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FINANCIAL ACCOUNTING AND REPORTING

EASY
Borrowing costs, leases, income tax and employee benefits

1. Wantuk Company entered into a lease agreement with lessor Bakna starting June 1, 2016. The
lease has a term of 5 years with annual rent of 600,000 plus additional rent computed at 1% of total
sales of Wantuk. Total sales in 2015 amounted to 1,000,000. In Wantuks income statement for the
year ended December 31, 2016, total expense should be reported as:

a) 360,000 c. 600,000
b) 310,000 d. 350,000

Answer: A. 360,000

Authoritative Guidance:
IAS 17 par 25. Minimum lease payments shall be apportioned between the finance charge and the
reduction of the outstanding liability. The finance charge shall be allocated to each period during the
lease term so as to produce a constant periodic rate of interest on the remaining balance of the
liability. Contingent rents shall be charged as expenses in the periods in which they are
incurred.

Annual rent 600,000


Divided by 12
Monthly rent 50,000
Months lapsed (June 1-December 31, 2016) 7
350,000
Contingent rent (1% of 1,000,000 total sales) 10,000
Total expense for 2016 360,000

2. Company Y has spent P1,000,000 in developing a new product. These costs meet the definition of an
intangible asset under PAS 38 and have been recognized in the statement of financial position. These
costs have been recognized as an expense for tax purposes. At the year-end the intangible asset is
deemed to be impaired by P100,000. The tax base of the intangible asset at year-end is
a. P900,000
b. P 0
c. P100,000
d. P1,100,000

Answer. B
PAS 12.7.
The tax base of an asset is the amount that will be deductible for tax purposes against any taxable
economic benefits that will flow to an entity when it recovers the carrying amount of the asset. If those
economic benefits will not be taxable, the tax base of the asset is equal to its carrying amount.
3. An item of property, plant and equipment has a carrying amount of 1,000 and a tax base of 600. A tax
rate of 20% would apply if the item were sold and a tax rate of 30% would apply to other income.

What is the deferred tax liability assuming the entity expects to sell the asset.

a. P80
b. P 0
c. P120
d. P600

Answer. A
PAS 12.51
The measurement of deferred tax liabilities and deferred tax assets shall reflect the tax consequences
that would follow from the manner in which the entity expects, at the end of the reporting period, to
recover or settle the carrying amount of its assets and liabilities.

The entity recognizes a deferred tax liability of 80 (400 at 20%) if it expects to sell the item without
further use and a deferred tax liability of 120 (400 at 30%) if it expects to retain the item and recover
its carrying amount through use

Small and medium sized entities

1. Which of the following accounting treatments is not allowed under PFRS for SMEs?
a. Borrowing costs related to a qualifying asset being expensed
b. Property, plant and equipment accounted for under the revaluation model
c. Goodwill being amortized over a period of 10 years.
d. investment in associates accounted by cost or fair value model

Answer: B
IFRS for SMEs:
Section 17: Property, Plant and Equipment
1. At initial recognition, PPE should be recognized at cost
2. At subsequent recognition, PPE should be recognized at COST less accumulated depreciation and
accumulated impairment losses

Financial assets and non-financial assets

1. Which of the following should be classified as financial instrument?

A. Patent
B. Trade and accounts receivable
C. Inventory
D. Land

Answer: B
2. If an entity is able to determine reliably the fair value of the asset received and the fair value of the
asset given in an exhange transaction, the cost of the asset acquired is measured at
A. Fair value of asset given
B. Fair value of asset received
C. Either A or B
D. Neither A nor B

Answer: A

Cash to accrual

1. This method does not recognize accounts receivable, accounts payable, accrued income, deferred
income, accrued expenses and prepaid expenses.

