DE LA SALLE LIPA

College of Business, Economics, Accountancy and Management

Accountancy Department
Theory of Accounts – Reviewer
____________________________________________________________________________________________________________

COVERAGE:
PAS 19 : Employee Benefits as amended
PAS 26: Accounting and Reporting by Retirement Benefit Plans

Direction: Read and select the best answer for the following questions.

1. They are all forms of consideration given by an entity in exchange for services rendered by employee.
a. Remuneration
b. Employee benefits
c. Fringe benefits
d. Compensation
2. PAS 19 enumerates the following types of employee benefits, except
a. Short-term employee benefits
b. Fringe benefits
c. Post-employment benefits
d. Termination benefits
e. Long-term employee benefits, other than post-employment benefits
3. These are employee benefits other than termination benefits which are due to be settled within twelve months after the end of the period in
which the employees rendered the related service.
a. Short-term employee benefits
b. Fringe benefits
c. Post-employment benefits
d. Long-term employee benefits, other than post-employment benefits
4. The following are examples of short-term employee benefits, except
a. Salaries, wages and social security contributions
b. Short-term compensated absences such as paid annual leave and sick leave
c. Profit sharing and bonuses payable within twelve months
d. Nonmonetary benefits, such as medical care, housing, car and free or subsidized goods payable beyond twelve months
5. The following are the basic accounting principles and practice pertaining to short-term employee benefits, except
a. Unpaid short-term employee benefits at the end of the accounting period shall be recognized as accrued expense.
b. Any short-term benefits paid in advance shall be recognized as a prepayment, to the extent, that it will lead to a reduction in
future payments or a cash refund.
c. The cost of the short-term benefits shall be recognized as expense in the period when the economic benefit is given, except
when such cost may be included within the cost of an asset.
d. Actuarial gain or loss is recognized in short-term employee benefits because they are measured on a discounted basis.
6. What are vesting, accumulating compensated absences?
a. Those that are carried forward and can be used in future periods if the current period’s entitlement is not used in full and entitle
employees to a cash payment for unused entitlement on leaving the entity.
b. Those that are not carried forward and can be used in future periods if the current period’s entitlement is not used in full and do
not entitle employees to a cash payment for unused entitlement on leaving the entity.
c. Those that are carried forward and can be used in future periods if the current period’s entitlement is not used in full and do not
entitle employees to a cash payment for unused entitlement on leaving the entity.
d. Those that are not carried forward and can be used in future periods if the current period’s entitlement is not used in full and
entitle employees to a cash payment for unused entitlement on leaving the entity.
7. When shall liability from profit-sharing and bonus plans be recognized?
a. When the entity has paid for the profit-sharing and bonus plans.
b. When the entity has a future obligation to make such payments.
c. When the entity cannot reliably estimate the amount of obligation.
d. When the entity has a present or constructive obligation to make such payments as a result of past events and a reliable
estimate of the obligations can be made.

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 8. These employee benefits are those which are payable after completion of employment, other than termination benefits.
a. Retirement benefits, such as pensions
b. Post-employment life insurance
c. Long-term employee benefits
d. Post-employment medical care
9. These are formal and informal arrangements under which an entity provides post-employment benefits for one or more years.
a. Post-employment benefit plan
b. Termination benefit plan
c. Long-term benefit plan
d. Short-term benefit plan
10. What is a contributory and funded benefit plan?
a. It is a benefit plan wherein the employer and employee make contributions to the retirement benefit plan and wherein the entity
sets aside funds for future retirement benefits by making payments to a funding agency, such as a trustee, bank or insurance
company.
b. It is a benefit plan wherein the only the employer makes contributions to the retirement benefit plan and wherein the entity sets
aside funds for future retirement benefits by making payments to a funding agency, such as a trustee, bank or insurance
company.
c. It is a benefit plan wherein the employer and employee make contributions to the retirement benefit plan and wherein the entity
retains the obligation for the payment of retirement benefits without the establishment of a separate fund.
d. It is a benefit plan wherein only the employer makes contributions to the retirement benefit plan and wherein the entity retains the
obligation for the payment of retirement benefits without the establishment of a separate fund.
11. PAS 19 defines it is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity known as the
fund, and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all
employee benefits relating to employee service in the current and prior periods.
a. Defined benefit plan
b. Defined expense plan
c. Defined contribution plan
d. Defined fund plan
12. The following statements pertain to accounting procedures for a defined contribution plan, except
a. The contribution shall be recognized as expense in the period it is payable.
b. Any unpaid contribution at the end of the period shall be recognized as accrued expense and any expense contribution shall be
recognized as prepaid expense but only to the extent that the prepayment will
c. The obligations are normally undiscounted unless they do not fall wholly within twelve months after the end of the period in which
the employees render the related service.
d. The entity recognizes actuarial gains or losses and uses actuarial assumptions.
13. PAS 19 defines it as a post-employment plan other than defined contribution plan. In this type of plan, an entity’s obligation is to provide
the agreed benefits to employees.
a. Defined benefit plan
b. Defined expense plan
c. Defined payment plan
d. Defined fund plan
14. The following statements pertain to accounting procedures for a defined benefit plan, except
a. The accounting is complex because actuarial assumptions are required to measure the obligation and the expense and there is a
possibility of actuarial gains and losses.
b. The obligations are measured on a discounted basis.
c. The amount recognized as expense is not necessarily the amount of contribution but the amount computed through the use of
complex formula.
d. The defined benefit plan must be fully funded.
15. This is a defined contribution plan or defined benefit plan that pools the assets contributed by various entities that are not under common
control and uses those assets to provide benefits to employees of more than one entity.
a. Multiemployer plan
b. Consolidated plan
c. Merger plan
d. Joint venture plan

