Chapter 20: 6.

Statement 1: A "Corporation Sole" is

Shareholders' Equity - organized by a single person for religious
purposes.
Concept & Statement 2: The "One Person Corporation"
Organization (OPC) is not allowed to have a Board of
1. Statement 1: When shares are issued for a Directors.
non-cash consideration, the assets received  Answer: Statement 1 is TRUE.
are recorded at the fair value of the shares  Paliwanag: Tama ang Statement 1 para sa
issued if the fair value of the asset cannot be mga relihiyosong grupo. Ang OPC ay may
reliably measured. board, pero iisang tao lang ang laman nito
Statement 2: The "stated value" of no-par (mali ang Statement 2).
shares is the minimum issue price set by the 7. Statement 1: If a corporation issues two
Board of Directors, and any excess is credited classes of shares for a lump sum price, the
to Share Premium. proceeds are allocated based on their relative
 Answer: Both are TRUE. fair values.
 Paliwanag: Priority 1 ang asset fair value; Statement 2: If only one class of shares has a
kung wala, doon lang gagamitin ang fair value known fair value, the "Residual Method" is
ng shares (Statement 1). Ang stated value ay used to allocate the price.
parang par value ng no-par shares (Statement  Answer: Both are TRUE.
2).  Paliwanag: Standard accounting ito: Relative
2. Statement 1: Under the Revised Corporation Fair Value kung parehong may price; Residual
Code, the 25% subscription and 25% paid-up Method kung isa lang ang may price.
capital requirement upon incorporation is still 8. Statement 1: Redemption of preference
mandatory for all corporations. shares at the option of the holder is a
Statement 2: Share issuance costs are treated characteristic of an equity instrument.
as an expense in the period they are incurred. Statement 2: Mandatory redeemable
 Answer: Both are FALSE. preference shares are classified as financial
 Paliwanag: Tinanggal na ang 25-25 liabilities.
requirement sa bagong batas (Statement 1).  Answer: Statement 2 is TRUE.
Ang issuance costs ay bawas sa Share  Paliwanag: Kapag "mandatory" o kailangan
Premium, hindi expense (Statement 2). talagang bayaran ng kumpanya, utang (liability)
3. Statement 1: Watered stocks exist when na ito, hindi na equity (Statement 2).
shares are issued for assets with a fair value 9. Statement 1: Share splits affect the total
greater than the par value of the shares. amount of share capital but not the total
Statement 2: Secret reserves are created shareholders' equity.
when a company deliberately understates its Statement 2: A 2-for-1 share split doubles the
assets or overstates its liabilities. number of shares and halves the par value.
 Answer: Statement 2 is TRUE.  Answer: Statement 2 is TRUE.
 Paliwanag: Ang watered stock ay kapag  Paliwanag: Ang share split ay walang epekto
binenta ang shares nang mas mababa sa par sa total share capital o equity (mali ang
value (mali ang Statement 1). Ang Statement 2 Statement 1). Nilalakihan lang nito ang bilang
ay tama dahil "nililihim" ng kumpanya ang ng shares pero pinapababa ang price
tunay na yaman nito. (Statement 2).
4. Statement 1: Ordinary shares are entitled to a 10. Statement 1: "Call" refers to the demand for
fixed dividend rate before any dividends are payment of the unpaid balance of a
paid to preference shareholders. subscription.
Statement 2: Preference shares can be issued Statement 2: Subscription Receivable is
as "Participating," allowing them to share in always presented as a current asset in the
extra dividends with ordinary shareholders. balance sheet.
 Answer: Statement 2 is TRUE.  Answer: Statement 1 is TRUE.
 Paliwanag: Baligtad ang Statement 1; ang  Paliwanag: Ang Call ay paniningil (Statement
Preference ang laging una sa dividend. Ang 1). Ang receivable ay bawas sa equity (contra-
Participating feature ay nagbibigay ng bonus equity), maliban na lang kung sisingilin na
dividend sa preference (Statement 2). "within 1 year" (Statement 2).
