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INTEGRATED ACCOUNTING COURSE 15

1. What is the appropriate reason for the difference between the net income reported by the branch in its separate
income statement and true net income reported by the home office for the branch operation in its general purpose
financial statements?
a. The understatement of the cost of goods sold reported by the home office due to its valuation of the inventory
of the branch at billed price.
b. The overstatement of the cost of goods sold reported by the branch due to overvaluation of its beginning
inventory, shipment from and ending inventory from the home office.
c. The understatement of the cost of goods sold reported by the home office for branch operation due to
unrecording of the inventory of the branch from outside sources.
d. The overstatement of the cost of goods sold reported by the branch due to overvaluation of inventory and
purchases from outside sources.

2. Which of the following statements concerning the presentation and measurement principles of accounts regarding
home office-branch accounting is incorrect?
a. The home office current account shall be reported as liability by the branch in its separate statement of
financial position.
b. The branch records inventories coming from the home office at billed price while those coming from outside
supplier at historical cost in its separate financial statement.
c. The home office recognizes and measures all its inventories including those of the branch initially at historical
cost and subsequently at lower of historical cost or net realizable value.
d. The investment in branch account shall be reported as asset by the home office in its separate statement of
financial position.

3. IFRS 3 defines business combination as a transaction or other event in which an acquirer obtains control of one or
more businesses. An entity is required by the standard to account each business combination by applying the
acquisition method. Which of the following statements concerning the application of acquisition method is incorrect?
a. As of the acquisition date, the acquirer shall recognize and measure the identifiable assets and liabilities
assumed in the acquiree at acquisition date fair value.
b. The consideration transferred or given up by the acquirer which consists of the sum of assets transferred,
liabilities incurred by acquirer to former owner of the acquiree and the equity issued by the acquirer shall be
measured at acquisition date fair value.
c. The acquirer shall recognize as of the acquisition date a contingent liability assumed in a business
combination only if it is a probable that an outflow of resources embodying economic benefits will be required
to settle the obligation.
d. For each business combination, the acquirer shall measure at the acquisition date components of non-
controlling interests in the acquire at either (1) fair value of NCI (Total Goodwill Method) or (2) Proportionate
share of NCI in the fair value of net assets of the acquiree (Partial Goodwill Method/Gain on Bargain
Purchase)

4. What is the difference between the treatment of acquisition related costs in a business combination under IFRS 3 and
IFRS for SMEs?
a. IFRS for SMEs requires transaction costs of business combination to be expensed as incurred while IFRS 3
requires it to be part of the consideration given/transferred for computation of goodwill/gain on bargain
purchase.
b. There is no difference because transaction costs of business combination shall be expensed regardless of
financial reporting standards.
c. There is no difference because transaction costs of business combination shall be part of the consideration
given/transferred for computation of goodwill/gain on bargain purchase.
d. IFRS 3 requires transaction costs of business combination to be expensed as incurred while IFRS for SMEs
requires it to be part of the consideration given/transferred for computation of goodwill/gain on bargain
purchase.
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5. What is the difference between the treatment of contingent liability to be assumed in a business combination under
IFRS 3 and IFRS for SMES?
a. There is no difference because IAS 37 requires in all cases that contingent liability shall be disclosed only in
the notes to financial statements.
b. IFRS 3 allows recognition/accrual of contingent liability as long as it is a present obligation that arises from
past event and its fair value can be measured reliably while IFRS for SMEs allows recognition/accrual of
liability only if it is probable that an outflow of resources embodying economic benefits will be required to settle
the obligation.
c. IFRS for SMEs allows recognition/accrual of contingent liability as long as it is a present obligation that arises
from past event and its fair value can be measured reliably while IFRS 3 allows recognition/accrual of
contingent liability only if it is probable that an outflow of resources embodying economic benefits will be
required to settle the obligation.
d. There is no difference because IAS 37 requires in all cases that contingent liability shall be recognized only if it
is probable that an outflow of resources embodying economic benefits will be required to settle the obligation.

