RFJPIA-R12

ND
2 Annual Regional Convention 2008
QUIZ BEE – PA1 & TOA

AVERAGE ROUND

1. According to IAS29 Financial reporting in hyperinflationary economies, which

TWO of the following are monetary items?
a. Trade payables
b. Inventories
c. Administration costs paid in cash
d. Loan repayable at par value
Question 4 - A & D
Monetary items are to be received (or settled) in fixed monetary terms (per
IAS29 para 12). This includes trade payables and loans to be repaid at par
value.

2. The Hopkins Company is a manufacturing company. The cost per unit of an

item of inventory is shown on its card as follows:
PHP
Materials 30
Production labor costs 33
Production overheads 12
General administration costs 10
Marketing costs 5
According to IAS2 Inventories, what is the value of one completed item of
inventory in Hopkins's statement of financial position?
a. PHP63
b. PHP85
c. PHP75
d. PHP90
Question 11 - C
PHP75 is the correct answer.
IAS2 paras 10-12 define the cost of inventory. In this example the cost
includes materials, production labor and production overheads, but not
general administration or marketing costs.

3. On 1 January 20X8 The Ebro Company commenced trading to provide key

skills education facilities in a region identified for technology development.
Also on 1 January 20X8, the company received two grants from its
government for setting up its operations in this location:

Grant (a) – was paid to give financial assistance for start-up costs already
incurred.

Grant (b) – was paid to subsidize the costs of purchasing computer software
over the five-year period. The company is almost certain to keep the facilities
operational for the next five years.

The company's accounting year end is 31 December. Are the following

statements concerning recognition of the income from the two government
grants true or false, according to IAS20 Government grants and government
assistance?
(1) Income from Grant (a) should be recognized in full on receipt in 20X8.
(2) Income from Grant (b) should be recognized in full at the end of 5 years.

Statement (1) Statement (2)

a False False
b False True
 c True False
d True True
Question 2 - C
IAS20 para 20 requires grants for expenditure already incurred to be
recognized immediately. Para 12 requires grants such as that for the software
to be matched against the related costs, so that grant would be recognized
over the five-year period.

4. The Scandium Company is commencing a new construction project, which is

to be financed by borrowing. The key dates are as follows: 15 May 20X8 Loan
interest relating to the project starts to be incurred

3 June 20X8 Technical site planning commences

12 June 20X8 Expenditures on the project start to be incurred
18 July 20X8 Construction work commences

According to IAS23 Borrowing costs, from what date can Scandium

commence the capitalization of borrowing costs?
a 15 May 20X8
b 3 June 20X8
c 12 June 20X8
d 18 July 20X8
Question 4 - C
All relevant conditions in IAS23 para 17 are fulfilled by the date when
expenditures on the project start to be incurred.

5. The Palila Company purchased a varnishing machine for PHP150,000 on 1

January 20X7.

The company received a government grant of PHP13,500 in respect of this

asset. Company policy was to depreciate the asset over 4 years on a straight-
line basis and to treat the grant as deferred income. Under IAS20
Government grants and government assistance, what should be the carrying
amounts of the machine and the deferred income ("DI") balance at 31
December 20X8?
Carrying amount DI balance
a PHP75,000 PHP6,750
b PHP112,500 PHP10,125
c PHP81,750 PHP6,750
d PHP75,000 PHP13,500
Question 5 - A
Carrying amount PHP75,000, Deferred income PHP6,750 is the correct answer.
See IAS20 para 26, where the grant is recognized as income on a systematic
and rational basis over the life of the asset. The deferred income in the
statement of financial position is reduced each year by the amount credited to
profit or loss.
The asset is depreciated over its useful life per IAS16.

6. The Coral Company accounts for non-current assets using the cost model. On
20 July 20X7 Coral classified a non-current asset as held for sale in
accordance with IFRS5 Non-current assets held for sale and discontinued
operations. At that date the asset's carrying amount was PHP14,500, its fair
value was estimated at PHP21,500 and the costs to sell at PHP1,450. The
asset was sold on 18 October 20X7 for PHP21,200. In accordance with IFRS5,
at what amount should the asset be stated in Coral's statement of financial
position at 30 September 20X7?
A PHP20,050
B PHP21,500
C PHP21,200
D PHP14,500
Question 8 - D
 IFRS5 para 15 requires that a non-current asset held for sale should be
stated at the lower of (i) the carrying amount and (ii) the fair value less costs
to sell.

