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Cbactg01 Complete Module
Cbactg01 Complete Module
AND
ACCOUNTING STANDARDS
A conceptual framework can be defined as a system of ideas and objectives that lead
to the creation of a consistent set of rules and standards. Specifically, in accounting, the
rule and standards set the nature, function and limits of financial accounting and financial
statements.
The main reasons for developing an agreed conceptual framework are that it provides:
standards.
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CHAPTER 1: Overview of accounting ……………………………………………….. 8
Definition of accounting…………………………………………………………… 8
Measurement………………………………………………………………………. 9
Common branches of accounting………………………………………………... 12
Conceptual framework and accounting standards……………………………… 14
Qualitative characteristics…………………………………………………………. 15
Elements of financial statements…………………………………………………. 16
PAS 1 – Presentation of financial statements…………………………………… 18
Statement of financial position……………………………………………………. 19
Presentation of deferred taxes……………………………………………………. 20
Total comprehensive income……………………………………………………… 20
PAS 2 – Inventories………………………………………………………………… 20
Financial statement presentation…………………………………………………. 21
Cost formulas………………………………………………………………………… 21
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CHAPTER 4: PAS 20 – Accounting for government grants………………………. 56
PAS 21 – The effect of changes in foreign exchange rates……………………. 58
Functional currency…………………………………………………………………. 59
Foreign exchange transactions…………………………………………………… 59
PAS 23 – Borrowing costs………………………………………………………… 60
Capitalization of borrowing costs…………………………………………………. 60
Specific borrowing…………………………………………………………………… 60
General borrowing…………………………………………………………………… 61
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CHAPTER 8: Agriculture……………………………………………………………………. 109
Biological assets………………………………………………………………………. 109
Common features of agricultural activity……………………………………………. 110
Recognition and measurement……………………………………………………… 111
Encouraged disclosures……………………………………………………………… 111
PFRS 1 – First time adoption of PFRS……………………………………………… 112
Recognition and measurement………………………………………………………. 113
Accounting policies……………………………………………………………………. 113
PFRS 2 – Share based payments…………………………………………………… 114
Measurement of compensation………………………………………………………. 116
PFRS 3 – Business combinations……………………………………………………. 118
Accounting for business combinations………………………………………………. 119
Non-controlling interest………………………………………………………………… 120
CHAPTER 9: PFRS 5 – Non-current assets held for sale and discontinued operations
Core principle of PFRS 5……………………………………………………………… 125
Classification of non-current assets…………………………………………………. 125
Discontinued operations………………………………………………………………. 126
PFRS 6 – Exploration for and evaluation or mineral resources…………………… 127
Measurement and recognition………………………………………………………… 128
PFRS 7 – Financial instruments disclosure…………………………………………. 128
PFRS 8 – Operating segments………………………………………………………. 130
PFRS 9 – Financial instruments……………………………………………………… 131
PFRS 10 – Consolidated financial statements……………………………………… 133
PFRS 11 – Joints arrangements……………………………………………………… 134
Types of joints arrangements…………………………………………………………. 135
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Introduction to the Course
Course Description:
This course is designed provide students with knowledge on the current financial reporting
framework of businesses. This course deals with the financial reporting principles embodied
in the Conceptual Framework for Financial Reporting and the Philippine Financial
Reporting Standards (PFRS’s), which are issued by the Financial Standard Council
(FRSC.)
Learning Outcomes:
Gain application of the financial reporting standards, particularly their development, application
and impact to the business environment.
Demonstrate knowledge, skills and positive attitudes to the concepts and principles of financial
reporting for businesses as applied to real life situations.
Demonstrate knowledge in identify the appropriate financial reporting standards to apply to
specific business transactions and other events.
Demonstrate skills in applying the principles of the financial reporting standards through
problem solving.
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CHAPTER 1 – PRETEST
Read and understand each question carefully. This test consists of 10 items of Multiple Choice. Good
Luck.
1. 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.
a. realization
b. derecognition
c. posting
d. recognition
2. All of the following are events considered as exchange or reciprocal transfer, except
a. purchase of investment in equity securities
b. sale of equipment for non-interest bearing note
c. subscription of the entity’s own equity instrument (i.e., contributions by owners)
d. exchange of a note payable for an account payable
e. borrowing of money from a bank
5. It is the accounting process of assigning numbers, commonly in monetary terms, to the economic
transactions and events.
a. analyzing c. classifying
b. measuring d. interpreting
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CHAPTER 1
OVERVIEW OF ACCOUNTING
Objectives:
Define the meaning of accounting
Identify and learn the PAS 1 to PAS 23
Definition of Accounting
8
Types of Events
Measurement
- historical cost,
- fair value,
- present value,
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- present value,
The most commonly used is historical cost. This is usually combined with
the other measurement bases.
- Time Period – the life of the business is divided into series of reporting
periods.
- Residual equity theory – this theory is applicable where there are two
classes of shares issued, ordinary and preferred. The equation is
“Assets – Liabilities – Preferred Shareholders’ Equity = Ordinary
Shareholders’ Equity.”
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1. Financial accounting - focuses on general purpose financial statements
5. Tax accounting - the preparation of tax returns and rendering of tax advice,
such as the determination of tax consequences of certain proposed business
endeavors
6. Government accounting - refers to the accounting for the government and its
instrumentalities, placing emphasis on the custody of public funds, the
purposes for which those funds are committed, and the responsibility and
accountability of the individuals entrusted with those funds.
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1. Practice of Public Accountancy - involves the rendering of audit or accounting
related services to more than one client on a fee basis.
The Conceptual Framework sets out the concepts that underlie the
preparation and presentation of financial statements for external users
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Users and their Needs
Primary users – those to whom general purpose financial reports are directed:
(a) Existing and potential investors
(b) Lenders and other creditors
Only the common needs of primary users are met by the financial statements
Qualitative Characteristics
1. Qualitative Characteristics
(1) Relevance
(a) Predictive value
(b) Feedback value
Materiality – entity-specific aspect of relevance
(2) Faithful representation
(a) Completeness
(b) Neutrality
(c) Free from error
2. Enhancing qualitative characteristics
(3) Comparability
(4) Verifiability
(5) Timeliness
(6) Understandability
Elements of Financial Statements
Financial Position
1. Asset - resource controlled by the entity as a result of past events and from
which future economic benefits are expected to flow to the entity.
2. Liability - present obligation of the entity arising from past events, the
settlement of which is expected to result in an outflow from the entity of
resources embodying economic benefits.
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6. Additional statement of financial position (required only when certain
instances occur)
General features
5. Offsetting - Assets and liabilities, and income and expenses, shall not be
offset unless required or permitted by a PFRS
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a. it is apparent that another presentation or classification would be
more appropriate following a significant change in the nature of the
entity’s operations or a review of its financial statements; or
Current Assets
3. it expects to realize the asset within twelve months after the reporting
period
Current Liabilities
An entity shall present all items of income and expense recognized in a period
Presentation of Expenses
PAS 2 Inventories
All items that meet the definition of inventory are presented on the
statement of financial position as one line item under the caption “Inventories.”
The breakdown of this line item (as finished goods, WIP and Raw materials) is
disclosed in the notes
Measurement
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a. Inventories are measured at the lower of cost and net realizable value
(NRV)
Cost Formulas
1. Specific identification - - shall be used for inventories that are not ordinarily
interchangeable (i.e., used for inventories that are unique). Cost of sales is
the cost of the specific inventory that was sold
2. FIFO - cost of sales is based on the cost of inventories that were purchased
first. Consequently, ending inventory represents the cost of the latest
purchases
3. Weighted Average Cost - cost of sales is based on the average cost of all
inventories purchased during the period.
Recognition as an expense
For further discussion please refer to the link provided: Overview of Accounting
https://www.youtube.com/watch?v=RlhHMzzMKwA
For further discussion please refer to the link provided: Conceptual Framework
https://www.youtube.com/watch?v=CaGife7RCnE
Reference
For further discussion please refer to the link providedBook:
: PAS 1 – Presentation of FS
https://www.youtube.com/watch?v=c54-lIDFqbk
Conceptual Framework
21and Accounting Standards
By: Zeus Vernon B. Millan, 2019 Edition
CHAPTER 1 - ACTIVITY / ASSIGNMENT
1. What is the relevance of the Conceptual Framework and the PFRSs to your future career as a business
manager or an accountant?
Read and understand each question carefully. This test consists of 20 items Multiple Choice.
3. The two primary qualities that make accounting information useful for decision making are
a. comparability and consistency.
b. materiality and timeliness.
c. relevance and reliability.
d. faithful representation and relevance.
7. These are the end product of the financial reporting process and the means by which information
gathered and processed is periodically communicated to users.
a. Financial reporting c. Financial products
b. Financial statements d. Accounting statements
8. Which of the following is not one of the general features of financial statements under PAS 1?
a. Fair presentation and compliance with PFRSs
b. Going Concern
c. Cash Basis
d. Materiality and aggregation
9. Who is responsible for the preparation and the fair presentation of an entity’s financial statements
in accordance with the PFRSs?
a. Any accountant c. Auditor
b. Certified Public Accountant d. Management
10. This type of presentation of statement of financial position does not show distinctions between
current and noncurrent items.
a. Classified presentation c. Non-discriminating presentation
b. Unclassified presentation d. Awesome presentation
11. 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?
a. Statement of financial position c. Statement of cash flows
b. Statement of comprehensive income d. Statement of changes in equity
12. Which of the following financial statements would be dated as at a certain date?
a. Statement of financial position
b. Statement of profit or loss and other comprehensive income
c. Statement of cash flows
d. All of these
13. 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.
a. Other comprehensive income
b. Changes in equity
c. Total comprehensive income
d. Profit or loss
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14. Which of the following is added to the cost of inventories?
a. Storage costs of part-finished goods
b. Trade discounts
c. Refundable purchase taxes
d. Administrative costs
15. Which of the following costs are included in the cost of inventories?
a. Transport costs for raw materials
b. Abnormal material usage
c. Storage costs relating to finished goods
d. Administrative and general overhead
16. How should trade discounts be dealt with when valuing inventories at the lower of cost and net
realizable value (NRV) according to PAS 2?
a. Added to cost c. Deducted in arriving at NRV
b. Ignored d. Deducted from cost
20. Which of the following costs of conversion cannot be included in cost of inventory?
a. Cost of direct labor.
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b. Factory rent and utilities.
c. Salaries of sales staff (sales department shares the building with factory supervisor).
d. Factory overheads based on normal capacity.
CHAPTER 2 - PRETEST
Read and understand each question carefully. This test consists of 10 Multiple Choice. Good Luck.
How much cash and cash equivalents is reported in Entity A’s December 31, 20x1 statement of
financial position?
a. 110,000 c. 310,000
b. 235,000 d. 460,000
2. Entity A acquires equipment by issuing shares of stocks. How should Entity A report the
transaction in the statement of cash flows?
a. Operating activities
b. Investing activities
c. Financing activities
d. Not reported
3. Entity A, a financial institution, received cash dividends from its investments in marketable
securities during the year. How will the dividends be presented in Entity A’s statement of cash
flows?
a. as investing activity c. as financing activity
b. as operating activity d. a or b
5. Which of the following is presented under the investing activities section of a statement of cash
flows?
a. Collection of accounts receivable
b. Cash purchases of inventories
c. Purchase of equipment through cash
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d. Issuance of share capital through cash
6. According to PAS 8, these are the specific principles, bases, conventions, rules and practices
applied by an entity in preparing and presenting financial statements.
a. Accounting policies c. Accounting standards
b. Accounting estimates d. Accounting assumptions
7. A change in the pattern of consumption of economic benefits from an asset is most likely a
a. change in accounting policy. c. error.
b. change in accounting estimate. d. any of these
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CHAPTER 2 STATEMENT OF CASH FLOWS
Objectives:
1. Define the statement of cash flows
2. Differentiate the accounting policies, changes in accounting
estimates and errors
The statement of cash flows provides information about the sources and
utilization (i.e., historical changes) of cash and cash equivalents during the
period. The statement of cash flows presents cash flows according to the
following classifications:
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- cash payments for operating expenses, such as employee benefits,
insurance, and the like, and payments or refunds of income taxes
- cash receipts and payments from contracts held for dealing or trading
purpose
- cash receipts and cash payments in the acquisition and sale of equity
or debt instruments of other entities (other than those that are
classified as cash equivalents or held for trading)
- loans to other parties and collections thereof (other than loans made
by a financial institution)
- cash receipts from issuing notes, loans, bonds and mortgage payable
and other short-term or long-term borrowings, and their repayments
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- cash payments by a lessee for the reduction of the outstanding
liability relating to a lease
Direct method - shows each major class of gross cash receipts and gross cash
payments
Indirect method - adjusts accrual basis profit or loss for the effects of changes
in operating assets and liabilities and effects of non-cash items
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accounting policies and the accounting and disclosure of changes in
accounting policies, changes in accounting estimates and correction of prior
period errors
Accounting policies are “the specific principles, bases, conventions, rules and
practices applied by an entity in preparing and presenting financial
statements.” (PAS 8.5)
c. Interpretations
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When it is difficult to distinguish a change in accounting policy from a
change in accounting estimate, the change is treated as a change in an
accounting estimate
- is required by a PFRS
- Change from FIFO cost formula for inventories to the Average cost
formula
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- Change in financial reporting framework, such as from PFRS for
SMEs to full PFRSs
- Change from the cost model to the fair value model of measuring
investment property
- Changes in fair values less cost to sell of non-current assets held for
sale and biological assets
Errors
- Mathematical mistakes
- Fraud
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Events after the Reporting Period
- Adjusting events after the reporting period – are those that provide
evidence of conditions that existed at the end of the reporting period
- The settlement after the reporting period of a court case that confirms
that the entity has a present obligation at the end of reporting period
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e. The sale of inventories after the reporting period may
give evidence to their net realizable value at the end
of reporting period
For further discussion please refer to the link provided: PAS 7 – Statement of Cash Flows
https://www.youtube.com/watch?v=lxeFyzC2u5I
For further discussion please refer to the link provided : PAS 8 – Accounting Policies
https://www.youtube.com/watch?v=BP49bwQcBvk
For further discussion please refer to the link provided: PAS 10 –Events After Reporting
Period
https://www.youtube.com/watch?v=f989U5Ju_iA
34
Reference Book:
Conceptual Framework and Accounting Standards
By: Zeus Vernon B. Millan, 2019 Edition
CHAPTER 2 ACTIVITY / ASSIGNMENT
1. The statement of cash flows present cash flows according to the following classifications.
Explain each classification.
d. Operating activities
e. Investing activities
f. Financing activities
Read and understand each question carefully. This test consists of 10 items Multiple Choice.
