Bulacan State University, Malolos

ACCTG MISC

1)The following does not constitute the definition of discontinued operations, except

1. Component of an entity that is imaginable to be disposed or classified as held for sale
2. Represents a separate major line of business or geographical area of operations
3. Part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations
4. A subsidiary acquired exclusively with a view to resale
   1. I, II and III                                                                            c.    I, III and IV
   2. II, III and IV                                                                         d.    I, II and IV

2. S1. A component of an entity is classified as discontinued operation at the date of entity has actually disposed of the operation, or when the operation meets the criteria to be classified as held for sale. S Prospective classification is allowed by PFRS 5 for a discontinued operation that met the discontinued criteria after the end of the reporting period.
   1. True, True                                                           c. False, True
   2. True, False                                                          d.   False, False

3. S1. If the discontinued criteria are met after the end of the reporting period, the entity can classify the discontinued operation as held for sale in the current financial statements.

S2. Results of discontinued operation shall be shown, gross of tax, as either single or multiple amount in the income statement after the income from continuing operations.

1. 1. True, True                                                           c. False, True
   2. True, False                                                          d.    False, False

4. S1. The assets of the component classified as held for sale shall be presented as a single amount under current liabilities and the liabilities of the component shall be presented as a single amount under current assets.

S2. Noncurrent asset of the component held for sale shall be continued to be depreciated.

1. 1. True, True                                                           c. False, True
   2. True, False                                                          d.    False, False

5. In preparing comparative financial statements, if a disposal group is classified as held for sale in the current year, how will the asset and liabilities of the disposal group be presented?
   1. Reclassify or represent asset and liabilities of prior year (retrospective); reclassify or represent asset and liabilities of current year
   2. Reclassify or represent asset and liabilities of prior year (retrospective); shall not reclassify nor represent asset and liabilities of current year
   3. Shall not reclassify nor represent asset and liabilities of prior year; reclassify or represent asset and liabilities of current year (prospective)
   4. Shall not reclassify nor represent asset and liabilities of prior year; shall not reclassify nor represent asset and liabilities of current year

6. An entity manufactures and sells household products. The entity experienced losses associated with the small appliance group. Operations and cash flows for this group can be clearly distinguished from the rest of the entity’s operations. The entity decided to sell the small appliance group. The following are the latest point at which the entity shall report the small appliance group as a discontinued operation, except

1. When the entity classifies it as held for sale
2. When the entity receives an offer for the segment
3. When the entity first sells any of the assets of the segment
4. When the entity sells the majority of the assets of the segment.
   1. I only                                                                     c.   II and III only
   2. I and II only                                                         d. IV only

7. The following are not requirement for a component of an entity to be classified as a discontinued operation, except

1. The activities must cease permanently prior to the financial statements being authorized for issue
2. The component must be a reportable segment
3. The assets must have been classified as held for sale in the previous financial statements
4. The component must have been a cash generating unit while being held for use
   1. I only                                                                     c.   II and III only
   2. I and II only                                                         d. IV only

8. The following criteria is not required for the results of a component of an entity to be classified as discontinued operations, except

1. Management must have entered into a sale agreement.
2. The component is available for immediate sale.
3. The operations and cash flows of the component shall be eliminated from the operations of the entity as a result of the disposal
4. The entity shall not have any significant continuing involvement in the operation of the component after disposal
   1. I only                                                                                     c.   I, III and IV
   2. II, III and IV                                                                         d.    IV only

9. What is the best evidence an asset’s fair value less cost to sell?
   1. The carrying value of the asset
   2. The fair value in an active market
   3. The selling price in a binding agreement
   4. The best estimate of knowledgeable parties

10. An entity shall measure a noncurrent asset or disposal group classified as ‘held for sale’ at
    1. Carrying amount
    2. Fair value less cost to sell
    3. Carrying amount or ‘fair value less cost to sell’, whichever is lower
    4. Carrying amount or ‘fair value less cost to sell’, whichever is higher

11. S1. Inventories are assets which are held for sale in the ordinary course of business, in the process of production for such sale or in the form of materials or supplies to be consume in the production process or in the rendering of services.

S2. Only items in the warehouse of the entity/owner are inventoriable according to PAS 2.

1. 1. True, True                                                           c. False, True
   2. True, False                                                          d.   False, False

12. S1. FOB destination means that the ownership of the goods purchased is vested in the buyer upon the shipment thereof.

S2. A seller who delivers the goods free alongside bears all expenses and risk of loss until the goods are unloaded at which time title and risk of loss shall pass to the buyer.

1. 1. True, True                                                           c. False, True
   2. True, False                                                          d.    False, False

13. S1. Under perpetual inventory system, the cost of goods sold is computed only at the end of the period by deducting the physical inventory from the total cost of goods available for sale.

S2. When periodic inventory system is used, a physical count of the units on hand should at least be made once a year or frequent intervals to confirm the balances appearing on the stock cards.

1. 1. True, True                                                           c. False, True
   2. True, False                                                          d.    False, False

14. S1. Trade discounts are reductions in the invoice price allowed only when payment is made within the discount group.

S2. Cash discounts are reductions in the list price or catalog price in order to get the invoice price or the amount actually charged to the buyer.

