Liabilities - TOA

8/20/2019 Liabilities - TOA

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Problem 1-1 Multiple Choice (PFRS 9)

1. An entity shall measure initially a financial liability not designated at fair value

through profit or loss at

a. Fair value

b. Fair value plus direct attributable transaction costs

c. Fair value minus direct attributable transaction costs

d. Face amount

2. Transaction costs direct attributable to the issue of a financial liability include all of

the following, except

a. Fees and commissions paid to agents b. Levies by regulatory agencies

c. Transfer taxes and duties

d. Financing costs

. The fair value of a liability is defined as

a. The appraised value of the liability

b. The price that would be received to assume the liability in an orderly transaction

between mar!et participants

c. The amount that would be paid when transferring a liability in an orderly

transaction between mar!et participants

d. The carrying amount of the liability on the date of transaction

". After initial recognition, an entity shall measure a financial liability at

#. Amorti$ed cost using the effective interest method.

##. Fair value through profit or loss

a. # only

b. ## only

c. %ither # or ##

d. &either # or ##


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'. (hich of the following statements is true in relation to the fair value option of

measuring a financial liability)

#. At initial recognition, an entity may irrevocably designate a financial liability

at fair value through profit or loss.

##. The financial liability is measured at every year*end and any changes in fair

value are recogni$ed in profit or loss.

###.The interest expense on the financial liability is recogni$ed using nominal

interest rate.

a. # and ## only

b. # and ### only

c. ## and ### only d. #, ## and ###

Problem 1-2 Multiple Choice (PAS 1)

1. +ome liabilities, such as trade payables, accruals for employee and other operating

costs, are expected to be settled in more than twelve months after the reporting

period. ow will an entity classify these items in the statements of financial

positions)

a. -urrent

b. &oncurrent

c. First classify as noncurrent since the term is more than twelve months, then

classify to current if the term is less than twelve months.

d. #t will depend on the entitys policy

2. (hich of the following liabilities that are not part of the normal operating cycle

of an entity should be classified as noncurrent)

a. Financial liabilities classified as held for trading

b. /an! overdrafts

c. -urrent portion of noncurrent financial liabilities

d. Financial liabilities that provide financing but are not due for settlement within

twelve months after the reporting period


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. (ith respect to loans classified as current liabilities, all of the following events that

occur between the end of the reporting period and the date the financial statements

are authori$ed for issue are disclosed as nonad0usting events, except

a. efinancing on a long term basis b. The entity has the discretion to refinance an obligation for a shorter period

c. ectification of a breach of a long*term loan arrangement

d. The granting by the lender of a period to rectify breach of a long*term loan

arrangement ending at least twelve months after the reporting period.

". (hich of the following should be classified as noncurrent liability)

a. Long*term loan arrangement wherein an entity breaches a provision such that the

loan becomes payable on demand. After the reporting period and before authori$ation of the financial statements for issue, the lender has agreed not to

demand payment.

b. /ond payable issued with the intention to repurchase in the near term

c. ividend payable due in two years after the reporting period

d. Trade note payable

'. (hich of the following should be classified as noncurrent liability)

a. Trade and other payable

b. 3rovision

c. Financial liability held for trading

d. eferred tax liability

Problem 1-3 Multiple choice (PAS 1)

1. The principal classifications of liabilities are

a. -urrent liabilities and noncurrent liabilities

b. -urrent liabilities, noncurrent liabilities and deferred revenue

c. -urrent liabilities and deferred revenue

d. &oncurrent liabilities and deferred revenue


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2. All of the following condition would re4uire the classification of a liability as

current, except

a. The entity expects to settle the liability within the entitys operating cycle

b. The entity holds the liability for the purpose of trading c. The liability is due to be settled within twelve months after the reporting period

d. The entity has an unconditional right to defer settlement of the liability for at

least twelve months after the reporting period.

. A long*term debt which is due to be settled within twelve months after the reporting

period is classified as noncurrent when

#. An agreement to refinance or to reschedule payments on a long*term basis is

completed on or before the end of the reporting period and before the financial statements are authori$ed for issue

##. The entity has the discretion to refinance or roll over the obligation for at least

twelve months after the reporting period under an existing loan facility.

a. # only

b. ## only

c. /oth # and ##

d. &either # nor ##

". (hich obligations are classified as current even if they are expected to be settled

after more than twelve months from the end of reporting period)

a. Trade payables and accruals for employee and other operating costs

b. /an! overdrafts

c. ividends payable

d. #ncome taxes payable

'. +ome borrowing agreements incorporate covenants which have the effect that the

liability becomes payable on demand if certain conditions related to the covenants

are breached. #n such a case, the liability is classified as

#. Current even if the lender has agreed, after the reporting period and before the

statements are authori$ed for issue, not to demand payment as a conse4uence of

the breach.

##. Noncurrent when the lender has agreed on or before the end of the reporting

period to provide a period of grace ending at least twelve months after that date.


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a. # only

b. ## only

c. %ither # or ##

d. &either # nor ##

Problem 1-4 Multiple choice (AA)

1. For a liability to exist

a. A past transaction or event must have occurred

b. The exact amount must be !nown

c. The identity of the party owed must be !nown

d. An obligation to pay cash in the future must exists

2. The conceptually appropriate method of measuring a liability is

a. iscount the amount of expected cash outflows that are necessary to li4uidate the

liability using the mar!et rate of interest at the date the liability was initially

incurred.

b. iscount the amount of expected cash outflows that are necessary to li4uidate the

liability using the mar!et rate of interest at the date financial statements are

prepared.

c. ecord as a liability the amount of cash that the entity would be re4uired to pay

to eliminate the liability in the ordinary course of business on the date of the

financial statements.

d. ecord as a liability the amount of cash actually received when a liability was

incurred.

. (hich of the following represents a liability)

a. The obligation to pay for goods that an entity expects to order from suppliers

next year.

b. The obligation to provide goods that customers have ordered and paid for during

the current year.

c. The obligation to pay interest on a five*year note payable that was issued the last

day of the current year.

d. The obligation to distribute an entity5s own shares next year as a result of a stoc!

dividend declared near the end of the current year.


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". (hich of the following does not meet the definition of a liability)

a. The signing of a three*year employment contract at a fixed annual salary.

b. An obligation to provide goods or services in the future.

c. A note payable with no specified maturity date. d. An obligation that is estimated in amount.

'. &ote disclosure for long*term debt generally include all of the following, except

a. Asset pledged as security

b. -all provision

c. estriction imposed by creditor

d. &ame of -reditor

Problem 1-! Multiple choice (AA)

1. Among the short*term obligations as of the year*end are notes payable with a

certain ban!. These are 67*day notes, renewable for another 67*day period. These

notes should be classified

a. -urrent liabilities

b. eferred credits

c. &oncurrent liabilities

d. #ntermediate debt

2. At year*end, an entity has 127*day note payable outstanding. The entity has

followed the policy of replacing the note rather than repaying it over the last three

years. The entity5s treasurer says that this policy is expected to continue

indefinitely, and the arrangement is acceptable to the ban! to which the note was

issued. (hat is the proper classification of the note in the year*end statement of

financial position)

a. ependent on the intention of management

b. ependent on the actual ability to refinance

c. -urrent liability, unless specific refinancing criteria are met

d. &oncurrent liability

. An entity had a note payable due next year. After the end of reporting period and

before the issuance of the current year financial statements, the entity issued

long*term bonds payable. 3roceeds from the bonds were used to repay the note

when due. ow should the entity classify the note payable at current year*end)


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a. -urrent liability with separate disclosure at the note refinancing.

b. -urrent liability with no disclosure re4uired.

c. &oncurrent liability with separate disclosure of the note refinancing

d. &oncurrent liability with no separate disclosure re4uired

". An entity has a loan due for repayment in six months5 time, but the entity has the

option to refinance for repayment two years later. The entity plans to refinance this

loan. #n which section of the statement of financial position should this loan be

presented)


b. -urrent assets

c. &oncurrent liabilities d. &oncurrent assets

'. (hich of the following circumstances may result in the classification of a liability

as current)

a. +hort*term obligations refinanced with long*term debt at the end of reporting

period

b. ebts to be li4uidated from funds that have been accumulated and are reported

as noncurrent assets

c. 8iolation of provisions of a debt agreement

d. 9bligations for advance collections that involve long term deferment of the

delivery of goods or services

Problem 1-" Multiple choice (AA)

1. (hich of the following is a characteristics of a current liability but not a current

liability )

a. :navoidable obligation

b. 3resent obligation re4uires settlement by probable future transfer or use of cash,

goods or services.

c. +ettlement is expected wothin the normal operating cycle or within 12 months,

whichever is longer.

d. The obligating event creating the liability has already occurred.


