MTE Q3 Flashcards
It is an event that creates a legal or constructive obligation because the entity has no other realistic alternative but to settle the obligation.
a. Obligating event
b. Past event
c. Subsequent event
d. Current event
a. Obligating event
When a range of possible outcomes, and each point in that range is as likely as any other, the range to be used is
a. Minimum
b. Maximum
c. Midpoint
d. Weighted average
c. Midpoint
For which of the following should a provision be recognized?
a. Future operating losses
b. Obligations under insurance contracts
c. Reduction in fair value of financial instruments
d. Obligations for plant decommissioning costs
d. Obligations for plant decommissioning costs
A legal obligation is an obligation that is derived from all of the following, except
a. Legislation
b. A contract
c. Other operation of law
d. An established pattern of past practice
d. An established pattern of past practice
What is the correct definition of provision?
a. A possible obligation arising from past event
b. A liability of uncertain timing or amount
c. A liability which cannot be easily measured
d. An obligation to transfer funds to an entity
b. A liability of uncertain timing or amount
How should contingent liability be reported in the financial statements when it is reasonably possible?
a. As a deferred liability
b. As an accrued liability
c. As a disclosure only
d. As an account payable
c. As a disclosure only
A contingent liability
a. Has a most probable value of zero but may require a payment if a given future event occurs
b. Definitely exists as a liability
c. Is reported as current liability
d. Is not disclosed in the financial statements
a. Has a most probable value of zero but may require a payment if a given future event occurs
The likelihood that the future event will or will not occur can be expressed by a range of outcome. Which range means that the future event occurring is very slight?
a. Probable
b. Reasonably possible
c. Certain
d. Remote
d. Remote
General or unspecified contingencies should
a. Be accrued in the financial statements and disclosed
b. Not be accrued and need not be disclosed
c. Not be accrued but should be disclosed
d. Be accrued but need not be disclosed
b. Not be accrued and need not be disclosed
Disclosure usually is not required for
a. Contingent gain that is probable and measurable
b. Contingent loss that is possible and measurable
c. Contingent loss that is probable and cannot be reliably measured
d. Contingent loss that is remote and measurable
d. Contingent loss that is remote and measurable
On November 25, 2023, an explosion occurred at Angelica Y. Company plant after supporting the country of Japan causing extensive property damage to area buildings. By March 10, 2024, claims had been asserted against the entity.
The management and counsel concluded that it is probable that the entity would be responsible for damages, and that P3,500,000 Lm a reasonable estimate of the liability.
Angelica Y.’s P10,000,000 comprehensive public liability has a P500,000 deductible clause. The financial statements were issued on March 31, 2024.
What amount of loss from lawsuit should be reported for 2023?
a. 3,500,000
b. 3,000,000
c. 500,000
d. 0
What amount of liability from lawsuit should be reported on December 31, 2023?
a. 3,500,000
b. 3,000,000
c. 500,000
d. 0
Loss from lawsuit for 2023
c. 500,000
Liability from lawsuit for 2023
a. 3,500,000
Jude B. Company provided the following selected transactions related to contingencies. The fiscal year ends on December 31, 2024. Financial statements are issued on April 1, 2025.
- In December 2024, Jude B. became aware of a flaw in a product from a restaurant in Cebu City that poses a potential risk of injury. As a result, a product recall appears inevitable. This move would likely cost the entity P1,500,000.
- In July 2024, the City of Cebu filed suit against Jude B. asking civil penalties and injunctive relief for violations of anti-standing on waiter law. Jude B. reached a settlement with the city government to pay P4,200,000. in penalties on February 2025.
- Jude B. is the plaintiff in a F4,000,000 lawsuit filed against a waiter for calling him “Sir”.
The lawsuit is in final appeal and the attorney advised that it is virtually probable that Jude B. will be awarded P3,000,000,
What amount should be reported as accrued liability on December 31, 2024?
a. 1,500,000
b. 4,200,000
c. 5,700,000
d. 0
What amount should be reported as gain from lawsuit in 2024?
a. 4,000,000
b. 3,000,000
c. 3,500,000
d. 0
Accrued liability on 2024
c. 5,700,000
Gain from lawsuit in 2024
d. 0
During 2024, Zamora filed suit against Castro “Boy Dila” seeking damages for using a water gun in a rider while sticking his tongue out during Wattah event. On December 31, 2024, Zamora’s legal counsel believed that it was probable that Zamora would be successful against Castro for an estimated amount of P1,500,000.
On March 1, 2025, Zamora was awarded P1,000,000 and received full payment therof. The 2024 financial statements were issued February 1, 2025.
How should the award be reported on December 31, 2024?
a. As a receivable and revenue of P1,000,000
b. As a receivable and deferred revenue of P1,000,000
c. As a disclosure of a contingent asset of P1,000,000
d. As a disclosure of a contingent asset of P1,500,000
d. As a disclosure of a contingent asset of P1,500,000