1. 1. True, True                                                           c. False, True
   2. True, False                                                          d.    False, False

15. The following are done when using gross method of recording purchases, except

1. The cost of purchases is measured after deducting cash discounts allowable whether taken or not taken.
2. Cash discounts taken are recorded in a purchases discount account at the time of payment
3. Purchases discount is deducted from purchases when measuring cost of goods sold.
   1. I only                                                                     c.   III only
   2. II only                                                                    d. I and III only

16. The following comprises the cost of purchase of an inventory, except

1. Trade discounts
2. Purchase price
3. Rebates
4. Import duty and irrecoverable tax
5. Cost of conversion
   1. I only                                                                     c.     V only
   2. I and III only                                                       d.    III and IV only

17. The following are included from the cost of inventory and recognized as expenses in the period when incurred, except

1. Storage cost related to goods in process or part-finished goods
2. Abnormal amounts of wasted materials, labor and other production costs
3. Administrative overheads that do not contribute to bringing inventories to their present location and condition
4. Distribution costs
   1. I only                                                                     c.     II and III only
   2. I and II only                                                         d.   IV only

18. The cost of inventory of a service provider comprises of the following, except

1. Labor of personnel directly engaged in providing the service
2. Compensation of supervisor directly engaged in providing the service
3. Administrative compensation of those dealing with clerical administrative duties
4. Attributable overhead incurred in providing the service
   1. I only                                                                     c. I and II only
   2. III only                                                                  d.   III and IV only

19. The following should not be reported as inventory, except

1. Land acquire for resale by a real estate dealer
2. Shares and bonds held for resale by a brokerage firm
3. Partially completed goods held by manufacturing entity
4. Machinery acquired by a manufacturing entity for use in the production process
   1. I, II and III                                                            c.   I, II and IV
   2. II, III and IV                                                         d.   I, III and IV

20. A manufacturer sells merchandise to a retailer which in turn sells the goods to the public. The retailer purchases from the manufacturer under a consignment contract. The following event will not constitute the recognition of revenue by the manufacturer:

1. When goods are sold by the retailer
2. When goods are delivered to the retailer.
3. The recognition depends on the terms of delivery
4. The recognition depends on the terms of payment
   1. I, II and III                                                            c.     I, II and IV
   2. II, III and IV                                                         d.    I, III and IV

21. Interim Reporting. On June 30, 2018, MAE Company incurred a P 100,000 net loss from disposal of a business segment. Also, on June 30, 2018, the entity paid P 40,000 for property taxes assessed for the year 2018. What amount should be included in the determination of net income or loss for the six- month interim period ended June 30, 2018?

A.   P 140,000                                                           C.    P 90,000

B.   P 120,000                                                            D.    P 70,000

22. Interim Reporting. JM Company reported P 4,750,000 net income for the quarter ended September 30, 2018 which included the following after tax items:

• A P 3,000,000 expropriation gain, realized on April 30, 2018, was allocated equally to the second, third, and fourth quarters of 2018.
• An P 800,000 cumulative-effect loss resulting from a change in inventory valuation method, from FIFO to Weighted Average, was recognized on August 1, 2018

The entity paid P 2,400,000 on February 1, 2018, for 2018 calendar year property taxes. Of this amount P 600,000 was allocated to the third quarter ended September 30, 2018. What amount should be reported as net income for the third quarter?

A.   P 4,550,000                                                         C.   P 5,550,000

B.   P 5,150,000                                                          D.    P 5,750,000

23. Hyperinflationary Environment. JB Company reported the following machinery on December 31, 2018:

Index numbers at the end of each year are 120 for 2015, 122 for 2016, 125 for 2017 and 350 for 2018. What should be reported in a hyperinflationary statement of financial position prepared on December 31, 2018 as the carrying amount of the machinery?

A.   P 3,200,000                                                         C.   P 8,960,000

B.   P 7,800,000                                                          D.    P 9,240,000

24. Operating Segment. MJ Company had no intersegment sales and provided the following data for the current year (in thousands):

• The “others” category includes five operating segments, none of which has revenue or assets greater than P 80,000 and none with an operating profit
• Operating Segments 1 and 2 produce similar products and use very similar production processes, but serve differently customer types and use quite different product distribution system

These differences are due in part to the fact that Segment 2 operates in a regulated environment while Segment 1 does not.

• Operating Segments 6 and & have very similar products, production processes, product distribution systems, but are organized as separate divisions since they are substantially different types of customers.

Neither Segments 6 and 7 operate in a regulated environment.

What are the reportable segments for the current year?

1. Segments 1, 3, 4 and 5
2. Segments 1, 3, 4, 5 and 7
3. Segments 1, 2, 3, 4 and 5
4. Segments 1, 3, 4, 5, and Segments 6 and 7 combined as one segment

25. Operating Segment. JBM Company, a publicly owned entity, assesses performance and makes operating decisions using the following information for the reportable segments:

Total Revenue                                   P 7,700,000 Total Profit                                                           500,000

The profit included intersegment profit of P 50,000. In addition, the entity has P 10,000 of common cost for the reportable segments that are not allocated in reports reviewed by the chief operating decision maker.

What amount should be reported as segment profit?

A.   P 550,000                                                             C.    P 500,000

B.   P 510,000                                                             D.   P 450,000

26. Operating Segment. ED Company has three lines of business, each of which was determined to be reportable segment.

The entity sales aggregated P 7,500,000 in the current year, of which Segment No. 1 contributed 40%. Traceable costs were P 1,750,000 for Segment No. 1 out of a total of P 5,000,000 for the entity as a whole.

