Philippine Institute of Certified Public Accountants (PICPA)

FINANCIAL ACCOUNTING AND REPORTING (FAR)

Riyadh Chapter, Kingdom of Saudi Arabia
Final Pre-Board Examination Aug 02, 2019

MULTIPLE CHOICE
INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one answer
for each item by shading the box corresponding to the letter of your choice on the sheet provided,
STRICTLY NO ERASURES ARE ALLOWED.
Numbers 1 and 2

Libis Company reported the following information on December 31, 2018:

Equipment 840,000 Equity 1,555,000

Patent 210,000 Noncurrent Liabilities 750,000
Inventory 600,000 Accounts Payable 440,000
AR (net) 405,000
Cash 690,000
Total 2,745,000 Total 2,745,000

 Cash included P 12,000 in petty cash fund and P 120,000 in bond sinking fund.
 The net accounts receivable comprised debit balance – P 520,000, credit balance – P 80,000
and allowance for doubtful accounts – P 35,000.
 Inventory costing P 53,000 was shipped out on consignment on December 31, 2018. The
inventory balance did not include the consigned goods but an accounts receivable of P
53,000 was recognized on the consigned goods.
 Income tax payable of P 90,000 was accrued on December 31, 2018. The entity had set up a
cash fund to meet this obligation. This cash fund was not included in the cash balance but
was offset against the income tax payable account.

1. What amount of current assets should be reported on December 31, 2018?

a. 1,695,000
b. 1,745,000
c. 1,655,000
d. 1,798,000

2. What amount of current liabilities should be reported on December 31, 2018?

a. 530,000
b. 520,000
c. 663,000
d. 610,000

Number 3

Release Company issued its December 31, 2018 financial statements on March 20, 2019. The
following events took place before the financial statements were authorized:

 A flood loss of P 800,000 occurred on March 1, 2019.

 10,000 ordinary shares were issued at P 150 par value on March 15, 2019.
 On March 1, 2019, the entity determined after negotiation with the BIR that income tax
payable for 2018 should be P 5,200,000. On December 31, 2018, Income tax payable was
recorded at P 3,000,000.
3. What total amount of adjusting events should be reported on December 31, 2018?

a. 5,200,000
b. 4,500,000
c. 2,200,000
d. 2,300,000

Number 4, 5 and 6

Mesmerize Company reported net income of P 1,450,000 for the year ended December 31, 2018.
Below are some transactions during 2018 that might affect the entity’s cash flow:

 Purchased 100 treasury shares at a cost of P 200 per share. These shares were reissued at P
250 per share.
 Sold 100 ordinary shares of Globe Company at P 2,000 per share. The acquisition cost of the
share was P 1,650 per share and the carrying amount on disposal date was P 1,800 per
share. The investment was measured irrevocably at FVOCI.
 Revised estimate for doubtful accounts. Before 2018, the estimate is 1% of net sales. In
2018, it was increase to 2%. Net Sales for 2018 totaled P 5,000,000 and accounts receivable
at gross amount decreased by P 120,000 during 2018.
 Issued 500 ordinary shares with P 100 par value for patent. The fair value of the shares on
the date of issue was P 230 per share.
 Depreciation expense for the year 2018 was P 390,000.
 The entity had 30% of Saint Company’s ordinary shares held as long-term investment. Saint
reported net income of P 270,000 for 2018.
 Cash dividend paid for the year 2018 totaled P 20,000.

4. What was the net cash flow from operating activities?

a. 1,944,000 provided
b. 1,959,000 provided
c. 1,979,000 provided
d. 2,060,000 provided

5. What is the net cash flow from investing activities?

a. 200,000 provided
b. 281,000 provided
c. 119,000 provided
d. 46,000 used

6. What is the net cash flow from financing activities?

a. 5,000 provided
b. 15,000 provided
c. 100,000 provided
d. 15,000 used

Numbers 7 and 8

On November 1, 2018, Constantine Company received P 24,000 representing royalty revenue for
three months. On February 1, 2019, the entity received P 108,000 representing royalty revenue for
one year. The entity used the income method and did not prepare reversing entries.
7. What is included in the adjusting entry on December 31, 2018?

a. Credit royalty revenue P 24,000

b. Debit royalty revenue P 8,000
c. Credit deferred royalty revenue P 16,000
d. Debit royalty revenue P 16,000

8. What is included in the adjusting entry on December 31, 2019?

a. Credit deferred royalty revenue P 9,000

b. Debit deferred royalty revenue P 1,000
c. Credit deferred royalty revenue P 1,000
d. Debit royalty revenue P 8,000

