ADVANCE FINANCIAL ACCOUNTING AND REPORTING

PFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS

1. An entity shall recognize revenue to depict the transfer of promised goods or services to customers in
the ______ amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services.
a. Net
b. Residual
c. Gross
d. Cumulative

2. Which of the following is an exception for application of PFRS 15?

a. Lease contracts
b. Insurance contracts
c. Pharmaceutical contracts
d. Financial audit contracts
e. All of the above
f. A and B

3. A contract is wholly unperformed if

a. The entity has not yet transferred any promised goods or services to the customer
b. The entity has not yet received any consideration in exchange for promised goods or services.
c. The entity is not yet entitled to receive any consideration in exchange for promised goods or
services
d. All of the above

4. A contract modification is the change in the price and/or scope that is approved by the parties to the
contract in a written form only.
a. True
b. False

5. A good or service that is promised to a customer is distinct if

a. The customer can benefit from the good or service on its own
b. The customer can benefit from the goods or service together with other resources that are
readily available to the customer
c. The entity’s promise to transfer the good or service to the customer is separately identifiable
from other promises in the contract
d. All of the above

6. According to PFRS 15, the asset is transferred to a customer

a. When the asset is physically delivered to the customer’s premises
b. On the day specified by a contract with the customer
c. When the customer obtains control over it
d. On the day when the entity satisfies all performance obligations, specified in the contract with
the customer

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 7. On January 1, 2019, a vendor enters into a contract with a customer to build an item of specialized
equipment, for delivery on April 30, 2019. However, the exact delivery date is hard to estimate. The
amount of consideration specified in the contract is P300,000, but the amount will be decreased or
increased by P500 for each day, depending on whether the actual delivery date is before or after April
30, 2019. How should a vendor determine a transaction price for this contract?
a. A vendor needs to apply the most likely amount method in order to predict the amount of
consideration, because there is a range of possible outcomes
b. A vendor needs to apply expected value method in order to predict the amount of
consideration, because there is a range of possible outcomes
c. The transaction price for this contract should be the same as specified in the contract with a
customer, which is P300,000.
d. The transaction price may only be calculated when the equipment is delivered and exact
amount of consideration is known.

8. PFRS 15 replaces which previous standard and interpretations?

a. PAS 18 Revenue
b. PAS 11 Construction Contracts
c. IFRIC 13 Customer Loyalty Programmes
d. IFRIC 15 Agreements for the Construction of Real Estate
e. IFRIC 18 Transfers of Assets from Customers
f. SIC 31 Revenue – Barter Transactions Involving Advertising Services
g. All of the above

9. The new revenue recognition model comprises which five steps?

a. 1. Identify the contract(s) with a customer, 2. Identify the separate performance obligations in
the contract, 3. Determine the transaction price, 4. Allocate the transaction price to the
performance obligations in the contract, 5. Recognize revenue when (or as) the entity satisfies
each performance obligation.
b. 1. Identify the performance obligations in the contract, 2. Identify the contract(s) with a
customer, 3. Determine the transaction price, 4. Allocate the transaction price to the
performance obligations in the contract, 5. Recognize revenue when (or as) the entity satisfies
a performance obligation.
c. 1. Identify the contract(s) with a customer, 2. Identify the performance obligations in the
contract, 3. Initial measurement, 4. Subsequent measurement, 5. Derecognition.
d. None of the above

10. Contractor Ltd. Sells various construction goods and provides construction services to customers who
either consume, hold or resell. Contractor Ltd entered into a contract to build a hospital for a customer.
Contractor Ltd. is responsible for the overall management of the project and identified various goods
and services to be provided, including engineering, site clearance, foundation, procurement,
construction of the structure, piping and wiring, installation of equipment and finishing.
What are the separate performance obligations in the contract?
a. The hospital building, engineering, site clearance, foundation, procurement, construction of the
structure, piping and wiring, installation of equipment and finishing
b. There is only 1 performance, ie the construction of the hospital
c. Engineering, site clearance, foundation, procurement, construction of the structure, piping and
wiring, installation of equipment and finishing
d. The hospital’s construction and the project management

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 11. Developer Ltd. entered into a contract with a customer to transfer a (1) software service, (2) perform
an installation service, (3) provide technical support (online and telephone) for a three-year period, and
(4) provide unspecified software updates. They sell the license (1), installation service (2) and technical
support (3) separately. The installation service (2) is also done by other software businesses, such as
“accredited partners” and does not significantly modify the software. The software remains functional
without the updates and the technical support.
What are the separate performance obligations in the contract?
a. The software license (1) and technical support (3)
b. The software license (1), an installation service (2) and technical support (3)
c. The software license (1), an installation service (2) and software updates (4)
d. The software license (1), an installation service (2), technical support (3) and software updates
(4)