A. Accrual Basis
B. Revenue Recognition Principle
C. Cash Basis
D. Matching Principle

Answer: C

2. In this method, income is recognized when earned regardless of when received.

A. Cash Basis
B. Matching Principle
C. Accrual Basis
D. Revenue recognition Principle

Answer: C

Interim reporting

1. For interim financial reporting, a company's income tax provision for the second quarter of a given year
should be determined using the:
a. Statutory tax rate for the year.
b. Effective tax rate expected to be applicable for the second quarter of the year.
c. Effective tax rate expected to be applicable for the full year, as estimated at the end of the first
quarter of the year.
d. Effective tax rate expected to be applicable for the full year, as estimated at the end of the second
quarter of the year.

Answer: D
The company should use the effective tax rate expected to be applicable for the full year as estimated
at the end of the second quarter the year because the interim period is considered an integral part of
the accounting year.

2. Conceptually, interim financial statements can be described as emphasizing ______________.


a. Timeliness over reliability.
b. Reliability over relevance.
c. Relevance over comparability.
d. Comparability over neutrality.

Answer: A
Interim statements are affected by estimates, cost allocations, seasonality and other factors which
may affect the usefulness of the information. Therefore, the emphasis is on timeliness over reliability.

AVERAGE
Borrowing costs, leases, income tax and employee benefits

1. Nami Company agrees to enter into a new lease agreement with a new lessor Namu. As an incentive
for entering into the new lease, Namu agrees to pay Nami's relocation costs amounting to 1,000 plus
a rent free period for the first 2 years. The new lease has a term of 10 years, at a fixed rate of 5,000
per annum for years 3 through 10. At how much will Nami record lease expense at year 3?

a) 4,000 c. 5,000
b) 3,875 d. 3,900

Answer: D. 3,900

Rental payments: 5,000 x 8 = 40,000


Less: relocation cost incentive: (1,000)
Total 39,000
Divided by lease term 10 years
Annual lease expense 3,900

Authoritative Guidance:

5.1.4 Lease incentives accounting by lessees


The consensus reached by the SIC in Interpretation SIC-15 Operating Leases Incentives was
that all incentives for the agreement of a new or renewed operating lease should be recognised as an
integral part of the net consideration agreed for the use of the leased asset, irrespective of the
incentive's nature or form or the timing of payments. [SIC-15.3]. The lessee should recognise the
aggregate benefit of incentives as a reduction of rental expense over the lease term, on a straight-line
basis unless another systematic basis is representative of the time pattern of the lessee's benefit from
the use of the leased asset. [SIC-15.5].

2. Babadook Company leased office space to Babadoom for a 3 year period beginning June 1, 2016.
Under the terms of the lease, monthly rental for the first year and for the next two years will be
200,000 and 250,000, respectively. However, as an incentive Babadook granted Babadoom the first
six months of the lease rent free.

In Babadooms statement of comprehensive income for the year ended December 31, 2016, rent
expense will be reported at?
a) Zero c. 1,400,000
b) 1,440,000 d. 1,200,000

Answer: C. 1,400,000

Monthly rent Number of Months Total


1st year 200,000 6 1,200,000
2nd year 250,000 12 3,000,000
3rd year 250,000 12 3,000,000
7,200,000
Lease term (months) 36
Monthly recognition of rent expense 200,000
Number of months lapsed 7
Total rent expense for the 6 months 1,400,000

Authoritative Guidance:

5.1.2 Straight-line recognition over the lease term


Operating lease payments must be recognised on a straight line basis over the lease term, unless
another systematic basis is more representative of the time pattern of the user's benefit. [IAS 17.33].
There are some lease payments that increase annually by fixed increments intended to compensate
for expected annual inflation over the lease period.

