Investments (Part 1)

Multiple choice – Computational

Financial assets
1. The following are taken from the records of ABC Co. as of year-end.
Investment in 44,000
Cash and cash equivalents 10,400 subsidiary
Accounts receivable 12,000 Shares of stocks of 44,800
ABC Co.
Allowance for bad debts (1,600) Investment in bonds 9,600
Note receivable 4,000 Land 112,000
Interest receivable 1,600 Building 208,000
Accumulated
Claim for tax refund 9,600 depreciation (52,000)
Advances to suppliers 4,800 Investment property 40,000
Inventory 60,000 Biological assets 24,000
Prepaid expenses 4,000 Intangible assets 56,000
Prepaid interest* 800 Deferred tax assets 48,000
Investment in equity Cash surrender value 9,600
instruments 10,400
Investment in associate 16,000 Sinking fund 16,000
*Assume this account is not a valuation account to a financial liability.

How much is the total of the financial assets disclosed in the notes?
a. 142,400 b. 132,000 c. 132,800 d. 92,800

Financial liabilities
2. The following are taken from the records of ABC Co. as of year-end.
Accounts payable 1,600 SSS contributions payable 4,800
Utilities payable 5,600 Cash dividends payable 3,200
 Accrued interest expense 4,800 Property dividends
payable 5,600
Advances from customers 800 Stock dividends payable 2,400
Unearned rent 7,200 Finance lease liability 28,000
Warranty obligations 4,000 Bonds payable 96,000
Unearned interest on Discount on bonds
receivables 2,400 payable (12,000)
Income taxes payable 1,600 Security deposit 1,600

How much is the total of the financial liabilities disclosed in the notes?
a. 128,800 b. 132,800 c. 100,800 d. 136,000

Principal market vs. Most advantageous market

Use the following information for the next two questions:
ABC Co. has an asset that is required by the standards to be measured at fair value. The asset is sold in
two different active markets. ABC Co. has access to both of these markets. Information on these markets
is shown below:

  Active market #1 Active market #2

Market price 150 145

Transaction costs 18 12
Transport costs 10 8

Case #1: Principal market

3. If “Active market #1” is the principal market for the asset, how much is the fair value of the asset?
a. 150 b. 132 c. 140 d. 122

Case #2: Most advantageous market

4. If neither market is the principal market for the asset, how much is the fair value of the asset?
a. 122 b. 125 c. 145 d. 137

Financial assets designated at FV/PL

Use the following information for the next three questions:
On January 1, 20x1, ABC Co. purchased 1,000 shares of XYZ, Inc. for ₱250,000. Commission paid to
broker amounted to ₱10,000. The equity securities were designated by management to be measured at fair
value through profit or loss. On December 31, 20x1, the shares are quoted at ₱200 per share. It was
estimated that transaction cost of ₱20 per share will be incurred if the shares were sold on that date.

5. How much is the unrealized gain (loss) on change in fair value recognized in the 20x1 profit or loss?
a. (70,000) b. (50,000) c. (40,000) d. 60,000

6. On January 3, 20x2, all of the shares were sold at ₱300 per share. Commission paid for the sale
amounted to ₱60,000. How much is the realized gain (loss) from the sale?
a. 60,000 b. (10,000) c. 40,000 d. (40,000)

7. If ABC Co. uses an allowance account to account for changes in fair values, how much is the balance
of this account on December 31, 20x1?
a. 70,000 debit c. 40,000 credit
b. 50,000 debit d. 50,000 credit
Ò

Held for trading securities – equity securities

8. On January 1, 20x1, ABC Co. purchased 1,000 shares of XYZ, Inc. for ₱15,000. Taxes and licenses
incurred amounted to ₱15,000. The equity securities were classified as held for trading. On December
31, 20x1, the shares are quoted at ₱12 per share. On January 3, 20x2, half of investment was sold at
₱15 per share. Transaction costs incurred on the sale amounted to ₱1,000. How much is the realized
gain (loss) on the sale?
a. 500 b. (500) c. 2,000 d. (2,000)

Held for trading securities – portfolio

Use the following information for the next three questions:
On January 1, 20x1, ABC Co. purchased the following marketable securities to be held for trading.
Transaction costs incurred on the purchase amounted to ₱2,000.

