Which of the following statements is correct? c.

The buyer-lessor shall record the asset at its fair value,

a. Employers are at risk with defined-benefit plans regardless of the purchase price paid for it.
because they must contribute enough to meet the cost d. The periodic payments shall be split in the seller-
of benefits that the plan defines. lessee's books into amount applied to the amortization
b. A pension plan is contributory when the employer of lease liability and amounts applied to the amortization
makes payments to a funding agency. of the loan payable.
c. The accounting for defined contribution plans is
complex because actuarial assumptions are required to The amount/s to be reported in profit or loss from a
measure the obligation and the expense and there is a direct financing lease include/s,
possibility of actuarial gains and losses. a. Neither interest income nor gross profit.
d. An employer reports no liability on its balance sheet in b. Both interest income and gross profit.
a defined-contribution plan. c. Interest income.
d. Gross profit.
The following circumstances will normally result to a
lease being classified as a finance lease, except, The unamortized balance of initial direct costs shall be
a. There is a bargain purchase option presented,
b. There is transfer of ownership over the underlying a. as a separate asset in the balance sheet.
asset at the end of the lease term. b. based on the lessor's accounting policy.
c. The lease term is for the major part of the economic c. as an addition to the other assets.
life of the underlying asset, even if there is no transfer of d. as an addition to the carrying amount of the underlying
ownership at the end of the lease term. asset.
d. At the inception date, the present value of the lease
payments amounts to at least half of all of the fair value An entity's defined benefit obligation decreases due to
of the underlying asset. the closure of one of its plant. Many of the employees
in the plant were terminated and were paid termination
The following are the reasons/sources of the differences benefits. This event would least likely result in,
in the amounts recognized by the lessor and lessee, a. Positive past service cost.
except, b. An increase in termination benefits expense.
a. The existence of unguaranteed residual value. c. Negative past service cost.
b. The lessee does not know the implicit interest rate in d. An increase in the net defined benefit asset.
the lease.
c. Variable lease payments based on revenue. When there is a single lease contract covering a building
d. A five-year lease of high-value asset is classified as an and a land on which it sits,
operating lease in the lessor's perspective. a. the lessor shall separately classify the lease of the land
Change in lease classification shall be made when there apart from the lease of the building.
is, b. the classification of the lease of the building
a. a change in circumstance, such as the default of the components shall be followed for the whole lease
lessee. contract.
b. a lease modification. c. the whole lease shall be automatically classified as a
c. all of the given choices. finance lease.
d. a change in the estimate of the underlying asset's d. the classification of the lease of the land component
useful life. shall be followed for the whole lease contract.

If the selling price of the asset is higher than its fair value The following statements are true related to a
and the sale and leasable transaction has been manufacturer's lease, except,
transferred the control over the asset, the following a. Net investment in the lease is equal to the cost of
statements are correct, except, production of the underlying asset.
a. The difference between the selling price of the asset b. Through this type of lease, the lessor has an objective
and its fair value presumed to be additional financing of increasing of increasing the sales of its inventory items.
(i.e., loan payable) from the buyer-lessor the seller- c. This type of the lease is usually offered by captive
lessee's books. leasing companies.
b. The lease liability in the seller-lessee's books is equal d. Net investment in the lease includes the present value
to the present value of the periodic payments. of the unguaranteed residual value.
If a sale and leaseback is accounted as a sale and the The purpose of an interperiod income tax allocation is
amount of selling price is equal to the fair value of the to,
sold asset, the amount of Right of Use asset is equal to, a. allow reporting entities to fully utilize tax losses carried
a. the carrying amount of the asset sold. forward from a previous year.
b. the amount of lease liability. b. recognize an asset or liability for the tax consequences
c. the carrying amount of the asset sold times the initial of temporary differences that exist at the balance sheet
amount of lease liability over the fair value of the sold date.
asset. c. allow reporting entities whose tax liabilities vary
d. the fair value of the sold asset times the initial amount significantly from year to year to smooth payments to
of lease liability over the carrying amount of the sold taxing agencies.
asset. d. amortizes the deferred tax liability shown on the
balance sheet.
