Elimination Round

Financial Accounting and Reporting

EASY
1. Interest cost that is capitalized should

a. be written off over the remaining term of the debt.

b. be accumulated in a separate deferred charge account and written off equally over a 40-year
period.
c. not be written off until the related asset is fully depreciated or disposed of.
d. none of these.

ANSWER: D
None of the above, since capitalized interest is depreciated over the related asset’s useful life.

2. When a plant asset is disposed of, a gain or loss may result. The gain or loss would be classified as an
extraordinary item in the income statement if it resulted from

a. an involuntary conversion and the conditions of the disposition are unusual and infrequent in
nature.
b. a sale prior to the completion of the estimated useful life of the asset.
c. the sale of a fully depreciated asset.
d. an abandonment of the asset.

ANSWER: A
RATIONALE:
It should be noted that extraordinary items are unusual and infrequent material gains and losses
that are separately presented in the statement of income.

3. Khalifa Inc. purchased ₱5,000,000 of 8%, 5-year bonds on January 1, 2017 with interest payable on
June 30 and December 31. The bonds were purchased for ₱5,100,000 plus transaction cost of ₱108,000
at an effective interest rate of 7%.

The business model for this investment is to collect contractual cash flows and sell the bonds in the open
market. On December 31, 2017, the bonds were quoted at 106.

As per PFRS 9, what is the adjusted carrying amount of the investment on December 31, 2017?

a. ₱5,000,000
b. ₱5,171,940
c. ₱5,174,560
d. ₱5,300,000

ANSWER: D
SOLUTION:
Market value on December 31, 2017 (₱5,000,000 x 106) ₱5,300,000

4. Malkova Inc. purchased ₱6,000,000 of 8%, 5-year bonds on January 1, 2017 with interest payable on
June 30 and December 31. The bonds were purchased for ₱6,200,000 plus transaction cost of ₱110,000
at an effective interest rate of 7%.

The business model for this investment is to collect contractual cash flows and sell the bonds in the open
market. On December 31, 2017, the bonds were quoted at 106.

If the entity elected the fair value option, what total amount of income should be recognized for 2017?

a. ₱400,000
b. ₱530,000
c. ₱640,000
d. ₱160,000
 ANSWER: C
SOLUTION:

Market value on December 31, 2017 ₱6,360,000

Acquisition cost, excluding transaction cost 6,200,000
Gain from change in fair value 160,000
Interest income (8% x 6,000,000) 480,000
Total income ₱640,000

5. On December 31, 2017, Luna Inc. showed the following current assets:
Cash ₱500,000
Accounts receivable 2,500,000
Inventory 2,000,000
Prepaid expenses 100,000
Total current assets ₱5,100,000

Cash on hand including customer postdated check of P20,000 and

employee IOU of P10,000 ₱130,000
Cash in bank per bank statement (outstanding checks on
December 31, 2017, P70,000) 370,000
Total cash ₱500,000

Customers’ debit balances, net of customer deposit of P50,000 ₱1,900,000

Allowance for doubtful accounts (150,000)
Sale price of goods invoiced to customers at 150% of cost on
December 29, 2017 but delivered on January 5, 2018 and
excluded from reported inventory 750,000
Total accounts receivable ₱2,500,000
What total amount of current assets should be reported?

a. ₱4,900,000
b. ₱4,630,000
c. ₱4,780,000
d. ₱4,830,000

ANSWER: D
SOLUTION:

Cash on hand 130,000

Customer postdated check (20,000)
Employee IOU (10,000)
Adjusted cash on hand 100,000
Cash in bank per bank statement 370,000
Outstanding checks (70,000) 300,000
Adjusted cash balance 400,000

Customers’ debit balances 1,900,000

Customer deposit erroneously netted 50,000
Customer postdated check 20,000
Accounts receivable 1,970,000
Allowance for doubtful accounts (150,000)
Net realizable value 1,820,000

Inventory per book 2,000,000

Undelivered goods incorrectly excluded from inventory
(750,000 / 150%) 500,000
Adjusted inventory 2,500,000

Cash 400,000
Accounts receivable, net of allowance 1,820,000
Advances to employee - IOU 10,000
Inventory 2,500,000
Prepaid expenses 100,000
Total current assets 4,830,000
6. The following are examples of non-adjusting events after the reporting period that would generally result in
disclosure set by Par. 22 of IAS 10, Events after Reporting Period, except:

a. a major business combination after the reporting period (IFRS 3 Business Combinations
requires specific disclosures in such cases) or disposing of a major subsidiary;
b. major purchases of assets, classification of assets as held for sale in accordance with IFRS 5
Non-current Assets Held for Sale and Discontinued Operations, other disposals of assets, or
expropriation of major assets by government;
c. major ordinary share transactions and potential ordinary share transactions after the reporting
period (IAS 33 Earnings per Share requires an entity to disclose a description of such
transactions, other than when such transactions involve capitalisation or bonus issues, share
splits or reverse share splits all of which are required to be adjusted under IAS 33);
d. the settlement after the reporting period of a court case that confirms that the entity had a
present obligation at the end of the reporting period.

ANSWER: D
RATIONALE:
A,B,C are some of the examples provided by paragraph 22 of IAS 10; item D is an adjusting-type of
event.

7. According to IAS 40, Investment property is property (land or a building—or part of a building—or both)
held (by the owner or by the lessee as a right-of-use asset):

a. To earn rentals
b. For capital appreciation
c. A or B or both
d. Exclusively either A or B

ANSWER: C
RATIONALE:
According to the definition of terms on IAS 40,
Investment property is property (land or a building—or part of a building—or both) held (by the
owner or by the lessee as a right-of-use asset) to earn rentals or for capital appreciation or both,
rather than for:
a) use in the production or supply of goods or services or for administrative purposes; or
b) sale in the ordinary course of business.

