Name:______________________________________ Date: ___________

2nd Modular Exam

ACC117: Accounting for Government and Non-Profit Organizations

I. TRUE OR FALSE (50 pts.)

Direction: Write TRUE if the statement is correct. Otherwise, write FALSE. Strictly no
erasures. Use capital letters only.

1 All disbursements require prior certificates to establish their validity and legality. A
certification for fictitious obligation is void and results to criminal liability be the
certifying officials.
2 According to the GAM for NGAs, purchases of machinery, equipment, furniture and
fixtures and similar items below the 10,000 capitalization threshold for Ᵽ PPE are
recorded as inventories.
3 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.
4 The obligation under an onerous contract is recognized as a provision.
5 Entity A’s equipment has a carrying amount of P10 before replacement of an old part.
The old part has a carrying amount of P2. The cost of the replacement part is P5. The
loss on replacement is P3.
6 Entity A acquires equipment from a supplier, on account. A lender settles the account of
Entity A by directly paying the supplier the proceeds of a loan payable that is recorded in
the BTr’s books. This transaction is call Cash Disbursement Ceiling (CDC).
7 Entity A acquires an equipment in exchange for another equipment owned by Entity B.
The carrying amount of Entity A’s equipment is P10 while its fair value is P9. Entity B’s
equipment has a fair value of only P7. However, Entity B pays Entity A P2 for the
difference. If the exchange has commercial substance, Entity A will recognize a loss of
P1 on the exchange.
8 The provision for decommissioning and restoration costs of an item of PPE is
subsequently measured at amortized cost.
9 Entity A issues 10-year, term bonds with face amount of P20 for P12 and incurs
transaction costs of P1 on the issuance. If in Year 1, the interest payment is P1.50 while
the interest expense is P2, the carrying amount of the bonds at the end of the period must
be P11.50.
10 The GAM for NGAs allows government entities to use the FIFO cost flow formula.
11 According to the GAM for NGAs, trade discounts are excluded from the initial
measurement of items of PPE but not cash discounts.
12 Individual items of PPE with values below the capitalization threshold but work together
as a group are recognized as PPE if the total cost of the group meets the capitalization
threshold.
13 A financial liability cannot arise from constructive obligation.
14 Revenues of a government entity arise from exchange transactions only.
15 All revenues shall be remitted to the BTr and included in the Special Fund, unless
 another law specifically requires otherwise.
16 Entity A issues 10-year, term bonds with face amount of P20 for P12 and incurs
transaction costs of P1 on the issuance. The initial carrying amount of the bonds is $13.
17 Relief goods, office supplies, equipment and furniture and fixture are items that may
appropriately be recorded as inventories by a government entity.
18 An item of PPE with historical cost of P10, accumulated depreciation of P5 and
accumulated impairment losses of P1 is sold for P7. The gain on the sale is P2.
19 Entity A, a government entity, sells eggs. At the start of the period, Entity A’s inventory
consistedof (1) red egg with a carrying amount of P2. During the period, Entity A
acquired one (1) brown egg for P3 and one (1) blue egg for P4. Entity A sold the brown
egg during the period. If the eggs are ordinarily interchangeable, Entity A’s cost of sale
is P2.5, assuming the sale occurred only after all the purchases were made.
20 Infrastructure assets are accounted for in the same manner as the other items of PPE.
However, infrastructure assets are generally assigned a residual value of zero.
21 Financial liabilities, except financial liabilities classified to be subsequently measured at
fair value through surplus or deficit, are initially measured at fair value plus transaction
costs.
22 Entity A, a government entity, sells eggs. At the start of the period, Entity A’s inventory
consistedof (1) red egg with a carrying amount of P2. During the period, Entity A
acquired one (1) brown egg for P3 and one (1) blue egg for P4. Entity A sold the brown
egg during the period. Under the Specific identification cost formula, Entity A’s cost of
sale is P2.
23 Heritage assets are measured at cost. However, they are not subsequently depreciated,
but subject to impairment.
24 No additional cash advance shall be given to any official or employee unless the
previous cash advance given to him is first liquidated.
25 Government entities record depreciation on a monthly basis.
26 Reforestation projects are classified as land improvements.
27 Disbursements through the Cash Disbursement Ceiling (CDC) results to the recognition
of a loan payable in the books of accounts of the BTr.
28 Payments to government entities in the form of checks are not allowed.
29 According to the GAM for NGAs, the Advice to Debit Account (ADA) mode of
disbursement can be used only if the payee maintains an account in the same bank where
the government entity maintains its account.
30 Government entities normally assign items of PPE a residual value of 15% of cost.
31 Under the Advice to Debit Account (ADA) mode of disbursement, payments from a
government entity are directly credited to the bank accounts of the payees through
fund/bank transfers.
32 A provision is a liability of uncertain timing or amount.
33 According to the GAM for NGAs, revenue from exchange transactions are measured at
the amount of cash received.
34 The GAM for NGAs allows government entities to use a periodic inventory system.
35 Entity A issues 10-year, term bonds with face amount of P20 for P12 and incurs
transaction costs of P1 on the issuance. The initial carrying amount of the bonds is P13.
 36 Taxes are compulsory payments, imposed on persons, properties or activities, intended
to provide revenue to the government. Taxes include fees, fines and penalties.
37 The only valid modes of disbursement for a government entity are through cash or
check.
38 Legal obligations arise only from law.
39 According to the GAM for NGAs, inventories of government entities are subsequently
measured at net realizable value or current replacement cost depending on whether the
inventory is classified as held for sale or held for distribution.
40 When cash flows are deferred, the fair value of the consideration receivable is its present
value.
41 The main source of revenue for the government is taxes.
42 Provisions are never discounted to their present value.
43 If one or more of the liability recognition criteria are not met, the item is a contingent
liability.
44 The taxable event for income tax is the passage of the time period for which the tax is
levied.
45 Entity A acquires an item of PPE from an inter-agency transfer. Entity A will not
recognize any gain or loss from this transaction.
46 The Non-Cash Availment Authority (NCAA) is a disbursement authority issued to
government agencies with foreign service posts.
47 All disbursements shall be made through Disbursement Vouchers (DVs) or Payroll
which are approved by the Head of the Requisitioning Unit.
48 The Purchase Request (PR) form is prepared when end users request for the issuance of
items of inventory that are available on stock.
49 The specific identification cost formula is not available for use by government entities,
according to the GAM for NGAs.
50 Items below the capitalization threshold of PPE are recognized as SemiExpandable
Property – a separate class of PPE.