6. How shall the acquirer account for its previously held equity interest in the acquiree upon obtaining control of the
acquiree or how shall an acquirer account for a business combination achieved in stages a.k.a. step acquisition?
a. The acquirer shall treat the transaction as change in accounting policy to be treated retrospectively at
acquisition date.
b. The acquirer shall account the transaction as prior period error to be treated by retroactive restatement.
c. The acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair value
and recognize the resulting gain or loss in Profit/Loss.
d. The acquirer shall not include the previously held equity interest in the computation of goodwill or gain on
bargain purchase arising from business combination.

7. If at the date of acquisition, the aggregate of (1) the fair value of consideration transferred, (2) the amount of NCI
measured at either (a) fair value or (b) proportionate share of fair value of net assets of acquiree, and (3) in a business
combination achieved in stages, the acquisition date fair value of the previously held equity interest, exceeds the fair
value of net assets of the acquiree, the difference shall be treated by the acquirer as
a. Gain on bargain purchase to be recognized at acquisition date Consolidated Statement of Comprehensive
Income as part of profit or loss but attributable to parent’s shareholders only.
b. Negative goodwill to be subject to amortization for a presumed life of 10 years.
c. Impairment loss to be recorded at acquisition date Consolidated Income Statement.
d. Goodwill from business combination classified as non-current asset in the Consolidated Statement of Financial
Position which will not be amortized but will be subject to annual impairment test.

8. Which of the following transactions is considered as a measurement period adjustment that the acquirer shall
retrospectively adjust to goodwill/(gain on bargain purchase) during the measurement period which shall not exceed
one year from the acquisition date?
a. Increase in the fair value of the financial liability at fair value through profit or loss issued as consideration for
business combination due to movement of prices in the exchange market.
b. Change in the carrying amount of the financial liability at amortized cost issued as consideration for business
combination due to amortization of the premium/(discount) on financial liability.
c. Changes in the provisional amount of contingent liability or contingent consideration as a result of new
information obtained about the facts and circumstances that existed as of the acquisition date and, if known,
would have affected the measurement of the amounts recognized as of that date.
d. Changes in the value contingent consideration occurring within one year from the acquisition date as a result
of events occurring after the acquisition date such as meeting an earnings target, a specified share price or
reaching milestone on a research and development project.
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9. Which of the following accounting treatments for costs related to business combination is incorrect?
a. The costs related to issuance of financial liability at fair value through profit or loss shall recognized as
expense while those related to issuance of financial liability at amortized cost shall be recognized as deduction
from the book value of financial liability or treated as discount on financial liability to be amortized using
effective interest method.
b. The costs related to the organization of the newly formed corporation also known as pre-incorporation costs
shall be capitalized as goodwill or deduction from gain on bargain purchase.
c. Acquisition related costs such as finder’s fees; advisory, legal, accounting, valuation and other professional
and consulting fees; and general administrative costs, including the costs of maintain an internal acquisitions
department shall be recognized as expense in the Profit/Loss in the periods in which the costs are incurred.
d. The costs related to issuance of stocks or equity securities shall be deducted/debited from any share premium
from the issue and any excess is charged to “share issuance cost” reported as contract-equity account against
either (1) share premium from other share issue or (2) retained earnings.

10. Which of the following statements concerning the identification of the acquirer in a business combination is incorrect?
a. In business combination through consolidation, the acquirer is the newly formed corporation.
b. In business combination effected primarily by transferring assets or by incurring liabilities or issuing shares, the
acquirer is usually the entity that transfers the cash, incurs the liabilities or issues the shares.
c. In some business combination, commonly called “reverse acquisition” the issuing entity is the acquiree while
the other entity that receives the issued shares is the acquirer.
d. In business combination through merger, the acquirer is the absorbed corporation after the business
combination.