8. In accordance with PFRS 9, A gain or loss on a financial asset or financial liability that is measured at fair
value shall be recognized in profit or loss unless:

a. it is part of a hedging relationship

b. it is a financial liability designated as at fair value through profit or loss and the entity is required
to present the effects of changes in the liability’s credit risk in other comprehensive income
c. Either A or B
d. Neither A nor B

ANSWER: C
RATIONALE:
Par 5.7.1 of IFRS 9 specifically states that:
A gain or loss on a financial asset or financial liability that is measured at fair value shall be
recognized in profit or loss unless:
a) it is part of a hedging relationship (see paragraphs 6.5.8–6.5.14 and, if applicable, paragraphs
89–94 of IAS 39 for the fair value hedge accounting for a portfolio hedge of interest rate risk);
b) it is an investment in an equity instrument and the entity has elected to present gains and losses
on that investment in other comprehensive income in accordance with paragraph 5.7.5;
c) it is a financial liability designated as at fair value through profit or loss and the entity is required
to present the effects of changes in the liability’s credit risk in other comprehensive income in
accordance with paragraph 5.7.7; or
d) it is a financial asset measured at fair value through other comprehensive income in accordance
with paragraph 4.1.2A and the entity is required to recognise some changes in fair value in other
comprehensive income in accordance with paragraph 5.7.10.
9. An entity reported the following data for the current year:

Net sales ₱9,500,000

Cost of goods sold 4,000,000
Selling expenses 1,000,000
Administrative expenses 1,200,000
Interest expense 700,000
Gain from expropriation of land 500,000
Income tax 800,000
Income from discontinued operations 600,000
Unrealized gain on equity investment at FVOCI 900,000
Unrealized loss on futures contract designated as a cash flow hedge 400,000
Increase in projected benefit obligation due to actuarial assumptions 300,000
Foreign translation adjustment- debit 100,000
Revaluation surplus 2,500,000

What net amount in OCI that may not be recycled to profit or loss?

a. ₱3,400,000
b. ₱2,700,000
c. ₱3,100,000
d. ₱3,700,000

ANSWER: C
RATIONALE:
Unrealized gain on equity investment at FVOCI 900,000
Actuarial loss on PBO (300,000)
Revaluation surplus 2,500,000
Net amount of OCI not reclassified to profit or loss 3,100,000

10. In accordance with Par 6.6.1 of IFRS 9, A group of items (including a group of items that constitute a net
position; see paragraphs B6.6.1–B6.6.8) is an eligible hedged item only if:

I. it consists of items (including components of items) that are, individually, eligible hedged items;
II. the items in the group are initially managed on individual basis for risk management purposes; and
III. in the case of a cash flow hedge of a group of items whose variabilities in cash flows are not expected
to be approximately proportional to the overall variability in cash flows of the group so that offsetting
risk positions arise: (i) it is a hedge of foreign currency risk; and (ii) the designation of that net position
specifies the reporting period in which the forecast transactions are expected to affect profit or loss,
as well as their nature and volume (see paragraphs B6.6.7–B6.6.8).

Which of the following condition/s is/are correct?

a. Only Condition I
b. Only Conditions I and III
c. Only Coniditions I and II
d. All Conditions are correct

ANSWER: B
RATIONALE:
Conditions I and III are correct and in accordance with the specific guidance on IFRS 9. Condition
II is incorrect because for a group of items to be an eligible hedged item, items in the group must
be managed together on a group basis for risk management purposes.
 Elimination Round
Financial Accounting and Reporting
AVERAGE

1. The present obligation is not a contingent liability but should be recognized as a provision when

a. amount is reasonably estimable and event occurs infrequently

b. amount is reasonably estimable and occurrence of event is probable
c. event is unusual in nature and occurrence of event is probable
d. event is unusual in nature and occurs infrequently

Answer: B
Under IAS 37, a provision is recognised when: the entity has a present obligation as a result of past
events; it is probable (more likely than not) that a transfer of economic benefits will be required to
settle the obligation; and a reliable estimate of the amount of the obligation can be made.

2. Under the accrual basis, rental income of Uranus Company for the calendar year 2017 is P600,000.
Additional information regarding rental income are:
Unearned rental income, January 1, 2017………………………..... ₱100,000
Unearned rental income, December 31, 2017……………………… 150,000
Accrued rental income, January 1, 2017……………………………. 60,000
Accrued rental income, December 31, 2017……………………….. 80,000

Under the cash basis, how much rental income should be reported?
a. ₱490,000
b. ₱570,000
c. ₱630,000
d. ₱710,000

Answer: C
Solution:
Accrued rental income, January 1, 2017 ₱60,000
Add: Rental income, accrual basis 600,000
Unearned income, December 31, 2017 150,000
Less: Accrued rental income, December 31, 2017 80,000
Unearned income, January 1, 2017 100,000
₱630,000

3. Which of the following statements is false regarding patent?

a. If the patent is acquired by purchase, then its capitalizable cost includes purchase price and
other incidental costs
b. If the patent is internally developed, then related R&D expenditures are expensed as incurred;
the capitalizable cost includes only licensing and legal fees incurred in securing the patent
rights.
c. Legal fees and other costs of successfully defending a patent are capitalized as patent cost.
d. Patent should be amortized over the legal life or useful life, whichever is shorter.

Answer: C
Legal fees and other costs of successfully defending a patent does not meet the recognition criteria
of an asset. There are no future economic benefits expected to flow to the entity or if there would
be, it is not probable.

4. The following are examples of potential ordinary shares, except

a. Convertible preference shares

b. Convertible bonds
c. Stock options
d. Stock dividends

Answer: D
Stock dividends are issued without consideration and, therefore, do not qualify as potential
ordinary shares.
5. Lia Company reported an excess of warranty expense over warranty deductions of ₱720,000 for the year
ended December 31, 2017. This temporary difference will reverse in equal amounts over the years 2018
through 2020. The enacted tax rates are as follows:

2017 – 35% 2019 – 30%

2018 – 32% 2020 – 25%

The reporting for this temporary difference at December 31, 2017 would be

a. A deferred tax liability of ₱252,000

b. A deferred tax asset of ₱252,000
c. A deferred tax liability of ₱208,800
d. A deferred tax asset of ₱208,800

Answer: D
Solution:
2018 (P240,000*32%) ₱76,800
2019 (P240,000*30%) 72,000
2020 (P240,000*25%) 60,000
₱208,800

6. Under some retirement benefit plans, the enterprise retains the obligation for the payment of retirement
benefits under the plan with the establishment of a separate fund. Such retirement benefit plans are
described as
Funded Unfunded
a. Yes Yes
b. Yes No
c. No No
d. No Yes

Answer: D
Unfunded retirement benefit plan is described as a benefit plan in which the enterprise retains the
obligation for the payment of retirement benefits. In contrast, funded retirement benefit plan is a
type of benefit plan wherein the management of the fund is entrusted to an independent fund
agency.

7. On January 1, 2017, Alfredo Company purchased a building worth ₱4,000,000 to be classified as

investment property. Alfredo made a downpayment equal to 25% of the price and signed a non-interest
bearing note for the balance, due on December 31, 2021. The effective rate applicable to the note was
12%.