7. The Markab Company has acquired a trademark relating to the introduction

of
a new manufacturing process. The costs incurred were as follows:
Cost of trademark PHP 3,500,000
Expenditure on promoting the new product PHP 50,000
Employee benefits relating to the testing of the
proper functioning of the new process PHP 200,000
According to IAS38 Intangible assets, what is the total cost that should be
capitalized as an intangible non-current asset in respect of the new process?
A PHP3,750,000
B PHP3,700,000
C PHP3,500,000
D PHP3,550,000
Question 11 - B
IAS38 paras 27-29 specify the costs attributable to a separately acquired
intangible asset. This requires the trademark costs and costs of testing to be
included.

8. The Dipper Company operates chemical plants. Its published policies include
a commitment to making good any damage caused to the environment by its
operations. It has always honored this commitment. Which ONE of the
following scenarios relating to Dipper would give rise to an environmental
provision as defined by IAS37 Provisions, contingent liabilities and contingent
assets?
a. On past experience it is likely that a chemical spill which would result in
Dipper having to pay fines and penalties will occur in the next year
b. Recent research suggests there is a possibility that the company's actions
may damage surrounding wildlife
c. The government has outlined plans for a new law requiring all
environmental damage to be rectified
d. A chemical spill from one of the company's plants has caused harm to the
surrounding area and wildlife
Question 11 - D
The published policy creates a constructive obligation as defined by IAS37
para 10. The spill is a past event which gives rise to a present obligation and
the need for a provision under para 14.
The government plans and any chemical spill relate to future events, while the
"possible" damage to wildlife gives rise to a contingent liability which should
be disclosed.

9. The White Company set up a defined benefit post-employment plan with

effect from 1 January 20X7. In the first year the expected return on plan
assets was PHP5,000, the actual return on plan assets was PHP4,000, the
current service cost was PHP12,000 and White's contributions paid into the
plan were PHP7,500.
What is the net expense to be recognized in profit or loss for the year ended
31 December 20X7, according to IAS19 Employee benefits?
A PHP8,000
B PHP3,500
C PHP7,000
D PHP2,500
Question 11 - C
The amounts to be recognized as an expense in profit or loss are the current
service cost less the expected return on plan assets. See IAS19 para 61.
Note that the difference between the expected and the actual return on plan
assets is an actuarial loss, while the employer contributions increase plan
assets.
10.The Pinder Company is completing the preparation of its draft financial
statements for the year ended 31 May 20X7. On 24 July 20X7, a dividend of
PHP175,000 was declared and a contractual profit share payment of
PHP35,000 was made, both based on the profits for the year to 31 May 20X7.
On 20 June 20X7, a customer went into liquidation having owed the company
PHP34,000 for the past 5 months. No allowance had been made against this
debt in the draft financial statements. On 17 July 20X7, a manufacturing plant
was destroyed by fire, resulting in a financial loss of PHP260,000.
According to IAS10 Events after the reporting period, which TWO amounts
should be recognized in Pinder's profit or loss for the year to 31 May 20X7 to
reflect adjusting events after the end of reporting period?
A PHP175,000 dividend
B PHP35,000 bonus
C PHP34,000 allowance for uncollectible trade receivables
D PHP260,000 loss on manufacturing plant
Question 7 - B & C
The correct answers are PHP35,000 bonus and PHP34,000 allowance.
See IAS10 paras 9, 12 and 22. Also, dividends are recognized in the
statement of changes in equity, not profit or loss

1. The physical inventory of Pangasinan Company on December 31, 2009 showed merchandise with a cost
of P 4,000,000 was on hand at that date. You also discovered the following items were all excluded from
the count:
a. Merchandise costing P160,000 , which was held by Pangasinan on consignment. The consignor is a
subsidiary.
b. A special machine, fabricated to order for a customer costing P 400,000 was finished and specifically
segregated in the back part of the shipping room on December 31, 2009. The customer was billed on that
date and the machine excluded from inventory although it was shipped on January 4, 2010.
c. Merchandise costing P 80,000 which was shipped by Pangasinan f.o.b destination to a customer on
December 31, 2009. The customer expects to receive the merchandise on January 3, 2010.
d. Merchandise costing P 120,000 which was shipped by Pangasinan f.o.b shipping point to a customer on
December 29, 2009
e. Merchandise costing P 50,000 shipped by a vendor F.O.B shipping point on December 28, 2009 and
receive by Pangasinan on January 10, 2010.

