PAS 7 STATEMENT OF CASH FLOWS o cash receipts from the sale of goods, rendering

of services, or other forms of income (inflow)

Introduction: o cash payments for purchases of goods and
 PAS 7 - prescribes the requirements in the presentation of services (outflow)
statement of cash flows o governments for taxes (outflow)
 Statement of Cash Flows – provides information about the o lenders for interest (outflow)
sources and utilization (i.e. historical changes) of cash and o employees for salaries (outflow)
cash equivalents during the period (movement of cash) o interest and dividends received (inflow)
o cash payments for operating expenses, such as
Definition of Terms
employee benefits, insurance, and the like, and
 Cash – comprises cash on hand and cash in bank (and cash
payments or refunds of income taxes
fund)
o cash receipts and payments from contracts held
 Cash Equivalents – short-term, highly liquid investments
for dealing or trading purposes
that are readily convertible to known amounts of cash and
which are subject to an insignificant risk of changes in
Special Items Included in Operating Activities
value
 cash flows from buying and selling held for trading
o only debt instruments acquired within 3 months or
securities (whether financial assets or financial
less before their maturity date can qualify as cash
liabilities); held for trading securities are similar to
equivalents such as:
inventories in the sense that they are acquired
 1-year treasury bill acquired 3 months before
specifically for resale
maturity date
 some entities, in the ordinary course of their
 90-day money market instrument or
activities, routinely manufacture or acquire items of
commercial paper
PPE to be held for rental to others and subsequently
 3-month time deposit
transfer these assets to inventories when they cease to
 Cash Flows – include inflows (sources and outflows (uses)
be rented and become held for sale; for these entities,
of cash and cash equivalents
cash flows from the acquisition, rentals, and
subsequent sale of such assets are considered
Statement of Cash Flows helps users assess:
operating activities – proceeds are recognized as
a. the ability of the entity to generate cash and cash
revenue
equivalents
 loan transactions of financial institutions (e.g. banks,
b. the timing and certainty of the generation of cash flows
government lenders, etc.) are operating activities
c. the needs of the entity to utilize those cash flows
because they relate to the main revenue-producing
activity of a financial institution
The statement of cash flows may also provide information
on the quality of earnings of an entity. An entity may report
2. Investing Activities
profit under the accrual basis but suffers negative cash flows
 involve the acquisition and disposal noncurrent assets
from its operating activities. This may provide indicators of,
and other investments
among other things, difficulty in collecting accounts receivable.
 Examples
As the statement of cash flows can only be prepared on a
o cash receipts in the disposal of PPE, investment
cash basis, it enhances inter-comparability among different
property, intangible assets, and other
entities because it eliminates the effects of using different
noncurrent assets (inflow)
accounting treatments for the same transactions and events.
o cash payments in the acquisition of PPE,
investment property, intangible assets, and
other noncurrent assets (outflow)
Classification of Cash Flows
o cash and receipts and cash payments in the
1. Operating Activities
acquisition and sale of equity or debt
 cash flows from operating activities are primarily
instruments of other entities (other than those
derived from the principal revenue-producing
that are classified as cash equivalents or held
activities of the entity
for trading)
 usually include cash inflows and outflows on items of
o loans to other parties and collections thereof
income and expenses or
(other than loans made by a financial
 those that enter into the determination of profit or
institution)
loss (i.e. included in the income statement)
 Examples
 3. Financing Activities  exclude transactions that have not affected cash and cash
 affect the entity’s equity capital and borrowing equivalents (e.g. purchase of assets by issuing note
structure payable or shares of stocks and conversion of debt to
 Examples equity)
o cash receipts from issuing shares or other
equity instruments and cash payments to Interests and Dividends
redeem them Cash Flows Option 1 Option 2
o cash receipts from issuing notes, loans, bonds, Interest Income Received Operating Investing
and mortgage payable and other short-term or Interest Expense Paid Operating Financing
long-term borrowings, and their repayments Dividend Income Received Operating Investing
o cash payments by a lessee for the reduction of Dividend Paid to Owners Financing Operating
the outstanding liability relating to a lease
o purchase of treasury stock Option 1 Option 2
o bank overdraft (cannot be offset) Operating Activities -
Interest Income, Interest
 Cash flows on trade payables, accrued expenses, and other Expense, and Divided Investing Activity – Interest
operating liabilities are classified as operating activities and Income Income, Dividend Income
not financing activities.  they enter into the  they result from
 Only cash flows on non-operating or non-trade liabilities are determination of profit investments
included as financing activities or loss (i.e. income and
expenses)
Financing Activity –
Financing Activity – Interest
Dividend Paid
Expense
Must Remember!  it is a transaction with
 results from
1. Operating Activities – affect profit or loss (income the owners and alters
borrowing
statement), trade current assets and liabilities the equity structure
2. Investing Activities – affect non-current assets, short term Operating Activity –
non-trade current assets, and other investments Dividend Paid
3. Financing Activities – affect borrowings and equity, non-  in order to assist users
trade current liabilities, and non-current liabilities in assessing the
entity’s ability to pay
Cash Flows Excluded from the Activities Sections dividends out of
 Cash flows on movement between cash and cash operating cash flows
equivalents – because these are part of the entity’s cash
management rather than its operating, investing, and  only interests and dividends received or paid in cash are
financing activities included in the statement for cash flows
 Bank overdrafts that can be offset to cash or are part of the o e.g. dividends received in Year 1 but paid in Year 2
entity’s cash management forms part of the balance of cash are excluded from the SCF in Year 1 and reported
and cash equivalents and therefore not presented separately only in Year 2
in the activities section  only option 1 is available to financial institutions
 Cash flows denominated in a foreign currency are  problem is silent, use option 1
translated using the spot exchange rate at the date of the
cash flow. Exchange differences are not cash flows. Presentation
 However the effect of exchange rate changes on cash and a. Direct Method – shows each major class of gross cash
cash equivalents held or due in a foreign currency is receipts and gross cash payments
reported in the statement of cash flows in order to reconcile b. Indirect Method – profit or loss is adjusted for the effects
cash and cash equivalents at the beginning and the end of of non-cash items and changes in operating assets and
the period liabilities

When preparing statement of cash flows: Guide in Computing SCF-Operating (Indirect Method)
 include only transactions that have affected cash and cash i. decrease in CA = increase in cash
equivalents (e.g. purchase of assets by paying cash)
  decrease in receivables implies that cash was  provides guidance in the determination of cost of
collected, hence a decrease in receivables is added inventories, including the use of cost formulas, and their
to NI subsequent measurement and recognition as expense
ii. increase in CA = decrease in cash  applies to all inventories except for the following
 as it takes cash to acquire assets, an increase in o assets accounted for under other standards
current assets is therefore deducted from NI a. Financial Instruments (PAS 32 and PFRS 9);
iii. decrease in CL = decrease in cash and
 payment of current liabilities results in a decrease b. Biological assets and agricultural procedure at
in cash, hence decrease in CL is deducted from NI the point of harvest (PAS 41)
iv. Increase in CL = increase in cash o Assets not measured under the LCNRV under PAS 2
 means that we either borrowed money or received a. Inventories of procedures of agricultural, forest,
some credit, hence we have more cash or saved and mineral products measured at net realizable
cash; an increase in CL is therefore added to NI value in accordance with well-established
practices in those industries
 PAS 7 does not require any particular method; both are b. Inventories of commodity broker-traders
acceptable measured at fair value less costs to sell
 PAS 7 encourages the direct method as it provides
information that may be useful in estimating future cash Inventories are assets:
flows which is not available under the indirect method a. Held for sale in the ordinary course of business (finished
 in practice, indirect method is more commonly used goods)
because it is easier to apply b. In the process of production for such sale (work in
 Operating Activities – can either be direct or indirect process); or

