1. Which of the following statements is incorrect regarding PAS 37?

a. A provision is a liability of a certain timing or amount

b. A provision is recognized if there is present obligation requiring outflow of resources
embodying economic benefits that is both probable and measured reliably.
c. Provisions necessarily require estimates
d. Provisions are presented separate from other liabilities.

2. Under PAS 37, Provisions, Contingent Liabilities and Contingent Assets, a liability of uncertain
timing or amount is best described as
a. A provision
b. An obligating event
c. An accrual
d. A contingent liability

3. According to PAS 37, a provision is distinguished from other liabilities

a. On the basis of its recognition
b. On note disclosures only
c. On the basis of the uncertainty in its timing or amount
d. All of these

4. A liability can be recognized when

a. An obligation exists to make a future payment based on a past event
b. Any time a future payment is due
c. Only when the amount is certain
d. All of these answers are correct

5. In calculating present value in a situation with a range of possible outcomes all discounted using
the same interest rate, the expected present value would be
a. The most-likely outcome
b. The maximum outcome
c. The minimum outcome
d. The sum of probability-weighted present values

6. If a contingent loss is probable and can be reasonably estimated to be within a given range, but
no amount within the range is a better estimate than any other amount within the range, the
amount to be accrued should be
a. Zero
b. The upper limit of the range
c. The lower limit of the range
d. The mid-point value

7. Changes in provisions are

a. Changes in accounting policy accounted for prospectively
b. Changes in accounting policy accounted for retrospectively
c. Changes in accounting estimate accounted for prospectively
d. Are prohibited, except as a correction of prior period error
8. A contingency can be accrued when
a. It is certain that funds are available to settle the disputed amount
b. An asset may have been impaired
c. The amount of the loss can be reasonably estimated and it is evident prior to issuance of
financial statements that an asset has been impaired or a liability incurred
d. It is evident that an asset has been impaired or a liability incurred even though the amount of
the loss cannot be reasonably estimated

9. When the occurrence of a gain contingency is reasonably possible and its amount can be
reasonably estimated, the gain contingency
a. Should be included in profit or loss and disclosed
b. Should be included as an appropriation of retained earnings
c. Should be disclosed but not included in profit or loss
d. Should not be included in profit or loss and need not be disclosed

10. AAA Corp, has filed a law suit against a competitor for alleged patent infringement, seeking a very
substantial sum in damages. The management feels that the potential proceeds, although it could
not be reasonably assumed, should be shown somewhere on the balance sheet. How should this
be taken up if there is a prospect of a favorable settlement? (1) Accounts receivable, (2) Disclosure
in the notes
a. Yes, No
b. No, Yes
c. Yes, Yes
d. No, No

11. Wyatt Company issued the 2020 financial statements on March 1, 2021. The following data are
provided by the entity for the year ended December 31, 2020:

Amount owing to another entity for services rendered during

December 2020 450,000
Estimated long service leave owing to employees in respect
of past services 1,800,000
Estimated cost of relocating an employee from head office
to a branch in another city (employee will physically
relocate in January 2021) 150,000
Estimated cost of overhauling machine every 5 years
(the machine is 5 years old on December 31, 2020) 225,000
What amount should be recognized as provision on December 31, 2020? 1,800,000

12. On February 5, 2021, an employee filed a ₱2,600,000 lawsuit against Austin Company for damages
suffered when one of Austin’s plant exploded on December 29, 2020. The legal counsel believed
the entity would probably lose the lawsuit and estimated the loss to be ₱650,000. The employee
offered to settle the lawsuit out of court for ₱1,170,000 but the entity did not agree to the
settlement. On December 31, 2020, what amount should be reported as liability from lawsuit?
650,000
13. Ariana Company has long owned a manufacturing site that has now been discovered to be
contaminated with toxic waste. The entity has acknowledge its responsibility for the
contamination. An initial to clean up feasibility study has shown that it will cost at least ₱950,000
to clean up the toxic waste. During the current year, the entity has been sued for patent
infringement and lost the case. A preliminary judgment of ₱570,000 was issued and is under
appeal. The entity’s attorneys agree that it is probable that the entity will lose this appeal. What
amount of provision should be accrued as liability? 1,520,000

