acyfar3 current liabilities

Which is true about the definition of a provision?

a. a liability cannot be easily measured

b. a liability of uncertain timing or amount

c. a possible obligation arising from past events

d. an obligation to transfer funds to an entity

b

Which of the following statements is/are correct concerning provision?

statement I: provision shall be recognized as a liability in the financial statements if the entity has future obligation, legal or constructive as a result of a past event

statement II: provision shall be recognized as a liability in the financial statements if it is probable that an outflow of resources embodying economic benefits would be required to settle the obligation

statement III: provision shall be recognized as a liability in the financial statements if the amount of the obligation can be measured reliably

a. statement I and II

b. statement I and III

c. statement II and III

d. statement I, II, and III

c

A legal obligation is an obligation that derived from all of the following, except:

a. legislation

b. contract

c. other operation of law

d. companies’ policy drafted by the BOD

d

A constructive obligation is an obligation

I. that is derived from an entity’s action that the entity will accept certain responsibilities because of past practice, published policy or current statement

II. the entity created a valid expectation in other parties that it will discharge those responsibilities

a. I only

b. II only

c. both I and II

d. answer not given

c

Which of the following is the most accurate statement about provision?

a. a provision may be the equivalent of the estimated liability or loss that is accrued because it is either probable or measurable

b. a provision may be the equivalent of the estimated liability or a loss that is accrued because it is both probable and measurable

c. a provision is never an equivalent of the estimated liability or a loss that is accrued

d. none of the above

b

If the present obligation is probable and the amount can be measured reliably….

a. the obligation is a contingent liability.

b. the obligation is not contingent liability but a provision.

c. The obligation must be settled immediately.

d. The obligation shall not be accounted for until settled.

b

Present obligation refers to:

a. an obligation that is legal or constructive

b. an obligation that may arise from contract, legislation, or other operation of law

c. an obligation that derives from an entity's actions

d. all of the above.

d

It is an event that creates a legal or constructive obligation because the entity has no other realistic alternative but to settle the obligation

a. current event

b. obligating event

c. past event

d. subsequent event

b

An outflow of resources embodying economic benefits is regarded as "probable" when:

a. The probability that the event will not occur is greater than the probability that the event will occur.

b. The probability of an event occurring is the same as the probability of an event not occurring

c. The probability that the event will occur is greater than the probability that the event will not occur.

d. The probability that the event will occur is 90% likely

c

Provisions are contingent liabilities which are accrued because the likelihood of an unfavorable outcome is:

a. virtually certain

b. at least 75%

c. greater than 50%

d. possible

c

A provision shall be recognized when:

a. There is constructive obligation as a result of a past event, the outflow of resources is probable, and a reliable estimate can be made of the amount of the obligation.

b. There is a legal obligation arising from a past event, the probability of the outflow of resources is more than remote but less than probable, and a reliable estimate can be made of the amount of the obligation

c. There is a possible obligation arising from a past event, the outflow of resources is probable, and an approximate, amount can be set aside toward the obligation.

d. Management thinks that it is critical to make a provision for unanticipated occurrences, keeping in mind that while earnings were sufficient this year, losses may occur next year.

a

Which of the following circumstances would give rise to the recognition of provision?

a. the party to whom the obligation is owed must be identifiable and the amount can be reasonably estimated

b. The outflow of economic benefits is probable, and the amount is reliably estimable.

c. The outflow of economic benefits is reasonably possible, and the amount is reliably estimable.

d. The event occurs infrequently, and the amount of the loss is reliably estimable.

b

Which of the following is not to be considered when evaluating whether to record a liability for pending litigation or not?

a. time period in which the underlying cause of action occurred.

b. The type of litigation involved.

c. The probability of an unfavorable outcome

d. The ability to make a reasonable estimate of the amount of the loss.

b

When the provision arises from a single obligation, the best estimate of the amount of the provision:

a. is determined as the individual most likely outcome.

b. is the individual most likely outcome adjusted for the effect of other possible outcomes.

c. reflects the weighting of all possible outcomes by the ir associated probabilities.

