DISCONTINUED OPERATION, SEGMENT AND INTERIM REPORTING

1. It is a component of an entity that that has been disposed of or is classified as

held for sale.
a. Discontinued operation
b. Continued operation
c. Noncurrent asset held for sale
d. Disposal group held for sale

2. Operations and cash flows that can be clearly distinguished, operationally and for
financial reporting purposes, from the rest of the entity
a. Cash-generating unit
b. Component of the entity
c. Discontinued operations
d. Disposal group

3. A discontinued operation is a component of an entity that either has been

disposed of or classified as “held for sale” and
I. Represents a separate major line of business or geographical area of
operations.
II. Is part of a single co-ordinated plan to dispose of a major of business or
geographical area of operations.
III. Is a subsidiary acquired exclusively with a view to resale.
a. I only c. II and III only
b. I and II only d. I, II and III

4. A component of an entity is classified as “held for sale” when the component is

available for immediate sale and the sale is highly probable. For the sale to be
highly probable (choose the incorrect one)
a. Management is committed to a plan to sell the component.
b. An active program to locate a buyer is initiated.
c. The component is actively marketed for sale at an unreasonable price in
relation to its cost.
d. The sale is expected to qualify as a completed sale within one year from the
date of classification as “held for sale”

5. The results of a discontinued operation, net of tax shall be presented

a. As a single amount on the face of the income statement with no details
disclosed in the notes.
b. As a single amount on the face of the income statement with appropriate
disclosure of the details in the notes.
c. Side by side with continuing operations with details for revenues and
expenses attributable to the discontinued operation shown on the face of the
income statement.
d. In the notes only.

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6. Which of the following is correct?
a. Discontinued operations are shown as the last category after income from
continuing operations.
b. The discontinued operations section of the income statement consists only
of the gain or loss on disposal of the discontinued component net of the tax
effect.
c. The discontinued operations section of the income statement consists
only of the income or loss from operating the discontinued component net of
the tax effect.
d. The discontinued operations section of the income statement consists of the
income or loss from operating the discontinued component net of the tax
effect as well as the gain or loss on disposal of the discontinued component
net of the tax effect.

7. An entity shall measure a noncurrent asset or discontinued operation classified

as held for sale at
a. Carrying amount
b. Fair value less cost to sell
c. Lower of carrying amount and fair value less cost to sell.
d. Higher of carrying amount and fair value less cost to sell.

8. An entity shall classify a noncurrent asset or disposal group as “held for sale”
when
a. The carrying amount of the asset or disposal group will be recovered
through a sale transaction.
b. The carrying amount of the asset or disposal group will be recovered
through continuing use.
c. The noncurrent asset or disposal group is to be abandoned.
d. The noncurrent asset or disposal group is idle or retired from active use.

9. Which of the following statements regarding discontinued operations is true?

a. The assets and liabilities of a disposal group classified as held for sale by an
entity may be offset and shown as a single item on the balance sheet of the
entity.
b. The assets and liabilities of a disposal group of an entity must be shown
separately in the asset and liabilities sections of the balance sheet of the
entity and cannot be offset.
c. An adjustment in a subsequent period to the selling price of a component
of an entity sold must be reported as a retroactive adjustment in the prior-
period financial statements of the entity in which the discontinued operation
was reported.
d. The gain or loss on disposal of a component of an entity classified as a
discontinued operation need not be disclosed separately from the loss from
operations of the discontinued segment.

10. An entity shall recognize any subsequent increase in fair value less cost to sell of
a noncurrent asset or disposal group classified as held for sale as

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 a. Deferred gain as component of equity
b. Deferred gain as component of liability
c. Gain entirely to be included in profit or loss
d. Gain to be included in profit or loss but not in excess of the cumulative
impairment loss previously recognized.

11. Which is incorrect concerning the balance sheet presentation of discontinued

operation?
a. Assets of the component held for sale are presented separately from all
other assets of the entity.
b. Assets of the component held for sale are measured at the higher of fair
value less cost to sell and their carrying amount.
c. Liabilities of the component held for sale are presented separately from all
other liabilities of the entity.
d. Noncurrent assets of the component held for sale shall not be depreciated.

12. PFRS 5 states that a noncurrent asset that is to be abandoned should not be
classified as held for sale. The reason for this is because
a. Its carrying amount will be recovered principally through continuing use.
b. It is difficult to value
c. It is unlikely that the noncurrent asset will be sold within 12 months.
d. It is unlikely that there will be an active market for the noncurrent asset.

13. If the fair value less cost to sell is higher than the carrying amount of a
noncurrent asset classified as held for sale, the difference is
a. Not accounted for
b. Accounted for as an impairment loss
c. Deferred gain as a component of equity
d. Gain to be recorded in profit or loss

14. Which of the following is true?

The results of operations of a component of an entity that either has been
disposed of or classified as held for sale shall be reported in discontinued
operations if:

I. The operations and cash flows of the component have been or will be
eliminated from the
ongoing operations of the entity as a result of the disposal transaction.

