CPA REVIEW SCHOOL FOF THE PHILIPPINES M i FINANCIAL ACCOUNTING AND REPORTING —_VALDUSIV/VALIX/ESCALASANTOS/DELA CRUZ PAS 37 - PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS 1. Which isthe comect definition ofa provision? A possible obligation arising fom past events . Aliabiliy of uncertain timing or uncertain amount liability which eannot be easily measured 4. Anbligation to tansfer funds vo an entity 2. A provision shall be recognized asa liability under which ofthe following conditions? 1 The entity has a present obligation, legal or constructive, as a result of a past event. Its probable hat an outllow of resources embodying economic benefits would be required to sete the obligation. «. The amount of the obligation can be measured reliably. 4. Allof these are required conditions 3. A legal obligation isan obligation tht is derived from al of the following, except a Legislation b. Acontact Other operation of law 44, Anestablished pattem of past practice 4. A contingent ibility ‘a, Definitely exists asa lability but the amount and due date are indeterminable. 'b, Isaccrued even though not reasonably estimated, ¢. Isthe result ofa loss contingency. 4. [snot ecognized in the financial statements. 5. Which is the proper way to report a probable contingent asset? Asan accrued amount b. As deferred revenue © Asa disclosure only 4, No disclosure or acerual required 66. When the provision involves a large population of items, the best estimate of the amount ‘2. Reflects the weighting ofall possible outcomes by their associated probabilities. '. Is determined asthe individual most likely outcome, ‘¢. May be the individual most likely outcome adjusted forthe effect of other possible outcomes. 4. Midpoint of the possible outcomes 171. When the provision arises from a single obligation, the best estimate ofthe amount ‘a. Reflects the weighting ofall possible outcomes by their associated probabilities. ', Isdeternined asthe individual most likely outcome. «. Isthe individual most likely outcome adjusted forthe effect of other possible outcomes. 4. Midpoint of the possible outcomes 8, General contingencies or unspeified risks should ‘Be accrued in the financial statements and disetosed inthe notes Not be accrued in the financial statements and need not be disclosed in the notes. Not be accrue in the financial stalement but shouldbe disclosed inthe notes. 4. Be accrued in the financial statements but need not be disclosed inthe notes. 9, Restrcturing is a structured program which inehides ‘Sale or termination of business '. Closure of business location or relocation of business from one location to another Change in management structure such as elimination of a layer of management 4. Allof these qualify as restructuring 1PAS 32 FINANCIAL INSTRUMENTS \ 10. What isthe principal of accountng for a compound instrument? i 1 The issuer shall classify « compound instrument as either liability or equity. b. The issuer shall classify the liability and equity components ofa compound instrument separately as liability or equity instrument. The issuer shall classify a compound instrument as liabil 4. The issuer shal classify @ compound instrument as 1. How are the proceeds ftom a compound instrument allocated between liability and equity? 1 The lability is measured a fair value and the remainder is allocated tothe equity. b. The proceeds are allocated to the liability and equity based on relative fair value, ‘c. The proceeds are allocated tothe liability and equity based on carrying amount 4. The proceeds are not allocated 12, Proceeds from an issue of debt securities with share warrants should not be allocated between debt and equity features when 42. The fair value ofthe warrants is not readily available '. Exercise ofthe warrants within the next few fiscal periods seems remote The warrants issued with the debt are nondetachable 4. Proceeds should be allocated between debt and equity forall ofthese. 13, Perpetual debt instruments, Are compound financial instruments b. Are denvative financial instruments ‘c. Provide the holder the contractual right to receive payments of interest at fixed dates extending into the indefinite Future ether with right or no right toa return of principal 4. All of these describe perpetual debt instruments 14, The proceeds from the sale of a bond will be equal to ‘a. The face amount of the bond. b, The present value of the face amount of the bond plus the present value of the interest payments to be made during the life ofthe bond. «e, The face amount of the bord plus the preset value ofthe interest payments. ‘4. The sum of the face amount ofthe bond and the periodie interest payments 15, When the effective-interest method is used, the periodic amortization would ‘Increase if the bonds were issued ata discount . Decrease ifthe bonds were issued ata premium. Increase if the bonds were issued ata pretoiurs 4. Increase if the bends were istued at either a discount or a premium. 16. Which is true when the effective interest method 0° amortizing bond discount is used?” ‘Interest expense varies from period to period. b. Interest expense remains constant for each period. . Interest expense increases each period. 4. The interest rate decreases each period. 17. Under the effective interest amortization, the periodic interest expense is equal to The stated rate of interest raultiplied by the face umount of the bonds, Bb. The market rate of interest multiplied by the face amoumt of the bonds. ‘c, The stated rate multiplied by the begining carrying amount of bonds payable, 4d. The market ate multiplied by the beginaing carrying aniount of bonds payable. 