Accounting for Government & Non-Profit Organizations PDF

PrE 8 ACCOUNTING FOR GOVERNMENT & NON-PROFIT ORGANIZATION PART 1 CHAPTER 1 PROBLEM 1-1: TRUE OR FALSE True 1. Compared to the accounting for business entities, government accounting places greater emphasis on the sources and utilization of government funds and the management's stewardship over government resources. True 2. Taxes are the main source of funds of the government. True 3. Other sources of funds of the government include fees, borrowings, and grants from other governments and international bodies. False 4. Currently, the financial reporting of government entities is based on NGAs. False 5. The principles used in the financial reporting of government entities are very unique that only a very few of these principles are similar to those that are applied to business entities. True 6. The principles in the GAM for NGAs are similar to the principles in the PFRSs. False 7. The GAM for NGAs is promulgated by the Philippine Congress under the authority conferred to it under the Philippine Constitution. True 8. A unique financial reporting requirement of government entities is the use of fund cluster accounting. Under fund cluster accounting, separate books and reports are prepared for each type of fund held by a government entity. False 9. The GAM for NGAs is promulgated primarily to harmonized government accounting standards with the U.S. GAAP. False 10. An item is recognized as an asset if it meets both the "probable" future economic benefits" and "reliable measurement" criteria, regardless of whether the item is a resource controlled arising from past events. PROBLEM 1-2: MULTIPLE CHOICE 1. Which of the following is a unique requirement of government accounting that is not required in the accounting for business entities? a. The use of double-entry recording system b. The use of single-entry recording system c. The use of accrual basis of accounting d. The presentation of budget information in the financial statements 2. What is the legal basis of the COA in promulgating the GAM for NGAs? a. PD 1445 State Audit Code of the Philippines b. The Philippine Constitution c. RA 9298 The Philippine Accountancy Act of 2004 d. Philippine Public Sector Accounting Standards 3. Which of the following is tasked in keeping the general accounts of the government, supporting vouchers, and other documents? a. COA b. DBM c. NGAs d. Congress 4. The Bureau of Treasury (BTR) is responsible for a. promulgating accounting and auditing rules and regulations. b. the formulation and implementation of the national budget with the goal of attaining the nation’s socio-economic objectives c. receiving and keeping national funds and managing and controlling the disturbances thereof. d. directly implementing the projects of the government. 5. According to the GAM for NGAs, the basis of accounting to be applied by government entities is the a. Cash basis b. Accrual basis c. Modified accrual basis d. Any of these as a policy choice 6. Government resources must be utilized efficiently and effectively in accordance with the law. According to P.D. No. 1445, who is directly responsible in implementing this policy? a. All employees who are entrusted with the possession of government resources. b. The head of the government agency. c. The COA. d. All elected officials. 7. The transfer of government funds from one officer to another requires the prior authorization of the a. Commission on Audit b. Head of Agency c. The President of the Republic of the Philippines d. Bureau of Treasury 8. Mr. A, a government employee entrusted with the custody of government funds, was instructed by Mr. B, a politician to release funds for the acquisition of a car as a birthday gift for Mr. B's daughter who will be having her 18th birthday next week. To relieve Mr. A from any liability, what should Mr. A do? a. Mr. A shall not release the fund but rather notify Mr. B, in writing, that his instruction is illegal. b. Mr. A shall release the fund, and then notify Mr. B, in writing, that his instruction is illegal. c. Mr. A shall release the fund but retains 20% commission. d. Mr. A shall release the fund but requires Mr. B to promise, in writing, that the car shall be returned to the government after his daughter's birthday. 9. Mr. C, a government employee entrusted with the custody of government funds, has lost the government funds entrusted to him in a force majeure. What should Mr. C do to relieve him from liability? a. Mr. C should immediately notify the Head of Agency within 30 days b. Mr. C should immediately notify COA within 30 days c. Mr. C should immediately notify Bureau of Treasury within 30 days d. Mr. C should keep the event a secret and wait for next funds to arrive 10. These refer to the attributes that make information useful to users. a. Usefulness characteristics b. Quantitative characteristics c. Qualitative characteristics d. Fundamental principles 11. Information loses this qualitative characteristic if it is not reported on a timely basis. a. Relevance b. Reliability c. Neutrality d. Materiality 12. Which of the following qualitative characteristics does an entity most likely would need to make some tradeoffs? a. Faithful Representation and Substance Over Form b. Materiality and Relevance c. Relevance and Reliability d. Understandability and Comparability 13. An entity recognizes an estimated loss from the decline in value of a property. Which of the following is most likely the qualitative characteristic being applied by the entity? a. Reliability b. Substance over Form c. Faithful representation d. Prudence 14. Which of the following is not one of the fund clusters of a government entity? a. Regular Agency Fund b. Foreign Assisted Projects Fund c. Special Account-Locally Funded/Domestic Grants Fund d. Business Related Funds e. Petty Cash Fund 15. To achieve a proper balance between relevance and reliability, the overriding consideration is a. how users’ needs are best satisfied. b. relevance is always more important that reliability. c. reliability is always more important than relevance. d. greater weight shall be given to relevance compared to reliability. PROBLEM 1-3: 1. How does government accounting differ from the accounting for business entities? a. Government accounting places more emphasis on profit-making. b. Government accounting is very complex that only highly intellectual individuals can understand it. c. Government accounting places greater emphasis on sources and utilization of funds in accordance with the law and management’s stewardship over government resources entrusted to the entity. d. Government accounting is specialized in nature that the principles applicable to business entities are never applicable to government entities. 2. Which of the following is not a source of revenue for the government? a. Taxes b. Fees collected by government agencies c. Grants and donations from other governments d. Contract price on government contracts awarded to private companies. 3. Entity A (a government agency) is entrusted with government resources. According to P.D. 1445, who is directly responsible for the efficient and effective utilization of these resources? a. The government employees who have custody over the resources. b. The Head of Entity A. c. The COA staff stationed in Entity A. d. The Foot of Entity A. 4. which of the following is not charged with government accounting responsibility under the GAM for NGAs? a. COA b. DBM c. NGAs d. House of Representatives 5. The Department of Budget and Management (DBM) is responsible for a. promulgating accounting and auditing rules and regulations. b. the formulation and implementations of the national budget with the goal of attaining the nation’s socio-economic objectives. c. receiving and keeping national funds and managing and controlling the disbursements thereof. d. directly implementing the projects of the government. 6. Which of the following is not one of the objectives of the GAM for NGAs? a. to harmonize government accounting standards with international standards. b. to update the coding structure and accounts. c. to update accounting books, registries, records, forms, reports and financial statements. d. to update government accounting standards to be consistent with the provisions of U.S. GAAP. 7. All of the following are requirements peculiar to a government entity. Which is not? a. Presenting budget information in the financial statements. b. Fund cluster accounting. c. Incorporating budgetary controls in the financial reporting system. d. Accrual basis of accounting. 8. Which of the following qualitative characteristics is improved when information is reported on a timely basis? a. Relevance b. Reliability c. Understandability d. a and b 9. The best estimate for a loss is P100,000. However, the entity deliberately overstated the loss to P200,000. Which of the following qualitative characteristics is violated? a. Prudence b. Reliability c. a and b d. Nothing is violated 10. Which of the following financial statements is peculiar to a government entity? a. Balance Sheet b. Statement of Cash Flows c. Statement of Comparison of Budget and Actual Amounts d. Statement of Changes in Equity CHAPTER 2 PROBLEM 1-1: TRUE OR FALSE False 1. The budget preparation in the Philippines uses a “bottom-up” approach. Under this approach, the budget preparation starts from the highest levels of the government down to the lowest levels. False 2. An entity prepares its budget by simply rolling-over the budget in the previous year and adjusting each line item by 10% increment to reflect inflation. This process is described as zero-based budgeting. False 3. After the budget call from the DBM, the proposed budget of various agencies are submitted to the Office of the President for review. False 4. An entity can incur obligations after receiving notice of its appropriation but before receiving the allotment. False 5. Budget deliberations in the Congress start in the House of Senate. True 6. A government entity must first receive an allotment before it can incur obligations. False 7. A government entity can make disbursements even before it receives a disbursement authority. False 8. Appropriation is also called obligational authority. True 9. The Notice of Cash Allocation (NCA) is an authority issued by the DBM to central, regional and provincial offices and operating units to cover their cash requirements. True 10. Responsibility accounting greatly enhances budget accountability because managers are evaluated only in terms of the costs or other variables that they control, and therefore, budget deviations can be readily attributed to the managers accountable therefor. PROBLEM 2-2: MULTIPLE CHOICE 1. Which of the following does not properly described the budget process