BSA IA3 Quizzes

GROUP 5

THEORIES

1. Which of the following risks are inherent in a. Embedded derivative

an interest rate swap agreement? b. Derivative
I. The risk of exchanging a lower interest rate for a c. Financial asset
higher interest rate. d. All of these
II. The risk of nonperformance by the counterparty
to the agreement. 4. The key difference between a forward and a
a. I only futures contract is:
b. II only a. A forward contract is highly customized
c. Both I and II where a futures contract is not.
d. Neither I and II b. A forward contract is bought and sold on
organized exchanges.
2. Future contracts trade with every month as a c. Only the forward contracts have settlement
delivery month. A company is hedging the dates.
purchase of the underlying asset on June 15. d. All of the above.
Which future contracts should it use?
a. The May contract 5. The purpose of derivatives is to:
b. The June contract a. Increase the risk so the return is larger.
c. The July contract b. Eliminate risk for both parties in the transaction.
d. The August contract c. Postpone the risk for both parties in the
transaction.
3. It is a financial instrument or other contract d. Transfer the risk from one person to another.
that derives its value from the changes in value
of some other underlying asset or other
instrument.

PROBLEM SOLVING

1. On January 1, 2018, Aloha Company received a four-year P5,000,000 loan with interest payments occurring
at the end of each year and the principal to be repaid on December 31, 2021.

The interest for 2018 is the prevailing market rate of 10% on January 1, 2018, and the market interest rate
every January 1 resets the variable rate of interest for that year. The "underlying" fixed interest rate is 10%.

In conjunction with the loan, the entity entered into a "receive variable, pay fixed" interest rate swap agreement
with a financial institution as cash flow hedge. The interest swap payment will be made on December 31 of
each year.

The market rate of interest is 6% on January 1, 2019 and 8% on January 1.2020 The PV of an ordinary annuity
of 1 at 6% for three periods is 2.67 and the PV of an ordinary annuity of 1 at 8% for two periods is 1.78.

What is the derivative asset or liability on December 31, 2018?

a. 600,000 asset
b. 600.000 liability
c. 534,000 asset
d. 534,000 liability

Ans. D
The interest rate on January 1, 2019 is 6% which is 4% lower than the underlying fixed rate of 10%.

This means that Aloha Company shall make an annual interest swap payment to the financial institution of
P5,000,000 times 4% or P200,000.
Since the term of the loan is 4 years and one year already expired, Aloha Company shall pay P200,000 at the
end of 2019 and can expect to pay P200,000 at the end of 2020 and 2021.

Thus, the present value of the three annual payments of P200,000 is recognized as interest rate swap payable
on December 31, 2018 or P200,000 times 2.67 equals P534,000.

2. Janina Company regularly hedges purchase requirements and the sale of finished products in the futures
market. The derivative contracts are designated as cash flow hedge:

On December 1, 2024, the entity entered into the following three contracts.

All three contracts are to be settled on January 1, 2025. The market price per unit on December 31, 2024 are
P75 for refined sugar, P91 for milk, and P195 for ice cream.

What amount should be reported as derivative asset or liability arising from the contracts on December
31, 2024?

a. 300,000 asset
b. 600,000 asset
c. 900,000 liability
d. 450,000 liability

Solution: Ans. B
Sugar “purchase" ​ ​ (20,000 × 15) ​​ 300,000
Milk “purchase" ​ ​ (50,000 × 9) ​ ​ (450,000)
Ice cream “sell" ​ ​ (30,000 × 25) ​​ 750,000

Future contract receivable — December 31, 2024 ​ 600,000

3. On January 1, 2024, Hazel Company entered into a call option contract for speculation with a bank. The
contract gave the entity the option to purchase 10,000 shares at P100 per share. The option expires on April
30, 2024.

Each share is trading at P100 on January 1, 2024 at which time the entity paid P10,000 for the call option.

The price per share is P120 on April 30, 2024, and the time value of the option has not changed.

