DISCUSSION PROBLEMS

1. Interim financial report means a financial report
containing
a. A complete set of financial statements for an
interim period.
b. A set of condensed financial statements for an
interim period.
c. Either a or b.
d. Neither a nor b.
2. PAS 34 Interim Financial Reporting specifies
a. The content of an interim financial report that is
described as conforming to PFRS.
b. The entities required to publish interim financial
report
5. The terms and conditions of employment with The
Pleasing Company include entitlement to share in the
staff bonus system, under which 5% of the profits for the
year before charging the bonus are allocated to the bonus
pool, provided the annual profits exceed P50 million. The
profits (before accrual of any bonus) for the first half of
2019 amount to P40 million and the latest estimate of
the profits (before accrual of any bonus) for the year as a
whole is P60 million.
How much should be recognized in profit or loss in
respect of the staff bonus for the half year to 30 June
2019, according to PAS34 Interim financial reporting?
a. Nil c. P2.0 million
b. P3.0 million d. P1.5 million

c. The frequency of interim financial reporting.

d. How soon after the end of an interim period should
the entity publish interim financial report. 6 Joseph Corp. had the following transactions during the
3. The Maddy Company is preparing interim financial quarter ended March 31, 2019:
statements for the six months to 30 June 2O16 in Loss from typhoon damage P210,000
accordance with the minimum requirements of PAS34. Payment of fire insurance premium
Its accounting year ends on 31 December each Y•ar. for calendar year 2019 300,000
Which of the following comparative statement is pt
appropriate? What amount should be included in Joseph's income
a. Statement of financial position at 30 June 2015 statement for the quarter ended March 31, 2019?
b. Statement of profit or loss and other Typhoon Loss Insurance Expense
comprehensive income for the half year to 30, a. P210,000 P300,000
June 2015 b. P210,000 P 75,000
c. Statement of changes in equity for the half year c. P 52,500 P 75,000
to 30 June 2015 d. P 0 P300,000
d. Statement of cash flows for the half year to 30
June 2015 7. On January 5, 2019, Red Co. paid P60,O00 for
insurance on its buildings for the calendar year
L ECTURE NOTES: 2016. In the first week of April 2019, the company
made unanticipated major repairs to its equipment
Date and Period Covered - Second Ouarter at a cost of P240,000. These repairs benefited
FS Current year (CY) Prior year (PY) operations for the remainder of 2019. How should
SFP 6.30.CY 12.31.PY these expenses be reflected in Red Co’s quarterly
SCI 3 months ended 6.30.CY 3 months ended 6.30.PY income statements?
6 months ended 6.30.CY 6 months ended 6.30.PY
SCE 6 months ended 6.30.CY 6 months ended 6.30.PY
SCF 6 months ended 6.30.CY 6 months ended 6.30.PY
Mar. 31 Jun. 30 Sep. 30 Dec. 31
a. P15,000 P95,000 P95,000 P95,000
4. An entity operates in the travel industry and incurs cost b. 60,000 240,000
unevenly through the financial year. Advertising costs of c. 75,000 75,000 75,000 75,000
d. 1S,000 255,000 15,o00 s,000
P2 million were incurred on March 1, 2019, and staff
bonuses are paid at year-end based on sales. Staff
bonuses are expected to be around P20 million for 8. Occidental Company’s P10,000,000 net income for the
the year; of that sum, P3 million would relate to the quarter ended September 30, 2019, included the
period ending March 31, 2019. What costs should be following aRer-tax items
included in the entity’s quarterly financial report to
March 31, 2019? • A P1,200,000 gain realized on April 30, 2019 was
a. Advertising costs P2 million; staff bonuses PS allocated equally to the second, third and fourth
million quarters of 2019.
b. Advertising costs P0.5 million; staff bonuses P5 • A P3,000,OOO cumulative loss resulting from a
million change in inventory valuation method was
c. Advertising costs P2 million; staff bonuses P3 recognized on August 2, 2019.
million In addition, Occidental paid P600,000 on February 1,
d. Advertising costs PO.5 million; staff bonuses P3 2019, for 2019 calendar-year property tax. Of this
million amount, P150,000 was allocated to the third quarter of
2019. For the quarter ended September 30, 2019,
Occidental should report net income of
a. P12,600,000 c. P11,800,000
b. P12,750,000 d. P 9,600,000
9. The Philippians Company’s profit before tax for the six
months to 30 September 2019 was P5 million.
However, the business is seasonal and profit before tax
for the six months to 31 March 2020 is almost certain to
be P9 million. Profit before tax equals taxable profit for
this company. Philippians operates in a country where
income tax on companies is at a rate of 30% if annual
profits are below PI 1 million and a rate of 35% where
