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65 - Government Accounting
Accounting for Special Transactions (Mindanao State University – General Santos City)
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65.Which of the following statements is correct?
If it is not clear whether an expenditure is a research or a development cost, it is treated
as development cost.
The development costs of an internally generate intangible asset may be capitalized if
certain conditions are met.
A government entity does not amortize intangible assets.
Government entities amortize all of their intangible assets over a period of 2 to 10 years,
unless a more appropriate estimate of useful life is available.
Government entities normally assign their intangible assets a residual value of 5% of cost
22.Entity A, a government entity, records purchases of items of inventory
under the “Purchases” account and freight-in under the “Freight-in” account.
Which of the following statements is correct? *
Entity A is compliant with the requirements of GAM for NGAs, but needs to make a note
disclosure of the accounting policy choice.
Entity A uses the periodic inventory system and this is okay. There are no other
requirements from Entity A.
Entity A is not compliant with the requirements of GAM for NGAs.
Entity A is not compliant with the requirements of GAM for NGAs. This can be rectified by
note disclosure.
54.On January 2, 20X5, Entity A purchased a franchise with a useful life of
ten years for ₱50,000. An additional franchise fee of 3% of franchise
operation revenues must be paid each year to the franchisor. Revenues from
franchise operations amounted to ₱400,000 during 20X5. In its December
31, 20X5, statement of financial position, what amount should Entity A report
as an intangible asset-franchise?
33,000
43,800
45,000
50,000
Option 5
56.Which of the following statement is incorrect? *
Government entities and business entities use the term “obligation” or the phrase
“incurrence of obligation” similarly.
Option 5
The various registries maintained by government entities primarily serve as internal
control for controlling and monitoring the conformance of actual results with the approved
budget.
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Technically, only the Journals and Ledgers are considered accounting records; the
Registries are budget records.
Separate accounting records and budget registries are maintained for each fund cluster.
1.According to P.D. No. 1445, government personnel entrusted with the
custody of government resources (choose the incorrect statement) *
are directly responsible to the public for the efficient and effective utilization therefor.
are directly responsible to the head of the agency for the efficient and effective utilization
therefor.
are responsible for the safekeeping therefor in accordance with the law.
must be properly bonded.
16.These refer to fees paid for the use of the entity’s assets such as
trademarks, patents, software, and copyrights. *
Option 5
Any of these
Lease expense
Royalties
Interest
28.Entity A exchanges an item of PPE with Entity B. Assuming the exchange
lacks commercial substance, how should Entity A measure the equipment
received from the exchange? *
at
at
at
at
the
the
the
the
carrying amount of the asset given up, plus cash paid or minus cash received
fair value of the asset received
fair value of the asset given up
carrying amount of the asset given up
20.This consolidates all issued Requisition and Issue Slips (RIS) for
inventories and is used in updating both the Stock Card and the Stock
Ledger Card *
Report
Report
Report
Report
of Accountability for Accountable Forms
on Inventory Subsidiary Ledgers (RISL)
of Supplies and Materials Issued (RSMI)
on the Physical Count of Inventories
52.Entity A started construction of a new office building on January 1, 20X4,
and moved into the finished building on July 1, 20X5. Of the building's
₱2,500,000 total cost, ₱2,000,000 was incurred in 20X4 evenly throughout
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the year. Entity A 's incremental borrowing rate was 12% throughout 20X4,
and the total amount of interest incurred by Entity A during 20X4 was
₱102,000. What amount should Entity A report as capitalized interest at
December 31, 20X4? *
120,000
102,000
240,000
150,000
Option 5
18.Which of the following items are classified by a government entity as
Inventory Held for Consumption? *
Minor tools and equipment costing less than ₱15,000.
Office supplies and similar materials.
Raw materials that are consumed in the production process.
Rice and other welfare goods held for distribution
34.Which of the following statements is incorrect regarding investment
property? *
An investment property generates, or has the ability to generate, separately identifiable
cash flows from the other assets of the entity.
During the period, Entity A, a government entity, reclassifies a building that was
previously used as office space to investment property. On the date of transfer, the
building has a carrying amount of ₱1M and a fair value of ₱1.2M. Entity A will recognize a
gain on transfer of ₱.2M.
Transfers to or from investment property shall be made when, and only when, there is a
change in use.
When a government entity applies the cost model to account for its investment property
subsequent to initial recognition, changes in fair values may affect the entity’s
assessment of the property’s impairment.