II. The entity continues to have a significant continuing involvement in the

operations of the
of the component after the disposal transaction.

III. The entity outsources the manufacturing operations of a component and sells
the manufacturing facility of the component but continues to sell the product
formerly manufactured by the facility sold.
a. Only I is true

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 b. Only II is true
c. I and II are true, but III is not
d. I, II, and III are all true

15. Which of the following, is correct?

a. Discontinued operations are shown as the last category after income from
continuing operations.
b. The discontinued operations section of the income statement consists only
of the gain or loss on disposal of the discontinued component net of the tax
effect.
c. The discontinued operations section of the income statement consists
only of the income or loss from operating the discontinued component net of
the tax effect.
d. The discontinued operations section of the income statement consists of the
income or loss from operating the discontinued component net of the tax
effect as well as the gain or loss on disposal of the discontinued component
net of the tax effect.

16. On September 30, 2008, when the carrying amount of the net assets of a
business segment was P70,000,000, Marlin Company signed a legally binding
contract to sell the business segment. The sale is expected to be completed by
January 31, 2009 at a selling price of P60,000,000. In addition, prior to January
31, 2009, the sale contract obliges Marlin Company to terminate the employment
of certain employees of the business segment incurring an expected termination
cost of P3,000,000 to be paid on June 30, 2009. The segment’s revenue and
expenses for 2008 were P50,000,000 and P 45,000,000 respectively. Before the
close of the year, Marlin sold several of the assets of the discontinuing segment
at a loss of P1,000,000. Before income tax, how much will be reported as loss
from the discontinued segment for 2008?
a. 5,000,000 c. 9,000,000
b. 6,000,000 d. 8,000,000

17. Annika Company is a diversified company with nationwide interests in

commercial real estate developments, banking mining and food distribution. The
food distribution division was deemed to be inconsistent with the long-term
direction of the company. On October 1, 2008 the board of directors voted to
approve the disposal of this division. The sale is expected to occur in November
2009. The food distribution had the following revenue and expenses in 2008:
January 1 to September 30, revenue of P50,000,000 and expenses of
P30,000,000; October 1 to December 31, revenue of P12,000,000 and expenses
of P10,000,000. The carrying amount of the division’s assets at December 31,
2008 was P50,000,000 and the recoverable amount was estimated to be
P45,000,000. The sale contract requires Annika to terminate certain employees
incurring an expected termination cost of P2,000,000 to be paid by December 31,
2008. During 2008, Annika sold a portion of the food distribution’s assets at a
pre-tax loss of P3,000,000. The income tax rate is 30%. What is Annika

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 Company’s income from discounted operations in it’s income statement for the
year ended December 31, 2008?
a. 12,000,000 c. 17,000,000
b. 8,400,000 d. 11,900,000
18. Kingston Company has two divisions, North and South. Both qualify as
business components. In 2008, the firm decided to dispose of the assets
and liabilities of Division South. It is probable that the disposal will be
completed early next year. The revenue and expenses of Kingston
Company for 2008 and 2007 are as follows:
2008 2007
Sales – North 6,200,000 5,000,000
Total nontax expenses – North 4,800,000 4,200,000
Sales – South 4,500,000 5,300,000
Total nontax expenses - South 5,000,000 4,500,000

During the later part of 2008, Kingston disposed of a portion of Division South
and recognized a pretax loss of P3,000,000 on the disposal. The income tax rate
for Kingston Company is 30%. Kingston should report a loss from discontinued
operations in 2008 at
a. 3,000,000 c. 2,100,000
b. 3,500,000 d. 2,450,000

19. On May 1, 2008 Nahum Company approved a plan to dispose of a business

segment. It is expected that the sale will occur on March 31, 2009. On
December 31, 2008, the carrying amount of the net assets of the segment was
P3,000,000 and the fair value was P2,700,000. During 2008, the company paid
employee severance and relocation costs of P500,000 as a direct result of the
discontinued operation. The revenues and expenses of the discontinued
segment during 2008 were:

Revenues Expenses
January 1 to April 30 1,500,000 2,000,000
May 1 to December 31 700,000 900,000

How much will be reported as pretax loss from discontinued segment for the year
2008?
a. 1,500,000 c. 1,200,000
b. 1,000,000 d. 700,000

20. Successful Company operates two restaurants, one in Galing and one in Husay.
The operations and cash flows of each of the two restaurants are clearly
distinguishable. During 2008, Successful Company decided to close the
restaurants in Husay and sell the property. It is probable that the disposal will be
completed early next year. The revenues and expenses of Successful Company
for 2008 and for the preceding two years are as follows (in millions):
2008 2007 2006
Sales-Galing 60,000 48,000 40,000

