Sei sulla pagina 1di 20

You correctly answered 28 out of 50 questions with an accuracy of 56.0%.

You gained 790 experience points!


Answer More Challenges

Question 1

An entity purchases a building and the seller accepts payment partly in equity shares and partly in debentures
of the entity. This transaction should be treated in the cash flow statement as follows:
This does not belong in a cash flow statement and should be disclosed only in the footnotes to the financial
statements
Ignore the transaction totally since it is a noncash transaction. No mention is required in either the cash
flow statement or anywhere else in the financial statements.
The purchase price of the building should be investing cash outflow and the issuance of debentures
financing cash outflows while the issuance of share of investing cash outflow.
The purchase of the building should be investing cash outflow and the issuance of shares and the
debentures financing cash outflows.
Theory of Accounts - PAS 7 (Difficult)

Question 2
An entity has an asset that was classified as held for sale. However, the criteria for it remain as held for sale no
longer apply. The entity should therefore:
Recognize the noncurrent asset at its carrying amount prior to its classification as held for sale as adjusted
for subsequent depreciation, amortization, or revaluation.
Measure the noncurrent asset at the lower of its carrying amount before the asset was classified as held
for sale (as adjusted for subsequent depreciation, amortization, or revaluation) and its recoverable amount at
the date of the decision not to sell.
Remeasure the noncurrent asset at fair value.
Leave the noncurrent asset in the financial statements at its current carrying value.
Theory of Accounts - PFRS 5 (Difficult)

Question 3
A manufacturing group has just acquired a controlling interest in a football club that is listed on a stock
exchange. The management of the manufacturing group wishes to exclude the football club from the

consolidated financial statements on the grounds that its activities are dissimilar. How should the football club
be accounted for?
The entity should be consolidated as there is no exemption from consolidation on the grounds of dissimilar
activities
.
The entity should not be consolidated using the purchase method but should be consolidated using equity
accounting.
The entity should not be consolidated and should appear as an investment in the group accounts.
The entity should not be consolidated; details should be disclosed in the financial statements.
Theory of Accounts - PAS 27 (Difficult)

Question 4
Mason Company built a new factory building during 2014 at a cost of P20 million. At December 31, 2014, the
net book value of the building was P19 million. Subsequent to year-end, on March 15, 2015, the building was
destroyed by fire and the claim against the insurance company proved futile because the cause of the fire was
negligence on the part of the caretaker of the building. If the date of authorization of the financial statements for
the year ended December 31, 2014, was March 31, 2015, Mason Company should
write off the net book value to its scrap value because the insurance claim would not fetch any
compensation.
disclose this nonadjusting event in the footnotes.
make a provision for 3/4 of the net book value of the building based on prudence
make a provision for 1/2 of the net book value of the building
Theory of Accounts - PAS 10 (Difficult)

Question 5
Which of the following facts or circumstances would not trigger a need to test an evaluation and exploration
asset for impairment?
A decision to discontinue exploration and evaluation activities have not led to the discovery of
commercially viable quantities of mineral resources.
The absence of budgeted or planned substantive expenditure on further exploration and evaluation
activities in the specific area.

The expiration-or expected expiration in the near future-of the period for which the entity has the right to
explore in the specific area, unless the right is expected to be renewed.
Lack of sufficient data to determine whether the carrying amount of the exploration and evaluation asset is
likely to be recovered in full from successful development or by sale.
Theory of Accounts - PFRS 6 (Difficult)

Question 6
An entity is planning to dispose of a collection of assets. The entity designates these assets as a disposal
group, and the carrying amount of these assets immediately before the classification as held for sale was P20
million. Upon being classified as held for sale the asset were revalued at P18 million. The entity feels that the
fair value less cost to sell would be P17 million. How would the reduction in the value of the assets on
classification as held for sale be treated in the financial statements?
The entity recognizes a loss of P2 million immediately before classification as held for sale and then
recognizes an impairment loss of P1 million
The entity recognizes an impairment loss of P2 million.
The entity recognizes a loss of P3 million immediately before classifying the disposal group as held for
sale

The entity recognizes an impairment loss of P3 million.

