Cfas Midterm
Cfas Midterm
Information that is capable of making a difference in the decisions made by users has this qualitative
characteristic.
Answer: Relevance
Under the stable monetary unit assumption, the owners of the business and the business are viewed as
a single reporting entity. Therefore, the personal transactions of the owners are recorded in the books
of accounts.
Answer: False
Answer: Neutrality
Accountable events are those that have an effect in an entity's assets, liabilities, equity, income or
expenses.
Answer: True
Answer: True
Answer: a and b
Answer: False
Which of the following is not one of the decisions that primary users make?
“I say red; you say green.” The information lacks which of the following qualitative characteristics?
Answer: Relevance
The bottom part of each of Entity A’s financial statements states the following “This statement should be
read in conjunction with the accompanying notes.” This is most likely an application of which of the
following accounting concepts?
Answer: Articulation
Which of the following statements is incorrect regarding the basic accounting concepts?
Answer: The time period concept means that financial statements are prepared only at the end of the
life of a business.
Refers to the professional regulatory board created to supervise the registration, licensure and practice
of accountancy in the Philippines (full word).
The accounting standards used in the Philippines are adapted from the standards issued by the
It is the official accounting standard setting body in the Philippines. It is composed of a chairperson and
14 members.
All events and transactions of an entity are recognized in the books of accounts.
Answer: False
Answer: Accountant
The measurement bases described under the Conceptual Framework are least applicable to the
measurement of
Answer: Equity
These are users of financial information who are not in a position to require a reporting entity to
prepare reports tailored to their particular information needs.
Accounting has been given various definitions, which of the following is not one of those definitions?
Answer: Accounting is a systematic process of objectively obtaining and evaluating evidence regarding
assertions about economic actions and events to ascertain the degree of correspondence between these
assertions and established criteria and communicating the results to interested users.
Which of the following are considered aspects of the qualitative characteristic of relevance under the
Conceptual Framework?
Predictive value
III. Timeliness
IV. Materiality
The term “recognition” as used in accounting refers to the process of incorporating the effects of an
accountable event in the statement of financial position or the statement of profit or loss and other
comprehensive income through a memo entry.
Answer: False
Answer: The Norwalk Agreement is a convergence between the FASB and the IASB to make their existing
financial reporting standards compatible and coordinate their future work programs to ensure that once
achieved, compatibility is maintained.
II. Internal events are changes in economic resources by actions of other entities that do not
involve transfers of resources and obligations.
III. Nonreciprocal transfers involve the transfer of resources in only one direction, either
from an entity to other entities or from other entities to the entity.
IV. Internal events are sudden, substantial, unanticipated reductions in resources not caused
by other entities.
V. Fire, earthquake and flood are examples of accountable events classified as internal
events.
The accounting concept that justifies the use of accruals and deferrals is the going concern concept.
Answer: True
Entity A is making a materiality judgment. Entity A considers an item to be material, and therefore
included in the financial statements, if it pertains to a related party transaction. What type of materiality
assessment is Entity A using?
Answer: Qualitative
All of the following statements incorrectly refer to the concepts in the Conceptual Framework except
Answer: The objective of general purpose financial statements is similar to the objective of general
purpose financial reporting.
Answer: a and b
Answer: True
Answer: those statements that cater to the common needs of a wide range of external users.
An accountable event is an event that has an effect on the assets, liabilities or equity of an entity and its
effect can be measured reliably.
Answer: True
This refers to the use of caution in the exercise of judgments needed in making estimates required
under conditions of uncertainty, such that assets or income are not overstated and liabilities or
expenses are not understated.
Answer: Prudence
The assumption that a business enterprise will not be sold or liquidated in the near future is known as
the
The accounting process of assigning numbers, commonly in monetary terms, to the economic
transactions and events is referred to as classifying.
Answer: False
General purpose financial statements are those statements that cater to the common and specific needs
of a wide range of external users.
Answer: False
Physical concept of capital means that capital is the invested money or invested purchasing power.
Answer: False
Answer: False
The ability through consensus among measurers to ensure that information represents what it purports
to represent is an example of the concept of
Answer: Verifiability
Answer: a present economic resource controlled by the entity as a result of past events. An economic
resource is a right that has the potential to produce economic benefits.