The corrected balance of Pangasinan’s inventory should be

a. P 4,530,000 c. P 4,480,000
b. P 4,130,000 d. P 4,690,000

2. On January 2004, Entity A issued a 10 percent convertible debenture with a face value of P 1,000,000
maturing on 31 December 2013. The debenture is convertible into ordinary shares of Entity A at a
conversion price of P25 per share. Interest is payable half yearly in cash. At the date of issue, Entity A
could have issued non convertible debt with a ten year term bearing a coupon interest rate of 11 percent.

On January 1 2009, to induce the holder to convert the convertible debenture promptly, Entity A reduces
the conversion price to P20 if the debenture is converted before 1 March 2009 (ie within 60 days). The
market price of Entity A’s ordinary shares on the date the terms are amended is P 40 per share.

Compute the amount to be recognize in profit or loss as a result of the amendment of the terms

a. P 400,000 c. P 50,000
b. P 200,000 d. P 0

3. Cookie Company is negotiating a loan with Excel Bank. Cookie needs P 3,600,000. as part of the loan
agreement Excel Bank will require Cookie to maintain a compensating balance of 15% of the loan amount
on deposit in a checking account at the bank. Cookie currently maintains a balance of 200,000 in the
checking account. The interest rate Cookie is required to pay on the loan is 12%. Excel bank pays 1%
interest on checking accounts. the amount of the loan is

a. P 4,000,000 c. P 3,600,000
b. P 3,800,000 d. P 3,400,000
4. On January 1, 2009, the lending company made a P 200,000 8% loan. The interest is receivable at the
end of each year, with the principal amount to be received at the end of 5 years. As of December 31, 2009,
the interest for the current year has not been received nor recorded because the borrower is experiencing
financial difficulties. The lending company negotiated a restructuring of the loan. The payment of all of the
interest based on the original will be delayed until the end the 5 year loan term. In addition, the amount of
principal repayment will be dropped from P 200,000 to P 100,000. The prevailing interest rate for similar
type of the loan as of December 31, 2009 is 10%.

The loan impairment loss to be recognize in 2009 profit or loss is

a. P 67,700 c. P 77,492
b. P 73,506 d. P 0

5. Windom Corp. on January 1, 2007 granted share options for 100,000 share of its P10 par value ordinary
shares to its key employees. The market price of the ordinary share on that date was P 23 per share and the
option price was P 20. The Black Scholes option pricing model determines total compensation expense to
be P 600,000. The options are exercisable beginning January 1, 2010 provided those key employees are still
in Windom’s employ at the time the options are exercised. The options expire on January 1, 2011.

On January 1, 2010 when the market price of the share was P29 per share, all 100,000 options were
exercised. The amount of compensation expense Windom should record for 2009 is.

a. P 100,000 c. P 150,000
b. P 200,000 d. P 700,000

6. An entity prepares quarterly interim financial reports in accordance with PAS 34. The entity sells
electrical goods, and normally 5% of customer claims 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 warranty claims were expected to be 10% for the whole year. Sales in the second
quarter were P30,000,000 . What would be the provision charged in the second quarters income statement?

a. P 3,000,000 c. P 2,250,000
b. P 4,000,000 d. P 5,000,000

7. An entity has granted share option to its employees. The total expense to the vesting date of December
31, 2010, has been calculated as P 8 million. The entity has decided to settle the award early, on December
31, 2009. The expense charge in the income statement since the grant date of January 1, 2007, had been
year to December 31, 2007, 2 million, and year to December 31, 2008, 2.1 million. The expense that
would have been charge in the year to December 31, 2009 was P 2.2 million. What would be the expense
charged in the income statement for the year December 31, 2009?

a. P 2.2 million c. P 3.9 million

b. P 8.0 million d. P 2.0 million

8. An entity has spent P 600,000 in developing a new product. These cost meet the definition of an
intangible asset under PAS 38 and have been recognize in the balance sheet. These costs have been
recognized as an expense for tax purposes. At the year end the intangible asset is deemed to be impaired by
P 50,000. The tax base of intangible asset at year end is

a. P 600,000 c. P 50,000
b. P 550,000 d. P 0

9. House Publishers offered a contest in which the winner would receive P 1 million payable over 20 years.
On December 31, 2009, House announced the winner of the contest and signed a note payable to the
winner for P 1 million, payable in P 50,000 installments every January 2. Also on December 31, 2009
House purchased an annuity for P 418,000 to provide the P 950,000 prize monies remaining after the first P
50,000 installment which was paid on January 2, 2010. In its 2009 income statements, what should House
report as contest prize expense?