1. According to PAS 10, these are those events, favorable and unfavorable, that occur between the
end of the reporting period and the date when the financial statements are authorized for issue.
a. Events after the reporting period c. Adjusting events
b. Non-adjusting events d. all of these
2. 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?
a. 7 July 20X8
b. 10 July 20X8
c. 15 July 20X8
d. 20 July 20X8
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4. 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?
a. Yes, go ahead. Write-off the truck because the event is an adjusting event.
b. No. Don’t write-off the truck because the event is a non-adjusting event.
c. 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.
d. Yes, go ahead. I will support you.
How much cash and cash equivalents is reported in Entity A’s December 31, 20x1 statement of
financial position?
a. 110,000 b. 235,000 c. 310,000 d. 460,000
7. Entity A acquires equipment by issuing shares of stocks. How should Entity A report the
transaction in the statement of cash flows?
g. Operating activities b. Investing activities
h. Financing activities d. Not reported
8. Entity A, a financial institution, received cash dividends from its investments in marketable
securities during the year. How will the dividends be presented in Entity A’s statement of cash
flows?
a. as investing activity c. as operating activity
b. as financing activity d. a or b
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d. The statement of cash flows shows historical changes of cash and cash equivalents during
the period.
10. Which of the following is presented under the investing activities section of a statement of cash
flows?
a. Collection of accounts receivable
b. Cash purchases of inventories
c. Purchase of equipment through cash
d. Issuance of share capital through cash
11. According to PAS 8, these are the specific principles, bases, conventions, rules and practices
applied by an entity in preparing and presenting financial statements.
a. Accounting policies c. Accounting standards
b. Accounting estimates d. Accounting assumptions
12. A change in the pattern of consumption of economic benefits from an asset is most likely a
a. change in accounting policy. c. error.
b. change in accounting estimate. d. any of these
14. These arise from misapplication of accounting policies, mathematical mistakes, oversights or
misinterpretations of facts, or fraud.
a. Error
b. Change in accounting estimate
c. Change in accounting policy
d. Impracticable application
CHAPTER 3 - PRETEST
Read and understand each question carefully. This test consists of 10 items of Multiple Choice.
37
1. These are differences that have future tax consequences.
a. Permanent differences c. Taxable differences
b. Temporary differences d. Deductible differences
3. 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?
a. Deferred tax liability c. Deferred tax expense
b. Deferred tax asset d. Deferred tax benefit
4. During the period, deferred tax assets increase by ₱400 while deferred tax liabilities increase by
₱500. The net change of ₱100 is a
a. deferred tax expense c. deferred tax liability
b. deferred tax income d. deferred tax asset
5. 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?
a. 30,000 deferred tax asset
b. 30,000 deferred tax liability
c. 30,000 deferred tax expense
d. 30,000 income tax expense
6. According to PAS 16, the selection of an appropriate depreciation method rests upon the entity’s
a. management.
b. accountant.
c. regulator.
d. all of these
8. 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
a. a specific transitional provision of a PFRS.
b. retrospective application.
c. prospective application.
d. any of these
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9. If plotted on a graph (X-axis: time; Y-axis: ₱), the depreciation charges under the straight-line
method would show
a. a straight-line.
b. an upward line sloping to the right.
c. a downward line sloping to the left.
d. a curvilinear line sloping here and there.
10. Which of the following instances does not preclude an entity from recognizing depreciation during
a certain period?
a. The asset is fully depreciated.
b. The asset is being depreciated using the units of production method and there is no production
during the period.
c. The asset is classified as held for sale under PFRS 5.
d. The asset becomes idle or is taken out of active use.
Objectives:
Identify the recognition of property, plant and equipment
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Accounting profit vs. Taxable profit
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The varying treatments of economic activities between the PFRSs and tax
laws result to permanent and temporary differences:
Permanent differences
Permanent differences are those that do not have future tax consequences
Examples:
- Dividend income
Temporary differences
Temporary differences are those that have future tax consequences. Temporary
differences are either:
Deferred taxes
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Characteristics of PPE
Cost Model
Depreciation
Depreciation begins when the asset is available for use, i.e., when it is in
the location and condition necessary for it to be capable of operating in the
manner intended by management.
Straight line method – depreciation is recognized evenly over the life of the
asset by dividing the depreciable amount by the estimated useful life
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Estimated useful life
Revaluation Model
Revaluation surplus
Fair value* xx
Less: Carrying amount (xx)
Revaluation surplus – gross of tax xx
The fair value is determined using an appropriate valuation technique, taking into
account the principles set forth under PFRS 13
Derecognition:
- on disposal
- when no future economic benefits are expected from its use or disposal
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Employee benefits are “all forms of consideration given by an entity in exchange
for service rendered by employees.
For further discussion please refer to the link provided: PAS 12 – Income Taxes
https://www.youtube.com/watch?v=puCzQ3duUhI
For further discussion please refer to the link provided : PAS 16 - PPE
https://www.youtube.com/watch?v=Z7SfSVmychY
For further discussion please refer to the link provided: PAS 19 – Employee Benefits
https://www.youtube.com/watch?v=2xTUfFcE6wE
Reference Book:
Conceptual Framework and Accounting Standards
By: Zeus Vernon B. Millan, 2019 Edition
Read and understand each question carefully. This test consists of 10 items Multiple Choice.
1. Imagine you are an employer (an awesome one). When should you recognize short-term
employee benefits?
a. Every 1st day of the month
47
b. Every 15th and 30th of the month.
c. When the employees have rendered service in exchange for the employee benefits.
d. Never!
2. You are the business owner of Entity A. You have 10 employees, each earning ₱20,000 per
month. You pay salaries on a bi-monthly basis. During the month of April 20x1, none of your
employees were absent, late or have rendered overtime service. When will you recognize the
salaries expense (and at what amount) for the first payday in the month of April 20x1?
Timing of recognition Amount recognized
a. April 1 20,000
b. April 15 20,000
c. April 1 100,000
d. April 15 100,000
3. Entity A has 20 employees who are each entitled to one day paid vacation leave for each month of
service rendered. Unused vacation leaves cannot be carried forward and are forfeited when
employees leave the entity. All the employees have rendered service throughout the current year
and have taken a total of 150 days of vacation leaves. The average daily rate of the employees in
the current period is ₱1,000. However, a 5% increase in the rate is expected to take into effect in
the following year. Based on Entity A’s past experience, the average annual employee turnover
rate is 20%. How much will Entity A accrue at the end of the current year for unused entitlements?
a. 0 c. 90,000
b. 150,000 d. 94,500
4. 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?
a. 400,000 c. 200,000
b. 300,000 d. 0
5. You are employed as an accountant. Your company’s retirement plan states that, upon retirement,
an employee (not less than 60 years but not more than 65 years of age) is entitled to a lump sum
payment equal to the employee’s final monthly salary level multiplied by the number of years in
service (not less than 10 years). At the end of month following the month of retirement and every
month thereafter, the retired employee is entitled to a monthly pension equal to one-eighth (1/8) of
the final monthly salary level. The monthly pensions cease upon death of the retired employee.
However, if the employee has immediate dependent(s) with age of less than 18 years, the
48
dependent(s) will be entitled to the monthly pensions, which will cease when the dependent(s)
reaches 18 years of age. What type of post-employment benefit plan does your company have?
a. Defined contribution plan
b. Defined benefits plan
c. Defined pension plan
d. Cannot be determined; insufficient information!
6. How much is the net defined benefit liability (asset) in Entity A’s December 31, 20x0 statement of
financial position?
a. 588,000 liability
b. 588,000 asset
c. 360,000 liability
d. 360,000 asset
7. How much is the net defined benefit liability (asset) in Entity A’s December 31, 20x1 statement of
financial position?
a. 588,000 liability
b. 588,000 asset
c. 360,000 liability
d. 360,000 asset
9. How much is the component of the total defined benefit cost to be recognized in profit or loss?
a. 390,000
b. 408,000
c. 348,000
d. 18,000
10. How much is the component of the total defined benefit cost to be recognized in other
comprehensive income?
49
a. 180,000
b. (60,000)
c. 60,000
d. (180,000)
11. How much is the net defined benefit liability (asset) in Entity A’s December 31, 20x0 statement of
financial position?
f. 588,000 liability
g. 588,000 asset
h. 360,000 liability
i. 360,000 asset
12. How much is the net defined benefit liability (asset) in Entity A’s December 31, 20x1 statement of
financial position?
a. 588,000 liability
b. 588,000 asset
c. 360,000 liability
d. 360,000 asset
13. How much is the total defined benefit cost for 20x1?
a. 588,000
b. 468,000
c. 348,000
d. 228,000
14. How much is the component of the total defined benefit cost to be recognized in profit or loss?
a. 390,000
b. 408,000
c. 348,000
d. 18,000
15. How much is the component of the total defined benefit cost to be recognized in other
comprehensive income?
a. 180,000
b. (60,000)
50
c. 60,000
d. (180,000)
CHAPTER 4 - PRETEST
Read and understand each question carefully. This test consists of 10 items of Multiple Choice.
2. Which of the following is not considered a government grant under PAS 20?
a. Financial aid
b. Benefit of subsidized loans
c. Tax breaks
d. Forgivable loans
4. In 20x1, Entity A proposes an environmental clean-up project for a river. The government supports
this project and gives Entity A a ₱1M monetary grant conditioned that the money will only be spent
on the proposed project. The proposed project is expected to take about 2 years to complete.
Entity A starts the clean-up project in 20x2. How should Entity A recognize income from the
government grant?
a. in full when Entity A receives the grant
b. over 2 years starting in 20x1
c. over the period of the project as expenses are incurred
d. the grant is not recognized as income
5. According to PAS 20, a government grant that becomes repayable is accounted for
a. retrospectively.
b. prospectively.
c. a or b
d. not accounted for
6. ABC Philippines Co. 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?
51
a. Philippine peso
b. U.S. dollar
c. a or b
d. none of these
7. These are those which do not give rise to a right to receive (or an obligation to deliver) a fixed or
determinable amount of money.
a. Monetary items
b. Non-monetary items
c. Financial items
d. Non-financial items
8. On December 1, 20x1, you imported a machine from a foreign supplier for $100,000, due for
settlement on January 6, 20x2. Your functional currency is the Philippine peso. When preparing
the December 31, 20x1 statement of financial position, which of the following will you translate to
the closing rate?
a. machine
b. accounts payable
c. a and b
d. none of these
9. Use the information in Problem #4 above. The relevant exchange rates are as follows:
Dec. 1, 20x1 Dec. 31, 20x1 Jan. 6, 20x2
₱50:$1 ₱52:$1 ₱47:$1
How much foreign exchange gain (loss) will you recognize on December 31, 20x1?
a. 200,000 c. 100,000
b. (200,000) d. (100,000)
10. Which of the following costs may not be eligible for capitalization as borrowing costs under PAS
23?
a. Interest on bonds issued to finance the construction of a qualifying asset.
b. Amortization of discounts or premiums relating to borrowings that qualify for capitalization.
c. Imputed cost of equity.
d.Exchange differences arising from foreign currency borrowings to the extent they are regarded
as an adjustment to interest costs pertaining to a qualifying asset
52
CHAPTER 4
PAS 24 – ACCOUNTING FOR GOVERNMENT GRANTS
Objectives:
Explain the recognition of government grants
Identify the presentation of government grants in the financial
statements and the borrowing costs
53
Examples of Government Grants
1. Receipt of cash, land, or other non-cash assets from the
government subject to compliance with certain conditions
2. Receipt of financial aid in case of loss from a calamity
3. Forgiveness of an existing loan from the government
4. Benefit of a government loan with below-market rate of interest
The following are not government grants:
- Tax benefits
- Free technical or marketing advice
- Provision of guarantees
- Government procurement policy that is responsible for a portion of
the entity’s sales
- Public improvements that benefit the entire community
Recognition
Government grants are recognized if there is reasonable assurance
that:
the attached conditions will be complied with; and the grants will be
received
Classifications of government grants according to attached condition
1. Grants related to assets - grants whose primary condition
is that an entity qualifying for them should purchase,
54
construct or otherwise acquire long-term assets
2. Grants related to income – grants other than those related
to assets
Accounting for Gov’t. Grants
The main concept in accounting for gov’t. grants is the MATCHING
CONCEPT. This means that the gov’t. grant is recognized as income as the
entity recognizes as expense the related cost for which the grant is intended
to compensate.
Presentation of Government grants related to assets
Government grants related to assets are presented in the statement of
financial position either by:
- Gross presentation –the grant is presented as deferred income
(liability)
- Net presentation – the grant is deducted when computing for the
carrying amount of the asset
Presentation of Government grants related to income
Grants related to income are sometimes presented in the income
statement either by:
- Gross presentation – the grant is presented separately or under a
general heading such as “Other income”, or
- Net presentation – the grant is deducted in reporting the related
expense
Repayment of Government Grants
A government grant that becomes repayable is accounted for as a
change in accounting estimate that is treated prospectively under PAS 8.
55
Two ways of conducting foreign activities
1. Foreign currency transactions – individual entities often
enter into transactions in a foreign currency
2. Foreign operations – groups often include overseas entities
Functional currency
- When preparing financial statements, a reporting entity must identify
its functional currency
- Functional currency is the currency of the primary economic
environment in which the entity operates
- The primary economic environment in which an entity operates is
normally the one in which it primarily generates and expends cash
Foreign currency transactions
Initial recognition:
- The foreign currency amount is translated at the spot exchange rate
at the date of the transaction
Subsequent recognition: At the end of each reporting period:
- Foreign currency monetary items are re-translated using the closing
rate
- Non-monetary items that are measured at historical cost in a foreign
currency shall be translated using the exchange rate at the date of
the transaction
56
- Non-monetary items that are measured at fair value in a foreign
currency shall be translated using the exchange rates at the date
when the fair value was determined
Monetary items – are units of currency held and assets and liabilities to be
received or paid in a fixed or determinable number of units of currency.
A foreign operation is an entity that is a subsidiary, associate, joint venture or
branch of a reporting entity, the activities of which are based or conducted in
a country or currency other than those of the reporting entity
For further discussion please refer to the link provided: PAS 20 - Government Grants
https://www.youtube.com/watch?v=TKZNC8KIBrk
For further discussion please refer to the link provided: PAS 21
https://www.youtube.com/watch?v=ingRv6iy4Us
For further discussion please refer to the link provided : PAS 23 – Borrowing Cost
https://www.youtube.com/watch?v=4j3d0QnZY4g
Reference Book:
Conceptual Framework and Accounting Standards
By: Zeus Vernon B. Millan, 2019 Edition
58
1. Differentiate between specific borrowings and general borrowings. Give examples.
Read and understand each question carefully. This test consists of 10 items of Multiple Choice
1. On January 1, 20x1, Entity A 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, 20x1 for total construction
costs of ₱7,000,000. How much is the cost of the building on initial recognition?
a. 7,320,000 c. 7,500,000
b. 7,000,000 d. 6,680,000
2. Which of the following may not be considered a “qualifying asset” under PAS 23?
a. A power generation plant that normally takes two years to construct.
b. An expensive private jet that can be purchased from a local vendor.
c. A toll bridge that usually takes more than a year to build.
d. A ship that normally takes one to two years to complete.