11. Under IFRS 10, parent corporation is the entity that controls one or more entities. How does IFRS 10 define control?
a. An investor controls an investee when it is exposed, or has right to variable return from the investment with the
investee and has the ability to affect those returns through the power over the investee.
b. An investor controls an investee when it has the power to govern the financial and operating policies of an
entity so as to obtain benefits from its activities.
c. An investor controls an investee when it has the ability to influence the financial and operating policies of an
entity so as to obtain benefits from its activities.
d. An investor controls an investee when it owns more than 50% of all the outstanding capital stocks, whether
common or preferred.

12. Parent Corporation has 51% interest in listed entity Sub Inc. Sub is a highly-leveraged and started making losses.
Parent decided to sell 2% to an investment bank. The post-sale structure shows that Parent Corp. has only 49%
interest, investment bank has 2% interest and the remaining 49% interest owned by many shareholders other than the
investment bank each with less than 1% of votes and there is no arrangement among them to vote collectively. Upon
the sale, Parent Corporation can easily reacquire controlling interest in Sub by buying shares in the market and
expects to continue managing Sub through election of directors in Sub’s general meeting. Sub Inc. is listed with deep
and liquid market for shares. Is the Parent still required to consolidated Sub Inc. in its consolidated financial
statements despite less than majority ownership?
a. No because it has no control considering it only has 49% interest in Sub.
b. No because control is not shown by the relevant facts.
c. Yes even if the other shareholders will connive to gain control.
d. Yes because there is de facto control on the part of Parent Corp. over the relevant activities of Sub Inc.

13. How shall the parent corporation present the Noncontrolling Interest (NCI) in the Consolidated Statement of Financial
Position?
a. It shall be presented as contract-equity account like treasure shares and subscription receivable.
b. It shall be presented within Consolidated Stockholders’ Equity, separately from the equity of the owners of the
parent.
c. It shall be presented as non-current liability.
d. It shall be presented as non-current asset.
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14. Which of the following income items shall affect both CONSO RE and NCINAS?
a. Unrealized/realized income/expense arising from downstream transactions or from parent to subsidiary.
b. Impairment loss of goodwill from business combination initially measured using proportionate share of fair
value of net asset acquired.
c. Gain on bargain purchase arising from business combination.
d. Unrealized/realized income/expense arising from transactions between two subsidiaries owned by the same
parent.

15. Which of the following income items shall affect CNI to Parent only but not NCINIS?
a. Dividend income of parent coming from subsidiary.
b. Amortization of difference between the fair value and book value of the assets and liabilities of the subsidiary.
c. Unrealized/realized income/expense arising from upstream transactions or from subsidiary to parent.
d. Impairment loss of goodwill from business combination initially measured using fair value of NCI.

16. Which of the following transactions will not require a journal entry in the accounting book of a government agency?
a. Receipt of notice of cash allocation from the Department of Budget and Management.
b. Receipt of appropriation from Congress, allotment from Department of Budget and Management and entering
into a contract with a supplier
c. Receipt of tax remittance advice from the Department of Budget and Management for the remittance of tax
withheld to Bureau of Internal Revenue.
d. Payment of the obligation to the supplier.

17. Which of the following steps in the budgetary process refers to the “Budget Authorization or Legislation”?
a. It refers to the first step in the government budgetary process which involves the preparation by the President
through the help of Department of Budget and Management of the budget of expenditures and sources of
financing, including receipts from existing and proposed revenue measures and its submission to the
Congress within 30 days from the opening of every regular session of the Congress.
b. It refers to a step in the government budgetary process which involves the enactment of the general
appropriation act by the Congress and wherein the initiative must come from the House of Representatives.
c. It refers to a step in the government budgetary process which involves the implementation of the national
budget by different departments and release of allotments under the monitoring of Department of Budget and
Management.
d. It refers to the final step in the government budgetary process which involves the periodic reporting by
government agencies of performance under the approved budgets, top management review of government
activities and audit conducted by Commission on Audit to provide reasonable assurance that funds are
properly spent and accounted for.