12.The issuer of a financial instrument shall classify the instrument, or its
component parts, on initial recognition as a *
equity instrument
any of these
financial liability
Option 5
financial asset
46.The third step in the Budget Preparation phase of the Budget Cycle is *
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President’s Enactment
Budget Call
Budget Hearings
President’s Budget
10.Entity A, a government entity, acquires investment in bonds for ₱100,000,
equal to face amount, and incurs transaction costs of ₱10,000. At year-end,
the fair value of the investment is ₱120,000. If the investment is classified
under the held to maturity category, which of the following carrying amounts
at the end of Year 1 would most likely not be questioned by the COA
auditor? *
120,000
Option 5
100,000
Answer cannot be determined due to insufficient data, like nominal interest rate, effective
interest rate, maturity, contractual terms, present value factor, amortization table, name of
auditor, etc.
108,382
42.The receipt of a disbursement authority in the form of Non-Cash
Availment Authority (NCAA) is debited to which of the following accounts? *
Cash-Modified Disbursement System (MDS), Regular
Cash-Constructive Income Remittance
Accounts Payable
Option 5
Subsidy from National Government
48.When does a government entity recognize dividend income? *
on a time proportion basis that takes into account the effective yield on the asset
when the significant risks and rewards are transferred
when the entity’s right to receive payment is established
when earned in accordance with the substance of the relevant agreement
23.A government entity’s biological asset has fair values less costs to sell of
₱100,000 and ₱120,000 at the beginning and end of the period, respectively.
The year-end adjusting entry will most likely include *
a
a
a
a
credit to unrealized gain of ₱20,000 to be recognized in surplus or deficit
credit to unrealized gain of ₱20,000 to be recognized directly in equity
debit to unrealized gain of ₱20,000 to be recognized in profit or loss
credit to unrealized gain of ₱20,000 to be recognized in profit or loss
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9.Which of the following is an indication of impairment of investment property
from internal sources? *
Significant changes with an adverse effect on the entity have taken place during the
period, or will take place in the near future, in the technological, market, economic, or
legal environment in which the entity operates, or in the market to which an asset is
dedicated.
Option 5
During the period, an asset’s market value has declined significantly more than would be
expected as a result of the passage of time or normal use.
Market interest rates or other market rates of return on investments have increased
during the period, and those increases are likely to affect the discount rate used in
calculating an asset’s value in use and decrease the asset’s recoverable amount
materially.
Significant changes with an adverse effect on the entity have taken place during the
period, or are expected to take place in the near future, in the extent to which, or the
manner in which, an asset is used or is expected to be used.
11.If the unadjusted balance of cash per bank statement is less than the
adjusted balance and there no other reconciling items or errors, the
difference is most likely caused by *
Debit memo
Outstanding checks
Credit memo
Option 5
Deposits in transit
41.No journal entry is made for a disbursement under this mode of
disbursement. *
eMDS
Option 5
CPC
None of these
LDDAP-ADA
55.Which of the following statement is incorrect? *
Both the ORS and RAOD are updated each time an obligation is incurred, a payable is
recorded for the obligation incurred, and disbursements are made to settle the recorded
payables.
Option 6
The GAM for NGAs requires the Collecting Officer to issue an official receipt to
acknowledge the receipt of the Notice of Cash Allocation.
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A check disbursement is normally recorded as a credit to the “Cash-Modified
Disbursement System (MDS), Regular” account.
The entry to record the reversion of unused NCA at the end of the period is the exact
opposite of the entry used to record the receipt of NCA.
At the end of each year, an adjustment is made to revert any unused NCA of a
government entity.
40.It is the expenditure authority derived from appropriation laws,
government ordinances, and other decisions related to the anticipated
revenue or receipts for the budgetary period. *
Approved Budget
General Appropriations Bill
Allotment
Notice of Cash Allocation
43.Which of the following transactions is not recorded through a credit to the
“Cash-Modified Disbursement System (MDS), Regular” account? *
Granting of cash advance for payroll.
Constructive remittance of taxes withheld to the BIR.
Reversion of unused NCA at the end of the period.
Payment of accounts payable wherein the tax portion is withheld.
29.Entity A receives a donation of scientific equipment from an international
body. If no condition is attached to the donation, how should entity A account
for the donation? *
Recognize it immediately as income measured at the equipment’s fair value at the
acquisition date.
