Republic of the Philippines

Batangas State University

COLLEGE OF ACCOUNTANCY, BUSINESS, ECONOMICS AND
INTERNATIONAL HOSPITALITY MANAGEMENT
Gov. Pablo Borbon Campus I, Batangas City, Philippines 4200
www.bat-state.edu.ph Telefax: (043) 300-2202 loc 114

NAME: ___________________________________ Score/ Rating:

SR CODE: ________________________________
COURSE/ YEAR/SECTION: __________________

SEMI-FINALS EXAM
ACCOUNTING 307

THEORIES (1.75 pts each):

DIRECTIONS:
Shade the letters of the wrong answers, keep the right answer unshaded.
No erasures.

1. Which of the following statements in relation to deferred tax assets and liabilities is
true?

I. Deferred tax liabilities are the amounts of income taxes payable in future
periods in respect of taxable temporary differences.
II. Deferred tax assets are the amounts of income taxes recoverable in future
periods in respect of deductible permanent differences.

a. I only
b. II only
c. Both I and II
d. Neither I nor II

2. Deferred tax assets are the amount of income taxes recoverable in future periods in
respect of

a. The carryforward of unused tax losses only

b. Taxable temporary differences and carryforward of unused tax losses
c. Deductible temporary differences and carryforward of unused tax losses
d. Permanent differences

3. All of the following must be disclosed separately, except?

a. The tax bases of major items on which deferred tax has been calculated.
b. The amount of deductible temporary differences for which no deferred tax assets
recognized.
c. The amount of taxable temporary differences associated which no deferred tax
liability is recognized.
d. The amount of income tax relating to each component of other comprehensive
income.

4. Which of the following statements in relation to income tax accounting is true?

I. Interest expense accrued but included in taxable profit on cash basis shall be
classified under deductible temporary differences.
 II. Where accumulated depreciation on an asset is greater than accumulated tax
depreciation. The amount shall be classified under deductible temporary
differences.

a. I only
b. II only
c. Both I and II
d. Neither I nor II

5. Which of the following statements in relation to deferred tax asset is true?

I. Development costs have been capitalized and will be amortized but were
deducted in determining taxable profit in the period in which they were
incurred. This will give rise to a deferred tax asset.
II. The tax base for a machine for tax purposes is greater than the carrying
amount in the financial statements up to the end of the reporting period. This
will give rise to a deferred tax asset.

a. I only
b. II only
c. Both I and II
d. Neither I nor II

Answer:

1. A
2. C
3. A
4. C
5. B

6. Employee benefits are all forms of consideration gives by an entity in exchange for
service rendered by employees, including directors and management an includes all
of the following, except.

a. Short-term employee benefits

b. Postemployment benefits
c. Termination benefits
d. Dividend payments to shareholders

7. An entity’s employees are each entitled to 20 days of paid holiday leave per calendar
year. Unused holiday leave cannot be carried forward and does not vest. The holiday
leave is

a. Short-term employee benefits

b. Postemployment benefits
c. Other Long-term employee benefit
d. A termination benefits

8. An entity’s employees are entitled to 10 days holiday leave per calendar year.
Unused holiday leave may be carried forward until the employee leaves the
employment of the entity, at which time the entity will pay the employee for all
unused holiday leaves. The holiday leave is

a. Short-term employee benefits

b. Postemployment benefits
c. Other Long-term employee benefit
d. A termination benefits

9. An entity made a public announcement of its commitment to a voluntary redundancy

plan. The entity has an obligation to pay employees that choose voluntary
 redundancy a lump sum equal to twice their gross annual salary. The obligation to
pay employees that choose voluntary redundancy is

a. Short-term employee benefits

b. Postemployment benefits
c. Other Long-term employee benefit
d. A termination benefits

10. An entity reimburses 50% of past employee’s postemployment medical cost if the
employee provides 25 years of service, or more, to the entity. The obligation to pay
50% of qualifying past employee’s postemployment medical cost is.

a. Short-term employee benefits

b. Defined postemployment benefit
c. Defined contribution postemployment benefits
d. Other Long-term employee benefit