For external reporting, the entity allocated common costs of P 1,500,000 based on the ratio of a segment’s income before common costs to the total income before common costs.

In the financial statements for the current year, what amount should be reported as profit for Segment No. 1?

A.   P 1,250,000                                                         C.    P 650,000

B.   P 1,000,000                                                           D. P 500,000

27. Discontinued Operations. Jay Company operates two restaurants, one in Potipot and one in Lingayen. The operations and cash flows of each two restaurants are clearly distinguishable.

During 2018, the entity decided to close the restaurant in Lingayen and sell the property. It is probable that the disposal will be completed early next year.

The revenue and expenses for 2018 and for the preceding two years are as follows (in pesos):

The other expenses do not include income tax expense. During the later part of 2018, the entity sold some of the kitchen equipment of the Lingayen restaurant and recognized pretax gain of P 15,000 on the disposal.

What amount should be reported as pretax income or loss from discontinued operation for 2018?

1. P 8,000 loss                                                                         C.   P 5,600 loss
2. P 7,000 gain                                                                        D.   P 1,000 gain

28. Discontinued Operations. On December 31, 2018, MJ Company committed to a plan to discontinue the operations of Lubricant Division.

The fair value of the facilities was P 1,000,000 less than carrying amount on December 31, 2018.

The division’s operating loss for 2018 was P 2,000,000 and the division was actually sold for P 1,200,000 less than the carrying amount in 2019.

The entity estimated that the division operating loss for 2019 would be P 500,000. What amount should be reported as pretax loss from discontinued operation 2018? A.   P 1,000,000                                                                                     C. P 3,000,000

B.   P 2,000,000                                                                          D.    P 3,200,000

29. Discontinued Operations. JAYMAE Company had two operating divisions, one manufactures machinery and the other breeds and sells horses. Both divisions are considered separate components. The horse division has been unprofitable and on November 15, 2018 the entity adopted as formal plan to sell the division. At December 31, 2018 the component was considered for sale.

The sale was completed on April 30, 2019.

On December 31, 2018, the carrying amount of the assets of the horse division was P 5,000,000. On that date, the fair value of the assets less cost of disposal was P 4,000,000.

The before-tax operating loss of the division for the year was P 2,000,000.

The after-tax tax income from continuing operations for 2018 was P 8,000,000. The income tax rate is 30%.

What is the net income for 2018?

A.   P 3,850,000                                                                         C.    P 5,600,000

B.   P 4,500,000                                                                          D. P 6,250,000

30. Discontinued Operations. EMJAY Company had two operating divisions, one manufacturing farm equipment and the other office supplies. Both divisions are considered separate components.

The farm equipment component had been unprofitable and on September 1, 2018, the entity adopted a plan to sell the assets of the division.

The actual sale was effected on December 15, 2018 at a price of P 3,000,000. The carrying amount of the division’s assets was P 5,000,000.

The division incurred before-tax operating loss of P 1,500,000 from the beginning of the year through December 15, 2018.

The entity’s after-tax income from continuing operations is P 9,000,000. The income tax rate is 30%.

What amount should be reported as net income for the current year? A.   P 5,500,000                                                                                     C. P 6,550,000

B.   P 6,300,000                                                                          D.    P 7,600,000

31. Inventory – Error. In reviewing the draft financial statements for the year ended December 31, 2019, TOPAK Company decided that market conditions were such that the provision for inventory obsolescence on December 31, 2019 should be increased by P 3,000,000.

If the same basis of calculating inventory obsolescence had been applied on December 31, 2018, the provision would have been P 1,800,000 higher than the amount recognized in the statement of comprehensive income.

What amount should be made to the net income of 2019?

1. P 3,000,000 decrease                                                      C. P 1,200,000 decrease
2. P 3,000,000 increase                                                       D.   P 1,200,000 increase

32. Using the information from the preceding number, what adjustment should be made to the net income of 2018 presented as comparative figure in the 2019 financial statements?

1. P 3,000,000 increase                                                       C.   P 1,200,000 increase
2. P 1,800,000 decrease                                                      D.                  0

33. Prior Period Error. DPS Company reported the following events during the year ended December 31, 2019:

• A counting error relating to the inventory on December 31, 2018 was discovered. This required a reduction in the carrying amount of inventory at that date of P 2,000,000.
• The provision for uncollectible accounts receivable on December 31, 2018 was P 500,000. During 2019, P 800,000 was written off related to the December 31, 2018 accounts receivable.
• The income tax rate is 30%.

What adjustment is required to restate retained earnings on January 1, 2019? A.   P 2,500,000                                                                                   C. P 1,400,000

B.   P 2,000,000                                                                        D.                   0

34. Inventory – Basic Problem. JMS Company included the following in inventory at year-end:

At what amount should the inventory be reduced?

A.   P 1,350,000                                                                         C.    P 2,400,000

B.   P 2,100,000                                                                          D.    P 3,600,000

35. Inventory – Basic Problem. On August 1, LOVE Company recorded purchases of inventory of P 800,000 and P 1,000,000 under credit terms of 2/15, net 30.

The payment due on the P 800,000 purchase was remitted on August 16. The payment due on the P 1,000,000 purchase was remitted on August 31.

