Test I. TRUE OR FALSE. Write True if the statement contains facts and valid, otherwise, write False.

1. True The principles in the GAM for NGAs are similar to the principles in the PFRSs.
2. False The GAM for NGAs is promulgated by the Philippine Congress under the authority conferred to it under the
Philippine Constitution.
3. True 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.
4. False The GAM for NGAs is promulgated primarily to harmonized government accounting standards with the U.S.
GAAP.
5. False 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.
6. False 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.
7. False 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.
8. False After the budget call from the DBM, the proposed budget of various agencies are submitted to the Office of
the President for review.
9. False An entity can incur obligations after receiving notice of its appropriation but before receiving the allotment.
10. False Budget deliberations in the Congress start in the House of Senate.
11. True A government entity must first receive an allotment before it can incur obligations.
12. False A government entity can make disbursements even before it receives a disbursement authority.
13. False Appropriation is also called obligational authority.
14. True 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.
15. True 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.
16. True Technically, only the Journals and Ledgers are considered accounting records; the Registries are budget
records.
17. True Separate accounting records and budget registries are maintained for each fund cluster.
18. False Government entities and business entities use the term "obligation" or the phrase "incurrence of obligation"
similarly.
19. True 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.
20. True A check disbursement is normally recorded as credit to the "Cash-Modified Disbursement System (MDS)
Regular" account.
21. False All revenues shall be remitted to the BTr and included in the Special Fund, unless another law specifically
requires otherwise.
22. False Payments to government entities in the form of checks are not allowed.
23. False Revenues of a government entity arise from exchange transactions only.
24. False According to the GAM for NGAs, revenue from exchange transactions are measured at the amount of cash
received.
25. True When cash flows are deferred, the fair value of the consideration receivable is its present value.
Test II. Budget Process
Budget Cycle 1:
Step 1:
Step 2:
Step 3:
Budget Cycle 2:
Step 4:
Step 5:
Step 6:
Step 7:
Budget Cycle 3:
Step 8:
Step 9:
Step 10:
Step 11:
Budget Cycle 4:
Step 12:
Step 13:

Test II. Multiple Choice. Encircle the letter of the best answer.
1. Which of the following is not an indicator of reliable measurement for an asset?
a. Benefits can be expected on the basis of available evidence or logic.
b. Valuation method is free from material error or bias.
c. Faithful representation of the asset’s benefits.
d. Reliable information will, without bias or undue error, faithfully represent those transactions and events.
2. It refers to the disbursement authority issued by the DBM to agencies with foreign operations
a. NCA
b. TRA
c. CDC
d. NCAA
3. Account titles in the Revised Chart of Accounts (RCA) are arranged according to this sequence
a. Assets, Equity, Liability, Revenue, and Expenses
b. Assets, Liability, Equity, Revenue, and Expenses
c. Assets, Expenses, Liability, Equity and Revenue
d. In no particular order.
4. Which of the following is an indication of impairment from internal sources?
a. Significant changes with an adverse effect on the entity have taken place during the period, or will take
place in the near future, in the technological, market, economic, or legal environment in which the entity
operates, or in the market to which an asset is dedicated.
b. During the period, an asset’s market value has declined significantly more than would be expected as a
result of the passage of time or normal use.
c. During the period, an asset’s market value has declined significantly more than would be expected as a
result of the passage of time or normal use.
d. Significant changes with an adverse effect on the entity have taken place during the period, or are expected
to take place in the near future, in the extent to which, or the manner in which, an asset is used or is
 expected to be used.
5. This refers to valid and legal obligations of NGAs/OUs, for which, goods/services/projects have been
delivered/rendered/completed and accepted, regardless of the year when these obligations were incurred.
a. Accounts Payable
b. Obligations
 c. Not Yet Due and Demandable
d. Liability
6. Which of the following is not an essential characteristic of a financial instrument?
a. There must be a contract.
b. There are at least two parties to the contract.
c. The contract gives rise to both a financial asset of one party and a financial liability or equity instrument of
another party.
d. It is subsequently measured at fair value.
7. When determining depreciation, an entity considers all of the following except
a. Initial cost
b. Useful life
c. Expected residual value at the end of the asset’s useful life
d. Whether the asset is classified as with finite or indefinite useful life.
8. Entity A spends ₱20,000 on the repair of one of its equipment. It is not clear whether the repair is a major repair or a
minor repair. In accordance with the GAM for NGAs, how should Entity A account for the repair cost?
a. As a minor repair
b. As a major repair
c. As an addition
d. a or b
9. The Statement of Comparison of Budget and Actual Amounts is dated
a. As of the reporting date
c. For a given reporting period
b. Either a or b
d. Not dated

