Reference no: EM133035119

Questions -

Q1. Statement 1: The straight-line method computes the unearned premiums, policy by policy, on a pro-rata basis in respect of the unexpired periods of the respective insurance policies at the end of each period.

Statement 2: PFRS 17 exempts an insurer temporarily from some requirements of other PFRS in selecting accounting policies for insurance contract for liability adequacy test.

Statement 3: Insurers shall disclose the following information that identifies and explains the amounts in its financial statements arising from insurance contract which includes its accounting policies for insurance contract and related assets, liabilities, income and expenses.

Only Statement 1 is correct

Only Statement 1 is incorrect

Only Statement 2 is correct

Only Statement 2 is incorrect

Only Statement 3 is correct

Only Statement 3 is incorrect

All statements are correct

All statements are incorrect

Only S3 is correct

Q2. August, Blythe, and Caren are partners sharing profits and losses in the ratio of 5:3:2. During the year, their investments and withdrawals are as follows: Investment of August, Blythe, and Caren for $200,000, $175,000 and $375,000 respectively. Withdrawals of August, Blythe, and Caren amounting to $125,000, $62,500 and $62,500 respectively. On December 31, 2021, the partners decided to liquidate their business. After exhausting partnership assets, liabilities of $125,000 remain unpaid. August is personally insolvent. How much is the gain or loss on realization?

Q3. Antonio Company delivered 150 portable gas stoves to Devon Company on consignment. These stoves cost $2,700 each and could be sold for $4,500. The consignee is to be allowed a commission of 15% of the selling price. The agreement for the consignment contract stated that Antonio Company would draw a sight draft on the consignee for 60% of the cost of the stoves and the advance shall be recovered periodically by monthly deductions (in proportion to units sold) from the remittances which accompany the account sales. All expenses of the consignee are to be deducted monthly as incurred. The consignee rendered an Account Sales at the end of the first month showing among others, the following information: Advertising $6,750; Delivery Expense $3,375 and Commission $10,135. What amount is remitted by Devon to Antonio for the first month?

Q4. Abot Company, a private contractor, wins a bid to construct a railway for the government. The terms of the arrangement are as follows:

Construct a road-completing construction within a year;

Maintain and operate the road for 4 years;

Resurface the road when the original surface has deteriorated below specified condition. The operator estimates that it will have to undertake the resurfacing at the end of year 3.

The operator collects toll fees of $200,000 per year. The contract ends in year 5. The operator estimates that the resurfacing expenditure increases by $5,000 for each year that the road is used. The appropriate discount rate is 10%. At contract inception, Abot Company identifies a single performance obligation for construction services. Abot Company makes the following estimates:

	Year	Contract Cost	Stand Alone Selling Price
Construction Service	1	200,000	Forecast cost + 25%
Operation Services	2-5	15,000	N/A
Road Resurface	3	10,000	N/A

At the start of year 1, Abot Company obtains a 4 year, 10% $200,000 bank loan to help finance the arrangement. The principal and interest on the loan matures in lump sum. How much is the net income for year 3?