a. P 0 c. P 468, 250
b. P 418, 250 d. P 1,000,000

10. Atkins bought five identical plots of development land for P 2 million in 2007. On January 2009 Atkins
sold three of the plots of land to an investment company, Landbank, for a total of 2.4 million. This price
was based on 75% of the fair market value of 3.2 million as determined by an independent surveyor at the
date of sale. The terms of the sale contained 2 clauses:

• . Atkins can re purchased the plots of land for the full fair value of 3.2 million (the value
determined the date of sale) any time until 31 December 2011 and;
• On 1 January 2012, Landbank has the option to require Atkins to re-purchase the properties for 3.2
million. You may assume that Landbank seeks a return o its investment of 10% per annum.

If Atkins recorded the legal form of the transaction instead of its substance, the profit for 2009 will be
overstated by
a. P 1,440,000 c. P 640, 000
b. P 1,200,000 d. P 400, 000

11. Quitino, Inc. and its subsidiaries have provided you, their PFRS specialist, with a list of the properties
they own:
• Land held by Quirino, Inc. for undetermined future use, P 5,000,000.
• A vacant building owned by Quirino, Inc. and to be leased out under an operating lease, P 20, 000,
000.
• Property held by a subsidiary of Quirino, Inc., a real estate firm, in the ordinary course of its
business, P 30, 000, 000.
• Property held by Quirino, Inc. for use in production, P 1, 000, 000.
• A hotel owned by Sugo Inc, a subsidiary of Quirino, Inc., and for which Sugo, Inc. provides
security services for its guests belongings P 50,000,000.
• A building owned by Quirino, Inc being leased out to Status Inc, a subsidiary of Quirino Inc., P
20,000,000.

How much will be reported as investment properties in Quirino, Inc. and its subsidiaries consolidated
financial statements?

a. P 75,000,000 c. P 95,000,000
b. P 25,000,000 d. P 45,000,000

12. Roxy Company had the following information relating to its account receivble:

Accounts receivable at 12/31/2008 P 1,300,000

Credit sales for 2009 5,400,000
Collection from customers for
2009, excluding recovery 4,750,000
Accounts written off 9/30/2009 125,000
Collection of accounts written off in
prior year ( customer credit was
not re established) 25,000
Estimated uncollectible receivables
per aging of receivables at
12/31/2009 165,000

On December 31, 2009 the amortized cost of accounts receivables is

a. P 1,825,000 c. P 1,635,000
b. P 1,800,000 d. P 1,600,000

Suggested Answers:

1. b
2. a
3. a
4. a
5. b
6. b
7. c
8. d
9c
10. a
11. a
12. d
1. Aaron Company sells subscription to a specialized directory that is published semi annually and shipped
to subscribers on April 15 and October 15. Subscriptions received after March 31 and September 30 cutoff
dates are held for the next publication. Cash from subscriber is receive evenly during the year and is
credited to deferred revenues from subscriptions. Data relating to 2009 are as follows:

Deferred revenues from subscriptions,

balance 12/31/08 P 1,500,000
Cash receipts from subscribers P 7,200,000

In its December 31 2009 balance sheet, Aaron should report deferred revenues from subscription of

a. P 1,800,000 c. P 3,600,000
b. P 3,300,000 d. P 5,400,000

2. At January 1, a sole proprietorship’s asset totaled P210,000, and its liabilities amounted to P 120,000.
During the year, owner investments amounted to P 72,000, And owners withdrawal totaled P75,000. At
year end, assets totaled P 270,000 and liabilities amounted to P 171,000. The amount of net income for the
year was

a. P 0 c. 9,000
b. P6,000 d. 12,000

3. The following pertains to Bull Company’s biological assets:

Price of the asset in the market P 5,000

Estimated commission to brokers and dealers 500
Estimated transport cost and other cost necessary to get
asset to the market 300
Selling price in a binding contract to sell P 5,200

The entity’s biological assets should be valued at

a. P 4,700 b.4,400 c. 4,500 d. 4,200

4. Buyer Co. regularly buys shirts from Vendor Company and is allowed trade discounts of 20% and 10%
from the last price. Buyer purchased shirts from Vendor on May 27, 2009 and received an invoice with a
list price of P 100,000 and payment terms 2/10, n/30. If buyer uses the net method of recording purchases,
the journal entry to record the payment of June 8, 2009 will include
a. A debit to Accounts payable P 72,000
b. A debit on purchase discount lost of P 1,400
c. A credit to purchase discount of P 1,400
d. A credit to Cash of P 70,560