II. MULTIPLE CHOICE (50 pts.)

Direction: Write the letter of the correct/best answer on your answer sheet. Strictly no erasures.
Use capital letters only.

A certification on the availability of allotment is required before a disbursement of

government funds is made. According to the GAM for NGAs, who shall issue this
certification?
1 a. Budget Officer
b. Chief Accountant
c. Head of Agency
d. Requisitioning Individual
Which of the following is not a form of disbursement authority?
2 a. NCA
b. TRA
 c. NTA
d. Allotment
A government entity makes constructive remittance of taxes withheld to the BIR through
Tax Remittance Advice (TRA). The entry used in recording the transaction is
a. Cash-Tax Remittance Advice xxx
Subsidy form National Government xxx
3
b. Due to BIR xxx
Cash-Tax Remittance Advice xxx
c. a and b
d. None. The transaction is recorded only in the Registries and ORS.
Entity A disburses a check chargeable against its checking account maintained with
Government Servicing Bank. The journal entry to record the disbursement involves a
credit to which of the following accounts?
4 a. Cash-Treasury/Agency Deposit, Regular
b. Cash-Modified Disbursement System (MDS), Regular
c. Cash-in-Bank-Local Currency, Current Account
d. Cash-Collecting Officers
Entity A receives a donation of land with fair value of 1M.The donor stipulated that the
land shall only be used as a portion of a proposed highway. If in case the project is
discontinued, Entity A shall return the land to the donor. At the date of receipt of the
donation, the construction of the highway is not yet started. When should Entity A
recognize the land in its
5
books of accounts?
a. Upon receipt of the donation.
b. When the construction of the highway is started.
c. When the construction of the highway is completed.
d. When the land is used in the construction of the highway.
Entity A, a government hospital, acquires medicines to be sold in its pharmacy. Entity A
would record the medicines acquired as
a. Semi-Expendable Property
6
b. Inventory Held for Consumption
c. Inventory Held for Distribution
d. Inventory Held for Sale
The Chief Accountant shall charge obligations incurred against available allotment to
ensurethat
a. the NCA is sufficient to meet the disbursement needs.
7
b. there are no unreleased appropriations.
c. no overdraft is incurred.
d. no excess allotment exists.
Which of the following entries would most likely constitute a cash disbursement, rather
than a check disbursement?
a. Electricity Expenses xxx
8
Cash-Modified Disbursement System (MDS), Regular xxx
To record payment for electricity expenses
b. Accounts Payable xxx
 Cash-Modified Disbursement System (MDS), Regular xxx
To record payment of accounts payable
c. Advances to Officers and Employees xxx
Cash-Modified Disbursement System (MDS), Regular xxx
To record grant of cash advance for travel
d. None. All of these are check disbursements.
Which of the following, according to GAM for NGAs, may never give rise to revenue
for a
government entity?
9 a. Services in-kind
b. Debt forgiveness
c. Concessionary loan
d. Grant with condition
Entity A acquires a train on January 1, 20x1. Information on costs are as follows:
Purchase price 9,000,000
Import duties 200,000
Cash discount not taken 100,000
Freight costs 800,000
Testing costs 300,000
Repairs after the train is brought to its operational state 600,000
Estimated costs of dismantling the train at the end of its 20-year useful 120,000
10
During the period Entity A starts the construction of a building by administration. Entity
A acquires construction materials for 10M. the entry to record the transaction is
a. Construction Materials Inventory 10,000,000
Account Payable 10,000,000
b. Construction in Progress-Buildings And Other Structures 10,000,000
Account Payable 10,000,000
c. Construction in Progress-Buildings And Other Structures 10,000,000
Construction Materials Inventory 10,000,000
d. None of these.
Which of the following is considered a heritage asset?
a. road networks
11 b. museum
c. bridges
d. forest
Which of the following may be included as cost of inventory?
a. freight-in under a freight collect, FOB destination sale term
12 b. trade discounts
c. cost of insurance while the goods are in transit
d. advertisement cost that resulted to the resale of inventory purchased
This is maintained in the Property/Supply Division to record the movements of
inventories.
13
a. Stock Card (SC)
b. Property/Supply Card (PSC)
 c. Supplies Ledger Card (SLC)
d. Magic Card (MC)
A government entity derecognizes an item of PPE that is
a. idle
14 b. fully depreciated
c. unserviceable
d. all of these
A government entity makes payment through Advice to Debit Account (ADA). The
entry mostlikely to be used in recording the payment is
a. Accounts Payable xxx
Cash – Modified Disbursement System (MDS), Regular xxx
15 b. Accounts Payable xxx
Subsidy form National Government xxx
c. Accounts Payable xxx
Cash-ADA xxx
d. None. The transaction is recorded only in the Registries and ORS.
The receipt of a performance bond or a security deposit is credited to a
a. liability account
16 b. revenue account
c. cash account
d. a and c
The entry in the books of a government agency with foreign service post to record the
receipt of disbursement authority called the Cash Disbursement Ceiling (CDC) includes
a
17 a. debit to Cash-Modified Disbursement System (MDS)
b. credit to Subsidy from National Government
c. credit to Cash-Constructive Income Remittance
d. debit to Subsidy from National Government
Entity A has a foreign service post. During the period, Entity A receives authorization
from the DBM allowing it to use the collections of its own foreign service post to defray
for the necessary expenses of the foreign service post. This authorization is called
18 a. Cash Disbursement Ceiling (CDC)
b. Non-Cash Availment Authority (NCAA)
c. Electronic Modified Disbursement System (eMDS)
d. Advice to Debit Account (ADA)
The receipt of which of the following may not give rise to revenue by a government
entity?
a. Notice of Cash Allocation
19
b. Tax Remittance Advice
c. Subsidy from another government entity
d. Inter-agency fund transfer
Which of the following is true regarding disbursements through electronic Modified
Disbursement System (eMDS)?
20
a. The disbursement is not recorded in the books of accounts.
b. The disbursement is made through the issuance of MDS check.
 c. The disbursement is made through the use of a credit card that is swiped in a card
swipe machine of an authorized merchant.
d. The disbursement is made through an online transaction.
The accounting division of a government entity uses this record and monitor the
movements and balances inventories.
a. Stock Card
21
b. Stock Ledger Card
c. Journal Entry
d. Special Journal
Entity A acquires a train on January 1, 20x1. Information on costs are as follows:
Purchase price 9,000,000
Import duties 200,000
Cash discount not taken 100,000
Freight costs 800,000
Testing costs 300,000
Repairs after the train is brought to its operational state 600,000
Estimated costs of dismantling the train at the end of its 20-year useful 120,000

