BSA 2101 – CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

MIDTERM DEPARTMENTAL EXAM REVIEWER

TOPIC COVERAGE:
 Financial Instruments Framework  Inventories
 Cash and Cash Equivalents, Receivables  Biological Assets
 Investment in Debt and Equity Securities

1. Financial assets include

I. Cash
II. an equity instrument of another entity
III. A contractual right to receive cash or another financial asset from another entity
IV. A contractual right to exchange financial assets or financial liabilities with another entity
under conditions that are potentially unfavorable to the entity
a. I only c. I and II
b. I, II, III, and IV. d. I, II and III

2. ABC Inc. has the following items:

I. Inventories
II. Patents purchased from Y Co.
III. Bonds payable
IV. Accounts receivable
Which of these items is(are) considered financial asset(s)?
a. II and IV c. I, II, and IV
b. IV only d. III and IV

3. Statement I: Reclassification of financial assets is permitted only if the entity's business model
objective for its financial assets changes so its previous model assessment would no longer
apply.
Statement II: Financial assets that were irrevocably designated at initial recognition can be
reclassified under certain conditions
a. Both statements are false
b. Both statements are true
c. Statement II is true, Statement I is false
d. Statement I is true, Statement II is false

4. Which of the following is true if an entity reclassifies financial assets?

I. it shall apply the reclassification prospectively from the reclassification date
II. it shall restate any recognized gains, losses or interest from previous periods
a. Both statements are false c. I only
b. Both statements are true d. II only
5. The petty cash account under the imprest fund system is debited
a. When the fund is created and when the size of the funds is increased
b. When the fund is created and every time it is replenished
c. When the fund is created and when the size of the funds is decreased
d. Only when the fund is created

6. All of the following may be included under the heading of "cash" except
a. I.O.U.’s c. checking account balance.
b. coins and currencies. d. bank drafts

7. Statement I: In determining the initial measurement of a long-term note, if the note is a term
note (single payment of principal), the present value factor of an ordinary annuity shall be
used to compute for the present value of the principal.
Statement II: In amortizing long term notes receivables using the effective interest method,
the amortization of a discount for the period is deducted from the initial carrying amount of the
note to arrive at the year-end carrying amount of the note.
a. Statement I is true, Statement II is false c. Statement II is true, Statement I is false
b. Both statements are true d. Both statements are false

8. Assuming that the ideal measure of short-term receivables in the statement of financial
position is the discounted value of the cash to be received in the future, failure to follow this
practice usually does not make the statement of financial position misleading because
a. the amount of the discount is not material.
b. most receivables can be sold to a bank or factor.
c. the allowance for uncollectible accounts includes a discount element.
d. most short-term receivables are not interest-bearing.

9. When a company holds between 20% and 50% of the outstanding stock of an investee, which
of the following statements applies?
a. The investor should always use the equity method to account for its investment.
b. The investor should use the equity method to account for its investment unless circum-
stances indicate that it is unable to exercise "significant influence" over the investee.
c. The investor must use the fair value method unless it can clearly demonstrate the ability
to exercise "significant influence" over the investee.
d. The investor should always use the fair value method to account for its investment.

10. If the objective of an entity’s business model for managing a financial asset is to hold the
financial asset in order to collect contractual cash flows, then the financial asset is most likely
to be classified as
a. FVPL c. amortized cost
b. measured using equity method d. FVOCI
11. Statement I: The Unrealized Holding Gain/Loss—OCI account for equity securities measured
at FVOCI may be transferred to profit or loss once the security has been disposed of.
Statement II: An investment of more than 50 percent of the voting stock of an investee should
lead to a presumption of significant influence over an investee.
a. Statement I is true, Statement II is false
b. Statement II is true, Statement I is false
c. Both statements are true
d. Both statements are false

12. Which of the following incorrectly relates to the provisions of PFRS 9?

a. Unquoted equity instruments are always measured at cost.
b. Unquoted equity instruments whose fair value cannot be reliably determined shall be
measured at cost.
c. Only in limited circumstances may investments in equity instruments be measured at cost
d. All investments in equity instruments must be measured at fair value.

