Professional Documents
Culture Documents
1. An entity shall measure initially a financial liability not designated at fair value
through profit or loss at
a. Fair value
b. Fair value plus direct attributable transaction costs
c. Fair value minus direct attributable transaction costs
d. Face amount
2. Transaction costs direct attributable to the issue of a financial liability include all of
the following, except
a. Fees and commissions paid to agents
b. Levies by regulatory agencies
c. Transfer taxes and duties
d. Financing costs
3. The fair value of a liability is defined as
a. The appraised value of the liability
b. The price that would be received to assume the liability in an orderly transaction
between market participants
c. The amount that would be paid when transferring a liability in an orderly
transaction between market participants
d. The carrying amount of the liability on the date of transaction
4. After initial recognition, an entity shall measure a financial liability at
I. Amortized cost using the effective interest method.
II. Fair value through profit or loss
a. I only
b. II only
c. Either I or II
d. Neither I or II
5. Which of the following statements is true in relation to the fair value option of
measuring a financial liability?
I. At initial recognition, an entity may irrevocably designate a financial liability
at fair value through profit or loss.
II. The financial liability is measured at every year-end and any changes in fair
value are recognized in profit or loss.
III.The interest expense on the financial liability is recognized using nominal
interest rate.
a. I and II only
b. I and III only
c. II and III only
d. I, II and III
Problem 1-2 Multiple Choice (PAS 1)
1. Some liabilities, such as trade payables, accruals for employee and other operating
costs, are expected to be settled in more than twelve months after the reporting
period. How will an entity classify these items in the statements of financial
positions?
a. Current
b. Noncurrent
c. First classify as noncurrent since the term is more than twelve months, then
classify to current if the term is less than twelve months.
d. It will depend on the entitys policy
2. Which of the following liabilities that are not part of the normal operating cycle
of an entity should be classified as noncurrent?
a. Financial liabilities classified as held for trading
b. Bank overdrafts
c. Current portion of noncurrent financial liabilities
d. Financial liabilities that provide financing but are not due for settlement within
twelve months after the reporting period
3. With respect to loans classified as current liabilities, all of the following events that
occur between the end of the reporting period and the date the financial statements
are authorized for issue are disclosed as nonadjusting events, except
a. Refinancing on a long term basis
b. The entity has the discretion to refinance an obligation for a shorter period
c. Rectification of a breach of a long-term loan arrangement
d. The granting by the lender of a period to rectify breach of a long-term loan
arrangement ending at least twelve months after the reporting period.
liability using the market rate of interest at the date the liability was initially
incurred.
b. Discount the amount of expected cash outflows that are necessary to liquidate the
liability using the market rate of interest at the date financial statements are
prepared.
c. Record as a liability the amount of cash that the entity would be required to pay
to eliminate the liability in the ordinary course of business on the date of the
financial statements.
d. Record as a liability the amount of cash actually received when a liability was
incurred.
3. Which of the following represents a liability?
a. The obligation to pay for goods that an entity expects to order from suppliers
next year.
b. The obligation to provide goods that customers have ordered and paid for during
the current year.
c. The obligation to pay interest on a five-year note payable that was issued the last
day of the current year.
d. The obligation to distribute an entity's own shares next year as a result of a stock
dividend declared near the end of the current year.
d. Intermediate debt
2. At year-end, an entity has 120-day note payable outstanding. The entity has
followed the policy of replacing the note rather than repaying it over the last three
years. The entity's treasurer says that this policy is expected to continue
indefinitely, and the arrangement is acceptable to the bank to which the note was
issued. What is the proper classification of the note in the year-end statement of
financial position?
a. Dependent on the intention of management
b. Dependent on the actual ability to refinance
c. Current liability, unless specific refinancing criteria are met
d. Noncurrent liability
3. An entity had a note payable due next year. After the end of reporting period and
before the issuance of the current year financial statements, the entity issued
long-term bonds payable. Proceeds from the bonds were used to repay the note
when due. How should the entity classify the note payable at current year-end?
a. Current liability with separate disclosure at the note refinancing.
b. Current liability with no disclosure required.
c. Noncurrent liability with separate disclosure of the note refinancing
d. Noncurrent liability with no separate disclosure required
4. An entity has a loan due for repayment in six months' time, but the entity has the
option to refinance for repayment two years later. The entity plans to refinance this
loan. In which section of the statement of financial position should this loan be
presented?
a. Current liabilities
b. Current assets
c. Noncurrent liabilities
d. Noncurrent assets
5. Which of the following circumstances may result in the classification of a liability
as current?
a. Short-term obligations refinanced with long-term debt at the end of reporting
period
b. Debts to be liquidated from funds that have been accumulated and are reported
as noncurrent assets
c. Violation of provisions of a debt agreement
d. Obligations for advance collections that involve long term deferment of the
delivery of goods or services
d. Present obligations arising from past events and result in an outflow of resources
d. Warranty revenue
goods at a price equal to 40% of the main contract price. What liabilities should be
reported in the year-end statement of financial position?
a. None
b. Deferred revenue equal to 60% of the main contract price and payable to
subcontractor equal to 40% of the main contract price.
c. Deferred revenue equal to 60% of the main contract price and no payable to
subcontractor.
d. No deferred revenue but payable to subcontractor is reported at 40% of the main
contract price.
6. In June of the current year, an entity sold refundable merchandise coupons. The
entity receives a certain amount for each coupon redeemable from July 1 to
December 31 of the current year, for merchandise with a certain retail price. At June
30 of the current year, how should be the entity report these coupon transaction?
a. Unearned revenue at the merchandises retail price
b. Unearned revenue at the cash received
c. Revenue at the merchandises price
d. Revenue at the cash received.
7. How would the proceeds received from the advance sale of nonrefundable tickets
for
a theatrical performance be reported in the statement of financial position before the
performance?
a. Revenue for the entire proceeds
b. Revenue to the extent of related costs expanded
c. Unearned revenue to the extent of related costs expended
d. Unearned revenue for the entire proceeds
8. Magazine subscriptions collected in advance should be treated as
a. A contra account to magazine subscriptions receivable
b. Deferred revenue in the liability section
c. Deferred revenue in the shareholders equity section.
d. Magazine subscription refund in the income statement in the period collected.