11. Which of the following best describes the simplified method of calculating a defined
benefit obligation for an SME?

a. It measures the pension obligation on the basis of the plan formula applied to
years of service to date and existing salary levels.
b. It measures the pension obligation on the basis of the plan formula applied to
years of service of date and future salary levels.
c. It estimates the total benefit at retirement and then computes the cost that will be
sufficient, together with interest expected to accumulate at the assumed rate, to
provide the total benefit at retirement.
d. It measures the pension obligation and pension cost on the basis of the shortest
possible period for funding to maximize the tax deduction

12. A profit-sharing plan requires an entity to pay a specified proportion of its cumulative
profit for a five-year period to employees who serve throughout the five-year period.
The profit-sharing plan is.

a. Short-term employee benefits

b. Postemployment benefits
c. Other Long-term employee benefit
d. A termination benefit

13. A profit-sharing plan requires an entity to pay a specified proportion of its cumulative
profit for the year to employees who serve the entity throughout the year. The profit-
sharing plan is.

a. Short-term employee benefits

b. Postemployment benefits
c. Other Long-term employee benefit
d. A termination benefit

14. Under PFRS for SMEs, which of the following is true?

I. Past service costs are recognized as expense immediately when incurred.

II. Actuarial gains and losses are recognized immediately in full either in profit or
loss, or as component of other comprehensive income.

a. I only
b. II only
c. Both I and II
d. Neither I nor II
Answers:
6. D
7. A
8. C
9. D
10. B
11. A
12. C
13. A
14. C
15. It is the increase in the present value of the defined benefit obligation resulting from
employee service in the current period.

a. Current service cost

b. Interest cost
c. Past service cost
d. Unrecognized actuarial loss

16. These are assets held an entity, the fund itself, that is legally separate from the
reporting entity and exists solely to pay or fund employee benefits.

a. Plan assets
b. Trust fund
c. Retirement fund
d. Pension assets

17. Plan assets are assets held by a long-term benefit fund that satisfies all of the
following conditions, except

a. The fund legally separate from the reporting entity.

b. The assets of the fund are to be used only to settle the employee benefit
obligation
c. The assets in the fund can be returned to the entity even if the remaining assets
of the fund are not sufficient to meet the plan’s obligation.
d. The assets are not available to the reporting entity’s creditors even in bankruptcy

18. It is an insurance policy issued by an insurer that is not a related party of the
reporting entity and the proceeds of the policy can be used only to pay or fund
employee benefits under a defined benefit plan.

a. Qualifying insurance policy

b. Aggregate policy
c. Annuity
d. Unconditional insurance policy

19. Which of the following statements is incorrect concerning return on plan assets?

a. The actual return on plan assets is one component of the expense recognized in
the income statement.
b. The difference between the expected return and actual return on plan assets is
an actuarial gain or loss.
c. The expected return on pan assets is based on market expectations, at the
beginning of the period, for returns over the entire life of the related obligation.
d. In determining the expected and actual return on plan assets, an entity shall
deduct plan administration cost not included in actuarial assumptions used in
measuring defined benefit obligation, and tax payable by the plan itself.

20. Which of the following should be included in plan assets?

I. Assets held by a long-term employee benefit fund

II. Qualifying insurance policy

a. I only
b. II only
c. Both I and II
d. Neither I nor II
 Answers:
15. A
16. A
17. C
18. A
19. A
20. C

Problem Solving (3 pts each)

Directions:
Use two decimal places when computing and for final answers.
Shade the letter of the right answer.
No erasures or alterations

On January 1, 2015, Stephen Company provided the following information in relation to a

defined benefit plan.

Fair value of plan assets 6,000,000

Projected benefit obligation 5,000,000

Prepaid/accrued benefit cost – surplus 1,000,000

Asset ceiling 700,000

Effect of asset ceiling 300,000

During the current year, the following data are gathered:

Current service cost 700,000

Actual return of plan assets 900,000
Contribution to the plan 1,000,000
Past service cost 200,000
Decrease in projected benefit obligation due
Change in actuarial assumptions 500,000
Asset ceiling on December 31, 2015 1,200,000
Discount rate 10%

Required:

1. Determine the fair value of plan assets on December 31, 2015.

2. Determine the projected benefit obligation on December 31, 2015.

3. Determine the effect of asset ceiling on December 31, 2015.

4. Compute the employee benefit expense for the current year.

5. Compute the “remeasurements” on December 31, 2015.

Curry Company provided the following information on December 31, 2016.