3. 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
a. a part of the historical cost of acquiring the asset to be written off over the estimated useful life
of the asset.
b. interest expense in the construction period.
c. recorded as a deferred charge and amortized over the term of the borrowing.
d. 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.
4. Which of the following costs may not be eligible for capitalization as borrowing costs under PAS
23?
a. Interest on bonds issued to finance the construction of a qualifying asset.
b. Amortization of discounts or premiums relating to borrowings that qualify for
capitalization.
c. Imputed cost of equity.
d. Exchange differences arising from foreign currency borrowings to the extent they are
regarded as an adjustment to interest costs pertaining to a qualifying asset.
6. These are those which do not give rise to a right to receive (or an obligation to deliver) a fixed or
determinable amount of money.
a. Monetary items
b. on-monetary items
c. Financial items
d. Non-financial items
7. On December 1, 20x1, you imported a machine from a foreign supplier for $100,000, due for
settlement on January 6, 20x2. Your functional currency is the Philippine peso. When preparing
the December 31, 20x1 statement of financial position, which of the following will you translate to
the closing rate?
a. machine
b. accounts payable
c. a and b
d. none of these
9. Which of the following is not considered a government grant under PAS 20?
a. Financial aid
b. Benefit of subsidized loans
c. Tax breaks
d. Forgivable loans
10. The main concept used in recognizing income from government grants is
a. capital approach c. matching
b. historical cost d. materiality
CHAPTER 5 – PRETEST
Read and understand each question carefully. This test consists of 10 items of Multiple Choice. 2
points each.
1. PAS 24 requires the disclosure of key management personnel compensation. Which of the
following is not included in this disclosure?
a. short-term employee benefits
b. termination benefits
c. share-based payment
d. reimbursements of officers’ out-of-pocket expenses
60
2. Which of the following is not required to be disclosed under PAS 24?
a. A parent-subsidiary relationship when there were transactions between them during the period.
b. A parent-subsidiary relationship when there were no transactions between them during the
period.
c. Loans to officers
d. The name of the parent of the entity’s associate
5. These are those 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.
a. Individual financial statements
b. Separate financial statements
c. Consolidate financial statements
d. Equity financial statements
CHAPTER 5
Objectives:
Enumerate examples of related parties
Describe the disclosure requirements for related parties
62
between a reporting entity and a related party, regardless of whether a price
is charged
Disclosure:
- Parent-subsidiary relationship regardless of whether there have
been transactions between them
- Key management personnel compensation broken down into the
following categories SPOTS and loans to key management
personnel.
- Related party transactions - nature of transaction and outstanding
balances
Disclosures that related party transactions were made on terms equivalent to
those that prevail in arm’s length transactions are made only if such terms
can be substantiated.
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in associates or joint ventures are accounted for using the equity method.
Separate financial statements need not be appended to, or accompany, those
statements.
Preparation of separate financial statements
Separate financial statements shall be prepared in accordance with all
applicable PFRSs, except as follows:
1. Investments in subsidiaries, associates and joint ventures are accounted for
in the separate financial statements either:
a. at cost
b. in accordance with PFRS 9 Financial Instruments
c. using the equity method
2. The entity shall apply the same accounting for each category of investments
65
Equity method
- Investments in associates or joint ventures are accounted for using
the equity method. Under this method, the investment is initially
recognized at cost and subsequently adjusted for the investor’s share
in the changes in the EQUITY of the investee.
Discontinuance of the use of equity method
- An investor starts to apply the equity method on the date it obtains
significant influence and ceases to apply the equity method on the
date it loses significant influence
- On the loss of significant influence, the investor shall measure at fair
value any investment the investor retains in the former associate. The
investor shall recognize in profit or loss any difference between:
1. The fair value of any retained investment and any proceeds
from disposing of the part interest in the associate
2. The carrying amount of the investment at the date when
significant influence is lost
Reclassification of cumulative OCI
If an investor loses significant influence over an associate, all amounts
recognized in other comprehensive income in relation to the associate shall be
accounted on the same basis as would be required if the associate had directly
disposed of the related assets or liabilities.
Share in losses of associate
If an investor’s share of losses of an associate equals or exceeds its
interest in the associate, the investor discontinues recognizing its share of
further losses.
Interest in the associate includes the following:
a. Investment in associate measured under equity method
b. Investment in preference shares of the associate
c. Unsecured long-term receivables or loans
Interest in the associate does not include the following:
a. Trade receivables and payables
66
b. Secured long-term receivables or loans
For further discussion please refer to the link provided: PAS 24 – Related Party Disclosure
https://www.youtube.com/watch?v=19mZWo-KFks
For further discussion please refer to the link provided : PAS 28 – Investment in
associates
https://www.youtube.com/watch?v=gGrPuR1MpJc
For further discussion please refer to the link provided: Joint Ventures
https://www.youtube.com/watch?v=tGQveH0148s
Reference Book:
Conceptual Framework and Accounting Standards
By: Zeus Vernon B. Millan, 2019 Edition
A. On January 1, 20x1, Entity A acquires 25% interest in Entity B for ₱800,000. Entity
B reports profit of ₱1,000,000 and declares dividends of ₱100,000 in 20x1. How
much is the carrying amount of the investment in associate on December 31,
20x1?
B. The Hanwell Company acquired a 30% equity interest in The Northfield Company
for CU400,000 on 1 January 20X6. In the year to 31 December 20X6 Northfield
earned profits of CU80,000 and paid no dividend. In the year to 31 December
20X7 Northfield incurred losses of CU32,000 and paid a dividend of CU10,000. In
Hanwell's consolidated statement of financial position at 31 December 20X7, what
should be the carrying amount of its interest in Northfield, according to IAS 28
Investments in associates?
1. Which of the following best describes the term ‘significant influence’ as used under PAS 28?
a. The holding of 20% interest in an investee.
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b. The ability to control an investee’s relevant activities through holding of significant portion of
the investee’s voting rights.
c. The power to participate in the financial and operating policy decisions of an entity.
d. The contractually agreed sharing of profits and losses in an investee.
2. Entity A owns 25% of the voting rights in Entity B. However, Entity A has no representation on the
board of directors of Entity B. Which of the following statements is correct?
a. Entity A cannot be presumed to have significant influence over Entity B because Entity A does
not have board representation.
b. Entity A is presumed to have signification influence over Entity B because it holds 25% or more
of the voting rights in Entity B.
c. Entity A is presumed to have signification influence over Entity B because it holds 20% or more
of the voting rights in Entity B.
d. Representation on an investee’s board of directors is never considered when determining the
existence of significant influence.
3. On January 1, 20x1, Entity A acquires 25% interest in Entity B for ₱800,000. Entity B reports profit
of ₱1,000,000 and declares dividends of ₱100,000 in 20x1. How much is the carrying amount of
the investment in associate on December 31, 20x1?
a. 800,000
b. 1,250,000
c. 1,000,000
d. 1,025,000
4. The Hanwell Company acquired a 30% equity interest in The Northfield Company for CU400,000
on 1 January 20X6. In the year to 31 December 20X6 Northfield earned profits of CU80,000 and
paid no dividend. In the year to 31 December 20X7 Northfield incurred losses of CU32,000 and
paid a dividend of CU10,000. In Hanwell's consolidated statement of financial position at 31
December 20X7, what should be the carrying amount of its interest in Northfield, according to IAS
28 Investments in associates?
a. CU438,000
b. CU411,400
c. CU414,400
d. CU400,000
5. These are those 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.
a. Individual financial statements
b. Separate financial statements
c. Consolidate financial statements
d. Equity financial statements
6. Entity A 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
68
investment would have a current carrying amount of ₱2.6M. In Entity A’s separate financial
statements, the investment should be valued at
a. 1,000,000.
b. 2,600,000.
c. 2,900,000.
d. any of these, as a matter of an accounting policy choice
9. PAS 24 requires the disclosure of key management personnel compensation. Which of the
following is not included in this disclosure?
a. short-term employee benefits
b. termination benefits
c. share-based payment
d. reimbursements of officers’ out-of-pocket expenses
10. Which of the following is not required to be disclosed under PAS 24?
a. A parent-subsidiary relationship when there were transactions between them during the period.
b. A parent-subsidiary relationship when there were no transactions between them during the
period.
c. Loans to officers
d. The name of the parent of the entity’s associate
CHAPTER 6 - PRETEST
Read and understand each question carefully. This test consists of 10 items of Multiple Choice.
1. 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?
a. Going concern
b. Price level concept
c. Stable monetary assumption
d. Materiality
69
2. Which of the following is within the scope of PAS 32?
a. Assets held for sale in the ordinary course of business
b. Contracts relating to employee benefits
c. Financial instruments that are within the scope of PFRS 9
d. Investments in associates and joint ventures
4. These are bonds that can be exchanged for shares of stocks of the issuer.
a. Exchangeable bonds
b. Callable bonds
c. Convertible bonds
d. Rock bonds
8. ________________ is “any contract that gives rise to a financial asset of one entity and a financial
liability or equity instrument of another entity.
9. ________________ is a computation made for ordinary shares. It is a form of profitability ratio which
represents how much was earned by each ordinary share during the period.
70
10. ________________is the amount of profit for the period per share, reflecting the maximum dilutions
that would have resulted from conversions, exercises, and other contingent issuances that individually
would have decreased earnings per share and in the aggregate would have had a dilutive effect.
CHAPTER 6
PAS 29 - Financial Reporting in Hyperinflationary Economies
Objectives:
Describe the restatement procedures under PAS 29
Explain the Hyperinflationary Economies
71
concept is hyperinflation.
72
assets or in a relatively stable foreign currency. Amounts of local
currency held are immediately invested to maintain purchasing
power
2. The general population regards monetary amounts not in terms of
the local currency but in terms of a relatively stable foreign
currency. Prices may be quoted in that currency
3. Sales and purchases on credit take place at prices that
compensate for the expected loss of purchasing power during the
credit period, even if the period is short
4. Interest rates, wages and prices are linked to a price index
5. The cumulative inflation rate over three years is approaching, or
exceeds, 100%.
Monetary items are money held and items to be received or paid in fixed or
determinable amount of money without reference to future prices of specific
goods or services. Monetary items include monetary assets and monetary
liabilities.
Examples of Monetary assets:
- Cash and cash equivalents
- Loans and receivables and their related allowances
- Financial assets at amortized cost (debt instruments)
- Finance lease receivables
- Cash surrender value
74
Financial instrument – is “any contract that gives rise to a financial asset of one
entity and a financial liability or equity instrument of another entity.” (PAS 32.11)
Financial asset – is any asset that is:
a. Cash
b. An equity instrument of another entity
c. A contractual right to receive cash or another financial asset from another
entity
d. A contractual right to exchange financial instruments with another entity under
conditions that are potentially favorable
e. A contract that will or may be settled in the entity’s own equity instruments
and is not classified as the entity’s own equity instrument
Financial liability – is any liability that is:
a. A contractual obligation to deliver cash or another financial asset to another
entity
b. A contractual obligation to exchange financial assets or financial liabilities with
another entity under conditions that are potentially unfavorable to the entity
c. A contract that will or may be settled in the entity’s own equity instruments
and is not classified as the entity’s own equity instrument
Equity instrument – is “any contract that evidences a residual interest in the
assets of an entity after deducting all of its liabilities
Examples of financial assets:
- Cash and cash equivalents (e.g., cash on hand, in banks, short-term
money placements, and cash funds)
- Receivables such as accounts, notes, loans, and finance lease
receivables
- Investments in equity or debt instruments of other entities such as held
for trading securities, investments in subsidiaries, associates, joint
ventures, investments in bonds, and derivative assets
- Sinking fund and other long-term funds composed of cash and other
financial assets
The following are not financial assets:
75
- Physical assets, such as inventories, biological assets, PPE and
investment property
- Intangible assets
- Prepaid expenses and advances to suppliers
- The entity’s own equity instrument (e.g., treasury shares)
Examples of financial liabilities:
- Payables such as accounts, notes, loans and bonds payable
- Lease liabilities
- Held for trading liabilities and derivative liabilities
- Redeemable preference shares issued
- Security deposits and other returnable deposits
The following are not financial liabilities:
- Unearned revenues and warranty obligations that are to be settled by
future delivery of goods or provision of services
- Taxes, SSS, Philhealth, and Pag-IBIG payables
- Constructive obligations
Presentation
Financial liability - The contract requires the delivery of (a) a variable number of
the entity’s own equity instruments in exchange for a fixed amount of cash or
another financial asset or (b) a fixed number of the entity’s own equity
instruments in exchange for a variable amount of cash or another financial asset
Equity instrument - The contract requires the delivery (receipt) of a fixed number
76
of the entity’s own equity instruments in exchange for a fixed amount of cash or
another financial asset
Treasury shares
- Treasury shares are an entity’s own shares that were previously issued
but were subsequently reacquired but not retired
- Treasury shares are treated as deduction from equity
- Treasury share transactions are recognized directly in equity.
Therefore, they do not result to gains or losses
77
- Earnings per share (EPS) is a computation made for ordinary shares. It
is a form of profitability ratio which represents how much was earned
by each ordinary share during the period. No EPS is presented for
preference shares because these shares have a fixed return
represented by their dividend rates.
Types of Earnings per share
a. Basic earnings per share
b. Diluted earnings per share
Rights issue
78
potential ordinary shares (i.e., simple capital structure)
79
b. a set of condensed financial statements (PAS 34)
Content of an interim financial report
An entity presenting an interim financial report has the option of complying either
with PAS 1 (complete set of FS) or PAS 34 (condensed set of FS)
Complete set of financial statements under PAS 1
a. Statement of financial position
b. Statement of profit or loss and other comprehensive income
c. Statement of changes in equity
d. Statement of cash flows
e. Notes, comprising a summary of significant accounting policies and other
explanatory information
f. A statement of financial position as at the beginning of the preceding period
(i.e., in cases of retrospective application, retrospective restatement or
reclassification adjustment)
Minimum content of an interim financial report under PAS 34
a. Condensed statement of financial position
b. Condensed statement of profit or loss and other comprehensive income,
presented as either (a) a condensed single statement; or (b) a condensed
separate income statement and a condensed statement of comprehensive
income
c. Condensed statement of changes in equity
d. Condensed statement of cash flows; and
e. Selected explanatory notes
Additional concepts
- Relevance over Reliability – in the interest of timeliness and cost
considerations, less information may be provided at interim dates
- Materiality and Estimates – an entity may rely on estimates to a greater
extent when preparing interim financial reports
- Note disclosures – only selected explanatory notes are provided in
interim financial reports to avoid repetition
Recognition and measurement
80
a. Gains and losses arising in an interim period are recognized immediately and
are not deferred, e.g., inventory write-downs & reversals; asset impairment
losses & reversals; discontinued operations; and fair value changes on assets
measured at fair value
b. Costs and expenses (income) that benefit the entire year or are incurred
(earned) over the year are spread out over the interim periods, e.g.,
depreciation, amortization; property taxes; insurance expense; interest
expense (income); 13th month pay and other year-end bonuses.
c. Discretionary income are recognized immediately in the period the income is
earned, e.g., dividend income
d. Income tax expense in the interim periods is computed using the best
estimate of the weighted average annual income tax rate expected for the full
financial year.
