NAME: Date:
Professor: Section: Score:
Auditing Problem – Correl 2
Exercise 1
1. The standard that addresses the accounting for revenues is
a. PFRS 16.
b. PFRS 18.
c. PFRS 5.
d. PFRS 15.
2. The objective of PAS 1 Presentation of Financial Statements is
a. to provide the basic principles in the presentation of general purpose financial
statements to improve comparability.
b. to provide the basic principles in the presentation of general and special
purpose financial statements to improve comparability.
c. to provide the basic principles in the presentation of general purpose financial
statements to improve consistency.
d. all of these
3. The heading of a financial statement most likely will not include
a. the name of the reporting entity.
b. the title of the financial statement.
c. the date of the financial statement.
d. the name(s) of the business owner(s).
4. According to PAS 1, an asset shall be classified as current when it satisfies any of
the following criteria, except
a. it is expected to be realized in, or is intended for sale or consumption in, the
entity’s normal operating cycle
b. it is held primarily for the purpose of being traded
c. it is expected to be realized within twelve months after the balance sheet date
d. it is cash or a cash equivalent that is restricted
5. A liability shall be classified as current when it satisfies any of the following
criteria, except
a. it is expected to be settled in the entity’s normal operating cycle
b. it is held primarily for the purpose of being traded
c. it is due to be settled within twelve months after the balance sheet date
d. the entity has an unconditional right to defer settlement of the liability for at
least twelve months after the balance sheet date.
6. If an entity expects, and has the discretion, to refinance or roll over an obligation
for at least twelve months after the balance sheet date under an existing loan
facility, it classifies the obligation as non-current,
a. even if it would otherwise be due within a shorter period.
b. even if the original term was for a period longer than twelve months
c. even if an agreement to refinance, or to reschedule payments, on a long-term
basis is completed after the reporting period and before the financial statements
are authorized for issue
d. choices b and c
7. When an entity breaches an undertaking under a long-term loan agreement on or
before the end of the reporting period with the effect that the liability becomes
payable on demand, (choose the incorrect statement)
a. The liability is classified as current, even if the lender has agreed, after the
balance sheet date and before the authorization of the financial statements for
issue, not to demand payment as a consequence of the breach.
b. The liability is classified as current because, at the balance sheet date, the
entity does not have an unconditional right to defer its settlement for at least
twelve months after that date.
c. The liability is classified as non-current, even if the lender has agreed, after
the balance sheet date and before the authorization of the financial statements
for issue, not to demand payment as a consequence of the breach.
d. The liability is normally classified as current; however, the liability is classified
as non-current if the lender agreed by the balance sheet date to provide a
period of grace ending at least twelve months after the balance sheet date,
within which the entity can rectify the breach and during that period the lender
cannot demand immediate repayment.
8. Material Omissions or misstatements of items are material if they could,
individually or collectively; influence the economic decisions of users taken on the
basis of the financial statements. Materiality depends on
a. the peso amount and degree of financial consequence of the omission or
misstatement judged in the surrounding circumstances
b. the size and peso amount of the omission or misstatement judged in the
surrounding circumstances
c. the peso amount and nature of the omission but not the misstatement judged in
the surrounding circumstances
d. the size and nature of the omission or misstatement judged in the surrounding
circumstances
9. In the extremely rare circumstances in which management concludes that
compliance with a requirement in a Standard or an Interpretation would be so
misleading that it would conflict with the objective of financial statements set out in
the Framework, the entity shall depart from that requirement in the manner set
under PAS 1. When an entity departs from a requirement of a Standard or an
Interpretation, it shall disclose: (choose the incorrect statement)
a. that management has concluded that the financial statements present fairly the
entity’s financial position, financial performance and cash flows;
b. that it has complied with applicable Standards and Interpretations, except that
it has departed from a particular requirement to achieve a fair presentation;
c. that it has complied with other applicable standards other than those issued by
FRSC or IASB and the description of those accounting standards which the
entity has complied to.
d. the title of the Standard or Interpretation from which the entity has departed,
the nature of the departure, including the treatment that the Standard or
Interpretation would require, the reason why that treatment would be so
misleading in the circumstances that it would conflict with the objective of
financial statements set out in the Framework, and the treatment adopted; and
e. for each period presented, the financial impact of the departure on each item in
the financial statements that would have been reported in complying with the
requirement.