d. is equal to 50% of the individual most likely outcome,

b

Ram Co. has a provision to accrue. The amount can only be reasonably estimated within a range of outcomes. No single amount within the range is a better estimate than any other amount. The amount of the accrual should be:

a. zero

b. the midpoint of the range

c. the minimum of the range.

d. the maximum of the range.

b

When the provision involves a large population of items, it is assumed that the estimated amount of provision:

a. reflects he weighing of all possible outcomes by their associated probabilities.

b. may be the individual most likely outcome adjusted for the effect of other possible outcomes.

c. is determined as the individual most likely outcome.

d. midpoint of the possible outcomes

a

It is the statistical method of estimating a provision where the provision being measured involves a large population of items, the obligation is estimated by "weighing" all possible outcomes by their associated possibilities.

a. Extrapolation

b. weighted average

c. simple average

d. expected value.

d

Which of the following statements is incorrect concerning recognition of a provision?

a. a provision shall be used only for expenditures was for which the provision was provision

b. if an entity has an onerous contract, the present obligation under the contract originally recognized.

c. provisions shall be recognized for future operating losses

d. provisions shall be reviewed at the end of each reporting period and adjusted to reflect the current best estimate

c

The Department of Environment and Natural Resources issued a legal notice at year-end requiring an entity to install smoke detectors in its plant by June next by year. The cost of installing a smoke detector can be accurately determined. What should the entity do with this in its year-end financial statements?

a. There is no provision recognized at year-end because there is no present obligation for future expenditures because the entity can avoid them by installing smoke detectors, but disclosure is necessary.

b. recognize a provision for the current year equal to the estimated amount.

c. recognize the current-year provision equal to one-half of the projected amount.

d. Ignore the event

a

On March 22, 2023, Lamar Corporation received notification of legal action against the firm. Lamar's attorneys determine that it is probable that the company will lose the lawsuit, and the loss is estimated as P1,000,000. Lamar's accountants believe this amount is material and should be disclosed. Lamar prepares its financial statements in accordance with PFRS. How should the estimated loss be disclosed in Lamar's financial statements on December 31, 2023?

a. as a loss recorded in other comprehensive income.

b. as a contingent liability reported in the balance sheet and a loss on the income statement.

a. as a provision for loss reported in the balance sheet and a loss on the income statement.

d. in the footnotes to the financial statements as a contingency.

c

A contingent liability is a:

Statement I: Possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.

Statement II: Present obligation that arises from past event but is not recognized because it is not probable that an outflow of resources embodying economic benefits ill be required to settle the obligation or the amount of the obligation cannot be measured reliably

A. I only.

B. II only.

C. Both I and II.

D. Neither I nor II.

c

A contingent liability:

A. Is accrued even though not reasonably estimated,

B. Is the result of a loss contingency.

C. Is not recognized but only disclosed in the financial statements.

D. Exists as a liability but the amount and due date are indeterminable

c

A contingent liability is:

A. An estimated liability.

B. An event which is not recognized because it is not probable that an outflow will be required, or the amount cannot be reliably estimated.

C. A potential liability.

D. Not recognized nor disclosed.

b

Which of the following statements about contingent liability is incorrect?

A. Contingent liability is both probable and measurable

B. There is no need to disclose a remote contingent liability.

C. An entity shall not recognize contingent liability in the financial statements.

D. Contingent liability is disclosed only.

a

A contingent liability that is reasonably possible shall be reported in the financial statements as

A. an account payable.

B. a deferred liability

C. an accrued liability.

D. a disclosure only.

d

Contingent liabilities may or may not become actual liabilities, depending on a variety of factors such as:

A. The outcome of a future event.

B. Whether they are probable and estimable.

C. The present condition suggesting a liability

D. The degree of uncertainty.

b

Which of the, following sets of conditions would give rise to the accrual of a contingency?

