MODULE 6

Exercises/Assignments
In the financial statement of San Miguel Corporation, analyze the Notes to Financial
Statement of the company following the order of presentation in the notes:
1. Statement of compliance with the PFRS.
• State the compliance of the company in PFRS.

- The accompanying consolidated financial statements have been prepared in

compliance with Philippine Financial Reporting Standards (PFRS). These are
based on International Financial Reporting Standards issued by the International
Accounting Standards Board (IASB). PFRS consist of PFRS, Philippine Accounting
Standards (PAS) and Philippine Interpretations issued by the Philippine Financial
Reporting Standards Council (FRSC).

The consolidated financial statements were approved and authorized for issue in
accordance with a resolution by the BOD on March 14, 2019.
2. Summary of significant accounting policies used
• List all the accounting policies that San Miguel Corporation used.
The Company has adopted the following PFRS starting January 1, 2018 and
accordingly, changed its accounting policies in the following areas:
 PFRS 9 (2014), Financial Instruments, replaces PAS 39, Financial
Instruments: Recognition and Measurement. The Group adopted PFRS 9
using the cumulative effect method. The cumulative effect of applying the new
standard is recognized at the beginning of the year of initial application, with
no restatement of comparative period.
 Financial Assets. The Group continued to measure at fair value, all financial
assets previously held at fair value under PAS 39. The following are the
changes in the classification of the Group’s financial assets:
 Cash and cash equivalents and receivables previously classified as loans and
receivables are held to collect contractual cash flows and give rise to cash
flows representing solely payments of principal and interest.
 Investments in equity instruments that were designated as at FVPL under
PAS 39 have been classified as mandatorily measured at FVPL under PFRS
9.
 Investments in equity and debt instruments previously classified as AFS
financial assets are designated as financial assets at FVOCI at the date of
initial application.
 Certain investments in debt instruments with carrying amount of P201 as of
January 1, 2018 were reclassified from AFS financial assets to financial
assets at amortized cost.
 PFRS 15, Revenue from Contracts with Customers, replaces PAS 11,
Construction Contracts, PAS 18, Revenue, IFRIC 13, Customer Loyalty
Programmes, IFRIC 18, Transfer of Assets from Customers and Standard
Interpretation Committee 31, Revenue - Barter Transactions Involving
Advertising Services.
 Transfers of Investment Property (Amendments to PAS 40, Investment
Property).
 Philippine Interpretation IFRIC 22, Foreign Currency Transactions and
Advance Consideration. The interpretation clarifies that the transaction date
to be used for translation of foreign currency transactions involving an
advance payment or receipt is the date on which the entity initially recognizes
the prepayment or deferred income arising from the advance consideration.
 Previously Held Interest in a Joint Operation (Amendments to PFRS 3,
Business Combinations and PFRS 11, Joint Arrangements). The
amendments clarify how an entity accounts for increasing its interest in a joint
operation that meets the definition of a business.
 PFRS 17, Insurance Contracts, replaces the interim standard, PFRS 4, and
establishes the principles for the recognition, measurement, presentation and
disclosure of insurance contracts within the scope of the standard.
 Sale or Contribution of Assets between an Investor and its Associate or Joint
Venture (Amendments to PFRS 10 and PAS 28). The amendments address
an inconsistency in the requirements in PFRS 10 and PAS 28 in dealing with
the sale or contribution of assets between an investor and its associate or
joint venture.
 The Group recognizes a financial asset or a financial liability in the
consolidated statements of financial position when it becomes a party to the
contractual provisions of the instrument.
 The Group classifies its financial assets, at initial recognition, as subsequently
measured at amortized cost, FVOCI and FVPL. The classification depends on
the contractual cash flow characteristics of the financial assets and the
business model of the Group for managing the financial assets.
 Subsequent to initial recognition, financial assets are not reclassified unless
the Group changes the business model for managing financial assets. All
affected financial assets are reclassified on the first day of the reporting
period following the change in the business model.
 The Group classifies its financial liabilities, at initial recognition, in the
following categories: financial liabilities at FVPL and other financial liabilities.
The Group determines the classification of its financial liabilities at initial
recognition. All financial liabilities are recognized initially at fair value and, in
the case of loans and borrowings, net of directly attributable transaction costs.
 The Group recognizes allowance for ECL on financial assets at amortized
cost and investments in debt instruments at FVOCI.
 Financial assets and financial liabilities are offset and the net amount is
reported in the consolidated statements of financial position if, and only if,
there is a currently enforceable legal right to offset the recognized amounts
 and there is an intention to settle on a net basis, or to realize the assets and
settle the liabilities simultaneously.
 Finished Goods. Net realizable value is the estimated selling price in the
ordinary course of business, less the estimated costs necessary to make the
sale.
 Goods in Process. Net realizable value is the estimated selling price in the
ordinary course of business, less the estimated costs of completion and the
estimated costs necessary to make the sale.
 Petroleum Products, Crude Oil, Lubes and Greases, and Aftermarket
Specialties. Net realizable value is the estimated selling price in the ordinary
course of business, less the estimated costs to complete and/or market and
distribute.
 Any write-down of inventories to net realizable value and all losses of
inventories are recognized as expense in the year of write-down or loss
occurrence. The amount of reversals, if any, of write-down of inventories
arising from an increase in net realizable value are recognized as reduction in
the amount of inventories recognized as expense in the year in which the
reversal occurs.
 Real Estate Projects. Net realizable value is the estimated selling price in the
ordinary course of business, less estimated costs of completion and the
estimated costs necessary to make the sale.
 Business combinations are accounted for using the acquisition method.
 Goodwill acquired in a business combination is, from the acquisition date,
allocated to each of the cash-generating units, or groups of cash-generating
units that are expected to benefit from the synergies of the combination,
irrespective of whether other assets or liabilities are assigned to those units or
groups of units.
 The cost of an intangible asset acquired in a business combination is the fair
value as at the date of acquisition, determined using discounted cash flows as
a result of the asset being owned.
 Property, plant and equipment, except for land, are stated at cost less
accumulated depreciation and amortization and any accumulated impairment
in value.
 Depreciation and amortization, which commence when the assets are
available for their intended use, are computed using the straight-line method
over the following estimated useful lives of the assets.
 Investment property, except for land, is measured at cost including
transaction costs less accumulated depreciation and amortization and any
accumulated impairment in value.
 Intangible assets acquired separately are measured on initial recognition at
cost. The cost of an intangible asset acquired in a business combination is its
fair value at the date of acquisition.
 Amortization is computed using the straight-line method over the following
estimated useful lives of other intangible assets with finite lives:
 The Group purchases liquefied petroleum gas cylinders which are loaned to
dealers upon payment by the latter of an amount equivalent to 80% of the
acquisition cost of the cylinders.
 Provisions are recognized when: (a) the Group has a present obligation (legal
or constructive) as a result of past events; (b) it is probable (i.e., more likely
than not) that an outflow of resources embodying economic benefits will be
required to settle the obligation; and (c) a reliable estimate of the amount of
the obligation can be made.
 Common shares are classified as equity. Incremental costs directly
attributable to the issue of common shares and share options are recognized
as a deduction from equity, net of any tax effects.
 Preferred shares are classified as equity if they are non-redeemable, or
redeemable only at the option of the Parent Company, and any dividends
thereon are discretionary.
 When the shares are sold at premium, the difference between the proceeds
and the par value is credited to the “Additional paid-in capital” account.
 Retained earnings represent the accumulated net income or losses, net of
any dividend distributions and other capital adjustments. Appropriated
retained earnings represent that portion which is restricted and therefore not
available for any dividend declaration.
 Own equity instruments which are reacquired are carried at cost and
deducted from equity. No gain or loss is recognized on the purchase, sale,
reissuance or cancellation of the Parent Company’s own equity instruments.
 Interest income is recognized using the effective interest method.
 Dividend income is recognized when the Group’s right to receive the payment
is established.
 Rent income from operating lease is recognized on a straight-line basis over
the related lease terms.
 Discontinued operations are excluded from the results of continuing
operations and are presented as a single amount as “Income after income tax
from discontinued operations” in the consolidated statements of income.
 Measurement of Biological Assets. Breeding stocks are carried at
accumulated costs net of amortization and any impairment in value while
growing hogs, cattle and poultry livestock and goods in process are carried at
accumulated costs.
 Determining whether an Arrangement Contains a Lease. The Group uses its
judgment in determining whether an arrangement contains a lease, based on
the substance of the arrangement at inception date and makes assessment of
whether the arrangement is dependent on the use of a specific asset or
assets.
 Finance Lease - Group as Lessee. In accounting for its Independent Power
Producer Administration (IPPA) Agreements with the Power Sector Assets
and Liabilities Management Corporation (PSALM).
 Estimated Useful Lives of Property, Plant and Equipment, Investment
Property and Deferred Containers. The Group estimates the useful lives of
property, plant and equipment, investment property and deferred containers
 based on the period over which the assets are expected to be available for
use.
 Estimated Useful Lives of Intangible Assets. The useful lives of intangible
assets are assessed at the individual asset level as having either a finite or
indefinite life.