used in the Philippines? a. Bottom-up budgeting b. Top-down budgeting c. Zero-based budgeting d. Non-incremental budgeting 2. Arrange the following steps according to the sequence that they appear in the budget cycle. I. Allotment II. Bicameral Deliberations III. Budget Accountability Reports IV. President’s enactment of the GAA V. Budget hearings with the DBM a. V, IV, II, I and III b. V, II, IV, I and III c. II, V, II, I and III d. V, I, II, IV and III 3. Arrange the following steps according to the sequence that they appear in the budget cycle. I. Allotment II. Disbursement Authority III. Disbursement IV. Appropriation V. Incurrence of obligation a. IV, I, II, V and III b. IV, I V, III and II c. IV, I, V, II and III d. IV, V, I, II and III 4. This type of budget is prepared in such a way that estimated revenues exceed estimated expenditures. a. Balance budget b. Excess budget c. Obligations budget d. Budget meal 5. This summarized an agency’s fiscal year plans and performance targets. It shows the agency’s physical and financial plan, monthly cash program, estimate of monthly income, and list of obligations that are not year due and demandable. a. Budget Execution Documents (BEDs) b. Special Allotment Release Order c. Statement of Approved Budget, Utilizations, Disbursements and Balances d. Aging of Due and Demandable Obligations 6. It is an authorization issued by the DBM to NGAs to incur obligations. It is also referred to as Obligational Authority. a. Appropriation b. Allotment c. Budget call d. Budget hearings 7. It refers to the amount contracted by a duly authorized administrative officer for which the government is held liable. a. Appropriation b. Allotment c. Obligation d. Disbursement 8. Which of the following best describes the Notice of Cash Allocation (NCA)? a. It is a form of legislative authorization in the allocation of funds for specified purposes. b. It is a form of authorization to a government agency to incur obligations on behalf of the government. c. It is a form of authorization to a government agency to make disbursements out of government funds. d. It is a notice received from the Congress that cash is allocated for the payment of planned expenditures. 9. Disbursements by government entities are most commonly made through a. MDS Checks b. Cash c. Petty Cash Fund d. Credit Card 10. Responsibility accounting requires all of the following except a. separate books of accounts to segregate controllable and non-controllable costs b. identification of responsibility centers c. distinction between controllable and non-controllable costs d. coding structure for responsibility centers PROBLEM 2-3: MULTIPLE CHOICE Fact pattern: A legislation approves the allocation of P100B funds to support the operations of Entity A (a government agency) in the current year. At the start of first quarter, Entity A receives authorization to incur obligations for a maximum amount of P45B in that quarter. Entity A extends half of that authorization to its lower operating units. During the quarter, Entity A receives monthly authorization to disburse funds not to exceed P15B per month. Entity A extends half of those monthly authorizations to its lower operating units. At the end of the quarter, total obligations incurred amounted to P40B while total disbursements amounted to P35B. 1. The allocation of the P100B funds to Entity A is referred to as a. Allotment b. Appropriation c. Obligation d. Sub-allotment 2. The allocation of the P100B funds to Entity A is authorized by a. Department of Budget and Management (DBM) b. Commission on Audit (COA) c. Bureau of Treasury (BTr) d. Congress 3. The P45B authorization is referred to as a. Allotment b. Appropriation c. Obligation d. Sub-allotment 4. The P45B authorization is received by Entity A from a. DBM b. COA c. BTr d. Congress 5. The half of the P45B authorization extended by Entity A (Central Office) to its lower operating units is referred to as a. Allotment b. Appropriation c. Obligation d. Sub-allotment 6. Which of the following best describes the P15B monthly authorizations? a. Allotment b. Obligation authority (e.g., Notice of Cash Allocation ‘NCA’) c. Disbursement authority (e.g., Notice of Cash Allocation ‘NCA’) d. Disbursement authority (e.g., Notice of Transfer of Allocation ‘NTA’) 7. The P15B monthly authorizations are received by Entity A from a. DBM b. COA c. BTr d. Congress 8. The half of the P15B monthly authorizations extended by Entity A (Central Office) to its lower operating units is referred to as a. Cash Disbursement Ceiling b. Non-Cash Availment Authority c. Notice of Cash Allocation (NCA) d. Notice of Transfer of Allocation (NTA) 9. In Entity A’s first quarter Statement of Appropriations, Allotments, Obligations, Disbursements and Balances, how much is shown as “unreleased appropriations?” a. P65B b. P60B c. P55B d. P45B 10. In Entity A’s first quarter Statement of Appropriations, Allotments, Obligations, Disbursements and Balances, how much is shown as “unobligated allotments?” a. P6B b. P5B c. P10B d. P15B 11. In Entity A’s first quarter Statement of Appropriations, Allotments, Obligations, Disbursements and Balances, how much is shown as “unpaid obligations?” a. P6B b. P5B c. P10B d. P15B PROBLEM 2-4: 1. All disbursements of government entities must be in conformance with the law and the a. National budget b. COA audit findings c. PPSASs d. PFRSs 2. An entity prepares its budget for the upcoming year from scratch. It scrutinizes each item in the budget irrespective of whether the item was included in the previous budget. This process is called a. zero budgeting b. incremental budgeting c. scratch budgeting d. zero-based budgeting 3. Under this approach to budgeting, several parties participate in the budget preparation – from the lowest levels of government to the highest levels, and sometimes even citizen- stakeholders participate in the budget preparation. a. bottoms-up budgeting b. zero-based budgeting c. top-down budgeting d. bottom-up budgeting 4. What is the correct sequence of the following steps in the budget process? I. Budget Legislation II. Budget Accountability III. Budget Preparation IV. Budget Execution a. II, III, I and IV b. III, I, IV and II c. III, I, II and IV d. III, IV, I and II 5. After deliberation in both houses in the Congress are finished, a committee is formed to harmonize any conflicts between the Representatives and Senate versions of the General Appropriations Bill. This committee is called the a. Adjudication Conference Committee b. Bicaramel Conference Committee c. Referee Conference Committee d. Bicameral Conference Committee 6. It is the authorization made by a legislative body to allocate funds for purposes specified by the legislative or similar authority. a. Appropriation b. Allotment c. Obligation d. Disbursement 7. These are the authorizations programmed annually or for some other period prescribed by law, by virtue of outstanding legislation which does not require periodic action by Congress. a. Automatic Appropriations b. New General Appropriations c. Continuing Appropriations d. Supplemental Appropriations 8. Entity A, a government entity, wants to make disbursements. Arrange the following events in the correct sequence before Entity A can make valid disbursements. I. Allotment II. Disbursement Authority III. Appropriation IV. Incurrence of obligation a. II, III, I, and IV b. III, I, IV, and II c. III, I, II, and IV d. III, IV, I, and II 9. This is necessary before government entities can enter into contracts that bind the government for the eventual disbursement of government funds. a. Disbursement authority b. Notice of cash allocation c. Allotment d. Incurrence of obligation 10. Under responsibility accounting, a manager’s performance is evaluated a. based on all resources under his custody. b. only in terms of the costs, or other variables, that he controls. c. on the basis of both controllable and non-controllable costs. d. only at year-end. CHAPTER 3 PROBLEM 3-1: TRUE OR FALSE True 1. Technically, only the Journals and Ledgers are considered accounting records; the Registries are budget records. True 2. Separate accounting records and budget registries are maintained for each fund cluster. False 3. Government entities and business entities use the term "obligation" or the phrase "incurrence of obligation" similarly. True 4. The various registries maintained by government entities primarily serve as internal control for controlling and monitoring the conformance of actual results with the approved budget. True 5. A check disbursement is normally recorded as credit to the "Cash-Modified Disbursement System (MDS) Regular" account. True 6. Both the ORS and RAOD are updated each time an obligation is incurred, a payable is recorded for the obligation incurred, and disbursements are made to settle the recorded payables. True 7. At the end of each year, an adjustment is made to revert any unused NCA of a government entity. False 8. The GAM for NGAs requires the Collecting Officer to issue an official receipt to acknowledge the receipt of the Notice of Cash Allocation. True 9. The entry to record the reversion of unused NCA at the end of the period is the exact opposite of the entry used to record the receipt of NCA. False 10. The remittance of amounts withheld to other government agencies, such as the BIR, BOC, GSIS, PhilHealth, and Pag-IBIG, is done through the TRA. PROBLEM 3-2: MULTIPLE CHOICE 1. The various registries maintained by government entities are considered, technically, as a. Book of Accounts b. Budget Records c. General Ledgers d. Log books 2. Which of the following is recorded in the Obligation Request and Status (ORS)? a. Receipt of notice of appropriation b. Receipt of allotment from DBM c. Receipt of Notice of Cash Allocation from the DBM d. Entering into employment contracts with employees 3. This type of expenditure pertains to all types of employee benefits. a. Personal Services (PS) b. Maintenance and Other Operating Expenses (MOOE) c. Financial Expenses (FE) d. Capital Outlays (CO) 4. Entity A, a government entity, made disbursements for the travelling expenses of its personnel. These expenditures are most likely classified as a. Personal Services (PS) b. Maintenance and Other Operating Expenses (MOOE) c. Financial Expenses (FE) d. Capital Outlays (CO) 5. Which of the following is charged with the responsibility of keeping the general accounts and related documents of the government a. Commission on Audit (COA) b. Bureau of Treasury (BTr) c. National Government Agencies (NGAs) d. Department of Budget and Management (DBM) 6. A journal entry with a credit to the "Cash-Modified Disbursement System, Regular" account will most likely be recorded in the a. General Journal b. Special Journal c. Cash Disbursements