1. Garet Department Store sells gift certificates redeemable for store merchandise.

The certificates
expire one year after their issuance. Garet has the following information pertaining to its gift
certificates sales and redemptions:
Unearned at December 31, 2005 600,000
2006 sales 2,000,000
2006 redemptions of prior-year sales 200,000
2006 redemptions of current-year sales 1,400,000

Garet’s experience indicates that 10% of gift certificates sold will not be redeemed. Garet uses PFRS
15. In its December 31, 2006 statement of profit or loss, what amount should Garet report as total
revenue relating to gift certificates?
a. 1,400,000 c. 2,200,000
b. 1,800,000 d. 2,155,560

2. Wilk Co. reported the following liabilities at December 31, 20x1:

Accounts payable-trade 750,000
Short-term borrowings 400,000
Bank loan, current portion ₱100,000 3,500,000
Other bank loan, matures June 30, 20x2 1,000,000

The bank loan of ₱3,500,000 was in violation of the loan agreement. The creditor had not waived the
rights for the loan. What amount should Wilk report as current liabilities at December 31, 20x1?
a. 1,250,000 b. 2,150,000 c. 2,250,000 d. 5,650,000

Use the following information for the next two questions:

On January 1, 20x1, ABRIDGE TO SHORTEN Co. issued a 4-year, ₱1,000,000 noninterest bearing
note payable due in four equal annual installments. The effective interest rate is 12%. ABRIDGE
prepared the following pro-forma amortization table on an electronic spreadsheet:
A B C D E
1 Date Cash paid Interest expense Amortization Present value
2 Jan. 1, 20x1
3 Dec. 31, 20x1
4 Dec. 31, 20x2
5 Dec. 31, 20x3
6 Dec. 31, 20x4

3. The value on cell E2 is computed as

a. (1M ÷ 4 x PV of ordinary annuity of ₱1 @ 12%, n=4)
b. (1M x PV of ₱1 @12%, n=4)
c. (1M x PV of ordinary annuity of ₱1 @12%, n=4)
d. (1M x PV of ₱1 @12%, n=4) + (1M x 10% x PV of ordinary annuity of ₱1 @ 12%, n=4)

4. The carrying amount of the note payable on December 31, 20x2 is equal to
a. E3 – D4 c. E4 – D4
b. E3 + D4 d. 1M
5. In theory (disregarding any other marketplace variables), the proceeds from the sale of a bond
will be equal to
a. the face amount of the bond.
b. the present value of the bond maturity value plus the present value of the interest payments
to be made during the life of the bond.
c. the face amount of the bond plus the present value of the interest payments made during the
life of the bond.
d. the sum of the face amount of the bond and the periodic interest payments.

6. Bond discount should be presented in the financial statements of the issuer as a(n)
a. contra liability. c. deferred charge.
b. adjunct liability. d. contra asset.

7. In December 20x1, Mill Co. began including one coupon in each package of candy that it sells and
offering a toy in exchange for 50 centavos and five coupons. The toys cost Mill 80 centavos each.
Eventually 60% of the coupons will be redeemed. During December, Mill sold 110,000 packages
of candy and no coupons were redeemed. In its December 31, 20x1, balance sheet, what amount
should Mill report as estimated liability for coupons?
a. 3,960 c. 19,800
b. 10,560 d. 52,800

8. A factory owned by XYZ Inc. was destroyed by fire. XYZ Inc. lodged an insurance claim for the
value of the factory building, plant, and an amount equal to one year’s net profit. During the year
there were a number of meetings with the representatives of the insurance company. Finally,
before year-end, it was decided that XYZ Inc. would receive compensation for 90% of its claim.
XYZ Inc. received a letter that the settlement check for that amount had been mailed, but it was
not received before year-end. How should XYZ Inc. treat this in its financial statements?
a. Disclose the contingent asset in the footnotes.
b. Wait until next year when the settlement check is actually received and not recognize or
disclose this receivable at all since at year-end it is a contingent asset.
c. Because the settlement of the claim was conveyed by a letter from the insurance company that
also stated that the settlement check was in the mail for 90% of the claim, record 90% of the
claim as a receivable as it is virtually certain that the contingent asset will be received.
d. Because the settlement of the claim was conveyed by a letter from the insurance company that
also stated that the settlement check was in the mail for 90% of the claim, record 100% of the
claim as a receivable at year-end as it is virtually certain that the contingent asset will be
received, and adjust the 10% next year when the settlement check is actually received.