3. Supporting information or computation for line items presented in the FS.

• Present composition of the line items in face of financial statements

a. Cash and Cash Equivalents

Cash and cash equivalents consist of:
Note 2018 2017

Cash in banks and on hand P38,716 P33,021

Short-term investments 204,434 173,052

4, 40, 41 P243,150 P206,073

Cash in banks earn interest at bank deposit rates. Short-term investments include
demand deposits which can be withdrawn at any time depending on the immediate cash
requirements of the Group and earn interest at short-term investment rates (Note 31).

a. Trade and Other Receivables

Trade and other receivables consist of:
Note 2018 2017
Trade P76,494 P67,996
Non-trade 50,257 41,317
Amounts owed by related parties 33, 35 16,338 19,693
143,089 129,006
Less allowance for impairment 4, 5 13,196 12,966
losses
4, 40, 41 P129,893 P116,040
Trade receivables are non-interest bearing and are generally on a 30 to 45-day term.

Non-trade receivables consist primarily of claims from the Government, interest

receivable, claims receivable, contracts receivable and others. Claims from the
Government consist of duty drawback, VAT and specific tax claims, subsidy receivables
from the Government of Malaysia under the Automatic Pricing Mechanism and due from
PSALM pertaining to SPPC’s performance bond pursuant to the Ilijan IPPA Agreement
that was drawn by PSALM in September 2015 (Note 43).

The movements in the allowance for impairment losses are as follows:

Note 2018 2017

Balance at beginning of year P12,966 P13,656

Adjustment due to adoption of PFRS 9 3 (179) -

Balance at beginning of year, as adjusted 12,787 13,656

Charges (reversals) for the year 27, 32 353 (63)
Amounts written off 4 (474) (226)
Translation adjustments and others 530 (401)

Balance at end of year P13,196 P12,966

b. Inventories

Inventories consist of:

2018 2017
At net realizable value:
Finished goods and goods in process
(including petroleum products) P77,231 P66,301
Materials and supplies (including coal) 37,568 30,506
Containers 6,260 1,552
At cost:
Raw land inventory and real estate 4,080 4,216
projects
 P125,139 P102,575

The cost of finished goods and goods in process amounted to P78,371 and P66,684 as
of December 31, 2018 and 2017, respectively.

If the Group used the moving-average method (instead of the first-in, first-out method,
which is the Group’s policy), the cost of petroleum, crude oil and other petroleum
products would have decreased by P942 and increased by P61 as of December 31,
2018 and 2017, respectively.

The cost of materials and supplies amounted to P38,596 and P31,780 as of December
31, 2018 and 2017, respectively.

Containers at cost amounted to P6,839 and P1,964 as of December 31, 2018 and 2017,
respectively.

The fair value of agricultural produce less costs to sell, which formed part of the cost of
finished goods inventory, amounted to P128 and P442 as of December 31, 2018 and
2017, respectively, with corresponding costs at point of harvest amounting to P135 and
P405, respectively. Net unrealized gain (loss) on fair valuation of agricultural produce
amounted to (P7), P37 and (P2) in 2018, 2017 and 2016, respectively (Note 16).

The fair values of marketable hogs and cattle, and grown broilers, which comprised the
Group’s agricultural produce, are categorized as Level 1 and Level 3, respectively, in
the fair value hierarchy based on the inputs used in the valuation techniques.

The valuation model used is based on the following: (a) quoted prices for harvested
mature grown broilers at the time of harvest; and (b) quoted prices in the market at any
given time for marketable hogs and cattle; provided that there has been no significant
change in economic circumstances between the date of the transactions and the
reporting date. Costs to sell are estimated based on the most recent transaction and is
deducted from the fair value in order to measure the fair value of agricultural produce at
point of harvest. The estimated fair value would increase (decrease) if weight and
quality premiums increase (decrease) (Note 4).
The net realizable value of raw land inventory and real estate projects is higher than the
carrying amount as of December 31, 2018 and 2017, based on management’s
assessment.

The fair value of raw land inventory amounted to P10,218 and P10,221 as of December
31, 2018 and 2017, respectively. The fair value has been categorized as Level 3 in the
fair value hierarchy based on the inputs used in the valuation techniques (Note 4).

In estimating the fair value of the raw land inventory, management takes into account
the market participant’s ability to generate economic benefits by using the assets in their
highest and best use. Based on management assessment, the best use of the Group’s
raw land inventory are their current use.

The Level 3 fair value of raw land inventory was derived using the observable recent
transaction prices for similar raw land inventory in nearby locations adjusted for
differences in key attributes such as property size, zoning and accessibility. The most
significant input into this valuation approach is the price per square meter, hence, the
higher the price per square meter, the higher the fair value (Note 4).

c. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of:

Note 2018 2017

Prepaid taxes and licenses P74,414 P65,309
Restricted cash - current 40, 41 9,038 2,878
Advances to contractors and suppliers 33 1,700 5,365
Derivative assets 40, 41 1,174 271
Prepaid rent 719 530
Prepaid insurance 664 489
Financial assets at FVPL 40, 41 254 170
Catalyst 159 438
Financial assets at FVOCI - current 4, 13, 40, 41
portion 54 -
Financial assets at amortized cost - 4, 13, 40, 41
current portion
 40 -
AFS financial assets - current portion 4, 13, 40, 41 - 199
Others 34 3,827 2,579
P92,043 P78,228

Restricted cash - current represents: (i) cash in banks maintained by Vertex, PIDC,
MTDME, SIDC, CCEC and AAIPC in 2018 and 2017 and by LCWDC in 2018 in
accordance with the specific purposes and terms as required under certain loan and
concession agreements. Certain loan agreements provide that the Security Trustee
shall have control over and the exclusive right of withdrawal from the restricted bank
accounts; and (ii) Cash Flow Waterfall accounts of SCPC and SMCPC in 2018,
maintained with a local Trust Company as required in their respective Omnibus Loan
and Security Agreements (OLSA).

