No. 125 Brgy.

San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@[Link]

RAIN SORIANO / B. VILLALUZ / J. ABIERA / A. SARMIENTO / K. LU

FINANCIAL ACCOUNTING AND REPORTING

FIRST PREBOARD
BATCH 10
MAY 2025

1. Which of the following would be matched with current revenue on a basis other than
association of cause and effect?
a. Goodwill
b. Cost of goods sold
c. Sales commission
d. Purchases on account

2. The amortization of bond discount related to long-term debt is presented in a

statement of cash flows prepared using the indirect method as
a. Inflow and outflow of cash
b. Deduction from net income
c. Outflow of cash
d. Addition to net income

3. A debt investment shall be measured at fair value through other comprehensive

income
a. When the debt investment is held for trading.
b. When the debt investment is not held for trading.
c. By irrevocable designation
d. When the business model is to collect contractual cash flows that are solely
payments of principal and interest and sell the financial asset

4. Entities are required to measure financial asset based on all the following, except
a. The business model for managing financial asset.
b. Whether the financial asset is a debt or an equity investment.
c. The contractual cash flow characteristics of the financial asset.
d. All the choices are required.

5. It is the presentation and classification of financial statement items on a uniform basis

from one accounting period to the next.
a. Comparable information
b. Aggregation
c. Consistency of presentation
d. Accrual basis

6. In which section of the statement of financial position should cash that is restricted for
the settlement of a liability due 18 months after the reporting period be presented?
a. Current assets
b. Noncurrent liabilities
c. Equity
d. Noncurrent assets

1|P a g e FARAP – BATCH 10

 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@[Link]

RAIN SORIANO / B. VILLALUZ / J. ABIERA / A. SARMIENTO / K. LU

7. How is income tax expense for the third quarter interim period computed?
a. The annual rate multiplied by the third quarter pretax earnings.
b. The estimated tax for the first three quarters based on an annual rate less a similar
estimate for the first two quarters.
c. The rate applicable during the third quarter multiplied by four times the third quarter
pretax earnings.
d. One-half of the difference between total estimated annual income tax expense and
the income tax for the first two quarters.

8. The approach used in segment reporting is known as

a. Segment approach
b. Management approach
c. Revenue approach
d. Enterprise approach

9. An entity that entered a related party transaction would be required to disclose all,
except
a. Nature of the relationship between the parties.
b. Nature of any future transaction planned between the parties and terms involved.
c. Peso amount of the transaction.
d. Amount due from or to related parties.

10. Which event after the reporting period would require disclosure in the financial
statements?
a. Retirement of the president
b. Settlement of litigation when the event that gave rise to the litigation occurred
prior to the end of reporting period
c. Strike of employees
d. Issue of a large amount of ordinary shares

11. All the following can be classified as cash and cash equivalents, except
a. Redeemable preference shares acquired and due in 60 days
b. Commercial papers held and due for repayment in 90 days
c. Equity investments
d. A bank overdraft

12. Which statement in relation to an imprest petty cash is incorrect?

a. The imprest petty cash system in effect adheres to the rule of disbursement by
check.
b. Entries are made to the petty cash account only to increase or decrease the size
of the fund or to adjust the balance if not replenished at year-end.
c. The petty cash account is debited when the fund is replenished.
d. The petty cash fund is reported as part of current assets.

13. A cash over and short account

a. Is not generally accepted.
b. Is debited when the petty cash fund proves out over.
c. Is debited when the petty cash fund proves out short.
d. Is a contra account to cash.

2|P a g e FARAP – BATCH 10

 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@[Link]

RAIN SORIANO / B. VILLALUZ / J. ABIERA / A. SARMIENTO / K. LU

14. Which of the following would be added to the balance per bank statement to arrive at
the correct cash balance?
a. Outstanding check
b. Deposit in transit
c. Bank service charge
d. A customer’s note collected by the bank

Questions 15 to 16
I Company provided the following information on December 31, 2025:
Cash in bank, net of bank overdraft of P500,000 in another bank 5,000,000
Notes receivable, net of discounted note of P500,000 4,000,000
Accounts receivable, net customers’ accounts with credit balances 6,000,000
Inventory, excluding unrecorded purchases on account P300,000 in 3,000,000
transit FOB shipping point on December 31, 2025
Bond sinking fund set aside for bond payable due December 31, 2026 3,000,000
Accounts payable, net of supplier’s accounts with debit balances of 7,000,000
P1,000,000
Note payable due December 31, 2027 4,000,000
Bond payable due December 31, 2026 3,000,000
Claims from wages covered in a pending lawsuit 400,000
Estimated expenses in redeeming prize coupons 600,000
Accrued expenses 2,000,000

15. What amount should I Company report as total current assets on December 31, 2025?
a. 21,300,000
b. 24,000,000
c. 24,800,000
d. 24,300,000

16. What amount should I Company report as total current liabilities on December 31,
2025?
a. 12,600,000
b. 16,000,000
c. 15,900,000
d. 12,900,000
17. D Company reported operating expenses other than interest expense for the year at
40% of cost of goods sold but only 20% of sales. Interest expense is 5% of sales. The
amount of purchases in 120% cost of goods sold. Ending inventory is twice as much
as the beginning inventory. The net income for the year was P3,000,000. The income
tax rate is 25%.

