Special topics – Assets

Government Grants

1. Defined by PAS 20 as actions by government designed to provide an economic benefit specific to an

entity or range of entities qualifying under certain criteria.
A. Government grants C. Government subsidy
B. Government assistance D. Government subventions
2. Defined by PAS 20 as assistance by government in the form of transfers of resources to an entity in
return for past or future compliance with certain conditions relating to the operating activities of the
entity.
A. Government grants C. Government subsidy
B. Government assistance D. Government subventions
3. Government grants whose primary condition is that an entity qualifying for them should purchase,
construct or otherwise acquire long-term assets.
A. Government grants C. Grants related to income
B. Government assistance D. Grants related to assets
4. Government grant shall be recognized when there is reasonable assurance that
A. The entity will comply with the conditions attaching to the grant and that the grant was
constructively received.
B. The entity will comply with the conditions attaching to the grant and that the grant will be received.
C. The entity will comply with the conditions attaching to the grant.
D. The grant was constructively received.
5. Government grant is recognized as income over the period necessary to match them with the related
costs, for which they are intended to compensate, on a systematic basis. Government grants may be
recognized as follows, except
A. The grants in recognition of specific expenses are recognized in profit or loss in the same period as
the relevant expenses.
B. A grant receivable as compensation for costs already incurred or for immediate financial support,
with no future related costs, should be recognized as prior period adjustment in the retained
earnings.
C. Grants related to non-depreciable assets may also require the fulfilment of certain obligations and
would then be recognized in profit or loss over the periods that bear the cost of meeting the
obligations.
D. Grants related to depreciable assets are usually recognized in profit or loss over the periods and in
the proportions in which depreciation expense on those assets is recognized.
6. Grant related to asset may be classified in the financial statement as follows, except
A. Setting the grant as deferred income
B. Deducting the grant in arriving at the carrying amount of the asset.
C. Deducting the grant from the related expense.
D. None of the foregoing.
7. Repayment of grant related to income shall be
A. Expensed immediately in the period the grant becomes repayable.
B. Treated as increasing the carrying amount of the asset.
C. Applied first against any related unamortized deferred income and any excess shall be recognized as
an expense.
D. Any of the foregoing.
8. Government assistance does not include
A. Free technical or marketing advice
B. Provision of infrastructure by improvement to the general transport and communication network
C. Provision of guarantees
 D. Government procurement policy that is responsible for a portion of the entity’s sales
9. Disclosure requirements for government grants do not include
A. The name of the government agency that gave the grant and the date when the grant was received.
B. Unfulfilled conditions and contingencies attached to the recognized grant.
C. Accounting policy adopted for grants, including method of balance sheet presentation.
D. Nature and extent of grants recognized in the financial statements.
10. If a government grant is conditional on certain events, then the grant should be recognized as
A. Income when the conditions attaching to the grant are met.
B. Income when the grant has been approved.
C. A deferred credit when the conditions attached to the government grant are met.
D. A deferred credit when the grant is approved.

Borrowing Cost
1. Defined by PAS 23 as Interest and other costs that an entity incurs in connection with the borrowing of
funds.
A. Finance costs B. Borrowing cost C. Interest cost D. Costs of debt
2. Defined by PAS 23 as an asset that necessarily takes a substantial period of time to get ready for its
intended use or sale.
A. Capital asset B. Long-term asset C. Qualifying asset D. Capital expenditure
3. For purposes of capitalization of borrowing costs, which of the following is least likely to be considered as
qualifying asset?
A. Biological asset B. Intangible asset C. Manufacturing plant D. Power generation facility
4. PAS 23 does not require capitalization of borrowing cost relating to the following assets, except
A. Assets measured at fair value
B. Inventories manufactured in large quantities on repetitive basis even if they take substantial period
of time to get ready for sale.
C. Noncurrent assets that are ready for their intended use or sale when acquired.
D. Real properties classified as investment properties
5. Under PAS 23, borrowing costs incurred in acquiring, producing or constructing a qualifying asset are
A. Expensed in the period incurred.
B. Capitalized as part of the cost of the qualifying asset.
C. Expensed as benchmark treatment; capitalized as allowed alternative treatment.
D. Capitalized as benchmark treatment; expensed as allowed alternative treatment.
6. Investment income from the temporary investment of borrowing attributable to the acquisition,
construction or production of a qualifying asset is
A. Deducted from the borrowing cost related to both specific and general borrowing.
B. Deducted from the borrowing cost related to specific borrowing.
C. Deducted from the borrowing cost related to general borrowing.
D. Recognized as investment income for both specific and general borrowing.
7. If a qualifying asset is financed by general borrowing, the borrowing cost capitalized is equal to
A. Actual borrowing costs incurred during the construction period.
B. Total expenditure on the qualifying asset multiplied by a capitalization rate.
C. Average expenditures on the qualifying asset multiplied by a capitalization rate or actual borrowing
costs, whichever is higher.
D. Average expenditures on the qualifying asset multiplied by a capitalization rate or actual borrowing
costs, whichever is lower.
8. Which of the following is not part of the disclosure requirement under PAS 23?
A. Borrowing cost capitalized during the period.
B. Capitalization rate used to determine the borrowing cost to be capitalized.
 C. Amount of specific and general borrowings used to finance the acquisition, construction or produc-
tion of a qualifying asset.
D. None of the foregoing.
9. During year 4, Bay Co. constructed machinery for its own use and for sale to customers. Bank loans
financed these assets both during construction and after construction was complete. How much of the
interest incurred should be reported as interest expense in the year 4 income statement? (1) Interest
incurred for machinery for own use (2) Interest incurred for machinery held for sale
A. All interest incurred and All interest incurred
B. All interest incurred and Interest incurred after completion
C. Interest incurred after completion and Interest incurred after completion
D. Interest incurred after completion and All interest incurred
10. Which of the following is not a disclosure requirement under PAS 23?
A. Accounting policy adopted for borrowing costs.
B. Amount of borrowing costs capitalized during the period.
C. Segregation of assets that are “qualifying assets” from other assets on the balance sheet or as a
disclosure in the footnotes to the financial statements.
D. Capitalization rate used to determine the amount of borrowing costs eligible for capitalization.