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 Cost of goods sold-Galing 26,000 22,000 18,000
Other expenses-Galing 14,000 13,000 12,000
Sales-Husay 23,000 30,000 52,000
Cost of goods sold 14,000 19,000 20,000
Other expense-Husay 17,000 16,000 15,000
The other expenses do not include income tax expense. During the later part of
2008, Successful Company sold much of the kitchen equipment of the Husay
restaurant and recognized a pretax gain of P15,000 on the disposal. The income
tax rate is 30%. Successful Company should report income or loss from
discontinued operations for 2008 at
a. 8,000 loss c. 5,600 loss
b. 7,000 gain d. 4,900 gain

21. During 2009, Jones Company had the following unusual financial events:

* A steel forming segment suffered P1,000,000 in losses due to storm damage.

This was the fourth similar loss sustained in a three-year period.

* The local government for its beautification and livelihood projects purchased
a tract of land owned by Jones. The sale resulted in a P300,000 loss.

* Bonds payable were retired 5 years before the scheduled maturity, resulting
in a P800,000 loss. This is the first time Jones retired its bond issue due to
significant interest rate declines.

* A division of Jones’s operations, steel transportation was sold at a loss of

P2,000,000. This was Jones’s first divestiture of one of its segments.

Before income tax, what amount of losses should be reported as component of

income from continuing operations?
a. 4,100,000 c. 2,100,000
b. 2,300,000 d. 3,000,000

22. It is a distinguishable component of an entity that is engaged in providing product

or service or group of products or services, and that is subject to risks and
rewards that are different from those of other segments.
a. Business segment
b. Geographical segment
c. Segment of operations
d. Product line or Service line

23. It is a business segment or a geographical segment for which segment

information is required to be disclosed.
a. Reportable segment
b. Accountable segment
a. Measurable segment
b. Ordinary segment

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24. A significant industry segment is one, which meets any of the three criteria
relating to revenue, earnings and identifiable assets. Which of the following is
the percentage used to measure each of these criteria.
a. 15 percent c. 5 percent
b. 10 percent d. 1 percent

25. Which of the following is not used to determine whether a component of business
is a reportable segment.
a. Revenue c. Earnings
b. Owner’s equity d. Assets

26. Alexis Company is a multidivisional corporation which has both intersegment

sales and sales to unaffiliated customers. Alexis should report segment financial
information for each division meeting which of the following criteria?
a. Segment operating profit or loss is 10% or more of consolidated profit and
loss
b. Segment operating profit or loss is 10% or more of combined operating profit
or loss of all company segments
c. Segment revenue is 10% or more of combined revenue of all the company
segments.
d. Segment revenue is 10% or more of consolidated revenue

27. A business or geographical segment is a reportable segment if a majority of its

revenue is earned from sale to external customers and (choose the incorrect
one)
a. Segment internal and external revenue is 10% or more of total internal and
external revenue of all segments.
b. Segment external revenue is 10% or more of total internal and external
revenue of all segments.
c. Segment result is 10% or more of the combined result of all segments in
profit or combined result of all segments in loss, whichever is greater in
absolute amount.
d. Segment asset are 10% or more of the total assets of all segments.

28. Which of the following is not required to be disclosed for a reportable segment?
a. Total depreciation, depletion or amortization
b. Net assets
c. Sales
d. Identifiable assets

29. The sum of the reportable segments sales must be at least equal to what
percentage of total company sales?
a. 100 percent c. 65 percent
b. 75 percent d. 50 percent

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30. An entity identified four industry segments as reportable out of a total eight
business components based on identifiable asset criterion. The total company
sales excluding intersegment sales amounted to P20 million for the year, and the
sum of the sales for the four identified reportable segments is P13 million. Given
these facts, the company
a. Is not required to report on a segmental basis.
b. Must disclose only the four reportable segments.
c. Must identify one or more additional segments for segmental disclosure
purposes.
d. Treat all business components as reportable.

31. Segment assets include all of the following, except

a. Income tax assets
b. Goodwill directly attributable to a segment
c. Operating assets shared by two or more segments
d. Current assets used in the operating activities of the segment

32. Segment liabilities include

a. Trade and other payables, accrued liabilities, customer advances, product
warranty provisions and other claims relating to the provision of goods and
services.
b. Income tax liabilities
c. Borrowings and other interest-bearing liabilities, unless the segment result
includes interest expense.
d. Finance lease liabilities and other liabilities incurred for financing rather than
operating purposes.