annual profits exceed P11 million. These tax rates apply
to the entire profit for the year.
Under PAS34 Interim financial reporting, what should be
the income tax expense in Philippians’ interim financial
statements for the half year to 30 September 2019?
a. P1.75 million c. P1.50 million
P2.10 million d. P2.45 million
b.
10. An entity prepares quarterly interim financial reports in
accordance with PAS 34. The entity sells electrical
goods, and normally 5% of customers claim on their
warranty. The provision in the first quarter was
calculated as 5% of sales to date, which was
P2O,0O0,000. However, in the second quarter, a
design fault was found and warranty claims were
expected to be 10% for the whole year. Sales ir: the
second quarter were P30,000,000. What would be the
provision charged in the second quarter’s interim
income statement7
a. P3,OO0,000 c. P2,250,000
b. P4,000,000 d. P5,000,000
f DRILL
1. On June 30, 2019, Sasa Corp. incurred a P200,000 net
loss from disposal of a business segment. Also, on
June 30, 2019, Sasa paid P80,00O for property taxes
assessed for the calendar year 2019. What amount of
the foregoing items should be included in the
determination of Sasa‘s net income or loss for the 6-
month interim period ended 3une 30, 2019?
a. P280,000 c. P180,000
b. P240,000 d. P140,000
2. On March 15, 2019, Anda Co. paid property taxes of
P120,000 on its factory building for calendar year
2019. On April 1, 2019, Anda ‘ made P240,000 in
unanticipated repairs to its plant equipment. The
repairs will benefit operations for the remainder of the
calendar year. What total amount of these expenses
should be included in Anda’s quarterly income
statement for the 3 months ended 3une 30, 2019?
a. P 60,000 c. P150,000
b. P110,000 d. P270,000
3. Aldivinco Corp. experienced a P50,000 decline in value
of its inventory in the first quarter of its fiscal year.
Aldivinco had expected this decline to reverse in the
third quarter, and in fact, the third quarter recovery
exceeded the previous decline by P10,000. Aldivinco‘s
inventory did not experience any other declines in
value during the fiscal year. What amounts of loss or
gain should Aldivinco report in its interim financial
statements for the first and third quarters?
First Ouarter Third Ouarter
a. P0 P0
b. PO P10,000 gain
c. P50,000 loss P50,000 gain
d. P50,000 loss P60,000 gain
Use the following information for the next two questions.
On January 1, Lessor Company signed a 1-year rental with
quarterly payments of P10O,00O due at the end of each
quarter. In addition, the lessee must pay contingent rent
of 5% of all sales in excess of P10,000,000. The
contingent rent is paid in one payment on December 31.
The same lessee has used the building for the past 5
years, and in each of those years the lessee reached the
contingent rent threshold of P1O,000,000 in sales. Sales
of the lessee for thd first two quarters are as follows:
Ouarter ended Amount
Narch 31 P3,200,000
3une 30 3,000,000
11. What amount of rent income should be reflected in
Less ‘s quarterly income statement for the three
months ended June 30*
a. P100,000 c. P130,000
b. P125,000 d. P160,000
12. What amount of rent expense should be reflected in
Lessee‘s quarterly income statement for the three
onesended June 3O?
a. P100,000 c. P130,000
b. P125,000 d. P160,0O0
4. During the third quarter of 2019, the accountant at the
Bonifacio Company discovered that a machine
purchased January 2, 2017 for P600,000 had been
erroneously charged against first quarter net income in
2017. The machine should have been depreciated at a
rate of P10,0O0 per month. The correction of this error
should include
a. A charge of P330,O00 to income before taxes of
the third quarter of 2019.
b. An adjustment of P240,000 to the previously
declared income before taxes of the first quarter of
2019.
c. An adjustment of P270,000 to the previously
declared income before taxes of the first quarter of
2019.
d. An adjustment of P30,00O to the previously
declared income before taxes of the first quarter of
2019.
5. Davao Corp. expects to sustain an operating’ loss of
P1,000,000 for the full year ending December 31, its
first year of operations. It operates entirely in one
jurisdiction where the tax rate is 40%. Tax credits for
the year total P100,0O0. No permanent differences
are expected. Realization of the full tax benefit of the
expected operating loss and of the anticipated tax
credits is more likely than not. Thus, Davao expects to
recognize the full tax benefit at year-end as a deferred
tax asset with a valuation allowance of P0. For the
quarter ended March 31, Davao reports an operating
loss of P200,000. How much of a tax benefit should
Davao report for the interim period ended March 31?
a. P 0 c. P100,000
b. P80,000 d. P125,000
SUGGESTED ANSWERS
1. C
2. A
3. A
4. C
5. C
6. B
7. A
8. A
9. A
10. B
11. A
12. B

