AST MIDTERM realizable values of the related liabilities to which these assets

have been pledge as security.

QUIZ 1
LIABILITY WITH COLLATERAL SECURITY – which of the
THE MEASUREMENT BASES UNDER THE CONCEPTUAL
following is not considered as unsecured liability with priority?
FRAMEWORK AND THE PFRSs ARE NOT APPLICABLE TO
LIQUIDATING ENTITIES – which of the following statement is STATEMENT OF CHANGES IN NET ASSETS AND STATEMENT OF
correct? REALIZATION AND LIQUIDATION – which of the following
financial statements is prepared by entities undergoing
FULLY SECURED CREDITORS – there are liabilities secured by
liquidations?
assets with realizable values equal to or greater than the
realizable values of such liabilities. PARTIALLY SECURED – if the value of the pledge property is
less than the obligation what is the treatment of the liability?
ALL OF THE GIVEN – assets in the statements of affairs are
classified into. ( assets pledge to fully secured creditors / assets ? – which of the following is excluded when computing for the
pledge to partially secured creditors / free assets ) total free assets?

ALL OF THE GIVEN – liabilities in the statement of affairs are GOODWILL – an accounting statement of affairs of a
classified into ( unsecured liabilities with priority / unsecured corporation in financial difficulty indicates that unsecured
liabilities without priority / partially secured creditors / fully creditors would receive P0.40 on the peso. Which of the
secured creditors ) following assets is most likely to realize the smallest
percentage of its book value?
REORGANIZATION – it means the implementation of a
business plan to restructure or rehabilitate a corporation with UNSECURED LIABILITIES WITH PRIORITY – these are liabilities
the hopes of increasing company value. that, although not secured by any asset, are mandated by law
to be paid first before any other unsecured liabilities.
FREE ASSETS – there are assets that have not been pledged as
security of liabilities. These also include the excess of realizable UNSECURED LIABILITIES WITHOUT PRIORITY – there are all
values of assets pledge to fully secured creditors over the liabilities other than unsecured with priority, fully secured and
realizable values of related liabilities for which there asset have partially secured.
been pledged.
PARTIALLY SECURED CREDITORS – these are liabilities secured
STATEMENT OF AFFAIRS – it is the initial report prepared at by assets with realizable values less than the realizable values
the start of the liquidating process. of such liabilities.

ALL OF THE GIVEN – net free assets equal to ( total free assets LIQUIDATION – it refers to the termination of business
less total unsecured liabilities with priority / the realizable preparation whereby an entity’s assets are disposed of in order
value of any remaining assets after full settlement of priority to settle all of the claims of the entity’s assets.
claims and fully secured creditors and after partial payment to
QUIZ 2
partially secured creditors equal to the realizable value of
assets pledge to partially secured creditors. ) Problem:
ASSETS PLEDGED TO PARTIALLY SECURED CREDITORS – these Quitter co. is undergoing liquidation. Relevant information as
are assets with realizable value less than the realizable value of follows:
related liabilities for which these assets have been pledge as
security C.A R.V

? – the primary difference between a balance sheet and an Assets pledged with 80,000 50,000
accounting statement of affairs is that partially secured creditors