The excess of the return on plan assets over the interest
income on plan assets for the period is, If the sublease is classified as an operating lease, all of
a. Deferred. the following amounts are recognized in the
b. Recognized as a remeasurement loss. intermediate lessor's profit or loss, except,
c. Not recognized. a. interest income from the net investment in the
d. Recognized as a remeasurement gain. sublease.
b. interest expense from the lease liability from the head
Which of the following correctly describes the lease.
accounting for initial direct cost? c. none of the given choices.
a. Initial direct costs are expensed outright under d. depreciation of the Right of Use asset.
manufacturer's lease and included in the measurement
of net investment in the lease under direct financing Which of the following creates a permanent difference
lease. between financial income and taxable income?
b. Initial direct costs are expensed outright under both a. Accelerated cost recovery on plant and equipment
direct financing lease and manufacturer's lease b. Unearned rent revenue
c. Initial direct costs are included in the net investment in c. Interest received on government bonds
the lease under both direct financing lease and d. Accrual method of recognizing revenue
manufacturer's lease.
d. Initial direct costs are expensed outright under direct The initial direct costs incurred shall be amortized over,
financing lease and included in the measurement of net a. initial direct costs are not amortized but fully expensed
investment in the lease under manufacturer's lease. during the period these were incurred.
b. the remaining useful life of the underlying asset.
Customer X enters into a five-year contract with c. the period of lease term.
Supplier Y for the use of a rolling stock specifically d. the simple average of lease term and remaining useful
designed for Customer X. The rolling stock is designed life of the underlying asset.
to transport materials used in Customer X's production
process and is not suitable for use by other customers. Share issuance costs are recognized directly in equity. If
The rolling stock is not explicitly specified in the the related share premium is insufficient to offset any
contract, but Supplier Y owns only one rolling stock that share issuance costs, the issuance costs are,
is suitable for Customer X's use. If the rolling stock does a. charged directly to share capital.
not operate properly, the contract requires Supplier Y to b. recognized as expense in profit or loss.
repair or replace the rolling stock. Supplier Y does not c. charged directly to retained earnings.
have a substantive substitution right. Is the rolling stock d. recognized as expense in profit or loss or charged
an identified asset? directly to retained earnings.
a. Yes, because the contract extends beyond 12 months.
b. No, because the rolling stock is not explicitly specified If the sublease is classified as a finance lease, the
in the contract. following are the correct accounting procedures in the
c. No, because I don't know what a rolling stock is. books of intermediate lessor, except,
d. Yes, because the rolling stock is implicitly specified in
the contract.
a. Any difference between the recognized net investment
in the lease and carrying amount of the derecognized Which of the following is a financial assumption for
Right of Use asset shall be recognized in equity. purposes of applying PAS 19?
b. The carrying amount of the Right of Use asset from the a. The discount rate.
head lease shall be derecognized. b. Rates of employee turnover, disability and early
c. A net investment in the lease shall be recognized as the retirement.
presented value of the sublease payments. c. Claim rates under medical plans.
d. Subsequent to the initial recognition, the intermediate d. The proportion of plan members with dependents who
lessor shall recognize both interest expense from lease will be eligible for benefits.
liability in the head lease and interest income from the
net investment in the sublease.
Which of the following creates a temporary difference
A lessor's gross investment in a finance lease is between financial and taxable income?
computed as, a. Premiums paid for officer's life insurance (the company
a. lease payments plus unguaranteed residual value. is the beneficiary)
b. sum of lease payments plus unguaranteed residual b. Accelerated depreciation on plant and equipment
value and present value of lease payments plus c. Fines from violation of law
unguaranteed residual value. d. Interest on treasury debt securities
c. present value of lease payments plus unguaranteed
residual value. On initial recognition, the lessor in finance lease shall,
d. difference between lease payments plus unguaranteed a. Both recognize a receivable in the form of net
residual value and present value of lease payments plus investment in the lease and derecognize the underlying
unguaranteed residual value. asset.
b. Neither recognize a receivable in the form of net
investment in the lease nor derecognize the underlying
asset.
Security deposits, which are refundable to the lessee c. Recognize a receivable in the form of net investment in
upon lease termination, the lease.
a. are never discounted. d. Derecognize the underlying asset.
b. are treated as receivable by lessees and as payable by
lessors. The amount sales revenue that a lessor shall recognize
c. are treated as prepaid rent by lessees and as unearned from a manufacturer's lease is equal to,
income by lessors. a. either fair value of the underlying asset or the present
d. are discounted only by lessees but not by lessors. value of the lease payments accruing to the lessor,
discounted using a market rate of interest, whichever is
If there is a modification in an operating lease contract, lower.
but without changing its classification as such, which of b. either fair value of the underlying asset or the present
the following accounting procedures is correct? value of the lease payments accruing to the lessor,
a. The balance in the accrued rent receivable shall be discounted using a market rate of interest, whichever is
immediately written-off as a loss. higher.
b. All of the given accounting procedures are correct. c. fair value of the underlying asset.
c. The revised lease payment shall be adjusted with the d. the present value of the lease payments accruing to
balance in the unearned rent income account or in the lessor, discounted using a market rate of interest.
accrued rent receivable account.
d. The balance in the unearned rent income shall be The amounts of rental income to be recognized from
immediately recognized as rent income. operating lease is,
a. equal to the total lease payments divided by lease
Retained earnings may be increased in which of the term.
following transactions? b. equal to the amount of rent received.
a. Receipt of donation from a shareholder. c. equal to a and b, whichever is shorter.
b. None of the given choices. d. equal to a and b, whichever is higher.
c. Sale of shares above par or stated value.
d. Exercise of share warrants by the holder.
