Quiz No.

4: Theories – Inventories and Investment

1. Bank A is involved in real estate development. A has purchased land in Moscow through the exercise of a
purchase option that had been acquired some years ago. The purchase price was 10 million and the fair value of
the land as determined by an independent valuer is 23.7 million. The bank is undecided about whether to develop
the land for sale to a third party or sell it, but will determine a use within the next accounting period.

If you were the accountant, on what account will you record the said transaction?
a. Investment Property at fair value, the bank decided to hold the land for long-term capital appreciation rather
than short-term sale in the ordinary course of business.
b. Inventory under PAS 2, as the bank is a real estate developer, it is in their nature to have a property as an
inventory in the normal course of their operations.
c. Property plant and equipment under PAS 16, the property is being held neither for sale nor for further
development and eventual sale in the ordinary course of business.
d. Inventory under PAS 2, the property is being held either for sale or for further development and eventual sale
in the ordinary course of business.

2. Dropna Trading Company purchases motorbikes from several countries and sells them to European countries.
During the current year, this company has incurred following expenses:
i. Trade discounts on purchase
ii. Handling costs relating to imports
iii. Salaries of accounting department
iv. Sales commission paid to sales agents
v. After sales warranty costs
vi. Import duties
vii. Costs of purchases (based on supplier’s invoices)
viii. Freight expense
ix. Insurance of purchases
x. Brokerage commission paid to indenting agents

Dropna Trading Company seeks your advice on which costs are allowed by PAS 2 for inclusion in the cost of
inventory?
a. I,II,IV,VII,VIII,IX,X c. I,II,VI,VII,VIII,IX,X
b. I,II,V,VI,VII,VIII,XI d. I,II,V,VI,VII,VIII,X

3. Which of the following is false relating to cost formulas?

a. Costs should be using the specific identification of their individual costs if inventories are normal
interchangeable and if goods or services are produced and segregated for specific projects.
b. FIFO method assumes the inventories that are purchased first are sold first. This implies that the ending or
remaining inventory is valued at the most recent prices.
c. The weighted average method determines the weighted-average cost of similar items at the start of a period
and the cost of goods or services purchased or produced during the period.
d. An entity should value the inventories by using same formula if the items are or similar nature and use,
different cost methods can be used if the inventories are not similar in nature and use.

4. Which of the following are not parts of total exclusions in relation to PAS 2 inventories?
a. Work in process arising under construction contracts, including directly related service contracts.
b. Financial Instruments
c. Biological assets related to agricultural activity and agricultural produce at the point of harvest.
d. Producers of agricultural and forest products, agricultural produce after harvest, and minerals and mineral
products, to the extent that they are measure at net realizable value in accordance with well-established
practices in those industries.

5. Cost of purchase includes:

a. Purchase price, import duties, and other taxes (other than those subsequently recoverable by the entity from
the taxing authorities).
b. Rebates.
c. All of the above.
d. None of the above.

6. Cost of conversion does not include:

a. Costs directly related to the units of production, such as direct labor.
b. Allocation of variable production overheads to the costs of conversion which is based on the normal capacity
of the production facilities.
c. Unallocated overheads which are recognized as an expense in the period in which they are incurred.
d. Systematic allocation of fixed and variable production overhead, such as activity based costing.
7. Service provider’s inventory necessarily includes:
a. Inventories measured at cost of production which consist of direct costs and allocated overhead
b. Profit margin and non-attributable overheads
c. Selling and administrative expense
d. Allocation of variable production overheads to the costs of conversion which is based on the normal capacity
of the production facilities.

8. Singko Company made a change in valuing its inventories from first-in, first-out to weighted average method due
to acquisition of new accounting system, this is considered a?
a. Change in accounting policy that affects current and future periods only
b. Change in accounting policy with prospective adjustment
c. Change in accounting estimate with retrospective adjustment
d. None of the above

9. Which of the following items is not considered in the computation of total goods available for sale under average
retail inventory method?
a. Employee discount
b. Purchase discount
c. Mark-up cancellation
d. Departmental transfer-in

10. Which of the following items should be excluded from the company’s reported inventory?
a. Goods purchased subject to a buyback agreement
b. Goods still in transit sold under FOB Destination
c. Goods still in transit purchased under FOB Seller
d. Goods out on consignment unsold by the consignee at the balance sheet date

11. On March 1, 2019, Shiftna Company elected to change from weighted average to FIFO inventory system.
Assuming the entity is using calendar year, the cumulative effect of the change is determined?
a. As of January 1, 2019 and given prospective application
b. As of January 1, 2019 and given retrospective application
c. As of March 1, 2019 and given prospective application
d. As of March 1, 2019 and given retrospective application