What amount should D Company report as sales for the year?

a. 12,000,000
b. 19,200,000
c. 20,000,000
d. 16,000,000

18. E Company reported the following liabilities on December 31, 2025:

Accounts payable P 2,000,000

3|P a g e FARAP – BATCH 10

 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@[Link]

RAIN SORIANO / B. VILLALUZ / J. ABIERA / A. SARMIENTO / K. LU

Short-term borrowings 1,500,000

Bonds payable due December 31, 2026 3,000,000
Premium on bonds payable 500,000
Mortgage payable, current portion P500,000 3,500,000
Bank loan, due June 30, 2026 1,000,000

The P1,000,000 bank loan was refinanced with a 5-year loan on March 1, 2026. The
financial statements were issued March 31, 2026.

What total amount should E Company report as current liabilities on December 31,
2025?
a. 7,500,000
b. 8,500,000
c. 5,000,000
d. 4,000,000

19. A Company is completing the preparation of the financial statements for 2025. The
financial statements are authorized for issue on March 31, 2026. On March 5, 2026,
a dividend of P3,000,000 was declared and a contractual profit share payment of
P1,000,000 was made based on the net income for 2025. On February 1, 2026, a
customer went into liquidation having owed the entity P500,000. No allowance had
been made against this account. On March 20, 2026, a manufacturing plant was
destroyed by fire resulting in a financial loss of P2,500,000.

What amount should A Company recognize in profit and loss for 2025 to reflect
adjusting events after the end of reporting period?
a. 4,000,000
b. 2,500,000
c. 3,000,000
d. 1,500,000

20. During the current year, D Company reported total revenue of operating segments at
P60,000,000. Included in this total revenue was sales revenue to external customers
amounting to P20,000,000.

What minimum amount of external revenue should D Company report for reportable
segments?
a. 20,000,000
b. 30,000,000
c. 15,000,000
d. 45,000,000

21. A Company had the following account balances on December 31, 2025:

Petty cash fund P 50,000

Cash in bank – current account 4,000,000
Cash in bank – set aside for bond payable due December 31, 2026 2,000,000
Cash on hand 500,000
Treasury bills 1,000,000

4|P a g e FARAP – BATCH 10

 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@[Link]

RAIN SORIANO / B. VILLALUZ / J. ABIERA / A. SARMIENTO / K. LU

The petty cash fund included unreplenished December 2025 petty cash expense
vouchers P5,000 and employee IOU P5,000. The cash on hand included a P100,000
customer check dated January 15, 2026. In exchange for a guaranteed line of credit,
the entity has agreed to maintain a minimum balance of P200,000 in the unrestricted
current bank account.

What total amount should A Company report as cash and cash equivalents on
December 31, 2025?
a. 6,440,000
b. 7,540,000
c. 7,440,000
d. 5,440,000

22. At the beginning of current year, R Company acquired nontrading equity instrument
for P4,000,000. The equity instrument is irrevocably designated as financial asset at
fair value through other comprehensive income. The transaction cost incurred
amounted to 700,000. The fair value of the instrument was P5,500,000 at year-end
and the transaction cost that would be incurred on the sale of the investment is
estimated at P600,000.

What amount of gain should R Company recognize in other comprehensive income

for the current year?
a. 200,000
b. 800,000
c. 900,000
d. 0

23. On July 1, 2025, L Company purchased E Company ten-year 8% bonds with face
amount of P5,000,000 for P4,200,000. The bonds mature on June 30, 2035 and pay
interest semiannually on June 30 and December 31. Using the interest method, L
Company recorded bond discount amortization of P18,000 for the six months ended
December 31, 2025.

What amount should L Company record as interest income for 2025?

a. 418,000
b. 200,000
c. 182,000
d. 218,000

24. On January 1, 2025, C Company purchased bonds with face amount of P5,000,000.
The entity paid P4,600,000 plus transaction cost of P142,000. The bonds mature on
December 31, 2027 and pay 6% interest annually on December 31 of each year with
8% effective yield. The bonds are quoted at 105 on December 31, 2021. The business
model in managing the financial asset is to collect contractual cash flows that are
solely payments of principal and interest and to sell the bonds in the open market.

