LMQ Flashcards
(162 cards)
1
Q
In the absence of partnership agreement to the contrary, what is the obligation of the partners as regards to capital contribution?
a. Equally
b. Based on their profit agreement
c. Based on their loss agreement
d. Based on their withdrawal agreement
A
a. Equally
2
Q
How should the net profit or net loss of the partnership be divided among the partners, whether capitalist or industrial?
a. In accordance with their capital contribution ratio
b. In accordance with just and equitable sharing taking into account the circumstances of the partnership
c. Equally
d. In accordance with the partnership agreement
A
d. In accordance with the partnership agreement
3
Q
In the absence of partnership profit agreement to the contrary, how shall industrial partner share in partnership profit?
a. Equal to the share of the least capitalist partner
b. Equal to the share of the highest capitalist partner
c. Just and equitable share
d. Equal to the average share capitalist partners
A
c. Just and equitable share
4
Q
In the absence of partnership profit agreement to the contrary, how shall the remaining partnership profit be distributed to the capitalist partners after distributing the share of industrial partner?
a. Based on capital contribution ratio
b. Based on loss agreement ratio
c. Equally
d. Equal to share of industrial partner
A
a. Based on capital contribution ratio
5
Q
In the absence of partnership loss agreement to the contrary, how shall industrial partner share in partnership loss?
a. Equal to the share of the least capitalist partner
b. Based on profit agreement ratio
c. Just and equitable share
d. None
A
d. None
6
Q
In the absence of partnership loss agreement to the contrary, how shall capitalist partners share in partnership loss?
a. Based on capital contribution ratio
b. Based on profit agreement ratio
c. Just and equitable share
d. Equally
A
b. Based on profit agreement ratio
7
Q
At the date of partnership formation, the amount credited to a partner’s capital is less than the fair value of the property contributed. Which of the following is the most valid reason?
a. The property contributed by the partner is impaired.
b. The property contributed by the partner has been subjected to positive asset revaluation.
c. Bonus has been given by the partner to the other partners.
d. Goodwill arising from partnership formation has been recognized.
A
c. Bonus has been given by the partner to the other partners.
8
Q
Which statement is true if the total contributed capital of all the partners is equal to the total agreed capitalization of new partnership in admission of new partner by investment?
a. Asset revaluation is recognized.
b. Impairment loss is recognized.
c. Bonus to or from new partner is recognized.
d. Any of the foregoing.
A
c. Bonus to or from new partner is recognized.
9
Q
In admission of new partner by investment, the total contributed capital of all the partners is more than the total agreed capitalization of new partnership but the capital credit of new partner is less than his capital contribution. Which of the following statements is correct?
a. There has been asset revaluation with bonus to new partner.
b. There has been asset impairment with bonus to old partners.
c. There has been bonus given to old partners without any revaluation or impairment.
d. There has been asset revaluation with bonus to old partners.
A
b. There has been asset impairment with bonus to old partners.
10
Q
When a new partner is admitted to an existing partnership through the purchase of a portion of existing interest of incumbent partner, which of the following is correct?
a. The total capital of the old and new partnership will be the same.
b. The partnership will recognize gain or loss on the difference between the amount paid and capital transferred.
c. Goodwill may be recognized by virtue of the admission.
d. There will be increase in the total assets of the partnership equivalent to the amount paid by the newly admitted partner.
A
a. The total capital of the old and new partnership will be the same.
11
Q
Which of the following transactions will decrease the capital balance of a partner?
a. Additional investment by said partner
b. Share in partnership profit
c. Drawings by said partner
d. Receipt of bonus from other partners
A
c. Drawings by said partner
12
Q
At the time of retirement, a retiring partner received more than the amount of his capital contribution while the remaining partners’ capital increased after the retirement. Which of the following is most valid reason?
a. Goodwill during retirement is recognized.
b. Asset revaluation is recognized.
c. Bonus is given by retiring partner to remaining partners.
d. Bonus is given by the remaining partners to retiring partner.
A
b. Asset revaluation is recognized.
13
Q
Which of the following will not result to dissolution of a general partnership?
a. Death of a partner
b. Retirement of a partner
c. Insolvency of a partner
d. Assignment of a partner’s interest to a third person
A
d. Assignment of a partner’s interest to a third person
14
Q
At the time of partnership liquidation, which credits shall be settled first?
a. Amount owing to third persons
b. Amount owing to partners other than capital contribution and share in profit
c. Amount owing to partners with respect to capital contribution
d. Amount owing to partners with respect to share in profit
A
a. Amount owing to third persons
15
Q
The existing partnership has been incorporated but the capital balances of the partners exceed the total par value of the shares to be issued. The difference shall be credited to
a. Retained earnings
b. Profit or loss
c. Other comprehensive income
d. Share premium
A
d. Share premium
16
Q
What is the term used for retained earnings with debit balance?
a. Deficit
b. Deficiency
c. Discount
d. Secret reserve
A
a. Deficit
17
Q
At the time of corporate liquidation, which of the following unsecured claims with priority shall be settled first?
a. Liability for taxes
b. Liability for corporate crime
c. Liability for employee benefits
d. Liability for corporate tort
A
c. Liability for employee benefits
18
Q
In every corporate liquidation, which type of credits shall always be fully settled?
a. Unsecured claims with priority
b. Fully secured claims
c. Unsecured claims without priority
d. Partially secured claims
A
b. Fully secured claims
19
Q
In every corporate liquidation, which type of credits will not share from the free assets of the corporation?
a. Unsecured claims with priority
b. Fully secured claims
c. Unsecured claims without priority
d. Partially secured claims
A
b. Fully secured claims
20
Q
In corporate liquidation of a closed bank, which of the following unsecured credits is classified as without priority?
a. Claims of bank depositors
b. Claims of bank employees
c. Claims of local government for local taxes
d. Claims for violation of Anti-Money Laundering Law
A
a. Claims of bank depositors
21
Q
In the separate statement of financial position of the home office, the branch account shall be presented as
a. Asset account
b. Liability account
c. Equity account
d. Income account
A
a. Asset account
22
Q
In the separate statement of financial position of the branch, the home office account shall be presented as
a. Asset account
b. Liability account
c. Equity account
d. Income account
A
c. Equity account
23
Q
Which of the following transactions will increase the normal balance of the home office account on the book of the branch?
a. Debit memo received from the home office
b. Payment of the home office liability by the branch
c. Net loss recognized by the branch
d. Collection of the branch receivable by the home office
A
a. Debit memo received from the home office
24
Q
Which of the following transactions will decrease the normal balance of the Pasay branch account on the book of the home office?
a. Net income recognized by Pasay branch
b. Collection by Pasay branch of Pasay branch receivable
c. Debit memo received by the home office from the branch
d. Credit memo received by the home office from the branch
A
b. Collection by Panay branch of Pasay branch receivable
25
Which is the best reason why the net income reported by the branch is less than the net income computed by the home office concerning the branch operation?
a. Overstatement of goods in the beginning inventory of the branch for the goods coming from the home office.
b. Understatement of goods in the beginning inventory of the branch for the goods coming from the outside supplier.
c. Understatement of cost of goods sold reported by the branch for the goods coming from the outside supplier.
d. Overstatement of cost of goods sold reported by the branch for the goods coming from the home office.
d. Overstatement of cost of goods sold reported by the branch for the goods coming from the home office.
