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UNIVERSITY OF SAINT LOUIS

Tuguegarao City
School of Accountancy, Business and Hospitality
ACCOUNTANCY DEPARTMENT

PRE-ASSESSMENT EXAM
Review in Financial Accounting and Reporting (FAR)
1st Semester, S.Y. 2019-2020

SMALL AND MEDIUM-SIZED ENTITIES (SMEs)

Instruction: Write your answers in a separate sheet of papers. The following items are mix of “True or False”
questions, multiple choice questions, identification, and straight problems. For “True or False” questions, write the
word TRUE if the statement is correct, otherwise write FALSE. For MCQs, choose the letter of your choice that
best corresponds to the best answer. For straight problems, supporting computations are not required to be
presented. GODBLESS! #CPADream # KeepTheFaith

DEFINITION exempted from the mandatory adoption of

1. The PFRS for SMEs is effective for annual
periods beginning on or after January 1, 2010.
2. IASB defines SME as an entity with total
assets between P3,000,000 and
P350,000,000, OR with total liabilities between
P3,000,000 and P250,000,000.
3. IASB’s definition of SME includes those
entities that do not have public accountability
or those entities that publish general purpose
financial statements for external users.
4. A mutual fund company may qualify as SME
so long as it meets the criteria provided by
SEC.
5. An entity that meets the SME criteria as
defined by Philippine Securities and Exchange
Commission are required to apply the PFRS
for SMEs
6. A company, which has no public accountability
but publishes general purpose financial
statements for external users are called small
and medium-sized entities.
7. An entity that holds assets in a fiduciary
capacity incidental to a primary business is
considered as not publicly accountable.
8. If a parent by itself does not have public
accountability, it may use PFRS for SMEs as
a basis in preparing separate financial
statements notwithstanding the fact that the
group as a whole has public accountability
and consolidated financial statements are
prepared using full PFRS.
PFRS for SMEs.
11. Entities considered as holders of secondary
licenses issued by a regulatory agency are not
considered as SMEs. Which of the following is
not among this type of entities?
a. Insurance and pre-need companies
b. Public utility companies
c. Commercial banks, investment houses
and finance companies
d. Security dealer/broker and mutual fund
companies
12. An entity whose total assets or liabilities are
below the P3,000,000 floor threshold may
elect to use full PFRS.
13. Which of the following statements is false
concerning application of the size criteria for
SMEs?
I. The amount of total assets and total
liabilities shall be based on the entity’s
audited financial statements at the end of
the preceding calendar year.
II. If an SME is using the fiscal year, the
entity shall apply the size criteria using
the audited financial statements of the
preceding fiscal year.
a. I only
b. b. II only
c. c. Both I and II
d. d. Neither I nor II
14. The date of transition to PFRS for SME is the
current reporting period for which full
comparative information is presented in
accordance with PFRS for SMEs in the first
annual financial statements that conform to
PFRS for SMEs.

9. A subsidiary of a parent reporting under full
IFRS is exempted from the mandatory
adoption of the PFRS for SMEs.
10. An entity that has a subsidiary that is
mandated to report under full IFRS is also
15. If an SME that uses the PFRS for SMEs in the
current year breaches the ceiling of the size
criteria at the end of the current year, the entity
is required to transition to full PFRS in the
next year if the event that caused the change
is significant and continuing.