What amount of unrealized gain should C Company report as component of other

comprehensive income for 2025?
a. 250,000
b. 428,640
c. 400,000
d. 0

5|P a g e FARAP – BATCH 10

 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@[Link]

RAIN SORIANO / B. VILLALUZ / J. ABIERA / A. SARMIENTO / K. LU

25. A Company provided the following information on December 31, 2025:

Accounts payable amounted to P500,000 and accrued expenses totaled P300,000 on

December 31, 2025. On December 15, 2025, the entity declared a cash dividend of
P7 per share on 100,000 outstanding shares, payable on January 15, 2026. On July
1, 2025, the entity issued P5,000,000, 8% bonds for P4,400,000 to yield 10%. The
bonds mature on June 30, 2030 and pay interest annually every June 30. The pretax
financial income was P8,500,000 and taxable income was P6,000,000. The difference
is due to P1,000,000 permanent difference and P1,500,000 of taxable temporary
difference to reverse in 2026. The income tax rate is 25%. The entity made estimated
income tax payments during the year of P1,000,000.

What amount should A Company report as current liabilities on December 31, 2025?
a. 3,200,000
b. 2,200,000
c. 1,800,000
d. 2,000,000

26. E Company reported for the current year legal and audit fees P1,700,000, rent for
office space P2,400,000, interest on inventory loan P2,100,000, loss on abandoned
data processing equipment P350,000, freight in P1,750,000, freight out P1,600,000,
officers’ salaries P1,500,000, insurance P850,000, sales representative salaries
P2,150,000 and research and development expense P1,000,000. The office space is
used equally by the sales and accounting departments.
What amount should E Company report as general and administrative expenses?
a. 5,250,000
b. 5,600,000
c. 6,450,000
d. 6,250,000

27. A Company reported at year-end current assets comprising cash P700,000, accounts
receivable P1,200,000 and inventory P600,000. An examination of the accounts
receivable revealed the following:

Trade accounts receivable P 930,000

Allowance for doubtful accounts (20,000)
Claim against shipper for goods lost in transit 30,000
Selling price of unsold goods sent out on consignment at 130% 260,000
of cost and not included in ending inventory
Total accounts receivable P 1,200,000

What amount should A Company report as current assets at year-end?

a. 2,440,000
b. 2,300,000
c. 2,210,000
d. 2,240,000

28. L Company is in the process of preparing the 2025 financial statements.

• Balances in the entity’s accounts at the R Bank: checking P1,350,000, savings
P250,000

6|P a g e FARAP – BATCH 10

 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@[Link]

RAIN SORIANO / B. VILLALUZ / J. ABIERA / A. SARMIENTO / K. LU

• Undeposited customer checks of P50,000

• Currency and coins on hand of P40,000
• Savings account at the C Bank with a balance of P4,000,000. This account is
being used to accumulate cash for future plant expansion.
• P200,000 in a checking account at the C bank. The balance in the account
represents a 20% compensating balance for a P1,000,000 loan with the bank.
The entity may not withdraw the funds until the loan is due in 2027.
• Treasury bills: 2-month maturity bills P150,000 and 7-month bills P200,000.

What total amount should L Company report as cash and cash equivalent on
December 31, 2025?
a. 1,840,000
b. 2,140,000
c. 2,040,000
d. 5,840,000

29. On December 31, 2025, R Company reported cash of P6,000,000 comprising cash in
bank P3,000,000, NSF check of customer P200,000, IOU from an employee
P300,000, pension fund P1,500,000, customer check dated January 3, 2026,
P600,000 and customer check outstanding for 18 months P400,000. The entity
revealed the following transactions:
• Check of P100,000 in payment of accounts payable was dated and recorded
on December 31, 2025 but mailed to creditors on January 15, 2026.
• Check of P300,000 dated January 31, 2026 in payment of accounts payable
was recorded and mailed on December 31, 2025.
• The cash receipts journal was held open until January 15, 2026, during which
time P200,000 was collected and recorded on December 31, 2025.

What amount should R Company report as cash?

a. 3,200,000
b. 3,000,000
c. 4,700,000
d. 2,200,000

30. he entity erroneously recorded a P150,000 cash receipt in November as P15,000. The
error was corrected in December. How will the error and correction affect the proof of
cash?
A. November cash balance is reduced by P135,000 and December receipts is
reduced by P135,000.
B. November cash balance is increased by P135,000 and December receipts
is reduced by P135,000.
C. November cash balance is increased by P135,000 and December cash
balance is reduced by P135,000.
D. November cash balance is reduced by P135,000 and December cash
disbursements is reduced by P135,000.