26
What is the core principle of IFRS 15 Revenue from contracts with customers?
a. Revenue should be recognized when an entity transfers control of goods or services to a customer.
b. Revenue should be recognized when an entity transfers control of goods or services to a customer at an amount to which the entity expects to be entitled.
c. Revenue should be recognized over time in a manner that depicts an entity's performance.
d. Revenue should be recognized at a point in time when control of the goods or services is transferred to the customer.
b. Revenue should be recognized when an entity transfers control of goods or services to a customer at an amount to which the entity expects to be entitled.
27
When shall an entity recognize revenue from contracts with customers?
a. When it is probable that future economic benefits will flow to the entity and the revenue can be measured reliably.
b. When or as the entity satisfies the performance obligation.
c. When the entity collected the cash from the customers.
d. When the entity and the customers sign the contracts.
b. When or as the entity satisfies the performance obligation.
28
In which of the following instances will the revenue from contracts with customers be recognized at a point in time instead of over time?
a. When the customer simultaneously receives and consumes all of the benefits provided by the entity as the entity performs.
b. When the entity's performance creates or enhances an asset that the customer controls as the asset is created.
c. When the entity's performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date.
d. When the entity has transferred physical possession and legal title to the asset to the customer.
d. When the entity has transferred physical possession and legal title to the asset to the customer.
29
When shall the incremental cost of obtaining a contract with a customer be recognized as an asset?
a. When it is probable that future economic benefits will flow to the entity and the cost can be measured reliably.
b. When the entity expects to recover those costs.
c. When the costs will provide economic benefits for a period less than 12 months.
d. When the costs will decrease the revenue in the future periods.
b. When the entity expects to recover those costs.
30
If the contract of sale has a right of return, an entity should recognize which of the following?
a. Sales revenue
b. Refund liability
c. An asset and the corresponding reduction of cost of goods sold
d. All of these should be recognized in a sale with a right of return
d. All of these should be recognized in a sale with a right of return
31
Which statement is true in contract of sale with a right of return?
a. The sales revenue is recognized at the amount of sales net of the expected sale return.
b. The refund liability is measured at the sale price of the expected sale return.
c. The recover asset and the reduction of cost of goods sold should be recorded at the cost or carrying amount of the expected sale return less cost to recover.
d. All of these statements are true about a sale with a right of return.
d. All of these statements are true about a sale with a right of return.
32
What is the accounting treatment of the transaction price when a contract with a customer has multiple performance obligations?
a. The transaction price shall be recognized as revenue of the most important performance obligation.
b. The transaction price shall be allocated equally to the different performance obligation.
c. The transaction price shall be allocated to the different performance obligations by reference to their relative standalone selling prices.
d. The transaction price shall be recognized as revenue only at the end of completion of all performance obligations.
c. The transaction price shall be allocated to the different performance obligations by reference to their relative standalone selling prices.
33
Which condition is necessary to have all units in a multiple deliverables arrangement be considered separate units of accounting?
a. A delivered item has value to the customer on a stand-alone basis.
b. The arrangement includes a right of return relative to the delivered item.
c. Delivery or performance of the undelivered item is probable and substantially within the control of the seller.
d. All of these conditions are necessary for separate units of accounting.
d. All of these conditions are necessary for separate units of accounting.
34
Which is one of the conditions that must exist for an entity to recognize revenue on separate units under a multiple deliverables arrangement?
a. The delivered item has value on a stand-alone basis and can be sold separately.
b. The delivered item is not returnable.
c. Collection has occurred for all of the separate units.
d. The separate units must be delivered within 90 days after reporting date.
a. The delivered item has value on a stand-alone basis and can be sold separately.
35
An entity has a multiple deliverables arrangement in which all units are considered separate units of accounting. The amount paid for the arrangement is allocated among the separate units based on
a. Relative fair value
b. Relative cost of each unit
c. What the vendor could sell the component on a stand-alone basis
d. Relative fair value or what the vendor could sell the component on a stand-alone basis.
d. Relative fair value or what the vendor could sell the component on a stand-alone basis.
36
The milestone method may be used to recognize revenue for
a. Multiple deliverables arrangement
b. Research and development arrangement
c. Long-term construction contracts
d. Franchise arrangements
b. Research and development arrangement
37
The milestone method of revenue recognition provides that if a substantive milestone is achieved, what amount of revenue is recognized?
a. Revenue is recognized up to the amount collected.
b. A prorata share of revenue based on the percentage delivered to date.
c. Contingent revenue is recognized in its entirety.
d. A percentage of total revenue based on separate units delivered.
c. Contingent revenue is recognized in its entirety.
38
Franchise fee revenue shall be recognized when all material services or conditions have been substantially performed or satisfied by the franchisor. Substantial performance means
a. Franchisor has no remaining obligation or intent to refund money or forgive unpaid debt.
b. Substantially all initial services have been performed.
c. No other material conditions or obligations exist.
d. All of these define substantial performance by the franchisor.
d. All of these define substantial performance by the franchisor.
39
Continuing franchise fees should be recorded by the franchisor
a. As revenue when earned and receivable from the franchisee.
b. As revenue when received
c. In accordance with the accounting procedures specified in the franchise agreement.
d. As revenue only after the balance of the initial franchise fe
a. As revenue when earned and receivable from the franchisee.
40
The installment method of accounting may be used if the
a. Collection period extends over more than twelve months.
b. Installments are due in different years.
c. Ultimate amount collectible is indeterminate.
d. Percentage of completion method is inappropriate.
c. Ultimate amount collectible is indeterminate.
41
According to the installment method of accounting, gross profit on an installment sale is recognized in income
a. On the date of sale.
b. On the date the final cash collection is received.
c. In proportion to the cash collections
d. After cash collections equal to the cost of sales have been received.
c. In proportion to the cash collections
42
When would an entity use the installment sales method of revenue recognition?
a. When collectibility of installment accounts receivable is reasonably predictable.
b. When collection expenses and bad debts on installment accounts receivable are deemed to be immaterial.
c. When installment sales are material and there is no reasonable basis for estimating collectibility.
d. When repossessions of merchandise sold may result in a future gain or loss.
c. When installment sales are material and there is no reasonable basis for estimating collectibility.
43
Income recognized under the installment method equals cash collected multiplied by
a. Net operating profit percentage
b. Net operating profit percentage adjusted for expected uncollectible accounts
c. Gross profit percentage
d. Gross profit percentage adjusted for expected uncollectible accounts
c. Gross profit percentage
44
Which statement best justifies the use of the cost recovery method of revenue recognition to account for installment sales?
a. The sales contract provides that title to the equipment only passes to the purchaser when all payments have been made.
b. No cash payments are due until one year from the date of sale.
c. Sales are subject to a high rate of return.
d. There is no reasonable basis for estimating collectibility.
d. There is no reasonable basis for estimating collectibility.
