PFRS 13 – FAIR VALUE MEASUREMENT

1. Which of the following does not pertains to Fair Value?

a. It is an Exit Price
b. Fair Value is a price from an orderly transaction.
c. Fair Value is an entity-specific measurement.
d. It is a set price of an asset or liability that was based on current condition of the market.
Answer: C, Fair-Value is a market-based measurement, not an entity-specific measurement. Because fair
value doesn’t depend on facts, and to circumstances that surrounds in a specific entity.
2. Which of the following statement is incorrect?
a. Transaction cost is the costs to sell the asset or transfer a liability that are directly attributable
to disposal of the asset or the transfer of the liability.
b. Transport cost is the costs that would be incurred to transport an asset from its current
location to its exit market
c. Fair Value in transaction cost is not adjusted and is not included because they are a
characteristic of transaction, not of the asset or liability.
d. Fair Value in transport cost is adjusted and is included because it does not change the
characteristics of an asset.
Answer: D, Transportation changes the characteristics of an asset, specifically the location.
3. Which of the following is true about the Market Price that is used in getting the fair value?
a. Market price can be the principal market and when there is no principal market the
most advantageous market is used.
b. Market Price should always be determined by a market with the greatest volume.
c. Market Price should always be determined by a market that maximizes the amount to sell an
asset and minimizes the amount to transfer a liability.
d. When using the most advantageous market, we will use the Market Price of the market that
has the lower sales proceeds.
Answer: A Is correct, it is advised to use the principal market that has a greatest volume or activity level
but when there is no principal market, we will use the most advantageous market that maximizes the
amount to sell an asset and minimizes the amount to transfer a liability. Connected to this, B and C is
incorrect because determining the Market Price depends on the situation. D is also incorrect because as
what I’ve said, in using most advantageous market we should use the Market Price that maximizes the
amount to sell an asset and minimizes the amount to transfer a liability. So, the market that has highest
sales proceeds should be used.
4. Which of the following is incorrect about the “highest and best use” in measuring non-financial
assets?
a. It is an additional consideration to the requirements of PFRS 13, specifically the valuation
techniques and fair value hierarchy
b. It is the use of a non-financial asset by market participants that would maximize the value of
the asset and liabilities
c. It takes into account the Physical Characteristics of the non-financial asset such as the location
of an asset
d. It takes into account the Financial Flexibility of an asset.
Answer: D, it should be Financial Feasibility, whether using the asset does generate an adequate income
or cash flows.
5. Given the following data compute for the fair value if neither of the Active Market #1 nor Active
Market #2 is a principal market:
Active Market #1 Active Market#2
Market Price 140,000 145,000
Agent’s Commission 20,000 22,000
Transport Cost 6,000 7,000
Cost of Rent 1,000 1,200

Solution:
1.Find the most advantageous market
Market Price 140,000 145,000
Agent’s Commission (20,000) (22,000)
Transport Cost (6,000) (7,000)
Cost of Rent (1,000) (1,200)
SALES PROCEEDS 113,000 114,800

Formula:
Market Price (Active Market #2) 145,000
Less: Transport Cost (7,000)
Fair Value 138,000

*Excluded (Transaction Cost)

Agent’s Commission
Cost of Rent

PFRS 14

1. PFRS 14 applies
a. only to government-regulated activities
b. only to entities that choose to apply it
c. to all entities that use PFRS
d. only to first -time adopters that choose to apply it

2. Regulatory deferral account balances arise from

a. US GAAP
b. SEC accounting
c. Government accounting
 d. Rate-Regulated activities

3. According to PFRS 14, regulatory deferral accounts are classified in the statement of financial
position as
a. Current items
b. Noncurrent items
c. a or b
d. Neither a nor b

4. It is a principle of PFRS 14 that a first-time adopter must not continue to apply its previous GAAP
to the recognition, measurement, impairment and derecognition of regulatory deferral account
balances.

FALSE. According to its principle of ‘Continuation of existing accounting policy’, a first-time

adopter continues to apply its previous GAAP to the recognition, measurement, impairment and
derecognition of regulatory deferral account balances.

5. What are the exceptions to the ‘Continuation of existing accounting policy’ of PFRS 14?
a. Changes in accounting policies
b. Presentation of Regulatory Deferral Accounts

6. How does PFRS 14 interact with PAS 21?

PAS 21 The Effects of Changes in Foreign Exchange Rates is applied when translating regulatory
deferral account balances that are denominated in a foreign currency.

PFRS 15
1. Define PFRS 15.
Answer: PFRS 15 provides the principles in reporting the nature, amount, timing and
uncertainty of revenue and cash flows arising from an entity's contracts with customers.

2. Give atleast 3 objectives under PFRS 15.

Answer:
- State the five steps in the recognition of revenue.
- Describe how performance obligations are identified in a contract.
- Describe how the transaction price is allocated to the performance obligations.
 - State the timing of revenue recognition and its measurement.
- State the presentation of contracts with customers in the statement of financial
position.

3. Describe the Core Principle of PFRS 15

Answer: An entity recognizes revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services.

5. What are the 5 steps in revenue recognition?

Answer:
Step 1: Identify the contract with the customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when or as the entity satisfies a performance obligation

6. It is the price at which a promised good or service can be sold separately to a customer
Answer: Stand-alone Selling Price

7. State atleast 4 Examples of Promised goods or services

Answer:
a. Sales of goods produced by a manufacturing entity;
b. Resale of goods purchased by a trading entity;
c. Resale of rights to goods or services purchased by an entity;
d. Performing a contractual agreed-upon tasks by a service- oriented entity;
e. Constructing, manufacturing or developing an asset on behalf of a customer;
f. Providing a service of standing ready to provide goods or services or of making goods or
services available for a customer to use as and when the customer decides;
g. Providing a service of arranging for another party to transfer goods or services to a
customer;
h. Granting rights to goods or services to be provided in the future that a customer can resell
or provide to its customer
i. Granting licenses; and
j. Granting options to purchase additional goods or services

8. What is the difference between the input and output method?

Answer:
Input Method - measured based on efforts or inputs expended
Output Method - measured based on direct measurement of the value of the goods or
services

PFRS 16 LEASES
1. What is the difference between lessee and lessor?
- Lessee is an entity that obtains the right to use an underlying asset for a period
of time in exchange for consideration. On the other hand, lessor is an entity that
provides the right to use an underlying asset for a period of time in exchange for
consideration.
2. What is a lease?
- A contract, or part of a contract, that conveys the right to use an asset for a
period of time in exchange for consideration.
3. Give at least 3 examples of Non-lease elements.
- Maintenance
- Security services
- Supply of utilities
- Supply of goods
- Supply of operational services
4. TRUE OR FALSE. Finance lease is a lease that does not transfer substantially
all the risks and rewards incidental to ownership of an underlying asset.
- FALSE, kasi ang finance lease ay pwedeng i-transfer all the risks and rewards
incidental to ownership of an underlying asset.
5. Give at least 2 indicators of finance lease
- Transfer of ownership
- Bargain purchase option (BPO)
- Lease term is at least 75% of the useful life of the leased asset
- Present value of lease payments is at least 90% of the fair value of the leased
asset at the inception date
- Leased asset is of specialized nature