Вы находитесь на странице: 1из 12

Investments in Associates/ Agriculture

Accounting 3A
NAME: Date:
Professor: Section: Score:

1. PAS 28 generally applies when the level of ownership of another company is at what percentage?
a. Less than 20%
b. 20%-30%
c. 20%-50%
d. More than 50%
2. When an investor uses fair value accounting to account for investments in common stock, cash dividends
received by the investor from the investee should normally be recorded as
a. a deduction from the investment account.
b. dividend revenue.
c. an addition to the investor's share of the investee's profit.
d. a deduction from the investor's share of the investee's profit.
3. Under the equity method in PAS 28, goodwill amortization
a. reduces the investment account.
b. increases the investment account.
c. reduces both investment income and the investment account.
d. is not recorded.
4. The equity method of accounting for an investment in the common stock of another company should be
used when the investment
a. is composed of common stock and it is the investor's intent to vote the common stock.
b. ensures a source of supply such as raw materials.
c. enables the investor to exercise significant influence over the investee.
d. gives the investor voting control over the investee.
5. When an investor uses the equity method to account for investments in common stock, the investment
account will be increased when the investor recognizes
a. a proportionate share of the net income of the investee.
b. a cash dividend received from the investee.
c. periodic amortization of the goodwill related to the purchase.
d. depreciation related to the excess of fair value over carrying amount of the investee's depreciable assets
at the date of purchase by the investor.
6. When an investor uses the equity method to account for investments in common stock, cash dividends
received by the investor from the investee should be recorded as
a. an increase in the investment account.
b. a deduction from the investment account.
c. dividend revenue.
d. a deduction from the investor's share of the investee's profits.
7. Dane, Inc., owns 35% of Marin Corporation. During the calendar year 2004, Marin had net earnings of
₱300,000 and paid dividends of ₱30,000. Dane mistakenly recorded these transactions using the fair value
method rather than the equity method of accounting. What effect would this have on the investment
account, net income, and retained earnings, respectively?
a. Understate, overstate, overstate
b. Overstate, understate, understate
c. Overstate, overstate, overstate
d. Understate, understate, understate
8. Under the equity method of accounting for investments, an investor recognizes its share of the earnings in
the period in which the
a. investor sells the investment.
b. investee declares a dividend.
c. investee pays a dividend.
d. earnings are reported by the investee in its financial statements.
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. Byner Corporation accounts for its investment in the common stock of Yount Company under the equity
method. Byner Corporation should ordinarily record a cash dividend received from Yount as
a. a reduction of the carrying value of the investment.
b. additional paid-in capital.
c. an addition to the carrying value of the investment.
d. dividend income.
11. Which of the following is not dealt with by PAS 41?
a. The accounting for biological assets.
b. The initial measurement of agricultural produce harvested from the entity’s biological assets.
c. The processing of agricultural produce after harvesting.
d. The accounting treatment of government grants received in respect of biological assets.
12. Where there is a long aging or maturation process after harvest, the accounting for such products should
be dealt with by
a. PAS 41.
b. PAS 2, Inventories.
c. PAS 16, Property, Plant, and Equipment.
d. PAS 40, Investment Property.
13. Generally speaking, biological assets relating to agricultural activity should be measured using
a. Historical cost.
b. Historical cost less depreciation less impairment.
c. A fair value approach.
d. Net realizable value.
14. Entity A had a plantation forest that is likely to be harvested and sold in 30 years. The income should be
accounted for in the following way:
a. No income should be reported until first harvest and sale in 30 years.
b. Income should be measured annually and reported using a fair value approach that recognizes and
measures biological growth.
c. The eventual sale proceeds should be estimated and matched to the profit and loss account over the
30-year period.
d. The plantation forest should be valued every 5 years and the increase in value should be shown in the
statement of recognized gains and losses.
15. Where the fair value of the biological asset cannot be determined reliably, the biological asset should be
measured at
a. Cost.
b. Cost less accumulated depreciation.
c. Cost less accumulated depreciation and accumulated impairment losses.
d. Net realizable value.
16. Which of the following costs are not included in costs to sell?
a. Commissions to brokers and dealers.
b. Levies by regulatory agencies.
c. Transfer taxes and duties.
d. Transport and other costs necessary to get the assets to a market.