The current market rate of interest on acquisition date 12%. The entry to recognize the
train in
the books of accounts is?
22
a. Trains 10,212,440
Other Losses 100,000
Cash-Modified Disbursement System (MDS), Regular 10,300,000
Other Provisions 12,440
b. Trains 10,312,440
Cash-Modified Disbursement System (MDS), Regular 10,300,000
Other Provisions 12,440
c. Trains 10,200,000
Other Losses 100,000
Cash-Modified Disbursement System (MDS), Regular 10,300,000
d. Trains 10,300,000
Cash-Modified Disbursement System (MDS), Regular 10,300,000
Entity A incurs costs in repairing an item of PPE. It is not clear whether the repair is a
minor or major repair. Entity A shall
a. recognize the repair costs as expense
23
b. capitalize the repair costs
c. a or b
d. none of these
According to the GAM for NGAs, estimates of decommissioning and restoration costs of
an item of PPE are (choose the incorrect statement)
a. included in the initial cost of the item of PPE at the present value of the estimates.
24
b. credited to the “other provisions” account at their present value.
c. included in the initial cost of an item of PPE but not subject to subsequent
depreciation, although subject to amortization using the effective interest method.
 d. are recognized as provisions, at present value, and subsequently measured similar to a
financial liability.
According to the GAM for NGAs, an exchange of goods or services of similar nature
and value between entities
a. gives rise to revenue measured at the fair value of the goods or services received,
adjusted for any cash paid or received on the exchange.
25
b. gives rise to revenue measured at the fair value of the goods or services given up,
adjusted for any cash paid or received on the exchange.
c. a or b, whichever is more clearly determinable.
d. does not give rise to revenue.
Imposition and collection of tax revenue is considered
a. exchange transaction
26 b. non-exchange transaction
c. donation
d. any of these
Which of the following cost formulas is not available for use by government entities?
a. Specific identification
27 b. FIFO
c. Weighted Average
d. All of these are available
Entity A sends an employee to an official travel and gives him cash to cover his
travelling expenses. Which of the following is most likely the entry to record the cash
disbursement?
a. Travelling Expenses xxx
Advances to Officers and Employees xxx
28 b. Travelling Expenses xxx
Cash-Modified Disbursement System (MDS), Regular xxx
c. Advances to Officers and Employees xxx
Cash-Modified Disbursement System (MDS), Regular xxx
d. Advances to Officers and Employees xxx
Cash on Hand xxx
Entity A acquires a train on January 1, 20x1. Information on costs are as follows:
Purchase price 9,000,000
Import duties 200,000
Cash discount not taken 100,000
Freight costs 800,000
Testing costs 300,000
Repairs after the train is brought to its operational state 600,000
29
Estimated costs of dismantling the train at the end of its 20-year useful 120,000