45
According to the cost recovery method of accounting, gross profit on an installment sale is recognized in income
a. After cash collections equal to the cost of goods sold have been received
b. In proportion to the cash collections
c. On the date of sale
d. On the date the final cash collection is received
a. After cash collections equal to the cost of goods sold have been received
46
Contract revenue in construction contract comprises
a. The initial amount of revenue agreed in the contract
b. Variation in contract work, claim and incentive payment
c. The initial amount of revenue agreed in the contract, variation in contract work, claim and incentive payment.
d. The initial amount of revenue agreed in the contract and progress billings.
c. The initial amount of revenue agreed in the contract, variation in contract work, claim and incentive payment.
47
Contract costs of a construction contract comprise all of the following, except:
a. Costs that directly relate to the specific contract.
b. Costs that are attributable to contract activity in general and can be allocated to the contract.
c. Such other costs that are specifically chargeable to the customer under the terms of the contract.
d. General administration costs for which reimbursement is not specified in the contract.
d. General administration costs for which reimbursement is not specified in the contract.
48
Which of the following costs shall not form part of contract costs of long-term construction contract?
a. Depreciation of idle plant and equipment not used on a particular contract
b. Costs of materials used in construction
c. Costs of moving plant, equipment and materials to and from the contract site
d. Site labor costs, including site supervision
a. Depreciation of idle plant and equipment not used on a particular contract
49
Which of the following costs shall form part of contract costs of long-term construction contract?
a. General administration costs for which reimbursement is not specified in the contract
b. Selling costs such as broker's commission
c. Research and development costs for which reimbursement is not specified in the contract
d. Construction overheads including costs such as the preparation and processing of construction personnel payroll
d. Construction overheads including costs such as the preparation and processing of construction personnel payroll
50
Which of the following costs should be included in contract costs?
a. Project managers' costs
b. Destruction of an existing building
c. Restoration of an old factory
d. All of these are included in contract costs
d. All of these are included in contract costs
51
The percentage of completion of a construction is based on all of the following, except:
a. The proportion that contract costs incurred for work performed to date bear to the estimated total contract costs.
b. Survey of work performed
c. Completion of physical proportion of the contract work
d. Progress payments and advances received from customers
d. Progress payments and advances received from customers
52
Which statement is true when the outcome of construction contract cannot be estimated reliably?
a. Revenue shall be recognized only to the extent of contract costs incurred that is probable will be recoverable.
b. Contract costs shall be recognized as an expense in the period when incurred.
c. An expected loss on the construction contract shall be recognized as an expense immediately.
d. All of these statements are true.
d. All of these statements are true.
53
An entity shall disclose all of the following in relation to a construction contract, except
a. The method used to determine the stage of completion
b. The method used to determine the contract revenue recognized in the period
c. Advances received in cash, analyzed according to each material contract
d. Total amount of contract revenue recognized in the period
c. Advances received in cash, analyzed according to each material contract
54
The gross amount due from customers presented as an asset is equal to
a. Costs incurred plus recognized profit
b. Costs incurred less recognized profit
c. Costs incurred plus recognized profit less the sum of recognized loss and progress billings
d. Costs incurred plus the sum of recognized profit and progress billings
c. Costs incurred plus recognized profit less the sum of recognized loss and progress billings
55
In selecting an accounting method for a long-term construction contract, the principal factor to be considered should be:
a. The terms of payment in the contract
b. The degree to which a reliable estimate of the progress toward contract completion is practicable
c. The method commonly used by the contractor to account for other long-term construction contracts
d. The inherent nature of the contractor's technical facilities used in construction
b. The degree to which a reliable estimate of the progress toward contract completion is practicable
56
In accounting for a long-term constriction contract using the percentage of completion method, the amount of income recognized in any year would be added to
a. Deferred revenue
b. Progress billings on contracts
c. Construction in progress
d. Property, plant and equipment
c. Construction in progress
57
When it is probable that total contract costs on a fixed price contract will exceed total contract revenue, the expected loss should be
a. Set off against profit on other contracts
b. Recognized as expense immediately unless revenue to date exceeds costs to date
c. Apportioned to the years of the contract according o the stage of completion
d. Recognized as expense immediately
d. Recognized as expense immediately
58
In accounting for a long-term construction contract using the percentage of completion method, the progress billings on contracts account is a
a. Contra current asset account
b. Contra noncurrent asset account
c. Noncurrent liability account
d. Revenue account
a. Contra current asset account
59
Which of the following projects undertaken by an entity should be accounted for as a construction contract?
a. An item of plant and machinery being constructed to be sold as inventory
b. An office block being constructed as an investment property
c. A warehouse being constructed for the entity's own use
d. A large boat being constructed for a third party under a specifically negotiated contract
d. A large boat being constructed for a third party under a specifically negotiated contract
60
A construction entity signed a contract to build a theatre over a period of two years and with this contract also signed a maintenance contract for five years. Both contracts are negotiated as a single package and are closely related to each other. The two contracts should be
a. Combined and treated as a single contract
b. Segmented and considered two separate contracts
c. Recognized under the cost recovery method
d. Treated differently, the building contract under cost recovery method and the maintenance contract under the percentage of completion method.
a. Combined and treated as a single contract
61
All of the following could be valid reasons why the expected revenue from a fixed price construction contract should be increased from the original contract price, except:
a. The costs in contract have increased and the contract includes cost escalation clause.
b. The contractor has incurred additional costs due to errors made by the employees.
c. The contractor has agreed variations to the contract with the client.
d. The contractor would receive an incentive payment if work continues ahead of schedule and it is probable that specified performance standards are met or exceeded.
b. The contractor has incurred additional costs due to errors made by the employees.
62
The percentage of completion method must be used when certain conditions exist. Which of the following is not one of the conditions?
a. Estimates of progress toward completion can be estimated reliably.
b. Total contract revenue and contract costs can be measured reliably.
c. The client can be expected to satisfy some of the obligations under the contract.
d. It is probable that the economic benefits associated with the contract will flow to the entity.
c. The client can be expected to satisfy some of the obligations under the contract.
63
If an entity cannot estimate reliably the outcome of a construction contract, revenue should be recognized
a. Straight line over the period of the service contract.
b. By using the percentage of completion method based on costs incurred compared to total estimated costs.
c. By recording an equal amount of revenue for each service performed.
d. Only to the extent of the costs recoverable.
d. Only to the extent of the costs recoverable.
64
How should earned but unbilled revenue on a long-term construction contract be disclosed if the percentage of completion method is used?
a. As construction in progress under current assets
b. As construction in progress under noncurrent assets
c. As a receivable under noncurrent assets
d. In a note financial statements
a. As construction in progress under current assets
65
How should the balances of progress billings and construction in progress be reported prior to the completion of a long-term contract?
a. Progress billings as deferred revenue and construction in progress as a deferred expense.
b. Progress billings as revenue and construction in progress as inventory.
c. Net, as current asset if debit balance, and current liability if credit balance.
d. Net, as income from construction if credit balance, and loss from construction if debit balance.
c. Net, as current asset if debit balance, and current liability if credit balance.