DRILL
1. B
2. B
3. C
4. D
5. C

PAS 34 Interim Reporting
1. Under PAS 34, interim financial reports should be
published
A. Within a month of the half-year end
B. On a quarterly basis
C. Once in a year at any time in that year
D. Whenever the entity wishes
2. The IASB encourages publicly traded entities to provide
interim financial reports
A. At least at the end of the half-year end and within
60 days of the end of interim period
B. Within a month of the half-year end
C. On a quarterly basis
D. Whenever the entity wishes
3. If an entity does not prepare interim financial reports,
then
A. The year-end financial statements are deemed not
to comply with PFRS
B. The year-end financial statements’ compliance
with PFRS is not affected
C. The year-end financial statements will not be
acceptable under local legislation
D. Interim financial reports should be included in the
year-end financial statements
4. Interim financial report shall include as a minimum
A. A complete set of financial statements complying
with PAS 1
B. A condensed set of financial statements and
selected notes
C. A balance sheet and income statement only
D. A condensed balance sheet, income statement, and
cash flow statement only
5. PAS 34 states a presumption that anyone reading interim
financial reports will
A. Understand all PFRS
B. Have access to the records of entity
C. Have access to the most recent annual report
D. Not make decisions based on the report
6. An entity owns a number of farms that harvest produced
seasonally. Approximately 80% of entity’s sales are in the
periods of August to October. Because the entity’s
business is seasonal, PAS 34 suggests
A. Additional notes be written in the interim reports
about the seasonal nature of the business
B. Disclosure of the financial information for the
latest and comparative 12-month period in addition
to the interim report
C. Additional disclosure in the accounting policy note
D. No additional disclosure
7. An entity is preparing half-yearly financial information
in line with PAS 34. The period to be covered by the FS is
the 6 months to June 30, 20X7. A new IFRS has been
published that is effective for periods beginning on or after
January 1, 20X7. The entity must adopt the PFRS
A. In the FS for the year to December 31, 20X7, only
B. In its interim FS to June 30, 20X7, only
C. In its interim FS to June 30, 20X7 and its annual
FS to December 31, 20X7
D. At its own discretion
8. Which of the following statements is true concerning
interim financial reporting?
A. An extraordinary is defined as being material based
on the relationship of the item to the interim period
results
B. The results of a disposal of a business segment
maybe considered material for the interim period
but not for the annual period
C. No income tax effect will be recognized in an
interim period that incur a loss
D. The income tax rate to be used for an interim period
is based on the estimated income tax and return on
annual income
9. Which of the following is an acceptable practice as it
relates to interim financial reporting?
A. Delayed recognition of inventory market declines
until year end
B. Delayed recognition of unplanned standard cost
system variance until year end
C. Use of variable costing inventory method for
determining inventory cost
D. Used of the grossed profit method to determine
interim inventory accounts
10. Minimum disclosure are not required as part of interim
financial reporting
A. Sales or gross revenue
B. Primary and fully diluted earnings per share
C. Contingent items
D. Segment information
11. Which of the following inventory procedures cannot be
applied for interim reporting?
A. Estimation of inventory using gross profit method
B. Delayed recognition of permanent losses from
inventory market declines
C. Delayed recognition of temporary inventory
market declines
D. Earnings per share presentation
12. Minimum disclosure requirements for companies using
interim financial information will include which of the
following?
A. Sales and cost of goods sold for the current quarter
and the current year to date
B. The contribution margin by product line for
current quarter and the current year to date
C. Primary and fully diluted EPS for each period
presented
D. An interim statement of financial position
13. For interim financial reporting, an inventory loss from
a temporary market decline in the first quarter which can
be reasonably be expected to be restored in the fourth
quarter
A. Should be recognize as a loss proportionately in
each of the first, second, third and fourth quarter
B. Should be recognize as a loss in the first quarter
C. Need not be recognize as a loss in the first quarter
D. Should be recognize as a loss in each of the first,
second and third quarter
14. Which of the following need not be disclosed in interim
financial statements?
A. EPS
B. Changes in accounting principles
C. Seasonal revenue
D. Components of cost of goods sold
15. Cost not directly associated with revenue
A. Can be recognized in any interim period provided
they are recognized in the year of incurrence
B. Should be recognized in the year of incurrence if
they cannot be allocated among interim periods on
a reasonable basis
C. Should be allocated in a pro rata basis to all interim
periods from the date of incurrence to the end of
fiscal year
D. May be treated as if they were annualized cost
16. Most interim periods gain and losses, for the purpose
of interim disclosure
A. Are deferred until year end
B. Are followed to be offset against each other
C. Are recognized in the interim period of incurrence
D. Are allocated ratably over remaining interim
periods
17. Interim income tax expense is based on
A. An estimate of annual tax rate
B. Four times the interim period’s pretax earnings if
the interim period is a quarter
C. The interim period’s pretax earnings and tax rate
applicable in the period
D. The average income tax rate for all previous
interim periods and the current interim period
18. How is the income tax expense for the third quarter
interim period computed?
A. The annual rate multiplied by the third quarter
pretax earnings
B. The estimated tax rate for the first three quarters
based on annual rate, less a similar estimate for the
first two quarters
C. The rate applicable during the third quarter
multiplied by four times the third quarter pretax
earnings
D. One-half of the difference between total estimated
annual income tax expense and the income tax for
the first two quarters
19. Choose the correct statement concerning GAAP as it
relates to interim reports for business enterprises.
A. Interim reports are required for business
enterprises
B. Interim reports are optional for many enterprises.
But are subject to GAAP if published
 C. Interim reports must be 3 months long 24. If annual major repairs made in the first quarter and
D. Reports for four interim periods must be published paid for in the second quarter clearly benefit the entire
if any interim reports are published year, when should they expensed?