Answer: Asset
Answer: payment of taxes, gifts and charitable contributions, provision of capital by owners
The basic purpose of accounting is to provide information about economic activities intended to be
useful in making economic decisions.
Answer: True
Valuing assets at their liquidation values rather than their cost is inconsistent with the
Financial statements are said to be a mixture of fact and opinion. Which of the following items is
factual?
Entity A appropriates ₱1M to fund employee benefits for the last quarter of the following year. Entity A
deposits the ₱1M fund in a payroll account. This economic activity is most appropriately referred to as
Answer: Savings
It is the accounting process of assigning numbers, commonly in monetary terms, to the economic
transactions and events.
Answer: Measuring
Which of the following financial statements would not be dated as covering a certain reporting period?
Answer: comparability
Answer: who do not have the authority to demand financial reports tailored to their specific needs.
What is the objective of general purpose financial statements according to the Conceptual Framework?
Answer: To provide information about the financial position, financial performance, and changes in
financial position of an entity that is useful to primary users in making economic decisions.
Entity A computes for its profit or loss periodically instead of waiting until the end of the life of the
business before doing so. This is an application of which of the following accounting concepts?
Answer: You are applying the concepts of materiality and cost-benefit consideration.
According to the Conceptual Framework, the pervasive constraint on the information that can be
provided by financial reporting is
Answer: cost-benefit
Measuring is the accounting process of analyzing business activities as to whether or not they will be
recognized in the books.
Answer: False
It refers to the process of incorporating the effects of an accountable event in the statement
of financial position or the statement of profit or loss and other comprehensive income
through a journal entry.
Answer: Recognition
It is the branch of accounting that focuses on the preparation of general purpose financial
statements.
When information about two different entities has been prepared and presented in a similar
manner, the information exhibits the characteristic of
Answer: Comparability
Decision makers vary widely in the types of decisions they make, the methods of decision
making they employ, the information they already possess or can obtain from other sources,
and their ability to process information. Consequently, for information to be useful there
must be a linkage between these users and the decisions they make. This link is
Answer: Understandability
The quality of information that gives assurance that it is reasonably free of error and bias
and provides a true, correct and complete depiction of what it purports to represent is
Answer: Faithful representation
The Filipino adage “Aanhin mo pa ang damo pag patay na ang kabayo” relates to which of
the following qualitative characteristics?
Answer: Timeliness
This concept defines the area of interest of the accountant. It determines which transactions
are recognized in the books of accounts and which are not.
Who is responsible for the preparation and the fair presentation of an entity’s financial statements in
accordance with the PFRSs?
Answer: Management
Non-financial institutions have the option of classifying interest income received as either investing or
financing activities.
Answer: False
Salaries of sales staff (sales department shares the building with factory supervisor).
Answer: False
This comprises all “non-owner changes in equity.” It excludes owner changes in equity, such as
subscription, issuance, and reacquisition of share capital and declaration of dividends.
PAS 1 requires an entity to provide an additional balance sheet dated as of the beginning of the
preceding period if certain instances occur. Which is not one of those instances? (Assume all of the
following has a material effect).
In which of the following instances is a write-down of inventories to net realizable value may not be
required?
Which of the following statements is correct when an entity departs from a provision of a PFRS?
Answer: PAS 1 permits such a departure if the relevant regulatory framework requires, or otherwise
does not prohibit, such a departure and PAS 1 requires certain disclosures when an entity departs from
a provision of a PFRS.
Which of the following statements is correct regarding the classification of financial liabilities as current
or noncurrent in accordance with PAS 1?
Answer: Currently maturing obligations are presented as current liabilities even if their original term is
longer than one year and even if a refinancing agreement is completed after the end of the reporting
period but before the financial statements are authorized for issue.
Cash flows relating to investing and financing activities are presented separately at gross amounts,
unless they qualify for net presentation.
Answer: True
How should trade discounts be dealt with when valuing inventories at the lower of cost and net
realizable value (NRV) according to PAS 2?
Entity JFK, a trading entity, buys and sells Product Z. Movements in the inventory of Product Z during the
period are as follows:
These are short-term, highly liquid investments that are readily convertible to known amounts of cash
and which are subject to an insignificant risk of changes in value.