If the classification of a lease changed form finance percentage-of-completion method for financial reporting
lease to operating lease, the following accounting purposes
procedures are correct, except,
a. Measure the returned underlying asset equal to the If the intermediate lessor accounted for the head lease
carrying amount of the net investment in the least as of using the general lessor accounting model, the sublease
the date. can be classified as,
b. Derecognized the net investment in the lease. a. finance lease only.
c. A gain or loss shall be recognized from the b. neither operating and finance lease.
reclassification. c. either operating or finance lease.
d. Update the carrying amount of the net investment in d. operating lease only.
the lease.
The finance lease shall be recorded on,
The following statements are true regarding direct a. inception date of the lease or commencement date of
financing lease, except, the lease, whichever is earlier.
a. Net investment in the lease is usually equal to the b. inception date of the lease or commencement date of
purchase cost of the underlying asset. the lease, whichever is later.
b. This type of lease is used to finance the lessee's c. inception date of the lease.
purchase of an asset. d. commencement date of the lease.
c. Net investment in the lease excludes the unguaranteed
residual value When the fair value of the plan assets exceeds the
d. This type of lease is usually offered by banks. present value of the defined benefit obligation, the
difference is,
The following amounts are excluded in determining the a. Reported as a noncurrent asset.
straight-line amount of rent income, except, b. Reported as defined benefit cost.
a. non-lease payments. c. Reported as a noncurrent liability.
b. variable lease payments based on revenue. d. Reported as a noncurrent asset but subject to a limit.
c. none of the above.
d. security deposits. The following statements regarding the roles of parties
in a sublease contract are correct, except,
Leases shall be classified as finance lease or operating a. Intermediate lessor is actually the middle person in the
lease on, sublease contract.
a. inception date of the lease. b. None of the given choices.
b. inception date of the lease or commencement date of c. Sublessee leases an underlying asset from the
the lease, whichever is earlier. intermediate lessor.
c. inception date of the lease or commencement date of d. The original lessor initially leased out the underlying
the lease, whichever is later. asset to the intermediate lessor.
d. commencement date of the lease.
50. Which of the following circumstances will not
How should the excess of the subscription price over the require the recognition of Right of Use asset and lease
par value of ordinary subscribed be recorded? liability?
a. As share premium when the capital stock is issued. a. short-term lease
b. As share premium when the subscription is received. b. lease involving movable properties
c. As retained earnings when the subscription is received. c. lease involving real properties
d. As share premium when the subscription is collected. d. lease of high-value assets

Which of the following is the most likely item to result in In classifying leases as finance lease or operating lease,
a deferred tax asset? the substantial transfer of which of the following shall
a. Prepaid expenses be considered?
b. Unearned revenues a. Rewards
c. Using accelerated depreciation for tax purposes but b. Either risks or rewards
straight-line depreciation for accounting purposes c. Both risks and rewards
d. Using the completed-contract method of recognizing d. Risks
construction revenue tax purposes, but using
The following are the effects of the present value of the d. PAS 19 and PAS 26 makes it incumbent upon the entity
unguaranteed residual value in a manufacturer's lease, to engage a professional actuary.
except,
a. Reduction in the cost of goods sold. Legal capital is the portion of contributed capital that
b. None of the given choices. cannot be distributed to the owners during the lifetime
c. Net decrease in the gross profit. of the corporation unless the corporation is dissolved and
d. Reduction in the sales revenue. all of its liabilities are settled first. For no-par value
shares, legal capital is
Which of the following statements is/are correct? a. the aggregate market value of shares issued and
a. Both the present value of the guaranteed residual subscribed.
value is included both in the lessee's lease liability and b. the aggregate par value of shares issued and
lessor's net investment in the lease and the present value subscribed.
of the unguaranteed residual value is included in the c. the aggregate stated value of shares issued and
lessor's net investment in the lease but excluded from subscribed.
the lessee's liability. d. the total consideration received or receivable from
b. Neither the present value of the guaranteed residual shares issued or subscribed.
value is included both in the lessee's lease liability and
lessor's net investment in the lease nor the present value According to PAS 19, past service costs arise from plan,
of the unguaranteed residual value is included in the a. Settlements.
lessor's net investment in the lease but excluded from b. Amendments.
the lessee's liability. c. Curtailments.
c. The present value of the unguaranteed residual value d. Amendments and Curtailments.
