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Homework answers / question archive / Colegio de San Juan de Letran ACCTG 118 NONCURRENT ASSET HELD FOR SALE 1)An entity classified a noncurrent asset accounted for the cost model as held for sale at the current year-end

Colegio de San Juan de Letran ACCTG 118 NONCURRENT ASSET HELD FOR SALE 1)An entity classified a noncurrent asset accounted for the cost model as held for sale at the current year-end

Accounting

Colegio de San Juan de Letran

ACCTG 118

NONCURRENT ASSET HELD FOR SALE

1)An entity classified a noncurrent asset accounted for the cost model as held for sale at the current year-end. Because no offers were received at an acceptable price, the entity decided at the end of next year not to sell the asset but continue to use it. The asset shall be measured at the end of the next year at what amount?

    1. The lower of carrying amount and recoverable amount.
    2. The higher of carrying amount and recoverable amount.
    3.      The lower of carrying amount on the basis that the asset had never been classified as held for sale and recoverable amount.
    4. The higher of carrying amount on the basis that the asset had never been classified as held for sale and recoverable amount.

 

  1. Which of the following statements about noncurrent asset held for sale is true?
  1. An asset that meets the criteria for classification as held for sale after the end of reporting period but before the authorization of the financial statements shall be measured in the statement of financial position at lower of carrying amount and fair value less cost of disposal.
  2. To be classified as an asset held for sale, the sale must be expected to be completed within 12 months form the end of the financial year.
    1. I only
    2. II only
    3. Both I and II
    4. Neither I nor II

 

  1. An entity acquired a subsidiary exclusively with a view to resale. The subsidiary met the criteria to be classified as held for sale. At the end of the reporting period, the subsidiary had not been yet sold, and six months have passed since acquisition. How will the subsidiary be measured in the statement of financial position at the date of the first financial statements after acquisition?
    1. At fair value
    2. At lower of carrying amount and fair value less cost of disposal
    3. At carrying amount
    4. In accordance with applicable IFRS

 

  1. How should the assets and liabilities of a disposal group classified as held for sale be shown in the statement of financial position?
    1. The assets and liabilities shall be offset and presented as a single amount.
    2. The asset of the disposal group shall be shown separately from other assets and liabilities of the disposal group shall be shown separately from other liabilities.
    3.      The assets and liabilities shall be presented as a single amount and as a deduction from equity.

 

    1. There should be no separate disclosure of assets and liabilities that form part of a disposal group.

 

  1. In order for a noncurrent asset to be classified as held for sale, the sale must be highly probable. What is the meaning of “highly probable”?
    1. The future sale is likely to occur.
    2. The future sale is more likely to occur than not to occur.
    3. The sale is certain.
    4. The probability is higher than more likely than not.

 

  1. Noncurrent asset classified as held for sale shall be presented in the statement of financial position as
    1. Current asset
    2. Other noncurrent asset
    3. Noncurrent investment
    4. Property, plant, and equipment

 

  1. A noncurrent asset that ceases to be classified as held for sale shall be measured at
    1. Carrying amount
    2. Recoverable amount at the date of the subsequent decision not to sell.
    3.      Lower between the carrying amount before the asset was classified as held for sale adjusted for depreciation that would have been recognized if the asset had not been classified as held for sale and the recoverable amount at the date of the subsequent decision not to sell.
    4. Lower between the carrying amount before the asset was classified as held for sale adjusted for depreciation that would have been recognized if the asset had not been classified as held for sale and the recoverable amount at the date of the subsequent decision not to sell.

 

  1. A noncurrent asset that is to be abandoned shall not be classified as held for sale because
    1. The carrying amount will be recover principally through continuing use.
    2. The noncurrent asset is difficult to value.
    3. It is unlikely that the noncurrent asset will be sold within twelve months.
    4. It is unlikely that there will be an active market for the current asset.

 

  1. What is the treatment of any gain on a subsequent increase in the fair value less cost of disposal of a noncurrent asset classified as held for sale?
    1. The gain shall be recognized in full.
    2. The gain shall not be recognized.
    3.       The gain shall be recognized but not in excess of the cumulative impairment loss previously recognized.
    4. The gain shall be recognized but only in retained earnings.