10. Biological assets are
a. Living animals only
b. Living plants only
c. Both living animals and living plants
d. Neither living animals nor living plants
11. It is the management by an entity of the biological transformation and harvest of biological assets for sale or for
conversion into agricultural produce or into additional biological asset.
a. Agricultural activity
b. Biological activity
c. Economic activity
d. Development activity
12. Biological assets are measured at
a. Cost
b. Lower of cost or net realizable value
c. Net realizable value
d. Fair value less costs to sell
13. Agricultural produce is measured at
a. Fair value
b. Fair value less costs to sell at the point of harvest
c. Net realizable value
d. Net realizable value less normal profit margin
14. It is the harvested product of the entity’s biological assets.
a. Agriculture
b. Agricultural produce
c. Harvest
d. Product
15. Agricultural activity includes all of the following, except
a. Raising livestock
b. Perennial cropping
c. Aquaculture
d. Ocean fishing
16. Biological transformation results from asset changes through all of the following, except
a. Growth
b. Degeneration
c. Procreation
d. Production of agricultural produce
17. Which of the following statements in relation to agricultural produce is correct?
I. In all cases, an entity shall measure agricultural produce at the point of harvest at fair value less cost to sell.
II. PAS 41 reflects the view that the fair value of agricultural produce at the point of harvest can always be
measured reliably.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
18. An active market is a market where all of the following conditions exist, except
a. Willing buyers and sellers can normally be found at any time.
b. Prices are available to the public.
c. The items traded are homogeneous.
d. The items traded are heterogeneous.
19. Generally speaking, biological assets relating to agricultural activity shall be measured using
a. Historical cost
b. Historical cost less depreciation less impairment
c. A fair value approach
d. Net realizable value
20. An entity had a plantation forest that is likely to be harvested and sold in 30 years. The income shall be
accounted for in which of the following?
a. No income shall be reported annually until first harvest and sale in 30 years.
b. Income shall be measured annually and reported using a fair value approach that recognizes and measures
biological growth.
c. The eventual sale proceeds shall be estimated and matched to the profit and loss account over the 30- year
period.
d. The plantation forest shall be valued every 5 years and the increase in value shall be recognized as
component of other comprehensive income.
21. Regarding the choice of measurement basis used for measuring biological assets, PAS 41
a. Sets out several ways of measuring fair value.
b. Recommends the use of historical cost.
c. Recommends the use of current cost.
d. Recommends the use of present value.
22. When the fair value of the biological asset cannot be determined reliably, the biological asset shall be measured
at
a. Cost
b. Cost less accumulated depreciation
c. Cost less accumulated depreciation and accumulated impairment loss
d. Net realizable value
23. Which of the following costs should not be included in costs to sell?
a. Commissions to brokers and dealers c. Transfer taxes and duties
b. Levies by regulatory agencies d. Transport cost
24. A gain or loss arising on the initial recognition of a biological asset and from a change in the fair value less costs
to sell of a biological asset shall be included in
a. The profit or loss for the period c. A separate revaluation reserve
b. Other comprehensive income d. A capital reserve within equity
25. Which of the following information shall be disclosed under PAS 41?
a. Separate disclosure of the gain or loss relating to biological assets and agricultural produce.
b. The aggregate gain or loss arising on the initial recognition of biological assets and agricultural produce and
from the change in fair value less costs to sell of biological assets.
c. The total gain or loss from biological assets, agricultural produce, and from changes in fair value less costs
to sell of biological assets.
d. There is no requirement in the standard to disclose separately any gains or losses.
26. Where there is a long aging or maturation process after harvest, the accounting for such products shall be dealt
with by
a. PAS 41, Agriculture c. PAS 16, Property, plant and equipment
b. PAS 2, Inventories d. PAS 40, Investment property
27. When agricultural produce is harvested, the harvest shall be accounted for by using PAS 2, Inventories, or
another applicable PFRS. For the purpose of that standard, cost at the date of harvest is deemed to be
a. The fair value less costs to sell at the point of harvest.
b. The historical cost of the harvest.
c. The historical cost less accumulated impairment losses.
d. Market value.
28. Which of the following is not dealt with by PAS 41?
a. The accounting for biological assets.
b. The initial measurement of agricultural produce harvested from the entity’s biological assets.
c. The processing of agricultural produce after harvesting.
d. The accounting treatment of government grant received in respect of biological assets.
29. Land that is related to agricultural activity is measured
a. At fair value.
b. In accordance with PAS 16, Property, Plant and Equipment, or PAS 40, Investment Property.
c. At fair value in combination with the biological asset that is being grown on the land.
d. At the resale value separate from the biological asset that is being grown on the land.
30. An unconditional government grant related to a biological asset that has been measured at fair value less cost to
sell shall be recognized as
a. Income when the grant becomes receivable.
b. A deferred credit when the grant becomes receivable.
c. Income when the grant application has been submitted.
d. A deferred credit when the grant has been approved.
31. If a government grant related to a biological asset is conditional on certain events, the grant shall be recognized
as
a. Income when the conditions attaching to the grant are met.
b. Income when the grant has been approved.
c. A deferred credit when the conditions attached to the government grant are met.
d. A deferred credit when the grant is approved.