“Others” consist mainly of prepayments for various operating expenses, PSALM

monthly fee outage credits from the approved reduction in future monthly fees payable
to PSALM (Note 34) and contract assets pertaining to the Group’s right to consideration
for work completed but not billed at the reporting date on the sale of real estate projects.
“Advances to contractors and suppliers” include amounts owed by related parties
amounting to P15 as of December 31, 2017 (Note 33).

d. Investments and Advances

Investments and advances consist of:

Note 2018 2017

Investments in Shares of Stock of
Associates and Joint Ventures - at Equity
Acquisition Cost
Balance at beginning of year P21,242 P21,242
Additions 1,077 -
Balance at end of year 22,319 21,242
Accumulated Equity in Net Earnings
Balance at beginning of year 1,013 678
Adjustment as a result of PFRS 9 3 (147) -
Balance at beginning of year, as adjusted 866 678
 Equity in net earnings (losses) (289) 297
Share in other comprehensive income 2 44
Dividends (16) (6)
Balance at end of year 563 1,013
22,882 22,255
Advances 27,637 13,282
4 P50,519 P35,537

Investments in Shares of Stock of Associates

a. NCC

a. In 2017, SMC through SMYPC, has 35% equity interest in NCC representing
104,500,000 common shares.

On November 28, 2018, SMEII entered into a Deed of Absolute Sale of Shares with
SMYPC covering the sale by the latter of its 35% equity interest in NCC comprising of
104,500,000 common shares for a total consideration of P5,000 (Note 5).

NCC is primarily engaged in the business of manufacturing, developing, processing,

exploiting, importing, exporting, buying, selling, or otherwise dealing in such goods as
cement and other goods of similar nature and/or other products.

b. Bank of Commerce (BOC)

SMC through SMPI has 39.93% equity ownership interest in BOC representing
44,817,164 common shares. BOC is engaged in commercial banking services.

On December 17, 2018, SMC through SMC Equivest, in a Deed of Absolute Sale of
Shares, acquired 5,258,956 common shares of BOC representing 4.69% ownership
interest for a total consideration of P1,077.
 c. Mariveles Power Generation Corporation (MPGC)

The Group, through SMC Global, has an existing 49% ownership interest in MPGC.
MPGC shall develop, construct, finance, own, operate and maintain a 4 x 150 MW CFB
Coal-fired Power Plant and associated facilities in Mariveles, Bataan.

Investments in Shares of Stock of Joint Ventures

Angat Hydro and KWPP

PVEI, a subsidiary of SMC Global has an existing joint venture with Korea Water
Resources Corporation (K-Water), covering the acquisition, rehabilitation, operation and
maintenance of the 218 MW Angat Hydroelectric Power Plant (Angat Power Plant)
which was previously awarded by PSALM to K-Water.

PVEI holds 30,541,470 shares or 60% of the outstanding capital stock of Angat Hydro
and 75 shares representing 60% of KWPP outstanding capital stock. PVEI and K-Water
are jointly in control of the management and operation of Angat Hydro and KWPP.

In January 2017, PVEI granted shareholder advances amounting to US$32 to Angat

Hydro. The advances bear annual interest rate of 4.5% and were due initially on April
30, 2017. The due date of the advances may be extended as agreed amongst the
parties.

On April 10 and December 27, 2017, Angat Hydro made partial payments of the
foregoing advances plus interest totaling US$20 to PVEI. Payment date of the
remaining balance of the advances amounting to US$12 was extended to March 29,
2018.

On March 1 and October 16, 2018, PVEI collected partial payouts totaling US$10 from
Angat Hydro. Payment date of the remaining balance of the advances amounting to
US$2 was extended to March 31, 2019.
Advances

a. SMPI made cash advances to future investees amounting to P870 and P875 as
of December 31, 2018 and 2017, respectively. These advances will be applied
against future subscriptions of SMPI to the shares of stock of the future investee
companies. In 2017, certain future investees repaid the full amount of its cash
advances from the Group amounting to P112.

b. SMC Global and SMEC made deposits to certain landholding companies and
power-related expansion projects for future stock subscriptions amounting to
P4,963 and P8,965 as of December 31, 2018 and 2017, respectively. During
2018, SMC bought ownership interests in certain landholding companies. As a
result, these landholding companies were consolidated and deposits amounting
to P4,473 were reclassified by SMC Global to amounts owed by related parties
and subsequently eliminated in the consolidated statements of financial position
as of December 31, 2018.

c. On June 29, 2016, SMHL entered into an Investment Agreement (the

Agreement) with Bryce Canyon Investments Limited for the sale and purchase of
assets, as defined in the Agreement, upon the satisfaction of certain conditions
set out in the Agreement. As of December 31, 2018 and 2017, outstanding
investment advances amounted to P19,784 and P2,479, respectively.

d. Other advances pertain to deposits made to certain companies which will be

applied against future stock subscriptions.

e. Investments in Equity and Debt Instruments

Investments in equity and debt instruments
consist of:
Note 2018 2017
Equity securities P41,407 P41,464
Government and other debt securities 432 531
Proprietary membership shares and 381 273
others
4, 40, 41 42,220 42,268
 Less current portion 11 94 199
P42,126 P42,069

Equity Securities
Equity securities include the investments in the shares of stock of Top Frontier
consisting of 2,561,031 common shares and 1,904,540 preferred shares with a total
amount of P36,057 and P36,147 as of December 31, 2018 and 2017, respectively.

Government Securities

a) Petrogen’s government securities are deposited with the Bureau of Treasury in

accordance with the provisions of the Insurance Code, for the benefit and security of its
policyholders and creditors. These investments bear fixed annual interest rates ranging
from 3.88% to 7.02% in 2018 and 2.13% to 5.30% in 2017 (Note 31).

b) Ovincor’s outstanding corporate bond is maintained at the Bank of N.T. Butterfield

and carried at fair value with fixed annual interest rate at 6.75% (Note 31).

The movements in investments in equity and debt instruments are as follows:

Note 2018 2017

Balance at beginning of year P42,268 P42,139

Additions 54 131
Disposals (203) (73)
Amortization of premium (2) (6)
Fair value gain 37 91
Acquisition of Subsidiaries 55 -
Currency translation adjustments
and others
11 (14)

Balance at end of year 4, 11, 40, P42,220 42,268

41
The investments in equity and debt instruments previously presented and classified as
financial assets under PAS 39 are now presented and classified as follows:
2018

Noncurrent
Financial assets at FVOCI P41,940
Financial assets at amortized cost 186

42,126
Current
Financial assets at FVOCI 54
Financial assets at amortized cost 40

94

P42,220

4. Other disclosures, such contingent liabilities, unrecognized contractual commitments

and nonfinancial disclosures.
• What are the other disclosures that San Miguel Corporation had presented? (Other
disclosures mean other than those presented above)
Contingencies

 The Group is a party to certain lawsuits or claims (mostly labor related cases)
filed by third parties which are either pending decision by the courts or are
subject to settlement agreements. The outcome of these lawsuits or claims
cannot be presently determined. In the opinion of management and its legal
counsel, the eventual liability from these lawsuits or claims, if any, will not have a
material effect on the consolidated financial statements of the Group.

