CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/SANTOS

MAY 2024 CPALE BATCH 95
INVESTMENTS
1. A financial asset is (choose the incorrect one)
a. Cash
b. A contractual right to receive cash or another financial asset from another entity i. e
. Receivables

c. A contractual right to exchange financial instruments with another entity under conditions that are
potentially unfavorable Favorable
d. An equity instrument of another entity i .
.
e ElFUPL & ElFOC

2. Financial assets include all of the following, except

a. Cash in bank
b. Trade accounts and notes receivable
c. Equity investments represents claim for future receipt of goods/services

d. Inventory, equipment, intangible assets and prepaid expenses

3. The irrevocable election to present in OCI changes in fair value of financial asset is applicable to
a. An investment in equity instrument held for trading.
account
Inocany
DEBT

b. An investment in equity instrument not held for trading.

c. A financial asset measured at amortized cost
d. A financial asset measured at fair value through profit or loss.
4. A debt investment shall be measured subsequently at amortized cost
a. By irrevocable designation
DIFIPL b. When the debt investment is managed and evaluated on a document risk-management strategy.
c. When the debt investment is held for trading
d. When the business model is to collect contractual cash flows that are solely principal and interest.
5. A debt investment shall be measured at fair value through other comprehensive income
a. When the debt investment is held for trading DIFVDL
b. When the debt investment is not held for trading.
c. By irrevocable designation DIFUPL option)
(Fr

d. When the business model is to collect contractual cash flows and also to sell the financial asset.
6. Under the fair value option, an entity may
a. Irrevocably designate a debt investment as measured at fair value through profit or loss even if the
amortized cost or FVOCI measurement is satisfied.
b. Irrevocably designate a debt investment as measured at FVOCI.
c. Revocably designate a debt investment as measured at FVPL.
d. Designate all instruments as measured at fair value through profit or loss.
7. When can classification of an instrument on initial recognition be changed?
a. Reclassification is only permitted on the change of the contractual cash flow.
b. Reclassification is only permitted on the change of an entity’s business model.
c. Reclassification is only permitted where a category becomes tainted.
d. Reclassification is not permitted.
8. Entities account for transfers of investments between categories
a. Prospectively, at the end of the period after the change in the business model.
b. Prospectively, at the beginning of the period after the change in the business model.
c. Retroactively, at the end of the period after the change in the business model.
d. Retroactively, at the beginning of the period after the change in the business model.
\

9. What financial assets are assessed for impairment?

a. Equity investments at FVPL
b. Equity investments at FVOCI
measured at Er&
= no impairment testing
no SPP

c. Debt investments at FVPL

d. Debt investments at amortized cost and debt investments at FVOCI
10. An impairment loss on debt investment is the excess of carrying amount over
contractual cash flows
a. Expected cash flows
b. Contractual cash flows
c. Discounted value of expected cash flows
d. Discounted value of contractual cash flows
7255
 Page 2
11. Which statement is incorrect concerning the equity method?
a. The investment in associate is initially recorded at cost.
b. The investment in associate is increased or decreased by the investor’s share of the profit or loss of the
investee after the date of acquisition.
c. The investor’s share of the profit or loss of the investee is recognized in the investor’s profit or loss.
d. Dividends received from the investee are accounted for as dividend income. Equity investment
reduction in
return of investment

12. If an associate has outstanding cumulative preference shares, the investor computes share of profit or loss of
the investee
a. After adjusting for preference dividends which were actually paid during the year
b. Without regard for preference dividends
c. After adjusting for the preference dividends only when declared non-cumulative
d. After adjusting for the preference dividends, whether or not the dividends have been declared
13. Goodwill arising from an investment in associate is
a. Included in the carrying amount of the investment and amortized over the useful life.
b. Included in the carrying amount of the investment and not amortized. & not tested for impairment
c. Excluded from carrying amount of the investment but accounted for separately.
d. Excluded from carrying amount of the investment but charged to expense immediately.
14. How is the impairment test carried out for an investment in associate?
a. The goodwill is impairment tested individually.
b. The entire carrying amount of the investment is tested for impairment by comparing the recoverable
amount with the entire carrying amount
c. The carrying amount of the investment shall be compared with the market value
d. The recoverable amount of all investments in associates shall be associated together
15. What should happen when the financial statements of an associate are not prepared at the same date as that of
the investor?
a. The associate should prepare financial statements for use by the investor at the same date as that of the
investor.
b. The financial statements of the associate prepared at a different date will be used.
c. Any major transactions between the date of the financial statements of the investor and that of the associate
should be accounted for.
d. As long as the gap is not greater than three months, there is no problem.
16. An investor shall discontinue the use of the equity method when Loses power to participate
a. The investor ceases to have significant influence over the associate. -

