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INTERMEDIATE ACCOUNTING 3
FINAL GRADING EXAMINATION
1. The ledger of LEEWAY TOLERANCE Co. as of December 31, 20x1 includes the following:
Assets  
Petty cash fund 14,000
Cash in bank 40,000
Accounts receivable (including ₱30,000 pledged accounts) 70,000
Accounts receivable – assigned 50,000
Equity in assigned receivables 20,000
Notes receivable (including ₱40,000 notes receivable
discounted) 90,000
Notes receivable discounted 40,000
Advances to subsidiary 64,000
Held for trading securities 40,000
Inventory 124,000
Deferred charges 36,000
Cash surrender value 12,000
Bond sinking fund 200,000
Total assets 800,000

Liabilities  
Accounts payable 80,000
Estimated warranty liability 28,000
Loans payable related to assigned receivables (due in 12
months) 30,000
Accrued expenses 26,000
Bonds payable (due on December 31, 20x2) 200,000
Premium on bonds payable 16,000
Total liabilities 380,000

Additional information:
- Petty cash fund includes IOU’s from employees amounting to ₱4,000. The remaining balance of
₱10,000 represents bills and coins.
- The cash in bank balance represents the balance per bank statement. As of December 31, 20x1,
deposits in transit amounted to ₱20,000 while outstanding checks amounted to ₱3,000. Included
in the bank statement as of December 31, 20x1 is an NSF check amounting to ₱16,000.
- Accounts receivable (unassigned) includes uncollectible past due accounts of ₱8,000 which need
to be written-off.
- Also included in accounts receivable (unassigned) is a ₱10,000 receivable from a customer which
was given a special credit term. Under the special credit term, the customer shall pay the ₱10,000
receivable in equal quarterly installments of ₱1,250. The last payment is due on December 31,
20x3.
- The held for trading securities include the reacquisition cost of LEEWAY Co.’s shares amounting
to ₱8,000.
- Inventory includes ₱60,000 goods in transit purchased FOB Destination but excludes ₱24,000
goods in transit purchased FOB Shipping point.

How much is the working capital?


a. 204,000
b. 224,000
c. 246,000
d. 254,000

2. The following statements relate to PAS1 Presentation of Financial Statements. Choose the correct
statement.
a. Many entities also present, outside the financial statements, reports and statements such as
environmental reports and value added statements, particularly in industries in which
environmental factors are significant and when employees are regarded as an important user
group. Reports and statements presented outside financial statements should be accounted
for using applicable PFRSs.
b. Applying a requirement is impracticable when the entity cannot apply it after making every
reasonable effort to do so.
c. An entity whose financial statements do not comply with PFRSs shall make an explicit and
unreserved statement of such noncompliance in the notes. If the entity’s financial statements
do comply with PFRSs, there is no need to make an explicit and unreserved statement of
such compliance in the notes.
d. Financial statements shall not be described as complying with PFRSs unless they comply
with most of the requirements of PFRSs.

3. Which of the following financial statements would not be dated as covering a certain reporting
period?
a. Statement of financial position
b. Statement of profit or loss and other comprehensive income
c. Statement of cash flows
d. Statement of changes in equity

Use the following information for the next two questions:


The records of HACK TO CHOP Co. on December 31, 20x1 showed the following information:
Sales 2,000,000
Sales discounts 20,000
Cost of sales 800,000
Distribution costs 96,000
Administrative costs 240,000
Casualty loss on typhoon 40,000
Dividends received from investments in FVPL 24,000
Dividends received from investment in associate 48,000
Share in the profit of an associate 72,000
Dividends declared and paid 28,000
Interest expense 44,000
Unrealized gain on investments in FVPL 30,000
Unrealized gain on investments in FVOCI 38,000
Income tax expense 300,000
Loss on revaluation 26,000
Remeasurements of the net defined benefit liability (asset) - gain 22,000
Correction of understatement in depreciation in prior year 32,000
Translation adjustment of foreign operation – loss 8,000

4. How much is the other comprehensive income?


a. 42,000
b. 36,000
c. 34,000
d. 26,000

5. How much is the total comprehensive income?


a. 612,000
b. 627,000
c. 516,000
d. 584,000

6. Comprehensive income (or total comprehensive income) includes


a. Profit or loss
b. Other comprehensive income
c. Transactions with owners
d. a and b
e. All of these

7. What is the purpose of reporting comprehensive income?


a. To report changes in equity due to transactions with owners.
b. To report a measure of overall performance of an entity.
c. To replace profit with a better measure.
d. To combine income from continuing operations with income from discontinued operations
and extraordinary items.

