If a lease transfers ownership of the property the end of the le~se term, it

will b .. r o t e essee by the classified as a finance lease by e essor. . .

2. Minim. um· lease payments m· e 1u d e any amount to be paid for
bargain purchase options and guaranteed rest. du a1 values.
3. Any lease that contains a purchase option must be treated as a finance
lease by the lessor.
4. The lessee depreciates the leased asset under a finance lease.
5. The inception of the lease is defined as the date of the lease agreement or
the date of an earlier written commitment.
6. The commencement of the lease term is defined as the date on which the
leased property is actually transferred to the lessee.
7. A lessor under a finance lease recognizes a net investment in the lease
measured at the present value of the lease payments and unguaranteed
residual value, if any.
8. Interest rate implicit in the lease is the discount rate that, at the inception
of the lease, causes the aggregate present value of the payments and the
unguaranteed residual e minimum ease par value to be equal to the sum of
the fair value of the, leased asset and any in;itial direct costs of the lessor.
the next two questions:
Es eti the f·o llowing information or 1o e y ne ar finance lease ·t h
Entity B Wt ·
l n ty A (lessor) enters into a ~ the start of each year. The
. ease payments of ,100 are due a~
tnterest rate im-nl. c. t in the lease is 10 ¾,. tthk ~cument is available free of charge on
9. At the commencement date, Entity A will r;~o~i~e a net
investment in the lease computed as PlOO x O 0rdinary
annuity @10%, n =lO.
10. Entity A will recognize interest income in Yea~ 1 computed as follows:
(presen~ ,value of lease · payments. - firS t _payment) x 10%.
PROBLEM 13-2: MULTIPLE CHOICE
1. A government entity, which is a lessee under a finance lease, recognizes an
asset acquired under a finance lease, and the related lease liability, measured at
a. the fair value of the leased property at inception date
b. the present value of the minimum lease payments at
inception date
c. the lower of a and b
d . the higher of a and b
2. Entity A acquires an asset under a finance lease. The lease does not transfer
ownership or contain any purchase option.
Which of the following statements is correct?
a. The lease cannot qualify for accounting as finance lease.
b. Entity A will depreciate the leased asset over the shorter of the asset's useful
life a.rid the lease term.
c. Entity A will depreciate the leased asset over its useful life.
d. Entity A will not depreciate the asset.
3. In accounting for finance leases, lease payments are discounted using
a. the interest rate implicit in the lease.
b . lessee's incremental borrowing rate.
c. a or b
d. a, if this is determinable; if not, then b.
1. According to the GAM for NGAs, government entities shall
present financial statements at least annua1y
2. The statement of financial position is dated as at the reporting
date. ·
3. · According to the GAM for NGAs, a Condensed Statement of Financial
Position is. one that presents line items only rather than all the accounts used
by the entity.
4. The GAM for NGAs requires government entities to present expenses in
the statement of financial performance according to the function of those
expenses.
5. Government entities present information on other comprehensive income,
just like business entities.
6. The statement of financial performance of a government entity is the exact
equivalent of the statement of comprehensive income of a business entity.
7. Non-adjusting events are never recognized but are always disclosed.
8. Prior period errors are corrected by retrospective restatement.
9. In the first instance, changes in accounting policies are accounted for by
retrospective application.
10. Unlike business entities, government entities are required to prepare
interim financial statements on a quarterly basis.
ritoBLEM 14-2: MULTIPLE CHOICE
Which of the following is not one of the components of a 1. F complete set
. 0 general purpose financial statements of government entities?
a. Notes · to the Fillancial Statements
b. Statement of Appropriations, Allotments, Obligations, Disbursements
and Balances
c. Statement of Comparison of Budget and Actual Amounts
d. Statement of Changes in Net Assets/Equity ·
2. Which of the following ·is most. likely applicable to a government entity
but not to a business· entity?
a. Presenting a classified statement of financial position showing
distinctions between current artd noncurrent assets and liabilities.
b. Presenting additional disclosures in the notes when expenses . are
presented in the statement of financial performance by function.
c. Presenting cash flows from operating activities in the statement of cash
flows using the direct method.
d. Presenting a ~tatement of financial position in a detailed format.
3. Additional disclosures shall be made in the notes if an entity presents
expenses by
a. nature c. current/noncurrent
b. function d. all of these
,
4· The statement of financial performance of a government entity differs
from the statement of profit or loss of a business entity in which of the
following respects? · .
a. The use of the term "surplus or deficit'' rather than "profit or loss."
b. The use of the term "surplus or deficit" rather than "comprehensive
income."
c. The use of the term "revenues" rather than "income."
d. The presentation of expenses by nature rather than by function.
5. The closing of the "Cash-Treasury/Agency Deposi~, Regular'' account to
the "Accumulated Surplus (Deficit)" account is presented in the statement of
changes in equity
a. as an adjustment to the opening balance of equity.
b. as part of operating activities.
c. under the "Adjustment of net revenue recognized directly in net
assets/equity" line item.
d. not presented.
6. The GAM for NGAs requires which of the following methods of
presenting cash flows from (used in) operating activities in the statement of
cash flows?
a. Direct method
b. Indirect method
c. a orb
d. neither a nor b
7. A government entity presents payments for purchases of inventories in the
statement of cash flows
a. under investing activities.
b. net of withholding taxes.
c. gross of withholding taxes.
d. as footnote disclosure only.
8. Which of the following cash flows is presented in the financing activities
section of a statement of cash flows?
a. · Lease payments under an operating lease
b. Lease payments under a finance le~se
c. Receipt of repayment of loan
' d. Amortization of a finance lease liability
lOMoARcPSD|9405337

