CFAS

Qualifying Exam Questionnaires

MULTIPLE CHOICE – THEORY

1. Which of the following correctly relate(s) to the Monetary/ Stable monetary/ Monetary Unit
concept?
I. Assets, liabilities, equity, revenues and expenses should be stated in terms of a unit of
measure which is the peso in the Philippines.
II. The purchasing power of the peso is stable or constant and that its instability is
insignificant and therefore ignored.

a. I
b. II
c. I and II
d. None

2. "Aanhin mo pa ang damo kung patay na ang kabayo.”

a. Materiality

b. Relevance

c. Timeliness

d. Biological asset - Horse

3. Which of the following is an acceptable method of reporting other comprehensive income and its
components?
a. In a statement of profit or loss and other comprehensive income.
b. In a statement of changes in equity
c. In the notes only.
d. All of these

4. When it is difficult to distinguish a change in accounting policy from a change in accounting

estimate, the change is treated as
a. a change in an accounting estimate.
b. a change in an accounting policy.
c. a correction of prior period error.
d. not accounted for.

5. ABC Co. completes the draft of its December 31, 20x1 year-end financial statements on January
31, 20x2. On February 5, 20x2, the board of directors reviews the financial statements and
authorizes them for issue. The entity announces its profit and selected other financial
information on February 23, 20x2. The financial statements are made available to shareholders
and others on March 1, 20x2. The shareholders approve the financial statements at their annual
meeting on March 18, 20x2 and the approved financial statements are then filed with a
regulatory body on April 1, 20x2. Events after the reporting period are those occurring
a. from December 31, 20x1 to February 5, 20x2.
b. from January 1, 20x2 to February 5, 20x2.
c. from January 1, 20x2 to February 23, 20x2.
d. from January 1, 20x2 to March 18, 20x2.

6. Which of the following is classified as an equity instrument rather than a financial liability?
a. Preference shares that are mandatorily redeemable
b. A contract that is settled by the delivery of a variable number of the entity’s own equity
instruments in exchange for a fixed amount of cash or another financial asset.
c. A contract that is settled by the delivery of a fixed number of the entity’s own equity
instruments in exchange for a variable amount of cash or another financial asset.
d. Shares issued but were subsequently reacquired.

7. Which of the following analysis on asset impairment is most likely to have been made by a CPA?
(where: RA = recoverable amount; FVLCD = fair value less costs of disposal; VIU = value in use;
CA = carrying amount; IL = impairment loss; > = greater than; < = less than)
a. if “FVLCD > CA,” then, “IL = 0”
b. if “FVLCD < VIU,” then, IL = > 0”
c. if “FVLCD > VIU,” then, “RA = FVLCD,” now, if “CA > RA,” then “IL = RA – CA”
d. if “FVLCD > VIU,” then, “RA = VIU,” now, if “CA < RA,” then “IL = RA – CA”
8. Anne Anne’s Sari-sari Store has a sign that reads “Your credit is good but I need cash.” What
type of risk is Ms. Anne trying to avoid by putting up that sign?
a. credit risk
b. market risk
c. liquidity risk
d. store risk

9. Which of the following is a characteristic of a finance lease?

a. The lease term is substantially less than the estimated economic life of the leased property.
b. The lease contains a bargain-purchase option.
c. The present value of the minimum lease payments at the beginning of the lease term is 75%
or more of the fair value of the property at the inception of the lease.
d. The lease obligation does not appear in the balance sheet of the lessee.

10. You are the accountant of Entity X. The board of directors asked you for an advice because they
feel like the company’s financial statements do not properly reflect the company’s financial
position. The board noted out that the company’s properties (i.e., land) are absurdly stated at
their historical cost. The properties were acquired 50 years ago and the market prices of the
properties have more than tripled since then. In providing your professional advice, you will most
certainly quote the provisions of which of the following standards?
a. PAS 7
b. PAS 33
c. PAS 16
d. All of these

11. You are the sole proprietor of Entity A. As a requisite to your business loan application, you were
required by the bank to submit audited financial statements. During the audit of your financial
statements, the auditor questioned the carrying amount of your land. The auditor believes that
the carrying amount is overstated and needs to be written down to its recoverable amount. In
your discussions with your auditor, the auditor would most likely refer to this standard in her
report?
a. PAS 36
b. PFRS 1
c. PAS 26
d. PAS 12

12. According to PAS 37, contingent liabilities are

a. recognized and disclosed.
b. always disclosed.
c. disclosed, only if their expected occurrence is remote.
d. not disclosed if their expected occurrence is remote.