Journal d. Check Disbursements Journal 7. Which of the following accounts is debited when a government entity remits its collections to the National Treasury? a. Cash-Tax Remittance Advice b. Cash-Modified Disbursement System (MDS), Regular c. Cash-Treasury/Agency Deposit, Regular d. Cash – Collecting Officer 8. Which of the following accounts is credited when a government entity remits taxes withheld to the BIR? a. Cash-Tax Remittance Advice b. Cash-Modified Disbursement System (MDS), Regular c. Cash-Treasury/Agency Deposit, Regular d. Cash – Collecting Officer 9. Which of the following accounts is credited when a government entity remits contributions to the GSIS, PhilHealth and Pag-IBIG? a. Cash-Tax Remittance Advice b. Cash-Modified Disbursement System (MDS), Regular c. Cash-Treasury/Agency Deposit, Regular d. Cash – Collecting Officer 10. Obligations recorded in the registries but not yet in the accounting books are referred to as a. Not Yet Due and Demandable b. Contingent liabilities c. Erroneous recording d. Unpaid obligations PROBLEM 3-3: MULTIPLE CHOICE 1. The receipt of an appropriation is recorded by a government entity in the a. RAOD b. ORS c. RAPAL d. a and c 2. The incurrence of an obligation for future delivery of performance by the obligee is recorded by a government entity in the a. RAOD b. ORS c. RAPAL d. a and b 3. The receipt of an appropriation is recorded by a government entity in the a. RAOD b. ORS c. RAPAL d. a and b 4. The entry to record the receipt of Notice of Cash Allocation (NCA) by a government entity is: a. (Debit) Cash-Modified Disbursement System (MDS), Regular; (Credit) Accumulated Surplus (Deficit) b. (Debit) Cash-Modified Disbursement System (MDS), Regular; (Credit) Subsidy form National Government c. (Debit) Cash-Collecting Officer; (Credit) Subsidy from National Government d. No journal entry. The event is recorded only in the Registries. 5. According to the Revised Chart of Accounts (RCA) issued by the COA, the “Subsidy from National Government” account is a(an) a. Asset account b. Liability account c. Revenue account d. Equity account 6. Which of the following is not one of the necessary closing entries of a government entity? a. Closing of the “Cash-Treasury/Agency Deposit, Regular” account to the “Accumulated Surplus/(Deficit)” account. b. Closing of the “Subsidy from National Government” account to the “Revenue and Expense Summary” account. c. Closing of income and expense accounts to the “Revenue and Expense Summary” account. d. Closing of the net balance of “Revenue and Expense Summary” account to the “Subsidy from National Government” account. 7. A government entity pays an accounts payable. The entry to record the payment will most likely include a a. debit to the “Cash-Modified Disbursement System (MDS), Regular” account. b. credit to the “Due to BIR” account. c. credit to the “Cash-Treasury/Agency Deposit, Regular” account. d. None of these. The event is recorded only in the Registries and the Obligation Request and Status. 8. In accordance with the GAM for NGAs and the Revised Chart of Accounts, how does a government entity recognize the uncollectibility of accounts receivable? a. By debiting the “Bad Debts Expense” account. b. By debiting the “Impairment Loss-Loans and Receivables” account. c. By debiting the “Allowance for Impairment-Accounts Receivable” account. d. b and c 9. The “Subsidy from National Government” account is credited when recording a a. receipt of NCA b. reversion of unused NCA c. constructive remittance of customs duties or taxes withheld through TRA d. a and c 10. Expenditures to acquire long-term assets are most likely classified as a. Personal Services (PS) b. Maintenance and Other Operating Expenses (MOOE) c. Financial Expenses (FE) d. Capital Outlays (CO) PROBLEM 3-4: MULTIPLE CHOICE 1. This is used to recognize the constructive remittance of taxes withheld to the BIR or customs duties withheld to the BOC. a. Tax Remittance Advice (TRA) b. Notice of Tax Allocation (NTA) c. Tax and Customs Remittance Advice (TCRA) d. Notice of Tax Remittance Advisory (NTRA) 2. Which of the following does not affect the amount of surplus or deficit that is reported in the statement of financial performance? a. receipt of NCA b. constructive remittance of taxes withheld through TRA c. closing of the “Cash-Treasury/Agency Deposit, Regular” account d. adjustment of the “Cash-Modified Disbursement System (MDS), Regular” account for the unused Notice of Cash Allocation. e. All of these affect surplus or deficit. 3. Entity A received Notice of Cash Allocation (NCA) amounting to P625,000 for the year. Unused NCA at the end of the period amount to P6,000. Entity A remitted taxes withheld to the BIR amounting to P48,000 through Tax Remittance Advice (TRA). How much is the “Net Financial Assistance/Subsidy” to be reported in Entity A’s statement of financial performance? a. 667,000 b. 619,000 c. 571,000 d. 0 Computation: Subsidy form NG (NCA) 625,000 Subsidy from NG (TRA) 48,000 Unused NCA (6,000) 667,000 4. Entity A, a government entity, had the following transactions during the period: Received Notice of Cash Allocation (NCA) amounting to P750,000. Earned total revenue of P290,000 from billings and collections of unbilled income. Incurred total expenses of P885,000. Remitted total taxes withheld of P140,000 to the BIR through Tax Remittance Advice (TRA). The “Cash-Modified Disbursement System (MDS), Regular” has an unused balance of P43,000 at the end of the period. How much is the surplus (deficit) for the period? a. (595,000) b. 155,000 c. 252,000 d. 112,000 Computation: Revenue 290,000 Expenses (885,000) Surplus (deficit) from operations (595,000) Subsidy from NG (NCA) 750,000 Subsidy from NG (TRA) 140,000 Unused NCA (43,000) Net Financial Assistance/Subsidy 847,000 Surplus (Deficit) for the period 252,000 5. The trial balances of Entity A, a government entity, show the following amounts: Unadjusted Trial Balance – P2,753,000 Adjusted Trial Balance – P2,765,000 Statement of Financial Position (Debit Column) – P1,880,000 Statement of Financial Performance (Credit) – P1,137,000 How much is the surplus (deficit) for the period? a. 252,000 b. 885,000 c. (252,000) d. (743,000) Computation: Adjusted Trial Balance (Dr. & Cr.) 2,765,000 Statement of Financial Position (Dr.) (1,880,000) Statement of Financial Performance (Dr.) 885,000 Statement of Financial Position (Cr.) 1,137,000 Surplus (Deficit) for the period 252,000 6. Which of the following expenditures is not shown in the statement of financial performance? a. Personnel Services (PS) b. Maintenance and Other Operating Expenses (MOOE) c. Capital Outlay (CO) d. Financial Expenses (FE) e. All of these expenditures are shown in the statement of financial performance. 7. The entries to record the constructive remittance of taxes withheld through Tax Remittance Advice include all of the following, except a. A debit to the “Cash-Tax Remittance Advice” account b. A credit to the “Cash-Tax Remittance Advice” account c. A debit to the “Subsidy from National Government” account d. A debit to the “Due to BIR” account e. All of these are included. 8. The receipt of Notice of Cash Allocation is recorded in the a. Books of accounts (Journal and Ledger) b. Registry of Allotments and Notice of Cash Allocation (RANCA) c. a and b d. None of these 9. Which of the following is not one of the special journals prescribed by the GAM for NGAs? A. Sales Journal B. Cash Disbursement CHAPTER 4 PROBLEM 4-1: TRUE OR FALSE False 1. All revenues shall be remitted to the BTr and included in the Special Fund, unless another law specifically requires otherwise. False 2. Payments to government entities in the form of checks are not allowed. False 3. Revenues of a government entity arise from exchange transactions only. False 4. According to the GAM for NGAs, revenue from exchange transactions are measured at the amount of cash received. True 5. When cash flows are deferred, the fair value of the consideration receivable is its present value. True 6. The constructive remittance of taxes withheld through the TRA gives rise to the recognition of revenue. True 7. According to the GAM for NGAs, the receipt of concessionary loans by government entities may give rise to revenue recognition. False 8. The taxable event for income tax is the passage of the time period for which the tax is levied. False 9. Taxes are compulsory payments, imposed on persons, properties or activities, intended to provide revenue to the government. Taxes include fees, fines and penalties. True 10. The main source of revenue for the government is taxes. PROBLEM 4-2: MULTIPLE CHOICE 1. Which of the following is a non-exchange transaction? a. Leasing b. Collection of taxes c. Rendering of legal services d. Collection of tuition fees 2. Entity A enters into a long-term contract to provide services. The outcome of the transaction can be estimated reliably and the progress on the contract can be measured with sufficient reliability. According to PPSAS, how should the revenue from the contract be recognize? a. On a straight line basis over the contract term. b. By reference to the stage of completion of the contract at the reporting date. c. Full recognition of contract price upon completion of the contract. d. Only to the extent of costs that are expected to be recovered. 3. According to the GAM for NGAs, interest revenue is recognized a. on a time proportion basis using the effective interest method. b. on a straight line basis. c. in accordance with the substance of the relevant loan agreement. d. when the entity’s right to receive payment is established. 4. The taxable event for value added tax (VAT) is the a. undertaking of a taxable activity. b. earning of taxable income. c. movement of dutiable goods or services across the customs boundary. d. any of these 5. Which of the following would result to an increase or decrease in the revenue reported by a government entity in its statement of financial performance? a. Impairment loss on an amount already recognized as revenue. b. Receipt of a pledge. c. Receipt of donation in the form of services in kind. d. The repayment of a loan payable is forgiven. 6. A type of fund held by a government entity that is designated for special purposes. a. General fund b. Special fund c. Trust fund d. Fiduciary fund 7. The national government receives a foreign grant conditioned on the construction of a public infrastructure. According to the GAM for NGAs, when does the national government recognize revenue from the grant (i.e., credit to the Income from Grants and Donations in Cash’ account)? a. Upon the receipt of the grant. b. When the grant becomes receivable, provided there is reasonable assurance that the attached condition will be satisfied. c. When the condition is met. d. When the related expenses for which the grant is intended to compensate are incurred. 