12. Bagsak Company is a large manufacturer of machines. A major customer has placed an order for a special
machine for which it has given a deposit to the entity. The parties have agreed on a price for the machine. As
per the terms of the sale agreement, it is FOB (free on board) contract and the title passes to the buyer when
goods are loaded into the ship at the port. When should the revenue be recognized by the entity?
a. When the customer orders the machine
b. When the deposit is received
c. When the machine is loaded at the port
d. When the seller signs the bill of lading

13. Cinco Co. is a large manufacturer of cosmetics sells merchandise to a retailer, which in turn sells the goods to the
public at large through its chain of retail outlets. The retailer purchases merchandise from the manufacturer under
a consignment contract. When should revenue from the sale of merchandise to the retailer be recognized by the
manufacturer?
a. When goods are delivered to the retailer
b. When goods are sold by the retailer
c. It will depend on the terms of delivery of the merchandise (i.e., CIF cost, insurance, and freight or FOB)
d. It will depend on the terms of payment (i.e., cash or credit)

14. Which of the following is the incorrect statement?

a. A debit valuation allowance balances for an investment in available for a sale security implies a corresponding
owners’ equity account with a credit balance of the same amount.
b. Unrealized holding gains on investments in available for sale securities may be recognized as a direct
increase to owners’ equity.
c. Investments in trading securities may be classified as current or long-term.
d. Investments in available for sale securities may be classified as current or long-term.

15. Which of the following is incorrect?

a. Investments classified as long-term are reclassified as short-term investments only if it is the intention of the
management to dispose of them in the short term.
b. If an investor company does not have significant influence in another company, it must use either the fair
value method or the cost method to account for that investment in equity securities.
 c. If an investor company has a controlling interest in another company, it must use either the cost method or
the equity method to account for that investment in equity securities.
d. The cost method is sometimes applied to investments in equity securities.

16. Select the incorrect statement.

a. The cost method of accounting for an investment in a subsidiary recognizes the legal fact that the parent and
subsidiary is one economic unit.
b. Realized gains and losses on investments in equity securities accounted for under the cost method are
usually measured by the difference between the cost and current selling price.
c. Under the equity method of accounting for long-term investments in equity securities, the investor’ investment
account is decreased by all dividends received from the investee.
d. The equity method of accounting for long-term investments in equity securities is based on the presumption
that the investor owns a sufficient number of the outstanding voting shares of another company to exercise
significant influence over the operating and financing policies of the other company.

17. Slow-moving and obsolete inventory items should be priced for balance sheet purposes at:
a. Retail inventory price
b. Cost or market, whichever is lower.
c. Moving average.
d. None of the above

18. Subnormal or obsolete goods, either under the cost or the lower of cost or market basis:
a. Should be taken up an unrealized inventory loss.
b. Should be valued at bona-fide selling price less direct cost of disposition.
c. Should be valued by applying an inventory method that uses a constant or nominal value for the normal
inventory level.
d. Should be adjusted in the cost of goods sold.

19. Papasabako corporation purchased shares of Babagsak Company and classified the investment as trading
securities. The entity should report these trading securities at
a. Lower of cost or market with holding gains included in earnings only to the extent of previously recognized
holding losses.
b. Lower of cost or market with holding gains and losses included in earnings.
c. Fair value, with holding gains and losses included in earnings.
d. Fair value with holding gains included in earnings only to the extent of previously recognized holding losses.

20. Which of the following best describes the PFRS requirement for applying the same cost formula to all inventories?
a. When they sell for the same price.
b. When they are purchased from the same geographic region.
c. When they are purchased from different suppliers.
d. When they are similar in nature or use.

21. Which of the following is a disadvantage of using the PFRS FIFO method, as compared to Average-cost under
GAAP?
a. FIFO may cause poorer buying habits as management attempts to manipulate net income.
b. Under FIFO, during periods of inflation, inventory costs matched against sales are greater than the inventory
replacement cost.
c. When price levels increase and inventory quantities do not decrease, taxes are greater under FIFO.
d. FIFO typically causes lower reported earnings.

22. Both GAAP and PFRS exclude which of the following from the cost of inventory?
a. Selling costs
b. Most storage costs
c. General administrative costs
d. All of these are excluded by GAAP and PFRS.

