1. Which of the following is not correct in regard to held for trading securities?

a. They are held to be sold in a short period of time.

b. Unrealized holding gains and losses are reported as part of profit or loss.
c. Any discount or premium is not amortized.
d. All of these are correct.
2. On derecognition of investment, choose the correct statement
a. the unrealized gain or loss from FVPL securities is transferred to statement of other comprehensive
income.
b. The cumulative gain or loss from FVOCI securities is transferred directly to equity.
c. The gain or loss from FVOCI securities is recognized in the income statement.
d. All the above statement are incorrect.
3. An entity did not amortize the discount on its “trading” bond investment. What effect would this have on
the carrying amount of the investment and on net income, respectively?
a. Overstated, overstated
b. Understated, overstated
c. understated, understated
d. No effect, no effect
4. If in the rare circumstance that a reliable measure of fair value is no longer available, it becomes
appropriate to carry a financial asset without a fixed maturity cost, the fair value carrying amount of the
financial asset becomes the new cost basis and any previous gain or loss that has been recognized in
other comprehensive income shall
a. Remain in other comprehensive income until the financial asset is sold or otherwise disposed of.
b. Be recognized in earnings immediately
c. Included in retained earnings
d. Be amortized over a reasonable period to profit or loss
5. Which statement is correct concerning recognition of unrealized gains and losses on financial assets?
I. Unrealized gains and losses on financial assets held for trading shall be included in profit or loss
II. Unrealized gains and losses on financial assets measured at amortized cost shall be included as
component of other comprehensive income
a. I only
b. II only
c. Both I and II
d. Neither I nor II
6. The equity method should be applied in which of the following?
a. The investor previously held only 10% interest but subsequently acquires additional 10% interest in
the associate.
b. The investor is an unlisted subsidiary whose parent allows it not to apply equity method.
c. The investment is classified as held for sale under PFRS 5.
d. The parent is exempted from presenting consolidated financial statements.
7. Under the equity method, which of the following does not decrease the investment account?
a. share in dividends declared by the associate.
b. amortization of overvaluation of asset.
c. share in associate’s loss
d. amortization of undervaluation of asset.
8. Which of the following statements best describes the term “significant influence”?
a. The holding of a significant proportion of the share capital in another entity
b. The contractually agreed sharing of control over an economic entity
c. The power to participate in the financial and operating policy decisions of an entity
d. The mutual sharing in the risks and benefits of a combined entity
9. An entity shall apply PAS 28
a. to investments which give the entity significant influence over the investee
b. to account for investments in associates in the entitys separate financial statements
c. any of these
d. even when significant influence is lost
10. For investments in associates, the investor shall not
a. recognize a share in the associates discontinued operations.
b. recognize a share in the associates revenue, expenses and profit before tax.
c. recognize a share in the associates other comprehensive income.
d. recognize a share in the associates profit or loss.
11. How is the impairment test carried out for an investment in associate?
a. The goodwill is separated from the rest of the investment and is impairment tested individually.
b. The entire carrying amount of the investment is tested for Impairment by comparing its recoverable
amount with the carrying amount.
c. The carrying value of the investment shall be compared with its market value.
d. The recoverable amounts of all investments in associates shall be assessed together to determine
whether there has been an impairment on all investment.
12. If under the equity method, an investor’s share of losses of an associate equals or exceeds the carrying
amount of an investment, which of the following is incorrect?
a. The investor ordinarily discontinues its share of further losses.
 b. Additional losses are provided or a liability is recognized to the extent that the investor has incurred
legal or constructive obligations or made payments on behalf of the associate.
c. If the associate subsequently reports profits, the investor resumes its share of those profits without
regard to the share of net losses not previously recognized.
d. The investment is reported at NIL value.
13. Dane, Inc., owns 35% of Marin Corporation. During the calendar year 2004, Marin had net earnings of
₱300,000 and paid dividends of ₱30,000. Dane mistakenly recorded these transactions using the fair
value method rather than the equity method of accounting. What effect would this have on the
investment account, net income, and retained earnings, respectively?
a. Understate, overstate, overstate
b. Overstate, understate, understate
c. Overstate, overstate, overstate
d. Understate, understate, understate
14. When an investor uses the equity method to account for investments in common stock, the investment
account will be increased when the investor recognizes
a. a proportionate share of the net income of the investee.
b. a cash dividend received from the investee.
c. periodic amortization of the goodwill related to the purchase.
d. depreciation related to the excess of fair value over carrying amount of the investee's depreciable
assets at the date of purchase by the investor.
15. When an investor uses the equity method to account for investments in common stock, cash dividends
received by the investor from the investee should be recorded as
a. an increase in the investment account.
b. a deduction from the investment account.
c. dividend revenue.
d. a deduction from the investor's share of the investee's profits.
16. 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 not recognized in the investor’s profit or loss
d. Distributions received from the investee reduce the carrying amount of the of the investment
17. Goodwill arising from 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 the carrying amount of the investment but charged to retained earnings.
d. Excluded from the carrying amount of the investment but charged to expense immediately.
18. PAS 28 does not require the equity method to be applied when the associate has been acquired and held
with a view to its disposal within a certain time period. What is the period within which the associate
must be disposed of?
a. Six months from the end of the reporting period
b. Twelve months from the end of the reporting period
c. Twelve months from the date of the classification as held for sale
d. In the near future
19. The excess of purchase cost of an investment in associate over the fair value of the interest acquired
represents
a. goodwill that is not required to be accounted for separately.
b. goodwill that should not be amortized but tested for impairment at least annually.
c. negative goodwill that should be recognized in the investors profit or loss in the year of acquisition
d. negative goodwill that should be deferred and amortized.
20. 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 not recognized in the investor’s profit or
loss
d. Distributions received from the investee reduce the carrying amount of the of the investment