Numbers 9 and 10

Kaniper Company provided the following information at the current year-end:

Cash in Bank, per bank statement 200,000

Petty Cash 3,000
Commercial paper with maturity of 2 months 55,000
Customer postdated checks 14,000
Plant expansion fund 150,000
Bond sinking fund (Bonds are due in 5 months) 120,000
Cash fund for payment of salaries 200,000
Sales 4,250,000
Sales returns and allowances 140,000
Accounts receivable 430,000
Allowance for doubtful accounts before adjustment – debit balance 7,600

Deposit in transit and outstanding checks were P 80,000 and P 55,000 respectively at year-end. The
entity estimated that 10% of the accounts receivable balance will be uncollectible.

9. What amount of cash and cash equivalent should be reported on December 31, 2018?

a. 578,000
b. 403,000
c. 483,000
d. 603,000

10. What is the doubtful account expense for the current year?

a. 43,000
b. 35,400
c. 42,240
d. 50,600

Numbers 11 and 12

On January 1, 2018, Knit Company purchased 8% bonds in the face amount of P 8,000,000. The
bonds mature on January 1, 2023 and were purchased for P 8,671,680 to yield 6%.

Knit business model for this investment is to collect contractual cash flows composed of principal
and interest, and sell the asset in the open market.
Interest is payable annually every December 31. The fair value of the bonds on December 31, 2018
was P 7,737,600 with an effective yield of 9%.

11. What is the interest income for 2018?

a. 640,000
b. 520,301
c. 513,119
d. 780,451

12. What amount of unrealized loss in OCI is reported in the statement of comprehensive income for
2018?

a. 814,381
b. 377,439
c. 262,400
d. 671,680

Number 13

On December 31, 2018, Calm company appropriately reported P 80,000 unrealized loss in OCI for
equity securities measured irrevocably at FVOCI.

Security Cost Fair Value at December 31, 2019

X 1,250,000 1,600,000
Y 1,000,000 950,000
Z 1,750,000 1,250,000

What amount of unrealized loss is recognized in the 2019 statement of changes in equity?

a. 200,000
b. 120,000
c. 280,000
d. 0

Numbers 14 and 15

Gates Company invested P 2,000,000 in Broth Company for 25% interest. Broth paid out 40% of net
income in dividends each year. The investment account showed the following details:

Initial Cost 5,000,000

Debit to the investment account 1,000,000
Credit to the investment account (400,000)
Investment balance at year-end 5,600,000

14. What amount of investment income was reported by Gates?

a. 1,600,000
b. 1,000,000
c. 1,400,000
d. 650,000
15. What amount of net income was reported by Broth?

a. 4,000,000
b. 5,600,000
c. 1,600,000
d. 2,400,000

Numbers 16 and 17

The following information was available from the inventory records of Rich Company for January:

Units Units Cost

Balance at January 1 30,000 9.77
Purchases:
January 6 20,000 10.30
January 26 27,000 10.71
Sales:
January 7 25,000
January 31 40,000

16. What amount of inventory should be reported under FIFO?

a. 128,520
b. 117,240
c. 123,600
d. 122,880

17. What amount of inventory should be reported under moving average method?

a. 126,060
b. 122,880
c. 123,120
d. 124,370

Numbers 18 and 19

Hurley Company provided the following information for the current year:

Accounts receivable, January 1 2,100,000

Accounts receivable, December 31 2,700,000
Collections of accounts during the year 9,000,000
Inventory, January 1 4,500,000
Purchases during the year 5,800,000

All sales are made on account. The markup on cost is 20%.

During the year, the entity constructed equipment for use in operation with the following
information:

Materials and parts purchased subject to a 2% discount was not taken 2,000,000
Imputed interest relating to stock financing on funds during the construction 140,000
Labor cost 1,900,000
Allocated overhead cost 500,000
Profit on self-construction 300,000
Installation cost 40,000
18. What is the estimated inventory on December 31?

a. 9,600,000
b. 2,600,000
c. 2,300,000
d. 1,700,000

19. What is the total cost of the equipment?

a. 4,100,000
b. 4,400,000
c. 4,440,000
d. 4,540,000

Numbers 20 and 21

During 2018, Bare Company constructed various assets at a total cost of P 8,400,000. The weighted
average expenditures on assets qualifying for capitalization of interest during 2018 amounted to P
5,600,000. The entity had the following debt outstanding at December 31, 2018:

