Test I - Multiple Choices.

Choose the letter

of the best answer.
1.

c.

Which can qualify as SME?

a. Finance entity
b. Insurance entity
c. Meralco
d. None of the above

2.

The entity has public accountability if

I.
It holds assets in fiduciary capacity for a
broad group of outsiders as one of its
primary businesses.
II.
Its debt instruments and equity instruments
are traded in a public market or it is not in
the process of issuing such instruments for
trading in a public market.
III.
It holds assets in fiduciary capacity for a
broad group of outsiders for reasons
intended as its primary business.
a. I and II only
b. I and III only
c. II and III only
d. I, II and III

3.

All of the following are exempted from the

mandatory adoption of the Philippine Financial
Reporting Standards for Small and Medium-sized
Entities (PFRS of SMEs), EXCEPT
a. An entity with concrete plans to conduct an
initial public offering within the next two
years.
b. An entity that was able to acquire another
entity whose shares are traded in the local
market.
c. A wasting asset entity that is using Full
IFRS which pays a dividend and a
liquidating dividend every year as part of its
plan to liquidate its assets.
d. The entire above are exempted.

4.

Which of the following entities is publicly

accountable?
I.
An entity whose shares are traded in a public
market.
II.
An entity whose debts but not its shares are
traded in a public market.
a. Only the First statement is true.
b. Only the Second statement is true
c. All the statements are false
d. All the statements are true

5.

b.

The following are qualitative characteristics which

both the Full PFRS and PFRS for SMEs enumerated
specifically, EXCEPT?
a. Relevance
b. Faithful representation
c. Comparability
d. Timeliness

6.

The following are financial statements that can be

prepared under the PFRS for SMEs, EXCEPT?
a. Statement of Financial position
b. Single statement of income and retained
earnings
c. Notes to financial statements
d. Statement of financial position as at the
beginning of the earliest comparative period

7.

A public accountable entity that uses the PFRS for

SMEs shall not describe the financial statements as
conforming to PFRS for SMEs, even if it is required
by law to prepare the financial statements in
accordance with PFRS for SMEs. Which of the
following entities is covered by this prohibition?
a. An entity thats not a public utility.

d.

An entity that holds assets in a fiduciary

capacity for a broad group of users as one of
its businesses.
An entity that operates primarily as a
supermarket chain and enters into insurance
contracts as the insurer with its customers.
An entity that holds assets in fiduciary
capacity for a broad group of outsiders for
reasons incidental to a primary business.

8.

On 20 February 2011, before an entitys 31

December 2010 financial statements were authorized
for issue, a court ordered the entity to pay CU120,000
damages in full and final settlement of a patent
infringement lawsuit brought against the entity by
one of its competitors. The patent infringement
occurred in 2009. The amount of damages awarded to
the competitor was significantly higher than the
CU10,000CU30,000 that the entity had justifiably
expected to pay throughout the duration of the case.
The entity will not contest the judgment.
In its 31 December 2009 annual financial
statements the entity reported its liability for the
lawsuit
at
CU20,000this
estimate
was
appropriately made taking account of all available
evidence at the time the financial statements were
authorized for issue.
In its 31 December 2010 financial statements the
entity must:
a. Restate the comparative information at 31
December
2009
(i.e.
retrospective
restatement of a prior period error).
b. Measure the provision at 31 December 2010
at CU120,000 (comparative information
2009: CU20,000), i.e. account prospectively
for the change in accounting estimate in its
2010 financial statements.
c. Measure the provision at 31 December 2010
at CU20,000 (comparative information
2009: CU20,000) and record the effect of
the higher than expected settlement in profit
or loss for the year ended 31 December 2011
(i.e. account prospectively for the change in
accounting estimate in the period that the
final settlement amount was determined)
d. Do nothing for the problem is too long.

9.

