CFAS Reviewer

(PFRS 6, 7, 8, 9, 10)

1. Exploration and evaluation assets are initially measured at

a. cost.
b. revalued amount.
c. fair value.
d. a or b

2. Exploration and evaluation assets are exploration and evaluation expenditures recognized as
a. assets in accordance with the entity’s accounting policy.
b. expenses in accordance with applicable PFRSs.
c. assets in accordance with (a) above, subject to the limitations provided under PAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors.
d. any of these

3. After recognition, exploration and evaluation assets are accounted for under the
a. cost model
b. fair value model
c. revaluation model
d. a or c

4. Entity A acquires a legal right to search for mineral resources in a specific area. What PFRS should Entity A apply in
accounting for the costs it incurs on its exploration and evaluation activities?
a. PAS 26
b. PFRS 4
c. PFRS 5
d. PFRS 6

5. Mark Ngina’s Sari-sari Store has a sign that reads “Your credit is good but I need cash.” What type of risk is Mr. Mark
trying to avoid by putting up that sign?
a. credit risk
b. market risk
c. liquidity risk
d. store risk

6. How does PFRS 7 define “liquidity risk”?

a. The risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.
b. The risk that an entity will encounter difficulty in disposing a financial asset due to lack of market liquidity.
c. The risk that an entity will encounter difficulty in meeting cash flow needs due to cash flow problems.
d. The risk that an entity’s cash inflows will not be sufficient to meet the entity’s cash outflows.

7. Which of the following properly describes credit risk?

a. The possibility that Entity A will not be able to settle its financial liabilities when they become due.
b. The possibility that Entity A will incur loss on its foreign-currency denominated financial instruments when
there is an adverse change in foreign exchange rates.
c. The possibility that Entity A cannot collect on its receivables.
d. The possibility that Entity A will be required to pay higher interest on its variable-rate loan when market
interest rates increase.
8. ABC Co. has identified the following five operating segments: “Credit,” “Hotel,” “Transportation,” “Grocery,” and
“Events planning.” ABC Co. treats the “Hotel” and “Events planning” as a single segment for internal reporting
purposes. Each of the “Events planning” and “Transportation” segments does not qualify under any of the
quantitative thresholds of PFRS 8. How should ABC Co. disclose its reportable segments?
a. ABC Co. shall treat each of the “Hotel,” “Credit,” and “Grocery” as reportable segments. The other segments
should not be disclosed.
b. ABC Co. shall treat each of the “Hotel,” “Credit,” and “Grocery” as reportable segments. The other segments
should be combined and disclosed in the “All other segments” category.
c. ABC Co. shall treat the “Hotel” and “Events planning” as a single reportable segment and each of the
“Credit” and “Grocery” segments also as reportable segments. The “Transportation” segment shall be
included in the “All other segments” category.
d. ABC Co. shall treat the “Hotel” and “Events planning” as a single reportable segment and combine all the
other segments and report them under the “All other segments” category.

9. An entity recently has acquired a new brand from a competitor company. The brand qualifies as a component of an
entity and represents a major line of business for which discrete financial information is available. This operating
segment does not meet any of the threshold criteria for a reportable segment. Furthermore, this segment is unique
and does not share similar characteristics with the other operating segments of the entity. Which of the following
statements is correct?
a. The entity can disclose this new segment separately if it is a distinguishable component and is used by
management in internal reporting even though it does not meet the PFRS criteria.
b. The entity cannot voluntarily disclose this new segment separately because PFRS 8 discourages voluntary
disclosure of operating segments. Operating segments are reportable only if they either result from
aggregation or qualify under any of the quantitative thresholds.
c. The entity can disclose this new segment separately only if it can be aggregated with another operating
segment and the combined segment qualifies in all of the quantitative thresholds.
d. The entity can disclose this new segment separately only if it can be aggregated with another operating
segment and the combined segment qualifies in any of the quantitative thresholds.