5. Statement 1: The "Residual Interest" of the
owners is equivalent to the total assets of the
corporation.
Statement 2: Contributed Capital includes both
the Par Value of shares and any Additional
Paid-in Capital.
 Answer: Statement 2 is TRUE.
 Paliwanag: Ang residual interest ay Assets
minus Liabilities, hindi Assets lang (Statement
1). Contributed capital ay lahat ng perang
galing sa shareholders (Statement 2).
 Chapter 21: 17. Statement 1: Appropriation of retained
Subscriptions, earnings results in the setting aside of a
specific cash fund.
Treasury, And Statement 2: Appropriated retained earnings
Retained Earnings are not available for dividend declaration.
11. Statement 1: Treasury shares are considered  Answer: Statement 2 is TRUE.
outstanding shares for the purpose of  Paliwanag: Ang appropriation ay "paper entry"
calculating dividends. lang, hindi ito pagtatabi ng tunay na cash (mali
Statement 2: Treasury shares are recorded at ang Statement 1). Pero bawal nga silang
cost and presented as a deduction from total ipamigay (Statement 2).
shareholders' equity. 18. Statement 1: Retained earnings must be
 Answer: Statement 2 is TRUE. restricted (appropriated) to the extent of the
 Paliwanag: Hindi binibigyan ng dividend ang cost of treasury shares held.
sarili (mali ang Statement 1). Ang Treasury ay Statement 2: The appropriation for treasury
bawas sa total equity (Statement 2). shares is reversed only when the treasury
12. Statement 1: Gain on sale of treasury shares shares are reissued or retired.
is reported as "Other Income" in the Income  Answer: Both are TRUE.
Statement.  Paliwanag: Ito ay utos ng batas (Statement 1).
Statement 2: Loss on sale of treasury shares Kapag wala na yung treasury shares, pwede
is debited to Share Premium-Treasury first, and na ring tanggalin yung restriction (Statement
any excess is debited to Retained Earnings. 2).
 Answer: Statement 2 is TRUE. 19. Statement 1: A "deficit" in retained earnings is
 Paliwanag: Bawal ang "Gain" sa income presented as a deduction from total contributed
statement kapag sariling stocks; dapat Share capital.
Premium ito (Statement 1). Statement 2: A deficit must be closed to Share
13. Statement 1: When treasury shares are Premium at the end of every fiscal year.
retired, and the cost is less than the par value,  Answer: Statement 1 is TRUE.
the difference is credited to Retained Earnings.  Paliwanag: Ang deficit ay negative RE
Statement 2: Retirement of shares reduces (Statement 1). Hindi ito basta-basta nililipat sa
the number of issued shares. Share Premium taon-taon; kailangan ng Quasi-
 Answer: Statement 2 is TRUE. reorganization para dyan (mali ang Statement
 Paliwanag: Kapag may "gain" sa retirement, 2).
napupunta ito sa Share Premium, hindi sa 20. Statement 1: All corporations are required to
Retained Earnings (mali ang Statement 1). appropriate retained earnings for "possible
14. Statement 1: Donated shares are recorded at future losses."
their fair value upon receipt through a formal Statement 2: Appropriation for "contingencies"
journal entry. is a voluntary restriction of retained earnings.
Statement 2: The sale of donated shares  Answer: Statement 2 is TRUE.
increases the total shareholders' equity.  Paliwanag: Hindi ito mandatory (mali ang
 Answer: Statement 2 is TRUE. Statement 1). Desisyon lang ito ng
 Paliwanag: Memo entry lang sa simula (mali management
ang Statement 1). Pero kapag binenta mo na
yung donated shares, papasok yung cash kaya
tataas ang equity (Statement 2).
15. Statement 1: Subscription receivable from an
employee for shares to be issued upon full
payment is a deduction from equity.
Statement 2: Subscribed share capital is
credited only when the full subscription price is
collected.
 Answer: Statement 1 is TRUE.
