CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

1. What is a basic purpose of the Conceptual Framework of Financial Reporting?

a. To develop a single set of high quality International Financial Reporting Standards (IFRS)
b. To promulgate rules and regulations affecting the practice of the Philippine Accountancy
profession
c. To address accounting issues with divergent and unacceptable treatments by issuing
implementation guidance on existing Philippine Financial Reporting Standards (PFRS)
d. To assist preparers of financial statements in applying accounting standards and in
dealing with issues that have yet to form the subject of accounting standards

2. In the Conceptual Framework for Financial Reporting, what provides "the why" (i.e., the purpose) of
accounting?
a. Objective of financial reporting
b. Elements of financial statements
c. Qualitative characteristics of accounting information
d. Recognition, measurement, and disclosure concepts such as assumptions, principles, and
constraints

3. Under the Conceptual Framework of Financial Reporting, users of financial information may be classified
into
a. Main users (existing investors, creditors) and incidental users (potential investors, creditors)
b. Internal users (employees, customers) and external users (investors, creditors)
c. Heavy users (management) and slight users (public, government)
d. Primary users (existing and potential investors and creditors) and other users

4. What is a basic underlying assumption under the PFRS Conceptual Framework?

a. The financial statements are complete, neutral and free from error
b. The financial statements have predictable value and confirmatory value
c. The financial statements are comparable, understandable, verifiable and timely
d. The financial statements are normally prepared on the basis that the entity will continue
in operation for the foreseeable future

5. Which of the following has the highest authoritative support?

a. Conceptual Framework for Financial Reporting
b. International Financial Reporting Standards
c. International Accounting Standards
d. Interpretations of the IFRIC

6. Which organization is NOT directly represented in the 15-member Financial Reporting Standards Council
(FRSC)?
a. Commission on Audit (CoA)
b. Bureau of Internal Revenue (BIR)
c. Securities and Exchange Commission (SEC)
d. Professional Regulations Commission (PRC)

7. Which accounting process is the recognition or non-recognition of business activities as accountable

events?
a. Identifying
b. Measuring
c. Recording
d. Communicating

8. A voucher system is usually used for transactions involving

a. Cash receipts
b. Cash disbursements
c. Cash receipts and disbursements
d. Purchases on account

9. D equals the sum of the debit column of a firm's unadjusted trial! balances, and C equals the sum of the
credit column. Which of the following statements is CORRECT?
a. If D equals C, there is no chance that the company committed a recording error
b. If D does not equal C, it is possible that no errors were committed
c. D typically does not equal C because the adjusting entries have not yet been recorded
d. D does not equal the sum of all account increases during the period

10. Which one of the following items LEAST resembles a typical adjusting entry?
a. Debit revenue and credit liability
 b. Debit an asset and credit liability
c. Debit revenue and credit liability
d. Debit an asset and credit liability

11. Which of the following adjusting entries CANNOT be subject to reversing entries?
a. Accrual of income
b. Accrual of expense
c. Deferral of income under the income method
d. Deferral of expense under the asset method

12. Recording the adjusting entry for depreciation has the same effect as recording the adjusting entry for
__________
a. A prepaid expense
b. An unearned revenue
c. An accrued revenue
d. An accrued expense

13. The major financial statements include all of the following EXCEPT
a. Statement of financial position
b. Statement of changes in equity
c. Statement of comprehensive Income
d. Statement of changes in financial position

14. Assets and liabilities, and income and expenses in the financial statements may be off-set if:
a. there is no tax effect
b. they are financial assets and liabilities
c. required or permitted by a particular standard
d. they are in respect of borrowing and lending activities

15. Which one of the following is an essential characteristic of an asset?

a. The inflow of future economic benefits is controlled by the enterprise
b. It must be exclusively owned and must be exchangeable
c. It is a result of either past or predictable transactions
d. The cost of the asset can be measured accurately

16. Statement I: Provisions should be recognized in the statement of financial position (SFP).
Statement II: Changes in revaluation surplus during a year should be reported in Statement of
Comprehensive Income.
a. True, true
b. True, false
c. False, true
d. False, false

17. The single-step income statement emphasizes

a. The gross profit figure
b. Total revenues and total expenses
c. The various components of income from continuing operations
d. Accounting changes more than these are emphasized in the multiple-step income

18. If expense accounts in the income statement are NOT presented according to functions, they may be
presented using
a. Functional presentation
b. Natural presentation
c. Report form
d. Account form

19. Under PAS 1, which of the following items is NOT included in the computation of profit?
a. Finance cost
b. Post-tax gain or loss on discontinued operations
c. Unrealized gain in change in value of biological assets
d. Unrealized gain in change in value of available-for-sale securities

20. Which is NOT included in the computation of other comprehensive Income?

a. Unrealized gain on available-for-sale financial asset
b. Unrealized changes in the balance of revaluation surplus
c. Loss from translating the financial statements of a foreign operation
d. Unrealized loss from derivative contracts designated as fair value hedge
21. PAS 1 requires the allocation of profit for the period between or among:
I. Profit attributable to subsidiaries of the parent
II. Profit attributable to non-controlling interests
III. Profit attributable to owners of the parent
a. I and II
b. I and III
c. II and III
d. I, 1I and III

22. Profit + Other Comprehensive Income =

a. No meaningful amount
b. Total comprehensive income
c. Total net performance
d. Total net equity

23. The profit or loss of a period and the other gains and losses recognized directly in equity are presented in
the
a. Statement of financial position
b. Income statement
c. Statement of cash flows
d. Statement of changes in equity

24. Revenue may, under proper circumstances, be recognized at the following moments in time, EXCEPT:
a. After the earning process has been completed and an exchange has taken place
b. Upon the receipt of cash from the customer
c. As certain stages of completion of production are attained
d. When manufactured goods are acquired for resale

25. Which of the following is NOT an allowed recognition of revenue under PAS 18?
a. Revenue from royalties is recognized under accrual basis of accounting
b. Dividend revenue is recognized when the right to receive payment is established
c. Revenue from services rendered is recognized under the installment method of
accounting
d. Interest revenue is recognized on a time proportionate basis using effective interest method

26. Which condition does NOT apply to the recognition of revenue for transactions involving the rendering of
services?
a. The amount of revenue and the costs incurred and costs to complete can be measured reliably
b. It is probable that payment for the services shall be received by the entity
c. The significant risks and rewards of ownership have been transferred to the buyer
d. The stage of completion of the transaction at the end of the period can be measured reliably

27. Under "bill and hold" sales, delivery of goods is delayed at the buyer's request, but the buyer takes title
and accepts billing. Under PAS 18, revenue from a "bill and hold" sale of goods is generally recognized
when
a. Delivery is made
b. Buyer takes title
c. Payment is made
d. Seller makes billing

28. Under "layaway" sales, goods are delivered only when the buyer makes the final payment in a series of
installments. Under PAS 18, revenue from a "layaway" sale is generally recognized when
a. The goods are delivered
b. The first installment is made
c. The final installment is made
d. The substantial payment is made

29. Under sales "on approval," goods are shipped where the buyer has negotiated a limited right of return.
Under PAS 18, revenue from sales "on approval" is recognized when all of the following are satisfied,
except
a. Goods have been delivered
b. Initial down payment is made
c. Time period for rejection has elapsed
d. Shipment has been formally accepted by the buyer

30. Under "consignment" sales, the recipient (consignee) undertakes to sell the goods on behalf of the
shipper (consignor). Under PAS 18, revenue from consignment sales is generally recognized
a. By the shipper when goods are shipped to the recipient
 b. By the shipper when goods are sold by the recipient to a third party
c. By the recipient when goods are shipped to the recipient
d. By the recipient when goods are sold by the recipient to a third party

31. When costs can be reasonably associated with specific revenue but not with specific product, the cost
should be
a. Expensed in the period incurred
b. Allocated to the specific product based on the best estimate of the product processing time
c. Expensed in the period in which the related revenue is recognized
d. Capitalized and then amortized over a reasonable period

32. Which of the following is the INCORRECT basis for recognizing the expense indicated?
a. Sales commissions expense on the basis of relationship with sales.
b. Administrative salaries expense recognized as incurred.
c. Depreciation expense on the basis of time.
d. Cost of goods sold expense on a subjective or arbitrary basis.