18. Which of the following statements refers to “Registries of Revenue and Allotment”?
a. It is the registry maintained by national government agency to monitor the revenue and other receipts
estimated/budgeted, collected and remitted/deposited.
b. It is the registry maintained by national government agency to show the original, supplemental and final budget
for the year and all allotments received charged against the corresponding appropriation.
c. It is the registry maintained by national government agency to show the allotments received for the year,
obligations incurred against the corresponding allotment and the actual disbursements made.
d. It is the registry maintained by national government agency unit to record the approved special budget and the
corresponding utilizations and disbursements charged to retained income authorized under the law and other
retained income collection of a national government agency with similar authority.
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19. It refers to the account credited by national government agency to record receipt of notice of cash allocation from the
Department of Budget and Management.
a. Contributed capital from National Government
b. Share premium from National Government
c. Share capital from National Government
d. Subsidy Income from National Government

20. It refers to the checking account being used by national government agency for legally restricted expenditures
approved by General Appropriation Act and is not being used for cash fund for which the national government agency
has been granted fiscal autonomy to use.
a. Local Current Account, Development Bank of the Philippines
b. Local Current Account, Bangko Sentral ng Pilipinas
c. Modified Disbursement System, Regular
d. Local Current Account, Land Bank of the Philippines

21. Which of the following statements concerning the comparison among actual costing, normal costing and standard
costing is correct?
a. Actual costing system values manufactured products with the actual material costs, actual direct labor costs,
and actual manufacturing overhead costs.
b. Normal costing system values manufactured products with the actual material costs, actual direct labor costs
and manufacturing overhead based on a predetermined manufacturing overhead rate with the possible
over/under application of factory overhead to be closed to costs of goods sold only if insignificant or to be
closed prorated to cost of goods sold, work in process and finished goods inventory if significant.
c. Standard costing system values manufactured goods with predetermined material cost, predetermined direct
labor cost, and a predetermined manufacturing overhead costs with the possible over/under application of
factory overhead to be closed to costs of goods sold only if insignificant or to be closed prorated to cost of
goods sold, work in process and finished goods inventory if significant.
d. All of the above.

22. Which of the following instances will decrease the cost of goods manufactured for the period ended?
a. Increase in the finished goods during the period.
b. Decrease in the raw materials inventory during the period.
c. Decrease in the direct labor cost from prior year.
d. Increase in the work in process inventory during the period.

23. Which of the following statements concerning spoilage in a job-order costing is correct?
a. The cost of abnormal spoilage is recorded as period cost.
b. When normal spoilage occurs because of the specification of a particular job, cost of normal loss shall be
capitalized to that specific job reduced by the current disposal value/ net realizable value of the spoiled units.
c. When normal spoilage is a characteristic of a given production cycle, the cost of normal loss will be closed to
manufacturing overhead control account.
d. All of the above.
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24. Which of the following statements concerning rework costs in a job-order costing is correct?
a. If the normal rework cost is attributable to a specific job, it shall be capitalized to that particular job.
b. It the normal rework cost is common to all jobs, it shall be debited to manufacturing overhead control account.
c. If the rework cost is abnormal, it shall be recorded as expense.
d. All of the above.

25. What is the reason for the difference between the allocated cost computed using FIFO-process costing and average-
process costing?
a. Cost per unit under average costing is computed by dividing the sum of cost of work-in-process inventory and
total manufacturing costs by the equivalent unit of production while cost per unit under FIFO costing is
computed by dividing total manufacturing cost by equivalent unit of production.
b. Average costing assumes that all units are started during the period while FIFO costing considers the
percentage of completion of the beginning inventory.
c. Computation of units completed under average pertains to costs of units completed only while computation of
units completed under FIFO considers costs of beginning inventory, costs assigned to equivalent unit of
production added to beginning inventory and costs of units started and completed.
d. All of the above.