5. White Airlines sold a used jet aircraft to brown company for P 800,000 accepting a five year 6% note for
the entire amount. Browns incremental borrowing rate was 14%. The annual payment of principal and
interest on note was to be P189,930. The aircraft could have been sold at an established cash price of P
651,460. The present value of an ordinary annuity of P1 at 8% for five periods is 3.99. The aircraft should
be capitalized on Browns book at

a. P 949,650 c. P 757,820
b. P 800,000 d. P 651,460

6. On October 1, 2009 WAN acquired YANG, a small company that specializes in pharmaceutical drug
research and development. The purchase consideration was by way a share exchange and valued at P 35
million. The fair value of Yang’s net asset was P15 million (excluding any item referred to below)

Yang owns a patent for an established successful drug that has a remaining life of 8 years. A firms of
specialist advisors, Tantsahan, has estimated the current value of this patent to be P 10 million; however,
the company is awaiting for outcome of clinical trials where the drug has been tested to treat a different
illness. If trials were successful, the value of the drug is then estimated to be 15 million. Also included in
the company’s balance sheet is P 2 million for medical research that has been conducted on behalf of a
client.

Compute the amount of goodwill for this acquisition.

a. P 8,000,000 c. P 3,000,000
b. P 5,000,000 d. P 20,000,000

7. A factory equipment with an estimated useful life of 10 years was purchased by Carranglan Co. on
December 30, 2005. The equipment was expected to have a residual value of P 5,000 at the end of its
service life. The sum of the years’ digit method was used in computing depreciation. For the year ended
December 31, 2009 the depreciation applicable to this equipment was P 42,000. The cost of the factory
equipment purchased on December 30, 2005 was

a. P 325,000 c. P 335,000
b. P 293,750 d. P 330,000

8. On December 28, 2009, Hornets Company commits itself to purchase a financial asset to be classified as
held to maturity for P 1,000,000 its fair value on commitment (trade) date. This security has a fair value of
P 1,002,000 and P 1,005,000 on December 31, 2009 (Hornets’ Financial Year End), and January 5, 2010
(settlement date), respectively. If Hornets applies the settlement date accounting method to account for
regular way purchases of its securities, the financial asset should be recognized on January 5, 2010 at

a. P 1,000,000 b. P 1,005,000 c. P 1,002,000 d. P 0

9. On July 2009, Jenny Ltd leases a machine with a fair value of P 109,445 to Rose Ltd for five years at
annual rental (in advance) of P 25,000 and Rose Ltd guarantees in full estimated residual value of P 15,000
on return of the asset. What would be the intestest rate implicit in the lease?

a. 14% c. 10%
b. 12% d. 9%

10. D Company had the following deferred tax balances at reporting date – Deferred tax assets, P
1,200,000; Deferred tax liabilities, P 3,000,000. Effective from the first day of financial period, the
company rate of income tax was reduced from 40% to 30%. The adjustment to income tax expense to
recognize the impact of the tax rate change is:

a. DR P 600,000 c. DR P 450,000
b. CR P 600,000 d. CR P 450,000

11. On December 31, 2009, Entity X acquired an investment for P100,000 plus a purchase commission of P
2,000. The investment is classified as available for sale. On December 31, 2009, quoted market price of the
investment is P 100,000. If the investment were sold, a commission of P 3,000 would be paid. On
December 31, 2009, the entity should recognize unrealized loss directly in equity of

a. P 2,000 c. P 5,000
b. P 3,000 d. P 0

12. As of June 30, 2009, the bank statement of Ang Po Trading had an ending balance of P 373,612. The
following data were assembled in the course of reconciling the bank balance:

• The bank erroneously credited Ang Po Trading for P 2,150 on June 22.
• During the month, the bank charged back NSF checks amounting to P 2,340 of which P 800 had
been redeposited by the 25th of June.
• Collection for June 30 totaling P 10, 330 was deposited the following month.
• Checks outstanding as of June 30 were P 30,205
• Notes collected by the bank for Ang Po Trading were P 8,150 and the corresponding bank charges
were P 50.