Impairment
1. Defined by PAS 36 as the smallest identifiable group of assets that generates cash inflows that are largely
independent of the cash inflows from other assets or groups of assets.
A. Corporate assets C. Corporate cash units
B. Cash generating units D. Cash assets
2. Defined by PAS 36 the cost of an asset, or other amount substituted for cost in the financial statements,
less its residual value.
A. Value in use C. Depreciable amount
B. Carrying amount D. Recoverable amount
3. Defined by PAS 36 as the amount by which the carrying amount of an asset or a cash-generating unit
exceeds its recoverable amount.
A. Impairment loss C. Depreciation
B. Revaluation loss D. Amortization
4. Defined by PAS 36 as the present value of the future cash flows expected to be derived from an asset or
cash-generating unit.
A. Value in use C. Discounted value
B. Residual value D. Expected value
5. Recoverable amount is the
A. Fair valueless cost of disposal C. Lower amount between A and B
B. Value in use D. Higher amount between A and B
6. Which statement is incorrect regarding value in use?
A. Estimates of future cash flows should not include cash inflows or outflows from financing activities,
or income tax receipts or payments.
B. Accounting standard for impairment presumes that budgets and forecasts use for cash flow
projections should not go beyond five years.
C. The discount rate used should be the rate after tax which reflects the current market assessments of
the time value of money and the risks specific of the asset.
D. If a market-determined asset-specific rate is not available, the entity’s own weighted average cost of
capital may be used.
7. Accordingly, if a long-lived asset is determined to be impaired, how is the loss calculated?
A. Future discounted cash flows less asset’s carrying (book) value.
 B. Future undiscounted cash flows less asset’s carrying (book) value.
C. Fair value less asset’s carrying (book) value.
D. Recoverable amount less asset’s carrying (book) value
8. When impairment testing a cash-generating unit, any corporate assets, such as the head office business
or computer equipment, should
A. Be allocated on a reasonable and consistent basis.
B. Be separately impairment tested.
C. Be included in the head office assets or parent’s assets and impairment tested along with that cash-
generating unit.
D. Not be allocated to cash-generating units.
9. When allocating an impairment loss, such a loss should reduce the carrying amount of which asset first?
A. Property, plant, and equipment. C. Goodwill.
B. Intangible assets. D. Current assets.
10. Which of the following impairment losses should never be reversed?
A. Loss on property, plant, and equipment. C. Loss on a business segment.
B. Loss on goodwill. D. Loss on inventory.

Agriculture/Biological Assets
1. Defined by PAS 41 as the harvested produce of the entity’s biological assets.
A. Agricultural activity B. Agricultural produce C. Harvested crops D. Agricultural harvest
2. Defined by PAS 41 as a living animal or plant.
A. Agricultural assets B. Agricultural produce C. Biological assets D. Biological produce
3. Bearer plant is a living plant that: (choose the exception)
A. Is used in the production or supply of agricultural produce.
B. Is expected to bear produce for more than one period.
C. Has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales.
D. Is included within the scope of PAS 41.
4. Biological assets are measured at
A. Fair value C. Fair value less cost to sell at point of harvest
B. Fair value less cost to sell D. Lower of cost and net realizable value
5. Subsequent to point of harvest, agricultural produced are measured at
A. Fair value C. Fair value less cost to sell at point of harvest
B. Fair value less cost to sell D. Lower of cost and net realizable value
6. Ordinarily, biological assets are classified as
A. Separate line item of noncurrent assets C. Separate line item of current
B. Part of plant, property & equipment D. Part of inventories
7. Which of the following shall be included as part of biological assets?
A. Agricultural land
B. Biological assets (other than bearer plants) that are physically attached to agricultural land
C. Intangible assets relating to agricultural activity
D. All of the foregoing
8. Which of the following is not dealt with by PAS 41?
A. The accounting for biological assets.
B. The initial measurement of agricultural produce harvested from the entity’s biological assets.
C. The processing of agricultural produce after harvesting.
D. The accounting treatment of government grants received in respect of biological assets.
9. Where there is a long aging or maturation process after harvest, the accounting for such products
should be dealt with by
A. PAS 41. C. PAS 16, Property, Plant, and Equipment.
B. PAS 2, Inventory. D. PAS 40, Investment Property.
10. Where the fair value of the biological asset cannot be determined reliably, the biological asset should
be measured at
A. Cost.
B. Cost less accumulated depreciation.
C. Cost less accumulated depreciation and accumulated impairment losses.
D. Net realizable value.

