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2 Annual Regional Convention 2008


1. According to IAS29 Financial reporting in hyperinflationary economies, which

TWO of the following are monetary items?
a. Trade payables
b. Inventories
c. Administration costs paid in cash
d. Loan repayable at par value
Question 4 - A & D
Monetary items are to be received (or settled) in fixed monetary terms (per
IAS29 para 12). This includes trade payables and loans to be repaid at par

2. The Hopkins Company is a manufacturing company. The cost per unit of an item
of inventory is shown on its card as follows:
Materials 30
Production labor costs 33
Production overheads 12
General administration costs 10
Marketing costs 5
According to IAS2 Inventories, what is the value of one completed item of
inventory in Hopkins's statement of financial position?
a. PHP63
b. PHP85
c. PHP75
d. PHP90
Question 11 - C
PHP75 is the correct answer.
IAS2 paras 10-12 define the cost of inventory. In this example the cost
includes materials, production labor and production overheads, but not
general administration or marketing costs.

3. On 1 January 20X8 The Ebro Company commenced trading to provide key skills
education facilities in a region identified for technology development. Also on 1
January 20X8, the company received two grants from its government for setting
up its operations in this location:

Grant (a) was paid to give financial assistance for start-up costs already
Grant (b) was paid to subsidize the costs of purchasing computer software over
the five-year period. The company is almost certain to keep the facilities
operational for the next five years.

The company's accounting year end is 31 December. Are the following

statements concerning recognition of the income from the two government
grants true or false, according to IAS20 Government grants and government
(1) Income from Grant (a) should be recognized in full on receipt in 20X8.
(2) Income from Grant (b) should be recognized in full at the end of 5 years.

Statement (1) Statement (2)

a False False
b False True
c True False
d True True
Question 2 - C
IAS20 para 20 requires grants for expenditure already incurred to be
recognized immediately. Para 12 requires grants such as that for the software
to be matched against the related costs, so that grant would be recognized
over the five-year period.

4. The Scandium Company is commencing a new construction project, which is to

be financed by borrowing. The key dates are as follows: 15 May 20X8 Loan
interest relating to the project starts to be incurred

3 June 20X8 Technical site planning commences

12 June 20X8 Expenditures on the project start to be incurred
18 July 20X8 Construction work commences

According to IAS23 Borrowing costs, from what date can Scandium

commence the capitalization of borrowing costs?
a 15 May 20X8
b 3 June 20X8
c 12 June 20X8
d 18 July 20X8
Question 4 - C
All relevant conditions in IAS23 para 17 are fulfilled by the date when
expenditures on the project start to be incurred.

5. The Palila Company purchased a varnishing machine for PHP150,000 on 1

January 20X7.

The company received a government grant of PHP13,500 in respect of this asset.

Company policy was to depreciate the asset over 4 years on a straight-line basis
and to treat the grant as deferred income. Under IAS20 Government grants and
government assistance, what should be the carrying amounts of the machine
and the deferred income ("DI") balance at 31 December 20X8?
Carrying amount DI balance
a PHP75,000 PHP6,750
b PHP112,500 PHP10,125
c PHP81,750 PHP6,750
d PHP75,000 PHP13,500
Question 5 - A
Carrying amount PHP75,000, Deferred income PHP6,750 is the correct answer.
See IAS20 para 26, where the grant is recognized as income on a systematic
and rational basis over the life of the asset. The deferred income in the
statement of financial position is reduced each year by the amount credited to
profit or loss.
The asset is depreciated over its useful life per IAS16.

6. The Coral Company accounts for non-current assets using the cost model. On 20
July 20X7 Coral classified a non-current asset as held for sale in accordance with
IFRS5 Non-current assets held for sale and discontinued operations. At that date
the asset's carrying amount was PHP14,500, its fair value was estimated at
PHP21,500 and the costs to sell at PHP1,450. The asset was sold on 18 October
20X7 for PHP21,200. In accordance with IFRS5, at what amount should the asset
be stated in Coral's statement of financial position at 30 September 20X7?
A PHP20,050
B PHP21,500
C PHP21,200
D PHP14,500
Question 8 - D
IFRS5 para 15 requires that a non-current asset held for sale should be
stated at the lower of (i) the carrying amount and (ii) the fair value less costs
to sell.

7. The Markab Company has acquired a trademark relating to the introduction of

a new manufacturing process. The costs incurred were as follows:
Cost of trademark PHP 3,500,000
Expenditure on promoting the new product PHP 50,000
Employee benefits relating to the testing of the
proper functioning of the new process PHP 200,000
According to IAS38 Intangible assets, what is the total cost that should be
capitalized as an intangible non-current asset in respect of the new process?
A PHP3,750,000
B PHP3,700,000
C PHP3,500,000
D PHP3,550,000
Question 11 - B
IAS38 paras 27-29 specify the costs attributable to a separately acquired
intangible asset. This requires the trademark costs and costs of testing to be
8. The Dipper Company operates chemical plants. Its published policies include a
commitment to making good any damage caused to the environment by its
operations. It has always honored this commitment. Which ONE of the following
scenarios relating to Dipper would give rise to an environmental provision as
defined by IAS37 Provisions, contingent liabilities and contingent assets?
a. On past experience it is likely that a chemical spill which would result in
Dipper having to pay fines and penalties will occur in the next year
b. Recent research suggests there is a possibility that the company's actions
may damage surrounding wildlife
c. The government has outlined plans for a new law requiring all environmental
damage to be rectified
d. A chemical spill from one of the company's plants has caused harm to the
surrounding area and wildlife
Question 11 - D
The published policy creates a constructive obligation as defined by IAS37
para 10. The spill is a past event which gives rise to a present obligation and
the need for a provision under para 14.
The government plans and any chemical spill relate to future events, while the
"possible" damage to wildlife gives rise to a contingent liability which should
be disclosed.

9. The White Company set up a defined benefit post-employment plan with effect
from 1 January 20X7. In the first year the expected return on plan assets was
PHP5,000, the actual return on plan assets was PHP4,000, the current service cost
was PHP12,000 and White's contributions paid into the plan were PHP7,500.
What is the net expense to be recognized in profit or loss for the year ended 31
December 20X7, according to IAS19 Employee benefits?
A PHP8,000
B PHP3,500
C PHP7,000
D PHP2,500
Question 11 - C
The amounts to be recognized as an expense in profit or loss are the current
service cost less the expected return on plan assets. See IAS19 para 61.
Note that the difference between the expected and the actual return on plan
assets is an actuarial loss, while the employer contributions increase plan

10. The Pinder Company is completing the preparation of its draft financial
statements for the year ended 31 May 20X7. On 24 July 20X7, a dividend of
PHP175,000 was declared and a contractual profit share payment of PHP35,000
was made, both based on the profits for the year to 31 May 20X7. On 20 June
20X7, a customer went into liquidation having owed the company PHP34,000 for
the past 5 months. No allowance had been made against this debt in the draft
financial statements. On 17 July 20X7, a manufacturing plant was destroyed by
fire, resulting in a financial loss of PHP260,000.
According to IAS10 Events after the reporting period, which TWO amounts should
be recognized in Pinder's profit or loss for the year to 31 May 20X7 to reflect
adjusting events after the end of reporting period?
A PHP175,000 dividend
B PHP35,000 bonus
C PHP34,000 allowance for uncollectible trade receivables
D PHP260,000 loss on manufacturing plant
Question 7 - B & C
The correct answers are PHP35,000 bonus and PHP34,000 allowance.
See IAS10 paras 9, 12 and 22. Also, dividends are recognized in the
statement of changes in equity, not profit or loss