 Paliwanag: Kahit employee pa yan, bawas
muna sa equity (Statement 1). Ang Subscribed
ay nire-record agad sa simula ng kontrata,
hindi sa dulo (mali ang Statement 2).
16. Statement 1: In a delinquent subscription, the
"Highest Bidder" is the person willing to pay the
full price for the least number of shares.
Statement 2: If no bidder is found, the
delinquent shares are automatically cancelled.
 Answer: Statement 1 is TRUE.
 Paliwanag: Tama ang definition ng highest
bidder (Statement 1). Kapag walang bidder,
kumpanya ang bibili at magiging treasury
shares sila, hindi basta-basta cancelled (mali
ang Statement 2).
 Chapter 22: 27. Statement 1: Dividends in arrears on
cumulative preference shares must be reported
Dividends And as a liability in the balance sheet.
Retained Earnings Statement 2: Non-cumulative preference
shares are entitled to dividends from previous
21. Statement 1: Cash dividends become a legal
years as long as there are sufficient retained
liability of the corporation on the "Date of
earnings.
Record."
 Answer: Both are FALSE.
Statement 2: Dividends are legally declared
 Paliwanag: Disclosure (footnote) lang ang
from the total shareholders' equity.
arrears, hindi liability hangga't hindi dine-
 Answer: Both are FALSE.
declare (Statement 1). Sa Non-cumulative,
 Paliwanag: Liability na sila sa "Date of
kung walang declaration, wala nang habol sa
Declaration" (Statement 1). Kinukuha ang
past years (Statement 2).
dividends sa Retained Earnings lang, hindi sa
28. Statement 1: "Date of Record" is the date on
total equity (Statement 2).
which the list of shareholders entitled to
22. Statement 1: Property dividends are measured
dividends is finalized.
at the fair value of the asset on the date of
Statement 2: No journal entry is required on
declaration and remeasured at each reporting
the Date of Record.
date.
 Answer: Both are TRUE.
Statement 2: The "Gain or Loss on
 Paliwanag: Listahan lang ito, walang
Distribution" is the difference between the
accounting entry.
carrying amount of the asset and the fair value
29. Statement 1: A 2-for-1 share split is equivalent
of the dividend payable at the time of
to a 100% share dividend in terms of the total
settlement.
number of shares.
 Answer: Both are TRUE.
Statement 2: A share split requires a formal
 Paliwanag: Dahil sa IFRIC 17, kailangang i-
transfer from Retained Earnings to Share
update ang value ng property dividend base sa
Capital.
fair value nito.
 Answer: Statement 1 is TRUE.
23. Statement 1: Scrip dividends are a form of
 Paliwanag: Parehong madodoble ang shares
deferred cash dividends that often bear
(Statement 1). Pero sa share split, memo entry
interest.
lang; sa stock dividend, kailangan bawasan
Statement 2: Interest expense on scrip
ang RE (mali ang Statement 2).
dividends is charged against Retained
30. Statement 1: "Unrestricted Retained Earnings"
Earnings.
means the portion of earnings that can be
 Answer: Statement 1 is TRUE.
legally distributed as dividends.
 Paliwanag: Ang interest ay Interest Expense
Statement 2: Dividends can be declared even
sa income statement, hindi bawas sa RE (mali
if the company has "Accumulated Other
ang Statement 2).
Comprehensive Income" but has a deficit in
24. Statement 1: A small stock dividend (less than
Retained Earnings.
20%) is recorded at the fair value of the shares
 Answer: Statement 1 is TRUE.
on the date of declaration.
 Paliwanag: Bawal mag-dividend kung may
Statement 2: A large stock dividend (20% or
deficit sa RE, kahit gaano pa kalaki ang OCI
more) is recorded at the par or stated value of
mo (mali ang Statement 2).
the shares.
 Answer: Both are TRUE.
 Paliwanag: Ito ang standard rules para sa
stock dividends (Share Dividends).
25. Statement 1: Stock dividends (Share
Dividends) result in a decrease in the total
shareholders' equity.