32. Where there is a production cycle of more than one year for a biological asset, PAS 41 encourages separate
disclosure of
a. Physical change only
b. Price change only
c. Total change in value
d. Physical change and price change
33. An entity owns a number of herds of cattle. Where should changes in the fair value of a herd of cattle be
recognized in the financial statements?
a. In profit or loss only
b. In other comprehensive income only
c. In profit or loss or other comprehensive income
d. In the statement of cash flows only
34. All of the following criteria must be satisfied before a biological asset can be recognized in an entity’s financial
statements, except?
a. The entity controls the asset as a result of past event.
b. It is probable that future economic benefits relating to the asset will flow to the entity.
c. An active market for the asset exists.
d. The fair value or cost of the asset can be measured reliably.
35. According to PAS 41, all of the following would be classified as biological assets, except?
a. Dairy cattle
b. Chickens
c. Eggs
d. Trees
36. Which of the following would be classified as agricultural produce?
a. Tree
b. Bush
c. Butter
d. Apple
37. Which of the following would be classified as a product that is the result of processing after harvest?
a. Cotton c. Bananas
b. Wool d. Cheese
38. Which of the following would be disclosed in the Statement of Financial Position as a biological asset under PAS
41?
a. Vines c. Cotton
b. Picked fruit d. Timber
39. The following statements are based on PAS 41 (Agriculture):
I Biological assets and agricultural produce are initially measured at cost.
II any changes in the fair value less costs to sell of biological assets are included in other
comprehensive income.
a. Both statements are true c. Only statement 1 is true
b. Both statements are false d. Only statement 1 is false
40. According to PAS 28 Investments in associates, which of the following statements best describes the term
‘significant influence’?
a. The holding of a significant proportion of the share capital in another entity
b. The contractually agreed sharing of control over an economic entity
c. The power to participate in the financial and operating policy decisions an entity
d. The mutual sharing in the risks and benefits of a combined entity
41. Significant influence is presumed to exist
a. If an investor holds, directly or indirectly (e.g. through subsidiaries), 25% or more of the voting power of the
investee.
b. If an investor holds, directly or indirectly (e.g. through subsidiaries), 51% or more of the voting power of the
investee.
c. If an investor holds, directly or indirectly (e.g. through subsidiaries), 100% or more of the voting power of the
investee.
d. If an investor holds, directly or indirectly (e.g. through subsidiaries), 20% or more of the voting power of the
investee.
42. Which of the following may provide evidence of significant influence even if the percentage of ownership interest
is less than 20%?
I. Representation on the board of directors or equivalent governing body of the investee.
II. Participation in policy-making processes, including participation in decisions about dividends or other
distributions.
III. Material transactions between the investor and the investee
IV. Interchange of managerial personnel.
V. Provision of essential technical information.
a. I, II b. I, II, III c. I, II, IV d. any of these
43. In assessing whether significant influence exists, an investor shall consider any potential voting rights held only
if
a. It intends to exercise the potential voting rights c. A and b
b. The potential voting rights are currently d. They are not considered
exercisable
44. When computing for its share in the associate’s profit or loss, an investor shall use
a. Its present ownership interest
b. Its present ownership interest adjusted for the effect of any potential voting rights
c. The potential voting rights percentage
d. The effective interest rate
45. Under PAS 28, these refer to instruments, which if exercised, give the entity additional voting power or reduce
another party’s voting power over the financial and operating policies of another entity.
a. share rights c. convertible securities
b. share options d. potential voting rights
46. When assessing the existence of significant influence, which of the following shall be considered by the
investor?
a. Potential voting rights that are not exercisable immediately
b. Share options giving the investor the right to purchase preference shares of the investee
c. Stock rights which are exercisable immediately but the entity’s management does not intend to exercise.
d. Potential voting rights that will received in the following accounting period
47. Potential voting rights include all of the following except
a. share warrants and share options
b. convertible preference shares
c. redeemable preference shares
d. convertible bonds
48. Investments accounted for under the equity method are initially recognized at
a. Cost
b. Fair value
c. Fair value plus direct acquisition cost
d. Cost plus or minus share in profit or loss of associate
49. Which of the following does not correctly relate to the application of the equity method?
a. The investor recognizes its proportionate share in the profit or loss, other comprehensive income, and
discontinued operations of the associate
b. Dividends received are accounted for as reduction in the investment balance
c. The investor accounts only its proportionate share in the profit or loss of the associate but not in other
comprehensive income and discontinued operations.
50. Under the equity method, which of the following does not decrease the investment account?
a. Share in associate’s loss
b. Amortization of undervaluation of asset
c. Amortization of overvaluation of asset
d. Share in dividends declared by the associate
51. For investments in associates, the investor shall not
a. Recognize a share in the associate’s other comprehensive income
b. Recognize a share in the associate’s discontinued operations
c. Recognize a share in the associate’s profit or loss
d. Recognize a share in the associate’s revenue, expenses and profit before tax
52. When computing for its share in the associate’s profit or loss, the investor should
I. Deduct one year dividends on cumulative preference shares of the associate held by other parties and
classified as equity, whether declared or not.
