GOVERNMENT ACCOUNTING – CHAP.
6, 7, 14, 16
CHAPTER 6
1. According to the GAM for NGAs, all financial
assets are initially measured at fair value.
FALSE
2. According to the GAM for NGAs, government
entities shall prepare bank reconciliations only
at year-end or whenever the need arises.
FALSE
3. Only debt instruments with remaining maturity
of 3 months or less can qualify as cash
equivalents.
FALSE
4. The PCF of a government entity is replenished
when disbursements reach at least 90%, or as
needed.
FALSE
5. No journal entry is prepared when a
disbursement is made out of the petty cash
fund.
TRUE
6. A government entity established a P30,000
petty cash fund. The custodian must be bonded
for at least P5,000.
FALSE
7. According to the GAM for NGAs, all financial
assets shall be initially measured at fair value
plus transaction costs.
FALSE
8. Transaction costs on financial assets classified
under the held to maturity category are
expensed outright.
FALSE
9. A derivative derives its value from the changes
in value of a specified rate, price, event or some
other variable.
TRUE
10. Risk management is the process of identifying
the desired level of risk, identifying the actual
level of risk and altering the latter to equal the
former.
TRUE
11. Which of the following is not considered a
financial asset?
Prepaid assets
12. A cash shortage of a government entity is most
likely recorded as a
Debit to a receivable account
13. Dishonored checks are recorded by a
government entity as
Other Receivables
14. The entry to record the replenishment of a
petty cash fund of a government entity is
(Debit) Expense accounts (Credit) Cash-
Modified Disbursement System (MDS), Regular
15. Under this method of bank reconciliation
statement preparation, the unadjusted book
and bank balances are brought to an adjusted
balance that is reported on the statement of
financial position.
Adjusted Balance Method
16. Which of the following may be paid through the
petty cash fund of government entity?
Pantry Supplies worth P15,000
17. Entity A maintains a petty cash fund. At any
given point of time, the cash on hand and the
petty cash vouchers must be equal to the ledger
balance of the petty cash fund. If these are not
equal, the difference is either shortage or
overage. This system of handling petty cash
fund is called
Imprest System
18. According to the GAM for NGAs, the
establishment of a petty cash fund
Requires the approval of the Head of Agency
 GOVERNMENT ACCOUNTING – CHAP. 6, 7, 14, 16
19. The “Loans Receivable” account is most likely to
be used in the books of accounts of which of
the following government agencies?
BTr
20. Which of the following is not one of the
characteristics of a derivative?
It requires no notional amount (or only a very
minimal notional amount)
21. According to the GAM for NGAs, these refer to
incremental costs that are directly attributable
to the acquisition, issue, or disposal of a
financial instrument.
Transaction costs
22. Which of the following is not one of the
categories of financial assets under the GAM for
NGAs?
Financial asset through other comprehensive
income
23. Entity A acquires an investment for P1,000,000.
Transaction costs amount to P10,000. At year-
end, the investment has a fair value of
P900,000. If the investment is classified as
financial assets through surplus or deficit, how
much is the loss from the change in fair value?
0 P120,000. However, the investment is
On January 1, 20x1, Entity A acquires 10-year,
10%, P2,000,000 face amount bonds for
P1,456,792 and classifies them as held-to-
maturity investments. Transaction costs on the
acquisition amount to P125,919. The issuer pays
annual interest every December 31. The
effective interest rate is 14%.
24. The initial carrying amount of the investment on
January 1, 20x1 is
1,456,792
25. The interest income in 20x1 is
221,580
26. If the investment is classified as available for
sale financial asset and the fair value at year-
end is P1,800,000, how much is the gain (loss)
from the change in fair value?
238,869
27. If the investment is classified as available for
sale financial asset, how much is the interest
income in 20x1?
221,580
28. According to the GAM for NGAs, changes in fair
value of investments classified as available for
sale financial assets are
Recognized in net assets
29. Entity A acquires an investment for P100,000
and incurs transaction costs of P10,000. At year-
end, the fair value of the investment is P80,000.
Entity A recognized a P30,000 loss from the
change in fair value. The investment would most
likely to have been classified under which of the
following categories of financial assets?
Available-for-sale financial assets
30. Entity A acquires an investment for P100,000
and incurs transaction costs of P10,000. At year-
end, the fair value of the investment is
appropriately reported in the year-end
statement of financial position at a carrying
amount of P106,382. The investment would
most likely to have been classified under which
of the following categories of financial assets?
Held-to-maturity investments
31. According to the GAM for NGAs, a government
entity’s cash comprises all of the following
except.
Cash equivalents
32. Which of the following is excluded from the