16. What is considered “significant” change in the
size criteria that requires transition to or from
the PFRS for SMEs?
a. 20% or more of the total assets or total
liabilities
b. 50% or more of the total assets or total
liabilities
c. 10% or more of the total assets or total
liabilities
d. No quantitative thresholds can be made
17. Retrospective application of PFRS for SMEs
is mandatory except for: ( Choose among the
list which is not given a mandatory exception
to retrospective application)
a. Biological assets.
b. Derecognition of financial assets and
financial liabilities
c. Hedge accounting
d. Accounting estimates
e. Discontinued operations
f. Measuring noncontrolling interest
18. An entity’s first financial statements that
conform to the PFRS for SMEs are presented
for the year ended 31 December 20X4. Those
financial statements include only one year of
comparative information (i.e., 20X3). The
entity’s financial statements for the year ended
31 December 20X3 were presented in
accordance with local GAAP. The entity is
required to explain how the transition from the
previous financial reporting framework to the
PFRS for SMEs affected its reported financial
position, financial performance and cash flows.
To comply with this requirement, an entity’s
first financial statements that conform to the
PFRS for SMEs must present a number of
reconciliations. Which one of the following four
reconciliations is not required to be disclosed?
a. A reconciliation of its equity under its
previous financial reporting framework
to its equity in accordance with the
PFRS for SMEs at 31 December 20X3
b. A reconciliation of its profit or loss in
accordance with its previous financial
reporting framework for 20X3 to its profit
or loss in accordance with the PFRS for
SMEs for 20X3
c. A reconciliation of its profit or loss in
accordance with its previous financial
reporting framework for 20X4 to its profit
or loss in accordance with the PFRS for
SMEs for 20X4
d. A reconciliation of its equity under its
previous financial reporting framework
to its equity in accordance with the
PFRS for SMEs at 1 January 20X3
19. An SME that presents the first financial
statements that conform to IFRS for SMEs is
known as__________________.
20. IFRS for SMEs contains exemptions for
comparative information and the restatement
of the opening statement of financial
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position. What is the basis for such
exemptions?
a. Cost
b. Impracticability
c. Materiality
d. Relevance
21. The reconciliation of equity under the
previous reporting framework to the equity
under IFRS for SMEs is made at
a. The date of transition to IFRS for SMEs
b. The end of current reporting period
c. The date of transition to IFRS for SMEs
and at the end of the current reporting
period.
d. The end of the preceding comparative
period
22. The reconciliation of profit or loss under the
previous reporting framework to the profit or
loss under IFRS for SMEs is made at
a. The date of transition to IFRS for SMEs
b. The end of the current reporting period
c. The end of the preceding comparative
period
d. No reconciliation of profit or loss is made.
QUALITIES & GENERAL FEATURES
23. IFRS for SMEs mentions two fundamental
qualitative characteristics of useful financial
information - Relevance and Faithful
Representation.
24. A publicly accountable entity is prohibited
from making explicit and unreserved
statement of compliance with PFRS for SMEs
even if it is required by law to prepare the
financial statements in accordance with PFRS
for SMEs.
STATEMENT OF FINANCIAL POSITION
25. An SME is allowed not to present a statement
of comprehensive income and statement of
changes in equity and as an alternative may
present a single statement of income and
retained earnings if the only changes to the
equity are the result of (a) profit or loss, (b)
payment of dividends; (c) prior period errors;
(d) changes in accounting policy; and (e)
revaluation surplus.
26. PFRS for SMEs does not require the
presentation of (a) Total of assets classified as
held for sale and (b) Total of liabilities included
in disposal group classified as held for sale.
27. Presentation of investment in joint ventures
is required under PFRS for SMEs but not
under full PFRS.
28. All of the following are considered line items in
the statement of financial position of an SME,
except
a. Provisions
b. Noncontrolling interest
c. Equity attributable to the owners of
parent
d. Revaluation surplus
For the following 3 items:
An SME provided the following on December 31,
2016:
Cash 50,000
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Accounts receivable 1,060,000 36. An SME is required to present the following in