13. Feint Co. accepted delivery of merchandise which it purchased on account. As of December
31, Feine had recorded the transaction, but did not include the merchandise in its inventory.
The effect of this on its financial statements for December 31 would be
a. net income was understated and current liabilities were overstated.
b. net income, current assets, and retained earnings were understated.
c. net income was correct and current assets were understated.
d. No effect on the financial statements

14. Consider the ff. statements:

Statement I: PAS 2 requires the specific identification method of inventory costing where
individual items of inventory can be identified and costed.
Statement II: PAS 2 requires the specific identification method when unit price is low, inventory
turnover is high, and inventories are interchangeable.
a. Both statements are true
b. Statement II is true, Statement I is false
c. Statement I is true, Statement II is false
d. Both statements are false

15. The use of purchase discount lost account implies that cost of a purchased inventory item is
recorded at
a. List price of the item
b. Invoice price of the item.
c. Invoice price less the purchase discount not taken on the item
d. Invoice price less the purchase discount taken on the item
16. Consider the ff. statements:
Statement I: All losses on purchase commitments due to decline in the market price should
be recorded in the period only when the actual purchase is executed, where the accumulated
losses are realized.
Statement II: Determining Lower of Cost or NRV should be done on a per item basis, or by
class of inventory if impairment is attributable to the entire class of inventory.
a. Statement I is true, Statement II is false c. Both statements are false
b. Statement II is true, Statement I is false d. Both statements are true

17. Land related to agricultural activity is accounted

a. At fair value
b. At the resale value separate from the biological asset that has been grown on the land
c. In accordance with PAS 16, Property, Plant, and Equipment, or PAS 40, Investment
Property
d. At fair value in combination with the biological asset that is being grown on the land

18. Consider the ff. statements

Statement I: Bearer plants are accounted for as self-constructed items of property, plant and
equipment.
Statement II: Agricultural produce must be accounted for in the same manner as the bearer
plants that produced them.
a. Both statements are true c. Both statements are false
b. Statement II is true, Statement I is false d. Statement I is true, Statement II is false

19. Agricultural activity

a. Is the management by an entity of the biological transformation of biological assets for
sale, into agricultural produce, or into another biological asset
b. Is the harvested product of the entity's biological asset
c. Is the detachment of agricultural produce from a biological asset or the cessation of a
biological asset's life processes
d. Relates to the processes of growth, degeneration, production and procreation that can
cause changes of quantitative or qualitative nature in a biological asset

20. Where there is a long aging or maturation process after harvest, the accounting for such
products is dealt with by
a. PAS 16, Property, Plant and Equipment c. PAS 41, Agriculture
b. PAS 40, Investment Property d. PAS 2, Inventory
Use the following information for answering questions 21 to 23:
On December 31, 2021, Fay Company appropriately reported a P100,000 unrealized loss. There
was no change during 2022 in the composition of the portfolio of non-trading equity securities
held at fair value through other comprehensive income.

Security Cost Market value

December 21, 2022
A 1,200,000 1,300,000
B 900,000 500,000
C 1,600,000 1,500,000
3,700,000 3,300,000

21. What is the market value of the investment on December 31, 2021?
a. 3,600,000 c. 3,500,000
b. 3,700,000 d. 3,800,000

22. What amount of loss on these securities should be included in the statement of
comprehensive income for the year ended December 31, 2022 as component of other
comprehensive income?
a. 400,000 c. 100,000
b. 300,000 d. 0

23. What cumulative amount of loss on these securities should be reported in the statement
of changes in equity for the year ended December 31, 2022 as component of other
comprehensive income?
a. 100,000 c. 400,000
b. 200,000 d. 0

Use the following information for answering questions 24 and 25:

On January 1, 2021, Cagayan Company purchased equity securities to be held as financial
assets measured at fair value through other comprehensive income.