31. An entity is preparing proof of cash for the months of November and December. Which
of the following items will result in an increase of book December cash balance and a
deduction in book December cash disbursements?

7|P a g e FARAP – BATCH 10

 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@[Link]

RAIN SORIANO / B. VILLALUZ / J. ABIERA / A. SARMIENTO / K. LU

A. A November receipt of P30,000 recorded by the entity as P3,000 that is

corrected by the entity during December
B. Unrecorded bank service charges for the month of December
C. Checks issued and drawn by the entity during December not yet charged
by the bank in the entity’s account as of the end of December
D. A December disbursement of P25,000 recorded by the entity as P250,000
that is still uncorrected as of the end of December

32. QT Company bank’s reconciliation for the month of November showed the following
information:
Balance per ledger 2,210,000
Credit memo – note collection 230,000
Collection of P90,000 recorded by company as 81,000
P9,000
Outstanding checks:
Check no. 1264 45,000
Check no. 1290 35,000
Check no. 1461 15,000 95,000
Debit memo – service charge (12,000)
Undeposited collections (150,000)
Balance per bank statement 2,454,000

Further investigation revealed the following information:

i. The correct amount of collections from customers and checks drawn during
December are as follows:
Collections from customers 1,103,000
Checks drawn 1,153,000

ii. The bank statement showed the following charges and credits:
Charges 1,152,000
Credits 1,183,000

iii. The December bank credits include a note collected by the bank on behalf
of QT amounting to P110,000.

iv. Bank service charges for the month of December amounted to P14,000.
v. The following are the errors made by QT during December:
• A collection from customer of P4,000 was recorded by QT as
P40,000.
• A check drawn and issued amounting to P5,000 was recorded by QT
as P50,000.

vi. Undeposited collections as of December 31 amounted to P180,000

vii. The outstanding checks as of December 31 are as follows:
Check no. 1461 15,000
Check no. 1582 55,000
Check no. 1616 20,000

8|P a g e FARAP – BATCH 10

 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@[Link]

RAIN SORIANO / B. VILLALUZ / J. ABIERA / A. SARMIENTO / K. LU

viii. The bank erroneously charged another depositor’s account for a check
drawn and issued in December by QT amounting to P20,000.

Which of the following statements are true?

Statement 1: The unadjusted cash book balance as of December 31 is P2,450,000.
Statement 2: The adjusted cash book balance as of December 31 is P2,509,000.
Statement 3: The adjusted book receipts for December is P1,213,000.
Statement 4: The adjusted bank disbursements for December is P1,167,000.
A. Statements I, II and IV only
B. Statements I, III and IV only
C. Statements I, II and III only
D. Statement III and IV only

33. KL Company’s records as of January 1, 2025 showed a P1,250,000 balance for its
accounts receivable. During 2025, credit sales amounted to P4,890,000. Total
collections from customers, including P50,000 recoveries from accounts previously
written off, amounted to P4,910,000. Total discount availed by the credit customers
amounted to P230,000. Sales returns from credit customers amounted to P70,000.

During 2025, P85,000 of accounts receivable were written off as uncollectible. KL

estimates its allowance for doubtful accounts at 5% of its year – end accounts
receivable.

Which of the following statements are true?

Statement 1: The accounts receivable as of December 31, 2025 is P895,000.
Statement 2: The doubtful accounts expense for the year is P44,750.
Statement 3: The allowance for doubtful accounts as of December 31, 2025 is
P72,250.
Statement 4: The net realizable value of accounts receivable as of December 31, 2025
is P850,250.

A. I and IV only
B. I, II and IV only
C. II, III and IV only
D. II and III only

34. For the year – ended December 31, 2025, the records of JH Company showed the
following information:

a) Accounts receivable balance as of January 1, 2025 amounted to

P2,130,000.
b) Allowance for bad debts before year-end adjustment showed a debit
balance of P35,000.
c) JH estimates its bad debts at 5% of its year – end accounts receivable.
d) Credit sales for the year amounted to P4,990,000.
e) Collections amounted to P5,700,000.
f) 40% of the collections is net of 5% discount.

Which of the following statements is true?

9|P a g e FARAP – BATCH 10

 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@[Link]

RAIN SORIANO / B. VILLALUZ / J. ABIERA / A. SARMIENTO / K. LU

A. Bad debts expense for the year-ended December 31, 2025 is P100,000.
B. Net realizable value of accounts receivable as of December 31, 2025 is
P1,240,700.
C. Gross amount of accounts receivable as of December 31, 2025 amounted
to P1,135,000.
D. Allowance for doubtful accounts as of December 31, 2025 is P30,000.