26. If the spoilage in process costing is considered to be continuous, which of the following statements is correct?
a. The cost assigned to abnormal loss shall be treated as period cost.
b. The cost assigned to normal loss shall be allocated to units completed, work-in-process ending inventory and
abnormal loss.
c. The abnormal loss shall be given 100% equivalent unit of production while normal loss shall not be given an
equivalent unit of production to automatically allocate the cost of normal loss to units completed, work-in-
process ending inventory and abnormal loss by increasing the cost per unit.
d. All of the above.

27. If the spoilage in process costing is considered discrete because there is inspection point, which of the following
statements is correct?
a. The cost assigned to abnormal loss shall be treated as expense.
b. The cost assigned to normal loss shall be allocated to either (1) units completed only or (2) prorated to units
completed and work-in-process ending inventory based on equivalent units of production, depending on where
those normal losses were discovered.
c. The normal or abnormal loss shall be given or not given equivalent unit of production depending on the stage
of inspection point and stage of adding the cost component.
d. All of the above

28. When will the average process costing method produce the same cost of goods manufactured as the first in first out
process costing method?
a. When there is not beginning work in process inventory.
b. When materials are added 100% at the end of the process.
c. When materials are added 100% at the beginning of the process.
d. When the beginning work in process inventory and ending work in process inventory are equal.

29. Which of the following statements of methods of allocating joint manufacturing costs to main/joint products pertains to
market value at split-off approach or relative sales value approach?
a. This method allocates joint costs based on number of units or physical quantity such as weight, volume or
length of each product relative to total production.
b. This method allocates joint cost based using the weight factors to include such diverse elements as amount of
material used, difficulty to manufacture, time consumed, difference in type of labor used, and size of unit for
determination of cost allocation ratio.
c. This method allocates joint costs on the basis of estimated sales value at split off of a given joint product
relative to the sales value at split off of total joint production. 
d. For products that need further processing, this method is more suitable because it takes into account, the
additional costs needed to further process and sell the joint products. Under this method, joint cost is allocated
to products using the following the net realizable value ratio of the products.
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30. If the net realizable value of the by-product of a joint production process is significant, how shall it be accounted for?
a. The net realizable value of the by-product shall be recorded as deduction from the net sales of the main
product.
b. The net realizable value of the by-product shall be recorded as deduction from the cost of sales of the main
product.
c. The net realizable value of the by-product shall be recorded as other income.
d. The net realizable value of the by-product shall be recorded as deduction from the total joint manufacturing
cost thereby reducing the cost of the main products also known as replacement cost method.

31. Aside from the initial amount of revenue agreed in the long-term construction contract, additional revenues may be
recognized by the contractor (1) to the extent that it is probable that they will result in revenue and (2) they are capable
of being reliably measured. Which of the following will not be considered as additional contract revenue by a
contractor?
a. Variation in contract work as instructed by the customer regarding the scope of work to be performed.
b. Gain on sale of scrap materials from construction.
c. Claim that the contractor may seek to collect from the customer for customer caused delays or errors in
specification or design.
d. Incentive payments to be paid to the contractor if specified performance standards are met or exceeded or for
early completion of the contract.

32. Which of the following costs shall not be capitalized by the contractor as part of the construction in progress?
a. Site labour costs, including site supervision
b. Costs of moving plant, equipment and materials to and from the contract site.
c. Selling costs
d. Costs of direct materials used in construction

33. Which of the following costs shall be capitalized by the contractor as part of the construction in progress?
a. General administration costs for which reimbursement is not specified in the contract.
b. Research and development costs for which reimbursement is not specified in the contract.
c. Depreciation of idle plant and equipment that is not used on a particular contract.
d. Systematically and rationally allocated construction overhead costs such as preparation and processing of
construction personnel payroll and borrowing costs.