9. An entity contributes to an industrial pension plan that provides a pension arrangement for its
employees. A large number of other employers also contribute to the pension plan, and the entity
makes contributions in respect of each employee. These contributions are kept separate from
corporate assets and are used together with any investment income to purchase annuities for
retired employees. The only obligation of the entity is to pay the annual contributions. This
pension scheme is a
a. Multiemployer plan and a defined contribution scheme.
b. Multiemployer plan and a defined benefit scheme.
c. Defined contribution plan only.
d. Defined benefit plan only.

10. According to PAS 26, which of the following may be disclosed in the financial report of a defined
benefit plan but would not be shown in the financial report of a defined contribution plan?
a. Government bonds held
b. Actuarial present value of promised retirement benefits
c. Employee contributions
d. Employer contributions

11. It is a type of retirement plan where the employer assures a definite amount of benefit to be
received by the employee. The risk that funds needed to pay the promised benefits may be
insufficient is retained by the employer.
a. Defined contribution plan c. Leche plan
b. Defined benefit plan d. Plan vs. zombies

12. The vested benefits of an employee in a pension plan represent benefits

a. to be paid to the retired employee in the current year.
b. to be paid to the retired employee in subsequent years.
c. to be paid from funds currently in the hands of an independent trustee.
d. that are not contingent on the employee's continuing in the service of the employer.

13. Actuarial gains or losses result from the accounting for which of the following employee benefits?
a. Short-term compensated absences
b. Post-employment defined contribution plans
c. Post-employment defined benefit plans
d. Profit sharing and bonus plans

14. Which of the following factors is least likely to affect the amount of retirement benefits under a
defined benefit plan?
a. The age of the retiring employee.
b. The level of the employee’s compensation.
c. The employee’s length of service.
d. The amount of employer contributions to a fund.

15. An entity operates a defined benefit plan that pays employees an annual benefit based on their
number of years of service. The annual payment does allow the employer to vary the final benefit.
Over the last five years the entity has used this flexibility to increase employees’ pensions by the
current growth in earnings per share. How will employees’ benefit be calculated if they retire in
the current period?
a. It will be based on the existing plan rules with no additional award.
b. It will be based on the existing plan rules plus the current rate of growth of earnings per share.
c. It will be based on the plan rules plus the current rate of inflation.
d. It will be based on the plan rules plus the increase in earnings per share anticipated over the
remaining working lives of the employees.

16. Information on ELABORATE COMPLICATED Co.’s defined benefit plan is shown below:
• Fair value of plan assets, Jan. 1 ₱480,000
• Actual rate of Return on plan assets for the period 10%
• Contributions to the fund during the year 800,000
• Benefits paid to retirees 200,000

How much is the balance of the fair value of plan assets as of year-end?
a. 1,080,000 c. 1,128,000
b. 1,328,000 d. 528,000

Use the following information for the next three questions:

Information on Entity A’s defined benefit plan is as follows:
PV of DBO – Jan. 1, 20x1 2,000,000
FVPA – Jan.1, 20x1 1,800,000
PV of DBO – Dec. 31, 20x1 2,900,000
FVPA, end. – Dec. 31, 20x1 2,600,000
Current service cost 400,000
Actuarial loss 200,000
Return on plan assets 120,000
Discount rate 10%

17. How much is the net defined benefit liability (asset) to be presented in Entity A’s December 31,
20x1 statement of financial position?
a. (300,000) c. (200,000)
b. 300,000 d. 200,000

18. How much is the component of the 20x1 defined benefit cost to be recognized in profit or loss?
a. 400,000 c. 560,000
b. 420,000 d. 680,000

19. How much is the component of the 20x1 defined benefit cost to be recognized in other
comprehensive income – (income)/ loss?
a. (140,000) c. 260,000
b. 140,000 d. (260,000)

20. You are the General Manager of Entity A. You have received the actuarial report for your
company’s defined benefit plan. The report shows the following information:
PV of DBO – Jan. 1, 20x1 1,500,000
FVPA – Jan. 1, 20x1 1,200,000
PV of DBO – Dec. 31, 20x1 1,800,000
FVPA, end. – Dec. 31, 20x1 1,310,000
Actuarial gain 100,000
Return on plan assets 110,000
Discount rate 5%

When reporting on your company’s year-end highlights of financial summary, which of the
following will you report to the Board of Directors (the ‘big bosses’)?
a. Your company’s net liability for retirement benefits has increased by ₱490,000.
b. Your company’s net liability for retirement benefits has decreased by ₱300,000.
c. Your company’s net liability for retirement benefits has increased by ₱190,000.
d. I will tell them nothing.