18, What is the impact of amortization ofthe bond premium each period? 1. Interest expense being greater than the amount of cush pand for interest Cash paid for inieres being greater than interest expense Interest expense und cash puid are equal using straight line = d Interest expense and cash paid are equal using effective interes.PERS 16 LEASES 19. Under IFRS, a lessee is requited to account for all eases as finance lease and recognize 1 Right of use asset and lease bil b. Right of use asset but not lease li ° Lie ahi utrt gt of se et | 3 NSSreracee re lg | | | 20, The lessee may apply the operating lease model under what condition? ‘a. Short-term lease b. Low value lease cc. Both short-term lease and low value lease 4. Under all circumstances 21. A short-term lease is defined as 1 Twelve months or less ._ Six months or less Twelve-month lease with a purchase option Two-year lease with option to terminate 22, Which statement is true about low value lease? fa. The value of an underlying asst is based on the value ofthe asset when new regardless ofthe age of the asset. The term of a low value lease may be more than twelve months. ‘c. Anunderiying asset does not qualify as low value lease ithe nature of the asset is such thet the ‘asset is typically not of low value when new. 4. All of these statements are rue about low value lease. 23, The cost of right of use asset comprises all, except ‘a. The present value of lease payments '. Lease payment made to lessor on or before commencement date ‘. Initial direct cost incurred by lessee 4. Estimated cost of dismantling and restoring the underlying asset for which the lessee has no present obligation. 24, The right of use asset is reported as ‘a. Noncurrent as separate line stem, i Property, plant and equipment ! «. Imangible asset 4. Investment property 25. A lessee with lease containing a purchase option that is reasonably certain to be exercised should depreciate the right of use asset over ‘a. Useful life ofthe asset Lease term Useful life ofthe asset or the lease term, whichever i shorter 4. Usefl life ofthe asset othe lease term, whichever i longer 26. A lease lability is measured at The absolute amount of lease payments bo. The present value of lease payments The present value of fixed lease payments The far value of the underlying asset ‘Annual rentals Purchase option that is reasonably certain ‘Unguaranteed residual value Residual value guarantee ofthe lessee eeoP 27M oo i vie |28, Which ofthe following is not included inthe definition of lease payments? ‘Any payment required bya bargain purchase option that i reasonably certain '. Costs for services and taxes tobe pad by and reimbursed to the lessor i +e. -Required payments over the lease term \ 4. Any amounts guaranteed by a party related to the lessee 29, Unguaranted residual value is a. A component of lease payments '. Completely ignored in accounting fore finance lease . The portion of residual value of the leased asset, the realization of which by the lessor is not assured or is guaranteed solely by party related tothe lessor 4. The portion of the residual value of the leased asset which is guaranteed by the lessee or by & parry related tothe lessee 30, Which is «correct statement of one ofthe less capitalization criteria on the part of lessor? ‘The lease transfers ownership of the property t0 the lessor 1. The lease contains a purchase option. ‘The lease term is equal to or more than 75% of the economic life of the leased property. 4. The lease payments excluding executory costs equal or exceed 90% ofthe fir value ofthe leased Property 31. The sales revenue recognized by a manufacturer or dealer lessor ina sales type lease isthe a. Fair value of the asset Present value ofthe lease payments . Fair value ofthe asset or present value ofthe fase payments, whichever is lower. A. Fair value ofthe asset or present value ofthe lease rayments, whichever is higher. 32, Which statement characterizes a sales type lee?” ‘a. The lessor recognizes only interest revenue over the useful life pf the asset. 'b. The lessor recognizes only interest revenue over the lease term ‘& The lessor recognizes a dealer profit at lease ception und interes 4. The lessor recognizes a dealer profit at lease inception and interest revenue over the useful life of the asset. 33. Lessors shall recognize asset held under a finance lease as u receivable at an amount equal to 2 Gross investment in the lease Db. Netiavestment inthe lease Gross rentals 4. Residual value, whether guaranteed or ungoaranteed 34. Which of the following would not be included inthe lease receivable account? ‘a. Guaranteed residul value . Unguaranteed residuai value ‘e. Abargain purchase option 4d. All would be inchided 35. Which statement is incorrect about initial direct costs? Initial direct costs incucred by the lessee in finance lease are added to the amount recognized as ‘an asset aud tothe finance lease liabity Ina direct financing ease, initial direct costs are added to the net investment in the lease. Ina sales type lease, initial direct costs at of cost of goods sold. For operating lecse on the part of lessor, lease term, aes PF 36. Lease payments under an operating lease shal! be recognized as rent income using the a Cash method . Sum of years’ digits method €. Decliniag balance method 4. Straight line method, unless another systemaci basis i representative of the time pattem ofthe user's benefit 6688Page 5 37, When should a lessor recognize in income a nonrefundable lease bonus paid by a lessee in an ‘operating lease? a. When received b. Atthe inception of the lease © Atthe lease expiration . Over the lease term ‘38. Which statement cheracterizes an operating lease? The lessee records depreciation and interest. 