Theory of Accounts - PFRS 5 (Difficult)

Question 7
Club Cosmetic, a large manufacturer of cosmetics, sells merchandise to Paint Company, a retailer, which in turn
sells the goods to the public at the large through its chain of retail outlets. Paint Company purchases
merchandise from Club Cosmetic under a consignment contract. When should revenue from the sale of
merchandise to Paint Company be recognized by Club Cosmetic?
It will depend on the terms of the delivery of the merchandise by Club Cosmetic to Paint Company
It will depend on the terms of payment between Club Cosmetic and Paint Company.
When goods are delivered to Paint Company
When goods are sold by Paint Company
Theory of Accounts - PAS 18 (Difficult)

Question 8
How should repayment of a long-term loan comprising repayment of the principal amount and interest due to
date on the loan be treated in a cash flow statement?
The repayment of the principal portion of the loan is a cash flow belonging in investing activities section;
the interest payment should be netted against interest received on bank deposits, and the net amount of
interest should be disclosed in the operating activities section.
The repayment of the principal portion of the loan is a cash flow belonging in the investing activities
section; the interest payment belongs in the operating activities section because PAS 7 does not permit any
alternatives in case of interest payments.
The repayment of the principal portion of the loan is a cash flow belonging in the investing section; the
interest payment belongs either in the operating activities section or the investing section.
The repayment of the principal portion of the loan is a cash flow belonging in the investing activities
section, the interest payment belongs either in the operating activities section or the financing activities section.
Theory of Accounts - PAS 7 (Difficult)

Question 9
Wellness Company, a new company manufacturing and selling consumable products, has come out with an
offer to refund the cost of purchase within one month of sale if the customer is not satisfied with the product.
When should Wellness Company recognize the revenue?
After one month of sale
Only if goods are not returned by the customers after the period of one month
At the time of sale along with an offset to revenue of the liability of the same amount for the possibility of
the return.
When goods are sold to the customers
Theory of Accounts - PAS 18 (Difficult)

Question 10
Which of the following is not objective evidence of impairment of a financial asset?
A decline in the fair value of the asset below its previous carrying amount
A breach of contract, such as a default or delinquency in interest or principal payments

Significant financial difficulty of the issuer or obligor

Observable data indicating that there is a measurable decrease in the estimated future cash flows from a

group of financial assets although the decrease cannot yet be associated with any individual financial asset.
Theory of Accounts - PAS 39 (Difficult)

Question 11
Is there any exception to the requirement to measure at fair value financial assets classified as the fair value
through profit or loss or available for sale?
Yes. If the entity has the positive intention and ability to hold assets classified in those categories to
maturity, they are measured at amortized cost.
No. Such assets are always measured at fair value.
Yes. If the fair value of such assets increases above cost, the resulting unrealized holding gains are not
recognized but deferred until realized.
Yes. Investments in unquoted equity instruments that cannot be reliably measured at fair value (or
derivatives that are linked to and must be settled in such unquoted equity instruments) are measured at cost.
Theory of Accounts - PAS 39 (Difficult)

Question 12
What is the principle for recognition of a financial asset or a financial liability in PAS 39?
A financial asset is recognized when, and only when, the entity obtains the risks and rewards of ownership
of the financial assets and has the ability to dispose the financial asset.
A financial asset is recognized when, and only when, it is probable that future economic benefits will flow
to the entity and the cost or value of the instrument can be measure reliably
.
A financial asset is recognized when, and only when, the entity obtains control of the instrument and has
the ability to dispose of the financial asset independent of the actions of others.
A financial asset is recognized when, and only when, the entity becomes a party to the contractual
provision of the instrument.
Theory of Accounts - PAS 39 (Difficult)

Question 13

A construction company is in the middle of a 2 year construction contract when it receives a letter from the
customer extending the contract by a year and requiring the construction company to increase its output in
proportion of the number of years of the new contract to the previous contract period. This is allowed in
recognizing additional revenue according to PAS 11 if
It is probable that the customer will approve the variation and the amount of revenue arising from the
variation, whether the amount of revenue can be reliably measured or not.
It is probable that the customer will approve the variation and the amount of revenue arising from the
variation, and the amount of revenue can be reliably measured.
The contract is sufficiently advanced and it is probable that the specified performance standards will be
exceeded or met.
Negotiations have reached an advanced stage and it is probable that the customer will accept the claim.
Theory of Accounts - PAS 11 (Difficult)