II. Deduct one year dividends on noncumulative preference shares of the associate held by other parties and
classified as equity, whether declared or not.
III. Deduct one year dividends in arrears on cumulative preference shares of the associate held by other parties
and classified as equity, whether declared or not.
IV. Deduct dividends on noncumulative preference shares of the associate held by other parties and classified
as equity, when declared only.
V. Not deduct from profit or loss any dividends on ordinary shares before computing for the share in the
associate’s profit or loss.
a. I, IV, V b. I, IV c. II, III, V d. II, III
53. The equity method causes the balance in the investment account to approximate:
a. Original cost of the investment
b. Market value of the investment
c. Original cost of the investment minus any dividends declared and paid by the other company
d. Original cost of the investment plus a proportionate share of subsequent undistributed earnings of the
investee company.
54. How is goodwill arising on the acquisition of an associate dealt with in the financial statements?
a. It is amortized.
b. It is impairment tested individually.
c. It is written off against profit or loss.
d. Goodwill is not recognized separately within the carrying amount of the investment.
55. If the excess of the acquisition cost of an investment accounted for under equity method over the book value of
net assets acquired is attributable to an undervalued depreciable asset and an unidentifiable asset, which of the
following statements is correct
a. The carrying amount of the investment is increased by the proportionate share in the profits earned by the
investee and decreased by the depreciation of the interest in the undervaluation and unaffected by the
separate impairment of the unidentifiable asset
b. The carrying amount of the investment is increased by the depreciation of the interest in the undervaluation
and amortization of the unidentifiable asset
c. The carrying amount of the investment is decreased by the depreciation of the interest in the undervaluation
and decreased by the separate impairment on the unidentifiable asset.
d. Investment income is decreased by the depreciation of the interest in the undervaluation and amortization of
the unidentifiable asset
56. The equity method should be applied in which of the following?
a. The investment is classified as held for sale under PFRS 5
b. The parent is exempted from presenting consolidated financial statements.
c. The investor is an unlisted subsidiary whose parent allows it not to apply equity method
d. The investor previously held only 10% interest but subsequently acquires additional 10% interest in the
associate.
57. Which of the following computations may properly result to the correct balance of an investment in associate
account at year-end?
a. Beginning balance of investment plus share in associate’s profit minus share in dividends declared by
associate, and minus amortization of share in undervaluation of associate’s asset.
b. Beginning balance of investment plus share in associate’s profit minus share in dividends declared by
associate, and plus amortization of share in undervaluation of associate’s asset.
c. Beginning balance of investment plus share in associate’s profit plus share in dividends declared by
associate, and minus amortization of share in undervaluation of associate’s asset.
d. Beginning balance of investment plus share in associate’s profit minus share in dividends declared by
associate, and minus amortization of share in undervaluation of associate’s asset, and minus separate
impairment loss on goodwill included in the carrying amount of the investment.
58. Which of the following computations may properly result to the correct amount of share in associate’s profit or
loss for the period?
a. Share in profit of associate minus amortization of share in the overvaluation of associate’s asset
b. Share in profit of associate minus amortization of share in the undervaluation of associate’s asset
c. Share in profit of associate minus amortization of share in the undervaluation of associate’s asset minus
share in dividends declared by associate
d. Share in profit of associate minus amortization of share in the undervaluation of associate’s asset minus
separate impairment loss on goodwill included in the carrying amount of the investment
59. Which of the following may represent the net change in the investment in associate account during a period?
a. Share in profit of associate minus share in dividends plus increase in the investment in associate account
b. Share in profit of associate minus share in dividends minus increase in the investment in associate account
c. Share in profit of associate minus share in dividends
d. Share in profit of associate plus share in dividends
60. Dividends received from an investment in an associate,
a. If in the form of cash dividends, is credited to investment income
b. If in the form of share dividends, is debited to investment income
c. If in the form of cash dividends, is credited to investment account only if the cash dividends are declared
from pre-acquisition retained earnings.
d. If in the form of share dividends, is recorded through memo entry only
61. The excess of purchase cost of an investment in associate over the fair value of the interest acquired
represents
a. Goodwill that should not be amortized but tested for impairment at least annually
b. Negative goodwill that should be recognized in the investor’s profit or loss in the year of acquisition
c. Negative goodwill that should be deferred and amortized
d. Goodwill that is not required to be accounted for separately
62. The excess of the fair value of the interest acquired over the purchase cost of an investment in associate
represents
a. Goodwill that should not be amortized but tested for impairment at least annually
b. Negative goodwill that should be recognized in the investor’s profit or loss in the year of acquisition
c. Negative goodwill that should be deferred and amortized
63. Significant influence may be lost in any of the following, except
a. When an associate becomes subject to the control of a government, court, administrator or regulator.