Financial assets and non-financial assets

1. Jent Company purchases bonds at a discount of 100,000. Subsequently, Jent sold these bonds at a
premium of 140,000. During the period that Jent hold this long term investment, amortization of the
discount amounted to 20,000. What amount should be recorded as gain on sale of bonds?

a. 140,000
b. 260,000
c. 240,000
d. 220,000

Answer: D

Discount 100,000
Less: Amortized Discount 20,000
Total 80,000
Add: Premium on Sale of Bond 140,000
GAIN ON SALE 220,000

2. On August 1, 2016, Bamco Company purchased a new machine on a deferred payment basis. A
down payment of P100,000 was made and 4 montly installments of P250,000 each are to be made
beginning on September 1, 2016. The cash equivalent price of the machine was P950,000. Bamco
incurred and paid installation costs amounting to P30,000. the amount to be capitalized as the cost of
the machine is

A. 950,000
B. 980,000
C. 1,100,000
D. 1,130,000

Answer: B

Cash Equivalent Price 950,000


Add: Installation Cost 30,000
COST TO BE CAPITALIZED 980,000

3. In October 2016, Ewing Company exchanged an old packing machine, which cost P1,200,000 and
was 50% depreciated, for another used machine and paid a cash difference of P160,000. The fair
value of the old packaging machine was determined to be P700,000.

What is the cost of the machine acquired in the exchange on the books of Ewing Company?

A. 860,000
B. 700,000
C. 760,000
D. 540,000

Answer: A

FV of Old Packaging Machine 700,000


Add: Cash Difference Paid 160,000
COST OF THE MACHINE 860,000

Cash to accrual

Average

1. Reid Company, which began operations on January 1, 2015, has elected to use cash basis accounting
for tax purposes and accrual basis accounting for its financial statements. Reid reported sales of
P1,750,000 and P800,000 in its tax returns for the years ended December 31, 2016 and 2015,
respectively. Reid reported accounts receivable of P300,000 and P500,000 in its balance sheets as of
December 31, 2016 and 2015, respectively.

What amount should Reid report as sales in its income statement for the year ended December 31,
2016?

A. 1,450,000
B. 1,550,000
C. 1,950,000
D. 2,050,000

Answer: B
Sales per ITR 2016 1,750,000
Less: A/R, Beginning 500,000
Less:A/R, End 300,000
Decrease in A/R 200,000 200,000
SALES PER INCOME STATEMENT 1,550,000

2. Ward, a consultant, keeps his accounting records on a cash basis. During 2016, Ward collected
P2,000,000 in fees from clients. At December 31, 2015, Ward had accounts receivable of P400,000.
At December 31, 2016, Ward had accounts receivable of P600,000 and unearned fees of P50,000.

On an accrual basis, what was Wards service revenue for 2016?

A. 1,750,000
B. 1,800,000
C. 2,150,000
D. 2,250,000

Answer: C

Collection 2,000,000
Less: Unearned Fees 50,000
Total 1,950,000
Add: A/R, End 600,000
Less: A/R, Beginning 400,000
Increase in A/R 200,000 200,000
SERVICE REVEBUE ACCRUAL BASIS 2,150,000

3. Based on 2016 sales of compact discs recorded by an artist under a contract with Laser Company the
artist earned P1,000,000 after an adjustment of P80,000 for anticipated returns. In addition, Laser paid
the artist P750,000 in 2016 as a reasonable estimate of the amount recoverable from future royalties
to be earned by the artist.

What amount should Laser report in the 2016 income statement for royalty expense?

A. 1,000,000
B. 1,080,000
C. 1,750,000
D. 1,830,000

Answer: A

Sales Earned by the Artist 1,000,000


ROYALTY EXPENSE 1,000,000
Future royalties is not part of the expense since it will be incurred in the future.
Interim reporting

1. Read the following statements below

I. If an entity publishes a complete set of financial statements in its interim financial report, those
statements shall include, at a minimum, each of the headings and subtotals that were included
in its most recent financial statements and the selected explanatory notes as required by the
standard.
II. If an entity publishes a set of condensed financial statements in its interim financial report, the
forma and content of those statements shall conform to the requirements of IAS 1.