10. Identify the incorrect statement.
a. When an entity has departed from a requirement of a Standard or an
Interpretation in a prior period, and that departure affects the amounts
recognized in the financial statements for the current period, it shall disclose
the (a) title of the Standard or Interpretation from which the entity has departed
and the (b) impact of such departure.
b. In the extremely rare circumstances in which management concludes that
compliance with a requirement in a Standard or an Interpretation would be so
misleading that it would conflict with the objective of financial statements set
out in the Framework, but the relevant regulatory framework prohibits
departure from the requirement, the entity shall, to the maximum extent
possible, reduce the perceived misleading aspects of compliance by disclosing:
(a) the title of the Standard or Interpretation in question and (b) for each period
presented, the adjustments to each item in the financial statements that
management has concluded would be necessary to achieve a fair presentation.
c. Financial statements shall be prepared on a going concern basis unless
management either intends to liquidate the entity or to cease trading, or has no
realistic alternative but to do so.
d. PAS 1 requires an entity preparing financial statements, to make an assessment
of the entity’s ability to continue as a going concern. In assessing whether the
going concern assumption is appropriate, management takes into account all
available information about the future, which is at least, but is not limited to,
five years from the balance sheet date.
11. Identify the incorrect statement.
a. The final stage in the process of aggregation and classification is the
presentation of condensed and classified data, which form line items on the face
of the financial statements.
b. PAS 1 sometimes uses the term ‘disclosure’ in a broad sense, encompassing
items presented on the face of the balance sheet, statement of profit or loss and
other comprehensive income, statement of changes in equity and cash flow
statement, as well as in the notes.
c. Applying the concept of materiality means that a specific disclosure requirement
in a Standard or an Interpretation need not be satisfied if the information is not
material.
d. An entity shall prepare its financial statements, including cash flow information,
using the accrual basis of accounting.
e. PAS 1 requires an entity presenting its current year financial statements to also
present its financial statements for the previous year.
12. The ledger of SCHOLIAST COMMENTATOR Co. as of December 31, 20x1 includes
the following:
Assets
10,00
Cash 0
Trade accounts receivable (net of ₱10,000 credit balance 40,00
in accounts) 0
80,00
Held for trading securities 0
30,00
Financial assets designated at FVPL 0
70,00
Investment in equity securities at FVOCI 0
Investment in bonds measured at amortized cost (due in 3 60,00
years) 0
Prepaid assets 10,00
0
12,00
Deferred tax asset (expected to reverse in 20x2) 0
36,00
Investment in Associate 0
46,00
Investment property 0
38,00
Sinking fund 0
100,0
Property, plant, and equipment 00
28,00
Goodwill 0
560,0
Totals 00
How much is the total current assets?
a. 220,000
b. 180,000
c. 340,000
d. 164,000
13.The ledger of PERNICIOUS DEADLY Co. as of December 31, 20x1 includes the
following:
Liabilities
10,0
Bank overdraft 00
Trade accounts payable (net of ₱10,000 debit balance in 40,00
accounts) 0
Notes payable (due in 20 semi-annual payments of 80,00
₱4,000) 0
30,00
Interest payable 0
70,00
Bonds payable (due on March 31, 20x2) 0
(30,00
Discount on bonds payable 0)
10,0
Dividends payable 00
12,0
Share dividends payable 00
36,00
Deferred tax liability (expected to reverse in 20x2) 0
44,00
Income tax payable 0
100,0
Contingent liability 00
28,00
Reserve for contingencies 0
430,0
Totals 00
How much is the total current liabilities?
a. 192,000
b. 186,000
c. 212,000
d. 178,000
14. The ledger of CALLOW IMMATURE Co. in 20x1 includes the following:
Share capital 200,000
Share premium 40,000
Retained earnings, appropriated 36,000
Retained earnings, unappropriated 84,000
Revaluation surplus 60,000
Remeasurements of the net defined benefit liability (asset) - gain 30,000
Cumulative net unrealized gain on fair value changes of investment
in FVOCI 46,000
Effective portion of losses on hedging instruments in a cash
flow hedge 20,000
Cumulative translation loss on foreign operation 10,000
Treasury shares, at cost 26,000
How much is the total shareholders’ equity?
a. 460,000
b. 440,000
c. 420,000
d. 390,000
Use the following information for the next two questions:
15. GUILE DECEITFULNESS Co. was incorporated on January 1, 20x1. The following
were the transactions during the year:
- Total consideration from share issuances amounted to ₱2,000,000.