 10%, 5-year note to finance construction of various assets,

Dated January 1, 2018, with interest payable annually on December 31 3,600,000
 12%, 10-year bonds issued at par on December 31, 2012,
With interest payable annually on December 31 4,000,000
 9%, 3-year note payable, dated January 1, 2017, with interest
Payable annually on January 1 2,000,000

20. What is the capitalized borrowing cost for the year ended December 31, 2018?

a. 800,000
b. 580,000
c. 440,000
d. 360,000

21. What is the interest expense for the year ended December 31, 2018?

a. 480,000
b. 660,000
c. 580,000
d. 440,000

Numbers 22 and 23

On January 1, 2018, Kohl Company purchased equipment for P 1,200,000 with a useful life of 8 years
with no residual value. On December 31, 2019, new technology was introduced that would
accelerate the obsolescence of the equipment. The entity estimated the present value of the
expected future net cash flows on the equipment at P 580,000 and the fair value less cost of disposal
at P 600,000. The entity determined the recoverable amount of the equipment on December 31,
2020 at P 570,000.

22. What amount of the impairment loss should be recognized for 2019?

a. 150,000
b. 330,000
 c. 300,000
d. 0

23. What amount of gain on reversal of impairment loss should be recognized for the year 2020?

a. 300,000
b. 250,000
c. 70,000
d. 0

Numbers 24 and 25

Yoon Company provided the following information pertaining to intangible assets:

 A patent was purchased from Graf Company for P 2,500,000 on January 1, 2017. Yoon
estimated the remaining life to be 10 years. The patent was carried at Graf’s records at a
carrying amount of P 2,000,000 when sold to Yoon. On January 1, 2018, Yoon estimated that
the remaining life of the patent is only 5 years.
 During 2018, a franchise was purchased from Reymont Company for P 5,800,000. In
addition, 5% of revenue from the franchise must be paid to Reymont. Revenue from the
franchise for 2018 was P 35,000,000. The useful life of the franchise is 10 years and full
year’s amortization is taken on the year of purchase.
 Yoon incurred research and development costs of P 500,000 in 2018. Yoon estimated that
these costs will be recouped by December 31, 2021.

24. What is the carrying amount of the intangible assets on December 31, 2018?

a. 7,220,000
b. 7,520,000
c. 7,395,000
d. 7,020,000

25. What total amount of expenses should be reported in the income statement for 2018?

a. 3,280,000
b. 1,530,000
c. 1,750,000
d. 2,955,000

Numbers 26 and 27

Avery Company provided the following data for the year ended December 31, 2018.

 As a result of uninsured accidents during 2018, personal injury suits for P 3,500,000 and P
600,000 have been filed against Avery Company. Based on Avery’s legal counsel, an
unfavorable outcome possible for the P 600,000 suit but an unfavorable outcome
approximating P 2,500,000 will probably result in the P 3,500,000 case.
 Avery Company owns a foreign subsidiary that has a carrying amount of P 5,725,000 and an
estimated fair value of P 9,500,000. The foreign government has communicated to the entity
its intention to expropriate that assets and business of all foreign investors. It is virtually
certain that Avery will receive 40% of the fair value as the final settlement.
 Litigation was filed for the recovery of P 1,300,000 consulting fee on a failed project during
2018. The legal counsel believed that it is more likely than not that the entity’s claim will be
successful.
26. What amount of total expenses should be recognized as a result of the suits filed against Avery?

a. 2,500,000
b. 3,100,000
c. 4,425,000
d. 5,025,000

27. How should the entity treat the recovery of consulting fee?

a. Recognize income of P 1,300,000

b. Disclose the award of P 1,300,00
c. Disclose the award of P 650,000
d. No accrual or disclosure

Numbers 28, 29 and 30

On January 1, 2018, Kobiachi Company issued P 3,000,000, 11% bonds for P 3,195,000. The market
rate of interest for these bonds is 10% and mature on January 1, 2029. Interest payable annually on
December 31. Kobiachi used the effective-interest method of amortization. On December 31, 2019,
Kobiachi was under financial difficulty and therefore entered into a debt restructuring agreement
with the creditor. In the agreement, Kobiachi will issue 20,000 shares with P 100 par value on
December 31, 2019 to settle the bonds. On such date, the shares do not have a fair value but the
bonds are quoted at 104. Kobiachi was unable to pay the required interest on December 31, 2019.
Interest was accrued on such date.