23. In 2019, Shiftnaentrep Manufacturing signed a contract with a supplier to purchase raw materials in 2020 for
P900,000. Before the December 31, 2019 balance sheet date, the market price for these materials dropped to
P710,000. The journal entry to record this situation at December 31, 2019 will result in a credit that should be
reported?
a. on the income statement.
b. as an appropriation of retained earnings.
c. as a valuation account to Inventory on the balance sheet.
d. as a current liability.
24. Which of the following is not a basic assumption of the gross profit method?
a. The total amount of purchases and the total amount of sales remain relatively unchanged from the
comparable previous period.
b. If the sales, reduced to the cost basis, are deducted from the sum of the opening inventory plus purchases,
the result is the amount of inventory on hand.
c. Goods not sold must be on hand.
d. The beginning inventory plus the purchases equal total goods to be accounted for.

25. A major advantage of the retail inventory method is that it?

a. Gives a more accurate statement of inventory costs than other methods.
b. Provides a method for inventory control and facilitates determination of the periodic inventory for certain types
of companies.
c. Hides costs from competitors and customers
d. Provides reliable results in cases where the distribution of items in the inventory is different from that of items
sold during the period.

26. Which of the following is not a reason the retail inventory method is used widely?
a. As a control measure in determining inventory shortages
b. To permit the computation of net income without a physical count of inventory
c. To defer income tax liability
d. To defer income tax asset

27. During the prior fiscal year, Lipatnaschool Corp. signed a long-term noncancellable purchase commitment with its
primary supplier to purchase P2.5 million of raw materials. Lipatnaschol paid the P2.5 million to acquire the raw
materials when the raw materials were only worth P2.3 million. Assume that the purchase commitment was
properly recorded. What is the journal entry to record the purchase?
a. Debit Inventory for P2,300,000, and credit Cash for P2,300,000.
b. Debit Inventory for P2,300,000, debit Unrealized Holding Gain or Loss for P200,000, and credit Cash for
P2,500,000.
c. Debit Inventory for P2,300,000, debit Estimated Liability on Purchase Commitments for P200,000 and credit
Cash for P2,500,000.
d. Debit Inventory for P2,500,000, and credit Cash for P2,500,000.

28. During the current fiscal year, Enterpwaving Corp. signed a long-term noncancellable purchase commitment with
its primary supplier. Entrepwaving agreed to purchase P2.5 million of raw materials during the next fiscal year
under this contract. At the end of the current fiscal year, the raw material to be purchased under this contract had
a market value of P2.3 million. What is the journal entry at the end of the current fiscal year?
a. Debit Unrealized Holding Gain or Loss for P200,000 and credit Estimated Liability on Purchase Commitment
for P200,000.
b. Debit Estimated liability on Purchase Commitments for P200,000 and credit Unrealized Holding Gain or Loss
for P200,000.
c. Debit Unrealized Holding Gain or Loss for P2,300,000 and credit Estimated Liability on Purchase
Commitments for P2,300,000.
d. No journal entry is required.

29. Which of the following are not key similarities between GAAP and PFRS with respect to the accounting for
inventories?
a. The guidelines on who owns the goods—goods in transit, consigned goods, special sales agreements, and
the costs to include in inventory are essentially accounted for the same under PFRS and GAAP
b. Use of specific identification cost flow assumption, where appropriate
c. Unlike property plant and equipment, PFRS permits the option of valuing inventories at fair value.
d. Certain agricultural products and minerals and mineral products can be reported at net realized value using
PFRS

30. Where is the authoritative PFRS guidance related to accounting and reporting for inventories found?
a. PAS 2
b. PFRS 15
c. PAS 41
d. All of these standards deal with inventory
For items 31 to 35

In the cases cited below, five different conditions are possible when X is compared with Y. These possibilities are as
follows:
a. X equals Y d. X is equal to or greater than Y
b. X is greater than Y e. X is equal to or less than Y
c. X is less than Y

Instructions
In the space provided show the relationship of X and Y for each of the following independent statements

____ 31. "Cost or market, whichever is lower," may be applied to (1) the inventory as a whole or to (2) categories of
inventory items. Compare (X) the reported value of inventory when procedure (1) is used with (Y) the reported
value of inventory when procedure (2) is used.

____ 32. Prices have been rising steadily. Physical turnover of goods has occurred approximately 4 times in the last
year. Compare (X) the ending inventory computed by LIFO method with (Y) the same ending inventory
computed by the moving average method.

____ 33. The retail inventory method has been used by a store during its first year of operation. Compare (X)
markdown cancellations with (Y) markdowns.

____ 34. Prices have been rising steadily. At the beginning of the year a company adopted a new inventory method;
the physical quantity of the ending inventory is the same as that of the beginning inventory. Compare (X) the
reported value of inventory if LIFO was the new method with (Y) the reported value of inventory if FIFO was
the new method.

____ 35. Prices have been rising steadily. Physical turnover of goods has occurred five times in the last year. Compare
(X) unit prices of ending inventory items at moving average pricing with (Y) those at weighted average pricing.