34. IFRS 15 provides that Revenue from contracts with customers shall be recognized by an entity when (or as) the entity
satisfies a performance obligation by transferring a promised good (asset) or service to a customer. IFRS 15 provides
that initial franchise fee shall be recognized as revenue by the franchisor either as (1) satisfaction of performance
obligation over time or (2) satisfaction of performance obligation at a point in time. IFRS 15 provides that initial
franchise fee shall be recognized as revenue over time (percentage of completion method) if any one of the following
criteria provided below is met. Which of the following indicator shows that the initial franchise fee shall be recognized
as revenue at a point in time instead over time?
a. When the franchisee has legal title to the franchise and has the significant risks and rewards of ownership of
the franchise.
b. When the franchisee simultaneously receives and consumes the benefits provided by the franchisor’s
performance as the franchisor performs.
c. When the franchisor’s performance creates or enhances an asset that the franchisee controls as the asset is
created or enhanced.
d. When the franchisor’s performance does not create an asset with alternative use to the franchisor and the
franchisor has an enforceable right to payment for performance completed to date.
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35. Under IFRS 15, when shall a franchisor recognize revenue from contingent franchise fee or revenue for a sales-based
royalty?
a. When the sales of the franchisee occurs.
b. When the performance obligation to which some or all of the contingent franchise fees or sales-based royalty
has been satisfied or partially satisfied.
c. When either A or B event occurs.
d. When both A and B events occur.

36. On July 1, 2020, the franchisor sold a franchise to a franchisee for an initial franchise fee of P1,000,000. The contract
of sale includes a call option that gives the franchisor the right to repurchase the franchise for P1,100,000 on or before
June 30, 2021. Under IFRS 15, which of the following statements concerning the accounting treatment for the
repurchase agreement is incorrect?
a. On July 1, 2020, the franchisor shall account for the transaction as a financing agreement because the
exercise price is more than the original selling price by debiting cash P1,000,000 and discount on loan payable
P100,000 and crediting Loan payable by P1,100,000.
b. The franchisor shall recognize the initial franchise fee as franchise revenue on July 1, 2020 because the
control over the franchise asset is already transferred to the franchisee at the point of sale
c. On June 30, 2021, upon the lapsed of the call option/right to repurchase and non-exercise of the option, the
franchisor shall derecognize the liability and shall recognize franchise revenue by debiting P1,100,000 loans
payable and crediting franchise revenue because it is only upon this time that the control over the franchise
asset is actually transferred to the franchisee.
d. If on June 30, 2021, the franchisor exercised the call option/right to repurchase, it shall record it be debiting
loans payable P1,100,000 and crediting cash P1,100,000 without recognition of franchise revenue because
there is no transfer of control over the franchise asset.

37. Under IFRS 15, when shall an entity(consignor) that delivers a product to another entity(consignee) under consignment
arrangements recognize sales revenue from that product?
a. When the product perishes or goes out of commerce without the fault of the consignee.
b. Upon delivery of the product to the consignee by the consignor.
c. When the product is finally sold by the consignee to third person.
d. Upon remittance by the consignee of the proceeds of sale to the consignor.

38. Under IFRS 15, which of the following costs shall be recognized or capitalized as an asset rather than expense by an
entity in a contract with a customer?
a. General and administrative cost
b. Costs of wasted material, labour and other resources to full a contract that were not reflected in the price of the
contract.
c. Incremental costs of obtaining a contract with a customer if the entity expects to recover those costs.
d. Costs to obtain a contract that would have been incurred regardless of whether the contract was obtained.

39. Under IAS 21, which of the following statements pertains to functional currency?
a. It refers to the currency of the primary economic environment in which the entity operates.
b. It refers to the currency in which the financial statements are presented.
c. It refers to the currency other than the functional currency of the entity.
d. It refers to the type of currency in a given jurisdiction which a creditor may be compelled to accept.