66
A business combination may be structured in all of the following, except:
a. One or more businesses become subsidiaries of an acquirer
b. One entity transfers net assets to another entity
c. A group of former owners of one of the combining entities obtains control of the combined entity
d. An entity acquires assets that are not a business
d. An entity acquires assets that are not a business
67
What is the term for the business combination where all combining entities transfer their net assets to a newly formed entity?
a. True merger
b. Legal merger
c. Roll up transaction
d. Spin off
c. Roll up transaction
68
Which method must be applied to all business combination?
a. Pooling of interests
b. Equity method
c. Proportional consolidation
d. Acquisition method
d. Acquisition method
69
The acquisition method of accounting for a business combination requires all, except
a. Identifying the acquirer.
b. Determining the acquisition date.
c. Recognizing and measuring the identifiable assets acquired, the liabilities assumed and the noncontrolling interest in the acquiree at carrying amount.
d. Recognizing goodwill or gain from bargain purchase.
c. Recognizing and measuring the identifiable assets acquired, the liabilities assumed and the noncontrolling interest in the acquiree at carrying amount.
70
Which situation would require the use of the acquisition method in a business combination?
a. The acquisition of group of assets
b. The formation of a joint venture
c. The purchase of more than 50% of a business
d. All of these would require the use of the acquisition method
c. The purchase of more than 50% of a business
71
What is the initial measurement of the identifiable assets and liabilities assumed in a business combination?
a. Acquisition date fair value
b. Acquisition date carrying amount
c. Acquisition date present value of cash flows
d. Acquisition date historical cost
a. Acquisition date fair value
72
Which is not one of the steps in accounting for an acquisition?
a. Prepare proforma financial statements prior to acquisition.
b. Determine the acquisition date.
c. Identify the acquirer
d. Expense the costs and general expenses of the acquisition in the period of acquisition.
a. Prepare proforma financial statements prior to acquisition.
73
Which statement is incorrect concerning an acquirer?
a. In a business combination effected by transferring cash or other assets, the acquirer is usually the entity that transfers the cash or other assets.
b. In a business combination effected by issuing equity interest, the acquirer is usually the entity that issues the equity interest.
c. The acquirer is usually the combining entity whose relative size is significantly greater than that of the combining entity or entities.
d. If a new entity is formed to issue equity interests to effect a business combination, the new entity formed is necessarily the acquirer.
d. If a new entity is formed to issue equity interests to effect a business combination, the new entity formed is necessarily the acquirer.
74
Which is not considered in identifying the acquirer in a business combination?
a. The terms of the exchange of equity securities
b. The relative amount of intangible assets on the individual entity financial statements
c. The relative voting rights in the combined entity after the combination.
d. The composition of the governing body of the combined entity.
b. The relative amount of intangible assets on the individual entity financial statements
75
What date should be used as the acquisition date for a business combination?
a. The date when the acquirer signs the contract to purchase the business.
b. The date when the acquirer obtains control of the acquiree
c. The date when all contingencies related to the transaction are resolved.
d. The date when the acquirer purchased more than 20% of the shares of the acquire
b. The date when the acquirer obtains control of the acquiree
76
An acquirer might obtain control of an acquiree in all of the following, except:
a. By transferring cash, cash equivalents and other assets
b. By issuing equity interest
c. By contract alone, even without consideration
d. By acquiring interest in a joint venture
d. By acquiring interest in a joint venture
77
In a business combination, goodwill is measured as
a. The consideration transferred minus the identifiable net assets acquired.
b. The total of the consideration transferred plus the amount of any noncontrolling interest in the acquiree minus the identifiable net assets acquired.
c. The total of the consideration received plus the fair value of the previously held interest in the acquiree minus the identifiable net assets acquired.
d. The total of the consideration transferred, plus the amount of any noncontrolling interest in the acquiree plus the fair value of previously held interest in the acquiree minus the identifiable net assets acquired.
d. The total of the consideration transferred, plus the amount of any noncontrolling interest in the acquiree plus the fair value of previously held interest in the acquiree minus the identifiable net assets acquired.
78
When should an acquirer derecognize a contingent liability recognized as the result of an acquisition?
a. When it becomes more likely than not that the entity will not be liable.
b. When the contingency is resolved.
c. At the end of the year of acquisition.
d. When it is reasonably possible that the liability will not require payment.
b. When the contingency is resolved.
79
Which reason would not contribute to the creation of negative goodwill?
a. Errors in measuring the fair value of the acquiree's net identifiable assets or the cost of the business combination.
b. A bargain purchase.
c. A requirement in a IFRS to measure net assets acquired at a value other than fair value.
d. Making acquisitions at the top of a “bull” market for shares.
d. Making acquisitions at the top of a “bull” market for shares.
80
What is meant by "full goodwill" method?
a. The recognition of goodwill which relates to the parent company interest.
b. The recognition of goodwill which relates to the noncontrolling interest and the controlling interest
c. The recognition of goodwill which relates to the noncontrolling interest
d. A bargain purchase
b. The recognition of goodwill which relates to the noncontrolling interest and the controlling interest
81
An acquirer should at the acquisition date recognize goodwill acquired in a business combination as an asset. Goodwill should be accounted for as which of the following?
a. Recognize as an intangible asset and amortize over its useful life.
b. Write off against retained earnings.
c. Recognize as an intangible asset and test for impairment when trigger event occurs.
d. Recognize as an intangible asset and test for impairment annually or more frequently if impairment is indicated.
d. Recognize as an intangible asset and test for impairment annually or more frequently if impairment is indicated.
82
IFRS 3 requires that the contingent liabilities of the acquired entity should be recognized at fair value.
The existence of contingent liabilities is often reflected in a lower purchase price. Recognition of such contingent liabilities will
a. Decrease the value of goodwill thus decreasing the risk of impairment of goodwill.
b. Decrease the value of goodwill thus increasing the risk of impairment of goodwill
c. Increase the value of goodwill thus decreasing the risk of impairment of goodwill
d. Increase the value of goodwill thus increasing the risk of impairment of goodwill.
d. Increase the value of goodwill thus increasing the risk of impairment of goodwill.
83
Acquisition costs incurred and related to a business combination should be
a. Allocated on prorata basis to the nonmonetary assets acquired.
b. Capitalized as part of goodwill and tested annually for impairment.
c. Capitalized as other asset and amortized over five years.
d. Expensed as incurred in the current period.
d. Expensed as incurred in the current period.
84
When an acquirer had 30% equity interest in an acquiree and subsequently purchased another 25% equity interest in order to gain control, the transaction is known as
a. Business combination of entities under common control
b. Business combination achieved in stages
c. Business combination by installment
d. Step by step acquisition
b. Business combination achieved in stages
85
Which statement is true in relation to business combination achieved in stages?
a. The pre-existing equity interest shall be remeasured at fair value with any resulting gain or loss included in profit or loss.
b. The pre-existing equity interest shall be remeasured at fair value with any resulting gain or loss included in other comprehensive income.
c. The pre-existing interest shall not be remeasured.
d. The pre-existing interest shall be remeasured at fair value with any resulting gain or loss recognized in retained earnings.
a. The pre-existing equity interest shall be remeasured at fair value with any resulting gain or loss included in profit or loss.
