Final 21 December 2018, questions and answers PDF

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Chapter 6Financial AssetsQUIZ It is a report that is prepared for the purpose of bringing the balances of cash per records and per bank statement into agreement. a. bank reconciliation statement b. bank statement c. bank balance report d. all of these If the unadjusted balance of cash per bank state...

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Chapter 6 Financial Assets QUIZ 1. It is a report that is prepared for the purpose of bringing the balances of cash per records and per bank statement into agreement. a. bank reconciliation statement b. bank statement c. bank balance report d. all of these 2. If the unadjusted balance of cash per bank statement is greater than the adjusted balance and there no other reconciling items or errors, the difference would most certainly be caused by a a. Credit memo c. Deposits in transit b. Debit memo d. Outstanding checks 3. Which of the following does not qualify as cash equivalent for a government entity? a. Money market placement with an original term of 1 year but matures within 3 months after the reporting date. b. Money market placement with an original term of 3 months. c. Temporary investments in stocks that are expected to be sold within 1 month after the reporting date. d. All of these qualify as cash equivalents. 4. Entity A estimates a risk of loss on a recognized asset at 20%. However, Entity A can only accept a risk of 5%. Entity A then enters into a forward contract to offset the excess risk of 15%. This process is best described as a. Risk management b. Forward hedging c. Hedge accounting d. Process risk hedge 5. Which of the following may not be included as part of cash in the note disclosures? a. Post-dated checks drawn b. Unreplenished petty cash fund consisting of only the coins and currencies held as at the reporting date c. Issued checks that were cancelled because they became stale d. Treasury bills acquired 3 months before maturity date 6. The entry to record a disbursement from the petty cash fund is a.

b. c. d.

Expense accounts Cash-Modified Disbursement System (MDS), Regular Expense accounts Petty Cash Expense accounts Cash-Collecting Officers Expense accounts Cash-Treasury/Agency Deposit, Regular

xxx xxx xxx xxx xxx xxx xxx xxx

e.

None of these.

7. According to the GAM for NGAs, government entities shall prepare bank reconciliations a. on a daily basis b. on a monthly basis c. only at year-end d. only as needed 8. Which of the following statements is incorrect regarding the accounting for unreleased checks by a government entity? a. Unreleased checks are reverted back to cash. b. Unreleased checks are physically cancelled. c. The accounting procedures for unreleased checks prescribed under the GAM for NGAs apply only to commercial checks. d. At the start of the year, a reversing entry is made for the unreleased checks in the previous year. 9. All of the following may cause the cancellation of a check drawn by a government entity except a. The check becomes stale. b. Wrong spelling or unnecessary markings on the check. c. The check is dishonored. d. The check is prepared using a pen with red ink. 10. It is a hedge of the exposure to changes in fair value of a recognized asset or liability or an unrecognized firm commitment, or an identified portion of such an asset, liability or firm commitment, that is attributable to a particular risk and could affect surplus or deficit. a. Fair value hedge b. Hedge of a recognized asset or liability c. Cash flow hedge d. Hedge of a net investment in a foreign operation #2 Solution: Per bank, end.

100

Add: DIT Less: OC Adjusted balance

(20) 80

Chapter 7 Inventories

QUIZ 1. For government entities, inventories are assets (choose the incorrect one) a. Held for sale, consumption, distribution, or exchange. b. In the process of production for sale, consumption, distribution or exchange.

c. In the form of materials or supplies to be consumed in the production process or in the rendering of services. d. Used in the production of goods. D – PPE, e.g., factory equipment used in the production of goods. 2. Entity A, a government entity, purchases office supplies. Entity A would most likely record the purchase a. by debiting the Purchases account b. as Inventory Held for Consumption c. as Inventory Held for Distribution d. by debiting the Office Supplies Expense account 3. Who owns the goods in transit under FOB shipping point? a. buyer b. seller c. either a or b d. none 4. Which of the following documents is prepared when issuing semi-expendable property to end-users? a. Requisition and Issue Slip (RIS) b. Inventory Custodian Slip c. Supplies Ledger Card (SLC) d. Waste Materials Report 5. The carrying amount of inventory is not recognized as expense in this type of event or transaction. a. The inventory is sold. b. The inventory is used in the production of another asset. c. The inventory is consumed by end users in providing service. d. The inventory is written-off. 6. Which of the following is subsequently measured at the lower of cost and current replacement cost? a. Inventories held for sale b. Inventories held for distribution c. Inventories that are undergoing manufacturing process for completion as finished goods for sale. d. None of these. 7. The supply or property office of a government entity uses this to record and monitor the movements and balances of inventories. a. Stock Card b. Inventory Listing c. Stock Ledger Card d. Registry of Inventory 8. The following information is available from Entity A’s (a government entity) accounting records: Purchases ............................................ ₱530,000 Purchase discounts ................................... 10,000 Beginning inventory .................................. 160,000 Ending inventory ..................................... 215,000 Freight-out .......................................... 40,000

