1. Which of the following liabilities is a financial liability?

A. Deferred revenue.
B. A warranty obligation.
C. A constructive obligation.
D. An obligation to deliver own shares worth a fixed amount of cash.

2. Which of the following items would be excluded from current liabilities?

A. Normal accounts payable which had been assigned by the creditor to a finance
company.
B. Long-term debt callable within one year or less because the debtor violated a debt
provision.
C. A short-term debt which at the discretion of the entity can be rolled over at least
twelve months after the balance sheet date.
D. A long-term liability callable or due on demand by the creditor even though the
creditor have given no indication that the debt will be called.

3. Which of the following is within the scope of PAS 37, Provisions, contingent liabilities
and contingent assets?
A. An insurance company’s policy liability.
B. Financial instruments carried at fair value.
C. Future payments under employment contracts.
D. Future payments on vacant leasehold premises.

4. According to PAS 37, Provisions, contingent liabilities and contingent assets, which TWO
of the following best describe the sources of legal obligation?
A legal obligation is an obligation that derives from
A. Legislation C. A published policy
B. A contract D. An established pattern of past practice.
A. A and B. C. B and D.
B. A and C. D. C and D.

5. Which of the following is not acceptable for the presentation of current liabilities?
A. Listing current liabilities in order of maturity
B. Listing current liabilities according to amount
C. Offsetting current liabilities against asset that are to be applied to their
liquidation
D. Showing current liabilities in order of liquidation preference

6. When an entity breaches an undertaking under a long-term loan agreement on or before the
balance date with the effect that the liability becomes payable on demand, the liability
is:

Statement – I: Current, event if the lender agreed after the reporting period and before
the authorization of financial statements for issue not to demand payment.

Statement – II: Non current if the lender agreed by the end of the repotting period to
provide a grace period for at least 12 months after the balance sheet date within which the
entity can rectify the breach.

A. Only statement I C. Both statement are true

B. Only statement II D. Both statements are false

7. What is the relationship between current liabilities and an entity’s operating cycle?
A. Liquidation of current liabilities is reasonably expected within the operating cycle
or one year, whichever is longer.
B. Current liabilities are the result of operating transactions.
C. Current liabilities cannot exceed the amount incurred in one operating cycle.
D. There is no relationship between the two.

8. This kind of “reserve” represents a credit account with a corresponding debit to cost or
expense, the purpose for which is to allocate equally to the years the total estimated
amount of an expense whose definite amount may only be known in the future.  Actual
payment for the expense are debited to this reserve.  This is also known as Operating
Reserve.
a. Valuation reserve. c. Contingent liability reserve.
b. Liability reserve. d. Equalization reserve.
9. The discount resulting from the determination of a note payable’s present value should be
reported on the balance sheet as a (an)
a. Deferred credit separate from the note.
b. Direct reduction from the face amount of the note.
c. Deferred charge separate from the note.
d. Addition to the face amount of the note

10. Of the following items, the one which should be classified as a current liability is
a. An accommodation endorsement on a demand note is issued by an affiliated company.
b. A cash dividend declared before the balance sheet date when the date of record is
subsequent to the balance sheet date.
c. Unfunded past service costs of a pension plan to the extent that benefits have not
vested and the costs have not been charged to operations.
d. Dividends in arrears on cumulative preferred stock.

11. Chester Company, a grocery retailer operates a customer loyalty programme.  It grants
programme members loyalty points when they spend a specified amount on groceries. 
Programme members can redeem the points for further groceries.  The points have no expiry
date.  During the year 2014, the entity grants 100,000 points, but management expects that
only 80,000 points will be redeemed.  The management of Chester Company estimates the fair
value of each loyalty point to be P1, and defers revenue in the amount of P100,000.  
During the year 2014, the company had redeemed 40,000 points, but during the year 2015 the
management revises their expectation, it now expects to redeem 90,000 points.  

What amount of revenue from loyalty programme should Chester Company recognize for the
year ended December 31, 2015?
A. P40,000 B. P50,000 C. P90,000 D. P100,000

12. During 2020, Seventeen Co. introduced a new line of machines that carry a three-year
warranty against manufacturer’s defect. Based on industry experience, warranty costs are
estimated at 2% of sales in the year of sale. 4% in the year after sale and 6% in the
second year after sale. Sale and actual warranty expenditures for first three-year-period
were as follows:
SALES ACTUAL WARRANTY EXPENDITURES
2020 P600,000 P9,000
2021 1,500,000 45,000
2022 2,100,000 135,000
4,200,000 189,000

What amount should Vans report as liability at December 2022?

A. None B. P15,000 C. P204,000 D.315,000

13. BTS Company has guaranteed a loan of P300,000 granted to BLINK Company. After the balance
sheet date of BTS Company but before the directors approved the financial statements, BTS
Company receives notice that BLINK Company is in liquidation. What proper accounting
should BTS Company account for the guarantee, assuming the creditor of BLINK Company will
invoke the guarantee?
A. The amount of the guarantee is not accounted for in BTS’s books
B. The amount of P300,000 should be recognized as a provision
C. The contingent liability should be disclosed by way of the notes to FS
D. The P300,000 be recognized as a liability with necessary disclosure in notes to FS

14. PURPLE Company is estimating a liability for claims in a legal dispute that is expected
to be settled in a year’s time. It estimates the following range of possible outcomes
with their associated possibilities:

Range Estimated outcome Probability

High P2,000,000 25%
Medium 1,200,000 35%
Low 600,000 40%

The current one-year treasury bills yield a return of 4%. An adjustment of 5% is

considered appropriate for the risk that the actual outcome will be different from the
estimated outcome.
 Q1. What amount of provision should the company recognize assuming the risk adjustment in
the measure of provision is by adjusting the discount rate used to discount the future
outflows to the present value?

