ADVANCE

Question 1
On October 1, 2013 The Fernando Company acquired 100% of The Austria Company when the
fair value of Austria's net assets was P116 million and their carrying amount was P120 million.
The consideration transferred comprised P200 million in cash transferred at the acquisition date,
plus another P60 million in cash to be transferred 11 months after the acquisition date if a
specified profit target was met by Austria. At the acquisition date there was only a low
probability of the profit target being met, so the fair value of the additional consideration liability
was P10 million. In the event, the profit target was met and the P60 million cash was
transferred.
What amount should Fernando present for goodwill in its statement of consolidated financial
position at December 31, 2014, according to PFRS 3 Business Combinations?

94,000,000

144,000,000

80,000,000

84,000,000

Question 2
Which of the following accounting practices has been outlawed by PFRS 4?

Shadow accounting

A test for the adequacy of recognized insurance liabilities

Catastrophe provisions

An impairment test for reinsurance assets

Question 3
These are 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".

Consolidated financial statements

Group financial statements

Separate financial statements

General purpose financial statements

Question 4
The investment in a subsidiary recorded as a purchase by the parent should be recorded on the
parent's books at
 the fair value of the consideration given plus an estimated value for goodwill.

underlying book value of the subsidiary's net assets.

the fair value of the consideration given.

the fair value of the subsidiary's net identifiable assets.

Question 5
Which of the following is not a characteristic of a conditional promise to a:

Gift may have to be returned to donor if condition is not met Depends on demand by

the promise for performance Recognized as contribution revenue when the conditions are

substantially met Depends on the occurrence of a specified future and uncertain events to
bind the promisor.
Question 6
Damon Limited acquired the net assets of Gina Limited. Damon Limited provided an item of
equipment as part of the consideration. The fair value of the equipment was P13,000. It cost
P20,000 and had a carrying amount of P12,000. Which of the following entries appropriately
reflects the gain or loss on the equipment?

Credit: Loss on sale (P1,000) Debit: Gain on sale (P1,000) Debit: Loss on sale

(P1,000) Credit: Gain on sale (P1,000)

Question 7
A business combination may be structured in all of the following, except

One entity transfers its net assets to another entity

One or more businesses become subsidiaries of an acquirer

An entity acquires assets that are not a business.

A group of former owners of one of the combining entities obtains control of the combined
entity

Question 8
PFRS 4 was introduced principally for what reason?

To ensure that insurance companies could comply with International Financial Reporting

Standards by 2005. to completely overhaul insurance accounting. Because of pressure

from the financial services authorities in several countries. as a response to recent scandals
within the insurance industry
Question 9
A hedge of the exposure to changes in the fair value of a recognized asset or asset or liability or
an unrecognized firm commitment, is classified as a
 Cash flow hedge

Underlying

Fair value hedge

Foreign currency hedge

Question 10
Company B acquired the assets (net of liabilities) of Company S in exchange for cash. The
acquisition price exceeds the fair value of the net assets acquired. How should Company B
determine the amounts to be reported for the plant and equipment, and for long-term debt of the
acquired Company S?

Plant and equipment (fair value); Long term debt (S's carrying amount)

Plant and equipment (S's carrying amount); Long term debt (fair value)

Plant and equipment (fair value); Long term debt (fair value)

Plant and equipment (S's carrying amount); Long term debt (S's carrying amount)

Question 11
The information contained within Appendix B of PFRS 3 in relation to disclosure:

is an integral part of PFRS 3 is complementary to the main disclosure requirements

within the body of PFRS 3 contains prescribed presentation formats for disclosure of

business combinations is not mandatory, but contains optional additional disclosures

Question 12
It is a transaction or other event in which an acquirer obtains control of one or more businesses.

Merger

Business combination

Intercorporate directorship

Consolidation

Question 13
According to the cost recovery method of accounting, gross profit on an installment sale is
recognized as income:

On the date the final cash collection is received. In proportion to the cash collections.

On the date of sale. After cash collections equal to the cost of sales have been
received.
Question 14
The consideration transferred in a business combination is measured as the fair value of the:
 net assets acquired consideration given plus directly attributable costs. costs

directly attributable to the combination consideration given only

Question 15
Which of the following is not a distinguishing characteristic of a derivative instrument?

Terms that require or permit net settlement

No initial net investment

Must be "highly effective" throughout its life

One or more underlyings and notional amounts

Question 16
When should an anticipated loss on a long term contract be recognized under the percentage of
completion method?

contract complete prorated when contract is completed immediately over life of

project
Question 17
If the Quezon Museum, a not-for-profit organization, received a contribution of historical
artifacts, it need not recognized the contribution if the artifacts are to be sold and the proceed
used to

Purchase buildings to house collections. Support general museum activities Repair

existing collections Acquire other items for collections.