36. Recording inventory at net realizable value is permitted, even if it is above cost, when there are no significant
costs of disposal involved and
a. there is a controlled market with a quoted price applicable to all quantities.
b. a normal profit is not anticipated.
c. the internal revenue service is assured that the practice is not used only to distort reported net income.
d. the ending inventory is determined by a physical inventory count.

37. Alpaca Company’s inventory declines in value below original (historical) cost, and this decline is considered other
than temporary, what is the maximum amount that the inventory can be valued at?
a. Sales price reduced by estimated cost to sell
b. Fair market value
c. Net realizable value
d. Net realizable value reduced by a normal profit margin

For items 38 to 43

Choose among the following choices of which is applicable in their respective situations.

A. PAS 2 Inventories
B. PAS 16 Property Plant and Equipment
C. PAS 38 Intangible Assets
D. PAS 41 Agriculture
E. PAS 40 Investment Property

38. An entity trades in commercial property (ie it buys commercial property with a view to selling it at a profit in the
near term).
39. An entity trades in transferable taxi licenses.
40. A vintner processes grapes harvested from its vineyards into wine in a three-year production cycle.
41. An entity holds lubricants that are consumed by the entity’s machinery in producing goods.
42. An entity holds a building to earn rentals under operating leases from independent third parties.
43. An entity that manufactures chemicals maintains its manufacturing plant using a specially designed (bespoke)
cleaning machine and a set of low value common tools acquired from a local hardware store. The bespoke
machine is expected to be used by the entity for many years.

44. A nut farmer believes that the price of nuts will increase significantly in the months following harvesting the crop.
In anticipation of charging higher prices the farmer stores the harvested nuts for three months after the harvest.
How will the farmer account for the price of nuts?
a. PAS 2 Inventories, at fair value less costs to sell with changes in fair value included in profit or loss of the
period in which the value changes
b. PAS 2 inventories, which must be accounted for at the lower of cost and estimated selling price less costs to
sell
c. PAS 41 Agriculture at fair value at the point of harvest
d. PAS 41 Agriculture at fair value less cost to sell
45. Which of the following approaches for measuring and recognizing expected credit losses under PFRS 9 is not
included?
a. A general approach that applies to all loans and receivables not eligible for the other approaches
b. A specific approach that applies to equity and debt securities but not for loans
c. A simplified approach that is required for certain trade receivables and so-called “PFRS 15 contract assets”
and otherwise optional for these assets and lease receivables.
d. A “credit adjusted approach” that applies to loans that are credit impaired at initial recognition (e.g., loans
acquired at a deep discount due to their credit risk).

46. Which is not a characteristic of PFRS 9 in relation to equity securities?

a. Reporting value changes in profit or loss gives better information about value creation over time
b. Recycling can provide a confusing presentation of performance
c. Prohibiting recycling avoids complexity related to impairment
d. Developing a new impairment model for equity investments is an easy task

47. Entity XYZ enters in to a contract to buy 100 tons of copper for P200/ton. The contract permits XYZ to take
physical delivery of the copper at the end of 12 months or to settle net in cash, based on the difference between
the spot price in 12 months’ time and P200/ton. Entity XYZ has a practice of settling net in cash (i.e. if the copper
price at the end of year 1 is P250/ton, then Entity XYZ will receive P50/ton). Does the ‘own use’ scope exemption
apply as regards to PFRS 9
a. Yes, as the contract contains a derivative
b. No, as the contract contains a derivative
c. Yes, as the contract does not contain a derivative
d. No, as the contract does not contain a derivative

48. Referring to no. 47, assuming the same facts, except that Entity XYZ is a company that manufactures copper wire
and has a practice of taking delivery of the copper and using it to manufacture copper wires. Does the ‘own use’
scope exemption apply as regards to PFRS 9
a. Yes, as the contract is for its own use requirements
b. No, because it does have a practice of settling net
c. Yes, as the contract is not for its own use requirements
d. No, as the contract contains a derivative