12. Pharmacy Ltd. sold 1,000 units of a prescription drug to a customer for a promised consideration of
P1,000,000. This was Pharmacy Ltd’s first sale to a new region, which is experiencing significant
economic difficulty. Therefore, Pharmacy Ltd expects that it will not be able to collect from the
customer the full amount of the promised consideration.
Despite the possibility of not collecting the full amount, Pharmacy Ltd. expects the region’s economy to
recover over the next three years and determines that a relationship with the customer could help it
forge relationships with other potential customers in the region. Based on the assessment of the facts
and circumstances, Pharmacy Ltd determines that it expects to provide a price concession and accept a
lower amount of consideration from the customer. It its probable that Pharmacy Ltd will collect
P400,000 from the customer.
The transaction price of the contract is:
a. P1,000,000. P600,000 may be written off subsequently as bad debts
b. P1,000,000. P600,000 will be provided for as a provision for doubtful debts
c. Zero. Pharmacy Ltd is unable to identify a contract with a fixed price
d. P400,000, which is the amount Pharmacy Ltd expects to receive from the customer

13. TimePieces Ltd enters into a contract with a customer on January 1, 2018 to sell watches, “Model A”
for P100 per unit. The contract specifies that if the customer purchases more than 1,000 in a calendar
year, the price per unit is retrospectively reduced to P90 per unit.
For the first quarter ended March 31, 2018, TimePieces Ltd sells 75 Model A watches to the customer.
TimePieces Ltd estimates that the customer’s purchases will not exceed the 1,000 unit threshold
required for the volume discount in the calendar year. TimePieces Ltd has significant experience with
Model A and with the purchasing pattern of the customer. It is highly probable that a significant
reversal in the cumulative amount of revenue recognized (ie P100 per unit) will not occur when the
uncertainty is resolved (ie when the total amount of purchases is known).
In May 2018, the customer’s business grows and in the second quarter ended June 30, 2018. Time
Pieces Ltd sells an additional 500 Model A watches to the customer. In the light of the new fact,
TimePieces Ltd estimates that the customer’s purchases will exceed the 1,000-unit threshold for the
calendar year and therefore it will be required to retrospectively reduce the price per unit to P90.
TimePieces Ltd should recognize revenue as follows:
a. P6,750 for the quarter ended March 31, 2018 and then recognize P44,250 for the quarter ended
June 30, 2018.
b. P7,500 for the quarter ended March 31, 2018 and then recognizes P44,250 for the quarter
ended June 30, 2018.
c. P51,750
d. P57,500

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PFRS 3 BUSINESS COMBINATION
14. Which of the following does not result in a business combination for Fred Ltd.?
a. Fred made a basket purchase of 40% of Neily Ltd.’s assets
b. Fred acquired 65% of Kelly Co.’s voting shares
c. Fred acquired all the assets of Burchak Ltd
d. Fred acquired an operating divisions of Nyle Ltd.

15. According to CFOs, what is the main reason for mergers?

a. Risk reduction
b. Empire building
c. Market power
d. Operating synergies

16. Which of the following acquisition-related costs are not expensed in the period incurred?
a. Valuation fees
b. Cost of issuing debt
c. Finder’s fees
d. Accounting fees

17. In acquiring B Ltd., A Ltd. included a provision for contingent consideration. The value of this
consideration will be determined by an event that will occur after the acquisition date. How should the
recognition of the amount of the contingency be accounted for?
a. As a gain/loss on the statement of comprehensive income
b. As an adjustment to goodwill
c. As an adjustment to retained earnings
d. As an adjustment to the acquisition value

18. Which of the following is not a classification for intangible assets under PFRS 3?
a. Artistic-related
b. Internal development
c. Technology-based
d. Customer-related

19. Which of the following it not an acceptable method for valuing intangible assets?
a. Market-based
b. Tax-based
c. Income-based
d. Cost-based

20. When would it be more advantageous for a purchase to acquire a company’s assets rather than its
shares?
a. The book value of the seller’s shares is lower than the market value of the shares
b. The purchases plans to retain the acquired enterprise as a separate entity
c. The company to be acquired has capital assets that have fair values which exceed their book
values
d. The company to be acquired has large tax carryovers that it will be unable to use.