 Investing and Financing Activities – direct method only; c. In the form of materials or supplies to be consumed in the

gross cash receipts and gross cash payments for the related production process or in the rendering of services (raw

transactions are presented separately, unless they qualify materials and manufacturing supplies

for net presentation

Examples

Changes in Ownership Interests in Subsidiaries  Merchandise purchased by a trading entity and held for
Cash flows arising from acquisitions and disposals of resale
subsidiaries or other business units resulting to loss or obtaining  Land and other property held for sale in the ordinary course
of control are classified as investing activities. of business
Those that do not result to loss or obtaining of control are  Finished goods, goods undergoing production, and raw
classified as financing activities. materials and supplies awaiting use in the production
process by a manufacturing entity
Ordinary course of business – normal or usual business activities
Disclosure
of an entity
PAS 7 requires the following disclosures
a. Components of cash and cash equivalents and a
Measurement
reconciliation of amounts in the statement of cash
Inventories are measured at lower of cost and net realizable value
flows with the equivalent items in the statement of
(LCNRV)
financial position
b. Significant cash and cash equivalents held by the entity
Cost
that are not available for use by the group, together
The cost of inventories comprises the following
with a management commentary -> cash that are
a. Purchase Cost – purchase price (net of trade discounts and
restricted
rebates)
c. Significant non-cash transactions
+ import duties / non-refundable or non-recoverable
purchase taxes
+ transport cost
PAS 2 INVENTORIES
+ handling cost, insurance cost, storage cost (other costs
directly attributable to the acquisition of the inventory)
 prescribes the accounting treatment for inventories
- Rebate
 recognized that a primary issue in the accounting for
- Trade Discounts
inventories is the determination of cost to be recognized as
- Subsidies
asset and carried forward until it is expensed
b. Conversion Costs – costs necessary in converting raw  records should maintained that enables the entity to
materials into finished goods; identify the cost and movement of each specific
1. Direct Cost inventory
2. Variable production overheads allocated based on  not appropriate when inventories consist of large
actual production number of items that are ordinarily interchangeable
3. Fixe production overhead allocated based on normal
capacity 2. First-In, First-Out (FIFO)
4. In case of joint products, cost is allocated between  it is assumed that inventories that were purchased or
products on a rational consistent basis produced first are sold first, and therefore unsold
inventories at the end of the period are those most
recently purchased or produced
c. Other Costs necessary in bringing the inventories to their  cost of sales represents costs from earlier purchases
present location and condition while cost of ending inventory represents costs from
- Non-production overheads an specific design cost the most recent purchase
(bringing product to its present condition and
location) 3. Weighted Average
- Borrowing Cost (PAS 23)  cost of sales and ending inventory are determined
based on the weighted average cost of beginning
The following are excluded from the cost of inventories and are inventory and all inventories purchased or produced
expensed in the period in which they are incurred: during the period
a. Abnormal amounts of wasted materials, labor, or other  average may be calculated on a period basis, or as
production costs; each additional purchase is made, depending upon
b. Storage costs, unless those costs are necessary in the the circumstances of the entity
production process before a further production stage (e.g.
the storage costs of partly finished goods may be The cost formulas refer to “cost flow assumptions,”
capitalized as cost of inventory, but the storage costs of meaning they pertain to the flow of costs (i.e. from inventory to
completed goods are expensed); cost of sales) and not necessarily to the actual physical flow of
c. Administrative overheads, that do not contribute to brining inventories. Thus, the FIFO or Weighted Average can be used
inventories to their present location; and regardless of which item of inventory is physically sold first.
d. Selling costs (e.g. Advertisement Costs) Same cost formula shall be used for all inventories with
When a purchase transaction effectively contains a similar nature and use. Different cost formulas may be used for
financing element, such as when payment of the purchase price is inventories with different nature or use. However, a difference in
deferred, the difference between the purchase price for normal geographical location of inventories, by itself, is not sufficient to
credit terms and the amount paid is recognized as interest justify the use of different cost formulas.
expense over the period of the financing. PAS 2 does not permit the use of LIFO cost formula.

Cost Formulas Net Realizable Value

 Deal with the computation of cost of inventories that are  the estimated selling price in the ordinary course of
charged as expense when the related revenue is recognized business less estimated costs of completion and the
(i.e. cost of sales or cost of goods sold) as well as estimated costs necessary to make the sale
 Cost of unsold inventories at the end of the period that are  different from fair value
recognized as asset (i.e. ending inventory
 refers to the net amount that an entity expects to realize
from the sale of inventory in the ordinary course of
1. Specific Identification
business [fair value – reflects the price at which an orderly
 used for inventories that are not ordinarily
transaction to sell the same inventory in the principal (or
interchangeable (i.e. those that are individually
most advantageous) market for that inventory would take
unique) and those that are segregated for specific
place between market participants at the measurement date]
projects
 entity-specific value [fair value – not entity-specific]
 specific costs are attributed to identified items of
 may not equal fair value less costs to sell
inventory
 measuring inventories at the LCNRV is in line with the
 cost of sales represents the actual cost of the specific
basic accounting concept that an asset shall not be carried
items sold while ending inventory represents the
at an amount that exceeds its recoverable amount
actual costs of the specific items on hand
 cost of an inventory may exceed its recoverable amount b. Total carrying amount of inventories and the carrying
and is written-down to NRV if, for example (the amount of amount in classifications appropriate to the entity;
write-down is recognized as expense) – red flags c. Carrying amount of inventories carried at fair value less
o inventory is damaged costs to sell;
o becomes obsolete d. Amount of inventories recognized as an expense during the

o prices have declined period;

o estimated costs to complete or to sell the inventory e. Amount of any write-down of inventories recognized as an
expense in the period;
have increased
f. Amount of any reversal of write-down that is recognized as
 if the NRV subsequently increases, the previous write-
a reduction in the amount of inventories recognized as
down is reversed
expense in the period
o but the amount of reversal shall not exceed the
g. Circumstances or events that led to the reversal of a write-
original write-down
down of inventories; and
o this is so that the new carrying amount is the lower of
h. Carrying amount of inventories pledged as security for
the cost and the revised NRV
liabilities
 write-downs of inventories are usually carried out on an
item by item basis
PAS 41 AGRICULTURE
o although in some circumstances, it may be
Agriculture
appropriate to group similar items
 farming or the process of producing crops and raising
o it is not appropriate to write-down inventories on the
livestock
basis of their classification (e.g. finished goods or all
inventories of an operating segment)
PAS 41
 raw materials inventory is not written down below cost if
 prescribes the accounting and disclosures for agricultural
the finished goods in which they will be incorporated are
and related activity
expected to be sold at or above cost
 applies to the following when they relate to agricultural
o if, however, this is not the case, the raw materials
activity
are written down to their NRV
o Biological assets, except bearer plants;
o the best evidence of NRV for raw materials is
o Agricultural produce at the point of harvest
replacement cost
o Unconditional government grants related to a
o
biological asset measured at its fair value less costs to
sell
Recognition as Expense
 does not apply to the following
 carrying amount of an inventory that is sold is charged as
o Land related to agricultural activity (PAS 16 and
expense (i.e., cost of sales) in the period in which the
PAS 40)
related revenue is recognized
o Bearer plants (PAS 16). However, PAS 41 applies to
o likewise, the write-down of inventories to NRV and
the produce on those bearer plants
al losses of inventories are recognized as expense in
o Government grants related to bearer plants (PAS 20)
the period the write-down or loss occurs
o Intangible assets related to agricultural activity (PAS
 “The amount of any reversal of any write-down of
38)
inventories, arising from an increase in net realizable value,
shall be recognized as a reduction in the amount of  applies to agricultural produce only at the point of harvest

inventories recognized as an expense in the period in which [after harvest, PAS 2 Inventories or other applicable

the reversal occurs.” standard is applied]

 Inventories that are used in the construction of another

Biological Asset
asset is not expensed but rather capitalized as cost of the
constructed asset  a living animal or plant

o e.g. some inventories may be used in constructing a  ‘bio’ means life – dead animals, dead plants, and other non-

building – the cost of those inventories is living thing cannot qualify as biological assets

capitalized as cost of the building and will be  it can be either

included in the depreciation of that building a. Consumable Biological Assets – those that are to be
harvested as agricultural produce or sold as biological