Market – Market –
Cost
12/31/2021 12/31/2022
Security R 3,000,000 3,200,000 -
Security S 4,000,000 3,500,000 3,700,000
Security T 5,000,000 4,600,000 4,700,000

On January 31, 2022, the entity sold Security R for P3,500,000

24. What amount should be recognized directly in retained earnings as a result of sale of
investment in 2022?
a. 500,000 c. 200,000
b. 300,000 d. 0

25. What cumulative unrealized gain or loss on the remaining financial assets should be reported
in statement of changes in equity for 2018?
a. 600,000 gain c. 300,000 gain
b. 600,000 loss d. 300,000 loss

Use the following information for answering questions 26 and 27:

Company A reported the following information at year-end:
 Share investments of P`1,000,000 that are very actively traded in the stock market.
 Government treasury bills of P2,000,000, with a 10-year term but purchased on
December 31 at which time they had two months to go until maturity.
 Cash of P3,400,000 in the form of coin, currency, saving account and checking
account.
 Commercial papers of P1,500,000 with term of nine months but purchased on
December 31 at which time they had three months to go until maturity.

26. What total amount should be reported as cash?

a. 3,400,000 c. 4,400,000
b. 4,900,000 d. 5,400,000

27. What total amount should be reported as cash equivalents?

a. 2,000,000 c. 3,500,000
b. 1,500,000 d. 4,500,000

Use the following information for answering questions 28 and 29:

Company E is preparing its March 31 bank reconciliation. The following data are available:
February 28 bank reconciliation:
Deposit in transit P1,700
Outstanding checks P3,900
March data: Per Bank Per Book
Balance, February 28 P74,140 P71,940
March deposits reflected 47,600 49,000
March checks reflected (61,700)* (61,000)
Note collected (including P200 interest) 20,000
Service charge (120)
Balance, March 31 P79,920 P59,940
 * Erroneously includes a check Drawn by Company F for P1,500

28. How much is the deposits in transit at March 31?

a. P 300 c. P3,100
b. P1,400 d. P4,500

29. How much is the outstanding checks at March 31?

a. P4,700 c. P6,900
b. P6,200 d. P8,600

30. Thesaurus, Inc. reported a balance of P43,000 in its Cash account at the end of the month.
There were P20,000 deposits in transit and P15,000 outstanding checks. The bank statement
showed a balance of P50,000, including a note with a face value of P15,000, and a P6,000
service charge. How much is the interest on the note collected by the bank?
a. P3,000 c. P 9,000
b. P6,000 d. P12,000

Use the following information on answering questions 31 to 33:

Company G started its business at the beginning of the current year. The entity has
established an allowance for doubtful accounts estimated at 5% of credit sales. During the
year, the entity wrote off P50,000 of uncollectible accounts.
Further analysis has showed that merchandise purchased amounted to P9,000,000 and
its ending inventory was amounting to P1,500,000. The goods were sold at 40% above cost.
The total sales comprise of 80% sales on account and 20% cash sales. The total
collections from customers, excluding cash sales amounted to P6,000,000.

31. What is the cost of goods sold?

a. 7,500,000 c. 3,600,000
b. 5,400,000 d. 6,900,000

32. What is the amount of sales on account?

a. 10,500,000 c. 12,000,000
b. 18,750,000 d. 8,400,000

33. What is the net realizable value of the accounts receivable at year-end?
a. 1,980,000 c. 1,930,000
b. 2,350,000 d. 2,400,000
Use the following information for answering questions 34 and 35:
Company A sold a factory on January 1, 2021 for P7,000,000. The entity received a cash
down payment of P1,000,000 and a 4-year. 12% note for the balance. The note is payable in
equal annual payments of principal and interest of P1,975,400 payables on December 31 of
each year until 2020.

