CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
FINANCIAL ACCOUNTING AND REPORTING VALIX/SIY/VALIX/ESCALA/SANTOS/DELA CRUZ

PAS 32 FINANCIAL INTRUMENTS – PRESENTATION

1. A financial asset is any of the following, except
a. Cash
b. An equity instruments of another entity.
c. Contractual right to receive cash or another financial asset from another entity.
d. Contractual right to exchange financial assets or financial liabilities with another entity under
conditions that are potentially unfavorable to the entity.
2. Financial assets include all of the following, except
a. Cash in bank
b. Trade accounts and notes receivable
c. Loan receivable
d. Inventories, property, plant and equipment, intangible assets and prepaid expenses
3. A financial liability
a. Must be classified as noncurrent liability.
b. Is a contractual obligation to deliver cash or another financial asset to another entity
c. Is a contractual obligation to exchange financial asset or financial liabilities with another entity
under the conditions that are potentially favorable to the entity
d. Is a contractual obligation to deliver cash or any asset to another entity.
4. Financial liabilities include all of the following, except
a. Trade accounts and notes payable
b. Bonds payable
c. Loans payable
d. Income taxes payable
5. Which of the following is a financial liability?
a. Deferred revenue
b. A warranty obligation
c. A constructive obligation
d. An obligation to deliver as many of the entity’s own shares worth a fixed amount of cash
6. How should preference shares that are redeemable mandatorily be presented in the statement of financial
position?
a. Noncurrent financial liability
b. Current financial liability
c. Equity
d. Either current or noncurrent financial liability depending on the redemption date
7. What is the presentation of preference dividend on mandatorily redeemable preference shares?
a. Deducted from retained earnings
b. Deducted from share premium
c. Finance cost as component of profit or loss
d. Finance cost as component of other comprehensive income
PFRS 9 FINANCIAL INSTRUMENTS
8. What is the principle for the recognition of a financial asset?
a. A financial asset is recognized when it is probable that future economic benefits will flow to the entity
and the cost of the instrument can be measured reliably.
b. A financial asset is recognized when the entity obtains control of the instrument.
c. A financial asset is recognized when the entity obtains the risks and rewards of ownership of the
financial asset and has the ability to dispose of the financial asset.
d. A financial asset is recognized when the entity becomes a part to the contractual provisions of the
instrument.

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9. How does the standard distinguish between the measurement of financial asset?
a. By reviewing the business model and the risks and rewards of the transaction.
b. By reviewing the business model and the contractual cash flow characteristics of the instrument.
c. By reviewing the realizability and the contractual cash flow characteristics of the instrument.
d. By reviewing the realizability of the instrument and the risks and rewards of ownership.
10. The irrevocable election to present in other comprehensive income changes in fair value of financial
asset is applicable only to
a. An investment in equity instrument held for trading.
b. An investment in equity instrument not held for trading.
c. A financial asset measured at amortized cost
d. A financial asset measured at fair value through profit or loss.
11. A debt investment shall be measured subsequently at amortized cost
a. By irrevocable designation
b. When the debt investment is managed and evaluated on a document risk-management strategy.
c. When the debt investment is held for trading
d. When the business model is to collect contractual cash flows that are solely payments of principal
and interest.
12. A debt investment shall be measured at fair value through other comprehensive income
a. When the debt investment is held for trading
b. When the debt investment is not held for trading.
c. By irrevocable designation
d. When the business model is to collect contractual cash flows that are solely payments of principal
and interest and also to sell the financial asset.
13. Under the fair value option, an entity may
a. Irrevocably designate a debt investment as measured at fair value through profit or loss even if the
amortized cost or FVOCI measurement is satisfied.
b. Irrevocably designate a debt investment as measured at fair value through other comprehensive
income.
c. Revocably designate a debt investment as measured at fair value through profit or loss even if the
amortized cost or FVOCI measurement is satisfied.
d. Designate all instruments as measured at fair value through profit or loss.
14. Under what condition can an entity classify financial asset that met the amortized cost criteria as at FVPL?
a. Where the instrument is held to maturity.
b. Where the business model approach is adopted.
c. Where the financial asset passes the contractual cash flow characteristics test.
d. If doing so eliminates or reduces an accounting mismatch.
15. When can classification of an instrument on initial recognition be changed?
a. Reclassification is only permitted on the change of the contractual cash flow.
b. Reclassification is only permitted on the change of an entity’s business model and expected to occur
only infrequently.
c. Reclassification is only permitted where a category becomes tainted.
d. Reclassification is not permitted.
16. Entities account for transfers of investments between categories
a. Prospectively, at the end of the period after the change in the business model.
b. Prospectively, at the beginning of the period after the change in the business model.
c. Retroactively, at the end of the period after the change in the business model.
d. Retroactively, at the beginning of the period after the change in the business model.
17. When a debt investment at amortized cost is reclassified to FVPL, the difference between the previous
carrying amount and fair value at reclassification date is
a. Recognized in profit or loss
b. Not recognized
c. Recognized in other comprehensive income
d. Included in retained earnings