b. The investor is precluded, as a result of a contractual agreement, from participating in the financial and
operating policy decisions of the investee.
c. The investor sells half of its 30% interest in an associate
d. The investor sells half of its 20% interest in an associate but retains the voting rights on the investment sold
through proxy agreement
64. On the loss of significant influence, the investor shall do any of the following, except
a. Measure at fair value any investment retained in the former associate.
b. Recognize gain or loss for the difference between the net disposal proceeds received and the carrying
amount of the investment sold
c. Account for the discontinuance of equity method retrospectively.

65. If an investor loses significant influence over an associate,


a. All cumulative gain or loss previously recognized in other comprehensive income is reclassified to profit or
loss.
b. Any cumulative gain or loss previously recognized in other comprehensive income is reclassified directly in
equity or to profit or loss, subject to the requirements of PAS 1.
c. No adjustment to the investment account is necessary
d. The investment should be reclassified and any gain or loss on reclassification is recognized in equity.
66. If an investor’s ownership interest in an associate is reduced but significant influence is not lost,
a. The investor should cease applying the equity method and use PFRS 9 if ownership interest is reduced
below 20% or PFRS 3 and PAS 27 if ownership interest is increased above 50%.
b. The investor shall reclassify to profit or loss or directly in equity only a proportionate amount of the gain or
loss previously recognized in other comprehensive income.
c. The investor continues to use the equity method and since significant influence is not lost, no adjustment is
needed
d. Do nothing
67. If there is any excess of the investor’s share of the net fair value of the associate’s identifiable assets and
contingent liabilities over the cost of the investment, that is, negative goodwill, how should that excess be
treated?
a. It should be included in the carrying amount of the investment.
b. It should be written off against retained earnings.
c. It should be included as income in the determination of the investor’s share of the associate’s profit or loss
for the period.
d. It should be disclosed separately as part of the investor’s equity.
68. The investor’s interest on the undervaluation of depreciable assets of the associate is
a. Amortized using the effective rate and deducted to investment income recognized for the period
b. Depreciated and deducted from the carrying amount of the investment
c. Amortized using the effective rate and added to the carrying amount of the investment and deducted to
investment income
d. Depreciated and deducted from the carrying amount of the investment and investment income recognized
for the period
69. Stock dividends on common stock should be recorded at their fair market value by the investor when the related
investment is accounted for under which of the following methods?
Cost Equity
a. Yes Yes
b. Yes No
c. No Yes
d. No No
70. Which of the following statements is in accordance with the provisions of PAS 28?
I. The income or loss on the investment in associate is computed on the net income after tax of the associate.
II. The income or loss on the investment in associate is presented in the statement of profit or loss and other
comprehensive income after the line item “Income Tax Expense” but before discontinued operations.
a. I b. II c. I and II d. Neither I nor II
71. On January 1, 20x1, Adjacent Inc. purchased 10% of Juxtaposition Co.’s common stock. Adjacent purchased
additional shares bringing its ownership up to 40% of Juxtaposition’s common stock outstanding on August 1,
20x1. During October 20x1, Juxtaposition declared and paid a cash dividend on all of its outstanding common
stock. Under PAS 28, how much income from the Juxtaposition investment should Adjacent’s 20x1 income
statement report?
a. 10% of Juxtaposition’s income for January 1 to July 31, 20x1, plus 40% of Juxtaposition’s income for August
1 to December 31, 20x1.
b. $40% of Juxtaposition’s income for August 1 to December 31, 20x1 only.
c. 40% of Juxtaposition’s 20x1 income.
d. Amount equal to dividends received from Juxtaposition
72. Which of the following statements are in accordance with PAS 28?
I. When the associate has cumulative preference shares, the investor computes its share in the profit or loss
of the investee after deducting the preferred dividends, only when such dividends are declared.