8. PFRS 15 applies to
a. contracts with customers.
b. contracts with sellers.
c. all contracts entered into by an entity in the ordinary course of its business.
d. a and b

9. ABC Co., a dealer of medical machines, enters into the following contracts:
I. ABC Co. transfers a machine to X Hospital at contract inception but ABC Co. retains legal
title until the full payment of the consideration.
II. ABC Co. transfers a machine to Y Medical Clinic at contract inception. The consideration is
due after two years. At contract inception, Y is undergoing financial difficulties. This raises
significant doubt in Y’s ability and intention of paying the consideration. ABC Co. cannot
reliably estimate the outcome of the contract.
III. ABC Co. transfers a machine to Z Co. under a lease contract. The contractual period is 5
years, which is equal to the machine’s estimated useful life. At the end of the contract, Z Co.
is given the option of purchasing the machine. ABC’s past experience shows that almost all
customers avail of the purchase option.

Identify the contracts to which PFRS 15 may be applied.


a. Contract 1 c. Contracts 1 and 3
b. Contract 2 d. None of these

10. The consideration received from a contract with a customer that does not meet the criteria under
‘Step 1’ of PFRS 15 is
a. recognized as liability.
b. recorded through memo entry only.
c. disclosed only.
d. b and c

11. A good or service that is not distinct (choose the incorrect statement)
a. shall be combined with the other promises in the contract.
b. may be treated, together with other promises in the contract, as a single performance
obligation.
c. may be identified as a part of a bundle of goods or services or a part of a series of goods or
services to be transferred to the customer.
d. shall be ignored. The entity allocates the transaction price only to the other promises in the
contract that are distinct.

12. According to PFRS 15, revenue from a performance obligation that is not satisfied over time is
recognized
a. over time as the entity progresses towards the complete satisfaction of the obligation.
b. at a point in time when the performance obligation is satisfied.
c. when the contract ceases to be enforceable.
d. a or b

13. Arrange the following steps of revenue recognition in accordance with PFRS 15.
I. Identify the performance obligations in the contract
II. Recognize revenue when (or as) the entity satisfies a performance obligation
III. Determine the transaction price
IV. Identify the contract with the customer
V. Allocate the transaction price to the performance obligations in the contract
a. IV, I, V, III, II c. IV, I, III, V, II
b. III, IV, I, V, II d. IV, III, I, V, II

14. Which of the following must be met before a contract with a customer is accounted for under
PFRS 15?
a. The collection of the consideration must be certain.
b. The contract must be in writing so that there will be no doubt in the customer’s ability and
intention to pay the consideration.
c. The promised goods or services must have already been transferred to the customer.
d. Both contracting parties must acknowledge, whether explicitly or implicitly, the rights and
obligations created under the contract.

15. Which of the following may be treated as a performance obligation to be accounted for
separately?
I. A promise to transfer a distinct good or service
II. A promise to transfer a distinct bundle of goods or services
III. A promise to transfer a series of distinct goods or services that are substantially the same and
have the same pattern of transfer to the customer
IV. A promise that is implied by the entity’s customary business practices which, at contract
inception, creates a valid expectation on the part of the customer that the entity will satisfy
the promise
a. I only c. I, II and III
b. I and II d. all of these

16. A good or service is distinct if:


I. The customer can benefit from the good or service either on its own or together with other
resources that are readily available to the customer.
II. The promise to transfer the good or service is separately identifiable from other promises in
the contract.
a. I only c. I and II
b. II only d. none of these

17. Revenue is recognized when (or as) the entity satisfies a performance obligation. According to
PFRS 15, revenue is measured at
a. the fair value of the consideration received or receivable.
b. the transaction price.
c. the stand-alone selling price of the good or services transferred.
d. the amount of the transaction price allocated to the performance obligation satisfied.

18. According to PFRS 15, the transaction price is allocated to each performance obligation
identified in a contract based on the
a. relative stand-alone prices of the distinct goods or services promised to be transferred.
b. contractual agreement with the customer.
c. expected costs of satisfying the performance obligations.
d. a or b

19. According to PFRS 15, revenue from a performance obligation that is satisfied over time is
recognized
a. over time as the entity progresses towards the complete satisfaction of the obligation.
b. at a point in time when the performance obligation is satisfied.
c. when the contract ceases to be enforceable.
d. a or b
20. ABC Co. enters into a contract with XYZ, Inc. to deliver 2 apples, 3 mangoes and 5 potatoes for a
total consideration of ₱100. In accounting for the contract, which of the following is probably not
true?
a. ABC Co. identifies three performance obligations in the contract.
b. ABC Co. allocates the ₱100 transaction price over the promises to deliver the apples,
mangoes and potatoes on the basis of relative stand-alone selling prices of those goods.
c. The allocation of the transaction price may result to the identification of a discount.
d. No revenue is recognized until all of the 2 apples, 3 mangoes and 5 potatoes are delivered
even though the 2 apples were delivered first before the mangoes and potatoes.

21. Non-current assets are presented as current assets in the statement of financial position
a. only when they are expected to be sold within 12 months from the end of reporting period.
b. only if they are actually sold after the reporting period but before the date of authorization of
the financial statements for issue.
c. only when they qualify as held for sale assets under PFRS 5.
d. never presented as current items.