Special topics – Liabilities

Leases

1. A lessee incurred costs to construct office space in a leased warehouse. The estimated useful life of the
office is ten years. The remaining term of the nonrenewable lease is fifteen years. The costs should be
A. Capitalized as leasehold improvements and depreciated over fifteen years.
B. Capitalized as leasehold improvements and depreciated over ten years.
C. apitalized as leasehold improvements and expensed in the year in which the lease expires.
D. Expensed as incurred.
2. The excess of the fair value of leased property at the inception of the lease over its cost or carrying
amount should be classified by the lessor as
A. Unearned income from a sales-type lease.
B. Unearned income from a direct-financing lease.
C. Manufacturer’s or dealer’s profit from a sales-type lease.
D. Manufacturer’s or dealer’s profit from a direct-financing lease.
3. In a lease that is recorded as a sales-type lease by the lessor, interest revenue
A. Should be recognized in full as revenue at the lease’s inception.
B. Should be recognized over the period of the lease using the straight-line method.
C. Should be recognized over the period of the lease using the interest method.
D. Does not arise.
4. For a capital lease, the amount recorded initially by the lessee as a liability should normally
A. Exceed the total of the minimum lease payments.
B. Exceed the present value of the minimum lease payments at the beginning of the lease.
C. Equal the total of the minimum lease payments.
D. Equal the present value of the minimum lease payments at the beginning of the lease.
5. At the inception of a capital lease, the guaranteed residual value should be
A. Included as part of minimum lease payments at present value.
B. Included as part of minimum lease payments at future value.
C. Included as part of minimum lease payments only to the extent that guaranteed residual value is
expected to exceed estimated residual value.
D. Excluded from minimum lease payments.
6. Under PFRS what is the interest rate used by lessees to capitalize a finance lease when the implicit rate
cannot be determined?
A. The prime rate. C. The lessee’s average borrowing rate.
B. The lessor’s published rate. D. The lessee’s incremental borrowing rate.
7. Defined by PFRS 16 as a lease that transfers substantially all the risks and rewards incidental to
ownership of an underlying asset.
A. Lease B. Rent C. Operating lease D. Finance lease
8. Defined by PFRS 16 as payments made by a lessee to a lessor for the right to use an underlying asset
during the lease term, excluding variable lease payments.
 A. Optional lease payments B. Fixed payments C. Initial direct costs D. Lease
incentives
9. Defined by PFRS 16 as Payments made by a lessor to a lessee associated with a lease, or the
reimbursement or assumption by a lessor of costs of a lessee.
A. Contingent rents B. Fixed payments C. Initial direct costs D. Lease
incentives
10. Defined by PFRS 16 as the sum of the lease payments receivable by a lessor under a finance lease and
any unguaranteed residual value accruing to the lessor.
A. Net investment in the lease B. Gross investment in the lease C. Lease payments D.
Fixed payments
11. At inception of a contract, an entity shall assess whether the contract is, or contains, a lease. A contract
is, or contains, a lease if the contract conveys the
A. Right to use an identified asset for a period of time in exchange for consideration.
B. Right to control the use of an identified asset for a period of time in exchange for consideration.
C. Right to control the use of an identified asset.
D. Right to purchase an asset at the end of the lease term.
12. Which of the following statement regarding separating the components of a contract of lease is
incorrect?
A. For a contract that contains a lease component and additional lease and non-lease components,
lessees shall allocate the consideration payable on the basis of the relative stand-alone prices.
B. A lessee may elect, by class of underlying asset, not to separate non-lease components from lease
components and instead account for all components as a lease.
C. Lessors shall allocate consideration in accordance with PFRS 16.
D. None of the foregoing
13. The cost of the right-of-use asset does not include
A. The amount of the initial measurement of the lease liability
B. Any lease payments made at or before the commencement date, less any lease incentives received
C. Any initial direct costs incurred by the lessor.
D. An estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset.
14. After lease commencement, a lessee shall measure the right-of-use asset
A. Using cost model regardless of the classification of the right-of-use asset
B. Using cost model unless it is an investment property at fair value or it belongs to a class of PPE to
which the lessee applies revaluation model.
C. Using revaluation model unless it is an investment property at fair value.
D. Always at fair value.
15. The lease liability is initially measured at the present value of the lease payments payable over the lease
term, discounted using
A. Incremental borrowing rate or rate implicit in the lease whichever is lower.
B. Incremental borrowing rate if determinable, otherwise using rate implicit in the lease.
C. Rate implicit in the lease if determinable, otherwise using incremental borrowing rate.
D. Incremental borrowing rate or rate implicit in the lease whichever is higher.