In relation to the purchase, Alfredo incurred ₱15,000 professional fees for legal services and property
transfer taxes amounting to ₱30,000. Also, start-up costs and operating losses incurred before the property
achieved the planned level of occupancy were incurred amounting to ₱50,000 and ₱100,000, respectively.

Determine the total amount to be capitalized as cost of investment property. (Round PVF to 4
decimal places)

a. ₱4,195,000
b. ₱2,897,200
c. ₱2,747,200
d. ₱2,842,200

Answer: C
Solution:
Downpayment ₱1,000,000
Balance (₱3,000,000*0.5674) 1,702,200
Professional fees 15,000
Property transfer taxes 30,000
Capitalized cost ₱2,747,200
8. Pat Company reported the following information on December 31, 2017:

Preference share, ₱100 par ₱230,000

Share premium – Preference 80,500
Ordinary share, ₱15 par 525,000
Share premium – Ordinary 275,000
Subscribed ordinary share 5,000
Retained earnings 190,000
Notes payable 400,000
Subscription receivable – Ordinary 40,000

Determine the legal capital

a. ₱740,000
b. ₱755,000
c. ₱760,000
d. ₱800,000

Answer: C
Legal capital is defined as the par value of all share capital issued and subscribed.
Solution:
Preference share, ₱100 par ₱230,000
Ordinary share, ₱15 par 525,000
Subscribed ordinary share 5,000
Legal Capital ₱760,000

9. Toblerone Company purchased a tract of land as an investment property. The entity razed an old building
on the property.

Purchase price of land and an old building ₱3,700,000

Demolition of old building 200,000
Proceeds from sale of salvaged materials 20,000
Legal fees for purchase contract and recording ownership 150,000
Title guarantee insurance 50,000
Payment of property taxes in arrears on land 100,000
Option paid for an alternative land not acquired 30,000
Special assessment for city improvements 120,000

What is the cost of the land?

a. ₱4,600,000
b. ₱4,120,000
c. ₱4,330,000
d. ₱4,300,000

Answer: D
Solution:
Purchase price of land and an old building ₱3,700,000
Add: Demolition of old building 200,000
Legal fees for purchase contract and recording
ownership 150,000
Title guarantee insurance 50,000
Payment of property taxes in arrears on land 100,000
Special assessment for city improvements 120,000
Less: Proceeds from sale of salvaged materials 20,000
Land ₱4,300,000

10. Which of the following is not considered as an application of the cause and effect association principle?

a. Cost of sales
b. Sales commission
c. Depreciation of property
d. Warranty expense

Answer: C
Depreciation follows the systematic and rational allocation principle of recognizing expense.
 Elimination Round
Financial Accounting and Reporting
DIFFICULT

1. Under PFRS for SMEs, Companies should record investment property after initial recognition using:

a. Fair value
b. Historical cost less depreciation
c. Present Value of minimum lease payments discounted using the original discount rate from
initial recognition
d. The Company can decide whether fair value or historical cost less depreciation provided that
it will be applied consistently during the period.

Answer: A
Under PFRS for SMEs Section 16, Investment Property, Investment property whose fair value can
be measured reliably without undue cost or effort shall be measured at fair value at each reporting
date with changes in fair value recognized in profit or loss. If a reliable measure of fair value is no
longer available without undue cost or effort for an item of investment property measured using the
fair value model, the entity shall thereafter account for that item as property, plant and equipment
in accordance with Section 17 until a reliable measure of fair value becomes available.

2. Which of the following is true for PFRS for SMEs:

a. Under PFRS for SMEs, the use of an accrued benefit valuation method (the projected unit
credit method) for employee benefit obligation is required for calculating defined benefit
obligations.
b. Under PFRS for SMEs, Intangible assets, including goodwill are assumed to have finite lives
and are amortized.
c. Under PFRS for SMEs, Research costs and development costs are expenses, however,
development costs are capitalized if certain criteria are met.
d. Under PFRS for SMEs, only equity method is permitted in accounting for investment in
associates.

Answer: B
Under PFRS for SMEs, Intangible assets, including goodwill are assumed to have finite lives and
are amortized.
In PFRS for SMEs, The cost model is the only permitted model. All intangible assets, including
goodwill, are assumed to have finite lives and are amortized.
Answer A, C and D are wrong as they pertain to the measurement in Full PFRS. SMEs are accounted
for as follows:
The circumstance-driven approach is applicable, which means that the use of an accrued benefit
valuation method (the projected unit credit method) is required if the information that is needed to
make such a calculation is already available, or if it can be obtained without undue cost or effort. If
not, simplifications are permitted in which future salary progression, future service or possible
mortality during an employee’s period of service are not considered. [IFRS for SMEs 28.18-28.20]
C. All research and development costs are recognised as an expense. [IFRS for SMEs 18.14]
D. An investor may account for its investments using one of the following: The cost model (cost
less any accumulated impairment losses); The equity method, and; The fair value through profit or
loss model. [IFRS for SMEs 14.4]

3. PFRS for SMEs strictly requires disclosure of information about:

a. Related party transactions

b. Earnings per share
c. Segment information
d. Interim financial reports

Answer: A
PFRS for SMEs states that the combined financial statements shall disclose the following:
(a) the fact that the financial statements are combined financial statements.
(b) the reason why combined financial statements are prepared.
(c) the basis for determining which entities are included in the combined financial statements.
(d) the basis of preparation of the combined financial statements.
(e) the related party disclosures required by Section 33 Related Party Disclosures.
4. Charerette Co. has an account receivable from Charlette Co. of ₱94,365. Charerette also has an account
payable to Charlette of ₱42,365. Local law allows the enforceable right of set off of the recognized amounts.
It is not a normal business practice to settle the amounts net. What amount for accounts receivable and
accounts payable should be presented in Charerette’s statement of financial position, according to IAS32
Financial instruments: Presentation?

Accounts receivable Accounts payable

a. ₱94,365 ₱42,365
b. ₱52,000 0
c. ₱94,365 0
d. ₱0 ₱42,365

Answer: A
IAS 32, par. 42, offset only if the entity currently has a legally enforceable right to set off the
recognized amount and the intention is to settle on net basis or to realize asset and liability
simultaneously.

5. In presenting Employee Benefits in the financial statements, an entity shall disclose:

a. A sensitivity analysis for all actuarial assumption as of the end of the reporting period,
showing how the defined benefit obligation would have been affected by changes in the
relevant actuarial assumption that were reasonably possible at that date.
b. The methods and assumptions used in preparing the sensitivity analyses and the limitations
of those methods.
c. The expected changes in the methods and assumptions used in preparing the sensitivity
analyses.
d. The number of retired employees that claimed their benefits during the year.