40. IAS 21 provides that foreign currency denominated elements of financial statements shall be transmuted to functional
currency. Which of the following statements concerning the measurement of foreign currency denominated
transactions/items is incorrect?
a. Monetary items which are receivable or payable in a fixed amount of cash shall be measured initially at
exchange rate at the end of reporting period or closing rate.
b. Monetary items which are receivable or payable in a fixed amount of cash shall be measured subsequently at
exchange rate at the end of reporting period or closing rate with foreign exchange differences going to
profit/loss.
c. Non-monetary items shall be measured initially at exchange rate at the date of transaction or historical rate.
d. Non-monetary items shall be measured subsequently at exchange rate at the date of transaction or historical
rate.
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41. IAS 21 provides that exchange differences/(gain/loss) arising on the settlement or translating foreign currency
transaction shall be recognized in the profit or loss in the period in which they arise. Which of the following items will
result to foreign currency transaction gain/loss due to settlement or translation?
a. Foreign currency denominated non-monetary liabilities such as unearned revenue, warranty liability, premium
liability and deferred tax liability.
b. Foreign currency denominated income statement accounts such as revenue, income, expense or loss.
c. Foreign currency denominated non-monetary assets such as inventory, PPE, intangible asset or prepaid
asset.
d. Foreign currency denominated monetary items such as accounts payable, accounts receivable, notes payable,
loans receivable or interest payable.

42. When translating the financial statements of an entity from its functional currency to its selected presentation currency,
which of the following translation measurement is incorrect?
a. Retained earnings are translated using the average rate during period.
b. Assets and liabilities are translated at the closing rate at the date of statement of financial position.
c. Income and expenses are translated at (1) exchange rates at the date of the transaction or (2) Average rate for
the period for practicality.
d. Equity accounts other than retained earnings are translated at the date of the transaction resulting to that
equity items.

43. Which of the following is not a characteristic of a derivative financial instrument?

a. Its value changes in response to the change in an underlying, such as specified interest rate, financial
instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index,
or other variable of a primary financial instrument.
b. It requires no initial net investment or an initial net investment (option premium) that is smaller than would be
required for other types of contracts that would be expected to have a similar response to changes in market
factors.
c. It is measured initially and subsequently at historical cost.
d. It is settled at a future date.

44. In case of hedging transaction designated as fair value hedge, which of the following statements is correct?
a. The gain or loss from remeasuring the hedging instrument/derivative designated as fair value hedge shall be
recognized in profit or loss.
b. The gain or loss on the changes in fair value of hedged item/(AFS Securities) attributable to the hedged risk
shall adjust the carrying amount of the hedged item and be recognized in profit or loss.
c. Both A and B.
d. Neither A nor B.

45. In case of hedging transaction designated as cash flow hedge, which of the following statements is correct?
a. The portion of the gain or loss on the hedging instrument/derivative designated as cash flow hedge that is
determined to be an effective hedge or the change in intrinsic value of the derivative designated as cash flow
hedge shall be recognized in other comprehensive income.
b. The ineffective portion of the gain or loss on the hedging instrument/derivative designated as cash flow hedge
or the change in time value of the derivative designated as cash flow hedge shall be recognized in profit or
loss.
c. The cumulative other comprehensive income recognized in equity arising from cumulative changes in intrinsic
value of derivatives designated as cash flow hedge shall be reclassified from equity/cumulative OCI to profit or
loss as a reclassification adjustment in the same period during which the hedged forecast cash flows affects
profit or loss.
d. All of the above.
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46. How shall an entity account for hedging transaction classified as hedge of firm commitment?
a. Cash flow hedge only
b. Fair value hedge only
c. Undesignated hedge only
d. IAS 39 gives the entity the option to elect either cash flow hedge or fair value hedge for hedge of firm
commitment.

47. Which of the following cash flows shall be presented as part of operating activities by a not-for-profit organization?
a. Cash disbursement for the principal amount of loans payable of the organization.
b. Cash receipt as dividend income from regular endowment which provides that dividend income shall be used
for the acquisition of computer equipment of the organization.
c. Cash disbursement for the acquisition of land and building to be used as administrative building by the
organization.
d. Cash receipts from the “other income, revenue or gain” of the organization.