33. Under PAS 1, which information is normally NOT included in the "notes to financial statements"?
a. A statement of compliance with GAAP
b. A statement of measurement basis for the financial statements and accounting policies applied
c. Supporting information for line items presented and aggregated
d. A statement of cash flows

34. In the notes to the FS, the section on 'summary of significant accounting policies' shall disclose
a. The composition of property, plant and equipment and the depreciation method used
b. The composition of property, plant and equipment only
c. The depreciation method used only
d. Neither the composition of property, plant and equipment nor the depreciation method used

35. Adjustments of financial statements are required for those events after balance sheet date which
a. Are unusual and material
b. Occurred prior to issuance of the financial statements
c. Have a material effect or a user's evaluation of the information presented in the financial
statements
d. Provide additional information for determining amounts relating to conditions existing
on the BS date

36. Ana Company changes its method of valuation of inventories from weighted-average method to first-in,
first-out (FIFO) method. Ana Company should account for this change as
a. A change in estimate and account for it prospectively.
b. A change in accounting policy and account for it prospectively.
c. A change in accounting policy and account for it retrospectively.
d. Account for it as a correction of an error and account for it retrospectively.

37. When it is difficult to distinguish between a change in estimate and in accounting policy, then an entity
should
a. Treat the entire change as a change in estimate with appropriate disclosure
b. Treat the entire change as a change in accounting policy
c. Reasonably apportion the relative amounts of change in estimate and the change in accounting
policy
d. It is best to ignore in the year of change; the entity should then wait for the following year to see

38. A company has included in its consolidated financial statements this year a subsidiary acquired several
years ago that was appropriately excluded from consolidation last year. This results in
a. An accounting change that should be reported prospectively
b. An accounting change that should be reported by restating the FS of all prior periods
presented
c. A correction of an error
d. Neither an accounting change nor a correction of an error

39. An entity shall report for each reportable operating segment a measure of all of the following, EXCEPT
a. Profit or loss
b. Total assets
c. Liabilities if such amount is regularly provided to the chief operating decision maker
d. Net assets

40. PFRS 8 (Operating Segments) requires that a company report all to the following, EXCEPT:
a. major customers
 b. segment assets and liabilities
c. liquidity ratios
d. segment profits and loss and related information

41. Statement I: An interim financial report may consist of a complete set of financial statements
Statement II: An interim financial report may consist of a condensed set of financial statements
a. True, true
b. True, false
c. False, true
d. False, false

42. If an entity publishes a complete set of financial statements in its interim financial report, the form and
content of those statements should conform to:
a. PAS 34 (Interim Financial Reporting)
b. PAS 27 (Separate Financial Statements)
c. PAS 1 (Presentation of Financial Statements)
d. PFRS 10 (Consolidation of Financial Statements)

43. Which of the following is NOT considered cash for financial reporting purposes?
a. Postdated checks and IOUs
b. Petty cash funds and ch6ange funds
c. Coin, currency, and available funds
d. Money orders, certified checks & personal checks

44. A bank statement provides Information about all of the following, EXCEPT
a. Check cleared during the period
b. NSF checks
c. Bank charges for the period
d. Errors made by the company

45. A compensating balance is best reflected by which of the following?

a. A savings account maintained at the bank equal to the amount of all outstanding loans
b. An amount of capital stock held in the company's treasury equal to outstanding loan commitments
c. A balance held in a time or demand deposit account that is equal to the interest currently due on
a loan
d. The portion of any demand deposit, time deposit, or certificate of deposit maintained by
an entity which constitute support for existing borrowing arrangements of the entity
with a lending institution

46. All of the following are characteristics of financial assets classified as 'loan and receivables,' EXCEPT
a. They have fixed or determinable payments.
b. The holder can recover substantially all of its investment (unless there has been credit
deterioration).
c. They are not quoted in an active market.
d. The holder has demonstrated positive intention and ability to hold them to maturity.

47. ABC Company uses the allowance method in recognizing uncollectible accounts. Ignoring deferred taxes,
the entry to record the write-off of a specific uncollectible account
a. Affects neither net income nor working capital
b. Decreases both net income and accounts receivable
c. Affects neither net income nor accounts receivable
d. Decreases both net income and working capital

48. Which of the following costs of conversion CANNOT be included in the cost of inventory?
a. Cost of direct labor
b. Salaries of sales staff
c. Factory rent and utilities
d. Factory overheads based on normal capacity

49. According to PAS 41 (Agriculture), which of the following criteria must be satisfied before a biological
asset can be recognized in an entity's financial statements?
I. The entity controls the asset as a result of past events
II. It is probable that economic benefits relating to the asset will flow to the entity
III. An active market for the asset exists
IV. The asset comes from a homogenous biological group
a. I and II only
b. II and III only
c. I, II, and IV only
 d. I, II, and IV only

50. ABC Company owns a number of herds of cattle. Where should the changes in the fair value of a herd of
cattle be recognized in the financial statements, according to PAS 41 (Agriculture)?
a. In profit or loss only
b. In other comprehensive income only
c. In profit or loss or other comprehensive income
d. In the statement of cash flows only

51. ABC Company had a plantation forest that is likely to be harvested and sold in 30 years. The income
should be accounted for in the following way:
a. No income should be reported until first harvest and sale in 30 years
b. Income should be measured annually and reported using a fair value approach that
recognizes and measures biological growth
c. The eventual sale proceeds should be estimated and matched to the profit and loss account over
the 30-year period
d. The plantation forest should be valued every 5 years and the increase in value should be shown in
the statement of recognized gain and losses

Note: PAS 39 shall still be followed unless it is specifically indicated that PFRS 9 shall be used.

52. Which of the following is NOT a category of financial assets defined in PAS 39?
a. Loans and receivables
b. Available-for-sale financial assets
c. Held-for-sale financial assets
d. Financial assets at fair value through profit or loss

53. Which one of the following is NOT classified as a financial instrument under PAS 32 (Financial
Instruments)?
a. Convertible bond
b. Foreign currency contract
c. Warranty provision
d. Loan receivable

54. Which of the following categories of financial assets is measured at fair value on the balance sheet date?
a. Available-for-sale financial assets
b. Held-to-maturity investments
c. Loans and receivables
d. Investments in unquoted equity instruments

55. All of these are characteristics of financial assets classified as "held-to-maturity investments," EXCEPT
a. They have fixed or determinable payments and a fixed maturity.
b. The holder can recover substantially all of its investment (unless there has been credit
deterioration).
c. They are quoted in an active market.
d. The holder has demonstrated positive intention and ability to hold them to maturity.

56. Debt investments NOT held for collection are reported at:
a. Fair value
b. Amortized cost
c. Net realizable value
d. Lower of amortized cost or fair value

57. Debt investments that meet the business model and contractual cash flow tests under PFRS 9 are
generally reported at:
a. Fair value
b. Amortized cost
c. Net realizable value
d. Lower of amortized cost or fair value

58. Under PAS 39, what is the best evidence of fair value of a financial instrument?
a. Its cost, including transaction costs directly attributable to its purchase, origination or issuance
b. Its estimated value determined using discounted cash flow techniques, option pricing models, etc.
c. Its quoted price, if an active market exists for the financial instrument
d. The present value of the contractual cash flows less impairment

59. The accounting method applied to investments in associates, known as the equity method, is also known
as the
 a. Entity method of consolidation
b. Proprietary method of consolidation
c. Multiple line consolidation method
d. One-line consolidation method

60. PAS 28 does NOT require the equity method to be applied by an associate acquired and held with a view
to its disposal within a certain period. Per PFRS 5, what is the time period within which the associate
must be disposed of?
a. Six months
b. Twelve months
c. Two years
d. In the near future

