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GEN 008 – ENHANCEMENT SUBJECT

P2 QUIZ – SET A

1. This type of accounting change results from change in measurement basis

a. Change in accounting policy c. Prior period error
b. Change in accounting estimate d. Change in reporting entity

2. This type of accounting change results from changes in the realization (or incurrence) of
expected inflow (or outflow) of economic benefits from assets (or liabilities).
a. Change in accounting policy c. Prior period error
b. Change in accounting estimate d. Change in reporting entity

3. According to PAS 8, these are those adopted by an entity in preparing and presenting its
financial statements which shall be applied consistently.
a. Accounting estimates c. PFRSs
b. Accounting policies d. Debit credit

4. Changes in accounting estimates are accounted for

a. based on specific transitional provisions of relevant PFRS
b. by retrospective application by restatement of the beginning balance of retained
earnings and by restatement of previously presented financial statements, unless
impracticable.
c. by prospective application
d. choice (a) or in the absence thereof then choice (b)

5. Which of the following is incorrect regarding the accounting for a change in accounting
estimate?
a. The effect of a change in accounting estimate affects profit or loss in the current period
or future periods, or both.
b. No adjustments are made to the beginning balance of retained earnings or to previously
presented financial statements.
c. The effect of a change in accounting estimate affects profit or loss in the current period
only.
d. Previous financial statements need not be adjusted to apply the changed estimate in
prior periods.

6. Which of the following items requires a prior period adjustment to retained earnings?
a. Purchases of inventory this year were overstated by ₱5 million.
b. FVOCI securities were improperly valued last year by ₱20 million.
c. Revenue of ₱5 million that should have been deferred was recorded in the previous year
as earned.
d. The prior year’s foreign currency translation gain of ₱2 million was never recorded
7. This refers to those events, favorable or unfavorable, that occur between the end of the
reporting period and the date that the financial statements are authorized for issue.
a. Events after the reporting period
b. Type I events
c. Adjusting events after the reporting period
d. Non-adjusting events after the reporting period

8. Under PAS 10, these refer to those that are indicative of conditions that arose after the
reporting period.
a. Events after the reporting period
b. Type I events
c. Adjusting events after the reporting period
d. Non-adjusting events after the reporting period

9. Which of the following subsequent events requires disclosure and adjustment of the
financial statements?
a. loss of plant due to fire
b. sales of a bond issue
c. loss on a receivable due to bankruptcy of a customer
d. purchase of a business

10. According to PAS 10, a subsequent event which usually requires adjustment of financial
statements is:
a. settlement of litigation when the event giving rise to the claim took place subsequent to
the balance sheet date
b. decline in market value of investment between the balance sheet date and date of which
financial statements are issued
c. loss on trade receivable which is confirmed by the bankruptcy of a customer occurring
after the reporting period
d. loss of inventories as a result of flood or fire

11. Which of the following statements is incorrect?

a. Related party transactions and outstanding balances with other entities in a group are
disclosed in an entity’s financial statements.
b. Intragroup related party transactions and outstanding balances are not eliminated in the
preparation of consolidated financial statements of the group.
c. Related party relationships are a normal feature of commerce and business.
d. A related party relationship could have an effect on the profit or loss and financial position
of an entity.
e. Knowledge of related party transactions, outstanding balances and relationships may
affect assessments of an entity’s operations by users of financial statements, including
assessments of the risks and opportunities facing the entity.

12. All of the parties enumerated are related to an entity , except

a. the entity is a subsidiary, an associate, or a venture in a joint venture.
b. the party is a member of the key management personnel of the entity or its parent.
 c. the party is a close member of the family of an individual having control, significant
influence, or joint control over the entity or a member of the key management personnel
of the entity or its parent.
d. the party is a post-employment benefit plan for the benefit of employees of the entity, or
of any entity that is a related party of the entity.
e. two entities simply because they have a director or other member of key management
personnel in common

13. According to PAS 24, this refers to a transfer of resources, services or obligations between
related parties, regardless of whether a price is charged.
a. Inter-company Transfer c. Departmental Transfer
b. Inter-company Transaction d. Related party transaction

14. Which of the following payments by a company should be disclosed in the notes to the
financial statements as a related party transaction?
I. Royalties paid to a major shareholder as consideration for patents purchased from the
shareholder.
II. Key officers' salaries.
a. I only. b. II only. c. Both I and II. d. Neither I nor II

15. PAS 24 requires disclosure of compensation of key management personnel. Which of the
following would not be considered “compensation” for this purpose?
a. Short-term benefits.
b. Share-based payments.
c. Termination benefits.
d. Reimbursement of out-of-pocket expenses