Entity A’s cost of sales is a. 465,000 b. 475,000 c. 505,000 d. 585,000 A Solution: beg. Purchases

Inventory 160,000 10,000 530,000 465,000 215,000

Purchase Disc. COGS (squeeze) end.

9. Entity A, a government entity and a manufacturer of military equipment, had inventories at the beginning and end of its current year as follows: Beginning End Raw materials 11,000 15,000 Work in process 20,000 24,000 Finished goods 12,500 9,000 During the year, the following costs and expenses were incurred: Raw materials purchased Direct labor cost Indirect factory labor Taxes and depreciation on factory building Taxes and depreciation on sales room and office Sales salaries Office salaries Utilities (60% applicable to factory, 20% to sales room, and 20% to office) Entity A's cost of sales for the year is a. 257,000 b. 260,500 c. 261,000 d. 269,500 B Solution: beg. Purchases

Raw materials 11,000 150,000 146,000 15,000

beg. Direct materials Direct labor Factory overhead: Indirect factory labor Taxes and depn. - factory bldg. Utilities (60% x 25,000)

DM end. WIP 20,000 146,000 60,000 30,000 10,000 15,000

257,000 24,000

COGM end.

150,000 60,000 30,000 10,000 7,500 20,000 12,000 25,000

beg. COGM

Finished goods 12,500 257,000 260,500 9,000

COGS end.

10. Entity A, a government entity, is a wholesaler of Product A, a non-unique good. The activity for Product A during July is shown below: Balance/ Date Transaction Units Cost July 1 Inventory 2,000 ₱36.00 7 Purchase 3,000 37.00 12 Sales 3,600 21 Purchase 5,000 37.88 22 Sales 3,800 29 Purchase 1,600 38.11 How much is the ending inventory on July 31? a. 153,400 b. 156,912 c. 158,736 d. Answer cannot be determined due to insufficient information C Solution: Date Transaction 1-Jul Inventory 7 Purchase Total 12 Sales 21 Purchase Total 22 Sales 29 Purchase Ending inventory

Units 2,000 3,000 5,000 (3,600) 5,000 6,400 (3,800) 1,600 4,200

Cost 36.00 37.00 36.60 36.60 37.88 37.60 37.60 38.11

Total cost 72,000 111,000 183,000 (131,760) 189,400 240,640 (142,880) 60,976 158,736

Chapter 8 Agriculture QUIZ 1. Which of the following is most likely an acceptable measurement for agricultural produce Initial measurement Subsequent measurement a. fair value less costs to sell cost b. fair value less costs to sell lower of cost and NRV

c. fair value lower of cost and FV less costs to sell d. fair value less costs to sell fair value less costs to sell 2. Biological assets and agricultural produce are recognized when all of the following are present except a. control b. probable future economic benefits c. probable future event d. fair value or cost can be measured reliably 3. Which of the following statements is incorrect regarding the accounting for biological assets? a. Agricultural land used in growing agricultural produce can never qualify for recognition as biological asset. b. Biological asset is living animal or plant. c. Agricultural produce is harvested product from a biological asset before any processing. d. PAS 41 and the GAM for NGAs have the same accounting treatment for consumable and bearer plants. D – Under PAS 41, bearer plants are classified as PPE. Use the following information for the next two questions: On January 1, 20x1, the biological assets of Entity A consist of two 1-year old animals with fair value less costs to sell of ₱1,000 each. The following transactions occurred during the period: a. On July 1, 20x1, two 1-year old animals are acquired for ₱1,100 each, equal to the FVLCS on this date. b. On October 1, 20x1, two animals are born. The FVLCS of a newborn on this date is ₱500. The FVLCS on December 31, 20x1 are as follows: Age new born 3 mos. old 1 yr. old 1.5 yr. old 2 yrs. old

FVLCS ₱600 ₱800 ₱1,200 ₱1,500 ₱2,000

4. How much is change in FVLCS due to price change? a. 400 b. 1,200 c. 800 d. 3,600 Solution: Formula: (FVLCS, end. Age beg.) - (FVLCS, beg. Age beg.) x Qty.