61. If the investor ceases to have significant influence over an associate, how should the related investment
be treated?
a. It should still be treated using equity method
b. It should be treated in accordance with PAS 39
c. The investment should be frozen at the date at which the investor ceases to have significant
influence
d. The investment should be treated at cost

62. A gain arising from a change in the fair value of an investment for which an entity has opted to use the
fair value model is recognized in
a. Net profit or loss for the year
b. General reserve in the shareholder’s equity
c. Valuation reserve in the stockholder’s equity
d. None of the above

113. Which two of the following statements best describe owner-occupied property under PAS 40
(investment property)?
A. Property held for sale in the ordinary course of business
B. Property held for use in the production and supply of goods and services
C. Property held to earn rentals
D. Property held for administrative purposes
a. A and B
b. B and D
c. B and C
d. C and D

114. When an owner-occupied property is transferred to investment property at fair value, a decrease
in the carrying amount of the property to its fair value at the date of transfer
a. Is recognized in profit and loss or charged against the revaluation surplus to the extent
of IN credit balance
b. Is recognized in profit and loss at all times
c. Is absorbed by retained earnings
d. Is carried directly to equity

115. Under PAS 23, which statement about capitalization of borrowing costs in the cost of a qualifying
asset is TRUE?
a. If funds come from general borrowings, the amount capitalized is based on the weighted
average cost of borrowing
b. Capitalization always continues until the asset is brought into use
c. Capitalization always commences as soon as expenditure of the asset is incurred
d. Capitalization always commences as soon as interest on relevant borrowings is being incurred

116. What is the best evidence an asset's fair value less costs to sell or dispose (i.e., net selling price)?
a. The carrying value of the asset
b. The fair value in an active market
c. The best estimate of knowledgeable parties
d. The selling price in a binding sale agreement

117. PAS 36 (Impairment of assets) should be applied in accounting for the impairment of which type
of asset?
a. Non-current assets held for sale
b. Non-current assets measured at cost
c. Assets arising from construction contracts
d. Investment properties measured at fair value
118. Which of the following examples is unlikely to meet the definition of an intangible asset?
a. Marketing related, such as trademarks and internet domain names
b. Customer related, such as customer lists and contracts
c. Technology based, such as computer software and databases
d. Pure research based, such as general expenditure and research

119. In relation to the amortization of intangible assets, the basic rule under PAS 38 is that unless
demonstrated otherwise:
a. The residual value does not enter into the determination of the amortization change
b. The residual need not be reviewed at the end o each annual reporting period
c. All intangible assets have residual value at least equal to the amount of maintenance costs
incurred
d. The residual value is presumed to be zero

120. Contingent liability will or will not be recognized as a provision (liability) depending on
a. The degree of uncertainty
b. The outcome of a future event
c. Whether they are probable and estimable
d. The present condition suggesting a liability

121. Contingent liability will or will not become actual liabilities depending on
a. The outcome of a future event
b. The degree of uncertainty
c. The present condition suggesting a liability
d. Whether they are probable and estimable

122. Which of the following is the most likely candidate for a contingent liability that can be accrued?
a. Potential liability on a product still in the planning stage (no items have been sold)
b. Potential liability for a lawsuit in which the firm is a defendant
c. Property tax payable
d. Warranty liability

123. Which of the following is NOT a relevant consideration when evaluating whether to derecognize a
financial liability?
a. Whether the obligation has expired.
b. Whether the obligation has been canceled.
c. Whether the obligation has been discharged.
d. Whether substantially all the risks and rewards of the obligation have been transferred.

124. Which of the following best describes current practice in accounting for leases under PAS 17?
a. Leases are not capitalized
b. All leases are capitalized
c. All long-term leases are capitalized
d. Leases similar to installment purchases are capitalized

125. Under PAS 17, lessors are required to account for lease receipts from operating leases as:
a. Income, on inception date of the lease
b. Revenue, at the end of the lease term
c. Income, on a straight-line basis over the lease term
d. Revenue, on a reducing balance basis over the lease term

126. How do you call a taxable temporary difference?

a. Deferred tax lability
b. Deferred tax asset
c. Current tax liability
d. Current tax asset

127. The deferred tax expense is the

a. Increase in balance of deferred tax asset minus the increase in balance of deferred tax liability
b. Increase in balance of deferred tax liability minus the increase in balance of deferred tax
asset
c. Increase in balance of deferred tax asset plus the increase in balance of deferred tax liability
d. Decrease in balance of deferred tax asset minus the increase in balance of deferred tax liability

128. Under current GAAP, which approach is used to determine income tax expense?
a. Asset and liability approach
b. A "with and without" approach
c. Net of tax approach
 d. Periodic expense approach

129. Under current GAAP, which approach is used to bifurcate compound financial liability
instruments?
a. Asset and liability approach
b. A 'with and without" approach
c. Net of tax approach
d. Periodic expense approach

130. An employer's obligation for postretirement health benefits that are expected to be provided to an
employee must be fully accrued by the date the
a. Employee is fully eligible for benefits
b. Employee retires
c. Benefits are utilized
d. d. Benefits are paid

131. Under revised PAS 19, "service cost" comprises

a. Current service cost only
b. Current service cost and past service cost
c. Current service cost and any gain or loss on settlement
d. Current service cost, past service cost and any gain or loss on settlement
132. In relation to measuring the pension expense under a defined benefit plan, which discount rate is
used?
a. Market yields at the balance sheet data on high-quality corporate bonds
b. Risk that future experiences may differ from actuarial assumptions
c. Specific risk associated with the entity's business
d. Investment or actuarial risk

133. Under PAS 32 and PIC rules, any transaction costs attributed to the issuance of new shares shall
be
a. Deducted from equity
b. Expensed immediately
c. Charged to retained earnings
d. Deducted from equity, net of any related income tax benefit

134. Under PIC rules, any costs of public offering of shares (i.e., stock market listing of shares) shall be
a. Deducted from equity
b. Expensed immediately
c. Charged to retained earnings
d. Deducted from equity, net of any related income tax benefit

135. A restriction of retained earnings is most likely to be required by the

a. Purchase of treasury stock
b. Amortization of past service cost
c. Payment of last maturing series of a serial bond issue
d. Exhaustion of potential benefits of the investment credit

136. Which type of shares whose dividends shall NOT be charged to retained earnings?
a. Ordinary shares
b. Cumulative preference shares
c. Redeemable preference shares
d. Convertible preference shares

137. Under IFRIC 17, an entity shall measure a liability to distribute noncash asset as dividend to the
owners at
a. Fair value of the asset to be distributed
b. Carrying amount of the asset to be distributed
c. Neither fair value or carrying amount of the asset to be distributed
d. Fair value or carrying amount of the asset to be distributed, at the option of the entity

138. An entity shall measure a noncurrent asset classified as held for distribution to owners at
a. Carrying amount
b. Fair value less cost to distribute
c. Carrying amount or fair value less cost to distribute, whichever is lower
d. Carrying amount or fair value less cost to distribute, whichever is higher

139. The entity has issued a range of share options to employees. What type of share-based payment
does this represent?
 a. Cash settled share-based payment
b. Asset settled share-based payment
c. Liability settled share-based payment
d. Equity settled share-based payment

140. How is compensation expense measured for equity settled share-based payments?
a. Use the normal hourly rate of the employees
b. Measure the fair value of share options using an option pricing model
c. Measure the difference between the market price and the fair value of the share options
d. Measure the intrinsic value as the difference between market price and exercise price at
measurement date

141. How is it possible for a firm to be profitable and still go bankrupt?

a. Earnings have increased more rapidly than sales.
b. The firm has positive net income but has failed to generate cash from operations.
c. Net income has been adjusted for inflation.
d. Sales have not improved even though credit policies have been eased.