28. What is the interest expense for 2019?

a. 330,000
b. 319,500
c. 318,450
d. 353,810

29. What is the carrying amount of bonds payable on December 31, 2019 before accrued interest?

a. 3,195,000
b. 3,184,500
c. 3,172,950
d. 3,000,000

30. What amount of gain on extinguishment should be recognized for 2019?

a. 307,950
b. 382,950
c. 120,000
d. 52,950

Numbers 31, 32, 33 and 34

On January 1, 2018, Flips Company is authorized to issue 100,000 P 100 par value ordinary shares.
The following transactions occurred during 2018:

January 1 Issued 40,000 ordinary shares at P 130 per share.

February 1 Issued 30,000 ordinary shares for the following assets:
 Machine 500,000 fair value
Land none
Building 1,100,000 fair value
The ordinary shares are selling at P 120 at this date

July 1 Purchase 10,000 ordinary shares at P 150 per share to be held as treasury.
August 1 Declared a 2 for 1 share split
September 15 Reissued 5,000 treasury shares at P 100 per share
December 31 Declared a P 10 per share cash dividend on the ordinary shares
December 31 Net income for the year is P 3,000,000

31. What is the share capital at year-end?

a. 7,000,000
b. 6,000,000
c. 6,250,000
d. 5,000,000

32. What is the share premium at year-end?

a. 1,800,000
b. 1,925,000
c. 1,200,000
d. 1,325,000

33. What is the balance of retained earnings at year-end?

a. 3,000,000
b. 1,600,000
c. 1,750,000
d. 1,800,000

34. What is the total shareholder’s equity at December 31, 2018?

a. 9,425,000
b. 8,950,000
c. 9,550,000
d. 8,925,000

Number 35

Ortago Company sustained heavy losses for several years and underwent quasi re-organization on
December 31, 2018. The following information is available:
Fair Value Carrying amount
Inventory 5,700,000 6,000,000
Equipment 7,200,000 8,000,000

The share capital is P 6,000,000 with P 6 par value, share premium is P 1,500,000 and the deficit is P
6,200,000 before adjustments. The par value per share is reduced by P 2. What amount must the
shareholders contribute to eliminate the deficit?

a. 6,200,000
b. 3,800,000
c. 1,800,000
d. 0
Number 36 and 37

On January 1, 2018, Portfolio Company granted share options to its key officers for the purchase of
20,000, P 100 par value ordinary shares at P 250 per share. The options are exercisable within a 5-
year period beginning January 1, 2020 by officers still in the employ of the Portfolio, and expiring
December 31, 2024. Using an option pricing model, the total compensation expense is P 4,000,000.
On April 1, 2019, 3000 options were forfeited when some officers resigned from the entity. The
market price of the share of this date was P 350. On March 31, 2020, 12,000 options were exercised
when the market price of the share was P 400.

36. What is the compensation expense for 2019?

a. 4,000,000
b. 3,400,000
c. 2,000,000
d. 1,400,000

37. What amount of share premium from issue of share capital is recognized on March 31, 2020?

a. 2,400,000
b. 4,200,000
c. 3,000,000
d. 6,000,000

Numbers 38, 39 and 40

On January 1, 2018, Buraka Company had 480,000 P 60 ordinary shares and 100,000, 9% P 100 par
convertible cumulative preference shares outstanding. The preference shares are convertible into
100,000 ordinary shares before share dividends and share split. During 2018, the following
transactions effected the ordinary shares:

February 1 Issued 120,000 shares

March 1 Issued a 20% share dividend
May 1 Acquired 100,000 treasury shares
June 1 Issued a 3-for-1 split
October 1 Reissued 60,000 treasury shares

The net income was P 32,560,000 and Buraka did not declare dividend on preference shares.

38. What is the number of average ordinary shares outstanding?

a. 1,939,000
b. 1,969,000
c. 1,860,000
d. 1,800,000

39. What amount should be reported as basic EPS for 2018?

a. 16.54
b. 16.79
c. 16.96
 d. 16.33

40. What amount should be reported as diluted EPS for 2018?

a. 14.16
b. 13.77
c. 15.53
d. 15.97

Numbers 41 and 42

Shapiro Company manufactures an X-ray machines and leases it to Capitol Hospital. The entity
provided the following information pertaining to the finance lease agreement:

Commencement of the lease January 1, 2018

Annual rental payable in advance every January 1 600,000
Lease term 10 years
Useful life of machine 12 years
Cost of machine 3,000,000
FV of the machine on January 1, 2018 4,950,000
Legal fees in directly signing the lease 140,000
Guaranteed residual value 150,000
Implicit rate in lease 10%

The machine will revert back to Shapiro on January 1, 2028. The present value of an ordinary annuity
and annuity due for 10 periods at 10% are 6.14 and 6.76. The present value of 1 for 10 periods at
10% is 0.39.