II. When the associate has non-cumulative preference shares, the investor computes its share in the profit or
loss of the investee after deducting the preferred dividends, whether or not such dividends are declared
a. true, true b. true, false c. false, true d. false, false
73. Bell owns 10% of the common stock of War Co. throughout the year. War Co. has no preferred stock
outstanding. Bell’s stock gives him the right to
a. Be paid 10% of the firm’s profits in cash each year
b. Receive dividends equal to 10% of the par value each year
c. Receive dividends equal to 10% of the total dividends paid by the corporation for the year to common
stockholders
d. Keep the corporation from issuing any additional stock unless he is willing to buy 10% of the newly issued
shares
74. Adjustments to the carrying amount of the investment in associate may be necessary for changes in the
investor’s proportionate interest in the investee arising from changes in the investee’s equity that have not been
recognized in the investee’s profit or loss. Which of the following may not necessitate an adjustment to the
investment in associate account?
a. Changes in revaluation surplus of associate
b. Changes in valuation of the associate’s FVOCI securities
c. Changes in the actuarial gains and losses of the associate not amortized through the corridor approach
d. Changes in the Allowance for doubtful accounts of the associate
75. An investor in equity securities received cash dividends in excess of the investor’s share of investee’s earnings
subsequent to the date of the investment. How will the investor’s investment account be affected by those
dividends for each of the following investments?
FVOCI securities Equity method investment
a. No effect No effect
b. Decrease No effect
c. No effect Decrease
d. Decrease Decrease
76. The investment in associate is reduced to zero when
a. The investment in associate is partly reclassified to FVPL
b. The share in the losses of the associate exceeds the share in the profits
c. At no instance should the investment be reduced to zero unless the investment is derecognized through sale
or other forms of disposal
d. The share in the losses of the associate exceeds the investor’s interest in the associate
77. Consider the following statements.
I. In applying Equity Method of accounting for investments in associates, dividends received from the investee
are considered a return of capital and should be credited to stockholders’ equity of the investor.
II. A subsidiary is an affiliate that is not controlled by an enterprise directly or indirectly, through one or more
intermediaries.
State whether the foregoing statements are correct.
a. Only I is correct c. Only II is correct
b. I and II are correct d. Neither I nor II is correct
78. The following statements relate to equity method. Choose the incorrect statements.
a. In accounting for investments in common stock under the equity method, sales of stock of an investee by an
investor, should be accounted for as gains or losses equal to the difference at the time of sales between
selling price and carrying amount of the stock sold.
b. The general rule is that an investor owning 20% or more of the voting stock of an investee is presumed to
have the ability to exercise significant interest over the investee.
c. Under the equity method of accounting, the investments in common stock should be shown as a single
amount, and the investor’s share of earnings or losses from its investment should ordinarily be shown in its
income statement as a single amount including the results or discontinued operations.
79. Wrath Co. uses the equity method to account for its January 1, 2003 purchase of Anger Inc.’s common stock.
On January 1, 2003, the fair values of Anger’s FIFO inventory and land exceeded their carrying amounts. How
do these excesses of fair values over carrying amounts affect Wrath’s reported equity in Anger’s 2003 earnings?
Inventory excess Land excess
a. Decrease Decrease
b. Decrease No effect
c. Increase Increase
d. Increase No effect
80. On May 1, 20x1, Upbeat Company acquired 30% of the voting stock of Reggae Corp. In 20x1, Reggae had net
earnings of P100, 000 and paid dividends of P10, 000. Upbeat mistakenly measured these transactions using
the cost instead of the equity method of accounting. What effect would this have on working capital, dividend
income, and net earnings, respectively?
a. Overstate, overstate, overstate c. No effect, overstate, understate
b. No effect, understate, understate d. Understate, understate, understate
81. Select the incorrect statement.
a. The cost method of accounting for an investment in a subsidiary recognizes the legal fact that the parent
and subsidiary are one economic unit.
b. The net cumulative unrealized gains and losses on investments in equity securities classified as FVOCI and
are accounted for under the cost method are usually measured by the difference between cost and current
selling price.
c. Under the equity method of accounting for long-term investments in equity securities, the investor’s
investment account is decreased by all cash dividends received from the investee.
d. The equity method of accounting for long-term investments in equity securities is based on the presumption
that the investor owns a sufficient number of the outstanding voting shares of another company to exercise
significant influence over the operating and financial policies of the other company.
82. Which of the following statement is the correct statement?
a. At the acquisition date of a long-term investment, the entry would be the same whether the investor uses
PFRS 9 or the equity method under PAS 28.
b. Under PAS 27, an investment in a subsidiary is shown as an asset, while under the equity method, it is
shown as part of equity.
c. Long-term investments are classified as long-term only because they are not readily marketable.
d. Impairment losses on investments in associates are not accounted for under PAS 28.
83. In its financial statements, Musang, Inc. uses the cost measurement of accounting for its 15% ownership of
Kalinga Coffee Co. At December 31, 20x1, Musang has a receivable from Kalinga Coffee. How should the
receivable be reported in Musang’s December 31, 20x1 statement of financial position?
a. The total receivable should be reported separately.
b. The total receivable should be included as part of the investment in Kalinga Coffee, without separate
disclosure.
c. 85% of the receivable should be reported separately, with the balance offset against Kalinga Coffee’s
payable to Musang.
84. When the equity method is used to account for investments in common stock, which of the following affects the
investor’s reported investment income?
