CPA REVIEW SCHOOL OF THE PHILIPPINES Manila FINANCIAL ACCOUNTING AND REPORTING —_VALIW/SIYIVALDUESCALASANTOSDELA CRUZ SHAREHOLDERS' EQUITY 1, Total shareholders’ equity represents Aclim to specifi assets contbuted by the overs. 'b. The maximum amount that can be bortowed by the entity. © Acclaim against a portion ofthe toll asses of an entity. ‘Only the amount of earnings that have been retained in te business. 2. Equity is generally classified into two major categories, namely © Contibuted capil and appronised capital >. Appropriated capital and retained eamings ta uncamed capital 'Eamed capital and contributed capital 3. Shareholders of an entity are sid tobe residual owners which means that sbeeholders ‘Ae ented toa dividend every year in which the entity eam & profit. b. Hove the right o specific assets ofthe busines, Bear the ulate risks and unceranties and recive the benefits of ovmership. ECan negotiate individual contac on behalf ofthe ent. 4. Which is mot basic right of a shareholder? The right to participate in earnings 1. The right vote in the election of directors and inthe determination of policies. 6, The Huh to share in he net aes ofthe corporation upon guidton Qe pw inspect the eccoutng records of he copraion 5. The preemptive right ofan ordinary shareholder isthe right Share proportionately in corporate ases upon ieidaton. stare proportion in any new issue of hares fhe sae ls, Receive cash dividends before they are distibued to peference shareholder. 4 Bxclde preference sharchoiders fom voting rts 6. Which ofthe following represents the tot number of shares that a corporation may issue under the sof its charter? Authorized shares i ’. Issued shares & Unissued shares 4. Treasury shares 1. Shares hat havea ed pershae amount printed on each sare ceria ar elled Site va shares Fed ae tet Uaioe value hares Gprbhes 8, When ordinary shares are issued in payment for services, the least appropriate basis for recording the transaction isthe Fair value ofthe services received ’. Par value ofthe shares issued Fair value ofthe shares issued es ofthese provide an appropriste basis for recording the transaction 8 n collectbility is reasonably assured, the excess of the subscription price over the ofthe no par share capital subscribed should be recorded as No par share capital ‘Share premium when the subscription i recorded 1 ‘c. Share premium when th subscription is collected. 4d. Share premium when the shares are issu. 6695Pgs 2 10. Treasury shares are 4 Shares held as an investment by the treasurer ofthe corporation. 1. ‘Shares held as an investment of the corportion. © Issued end outstanding shares Iasved but not outstanding sbares. 111, Which staerent best describes a possible resuk of treasury share transactions? ‘2 May increase but not decrease retained eamings b. May increase net income if the cost method is used. ©] May decrease but not increase revaired earings. 4 May decrease but not increase net income. 12. Reerable preference shares shoal be A lncoded with ordinary shares, @ inte as tabu . Excluded fom the sateen of racial postion 44 Included asa conta tern in shareholder equy 13. Cumulative preference dividends in sears should be reported as ‘2 Anincrease in current liabilities. 1b. An increase in equity. A footnote. 4. Am increase in noncurrent isbilites forthe curent portion liabilities forthe long-term portion. 14. Noocumlatve preference dividends in rears (CHD Are ot paid and not disclosed 'b. Must be paid before any other cash dividend can be distributed. ‘&Are disclosed a ibility unt paid. @ Are pad to preference shareholders if sufcient funds remain afer payment of the curent preference dividend 15, The features froquently associated with preference shares include al, except CCallabie atthe option ofthe shareholder 'b. Convertible into ordinary shares , Nonvoting d. Preference as to assets in the event of liquidation 16°The cumulative feature of preference shares ‘Limits the amouat of cumulative dividends to the par value of the preference shares. (jpegs tat ders no: pad inany year mst be mae up naa car before dividends re distributed to ordinary sharebolders, ‘Means thatthe shareholder can accumulate preference sbares equal to the par value of ordinary shares ‘4. Enables a preference shareholder to accumulate dividends equal to the par value of the shares and receive the shares in place ofthe cash dividends. 17. Which statement is true about share dividend? ‘& Lf management wishes to capitalize retained eamings it may issue a share dividend. b. A.20%% share dividend decreases retained earnings but does not change to total equity. ‘c. The issuer of @ 10% share dividend should transfer from retained earnings to contributed capital ‘an amount equal to the fair value ofthe shares issued, ofthese statements are tre about share dividend. 