8. The receipt of which of the following may not give rise to revenue by a government entity? a. Notice of Cash Allocation b. Tax Remittance Advice c. Subsidy from another government entity d. Inter-agency fund transfer 9. A government entity collects fees for the processing of certain permits. The processing of a permit would normally take a few minutes. The processing fee is collected upon issuance of the permit. This government entity would normally recognize revenue from permit fees a. on a straight line basis. b. by reference to the stage of completion. c. upon collection of the fee. d. when the significant risks and rewards are transferred to the customer. 10. The receipt of a performance bond or a security deposit is credited to a a. liability account b. revenue account c. cash account d. a and c PROBLEM 4-3: 1. Which of the following is not one of the fundamental principles for revenue under P.D. No. 1445? a. All revenues shall be remitted to the BTr and included in the General Fund, unless another law specifically allows otherwise. b. Recording of revenue in other types of funds (e.g., Special Fund) shall be made only when authorized by law. c. Collections of revenue must be properly acknowledged through pre-numbered Official Receipts. d. All collections of revenue must be in the form of cash. Checks are not acceptable. 2. Imposition and collection of tax revenue is considered a. exchange transaction b. non-exchange transaction c. donation d. any of these 3. According to the GAM for NGAs, all of the following criteria must be met before a government entity recognizes revenue from sale of goods, except a. Significant risks and rewards of ownership of the goods are transferred to the buyer and the entity does not retain control over those goods. b. It is probable that economic benefits will flow to the entity. c. The amounts of revenue and related costs can be measured reliably. d. The stage of completion can be measured reliably. 4. According to the GAM for NGAs, when the outcome of a service contract cannot be estimated reliably, revenue is recognized a. on a straight line basis over the periods the services are rendered. b. by reference to the contract’s stage of completion at each reporting date. c. only to the extent of costs that are expected to be recovered. d. only upon the completion of the contract. 5. Entity A sells goods with a list price of P100,000, on account. Credit term is 20% and 10%. Journal entry to recognize the revenue includes all of the following except a. A debit to accounts receivable for P72,000. b. A credit to sales revenue for P72,000. c. A debit to sales discounts for P28,000. d. All of these are included in the entry. 6. According to the GAM for NGAs, an exchange of goods or services of similar nature and value between entities a. gives rise to revenue measured at the fair value of the goods or services received, adjusted for any cash paid or received on the exchange. b. gives rise to revenue measured at the fair value of the goods or services given up, adjusted for any cash paid or received on the exchange. c. a or b, whichever is more clearly determinable. d. does not give rise to revenue. 7. Gifts, donations and goods in-kind with condition are recognized a. as revenue immediately upon the receipt thereof. b. initially as liability and recognized as revenue only when the condition is satisfied. c. as revenue measured at fair value only when actually received. d. directly in equity. 8. Which of the following, according to GAM for NGAs, may never give rise to revenue for a government entity? a. Services in-kind b. Debt forgiveness c. Concessionary loan d. Grant with condition 9. When an amount already recognized as revenue become subsequently uncollectible, it is a. Recognized as expense. b. Recognized as an adjustment to the revenue originally recognized. c. Either a or b as an accounting policy choice d. Not recognized 10. Which of the following receipts of a government entity will give rise to revenue recognition? a. Receipt of excess cash advance b. Receipt of refund for overpayment of expenses c. Receipt of performance bond d. Receipt of subsidy from the National Government or other National Government Agencies CHAPTER 5 PROBLEM 5-1: TRUE OR FALSE True 1. No additional cash advance shall be given to any official or employee unless the previous cash advance given to him is first liquidated. True 2. All disbursements require prior certificates to establish their validity and legality. A certification for fictitious obligation is void and results to criminal liability be the certifying officials. False 3. Entity A acquires equipment from a supplier, on account. A lender settles the account of Entity A by directly paying the supplier the proceeds of a loan payable that is recorded in the BTr’s books. This transaction is call Cash Disbursement Ceiling (CDC). False 4. All disbursements shall be made through Disbursement Vouchers (DVs) or Payroll which are approved by the Head of the Requisitioning Unit. False 5. Government entities are not allowed by law to make purchases using credit card. False 6. The Non-Cash Availment Authority (NCAA) is a disbursement authority issued to government agencies with foreign service posts. False 7. According to the GAM for NGAs, the Advice to Debit Account (ADA) mode of disbursement can be used only if the payee maintains an account in the same bank where the government entity maintains its account. False 8. Disbursements through the Cash Disbursement Ceiling (CDC) results to the recognition of a loan payable in the books of accounts of the BTr. True 9. Under the Advice to Debit Account (ADA) mode of disbursement, payments from a government entity are directly credited to the bank accounts of the payees through fund/bank transfers. False 10. The only valid modes of disbursement for a government entity are through cash or check. PROBLEM 5-2: MULTIPLE CHOICE 1. A certification on the availability of allotment is required before a disbursement of government funds is made. According to the GAM for NGAs, who shall issue this certification? a. Budget Officer b. Chief Accountant c. Head of Agency d. Requisitioning Individual 2. The Chief Accountant shall charge obligations incurred against available allotment to ensure that a. the NCA is sufficient to meet the disbursement needs. b. there are no unreleased appropriations. c. no overdraft is incurred. d. no excess allotment exists. 3. A certification on the availability of funds and completeness of supporting documents is required before a disbursement of government funds is made. According to GAM for NGAs, who shall issue this certification? a. Budget Officer b. Chief Accountant c. Head of Agency d. Requisitioning Individual 4. Which of the following results to the recognition, in the books of accounts, of expenses classified as Personnel Services? a. Granting of cash advance for payroll b. Liquidation of payroll fund c. Issuance of office supplies to end users d. Set up of payable for payroll 5. According to the GAM for NGAs, disbursements for salaries and wages shall be supported by a. Disbursement Vouchers b. Payroll c. Petty Cash Vouchers d. Official Receipts 6. Which of the following results to the recognition of expense? a. Granting of cash advance for travel b. Liquidation of cash advance for travel c. Refund of excess cash advance d. Remittance of the refund for excess cash advance to the BTr. 7. The entry in the books of a government agency with foreign service post to record the receipt of disbursement authority called the Cash Disbursement Ceiling (CDC) includes a a. debit to Cash-Modified Disbursement System (MDS) b. credit to Subsidy from National Government c. credit to Cash-Constructive Income Remittance d. debit to Subsidy from National Government 8. This is used to recognized: (1) in the books of national government agencies, the constructive remittance to BIR and BOC of taxes and customs’ duties withheld, and the constructive receipt of NCA for those taxes and customs duties; (2) in the books of the BIR and BOC, the constructive receipt of tax revenue and customs duties; and (3) in the books of the BTr, the constructive receipt of the taxes and customs duties remitted. a. Notice of Cash Allocation (NCA) b. Tax Remittance Advice (TRA) c. Cash Disbursement Ceiling (CDC) d. Non-Cash Availment Authority (NCAA) 9. All of the following are considered valid cashless disbursements, except a. purchase of goods using an electronic card issued by CitiBank. b. payment of payables using a Non-Cash Availment Authority. c. remittance of taxes withheld to the BIR through Tax Remittance Advice. d. online payment through LBP’s eMDS. e. payment to supplier through LBC Padala. 10. Which of the following government agencies will most likely be able to obtain a disbursement authority in the form of Cash Disbursement Ceiling (CDC)? a. BIR b. DPWH c. DFA d. NFA PROBLEM 5-3: MULTIPLE CHOICE 1. Entity A disburses a check chargeable against the Treasury Account. The journal entry to record the disbursement involves a credit to which of the following accounts? a. Cash-Treasury/Agency Deposit, Regular b. Cash-Modified Disbursement System (MDS), Regular c. Cash-in-Bank-Local Currency, Current Account d. Cash-Collecting Officers 2. Entity A sends an employee to an official travel and gives him cash to cover his travelling expenses. Which of the following is most likely the entry to record the cash disbursement? a. Travelling Expenses xxx Advances to Officers and Employees xxx b. Travelling Expenses xxx Cash-Modified Disbursement System (MDS), Regular xxx c. Advances to Officers and Employees xxx Cash-Modified Disbursement System (MDS), Regular xxx d. Advances to Officers and Employees xxx Cash on Hand xxx 3. Entity A purchases office supplies from an authorized merchant using an electronic card. The entry to record the purchase is a. Office Supplies Inventory xxx Accounts Payable xxx b. Accounts Payable xxx Cash – Modified Disbursement System (MDS), Regular xxx c. Office Supplies Inventory xxx Cash-Modified Disbursement System (MDS), Regular xxx d. No journal entry. 4. Entity A wants to make disbursements online. Which of the following should Entity A do so that it can make valid disbursements online? a. Apply for a PayPal account. b. Obtain a debit card or credit card that is either Visa or MasterCard from any bank. c. Enrol with the eMDS of the Land Bank of the Philippines. d. Make a facebook account. 5. Entity A acquires the equipment on account and settles the account through Non-Cash Availment Authority (NCAA). The entry to settle the account is a. Accounts Payable xxx Subsidy form National Government xxx b. Accounts Payable xxx Cash – Modified Disbursement System (MDS), Regular xxx c. Accounts Payable xxx Cash-Constructive Income Remittance xxx d. No journal entry. 