Accounting Revenue Recognition

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Questions and Answers

How would Entity A recognize revenue from sales of medicines in the pharmacy?

On a straight-line basis

By reference to the stage of completion at the reporting date

Upon billing, when goods are transferred to the buyer (correct)

In accordance with the substance of the relevant agreement

What type of asset would not be included in the inventories of a government entity?

Rice and other welfare goods held for distribution

Accountable forms

Equipment costing ₱15,000 (correct)

Raw materials and work-in-process

How should Entity A account for cash paid or received in an exchange of an item of PPE with Entity B?

Add the cash received to the initial measurement of the asset received

Deduct the cash paid from the initial measurement of the asset received

Add the cash paid to the initial measurement of the asset received

Account for any cash paid or received in gain or loss (correct)

What type of assets are intended to be preserved for future generations?

Heritage assets Signup and view all the answers

What is the initial measurement of the intangible asset acquired by the government entity?

₱100,000 Signup and view all the answers

What is the useful life of the intangible asset acquired by the government entity?

10 years Signup and view all the answers

How would the government entity account for the intangible asset over its useful life?

Amortization Signup and view all the answers

What is the primary focus of the statement of cash flows for government entities?

Showing historical changes in cash and cash equivalents Signup and view all the answers

What is the basis for classifying leases under the GAM for NGAs?

The extent of transfer of risks and rewards incidental to ownership of the leased asset Signup and view all the answers

Which of the following would most likely indicate a substantial transfer of risks and rewards incidental to ownership of an asset?

The lease transfers ownership of the leased asset to the Lessee if the Lessee pays the Lessor the leased asset’s fair value Signup and view all the answers

How would 'net assets released from restrictions' be shown on the statement of activities for a private not-for-profit institution?

As a decrease in permanently restricted and an increase in temporarily restricted net assets Signup and view all the answers

What is the primary focus of disclosure of events after the reporting date?

To provide information about events that occur after the reporting date Signup and view all the answers

What is the primary purpose of impairment requirements and reversals thereof for noncurrent assets?

To determine the recoverable amount of the asset Signup and view all the answers

What is the primary focus of the classification of leases under the GAM for NGAs?

To determine the substance of the transaction Signup and view all the answers

What is the primary purpose of the statement of cash flows for government entities?

To show the changes in cash and cash equivalents Signup and view all the answers

What is the recoverable amount of the asset at the end of Year 3?

60,000 Signup and view all the answers

How much is the impairment loss at the end of Year 3?

10,000 Signup and view all the answers

What is the gain on the reversal of the impairment loss at the end of Year 6?

3,714 Signup and view all the answers

What is the amount of rental revenue that should be recognized by Entity A in its 20x4 statement of financial performance?

100,000 Signup and view all the answers

How should changes in accounting policies be accounted for by government entities?

By prospective application Signup and view all the answers

What is the carrying amount of the asset after the impairment loss at the end of Year 3?

60,000 Signup and view all the answers

What is the value in use of the asset at the end of Year 3?

50,000 Signup and view all the answers

What is the lease term of the machine leased by Entity B?

5 years Signup and view all the answers

What is the total gain from the change in FVLCS during the period?

₱4,400 Signup and view all the answers

What is the interest rate implicit in the lease?

10% Signup and view all the answers

What shape would the graph of periodic interest expenses recognized on bonds issued at a premium show?

Downward line sloping to the right Signup and view all the answers

Which of the following information is not reported in the statement of changes in net assets/equity?

The balance of retained earnings Signup and view all the answers

What is the cost of buying the machine?

₱7,596 Signup and view all the answers

What is the total amount of lease payments?

₱8,000 Signup and view all the answers

What is the present value of the lease payments?

₱7,596 Signup and view all the answers

Which of the following is not one of the special journals prescribed by the GAM for NGAs?

General Journal Signup and view all the answers

What is the reason for the imposition of customs duties?

Regulation of trade and protection of domestic industry Signup and view all the answers

What is the effect of impairment loss on an amount already recognized as revenue on a government entity's statement of financial performance?

Decrease in revenue Signup and view all the answers

What is the purpose of the Notice of Cash Allocation (NCA) issued by the DBM?

To cover cash requirements Signup and view all the answers

What is the benefit of responsibility accounting?

Enhances budget accountability Signup and view all the answers

What is the relationship between accounting records and budget registries?

Separate accounting records and budget registries are maintained for each fund cluster Signup and view all the answers

What is another term for appropriation?

Obligational authority Signup and view all the answers

Study Notes

Inventory Classification

Inventory Held for Distribution, Inventory Held for Long-term Use, and Inventory Held for Consumption are classifications of inventory held by a government entity.
Semi-Expendable Property is not a classification of inventory held by a government entity.

Revenue Recognition

Revenue from sales of medicines in a pharmacy is recognized when goods are transferred to the buyer.
Revenue recognition is based on the substance of the relevant agreement, which requires an in-depth analysis by a CPA.

Property, Plant, and Equipment (PPE)

When Entity A exchanges an item of PPE with Entity B, any cash paid or received from the exchange is added to or deducted from the initial measurement of the asset received.

Cultural, Historical, and Environmental Assets

Heritage assets are assets that have historical, cultural, and environmental significance, and are intended to be preserved for future generations.

Intangible Assets

Impairment loss on an intangible asset is the difference between the asset's carrying amount and its recoverable amount.
Recoverable amount is the higher of an asset's fair value less costs to sell and its value in use.

Lease Agreements

Lease agreements may include a lease bonus and a security deposit, which are accounted for separately.
Rental revenue is recognized over the lease term.

Financial Statements

Changes in accounting policies may be accounted for by prospective application.
Non-adjusting events are never recognized but are always disclosed.
Prior period errors are corrected by retrospective application.

Statement of Cash Flows

The statement of cash flows shows the historical changes in cash and cash equivalents.

Classification of Leases

The classification of leases under the GAM for NGAs is based on the extent of transfer of risks and rewards incidental to ownership of the leased asset from the lessor to the lessee.

Risks and Rewards

A substantial transfer of risks and rewards incidental to ownership of an asset indicates a finance lease.

Net Assets Released from Restrictions

Net assets released from restrictions are shown under revenues, gains, and other support on the statement of activities for a private not-for-profit institution.

Fair Value of Cash and Cash Equivalents

The total gain from the change in fair value of cash and cash equivalents is calculated as the difference between the ending and beginning fair values.

Interest Rate

The interest rate implicit in a lease can be approximately calculated using the present value of cash flows.

Periodic Interest Expenses

The periodic interest expenses recognized on bonds issued at a premium will show a downward sloping line when plotted on a graph.

Statement of Changes in Net Assets/Equity

The effects of current period errors, surplus or deficit for the period, and items of revenue and expense that are recognized directly in equity are reported in the statement of changes in net assets/equity.

Special Journals

The Sales Journal, Cash Disbursements Journal, and other special journals are prescribed by the GAM for NGAs.

Government Entity Reporting

The receipt of a pledge, donation in the form of services in kind, or repayment of a loan payable being forgiven may result in an increase or decrease in the revenue reported by a government entity in its statement of financial performance.

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Description

This quiz covers accounting principles related to revenue recognition and inventory classification. Test your knowledge of accounting concepts and principles.