PAS 20, 21, 23, 24, 26, 27, 28, 29

Which of the following best describes the term ‘significant influence’ as used
under PAS 28?
Answer: The power to participate in the financial and operating policy
decisions of an entity

The following are the disclosures required for an entity operating in a

hyperinflationary economy, except for:
Answer: Whether the financial statements are consolidated or not

Which of the following disclosures of pension plan information would not

normally be required?
Answer: The amount of past service cost changed or credited in previous years

If a business entity entered into certain related party transactions, it would be

required to disclose all of the following information except the
Answer: nature of any future transactions planned between the parties and
the terms involved

When a company holds between 20% and 50% of the outstanding ordinary
shares of an investee, which of the following statements applies?
Answer: The investor should use the equity method to account for its
investment unless circumstances indicate that it is unable to exercise
"significant influence" over the investee.

When funds are borrowed to pay for construction of assets that qualify for
capitalization of interest, the excess funds not needed to pay for construction
may be temporarily invested in interest-bearing securities. Interest earned on
these temporary investments should be
Answer: offset against interest cost incurred during construction

These are financial statements presented in addition to consolidated financial

statements or the financial statements of an entity with an investment in
associate or joint venture that is accounted for using equity method in
accordance with PAS 28.
Answer: Separate financial statements

In a related party relationship, one party has the ability, through control,
significant influence or joint control, to affect the:
Answer: Financial and operating decisions of the other party

On December 1, 2019, B Company imported a machine from a foreign supplier

for $100,000, due for settlement on January 6, 2020. B’s functional currency is
the Philippine peso. When preparing the December 31, 2019 statement of
financial position, which item will be translated to the closing rate?
Answer: accounts payable
The period of time during which interest must be capitalized ends when
Answer: the asset is substantially complete and ready for its intended use

The Es Company acquired a 30% equity interest in Isla Company for P400,000
on January 1, 2019. For the year 2019, Isla earned profits of P80,000 and paid
no dividend. For the year 2020, Isla incurred losses of P32,000 and paid total
dividends of P10,000 to all shareholders. In Es' consolidated statement of
financial position at 31 December 2020, what should be the carrying amount of
its interest in Isla?
Answer: 411,400

A government grant that becomes repayable is accounted for

Answer: prospectively

Which of the following is considered a government grant?

Answer: Cancellation of an existing loan from the government

Kehn Corporation accounts for its investment in the ordinary shares of Selas
Company under the equity method. Kehn Corporation should ordinarily record
a cash dividend received from Selas as
Answer: reduction of the carrying value of the investment

On January 1, 2019, A Corporation obtained a 10%, ₱5,000,000 loan,

specifically to finance the construction of a building. The proceeds of the loan
were temporarily invested and earned interest income of ₱180,000. The
construction was completed on December 31, 2019 for total construction costs
of ₱7,000,000. How much is the cost of the building on initial recognition?
Answer: 7,320,000

Trustee Jhon undertakes to manage the retirement benefit fund of Adam

Company for the benefit of its employees. When reporting to Adam Company
regarding the status and performance of the fund, Trustee Jhon would most
likely apply which of the following standards?
Answer: PAS 26

An asset is being constructed for an enterprise's own use. The asset has been
financed with a specific new borrowing. The interest cost incurred during the
construction period as a result of expenditures for the asset is
Answer: a part of the historical cost of acquiring the asset to be written off
over the term of the borrowing used to finance the construction of the asset

On January 1, 2019, A Corporation obtained a 10%, ₱5,000,000 loan,

specifically to finance the construction of a building. The proceeds of the loan
were temporarily invested and earned interest income of ₱180,000. The
construction was completed on December 31, 2019 for total construction costs
of ₱7,000,000. How much are the borrowing costs capitalized to cost of the
building?
Answer: 320,000

In a defined-contribution plan, a formula is used that

Answer: requires an employer to contribute a certain sum each period based
on the formula

In a defined-benefit plan, a formula is used that

Answer: defines the benefits that the employee will receive at the time of
retirement

G Group acquired an investment in associate for ₱1M many years ago. At the
end of the current reporting period, the investment has a fair value of ₱2.9M.
If the equity method is used, the investment would have a current carrying
amount of ₱2.6M. In G Group’s separate financial statements, the investment
should be valued at
Answer: any of these, as a matter of an accounting policy choice