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2. (hich of the following is not considered a characteristics of liability )

a. 3resent obligation

b. Arises from past event

c. esults in an outflow of resources d. Li4uidation is reasonably expected to re4uire use of current assets

. (hat is the relationship between the current liabilities and an operating cycle)

a. Li4uidation of current liabilities is reasonably expected within the operating

cycle or one year, whichever is higher.

b. -urrent liabilities aren the result of operating transactions.

c. -urrent liabilities cannot exceed the amount incurred in one operating cycle.

d. There is no relationship between the two.

". (hat is the relationship between present value and the concept of liability)

a. 3resent value is used to measure certain liabilities.

b. 3resent value is not used to measure liabilities.

c. 3resent value is used to measure all liabilities.

d. 3resent value is only used to measure noncurrent liabilities.

'. (hich of the following is &9T an acceptable presentation of current liabilities)

a. Listing current liabilities in the order of maturity.

b. Listing current liabilities according to amount.

c. 9ffsetting current liabilities against assets that are to be applied to their

li4uidation.

d. +howing current liabilities in the order of li4uidation preference.

Problem 1-# Multiple choice (FRS)

1. (hich of the following statements best describes the term ;liability; )

a. An excess of e4uity over current assets

b. esources to meet financial commitments as they fall due

c. The residual interest in the assets of the entity after deducting all of the liabilities

d. A present obligation of the entity arising from past events

2. -onceptually, a short*term note payable with no stated rate of interest should be


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a. ecorded at maturity value.

b. ecorded at the face amount.

c. iscounted to its present value.

d. eported separately from other short*term notes payable.

. #n which section of the statement of financial position should employment taxes

that are due for settlement in 1' months5 ime be presented)


b. -urrent assets

c. &oncurrent liabilities

d. &oncurrent assets

". (hich of the following should be classified as noncurrent liability)

a. :nearned revenue

b.


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2. (hich of the following is not a liability)

a. eposit received from customer

b. :nearned revenue

c. =ero interest*bearing note payable d. +toc! dividend payable

. All of the following are classified as current liabilities, except

a. Long*term debt maturing currently refinanced on a long*term basis at the end of

reporting period

b. Long*term debt maturing currently to be paid with cash in a sin!ing fund.

c. Long*term debt maturing currently refinanced on a long*term basis after the end

of reporting period d. Long*term debt maturing currently with no option for refinancing.

". (hich of the following statements is not true regarding the presentation of current

liabilities in accordance with FRS)

a. The noncurrent liabilities follow the current liabilities.

b. -urrent liabilities may be listed in >the order of maturity, in descending order of

magnitude or in the order of li4uidity preference.

c. -urrent liabilities are generally recorded at face amount.

d. -urrent liabilities should not be offset against the assets used for li4uidation.

'. (hat is the classification of debt callable by the creditor)

a. &oncurrent liability

b. -urrent liability

c. -urrent liability if the creditor intends to call the debt within one year.

d. -urrent liability if it is probable that the creditor will call the debt within one year.


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Problem 2-1 Multiple choice (FRC 13)

1. #t is a mar!eting scheme whereby an entry grants award credits to customers and

the

entity can redeem the award credits in exchange for free or discounted goods or services.

a. -ustomer loyalty program

b. 3remium plan

c.


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a. The entity shall not recogni$e revenue from the award credits

b. The entity shall recogni$e initially a deferred revenue e4ual to the gross

consideration allocated to the award credits

c. The entity shall recogni$e initially a deferred revenue e4ual to the difference between the consideration for the award credits and the amount paid by the

entity to the third party

d. The entity shall recogni$e immediately revenue e4ual to the gross consideration

allocated to the award credits


1. The accrual approach in accounting for products warrant cost

a. #s re4uired for income tax purposes

b. #s fre4uently 0ustified on the basis of expediency when warranty cost is

immaterial

c. Finds the expense account being charged when the seller performs in compliance

with the warranty

d. epresents accepted practice and should be used whenever the warranty is an

integral and inseparable part of the sale.

2. (hich of the following best describes the accrual approach of accounting for

warranty cost)

a. %xpensed when paid

b. %xpensed when warranty claims are certain

c. %xpensed based on estimate in year sale

d.%xpensed when incurred

. (hich of the following best describes the expense as incurred approach of

accounting for warranty cost)

a. %xpensed based on estimate in year or sale

b. %xpensed when liability is accrued

c. %xpensed when warranty claims are certain

d. %xpensed when incurred

". An entity has a continuing policy of guaranteeing now products against defects for


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three years. (hat is the classification of the estimated warranty liability)

a. &oncurrrent

b. -urrent

c. 3artly current and partly noncurrent d. &o need for disclosure

'. (hich of the following is a characteristic of the accrual of warranty but not the sale

of warranty)

a. (arranty liability

b. (arranty expense

c. :nearned warranty revenue

d. (arranty revenue

Problem 3-1 Multiple choice (ACPA A&opte&)

1. An entity sells appliances that include a two*year warranty. +ervice calls under the

warranty are performed by an independent mechanic under contract with the entity.

/ased on experience, warranty costs are estimated at a certain amount for each

appliance sold. (hen should the entity recogni$e these warranty costs)

a. %venly over the life of the warranty

b.(hen the service calls are performed

c. (hen payments are made to the mechanic

d. (hen the appliances are sold

2. A department store received cash and issued a gift certificate that is redeemable in

merchandise. (hen the gift certificate was issued

a. eferred revenue account should be decreased.

b. eferred revenue account should be increased.

c. evenue account should be decreased.

d. evenue account should be increased.

. An entity received an advance payment for special order goods that are to be

manufactured and delivered within six months. The advance payment is reported in

the statement of financial position as

a. eferred charge


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b. -ontra asset account

c. -urrent liability

d. &oncurrent liability

". An entity is a retailer of home appliances and offers a service contract on each

appliance sold. The entity sells appliances on installment contracts but all service

contracts must be paid in full at the time of sale. -ollections received for service

contracts should be recorded as an increase in

a. eferred revenue account

b. +ales contracts receivable valuation account

c. +hareholders e4uity valuation account

d. +ervice revenue account

'. At the end of the current year, an entity received an advance payment of ?7@ of the

sales price for special order goods to be manufactures and delivered within five

months. At the same time, the entity subcontracted for production of the special

order

goods at a price e4ual to "7@ of the main contract price. (hat liabilities should be

reported in the year*end statement of financial position)

a. &one

b. eferred revenue e4ual to ?7@ of the main contract price and payable to

subcontractor e4ual to "7@ of the main contract price.

c. eferred revenue e4ual to ?7@ of the main contract price and no payable to

subcontractor.

d. &o deferred revenue but payable to subcontractor is reported at "7@ of the main

contract price.

?. #n une of the current year, an entity sold refundable merchandise coupons. The

entity receives a certain amount for each coupon redeemable from uly 1 to ecember 1 of the current year, for merchandise with a certain retail price. At une

7 of the current year, how should be the entity report these coupon transaction)

a. :nearned revenue at the merchandises retail price

b. :nearned revenue at the cash received

c. evenue at the merchandises price

d. evenue at the cash received.