Under the net method and the gross method, these purchases should be included at what respective amounts in the determination of cost of goods available for sale?

Net Method                                       Gross Method A.   P 1,784,000     P 1,764,000

B.                    P 1,764,000                                         P 1,800,000

C.                    P 1,764,000                                         P 1,784,000

D.                    P 1,800,000                                         P 1,764,000

36. Which of the following is not true about accounting for inventory?

1. FIFO is allowed.
2. Interest costs should not be capitalized.
3. The weighted-average method is acceptable.
4. Inventories are always valued at net realizable value.

37. During the year, an entity transferred inventory to another entity and agreed to repurchase the merchandise early in next year. The transferee used the inventory as collateral to borrow from a bank, remitting the proceeds to the transferor. When the transferor repurchased the inventory, the transferee used the proceeds to repay the bank loan. This transaction is known as

1. Assignment for the benefit of creditors.               C. Installment sale.
2. Consignment.                                                                    D. Product financing arrangement.

38. Which is not a common disclosure for inventories

1. Inventory composition                                                  C. Inventory financing arrangement
2. Inventory cost method                                                 D. Inventory location

39. If an item of inventory that was written down to net realizable value in a prior period subsequently recovers, then

1. Previous amount of the write-down can be reversed.
2. Carrying amount of the inventory cannot be adjusted.
3. Value adjustment can be recognized immediately in equity.
4. Adjustment must be recognized in a “provision for future inventory write-downs” account

40. The specific identification method can be used only

1. In income tax returns
2. For financial reporting purpose but not in income tax returns
3. When the individual items in inventory is similar in terms of cost, function, and sales value
4. When the actual cost of individual units can be determined from the accounting records.

41. Generally accepted accounting principles require the selection of an inventory cost flow method which

1. Most clearly reflects the periodic income
2. Yield the most conservative amount of reported income
3. Matches the physical flow of goods for inventory with sales revenue
4. Most closely approximates lower of cost and net realizable value for ending inventory.

42. Under PAS 2, the fixed production overhead is allocated to the inventory units on the basis of production facility’s

1. Actual capacity                                                                  C.   Normal capacity
2. Ideal capacity                                                                     D.   Theoretical capacity

43. Which of the following statements is incorrect regarding LCNRV?

1. In most situations, entities price inventory on a total inventory basis
2. Entities can use an allowance account in reducing inventory at NRV
3. NRV is estimated selling price less estimate cost to complete and cost to make a sale
4. One of two methods may be used to record the income effect of valuating inventory at LCNRV

44. In a perpetual inventory system, recording a sale on account involves debiting which of the following accounts?

1. Only Accounts Receivable.
2. Accounts Receivable and Inventory.
3. Accounts Receivable and Cost of Goods Sold.
4. Accounts Receivable, Cost of Goods Sold, and Inventory.

45. In manufacturing company, the just-in-time concept of inventory management is best illustrated by

1. Setting finished products before they go out of style.
2. An automated factory with reduced production time below that of other companies in the industry.
3. Completing the manufacturing process just before the deadline established by the customer.
4. Receiving deliveries of materials from supplies just before materials are used in the production process.

46. The cost of land typically includes the purchase price and all of the following costs, except

1. Private driveways and parking lots.
2. Grading, filing, draining, and clearing costs.
3. Street lights, sewers, and drainage systems cost.
4. Assumption of any liens or mortgages on the property.

47. The cost of demolition of unwanted building purchased as part of a parcel of land shall be charged to

1. Profit or loss
2. Profit or loss (preferred treatment); cost of land (alternative treatment)
3. Cost of land (preferred treatment); cost of new building (alternative treatment)
4. Cost of new building (preferred treatment); cost of land (alternative treatment)

48. Discounts given for early payment of credit purchases of operational assets should be

1. Recorded as interest revenue at purchase date.
2. Recorded as interest expense at purchase date.
3. Deducted from the invoice price when determining the cost of the asset.
4. Capitalized as cost of the asset acquired and subsequently allocated to depreciation expense.

49. When payment for item of property, plant and equipment is deferred beyond normal credit terms, the difference between the cash price and total payments is

1. charged to retained earnings
2. interest expense over the credit period
3. capitalized as Property, Plant and Equipment
4. interest expense over the useful life of the asset

50. A lessee incurred cost to construct office space in a leased warehouse. The estimated useful life of the office is ten years. The remaining term of the renewable lease is fifteen years. The cost should be

1. Expensed as incurred
2. Capitalized as leasehold improvements and depreciated over ten years
3. Capitalized as leasehold improvements and depreciated over fifteen years
4. Capitalized as leasehold improvements and expensed in the year in which the lease expires

51. A newly acquired plant asset is to be depreciated over its useful life. The rationale for this process is the

1. economic entity assumption                                                       C.   materiality assumption
2. going concern assumption                                                           D.   monetary unit assumption

52. An entity installed a new production facility and incurred a number of expenses at the point of installation. The entity’s accountant is arguing that most expenses do not qualify for capitalization. Included in those expenses are initial operating losses. Those should be

1. Deferred and amortized over a reasonable period of time
2. Expensed and charged to profit or loss in the income statement
3. Capitalized as part of the cost of the plant as a directly attributable cost
4. Taken to retained earnings since it is unreasonable to treat it as part of profit or loss.