35. Gatsby Company records showed the following information for the year – ended
December 31, 2025:
Allowance for doubtful accounts
Accounts written off 55,000 January 1, 2025 95,000
Recoveries 25,000

Additional information:
a) The January 1, 2025 balance of accounts receivable is P2,360,000.
b) The credit sales during the year amounted to P3,810,000.
c) Returns from customers amounted to P230,000.
d) Collections including recoveries amounted to P3,210,000.
e) Discounts availed by customers amounted to P190,000.
f) The entity estimates its doubtful accounts at 5% of its year – end accounts
receivable.

Which of the following statements is correct?

Statement 1: The allowance for doubtful accounts as of December 31, 2025 is
P190,500.
Statement 2: The doubtful accounts expense for 2025 is P60,500.
Statement 3: The net realizable value of accounts receivable as of December 31, 2025
is P2,384,500
Statement 4: Writing off of accounts proven to be worthless will result in decrease in
the net realizable value of accounts receivable.
A. I and III only
B. II and IV only
C. II and III only
D. II, III and IV only

36. When using the allowance method for estimating doubtful accounts, what is the
effect of recoveries of accounts previously written off in accounts receivable and
allowance for doubtful accounts?
Accounts receivable Allowance for doubtful accounts
A. Increase Decrease
B. No effect Decrease
C. Decrease No effect
D. No effect Increase

37. Which of the following results in derecognition of receivable?

A. Factoring of accounts receivable
B. Discount of notes receivable accounted as secured borrowing
C. Hypothecation of accounts receivable

10 | P a g e FARAP – BATCH 10
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@[Link]

RAIN SORIANO / B. VILLALUZ / J. ABIERA / A. SARMIENTO / K. LU

D. Assignment of accounts receivable

38. Echo Company needed additional cash for its operation. On December 1, 2025, Echo
assigned P5,000,000 of its accounts receivable to a bank on a non-notification basis.
In exchange, Echo received a loan amounting to 90% of the receivables. The
company signed a note for the bank loan. The bank also charged a 5% service fee
deducted in advance on the value of the loan.

On December 31, 2025, Echo collected P3,000,000 from the assigned accounts less
a discount of P200,000. The collections were remitted to the bank as partial payment
of the loan. The bank applied the remittance first to the accrued interest and the
balance to the principal. The agreed interest is 1% per month on the loan balance.

Which of the following statements is correct?

Statement 1: The cash received from the assignment of accounts receivable is
P4,250,000
Statement 2: The carrying amount of the assigned accounts receivable as of
December 31, 2025 is P1,800,000.
Statement 3: The carrying amount of the note payable as of December 31, 2025 is
P1,745,000.
Statement 4: The equity in assigned accounts receivable as of December 31, 2025 is
P255,000.

A. Statements I and III only

B. Statements II and III only
C. Statements II and IV only
D. Statements III and IV only

39. On August 1, 2025, SL Company discounted a 9-month, P800,000 note, dated March
1, 2025. The note bears an interest of 8% payable on the maturity date of note. The
bank discounted the note with recourse at 12%.

SL accounted the discounting with recourse as a conditional sale.

Which of the following statements is correct?

Statement 1: The proceeds from the discounting of the note is P814,080.
Statement 2: The discount made by the bank amounted to P32,000.
Statement 3: The loss from discounting of the note is P12,587.
Statement 4: The discounting will result in derecognition of the note receivable.

A. Statements II and III only

B. Statements I and III only
C. Statements I and IV only
D. Statements III and IV only

40. AA Company purchased a P5,000,000, 8% bonds on March 31, 2025. The bonds
mature on December 31, 2028. The interest is payable semi-annually every June 30
and December 31. AA acquired the bonds with the intention of both collecting
contractual its principal and interest and selling the bonds. The bonds were acquired
to yield 10% interest.

11 | P a g e FARAP – BATCH 10
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@[Link]

RAIN SORIANO / B. VILLALUZ / J. ABIERA / A. SARMIENTO / K. LU

On December 31, 2025, the bonds are selling at the market rate of interest of 9%.
(Round present value factors to 5 decimal places)

Which of the following statements is correct?

Statement 1: The total amount paid to acquire the bonds is P4,676,842.
Statement 2: The interest income for 2025 is P352,455.
Statement 3: The unrealized gain from fair value changes is P124,856.
Statement 4: The unrealized gain or loss from fair value changes of the bonds should
be reported in profit or loss.
A. I and II only
B. II and III only
C. I and III only
D. I and IV only

41. The effective interest method of amortizing premium on investment in bonds

results in:
Amortization Interest income
A. Increasing Increasing
B. Increasing Decreasing
C. Decreasing Increasing
D. Decreasing Decreasing

42. Which of the following statements is true if the bonds are acquired at a discount?
A. The periodic amortization is decreasing every period.
B. The purchase price is higher than the principal of the bonds.
C. The effective rate of interest is higher than the nominal rate of interest.
D. The cash received from interest is higher than the interest income
recognized.