- A land and building were acquired through a lump sum payment of ₱400,000. A
mortgage amounting to ₱100,000 was assumed on the land and building.
- Total payments of ₱80,000 were made during the year on the mortgage assumed on
the land and building, The payments are inclusive of interest amounting to
₱10,000.
- Additional capital of ₱200,000 was obtained through bank loans. None of the bank
loans were paid during the year. Half of the bank loans required a secondary
mortgage on the land and building.
- There is no accrued interest as of year-end.
- Dividends declared during the year but remained unpaid amounted to ₱60,000.
- No other transactions during the year affected liabilities.
- Retained earnings as of December 31, 20x1 is ₱120,000.
16. How much is the profit for the year?
a. 120,000
b. 160,000
c. 180,000
d. 220,000
17. How much is the total assets as of December 31, 20x1?
a. 2,410,000
b. 2,520,000
c. 2,380,000
d. 2,420,000
18.The ledger of DEROGATORY DEGRADING Co. in 20x1 includes the following:
200,00
Cash 0
400,00
Accounts receivable 0
1,000,0
Inventory 00
300,00
Accounts payable 0
100,0
Note payable 00
During the audit of DEROGATORY’s 20x1 financial statements, the following were
noted by the auditor:
- Cash sales in 20x2 amounting to ₱20,000 were inadvertently included as sales in
20x1. DEROGATORY recognized gross profit of ₱6,000 on the sales.
- A collection of a ₱40,000 accounts receivable in 20x2 was recorded as collection in
20x1. A cash discount of ₱2,000 was given to the customer.
- During January 20x2, a short-term bank loan of ₱50,000 obtained in 20x1 was paid
together with ₱5,000 interest accruing in January 20x2. The payment transaction in
20x2 was inadvertently included as 20x1 transaction.
How much is the adjusted working capital as of December 31, 20x1?
a. 1,651,000
b. 1,014,000
c. 1,450,000
d. 1,201,000
19. According to PAS 1 Presentation of Financial Statements, expenses are presented
using
a. Nature of expense method
b. Function of expense method
c. a or b
d. Classified and Unclassified
Use the following information for the next two questions:
Anne Jeng Inc.’s accounts show the following balances:
Cost of goods sold ₱320,000
Insurance expense 75,000
Advertising expense 25,000
Freight-out 30,000
Loss on sale of equipment 7,000
Rent expense (one-half pertains sales department) 80,000
Salaries expense (1/4 pertains to non-sales personnel) 150,000
Sales commission expense 10,000
Bad debts expense 5,000
Interest expense 5,000
20. How much is the total distribution costs (selling expenses)?
a. 198,000
b. 210,500
c. 217,500
d. 221,500
21. How much is the total administrative expenses?
a. 157,500
b. 156,500
c. 147,500
d. 175,500
22. Entity A has the following information:
Inventory, beg. 80,000
Inventory, end. 128,000
Purchases 320,000
Freight-in 16,000
Purchase returns 8,000
Purchase discounts 11,200
How much is Entity A’s cost of sales?
a. 286,800
b. 292,800
c. 288,600
d. 268,800
23.A correct dating of financial statements is
Statement of financial position Statement of comprehensive income
a. as of a point in time for a period of time
b. for a period of time as of a point in time
c. for a period of time for a period of time
d. time after time time and time again
24. Which of the following is considered revenue?
a. gain on sale of equipment
b. service fees
c. other income
d. other comprehensive income
25. Which of the following items is likely to be presented in the statement of
comprehensive income of a merchandising business but not of a service business?
a. Service fees c. Cost of sales
b. Salaries expense d. Income tax expense
26. A statement of comprehensive income that presents cost of sales separately from
other expenses is prepared under the
a. single-step method. c. multi-step method.
b. single-presentation. d. two-statement presentation.
27. In a two-statement presentation, information on profit or loss and other
comprehensive income is shown
a. in two separate statements, a statement of profit or loss and a statement
showing other comprehensive income.
b. in two separate statements, a statement of profit or loss and an income
statement.
c. in two separate statements, a single-step statement and a multi-step statement.
d. in a single statement called “statement of comprehensive income.”