A. Amount of loss is reasonably estimable, and occurrence of event is probable.

B. Amount of loss is reasonably estimable, and event occurs infrequently.

C. Event is unusual in nature and occurrence of event is probable.

D. Event is unusual in nature and occurs infrequently

a

If contingent liability is remote:

A. Disclosure is necessary

B. No disclosure is necessary.

C. Both A and B.

D. Either A nor B.

b

A competitor has sued a company for unauthorized use of its patented technology. The amount that the company may be required to pay to the competitor if the competitor succeeds in the lawsuit is reliably determinable, and according to the legal counsel it is less than probable (but more than remote) that an outflow of the resources would be needed to meet the obligation. The company that was sued should…

A. Recognize a provision for this possible obligation.

B. Make a disclosure of the possible obligation in the footnotes to the financial statements.

C. Make no provision or disclosure and wait until the lawsuit is finally decided and then expense the amount paid on settlement, if any.

D. Set aside, as an appropriation, a contingency reserve, an amount based on the best of the possible liability.

b

All of the following are the required disclosures for a contingent liability except:

A. Brief description of the nature of contingent liability.

B. An estimate of its financial effects.

C. An indication of the uncertainties exists

D. Possibility of any reimbursements

E. All of these are required disclosures for contingent liability

e

Disclosure is not required for:

A. Contingent loss that is possible and measurable.

B. Contingent loss that is probable and cannot be reliably measured.

C. Contingent loss that is remote and measurable.

D. None of the foregoing

c

Reporting in the financial statements is required for:

A. Loss contingency that is probable and measurable.

B. Loss contingency that is possible and measurable

C. All loss contingencies.

D. All contingencies.

a

It pertains to a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.

A. Unrealized gain.

B. Unrealized loss.

C. Contingent asset.

D. Asset in suspense

c

A contingent asset is only disclosed when it is:

A. Probable.

B. Possible.

C. Remote

D. No disclosure.

a

Which of the following accounting treatments for a probable contingent asset is correct?

A. An account receivable with an additional disclosure explaining the nature of the transaction

B. Disclosure only.

C. An accrued account.

D. Deferred earnings,

b

When the occurrence of a contingent asset is probable and the amount can be reasonably estimated, the contingent asset should be:

A. disclosed but not recognized in the statement of financial position.

B. Recognized and disclosed in the statement of financial position.

C. An appropriation of retained earnings is classified as such.

D. either recognized in the statement of financial position nor disclosed.

a

Contingent assets are recognized only when:

A. The amount can be reasonably estimated, and occurrence is reasonably possible

B. The amount can be reasonably estimated, and occurrence is probable.

C. The amount can be reasonably estimated

D. Realized.

d

Which of the following is the correct way to report a contingent asset that is almost certain to be received?

A. As an asset.

B. As a disclosure only.

C. No disclosure and no accrual.

D. As deferred revenue.

a

A fire damaged a factory owned by an entity. The company filed an insurance claim for the value of the factory structure and equipment, as well as a one-year net profit amount. Several meetings with officials from the insurance company were held during the year. Finally, before the end of the year, it was ruled that the entity would be compensated for 90% of its claim. The entity received notification that the settlement cheque for that amount had been mailed, but it had not arrived before the end of the year. How should the entity treat this in the financial statements?

A. At year's end, record 100 percent of the claim as a receivable because the contingent asset is almost certain to be collected and amend the 10 percent the following year when the settlement check is received.

B. Disclose the contingent asset in the footnotes.

C. Record 90% of the claim as a receivable as it is virtually certain that the contingent asset will be received.

D. Wait until next year when the settlement check is actually received and not recognize this receivable at all since at year-end it is 2 contingent asset.

c

Gain contingencies that are remote and can be reliably measured:

A. Should not be reported or disclosed

B. Must be reported

C. May be disclosed.

D. Must be disclosed

a

In 2022, a contract dispute between Kreese Co. and Silver Co. was submitted to arbitration. In 2022, each party’s attorney indicated privately that the probable award in Kreese’s favor could be reasonably estimated. In 2023, the arbitrator decided in favor of Kreese. When should Kreese and Silver recognize their respective gain or loss?

Kreese Co’s gain, Silver Co.’s loss

a. 2022, 2022

b. 2023, 2023

c. 2022, 2023

d. 2023, 2022

d

Which of the following statements are correct concerning accounting for assurance-type warranties?

I. An assurance-type warranty provides assurance that the product will function as intended based on agreed-upon specifications.