43. Investment in bonds that are not held for collection of principal and interest should
be measured at
A. Net realizable value
B. Fair value
C. Amortized cost
D. Historical cost

44. On January 1, 2025, EJ Company purchased P1,000,000, 5 – year bonds. The bonds
have a stated interest of 12% and is payable annually every December 31. EJ
acquired the bonds with the intention of collecting its principal and interest and selling
the bonds. The bonds were acquired to yield 10%.

On January 1, 2027, EJ changed its business model to collecting the principal and
interest of the bonds only.

The prevailing market rate of interest on December 31, 2025 and December 31, 2026
is 11% and 9%, respectively. The prevailing market rate of interest of the bonds on
January 1, 2027 is also 9%. (Round present value factors to 4 decimal places)

12 | P a g e FARAP – BATCH 10
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@[Link]

RAIN SORIANO / B. VILLALUZ / J. ABIERA / A. SARMIENTO / K. LU

Which of the following statements is correct?

Statement 1: The bonds are acquired at P1,075,796.
Statement 2: The unrealized loss from fair value changes that should be reported in
the statement of comprehensive income for the year – ended December 31, 2025 is
P32,388.
Statement 3: The unrealized gain from fair value changes that should be reported in
the statement of comprehensive income for the year – ended December 31, 2026 is
P58,630.
Statement 4: The amount to be reclassified from equity to profit or loss at the date of
reclassification is P26,243.
A. I, II and III only
B. I, II and IV only
C. I, III and IV only
D. II, III and IV only

45. Which of the following investments does not recognize impairment losses
A. Investment in debt securities classified as financial assets at fair value
through other comprehensive income
B. Investment in debt securities that are held for collection of principal and
interest
C. Investment in equity securities accounted using equity method
D. Investment in equity securities accounted at fair value

46. CB Company provided the following information for its equity investments
measured at fair value through other comprehensive income:
Cost – December 31, 2025 2,100,000
Net unrealized loss – December 31, 2025 180,000
Net unrealized loss – January 1, 2025 80,000
Realized gain during 2025 400,000

Which of the following statements is incorrect?

Statement 1: The carrying amount of the investments in equity securities as of
December 31, 2025 is P2,280,000.
Statement 2: The unrealized loss that should be reported as component of other
comprehensive income in the statement of comprehensive income is P100,000.
Statement 3: The realized gain that should be reported as component of profit or loss
in the statement of comprehensive income is P400,000.
A. I and II only
B. I and III only
C. II and III only
D. I, II and III

47. Scamander Company provided the following information for 2025:

a) Received P120,000 liquidating dividend from Theseus Company in which
Scamander Company owns 15%.
b) Albus Company paid P2,500,000 dividend in which Scamander Company
owns 5% interest.
c) Received P80,000 cash dividend from Leta Company in which Scamander
Company owns 25% interest.

13 | P a g e FARAP – BATCH 10
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@[Link]

RAIN SORIANO / B. VILLALUZ / J. ABIERA / A. SARMIENTO / K. LU

How much should be reported as dividend income for 2025?

A. 245,000
B. 200,000
C. 205,000
D. 125,000

48. On January 1, 2025, Qilin Company sold a tract of land in exchange of a P4,500,000,
payable in 5 equal annual installments every December 31, starting December 31,
2025. The note bears an interest of 4% payable annually every December 31. The
current market rate of interest for similar note is 12%. (Round present value factors to
4 decimal places)

What is the current and noncurrent portion of the note receivable as of December 31,
2026?
Current Noncurrent
A. 900,000 1,441,136
B. 727,064 1,614,073
C. 900,000 2,122,443
D. 681,307 2,341,136

49. On December 31, 2025, Boar Company sold an equipment in the ordinary course of
business in exchange of a P2,500,000 noninterest bearing note. The note is payable
in 4 equal annual installments every December 31, starting December 31, 2025. The
market rate of interest for similar type of note is 10%.

Present value of ordinary annuity of 1 at 10% for 4 periods 3.1699

Present value of ordinary annuity of 1 at 10% for 3 periods 2.4869

Which of the following statements is correct?