41. What amount of sales revenue should be recognized by Shapiro?

a. 4,956,780
b. 4,056,000
c. 3,742,500
d. 4,114,500

42. What amount of interest income should be recognized for 2018?

a. 405,600
b. 345,600
c. 411,450
d. 351,450

Numbers 43 and 44

Nielson Company, in its first year of operations, had the following difference between carrying
amount and tax base of assets and liabilities at December 31, 2018:

Carrying amount Tax base

Equipment 4,000,000 3,500,000
Warranty Liability 1,500,000 0

The warranty liability will be settled in 2019. The difference in equipment will reverse in amounts of
P 200,000, P 200,000 and P 100,000 for the years 2019, 2020 and 2021 respectively. The financial
income for 2018 is P 5,500,000 and the tax rate is 30% for the years 2018-2020 and 25% for 2021. It
is probable that the entity will report taxable income in the future periods.
43. What is the current tax expense for 2018?

a. 1,950,000
b. 1,625,000
c. 1,350,000
d. 1,500,000

44. What is the total expense for 2018?

a. 1,654,000
b. 1,650,000
c. 1,625,000
d. 2,200,000

Numbers 45 and 46

Cheng Company had a define benefit plan for the employees. On January 1, 2018, the entity
provided the following balances related to this plan:

Fair value of the plan assets 2,700,000

Projected benefit obligation 3,400,000

During 2018, the actuary provided the following information:

Service cost 450,000

Actual return on plan assets 270,000
Benefits paid to retirees 410,000
Discount rate 7%
Contribution to the plan ?

Cheng reported a pension liability of P 468,000 on December 31, 2018.

45. What is the amount of employee benefit expense should be reported for 2018?

a. 499,000
b. 450,000
c. 418,000
d. 459,000

46. What is the cash contribution to the plan assets for 2018?

a. 418,000
b. 731,000
c. 232,000
d. 650,000

Numbers 47 and 48

On January 1, 2018, Camia Company purchased a drilling machine for P 8,400,000 with useful life of
10 years and no residual value. An important component of the machine is the drill housing
component that will need to be replaced in 5 years. The P 2,000,000 cost of the drill housing
component is included in the P 8,400,000 cost of the machine. The straight line depreciation is used.
During 2018, Camia Company incurred P 4,000,000 in exploration cost for each of 15 oil wells drilled
in 2018. Of the well drilled in 2018, 10 were dry holes. The entity used the successful effort method
of accounting. The entity depleted 30% of the oil discovered in 2018.

47. What is the amount of depreciation should be recorded in 2018?

a. 1,040,000
b. 1,240,000
c. 840,000
d. 640,000

48. What amount of exploration cost would remain on December 31, 2018?

a. 42,000,000
b. 14,000,000
c. 20,000,000
d. 6,000,000

Numbers 49 and 50

Accardo Company, an SME, constructed a building at total cost of P 10,500,000 that was completed
on January 1, 2018. The useful life of the building is 10 years. Included in the cost of borrowing cost
for 2018 amounting to P 200,000. Accardo borrowed P 4,000,000 to finance the construction of the
building on January 1, 2016 and is due on January 1, 2021. The annual interest is payable every
December 31. The building is to be leased out under operating lease to unrelated parties starting
2018 and the entity received rentals of P 1,200,000 for 2018. The entity also determined that it can
measure a fair value of the building on an ongoing basis without undue cost and effort. On
December 31, 2018, the fair value of the building is P 12,000,000. The entity paid P 250,000 and P
320,000 of property taxes and maintenance cost respectively for 2018.