86
In a business combination accounted for as an acquisition, the fair value of the net identifiable assets acquired exceeded the acquisition cost. How should the excess fair value be reported?
a. Negative goodwill
b. Share premium
c. Reduction of the values assigned to certain assets and gain for any unallocated portion
d. Gain from bargain purchase recognized in profit or loss
d. Gain from bargain purchase recognized in profit or loss
87
How should an entity account for the incomplete information in preparing the financial statements immediately after the acquisition?
a. Do not record the uncertain items until complete information is available.
b. Record a contra account to the investment account for the amounts involved.
c. Record the uncertain items at the carrying amount of the acquiree.
d. Record the uncertain items at a provisional amount measured at the date of acquisition.
d. Record the uncertain items at a provisional amount measured at the date of acquisition.
88
What is the period after the acquisition date during which the acquirer may adjust the provisional amounts recognized for a business combination?
a. Retroactive period
b. Prospective period
c. Retrospective period
d. Measurement period
d. Measurement period
89
When does the measurement period end for a business combination in which there was incomplete accounting information on the date of acquisition?
a. When the acquirer receives the information or one year from the acquisition date, whichever occurs earlier.
b. On the final date when all contingencies are resolved.
c. Thirty days from the date of acquisition.
d. At the end of the reporting period in the year of acquisition.
a. When the acquirer receives the information or one year from the acquisition date, whichever occurs earlier.
90
What is the proper treatment of measurement period adjustment?
a. Adjusted to profit or loss
b. Adjusted to other comprehensive income
c. Retroactively adjusted to goodwill or gain on bargain purchase
d. Retroactively adjusted to retained earnings
c. Retroactively adjusted to goodwill or gain on bargain purchase
91
These are the financial statements of a group in which the assets, liabilities, equity, income expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity.
a. Consolidated financial statements
b. General purpose financial statements
c. Separate financial statements
d. Group financial statements
a. Consolidated financial statements
92
Consolidated financial statements are typically prepared when one entity has a controlling financial interest in another unless
a. The subsidiary is a finance entity.
b. The fiscal year-ends of two entities are more than three months apart.
c. Such control is likely to be temporary.
d. The two entities are in unrelated industries, such as manufacturing and real estate.
c. Such control is likely to be temporary.
93
Consolidated financial statements are typically prepared when one entity has a controlling financial interest in another unless
a. The subsidiary is a finance entity.
b. The fiscal year-ends of the two entities are more than three months apart.
c. The investee is in bankruptcy.
d. The two entities are in unrelated industries such as manufacturing and real estate.
c. The investee is in bankruptcy.
94
This is defined as the financial statements presented by a parent in which the investments are accounted for on the basis of the direct equity interest.
a. Single financial statements
b. Combined financial statements
c. Separate financial statements
d. Consolidated financial statements
c. Separate financial statements
95
A“group” for consolidation purposes is
a. A parent and all of its subsidiaries.
b. An entity that has one or more subsidiaries
c. An entity, including an unincorporated entity such as partnership that is controlled by another entity.
d. An entity that obtains control over other entities or businesses.
a. A parent and all of its subsidiaries.
96
It is the entity that controls one or more entities.
a. Investor
b. Parent
c. Associate
d. Affiliate
b. Parent
97
It is an entity that is controlled by another entity.
a. Subsidiary
b. Associate
c. Investee
d. Affiliate
a. Subsidiary
98
Which of the following is not a valid condition that will exempt an entity from preparing consolidated financial statements?
a. The parent entity is a wholly owned subsidiary of another entity or partially owned and the other owners do not object to the non-consolidation.
b. The parent entity's debt or equity capital is not traded on the stock exchange.
c. The ultimate parent entity produces consolidated financial statements available for public use that comply with IFRS.
d. The parent entity is in the process of filing financial statements with a securities commission for the purpose of issuing any class of instruments in a public market.
d. The parent entity is in the process of filing financial statements with a securities commission for the purpose of issuing any class of instruments in a public market.
99
A parent is exempted from preparing consolidated financial statements if all of the following conditions exist, except:
a. The parent is wholly or partially owned and the owners do not object to the non-consolidation.
b. The parent does not have any debt or equity instruments publicly traded.
c. The parent reports one class of share capital in the statement of financial position.
d. The ultimate parent prepares consolidated financial statements that comply with IFRS.
c. The parent reports one class of share capital in the statement of financial position.
100
A subsidiary shall be excluded from consolidation when
a. The investor is a venture capital organization, mutual fund, unit trust or similar entity.
b. The business activities of the subsidiary are dissimilar from those of the other entities within the group.
c. The subsidiary is acquired with the intention to dispose of it within twelve months from date of acquisition.
d. The subsidiary is operating under severe long-term restrictions that significantly impair its ability to transfer funds to the parent.
c. The subsidiary is acquired with the intention to dispose of it within twelve months from date of acquisition.
101
Which condition is required to exclude a subsidiary from consolidation?
a. The other owners object to the non-consolidation.
b. The parent makes an election not to consolidate.
c. The other owners do not object to the non-consolidation and the subsidiary does not have any publicly traded debt or equity instruments.
d. The parent must own 100% of the subsidiary.
c. The other owners do not object to the non-consolidation and the subsidiary does not have any publicly traded debt or equity instruments.
102
A parent entity controls 100% of an overseas subsidiary. Because of exchange controls, it is difficult to transfer funds out of the country to the parent entity. How should the subsidiary be accounted for?
a. The subsidiary should be excluded from consolidation and the equity method should be used.
b. The subsidiary should be excluded from consolidation and measured at cost.
c. The subsidiary should be excluded from consolidation and accounted for as financial asset.
d. The subsidiary is not permitted to be excluded from consolidation because control is not lost.
d. The subsidiary is not permitted to be excluded from consolidation because control is not lost.
103
An entity acquired an investment in a subsidiary with the view to dispose of the investment within six months. The investment in the subsidiary has been classified as held for sale. How should the investment in the subsidiary be treated in the financial statements?
a. Acquisition accounting should be used.
b. Equity accounting should be used.
c. The subsidiary should not be consolidated but IFRS 5 should be used.
d. The subsidiary should be derecognized.
c. The subsidiary should not be consolidated but IFRS 5 should be used.
104
A manufacturing group has just acquired a controlling interest in a football club that is listed on a stock exchange. The management of the manufacturing group wishes to exclude the football club from the consolidated financial statements on the ground that the activities are dissimilar. How should the football club be accounted for?
a. The entity should be consolidated as there is no exemption from consolidated on the ground of dissimilar activities.
b. The entity should not be consolidated using the acquisition method but should be consolidated using equity method.
c. The entity should not be consolidated and should appear as an investment in the group accounts.
d. The entity should not be consolidated and details should be disclosed in the financial statements.
a. The entity should be consolidated as there is no exemption from consolidated on the ground of dissimilar activities.
105
Control is presumed to exist when the parent owns directly or indirectly through subsidiaries
a. More than half of the equity of an entity.
b. More than half of the ordinary shares of an entity.
c. More than half of the preference and ordinary shares of an entity.
d. More than half of the voting power of an entity.
d. More than half of the voting power of an entity.