ABC Philippines Co. (ABC-P) is a branch of ABC U.S. Co. ABC-P is engaged in
the apparel business and operates in a Philippine Economic Zone Authority
(PEZA) Special Economic Zone. All raw materials are imported from the main
office in the U.S. and all finished products are exported directly to U.S.
customers. The U.S. customers remit payments to the U.S. main office. The
U.S. main office will then provide the Philippine branch its working capital
needs. None of ABC-P’s finished products are sold in the Philippines. The raw
materials imported and finished goods exported are denominated in $. ABC-P
is required to file audited financial statements with the Philippine Securities
and Exchange Commission (SEC) and the Bureau of Internal Revenue (BIR).
What is the presentation currency for the financial statements to be filed with
the said government agencies?
Answer: Philippine peso

In 2019, A Corp. proposes an environmental clean-up project for a river. The

government supports this project and gives A Corp. a ₱1M monetary grant on
the condition that the money will only be spent on the proposed project. The
proposed project is expected to be completed in about 2 years. A Corp. starts
the clean-up project in 2020. How should A Corp recognize income from the
government grant?
Answer: over the period of the project as expenses are incurred

PAS 29 is generally not applied by entities unless their functional currency is

that of a hyperinflationary economy. This is because of which of the following
basic accounting concepts?
Answer: Stable monetary assumption

The main concept used in recognizing income from government grants is

Answer: matching

Which of the following is required by the PAS 20?

Answer: Resources acquired through government grants must be accounted
for using the income approach.

When computing the amount of interest cost to be capitalized, the concept of

"avoidable interest" means
Answer: that portion of total interest cost which would not have been incurred
if expenditures for asset construction had not been made.

Winsor Corp. received a grant from the government of P160,000 to acquire

P800,000 of delivery equipment on January 2, 2019. The delivery equipment
has a useful life of 4 years. Winsor Corp. uses the straight-line method of
depreciation. The delivery equipment has a zero-residual value. Instructions:
For December 31, 2019, what is the carrying amount of the delivery equipment
on the Balance Sheet and amount of grant revenue on the income statement?
For 2020, what is the amount of depreciation expense related to the delivery
equipment?
Answer: 2019 2020 P600,000, P40,000 P 200,000

Capitalization of borrowing costs

Answer: Shall be suspended only during extended periods of delays in which
active development is delayed.

Which of the following items are restated in a hyperinflationary economy:

Answer: Non-monetary items measured at cost

Which of the following is not a condition that must be satisfied before interest
capitalization can begin on a qualifying asset?
Answer: The interest rate is equal to or greater than the company's cost of
capital

Which of the following assets do not qualify for capitalization of interest costs
incurred during construction of the assets?
Answer: Assets not currently undergoing the activities necessary to prepare
them for their intended use.

PAS 24 requires the disclosure of key management personnel compensation.

Which of the following is not included in this disclosure?
Answer: reimbursements of officers’ out-of-pocket expenses

ABC Philippines Co. (ABC-P) is a branch of ABC U.S. Co. ABC-P is engaged in
the apparel business and operates in a Philippine Economic Zone Authority
(PEZA) Special Economic Zone. All raw materials are imported from the main
office in the U.S. and all finished products are exported directly to U.S.
customers. The U.S. customers remit payments to the U.S. main office. The
U.S. main office will then provide the Philippine branch its working capital
needs. None of ABC-P’s finished products are sold in the Philippines. The raw
materials imported and finished goods exported are denominated in $. What is
ABC-P’s functional currency?
Answer: US dollar

Vested benefits
Answer: are those that the employee is entitled to receive even if fired

Which of the following are not related parties under PAS 24?
Answer: A shareholder who holds 2% interest in the voting rights of the entity

Which of the following is not required to be disclosed under PAS 24?

Answer: The name of the parent of the entity’s associate

Coney Co. owns 25% of the voting rights in Dong Corp. However, Coney Co. has
no representation on the board of directors of Dong Corp. Which of the
following statements is correct?
Answer: Coney Co. is presumed to have signification influence over Dong Corp.
because it holds 20% or more of the voting rights in Dong Corp.