Asset Group From beg. (1 yr.; 1 yr.) Purchased on July 1 (1 yr.; 1 yr.) Born on Oct. 1 (0; 0)

(₱1,200 - ₱1,000) x 2 (₱1,200 - ₱1,100) x 2 (₱600 - ₱500) x 2

Change in FVLCS 400 200 200

Change in FVLCS due to Price Change

800

5. How much is change in FVLCS due to physical change? a. 1,200 b. 2,000 c. 800 d. 3,600 Solution: Formula: (FVLCS, end. Age end.) - (FVLCS, end. Age beg.) x Qty. + FVLCS of newborn at date of birth

Asset Group From beg. (2yrs.; 1yr.) Purchased on July 1 (1.5yrs.; 1yr.) Born on Dec. 31 (3 mos.; 0 yr.) FVLCS of new born on Dec. 31 (₱500 x 2)

(₱2,000 - ₱1,200) x 2 (₱1,500 - ₱1,200) x 2 (₱800 - ₱600) x 2

Change in FVLCS 1,600 600 400 1,000

Change in FVLCS due to Physical Change

6. Which of the following is considered a biological asset? a. Carcass b. Ham c. Pig d. Piggy bank 7. Which of the following is considered an agricultural produce? a. eggs to be hatched into chicks b. condensed milk c. dairy cow d. felled trees 8. Which of the following is considered an inventory rather than agricultural produce at the point of harvest? a. Harvested cotton b. Harvested cane c. Tea d. Picked leaves 9. Which of the following is considered an agricultural activity under PAS 41? a. fishing in the open seas b. illegal logging c. floriculture d. farming in the computer or cellphone

3,600

10. Which of the following is considered a bearer plant? a. Palm oil b. Corn oil c. Baby oil d. Oil palm

Chapter 9 Investment Property

QUIZ 1. Which of the following qualifies for classification as an investment property? a. Property that is currently being developed for future use as investment property b. Investment property that is currently being developed for future use as owner-occupied property c. Property that is leased out to another entity under a finance lease d. Building being rented from another entity under an operating lease and leased out under various operating leases. 2. Select the correct statement. a. A leasing company should treat all assets used in providing lease services as investment property. b. Investment properties that are to be disposed of without further development are treated as investment property until they are derecognized. c. All investment properties held for capital appreciation will be classified as held for sale in the long run. d. Investment properties being redeveloped as investment properties on behalf of third parties are investment properties. 3. Select the incorrect statement regarding impairments of investment properties. a. Investment properties are subject to impairment. b. Impairments of investment properties of government entities are recognized in surplus or deficit. c. 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. d. Impairment losses on investment properties measured under the cost model are never reversed. 4. Derecognition of investment property is not required when a. it becomes the subject of an operating lease. b. it is sold. c. the property is assessed to have no future economic benefits. d. it becomes the subject of a finance lease. 5. Which of the following assets may be classified as investment property? a. Land held for long-term capital appreciation b. Equipment held for lease c. Intangible asset held for lease d. Building held for lease e. a and d only

6. Which of the following properties falls under the definition of investment property? I. Land held for long-term capital appreciation II. Property occupied by an employee paying market rent III. Property being constructed on behalf of third parties IV. A building owned by an entity and leased out under an operating lease a. I, II b. II, IV c. I, IV d. II, III, IV 7. Which of the following measurement bases is acceptable for the subsequent measurement of an investment property held by a government entity? a. fair value b. fair value less costs to sell c. cost less accumulated impairment losses d. none, all of these are unacceptable. C – Land that is classified as investment property is subsequently measured at cost less accumulated impairment losses. 8. The distinguishing characteristic that identifies an investment property from the other assets of an entity is? a. Changes in fair value of the asset is recognized in surplus or deficit. b. The property does not derive cash flows separate from the other assets of the entity. c. Generates separately identifiable cash flows from the other assets of the entity. d. Earns rental as part of the ordinary operations of the entity. 9. Which of the following statements is correct regarding investment property? a. An entity may classify assets other than land and/or building as investment property. b. During the period, Entity A, a government entity, reclassifies a building that was previously used as office space to investment property. Entity A will recognize a gain if the fair value of the asset exceeds its carrying amount on the date of transfer. c. When a government entity applies the fair value model to account for its investment properties subsequent to initial recognition, changes in fair values are recognized in surplus or deficit rather than a direct adjustment to equity. d. Transfers to or from investment property shall be made when, and only when, there is a change in use. 10. Under this model, investment properties are measured at cost less accumulated depreciation and accumulated impairment losses. a. Impairment loss model b. Cost model c. Fair value model d. Gorgeous model