The adjusted bank balance on June 30, 2009 is

a. P 351, 587 c. P 353 927
b. P 358, 147 d. P 359 687

Suggested Answers:

1. a
 2. d
3. d
4. b
5. d
6. a
7. c
8. a
9. b
10. d
11. a
12. a

DIFFICULT ROUND

1. During the year ended 31 December 20X8 the following events occurred at
The Gosling Company:
(1) It was decided to write off PHP80,000 from inventory which was over two
years old as it was obsolete.
(2) Sales of PHP60,000 had been omitted from the financial statements for
the year to 31 December 20X7.
According to IAS8 Accounting policies, changes in accounting estimates and
errors, how much should be shown as a prior period adjustment in Gosling's
financial statements for the year to 31 December 20X8?
A PHP60,000
B PHP140,000
C PHP80,000
D PHP20,000
Question 7 - A
The correct answer is PHP60,000. IAS8 para 32's list of examples of changes
in accounting estimates includes inventory obsolescence.

2. One of the conditions that must be satisfied in order to recognize revenue in

a transaction involving the rendering of services is that the stage of
completion of the transaction at the end of the reporting period can be
measured reliably. Which TWO of the following methods for determining the
stage of completion of a contract involving the rendering of services are
specifically referred to in IAS18 Revenue, as being acceptable?
A Costs incurred to date as a percentage of the estimated total costs of the
transaction
B Advances received to date as a percentage of the total amount receivable
C Surveys of work performed
D Revenue to date divided by total contract revenue
Question 1 - A & C
IAS18 para 24 permits surveys of work performed and costs incurred to date
as methods of apportioning revenue on service contracts.

3. How should trade discounts be dealt with when valuing inventories at the
lower of cost and net realizable value (NRV) according to IAS2 Inventories?
(select one answer)
A Added to cost
B Ignored
C Deducted in arriving at NRV
D Deducted from cost
Question 7 - D
Trade discounts should be deducted from cost. See IAS2 para 11.

4. The Polyphony Company had 100,000 equity shares in issue on 1 January

20X7. On 1 July 20X7 it issued 20,000 new shares by way of a 1 for 5 bonus.
On 1 October 20X7 it issued 28,000 new shares for cash at full market price.
When calculating basic earnings per share, how many shares should be
divided into the profit after tax, according to IAS33 Earnings per share?
A 100,000
 B 117,000
C 148,000
D 127,000
Question 9 - D
The number of shares to be used is the weighted average in issue through
the period. Bonus shares provide no additional consideration to the issuer, so
they are related back to the beginning of the earliest period presented.
Shares issued for cash provide additional consideration, so they are time apportioned
from the date the cash was receivable. See IAS33 paras 19 and
26.
The weighted average is 100,000 + 20,000 + (28,000 × 3/12) = 127,000.

5. On 1 July 20X7 The Otakamiro Company handed over to a client a new

computer system. The contract price for the supply of the system and
aftersales support for 12 months was PHP800,000. Otakamiro estimates the
cost of the after-sales support at PHP120,000 and it normally marks up such
costs by 50% when tendering for support contracts. Under IAS18 Revenue,
the revenue Otakamiro should recognize in its financial year ended 31
December 20X7 is
A PHP620,000
B PHP800,000
C PHP710,000
D Nil
Question 10 - C
Under IAS18 Appendix A para 11 a selling price which includes an amount for
after-sales support should be split into two components: the support
component (being the cost of such support plus a reasonable profit margin)
and the sale of goods component (measured as the balance). The support
component should be recognized as revenue over the service period.
The support component is PHP180,000 (PHP120,000 plus 50%), of which half
(PHP90,000) should be recognized in the year ended 31 December 20X7,
along with the PHP620,000 (PHP800,000 – PHP180,000) sale of goods
component.

6. The Tanager Company purchased a boring machine on 1 January 20X1 for

PHP81,000.
The useful life of the machine is estimated at 3 years with a residual value at
the end of this period of PHP6,000. During its useful life, the expected units of
production from the machine are:
20X1 12,000 units
20X2 7,000 units
20X3 5,000 units
What should be the depreciation expense for the year ended 31 December
20X2, using the most appropriate depreciation method permitted by IAS16
Property, plant and equipment?
A PHP27,000
B PHP21,875
C PHP23,625
D PHP25,000
Question 17 - B
The correct answer is PHP21,875.
See IAS16 para 56, which indicates that assets are consumed principally
through their use. In this example the answer is calculated as (the original
cost less the residual value) divided by total units produced in 3 years
multiplied by total units produced in 20X2.