28. Expenses are presented in the statement of comprehensive income using
a. nature of expense method.
b. function of expense method.
c. single or two-statement method.
d. a or b
29. Under this presentation method, expenses are presented in the statement of
comprehensive income without distinctions as to their functions within the entity.
a. nature of expense method
b. function of expense method
c. single-statement presentation
d. two-statement presentation
30. Under this presentation, expenses are classified as either operating or non-
operating item. At a minimum, cost of sales is presented separately.
a. nature of expense method
b. function of expense method
c. single-statement presentation
d. two-statement presentation
31. In a statement of comprehensive income showing expenses according to their
function, which of the following is included in the line item “Distribution costs” or
“Selling costs?”
a. Insurance expense c. Freight-in
b. Legal and accounting fees d. Advertising expense
32. In a statement of comprehensive income showing expenses according to their
function, which of the following is included in the line item “Administrative
expenses?”
a. Salaries of sales personnel
b. Cost of sales
c. Freight-out
d. Legal and accounting fees
Use the following information for the next five questions:
The nominal accounts of Rommel SP Corp. on December 31, 20x1 have the following
balances:
Accounts Dr. Cr.
Sales ₱739,000
Interest income 45,000
Gains 15,000
₱65,00
Inventory, beg.
0
180,00
Purchases
0
Freight-in 10,000
Purchase returns 5,000
Purchase discounts 9,000
Freight-out 30,000
Sales commission 45,000
Advertising expense 25,000
240,00
Salaries expense
0
Rent expense 30,000
Depreciation expense 50,000
Utilities expense 25,000
Supplies expense 15,000
Transportation and travel expense 15,000
Insurance expense 10,000
Taxes and licenses 60,000
Interest expense 5,000
Miscellaneous expense 3,000
Loss on the sale of equipment 5,000
Additional information:
a. Ending inventory is ₱90,000.
b. One-fourth of the salaries, rent, and depreciation expenses pertain to the non-sales
department. The sales department does not share in the other expenses.
33. How much is the net purchases?
a. ₱185,000 c. ₱194,000
b. ₱176,000 d. ₱192,000
34. How much is the “change in inventory” in 20x1?
a. ₱90,000 increase c. ₱25,000 decrease
b. ₱65,000 decrease d. ₱25,000 increase
35. How much is the cost of goods sold?
a. ₱151,000 c. ₱169,000
b. ₱95,000 d. ₱127,000
36. How much is the total selling expense?
a. ₱420,000 c. ₱180,000
b. ₱260,000 d. ₱340,000
37. How much is the total general and administrative expense?
a. 280,000 c. 330,000
b. 320,000 d. 208,000
38. One of the conditions that must be satisfied in order to recognize revenue in a
transaction involving the rendering of services over a contractual period is that the
stage of completion of the transaction at the end of the reporting period can be
measured reliably. Which of the following methods for determining the stage of
completion of a contract involving the rendering of services are specifically
referred to in PFRS 15 as being acceptable?
I. Costs incurred to date as a percentage of the estimated total costs of the
transaction
II. Advances received to date as a percentage of the total amount receivable
III. Surveys of work performed
IV. Revenue to date divided by total contract revenue
a. I, III, IV b. I, III c. I, II, IV d. I, II, III
39. The Grand Company placed an order with The Little Company for new specialist
machinery. The order was non-cancellable once signed and Grand agreed to pay for
the machinery at the time the order was signed on 1 February 20X7. Little held the
machinery to Grand's order from 1 June 20X7, the date on which it was completed.
Grand commenced using the machinery on 1 August 20X7 when Little completed
the installation process. The installation is not distinct. Little had staff on standby
to deal with any operating problems until the warranty period ended on 1
November 20X7. The warranty does not provide service in addition to assurance
that the machinery complies with agreed-upon specifications. Under PFRS15
Revenue, Little should recognize the revenue from the sale of this specialist
machinery on
a. 1 February 20X7 c. 1 August 20X7
b. 1 June 20X7 d. 1 November 20X7
40. Which is incorrect concerning recognition of revenue?
a. Revenue from rendering of services over an extended contractual period shall
be recognized by reference to the stage of completion of the transaction at
balance sheet date.
b. Interest revenue shall be recognized on a time proportion basis that does not
take into account the effective yield on the asset.
c. Royalty revenue shall be recognized on an accrual basis in accordance with the
substance of the relevant agreement,
d. Dividend revenue shall be recognized when the stockholder’s right to receive
payment is established.