Disclosures assets

a. Accounting policies have adopted in measuring inventories i. livestock intended for the production of meat

including the cost formula used; ii. livestock held for sale
 iii. fish in farms  the harvested produce of the entity’s biological assets or
iv. crops such as maize and wheat the cessation of a biological asset’s life process
v. produce on a bearer plant o harvest – the detachment of produce from a
vi. trees being grown for lumber biological asset or the cessation of a biological
asset’s life processes
b. Bearer Biological Assets – those that are held to bear  refers to those that are not in their natural state and are not
produce; only the produce is harvested while the yet processed
bearer biological asset remains  those that are already subjected to processing are treated as
i. livestock from which milk is produced inventories
ii. fruit trees from which fruit is harvested

Apple Tree Anatomy

 living animals, whether consumable or bearer, are  Apple Fruits – growing on the tree – biological asset
classified as biological assets if they relate to agricultural  Apple Tree – bearer plant (held to bear produce) – PAS 16
activity PPE
 however, living plants are classified as biological assets  Harvested Apple – agricultural produce, PAS 41 at the
only if they are consumable point of harvest
o bearer plants are classified as PPE
 Apple Pie – subjected to processing - PAS 2

Bearer plant is a living plant that PAS 41.5C

a. is used in the production or supply of agricultural  produce growing on bearer plants is a biological asset
produce;
 however, in many cases it is impractical to account for
b. is expected to bear produce for more than one period; and
fruits growing on trees before they are harvested
c. has a remote likelihood of being sold as agricultural
 many companies start to apply PAS 41 on the fruits only at
produce, except for incidental scrap sales
the point of harvest
 this is also for produce of animals
 plants that are to be harvested as agricultural produce are
o milk is accounted for only after it is squeezed from
not bearer plants
the cow’s breast
o a tree that is intended to be cut down and used as a
lumber is a consumable plant, therefore is a
Must Remember!
biological asset
Nature of Asset Type of Asset
o a tree that is intended to bear fruits and only the fruits
Living animal or plant Biological Asset – PAS 41;
are harvested while the tree remains a bearer plant,
however, bearer plants are
and there is a PPE
classified as PPE (PAS 16)
 bearer plants that may be sold as scrap when no longer
Unprocessed harvested Agricultural produce (PAS
used are not necessarily precluded from being classified as
produce 41)
bearer plants
Processed product Inventory (PAS 2)
 annual crops and similar plants that die once their produce
has been harvested are considered consumable plants thus,
Included and Excluded from the scope of PAS 1
classified as biological assets (ex: peanut, rice, beans,
Biological Bearer Agricultural Products
sugarcane, tobacco, banana, garlic, onion, lettuce, cabbage,
Asset Plants produce that are the
carrots, etc.)
(PAS 41) (PAS 16) point of result of
 only plants that bear produce repeatedly, over a long period
harvest (PAS processing
of time are considered bearer plants
41) after
harvest
Must Remember!
(PAS 2)
 PAS 41 – Bearer and Consumable Animals
Sheep Wool Yarn, Carpet
 PAS 41 – Consumable Plants
Trees in a Felled Trees Logs,
 PAS 16 – Bearer Plants
timber Lumber
 PAS 41 – Produce growing on bearer plants
plantation
 PAS 41 – Plant with dual purpose
Dairy Cattle Milk Cheese

Pigs Carcass Sausages,

Agricultural Produce
Cured hams
 Cotton Harvested Thread,  such management distinguishes agricultural activity
Plants Cotton Clothing from other activities
Sugarcane Harvested Sugar o e.g. harvesting from unmanaged sources (ocean
Cane fishing & deforestation) is not agricultural
Tobacco Picked Leaves Cured activity
Plants Tobacco
Tea Bushes Picked Grapes Tea c. Measurement of Change

Grape Picked Fruit Wine  the change in quality or quantity brought about by

Vines biological transformation or harvest is measured and

Fruit Trees Picked Fruit Processed monitored as a routine management function

Fruit Biological Transformation – comprises the following processes

that cause qualitative or quantitative changes in a biological
Oil Palms Harvested Palm Oil
asset:
Latex
1. Asset changes through
Rubber Rubber
a. Growth – is an increase in quantity or improvement
Trees Products
in quality of an animal or plant
b. Procreation – is the creation of additional living
Other Accounted for Under PAS 41
animals or plants
a. plants cultivated to be harvested as agricultural produce
c. Degeneration – is a decrease in the quantity or
(e.g. trees grown for use as lumber)
deterioration in quality of an animal or plant
b. plants cultivated to produce agricultural produce when
2. Production of agricultural produce
there is more than a remote likelihood that the entity will
also harvest and sell the plant as agricultural produce, other
Recognition
than as incidental scrap sales (e.g. trees that are cultivated
 a biological asset or agricultural produce is recognized
both for their fruit and their lumber)
when it meets the asset recognition criteria, including the
c. annual crops (e.g. maize, wheat, corn)
reliable measurement of its fair value or cost
d. produce on bearer plants
a. the entity controls the asset as a result of past events
b. it is probable that future economic benefits associated
Agricultural Activity
with the asset will flow to the entity
 the management by an entity of the biological
c. the fair value or cost of the asset can be measured
transformation and harvest of biological assets for sale or
reliably
for conversion into agricultural produce or into additional
biological assets
Measurement
o raising livestock
 Biological Assets
o forestry
o Initial and Subsequent Measurement – fair value less
o annual or perennial cropping
costs to sell (at the end of each reporting period)
o cultivating orchards and plantations
 there is a presumption that fair value can be
o floriculture
measured reliably for a biological asset
o aquaculture (including fish farming)
 that presumption can be rebutted only on initial
 biological assets and agricultural produce are accounted for recognition for a biological asset for which
under PAS 41 only when they relate to agricultural activity quoted market prices are not available and for
 those that do not relate to agricultural activity are which alternative fair value measurements are
accounted for under other applicable Standards determined to be clearly unreliable
o e.g. plants used in landscaping are not biological o the gain or loss arising from initial measurement and
assets but rather land improvements i.e. PPE subsequent changes in fair value less costs to sell are
recognized in profit or loss
Common Features of Agricultural Activities  gain may arise on the initial recognition of a
a. Capability to Change biological asset (e.g. when a calf is born)
 living animals and plants are capable of biological  loss may arise on the initial recognition of a
transformation biological asset because costs to sell are
b. Management of Change deducted from fair value
 management facilitates biological transformation by o if the fair value of the biological asset cannot be
enhancing, or at least stabilizing, conditions measured reliably on initial recognition
necessary for the process to take place
  it is initially measured at cost and subsequently b. the impact of the biological transformation on price is not
measured at cost less accumulated depreciation expected to be material (e.g. the initial growth in a 30-year
and accumulated impairment losses pine tree plantation production cycle)
o an entity that has previously measured a biological
asset as its fair value less cost to sell continues to Biological assets attached to land (e.g. trees in a plantation
measure the biological asset at its fair value less costs forest) may not have a separate market but an active market may
to sell until disposal exist for the combined assets (i.e. biological assets, raw land, and
 Agricultural Produce land improvements) as a package. In such case, the fair value of
o in all cases, initially measured at fair value less costs the raw land and land improvements may be deducted from the

to sell at the point of harvest fair value of the combined assets to arrive at the fair value of the

o subsequent measurement (point after harvest) – PAS biological assets.

