Espiritu, Val Magdalene A.

BSA – 1A

CFAS

5-1

1. A
2. B
3. A
4. A
5. B
6. B
7. C
8. D
9. B
10. A

5-2

1. D
2. D
3. D
4. D
5. B
6. A
7. B
8. D
9. C
10. C

5-3

1. D
2. C
3. C
4. C
5. C

6-8

1. Systematic and Rational Allocation

2. Point of Sale Income Recognition
 3. Cause and Effect Association
4. Completeness
5. Prudence
6. Materiality
7. Revenue Recognition
8. Standard Adequate Disclosure
9. Consistency
10. Faithful Representation

6-9

1. Historical Cost
2. Immediate Recognition
3. Systematic and Rational Allocation
4. Substance over form
5. Point of sale income recognition
6. Consistency
7. Prudence
8. Standard Adequate Disclosure
9. Cause and effect association
10. Conservatism

6-10

1. Disagree, but leasehold improvements are assets that provide economic rewards
over time. As a result, they should be capitalized and amortized during their useful
life, rather than expensed right away.
2. Disagree, income should be recognized when earned and there is a reasonable
assurance of collection. Writing off accounts receivable is reasonable if there is
proof that they are uncollectible, but the absence of recent transactions with the
client does not justify an instant write-off.
3. Agree, this procedure is compatible with the matching principle, which states that
costs must be recognized at the same time as the income they contribute to creating.
Capitalizing advertising expenses as prepaid advertising allows them to be recorded
as assets until the revenue-generating period.
4. Disagree, Reporting the cash surrender value as a loss violates the concept of
conservatism. The Conceptual Framework specifies that assets should not be
written down below their recoverable value unless there is evidence of impairment.
The cash surrender value indicates the asset's realizable worth, rather than a loss.
 5. Disagree, Obsolete inventory should be written down to its net realizable valuein
accordance with the conservatism and prudence principles. Recognizing the loss
quickly reveals the real economic value of the goods.
6. Agree, this is compatible with the principle of conservatism since it represents a
reasonable awareness of a probable loss from the acquisition. Paying more than the
fair value of identified assets may result in impairment, thus reporting the excess as
a loss is sensible.
7. Disagree, Depreciation should be reported regardless of profit level since it
indicates the distribution of an asset's cost across its useful life, matching costs and
revenues in accordance with the matching principle.
8. Disagree, according to the principle of conservatism and the idea of prudence, the
loss caused by inventory destruction should be acknowledged quickly, even if the
inventory is not covered.
9. Disagree, Sales and purchases linked to canteen operations should be documented
separately from ordinary product sales and purchases to facilitate proper reporting
and monitoring of the canteen's performance.
10. Disagree, according to the historical cost concept, assets are typically documented at
their historical cost. However, some standards may allow for asset appraisal. If the
fair value surpasses the historical cost and there is a policy that allows for
revaluation, fair value can be recorded. Otherwise, the previous cost should be
retained.

6-11

1. 1. Monica Company's decision to list the delivery truck at P600,000 instead of its
true cost of P500,000 and claim an income of P100,000 is not correct. As per the
historical cost principle, assets should be recorded at their original cost, not their
current market value. By recording the truck at P600,000 and recognizing income, it
distorts the asset value and income, giving a misleading picture of the transaction's
economic reality.
2. It's not right to say that there's a loss and a liability of P500,000 without any
evidence or likelihood of it happening. Following the principle of conservatism in
accounting, we should only recognize liabilities when they are likely to occur, and
we can reasonably estimate the amount. If the legal counsel thinks there won't be
any liability, recognizing a loss and liability would be premature and could give a
wrong picture of the company's financial situation.
3. The utilization of company funds for acquiring a personal vehicle and charging the
expense account is deemed unsuitable. It is imperative to accurately record
transactions in line with the true nature of the transaction. The personal expenses
incurred by company executives should not be allocated to the entity's expense
 accounts. Such actions contravene the principle of presenting a faithful
representation and result in misrepresentation of the financial statements.
4. Declaring the merchandise at P400,000 rather than its actual cost of P300,000, and
acknowledging the rise in value of P100,000 as profit, goes against the principles of
conservatism and the historical cost principle. It is essential to report inventory at a
lower cost or net realizable value. Overestimating the inventory's value and
acknowledging unrealized gains artificially boosts income and fails to accurately
depict the company's financial standing.
5. The write-off of goodwill resulting from an acquisition and debiting it to retained
earnings is not acceptable. Goodwill must undergo annual impairment testing and
should only be written off in the event of an impairment loss. Writing off goodwill
without impairment goes against the principle of conservatism and could lead to a
misrepresentation of the company's financial status by understating its assets.

6-12

1. Relevance
2. Free from error
3. Consistency
4. Completeness
5. Matching principle
6. Point of scale income recognition
7. Materiality
8. Systematic and rational allocation
9. Expense recognition principle
10. Standard Adequate Disclosure

6-13

1. Disagree, it is not necessary to recognize an increase in the carrying amount unless

there is reliable evidence of an increase in the value of the patent. Although
appraisals can offer valuable insights, they may not always accurately reflect the
actual economic worth of the asset. Typically, patents are initially recorded at cost
and then amortized over their useful life, unless there is evidence of impairment or a
rise in value resulting from factors such as successful litigation or new market
opportunities.
2. Disagree, it is not advisable to charge personal expenses of officers to company
accounts as this contradicts the principle of faithful representation and has the
potential to mislead users of financial statements. Personal expenses should be
accurately recorded as drawings or compensated by the CEO independently from
business expenses.
3. Disagree, the recognition of revenue should occur when it is earned, typically when
the customer assumes the risks and rewards of ownership. In this particular case, it
would be premature and potentially misleading to recognize revenue in the current
year prior to shipping the merchandise, as it may not accurately reflect the earnings
process. It is more appropriate to record the sales in the period when the
merchandise is shipped, and revenue is earned.
4. Agree, it is advisable to recognize the entire insurance expenditure in the current
year since the insurance coverage is only for a one-year period. This practice aligns
with the matching principle, which dictates that expenses should be recorded in the
same period as the revenues they are associated with. Therefore, attributing the
insurance expense to the current year's coverage period is consistent with
accounting principles.
5. Agree, the inclusion of information regarding pending lawsuits in financial
statements is of utmost importance as it enables users to gain a holistic
understanding of the entity's financial position and potential risks. This practice is
in line with the principle of full disclosure, which necessitates the disclosure of all
material information that is relevant to users' comprehension of the financial
statements.