22. The qualification of an asset to be classified as held for sale after the reporting period but before
the financial statements are authorized for issue
a. is a non-adjusting event after the reporting period.
b. is an adjusting event after the reporting period.
c. is an extraordinary item.
d. a or b

23. A noncurrent asset classified as held for sale in accordance with PFRS 5 has not been sold after a
year. The asset shall continue to be presented as held for sale under PFRS 5 if
a. the delay is due to events beyond the entity’s control.
b. the entity remains committed to its plan to sell the asset.
c. the noncurrent asset is actually sold after the reporting period but before the financial
statements were authorized for issue.
d. a and b

24. According to PFRS 5, gain on impairment reversal on an asset held for sale is
a. recognized for the fair value change during the period.
b. recognized in other comprehensive income.
c. recognized only to the extent of cumulative impairment losses previously recognized.
d. not recognized.

25. The results of discontinued operations are presented separately in the statement of profit or loss
and other comprehensive income
a. as a single amount gross of tax.
b. as a single amount net of tax.
c. as part of the regular line items.
d. a or b

26. According to PFRS 5, held for sale classification is permitted when


a. the noncurrent asset or disposal group is available for immediate sale in its present
condition.
b. the sale is highly probable.
c. a and b
d. the sale actually occurred after the reporting period but before the financial statements were
authorized for issue.

27. According to PFRS 5, assets held for sale are measured at


a. fair value. c. carrying amount.
b. fair value less costs to sell. d. lower of b and c

28. According to PFRS 5, a disposal group may qualify as discontinued operation if


a. it is a component of an entity.
b. it meets the held for sale classification criteria.
c. a and b
d. none of these

29. The results of a discontinued operations are presented in the statement of profit or loss
a. before the profit or loss from continuing operations but after the profit for the year.
b. after the profit or loss from continuing operations but before the profit for the year.
c. separately from the profit or loss from continuing operations and it does not affect the profit
for the year.
d. as an adjustment to the beginning balance of the retained earnings.

30. Which of the following is included in profit from continuing operations?


a. extraordinary items c. other comprehensive income
b. discontinued operations d. income tax expense

31. Entity A’s total shareholders’ equity on January 1, 20x1 was ₱180,000. The following were the
transactions during the year:
 Entity A issued additional share capital amounting to ₱360,000.
 Total income earned amounted to ₱1,000,000.
 Total expenses incurred amounted to ₱560,000.
 Entity A declared dividends of ₱140,000.

How much is the total shareholders’ equity on December 31, 20x1?


a. 840,000
b. 700,000
c. 640,000
d. 540,000

32. Entity A reported profit of ₱340,000 for the year ended December 31, 20x1. Depreciation expense
for the year was ₱100,000. The following are the changes in the operating assets and liabilities of
Entity A during 20x1:

20x1 20x0
Accounts receivable 560,000 300,000
Accounts payable 240,000 120,000

How much is the net cash from operating activities?


a. 820,000
b. 580,000
c. 300,000
d. 100,000

Use the following information for the next two questions:


The following were the cash transactions of Entity A during the period:

Cash receipts from sale of goods 650,000


Cash paid for purchases of inventory 340,000
Cash receipts on loans taken from a bank 200,000
Cash paid for interest expense 20,000
Cash payment for the acquisition of property, plant and
equipment 180,000

33. How much is the net cash from (used in) operating activities?
a. 155,000
b. (155,000)
c. 290,000
d. (290,000)

34. How much is the net cash from (used in) investing activities?
a. 180,000
b. (180,000)
c. 20,000
d. 0

Use the following information for the next three questions:


The comparative statement of financial position and statement of comprehensive income of Entity A
on December 31, 20x1 are shown below:

Entity A
Statement of Financial Position
As of December 31, 20x1

ASSETS 20x1 20x0


Cash and cash equivalents 440,000 200,000
Trade and other receivables 130,000 120,000
Inventory 120,000 480,000
Prepaid assets 40,000 160,000
Total current assets 730,000 960,000

Property, plant & equipment 760,000 440,000


Total noncurrent assets 760,000 440,000

1,490,00 1,400,00
TOTAL ASSETS 0 0

LIABILITIES
Trade and other payables 620,000 560,000

EQUITY
Owner’s capital 870,000 840,000

TOTAL LIABILITIES & 1,490,00 1,400,00


EQUITY 0 0
   

Entity A
Statement of Comprehensive Income
For the year ended December 31, 20x1

Sales 1,000,000
Cost of sales (600,000)
GROSS PROFIT 400,000
Rent income 150,000
Depreciation expense (240,000)
Insurance expense (120,000)
Bad debts expense (30,000)
Loss on sale of equipment (40,000)
PROFIT FOR THE YEAR 120,000
Other comprehensive income -
COMPREHENSIVE INCOME FOR THE
120,000
YR.

Additional information:
 Equipment with carrying amount of ₱240,000 was sold for ₱200,000 resulting to a loss on sale of
₱40,000.
 Acquisition of equipment for cash amounted to ₱800,000.
 Owner drawings totalled ₱90,000.