Statement 2: Stock dividends do not affect the
total assets or total liabilities of the corporation.
 Answer: Statement 2 is TRUE.
 Paliwanag: Ang stock dividend ay "lipat-bulsa"
lang mula RE papuntang Capital, kaya ang
total equity ay hindi nagbabago (mali ang
Statement 1).
26. Statement 1: Liquidating dividends are treated
as a return of capital rather than a distribution
of earnings.
Statement 2: Liquidating dividends are
commonly declared by companies with
"wasting assets" like mining firms.
 Answer: Both are TRUE.
 Paliwanag: Balik-puhunan ito (Statement 1) at
normal ito sa mga kumpanyang nauubos ang
resources (Statement 2).
 Chapter 23: Share- 37. Statement 1: For cash-settled SARs, if the fair
value of the rights decreases, the company
Based Compensation recognizes a "negative" compensation expense
31. Statement 1: Equity-settled share options are (gain).
measured using the fair value of the options at Statement 2: Total compensation expense for
the grant date. SARs is the amount actually paid to the
Statement 2: Cash-settled share appreciation employee at the end.
rights (SARs) are measured using the fair  Answer: Both are TRUE.
value at the grant date and are not  Paliwanag: Dahil liability ang SARs,
remeasured. kailangang i-adjust ang expense pataas o
 Answer: Statement 1 is TRUE. pababa base sa value.
 Paliwanag: Ang Cash-settled ay kailangang i- 38. Statement 1: Share options with a reload
remeasure bawat reporting date dahil ito ay feature should be measured including the fair
liability (mali ang Statement 2). value of the reload feature.
32. Statement 1: Compensation expense for share Statement 2: Modifications to the terms of
options is recognized over the vesting period share options that increase the fair value of the
using the straight-line method. options require the recognition of additional
Statement 2: If the share options expire compensation expense.
unexercised, the previously recognized  Answer: Both are TRUE.
expense is reversed to profit or loss.  Paliwanag: Lahat ng dagdag na benefit sa
 Answer: Statement 1 is TRUE. employee ay dagdag na expense sa
 Paliwanag: Hindi ni-re-reverse ang expense kumpanya.
pag nag-expire; nililipat lang ito sa Share 39. Statement 1: If share options are exercised,
Premium (mali ang Statement 2). the company credits Share Capital at par value
33. Statement 1: The "Vesting Period" is the and the balance to Share Premium.
period during which all the specified vesting Statement 2: The "Share Options
conditions are to be satisfied. Outstanding" account is closed to Retained
Statement 2: Forfeiture of share options due to Earnings upon exercise.
failure to meet service conditions results in the  Answer: Statement 1 is TRUE.
reversal of previously recognized  Paliwanag: Nililipat ang "Share Options
compensation expense. Outstanding" sa Share Premium, hindi sa
 Answer: Both are TRUE. Retained Earnings (mali ang Statement 2).
 Paliwanag: Kapag nag-resign ang employee 40. Statement 1: Employee Share Purchase Plans
(forfeiture), doon mo lang pwedeng i-reverse (ESPP) are always non-compensatory if
ang expense. offered to all employees.
34. Statement 1: Share Appreciation Rights Statement 2: If the discount offered in an
(SARs) entitle the employee to receive a cash ESPP is greater than what is offered to the
payment equal to the increase in the share public, it is a compensatory plan.
price.  Answer: Statement 2 is TRUE.
Statement 2: SARs are classified as equity  Paliwanag: Hindi porke lahat ng employee
instruments because they are based on the kasali ay non-compensatory na; tinitingnan
company's share price. kung gaano kalaki ang discount (Statement 2).
 Answer: Statement 1 is TRUE.
 Paliwanag: Kahit base ito sa share price, dahil
cash ang ibabayad, ito ay Liability, hindi
Equity (mali ang Statement 2).
35. Statement 1: "Intrinsic Value" of a share option
is the difference between the fair value of the
share and the exercise price of the option.