106
Control exists even the parent owns half or less of the voting power of an entity under which of the following circumstances?
a. Power over more than half of the voting rights by virtue of a contractual agreement with other entities
b. Power to govern the financial and operating policies of the entity under a statute
c. Power to appoint or remove the members of the board of an entity or the power to cast the majority of votes at meetings of the board of directors
d. Under all of these circumstances
d. Under all of these circumstances
107
How does IFRS 10 define control?
a. An investor controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
b. An investor controls an investee when it has the power govern the financial and operating decisions of the investee.
c. An investor controls an investee when it owns more than 50% of the ordinary shares of the investee.
d. An investor controls an investee when it has the power to participate inthe financial and operating decisions of the investee.
a. An investor controls an investee wen the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
108
Noncontrolling interest shall be presented
a. Separately from liabilities and the parent shareholders' equity.
b. Within equity, separately from the parent shareholders' equity
c. As noncurrent liability
d. As component of the parent shareholders ‘equity
b. Within equity, separately from the parent shareholders' equity
109
The noncontrolling interest should be recorded at what amount?
a. The fair value of the shares held by the acquirer
b. The fair value of the shares not held by the acquirer or the proportionate share of the fair value of net identifiable assets of the acquiree
c. The proportionate share of the carrying amount of net identifiable assets of the acquiree
d. The fair value of the shares held by the noncontrolling interest plus goodwill
b. The fair value of the shares not held by the acquirer or the proportionate share of the fair value of net identifiable assets of the acquiree
110
What is the initial measurement of the retained investment in subsidiary when control is lost?
a. Fair value at the date when control is lost
b. Fair value at the beginning of the reporting period
c. Carrying amount at the date when control is lost
d. Carrying amount at the beginning of the reporting period
a. Fair value at the date when control is lost
111
The subsidiary fiscal year-end is June 30 and the parent fiscal year-end is December 31.What is required in preparing the consolidated financial statements?
a. The subsidiary should be consolidated using more recent interim financial statements
b. The subsidiary should not be consolidated but disclosed only.
c. The subsidiary should be consolidated using the June 30 financial statements
d. The subsidiary should not be consolidated by accounted for using equity method.
a. The subsidiary should be consolidated using more recent interim financial statements
112
Penn Company, a manufacturing entity owns 75% of Sell Company. Sell Company, an investment entity, owns 60% of Vane Company, an insurance entity. In Penn Company's consolidated financial statements, how should the investments in Sell Company and Vane Company be accounted for?
a. Consolidated for Sell and equity method for Vane
b. Consolidated for both Sell and Vane
c. Equity method for Sell and consolidated for Vane
d. Equity method for both Sell and Vane
b. Consolidated for both Sell and Vane
113
Parent Company owns 80% of Subsidiary Company. During the current year, Parent sold goods with a 40% gross profit to Subsidiary. Subsidiary sold all of these goods in the current statement items be adjusted?
a. Sales and cost of goods sold should be reduced by the intercompany sales.
b. Sales and cost of goods sold should be reduced by 80% of the intercompany sales.
c. Net income should be reduced by 80% of the gross profit of intercompany sales.
d. No adjustment is necessary.
a. Sales and cost of goods sold should be reduced by the intercompany sales.
114
Walter Company owns 80% of the outstanding ordinary shares of Fire Company. At the end carrying amount, but less than the original cost. In the consolidated statement of financial position at the current year-end, the carrying amount of the equipment should be reported at
a. Walter's original cost
b. Fire's original cost
c. Walter's original cost less Fire's recorded gain
d. Walter's original cost less 80% of Fire's recorded gain
c. Walter's original cost less Fire's recorded gain
115
Fortune Company owns 100% of Salem Company. At the beginning of current year, Fortune sold Salem delivery equipment at a gain. Fortune had owned the equipment for two years and used a five-year straight line depreciation rate with no residual value. Salem is using a three-year straight line depreciation rate with no residual value for the equipment. In the consolidated income statement, Salem's recorded depreciation expense on the equipment for the current year should be decreased by
a. 20% of the gain on sale
b. 33 1/3% of the gain on sale
c. 50% of the gain on sale
d. 100% of the gain on sale
b. 33 1/3% of the gain on sale
116
Under IFRS 11, when the joint arrangement is not structured through a separate vehicle, it shall be properly classified as
a. Always joint venture
b. Always joint operation
c. Joint venture or joint operation depending on the terms of the arrangement
d. Joint venture or joint operation depending on the substance of the arrangement
b. Always joint operation
117
IFRS 11 defines it as a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement.
a. Joint venture
b. Joint operation
c. Jointly controlled entity
d. Jointly controlled asset
b. Joint operation
118
Under IFRS 11, the venturer in a joint venture shall account for its investment in joint venture using
a. Equity method
b. Fair value model
c. Cost method
d. Any of the above
a. Equity method
119
Under IFRS for SMEs, an SME-venturer in a joint venture shall account for its investment in joint venture using
a. Equity method
b. Fair value model
c. Cost method
d. Any of the above
d. Any of the above
120
Under IFRS 11, when the joint arrangement is structured through a separate vehicle, it shall be properly classified as
a. Always joint venture
b. Always joint operation
c. Joint venture or joint operation depending on the accounting policy of the venture.
d. Joint venture or joint operation depending the structure and form of the arrangement, the terms agreed by the parties in the contractual arrangement and other facts and circumstances.
d. Joint venture or joint operation depending the structure and form of the arrangement, the terms agreed by the parties in the contractual arrangement and other facts and circumstances.
121
Under IFRS 11, how shall the cash or property dividend received by a joint venturer from its venture be accounted for?
a. It shall be treated as dividend income presented in profit or loss.
b. It shall be treated as dividend income presented in other comprehensive income.
c. It shall be treated as addition to investment in joint venture account.
d. It shall be treated as deduction from investment in joint venture account.
d. It shall be treated as deduction from investment in joint venture account.
122
Under IFRS for SMEs, in which model shall cash or property dividend received by an SME-joint venturer from its venture be considered as dividend income?
a. Fair value model and cost method only
b. Fair value model only
c. Cost method only
d. Fair value model, cost method and equity method
a. Fair value model and cost method only
123
IFRS 11 defines it as the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
a. Control
b. Significant influence
c. Joint control
d. Joint influence
c. Joint control
124
When an investment is held by a venture capital organization, mutual trust fund, unit trust and insurance-linked fund
a. The entity must apply the equity method of accounting
b. The entity must apply the fair value method of accounting
c. The entity may elect to measure the investment in joint venture at fair value through profit or loss
d. The entity may elect to measure the investment in joint venture at fair value through other comprehensive income
c. The entity may elect to measure the investment in joint venture at fair value through profit or loss
125
Two entities established a business. The contractual arrangement provided that the relevant activities of the business will require unanimous consent of two parties. The business is not incorporated before SEC. The two parties equally own interest in the said business. How should the two parties account for their investment?
a. Equity method
b. Joint operation
c. Joint venture
d. Business combination
b. Joint operation
126
Two entities established a joint arrangement in an incorporated entity. The assets and liabilities of the entity will be in the name of the incorporated entity. The activities of the arrangement will be decided by its own board of directors. The rights of the two parties are limited only to the net assets of incorporated entity. How should the two parties account for their investment?