amount of cash that is reported in the
statement of financial position of a government
entity?
Post-dated checks received
 GOVERNMENT ACCOUNTING – CHAP. 6, 7, 14, 16
33. An unexplained cash overage of a government
entity is recorded as a
Credit to miscellaneous income account
34. All of the following are considered internal
controls over cash except
Maintaining the petty cash fund under a
fluctuating balance system wherein the total
cash on hand and petty cash vouchers may or
may not be equal to a fixed amount of petty
cash fund at any given point of time
35. The per transaction threshold for petty cash
disbursements of a government entity is
P15,000
36. A government agency shall prepare a bank
reconciliation for each bank account
maintained. Bank reconciliations are prepared
using the
Adjusted Balance method
37. If the adjusted balance of cash is less than the
unadjusted balance per books and there are no
other reconciling items or errors, the difference
is most likely caused by
Debit Memo
38. According to the GAM for NGAs, receivables are
measured at
(Initial) Fair value plus transaction costs
(Subsequent) Amortized cost
39. The subsequent changes in the fair value of an
investment that is classified as available for sale
are recognized in
Net assets or equity
40. According to the GAM for NGAs, the very
purpose of derivatives is
Risk management
CHAPTER 7
1. According to the GAM for NGAs, inventories of
government entities are subsequently measured
at net realizable values or current replacement
cost depending on the whether the inventory is
classified as held for sale or held for
distribution.
FALSE
2. According to the GAM for NGAs, purchase of
machinery, equipment, furniture and fixtures
and similar items below the P10,000
capitalization threshold for PPE are recorded as
inventories by a government entity.
FALSE
3. Relief goods, office supplies, equipment and
furniture and fixture are items that may
appropriately be recorded as inventories by a
government entity.
TRUE
4. The GAM for NGAs allows government entities
to use the FIFO cost flow formula.
FALSE
5. The GAM for NGAs allows government entities
to use the periodic inventory system.
FALSE
6. The specific identification cost formula is not
available for use by government entities,
according to the GAM for NGAs.
FALSE
7. The purchase request (PR) form is prepared
when end users request for the issuance of
items of inventory that are available on stock.
FALSE
8. If the beginning balance of inventory is P50, the
net purchases are P100 and the cost of goods
sold is P30, the ending inventory must be P120.
FALSE?
 GOVERNMENT ACCOUNTING – CHAP. 6, 7, 14, 16
Entity A, a government entity, sells eggs. At the
start of the period, Entity A’s inventory
consisted of 1 red egg with a carrying amount of
P2. During the period, Entity A acquired 1
brown egg for P3 and 1 blue egg for P4. Entity A
sold the brown egg during the period.
9. Under the specific identification cost formula,
entity A’s cost for sale is P2.
FALSE
10. If the eggs are ordinarily interchangeable, entity
A’s cost of sale is P25, assuming the sale
occurred only after all the purchases were
made.
FALSE
11. Entity A, a government entity, purchases
inventories. To record a purchase, Entity A
would most likely debit the (an)
Inventory account
12. Entity A, a government hospital, acquires
medicines to be sold in its pharmacy. Entity A
would record the medicines acquired as
Inventory Held for Sale
13. Entity A, government entity, purchases relief
goods which are to be held on standby, ready to
be distributed when a calamity strikes. Entity A
would most likely classify the goods purchased
as
Inventory Held for Distribution
14. According to the GAM for NGAs, this shall be
used for large numbers of items of inventory
that are ordinarily interchangeable.
Weighted average cost applied in a perpetual
inventory system
15. This refers to the cost an entity would incur to
acquire an asset on the reporting date.
Current replacement cost
16. Which of the following inventories of a
government entity would be subsequently
measured at the lower of cost and current
replacement cost?
Books to be distributed to students in public
schools
17. Which of the following events of transactions
would not lead to the recognition of the cost of
inventory as expense?
Inventory written down
18. The accounting division of a government entity
uses this to record and monitor the movements
and balances of inventories.
Stock Card
19. Which of the following statements correctly
differentiates the stock card from the stock
ledger card?
The stock card shows quantities only while the
stock ledger card shows quantities as well as
monetary amounts
20. This document is prepared when end users
request for the issuance of inventories that are
available on stock.
Requisition and Issue slip
21. Entity A, a government entity, purchases
inventory to be held for sale in the ordinary
course of activities. Which of the following is
the correct entry to record the purchase?
(Debit) Merchandise Inventory (Credit)
Accounts Payable
22. Entity A, a government entity, distributed
welfare goods to the intended recipients. The
entry to recognize the event is
(Debit) Welfare Goods Expense (Credit)