'b. The lessee records the lease obligation related tothe underlying asset. The lessor transfers title ofthe underlying aset tothe lessee. The lessor records deprecation and lease revenue. PAS 12- INCOME TAXES 39, Accounting profits, ‘a. The profit or loss fora period before deducting tax expense. ', The profit or loss fora period determined in accordance with tax law. ‘¢, The profit or loss fora period after deducting tax expense 4d. The profit or loss after current tx expense determined in accordance with tax law 40. 115 the income tax payable in future periods in respect of taxable temporary ditferences, 1 Defered tax ibility b, Defered tm asset . Current x lability . Carent wx asset 41. Which temporary difference would result in a deferred tue ibility? ‘Interest revenue on municipal bonds '. Accrual of warranty expense Excess tax depreciation over financial depreciation 4. Rent revenue received in advance 42. Deferred tax asst is the amount of income taxes recoverable in future periods in respect of Deductible temporary differences », Permanent differences d ©. Carryforward of unused tax losses 4. Deductible temporary differences and allowed camryforward of operating losses 43. The deferred tax expense isthe 1 Increase in deferred tax asset minus the increase in deferred tax liability Bb. Increase in deferred tax lability minus the increase in deferred tax asset. cc. Increase in defered tax aset plus the increase in defered tx lability 44. Decrease in deferred tax asset minus the inerease in deferred tax liability. 44. An entity shal offset a deferred tax asset and deferred tux liability 8 When the deferred tax asset and income taxes ae levied by different taxing authority. When the entity has no legel enforceable right to offset © When the income taxes are levied by the same taxing authority and the entity has a legal enforceable right to offset a current tax asset against a curent tax liability, 4. Under all circumstances. 43. Which statement is true about intraperiod tux allocation? 1 Itarises because certain revenue and expense items appear inthe income statement either before rafter they are included inthe tax return 3 b, Itisrequired forthe cumulative effect of accounting changes but not for prior period adjustneats. The purpose isto allocate income tax expense evenly over a numberof accounting periods. The purpose isto relate the income tax expense tothe items which affect the amount of tax. 6688PAS 19 - EMPLOYEE BENEFITS 46. In a defined contribution plan, a formula is used that ‘4. Defines the benefit thatthe employee will receive atthe time of retirement. '. Ensures that pension expense and the eash funding amouat will be different. ‘c. Requires an employer to contribute a certain sum cach period based on the formula, 4. Ensures that employers are at risk to make sure funds are available at retirement. 47. na defined benefit plan, « formula is usd that 1 Requires thatthe benefit of gin or the risk of los from the assets contributed tothe pension plan ‘be bome by the employee Defines the benefits that the employee wil receive atthe time of retirement. Requires that pension expense and the cash funding must be the same Defines the contribution the employer isto make and no promise is made concering the ultimate benefits tobe paid out tothe employees. 48, Defined benefit cost inchudes service cos, net interest and remeasurements of defined benefit plan. Remeasurements of defined benefit plan inclode The difference between actual return and interest income on plan assets Actuarial gain or loss on projected benefit obligation ©. Change in the effect of asst ceiling minus interest expense on the beginning effect of asset ceiling 4. All ofthese are included in remeasurements of defined benefit plan eer 49, The interest on the defined benefit obligation of pension expense Reflects the incremental borrowing rate of the employer, '. Reflects the rates at which pension benefits could be effectively settled. Is the same as the expected rerum on plan assets May be stated implicitly or explicitly when reported. ‘50. The retum on plan assets Is equal to the change in the fair value ofthe plan assets during the year. '. Includes interest, dividends and changes in the fair value of the plan assets. . Is equal tothe expected rate of return tras the beginning fair value ofthe plan assets Is excluded in determining fair value of plan assets 51. A pension lisility is reported when. The projected benefit obligation exceeds the fair value of plan assets The accumulated benefit obligation is less than the fait value of plan assets. The pension expense reported forthe peri is greater than the funding amount <¢._ Plan assets at fair value exceed the projected benefit obligation, 52, Termination benefits are employee benefits payable as a result of @ Anentity’s decision to terminate employment atthe normal retirement date, 'b, Anemployee's decision to accept an offer of benefits during employment. & Anentity’s decision to terminate employment before normal retirement date or an employee's decision to accept offer of benefits in exchange for termination, 44. Dismissal from employment 53. Vested benefits ‘a. Usually require a certain minimum sumber of years in service. '. Ase those thatthe employee is entitled to receive even if fire. ‘8. Arenot contingent upon additional service under the plan 4, Are defined by all ofthese. * ‘54. What are compensated absences? © Unpaid time off bb. A form of healtheare ¢. Payroll deductions 4. Paid time off END 6688