1.

One of the conditions that must be satisfied in order to recognize revenue in

a transaction involving the rendering of services is that the stage of
completion of the transaction at the end of the reporting period can be
measured reliably. Which TWO of the following methods for determining the
stage of completion of a contract involving the rendering of services are
specifically referred to in IAS18 Revenue, as being acceptable?
A Costs incurred to date as a percentage of the estimated total costs of the
transaction
B Advances received to date as a percentage of the total amount receivable
C Surveys of work performed
D Revenue to date divided by total contract revenue
Question 1 - A & C
IAS18 para 24 permits surveys of work performed and costs incurred to date
as methods of apportioning revenue on service contracts.

2. How should trade discounts be dealt with when valuing inventories at the
lower of cost and net realizable value (NRV) according to IAS2 Inventories?
(select one answer)
A Added to cost
B Ignored
C Deducted in arriving at NRV
D Deducted from cost
Question 7 - D
Trade discounts should be deducted from cost. See IAS2 para 11.

3. The Polyphony Company had 100,000 equity shares in issue on 1 January

20X7. On 1 July 20X7 it issued 20,000 new shares by way of a 1 for 5 bonus.
On 1 October 20X7 it issued 28,000 new shares for cash at full market price.
When calculating basic earnings per share, how many shares should be
divided into the profit after tax, according to IAS33 Earnings per share?
A 100,000
B 117,000
C 148,000
D 127,000
Question 9 - D
The number of shares to be used is the weighted average in issue through
the period. Bonus shares provide no additional consideration to the issuer, so
they are related back to the beginning of the earliest period presented.
Shares issued for cash provide additional consideration, so they are time apportioned
from the date the cash was receivable. See IAS33 paras 19 and
26.
The weighted average is 100,000 + 20,000 + (28,000 3/12) = 127,000.

4. On 1 July 20X7 The Otakamiro Company handed over to a client a new

computer system. The contract price for the supply of the system and
aftersales support for 12 months was PHP800,000. Otakamiro estimates the
cost of the after-sales support at PHP120,000 and it normally marks up such
costs by 50% when tendering for support contracts. Under IAS18 Revenue,

the revenue Otakamiro should recognize in its financial year ended 31

December 20X7 is
A PHP620,000
B PHP800,000
C PHP710,000
D Nil
Question 10 - C
Under IAS18 Appendix A para 11 a selling price which includes an amount for
after-sales support should be split into two components: the support
component (being the cost of such support plus a reasonable profit margin)
and the sale of goods component (measured as the balance). The support
component should be recognized as revenue over the service period.
The support component is PHP180,000 (PHP120,000 plus 50%), of which half
(PHP90,000) should be recognized in the year ended 31 December 20X7,
along with the PHP620,000 (PHP800,000 PHP180,000) sale of goods
component.

5. The Tanager Company purchased a boring machine on 1 January 20X1 for

PHP81,000.
The useful life of the machine is estimated at 3 years with a residual value at
the end of this period of PHP6,000. During its useful life, the expected units of
production from the machine are:
20X1 12,000 units
20X2 7,000 units
20X3 5,000 units
What should be the depreciation expense for the year ended 31 December
20X2, using the most appropriate depreciation method permitted by IAS16
Property, plant and equipment?
A PHP27,000
B PHP21,875
C PHP23,625
D PHP25,000
Question 17 - B
The correct answer is PHP21,875.
See IAS16 para 56, which indicates that assets are consumed principally
through their use. In this example the answer is calculated as (the original
cost less the residual value) divided by total units produced in 3 years
multiplied by total units produced in 20X2.

6. On 1 January 20X7 The Hamerkop Company borrowed PHP6 million at an

annual interest rate of 10% to finance the costs of building an electricity
generating plant. Construction commenced on 1 January 20X7 and cost PHP6
million. Not all the cash borrowed was used immediately, so interest income
of PHP80,000 was generated by temporarily investing some of the borrowed
funds prior to use. The project was completed on 30 November 20X7. What is
the carrying amount of the plant at 30 November 20X7?
A PHP6,000,000

B PHP6,470,000
C PHP6,520,000
D PHP6,550,000
Question 6 - B
See IAS23 para 12. The asset's carrying amount in this example is the PHP6
million construction cost plus the interest charged on the loan for the 11
months of construction (PHP6 million x 10% x 11/12 = PHP550,000, less the
PHP80,000 interest earned prior to using the loan to finance construction.

7. The Bentham Company purchased an investment property on 1 January 20X5

for a cost of PHP220,000. The property had a useful life of 40 years and at 31
December 20X7 had a fair value of PHP300,000.
On 1 January 20X8 the property was sold for net proceeds of PHP290,000.
Bentham uses the cost model to account for investment properties. What is
the gain or loss to be recognized in profit or loss for the year ended 31
December 20X8 regarding the disposal of the property,
according to IAS40 Investment property?
A PHP86,500 gain
B PHP81,000 gain
C PHP10,000 loss
D PHP70,000 gain
Question 6 - A
The correct answer is the PHP290,000 net disposal proceeds less the
PHP203,500 (PHP220,000 less 3/40ths thereof) carrying amount.
See IAS40 para 69.

8. The Minor Company leased a freehold building for 20 years, the useful life of
the building, with effect from 1 January 20X7. At that date the fair value of
the leasehold interest was PHP7.5 million of which PHP6.0 million was
attributable to the building. Annual rentals of PHP800,000 are payable in
advance on 1 January.
How much should Minor recognized as an operating lease expense in the year
ended 31 December 20X7, according to IAS17 Leases?
A Nil
B PHP640,000
C PHP160,000
D PHP800,000
Question 5 - C
A land and buildings lease should be separated into its two components: the
land component which will usually be classified as an operating lease; and
the buildings component which in this case extends to the end of the
building's estimated useful life and should be classified as a finance lease.
The annual rental is split between the two leases in proportion to the relative
fair values of the two leasehold interests. 20% ((PHP7.5 million
PHP6.0 million) as a % of PHP7.5 million) of the rental is attributable to the land,
so PHP160,000. See IAS17 paras 14-16.

9. The Rattigan Company purchases PHP20,000 of bonds. The asset has been
designated as one at fair value through profit and loss. One year later, 10% of
the bonds are sold for PHP4,000. Total cumulative gains previously recognized
in Rattigan's financial statements in respect of the asset are PHP1,000. In

accordance with IAS39 Financial instruments: recognition and measurement,

what is the amount of the gain on disposal to be recognized in profit or loss?
A PHP1,900
B PHP900
C PHP2,000
D PHP1,000
Question 27 - A
PHP1,900 (PHP4,000 (10% (PHP20,000 + PHP1,000))) is the correct answer.
IAS39 para 27 states that on derecognition of part of a financial instrument:
(a) there shall be an allocation of the carrying amount between the part derecognized
and the part retained
(b) the difference between the consideration received and the carrying
amount allocated to the part derecognized shall be recognized in profit or loss.
The previous gains had already been recognized in profit or loss and so are
not included in the calculation.
See IAS39 para 46 and AG67.