CPAR-PRTC

ND
2 Annual Regional Convention 2013
QUIZ BEE – PA1 & TOA

AVERAGE ROUND

1. According to IAS29 Financial reporting in hyperinflationary economies, which TWO of the

following are monetary items?
a. Trade payables
b. Inventories
c. Administration costs paid in cash
d. Loan repayable at par value
Question 4 - A & D
Monetary items are to be received (or settled) in fixed monetary terms (per
IAS29 para 12). This includes trade payables and loans to be repaid at par
value.

2. The Hopkins Company is a manufacturing company. The cost per unit of an item of inventory is
shown on its card as follows:
PHP
Materials 30
Production labor costs 33
Production overheads 12
General administration costs 10
Marketing costs 5
According to IAS2 Inventories, what is the value of one completed item of inventory in Hopkins's
statement of financial position?
a. PHP63
b. PHP85
c. PHP75
d. PHP90
Question 11 - C
PHP75 is the correct answer.
IAS2 paras 10-12 define the cost of inventory. In this example the cost
includes materials, production labor and production overheads, but not
general administration or marketing costs.

3. On 1 January 20X8 The Ebro Company commenced trading to provide key skills education
facilities in a region identified for technology development. Also on 1 January 20X8, the
company received two grants from its government for setting up its operations in this location:

Grant (a) – was paid to give financial assistance for start-up costs already incurred.

Grant (b) – was paid to subsidize the costs of purchasing computer software over the five-year
period. The company is almost certain to keep the facilities operational for the next five years.

The company's accounting year end is 31 December. Are the following statements concerning
recognition of the income from the two government grants true or false, according to IAS20
Government grants and government assistance?
 (1) Income from Grant (a) should be recognized in full on receipt in 20X8.
(2) Income from Grant (b) should be recognized in full at the end of 5 years.

Statement (1) Statement (2)

a False False
b False True
c True False
d True True
Question 2 - C
IAS20 para 20 requires grants for expenditure already incurred to be
recognized immediately. Para 12 requires grants such as that for the software
to be matched against the related costs, so that grant would be recognized
over the five-year period.

4. The Scandium Company is commencing a new construction project, which is to be financed by

borrowing. The key dates are as follows: 15 May 20X8 Loan interest relating to the project starts
to be incurred

3 June 20X8 Technical site planning commences

12 June 20X8 Expenditures on the project start to be incurred
18 July 20X8 Construction work commences

According to IAS23 Borrowing costs, from what date can Scandium

commence the capitalization of borrowing costs?
a 15 May 20X8
b 3 June 20X8
c 12 June 20X8
d 18 July 20X8
Question 4 - C
All relevant conditions in IAS23 para 17 are fulfilled by the date when
expenditures on the project start to be incurred.

5. The Palila Company purchased a varnishing machine for PHP150,000 on 1 January 20X7.

The company received a government grant of PHP13,500 in respect of this asset. Company
policy was to depreciate the asset over 4 years on a straight-line basis and to treat the grant as
deferred income. Under IAS20 Government grants and government assistance, what should be
the carrying amounts of the machine and the deferred income ("DI") balance at 31 December
20X8?
Carrying amount DI balance
a PHP75,000 PHP6,750
b PHP112,500 PHP10,125
c PHP81,750 PHP6,750
d PHP75,000 PHP13,500
Question 5 - A
Carrying amount PHP75,000, Deferred income PHP6,750 is the correct answer.
See IAS20 para 26, where the grant is recognized as income on a systematic
and rational basis over the life of the asset. The deferred income in the
statement of financial position is reduced each year by the amount credited to
profit or loss.
 The asset is depreciated over its useful life per IAS16.

