Chapter 49-Pfrs For Smes
Chapter 49-Pfrs For Smes
Chapter 49-Pfrs For Smes
Additional information:
During the year, the SME changed the cost flow formula for its inventories from the
FIFO method to the weighted average method. Information on the effects of the change
is shown below:
FIFO Average
Jan. 1 3,200 2,600
Dec. 31 5,300 6,400
It was found out that depreciation in the previous period has been overstated by
₱1,200.
If the SME opts to present a statement of income and retained earnings, the bottom line in
the statement shows an amount equal to
a. 2,600 b. 2,850 c. 4,550 d. 4,050
Financial instruments
Use the following information for the next three questions:
On January 1, 20x0, an entity acquires a bond for ₱1,000, incurring transaction costs of ₱70.
Interest of ₱80 is receivable annually, in arrears, over the next five years starting December
31, 20x0. The bond has a mandatory redemption of ₱1,200 on December 31, 20x4.
3. How much is the interest income in 20x0? (round-off interest rate to two decimal places)
a. 73 b. 84 c. 92 d. 87
4. How much is the carrying amount of the bond on December 31, 20x0?
a. 998 b. 1,093 c. 1,074 d. 1,104
Use the following information for the next three questions:
On January 1, 20x0, an entity issues a bond for ₱900, incurring transaction costs of ₱50.
Interest of ₱40 is payable annually, in arrears, over the next five years starting December
31, 20x0. The bond has a mandatory redemption of ₱1,100 on December 31, 20x4.
6. How much is the interest expense in 20x0? (round-off interest rate to two decimal
places)
a. 94 b. 81 c. 87 d. 93
7. How much is the carrying amount of the bond on December 31, 20x0? (round-off
interest rate to two decimal places)
a. 981 b. 1,003 c. 934 d. 891
10. Use the fact pattern from the preceding problem except that the SME has agreed to buy
back from the bank any receivables for which the debtor is in arrears as to principal or
interest for more than 120 days. The effect of the transaction is
a. derecognition of receivable
b. recognition of loss equal to ₱150,000
c. non-derecognition of receivable but a liability is recognized for the ₱850,000 cash
receipt.
d. a and b
Investment in associates
Use the following information for the next two questions:
On January 1, 20x1, an SME acquires 20% interest in the equity of another entity for
₱100,000. The interest acquired gives the SME significant influence over the investee.
During the period, the investee reports profit of ₱30,000 and declares dividends of
₱10,000. The fair value of the investment on December 31, 20x1 is ₱110,000. The entity
uses the PFRS for SMEs.
11. Which acceptable accounting model results to the highest carrying amount of the
investment as of December 31, 20x1?
a. Cost model c. Fair value model
b. Equity model d. None of these
12. Which acceptable accounting model results to the highest investment income
recognized in profit or loss in 20x1?
a. Cost model c. Fair value model
b. Equity model d. None of these
Leases
Use the following information for the next two questions:
SME Co. entered into a 5-year operating lease with Lessor, Inc. Annual lease is ₱360,000.
However, subsequent lease payments shall be increased taking into consideration the effect
of general inflation. The consensus forecast by local banks is that the general price level
index, as published by the government, will increase by an average of 10% annually over
the next five years.
13. How much is the rent expense recognized by SME Co. in the second year of the lease?
a. 439,567 b. 435,600 c. 396,000 d. 360,000
14. How much is the rent income recognized by Lessor Inc. in the third year of the lease?
a. 439,567 b. 479,106 c. 435,600 d. 479,160
15. How much is the balance of rent payable at the end of the first year of the lease?
a. 5,083 b. 5,938 c. 5,632 d. 0
16. How much is the balance of rent receivable at the end of the second year of the lease?
a. 5,094 b. 5,234 c. 5,167 d. 0
17. How much is the rent expense recognized by SME Co. in the second year of the lease?
a. 105,083 b. 105,000 c. 110,250 d. 150,000
18. How much is the rent income recognized by Lessor Inc. in the third year of the lease?
a. 105,083 b. 110,250 c. 115,763 d. 151,763
Revenue
Use the following information for the next two questions:
An SME sells goods in exchange for a ₱340,000 note receivable in two years’ time. The cash
sale price of the goods is ₱280,992. The gross profit rate based on cost on the transaction is
30%. Other operating expenses amounted to ₱50,000.
Impairment of assets
23. On December 31, 20x1, an SME tests for impairment an equipment which was acquired
8 years ago for ₱1,600,000. The equipment has an originally estimated useful life of 15
years and residual value of ₱100,000.
The fair value of the equipment on December 31, 20x1 is ₱700,000. Costs to sell are
estimated at ₱20,000. The SME makes the following cash flow projections for value in
use computation. The pre-tax discount rate is 12%. Cash flows are expected to occur at
the end of each year.
Year Net cash flows
20x2 180,000
20x3 167,400
20x4 155,682
20x5 144,784
20x6 134,649
20x7 125,224
20x8 116,458
24. How much is the current tax asset (liability) as of December 31, 20x1?
a. (4,000) b. 6,000 c. (40,000) d. 50,000
25. How much is the deferred tax asset as of December 31, 20x1?
a. 1,050 b. 2,450 c. 3,900 d. 2,100
26. How much is the deferred tax liability as of December 31, 20x1?
a. 9,300 b. 10,850 c. 8,700 d. 9,000
27. How much is the income tax expense as of December 31, 20x1?
a. 6,300 b. 3,600 c. 4,600 d. 0