Welfare Goods for distribution
 GOVERNMENT ACCOUNTING – CHAP. 6, 7, 14, 16
23. At year-end, Entity A, a government entity,
determines the following information:
*Carrying amount of goods held for distribution
- P100,000
*Net realizable value - P80,000
*Current replacement cost - P90,000
How much of the carrying amount of the
inventory is recognized as expense?
10,000
24. How much is ending inventory?
116,382
25. How much is the cost of sale?
207,918
26. Entity A, a government entity, purchases
furniture and fixture amounting to P14,000.
Entity A would most likely record the purchase
as
Semi-Expendable Property
27. Accountable forms such as pre-printed forms
used in government transactions are likely to be
classified by a government entity as
Inventory held for Consumption
28. Inventories are initially measured at cost and
subsequently measured at
a. The lower of cost and net realizable value for
goods held for sale
b. The lower of cost and Current replacement
cost for goods held for distribution
c. A and B
29. Which of the following cost formulas is not
available for use by government entities?
FIFO
30. The GAM for NGAs requires the use of which of
the following inventory systems?
Perpetual Inventory system
31. Government entities record purchases of
inventories
In an inventory account
32. Which of the following may be included as cost
of inventory?
Advertisement cost that resulted to the resale
of inventory purchased
33. Arrange the following in the sequence they are
used in the requisition and receipt of
inventories by a government entity
I. Inspection and Acceptance report (IAR)
II. Disbursement Voucher (DV)
III. Purchase Request (PR)
IV. Journal Entry
V. Purchase Order (PO)
VI. Stock card (SC)
III, V, I, VI, IV and II
34. This is maintained in the Property/Supply
Division to record the movements of inventories
Stock Card (SC)
35. This is used to report wasted materials, such as
destroyed spare parts and other spoilages.
Waste Materials Report
CHAPTER 14
1. According to the GAM for NGAs, government
entities shall present financial statements at
least annually.
TRUE
2. The statement of financial position is dated as at
the reporting date.
TRUE
3. According to the GAM for NGAs, a condensed
statement of financial position is one that
presents line items only rather than all the
accounts used by the entity.
TRUE
 GOVERNMENT ACCOUNTING – CHAP. 6, 7, 14, 16
4. The GAM for NGAs requires government
entities to present expenses in the statement of
financial performance according to the function
of those expenses.
FALSE
5. Government entities present information one
other comprehensive income, just like business
entities.
FALSE
6. The statement of financial performance of a
government entity is the exact equivalent of the
statement of comprehensive income of a
business entity.
FALSE
7. Non-adjusting events are never recognized but
are always disclosed.
FALSE
8. Prior period errors are corrected by
retrospective restatement.
TRUE
9. In the first instance, changes in accounting
policies are accounted for by retrospective
application.
FALSE
10. Unlike business entities, government entities
are required to prepare interim financial
statements on a quarterly basis.
TRUE
11. Which of the following is not one of the
components of a complete set of general-
purpose financial statements of government
entities?
Statement of Appropriations, Allotments,
Obligations, Disbursements and Balances
12. Additional disclosures shall be made in the
notes if an entity presents expenses by
Function
13. Which of the following is most likely applicable
to a government entity but not to a business
entity?
Presenting a statement of financial position in
a detailed format
14. The statement of financial performance of a
government entity differs from the statement of
profit or loss of a business entity in which of the
following respects?
The use of the term “surplus or deficit” rather
than “profit or loss”
15. The closing of the “Cash-Treasury/Agency
Deposit, Regular” account to the “Accumulated
Surplus (Deficit)” account is presented in the
statement of changes in equity.
Under the “Adjustment of net revenue
recognized directly in net assets/equity” line
item
16. The GAM for NGAs requires which of the
following methods of presenting cash flows
from (used in) operating activities in the
statement of cash flows?
Direct Method
17. A government entity presents payments for
purchases of inventories in the statement of
cash flows
Net of withholding taxes
18. Which of the following cash flows is presented
in the financing activities section of a statement
of cash flows?
Amortization of a finance lease liability
19. The notice of cash allocation (NCA) is least likely
to be reported in which of the following
financial statements?
Statement of financial position
20. Which of the following is an adjusting event?
Sale of inventories that evidences the correct
NRV of inventories at the reporting date
 GOVERNMENT ACCOUNTING – CHAP. 6, 7, 14, 16
21. These refer to financial statements intended to
meet the needs of users who are not in a
position to demand reports tailored to meet
their particular information needs?
General Purpose Financial Statements