Oil Spill Incident in Guimaras

  On August 11, 2006, MT Solar I, a third party vessel contracted by Petron to
transport approximately two million liters of industrial fuel oil, sank 13 nautical
miles southwest of Guimaras, an island province in the Western Visayas region
of the Philippines. In separate investigations by the Philippine Department of
Justice (DOJ) and the Special Board of Marine Inquiry (SBMI), both agencies
found the owners of MT Solar I liable. The DOJ found Petron not criminally
liable, but the SBMI found Petron to have overloaded the vessel. Petron has
appealed the findings of the SBMI to the DOTr and is awaiting its resolution.
Petron believes that SBMI can impose administrative penalties on vessel owners
and crew, but has no authority to penalize other parties, such as Petron, which
are charterers.

 Other complaints for non-payment of compensation for the clean-up operations

during the oil spill were filed by a total of 1,063 plaintiffs who allegedly did not
receive any payment of their claims for damages arising from the oil spill. The
total claims amounted to P292. The cases are still pending as of December 31,
2018.
Imported Industrial Fuel Oil

 SLHBTC has an on-going case with the CTA against the Commissioner of
Customs (the Commissioner). On January 16, 2016, a Warrant of Seizure and
Detention was issued against the 44,000 metric tons of fuel imported by SLHBTC
with approximate value of P751. The Commissioner alleged that SLHBTC
discharged fuel directly from the vessel carrying SLHBTC’s imported fuel to
another vessel via loop loading without paying duties and taxes and therefore,
violating the Customs Modernization Tariff Act and other customs regulations. On
January 20, 2017, the District Collector of Customs issued a decision forfeiting
the fuel in favor of the government.
Criminal Cases
SPPC

 On September 29, 2015, SPPC filed a criminal complaint for estafa and for
violation of Section 3(e) of RA No. 3019, otherwise known as the Anti-Graft and
Corrupt Practices Act, before the DOJ, against certain officers of PSALM, in
connection with the termination of SPPC’s IPPA Agreement, which was made by
PSALM with manifest partially and evident bad faith. Further, it was alleged that
PSALM fraudulently misrepresented its 210 entitlement to draw on the
Performance Bond posted by SPPC, resulting in actual injury to SPPC in the
amount US$60. On June 13, 2017, the DOJ endorsed the complete records of
the complaint to the Office of the Ombudsman for appropriate action where it is
still pending to date.
System Loss Charge
  In 2008, Meralco filed a petition for dispute resolution against PEMC, National
Transmission Corporation (TransCo), NPC and PSALM seeking, among others,
the refund of the transmission line loss components of the line rentals associated
with PSALM/NPC bilateral transactions from the start of the WESM operations
and Transition Supply Contract (TSC) implemented in 2006. In this case, the
ERC concluded that Meralco was being charged twice considering that it already
paid line rental to the WESM beginning June 2006. Hence, the ERC ordered
PSALM/NPC to refund Meralco the 2.98% system loss charge embedded in the
NPC Time-of-Use (“NPC TOU”) rate (Meralco vs. PSALM, NPC, TransCo).

Commitments

 The outstanding purchase commitments of the Group amounted to P127,366

million
as of December 31, 2018.

 Amount authorized but not yet disbursed for capital projects is approximately
P197,559 million as of December 31, 2018.

Foreign Exchange Rates

 The foreign exchange rates used in translating the US Dollar accounts of foreign
subsidiaries and associates and joint ventures to Philippine peso were closing
rates
of P52.58 and P49.93 in 2018 and 2017, respectively, for consolidated
statements of
financial position accounts; and average rates of P52.69, P50.40 and P47.48 in
2018,
2017 and 2016, respectively, for income and expense accounts.

 Certain accounts in prior years have been reclassified for consistency with the
current period presentation. These reclassifications had no effect on the reported
financial performance for any period.

 There are no unusual items as to nature and amount affecting assets, liabilities,
equity, net income or cash flows, except those stated in Management’s
 Discussion
and Analysis of Financial Position and Financial Performance.

 There were no material changes in estimates of amounts reported in prior interim

periods of the current year or changes in estimates of amounts reported in prior
financial years.

 There were no known trends, demands, commitments, events or uncertainties

that
will have a material impact on the Group’s liquidity.

 There were no known trends, events or uncertainties that have had or that are
reasonably expected to have a favorable or unfavorable impact on net sales or
revenues or income from continuing operation.

 There were no known events that will trigger direct or contingent financial
obligation that is material to the Group, including any default or acceleration of an
obligation and there were no changes in contingent liabilities and contingent
assets
since the last annual reporting date, except for “Contingencies” of Section VII
above
that remain outstanding as of December 31, 2018.

 The effects of seasonality or cyclicality on the interim operations of the Group’s

businesses are not material.

 There were no material off-statements of financial position transactions,

arrangements, obligations (including contingent obligations), and other
relationship
of the Group with unconsolidated entities or other persons created during the
reporting period, except for the outstanding derivative transactions entered by the
Group as of and for the period December 31, 2018.
 UNIT 2 TOPIC 1
ACTIVITY 1
1. All of the following correctly relate to the notes, except
a. present the breakdown of aggregated items on the face of the statement and to
rectify any inappropriate accounting policies.
b. present information about the basis of preparation of the financial statements and the
specific accounting policies used
c. disclose the information required by PFRSs that is not presented elsewhere in the
financial statements
d. provide information that is not presented elsewhere in the financial statements, but is
relevant to an understanding of any of them.

2. Which of the following best states the purpose of the notes?

a. to provide additional disclosures regarding off-balance sheet items
b. to provide information regarding accounting policies adopted by the issuer
c. to provide necessary disclosures required by PFRSs
d. to provide necessary disclosures required by PSAs

3. Choose the incorrect statement

a. Disclosure notes facilitate the evaluation of enterprise position and performance
because they include information which helps to explain the quality of earnings.
b. Disclosure notes are an integral part of the financial statements.
c. Companies often look for opportunities to smooth earnings.
d. Accounting concepts, principles and standards are just as broad and general today
as they were sixty years ago.