A change in the presentation and classification of

items in a financial statements is allowed
I.
When it is required by a standard.
II.
When a change in the presentation and
classification will demonstrate a more
appropriate presentation and classification.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

10. When an SME changes the end of the reporting

period and presents financial statements for a period
longer or shorter than one year, an SME must
disclose:
I.
The period covered by the financial
statements.
II.
The reason for using a longer or shorter
period.
III.
The fact that amounts presented in the
financial statements are entirely comparable.
a. I and II only
b. I and III only
c. II and III only
d. I, II and III
11. All of the following are considered line items in the
statement of financial position, except
a. Biological assets carried at fair value
through profit or loss.

b.
c.
d.

Investment in associates using the

equity method.
Investment property.
Current tax assets and liabilities.

12. When after the end of the reporting period an

event occurs that is indicative of conditions that
arose after the end of the reporting period
I.
The entity shall disclose the nature and
effect of the event in the financial
statements.
II.
The entity shall adjust the related
amounts recognized in the financial
statements.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
13. An SME bills a customer for goods that are yet
to be delivered to the customer. Delivery is
delayed in accordance with the instruction from
the customer. The seller recognizes revenue
when the customer takes title provided
I.
It is possible that delivery will be
made.
II.
The item is on hand, identified and
ready for delivery to the customer at
the time sale is recognized.
III.
The
customer
specifically
acknowledges the deferred delivery
instruction.
IV.
The usual payment terms apply.
a. I and II only
b. I, II and III only
c. II, III and IV only
d. I, II, III and IV
14. What is the measurement of investments in
nonconvertible and nonputtable preference
shares?
a. All such investments shall be measured
at fair value through profit or loss.
b. All such investments shall be measured
at amortized cost using the effective
interest method.
c. All such investments shall be measured
at cost less impairment.
d. If the shares are publicly traded or their
fair value can otherwise be measured
reliably, the investments shall be
measured at fair value through profit or
loss.

Life has two rules: #1 Never quit #2 Always remember rule #1.-Unknown

15. Which of the following scenarios would not lead

to the presumption that an entity exerts
significant influence?
a. Holding directly 20% or more of the
voting power of the investee.
b. Holding
indirectly,
through
a
subsidiary, 20% or more of the voting
power of the investee.
c. Holding indirectly, through a joint
venture, 20% or more of the voting
power of the investee.
d. Holding directly 10% of voting power
of the investee and holding indirectly,
through a subsidiary, 10% of the voting
power of the investee.
16. An entity must account for its investment in
jointly controlled entities after initial recognition
using:
a. Either the cost model or the fair value
model (using the same accounting
policy for all investments in jointly
controlled entities).
b. Either the cost model or the fair value
model (model can be elected on an
investment-by-investment basis).
c. Either the cost model, the equity
method or the fair value model (using
the same accounting policy for all
investments in jointly controlled
entities).
d. Either the cost model, the equity
method or the fair value model (model
can be elected on an investment-byinvestment basis).
17. Investment in jointly controlled entities must be
tested for impairment, if the entity uses:
a. The cost model, equity method or fair
value model.
b. The cost model or the equity method.
c. The cost model or the fair value model.
d. The equity method or the fair value
model.
18. A subsidiary is:
a. An entity over which an investor has
significant influence.
b. An entity, including an unincorporated
entity such as a partnership, which is
controlled by another entity (known as
a parent).
c. An entity over which an investor has
joint control.
d. An entity that has one or more
associates.
Page 2

