lOMoARcPSD|9394799
CFAS Question and Answers
Intermediate Accounting 1 (AMA Computer University)
StuDocu is not sponsored or endorsed by any college or university
Downloaded by Marie Bacasnot (mariejoybacasnot@yahoo.com)
lOMoARcPSD|9394799
Conceptual Framework and Accounting Standards
•
According to PAS 8, these are the specific principles, bases, conventions, rules and practices
applied by an entity in preparing and presenting financial statements.
• Accounting policies
c. Accounting standards
• Accounting estimates
d. Accounting assumptions
•
A change in the pattern of consumption of economic benefits from an asset is most likely a
• change in accounting policy.
c. error.
• change in accounting estimate.
d. any of these
•
PAS 8 permits a change in accounting policy only if the change
• is required by a PFRS
• results in reliable and more relevant information
• a or b
• PAS 8 does not permit a change in accounting policy
•
These arise from misapplication of accounting policies, mathematical mistakes, oversights or
misinterpretations of facts, or fraud.
• Error
• Change in accounting estimate
• Change in accounting policy
• Impracticable application
•
How should the following changes be treated, according to PAS 8?
• A change is to be made in the method of calculating the provision for uncollectible
receivables.
• Investment properties are now measured at fair value, having previously been measured
at cost.
Change (1)
Change (2)
• Change of accounting policy
Change of accounting policy
• Change of accounting policy
Change of accounting estimate
• Change of accounting estimate
Change of accounting policy
• Change of accounting estimate Change of accounting estimate
•
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.
• Events after the reporting period
c. Adjusting events
• Non-adjusting events
d. all of these
•
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 authorised 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?
• 7 July 20X8
• 10 July 20X8
• 15 July 20X8
• 20 July 20X8
•
Which of the following is an example of a non-adjusting event?
Downloaded by Marie Bacasnot (mariejoybacasnot@yahoo.com)
lOMoARcPSD|9394799
•
•
•
•
Sale of inventory for less than its carrying value shortly after the reporting period
Amounts received in respect of an insurance claim being negotiated at the period end
Destruction of a machine by fire after the reporting period
Bankruptcy of a major customer with a balance owing at the period end
•
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?
• Yes, go ahead. Write-off the truck because the event is an adjusting event.
• No. Don’t write-off the truck because the event is a non-adjusting event.
• 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.
• Yes, go ahead. I will support you.
•
Which of the following is most likely to be a non-adjusting event?
• A major customer liquidates its business after the end of the reporting period.
• The entity announces a major restructuring after 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.
• The determination after the reporting period of the cost of asset purchased, or the
proceeds from asset sold, before the end of reporting period.
•
These are differences that have future tax consequences.
• Permanent differences
c. Taxable differences
• Temporary differences
d. Deductible differences
•
This type of difference will give rise to deferred tax liability.
• Taxable temporary difference
• Permanent difference
• Deductible temporary difference
• Deferred difference
•
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?
• Deferred tax liability
c. Deferred tax expense
• Deferred tax asset
d. Deferred tax benefit
•
During the period, deferred tax assets increase by ₱400 while deferred tax liabilities increase
by ₱500. The net change of ₱100 is a
• deferred tax expense
c. deferred tax liability
• deferred tax income
d. deferred tax asset
•
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?
• 30,000 deferred tax asset
• 30,000 deferred tax liability
• 30,000 deferred tax expense
• 30,000 income tax expense
Downloaded by Marie Bacasnot (mariejoybacasnot@yahoo.com)
lOMoARcPSD|9394799
•
According to PAS 16, the selection of an appropriate depreciation method rests upon the
entity’s
• management.
• accountant.
• regulator.
• all of these
•
Which of the following is not one of the essential characteristics of a PPE?
• tangible asset
• used in business
• primarily held for sale
• long-term in nature
•
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 specific transitional provision of a PFRS.
• retrospective application.
• prospective application.
• any of these
•
If plotted on a graph (X-axis: time; Y-axis: ₱), the depreciation charges under the straight-line
method would show
• a straight-line.
• an upward line sloping to the right.
• a downward line sloping to the left.
• a curvilinear line sloping here and there.
•
Which of the following instances does not preclude an entity from recognizing depreciation
during a certain period?