33. If the entity’s risks and rates of return are affected predominantly by differences
in the products and services it produces, its primary format for reporting segment
information should be by
a. Business segments, with no secondary information for geographical
operations.
b. Business segments, with secondary information for geographical operations.
c. Geographical segments, with no secondary information for groups of related
products and services.
d. Geographical segments, with secondary information for groups of related
products and services.

34. Both business segments and geographical segments are considered as primary
segment reporting formats with full segment disclosure on each basis.
a. Matrix presentation
b. Dual presentation
c. Primary reporting basis
d. Secondary reporting basis

35. A group is organized into a number of business divisions across the world. The
group has two main classes of business: insurance and banking. The

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 Management Board receives information from each business division on a
quarterly basis and wishes to report segment information on the basis of these
divisions. What should be the basis of the group’s reporting of the primary
segment information?
a. The worldwide business divisions
b. The classes of business
c. The entity should make full disclosures on the basis of the worldwide
divisions and classes of business.
d. It would depend on the different risk and rewards but is likely to be the
different classes of business.

36. A chemical entity has no overseas sales. The entity produces different products
from the process. The entity sells its product to small businesses, larger national
businesses and multinational entities. The management of the entity proposed to
disclose just one business segment. Can the entity disclose just one business
segment because it sells all of its products nationally?
a. Yes, the Standard will allow the entity to disclose a single business segment.
b. No, the entity can identify three different sets of customers and should
therefore disclose information on that basis.
c. Yes, even though there are three different groups of customers, they all
present the same risks to the entity.
d. PAS 14 on “segment reporting” is silent on this matter.

37. An entity is in the entertainment industry and organizers outdoor concerts in four
different areas of the world: Europe, North America, Australia, and Japan. The
entity reports to the board of directors on the basis of each of the four regions.
The records show the profitability for each of the four regions. The concerts are
of two types: popular music and classical music. What is the appropriate basis
for segment reporting in this entity?
a. The segments should be reported by class of business, that is popular and
classical music.
b. The segments should be reported by region, so Australia and Japan would
be combined.
c. The segment information should be reported as North America and the rest
of the world.
d. Segment information should be reported for each of the four different
regions.

38. Segment revenue includes all of the following, except

a. Sales to external customers
b. Interest and dividend income when the segment’s operations are primarily of
a financial nature.
c. Gains on sale of investments
d. Sale to other segments

39. Segment liabilities include all of the following, except

a. Trade and other payables.

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 b. Accrued liabilities.
c. Customer advances, warranty provision and other claims relating to the
provision of goods and services.
d. Liabilities that are subject of finance leases.

40. In financial reporting for segments of an entity, the revenue of a segment shall
include
a. Intersegment billings for cost of shared facilities
b. Gain on extinguishments of debt.
c. Interest income if the segments business is primarily financial in nature.
d. Equity in earnings of associate

41. Segment revenue less segment expense equals

a. Segment result
b. Segment profit
c. Operating profit or loss
d. Net profit or loss

42. In its financial reporting for segments of a business enterprise, the operating
profit or loss includes a portion of
a. General corporate expenses
b. Interest expenses
c. Indirect operating expenses
d. Income taxes

43. Presented below are four segments that have been identified by Toulouse-
Lautrec Company:

Total Revenue Operating Identifiable

Segments (Unaffiliated) Profit (Loss) Assets
A 1,500,000 200,000 6,000,000
B 4,000,000 (350,000) 6,000,000
C 1,500,000 30,000 3,000,000
D 600,000 20,000 1,500,000

For which of the segments would information have to be disclosed in accordance

with professional pronouncements?
a. Segments A, B, C, and D
b. Segments A, B, and C
c. Segments A and B
d. Segments A and D

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44. Aretha Corporation and its divisions are engaged solely in manufacturing. The
following data pertain to the industries in which operations were conducted for
the year ended December 31, 2009:

Operating Profit (Loss)

Division A 30,000,000
B 10,000,000
C (8,000,000)
D (2,000,000)
E 5,000,000

In its 2009 financial statements, Aretha Corporation should disclose an operating

segment if operating profit or loss is at least
a. 1,000,000 c. 3,500,000
b. 4,500,000 d. 5,500,000

45. Anita Company discloses supplementary industry segment information. Anita

Company has three segments, namely Segment 1, Segment 2 and Segment 3.
For the year ended December 31, 2008, Segments 1, 2, and 3, respectively
reported sales and traceable operating costs of P10,000,000 and P4,000,000;
P20,000,000 and P12,000,00; P30,000,000 and P19,000,000. During 2008, Anita
incurred P9,000,000 operating costs that were not directly traceable to any of the
segments. In addition, Anita incurred P3,000,000 general corporate expenses,
including interest of P600,000. Appropriate common expenses are allocated to
segments based on the ratio of segment sales to total sales. What was Segment
1’s operating profit for 2008?
a. 4,500,000 c. 4,100,000
b. 4,000,000 d. 6,000,000