These deal with the computation of cost of sales and cost of ending inventory.
Answer: False
It is the time between the acquisition of assets for processing and their realization in cash or cash
equivalents.
Answer: The recognition, measurement and disclosure of specific transactions and other events.
A classified presentation of statement of financial position shall be used except when an unclassified
presentation provides information that is reliable and more relevant.
Answer: True
Answer: individual reporting entities, rather than to industries, the economy as a whole or members of
society as consumers
Information on the utilization of economic resources is most useful when assessing an entity’s
The Coronet Company has a cost card in relation to an item of goods manufactured as follows: Materials
80 Storage costs of finished goods 18 Delivery to customers (Freight out) 4 Non-recoverable purchase
taxes 6 According to PAS 2, at what figure should the item be valued in inventory?
Answer: 86
Entity ABC, a trading entity, buys and sells Product Y. Movements in the inventory of Product Y during
the period are as follows:
Reversals of inventory write downs should exceed the amount of the original write-down previously
recognized.
Answer: False
Answer: 102,000
Answer: False
Entity A buys and sells artifacts. Each artifact is unique and not ordinarily interchangeable. According to
PAS 2, the cost formula that Entity A should use is
Answer: True
This refers to the comparability of financial statements of the same entity but in different periods.
Answer: Intra-comparability
It shows the historical changes (i.e. sources and utilization) in cash and cash equivalents during the
period.
The amounts reclassified to profit or loss in the current period that were recognized in other
comprehensive income in the current or previous periods.
These are the costs necessary in converting raw materials into finished goods, which inlcude direct labor
costs and production overhead.
Answer: False
A statement of financial position presentation showing distinctions between current and noncurrent
assets and current and noncurrent liabilities.
Which of the following statements is incorrect regarding the use of cost formulas?
Answer: Only one formula shall be used for all inventories regardless of differences in their nature and
use.
Answer: Inter-comparability
Which of the following is not one of the general features of financial statements under PAS 1?
How much cash and cash equivalents is reported in Entity A’s December 31, 20x1 statement of financial
position?
Answer: 310,000
The statement of financial position of which of the following entities does not show current and
noncurrent distinctions among assets and liabilities?
Answer: False
Answer: The statement of cash flows shows historical changes of cash and cash equivalents during the
period.
Entity EDF, a trading entity, buys and sells Product X. Movements in the inventory of Product X during
the period are as follows:
Entity A acquires equipment by issuing shares of stocks. How should Entity A report the transaction in
the statement of cash flows?
This type of presentation of statement of financial position does not show distinctions between current
and noncurrent items.
Answer: Unclassified presentation
In making an economic decision, an investor needs information on the amounts of an entity’s economic
resources and claims to those resources. That investor would most likely refer to which of the following
financial statements?
Which of the following is not correct regarding the determination of the cost of an inventory?
Answer: Operating
Answer: Investing
Answer: Financing
Cash payments by a lessee for the reduction of the outstanding liability relating to a lease.
Answer: Financing
Collection of accounts receivables.
Answer: Operating
Answer: Operating
Cash payments on derivative assets other than those held for trading.
Answer: Investing
Cash dividends received by a financial institution from its investments in marketable securities during
the year.
Answer: Operating
Answer: Financing
Answer: Operating
Answer: Financing
Answer: Investing
Answer: Financing
Answer: Financing
PAS 8, 10, 12, 16 & 19
Answer: 228,000
One of Entity A’s delivery trucks had an accident on February 14, 20x2. The truck is totally wrecked and
is uninsured. Entity A’s December 31, 20x1 current-period financial statements were authorized for issue
on March 31, 20x2. Entity A asked you if it can write-off the carrying amount of the destroyed truck from
its December 31, 20x1 statement of financial position. What will you tell Entity A?
Answer: No. Don't write-off the truck because the event is a non-adjusting event. You should, however,
disclose the event if you deem it to be material.
How much is the net defined benefit liability (asset) in Entity A’s December 31, 20x0 statement of
financial position?