Question 14
What is an entity required to consider in developing accounting policies for exploration and evaluation
activities?
The definitions, recognition criteria, and measurement concepts for assets, liabilities, income and
expenses in the Framework.
Recent pronouncements of standard-setting bodies, accounting literature, and accepted industry practices.
The requirements and guidance in Standards and Interpretations dealing with similar and related issues.
Whether the accounting policy results in information that is relevant and reliable.
Theory of Accounts - PFRS 6 (Difficult)

Question 15
SM Investments decided to operate a new amusement park that will cost P1 billion to build in the year 2014. Its
financial year-end is December 31, 2014. SM Investment has applied for a letter of guarantee for P700 million.
The letter of guarantee was issued on March 31, 2015. The audited financial statements have been authorized
to be issued on April 18, 2015. The adjustment required to be made to the financial statement for the year
ended December 31, 2014, should be
Disclosing P700,000 as a contingent liability in 2014 financial statement
Do nothing

Booking a P700 million long-term payable.


Increasing the contingency reserve by P700,000
Theory of Accounts - PAS 10 (Difficult)

Question 16
A construction company signed a contract to build a theater over a period of 2 years, and with this contract also
signed a maintenance contract for 5 years. Both the contracts are negotiated as a single package and are
closely interrelated to each other. The two contracts should be
Treated differently, the building contract under the completed contract method and maintenance contract
under the percentage of completion method
.
Segmented and considered 2 separate contracts
Recognized under the completed contracted method.
Combined and treated as a single contract.
Theory of Accounts - PAS 11 (Difficult)

Question 17
PFRS 6 applies to expenditures incurred
When the legal rights to explore a specific area have been obtained, but the technical feasibility and
commercial viability of extracting a mineral resource are not yet demonstrable.
When specific area is being developed and preparations for commercial extraction are being made.
In extracting mineral resources and processing the resource to make it marketable or transportable.
When searching for an area that may warrant detailed exploration, eventhough the entity has not yet
obtained the legal rights to explore a specific area.
Theory of Accounts - PFRS 6 (Difficult)

Question 18
Manila Ventures deals extensively with foreign entities, and its financial statements reflect these foreign
currency transactions. Subsequent to the balance sheet date, and before the date of authorization of the
issuance of the financial statements, there were abnormal fluctuations in foreign currency rates. Manila
Ventures should

adjust the foreign exchange year end balances to reflect all the abnormal fluctuations in foreign exchange
rates (and not just adverse movements)
adjust the foreign exchange year-end balances to reflect the abnormal adverse fluctuations in foreign
exchange rates.
disclose the post-balance sheet event in footnotes as a nonadjusting event
ignore the post-balance sheet event.
Theory of Accounts - PAS 10 (Difficult)

Question 19
When it is difficult to distinguish between a change of estimate and a change in accounting policy, then an
entity should
apportion, on a reasonable basis, the relative amounts of change in estimate and the change in accounting
policy and treat each one accordingly.
treat the entire change as a change in accounting policy
since this change is a mixture of 2 types of changes, it is best if it is ignored in the year of the change, the
entity should then wait for the following year to see how the change develops and then treat it accordingly.
treat the entire change as a change in estimate with appropriate disclosure
Theory of Accounts - PAS 8 (Difficult)

Question 20
Is an entity ever required or permitted to change its accounting policy for exploration and evaluation
expenditures?
Yes, entities are free to change accounting policy for these expenditures as long as the selected policy
results in information that is relevant and reliable.
Yes, but only if the change makes the financial statements more relevant to the economic decision making
needs of users and no less reliable, or more reliable and no less relevant to those needs.
No, entities would be permitted to change accounting policy only on adoption of a new or revised Standard
that replaces the existing requirements in PFRS 6.