• The asset is fully depreciated.
• The asset is being depreciated using the units of production method and there is no
production during the period.
• The asset is classified as held for sale under PFRS 5.
• The asset becomes idle or is taken out of active use.
Use the following information for the next five questions:
Entity A acquires equipment on January 1, 20x1. Information on costs is as follows:
Purchase price, gross of trade discount
Trade discount available
Freight costs
Testing costs
Net disposal proceeds of samples generated
during testing
Present value of estimated costs of dismantling the
equipment at the end of its useful life
•
1,000,000
10,000
20,000
30,000
5,000
6,209
How much is the initial cost of the equipment?
• 1,061,209
• 1,051,209
• 1,041,209
• 1,031,209
Downloaded by Marie Bacasnot (mariejoybacasnot@yahoo.com)
lOMoARcPSD|9394799
•
The equipment has an estimated useful life of 10 years and a residual value of ₱200,000.
Entity A uses the straight line method of depreciation. How much is the carrying amount of the
equipment on December 31, 20x3?
• 788,846
• 802,846
• 795,846
• 764,846
•
On December 31, 20x3, Entity A revalues the equipment at a fair value of ₱820,000. There is
no change in the residual value and the remaining useful life of the asset. How much is the
revaluation surplus on December 31, 20x3?
• 17,154
• 24,154
• 55,154
• 31,154
•
How much is the depreciation expense in 20x4?
• 102,500
• 117,143
• 136,667
• 88,571
•
Entity A sells the equipment for ₱870,000 on January 1, 20x5. Entity A incurs selling costs of
₱20,000 on the sale. How much is the gain (loss) on the sale?
• 118,571
• 132,500
• 147,143
• 152,673
•
Imagine you are an employer (an awesome one). When should you recognize short-term
employee benefits?
• Every 1st day of the month
• Every 15th and 30th of the month.
• When the employees have rendered service in exchange for the employee benefits.
• Never!
•
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
• April 1
20,000
• April 15
20,000
• April 1
100,000
• April 15
100,000
•
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
Downloaded by Marie Bacasnot (mariejoybacasnot@yahoo.com)
lOMoARcPSD|9394799
accrue at the end of the current year for unused entitlements?
• 0
c. 90,000
• 150,000
d. 94,500
•
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:
Profit for the year
Employees at the beginning of the year
Average employees during the year
Employees at the end of the year
₱8,000,000
8
7
6
If the employee benefits remain unpaid, how much liability shall Entity A accrue at the end of the
year?
• 400,000
c. 200,000
• 300,000
d. 0
• 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 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?
• Defined contribution plan
• Defined benefits plan
• Defined pension plan
• Cannot be determined; insufficient information!
Use the following information for the next six questions:
Information on Entity A’s defined benefit plan is as follows:
PV of DBO – Jan. 1, 20x1
1,800,000
FVPA – Jan.1, 20x1
1,440,000
PV of DBO – Dec. 31, 20x1 2,160,000
FVPA, end. – Dec. 31, 20x1 1,572,000
Current service cost
390,000
Actuarial loss
120,000
Return on plan assets
132,000
Discount rate
5%
•
How much is the net defined benefit liability (asset) in Entity A’s December 31, 20x0
statement of financial position?
• 588,000 liability
• 588,000 asset
• 360,000 liability
• 360,000 asset
•
How much is the net defined benefit liability (asset) in Entity A’s December 31, 20x1
statement of financial position?
• 588,000 liability
Downloaded by Marie Bacasnot (mariejoybacasnot@yahoo.com)
lOMoARcPSD|9394799
•
•
•
588,000 asset
360,000 liability
360,000 asset
•
How much is the total defined benefit cost for 20x1?
• 588,000
• 468,000
• 348,000
• 228,000
•
How much is the component of the total defined benefit cost to be recognized in profit or
loss?
• 390,000
• 408,000
• 348,000
• 18,000
•
How much is the component of the total defined benefit cost to be recognized in other
comprehensive income?
• 180,000
• (60,000)
• 60,000
• (180,000)
•
Which of the following is considered a government grant under PAS 20?