142. Which of the following items should be presented under cash flows from investing activities?
a. Employee costs
b. Property revaluation
c. Redemption of debentures
d. Development costs capitalized in the period

143. In the cash flow statement, alternatively, interest received and dividend received may be
classified as cash flows from
a. Operating activities
b. Investing activities
c. Financing activities
d. Revenue activities

144. In computing the basic EPS, the numerator used is the _______________
a. Income before interests and taxes
b. Income available to ordinary shares
c. Income available to ordinary and preference shares
d. Income after interests and taxes but before preference share dividends

145. In computing the basic EPS, the denominator used is the _________________
a. Ordinary shares outstanding at the end of the year
b. Ordinary shares outstanding at the beginning of the year
c. Weighted average ordinary shares outstanding during the year
d. Weighted average ordinary and preference shares outstanding during the year

146. To compute basic EPS, the amount of preferred dividends on noncumulative preferred stock
should be:
a. Disregarded
b. Added to net income, only when declared
c. Deducted from net income, only when declared
d. Deducted from net income, whether declared or not

147. In computing diluted EPS, dividends on convertible cumulative preferred stock should be:
a. Ignored
b. Added to net income, net of related tax
c. Deducted from net income only when declared
d. Deducted from net income whether declared or not

148. EARNING PER SHARE disclosures are strictly required for:

a. Small and medium entities (SMEs)
b. Publicly accountable entities
c. Both SMEs and publicly accountable entities
d. Neither SMEs nor publicly accountable entities

149. Under certain conditions, it is permitted for SMEs to replace both Statement of Comprehensive
Income and Statement of Changes in Equity with a single
a. Statement of Income
b. Statement of Retained Earnings
c. Statement of Transaction with Owners
d. Statement of Income and Retained Earnings
 150. Borrowing costs incurred by SMEs shall be:
a. Expensed in the period incurred
b. Expensed (benchmark); capitalized (alternative)
c. Capitalized (benchmark); expensed (alternative)
d. Capitalized as part of the cost of the qualifying assets

151. Which of the following statements is TRUE regarding intangible assets for SMEs?
Statement I: All intangible assets including goodwill are considered to have finite life.
Statement II: The useful life of an intangible asset is resumed to be 10 years if a reliable statement cannot
be made.
Statement III: All research and development costs are expensed immediately under all circumstances.
a. I only
b. II only
c. I and II
d. I, II and III

152.

PROBLEMS

1. Jamby Company has three lines of business, each of which was determined to be a reportable segment.
Jamby Company sales in 2015 amounted to P15,000,000. From this amount, Segment No.2 contributed
P6,500,000. Traceable costs of Segment No. 2 for the period was P2,500,000 out of the total of
P5,000,000 for the company as a whole. For internal reporting, Jamby allocates common costs of
P3,000,000 based on the ratio of a segment’s income before common costs to the total income before
common costs. In its 2015 financial statements, how much should Jamby report as operating profit for
Segment No. 2?
a. 2,700,000
b. 2,500,000
c. 2,800,000
d. 3,000,000

2. Gordon Company has estimated that total depreciation expense for the year ended December 31, 2015
will amount to P1,300,000, and that the 2015 year-end bonuses to employees will total P2,000,000, of this
amount, Gordon has incurred P400,000 for the first quarter of the year. In Gordon’s interim income
statement for three months ending on March 31, 2015, what is the total amount of expense relating to
these two items that should be reported?
a. 325,000
b. 500,000
c. 835,000
d. 725,000

3. On June 30, 2015, Loren Company discounted at the bank a customer’s P4,000,000, 6 month, 12% note
receivable dated April 30, 2015. The bank discounted the note at a rate of 15%. Loren did not receive the
proceeds from this discounted note until July 1, 2015. What amount of interest income shall be reported
in the statement of comprehensive income for the year ended June 30, 2015?
a. 80,000
b. 240,000
c. 28,000
d. 52,000

4. Binay Corporation has the following equity accounts:

Par value of share capital 5,000,000.

00
Asset revaluation reserve 1,200,000.
00
Unrealized loss on financial assets at fair value through OCI 1,000,000.
00
Unrealized gain on futures as cash flow hedges 600,000.00
Actuarial loss – fully recognized 200,000.
00
Share premium 3,000,000.
 00
Foreign translation reserve – debit 500,000.0
0
Appropriation reserve 2,000,000.
00
Retained earnings 3,000,000.0
0

What is the total amount of shareholders equity?

a. 13,100,000
b. 13,300,000
c. 16,300,000
d. 14,100,000

5. Elvie Company produced 50,000 kilos of tobacco during the 2018 season. Elvie sells all of its tobacco to
Emeralds Company, which has agreed to purchase the entire production at the prevailing market price.
Recent legislation assures that the market price will not fall below P30 per kilo during the next two years.
The costs of selling and distributing the tobacco are immaterial and can be reasonably estimated. Elvie
sold and delivered 40,000 kilos at the market price of P30. Elvie sold the remaining 10,000 kilos during
2019 at the market price of P40. What amount of revenue should Elvie Company recognize in 2018?
a. 1,200,000
b. 1,500,000
c. 2,000,000
d. 1,600,000

6. On January 1, 2015, Trillanes Company acquired 150,000 ordinary shares of Magdalena Company for
P11,250,000. At the time of purchase, Magdalena Company had outstanding 600,000 shares with a book
value of P42 million. For the year ended December 31, 2015, the following events took place:
 Magdalena reported net income of P5,000,000 for the calendar year 2015.
 Trillanes received from Magdalena a dividend of P2.00 per ordinary share on October 1, 2015 and
a 10% share dividend on December 1, 2015.
 The market value of Magdalena Company stock was quoted at P80 per share.

The investment is classified as financial assets at fair value through OCI. What is the carrying value of the
investment on December 31, 2015?
a. 12,000,000
b. 13,200,000
c. 12,200,000
d. 11,250,000

7. On December 31, 2015, Janna Company showed the following information for amounts capitalized as
machinery that it assembled for its own use:

Cost of dismantling old machine 100,000.0

0
Raw materials used 1,200,000.0
0
Labor in construction 500,000.0
0
Cost of installation in factory 50,000.0
0
Materials spoiled and labor paid in trial run 50,000.0
0
Profit in construction 250,000.0
0
Purchase of machine tools 150,000.0
0
Cash proceeds from sale of old machine - 80,000.00
2,220,000.0
0

An analysis of the details in the account discloses the following:

 The old machine, which was removed in the installation of the new one, had been fully
depreciated.
 A discount was received on the prompt payment of materials used in construction for P50,000 and
this was reported in the purchase discount account.
  The factory overhead account shows a balance of P2,500,000 for the year ended December 31,
2015. This balance exceeds normal overhead on plant activities by P200,000 and is attributable
machine construction.
 The profit was recognized on construction for the difference between total cost incurred and the
price at which the machine could have been bought.

What is the cost of the machinery?

a. 1,550,000
b. 2,050,000
c. 2,100,000
d. 1,950,000

8. On January 1, 2015, Cayetano Company purchased bonds with face value of P5,000,000 for P4,600,000
plus direct transaction cost of P21,000. The business model is to collect contractual cash flows and it has
been determined that contractual cash flows are solely payments of principal and interest. The bonds are
purchased to yield 10% interest. The nominal interest rate on the bonds is 8% payable annually every
December 31. Cayetano appropriately uses the effective interest method of amortization and the market
value of the bonds on December 31, 2015 is 105. What amount income to be recognized from this
investment?
a. 462,100
b. 400,000
c. 368,000
d. 460,000

9. Humble Company had the following gains during 2015 which was considered to be unusual and
infrequent in Humble’s line of business:

Gain on debt restructuring 5,000,000.0

0
Foreign currency translation gain due to major devaluation 4,200,000.0
0
Gain from the expropriation of assets 2,500,000.0
0
Revaluation increment on land 2,800,000.0
0
Unrealized gain on financial assets through OCI 1,000,000.0
0
Unrealized gain trading securities 1,500,000.0
0

What total amount of gains should Humble include as component of comprehensive income?
a. 13,000,000
b. 9,500,000
c. 9,000,000
d. 10,500,000

10. Arroyo Corporation sold one of its factories on January 1, 2015 for P7,000,000. Arroyo received a cash
down payment of P1,000,000 and a 4-year, 12% note for the balance. The note is payable in equal annual
payments of principal and interest of P1,975,406 payable on December 31 of each year until the year
2015. What is the carrying amount of the note receivable on December 31, 2015 in the statement of
financial position?
a. 4,500,000
b. 4,744,594
c. 4,624,594
d. 4,025,594