Answer: B
Under Revised PAS 19, paragraph 145, an entity shall disclose:
- A sensitivity analysis for each significant actuarial assumption (as disclosed under paragraph 144)
as of the end of the reporting period, showing how the defined benefit obligation would have been
affected by changes in the relevant actuarial assumption that were reasonably possible at that date.
- The methods and assumptions used in preparing the sensitivity analyses required by (a) and the
limitations of those methods; and
- Changes from the previous period in the methods and assumptions used in preparing the
sensitivity analyses, and the reasons for such changes.

6. Which of the following statements is not included in the provisions under IFRS 15?

a. The incremental costs of obtaining a contract must be recognized as an asset if the entity
expects to recover those costs.
b. Capitalizable incremental costs are limited to the costs that the entity would not have incurred
if the contract had not been successfully obtained.
c. The asset recognized in respect of the costs to obtain or fulfil a contract is amortized on a
systematic basis that is consistent with the pattern of transfer of the goods or services to
which the asset relates.
d. Incremental costs of obtaining a contract may be expensed if the associated amortization
period would be 12 months or more.

Answer: D
Under IFRS 15, the incremental costs of obtaining a contract must be recognized as an asset if the
entity expects to recover those costs. However, those incremental costs are limited to the costs
that the entity would not have incurred if the contract had not been successfully obtained (e.g.
‘success fees’ paid to agents). A practical expedient is available, allowing the incremental costs of
obtaining a contract to be expensed if the associated amortization period would be 12 months or
less. [IFRS 15:91-94]
The asset recognized in respect of the costs to obtain or fulfil a contract is amortized on a
systematic basis that is consistent with the pattern of transfer of the goods or services to which
the asset relates.
7. Which statement is(are) correct regarding the scope of PAS 36 – Impairment of Assets?

I. PAS 36 applies to some financial assets (i.e., investment in subsidiaries, associates, and joint
ventures).
II. PAS 36 does not apply to inventories, assets arising from construction contracts, deferred tax assets,
assets arising from employee benefits, or assets classified as held for sale because existing PFRSs
applicable to these assets contain requirements for recognizing and measuring these assets.
III. PAS 36 applies to investment property that is measured at cost.

a. II only
b. I and II only
c. II and III only
d. I, II, and III

Answer: D
All are under the scope of PAS36.

8. Which statement is(are) correct regarding the scope of IAS 33- Earnings Per Share?

I. IAS 33 applies to entities whose securities are publicly traded or that are in the process of issuing
securities to the public.
II. Other entities that choose to present EPS information need not to comply with IAS 33.
III. If both parent and consolidated statements are presented in a single report, EPS is required only for
the consolidated statements.

a. III only
b. I and II only
c. I and III only
d. I, II, and III

Answer: C
IAS 33 applies to entities whose securities are publicly traded or that are in the process of issuing
securities to the public. [IAS 33.2] Other entities that choose to present EPS information must also
comply with IAS 33. [IAS 33.3]
If both parent and consolidated statements are presented in a single report, EPS is required only
for the consolidated statements. [IAS 33.4]

9. The following is AMOR Corp.’s June 30, 2017 trial balance:

Cash overdraft ₱10,000

Accounts receivable, net ₱35,000
Inventory 58,000
Prepaid expenses 12,000
Land held for resale 100,000
Property, plant, and equipment 95,000
Accounts payable and accrued expenses 32,000
Common stock 25,000
Additional paid-in capital 150,000
Retained earnings 83,000
₱300,000 ₱300,000

Additional information:
 Checks amounting to ₱30,000 were written to vendors and recorded on June 29, 2017, resulting in a
cash overdraft of ₱10,000. The checks were mailed on July 9, 2017.
 Land held for resale was sold for cash on July 15, 2017.
 AMOR issued its financial statements on July 31, 2017.

In its June 30, 2017 balance sheet, what amount should AMOR report as current assets?

Answer: ₱225,000
(20,000+35,000+58,000+12,000+100,000)
10. An entity should recognize revenue over time if

a. the customer simultaneously receives and consumes all of the benefits provided by the entity
as the entity performs
b. the entity has a present right to payment for the asset
c. the entity has transferred physical possession of the asset
d. the customer has the significant risks and rewards related to the ownership of the asset

Answer: A
According to paragraph 35 of IFRS 15,
An entity recognizes revenue over time if one of the following criteria is met:
 the customer simultaneously receives and consumes all of the benefits provided by the
entity as the entity performs;
 the entity’s performance creates or enhances an asset that the customer controls as the
asset is created; or
 the entity’s performance does not create an asset with an alternative use to the entity and
the entity has an enforceable right to payment for performance completed to date.
 Final Round
Financial Accounting and Reporting
EASY

1. Statement I: According to par 72 of IAS 40, Compensation from third parties for investment property that
was impaired, lost or given up shall be recognised in profit or loss when the compensation becomes
receivable.

Statement II: According to par 69 of IAS 40, Gains or losses arising from the retirement or disposal of
investment property shall be determined as the difference between the net disposal proceeds and
the carrying amount of the asset and shall be recognised in profit or loss.

Statement III: According to par 63 of IAS 40, For a transfer from inventories to investment property that
will be carried at fair value, any difference between the fair value of the property at that date and its
previous carrying amount shall be recognised in profit or loss.

In the following statements,

a. Only 1 statement is true

b. 2 of 3 statements are true
c. All of the 3 statements are true
d. None of the statements are true

ANSWER: C
RATIONALE:
All of the following statements are true and in accordance with the provisions of IAS 40,
Investment Property.

2. Statement I: An operating segment may engage in business activities for which it has yet to earn revenues,
for example, start-up operations may be operating segments before earning revenues.

Statement II: Operating segments that do not meet any of the quantitative thresholds may not be considered
reportable, and not separately disclosed, even if management believes that information about the segment
would be useful to users of the financial statements.

Statement III: If a financial report contains both the consolidated financial statements of a parent that is
within the scope of this IFRS as well as the parent’s separate financial statements, segment information is
required only in the consolidated financial statements.

In the following statements,

a. Only 1 statement is true

b. 2 of 3 statements are true
c. All of the 3 statements are true
d. None of the statements are true

ANSWER: B
RATIONALE:
Only Statements I and III are correct, and they are in accordance with paragraphs 5 and 4 of IFRS
8, respectively. Statement II is incorrect since according to paragraph 13, Operating segments
that do not meet any of the quantitative thresholds may be considered reportable, and separately
disclosed, if management believes that information about the segment would be useful to users of
the financial statements.
3. Sins Inc. is a dealer in equipment and uses leases to facilitate the sale of its product. The entity expects a
12% return. At the end of the lease term, the equipment will revert to the lessor.

