CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

FINAL EXAM

General instructions: Choose from among the choices the letter that corresponds to the best answer
for each item. Write your answer on your answer sheet.

1. Exploration and evaluation assets are initially measured at

a. cost.
b. revalued amount.
c. fair value.
d. a or b

2. Exploration and evaluation assets are exploration and evaluation expenditures recognized as
a. assets in accordance with the entity’s accounting policy.
b. expenses in accordance with applicable PFRSs.
c. assets in accordance with (a) above, subject to the limitations provided under PAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors.
d. any of these

3. Mark Ngina’s Sari-sari Store has a sign that reads “Your credit is good but I need cash.” What type
of risk is Mr. Mark trying to avoid by putting up that sign?
a. credit risk
b. market risk
c. liquidity risk
d. store risk

4. How does PFRS 7 define “liquidity risk”?

a. The risk that an entity will encounter difficulty in meeting obligations associated with
financial liabilities.
b. The risk that an entity will encounter difficulty in disposing a financial asset due to lack of
market liquidity.
c. The risk that an entity will encounter difficulty in meeting cash flow needs due to cash flow
problems.
d. The risk that an entity’s cash inflows will not be sufficient to meet the entity’s cash outflows.
(Adapted)

5. ABC Co. has identified the following five operating segments: “Credit,” “Hotel,”
“Transportation,” “Grocery,” and “Events planning.” ABC Co. treats the “Hotel” and “Events
planning” as a single segment for internal reporting purposes. Each of the “Events planning” and
“Transportation” segments does not qualify under any of the quantitative thresholds of PFRS 8.
How should ABC Co. disclose its reportable segments?
a. ABC Co. shall treat each of the “Hotel,” “Credit,” and “Grocery” as reportable segments. The
other segments should not be disclosed.
b. ABC Co. shall treat each of the “Hotel,” “Credit,” and “Grocery” as reportable segments. The
other segments should be combined and disclosed in the “All other segments” category.
 c. ABC Co. shall treat the “Hotel” and “Events planning” as a single reportable segment and
each of the “Credit” and “Grocery” segments also as reportable segments. The
“Transportation” segment shall be included in the “All other segments” category.
d. ABC Co. shall treat the “Hotel” and “Events planning” as a single reportable segment and
combine all the other segments and report them under the “All other segments” category.

6. An entity recently has acquired a new brand from a competitor company. The brand qualifies as
a component of an entity and represents a major line of business for which discrete financial
information is available. This operating segment does not meet any of the threshold criteria for a
reportable segment. Furthermore, this segment is unique and does not share similar characteristics
with the other operating segments of the entity. Which of the following statements is correct?
a. The entity can disclose this new segment separately if it is a distinguishable component and is
used by management in internal reporting even though it does not meet the PFRS criteria.
b. The entity cannot voluntarily disclose this new segment separately because PFRS 8
discourages voluntary disclosure of operating segments. Operating segments are reportable
only if they either result from aggregation or qualify under any of the quantitative thresholds.
c. The entity can disclose this new segment separately only if it can be aggregated with another
operating segment and the combined segment qualifies in all of the quantitative thresholds.
d. The entity can disclose this new segment separately only if it can be aggregated with another
operating segment and the combined segment qualifies in any of the quantitative thresholds.

7. According to PFRS 8, a reportable operating segment is one which

a. management uses in making decisions about operating matters.
b. results from aggregation of two or more segments and qualify under any of the quantitative
thresholds.
c. a and b
d. none of these

8. Which of the following is not among the quantitative thresholds under PFRS 8?
a. at least 10% of total revenues (external and internal).
b. at least 10% of the higher of total profits of segments reporting profits and total losses of
segments reporting losses, in absolute amount.
c. at least 10% of total assets (inclusive of intersegment receivables).
d. at least 10% of total revenues (external only)