Carrying amount Tax base

Accounts receivable 1,500,000 1,750,000
Motor vehicle 1,650,000 1,250,000
Provision for warranty 120,000 0
Deposits received in advance 150,000 0

The depreciation rates for accounting and taxation are 15% and 25% respectively.

The deposits are taxable when received and warranty costs are deductible when paid.

As allowance for doubtful accounts of P250,000 has been raised against accounts receivable
for accounting purposes but such accounts are deductible only when written off as uncollectible.

The entity showed net income of P8,000,000 in the income statement for 2016.

There are no temporary differences at the beginning of the current year. The tax rate is 30%.

Required:
6. Determine the deferred tax liability on December 31, 2016.

7. Determine the deferred tax asset on December 31, 2016.

8. Determine the net deferred tax expense or benefit.

9. Determine the current tax expense for 2016.

10. Determine the total income tax expense for 2016.

CABEIHM Inc. granted all employees 10 days of vacation for each full year of employment.
Unused vacation time can be accumulated and carried forward to succeeding years and will be
paid at the salaries in effect when vacations are taken or when employment is terminated. There
was no employee turnover in 2016. The entity provided the following additional information
relating to the current year:

Liability for accumulated vacations of Jan 1, 2016 500,000

Pre-2016 accrued vacations taken from
Jan 1, 2016 to Sept 30, 2016 250,000
Vacations earned for work in 2016 (adjusted to current rates) 375,000

The entity granted 10% salary increase to all employees on Oct 1, 2016, the annual salary
increase date.
 11. What amount should be reported as vacation pay expense for the current year?
Answer:
500,000 375,000
(250,000) 25,000
250,000 400,000

BATELEC II Co. has 50 employees who work 8-hours a day and are paid per hour. On January
1, 2016, the entity began a program of granting the employees 12 days of paid vacation each
year. Vacation days earned in 2016 may first be taken in January 1, 2017.

YEAR HOURLY WAGE VACATION EARNED VACATION USED

2016 200.50 12 0
2017 206.25 12 5
2018 213.75 12 7

12. What amount should be reported as vacation pay expense in 2016?

Answer:
50 x 12 days x 8 hours x 200.50 = 962,400

13. What amount of accrued liability for paid absences should be reported on
December 31, 2018?
Answer:
36 – 5 – 7 = 24
2016 7 unused VL x 206.25 x 8 hrs x 50 employees = 577,500.00
2017 (24 – 7) = 17 unused VL x 213.75 x 8hrs x 50 employees = 1,453,500.00
2,031,000.00
On January 1, 2016 EXTRACOPY Co. announced the decision to close the factory and
terminate all 300 employees as a result of economic downturn. The entity shall pay 180,000
per employee upon termination.

However, to ensure that all remaining obligations to clients are rendered, the entity decided
to retain 80 employees who will receive 500,000 at the end of 6 months in addition to
receiving their current wage throughout the period.

14. What is the amount of the termination benefit?

Answer:
300 employees x 180,000 = 54,000,000

15. What is the amount of short-term benefit?

Answer:
80 employees x 320,000 (fr 500,000-180,000) = 25,600,000

~END OF EXAM~
 Republic of the Philippines
Batangas State University
COLLEGE OF ACCOUNTANCY, BUSINESS, ECONOMICS AND
INTERNATIONAL HOSPITALITY MANAGEMENT
Gov. Pablo Borbon Campus I, Batangas City, Philippines 4200
www.bat-state.edu.ph Telefax: (043) 300-2202 loc 114

NAME: ___________________________________ Score/ Rating:

SR CODE: ________________________________
COURSE/ YEAR/SECTION: __________________ /80

SEMI-FINALS EXAM
ACCOUNTING 307

Directions: STRICTLY NO ERASURES.

THEORIES: 1.75 PTS EACH

  A B C D PROBLEM SOLVING: 3PTS EACH
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