53. Accumulated depreciation, as used in accounting, represents

1. Funds set aside to replace assets
2. An expense on the income statement
3. The portion of the asset cost written off as an expense since the acquisition date
4. Earning retained in the business that will be used to purchase another operational asset when the related asset becomes fully depreciated.

54. The following statements are based on PAS 16 (Property, Plant and Equipment):

S1. An entity required to measure the residual value of an item of property, plant and equipment as the amount it estimates it would receive current for the asset if the asset were already of the age and in the condition expected at the end of its useful life.

S2. An entity required to determine the depreciation charged separately for each significant part of an item of property, plant and equipment.

S3. If fair value can be measure reliably, an entity should carry all items of property, plant and equipment of a class at a revalued amount, which is the fair value of the items at the date of the revaluation less any subsequent depreciation and accumulated impairment losses.

1. True, True, True                                                               C.   True, False, False
2. True, True, False                                                              D.    False, True, True

55. Normally, depreciation should not be recognized on plant assets during their construction period. What is the exception?

1. When the length of the construction period is unduly prolonged
2. When the carrying amount of the property cannot be realized through sale
3. When evidence indicates that operations will not produce sufficient revenue to cover all costs, including depreciation.
4. When partial use of the asset can be identified with an income during their construction period and corresponding costs can be ascertained.

56. In the case of grants related to an asset, which of these treatments is prescribed by PAS 20?

1. Take it the income statement and disclose it as an extraordinary gain
2. Record the grant at a nominal value in the first year write it off in the subsequent year
3. Record the grant at fair value in the first year and take it to income in the subsequent year
4. Either set up the grant as deferred income or deduct it in arriving at the carrying amount of the asset.

57. Under PAS 20, a government grant shall be recognized when

1. The entity has complied with all the conditions attaching to the grant.
2. The entity has complied with all the conditions attaching to the grant and the grant will be received.
3. There is a reasonable assurance that the entity will comply with the conditions attaching to the government grant.
4. There is a reasonable assurance that the entity will comply with the conditions attaching to the grant and the grant will be received.

58. Which can be considered a government assistance?

1. Imposition of trading constraints on competitors.
2. Improved facilities, such as irrigation or water supply.
3. Free technical or marketing advice and provision of guarantee.
4. Infrastructure by improvement to the general transport and communication network.

59. Which of the following statements is incorrect in relation to government grant?

1. In respect of loan from the government at zero interest rate, an imputed interest charge should be made in profit or loss.
2. Any adjustment needed when government grant becomes repayable is accounted for as a change in accounting estimate.
3. Where conditions apply to a government grant, it should only be recognized when there is reasonable assurance that the conditions will be met.
4. A government grant that becomes receivable as compensation for losses already incurred should be recognized as income of the period in which it becomes receivable.

60. The following are based on PAS 20

S1. Government grants shall be recognized in profit or loss on a systematic basis over the periods in which the entity recognizes as expense the related costs for which the grants are intended to compensate.

S2. A government grant that becomes receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the entity with no future related costs shall be recognized in profit or loss of the period in which it becomes receivable.

1. True, True                                                                           C. False, True
2. True, False                                                                          D. False, False

61. Which of the following is true regarding the income approach for government grant?

1. Depreciation is higher if the grant is an adjustment of the asset
2. Depreciation is higher and net income lower if the grant is an adjustment to the asset
3. Depreciation is higher if the grant is a deferred revenue and net income is not affected
4. Depreciation is higher and net income lower if the grant is recorded as deferred revenue

62. If the cost of the asset is recorded net of government grant

1. Asset will likely be understated                                 C. Liability will likely be overstated
2. Equity will likely be overstated                                   D. Net income will likely be understated

63. In case of nonmonetary grant, which of the following is prescribed by PAS 20?

1. Record the grant at a value estimated by the management
2. Record the asset at replacement cost and the grant in a nominal value
3. Both the grant and the asset fair value of the nonmonetary asset
4. Record only the asset fair value and not recognize the fair value of the grant

64. PAS 23 defines qualifying assets as assets that necessarily take a substantial period of time to get it ready for its intended use or sale. Which of the following is not a qualifying asset?

1. Inventories such as wine and cigars
2. Building that will take three years to construct
3. Manufacturing plant and power generation facilities
4. Machinery that is purchased under three-year installment method

65. Borrowing costs related to a qualifying asset shall be

1. Capitalized.
2. Expensed in the period incurred.
3. Neither capitalized nor expensed in the period incurred.
4. Capitalized or expensed in the period incurred, whichever is more convenient.

66. It is permissible to capitalize interest on

1. Assets under construction
2. Inventories routinely manufactured in large quantities and repetitive basis.
3. Assets that already are in use or are ready for their intended use in the earning activities on the entity.
4. Assets that are not being used in earning activities of the entity and that are not undergoing the activities necessary to get them ready for such use

67. A company constructed machinery for its own use. A bank loan specifically financed this property both during and after the construction. How much of the interest should be recorded as interest expense?

1. All interest incurred.                                                       C.   Interest incurred before completion.
2. Interest incurred after completion.                         D.   Zero.

68. Under PAS 23, Borrowing Costs, which of the following statements about capitalization of borrowing costs as part of a qualifying asset is true?