9. Under a royalty agreement, an entity will receive royalties from the assignment of a
patent for four years. The royalties received in advance should be recognized as
revenue
a. In the period received
b. In the period earned
c. Evenly over the life of the royalty agreement
d. At the date of the royalty agreement
10. Unearned rent revenue would normally appear in the statement of financial
position
as
a. Plant asset
b. Current liability
c. Noncurrent liability
d. Current asset
4. It is an event that creates a legal or constructive obligation because that entity has
no other realistic alternative but to settle the obligation.
a. Obligating event
b. Past event
c. Subsequent event
d. Current event
5. An outflow of resources embodying economic benefits
a. The probability that the event will occur is greater than the probability at the
event will not occur.
b. The probability that the event will not occur is greater than the probability that
the event will occur.
c. The probability that the event will not occur is the same as the probability that
the event will not occur.
d. The probability that the event will occur is 90% likely.
6. What amount is recognized as provision?
a. Best estimate of the expenditure
b. Minimum of the range
c. Maximum of the range
d. Midpoint of the range
7. Where there is continuous range of possible outcomes , and each point in that range
as likely as any other, the range to be used is the:
a. Minimum
b. Maximum
c. Midpoint
d. Summation of Maximum and Minimum.
8. When the provision involves a large population of items, the estimate of the
amount.
a. Reflects the weighting of all possible outcomes by their associated
probabilities.
b. Is determined as the individual most likely outcome.
c. May be the individual most likely outcome.
d. May be the individual most likely outcome.
9. When the provision arises from a single obligation, the estimate of the amount
a. Reflects him weighting of all possible outcomes by their associated
probabilities.
B
D
C
A
A
6. A
7. C
8. A
9. C
10. C
3. C
4. C
5. D
4. It is a contract in which the unavoidable costs of meeting the obligation under the
contract exceed the economic benefits to be received under the contract.
a. Onerous contract
b. Executory contract
c. Executed contract
d. Sale contract
5. The unavoidable costs under an onerous contract represent the least net cost of
exiting from the contract, which is equal to
a. Cost of fulfilling the contract
b. Penalty arising from failure to fulfil the contract
c. Lower of the cost of fulfilling the contract or the penalty arising from failure to
fulfil the contract
d. Higher of the cost of fulfilling the contract or the penalty arising from failure to
fulfil the contract.
ANSWERS:
1.
2.
3.
4.
5.
C
A
C
A
C
5. D
representatives of the insurance company. Finally, before year end, it was decided
that the entity would receive compensation for 90 % of its claim. The entity
received a letter that the settlement check for that amount had been mailed but it
was not received before yer-end. How should the entity treat this in the financial
statements?
a. Disclose the contingent asset in the footnotes
b. Wait until next year when the settlement check is actually received and not
recognize this receivable at all since at year-end it is a contingent asset
c. Record 90% of the claim as a receivable as it is virtually certain that the
contingent asset will be received.
d. Record 100% of the claim as a receivable at year-end as it is virtually certain
that the contingent asset will be received, and adjust the 10% next year when
the settlement check is actually received
4. An entity has been served a legal notice at year-end by the Department of
Environment and Natural Resources to fit smoke detectors in its factory on or
before middle of the next year. The cost of fitting smoke detector can be
measured reliably. How should the entity treat this in its financial statements at
year-end?
a. Recognize a provision for the current year equal to the estimated amount
b. Recognize a provision for the current year equal to one-half only of the
estimated amount
c. No provision is recognized at year-end because there is no present obligation
for the future expenditure since the entity can avoid the future expenditure by
changing the method of operations, but disclosure is required
d. Ignore the event
5. The board of directors of an entity decided in the latter part of the current year o
wind up international operations in the Far East and move them to Australia. The
decision was based on a detailed formal plan of restructuring as required by PAS
37.This decision was conveyed to all workers and management personnel at the
headquarters in Europe. The cost of this restructuring plan can be measured
reliably, how should the entity treat this restructuring in the financial statements for
the current year-end?
a. Disclose only the restructuring decision and the cost of restructuring because
the entity has not announced the restructuring to those affected by the decision
and thus has not raised an expectation that the entity would actually carry out
the restructuring.
b. Recognize a provision for restructuring since the board of directors has
approved it and it has been announced in the headquarters of the entity in
Europe.
c. Mention the decision to restructure and the cost involved in the chirmas
statement in the annual report since it is a decision of the board of directors.
d. Because the restructuring has not commenced before year-end, based on
prudence, wait until next year and do nothing in this years financial statements
ANSWERS:
1. B
2. B
3. C
4. C
5. A
4. It is possible asset that arises from past event and whose existence will be
confirmed occurrence or non-occurrence of one more uncertain future events not
wholly within the control of the entity
a. Contingent asset
b. Contingent gain
c. Possible asset
d. Asset in suspense
5. Which of the following statement is incorrect concerning a contingent asset?
a. A contingent asset is recognized because this may result to recognition of
income that may never be realized.
b. When the realization of income is virtually certain, the related asset is no longer
a contingent asset and its recognition is appropriate.
c. A contingent asset is disclosed where an inflow of economic benefit is probable.
d. A contingent asset is disclosed where an inflow of economic benefit is possible
or remote
ANSWERS:
1. A
2. A
3. B
4. A
5. D
estimated shall
a. Not be accrued but shall be disclose in the notes of financial statement
b. Be accrued by debiting an appropriated retained earnings account and crediting
a liability account
c. Be accrued by debiting an expense account and crediting an appropriated
retained earnings account
d. Be accrued by debiting an expense accounting and crediting a liability account
4. An entity has self-insurance plan. Each year, the entity appropriated retained
earnings for contingencies in amount equal to insurance premiums saved less
recognized losses from lawsuits and other claims. As a result of an accident in the
current year, the entity is a defendant in a lawsuit in which it will probably have to
pay amount measurable damages. What are the effects of this lawsuits probable
outcome on the entitys financial statement for the current year?