6. Entity A has a foreign service post. During the period, Entity A receives authorization from the DBM allowing it to use the collections of its own foreign service post to defray for the necessary expenses of the foreign service post. The entry to record the disbursement authority is a. Cash in Bank-Foreign Currency, Current Account xxx Cash-Collecting Officer xxx b. Cash-Constructive Income Remittance xxx Subsidy from NG xxx c. Accounts Payable xxx Cash-Constructive Income Remittance xxx d. No journal entry. 7. Which of the following modes of disbursements is most similar to a check disbursement? a. eMDS b. NCAA c. ADA d. NBA 8. A government entity makes payment through Advice to Debit Account (ADA). The entry most likely to be used in recording the payment is a. Accounts Payable xxx Cash – Modified Disbursement System (MDS), Regular xxx b. Accounts Payable xxx Subsidy form National Government xxx c. Accounts Payable xxx Cash-ADA xxx d. None. The transaction is recorded only in the Registries and ORS. 9. A government entity makes constructive remittance of taxes withheld to the BIR through Tax Remittance Advice (TRA). The entry used in recording the transaction is a. Cash-Tax Remittance Advice xxx Subsidy form National Government xxx b. Due to BIR xxx Cash-Tax Remittance Advice xxx c. a and b d. None. The transaction is recorded only in the Registries and ORS. 10. Which of the following modes of disbursements would result to the recognition of a loan payable in the books of the BTr? a. CDC b. NCAA c. ADA d. UFC PROBLEM 5-4: MULTIPLE CHOICE 1. Which of the following is not used in processing disbursements? a. DVs b. Payroll c. PCVs d. ORs 2. Which of the following is not a form of disbursement authority? a. NCA b. TRA c. NTA d. Allotment 3. It is an authority issued by the DBM to central, regional and provincial offices and operating units to cover their cash requirements. It specifies the maximum amount of cash that can be withdrawn from a government servicing bank in a certain period. a. Notice of Cash Allocation (NCA) b. Tax Remittance Advice (TRA) c. Cash Disbursement Ceiling (CDC) d. Non-Cash Availment Authority (NCAA) 4. Entity A has a foreign service post. During the period, Entity A receives authorization from the DBM allowing it to use the collections of its own foreign service post to defray for the necessary expenses of the foreign service post. This authorization is called a. Cash Disbursement Ceiling (CDC) b. Non-Cash Availment Authority (NCAA) c. Electronic Modified Disbursement System (eMDS) d. Advice to Debit Account (ADA) 5. Entity A disburses a check chargeable against its checking account maintained with Government Servicing Bank. The journal entry to record the disbursement involves a credit to which of the following accounts? a. Cash-Treasury/Agency Deposit, Regular b. Cash-Modified Disbursement System (MDS), Regular c. Cash-in-Bank-Local Currency, Current Account d. Cash-Collecting Officers 6. Which of the following entries would most likely constitute a cash disbursement, rather than a check disbursement? a. Electricity Expenses xxx Cash-Modified Disbursement System (MDS), Regular xxx To record payment for electricity expenses b. Accounts Payable xxx Cash-Modified Disbursement System (MDS), Regular xxx To record payment of accounts payable c. Advances to Officers and Employees xxx Cash-Modified Disbursement System (MDS), Regular xxx To record grant of cash advance for travel d. None. All of these are check disbursements. 7. Which of the following would most likely constitute a disbursement through Advice to Debit Account (ADA)? a. Electricity Expenses xxx Cash-Modified Disbursement System (MDS), Regular xxx To record payment for electricity expenses b. Accounts Payable xxx Cash-Modified Disbursement System (MDS), Regular xxx To record payment of accounts payable c. Advances to Officers and Employees xxx Cash-Modified Disbursement System (MDS), Regular xxx To record grant of cash advance for travel d. None. All of these are check disbursements. 8. Which of the following is true regarding disbursements through electronic Modified Disbursement System (eMDS)? a. The disbursement is not recorded in the books of accounts. b. The disbursement is made through the issuance of MDS check. c. The disbursement is made through the use of a credit card that is swiped in a card swipe machine of an authorized merchant. d. The disbursement is made through an online transaction. 9. Entity A purchases office supplies from an authorized merchant using an electronic card. The entry to record the purchase is a. Office Supplies Inventory xxx Accounts Payable xxx b. Accounts Payable xxx Cash – Modified Disbursement System (MDS), Regular xxx c. Office Supplies Inventory xxx Cash-Modified Disbursement System (MDS), Regular xxx d. No journal entry. 10. Entity A acquires the equipment on account and settles the account by debiting Accounts Payable and crediting Subsidy from National Government. The mode of disbursement used by Entity A is most likely a(an) a. Credit Card transaction b. Advice to Debit Account c. Cash Disbursement Ceiling d. Non-Cash Availment Authority CHAPTER 6 PROBLEM 6-1: TRUE OR FALSE False 1. According to the GAM for NGAs, all financial assets are initially measured at fair value. False 2. According to the GAM for NGAs, government entities shall prepare bank reconciliations only at year-end or whenever the need arises. False 3. Only debt instruments with remaining maturity of 3 months or less can qualify as cash equivalents. False 4. The PCF of a government entity is replenished when disbursements reach at least 90%, or as needed. True 5. No journal entry is prepared when a disbursement is made out of the petty cash fund. False 6. A government entity established a P30,000 petty cash fund. The custodian must be bonded for at least P5,000. False 7. According to the GAM for NGAs, all financial assets shall be initially measured at fair value plus transaction costs. False 8. Transaction costs on financial assets classified under the held to maturity category are expensed outright. True 9. A derivative derives its value from the changes in value of a specified rate, price, event or some other variable. True 10. Risk management is the process of identifying the desired level of risk, identifying the actual level of risk and altering the latter to equal the former. PROBLEM 6-2: MULTIPLE CHOICE 1. Which of the following is not considered a financial asset? a. Petty cash fund b. Investment in debt securities c. Accounts receivable d. Prepaid assets 2. A cash shortage of a government entity is most likely recorded as a a. debit to a receivable account b. debit to a cash shortage or overage account c. credit to miscellaneous income account d. credit to a cash shortage or overage account 3. Dishonored checks are recorded by a government entity as a. Notes receivable b. Other receivables c. Accounts receivable d. Losses 4. The entry to record the replenishment of a petty cash fund of a government entity is a. Expense accounts xxx Cash-Modified Disbursement System (MDS), Regular xxx b. Expense accounts xxx Petty Cash xxx c. Expense accounts xxx Cash-Collecting Officers xxx d. Expense accounts xxx Cash-Treasury/Agency Deposit, Regular xxx 5. Under this method of bank reconciliation statement preparation, the unadjusted book and bank balances are brought to an adjusted balance that is reported on the statement of financial position. a. Bank to Book Method b. Book to Bank Method c. Adjusted Balance Method d. All of these 6. Which of the following may be paid through the petty cash fund of a government entity? a. Rent worth P12,000. b. Pantry supplies worth P15,000. c. Office supplies worth P20,000. d. None of these. 7. Entity A maintains a petty cash fund. At any given point of time, the cash on hand and the petty cash vouchers must be equal to the ledger balance of the petty cash fund. If these are not equal, the difference is either shortage or overage. This system of handling petty cash fund is called a. Impress System b. Fluctuating Balance System c. Pretty Cash System d. Imprest System 8. According to the GAM for NGAs, the establishment of a petty cash fund a. requires the approval of the Head of Agency. b. requires the approval of the Chief Accountant. c. requires the approval of the President of the Philippines. d. does not require any formal approval because petty cash funds are likely to be immaterial. 9. The “Loans Receivable” account is most likely to be used in the books of accounts of which the following government agencies? a. COA b. NIA c. BTr d. All of these 10. Which of the following is not one of the characteristics of a derivative? a. It requires no notional amount (or only a very minimal notional amount). b. Its value changes in response to the change in an underlying. c. It requires no initial net investment (or only a very minimal initial net investment). d. It is settled at a future date. PROBLEM 6-3: MULTIPLE CHOICE 1. According to the GAM for NGAs, these refer to incremental costs that are directly attributable to the acquisition, issue, or disposal of a financial instrument. a. Costs to sell b. Transaction costs c. Financial costs d. Variable costs 2. Which of the following is not one of the categories of financial assets under the GAM for NGAs? a. Held-to-maturity investments b. Loans and receivables c. Available-for-sale financial assets d. Financial asset through other comprehensive income 3. Entity A acquires an investment for P1,000,000. Transaction costs amount to P10,000. At year-end, the investment has a fair value of P900,000. If the investment is classified as financial asset through surplus or deficit, how much is the loss from the change in fair value? a. 100,000 b. 90,000 c. 110,000 d. 0 Use the following information for the next four questions On January 1, 20x1, Entity A acquires 10-year, 10%, P2,000,000 face amount bonds for P1,456,792 and classifies them as held-to-maturity investments. Transaction costs on the acquisition amount to P125,919. The issuer pays annual interest every December 31. The effective interest rate is 14% 4. The initial carrying amount of the investment on January 1, 20x1 is a. 1,456,792 b. 1,330,873 c. 1,582,711 (1,456,792 + 125,919) d. 2,000,000 5. The interest income in 20x1 is a. 221,580 (1,582,711 x 14%) b. 203,951 c. 186,322 d. 200,000 6. If the investment is classified as available for sale financial asset and the fair value at year- end is P1,800,000, how much is the gain (loss) from the change in fair value? a. (200,000) b. (217,289) c. 195,709 (1,800,000 – 1604,291) d. 238,869 Date Collections Interest income Amortization Present value 1/1/x1 