 

  1. If the fair value less cost to sell is lower than the carrying amount of a noncurrent asset classified as held for sale, the difference is
    1. Not accounted for
    2. Accounted for as an impairment loss
    3. Charged to depreciation
    4. Debited to retained earnings

 

  1. Which of the following statements is incorrect concerning presentation of noncurrent asset or disposal group classified as held for sale?
    1. An entity shall present a noncurrent asset held for sale and the assets of a disposal group classified as held for sale separately from other assets.
    2. The liabilities of a disposal group classified as held for sale shall be presented separately from other liability.
    3.      The assets and liabilities of a disposal group classified as held for sale shall not be offset as a single amount.

 

    1. An entity shall depreciate a noncurrent asset classified as held for sale or while it is part of a disposal group classified as held for sale.

 

  1. An entity shall measure a noncurrent asset or disposal group classified as held for sale at
    1. Carrying amount
    2. Fair value less cost of disposal
    3. Lower of Carrying amount and Fair value less cost of disposal
    4. Higher of Carrying amount and Fair value less cost of disposal

 

  1. Noncurrent asset or disposal group classified as held for sale when the asset is available for immediate sale in the present condition and the sale is highly probable. For the sale to be highly probable, which of the following statements is incorrect?
    1. Management must be committed to a plan to sell the asset.
    2. An active program to locate a buyer and complete the plan must be initiated.
    3.      The asset must be actively marketed for a sale at a reasonable price relation to the fair value.
    4. The sale is expected to qualify for recognition as a completed sale within two years from the date of classification of the asset as “held for sale”.

 

  1. An entity shall classify a noncurrent asset or disposal group classified as held for sale when
    1. The carrying amount of the asset or disposal group will be recovered through a sale transaction.
    2. The Carrying amount of the asset or disposal group will be recovered through a continue use.
    3. The noncurrent asset or disposal group is to be abandoned.
    4. The noncurrent asset or disposal group is idle or retired from active use.

 

  1. It is a group of assets to be disposed of by or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction.
    1. Disposal group
    2. Discontinued operation
    3. Noncurrent asset
    4. Cash generating unit.

 

 

DISCONTINUED OPERATION

 

  1. When an entity discontinued an operation and disposed of the discontinued operation, the transaction should be included as gain or loss on disposal reported as
    1. A prior period error.
    2. Other income or expense.
    3. An amount after continuing operations and before net income.
    4. A bulk sale of plant assets included in income from continuing operations.

 

  1. Which of the following most likely would be considered a discontinued operation?
    1. Shifting production from one location to another.
    2. A sporting goods manufacturer with a bicycle division decides to outsource the manufacture of the bicycle.
    3.           The unprofitable brands of a beauty products component of an entity that manufactures and sells customer products are discontinued.
    4. An entity that is franchisor in the quick service restaurant business also operates entity-owned restaurants that are unprofitable in a certain region and, as a result, the entity decides to exit both the quick-service business as well as the entity-owned restaurants in that region.

 

  1. IFRS requires that a single amount should be disclosed within the income statement for

 

    1. The post-tax profit or loss on discontinued operation and pre-tax gain or loss on the disposal of discontinued operating asset.
    2. The pre-tax profit or loss on discontinued operation and post-tax gain or loss on the disposal of discontinued operating asset.
    3.      The pre-tax profit or loss on discontinued operation and pre-tax gain or loss on the disposal of discontinued operating asset.
    4. The post-tax profit or loss on discontinued operation and post-tax gain or loss on the disposal of discontinued operating asset.

 

  1. Which of the following should be considered as discontinued operations?
    1. The operations and cash flows of a component have been or will be eliminated from the ongoing operations of the entity as a result of a disposal transaction.
    2. The entity continues to have a continuing involvement in the operations of a component after the disposal transaction.
    3.       The entity outsources the manufacturing operations of a component and sells the manufacturing facility of thee component but continues to sell the product previously manufactured by the facility sold.
    4. All of these should be considered as discontinued operations.