In order to settle the option contract, the entity would most likely

a. Pay the bank P200,000.

b. Purchase the shares at P100 per share and sell the shares at P120 per share to the bank.
c. Receive P200,000 from the bank.
d. Receive P190,000 from the bank.

Solution: Ans. C
Market price per share ​ ​ ​ 120
Option price ​ ​ ​ ​ ​ 100
Fair value of call option ​ ​ ​ 20
Call option receipt (10,000 × 20) ​ ​ 200,000

4. On June 30, 2024, Ester Company entered into a firm commitment to purchase equipment from Nagasaki
Company for ¥80,000,000 on August 31, 2024. The exchange rate on June 30 is ¥100 = $1.
To reduce the exchange rate risk that could increase the cost of the equipment in U.S. dollars, the entity paid
$12,000 for a call option contract.

The forward contract gave the entity the option to purchase ¥80,000,000 at an exchange rate of ¥100 = $1 on
August 31.

On August 31, 2024, the exchange rate is ¥93 = 1.

What amount in U.S. dollars did the entity save by purchasing the call option?

a. 12,000
b. 48, 215
c. 60, 215
d. 0

Solution: Ans. B
Dollar equivalent - August 31 (80,000,000/ 93 ) ​ 860.215
Dollar equivalent - June 30 (80,000,000/100) ​ 800,000
Total saving ​ ​ ​ ​ ​ ​ 60,215
Payment for call option ​ ​ ​ ​ 12,000
Net saving gain on call option ​ ​ ​ 48,215

5. On November 1, 2024, Cassandra Company sold some limited edition art prints to Noritake
Company for ¥47,850,000 to be paid on January 1, 2025.

The current exchange rate on November 1, 2024 was ¥110= $1, so the total payment at the
current exchange rate would be equal to $435,000.

Cassandra Company entered into a forward contract with a large bank to guarantee the
number of dollars to be received.

According to the terms of the contract, if ¥47,850,000 is worth less than $435,000, the bank
shall pay Cassandra Company the difference in cash.

Likewise, if ¥47,850,000 is worth more than $435,000, Cassandra Company shall pay the bank the difference
in cash. The exchange rate on December 31, 2024 is ¥120 = $1.

What amount in U.S. dollars should be reported as derivative asset or liability on December 31, 2024?

a. 398,750 asset
b. 398,750 liability
c. 36,250 asset
d. 36,250 liability

Solution: Ans. C
Dollar equivalent - November 1, 2010 ​ ​ ​ 435,000
Dollar equivalent - 12/31/2010 (47,850,000/120) ​ ​ 398,750
Forward contract receivable - December 31, 2010 ​ ​ 36,250
GROUP 6

THEORIES

1. Agricultural activity includes all of the D. Must possess all of these characteristics
following, except
A. Raising livestock 4. When converting from cash basis to accrual
B. Perennial cropping basis, which of the following adjustments
C. Aquaculture should be made to cash paid for expenses to
D. Ocean fishing determine accrual basis expense?
A. Add beginning accrued expense
2. Which of the following criteria must not be B. Subtract beginning prepaid expense
satisfied before a biological asset can be C. Subtract ending prepaid expense
recognized? D. Subtract ending accrued expense
A. The entity controls the asset as a result of past
event. 5. The premium on a four-year insurance policy
B. It is probable that future economic benefits expiring on December 31, 2023 was paid in total
relating to the asset will flow to the entity. on January 1, 2020. If the original payment was
C. An active market for the asset exists. recorded as prepaid asset, the balance in the
D. The fair value can be measured reliably. prepaid asset account on December 31, 2021
would be
3. A bearer plant is a living plant that A. Lower than the balance on December 31, 2020
A. Is used in the production or supply of agricultural B. Lower than the balance on December 31,
produce. 2022
B. Is used to bear produce for more than one C. The same as the balance on December 31,
period. 2023
C. Has a remote likelihood of being sold as D. The same as the original payment
agricultural produce, except for incidental scrap
sales.