On January 1, 2017, an equipment is leased to a lessee with the following information:

Cost of equipment to the entity 3,500,000

Fair value of equipment 5,500,000
Residual value - unguaranteed 600,000
Initial direct cost 200,000
Annual rental payable in advance 900,000
Useful life and lease term 8 years
Implicit interest rate 12%
PV of 1 at 12% for 8 periods 0.40
PV of an ordinary annuity of 1 at 12% for 8 periods 4.97
PV of an annuity due of 1 at 12% for 8 periods 5.56
First lease payment January 1, 2016

What amount of cost of goods sold should be recognized in recording the lease?

a. 3,260,000
b. 3,500,000
c. 3,740,000
d. 3,460,000

ANSWER: D
SOLUTION:
PV of residual value (600,000 x .40) = 240,000

Cost of equipment 3,500,000

PV of unguaranteed residual value (240,000)
Initial direct cost 200,000
Cost of goods sold ₱3,460,000

4. An entity provided the following data:

December 31, 2017 December 31, 2018

Trade accounts receivable, net of allowance 840,000 780,000
Inventory 1,500,000 1,400,000
Accounts payable 950,000 980,000

 Total sales were ₱12,000,000 for 2018 and ₱11,000,000 for 2017. Cash sales were 20% of total sales each
year. Cost of goods sold was ₱8,400,000 for 2018.

 Variable expenses for 2018 amounted to ₱1,200,000 and varied in proportion to sales. Variable expenses
had been paid 50% in the year incurred and 50% the following year.

 Fixed expenses, including ₱350,000 depreciation and ₱50,000 bad debt expense, totaled ₱1,000,000 each
year. Eighty percent of fixed expenses involving cash were paid in the year incurred and 20% the following
year. Each year there was a ₱50,000 bad debt estimate and a ₱50,000 writeoff.

What is the cash collected from customers during 2018?

a. ₱12,010,000
b. ₱12,060,000
c. ₱11,960,000
d. ₱11,890,000

ANSWER: A
SOLUTION:
AR December 31, 2017 840,000
Total sales 2018 12,000,000
Total 12,840,000
AR December 31, 2018 (780,000)
Bad debt writeoff (50,000)
Collections from customers – 2018 12,010,000
5. An entity shall NOT apply this IFRS 15 to all contracts with customers, except the following:

a. lease contracts within the scope of IFRS 16 Leases;

b. insurance contracts within the scope of IFRS 4 Insurance Contracts;
c. Non-monetary exchanges between entities in different line of business to facilitate sales to
customers or potential customers.
d. IFRS 15 shall NOT apply to A,B, and C

ANSWER: C
SOLUTION:
According to par 5, scope of IFRS 15 Revenue from Contracts with Customers,
An entity shall apply this Standard to all contracts with customers, except the following:
a) lease contracts within the scope of IFRS 16 Leases;
b) insurance contracts within the scope of IFRS 4 Insurance Contracts;
c) financial instruments and other contractual rights or obligations within the scope of IFRS
9 Financial Instruments, IFRS 10 Consolidated Financial Statements, IFRS 11 Joint
Arrangements, IAS 27 Separate Financial Statements and IAS 28 Investments in
Associates and Joint Ventures; and
d) non-monetary exchanges between entities in the same line of business to facilitate sales
to customers or potential customers. For example, this Standard would not apply to a
contract between two oil companies that agree to an exchange of oil to fulfil demand from
their customers in different specified locations on a timely basis.

6. The following are some of the criteria to be considered in identifying if a contract with a customer should be
within the scope of IFRS 15, except:

a. the parties to the contract have approved the contract (in writing, orally or in accordance with
other customary business practices) and are committed to perform their respective obligations;
b. the entity can identify each party’s rights regarding the goods or services to be transferred
c. the contract has commercial substance (ie the risk, timing or amount of the entity’s future cash
flows is expected to change as a result of the contract).
d. it is virtually certain that the entity will collect the consideration to which it will be entitled in
exchange for the goods or services that will be transferred to the customer.

ANSWER: D
RATIONALE:
According to Par 9 of IFRS 15,
An entity shall account for a contract with a customer that is within the scope of this Standard
only when all of the following criteria are met:
a) the parties to the contract have approved the contract (in writing, orally or in accordance
with other customary business practices) and are committed to perform their respective
obligations;
b) the entity can identify each party’s rights regarding the goods or services to be
transferred;
c) the entity can identify the payment terms for the goods or services to be transferred;
d) the contract has commercial substance (ie the risk, timing or amount of the entity’s future
cash flows is expected to change as a result of the contract); and
e) it is probable (NOT VIRTUALLY CERTAIN) that the entity will collect the consideration to
which it will be entitled in exchange for the goods or services that will be transferred to
the customer. In evaluating whether collectability of an amount of consideration is
probable, an entity shall consider only the customer’s ability and intention to pay that
amount of consideration when it is due. The amount of consideration to which the entity
will be entitled may be less than the price stated in the contract if the consideration is
variable because the entity may offer the customer a price concession
7. IVofSpades Inc. had the following financial statement elements for which the December 31, 2017 carrying
amount is different from the December 31, 2017 tax basis:

Carrying amount Tax basis Difference

Equipment 5,500,000 4,000,000 1,500,000
Accrued liability & health care 500,000 − 500,000
Computer software cost 2,000,000 − 2,000,000

The difference between the carrying amount and tax basis of the equipment is due to accelerated
depreciation for tax purposes.

The accrued liability is the estimated health care cost that was recognized as expense in 2017 but
deductible for tax purposes when actually paid.

In January 2017, the entity incurred P3,000,000 of computer software cost. Considering the technical
feasibility of the project, this cost was capitalized and amortized over 3 years for accounting purposes.
However, the total amount was expensed in 2017 for tax purposes.

The pretax accounting income for 2017 is P15,000,000. The income tax rate is 30% and there are no
deferred taxes on January 1, 2017.