4. Which of the following statements is correct?

a. Certified Public Accountants are not independent for the benefit of the users of the
financial statements, because they are paid by the client.
b. Accounting concepts, principles and standards are just as broad and general today
as they were sixty years ago.
c. Due to the excellent work of the FRSC, there are very few choices among alternative
accounting policies today.
d. Disclosures are an integral part of the financial statements

5. You are preparing the “general information” section of a notes to financial statements.
Which of the following information sources is most relevant in addition to direct inquiry
with management?
a. board of directors minutes of meetings
b. lease contract
c. general ledger
d. latest authorized articles of incorporation

6. Which is not a required disclosure?

a. the key assumption concerning the future, and other key sources of estimation
uncertainty at the balance sheet date
b. the judgment management has made in the process of applying the accounting
policies
c. a and b
d. the number of the entity’s employees

7. Which of the following information should be disclosed in the summary of significant

accounting policies?
a. Refinancing of debt subsequent to end of reporting period.
b. Guarantees of indebtedness of others.
c. Criteria for determining which investments are treated as cash equivalents.
d. Adequacy of pension plan assets relative to vested benefits.
8. Which of the following facts concerning fixed assets should be included in the
summary of significant accounting policies? (Item #1) Depreciation method (Item #2)
Composition
a. No, Yes b. Yes, Yes c. Yes, No d. No, No
9. Under PAS 10, these refer to those events that provide evidence of conditions that
existed at the reporting period.
a. Events after the reporting period
b. Type I events
c. Adjusting events after the reporting period
d. Non-adjusting events after the reporting period

10. Under PAS 10, these refer to those that are indicative of conditions that arose after
the reporting period.
a. Events after the reporting period
b. Type I events
c. Adjusting events after the reporting period
d. Non-adjusting events after the reporting period

11. Which of the following statements is correct?

a. An entity should prepare its financial statements on a going concern basis even if
events after the reporting period indicate that the going concern assumption is not
appropriate.
b. When an entity’s management is required to submit its financial statements to its
shareholders for approval after the financial statements have been issued, for purposes
of determining the events after the reporting period, the financial statements are
deemed authorized for issue on the date when shareholders approve the financial
statements.
c. When an entity’s management is required to issue its financial statements to a
supervisory board (made up solely of non-executives) for approval, for purposes of
determining the events after the reporting period, the financial statements are deemed
authorized for issue when the supervisory board approves the financial statements.
d. Events after the reporting period include all events up to the date when the financial
statements are authorized for issue, even if those events occur after the public
announcement of profit or of other selected financial information.
12. PAS 10 Events after the Financial Reporting Period defines the extent to which
events after the balance sheet date should be reflected in financial statements. Five
such events are listed below.
1. Merger with another company.
2. Insolvency of a customer.
3. Destruction of a major non-current asset.
4. Sale of inventory held at the balance sheet date for less than cost.
5. Discovery of fraud.
Which of the listed items are, according to PAS 10, normally to be classified as
adjusting?
a. 1, 2 and 3 b. 2, 4 and 5 c. 1, 2 and 5 d. 1, 4 and 5
13. VOCATION OCCUPATION Company decided to operate a new amusement park
that will cost ₱1 million to build in the year 20x1. Its financial year-end is December 31,
20x1. VOCATION has applied for a letter of guarantee for ₱700,000. The letter of
guarantee was issued on March 31, 20x2. The audited financial statements have been
authorized to be issued on April 18, 20x2. The adjustment required to be made to the
financial statement for the year ended December 31, 20x1, should be
a. Booking a ₱700,000 long-term payable.
b. Disclosing ₱700,000 as a contingent liability in 2005 financial statement.
c. Increasing the contingency reserve by ₱700,000.
d. Do nothing.
14. A new drug was introduced by OBNOXIOUS HARMFUL Inc. in the market on
December 1, 20x1. OBNOXIOUS’ financial year ends on December 31, 20x1. It was the
only company that was permitted to manufacture this patented drug. The drug is used
by patients suffering from an irregular heartbeat. On March 31, 20x2, after the drug was
introduced, more than 1,000 patients died. After a series of investigations, authorities
discovered that when this drug was simultaneously used with another drug used to
regulate hypertension, the patient’s blood would clot and the patient suffered a stroke. A
lawsuit for ₱100,000,000 has been filed against OBNOXIOUS Inc. The financial
statements were authorized for issuance on April 30, 20x2. Which of the following
options is the appropriate accounting treatment for this post–balance sheet event under
PAS 10?
a. The entity should provide ₱100,000,000 because this is an “adjusting event” and the
financial statements were authorized to be issued after the accident.
b. The entity should disclose ₱100,000,000 as a contingent liability because it is an
“adjusting event.”
c. The entity should disclose ₱100,000,000 as a “contingent liability” because it is a
present obligation with an improbable outflow.
d. Assuming the probability of the lawsuit being decided against OBNOXIOUS Inc. is
remote, the entity should disclose it in the footnotes, because it is a nonadjusting
material event.
15. At the balance sheet date, December 31, 2005, BELIE Inc. carried a receivable from
TO DISGUISE Corporation, a major customer, at ₱10 million. The “authorization date”
of the financial statements is on February 16, 2006. TO DISGUISE Corporation
declared bankruptcy on Valentine’s Day (February 14, 2006). BELIE Inc. will
a. Disclose the fact that TO DISGUISE Corporation has declared bankruptcy in the
notes.
b. Make a provision for this post–balance sheet event in its financial statements (as
opposed to disclosure in notes).
c. Ignore the event and wait for the outcome of the bankruptcy because the event took
place after the year-end.
d. Reverse the sale pertaining to this receivable in the comparatives for the prior period
and treat this as an “error” under PAS 8.
16. TITTILLATE TO TICKLE Inc. built a new factory building during 20x1 at a cost of
₱20 million. At December 31, 20x1, the net book value of the building was ₱19 million.
Subsequent to year-end, on March 15, 20x2, the building was destroyed by fire and the
claim against the insurance company proved futile because the cause of the fire was
negligence on the part of the caretaker of the building. If the date of authorization of the
financial statements for the year ended December 31, 20x1, was March 31, 20x2,
TITTILLATE. should
a. Write off the net book value to its scrap value because the insurance claim would not
fetch any compensation.
b. Make a provision for one-half of the net book value of the building.
c. Make a provision for three-fourths of the net book value of the building based on
prudence.
d. Disclose this nonadjusting event in the footnotes.
17. DERELICT VAGRANT BUM Inc. deals extensively with foreign entities, and its
financial statements reflect these foreign currency transactions. Subsequent to the
balance sheet date, and before the “date of authorization” of the issuance of the
financial statements, there were abnormal fluctuations in foreign currency rates.
DERELICT Inc. should 18
a. Adjust the foreign exchange year-end balances to reflect the abnormal adverse
fluctuations in foreign exchange rates.
b. Adjust the foreign exchange year-end balances to reflect all the abnormal fluctuations
in foreign exchange rates (and not just adverse movements).
c. Disclose the post–balance sheet event in footnotes as a nonadjusting event.
d. Ignore the post–balance sheet event.
18. On January 12, 20x2, a fire at a production facility of DUB TO NAME Company
damaged a number of adjacent buildings (owned by other businesses). DUB’s
insurance policy does not cover damage to the property of others. Insurance companies
for those other businesses have billed DUB Company for the estimated cost of ₱2.4
million required to restore the damaged buildings. DUB’s legal counsel believed that it is
reasonably possible that DUB will be held liable for damages but was uncertain as to
the amount. In its 20x1 financial statements authorized for issue on February 1, 20x2,
DUB Company should report
a. An accrued liability of ₱2,400,000
b. An accrued liability of ₱2,400,000 and necessary disclosure in the notes to financial
statements
c. Only a note disclosure is required
d. No information about the damaged buildings
19. NOTION Co. guaranteed a loan of ₱200,000 granted to IDEA Co. by a bank. At the
time when the financial statements of NOTION are being finished, it is clear that IDEA is
in financial difficulties and it is probable that NOTION will meet the guarantee. In the
financial statements, NOTION should
a. Only disclose in the notes the amount of the guarantee
b. Recognize a provision for liability of ₱200,000
c. Not recognize and need not disclose the guarantee
d. Recognize a provision for liability of ₱200,000 and also disclose in the notes to
financial statements.
20. Are the following statements in relation to compensation true or false, according to
PAS 24 Related Party Disclosures?
I. Compensation includes social security contributions paid by the entity.
II. Compensation includes post-employment benefits paid on behalf of a parent of the
entity in respect of the entity.
a. False, False b. False, True c. True, False d. True, True
21. The minimum disclosures prescribed under PAS 24 are to be made separately for
certain categories of related parties. Which of the following is not among the list of
categories specified under the Standard for the purposes of separate disclosure?
a. Entities with joint control or significant influence over the entity.
b. The parent company of the entity.
c. An entity that has a common director with the entity.
d. Joint ventures in which the entity is a venturer.
22. CUPIDITY GREED Company completed the following transactions in the year to
December 31, 20x1:
I. Sold a car for P9,250 to the uncle of CUPIDITY's finance director.
II. Sold goods to the value of P12,400 to AVARICE, a company owned by the daughter
of CUPIDITY's managing director. AVARICE has no other connection with CUPIDITY.
Which transactions, if any, require disclosure in the financial statements of CUPIDITY
under PAS 24 Related Party Disclosures?
a. Neither transaction c. Transaction (2) only
b. Transaction (1) only d. Both transactions
23. STEAD Company has a wholly-owned subsidiary, AVAILABLE TO HELP
Corporation. During the year to June 30, 20x1, STEAD sold goods to AVAILABLE
totaling ₱250,000. AVAILABLE paid ₱135,000 of this debt before year-end and then
encountered financial difficulties. AVAILABLE is not expected to be able to pay the
remainder of the balance and therefore it has been provided against as uncollectible.
Administration costs incurred as a result of STEAD 's credit controllers chasing the debt
by AVAILABLE have been calculated as ₱600. Under the minimum disclosure
requirements of PAS 24 Related Party Disclosures, which of the following are required
to be disclosed in relation to this arrangement?
I. The costs of the credit control department incurred in pursuing the debt
II. Details of any guarantees received in relation to the outstanding balance
III. The provision in relation to the debt being uncollectible
IV. Future plans regarding trading arrangements with this subsidiary
a. II and III c. II, III and IV
b. I, II and III d. all of these
24. Which of the following statements is true?
I. Disclosures of material related party transactions that are eliminated in the
preparation of consolidated financial statements is required in those consolidated
combined financial statements.
II. An associate’s subsidiary and the investor that has significant influence over the
associate are related to each other.
a. True, False b. False, True c. True, True d. False, False
25. IMMANENT INHERENT Company carried out the following four transactions during
the year ended March 31, 20x1. Which of the following are related party transactions
according to PAS 24 Related Party Disclosures?
I. Transferred goods from inventory to a shareholder owning 40% of the company's
ordinary shares
II. Sold a company car to the wife of the managing director
III. Sold an asset to TRANSCENDENT Company, a sales agent
IV. Took out a ₱1 million bank loan
a. I and II b. I, II and III c. II and III d. all of these
26. Which of the following related party transactions by a company should be disclosed
in the notes to the financial statements?
I. Payment of per diem expenses to members of the board of directors.
II. Consulting fees paid to a marketing research firm, one of whose partners is also a
director of the company.
a. I only. b. II only. c. Both I and II. d. Neither I nor II.
27. VERSANT EXPERIENCED Co. has entered into a joint venture with an affiliate to
secure access to additional inventory. Under the joint venture agreement, VERSANT
will purchase the output of the venture at prices negotiated on an arms-length basis.
Which of the following is(are) required to be disclosed about the related party
transaction?
I. The amount due to the affiliate at the balance sheet date.
II. The monetary amount of the purchases during the year.
a. I only b. II only c. Both I and II d. Neither I nor II.
28. Consolidated financial statements shall include disclosures of material transactions
between related parties except
a. Nonmonetary exchanges between the reporting entity and its director.
b. Sales of inventory by a subsidiary to its parent.
c. Expense allowance for executives which exceed normal business practice.
d. A company’s agreement to act as surety for a loan to its chief executive officer.
29. APATHETIC Company has a 70% subsidiary, INDIFFERENT, Inc. and is a venturer
in IMPARTIAL, a joint venture company. During the financial year to December 31,
20x1, APATHETIC sold goods to both companies. Consolidated financial statements
are prepared combining the financial statements of APATHETIC and INDIFFERENT.
The investment in IMPARTIAL is accounted for under the equity method. Under PAS 24
Related Party Disclosures, in the combined financial statements of APATHETIC for
20x1, disclosure is required of transactions with
a. neither INDIFFERENT nor IMPARTIAL c. IMPARTIAL only
b. INDIFFERENT only d. both INDIFFERENT and IMPARTIAL
30. Which of the following statements are true?
I. Rex Corporation has a 25% interest in Darrell Company. Munda, Inc. is a subsidiary
of Darrell. Rex and Munda are related parties.
II. Rhad Corporation is a venturer of Andrix Company. Renante, Inc. is a subsidiary of
Andrix. Rhad and Renanted are related parties.
III. NCPAR Corporation is a venturer of Session Road Joint Venture and a 25% interest
investor of Pelizloy Fourth Floor Company. Session Road and Pelizloy Company are
related parties.
IV. Chowking Company and DBP Company are under the common control of St.
Joseph Corporation. Chowking and DBP are related parties 32
a. True, True, True, True c. True, False, False, True
b. False, True, False, True d. False, False, False, True
Answer as required:
1. TRIBULATION GREAT DISTRESS Co.’s current reporting period ends on December
31, 20x1. The following transactions occurred after the end of reporting period:
• On January 5, 20x2, TRIBULATION declared ₱8,000,000 dividends.
• On January 15, 20x2, TRIBULATION issued 1,000 shares with par value per share of
₱400 for ₱2,400 per share.
• On January 20, 20x2, TRIBULATION installed an oil rig. Current legislation requires
that the oil rig be uninstalled at the end of its useful life and the site where it was
installed be restored. TRIBULATION estimates the present value of the
decommissioning and restoration cost at ₱4,000,000.
• On February 1, 20x2, a building with a carrying amount as of December 31, 20x1 of
₱2,000,000 was totally razed by fire.
• On February 10, 20x2, TRIBULATION received notice of a litigation in relation to an
accident that happened on December 31, 20x1. TRIBULATION estimates a probable
loss of ₱800,000.
• On March 5, 20x2, TRIBULATION purchased a subsidiary for ₱40,000,000 in a
business combination accounted for using the acquisition method. Goodwill of
₱10,000,000 was recognized on the business combination.
The financial statements were authorized for issue on March 1, 20x2.
What is the total amount of the adjusting events?
P4,000,000 + P800,000 = P4,800,000