PROBLEM SOLVING

1. Ball Company purchased a P2,000,000 ordinary life insurance policy on its its president. Ball Company is
the beneficiary under the life insurance policy. The entity provided the following data for the current year:

Cash surrender value, January 1 ​ ​ 90,000

Cash surrender value, December 31 ​ 110,000
Annual advance premium paid January 1 ​ 50,000
Dividend received July 1 ​ ​ ​ 5,000

What amount should be reported as life insurance expense for the current year?

A. P50,000
B. P30,000
C. P25,000
D. P70,000

Solution:
Cash surrender value, December 31 ​ P 110,000
Cash surrender value, January 1 ​ ​ (90,000)
Increase in Cash surrender value ​ ​ 20,000

Annual advance premium paid January 1 ​ ​ 50,000

Less: Increase in Cash surrender value ​ ​ 20,000
Dividend received July 1 ​ ​ ​ ​ 5,000
Life insurance expense for the current year ​​ P 25,000
2. Chain Company purchased a P5,000,000 life insurance policy on its president. Chain Company is the
beneficiary of the life insurance policy. The entity provided the following information regarding the policy for the
current year:

Cash surrender value, value, January 1 ​ ​ 435,000

Cash surrender value, December 31 ​ ​ 450,000
Annual advance premium paid January 1 ​ ​ 150,000

During the current year, dividend of P25,000 was applied to increase the cash surrender value of the policy.

What amount should be reported as life insurance expense for the current year?

A. P150,000
B. P110,000
C. P135,000
D. P115,000

Solution:
Cash surrender value, December 31 ​ ​ 450,000
Cash surrender value, January 1 ​ ​ ​ (435,000)
Increase in Cash surrender value ​ ​ ​ 15,000

Annual advance premium paid January 1 ​ ​ 150,000

Less: Increase in Cash surrender value ​ ​ 15,000
Dividend received ​ ​ ​ ​ ​ 25,000
Life insurance expense for the current year ​​ 110,000

3. Joan Company provided the following data:

Value of biological asset at acquisition cost on December 31, 2024 ​ ​ ​ 6,000,000

Fair valuation surplus on initial recognition at fair value on December 31, 2024 ​ ​ 500,000
Increase in fair value on December 31, 2025 due to growth and price fluctuation ​ ​ 900,000
Decrease due to harvest in 2025 ​ ​ ​ ​ ​ ​ ​ ​ 100,000

What amount of net gain from change in fair value of biological asset should be reported in the 2025
income statement?

A. 1,400,000
B. 1,300,000
C. 900,000
D. 800,000

Solution:
Change in fair value in 2025 ​​ ​ 900,000
Decrease in fair value due to harvest ​ (100,000)
Net gain from change in fair value in 2025 ​ 800,000

4. During 2024, Kew Company, a service organization, had P200,000 in cash sales and P3,000,000 in credit
sales.

The accounts receivable balances were P400,000 and P485,000 on December 31, 2023 and 2024,
respectively.

Under cash basis, what amount should be reported as sales for 2024?

A. 3,285,000
B. 3,200,000
C. 3,115,000
D. 2,915,000
Solution:
Accounts receivable - Dec. 31, 2023 ​ P 400,000
Credit sales ​ ​ ​ ​ ​ ​ 3,000,000
Total ​ ​ ​ ​ ​ ​ ​ 3,400,000
Less: Accounts receivable Dec. 31, 2024 ​ ​ (485,000)
Collections ​ ​ ​ ​ ​ ​ 2,915,000
Cash sales ​ ​ ​ ​ ​ ​ 200,000
Total sales - cash basis ​ ​ ​ ​ 3,115,000

5. Miramar Company provided the following information for the current year:

December 31 ​ ​ January 1
Inventory ​ ​ ​ ​ 8,000,000 ​ ​ ​ 9,000,000
Prepaid expenses ​ ​ ​ 100,000 ​ ​ ​ 50,000
Accounts payable ​ ​ ​ 7,500,000 ​ ​ ​ 7,000,000
Accrued expenses ​ ​ ​ 500,000 ​ ​ ​ 300,000
Cost of goods sold ​ ​ ​ 15,000,000
Expenses ​ ​ ​ ​ 3,000,000

The expenses for the current year included depreciation of P200,000 and amortization of P100,000.