11. The following data are available for purposes of stating the financial position of Remonde Company on
December 31, 2015:

Cash 1,200,000.0
0
Investment securities - Trading (includes long-term investment
of P500,000 in ordinary shares of Ayala Developers) 2,000,000.0
0
Inventories (net of amount still due suppliers of (200,000) 800,000.0
0
Prepaid expenses (includes a deposit of P40,0000 made on
inventories to be delivered in 18 months) 150,000.0
0
 Property, plant and equipment (excluding P300,000 of
equipment still in use, but fully depreciated) 10,000,000.0
0
Goodwill (based on estimate by the president of Remonde) 1,000,000.0
0
Total assets 15,150,000.0
0

Further analysis of cash shows the following:

Cash in general checking accounts 600,000.00

Cash in fund to be used to retire bonds in 2014 500,000.00
Cash held to pay sales taxes 100,000.00
How much is the current assets that should be shown in the statement of financial position as of
December 31, 2015?
a. 3,650,000
b. 3,310,000
c. 3,350,000
d. 3,810,000

12. On December 31, 2015, Macapagal Bank has a 5-year loan receivable with a face value of P5,000,000
dated January 1, 2014 from a borrower that is due on December 31, 2015. Interest on the loan is payable
at 9% every December 31. The borrower paid the interest that was due on December 31, 2014 but
informed Macapagal that interest accrued in 2015 will be paid at maturity date while there is a high
probability that interest payments in 2016 and 2017 will not be paid because of financial difficulty. After
that, the borrower is expected to resume to pay the interest in the last year of the loan. It was also
determined that the prevailing market rate of interest on December 31, 2015 is 10%. What is the loan
impairment loss to be recognized on December 31, 2015? (Round off present value factors to three
decimal places)
a. 1,019,100
b. 895,200
c. 1,272,800
d. 1,420,000

13. Santiago Company is engage in raising dairy livestock. Information regarding its activities of its dairy
livestock is found below.

Carrying amount at January 1,2015 5,000,000.0

0
Increases due to purchases 2,000,000.00
Gain arising from changes in fair value less cost to sell attributable to 400,000.00
price change
Gain arising from changes in fair value less cost to sell attributable to
physical
change 600,000.00
Decreases due to sales 850,000.00
Decreases due to harvest 200,000.00

What is the carrying amount of Santiago Company’s biological assets on the statement of financial
position on December 31, 2015?
a. 6,950,000
b. 6,000,000
c. 8,000,000
d. 7,150,000

14. On January 1, 2015, Haiti Company received a grant of P10,000,000 from the Philippine government to
compensate for massive losses and damages to its properties incurred because of a tragic earthquake in
its area. The grant requires no fulfillment of certain conditions. The grant was for the purpose of giving
immediate financial support to the entity. It is estimated that it will take Haiti 2 years to reconstruct its
facilities destroyed by the earthquake and a total of 4 years before its operations normalize. How much
income from the government grant should be recognized by Haiti in 2015?
a. 10,000,000
b. 5,000,000
c. 2,000,000
d. 2,500,000
15. Acosta Company acquired a machine on January 1, 2013 for P10,000,000. The machine has an 8-year
useful life and a P1,000,000 residual value, and was depreciated using the sum-of-years digits method.
Acosta recorded a full year’s depreciation on the asset in 2013 and 2014. In January of 2015, Acosta
estimated that the asset’s useful life from the date of acquisition should have been 6 years and its
residual value to be P400,000. As a result of this change in Acosta’s accounting estimate, what is the
accumulated depreciation on December 31, 2015?
a. 5,212,500
b. 6,090,000
c. 4,400,000
d. 6,250,000

16. Pensacola Company acquired a tract of land containing extractable natural resources. Pensacola
Company is required by the purchase contract to restore the land to a condition suitable for recreational
use upon sale after it has extracted the natural resources. Geological surveys estimate that the
recoverable reserves will be 2,500,000 tons and that the extraction will be completed in five years. The
following information was gathered for activities related to mining the minerals:

Land purchase price 12,000,000.

00
Machinery, equipment and improv4ements for extraction 6,000,000.00
Exploration and development costs 5,000,000.00
Expected cash flows for restoration costs 2,000,000.00
Residual value 4,000,000.00
Credit-adjusted risk-free interest rate 10%
PV of 1 at 8% for 6 periods 0.63

The company extracted 500,000 tons of the minerals in 2015 and sold 400,000 tons. What the amount of
depletion to be included in the 2015 statement of comprehensive income? a. 2,852,000 b. 2,281,600 c.
3,000,000 d. 2,400,000

17. Bronx Company acquired a machine on January 2011 at a cost of P2,500,000. The estimated residual
value of the machinery is P400,000 and has an estimated useful life of 8 years to be depreciated under
the straight-line method. In January of 2015, Bronx has determined that there was a permanent
impairment in the value of the machinery, therefore Bronx recorded an impairment loss of P450,000 and
estimated that the remaining useful life of the machine is two years with no residual value. At what
amount should the machinery be reported in Bronx’s December 31 2015 statement of financial position?
a. 750,000 b. 600,000 c. 450,000 d. 500,000
18. The following account balances relating to real properties of Parlays Company appear on the books on
December 31, 2014:

Land 1 3,000,000
.00
Land 2 5,000,000.00
Land 3 7,000,000.00

On January 1, 2015, Parlays Company revalued its land to fair value, Parlays does not have any other
assets carried at revalued amount on this date. The fair value on this date of Land 1, 2 and 3 are
P3,500,000, P6,000,000 and P9,000,000, respectively. Buildings and other facilities located on all three
properties are depreciated under the straight-line method of depreciation using a ten-year useful life. On
December 31, 2015, Land 2 and the structures on the property were sold for a total amount of
P10,000,000. What is the amount revaluation surplus transferred to retained earnings for the year ended
December 31, 2015?
a. 1,000,000
b. 1,350,000
c. 1,250,000
d. 350,000

19. De Castro Company acquired 20,000 shares of Mickeys Company on January 1, 2014, at P150 per share.
Mickeys had 80,000 shares outstanding with a book value of P10,400,000. Three-fourths of the difference
between the purchase price of De Castro and book value of Mickeys’s shares on January 1, 2014, is
attributable to a broadcast license intangible asset, while the balance was ascertained as goodwill.
Mickeys recorded earnings of P2,000,000 and P2,500,000 for 2014 and 2015, respectively, and paid per-
share dividends of P10 in 2014 and P12 in 2015. Mickeys uses a 10-year straight-line amortization policy
for the broadcast license. What shall De Castro Company report in 2015 as its equity in earnings of
Mickeys Company?
a. 585,000
 b. 595,000
c. 625,000
d. 240,000

20. Scudder Company adapted the following changes during 2015:

 Appropriately changed to the FIFO cost method from the weighted-average cost method for
financial statement and income tax purposes. The change will result in a P700,000 decrease in the
beginning inventory at January 1, 2015.
 Changed its method of accounting for bad debts from the direct write-off method to the allowance
method. The company's controller determined that an allowance of P150,000 should be
established on that date.
 Due to technological changes, depreciable assets will have lower residual values than were
originally expected. Analysis shows that depreciation in prior years was understated by P500,000.