For further discussion please refer to the link provided: PAS 29 – Inflationary Economics
https://www.youtube.com/watch?v=LZkRWT2qXvs
For further discussion please refer to the link provided : PAS 32 – Financial Instruments
https://www.youtube.com/watch?v=F9tasMC4yvw
For further discussion please refer to the link provided : PAS 33 – Earning Per Share
https://www.youtube.com/watch?v=l-Sg4Z1fX1M
Reference Book:
Conceptual Framework and Accounting Standards
By: Zeus Vernon B. Millan, 2019 Edition
CHAPTER 6 - ACTIVITY / ASSIGNMENT
81
1. Entity A had 100,000, ₱10 par, 10% cumulative preference shares outstanding all throughout
20x1. Entity A reported profit after tax of ₱1,200,000 for the year ended December 31, 20x1.
The movements in the number of ordinary shares are as follows:
2. Entity A is computing for its basic earnings per share and has gathered the following information:
Loss for the year (800,000)
Preferred dividends 50,000
Outstanding ordinary shares 100,000
There have been no changes in the number of outstanding ordinary shares during the period. What is
the basic earnings (loss) per share?
a. -7.50
b. 7.50
c. -8.50
d. 8.50
3. Entity A had 200,000 ordinary shares outstanding all throughout 20x1. In 20x2, share issuances
occurred:
On April 1, 20,000 shares were issued for cash.
On September 30, a 10% bonus issue (share dividend) was declared.
On November 1, a 2-for-1 share split was issued.
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?
20x2 20x1
a. 2.22 2.02
b. 2.54 2.05
c. 2.65 2.09
d. 2.78 2.12
4. 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
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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?
a. 12.58
b. 12.67
c. 11.71
d. 11.67
Profit for the year is ₱1,200,000. Entity A’s income tax rate is 30%.
10. These are bonds that can be exchanged for shares of stocks of the issuer.
a. Exchangeable bonds
b. Callable bonds
c. Convertible bonds
d. Rock bonds
CHAPTER 7 - PRETEST
Read and understand each question carefully. This test consists of 10 items of Multiple choice.
2. 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
a. pre-tax rate that reflects current assessments of the time value of money and risks.
b. post-tax rate that reflects current assessments of the time value of money and risks.
c. pre-tax rate that reflects current assessments of market-based risks for similar replacement
assets.
d. post-tax rate that reflects current assessments of market-based risks for similar replacement
assets.
3. According to PAS 36, if an asset’s fair value less disposal costs cannot be determined, its
recoverable amount would be its
a. carrying amount.
b. replacement cost.
c. value in use.
d. current cost.
4. According to PAS 36, if it is not possible to determine the recoverable amount of an individual
asset,
a. that asset is not impaired.
b. the carrying amount of that asset should be written-off in its entirety, unless a rough-estimation
can be made.
c. the recoverable amount of that asset should be determined in relation to the cash-generating
unit to which it belongs.
d. that asset is useless; it should be given away to the garbage collection guy.
84
5. The reversal of an impairment loss results to
a. a gain and an adjustment to the depreciation charges in subsequent periods.
b. a gain, but no adjustment to the depreciation charges in subsequent periods.
c. a loss and an adjustment to the depreciation charges in subsequent periods.
d. a loss, but no adjustment to the depreciation charges in subsequent periods.
6. According to PAS 37, a present obligation that is possible and can be measured reliably is
a. recognized.
b. recognized and disclosed.
c. disclosed only.
d. ignored.
9. According to PAS 38, which of the following may be recognized as cost of intangible asset?
a. Research costs incurred in self-generating an intangible asset
b. Costs of an internally generated customer lists
c. Purchase cost of an externally acquired publishing title
d. Abnormal amount of wasted labor in self-generating an intangible asset
10. On January 1, 20x1, Entity A registers a patent for a total registration and legal costs of ₱600,000.
Entity A estimates that the patent has a remaining useful life of 25 years. How much is the
amortization expense for 20x1?
a. 30,000 c. 16,000
b. 24,000 d. 0
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CHAPTER 7
PAS 36 Impairment of Assets
Objectives:
Explain the account for the reversal of impairment
Discuss account for the impairment of individual assets and cash-
generating units
Core Principle
If the carrying amount of an asset is greater than its recoverable
amount, the asset is impaired. The excess is impairment loss
Computation of Impairment loss:
Recoverable amount xx
Less: Carrying amount (xx)
Impairment loss xx
Recoverable amount is the amount to be recovered through use or sale of an
asset. It is the higher of an asset’s:
a. Fair value less costs of disposal, and Value in use
Value in use is the present value of the future cash flows expected
to be derived from an asset or cash-generating unit.
Identifying an asset that may be impaired
- An entity shall assess at the end of each reporting period whether
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there is any indication that an asset may be impaired. If any such
indication exists, the entity shall estimate the recoverable amount of
the as
- If there is no indication that an asset may be impaired, an entity is
not required to estimate the recoverable amount of the asset
Required testing for impairment
The following assets are required to be tested for impairment at least
annually, whether or not there are indications for impairment:
a. Intangible asset with indefinite useful life
b. Intangible asset not yet available for use
c. Goodwill acquired in a business combination
Measuring recoverable amount
- Recoverable amount is the higher of the asset’s fair value less costs
of disposal and value in use
- However, if there is no reason to believe that an asset’s value in use
materially exceeds its fair value less costs of disposal, the asset’s
fair value less costs of disposal may be used as its recoverable
amount. This will often be the case for an asset that is held for
disposal
Value in use
- Value in use is the present value of the future cash flows expected
to be derived from an asset or cash-generating unit
- Any residual value of the asset and disposal costs should be
included in estimating future cash inflows and outflows
- Cash flow projections shall cover a maximum period of 5 years
- Projections beyond 5 years are extrapolated
Recognizing and measuring an impairment loss
Impairment loss is recognized in profit or loss, unless the asset is
carried at revalued amount, in which case revaluation surplus is decreased
first and any excess is recognized in profit or loss. The decrease in the
revaluation surplus is recognized in other comprehensive income
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Depreciation after impairment
After the recognition of an impairment loss, the depreciation
(amortization) charge for the asset shall be adjusted in future periods to
allocate the asset’s revised carrying amount, less its residual value (if any),
on a systematic basis over its remaining useful life.
Cash-generating unit (CGU)
Cash-generating unit (CGU) is the smallest identifiable group of assets
that generates cash inflows that are largely independent of the cash inflows
from other assets or groups of assets.
Impairment of individual assets included in a CGU
- Assets whose recoverable amount can be determined reliably are
tested for impairment individually
- Assets whose recoverable amount cannot be determined reliably
(e.g., assets that do not generate their own cash flows) are included
in a CGU. The CGU is the one tested for impairment
Allocating goodwill to CGU’s
For purposes of impairment testing, goodwill acquired in a business
combination shall be allocated to each of the acquirer’s CGU in the year of
business combination.
Impairment loss for a CGU
The impairment loss on a CGU shall be allocated:
1. First, to any goodwill allocated to the CGU
2. Then, to the other assets of the unit pro rata on the basis
of the carrying amount of each asset in the unit.
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Provisions
- A provision is a liability of uncertain timing or amount
- Provisions differ from other liabilities because of the uncertainty
about the timing or amount of expenditure required in settlement.
Unlike for other liabilities, provisions must be estimated. Although,
some other liabilities are also estimated, their uncertainty is
generally much less than for provisions.
- Other liabilities, such as accruals, are reported as part of “Trade and
other payables” whereas provisions are reported separately
Provision vs. Contingent liability
Recognition of provisions
A provision is recognized when all of the following conditions are met:
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1. The entity has a present obligation (legal or constructive)
as a result of a past event
2. It is probable that an outflow of resources embodying
economic benefits will be required to settle the obligation
3. A reliable estimate can be made of the amount of the
obligation
Measurement
Present value
Where the effect of the time value of money is material, the amount of
a provision shall be the present value of the expenditures expected to be
required to settle the obligation
Expected disposal of assets
Gains from the expected disposal of assets shall not be taken into
account in measuring a provision. Gains shall be recognized only when the
assets are actually disposed of
Reimbursement
- Where some or all of the expenditure required in settling a provision
is expected to be reimbursed by another party, the reimbursement is
recognized only when it is virtually certain that reimbursement will
be received if the entity settles the obligation
- The reimbursement shall be treated as a separate asset
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- In the statement of profit or loss and other comprehensive income,
the expense relating to a provision may be presented net of the
amount recognized for a reimbursement
Changes in provisions
- Provisions shall be reviewed at the end of each reporting period and
adjusted to reflect the current best estimate
- If it is no longer probable that an outflow of resources embodying
economic benefits will be required to settle the obligation, the
provision shall be reversed
Liability for premiums
- A customer option to acquire additional goods or services for free or
at a discount is accounted for under PFRS 15 if the option provides
the customer a material right that the customer would not receive
without entering into that contract
- A customer option that does not provide the customer with a
material right is not accounted for under PFRS 15; and therefore,
accounted for in accordance with PAS 37
Guarantee for indebtedness of others
A provision for the guarantee for indebtedness of others is recognized
when it becomes probable that the entity will be held liable for the guarantee,
such as when the original debtor defaults on the loan
Contingent assets
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PAS 38 Intangible Assets
For further discussion please refer to the link provided: PAS 36 – Impairment of Assets
https://www.youtube.com/watch?v=QDxjMZp8X4U
For further discussion please refer to the link provided : PAS 38 – Intangible Assets
https://www.youtube.com/watch?v=kOFkm5Kq7DE
For further discussion please refer to the link provided : PAS 40 Investment Property
https://www.youtube.com/watch?v=IIVfvsBq88Q
Reference Book:
Conceptual Framework and Accounting Standards
By: Zeus Vernon B. Millan, 2019 Edition
Read and understand each question carefully. This test consists of 10 items Multiple Choice.
2. The distinguishing characteristic that identifies an investment property from the other assets of an
entity is
a. changes in fair value of the asset is recognized in profit or loss.
b. the property does not derive cash flows separate from the other assets of the entity.
c. it generates separately identifiable cash flows from the other assets of the entity.
d. it earns rental as part of the ordinary operations of the entity.
3. Under this model, an investment property is measured at cost less accumulated depreciation and
accumulated impairment losses.
a. Impairment loss model c. Fair value model
b. Cost model d. Gorgeous model
The investment property is estimated to have a remaining useful life of 10 years and a residual
value equal to 5% of initial cost.
4. Entity A uses the straight line method of depreciation. How much is the carrying amount of the
investment property under the cost model after one year?
a. 914,850 c. 968,350
b. 923,100 d. 872,100
5. Entity A uses the straight line method of depreciation. The investment property has a fair value of
₱980,000 at the end of Year 1. How much is the carrying amount of the investment property under
the fair value model after one year?
a. 980,000 c. 986,350
b. 973,200 d. 837,900
7. According to PAS 38, which of the following may be recognized as cost of intangible asset?
a. Research costs incurred in self-generating an intangible asset
b. Costs of an internally generated customer lists
c. Purchase cost of an externally acquired publishing title
d. Abnormal amount of wasted labor in self-generating an intangible asset
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8. On January 1, 20x1, Entity A registers a patent for a total registration and legal costs of ₱600,000.
Entity A estimates that the patent has a remaining useful life of 25 years. How much is the
amortization expense for 20x1?
a. 30,000 c. 16,000
b. 24,000 d. 0
9. According to PAS 37, a present obligation that is possible and can be measured reliably is
a. recognized.
b. recognized and disclosed.
c. disclosed only.
d. ignored.
10. According to PAS 37, provisions are (choose the incorrect statement)
a. presented in the statement of financial position separately from other types of liabilities.
b. recognized and disclosed.
c. necessarily estimated because their settlement amount is not certain.
d. disclosed only, unless their expected occurrence is remote.
CHAPTER 8 – PRETEST
Read and understand each question carefully. This test consists of 10 items of Multiple Choice.
1. An entity that presents its first PFRS financial statements is referred to under PFRS 1 as a
a. first-timer.
b. first-time adopter.
c. PFRS novice.
d. first-time PFRSer.
4. The statement of financial position of ABC Co. as of January 1, 20x4 included an allowance for
bad debts computed using the “aging of accounts receivable” method. The “over 120 days”
category in the aging schedule included a ₱200,000 receivable which was actually written off on
January 5, 20x4 (the 20x3 financial statements were authorized for issue on March 1, 20x4). ABC
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Co. could not have foreseen this event on December 31, 20x3. Does ABC Co. need to revise its
previous estimate of bad debts as of January 1, 20x4 (date of transition) on December 31, 20x5
(end of first PFRS reporting period)?
a. No. The receipt of the information on January 5, 20x4 is accounted for prospectively as a non-
adjusting event after the reporting period.
b. Yes. The receipt of the information on January 5, 20x4 is accounted for retrospectively as an
adjusting event after the reporting period.
c. No. The event should be ignored because it is within the scope of the previous GAAP and not
the PFRSs.
d. Yes. Although, PFRS 1 does not require the adjustment, other PFRSs do.
5. Under PFRS 1, the early application of PFRSs that have not yet become effective as of the
current reporting period
a. is required.
b. is permitted, but not required.
c. is required, but not permitted.
d. is prohibited.
6. PFRS 1 requires a first time adopter to do which of the following in the opening PFRS statement
of financial position?
a. Recognize all assets and liabilities whose recognition is required by PFRSs.
b. Not recognize items as assets or liabilities if PFRSs do not permit such recognition.
c. Reclassify items that it recognized in accordance with previous GAAP as one type of asset,
liability or component of equity, but are a different type of asset, liability or component of equity
in accordance with PFRSs.
d. Apply PFRSs in measuring all recognized assets and liabilities.
e. All of these
8. The “excess of the acquirer’s interest in the net fair value of acquiree’s identifiable assets,
liabilities, and contingent liabilities over cost” (formerly known as negative goodwill) should be
a. Amortized over the life of the assets acquired.
b. Reassessed as to the accuracy of its measurement and then recognized immediately in profit
or loss.
c. Reassessed as to the accuracy of its measurement and then recognized in retained earnings.
d. Carried as a capital reserve indefinitely
9. Many shares and most share options are not traded in an active market. Therefore, it is often
difficult to arrive at a fair value of the equity instruments being issued. Which of the following
option valuation techniques should not be used as a measure of fair value in the first instance?
a. Black-Scholes model.
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b. Binomial model.
c. Monte-Carlo model.
d. Intrinsic value.
