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Conceptual Framework AND Acctg Standards 1.5
Accountancy (Adamson University)
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CONCEPTUAL FRAMEWORK AND ACCTG STANDARDS 1.5
1. Entity A acquires inventories and incurs the following costs:
100,0
Purchase price, gross of trade discount
00
20,0
Trade discount
00
Non-refundable purchase tax, not
included
5,0
in the purchase price above
00
15,0
Freight-in (Transportation costs)
00
2,0
Commission to broker
00
10,0
Advertisement costs
00
How much is the cost of the inventories purchased?
a. 102,000
b. 122,000
c. 97,000
d. 100,000
Solution:
Purchase price, gross of trade discount
Trade discount
Non-refundable purchase tax
Freight-in (Transportation costs)
Commission to broker
Total cost of inventories
100,00
0
(20,000
)
5,000
15,000
2,000
102,0
00
2. Which of the following is presented in the activities section of the statement of cash
flows?
a. Purchase of a treasury bill three months before its maturity date.
b. Dividends paid this year although declared in a prior year.
c. Acquisition of equipment through issuance of note payable.
d. Bank overdrafts that can be offset.
3. In the statement of cash flows of a non-financial institution, interest income received
is presented under
a. operating activities.
b. financing activities.
c. investing activities.
d. a or c
4. An entity makes a change in accounting estimate. How does the entity recognize the
effects of the change in profit or loss?
a. Prospectively in the current period
b. Prospectively in the current and future periods
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c. Retrospectively starting from the earliest period presented
d. a or b
5. Materiality does not make any difference with regard to
a. the separate presentation of items in the financial statements.
b. the disclosure of additional information in the notes.
c. intentional errors.
d. the level of rounding-off of amounts in the financial statements.
6. According to PAS 10, dividends declared after the reporting period, but before the
financial statements are authorized for issue, are
a. recognized as liability at the end of reporting period.
b. not recognized as liability at the end of reporting period.
c. disclosed only as an adjusting event.
d. any of these.
7. At the end of the period, Entity A has deductible 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?
a. 30,000 deferred tax asset
b. 30,000 deferred tax liability
c. 30,000 deferred tax expense
d. 30,000 income tax expense
8. You are a business manager. During the period, you have authorized the acquisition
of a machine that will be used in your company’s manufacturing activities in the
next 5 years. In your selection of an appropriate accounting policy for the
recognition and measurement of the machine, which of the following reporting
standards is most relevant?
a. PAS 1
b. PAS 2
c. PAS 16
d. PAS 32
9. Which of the following is not one of the principal issues in the accounting for PPE?
a. Recognition.
b. Initial measurement as asset.
c. Allocation of carrying amount over the period of use.
d. Recognition of carrying amount as expense when the related revenue is
recognized.
10. You are the General Manager of Entity A. You have received the actuarial report for
your company’s defined benefit plan. The report shows the following information:
PV of DBO – Jan. 1, 20x1
1,500,000
FVPA – Jan. 1, 20x1
1,200,000
PV of DBO – Dec. 31,
20x1
1,800,000
FVPA, end. – Dec. 31,
20x1
1,310,000
Actuarial gain
100,000
Return on plan assets
110,000
Discount rate
5%
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When reporting on your company’s year-end highlights of financial summary, which of
the following will you report to the Board of Directors (the ‘big bosses’)?
a. Your company’s net liability for retirement benefits has increased by ₱490,000.
b. Your company’s net liability for retirement benefits has decreased by ₱300,000.
c. Your company’s net liability for retirement benefits has increased by ₱190,000.
d. I will tell them nothing.
Solution:
Net defined benefit liability, beg. (1.5M – 1.2M) = 300,000
Net defined benefit liability, end. (1.8M – 1.310M) = 490,000
Increase = 190,000
11. Entity A has 20 employees who are each entitled to one day paid vacation leave for
each month of service rendered. Unused vacation leaves are carried forward and can
be used in future periods if the current period’s entitlement is not used in full.
However, unutilized entitlements 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 accrue at the end of the
current year for unused entitlements?
a. 0
b. 90,000
c. 75,600
d. 94,500
Solution: [(20 employees x 1 day x 12 months) – 150 days] x ₱1,000 x 105% x 80%* =
75,600
* The paid absences are non-vesting.
12. 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
If you
a.
b.
c.
d.
₱8,000,000
8
7
6
are an alumnus of Entity A, how much bonus do you expect to receive?
66,667
50,000
57,143
0
Explanation: Only those who are currently employed as at year-end are entitled to
receive the bonus.
13. The transfer of resources from the government to an entity in exchange for past or
future compliance with certain conditions is called
a. Government grant.
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b. Government assistance.
c. Government financial assistance.
d. Government asset transfer.
14. Entity A receives land from the government conditioned that the land will only be
used in Entity A’s primary business activities and should never be sold. If in case,
Entity A decides not to use the land in its primary business activities, it shall return
the land to the government. Which of the following standards is least likely to be
relevant in accounting for the land?
a. PAS 2
b. PAS 16
c. PAS 20
d. All of these are relevant
15. 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. The relevant exchange rates are as follows:
Dec. 31, 20x1
Jan. 6, 20x2
Dec. 1, 20x1
₱50:$1
₱52:$1
₱47:$1
The cost of the machine that will be disclosed in your December 31, 20x1 financial
statements is
a. $100,000.
b. ₱5,000,000.
c. ₱5,200,000.
d. ₱4,700,000.
Solution: $100,000 x ₱50 spot exchange rate at acquisition date = ₱5M
16. On January 1, 20x1, Entity A started the construction of a qualifying asset. The
qualifying asset is financed through general borrowings. The average expenditures
during the year amounted to ₱9,500,000. The capitalization rate is 11%. The actual
borrowing costs incurred during the period were ₱1,990,000. How much are the
borrowing costs eligible for capitalization?
a. 1,990,000
b. 1,045,000
c. 1,090,000
d. 990,000
Solution:
Capitalizable BC from formula = 9,500,000 x 11% = 1,045,000
1,045,000 vs. 1,990,000 actual borrowing costs = Capitalizable BC is 1,045, 000
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