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 16. PAS 19 as amended enumerates the following components of defined benefit plan that will be recognized as defined benefit expense for
the period, except
a. Current service cost must be added.
b. Interest cost must be added.
c. Actual return on plan assets must be deducted.
d. Full past service cost must be added.
e. Effect of any curtailment or settlement.
17. PAS 19 as amended provides that actuarial gain or loss shall be accounted using
a. Corridor approach only
b. Full recognition approach only
c. Either A or B
d. Neither A nor B
18. The measurement of the expense components in a defined benefit plan cannot be done by a CPA who lacks the expertise and training in
making actuarial assumptions which is usually made by an actuary. What is the requirement of PAS 19 regarding the engagement of
actuary?
a. PAS 19 require an entity to involve a qualified actuary in the measurement of a defined benefit obligation.
b. PAS 19 does not require and does not encourage an entity to involve a qualified actuary in the measurement of a defined benefit
obligation.
c. PAS 19 encourages but does not require an entity to involve a qualified actuary in the measurement of a defined benefit
obligation.
d. PAS 19 mandates an entity not to involve qualified actuary in the measurement of a defined benefit obligation.
19. What valuation method shall be used in determining the present value of the defined benefit obligation and the related current service cost
and where applicable, past service cost?
a. Accumulated benefit method
b. Projected unit credit method
c. Cash basis method
d. Expected value method
20. It is the increase in the present value of the defined benefit obligation resulting from employee service in the current period.
a. Interest cost
b. Past service cost
c. Actuarial loss
d. Current service cost
21. Interest cost is the increase during a period in the present value of the defined benefit obligation which arises because the benefits are one
period closer to settlement. How is it computed?
a. Beginning fair value of plan assets times expected return on plan assets.
b. Ending fair value of plan assets times expected return on plan assets.
c. Beginning projected benefit obligation times settlement discount rate.
d. Ending projected benefit obligation times settlement discount rate.
22. Plan assets include assets held by a long-term benefit fund and qualifying insurance policies. The conditions for assets held by a long-term
benefit fund are, except
a. The assets are held by an entity, the fund itself, that is legally separate from the reporting entity.
b. The assets are available to pay only employee benefits.
c. The assets are available to the reporting entity’s own creditors even in bankruptcy and can be declared as dividends.
d. The assets cannot be returned to the reporting entity or can be returned only to the reporting entity if the remaining assets of the
fund are sufficient to meet all employee benefit obligations or the assets are returned to the reporting entity to reimburse it for
employee benefits already paid.
23. It is an insurance policy issued by an insurer that is not a related party of the reporting entity and the proceeds of the policy can be used
only to pay employee benefits and are not available to the reporting entity’s own creditors even in bankruptcy.
a. Required insurance policy
b. Fire insurance policy
c. Qualifying insurance policy
d. Life insurance policy
24. The proceeds of the qualifying insurance policy cannot be paid to the reporting entity, except
I. When the proceeds represent surplus assets not needed for the policy to pay employee benefits.
II. When the proceeds are returned to the reporting entity to reimburse it for employee benefits.
a. Either I or II
b. Neither I nor II
c. I only
d. II only