What amount should be reported as total tax expense for 2017?

a. 4.950,000
b. 4,500,000
c. 4,050,000
d. 3,900,000

ANSWER: B
SOLUTION:
Total tax expense (30% x 15,000,000) = 4,500,000

8. Garlic & Shrimp Inc. provided the following pension plan information:
Projected benefit obligation January 1 3,500,000
Fair value of plan assets January 1 2,800,000
Pension benefits paid during the year 250,000
Current service cost for the year 1,750,000
Past service cost for the year (vesting period 5 years) 425,000
Actual return on plan assets 180,000
Contribution to the plan 1,500,000
Actuarial loss due to change in assumptions on projected benefit obligation 200,000
Discount or settlement rate 10%

What is the net remeasurement loss for the current year?

a. 200,000
b. 100,000
c. 400,000
d. 300,000

ANSWER: D
SOLUTION:
Actual return 180,000
Interest income 280,000
Remeasurement loss on plan assets 100,000
Actuarial loss on PBO 200,000
Net remeasurement loss 300,000
9. Mcjobee acquired 40% of Jollicdo’s shares on January 1, 2017 for P15,000,000. The investee’s assets and
liabilities at that date were as follows:

Carrying amount Fair value

Cash ₱1,000,000 ₱1,000,000
Accounts receivable 4,000,000 4,000,000
Inventory - FIFO 8,000,000 9,000,000
Land 5,500,000 7,000,000
Plant and equipment – net 14,000,000 22,000,000
Liabilities 7,000,000 7,000,000

The plant and equipment have a 10-year remaining useful life. The inventory was all sold in 2017. The
entity sold the land in 2018 for P8,000,000 and reported a gain of P2,500,000.

The investee reported net income of P3,000,000 for 2017 and P5,000,000 for 2018. The investee paid
P1,000,000 cash dividend on December 31, 2017 and P2,000,000 on December 31, 2018.

What is the implied a goodwill arising from the acquisition?

a. ₱200,000
b. ₱400,000
c. ₱800,000
d. ₱600,000

ANSWER: D
SOLUTION:

Cash 1,000,000
Accounts receivable 4,000,000
Inventory 8,000,000
Land 5,500,000
Plant and equipment 14,000,000
Liabilities (7,000,000)
Net assets at carrying amount 25,500,000

Acquisition cost 15,000,000

Net assets acquired (40% x 25,500,000) (10,200,000)
Excess of cost 4,800,000
Attributable to inventory (9,000,000 - 8,000,000 = 1,000,000 x 40%) (400,000)
Attributable to plant and equipment (22,000,000-14,000,000 =
8,000,000 x 40%) (3,200,000)
Attributable to land (7,000,000 - 5,500,000 = 1,500,000 x 40%) ( 600,000)
Implied goodwill 600,000

OR

Acquisition cost 15,000,000

Fair Value of Net assets acquired (40% x 36,000,000) (14,400,000)
Excess of cost 600,000

10. According to Par B4.3.5(e) of IFRS 9, Financial Instruments, a call, put, or prepayment option embedded
in a host debt contract or host insurance contract is not closely related to the host contract unless:

a. (i) the option’s exercise price is exactly equal on each exercise date to the amortised cost of
the host debt instrument or the carrying amount of the host insurance contract; or
(ii) the exercise price of a prepayment option reimburses the lender for an amount up to the
total present value of loss interest for the remaining term of the host contract.

b. (i) the option’s exercise price is approximately equal on each exercise date to the fair value of
the host debt instrument or the fair value of the host insurance contract; or
(ii) the exercise price of a prepayment option reimburses the lender for an amount up to the
approximate present value of lost interest for the remaining term of the host contract.

c. (i) the option’s exercise price is approximately equal on each exercise date to the amortised
cost of the host debt instrument or the carrying amount of the host insurance contract; or
(ii) the exercise price of a prepayment option reimburses the lender for an amount up to the
approximate present value of lost interest for the remaining term of the host contract
 d. (i) the option’s exercise price is exactly equal on each exercise date to the fair value of the host
debt instrument or the fair value of the host insurance contract; or
(ii) the exercise price of a prepayment option reimburses the lender for an amount up to the
total present value of lost interest for the remaining term of the host contract.

ANSWER: C
RATIONALE:
Par B4.3.5(e) of IFRS 9 strictly states that:

e) A call, put, or prepayment option embedded in a host debt contract or host insurance contract is
not closely related to the host contract unless:

(i) the option’s exercise price is approximately equal on each exercise date to the amortised cost of
the host debt instrument or the carrying amount of the host insurance contract; or

(ii) the exercise price of a prepayment option reimburses the lender for an amount up to the
approximate present value of lost interest for the remaining term of the host contract. Lost interest
is the product of the principal amount prepaid multiplied by the interest rate differential. The interest
rate differential is the excess of the effective interest rate of the host contract over the effective
interest rate the entity would receive at the prepayment date if it reinvested the principal amount
prepaid in a similar contract for the remaining term of the host contract.

The assessment of whether the call or put option is closely related to the host debt contract is made
before separating the equity element of a convertible debt instrument in accordance with IAS 32.
 Final Round
Financial Accounting and Reporting
AVERAGE
For Nos. 1 & 2
On January 1, 2017, Romania Company purchased a specialized factory equipment for cash at a
purchase price of P700,000. The company incurred P20,000 freight cost and handling costs of P10,000.
The company expects that it will incur dismantling cost amounting to P80,000 at the end of the
equipment’s 5-year useful life. The prevailing market interest rate during the transaction date was 6%.

The present value factor of P1 at 6% for 5 periods is at 0.747

The present value factor of P1 ordinary annuity for 5 periods is at 4.212

1. How much is the initial cost of the equipment?

a. 730,000
b. 810,000
c. 1,066,960
d. 789,760

2. Assuming the company is using the straight-line method, how much is the total expenses for the year
ended December 31, 2017?

a. 171,952
b. 157,952
c. 161,538
d. 175,538

Answers:
1. D
2. C
Solutions:
2. Purchase price ₱700,000
Freight cost 20,000
Handling costs 10,000
PV of dismantling cost (80,000*0.747) 59,760
Initial cost ₱789,760

2. Depreciation of equipment (789,760/5) ₱157,952

Amortization of liability (59,760*6%) 3,586
Total expenses ₱161,538

3. Macanas Company had 125,000 shares issued as of January 1, 2017, which includes 25,000 treasury
shares. During the year, 13,000 treasury shares were reissued. Right after the reissuance of the treasury
shares, Macanas declared a 3-for-1 split. And on December, additional 5,000 shares were purchased and
placed in treasury.