22. Which of the following is an objective of the
general purpose financial statements of
government entities?
a. To provide information about the entity’s
financial position, financial performance, and
cash flows that is useful to a wide range of
users in making economic decisions.
b. To demonstrate the accountability of the
entity for the resources entrusted to it.
d. a and b
23. According to the GAM for NGAs, the
responsibility over financial statements rests
with the entity’s management particularly the
a. Head of the Entity
b. Head of Finance/Accounting
d. a and b
24. Which of the following is a peculiar general
purpose financial statement of government
entities?
Statement of Comparison of Budget and Actual
Amounts
25. Amounts in the statement of financial position
show
Cumulative balances from the formation of the
entity up to the reporting date
26. Which of the following is not among the other
reports required to be submitted by
government entities to the COA?
A completed 14-column worksheet in yellow
color
27. According to the GAM for NGAs, the statement
of financial position is presented in comparative
form and in
a. A condensed format
b. A detailed format
c. A classified format
d. All of these
28. The effect of which of the following is
recognized directly in equity rather than in
surplus or deficit
Gains or losses on remeasuring available-for-
sale financial assets
29. Finance lease payments pertaining to the
reduction of the outstanding finance lease
liability are classified in the statement of cash
flows as
Financing activities
30. Entity A presents its cash flows from operating
activities using the direct method. Entity A holds
foreign currencies. These are appropriately
translated to the spot exchange rates at the
reporting date. How should Entity A present the
translation differences in the statement of cash
flows?
As a reconciliation of the cash and cash
equivalents at the beginning and end of the
period, presented separately from the
operating, investing, and financing activities.
CHAPTER 16
1. Which of the following statements is correct?
Although the PFRSs are designed to be applied
by business entities, they can also be applied
by non-profit organizations
2. It is an organization that carries out socially
desirable needs of the community or its
members without the intention of making profit
NPO
 GOVERNMENT ACCOUNTING – CHAP. 6, 7, 14, 16
3. According to PAS 1 Presentation of financial
statements, a non-profit entity that applies the
PFRSs
May need to amend the descriptions used for
particular line items in the financial statements
and for the financial statements themselves
4. According to the Preface to International
Financial Reporting Standards, non-profit
entities
May find the IFRSs appropriate
5. Which of the following principles used by
business entities is not applicable to non-profit
organizations?
Disclosure of earnings per share
6. For a non-profit entity, the operating activities
section of the statement of cash flows can be
prepared using
a. direct method
b. indirect method
c. a or b
7. Which of the following financial statements are
prepared by non-profit organizations?
I. Statement of financial position
II. Statement of activities
III. Statement of cash flows
IV. Notes
d. All of these
8. In current practice, the financial reporting for
non-profit organizations (choose the incorrect
statement)
Is essentially similar to that of business entities
9. The statement of cash flows of a non-profit
entity classifies cash flows into
Operating, Investing and financing activities
10. Which of the following is not applicable to non-
profit entities?
Measuring investments in equity securities
using the lower of cost and market value
11. Which of the following is not applicable to non-
profit organizations?
Depreciating and equipment using the sum-of-
the-years’ digits method
12. Which of the following is not applicable to non-
profit organizations?
Accounting for combinations of entities using
the principles provided under PFRS 3 Business
combinations
13. Which of the following may appropriately be
applied by a non-profit organization when
accounting for a lease contract that does not
qualify as a donation?
PFRS 16
14. According to SFAS No.116, restricted
contributions received by an NPO are
recognized
As restricted revenues
15. According to SFAS No. 116, a restricted fund for
the acquisition of a plant asset which was
disbursed during the period
Increases temporarily restricted net assets
16. What is the current-period effect of a fund
received in the previous period that was
restricted for the payment of salaries of
personnel which was totally disbursed in the
current period?
Net decrease in unrestricted net assets
17. Unconditional promises to give contributions
are recognized by the done NPO
When the promise is received from the donor
 GOVERNMENT ACCOUNTING – CHAP. 6, 7, 14, 16
18. Conditional promises to give are recognized by
the done NPO 26. Restricted assets acquired during the period
that are used for long-term purposes because of
b. When the condition becomes unconditional donor restrictions are classified in an NPO’s
c. When the performance of the condition is statement of cash flows as
reasonably certain. Financing activities