Accounting for adjusting events

2. UNCORK RELEASE Co.’s current reporting period ends on December 31, 20x1. The
following transactions occurred after the end of reporting period:
• On January 20, 20x2, a pending litigation was resolved requiring a settlement amount
of ₱400,000. The 20x1 year-end financial statements included a provision for loss on
litigation of ₱480,000.
• Inventories costing ₱4,000,000 were recognized at their net realizable value of
₱3,600,000 in the 20x1 year-end financial statements. During January 20x2, the
inventories were sold for ₱3,520,000. Actual selling costs amounted to ₱120,000.
• The year-end accounts receivable include a ₱400,000 receivable from RELINQUISH,
Inc. No allowance for doubtful accounts was recognized on this receivable as of
December 31, 20x1. On February 3, 20x2, RELINQUISH filed for bankruptcy. It was
estimated that the receivable will not be collected.
• The fair value of financial assets measured at fair value through profit or loss
significantly declined to ₱320,000 on February 28, 20x2. The financial assets are
recognized in the 20x1 year-end financial statements at ₱1,200,000 which is their fair
value as of December 31, 20x1.
• On March 5, 20x2, a case was resolved requiring a settlement amount of ₱800,000.
The 20x1 year-end financial statements included a provision for loss on litigation of
₱600,000.
UNCORK Co.’s profit for the year ended December 31, 20x1 before consideration of the
above transactions is ₱8,800,000. The financial statements were authorized for issue
on March 1, 20x2.
How much is the adjusted profit?