in financial o operating
b. The associate operates undue severe long-term restrictions. policy decisions
c. The investor ceases to have control over the associate. significant influence
d. Under all of these circumstances
17. When an investment ceases to be an associate, the fair value of the investment at the date when it
ceases to be an associate is regarded as its
a. Cost on initial recognition as a financial asset
b. Fair value on initial recognition as a financial asset
c. Fair value on initial recognition as a financial liability
d. Amortized cost on initial recognition as an investment
18. The equity method is not applicable under all of the following circumstances, except
a. The investor is a wholly-owned subsidiary
b. The investor’s debt and equity instruments are not traded
not

c. The investor is in the process of filing statements with a regulatory body for the purpose of issuing debt
and equity instruments in a public market
d. The ultimate parent of the investor produces consolidated financial statements.3
Intercompany TXns

19. An entity used the equity method of accounting for its 30% ownership of an investee. An investor has a
-

receivable from the investee. How is receivable reported in investor’s financial statements? Disclosure
Related Party

a. None of the receivable should be reported, but the entire receivable should be offset against the nature of relationship
-

investee’s payable to the investor amount of transaction-

b. Seventy percent should be separately reported, with the balance offset against 30% of the amount of outstanding-

balances
investee’s payable to investor
c. The total receivable should be included as part of the investment in associate
d. The total amount of the receivable should be disclosed separately
20. Which statement best describes investment property?
Inventory a. Property held for sale in the ordinary course of business
PPE b. Property held for use in production of goods and property held for administrative purposes

c. Property held to earn rentals or for capital appreciation mascomplete

-

d. Property held for capital appreciation

7255
 Page 3
21. Investment property includes all of the following, except
a. Land held for long-term capital appreciation
b. Land held for currently undetermined use
c. Property that is being constructed and developed as investment property
d. Property held for sale in the ordinary course of business Inventory
22. Subsequent to initial recognition, the investment property shall be measured using
a. Fair value model or revaluation model
b. Fair value model through OCI
c. Cost model or fair value model
d. Cost model or revaluation model PPE
23. Gain or loss from disposal of investment property is the difference between the
a. Gross disposal proceeds and fair value of the asset
b. Net disposal proceeds and carrying amount of the asset
c. Gross disposal proceeds and carrying amount of the asset
d. Fair value and carrying amount of the asset
24. An investment property is derecognized when
a. It is disposed to a third party
b. It is permanently withdrawn from use
c. No future benefits are expected from the disposal
d. In all of these cases
25. Which additional disclosure must be made when an entity chooses the cost model?
a. The fair value of the property
b. The present value of the property
c. The value in use of the property
d. The net realizable value of the property
26. Which disclosure shall be made when the fair value model has been adopted?
a. Depreciation method used not depreciated
b. The amount of impairment loss recognized not tested for impairment
c. Useful life not depreciated
d. Net gain or loss from fair value adjustments
27. Transfers between investment property and property, plant and equipment and inventory are appropriate
a. When there is change of use
b. Based on the entity’s discretion
c. Only when the entity adopts the fair value model
d. The entity can never transfer property into another classification once.
28. When the entity uses the cost model, transfer between investment property, property plant and equipment
and inventory shall be accounted for at
a. Fair value
b. Carrying amount
c. Original cost
d. An amount determined by management
29. A transfer from investment property carried at fair value to property, plant and equipment shall be
accounted for at
a. Fair value which becomes the deemed cost of property, plant and equipment
b. Carrying amount
c. Historical amount
d. Fair value less cost of disposal
30. If owner-occupied property is transferred to investment property to be carried using the fair value model,
the difference between the carrying amount and fair value shall be recognized
a. In profit or loss
b. In other comprehensive income
c. In retained earnings
d. As revaluation of property, plant and equipment