10. Elizabeth, a public limited company, has granted 100 share appreciation rights to each of its 1,000
employees in January 20X4. The management feels that as of December 31, 20X4, 90% of the
awards will vest on December 31, 20X6. The fair value of each share appreciation right on
December 31, 20X4, is P10. What is the fair value of the liability to be recorded in the financial
statements for the year ended December 31, 20X4?
a. P300,000
b. P10 million
c. P100,000
d. P90,000
CHAPTER 8 AGRICULTURE
Objectives:
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Differentiate the following: biological assets, bearer plants,
agricultural produce and inventory
Explain the initial and subsequent measurement of biological
assets and agricultural produce
PAS 41 Agriculture
Agricultural activity
- PAS 41 applies to biological assets, agricultural produce and gov’t.
grants only when they relate to agricultural activity
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- Agricultural activity is the management by an entity of the biological
transformation of biological assets for sale, into agricultural produce,
or into additional biological assets
Common features of agricultural activity:
a. Capability to change – Living animals and plants are capable of
biological transformation
b. Management of change – Management facilitates biological
transformation by enhancing, or at least stabilizing, conditions
necessary for the process to take place
c. Measurement of change – The change in quality or quantity brought
about by biological transformation is measured and monitored as a
routine management function
Recognition
A biological asset or agricultural produce is recognized when:
a. the entity controls the asset as a result of past events
b. it is probable that future economic benefits associated with the asset
will flow to the entity
c. the fair value or cost of the asset can be measured reliably
Measurement
- A biological asset shall be measured on initial recognition and at the
end of each reporting period at its fair value less costs to sell
- Agricultural produce harvested from an entity’s biological assets
shall be measured at its fair value less costs to sell at the point of
harvest. Such measurement is the cost at that date when applying
PAS 2 Inventories or another applicable standard
Definitions
- Fair value is the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market
participants at the measurement date.
- Costs to sell are the incremental costs directly attributable to the
disposal of an asset, excluding finance costs and income taxes
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(e.g., Commissions to brokers, Levies by regulatory agencies and
commodity exchanges, and Transfer taxes and duties)
- Costs to sell do not include transport costs, advertising costs,
income taxes, and interest expense
- If location is a characteristic of the biological asset, the price in the
principal (or most advantageous) market shall be adjusted for the
transport costs.
Encouraged disclosures
Disclosure of the following information is encouraged but not required:
1. Disclosure of consumable and bearer biological assets.
2. Disclosure of mature and immature biological assets.
a. Mature biological assets are those that have attained harvestable
specifications or are able to sustain regular harvests
b. Immature biological assets are those that have not yet attained
harvestable specifications or are not yet able to sustain regular
harvests
3. Disclosure of breakdown of total “Gain (loss) from changes in FVLCS”
during the period attributable to price change and physical change
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Scope of PFRS 2:
a. Equity-settled share-based payment transaction – is a transaction
whereby an entity acquires goods or services and instead of paying
in cash the entity issues its own shares of stocks or share options
b. Cash-settled share-based payment transaction – is a transaction
whereby an entity acquires goods or services and incurs an
obligation to pay cash at an amount that is based on the fair value of
equity instruments
c. Choice between equity-settled and cash-settled
Equity instrument is a contract that evidences a residual interest in the assets
of an entity after deducting all of its liabilities
Core principle
- An entity shall recognize in profit or loss and financial position the
effects of share-based payment transactions, including expenses
associated with transactions in which share options are granted to
employees
Recognition
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- Goods and services received in share-based payment transactions
are recognized when the goods are received or as the services are
received. Goods or services received that do not qualify as assets
are recognized as expenses
- The entity shall recognize A corresponding increase in equity if the
goods or services were received in an equity-settled share-based
payment transaction, or a liability if the goods or services were
acquired in a cash-settled share-based payment transaction
Equity-settled share-based payment transactions
Intrinsic value is the difference between the fair value of the shares to which
the counterparty has the conditional or unconditional right to subscribe or the
right to receive and the subscription price (if any) that the counterparty is
required to pay for those shares
Employee share option plans equity settled
- Share option is a contract that gives the holder the right, but not the
obligation, to subscribe to the entity’s shares at a fixed or
determinable price for a specified period of time. Some share
options given to employees may not require any subscription price,
meaning shares will be issued to the employees in consideration
merely for services rendered
Measurement of compensation
Since employee share option plan is a transaction with an employee, the
following order of priority shall be used to measure the services received
(salaries expense):
108
a. Fair value of equity instruments granted at grant date
b. Intrinsic value
Cash-settled share-based payment transactions
- A cash-settled share-based payment transaction is one whereby an
entity acquires goods or services and incurs an obligation to pay
cash at an amount that is based on the fair value of equity
instruments
- The goods or services acquired and the liability incurred on cash-
settled share-based payment transactions are measured at the fair
value of the liability
- At the end of each reporting period and even on settlement date, the
liability shall be remeasured to fair value. Changes in fair value are
recognized in profit or loss
Employee share appreciation rights (SARs) – cash-settled
- A share appreciation right is a form of compensation given to an
employee whereby the employee is entitled to future cash payment
(rather than an equity instrument), based on the increase in the
entity’s share price from a specified level over a specified period of
time
Measurement of compensation
- The liability for the future cash payment on share appreciation rights
shall be measured, initially and at the end of each reporting period
until settled, at the fair value of the share appreciation rights.
Changes in fair value are recognized in profit or loss
Recognition of cash-settled share-based compensation plans
- If the share appreciation rights granted vest immediately, the entity
shall recognize the related compensation expense on the services
received in full with a corresponding increase in liability at grant date
- If the share options granted do not vest until the employee
completes a specified period of service, the entity shall recognize
the services received, and a liability to pay for them, as the
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employee renders service during that period
Share-based payment transactions with cash alternatives
- If the counterparty has the right to choose settlement between cash
(or other assets) or equity instruments, the entity has granted a
compound instrument
- For transactions with non-employees, the equity component is
computed as the difference between the fair value of goods or
services received and the fair value of the debt component at the
date the goods or services are received
110
has rights, to variable returns from its involvement with the investee
and has the ability to affect those returns through its power over the
investee.
- Control is normally presumed to exist when the ownership interest
acquired in the voting rights of the acquiree is more than 50% (or
51% or more)
Control may exist even if the acquirer holds less than 50% interest in the
voting rights of acquiree, such as in the following cases:
1. The acquirer has the power to appoint or remove the majority of the
board of directors of the acquire
2. The acquirer has the power to cast the majority of votes at board
meetings or equivalent bodies within the acquire
3. The acquirer has power over more than half of the voting rights of the
acquiree because of an agreement with other investors
4. The acquirer has power to control the financial and operating policies of
the acquiree because of a law or an agreement
Accounting for business combinations
Business combinations are accounted for using the acquisition method.
This method requires the following:
1. Identifying the acquirer
2. Determining the acquisition date
3. Recognizing and measuring goodwill. This requires recognizing and
measuring the following:
a. Consideration transferred
b. Non-controlling interest in the acquire
c. Previously held equity interest in the acquire
d. Identifiable assets acquired and liabilities assumed on the business
combination
Identifying the acquirer
- The acquirer is the entity that obtains control of the acquiree. The
acquiree is the business that the acquirer obtains control of in a
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business combination
- The acquirer is normally the entity that:
a. Transfers cash or other assets and incurs liabilities
b. Issues its equity interests (except in reverse acquisitions)
c. Receives the largest portion of the voting rights
d. Has the ability to elect or appoint or to remove a majority
e. Dominates the management of the combined entity
f. Significantly larger of the combining entities
g. Initiated the combination
Determining the acquisition date
- The acquisition date is the date on which the acquirer obtains
control of the acquire
Non-controlling interest (NCI)
- Non-controlling interest (NCI) is the equity in a subsidiary not
attributable, directly or indirectly, to a parent
- NCI is measured either at:
a. Fair value
b. The NCI’s proportionate share of the acquiree’s identifiable net
assets
Previously held equity interest in the acquire
- Previously held equity interest in the acquiree pertains to any
interest held by the acquirer before the business combination
Net identifiable assets acquired
- On acquisition date, the acquirer shall recognize, separately from
goodwill, the identifiable assets acquired, the liabilities assumed and
any non-controlling interest in the acquire
- Any unidentifiable asset of the acquiree (e.g., any recorded goodwill
by the acquiree) shall not be recognized
- The identifiable assets acquired and the liabilities assumed are
measured at their acquisition-date fair values
For further discussion please refer to the link provided: PAS 41 – Biological Assets
112
https://www.youtube.com/watch?v=isjs48id-g0
For further discussion please refer to the link provided: PFRS 1 – First Time Adoption
https://www.youtube.com/watch?v=72kjAoOxjvE
For further discussion please refer to the link provided: PFRS 3 – Business Combination
https://www.youtube.com/watch?v=4ztDhzUDwmg
Reference Book:
Conceptual Framework and Accounting Standards
By: Zeus Vernon B. Millan, 2019 Edition
1. The “excess of the acquirer’s interest in the net fair value of acquiree’s identifiable assets,
liabilities, and contingent liabilities over cost” (formerly known as negative goodwill) should be
a. Amortized over the life of the assets acquired.
b. Reassessed as to the accuracy of its measurement and then recognized immediately in
profit or loss.
c. Reassessed as to the accuracy of its measurement and then recognized in retained
earnings.
d. Carried as a capital reserve indefinitely.
3. On January 1, 20x1, ABC Co. acquired 60% interest in XYZ, Inc. for ₱2,000,000 cash. ABC Co.
incurred transaction costs of ₱100,000 in the business combination. ABC Co. elected to measure
NCI at the NCI’s proportionate share in XYZ, Inc.’s identifiable net assets. The fair values of XYZ’s
identifiable assets and liabilities at the acquisition date were ₱6,000,000 and ₱3,500,000,
respectively. How much is the goodwill (gain on a bargain purchase)?
a. 500,000
b. 478,000
c. (500,000)
d. (478,000)
113
4. Many shares and most share options are not traded in an active market. Therefore, it is often
difficult to arrive at a fair value of the equity instruments being issued. Which of the following
option valuation techniques should not be used as a measure of fair value in the first instance?
a.Black-Scholes model.
b.Binomial model.
c.Monte-Carlo model.
d.Intrinsic value.
5. Elizabeth, a public limited company, has granted 100 share appreciation rights to each of its 1,000
employees in January 20X4. The management feels that as of December 31, 20X4, 90% of the
awards will vest on December 31, 20X6. The fair value of each share appreciation right on
December 31, 20X4, is P10. What is the fair value of the liability to be recorded in the financial
statements for the year ended December 31, 20X4?
a. P300,000
b. P10 million
c. P100,000
d. P90,000
114
10. Under PFRS 1, the early application of PFRSs that have not yet become effective as of the
current reporting period
a.is required.
b.is permitted, but not required.
c.is required, but not permitted.
d.is prohibited
CHAPTER 9 - PRETEST
Read and understand each question carefully. This test consists of 10 items of Multiple Choice.
2. Assets that are classified as held for sale under PFRS 5 are
a. required under PAS 36 to be tested for impairment annually.
b. amortized over a period not exceeding 5 years.
c. depreciated.
d. not depreciated.
3. According to PFRS 5, gains and losses on remeasurement of assets held for sale are
a. recognized in profit or loss.
b. recognized in other comprehensive income.
c. recognized only for impairment losses.
d. not recognized.
4. Which of the following statements is true regarding the accounting treatment of costs to sell under
PFRS 5?
a. Costs to sell are added to the fair value when determining the measurement basis for an asset
held for sale.
b. Costs to sell are never discounted because held for sale assets should be sold within one
year.
c. Costs to sell are discounted if it is expected that the sale will be made beyond one year.
d. a and c
5. According to PFRS 5, the assets and liabilities of a disposal group are presented
a. as one line item in either current assets or current liabilities.
b. as one line item in either noncurrent assets or noncurrent liabilities.
c. separately on the face of the statement of financial position.
d. a or b
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6. Exploration and evaluation assets are initially measured at
a. cost. c. fair value
b. revalued amount. d. a or b
7. Exploration and evaluation assets are exploration and evaluation expenditures recognized as
a. assets in accordance with the entity’s accounting policy.
b. expenses in accordance with applicable PFRSs.
c. assets in accordance with (a) above, subject to the limitations provided under PAS 8
Accounting Policies, Changes in Accounting Estimates and Errors.
d. any of these
8. Mark Ngina’s Sari-sari Store has a sign that reads “Your credit is good but I need cash.” What
type of risk is Mr. Mark trying to avoid by putting up that sign?
a. credit risk
b. market risk
c. liquidity risk
d. store risk
Objectives:
Describe the criteria for held for sale classification
State the initial and subsequent measurement of held for sale
assets
116
Sale and Discontinued Operations
Core Principle
A noncurrent asset is presented in the classified statement of financial
position as current asset only when it qualifies to be classified as “held for
sale” in accordance with PFRS 5.
