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 for the adequacy adequacy of recognized recognized insurance insurance liabilities Catastrophe provisions An impairment impairment test for for reinsurance reinsurance assets 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 the promise for performance
Depends on demand by
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 within the body of PFRS 3
is complementary to the main disclosure requirements
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. difference between the two accounts will be reflected as a current asset.
The
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 0 100,000 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 (100,000)
Debit: Due from National Government Agency
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 percentage-of-completion method The cost recovery method nor percentage-of-completion method
The Neither the cost recovery
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 2/3)
480,000
Add: Collections
360,000
Installment sales
840,000
45. C 46. B 47. D 48. D 49. B 50. A