End

7255
Property , Plant , & Equipment Acquisition :

Tangible Asset

used in business
-

>
owner-occupied

usedinproduction rendering
a
is

Acquired thm Donation Land BidG

to be used for more than A period -Land
-

#1 I cro , cro

·
,

Iro , un
1 Donated Capital

Initial : cost

< Purchase Price (irreoverable taxes) Donated Capital 50, m

2
cash 50u8
7 DAC
-

7 Est Dismantling costs

3
,

Iw/ present obligation

G pV & land 1 , 200 , wo

Bldg 2 , 800

thm Donation Installation & testing OIS ura un

Asset received at EN
1 , uro , un
-

Registration Legal Fees

share Premium
Capital Expenses : &
-

credit : Shareholder Donated

Nonshareholder : Income
:
who conditions = Donated Capital
charged to
account
9) au , u
unearned 200 , 2 0 95
=
: wi conditioni s
TP
Assessed

Issuance of shares

-
Asset read
Land
n Se
1) #V Asset read 1) Fr asset

2) FV Of shares issued 2) Appraised value

3) par value shares issued 3) Assessed/zonal value

Land 2 , 250 , u

Bidg U , 750 un

Ols
Deferred Payment share Premium inon a

:DashPrice cauiraea
upa measured G

Acquired the Installment payments

Installment purchase of PPS

Pro : Cash price Equivalent

:
PV of payments at Fir

changeofnonmonaasse
and

flows Criskamta timing

differs significantly
Payor Payee machinery 2 , 050 , un
PPE measured at :
1) tr asset given up + cash pd-cash revd * Discount on up 4001 00

2) Ev asset read cash 450 , w -

Dp + Installation costs

hole payable 1 , 200 , uro

* OIS 5001 u

share Premium 300 , 20

>
-
wo commercial substance

Payo-cash
payee
PPE red :
Wasset given up
+ red Acquired thm Issuance of note

* no 6/1 on exchange
1)
PV of payments 1, 000 , 00 x 3 60
.
3 ,1 00
, 000

1
machinery 3 , 400 , 000
Discount on Up 1 , 400 , W machinery Discount up

NPO 500 un

m a
notes pay able
2
Trade -
In
NPO
see 2) Pr of note 5 , 00 , 00 x0 57 =
2 , 80 · wo
co
-OldabstinexchangeForan
.

2 ,850 , W
machinery
PPE received
2 , 150 un
: t assetgren up caa Discount on up

5 , 000 un
- notes
pay able ,

LE asset roud

↓ cash price who trade In

Asset Swap/exchange

Yol Zaro Yold 1s BOOKS

so Oil-zar 6 ,500 , u

cost n
u a

cash 1 1 500 , u

Oil-YOld 5 cro , und

cash read A 500 , unS
1

s6 500 t , , no
cro , or

zard S BookS

Oil-Yold 4 , uro , wo

Cash 1 ,500 : un

Oil-Zaro 5 , 500 , u

/ commercial substance
Trade In :
/ Commercial substance Acquired on account

Invoice price Siuro , to

% Discount (200 , u0]

-
new 4,,00 iro w/o T
machine -
cash price 5
-
Acc Dep old 3 , 00 , c Cash price W/TI
a
-

o
-

%
95

LOSS 400 , Gr MV Purchase price

ampden
machine-old 4 ,2 u W old machine
-
cash .900 , un
3
LOSS
 Land , Building ,
a machinery

Bldg - -
unusable > All to land

- Blag Usable
- Allocate DP accdng to V

L D Old Blag Immediately Demolished For NB

Land

I
1000100
PP

pa
Demolition c
Allocated
LF 150 , u

Do
Inventory
COGS
~ prior
:
assumed by buyer

I Old Demolished For NB

used
-

Bag tempo & expensed

50
Land , u

Blueprint = Ridg
handed
in
CA =
LOSS LIX
Land Improv Silent
a

net demolition cost

emton
to prep land use - Land

I
for construction - B

Amendment :
sale of produced in bringing the asset

to the location & condition intended by management

-D P/L e g sale of samples

. .