Yes, the entities are required to change their accounting policy for these expenditures if the change would
result in more useful information for users of financial statements.
Theory of Accounts - PFRS 6 (Difficult)

Question 21
How should the assets and liabilities of a disposal group classified as held for sale be shown in the balance
sheet?
The assets and liabilities should be offset and presented as a single amount.
The assets of the disposal group should be shown separately from other assets in the balance sheet, and
the liabilities of the disposal group should be shown separately from other liabilities in the balance sheet.
The assets and liabilities should be presented as a single amount and as a deduction from equity
There should be no separate disclosure of assets and liabilities that form part of the disposal group
Theory of Accounts - PFRS 5 (Difficult)

Question 22
Integrated Machines manufactures and sells standard machinery. One of the conditions in the sale contract is
that installation of machinery will be undertaken by Integrated Machines. During December 2014, Integrated
Machines received a special onetime contract from Jones Company to manufacture, install and maintain
customized machinery. It is the first time Integrated Machines will be producing this kind of machinery, and it is
expecting numerous changes that would need to be made to machine after the installation is completed, which
one period is described in the contract of sale as the maintenance period. The total cost of making the changes
during the maintenance period cannot be reasonable estimated at the time of the installation. When should the
revenue from sale of this special machine be recognized?
when the machinery is produced
when the maintenance period as per the contract of sale expires.
when the machinery is produced and deliver
when the installation is complete
Theory of Accounts - PAS 18 (Difficult)

Question 23

What is the accounting treatment of the hedging instrument and the hedged item under fair value hedge
accounting?
The hedging instrument is measured at fair value, and the hedged item is measured at fair value with
respect to the hedged risk. Changes in fair value are recognized directly in equity to the extent the hedge is
effective.
The hedging instrument is accounted for in accordance with the accounting requirements for the hedged
item, if the hedge is effective.
The hedging instrument is measured at fair value with changes in fair value recognized directly in equity to
the extent the hedge is effective. The accounting for the hedged item is not adjusted.
The hedging instrument is measured at fair value, and the hedged item is measured at fair value with
respect to the hedged risk. Changes in fair value are recognized in profit or loss.
Theory of Accounts - PAS 39 (Difficult)

Question 24
In which of the following circumstances is derecognition of a financial asset not appropriate?
The contractual rights to the cash flows of the financial assets have expired
.

The financial asset has been transferred and substantially all the risks and rewards of ownership of the

transferred asset have also been transferred.


The financial asset has been transferred and the entity has retained substantially all the risks and rewards
of ownership of the transferred asset.
The financial asset has been transferred and the entity has neither retained nor transferred substantially all
the risks and rewards of ownership of the transferred asset. In addition, the entity has lost control of the
transferred asset.
Theory of Accounts - PAS 39 (Difficult)

Question 25
Does PFRS 6 require an entity to recognize exploration and evaluation expenditure as assets?
Yes, but only to the extent such expenditure is recoverable in future periods.
No, such expenditure is always expensed in profit or loss as incurred.

Yes, but only to the extent the technical feasibility and commercial viability of extracting the associated
mineral resource have been demonstrated.
Yes, but only to the extent required by the entity accounting policy for recognizing exploration and
evaluation assets
Theory of Accounts - PFRS 6 (Difficult)

Question 26
Joy Enterprises has P150,000 in accounts receivable at the end of Year 1, and it estimates its bad debts to be
5% of the receivables. Hence, the accountant reports P7,500 as bad debts and the net realizable value as
P142,500. Under which of the following circumstances will the amount of bad debts reported most likely
reduce?
If the company shortens the credit period allowed.
If the allowance for doubtful accounts has a credit balance of P1,500
If the allowance for doubtful accounts has a debit balance of P1,500
If the company lengthens the credit period allowed
Theory of Accounts - Uncategorized (Uncategorized)

Question 27
The cash flows and net income from four business segments for Bay Company have been provided.

Segment 1
Cash flows from:
Operations
Investing activities
Financing activities
Net income

53,000
(4,000)
1,080
1,500

Segment 2
(250)
6,000
(1,000)
1,750

Segment 3
(3,000)
8,000
(1,000)
2,375

Segment 4
2,000
(3,000)
1,080
1,500

Which segment should be discontinued by the company?