Equipment amortization related to purchase Cash dividends from investee
a. Yes Yes
b. No Yes
c. No No
d. Yes No
85. Google Co. received a cash dividend from a common stock investment. Should Google report an increase in
the investment account if it has classified the stock as FVOCI or uses the equity method of accounting?
FVOCI Equity
a. No No
b. Yes Yes
c. Yes No
d. No Yes
86. Bliss Co. uses the equity method to account for its investment in Nirvana, Inc. common stock. How should Bliss
record a 2% stock dividend received from Nirvana?
a. As dividend revenue at Nirvana’s carrying value of the stock.
b. As dividend revenue at the market value of the stock.
c. As a reduction in the total cost Nirvana stock owned.
d. As a memorandum entry reducing the unit cost of all Nirvana stock owned.
87. Which of the following investments in an associate is not within the scope of PAS 28 Investments in
Associates?
a. An associate held by a subsidiary and measured at cost
b. An associate held by a venture capital organization and measured at cost
c. An associate held by a venture capital organization and measured at fair value with changes in fair value
recognized in profit or loss
d. An associate held by a subsidiary and measured at fair value with changes in fair value recognized in profit
or loss
88. Fretboard Company equity account for its 40% interest in Fingerboard Company. Fingerboard’s financial
statements include the following:
Revenue P 600, 000
Cost of Sales (250, 000)
350, 000
Operating expenses (285, 000)
65, 000
Tax (20, 000)
P 45, 000
Are the following statements true or false, according to PAS 28 Investments in Associates?
1) Fretboard’s consolidated revenue should include P240, 000 in respect of Fingerboard.
2) Fretboard’s consolidated profit before tax should include P26, 000 in respect of Fingerboard.
Statement (1) Statement (2)
a. False False
b. False True
c. True False
d. True True
89. An investor must apply the requirements of PAS 36 in determining whether it is necessary to recognize any
impairment loss in the investment in an associate. How is the impairment test carried out?
a. The goodwill is separated from the rest of the investment and is impairment tested individually.
b. The entire carrying amount of the investment is tested for impairment under PAS 36 by comparing its
recoverable amount with its carrying amount.
c. The carrying value of the investment should be compared with its market value.
d. The recoverable amounts of all investments in associates should be assessed together to determine
whether there has been an impairment on all investments.
90. What accounting method should be used for an investment in an associate where it is operating under severe
long-term restrictions – for example where the government of a company has temporary control over the
associate?
a. PFRS 9 should be applied.
b. The equity method should be applied if significant influence can be exerted.
c. The associate should be shown at cost.
d. Proportionate consolidation should be used.
91. If the investor ceases to have significant influence over an associate, how should the investment be treated?
a. It should still be treated using equity accounting.
b. It should be treated in accordance with PFRS 9.
c. The investment should be frozen at the date at which the investor ceases to have significant influence.
d. The investment should be treated at cost.
92. When significant influence is achieved from additional purchase of shares resulting to an increase in ownership
interest,
a. The change to equity method is treated retrospectively, “catch up” adjustments shall be made in order to
restate the accounts to what their balances should be had equity method been used all along.
b. The previous investment is measured at acquisition-date fair value and any difference between this amount
and the previous carrying amount is recognized immediately in profit or loss.
c. PAS 28 and PFRS 3 requires that the investment account be adjusted for any share in cash dividends
declared by the investee in previous periods that were recognized as income.
d. The previous investment is measured at acquisition-date fair value and any difference between this amount
and the previous carrying amount is recognized immediately in profit or loss or other comprehensive income,
as appropriate.
93. Under PAS 28, adjustments to share in profit or loss of an associate may differ if the transaction is
“downstream” or “upstream”. Which of the following statements is true?
I. Jack Co. owns 20% interest in Old Man, Inc. During the year-Old Man sold magic beans to Jack. This is an
upstream transaction.
II. Goldilocks Co. owns 20% interest in Papa Bear, Inc. During the year Goldilocks purchased porridge from
Papa Bear. This is a downstream transaction.
a. true, true b. true, false c. false, true d. false, false
94. Daddeh Co. owns 20% interest in Bebeh Co. During the year, Daddeh sold inventory to Bebeh at 20% gross
profit. As of year-end Bebeh still holds 100% of the inventory. How much share in the profit from the transaction
will Daddeh recognize for the year? Assume income tax rate of 30%.
a. 14% b. 80% c. 2.8% d. none
95. Under PAS 28, it refers to the carrying amount of the investment in the associate under the equity method
together with any long-term interests that in substance, form part of the investor’s net investment in the
associates.
a. investment in associate c. interest in ownership
b. interest in the associate d. none
96. Which of the following may not be included in interest in associate when determining the threshold in
recognizing share in losses of associate?
a. Investment in preference shares of associate
b. Long-term, unsecured, advances to the associate
c. Trade receivables from the associate
d. Investment in associate
97. How is goodwill arising from investments in associates accounted for?
a. Included in the carrying amount of the investment and not amortized but tested separately for impairment at
least annually.
b. Not accounted for separately; however, presented as a separate asset in the investor’s separate financial
statements.
c. Included in the carrying amount of the investment and the entire investment in associate is tested for
impairment under PAS 36.
d. Recognized as a separate asset either in the group financial statements or in the separate financial
statements but not amortized.