16. Which of the following statements is true?

I. Disclosures of material related party transactions that are eliminated in the preparation
of consolidated financial statements is required in those consolidated combined financial
statements.
II. An associate’s subsidiary and the investor that has significant influence over the
associate are related to each other.
a. True, False b. False, True c. True, True d. False, False

17. Operating segments that may be aggregated are those which exhibit similar economic
characteristics and are similar in the following, except
a. the nature of the products and services, their production processes, and distribution
methods
b. the type or class of customer for their products and services
c. their financial position, financial performance, and cash flows
d. regulatory environment

18. For segment reporting, interest revenue and interest expense

a. are reported separately for each reportable segment
b. may be presented at net amount if the chief operating decision maker relies primarily on
net interest revenue to assess the performance of the segment
c. are not reported
d. a or b
19. PFRS 8 aims to help users of financial statements
a. Better understand enterprise performance
b. Better assess its prospects for future net cash flows
c. Make more informed judgments about the entity as a whole
d. all of the choices

20. A non-publicly listed entity may be required to comply with PFRS 8 Operating Segment if
a. the entity is a subsidiary whose parent is a listed entity or in the process of issuing
securities to the public even in the entity’s individual (separate) financial statements
b. the entity has a foreign operation
c. at least majority of its revenues comes from intercompany transactions
d. it discloses segment information in its general-purpose financial statements

21. According to PFRS 8, how do firms identify reportable segments?

a. By geographic regions c. By industry classification
b. By product lines d. By designations used inside the firm

22. Operating segments may be aggregated if

a. they have similar economic characteristics
b. they have different economic characteristics
c. they have the same chief operating decision maker
d. the entity has a matrix organization

23. Nonreportable segments should

a. be aggregated and reported as “all other segments.”
b. be aggregated but neither reported nor disclosed
c. not reported but may be disclosed if included in the necessary reconciliation of segment
assets, liabilities, or profit or loss
d. not reported but may be disclosed whether or not included in the necessary
reconciliation of segment assets, liabilities, or profit or loss

24. An entity must disclose all of the following about each reportable segment if the amounts are
used by the chief operating decision maker, except
a. Depreciation expense c. Interest expense
b. Allocated expenses d. Income tax expense

25. In financial reporting for segments of a business, an enterprise shall disclose all of the
following except
a. Types of products and services from which each reportable segment derives its
revenues.
b. The title of the chief operating decision maker of each reportable segment.
c. Factors used to identify the enterprises reportable segments.
d. The basis of measurement of segment profit or loss and segment assets
26. BEA’s Co.’s current reporting period ends on December 31, 20x1. The following transactions
occurred after the end of reporting period:
 On January 20, 20x2, a pending litigation was resolved requiring a settlement amount of
₱400,000. The 20x1 year-end financial statements included a provision for loss on litigation
of ₱480,000.
 Inventories costing ₱4,000,000 were recognized at their net realizable value of ₱3,600,000
in the 20x1 year-end financial statements. During January 20x2, the inventories were sold
for ₱3,520,000. Actual selling costs amounted to ₱120,000.
 The year-end accounts receivable include a ₱400,000 receivable from DOMINIC, Inc. No
allowance for doubtful accounts was recognized on this receivable as of December 31,
20x1. On February 3, 20x2, DOMINIC filed for bankruptcy. It was estimated that the
receivable will not be collected.
 The fair value of financial assets measured at fair value through profit or loss significantly
declined to ₱320,000 on February 28, 20x2. The financial assets are recognized in the 20x1
year-end financial statements at ₱1,200,000 which is their fair value as of December 31,
20x1.
 On March 5, 20x2, a case was resolved requiring a settlement amount of ₱800,000. The
20x1 year-end financial statements included a provision for loss on litigation of ₱600,000.

BEA’s Co.’s profit for the year ended December 31, 20x1 before consideration of the above
transactions is ₱8,800,000. The financial statements were authorized for issue on March 1,
20x2.

How much is the adjusted profit?

a. 8,820,000 b. 9,020,000 c. 10,820,000 d. 8,280,000

27-28 The following relates to the transactions of SENYORA Co. during 20x1:
Directors' and officers' remuneration 8,000,000
Post-employment benefits of officers 800,000
Fringe benefits in the form of housing assistance to
directors and officers 20,000,000
Share options granted to officers 1,200,000
Officers' expenses on travels, representation and
entertainment subject to liquidation and
reimbursement 400,000
Loans to directors and officers 12,000,000
Sales to related entities 40,000,000

27. How much is the amount of related party disclosures on SENYORA’s separate financial
statements?
a. 30,000,000 b. 52,000,000 c. 82,000,000 d. 42,000,000