Statement 1: The amount of sales revenue is P1,554,313
Statement 2: The interest income for 2026 is P155,431
Statement 3: The carrying amount of the note receivable as of December 31, 2026 is
P1,084,744
Statement 4: The noncurrent portion of the note receivable as of December 31, 2026
is P568,218
A. Statements I and III only
B. Statements II and IV only
C. Statements II, III and IV only
D. All statements are correct

50. On December 31, 2025, Trick Company sold one of its manufacturing facilities in
exchange for a P5,000,000, 5 – year noninterest bearing note. The note is payable
in 5 equal annual installments every December 31 starting December 31, 2025.
The market rate of interest for a similar type of note is 12%. The details of the
manufacturing facility are as follows:
Cost 5,000,000
Accumulated depreciation 1,800,000

14 | P a g e FARAP – BATCH 10
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@[Link]

RAIN SORIANO / B. VILLALUZ / J. ABIERA / A. SARMIENTO / K. LU

(Round PV factors to 5 decimal places)

What is the gain (loss) on sale of the manufacturing facility?

A. 404,780
B. (962,650)
C. (362,866)
D. 837,350

51. Which of the following statements is incorrect concerning long-term notes

receivable?
A. The interest income is computed based on the market rate of interest of the
note.
B. A decrease in the term of the note receivable results in an increase in its
fair value.
C. The amortization of discount on notes receivable should be added from the
face amount of the note to arrive at the carrying amount.
D. An increase in the effective interest rate of the loan results in a decrease in
its fair value.

52. Which of the following statements is incorrect concerning impairment of loan

receivables?
A. Interest income of credit-impaired loan receivables shall be based on net
carrying amount of the loan.
B. The loss allowance shall be measured at an amount equal to its lifetime
expected credit losses if there is a significant increase in its credit risk since
initial recognition.
C. An entity is not allowed to recognize gain on reversal of impairment in its
loan receivables.
D. An entity shall directly reduce the gross carrying amount of the loan
receivable when the entity has no reasonable expectations of recovering
the loan in its entirety or a portion thereof.

53. On December 31, 2024, Flash Bank granted a P700,000 loan to a borrower. The loan
has an interest rate of 10% payable annually every December 31 starting December
31, 2025. The loan matures on December 31, 2030.

Flash Bank incurred direct origination costs of P92,743 and indirect origination cost of
P45,000. Flash Bank also charged a 4-point nonrefundable loan origination fee to the
borrower.

The effective rate of interest of the loan is 8% after considering the direct origination
cost and the origination fee received.
Statement 1: The carrying amount of the loan on December 31, 2024 is P764,743.
Statement 2: The interest income for 2025 is P61,179.
Statement 3: The carrying amount of the loan as of December 31, 2025 is P755,922.
Statement 4: Flash Bank shall not recognize a loss allowance for the loan on
December 31, 2025 unless the loan is credit-impaired.
A. I and III only
B. I, II and IV only

15 | P a g e FARAP – BATCH 10
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@[Link]

RAIN SORIANO / B. VILLALUZ / J. ABIERA / A. SARMIENTO / K. LU

C. I, II and III only

D. All of the statements are correct

54. On January 1, 2025, Ace Bank provided a P3,000,000 loan to a borrower with a 10%
interest rate. The loan is due on December 31, 2027. Interest is payable annually
every December 31.

On December 31, 2025, the bank concluded that the expected credit loss from default
is P1,200,000. There is no significant decline in the credit quality of the loan. The 12-
month probability of default is 10% and the lifetime probability of default is 40%.

What amount should be recognized as impairment loss for 2025?

A. 120,000
B. 180,000
C. 480,000
D. 720,000

55. Animals related to recreational activities, for example, game parks and zoos, including
the natural breeding of animals in zoos, shall be accounted for under what standard?
A. IAS 41, Agriculture.
B. IAS 40, Investment property.
C. IAS 16, Property, Plant and Equipment
D. Either PAS 41 or PAS 16.

56. Which of the following is not included in cost to sell as defined in IAS 41 Agriculture?
A. Commission to brokers
B. Levies by regulatory authorities
C. Transfer taxes and duties
D. Transportation costs

57. A gain or loss arising on initial recognition of a biological asset and from a change in
the fair value less cost to sell of a biological asset shall be:
A. Recognized in profit or loss.
B. Recognized in other comprehensive income.
C. Recognized as revaluation surplus.
D. Deferred.

58. Which of the following statements is correct in accounting for the birth of a calf?
A. When a calf is born, a gain arising from change in fair value less cost to sell
due to price change is recognized in profit or loss.
B. When a calf is born, a gain arising from change in fair value less cost to sell
due to price change is recognized in other comprehensive income.
C. When a calf is born, a gain arising from change in fair value less cost to sell
due to physical change is recognized in profit or loss.
D. When a calf is born, a gain arising from change in fair value less cost to sell
due to physical change is recognized in other comprehensive income.