2 Inventory or other applicable Standard

o the gain or loss arising from the initial measurement Government Grants

is recognized in profit or loss  assistance from the government in the form of transfers of
resources in exchange for compliance with certain

Definitions conditions – PAS 20

 Fair Value – the price that would be received to sell an  government grants that are related to biological assets

asset or paid to transfer a liability in an orderly transaction measured at fair value less costs to sell are accounted for

between market participants at the measurement date under PAS 41

 Costs to Sell – incremental costs directly attributable to the o those that are related to biological assets measured at

disposal of an asset, excluding finance costs and income cost less accumulated depreciation and accumulated

taxes impairment losses are accounted for under PAS 20

o commissions to brokers
o levies by regulatory agencies and commodity Nature of Government Accounting Procedure
Grant
exchanges
o transfer taxes and duties Government grant is Recognize income equal to
unconditional and relates to fair value of the grant when
o do not include transport costs, advertising costs,
biological asset measured at the grant becomes receivable
income taxes, and interest expense
FVLCS
o if location is a characteristic of the biological asset,
Government grant is Recognize income only when
the price in the principal (or most advantageous)
conditional condition is met
market shall be adjusted for the transport costs
Government grant relates to
Account for the grant under
biological asset measured at
PFRS 13 Fair Value Measurement PAS 20
cost
 the one being used when measuring the fair value of
Government grant is
biological assets and agricultural produce
conditional but a portion of Recognize income (profit or
 may be facilitated by grouping biological assets or
the grant is retained loss) as time passes using
agricultural produce according to significant attributes,
according to the time that has straight-line method
such as age and quality
elapsed
 contract prices
o are not necessarily relevant when measuring fair
Disclosure
value
 General Disclosure
o fair value is not adjusted by the existence of a
o The aggregate gain or loss arising on initial
contract
recognition of biological assets and agricultural
 cash flows for financing the assets or re-establishing
produce and from the change in fair value less costs
biological assets after harvest (e.g. the cost of replanting
to sell of biological assets
after harvest) are not considered when measuring fair value
o Description of each group of biological assets
o Description of the nature of activities involving each
Cost may sometimes approximate fair value, particularly
group of biological assets and physical quantities of
when
assets on hand at the end of the period and output of
a. little biological transformation has taken place since initial
agricultural produce during the period
cost incurrence (e.g. seedlings planted immediately prior to
o Restrictions on titles to biological assets
the end of a reporting period or newly acquired livestock)
 o Commitments for the development or acquisition of
biological assets
o Financial risk management strategies related to
agricultural activity
o Reconciliation of changes in the carrying amount of
biological assets, showing separately changes in fair
value less costs to sell, purchases, sells, harvesting,
business combination, and foreign exchange
differences

 Encourage Disclosure (encouraged but not required /

optional)
o Consumable and bearer biological assets
o Mature and immature biological assets
 Mature Biological Assets – those that have
attained harvestable specifications (for
consumable biological assets) or are able to
sustain regular harvests (for bearer biological
assets)
o Change in fair value less costs to sell during the
period
1. due to price change (same age)
2. due to physical change (different age)

 this information is useful if the production

cycle extends beyond one year; it is less useful
if the production cycle is less than a year (e.g.
REVIEWER:
raising chickens or growing annual crops)
[There are chances where the given answer is incorrect.]

 Disclosures for biological assets measured at cost

1. It provides information on the movement of cash and cash
o Description of the assets
equivalent during a period
o An explanation of why fair value cannot be reliably
a. Statement of Cash Flows
measured
b. Cash Flow
o If possible, a range within which fair value is highly
c. Income Statement
likely to lie
d. Statement of Profit or Loss
o Depreciation method, useful lives or depreciation
rates
2. Comprises of cash on hand and cash in bank
o Reconciliation of gross carrying amount and
a. Loan
accumulated depreciation at the beginning and end of b. Assets
the reporting period, showing information on c. Cash
depreciation, impairment loss, and reversal of d. Liabilities
impairment loss

3. Short-term highly liquid investments that are readily

 Disclosures for government grants convertible to cash which have no significant risk of
o Nature and extent of recognized government grants changes in value
o Unfulfilled conditions a. Profit
o Significant decreases expected in the level of b. Income
government c. Cash
d. Cash Equivalent

4. Inflows and outflows of cash and cash equivalents

a. Cash Flow
b. Statement of Profit or Loss
 c. Statement of Cash Flows 13. PAS 7 encourages the direct method of presenting cash
d. Income Statement flows.
a. True
5. All are classification of cash flow except b. False
a. Investing Activities
b. Sale Activities 14. Cash flows on movements between cash and cash
c. Operating Activities equivalents are presented separately.
d. Financing Activities a. True
b. False
6. Revenue-producing entities
a. Operating Activities 15. Bank overdrafts that cannot be offset to cash are presented
b. Financing Activities as
c. Sale Activities a. Operating Activities
d. Investing Activities b. Investing Activities
c. Financing Activities
7. Only debt instruments acquired within ____ before their d. Excluded
maturity date can qualify as cash equivalents.
a. 3 months or more 16. Depreciation Expense
b. 3 years or less a. Operating Activities
c. 3 years of more b. Investing Activities
d. 3 months or less c. Financing Activities
d. Disclosure
8. Acquisition and disposal of noncurrent assets 17. An increase in Bonds Payable (a long term liability)
a. Financing Activities a. Operating Activities
b. Investing Activities b. Investing Activities
c. Sale Activities c. Financing Activities
d. Operating Activities d. Disclosure

9. Activities that affect the entity’s capital and borrowing 18. The proceeds from the sale of equipment formerly used in
structure business
a. Financing Activities a. Operating Activities
b. Investing Activities b. Investing Activities
c. Operating Activities c. Financing Activities
d. Sale Activities d. Disclosure

