GOVERNMENT ACCOUNTING CHAPTER 12 TO 14
INVENTORIES
Part I. Answer the following from the book:
Chapter 12. Problems, pages 313 to 319
Chapter 13. Problems, pages 329 to 336
Chapter 14. Problems, pages 366 to 375
Part II. Additional MCQs
1. A financial liability may arise from which of the following obligating events?
a. Legal obligation
b. Constructive obligation
c. a or b
d. neither a nor b
2. Legal obligation may arise from which of the following?
a. Law
b. Contract
c. Quasi-contract
d. Quasi-delict
e. All of these
3. A legal obligation to restructure exists if, at the reporting date,
a. the entity has entered into a binding agreement to sell or transfer an operation.
b. the entity has a detailed formal plan for a restructuring.
c. the plan to restructure is announced to those affected by it.
d. b and c
4. On January 1, 20x1, the BTr issues a 5-year, 6%, ₱2,000,000 bonds for ₱1,900,000. Transaction costs
on the issuance (bond issue costs) amount to ₱59,708. Interest payments are due every December 31
but the principal is due only at maturity date. The bonds are subsequently measured at amortized cost.
How much is the total interest expense over the term of the bonds?
a. 659,708
b. 759,708
c. 789,709
d. Are you kidding me? There is no way anybody can answer this problem!
5. Entity A issues 5-year bonds at a premium. At the beginning of the 3rd year, Entity A retires the bonds
equal to face amount. Which of the following statements is correct?
a. Entity A recognizes a gain on the retirement.
b. Entity A recognizes a loss on the retirement.
c. Entity A recognizes neither a gain nor a loss on the retirement.
d. Answer cannot be determined due to insufficient data.
6. If plotted on a graph, the periodic interest expenses recognized on bonds issued at a discount will show
a: (X axis – time; Y axis - ₱)
a. straight line
b. downward line sloping to the right
c. upward line sloping to the right
d. curvilinear line sloping here and there
7. A provision may be recognized on all of the following except
a. future operating net deficit
b. onerous contract
c. restructuring
d. a provision may be recognized on all of these items
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GOVERNMENT ACCOUNTING CHAPTER 12 TO 14
8. It is a program that is planned and controlled by management, and materially changes either the scope
of an entity’s activities or the manner in which those activities are carried out.
a. Operating segment
b. Discontinued operations
c. Restructuring
d. Responsibility center
9. Transaction costs incurred in issuing financial liabilities are
a. expensed outright
b. capitalized as assets and amortized using the effective interest method
c. deducted from the carrying amount of the financial liability
d. added to the carrying amount of the financial liability
10. Interest expense on financial liabilities are recognized using the
a. amortized cost
b. effective interest method
c. straight line method
d. any of these
11. Which of the following will lead to finance lease classification?
a. Transfer of ownership
b. Bargain purchase option
c. Lease term is at least 75% of the leased asset’s useful life
d. Present value of minimum lease payments is at least 90% of the fair value of the leased asset
e. any of these
12. A lessee under a finance lease recognizes the leased asset and the corresponding finance lease
liability at the
a. Fair value of leased property
b. Present value of minimum lease payments
c. lower of a and b
d. higher of a and b
13. Minimum lease payments (MLP) exclude which of the following?
a. Rentals
b. Bargain purchase option
c. Executory costs and contingent rents
d. Guaranteed residual value
14. The discount rate used in accounting for finance leases is the (assume all of the following are
determinable)
a. interest rate implicit in the lease
b. lessee’s incremental borrowing rate of interest
c. lease contract stated interest rate
d. interest rate on government bonds
15. Initial direct costs incurred on leases are
a. expensed immediately.
b. capitalized.
c. generally expensed immediately except those incurred by lessors under sales type leases which are
capitalized.
d. generally capitalized except those incurred by lessors under sales type leases which are expensed
immediately.