Segment 2 because cash used in operations is low and cash flow from investing activities is not properly
utilized.
Segment 1 because net income is lowest and requires high investments
Segment 3 because cash used in operations is high and cash inflow is predominantly from investing
activities

Segment 4 because net income and cash inflow from operations are low.
Theory of Accounts - Uncategorized (Uncategorized)

Question 28
What is the accounting treatment of the hedging instrument and the hedged item under cash flow hedging?
The hedging instrument is measured at fair value, with changes in fair value recognized directly in equity to
the extent the hedge is effective. The accounting for the hedged item is not adjusted.
The hedging instrument is accounted for in accordance with the accounting requirements for the hedged
item, if the hedge is effective.
The hedged item and hedging instrument are both measured at fair value with respect to the hedged risk,
and changes in fair value are recognized in profit or loss.
The hedged item and hedging instrument are both measured at fair value with respect to the hedged risk,
and changes in fair value are recognized directly in equity.
Theory of Accounts - PAS 39 (Difficult)

Question 29
The latest financial statements of Joey Properties show 140,000 outstanding shares, par value of P10. The
current market value per share is P25. At the beginning of current year, the company reacquired 10,000 shares
at P4 per share. The company follows the cost method for the accounting of treasury stock. The current years
books of accounts show the value of outstanding shares as follows:

Common stock, P10 par


Less: Treasury stock
Net common stock, P10 par

1,400,000
100,000
1,300,000

The Companys CFO did not approve the financial statements. The most likely reason for CFOs disapproval is
that:

The par value of the treasury stock should be presented as a deduction from par value of issued shares of

the same class.


The treasury stock is incorrectly valued based on par value, instead of valuing at the current market rate.
The treasury stock should be reported as an asset.
The treasury stock is incorrectly valued based on par value, instead of valuing at the acquisition price.
Theory of Accounts - Uncategorized (Uncategorized)

Question 30
Bayer AG introduced a new drug in the market on December 31, 2014. Bayer AGs financial year ends on
December 31, 2014. It was the only company that was permitted to manufacture this patented drug. The drug is
used by patients suffering from a irregular heartbeat. On March 31, 2015, after the drug was introduced, more
than 1,000 patients died. After a series of investigations, authorities discovered that when this drug was
simultaneously used to regulate hypertension, the patients blood would clot and patient suffered a stroke. A
lawsuit for P100,000,000 has been filed against Bayer AG. The financial statements were authorized for
issuance on April 30, 2015. Which of the following options is the appropriate accounting treatment for this postbalance sheet event under PAS 10?
The entity should provide P100,000,000 because this is an adjusting event and the financial statements
were authorized to be issued after the accident.
The entity should disclose P100,000,000 as a contingent liability because it is an adjusting event.
The entity should disclose P100,000,000 as a contingent liability because it is a present obligation with an
improbable outflow.
Assuming the probability of the lawsuit being decided against Bayer AG is remote, the Company should
disclose it in the footnotes, because it is a nonadjusting material event.
Theory of Accounts - PAS 10 (Difficult)

Question 31
PFRS 4 was introduced principally for what reason?
As a response to recent scandals within the insurance industry.
To completely overhaul insurance accounting.
Because of pressure from the financial services authorities in several countries
.

To make limited improvements to the accounting for insurance accounting.

Theory of Accounts - PFRS 4 (Average)

Question 32
Which of the following types of information does PFRS 7 not require to be disclosed about the significance of
financial instruments?
Information about financial instruments, contracts, and obligations under share-based payment
transactions.

Fair values of financial instruments


Carrying amounts of categories of financial instruments.
Information about the use of hedge accounting
Theory of Accounts - PFRS 7 (Difficult)

Question 33
In addition to financial assets at fair value through profit or loss, which of the following categories of financial
assets is measured at fair value in the balance sheet?
Investments in unquoted equity instruments.
Held to maturity investments
Loans and receivables
Available for sale financial assets
Theory of Accounts - PAS 39 (Average)

Question 34
What is the best evidence of the fair value of a financial instrument?
Its quoted price, if an active market exists for the financial instrument.
Its cost, including transactions directly attributable to the purchase, origination, or issuance of the financial
instrument.
The present value of the contractual cash flows less impairment.
Its estimated value determined using discounted cash flow techniques, option pricing models, or other
valuation techniques.
Theory of Accounts - PAS 39 (Difficult)

Question 35
At what amount is a financial asset or financial liability measured on initial recognition?
The consideration paid or received for the financial asset or financial liability.
Zero