20. When preparing an interim period, unusual or non- A. In full in the first quarter
recurring items should be B. In full in the second quarter
C. An allocated portion in each quarter of the year
A. Deferred and recognize in the last interim period of D. All expenses affecting more than one quarter
the fiscal year in which they occurred should be recognized in the last year of the fiscal
B. Recognized in full in the interim period in which year
they occurred
C. Ignored because the focus of interim reporting is on 25. Conceptually, interim financial statements can be
recurring items described as emphasizing
D. Apportioned over the interim period in which first
A. Timeliness over reliability
recognized subsequent interim periods of the fiscal
B. Reliability over relevance
year
C. Relevance over comparability
21. Which statements best describes a view of interim D. Comparability over neutrality
reports relative to annual reports, for purpose of interim
26. For external reporting purpose, it is appropriate to use
reporting?
estimated gross profit rates to determine the cost of goods
A. An interim period should be viewed primarily as an sold for
integral part of an accounting period
B. An interim period should be viewed as a period I. Interim financial reporting
which stands alone II. Year-end financial reporting
C. Interim period must be audited, as are annual report A. I only
D. Interim reports are required under GAAP B. II only
C. Both I and II
22. Choose the correct statement concerning recognition of D. Neither I nor II
expense in interim reports.
27. Which entries are required by PAS 34 to present
A. All interim period costs must be associated with interim financial reports?
revenue in the interim period
B. Some cost can be allocated arbitrarily to any of the I. Publicly-listed entities
interim periods reported within the year II. Private entities
A. I only
C. Cost which are directly associated with revenue
B. II only
should be matched against that revenue in the
C. Both I and II
interim period
D. Neither I nor II
D. Interim period expense recognition follows GAAP
for annual periods for all cost 28. Not a required statement when an entity presents
quarterly interim reports for 2019
23. Which of the following methods of inventory valuation
is allowable at interim dates but not at year end? A. Statement of financial position at June 30, 2012
and December 31, 2018
A. Retail method
B. Statement of comprehensive income for the 6
B. Specific identification
months ending June 30, 2019 and June 30, 2018
C. Weighted average
D. Estimated gross profit rates C. Statement of comprehensive income for the 3
months ending June 30, 2019 and June 30, 2018
D. Statement of cash flows for the 3 months ending
June 30, 2019 and June 30, 2018
29. For interim financial reporting, an extraordinary gain
occurring in the second quarter should be

A. Recognized ratably over the last three quarters

B. Recognized ratably over all four quarters with the
first quarter being restated
C. Recognized in the second quarter
D. Disclosed by note only in the second quarter
Suggested answers
1. D
2. A
3. B
4. B
5. C
6. B
7. C
8. D
9. D
10. D
11. B
12. C
13. C
14. D
15. B
16. C
17. A
18. B
19. B
20. B
21. B
22. C
23. D
24. C
25. A
26. A
27. D
28. D
29. C