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CFAS Preboard EXAM Questions
Bs Accountancy (Bukidnon State University)
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CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS
ANSWER KEY
1. Accounting has been given various definitions, which of the following is not one
of those definitions
a. Accounting is a service activity. Its function is to provide quantitative
information, primarily financial in nature, about economic entities that is
intended to be useful in making economic decisions.
b. Accounting is the art of recording, classifying, and summarizing in a
significant manner and in terms of money, transactions and events which are,
in part of at least, of a financial character and interpreting the results thereof.
c. Accounting is a systematic process of objectively obtaining and evaluating
evidence regarding assertions about economic actions and events to ascertain
the degree of correspondence between these assertions and established criteria
and communicating the results to interested users.
d. Accounting is the process of identifying, measuring, and communicating
economic information to permit informed judgment and decisions by users of
information.
2. Which of the following statements is true?
a. The basic purpose of accounting is to provide information about economic
activities intended to be useful in making economic decisions.
b. All events and transactions of an entity are recognized the books of accounts.
c. General purpose financial statements are those statements that cater to the
common and specific needs of a wide range of external users.
d. The accounting process of assigning numbers, commonly in monetary terms,
to the economic transactions and events is referred to as classifying.
3. The accounting standards used in the Philippines are adapted from the standards
issued by the
a. Federal Accounting Standards Board (FASB).
b. International Accounting Standards Board (IASB).
c. Philippine Institute of Certified Public Accountants (PICPA).
d. Democratic People's Republic of Korea Accounting Standards Committee
(DPKRASC).
4. Which of the following statements is incorrect regarding the basic accounting
concepts?
a. One of ABC Co.’s delivery trucks was involved in an accident. Although no
lawsuits have yet been filed against ABC, ABC recognized a liability for the
probable loss on the event. This is an application of the prudence or
conservatism concept.
b. Under the consistency concept, the financial statements should be prepared on
the basis of accounting principles which are followed consistently.
c. Under the entity theory, the business is viewed as a separate entity. Therefore,
the personal transactions of the business owners are not recorded in the
business’ accounting records.
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d. The time period concept means that financial statements are prepared only at
the end of the life of a business.
5. Entity A appropriates ₱1M to fund employee benefits for the last quarter of the
following year. Entity A deposits the ₱1M fund in a payroll account. This
economic activity is most appropriately referred to as
a. production.
c. exchange.
b. savings.
d. investment.
6. It is the branch of accounting that focuses on the general purpose reports of
financial position and operating results known as financial statements.
a. Financial accounting
c. Managerial accounting
b. Auditing
d. Taxation
7. These are events that do not involve an external party.
a. external events
c. internal events
b. nonreciprocal
d. special event
8. Entity A computes for its profit or loss periodically instead of waiting until the
end of the life of the business before doing so. This is an application of which of
the following accounting concepts?
a. historical cost
c. accrual basis
b. stable monetary unit
d. time period
9. This refers to the use of caution in the exercise of judgments needed in making
estimates required under conditions of uncertainty , such that assets or income are
not overstated and liabilities or expenses are not understated.
c. consistency
a. faithful representation
b. prudence
d. relevance
10. The bottom part of each of Entity A’s financial statements states the following
“This statement should be read in conjunction with the accompanying notes.” This is
most likely an application of which of the following accounting concepts?
a. articulation
c. accrual basis
b. consistency
d. time period
11. Entity A’s asset has a carrying amount of ₱1M. At year end, Entity A obtains
information that the asset became obsolete, and therefore its usefulness has
declined. Entity A estimates that the asset has a recoverable amount of only
₱800K. Entity A recognizes a loss of ₱200K for the difference. Although this
accounting treatment is required, it violates which of the following concepts?
a. historical cost
c. accrual basis
b. stable monetary unit
d. time period
12. Which of the following events is considered as an internal event?
a. sale of inventory on account
d. conversion of raw materials
b. provision of capital by owners
into finished goods
c. borrowing of money
e. payment of liabilities
13. Which of the following events is considered as an external event?
a. production
b. payment of taxes
d. provision of capital by owners
e. b, c and d
c. gifts
and
charitable
contributions
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14. Financial statements are said to be a mixture of fact and opinion. Which of the
following items is factual?
a. cost of goods sold
c. retained earnings
b. discount on capital stock
d. patent amortization expense
15. The most common form of business organization is a
a. corporation
c. partnership
b. sole proprietorship
d. cell phone stand
16. This concept defines the area of interest of the accountant. It determines which
transactions are recognized in the books of accounts and which are not.
a. Articulation
c. Separate entity
b. Matching
d. Full disclosure
17. A CPA employed as an accountant in a government agency is considered to be in
a. private practice.
c. academe.
b. public practice.
d. service.