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18. Which statement is not true when a debt investment at FVPL is reclassified amortized cost?
a. The new carrying amount at amortized cost is equal to the fair value on reclassification date.
b. A new effective rate must be computed based on the fair value on reclassification date.
c. Interest income is determined using the effective interest method
d. The new carrying amount at amortized cost is the carrying amount at FVPL.
19. Which statement is not true when a debt investment at amortized cost is reclassified to FVOCI?
a. The debt investment is measured at fair value at reclassification date.
b. The difference between the previous carrying amount and fair value at reclassification date is
recognized in other comprehensive income
c. A new effective rate must be computed.
d. Interest income is completed using effective interest method.
20. Which statement is not true when a debt investment at FVOCI is reclassified to amortized cost?
a. The fair value at reclassification date becomes the new carrying amount.
b. The cumulative gain or loss previously recognized in OCI is removed from equity and adjusted
against the fair value at reclassification date.
c. The original effective rate is not adjusted.
d. The carrying amount at FVOCI is the new carrying amount at amortized cost.
21. Which statement is true when a debt investment at FVPL is reclassified to FVOCI?
a. The new carrying amount is equal to the fair value at reclassification date.
b. A new effective rate must be computed based on the fair value at reclassification date.
c. Interest income is determined using the effective interest method.
d. All of these statements are true.
22. Which statement is true when a financial asset at FVOCI is reclassified to FVPL?
a. The financial asset continues to be measured at fair value.
b. The fair value at reclassification date becomes the new carrying amount.
c. The cumulative gain or loss previously recognized in OCI is reclassified to profit or loss
d. All of these statements are true.
23. What financial assets are assessed for impairment?
a. Equity investments at FVPL
b. Equity investments at FVOCI
c. Debt investments at FVPL
d. Debt investments at amortized cost and debt investments at FVOCI
24. An impairment loss on debt investment is the excess of carrying amount over
a. Expected cash flows
b. Contractual cash flows
c. Discounted value of expected cash flows
d. Discounted value of contractual cash flows
25. A derivative instrument is best described as
a. A contract that conveys to a second entity a right to future collections on accounts receivable from a
first entity
b. Evidence of an ownership interest in an entity
c. A contract that has its settlement value tied to an underlying and a notional amount
d. A contract that conveys to a second entity a right to receive cash from a first entity
26. All of the following are characteristics of a derivative, except
a. It is acquired for the purpose of generating profit from short term fluctuation in market price
b. The value changes in response to an underlying
c. It requires no initial investment or an initial small investment
d. It is settled at a future date
27. Which is not considered a derivative instrument?
a. Option contract
b. Futures contract
c. Bank certificate of deposit
d. Interest rate swap

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28. All of the following qualify as an underlying EXCEPT
a. Commodity price
b. Insurance index
c. Equity shares
d. Exchange rate
29. Which is an example of notional?
a. Number of barrels of oil
b. Exchange rate
c. Interest rate
d. Commodity price
30. If the market price is greater than the strike or exercise price, the call option is
a. In the money
b. Out of the money
c. At the money
d. On the money
PAS 28 – INVESTMENTS IN ASSOCIATES
31. Which statement is incorrect concerning the equity method?
a. The investment in associate is initially recorded at cost.
b. The investment in associate is increased or decreased by the investor’s share of the profit or loss of
the investee after the date of acquisition.
c. The investor’s share of the profit or loss of the investee is recognized in the investor’s profit or loss.
d. Dividends received from the investee are accounted for as dividend income.
32. If an associate has outstanding cumulative preference shares, the investor computes share of profit or loss
of the investee
a. After adjusting for preference dividends which were actually paid during the year
b. Without regard for preference dividends
c. After adjusting for the preference dividends only when declared
d. After adjusting for the preference dividends, whether or not the dividends have been declared
33. Goodwill arising from an investment in associate is
a. Included in the carrying amount of the investment and amortized over the useful life.
b. Included in the carrying amount of the investment and not amortized.
c. Excluded from carrying amount of the investment but accounted for separately.
d. Excluded from carrying amount of the investment but charged to expense immediately.
34. How is the impairment test carried out for an investment in associate?
a. The goodwill is impairment tested individually.
b. The entire carrying amount of the investment is tested for impairment by comparing the recoverable
amount with the entire carrying amount
c. The carrying amount of the investment shall be compared with the market value
d. The recoverable amount of all investments in associates shall be associated together
35. An investor uses the equity method to account for investment in ordinary shares. The purchase price
implies a fair value of the investee’s depreciable asset in excess of the investee’s net asset carrying
amount. The investor’s amortization of the excess
a. Decreases the investment amount
b. Decreases the goodwill account
c. Increases the investment revenue account
d. Does not affect the investment account
36. The excess of investor’s share of the net fair value of the associate’s net assets over the cost of the
investment is
a. Included in determination of the investor’s share of the associate’s profit or loss in the period in which
the investment is acquired
b. Credited to retained earnings directly
c. Not recognized
d. A deferred gain