19. Which, if any, of the scenarios below would

lead to the presumption that an entity exerts
significant influence over another entity?
a. holding directly 50 per cent of the
voting power of the investee.
b. holding indirectly, through a subsidiary,
less than 20% of the voting power of
the investee.
c. holding indirectly, through a joint
venture, 20 per cent or more of the
voting power of the investee.
d. holding directly 10 per cent of voting
power of the investee and holding
indirectly, through a subsidiary, 10 per
cent of the voting power of the
investee.
20. The objective of general purpose financial
statements prepared in accordance with the
IFRS for SMEs is:
a. To support the reporting entitys annual
tax return
b. To provide the government of the
jurisdiction in which the reporting
entity
operates
with
financial
information for use in government
statistics or government planning or
both
c. To provide management of the
reporting
entity
with
financial
information about the reporting entity
d. To provide information about the
financial position, performance and
cash flows of the entity that is useful
for economic decision-making by a
broad range of users who are not in a
position to demand reports tailored to
meet their particular information needs
(e.g investors and creditors)
14. Which of the following describes Small and
Medium-sized entities according to IFRS?
I.
Entities who do not have public
accountability
II.
Entities who do publish general
purpose financial statements for
various users
III.
Entities where its debt or equity
instruments are traded in a public
market.
a. I and II only
b. I and III only
c. II and III only
d. I, II and III.
Life has two rules: #1 Never quit #2 Always remember rule #1.-Unknown

15. Which of the following describes Small and

Medium-sized entities in the Philippine setting
according to Securities and Exchange
Commission?
I.
With total assets between P3,000,0000
and P350,000,000 and with total
liabilities between P3,000,000 and
P250,000,000.
II.
That is not required to financial
statements under SEC Rule 68.1.
III.
That is not in the process of filing
financial statements for the purpose of
issuing any class of instruments in a
public market.
IV.
That is a not a holder of secondary
license issued by a regulatory agency
such as a bank, investment house, a
finance company, insurance company,
dealers, a mutual fund and pre-need
company.
a. I, II, III and IV
b. II, III and IV
c. II and III
d. I, II and III
16. A microbusiness entity are entities whose total
assets or total liabilities are below the
P3,000,000 floor threshold. Which of the
following bases of accounting can it use?
I.
Full IFRS
II.
IFRS for SMEs
III.
Single entry system
IV.
Modified cash basis by the Bureau of
Internal Revenue (BIR)
V.
Cash basis
a. I and II only
b. I, II, III and IV only
c. I, II and IV only
d. I, II, III IV and V
17. Which of the following entities are exempt from
mandatory adoption of the IFRS for SME?
I.
A subsidiary of a parent.
II.
A subsidiary of foreign parent that will
be moving toward full IFRS.
III.
A subsidiary of a foreign parent that
has been applying the standard for a
nonpublicly accountable entity for
local reporting purposes and is
considering moving to PFRS for SMEs
in order to align with the expected
move of its foreign parent to the same
standard.
IV.
It has short-term projections that show
that it will breach the quantitative
thresholds set in the criteria for an
Page 3

V.

VI.
VII.
VIII.
IX.
a.
b.
c.
d.

SME and the breach is expected to be

significant and continuing due to its
long-term effect on the entitys asset or
a liability size.
It is part of a group, either as a
significant joint venture or an
associate, that is reporting under full
IFRS.
It is a branch office of a foreign entity
reporting under full IFRS.
It has a concrete plan to conduct an
initial public offering in the next year.
It has a subsidiary that is mandated to
report under full IFRS.
It has been preparing financial
statements using Full PFRS and has
decided to liquidate its assets.
I, II, III, IV, V, VI, VIII, IX only.
II, II, IV, V, VI, VII, VIII and IX only.
II, IV, V, VI, VII, VIII and IX only.
All of the above

18. Which
of
the
following
qualitative
characteristics that is specifically stated both in
Full IFRS and IFRS for SME?
I.
Understandability
II.
Relevance
III.
Materiality
IV.
Reliability
V.
Faithful representation
VI.
Verifiability
VII.
Substance over Form
VIII.
Prudence
IX.
Completeness
X.
Comparability
XI.
Timeliness
XII.
Balance between benefit and cost
a. I, II, IV, and XI only
b. I, II, V and XI only
c. I, II, and XI only
d. I, II, V, VI and XI only

Test II - Modified True or False.

Choose the letter of the best
answer.
a.
b.
c.
d.

Only the first statement is true.

Only the second statement is true.
All of the statements are true.
None of the statements is true.