B. ow would the proceeds received from the advance sale of nonrefundable tic!ets

for


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a theatrical performance be reported in the statement of financial position before the

performance)

a. evenue for the entire proceeds

b. evenue to the extent of related costs expanded c. :nearned revenue to the extent of related costs expended

d. :nearned revenue for the entire proceeds

C.


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d. An obligation to transfer funds to an entity.

2. A provision shall be recogni$ed whenD

#. An entity has a present obligation as a result of past event.

##. #t is probable that an outflow of resources embodying economic benefits will

be re4uired to settle the obligation.

a. # and ## only.

b. # and ### only

c. ## and ### only

d. #, ## and ###

. A constructive obligation is an obligation.

#. That is derived from an entitys action that the entity will accept certain

responsibilities because of past practice, published policy or current

statement.

##. The entity has created a valid expectation in other parties that it will

discharge those responsibilities.

a. # only

b. ## only

c. /oth # and ##

d. &either # nor ##

". #t is an event that creates a legal or constructive obligation because that entity has

no other realistic alternative but to settle the obligation.

a. 9bligating event

b. 3ast event

c. +ubse4uent event

d. -urrent event

'. An outflow of resources embodying economic benefits

a. The probability that the event will occur is greater than the probability at the

event will not occur.

b. The probability that the event will not occur is greater than the probability that

the event will occur.


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c. The probability that the event will not occur is the same as the probability that

the event will not occur.

d. The probability that the event will occur is 67@ li!ely.

?. (hat amount is recogni$ed as provision)

a. /est estimate of the expenditure

b.


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party)

a. The reimbursement shall be recogni$ed only when it is virtually certain that the

reimbursement will be received if the entity settles the obligation.

b. The amount of the reimbursement shall not exceed the amount of provision.c. The reimbursement shall be Enetted against the estimated liability for the

provision.

d. #n the income statement, the expense relating to the provision may be presented

net of the reimbursement.

ANS'RS

1* + "* A

2* , #* C3* C %* A

4* A 9* C

!* A 1* C

Problem 4-2 Multiple Choice (PAS 3#)

1. (hich of the following statements is true regarding recognition of a provision)

#. &o provision is recogni$ed for cost that need to be incurred to operate in the

future.

##. A provision for the decommissioning of an oil installation or a nuclear plant

station shall be recogni$ed to the extent that an entity is obliged to rectify

damaged already caused.

a. # only

b. ## only

c. /oth # and ##

d. &either # nor ##

2. 3rovisions shall be discounted if the effect is material. (hich of the following is

incorrect regarding the discount rate)

a. eflects current mar!et rate assessment of the time value of money.

b. eflects ris! specific to the liability.

c. oes not reflect ris! for which future cash flow estimates have already been

ad0usted.


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d. #s a post*tax discount rate.

. For an event to be an obligating event, it is necessary that the entity has no

realistic alternative but to settle the obligation created by the event and this is thecase onlyD

#. (here the settlement of the obligation can be enforced by law.

##. (here the event creates valid expectation in other parties that the entity will

discharge the obligation as in the case of constructive obligation.

a. # only

b. ## only

c. /oth # and ##d. &either # nor ##

". (hich of the following statements is true concerning the measurement of a

provision)

#. The amount recogni$ed as a provision should be the best estimate of the

expenditure re4uired to settle the present obligation at the end of reporting

period.

##. The best estimate of the expenditure re4uired to settle the present obligation is

the amount that an entity would rationally pay to settle the obligation at the

end of reporting period or to transfer it to a third party at the same time.

a. # only

b. ## only

c. /oth # and ##

d. &either # nor ##

'. (hich of the following terms is associated with recogni$ing provision)

a. 3ossible

b. Li!ely

c. emote

d. 3robable


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ANS'RS

1* C

2* ,

3* C

4* C!* ,

Problem 4-3 Multiple Choice (PAS 3#)

1. (hich of the following statements is true in relation to the measurement of a

provision)

#. The ris! and uncertainties that inevitably surround many events and

circumstances shall be ta!en into account in reaching the best estimate of a

provision.

##. (here the effect of the time value of money is material, the amount of a

provision shall be the present value of the expenditure expected to settle the

obligation.

a. # only

b. ## only

c. /oth # and ##d. &either # nor ##

2. (hich of the following statements is true in relation to measurement of a

provision)

#. Future events that may affect the amount re4uired to settle the obligation shall

be reflected in the amount of the provision where there is sufficient ob0ective

evidence that the future events will occur.

##. Gains from expected disposal of assets shall be ta!en into account in

measuring a provision.

a. # only

b. ## only

c. /oth # and ##

d. &either # nor ##

. (hich of the following statements is incorrect concerning recognition of a


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provision)

a. 3rovisions shall be reviewed at the end of each reporting period and ad0usted to

reflect the current best estimate.

b. A provision shall be used only for expenditures for which the provision was originally recogni$ed.

c. A provisions shall be recogni$ed for future operating losses.

d. #f an entity has an onerous contract, the present obligation under the contract

shall be recogni$ed and measured as a provision.

". #t is a contract in which the unavoidable costs of meeting the obligation under the

contract exceed the economic benefits to be received under the contract.

a. 9nerous contract b. %xecutory contract

c. %xecuted contract

d. +ale contract

'. The unavoidable costs under an onerous contract represent the Eleast net cost of

exiting from the contract, which is e4ual to

a. -ost of fulfilling the contract

b. 3enalty arising from failure to fulfil the contract

c. Lower of the cost of fulfilling the contract or the penalty arising from failure to

fulfil the contract

d. igher of the cost of fulfilling the contract or the penalty arising from failure to

fulfil the contract.

ANS'RS

1* C

2* A3* C

4* A

!* C

Problem 4-4 Multiple choice (PAS 3#)

1. This is defined as Ea structured program that is planned and controlled by the

management that materially changes either the scope of a business of an entity or

the manner in which that business is conducted.


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a. estructuring

b. Li4uidation

c. ecapitali$ation

d. -orporate revamp

2. %xamples of events that 4ualify as restructuring include all of the following, except

a. +ale or termination of business

b. -losure of business location in a region or relocation of business from one

location to another.

c. -hange in management structure such as elimination of a layer of management

d.Fundamental reorgani$ation of an entity that has an immaterial and

insignificant impact on its operations

. (hich is a cost of restructuring)

a. -ost of retraining or relocating continuing staff

b.


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ANS'RS

1* A

2* ,3* ,

4* A

!* C

Problem 4-! Multiple choice (FRS)

1. A legal obligation is an obligation that is derived from all of the following except

a. Legislation

b. A contract

c. 9ther operation of law

d. An established pattern of past practice

2. A provision should be recogni$ed for which of the following)

a. Future operating losses b. 9bligations under insurance contracts

c. eductions in fair value of financial instruments

d. 9bligations for plant decommissioning costs

. 3rovisions shall be recogni$ed for all of the following except

a. -leaning*up costs of contaminated land when an oil entity has a published

policy that it will underta!e to clean up all contamination that it causes.

b. estructuring costs after a binding sale agreement has been signed

c. ectification costs relating to defective products already sold

d. Future refurbishment costs due to introduction of a new computer system

". An entity is closing one of its operating divisions and the conditions for ma!ing

restructuring provision have been met. The closure will happen in the first 4uarter

of the next financial year. At the current year*end, the entity has announced the

formal plan publicly and is calculating the restructuring provision. (hich of the

following costs should be included in the restructuring provision)

a. etraining staff continuing to be employed


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b. elocation costs relating to staff moving to other divisions

c. -ontractually re4uired costs of retraining staff being made redundant from the

division being closed

d. Future operating losses of the division being closed up to the date of closure.