Fair value – Fair value –

Cost
  12/31/x1 12/31/x2

Apple Co. preference shares 30,000 40,000 25,000

Boy Co. ordinary shares 20,000 12,000 10,000
Cat Co. bonds 12,000 25,000 30,000

Totals 62,000 77,000 65,000

On February 2, 20x3, half of the Apple Co. preference shares were sold for ₱14,000, net of transaction
costs.
9. How much is the unrealized gain (loss) recognized in ABC’s 20x1 profit or loss?
a. 15,000 b. (15,000) c. 13,000 d. 0

10. How much is the unrealized gain (loss) recognized in ABC’s 20x2 profit or loss?
a. b. 12,000 c. (12,000) d. 0

11. How much is the realized gain (loss) recognized in ABC’s 20x3 profit or loss?
a. (11,000) b. 1,500c. 11,000 d. 0

Held for trading securities – debt securities

12. On January 1, 20x1, ABC Co. purchased ₱1,000,000 bonds at 98. The bonds mature on January 1,
20x5 and pay 12% annual interest beginning January 1, 20x2. Commission paid on the acquisition
amounted to ₱10,000. The objective of the ABC Co.’s business model is to sell such bonds in the
near term to take advantage of fluctuations in fair values for short-term profit taking. Accordingly, the
bonds were classified as held for trading securities. On December 31, 20x1, the bonds are quoted at
102. How much is the unrealized gain (loss) on change in fair value recognized in ABC’s 20x1 profit
or loss?
a. 40,000 b. 30,000 c. 12,667 d. 0

Held for trading securities – debt securities

13. On January 1, 20x1, ABC Co. purchased ₱1,000,000 bonds at a price which reflects a yield rate of
14%. The bonds mature on January 1, 20x4 and pay 12% annual interest beginning January 1, 20x2.
Transaction costs incurred on the acquisition amounted to ₱12,000. The bonds are classified as held
for trading securities. On December 31, 20x1, the bonds are selling at a yield rate of 10%. How much
is the unrealized gain (loss) on change in fair value recognized in ABC’s 20x1 profit or loss?
a. 78,336 b. 85,343 c. 83,561 d. 81,143

Investment in equity securities measured at FVOCI

Use the following information for the next three questions:
On January 1, 20x1, ABC Co. purchased 10,000 shares of XYZ, Inc. for ₱1,000,000. Commission paid to
broker amounted to ₱15,000. Management made an irrevocable choice to subsequently measure the
shares at fair value through other comprehensive income. On December 31, 20x1, the shares are quoted at
₱90 per share. On January 3, 20x2, all of the shares were sold at ₱105 per share. Commission paid for the
sale amounted to ₱16,000.

14. How much is the unrealized gain (loss) recognized in ABC’s 20x1 profit or loss?
a. 115,000 b. (115,000) c. (85,000) d. 0

15. How much is the unrealized gain (loss) recognized in ABC’s 20x1 other comprehensive income?
a. 115,000 b. (115,000) c. (85,000) d. 0

16. How much is the realized gain (loss) recognized in ABC’s 20x3 profit or loss?
a. 19,000 b. 134,000 c. (19,000) d. 49,000
Investment measured at FVOCI - portfolio
Use the following information for the next four questions:
ABC Co. purchased the following equity securities on January 1, 20x1. Transaction costs incurred on the
acquisition amounted to ₱3,000.

Fair value – Fair value –

Cost
  12/31/x1 12/31/x2

Apple Co. preference shares 30,000 40,000 25,000

Boy Co. ordinary shares 20,000 12,000 10,000
Cat Co. bonds 12,000 25,000 32,000

Totals 62,000 77,000 67,000

On February 2, 20x3, half of the Apple Co. preference shares were sold for ₱14,000 net of transaction
costs.

17. How much is the unrealized gain (loss) recognized in ABC’s 20x1 other comprehensive income?
a. 15,000 b. 12,000 c. 18,000 d. 0

18. How much is the unrealized gain (loss) recognized in ABC’s 20x2 other comprehensive income?
a. (10,000) b. 10,000 c. 5,000 d. 0

19. How much is the balance of accumulated fair value changes presented in ABC’s December 31, 20x2
equity?
a. (2,000) b. 5,000 c. 2,000 d. 0

20. How much accumulated unrealized gain (loss) is transferred directly in equity as a result of the sale in
20x3?
a. (3,226) b. (2,466) c. 4,322 d. 0

Theory of Accounts
Financial instruments
1. It is any contract that gives rise to a financial asset of one entity and a financial liability or
equity instrument of another entity.
a. Debt instrument c. Financial instrument
b. Equity instrument d. a and b

2. Financial assets include

I. Cash
II. An entity’s own equity instrument
III. A contractual right or obligation to receive or pay cash or another financial asset to or
from another entity
IV. A contractual right to exchange financial assets or financial liabilities with another entity
under conditions that are potentially unfavorable to the entity
a. I b. I, II c. I, II, III d. I, II, III, IV