On January 1, 2019, C Inc. acquires 25% interest in D Corp. for ₱800,000. D

Corp reports profit of ₱1,000,000 and declares dividends of ₱100,000 in 2019.
How much is the carrying amount of the investment in associate on December
31, 2019?
Answer: 1,025,000

According to PAS 27, investments in subsidiaries, associates or joint ventures

are accounted for in the separate financial statements
Answer: any of these, as a matter of accounting policy choice

Which of the following statements is true regarding capitalization of interest?

Answer: The amount of interest cost capitalized during the period should not
exceed the actual interest cost incurred.

Under the equity method of accounting for investments, an investor

recognizes its share of the earnings in the period in which the
Answer: earnings are reported by the investee in its financial statements

Which of the following is not true with regard to the accounting for
government grants?
Answer: Companies may use either the capital or income approach to account
for the asset and the grant.
Under constant peso accounting, items are restated using this formula:
Answer: Historical cost x (Current price index ÷ Historical price index*)
*However, if the historical price index is impracticable to determine, the
average price index may be used.
Items that do not give rise to a right to receive or an obligation to deliver a
fixed or determinable amount of money.
Answer: Non-monetary items

The amount of benefits to be received by employees enrolled in a defined

benefit plan is
Answer: neither A nor B

Borrowing Costs
Answer: PAS 32

Financial statements of a group in which the assets, liabilities, equity, income,

expenses and cash flows of the parent and its subsidiaries are presented as
those of a single economic entity
Answer: Consolidated Financial Statement

General increase in prices and decrease in purchasing power of money

Answer: Inflation

Exchange rate for immediate delivery or on a given date

Answer: Spot Exchange Rate

Related Part Disclosures

Answer: PAS 24

Financial Reporting In Hyperinflationary Economies

Answer: PAS 29

Entity over which the investor has significant influence

Answer: Associate

Investments in Associates and Joint Ventures

Answer: PAS 28

Accounting for Government Grants and Disclosure of Government Assistance

Answer: PAS 20

Assistance received from the government in the form of transfers of resources

in exchange for compliance with certain conditions
Answer: Government Grants

Transactions related to import or export activities that are to be settled in a

foreign currency.
Answer: Foreign Currency Transactions

Accounting and Reporting by Retirement Benefit Plans

Answer: PAS 26

Present value of the expected payments by a retirement benefit plan to

existing and past employees, attributable to the service already rendered
Answer: Actuarial Present Value of Promised Retirement Benefit Plan

Separate Financial Statements

Answer: PAS 27

Method used for recording the Investments in Associates

Answer: Equity Method

Currency of the primary economic environment in which the entity operates, or

in which the entity’s cash inflows and outflows are normally denominated.
Answer: Functional Currency

Costs that are directly attributable to the acquisition, construction or

production of a qualifying asset and are capitalized as cost of that asset
Answer: Borrowing Costs

Parties involved wherein one party has the ability to affect the financial and
operating decisions of the other party through control, significant influence or
joint control.
Answer: Related parties

The Effects of Changes In Foreign Exchange Rates

Answer: PAS 21

Approaches is used in the accounting for government grant under pas 20

Answer: Income approach

Principles applies most to the accounting for government grants?

Answer: Accrual basis

Monetary grants are measured at

Answer: the amount of cash received or the fair value of the amount
receivable

According to PAS 20, government grants are presented in the fs using

Answer: gross presentation or net presentation
Non-monetary grants are measured at
Answer: the fair value of the non-monetary asset or nominal amount

Least relevant in determining an entity’s functional currency

Answer: the currency of the country in which the entity is located

Once determined, the function currency is

Answer: not changed unless there is a change in underlying transactions,
events & conditions

Which of the ff is incorrect

Answer: Subsequent to initial recognition

According to PAS 21, exchange differences arising from the translation of

monetary items, arising from foreign currency transactions are recognized in
Answer: profit or loss

According to PAS 21, exchange differences arising from the translation of

financial statements to presentation currency transactions are recognized in
Answer: other comprehensive income

According to Pas 23, borrowing cost are capitalized when

Answer: they relate directly to the acquisition, construction or production of a
qualifying asset

According to PAS 23, borrowing costs that do not directly relate to the
acquisition, construction or production of a qualifying asset are
Answer: expensed

Which of the following is a qualifying asset

Answer: an application software (intangible asset) that takes years to
develop , A second-hand heavy machinery that takes 2 yrs. To refurbish &
customize for its intended use

Most likely be suspended

Answer: the construction of a building is discontinued because it’s condemned
by gov’t. Resumption of development is uncertain.