10. The statement of management responsibility for financial statements attached to a government agency’s combined
financial statements (operating units, regional offices, and main office) would most likely be
a. dated not later than February 14 of the year following the reporting period.
b. dated not earlier than February 14 of the year following the reporting period.
c. signed by the agency’s Head, together with the agency’s Secretary and Treasurer.
d. none of these.
1. On December 31, 2024, an entity had inventory at a cost of P4,080,000 and allowance for inventory
writedown of P275,000 before LCNRV measurement. Below are data pertaining to the entity’s inventory:

Cost Sales Price Net Realizable Value

Product A 700,000 640,000 560,000
Product B 860,000 940,000 848,000
Product C 1,120,000 1,864,000 1,683,000
Product D 1,400,000 1,548,000 1,400,000
Balance 4,080,000 4,992,000 4,491,000
Statement I: An entity shall apply the LCNRV measurement to inventory on a total basis.
Statement II: The entity shall report inventory at P4,491,000.
Statement III: The loss on inventory writedown for 2024 is P152,000.

Cost 4,080,000
LCNRV – applied on an item by item basis
Product A 560,000
Product B 848,000
Product C 1,120,000
Product D 1,400,000 3,928,000
Required allowance on December 31, 2024 152,000
Allowance before adjustment ( 275,000)
Decrease in allowance for 2024 – gain on reversal of writedown ( 123,000)
All statements are false.
2. On January 1, 2024, an entity acquired milking cows for P3,500,000. During 2024, the fair value less cost of
disposal of the cows increased by P450,000 due to growth and price changes. However, the fair value less
cost of disposal decreased by P230,000 due to harvest. Milk was harvested at fair value less cost of disposal
of P700,000. Towards the end of 2024, all of the milk was sold for P850,000.

Statement I: Biological assets are measured at fair value less cost of disposal.
Statement II: Bearer plants are classified as biological assets.
Statement III: The entity shall report a net income of P1,070,000 for the year 2024.
Statement IV: The entity shall report biological assets at P3,720,000 on December 31, 2024.
a. Statements I, III and IV are true.
Sales of milk inventory 850,000
Cost of goods sold ( 700,000)
Gross profit 150,000
Gain from change in FVLCOD – cows (450,000 – 230,000) Gain from 220,000
change in FVLCOD – milk when harvested 700,000
Net income 1,070,000

Biological assets on December 31, 2024 (3,500,000 + 220,000) 3,720,000

Bearer plants are classified as property, plant and equipment. A

3. On January 1, an entity purchased 100 2-year old animals for P10,000 each. Ten animals aged 2.5 years were
purchased on July 1 for P10,800 each. Ten animals were born on July 1. No animals were sold or disposed of
during the year. The fair values less cost of disposal per unit were:

2-year old animal on January 1 10,000

2.5-year old animal on July 1 10,800
New born animal on July 1 7,000
2-year old animal on December 31 10,500
2.5-year old animal on December 31 11,100
Newborn animal on December 31 7,200
3-year old animal on December 31 12,000
0.5-year old animal on December 31 8,000

Required:
a. Compute the Gain from biological asset due price change:
b. Compute the Gain from biological asset due to physical change:

Computation

Gain from biological asset due price change:

100 2-year old animals (10,500 - 10,000 = 500 x 100) 50,000

10 2.5 year old animals (11,100 - 10,800 = 300 x 10) 3,000
10 Newborn animals ( 7,200 - 7,000 = 200 x 10) 2,000
Total gain due to price change 55,000

Gain from biological asset due to physical change:

100 3-year old animals acquired January 1 (12,000 - 10,500 = 1,500 x 100) 150,000
10 3 – year old animals acquired July 1 (12,000 - 11,100 = 900 x 10) 9,000
 10 0.5 year-old animals born July (8,000 - 7,200 = 800 x 10) 8,000
10 Newborn animals on July 1 (7,000 x 10) 70,000
Total gain due to physical change 237,000

4. An entity acquired the following merchandise for the month of

March:

March 1 Balance 4,000 units at P200

March 10 Sale 3,000 units at P380
12 Purchase 6,000 units at P250
20 Sale 5,900 units at P380
28 Purchase 4,000 units at P300

a. Compute the unit cost using weighted average method – perpetual at the end of the month.
b. Compute the cost of inventory using moving average method.

Date Units Unit Total Cost

Cost
March 1 4,000 200 800,000
March (3,00 200 ( 600,000)
10 0)
March 6,000 250 1,500,000
12
Balance 7,000 242.86 1,700,000
March (5,90 242.86 (1,432,874)
20 0)
March 4,000 300 1,200,000
28
Balance 5,100 287.67 1,467,126