1. Capitalization always continues as soon expenditure of the asset is incurred.
2. Capitalization always commences as soon as expenditure of the is incurred.
3. Capitalization always commences as soon as interest on relevant borrowings is being incurred.
4. If funds come from general borrowings, the amount to be capitalized is based on the weighted- average cost of borrowing.

69. Capitalization of construction period interest is based primarily upon the

1. comparability principle.                                                 C. matching principle.
2. full-disclosure principle.                                                D. revenue principle.

70. Interest cost that is capitalized should

1. be written off over the remaining term of the debt.
2. not be written off until the related asset is fully depreciated or disposed of.
3. be accumulated in a deferred charge account and written off equally over a 40-year period.
4. None of these.

71. Which of the following statements best describes the term “significant influence”?

1. The mutual sharing in the risk and benefits of a combined entity.
2. The contractually agree sharing of control over an economic entity.
3. The holding of a significant proportion of the share capital in another entity.
4. The power to participate in the financial and operating policy decisions of an entity.

72. When a company holds between 20% and 50% of the outstanding stock of an investee, which of the following statements applies?

1. The investor should always use the equity method to account for its investment.
2. The investor should always use the fair value method to account for its investment.
3. The investor must use the fair value method unless it can clearly demonstrate the ability to exercise “significant influence” over the investee.
4. The investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise “significant influence” over the investee.

73. Which is an incorrect application of equity method for an investment in associate?

1. Investment is recognized at cost on initial recognition
2. The investor’s share in the associate’s profit is included in the investor’s profit or loss
3. Distributions received from an associate increases the carrying amount of the investment
4. The carrying amount is decreased by the investor’s share in the loss of the associate after the date of acquisition

74. PAS 28 does not require the equity method to be applied by an associate acquired and held with a view to its disposal within a certain time period. Per PFRS 5, what is the time period within which the associate must be disposed of?

1. Six months                                                                          C. Two years
2. Twelve months                                                                 D. In the near future

75. The following statements are based on PAS 28 (Investment in Associates)

S1. An investment in an associate shall be accounted for using the equity method (benchmark) or cost method (alternative).

S2. An investor shall discontinue the use of equity method from the date when it ceases to have significant influence over an associate and shall account on the loss of significant influence.

S3. On the loss of significant influence, the investor shall measure at historical cost of any investment the investor retains in the former associate.

1. False, True, True                                                              C.    False, False, True
2. False, True, False                                                             D.   False, False, False

76. Cistine Company provided the following information at the end of current year.

What is the correct amount of inventory?

A.   4,000,000                                                                             C.   4,170,000

B.   4,090,000                                                                             D.   4,270,000

77. Brilliantine Company has incurred the following costs during the current year:

What is the total cost of purchases?

A.   6,700,000                                                                             C.   6,100,000

B.   6,500,000                                                                             D.   5,700,000

78. Towertin Company made the following acquisitions during the year:

• Purchased for P 5,400,000, including appraiser fee of P 50,000, a warehouse building and the land on which it is located.

The land had an appraiser value of P 2,000,000 and original cost of P 1,400,000. The building had an appraised value of P 3,000,000 and original cost of P 2,800,000.

• Purchased an office building and the land on which it is located for P 7,500,000 cash and assumed an existing P 2,500,000 mortgage.

For realty tax purposes, the property is assessed at P 9,600,000, 60% of which is allocated to the building.

What is the total cost for land?

A.   5,000,000                                                                             C.   6,000,000

B.   5,840,000                                                                             D.    6,160,000

79. Using the information given in the preceding number, what is the total cost of building? A.   9,240,000                                                                                     C. 8,760,000

B.   9,000,000                                                                             D.   7,760,000

80. On January 1, 2018, Histine Company received a grant of P 1,500,000 from the government to subsidize tuition fees for a period of 5 years.

On January 1, 2020, the entity violated certain conditions attached to the grant, and therefore had to repay fully such grant to the government.

What is the grant income for 2018?

A.   1,500,000                                                                             C.   300,000

B.       600,000                                                                             D.             0

81. Using the information given in the preceding number, what amount should be recognized as loss resulting from the repayment of the grant in 2020?

A.   1,500,000                                                                             C.    300,000

B.       600,000                                                                             D.             0

82. During 2018, Istine Company constructed asset costing P 5,000,000. The weighted average expenditures totaled P 3,000,000.

To help pay for construction, P 2,200,000 was borrowed at 10% January 1, 2018.

Funds not needed for construction were temporarily invested in short-term securities yielding P 45,000 in interest revenue.

Other than the construction funds borrowed, the only other debt outstanding during the year was a P 2,500,000. 10-year, 9% note payable dated January 1, 2017.

What amount of interest should be capitalized during 2018?

A.   472,000                                                                                 C.   247,000

B.   300,000                                                                                 D.   150,000

83. Using the information given in the preceding number, what amount should be reported as interest expense for 2018?

A.   225,000                                                                                 C.   153,000

B.   178,000                                                                                 D.             0

84. At the beginning of current year, Sistine Company acquired 20% of the outstanding ordinary shares of B Company for P 8,000,000. The carrying amount of the acquired shares was P 6,000,000.

The excess of cost over carrying amount was attributed to a depreciable asset which was undervalued on B’s statement of financial position and which had a remaining useful life of ten years.

The investee reported net income of P 1,800,000 and paid cash dividends of P 400.000 and thereafter issued 5% share dividend during the current year.