34. What is the interest income for 2021?

a. 840,000 c. 120,000
b. 720,000 d. 975,400

35. What is the carrying amount of the note receivable on December 31, 2021?
a. 4,500,000 c. 4,624,600
b. 4,744,600 d. 4,025,600

36. During 2021, L Company bought the shares of Burwood Company as follows:
June 1 20,000 shares @ P100 2,000,000
December 1 30,000 shares @ P120 3,600,000
5,600,000
If the Average approach is used, what is the gain on sale on the sale of the shares?
a. P1,150,000 c. P150,000
b. P 950,000 d. P550,000

37. During 2021, Company M owned 20% of Company D preference share capital 50% of the
ordinary share capital on December 31, 2021. The investee reported net income of P600,000
for the year ended December 31, 2021.
10% cumulative preference share capital 1,000,000
Ordinary share capital 7,000,000
What is the equity in earnings of the investee for 2021?
a. P270,000 c. P350,000
b. P300,000 d. P250,000

38. On July 1, 2021, P Company purchased Green Company a ten-year 8% bonds with a face
amount of P5,000,000 for P4,200,000. The bonds mature on June 30, 2031 and pays interest
semiannually on June 30 and December 31. Using the interest method, the entity recorded a
bond discount amortization of P18,000 for the six months ended December 31, 2021. What
amount should be reported as the interest income for 2021?
a. P168,000 c. P200,000
b. P182,000 d. P218,000
Use the following information for answering questions 39 and 40:
On January 1, 2021, P Company purchased bonds with a face amount of P8,000,000 for
P7,679,000 as a long-term investment. The stated rate on the bonds is 10% but the bonds
are acquired to yield 12%. The bonds mature at the rate of P2,000,000 annually every
December 31 and the interest is payable annually also every December 31. The entity used
the effective interest method of amortizing discount.

39. What is the interest income for 2021?

a. 800,000 c. 960,000
b. 921,480 d. 767,900

40. What is the carrying amount of the investment in bonds on December 31, 2021?
a. 5,759,250 c. 7,800,480
b. 7,759,250 d. 5,800,480

41. The unadjusted physical inventory of Company L at December 31, 2021 was P3,000,000.
Other information follows:
 Goods were received and recorded on January 2, 2022 with a cost of P180,000.
Information revealed that the term of shipment is FOB shipping point and these goods
were shipped on December 29, 2021.
 Merchandise in the warehouse costing P240,000 was billed to the customer FOB
Shipping point on December 29, 2021. These were excluded from inventory but these
were shipped on January 3, 2022.
How much should Company L report as the inventory in its December 31, 2021 statement of
financial position?
a. 3,000,000 c. 3,240,000
b. 3,180,000 d. 3,420,000

42. B Company had the following consignment transactions during December 2021:
Inventory shipped on consignment to C Company 36,000
Freight paid by B 1,800
Inventory received on Consignment from D 24,000
Freight paid by D 1,000

What amount of consigned inventory should be included in B´S December 31, 2021 statement
of financial position?
a. 24,000 c. 36,000
b. 25,000 d. 37,800
Use the following information for answering questions 43 to 45:
On January 1, 2022, Company Z planted trees on its land. The entity purchased the land two
years ago at a cost of P1,000,000. The trees were considered bearer plants and had
accumulated a cost of P500,000 on December 31, 2026. By January 31, 2027, the trees
produced fruit and the fair value less cost of disposal on such date was P50,000. There was
no harvest during 2027. On December 31, 2028, the fruits were harvested and the fair value
less cost of disposal on such date was P75,000.

