MEET THE STANDARDS 2013 - ELIMINATION

EASY

1. Which of the following appears on the statement of financial position of a contractor who is applying PAS
11 – Construction Contracts?

a. Construction in progress as current asset.

b. Progress billings as current liability.
c. Gross amount of due from (due to) customers for contract work.
d. Any of the choices.

Answer: C. Gross amount of due from (due to) customers for contract work.

2. According to PFRS 4 –Insurance Contracts, it refers to the policy holder under a reinsurance contract.

Answer: Cedant

3. When a service concession arrangement that is within the scope of IFRIC 12 – Service Concession
Arrangements covers operation services, the operator recognizes revenue using
I. PAS 11 – Construction Contracts
II. PFRS 9 – Financial Instruments
III. PAS 18 – Revenue
IV. PAS 38 – Intangible Assets

Answer: III only

4. Parties that have joint control of a joint arrangement are referred to under PFRS 11 – Joint Arrangements as

a. joint operators b. joint venturers c. joint arrangers d. A or B

Answer: D. A or B.

5. Under the revised PAS 19 – Employee Benefits, net interest cost is computed
a. Discount rate x Present value of the obligation (or the PVO)
b. (Discount rate x PVO) less [Expected Return on Asset (or the ERoA) x Plan Asset]
c. Discount rate x ( PVO less Plan Asset)
d. Movement of PVO less the effects of the contributions and actuarial gains/losses

Answer: C

6. Julia Corporation acquired 30% of Kim Company’s 100,000 voting shares on January 2, 2013 for P2,000,000
when the net assets of Kim Company was P6,000,000. Kim earned P1,000,000 and P1,500,000 in 2013 and
2014, respectively. Kim paid dividends of P300,000 in 2013 and P500,000 in 2014. On
January 2, 2014, Julia sold 40% of its investment at prevailing market value of Kim shares. Market value of
Kim’s ordinary shares is P80 on December 31, 2013 and P90 on December 31, 2014. What is the carrying
value of the investment on December 31, 2013 assuming Julia is a medium-sized enterprise and uses
equity method for its investment in associate?
 Answer: P2,190,000
7. During 2013, Vice Company exchanged its old van costing P950,000 with an accumulated depreciation of
P200,000 with another van. The fair market value of the new van was established at P700,000. To
equalize the trade, Vice was required to pay an additional amount of P90,000. Assuming that the cash
flows of the asset received does not differ from the cash flows of the asset given, what is the cost of the
newly acquired van and the amount of loss, respectively to be recorded in the books of Vice Company?

Answer: P700,000; P140,000, respectively

AVERAGE

1. Which of the following statements is/are true about presentation of items in other comprehensive
income (OCI) under PAS 1 – Presentation of Financial Statements?
I. Items in OCI shall be grouped into items that would be reclassified to profit or loss at a future
point in time and items that will never be reclassified.
II. An entity shall disclose the amount of income tax relating to each item of other comprehensive
income, including reclassification adjustments, either in the statement of profit or loss and other
comprehensive income or in the notes.
III. Reclassification adjustments arise, for example, on disposal of a foreign operation, when a hedged
forecast cash flow affects profit or loss, and. on remeasurements of defined benefit plans.
IV. Reclassification adjustments do not arise on changes in revaluation surplus recognized in
accordance with PAS 16 or PAS 38

Answer: I, II and IV only

2. Which of the following statements is/are false about protective rights PFRS 10 – Consolidated
Financial Statements?
I. Existence of protective rights does not prevent another investor from having control.
II. Example of protective right includes the right to restrict an investee from undertaking activities
that could significantly change the credit risk of the investee.
III. Protective right does not necessarily indicate power.

Answer: None (True statements)

3. Two unrelated parties (A and B) enter into an agreement for the production and sale of a
pharmaceutical product. Party A is responsible for production and Party B is responsible for
distribution and sales. The activities of the arrangement are conducted by a separate entity. Party A
contributes a factory to the entity at formation. The entity is controlled collectively by Parties A and B,
through the terms of the shareholder agreement. A is responsible for production and B for
distribution and sales. Both parties must approve all financial policies regarding production,
marketing and selling activities (including budgets and deviation form budgets). The financial policies
give the parties significant freedom when performing their respective responsibilities. The
distribution and sales activities have the greatest effect on returns. Which of the following statements
is/are true in relation to the information above?
I. PFRS 11 – Joint Arrangements shall be applied.
II. PFRS 10 – Consolidated Financial Statements shall be applied.
III. The arrangement shall be classified as Joint Venture under PFRS 11 – Joint Arrangements because
it is structured through a separate vehicle (separate entity).
IV. The arrangement shall be classified as Joint Operation under PFRS 11 – Joint Arrangements.
V. Entity A has control based on PFRS 10 – Consolidated Financial Statements.
VI. Entity B has control based on PFRS 10 – Consolidated Financial Statements.

Answer: II and VI only

4. PFRS 12 – Disclosure of Interests in Other Entities establishes the objective that an entity is required to
provide disclosures that enable the users to evaluate:

I. The nature of and risks associated with tits interests in other entities
II. The effects of those interests on financial position, performance and cash flows

To meet this objective, an entity shall disclose information that enables users to: (choose the
incorrect information)
I. Understand the significant judgments and assumptions made in determining the nature of its
interest in another entity.
II. Evaluate the nature and extent of significant restrictions on its ability to access or use assets and
settle liabilities of the group.
III. Evaluate the nature and changes in the risks of its interest in consolidated structured entities.