Prepayments 120,000 the notes:
Inventories 120,000 a. Segment information;
Investment in associate 220,000 b. Earnings per share; and
Property, plant and equipment 6,500,000 c. Interim financial reports.
Accumulated depreciation and
1,400,000 ACCOUNTING CHANGES
impairment
Software- net of amortization and
20,000 37. Which of the following statements is correct?
impairment
Deferred tax asset 10,000 a. Changes in accounting policy are
Bank overdraft 160,000 always handled in the current or
prospective period.
Bank loan, fully payable in 2018 and
100,000 b. Prior years’ statements should be
repayable without penalty
restated for changes in accounting
Trade payables 860,000
estimate.
Interest payable 4,000
c. A change from expensing certain costs
Current tax liability 540,000 to capitalizing these costs due to a
Provision for warranty 8,000 change in the period benefited should
Employee benefit obligation, be handled as a change in accounting
20,000
current portion P8,000 estimate.
Finance lease liability, current d. Correction of a prior period error should
88,000
portion, P40,000 be an adjustment to current year net
Share capital 60,000 income.
Retained earnings 4,860,000
INVENTORIES AND REVENUE
29. What is the total amount of current assets?
30. What is the total amount of current liabilities? 38. Under PFRS for SMEs, if the selling price less
31. What is the total shareholders’ equity? cost to complete and sell is lower than cost of
inventory, the writedown isrecognized
STATEMENT OF COMPREHENSIVE a. As an impairment loss
INCOME/CHANGES IN EQUITY/CASH FLOWS b. An component of cost of goods sold
c. As an impairment loss or component of
32. PFRS for SMEs considers actuarial gain or cost of goods sold
loss on projected benefit obligation as a d. Directly in retained earnings
component of other comprehensive income
(OCI) and the company may elect to present it 39. Revenue from sale of goods shall be
either as component of OCI or as component recognized when all of the following conditions
of profit or loss. have been satisfied, except
a. The entity has transferred to the buyer
33. Which of the following gain and loss should the significant risks and rewards of
be recognized in OCI of an SME? ownership of the goods.
a. Gain and loss from discontinued b. The entity retains either continuing
operations managerial involvement or effective
b. Gain and loss arising on translating the control over the goods sold.
financial statements of a foreign c. The amount of revenue can be
operation measured reliably.
c. Gain on remeasuring equity d. It is probable that economic benefits will
investments at FVOCI flow to the entity.
d. Extraordinary gain and loss
BASIC FINANCIAL INSTRUMENTS
34. Which is not considered as Other
Comprehensive Income for SMEs? 40. To be classified as basic financial instrument,
a. Some actuarial gains and losses the investment in ordinary shares must be
b. Some gains and losses on available- nonputtable.
for-sale securities
c. Some foreign exchange translation 41. To be classified as basic financial instrument,
gains and losses the investment in preference shares must be
d. Some changes in fair values of hedging non-convertible and nonputtable.
instruments
42. To be classified as basic financial instrument,
35. Which gain and loss can an SME elect to the investment in debt instrument must
recognize in OCI or in profit or loss? assure the holder or creditor of a payment of
a. Revaluation surplus of PPE the fixed amount of principal and fixed amount
b. Gain and loss arising on translating the of interest without any conditions.
financial statements of a foreign
operation 43. Derivative contracts are not basic financial
c. Actuarial gain and loss of defined benefit instrument.
plan
d. Gain and loss on hedging instrument 44. All of the following are considered basic
financial instruments, except
NOTES TO FINANCIAL STATEMENTS/RELATED a. Demand and fixed-term deposit
PARTIES/EVENTS AFTER THE REPORTING b. Option and forward contract
PERIODS c. Loan from subsidiary due on demand