98. Investments in associates are normally classified in the statement of financial position as
a. current assets b. noncurrent assets c. fair value d. equity account
99. The investor’s share in the associate’s revaluation surplus is
a. Recognized in the investor’s equity together with the investor’s revaluation surplus
b. Recognized in the investor’s property, plant and equipment with separate disclosure
c. Recognized in the investor’s retained earnings with separate disclosure
d. Not recognized
100. What should happen when the financial statements of an associate are not prepared to the same date as
the investor’s accounts?
a. The associate should prepare financial statements for the use of the investor at the same date as those of
the investor.
b. The financial statements of the associate prepared up to a different accounting date will be used as normal.
c. Any major transactions between the date of the financial statements of the investor and that of the associate
should be accounted for.
101. Preparation of consolidated financial statements is primarily based on the:
a. time period assumption d. cost/benefit constraint
b. full-disclosure principle e. separate entity assumption
c. cost principle
102. The reporting dates of the investor and its associate should not differ by more than
a. one month b. two months c. three months d. six
months
103. When the accounting policies used by the investor and the associate do not match
a. PAS 28 requires appropriate adjustments to the associate’s financial statements to conform them to the
investor’s accounting policies for reporting like transactions and other events in similar circumstances.
b. PAS 28 does not require appropriate adjustments to the associate’s financial statements to conform them to
the investor’s accounting policies for reporting like transactions and other events in similar circumstances
when it was not practicable to use uniform accounting policies
c. PAS 28 requires the entity to discontinue the use of the equity method
d. In no instance should the accounting policies used by the investor and the associate be different.
104. When an entity elects to prepare separate financial statements, it shall account for its investment in
associates
a. at cost
b. using equity method
c. in accordance with PFRS 9
d. a or b
105. PAS 28 applies to which of the following?
a. Investments in associates held by a venture capital organization or mutual fund measured at fair value
through profit or lose
b. A 20% investment in preference shares
c. An interest in a partnership which gives the investor significant influence over the partnership
d. A 60% investment in ordinary shares of another entity
106. An entity shall apply PAS 28
a. To investments which give the entity significant influence over the investee
b. To accounting for investments in associates in the entity’s separate financial statements
c. Even when significant influence is lost
d. Either a or b
107. When investments in equity securities represents 20% to 50% interest in the voting rights of the
investee, which of the following standards most likely would be applied?
1. a. PFRS 9 b. PAS 31 c. PFRS 3 d. PAS 28
108. When equity investments result to joint control, which standard shall be applied?
a. PFRS 9 b. PAS 31 c. PFRS 3 d. PAS 28
109. When equity investments result to control, which standard shall be applied?
a. PFRS 9 b. PAS 31 c. PFRS 3 d. PAS 28
110. In the consolidated financial statements, to which of the following financial instruments is PFRS 9
Financial Instruments applicable?
a. Investments in ordinary shares representing 51% interest
b. Investments in ordinary shares representing 20% interest
c. Interest in a joint venture
d. Investments in preference shares representing 100% interest
111. Which of the following statements is correct?
a. According to PAS 28 Investments in Associates, a partnership cannot be an associate.
b. Goodwill included in the carrying amount of an investment in an associate is tested for impairment
separately.
c. Only investments in ordinary shares can be classified as Investment in Associate.
d. Only investments which give the investor voting rights can be classified as Investment in Associate
112. If ABC Corporation owns a controlling interest of 51% of the equity shares in XYZ Co., ABC
Corporation is a
a. Parent company to XYZ Co. c. Subsidiary company to XYZ Co.
b. Associate company to XYZ Co. d. Fellow subsidiary to XYZ Co.
113. It is an entity, including an unincorporated entity such as a partnership, over which the investor has
significant influence and that is neither a subsidiary nor an interest in a joint venture.
a. association b. subsidiary c. joint venture d. associate
114. It is the power to participate in the financial and operating policy decisions of the investee but is not
control or joint over those policies.
a. significant influenza c. significant influence
b. control d. joint control
115. It is an entity, including an unincorporated entity such as a partnership, that is controlled by another
entity (known as the parent).
a. subsidy b. associate c. joint venture d. subsidiary

Вам также может понравиться