3. Financial Liability is any liability that is

I. A contractual obligation to deliver cash or another financial asset to another entity
II. A contractual obligation to exchange financial assets or financial liabilities with another
entity under conditions that are potentially unfavorable to the entity
III. A contract that will or may be settled in the entity’s own equity instruments and is a non-
derivative for which the entity is or may be obliged to deliver a variable number of the
entity’s own equity instruments
IV. A derivative that will or may be settled other than by the exchange of a fixed amount of
cash or another financial asset for a fixed number of the entity’s own equity instruments.
a. I or II b. I, II, III, or IV c. I, II, and III d. I and II

4. Regarding PFRS 9, which of the following is incorrect?

a. Only equity instruments of other entities can qualify as financial assets. The entity’s own
equity instruments are not financial assets
b. The term financial instrument refers to both financial assets and financial liabilities.
c. Equity instruments refer only to those instruments issued by a corporation. Other types of
organizations cannot issue equity instruments.
d. The term financial instruments include a vast array of instruments, including petty cash
fund.

5. It is any contract that represents a right upon the holder to receive cash from the issuer
thereof or an obligation upon the issuer to pay cash to the holder thereof.
a. financial asset c. debt instrument
b. equity instrument d. musical instrument

6. Under PAS 32, it refers to an instrument originated by an entity which represents a residual
interest in the entity’s net assets.
a. financial instruments c. debt instrument
b. equity instruments d. own equity instrument

7. All of the following are equity securities, except

a. share options given as compensation to employees
b. members’ shares in a cooperative
c. preference shares with mandatory redemption
d. a receivable collectible only on a pro-rata basis upon liquidation of the issuer

8. Which of the following most likely qualify for disclosure as financial asset in the notes?
a. undeposited collections c. treasury shares
b. inventory d. stock rights issued
9. X Co. has the following items.
I. Inventories
II. Shares of stocks issued by X Co.
III. Patent purchased from Y Co.
IV. Bonds payable
V. Accounts receivable

Which of these items is(are) considered financial asset(s)?

a. II b. II, IV, V c. II, IV d. V

10. Are there any circumstances when a contract that is not a financial instrument would be
accounted for as a financial instrument under PAS 32 and PFRS 9?
a. No. Only financial instruments are accounted for as financial instruments.
b. Yes. Gold, silver, and other precious metals that are readily convertible to cash are
accounted for as financial instruments.
c. Yes. A contract for the future purchase or delivery of a commodity or other nonfinancial
item (e.g., gold, electricity, or gas) generally is accounted for as a financial instrument if
the contract can be settled net.
d. Yes. An entity may designate any nonfinancial asset that can be readily convertible to
cash as a financial instrument.

11. Which of the following assets is not a financial asset?

a. Cash.
b. An equity instrument of another entity.
c. A contract that may or will be settled in the entity’s own equity instrument and is not
classified as an equity instrument of the entity.
d. Prepaid expenses.

12. The scope of PFRS 9 includes all of the following items except:
a. Financial instruments that meet the definition of a financial asset.
b. Financial instruments that meet the definition of a financial liability.
c. Financial instruments issued by the entity that meet the definition of an equity instrument.
d. Contracts to buy or sell nonfinancial items that can be settled net.

13. Which of the following is not disclosed as a financial asset?

a. cash c. sinking fund
b. equity instruments on another entity d. prepaid income tax

14. Which of the following types of instrument is best described as a contract that evidences a
residual interest in the assets of an entity after deducting the liabilities?
a. Financial liability b. Guarantee c. Equity d. Financial asset

15. Which of the following are classified as financial instruments in accordance with PAS32
Financial Instruments: Presentation?
a. Patents d. Trade payables
 b. Trade receivables e. b and d
c. Inventories

16. Marketable securities are those investments which are:

a. for controlling another firm c. readily marketable
b. for plant expansion d. for food customer

17. Assets not directly identified with the operating activities of a business enterprise
a. inventories b. receivables c. equipment d. investments

18. Under PFRS 9, the subcategories of Financial Assets at Fair value Through Profit or Loss
(FVPL) include
I. Designated
II. Held for trading
III. Held for speculation
a. I and II b. I and III c. II and III d. I, II, and III

19. How many of the following are financial instruments?

I. Cash
II. Demand and time deposits
III. Commercial paper
IV. Accounts, notes, and loans receivable
V. Accounts, notes, and loans payable
VI. Debt and equity securities.
VII. Asset backed securities such as collateralized mortgage obligations, repurchase
agreements, and securitized packages of receivables
VIII. Derivatives, including options, rights, warrants, futures contracts, forward contracts, and
swaps.
a. Seven b. Ten c. Six d. All of them

20. It is any contract that evidences a residual interest in the assets of an entity after deducting all
of its liabilities.
a. stocks instrument c. capital instrument
b. debt instrument d. equity instrument