49. What is the initial cost of the building on January 1, 2018?

a. 10,500,000
b. 10,300,000
c. 10,550,000
d. 10,750,000

50. What net amount of income should be reported by SME for 2018?

a. 880,000
b. 630,000
c. 1,100,000
d. 2,130,000

Numbers 51 to 70 (Theory)

51. The International Accounting Standards Board

a. Was the predecessor of the IASC

b. Can overrule the FRSC when their policies disagree
c. Promotes the use of high quality and understandable global accounting standards
d. Had its headquarters in Geneva
52. General-purpose financial statements are product of

a. Financial accounting
b. Managerial accounting
c. Both financial and managerial accounting
d. Neither financial and managerial accounting

53. What is the quality of information that is capable of making a difference in a decision?

a. Faithful representation
b. Understandability
c. Timeliness
d. Relevance

54. Which statement about discontinued operation is true?

a. The gain or loss on disposal of a component of a business should be reported as other

income
b. Results of operations of a discontinued component should be reported below income
from continuing operations.
c. Earnings per share should not be presented for discontinued operation.
d. The gain or loss on disposal of a component of a business should not be segregated but
reported together with the results of continuing operations.

55. Which is a financing activity in the statement of cash flow?

a. Cash purchase of intangible asset

b. Cash purchase of bonds issued by another entity
c. Cash received as repayment for funds loaned
d. Cash purchase of a treasury shares

56. Events that occur after the end of the reporting period but before the financial statements are
authorized for issue and provide additional evidence about conditions that existed at the end of the
reporting period that affects the realizability of accounts receivable should be

a. Discussed only in the management commentary section of the annual report.

b. Disclosed only in the notes to the financial statements.
c. Used to record an adjustment to doubtful accounts.
d. Used to record an adjustment directly to the retained earnings account.

57. When an entity has acquired a passive interest in another entity, the acquiring entity should
account for the investment by using the

a. Equity method
b. Fair value method
c. Effective interest method
d. Consolidated method

58. Gains and losses on cash flow hedge derivatives are

a. Ignored completely
b. Recorded in other comprehensive income
c. Reported directly in net income
d. Reported directly in retained earnings
59. The entry debiting accounts receivable and crediting allowance for doubtful accounts is made
when

a. A customer pays an account balance

b. A customer defaults on an account
c. A previously defaulted customer pays the outstanding balance
d. Estimated uncollectible accounts are low

60. Impairment loss of an intangible asset is difference between

a. Carrying amount and the expected future net cash flows

b. Carrying amount and recoverable amount
c. Recoverable amount and the expected future net cash flows
d. Carrying amount and fair value

61. All of the following are considered research and development costs, except

a. Laboratory research aimed at discovery of new knowledge

b. Application of research findings to a plan or design for new product
c. Conceptual formulation and design of possible product alternative
d. Marketing research for a new product

62. Printing costs and legal fees associated with the issue of bonds at amortized cost should be

a. Be expense when incurred

b. Be reported as deduction from the face amount of bonds payable
c. Be recorded as a reduction of the bond issue amount and amortized over the life of the
bonds
d. Not be reported as an expense until the period the bonds mature or are retired

63. In a debt settlement in which the modification is substantial, a gain should be recognized when

a. Carrying amount of the debt is less than the total future cash flows
b. Carrying amount of the debt is greater than the present value of the future cash flows
c. Present value of the debt is less than the present value of the future cash flows
d. Present value of the debt is greater than the present value of the future cash flows

64. Once the total compensation for share options is measured at the date of grant

a. It can be changed in future periods related to a change in market conditions

b. It can be changed to reflect the changes in the market price of an entity’s ordinary
shares
c. An entity is permitted to adjust the number of share options expected to the actual
number of instrument vested
d. All of the choices are correct

65. In computing basic EPS, if the preference shares are cumulative, the amount that should be
deducted as an adjustment to the numerator is the

a. Preference dividends in arrears

b. Preference dividends in arrears net of tax
c. Annual preference dividends net of tax
d. Annual preference dividend
66. How does an entity treat share issue costs when incurred?

a. A deduction from share premium

b. Expense
c. A deferred charge
d. An intangible asset

67. When an entity amends a pension plan, past service cost should be

a. Treated as a prior period adjustment because no future periods are benefited

b. Amortized over the vesting period if the benefits are not vested
c. Recorded in other comprehensive income
d. Reported as an expense in the period of plan is amended

68. Which statement is not true about the fair value option?

a. The fair value option is irrevocable

b. The fair value option must be elected for all equity investments
c. Electing the fair value option for debt investments simply measures the investment at
FVPL
d. All of these statements are true

69. All of the following topics are addressed in PFRS for SME, except

a. Revaluation model for property, plant and equipment

b. Measurement of basic debt instruments
c. Earnings per share
d. Cost model for investment in associate

70. What is the effect of an overstatement of ending inventory in the current period in the income of
next period?

a. Overstated
b. Understated
c. Correctly stated
d. The answer cannot be determined from the information