Income Taxes

1. Which of the following differences would result in future taxable amounts?

A. Expenses or losses that are deductible after they are recognized in financial income.
B. Revenues or gains that are taxable before they are recognized in financial income.
C. Expenses or losses that are deductible before they are recognized in financial income.
D. Revenues or gains that are recognized in financial income but are never included in taxable income.
2. Because Jab Co. uses different methods to depreciate equipment for financial statement and income tax
purposes, Jab has temporary differences that will reverse during the next year and add to taxable
income. Deferred income taxes that are based on these temporary differences should be classified in
Jab’s balance sheet as a
A. Contra account to current assets. C. Current liability.
B. Contra account to noncurrent assets. D. Noncurrent liability.
3. At the most recent year-end, a company had a deferred income tax liability arising from accelerated
depreciation that exceeded a deferred income tax asset relating to rent received in advance which is
expected to reverse in the next year. Which of the following should be reported in the company’s most
recent year-end balance sheet?
A. The excess of the deferred income tax liability over the deferred income tax asset as a noncurrent
liability.
B. The excess of the deferred income tax liability over the deferred income tax asset as a current
liability.
C. The deferred income tax liability as a noncurrent liability.
D. The deferred income tax liability as a current liability.
4. The amount of income tax applicable to transactions that are not reported in the continuing operations
section of the income statement is computed
A. By multiplying the item by the effective income tax rate.
B. As the difference between the tax computed based on taxable income without including the item
and the tax computed based on taxable income including the item.
C. As the difference between the tax computed on the item based on the amount used for financial
reporting and the amount used in computing taxable income.
D. By multiplying the item by the difference between the effective income tax rate and the statutory
income tax rate.
5. Which of the following is true regarding reporting deferred taxes in financial statements prepared in
accordance with PFRS?
A. Deferred tax assets and liabilities are classified as current and noncurrent based on their expiration
dates.
B. Deferred tax assets and liabilities may only be classified as noncurrent.
C. Deferred tax assets are always netted with deferred tax liabilities to arrive at one amount presented
on the balance sheet.
D. Deferred taxes of one jurisdiction are offset against another jurisdiction in the netting process.
6. Toller Corp. reports in accordance with PFRS. The controller of the company is attempting to prepare the
presentation of deferred taxes on Toller’s financial statements. Which of the following is correct about
the presentation of deferred tax assets and liabilities under PFRS?
A. Current deferred tax assets are netted against current deferred tax liabilities.
B. All noncurrent deferred tax assets are netted against noncurrent deferred tax liabilities.
C. Deferred tax assets are never netted against deferred tax liabilities.
D. Deferred tax assets are netted against deferred tax liabilities if they relate to the same taxing
authority.
7. Defined by PAS 12 as the amounts of income taxes recoverable in future periods in respect of deductible
temporary differences, the carryforward of unused tax losses and the carryforward of unused tax credits.
A. Tax expense B. Current tax C. Deferred tax liabilities D. Deferred tax assets
8. Defined by PAS 12 as the amounts of income taxes payable in future periods in respect of taxable
temporary differences.
 A. Tax expense B. Current tax C. Deferred tax liabilities D. Deferred tax
assets
9. Deferred tax expense is equal to
A. Increase in deferred tax liability less increase in deferred tax asset
B. Increase in deferred tax liability plus increase in deferred tax asset.
C. Increase in deferred tax liability
D. Increase in deferred tax asset
10. Which of the following differences would result in future taxable amounts?
A. Expenses or losses that are deductible after they are recognized in accounting income.
B. Revenues or gains that are taxable before they are recognized in accounting income.
C. Expenses or losses that are deductible before they are recognized in accounting income.
D. Revenues or gains that are recognized in accounting income but are never included in taxable
income.
11. A temporary difference which would result in deferred tax liability?
A. Interest revenue on bonds investment.
B. Accrual of warranty expense
C. Excess tax depreciation over accounting depreciation
D. Subscription received in advance
12. A temporary difference which would result in a deferred tax asset?
A. Tax, penalty or surcharges
B. Dividend received on equity securities
C. Excess tax depreciation over accounting depreciation
D. Rent received in advance included in taxable income but deferred for accounting purposes.
13. Which of the following describes deferred tax asset?
A. Tax base of assets is higher than its carrying amount.
B. Accounting income is higher than taxable income
C. Expenses and losses deducted from taxable income but deductible for accounting purposes in the
future.
D. Revenue and gains included in accounting income for current period but taxable in the future.
14. A deferred tax asset is recognized for the following instances, except?
A. Deductible temporary differences C. Taxable temporary differences
B. Unused tax losses D. Unused tax credits
15. Deferred tax assets and deferred tax liabilities may be offset in the statement of financial position if
A. They qualify to be recognized as current assets and current liabilities, respectively.
B. The entity has the legal right to settle current tax amounts on a net basis and the deferred tax
amounts are levied by the same taxing authority.
C. The entity expects that the temporary difference will reverse within a period of 12 months or less.
D. The entity has the legal right to settle current tax amounts on a net basis and the deferred tax
amounts are levied by different taxing authority.