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 25. It is the interest, dividend and other revenue derived from the plan assets, together with realized and unrealized gains or losses on the plan
assets, less any plan administration costs to the extent not included in actuarial assumptions used to measure defined benefit obligation,
and less any tax payable by the plan itself.
a. Return on benefit obligation
b. Return on plan assets
c. Actuarial gain
d. Actuarial loss
26. It is the actuarial present value of all benefits attributed by the pension benefit formula employee service rendered before a specified date
based on future compensation level.
a. Accumulated benefit obligation
b. Fair value of plan asset
c. Projected benefit obligation
d. Accrued benefit cost
27. How shall the ending projected benefit obligation be computed?
a. Beginning PBO plus current service cost plus interest cost plus contribution less benefits paid.
b. Beginning PBO plus current service cost plus interest cost less benefits paid.
c. Beginning PBO plus current service cost less benefits paid.
d. Beginning PBO plus current service cost plus interest cost plus past service cost less benefits paid.
28. How shall the ending fair value of plan assets be computed?
a. Beginning FVPA plus expected return on plan assets plus contribution less benefits paid.
b. Beginning FVPA plus actual return on plan assets plus contribution less benefits paid.
c. Beginning FVPA plus actual return on plan assets plus actuarial gain less benefits paid.
d. Beginning FVPA plus actual return on plan assets plus contribution plus actuarial gain less benefits paid.
29. It is the cost to an entity under a defined benefit plan for services rendered by employees in prior periods resulting from the introduction of
a retirement benefit plan or amendment of existing plan.
a. Current service cost
b. Past service cost
c. Interest cost
d. Actuarial loss
30. Past service cost shall be expensed immediately when additional benefits are vested or not conditional on future employment. If the
benefits are not vested, how shall the past service cost amortized?
a. Using effective interest method of amortization.
b. Using straight line method over the defined benefit term.
c. Using straight line method over the period until the benefits become vested or vesting period.
d. It is not amortized and fully recognized as part of employee benefit expense.
31. Actuarial gain or loss shall be presented in
a. Income from continuing operations of profit or loss
b. Income from discontinued operations of profit or loss
c. Other comprehensive income
d. Retained earnings in statement of changes in equity
32. The following are rules concerning the determination of actuarial gain or loss, except
a. If the actual return on plan assets is higher than the expected return, there is an actuarial gain.
b. If the actual return on plan assets is lower than the expected return, there is an actuarial loss.
c. If the actual benefit obligation is higher than the expected obligation, there is an actuarial loss.
d. If the expected benefit obligation is lower than the actual benefit obligation, there is an actuarial gain.
33. Which of the following is the allowed treatment of actuarial gains and losses according to PAS 19 as amended?
I. Corridor approach
II. Full recognition approach
a. I only
b. II only
c. Either I or II
d. Neither I nor II
34. PAS 19, par. 93, provides that an entity may adopt any systematic method that results in faster recognition of actuarial gains and losses
provided the same basis is applied to both gains and losses and the basis is applied consistently from period to period. In such case, the
full recognition of actuarial gains or losses shall be recognized and presented in the
a. Income from Continuing Operations in the Profit or loss in the Statement of Comprehensive Income
b. Other comprehensive income in the Statement of Comprehensive Income
c. Retained earnings in the Statement of Changes in Equity
d. Income from Discontinued Operations in the Profit or loss in the Statement of Comprehensive Income

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 35. It refers to the excess of the fair value of plan assets over the present value of the defined benefit obligation.
a. Accrued benefit cost
b. Surplus
c. Benefit expense
d. Contribution
36. What discount rate shall be used in making actuarial assumptions?
a. Market yield at the balance sheet date on high quality bonds.
b. Market yield at the balance sheet date on government bonds.
c. Market yield at the balance sheet date on junk bonds.
d. Market yield at the balance sheet date on publicly traded bonds.
37. The following shall be considered by the entity in making actuarial assumptions, except
a. Actuarial assumptions shall be biased and mutually compatible.
b. Actuarial assumptions comprise of demographic and financial assumptions.
c. Post-employment benefit obligations shall be measured on a basis that reflects estimated future salary increase.
d. Demographic assumptions deal with mortality, rate of employee turnover, disability, early retirement and claim rates under
medical plans while financial assumptions deal with discount rate, future salary and benefit levels, future medical costs and
expected return on plan assets.
38. PAS 19 provides that prepaid benefit cost or also known as surplus must not exceed
a. Total of any cumulative unrecognized net actuarial losses and past service cost.
b. Total of any cumulative unrecognized net actuarial losses and present value of any economic benefits available in the form of
refunds from the plan or reduction in future contributions.
c. Total of any unrecognized past service cost and present value of any economic benefits available in the form of refunds from the
plan or reduction in future contributions.
d. Total of any cumulative unrecognized net actuarial losses, unrecognized past service cost and present value of any economic
benefits available in the form of refunds from the plan or reduction in future contributions.
39. If the prepaid benefit cost or surplus exceeds the limit provided by PAS 19, the excess shall
a. Be charged directly to retained earnings
b. Be charged to share premium
c. Be part of employee benefit expense
d. Be charged to fair value of plan assets
40. Which of the following elements shall be presented in the financial statements of an entity providing defined benefit plan to its employees?
a. Prepaid/(Accrued) benefit cost and Employee benefit expense
b. Prepaid/(Accrued) benefit cost, Employee benefit expense, FVPA-end and PBO-end
c. Prepaid/(Accrued) benefit cost, Employee benefit expense, FVPA-end, PBO-end, and Unamortized net actuarial gain
d. Prepaid/(Accrued) benefit cost, Employee benefit expense, FVPA-end, PBO-end, Unamortized net actuarial gain and
Unamortized past service cost.
41. Which of the following transactions will require adjusting entry on the part of an entity providing defined benefit plan to its employees?
a. Benefits paid to employees, employee benefits expense and contribution to the plan asset.
b. Benefits paid to employees and employee benefit expense.
c. Employee benefits expense and contribution to the plan asset.
d. Employee benefits expense, contribution to the plan asset and actuarial gain or loss.
42. An entity shall recognize gains or losses on the curtailment or settlement of a defined benefit plan when the curtailment or settlement
occurs. The gain or loss on curtailment or settlement shall comprise the following, except
a. Any resulting change in the present value of the defined benefit obligation.
b. Any resulting change in the fair value of the plan assets.
c. Any related actuarial gains and losses and past service cost that had not previously been recognized.
d. Any resulting change in the prepaid/(accrued) benefit cost.
43. A curtailment occurs when an entity
I. Is demonstrably committed to make a material reduction in the number of the employees covered by the plan.
II. Amends the terms of the defined benefit plan such that a material element of future service by current employees will no longer
qualify for benefits, or will qualify only for reduced benefits.
a. Neither I nor II
b. Both I and II
c. I only
d. II only