Question 18
Which one of the following is true when the effective interest method of amortizing bond
discount is used?

Interest expense increases each period

The interest rate decreases each period

Interest expense remains constant for each period

Interest expense as a percentage of the bonds' carrying amount varies from period to
period

Question 19
If the construction in progress account has a balance of 1,000,000 while the Progress Billings
on Contracts accounts balance is P800,000, how should these accounts be reflected on the
balance sheet?

The difference between the two accounts will be reflected as a current liability. The

difference between the two accounts will be reflected as a current asset. Progress Billings
on Contracts will be shown as a current liability. Construction in Progress will be shown as a
current asset.
Question 20
The process of preparing the combined financial statements of a group of entities is known as:

aggregation. consolidation. accumulation. combination.

Question 21
Net assets restricted by the government by the governing board of a non-government,
not-for-profit organization are reported as part of:

Permanently restricted net assets

Unrestricted net assets

Temporarily restricted net assets

Any of these, depending on the terms

Question 22
The currency of the country in which the foreign operation is based is referred to as the:

operational currency. local currency. functional currency. presentation currency.

Question 23
The Rissa Company has entered into a contract on June 1, 20X3 that requires it to issue its own
ordinary shares with a value of CU250,000 on 31 May 20X6. In accordance with PAS32,
Financial instruments presentation, the company should classify the contract as

Embedded derivative

Financial asset

Financial liability

Equity instrument

Question 24
When an acquiree disposes of a business, the gain or loss is recognised in:

revaluation surplus the statement of profit or loss and other comprehensive income

retained earnings capital profits

Question 25
Kenneth Company, Inc. franchisor, entered into a franchise agreement with Orville Trading,
franchisee on March 31,2013. The total franchise fee is P500,000, of which P100,000 is payable
upon signing and the balance in four equal annual installments. The downpayment is refundable
in the event the franchisor fails to render services and none thus far had been rendered. When
Kenneth Company prepares its financial statements on March 31, 2013, the franchise fee
revenue to be reported is:
 500,000

400,000

100,000

Question 26
It is the annual contribution from each province, city or municipality in the amount approved by
law for each barrio and intended solely for community development projects.

Barrio Development Fund

Infrastructure Fund

Trust Fund

Special Education Fund

Question 27
Agency NN issued check to Nongovernment Organization (NGO’s) for fund assistance
amounting to P100,000. The entry to record this transaction would be:

Memorandum entry in RAOMO Debit: Due from National Government Agency

(100,000)

Credit: Cash-National Treasury, MDS (100,000) Debit: Other Receivables (100,000)

Credit: Cash-National Treasury, MD (100,000) No entry

Question 28
The effect of the pre-acquisition entry is to eliminate the Shares in subsidiary asset and the:

equity of the parent at the acquisition date. net assets of the parent at the acquisition

date. net assets of the subsidiary at the acquisition date. equity of the subsidiary at the
acquisition date.
Question 29
A single set of financial statements that combines the separate sets of financial statements for
all entities within an economic entity, is known as:

a condensed financial report. consolidated financial statements. combined financial

statements. a concise financial report.

Question 30
The property, plant and equipment of a not-for-profit hospital should be accounted for as part of:

Specific purpose funds Unrestricted funds Restricted funds Other

non-operating funds
Question 31
Exchange differences arising from translation of financial statement of a foreign entity are
 Recognized as accumulated translation adjustments in the equity section

Recognized directly in retained earnings

Capitalized if the differences resulted from severe devaluation of a currency

Recognized as accumulated translation adjustments in profit or loss

Question 32
PFRS requires that on initial recognition, financial assets and liabilities be measured at:

lower of cost or market value. historical cost. fair value. net present value.
Question 33
A company has a 40% share in a joint venture and loans the venture P2,000,000, what figure
will be shown for the loan in the balance sheet of the venturer?

2,000,000 800,000 0 1,200,000

Question 34
Which of the following is not a derivative instrument?

Future contracts

Variable annuity contracts

Interest rate swaps

Credit indexed contracts

Question 35
With respect to the cost a business acquisition, PFRS 3 requires cost(total consideration) to be
allocated

Based on original costs

Based on recoverable amounts

To the assets based on their carrying values

Based on fair values

Question 36
Initially, a foreign currency transaction shall be recorded by applying

The closing rate at the end of the reporting period

The average exchange rate during the year

The spot exchange rate at the date of the settlement of the transaction.

The spot exchange rate at the date of transaction.

Question 37
If the foreign operation reports in the currency of a hyperinflationary economy, assets, liabilities
income and expenses shall be translated at

Forward rate

Average rate

Closing rate

Exchange rate on the date of transaction

Question 38
In a business combination, the acquiree is the business that:

the acquirer obtains control of in a business combination. pays the acquisition

consideration. obtains control of the acquiree. finances the business combination.