18. Which of the following statements is correct?
I.
Accounting provides qualitative information, financial information, and
quantitative information.
II.
Qualitative information is found in the notes to the financial statements only.
III.
Accounting is considered an art because it is supported by an organized body
of knowledge
IV.
Accounting is considered a science because it involves the exercise of skill and
judgment.
V.
Measurement is the process of assigning numbers to objects such inventories
or plant assets and to events such as purchases or sales.
VI.
All quantitative information is also financial in nature.
VII.
The accounting process of assigning peso amounts or numbers to relevant
objects and events is known as identification.
a. I and V
c. I, II, III, IV and V
b. I, II, VI and V
d. II, VI and V
Explanation: II – not only in the notes but also on the face of the financial statements.
III and IV are inter-changed. VI – all financial information are quantitative. VII –
measuring not identification.
19. Which of the following statements about the Norwalk Agreement is correct?
a. The Norwalk Agreement requires all domestic companies in the U.S. to
prepare financial statements in accordance with the IFRSs.
b. The Norwalk Agreement is a short-term convergence between the FASB and
the IASB which has long-time been abolished.
c. The Norwalk Agreement is a convergence between the FASB and the IASB to
make their existing financial reporting standards compatible and coordinate
their future work programs to ensure that once achieved, compatibility is
maintained.
d. The Norwalk Agreement does not affect the financial reporting standards in
the Philippines.
20. The process of identifying, measuring, analyzing, and communicating financial
information needed by management to plan, evaluate, and control an
organization’s operations is called
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21.
22.
23.
24.
25.
26.
a. financial accounting.
c. managerial accounting.
b. tax accounting.
d. auditing.
The PFRSs consist of all of the following except
a. PFRSs.
c. Interpretations.
b. PASs.
d. Conceptual Framework.
It is the official accounting standard setting body in the Philippines. It is
composed of a chairperson and 14 members.
a. Financial Reporting Standards Committee (FRSC)
b. Financial Reporting Standards Council (FRSC)
c. Accounting Standards Committee (ASC)
d. Accounting Standards Council (ASC)
Financial reporting standards continuously change primarily in response to
a. users’ needs.
c. government regulations.
b. political influence.
d. changes in social environments.
Accounting is often called the "language of business" because
a. it is easy to understand.
b. it is fundamental to the communication of financial information.
c. all business owners have a good understanding of accounting principles.
d. accountants in many companies share financial information.
You are the accountant of ABC Co. During the period, your company purchased
staplers worth ₱1,500. Although the staplers have an estimated useful life of 10
years, you have charged their cost as expense. Which of the following is most
likely to be true?
a. You are applying the concept of matching.
b. You are applying the concepts of materiality and cost-benefit consideration.
c. You are applying the concept of verifiability.
d. You are just lazy to compute for the periodic depreciation. 
All of the following statements incorrectly refer to the Conceptual Framework
except
a. The framework is concerned with all-purpose financial statements including
consolidated financial statements.
b. Financial statements are prepared and presented at least annually and are
directed toward the common and specific information needs of a wide range
of users.
c. Prospectuses and computations prepared for taxation purposes are outside
the scope of the framework.
d. Financial statements include such items as reports by directors, statements by
the chairman, discussion and analysis by management and similar items that
may be included in an annual report.
e. The framework applies to the financial statements of all commercial,
industrial and business reporting entities, but only for the private sector.
27. What is the authoritative status of the Conceptual Framework?
a. It has the highest level of authority. In case of a conflict between the
Conceptual Framework and a Standard or Interpretation, the Conceptual
Framework overrides the Standard or Interpretation.
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28.
29.
30.
I.
II.
III.
IV.
31.