What amount should be reported as investment income for the current year? A.   360,000                                                                                         C. 240,000

B.   340,000                                                                                 D.    160,000

85. Using the information given in the preceding number, what is the carrying amount of the investment in associate at year-end?

A.   8,080,000                                                                             C.   7,800,000

B.   8,000,000                                                                             D.   7,720,000

86. When an investment ceases to be an associate and is accounted for in accordance with IFRS 9, the fair value of the investment at the date when it ceases to be an associate’

1. Is regarded as its cost on initial recognition as a financial asset.
2. Is regarded as its fair value on initial recognition as a financial asset.
3. Is regarded as its fair value on initial recognition as a financial liability.
4. Is regarded as its amortized cost on initial recognition as an investment.

87. How is the impairment test carried out for an investment in associate?

1. The goodwill is impairment tested individually.
2. The entire carrying amount of the investment is tested for impairment by comparing the recoverable amount with carrying amount.
3. The carrying amount of the investment shall be compared with fair value.
4. The recoverable amounts of all investments in associates shall be assessed together.

88. An investor uses the equity method to account for investment in ordinary shares. The purchase price implies a fair value of the investee’s depreciable assets in excess of the investee’s net asset carrying amount. The investor’s amortization of the excess

1. Decreases the investment account                          C. Increases the investment income account
2. Decreases the goodwill account                                D. Does not affect the investment account

89. If an associate has outstanding cumulative preference shares held by outside interests, the investor computes share of profit or loss

1. After adjusting for preference dividends which were actually paid during the year.
2. Without regard for preference dividends.
3. After adjusting for the preference dividends only when declared.
4. After adjusting for the preference dividends, whether or not the dividends have been declared.

90. An investor uses the equity method of accounting for a thirty percent ownership in an investee. At year-end, the investor has a receivable from the investee. How should the receivable be reported in the investor’s financial statements for the current year?

1. None of the receivable should be reported but the entire receivable should be offset against the investee’s payable to the investor.
2. Seventy percent of the receivable should be separately reported with the balance offset against the thirty percent of the investee’s payable to the investor.
3. The total receivable should be disclosed separately.
4. The total receivable should be included as part of the investment in associate, without separate disclosure.

91. S1. There is an impairment if the recoverable amount is higher than carrying amount.

S2. The impairment loss is recognized in profit or loss and presented separately in the income statement.

1. True, True                                                                           C.   False, True
2. True, False                                                                          D. False, False

92. PFRS 13, paragraph 72, enumerates the following fair value hierarchy or best evidence of fair value:

1. The unobservable inputs for the asset that are usually developed by the entity using the best available information from the entity’s own data.
2. The quoted prices for similar assets in an active market and quoted prices for identical or similar assets in a market that is not active.
3. The quoted prices in an active market for identical assets.

How should the aforementioned fair value hierarchies be arranged in descending order?

1. I, II, III                                                                                   C.   III, I, II
2. II, III, I                                                                                   D. III, II, I

93. Which statement best describes “value in use”?

1. The amount of cash that could currently be obtained by selling an asset in an orderly disposal.
2. The amount which an entity expects to obtain for an asset at the end of the useful life.
3. The present value of estimated future ash flows expected to arise from the continuing use of an asset and from the ultimate disposal.
4. Undiscounted future net cash flows.

94. What is the best evidence of fair value?

1. Quoted price in an active market for similar asset
2. Quoted price in an active market for identical asset
3. Quoted price in an inactive market for similar asset
4. Quoted price in an inactive market for identical asset

95. If the fair value less cost to sell cannot be determined,

1. The asset is not impaired.                            C. The recoverable amount is the value in use.
2. The net realizable value is used.                D. The carrying amount of the asset remains the same.

96. What is the allocation of an impairment loss recognized for a cash generating unit?

1. First to any goodwill, and the balance to the other assets prorata based on fair value.
2. First to any goodwill, and the balance to the other assets prorata based on carrying amount.
3. Across the assets of the unit based on fair value.
4. Across the assets of the unit based on carrying amount.

97. All of the following statements are true with regard to impairment of assets, except

1. The impairment test compares the carrying amount with the lower of fair value less cost of disposal and value in use.
2. If impairment indicators are present, the entity must conduct an impairment test
3. If the recoverable amount is lower than carrying amount an impairment loss is recognized.
4. If recoverable amount is higher than carrying amount, no impairment loss is recognized.

98. The impairment rules for long-lived assets apply to all of the following, except

1. Land                                                                      C.    Building currently used in business
2. Financial instrument                                       D.   Computer used to run a production process

99. The estimates of future cash flows in calculating value in use include all of the following, except

1. Income tax payment
2. Cash inflows from the continuing use of the asset
3. Cash outflows incurred to generate the cash inflows from the continuing use of the asset
4. Net cash flows from the disposal of the asset at the end of the useful life

100. What is cash generating unit?

1. The smallest business segment
2. Any group of assets that generate cash flows
3. Any group of assets reported separately to management
4. The smallest group of assets that generate independent cash flows from continuing use

101. Which statement best describes investment property?

1. Property held for sale in the ordinary course of the business
2. Property held for use in the production and supply of goods or services and property held for administrative purposes
3. Property held to earn rentals or for capital appreciation
4. Property held for capital appreciation

102. Which statement is true of the property is partly investment and partly owner-occupied?

1. If the investment and owner-occupied portions could not be sold or leased out separately, the property is investment property if only an insignificant portion is held for manufacturing or administrative purposes.
2. If the investment and owner-occupied portions could be sold or leased out separately, the portions shall be accounted for separately as investment property and owner-occupied property.