II. Assurance-type warranties are accounted for under PAS 37 Provisions, Contingent Liabilities and Contingent Assets.

III. An assurance-type warranty provides customer services in addition to the mere assurance that the product will function as intended based on agreed-upon specifications

IV. Assurance-type warranties are accounted for under PFRS 15 Revenue from Contracts with Customers

V. A company shall account for the assurance-type warranty as a separate performance obligation and allocate a portion of the transaction price to that performance obligation.

a. I and II

c. I, II, and V

c. III, IV, and V.

d. I and IV

e. I, IV, and V.

a

Which of the following statements are correct concerning accounting for service-type warranties?

I. A service-type warranty provides assurance that the product will function as intended based on agreed-upon specifications.

II. Service-type warranties are accounted for under PAS 37 Provisions, Contingent Liabilities and Contingent Assets.

III. A service-type warranty provides customer services in addition to the mere assurance that the product will function as intended based on agreed-upon specifications

IV. Service-type warranties are accounted for under PFRS 15 Revenue from Contracts with Customers.

V. A company shall account for the service-type warranty as a separate performance obligation and allocate a portion of the transaction price to that performance obligation.

-

A. I and II

B. I, II, and V.

C. III, IV, and V.

D. I and IV.

E. I, IV and V

c

If the customer cannot purchase the warranty separately and the warranty does not provide additional services, then the warranty would be accounted for as:

A. An assurance-type warranty under PAS 37 Provisions, Contingent Liabilities and Contingent Assets.

B. A service-type warranty under PFRS 15 Revenue from Contracts with Customers.

C. A service-type warranty under PAS 37 Provisions, Contingent Liabilities and Contingent Assets.

D. An assurance-type warranty under PFRS 15 Revenue from Contracts with Customers.

a

If the customer can purchase the warranty separately then the warranty would be accounted for as:

A. An assurance-type warranty under PAS 37 Provisions, Contingent Liabilities and Contingent Assets.

B. A service-type warranty under PFRS 15 Revenue from Contracts with Customers.

C. A service-type warranty under PAS 37 Provisions, Contingent Liabilities and Contingent Assets.

D. An assurance-type warranty under PFRS 15 Revenue from Contracts with Customers.

b

Premiums are accounted for under which accounting standard?

A. PAS 37 Provisions, Contingent Liabilities and Contingent Assets

B. PFRS 15 Revenue from Contracts with Customers

C. PAS 2 Inventories

D. Either PAS 37 or PFRS 15 depending on the company's option

b

In accounting for premiums, the allocation of the transaction price is based on:

A. relative stand-alone selling prices of the products sold, and the premiums distributed.

B. relative cost of the products sold, and the premiums distributed

C. relative stand-alone selling prices of the products sold, and the premiums expected to be distributed

D. relative cost of the products sold, and the premiums expected to be distributed.

c

Advance payments from customers represent which of the following?

A. Assets until the product is provided.

B. Liabilities until the product is provided.

C. An equity component

D. Revenue upon receipt of the advance payment

b

At year-end, an entity sold refundable merchandise coupons. The entity received a certain amount for each coupon redeemable in the subsequent period for merchandise with a certain retail price. At year-end, how should the entity report the transaction?

A. Unearned revenue at the cash received

B. Unearned revenue at the merchandise's retail price

C. Revenue at the merchandise's price.

D. Revenue at the cash received

a

How would the proceeds receive from the advance sale of nonrefundable tickets for Avengers: Secret Wars is reported in the statement of financial position before the movie showing?

A. Revenue for the entire proceeds

B. Unearned revenue for the entire proceeds

C. Revenue to the extent of related costs expanded

D. Unearned revenue to the extent of related costs expended.

b

An entity received cash and issued a gift certificate that can be used to purchase goods from the entity. When the gift certificate was issued:

A. Deferred revenue account should be increase.

B. Revenue account should be increased.

C. Deferred revenue account should be decrease.

D. Revenue account should be decreased.

a

Which of the following is the best definition of a current liability? 

a. An obligation payable within one year or within the normal operating cycle, whichever is longer.

 

An obligation payable within one year of the balance sheet date.

 

An obligation payable within one year.

Correct Answer

 

An obligation expected to be satisfied with current assets or by the creation of other current liabilities.