Chapter 10

Property, Plant and Equipment QUIZ 1. All of the following are directly attributable costs in the acquisition or construction of an item of PPE except a. Costs of employee benefits arising directly from the construction or acquisition of PPE b. Costs of site preparation c. Broker’s commission d. Cost of staff training 2. All of the following are expensed outright and do not form part of the cost of an item of PPE except a. Installation and assembly costs after the asset is in the location and condition intended by management. b. Professional fees incurred in the training of staff who will be operating the machinery acquired. c. Administration and other general overhead costs. d. Insurance costs while a purchased equipment is in-transit. 3. Which of the following is included in the initial cost of an item of PPE? a. Trade discounts b. Cash discounts not taken c. Present value of the estimates of decommissioning and restoration costs d. Refundable purchase taxes 4. According to the GAM for NGAs, the costs incurred during the construction of an asset are a. expensed in the period incurred. b. capitalized in the building account or other account. c. capitalized in a construction in progress account. d. initially recorded in the registries and recorded in the journals only when the construction is complete and the asset is turned over and accepted by the government entity. 5. Government entities recognize depreciation a. on a weekly basis. b. on a monthly basis. c. only at year-end. d. any of these as a matter of accounting policy choice. Use the following information for the next two questions: Entity A exchanged equipment with Entity B. Pertinent data are shown below: Entity A Entity B Carrying amount 85,000 130,000 Fair value 95,000 115,000 Cash paid by Entity A to Entity B 15,000 6. If the exchange has commercial substance, how much is the initial measurement of the equipment received by Entity B? a. 95,000 b. 115,000 c. 100,000

d. 130,000 (115,000 - 15,000) = 100,000 7. If the exchange has commercial substance, how much is the gain (loss) recognized by Entity B in the exchange? a. 10,000 b. (15,000) c. (10,000) d. 15,000 115,000 fair value of asset given up – 130,000 carrying amount = (15,000) loss 8. Entity A, a government entity, acquires an equipment on December 16, 20x1. Which of the following is correct? a. The equipment will not be depreciated in the current year. b. The equipment will be assigned a residual value of 15%. c. The equipment will be classified as inventory if it has a cost of less than ₱25,000. d. The equipment will only be depreciated for 2 weeks in the current year. Use the following information for the next two questions: At year-end, Entity A determines an indication that an equipment with a carrying amount of ₱400,000 is impaired. This equipment was acquired 5 years earlier and was originally estimated to have a useful life of 10 years and a 5% residual value. Entity A determines the following information: Fair value less costs to sell…………….₱320,000 Replacement cost……………………….₱700,000 9. Assume the indication of impairment is physical damage to the equipment. Entity A estimates that it would cost ₱10,000 to restore the equipment’s service potential to the level before the physical damage. How much is the impairment loss under the Restoration Cost Approach? a. 42,667 c. 50,000 b. 47,500 d. 42,500 Solution: Replacement cost Accumulated depreciation - (700K x 95% x 5/10) Depreciated Replacement Cost – Value in use Depreciated replacement cost Less: Restoration cost Value in use Recoverable service amount (VIU - higher) Carrying amount Impairment loss

700,000 (332,500) 367,500 367,500 (10,000) 357,500 357,500 (400,000) (42,500)

10. Assume the indication of impairment is a significant decline in the expected output of the equipment, which Entity A estimates to be 10%. How much is the impairment loss under the Service Units Approach? a. 62,667 c. 50,000

b. 62,500

d. 69,250

Depreciated replacement cost (see solution above) Multiply by: Value in use

367,500 90% 330,750

Recoverable service amount (VIU - higher) Carrying amount Impairment loss

330,750 (400,000) (69,250)

Chapter 11 Intangible Assets QUIZ 1. According to the GAM for NGAs, to qualify as intangible asset, an item must possess all of the following elements except a. Identifiability b. Held for distribution c. Control over a resource d. Existence of future economic benefits or service potential 2. According to the GAM for NGAs, an intangible asset is identifiable when it a. is separable, i.e., capable of being separated and divided from the entity and sold, transferred, licensed, rented, or exchanged, either individually or togeth...