Initially recognized it as a liability measured at the equipment’s fair value at the
acquisition date.
Recognize it as income when the expenses intended to be compensated by the donation
are incurred.
b and c.
50.On January 1, 20x1, Entity A acquires 5-year, 5%, ₱1,000,000 face
amount bonds for ₱957,876 and classifies them as available for sale
financial assets. The issuer pays annual interest every December 31. The
effective interest rate is 6%. On December 31, 20x1, the bonds have a fair
value of ₱980,000. Q.How much is the carrying amount of the bonds on
Entity A’s December 31, 20x1 statement of financial position? *
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973,270
980,000
965,349
957,867
37.Which of the following statements is incorrect? *
A government entity acquires an intangible asset with indefinite useful life for ₱100.
Assuming the entity uses the maximum amortization period for intangible assets under
the GAM for NGAs, the appropriate annual amortization expense on the intangible asset
is ₱0.
The amortization of an intangible asset is credited directly to the intangible asset
account, according to the GAM for NGAs.
For subsequent measurement, government entities classify intangible assets into those
with finite and indefinite useful lives, similar to business entities.
Subsequent expenditures on recognized intangible assets are generally expensed unless
it is clear that the expenditures meet the recognition criteria for intangible assets.
31.Which of the following statements is correct? *
The purchases account is used in a periodic inventory system but not in a perpetual
inventory system.
The classification of inventories as held for distribution at no charge or at a minimal
charge is not uncommon to business entities.
Option 5
Government entities sometimes record the acquisition of inventories under the purchases
account.
Raw materials and work-in-process inventories are applicable only for business entities.
63.The receipt of an allotment is recorded by a government entity in the *
ORS
a and c
RAPAL
RAOD
35.Which of the following is included in the initial cost of an item of PPE? *
Refundable purchase taxes
Option 5
Cash discounts not taken
Nonrefundable purchase taxes
Cash discounts taken
2.The coverage of the GAM for NGAs includes all of the following, except: *
basic concepts used in preparing other financial reports as may be required by laws.
Option 5
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basic concepts used in auditing the accounts and financial reports of government entities.
basic concepts used in reporting of budgetary information.
basic concepts used in preparing general purpose financial statements in accordance
with the PPSAS.
45.All of the above involves the physical transfer of cash except *
Option 5
Remittance
Remittance
Remittance
Remittance
of collections of revenue to the National Treasury
of excess cash advance by an officer
of taxes through the Tax Remittance Advice
of employee contributions to GSIS, Pag-IBIG and PhilHealth
26.Which of the following may qualify as investment property? *
Building leased from another entity under an operating lease and is leased out to various
tenants under sub-operating leases.
An agricultural land purchased for appreciation purposes
Equipment purchased with an indeterminate purpose
Machineries that are held for lease
25.Which of the following statements is correct regarding investment
properties? *
A commencement of owner-occupation is a change in use that triggers a transfer from
PPE to investment property classification.
A decision to sell an investment property is considered a change in use under the GAM
for NGAs.
A building being rented out to the entity’s employees who are paying rentals at market
rates is not an investment property.
All assets classified as investment property shall be depreciated.
53.Which of the following statements is correct? *
Entity A acquires equipment from a supplier, on account. A lender settles the account of
Entity A by directly paying the supplier the proceeds of a loan payable that is recorded in
the BTr’s books. This transaction is called Cash Disbursement Ceiling (CDC).
All disbursements shall be made through Disbursement Vouchers (DVs) or Payroll which
are approved by the Head of the Requisitioning Unit.
Option 6
The Non-Cash Availment Authority (NCAA) is a disbursement authority issued to
government agencies with foreign service posts.
No additional cash advance shall be given to any official or employee unless the previous
cash advance given to him is first liquidated.
Government entities are not allowed by law to make purchases using credit card.
59.Which of the following statements is incorrect? *
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The main source of revenue for the government is taxes.
Taxes are compulsory payments, imposed on persons, properties or activities, intended
to provide revenue to the government. Taxes include fees, fines and penalties.
According to the GAM for NGAs, the receipt of concessionary loans by government
entities may give rise to revenue recognition.
The constructive remittance of taxes withheld through the TRA gives rise to the
recognition of revenue.