What total amount was paid for expenses during the current year?

A. 2,550,000
B. 2,850,000
C.2,700,000
D. 3,150,000

Solution:
Expenses recorded for the current year ​ ​ 3,000,000
Depreciation ​ ​ ​ ​ ​ ​ ( 200,000)
Amortization ​ ​ ​ ​ ​ ​ ( 100,000)
Prepaid expenses - December 31 ​ ​ ​ 100,000
Prepaid expenses - January 1 ​ ​ ​ ( 50,000 )
Accrued expenses - December 31 ​ ​ ​ ( 500,000)
Accrued expenses - January 1 ​ ​ ​ 300,000
Cash paid for expenses ​ ​ ​ ​ 2,550,000
GROUP 7

THEORIES

1. What is the major record under the single

entry system? 4. A company mistakenly recorded equipment
A. Cashbook costing ₱800,000 as Repairs & Maintenance
B. Capital Expense in 2023. What type of error is this, and
C. Journal how should it be corrected?
D. Regine A. Counterbalancing error – adjust through 2024
income only
2. A system of record keeping in which B. Counterbalancing error – restate comparative
transactions are not analyzed and recorded in financial statements
the double entry framework is called C. Noncounterbalancing error – adjust retained
A. Double entry earnings and depreciation prospectively
B. Equilibrium D. Noncounterbalancing error – no correction is
C. Single entry system needed as it cancels itself in 2 years
D. Ogie
5. Which of the following shareholder rights 18
3. An entity failed to record ₱60,000 accrued most commonly enhanced in an issue of
salaries expense in 2023. If the error is not preference shares?
corrected, what will be the effect on 2023 net A. The right to vote for the board of directors.
income and 2024 net income, respectively? B. The right to maintain one's proportional interest.
A. Understated and Overstated C. The right to receive a full cash dividend
B. Overstated and Understated before dividends are paid to other classes of
C. Overstated and No effect share capital
D. No effect and Understated
D. The right to vote on major corporate issues

PROBLEM SOLVING

6. Lanao Company showed the following increase (decrease) in ledger account balances during the current
year:

There were no transactions affecting retained earnings other than a P1,500,000 cash dividend and a P250,000
prior period error from understatement of ending inventory.

What amount should be reported as net income for the current year?
A. 2,000,000
B. 2,500,000
C. 3,250,000
D. 3,000,000

Solution:
Net change in Assets = 800,000 − 400,000 + 300,000 + 950,000 = ​ ​ ₱1,650,000
Net change in Liabilities = 500,000 − 600,000 = ​ ​ ​ ​ ​ (₱100,000)
Assets − Liabilities = 1,650,000 − (−100,000) = ​ ​ ​ ​ ​ ₱1,750,000
Equity changes known (excluding retained earnings) Share capital +700,000,
Share premium +300,000 → ​​ ​ ​ ​ ​ ​ ​ ₱1,000,000
So change in Retained Earnings = 1,750,000 − 1,000,000 = ​ ​ ​ ₱750,000
RE = Net Income − Dividends + Prior period adjustment
750,000 = NI − 1,500,000 + 250,000
750,000 = NI − 1,250,000
NI = 2,000,000

7. Victoria Company revealed the following errors in the financial statements:

Ending inventory ​ ​ Depreciation

2023 ​ ​ ​ ​ 200,000 understated ​​ 50,000 understated
2024 ​ ​ ​ ​ 300,000 overstated ​ ​ 100,000 overstated

At what amount should retained earnings be retroactively adjusted on January 1, 2025?