48. Which of the following funds shall be classified as unrestricted net asset in the NPO’s statement of financial position?
a. Plant fund wherein the deed of donation provides that it shall be used only for the acquisition of property, plant
and equipment of the NPO.
b. Quasi-endowment fund or fund established by the Board of Trustees of the NPO.
c. Annuity fund wherein the deed of donation provides that the NPO shall pay a specified fixed amount to a
designated beneficiary periodically during a specified period of time.
d. Regular endowment fund wherein the deed of donation provides that the principal must be maintained
indefinitely in revenue producing investments.

49. How shall expenses of a not-for-profit organization be reported in the statement of activities?
a. It shall be reported as addition to the unrestricted revenue.
b. It shall be reported as decrease in unrestricted net asset to be deducted only from unrestricted revenue.
c. It shall be reported as deduction from the temporary restricted revenue.
d. It shall be reported as decrease from the permanently restricted net assets.

50. On January 1, 2020, ABC Inc., a not-for-profit organization, received P10M cash donation from a donor who stipulated
that the amount should be invested indefinitely in revenue producing investment. The deed of donation also provides
that the dividend income shall be used for the acquisition of computers of the NPO. On December 31, 2020, ABC Inc.
received P200,000 cash as dividend income from the investment of the fund. On January 1, 2021, ABC Inc. acquired a
laptop at a cost of P50,000 with a useful life of 5 years without residual value. How shall the transactions be reported
in NPO’s Statement of Activities for the year ended December 31, 2020?
a. There shall be increase in unrestricted net asset by P50,000.
b. There shall be increase in unrestricted net asset by P10,200,000.
c. There shall be decrease in temporary restricted net asset by P200,000.
d. There shall be increase in permanently restricted net asset by P10M and increase in temporary restricted net
asset by P200,000.

51. Using the same data in number 50, how shall the transactions be reported in NPO’s Statement of Activities for the year
ended December 31, 2021?
a. There shall be decrease in temporary restricted net asset by P50,000 and increase in unrestricted net asset by
P40,000.
b. There shall be no effect in total net asset.
c. There shall be increase in unrestricted net asset by P50,000.
d. There shall be decrease in temporary restricted net asset by P200,000.
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52. Using the same data in number 50, how shall the cash flows be reported in NPO’s Statement of Cash Flows for the
year ended December 31, 2020?
a. Cash receipts from operating activities by P200,000.
b. Cash receipts from financing activities by P10,200,000.
c. Cash disbursements for investing activities by P200,000.
d. Cash disbursements for financing activities by P10,000,000.

53. Using the same data in number 50, how shall the cash flows be reported in NPO’s Statement of Cash Flows for the
year ended December 31, 2021?
a. Cash disbursements for investing activities by P50,000.
b. Cash disbursements for financing activities by P10,000,000.
c. Cash receipts from operating activities by P200,000.
d. Cash receipts from financing activities by P10,200,000.

54. Which of the following is an example of a supporting expense?

a. fund-raising activity
b. tree-planting project
c. feeding program
d. shelter for homeless

55. Cash contributions or donations are reported/recognized as revenue by NPO in the year received notwithstanding the
presence of donor-imposed use or time restriction on the donation. Contributed services, on the other hand, are
recognized at fair value by NPO only if (1) the services create or enhance a nonfinancial asset or (2) the services
require specialized skills and provided by individual possessing those skills and would typically need to be purchased if
not provided by donation. How shall recognized contributed services be reported by NPO in its Statement of Activities?
a. It will increase the unrestricted net asset on the year contributed.
b. It will increase the temporarily restricted net asset on the year contributed.
c. It will increase the permanently restricted net asset on the year contributed.
d. It will not affect the net asset or unrestricted net asset because it will be recorded as increase in expense and
increase in unrestricted revenue.

-end of exams-