41. In a normal sale, generally the most uncertain factor in the revenue recognition
process is
a. the seller's fulfillment of its responsibility in the transaction
b. the measurability of the resource or item received by the seller
c. the realizability of the resource or item received by the seller
d. the relevance of the resource or item received by the seller
42. Which of the following methods of service revenue recognition usually would be
most appropriate for a business engaged in packing, loading, transporting and
delivering freight (where each of the processes is an input to a combined output
specified by the customer)?
a. Proportional performance method (i.e., over time as the entity progresses
towards the complete satisfaction of the performance obligation)
b. Completed performance method (i.e., at a point in time when the entity
completes the output specified in the contract)
c. Specific performance method (i.e., when the customer pays for the completion
of a single specific activity)
d. Collection method (i.e., when cash is collected)
43. An entity is a large manufacturer of machines. A major customer has placed an
order for a special machine for which it has given a deposit to the entity. The
parties have agreed on a price for the machine. As per the terms of the sale
agreement, it is FOB (tree on board) contract and the title passes to the buyer
when goods are loaded into the ship at the port. When should the revenue be
recognized by the entity?
a. When the customer orders the machine.
b. When the deposit is received.
c. When the machine is loaded on the port.
d. When the machine has been received by the customer.
44. A company manufacturing and selling consumable products has come out with an
offer to refund the cost of purchase within one month of sale if the customer is not
satisfied with the product. When should the company recognize the revenue?
a. When goods are sold to the customers.
b. After one month of sale.
c. Only if goods are not returned by the customers after the period of one month.
d. At the time of sale along with an offset to revenue for the refund liability for the
products expected to be returned.
45. A computer chip manufacturing company sells its products to its distributors for
onward sales to the ultimate customers. Due to frequent fluctuations in the market
prices for these goods, the company has a “price protection” clause in the
distributor agreement that entitles it to raise additional billings in case of upward
price movement, Another clause in the distributor’s agreement is that the company
can at any lime reduce its inventory by buying back goods at the cost at which it
sold the goods to the distributors. Distributors pay for the goods within 60 days
from the sale of goods to them. When should the company recognize revenue on
sale of goods to the distributors?
a. When the goods are sold to the distributors.
b. When the distributors pay to the company the cost of the goods.
c. When goods are sold to the distributors provided estimated additional revenue
is also booked under the “protection clause” based on past experience,
d. When the distributors sell goods to the ultimate customers and there is no
uncertainty with respect to the “price protection” clause or the buyback of
goods.
46. An entity manufactures and sells standard machinery. One of the conditions in the
sale contract is that installation of machinery will be undertaken by the entity.
During December of the current year, the entity received a special onetime contract
from a customer to manufacture, install and maintain customized machinery. It is
the first time the entity will be producing this kind of machinery, and it is expecting
numerous changes that would need to be made to the machine after the installation
is completed, which one period is described in the contract of sale as the
“maintenance period.” The maintenance services are an input to a combined output
specified in the contract. The total cost of making the changes during the
maintenance period cannot be reasonably estimated at the time of the installation.
Costs incurred are not recoverable if, during the maintenance period, the
machinery is discovered as non-compliant with agreed-upon specifications and the
non-compliance is beyond remediation. The customer shall signify its acceptance of
the machinery at the end of the maintenance period. When should revenue from the
sale of the special machine most likely be recognized?
a. When the machinery is produced.
b. When the machinery is produced and delivered.
c. When the installation is complete
d. When the maintenance period as per the contract of sale expires.
47. Revenue is recognized at the time of sale under the:
a. cost recovery method (i.e., the outcome of a performance obligation cannot be
reasonably measured but the entity expects to recover the costs incurred in
satisfying the performance obligation)
b. collection method (i.e., when cash is collected)
c. percentage-of-completion method (i.e., the performance obligation is satisfied
over time)
d. sales method when goods are sold on credit (i.e., the performance obligation is
satisfied when the goods are transferred to the customer).