A change in the pattern of consumption of economic benefits from an asset is most likely a
Under a profit-sharing plan, Entity A agrees to pay its employees 5% of its annual profit. The bonus shall
be divided among the employees currently employed as at year-end. Relevant information follows:
If the employee benefits remain unpaid, how much liability shall Entity A accrue at the end of the year?
Answer: 400,000
The Sarin Company's financial statements for the year ended 30 April 20X8 were approved by its finance
director on 7 July 20X8 and a public announcement of its profit for the year was made on 10 July 20X8.
The board of directors authorized the financial statements for issue on 15 July 20X8 and they were
approved by the shareholders on 20 July 20X8. Under PAS 10, after what date should consideration no
longer be given as to whether the financial statements to 30 April 20X8 need to reflect adjusting and
non-adjusting events?
Taxable temporary differences arise when the carrying amount of an asset is greater than its tax base.
Answer: True
The estimated amount that an entity would currently obtain from disposal of the asset, after deducting
the estimated costs of disposal, if the asset were already of the age and in the condition expected at the
end of its useful life.
Under this model, a PPE is carried at its fair value at the date of revaluation less any subsequent
accumulated depreciation and subsequent impairment losses.
Answer: True
The systematic allocation of the depreciable amount of an asset over its useful life.
Answer: Depreciation
Termination benefits are accounted for in accordance with the short-term employee benefits if payable
beyond 12 months.
Answer: False
On December 31, 20x1, Entity A revalues the machinery costing ₱850,000 at a fair value of ₱870,000.
The residual value of the machinery is ₱50,000and the remaining useful life is 5 years.
How much is the revaluation surplus on December 31, 20x1 and how much is the depreciation expense
in 20x2?
Answer: True
When unused sick leave is converted to cash when an employee resigns or retires, the sick leave
benefits are considered non-vesting.
Answer: False
Deferred tax assets and deferred tax liabilities do not alter the tax to be paid in the current period.
However, they cause tax payments to either increase or decrease when they reverse in a future period.
The reversal of which of the following will cause an increase in tax payment?
Other long-term employee benefits are accounted for similar to defined benefit plans except that all the
components of the defined benefit cost is recognized in other comprehensive income.
Answer: False
Arise when income and expenses enter in the computation of either accounting profit or taxable profit
but not both.
During the period, deferred tax assets increase by ₱400 while deferred tax liabilities increase by ₱500.
The net change of ₱100 is a
Which of the following instances does not preclude an entity from recognizing depreciation during a
certain period?
Taxable temporary differences arise when financial income is smaller than the taxable income.
Answer: False
How much is the initial cost of the equipment and how much is its carrying amount on December 31,
20x2?
Answer: Initial cost of equipment P924,000, Carrying amount on Dec. 31, 2002 P759,200
Under this model, a PPE is carried at its cost less any accumulated depreciation and any accumulated
impairment losses.
Answer: False
According to PAS 8, these are the specific principles, bases, conventions, rules and practices applied by
an entity in preparing and presenting financial statements.
Compensated absences that can be carried forward and used in future periods if not fully used in the
current period of entitlement are referred to as accumulating.
Answer: True
Imagine you are an employer. When should you recognize short-term employee benefits?
Answer: When the employees have rendered service in exchange for the employee benefits
PAS 16 requires an entity to review the depreciation method and the estimates of useful life and
residual value at the end of each year-end. A change in any of these is accounted for using
If plotted on a graph (X-axis: time; Y-axis: ₱), the depreciation charges under the straight-line method
would show
Answer: straight-line
Answer: True
Is profit for a period, determined in accordance with the rules established by the taxation authorities.
Answer: Error
Answer: The entity announces a major restructuring after the end of the reporting period.
Deferred tax asset are the amounts of income taxes recoverable in future periods in respect of
Answer: Deductible temporary differences, The carryforward of unused tax losses and The carryforward
of unused tax credits
PAS 8 permits a change in accounting policy only if the change
Benefits that are due to be settled within 12 months after the end of the period in which the employees
have rendered the related service.
At the end of the period, Entity A has taxable temporary difference of ₱100,000. Entity A’s income tax
rate is 30%. Entity A’s statement of financial position would report which of the following?
Benefits other than termination benefits and short-term benefits that are payable after the completion
of employment.