A. P1,171,150 B. P1,115,385 C. P1,117,534 D. P1,160,000

Q2. What amount of provision should the company recognize assuming the risk adjustment in
the measurement of provision is by calculating the expected present value of the future
outflows and adding risk adjustment premium.

A. P1,171,150 B. P1,115,385 C. P1,117,534 D. P1,160,000

16. WHITE Company offers a coffee mug as premium for every ten 50-cent candy bar wrappers
presented by customers together with P1.00. The purchase of each mug to the Company is 90
cents, in addition it costs 60 cents to mail each mug. The results of the premium plan
for the years 2021 and 2022 are as follows (assume all purchases and sales are for cash.)

2021 2022

Coffee mugs purchased 720,000 800,000

Candy bars sold 5,600,000 6,750,000
Wrappers redeemed 2,800,000 4,200,000
2021 wrappers expected to be redeemed in 2022 2,800,000 4,200,000
2022 wrappers expected to be redeemed in 2023 2,000,000

Q1. How much is the premium expense for year 2021 and 2022?

A. P140,000 & P100,000 C. P140,000 & P245,000

B. P240,000 & P245,000 D. P240,000 & P135,000

Q2. What is the amount of premium liability as of the December 31, 2021 and 2022,
respectively?

A. P100,000 & P135,000 C. P100,000 &112,000

B. P135,000 & P168,000 D. P135,000 & P240,000

18. Accounts payable per general ledger control amounted to P5,440,000, net of P240,000 debit
balances in suppliers accounts. The unpaid voucher file included the following items that had
not been recorded as of December 31, 2022:

a) A company – P224,000 merchandise shipped on December 31, 2022, FOB destination;

received on January 10, 2023
b) B, Inc – P192,000 merchandise shipped on December 26, 2022, FOB Shipping point;
received on January 10, 2023
c) C Cool Services – P144,000 janitorial services for the three-month period ending
January 31, 2023
d) Electricity amounting to P67,200 covering the period December 26, 2022 to January 15,
2023

On December 28, 2022, a supplier authorized BLUE Company to return goods billed at
P160,000 and shipped on December 20, 2022. The goods were returned by BLUE Company on
December 28, 2022 but the P160,000 credit memo was not received until January 6, 2023.
How much should be reported as current liability by BLUE Company as of December 31, 2022?

A. 5,923,200 B. P5,841,600 C. P5,601,600 D. P5,712,000

19. Tatay Company is preparing its December 31, 2019 financial statements. The following
information was gathered:
 The bill for December’s utility cost of P30,000 was received and paid on January 10,
2020.
 A P20,000 advertising bill was received on January 2, 2020. Of the total billing,
P15,000 pertain to advertisements in December 2019 and P5,000 pertain to advertisements
in January 2020.
 A lease, effective December 16, 2018, calls for a fixed rent of P100,000 per month,
payable one month after the commencement of the lease and every month after thereafter.
 In addition, rent equal to 5% of net sales over P1,000,000 per year is payable on
January 31 of the following year.
 Total cash sales and collections on accounts amounted to P1,000,000. Accounts
receivable has a net increase of P200,000. Commissions of 15% of sales are paid on the
same day cash is received from customers.

What is the accrued liabilities on December 31, 2019?

A. 285,000
B. 135,000
C. 125,000
D. 95,000

20. Raditz Company sells gift certificates redeemable only when merchandise is purchased.
The certificates have an expiration date two years after issuance date. Upon redemption or
expiration, Raditz recognizes the unearned revenue as realized. Data for 2021 are as
follows:

Unearned revenue, January 1   1,500,000

Gift certificate sold 5,000,000
Gift certificate redeemed 4,000,000
Expired gift certificates 300,000
Cost of goods sold 60%

At December 31, 2021, Raditz Company should report unearned revenue at

A. P2,500,000 B. P2,200,000 C. 1,000,000 D.0

21. LAST Company provided the following information on December 31, 2019:

Accounts payable, net of creditors’ debit balances P200,000 2,000,000

Accrued expenses 800,000
Bonds payable due December 31, 2020 2,500,000
Premium on bonds payable 300,000
Deferred tax liability 500,000
Income tax payable 1,100,000
Cash dividend payable 600,000
Share dividend payable 400,000
Note payable – 6%, due March 1, 2020 1,500,000
Note payable – 8%, due October 1, 2020 1,000,000

The financial statements for 2019 were issued on March 31, 2020. On December 31, 2019, the
6% note payable was refinanced on a long-term basis. Under the loan agreement for the 8%
note payable, the entity has the discretion to refinance the obligation for at least twelve
months after December 31, 2019. 

What amount should be reported as total current liabilities?

A. 7,500,000
B. 9,000,000
C. 8,000,000
D. 6,900,000