32.
b. If there is a Standard or Interpretation that specifically applies to a transaction,
it overrides the Conceptual Framework. In the absence of a Standard or an
Interpretation that specifically applies, the Conceptual Framework should be
followed.
c. If there is a Standard or Interpretation that specifically applies to a transaction,
it overrides the Conceptual Framework. In the absence of a Standard or an
Interpretation that specifically applies to a transaction, management should
consider the applicability of the Conceptual Framework in developing and
applying an accounting policy that will result in information that is relevant
and reliable.
d. The Conceptual Framework applies only when IASB develops new or revised
Standards. An entity is never required to consider the Conceptual Framework.
The foundation of the Conceptual Framework is formed from
a. the qualitative characteristics that makes information useful to users.
b. the objective of general purpose financial reporting.
c. the concept of reporting entity.
d. the various measurement requirements which results to fair presented
financial information.
What is the objective of financial statements according to the Conceptual
Framework?
a. To provide information about the financial position, performance, and
changes in financial position of an entity that is useful to a wide range of users
in making economic decisions.
b. To prepare and present a balance sheet, an income statement, a cash flow
statement, and a statement of changes in equity.
c. To prepare and present comparable, relevant, reliable, and understandable
information to investors and creditors.
d. To prepare financial statements in accordance with all applicable Standards
and Interpretations.
The primary users of financial statements under the Conceptual Framework include
Existing and potential investors
V. Customers
Employees
VI. Governments and their agencies
Lenders and other creditors
VII. Public
Suppliers
and
other
trade
VIII. Professional
accountants,
creditors
including auditors
a. I and III
c. I, II, III, IV, V, VI
b. I, II, III, IV, V, VI, VII
d. all of these
Under the Conceptual Framework, qualitative characteristics are sub-classified into
a. primary and secondary qualitative characteristics
b. major and minor qualitative characteristics
c. fundamental and enhancing qualitative characteristics
d. not sub-classified
Identify the fundamental qualitative characteristics under the Conceptual
Framework.
I.
Relevance
IV.
Comparability
II.
Reliability
V.
Verifiability
III.
Faithful representation
VI.
Timeliness
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VII.
Understandability
a. I and II
c. I, II, III, IV, V and VI
b. I and III
d. IV, V, VI and VII
33. Identify the qualitative characteristics that enhance the usefulness of financial
information.
I.
Relevance
V.
Verifiability
II.
Reliability
VI.
Timeliness
III.
Faithful representation
VII.
Understandability
IV.
Comparability
a. I and II
c. II, III, IV, V and VII
d. IV, V, VI and VII
b. I and III
34. Which of the following are related to the qualitative characteristic of relevance
under the Conceptual Framework?
I.
Predictive value
III.
Timeliness
II.
Confirmatory value
IV.
Materiality
a. I and II
c. I, II and IV
b. I, II and III
d. I, II, III and IV
e.
35. Under this qualitative characteristic, users are assumed to have a reasonable
knowledge of business and economic activities and accounting and a willingness
to study the information with reasonable diligence. However, information about
complex matters that should be included in the financial statements because of its
relevance to the economic decision-making needs of users should not be excluded
merely on the grounds that it may be too difficult for certain users to understand.
c. Understandability
a. Relevance
b. Reliability
d. Comparability
36. The Conceptual Framework sets out general recognition principles of financial
statement elements which include all of the following except
a. asset recognition
c. liability recognition
b. equity recognition
d. expense recognition
37. Which of the following is most likely expensed under the ‘immediate recognition’
principle?
a. cost of inventories
c. cost of equipment
b. impairment loss
d. rentals paid
38. A secondary objective of financial statements
a. is to show information regarding assets and liabilities of an entity
b. is to show information regarding an entity’s financial position, performance,
and changes in financial position
c. is to show the results of the stewardship of management.
d. b and c
39. Which of the following statements is incorrect concerning materiality?
a. Materiality can be assessed quantitatively or qualitatively
b. There are no specific materiality thresholds provided under the PFRSs
c. Materiality is a matter of judgment
d. Materiality is a quantitative matter. It should never be assessed qualitatively.
40. The elements of faithful representation do not include
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41.
42.
43.
44.
45.
46.
47.