Benefits provided as a result of the entity’s decision to terminate the employee before normal
retirement date.
Change in fair value, foreign exchange rate, interest rate or market price after the reporting period
The settlement after the reporting period of a court case confirming a liability.
Change in tax rate enacted before the end of the reporting period
Litigation arising solely from events occurring after the reporting period
The discovery of fraud or errors that indicate that the financial statements are incorrect
Identify the following changes as to Change in Accounting Policy or Change in Accounting Estimate.
Change from cost model to the revaluation model of measuring property, plant and equipment and
intangible assets.
Change in the financial reporting framework, such as from PFRS for SMEs to full PFRS.
Change from cost model to the fair value model of measuring investment property
Change from FIFO to the Weighted Average cost formula for inventories
Change in the required balance of allowance for uncollectible accounts or impairment losses
Which of the following best describes the term ‘significant influence’ as used under PAS 28?
Answer: The power to participate in the financial and operating policy decisions of an entity
The following are the disclosures required for an entity operating in a hyperinflationary economy, except
for:
Answer: The amount of past service cost changed or credited in previous years
If a business entity entered into certain related party transactions, it would be required to disclose all of
the following information except the
Answer: nature of any future transactions planned between the parties and the terms involved
When a company holds between 20% and 50% of the outstanding ordinary shares of an investee, which
of the following statements applies?
Answer: 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.
When funds are borrowed to pay for construction of assets that qualify for capitalization of interest, the
excess funds not needed to pay for construction may be temporarily invested in interest-bearing
securities. Interest earned on these temporary investments should be
These are financial statements presented in addition to consolidated financial statements or the
financial statements of an entity with an investment in associate or joint venture that is accounted for
using equity method in accordance with PAS 28.
In a related party relationship, one party has the ability, through control, significant influence or joint
control, to affect the:
On December 1, 2019, B Company imported a machine from a foreign supplier for $100,000, due for
settlement on January 6, 2020. B’s functional currency is the Philippine peso. When preparing the
December 31, 2019 statement of financial position, which item will be translated to the closing rate?
The period of time during which interest must be capitalized ends when
Answer: the asset is substantially complete and ready for its intended use
The Es Company acquired a 30% equity interest in Isla Company for P400,000 on January 1, 2019. For
the year 2019, Isla earned profits of P80,000 and paid no dividend. For the year 2020, Isla incurred
losses of P32,000 and paid total dividends of P10,000 to all shareholders. In Es' consolidated statement
of financial position at 31 December 2020, what should be the carrying amount of its interest in Isla?
Answer: 411,400
Answer: prospectively
Kehn Corporation accounts for its investment in the ordinary shares of Selas Company under the equity
method. Kehn Corporation should ordinarily record a cash dividend received from Selas as
On January 1, 2019, A Corporation obtained a 10%, ₱5,000,000 loan, specifically to finance the
construction of a building. The proceeds of the loan were temporarily invested and earned interest
income of ₱180,000. The construction was completed on December 31, 2019 for total construction costs
of ₱7,000,000. How much is the cost of the building on initial recognition?
Answer: 7,320,000
Trustee Jhon undertakes to manage the retirement benefit fund of Adam Company for the benefit of its
employees. When reporting to Adam Company regarding the status and performance of the fund,
Trustee Jhon would most likely apply which of the following standards?
Answer: PAS 26
An asset is being constructed for an enterprise's own use. The asset has been financed with a specific
new borrowing. The interest cost incurred during the construction period as a result of expenditures for
the asset is
Answer: a part of the historical cost of acquiring the asset to be written off over the term of the
borrowing used to finance the construction of the asset
On January 1, 2019, A Corporation obtained a 10%, ₱5,000,000 loan, specifically to finance the
construction of a building. The proceeds of the loan were temporarily invested and earned interest
income of ₱180,000. The construction was completed on December 31, 2019 for total construction costs
of ₱7,000,000. How much are the borrowing costs capitalized to cost of the building?