49. Referring to no. 47, except that Entity XYZ Usually has sufficient stock of copper to last 3 or 4 months for
manufacturing copper wires, has a practice of settling net when the contract is ‘in the money’ i.e. if the spot
copper price is more than the fixed price of P200 e.g. P250, it will settle the contract net and receive P5,000
[(P250-P200)X100] and has a practice of taking delivery of the copper at P200/ton when the contract is out of the
money (i.e. if the spot copper price is less than P200), because the profit margin on the sale of copper wire more
than covers the cost of copper. Does the ‘own use’ scope exemption apply as regards to PFRS 9
a. The ‘own use’ scope exemption does apply because although Entity XYZ is an entity that uses copper to
manufacture wires, Entity XYZ has a practice of settling net when the contract is in the money. Therefore the
contract is not within the scope of PFRS 9
b. The ‘own use’ scope exemption does apply because is an entity that manufactures copper wires and has a
practice of taking delivery of copper and using it for manufacture, so the contract is for its own use
requirements
c. The ‘own use’ scope exemption does not apply because although Entity XYZ is an entity that uses copper to
manufacture wires, Entity XYZ has a practice of settling net when the contract is in the money. Therefore the
contract is within the scope of PFRS 9; and Entity XYZ accounts for the contract as a derivative.
d. The ‘own use’ scope exemption does not apply because. ‘Past practice’ which provides evidence of any
regular or foreseeable events giving rise to net settlement would block the ability to apply the own use
exemption to similar contracts in the future

50. Which of the following is not example of sales that would not contradict holding financial assets to collect
contractual cash flows
a. Selling the financial asset close to its maturity (meaning that there is little difference between the fair value of
the remaining contractual cash flows and the cash flows arising from the sale).
b. Selling the financial asset to realize cash to deal with an unforeseen need for liquidity.
c. Selling the financial asset due to concerns about the collectability of the contractual cash flows (i.e. increase
in credit risk).
d. All of the following are correct.

51. Entity A sold one of its diverse business operations and currently has P10 million of cash. It has not yet found
another suitable investment opportunity in which to invest those funds so it buys short dated (6 month maturity)
high quality government bonds in order to generate interest income. It is not considered likely but, if a suitable
investment opportunity arises before the maturity date, the entity will sell the bonds and use the proceeds for the
acquisition of a business operation. Otherwise it will hold the bonds to their maturity date. Is the hold to collect
business model test met?
a. Yes, as the entity’s objective appears to be holding the government bonds and collecting the contractual cash
flows which consist of the contractual interest payments and, on maturity, the principal amount.
b. No, factual basis is lacking
c. No, the bond were to be sold prior to its maturity date, the fair value of the cash flows arising would be similar
to those which would be collected by continuing to hold the bonds.
d. Yes, as the performance of the debt investment is evaluated on a fair value basis and the objective for
managing the debt investments is to realize cash flows through sale
52. Entity D lends Entity E P500 million for five years at an interest rate of 5%. Entity E is a property developer that
will use the funds to buy a piece of land and construct residential apartments for sale. In addition to the 5%
interest, Entity D will be entitled to an additional 10% of the final net profits from the project. Does the loan meet
the SPPI contractual cash flows characteristic test?
a. No, the profit linked element means that the contractual cash flows do not reflect only payments of principal
and interest that consist of only the time value of money and credit risk.
b. Yes, contractual cash flows of both a fixed rate instrument and a floating rate instrument are payments of
principal and interest as long as the interest reflects consideration for the time value of money and credit risk.
c. Yes, a loan that contains a combination of a fixed and variable interest rate meets the contractual cash flow
characteristics test.
d. No, the terms provide for the repayment of the principal amount of the loan on demand

53. Which of the following is false as to equity investments at fair value through other comprehensive income?
a. Equity investments that are neither held for trading nor contingent consideration recognized by an acquirer in
a business combination, entities can make an irrevocable election at initial recognition to classify the
instruments as at FVOCI, with all subsequent changes in fair value being recognized in other comprehensive
income (OCI)
b. Election must be for the entire portfolio of investment
c. Fair value changes are recognized in OCI while dividends are recognized in profit or loss (unless they clearly
represent a recovery of part of the cost of the investment)
d. Disposal of the investment the cumulative change in fair value is not recycled to profit or loss

54. Assume Entity B has a December year end and it prepares the following interim reports that comply with PAS 34
Interim Financial Reporting:
– 31 March, First quarter financial statements;
– 30 June, Half-year financial statements;
– 30 September, Third quarter financial statements.

Is it possible for Entity B to early apply PFRS 9

a. Yes, an entity can adopt PFRS 9 in its interim reports that comply with PAS 34, because the date of initial
application can be the beginning of an interim period other than the beginning of an annual period.
b. Yes, an entity can adopt PFRS 9 earlier than the effectivity date provided that the date of initial application is
disclosed.
c. Yes, an entity can adopt PFRS 9 in any periods as it is not restricted by the standard itself provided that
prospective application of the hedge accounting requirements is with limited exceptions
d. Yes. an entity can adopt PFRS 9 An option not to restate comparative information with differences being
recorded in opening retained earnings.

55. Entity B bought an equity investment in an unlisted company on 1 January 2013 for P100. As the equity
instrument was not held for trading it was classified by Entity B as an available-for-sale financial asset.