Scope
PFRS 5 applies to the following non-current assets:
1. Property, plant and equipment
2. Investment property measured under the Cost model
3. Investments in associate or subsidiary or joint venture
4. Intangible assets
Classification of non-current assets (or disposal groups) as Held for Sale
A non-current asset (or disposal group) is classified as held for sale or
held for distribution to owners if its carrying amount will be recovered
principally through a sale transaction rather than through continuing use
Exception to the one-year requirement
An extension of the period required to complete a sale does not
preclude an asset (or disposal group) from being classified as held for sale if:
1. the delay is attributable to events or circumstances beyond
the entity’s control
2. there is sufficient evidence that the entity remains
committed to its plan to sell the asset (or disposal group)
Event after reporting period
If the criteria for classification as held for sale are met after the
reporting period, an entity shall not classify a non-current asset (or disposal
group) as held for sale in those financial statements when issued
Non-current assets that are to be abandoned
- An entity shall not classify as held for sale a non-current asset (or
disposal group) that is to be abandoned since the asset’s carrying
amount will be recovered through continuing use rather than
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principally through a sale
- An entity shall not account for a non-current asset that has been
temporarily taken out of use as if it had been abandoned
Discontinued operations
A discontinued operation is a component of an entity that either has
been disposed of or is classified as held for sale, and
1. Represents a major line of business or geographical area
of operations
2. Is part of a single coordinated plan to dispose of a separate
major line of business or geographical area of operations
3. Is a subsidiary acquired exclusively with a view to resale.
Component of an entity
A component of an entity comprises operations and cash flows that can
be clearly distinguished, operationally and for financial reporting purposes,
from the rest of the entity. It can be cash generating unit or group of cash
generating units
FS presentation
Non-current assets held for sale and assets and liabilities of disposal
groups are presented as current assets (current liabilities) but separately from
the other assets and liabilities in the statement of financial position
An entity shall not offset the assets and liabilities of a disposal group
118
- Exploration for and evaluation of mineral resources is the search for
mineral resources, including minerals, oil, natural gas and similar
non-regenerative resources after the entity has obtained legal rights
to explore in a specific area, as well as the determination of the
technical feasibility and commercial viability of extracting the mineral
resource
- Exploration and evaluation expenditures are expenditures incurred
by an entity in connection with the exploration for and evaluation of
mineral resources before the technical feasibility and commercial
viability of extracting a mineral resource are demonstrable
Accounting for exploration and evaluation expenditures
- PFRS 6 permits entities to develop their own accounting policy for
exploration and evaluation assets which results in relevant and
reliable information based entirely on management’s judgment and
without the need to consider the hierarchy of standards in PAS 8
- This means that the entity may recognize exploration and evaluation
expenditures either as expense or asset depending on the entity’s
own accounting policy
Measurement at recognition
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- If the entity opts to capitalize exploration and evaluation
expenditures as assets, it shall measure them at cost
- Subsequent to recognition, the exploration and evaluation assets
shall be measured using the cost model or the revaluation model
120
a. Credit risk – is “the risk that one party to a financial instrument will cause a
financial loss for the other party by failing to discharge an obligation.
b. Liquidity risk – is the risk that an entity will encounter difficulty in meeting
obligations associated with financial liabilities
c. Market risk – is “the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market prices
Market risk comprises the following three types of risk:
i. Currency risk – the risk associated with fluctuations in foreign exchange
rates
ii. Interest rate risk –the risk associated with changes in market interest
rates
iii. Other price risk – the risk associated with fluctuations in market prices
other than those arising from interest rate risk or currency risk
Qualitative and Quantitative disclosures on risks
- The entity shall provide both qualitative and quantitative disclosures for
each type of the risks required by PFRS 7 to be disclosed
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Reclassification
- After initial recognition, financial assets are reclassified only when the entity
changes its business model for managing financial assets
- Reclassification date is the first day of the first reporting period following
the change in business model that results in an entity reclassifying financial
assets
Impairment
- The impairment requirements of PFRS 9 apply equally to debt-type
financial assets that are measured either at amortized cost or at FVOCI
- Impairment gains or losses on debt instruments measured at FVOCI are
recognized in profit or loss. However, the loss allowance shall be
recognized in other comprehensive income and shall not reduce the
carrying amount of the financial asset in the statement of financial position
Dividends
- Dividends received from equity securities measured at FVPL or FVOCI
(except share dividend) are recognized as dividend revenue
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PFRS 10 Consolidated Financial Statements
Definition of terms (PFRS 10)
a. Parent – an entity that controls one or more entities.
b. Subsidiary – an entity that is controlled by another entity
c. Group – a parent and its subsidiaries
d. Consolidated financial statements – the 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
Preparation of Consolidated FS
A parent entity is required to present consolidated financial statements, except
when all of the following conditions are met:
a. The parent is a subsidiary of another entity and all its other owners do not object to
the parent not presenting consolidated financial statements
b. The parent’s debt or equity instruments are not traded in a public market (or being
processed for such purpose)
c. The parent’s ultimate or any intermediate parent produces consolidated financial
statements that are available for public use and comply with PFRSs
Elements of Control
Control exists if the investor has all of the following:
a. Power over the investee
b. Exposure, or rights, to variable returns from its involvement with the
investee
c. The ability to use its power over the investee to affect the amount of the
investor’s returns
Elements of Control
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Measurement
- Income and expenses of the subsidiary are based on the amounts of the
assets and liabilities recognized in the consolidated financial statements at
the acquisition date
126
accounts so that they may assess the performance of the joint operation
127
For further discussion refer to the link provided: PFRS 8 - Operating Segments
https://www.youtube.com/watch?v=3SqJD7uJNUY
For further discussion refer to the link provided: PFRS 9 – Financial Instruments
https://www.youtube.com/watch?v=8kIKVoNdvoU
For further discussion refer to the link provided: PFRS 11 – Joints Arrangements
https://www.youtube.com/watch?v=sBPTFUX1ozI
Reference Book:
Conceptual Framework and Accounting Standards
By: Zeus Vernon B. Millan, 2019 Edition
Additional information:
The carrying amounts of subsidiary’s net identifiable assets approximate their acquisition-date fair
values, except for the following:
- Inventory, ₱37,200
- Building, net, ₱57,600
Read and understand each question carefully. This test consists of 10 items Multiple choice.
1. According to PFRS 9, it is the amount at which a financial asset or a financial liability is measured
at initial recognition minus principal repayments, plus or minus the cumulative amortization using
the effective interest method of any difference between that initial amount and the maturity amount
and, for financial assets adjusted for any loss allowance.
a. cost b. carrying amount c. amortized cost d. fair value
2. Which of the following is measured at fair value with fair value changes recognized in profit or
loss?
a. Held to maturity investments
b. Financial assets designated at FVPL
c. FVOCI
d. All of these
3. If the entity’s business model’s objective is to hold assets in order to collect contractual cash flows
and cash flows are solely payments of principal and interest on the principal amount outstanding,
the financial asset is classified
a. according to management’s intention of holding the securities.
b. as financial asset measured at amortized cost.
c. as financial asset measured at fair value through other comprehensive income.
d. any of these
4. Tech Co. and Robotics Co. are joint venturers of Mecha Co., a producer of high tech machinery.
Tech and Robotics, each have a 50% interest in the net assets of Mecha Co. During the year,
Tech Co. earns revenue of ₱1,000,000 from its own operations while Mecha Co. reports revenue
of ₱400,000. How much total revenue shall be reported in Tech Co.’s statement of profit or loss
for the year?
a. ₱1,000,000
b. ₱1,200,000
c. ₱1,400,000
d. Either a or b
5. Entity A acquires 50% interest in a joint venture for ₱1M and appropriately records the transaction
under an investment account. At the end of the period, the joint venture reports profit of ₱1M and
makes a total distribution of ₱600,000 to the owners. How much is the net effect of the transaction
in Entity A’s profit or loss for the current year?
a. ₱.5M
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b. ₱.3M
c. ₱.2M
d. 0
6. ABC Co. has identified the following five operating segments: “Credit,” “Hotel,” “Transportation,”
“Grocery,” and “Events planning.” ABC Co. treats the “Hotel” and “Events planning” as a single
segment for internal reporting purposes. Each of the “Events planning” and “Transportation”
segments does not qualify under any of the quantitative thresholds of PFRS 8. How should ABC
Co. disclose its reportable segments?
a. ABC Co. shall treat each of the “Hotel,” “Credit,” and “Grocery” as reportable segments. The
other segments should not be disclosed.
b. ABC Co. shall treat each of the “Hotel,” “Credit,” and “Grocery” as reportable segments. The
other segments should be combined and disclosed in the “All other segments” category.
c. ABC Co. shall treat the “Hotel” and “Events planning” as a single reportable segment and each
of the “Credit” and “Grocery” segments also as reportable segments. The “Transportation”
segment shall be included in the “All other segments” category.
d. ABC Co. shall treat the “Hotel” and “Events planning” as a single reportable segment and
combine all the other segments and report them under the “All other segments” category.
7. An entity recently has acquired a new brand from a competitor company. The brand qualifies as a
component of an entity and represents a major line of business for which discrete financial
information is available. This operating segment does not meet any of the threshold criteria for a
reportable segment. Furthermore, this segment is unique and does not share similar
characteristics with the other operating segments of the entity. Which of the following statements
is correct?
a. The entity can disclose this new segment separately if it is a distinguishable component and is
used by management in internal reporting even though it does not meet the PFRS criteria.
b. The entity cannot voluntarily disclose this new segment separately because PFRS 8
discourages voluntary disclosure of operating segments. Operating segments are reportable
only if they either result from aggregation or qualify under any of the quantitative thresholds.
c. The entity can disclose this new segment separately only if it can be aggregated with another
operating segment and the combined segment qualifies in all of the quantitative thresholds.
d. The entity can disclose this new segment separately only if it can be aggregated with another
operating segment and the combined segment qualifies in any of the quantitative thresholds.
9. Which of the following is not among the quantitative thresholds under PFRS 8?
a. at least 10% of total revenues (external and internal).
b. at least 10% of the higher of total profits of segments reporting profits and total losses of
segments reporting losses, in absolute amount.
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c. at least 10% of total assets (inclusive of intersegment receivables).
d. at least 10% of total revenues (external only)
10. According to PFRS 8, disclosures for major customer shall be provided if revenues from
transactions with a single external customer amount to
a. at least 75% of the entity’s external and internal revenues.
b. at least 75% of the entity’s external revenues.
c. 10% or more of the entity’s external revenues.
d. less than 10% of the entity’s external revenues
CHAPTER 10 - PRETEST
Read and understand each question carefully. This test consists of 10 items of Multiple Choice.
1. PFRS 12 applies to
a. contracts relating to post-employment benefit plans.
b. interest in joint arrangements that does not give the entity joint control or significant influence
over the arrangement.
c. investments measured at fair value through other comprehensive income.
d. investments accounted for under the equity method.
4. There are multiple active markets for a financial asset with different observable market prices:
Market Quoted Price Transaction Costs
A ₱76 ₱5
B ₱74 ₱2
There is no principal market for the financial asset. What is the fair value of the asset?
a. 71 b. 72 c. 74 d. 76
5. According to PFRS 14, an entity presents regulatory deferral accounts in the statement of financial
position
a. showing those with debit balances separately from those with credit balances.
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b. showing only the net debit or the net credit balance of the accounts.
c. a or b, as a matter of accounting policy choice
d.An entity shall not present regulatory deferral accounts in the statement of financial position, but
only disclose them in the notes.
6. Arrange the following steps of revenue recognition in accordance with PFRS 15.
I. Identify the performance obligations in the contract
II. Recognize revenue when (or as) the entity satisfies a performance obligation
III. Determine the transaction price
IV. Identify the contract with the customer
V. Allocate the transaction price to the performance obligations in the contract
a. IV, I, V, III, II c. III, IV, I, V, II
b. IV, I, III, V, II d. IV, III, I, V, II
7. Certain criteria must be met before a contract with a customer is accounted for under PFRS 15.
Which of the following precludes a contract from being accounted for under PFRS 15?
a. The consideration is collected in advanced.
b. The contract is made orally.
c. The contract does not result to a change in the risk, timing or amount of the entity’s future cash
flows.
d. The contract is neither oral nor written but rather implied by the entity’s business practices.
8. How does Entity B account for the insurance contract with Entity A?
a. General model
b. Premium Allocation Approach
c. a or b
d. Not accounted for under PFRS 17
9. How does Entity C account for the insurance contract ceded by Entity B?
a. General model
b. Premium Allocation Approach
c. a or b
d. Modification to general model for reinsurance contracts held
10. How does Entity B account for the insurance contract ceded to Entity C?
a. General model
b. Premium Allocation Approach
c. a or b
d. Modification to general model for reinsurance contracts held
CHAPTER 10
PFRS 12 Disclosure of Interest in Other Entities
Objectives:
Describe the objective of PFRS 12
State the types of investments that are within the scope of PFRS
12 132
The objective of PFRS 12 is to prescribe the minimum disclosure
requirements for an entity’s interests in other entities, particularly (a) the
nature of, and risks associated with, those interests and (b) the effects of
those interests on the entity’s financial statements
Interest in another entity
Scope
PFRS 12 applies to entities that have an interest in a(an):
a. Subsidiary
b. Joint arrangement (i.e., Joint operation or Joint venture);
c. Associate; or
d. Unconsolidated structured entity
PFRS 12 does not apply to an interest in another entity that is accounted for
in accordance with PFRS 9 Financial Instruments.
Minimum disclosures under PFRS 12
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Significant judgments and assumptions in determining the existence of
control, joint control or significant influence over an investee or the type of a
joint arrangement
Scope
a. PFRS 14 specifies the financial reporting requirements for regulatory
deferral account balances arising from the sale of goods or services
that are subject to rate regulation
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b. PFRS 14 is an optional standard that is available only to first-time
adopters. Existing PFRS users are prohibited from using PFRS 14
Definition of Terms
- Regulatory deferral account balance – “the balance of any expense (or
income) account that would not be recognized as an asset or a liability in
accordance with other Standards, but that qualifies for deferral because it
is included, or is expected to be included, by the rate regulator in
establishing the rate(s) that can be charged to customers.”
- Rate regulation – “a framework for establishing the prices that can be
charged to customers for goods or services and that framework is subject
to oversight and/or approval by a rate regulator.”
- Rate regulator – “an authorized body that is empowered by statute or
regulation to establish the rate or a range of rates that bind an entity. The
rate regulator may be a third-party body or a related party of the entity,
including the entity’s own governing board, if that body is required by
statute or regulation to set rates both in the interest of the customers and
to ensure the overall financial viability of the entity.”
Principles under PFRS 14
a. A first-time adopter continues to apply its previous GAAP to the
recognition, measurement, impairment and derecognition of regulatory
deferral account balances, except for changes in accounting policies
and the presentation of regulatory deferral accounts
b. An entity is prohibited from changing its accounting policy in order to
start recognizing regulatory deferral account balances.
Presentation
Statement of financial position
Separate line items are presented for the totals of:
a. regulatory deferral account debit balances; and
b. regulatory deferral account credit balances.
The regulatory deferral account balances are not presented as current
or noncurrent. Instead, they are presented separately from the sub-
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totals of assets and liabilities that are presented in accordance with
other Standards
Statement of profit or loss and other comprehensive income
Separate line items are presented:
a. in other comprehensive income for the net movement of regulatory
deferral account balances that relate to items recognized in OCI,
showing distinctions between those that will be and will not be
reclassified to profit or loss; and
b. in profit or loss for the remaining net movement of regulatory deferral
account balances excluding movements that are not reflected in profit
or loss.
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An entity recognizes revenue to depict the transfer of promised goods
or services to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or services
Steps in the recognition of revenue:
1. Identify the contract with the customer
Requirements before a contract with a customer is accounted
for under PFRS 15:
a. The contract must be approved and the contracting parties are
committed to it;
b. rights and payment terms are identifiable rights and payment terms are
identifiable
c. The contract has commercial substance; and
d. The consideration is probable of collection
2. Identify the performance obligations in the contract
Each promise in a contract to transfer a distinct good or service
is treated as a separate performance obligation
3. Determine the transaction price
The entity shall determine the transaction price because this is
the amount at which revenue will be measured
Transaction price is “the amount of consideration to which an
entity expects to be entitled in exchange for transferring
promised goods or services to a customer, excluding amounts
collected on behalf of third parties (e.g., some sales taxes).”