A.   I only                     B.      II only                          C.    Both I and II                  D. Neither I nor II

103. Which statement is incorrect in determining the fair value of an investment property?

1. The fair value of investment property excludes prepaid or accrued operating lease income.
2. The fair value of investment property shall reflect market conditions at the end of the reporting period.
3. If an office is leased on a furnished basis, the fair value of the office generally includes the fair value of the furniture because the rental income relates to the furnished office.
4. An entity shall determine the fair value of investment property by deducting transaction cost that may be incurred upon disposal.

104. If the entity uses fair value model for the investment property, which of the following statements are true?

1. Changes in fair value are reported in profit or loss in the current period.
2. Changes in fair value are reported as an extraordinary gain
3. Changes in fair value are reported in other comprehensive income for the period.
4. Changes in fair value are reported as deferred revenue for the period
5. The entity does not record depreciation on the investment property
6. The entity should have value the property at cost less accumulated depreciation and impairment.
7. The entity should report the increase in fair value in other comprehensive income for the period.
8. The entity depreciated the equipment using the normal depreciation method.

A.   I and V                  B.    II and VI                       C.    III and VII                     D.   IV and VIII

105. Transfers from investment property to property, plant and equipment are appropriate

1. The entity can never transfer property into another classification once it is classified as investment property.
2. Only when the entity adopts the fair value model.
3. Based on the discretion of management.
4. When there is a change of use.

106. When the entity uses the cost model, transfer between investment property, owner-occupied property and inventory shall be accounted for at

A.   Fair value             B.   Carrying amount                      C.    Cost                               D.   Assessed value

107. If an inventory is transferred to investment property that is to be carried at fair value, the remeasurement to fair value is

1. Included in equity                                                            C.   Included in profit or loss
2. Included in retained earnings                                     D. Accounted for as revaluation of inventory

108. An investment property shall be measured initially at

1. Cost                                                                                       C.    Fair value less impairment
2. Cost less impairment                                                      D. Depreciable amount less impairment

109. An investment property is derecognized when

1. It is disposed to a third party.
2. It is permanently withdrawn from use.
3. No future economic benefits are expected from the disposal

A.   I only                     B.   I and II only                 C.    I and III only               D.   I, II and III

110. Which of the following additional disclosures must be made when an entity chooses the cost model as the accounting policy for investment property?

1. The fair value of the property                                    C.   The value in use of the property
2. The present value of the property                           D. The net realizable value of the property

111. An intangible asset shall be recognized if

1. It is probable that future economic benefits attributable to the asset will flow to the entity.
2. It is probable that future economic benefits attributable to the asset will flow to the entity and the cost of the intangible asset can be measured reliably.
3. It is possible that future economic benefits attributable to the asset will flow to the entity and the cost of the intangible asset can be measured reliably.
4. The cost of the intangible asset can be measured reliably.

112. Directly attributable costs of preparing the intangible asset for the intended use include all of the following, except

1. Initial operating losses
2. Cost of testing whether the asset is functioning properly
3. Professional fees arising directly from bringing the asset to the working condition
4. Cost of employee benefit arising directly from brining the asset to the working condition

113. Which statement is false in relation to internally generated intangible asset?

1. The cost of an internally generated asset includes expenditure on training staff to operate the asset.
2. Internally generated brand, masthead, publishing title, and customer list shall not be recognized as an intangible asset.
3. The cost of internally generated asset comprises all directly attributable costs necessary to produce and prepare the asset for the intended use.
4. Internally generated goodwill shall not be recognized as an intangible asset.

114. After initial recognition, an intangible asset shall be measured using

1. Cost model                                                                         C.   Cost model or revaluation model
2. Revaluation model                                                          D. Cost model or fair value model

115. An intangible asset is regarded as having an indefinite useful life when

1. The useful life of the intangible asset arises from contractual right.
2. The useful life of the asset arises from legal right.
3. There is no foreseeable limit to the period over which the asset is expected to generate net cash inflows to the entity.
4. There is a foreseeable limit to the period over which the asset is expected to generate net cash inflows to the entity.

116. What is the method of amortizing intangible asset?

1. The straight line method in all circumstances
2. A subjective amount of periodic amortization
3. The double declining balance in all circumstances
4. The straight line method, unless the pattern of the economic benefits can be determined reliably

117. Factors in determining the useful life of an intangible asset include all, except

1. The amortization method
2. The expected use of the asset
3. Any legal or contractual provision
4. Any provision for renewal or extension of the legal life

118. Which of the following is not one of the criteria which must be met before development costs can be capitalized?

1. The entity has sufficient financial resources to complete the project.
2. The entity can reliably identify the research costs incurred to bring the project to economic feasibility.
3. The entity intends to complete the project and either use or sell the intangible asset.
4. The project has achieved technical feasibility.

119. Which is not considered a research and development activity?

1. Laboratory research aimed at discovery of new knowledge
2. Conceptual formulation and design of possible product or process
3. Routine on-going effort to refine, enrich or improve quality of existing product
4. Design, construction and operation of a pilot plant