35. How much is the cash flows from (used in) operating activities?
a. 930,000
b. (930,000)
c. 400,000
d. (400,000)
36. How much is the cash flows from (used in) investing activities?
a. 600,000
b. (600,000)
c. 400,000
d. (400,000)

37. How much is the cash flows from (used in) financing activities?
a. 440,000
b. (440,000)
c. 90,000
d. (90,000)

38. Year-end net assets would be overstated and current expenses would be understated as a result
of failure to record which of the following adjusting entries?
a. Expiration of prepaid insurance
b. Depreciation of fixed assets
c. Accrued wages payable
d. All of these

39. Dane Co. received merchandise on consignment. As of March 31, Dane had recorded the
transaction as a purchase and included the goods in the physical count of ending inventory.
Dane uses the periodic inventory system. None of the consigned goods have been sold during
the period. The effect of this on its financial statements for March 31 would be
a. no effect.
b. profit is correct but current assets and current liabilities are overstated.
c. profit, current assets and current liabilities are overstated.
d. profit and current liabilities are overstated.

40. If the cost of ordinary repairs is capitalized as an addition to the building account during the
current year,
a. net income for the current year will be understated.
b. stockholders' equity at the end of the current year will be understated.
c. total assets at the end of the current year will not be affected.
d. total liabilities at the end of the current year will not be affected.

41. ABC Co. completes the draft of its December 31, 20x1 year-end financial statements on January
31, 20x2. On February 5, 20x2, the board of directors reviews the financial statements and
authorizes them for issue. The entity announces its profit and selected other financial
information on February 23, 20x2. The financial statements are made available to shareholders
and others on March 1, 20x2. The shareholders approve the financial statements at their annual
meeting on March 18, 20x2 and the approved financial statements are then filed with a
regulatory body on April 1, 20x2. Events after the reporting period are those occurring
a. from December 31, 20x1 to February 5, 20x2.
b. from January 1, 20x2 to February 5, 20x2.
c. from January 1, 20x2 to February 23, 20x2.
d. from January 1, 20x2 to March 18, 20x2.
42. These are events that are indicative of conditions that arose after the reporting period.
a. Events after the reporting period c. Adjusting events
b. Non-adjusting events d. all of these

43. Entity A recognized a provision for a pending litigation amounting to ₱50,000 on December 31,
20x1 (end of current reporting period). This amount is reflected in Entity A’s reported profit of
₱600,000 for the year 20x1. Shortly after December 31, 20x1, but before the financial statements
were authorized for issue, the litigation is settled for ₱40,000. The correct profit in 20x1 is
a. 600,000 . c. 640,000.
b. 610,000 . d. 590,000

44. Which of the following is an example of an adjusting event?


a. Major business combination after the reporting period.
b. A building is totally razed by fire after the reporting period.
c. Sale of inventories after the reporting period that gives evidence to their net realizable value
at the end of reporting period.
d. Issuance of shares of stocks after the reporting period.

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


a. Bankruptcy of a customer after the reporting period that indicates that the carrying amount
of a trade receivable at the end of reporting period is impaired.
b. Evidence indicating that an asset is impaired as at the end of the reporting period.
c. Legal proceedings after the reporting period for an incident that occurred before the end of
the reporting period.
d. Significant decline in foreign exchange rates after the reporting period resulting to massive
losses on recognized foreign currency denominated financial instruments.

46. According to PAS 8, in the absence of a PFRS that specifically deals with a transaction,
management shall
a. refer to the concepts under the Conceptual Framework.
b. adopt the provisions of the US GAAP.
c. use its judgment in developing and applying an accounting policy that results in information
that is relevant and reliable.
d. consider the applicability of relevant accounting literature.

47. According to PAS 8, a change in accounting policy is accounted for


a. using a transitional provision, if any.
b. retrospectively.
c. prospectively, if retrospective application is impracticable.
d. a, b or c, whichever is most appropriate

48. This refers to applying a new accounting policy to transactions, other events and conditions as if
that policy had always been applied.
a. Retrospective application c. Prospective application
b. Retrospective restatement d. Impracticable application
49. According to PAS 8, a change in accounting estimate is accounted for
a. using a transitional provision, if any.
b. retrospectively.
c. prospectively.
d. a, b or c, whichever is most appropriate

50. Entity A changes its inventory cost formula from FIFO to weighted average. How should Entity
A account for this change?
a. by retrospective restatement, as a change in accounting policy
b. by prospective application, as a change in accounting estimate
c. by retrospective application, as a change in accounting policy
d. as a correction of prior period error

51. According to PAS 24, related party disclosures are necessary


a. because related party transactions may have resulted to assets and liabilities that were
recognized in the financial statements of the reporting entity.
b. to notify users of financial statements of the fact that related party transactions may not have
been made on arm’s length basis.
c. to indicate the possibility that an entity’s financial position and performance might have
been affected by the existence of such relationship.
d. in order to eliminate or minimize the effects of related party transactions on the financial
statements of the reporting entity.