21. Debt instruments may include

a. bonds payable c. a and b
b. investment in bonds d. callable preference shares

22. Preferred stock with a mandatory redemption date or redeemable at the option of the holder
is a(n)
a. equity instrument c. treasury share
b. debt instrument d. a or b

23. To which of the following items is PFRS 9 Financial Instruments not applicable?
a. unquoted debt securities
 b. preference shares with mandatory redemption
c. the entity’s own equity instruments
d. the entity’s own debt instruments

Initial recognition and classification

24. What is the principle for recognition of a financial asset or a financial liability in PFRS 9?
a. A financial asset is recognized when, and only when, it is probable that future economic
benefits will flow to the entity and the cost or value of the instrument can be measured
reliably.
b. A financial asset is recognized when, and only when, the entity obtains control of the
instrument and has the ability to dispose of the financial asset independent of the actions
of others.
c. A financial asset is recognized when, and only when, the entity obtains the risks and
rewards of ownership of the financial asset and has the ability to dispose the financial
asset.
d. A financial asset is recognized when, and only when, the entity becomes a party to the
contractual provisions of the instrument.

25. The two main classifications of financial assets under PFRS 9 are
a. debt and equity instruments
b. fair value and amortized cost
c. financial assets and financial liabilities
d. FVPL and FVOCI

26. Which of the following is not a classification of financial assets under PFRS 9?
a. Financial assets at fair value through profit or loss.
b. Financial assets at fair value through other comprehensive income
c. Financial assets at amortized cost
d. Held-to-maturity investments

27. Under PFRS 9, an entity shall classify financial assets as subsequently measured at either
amortized cost or fair value on the basis of which of the following:
I. the entity’s business model for managing the financial assets
II. the contractual cash flow characteristics of the financial asset
a. I only b. II only c. I and II d. neither I nor II

28. A financial asset shall be measured at amortized cost if which of the following conditions are
met:
I. the asset is held within a business model whose objective is to hold assets in order to
collect contractual cash flows.
II. the contractual terms of the financial asset give rise on specified dates to cash flows that
are solely payments of principal and interest on the principal amount outstanding.
a. I only b. II only c. I or II d. I and II
29. If the objective of an entity’s business model for managing a financial asset is to hold the
financial asset in order to collect contractual cash flows, then the financial asset is most likely
to be classified as
a. FVPL b. FVOCI c. amortized cost d. any of these

30. If the objective of an entity’s business model for managing the financial assets is to hold
financial assets in order to realize fair value changes, then the financial asset is most likely to
be classified as
a. at fair value c. at cost
b. at amortized cost d. any of these

31. If the objective of an entity’s business model is to hold financial assets in order to collect
contractual cash flows, the entity may classify the financial assets
a. at amortized cost
b. at amortized cost provided the management can demonstrate its ability to hold them until
maturity
c. at amortized cost; however, if a significant portion of the financial assets is sold before
maturity, the remaining portion should be reclassified
d. at amortized cost provided the fair value information and fair value changes are disclosed
in the notes

32. Regarding classification of financial assets, which of the following is incorrect?

a. only equity securities can be classified as FVOCI
b. only debt securities can be classified as amortized cost
c. either debt or equity securities may be classified as FVPL
d. only equity securities can be designated as FVPL

33. When an entity classifies its financial assets, which of the following statements is true?
a. debt securities may be classified as FVOCI
b. equity securities may be classified as amortized cost
c. debt or equity securities may be designated at FVPL
d. securities classified as FVOCI are always presented as noncurrent assets

34. Loans and notes receivables are classified as financial assets measured at
a. fair value c. cost
b. amortized cost d. lower of cost or fair value

35. The initial classification of investments in financial assets is generally based on

a. whether the debt or equity securities are marketable or not
b. whether the debt or equity securities are current or non-current
c. the intention of management on acquiring such investments
d. the entity’s business model and contractual cash flow characteristics of the financial asset

36. Which of the following cannot be classified as FVOCI?

a. investment in nonredeemable preference shares
b. equity securities that qualify as held for trading
 c. equity securities whose quoted prices are published only during weekdays
d. a residual interest in the net assets of another entity

37. The option to designate financial assets as FVPL and the election to classify financial assets
at FVOCI are available to an entity’s management
a. on initial recognition and subsequent thereof
b. subsequent to initial recognition only
c. on initial recognition only
d. not available

38. The option to designate financial assets at FVPL may be made if

a. the financial asset is an equity security
b. the financial asset is a debt security
c. the designation minimizes accounting mismatch
d. the entity is a corporation