A. 250,000 increase
B. 250,000 decrease
C. 400,000 decrease
D. 200,000 decrease

Solution:

8. Crescendo Company revealed the following errors in the financial statements:

2023 ​ ​ ​ ​ 2024
Ending inventory ​ ​ ​ 50,000 overstated ​ ​ 200,000 understated
Rent expense ​​ ​ ​ 50,000 understated ​ ​ 100,000 overstated

If none of the errors were detected or corrected, what amount should be reported as net effect of the
errors on retained earnings on December 31, 2024?
A. 250,000 overstated
B. 250,000 understated
C. 450,000 understated
D. 450,000 overstated

Solution:

9. Boe Company revealed the following shareholders equity on December 31, 2024:

6% noncumulative preference share capital, P100 par;

liquidation value P105 per share ​ ​ ​ ​ 1,000,000
Ordinary share capital, P100 par ​ ​ ​ ​ 3,000,000
Retained earnings ​ ​ ​ ​ ​ ​ 950,000
Preference dividends have been paid up to December 31, 2024.

What amount should be reported as book value per ordinary share?

A. 131.70
B. 130.00
C. 129.70
D. 128.00

Solution:

10. The board of directors of Lora Company decided to declare a dividend whereby ordinary shareholders are
to receive a total per share dividend of P4.

The entity provided the following shareholders' equity at year-end:

Preference share capital, P100 par, 7% participating up to 10%,

noncumulative; 25,000 shares issued 2,500,000
Ordinary share capital, P25 par, 250,000 shares issued 6,250,000
Share premium 1,250,000
Retained earnings 5,000,000

What total amount of the dividend must be declared to meet the per share goal of the board of
directors?
A. 1,175,000
B. 1,700,000
C. 1,000,000
D. 1,250,000

Solution:
GROUP 8

THEORIES

1. It is a type of share that can be issued with 4. Dilution of EPS is defined as

little to no money upon satisfying the A. Decrease in earnings per share when any
agreement conditions. financial instrument is converted to any form of
A. Contingent Ordinary Shares share capital
B. Diluted Earnings Per Share B. Decrease in share capital.
C. Basic Earnings Per Share C. Decrease in earnings per share when
D. Contingent Preference Shares convertible instruments are converted to
ordinary shares.
2. Contracts that require the entity to D. Decrease in earnings per share when share
repurchase its own shares at a specified price. capital is converted to debt capital.
A. Written Put Options
B. Contingent Ordinary Shares 5. Earnings per share shall be computed on the
C. Contingent Preference Shares basis of
D. Basic Earnings Per Share A. The number of shares outstanding at the end of
the year
3. Options and warrants are dilutive if the B. A weighted average of the number of shares
option price or exercise price is ____ than the outstanding during the year regardless of the extent
average market price. of fluctuations
A. lower C. A weighted average of the number of shares
B. higher outstanding during the year except that minor
C. equal fluctuations in the number of shares may be
D. 50% disregarded
D. The number of shares outstanding at the middle
of year

PROBLEM SOLVING

1. Ute Company had the following capital structure on December 31, 2023:

Preference share capital, P100 par,

4% cumulative, 25,00 shares issued and outstanding. 2,500,000
Ordinary share capital, P50 par, 200,000 shares. 10,000,000

The entity reported net income of P5,000,000 for the year ended December 31, 2023.

The entity paid no preference dividends during 2022 and paid P160,000 in preference dividends during 2023.

What amount should be reported as basic earnings per share for 2023?
a. 24.20
b. 24.50
c. 25.80
d. 25.00

2. Royal Company reported the following capital structure on January 1, 2023:

Shares issued and outstanding
Ordinary share capital. ​ ​ ​ ​ 200,000
Preference share capital. ​ ​ ​ ​ 50,000

On October 1, 2023, the entity issued a 10% share dividend on ordinary shares and declared the annual cash
dividend of P200,000 on preference shares.

The preference shares are noncumulative, nonparticipating and nonconvertible. Net income for the year ended
December 31, 2023 was P1,920,000.