 

  1. Which of the following statements in relation to discontinued operations is true?
    1. Discontinued operations are reported as the last category after income from continuing operations.
    2. The discontinued operations consist only of the gain or loss on disposal of the discontinued component net of tax.
    3.       The discontinued operations consist only of the income or loss on disposal of the discontinued component net of tax.
    4. The discontinued operations consist income or loss from the disposal of the discontinued component net of tax as well as the gain or loss on disposal of the discontinued component net of tax.

 

  1. The discontinued component’s operating loss of the current period should be included in the
    1. Income statement as part of revenue and expenses.
    2. Income statement as part of the loss on disposal of the discontinued operations.
    3. Income statement as part of continuing operations.
    4. Changes in equity as direct decrease in retained earnings.

 

  1. When the component of a business has been discontinued during the year, the loss on disposal should
    1. Include operating loss of the current period.
    2. Exclude operating loss of during the period.
    3. Be classified as extraordinary item.
    4. Be classified as operating item

 

  1. Any gain on the disposal of a business component should be
    1. Presented as other income.
    2. Presented as an adjustment of retained earnings.
    3.       Netted with the loss from operations of the component as a part of discontinued operations.
    4. Classified as component of other comprehensive income.

 

  1. When the component of an entity was discontinued during the year, the loss on disposal should
    1. Exclude the associated employee relocation cost.
    2. Exclude operating loss for the period.
    3. Include associated employee termination cost.
    4. Exclude associated lease cancellation cost.

 

  1. Which is not required for a component’s results to be classified as discontinued operations?
    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 will be eliminated from the operations of the entity.
    4. The entity will not have any significant continuing involvement in the operations of the component.

 

  1. An entity has correctly classified the manufacturing operation as a disposal group held for sale and as discontinued operation during the year ended December 31, 2017. Which of the following statements is true?
  1. The disposal group’s results for the year ended December 31, 2016 shall be re- presented as relating to discontinued operation in the comparative figures for the 2017 statement of comprehensive income.
  2. The disposal group’s assets on December 31, 2016 shall be re-presented as held for sale in the comparative figures for the 2017 statement of financial position.
    1. I only
    2. II only
    3. Both I and II
    4. Neither I nor II

 

  1. Which of the following statements in relation to discontinued operations is true?
  1. When the discontinued criteria are met after the end of the reporting period, the operation shall retroactively be separately as a discontinued operation.
  2. The net cash flows attributable to the operating, investing, and financing activities of a discontinued operation shall be separately presented.
    1. I only
    2. II only
    3. Both I and II
    4. Neither I nor II

 

  1. Which of the following statements is requirement for a component of an entity to be classified as a discontinued operation?
    1. The activities must cease a permanently prior to the financial statements being authorized for issue by the management.
    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. 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 plans to sell the small appliance group. What is the earliest point at which the entity shall report the small appliance group as a discontinued operation?
    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. Which of the following statements is criteria does not have to be met in order for an operation to be classified as a discontinued?
    1. The operation shall represent a separate major line of business or geographical area.
    2. The operation is part of a single plan to dispose of a separate major line of business or geographical area.
    3. The operation is a subsidiary acquired exclusively with a view to resale.
    4. The operation must be sold within three months of the year-end.

 

ACCOUNTING CHANGES

 

  1. On March 31, 2017, the entity discovered that, as result of a computation error, depreciation expense for 2016 was overstated. The 2016 financial statements were authorized for issue on March 1, 2017. What must the entity do?
    1. Reissue the 2016 financial statements with the correct depreciation expense.
    2. Reduce depreciation for 2017.
    3.       Restate the depreciation expense reported in the comparative figures of the 2017 financial statements as retrospective restatement of a prior period error.
    4. Do nothing.

 

  1. On March 1, 2017, the entity discovered that, as result of a computation error, depreciation expense for 2016 was overstated. The 2016 financial statements were authorized for issue on March 31, 2017. What must the entity do?
    1. Correct the 2016 financial statements before issuing them.
    2. Reduce depreciation for 2017.
    3.       Restate the depreciation expense reported in the comparative figures of the 2017 financial statements as retrospective restatement of a prior period error.
    4. Do nothing.

 

  1. During the current year, an entity discovered that ending inventory reported in the financial statements for the prior year was understated. How should the entity account for this understatement?
    1. Adjust the beginning inventory in the prior year.
    2. Restate the financial statements with corrected balances for all period presented.
    3. Adjust the ending balance in retained earnings at current year-end.
    4. Make no entry because the error will self-correct.