Answer: 320,000
Answer: requires an employer to contribute a certain sum each period based on the formula
G Group acquired an investment in associate for ₱1M many years ago. At the end of the current
reporting period, the investment has a fair value of ₱2.9M. If the equity method is used, the investment
would have a current carrying amount of ₱2.6M. In G Group’s separate financial statements, the
investment should be valued at
ABC Philippines Co. (ABC-P) is a branch of ABC U.S. Co. ABC-P is engaged in the apparel business and
operates in a Philippine Economic Zone Authority (PEZA) Special Economic Zone. All raw materials are
imported from the main office in the U.S. and all finished products are exported directly to U.S.
customers. The U.S. customers remit payments to the U.S. main office. The U.S. main office will then
provide the Philippine branch its working capital needs. None of ABC-P’s finished products are sold in
the Philippines. The raw materials imported and finished goods exported are denominated in $. ABC-P is
required to file audited financial statements with the Philippine Securities and Exchange Commission
(SEC) and the Bureau of Internal Revenue (BIR). What is the presentation currency for the financial
statements to be filed with the said government agencies?
In 2019, A Corp. proposes an environmental clean-up project for a river. The government supports this
project and gives A Corp. a ₱1M monetary grant on the condition that the money will only be spent on
the proposed project. The proposed project is expected to be completed in about 2 years. A Corp. starts
the clean-up project in 2020. How should A Corp recognize income from the government grant?
PAS 29 is generally not applied by entities unless their functional currency is that of a hyperinflationary
economy. This is because of which of the following basic accounting concepts?
Answer: matching
On December 1, 2019, B Company imported a machine from a foreign supplier for $100,000, due for
settlement on January 6, 2020. B’s functional currency is the Philippine peso.
Answer: (200,000)
When computing the amount of interest cost to be capitalized, the concept of "avoidable interest"
means
Answer: that portion of total interest cost which would not have been incurred if expenditures for asset
construction had not been made.
Winsor Corp. received a grant from the government of P160,000 to acquire P800,000 of delivery
equipment on January 2, 2019. The delivery equipment has a useful life of 4 years. Winsor Corp. uses
the straight-line method of depreciation. The delivery equipment has a zero-residual value. Instructions:
For December 31, 2019, what is the carrying amount of the delivery equipment on the Balance Sheet
and amount of grant revenue on the income statement? For 2020, what is the amount of depreciation
expense related to the delivery equipment?
Answer: Shall be suspended only during extended periods of delays in which active development is
delayed.
Which of the following is not a condition that must be satisfied before interest capitalization can begin
on a qualifying asset?
Answer: The interest rate is equal to or greater than the company's cost of capital
Which of the following assets do not qualify for capitalization of interest costs incurred during
construction of the assets?
Answer: Assets not currently undergoing the activities necessary to prepare them for their intended use.
PAS 24 requires the disclosure of key management personnel compensation. Which of the following is
not included in this disclosure?
ABC Philippines Co. (ABC-P) is a branch of ABC U.S. Co. ABC-P is engaged in the apparel business and
operates in a Philippine Economic Zone Authority (PEZA) Special Economic Zone. All raw materials are
imported from the main office in the U.S. and all finished products are exported directly to U.S.
customers. The U.S. customers remit payments to the U.S. main office. The U.S. main office will then
provide the Philippine branch its working capital needs. None of ABC-P’s finished products are sold in
the Philippines. The raw materials imported and finished goods exported are denominated in $. What is
ABC-P’s functional currency?
Answer: US dollar
Vested benefits
Answer: are those that the employee is entitled to receive even if fired
Which of the following are not related parties under PAS 24?
Answer: A shareholder who holds 2% interest in the voting rights of the entity
Coney Co. owns 25% of the voting rights in Dong Corp. However, Coney Co. has no representation on
the board of directors of Dong Corp. Which of the following statements is correct?
Answer: Coney Co. is presumed to have signification influence over Dong Corp. because it holds 20% or
more of the voting rights in Dong Corp.
On January 1, 2019, C Inc. acquires 25% interest in D Corp. for ₱800,000. D Corp reports profit of
₱1,000,000 and declares dividends of ₱100,000 in 2019. How much is the carrying amount of the
investment in associate on December 31, 2019?
Answer: 1,025,000
According to PAS 27, investments in subsidiaries, associates or joint ventures are accounted for in the
separate financial statements
Answer: The amount of interest cost capitalized during the period should not exceed the actual interest
cost incurred.