52. What is overriding consideration when determining the existence of a related party relationship?
a. The ability of one party to affect decisions of another party regarding relevant activities
through the existence of control, joint control or significant influence.
b. The presence of relationship either by consanguinity or affinity.
c. The presence of a significant interest by one party over the other.
d. The presence of significant business transactions and economic dependence between the
parties.

53. Mr. Y and Ms. Z share joint control over Ventures, Inc. Which of the following are related
parties?
a. Mr. Y and Ms. Z c. Ventures, Inc. and PAS 24
b. Ventures, Inc. and Mr. Y d. none of these

54. Entity A is the parent company of Entity B. Which of the following is required to be disclosed in
the group’s (Entity A and B’s) consolidated financial statements?
a. the related party relationship between Entity A and Entity B
b. the related party transactions during the period
c. the outstanding balances in (c)
d. all of these

55. Catalyst Co. is engaged in business process outsourcing. Catalyst subcategorizes its main
services into four: Information Technology, After-sales Support, Accounting, and Offsite Data
Management. Catalyst operates in five major geographical areas: Southeast Asia, North America,
South America, Australia and Europe. Internal reports are based on these five geographical
areas. What is the most appropriate basis of segment reporting for Catalyst?
a. On the basis of the main services provided.
b. On the basis of the geographical areas of operations.
c. On the basis of the domicile country of Catalyst and the rest of the world.
d. Any of these.

56. Segment A qualifies under the 10% test of total revenues but not on the profit or loss and total
assets tests. Segment A
a. is not a reportable segment.
b. is nonetheless included in the “all others” segment.
c. may be reported as a separate segment.
d. all of these

57. Information on an entity’s operating segments is shown below:

Operating segments Total revenue Profit Identifiable assets


A 1,000,000 200,000 4,000,000
B 500,000 120,000 1,000,000
C 300,000 30,000 800,000
D 500,000 50,000 1,700,000
E 200,000 60,000 800,000
F 900,000 400,000 1,000,000
Totals 3,400,000 860,000 9,300,000

The reportable segments are


a. A, B and F c. A, B, C, D and F
b. A, B, D and F d. All segments

58. Entity A wants to publish quarterly interim financial reports. Which of the following standards
may Entity A apply in preparing and presenting its interim financial reports?
a. PAS 1 c. PFRS 1
b. PAS 34 d. a or b

59. If an entity does not prepare interim financial reports,


a. its annual financial statements would not conform to the PFRSs.
b. its annual financial statements should not be described to have been prepared in accordance
with PFRSs
c. the conformance of its annual financial statements with the PFRSs is not affected.
d. a and b

60. Which of the following is correct regarding the provisions of PAS 34?
a. All entities should publish quarterly interim reports.
b. All publicly-listed entities should publish quarterly interim reports.
c. All publicly-listed entities should publish semi-annual interim reports.
d. PAS 34 does not require any entity to publish interim reports, and how often.
61. Interim financial reports prepared in accordance with PAS 34 shall, at a minimum, include
a. semi-annual interim financial statements.
b. complete set of financial statements.
c. condensed set of financial statements.
d. a statement of financial position and an income statement.

62. Entity A publishes quarterly interim financial reports. Entity A’s annual depreciation for items
of PPE is ₱120,000. At the end of the first quarter, Entity A’s inventories have a cost of ₱600,000
and a net realizable value of ₱510,000. Entity A expects that the total employee bonuses (13 th
month pay) that will be paid at year-end will amount to ₱60,000. How much is the total amount
of expense to be recognized from the items described above in Entity A’s first quarter statement
of profit or loss?
a. 120,000 c. 30,000
b. 135,000 d. 270,000

63. Under the cash basis of accounting, revenues are recorded


a. when they are earned and realized.
b. when they are earned and realizable.
c. when they are earned.
d. when they are realized.

64. White Co. wants to convert its 2003 financial statements from the accrual basis of accounting to
the cash basis. Both supplies inventory and office salaries payable increased between January 1,
2003, and December 31, 2003. To obtain 2003 cash basis net income, how should these increases
be added to or deducted from accrual-basis net income?
Supplies inventory Office salaries payable
a. Deducted Deducted
b. Deducted Added
c. Added Deducted
d. Added Added

65. Insurance payments P150,000


Prepaid insurance, Jan. 1 65,000
Prepaid insurance, Dec. 31 85,000
Accrued insurance payable decreased by 35,000

How much is the insurance expense under accrual basis accounting?


a. 205,000
b. 65,000
c. 130,000
d. 95,000

66. Unearned rent, Jan. 1 P170,000


Unearned rent, Dec. 31 85,000
Accrued rent income, Jan. 1 180,000
Accrued rent income, Dec. 31 200,000
Rental payments received 560,000
How much is the Rent income under the accrual basis accounting?
a. 455,000
b. 625,000
c. 665,000
d. 645,000