Ignoring income tax effect, what is the net adjustment to the 2015 beginning balance of retained earnings
of Scudder Company?
a. 850,000
b. 1,200,000
c. 1,350,000
d. 550,000

21. The audit of Goodness Company for the year ended December 31, 2015 was completed on March 1, 2016.
The financial statements were signed by the managing director on March 15, 2016 and approved by the
shareholders on March 31, 2016. The next events have occurred.
 On January 15, 2016, a customer owing P900,000 to Goodness filed for bankruptcy. The financial
statements include an allowance for doubtful debts pertaining to this customer of P100,000
 Specialized equipment costing P525,000 purchased on September 1, 2015 was destroyed by fire
on December 15, 2015. Goodness Company has booked a receivable of P400,000 from the
insurance company. After the insurance company completed its investigation on February 1,
2016, it was discovered that the fire took place due to the negligence of the machine operator. As
a result, the insurer’s liability was zero on this claim.
 Goodness Company’s issued capital comprised 100,000 equity shares with P100 par value. The
company issued additional 25,000 shares on March 1, 2016.
What amount should Goodness Company should report as net amount of “adjusting events” on December
31, 2015?
a. 1,300,000
b. 1,200,000
c. 3,800,000
d. 3,700,000

22. Velarde Company purchases approximately 500,000 bushels of oats each month. On December 1, 2014,
Velarde purchased an option to purchase 500,000 bushels of oats on March 1, 2015, at a price of P100
per bushel, which is the market price of bushel on that date. Velarde had to pay P100,000 to purchase
these oats call option, which it designated as a cash flow hedge against price increases for its March 2015
purchase of oats. On December 31, 2015, the price of oats is P95 per bushel. Because there is still time
for the price of oats to potentially rise above P100 per bushel before the option expires, the option has a
value of P40,000 on December 31, 2014. On March 1, 2015, the price of oats is P104. What is the gain on
the call option to be recorded by Velarde in its 2015 statement of comprehensive income?
a. 2,000,000
b. 1,900,000
c. 1,960,000
d. 1,940,000

23. The following expenditures were incurred by Puno Company:

Painting partitions in a large room recently divided into four sections 50,000.00
Labor cost of tearing down a wall to permit extension of an assembly 200,000.00
line
Replacement of the motor of the machine. This replacement was
anticipated when
the machine was purchased 500,000.00
Cost of grading land prior to construction 600,000.00
Dust filters in the interior of the factory were replaced. The new
filters are expected
to reduce employee health hazards and thus reduce wage and
fringe benefit
costs. 800,000.00
 How much of the expenditures above will be capitalized?
a. 2,150,000
b. 1,950,000
c. 1,900,000
d. 1,400,000

24. The owners of Heart Company are planning to sell the business to new interests. The cumulative net
earnings for the past 3 years was P9,000,000 including expropriation gain of P1,500,000. The current
value of net assets of Heart Company was P9,000,000. Goodwill is determined by capitalizing average
earnings at 25%. What is the amount of goodwill?
a. 1,333,333
b. 5,000,000
c. 1,000,000
d. 2,000,000

25. On January 1, 2015, Villanueva Company classified noncurrent assets as held for sale that had a carrying
amount of P2,500,000. On this date, the assets can be expected to be sold for P2,300,000. Reasonable and
expected disposal cost to be incurred for sale was expected at P100,000. By December 31, 2015, the asset
had not been sold and management after considering its options decided to place back the noncurrent
asset into operations. On that date, Villanueva’s managers estimated the noncurrent asset was now
expected to be selling at P1,800,000 with the disposal cost of P50,000, while depreciation for 2015 was
computed at P500,000 if the noncurrent asset was not classified as held for sale. How much is the
additional loss that shall be reported in the 2015 statement of comprehensive income on December 31,
2015?
a. 200,000
b. 450,000
c. 250,000
d. 0

26. On June 30, 2015, when the carrying amount of the net assets of a business segment was P25,000,000,
Delos Reyes Company signed a legally binding contract to sell the business segment. The sale is expected
to be completed by March 31, 2016 at a selling price of P20,000,000. In addition, prior to March 31,
2016, the sale contract obliges Delos Reyes Company to terminate the employment of certain employees
of the business segment incurring an expected termination cost of P1,000,000, final settlement under this
obligation is on February 1, 2016. The segment’s revenue and expenses for 2015 were P12,000,000 and P
10,000,000 respectively. Before the close of the year, Delos Reyes sold several assets of the discontinuing
segment recording a loss on sale of P1,500,000. Before income tax, how much will be reported as loss
from the discontinued segment for 2015?
a. 4,000,000
b. 5,500,000
c. 3,000,000
d. 4,500,000

27. On December 1, 2015, Lucy Corporation leased office space for 10 years at a monthly rental of P100,000.
On that date Lucy paid the landlord the following amounts:

Rent deposit 500,000.0

0
First month's rent 100,000.0
0
Last month's rent 100,000.0
0
Installation of new walls and offices 810,000.0
0
Total 1,510,000.
00

The entire amount of P1,510,000 was charged to rent expense in 2015. What amount should Lucy have
charged to expense for the year ended December 31, 2015?
a. 100,000
b. 106,750
c. 206,750
d. 910,000

28. The following calculation refers to an impairment loss suffered by Bran Company on December 31, 2014:

Goodwill Net assets

Carrying amount 4,500,000.0 13,500,000.00
 0
Impairment loss - -
4,500,000.00 3,000,000.00
Adjusted carrying amount - 10,500,000.00

There has been a favorable change in the estimate of the recoverable amount of the net assets. The
recoverable amount is now P12,000,000 on December 31, 2015. The carrying amount of the net assets on
December 31, 2015 would have been P10,800,000 if there was no impairment loss recognized on
December 31, 2014. Assets are depreciated at 20% of reducing balance. What gain on reversal of
impairment loss should be recognized in 2015?
a. 1,500,000
b. 3,600,000
c. 2,400,000
d. 0

INTERMEDIATE ACCOUNTING 1

Grapes Company purchased 20,000 ordinary shares of Ubas Corp. for P700,000 which includes P5,000
transaction cost, on January 1, 2017. December 31, 2017, the shares were selling at P32, which increased to P36
on December 31, 2018.

On June 30, 2019, Ubas Corp. distributed 20% bonus issue. On July 15, 2019, Grapes Company sold 15,000
shares at P35 per share. On December 31, 2019, Ubas Corp. shares were selling at P34 per share.

If Grapes Company classified the investment as held for trading, determine the following:

1. The amount of unrealized gains or losses that should be included in the profit or loss statement for the
year ended December 31, 2017.
a. 60,000
b. 55,000
c. 80,000
d. 20,000

2. The amount of gain or loss on sale on July 15, 2019.

a. 3,750
b. 15,000
c. 75,000
d. 90,625

If Grapes Company classified the investment as fair value through other comprehensive income, determine the
following:

3. The amount of unrealized gain/loss that should be reported in the statement of financial position on
December 31, 2018.
a. 80,000
b. 25,000
c. 20,000
d. 60,000

4. The cumulative balance of unrealized gain/loss that would be transferred to retained earnings in relation
to the sale of 15,000 shares.
a. 87,500
b. 12,500
c. 75,000
d. None of the choices

On January 1, 2017 Orange Corp. acquired 200,000 shares representing 40% interest of Kahel's ordinary shares
for P4,500,000 Kahel reported during 2017 a total net income of P4,000,000 and unrealized gain from its
investment at FVOCI of P500,000. Kahel also distributed total dividends at year end of P3,000,000. On January 1,
2018, Kahel issued 300,000 shares at P 23 per share which Orange Corp. did not purchase any of these shares.

5. How much is the total net dilution gain/loss that should be recognized by Orange Corp.?
a. 112,500 gain
b. 187,500 gain
c. 187,500 loss
d. 112,500 loss

On June 1. 201Z, Straw Company acquired 18% equivalent to 20,000 shares of Berry Company for P2,500,000
when Berry's net assets had carrying values of P12,000,000. The acquisition still resulted to having a significant
influence because of the material transactions between Straw and Berry. Except for land whose fair value is
P500,000 higher than its book value, an equipment ( with 3 years remaining life from the date of acquisition)
whose fair value exceeds its carrying values by P800,000, and inventories with a book value of P4,500,000 and
fair value of P4,700,000. All other identifiable assets and liabilities show carrying values equal to their fair values.

On December 31, 2017, 20% of the inventories remained unsold and Berry reported a foreign translation gain of
P200,000 and net income of PS,400,000. Straw received from Berry a total dividends of P540,000. Fair value of
the shares at year-end is P140 per share.