Employee Benefits

1. Interest cost included in the net pension cost recognized by an employer sponsoring a defined benefit
pension plan represents the
A. Amortization of the discount on unrecognized prior service costs.
B. Increase in the fair value of plan assets due to the passage of time.
C. Increase in the projected benefit obligation due to the passage of time.
D. Shortage between the expected and actual returns on plan assets.
2. A company that maintains a defined benefit pension plan for its employees reports an unfunded
pension liability. This cost represents the amount that the
A. Cumulative net periodic cost accrued exceeds contributions to the plan.
B. Cumulative net periodic cost exceeds the vested benefit obligation.
C. Vested benefit obligation exceeds plan assets.
D. Vested benefit obligation exceeds contributions to the plan.
3. An entity operates a defined benefit pension plan and changes it on January 1, 20X4, to a defined
contribution plan. The defined benefit plan still relates to past service but not to future service. The net
pension liability after the plan amendment is P70 million, and the net pension liability before the
amendment was P100 million. How should the entity account for this change?
A. The entity recognizes a gain of P30 million.
B. The entity does not recognize a gain.
C. The entity recognizes a gain of P30 million over the remaining service lives of the employees.
D. The entity recognizes the gain but applies the 10% corridor approach to it.
4. An entity on December 31, 20X5, changes its defined benefit pension plan to a defined contribution
plan. The entity agrees with the employees to pay them P9 million in total on the introduction of a
defined contribution plan. The employees forfeit any pension entitlement for the defined benefit plan.
The pension liability recognized in the balance sheet at December 31, 20X4, was P10 million. How
should this curtailment be accounted for in the balance sheet at December 31, 20X5?
A. A settlement gain of P1 million should be shown.
B. The pension liability should be credited to reserves and a cash payment of P9 million should be
shown in expense in the income statement.
C. The cash payment should go to reserves and the pension liability should be shown as a credit to
the income statement.
D. A credit to reserves should be made of P1 million.
5. Defined by PAS 19 as employee benefits provided in exchange for the termination of an employee’s
employment as a result of an entity’s decision to terminate an employee’s employment before the
normal retirement date; or an employee’s decision to accept an offer of benefits in exchange for the
termination of employment.
A. Employee benefits B. Post-employment benefits C. Short-term employee benefits D.
Termination benefits
6. Defined by PAS 19 as post-employment benefit plans under which an entity pays fixed contributions
into a separate entity (a fund) and will have no legal or constructive obligation to pay further
contributions if the fund does not hold sufficient assets to pay all employee benefits relating to
employee service in the current and prior periods.
A. Defined benefit plans B. Defined contribution plans C. Multi-employer plans D. Retirement
benefit plans
7. Defined by PAS 26 as benefits, the rights to which, under the conditions of a retirement benefit plan,
are not conditional on continued employment.
A. Retirement benefits B. Defined benefits C. Funding D. Vested
benefits
8. Defined by PAS 26 as arrangements whereby an entity provides benefits for employees on or after
termination of service (either in the form of an annual income or as a lump sum) when such benefits,
or the contributions towards them, can be determined or estimated in advance of retirement from the
provisions of a document or from the entity’s practices.
A. Funding B. Defined benefits C. Retirement benefits D.
Vested benefits
9. Which of the following employee benefits is outside the scope of PAS 19?
 A. Short-term employee benefits C. Share-based payment benefits
B. Post-employment benefits D. Termination benefits
10. The actuarial technique to determine the present value of its defined benefit obligations and the
related current service cost and, where applicable, past service cost.
A. Corridor method B. Projected unit credit C. Expected value D.
Regression method
11. Amounts under post-employment benefits to be recognized in profit or loss, except
A. Current service cost
B. Net interest on the net defined benefit liability (asset)
C. Any change in the effect of the asset ceiling, excluding amounts included in net interest on the net
defined benefit liability (asset).
D. Past service cost
12. Which of the following statements is incorrect regarding actuary as used in defined benefit plan?
A. The projected unit credit method sees each period of service as giving rise to an additional unit of
benefit entitlement and measures each unit separately to build up the final obligation.
B. An entity shall determine its mortality assumptions by reference to its best estimate of the
mortality of plan members both during and after employment.
C. The rate used to discount post-employment benefit obligations (both funded and unfunded) shall
be determined by reference to market yields at the end of the reporting period on high quality
corporate bonds.
D. PAS 19 requires an entity to involve a qualified actuary in the measurement of all material post-
employment benefit obligations.
13. The change in the present value of the defined benefit obligation resulting from a plan amendment or
curtailment.
A. Current service cost B. Past service cost C. Gains/losses on settlement D. Fair value of
plan assets
14. It is deducted from the present value of the defined benefit obligation in determining the deficit or
surplus.
A. Current service cost B. Past service cost C. Gains and losses on settlement D.
Fair value of plan assets
15. Under PAS 26, if an actuarial valuation has not been prepared at the date of the report of a defined
benefit plan:
A. Actuarial valuation should be used as a base and the date of the valuation disclosed.
B. Fair market valuation should be used and the actuarial valuation disclosed.
C. The most recent valuation should be used as a base and the date of the valuation disclosed.
D. All the choices are correct.