What amount should be reported as basic Earnings per share for 2023?
a. 8.20
b. 8.72
c. 9.36
d. 7.82

3-4. Cox Company had 1,200,000 ordinary shares outstanding on January 1 and December 31, 2024. In
connection with the acquisition of a subsidiary in June 2023, the entity is required to issue 50,000 additional
ordinary shares on July 1, 2025 to the former owners of the subsidiary. The entity paid P200,000 annual
preference dividends in 2024 and reported net income of P3,400,000 for 2024. The preference share is
noncumulative and nonconvertible.

3. What amount should be reported as basic earnings per share?

A. 2.72
B. 2.67
C. 3.00
D. 2.83

4. What amount should be reported as diluted earnings per share?

A. 2.83
B. 2.72
C. 2.67
D. 2.56

5. Dunn Company had 200,000 ordinary shares with P20 par value and 20,000 shares of P100 par, 6%
cumulative, convertible preference share capital outstanding for the entire current year.

Each preference share is convertible into 5 ordinary shares. The net income for the current year was
P840,000.

What amount should be reported as diluted earnings per share?

A. 2.40
B. 2.80
C. 3.60
D. 4.20
GROUP 9

THEORIES

1. All would indicate that hyperinflation exists, B. A nonpublicly accountable entity with total
except liabilities between P3,000,000 and P250,000,000.
A. The general population regards monetary C. An entity that is not a holder of a secondary
amounts in terms of relatively stable foreign license issued by a regulatory agency.
currency. D. A public utility
B. The cumulative inflation rate over three years is
approaching or exceeds 100%. 4. All of the following entities are publicly
C. Inflation rates have exceeded interest rate in accountable, except
three successive years A. An entity whose shares are traded in a public
D. The general population prefers to keeps its market.
wealth in nonmonetary assets B. An entity whose debt instruments but not the
shares are traded in a public market.
2. When an entity prepares financial statements C. An entity whose shares and debt instruments
on a current cost basis, how is the cost of are traded in an over-the-counter market.
goods sold computed? D. An entity that is not in the process of issuing
A. Number of units sold times average current shares and debt instruments for trading in a
cost public market
B. Number of units sold times current cost at
year-end 5. This is defined as the first annual financial
C. Number of units sold times beginning current statements in which an SME adopts IFRS for
cost SMEs.
D. Beginning inventory at current cost plus cost of A. IFRS financial statements
goods purchased less ending inventory at current B. First annual financial statements that
cost conform with IFRS for SMES
C. Opening statement of financial position
3. In the Philippines, which entity is not an D. First audited financial statements
SME?
A. A nonpublicly accountable entity with total assets
between P3,000,000 and P350,000,000.

PROBLEM SOLVING

Dahlia Company was formed on January 1, 2018. Selected balances from historical cost statement of financial
position on December 31, 2024 were:

Land purchased on January 1, 2018 ​ ​ ​ 2,400,000

Investment in long-term bonds purchased on
January 1, 2021 ​ ​ ​ ​ ​ ​ 1,200,000
Long term debt issued on January 1, 2018 ​ ​ ​ 1,600,000

The general price index was 120 on January 1, 2018, 150 on January 1, 2021 and 300 on December 31, 2024

1. What amount should be reported in a hyperinflationary statement of financial position for land?
A. 2,400,000
B. 6,000,000
C. 4,800,000
D. 3,000,000

2. What amount should be reported in a hyperinflationary statement of financial position for investment
in bonds?
A. 3,000,000
B. 2,400,000
C. 1,200,000
D. 1,500,000
3. What amount should be reported in a hyperinflationary statement of financial position for long-term
debt?
A. 4,000,000
B. 3,200,000
C. 2,000,000
D. 1,600,000