14. On July 1, 2020, Clarissa Company started a sales promotional campaign. In each box of cereal
sold, Clarissa inserted a coupon redeemable for a premium. To receive a premium, each customer
must submit five coupons. Clarissa’s cost for each premium is ₱6. Clarissa estimated that 60% of
the coupons issued would be redeemed. For the six months ended December 31, 2020, the
following information is available:
Boxes of cereal sold 1,200,000
Coupons redeemed 300,000

How much should be the estimated liability for premium claims outstanding at December 31,
2020? 504,000

15. In packages of the products, Colton Company included coupons that may be presented at retail
stores to obtain discounts on other Curran products. Retailers were reimbursed for the face
amount of coupons redeemed plus 10% of that amount for handling costs. The entity honored
requests for coupon redemption by retailers up to three months after the consumer expiration
date. The entity estimated that 70% of all coupons issued would ultimately be redeemed. The
consumer expiration date is December 31, 2020. The total face amount of coupons issued was
₱1,020,000 and the total payments to retailers during 2020 amounted to ₱374,000. What amount
should be reported as liability for unredeemed coupons on December 31, 2020? 411,400

16. Elizabeth Company offered a cash rebate of ₱10 on ech ₱40 package of batteries sold during 2020.
Historically, 10% of customers mail in the rebate form. During 2020, 10,800,000 packages of
batteries are sold and 378,000 ₱10 rebates are mailed to customers. What amount of rebate
expense and liability for rebates should be reported respectively, on December 31, 2020?
10,800,000

17. Gabriel Company, a grocery retailer operates a customer loyalty program. The entity grants
program members loyalty points when they spend a specified amount of groceries. Program
members can redeem the points for further groceries. The points have no expiry date. During
2019, the entity granted 14,000 points. Management expects that 11,200 of these points will be
redeemed. The fair value of each loyalty point is estimated at ₱100. The sales during 2019
amounted to ₱11,200,000 including the loyalty points. On December 31, 2019, 5,600 points have
been redeemed in exchange for groceries. In 2020, the management revised its expectations and
now expects 12,600 point to be redeemed altogether. During 2020, the entity redeemed 5,740
 points. What is the revenue earned from loyalty points for the year ended December 31, 2020?
560,000

18. The selling price of Royal Star Company’s units is ₱128,000 each. The buyers are provided with a
2-year warranty that is expected to cost the company ₱3,200 per unit in the year of sale and
₱9,600 per unit in the following the sale. The company sold 128 units in 2019 and 160 units in the
2020. Actual payments for warranty claims were ₱128,000 and ₱832,000 in 2019 and 2020,
respectively. How much would be the warranty expense for 2019 and 2020, respectively?
2,048,000

19. During 2020, Ezekiel Company sold 650,000 boxes of cake mix under a new sales promotional
program. Each box contained one coupon, which entitled the customer to a baking pan upon
remittance of ₱40. The entity paid ₱50 per pan and ₱5 for handling and shipping and estimated
that 80% of the coupons would be redeemed, even though only 390,000 coupons had been
processed during 2020. What amount should be reported as liability for unredeemed coupons on
December 31, 2020? 1,500,000

20. Asher Cereal Company distributed coupons to promote new products. On October 1, 2020, the
entity mailed 120,000 coupons for ₱45 off each box of cereal purchased. The entity expected
14,400 of these coupons to be redeemed before the December 31, 2020 expiration date. It takes
30 days from the redemption date for the entity to receive the coupons from the retailers. The
entity reimbursed the retailers an additional ₱5 for each coupon redeemed. On December 31,
2020, the entity had paid retailers ₱300,000 related to these coupons and had 6,000 coupons on
hand that had not been processed for payment. What amount should be reported as liability for
coupons on December 31, 2020? 420,000