However, because the investment did not have a quoted market price in an active market and its fair value could
not be reliably determined, the equity investment was measured at cost (less impairment) under PAS 39. On 31
December 2013 Entity B recognized an impairment loss of CU40 in profit or loss. Entity B applies PFRS 9 for the
first time in the annual reporting period ended 31 December 2015. It elects to measure the equity investment at
FVOCI. In accordance with the transitional provisions of PFRS 9, Entity B is not required to restate comparatives
but is required to provide the disclosures set out in PFRS 7.42L-42O.

The fair value of the investment on 1 January 2015 is determined to be P75. The carrying value of the investment
under PAS 39 at 31 December 2014 is P60. How should Entity B account for the investment on transition?
a. The date of initial application of Entity B is 1 January 2015. Entity B recognizes the difference of P15 in its
closing retained earnings or other reserves (if it is designated at FVOCI) at 31 January 2015.
b. The date of initial application of Entity B is 1 January 2015. Entity B recognizes the difference of P15 in its
opening retained earnings or other reserves (if it is designated at FVOCI) at 1 January 2015.
c. The impairment loss previously recognized in profit or loss would be reclassified from retained earnings to
shareholder’s equity on transition.
d. The impairment loss previously recognized in profit or loss would be reclassified from other comprehensive
income to shareholder’s equity on transition.

56. The usual factors considered in classifying investments in securities as short-term are
a. Type of investment only
b. Ready marketability only
c. Ready marketability and type of investment
d. Ready marketability and management intentions.

57. Cash dividends declared out of current earnings were distributed to an investor. How will the investor’s investment
account be affected by those dividends under cost adjusted for fair value method and equity method respectively?
a. Decrease; Decrease
b. Decrease; No Effect
c. No Effect; Decrease
d. No Effect; No Effect
58. Derivatives are financial instruments that derive their value from changes in a benchmark based on any of the
following, except
a. Stock price
b. Mortgage and currency rate
c. Commodity price
d. Discount on accounts receivable

59. When to recognize a financial instrument?

a. Recognize a financial asset or a financial liability in the statement of financial position when the entity
becomes a party to the contractual provisions of the instrument
b. Recognize when it deals with your own (issued) equity instruments like your own shares, issued warrants,
written options for equity, etc.
c. Recognize when it deals with your investments in subsidiaries, associates and joint ventures
d. Recognize when it deals with a non-recourse financial asset but do not represent the payment of principal and
interest but with the intention of selling the same.

60. Which of the following is false as between PFRS 9 and PAS 39?
a. Under PAS 39, an entity was required to assess at the end of each reporting period whether there was any
objective evidence that an equity instrument classified as AFS was impaired. When an entity assessed that
an instrument was impaired, the decrease in value below the original historical cost was reclassified to profit
or loss as an impairment loss. Impairment losses should not be subsequently reversed.
b. Under PAS 39, the cumulative gain or loss in OCI was recycled to profit or loss on disposal.
c. PFRS 9 does provide an exemption from fair value for equity securities that do not have a quoted market
price in an active market and for which fair value cannot be reliably measured.
d. In the Basis for Conclusions to PFRS 9, the IASB concluded that gains and losses on instruments subject to
the FVOCI election should be recognized only once in comprehensive income, and noted that recycling would
create the need to assess these equity instruments for impairment. The IASB explained that the impairment
requirements for equity instruments classified as AFS under PAS 39 were very subjective and had created
application problems.

61. “As per December 31, 2017, the fund owns 1,994 shares or 7.6% fully diluted in JUMO World Limited. JUMO is
valued as per the most recent transaction in the company in December 31, 2016 and the fund’s stake is valued at
PhP 12.7 million as per December 31, 2017. JUMO is categorized as a level 2 investment.”

JUMO is a mobile money marketplace for people, small businesses, mobile network operators, and financial
service providers. JUMO operates across numerous Asian markets like China, Japan, Philippines and Korea
while through 2017, launching their offering in the sub-continent in Pakistan. Group headquarters are in
Novaliches, Quezon City

JUMO was founded in 2014 and the fund first invested in JUMO in 2015. The fund has invested a total of PhP
11.6 million over the course of three funding rounds, where the latest investment of PhP 1.6 million was
concluded in December 2016. As per December 31, 2017, JUMO is valued on the basis of the latest transaction,
with a valuation of PhP 12.7 million for the fund’s 7.6% ownership in the company.