'. An entity operates chemical plants. #ts published policies include a commitment to

ma!ing good any damaged caused to the environment by its operations. #t has

always honored this commitment. (hich of the following scenarios relating to the

entity would give rise to an environmental provision)

a. 9n the past experience it is li!ely that a chemical spill which would result in

having to pay fines and penalties will occur in the next year.

b. ecent research suggests there is a possibility that the entitys actions may

damage surrounding wildlife c. The government has outlined plans for a new law re4uiring all environmental

damage to be rectified

d. A chemical spill from one of the entitys plants has caused harm to the

surrounding area and wildlife

ANS'RS

1* ,

2* ,

3* ,

4* C

!* ,

Problem 4-" Multiple choice (FRS)

1. A provision shall be recogni$ed when

a. There is a legal obligation arising from a past obligating event, the probability of

the outflow of resources is more than remote but less than probable, and a reliable estimate can be made of the amount of the obligation.


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b. There is a constructive obligation as a result of a past obligating event, the

outflow of resources is probable, and a reliable estimate can be made of the

amount of the obligation

c. There is a possible obligation arising from a past event, the outflow of resources

is probable, and an approximate amount can be set aside toward the obligation

d.


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the settlement chec! is actually received

". An entity has been served a legal notice at year*end by the epartment of

%nvironment and &atural esources to fit smo!e detectors in its factory on or before middle of the next year. The cost of fitting smo!e detector can be

measured reliably. ow should the entity treat this in its financial statements at

year*end)

a. ecogni$e a provision for the current year e4ual to the estimated amount

b. ecogni$e a provision for the current year e4ual to one*half only of the

estimated amount

c. &o provision is recogni$ed at year*end because there is no present obligation

for the future expenditure since the entity can avoid the future expenditure by

changing the method of operations, but disclosure is re4uired d. #gnore the event

'. The board of directors of an entity decided in the latter part of the current year o

wind up international operations in the Far %ast and move them to Australia. The

decision was based on a detailed formal plan of restructuring as re4uired by 3A+

B.This decision was conveyed to all wor!ers and management personnel at the

head4uarters in %urope. The cost of this restructuring plan can be measured

reliably, how should the entity treat this restructuring in the financial statements for

the current year*end)

a. isclose only the restructuring decision and the cost of restructuring because

the entity has not announced the restructuring to those affected by the decision

and thus has not raised an expectation that the entity would actually carry out

the restructuring.

b. ecogni$e a provision for restructuring since the board of directors has

approved it and it has been announced in the head4uarters of the entity in

%urope.

c.


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Problem 4-# Multiple choice (PAS 3#)

1. (hich of the following statements is incorrect concerning a contingent liability)

a. A contingent liability is both probable and measurable

b. An entity shall not recogni$e a contingent liability in the financial statements

c. A contingent liability is disclosed only

d. #f a contingent liability is remote, no disclosure is re4uired

2. A contingent liability is a

#. 3ossible obligation that arises from past event and whose existence will be confirmed only by the occurrence or non*occurrence of one or more future

uncertain events not wholly within the control of the entity

##. 3resent obligation that arises from past event and it is not probavle that an

outflow of resources embodying economic benefits will be re4uired to settle the

obligation or the amount of the obligation cannot be measured reliably

a. # only

b. ## only

c. /oth # and ##

d. &either # nor ##

. (hich of the following statements in relation to a contingent liability is true)

#. An obligation as a result of the entity creating a valid expectation that it will

discharge its responsibilities is a contingent liability

##. A present obligation that arises from past event but cannot be reliably measured is a contingent liability

a. # only

b. ## only

c. /oth # and ##

d. &either # nor ##

". #t is possible asset that arises from past event and whose existence will be

confirmed occurrence or non*occurrence of one more uncertain future events not


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wholly within the control of the entity

a. -ontingent asset

b. -ontingent gain

c. 3ossible asset d. Asset in suspense

'. (hich of the following statement is incorrect concerning a contingent asset)

a. A contingent asset is recogni$ed because this may result to recognition of

income that may never be reali$ed.

b. (hen the reali$ation of income is virtually certain, the related asset is no longer

a contingent asset and its recognition is appropriate.

c. A contingent asset is disclosed where an inflow of economic benefit is probable. d. A contingent asset is disclosed where an inflow of economic benefit is possible

or remote

ANS'RS

1* A

2* A

3* +

4* A

!* ,

Problem 4-% Multiple Choice (ACPA A&.pte&)

1. The li!elihood that the future event will or will not occur can be expressed by a

range of outcome. (hich range means that the future event occurring is very

slight)

a. 3robable

b. easonably certain

c. -ertain

d. emote

2. An entity did not record an accrual for a present obligation but disclose the nature

of the obligation and range of the loss. ow li!ely is the loss)

a. emote

b. easonably possible

c. 3robable d. -ertain


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. A present obligation that is probable and for which the amount can be reliably

estimated shall

a. &ot be accrued but shall be disclose in the notes of financial statement

b. /e accrued by debiting an appropriated retained earnings account and crediting

a liability account

c. /e accrued by debiting an expense account and crediting an appropriated

retained earnings account

d. /e accrued by debiting an expense accounting and crediting a liability account

". An entity has self*insurance plan. %ach year, the entity appropriated retained

earnings for contingencies in amount e4ual to insurance premiums saved less recogni$ed losses from lawsuits and other claims. As a result of an accident in the

current year, the entity is a defendant in a lawsuit in which it will probably have to

pay amount measurable damages. (hat are the effects of this lawsuits probable

outcome on the entitys financial statement for the current year)

a. An increase in expenses and no effect on liabilities

b. An increase in both expense and liabilities

c. &o effect on expenses and increase in liabilities

d. &o effect on either expenses or liabilities

'. -ontingent assets are usually recogni$ed when

a. eali$ed

b. 9ccurrence is reasonable and the amount can be reasonably estimated

c. The amount can be reasonably estimated

d. The amount can be reasonably estimated

?. (hich of the following is the proper way to report a contingent asset, receipt of

which is certain)

a. As an asset

b. As a unearned revenue

c. As a disclosure only

d. &o disclosure and no accrual


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B. (hich of the following is the proper accounting treatment of a probable contingent

asset)

a. An accrued account b. eferred earnings

c. An account receivable with an additional disclosure explaining the nature of

transaction

d. A disclosure only

C. (hen the occurrence of a contingent asset is probable and the amount can be

reasonably estimated, the contingent asset should

a. ecogni$ed in the statement of financial position and disclosed b. -lassified as an appropriation of retained earnings

c. isclosed but not recogni$ed in the statement of financial position

d. &either recogni$ed in the statement of financial position nor disclosed

6. An entity operates a plant in a foreign country. #t is probable that the plant will be

expropriated. owever, the foreign government has indicated that the entity will

received definite amount of compensation for the plant. The amount of

compensation is less than the fair value but exceeds the carrying amount of the

plant. The contingent should reported

a. As a valuation allowance as part of the shareholders e4uity

b. As a fixed asset valuation allowance account

c. #n the notes to the financial statement

d. #n the statement of financial position

17. At year end, an entity was suing a competitor for a patent infringement. The award

from the probable favourable outcome could be reasonably estimated. The entitys financial statements should report the expected award as

a. eceivable and revenue

b. eceivable and reduction of patent

c. eceivable and deferred revenue

d. isclosure only

ANS'RS

1* , "* C


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2* + #* ,

3* , %* C

4* + 9* C

!* A 1* ,


1. -ontingent liabilities will or will not become actual liabilities depending on

a. (hether they are probable and estimable.

b. The degree of uncertainty.

c. The present condition suggesting a liability.

d. The outcome of a future event.

2. A contingent liability shall be recogni$ed when

a. Any lawsuit is actually filed against an entity.

b. #t is certain that funds are available to pay the amount of the claim.

c. #t is probable that a liability has been incurred even though the amount of the

loss cannot be reasonably estimated.

d. The amount of the loss can be reasonably estimated and it is probable prior to

issuance of financial statements that a liability has been incurred.