A. First statement is false, second statement is true


B. Both statements are false
C. Both statements are true
D. First statement is true, second statement is false

Answer: B
Refer to IAS 34 par 9-10

2. A key provision of IAS 34-Interim Financial Reporting is that an entity should use the same
accounting policy throughout a single financial year. If a decision is made to change a policy mid-
year, the change is implemented ______________ and previously reported interim data is
__________.

A. retrospectively ; not restated


B. retrospectively ; restated
C. prospectively ; not restated
D. prospectively ; restated

Answer: B

DIFFICULT
Borrowing costs, leases, income tax and employee benefits

1. Company X borrows funds specifically for the purpose of obtaining inventories that are
manufactured in large quantities on a repetitive basis. The company temporarily invested some of
those borrowings. Since this is a specific borrowing, the amount of actual borrowing costs eligible
for capitalization will be reduced by the investment income.

a. True
b. False

Answer: B
(IAS 23 par 4 An entity is not required to apply the Standard to borrowing costs directly
attributable to the acquisition, construction or production of:
(a) A qualifying asset measured at fair value, for example a biological asset within the scope
of IAS 41 Agriculture; or
(b) Inventories that are manufactured or otherwise produced, in large quantities on a repetitive
basis.

2. During 2016, Leonis Company constructed a new building at a cost of P30 million. The
expenditures of the building, which was finished , late in 2016, were incurred evenly during the
year. The entity had the following loan outstanding on December 31, 2016:
10% note to finance specifically construction of the building, dated January 1, 2016,
amounting to P10 million and unpaid on December 31, 2016. Investments were made on
the proceeds of the loan and generated an income of P100, 000.
12% 20-year bond payable issued at a face value on April 30, 2015, P30 million.
8% 5-year note payable dated March 1, 2015, P 10 million.

What amount of interest is capitalized as cost of new building?

a. P 1 550 000
b. P 1 450 000
c. P 1 400 000
d. P 1 500 000

Answer: B
Solution
Specific borrowing:
Interest expense (10 M x 10%) P 1 000 000
Proceeds ( 100 000) P 900 000

General borrowing:
Capitalization rate = 3.6 M + 800 000
30 M + 10 M
= 11%

Average expenses = 30 M
2
= 15 M
*We divide it by two because it is incurred evenly throughout the year.

Average expenses P 15 M
Specific borrowing cost ( 10 M)
Difference 5M
Capitalization rate x 11% 550 000
Total Interest to be Capitalized P 1 450 000

Small and medium sized entities

1. Under PFRS for SMEs, Companies should record investment property after initial recognition
using:
a. Fair value
b. Historical cost less depreciation
c. Present Value of minimum lease payments discounted using the original discount rate
from initial recognition
d. The Company can decide whether fair value or historical cost less depreciation provided
that it will be applied consistently during the period.

Answer: A
Under PFRS for SMEs Section 16, Investment Property, Investment property whose fair value
can be measured reliably without undue cost or effort shall be measured at fair value at each
reporting date with changes in fair value recognised in profit or loss. If a reliable measure of fair
value is no longer available without undue cost or effort for an item of investment property
measured using the fair value model, the entity shall thereafter account for that item as property,
plant and equipment in accordance with Section 17 until a reliable measure of fair value becomes
available.

2. Which of the following is true for PFRS for SMEs:

a. Under PFRS for SMEs, the use of an accrued benefit valuation method (the projected
unit credit method) for employee benefit obligation is required for calculating defined
benefit obligations.
b. Under PFRS for SMEs, Intangible assets, including goodwill are assumed to have finite
lives and are amortized.
c. Under PFRS for SMEs, Research costs and development costs are expenses, however,
development costs are capitalized if certain criteria are met.
d. Under PFRS for SMEs, only equity method is permitted in accounting for investment in
associates.