Special Topics- SHE

Share-Based Payment
1. Compensation cost for a share-based payment to employees that is classified as a liability is measured as
A. The change in fair value of the instrument for each reporting period.
B. The total fair value at grant date.
C. The present value of cash payments due over the life of the grant.
D. The actual cash outlay for the period.
2. What is the measurement date for a share-based payment to employees that is classified as a liability?
 A. The service inception date. C. The settlement date.
B. The grant date. D. The end of the reporting period.
3. On July 1, year 1, Jordan Corp. granted employees share-based payments in the form of compensatory
stock options. How should Jordan account for the outstanding options in calculating earnings per share
for year 1 if the options are not antidilutive?
A. Include the options in the denominator of basic and diluted earnings per share for the entire year.
B. Include the options in the denominator of diluted earnings per share for the entire year.
C. Include the options in the denominator of diluted earnings per share weighted by number of months
outstanding.
D. Ignore the options in the calculation of diluted earnings per share.
4. Defined by PFRS 2 as a contract that gives the holder the right, but not the obligation, to subscribe to the
entity’s shares at a fixed or determinable price for a specified period of time.
A. Share option C. Share split
B. Pre-emptive share right D. Share-based payment
5. Defined by PFRS 2 as a share-based payment transaction in which the entity acquires goods or services
by incurring a liability to transfer cash or other assets to the supplier of those goods or services for
amounts that are based on the price of equity instruments of the entity or another group entity.
A. Equity-settled share-based payment C. Liability-settled share-based payment
B. Cash-settled share-based payment D. Account-settled share-based payment
6. Defined by PFRS 2 as a vesting condition that requires the counterparty to complete a specified period of
and specified performance target(s) to be met while the counterparty is rendering the service so
required.
A. Vesting condition C. Market condition
B. Service condition D. Performance condition
7. The measurement required by PFRS 2 for share option in an equity-settled share-based payment is the
A. Fair value C. Residual value
B. Intrinsic value D. Theoretical value
8. In an equity-settled transaction, if the total compensation changes in the subsequent period, the change
is
A. Accounted retrospectively C. Accounted prospectively
B. Deferred through the vesting period D. Not accounted
9. If the equity-settled transaction (share option) is granted early during the vesting period, the
compensation that wold have been recognized in the future shall be
A. Deferred until the exercise of the option C. Recognized in profit or loss immediately
B. Recognized in other comprehensive income D. Shall be offset against the value of the equity
granted
10. Stock appreciation right would normally be settled through
A. Cash settlement C. Issuance of shares
B. Issuance of share options D. Any of the foregoing
11. In stock appreciation right, decline in fair value of share shall be accounted as
A. Loss and decrease in liability C. Gain and increase in liability
B. Loss and increase in liability D. Gain and decrease in liability
12. If the employee has the choice as to whether the settlement is in cash or by issuance of equity securities,
the share-based payment is accounted as
A. An equity instrument C. Either A or B but not both
B. A financial liability D. Compound financial instrument
13. Which of the following statement about expected vesting period agrees with PFRS 2?
A. The entity shall estimate the length of the expected vesting period at grant date, based on the most
likely outcome of the performance condition.
 B. The entity shall estimate the length of the expected vesting period at measurement date based on
the contractual obligations.
C. The estimate of the length of the expected vesting period shall be consistent with the assumptions
used in estimating the fair value of the options granted, and may be subsequently revised.
D. The entity shall revise its estimate of the length of the vesting period annually.
14. Which of the following transactions involving the issuance of shares does not come within the definition
of a “share-based” payment under PFRS 2?
A. Employee share purchase plans.
B. Employee share option plans.
C. Share-based payment relating to an acquisition of a subsidiary.
D. Share appreciation rights.
15. Which of the following is true regarding the requirements of PFRS 2?
A. Private companies are exempt.
B. “Small” companies are exempt.
C. Subsidiaries using their parent entity’s shares as consideration for goods and services are exempt.
D. There are no exemptions from PFRS 2.

Earnings Per Share & Book Value Per Share

1. In determining diluted earnings per share, dividends on nonconvertible cumulative preferred stock
should be
A. Disregarded.
B. Added back to net income whether declared or not.
C. Deducted from net income only if declared.
D. Deducted from net income whether declared or not.
2. The if-converted method of computing earnings per share data assumes conversion of convertible
securities as of the
A. Beginning of the earliest period reported (or at time of issuance, if later).
B. Beginning of the earliest period reported (regardless of time of issuance).
C. Middle of the earliest period reported (regardless of time of issuance).
D. Ending of the earliest period reported (regardless of time of issuance).
3. In determining earnings per share, interest expense, net of applicable income taxes, on convertible debt
that is dilutive should be
A. Added back to weighted-average common shares outstanding for diluted earnings per share.
B. Added back to net income for diluted earnings per share.
C. Deducted from net income for diluted earnings per share.
D. Deducted from weighted-average common shares outstanding for diluted earnings per share.
4. Defined by PAS 33 as a financial instrument or other contract that may entitle its holder to ordinary
shares.
C. Potential ordinary share C. Convertible ordinary shares
D. Diluted ordinary share D. Ordinary share
5. Defined by PAS 33 as an increase in earnings per share or a reduction in loss per share resulting from the
assumption that convertible instruments are converted, that options or warrants are exercised, or that
ordinary shares are issued upon the satisfaction of specified conditions.
A. Dilution B. Saturation C. Antidilution D. Antisaturation
6. PAS 33 requires disclosure on the face of the statement of comprehensive income the
A. Basic EPS C. Neither basic nor diluted EPS
B. Diluted EPS D. Both basic and diluted EPS
7. EPS disclosures are
A. Required for all publicly traded entities and nonpublic entities.
B. Required for all publicly traded entities and encouraged for nonpublic entities.
 C. Encouraged for all publicly traded entities and required for nonpublic entities.
D. Encouraged for all publicly traded entities and nonpublic entities.
8. Potential ordinary share do not include
A. Convertible bonds C. Redeemable preference shares
B. Share warrants D. Contractual rights to purchase shares
9. In computing basic EPS, the full amount of the required dividends on the cumulative preference shares
for the period should be
A. Ignored
B. Deducted from net income only when declared
C. Deducted from net income whether declared or not
D. Added to net income whether declared or not.
10. In computing basic EPS, the full amount of the dividends on the noncumulative preference shares for the
period should be
A. Ignored
B. Deducted from net income only when declared
C. Deducted from net income whether declared or not
D. Added to net income whether declared or not.
11. In computing the diluted EPS, interest expense on convertible bond payable shall be
A. Added to net income at gross C. Deducted from net income, net of tax
B. Added to net income, net of tax. D. Ignored
12. EPS shall be computed on the basis of
A. Ordinary shares outstanding at the end of the year.
B. Ordinary shares outstanding at the beginning of the year.
C. Ordinary shares outstanding at the middle of the year.
D. Average ordinary shares outstanding during the year.
13. Assumed exercise of warrants and options is considered dilutive (only when)
A. Exercise price is less than market price C. Exercise price is equal to market price
B. Exercise price is more than market price D. Regardless of the market price
14. What will be the effect on earnings per share and shareholders’ equity with the acquisition of entity’s
own shares?
A. Decrease in EPS and decrease in shareholders’ equity
B. No effect on EPS and decrease in shareholders’ equity
C. Increase EPS and decrease in shareholders’ equity
D. Decrease in EPS and increase in shareholders’ equity
15. The issuance of new shares in a five-for-one split of common stock
A. Decreases the book value per share of common stock.
B. Increases the book value per share of common stock.
C. Increases total shareholders’ equity.
D. Decreases total shareholders’ equity.
16. Total shareholders’ equity divided by the number of shares outstanding represents the
A. Return on equity B. Earnings per share C. Accounting value per share D. Book
value per share
17. In the absence of liquidation value, the preference share shall receive what amount in the event of
liquidation?
A. Book value B. Par value C. Fair value D. Recoverable amount
18. When the right to receive dividend is forfeited in any one year in which dividend is not declared, the
preference share is said to be
A. Participating B. Nonparticipating C. Noncumulative D. Cumulative
19. Preference share participate proratably with ordinary shareholders in any profit distribution beyond the
prescribe preference rate.
 A. Noncumulative feature C. Cumulative feature
B. Nonparticipating feature D. Participating feature
20. If a bonus issue occurs between the year-end and the date that the financial statements are authorized,
then
A. EPS both for the current and the previous year are adjusted.
B. EPS for the current year only is adjusted.
C. No adjustment is made to EPS.
D. Diluted EPS only is adjusted.