28. How much is the amount of related party disclosures on SENYORA’s consolidated financial
statements?
a. 12,000,000 b. 30,000,000 c. 82,000,000 d. 42,000,000
29. On January 1, 20x1, CONRAD Co. acquired an equipment for ₱4,000,000. The equipment
will be depreciated using the straight-line method over 20 years. The estimated residual
value is ₱400,000.
In 20x6, following a reassessment of the realization of the expected economic benefits from
the equipment, CONRAD Co. changed its depreciation method to sum-of-the-years digits
(SYD). The remaining useful life of the asset is estimated to be 4 years and the residual
value is changed to ₱200,000. How much is the depreciation expense in 20x6?
a. 1,160,000 b. 1,140,000 c. 1,233,560 d. 1,110,669

30-31 On January 10, 20x2, prior to the authorization of ANDREW Co.’s December 31, 20x1
financial statements for issue, the accountant of ANDREW Co. received a bill for an
advertisement made in the month of December 20x1 amounting to ₱1,600,000. This expense
was not accrued as of December 31, 20x1.

30.The correcting entry, if the books are still open, includes

a. a debit to advertising expense for ₱1,600,000
b. a credit to advertising income for ₱1,600,000
c. a debit to retained earnings for ₱1,600,000
d. a credit to retained earnings for ₱1,600,000

31.The correcting entry, if the books are already closed, includes

a. a debit to advertising expense for ₱1,600,000
b. a credit to advertising income for ₱1,600,000
c. a debit to retained earnings for ₱1,600,000
d. a credit to retained earnings for ₱1,600,000

32-35 LORENA Co. reported profits of ₱1,600,000 and ₱2,400,000 in 20x1 and 20x2,
respectively. In 20x3, the following prior period errors were discovered:
 Prepaid supplies in 20x1 were overstated by ₱80,000.
 Accrued salaries payable in 20x1 were understated by ₱160,000.
 Repairs and maintenance expenses in 20x1 amounting to ₱400,000 were erroneously
capitalized and being depreciated over a period of 4 years.

The unadjusted balances of retained earnings are ₱6,400,000 and ₱8,800,000 as of December
31, 20x1 and 20x2, respectively.

32.How much is the correct profit in 20x1?

a. 1,006,000 b. 1,610,000 c. 1,720,000 d. 1,060,000

33.How much is the correct profit in 20x2?

a. 2,704,000 b. 2,160,000 c. 2,740,000 d. 2,610,000

34.How much is the correct retained earnings in 20x1?

a. 5,806,000 b. 5,520,000 c. 5,860,000 d. 5,420,000

35.How much is the correct retained earnings in 20x2?

a. 8,960,000 b. 8,600,000 c. 8,860,000 d. 8,420,000
36-37 An entity reported revenue of P50,000,000, excluding intersegment sales of P10,000,000,
expenses of P47,000,000 and net income of P3,000,000 for the current year. Expenses
included payroll costs of P15,000,000. The combined assets of all segments totaled
P45,000,000
36. What is the minimum amount of sales to a major customer?
a. 5,000,000
b. 4,000,000
c. 4,500,000
d. 6,000,000

37. What is the minimum amount of external revenue to be disclosed by reportable segments?
a. 30,000,000
b. 45,000,000
c. 33,750,000
d. 37,500,000

38. An entity operates in the travel industry and incurs costs evenly throughout the year.
Advertising cost of P2,500,000 was incurred on March 1, 2022, and staff bonuses are paid at
year-end based on sales. Staff bonuses are expected to be around P20,000,000 for the year.
The staff bonuses are allocated uniformly over four quarters of the year.
What total amount of expenses should be included in the quarterly financial report ending March
31, 2022?
a. 5,000,000
b. 7,500,000
c. 5,625,000
d. 2,500,00

39. An entity identified the following segments for the current year:
Segment Revenue Profit Assets
A 10,000,000 1,750,000 20,000,000
B 8,000,000 1,400,000 17,500,000
 C 6,000,000 1,200,000 12,500,000
D 3,000,000 550,000 7,500,000
E 4,000,000 575,000 5,500,000
F 2,000,000 525,000 3,000,000

What are the reportable segments?

a. Segments A, B and C
b. Segments A, B, C and D
c. Segments A, B, C, D and E
d. Segments A, B, C, D, E and F

40. An entity reported the following segment profit or loss for the current year:
Segment 1 7,000,000 profit
Segment 2 3,000,000 profit
Segment 3 4,000,000 loss
Segment 4 1,000,000 profit
Segment 5 500,000 loss

What are the reportable segments?

a. Segments 1, 2, 3,4 and 5
b. Segments 1 and 2
c. Segments 1, 2 and 3
d. Segments 1, 2, 3 and 4