10. According to PFRS 8, a reportable operating segment is one which

a. management uses in making decisions about operating matters.
b. results from aggregation of two or more segments and qualify under any of the quantitative thresholds.
c. a and b
d. none of these

11. Which of the following is not among the quantitative thresholds under PFRS 8?
a. at least 10% of total revenues (external and internal).
b. at least 10% of the higher of total profits of segments reporting profits and total losses of segments
reporting losses, in absolute amount.
c. at least 10% of total assets (inclusive of intersegment receivables).
d. at least 10% of total revenues (external only)

12. According to PFRS 8, disclosures for major customer shall be provided if revenues from transactions with a single
external customer amount to
a. at least 75% of the entity’s external and internal revenues.
b. at least 75% of the entity’s external revenues.
c. 10% or more of the entity’s external revenues.
d. less than 10% of the entity’s external revenues.
13. According to PFRS 9, it is the amount at which a financial asset or a financial liability is measured at initial
recognition minus principal repayments, plus or minus the cumulative amortization using the effective interest
method of any difference between that initial amount and the maturity amount and, for financial assets adjusted for
any loss allowance.
a. cost c. amortized cost
b. carrying amount d. fair value

14. Which of the following is measured at fair value with fair value changes recognized in profit or loss?
a. Held to maturity investments
b. Financial assets designated at FVPL
c. FVOCI
d. All of these

15. If the entity’s business model’s objective is to hold assets in order to collect contractual cash flows and cash flows
are solely payments of principal and interest on the principal amount outstanding, the financial asset is classified
a. according to management’s intention of holding the securities.
b. as financial asset measured at amortized cost.
c. as financial asset measured at fair value through other comprehensive income.
d. any of these

16. Rex Banggawan Co. acquires investment in stocks of Darrell Joe Asuncion. The investment will be held for trading
and it gives Rex neither significant influence nor control over Darrell. Rex will most likely measure the investment
a. at fair value through profit or loss.
b. using the equity method.
c. at amortized cost.
d. at historical cost

17. According to PFRS 10, which of the following is not an element of control?
a. power
b. exposure, or rights, to variable returns
c. major holdings
d. ability to affect return.

Use the following information for the next two questions:

Parent Co. acquires Subsidiary Co. on January 1, 20x1. The financial statements of Parent and Subsidiary on the
acquisition date are shown below:

Parent Co. Subsidiary Co.

Cash in bank 12,000 6,000
Accounts receivable 36,000 14,400
Inventory 48,000 27,600
Investment in subsidiary 90,000 -
Building, net 216,000 48,000
Total assets 402,000 96,000

Accounts payable 60,000 7,200

Share capital 204,000 60,000
Share premium 78,000 -
Retained earnings 60,000 28,800
 Total liabilities and equity 402,000 96,000

Additional information:
o The carrying amounts of subsidiary’s net identifiable assets approximate their acquisition-date fair
values, except for the following:
 Inventory, ₱37,200
 Building, net, ₱57,600

o The computations required under PFRS 3 resulted to the following:

 Goodwill, ₱3,600
 NCI in net assets, ₱21,600.

18. How much is the consolidated total assets on January 1, 20x1?

a. 428,600 c. 430,800
b. 440,800 d. 465,800

19. How much is the consolidated total equity on January 1, 20x1?

a. 336,600 c. 328,600
b. 363,600 d. 336,800

20. What is the account to be eliminated from the books of Parent Co. in the process of liquidation?
a. Investment in subsidiary, P90,000
b. Investment in subsidiary, P88,800
c. Investment in subsidiary, P108,000
d. Investment in subsidiary, P111,600
Answer Key:

1. A
2. A
3. D
4. D
5. A
6. A
7. C
8. C
9. A
10. C
11. D
12. C
13. C
14. B
15. B
16. A
17. C
18. C
Solution:

Entity A Entity B Consolidated

Cash in bank 12,000 6,000 18,000
Accounts rec. 36,000 14,400 50,400
Inventory 48,000 27,600 (48K + 37.2K) 85,200
Inv. in sub. 90,000 - eliminated -
Building, net 216,000 48,000 (216K + 57.6K) 273,600
Goodwill given 3,600
Total assets 402,000 96,000 430,800

Accounts payable 60,000 7,200 67,200

Share capital 204,000 60,000 parent's only 204,000
Share premium 78,000 - parent's only 78,000
Retained earnings 60,000 28,800 parent's only 60,000
NCI in net assets given 21,600
Total liab. & equity 342,000 96,000 430,800

19. B (204,000 + 78,000 + 60,000 + 21,600 (see table above) = 363,600)

20. A