46. Alessa Company, a publicly owned corporation, is subject to the requirements for
segment reporting. In its income statement for the year ended December 31,
2009, Alessa reported revenue of P50,000,000, operating expenses of
P35,000,000 and net income of P15,000,000. Operating expenses include
payroll costs of P5,000,000. Alessa’s combined identifiable assets of all industry
segments at December 31, 2009 were P32,000,000. Total segment revenue was
determined to be P60,000,000. External revenue reported by operating
segments must be at least
a. 37,500,000 c. 30,000,000
b. 26,250,000 d. 45,000,000

47. Ayen Company has three manufacturing divisions, each of which has been
determined to be a reportable segment. Common costs are appropriately
allocated on the basis of each division’s sales in relation to Ayen’s aggregate
sales. In 2009, Division 1 had sales of P10,000,000, which was 20% of Ayen’s
total sales, and had traceable operating costs of P6,000,000. In 2009, Ayen
incurred operating costs of P1,500,000 that were not directly traceable to any of
the divisions. In addition, Ayen incurred interest expense of P500,000 in 2009.

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In reporting segment information, what amount should be shown as operating
profit Division 1 for 2009?
a. 4,000,000 c. 3,600,000
b. 3,700,000 d. 2,500,000

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48. Ali Corporation and has five business divisions. The following data with regard to
its operating segments for the year ended December 31, 2008 is as follows:

Interest
Division Sales Costs and Expenses
expense
1 40,000,000 30,000,000 1,000,000
2 38,000,000 32,000,000 2,000,000
3 14,000,000 20,000,000 0
4 51,000,000 42,000,000 3,000,000
5 10,000,000 16,000,000 300,000
Total 153,000,000 140,000,000 7,300,000

Ali shall consider a segment reportable if its operating profit is at least

a. 1,900,000 c. 570,000
b. 1,300,000 d. 2,500,000

49. Aquilla Company has three lines of business, each of which was determined to
be a reportable segment. Aquilla Company sales aggregate P7,500,000 in 2008,
of which Segment No.1 contributed 40%. Traceable costs were P1,750,000 for
Segment No.1 out of the total of P5,000,000 for the company as a whole. For
internal reporting, Aquilla allocates common costs of P1,500,000 based on the
ratio of a segment’s income before common costs to the total income before
common costs. In its 2008 financial statements, how much should Aquilla report
as operating profit for Segment No. 1?
a. 1,250,000 c. 650,000
b. 1,000,000 d. 500,000

50. Beijing Company’s revenue for the year ended December 31, 2008 was as
follows:

Consolidated revenue per income statement 5,000,000

Intersegment sales 500,000
Intersegment transfers 900,000
Combined revenue of all industry segment 6,400,000

Beijing has a reportable segment if that segment’s revenue equals or exceeds

a. 640,000 c. 550,000
b. 500,000 d. 590,000
51. Erwin Company, a publicly owned corporation, assesses performance and make
operating decisions using the following information for its segments:

Total revenue 100,000,000

Total profit (segment result) 40,000,000

Included in the total profit are intersegment profits of P5,000,000. In addition,

Erwin has P3,000,000 of common costs for its reportable segments that are not

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 allocated in reports used internally. For purposes of segment reporting, Erwin
should consider a reportable segment if it’s result is at least
a. 3,200,000 c. 3,500,000
b. 4,000,000 d. 3,700,000

52. Under PAS 34, interim financial reports should be published

a. Once a year at anytime in that year.
b. Within a month of the half year-end.
c. On a quarterly basis
d. Whenever an entity wishes.

53. For interim financial reporting, an expropriation 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 footnote in the second quarter

54. Which of the following is not true regarding standards for interim reporting?
a. Declines in inventory value should be deferred to future interim periods.
b. Use of the gross margin method for computing cost of goods sold must be
disclosed.
c. Costs and expenses not directly associated with interim revenue must be
allocated to interim periods on a reasonable basis.
d. Gains and losses that arise in an interim period should be recognized in the
interim period in which they arise if they would not normally be deferred at
year-end.

55. Interim financial reporting should be viewed primarily in which of the following
ways?
a. As useful only if activity is spread evenly throughout the year.
b. As if the interim period were an annual accounting period.
c. As reporting under a comprehensive basis of accounting other than GAAP.
d. As reporting for an integral part of an annual period.

56. An interim financial report shall include, as a minimum, all of the following
components, except
a. Condensed balance sheet and income statement
b. Condensed cash flow statement
c. Condensed statement of changes in equity or statement of recognized gains
and losses
d. Accounting policies and explanatory notes

57. 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 for the first three quarters based on an annual rate, less a
similar estimate for the first two quarters.