Question 39
In translating the financial statements of a foreign operation for inclusion in the reporting entity's
financial statements, assets and liabilities are translated at

Forward rate

Closing rate

Historical rate

Weighted average rate

Question 40
Which of the following business combination expenses would not qualify as a direct acquisition
expense for a purchase?

All are direct acquisition expenses

Stock issuance fees

Fees for purchase audit

Outside legal fees

Question 41
Control is presumed to exist when the parent owns directly or indirectly through subsidiaries

More than half of the preference and ordinary shares of an entity

More than half of the ordinary shares of an entity

More than half of the voting power of an entity.

More than half of the equity of an entity.

Question 42
In a business combination, the acquiree is the party that:

obtains control of the net assets the other entity pays the acquisition consideration.

gives up control over the net assets acquired finances the business combination
Question 43
Hall, Inc., - enters into a forecasted call option contract with Bennett Investment Co. on January
2, 2016. This contract gives Hall the option to purchase 1,000 shares of Bennett stock at P100
per share. The option expires on April 30, 2016. Bennett shares are trading at P100 per share
on January 2, 2016, at which time Hall pays P100 for the call option.
The call option would be recorded in the accounts of Hall as:

A gain An asset A liability Would not be recorded in the accounts

(memorandum entry only)
Question 44
Francis Enterprise uses the installment method of accounting and it has the following data at the
year-end:
Gross margin on cost 66-2/3%
Unrealized gross profit 192,000
Cash collections including down 360,000
payments
What was the total amount of sales on installment basis?

480,000 648,000 840,000 552,000

Question 45
The risk that one party to a financial instrument will fail to discharge an obligation and cause the
other party to incur a financial loss is referred to as:

market risk; liquidity risk; credit risk. interest rate risk;

Question 46
According to the Conceptual Framework, recognition of an asset occurs if it is probable that
future economic benefits will flow to the entity and:

it is a non-current asset. it has a value that can be measured with reliability. it has a

value that can be measured with certainty. it is a current asset.

Question 47
Red Company had an agency in Davao. For the period just ended, the agency transaction
showed the following:
Receipt from sales 350,000
Disbursements:
Purchases 400,000
Salaries and 70,000
commissions
Rent 20,000
Advertising supplies 10,000
Other expenses 5,000
The agency had P100,000 receivables and P50,000 payables as of the end of the period. Also,
there were inventories on hand of P90,000 and unused advertising supplies of P6,000. The
agency was set up as an experiment for one period and would be closed if losses were
incurred. The agency should:

Continue with the period's profit of P25,000.

Close with the period's operational loss of P155,000.

Review again because it was a break even operation.

Close with the period's operational loss of P9,000.

Question 48
S and L owes the Kurt Corporation P6,000 on account, which is secured by accounts receivable
with a book value of P5,000. Its statement of affairs lists the accounts receivable securing the
Kurt account with an estimated realizable value of P4,500. Assume that S and L account is
unsecured. How much can Kurt expect to receive?

4,800

6,000

4,000

Cannot be determined without additional data

Question 49
Which of the following countries is not a member of the Group of Eight

U.S.

Thailand

Japan

Italy

Question 50
A loss from a construction contract shall be fully and immediately recognize under

Both the cost recovery and percentage-of-completion method The

percentage-of-completion method The cost recovery method Neither the cost recovery
nor percentage-of-completion method
Answers
1. A
2. C
3. A
4. C
5. B
6. D
7. C
8. A
9. C
10. C
11. A
12. B
13. D
SOLUTION:

Under the cost recovery method, equal amounts of revenue and expense are recognized
as collections are made until all costs have been recovered, postponing any recognition
of profit until that time.
14. D
15. C
16. C
17. D
SOLUTION:

An entity need not recognize the contributions of works of art and historical artifacts if the
collection is held for public exhibition rather than financial profit, cared for and preserved
and, if sold, the proceeds are use to acquire other items for collections.
18. A
19. B
20. B
21. B
22. B
23. C
24. B
25. C
26. A
27. C
SOLUTION:

Other Receivables is used to account amount due from all debtors not falling under any
of the specific types of receivables.
28. D
29. B
 30. B
SOLUTION:

Property, plant and equipment of a not-for-profit hospital is part of the hospital’s

unrestricted funds.
31. A
32. C
33. D
SOLUTION:

P2,000,000 x (100% - 40%) = P1,200,000

34. B
35. D
36. D
37. C
38. A
39. B
40. B
41. C
42. C
43. B
44. C
SOLUTION:

Installment accounts receivable, end of year:

Unrealized gross profit/gross profit rate = 192,000/(66 2/3/166 480,000

2/3)

Add: Collections 360,000

Installment sales 840,000

45. C
46. B
47. D
48. D
49. B
50. A