. ow should a contingent liability be reported in the financial statements when it is

reasonably possible that the entity will have to pay the liability at a future date)

a. As a deferred liability

b. As an accrued liability

c. As a disclosure only

d. As an account payable with an additional disclosure explaining the nature of

the transaction

". isclosure usually is not re4uired for

a. -ontingent gains that are probable and can be reasonably estimated.

b. -ontingent losses that are reasonably possible and cannot be reasonably

estimated.

c. -ontingent losses that are probable and cannot be reasonably estimated.

d. -ontingent losses that are remote and can be reasonably estimated.


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'. 3rovisions are accrued because the li!elihood of an unfavorable outcome is

a. 8irtually certain

b. Greater than '7@ c. At least B'@

d. 3ossible

?. eporting is re4uired for

a. Loss contingencies that are probable and can be reliably measured.

b. Gain contingencies that are probable and can be reliably measured.

c. Loss contingencies that are possible and can be reliably measured.

d. All loss contingencies.

B. 3ending litigation would generally be considered

a. &onmonetary liability

b. -ontingent liability

c. %stimated liability

d. -urrent liability

C. Gain contingencies that are remote and can be reliably measured

a.


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employee and is to pay damages.

b. The entity has received a letter from a supplier complaining about an old unpaid

invoice.

c. The entity is involved in a legal case which it may possibly lose, although this is

not probable. d. The entity has not yet paid certain claims under sales warranties.

ANS'RS

1* , "* A

2* , #* +

3* C %* ,

4* , 9* ,

!* + 1* C


1. (hat condition is necessary to recogni$e an environmental liability)

a. The entity has an existing legal obligation and the amount of the liability can be

reliably estimated.

b. The entity can reliably estimate the amount of the liability.

c. The entity has a existing legal obligation.

d. 9bligating event has occurred.

2. (hich of the following is not considered when evaluating whether or not to

received a liability for pending litigation)

a. Time period in which the underlying cause of action occurred.

b. The type of litigation involved.

c. The probability of an unfavorable outcome.

d. The ability to ma!e a reliable estimate of the amount of the loss.

. (hich of the following is re4uired to disclose regarding ris! and uncertainties that

exist)

a. Factor causing an estimate to be sensitive.

b. The potential impact of estimate when it is reasonably possible that the estimate

will change in the future.

c. The potential impact of estimate when it is remotely possible that the estimate

will change in the future.


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d. A description of operations both within and outside of the home country.

". A contingent liability is

a. An estimated liability.

b. An event which is not recogni$ed because it is not probable that an outflow will

be re4uired or the amount cannot be reliably estimated.

c. A potential large liability.

d. A potential small liability.

'. ow should incurred cost associated with relocating employees in a restructuring

be accounted for)

a.


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d. Face amount

2. After initial recognition, bonds payable shall be measured at

#. Amorti$ed cost using the effective interest method.

##. Fair value through profit or loss.

a. # only

b. ## only

c. %ither # or ##

d. &either # nor ##

. The Eamorti$ed cost of bonds payable means

a. Face amount plus premium on bonds payable

b. Face amount minus discount on bonds payable

c. Face amount minus bond issue cost

d. Face amount plus premium on bonds payable, minus discount on bonds payable

and minus bond issue cost

". :nder the fair value option, bonds payable shall be measured initially at

a. Fair value

b. Fair value plus bond issue cost

c. Fair value minus bond issue cost

d. Face amount

'. (hich of the following statement is true in relation to the fair value option of

measuring a bonds payable)

#. At initial recognition an entity may revocably designate a bond payable at fair

value through profit or loss.

##. The bond payable is remeasured at every year*end at fair value and any changes

in fair value and any changes in fair value are recogni$ed in other comprehensive income.


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a. # only

b. ## only

c. /oth # and ##

d. &either # nor ##

ANS'RS

1* C

2* C

3* ,

4* A

!* ,

Problem !-2 Multiple choice (ACPA A&.pte&)

1. /onds that mature on a single date are called

a. Term bonds

b. +erial /onds

c. -allable /onds

d. -onvertible bonds

2. /ond issued with scheduled maturities at various dates are called

a. -onvertible bonds

b. Term bonds

c. +erial bonds

d. -allable bonds

. -osts incurred in connection with the issuance of ten*year bonds which sold at a

slight premium shall be

a. -harged to retained earnings when the bonds are issued

b. %xpensed in the year in which incurred

c. -apitali$ed as organi$ation cost

d. reported in the statement of financial position as a deduction from bonds payable

and amorti$ed over the ten*year bond term

". (hen the interest payment dates of a bond are


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b. ecreased by accrued interest from


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a. #ncrease and ecrease

b. #ncrease and #ncrease

c. ecrease and ecrease

d. ecrease and #ncrease

17. :namorti$ed debt discount should be reported as

a. irect deduction from the face value of the debt

b. irect deduction from the present value of the debt

c. eferred charge

d. 3art of the bond issue cost

ANS'RS

1* A "* ,

2* C #* C3* , %* ,

4* , 9* A

!* A 1* A

Problem !-3 Multiple Choice (AA)

1. ebentures are

a. :nsecured bonds

b. +ecured bonds

c. 9rdinary bonds

d. +erial bonds

2. #f bonds are issued between interest dates, the entry of the issuer could include a

a. ebit to interest payable

b. -redit to interest receivable

c. -redit to interest expense

d. -redit to unearned interest

. (hich of the following statements is true regarding accrued interest on bonds that

are sold between interest dates)

a. The accrued interest is computed at the effective rate


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b. The accrued interest will be paid to the seller when the bonds mature

c. The accrued interest is extra income to the buyer

d. All of the statements are not true

". (hich of the following statements is true regarding premium on bonds payable)

a. The premium on bonds payable is a contra shareholders e4uity account

b. The premium on bonds payable appears on the boo!s of the investors

c. The premium on bonds payable increases when amorti$ation entries are made

until maturity date

d. The premium on bonds payable decreases when amorti$ation entries are made

until the balance reaches $ero at the maturity date

'. The carrying amount of a bond liability is the

a. -all price of the bond plus bond discount or minus bond premium

b. Face amount of the bond plus related premium or minus related discount

c. Face amount of the bond plus related discount or minus related premium

d.


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C. (hen bonds are retired prior to maturity with proceeds from a new bond issue, any

gain or loss from the early extinguishment of debt should be

a. Amorti$ed over the remaining original life of the retired bond issue b. Amorti$ed over the life of the new bond issue

c. ecogni$ed in retained earnings

d. ecogni$ed in income from continuing operations

6. An entity neglected to amorti$e to &i/count on outstanding bonds payable. (hat is

the effect of the failure to record discount amorti$ation on interest expense and bond

carrying amount, respectively)

a. :nderstated and understated b. :nderstated and overstated

c. 9verstated and overstated

d. 9verstated and understated

17. An entity neglected to amorti$e the premium on outstanding bonds payable. (hat

is the effect of the failure to record premium amorti$ation on interest expense and

bond carrying amount, respectively)

a. :nderstated and understated

b. :nderstated and overstated

c. 9verstated and overstated

d. 9verstated and understated

ANS'RS

1* A "* ,

2* C #* +

3* , %* ,

4* , 9* A

!* + 1* C

Problem !-4 Multiple Choice (AA)

1. (hat is the contract between the issuer of bonds and the bondholders)

a. /ond indenture b. /ond debenture


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c. egister bond

d. /ond coupon

2. /onds for which the bondholders names are not registered with the issuer arecalled

a. /earer bonds

b. Term bonds

c. ebenture bonds

d. +erial bonds

. /onds that pay no interest unless the issuer is profitable are !nown as

a. egistered bonds

b. un! bonds

c.


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Problem "-1 Multiple choice (AA)

1. :nder the effective interest method of amorti$ation, the interest expense is e4ual to

a. The stated rate of interest multiplied by the face amount of the bonds. b. The mar!et rate of interest multiplied by the face amount of the bonds.

c. The stated rate of interest multiplied by the beginning carrying amount of the

bonds.

d. The mar!et rate of interest multiplied by the beginning carrying amount of the

bonds.