6. How much from the acquisition cost is attributable to goodwill?

a. 0
b. 70,000
c. 173,200
d. 340,000

7. How much is the adjusted investment income taken to profit or loss for the year ended 2017?
a. 895,200
b. 931,200
c. 510,200
d. 531,200

8. How much is the carrying value of the investment on December 31, 2017?
a. 2,470,200
b. 2,506,200
c. 2,491,200
d. 2,891,200

On June 1, 2014, YODA CORP. acquired a 5-year, 10%, P1,000,000 face value bonds at 92. The company paid
broker's fees and non-refundable taxes amounting to P118,896. As a result, yield rate on the bond was 9%.
Interests are collectible annually every May 31. The bonds were selling at 120, 105, 98 as of December 31, 2014,
December 31, 201S and December 30, 2016; respectively. On September 30, 2016, YODA sold P250,000 face
value bonds for a total cost of P280,000.

Case 1: Answer the following questions assuming the company classifies the investment as financial assets at
amortized cost:

9. How much is the net increase in the company’s profit for the year ended December 31, 2014?
a. 58,333
b. 54,542
c. 93,501
d. 49,300

10. How much should be the 2016 gain or loss on the sale of the investment?
a. 15,982
b. 24,315
c. 9,018
d. 685

Case 2: Answer the following questions assuming the company classifies the investment as financial asset at fair
value through profit or loss

11. How much is the total interest revenue that should be recognized for the year ended December 31, 2015?
a. 100,000
b. 93,519
c. 54,201
d. 93,160

12. How much is the carrying value of investment on December 31, 2016?
a. 787,500
b. 980,000
c. 765,606
d. 735,000

Case 2: Answer the following questions assuming the company classifies the investment as financial asset at fair
value through other comprehensive income:

13. How much is the interest income for year ended 2015?
a. 58,333
b. 100,000
c. 54,201
d. 93,160
 14. How much is the unrealized gain/loss that should be reported in OCI for the year 2014?
a. 280,000
b. 161,104
c. 157,313
d. 164,895

Aguinaldo Company has the following property items at December 31, 2107:

Land which at the date of acquisition is not intended for any specific use
in the future 1,000,000.0
0
Land held for future plan site 2,000,000.0
0
Building in process of construction intended to be leased under operating
lease 8,000,000.0
0
Building being leased out under finance leases 2,500,000.0
0
Equipment being leased under operating leases 1,500,000.0
0
Land and building acquired under finance leases being used by the entity
as its general and administrative headquarter 9,200,000.0
0
Condominium building that is being constructed intended for sale in the
ordinary course of business 5,000,000.0
0
Building constructed on behalf of a third party 4,500,000.0
0
Building being leased out under operating lease, an insignificant portion is
used for administrative purposes 6,000,000.0
0
Property interest in a building leased from Emilio Corp. that being subleased
to others from which significant rental income is derived 3,500,000.0
0
Hotel building owned which significant services are provided to the guests 7,000,000.0
0

15. How much should be classified as investment properties at Dec. 31, 2015?
a. 1,000,000
b. 9,000,000
c. 10,500,000
d. 24,200,000

18,500,000

On January 2, 2017, Quirino Company has a bullding that is being leased out under operating lease costing
P2,000,000. The lessee pays a semi-annual rent of P90,000. Estimated useful life of the building is 10 years. On
December 31, 2017, the fair value of the property is P2,400,000.

16. How much is the total net amount of income that should be taken to 2017 profit or loss using the fair
value model?
a. 280,000
b. 161,104
c. 157,313
d. 164,895

580,000

On January 2, 2005, Estrada Company converted its owner-occupied property to investment property that is to be
carried at fair value. The carrying value of the property in the company’s books is P4,500,000.

17. Assuming the fair value of the property on the date of transfer or conversion is P5,100,000, Estrada
Company should recognize
a. A 600,000 unrealized gain in the income statement
b. A 600,000 unrealized gain in OCI
c. A 600,000 unrealized gain in Retained Earnings
d. A 600,000 revaluation surplus
On January 1, 2017, Tahoma Company purchased several machineries that will be used in the production of
goods at a purchase price of P1,000,000. Tahoma Company paid import duties of P10,000 and non-refundable
purchase taxes of P5,000. Tahoma Company also incurred a P30,000 installation and assembly cost. The company
expects that it will incur dismantling cost amounting to P132,275 at the end of the equipment’s 5-year useful life.
The prevailing market interest rate during the transaction date was 12%

The present vale factor of 1 at 12% for 5 periods is at 0.567

The present value factor of ordinary annuity at 12% for 5 periods is at 3.6048

18. How much should the Machineries be initially recognized?

a. 1,045,000
b. 1,177,275
c. 1,120,000
d. 1,521,825

On February 1, 2017, Lucida Company traded in an old machine with a book value of P8,000 for a similar new
machine having a cash price of P35,000 and a list price of P40,000. Lucida paid P25,000 as a result of trade-in,
The fair value of the asset given up is not determinable

19. How much is the gain or loss from the trade in transaction?
a. None
b. 2,000
c. 7,000
d. 17,000

Comic Sans Company self-constructed an asset for its own use. Construction started on January 1, 2017 and the
asset was completed on December 31, 2017. The company had a two-year, 18% loan of P500,000, specifically
obtained to finance the asset construction. Funds not yet needed during the construction were temporarily
invested in a short-term debt security yielding a P10,000 interest revenue. The company also had a general
borrowing amounting to P600,000, 5-year term with interest of 20% and P1,000,000, 10-year-term with interest
of 18% were used in part in the self-construction.

Costs incurred during the year were as follows:

January 1 – P400,000 April 1 – P500,000

August 1 – P480,000 December 1 – P180,000

20. How much is the total capitalized interest?

a. 155,000
b. 165,000
c. 80,000
d. 91,875

171,875

21. How much interest should be recognized as interest expense?

a. 0
b. 208,125
c. 300,000
d. 135,000

The Optima Corporation incurred the following expenditures which it had charged to property plant, and
equipment account, at the beginning of 2017:

Cash paid on purchased of land 220,000.00

Demolition of a building erected on the purchased land 100,000.00
Legal fees for the land acquisition 25,000.00
Interest on loan for construction 27,000.00
Labor and materials for the construction of the building 500,000.00
Architect's fees for the building 37,000.00
Excavation expenses 45,000.00
Fixed overhead charged to the building 100,000.00
Cost of temporary safety fence 50,000.00
Insurance on building during construction 10,000.00
Payment to squatters to vacate the premises 30,000.00
Mortgage assumed on the land purchased 80,000.00
Cost of temporary quarters for construction crew 50,000.00
Profit on construction of the building equal to the difference between the appraised
value and actual construction costs 120,000.00
Property taxes on land covering the period 2014-2017 80,000.00
Mortgage assumed on the land purchased 140,000.00
Special assessments 25,000.00
Cost of option paid to buy the land 15,000.00
Landscaping cost 40,000.00
Cost of paying driveway and parking lot 20,000.00
Proceeds from sale of salvage materials 30,000.00

Compute for the correct 2017 balances of the following:

a. b. c. d.

22. Land 565,000 585,000 605,000 625,000

23. Building 919,0000 949,000 869,000 819,000

In January 2017, Nadeem Mining Company purchased a mineral mine for P3,600,000 with removal ore estimates
by geographical surveys at 2,160,000 tons. The property has an estimated value of P360,000 after the ore has
been extracted. Nadeem Company incurred P1,080,000 of development costs preparing the property for
extraction of ore. During 2017, 270,000 tons were extracted and 240,000 tons were sold.

24. For the year ended December 31, 2017, Nadeem should include what amount of depletion?
a. 360,000
b. 480,000
c. 520,000
d. 540,000

a.

b. 110,000

On January 1, 2012, Franklin Gothic Company purchased a machinery for P600,000, with an estimated economic
useful life of 12 years. Straight line method of depreciation is to be used. On December 31, 2015, it was properly
determined that the fair value less cost of disposal is P235,000 while the value in use is P240,000. On January 1,
2018, it was properly computed that the recoverable amount of the asset is P250,000.