10. Shows each major class of gross cash receipts and gross 19. Purchase of treasury stock (company’s own stock)
cash payments a. Operating Activities
a. Inverse b. Investing Activities
b. Indirect Presentation c. Financing Activities
c. Direct Presentation d. Disclosure
d. Reverse
20. The purchase of new delivery truck to be used in the
11. Statement of cash flows can be presented through cash business
basis and accrual basis a. Operating Activities
a. False b. Investing Activities
b. True c. Financing Activities
d. Disclosure
12. Describes the requirements in the presentation of statement
of cash flows 21. Entity A acquires equipment by issuing shares of stocks.
a. PAS 8 How should Entity A report the transaction in the statement
b. PAS 7 of cash flows?
c. PAS 12 a. Operating Activities
d. PAS 1 b. Investing Activities
c. Financing Activities
 d. Not Reported c. payments for the acquisition of investments
d. cash receipts from sale activities
22. Entity A, a financial institution, received cash dividends
from its investments in marketable securities during the 29. Preferred stock issued in exchange for land would be
year. How will the dividends be presented in Entity A’s reported in the statement of cash flows in
statement of cash flows a. the cash flows from financing activities section
a. Operating Activities b. the cash flows from investing activities section
b. Investing Activities c. a separate schedule
c. Financing Activities d. the cash flows from operating activities section
d. A or B
30. Cash paid to purchase long-term investments would be
23. Which of the following statements best describes a reported in the statement of cash flows in
statement of cash flows? a. the cash flows from operating activities section
a. The Statement of Cash Flow is also called the b. the cash flows from financing activities section
Statement of Activities c. the cash flows from investing activities section
b. The Statement of Cash Flow shows information on d. a separate schedule
an entity’s assets, liabilities, and equity
c. The Statement of Cash Flow shows information on 31. A statement of cash flows would not disclose the effects of
an entity’s income and expenses during the period which of the following transactions?
d. The statement of cash flows shows historical a. stocks dividend declared
changes of cash and cash equivalents during the b. bonds payable exchanged for capital stock
period c. purchase of treasury stock
d. capital stock issued to acquired fixed assets
24. Which of the following is presented under the investing
activities? 32. Which of the following does not represent an outflow of
a. Collection of Accounts Receivable cash and therefore would not be reported on the statement
b. Cash purchases of inventories of cash flows as a use of cash?
c. Purchase of equipment through cash a. purchase of noncurrent assets
d. Issuance of share capital through cash b. purchase of treasury stock
c. discarding an asset that had been fully
25. Which of the following is not one of the four basic depreciated
financial statements? d. payment of cash dividends
a. balance sheet
b. statement of cash flows 33. Which of the following represents an inflow of cash and
c. statement of changes in financial position therefore would be reported on the statement of cash
d. income statement flows?
a. appropriation of retained earnings
26. Which of the following concepts of cash is not appropriate b. acquisition of treasury stock
to use in preparing the statement of cash flows? c. declaration of stock dividends
a. Cash d. issuance of long-term debt
b. cash and money market funds
c. cash and cash equivalents 34. A ten-year bond was issued at par for Php 150,000 cash.
d. cash and treasury bonds This transaction should be shown on a statement of cash
flows under
27. The statement of cash flows reports a. investing activities
a. cash flows from operating activities b. financing activities
b. total assets c. noncash investing and financing activities
c. total changes in stockholder’s equity d. operating activities
d. changes in retained earnings
35. Cash paid for preferred stock dividends should be shown
28. On the statement of cash flows, the cash flows from on the statement of cash flows under
operating activities section would include a. investing activities
a. receipts from the issuance of capital stock b. financing activities
b. receipts from the sale of investments c. noncash investing and financing activities
 d. operating activities
43. Cash receipts from interest and dividends are classified as
36. The last item on the statement of cash flows prior to the a. investing activities
schedule of noncash investing and financing activities b. operating activities
reports c. either financing or investing activities
a. the increase or decrease in cash d. financing activities
b. cash at the end of the year
c. net cash flow from investing activities 44. The order of presentation of activities on the statement of
d. net cash flow from financing activities cash flows is
a. operating, investing, and financing
37. Which of the following is a noncash investing and b. operating, financing, and investing
financing activity? c. financing, operating, and investing
a. payment of a cash dividend d. financing, investing, and operating
b. payment of a six-month note payable
c. purchase of merchandise inventory on account 45. Financing activities involve
d. issuance of common stock to acquire land a. lending money
b. acquiring investments
38. Which of the following should be shown on a statement of c. issuing debt
cash flows under the financing activity section? d. acquiring long-lived assets
a. the purchase of a long-term investment in the
common stock of another company 46. Investing activities include
b. the payment of cash to retire a long-term note a. collecting cash on loans made
c. the proceeds from sale of a building b. obtaining cash from creditors
d. the issuance of a long-term note to acquire land c. obtaining capital from owners
d. repaying money previously borrowed
39. A company purchases equipment for Php 29,000 cash. This
transaction should be shown on the statement of cash flows 47. Cash receipts from interest and dividends are classified as
under a. financing activities
a. investing activities b. operating activities
b. financing activities c. investing activities
c. noncash investing and financing activities d. either financing or investing activities
d. operating activities
48. Depreciation on factory equipment would be reported in
40. Cash flow per share is the statement of cash flows prepared by the indirect method
a. required to be reported on the balance sheet in
b. required to be reported on the income statement a. the cash flows from financing activities section
c. required to be reported on the statement of cash flows b. the cash flows from investing activities section
d. not required to be reported on any statement c. a separate schedule
d. the cash flows from operating activities section
41. On the statement of cash flows prepared by the indirect
method, the cash flows from operating activities section 49. Which of the following should be added to net income in
would include calculating net cash flow from operating activities using the
a. receipts from sale of investments indirect method?
b. amortization of premium on bonds payable a. an increase in inventory
c. payments for cash dividends b. a decrease in accounts payable
d. receipts from the issuance of capital stock c. preferred dividends declared and paid
d. a decrease in accounts receivable
42. The statement of cash flows may be used by management
to 50. Which of the following should be deducted from net
a. assess the liquidity of the business income in calculating net cash flow from operating
b. assess the major policy decisions involving activities using the indirect method?
investments and financing a. depreciation expense
c. determine dividend policy b. amortization of premium on bonds payable
d. all of the above c. a loss on the sale of equipment
 d. dividends declared and paid
57. Cash paid for equipment would be reported in the
51. Which of the following below increases cash? statement of cash flows in
a. depreciation expense a. the cash flows from operating activities section
b. acquisition of treasury stock b. the cash flows from financing activities section
c. borrowing money by issuing a six-month note c. the cash flows from investing activities section
d. the declaration of a cash dividend d. a separate schedule
52. Which one of the following below would not be classified
as an operating activity? 58. Which of the following types of transactions would be
a. interest expense reported as a cash flow from investing activities on the
b. income taxes statement of cash flows?
c. payment of dividends a. issuance of bonds payable
d. selling expenses b. issuance of capital stock
c. purchase of treasury stock
53. Which one of the following below should be added to net d. purchase of noncurrent assets
income in calculating net cash flow from operating
activities using the indirect method? 59. On the statement of cash flows, the cash flows from
a. a gain on the sale of land financing activities section would include
b. a decrease in accounts payable a. receipts from the sale of investments
c. an increase in accrued liabilities b. payments for the acquisition of investments
d. dividends paid on common stock c. receipts from a note receivable
d. receipts from the issuance of capital stock
54. On the statement of cash flows prepared by the indirect
method, a Php 50,000 gain on the sale of investments 60. On the statement of cash flows, the cash flows from
would be financing activities section would include all of the
a. deducted from net income in converting the net following except
income reported on the income statement to cash a. receipts from the sale of bonds payable
flows from operating activities b. payments for dividends
b. added to net income in converting the net income c. payments for purchase of treasury stock
reported on the income statement to cash flows from d. payments of interest on bonds payable
operating activities
c. added to dividends declared in converting the 61. Cash dividends paid on capital stock would be reported in
dividends declared to the cash flows from financing the statement of cash flows in
activities related to dividends a. the cash flows from financing activities section
d. deducted from dividends declared in converting the b. the cash flows from investing activities section
dividends declared to the cash flows from financing c. a separate schedule
activities related to dividend d. the cash flows from operating activities section

55. On the statement of cash flows, the cash flows from 62. On the statement of cash flows, a Php 20,000 gain on the
investing activities section would include sale of fixed assets would be
a. receipts from the issuance of capital stock a. added to net income in converting the net income
b. payments for dividends reported on the income statement to cash flows from
c. payments for retirement of bonds payable operating activities
d. receipts from the sale of investments b. deducted from net income in converting the net
income reported on the income statement to cash
56. A building with a book value of Php 45,000 is sold for Php flows from operating activities
50,000 cash. Using the indirect method, this transaction c. added to dividends declared in converting the
should be shown on the statement of cash flows as follows: dividends declared to the cash flows from financing
a. an increase of Php 45,000 from investing activities activities related to dividends
b. an increase of Php 50,000 from investing activities d. deducted from dividends declared in converting the
and a deduction from net income of Php 5,000 dividends declared to the cash flows from financing
c. an increase of Php 50,000 from investing activities activities related to dividends
d. an increase of Php 45,000 from investing activities
and an addition to net income of Php 5,000
63. A business issues 20-year bonds payable in exchange for a. Cash receipts from issuing shares or other equity
preferred stock. This transaction would be reported on the instruments and cash payments to redeem them
statement of cash flows in b. Cash receipts from issuing notes, loans, bonds and
a. a separate schedule mortgage payable and other short-term long-term
b. the cash flows from financing activities section borrowings, and their repayments
c. the cash flows from investing activities section c. Cash receipts from the sale of goods, rendering of
d. the cash flows from operating activities section services or other forms of income
d. Cash payments by a lessee for the reduction of the
64. Which of the following should be deducted from net outstanding liability relating to a lease
income in calculating net cash flow from operating
activities using the indirect method? 72. This method of presenting cash flows from (used in)
a. a decrease in inventory operating activities involves adjusting accrual basis profit
b. a decrease in accounts payable or loss for the effects of changes in operating assets and
c. preferred dividends declared and paid liabilities and effects of non-cash items.
d. a decrease in accounts receivable a. Direct Method
b. Indirect Method
65. Which of the following should be added to net income in c. Inverse Method
calculating net cash flow from operating activities using the d. Reverse Method
indirect method?
a. depreciation expense 73. Entity A declares cash dividends in 20x1 and pays the
b. an increase in inventory dividends in 20x. How should Entity A report the
c. a gain on the sale of equipment dividends paid in the statement of cash flows for
d. dividends declared and paid a. 20x1 – Operating Activities, 20x2 – None
66. Cash flows are presented in the statement of cash flows b. 20x1 – Financing Activities, 20x2 – None
into four activities c. 20x1 – None, 20x2 – Financing Activities
a. True d. 20x1 – None, 20x2 – Operating or Financing
b. False
74. In the statement of cash flows of an on-financial institution,
67. Non-financial institutions have the option of classifying interest expense paid is presented under
interest income received as either investing activity or a. Operating Activities
operating activity b. Investing Activities
a. True c. Financing Activities
b. False d. A or C