Special Topics – Other Reporting Standards (Segment reporting, Interim Reporting, Events after
reporting period, Noncurrent assets held for sale and discontinued operations)

1. At the reporting date, December 31, Y1, ABC Inc. carried a receivable from XYZ, a major customer, at P10
million. The “authorization date” of the financial statements is on February 16, Y2. XYZ declared
bankruptcy on Valentine’s Day (February 14, Y2). ABC Inc. will
A. Disclose the fact that XYZ has declared bankruptcy in the footnotes.
B. Make a provision for this post–balance sheet event in its financial statements (as opposed to
disclosure in footnotes).
C. Ignore the event and wait for the outcome of the bankruptcy because the event took place after the
year-end.
D. Reverse the sale pertaining to this receivable in the comparatives for the prior period and treat this
as an “error” under PAS 8.
2. Excellent Inc. built a new factory building during Y1 at a cost of P20 million. At December 31, Y1, the net
book value of the building was P19 million. Subsequent to year-end, on March 15, Y2, the building was
destroyed by fire and the claim against the insurance company proved futile because the cause of the
fire was negligence on the part of the caretaker of the building. If the date of authorization of the
financial statements for the year ended December 31, Y1, was March 31, Y2, Excellent Inc. should
A. Write off the net book value to its scrap value because the insurance claim would not fetch any
compensation.
B. Make a provision for one-half of the net book value of the building.
C. Make a provision for three-fourths of the net book value of the building based on prudence.
D. Disclose this nonadjusting event in the footnotes.
3. Orange Inc. deals extensively with foreign entities, and its financial statements reflect these foreign
currency transactions. Subsequent to reporting date, and before the “date of authorization” of the
issuance of the financial statements, there were abnormal fluctuations in foreign currency rates. Orange
Inc. should
A. Disclose the post–balance sheet event in footnotes as a non-adjusting event.
B. Ignore the post–balance sheet event.
C. Adjust the foreign exchange year-end balances to reflect the abnormal adverse fluctuations in
foreign exchange rates.
D. Adjust the foreign exchange year-end balances to reflect all the abnormal fluctuations in foreign
exchange rates (and not just adverse movements).
4. Case 1: Events that provide evidence of conditions that existed at the end of the reporting period.
Case 2: Events that arise after the financial statements are published.
A. Case 1 pertains to adjusting events.
B. Case 2 pertains to adjusting events
C. Both cases pertain to adjusting events
D. Both cases pertain to non-adjusting events
5. Which of the following is an example of a non-adjusting event?
A. Sale of inventory for less than its carrying value shortly after the reporting period.
B. Amounts received in respect of an insurance claim being negotiated at the period end.
C. Destruction of a machine by fire after the reporting period.
D. Bankruptcy of a major customer with a balance owing at the period end.
6. Statement 1: An announcement of a major restructuring of a company is an adjusting event.
Statement 2: Evidence of a permanent deterioration of property value prior to year-end is a non-
adjusting event.
A. Both statements are correct
B. Both statements are incorrect
C. Only statement 1 is correct
D. Only statement 2 is correct
7. Which of the following is not a related party as envisaged by PAS 24?
A. A director of the entity.
B. The parent company of the entity.
C. A shareholder of the entity that holds 1% stake in the entity.
D. The son of the chief executive officer of the entity.
8. 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.
9. To enable financial statement users to form a view about the effects of the related-party transactions,
PAS 24 requires certain disclosures to be made. Which of the following disclosures is not a mandated
disclosure under PAS 24?
A. Relationships between parents and subsidiaries irrespective of whether there have been transactions
between those related parties.
B. Names of all the “associates” that an entity has dealt with during the year.
C. Name of the entity’s parent and, if different, the ultimate controlling party.
D. If neither the entity’s parent nor its ultimate controlling entity produces financial statements
available for public use, then the name of the next most senior parent that does so.
10. If there have been related-party transactions during the year, an entity needs to make, at a minimum,
certain disclosures. Which of the following is not a required minimum disclosure under PAS 24?
A. The amounts of similar transactions with unrelated (third) parties to establish that comparable
related-party transactions have been entered at arm’s length.
B. Provisions for doubtful debts related to the amount of outstanding related-party balances and
expense recognized during the year in respect of bad or doubtful debts due from related parties.
C. The amount of the related-party transactions.
D. The amount of the outstanding related-party balances and their terms and conditions along with
details of guarantees given and received.
11. The minimum disclosures prescribed under PAS 24 are to be made separately for certain categories of
related parties. Which of the following is not among the list of categories specified under the Standard
for the purposes of separate disclosure?
A. Entities with joint control or significant influence over the entity.
B. The parent company of the entity.
C. An entity that has a common director with the entity.
D. Joint ventures in which the entity is a venturer.
12. Which type of material related-party transaction requires disclosure?
A. Only those not reported in the body of the financial statements.
 B. Only those that receive accounting recognition.
C. Those that contain possible illegal acts.