Answer: III only (should be unconsolidated structured entities)

5. Under PFRS 13 – Fair Value Measurement, it is the risk that an entity will not fulfill an obligation.

Answer: Non-performance risk (Appendix A of PFRS 13)

6. A fair value measurement has four significant inputs:

► Level 1 inputs – 1
► Level 2 inputs – 2
► Level 3 inputs – 1
Under PFRS 13 – Fair Value Measurement, where should the measurement be categorized in the
hierarchy?

Answer: Level 3 (Hierarchy categorization of a fair value measurement is determined in its entirety
based on the lowest level of input significant to the entire measurement.

7. Helping Hand Corporation has the following interests in associates Hi (25%) and Hello (30%). During
2013, Hi sold inventories costing P 1,000,000 to Hello at 20% mark-up based on sales. As of December
31, 2013, if all of these inventories remain unsold, how much is the profit to be eliminated in the
share of Helping Hand Corporation?

Answer: P18,750. (The unrealized profit arising from the transaction between associates and/ or joint
ventures is eliminated to the extent of the investor’s interests in the associates and/or joint
venture.)
DIFFICULT

1. On December 31, 2013, Vincent Co. identified that its building with a carrying amount of P600,000
has been impaired. In estimating the recoverable amount, Vincent has determined that the fair value
less cost of disposal of the asset is P400,000.

In estimating the value in use, Vincent determined the following:

Year Future cash inflows Future cash outflows

2014 P 300,000 P 100,000
2015 280,000 100,000
2016 260,000 80,000

Additional information:
 Each year’s estimated future cash flows include P10,000 representing cash outflows from future
restructuring not yet committed and P5,000 representing cash outflows on planned improvement
and enhancement.
 Not included in the estimated future cash flows are costs of day-to-day servicing of the asset
amounting to P2,000 per year.
 The discount rate applicable for the computation of the value in use is 10%.

Compute for the impairment loss?

Answer: P101,856

2. Catherine Co. determined that its CGU (comprising Catherine’s mining operations in a foreign
country) is impaired. The laws in that foreign country require Catherine to restore the mining site at
the end of the wasting asset’s useful life. Catherine made a provision for decommissioning and
restoration costs 10 years ago when it started operations. At year-end, the carrying amount of the
provision is P600,000 which is equal to the present value of the obligation.

Catherine Co. recently received various offers to buy the mine at around P900,000. This price reflects
the fact that the buyer will assume the obligation to restore the overburden. Disposal costs for the
mine are negligible. The value in use is P1,400,000, excluding decommissioning and restoration costs.
The carrying amount of the mine is P1,200,000.

Compute for the impairment loss?

Answer: P-0-

3. Thadma Inc. originally had goodwill allocated to a group of two CGUs, which are (together) an
operating segment of the entity. After a change in key management, each CGU is an operating
segment (as defined), and the company is reconsidering its segment disclosures accordingly. The
client proposes to continue allocating goodwill as it always has, because the reporting change does
not affect how management monitors goodwill. Which of the following statements is/are true about
impairment of goodwill on the above case?
I. Goodwill impairment testing can be done on the same level as before since each CGU constitute a
reportable segment.
II. The company has the option to choose between testing for impairment the goodwill on the same
level as before or on individual CGU basis.

Answer: None (Shall be tested on per CGU level)

4. For the purpose of PFRS 12 – Disclosure of Interests in Other Entities, ______________________
refers to contractual and non-contractual involvement that exposes an entity to variability of returns
from the performance of the other entity.

Answer: Interest in another entity (PFRS 12 Appendix A)

5. The Strider Company is involved in the exploration for mineral resources. its policy is to recognize
exploration assets and measure them initially at cost. It is currently exploring a new gas field in
Ruritania. The exploration license for the new Rurutanian gas field is about to expire and Strider is
now preparing to undertake an impairment review. Strider reports its financial position as ‘Mineral
Production’ and ‘Energy Trading’ in its financial statements in accordance with PFRS 8 – Operating
Segments. The mineral Production segment comprises two CGUs – ‘oil production’ and ‘gas
production’. In accordance with PFRS 6 – Exploration for and Evaluation of Mineral Resources, what is
the highest level at which the impairment test can be undertaken?
a. A CGU based on the assets in the Ruritanian gas field
b. Gas production CGU
c. Oil production and gas production CGUs combined
d. A CGU at The Strider Company level

Answer: C. Oil production and gas production CGUs combined

6. A car rental company acquired vehicles for a total cost of P15,000,000 with the intention of holding
them as rental cars for a limited period and then selling them. The car rental company, in the ordinary
course of business, routinely sells vehicles acquired for car rental. The estimated life of the vehicles
acquired was 8 years and after 6 years, the said vehicles will be available for sale. The proceeds from
the sale of the vehicles was P10,000,000 which happened at the end of the 7th year. What is the
amount of cash outflow and inflow to be classified as operating activities from the initial expenditure
on acquisition of the vehicles (PPE) and from subsequent sale, respectively?

Answer: P15,000,000; P10,000,000 (Paragraph 14 of PAS 7)

7. Identify the title of PAS 29.

Answer: Financial Reporting in Hyperinflationary Economies