fhe Notice of Cash Allocation (NCA) is least likely to be reported in which

of the following financial statements?
a. Statement of financial position ·
b. Statement of financial performance
c. Statement of cash flows
d. Notes to the financial statements
10. Which of the following is an adjusting event?
a. Settlement of a court case that evidences a present obligation after the
reporting date.
b. Bankruptcy of a debtor caused solely by an event that occurred after the
reporting date.
c. Sale of inventories that evidences the correct NRV of inventories at the
reporting date.
d. Destruction of a building due to fire that occurred after the reporting date.
PROBLEM 14-3: FINANCIAL STATEMENT PRESENT.A 10N !
The .cotnparntive prc-closi11gt adjusted trinl bolonc~s of Entity A on
Dece111ber 31 20x2 are shown below:
Accounts
-ca;h -Coliecti~g Office rs
Cash-Treasury/Agency Dep., Reg.
Accounts Receivable
Allowance for Impairmen t - A/R
Office Supplies Inventory
· Buildings
Accumulated Depreciation - Buildings
Office Equipment
Accumulated Depreciation- Equipment
Accounts Payable
Due to BIR
Due to GSIS
Due to Pag-IBIG
Due to PhilHealth
Accumulated Surplus (Deficit)
Tax on Delivery Vans and Trucks
Waterworks System Fees
Subsidy from NG
Salaries and Wages, Regular
PERA
Office Supplies Expense
Water Expenses
Electricity Expenses
Telephone Expenses
Janitorial Expenses
Security Expenses
Depreciation-Bldgs. & Other Structures
Depreciation-Machinery & Equipment
lmpairll).ent Loss - Loans & Receivables
Totals
20xl
Dr. !(Cr.)
. 30,000
290,000
80,000
800,000
(650,000)
340,000
(180,000)
(60,000)
(20,000)
(4,000)
(2 ,000)
(1 ,000)
(160,000)
(40,000)
(192,000)
(934,000)
303,000
16,000
104,000
16,000
48,000
32,000
64,000
80,000
24,000
16,000
20x2
Dr. !(Cr,)
30,00()
250,00()
120,000
(5,000)
20,000
800,000
(680,000)
660,000
(200,000)
(90,000)
(333,000)
(50,000)
(240,000)
(1,167,000)
380,000
20,000
130,000
20,000
60,000
40,000
80,000
100,000
30,000
20,000
5,000
osed directly to the "Accumu1aJd ~ency Deposit, Regular'' account is c f h . urplus (Det·
. )" ternent o c anges m net asset I . ic1t account In the ,ta s equity this . .
",Adjustment of net revenue recognized di~ . 18 presented under the
. ctly m net assets/equity" line
1tefll·

Additional information:
Entity A received NCA of Pl 050 000 . · · .
a. ' ' in 20x2. Unused NCA
reverted at year-end amounted to , 43 000
b. The unbill~d tax revenue·s were collec;ed i.n cash. ,
c All collections of revenues billed and unb'll d · . ·
· . ' 1 e , were remitted
to the National Treasury.
d. Taxes withheld in 20x2 on payments of:
Personnel Services,· '90,000
Maintenance and Other Operating Expenses, ,20,000
Purchases of inventories, Pl0,000
Purchase of office equipment, ,20,000 ·
e. Salary deductions for contributions I to GSIS, PhilHealth and
Pag-IBIG in 20x2 amounted to P60,000. '
f. Taxes withheld and other salary deductions are aggregated
and presented under the "Inter-agency payables" line item ..
g. Only the purchases of office supplies inventory affected the
accounts payable in 20x2.
h. For simplicity, assume there are no basis, timing or entity differences
between 'budgeted amounts' and '(1ctual amounts on a C01ftparable
basis'. The following are relevant to the preparation of the statement ~!
comparison of budget and actual amounts:
l.
Budgeted and Actua,l Receipts
Original Budgeted Receipts ·
The total original budgeted receipts amounts to ,300,000.
· h 20 2 B dget of Expenditures and
This is sourced from t e x u .
It constitutes the pro1ected
Sources of Financing.
revenues/receipts for the following:
,40,000
,260,000
' Services and Business Income
ii.
iii.
IV.
v.
VI.
,-
Chapter 14
Final Budgeted Receipts · ,
·(There are no adjustments to the original budget).
Actual Receipts on Comparable Basis · .
The. total actual receipts on comparable basis amounts to
P250,000. This is based on the Consol~dateq Actual
Revenue Collections per FAR No. 5, Statement of Financial
Performance and Statement of Cash Flows. It constitutes
the actual collections/receipts from Tax Rev~nue and
Services and Business •Income that will accrue to the
General Fund and Special Account in the General Fu,nd.
Budgeted and Actual Payments ·
Original Budget ,
The original budget for payments of PS, MOOE and ro
amounts to Pl,200,000. This is based on the Current Year's
Appropriations, sourced from the Statement of
Appropriations, Allotments, Obligations, Disbursements
· and Balances (FAR No. 1). It consists of the following:
Personnel Services ,420,000
Maintenance and Other Operating Expenses f>48O,000
Capital Outlay ,300,000
Final Budget
The final budget amounts to Pl,200,000. This includes a 1
P20,000 realignment from PS to CO.
Actual Payments
The actual payments for PS, MOOE, and CO based on the
•I