68. Cash flows relating to income and expenses are normally 75. Which of the following is presented in the activities section
classified as investing activities in the statement of cash of the statement of cash flows
flows a. Purchase of a treasury bill three months before its
a. True maturity date
b. False b. Exchange differences from translating foreign
currency denominated cash flows
69. Only transactions that have affected cash and cash c. Acquisition of equipment through issuance of note
equivalents are included in the statement of cash flows. payable
Non-cash transactions are excluded and disclosed only. d. Ban overdrafts that can be offset
a. True
b. False 76. Entity A acquires equipment by paying a 10% down
payment and issuing a note payable for the balance. How
70. According to PAS 7, the indirect method of presenting cash should Entity A report the transaction in the statement of
flows relating to operating activities shows each major cash flows?
class of gross cash receipts and gross cash payments a. DP – Investing Activities, NP – None
a. True b. DP – Investing Activities, NP – Financing Activities
b. False c. DP – Financing Activities, NP – None
d. DP – None, NP – None
71. Which of the following cash flows is presented in the
operating activities section of a statement of cash flows?
77. Which of the following is included in the investing
activities section of the statement of cash flows? 84. The best evidence of net realizable value for raw materials
a. Acquisition and sale of investments in held for is ___ cost
trading securities a. Purchase
b. Acquisition and sale of items of property, plant, and b. Conversion
equipment that are routinely manufactured in the c. Replacement
entity’s ordinary course of business and are to be d. Storage
held for rentals and reclassified to inventories when
the assets cease to e rented and become held for sale 85. Reversals of inventory write-downs shall not exceed the
c. Acquisition and sale of short-term investments in amount of the original write-down
cash equivalents a. True
d. Cash inflow from repayment of loan b. False

78. Which of the following is included in the financing 86. Which of the following does not belong to the group?
activities section of the statement of cash flows? a. Abnormal Costs
a. Cash payments for purchases of goods and services b. Conversion Costs
b. Cash receipts and cash payments in the acquisition c. Administrative Costs
and disposal of property, plant, and equipment, d. Selling Costs
investments property, intangible assets, and other
noncurrent assets. 87. Conversion cost includes the import duties, transport,
c. Loans to other parties and collections thereof (other handling, and other costs directly attribute to the
than loans made by a financial institution) acquisition of the inventory
d. Cash receipts from issuing shares or other equity a. True
instruments and cash payments to redeem them b. False

79. It is “the estimated selling price in the ordinary course of 88. It refers to the cost necessary in converting raw materials
business less the estimated costs of completion and the into finished goods, it includes the costs of direct labor and
estimated costs necessary to make the sale” production overhead
a. Present Value a. Selling Cost
b. Fair Value b. Cost of Purchase
c. Net Realizable Value c. Other Costs
d. Face Value d. Conversion Cost

80. Fair value refers to the net amount that an entity expects to 89. It refers to the unnecessary, and unusual business activity
realize from the sale of inventory in the ordinary course of of an entity.
business a. Ordinary Course of Business
a. True b. Extraordinary Course of Business
b. False c. Normal Course of Business
d. None of the above
81. Net realizable value for inventories may equal fair value
less costs to sell 90. Inventories are measured at the ___ and net realizable
a. True value
b. False a. Higher of Cost
b. Lowest of Cost
82. The amount of write-down is recognized as c. Highest of Cost
a. Asset d. Lower of Cost
b. Liability
c. Income 91. PAS 2 recognizes that a primary issue in the accounting for
d. Expense inventories is the determination of cost to be recognized as
asset and carried forward until it is expensed.
83. If the cost of an inventory is $7 while its net realizable a. True
value is $10 the amount of write-down is $3 b. False
a. True
b. False
92. Conversion costs do not include which of the following a. Added to cost
costs? b. Ignored
a. Direct Materials c. Deducted in arriving at NRV
b. Production Overhead d. Deducted from cost
c. Direct Labor
d. All of These 101. Inventories are measured at
a. Lower of Cost and Fair Value
93. Cost formulas deal with the computation of the following b. Lower of Cost and Net Realizable Value
except c. Lower of Cost and Nominal Value
a. Cost of Sakes d. Lower of Cost and Net Selling Price
b. Cost of Ending Inventory
c. Cost of Beginning Inventory 102. When using a perpetual inventory system
d. Cost of Goods Sold a. No purchases account is used
b. A cost of goods sold account is used
94. PAS 2 permits the use of LIFO c. Two entries are required to record a sale
a. True d. All of These
b. False
103. Goods in transit which are shipped FOB Shipping Point
95. Cost formula used for inventories that are not ordinarily should be
interchangeable a. Included in the inventory of the seller
a. Weighted Average b. Included in the inventory of the buyer
b. FIFO c. Included in the inventory of the Shipping Company
c. Specific Identification d. None of These
d. LIFO
104. Inventories of commodity broker-traders are measured at
96. The formula for the weighted average costs is total goods a. Fair Value
available for sale in pesos over total goods available for b. Cost
sale in units c. Net Realizable Value
a. True d. Fair value Less Costs to Sell
b. False
105. Inventories are assets
97. The weighted average may be calculated “as each a. Held for sale in the ordinary course of business
additional purchase is made” also called b. In the process of production for sale
a. Moving Forward Average c. In the form of materials or supplies to be consumed
b. Additional Moving Average in the production process or in the rendering of
c. Moving on Average services
d. Moving Average d. Held for use in the production or supply of goods
or services
98. Cost of inventories that are charged as expense when the
related revenue is recognized 106. In which of the following shall PAS 2 Inventories be
a. Purchase Costs applied?
b. Conversion Costs a. Buildings constructed and to be sold to third parties
c. Selling Costs in the ordinary course of business under specifically
d. Cost of Sales negotiated construction contracts
b. Shares of stocks held for trading
99. Which of the following costs are included in the cost of c. Animals and plants that are managed and to be sold
inventories? in the ordinary course of business
a. Transport costs for raw materials d. Inventory of a service provider consisting only of
b. Abnormal Material Usage direct labor and overhead
c. Storage Costs relating to Finished Goods
d. Administrative and General Overhead 107. PAS 2 Inventories shall not be applied to which of the
following?
100. How should trade discounts be dealt with when valuing a. minor tools and spare parts
inventories at the LCNRV according to PAS 2?
 b. buildings being sold by a “buy and sell” real estate b. When goods are sold on an installment plan, the
entity seller retains title and continues to include them on
c. obsolete inventory his/her balance sheet with full payment has been
d. assets held for use in the production or supply of received.
goods or services c. Title to goods cannot be transferred to the buyer
before shipment occurs.
d. In accounting for inventory, economic substance
108. Inventories are assets (choose the incorrect one) should take precedence over legal form
a. Held for sale in the ordinary course of business.
b. In the process of production for sale 113. Which of the following is incorrect regarding the accounting
c. In the form of materials or supplies to be consumed for consigned goods?
in the production process or in the rendering of a. Consigned goods are properly included in the
services inventory of the consignor and not the consignee
d. Held for use in the production or supply of goods b. Freight incurred by the consignor in delivering the
or services. consigned goods to the consignee forms part of the
cost of inventories
109. Ownership over inventories is normally transferred to the c. The consignee records consigned goods received
buyer from the consigner through journal entries
a. when legal title to the inventories is transferred d. The consignor should not recognize revenue until
b. when the purchase price is fully paid the consigned goods are sold by the consignee to
c. upon shipment of the goods by the seller to the buyer the third parties.
d. upon filling-up the sales order
114. Which of the following may be properly be included in
110. In accounting for inventories, which of the following inventory?
statements is incorrect? a. Goods sold by an entity under a sale with right of
a. In daily transactions, strict adherence to the passing return and future returns can be reliably estimated
of legal title is not practicable b. Good sold by an entity on installment basis and
b. Regardless of location, an entity shall report in its possession over the goods is transferred to the buyer
financial statements all inventories over which it but legal title is retained by the entity to protect
holds legal title to or has gained control of the related collectability of the amount due
economic benefits c. Goods sold by an entity under a sale that qualifies
c. On inventory cut-off, an entity shall include in its as “lay away sale”: and amount due from the
inventory only those goods which are on hand buyer is not yet collected in full
d. Goods that are in transit as of inventory cut-off date
may be included as part of inventory 115. It is a type of sale in which the buyer takes title and accepts
billing but delivery of the goods is delayed at the buyer’s
111. Identify the incorrect statement regarding goods in transit request
a. Depending on the terms of sales contract, a. buy and hold sale
goods in transit may form part of the b. cash and carry
inventories of the buyer or the seller or, in rare c. lay away sale
cases, both the buyer and the seller d. bill and hold
b. Accounting procedures for goods in transit are
normally performed only on inventory cut-off 116. Mr. Eugene Crab’s “buy and sell” business involves a large
c. Goods in transit form part of the inventory of the quantity of low-valued inventory. Because of the fast
entity who holds legal title to the goods turnover of inventory, it is often impracticable to
d. Accounting for goods in transit are normally perform periodic physical count of inventory. In fact, the
performed by trading or manufacturing entities but cost of inventory is often approximated in Crab’s quarterly
not by service oriented entities. reports. Which of the following inventory systems is
most suitable for Crab’s business?
112. Which statement is true? a. perpetual system
a. Until goods are sold by the consignee, the consignor b. plankton system
includes the goods in his/her inventory at cost, less c. periodic system
handling and shipping costs incurred in the delivery d. a or b
and consignee
117. SpongeBob Square pants Co. utilizes an automated 123. Which of the following is a biological asset that is
accounting system in which SpongeBob inputs the serial accounted for under PAS 41?
number of each item of inventory in the system. This enables a. Plants used for beautification
SpongeBob to track the movement of each inventory. Which b. Bearer Plant
inventory system is most likely to be used by SpongeBob? c. Dead Animals Used for Display
a. perpetual system d. Dairy Cattle Used to Produce Milk
b. spatula system
c. periodic system 124. According to PAS 41, a biological asset or agricultural
d. a or b produce is recognized when all of the following criteria are
e. patty system met except
a. The entity controls the asset as a result of past events
118. A binding agreement for the exchange of a specified b. It is probable that future economic benefits associated
quantity of resources at a specified price on a specified with the asset will flow to the entity
future date or dates c. The fair value or cost of the asset can be measured
a. purchase order reliably
b. purchase contract d. The asset represents a present obligation as at the
c. firm commitment end of the reporting period
d. purchase committed
125. Agricultural produce is measured at fair value less costs to
119. How should trade discounts be dealt with when valuing sell at the point of harvest
inventories at the lower of cost and net realizable value a. Except when fair value cannot be measured reliably,
(NRV) according to PAS 2 Inventories? in which case the initial measurement is at cost
a. added to cost b. Except when costs to sell cannot be measured
b. deducted in arriving at NRV reliably, in which case, the initial measurement is at
c. ignored fair value
d. deducted from cost c. A and B
d. Without exception
120. Are the following statements true or false, according to
PAS 2 Inventories? 126. Which of the following is outside the scope of PAS 41?
I. Cost of factory management should be included in the a. Dairy cattle used in the production of milk
cost of inventory. b. Chickens used in the production of meat
II. Maintenance expenses for an item of equipment c. Rice plants and other crops that produce agricultural
used in the manufacturing process should be products only once
included in the cost of inventory. d. Mango trees and other plants that produce
agricultural products repeatedly over a long
a. False, false period of time
b. False, true
c. True, false 127. Which of the following is considered a biological asset?
d. True, true a. Carcass
b. Ham
121. Which of the following is an agricultural activity? c. Pig
a. Poaching d. Piggy Bank
b. Hunting in the Forest
c. Deforestation 128. Which of the following is considered an agricultural
d. Fish Farming produce?
a. Fruit Cocktail
122. Which of the following is a biological asset that is b. Fruit Tree
accounted for under Pas 41? c. Picked or Harvested Fruit
a. Mango Tree d. Dried Fruit
b. Harvested Mango Fruit
c. Rice Plant 129. According to PAS 41, biological assets are measured as
d. Extra Rice follow
a. Initial – Fair Value Less Costs to Sell; Subsequent
– Fair Value Less Costs to Sell
 b. Initial – Cost; Subsequent – Cost Less Accumulated
Depreciation 135. Bearer biological assets include
c. Initial – Cost; Subsequent – Cost Less Accumulated a. Livestock intended for the production of meat
Depreciation and Impairment Losses b. Livestock from which milk is produced
d. Initial – Fair Value Less Costs to Sell; Subsequent – c. Livestock held for sale
Cost d. Crops such as maize and wheat