a. An increase in expenses and no effect on liabilities
b. An increase in both expense and liabilities
c. No effect on expenses and increase in liabilities
d. No effect on either expenses or liabilities
5. Contingent assets are usually recognized when
a. Realized
b. Occurrence is reasonable and the amount can be reasonably estimated
c. The amount can be reasonably estimated
d. The amount can be reasonably estimated
6. Which of the following is the proper way to report a contingent asset, receipt of
which is certain?
a. As an asset
b. As a unearned revenue
c. As a disclosure only
d. No disclosure and no accrual
7. Which of the following is the proper accounting treatment of a probable contingent
asset?
a. An accrued account
b. Deferred earnings
c. An account receivable with an additional disclosure explaining the nature of
transaction
d. A disclosure only
8. When the occurrence of a contingent asset is probable and the amount can be
reasonably estimated, the contingent asset should
a. Recognized in the statement of financial position and disclosed
b. Classified as an appropriation of retained earnings
c. Disclosed but not recognized in the statement of financial position
d. Neither recognized in the statement of financial position nor disclosed
9. An entity operates a plant in a foreign country. It is probable that the plant will be
expropriated. However, the foreign government has indicated that the entity will
received definite amount of compensation for the plant. The amount of
compensation is less than the fair value but exceeds the carrying amount of the
plant. The contingent should reported
a. As a valuation allowance as part of the shareholders equity
b. As a fixed asset valuation allowance account
c. In the notes to the financial statement
d. In the statement of financial position
10. At year end, an entity was suing a competitor for a patent infringement. The award
from the probable favourable outcome could be reasonably estimated. The entitys
financial statements should report the expected award as
a. Receivable and revenue
b. Receivable and reduction of patent
c. Receivable and deferred revenue
d. Disclosure only
ANSWERS:
1. D
6. C
2. B
7. D
3. D
8. C
4. B
9. C
5. A
10. D
Problem 4-9 Multiple choice (IAA)
1. Contingent liabilities will or will not become actual liabilities depending on
a. Whether they are probable and estimable.
b. The degree of uncertainty.
c. The present condition suggesting a liability.
d. The outcome of a future event.
c. Estimated liability
d. Current liability
8. Gain contingencies that are remote and can be reliably measured
a. Must be disclosed.
b. May be disclosed.
c. Must be reported.
d. Should not be reported or disclosed.
9. A contingent liability
a. Definitely exists as a liability but the amount and due date are indeterminable.
b. Is accrued even though not reasonably estimated.
c. Is the result of a loss contingency.
d. Is not recognized in the financial statements.
10. Which of the following should be disclosed in the financial statements as a
contingent liability?
a. The entity has accepted liability prior to the year-end for unfair dismissal of an
employee and is to pay damages.
b. The entity has received a letter from a supplier complaining about an old unpaid
invoice.
c. The entity is involved in a legal case which it may possibly lose, although this is
not probable.
d. The entity has not yet paid certain claims under sales warranties.
ANSWERS:
1. D
6. A
2. D
7. B
3. C
8. D
4. D
9. D
5. B
10. C
Problem 4-10 Multiple choice (IAA)
1. What condition is necessary to recognize an environmental liability?
a. The entity has an existing legal obligation and the amount of the liability can be
reliably estimated.
b. The entity can reliably estimate the amount of the liability.
c. The entity has a existing legal obligation.
d. Obligating event has occurred.
3. Which of the following is required to disclose regarding risk and uncertainties that
exist?
a. Factor causing an estimate to be sensitive.
b. The potential impact of estimate when it is reasonably possible that the estimate
will change in the future.
c. The potential impact of estimate when it is remotely possible that the estimate
will change in the future.
d. A description of operations both within and outside of the home country.
4. A contingent liability is
a. An estimated liability.
b. An event which is not recognized because it is not probable that an outflow will
be required or the amount cannot be reliably estimated.
c. A potential large liability.
d. A potential small liability.
5. How should incurred cost associated with relocating employees in a restructuring
be accounted for?
a. Measured at fair value and recognized over two years.
b. Measured at fair value and recognized when the liability is incurred.
c. Recognized when cost are paid.
d. Measured at fair value and treated as prior period error.
ANSWERS:
1. A
2. A
3. B
4. B
5. B
5. Which of the following statement is true in relation to the fair value option of
measuring a bonds payable?
6. D
7. C
8. D
9. A
10. A
ANSWERS:
1. A
2. C
3. D
4. D
5. B
6. D
7. B
8. D
9. A
10. C
ANSWERS:
1. B
2. A
3. B
4. C
5. D
d. Plus the present value of all the future interest payments at the rate of interest
stated on the bond
8. A five-year term bond was issued by an entity on January 1, 2014 at a premium.
The carrying amount of the bond on December 31, 2015 would be
a. The same as the carrying amount on January 1, 2014
b. Higher than the carrying amount on January 1, 2014
c. Higher than the carrying amount on December 31, 2016
d. Lower than the carrying amount on December 31, 2016
9. A five-year term bond was issued by an entity on January 1, 2014 at a discount. The
carrying amount of the bond on December 31, 2015 would be
a. Higher than the carrying amount on December 31, 2014
b. Lower than the carrying amount on December 31, 20114
c. The same as the carrying as the carrying amount on December 31, 2014
d. Higher than the carrying amount on December 31, 2016
10. Under international accounting, the valuation method used for bond payable
a. Historical cost
b. Discounted cash flow valuation at current yield rate
c. Maturity amount
d. Discounted cash flow valuation at a yield rate at issuance
ANSWERS:
1. C
2. C
3. C
4. B
5. A
6. B
7. B
8. C
9. A
10. D
b. Equity instrument
c. Debt instrument
d. Derivative instrument
2. A financial liability is a contractual obligation
I. To deliver cash or other financial asset to another entity
II. To exchange financial instruments with another entity under conditions that are
potentially unfavorable.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
3. It is any contract that evidences residual interest in the assets of an entity after
deducting all of its liabilities.
a. Equity instrument
b. Debt instrument
c. Loan receivable
d. Financial asset with indeterminable fair value.