Disbursements for payment of Current year's Obligations

(from Current Year and Continuing Appropriations)
sourced from FAR No. 1 consist of the following:
Personnel Services
Maintenance and Other Operattn· ,6: , Ex penses
Capital Outlay ·
,400,000
J450,(XX)
'320,000
prepare a comparative statement of fi . 1 . . .
a. · f nanc1a position showing
cross-re erences to the notes for the foll . 1. .
1. Receivabies - owmg me items:
2. Property, Plant and Equipment
3. Inter-agency 'Payables
b. prep~re a comparative statement of financial performance
showing cross-references to the notes for the following line
item_s: ·
4. Personnel Services
5. Maintenance and Other Opei:ating Expenses
6. Non-cash Expenses .
c. Prepare a comparative statement of changes in net
assets/equity.
d. Prepare the 20x2 stateme~t of cash .flo~s.
e. Prepare the 20x2 statement of comparison of budget and actual amounts.
f. Prepare a comparative partial notes showing the breakdowns of the
cross-referenced line items.
PROBLEM 14-4: FOR CLASSROOM DISCUSSION
1. These refer to financial statements intended to meet the needs of users
who are not in a position to demand reports tailored to meet their particular
information needs.
a. All-Purpose Financial Statements
b. General Purpose Financial Statements
c. Managerial Reports
d. Financial Reports
2. Which of the following is an objective of the general purpose financial
statements of government entities
a. To provide. information about the entity's financial position, financial
performance, and cash flows that is useful to a wide range of users in
making economic decisions.
h. To demonstrate the accountability of the entity for the resources
entrusted to it.
c. To provide information needed in the day-to-day management of an
entity.
d. a and b
3. According to the GAM for NGAs, the responsibility over financial
statements rests with the entity's management particularly the
a. Head of the Entity c. COA Auditor
b. Head of Finance/Accounting d. a and b
4. Which of the following is a peculiar general purpose financial state1nent
of government entities?
a. Statement of Financial Performance
b. Statement · of Appropriations, Allotments, Obligations, Disbursements
and Balances
c. Statement of Comparison of Budget and Actual Amounts
d. Statement of Changes in Net Assets/Equity '
5. Amounts in the statement of financial position show
a. cumulative balances for the reporting period.
b. cumulative balances from the formation of the entity up to the reporting
date.
c. . amounts pertaining to the reporting period.
d. cumulative balances from the start of the reporting period up to the
reporting date.
6. According to the GAM for NGAs, the statement of financial · position is
presented in comparative form and in
a. a condensed format c. a classified format
b. a detailed format d. all of these
7. The effect of which of the following is recognized directly in equity
rather than in surplus or deficit
a. Correction of current period errors
b. Effect of changes in accounting estimates
c Gains or losses on reme assets asurmg available-for-sale financial
d. All of these.
8- Finance lease payments pertaining to the reduction of the outstanding
finance lease on liability are classified in the statement of cash flows as
a. Operating activities
b. Investing activities
c. Financing activities
d. Not presented
9. Entity A presents its cash flows from operating activities using the direct
method. Entity A holds foreign currencies. These are appropriately
translated to the spot exchange rates at the reporting date. How should
Entity A present ·the translation differences in the statement of cash flows?
a. As an adjustment to surplus or deficit in the operating activities.
b. As a reconciliation of the cash and cash equivalents at the beginning and
end of the period, presented separately from the operating, investing and
financing activities.
c. As a cash flow from either investing or financing activities but not
operating activities.
d. As a reconciliation of the cash and cash equivalents at the beginning
and end of the period, presented in the notes but not on the face of the
statement of cash flows.
10. Which of the following is not among the other reports require d to be
submitted by government entities to the COA?
a. Pre-closing trial balance.
b. Schedules showing the regional breakdowns of income and expenses
c. Post-closing trial balance
d . A completed 14-column worksheet in yellow co or