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 44. It occurs when an entity enters into a transaction that eliminates all further legal or constructive obligation for part or all of the benefits
provided under a defined benefit plan.
a. Curtailment
b. Extinguishment
c. Settlement
d. Payment
45. These are employee benefits payable as a result of an entity’s decision to terminate an employee’s employment before the normal
retirement, or an employee’s decision to accept voluntary redundancy in exchange for those benefits.
a. Long-term employee benefits
b. Short-term benefits
c. Termination benefits
d. Post-employment benefits
46. On first adopting PAS 19, an entity shall determine its transitional liability for a defined benefit plan at that date as follows: (except)
a. The present value of the obligation at the date of adoption.
b. Minus the fair value of plan assets at the date of adoption.
c. Minus any unamortized past service cost.
d. Plus the expected return on plan assets.
47. If the transitional liability is more than the liability that would have been recognize at the same date under the entity’s previous accounting
policy, this increase is treated as transition loss. How shall this transition loss on first adopting PAS 19 be accounted for?
a. Recognize the transition loss as expense immediately to be included in the total benefit expense for the current period.
b. Amortize the transition loss on a straight line basis over a maximum of 5 years.
c. Do not account for the transition loss.
d. The entity shall make a irrevocable choice to recognize the transition loss as expense immediately to be included in the total
benefit expense for the current period or amortize the transition loss on a straight line basis over a maximum of 5 years.
48. If the transition liability is lower than the liability that would have been recognized at the same date under the entity’s previous accounting
policy, the decrease shall be treated as transition gain. How shall the transition gain on first adopting PAS 19 be accounted for?
a. Recognize the transition gain immediately.
b. Amortize the transition gain on a straight line basis over a maximum of 5 years.
c. Do not account for the transition gain.
d. The entity shall make a irrevocable choice to recognize the transition gain immediately for the current period or amortize the
transition gain on a straight line basis over a maximum of 5 years.
49. PAS 26 deals with accounting and reporting by retirement benefit plans. It is the standard for the preparation of general purpose financial
statements or financial reports of retirement plans which may be a defined contribution plan or defined benefit plan. In rare circumstances,
a retirement benefit plan may contain characteristics of both defined contribution plan and defined benefit plan. For purpose of PAS 26,
such a hybrid plan is deemed to be a
a. Defined benefit plan
b. Defined contribution plan
c. Either defined benefit plan or contribution plan at the option of the company
d. Neither defined benefit plan nor defined contribution plan
50. The report of defined contribution plan shall contain a statement of net assets available for benefits and a description of the funding policy.
In preparing the “Statement of Net Assets Available for Benefits”, the plan investments shall be carried at
a. Book value
b. Present value
c. Amortized cost
d. Fair value
51. The report of a defined benefit plan shall contain
I. A statement that shows the net assets available for benefits, the actuarial present value of promised benefits, distinguishing between
vested and nonvested benefits, and the resulting excess or deficit.
II. A statement of net assets available for benefits, including either a note disclosing the actuarial present value of promised vested and
nonvested benefits or a reference to this information in an accompanying actuarial report.
a. Either I or II
b. Neither I nor II
c. I only
d. II only
52. The plan investments in a defined benefit plan shall be carried at
a. Book value
b. Present value
c. Amortized cost
d. Fair value

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