d. B or C 27. Which of the following is a deducted when

computing for a health care organization’s net
19. Contributions are measured at
patient revenue?
Fair value
Contractual adjustments

20. Cash and other non-cash assets received as

28. Dividends received by health care organization
contributions are recognized by a non-profit
is classified in the statement of operations as a.
organization as
Net patient revenue
a. Asset
b. Revenue
29. Which of the following is deducted when
c. A and B
computing for a private, non-profit college or
university’s net revenues on tuition and fees?
21. Donations of services that enhance a non-
Tuition refunds on cancelled enrollments
financial asset or require specialized skills are
recognized by a non-profit organization as
30. Scholarships and fellowships granted by a
b. Revenue
private, non-profit college or university are
c. Expense
deducted when computing for net revenue on
d. B and C
tuition and fees when
The scholarships and fellowships were granted
22. Services received as donations that do not
as compensation for services rendered by the
enhance a non-financial asset or were not
grantee
provided by a professional are recognized by a
non-profit organization as Budoy Organization, a non-profit organization,
Not recognized received the following donations during the period:
• January 1, 20x1: Land with fair value of P4M to be
23. Contributions received by a non-profit used at the discretion of Budoy Organization.
organization in the form of works of art and
similar items • February 15, 20x1: Cash of P8M , restricted for the
Need not be capitalized if they do not meet acquisition of a truck. The truck will be used in
the recognition criteria for an asset Budoy Organization’s outreach programs.

• March 1, 20x1: investment in equity securities

24. Contributions received by an NPO acting as an with fair value of P2M to be held indefinitely. Only
agent are recognized as the investment income shall be used by Budoy
Liability Organization in its current Operations.

25. These refers to costs incurred by a non-profit • May 1, 20x1: JPIA members from various
organization on activities that directly result to universities contributed services in a tree-planting
the fulfillment of the organization’s purpose activity initiated by Budoy Organization. Although
Program services the volunteers rendered their services for free,
 GOVERNMENT ACCOUNTING – CHAP. 6, 7, 14, 16
Budoy Organization estimates that the fair value of
these services would amount to P20,000.

On June 30, 20x1, Budoy Organization acquired a

truck for P8M and received dividends of P240,000
from the equity securities.

31. How much is the unrestricted contributions

revenue?
4,000,000

32. How much is the temporarily restricted

contributions revenue?
8,000,000

33. How much is the permanently restricted

contributions revenue?
2,000,000

34. How much is the “net assets releases from

restrictions” in 20x1?
8,000,000

35. How much is the net effect of the transactions

in the year-end unrestricted net assets? Ignore
depreciation.
12,240,000 increase

36. How much is the net effect of the transactions

in the year-end temporarily restricted net
assets? Ignore depreciation.
0

37. How much is the net effect of the transactions

in the year-end permanent restricted net
assets? Ignore depreciation.
2,000,000 increase