The consideration may include fixed amounts, variable
amounts, or both
4. Allocate the transaction price to the performance obligations
The transaction price shall be allocated to each performance
obligation identified in a contract based on the relative stand-
alone prices of the distinct goods or services promised to be
transferred
5. Recognize revenue when (or as) the entity satisfies a
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performance obligation
A performance obligation is satisfied when the control over a
promised good or service is transferred to the customer
Revenue is measured at the amount of the transaction price
allocated to the satisfied performance obligation
PFRS 16 Leases
Identifying a lease
“A contract is, or contains, a lease if the contract conveys the right to
control the use of an identified asset for a period of time in exchange for
consideration.” (PFRS 16.9)
Right to Control
An entity has the right to control the use of an identified asset if it has
both of the following throughout the period of use:
1. the right to obtain substantially all of the economic benefits
from use of the identified asset; and
2. the right to direct the use of the identified asset
Identified asset
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An asset can be identified by being explicitly stated in the contract or by
being implicitly specified at the time the asset is made available for use by the
customer
A portion of an asset can be identified if it is physically distinct
Right to direct the use
The customer has the right to direct how and for what purpose the
asset is used throughout the period of use
GENERAL RECOGNITION
139
Classification of lease by the lessor
- Finance lease - a lease that transfers substantially all the risks and
rewards incidental to ownership of an asset. Title may or may not
eventually be transferred
- Operating lease - a lease other than a finance lease.
Indicators of a finance lease
Scope
PFRS 17 prescribes the principles for the recognition, measurement,
presentation and disclosure of insurance contracts by an insurer. PFRS 17
applies to:
a. insurance and reinsurance contracts issued by an insurer
b. reinsurance contracts held by an insurer; and
c. investment contracts with discretionary participation features issued by an
insurer.
Insurer (issuer of insurance contract) is the party that has an obligation
under an insurance contract to compensate a policyholder if an insured
event occurs (e.g., insurance company).
Insurance contract
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An insurance contract is “a contract under which one party (the issuer)
accepts significant insurance risk from another party (the policyholder) by
agreeing to compensate the policyholder if a specified uncertain future event
(the insured event) adversely affects the policyholder.” (PFRS 17 Appendix A)
Policyholder – “a party that has a right to compensation under an
insurance contract if an insured event occurs.”
Insured event – “an uncertain future event that is covered by an
insurance contract and creates insurance risk.”
Examples of insurance contracts
1. Insurance against theft or damage
2. Insurance against product liability, professional liability, civil
liability or legal expenses
3. Life insurance and prepaid funeral plans
4. Life-contingent annuities and pensions
5. Disability and medical cover
6. Surety bonds, fidelity bonds, performance bonds and bid bonds.
7. Product warranties issued by another party for goods sold by a
manufacturer, dealer or retailer. Product warranties issued
directly by a manufacturer, dealer or retailer are outside the
scope of PFRS 17
8. Title insurance.
9. Travel insurance
10. Insurance swaps and other contracts that require a payment
depending on changes in physical variables that are specific to
a party to the contract. (PFRS 17.B26)
Types of insurance contracts
Direct insurance contract – an insurance contract where the insurer
directly accepts risk from the insured and assumes the sole obligation to
compensate the insured in case of a loss event.
Reinsurance contract – an insurance contract issued by one insurer (the
reinsurer) to compensate another insurer (the cedant) for losses on one or
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more contracts issued by the cedant.
Reinsurer – the party that has an obligation under a reinsurance
contract to compensate a cedant if an insured event occurs.
Cedant – the policyholder under a reinsurance contract.
Initial Measurement
A group of insurance contracts is initially measured at the total of:
a. the fulfillment cash flows, and
b. the contractual service-margin
Onerous contracts
An insurance contract is onerous if the total of its fulfillment cash flows,
any previously recognized acquisition cash flows and any cash flows arising
from the contract at initial recognition date is a net outflow. The net outflow is
recognized as a loss in profit or loss. This results to a carrying amount of the
liability for the group equal to the fulfilment cash flows and a zero contractual
service margin
On subsequent measurement, any excess net outflow for a group of
insurance contracts that becomes onerous or more onerous is recognized in
profit or loss
Derecognition
An insurance contract is derecognized when:
a. it is extinguished, i.e., when the obligation in the insurance contract
expires or is discharged or cancelled; or
b. the contract is modified and the modification meets any of the
conditions for derecognition
Presentation
143
Statement of financial position
The carrying amounts of the following groups are presented separately
in the statement of financial position:
a. insurance contracts issued that are assets;
b. insurance contracts issued that are liabilities;
c. reinsurance contracts held that are assets; and
d. reinsurance contracts held that are liabilities.
Statement(s) of financial performance
The amounts recognized in the statement(s) of profit or loss and other
comprehensive income are disaggregated into to the following:
a. insurance service result, comprising insurance revenue and
insurance service expenses; and
b. insurance finance income or expenses
For further discussion please refer to the link provided: PFRS 15 – Revenue from Contracts
https://www.youtube.com/watch?v=2nDraDtK6Tc Reference Book:
For further discussion please refer to the link provided: PFRS 16 - Leases
Conceptual Framework and Accounting Standards
https://www.youtube.com/watch?v=kXZJWRHnxPI
For further discussion please
By:refer
Zeusto the link provided:
Vernon PFRS 17 2019
B. Millan, – Insurance Contracts
Edition
https://www.youtube.com/watch?v=llxwapGnDkU
2. On January 1, 20x1, Entity X enters into a 3-year lease of equipment for an annual rent of
₱100,000 payable at the end of each year. The equipment has a remaining useful life of 10
years. The interest rate implicit in the lease is 10% while the lessee’s incremental borrowing
rate is 12%. Entity X uses the straight-line method of depreciation. The relevant present value
factors are as follows:
- PV of an ordinary annuity of ₱1 @10%, n=3………… 2.48685
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- PV of an ordinary annuity of ₱1 @12%, n=3………… 2.40183
Read and understand each question carefully. This test consists of 10 items Multiple Choice.
1.On January 1, 20x1, Entity X enters into a 3-year lease of equipment for an annual rent of ₱100,000
payable at the end of each year. The equipment has a remaining useful life of 10 years. The interest
rate implicit in the lease is 10% while the lessee’s incremental borrowing rate is 12%. Entity X uses
the straight-line method of depreciation. The relevant present value factors are as follows:
- PV of an ordinary annuity of ₱1 @10%, n=3………… 2.48685
- PV of an ordinary annuity of ₱1 @12%, n=3………… 2.40183
2.Assume the lease in problem #1 above qualifies for accounting under the recognition exemption
under PFRS 16. Which of the following statements is correct?
a. Entity X recognizes annual depreciation of ₱80,061 on the right-of-use asset.
b. Entity X recognizes a lease liability of ₱252,314 at the lease commencement date.
c. Entity X recognizes a lease liability of ₱200,000 at the lease commencement date.
d. Entity X recognizes lease expense of ₱100,000 in the first year of the lease.
3.Use the information in problem #1 above. Assume the lease is a finance lease. The lessor will
recognize a net investment in the lease at the lease commencement equal to
a. 240,183. c. 252,314.
b. 248,685 . d. 0.
4.Use the information in problem #1 above. Assume the lease is an operating lease. The lessor will
recognize a net investment in the lease at the lease commencement equal to
a.240,183. c. 200,000.
b.248,685 . d. 0..
5.How does Entity B account for the insurance contract with Entity A?
a.General model
b.Premium Allocation Approach
c.a or b
d.Not accounted for under PFRS 17
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6.How does Entity C account for the insurance contract ceded by Entity B?
a.General model
b.Premium Allocation Approach
c.a or b
d.Modification to general model for reinsurance contracts held
7.How does Entity B account for the insurance contract ceded to Entity C?
a.General model
b.Premium Allocation Approach
c.a or b
d.Modification to general model for reinsurance contracts held
8.The "premium allocation approach" cannot be applied to which of the following insurance contracts?
a. insurance contracts issued
b. reinsurance contracts issued
c. reinsurance contacts held
d. insurance contracts with significant variability in their fulfillment cash flows.
9.The unearned profit from a group of insurance contracts is referred to under PFRS 17 as
a. fulfillment cash flows.
b. contractual service margin.
c. onerous contracts.
d. discretionary participation feature.
PRELIM EXAM
146
c. General purpose financial statements are those statements that cater to the common and
specific needs of a wide range of external users.
d. The accounting process of assigning numbers, commonly in monetary terms, to the economic
transactions and events is referred to as classifying.
2. The accounting standards used in the Philippines are adapted from the standards issued by the
a. Federal Accounting Standards Board (FASB).
b. International Accounting Standards Board (IASB).
c. Philippine Institute of Certified Public Accountants (PICPA).
d. Democratic People's Republic of Korea Accounting Standards Committee (DPKRASC).
3. 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
a. production.
b. savings.
c. exchange.
d. investment.
4. It is the branch of accounting that focuses on the general purpose reports of financial position and
operating results known as financial statements.
a. Financial accounting
b. Auditing
c. Managerial accounting
d. Taxation
6. 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?
a. historical cost
b. stable monetary unit
c. accrual basis
d. time period
7. 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.
a. faithful representation
b. prudence
c. consistency
d. relevance
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8. 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?
a. articulation
b. consistency
c. accrual basis
d. time period
9. Entity A’s asset has a carrying amount of ₱1M. At year end, Entity A obtains information that the
asset became obsolete, and therefore its usefulness has declined. Entity A estimates that the
asset has a recoverable amount of only ₱800K. Entity A recognizes a loss of ₱200K for the
difference. Although this accounting treatment is required, it violates which of the following
concepts?
a. historical cost
b. stable monetary unit
c. accrual basis
d. time period
12. Financial statements are said to be a mixture of fact and opinion. Which of the following items is
factual?
a. cost of goods sold
b. discount on capital stock
c. retained earnings
d. patent amortization expense
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14. 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.
a. Articulation
b. Matching
c. Separate entity
d. Full disclosure
17. Which of the following statements about the Norwalk Agreement is correct?
a. The Norwalk Agreement requires all domestic companies in the U.S. to prepare financial
statements in accordance with the IFRSs.
b. The Norwalk Agreement is a short-term convergence between the FASB and the IASB which
has long-time been abolished.
c. 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.
d. The Norwalk Agreement does not affect the financial reporting standards in the Philippines.
18. The process of identifying, measuring, analyzing, and communicating financial information needed
by management to plan, evaluate, and control an organization’s operations is called
a. financial accounting.
b. tax accounting.
c. managerial accounting.
d. auditing.
20. It is the official accounting standard setting body in the Philippines. It is composed of a
chairperson and 14 members.
a. Financial Reporting Standards Committee (FRSC)
b. Financial Reporting Standards Council (FRSC)
c. Accounting Standards Committee (ASC)
d. Accounting Standards Council (ASC)
23. You are the accountant of ABC Co. During the period, your company purchased staplers worth
₱1,500. Although the staplers have an estimated useful life of 10 years, you have charged their
cost as expense. Which of the following is most likely to be true?
a. You are applying the concept of matching.
b. You are applying the concepts of materiality and cost-benefit consideration.
c. You are applying the concept of verifiability.
d. You are just lazy to compute for the periodic depreciation.
25. Under the Conceptual Framework, qualitative characteristics are sub-classified into
a. primary and secondary qualitative characteristics
b. major and minor qualitative characteristics
c. fundamental and enhancing qualitative characteristics
d. not sub-classified
26. Under this qualitative characteristic, users are assumed to have a reasonable knowledge of
business and economic activities and accounting and a willingness to study the information with
150
reasonable diligence. However, information about complex matters that should be included in the
financial statements because of its relevance to the economic decision-making needs of users
should not be excluded merely on the grounds that it may be too difficult for certain users to
understand.
a. Relevance
b. Reliability
c. Understandability
d. Comparability
27. The Conceptual Framework sets out general recognition principles of financial statement elements
which include all of the following except
a. asset recognition
b. equity recognition
c. liability recognition
d. expense recognition
28. Which of the following is most likely expensed under the ‘immediate recognition’ principle?
a. cost of inventories
b. impairment loss
c. cost of equipment
d. rentals paid
32. The ability through consensus among measurers to ensure that information represents what it
purports to represent is an example of the concept of
a. Relevance
b. Comparability
c. Verifiability
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d. Feedback value
33. According to the Conceptual Framework, it is a pervasive constraint on the information that can be
provided by financial reporting
a. materiality
b. historical
c. cost
d. going concern
37. “I say red, you say green.” The information lacks which of the following qualitative characteristics?
a. Relevance
b. Verifiability
c. Timeliness
d. Colorfulness
38. Which of the following is not one of the decisions that primary users make?
a. deciding on how to run the day-to-day operations of the entity
b. deciding on whether to hold or sell investment in stocks
c. deciding on whether to buy investment in stocks
d. deciding on whether to extend loan to the reporting entity
39. Entity A is making a materiality judgment. Entity A considers an item to be material, and therefore
needs to be disclosed in the notes to the financial statements, if the item pertains to a related
party transaction. What type of materiality assessment is Entity A using?
a. quantitative
b. qualitative
c. faithful representation
d. relevance
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40. Which of the following financial statements would not be dated as covering a certain reporting
period?
a. Statement of financial position
b. Statement of profit or loss and other comprehensive income
c. Statement of cash flows
d. Statement of changes in equity
43. Entity A needs guidance in accounting for its inventories. Entity A should refer to which of the
following?
a. PAS 1
b. PAS 2
c. PAS 7
d. PAS 8
44. Entity A needs guidance in preparing its statement of changes in equity. Entity A should refer to
which of the following?
a. PAS 1
b. PAS 2
c. PAS 7
d. PAS 8
45. Which of the following concepts is violated when measuring inventories at the lower of cost and
net realizable value?
a. The concept that assets shall not be carried at an amount in excess of its recoverable amount.
b. Historical cost concept
c. Prudence or conservatism concept
d. Offsetting concept
46. At the end of the period, Entity A has deductible 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?
a. 30,000 deferred tax asset
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b. 30,000 deferred tax liability
c. 30,000 deferred tax expense
d. 30,000 income tax expense
47. You are a business manager. During the period, you have authorized the acquisition of a machine
that will be used in your company’s manufacturing activities in the next 5 years. In your selection
of an appropriate accounting policy for the recognition and measurement of the machine, which of
the following reporting standards is most relevant?
a. PAS 1
b. PAS 2
c. PAS 16
d. PAS 32
48. Which of the following is not one of the principal issues in the accounting for PPE?
a. Recognition.
b. Initial measurement as asset.
c. Allocation of carrying amount over the period of use.
d. Recognition of carrying amount as expense when the related revenue is recognized
49. On January 1, 20x1, Entity A started the construction of a qualifying asset. The qualifying asset is
financed through general borrowings. The average expenditures during the year amounted to
₱9,500,000. The capitalization rate is 11%. The actual borrowing costs incurred during the period
were ₱1,990,000. How much are the borrowing costs eligible for capitalization?
a. 1,990,000
b. 1,045,000
c. 1,090,000
d. 990,000
50. The transfer of resources from the government to an entity in exchange for past or future
compliance with certain conditions relating to the operating activities of the entity is called
a. Government grants.
b. Government assistance.
c. Government financial assistance.
d. Government asset transfers
MIDTERM EXAM
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2. Which of the following is one of the fundamental qualitative characteristics?
a. Relevants
b. Comparability
c. Reliability
d. Faithful representation
3. According to the Conceptual Framework, the correct classifications of Relevance and Reliability,
respectively, are
a. Fundamental, Enhancing
b. Fundamental, Fundamental
c. Enhancing, Fundamental
d. Fundamental, None
4. The qualitative characteristics that enhance the usefulness of financial information includes all of
the following, except
a. Comparability
b. Verifiability
c. Timeliness
d. Materiality
6. Information has this quality when it influences the economic decisions of users by helping them
evaluate past, present or future events or confirming, or correcting, their past evaluations.
a. Predictive Value
b. Reliability
c. Relevance
d. Understandability
10. The manner in which the accounting records are organized and employed within a business is
referred to as
a. Accounting system
b. Voucher system
c. Business document
d. Special journals
11. The process of converting non-cash resources and rights into cash or equivalent claims to cash is
called
a. realization
b. recognition
c. allocation
d. disposition
12. A concept that states that all the components of a complete set of financial statement are
interrelated
a. Entity
b. Concept of Articulation
c. Accounting Process
d. Principle of Fair Presentation
15. What type of users’ needs is catered by general purpose financial statements?
a. common needs
b. specific needs
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c. a and b
d. neither a nor b
16. The issuance of financial reporting standards in the Philippines is the responsibility of the
a. PICPA
b. FRSC
c. AASC
d. CPE Council
17. Reporting entities commonly place the sentence “See notes to the financial statements” or “See
accompanying notes to the financial statements” or a similar sentence on the face of the financial
statements. This practice is most in keeping with what accounting concept?
a. Articulation
b. Materiality
c. Separate entity
d. Full disclosure
19. Which of the following is not included among the general features of financial statement
presentation?
a. Growing concern
b. Accrual basis
c. Frequency of reporting
d. Comparative information
20. A company is issuing its comparative financial statements for the years 20x1 and 20x2. If the
company is required to issue an additional statement of financial position, such statement should
be dated
a. as of Jan. 1, 20x1.
b. as of Jan. 1, 20x2.
c. as of Dec. 31, 20x2.
d. as of Dec. 31, 20x1.