16 | P a g e FARAP – BATCH 10
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@[Link]

RAIN SORIANO / B. VILLALUZ / J. ABIERA / A. SARMIENTO / K. LU

59. If the fair value of a biological asset cannot be reliably measured, the biological asset
shall:
A. Be measured at its cost at the reporting date.
B. Be measured at cost less accumulated depreciation and accumulated
impairment losses as of the reporting date.
C. Be measured at its cost less costs to sell as of the reporting date.
D. Not be shown on the statement of financial position.

60. Which of the following is incorrect regarding the periodic and perpetual inventory
system?
A. When an entity purchased goods for sale, under periodic inventory system,
purchase account is debited while under perpetual inventory system,
merchandise inventory is debited.
B. When an entity returned goods to supplier, under periodic inventory system,
purchase returns and allowances is credited while under perpetual inventory
system, merchandise inventory is credited.
C. When an entity made a sale on account, both inventory systems debit accounts
receivable and credit sales, however, an additional entry is needed under
periodic inventory system to establish the cost of goods sold account.
D. When an entity made a cash sale, both inventory systems debit cash and credit
sales, however, an additional entry is needed under perpetual inventory
system to establish the cost of goods sold account.

61. An entry debiting purchases and crediting accounts payable should be made
when:
a. Goods are purchased on account and the periodic inventory system is used.
b. Goods are sold on account and the periodic inventory system is used.
c. Goods are purchased on account and the perpetual inventory system is used.
d. Goods are sold on account and the perpetual inventory system is used.
e. Goods are purchased on account regardless of inventory system being used.

62. An entry debiting merchandise inventory and crediting cost of goods sold should
be made when:
a. Goods are returned and the periodic inventory system is used.
b. Goods are returned and the perpetual inventory system is used.
c. Goods are sold and the periodic inventory system is used.
d. Goods are sold and the perpetual inventory system is used.

63. An entry debiting cost of goods sold, and crediting merchandise inventory should
be made when:
a. Goods are sold and the periodic inventory system is used.
b. Goods are sold and the perpetual inventory system is used.
c. Goods are returned and the periodic inventory system is used.
d. Goods are returned and the perpetual inventory system is used.

64. Which inventory cost flow method in which the oldest costs rarely have an effect
on the ending inventory?
A. Specific identification method
B. FIFO method
C. Average method
D. Any of these methods.

17 | P a g e FARAP – BATCH 10
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@[Link]

RAIN SORIANO / B. VILLALUZ / J. ABIERA / A. SARMIENTO / K. LU

65. The weighted average unit cost is computed as:

a. Net cost of purchases divided by the number of units purchased during the
year.
b. Cost of goods available for sale divided by the number of units available for
sale.
c. Cost of goods available for sale divided by the number of units purchased
during the year.
d. Net cost of purchases divided by the number of units available for sale.

66. Which of the following is incorrect regarding the average method of accounting
for inventory cost flow?
A. Under the moving average method, a new average unit cost must be computed
after every purchase.
B. Under the moving average method, a new average unit cost must be computed
after every sale.
C. The moving average unit cost is not affected by a sale or sale return.
D. Under the weighted average method, the ending inventory is the result of
multiplying the number of inventories on hand at the end of the period and the
average unit cost derived from dividing the total cost of goods available for sale
by the total number of units available for sale.

67. IAS 2 Inventories prohibits which of the following cost flow methods?
A. FIFO method
B. LIFO method
C. Specific identification method
D. Average method

68. Which of the following is incorrect regarding inventory write-down?

A. If the cost of the inventory is greater than its net realizable value, then the net
realizable value will be the basis for recording the inventory with recognition of
write-down.
B. If the cost of the inventory is less than its net realizable value, then the cost will
be the basis for recording the inventory without recognition of write-down.
C. Loss on inventory write-down forms part of the operating expenses.
D. Loss on inventory write-down is a component of cost of goods sold.

69. Which of the following is correct regarding accounting for raw materials and
manufacturing supplies held for use in the production of inventories?
a. Raw materials and supplies must be separately presented from the other
inventories.
b. Raw materials and supplies are not required to be disclosed since they are
normally immaterial.
c. Raw materials and supplies are written down below cost if its net realizable
value is lower than the cost.
d. Raw materials and supplies are not written down below cost under the
condition that the finished goods in which they will be incorporated are
expected to be sold at or above cost.

70. According to IAS 2 Inventories, the best evidence of the net realizable value of
raw materials is
A. Estimated selling price less costs to sell.
B. Estimated selling price less costs to complete and costs to sell.
C. Fair value less costs to sell.
D. Replacement cost.

18 | P a g e FARAP – BATCH 10