18, Which statements not true abou dividends? ¢ amount charged to ceained earings when treasury shares are reissued as dividends isthe {air value of treasury shares '. When shareholders may elect to receive cash in Hew of share dividend, the amount charged to retained earings is the optional cash dividend. A liquidaring dividend iss esr to shareholders ofa portion oftheir origina investment Dividends are not paid on treasury shares. 669519. The declaration and issuance ofa share dividend ‘Increases owdinary shares outstanding and total equity. ’b, Decreases retained earings but doesnot change total equity. May increase or decrease share premium but does oot change total equity. 4. Increases retained earnings and total equity. 20, A feature commen to both share split and share dividend is A transfer to eamed capital ofa corporation. ‘There is no effect on total equity ‘cm inerease in total liabilities of a corporation. 4. A reduction in the contributed capital of a corporation. 21. Which is mot a legal restriction related to profit distribution? ‘The amount distributed must be in compliance with the laws governing corporations. The amount distributed can never exceed the net income reperted for the year. ¢. Profit distribution must be formally approved by the board of directors. 4. Dividends must be in fall agreement with the capital contacts as to preferences, 22. Which statement is incorrect in relation to appropriation of retained earnings? Appropriation does not reduce total retained earnings. '. The only proper way to eliminate an appropriation of retained earnings after it has served its purpose isto credit the unappropriated retained earings account ‘c. An appropriation of retained camings does not mean that assets are segregated. Ey When oss stares prc, retained earnings must be appropriated equal tothe par or stated value of such shares 23. Which sates tru concesng sar capil ansatons? 2 Deposits on sutsrption to a proposed increas in sae capital shoud be clase a part of Sovualer eq Sifcoipiontevable fom sale of share capital which are not cue calles shoul be telco deduction from ie elated ubsibd sar capi Disc on thar copl shold be shown an deducdon fom foal shucholden iy. @) otic sateen but se pil eames 24, Share capital is said to be “watered” when. ‘8. Itis sold ata price in excess of carrying amount Liabilities are overstated Aseets ae oversiaied tis issued for assets other than cash 25, A "secret reserve" will be created if Inadequate depreciation is charged to income. capital expenditure is charged to expense. ce Liabilities are understated, 4. Shareholders’ equity is overstated, IFRIC 17 - DISTRIBUTION OF NONCASH ASSET TO OWNER 26. Which ofthe following statements about property dividend is not true? ‘a A propeny dividend is usually inthe form of securities of other entities. b. A property dividend is also called dividend in kind. © Tee acoumtng for propery divider shoud be based onthe carrying amouat of ‘nonmonetary asset transferred, _Allof these statements are true about priperty dividend, 27. An entity shall adjust the carrying amount of the dividend payable at the end of reporting period land atthe date of settlement with any changes in the carrying amount recognized Ca? In equity as adjustment to the amount of distribu ' In profit or loss ¢, As adjustment of general reserve 4. As component of other comprehensive income. 6695Page 4 28, When an entity settles the dividend peyable, it shall recognize the difference between the carrying amount of the asset distibuted and the carrying amount ofthe dividend payable in 2 Profit oF loss ‘Other compre ©. Equity 4. Retained earnings income 29, An entity shall measure a noncurrent asst classified as held for distribution to owners at = Carrying amount b. Fair value less cost to distribute wer of carrying amount and fair value les cost to distribute 4. Higher of carrying amount and fair value less cost to distribute PFRS 2-SHARE BASED PAYMENT 30. Share options are what type of share-based payment transaction? a. Asset-settied share-based payment transaction Bquity-setled share-based payment transaction , Cashesetled share-based payment transaction 4. Liabilty-setled share-based payment transaction, 31. Compensation expense resulting from a share option plan is generally Recognized in the period of exercise. 'b. Recognized in the period of the grant. Allocated to the periods benefited by the employee's required service i Allocated over the periods of the employee's service life until retirement. 32, The date on which total compensation expense is computed ina share option plan i the Date of grant 2 Date of exercise cc. Date when the market price coincides with the option price 4, Date when the market price exceeds the option price 33. Which option valuation technique should not be used as a measure of fair value of share options in ‘the fist instance? & Black-Sholes model >. Binomial model ‘Monte-Carlo mode! insic value 34, Share appreciation rights are what type of share-based payment transaction? ‘a. Asset-serted share-based paymemt transaction Liebilty-setted share-hased payment transaction CCash-setted share-based payment transaction [Equity-setled share-based payment transaction 35. In accounting for share appreciation rights, compensation expense is generally Not recognized because no excess of market price over the predetermined price exists at the date of grant. 