67. Payments made for income taxes P760,000


Income tax payable increased by 200,000
Deferred tax liability, Jan. 1 360,000
Deferred tax liability, Dec. 31 470,000
Deferred tax asset, Jan. 1 85,000
Deferred tax asset, Dec. 31 65,000

Income tax expense under accrual basis accounting is


a. 1,090,000
b. 960,000
c. 850,000
d. 830,000

68. All of the following may not qualify as “small and medium-sized entity” (SME) except
a. banks c. investment house
b. insurance company d. cooperative

69. Which of the following most likely would not qualify as a “small and medium-sized entity”
(SME)?
a. A cooperative with total assets of ₱3M and liabilities of ₱2M.
b. A real estate company with total assets of ₱350M and liabilities of ₱250M.
c. A finance corporation with total assets of ₱2M and liabilities of ₱1M.
d. All of these entities qualify as SMEs.

70. Generally, non-financial liabilities of SMEs are measured at


a. the present value of future cash flows on the obligation
b. the best estimate of the amount that would be required to settle the obligation at the
reporting date
c. the mid-point value of the obligation
d. fair value

71. Which of the following is incorrect regarding the application and compliance with the PFRS for
SMEs?
a. The application of the PFRS for SMEs, with additional disclosure when necessary, is
presumed to result in financial statements that achieve a fair presentation of the financial
position, financial performance and cash flows of SMEs.
b. The application of the PFRS for SME by an entity with public accountability does not result
in a fair presentation even when a local legislation permits entities with public accountability
to use the PFRS for SMEs.
c. An entity whose financial statements comply with the PFRS for SMEs shall make an explicit
and unreserved statement of such compliance in the notes and on the face of each
component of a complete set of financial statements as provided under the PFRS for SME.
d. Financial statements shall not be described as complying with the PFRS for SMEs unless they
comply with all the requirements of the PFRS for SMEs.

72. According to the PFRS for SMEs, in assessing whether the going concern assumption is
appropriate, management takes into account all available information about the future, which is
at least, but is not limited to,
a. 12 months from the reporting date.
b. two years from the reporting date.
c. 3 months from the reporting date
d. it depends on professional judgment

73. Under the PFRS for SMEs, investments in equity instruments that are not publicly traded and do
not give the entity significant influence, control, or joint control over the investee, shall be
measured at
a. cost less impairment
b. amortized cost
c. fair value unless fair value cannot be measured reliably, in which case , at cost less
impairment
d. fair value with changes in fair value recognized in other comprehensive income

74. An SME shall measure its investment in associate using


a. Fair value model
b. Cost model
c. Equity method
d. any of these

75. Under the PFRS for SMEs, relationships between a parent and its subsidiaries shall be disclosed
a. only when there have been related party transactions.
b. irrespective of whether there have been related party transactions.
c. even when control is lost
d. any of these

76. The ceiling of the threshold for total assets of an SME qualifier is
a. 400M b. 3M c. 350M d. 250M

77. (Use the PFRS for SMEs) On 15 March 20X1 the entity authorized for issue its annual financial
statements for the year ended 31 December 20X0. On 10 March 20X1 the entity’s factory and
several items of equipment were damaged in an earthquake. The event (quake damage):
a. is an adjusting event after the end of the 31 December 20X0 reporting period.
b. is a non-adjusting event after the end of the 31 December 20X0 reporting period.
c. is neither an adjusting event after the end of the 31 December 20X0 reporting period nor a
non-adjusting event after the end of the 31 December 20X0 reporting period.
d. None of these
78. (Use the PFRS for SMEs) Which of the following is a non-adjusting event after the end of the
reporting period that an entity should disclose in its financial statements for 20X5? In each case,
the financial statements for 20X5 have not yet been authorized for issue.
a. An entity has a portfolio of shares with quoted market prices. These are measured at fair
value through profit or loss in accordance with Section 11 of the PFRS for SMEs. After the
end of the reporting period, there was a substantial decline in the stock market. The fair
value of the entity’s portfolio of shares declined significantly.
b. At 31 December 20X5 one individual owned 100 per cent of the entity’s outstanding shares.
In February 20X6 that individual sold 80 per cent of her holding to another party.
c. All of the above.
d. None of these

79. (Use the PFRS for SMEs) The goods or services received or acquired in a share-based payment
transaction are recognized as
a. assets
b. expenses
c. income
d. a or b

80. (Use the PFRS for SMEs) Notes to the financial statements:
a. contain only information required to be disclosed by the PFRS for SMEs that was not
presented in the statement of financial position, statement of comprehensive income,
statement of changes in equity or cash flow statement.
b. contain information required by Section 8 Notes to the Financial Statements without
reference to the other sections of the PFRS for SMEs.
c. contain the information required to be disclosed by the PFRS for SMEs that was not
presented in the statement of financial position, statement of comprehensive income,
statement of changes in equity or statement of cash flows and additional information
relevant to an understanding of the financial statements.
d. None, an SME is not required to present notes.