is included in the lessor's net investment in the lease but
excluded from the lessee's liability. Which of the following statements is false regarding the
d. The present value of the guaranteed residual value is accounting for leases?
included both in the lessee's lease liability and lessor's a. The amount of lease income recognized each year
net investment in the lease. under an operating lease is typically constant even
though the contractual payments increase every year by
An entity has decided to improve its defined benefit a certain amount specified in the contract.
pension scheme. The benefit payable will be b. The lessor may not use the straight line basis for
determined by reference to 60 years' service rather than recognizing lease income under an operating lease if
80 years' service. As a result, the defined benefit another systematic basis is more representative of the
pension liability will increase by P10 million. The pattern in which benefit from the use of the underlying
average remaining service lives of the employees is 10 asset is diminished.
years. How should the increase in the pension liability c. Under an operating lease, the lessor capitalizes initial
by P10 million be treated in the financial statements? direct costs. These costs will increase the lease income
a. The past service cost should be charged against profit each year.
or loss for the year. d. It is possible that the lessor does not depreciate the
b. The past service cost should be spread over the leased asset even if the lease is classified as an operating
remaining working lives of the employees. lease.
c. The past service cost should be charged against
retained profit. If the intermediate lessor accounted for the head lease
d. The past service cost should not be recognized. using the short-term is exception, the sublease can be
classified as,
Which of the following statements is correct regarding a. both operating and finance lease.
the accounting for defined benefit obligations? b. finance lease only.
a. Changes in actuarial assumptions are adjusted to both c. neither operating and finance lease.
the PV of DBO and defined benefit cost retrospectively. d. operating lease only.
b. Different rates shall be used in computing for the
interest on the PV of DBO and the interest income on the
FVPA. The amount/s to be reported in profit or loss from a
c. The discount rate used shall be based on high-quality direct financing lease include/s,
corporate bonds. a. Neither interest income nor gross profit.
b. Both interest income and gross profit. The entry to record the reissuance of treasury shares at
c. Interest income. a price that exceeds the previous reacquisition cost
d. Gross profit. includes a,
a. debit to retained earnings.
Security deposits that are refundable, b. debit to share premium and debit to retained earnings.
a. are treated as unearned income by lessors under an c. debit to share premium.
operating lease. d. credit to share premium.
b. are treated as receivable by lessees and as payable by
lessors. The underlying asset in an operating lease,
c. are discounted only by lessees but not by lessors a. shall be subjected to impairment on the
d. are not discounted because they are normally of a commencement date.
short-term nature b. shall not be derecognized.
c. shall be depreciated only during the period when it is
The gross investment in the lease shall exclude which of leased out to a lessee.
the following? d. shall be revalued to its fair value on the
a. An unguaranteed residual value. commencement date.
b. Variable lease payments based on the lessee's
revenue. Other indicators of situations that individually or in
c. Fixed periodic lease payments. combination could also lead to a lease being classified
d. A guaranteed residual value as a finance include the following, except,
If shares are issued below par or issued value, the a. Gains or losses from the fluctuation in the fair value of
deficiency of the consideration received is recorded as the residual accrue to the lessee.
"discount on share capital." The discount is presented b. None of the given choices.
in the statement of financial position, c. The lessee has the ability to continue the lease for a
a. as an addition in shareholders' equity. secondary period at a rent that id substantially higher
b. as a deduction in shareholders' equity. than market rent.
c. under current assets as a receivable from the d. If the lessee can cancel the lease, the lessor's losses
shareholder concerned. associated with the cancellation are borne by the lessee.
d. under current assets as a receivable from the
shareholder concerned and as a deduction in In a sale and leaseback,
shareholders' equity. a. The seller-lessee transfers an asset to another entity
(the buyer-lessor) and leases that asset back from the
According to PAS 19, actuarial gains and losses arise buyer-lessor.
from, b. The seller-lessor transfers an asset to another entity
a. Changes in the measurement of the PV of DBO due to (the buyer-lessee) and leases that asset back from the
changes in actuarial assumptions. buyer-lessee.
b. Changes in the measurement of the PV of DBO due to c. The buyer-lessee transfers an asset to another entity
plan amendments. (the seller-lessor) and leases that assets back from the
c. Changes in the balance of the FVPA due to unrealized seller-lessor.
gains and losses from fair value changes. d. The buyer-lessor transfers an asset to another entity
d. All of the given choices. (the seller-lessee) and leases that asset back from the
seller-lessee.
Entity B, a trustee, undertakes to manage the
retirement benefit fund of Entity A for the benefit of
Entity A's employees. When reporting to Entity A
regarding the status and performance of the fund,
Entity B would most likely apply which of the following
standards?
a. PFRS 6
b. PAS 24
c. PAS 26
d. PAS 19