39. The option to designate financial assets as FVPL and the election to classify financial assets
at FVOCI are
a. revocable
b. mandatory
c. irrevocable
d. revocable under certain circumstances described in PFRS 9

40. Regarding classifications of financial assets, which of the following is incorrect?

a. Once a financial asset is designated as financial asset measured at FVPL, such asset is
recognized at fair value until the financial asset is derecognized.
b. The election to classify financial assets as FVOCI is made on an instrument-by-
instrument basis
c. Once a financial asset is classified as FVOCI, all fair value changes on the instrument is
recognized in other comprehensive income
d. An entity cannot designate a financial asset at FVPL during a period it holds investments
classified as FVOCI

41. Which of the following is correct regarding classifications of financial assets?

a. An entity cannot designate a debt security at FVPL if it otherwise qualifies for
recognition as held for trading
b. An entity cannot designate an equity security at FVPL if it otherwise qualifies for
recognition as held for trading
c. An entity cannot elect to classify an equity security at FVOCI if it otherwise qualifies for
recognition as held for trading
d. An entity can elect to classify an equity security at FVOCI even if the security qualifies
for recognition as held for trading

42. Financial assets that are neither designated to be measured at FVPL nor qualify for
recognition at amortized cost are classified as held for trading if: (choose the incorrect
statement)
 a. it is acquired principally for the purpose of selling it in the near term
b. on initial recognition it is part of a portfolio of identified financial instruments that are
managed together and for which there is evidence of a recent actual pattern of short-term
profit-taking
c. it is a derivative (except for a derivative that is a financial guarantee contract or a
designated and effective hedging instrument)
d. the instrument is an equity security

43. Any investment may be accounted for by fair value through profit and loss provided
a. It is traded in an active market. c. It is a debt instrument.
b. It is an equity instrument. d. The instrument matures within 2 years.

44. Are the following statements concerning the measurement of financial instruments after
initial recognition true or false, according to PFRS 9 Financial instruments?
(1) Held-for-trading financial assets are measured at amortized cost.
(2) Debt securities to be held to maturity are measured at fair value.
Statement (1) Statement (2) Statement (1) Statement (2)
a. False False c. True False
b. False True d. True True

45. Prior to January 1, 20x1 Drive Company had not held any equity investments in other
companies. On January 1, 20x1 Drive purchased 3% of the equity shares in Putt Company
with the intention of holding this investment over the long term. The most appropriate
classification of the equity investment in Putt by Drive is
a. Designated b. FVOCI c. amortized cost d. any of these

46. Iron Company acquired equity securities of Wood Company, a listed entity, to be held as
investments. Which of the following is true?
a. Iron Company is required under PFRS 9 to classify the securities at fair value
b. Iron Company is required under PFRS 9 to classify the securities as amortized cost
c. Iron Company is required under PFRS 9 to designate the securities to be measured at fair
value
d. Iron Company will most likely measure the securities at fair value. However, Iron
Company is not prohibited under PFRS 9 to measure the securities at cost.

47. Which of the following is incorrect regarding the provisions of PFRS 9 Financial
Instruments?
a. All equity securities held as investments, except those covered under other Standards,
shall be measured at fair value
b. Unquoted equity securities are required under PFRS 9 to be measured at cost
c. Entries to record reclassifications of financial assets are always made after a change in an
entity’s business model but never simultaneously with the change.
d. Classifications to FVOCI and financial assets designated at FVPL are irrevocable.
48. Single Plane Company acquired 30,000 equity shares, representing 5% of the issued ordinary
share capital in Two Plane Company. Two Plane's shares are listed on a Stock Exchange. In
accordance with PFRS 9 Financial Instruments, in which of the following classifications
could Single Plane's investment in the equity shares be classified?
a. FVOCI d. a or c
b. Available for sale e. any of these
c. FVPL

49. Devin Company acquired 30,000 4% Government Bonds redeemable in 20x1 at the quoted
market price of P200. Devin has no current intention to sell the Bonds and has a policy to
hold them as investments unless certain corporate criteria are met and the bonds are sold to
maintain liquidity. In accordance with PFRS 9 Financial Instruments, which of the following
is the most appropriate classification for Devin's investment in the Government Bonds?
a. Held to maturity c. Available for sale
b. At fair value through profit or loss d. At amortized cost

50. They represent temporary investments of funds available for current operations and are
intended to meet working capital requirements
a. receivables c. held for trading securities
b. inventories d. cash

51. Which of the following may be classified as receivables?

a. Financial assets designated at fair value through profit or loss;
b. Financial assets measured at fair value with fair value changes recognized in other
comprehensive income
c. Financial assets for which the holder may not recover substantially all of its initial
investment, other than because of credit deterioration.
d. Financial assets that are not derivative instruments but with fixed or determinable
payments that are not quoted in an active market.