PAS 23 does not required (disclosures)

Answer: separate presentation of qualifying asset from other assets

Best indicates that two parties are related for purposes of PAS 24
Answer: One party has the ability to affect the financial & operating decisions
of the other party through control, significant influence or joint control

Following are not related parties

Answer: two co-ventures of a common joint venture business

Not a required disclosure under PAS 24

Answer: Related party transactions (consolidated financial statements)

According to PAS 24, related party disclosure are necessary

Answer: indicate the possibility that an entity’s financial position &
performance might have been affected by the existence of such relationship

Overriding consideration when determining the existence of a related party

relationship
Answer: the ability of one party to affect decisions of another party regarding
related activities through existence of control, joint control or significant
influence

Required to be disclosed in the group consolidated financial statements

Answer: the related party relationship between

According to PAS 26, a hybrid plan is accounted for as

Answer: defined benefit plan

In a defined benefit plan, if the actuarial present value of promised retirement

benefits exceeds the net assets available for benefits, there is
Answer: deficit

The amount of benefits to be received by employees enrolled in defined

contribution plan is
Answer: dependent on the contributions & investments income of the fund

The financial statements or retirement benefit. Does not include

Answer: statement of cash flows

PAS 26 is applied
Answer: The preparation of financial statements of a retirement benefit plan,
whether funded or unfunded

Main difference between financial statements or a defined contribution plan

and a defined benefit plan
Answer: The fs of a defined benefit plan show information on the actuarial
present value of promise retirement benefits
According to PAS 27, required to present separate financial statements
Answer: none of these

According to PAS 27, investments in subsidiaries, associates or joint ventures

are accounted for in the separate fs
Answer: any of these, as a matter of accounting policy choice

According to PAS 28, significant influence is presumed to exist when investor

Answer: holds 20% or more voting power of the investee

PAS 28 requires the use of equity method

Answer: Cost, adjusted for the investor’s share in the investee’s changes in
equity fair value

Under the equity method, decreases the carrying amount of an investment in

associate or joint venture
Answer: share in the dividends declared by the investee

PAS 29 applies only in a case of

Answer: hyperinflation

According to PAS 29, restated in case an entity’s functional currency is that of

a hyperinflationary economy
Answer: nonmonetary items
Formulas:
PAS 20
Grant related to depreciable asset:
Depreciation expense = Cost of equipment / yrs.
Income from government grant = Cash grant / yrs.

Grant related to non-depreciable asset

Depreciation expense = Cost of building / yrs.
Income from government grant = Fair value of land / yrs.

Grant received as compensation for losses incurred

Government grant is recognized immediately in profit/loss – already incurred

Presentation of grant related to assets

Statement of financial position
Gross presentation
ASSETS
Equipment
Less accumulated depreciation
= Carrying amount

LIABILITIES
Deferred income = Grant – Income from gov’t. grant

EQUITY = Carrying amount – deferred income

Net presentation
ASSETS
Equipment = equipment – grant
Less accumulated depreciation = depreciation expense - Income from gov’t.
grant
= Carrying amount

LIABILITIES
-

EQUITY = carrying amount

Depreciation expense = (Cost of equipment – grant) / yrs.

Statement of comprehensive income

Gross presentation
Other income
Less Depreciation expenses
= profit / loss

Net presentation
Depreciation expense
= profit / loss

Presentation of grant related to income

Statement of comprehensive income (profit / loss)
Gross presentation
Other income
Less loss from typhoon
= profit / loss

Net presentation
Loss from typhoon = Cost loss from typhoon – grant/other income
= profit / loss

Pas 28

Investment in associate or joint venture

Debit
Share in profit = profit x interest
Credit
Dividends = dividends x interest

Pas 29
Historical cost x Current price index / historical price index