Is the valuation of JUMO shares at cost appropriate? Choose the best answer.
a. No, as specifically stated in PFRS 9 that initial recognition must be at fair value.
b. No, an entity shall use all information about the performance and operations of the investee that becomes
available after the date of initial recognition. To the extent that any such relevant factors exist, they may
indicate that cost might not be representative of fair value. In such cases, the entity must measure fair value.
c. No, PFRS 9 permits valuing equity securities at cost under limited circumstances. However, an entity must
consider available information and if relevant factors exist that indicate cost might not be representative of fair
value, and then the entity must measure fair value.
d. No, cost is never the best estimate of fair value for investments in quoted equity instruments (or contracts on
quoted equity instruments).

62. A financial asset shall be measured at fair value through profit or loss, which of the choices regarding exception to
FVPL is false?
a. The financial asset is part of a hedging relationship, in which case the provisions of PAS 39 on hedge
accounting shall apply
b. The financial asset that is an equity security that is not held for trading and is revocably elected upon initial
recognition to be measured at fair value through other comprehensive income
c. The financial asset that is a debt instrument is measured at amortized cost
d. Financial assets measured at fair value through profit or loss shall consist of Held for Trading (HFT) financial
assets as defined in PAS 39
63. Company A has an investment in a convertible bond issued by Company B that gives Company A the option to
convert into a fixed number of Company B equity shares. Under IAS 39, because the embedded equity option
was not closely related to the debt host contract, the convertible bond was bifurcated into the host contract
(measured at amortized cost) and the equity option (measured at FVTPL). What will be the effect if the security is
reported under PFRS 9?
a. Under PFRS 9, the convertible bond is evaluated as a single unit of account. Because the contractual terms
of the convertible bond do not give rise solely to payments of principal and interest on the principal amount
outstanding on the bond, it fails the SPPI criterion and is measured at FVTPL.
b. Under PFRS 9, the convertible bond is evaluated as a multiple unit of account. Because the contractual terms
of the convertible bond gives rise solely to payments of principal and interest on the principal amount
outstanding on the bond, it falls on the SPPI criterion and is measured at FVOCI.
c. Under PFRS 9, the convertible bond is evaluated as a single unit of account. Because the contractual terms
of the convertible bond do not give rise solely to payments of principal and interest on the principal amount
outstanding on the bond, it fails the SPPI criterion and is measured at FV Amortized Cost.
d. Under PFRS 9, the convertible bond is evaluated as a single unit of account. Because the contractual terms
of the convertible bond give rise solely to payments of principal and interest on the principal amount
outstanding on the bond, it is under the SPPI criterion and is measured at FV Amortized Cost.

64. A company owns 51% share of B Company and 10% share of C Company, B Company also owns 51% of C
Company. At what account should A company record the shares of C Company?
a. Investment in associate, as B Company also owns 51% of the shares wherein the latter was also the
subsidiary of A Company.
b. Investment in subsidiary, as A Company also owns B Company, therefore regardless of the number of
shares, A company also owns C Company.
c. Investment in equity securities, as A Company owns 10% share of C Company, PFRS 9 applies on equity
securities.
d. Investment in debt securities, because there is a presumption that the financial instruments evidencing a
creditor relationship with a company or government is considered a debt security as evidenced by the
ownership of both A and B Company to C Company.

65. Company A has determined that it controls Fund B in accordance with PFRS 10 Separate and Consolidated
Financial Statement. Does PFRS 9 apply to an interest in an investment fund that is controlled by the entity in
accordance with PFRS 10?

a. No, as Investment in subsidiary is one of the exceptions in applying PFRS 9

b. No, as investment in subsidiary has a separate standard which is PFRS 10
c. Yes, if company A (parent company) meets the definition of an investment entity, investments in an
investment fund are accounted for in accordance with PFRS 9 in its separate financial statement
d. It depends, unless if company A (parent company) meets the definition of an investment entity, investments in
an investment fund are accounted for in accordance with PFRS 9, if not, the interest in a subsidiary is exempt
from applying PFRS 9 in its separate financial statements

66. Fund B issues redeemable participating units that are redeemable at the investor’s discretion at any time. Should
an investment fund with puttable instruments apply PFRS 9 to the amounts attributable to investors?
a. No, the puttable instruments issued by the investment fund meet the requirements in PAS 32, the amounts
attributable to investors are equity.
b. It depends, if the puttable instruments issued by the investment fund meet the requirements in PAS 32, the
amounts attributable to investors are equity. However, if the puttable instruments do not meet the
requirements, the amounts attributable to investors are presented as financial liability, and thus PFRS 9
applies
c. Yes, the amounts attributable to investors are presented as financial liability, and thus PFRS 9 applies.
d. It depends, if the puttable instruments issued by the investment fund meet the requirements in PFRS 9, the
amounts attributable to investors are equity.