The next three items are based on the following information:
Lake Corporation’s accounting records showed the following investments at January 1,
20x3:
Ordinary shares:
Kar Corp. (1,000 shares) 10,00
0
100,0
Aub Corp. (5,000 shares)
00
Real estate:
300,0
Parking lot (leased to Day Co.)
00
Other:
Trademark (at cost, less accumulated 25,00
amortization) 0
435,0
Total investments
00
Lake owns 1% of Kar and 30% of Aub. The Day lease, which commenced on January 1,
20x1, is for ten years, at an annual rental of ₱48,000. In addition, on January 1, 20x1,
Day paid a nonrefundable deposit of ₱50,000, as well as a security deposit of ₱8,000 to
be refunded upon expiration of the lease. The trademark was licensed to Barr Co. for
royalties of 10% of sales of the trademarked items. Royalties are payable semiannually
on March 1 (for sales in July through December of the prior year), and on September 1
(for sales in January through June of the same year).
During the year ended December 31, 20x3, Lake received cash dividends of ₱1,000
from Kar, and ₱15,000 from Aub, whose 20x3 net incomes were ₱75,000 and
₱150,000, respectively. Lake also received ₱48,000 rent from Day in 20x3 and the
following royalties from Barr:
March 1 September 1
20x2 3,000 5,000
20x3 4,000 7,000
Barr estimated that sales of the trademarked items would total ₱20,000 for the last
half of 20x3.
48. In Lake’s 20x3 income statement, how much should be reported for dividend
revenue?
a. 16,000
b. 2,400
c. 1,000
d. 150
49. In Lake’s 20x3 income statement, how much should be reported for royalty
revenue?
a. 14,000
b. 13,000
c. 11,000
d. 9,000
50. In Lake’s 20x3 income statement, how much should be reported for rental revenue?
a. 43,000
b. 48,000
c. 53,000
d. 53,800
Use the following information for the next two questions:
DECORTICATE PEEL, Inc. is committed to a plan to sell a manufacturing facility and
has initiated actions to locate a buyer. As of this date, the building has a carrying
amount of ₱6,000,000, a fair value of ₱5,000,000 and estimated costs to sell of
₱200,000. At the plan commitment date, there is a backlog of uncompleted customer
orders.
51. DECORTICATE, Inc. intends to sell the manufacturing facility with its operations.
Any uncompleted customer orders at the sale date will be transferred to the buyer.
The transfer of uncompleted customer orders at the sale date will not affect the
timing of the transfer of the facility. How should DECORTICATE Co. classify the
manufacturing facility?
a. Included under property, plant and equipment at ₱6,000,000.
b. Included under property, plant and equipment at ₱4,800,000.
c. Classified as held for sale at ₱6,000,000
d. Classified as held for sale at ₱4,800,000
52. DECORTICATE, Inc. intends to sell the manufacturing facility, but without its
operations. The entity does not intend to transfer the facility to a buyer until after it
ceases all operations of the facility and eliminates the backlog of uncompleted
customer orders. How should DECORTICATE Co. classify the manufacturing
facility?
a. Included under property, plant and equipment at ₱6,000,000.
b. Included under property, plant and equipment at ₱4,800,000.
c. Classified as held for sale at ₱6,000,000
d. Classified as held for sale at ₱4,800,000
53. An entity in the power generating industry is committed to a plan to sell a disposal
group that represents a significant portion of its regulated operations. The sale
requires regulatory approval, which could extend the period required to complete
the sale beyond one year. Actions necessary to obtain that approval cannot be
initiated until after a buyer is known and a firm purchase commitment is obtained.
However, a firm purchase commitment is highly probable within one year. The
disposal group has a carrying amount of ₱10,000,000 and fair value less costs to
sell of ₱10,600,000. How should the entity classify the disposal group?
a. Held for sale, ₱10.6M c. Under previous classifications, ₱10M
b. Held for sale, ₱10M d. Under previous classifications, ₱10.6M
Use the following information for the next two questions:
In 20x1, FORGETIVE CREATIVE Co. classified a property as held for sale. The carrying
amount prior to classification is ₱400,000 while fair value less cost to sell is ₱360,000.
The property is being sold at ₱360,000.