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37. What should happen when the financial statements of an associate are not prepared at the same date as
that of the investor?
a. The associate should prepare financial statements for use by the investor at the same date as that of
the investor.
b. The financial statements of the associate prepared at a different date will be used.
c. Any major transactions between the date of the financial statements of the investor and that of the
associate should be accounted for.
d. As long as the gap is not greater than three months, there is no problem.
38. An investor shall discontinue the use of the equity method when
a. The investor ceases to have significant influence over the associate.
b. The associate operates undue severe long-term restrictions.
c. The investor ceases to have control over the associate.
d. Under all of these circumstances
39. When an investment ceases to be an associate, the fair value of the investment at the date when it
ceases to be an associate is regarded as its
a. Cost on initial recognition as a financial asset
b. Fair value on initial recognition as a financial asset
c. Fair value on initial recognition as a financial liability
d. Amortized cost on initial recognition as an investment
40. The equity method is not applicable under all of the following circumstances, except
a. The investor is a wholly-owned subsidiary
b. The investor’s debt and equity instruments are not traded
c. The investor is in the process of filing statements with a regulatory body for the purpose of issuing
debt and equity instruments in a public market
d. The ultimate parent of the investor produces consolidated financial statements.
41. In its financial statements, an entity used the equity method of accounting for its 30% ownership of an
investee. At year-end, an investor has a receivable from the investee. How is receivable reported in
investor’s financial statements?
a. None of the receivable should be reported, but the entire receivable should be offset against the
investee’s payable to the investor
b. Seventy percent should be separately reported, with the balance offset against 30% of the
investee’s payable to investor
c. The total receivable should be included as part of the investment in associate without separate
disclosure
d. The total amount of the receivable should be disclosed separately
PAS 40 – INVESTMENT PROPERTY
42. Which statement best describes investment property?
a. Property held for sale in the ordinary course of business
b. Property held for use in the production and supply of goods or services and property held for
administrative purposes
c. Property held to earn rentals or for capital appreciation
d. Property held for capital appreciation
43. Investment property includes all of the following, except
a. Land held for long-term capital appreciation
b. Land held for currently undetermined use
c. Building owned by the reporting entity or held by a finance lessee leased out under an operating lease
d. Property held for sale in the ordinary course of business
44. Which of the following is an investment property?
a. Property being constructed or developed on behalf of third party
b. Property that is being constructed and developed as investment property
c. Property held for future development and subsequent use as owner-occupied property
d. Owner-occupied property awaiting disposal

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45. Subsequent to initial recognition, the investment property shall be measured using
a. Fair value model or revaluation model
b. Fair value model through OCI
c. Cost model or fair value model
d. Cost model or revaluation model
46. Gain or loss from disposal of investment property is the difference between the
a. Gross disposal proceeds and fair value of the asset
b. Net disposal proceeds and carrying amount of the asset
c. Gross disposal proceeds and carrying amount of the asset
d. Fair value and carrying amount of the asset
47. Which statement regarding investment property is incorrect?
a. If the entity elects the fair value model, no depreciation expense is recognized.
b. Gains and losses from fair value adjustments under the fair value model are included in OCI.
c. If the entity elects the cost model, depreciation should be recognized.
d. Under the cost model, the investment property is measured at cost less accumulated depreciation and
impairment.
48. An investment property is derecognized when
a. It is disposed to a third party
b. It is permanently withdrawn from use
c. No future benefits are expected from the disposal
d. In all of these cases
49. Which additional disclosure must be made when an entity chooses the cost model?
a. The fair value of the property
b. The present value of the property
c. The value in use of the property
d. The net realizable value of the property
50. Which disclosure shall be made when the fair value model has been adopted?
a. Depreciation method used
b. The amount of impairment loss recognized
c. Useful life
d. Net gain or loss from fair value adjustments
51. Transfers between investment property and property, plant and equipment and inventory are appropriate
a. When there is change of use
b. Based on the entity’s discretion
c. Only when the entity adopts the fair value model
d. The entity can never transfer property into another classification once classified as investment
property.
52. When the entity uses the cost model, transfer between investment property, property plant and equipment
and inventory shall be accounted for at
a. Fair value
b. Carrying amount
c. Original cost
d. An amount determined by management
53. A transfer from investment property carried at fair value to property, plant and equipment shall be
accounted for at
a. Fair value which becomes the deemed cost of property, plant and equipment
b. Carrying amount
c. Historical amount
d. Fait value less cost of disposal
54. If owner-occupied property is transferred to investment property to be carried using the fair value model,
the difference between the carrying amount and fair value shall be recognized
a. In profit or loss
b. In other comprehensive income
c. In retained earnings
d. As revaluation of property, plant and equipment
End
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