43. What is the carrying amount of the property, plant and equipment on December 31, 2027?
a. 1,500,000 c. 1,000,000
b. 1,400,000 d. 0

44. What is the carrying amount of the biological asset on December 31, 2027?
a. 550,000 c. 50,000
b. 450,000 d. 0

45. What amount of gain from change in fair value is recognized for the agricultural produce for
the year ended December 31, 2028?
a. 75,000 c. 25,000
b. 50,000 d. 0
ANSWER KEY:
THEORIES
1. D. I, II and III
2. B. IV only
3. D. Statement I is true, Statement II is false
4. C. I only
5. A. When the fund is created and when the size of the funds is increased
6. A. I.O.U.’s
7. D. Both statements are false
8. A. the amount of the discount is not material.
9. B. The investor should use the equity method to account for its investment unless circum-
stances indicate that it is unable to exercise "significant influence" over the investee.
10. C. amortized cost
11. D. Both statements are false
12. A. Unquoted equity instruments are always measured at cost.
13. B. net income, current assets, and retained earnings were understated.
14. C. Statement I is true, Statement II is false
15. C. Invoice price less the purchase discount not taken on the item
16. B. Statement II is true, Statement I is false
17. C. In accordance with PAS 16, Property, Plant, and Equipment, or PAS 40, Investment
Property
18. D. Statement I is true, Statement II is false
19. A. Is the management by an entity of the biological transformation of biological assets for
sale, into agricultural produce, or into another biological asset
20. D. PAS 2, Inventory

PROBLEMS

21. A. 3,600,000
- Solution:
Total cost 3,700,000
Unrealized loss in 2021 (100,000)
Market value – December 31, 2021 3,600,000
22. B. 300,000
- Solution:
Market value – December 31, 2022 3,300,000
Market value – December 31, 2021 3,600,000
Unrealized loss - 2022 (300,000)
Unrealized loss – December 31, 2021 (100,000)
Cumulative unrealized loss 12/31/2022 (400,000)
Note:
Only the unrealized loss of P300,000 is shown in the statement of comprehensive income
for 2022 as component of other comprehensive income
23. C. 400,000
- Solution:
The cumulative unrealized loss of P400,000, would appear in the statement of changes in
equity. Actually, if the investment is held as financial asset at fair value through other
comprehensive income, the total or cumulative unrealized gain or loss is always the
difference between the market value and the original acquisition cost.

Market value – December 31, 2022 3,300,000

Original acquisition cost 3,700,000
Cumulative unrealized loss 12/31/2022 (400,000)
24. A. 500,000
- Solution:
Sales price – Security R 3,500,000
Historical cost – Security R 3,000,000
Cumulative credit to retained earnings 500,000

25. B. 600,000 loss

- Solution:
Market value Security S – December 31, 2022 3,300,000
Market value Security T – December 31, 2022 3,600,000
Total market value 8,400,000
Historical cost S and T (4,000,000+5,000,000) 9,000,000
Cumulative unrealized loss 12/31/2022 (600,000)

26. A. 3,400,000
- Note: Only the cash of 3,400,000 in the form of coin, currency, saving account and
checking account qualified.

27. C. 3,500,000
- Solution:
Government treasury bills 2,000,000
Commercial papers 1,500,000
Total cash equivalents 3,500,000
The share investments cannot qualify as cash equivalents because although very
actively traded the investments do not have a maturity. The commercial papers are
actually money market placements.

28. C. P3,100
- Solution:
Book deposits P 49,000
Less: Bank deposit - March
Total deposits during March P 47,600
Deposits in Transit- Beginning 1,700 45,900
Deposits in transit, end P 3,100
29. A. P4,700
- Solution:
Book checks P 61,000
Less: Bank checks - February
Checks Paid P 61,700
Outstanding checks, beginning (3,900)
Bank error (1,500) 56,300
Outstanding checks, March 31 P 4,700
30. A. P3,000
- Solution:
Correct cash balance (Schedule 1) P55,000
Balance as accounted for (Schedule 2) 52,000
Interest on note P3,000