During 20x1, the market conditions that existed at the date the asset was classified
initially as held for sale deteriorate and, as a result, the asset is not sold by the end of
that period. During that period, FORGETIVE actively solicited but did not receive any
reasonable offers to purchase the asset and, in response, FORGETIVE reduced the
price from ₱360,000 to ₱320,000. The fair value less costs to sell on December 31,
20x1 is ₱340,000.
54. How should FORGETIVE Co. classify the property in its 20x1 annual financial
statements?
a. Held for sale, ₱320,000 c. PPE, ₱340,000
b. Held for sale, ₱340,000 d. PPE, ₱400,000
55. During 20x2, the market conditions deteriorate further, and the asset is not sold by
December 31, 20x2. FORGETIVE Co. believes that the market conditions will
improve and has not further reduced the price of the asset. The fair value less costs
to sell on December 31, 20x2 is ₱300,000. If the property was not classified as held
for sale in 20x1, its carrying amount by this time would have been ₱350,000.
a. Held for sale, ₱300,000 c. PPE, ₱300,000
b. Held for sale, ₱320,000 d. PPE, ₱350,000
56. WAYFARER TRAVELER Co. is preparing its December 31, 20x1, current year
financial statements. A land included in WAYFARER’s property, plant and equipment
that did not qualify as held for sale as of December 31, 20x1 was actually sold on
January 5, 20x2. The financial statements were authorized for issue on March 1,
20x2. On December 31, 20x1, WAYFARER has total current assets of ₱9,000,000.
Not included in this amount is the fair value less costs to sell of the land amounting
to ₱1,000,000. How much is the total current assets current in WAYFARER’s
December 31, 20x1 financial statements?
a. ₱8,000,000 c. ₱10,000,000
b. ₱9,000,000 d. ₱11,000,000
57. On December 31, 20x1, STRIDENT HARSH-SOUNDING Co. classified its building
with a historical cost of ₱4,000,000 and accumulated depreciation of ₱2,400,000 as
held for sale. All of the criteria under PFRS 5 are complied with. On that date, the
land has a fair value of ₱1,400,000 and cost to sell of ₱80,000. The entry on
December 31, 20x1 includes
a. a debit to building for ₱1,320,000
b. a credit to accumulated depreciation for ₱2,400,000
c. a debit to impairment loss for ₱280,000
d. No reclassification entry will be made on December 31, 20x1
58. On December 31, 20x1, OBSTINACY STUBBORNESS Co. classified its building with
a carrying amount of ₱1,600,000 and fair value less cost to sell of ₱1,320,000 as
held for sale.
The building was not sold in 20x2. However, the exception to the one-year requirement
was met. On December 31, 20x2, the fair value less cost to sell of building is
₱1,240,000.
The building was not sold in 20x3. However, the exception to the one-year requirement
was still met. On December 31, 20x3, the fair value less cost to sell of building
increased to ₱1,680,000. How much is the gain on reversal of impairment to be
recognized on December 31, 20x3?
a. 440,000
b. 360,000
c. 280,000
d. 0
Use the following information for the next four questions:
On December 31, 20x1, INSOUCIANT CAREFREE Co. plans to dispose of a group of its
assets. Information on these assets is shown below:
Carrying amount as
Carrying amount remeasured
on Dec. 31, 20x1 immediately before
before classification classification as held
as held for sale for sale
Inventory 9,600,000 8,800,000
Investment in FVOCI 7,200,000 6,000,000
Investment property (at cost
model) 22,800,000 22,800,000
PPE (at cost model) 18,400,000 16,000,000
Goodwill 6,000,000 6,000,000
Total 64,000,000 59,600,000
INSOUCIANT Co. entity estimates that the fair value less costs to sell of the disposal
group amounts to ₱52,000,000.
59. How would the reduction in the value of the assets on classification as held for sale
be treated in the financial statements?
a. The entity recognizes a loss of ₱4.4M immediately before classification as held
for sale and then recognizes an impairment loss of ₱7.6M.
b. The entity recognizes an impairment loss of ₱12 million.
c. The entity recognizes an impairment loss of ₱7.6M.
d. The entity recognizes a loss of ₱12M immediately before classifying the disposal
group as held for sale.