1,582,711 12/31/x1 200,000 221,580 21,580 1,604,291 7. If the investment is classified as available for sale financial asset, how much is the interest income in 20x1? a. 221,580 b. 203,951 c. 186,322 d. 200,000 8. According to the GAM for NGAs, changes in fair value of investments classified as available for sale financial assets are a. recognized in surplus or deficit b. recognized in net assets c. not recognized d. a or b 9. Entity A acquires an investment for P100,000 and incurs transaction costs of P10,000. At year-end, the fair value of the investment is P80,000. Entity A recognizes a P30,000 loss from the change in fair value. The investment would most likely to have been classified under which of the following categories of financial assets? a. Available-for-sale financial assets b. Financial asset through surplus or deficit c. Held-to-maturity investments d. Loans and receivables 10. Entity A acquires an investment for P100,000 and incurs transaction costs of P10,000. At year-end, the fair value of the investment is P120,000. However, the investment is appropriately reported in the year-end statement of financial position at a carrying amount of P106,382. The investment would most likely to have been classified under which of the following categories of financial assets? a. Available-for-sale financial assets b. Held-to-maturity investments c. Loans and receivables d. Cannot be determined due to insufficient information PROBLEM 6-4: FOR CLASSROOM DISCUSSION 1. According to the GAM for NGAs, a government entity’s cash comprises all of the following except a. cash on hand b. cash in bank c. cash equivalents d. cash treasury accounts 2. Which of the following is excluded from the amount of cash that is reported in the statement of financial position of a government entity? a. unreleased checks drawn b. cancelled checks drawn c. undeposited collections d. post-dated checks received 3. An unexplained cash overage of a government entity is recorded as a a. credit to a payable account b. debit to a cash shortage overage account c. credit to miscellaneous income account d. credo to a cash shortage or overage account 4. All of the following are considered internal controls over cash except a. Requiring a cash custodian to be properly bonded. The amount of bond shall not be less than the cash accountability of the custodian. b. Preparing a bank reconciliation for each bank account maintained by a government entity. c. Making estimates of recurring expenses before establishing an amount for a petty cash fund. d. Maintaining the petty cash fund under a Fluctuating Balance System wherein the total cash on hand and petty cash vouchers may or may not be equal to a fixed amount of petty cash fund at any given point of time. e. Requiring at least three bidders or canvases before making purchases. 5. The per transaction threshold for petty cash disbursements of a government entity is a. P5,000 b. P10,000 c. P15,000 d. No limit; sky is the limit. 6. A government agency shall prepare a bank reconciliation for each bank account maintained. Bank reconciliations are prepared using the a. Bank to Book Method b. Book to Bank Method c. Adjusted Balance Method d. Any of these 7. If the adjusted balance of cash is less than the unadjusted balance per books and there are no other reconciling items or errors, the difference is most likely caused by a. Credit memo b. Debit memo c. Deposits in transit d. Outstanding checks 8. According to the GAM for NGAs, receivables are measured at Initial Subsequent a. Fair value Amortized cost b. Fair value plus transaction costs Amortized cost c. Fair value minus transaction costs Amortized cost d. Fair value Fair value 9. The subsequent changes in the fair value of an investment that is classified as available for sale are recognized in a. surplus or deficit b. net assets or equity c. not recognized d. any of these as an accounting policy choice 10. According to the GAM for NGAs, the very purpose of derivatives is a. risk management b. speculation c. risk incurrence d. a or b CHAPTER 7 PROBLEM 7-1: TRUE OR FALSE False 1. According to the GAM for NGAs, inventories of government entities are subsequently measured at net realizable value or current replacement cost depending on whether the inventory is classified as held for sale or held for distribution. False 2. According to the GAM for NGAs, purchases of machinery, equipment, furniture and fixtures and similar items below the Ᵽ10,000 capitalization threshold for PPE are recorded as inventories. True 3. Relief goods, office supplies, equipment and furniture and fixture are items that may appropriately be recorded as inventories by a government entity. False 4. The GAM for NGAs allows government entities to use the FIFO cost flow formula. False 5. The GAM for NGAs allows government entities to use a periodic inventory system. False 6. The specific identification cost formula is not available for use by government entities, according to the GAM for NGAs. False 7. The Purchase Request (PR) form is prepared when end users request for the issuance of items of inventory that are available on stock. True 8. If the beginning balance of inventory is P50, the net purchases are P100 and the cost of goods sold is P30, the ending inventory must be P120. Fact pattern Entity A, a government entity, sells eggs. At the start of the period, Entity A’s inventory consisted of (1) red egg with a carrying amount of P2. During the period, Entity A acquired one (1) brown egg for P3 and one (1) blue egg for P4. Entity A sold the brown egg during the period. False 9. Under the Specific identification cost formula, Entity A’s cost of sale is P2. False 10. If the eggs are ordinarily interchangeable, Entity A’s cost of sale is P2.5, assuming the sale occurred only after all the purchases were made. PROBLEM 7-2: MULTIPLE CHOICE 1. Entity A, a government entity, purchases inventories. To record a purchase, Entity A would likely debit the (an). a. Inventory account b. Purchases Account c. Expense Account d. a or b 2. Entity A, a government hospital, acquires medicines to be sold in its pharmacy. Entity A would record the medicines acquired as a. Semi-Expendable Property b. Inventory Held for Consumption c. Inventory Held for Distribution d. Inventory Held for Sale 3. Entity A, a government entity, purchases relief goods which are to be held on standby, ready to be distributed when a calamity strikes. Entity A would most likely classify the goods purchased as a. Inventory Held for Consumption b. Inventory Held for Distribution c. Purchases d. None of these, only a note disclosure shall be made 4. According to the GAM for NGAs, this shall be used for large numbers of items of inventory that are ordinarily interchangeable. a. Specific identification b. FIFO c. Weighted average cost applied in a period inventory system d. Weighted average cost applied in a perpetual inventory system e. Any of these as a matter of accounting policy choice 5. This refers to the cost an entity would incur to acquire an asset on the reporting date. a. Net realizable value b. Fair value c. Current replacement cost d. Present value 6. Which of the following inventories of a government entity would be subsequently measured at the lower of cost and current replacement cost? a. Inventories of rice that are held for sale b. Medicines being sold by a government-owned pharmacy c. Books to be distributed to students in public schools d. Forest products held for sale 7. Which of the following events or transactions would not lead to the recognition of the cost of inventory as expense? a. The inventory is written down. b. The inventory is distributed for free. c. The inventory is exchanged for dissimilar inventory. d. The inventory is consumed in the manufacturing process. 8. The accounting division of a government entity uses this record and monitor the movements and balances inventories. a. Stock Card b. Stock Ledger Card c. Journal Entry d. Special Journal 9. Which of the following statements correctly differentiates the Stock Card from the Stock Ledger Card? a. The Stock Ledger Card is maintained by the Budget Division while the Stock Card is maintained by the Accounting Division. b. The Stock Card is subject to audit by the COA while the Stock Ledger Card is not. c. The Stock Card shows quantities only while the Stock Ledger Card shows monetary balances only. d. The stock Card shows quantities only while the Stock Ledger Card shows quantities as well as monetary amounts. 10. This document is prepared when end users request for the issuance of inventories that are available on stock. a. Purchase Requisition Form b. Custodian Inventory Slip c. Purchase Order d. Requisition and Issue Slip PROBLEM 7-3: MULTIPLE CHOICE 1. Entity A, a government entity, purchases inventory to be held for sale in the ordinary course of activities. Which of the following is the correct entry, to record the purchase? a. Merchandise Inventory xxx Account Payable xxx b. Purchase xxx Accounts Payable xxx c. a or b depending on the accounting policy being used d. none, a government entity cannot hold inventories for sale; only for consumption. 2. Entity A, a government entity, distributed welfare goods to the intended recipients. The entry to recognize the event is a. Cost of sales xxx Welfare Goods for Distribution xxx b. Welfare Goods Expense xxx Welfare Goods for Distribution xxx c. Distribution costs xxx Welfare Goods for Distribution xxx d. None. The expense is recognized at the end of the period when a physical count is performed. The expense is closed to the Income Summary account. 3. At year-end, Entity A, a government entity, determines the following information: Carrying amount of goods held for distribution — P100,000. Net realizable value — P80,000. Current replacement cost — P90,000. How much of the carrying amount of the inventory is recognized as expense? a. 10,000 b. 20,000 c. 90,000 d. None of these Use the following information for the next two questions: Entity A, a government entity, determines the following information regarding the inventory of Goods A, a non-unique item: 4. How much is ending inventory? a. 116,382 b. 117,300 c. 116,495 d. Any of these. 