d. A debt instrument that becomes payable
on demand if the issuer defaults on
interest or principal payment.
45. It is a financial instrument that gives the holder
the right to sell the instrument back to the
issuer or is automatically redeemed or
purchased by the issuer on the occurrence of
a future uncertain event.______________.
46. All of the following financial assets are basic
financial instruments, except
a. Cash
b. Accounts receivable
c. A passive interest in the nonputtable
ordinary shares of another entity
d. An interest in the nonputtable ordinary
shares where the investee is classified
as an associate of the entity.
47. All of the following are basic financial
instruments, except
a. Investment in non-convertible and
nonputtable preference shares
b. Financial instruments that meets the
definition of an entity’s own equity.
c. A fixed-interest fixed-term loan from a
bank.
d. Investment in nonputtable ordinary shares.
48. All of the following are considered basic
financial instruments, except
a. Accounts payable in foreign currency
b. Loan from associate due on demand
c. Investment in convertible debt
d. A debt instrument with a fixed rate of
return.
49. Which of the following statements reflects the
accounting for financial instruments under
IFRS for SMEs?
a. All financial instruments must be
measured at fair value.
b. Reversal of an impairment loss is not
allowed.
c. All amortized cost instruments must be
tested for impairment.
d. All financial instruments must be
measured at amortized cost.
INVESTMENT IN ASSOCIATE
50. An SME exercising significant influence over
another entity shall account its interest using
equity method.
For the following 3 items:
On January 1, 2016, SME acquired 25% of the
equity of each of entities B, C, and D for
P1,000,000, P1,500,000 and P2,800,000,
respectively.
Transaction costs of 1% of the purchase price
were incurred by SME.
On January 2, 2016 Entity B declared and paid
dividend of P100,000.
On December 31, 2016, Entity C declared and paid
dividend of P800,000.
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For the year ended December 31, 2016, entities B
and C recognized profit respectively of P500,000
and P1,800,000.
However, entity D recognized a loss of P2,000,000.
Published price quotations do not exist for the
shares of entities B, C, and D.
Using appropriate valuation techniques SME
determined the fair value of the investments in
Entities B, C, and D on December 31, 2016 at
P1,300,000, P2,900,000 and P1,500,000,
respectively.
Costs of disposal are estimated at 5% of the fair
value of the investments.
51. What is the balance of SME’s investment in
associate at the end of the current year using
cost model?
52. What is the balance of SME’s investment in
associate at the end of the current year using
equity method?
53. What is the balance of SME’s investment in
associate at the end of the current year using
fair value model?
INVESTMENT PROPERTY
54. If an SME can measure the fair value of a
property interest held under an operating lease
that meets the definition of investment
property, the entity may elect to classify its
leasehold interest as investment property.
55. Borrowing costs directly attributable to the
construction of an investment property shall
be recognized as expense when incurred.
56. As a rule, PFRS for SMEs requires
measurement of investment property at fair
value without undue cost or effort on an on-
going basis at reporting periods.
57. When an entity elects the cost model of
measuring investment property, it is required
to present it in the statement of financial
position as a separate line item.
58. On January 1, 2016, an SME acquired
property consisting of ten identical freehold
detached houses each with separate legal title
including the land on which it is built for
P200,000,000, 20% of which is attributable to
the land. The units have a useful life of 50
years. The following costs are also incurred on
such date:
Nonrefundable transfer taxes
not included in the purchase 20,000,000
price
Legal cost directly
1,000,000
attributable to the acquisition
Reimbursement to the
previous owner for prepaying
nonrefundable property taxes 10,000
for the six-month period
ending June 30, 2016
Advertising campaign 500,000
Opening function to celebrate
200,000
new rental business