NET FREE ASSETS LESS TOTAL UNSECURED LIABILITIES Free assets 220,000 160,000
WITHOUT PRIORITY OR TOTAL ASSETS AT REALIZABLE VALUE
LESS TOTAL LIABILITIES AT REALIZABLE VALUE- the estimated
deficiency to unsecured creditors without priority is computed E. Settlement Amount A. Unsecured
as. Liab. w/ prio. 16,000
ASSETS PLEDGE TO FULLY SECURED CREDITOS – these are Partial secured c. 75,000 25,000
assets with realizable values equal to or greater than the
Unsecured C. 155,000 155,000
Debit side, measured at actual settlement amount – “liabilities Posting the receipts to the accounts receivable subsidiary
liquidated” is placed on which side of a statement of realization ledger cards – which of the following would the auditor
and liquidation? consider to be an incompatible operation for a cashier if the
cashier receives remittances from the mailroom
P144,000 – REFER TO QUITTER CO. what is the total amount
available for payment of claims of unsecured creditors? A more liberal credit policy – during an audit of the accounts
receivables function, you found that the accounts receivables
36,000 – REFER TO QUITTER CO. What is the amount of
turnover rate had fallen from 7.3 to 4.3 over the last three
deficiency to creditors?
years. What is the most likely caused of the decrease?
Debit side, measured at book value – “assets to be realized” is
Ensure that shipments are billed to customer – shipping
placed on which side of a statement of realization and
documents should be traced to and compared with sales
liquidation?
record or invoices to
- “Assets realized” is placed on which side of a statement of
Billed sales were shipped – tracing copies of invoices to
realization and liquidation? (no side / credit side, measured at
shipping documents will provide evidence that all
realizable value / credit side, measured at actual net proceeds
from sale / debit side, measured at book value) Write-offs of delinquent accounts – an auditor noted that the
accounts receivable department is separate from other
Debit side, measured at book value – “Liabilities not
accounting activities. Credit is approved by a separate credit
liquidated” is placed on which side of a statement of realization
department. Control accounts and subsidiary ledger are
and liquidation?
balance monthly. Similarly, account are aged monthly. The
To their claims multiplied by the estimated recovery account receivables manager write off delinquent account after
percentage – the estimated recovery of unsecured creditors one year or sooner, if a bankruptcy or other unusual
without priority is equal. circumstances is involved. Credit memoranda are prenumbered
and must correlate with receiving reports. Which of the
The realizable value of the assets pledged plus the excess following areas could be viewed as an internal control
amount multiplied by the estimated recovery percentage – weakness of the above organization
the estimated recovery of partially secured creditors is equal
to. Write-offs of customer accounts – for effective internal
control, employee maintaining the accounts receivable
Net loss for the period – if the total debits in the statement of subsidiary ledger should not also approve.
realization and liquidation exceeds the total credits, there is:
Require a specific mail clerk to list and restrictively endorse
Quiz 3 each check – checks from customers are received in the
Sales invoice file – to determine whether an entity’s internal company mailroom each day. Which of the following controls
control operated effectively to minimize errors of failure to should be in place to safeguard them?
post invoice to the customer’s accounts ledger. The auditor Have an employee issue a prenumbered receipts for all cash
would select a sample of transaction from the population collections, have another employee match daily totals of
represented by the… prenumbered receipts to bank deposit – which of the
Billing – to achieve good internal control, which department following describe the most effective preventive control to
should perform the activities of matching shipping documents ensure proper handling of cash receipts to bank deposit.
with sales orders and preparing daily sales summaries. Internal control is inadequate because treasury employees
Invoiced sales were shipped – tracing bills of lading to sales should prepare the deposit slip – as payments are received,
invoices will provide evidence that. one mailroom employee is assigned the responsibility of
prelisting receipts and preparing the deposit slip prior to
Fictitious transaction could be recorded, causing an forwarding the receipts, the deposit slips, and the remittances
understatement of revenues and an overstatement of advice to account receivables for posting. Account receivable
receivables – the most likely result of ineffective internal personnel re-foot the deposit slip, stamp a restrictive
controls in the sales cycle is that. endorsement on the back of each check, and then forward the
Controller – for the most effective internal control, monthly receipts and the deposit slip to the treasury department.
bank statements should be received directly from the banks Which of the following is a reasonable assessment of internal
and reviewed by theee. control in this process?

Subsidiary customer’s accounts ledger – to gather audit

evidence that uncollected items in customers accounts
represented valid trade receivables, the auditor would select a True – a joint venture applies the equity method from the date
sample of items from the population represented by the. it obtains joint control over the joint venture and discontinues
applying equity method when the investor face significant
difficulty in transferring funds to the investee, even though the
QUIZ 4 investor still retains joint control.

