1. Which statement is incorrect regarding reclassification of financial assets?

Group of answer choices

All reclassifications out of FVTOCI measurement category result in ‘reclassification adjustment’.

The effective interest rate and the measurement of expected credit losses are not adjusted as a
result of the reclassification from AC measurement category to FVTOCI and vice versa.

Reclassifications to FVTPL measurement category result to amounts recognized in profit or

loss.

The effective interest rate is determined on the basis of the fair value of the asset at the
reclassification date when an entity reclassifies a financial asset out of FVTPL measurement
category.

2. Which statement is incorrect regarding contractual cash flows that are solely payments
of principal and interest (SPPI)?

Group of answer choices

An originated or a purchased financial asset can be a basic lending arrangement only if it is a

loan in its legal form.

Contractual cash flows that are SPPI on the principal amount outstanding are consistent with a
basic lending arrangement.

Principal is the fair value of the financial asset at initial recognition.

An entity shall assess whether contractual cash flows are SPPI on the principal amount
outstanding for the currency in which the financial asset is denominated.

3. On July 1, 2015, Cleopatra Corporation acquired 25% of the shares of Marcus, Inc. for
P1,000,000. At that date, the equity of Marcus was P4,000,000, with all the identifiable
assets and liabilities being measured at amounts equal to fair value. The table below
shows the profits and losses made by Marcus during 2015 to 2019:

Year
Profit (Loss)
2015
200,000
2016
2,000,000
2017
2,500,000
2018
160,000
2019
300,000

How much will the Investment in Associate account be debited/credited in 2018?

 4. On July 1, 2015, Cleopatra Corporation acquired 25% of the shares of Marcus, Inc. for
P1,000,000. At that date, the equity of Marcus was P4,000,000, with all the identifiable
assets and liabilities being measured at amounts equal to fair value. The table below
shows the profits and losses made by Marcus during 2015 to 2019:

Year
Profit (Loss)
2015
200,000
2016
2,000,000
2017
2,500,000
2018
160,000
2019
300,000

How much will the Investment in Associate account be debited/credited in 2019?

Group of answer choices

P960,000 Cr.

P15,000 Dr.

P75,000 Dr.

No entry

5. On January 1, 2020, Alaska Corporation purchased P1,000,000 10% bonds for

P1,051,510 (including broker’s commission of P20,000). Interest is payable annually
every December 31. The bonds mature on December 31, 2022. The prevailing market
rate for the bonds is 9% at December 31, 2020.

If the bonds are classified as FA@AC, the amount to be reported on the entity’s December 31,
2020 statement of financial position is

Group of answer choices

P1,025,330

P1,034,340

P1,035,630

P1,017,610
 6. Which statement is incorrect regarding contractual cash flows that are solely payments
of principal and interest (SPPI)?

Group of answer choices

An originated or a purchased financial asset can be a basic lending arrangement only if it is a

loan in its legal form.

An entity shall assess whether contractual cash flows are SPPI on the principal amount
outstanding for the currency in which the financial asset is denominated.

Contractual cash flows that are SPPI on the principal amount outstanding are consistent with a
basic lending arrangement.

Principal is the fair value of the financial asset at initial recognition.

7. An investment in equity instrument may not be classified as a financial asset

subsequently measured at

Group of answer choices

Fair value through other comprehensive income

Amortized cost

None of these

Fair value through profit or loss

8. In accordance with PAS 1, which of the following gains or losses from reclassification of
financial assets need not be presented separately in the profit or loss section or the
statement of profit or loss?

Group of answer choices

Reclassification of financial assets out of the amortized cost measurement category to FVTPL.

None of these.

Reclassification of financial assets out of the FVTOCI measurement category to FVTPL.

Reclassification of financial assets out of the FVTPL measurement category.

9. Investments in equity instruments are financial assets because they are

Group of answer choices

Equity instruments of another entity.

Cash equivalents.

Contractual rights to exchange financial assets or financial liabilities with another entity under
conditions that are potentially favorable to the entity.

Contractual rights to receive cash or another financial asset from another entity.

10. PFRS 9 permits an entity to make an irrevocable election to present in other

comprehensive income changes in the fair value of an investment in an equity
instrument. Amounts presented in other comprehensive income

May be subsequently transferred to profit or loss.

Shall be subsequently transferred to retained earnings.
Group of answer choices

Neither 1 nor 2

2 only

1 only

Either 1 or 2

11. PFRS 9 permits an entity to make an irrevocable election to present in other

comprehensive income changes in the fair value of an investment in an equity
instrument. Amounts presented in other comprehensive income

May be subsequently transferred to profit or loss.

Shall be subsequently transferred to retained earnings.

12. For the year ended December 31, 2019, WQA Company reported opening retained
earnings of P1,850,000 and cumulative unrealized gains recorded as reserves of
P25,000. These gains are from an investment with an original cost of P100,000 and a
fair value of P125,000. The company policy is to value all investments at fair value with
unrealized gains and losses included in reserves. The company’s accounting policy is
that when an investment is sold, the reserve amount is transferred to retained earnings.
During 2020, one-half of the investment was sold. The remaining investment increased
in value to P70,000. A second investment was bought for P150,000 and its fair value
had increased to P165,000 by the end of 2020. What is the reserve balance at
December 31, 2020?

13. What is the principle for recognition of a financial asset in PFRS 9?

Group of answer choices

A financial asset is recognized when, and only when, the entity obtains control of the instrument
and has the ability to dispose of the financial asset independent of the actions of others.

A financial asset is recognized when, and only when, the entity becomes a party to the
contractual provisions of the instrument.
A financial asset is recognized when, and only when, the entity obtains the risks and rewards of
ownership of the financial asset and has the ability to dispose of the financial asset.

A financial asset is recognized when, and only when, it is probable that future economic benefits
will flow to the entity and the cost or value of the instrument can be measured reliably.

14. On January 1, 2020, Alaska Corporation purchased P1,000,000 10% bonds for
P1,051,510 (including broker’s commission of P20,000). Interest is payable annually
every December 31. The bonds mature on December 31, 2022. The prevailing market
rate for the bonds is 9% at December 31, 2020.