PAS 10 – EVENTS AFTER REPORTING PERIOD 1. Events after the end of the reporting period are events, favorable or unfavorable, that a. Occur between the end of the reporting period and date of the next annual financial statements b. Occur between the end of the reporting period and the date of the next interim or annual financial statements c. Occur between the end of the reporting period and the date when the financial statements are authorized for issue d. Occur between the end of reporting period and the date of the next interim statements 2. Adjusting events are those that a. Provide evidence of conditions that existed at the end of the reporting period b. Are indicative of conditions that arose after the end of the reporting period c. Are indicative of conditions that arose after the end of the reporting period d. Provide for conditions that existed after the date of the financial statements were issued 3. Financial statements are said to be authorized for issue when a. The financial statements are filed with the SEC b. The shareholders approve the financial statements at their annual meeting c. The management is required to submit the financial statements to a supervisory body made up solely of nonexecutives and the supervisory body approves the financial statements d. The management reviews the financial statements and authorizes them for issue 4. Which of the following statements about events after the end of reporting period is true? I. A decline in value of investments would normally be classified as an adjusting event II. The settlement of a long-running case would normally be classified as a nonadjusting event a. I only b. II only c. Both I and II d. Neither I nor II 5. All of the following events after reporting period should be classified as nonadjusting, except a. The entity announced the discontinuation of assembly production b. The entity entered into an agreement to purchase the leased building c. Destruction of a major production plant by fire d. A mistake in the calculation of allowance for uncollectible accounts receivable 6. The financial statements of Stella company were authorized for issue on March 31, 2015 and the end of the reporting period is December 31, 2014. On December 31, 2014, the entity had an account receivable of P3,000,000 from a customer. On February 1, 2015, the liquidator of the said customer advised the entity in writing that the customer was insolvent and that only P1,000,000 would be paid on December 31, 2015. The entity had reported a contingent liability on December 31, 2014 related to a court case. On March 1, 2015, the judge handed down a decision against the entity for damages amounting to P2,500,000. What total amount should be reported as “adjusting events” on December 31, 2014? a. 4,500,000 b. 2,500,000 c. 5,500,000 d. 2,000,000 PAS 24 – RELATED PARTY DISCLOSURES
1. A party is related to an entity if the party, directly or indirectly through one or more intermediaries a. Controls, is controlled by or is under common control with the entity b. Has an interest in the entity that gives it significant influence over the entity c. Has joint control over the entity d. All of these 2. Related parties include all of the following, except a. Parent, subsidiary and fellow subsidiaries b. Associate c. Key management personal and close family members of such individuals d. Two venturers simply because they share joint control over a joint venture 3. Close family members of an individual include all of the following, except a. The individual’s spouse and children b. Children of the individual’s spouse c. Dependents of the individual or the individual’s spouse d. Brother or sister of the individual 4. Unrelated parties include all of the following, except a. Two entities simply because they have a common director b. Providers of finance simply by virtue of their normal dealing with an entity c. Customers with whom an entity transacts a significant volume of business, merely by virtue of the resulting economic dependence d. Postemployment benefit plan for the benefit of employees 5. Which of the following would not be considered key management personal compensation? a. Short-term benefits b. Share-based payments c. Termination benefits d. Reimbursement of “out of pocket” expenses 6. All of the following fall within the definition of an entity’s related party, except a. Joint venture in which the entity is a venture b. A postemployment benefit plan for the benefit of the employees of the entity c. An executive director of the entity d. The partner of a key manager is major supplier of the entity 7. Which of the following is not required minimum disclosure about related party transaction? a. The amount of related party transaction b. The amount of the outstanding balance and the terms and conditions including guarantee c. The amount of similar transaction with unrelated parties to establish that comparable related party transaction has been entered at arm’s length d. Provision for doubtful debts related to the outstanding balance 8. All of the following are related party transactions, except a. Transferred inventory to a shareholder owning forty percent of the entity’s ordinary shares b. Sold an entity car to the wife of the managing director c. Sold an asset to an associate d. Took out a huge bank loan 9. Jocen company acquired 100% of Elmer company prior to 2014. During 2014, the individual entities included in their financial statements the following: Jocen Elmer Key officers’ salaries 750,000 500,000 Officers’ expenses 200,000 100,000 Loans to officers 1,250,000 500,000 Intercompany sales 1,500,000 What total amount should be reported as related party disclosures in the notes to the 2014 consolidated financial statements?
a. b. c. d.