True - A and B enters into a contract to contribute cash to True – according to PFRS 11, a joint venture is a joint
acquire a public utility jeepney (PUJ). A and B shall have joint arrangement whereby the parties that have joint control of the
control over the operation of the PUJ and shall share equally in arrangement have rights to the net assets of the arrangement
revenues and expenses.
QUIZ 5:
False – A and B enters into a contract to contribute cash to
True – if the entity cannot demonstrate that a performance
acquire a public utility jeepney (PUJ). A and B shal; have joint
obligation is satisfied over time, it is presumed that the
control over the operation of the PUJ and shall share equally in
performance obligation is satisfied at a point in time.
revenues and expenses. A and B are referred to as a joint
jeepney venturers. All of the given – which of the following may affect the
revenue recognized on a construction contruct? ( contract
True – joint control exists when no single party is in a position
price / change orders / escalation clauses )
to control the activity unilaterally.
True – in the construction of complex structures wherein the
False – the parties that share joint control in a joint operation
costs incurred and other efforts expended on the contract do
are called joint operationists.
not correlate to the stage of completion of the project, the
True – According to PFRS 11, a joint arrangement that is not most appropriate method for measuring progress on the
structured through a separate vehicle is a joint operation. contract are the outputs method.

True – a joint venture accounts for its interest in joint venture True – of the transaction price in a construction contract
using the equity method. includes a variable consideration, for example a penalty
provision or performance bonus, the entity shall estimate the
True – A and B contributes assets to form a business variable consideration taking into consideration any constraints
undertaking. The business obtains control over the assets to estimate.
contributed by A and B. In exchange, A and B will have equal
interest in the net assets and profits of the business. The False – PFRS 15 requires that revenue from all long-term
arrangement between A and B is most likely a joint venture. construction contracts be recognized using the percentage of
completion method.
False – when an entity acquires an interest in a joint operation
whose activity constitutes a business, the joint operation shall True - According to PFRS 15, a measure of progress based in
account for the entity’s acquisition of its share as a business the hours expended on the contract is an application of the
combination. inputs method.

False – according to PFRS 11, joint operation is an arrangement - which of the following is included in the cost of fulfilling a
of which two or more parties have joint control. construction contract ? ( depreciation of idle plant and
equipment that is not used on a particular contract / general
False – According to PFRS 11, a joint arrangement is classified administration cost for which reimbursement is not specified in
as joint operation, jointly controlled assets or a joint venture. the contract / cost of hiring equipment used in the
True – under the equity method, the investment is initially construction )
measured at cost. Total cost incurred to date divided by the sum of Total costs
False – A and B enters into a contract to contribute cash to incurred to date and estimated costs to complete – under the
acquire a public utility jeepney (PUJ). A and B shall have joint “cost to cost method, the percentage of completion may be
control over the operation of the PUJ and shall share equally in computed as.
revenues and expenses. - any expected loss on a construction contract is? (deferred and
False – A and B enters into a contract to contribute cash to amortized over the remaining construction period / recognized
acquire a public utility jeepney (PUJ) A and B shall have joint as an expense immediately in accordance with PAS 37 /
control over the operation of the PUJ and shall share equally in recognized as an expense immediately in accordance with PFRS
revenues and expenses. The contract between A and B is a 15 / ignored )
joint venture.
True – if the entity retains control over an asset created during
the construction period in a long-term construction contract
revenues is most likely not recognized using the percentage of
completion method.

False – “step 2” of the recognition principles of PFRS 15 is the

allocation of the transaction price to the performance
obligations in the contract.

NO NO – an entity uses the outputs method based on surveys

of work performed to measure its progress on performance
obligation that Is satisfied over time. Which of the following
items would affect the entity’s computation for the revenue to
be recognized each year?

Receivable

Collection on progress billings

False - the percentage of completion under a construction

contract is always computed based on the cost incurred to date
as it bears to the total expected cost on the contract.

By multiplying the percentage of completion to the contract

price and deducting revenues already recognized in the prior
periods – under the percentage of completion method,
contract revenue for the period is computed

NO NO – an entity’s performance obligation under a long-term

construction contract will be satisfied at a point in time.
Revenue is recognized when recorded progress billings

Are collected

Exceed recorded costs

- under the zero-profit method, contract revenue for the

period is (equal to costs of construction recognized during the
period that are probable of recovery / equal to the contract
price divided by the estimated construction period / equal to
the costs of construction recognized during the period )

- which of the following is least likely an acceptable method of

measuring progress in accordance with PFRS 15? (relationship
between cost incurred to date and total expected costs / the
amount of progress billing in relation to the total contract price
/ surveys of work performed)

False – according to PFRS 15, revenue from contract with

customers, contract with customers are generally combined
and accounted for a single contract

False – if the entity cannot demonstrate that a performance

obligation is satisfied at a point in time, it is presumed that the
performance obligation is satisfied over time.