sale of salvaged materials amamysince in

are not produced
PRE Land 4 ,200, 000
Land new Bidg land Improv
. Loss 300 , 000
Crash 4 , 500, 000
# 4 , 200
, 000
1 L& OB
usable
# 2 250 , a

to hi since there is a #3
2 not-goesconstruction
200 , 000
2 B [ NB
Crim
,

in
OF

3L

! 150 , n

B
7
8
9

o
Ridaand
:
tempo

minim
↓ permanent Improv : silent
- part of blue print #14
:
BidG
~ silent : LI

LI
cost n

If non-vat registered Capitalized

↑
:
irrecoverable tax
:

:
Silent :
VAT registered : recoverable tax not capitalized

↑
machine

, 000
96 recoverable tax

an
1 m output VAT not cost ·
Offict to

mmm
in
m
expo
exp.
-
-
silen
inefficiency
:
inventory
used more than

asset
not Capital a
readily available For use
Woma
#10

#Il

#
usimo

T
a

expensed

represa
conta

Int . expense

,un
 GOVERNMENT GRANT

-
an assistance by the gov't to an entity

in the Form of transfer of resources

in compliance w/ past/future condition

measurement recognition of income

r
12 , u
Cash 12 ,cro , mo
I/I
as the
recognize income Deferred Grant
:
matching principle Income 12 , uro , un

related expense is incurred

nateciable recognize in proponina

Bldg 9 wo , wo

:Income
asset
cash airro , un

same life , same depn method inition exp 400 , No

homeisrecognizedasthea
:
>
Non-depreciable asset cash 200 un

<
Financial Aid : Income when it becomes receivable
Bag
Dal Goacro
uourasnorate
Gl 900 , ur available for expenses
:
specific expenses
Incomeisrecognized
a

aa in and , and Oth yo

or total expenses
DGI 750 , u

Tuition 750 , w
Gl

#s Presentation

-condition

--
in comes SC :
Income Fr
·
income

Govt Grant

innomanm
as
ration from a Cash Siro , or
I/112d
SFP : Grant reduces Wasset , mo
Sur
DGI
SCI : Lower Depin expense

Factory Blag lacro , u

cash lairau

Repayment
-
Due to non-compliance w/ the conditions attached In D 500 ,000 Dep'n 1 ,200 u

ar EJOC ACC Dep 1 , 200 ,000

-

"Change in Acting Estimate" -

>
Prospectively

From Astno 12 In
>
-
In relation to Deduction
Doi 200000

Pep
112000 a

'Repayment will of asset Gl 700 , 000 1 ,200, 000

Imra
-
to na 4 , 000 , 000
DGI

1/1/2026 Loss On R 1, 000, 000

Alt :
Loss :Income recognized on GG

-No
cash , 000 , 000
5

machine 8 5m .

cash 0 5M .

cash Am

machine Im

Depin 1 4m.

12/31 /24
ca .

Dep 14m

/5yrs

Depn 1 4m
.

12/1/25
Ace .

Dep 1 4m
.

machine Im
1/1/20
cash Im

Pepin am 8 5m
.

12/91/26 Acc .

Dep am
ok - =
1 Um
. +ok + 200k
 BORROWING COSTS

-
costs incurred in relation to borrowings

If incurred in relation to the purchase , construction

-

, or production

aTying Capitali
of a

two
24 1000 , 10 1 0 % =
2 , 400, 000
>

non financial assets

initia
-

START Capitalizing if all are met :

BEA

B - borrowing costs are incured

E
paymentin cana
-
expenditures are incurred

↑ - asset

at

totadrana
> END capitalizing substantially completed
:

>
temporary delay is necessary part of construction

continue to capitalize borrowing cost 6%

capitalized
100

6 6%.

Types

· Actual % Incured
-

~
lower-
Average Interest

specific & General Borrowing

·
WAVE 7 specific borrowings

C
&specific
>
-
=
total General

warspecificbonowingt
·

I/I Ciarano

cane
12/12 2 ,00 , N

i n
· 7/1/25

inte