4. What amount of unrealized holding gain should be reported in 2024?

A. 600,000
B. 500,000
C. 100,000
D. 0

5. What amount of realized holding gain should be reported in 2026?

A. 300,000
B. 250,000
C. 50,000
D. 0
GROUP 10

THEORIES

1. Fair presentation in accordance with IFRS for 3. Under PFRS for SMEs, when is a basic
SMEs is presumed to result from financial instrument measured at the present
A. Compliance with IFRS for SMEs by an entity that value of future payments discounted at the
has public accountability market rate of interest?
B. Compliance with IFRS for SMEs, with additional A. When the instrument is measured at fair value
disclosures where necessary, by an entity that has through profit or loss.
public accountability. B. When the arrangement is a financing
C. Compliance with IFRS for SMEs by an entity that transaction, payment is deferred beyond normal
does not have public accountability. credit terms, or the interest rate is not at market
D. Compliance with IFRS for SMEs, with rate.
additional disclosures where necessary, by an C. When the investment in shares is publicly
entity that does not have public accountability. traded.
D. When transaction costs are included in the
2. A nonpublicly accountable entity can claim transaction price.
compliance with IFRS for SMEs when the entity
I. Complies with local tax requirements that are 4. Investments in associates must be tested for
substantially the same as IFRS for SMEs. impairment when the entity uses
II. Complies with local tax requirements that are, A. Cost model, equity method or fair value model.
except in name, word for word the same as IFRS B. Cost model or equity method.
for SMEs. III. Complies with all the requirements of C. Cost model or fair value model.
IFRS for SMES. D. Equity method or fair value model.
IV. Complies with full IFRS.
5. The useful life of the intangible asset of an
A. I and III SME is:
B. II and III A. Either definite or indefinite
C. II, III and IV B. Definite
D. III and IV C. Indefinite
D. Ten years

PROBLEM SOLVING

For Questions 1 and 2 The following information pertains to the assets of KCGRD Company:

CURRENT ASSETS
Cash and cash equivalents ​ ​ ​ ​ ​ ​ ₱17,928
Financial assets at fair value through profit or loss ​ ​ ​ 11,820
Derivative financial instruments ​ ​ ​ ​ ​ 1,069
Available-for-sale financial assets ​ ​ ​ ​ ​ 1,950
Trade and other receivables​ ​ ​ ​ ​ ​ 19,765
Inventories ​ ​ ​ ​ ​ ​ ​ ​ 24,700
Total current assets ​​ ​ ​ ​ ​ ​ ₱ 77,232

NON-CURRENT ASSETS
Assets of disposal group classified as held for sale ​​ ​ ₱3,333
Derivative financial instruments, net of current portion ​ ​ 395
Available-for-sale financial assets, net of current portion ​ ​ 17,420
Trade and other receivables, net of current portion​ ​ ​ 2,322
Deferred income tax assets ​ ​ ​ ​ ​ ​ 3,546
Investments in associates and joint ventures ​ ​ ​ 18,649
Property, plant and equipment ​ ​ ​ ​ 155,341
Intangible assets ​ ​ ​ ​ ​ ​ ​ 26,272
Total non-current assets ​ ​ ​ ​ ​ ₱227,278

TOTAL ASSETS ​ ​ ​ ​ ​ ₱304,510

1. Under PFRS for SMEs, what amount should be presented as Total Assets?
A. ₱304,510
B. ₱283,083
C. ₱264,434
D. ₱77,232

2. Under Full PFRS, what amount should be presented as Total Assets?

A. ₱304,510
B. ₱283,083
C. ₱264,434
D. ₱77,232

For Question 3
On January 1, 2024, an SME acquired 30% of the ordinary shares of an investee for P5,000,000 plus
transaction cost of P200,000. The SME used the cost model to account for the investment in associate. There
is no published price quotation for the investment in associate.

The investee recognized a net loss of P2,000,000 for 2024 and paid dividends of P500,000 during [Link]
fair value of the investment is P4,000,000 on December 31, 2024 and the cost of disposal is estimated at
P100,000.

3. Assuming no value in use is determinable, what is the amount of the impairment loss recognized by
the SME for the year 2024?
A. 1,000,000
B. 1,200,000
C. 1,300,000
D. 3,900,000

Solution:

For Question 4
On January 1, 2024, SME acquired a 30% interest in the ordinary shares of another entity that carry voting
rights for P15,000,000.