Entity A exchanged an equipment with Entity B. Entity A however, did not recognize
any gain
or loss on the exchange. Which of the following is a valid reason for this?
a. No cash was involved in the exchange.
b. The fair values of the equipment exchanged were equal
 c. The exchanged lacks commercial substance.
d. All of these
This document is prepared when end users request for the issuance of inventories that are
available on stock.
a. Purchase Requisition Form
30
b. Custodian Inventory Slip
c. Purchase Order
d. Requisition and Issue Slip
4. According to the GAM for NGAs, this shall be used for large numbers of items of
inventory that are ordinarily interchangeable.
a. Specific identification
31 b. FIFO
c. Weighted average cost applied in a period inventory system
d. Weighted average cost applied in a perpetual inventory system
e. Any of these as a matter of accounting policy choice
At year-end, Entity A determines an indication that an equipment with carrying amount
of P400,000 is impaired. This equipment was acquired 5 year earlier and was originally
estimated to have a useful life of 10 years and a 5% residual value. Entity A determines
the following information:
Fair value less cost to sell P350,000
Replacement costs P700,000
32
Assume the indication of impairment is a significant decline in the expected output of
the equipment, which Entity A estimates to be 10%. How much is the impairment loss
under the Service Units Approach?
a. 62,667
b. 62,500
c. 50,000
d. 69,250
Entity A acquires an equipment for P1M. The equipment is acquired not for active use in
the production of goods but rather as a standby equipment that will only be used if the
main
equipment needs to be repaired. Does this equipment qualify for recognition as property,
plant and equipment?
a. Yes, all of the recognition criteria for a PPE are met.
33
b. No. the equipment does not satisfy all the recognition criteria for a PPE.
c. No. Although, the equipment satisfies some of the recognition criteria for a PPE, it
does not satisfy all. The equipment shall be classified as “Other Assets.”
d. Yes and no. During the periods the equipment is idle, it shall be classified as “Other
Assets.” During the periods the equipment is in active use, it shall be classified as
“PPE.”
Entity A acquires a building through self-construction (construction by administration).
The construction costs incurred are
34
a. initially recorded in the Registries and recorded in the books of accounts only upon
completion of the construction.
 b. initially recorded in the “Construction in Progress” account.
c. recorded in the “Buildings” account in the period they arise.
d. initially recorded as “Receivables” during the construction period.
The GAM for NGAs requires the use of which of the following inventory systems?
a. Perpetual inventory system
35 b. Periodic inventory system
c. a or b
d. none of these
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?
a. Merchandise Inventory xxx
Account Payable xxx
36
b. Purchase xxx
Accounts Payable xxx
c. a or b depending on the accounting policy being used
d. none, a government entity cannot hold inventories for sale; only for consumption.
A certification on the availability of funds and completeness of supporting documents is
required before a disbursement of government funds is made. According to GAM for
NGAs, who shall issue this certification?
37 a. Budget Officer
b. Chief Accountant
c. Head of Agency
d. Requisitioning Individual
Entity A enters into a long-term contract to provide services. The outcome of the
transaction can be estimated reliably and the progress on the contract can be measured
with sufficient reliability. According to PPSAS, how should the revenue from the
contract be recognize?
38
a. On a straight line basis over the contract term.
b. By reference to the stage of completion of the contract at the reporting date.