52. Which of the following is the incorrect statement?

a. Investments classified as long-term are reclassified as short-term investments only if it is
in accordance with the entity’s business model and based on cash flow characteristics of
the financial asset.
b. If an investor company does not have significant influence in another company, it must
use either the fair value method or the cost method to account to account for that
investment in equity securities.
c. If an investor company has a controlling interest in another company, it must use either
the cost method or the fair value method to account for that investment in equity
securities in its separate financial statements.
d. The cost method is sometimes applied to investments in equity securities.

53. Which of the following statements is correct regarding the accounting for financial assets?
a. The tainting provision under PAS 39 is carried over to PFRS 9.
b. Investments in unquoted equity securities are automatically measured at cost
c. The election to classify financial assets at FVOCI is available after initial recognition
 d. When designating financial assets at FVPL, an entity’s management may disregard the
entity’s business model for managing financial assets and the contractual cash flow
characteristics of the instrument.

Presentation
54. Which of the following statements is the correct statement?
a. The best way to ascertain whether a marketable security is a short-term or a long-term
investment is to check with a securities dealer.
b. For balance sheet classification, a security is classified as a short-term investment if it is
readily marketable.
c. For balance sheet classification, a security is classified as a short-term investment based
on the entity’s business model and contractual cash flow characteristics of the instrument
d. All investments in FVPL are reported at book value.

55. Which of the following statements is incorrect regarding presentation of financial assets?
a. The carrying amounts of each financial asset at FVPL, FVOCI, and amortized cost shall
be disclosed either in the statement of financial position or in the notes:
b. Financial assets measured at fair value through profit or loss are further disaggregated
into designated and held for trading
c. The unrealized gains and losses on changes in fair values recognized for held for trading
and designated at FVPL need not be disclosed separately in the financial statements.
d. Change in fair values of FVOCI is presented as a separate line item on the face of the
statement of profit or loss and other comprehensive income.

56. Which of the following is the correct statement?

a. Financial assets at fair value and at amortized cost are classified separately in the
financial statements.
b. The FVOCI classification includes equity and debt securities.
c. Investments in FVPL include only debt securities.
d. Increases in the fair values of FVPL and amortized cost investments always cause the
valuation account to increase.

57. Which of the following incorrectly relates to the provisions of PFRS 9?

a. All investments in equity instruments and contracts on those instruments must be
measured at fair value.
b. Only in limited circumstances may investments in equity instruments be measured at
cost.
c. Unquoted equity instruments whose fair value cannot be reliably determined shall be
measured at cost.
d. Unquoted equity instruments are always measured at cost.

58. Which of the following could cause a firm's equity position to be weaker than is reflected in
the statement of financial position?
a. Holding held-to-maturity securities in a portfolio with non-amortized discounts.
b. Holding FVOCI securities in a portfolio that have unrealized losses.
c. Holding trading securities in a portfolio with unrealized gains.
 d. Designating financial assets at FVPL to minimize accounting mismatch

59. All of the following items may be presented in the statement of financial position under
either the current assets section or the noncurrent assets section except
a. Held for trading c. Investments measured at amortized cost
b. Investments in FVOCI d. b and c

Initial measurement
60. Which of the following statement is true?
a. The fair value of accounting is the most appropriate method of accounting for short-term
investments in marketable equity securities.
b. All bond investments are accounted for by the amortized cost method.
c. The carrying value of an investment in FVOCI is limited to fair value at the date of
acquisition.
d. The realized gain or loss on a short-term investment in an equity security is usually equal
to the difference between its cost and its sale price.

61. Financial assets classified as FVPL are initially recognized at

a. fair value c. fair value plus direct acquisition cost
b. cost d. invoice cost

62. Financial assets classified as FVOCI and financial assets measured at amortized cost are
initially recognized at
a. fair value c. fair value plus direct acquisition cost
b. cost d. invoice cost

63. Under PFRSs, these refer to incremental costs that are directly attributable to the acquisition,
issue or disposal of a financial asset or financial liability. They would not have been incurred
if the entity had not acquired, issued or disposed of the financial instrument.
a. Transaction costs c. Cost of equity
b. Spread cost d. Finance cost

64. In addition to financial assets at fair value through profit or loss, which of the following
categories of financial assets is measured at fair value in the balance sheet?
a. FVOCI
b. Amortized cost investments
c. Loans and receivables.
d. Investments in unquoted equity instruments whose fair values cannot be measured
reliably

65. What is the best evidence of the fair value of a financial instrument?
a. Its cost, including transaction costs directly attributable to the purchase, origination, or
issuance of the financial instrument.
b. Its estimated value determined using discounted cash flow techniques, option pricing
models, or other valuation techniques.
 c. Its quoted price, if an active market exists for the financial instrument.
d. The present value of the contractual cash flows less impairment.