26. Statement I Cost of opening a new facility

and borrowing costs are not costs of an item of
property, plant and equipment, and an entity

Life has two rules: #1 Never quit #2 Always remember rule #1.-Unknown

shall recognize them as an expense when they

are incurred.
Statement II - IFRS for SMEs requires an
annual review of residual value, useful life and
depreciation method of property, plant and
equipment.
27. Statement I - A small community bank that
takes deposits from the general public can assert
that its financial statements are prepared in
compliance with the requirements of the IFRS
for SMEs because the jurisdiction in which the
bank operates has no formal reporting
requirements that apply to the entity.
Statement II - An entity that chooses not to
account for deferred taxes according to Section
29 Income Tax of IFRS for SME but opt to
follow IAS 12 can still claim compliance with
IFRS for SME as it is properly disclosed in the
notes the said deviation.
21. Statement I Section 16 Investment Property
allow an accounting policy choice of either fair
value through profit or loss or a costdepreciation-impairment model (with some
limited exceptions).
Statement II The cost of a purchased
investment property comprises its purchase
price and any directly attributable expenditure
such as legal and brokerage fees, property
transfer taxes and other transaction costs such as
borrowing cost.
22. Statement I - Section 14 Investment in
Associates requires an entity to choose to
account for any of its investments in associates
in either cost model, fair value model or equity
method.
Statement II - Even though an SME entity has
elected the cost model as its accounting policy
for investments in associates, it must account its
investment in associate using the fair value if
the associate has a published price quotation.
23. Statement I An entity shall measure
inventories at the lower of cost and estimated
selling price less costs to complete and sell.
Statement II Section 13 Inventories does not
apply to the measurement of inventories held by
producers of agricultural and forest products,
agricultural produce after harvest and mineral
and mineral products, to the extent they are
measured at fair value less cost to sell.
24. Statement I An SME entity can still claim
compliance with IFRS for SME if it has opt to
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apply the recognition and measurement

provisions if IAS 39 Financial Instruments:
Recognition & Measurement and the disclosure
requirements of section 11 Basic Financial
Instruments and section 12 Other Financial
Instruments Issues.
Statement II Section 11 requires an amortized
cost model for all basic financial instruments
except for investments in nonconvertible and
nonputtable preference shares and nonputtable
ordinary shares that are publicly traded or whose
fair value can otherwise be measured reliably.

Statement II At the end of each reporting

period, an entity shall measure all financial
instruments within the scope of section 12 at fair
value and recognize changes in fair value in
profit or loss except for equity instruments or
contracts linked to it that is not publicly traded
and whose fair value cannot be measured
reliably.
27. Statement I If the IFRS for SME specifically
addresses a transaction, other event or condition,
an entity shall apply the IFRS always.
Statement II An application of an accounting
policy for transactions, other events or
conditions that differ in substance from those
previously occurring is considered a changed in
accounting policy.

25. Statement I - A financial instrument is a

contract that gives rise to a financial asset and a
financial liability or equity instrument to an
entity.
Statement II - When a financial asset or
financial liability is recognized initially, an
entity shall measure it at the transaction price
(including transaction costs) always.

28. Statement I Section 10 Accounting policies,

estimates and errors provides a different
standard of accounting treatments for changes in
accounting policy, accounting estimates and
prior period errors compared to PAS 8
Accounting policies, changes in accounting
estimates and errors.
Statement II To the extent practicable, an
entity shall correct a material prior period error
retrospectively in the first financial statements
authorized for issue after its discovery.

26. Statement I When a financial asset or

financial liability that falls under the scope of
Section 12 Other Financial Instruments is
recognized initially, an entity shall measure it at
its fair value, which is normally the transaction
price.

Test III - Matching Type. Match information in Box A to Box B (An answer can
only be used once)
BOX A

a.
d.
g.
j.
m.
p.
s.

P 8, 980,000
P 900,000
P 690,000
P 345,000
P 400,000
P 8,580,000
P 47,160,000

b.
e.
h.
k.
n.
q.
t.