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 c. The rate applicable during the third quarter multiplied by four times the third
quarter pretax earnings.
d. One-half of the difference between the total estimated annual income tax
expense and the income tax for the first two quarters.

58. Conceptually, interim financial statements can be described as emphasizing

a. Comparability over neutrality
b. Relevance over comparability
c. Reliability over relevance
d. Timeliness over reliability.

59. If the enterprise publishes interim financial reports quarterly on June 30, 2009,
and the financial year ends December 31, 2009, which is an incorrect interim
reporting?
a. Balance sheet as of the end of the current interim period and a comparative
balance sheet as of the end of the immediately preceding fiscal year.
b. Income statements for the current interim period and cumulatively for the
current financial year to date, with comparative income statement for the
immediately preceding year.
c. Cash flow statement cumulatively for the current financial year to date with
comparative statement for the comparable year-to-date period of the
immediately preceding year.
d. Statement of changes in equity cumulatively for the current financial year to
date with comparable statement for the comparable year-to-date period of
the immediately preceding year.

60. Which one among the following statements is not a characteristic of the integral
view of presenting interim financial statements?
a. It is the generally acceptable view.
b. Each interim period is recognized as a separate accounting period,
regardless of the length of time involved.
c. Each interim period is a part of the annual period.
d. The revenue and expenses for the annual period are allocated among
interim periods on a reasonable basis

61. The following transactions for Angelina Enterprises occurred during the second
quarter of 2009:

 Sales amounted to P5,000,000 and related cost of goods sold was

P3,000,000
 Selling expenses for the given period was P250,000
 Depreciation is usually recorded by Angelina at annual amount of
P1,200,000.
 Real property taxes for the year in the amount of P600,000 were paid
on April 1, 2009.
 An inventory loss arising from a temporary market decline of
P400,000 had occurred on June 30, 2009.

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 Ignoring income taxes, net income for the second quarter ending June 30, 2009
should be
a. 1,150,000 c. 1,300,000
b. 900,000 d. 750,000

62. Anne Company’s P4,000,000 net income for the quarter ended September 30,
2009 included the following after-tax items:

 A P1,200,000 gain realized on April 30, 2009 was allocated equally to the
second, third and fourth quarters of 2009.

 A P200,000 cumulative effect loss resulting from a change in inventory

valuation method was recognized on August 31, 2009.

 A casualty loss suffered by the Company on September 11, 2009 in the

amount of P600,000 was allocated to the last two quarters of the calendar
year.

 Anne paid P400,000 on February 1, 2009, for 2009 calendar-year real

property tax. Of this amount, P100,000 was allocated to the third quarter of
2009.

On December 31, 2009, Anne paid it’s employees year-end bonuses totaling
P2,000,000. From this amount, none was recorded in computing for the 3 rd
quarter net income. What is Anne Company’s correct net income for the quarter
ended September 30, 2009?
a. 3,000,000 c. 4,000,000
b. 3,100,000 d. 4,200,000

63. Esther Company had the following transactions during the quarter ended March
31 2008:

Loss from hurricane 1,000,000

Payment of the fire insurance premium for
the year 2008 600,000
Loss on temporary inventory decline 300,000

What total amount of expenses should be included in the income statement for
the quarter ended March 31, 2008?
a. 1,000,000 c. 1,450,000
b. 1,150,000 d. 1,900,000

64. Apolonia Company has estimated that total depreciation expense for the year
ended December 31, 2009 will amount to P500,000, and that the 2009 year-end
bonuses to employees will total P1,200,000. In Apolonia’s interim income

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 statement for six months ended June 30, 2009, what is the total amount of
expense relating to these two items that should be reported?
a. 1,700,000 c. 425,000
b. 1,100,000 d. 850,000

65. An inventory loss from market decline of P900,000 occurred in April

2009. Angelica Company, recorded this loss in April 2009 after its March
31, 2009, quarterly report was issued. P200,000 of this loss was
recovered by the end of the year. How should this loss and subsequent
gain be reflected in the quarterly income statements of Angelica
Company?
Three months ended (2009):
March 31 June 30 September 30 December 31
a. 0 (900,000) 0 0
b. 0 (300,000) (300,000) (300,000)
c. 0 (900,000) 0 200,000
d. (225,000) (225,000) (225,000) (225,000)

66. Lattrell Company prepares quarterly interim financial reports. The company sells
it products through sales agents who are paid a fixed monthly salary and a
commission of 5% that is paid at year-end. Sales for the first quarter were
P20,000,000. However, in the second quarter, the employee’s union negotiated
that agent’s commissions be increased to 10% and be applied as of the
beginning of the current year. Sales in the second quarter were P25,000,000.
What would be the sales commission expense of Lattrell Company charged in
the second quarter’s interim financial statements?
a. 1,000,000 c. 2,000,000
b. 3,500,000 d. 2,500,000