Fair value. For items that are not measured at fair value through profit or loss, transaction costs are also
included in the initial measurement.
Acquisition cost. Acquisition cost is the consideration paid or received plus any directly attributable
transaction costs to the acquisition or issuance of the financial asset or financial liability.
Theory of Accounts - PAS 39 (Difficult)

Question 36
The current ratio for Manuel Inc. for the previous 5 years is as follows:

Current
ratio

Year 1
5

Year 2
4.5

Year 3
4.9

Year 4
1.2

Year 5
4.2

Which of the following factor is the most likely reason for the low current ratio in Year 4?
Long-term debts were due for repayment in year 4.
Working capital in year 4 decreased due to an increase in accounts payable
The company reduced its credit period in year 4.
Materials were purchased on credit in Year 4 for which payment is due.
Theory of Accounts - Uncategorized (Uncategorized)

Question 37
Which of the following transfers of financial assets qualifies for drecognition?
A loan of a security to another entity.
A sale of a portfolio of short-term accounts receivables where the entity guarantees to compensate the
buyer for any losses in the portfolio.
A sale of a financial asset where the entity retains an option to buy the asset back at its current fair value
on the repurchase date.
A sale of a financial asset where the entity agrees to repurchase the asset in one year for a fixed price plus
interest.
Theory of Accounts - PAS 39 (Difficult)

Question 38

What are the principal objectives of PFRS 7?


To provide presentation and disclosure requirements for financial instruments.
To require disclosures about an entitys exposure to off-balance-sheet instruments and other complex
transactions.
To require disclosures about the significance of financial instruments for an entitys financial position and
financial performance and qualitative and quantitative information about the exposure to the risks arising from
financial instruments.
To set out specified balance sheet and income statement formats for financial entities
Theory of Accounts - PFRS 7 (Difficult)

Question 39
EM Electronics, a computer chip manufacturing company, sells its products to its distributors for onward sales
to the ultimate customers. Due to frequent fluctuations in the market prices for these goods, EM Electronics has
a price protection clause in the distributor agreement that entitles it to raise additional billings in case of upward
price movement. Another clause in the distributors agreement is that EM Electronic can at any time reduce its
inventory by buying back goods at the cost at which it sold the goods to the distributor. Distributors pay for the
goods within 60 days from the same of goods to them. When should EM Electronics recognize revenue on sale
of goods to the distributors?
When the distributor sells goods to the ultimate customers and there is no uncertainty with respect to the
price protection clause or the buyback of goods.
When the distributors pay to EM Electronics the cost of the goods.
When goods are sold to the distributor provided estimated additional revenue is also booked under the
protection clause based on past experience
When the goods are sold to the distributors
Theory of Accounts - PAS 18 (Difficult)

Question 40
Matsushita Corporation changes its method of valuation of inventories from weighted-average method to FIFO
method. Matsushita should account for this change as
a change in accounting policy and account for it prospectively.
a change in estimate and account for it prospectively.

account for it as a correction of an error and account for it retrospectively.


a change in accounting policy and account for it retrospectively.
Theory of Accounts - PAS 8 (Difficult)

Question 41
Which of the following is not a disclosure required by PFRS 6?
Information about commercial reserve quantities.
The amounts of assets, liabilities, income and expense, and operating and investing cash flows arising
from the exploration and evaluation of mineral resources.
Accounting policies for exploration and evaluation expenditures, including the recognition of exploration
and evaluation assets.
Information that identifies and explains the amounts recognized in the financial statements arising from the
exploration for and evaluation of mineral resources.
Theory of Accounts - PFRS 6 (Difficult)

Question 42
Under PAS 39, is a derivative that is embedded in another contract accounted for separately from that other
contract?
It depends. PAS 39 requires embedded derivatives to be accounted for separately if and only if, the
economic characteristics and risks of the embedded derivative and the host contract are not closely related and
the combined contract is not measured at fair value with changes in fair value recognized in profit or loss.
It depends. PAS 39 requires embedded derivatives to be accounted for separately as derivatives if, and
only if, the entity has embedded the derivative in order to avoid derivatives accounting and has no substantive
business purpose for embedding the derivative.
Yes. PAS 39 requires all derivatives (both freestanding and embedded) to be accounted for as derivatives.
No. PAS 39 precludes entities from splitting financial instruments and accounting for the components
separately.
Theory of Accounts - PAS 39 (Difficult)