48.
a. Comparability
c. Completeness
b. Neutrality
d. Free from error
The ability through consensus among measurers to ensure that information
represents what it purports to represent is an example of the concept of
a. Relevance
c. Verifiability
b. Comparability
d. Feedback value
According to the Conceptual Framework, it is a pervasive constraint on the
information that can be provided by financial reporting
a. materiality
c. cost
b. historical
d. going concern
The elements directly related to the measurement of performance
a. income
c. a and b
b. expenses
d. neither a nor b
Assets and liabilities are recognized if
a. they meet the definition of an element.
b. have probable future economic benefits and have cost or value that are
measured reliably.
c. a and b
d. neither a nor b
The cost of purchases of inventory is recognized as expense
a. immediately.
b. using the matching concept.
c. by systematic allocation.
d. any of these as a matter of accounting policy choice
“I say red, you say green.” The information lacks which of the following
qualitative characteristics?
a. Relevance
c. Timeliness
b. Verifiability
d. Colorfulness
Which of the following is not one of the decisions that primary users make?
a. deciding on how to run the day-to-day operations of the entity
b. deciding on whether to hold or sell investment in stocks
c. deciding on whether to buy investment in stocks
d. deciding on whether to extend loan to the reporting entity
Entity A is making a materiality judgment. Entity A considers an item to be
material, and therefore needs to be disclosed in the notes to the financial
statements, if the item pertains to a related party transaction. What type of
materiality assessment is Entity A using?
a. quantitative
c. faithful representation
b. qualitative
d. relevance
49. According to the Conceptual Framework, the needs of primary users that are met
by financial statements are
a. all of their needs
b. all of their common needs only
c. majority of their common needs only
d. substantially a majority of their common and specific needs only
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50. This refers to the comparability of financial statements of the same entity but in
different periods.
a. Inter-comparability
c. Intra-comparability
b. Extra-comparability
d. Intro-comparability
51. Which of the following financial statements would not be dated as covering a
certain reporting period?
a. Statement of financial position
b. Statement of profit or loss and other comprehensive income
c. Statement of cash flows
d. Statement of changes in equity
52. Comprehensive income (or total comprehensive income) includes
a. Profit or loss
d. a and b
b. Other comprehensive income
e. All of these
c. Transactions with owners
53. What is the purpose of reporting comprehensive income?
a. To report changes in equity due to transactions with owners.
b. To report a measure of overall performance of an entity.
c. To replace profit with a better measure.
d. To combine income from continuing operations with income from
discontinued operations and extraordinary items.
54. The information provided by financial reporting pertains to
a. individual business entities and the economy as a whole, rather than to
industries or to members of society as consumers
b. individual business entities, industries and the economy as a whole, rather
than to members of society as consumers
c. individual entities, rather than to industries of the economy as a whole or to
members of society as consumers
d. individual business entities and industries rather than to the economy as a
whole or to members of society as consumers
55. Which of the following statements is correct when an entity departs from a
provision of a PFRS?
a. The entity’s financial statements would be grossly incorrect; therefore, PAS 1
does not allow such a departure.
b. PAS 1 permits such a departure if the relevant regulatory framework requires,
or otherwise does not prohibit, such a departure.
c. PAS 1 requires certain disclosures when an entity departs from a provision of
a PFRS.
d. b and c
56. Which of the following statements is correct regarding the classification of
financial liabilities as current or noncurrent in accordance with PAS 1?
a. Currently maturing obligations are presented as current liabilities even if their
original term is longer than one year and even if a refinancing agreement is
completed after the end of the reporting period but before the financial
statements are authorized for issue.
b. Currently maturing obligations are presented as noncurrent liabilities only if
their original term is longer than one year.
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c.
Currently maturing obligations are presented as noncurrent liabilities only if a
refinancing agreement is completed after the end of the reporting period but
before the financial statements are authorized for issue.
d. Currently maturing obligations are presented as noncurrent liabilities if a
refinancing agreement is completed after the financial statements are
authorized for issue.
57. According to PAS 1, the judgments and estimates embodied in the financial
statements, for example, materiality judgments, assessments of uncertainty and
risk, and the like, are the responsibility of the entity’s
a. management.
c. auditor.
b. accountant.
d. janitor.