• Award of major government contracts
• Cancellation of an existing loan from the government
• Free technical advice
• Public improvements
•
Which of the following is not considered a government grant under PAS 20?
• Financial aid
• Benefit of subsidized loans
• Tax breaks
• Forgivable loans
•
The main concept used in recognizing income from government grants is
• capital approach
• historical cost
• matching
• materiality
•
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?
• in full when Entity A receives the grant
• over 2 years starting in 20x1
• over the period of the project as expenses are incurred
• the grant is not recognized as income
•
According to PAS 20, a government grant that becomes repayable is accounted for
• retrospectively.
Downloaded by Marie Bacasnot (mariejoybacasnot@yahoo.com)
lOMoARcPSD|9394799
•
•
•
prospectively.
a or b
not accounted for
Use the following information for the next two questions:
You are an auditor. ABC Philippines Co., your client, is not sure on what to disclose in its financial
statements as its functional currency. Relevant information follows:
ABC Philippines Co. is a branch of ABC U.S. Co. ABC Philippines operates in a Philippine
Economic Zone Authority (PEZA) Special Economic Zone. ABC Philippines is engaged in the
apparel business. All of its raw materials are imported from the main office in the U.S. and all of
its finished products are exported directly to U.S. customers. The U.S. customers remit payments
to the U.S. main office. The U.S. main office will then provide the Philippine branch its working
capital needs. None of ABC Philippines Co.s’ finished products are sold in the Philippines. The
raw materials imported and finished goods exported are denominated in U.S. dollars.
•
What is ABC Philippines Co.’s functional currency?
• Philippine peso
• U.S. dollar
• a or b
• none of these
•
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?
• Philippine peso
• U.S. dollar
• a or b
• none of these
•
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.
• Monetary items
• Non-monetary items
• Financial items
• Non-financial items
•
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?
• machine
• accounts payable
• a and b
• none of these
•
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?
• 200,000
c. 100,000
Downloaded by Marie Bacasnot (mariejoybacasnot@yahoo.com)
lOMoARcPSD|9394799
•
(200,000)
d. (100,000)
•
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?
• 7,320,000
c. 7,500,000
• 7,000,000
d. 6,680,000
•
Which of the following may not be considered a “qualifying asset” under PAS 23?
• A power generation plant that normally takes two years to construct.
• An expensive private jet that can be purchased from a local vendor.
• A toll bridge that usually takes more than a year to build.
• A ship that normally takes one to two years to complete.
•
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 part of the historical cost of acquiring the asset to be written off over the estimated
useful life of the asset.
• interest expense in the construction period.
• recorded as a deferred charge and amortized over the term of the borrowing.
• 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.
•
Which of the following costs may not be eligible for capitalization as borrowing costs under
PAS 23?
• Interest on bonds issued to finance the construction of a qualifying asset.
• Amortization of discounts or premiums relating to borrowings that qualify for
capitalization.
• Imputed cost of equity.
• Exchange differences arising from foreign currency borrowings to the extent they are
regarded as an adjustment to interest costs pertaining to a qualifying asset.
•
Capitalization of borrowing costs
• Shall be suspended during temporary periods of delay.
• May be suspended only during extended periods of delays in which active development
is delayed.
• Should never be suspended once capitalization commences.
• Shall be suspended only during extended periods of delays in which active development
is delayed.
•
PAS 24 requires the disclosure of key management personnel compensation. Which of the
following is not included in this disclosure?
• short-term employee benefits
• termination benefits
• share-based payment
• reimbursements of officers’ out-of-pocket expenses
•
Which of the following is not required to be disclosed under PAS 24?
• A parent-subsidiary relationship when there were transactions between them during the
period.
• A parent-subsidiary relationship when there were no transactions between them during
Downloaded by Marie Bacasnot (mariejoybacasnot@yahoo.com)
lOMoARcPSD|9394799
•
•
the period.
Loans to officers
The name of the parent of the entity’s associate
•
The amount of benefits to be received by employees enrolled in a defined benefit plan is
• dependent on the level of contributions to a fund.
• dependent on the level of investment performance of a fund.
• a and b
• neither a nor b
•
Which of the following statements is correct?
• PAS 19 encourages, but does not require, involving a qualified actuary in measuring
defined benefit obligations.