16. When the lease qualifies as a finance lease under the “major part of the economic life” criterion, the
leased asset is depreciated
a. over its useful life
b. over the lease term
c. over the shorter of a and b
d. not depreciated
17. A lessor’s gross investment in a finance lease is computed as
a. minimum lease payments plus unguaranteed residual value
b. present value of (a)
c. difference between (a) and (b)
d. sum of (a) and (b)
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18. A lessor’s net investment in a finance lease is computed as
a. minimum lease payments plus unguaranteed residual value
b. present value of (a)
c. difference between (a) and (b)
d. sum of (a) and (b)
19. A lessor’s unearned interest income in a finance lease is computed as
a. minimum lease payments plus unguaranteed residual value
b. present value of (a)
c. difference between (a) and (b)
d. sum of (a) and (b)
20. An office equipment representative has a machine for sale or lease. If you buy the machine, the cost
is ₱7,596. If you lease the machine, you will have to sign a non-cancelable lease and make 5
payments of ₱2,000 each. At the time of the last payment you will receive title to the machine. The
first payment will be made on the first day of the lease. The interest rate implicit in this lease is
approximately
a. 10%
b. 12%
c. Between 10% and 12%
d. 16%
21. The GAM for NGAs requires all of the following information to be displayed prominently and repeatedly
on the face of the financial statements, except
a. Name of the related Registries used
b. The reporting currency
c. The level of rounding-off of amounts
d. Name of fund cluster
22. Which of the following does not lead to the classification of a liability as current?
a. Expected to be settled in the entity’s normal operating cycle.
b. Held primarily for trading.
c. Due to be settled within 12 months after the reporting date.
d. It is cash or a cash equivalent, unless it is restricted from being exchanged or used to settle a liability
for at least 12 months after the reporting date.
23. A government entity presents payments for purchases of items of PPE in the statement of cash flows
a. under financing activities.
b. net of withholding taxes.
c. gross of withholding taxes.
d. as footnote disclosure only.
24. When an entity presents expenses in the statement of financial performance by function, it shall provide
additional disclosures in the notes that include all of the following except
a. capital outlays
b. depreciation expense
c. amortization expense
d. employee benefits expense
25. According to the GAM for NGAs, government entities shall present expenses in the statement of financial
performance according to the
a. function of those expenses
b. nature of those expenses
c. a or b, as a matter of accounting policy choice
d. neither a nor b
26. The presentation requirements for statement of cash flows of government entities differ from the
requirements of a business entity in which of the following respects?
a. The classification of cash flows according to operating, investing and financing activities.
b. The presentation of cash flows from (used in) investing and financing activities at gross amounts of
receipts and disbursements, unless the conditions for presenting at net amounts are met.
c. The presentation of statement of cash flows in comparative form, with cross-referencing to the notes
whenever deemed relevant to the understanding by users of financial statements.
d. The presentation of cash flows from (used in) operating activities using the direct method only; the
choice of using the indirect method is not available.
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GOVERNMENT ACCOUNTING CHAPTER 12 TO 14
27. A government entity recognizes the effect of this item in surplus or deficit rather than directly in equity.
a. Receipt of Notice of Cash Allocation
b. Correction of a prior period fraudulent transaction that is discovered in the current year
c. Change in accounting policy
d. The increase in the fair value of an investment that is classified as available-for-sale financial asset
28. Which of the following information is not reported in the statement of changes in net assets/equity?
a. Surplus or deficit for the period
b. Items of revenue and expense that are recognized directly in equity
c. Effects of changes in accounting estimates.
d. The balance of accumulated surpluses or deficits at the beginning of the period and at the reporting
date, and the changes during the period.
29. Changes in accounting policies are accounted for
a. using the transitional provision, if any.
b. by retrospective application.
c. by prospective application
d. any of these
30. These differences between the ‘actual amounts on comparable basis’, presented in the statement of
comparison of budget and actual amounts, and amounts presented in the other components of financial
statements occur when the approved budget is prepared on a basis other than the accounting basis.
a. Basis Differences
b. Permanent Differences
c. Timing Differences
d. Entity Differences
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