On June 30, 2016, SME paid local property
taxes of P20,000 for the year ending June 30,
2017.
Throughout 2016, SME incurred repairs and
maintenance of P120,000.
SME used one of the ten units to
accommodate the administration and
maintenance staff.
The other nine units were rented out to
independent parties under operating leases.
Refundable deposits held by SME on
December 31, 2016 totaled P270,000. Rent
received in the year ended December 31,
2016 totaled P1,550,000 of which P50,000
related to January 2017.
On December 31, 2016, the fair value of each
unit was reliably estimated at P25,000,000.
INTANGIBLE ASSETS
The fair value of the units can be measured
reliably estimated at P25,000,000.
The fair value of the units can be measured
reliably on an ongoing basis without undue
cost or effort.
59. What is the initial cost of the investment
property?
60. What is the carrying amount of the investment
property on December 31, 2016?
61. What is the gain or (loss) on fair value changes
in 2016?
62. What is the carrying amount of PPE?
IMPAIRMENT OF ASSETS
63. What is the depreciation expense in 2016?
PROPERTY, PLANT & EQUIPMENT
64. PFRS for SMEs allows the use of revaluation
model in measuring PPE.
65. PFRS for SMEs allows separate
presentation of PPE held for sale in the
statement of financial position.
PROVISIONS AND CONTINGENCIES
No questions here!
LEASES
GOVERNMENT GRANT/ BORROWING COST
No questions here!
66. Under PFRS for SMEs, a government grant is
EMPLOYEE BENEFITS
recognized when the conditions are actually
satisfied.
67. PFRS for SMEs does not allow an entity to
match grant with the expense for which it is
intended to compensate or the cost of the
asset that it is used to finance.
68. Under PFRS for SMEs, a grant related to asset
may be treated either as deferred income or
as a reduction in the carrying amount of the
asset.
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69. At SME’s option, borrowing costs may be
capitalized so long as it related to a qualifying
asset and such fact is disclosed in the notes.
70. An SME shall capitalize all of the following as
cost of PPE, except
a. Transport cost
b. Loan raising cost
c. Installation cost
d. Nonrefundable purchase tax
71. Which of the following is a disclosure
requirement in relation to borrowing cost
under IFRS for SMEs?
a. Borrowing cost capitalized during the
period
b. Segregation of qualifying asset from other
assets
c. Capitalization rate for borrowing cost
capitalization
d. Total finance cost recognized as expense
72. Under PFRS for SMEs, an expenditure item
under development stage may qualify for
recognition as intangible asset when the strict
criteria for capitalization are met.
73. An SME is only allowed to apply revaluation
model in accounting for intangible assets.
74. Under PFRS for SMEs, an intangible’s useful
life (including goodwill) shall in no case
exceed 10 years.
75. Goodwill, under PFRS for SMEs, requires
impairment testing only when there is an
indication that the asset is impaired.
76. Intangibles assets, under PFRS for SMEs,
require impairment testing only when there is
an indication that the asset is impaired.
77. Under PFRS for SMEs, past service costs
are recognized as expense over the vesting
period.
78. Under PFRS for SMEs, actuarial gains and
losses may be recognized either as a
component of profit or loss; or as a component
of OCI and is not subsequently recycled to
profit or loss but transferred directly to
retained earnings.
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79. Under PFRS for SMEs, projected unit credit
method shall be used in measuring defined
benefit liability so long as information that is
needed to make such calculation is already
available or can be obtained without undue
cost or effort.
80. Under PFRS for SMEs, changes in fair value
of plan assets are recognized in profit or
loss.
another party substantially all of the risks
and rewards of the asset.
c. A simplified calculation is allowed if
measurement of defined benefit obligation
involves undue cost or effort.
d. The cost model is permitted for
investments in associates.
NOTHING FOLLOWS

INCOME TAX

No questions here!

EQUITY

No questions here!

SPECIALIZED ACTIVITIES – AGRICULTURE

No questions here!

SPECIALIZED ACTIVITIES – EXPLORATION AND

EVALUATION OF MINERAL RESOURCES

81. Recognition of exploration and evaluation

costs as asset is a matter of entity’s
accounting policy.

82. If the exploration and evaluation cost is

classified as tangible asset or intangible asset,
it is subsequently measure either under cost
model or revaluation model.

SPECIALIZED ACTIVITIES - SERVICE

CONCESSION

No questions here!

HYPERINFLATION

No questions here!

83. Which is not addressed in IFRS for SMEs?

a. Earnings per share
b. Provisions and contingencies
c. Liabilities and equity
d. Revenue

84. Which accounting treatment is not allowed

under IFRS for SMEs?
a. Weighted average method (WAM) for
inventory.
b. Equity method for associates
c. Revaluation model for intangible assets
d. Temporary difference approach for
deferred taxation

85. Which of the following is not a simplification of

an accounting practice allowed by IFRS for
SMEs?
a. Goodwill and other indefinite life intangible
assets are amortized over the useful life.
b. SMEs do not have to derecognize a
financial asset when the entity transfers to