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22. This method of presenting cash flows from (used in) operating activities shows each major class
of gross cash receipts and gross cash payments..
a. Direct method
b. Inverse method
c. Indirect method
d. Straight method
23. According to PAS 10, this is the date when management authorizes the financial statements for
issue regardless of whether such authorization is final or subject to further approval.
a. Date of authorization of the financial statements
b. Date of declaration
c. Date of events after the reporting period
d. Adjustment date
24. Entity A’s inventories on December 31, 20x1 have a cost of ₱100,000 and a net realizable value
of ₱80,000. Accordingly, Entity A recognized a write-down of inventories of ₱20,000. Shortly after
December 31, 20x1, but before the financial statements were authorized for issue, the inventories
were sold for a net sale proceeds of ₱70,000. The correct amount of inventory write-down to be
reported in Entity A’s December 31, 20x1 financial statements is
a. 20,000
b. 0
c. 30,000
d. any of these
27. A change in depreciation method, estimate of useful life or residual value is accounted for as a
a. change in accounting policy
b. correction or error
c. change in accounting estimate
d. any of these
28. On January 1, 20x1, Entity A 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, 20x1 for a total
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construction costs of ₱7,000,000. How much are the borrowing costs capitalized to cost of the
building?
a. 320,000
b. 300,000
c. 500,000
d. 680,000
29. Entity B, a trustee, undertakes to manage the retirement benefit fund of Entity A for the benefit of
Entity A’s employees. When reporting to Entity A regarding the status and performance of the
fund, Entity B would most likely apply which of the following standards?
a. PAS 19
b. PAS 24
c. PAS 26
d. PFRS 6
30. According to PAS 27, investments in subsidiaries, associates or joint ventures are accounted for
in the separate financial statements
a. at cost.
b. at fair value in accordance with PFRS 9.
c. using the equity method under PAS 28.
d. any of these, as a matter of accounting policy choice.
31. On January 1, 20x1, Entity A acquires 30% interest in Entity B for ₱600,000. Entity B reports profit
of ₱200,000 and declares dividends of ₱50,000 in 20x1. How much is the carrying amount of the
investment in associate on December 31, 20x1?
a. 600,000
b. 660,000
c. 645,000
d. 630,000
32. 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?
a. 2,040,000
b. 540,000
c. 560,000
d. 460,000
33. According to PAS 34, income tax expenses in interim periods are computed using
a. a weighted average annual income tax rate.
b. a substantially enacted future tax rate.
c. a uniform tax rate for all periods presented, including comparatives.
d. an imputed tax rate
34. If the carrying amount of an asset is less than its recoverable amount, the asset
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a. is impaired.
b. should be written-down.
c. is not impaired.
d. should be written-off in profit or loss.
35. Which of the following assets is not tested for impairment in accordance with PAS 36?
a. Property, plant and equipment
b. Inventory
c. Intangible assets
d. Goodwill
37. Which of the following assets can be measured using the revaluation model?
a. Property, plant and equipment
b. Investment property
c. Intangible assets
d. a and c
e. all of these
38. Entity A acquires a building for ₱1,000,000. The building is to be leased out under various
operating leases. The building has an estimated useful life of 10 years and zero residual value.
Entity A uses the cost model for its property, plant and equipment and the fair value model for its
investment property. At the end of Year 1, the building is assessed to have a fair value of
₱1,080,000. How much should Entity A recognize in profit or loss in relation to the building?
a. 80,000 gain on change in fair value
b. 100,000 depreciation
c. 180,000 gain on change in fair value
d. b and c
39. Which of the following is considered an agricultural activity under PAS 41?
a. fishing in the open seas
b. illegal logging
c. floriculture
d. farming in the computer or cellphone
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41. Prior to the full adoption of the IFRSs in 2005, the reporting standards used in the Philippines
were primarily based on
a. US GAAP (SFASs)
b. Japanese GAAP
c. Spaniard GAAP
d. combination of a, b and c
42. Which of the following assets of an acquiree may not be included when computing for the goodwill
arising from a business combination?
a. capitalized kitchen utensils and equipment
b. intangible assets not previously recorded
c. research and development costs charged as expenses
d. goodwill recorded by the acquiree prior to the business combination
43. Imagine you are an awesome auditor. Your “not-so-awesome” client does not know when to
classify assets and liabilities as current or non-current. Which of the following standards would you
suggest your client should refer to?
a. PAS 1
b. PAS 24
c. PAS 34
d. PFRS 1000
44. Imagine you are an awesome accountant. You client, Entity A which is engaged in farming
activities, asked you for an advice on how it will account for its agricultural land. Which of the
following standards would you advise Entity A should use?
a. PAS 7
b. PAS 16
c. PAS 40
d. PAS 41
45. Provisions, contingent liabilities and contingent assets are accounted for using
a. PAS 37
b. PFRS 6
c. PAS 29
d. PAS 8
46. To account for additions and disposals of items of property, plant and equipment, a CPA would
most likely refer to the accounting and disclosure requirements of
a. PAS 2
b. PAS 40
c. PFRS 5
d. PAS 16
47. Entity X acquires 90% interest in Entity Y in a business combination. The most relevant Standard
to be applied to this transaction is
a. PAS 28
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b. PAS 3
c. PFRS 5
d. PFRS 3
49. You are a member of the board of directors of ABC Co. Your company acquired a building to be
held solely for rentals. You are tasked in selecting an appropriate accounting policy for the
building. In this regard, you will most likely refer to which of the following standards?
a. PAS 17
b. PAS 39
c. PAS 40
d. PAS 41
50. 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?
a. PAS 36
b. PFRS 1
c. PAS 26
d. PAS 12
FINAL EXAM
4. This refers to financial statements that are intended to meet the needs of users who are not in a
position to require an entity to prepare reports tailored to their particular information needs.
a. All-purpose financial statements
b. General purpose financial statements
c. Managerial reports
d. Unisex financial statements
6. Which of the following is an acceptable method of reporting other comprehensive income and its
components?
a. In a statement of profit or loss and other comprehensive income.
b. In a statement of changes in equity
c. In the notes only.
d. All of these
9. Interest expense that is paid in cash is presented in the statement of cash flows under
a. operating activities.
b. investing activities
c. financing activities
d. a or c
10. When it is difficult to distinguish a change in accounting policy from a change in accounting
estimate, the change is treated as
a. a change in an accounting estimate.
b. a change in an accounting policy.
c. a correction of prior period error.
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d. not accounted for.
11. ABC Co. completes the draft of its December 31, 20x1 year-end financial statements on January
31, 20x2. On February 5, 20x2, the board of directors reviews the financial statements and
authorizes them for issue. The entity announces its profit and selected other financial information
on February 23, 20x2. The financial statements are made available to shareholders and others on
March 1, 20x2. The shareholders approve the financial statements at their annual meeting on
March 18, 20x2 and the approved financial statements are then filed with a regulatory body on
April 1, 20x2. Events after the reporting period are those occurring
a. from December 31, 20x1 to February 5, 20x2.
b. from January 1, 20x2 to February 5, 20x2.
c. from January 1, 20x2 to February 23, 20x2.
d. from January 1, 20x2 to March 18, 20x2.
12. These are differences that do not have future tax consequences.
a. Permanent differences
b. Taxable differences
c. Temporary differences
d. Deductible differences
13. This type of difference will give rise to deferred tax asset.
a. Taxable temporary difference
b. Permanent difference
c. Deductible temporary difference
d. No difference
15. It is a type of retirement plan where the employer assures a definite amount of benefit to be
received by the employee. The risk that funds needed to pay the agreed benefits may be
insufficient is retained by the employer.
a. Defined contribution plan
b. Defined benefit plan
c. Leche plan
d. Plan vs. zombies
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17. Which of the following are not related parties?
a. A parent and its subsidiary
b. Two or more subsidiaries with the same parent
c. A company and its Chief Executive Officer
d. Two co-venturers of a common joint venture business
18. According to PAS 27, which of the following is required to present separate financial statements?
a. A publicly-listed entity
b. A parent
c. An entity with an investment in associate
d. None of these
19. On January 1, 20x1, Entity A acquires 25% interest in Entity B for ₱800,000. Entity B reports profit
of ₱1,000,000 and declares dividends of ₱100,000 in 20x1. How much is the carrying amount of
the investment in associate on December 31, 20x1?
a. 800,000
b. 1,250,000
c. 1,000,000
d. 1,025,000
20. 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 value allocated to the equity component
on initial recognition?
a. 2,040,000
c. 540,000
d. 560,000
e. 460,000
21. Which of the following is correct regarding the provisions of PAS 34?
a. All entities should publish quarterly interim reports.
b. All publicly-listed entities should publish quarterly interim reports.
c. All publicly-listed entities should publish semi-annual interim reports.
d. PAS 34 does not require any entity to publish interim reports, and how often.
22. If a cash-generating unit (CGU) is impaired, the impairment loss is allocated first to
a. the goodwill in that CGU.
b. the noncurrent assets in that CGU.
c. the current assets in that CGU.
d. a and b
23. 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
a. fair value.
b. cost.
c. carrying amount.
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d. amortized cost.
26. After recognition, exploration and evaluation assets are accounted for under the
a. cost model
b. fair value model
c. revaluation model
d. a or c
27. Entity A acquires a legal right to search for mineral resources in a specific area. What PFRS
should Entity A apply in accounting for the costs it incurs on its exploration and evaluation
activities?
a. PAS 26
b. PFRS 4
c. PFRS 5
d. PFRS 6
29. Andrix Domingo’s Sari-sari Store has a sign that reads “Your credit is good but I need cash.” What
type of risk is Mr. Andrix trying to avoid by putting up that sign?
a. credit risk
b. market risk
c. liquidity risk
d. store risk
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30. Rex Banggawan Co. acquires investment in stocks of Darrell Joe Asuncion. The investment will
be held for trading and it gives Rex neither significant influence nor control over Darrell. Rex will
most likely measure the investment
a. at fair value through profit or loss.
b. using the equity method.
c. at amortized cost.
d. at historical cost
31. According to PFRS 10, which of the following is not an element of control?
a. power
b. exposure, or rights, to variable returns
c. major holdings
d. ability to affect return.
33. This PFRS provides a single framework for measuring the fair value of an asset, liability or equity
when other PFRSs require or permit measurement at fair value or fair value less costs to sell. It
also prescribes the disclosures related to fair value measurement.
a. PFRS 3
b. PAS 1
c. PFRS 9
d. PFRS 13
34. The tenant (as opposed to the landlord) in a lease contract is referred to as the
a. Lessor
b. Lessee
c. Leasee
d. Tenor
38. You are the accountant of ABC Co. During the period, ABC Co. acquired short-term investment in
stocks, which of the following financial reporting standards would most likely be relevant in
accounting for the transaction?
a. PFRS 8
b. PFRS 9
c. PAS 28
d. b or c
39. You are a CPA and were engaged to audit the annual financial statements of ABC Co., a mining
company. Which of the following standards is most likely relevant to ABC Co.?
a. PFRS 4
b. PAS 34
c. PAS 41
d. PFRS 6
40. You are the accountant of ABC Co. During the period, your company acquired majority holdings in
XYZ, Inc. This transaction gave rise to goodwill. Which of the following standards will be referred
to in your company’s notes to the financial statements under summary of significant accounting
policies?
a. PFRS 3
b. PFRS 10
c. PAS 36
d. All of these
41. You are the accountant of Entity X. The board of directors asked you for an advice because they
feel like the company’s financial statements do not properly reflect the company’s financial
position. The board noted out that the company’s properties (i.e., land) are absurdly stated at their
historical cost. The properties were acquired 50 years ago and the market prices of the properties
have more than tripled since then. In providing your professional advice, you will most certainly
quote the provisions of which of the following standards?
a. PAS 7
b. PAS 33
c. PAS 16
d. All of these
42. When determining whether an investor controls an investee, the investor should refer to
a. PAS 21
b. PFRS 10
c. PAS 10
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d. PAS 1
43. When measuring the fair value of an asset or a liability, an entity refers to
a. PFRS 13
b. PAS 28
c. PFRS 1
d. PFRS 7
44. Non-current assets held for sale and discontinued operations are accounted for under
a. PFRS 4
b. PAS 41
c. PFRS 5
d. PFRS 8
46. The computation of employee retirement benefits expense is addressed in this standard.
a. PAS 17
b. PFRS 7
c. PAS 19
d. PFRS 9
47. This standard deals with the recognition and measurement of financial instruments.
a. PAS 32
b. PFRS 7
c. PFRS 9
d. PFRS 3
49. Entity A is preparing its first PFRS financial statements. Which of the following standards is most
relevant to Entity A?
a. PFRS 1
b. PAS 12
c. PAS 8
d. PFRS 9
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