4. Financial liabilities include all of the following, except
a. Trade accounts payable
b. Notes payable
c. Bonds payable
d. Income taxes payable
5. Equity instruments include all of the following, except
a. Ordinary shares
b. Preference shares
c. Warrants or options that allow the holder to purchase a fixed number of
ordinary shares of the issuing entity in exchange for a fixed amount of cash.
d. Corporate bonds and other debt instruments issued by the entity.
6. Which of the following is not classified as a financial instrument?
a. Convertible bond
b. Foreign currency contract
c. Warranty provision
d. Loan receivable
7. A bond or similar instrument convertible by the holder into a fixed number of
6. D
7. A
8. D
9. B
5. D
10. A
4. When an entity issued convertible bonds, how will share premium be computed if
the bonds were converted into ordinary shares?
a. It is the difference between the carrying amount of the bonds and the total par or
stated value of the shares issued.
b. It is the difference between the face value of the bonds and the total par or stated
value of the shares issued.
c. It is the difference between the carrying amount of the bonds plus share premium
from conversion privilege and the total par or stated value of the shares issued.
d. It is the difference between the face value of the bonds plus the share premium
from conversion privilege and the total par or stated value of the shares issued.
5. The proceeds from a bond issued with share warrants shall be accounted for as
a. Entirely bonds payable
b. Entirely shareholders' equity
c. Partly bonds payable and partly unearned revenue
d. Partly bonds payable and partly shareholders' equity
1.
2.
3.
4.
5.
B
C
B
C
D
a. Zero
b. The excess of the proceeds over the face value of the bonds
c. The market value of the share warrants
d. The excess of the proceeds over the fair value of the bonds without the share
warrants
5. The major difference between convertible bonds and bonds issued with share
warrants is that upon exercise of the warrants
a. The shares are held by the issuer for a certain period before they are issued tobthe
warrant holder
b. The holder has to pay a certain amount to obtain the shares.
c. The shares involved are restricted.
d. No share premium can be part of the transaction.
ANSWERS:
1. D
2. C
3. C
4. B
5. A
5. Which of the following statements is incorrect in relation to the fair value option
of measuring note payable?
a. At initial recognition, an entity may irrevocably designate the note payable as
at
fair value through profit or loss.
b. At initial recognition, an entity may revocably designate the note payable as at
fair value through profit or loss.
c. The interest expense on the note payable is recognized using the stated interest
rate.
d. After initial recognition, the note payable is remeasured at fair value at every
year end with changes in fair value recognized partly in other comprehensive
income and partly in profit or loss.
Problem 8 2 Multiple Choice (AICPA Adapted)
1. An entity issued a note solely in exchange for cash. Assuming that the items listed
below differ in amount the present value of the note at issuance is equal to
a. Face amount
b. Face amount discounted at the prevailing interest rate
c. Proceeds received
d. Proceeds received discounted at the prevailing interest rate
2. If the present value of a note issued in exchange for a property is less than its face
amount, the difference should be
a. Included in the cost of the asset
b. Amortized as interest expense over the life of the note
c. Amortized as interest expense over the life of the asset
d. Included in interest expense in the year of issuance
3. An entity borrowed cash from a bank and issued to the bank at a short-term
noninterest bearing note payable. The bank discounted the note at 10% and
remitted the proceeds to the entity. The effective interest rate paid by the entity in
this transaction would be
a. Equal to the stated discount rate of 10%
b. More than the stated discount rate of 10%
c. Less than the stated discount rate of 10%
d. Independent of the stated discount rate of 10%
4. At issuance date, the present value of a promissory note is equal to the face amount
if the note
a. Bears a stated rate of interest which is realistic.
b. Bears a stated rate of interest which is less than the prevailing market rate for
similar notes.
c. Is noninterest bearing and the implicit interest rate is less than the prevailing
market rate for similar notes.
d. Is noninterest bearing and the implicit interest rate is equal to the prevailing
market rate for similar notes.
5. The discount resulting from the determination of the present value of a note
payable should be reported in the statement of financial position as
a. Deferred credit separate from the note.
b. Direct deduction from the face amount of the note.
c. Deferred charge separate from the note.
d. Addition to the face amount of the note.
6. Which of the following statements concerning discount on note payable is
incorrect?
a. Discount on note payable may be debited when entity discounts its own note
with the bank.
b. The discount on note payable is a contra liability account which is shown as a
deduction from note payable.
c. The discount on note payable represents interest charges applicable to future
periods.
d. Amortizing the discount on note payable causes the carrying amount of the
liability to gradually decrease over the life of the note.
7. A note payable with no ready market is exchanged for property whose fair value is
currently indeterminable. When such a transaction takes place
a. The present value of the note payable must be approximated using an imputed
interest rate.
b. The note payable should not be recorded until the fair value of the property
becomes
evident.
c. The entity receiving the property should estimate a value for the property.
d. Both entities involved in the transaction should negotiate a value to be assigned
to the property.
8. When a note payable is issued for property, the present value of the note is
measured by
a. The fair value of the property
b. The fair value of the note payable
c. Using an imputed interest rate to discount all future payments on the note
payable
d. All of these are considered in measuring the present value of the note payable
9. When a note payable is exchanged for property, the stated interest rate is presumed
to be fair when
a. No interest rate is stated.
b. The stated interest rate is unreasonable.
c. The face amount of the note is materially different from the cash sale price for
similar property.
d. The stated interest rate is equal to the market rate.