4.Under responsibility accounting, non-controllable costs are *
costs incurred indirectly and allocated to a responsibility level.
ignored when general purpose financial statements are prepared.
costs that are uncertain of timing and amount.
all of these
Option 5
62.Which of the following is recorded in the Obligation Request and Status
(ORS)? *
Receipt of Notice of Cash Allocation from the DBM
Receipt of notice of appropriation
Receipt of allotment from the DBM
Entering into employment contracts with employees
Option 5
24Entity A acquires a biological asset for ₱100, equal to fair value, and
incurs transaction cost of ₱10 on the purchase. The costs to sell at the
acquisition date are ₱20. Which of the following statements is correct? *
Entity A recognizes
Entity A recognizes
Entity A recognizes
Entity A recognizes
a loss of ₱30 on the initial recognition of the purchased asset.
a gain of ₱20 on the initial recognition of the purchased ass
the purchased asset at ₱90.
the purchased asset at ₱100.
3.It refers to the authority issued by an agency’s Central Office to its regional
and operating units to cover the latter’s cash requirements. *
Notice of Transfer of Allocation
Option 5
Cash Disbursement Ceiling
Notice of Cash Allocation
Non-Cash Availment Authority
44.This account is credited when government entities remit collections to the
National Treasury. *
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Cash-Modified Disbursement System (MDS), Regular
Cash-Treasury/Agency Deposit, Regular
Cash-Collecting Officers
Cash-Tax Remittance Advice
47.Which of the following is not one of the objects of expenditures under the
GAM for NGAs? *
PS
All of these are objects of expenditures under the GAM for NGAs.
MOOE
CF
Option 5
32.Select the correct statement. *
Investment properties that are to be disposed of without further development are treated
as investment property until they are derecognized.
Investment properties being redeveloped as investment properties on behalf of third
parties are investment properties.
All investment properties held for capital appreciation will be classified as held for sale in
the long run.
Entity A’s primary line of business is leasing. Entity A shall treat all assets used in
providing lease services as investment propert
39.According to the GAM for NGAs, deliberately overstating liabilities is *
prohibited based on the concept of faithful representation.
prohibited based on the concepts of relevance and materiality
not prohibited under the prudence concept
allowed because only the overstatement of assets is not acceptable
38.The GAM for NGAs is promulgated by the COA under the authority
conferred to it by the *
Option 5
Philippine Accounting Standards
Philippine Accountancy Act
State Audit Code (P.D. No. 1445)
Philippine Constitution
64.The entry to record the receipt of Notice of Cash Allocation (NCA) by a
government entity is: *
No journal entry. The event is recorded only in the Registries.
(Debit) Cash-Collecting Officer; (Credit) Subsidy from National Government
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(Debit) Cash-Modified Disbursement System (MDS), Regular; (Credit) Subsidy from
National Government
(Debit) Cash-Modified Disbursement System (MDS), Regular; (Credit) Accumulated
Surplus (Deficit)
51.Entity A purchased a machine costing ₱125,000 for its manufacturing
operations and paid shipping costs of ₱20,000. Entity A spent an additional
₱10,000 testing and preparing the machine for use. What amount should
Entity A record as the cost of the machine? *
155,000
145,000
135,000
125,000
33.Select the incorrect statement regarding impairments of investment
properties. *
Option 5
Impairments of investment properties of government entities are recognized in surplus or
deficit.
Impairment losses on investment properties measured under the cost model are never
reversed.
Compensation from third parties for investment property that was impaired or lost shall
be recognized in surplus or deficit when the compensation becomes receivable and not
offset with the amount of loss.
Investment properties are subject to impairment.
61.Which of the following statements is correct? *
The only valid modes of disbursement for a government entity are through cash or check.
Under the Advice to Debit Account (ADA) mode of disbursement, payments from a
government entity are directly credited to the bank accounts of the payees through bank
transfers.
According to the GAM for NGAs, the Advice to Debit Account (ADA) mode of
disbursement can be used only if the payee maintains an account in the same bank
where the government entity maintains its account.
Disbursements through the Cash Disbursement Ceiling (CDC) results to the recognition
of a loan payable in the books of accounts of the BTr.
All disbursements require prior certifications to establish their validity and legality. A
certification for fictitious obligation is void and results to civil liability by the certifying
officials, but not criminal liability.
27.The initial testing costs incurred on an item of property, plant and
equipment are
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capitalized.
not capitalized.
capitalized after deducting the disposal proceeds of samples generated during testing.
Any of these as an accounting policy choice.