P 490,000
P 1,375,000
P 640,000
P 375,000
P 1,652,800
P 80,000,000
P 500,000

c.
f.
i.
l.
o.
r.
u.

P 1, 300,000
P 300,000
P 47,000,000
P 47, 125,000
P 1,650,000
P 48,000,000
P 425,000

BOX B
29. On January 1, 2013, an SME acquired a building for P50,000,000. On December 31, 2013, management assessed that the
useful life of the building is 40 years from the date of acquisition with residual value of P10,000,000. The fair value of the
building of the building on the same date is P65,000,000. On December 31, 2015, SME reassessed that the useful life of
building is P50 years with residual value of P6,000,000. The fair value of the building on December 31, 2015 is
P80,000,000. What is the carrying amount of the building on December 31, 2015?
30. On January 1, 2013, an SME acquired a building for P10,450,000 excluding the P500,000 nonrefundable purchase taxes.
The purchase agreement provided for payment to be made in full on December 31, 2014. Legal fees of P220,000 were
incurred in acquiring the building and paid on January 1, 2013. The building is held to earn lease rentals and for capital
Life has two rules: #1 Never quit #2 Always remember rule #1.-Unknown

Page 5

appreciation. An appropriate discount rate is 12%. What is the initial cost of the building?
31. On January 1, 2013, an SME acquired 30% of the ordinary shares of an investee for P8,000,000 plus transaction cost of
P100,000. The SME uses the cost model to account for the investment in associate. The investee recognized net loss of
P5,000,000 for 2013 and paid dividends of P2,000,000 on December 31, 2013. The fair value of the investment is
P8,580,000 on December 31, 2013 and the cost of disposal is estimated at P400,000. The fair value can be measured
reliably without undue cost or effort. What is the carrying amount of the investment in associate on December 31, 2013?
32. An SME sold goods with list price of P1,000,000 to a customer on normal credit terms of 30 days interest-free credit. Ten
days after the sale, the customer paid the entity P690,000 in full as final settlement of debt that arose from the sale of the
goods. The amount received from the customer included P50,000 value added tax collected by the entity on behalf of the
national government. The settlement amount is net of P200,000 trade discount,P100,000 volume rebate and P10,000 prompt
settlement discount. What is the revenue from the sale of goods?
33. An SME acquired an item of inventory for P2,000,000 on a two-year interest free credit. No cash price is available for an
identical item of inventory in the same market. However, the appropriate discount rate is 10%. The PV of 1at 10% is 0.9091
for one period and 0.8264 for two periods. What is the purchase price for the inventory?
34. On January 1, 2014 an SME machine manufacturing entity sells a customer a machine for P2,000,000 with payment in two
years time. This sale transaction includes an implicit financing transaction (two-year loan). The current cash sale price for
that item if customers pay on delivery is P1,650,000. What amount will be recorded as trade receivables?
35. On January 1, 2013 an entity acquired a plant for P900,000. Management estimates the useful life of the plant as ten years
measured from the date of acquisition. Furthermore, it estimates the residual value of the plant as P100,000. Management
judges that the straight-line method reflects the pattern in which it expects to consume the plants future economic benefits.
At December 31, 2014 the plant was damaged and its recoverable amount was estimated as P690,000. What is the carrying
amount of the plant on December 31, 2014?
36. During 2013, An SME Company decided to change from the FIFO method of inventory valuation to the weighted average
method. Inventory balances under each method were as follows:
FIFO
Weighted average
January 1
7,200,000
7,700,000
December 31
7,900,000
8,300,000
Ignoring income tax, what amount should be reported as the effect of the accounting change in the statement of changes in
equity for 2013?
37. While preparing the financial statements for 2013. Dakila Company discovered computational errors in the 2011 and 2012
depreciation expense. These errors resulted in overstatement of years income by P25,000, net of income tax. The net
income for 2013 is correctly reported at P500,000
The following amounts were reported in the previously issued financial statements:
2012
2011
Retained Earnings, January 1
700,000
500,000
Net Income
150,000
200,000
Retained Earnings,December 31
850,000
700,000
What is the balance of retained earnings on December 31, 2013?
38. On March 1, 2013 entity SME A acquired 30 percent of the ordinary shares that carry voting rights at a general meeting of
shareholders of entity SME B for P500,000 and account for this investment under cost model. On December 31, 2013 entity
SME B declared a dividend of P100,000 for the year 2013. Entity B reported a profit of P80,000 for the year ended
December 31, 2013. At December 31, 2013, the recoverable amount of entity SME As investment in entity SME B is
490,000. There is no published price quotation for entity B. What is the carrying amount of the investment in associate in
December 31, 2013?
39. On January 1,2013, entities A and B each acquired 30 percent of the ordinary voting shares of entity X for P300,000.
Entities A and B immediately agreed to share control over entity X.
For the year ended December 31, 2013 entity X reported profit of P400,000 and declared a dividend of P150,000. At
Life has two rules: #1 Never quit #2 Always remember rule #1.-Unknown