P480,000 – 400,000 = P80,000

P4,000,000 – 3,520,000 + 120,000 = P600,000

P400,000

P8,800,000 – 80,000 – 600,000 – 400,000 = P7,720,000

3. The following relates to the transactions of GRIMACE FROWN Co. during 20x1:
Directors' and officers' remuneration 8,000,000
Post-employment benefits of officers 800,000
Fringe benefits in the form of housing assistance to
directors and officers 20,000,000
Share options granted to officers 1,200,000
Officers' expenses on travels, representation and
entertainment subject to liquidation and
reimbursement 400,000
Loans to directors and officers 12,000,000
Sales to related entities 40,000,000
1. How much is the amount of related party disclosures on GRIMACE’s separate
financial statements?
a. 30,000,000 b. 52,000,000 c. 82,000,000 d. 42,000,000
2. How much is the amount of related party disclosures on GRIMACE’s consolidated
financial statements?
a. 12,000,000 b. 30,000,000 c. 82,000,000 d. 42,000,000

ACTIVITY 2
 TOPIC 2
ACTIVITY 1
1. EMBOSOM CHERISH Co. engages in five diversified operations namely, operations A,
B, C, D, and E. Information on these segments are shown below:
Segments Revenues Profit (loss) Assets
A 3,200 800 40,000
B 3,200 400 8,000
C 200 40 4,000
D 600 80 8,000
E 800 280 24,000
Totals 8,000 1,600 84,000
Additional information:
a. For internal reporting purposes, segments A and B are considered as one operating
segment.
b. Segment E is considered as an operating segment for internal decision making
purposes.
c. Segments C and D have similar economic characteristics and share a majority of the
aggregation criteria.
What are the reportable segments?
a. A, B, C, D and E
b. A, B and E
c. A and B as one segment and E
d. A and B as one segment, E, and C and D as one segment

2. SORDID DIRTY Co. is preparing its year-end financial statements and has identified the
following operating segments:
Segments External Inter- Total Profit Assets
revenues segment revenues
revenues
A 4,800,000 2,400,000 7,200,000 2,800,000 48,000,000
B 1,600,000 400,000 2,000,000 1,600,000 28,000,000
C 1,000,000 - 1,000,000 400,000 4,000,000
D 800,000 - 800,000 320,000 3,200,000
E 600,000 - 600,000 280,000 2,800,000
F 400,000 - 400,000 200,000 2,000,000
Totals 9,200,000 2,800,000 12,000,000 5,600,000 88,000,000
Management believes that between segments C, D, E and F, segment C is most
relevant to external users of financial statements.
What are the reportable segments?
a. A and B b. A, B, C and D c. A, B and C d. A, B, C, D, E and F

3. Which of the following statements is/(are) correct?

I. If an entity that is not required to apply PFRS 8 Operating Segments chooses to
disclose information about segments that does not comply with PFRS 8, it shall not
describe the information as segment information.
II. PFRS 8 does not require an entity to report information that is not prepared for
internal use if the necessary information is not available and the cost to develop it would
be excessive.
III. If a financial report contains both the consolidated financial statements of a parent
that is within the scope of PFRS 8 as well as the parent’s separate financial statements,
segment information is required only the consolidated financial statements.
IV. PFRS 8 requires an entity to report interest revenue separately from interest
expense for each reportable segment unless a majority of the segment’s revenues are
from interest and the chief operating decision maker relies primarily on net interest
revenue to assess the performance of the segment and to make decisions about
resources to be allocated to the segment. PAS 14, the predecessor of PFRS 8, did not
require such disclosure.
V. Generally, an operating segment has a segment manager who is directly
accountable to and maintains regular contact with the chief operating decision maker to
discuss operating activities, financial results, forecasts, or plans for the segment.
VI. The term “segment manager” identifies a function which should be a segment
manager with a specific title.
a. VI only b. I and II c. all except VI d. all of the statements
4. Danggit, a company listed on a recognized stock exchange, reports operating results
from its Cebu activities to its chief operating decision maker. The segment information
for the year is:
Revenue ₱3,675,000
Profit 970,000
Assets 1,700,000
Number of employees 2,500
Danggit 's results for all of its segments in total are:
Revenue ₱39,250,000
Profit 9,600,000
Assets 17,500,000
Number of employees 18,500
According to PFRS 8 Operating Segments, which piece of information determines for
Danggit that the Cebu activities are a reportable segment?
a. Revenue b. Profit c. Assets d. Number of employees

5. According to PFRS 8, external revenue reported by reportable operating segments

must be at least
a. 75% of the total revenue of the entity including both internal and external revenues
b. 75% of the total external revenue of the entity
c. 10% of the total external revenue of the entity
d. a majority of the total revenue of the entity including both internal and external
revenues

6. Alexander Company has three business segments with the following information:
One Two Three
Sales to
outsiders P8,000,00 P4,000,00 P6,000,00
Intersegme 0 0 0
nt transfers
Interest 600,000 1,000,000 1,400,000
income –
outsiders
Interest 400,000 500,000 600,000
income –
intersegme
nt loans
300,000 400,000 500,000

What is the minimum amount of revenue that each of those segments must have to be
considered reportable?
a. P1,950,000 c. P2,250,000
b. P2,100,000 d. P2,370,000

7. In preparing its segment-reporting schedule, the Lorna Corporation has developed

the following information for each of its 5 segments:
Segment 1 2 3 4 5 Total Revenue P1,400,000 1,200,000 900,000 1,500,000
500,000 P5,500,000
Expenses P800,000 1,300,000 750,000 1,900,000 220,000 P4,970,000
The reportable business segment(s) using the segment result test is (are)
a. Segment 1, 2, 3, 4 & 5
b. Segment 1, 2, 3 & 4
c. Segment 1, 3 & 5
d. Segment 1, 3, 4 & 5

8. Louie Corporation and its division are engaged solely in manufacturing. The following
data pertain to the industries in which operations were conducted for current year:
Segment 1 2 3 4 5 Operating Profit (Loss) P8,000,000 2,000,000 (1,300,000) 3,000,000
(1,000,000)
In its segment information, which is (are) reportable segment/s?
a. Segments 1, 2, 3, 4 & 5
b. Segments 1, 2, 3 & 4
c. Segments 1,2 & 4
d. Segments 3 & 5

9. Which of the following statements is incorrect?

a. A “management approach” is used in identifying operating segments.
b. A reportable operating segment is one which management uses in making decisions
about operating matters or results from aggregation of two or more segments and
qualify under any of the quantitative thresholds.
c. Even if an operating segment does not qualify in any of the quantitative thresholds,
such operating segment may still be reportable if management believes that information
about the segment would be useful to users of the financial statements.
d. Disclosures for major customer shall be provided if revenues from transactions with a
single external customer amount to 75% or more of the entity’s external revenues.