7. On 1 January 20X7 The Hamerkop Company borrowed PHP6 million at an

annual interest rate of 10% to finance the costs of building an electricity
 generating plant. Construction commenced on 1 January 20X7 and cost PHP6
million. Not all the cash borrowed was used immediately, so interest income
of PHP80,000 was generated by temporarily investing some of the borrowed
funds prior to use. The project was completed on 30 November 20X7. What is
the carrying amount of the plant at 30 November 20X7?
A PHP6,000,000
B PHP6,470,000
C PHP6,520,000
D PHP6,550,000
Question 6 - B
See IAS23 para 12. The asset's carrying amount in this example is the PHP6
million construction cost plus the interest charged on the loan for the 11
months of construction (PHP6 million x 10% x 11/12 = PHP550,000, less the
PHP80,000 interest earned prior to using the loan to finance construction.

8. The Bentham Company purchased an investment property on 1 January 20X5

for a cost of PHP220,000. The property had a useful life of 40 years and at 31
December 20X7 had a fair value of PHP300,000.
On 1 January 20X8 the property was sold for net proceeds of PHP290,000.
Bentham uses the cost model to account for investment properties. What is
the gain or loss to be recognized in profit or loss for the year ended 31
December 20X8 regarding the disposal of the property,
according to IAS40 Investment property?
A PHP86,500 gain
B PHP81,000 gain
C PHP10,000 loss
D PHP70,000 gain
Question 6 - A
The correct answer is the PHP290,000 net disposal proceeds less the
PHP203,500 (PHP220,000 less 3/40ths thereof) carrying amount.
See IAS40 para 69.

9. The Minor Company leased a freehold building for 20 years, the useful life of
the building, with effect from 1 January 20X7. At that date the fair value of
the leasehold interest was PHP7.5 million of which PHP6.0 million was
attributable to the building. Annual rentals of PHP800,000 are payable in
advance on 1 January.
How much should Minor recognized as an operating lease expense in the
year ended 31 December 20X7, according to IAS17 Leases?
A Nil
B PHP640,000
C PHP160,000
D PHP800,000
Question 5 - C
A land and buildings lease should be separated into its two components: the
land component which will usually be classified as an operating lease; and
the buildings component which in this case extends to the end of the
building's estimated useful life and should be classified as a finance lease.
The annual rental is split between the two leases in proportion to the relative
fair values of the two leasehold interests. 20% ((PHP7.5 million –
PHP6.0 million) as a % of PHP7.5 million) of the rental is attributable to the land,
so PHP160,000. See IAS17 paras 14-16.

10.The Rattigan Company purchases PHP20,000 of bonds. The asset has been
designated as one at fair value through profit and loss. One year later, 10% of
the bonds are sold for PHP4,000. Total cumulative gains previously
recognized in Rattigan's financial statements in respect of the asset are
PHP1,000. In accordance with IAS39 Financial instruments: recognition and
measurement, what is the amount of the gain on disposal to be recognized in
profit or loss?
A PHP1,900
B PHP900
 C PHP2,000
D PHP1,000
Question 27 - A
PHP1,900 (PHP4,000 – (10% × (PHP20,000 + PHP1,000))) is the correct answer.
IAS39 para 27 states that on derecognition of part of a financial instrument:
(a) there shall be an allocation of the carrying amount between the part
derecognized and the part retained
(b) the difference between the consideration received and the carrying
amount allocated to the part derecognized shall be recognized in profit or loss.
The previous gains had already been recognized in profit or loss and so are
not included in the calculation.
See IAS39 para 46 and AG67.
EASY ROUND

11.Which ONE of the following statements best describes the term 'liability'?
A An excess of equity over current assets
B Resources to meet financial commitments as they fall due
C The residual interest in the assets of the entity after deducting all its
liabilities
D A present obligation of the entity arising from past events
Question 1 - D
The correct answer is "A present obligation of the entity arising from past
events", as defined in para 49(b) of the Framework.

12.Are the following statements true or false, according to IAS1 Presentation

offinancial statements?
(1) Dividends paid should be recognised in the statement of comprehensive
income.
(2) A loss on disposal of assets should be recognised in the statement of
changes in equity.
Statement (1) Statement (2)
A False False
B False True
C True False
D True True
Question 3 - A
A loss on disposal of assets is recognised in the statement of comprehensive
income because IAS16 Property, plant and equipment does not permit
otherwise (IAS1 para 88).
Dividends paid are recognised in the statement of changes in equity (IAS1
para 106).