I Corp operates in a hyperinflationary economy. HI Corp has the following assets before restatement on
December 31, 2019:
The land was acquired on May 21, 2017. The general price indices are as follows:
Which of the following is not true with regard to the accounting for government grants?
Answer: Companies may use either the capital or income approach to account for the asset and the
grant.
Under constant peso accounting, items are restated using this formula:
Answer: Historical cost x (Current price index ÷ Historical price index*) *However, if the historical price
index is impracticable to determine, the average price index may be used.
Items that do not give rise to a right to receive or an obligation to deliver a fixed or determinable
amount of money.
Borrowing Costs
Answer: PAS 32
Financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows
of the parent and its subsidiaries are presented as those of a single economic entity
Answer: Inflation
Answer: PAS 24
Answer: PAS 29
Answer: Associate
Investments in Associates and Joint Ventures
Answer: PAS 28
Answer: PAS 20
Assistance received from the government in the form of transfers of resources in exchange for
compliance with certain conditions
Transactions related to import or export activities that are to be settled in a foreign currency.
Answer: PAS 26
Present value of the expected payments by a retirement benefit plan to existing and past employees,
attributable to the service already rendered
Answer: PAS 27
Currency of the primary economic environment in which the entity operates, or in which the entity’s
cash inflows and outflows are normally denominated.
Costs that are directly attributable to the acquisition, construction or production of a qualifying asset
and are capitalized as cost of that asset
Parties involved wherein one party has the ability to affect the financial and operating decisions of the
other party through control, significant influence or joint control.
Answer: PAS 21
PAS 32, 33, 34, 36
On December 31, 20x1, RAB Co. determines that its building is impaired. The following information is
gathered:
Building 2,000,000
After the impairment, the building is assessed to have a remaining useful life of six years and no
residual value.
On December 31, 20x2, RAB Co. determines an indication that the impairment loss recognized in the
prior period may no longer exist. The revised recoverable amount of the building on December 31,
20x2 is 1,280,000. If no impairment loss had been recognized in the prior period, the carrying amount
of the building on December 31, 20x2 would have been 1,200,000.
How much is the gain on reversal of impairment and the revaluation increase on December 31,
20x2?
Answer: PAS 34 encourages publicly listed entities to prepare at least a semi-annual financial report to
be issued not later than 60 days after the end of the interim period.
According to PAS 36, which of the following is an indication of impairment from internal sources of
information?
Answer: Indications that the economic performance of an asset is, or will be, worse than expected
Answer: Inventory
Which of the following is classified as an equity instrument rather than a financial liability?
According to PAS 36, if an asset’s fair value less disposal costs cannot be determined, its recoverable
amount would be its
There have been no changes in the number of outstanding ordinary shares during the period. What is
the basic earnings (loss) per share?
Answer: (8.50)
On December 31, 20x1, LAD Co. determines that its building is impaired. The following information is
gathered:
Building 3,000,000
After the impairment, the building is assessed to have a remaining useful life of six years and no
residual value. How much is the impairment loss?
Answer: 480,000
According to PAS 36, if it is not possible to determine the recoverable amount of an individual asset,
Answer: the recoverable amount of that asset should be determined in relation to the cash-generating
unit to which it belongs
Entity B uses a calendar year accounting period. On June 1, 20x1, Entity B acquires an intangible asset
with an indefinite usefulness. According to PAS 36, the first impairment testing of the asset is
Entity A had 100,000, ₱10 par, 10% cumulative preference shares outstanding all throughout 20x1.
Entity A reported profit after tax of ₱2,800,000 for the year ended December 31, 20x1. The movements
in the number of ordinary shares are as follows:
Answer: 17.09
Entity A has 200,000 ordinary shares outstanding on January 1, 20x1. Entity A offers rights issue to its
existing shareholders that enable them to acquire 1 ordinary share at a subscription price of ₱120 for
every 5 rights held. The rights are exercised on May 1, 20x1. The market price of one ordinary share
immediately before exercise is ₱180. Entity A reported profit after tax of ₱2,700,000 in 20x1. What is the
basic earnings per share in 20x1?
Answer: 11.71
These are bonds that can be exchanged for shares of stocks of the issuer.