10. On October 1, 2014, an entity borrowed cash and signed a three-year interest
bearing note in which both the principal and interest are payable on October 1,
2017. On December 31, 2014, accrued interest should
a. Be reported as current liability
b. Be reported as noncurrent liability
c. Be reported as part of the note payable
d. Not be reported
CHAPTER 9 DEBT RESTRUCTURE
Problem 9 1 Multiple Choice (PFRS 9)
1. In a debt restructure that is considered an asset swap, the gain on extinguishment is
equal to the
a. Excess of the fair value of the asset over its carrying amount
b. Excess of the carrying amount of the debt over the fair value of the asset
c. Excess of the fair value of the asset over the carrying amount of the debt
d. Excess of the carrying amount of the debt over the carrying amount of the asset
appropriate rate
d. The market value of the asset at the inception of the lease
2. Rent received in advance by the lessor for an operating lease should be recognized
as revenue
a. When received
b. At the lease inception
c. At the lease expiration
d. over the lease term
3. When should a lessor recognize in income a non-refundable lease bonus paid by a
lessee on signing an operating lease?
a. When received
b. At the inception of the lease
c. At the lease expiration
d. Over the lease term
4. As an inducement to enter a lease, Gray Company, a lessor, granted Zeta Company,
a lessee, twelve months of free rent under a five-year operating lease. The lease was
effective at the beginning of current year and provided for monthly rental payments
to begin at the beginning of next year. Zeta made the first rental payment at the
currents year-end. In the current year income statement, Gray Company should
report rent revenue equal to
a. Zero
b. Cash received during the current year
c. One-fourth of the total cash received
d. One-fifth of the total cash to be received over the lease term
5. Lease payments under an operating lease shall be recognized as an expense in the
income statement on
a. Straight line basis over the lease term unless another systematic basis is
representative of the times pattern
b. Diminishing balance basis
c. Sum of units basis
d. Cash basis
6. The lessor should report the leased asset under an operating lease and income
therefrom as which of the following?
a. The asset should be kept off the statement of financial position and the lease
income should go to reserves.
b. The asset should be kept off the statement of financial position and the lease
income should go to the income statement.
c. The asset should be reported in the statement of financial position according to
its nature and the lease income should go to reserves.
d. The asset should be reported in the statement of financial position according to
its nature and the lease income should go to the income statement.
7. When equipment held under an operating lease is subleased by the original lessee,
the original lessee would account for the sublease as
a. Operating lease
b. Sales-type lease
c. Direct financing lease
d. Finance lease
8. In a lease that is recorded as an operating lease by the lessee, the equal monthly
rental payments should be
a. Allocated between a reduction in the liability for leased asset and depreciation
expense
b. Allocated between a reduction in the liability for leased asset and interest
expense
c. Recorded as a reduction in the liability for leased asset
d. Recorded as a rental expense
3. It is the date on which the lessee is entitled to exercise the right to use the leased
asset.
a. Inception of the lease
b. Commencement of the lease
c. Date of lease agreement
d. Date of commitment to the provisions of the lease
4. The situations which would normally lead to a lease being classified as a finance
lease include all of the following, except
a. The lease transfers ownership of the lessee by the end of the lease term
b. The lessee has the option to purchase the asset at a price which would be
expected to be sufficiently higher than the fair value at the date the option
becomes exercisable.
c. The lease term is for the major part of the economic life of the asset even if title
is not transferred.
d. The present value of the minimum lease payments amounts to at least
substantially all of the fair value of the leased asset at the inception of the
lease.
I. A land lease with a lease term of several decades or longer may be classified as
a finance lease even if title will not pass to the lessee at the end of lease term.
II. When a lease includes both land and building, an entity shall determine the
classification of the land lease and building lease based on the classification
criteria taking into account that land normally has an indefinite economic life.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
5. A cancellable lease is deemed noncancelable under all of the following conditions,
except
a. The lease can be cancelled only upon the occurrence of a remote contingency
b. The lease can be cancelled without the permission of the lessor.
c. The lessee, upon cancelation, enters into a new lease for the same or an
equivalent asset with the same lessor.
d. The lease can be cancelled only upon the payment of a penalty of such
magnitude that the lessee shall be discouraged from cancelling the lease.
Problem 11 3 Multiple Choice (IFRS)