13. According to PAS 36, which of the following is an indication of impairment from internal sources
of information?
a. Significant decline in the asset’s (market) value.
b. Indications that the economic performance of an asset is, or will be, worse than expected.
c. Significant changes in technological, market, economic, or legal environment that adversely
affect the recoverable amount of an asset.
d. The carrying amount of the entity’s net assets exceeds its market capitalization.

14. Under constant peso accounting, items are restated using this formula:
a. Historical cost x (Current price index ÷ Average price index)
b. Historical cost x (Current price index ÷ Historical price index)
c. Revalued amount x (Current price index ÷ Historical price index)
d. Historical cost x (Current price index ÷ Historical price index*) *However, if it is
impracticable to determine this amount, the average price index may be used.

15. Which of the following are not related parties under PAS 24?
a. A parent and its subsidiaries
b. An investor and its associate
c. Family member of a Chief Executive Officer and the entity
d. A shareholder who holds 2% interest in the voting rights of the entity

16. Reporting entities commonly place the sentence “See notes to the financial statements” or “See
accompanying notes to the financial statements” or a similar sentence on the face of the financial
statements. This practice is most in keeping with what accounting concept?
a. Articulation
b. Materiality
 c. Separate entity
d. Full disclosure

MULTIPLE CHOICE – PROBLEMS

1. Entity A had the following instruments outstanding all throughout 2021:

 12% convertible bonds payable issued at face amount, each

₱1,000 bond is convertible into 30 ordinary shares ₱2,000,000
 Ordinary shares, ₱10 par, 100,000 shares issued and
Outstanding 1,000,000

Profit for the year is ₱800,000. Entity A’s income tax rate is 30%.

What is the diluted earnings per share in 2021?

a. 6.28
b. 6.05
c. 6.15
d. 5.98

Solution:

Profit (Loss) plus After tax interest expense on convertible bonds

Diluted EPS = Weighted average number of outstanding ordinary shares plus Incremental
shares arising from the assumed conversion or exercise of dilutive potential
ordinary shares

800,000 + (2,000,000 x 12% x 70%*)

Diluted EPS =
100,000 + [(2,000,000 ÷ 1,000) x 30]
*70% = 1 – 30% tax rate
Diluted EPS = (968,000 ÷ 160,000) = 6.05

2. Entity A, a trading entity, buys and sells Product Z. Movements in the inventory of Product Z
during the period are as follows:

Unit
Date Transaction Units Total cost
cost
Feb. 1 Beginning inventory 100 ₱15 ₱1,500
7 Purchase 300 18 5,400
12 Sale 320
21 Purchase 200 21 4,200

How much is the cost of sales under the FIFO cost formula?
a. P5,460
b. P5,840
c. P5,640
d. P4,860

Solution:

Date Transaction Units

Jan. 1 Beginning inventory 100
7 Purchase 300
12 Sale (320)
21 Purchase 200
Ending inventory (in units) 280

Units Unit cost Total cost

From Feb. 21 purchase 200 ₱21 ₱4,200
From Feb. 7 purchase (280 - 200) 80 18 1,440
Ending inventory (at cost) ₱5,640

Cost of sales = (1,500 + 5,400 + 4,200) – 5,640 = 5,460

3. Entity A’s assets have a carrying amount of ₱100,000 before year-end adjustments. The PFRSs
require these assets to be measured at fair value at each reporting date. Location is a
characteristic of the assets. Information at year-end is as follows:
Active Market #1 Active Market #2

Quoted price ₱130,000 Quoted price ₱135,000

Transport costs 10,000 Transport costs 12,000

Costs to sell 2,000 Costs to sell 3,000

If neither Active Market #1 nor Active Market #2 is the principal market, how much is the fair
value?
a. P135,000
b. P132,000
c. P120,000
d. P123,000

Solution:
The “most advantageous market” is determined as follows:
Active Market Active Market
#1 #2

Quoted price 130,000 135,000

Transport costs (10,000) (12,000)

Costs to sell (2,000) (3,000)

Net sale
proceeds 118,000 120,000

The fair value is computed as follows:

135,000 price in active market #2 – 12,000 transport costs = 123,000

4. Entity A had 100,000, ₱10 par, 10% cumulative preference shares outstanding all throughout
20x1. Entity A reported profit after tax of ₱2,800,000 for the year ended December 31, 20x1.
The movements in the number of ordinary shares are as follows:

1/1/20x1 Ordinary shares outstanding 120,000

3/1/20x1 Shares issued for cash 42,000
9/30/20x1 Subscribed shares 20,000
11/1/20x1 Reacquisition of treasury shares (12,000)
Outstanding shares at the end of period 170,000

What is the basic earnings per share?

a. P18.92
b. P17.09
c. P18.07
d. P16.98

Solution:

Date No. of sh. Months outstanding Weighted average

(a) (b) (c) = (a) x (b)
1/1/20x1 120,000 12/12 120,000
3/1/20x1 42,000 10/12 35,000
9/30/20x1 20,000 3/12 5,000
11/1/20x1 (12,000) 2/12 (2,000)
158,000

Profit (Loss) less Preferred dividends

Basic EPS =
Weighted average number of outstanding ordinary shares

2,800,000 – (100,000 x ₱10 x 10%)

Basic EPS =
Basic EPS = ₱17.09

5. Entity A acquires a building for ₱1,000,000. The building is to be leased out under various
operating leases. The building has an estimated useful life of 10 years and zero residual value.
Entity A uses the cost model for its property, plant and equipment and the fair value model for
its investment property. At the end of Year 1, the building is assessed to have a fair value of
₱1,080,000. How much should Entity A recognize in profit or loss in relation to the building?
a. P80,000 gain on change in fair value
b. P100,000 depreciation
c. P180,000 gain on change in fair value
d. b and c

6. On January 1, 2021, Entity A has granted 600 share options to each of its 100 employees. The
options vest in three years’ time. Each share option has a fair value of ₱100 on grant date.
Information on employee departure is as follows:
• January 1, 2021: estimate of employees leaving the entity during the vesting period – 4%
• December 31, 2021: revision of estimate of employees leaving to 5% before vesting date
• December 31, 2022: revision of estimate of employees leaving to 6% before vesting date
• December 31, 2023: actual employees leaving 5%

How much is the salaries expense in 2022?

a. P2,000,000
b. P1,880,000
c. P1,860,000
d. P0

7. You are the General Manager of Entity A. You have received the actuarial report for your
company’s defined benefit plan. The report shows the following information:
PV of DBO – Jan. 1, 2021 1,500,000
FVPA – Jan. 1, 2021 1,200,000
PV of DBO – Dec. 31, 2021 1,800,000
FVPA, end. – Dec. 31, 2021 1,310,000
Actuarial gain 100,000
Return on plan assets 110,000
Discount rate 5%

When reporting on your company’s year-end highlights of financial summary, which of the
following will you report to the Board of Directors (the ‘big bosses’)?
a. Your company’s net liability for retirement benefits has increased by ₱490,000.
b. Your company’s net liability for retirement benefits has decreased by ₱300,000.
c. Your company’s net liability for retirement benefits has increased by ₱190,000.
d. I will tell them nothing.

Solution:
Net defined benefit liability, beg. (1.5M – 1.2M) = 300,000
Net defined benefit liability, end. (1.8M – 1.310M) = 490,000
Increase = 190,000

8. Entity A has 20 employees who are each entitled to one day paid vacation leave for each month
of service rendered. Unused vacation leaves are carried forward and can be used in future
periods if the current period’s entitlement is not used in full. However, unutilized entitlements
are forfeited when employees leave the entity. All the employees have rendered service
throughout the current year and have taken a total of 150 days of vacation leaves. The average
daily rate of the employees in the current period is ₱1,000. However, a 5% increase in the rate is
expected to take into effect in the following year. Based on Entity A’s past experience, the
average annual employee turnover rate is 20%. How much will Entity A accrue at the end of the
current year for unused entitlements?
a. P0
b. P90,000
c. P75,600
d. P94,500

Solution: [(20 employees x 1 day x 12 months) – 150 days] x ₱1,000 x 105% x 80%* = 75,600
* The paid absences are non-vesting.
Use the following information for the next two questions:

Entity A acquires equipment on January 1, 2021. Information on costs is as follows:

P1,000,00
Purchase price, gross of trade discount
0
Trade discount available 10,000
Freight costs 20,000
Testing costs 30,000
Net disposal proceeds of samples generated
during testing 5,000
Present value of estimated costs of
dismantling the
equipment at the end of its useful life 6,209

9. The equipment has an estimated useful life of 10 years and a residual value of ₱200,000. Entity
A uses the straight line method of depreciation. How much is the carrying amount of the
equipment on December 31, 2023?
a. P788,846
b. P802,846
c. P795,846
d. P764,846