130. Which of the following statements is correct regarding the 136. Consumable biological assets include
measurement of assets related to agricultural activities? a. Fruit trees
a. Biological assets are initially and subsequently b. Trees from which firewood is harvested while the
measured at fair value trees remain
b. No gain or loss can arise on the initial recognition of c. Grape Vines
a biological asset d. Trees being grown for lumber
c. Agricultural produce is initially and subsequently
measured at fair value less costs to sell 137. An entity owns a number of herd of cattle. Where should
d. The gain or loss arising from the initial changes in fair value of a heard cattle be recognized in the
measurement of a biological asset or agricultural financial statements?
produce is recognized in profit or loss a. In other comprehensive income
b. In profit or loss only
131. Which statement is incorrect regarding gains and losses on c. In profit or loss or other comprehensive income
biological assets? d. In the statement of cash flows only
a. A loss may not arise on initial recognition of a
biological asset 138. An entity is required to to provide a quantified description
b. a gain or loss on biological asset measured at fair of each group of biological assets, distinguishing between
value less cost to sell shall be included in profit or consumable and bearer biological assets or between mature
loss for the period and immature biological assets, as appropriate
c. gain may arise on initial recognition of a biological a. True
asset b. False
d. none of these
139. Cost may sometimes approximated fair value, particularly
132. Inventories comprising agricultural produce that an entity when
has harvested from its biological assets are measured on I. Little biological transformation has taken place since
initial recognition at initial cost incurrence
a. Lower of cost and net realizable value II. The impact of the biological transformation on price is
b. Cost expected to be material
c. Fair value less costs to sell at the point of harvest
d. Fair value less cost to sell a. Both I and II
b. I only
133. Which statement is incorrect regarding bearer plants? c. II only
a. Tea bushes, grape vines, oil palms, and rubber trees d. Either I or II
usually meet the definition of a bearer plant
b. The produce growing on bearer plant, for example tea 140. An unconditional government grant related to a biological
leaves, grapes, oil palm fruit, and latex is within the asset that has been measured at fair value less costs to sell
scope of PAS 41 should be recognized as
c. Incidental scrap sales would prevent the plant a. A deferred credit when the grant becomes receivable
from satisfying the definition of a bearer plant b. Income when grant becomes receivable
d. None of these c. A deferred credit when the grant have been approved
d. Income when the grant application has been
134. Which of the following is not considered a biological submitted
asset?
a. Strawberry plants 141. Which of the following would be classified as agricultural
b. Trees in a plantation forest produce?
c. Hogs and poultry a. Apple
d. Land related to agricultural produce b. Butter
 c. Lumber 149. Where there is production cycle of more than one year for a
d. Bush biological asset, PAS 41 encourages separate disclosure of
a. Physical Change only
142. Where the fair value of the biological asset cannot be b. Price Change only
determined reliably, the biological asset should be c. Total Change in Value
measured at d. Physical Change and Price Change
a. Cost
b. Cost less accumulated depreciation 150. Biological transformation result from asset changes
c. Net realizable value through all of the except
d. Cost less accumulated depreciation and a. Production of Agricultural Produce
accumulated impairment loss b. Growth
c. Procreation
143. PAS 41 Agriculture applies to d. Degeneration
a. Biological assets, except for bearer plants
b. Agricultural produce at the point of harvest 151. Which of the following is not dealt by PAS 41?
c. Government grant related to a biological asset a. The accounting for biological assets
d. Agricultural produce at the point of harvest and b. The accounting treatment of government grant
after harvest received in respect of biological assets
c. The processing of agricultural produce after
144. Any changes in fair value less costs to sell should be harvesting
included in profit or loss for the period in which it arises d. The initial measurement of agricultural produce
a. True harvested from the entity’s biological assets
b. False
152. Which statement is incorrect regarding cost formula?
145. Initially measured at fair value less costs to sell but later on a. The FIFO formula assumes that the items of
the entity change to cost less accumulated depreciation less inventory that were purchased or produced last
accumulated impairment losses are sold first, and consequently the items
a. Can remaining inventory at the end of the period are
b. Cannot those earlier purchased or produced
b. The average cost formula may be calculated on a
146. When biological assets are physically attached to the land periodic basis, or as each additional shipment is
and active market only exist for the combined assets received, depending upon the circumstances of the
a. Use the fair value of the combined assets less fair entity
value of the land and land improvements c. Under the weighted average cost formula, the cost of
b. Use cost less accumulated depreciation less each item is determined from weighted average of the
accumulated impairment losses cost of similar items at the beginning of each period
and the cost of similar items purchased or produced
147. A bearer plant is a living plant that, except during the period
a. Is used in the production or supply of agricultural d. Specific identification of cost means that specific
produce costs are attributable to identified inventory
b. Is expected to bear produce for more than one period
c. Has a remote likelihood of being sold as agricultural 153. When using the moving average method of inventory
produce, except for incidental scrap sales valuation, a new unit cost must be computed after each
d. Has more than a remote likelihood of being sold a. Purchase and issuance from inventory
as agricultural produce, other than as incidental b. Purchase
scrap sales c. Month-end
d. Issuance from inventory
148. All of the following would be classified as biological
assets, except? 154. A company acquired a building, paying a portion of the
a. Trees purchase price in cash and issuing a mortgage note payable
b. Chickens to the seller for the balance. In a statement of cash flows,
c. Eggs what amount is included in investing activities for the
d. Dairy Cattle above transaction?
a. Zero
 b. Cash payment b. Borrowing activities
c. Mortgage amount c. Investing activities
d. Acquisition price d. Financing activities