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 21. Land Ltd. acquire 100% of Linford Ltd. through a direct exchange. In the exchange, Land issued
P7,500,000 in shares to Linford. What journal entry must Land record to reflect the exchange?
a. No journal entry is required
b. DR Investment in Linford Ltd 7,500,000 CR Common Shares 7,500,000
c. DR Common Shares 7,500,000 CR Retained Earnings 7,500,000
d. DR Investment in Linford Ltd. 7,500,000 CR Cash 7,500,000

22. Land Ltd. acquire 100% of Linford Ltd. through a direct exchange. In the exchange, Land issued
P7,500,000 in shares to Linford. What journal entry must Linford record to reflect the exchange?
a. DR Cash 7,500,000 CR Common Shares 7,500,000
b. DR Cash 7,500,000 CR Retained Earnings 7,500,000
c. No journal entry is required
d. DR Common Shares 7,500,000 CR Retained Earnings 7,500,000

23. Under PAS 16, under what circumstances can the revaluation model be used to measure PPE?
a. When the PPE includes unrecorded intangible assets
b. When the fair value can be reliably measured
c. When the value of the PPE has been impaired
d. When the fair value of the PPE exceeds the book value by 10%

24. Kora Co. a public enterprise, is a subsidiary of Bentel Ltd., a private enterprise. Bentel has chosen to
report Kora using the equity method. In doing so what information must Bentel disclose in its notes to
the financial statements?
a. Fair value of the investment in Kora
b. Reconciliation of the equity method to consolidation
c. Fair value of Kora’s share capital
d. Reconciliation of the equity method to the cost method

25. Rpssy Ltd. acquired 100% of Zia Ltd. in 2019. At the acquisition date, the following appeared under
PPE sections of the respective separate-entity statement of financial position: Rossy Zia Equipment
1,000,000 500,000 Accumulated depreciation (350,000) (100,000). At the acquisition date, Zia’s
equipment has a fair value of P425,000. What is the balance of the accumulated depreciation on
Rossy’s consolidated SFP at the acquisition date?
a. 350,000
b. 425,000
c. 450,000

26. Gibson Ltd. has investments in a number of businesses. Each of the investments is individually
immaterial. How should PFRS 3 disclosures be made for these investments?
a. Since the investments are individually immaterial, no disclosures are required.
b. The disclosures should be made separately for each investment
c. The disclosures should be made for these investments in the aggregate
d. Disclosures only need to be made for any investments that are in excess of 5%

27. Boyce Ltd. made an investment in a joint venture. After properly making an allocation for a fair value
adjustment, there was P25,000 remaining. How should this P25,000 be reported?
a. Adjustment on the income statement
b. Included in the carrying value of the investment
c. Adjustment in the shareholders’ equity section of the SFP
d. Classified as goodwill on the SFP
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PFRS 10 CONSOLIDATED FINANCIAL STATEMENTS
28. A parent company and its subsidiaries forma single entity for legal purposes.
a. True
b. False

29. Which of the following is an example of an intra-group item which is cancelled out when preparing the
group statement of comprehensive income?
a. Interest payable by a subsidiary to its parent
b. Management expenses charged by one subsidiary to another
c. Administrative fees charged by a parent to a subsidiary
d. All of the above

30. If a subsidiary company is acquired part of the way through an accounting period, the group’s share of
the subsidiary’s pre-acquisition profit is included in the statement of comprehensive income for the
period.
a. True
b. False

31. In an accounting period, a parent-company has sales of P867,000 and its 80% subsidiary has sales of
P121,000. The group sales figure for the period is P963,800.
a. True
b. False

32. When preparing a set of group of financial statements, the correct treatment of dividends paid by a
subsidiary company to its non-controlling shareholders is to:
a. Deduct them in the non-controlling interest column in the group statement of changes in equity
b. Cancel them against dividends received by the parent company
c. Ignore them completely
d. Add them in the non-controlling interest column in the group of changes in equity

PFRS 11 JOINT ARRANGEMENTS

33. The two categories of joint arrangement recognized by PFRS 11 are:
a. Joint operations and joint ventures
b. Joint operations and joint enterprises
c. Joint ventures and joint enterprises
d. Joint ventures and joint contracts

34. An interest in a joint operation must be accounted for by the equity method.
a. True
b. False

PAS 21 THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES

35. An entity’s functional currency is defined by PAS 21 as the currency in which the entity’s FSs are
presented
a. True
b. False

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 36. Factors which might help to determine an entity’s functional currency include:
a. The currency that mainly influences sales prices of the entity’s goods and services
b. The currency that mainly influences the costs of providing goods and services
c. The currency in which funds from financing activities are generated
d. All of the above

PAS 29 FINANCIAL REPORTING IN HYPERINFLATIONARY ECONOMIES

37. PAS 29 adopts current purchasing power approach to the restatement of FSs.
a. True
b. False

38. The main steps required in the preparation of a restated SFP do not include
a. The restatement of non-monetary items carried at a valuation
b. The restatement of non-monetary items carried at historical cost
c. The restatement of each component of equity
d. The restatement of monetary items

39. If an entity prepares restated FSs in accordance of PAS 29, the gain or loss on the entity’s net
monetary position is shown in OCI.
a. True
b. False

40. The basic principle of current purchasing power (CPP) accounting is that each transaction is adjusted to
reflect the change in the general purchasing power of money since the transaction occurred.
a. True
b. False

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