Answer: B
In PFRS for SMEs, The cost model is the only permitted model. All intangible assets, including
goodwill, are assumed to have finite lives and are amortided.
Answer A, C and D are wrong as they pertain to the measurement in Full PFRS. SMEs are
accounted for as follows:
A. The circumstance-driven approach is applicable, which means that the use of an accrued
benefit valuation method (the projected unit credit method) is required if the information that
is needed to make such a calculation is already available, or if it can be obtained without
undue cost or effort. If not, simplifications are permitted in which future salary progression,
future service or possible mortality during an employees period of service are not
considered. [IFRS for SMEs 28.18-28.20]

C. All research and development costs are recognised as an expense. [IFRS for SMEs 18.14]
D. An investor may account for its investments using one of the following: The cost model (cost
less any accumulated impairment losses); The equity method, and; The fair value through profit
or loss model. [IFRS for SMEs 14.4]

Financial assets and non-financial assets

1. Given the table below, compute for the total net exposure and the financial effect of collateral or
credit enhancement to the maximum exposure to credit risk for PFRS 7 Disclosures.
Gross Maximum FV of Collateral or Net Exposure Financial effect of
Exposure to Credit Credit collateral or credit
Risk Enhancement enhancements

Loan 1 1,000,000 1,200,000

Loan 2 1,000,000 1,000,000

Loan 3 1,000,000 800,000

Total 3,000,000 3,000,000 ?? ??

a. 0; 0
b. 200,000; 2,800,000
c. -200,000; 2,000,000
d. 0; 3,000,000

Answer: B

Solution:

Gross Maximum FV of Collateral or Net Exposure Financial effect of


Exposure to Credit Credit collateral or credit
Risk Enhancement enhancements

Loan 1 1,000,000 1,200,000 - 1,000,000

Loan 2 1,000,000 1,000,000 - 1,000,000

Loan 3 1,000,000 800,000 200,000 800,000

Total 3,000,000 3,000,000 200,000 2,800,000

2. Tech Co. works in the technology field and sells three types of products: A, B and C. Tech Co.
has access to several markets. Sales for each product vary from one market to another.
Additionally, products that are similar to A, B and C are marketed by other competitors in areas to
which Tech Co. does not have access.

Which of the following criteria is used by Tech Co. to determine the principal market for Product
A?
I. Market with the greatest volume sold Product A
II. Market with the greatest volume sold for any Tech Co.s products
III. Market to which Tech Co. has access to sell its products

Select the correct answer.

a. I only
b. II only
c. I and III
d. D. None of the above
Answer: C
Solution:
IFRS 13 Appendix A
Principal market - The market with the greatest volume and level of activity for the asset or
liability.

Cash to accrual

1. PORTER COMPANY is in its first year of operation and is using the cash basis of accounting. The
company presented the following cash receipts and disbursement records for 2016:

Cash receipts P384,000


Cash disbursements (247,500)
P136,500
The management requested you to compute its income under accrual basis.
The following information are deemed relevant in your analysis:
a. Depreciation of plant assets for 2016 computed by straight-line method is P31,500.
b. Prepaid insurance of P5,400, two-thirds of which relates to 2017, is included in the 2016 cash
disbursement figure. This amount was recognized as insurance expense when it was paid.
c. Porter Company received P36,000 in advance rent for space in its building. The entire amount
is included in the cash receipts figure and was recognized as rent revenue when received.
However, P21,000 of it was space that will be provided in 2017.
d. Employees are due P8,400 at the end of 2016.
e. Interest amounting to P9,510 from investment is receivable at the end of 2016.
f. You estimate that your 2016 fee for accounting services that have not been billed will be
P1,500.