2. (hen interest expense for the current year is more than interest paid, the bonds

were issued at

a. A discount

b. A premium

c. Face amount

d. -annot be determined

. (hen interest expense for the current year is more than interest paid, the bonds

were issued at

a. A discount b. A premium

c. Face amount

d. -annot be determined

". (hen an entity failed to recogni$ed amorti$ation of discount on bond payable for

the current year, what is the effect of the error on liabilities and e4uity,

respectively)

a. 9verstated and overstated

b. :nderstated and understated

c. 9verstated and understated

d. :nderstated and overstated

'. -ost of issuing bonds payable

#. #s included in the measurement of the bonds payable measured at amorti$ed cost

##. #s amorti$ed using the Einterest method over the life of the bonds. ###. (ill effectively increase the mar!et rate of interest


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a. #, ## and ###

b. ## and ### only

c. # and ### only

d. # and ## only

ANS'RS

1* +

2* A

3* +4* C

!* ,

Problem "-2 Multiple choice

1. (hat is the effective interest rate of a bond measured at amorti$ed cost)

a. The stated rate of the bond. b. The interest rate currently charged by the entity or by others for similar bond.

c. The interest rate that exactly discounts estimated future cash payments through

the expected life of the bond or when appropriate, a shorter period to the net

carrying amount of the bond.

d. The basic ris!*free interest rate that is derived from observable government

bond prices.

2. For a bond issue which sells for less than face value, the mar!et rate of interest is

a. ependent on rate stated on the bond

b. %4ual to rate stated on the bond

c. Less than rate stated on the bond

d. igher than rate stated on the bond

. (hat is the mar!et rate of interest for a bond issue which sells for more than face

value)

a. Less than rate stated on the bond


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b. %4ual to rate stated on the bond

c. igher than rate stated on the bond

d. #ndependent of rate stated on the bond

". #f bond are issued at a premium, this indicate that

a. The yield rate exceeds the nominal rate

b. The nominal rate exceeds the yield rate

c. The yield and nominal rates coincide

d. &o necessary relationship exists between the two rates

'. (hich of the following is true for a bond maturing on a single date when the

effective interest method of amorti$ing bond discount is used)

a. #nterest expense as a percentage of the carrying amount varies from period to

period

b. #nterest expense increases each six*month period

c. #nterest expense remains constant each six*month period

d. &ominal interest rate exceeds effective interest rate

?. #n theory, the proceeds from the sale of a bond will be e4ual to

a. The face amount of the bond

b. The present value of the principal due at the end of the life of the bond plus the

interest payments made during the life of the bond

c. The face amount of the bond plus the present value of the interest payments

during the life of the bond

d. The sum of the face amount of the bond and the periodic interest payments

B. The mar!et price of a bond issued at a discount is the present value of the principal

amount at the mar!et rate of interest

a. Less the present value of all future interest payments at the mar!et rate of

interest

b. Less the present value of all future interest payments at the rate of interest

stated on the bond

c. 3lus the present value of all future interest payments at the mar!et of interest

d. 3lus the present value of all the future interest payments at the rate of interest

stated on the bond

C. A five*year term bond was issued by an entity on anuary 1, 271" at a premium.


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The carrying amount of the bond on ecember 1, 271' would be

a. The same as the carrying amount on anuary 1, 271"

b. igher than the carrying amount on anuary 1, 271"

c. igher than the carrying amount on ecember 1, 271? d. Lower than the carrying amount on ecember 1, 271?

6. A five*year term bond was issued by an entity on anuary 1, 271" at a discount. The

carrying amount of the bond on ecember 1, 271' would be

a. igher than the carrying amount on ecember 1, 271" b. Lower than the carrying amount on ecember 1, 2711"

c. The same as the carrying as the carrying amount on ecember 1, 271"

d. igher than the carrying amount on ecember 1, 271?

17. :nder international accounting, the valuation method used for bond payable

a. istorical cost

b. iscounted cash flow valuation at current yield rate

c.


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d. -oupon rate, nominal rate or stated rate

2. (hat is the rate of interest actually incurred)

a.


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Problem #-1 Multiple Choice (PAS 32)

1. #t is any contract that gives rise to both a financial asset of one entity and a

financial liability or e4uity instrument of another entity.

a. Financial instrument

b. %4uity instrument

c. ebt instrument

d. erivative instrument

2. A financial liability is a contractual obligation

#. To deliver cash or other financial asset to another entity

##. To exchange financial instruments with another entity under conditions that are potentially un0.or.ble.

a. # only

b. ## only

c. /oth # and ##

d. &either # nor ##

. #t is any contract that evidences residual interest in the assets of an entity after

deducting all of its liabilities.

a. %4uity instrument

b. ebt instrument

c. Loan receivable

d. Financial asset with indeterminable fair value.

". Financial liabilities include all of the following, except

a. Trade accounts payable

b. &otes payable

c. /onds payable

d. #ncome taxes payable

'. %4uity instruments include all of the following, except

a. 9rdinary shares

b. 3reference shares

c. (arrants or options that allow the holder to purchase a fixed number of


48/114

ordinary shares of the issuing entity in exchange for a fixed amount of cash.

d. -orporate bonds and other debt instruments issued by the entity.

?. (hich of the following is not classified as a financial instrument)

a. -onvertible bond

b. Foreign currency contract

c. (arranty provision

d. Loan receivable

B. A bond or similar instrument convertible by the holder into a fixed number of

ordinary shares of the entity is

a. A compound financial instrument b. A primary financial instrument

c. A derivative financial instrument

d. An e4uity instrument

C. (hich of the following should be considered a financial liability)

a. eferred revenue

b. A warranty obligation

c. A constructive obligation

d. edeemable preference share

6. (hat is the principal accounting for a compound financial instrument)

a. The issuer shall classify a compound instrument as either liability or e4uity

based on evaluation of the predominant characteristics of the contractual

arrangement.

b. The issuer shall classify the liability and e4uity components of a compound instrument separately as financial liability or e4uity instrument

c. The issuer shall classify a compound instrument as a liability in its entirety,

until converted into e4uity, unless the e4uity component is detachable and

separately transferable, in which case the liability and e4uity components shall

be presented separately.

d. The issuer shall classify a compound instrument as a liability in its entirety,

until converted into e4uity.

17. ow are the proceeds from issuing a compound financial instrument allocated

between the liability and e4uity components)


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a. First, the liability component is measured at fair value, and then the remainder

of the proceeds is allocated to the e4uity conponent

b. First, the e4uity component is measured at fair value, and then the remainder

of the proceeds is allocated to the liability component c. First, the fair values of both the e4uity component and the liability component

are estimated. Then, the proceeds are allocated to the liability and e4uity

components based on the relation between the estimated fair value.

d. The e4uity component is measured at its intrinsic value. The liability

component is measured at the face amount less the intrinsic value of the e4uity

component.

ANS'RS

1* A "* ,

2* C #* A3* A %* ,

4* , 9* +

!* , 1* A

Problem #-2 Multiple Choice (ACP)

1. (hen an entity issued bonds payable that can be converted into ordinary shares,

what will be the effect on liabilities and e4uity, respectively)

a. #ncrease and &o effect

b. #ncrease and #ncrease

c. &o effect and #ncrease

d. ecrease and #ncrease

2. An entity issued bonds payable with nondetachable share warrants. #n computing

interest expense for the first year, the effective interest rate is multiplied by the

a. 3roceeds received from sale of the bonds

b. Face value of the bonds

c. Fair value of the bonds only

d. +hare warrants outstanding

. (hen an entity issued bonds payable with detachable share warrants, how will

share premium be computed if the warrants are exercised by the bondholders)

a. #t is the difference between the proceeds received based on the exercised price


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and the total par or stated value of the shares issued.

b. #t is the difference between the proceeds received based on the exercised price

plus the share warrants outstanding and the total par or stated value of the share

issued.

c. #t is the sum of the share warrants outstanding and total par or stated value of the shares issued.

d. #t is the balance of the share warrants outstanding.