Question 43

Which of the following criteria do not have to be met in order for an operation to be classified as discontinued?
The operation should represent a separate line of business or geographical area.
The operation must be sold within 3 months of the year-end
The operation is part of a single plan to dispose of a separate major line of business or geographical area
The operation us a subsidiary acquired exclusively with a view to resale.
Theory of Accounts - PFRS 5 (Difficult)

Question 44
Which of the following is not a relevant consideration when evaluating whether to derognize a financial liability?
Whether the obligation has been canceled.
Whether the obligation has been discharged.
Whether the obligation has expired
Whether substantially all the risks and rewards of the obligation have been transferred.
Theory of Accounts - PAS 39 (Average)

Question 45
The cash flow from operations for Petro Chemicals is P25,000 for the current year. If the amortization expense
increases by P5,000 and the other factors remain same, under which of the following assumptions will the cash
flow from operations remain unaffected?
The company has an infinite life.
A change in amortization method will not have a retrospective effect.
The company can change the depreciation method in between a financial year.
The company is operating in a tax-free environment
Theory of Accounts - Uncategorized (Uncategorized)

Question 46
Under PAS 39, all of the following are characteristics of a derivative except:
It is settled at a future date.

It is acquired or incurred by the entity for the purpose of generating a profit from short-term fluctuations in
market factors.
Its value changes in response to the change in a specified underlying.
It requires no initial investment or an initial net investment that is smaller than would be required for other
types of contracts that would be expected to have a similar response to changes in market factors.
Theory of Accounts - PAS 39 (Difficult)

Question 47
Which of the following is not a condition for hedge accounting?
The hedge is expected to reduce the entitys net exposure to the hedged risk, and the hedge is determined
actually to have reduced the net entity-wide exposure to the hedged risk.
For cash flow hedges, a forecast transaction must be highly probable and must present an exposure to
variations in cash flows that could ultimately affect profit or loss.
The hedge is expected to be highly effective in achieving offsetting changes in fair value or cash flows
attributable to the hedged risk, the effectiveness of the hedge can be reliably measured, and the hedge is
assessed on an ongoing basis and determined actually to have been effective.
Formal designation and documentation of the hedging relationship and the entitys risk management
objective and strategy for undertaking the hedge at inception of the hedging relationship.
Theory of Accounts - PAS 39 (Difficult)

Question 48
What is the effective interest rate of a bond or other debt instrument measured at amortized cost?
The interest rate that exactly discounts estimated future cash payments or receipts through the expected
life of the debt instrument or, when appropriate, a shorter period to the net carrying amount of the instrument.
The interest rate currently charged by the entity or by others for similar debt instruments.
The basic, risk-free interest rate that is derived from observable government bond prices.
The stated coupon rate of the debt instrument.
Theory of Accounts - PAS 39 (Difficult)

Question 49

Jonas Company is a large manufacturer of machines. Sion Company, a major company of Jonas Company has
placed an order for a special machine for which it has given a deposit of 112,500 to Jonas Company. The
parties have agreed on a price for the machine of P150,000. As per the terms of the sales agreement, it is an
FOB (free on board) contract and the title passes to the buyer when goods are loaded onto the ship at the port.
When should the revenue be recognized by Jonas Company
When the machine is loaded on the port
When the deposit is received
When the machine has been received by the customer.
When the customer orders the machine
Theory of Accounts - PAS 18 (Difficult)

Question 50
At the balance sheet date, December 31, 2014, Electron Company carried a receivable from MI Electronics, a
major customer, at P10 million. The authorization date of the financial statements is on February 16, 2015. MI
Electronics declared bankruptcy on Valentines day (February 14, 2015). Electron Company will
reverse the sale pertaining to this receivable in the comparatives for the prior period and treat this as an
error under PAS 8.
make a provision for this post-balance sheet event in its financial statements (as opposed to disclosure in
footnotes)
ignore the event and wait for the outcome of the bankruptcy because the event took place after the yearend.

disclose the fact that MI has declared bankruptcy in the footnotes.

Theory of Accounts - PAS 10 (Difficult)