What is the total liabilities to be reported as of the balance sheet date under the accrual basis?
a. 34,500 b. 44,010 c. 40,410 d. 30,900

Answer: D
21,000+8,400+1,500 = 30,900

2. The Evita Company uses cash-basis accounting for their records. During 2016, Evita collected
P500,000 from its customers, made payments of P200,000 to its suppliers for inventory, and paid
P140,000 for operating costs. Evita wants to prepare accrual-basis statements. In gathering
information for the accrual-basis financial statements, Evita discovered the following:

a. Customers owed Evita P50,000 at the beginning of 2016 and P35,000 at the end of 2016.
b. Evita owed suppliers P20,000 at the beginning of 2016 and P27,000 at the end of 2016.
c. Evita's beginning inventory was P42,000, and its ending inventory was P44,000.
d. Evita had prepaid expenses of P5,000 at the beginning of 2016 and P7,400 at the end of 2016.
e. Evita had accrued expenses of P12,000 at the beginning of 2016 and P19,000 at the end of
2016.
f. Depreciation for 2016 was P51,000.

Determine the accrual basis net income of Evita Company for the year ended December 31, 2008.
a. P84,400 c. P91,400
b. P79,600 d. P98,400

Answer: A
500,000-200,000-140,000-50,000+35,000+20,000-27,000-42,000+44,000-5,000+7,400+12,000-
19,000-51,000 = 84,400

Interim reporting

1. Publicly traded entities are required to provide interim financial reports at least as of the end of the
first half of their financial year and to make their interim financial reports available not later than 60
days after the end of interim period.

A. True
B. False

Answer B (IAS 34 par. 1 encouraged but not required)

2. Interim reports shall include interim financial statements (condensed or complete) for periods as
follows:

I. statement of financial position as of the end of the current interim period and a comparative
statement of financial position as of the end of the immediately preceding financial year.
II. statements of profit or loss and other comprehensive income for the current interim period
and cumulatively for the current financial year to date, with comparative statements of profit
or loss and other comprehensive income for the comparable interim periods (current and
year-to-date) of the immediately preceding financial year. As permitted by PAS 1, an
interim report may present for each period a statement or statements of profit or loss and
other comprehensive income.
III. statement of changes in equity cumulatively for the current financial year to date, with a
comparative statement for the comparable year-to-date period of the immediately
preceding financial year.
IV. statement of cash flows cumulatively for the current financial year to date, with a
comparative statement for the comparable year-to-date period of the immediately
preceding financial year.

A. II, III, IV
B. I, III, IV
C. I, II, IV
D. I, II, III
E. I, II, III, IV

Answer E (IAS 34 par. 20)


CLINCHER
Borrowing costs, leases, income tax and employee benefits

1. In Revised PAS 19, Employee Benefits, which of the following are not described as short-term
employee benefits:

a. Social security contributions


b. Profit-sharing and bonuses
c. Sabbatical leaves
d. Subsidized goods and services.

Answer: C
Revised PAS19 includes sabbatical leave or long-service leave as other long-term employee
benefits

2. In presenting Employee Benefits in the financial statements, an entity shall disclose:

a. A sensitivity analysis for all actuarial assumption as of the end of the reporting period,
showing how the defined benefit obligation would have been affected by changes in the
relevant actuarial assumption that were reasonably possible at that date.
b. The methods and assumptions used in preparing the sensitivity analyses and the
limitations of those methods.
c. The expected changes in the methods and assumptions used in preparing the sensitivity
analyses.
d. The number of retired employees that claimed their benefits during the year.

Answer: B
Under Revised PAS 19, paragraph 145, an entity shall disclose:
- A sensitivity analysis for each significant actuarial assumption (as disclosed under
paragraph 144) as of the end of the reporting period, showing how the defined benefit obligation
would have been affected by changes in the relevant actuarial assumption that were reasonably
possible at that date.
- The methods and assumptions used in preparing the sensitivity analyses required by (a)
and the limitations of those methods; and
- Changes from the previous period in the methods and assumptions used in preparing
the sensitivity analyses, and the reasons for such changes.