". (hen an entity issued convertible bonds, how will share premium be computed if

the bonds were converted into ordinary shares)

a. #t is the difference between the carrying amount of the bonds and the total par or

stated value of the shares issued.

b. #t is the difference between the face value of the bonds and the total par or stated

value of the shares issued.

c. #t is the difference between the carrying amount of the bonds plus share premium

from conversion privilege and the total par or stated value of the shares issued.

d. #t is the difference between the face value of the bonds plus the share premium

from conversion privilege and the total par or stated value of the shares issued.

'. The proceeds from a bond issued with share warrants shall be accounted for as

a. %ntirely bonds payable

b. %ntirely shareholders5 e4uity

c. 3artly bonds payable and partly unearned revenue

d. 3artly bonds payable and partly shareholders5 e4uity

1* +2* C

3* +

4* C

!* ,

Problem #-3 Multiple Choice (AA)

1. (hen the cash proceeds from bonds issued with share warrants exceed the fair


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value of the bonds without the warrants, the excess should be credited to

a. +hare premium* ordinary

b. etained earnings

c. Liability account d. +hare premium* share warrants

2. The proceeds from an issue of bonds with share warrants should not be allocated

between the liability and e4uity components when

a. The fair value of the warrants is not readily available.

b. The exercise of the warrants within the next reporting period seems remote.

c. The warrants issued are nondetachable

d. The proceeds should be allocated between liability and e4uity under all of these circumstances.

. (hen bonds are issued with share warrants, a portion of the proceeds should be

allocated to e4uity when the bonds are issued with

a. etachable share warrants.

b. &ondetachable share warrants

c. /oth detachable and nondetachable share warrants

d. &either detachable nor nondetachable share warrants.

". (hen bonds are issued with share warrants, the e4uity component is e4ual to

a. =ero

b. The excess of the proceeds over the face value of the bonds

c. The mar!et value of the share warrants

d. The excess of the proceeds over the fair value of the bonds without the share

warrants

'. The ma0or difference between convertible bonds and bonds issued with share

warrants is that upon exercise of the warrants

a. The shares are held by the issuer for a certain period before they are issued tobthe

warrant holder

b. The holder has to pay a certain amount to obtain the shares.

c. The shares involved are restricted.

d. &o share premium can be part of the transaction.


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ANS'RS

1* ,

2* C

3* C4* +

!* A

Problem #-4 Multiple Choice (AA)

1. -onvertible bonds

a. ave priority over other indebtedness

b. Are usually secured by the mortgage

c. 3ay interest only in the event earnings are sufficient

d.


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'. /ondholders exchanged their convertible bonds for ordinary shares. The carrying

amount of these bonds was lower than mar!et value but greater than the par value

of the ordinary shares issued. #f the boo! value or carrying amount method is used

which of the following correctl states an effect of the conversion)

a. +hareholders5 e4uity is increased.

b. +hare premium is decreased

c. etained earnings account increased

d. A loss is recogni$ed.

CAPR % N5 PA6A+7

Problem % 8 1 Multiple Choice (PFRS 9)

1. An entity shall measure initially a note payable not designated at fair value

through profit or loss at

a. Face amount

b. Fair value

c. Fair value plus transaction cost

d. Fair value minus transaction cost

2. After initial recognition, an entity shall measure a note payable at

a. Amorti$ed cost

b. Fair value through profit or loss

c. %ither amorti$ed cost or fair value through profit or loss

d. %ither amorti$ed cost or fair value through other comprehensive income

. (hat is the amorti$ed cost of note payable)

a. The amount at which the note payable is initially recogni$ed.

b. The amount at which the note payable is initially recogni$ed minus principal

repayment.

c. The amount at which the note payable is initially recogni$ed plus or minus the

cumulative effective interest amorti$ation of the difference between the initial

carrying amount and maturity amount.

d. The amount at which the note payable is initially recogni$ed minus principal

repayment, plus or minus the cumulative effective interest amorti$ation of the

difference between the initial carrying amount and maturity amount.


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". :nder the fair value option, the entity shall measure the note payable initially at

a. Face amount

b. Fair value plus transaction costc. Fair value minus transaction cost

d. Fair value

'. (hich of the following statements is incorrect in relation to the fair value option

of measuring note payable)

a. At initial recognition, an entity may irrevocably designate the note payable asat

fair value through profit or loss.

b. At initial recognition, an entity may revocably designate the note payable as at

fair value through profit or loss.

c. The interest expense on the note payable is recogni$ed using the stated interest

rate.

d. After initial recognition, the note payable is remeasured at fair value at every

year end with changes in fair value recogni$ed partly in other comprehensive

income and partly in profit or loss.

Problem % 8 2 Multiple Choice (ACPA A&.pte&)

1. An entity issued a note solely in exchange for cash. Assuming that the items listed

below differ in amount the present value of the note at issuance is e4ual to

a. Face amount

b. Face amount discounted at the prevailing interest rate

c. 3roceeds receivedd. 3roceeds received discounted at the prevailing interest rate

2. #f the present value of a note issued in exchange for a property is less than its face

amount, the difference should be

a. #ncluded in the cost of the asset

b. Amorti$ed as interest expense over the life of the note

c. Amorti$ed as interest expense over the life of the asset

d. #ncluded in interest expense in the year of issuance


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. An entity borrowed cash from a ban! and issued to the ban! at a short*term

noninterest bearing note payable. The ban! discounted the note at 17@ and

remitted the proceeds to the entity. The effective interest rate paid by the entity in

this transaction would be

a. %4ual to the stated discount rate of 17@

b.


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B. A note payable with no ready mar!et is exchanged for property whose fair value is

currently indeterminable. (hen such a transaction ta!es place

a. The present value of the note payable must be approximated using an imputedinterest rate.

b. The note payable should not be recorded until the fair value of the property

becomes evident.

c. The entity receiving the property should estimate a value for the property.

d. /oth entities involved in the transaction should negotiate a value to be assigned

to the property.

C. (hen a note payable is issued for property, the present value of the note is

measured by

a. The fair value of the property

b. The fair value of the note payable

c. :sing an imputed interest rate to discount all future payments on the note

payable

d. All of these are considered in measuring the present value of the note payable

6. (hen a note payable is exchanged for property, the stated interest rate is presumed

to be fair when

a. &o interest rate is stated.

b. The stated interest rate is unreasonable.

c. The face amount of the note is materially different from the cash sale price for

similar property.

d. The stated interest rate is e4ual to the mar!et rate.

17. 9n 9ctober 1, 271", an entity borrowed cash and signed a three*year interest

bearing note in which both the principal and interest are payable on 9ctober 1, 271B. 9n ecember 1, 271", accrued interest should

a. /e reported as current liability

b. /e reported as noncurrent liability

c. /e reported as part of the note payable

d. &ot be reported

CAPR 9 8 ,+ RSR:C:R

Problem 9 8 1 Multiple Choice (PFRS 9)


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1. #n a debt restructure that is considered an asset swap, the gain on extinguishment is

e4ual to the

a. %xcess of the fair value of the asset over its carrying amount b. %xcess of the carrying amount of the debt over the fair value of the asset

c. %xcess of the fair value of the asset over the carrying amount of the debt

d. %xcess of the carrying amount of the debt over the carrying amount of the asset

2. For a debt restructuring involving substantial modification of terms, it is

appropriate for a debtor to recogni$e a gain when the carrying amount of the debt

a. %xceeds the total future cash payments specified by the new terms.

b. #s less than the total future cash payments specified by the new terms.

c. %xceeds the present value of the future cash payments specified by the new

terms.

d. #s less than the present value of the future cash payments specified by the new

terms.

. #n a debt extinguishment in which the debt is continued with modified terms and

the carrying amount of the debt is more than the fair value of the debt

a. A loss should be recogni$ed by the debtor.

b. A new effective interest rate must be computed.

c. A gain should be recogni$ed by the debtor.

d. &o interest expense should be recogni$ed in the future.