9. According to PFRS 8, disclosures for major customer shall be provided if revenues from
transactions with a single external customer amount to
a. at least 75% of the entity’s external and internal revenues.
b. at least 75% of the entity’s external revenues.
c. 10% or more of the entity’s external revenues.
d. less than 10% of the entity’s external revenues.
10. According to PFRS 9, it is the amount at which a financial asset or a financial liability is measured
at initial recognition minus principal repayments, plus or minus the cumulative amortization
using the effective interest method of any difference between that initial amount and the maturity
amount and, for financial assets adjusted for any loss allowance.
a. cost c. amortized cost
b. carrying amount d. fair value

11. Which of the following is measured at fair value with fair value changes recognized in profit or
loss?
a. Held to maturity investments
b. Financial assets designated at FVPL
c. FVOCI
d. All of these

12. If the entity’s business model’s objective is to hold assets in order to collect contractual cash flows
and cash flows are solely payments of principal and interest on the principal amount outstanding,
the financial asset is classified
a. according to management’s intention of holding the securities.
b. as financial asset measured at amortized cost.
c. as financial asset measured at fair value through other comprehensive income.
d. any of these

Use the following information for the next two questions:

Parent Co. acquires Subsidiary Co. on January 1, 20x1. The financial statements of Parent and
Subsidiary on the acquisition date are shown below:

Parent Co. Subsidiary Co.

Cash in bank 12,000 6,000
Accounts receivable 36,000 14,400
Inventory 48,000 27,600
Investment in subsidiary 90,000 -
Building, net 216,000 48,000
Total assets 402,000 96,000

Accounts payable 60,000 7,200

Share capital 204,000 60,000
Share premium 78,000 -
Retained earnings 60,000 28,800
Total liabilities and equity 402,000 96,000

Additional information:
 The carrying amounts of subsidiary’s net identifiable assets approximate their acquisition-date
fair values, except for the following:
- Inventory, ₱37,200
 - Building, net, ₱57,600

 The computations required under PFRS 3 resulted to the following:

- Goodwill, ₱3,600
- NCI in net assets, ₱21,600.

13. How much is the consolidated total assets on January 1, 20x1?

a. 428,600 c. 430,800
b. 440,800 d. 465,800

14. How much is the consolidated total equity on January 1, 20x1?

a. 336,600 c. 328,600
b. 363,600 d. 336,800

15. Tech Co. and Robotics Co. are joint venturers of Mecha Co., a producer of high tech machinery.
Tech and Robotics, each have a 50% interest in the net assets of Mecha Co. During the year, Tech
Co. earns revenue of ₱1,000,000 from its own operations while Mecha Co. reports revenue of
₱400,000. How much total revenue shall be reported in Tech Co.’s statement of profit or loss for
the year?
a. ₱1,000,000
b. ₱1,200,000
c. ₱1,400,000
d. Either a or b

16. Entity A acquires 50% interest in a joint venture for ₱1M and appropriately records the transaction
under an investment account. At the end of the period, the joint venture reports profit of ₱1M and
makes a total distribution of ₱600,000 to the owners. How much is the net effect of the transaction
in Entity A’s profit or loss for the current year?
a. ₱.5M
b. ₱.3M
c. ₱.2M
d. 0

17. PFRS 12 applies to

a. contracts relating to post-employment benefit plans.
b. interest in joint arrangements that does not give the entity joint control or significant influence
over the arrangement.
c. investments measured at fair value through other comprehensive income.
d. investments accounted for under the equity method.

18. According to PFRS 12, interest in another entity refers to

a. only contractual involvement that exposes an entity to variability of returns from the
performance of another entity.
 b. only non-contractual involvement that exposes an entity to variability of returns from the
performance of another entity.
c. contractual and non-contractual involvement that exposes an entity to variability of returns
from the performance of another entity.
d. a typical customer-supplier relationship.