60. How much is the carrying amount of the inventory after classification of the
disposal group as held for sale?
a. 8,800,000
b. 7,950,576
c. 7,899,324
d. 7,765,391
61. How much is the carrying amount of the Investment property (at cost model) after
classification of the disposal group as held for sale?
a. 22,800,000
b. 21,859,794
c. 21,786,665
d. 20,766,298
62. How much is the carrying amount of the PPE (at cost model) after classification of
the disposal group as held for sale?
a. 16,000,000
b. 15,780,740
c. 15,340,206
d. 15,211,612
63. On December 31, 20x1, INGENIOUS NATURAL Co. classified its building with a
carrying amount of ₱1,600,000 and fair value less costs to sell of ₱1,320,000 as
held for sale. Impairment loss of ₱280,000 was recognized on that date. The
building has a remaining useful life of 4 years and it was depreciated using the
straight-line method.
As of December 31, 20x2, the building was not yet sold and management decided not
to sell the building anymore. The fair value less cost to sell of the building on
December 31, 20x2 is ₱1,240,000 while the value in use is ₱1,220,000.
How much is the carrying amount of the building upon reclassification back to
property, plant and equipment?
a. 1,220,000
b. 1,320,000
c. 1,240,000
d. 1,200,000
64. On December 31, 20x1, INIMICAL UNFRIENDLY Co. entered into an agreement to
sell a component. On that date, INIMICAL estimated the gain from the disposal to
be made in 20x2 at ₱2,000,000 and the operating losses prior to the date of sale to
be ₱1,200,000. As a result of the sale, the component’s operations and cash flows
will be eliminated from the entity’s operations and the entity will not have any
significant continuing post-sale involvement in the component’s operations.
Accordingly, the component was classified as held for sale and discontinued
operations.
The component’s actual operating losses in 20x1 and 20x2 were ₱2,800,000 and
₱2,600,000, respectively, and the actual gain on disposal of the component in 20x2 was
₱1,600,000. INIMICAL’s income tax rate is 30%. Any income tax benefit is expected to
be realizable. There were no other temporary differences during the year.
What single, post-tax amounts should be reported for discontinued operations in
INIMICAL’s comparative 20x2 and 20x1 income statements, respectively?
a. (1,960,000), (700,000)
b. (560,000), (1,960,000)
c. (650,000), (1,950,000)
d. (700,000), (1,960,000)
65. On April 30, 20x1, ABROGATE ABOLISH Co. approved a plan to dispose of a
component of its operations. The disposal meets the requirements for classification
as discontinued operations.
From January 1 to April 30, 20x1, the component earned operating profit of ₱400,000
and from May 1 to December 31, 20x1, the segment suffered operating losses of
₱200,000.
The net assets of the component has a carrying amount of ₱32,000,000 as of April 30,
20x1. The fair value less costs to sell of the component is ₱26,000,000. Additional
estimated disposal loss includes severance pay of ₱220,000 and employee relocation
costs of ₱100,000, both of which are directly associated with the decision to dispose of
the segment. ABROGATE’s income tax rate is 30%. Any income tax benefit is expected
to be realizable. There were no other temporary differences during the year.
How much is the profit (loss) from discontinued operations to be reported in
ABROGATE's statement of profit or loss and other comprehensive income for the year
ended December 31, 20x1?
a. 4,564,000
b. 4,060,000
c. 4,340,000
d. 4,284,000
66. You are a CPA. Your client asked you for an advice regarding the items that are
presented as other comprehensive income. You will tell your client to refer to which
of the following standards?
a. PAS 1
b. PFRS 1
c. PFRS 15
d. PAS 8
67. Non-current assets held for sale and discontinued operations are accounted for
under
a. PFRS 4.
b. PAS 41.
c. PFRS 5.
d. PFRS 8.
68. When measuring the fair value of an asset or a liability, an entity refers to
a. PFRS 13.
b. PAS 28.
c. PAS 1.
d. PAS 33.
69. This standard deals with the recognition and measurement of financial instruments.
a. PAS 1
b. PAS 7
c. PFRS 9
d. PFRS 5
70. As used in accounting parlance, PFRS stands for
a. Philippine Accounting Standards.
b. Philippine Financial Accounting Standards.
c. Philippine Financial Reporting Standards.
d. Palabok, Friedchicken, Rice and Sprite.
e. All of the above
“give thanks in all circumstances; for this is God’s will for you in Christ Jesus.” - (1
Thessalonians 5:18)
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