81. (Use the PFRS for SMEs) The cross-reference between each line item in the financial statements
and any related information disclosed in the notes to the financial statements:
a. is voluntary.
b. is mandatory.
c. depends on the industry.
d. any of these

82. (Use the PFRS for SMEs) The presentation of the notes to the financial statements in a systematic
manner:
a. is voluntary.
b. is mandatory.
c. is mandatory, as far as is practicable
d. any of these

83. (Use the PFRS for SMEs) An entity normally presents the notes in the following order:
a. First, a statement that the financial statements have been prepared in compliance with the
PFRS for SMEs. Second, a summary of significant accounting policies applied. Third,
supporting information for items presented in the financial statements, in the sequence in
which each statement and each line item is presented. Last, any other disclosures.
b. First, supporting information for items presented in the financial statements, in the sequence
in which each statement and each line item is presented. Second, a statement that the
financial statements have been prepared in compliance with the PFRS for SMEs. Third, a
summary of significant accounting policies applied. Last, any other disclosures.
c. First, supporting information for items presented in the financial statements, in the sequence
in which each statement and each line item is presented. Second, a summary of significant
accounting policies applied. Third, a statement that the financial statements have been
prepared in compliance with the PFRS for SMEs. Last, any other disclosures.

84. (Use the PFRS for SMEs) An entity shall disclose in the summary of significant accounting
policies:
a. the measurement basis (or bases) used in preparing the financial statements.
b. all the measurement bases specified in the PFRS for SMEs irrespective of whether they were
used by the entity in preparing its financial statements.
c. the measurement basis (or bases) used in preparing the financial statements and the
accounting policies used that are relevant to an understanding of the financial statements.
d. all of the measurement bases and the accounting policy choices available to the entity (i.e.,
specified in the PFRS for SMEs) irrespective of whether they were used by the entity in
preparing its financial statements.

85. (Use the PFRS for SMEs) Disclosure of information about key sources of estimation uncertainty:
a. is voluntary.
b. is mandatory.
c. is not required.
d. a and c

86. (Use the PFRS for SMEs) Disclosure of information about judgments, apart from those involving
estimations, that management has made in the process of applying the entity’s accounting
policies and that have the most significant effect on the amounts recognized in the financial
statements:
a. is voluntary.
b. is mandatory.
c. is not required.
d. a and c

87. (Use the PFRS for SMEs) On 1 January 20X1 an entity acquired goods for sale in the ordinary
course of business for ₱100,000, including ₱5,000 refundable purchase taxes. The supplier
usually sells goods on 30 days’ interest-free credit. However, as a special promotion, the
purchase agreement for these goods provided for payment to be made in full on 31 December
20X1. In acquiring the goods transport charges of ₱2,000 were incurred: these were due on 1
January 20X1. An appropriate discount rate is 10 per cent per year. The entity shall measure the
cost of inventories at:
a. ₱102,000 b. ₱97,000 c. ₱88,364 d. ₱107,000
88. (Use the PFRS for SMEs) On 31 December 20X1 entity A acquired 30 per cent of the ordinary
shares that carry voting rights of entity B for ₱100,000. Entity A incurred transaction costs of
₱1,000 in acquiring these shares. Entity A has significant influence over entity B. Entity A uses
the cost model to account for its investments in associates. In January 20X2 entity B declared and
paid a dividend of ₱20,000 out of profits earned in 20X1. No further dividends were paid in
20X2, 20X3 or 20X4. A published price quotation does not exist for entity B. At 31 December
20X1, 20X2 and 20X3, in accordance with Section 27 Impairment of Assets, management assessed
the fair values of its investment in entity B as ₱102,000, ₱110,000 and ₱90,000 respectively. Costs
to sell are estimated at ₱4,000 throughout. Entity A measures its investment in entity B on 31
December 20X1, 20X2 and 20X3 respectively at:
a. ₱100,000, ₱100,000, ₱100,000.
b. ₱95,000, ₱95,000, ₱86,000.
c. ₱98,000, ₱106,000, ₱86,000.
d. ₱98,000, ₱101,000, ₱86,000.
e. ₱102,000, ₱110,000, ₱90,000.

89. (Use the PFRS for SMEs) The facts are the same as in the immediately preceding question.
However, in this example, a published price quotation exists for entity B. Entity A measures its
investment in entity B on 31 December 20X1, 20X2 and 20X3 respectively at:
a. ₱100,000, ₱100,000, ₱100,000.
b. ₱95,000, ₱95,000, ₱86,000.
c. ₱98,000, ₱106,000, ₱86,000.
d. ₱98,000, ₱101,000, ₱86,000.
e. ₱102,000, ₱110,000, ₱90,000.