5. How much is the cost of sale? a. 207,805 b. 207,918 (56,862 + 151,056) c. 207,000 d. Any of these. Units Unit Cost Total Cost Balance at January 1, 2002 3,000 19.55 58,650 January 6, 2002 10,200 21.5 219,300 TGAS 13,200 21.06 277,950 January 7, 2002 (2,700) 21.06 (56,862) January 26, 2002 2,250 20.6 46,350 TGAS 12,750 20.98 267,438 January 31, 2002 (7,200) 20.98 (151,056) Ending inventory 5,550 116,382 PROBLEM 7-4: 1. Entity A, a government entity, purchases furniture and fixtures amounting to P14,000. Entity A would most likely record the purchase as a. Property, Plant and Equipment b. Inventory Held for Consumption c. Inventory Held for Manufacturing d. Semi-Expendable Property 2. Accountable forms such as pre-printed forms used in government transactions are most likely to be classified by a government entity as a. Inventory Held for Consumption b. Inventory Held for Sale c. Semi-Expendable Property d. Not considered inventory, according to the GAM for NGAs 3. Inventories are initially measured at cost and subsequently measured at a. The Lower of Cost and Net realizable value for good s held for sale b. The Lower of Cost and Current replacement cost for goods held for distribution. c. a and b d. cost 4. Which of the following cost formulas is not available for use by government entities? a. Specific identification b. FIFO c. Weighted Average d. All of these are available 5. The GAM for NGAs requires the use of which of the following inventory systems? a. Perpetual inventory system b. Periodic inventory system c. a or b d. none of these 6. Government entities record purchases of inventories a. in an inventory account b. in the Purchases account c. a orb d. as expenses 7. Which of the following may be included as cost of inventory? a. freight-in under a freight collect, FOB destination sale term b. trade discounts c. cost of insurance while the goods are in transit d. advertisement cost that resulted to the resale of inventory purchased 8. Arrange the following in the sequence they are used in the requisition and receipt of inventories by a government entity I. Inspection and Acceptance Report (IAR) II. Disbursement Voucher (DV) III. Purchase Request (PR) IV. Journal entry V. Purchase Order (PO). VI. Stock Card (SC) a. III, V, I, VI, IV and II b. III, V, I, IV, VI and II c. III, V, I, II, VI and IV d. V, III, I, II, VI and IV 9. This is maintained in the Property/Supply Division to record the movements of inventories. a. Stock Card (SC) b. Property/Supply Card (PSC) c. Supplies Ledger Card (SLC) d. Magic Card (MC) 10. This is used to report wasted materials, such as destroyed spare parts and other spoilages. a. Wasted Stocks Card (WSC) b. Waste Materials Report c. Report on the Physical Count of Inventories d. Inventory Custodian Slip CHAPTER 8 PROBLEM 8-1: TRUE OR FALSE False 1. Living animals and plants are always accounted for biological assets. True 2. Biological assets are initially and subsequently measured at fair value less costs to sell. True 3. Agricultural produce is measured at fair value less costs to sell only at the point of harvest. True 4. An essential element of agricultural activity is the management of the biological transformation of biological assets. True 5. Entity A’s dairy cattle gave birth to a calf. The fair value less costs to sell of the new born calf is P10,000. Entity A recognizes a gain of P10,000 from the initial recognition of the calf. True 6. A loss can arise from the initial measurement of a biological asset. False 7. Fair value is quoted price in an active market less transaction costs. True 8. Entity A acquires a biological asset for P100, equal to fair value, and incurs transaction cost of P10 on the purchase. If the asset’s costs to sell is P20, Entity A will recognize a loss of P30 on the initial recognition of the purchased asset. False 9. Entity A recognizes a gain of P100 from the change in FVLCS of its biological assets during the period. If the change in FVLCS due to price change is P70, the change in FVLCS due to physical change must be P40. True 10. If there are more than one active markets for a biological asset, the entity shall use the price in the market expected to be used when determining fair value. PROBLEM 8-2: MULTIPLE CHOICE 1. According to the GAM for NGAs, a biological asset is a. an animal or plant b. an asset used in farming c. a living animal or plant d. a harvested product 2. The common features of agricultural activities include all of the following except a. capability to change b. management of change c. measurement of change d. wind of change 3. Which of the following is an agricultural produce? a. carabao b. harvested palay c. extra rice d. powdered milk 4. According to the GAM for NGAs, biological assets are measured as follows: Initial measurement Subsequent measurement A. fair value less cost to sell fair value less cost to sell 5. Which of the following are not considered costs to sell? a. commissions to brokers b. levies by regulatory agencies and commodity exchanges c. transfer taxes and duties d. transport costs 6. According to the GAM for NGAs, if there is no active market for a biological asset a. the entity shall measure the biological asset at cost less accumulated depreciation. b. the entity shall measure the biological asset at cost less accumulated depreciation and accumulated impairment losses. c. the entity shall use a contract price in determining the fair value. d. the entity shall estimate the market price using the guidance set forth in the GAM for NGAs. 7. Agricultural produce after the point of harvest is accounted for as a. Inventory b. PPE c. Prepaid assets d. Investment property 8. The carrying amount of a group of biological assets of Entity A is P100,000 before any year- end adjustment. If the year-end fair value is P120,000 while the year-end estimate of costs to sell is P5,000, which of the following statements is correct? a. Entity A will recognize a gain of P15,000 in surplus or deficit. b. Entity A will recognize a gain of P15,000 directly in equity. c. Entity A will recognize a gain of P10,000 in surplus or deficit. d. Entity A will recognize a gain of P25,000 in surplus or deficit. 9. Which of the following need not be disclosed in relation to the accounting for biological assets? a. Consumable and bearer biological assets b. Mature and immature biological assets c. The amount of change in fair value less costs to sell due to physical changes and due to price changes d. The gain or loss on initial recognition of agricultural produce separately from that of biological assets 10. Entity A is determining the measurement of its biological assets at the end of the period. Entity A’s biological assets consist of trees in a plantation forest. There is no separate active market for these trees. However, Entity A was able to gather the following information: FVLCS of land, land improvements and trees as a package, P10M. FVLCS of land, P8M. FVLCS of land improvements, P500,000 How much is the valuation of the trees in Entity A’s year-end statement of financial position? a. P10,000,000 b. P2,000,000 c. P1,500,000 d. P1,000,000 PROBLEM 8-3: FOR CLASSROOM DISCUSSION 1. Living animals and plants are accounted for as biological assets a. only if they are harvested for sale. b. only if they relate to agricultural activity. c. in all cases. d. all of these. 2. The essential element of an agricultural activity is a. the management of the biological transformation of biological assets. b. the assets are alive. c. it involves harvesting activity. d. the conversion of raw materials into finished goods. 3. Which of the following is a biological asset? a. Land used in farming b. Picked fruits c. Fruit cocktail d. Trees in a plantation forest 4. Which of the following statements is correct regarding the measurement of assets related to agricultural activities? a. Biological assets are initially and subsequently measured at fair value. b. No gain or loss shall be recognized on the initial recognition of a biological asset. c. Agricultural produce is initially and subsequently measured at fair value less costs to sell. d. The gain or loss arising from the initial measurement of biological asset or agricultural produce is recognized in surplus or deficit. 5. According to the GAM for NGAs, biological assets whose fair value cannot be reliably determined on initial recognition are measured as follows: Initial measurement Subsequent measurement a. cost cost less accumulated depreciation and impairment losses Use the following information for the next three questions: A group of Entity A’s biological assets has a carrying amount of P100,000 before year-end adjustments. Information at year-end is as follows: 6. If Entity A expects to transact in Active Market #1, how much is the fair value? a. 130,000 b. 120,000 c. 118,000 d. 123,000 7. If Entity A expects to transact in Active Market #2, how much is the carrying amount of the biological assets in the year-end statement of financial position? a. 135,000 b. 132,000 c. 120,000 d. 123,000 8. If Entity A expects to transact in Active Market #1, how much is the gain or loss from the year-end remeasurement? a. 18,000 b. 28,000 c. 32,000 d. 23,000 Use the following information for the next two questions: On January 1, 20x1, Entity A has one 1-year old biological asset with carrying amount of P1,000. The following transactions occurred during the period: a. On July 1, 20x1, one I-year old biological asset is acquired for P1,100, equal to the FVLCS on this date. b. On October 1, 20x1, one biological asset is born. The FVLCS of a newborn on this date is P500. The FVLCS on December 31, 20x1 are as follows: Age FVLCS new born P600 3 mos. old P800 1 yr. old P1,200 1.5 yr. old P1,500 2 yrs. Old P2,000 9. How much is change in FVLCS due to price change? a. 400 b. 800 c. 1,800 d. 2,400 Asset Group Change in FVLCS From beg. (1 yr.; 1 yr.) (₱1,200 - ₱1,000) x 1 200 Purchased on July 1 (1 yr.; 1 yr.) (₱1,200 - ₱1,100) x 1 100 Born on Oct. 1 (0; 0) (₱600 - ₱500) x 1 100 Change in FVLCS due to Price Change 400 10. How much is change in FVLCS due to physical change? a. 600 b. 800 c. 1,600 d. 1,800 Asset Group Change in FVLCS From beg. (2yrs.; 1yr.) (₱2,000 - ₱1,200) x 1 800 Purchased on July 1 (1.5yrs.; 1yr.) (₱1,500 - ₱1,200) x 1 300 Born on Dec. 31 (3 mos.; 0 yr.) (₱800 - ₱600) x 1 200 FVLCS of new born on Dec. 31 (₱500 x 1) 500 Change in FVLCS due to Physical Change 1,800 CHAPTER 9 PROBLEM 9-1: TRUE OR FALSE False 1. An entity shall capitalize as part of the cost of an investment property the operating losses incurred before the investment property achieves the planned level of occupancy. False 2. According to the GAM for NGAs, government entities may choose to use either the cost model or the fair value model to subsequently measure investment properties. False 3. According to the GAM for NGAs, an entity shall not depreciate an asset while it is classified as investment property. False 4. Recoverable amount is the lower of an asset’s fair value less costs to sell and value in use. False 5. If an asset’s recoverable amount exceeds its carrying amount, the asset is impaired. False 6. An investment property with carrying amount of PIO is determined to have a fair value less costs to sell of P7 and a value in use of P8. The impairment loss is P3. True 7. An investment property with carrying amount of P10 is sold for P7. Transaction costs on the sale amounted to P1. The loss on derecognition is P4. False 8. An investment property that was previously impaired is determined to have a new recoverable amount of P10. Right now, the asset’s carrying amount is P7. However, if no impairment loss had been recognized in the prior year’ the asset would have a carrying amount of P9 by now. The gain on reversal of impairment, therefore, is P1. False 9. According to the GAM for NGAs, a government entity shall, at each reporting date, determine the recoverable amount of an investment property and compare it with its carrying amount. True 10. An entity need not compute for the value in use of an asset if the entity has no reason to believe that the value in use exceeds the fair value less costs to sell. PROBLEM 9-2: MULTIPLE CHOICE 1. Which of the following is considered an investment property? a. Owner-occupied property awaiting disposal. b. Property that is leased to another entity under a finance lease. c. Property held for use in the production or supply of goods or services or for administrative purposes. d. A building held by the entity under a finance lease and leased out under one or more operating leases on a commercial basis. 