1. The classification of a lease normally carried out
a. At the end of the lease term
b. After a cooling off period of one year
c. At the inception of the lease
d. When the entity deems it to be necessary
2. Where there is a lease of land and building and the title to the land is not
transferred,
generally the lease is treated as if
a. The land is a finance lease and the building is a finance lease
b. The land is a finance lease and the building is an operating lease
c. The land is an operating lease and the building is a finance lease
d. The land is an operating lease and the building is an operating lease
3. The lease of a land and building when split cause difficulty in the allocation of the
minimum lease payments. In this case, the minimum lease payments should be split
a. According the relative fair value of two elements
b. By the entity based on the useful life of two elements
c. Using the sum of the digits method
d. According to any fair method devised by the entity
4. From the standpoint of the lessee, the minimum lease payments included all of the
following except
a. The guaranteed residual value
b. The lessees obligation to pay executor costs
c. The bargain purchase option
d. Any payment that the lessee must make upon failure to extend or renew the
lease
5. Which of the following would be considered an executor costs?
a. Minimum lease payment
b. Interest expense incurred
c. Bargain purchase option
d. Maintenance costs
6. One of the four determinative criteria for a finance lease specifies that the lease
term
be equal or greater than
a. The estimated economic life of the property
b .90 percent of the estimated life of the property
c. 75 percent of the estimated life of the property
d. 50 percent of the estimated life of the property
7. One of the four determinative criteria of a finance lease is that the present value at
the beginning of the lease term of the minimum lease payments equal or exceeds
a. The propertys fair market value
b. 90 percent of the propertys fair market value
c. 75 percent of the propertys fair market value
d. 50 percent of the propertys fair market value
8. An entity leased a machine having an expected useful life of 12 years. The
noncancealable lease term is 10 years, and the entity may exercise bargain
purchase option at the end of the noncancealable lease term. The machine should be
capitalized by the entity depreciated value
a. 9 years
b.12years
c. 10 years
d. 10 or 12 years at the entity option
9.If the residual value of a leased asset is greater than theamount guaranteed by the
lessee
3. At the beginning of the current year, an entity made long- term improvements to a
recently leased building. The lease agreement provides for neither a transfer of title
nor a bargain purchase option. The present value of the minimum lease payments
equals 85% of the buildings fair value, and the lease term equals 70% of the
buildings economic life. The lessee should recognize an asset for
a. Building
b. Leasehold improvement
c. Both building and leasehold improvement
d. Neither building and leasehold improvement
4. The lessees lease liability for a finance lease would be periodically reduced by
a. Minimum lease payment plus depreciation of the related asset
b. Minimum lease payment less depreciation of the related asset
c. Minimum lease payment less the portion allocable to interest
d. Minimum lease payment
5. A six year finance lease entered into on December 31 of the current year specified
equal minimum lease payments due on December 31 of each year. The first
minimum lease payment paid on December 31 of the current year consist which
of the following?
I. Interest expense
II. Lease liability
a. I only
b. II only
c. Both I and II
d. Neither I nor II
6 . A six year finance lease entered into on December 31 of the current year specified
equal minimum lease payments due on December 31 of each year, the first payment
being paid December 31 of the current year. The portion of the third minimum
lease payment applicable to which of the following increased over the
corresponding second minimum lease payments?
I. Interest expense
II. Reduction of lease liability
a. I only
b. II only
c. Both I and II
d. Neither I nor II
7. A lease had a ten year finance lease requiring equal minimum annual payments . the
criteria?
a. The lease transfers ownership of the asset to the lessor
b. The lease contains purchase option
c. The lease term is equal to 75% of the economic life of the leased asset
d. The minimum lease payments are at least 90% of the fair value of the leased
asset
2. Which of the following conditions would require lease capitalization?
a. The lease does not transfer title of the leased asset to the lessee
b. There is no bargain purchase option
c. The present value of minimum lease payments is significantly more than the
fair
value of the leased asset
d. The leased term is significantly below the useful life of the leased asset
3. Which of the following best describes current practice in accounting lease?
a. Leases are not capitalized
b. Leases similar to installment purchases are capitalized
c. All long term leases are capitalized
d. All lease are capitalized
4. An entity signed a lease to rent equipment for ten years. At the end of the lease
term,
the entity may purchase the equipment for a nominal amount, the equipment is
estimated to have a useful life of 12 years. How should the entity classify the lease?
a. Operating lease
b. Capital lease
c. Finance lease
d. Sales type lease
5. What is the interest rate used by a lease to capitalize a finance lease when the
implicit rate cannot be determined?
a. Primary rate
b. Lessors published rate
c. Lessees average borrowing rate
d. Lessees incremental rate
6. Executor costs includes all of the following, except
a. Maintenance
b. Property taxes
c. Insurance
d. Bargain purchase option
7. In computing depreciation of a leased asset under a finance lease, the lessee should
deduct
a. An guaranteed residual value and depreciate over the lease term
b. An unguaranteed residual value and depreciate over the lease term
c. An guaranteed residual value and depreciate over the life of the asset
d. An unguaranteed residual value and depreciate over the life of the asset
8. The lease liability should be classified as
a. All current
b. All noncurrent
c. Partly current and partly noncurrent
d. Deferred credit
9. A lessee with a finance lease containing bargain purchase option should depreciate
the leased asset over the
a. Useful life of the asset
b. Lease term
c. Useful life of the asset or lease term whichever is shorter
d. Useful life of the asset or lease term whichever is longer
10. Which of the following statement is true about accounting for lease?
a. All leases are treated as finance lease
b. All leases are treated as operating lease
c. When land and building are leased, elements of the lease are considered
separately in accounting for lease
d. Operating leases are never recorded in the statement of financial position
Problems 12-1 Multiple Choice
1. Gross investment in the lease is the
a. Aggregate of the minimum lease payments under a finance lease of the lessor
and any unguaranteed residual value accruing to the lessor.
b. The minimum lease payments under a finance lease of the lessor.
c. Present value of minimum lease payments under a finance lease of the lessor
and any unguaranteed residual value.
d. Present value of minimum lease payments under a finance lease of the lessor.
whichever is higher.
2. If the sale and leaseback transaction results in an operating lease and the sale price
is above fair value, the excess of the sale price over fair value is
a. Deferred and amortized over the period for which the asset is expected to used.
b. Recognized immediately in profit or loss.
c. Recognized in other comprehensive income.
d. Not recognized.
3. For sale and leaseback transaction resulting in an operating lease if the fair value of
the asset at the time of sale and leaseback is below the carrying amount of the
asset, the differences is recognized
a. As loss immediately
b. As gain immediately
c. As deferred loss to be amortized over the lease term
d. As deferred gain to be amortized over the lease term
4. If the sale and leaseback transactions results in a finance lease, any excess of sale
proceeds over the carrying amount of the asset is
a. Deferred and amortized as income over the lease term.
b. Deferred and amortized as income over the life of the asset.
c. Recognized in profit or loss immediately.
d. Recognized in other comprehensive income.