155. A company acquired a building, paying a portion of the 161. An entity shall report separately cash flows arising from
purchase price in cash and issuing a mortgage note payable investing and financing activities using
to the seller for the balance. In a statement of cash flows, a. Direct method
what amount is included in financing activities for the b. Indirect method
above transaction? c. Either direct or indirect
a. Zero d. Neither direct or indirect
b. Cash payment
c. Mortgage amount 162. Which of the following cash flows does not appear in the
d. Acquisition price statement of cash flows using the indirect method?
a. Cash outflow for dividend payment
156. When using the indirect method to prepare the operating b. Net cash flow from operating activities
section of a statement of cash flows, which of the following c. Cash received from customers
is added to the net income to compute cash provided d. Cash inflow from sale of equipment
by/used by operating activities
a. Increase in accounts receivable 163. In a statement of cash flows, which of the following should
b. All of the above are added to net income to arrive at be reported as a cash flow from financing method?
cash flow from operating activities I. Payment to settle mortgage notes
c. Gain on sale of land II. Interest payments on mortgage notes
d. Amortization of patent III. Dividend payments to owners

157. Of the following questions, which one would not be a. I, II, and III
answered by the statement of cash flows? b. II and III only
a. Were all the cash expenditure of benefit to the c. I and III only
company during the period? d. I only
b. What was the cash used for during the period?
c. What was the change in the cash balance during the 164. In which of the following shall PAS 2 Inventories be
period? applied?
d. Where did the cash come from during the period? a. Shares if stocks held for trading
b. Inventory of a service provider consisting only of
158. The primary purpose of the statement of cash flows is to direct labor and overhead
provide information c. Machinery acquired by a manufacturing entity for use
a. About the operating, investing, and financing in the production process
activities of an entity during a period d. Animals and plants that are managed and to be sold
b. About the entity’s ability to meet its obligations, its in the ordinary course of business
ability to pay dividends, and its need for external
financing 165. Which of the following are considered in determining the
c. About the cash receipts and cash payments of an cost of an item of inventory?
entity during a period I. Material wasted due to a machinery breakdown
d. That is useful in assessing cash flow prospects II. Import duties on shipping of inventory inwards
III. Storage costs of finished goods
159. In a statement of cash flows, interest payments to lenders IV. Trade discounts received on purchase of inventory
and other creditors shall be classified as
a. Financing activities a. I and II only
b. Operating activities b. II and IV only
c. Lending activities c. III and IV only
d. Investing activities d. I, II, III, and IV only

160. In a statement of cash flows, interest received and dividend 166. Who owns the goods in transit under FOB destination?
received may be classified alternatively as cash flow from a. None
a. Operating activities b. Buyer
 c. Either the seller or buyer a. True
d. Seller b. False

167. Smurf Village Co.’s inventories consist of items that are 173. According to Pas 2, net realizable value and fair value less
not ordinarily interchangeable. According to PAS 2, which costs to sell are the same
of the following cost formulas shall the entity use? a. True
a. LIFO b. False
b. FIFO
c. Weighted Average 174. Storage costs of part-finished goods may be included in the
d. Specific Identification cost of inventory, but not storage cost of finished goods.
a. True
168. Write-downs of inventories to their net realizable value are b. False
recognized
a. In other comprehensive income 175. Trade discounts are added to the cost of inventories
b. Directly in equity a. True
c. In profit or loss b. False
d. Any of these
176. Import duties, freight-in, and non-refundable purchase
169. Which statement is correct concerning the valuation of taxes form part of the cost of inventories.
theory at lower of cost or NRV? a. True
I. Inventories are usually written down to net realizable b. False
value on an item by item basis
II. It is appropriate to write down inventories based on a 177. Raw materials inventory is not written down below cost if
classification of inventory, for example, finished the finished goods to which they will be incorporated are
goods or all inventories in a particular industry or expected to be sold at above cost.
geographical segment a. True
b. False
a. Neither I nor II
b. I only 178. Reversals of inventory write-downs may exceed the
c. II only amount of the original write-down previously recognized.
d. Both I and II a. True
b. False
170. Commodities of broker traders are measured at
a. Net realizable Value 179. The cost of factory management is included in the cost of
b. Cost inventories
c. Fair value less cost to sell a. True
d. Fair value b. False

171. Which of the following statements related to LCNRCY is 180. The maintenance costs of a machine used in the
correct? manufacturing process are not included in the cost of
I. Reversal if inventory write-downs may exceed the inventories.
amount of the original write-down previously a. True
recognized b. False
II. Raw materials inventory is not written down below
cost if the finished goods to which they will be 181. If the cost of an inventory is 8 while its net realizable value
incorporated are expected to be sold at above cost is 6, the amount of write-down is 2.
a. True
a. Neither I nor II b. False
b. I only
c. II only 182. In which of the following instances is a write-down of
d. Both I and II inventories to net realizable value may not be required?
a. The inventories are damaged
172. According to Pas 2, inventories are measured at net b. The inventories have become wholly or partially
realizable value. obsolete
 c. The estimated costs to complete or costs to sell have
increased
d. Selling prices are rising because demand has
increased

183. Entity A is a distributor of oil. Entity A’s inventories are

ordinarily interchangeable. Entity A maintains a specific
level of inventory such that the latest purchases are the
ones dispatched first to the sales outlets. Consequently, the
latest purchases are sold first. Which of the following cost
formulas shall be used by Entity A?
a. LIFO
b. FIFO
c. Weighted Average
d. B or C

184. Which of the following statements is incorrect regarding

the use of cost formulas?
a. PAS 2 requires the use of specific identification of
costs for inventories that are not ordinarily
interchangeable
b. Entities may choose between the FIFO and the
Weighted Average cost formulas for inventories that
are ordinarily interchangeable.
c. Different cost formulas may be used for each class of
inventory with dissimilar nature and use
d. Only one formula shall be used for all inventories
regardless of difference in their nature and use.