Solution: 1,041,209 – 200,000) ÷ 10 yrs. = 84,121;

1,041,209 – (84,121 x 3) = 788,846

10. On December 31, 2023, Entity A revalues the equipment at a fair value of ₱820,000. There is no
change in the residual value and the remaining useful life of the asset. How much is the
revaluation surplus on December 31, 2023?
a. P17,154
b. P24,154
c. P55,154
d. P31,154

Solution: 820,000 – 788,846 = 31,154

Use the following information for the next two questions:

Entity A acquires an investment property for ₱1,000,000 cash. Additional costs incurred are as
follows:

 Repairs and remodelling before occupancy, ₱50,000.

 Legal costs of transferring title to the property, ₱20,000.
 Repairs after occupancy, ₱15,000.

The investment property is estimated to have a remaining useful life of 10 years and a residual
value equal to 5% of initial cost.

11. Entity A uses the straight line method of depreciation. How much is the carrying amount of the
investment property under the cost model after one year?
a. P914,850
b. P968,350
c. P923,100
d. P872,100

12. Entity A uses the straight line method of depreciation. The investment property has a fair value
of ₱980,000 at the end of Year 1. How much is the carrying amount of the investment property
under the fair value model after one year?
a. P980,000
b. P986,350
c. P973,200
d. P837,900
Solution:
11. (1,000,000 + 50,000 + 20,000) = 1,070,000 historical cost;
1,070,000 x 95% = 1,016,500 depreciable amount ÷ 10 = 101,650 annual depreciation;
1,070,000 – 101,650 one-year depreciation = 968,350 carrying amount after one year

12. 980,000, the fair value at year-end.

13. Elizabeth, a public limited company, has granted 100 share appreciation rights to each of its
1,000 employees in January 2021. The management feels that as of December 31, 2021, 90% of
the awards will vest on December 31, 2023. The fair value of each share appreciation right on
December 31, 2021, is P10. What is the fair value of the liability to be recorded in the financial
statements for the year ended December 31, 2021?
a. P300,000
b. P10,000,000
c. P100,000
d. P90,000

14. The Hanwell Company acquired a 30% equity interest in The Northfield Company for P400,000
on 1 January 2012. In the year to 31 December 2021 Northfield earned profits of P80,000 and
paid no dividend. In the year to 31 December 2022 Northfield incurred losses of P32,000 and
paid a dividend of P10,000. In Hanwell's consolidated statement of financial position at 31
December 2022, what should be the carrying amount of its interest in Northfield, according to
IAS 28 Investments in associates?
a. P438,000
b. P411,400
c. P414,400
d. P400,000

15. Entity A had the following balances at December 31, 2021:

o Cash in checking account P35,000
o Cash in 90-day money market account 75,000
o Treasury bill, purchased 12/1/20, maturing 5/31/22 150,000
o Treasury bill, purchased 12/1/21, maturing 2/28/22 200,000

How much cash and cash equivalents is reported in Entity A’s December 31, 2021 statement of
financial position?
a. P110,000
b. P310,000
c. P235,000
d. P460,000

16. On January 1, 2021, Entity X enters into a 3-year lease of equipment for an annual rent of
₱100,000 payable at the end of each year. The equipment has a remaining useful life of 10 years.
The interest rate implicit in the lease is 10% while the lessee’s incremental borrowing rate is
12%. Entity X uses the straight-line method of depreciation. The relevant present value factors
are as follows:
PV of an ordinary annuity of ₱1 @10%, n=3………… 2.48685
PV of an ordinary annuity of ₱1 @12%, n=3………… 2.40183

How much is the lease liability to be recognized by Entity X on initial recognition?

a. P240,183
b. P252,314
c. P248,685
d. P0

17. On January 1, 2021, Entity X enters into a 3-year lease of equipment for an annual rent of
₱100,000 payable at the end of each year. The equipment has a remaining useful life of 10 years.
The interest rate implicit in the lease is 10% while the lessee’s incremental borrowing rate is
12%. Entity X uses the straight-line method of depreciation. The relevant present value factors
are as follows:
PV of an ordinary annuity of ₱1 @10%, n=3………… 2.48685
PV of an ordinary annuity of ₱1 @12%, n=3………… 2.40183

Assume the lease is an operating lease. The lessor will recognize a net investment in the lease at
the lease commencement equal to
a. P240,183
b. P252,314
c. P248,685
d. P0