67. Salonika Company has historically reported bad debts expense of 5% of sales in
each quarter. For the current year, the company allowed the same procedure in
the three quarters of the year. However, in the fourth quarter, the company, in
consultation with its auditor, determined that bad debt expense for the year
should be P4,500,000. Sales in each quarter of the year were as follows: first
quarter, P20,000,000; second quarter, P15,000,000; third quarter, P25,000,00;
fourth quarter, P40,000,000. How much bad debts expense should be recognized
for the fourth quarter?
a. 2,000,000 c. 3,000,000
b. 1,500,000 d. 4,000,000

68. Ben Company operates in the fast food industry and incurs costs unevenly
through out the financial year. Advertising costs of P3,000,000 were incurred on
March 1, 2009, and staff bonuses are paid at year-end based on sales. Staff
bonuses are expected to be around P30,000,000 for the year. Of that sum,
P6,000,000 relate to the period ending March 31, 2009. What cost should be
included in the company’s quarterly financial report to March 31, 2009?
a. Advertising cost of P3,000,000 and staff bonuses of P7,500,000

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 b. Advertising cost of P750,000 and staff bonuses of P7,500,000
c. Advertising cost of P750,000 and staff bonuses of P30,000,000
d. Advertising cost of P3,000,000 and staff bonuses of P6,000,000

69. Roy Company prepares quarterly financial reports. The company sells
computers, 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
P20,000,000. However, in the second quarter, a design fault was found and the
warranty claims expected to be 10% for the whole year. Sales in the second
quarter were P25,000,000. What would be the provision charged in the second
quarter’s interim financial statements?
a. 1,000,000 c. 2,000,000
b. 3,500,000 d. 2,500,000

70. A related party transaction is a transfer of resources or obligations

a. Between related parties when a price is charged
b. Between related parties, regardless of whether a price is charged
c. Between unrelated parties when a price is charged.
d. Between unrelated parties, regardless of whether a price is charged.

71. Related parties include all of the following, except

a. Affiliates
b. Two enterprise that have common director
c. Key management personnel, directors and officers of enterprise, and close
family members of such individuals
d. Associates

72. Unrelated parties include all of the following, except

a. Two venturers simply because they share joint control over a joint venture.
b. Providers of finance, trade unions, public utilities and government
departments and agencies simply by virtue of their normal dealings with an
entity.
c. A customer, supplier, franchiser or general agent with whom an entity
transacts a significant volume of business, merely by virtue of the resulting
economic dependence.
d. Post-employment benefit plan for the benefit of employees of the entity.

73. Close family members of an individual are those who may be expected to
influence or be influenced by that individual in their dealings with the entity.
Close family members include all of the following, except
a. The individual’s spouse and children
b. Children of the individual’s spouse
c. Dependents of the individual or the individual’s spouse
d. Brothers and sisters.

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74. It is the method used in pricing transactions between related parties by making
reference to comparable goods sold in an economically comparable market to a
buyer unrelated to the seller.
a. No specific method
b. Fixed price method
c. Cost plus 10% mark-up method
d. Uncontrolled price method

75. If there had been transactions between related parties, the entity shall disclose
a. The nature of the relationship only.
b. The information about the transaction and outstanding balances
c. The nature of the relationship, information about the transaction and
outstanding balances.
d. Neither the nature of the relationship nor the information about the
transaction and outstanding balances.

76. Amalia Company acquired 100% of Antonieta Company prior to 2009. During
2009, the individual companies included in their financial statements the
following:
Amalia Antonieta
Compensation of key personnel 2,000,000 1,500,000
Officer’s expenses 500,000 800,000
Loans to officers 2,500,000 3,000,000
Intercompany sales 1,000,000

What amount should be reported as related party disclosures in the notes to

Amalia’s 2009 consolidated financial statements?
a. 3,500,000 c. 10,000,000
b. 9,000,000 d. 5,500,000

77. Seattle Company is part of a major industrial group and is known to accurately
disclose related party transactions in its financial statements. Remuneration and
other payments made to the entity’s chief executive officer during 2008 were:
Annual salary 2,000,000
Share options and other share-based payments 1,000,000
Contributions to retirement benefit plan 500,000
Reimbursement of travel expenses for business trips 1,200,000

What is the total amount that should be disclosed as “compensation” to key

management personnel to conform with the related party disclosure required by
the standard?
a. 3,500,000 c. 3,000,000
b. 4,700,000 d. 2,500,000

78. Events after the balance sheet date are

a. Adjusting events only
b. Nonadjusting events only

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 c. Both adjusting and nonadjusting events
d. Neither adjusting nor nonadjusting events

79. In relation to a set of 2009 financial statements, a subsequent event is one that
a. Occurs before the 2009 financial statements are issued.
b. Involves uncertainty as to possible gain or loss that will ultimately be
resolved in 2009 or later.
c. Occurs after the 2009 financial statements are issued.
d. Requires an appropriate adjusting entry to be made as of the end of 2009.