D. All those other than compensation arrangements, expense allowances, and other similar items in the
ordinary course of business.
13. Statement 1: If an entity that is not required to apply this PFRS chooses to disclose information about
segments that does not comply with this PFRS, it shall describe the information as segment information.
Statement 2: According to PFRS 8, start-up operations may be operating segments before earning
revenues
A. Only statement 1 is correct
B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect
A. Regardless of the fact that
14. The total revenue attributable to all operating segments must constitute at least _____ of the entity’s
total revenues for the period. If not met, the entity should look for additional operating segments until
this threshold is satisfied.
A. 50%
B. 60%
C. 75%
D. 85%
15. PFRS 8 prescribes criteria for an operating segment to qualify as a reportable segments. This does not
include
A. Its assets are 10% or more of the combined assets of all operating segments.
B. Its equity is 10% or more of the combined equities of all operating segments.
C. The absolute measure of its reported profit or loss is 10% or more of the greater, in absolute
amount, of (1) the combined reported profit of all operating segments that did not report a loss and
(2) the combined reported loss of all operating segments that reported a loss.
D. Its reported revenue, from both external customers and intersegment sales or transfers, in 10% or
more of the combined revenue, internal and external, of all operating segments.
16. Under PAS 34, interim financial reports should be published
A. Once a year at any time in that year.
B. Within a month of the half-year-end.
C. On a quarterly basis.
D. Whenever the entity wishes.
17. The IASB encourages publicly traded entities to provide interim financial reports
A. At least at the end of the half-year and within 60 days of the end of the interim period.
B. Within a month of the half-year-end.
C. On a quarterly basis.
D. Whenever the entity wishes.
18. If an entity does not prepare interim financial reports, then *
A. The year-end financial statements are deemed not to comply with PFRS.
B. The year-end financial statements’ compliance with PFRS is not affected.
C. The year-end financial statements will not be acceptable under local legislation.
D. Interim financial reports should be included in the year-end financial statements.
19. PAS 34 states a presumption that anyone reading interim financial reports will
A. Understand all International Financial Reporting Standards.
B. Have access to the records of the entity.
C. Have access to the most recent annual report.
D. Not make decisions based on the report.
20. An entity owns a number of farms that harvest produce seasonally. Approximately 80% of the entity’s
sales are in the period August to October. Because the entity’s business is seasonal, PAS 34 suggests
A. Additional notes be written in the interim reports about the seasonal nature of the business.
B. Disclosure of financial information for the latest and comparative 12-month period in addition to the
interim report.
C. Additional disclosure in the accounting policy note.
D. No additional disclosure.
21. How should the income from discontinued operations be presented in the income statement? *
A. The entity should disclose a single amount on the face of the income statement with analysis in the
notes or a section of the income statement separate from continuing operations.
B. The amounts from discontinued operations should be broken down over each category of revenue
and expense.
C. Discontinued operations should be shown as a movement on retained earnings.
D. Discontinued operations should be shown as a line item after gross profit with the taxation being
shown as part of income tax expense.
22. How should the assets and liabilities of a disposal group classified as held for sale be shown in the
balance sheet?
A. The assets and liabilities should be offset and presented as a single amount.
B. The assets of the disposal group should be shown separately from other assets in the balance sheet,
and the liabilities of the disposal group should be shown separately from other liabilities in the
balance sheet.
C. The assets and liabilities should be presented as a single amount and as a deduction from equity.
D. There should be no separate disclosure of assets and liabilities that form part of a disposal group.
23. An entity has an asset that was classified as held for sale. However, the criteria for it to remain as held for
sale no longer apply. The entity should therefore
A. Leave the noncurrent asset in the financial statements at its current carrying value.
B. Remeasure the noncurrent asset at fair value.
C. Measure the noncurrent asset at the lower of its carrying amount before the asset was classified as
held for sale (as adjusted for subsequent depreciation, amortization, or revaluations) and its
recoverable amount at the date of the decision not to sell.
D. Recognize the noncurrent asset at its carrying amount prior to its classification as held for sale as
adjusted for subsequent depreciation, amortization, or revaluations.
24. Which of the following criteria do not have to be met in order for an operation to be classified as
discontinued?
A. The operation should represent a separate line of business or geographical area.
B. The operation is part of a single plan to dispose of a separate major line of business or geographical
area.
C. The operation is a subsidiary acquired exclusively with a view to resale.
D. The operation must be sold within three months of the year-end.
25. PFRS 5 states that a noncurrent asset that is to be abandoned should not be classified as held for sale.
The reason for this is because
A. Its carrying amount will be recovered principally through continuing use.
B. It is difficult to value.
C. It is unlikely that the noncurrent asset will be sold within 12 months.
D. It is unlikely that there will be an active market for the noncurrent asset.