Schedule 1:
Balance per bank P50,000
Deposits in transit 20,000
Outstanding checks (15,000)
Correct cash balance P55,000
Schedule 2:
Balance per book P43,000
Proceeds of note 15,000
Service Charge (6,000)
Total P52,000
31. A. 7,500,000
- Solution:
Goods available for sale 9,000,000
Ending inventory (1,500,000)
Cost of goods sold 7,500,000
32. D. 8,400,000
- Solution:
Cost of goods sold 7,500,000
Markup on cost (40% * 7,500,000) 3,000,000
Total Sales 10,500,000
Cash sales (20% * 10,500,000) (2,100,000)
Sales on account 8,400,000
33. A. 1,980,000
- Solution:
Sales on account 8,400,000
Collections (6,000,000)
Amount written off (50,000)
Accounts receivable – December 31 2,350,000
Provision for doubtful accounts (8,400,000 * 5%) 420,000
Accounts written off (50,000)
Allowance for doubtful accounts – December 31 370,000
Accounts receivable 2,350,000
Allowance for doubtful accounts (370,000)
Net realizable value 1,980,000
34. B. 720,000
- Solution:
Sales price 7,000,000
Down payment (1,000,000)
Note receivable – January 1, 2021 6,000,000
Interest income for 2021 (12% * 6,000,000) 720,000
35. B. 4,744,600
- Solution:
Note receivable – January 1, 2021 6,000,000
Principal payment on December 31, 2021:
Annual payment 1,975,400
Interest income (12% * 6,000,000) (720,000) 1,255,400
Carrying amount – December 31, 2021 4,744,600
36. B. 950,000
- Solution:
Average Approach:
Sale price 3,750,000
Cost of shares sold (30,000/60,000 * 5,600,000) 2,800,000
950,000
FIFO Approach:
June 1 December 1
Original shares 20,000 30,000
Stock dividend – 20% 4,000 6,000
Total shares 24,000 36,000
Sales price 3,750,000
Cost of shares sold:
From June 1 (24,000 shares) 2,000,000
From December 1 (6,000 shares)
(6,000/36,000 * 3,600,000) 600,000 2,600,000
Gain on Sales 1,150,000
37. D. P250,000
- Solution:
When an investee has outstanding cumulative preference share capital, an investor
should compute its share of earnings after deducting the investee´s preference
dividends, whether or not such dividends are declared.
Net Income 600,000
Preference dividend (10% * 1,000,000) (100,000)
Net income to ordinary shares 500,000
Share in net income – ordinary shares (50%*500,000) 250,000
38. D. P218,000
- Solution:
Interest received from July 1 to December 31, 2021
(5,000,000 * 8% * 6/12) 200,000
Bond discount amortization 18,000
Interest income for 2021 218,000
39. B. 921,480
- Solution:
Interest income (7,679,000 * 12%) 921,480
Interest received (8,000,000 * 10%) 800,000
Discount amortization 121,480
40. D. 5,800,480
- Solution:
Cost 7,679,000
Discount amortization 121,480
Annual installment (2,000,000)
Carrying amount – December 31, 2021 5,800,480
41. D. 3,420,000
- Solution:
Physical inventory before adjustments, 12/31/2021 3,000,000
Goods in transit shipped FOB shipping point on 12/29/2021 180,000
Merchandise in the warehouse excluded from physical
count, shipped on 01/03/2022 240,000
Inventory, as adjusted 12/31/2021 P3,420,000

Although the merchandise in the warehouse costing P240,000 had been billed FOB shipping
point on December 29, 2021 yet these were actually shipped on January 3, 2022 only, at
which time, title of ownership was transferred to the buyer.
42. D. 37,800
- Solution:
Inventory shipped on consignment to C Company 36,000
Freight paid by B 1,800
Total inventory on consignment 37,800

43. B. 1,400,000
- Solution:
Bearer plants – January 1, 2027 500,000
Depreciation for 2027 (500,000/5) (100,000)
Carrying amount – December 31, 2027 400,000
Land 1,000,000
Total property, plant and equipment 1,400,000
44. C. 50,000 (Agricultural produce growing on bearer plant is considered and measured at FV)
45. C. 25,000
- Solution:
Fair value less cost of disposal – 12/31/2028 75,000
Fair value less cost of disposal – 12/31/2027 (50,000)
Gain from change in fair value 25,000