On this date, the carrying amount of the net assets acquired is P13,250,000. The carrying amount of the
identifiable assets and liabilities of the investee equaled fair value except for equipment whose fair value
exceeded the carrying amount by P2,500,000.

The remaining useful life for the equipment is five years and any implicit goodwill is amortized over the
maximum allowed by SME standard. The investee reported net income of P20,000,000 for 2024 and paid cash
dividend of P7,500,000 on December 31, 2024. The fair value of the investment in associate is P21,250,000 on
December 31, 2024 and there is no published price quotation. SME elected to use the equity method.

4. What is the amount of implicit goodwill included in the investment’s carrying amount upon
acquisition?
A. 10,000,000
B. 10,275,000
C. 11,025,000
D. 11,500,000
Solution:

For Question 5
On January 1, 2024, an SME purchased a trademark for a line of products from a competitor for P3,000,000.
Management expected to use the trademark indefinitely and could not reliably estimate its useful life. Market
analysis suggested the trademarked products would generate cash inflows indefinitely.

However, in 2027, a competitor developed a technological breakthrough expected to eliminate demand for the
SME’s products once launched in 2030. As a result, the SME now expects the trademarked product line to be
used only until December 31, 2029. On December 31, 2027, the SME assessed the recoverable amount of the
trademark at P500,000. The SME’s financial year-end is December 31, and the company intends to continue
producing the products until the end of 2029.

5. Calculate the impairment loss that the SME must recognize on the trademark on December 31, 2027.
A. 2,500,000
B. 500,000
C. 3,000,000
D. 0

Solution: Carrying Amount - Recoverable Amount = Impairment Loss 3,000,000 - 500,000 = 2,500,000
GROUP 11

THEORIES

1. (problem 30-1) A provision is B. Not required to file financial statements under

a. A liability of uncertain timing or amount. SEC Rule 68
b. A possible obligation as a result of past event. C. Not in the process of filing financial statements
c. An adjustment to the carrying amount of asset. for the purpose issuing equity instruments in a
d. A liability of certain timing or amount public market D. Holder of a secondary license
issued by regulatory agency
2. (problem 30-3) When the occurrence of a
contingent asset is probable and measurable, 8. Which small entity is not exempted from the
the contingent asset should be mandatory adoption of PFRS for Small Entities?
a. Recognized and disclosed A. A small subsidiary of a parent under full PFRS
b. Classified as an appropriation of retained B. A small subsidiary of a foreign parent moving
earnings. toward full IFRS
c. Disclosed but not recognized C. A small joint venture under full PFRS
d. Neither recognized nor disclosed. D. A small entity preparing financial statements
under full PFRS and has not decided to
3. (Problem 30-6) It is the deferred tax liquidate
consequence attributable to a deductible
temporary difference and operating loss 9. What is the measurement of a provision?
carryforward. a. Best estimate at reporting date
a. Deferred tax liability b. Best estimate at settlement date
b. Deferred tax asset c. Present value of future payment
c. Current tax liability d. Midpoint of the range
d. Current tax asset
10. A small entity shall account for a lease
4. (Problem 31-1) What is the formula in using
computing equity? a. Operating lease model
A. Investments by owners plus retained b. Finance lease model
earnings minus distributions to owners c. Either operating lease or finance lease
B. Investments by owners plus accumulated losses d. Operating lease for lessee and finance lease for
C. Investments by owners minus retained earnings lessor
D. Investment by owners plus distribution to owners

5. What is the measurement of equity shares

issued?
A. Fair value of cash received or receivable
B. Fair value of cash or receivable plus direct issue
cost
C. Fair value of cash received or receivable less
direct issue cost
D. Fair value of shares issued less direct issue cost

6. An entity shall account for the transaction

cost of an equity transaction as
A. An expense immediately
B. A deduction from equity
C. An addition to equity
D. A deduction from retained earnings

7. Which is not within the definition of a small

entity?
A. With total assets or total liabilities between
P3,000,000 or 100,000,000