19. Which of the following are not considered transaction costs or costs to sell?
a. commissions to brokers
b. levies by regulatory agencies and commodity exchanges
c. transfer taxes and duties
d. transport costs

20. There are multiple active markets for a financial asset with different observable market prices:
Market Quoted Price Transaction Costs
A ₱76 ₱5
B ₱74 ₱2

There is no principal market for the financial asset. What is the fair value of the asset?
a. 71
b. 72
c. 74
d. 76

21. According to PFRS 14, rate-regulation is

a. a framework for establishing the prices that can be charged to customers for goods or services
and that framework is subject to oversight and/or approval by a rate regulator.
b. the balance of any expense (or income) account that would not be recognized as an asset or a
liability in accordance with other Standards, but that qualifies for deferral because it is
included, or is expected to be included, by the rate regulator in establishing the rate(s) that can
be charged to customers.
c. an authorized body that is empowered by statute or regulation to establish the rate or a range
of rates that bind an entity. The rate regulator may be a third-party body or a related party of
the entity, including the entity’s own governing board, if that body is required by statute or
regulation to set rates both in the interest of the customers and to ensure the overall financial
viability of the entity.
d. all of these

22. According to PFRS 14, an entity presents regulatory deferral accounts in the statement of financial
position
a. showing those with debit balances separately from those with credit balances.
b. showing only the net debit or the net credit balance of the accounts.
c. a or b, as a matter of accounting policy choice
d. An entity shall not present regulatory deferral accounts in the statement of financial position,
but only disclose them in the notes.
23. Arrange the following steps of revenue recognition in accordance with PFRS 15.
I. Identify the performance obligations in the contract
II. Recognize revenue when (or as) the entity satisfies a performance obligation
III. Determine the transaction price
IV. Identify the contract with the customer
V. Allocate the transaction price to the performance obligations in the contract
a. IV, I, V, III, II c. III, IV, I, V, II
b. IV, I, III, V, II d. IV, III, I, V, II

24. Certain criteria must be met before a contract with a customer is accounted for under PFRS 15.
Which of the following precludes a contract from being accounted for under PFRS 15?
a. The consideration is collected in advanced.
b. The contract is made orally.
c. The contract does not result to a change in the risk, timing or amount of the entity’s future
cash flows.
d. The contract is neither oral nor written but rather implied by the entity’s business practices.

25. The government extends a repayable loan to Entity A. The loan pays interest at market rate. Entity
A should account for the government loan using which of the following standards?
a. PAS 20
b. PAS 41
c. PFRS 9
d. PFRS 16
26. Which of the following are not related parties?
a. A parent and its subsidiary
b. Two or more subsidiaries with the same parent
c. A company and its Chief Executive Officer
d. Two co-venturers of a common joint venture business
27. On January 1, 20x1, Entity A acquires 25% interest in Entity B for ₱800,000. Entity B reports profit
of ₱1,000,000 and declares dividends of ₱100,000 in 20x1. How much is the carrying amount of the
investment in associate on December 31, 20x1?
a. 800,000
b. 1,250,000
c. 1,000,000
d. 1,025,000
28. Which of the following is classified as an equity instrument rather than a financial liability?
a. Preference shares that are mandatorily redeemable
b. A contract that is settled by the delivery of a variable number of the entity’s own equity
instruments in exchange for a fixed amount of cash or another financial asset.
c. A contract that is settled by the delivery of a fixed number of the entity’s own equity
instruments in exchange for a variable amount of cash or another financial asset.
d. Shares issued but were subsequently reacquired.
29. Entity A issues convertible bonds with face amount of ₱2,000,000 for ₱2,600,000. Each ₱1,000 bond
is convertible into 10 shares with par value of ₱60 per share. On issuance date, the bonds are selling
 at 102 without the conversion option. What is value allocated to the equity component on initial
recognition?
a. 2,040,000
b. 540,000
c. 560,000
d. 460,000
30. Which of the following analysis on asset impairment is most likely to have been made by a CPA?
(where: RA = recoverable amount; FVLCD = fair value less costs of disposal; VIU = value in use;
CA = carrying amount; IL = impairment loss; > = greater than; < = less than)
a. if “FVLCD > CA,” then, “IL = 0”
b. if “FVLCD < VIU,” then, IL = > 0”
c. if “FVLCD > VIU,” then, “RA = FVLCD,” now, if “CA > RA,” then “IL = RA – CA”
d. if “FVLCD > VIU,” then, “RA = VIU,” now, if “CA < RA,” then “IL = RA – CA”
31. Which of the following is considered a bearer plant?
a. Palm oil
b. Corn oil
c. Baby oil
d. Oil palm
32. On January 1, 20x1, ABC Co. acquired 75% interest in XYZ, Inc. for ₱2,500,000 cash. ABC Co.
incurred transaction costs of ₱250,000 for legal, accounting and consultancy fees in negotiating the
business combination. ABC Co. elected to measure NCI at the NCI’s proportionate share in XYZ,
Inc.’s identifiable net assets. The carrying amounts and fair values of XYZ’s assets and liabilities
at the acquisition date were as follows:

Assets Carrying amounts Fair values

Cash in bank 25,000 25,000
Accounts receivable 425,000 300,000
Inventory 1,300,000 875,000
Equipment – net 2,500,000 2,750,000
Goodwill 250,000 50,000
Total assets 4,500,000 4,000,000

Liabilities
Payables 1,000,000 1,000,000

How much is the goodwill (gain on a bargain purchase)?

a. 140,000
b. 278,500
c. 287,500
d. 264,500
33. Which of the following properly describes credit risk?
a. The possibility that Entity A will not be able to settle its financial liabilities when they become
due.
b. The possibility that Entity A will incur loss on its foreign-currency denominated financial
instruments when there is an adverse change in foreign exchange rates.
 c. The possibility that Entity A cannot collect on its receivables.
d. The possibility that Entity A will be required to pay higher interest on its variable-rate loan
when market interest rates increase.
34. Which of the following is not among the quantitative thresholds under PFRS 8?
a. At least 10% of total revenues (external and internal)
b. At least 10% of the higher of total profits of segments reporting profits and total losses of
segments reporting losses, in absolute amount.
c. At least 10% of total assets (inclusive of intersegment receivables).
d. At least 10% of total revenues (external only)

35. According to PFRS 10, which of the following is not an element of control?
a. power
b. exposure, or rights, to variable returns
c. major holdings
d. ability to affect return.

36. Which of the following is a peculiar characteristic of a joint arrangement?

a. significant influence
b. joint control
c. control
d. joint venture
37. This PFRS provides a single framework for measuring the fair value of an asset, liability or equity
when other PFRSs require or permit measurement at fair value or fair value less costs to sell. It
also prescribes the disclosures related to fair value measurement.
a. PFRS 3
b. PAS 1
c. PFRS 9
d. PFRS 13
38. PFRS 8 relates to which of the following?
a. Disclosure of operating segments
b. Disclosure of related party relationships and transactions
c. Disclosure of events after the reporting period
d. Interim financial reporting
39. You are the accountant of ABC Co. During the period, ABC Co. acquired short-term investment
in stocks, which of the following financial reporting standards would most likely be relevant in
accounting for the transaction?
a. PFRS 8
b. PFRS 9
c. PAS 28
d. b or c
40. When determining whether an investor controls an investee, the investor should refer to
a. PAS 21
b. PFRS 10
c. PAS 10
d. PAS 1
41. When measuring the fair value of an asset or a liability, an entity refers to
a. PFRS 13
b. PAS 28
c. PFRS 1
d. PFRS 7
42. This standard deals with the recognition and measurement of financial instruments.
a. PAS 32
b. PFRS 7
c. PFRS 9
d. PFRS 3
43. Joint arrangements are discussed under
a. PFRS 1
b. PFRS 11
c. PAS 20
d. PAS 24
44. This standard is most relevant to insurance companies.
a. PFRS 14
b. PFRS 15
c. PFRS 16
d. PFRS 17

45. According to PFRS 10, which of the following is not an element of control?
e. power
f. exposure, or rights, to variable returns
g. major holdings
h. ability to affect return.

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