Determine the number of shares issued and shares outstanding, respectively?

a. 334,000 and 375,000

b. 324,000 and 375,000
c. 375,000 and 334,000
d. 375,000 and 324,000

Answer: C
Solution:
Shares issued −Treasury shares Shares
= outstanding
125,000 25,000 100,000
(13,000) 13,000
125,000 12,000 113,000
x3 x3 x3
375,000 36,000 339,000
− 5,000 −
375,000 41,000 334,000
3. Which of the following items should be treated as dividend income?

a. Reverse stock split

b. Cash received in lieu of shares
c. Shares received in lieu of cash
d. Cash divided under equity method

Answer: C
In this scenario, we use the “as if” approach. Initially, the shareholder is entitled to receive cash
dividends. In case the shareholder receives shares in lieu of cash, the cash that should have been
received is deemed to have been received and subsequently used to buy additional shares.
Hence, it is treated as dividend income “as if” the shareholder received cash and purchased
shares thereafter.

4. In a defined benefit plan, a formula is used that

a. requires that the benefit of gain or the risk of loss from the assets contributed to the pension
plan be borne by the employee.
b. defines the benefits that the employee will receive at the time of retirement.
c. requires that pension expense and the cash funding amount to be the same.
d. defines the contribution the employer is to make; no promise is made concerning the ultimate
benefits to be paid out to the employees.

Answer: B
As the term implies, formula used in defined benefit plan determines the benefits that the
employee shall receive at the time of retirement. In contrast, formula used in defined contribution
plan defines the contribution the employer is to make.

5. An entity shall measure a noncurrent asset or disposal group held for sale at

a. Adjusted carrying amount

b. Fair value less cost to sell
c. Lower of carrying amount and fair value less cost to sell
d. Higher of carrying amount and fair value less cost to sell

Answer: C
Under IFRS 5, after classification as held for sale, Non-current assets or disposal groups that are
classified as held for sale are measured at the lower of carrying amount and fair value less costs
to sell.

For Nos. 6 & 7

ABC Company provided the following information for its first year of operations ended
December 31, 2017 in connection with the preparation of its income tax return:

Pretax financial income 4,000,000

Nondeductible expenses 200,000
Nontaxable revenues 300,000
Doubtful accounts recorded 100,000
Financial depreciation 300,000
Tax depreciation 350,000
Estimated warranty cost accrued 100,000
Income tax rate 30%

6. How much is the financial income subject to tax?

a. 4,000,000
b. 3,900,000
c. 4,100,000
d. 3,500,000

7. How much is the taxable income?

a. 4,050,000
b. 4,250,000
c. 3,650,000
d. 4,150,000
Answers:

7. B
8. A
Solutions:
7. Pretax financial income 4,000,000
Add: Nondeductible expenses 200,000
Less: Nontaxable revenues 300,000
Financial income subject to tax 3,900,000

8. Financial income subject to tax 3,900,000

Add: Future deductible amount
Doubtful accounts recorded 100,000
Estimated warranty cost accrued 100,000
Less: Future taxable amount
Excess tax depreciation over
financial depreciation 50,000
Taxable income 4,050,000

9. A liability shall be classified as current when it satisfies any of the following criteria, except

a. It is expected to be settled in the entity’s normal operating cycle

b. It is held primarily for the purpose of being traded
c. It is due to be settled within twelve months after the balance sheet date
d. The entity has an unconditional right to defer settlement of the liability for at least twelve months
after the balance sheet date

Answer: D
When the entity has an unconditional right to defer settlement of the liability for at least twelve
months after the balance sheet date, the liability shall be treated as non-current.

10. Which of the following does not qualify as Intangible Asset?

a. Computer Software
b. Registered Patent
c. Protected Copyrights
d. Notebook Computer

Answer: D
Notebook computer fails to meet the definition of an intangible asset. Under PAS 38, intangible
asset is an identifiable non-monetary assets lacking physical substance.
 Final Round
Financial Accounting and Reporting
DIFFICULT

1. Fenn Stores, Inc. had sales of Php1,000,000 during December, year 2. Experience has shown that
merchandise equaling 7% of sales will be returned within thirty days and an additional 3% will be returned
within ninety days. Returned merchandise is readily resalable. In addition, merchandise equaling 15% of
sales will be exchanged for merchandise of equal or greater value. What amount should Fenn report for
net sales in its income statement for the month of December year 2?

a. Php900,000
b. Php850,000
c. Php780,000
d. Php750,000

Answer: A
When revenue is recognized from sales and a right of return exists, sales revenue must be reduced
to reflect estimated returns. In this case, sales of Php1,000,000 must be reduced by estimated
returns of Php100,000 [(7% + 3%) × Php1,000,000], resulting in net sales of Php900,000. The
estimated exchanges (15%) will not result in a future reduction of sales.

2. Fenn Stores, Inc. had sales of Php1,000,000 during December, year 2. Experience has shown that
merchandise equaling 7% of sales will be returned within thirty days and an additional 3% will be returned
within ninety days. Returned merchandise is readily resalable. In addition, merchandise equaling 15% of
sales will be exchanged for merchandise of equal or greater value. What amount should Fenn report for
net sales in its income statement for the month of December year 2?

e. Php900,000
f. Php850,000
g. Php780,000
h. Php750,000

Answer: A
When revenue is recognized from sales and a right of return exists, sales revenue must be reduced to
reflect estimated returns. In this case, sales of Php1,000,000 must be reduced by estimated returns of
Php100,000 [(7% + 3%) × Php1,000,000], resulting in net sales of Php900,000. The estimated exchanges
(15%) will not result in a future reduction of sales.

3. Pat issued 1,000 shares of its P5 par value share ordinary shares to Nenita as compensation for 1,000
hours of legal services performed. Nenita usually bills P160 per hour for legal services. On the date of
issuance, the shares were trading on a public exchange at P140 per share. Determine the increase in the
share premium as a result of the transaction.
a. P135,000
b. P140,000
c. P155,000
d. P160,000

Answer: A
Journal Entries:
Legal Expense P140,000
Ordinary Shares P5,000
Share Premium P135,000
 Rationale: When stock is issued for services, the transaction should be recorded at either the FV of
the stock issued or the FV of the services received, whichever is more clearly determinable. The FV
of stock traded on a public exchange is a more objective, reliable measure than a normal billing rate
for legal services, which is likely to be negotiable.