• PAS 26 applies only to defined benefit plans but not to defined contribution plans.
• Information on ‘excess’ or ‘deficit’ is required to be disclosed in the financial statements of
a defined contribution plan.
• In practice, actuarial valuations are frequently prepared every year.
•
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.
• Individual financial statements
• Separate financial statements
• Consolidate financial statements
• Equity financial statements
•
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 investment would have a current carrying amount of ₱2.6M. In Entity A’s separate
financial statements, the investment should be valued at
• 1,000,000.
• 2,600,000.
• 2,900,000.
• any of these, as a matter of an accounting policy choice
•
Which of the following best describes the term ‘significant influence’ as used under PAS 28?
• The holding of 20% interest in an investee.
• The ability to control an investee’s relevant activities through holding of significant portion
of the investee’s voting rights.
• The power to participate in the financial and operating policy decisions of an entity.
• The contractually agreed sharing of profits and losses in an investee.
•
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?
• Entity A cannot be presumed to have significant influence over Entity B because Entity A
does not have board representation.
• Entity A is presumed to have signification influence over Entity B because it holds 25% or
more of the voting rights in Entity B.
• Entity A is presumed to have signification influence over Entity B because it holds 20% or
more of the voting rights in Entity B.
•
Representation on an investee’s board of directors is never considered when determining
the existence of significant influence.
Downloaded by Marie Bacasnot (mariejoybacasnot@yahoo.com)
lOMoARcPSD|9394799
•
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?
• 800,000
• 1,250,000
• 1,000,000
• 1,025,000
•
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?
• CU438,000
• CU411,400
• CU414,400
• CU400,000
•
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?
• Going concern
• Price level concept
• Stable monetary assumption
• Materiality
•
Entity A operates in a hyperinflationary economy. Entity A has the following assets before
restatement on December 31, 20x1:
Investment in bonds (amortized cost)
₱700,000
Land
1,000,000
The land was acquired on May 21, 20x0. The general price indices are as follows:
May 21, 20x0
100
January 1, 20x1
160
Average – 20x2
180
December 31, 20x1
220
What are the restated amounts of the assets?
Investment in bonds
• 700,000
• 700,000
• 855,556
• 962,500
Land
1,000,000
2,200,000
2,200,000
1,000,000
•
Which of the following is within the scope of PAS 32?
• Assets held for sale in the ordinary course of business
• Contracts relating to employee benefits
• Financial instruments that are within the scope of PFRS 9
• Investments in associates and joint ventures
•
Which of the following is not a financial asset?
• Cash
Downloaded by Marie Bacasnot (mariejoybacasnot@yahoo.com)
lOMoARcPSD|9394799
•
•
•
Receivable
Inventory
Investment in associate
•
These are bonds that can be exchanged for shares of stocks of the issuer.
• Exchangeable bonds
• Callable bonds
• Convertible bonds
• Rock bonds
•
Which of the following is not a financial instrument?
• Accounts receivable
• Investment in shares of stocks
• Accounts payable
• All of these are financial instruments
•
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:
1/1/20x1
3/1/20x1
9/30/20x1
11/1/20x1
Ordinary shares outstanding
Shares issued for cash
Subscribed shares
Reacquisition of treasury shares
Outstanding shares at the end of period
What is the basic earnings per share?
• 5.92
• 6.96
• 7.09
• 6.13
•
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?
• -7.50
• 7.50
• -8.50
• 8.50
•
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 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?
• 12.58
• 12.67
• 11.71
Downloaded by Marie Bacasnot (mariejoybacasnot@yahoo.com)
120,000
42,000
20,000
(12,000)
170,000
lOMoARcPSD|9394799
•
•
11.67
Entity A had the following instruments outstanding all throughout 20x1:
12% convertible bonds payable issued at face amount, each
₱1,000 bond is convertible into 30 ordinary shares ₱2,000,000
Ordinary shares, ₱10 par, 100,000 shares issued and
outstanding
1,000,000
Profit for the year is ₱1,200,000. Entity A’s income tax rate is 30%.
What is the diluted earnings per share in 20x1?
• 8.55
• 8.15
• 8.05
• 8.98
Downloaded by Marie Bacasnot (mariejoybacasnot@yahoo.com)