6. The Coral Company accounts for non-current assets using the cost model. On 20 July 20X7 Coral
classified a non-current asset as held for sale in accordance with IFRS5 Non-current assets held
for sale and discontinued operations. At that date the asset's carrying amount was PHP14,500, its
fair value was estimated at PHP21,500 and the costs to sell at PHP1,450. The asset was sold on
18 October 20X7 for PHP21,200. In accordance with IFRS5, at what amount should the asset be
stated in Coral's statement of financial position at 30 September 20X7?
A PHP20,050
B PHP21,500
C PHP21,200
D PHP14,500
Question 8 - D
IFRS5 para 15 requires that a non-current asset held for sale should be
stated at the lower of (i) the carrying amount and (ii) the fair value less costs
to sell.

7. The Markab Company has acquired a trademark relating to the introduction of

a new manufacturing process. The costs incurred were as follows:
Cost of trademark PHP 3,500,000
Expenditure on promoting the new product PHP 50,000
Employee benefits relating to the testing of the
proper functioning of the new process PHP 200,000
According to IAS38 Intangible assets, what is the total cost that should be capitalized as an
intangible non-current asset in respect of the new process?
A PHP3,750,000
B PHP3,700,000
C PHP3,500,000
D PHP3,550,000
Question 11 - B
IAS38 paras 27-29 specify the costs attributable to a separately acquired
intangible asset. This requires the trademark costs and costs of testing to be
included.

8. The Dipper Company operates chemical plants. Its published policies include a commitment to
making good any damage caused to the environment by its operations. It has always honored this
commitment. Which ONE of the following scenarios relating to Dipper would give rise to an
environmental provision as defined by IAS37 Provisions, contingent liabilities and contingent
assets?
a. On past experience it is likely that a chemical spill which would result in Dipper having to
pay fines and penalties will occur in the next year
b. Recent research suggests there is a possibility that the company's actions may damage
surrounding wildlife
c. The government has outlined plans for a new law requiring all environmental damage to be
rectified
d. A chemical spill from one of the company's plants has caused harm to the surrounding area
and wildlife
Question 11 - D
The published policy creates a constructive obligation as defined by IAS37
para 10. The spill is a past event which gives rise to a present obligation and
the need for a provision under para 14.
 The government plans and any chemical spill relate to future events, while the
"possible" damage to wildlife gives rise to a contingent liability which should
be disclosed.

9. The White Company set up a defined benefit post-employment plan with effect from 1 January
20X7. In the first year the expected return on plan assets was PHP5,000, the actual return on plan
assets was PHP4,000, the current service cost was PHP12,000 and White's contributions paid into
the plan were PHP7,500.
What is the net expense to be recognized in profit or loss for the year ended 31 December 20X7,
according to IAS19 Employee benefits?
A PHP8,000
B PHP3,500
C PHP7,000
D PHP2,500
Question 11 - C
The amounts to be recognized as an expense in profit or loss are the current
service cost less the expected return on plan assets. See IAS19 para 61.
Note that the difference between the expected and the actual return on plan
assets is an actuarial loss, while the employer contributions increase plan
assets.

10. The Pinder Company is completing the preparation of its draft financial statements for the year
ended 31 May 20X7. On 24 July 20X7, a dividend of PHP175,000 was declared and a contractual
profit share payment of PHP35,000 was made, both based on the profits for the year to 31 May
20X7. On 20 June 20X7, a customer went into liquidation having owed the company PHP34,000
for the past 5 months. No allowance had been made against this debt in the draft financial
statements. On 17 July 20X7, a manufacturing plant was destroyed by fire, resulting in a financial
loss of PHP260,000.
According to IAS10 Events after the reporting period, which TWO amounts should be
recognized in Pinder's profit or loss for the year to 31 May 20X7 to reflect adjusting events after
the end of reporting period?
A PHP175,000 dividend
B PHP35,000 bonus
C PHP34,000 allowance for uncollectible trade receivables
D PHP260,000 loss on manufacturing plant
Question 7 - B & C
The correct answers are PHP35,000 bonus and PHP34,000 allowance.
See IAS10 paras 9, 12 and 22. Also, dividends are recognized in the
statement of changes in equity, not profit or loss