 

  1. Which of the following statements is true?
    1. The effect of a change in accounting estimate is recognized retrospectively.
    2. To the extent practicable, an entity must correct a prior period error prospectively in the first financial statements authorized for issue after the discovery.
    3.     When an entity discovers an error in the financial statements of a prior period, it must immediately withdraw those financial statements and reissue them with the error corrected.
    4. To the extent practicable, an entity must correct a prior period error retrospectively in the first financial statements authorized for issue after the discovery.

 

  1. Prior period errors
    1. Do not include the effect of a mistake in the application of accounting policy as this is accounted for as a change in accounting policy rather than as a prior period error.
    2. Do not affect the presentation of prior period comparative financial statements.
    3. Do not require further disclosure in the body of the financial statements.
    4. Are reflected as adjustments of the opening balance of retained earnings of the earliest period presented.

 

  1. An example of a correction of an error in previously issued financial statements is a change
    1. From FIFO method of inventory valuation to average cost method.
    2. In the service life of plant asset based on the change in the economic environment.
    3. From cash basis to accrual basis of accounting.
    4. In the tax assessment related to a prior period.

 

  1. When an entity changed from the cash basis to the accrual basis during the current year, the cumulative effect of this change shall be reported as
    1. Prior period adjustment resulting from the correction of an error.
    2. Prior period adjustment resulting from the change in accounting policy.

 

    1. Component of income from continuing operations.
    2. Component of income from discontinued operations.

 

  1. When an entity changed from an accounting principle that is not generally accepted to one that is generally accepted, the effect of the change shall be reported in the current
    1. Income statement as component of income from continuing operations.
    2. Income statement as component of income from discontinued operations.
    3. Statement of retained earnings as an adjustment of the opening balance.
    4. Statement of retained earnings after net income but before dividends.

 

  1. Where financial statements for a single year are presented, a prior period error recognized in the current year ordinarily would
    1. Be shown as an adjustment of the balance of retained earnings at the start of the current year.
    2. Affect net income of the current year.
    3. Be shown in the statement of changes in equity.
    4. Be included as other comprehensive income.

 

  1. An entity has included in the consolidated financial statements this year a subsidiary acquired several years ago that was appropriately excluded from consolidated last year. How should this change be reported?
    1. An accounting change that should be reported prospectively.
    2. An accounting change that should be reported retrospectively.
    3. A correction of an error.
    4. Neither an accounting change nor a correction of an error.

 

  1. Which of the following accounting treatment is proper for a change in reporting entity?
    1. Restatement of all financial statements presented.
    2. Restatement of current period financial statements.
    3. Note disclosure.
    4. Adjustment to retained earnings and note disclosure.

 

  1. Which of the following does not represent a change in reporting entity?
    1. Changing the entities included in combined financial statements.
    2. Disposition of a subsidiary or other business unit.
    3. Presenting consolidated statements in place of the statements of individual entities.
    4. Changing specific subsidiaries that constitute the group of entities for which consolidated financial statements are presented.

 

  1. A change in reporting entity is actually a change in
    1. Accounting policy
    2. Accounting estimate
    3. Accounting method
    4. Accounting concept

 

  1. Which of the following is not treated as a change in accounting policy?
    1. A change from average cost to FIFO.
    2. A change to a different method of depreciation.
    3. A change from full cost to successful effort method in the extractive industry.
    4. A change from cost recovery to percentage of completion method in accounting for construction contract.

 

  1. A change in accounting policy requires that the cumulative effect of the change should be shown as an adjustment to
    1. Beginning retained earnings for the earliest period presented.
    2. Net income for the current period.
    3. Comprehensive income for the earliest period presented.
    4. Shareholders’ equity for the period in which the change occurred.

 

INTERIM FINANCIAL REPORTING

 

  1. Entities should disclose all in interim reports, except:
    1. Basic and diluted earnings per share.
    2. Change in accounting policy.
    3. Events after the reporting period.
    4. Seasonal revenue, cost and expenses.