a. Financial asset at amortized cost
b. Joint venture
c. Joint operation
d. Investment in equity securities
b. Joint venture
127
Two entities structured a joint arrangement in an incorporated entity. The two entities each have a 50% ownership interest. The purpose of the arrangement is for the incorporated entity to manufacture parts for the two parties. The arrangement ensures that the two parties operate the facility that produces the parts of their specifications. The parties agreed to purchase all the output produced by the two parties in the ratio of their ownership percentage. The incorporated entity may not sell its output to third parties unless it is approved by the two parties. The arrangement is intended to operate at a break-even level because the selling price is set by both parties and designed to cover the costs of production and administrative expenses incurred by the incorporated entity. How should the two parties account for their investment?
a. Financial asset at fair value through other comprehensive income
b. Joint venture
c. Joint operation
d. Financial asset at fair value through profit or loss
c. Joint operation
128
In the absence of agreement as to distribution of loss, how shall the partnership loss be distributed to the partners?
a. The loss shall be distributed equally to all partners including the industrial partner.
b. The industrial partner shall be exempted from partnership loss while the capitalist shall share equally.
c. The industrial partner shall be exempted from partnership loss while the capitalist partners shall be distributed on the basis of capital contribution ratio.
d. The industrial partner shall be exempted from partnership loss while the capitalist partners shall be distributed in accordance with the profit agreement ratio.
d. The industrial partner shall be exempted from partnership loss while the capitalist partners shall be distributed in accordance with the profit agreement ratio.
129
In case of admission of a new partner by investment in the partnership, which of the following statements is correct?
a. If there is bonus but without asset revaluation, the total contributed capital of all partners will be lower than the new agreed capitalization.
b. If there is positive asset revaluation without bonus, the total contributed capital of all partners will be higher than the new agreed capitalization.
c. If there is negative asset revaluation (asset impairment) but without bonus, the contributed capital of the new partner will be equal to his agreed capitalization in the new partnership.
d. If there is positive asset revaluation or asset impairment, the difference between the total contributed capital of all partners and the new agreed capitalization shall be distributed to all partners including new partner using the new profit or loss ratio agreement.
c. If there is negative asset revaluation (asset impairment) but without bonus, the contributed capital of the new partner will be equal to his agreed capitalization in the new partnership.
130
If a retiring-partner receives less than his adjusted capital balance before retirement, what is the logical reason if the capital balances of the remaining partners increase after the said retirement?
a. Bonus is given by remaining partners to retiring partner
b. Bonus is given by retiring partner to remaining partners
c. Goodwill arising from retirement of a partner is recognized.
d. Revaluation of an existing asset is recognized at the time of retirement.
b. Bonus is given by retiring partner to remaining partners
131
In the liquidation of general partnership, which of the following credits shall be paid first?
a. Those owing to third persons.
b. Those owing to partners other than capital and profits.
c. Those owing to partners for their capital contribution.
d. Those owing to partners for their share in profits.
a. Those owing to third persons.
132
In a corporate liquidation, which of the following types of creditors will always receive full settlement of their claims?
A. Unsecured creditors with priority
B. Unsecured creditors without priority
C. Partially secured creditors
D. Fully secured creditors
D. Fully secured creditors
133
Equipment with a book value of ₱120,000 is sold in a liquidation process for cash of ₱110,000. This equipment was security for a ₱150,000 bank loan. Any remainder is considered unsecured. This transaction will be reported on the Statement of Realization and Liquidation (choose the incorrect statement)?
a. A reduction in non-cash assets of ₱120,000
b. A loss reported to owner’s equity of ₱10,000
c. A disbursement of cash to the bank of ₱110,000, a reduction in partially secured liability of ₱150,000, and an increase in unsecured without priority liability of ₱40,000
d. A disbursement of cash to the bank of ₱110,000, and an increase in unsecured with priority liability of ₱40,000
d. A disbursement of cash to the bank of ₱110,000, and an increase in unsecured with priority liability of ₱40,000
134
On a statement of financial affairs prepared for purposes of corporate liquidation, how are liabilities classified?
a. Historic and futuristic
b. Current and noncurrent
c. Secured and unsecured
d. Monetary and nonmonetary
c. Secured and unsecured
135
Evaluate the following statements:
I. PFRS 15 does not explicitly mention the use of the account ‘construction in progress’ for construction companies.
II. A perpetual or lifetime license of Microsoft Office 2021 which is granted by the licensor to the licensee is ordinarily classified by the licensor as right to use and recognized when the license was granted.
III. Step 3 of the 5-step model framework is to identify the performance obligation.
IV. Applying PFRS 15, revenue can be recognized over time using straight-line method.
V. Significant financing component is included in the transaction price and recognized as revenue either over time or point in time.
a. One statement is incorrect.
b. One statement is correct.
c. Two statements are correct.
d. Three statements are correct.
d. Three statements are correct.
136
Determined Company sold a machine to the Committed Company for ₱200,000. The Committed Company will pay ₱100,000 upon delivery and ₱100,000 after 1 year. The discount rate is 5% and the discount factor for 1 year is 0.952. How shall Determined Company recognize the transaction?
a. Debit Cash: ₱200,000, Credit Revenues: ₱200,000
b. Debit Cash: ₱100,000 and Debit Receivables: ₱100,000, Credit Revenues: ₱200,000
c. Debit Cash: ₱100,000 and Debit Receivables: ₱95,200, Credit Revenues: ₱195,200; the difference of ₱4,800 is recognized as interest income
d. Debit Cash: ₱100,000 and Debit Receivables: ₱105,000, Credit Revenues: ₱205,000; the difference of ₱5,000 is recognized as interest expense
c. Debit Cash: ₱100,000 and Debit Receivables: ₱95,200, Credit Revenues: ₱195,200; the difference of ₱4,800 is recognized as interest income
137
On March 1, 20x1, Never Give Up Corp. contracted to build two buildings by Tuloy Lang for a total contract price of ₱20 million. The contract specifies that payment will only occur after both buildings have completed and transferred to Tuloy Lang. The standalone selling price of building no. 1 is ₱8 million and the stand-alone selling price of building no. 2 is ₱12 million. On December 1, 20x1, building no. 1 was completed and transferred, the journal entry to record this transaction include a:
a. Debit to Accounts Receivable, ₱8 million
b. Debit Contract Asset, ₱8 million
c. Debit Contract Asset, ₱12 million
d. Debit Accounts Receivable, ₱12 million
b. Debit Contract Asset, ₱8 million
138
Mahirap Co. sells a machine to Pero Kakayanin Co. for ₱100,000 (cost of machine is ₱95,000). The company can return the machine to Mahirap Co. within 90 days and in such a case, Mahirap Co. will refund ₱98,000 to Pero Kakayanin Co. What journal entries does Mahirap Co. need to make initially?
a. Debit Cash: ₱100,000, Credit Revenues: ₱2,000 and Credit Refund liability: ₱98,000; Debit Cost of sales: ₱95,000, Credit Inventories: ₱95,000
b. Debit Cash: ₱100,000, Credit Revenue from sales: ₱100,000; Debit Cost of sales: ₱95,000, Credit Inventories: ₱95,000
c. Debit Cash: ₱100,000, Credit Refund liability: ₱100,000; Debit Asset – the right to recover the machine: ₱95,000, Credit Inventories: ₱95,000
d. Debit Cash: ₱100,000, Credit Revenues: ₱2,000 and Credit Refund liability:₱98,000; Debit Asset – the right to recover the machine: ₱95,000, Credit Inventories: ₱95,000
d. Debit Cash: ₱100,000, Credit Revenues: ₱2,000 and Credit Refund liability:₱98,000; Debit Asset – the right to recover the machine: ₱95,000, Credit Inventories: ₱95,000
139
Which of the following factors would indicate that an entity's promise to transfer a good or service to a customer is separately identifiable?
a. The good or service does not depend on another promised good or service.
b. The good or service significantly modifies another good or service promised in the contract.
c. The good or service is highly interrelated with other promised goods or services.
d. The good or service is being used as an input to produce the combined output specified by the customer.
a. The good or service does not depend on another promised good or service.