Page 6

December 31, 2013 the fair value of each venturers investment in entity X is P425,000. Entities A and B uses the cost
model to account for its investment in jointly controlled entities. However, there is no published price quotation for entity
X. Investments are accounted for using the cost model.
At December 31, 2013, the venturers must report their investment in entity X at:
40. On January 1,2013, entities X and Y each acquired 30 percent of the ordinary voting shares of entity Z for P300,000.
Entities X and Y immediately agreed to share control over entity Z.
On January 2, 2013 entity Z declared a dividend of P100,000 for the year 2012. On December 31, 2013 entity Z reported a
profit of P400,000 and declared and paid dividend of P150,000 for the year 2013. At December 31, 2013 the fair value of
each venturers investment in entity Z is P425,000. However, there is no published price quotation for entity Z. Investments
in entity Z are accounted for using the equity method.
At December 31, 2013, the venturers must report their investment in entity Z (a jointly controlled entity) at:
41. On January 1,2013, entities A and B each acquired 30 percent of the ordinary voting shares of entity X for P300,000.
Entities A and B immediately agreed to share control over entity X.
For the year ended December 31, 2013 entity X reported profit of P400,000 and declared a dividend of P150,000. At
December 31, 2013 the fair value of each venturers investment in entity X is P425,000. Entities A and B uses the cost
model to account for its investment in jointly controlled entities. However, there is a published price quotation for entity X.
Investments are accounted for using the cost model.
At December 31, 2013, the venturers must report their investment in entity X at:
42. On January 1, 2013, an SME acquired a building for P50,000,000. On December 31, 2013, management assessed that the
useful life of the building is 40 years from the date of acquisition with residual value of P10,000,000. The fair value of the
building of the building on the same date is P65,000,000. On December 31, 2015, SME reassessed that the useful life of
building is P50 years from January 1, 2015 with residual value of P6,000,000. The fair value of the building on December
31, 2015 is P48,000,000. What is the carrying amount of the building on December 31, 2015?
43. On January 1, 2013, an SME acquired a building for P50,000,000. On December 31, 2013, management assessed that the
useful life of the building is 40 years from the date of acquisition with residual value of P10,000,000. The fair value of the
building of the building on the same date is P65,000,000. On December 31, 2015, SME reassessed that the useful life of
building is P50 years with residual value of P6,000,000. The fair value of the building on December 31, 2015 is
P47,000,000. What is the carrying amount of the building on December 31, 2015?
-

END -

One thing: you have to walk, and create the way by your walking; you will not find a readymade path. It is not so cheap, to reach to the ultimate realization of truth. You will have to
create the path by walking yourself; the path is not ready-made, lying there and waiting for
you. It is just like the sky: the birds fly, but they don't leave any footprints. You cannot follow
them;
there
are
no
footprints
left
behind.
Osho

Life has two rules: #1 Never quit #2 Always remember rule #1.-Unknown

Page 7