67. Company A holds an investment in fund B. Fund B issues redeemable participating units that are redeemable at
the investors’ discretion at any time. However, the amounts attributable to investors are presented as equity in
fund B’s financial statements, because the puttable instruments issued by the fund meet the requirements in PAS
32. Should an investor in an investment fund with puttable instruments, which meet the requirements in PAS 32 to
be presented as equity in the investment fund’s financial statements and thus would be exempt from PFRS 9,
apply PFRS 9 to its investment in the fund?
a. Yes. The holder of such an investment in a fund is required to apply PFRS 9 in its entirety to the investment,
unless the investment fund is a subsidiary, associate or joint venture
b. No. The holder of such an investment in a fund is not required to apply PFRS 9 in its entirety to the
investment, because Fund B issues redeemable participating units that are redeemable at the investors’
discretion at any time
 c. Yes. The holder of such an investment in a fund is required to apply PFRS 9 in its entirety to the investment,
because an investor in an investment fund with puttable instruments irrevocably elected to present it using
PFRS 9.
d. It depends. If the holder of such an investment in a fund is not required to apply PFRS 9 in its entirety to the
investment, the amounts attributable to investors are presented as equity in fund B’s financial statements
which must be presented as a financial asset, which means that factors are not applicable based on the
requisite for classifications laid down in PFRS 9.

68. Fund A is a mutual fund investing in equity instruments issued by major European telecoms. The fund designated
some of the investments to be measured at fair value through OCI in accordance with PFRS 9. Due to a
significant downturn in the European telecoms market, fund B recognizes a valuation loss on its investments in
OCI. Should fund A recognize an impairment loss in profit or loss?
a. No. Fund A classifies its investments in fair value through OCI, and thus it does not recognize an impairment
loss, or gains and losses from its investment in the equity instruments, in profit or loss (that is, no recycling).
However, dividends could be recognized in profit or loss if the provisions in PFRS 9 are met.
b. No. Where the fund’s investments are considered low credit risk investments, the fund could apply the
exception in PFRS 9 which allows it to assume that the fund’s investments have not significantly increased in
credit risk since initial recognition.
c. No. Fund A classifies its investments in fair value through OCI, the fund’s investments have an external
ranking that provides evidence that not all of the fund’s investments are of low credit risk, so the relief from
monitoring the credit risk provided by PFRS 9 is not admissible for the fund as a whole.
d. None of the choices

69. Which is not required to be disclosed about exposure to risks arising from financial instrument?
a. Qualitative and quantitative information about credit risk
b. Qualitative and quantitative information about liquidity risk
c. Qualitative and quantitative information about market risk
d. Qualitative and quantitative information about operational risk

70. A net unrealized loss on a company’s AFS portfolio of marketable equity securities should be reflected in the
current financial statement as
a. A footnote or parenthetical disclosure only
b. A current loss resulting from holding marketable equity securities
c. An extraordinary item shown as direct reduction of retained earnings
d. A valuation allowance and included in the equity section of the statement of financial position.

71. Which of the following is not a characteristic of Retail Inventory Method?

a. Retail inventory method is used to value inventory if inventory is high volume/low unit cost.
b. Retail inventory method uses the same formula as the gross profit method; however, it uses retail value
(sales) instead of cost of goods sold to value ending inventory.
c. Retail inventory method is a way of tracking cost of inventory using retail or sales prices.
d. Retail inventory method is a way of determining ending inventory is used to estimate inventory if perpetual
records are not kept and/or if a physical count is not practical.

72. If a reliable measure of fair value is no longer available and it becomes appropriate to carry a financial asset
without fixed maturity at cost rather than at fair value, the carrying amount (fair value) of the financial asset
become the new cost basis and any previous gain or loss that has been recognized directly in equity shall
a. Included in retained earnings
b. Be recognized in earnings immediately
c. Be amortized over a reasonable period to profit or loss
d. Remain in equity until the financial asset is sold or otherwise disposed of.

73. Returns consistent with a basic lending arrangement, interest may include return not only for the time value of
money and credit risk but also for other components such as a return for liquidity risk, amounts to cover expenses
and a profit margin.
a. 12-month expected credit losses c. Fair value at amortized cost
b. Solely payments of principal and interest d. Debt securities

74. Financial instruments sometimes contain features that separately meet the definition of a derivative instrument.
These features are classified as
a. notional amount derivatives c. embedded derivatives
b. hedging instruments d. mixed derivatives
75. (Bonus Question) Will I become a CPA?
a. Yes, in order for me to become jowable c. Yes, for my crush to fall in love with me
b. Yes, for me to become less marupok d. Yes, in order for my life to be less miserable