Small and medium sized entities

1. Under PFRS for SMEs, SMEs shall account for borrowing costs as:

a. Capitalize when the expenditure are being incurred and activities that are necessary to
prepare the assets for its intended use.
b. Capitalize when the expenditure are being incurred and activities that are necessary to
prepare the assets for eventual sale.
c. Capitalize the borrowing costs and amortize using straight line method over the term of
the loan
d. Recognize the borrowing cost as an expense in profit or loss in the period in which they
are incurred.

Answer: D
Under PFRS for SMEs Section 25, an entity shall recognize all borrowing costs as an expense in
profit or loss in the period in which they are incurred.
Financial assets and non-financial assets

1. Financial liabilities held for trading include: (Select all that may apply)
a. Derivative liabilities that are accounted for as hedging instruments
b. Financial liabilities that are incurred with an intention to repurchase them in the
near term
c. Financial liabilities that are part of a portfolio of identified financial instruments
that are managed together and for which there is evidence of a recent pattern of
short-term profit-taking
d. None of the above

Answer: B & C

(IAS 39 AG15)

2. Under IFRS 9 Financial Instruments, all of the following statements about the business model test
are correct, except:
a. Not an instrument-by-instrument approach
b. Classification to be determined at facility-level
c. It is a matter of fact and not management intent
d. All of the above are correct

Answer: B

(ifrs 9 b4.1.1 b4.1.2b)

3. An entity may designate a financial asset or financial liability at fair value through profit or loss
only in either of the following circumstances: (Select all that may apply)
a. It eliminates or significantly reduces a measurement or recognition inconsistency.
b. A group of financial assets, financial liabilities or both is managed and its
performance is evaluated on a fair value basis.
c. It contains an embedded derivative that meets particular conditions.
d. None of the above

Answer: A, B & C

(IGAAP C.44.2.1)

Cash to accrual

1. Clown Corp. maintains its accounting records on the cash basis but restates its financial statements
to the accrual method of accounting. Clown had P60,000 in cash-basis pretax income for 2016.
The following pertains to Clowns operations for the years ended December 31, 2016 and 2015:

12/31/2016 12/31/2015
Accounts receivable P40,000 P20,000
Accounts payable 15,000 30,000
Under the accrual method, what amount of income before taxes should Clown report in its
December 31, 2016 income statement?
a. P95,000 c. P55,000
b. P65,000 d. P25,00

Answer: A (60,000+40,000-20,000+30,000-15,000)

2. Revenue under accrual basis for the year amounted to P 3,750,000 while accounts receivable
written off amounted to P 28,750. If the balance of accounts receivables increased by P 620,000,
then how much revenue should be reported for the year under cash basis?

a. P 3,101,250 c. P 3,158,750
b. P 3,130,000 d. P 4,341,250

Answer: A (P3,750,000-28,750-620,000)

3. Under the accrual basis, rental income of Macho Company for the calendar year 2016 is P60,000.
Additional information regarding rental income are:

Unearned rental income, Jan. 1, 2016 P5,000


Unearned rental income, Dec. 31, 2016 7,500
Accrued rental income, Jan. 1, 2016 3,000
Accrued rental income, Dec. 31, 2016 4,000

How much actual cash rental was received by Macho Company in 2016?
a. P58,500 c. P62,500
b. P61,500 d. P65,500

Answer: B (P60,000-4,000+3,000-5,000+7500)

Interim reporting

1. In deciding how to recognize, measure, classify, or disclose an item for interim financial reporting
purposes, materiality is to be assessed in relation to ________________.
a. Interim period financial data
b. Forecast annual data
c. Either A or B
d. Neither A nor B.

ANSWER: A. Based on IAS 34.23, deciding how to recognize, measure, classify, or disclose
an item for interim financial reporting purposes, materiality is to be assessed in relation to
Interim period financial data, not
forecast annual data.

2. If an accounting policy change requires restatement, financial statements for the following periods
are restated:

I. prior interim periods of current financial year


II. comparable interim periods of previous years

a. Both I and II
b. I only
c. II only
d. Neither I and II

ANSWER: A