80. Nonadjusting events after balance sheet date are accounted for by
a. Adjusting the amounts recognized in the financial statements.
b. Not adjusting the amounts in the financial statements without disclosure.
c. Not adjusting the amounts in the financial statements but with appropriate
disclosure.
d. Recognizing the events directly in equity.

81. An entity built a new factory building during 2008 at a cost of P20 million. At
December 31, 2008, the net book value of the building was P19 million.
Subsequent to year-end, March 15, 2009, the building was destroyed by fire and
the claim against the insurance company proved futile because the cause of the
fire was negligence on the part of the caretaker of the building. If date of
authorization of the financial statements for the year ended December 31, 2008,
was March 31, 2009, the entity should
a. Write off the net book value to its scrap value because the insurance claim
would not fetch any compensation.
b. Make a provision for on-half of the net book value of the building.
c. Make a provision for three-fourths of the net book value of the building
based on prudence.
d. Disclose this nonadjusting event in the footnotes.

82. Adjusting events after balance sheet date include all of the following, except
a. The resolution after the balance sheet date of a court case
b. The bankruptcy of a customer, which occurs after the balance sheet date
resulting to a loss on a trade receivable account.
c. The discovery of fraud or errors that show that the financial statements were
incorrect.
d. Dividends to holders of equity instruments proposed or declared after
balance sheet date.

83. Nonadjusting events after balance sheet date include all of the following, except
a. A major business combination after the balance sheet date.
b. Expropriation of major assets by government after balance sheet date.
c. Destruction of a major production plant by fire after the balance sheet date.
d. The determination between the balance sheet date and the date the financial
statements are authorized for issue of the amount of profit sharing or bonus

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 payments if the entity has a present obligation at the balance sheet date to
make such payments as a result of events before that date.

84. In respect of loans classified as current liabilities, all of the following events would
qualify for disclosure as nonadjusting events, except
a. Refinancing on long-term basis occurring between the balance sheet date
and the date the financial statements are authorized for issue.
b. Refinancing on a long-term basis occurring on or before the balance sheet
date.
c. Rectification of a breach of long-term loan agreement occurring between the
balance sheet date and the date the financial statements are authorized for
issue.
d. Receipt from a lender of a grace period to rectify a breach of a long-term
loan agreement ending at least twelve months after the balance sheet date
and before the financial statements are authorized for issue.

85. Financial statements are said to be authorized for issue when

a. The financial statements are filed with the SEC.
b. The shareholders approve the financial statements at their annual meeting.
c. The management is required to submit the financial statements to
supervisory body made up solely of nonexecutives and the supervisory body
approves the financial statements.
d. The management (board of directors) reviews the financial statements and
authorizes them for issue.

86. Adjusting events after balance sheet date include all of the following, except
a. The resolution after the issuance of the financial statements that confirms
that the entity has a present obligation.
b. The bankruptcy of a customer, which occurs after the balance sheet date
and before the issuance of the statements resulting to a loss on a trade
receivable account.
c. The discovery of fraud or errors after the balance sheet date and before the
issuance of the statements that the financial statements were incorrect.
d. Determination after the balance sheet date and before the issuance of the
statements of the cost of the assets purchased before the balance sheet
date.

87. Nonadjusting events after the balance sheet date include all of the following,
except
a. A major business combination after the balance sheet date.
b. Expropriation of major assets by government after the balance sheet date.
c. Destruction of a major production plant by fire on or before the balance
sheet date.
d. Announcing a plan to discontinue an operation after the balance sheet date.

88. The audit of Johannesburg Company for the year ended December 31, 2008 was
completed on March 1, 2009. The financial statements were signed by the

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managing director on March 15, 2009 and approved by the shareholders on
March 31, 2009. The next events have occurred.

* On January 15, 2009, a customer owing P900,000 to Johannesburg filed for

bankruptcy. The financial statements include an allowance for doubtful debts
pertaining to this customer of P100,000

* Specialized equipment costing P525,000 purchased on September 1, 2008

was destroyed by fire on December 15, 2008. Johannesburg Company has
booked a receivable of P400,000 from the insurance company. After the
insurance company completed its investigation on February 1, 2009, it was
discovered that the fire took place due to the negligence of the machine
operator. As a result, the insurer’s liability was zero on this claim.

* Johannesburg Company’s issued capital comprised 100,000 equity shares

with P100 par value. The company issued additional 25,000 shares on
March 1, 2009.

Johannesburg Company should report a net amount of “adjusting events” on

December 31, 2008 at
a. 1,300,000
b. 1,200,000
c. 3,800,000
d. 3,700,000

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