4,500,000 1,250,000 1,750,000 3,000,000 PAS 8 – ACCOUNTING POLICIES, ESTIMATES AND ERRORS
1. Accounting changes are often made and the monetary impact is reflected in the financial statements even though in theory this may be a violation of the accounting concept of a. Materiality c. Prudence b. Consistency d. Objectivity 2. Which of the following is not classified as an accounting change? a. Change in the accounting policy c. Error in the financial statements b. Change in accounting estimate d. All of these are classified as an accounting change 3. These are specific principles, bases, conventions, rules and practice applied by an entity in preparing and presenting financial statements a. Accounting policies c. Accounting standards b. Accounting principles d. Accounting concepts 4. What is retrospective application of a change in accounting policy? a. Applying a new accounting policy to transactions as if that policy had always been applied b. Applying a new accounting policy to transactions occurring after the date at which the policy is changed c. Correcting the recognition, measurement and disclosure of amounts of elements of financial statements as if a prior period error never occurred d. All of these 5. Which of the following is not treated as a change in accounting policy? a. A change from average cost to FIFO for inventory b. A change to a different method of depreciation c. A change from full cost to successful effort in the extractive industry d. A change from cost recovery to percentage of completion 6. An entity changes an accounting policy if I. It is required by law II. The change will result in providing reliable and more relevant information about the entity’s financial position, financial performance and cash flows a. I only c. Both I and II b. II only d. Neither I nor II 7. How is a change in accounting policy reported? I. A change in accounting policy required by PFRS shall be reported in accordance with the transitional provisions therein II. If the PFRS contains no transitional provisions or if an accounting policy is changed voluntarily, the change shall be reported retrospectively a. I only c. Either I or II b. II only d. Neither I nor II 8. A change in accounting policy requires that the cumulative effect of the change for prior periods be shown as an adjustment to a. Beginning retained earnings for the earliest period presented b. Net income for the period in which the change occurred c. Comprehensive income for the earliest period presented d. Shareholders’ equity for the period in which the change occurred 9. A change in measurement basis a. Is not an accounting change b. Is a change in accounting policy c. Is a change in accounting estimate d. Is a correction of an error
10. When it is difficult to distinguish a change in an accounting policy from a change in an accounting estimate, the change is treated as a. Change in accounting estimate with appropriate disclosure b. Change in accounting policy c. Correction of an error d. Initial adoption of an accounting policy 11. Which is the proper time period to record the effect of a change in accounting estimate? a. Current period and prospectively b. Current period and retrospectively c. Retrospectively only d. Current period only 12. An example of a correction of an error in previously issued financial statements is a change a. From FIFO method of inventory valuation to average cost method b. In the service life of plant assets based on changes in the economic environment c. From cash basis of accounting to accrual basis of accounting d. In the tax assessment related to a prior period 13. During 2014, Novie company decided to change from the FIFO method of inventory valuation to the weighted average method. Inventory balances under each method were: December 31, 2012 December 31, 2013 December 31, 2014
FIFO 9,000,000 8,000,000 7,000,000
Weighted Average 8,500,000 8,300,000 6,400,000
Ignoring income tax, what amount should be reported as the effect of this accounting change in the statement of retained earnings for 2014? a. 200,000 decrease b. 200,000 increase c. 300,000 decrease d. 300,000 increase 14. On January 1, 2011, Faith company purchased a machine for P5,280,000 and depreciated it by the straight line method using an estimated useful life of eight years with no residual value. On January 1, 2014, the entity determined that the machine had a useful life of six years from the date of acquisition with a residual value of P480,000. What is the accumulated depreciation for the machine on December 31, 2014? a. 2,920,000 b. 3,080,000 c. 3,200,000 d. 3,520,000 15. On January 1, 2012, Maricon company purchased for P6,000,000 a machine with a useful life of five years and residual value of P600,000. The machine was depreciated by the double declining balance method and the accumulated depreciation of the machine was P3,840,000 on December 31, 2013. The entity changed to the straight line method on January 1, 2014 and the residual value did not change. What amount should be reported as depreciation for 2014? a. 720,000 b. 520,000 c. 432,000 d. 312,000