13.The Oakes Company has a loan due for repayment in six months' time, but
Oakes has the option to refinance for repayment two years later. Oakes plans
to refinance this loan.
In which section of its statement of financial position should this loan be
presented, according to IAS1 Presentation of financial statements? (select
one answer)
A Current liabilities
B Current assets
C Non-current liabilities
D Non-current assets
Question 12 - C
Because Oakes both has the right to roll over the loan beyond 12 months for
the end of the reporting period and intends to roll it over, it should be
presented as a non-current liability per para 73 of IAS1.

14.Which TWO of the following should be taken into account when determining
the cost of inventories per IAS2 Inventories?
A Storage costs of part-finished goods
B Trade discounts
C Recoverable purchase taxes
D Administrative costs
 Question 1 - A & B
The correct answers are trade discounts (deduct these from purchase costs)
and storage costs for part-finished (but not finished) goods.
See IAS2 paras 11 and 16.

15.Which ONE of the following statements best describes the carrying amount of
an asset?
A The cost (or an amount substituted for cost) of the asset less its residual
value
B The amount at which the asset is recognized in the statement of financial
position after
deducting any accumulated depreciation and accumulated impairment
losses
C The higher of the asset's net selling price and its value in use
D The fair value of the asset at the date of a revaluation less any subsequent
accumulated
impairment losses
Question 3 - B
The correct answer is "The amount … in the statement of financial position …
after accumulated depreciation and … impairment losses".
IAS16 para 6 defines the carrying amount.

16.Which ONE of the following statements best describes the term

'depreciation'?
A The systematic allocation of an asset's cost less residual value over its
useful life
B The removal of an asset from an entity's statement of financial position
C The amount by which the recoverable amount of an asset exceeds its
carrying amount
D The amount by which the carrying amount of an asset exceeds its
recoverable amount
Question 5 - A
"The systematic allocation of an asset's cost…" is the correct answer.
See IAS16 para 6 for definitions.

17.The Mirror Company classified a non-current asset accounted for under the
cost model as held for sale on 31 December 20X6. Because no offers were
received at an acceptable price, Mirror decided on 1 July 20X7 not to sell the
asset, but to continue to use it. In accordance with IFRS5 Non-current assets
held for sale and discontinued operations, the asset should be measured on 1
July 20X7 at (select one answer)
A the lower of its carrying amount and its recoverable amount
B the higher of its carrying amount and its recoverable amount
C the lower of its carrying amount on the basis that it had never been
classified as held for sale and its recoverable amount
D the higher of its carrying amount on the basis that it had never been
classified as held for sale and its recoverable amount
Question 2 - C
IFRS5 para 27 in effect requires an entity ceasing to classify an asset as held
for sale to remeasure it as if it had never been held for sale, subject to an
impairment test (the recoverable amount test) at that date.

18.A brand name that was acquired separately should initially be recognized ,
according to IAS38 Intangible assets, at (select one answer)
A recoverable amount
B either cost or fair value at the choice of the acquirer
C fair value
D cost
Question 5 - D
IAS38 para 24 states that an intangible asset should be recognised initially at
cost.
19.The Naylor Company has determined that it needs to recognise an
impairment loss on each of two non-current assets; plant and land. The
relevant amounts are as follows:
Plant Land
Original cost CU700,000 CU1,400,000
Previous revaluations Nil CU450,000
Existing carrying amount CU700,000 CU1,850,000
Impairment loss to be recognised in year CU200,000 CU300,000
According to IAS36 Impairment of assets, how should each of the impairment
losses be recognised?
Plant Land
A In profit or loss In profit or loss
B In profit or loss In other comprehensive income
C In other comprehensive income In profit or loss
D In other comprehensive income In other comprehensive income
Question 9 - B
IAS36 paras 60-61 state that impairment losses on assets that have not been
revalued are recognised in profit or loss. Impairment losses on revalued
assets are treated as a revaluation decrease.

20.The Snowfinch Company is closing one of its operating divisions, and the
conditions for making restructuring provisions in IAS37 Provisions, contingent
liabilities and contingent assets have been met. The closure will happen in
the first quarter of the next financial year. At the current year end, the
company has announced the formal plan publicly and is calculating the
restructuring provision. Which ONE of the following costs should be included
in the restructuring
provision?
A Retraining staff continuing to be employed
B Relocation costs relating to staff moving to other divisions
C Contractually required costs of retraining staff being made redundant from
the division being closed
D Future operating losses of the division being closed up to the date of
closure
Question 5 - C
IAS37 paras 80-82 require provisions to be made for costs necessarily
incurred by the restructuring, but not those relating to the future conduct of
the business.