Which of the following assets is not tested for impairment in accordance with PAS 36?
Answer: Inventory
Entity A issues convertible bonds with face amount of ₱2,000,000 for ₱2,600,000. Each ₱1,000 bond is
convertible into 10 shares with par value of ₱60 per share. On issuance date, the bonds are selling at
102 without the conversion option. What is the value allocated to the equity component on initial
recognition?
Answer: 560,000
Profit for the year is ₱800,000. Entity A’s income tax rate is 30%.
Answer: 6.05
· On September 30, a 10% bonus issue (share dividend) was declared.
Entity A had the following profits: ₱1,200,000 in 20x2 and ₱900,000 in 20x1. What are the earnings per
share to be disclosed in Entity A’s 20x2 comparative financial statements?
The amount at which an asset is recorded in the books of accounts minus any accumulated depreciation
and accumulated impairment losses is referred to as
According to PAS 36, when measuring an asset’s value in use, the discount rate to be used in discounting
the estimated cash flows should be the
Answer: pre-tax rate that reflects current assessments of the time value of money and risks
CBA Corp. publishes quarterly interim financial reports. CBA’s annual depreciation for items of PPE is
240,000. At the end of the first quarter, CBA’s inventories have a cost of 1,200,000 and a net realizable
value of 1,000,000. CBA expects that the total employee bonuses (13th month pay) that will be paid at
year-end will amount to 120,000. How much is the total amount of expense to be recognized from the
items described above in ABC Corp.’s first quarter statement of profit or loss?
Answer: 290,000
Answer: PAS 34 does not require any entity to publish interim reports, and how often
If the carrying amount of an asset is less than its recoverable amount, the asset
According to PAS 36, the following are regarded as costs of disposal that are deducted in measuring fair
value less costs of disposal, except
Answer: Termination benefits and costs associated with reorganizing a business following disposal of an
asset
The following are considered as equity instrument except for
Answer: Goodwill
Which of the following analysis on asset impairment is most likely to have been made by a CPA? (where:
RA = recoverable amount; FVLCD = fair value less costs of disposal; VIU = value in use; CA = carrying
amount; IL = impairment loss; > = greater than; < = less than)
Answer: if “FVLCD > VIU,” then, “RA = FVLCD,” now, if “CA > RA,” then “IL = RA – CA”
You are the sole proprietor of Entity A. As a requisite to your business loan application, you were
required by the bank to submit audited financial statements. During the audit of your financial
statements, the auditor questioned the carrying amount of your land. The auditor believes that the
carrying amount is overstated and needs to be written down to its recoverable amount. In your
discussions with your auditor, the auditor would most likely refer to this standard in her report?
Answer: PAS 36
According to PAS 34, income tax expenses in interim periods are computed using
Assets Carrying Amount
Total 1,850,000
Answer: 650,000
LAD Inc. determines that one of its cash-generating units is impaired. The following information was
gathered:
Assets Carrying Amount
Total 1,850,000
What is the amount of impairment loss allocated to Inventory, Investment in property, Building and
Goodwill?
A form of profitability ratio which provides a measure of how much profit (loss) each ordinary share has
earned (incurred) during the period
It represents the excess of the carrying amount of an asset over its recoverable amount
A financial instrument or other contract that may entitle its holder to ordinary shares
It has preference over other classes of shares like preference over dividends
An amount higher of an asset’s fair value less costs of disposal and value in use
The present value of the future cash flows expected to be derived from an asset or cash-generating unit
The smallest identifiable group of assets that generates cash inflows that are largely independent of the
cash inflows from other assets or group of assets
A contractual obligation to pay cash or exchange financial instrument under unfavorable condition
Incremental costs directly attributable to the disposal of an asset or cash-generating unit, excluding
finance costs and income tax expense
A contractual right to receive cash or to exchange financial instrument under favorable condition
Any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument
of another entity
A pre-tax rate that reflects current assessments of the time value of money and risks for which the
future cash flow estimates have not been adjusted
It is computed when an entity has potential ordinary shares that are dilutive
Financial instruments that give the holder the right to purchase ordinary shares
Financial statements that provide only the minimum information required under PAS 34