4. The Sergio Company has a herd of ten 2-year old animals on January 1, 2017. One animal aged 2.5 years
was purchased on July 1, 2017 for P10,800 and one animal was born on July 1, 2017. No animals were
sold or disposed during the year. The fair value less estimated cost to sell per unit were:

2-year old animal on January 1 – P10,000

2.5 years old animal on December 31 – P11,000
2.5 years old animal on July 1 – P10,800
2 year old animal on December 31 – P10,500
Newborn animal on July 1 – P7,000
0.5 year old animal on December 31 – P8,000
3-year old animal on December 31 – P12,000
Newborn animal on December 31 – P7,200

The gain arising from change in fair value less estimated point of sale costs reported in the 2017 statement
of comprehensive income is
a. P5,500
b. P23,700
c. P29,000
d. P29,200

Answer: D
FV, 2-year old animals, 1/1 P 100,000
FV, 2.5-year old animal, 6/1 10,800
FV, new born, 6/1 7,000 117,800
FV, 3-year old animals, 12/31 P 120,000
FV, 3-year old animals, 12/31 12,000
FV, 0.5-year old animals, 12/31 8,000 140,000
22,200
FV, new born, 6/1 7,000
Total Gain Arising from change in FVLCTS 29,200

JE: Bioligical Assets 7,000

Gain on Change FVLCTS (Physical Change) 7,000

Examination of the record of Yasmin Company for the year ended December 31, 2017 revealed the following:

5. During 2017, Yasmon received P40,000 as cash advance from a customer for merchandise to be
manufactured and shipped during 2018. The P40,000 was credited to sales revenue.

 Inventory at January 1, 2017 was overstated by P71,000

 Inventory at December 31, 2017 was understated by P96,000.
 Net profit (before adjustments) reported on the 2017 income statement was P658,000.

What is the correct net profit for the year ended December 31, 2017?

a. P875,000
b. P865,000
c. P785,000
d. P531,000
 Answer: C

Unadjusted Profit P 658,000

Adjustments:
To correct error regarding
cash advance from a
customer (40,000)
Overstated beginning
Inventory 71,000
Understated ending
inventory 96,000
785,000

6. Whiskey Company sells a variety of items to its customers. At December 31, 2017, the balance of
Whisky’s ending inventory account was ₱5,000,000 and allowance for inventory writedown account
before any adjustment was ₱200,000. Relevant information about the inventories and the breakdown of
inventory cost and market data at December 31, 2017 follows:

Net
Replacement Sales Realizable Normal
Item Cost Cost Price Value Profit
A 1,000,000 1,100,000 1,450,000 700,000 100,000
B 1,500,000 1,200,000 1,750,000 1,600,000 200,000
C 1,700,000 1,300,000 2,000,000 1,450,000 250,000
D 800,000 1,000,000 1,300,000 950,000 250,000
Total 5,000,000 4,600,000 6,500,000 4,700,000 800,000

How much is the loss on inventory writedown to be included in Whisky’s cost of sales?

a. P550,000
b. P350,000
c. P200,000
d. P100,000

Answer: B

Net
Realizable
Item Cost Value
A 1,000,000 700,000 700,000
B 1,500,000 1,600,000 1,500,000
C 1,700,000 1,450,000 1,450,000
D 800,000 950,000 800,000
Total 5,000,000 4,700,000 4,450,000 550,000

Allowance for Inventory writedown, Beg P 200,000

Loss on Inventory Writedown, 12/31 350,000
Allowance for Inventory writedown, End 550,000
7. On January 1, 2017, Pay Company had Accounts Recievable and Allowance for Bad Debts of P160,000
and P12,000 respectively. Sales (all on credit) 2017 amounted to P1,800,000. Accounts of P7,000 were
written off during the year. Analysis of Pay’s accounts recievable at December 31, 2017 revealed the
following:

Estimated
Age Amount
uncollectible
0 – 60 days P120,000 1%
61 – 120
90,000 2%
days
Over 120
100,000 6%
days
P310,000

There are no other transactions affecting accounts receivable. How much is the cash collected from
customers during 2017?

a. P1,490,000
b. P1,643,000
c. P1,650,000
d. P1,943,000

ANSWER: B

Accounts Recievable, beg 160,000

Add: Sales on Account 1,800,000
Less: Written-off 7,000
Accounts Recivable, End 310,000
Cash Collected from
Customers P1,643,00

8. Z company uses the net price method of accounting for cash discounts. In one of its transactions on
December 15, 2017, Z company sold merchandise with a list price of P4,000,000 to a client who was
given a trade discount of 20% and 10%. Credit terms given by Z company were 5/10, n/30. The goods
were shipped FOB Destination, freight collect. Total freight charge is P100,000. On December 20, 2017,
the client returned damage goods originally billed at P400,000.

What is the net realizable value of this accounts receivable on December 31, 2017?

a. P2,636,000
b. P2,592,000
c. P2,492,000
d. P2,380,000

Answer: D
List Price P 4,000,000
Less: Trade
Discounts 1,120,000
2,880,000
Less: Sales Return 400,000
Freight-out 100,000
2,380,000

Since, December 31, 2017 is already beyond the discount date, Sales Discount rate is no longer
necessary in the computation.
9. The following information is available for the Jamie Company on March 31 of the current year:

Bank statement balance, March 31 ₱146,750

Note collected by the bank, including interest of 2,500, not yet taken up on the books 62,500
NSF check returned with the bank statement 21,650
Outstanding checks as of March 31 68,470
Bank service charges for March 1,285

What is the Cash Balance per ledger at March 31?

a. ₱38,145
b. ₱78,100
c. ₱118,055
d. ₱254,995

Answer: B
Unadjusted Bank
Balance ₱ 146,570
Less: Outstanding
Checks 68,470
Adjusted Bank Balance ₱ 78,100

Unadjusted Book
Balance 38,145
Add: Note Collected by
the bank and Interest 62,500
Less: NSF Check (21,260)
Bank Service Charge (1,285)
Adjusted Bank Balance ₱ 78,100

10. IFRS 9 replaced the earlier standards for financial instruments, IAS 39, as of January 1, 2018. It contains
three main topics: classification and measurement of financial instruments, impairment of financial assets
and hedge accounting. In the new standard, there are 3 stages under the new impairment model. In stage
1, as soon as financial instrument is originated or purchased, 12-month expected credit losses are
recognized in profit or loss and a loss allowance is established. This serves as a proxy for the initial
expectations of credit losses. For financial assets, interest revenue is calculated based on the amortized
cost (i.e. the gross carrying amount less the loss allowance).

a. True
b. False
c. Neither True or False
d. None of the above

Answer: B
The statement ‘interest revenue is calculated based on the amortized cost (i.e. the gross carrying
amount less the loss allowance)’ should be interest revenue is calculated on the gross carrying
amount (i.e. without deduction for expected credit losses).