Statement 2: Under PFRS 2, the intrinsic
value method is the preferred method for
measuring share options.
 Answer: Statement 1 is TRUE.
 Paliwanag: Ang preferred method ay Fair
Value, ginagamit lang ang Intrinsic Value kung
hindi talaga masukat ang fair value (mali ang
Statement 2).
36. Statement 1: The "Grant Date" is the date
when the company and the employee agree on
the terms of the share-based payment.
Statement 2: The "Measurement Date" for
transactions with employees is the vesting
date.
 Answer: Statement 1 is TRUE.
 Paliwanag: Grant date ang measurement date
para sa employees (mali ang Statement 2).
 Chapter 24: Book tax) saved by the conversion should be added
back to the net income.
Value And Earnings Statement 2: Potential ordinary shares include
Per Share convertible preference shares and stock
dividends to be issued.
41. Statement 1: Book Value per Share is the
 Answer: Statement 1 is TRUE.
amount each share would receive if the
 Paliwanag: Ang stock dividend ay hindi
corporation were liquidated based on the
"potential," ito ay ina-adjust agad sa Basic EPS
amounts reported in the balance sheet.
(mali ang Statement 2).
Statement 2: Treasury shares should be
48. Statement 1: "Participating Preference
included in the denominator when calculating
Shares" receive an extra dividend after
Book Value per Share.
ordinary shares have received a dividend equal
 Answer: Statement 1 is TRUE.
to the preference rate.
 Paliwanag: Ang ginagamit na denominator ay
Statement 2: Participation is based on the
Outstanding Shares, kaya hindi kasama ang
ratio of the total par value of each class of
Treasury (mali ang Statement 2).
shares.
42. Statement 1: Preference shares with a
 Answer: Both are TRUE.
"liquidation preference" are allocated their
 Paliwanag: Ito ang tamang paraan ng pag-
liquidation value first before any amount is
compute ng participation.
allocated to ordinary shares.
49. Statement 1: A net loss results in a "negative"
Statement 2: Dividends in arrears on non-
EPS, and no diluted EPS is reported if it is anti-
cumulative preference shares are included in
dilutive.
the book value calculation.
Statement 2: Weighted average shares are
 Answer: Statement 1 is TRUE.
adjusted for shares issued for cash on the date
 Paliwanag: Sila ang priority (Statement 1).
they were issued.
Pero arrears ay para sa Cumulative lang, hindi
 Answer: Both are TRUE.
non-cumulative (mali ang Statement 2).
 Paliwanag: Gagamitan ng "Time-weighting"
43. Statement 1: Basic EPS is calculated by
ang cash issuance.
dividing the net income attributable to ordinary
50. Statement 1: EPS must be presented on the
shareholders by the weighted average number
face of the income statement even if the
of ordinary shares outstanding.
amount is negative.
Statement 2: Stock dividends and share splits
Statement 2: Book Value per share is a more
are applied retroactively to the beginning of the
accurate measure of a stock's market value
period for EPS calculation.
than EPS.
 Answer: Both are TRUE.
 Answer: Statement 1 is TRUE.
 Paliwanag: Ito ang standard rules ng PAS 33.
 Paliwanag: Walang kinalaman ang book value
44. Statement 1: Preference dividends on
sa "market value" (mali ang Statement 2).
cumulative preference shares are deducted
from net income only if they are declared.
Statement 2: Non-cumulative preference
dividends are deducted from net income only if
declared.
 Answer: Statement 2 is TRUE.
 Paliwanag: Sa Cumulative, kahit hindi i-
declare, dapat ibawas ang 1-year dividend sa
EPS (mali ang Statement 1).
45. Statement 1: Diluted EPS is calculated only if
the potential ordinary shares have a "dilutive"
effect (decrease EPS).
Statement 2: If the exercise price of share
options is higher than the average market
price, the options are "anti-dilutive."
 Answer: Both are TRUE.
 Paliwanag: Kung ang options ay magpapataas
ng EPS (anti-dilutive), huwag na itong isama sa
computation.