90. (Use the PFRS for SMEs) On 1 January 20X1 an entity acquired a building for ₱95,000, including
₱5,000 non-refundable purchase taxes. The purchase agreement provided for payment to be
made in full on 31 December 20X1. Legal fees of ₱2,000 were incurred in acquiring the building
and paid on 1 January 20X1. The building is held to earn lease rentals and for capital
appreciation. An appropriate discount rate is 10 per cent per year. The entity shall measure the
initial cost of the building at:
a. ₱88,364
b. ₱97,000
c. ₱102,000
d. ₱107,000

91. (Use the PFRS for SMEs) A manufacturer gives warranties at the time of sale to purchasers of its
product. Under the terms of the contract for sale the manufacturer undertakes to make good, by
repair or replacement, manufacturing defects that become apparent within one year from the
date of sale. On the basis of experience, it is probable (i.e., more likely than not) that there will be
some claims under the warranties. Sales of ₱10 million were made evenly throughout 20X1. At
31 December 20X1 the expenditures for warranty repairs and replacements for the product sold
in 20X1 are expected to be made 50 per cent in 20X1 and 50 per cent in 20X2. Assume for
simplicity that all the 20X2 outflows of economic benefits related to the warranty repairs and
replacements take place on 30 June 20X2. Experience indicates that 95 per cent of products sold
require no warranty repairs; 3 per cent of products sold require minor repairs costing 10 per cent
of the sale price; and 2 per cent of products sold require major repairs or replacement costing 90
per cent of sale price. The entity has no reason to believe future warranty claims will be different
from its experience. At 31 December 20X1 the appropriate discount factor for cash flows
expected to occur on 30 June 20X2 is 0.95238. Furthermore, an appropriate risk adjustment factor
to reflect the uncertainties in the cash flow estimates is an increment of 6 per cent to the
probability-weighted expected cash flows. At 31 December 20X1 the entity recognizes a
warranty provision measured at:
a. ₱0.
b. ₱210,000.
c. ₱222,600.
d. ₱113,300.
e. ₱106,000.

92. (Use the PFRS for SMEs) An entity is the defendant in a patent infringement lawsuit. The entity’s
lawyers believe there is a 30 per cent chance that the court will dismiss the case and the entity
will incur no outflow of economic benefits. However, if the court rules in favor of the claimant,
the lawyers believe that there is a 20 per cent chance that the entity will be required to pay
damages of ₱200,000 (the amount sought by the claimant) and an 80 per cent chance that the
entity will be required to pay damages of ₱100,000 (the amount that was recently awarded by
the same judge in a similar case). Other outcomes are unlikely. The court is expected to rule in
late December 20X2. There is no indication that the claimant will settle out of court. A 7 per cent
risk adjustment factor to the probability-weighted expected cash flows is considered appropriate
to reflect the uncertainties in the cash flow estimates. An appropriate discount rate is 10 per cent
per year. At 31 December 20X1 the entity recognizes a provision for the lawsuit measured at:
a. ₱0.
b. ₱100,000.
c. ₱89,880.
d. ₱81,709.

93. (Use the PFRS for SMEs) An entity operates in a jurisdiction where income taxes are payable at a
lower rate on undistributed profits (20 per cent) with an additional amount (10 per cent) being
payable when profits are distributed (i.e., the tax rate on distributed profits is 30 per cent). On 31
December 20X1 the entity expects to propose dividends in March 20X2 of approximately ₱20,000
for the year ended 20X1. The financial statements will be authorized for issue in April 20X2.
Taxable profit for 20X1 is ₱100,000. The entity has temporary differences that are expected to
increase taxable profit in the future for the year 20X1 of ₱30,000. The entity was formed on 1
January 20X1. On 31 December 20X1 the entity should recognize the following:
a. A current tax liability (and expense) of ₱20,000 and a deferred tax liability (and expense) of
₱6,000.
b. A current tax liability (and expense) of ₱20,000 and a deferred tax liability (and expense) of
₱9,000.
c. A current tax liability (and expense) of ₱22,000 and a deferred tax liability (and expense) of
₱6,000.
d. A current tax liability (and expense) of ₱25,000 and a deferred tax liability (and expense) of
₱7,500.
e. A current tax liability (and expense) of ₱30,000 and a deferred tax liability (and expense) of
₱9,000.
94. The disclosure of related party relationships is addressed by this standard.
a. PAS 1
b. PAS 8
c. PAS 10
d. PAS 24

95. The preparation of a statement of cash flows is addressed by this standard.


a. PAS 1
b. PAS 7
c. PFRS 6
d. a and b

96. Inventories are accounted for under


a. PAS 1
b. PAS 2
c. PFRS 5
d. PAS 24

97. Events after the reporting period are accounted for under
a. PAS 1
b. PAS 10
c. PFRS 1
d. PAS 24

98. The presentation of financial statements is addressed by this standard.


a. PAS 1
b. PAS 8
c. PFRS 3
d. PAS 28

99. PAS 34 relates to


a. the accounting for inventories.
b. the identification and disclosure of related party relationships.
c. interim financial reporting.
d. the presentation of financial instruments.

100. Which of the following is not one of the current PFRSs?


a. PAS 3
b. PAS 7
c. PAS 8
d. PFRS 5

“It does not matter how slowly you go as long as you do not stop.” - Confucius
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