5. Which of the following statements is true regarding sale and leaseback transaction?
a. Both profit and loss on sale followed by an operating lease are recognized
immediately if the transaction is established at fair value.
b. Profit from the sale should be amortized in proportion to the rental payments if
an operating lease results from the sale and leaseback transaction.
c. Any profit on sale and leaseback transaction resulting in an operating lease is
deferred and any loss is recognized immediately.
d. Profit from the sale should be deferred and amortized in proportion to the
amortization of the leased asset if the sale and leaseback transaction results in a
finance lease.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
2. These are differences that will result in future taxable amount in determining
taxable
profit of future periods when carrying amount of the asset or liability is recovered or
settled.
a. Temporary Difference
b. Taxable Temporary Difference
c. Deductible Temporary Difference
d. Permanent Temporary Difference
3. These are differences that result in future deductible amount in determining taxable
profit in future periods when the carrying amount of the asset or liability recovered
or settled.
a. Taxable Temporary Differences
b. Deductible Temporary Differences
c. Taxable Temporary and Permanent Differences
d. Deductible Temporary and Permanent Differences
4. It is the deferred tax consequence attributable to a taxable temporary difference.
a. Deferred Tax Liability
b. Deferred Tax Asset
c. Current Tax Liability
d. Current Tax Asset
5. It is the deferred tax consequence attributable to a deductible temporary difference
and operating loss carry forward.
a. Deferred Tax Liability
b. Deferred Tax Liability
c. Current Tax Liability
d. Current Tax Asset
6. It is the profit for a period before deducting tax expense.
a. Accounting Profit
b. Taxable Profit
c. Gross Profit
d. Net Profit
7. It is the aggregate amount included in the determination of net profit for the period
in
respect of current tax and deferred tax.
a. Tax Expense
b. Current Tax Expense
c. Deferred Tax Expense
d. Deferred Tax Benefit
8. It is the profit for a period determined in accordance with the rules established by
taxation authorities upon which income taxes are payable.
a. Accounting Profit
b. Taxable Profit
c. Net Profit
d. Accounting profit subject to tax
9. It is the amount of income tax payable in respect of taxable profit.
a. Current Tax Expense
b. Total income tax expense
c. Deferred Tax Expense
d. Deferred Tax Benefit
10. The deferred tax expense is equal to
a. Increase in deferred tax asset less increase in deferred tax liability.
b. Increase in deferred tax liability less increase in deferred tax asset.
c. Increase in deferred tax asset.
d. Increase in deferred tax liability.
Answers: Chapter 15-1
1. C
6. A
2. C
7. A
3. C
8. B
4. A
9. A
5. B
10. B
c. Measurement Base
d. Taxable Amount
2. A deferred tax liability shall be recognized for all
a. Permanent Differences
b. Temporary Differences
c. Taxable Temporary Differences
d. Deductible Temporary Difference
3. A deferred tax asset shall be recognized for all deductible temporary differences
and
operating loss carry forward.
a. It is probable that taxable income will be available against within the deferred tax
asset can be used.
b. It is probable that accounting income will be available against which the deferred
tax asset can be used.
c. It is possible that taxable income will be available against which the deferred tax
asset can be used.
d. It is possible that accounting income will be available against which the deferred
tax asset can be used.
4. An entity shall offset a deferred tax asset and deferred tax liability when
I. The deferred tax asset and deferred tax liability relate to income taxes levied by
the same taxing authority.
II. The entity has a legal enforceable right to offset a current tax asset against a
current tax liability.
a.
b.
c.
d.
I only
II only
Both I and II
Neither I nor II
6. An entity reported deferred tax assets and deferred tax liabilities at the end of the
current year. For the current year, the entity should report deferred income tax
expense or benefit equal to the
a. Decrease in the deferred tax assets
b. Increase in the deferred tax liabilities
c. Amount of the current liability plus the sum of the changes in deferred tax assets
and deferred tax liabilities
d. Sum of the net changes in deferred tax assets and deferred tax liabilities
7. Because an entity uses different methods to depreciate equipment for accounting
and income tax purposes, the entity has temporary differences that will reverse
during the next year and add to taxable income. Deferred income taxes that are
based on these temporary differences shall be classified in the entitys statement of
financial position as
a. Contra account to current assets
b. Contra account to noncurrent assets
c. Current liability
d. Noncurrent liability
8. At the current year-end, an entity had a deferred tax liability arising from
accelerated depreciation that exceeded a deferred asset relating to rent received in
advance which is expected to reverse in the next year. Which of the following shall
be reported in the entitys current year-end statement of financial position?
a. The excess of the deferred tax liability over the deferred tax asset as a
noncurrent liability.
b. The excess of the deferred tax liability over the deferred tax asset as a current
liability.
c. The deferred tax liability as a noncurrent liability.
d. The deferred tax liability as a current liability.
9. The financial reporting basis of a plant asset exceeded the tax basis because a
different method of reporting depreciation is used for financial accounting purpose
and tax purposes. What is reported if there are no other temporary differences?
a. Current tax asset
6. D
7. D
8. C
9. C
10. C
1. C
2. D
3. D
4. B
5. C
6. C
7. D
8. C
9. B
10. C
c. Deferred tax assets are never netted against deferred tax liabilities.
d. Deferred tax assets are netted against deferred tax liabilities if they relate to the
same tax authority.
Answers Problem 15-6
1. C
2. C
3. B
4. D
5. D
Problem 16-1 Multiple choice
1. These are all forms of consideration given by an entity in exchange for services
rendered by employees
a. Employee benefits
b. Employee compensation
c. Fringe benefits
d. Salaries and wages
2. These are employee benefits which are payable after completion of employment
a. Short-term employee benefits
b. Postemployment employee benefits
c. Other long-term employee benefits
d. Termination benefits
3. Postemployment employee benefits include all of the following, except
a. Long-term disability benefits
b. Retirement benefits, such as pensions
c. Postemployment life insurance
d. Postemployment medical care
4. It is a benefit plan under which an entity pays a fixed contribution into a separate
fund and will have no legal or constructive obligation to pay further contribution if
the fund becomes insufficient to pay employee benefits
a. Postemployment benefit plan
b. Defined contribution plan
c. Defined benefit plan
d. Multiemployer plan
5. Which is incorrect concerning the recognition and measurement of a defined
contribution plan?