66. Is there any exception to the requirement to measure investments in equity securities at fair
value?
a. No. Such assets are always measured at fair value.
b. Yes. If the fair value of such assets increases above cost, the resulting unrealized holding
gains are not recognized but deferred until realized.
c. Yes. If the entity has the positive intention and ability to hold assets classified in those
categories to maturity, they are measured at amortized cost.
d. Yes. Investments in unquoted equity instruments that cannot be reliably measured at fair
value are measured at cost.

67. Which of the following conditions generally exists before fair value can be used as the basis
for the valuation of financial assets held as investment?
a. management’s intention must be to dispose of the securities within one year
b. fair value must be determinable
c. fair value must approximate historical cost
d. fair value must be less than cost for each security held in the company’s marketable
equity security portfolio
e. financial assets held as investment should be valued at fair value in compliance with
current GAAP

Subsequent measurement
68. Subsequent to their initial recognition, which financial assets with quoted market prices in an
active market are measured at fair value?

Financial assets Financial assets measured at FVO Held for trading

designated at FVPL amortized cost CI securities
a. Yes Yes Yes No
b. Yes Yes No No
c. Yes No Yes Yes
d. No No No Yes

69. On November 1, 20x1, Monsters, Inc. invested ₱575,000 in short-term marketable securities
classified as held for trading. The market value of this investment was ₱610,000 at December
31, 20x1 but had slipped to ₱595,000 by December 31, 20x2. In the financial statements
prepared on December 31, 20x1, Monster reports:
a. the investment at ₱575,000 with note disclosure of the fair value of P610,000.
b. the investment at ₱610,000 and a ₱35,000 unrealized holding gain included in profit or
loss.
c. the investment at ₱610,000 and a ₱35,000 realized gain recognized in the income
statement.
d. the investments ₱595,000 and a ₱15,000 unrealized holding loss in profit or loss.
70. For a marketable debt securities portfolio to be held-to-maturity, which of the following
amounts should be included in the period’s profit, assuming the entity elects the fair value
option of reporting all of its financial instruments in the portfolio?
I. Unrealized temporary losses during the period.
II. Realized gains during the period.
III. Unrealized gains during the period.
a. I only b. land lI c. II and III d. I, II, and III.

71. When the fair value of an entity's portfolio of FVPL securities is lower than its cost the
difference is
a. Accounted for as liability.
b. Disclosed and described in a note to the financial statements but not accounted for.
c. Accounted for as a valuation allowance deducted from the asset to which it relates.
d. Accounted for as an addition in the equity section of the statement of financial position

72. Under PFRSs, if an entity designates a financial asset to be measured at fair value, any
changes in fair value are recognized in
a. Other comprehensive income. c. Profit or loss.
b. Retained earnings. d. Equity

73. An entity has adopted PFRS 9 Financial Instruments. It should report the marketable equity
securities that it has classified as held for trading at:
a. Lower of cost or market, with holding gains and losses included in earnings.
b. Lower of cost or market, with holding gains included in earnings only to the extent of
previously recognized holding losses.
c. Fair value, with holding gains included in earnings only to the extent of previously
recognized holding losses.
d. Fair value, with holding gains and losses included in earnings.

74. Which of the following statements regarding fair value is/are correct?
I. The fair value of an asset or liability is specific to the entity making the fair value
measurement.
II. Fair value is the price to acquire an asset or assume a liability.
III. Fair value includes transportation costs, but not transaction costs.
IV. The price in the principal market for an asset or liability will be the fair value
measurement.
a. I & II b. I & IV c. II & III d. III & IV

75. Which of the following is not a valuation technique that can be used to measure the fair value
of an asset or liability?
a. Market approach. c. Income approach.
b. Impairment approach. d. Cost approach.
76. Which of the following statements is incorrect regarding the inputs that can be used to
measure fair value?
I. Level I inputs are the most reliable fair value measurements and Level III inputs are the
least reliable.
II. Level III measurements are quoted prices in active markets for identical assets or
liabilities.
III. A fair value measurement based on management assumptions only (no market data)
would not be acceptable under current standards.
IV. The level in the fair value hierarchy of a fair value measurement is determined by the
level of the highest-level significant input.
a. I only. b. I, II, IV. c. II, III, IV. d. I, II, III, IV.