46. Statement 1: The "Treasury Stock Method" is
used to determine the dilutive effect of share
options and warrants.
Statement 2: The "If-Converted Method"
assumes that convertible bonds were
converted into shares at the beginning of the
period.
 Answer: Both are TRUE.
 Paliwanag: Ito ang dalawang methods sa
Diluted EPS.
47. Statement 1: When calculating Diluted EPS for
convertible bonds, the interest expense (net of
 Chapter 25: Quasi-  Paliwanag: Hindi ito dissolution (mali ang
Statement 1). Accounting reset lang ito.
Reorganization 58. Statement 1: Revaluation surplus can be used
51. Statement 1: A Quasi-Reorganization allows a to absorb the deficit in a quasi-reorganization.
company to eliminate a large deficit by Statement 2: Once the deficit is eliminated,
charging it against share premium. any remaining Revaluation Surplus must be
Statement 2: Assets are restated at their fair closed to Share Premium.
values, which usually results in a further  Answer: Both are TRUE.
increase in the deficit.  Paliwanag: Ginagamit lahat ng available
 Answer: Both are TRUE. reserves pambura ng lugi.
 Paliwanag: Ito ang "accounting reset." 59. Statement 1: A quasi-reorganization is only
Karaniwang bumababa ang asset values allowed if the company is in a state of
(write-down) kaya lumalaki ang deficit bago ito insolvency.
burahin. Statement 2: A company can undergo quasi-
52. Statement 1: Retained earnings following a reorganization even if it is not insolvent, as long
quasi-reorganization must have a zero as it has a large, chronic deficit.
balance.  Answer: Statement 2 is TRUE.
Statement 2: Any surplus created during a  Paliwanag: Hindi kailangang bankrupt; basta
quasi-reorganization is credited to Retained may matagal nang lugi na gustong burahin
Earnings to provide for future dividends. (Statement 2).
 Answer: Statement 1 is TRUE. 60. Statement 1: All assets and liabilities must be
 Paliwanag: Ang "surplus" o sobra ay remeasured at fair value during a quasi-
napupunta sa Share Premium, hindi sa RE. reorganization.
Bawal mag-dividend agad (mali ang Statement Statement 2: Only assets that are overvalued
2). are required to be adjusted.
53. Statement 1: Shareholders must approve the  Answer: Statement 1 is TRUE.
quasi-reorganization before it can be  Paliwanag: Dapat maging realistic ang buong
implemented. balance sheet, kaya lahat i-measure
Statement 2: SEC approval is not required for (Statement 1).
a quasi-reorganization in the Philippines.
 Answer: Statement 1 is TRUE.
 Paliwanag: Kailangan ng SEC approval para
dito (mali ang Statement 2).
54. Statement 1: After the reset, the Retained
Earnings account must be "dated" for a period
of 3 to 10 years.
Statement 2: The purpose of "dating" is to
inform users that the earnings are earned after
the reorganization date.
 Answer: Both are TRUE.
 Paliwanag: Ito ay para sa transparency sa
mga investors.
55. Statement 1: Inventory write-downs in a quasi-
reorganization are recognized as an expense
in the income statement of the current year.
Statement 2: All adjustments in a quasi-
reorganization are charged directly to Retained
Earnings (Deficit).
 Answer: Statement 2 is TRUE.
 Paliwanag: Hindi ito dadaan sa income
statement; diretso sa RE (mali ang Statement
1).
56. Statement 1: If the share premium is
insufficient to wipe out the deficit, the par value
of shares may be reduced.
Statement 2: Reducing the par value to
eliminate a deficit is known as a
"Recapitalization."
 Answer: Both are TRUE.
 Paliwanag: Ito ang last resort para mabura
ang deficit.
57. Statement 1: A quasi-reorganization results in
the creation of a new legal entity.
Statement 2: The company continues as the
same legal entity but with a "fresh start" in its
accounting records.
 Answer: Statement 2 is TRUE.