10. Operating segments that may be aggregated are those which exhibit similar
economic characteristics and are similar in the following, except
a. the nature of the products and services, their production processes, and distribution
methods
b. the type or class of customer for their products and services
c. their financial position, financial performance, and cash flows
d. regulatory environment

11. According to PFRS 8, the quantitative thresholds are

I. at least 10% of total revenues (external and internal),
II. at least 10% of the higher of total profits of segments reporting profits and total losses
of segments reporting losses, in absolute amount (i.e., disregarding negative amounts.
III. at least 10% of total assets (inclusive of intersegment receivables).
a. I only b. II only c. III only d. I, II and III

12. Disclosures for major customer shall be provided if revenues from transactions with
a single external customer amount to
a. 10% or more of the entity’s external revenues.
b. 10% or more of the entity’s external and internal revenues.
c. 75% or more of the entity’s external revenues.
d. 75% or more of the entity’s external and internal revenues.

13. For segment reporting, interest revenue and interest expense

a. are reported separately for each reportable segment
b. may be presented at net amount if the chief operating decision maker relies primarily
on net interest revenue to assess the performance of the segment
c. are not reported
d. a or b

14. OBLITERATE TO ERASE Co. included interest expense in its determination of

segment profit, which OBLITERATE's chief financial officer considered in determining
the segment's operating budget. OBLITERATE is required to report the segment's
financial data under PFRS 8. Which of the following items should OBLITERATE
disclose in reporting segment data?
(Item #1) Interest expense; (Item #2) Segment revenues
a. No, No b. No, Yes c. Yes, No d. Yes, Yes (AICPA)

15. Which of the following statements is/(are) correct?

VII. If an entity that is not required to apply PFRS 8 Operating Segments chooses to
disclose information about segments that does not comply with PFRS 8, it shall not
describe the information as segment information.
VIII. PFRS 8 does not require an entity to report information that is not prepared for
internal use if the necessary information is not available and the cost to develop it would
be excessive.
IX. If a financial report contains both the consolidated financial statements of a parent
that is within the scope of PFRS 8 as well as the parent’s separate financial statements,
segment information is required only the consolidated financial statements.
X. PFRS 8 requires an entity to report interest revenue separately from interest expense
for each reportable segment unless a majority of the segment’s revenues are from
interest and the chief operating decision maker relies primarily on net interest revenue
to assess the performance of the segment and to make decisions about resources to be
allocated to the segment. PAS 14, the predecessor of PFRS 8, did not require such
disclosure.
XI. Generally, an operating segment has a segment manager who is directly
accountable to and maintains regular contact with the chief operating decision maker to
discuss operating activities, financial results, forecasts, or plans for the segment.
XII. The term “segment manager” identifies a function which should be a segment
manager with a specific title.
a. VI only b. I and II c. all except VI d. all of the statements

16. PFRS 8 aims to help users of financial statements

a. Better understand enterprise performance
b. Better assess its prospects for future net cash flows
c. Make more informed judgments about the entity as a whole
d. all of the choices

17. PFRS 8 is required to be applied by

a. entities whose equity securities are traded in a public market and those entities who
are in the process of filing its financial statements with a securities commission or other
regulatory organization for the purpose of issuing any class of instruments in a public
market
b. entities whose debt and equity securities are traded in a public market.
c. entities whose debt and equity securities are traded in a public market and those
entities who are in the process of filing its financial statements with a securities
commission or other regulatory organization for the purpose of issuing any class of
instruments in a public market
d. all entities regardless of whether their securities are being traded or not

18. PFRS 8 Operating Segments is applied in

I. Separate or individual financial statements
II. Consolidated financial statements
a. I only
b. I and II
c. II only
d. neither I nor II
19. Which of the following may not be considered as the chief operating decision maker
of an entity?
a. Chief Executive Officer (CEO)
c. Chief Operating Officer (COO)
b. Executive Committee
d. Shareholders
20. The following are required under PFRS 8 Operating Segments to disclose segment
information in its financial statements.
I. entities whose equity or debt securities are publicly traded
II. entities that are in the process of issuing equity or debt securities in public securities
markets
III. entities whose securities are not publicly traded or not in the process of issuing
securities to the public.
a. I and II b. I only c. II only d. None of these

21. A non-publicly listed entity may be required to comply with PFRS 8 Operating
Segment if
a. the entity is a subsidiary whose parent is a listed entity or in the process of issuing
securities to the public even in the entity’s individual (separate) financial statements
b. the entity has a foreign operation
c. at least majority of its revenues comes from intercompany transactions
d. it discloses segment information in its general-purpose financial statements

22. In financial reporting for segments of a business enterprise, which of the following
should be taken into account in computing the amount of an industry segment's
identifiable assets?
(Item #1) Accumulated depreciation; (Item #2) Marketable securities valuation
allowance
a. No, No b. No, Yes c. Yes, Yes d. Yes, No

23. According to PFRS 8, how do firms identify reportable segments?

a. By geographic regions
c. By industry classification
b. By product lines
d. By designations used inside the firm

24. An entity shall report separately information about each operating segment that:
I. Management deems relevant to external users
II. Meets the quantitative thresholds
a. I b. I or II c. II d. neither I nor II

25. Operating segments may be aggregated if

a. they have similar economic characteristics
b. they have different economic characteristics
c. they have the same chief operating decision maker
d. the entity has a matrix organization

26. Which of the following tests may be used to determine if an operating segment of an
entity is a reportable segment under the provision of PFRS 8 regarding quantitative
thresholds?
a. Its revenue (both from external customers and internal segments) is equal to or
greater than 10 percent of total revenue (external and external).
b. The absolute value of its operating profit or loss is equal to or greater than 10 percent
of the higher of the total of the operating profit for all segments that reported profits and
the total of the losses for all segments that reported losses.
c. The segment contains 10 percent or more of the combined assets of all operating
segments.
d. All of the above.

27. SUBJUGATE CONQUER Corporation sells 5 different types of products. The

company is divided for internal reporting purposes into 5 different divisions based on
these 5 different product lines. The company should prepare the note disclosure for
disaggregated information based upon
a. the 5 types of products.
b. the 5 different divisions.
c. the materialty of each product line based on the revenue or operating profits
generated by each product line or the assets utilized by each product line.
d. the geographic areas in which the 5 products are sold. (Adapted)
28. Nonreportable segments should
a. be aggregated and reported as “all other segments.”
b. be aggregated but neither reported nor disclosed
c. not reported but may be disclosed if included in the necessary reconciliation of
segment assets, liabilities, or profit or loss
d. not reported but may be disclosed whether or not included in the necessary
reconciliation of segment assets, liabilities, or profit or loss

29. Total external revenue reported by operating segments should

a. at least be 75 per cent of the entity’s revenue
b. not be more than 75% of the entity’s revenue
c. at least be 90% of the entity’s revenue
d. no limit set by PFRS 8

30. The term chief operating decision maker

a. Refers to a manager with specific title.
b. Must be disclosed by title in financial reporting for segments.
c. Must be described by disclosures for the financial reporting segments.
d. Refers to a function of allocating resources to the operating segments and assessing
their performance.