". :nder a debt restructuring involving substantial modification of terms, the future

cash flows under the new terms should be discounted using

a. 9riginal effective interest rate

b. #nterest rate under the new terms

c.


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b. Less than 17@ of the carrying amount of the old liability

c. At least 17 @ of the new liability

d. Less than 17@ of the new liability

Problem 9 8 2 Multiple Choice (FRC 19)

1. An entity shall initi.ll measure e4uity instruments issued to extinguish all or part

of a financial liability at

a. Fair value of the e4uity instruments issued

b. Fair value of the liability extinguished

c. 3ar value of the e4uity instruments issued

d. -arrying amount of the liability extinguished

2. #f the fair value of the e4uity instruments issued c.nnot be reliably measured, the

e4uity instruments issued to extinguish a financial liability shall be measured at

a. Fair value of the liability extinguished

b. 3ar value of the e4uity instruments issued

c. -arrying amount of the liability extinguished

d. /oo! value of the e4uity instruments issued

. #f both of the fair value of the e4uity instruments issued, and the fair value of the

financial liability extinguished cannot be measured reliably, the e4uity instruments

issued shall be measured at

a. -arrying amount of the liability extinguished

b. 3ar value of e4uity instruments issued

c. /oo! value of the e4uity instruments issued

d. 8alue assigned by the /oard of irectors

". The difference between the carrying amount of the financial liability extinguished

and the fair value of e4uity instruments issued or fair value of liability extinguished

in the absence of the fair value of e4uity instruments issued shall be recogni$ed in

a. 3rofit or loss

b. 9ther comprehensive income

c. etained earnings

d. General reserve


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'. The gain or loss from extinguishment of a financial liability by issuing e4uity

instruments shall be presented in the statement of comprehensive income as

a. 9ther income or other expenses

b. +eparate line item in profit or lossc. -omponent of other comprehensive income

d. -omponent of finance cost

CAPR 1 8 5PRAN; 7AS

Problem 1 8 1 Multiple Choice

1. The appropriate valuation of an operating lease in the statement of financial

position of the lessee is

a. =ero

b. The absolute sum of the lease payments

c. The present value of the sum of the lease payments discounted at an

appropriate rate

d. The mar!et value of the asset at the inception of the lease

2. ent received in advance by the lessor for an operating lease should be recogni$ed

as revenue

a. (hen received

b. At the lease inception

c. At the lease expiration

d. over the lease term

. (hen should a lessor recogni$e in income a non*refundable lease bonus paid by a

lessee on signing an operating lease)

a. (hen received

b. At the inception of the lease

c. At the lease expiration

d. 9ver the lease term

". As an inducement to enter a lease, Gray -ompany, a lessor, granted =eta -ompany,


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a lessee, twelve months of free rent under a five*year operating lease. The lease was

effective at the beginning of current year and provided for monthly rental payments

to begin at the beginning of next year. =eta made the first rental payment at the

currents year*end. #n the current year income statement, Gray -ompany should

report rent revenue e4ual to

a. =ero

b. -ash received during the current year

c. 9ne*fourth of the total cash received

d. 9ne*fifth of the total cash to be received over the lease term

'. Lease payments under an operating lease shall be recogni$ed as an expense in the

income statement on

a. +traight line basis over the lease term unless another systematic basis is

representative of the times pattern

b. iminishing balance basis

c. +um of units basis

d. -ash basis

?. The lessor should report the leased asset under an operating lease and income

therefrom as which of the following)

a. The asset should be !ept off the statement of financial position and the lease

income should go to reserves.

b. The asset should be !ept off the statement of financial position and the lease

income should go to the income statement.

c. The asset should be reported in the statement of financial position according to

its nature and the lease income should go to reserves.

d. The asset should be reported in the statement of financial position according to

its nature and the lease income should go to the income statement.

B. (hen e4uipment held under an operating lease is subleased by the original lessee,

the original lessee would account for the sublease as

a. 9perating lease

b. +ales*type lease

c. irect financing lease

d. Finance lease

C. #n a lease that is recorded as an operating lease by the lessee, the e4ual monthly


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rental payments should be

a. Allocated between a reduction in the liability for leased asset and depreciation

expense

b. Allocated between a reduction in the liability for leased asset and interestexpense

c. ecorded as a reduction in the liability for leased asset

d. ecorded as a rental expense

6. (hich statement characteri$es an operating lease)

a. The lessee records depreciation and interest.

b. The lessee records the lease obligation related to the lease asset.

c. The lessor transfers title of the leased property to the lessee for the duration of

the lease term.

d. The lessor records depreciation and lease revenue

17. A twenty*year operating lease provides for a 17@ increase in annual payments

every five years. #n the sixth year compared to the fifth year, what could be the

effect on the entitys expenses)

a. ent and interest expense will both increase.

b. #nterest expense will increase but not rent expense

c. ent expense will increase but not interest expense

d. &o increase in both rent and interest expense

CAPR 11 8 FNANC 7AS 8 7SS

Problem 11 8 1 Multiple Choice (PAS 1#)

1. #t is a contract that transfers substantially all the ris!s and rewards incidental to

ownership of an asset, although title may or may not eventually be transferred.

a. Lease

b. Finance lease

c. 9perating lease

d. Lease purchase


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2. The inception of the lease is the

a. ate of the lease agreement.

b. ate of commitment by the parties to the principal provisions of the lease

c. %arlier of the date of the lease agreement or date of commitment by the partiesto the principal provisions of the lease

d. Later of the date of the lease agreement or date of commitment by the parties to

the principal provisions of the lease

. #t is the date on which the lessee is entitled to exercise the right to use the leased asset.

a. #nception of the lease

b. -ommencement of the lease

c. ate of lease agreement

d. ate of commitment to the provisions of the lease

". The situations which would normally lead to a lease being classified as a finance

lease include all of the following, except

a. The lease transfers ownership of the lessee by the end of the lease term

b. The lessee has the option to purchase the asset at a price which would be

expected to be sufficiently higher than the fair value at the date the option

becomes exercisable.

c. The lease term is for the ma0or part of the economic life of the asset even if title

is not transferred.

d. The present value of the minimum lease payments amounts to at least

substantially all of the fair value of the leased asset at the inception of the lease.

'. +ituations which individually or in combination could also lead to a lease being

classified as finance lease include all of the following, except

a. The leased asset is of a speciali$ed nature such as that only the lessee can use it

without ma0or modification.

b. #f the lessee cancels the lease, the lessors losses associated with the

cancelation are borne by the lessee.

c. Gains or losses from the fluctuation in the fair value of the residual accrue to


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the lessee

d. The lessee has the ability to continue the lease for a secondary period at a rent

which is substantially the same as the mar!et rent.

?. At the commencement of the lease term, the lessee shall recogni$e a finance lease

as asset and liability at an amount e4ual to the

a. Fair value of the leased asset

b. 3resent value of the minimum lease payment.

c. Fair value of the asset or present value of the minimum lease payments,

whichever is lower.

d. Fair value of the asset or present value of the minimum lease payments, whichever is higher.

B. The minimum lease payments include all the following, except

a. ental payments over the lease term

b. Any amount guaranteed by the lessee or by a party related to the lessee

c. 3ayment re4uired to exercise an option on the part of the lessee to purchase the

asset at a price expected to be sufficiently lower than its fair value at the

option exercise date.

d. -ontingent rent

C. #t is that portion of the lease payment that is not fixed in amount but is based on a

factor other than 0ust the passage of time, for example, percentage of sales, amount

of usage, price index and mar!et rate of interest.

a. 8ariable rent

b. -ontingent rentc. /argain purchase option

d. %xecutory cost

6. (hich of the following statements in relation to a finance lease is true)

#. Any initial direct costs incurred by a lessee are added to the amount of the

liability recogni$ed in the statement

Liabilities - TOA

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