2. Which of the following would not be reported as investment property? a. Property owned by the entity and leased out under one or more operating leases. b. Property head by the entity to be leased out under one or more operating leases. c. Real estate held with an undetermined future use. d. Property owned by the entity and leased out to another entity under a finance lease. 3. Which of the following costs may properly be included in the carrying amount of an investment property? a. Start-up costs, such as opening costs. b. Operating losses incurred before the investment property achieves the planned level of occupancy. c. Abnormal amounts of wasted materials, labor or other resources incurred in constructing or developing the property. d. Accrued taxes prior to acquisition date that the entity assumes an obligation to pay. 4. Entity A, a government entity, acquires a building to be leased out under various operating leases on commercial basis. Entity A incurs the following costs on the acquisition: Purchase price P10,000,000 Legal services and transfer taxes 10,000 Refurbishments before occupancy 30,000 Occupancy permit fees 25,000 Property taxes after occupancy 8,000 Opening costs (blessing and feng shui) 500,000 The entry to initially recognize the investment property in Entity A’s books of account is a. Investment Property, Land 10,065,000 Cash Modified Disbursement System (MDS), Regular 10,065,000 b. Investment Property, Land 10,565,000 Cash Modified Disbursement System (MDS), Regular 10,565,000 c. Investment Property, Land 10,010,000 Cash Modified Disbursement System (MDS), Regular 10,010,000 d. Investment Property, Land 10,040,000 Cash Modified Disbursement System (MDS), Regular 10,040,000 5. During the period, Entity A, government entity, decides to use as an office one of its building that has previously been leased out under various operating leases on commercial basis. Information on the investment property is as follows: Investment property – Building-P1,000,000 Accumulated depreciation-800,000 At the date of change in use, the fair value of the investment property is P250,000. How much is the gain (loss) on the transfer? a. 50,000 b. (50,000) c. 0 d. A transfer is prohibited. 6. On January 1, 20x1, Entity A acquires a building to be held as investment property for a total cost of P1,500,000. The building is estimated to have a 30-year useful life and a 5% residual value. Entity A uses the straight-line method of depreciation. On December 31, 20x5, Entity A sells the building for P1,300,000. How much is gain (loss) on the sale? a. 35,700 b. 37,500 c. 53,700 d. 75,300 Use the following information for the next three questions: Entity A determines an indication that its investment property might be impaired. Entity A then gathers the following information: Carrying amount of investment property P1,000 ,000 Fair value less costs to sell 900,00 0 Value in use 880,000 Following the impairment, Entity A revises its estimate of residual value to 5% of the recoverable amount and the remaining useful life to 10 years. 7. How much is the impairment loss? a. 120,000 b. 20,000 c. 100,000 d. 0 8. How much is the annual depreciation after the impairment? a. 85,500 b. 90,000 c. 85,000 d. 95,000 9. Five years after the impairment, Entity A determines an indication that the impairment may no longer exist. Entity A makes the following estimates and computations: Fair value less costs to sell P800,000 Value in use P700,000 The investment property would have a carrying amount of P600,000 by now if no impairment loss had been recognized in the past. How much is the gain on the reversal of impairment? a. 125,000 b. 129,500 c. 127,500 d. 327,500 10. During the period, one of the buildings of Entity A, a government entity, was completely destroyed by fire. The building has a historical cost of P1,000,000 and an accumulated depreciation of P400,000. The building is insured for P700,000. Which of the following statements is correct? a. Entity A reports a net gain of P300,000 from the event in its year-end financial statements. b. Entity A reports a net gain of P100,000 from the event in its year-end financial statements. c. Entity A recognizes a loss of P600,000 but no gain. d. Entity A shall treat the loss event and the insurance claim as separate events. PROBLEM 9-3: 1. Which of the following is an investment property? a. Property held to provide a social service and which also generate cash inflows. b. Property held for strategic purposes. c. Property occupied by employees. d. Property that is being constructed or developed for future use as investment property. 2. Which of the following is not an investment property? a. Land held for long-term capital appreciation rather than for short-term sale in the ordinary course of operations. b. Land held for a currently undetermined future use. c. A building owned by the entity (or held by the entity under a finance lease) and leased out under one or more operating leases on a commercial basis. d. Equipment held to be leased out under one or more operating leases on a commercial basis to external parties. 3. According to the GAM for NGAs, government entities shall measure an investment property as follows: Initial Subsequent a. cost Cost model or Fair value Model b. cost Cost Model c. fair value Fair value Model d. fair value Cost Model or Fair value Model 4. Investment property acquired through donation is initially measured a. equal to the carrying amount in the donor’s books b. at the cost to the donor c. at fair value on acquisition date d. equal to the costs incurred in transferring title of the investment property to the entity 5. An entity acquires investment property in exchange for a long-term noninterest-bearing note. Assuming all of the following are determinable with sufficient reliability but differ in amounts, which of them is most likely to be used in the initial measurement of the investment property? a. cash price equivalent of the investment property b. cash price equivalent of the note payable c. present value of future cash flows on the note payable discounted at the current market rate d. face amount of note which is equal to the installment price 6. Entity A acquires an investment property for P1,000,000 cash. Additional costs incurred are as follows: Repairs and remodeling before occupancy, P50,000. Legal costs of transferring title to the property, P20,000. Repairs after occupancy, P15,000. The investment property is estimated to have a remaining useful life of 10 years and a residual value equal to 5% of initial cost. Entity A uses the straight line method of depreciation. How much is the carrying amount of the investment property after one year? a. 914,850 b. 968,350 c. 923,100 d. 872,100 7. According to the GAM for NGAs, transfers to or from investment property shall be made only when there is a a. change in management’s intention b. change in use c. change in business model d. change in classification 8. During the period, Entity A decides to lease out under various operating leases on commercial basis one of its buildings that has previously been used as office building. Information on the building is as follows: Historical cost P1,000 ,000 Accumulated depreciation 800,00 0 At the date of change in use, the fair value of the building is P250,000. Which of the following is the correct reclassification entry? a. Investment Property, Buildings 200,000 Accumulated Depreciation – Buildings 800,000 Buildings 1,000,000 b. Investment Property, Buildings 250,000 Accumulated Depreciation – Buildings 800,000 Buildings 1,000,000 Gain on reclassification 50,000 c. Investment Property, Buildings 250,000 Accumulated Depreciation – Buildings 800,000 Buildings 1,000,000 Revaluation Surplus 50,000 d. a or c, depending on the entity’s accounting policy Use the following information for the next two questions: On January 1, 20x1, Entity A acquires a building to be held as investment property for a total cost of P1,500,000. The building is estimated to have a 30-year useful life and a 5% residual value. Entity A uses the straight-line method of depreciation. On December 31, 20x5, Entity A determines that the building is impaired and makes the following estimates: Fair value less costs to sell P900,000 Value in use P1,000,000 Following the impairment, Entity A revises its estimate of residual value to 5% of the recoverable amount. 9. How much is the impairment loss on December 31, 20x5? a. 226,500 b. 326,500 c. 257,500 d. 262,500 10. On December 31, 2x10, Entity A determines an indication that the impairment loss recognized in the prior period may no longer exist. Entity A makes the following estimates and computations: Fair value less costs to sell P1,100,000 Value in use P1,050,000 How much is the gain on the reversal of impairment? a. 215,000 b. 290,000 c. 75,000 d. 218,000 CHAPTER 10 PROBLEM 10-1: TRUE OR FALSE True 1. The capitalization threshold for items of PPE by government entities if P15,000, which is equal to the petty cash disbursement limit. True 2. Individual items of PPE with values below the capitalization threshold but work together as a group are recognized as PPE if the total cost of the group meets the capitalization threshold. False 3. Items below the capitalization threshold of PPE are recognized as Semi- Expandable Property – a separate class of PPE. False 4. According to the GAM for NGAs, trade discounts are excluded from the initial measurement of items of PPE but not cash discounts. True 5. The provision for decommissioning and re

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