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RFJPIA-R12
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.

a. b. c. d.

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? PHP63 PHP85 PHP75 PHP90
2. 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. a b c d Statement (1) False False True True Statement (2) False True False 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 straightline 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 d

PHP81,750 PHP75,000

PHP6,750 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.

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
9. 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