c. Full recognition of contract price upon completion of the contract.
d. Only to the extent of costs that are expected to be recovered.
Which of the following modes of disbursements is most similar to a check
disbursement?
a. eMDS
39
b. NCAA
c. ADA
d. NBA
According to the GAM for NGAs, all of the following criteria must be met before a
government entity recognizes revenue from sale of goods, except
a. Significant risks and rewards of ownership of the goods are transferred to the buyer
and
40
the entity does not retain control over those goods.
b. It is probable that economic benefits will flow to the entity.
c. The amounts of revenue and related costs can be measured reliably.
d. The stage of completion can be measured reliably
 Entity A, a government entity, distributed welfare goods to the intended recipients. The
entry to recognize the event is
a. Cost of sales xxx
Welfare Goods for Distribution xxx
b. Welfare Goods Expense xxx
41
Welfare Goods for Distribution xxx
c. Distribution costs xxx
Welfare Goods for Distribution xxx
d. None. The expense is recognized at the end of the period when a physical count is
performed. The expense is closed to the Income Summary account.
The national government receives a foreign grant conditioned on the construction of a
public infrastructure. According to the GAM for NGAs, when does the national
government recognize revenue from the grant (i.e., credit to the Income from Grants and
Donations in Cash’ account)?
42
a. Upon the receipt of the grant.
b. When the grant becomes receivable, provided there is reasonable assurance that the
attached condition will be satisfied.
c. When the condition is met.
d. When the related expenses for which the grant is intended to compensate are incurred.
According to the GAM for NGAs, when the outcome of a service contract cannot be
estimated reliably, revenue is recognized
a. on a straight line basis over the periods the services are rendered.
43
b. by reference to the contract’s stage of completion at each reporting date.
c. only to the extent of costs that are expected to be recovered.
d. only upon the completion of the contract.
Entity A, a government entity, purchases inventories. To record a purchase, Entity A
would likely debit the (an).
a. Inventory account
44
b. Purchases Account
c. Expense Account
d. a or b
Accountable forms such as pre-printed forms used in government transactions are most
likely to be classified by a government entity as
a. Inventory Held for Consumption
45
b. Inventory Held for Sale
c. Semi-Expendable Property
d. Not considered inventory, according to the GAM for NGAs
When an amount already recognized as revenue become subsequently uncollectible, it is
a. Recognized as expense.
46 b. Recognized as an adjustment to the revenue originally recognized.
c. Either a or b as an accounting policy choice
d. Not recognized
9. Entity A, a government entity, acquires an equipment for P1M on August 6, 20x1. The
47 equipment’s estimated useful life is 5 year. How much is the carrying amount of the
equipment on December 31, 20x1?
 a. 920,833
b. 936,667
c. 916,667
d. 979,167
Which of the following is derecognized?
a. Idle PPE
48 b. Fully depreciated PPE
c. Unserviceable PPE
d. Partially damaged PPE
Which of the following modes of disbursements would result to the recognition of a loan
payable in the books of the BTr?
a. CDC
49
b. NCAA
c. ADA
d. UFC
An entity issues term bonds at a discount. If the bonds are subsequently measured at
amortized cost, which of the following statements is not correct?
a. Interest expense each period exceeds interest payment.
50 b. Total interest expense over the term of the bonds equals total interest payments plus
the amount of discount on initial recognition.
c. The carrying amount of the bonds decreases each period.
d. The carrying amount of the bonds increases each period.