Option 5
60.It is an authorization issued by the DBM to NGAs to incur obligations. It is
also referred to as Obligational Authority. *
Budget call
Budget hearings
Appropriation
Allotment
Option 5
14.The receipt of Notice of Cash Allocation is recorded in the *
None of these
Books of accounts (Journal and Ledger)
a and b
Registry of Allotments and Notice of Cash Allocation (RANCA)
6. Which of the following best describes “Not yet due and demandable”
obligations *
Obligations that are long-term and, hence, do not require payment within 12 months from
the reporting date.
Obligations already incurred and recorded in the registries but not yet in the accounting
books because the accounting recognition criteria for liabilities are not yet met.
Obligations where the obligee provided the entity with a grace period not to demand
immediate payment within 1 year or longer.
Obligations that are not yet incurred but are expected to be incurred in the future
21.Relief and other welfare goods held for distribution are most likely to be
classified by a government entity as *
Inventory Held for Distribution
None of these
Inventory Held for Consumption
Semi-Expendable Property
19.Under this inventory system, purchases, sales, and other transactions
affecting inventory are recorded in the “inventory” and “cost of sales”
accounts, as appropriate. Moreover, stock cards and stock ledgers are
maintained. *
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Periodic inventory system
Weighted average
Perpetual inventory system
Specific identification
5.Which of the following is not one the necessary closing entries of a
government entity? *
Closing of income and expense accounts to the “Revenue and Expense Summary”
account.
Closing of the net balance of “Revenue and Expense Summary” account to the “Subsidy
from National Government” account.
Closing of “Subsidy from National Government” account to the “Revenue and Expense
Summary” account.
Closing of “Cash-Treasury/Agency Deposit, Regular” account to the “Accumulated
Surplus/(Deficit)” account.
13.According to the PPSAS, a financial asset is recognized when *
c and a
there is reasonable certainty that the asset will result to inflow of resources embodying
economic benefits to the entity.
an entity becomes a party to the contractual provisions of the instrument.
its cost can be measured with sufficient reliability.
7.Recording in the Obligation Request and Status (ORS) is made when *
obligations are incurred
liabilities for the obligations are recognized in the books of accounts
the recognized liabilities are settled
all of these
36.A government entity records a transaction by debiting an account with a
Revised Chart of Account (RCA) Code that starts with “1” and crediting an
account with an RCA Code that starts with “4.” This transaction is most likely
a*
receipt of NCA.
receipt of inter-agency fund transfer.
remittance of collection to the National Treasury.
payment of accounts payable.
17.Entity A is a government hospital. Entity A would most likely recognize
revenue from services rendered to a patient *
when the fee is collected.
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when the services are rendered and the patient is billed.
on a straight line basis.
Option 5
by reference to the stage of completion at the reporting date.
8.Which of the following statements best describes the various Registries
maintained by government entities? *
The Registries serve as ledgers to classify the effects of accountable events on the
financial statement elements. This allows the reconciliation of assets, liabilities, equity,
revenues and expenses in the general purpose financial statements of government
entities.
All of these.
The Registries primarily serve as an internal control for controlling and monitoring the
conformance of actual results with the approved budget.
The Registries support the Journals and Ledgers in a way that they authenticate the
validity and legality of government transactions. This enhances the transparency in the
financial reporting of the government.
15.The receipt of subsidy from the national government or other government
agencies *
gives rise to a liability but not revenue
does not give rise to the recognition of revenue
gives rise to the recognition of revenue
b and c
58.For government entities, the capitalization threshold for PPE is *
more than ₱15,000
not less than ₱25,000
₱15,000 or more
at least ₱5,000
Option 5
57.Which of the following statements is correct? *
When cash flows are deferred, the fair value of the consideration receivable is its present
value.
According to the GAM for NGAs, revenue from exchange transactions are measured at
the amount of cash received.
Payments to government entities in the form of checks are not allowed.
All revenues shall be remitted to the BTr and included in the Special Fund, unless
another law specifically requires otherwise.
Revenues of a government entity arise from exchange transactions only.
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30.Transactions and events are recognized in the accounting records and
recognized in the financial statements of the periods to which they relate. *
Accrual basis of accounting
Recognition
Time value of money
Option 5
Going concern
49.Government expenditures classified as MOOE are those that *
pertain to capitalizable expenditures
pertain to various operating expenses other than employee benefits and financial
expenses
pertain to finance costs
pertain to all types of employee benefits
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