Grants received as financial aid for expenses or losses already incurred are recognized when
the cost fulfilling the attached condition is incurred.
c. Grants related to non-depreciable assets are recognized in profit or loss immediately.
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The principal issues are which exchange rate(s) to use and how to report the effects of changes in
exchange rates in the financial statements.
The correct answer is 'True'.

After initial recognition, monetary items do not require re-statement

The correct answer is 'False'.

Recognizing government grants in profit or loss on a receipts basis is prohibited.

The correct answer is 'True'.

At each subsequent balance sheet date foreign currency monetary amounts should be reported
using the closing rate
The correct answer is 'True'.

Items such as monetary items that are already stated at the measuring unit at the balance sheet
date are restated.
The correct answer is 'False'.

The currency of the primary economic environment in which the entity operates.
The correct answer is: Functional currency

The Standard (PAS 29) does not establish an absolute rate at which hyperinflation is deemed to
arise - but allows judgment as to when restatement of financial statements becomes necessary.
The correct answer is 'True'.

In the statement of cash flow, the cash flows from the receipt of the grants and the purchase of
the related asset are presented at net, even if the entity uses net presentation.
The correct answer is 'False'.

Match the following items with its proper restatement application under PAS 29:
The correct answer is:
Monetary items → not-restated,
Non-monetary items measured at cost → restated