140
Which of the following is not a suitable selling price of a good or service?
a. Adjusted market assessment approach
b. Expected cost plus a margin approach
c. Residual approach
d. Economic value-added approach
d. Economic value-added approach
141
Contract liability is a company’s obligation to transfer goods customer for which the company has received consideration from example of a contract liability is
a. Prepaid subscription
b. Mortgage payable
c. Unearned magazine subscription
d. Service revenue
a. Prepaid subscription
142
What is the classification of the joint arrangement when the arrangement is structured through a separate vehicle in which the separate vehicle has rights to its assets and obligations for its liabilities?
a. It shall be classified as joint venture.
b. It shall be classified as joint operation.
c. Neither joint venture nor joint operation.
d. It can be either a joint operation or joint venture depending on the company policy of the parties to the joint arrangement.
a. It shall be classified as joint venture.
143
Evaluate the following statements:
I. Branch loading is ordinarily presented in the books of the home office as a contra-asset to the inventory account.
II. Credit memo is always added when reconciling the balance of the ‘Home Office’ and ‘Branch Current’.
III. The ‘branch loading’ is always debited in recording the realized branch loading or overvaluation in branch’s inventory.
IV. In preparing the combined financial statements of the home office and its various branches, reciprocal accounts are eliminated but nonreciprocal accounts are combined.
a. One statement is incorrect.
b. One statement is correct.
c. All statements are correct.
d. Two statements are incorrect.
d. Two statements are incorrect.
144
The "Branch Current" ledger account in the accounting records of the home office is best compared to:
a. An equity account.
b. A PPE account.
c. An investment account.
d. A prepayment.
c. An investment account.
145
This type of acquisition occurs when, for example, a private entity decides to have itself “acquired” by a smaller public entity in order to obtain a stock exchange listing.
a. Step acquisition
b. Rewind acquisition
c. Reverse acquisition
d. Stock acquisition
c. Reverse acquisition
146
Which of the following items are exempted to the measurement principles of PFRS 3?
I. Asset held for sale IV. Indemnification assets
II. Employee benefits V. Share-based payment
III. Income taxes
a. I, II, III, IV and V
b. I, II and III only
c. I, IV and IV only
d. I and V only
d. I and V only
147
Evaluate the following statements:
I. The pooling of interest method should be used in a combination of entities under common control.
II. In a business combination classified as acquisition of net assets, a combined FS is prepared at the date of acquisition only.
III. Usually, the acquirer is the entity that becomes the parent of the other combining party or parties, but not always.
IV. Changes in the fair value of a cash contingent consideration that is related to additional information that the acquirer obtained after that date about facts and circumstances that existed at the acquisition date (i.e., measurement period adjustment) shall be adjusted to goodwill or gain on bargain purchase.
V. If the acquirer and acquiree is both subject to income tax, undervaluation of the asset of the acquiree at the date of acquisition will result into deferred tax liability (DTL).
a. One statement is incorrect.
b. Two statement is correct.
c. All statements are correct.
d. Two statements are incorrect
c. All statements are correct.
148
An investor must apply the requirements of PAS 36 in determining whether it is necessary to recognize any impairment loss in the investment in a subsidiary. How is the impairment test carried out?
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 under PAS 36 by comparing its recoverable amount with its carrying amount.
c. The carrying value of the investment should be compared with its market value.
d. The recoverable amounts of all investments in subsidiary should be assessed together to determine whether there has been an impairment on all investments.
b. The entire carrying amount of the investment is tested for impairment under PAS 36 by comparing its recoverable amount with its carrying amount.
149
Upon formation of a partnership, an industrial partner will be given balance:
a. that is the average of the capital balances of the other partners
b. amounting to the fair value of their services to be rendered
c. amounting to their asset contribution
d. of zero
d. of zero
149
Which of the following terms best describes the financial statements of a parent in which the investments are accounted for on the basis of the direct equity interest?
a. Single financial statements
b. Combined financial statements
c. Separate financial statements
d. Consolidated financial statements
c. Separate financial statements
150
All of the following may be contributed by a partner to a partnership, except:
a. Money
b. Property
c. Industry
d. Moral support
d. Moral support
151
Statement 1: Accounting for assets and liabilities of a partnership is no different than that of a corporation.
Statement 2: Accounting for assets and liabilities of a partnership is no different than that of a sole proprietorship.
a. Both statements are true
b. Neither statements are true
c. Only statement 1 is true
d. Only statement 2 is true
a. Both statements are true
152
All of the following choices are related to each other. Select the exception:
a. Net free assets
b. Estimated deficiency
c. Liabilities to be liquidated
d. Unsecured liabilities with priority
c. Liabilities to be liquidated
153
Arrangement 1: The contractual arrangement establishes the allocation of revenues and expenses on the basis of the relative performance of each party to the joint arrangement. Arrangement 2: The contractual arrangement establishes each part’s share in the profit or loss relating to the activities of the arrangement.
a. Arrangement 1 best reflects a joint operation; Arrangement 2 best reflects a joint venture
b. Arrangement 1 best reflects a joint venture; Arrangement 2 best reflects a joint operation
c. Both arrangements best reflect a joint operation
d. Both arrangements best reflect a joint venture
c. Both arrangements best reflect a joint operation
154
REO offers its industry-leading Triple Review Program to aspiring CPAs. The review includes its main attraction pre-recorded videos, the traditional F2F review, and its innovative quickvids targeted for recall purposes, all for a transaction price of only P20,000. An enrollee was interested in enrolling only in the quickvids, but was forced to enroll in all three as it is the policy of REO to offer the three as a bundle. In accordance with IFRS 15, how many performance obligations are in the contract, if any?
a. Zero
b. One
c. Three
d. Depends on the enrollee
b. One
155
A contract provides that the entity must deliver product L and product D to the customer for a total price of P3,900. Payment is due when both products are delivered. By the end of the year, only product L has been delivered by the entity. The entry of the entity will include:
a. A debit to accounts receivable
b. A credit to contract liability
c. A debit to contract asset
d. All of the above
c. A debit to contract asset
156
All of the following are viable methods of estimating the stand-alone selling price of a performance obligation, except:
a. Residual approach last resort
b. Net realizable value approach
c. Expected cost plus a margin approach
d. Adjustment market assessment approach
b. Net realizable value approach
157
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