58. Which of the following is not a required disclosure under PAS 1?
a. The financial effect of a departure from a PFRS when an entity departs from a
PFRS requirement.
b. Any material uncertainties on the entity’s ability to continue as a going
concern.
c. The recognition, measurement and disclosure of specific transactions and
other events.
d. The reason for using a longer or shorter period when an entity changes the
frequency of its reporting.
Explanations: (a) This is required under PAS 1 along with the management’s
conclusion as to the fair presentation of the financial statements; that all other
requirements of the PFRSs are complied with; and the title of the PFRS from which
the entity has departed.
(b) This is required under PAS 1 whenever such material uncertainties are
identified when management performs its going concern assessment on the entity.
(d) This is required under PAS 1 along with the disclosures of the period
covered by the financial statements and the fact that amounts presented in the financial
statements are not entirely comparable.
59. An entity’s financial position or condition refers to which of the following?
a. The status of the entity’s assets, liabilities and equity.
b. The amount of return that the entity has generated from its economic
resources during the period.
c. The level of change in the entity’s economic resources and claims to those
resources, also referred to as the economic phenomena.
d. All of these.
60. Comprehensive income excludes which of the following
a. Revaluation surplus
b. Gains and losses from investments measured at fair value through profit or
loss
c. Income tax expense
d. Distributions to owners
61. Entity A needs guidance in accounting for its inventories. Entity A should refer to
which of the following?
b. PAS 2
c. PAS 7
d. PAS 8
a. PAS 1
62. Entity A needs guidance in preparing its statement of changes in equity. Entity A
should refer to which of the following?
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a. PAS 1
b. PAS 2
c. PAS 7
d. PAS 8
63. Which of the following concepts is violated when measuring inventories at the
lower of cost and net realizable value?
a. The concept that assets shall not be carried at an amount in excess of its
recoverable amount.
b. Historical cost concept
c. Prudence or conservatism concept
d. Offsetting concept
64. Entity A buys and sells artifacts. Each artifact is unique and not ordinarily
interchangeable. According to PAS 2, the cost formula that Entity A should use is
a. Specific identification
c. FIFO
b. Weighted Average
d. Any of these
65. Entity A acquires inventories and incurs the following costs:
Purchase price, gross of trade discount
100,000
Trade discount
20,000
Non-refundable purchase tax, not included
in the purchase price above
5,000
Freight-in (Transportation costs)
15,000
Commission to broker
2,000
10,000
Advertisement costs
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
100,000
Trade discount
(20,000)
Non-refundable purchase tax
5,000
Freight-in (Transportation costs)
15,000
Commission to broker
2,000
Total cost of inventories
102,000
66. 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. Exchange differences from translating foreign currency denominated cash
flows.
c. Acquisition of equipment through issuance of note payable.
d. Bank overdrafts that can be offset.
67. In the statement of cash flows of a non-financial institution, interest income
received is presented under
a. operating activities.
c. investing activities.
b. financing activities.
d. a or c
68. 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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69.
70.
71.
72.
73.
74.
c. Retrospectively starting from the earliest period presented
d. a or b
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. level of rounding-off of amounts in the financial statements.
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.
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
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
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.
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%
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.
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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
75. 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
c. 75,600
b. 90,000
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.
76. 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
₱8,000,000
Employees at the beginning of the year
8
Average employees during the year
7
Employees at the end of the year
6
If you are an alumnus of Entity A, how much bonus do you expect to receive?
a. 66,667
c. 57,143
b. 50,000
d. 0
Explanation: Only those who are currently employed as at year-end are entitled to
receive the bonus.
77. The transfer of resources from the government to an entity in exchange for past or
future compliance with certain conditions relating to the operating activities of the
entity is called
a. Government grants.
c. Government financial assistance.
b. Government assistance.
d. Government asset transfers.
78. 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
c. PAS 20
b. PAS 16
d. All of these are relevant
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lOMoARcPSD|18031191
79. 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. 1, 20x1
Dec. 31, 20x1
Jan. 6, 20x2
₱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
c. ₱5,200,000
b. ₱5,000,000
d. ₱4,700,000
Solution: $100,000 x ₱50 spot exchange rate at acquisition date = ₱5M
80. 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
c. 1,090,000
b. 1,045,000
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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