77. There are multiple active markets for a financial asset with different observable market
prices:
Market Quoted Price Transaction Costs
A ₱76 ₱5
B ₱74 ₱2

There is no principal market for the financial asset. What is the fair value of the asset?
a. 71 b. 72 c. 74 d. 76

78. The valuation allowance for a marketable equity securities portfolio included in current
assets should be a component of
a. current assets c. non-current assets
b. current liabilities d. non-current liabilities

79. If marketable securities purchased for ₱500 increase in fair value to ₱800 as of the end of the
fiscal year and were sold in the subsequent year for ₱700, what method was used if the gain
of ₱300 was reported in the first year and a loss of ₱100 in the year of sale?
a. equity method c. lower of cost or market
b. fair value method d. aggregate method

80. As determined at the balance sheet date, the carrying amount of the current portfolio of
marketable equity securities shall be equal to
a. acquisition value c. fair value
b. lower of cost or market value d. appraised value

81. Test of marketability must be met before equity securities owned can be properly classified
as
a. long-term investments c. treasury shares
b. current assets d. loans and receivables

82. Assuming a financial asset classified as FVOCI is remeasured to fair value at the end of
reporting period, the gain or loss
a. Must be recognized in net profit or loss.
b. Must be recognized directly in equity.
 c. Must be recognized in other comprehensive income and accumulated separately in equity
d. Must be recognized in profit or loss if the result is a loss and directly in equity if the
result is gain.
83. The difference between the acquisition cost and the aggregate par value of shares acquired as
investment is
a. accounted for as a deferred charge to be amortized using the straight line method
b. accounted for as part of the initial cost and recognized in profit or loss during the life of
the investment using the effective interest method
c. accounted for as part of the initial cost and recognized in profit or loss when the
investment is impaired
d. not given special accounting

84. Which of the following statements is correct?

I. PFRS 9 Financial Instruments does not address the accounting for equity instruments
issued by the reporting entity. However, the holder of such equity instruments may apply
PFRS 9 to those instruments, unless such instruments are obtained through interests in
subsidiary, associate or joint venture.
II. Investments in equity instruments that are not quoted in an active market, and whose fair
value cannot be reliably measured cannot be classified as FVPL.
III. Designated financial assets at FVPL are acquired principally for the purpose of selling
them in the near term
IV. Trading generally reflects active and frequent buying and selling, and financial
instruments held for trading generally are used with the objective of generating profit
from short-term fluctuations in price or dealer’s margin.
a. I, III b. I, II, III c. I, II, IV d. I, II, III, IV

85. Sanitarium Company holds equity instruments of Damage Inc., a non-publicly listed
company. The equity instruments were classified as regular investment. Which of the
following statements is correct?
a. Sanitarium should measure the asset at cost
b. Sanitarium should measure the asset at amortized cost
c. Sanitarium should carry the asset at fair value unless fair value cannot be determined
reliably
d. Either a or b

Derecognition
86. Chowder Corporation invested ₱290,000 cash in equity securities classified as FVOCI in
early December. On December 31, the quoted market price for these securities is ₱307,000.
Which of the following statements is correct?
a. Chowder's December income statement includes a ₱17,000 gain on investments.
b. If Chowder sells these investments on January 2 for ₱300,000, it will report a loss of
₱7,000 in its income statement.
c. Chowder's December 31 statement of financial position reports marketable securities at
₱290,000 and an unrealized holding gain on investments of ₱17,000.
d. Chowder’s December 31 statement of financial position reports marketable securities at
₱307,000 and an Unrealizable Holding Gain on Investments of ₱7,000.
87. When an investment in FVPL is sold during the year, the realized gain or loss (assume no
transaction costs) equals
a. the difference between the acquisition cost and the fair value at date of sale.
b. the difference between the amortized cost and the fair value at the date of sale.
c. the balance in the valuation account.
d. the fair value change experienced during the year of sale.

88. Which of the following is a provision of PAS 39 that has been outlawed by PFRS 9?
a. Painting provision
b. Provision for doubtful accounts
c. Tainting provision
d. Reclassification between financial assets

89. You are now a CPA and it is your first day on your job as an accountant. You were asked
by your client’s non-CPA staff on how to compute for the gain or loss on sale of an
investment in FVPL. You will tell the staff that the gain or loss on sale of an FVPL is
computed as
a. the difference between the net disposal proceeds and the carrying amount of the
investment on the date of sale.
b. the difference between the net disposal proceeds and the fair value of the investment on
the date of sale.
c. the difference between the net disposal proceeds and the original acquisition cost of the
investment.
d. You will tell the staff nothing because you just memorized multiple choice questions to
pass the board exams.

90. A change from the cost approach to the market approach of measuring fair value is
considered to be what type of accounting change?
a. Change in accounting estimate c. Change in valuation technique
b. Change in accounting principle d. Error correction