 

  1. For interim financial reporting, the income tax expense for the second quarter should be computed by using the
    1. Statutory tax rate for the year.
    2. Effective tax rate expected to be applied for the second quarter.
    3.      Effective tax rate expected to be applied for the full year as estimated at the end of the first quarter.
    4. Effective tax rate expected to be applied for the full year as estimated at the end of the second quarter.

 

  1. What statement is true about interim reporting?
    1. All entities that issue an annual report must issue interim financial report.
    2. The integral view is the more appropriate approach in preparing interim financial report.
    3. A complete set of financial statements must be presented for an interim period.
    4. The same accounting principles used for the annual report should be employed for the interim report.

 

  1. Which statement is incorrect regarding interim financial reporting?
    1. A complete set of financial statements at the interim reporting date is required.
    2. Interim amount like advertising that could benefit later interim periods is expensed immediately.
    3.        The integral view and the independent view are the two approaches of interim financial reporting.
    4. No accrual or deferral in anticipation of future events during the year should be reported.

 

  1. How is income tax expense for the third quarter interim period computed?
    1. The annual rate multiplied by the third quarter pretax earnings.
    2. The estimated tax for the first three quarters based on an annual rate, less a similar estimate for the first two quarters.
    3.      The rate applicable during the third quarter multiplied by four times the third quarter pretax earnings.
    4. One-half of the difference between total estimated annual income tax expense and the income tax for the first two quarters.

 

  1. For interim reporting, an inventory loss from a market decline in the second quarter shall be recognized
    1. In the fourth quarter.
    2. Proportionately in each of the second, third and fourth quarters.
    3. Proportionately in each of the first, second, third and fourth quarters.
    4. In the second quarter.

 

  1. Due to a decline in market price in the second quarter, an entity incurred an inventory loss. The market price is expected to return to previous level by the end of the year. At the end of the year, the decline had not reversed. When should the loss be reported in the interim statement?
    1. Ratably over the second, third and fourth quarters.
    2. Ratably over the third and fourth quarters.
    3. In the second quarter only.
    4. In the fourth quarter only.

 

  1. For interim financial reporting, an expropriation gain occurring in the second quarter should be
    1. Recognized ratably over the last three quarters.
    2. Recognized ratably over all four quarters with the first quarter being restated.
    3. Recognized in the second quarter.
    4. Decreased in the second quarter.

 

  1. Advertising costs incurred shall be deferred to provide an appropriate expense in each period for
    1. Interim reporting
    2. Year-end reporting
    3. Interim reporting and Year-end reporting
    4. Neither Interim reporting nor Year-end reporting

 

  1. For external reporting, it is appropriate to use estimated gross profit rate to determine the cost of goods sold for
    1. Interim reporting
    2. Year-end reporting
    3. Interim reporting and Year-end reporting
    4. All kinds of reporting

 

  1. Conceptually, interim financial statements can be described as emphasizing
    1. Timeliness over reliability
    2. Reliability over relevance
    3. Relevance over comparability
    4. Comparability over neutrality

 

  1. Interim financial reporting should be viewed
    1. As useful only if activity is spread evenly throughout the year.
    2. As if interim period were an annual accounting period.
    3. As reporting for an integral part of an annual period.
    4. As special type of reporting that need not follow GAAP.

 

  1. Interim financial statements are usually presented on a
    1. Monthly basis
    2. Quarterly basis
    3. Semiannual basis
    4. Nine-month basis

 

  1. An entity owns a number of farms that harvest produce seasonally. Approximately 80% of the entity’s sales are in the period August to October. When business is seasonal, the entity is encouraged
    1. To provide additional note in the interim reports about the seasonal nature of the business.
    2. To provide disclosure of financial information for           the last 12 months and comparative prior 12 months period in addition to the interim report.
    3.          To provide disclosure of financial information for                      the last 12 months and comparative prior 12 months period.
    4. To make no additional disclosure.

 

  1. Which of the following statements is incorrect regarding interim financial reporting?
    1. Decline in inventory shall be deferred to future interim periods.
    2. Use of the gross margin method for computing cost of goods sold must be disclosed.
    3.      Costs and expenses not directly associated with interim revenue must be allocated to interim periods on a reasonable basis.
    4. Gains and losses that arises in an interim period shall be recognized in the interim period in which they arise if they would not normally be deferred at year-end.

 

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