'b. Recognized in the period ofthe grant. G3 Allocated over the service period of the employees. Recognized in the period of exercise. * 136. For share appreciation rights, the measurement date for computing compensation is the ‘a. Date the rights manure 'b. Date the share reaches a predetermined amount Da feat Gea ot rerio setenentPage 5 37. A cach-sered share-based payment will give rise to an increase in which of the following? © Current asset b. Noncurent asset Equity & Aaity 38. If share-based payment transaction provides that the employees have the right to choose the ‘settlement whether in cash or shares the entity is deemed to have issued ‘A compound financial instrument b. Ameauity instrument c Alibility instument <4. Either an equity insirament or liability instrument but not both PAS 33 - EARNINGS PER SHARE, 39. EPS disclosures are required for ‘Entities whose ordinary shares and potential ordinary shares are publicly traded. 'b. Entities that are in the process of issuing ordinary shares in the public market. c. Allentiies @ Ents tose oninry shares and potential oda shares are publily traded or entities tht are in the proces of issuing ordinary shares in puble mathe. 40. When an entity issues both consolidated and separate financial statements, the EPS information is required 1. For both sets of financial statememss In either set of financial statements ‘Only for consolidated financial statements 4 Only for separate financial statements 41, Eamings per share shall be computed on the basis of ‘Average ordinary shares outstanding during the year. Ordinary shares outstanding at the end of the year. © Ordinary shares outstanding atthe beginning ofthe year d._ Average ordinary and preference shares outstanding during the year. 42. In the computation of weighted average shares outstanding, when a share dividend or share split ‘occurs, the additional shares are ‘a. Weighted by the number of days outstanding. Bb. Weighted by the number of months outstanding, Considered outstanding atthe beginning ofthe year. ‘Consideced outstanding at the beginning of the earliest year reported. 43. In computing diluted earnings per share, the equivalent number of shares of convertible preference shares is added as an adjustment to the denominator. If the preference shares are cumulative, which amount should be added as an adjustment to the numerstor or net income? ‘SL, Annual preference dividend Annual preference dividend minus the income tax ©, Aamual preference dividend plus the income tax 4, Annual preference dividend divided by the income tax rate 44, Dilution of EPS is dened as , 4 Dectease in earings per share when any financial instrument is converted to any form of share capital b,_ Decrease in share capital © Decrease in earings per share when converibleinstrumgats are comented to ordinary shares 4. Decrease in eamings per share wien share capita is converid to deb api 6695Page 6 45. Options and warrants are dilutive if 1. The option shares represent fifty percent of the ordinary shares actually outstanding. 'b. The option price is equal tothe average market price. ‘e._The option price is higher than the average market price, ‘option price is lower than the average market price, 46, When applying the treasury share method for diluted earnings per share, the market price of the ordinary shares used forthe repurchase is the a. Price at the end of the year ‘D/ Average market price . Price at the beginning of the year Predetermined market price 47. An entity can report basic EPS and does not have to report fully diluted EPS ifthe entity has ‘Ordinary shares, options that are convertible into ordinary shares and no preference shares '. Ordinary shares, bonds that are convertible into ordinary shares and no preference shares ©. Ordinary shares, preference shares that are convertible into ordinary shares and no bonds convertible into ordinary shares ‘The entity shall report basic EPS and fully diluted EPS in all ofthe cases, 48, Eamings per share should always be showm separately for ‘Income from continuing operations . Discontinued operations o § JES wn pat 49, Foran entity having several different issues of convertible securities and share options, the standard Cis seleson ofthe combination of seis procig ‘The lowest possible earnings per share b. The highest possible earnings per share. ¢. The EPS figure midway between the lowest possible and the highest possible EPS. d._ Any EPS figure between the lowest possible and the highest possible EPS. 50. Antiilutive securities ‘Should be included in the computation of dituted earnings per share '. Are those whose inclusion would decrease basic eamings per share. 6. Include share options whose exercise price is less than the average market price. CE frost ignored in all ans per sare celelatons END 6695,