6. C
7. A
8. D
9. C
10. A
10. It is an insurance policy issued by an insurer that is not a related party of the
reporting entity and the proceeds of the policy can be used only to pay or fund
employee benefits under a defined benefit plan
a. Qualifying insurance policy
b. Aggregate policy
c. Annuity
d. Unconditional insurance policy
Answers 16-2
1. D
6. D
2. D
7. C
3. D
8. C
4. A
9. D
5. C
10. A
b. Demographic assumption
c. Financial assumption
d. Actuarial assumption
2. Which of the following statements is incorrect concerning the actuarial
assumption?
a. Actuarial assumptions shall be unbiased and mutually compatible
b. Actuarial assumptions are unbiased if they are neither imprudent nor
excessively conservative
c. Actuarial assumptions comprise of demographic assumptions and financial
assumptions
d. Postemployment benefit obligations shall be measured on a basis that reflects
current salary and ignores future salary
Future salary
Future medical salary
Tax payable by the plan
7. Actuarial gains and losses may arises from all of the following, except
a
b
c
d
10. What is the transitional effect of the application of PAS 19R on unamortized past
service cost and unrecognized actuarial gain or loss?
a
b
c
d
Unamortized past service cost and actuarial gain and loss are recognized
currently in profit or loss.
Unamortized past service cost and actuarial gain or loss are recognized
currently in other comprehensive income
Unamortized past service cost is recognized retrospectively in retained
earnings and actuarial gain and loss are recognized currently in profit or loss.
Unamortized past service cost and actuarial gain or loss are recognized
retrospectively in retained earnings.
4. A
5. D
9. C
10. D
2. An entity has decided to improve its defined benefit pension scheme. The benefit
payable will be determined by reference to 60 years of service rather than 65 years
of service. As a result, the defined benefit pension liability will increase. The
average remaining service lives of the employees is 10 years. How should the
increase in the pension liability be treated in the financial statements?
a
b
c
d
4. Which of these events will not cause a change in a defined benefit obligation
a
b
c
d
5. Under which category should lump sum benefit and actuarial gains be accounted
for?
a
b
c
d
Lump sum benefit and actuarial gains should be accounted for under defined
benefit plans
Lump sum benefit should be accounted for under short term employee
benefits. Actuarial gains should be accounted for under defined benefit plans
Lump sum benefit should be accounted for under defined benefit plans.
Actuarial gains should be accounted for under defined contribution plans
Lump sum benefit should be accounted for under short term employee
benefits. Actuarial gains should be accounted for under defined contribution
plans
Define benefit plans are comparatively simple in construction and raise few
accounting issues for employers
Retirement benefits are based on the plans benefit formula
Retirement benefits depend on how well pension fund asstes have been
managed
3. Which of the following components should not be included in the calculation of net
pension cost recognized for a period by an employer sponsoring a defined benefit
plan?
a
b
c
d
8. Vested benefits
a
b
c
d
The defined benefit obligation exceeds the fair value of plan assets
The accumulated benefit obligation is less than the fair value of plan assets
The pension expense reported for the period is greater than the funding
amount for the same period
Cumulative other comprehensive income exceeds the fair value of plan assets
Problem 16-5
1. B
6. C
2. B
7. D
3. D
8. D
4. C
9. A
5. A
10. D
Requires that the benefit of gain or the risk of loss from the assets contributed
to the plan should be borne by the employee
Define the benefits that the employee will receive at the time of retirement
Requires that the defined benefit cost and funding must the same
Defines the contribution to be made by the employer and no promise is made
concerning the ultimate benefits to be paid out to the employees
Define the benefit that the employee will receive at the time of retirement
Ensures that the defined benefit cost and funding are different
Requires an employer to contribute a certain sum each period based on the
formula
Ensures that enough fund would be available at retirement
5. Which measure requires the use of future salaries in the computation of benefit
obligation?
a
b
c
d
6. In determining the present value of the projected benefit obligation, all of the
following should be considered, except
a
b
c
d
a
b
c
d
10. What is the relationship of the amount funded and the amount reported for the
defined benefit cost?
a.
b.
c.
d.
I only
II only
Both I and II
Either I and II
I only
II only
Both I and II
Either I and II
3. Which of the following may be disclosed in the financial report of a defined benefit
plan but would not be shown in the financial report of a defined contribution plan?
a. Government bonds held
b. Actuarial present value of promised retirements benefits
c. Employee contributions
d. Employer contributions
4. Which of the following criteria is not required for the recognition of a liability for
compensated absences?
a.
b.
c.
d.
6. An entity shall recognized the expected cost of profit sharing and bonus plans when
I. The entity has a present legal or constructive obligation to make such payment
as
a result of past event.
II. A realiable estimate of the obligation can be made.
a.
b.
c.
d.
I only
II only
Both I and II
Either I and II
8. Which of the following is true in relation to the recognition of defined benefit cost
for other long-term employee benefits?
I. Current service cost, past service cost and any gain or loss on settlement are
fully recognized through profit or loss.
II. Remeasurements are fully recognized through profit or loss.
a.
b.
c.
d.
I only
II only
Both I and II
Either I and II
9. These are employee benefits that are payable as a result of an entitys decision to
terminate employees employment before the normal retirement date, or an
employees decision to accept an offer of benefits in exchange for termination of
employment.
a.
b.
c.
d.
Termination benefits
Short-term employee benefits
Other long-term employee benefits
Postemployment employee benefits
2. The employees are each entitled to 10 days of paid holiday leave per calendar year.
Unused holiday leave may be carried forward until the employee leave the
employment of the entity, at which time the entity will pay the employee for all
unused holiday leave. The holiday leave is
a.
b.
c.
d.
5. A profit sharing plan requires entity to pay a specified proportion of the cumulative
profit for the year to employees who serve throughout the year. The profit sharing
plan
a.
b.
c.
d.
3. The amount of the liability for the paid absences should be based on
a. The current rate of pay in effect when employees earn the right to paid
absences.
b. The expected rate to pay expected to be paid when employees use paid time.
c. The present value of the amount expected to be paid in future periods.
d. Either the current pay in effect when employees earn the right to paid
absences or the expected rate to pay to be paid when employees use paid time.
5. What is the requirement for the accrual of a liability for sick pay?
a. Sick pay benefits can be reliably estimated.
b. Sick pay benefits vest.
c. Sick pay benefits do not vest.
d. Sick pay benefits accumulate.