25. How much is the impairment loss on December 31, 2015?

a. 0
b. 110,000
c. 165,000
d. 160,000

26. How much impairment recovery should be reported on January 1, 2018?

a. 50,000
b. 70,000
c. 120,000
d. 0

Bodoni Corp. purchased a machinery January 1, 2015, at a cost of P1,000,000. It is being depreciated using the
straight-In method over its projected useful life of 10 years. At December 31, 2016, the asset's fair value was
P1,200,000. Accordingly, a entry was made on that date to recognize the revaluation write up.

A revaluation was made again on December 31, 2018 wherein the sound value of the asset was determined to be
P570,000. The company has the policy of transferring any revaluation surplus to retained earnings as the asset is
being used up.

27. How much is the revaluation surplus on December 31, 2016?

a. 500,000
b. 400,000
c. 1,200,000
d. 0

28. How much is the revaluation/impairment loss for the year 2018?
 a. 330,000
b. 70,000
c. 30,000
d. 0

On January 1, 2017, Yen Company obtained a franchise from Euro Corp. to sell for 20 years Euro’s products. The
initial franchise fee as agreed upon shall be P6,000,000, and shall be payable in cash, P1,000,000, when the
contract is signified and the balance in four equal installments thereafter, as evidenced by a non-interest-bearing
note. The agreement provides that the franchisor shall provide the necessary initial services required under a
franchise contract. The agreement provides that 5% of the revenue from the franchise must be paid to the
franchisor. Revenue from the franchise for 2017 was P5,000,000. The prevailing interest rate for this type of note
is 12%. PV of P1 for 4 periods at 12% is .6355 and PV of ordinary annuity for 4 periods at 12% is 3,0373.

29. How much is the initial cost of franchise?

a. 6,000,000
b. 4,177,5000
c. 4,296,625
d. 3,796,625

30. How much is the total amount charged against revenues for the year 2017?
a. 458,875
b. 945,426
c. 239,831
d. 489,831

Won Company provided you the following information pertaining to its Research and Development activities for
the year 2017:

Searching for applications of new research findings 57,00

0.00
Trouble-shooting in connection with breakdowns during commercial 87,00
production 0.00
Adaption of an existing capability to a particular requirement or
customer's need
as a part of continuing commercial activity 39,00
0.00
Engineering follow-through in an early phase of commercial production 45,00
0.00
Laboratory research aimed at discovery of new knowledge 204,000
.00
Design of tools, jigs, and molds involving new technology 72,00
0.00
Quality control during commercial production, including routine testing 174,00
of products 0.00
Testing in search for product or process alternative 300,000
.00
Design and construction of preproduction prototype and model 384,000
.00
Routine and on-going efforts to refine, enrich, or otherwise, improve
upon the qualities
of an existing product 750,000
.00

31. What is the total amount to be classified and expensed as research and development for 2017?
a. 1,095,000
b. 1,017,000
c. 456,000
d. 561,000

Noven, Inc., places a coupon in each box of its product. Customers may send in ten coupons and P3.00, and the
company will send them a CD. Sufficient CDs were purchased at P5.40 apiece. During 2017, 1,260,000 boxes
were sold. It was estimated that a total of 5% of the coupons will be redeemed. In 2017, 18,000 coupons were
redeemed.

32. How much is the premium expense for the year 2017?
a. 63,000
b. 34,020
c. 15,120
d. 10,800
 33. How much is the liability for premium outstanding as of December 31, 2017?
a. 15,120
b. 10,800
c. 24,300
d. 43,200

A truck owned and operated by Oslo Company was involved in an accident with an auto driven by Norway on
December 12, 2017. Oslo Company received notice on December 24, 2017 of a lawsuit for P350,000 damages for
a personal injury suffered by Norway. Oslo's counsel believes that it is probable that Norway will be successful
against the company for an estimated amount in the range between P100,000 and P 400,000. Each point within
that range of amounts is considered as likely as any other point. On December 25, 2017, an employee filed a
P1,500,000 lawsuit against Oslo Company for damages suffered when one of Oslo's equipment malfunctioned in
August of 2017. The legal counsel of the company believes that it is probable that Oslo will pay the damages
ranging between P500,000 to 1,000,000 but P850,000 is considered to be the best estimate of the obligation. On
March 1, 2018, the employee has offered to settle the lawsuit out of court for P950,000 and the company
accepted the offer. The financial statements were authorized to be issued on March 31, 2018.

34. How much is total provision that should be recognized as of December 31, 2017?
a. 1,100,000
b. 1,200,000
c. 850,000
d. None of the choices

On January 1, 2017, Sydney Inc. issued P 5,000,000 face value, 5-year bonds at 109. Each P 1,000 bond was
issued with one detachable share warrant, each of which entitled the bondholder to purchase 15 shares of P10
par ordinary share at P20. At issuance date, the market value of each of the bonds without warrant sell at 99. The
stated rate on the bonds is 11% payable annually every January 1, starting January 1, 2018.

35. How much should be credited to share premium upon exercise of the warrants assuming 60% of the
warrants were exercised?
a. 450,000
b. 750,000
c. 900,000
d. 1,200,000

Chicago Company leased anew machine from Bulls Co. On January 1, 2017, Chicago Company provided the
following information pertaining to the lease:

Annual rental payable at beginning of each lease year, 400,00

starting Jan. 1, 2017 0.00
Lease term 10 years
Useful life of machine 12 years
Implicit interest rate 14%
Present value of an annuity of 1 in advance for 10 periods at 5.95
14%
Present value of an ordinary annuity of 1 for 10 periods 5.22
Present value of 1 for 10 periods at 14% 0.27
Guaranteed residual value 100.000

36. How much is the depreciation expense for the year 2017?
a. 240,700
b. 200,593
c. 192,250
d. 230,700

37. How much should Chicago Company recognize as loss on finance lease if the fair value of the leased asset
is P700,000 when returned to Bulls Co.?
a. 30,000
b. 70,000
c. 100,000
d. 0

Miami Company leased equipment from Heat Inc. on July 1, 2017, for an 8-year period. Equal payments under the
lease are P600,000 and are due on July 1 of each year. The first payment was made on July 1, 2017. The interest
rate contemplated by Miami and Heat is 10%. The carrying value of the equipment on Heat's accounting records
is P2,800,000. Residual value of P100,000 at the end of lease term is guaranteed by Miami. The lease is
appropriately recorded as a sales-type lease.
 Present value of an annuity of 1 in advance for 8 periods at 10% 5.87
Present value of an ordinary annuity of 1 for 8 periods at 10% 533
Present value of 1 for 8 periods at 10% 0.47

38. How much is the dealer’s profit that Heat Inc. should recognize for the year 2017?
a. 722,000
b. 384,500
c. 769,000
d. 48,063

39. How much is the sales that should be recognized by Heat Inc.?
a. 3,522,000
b. 3,569,000
c. 3,245,000
d. 3,198,000

40. How much is the cost of goods sold that should be recognized by Heat Inc. assuming the residual value is
unguaranteed?
a. 2,800,000
b. 2,753,000
c. 3,569,000
d. 3,522,000

On April 1, 2017, Golden State Company leased a delivery truck from Warriors Company under a five-year
operating lease. Total rent for the term of the lease will be payable as follows:

First 9 months at 200,000/mo.

Next 18 months at 100,000/mo.
Next 12 months at 80,000/mo.
Last 14 months at 50,000/mo.
Last 7 months at 70,000/mo.

41. How much should Golden State Company report as rent expense for the year ended December 31, 2017?
a. 862, 500
b. 1,150,000
c. 1,800,000
d. 5,750,000

The accountant of Gambit Company presented to you the following information in line with your 2015 audit of
Gambit Company's income tax related balances:

Pre-tax financial income 3,000,000.

00
Impairment loss on Machinery 50,000.00
Unearned rental income 350,000.
00
Prepaid advertising expense 250,000.
00
Interest income on time deposit 80,000.00
Excess tax depreciation over accounting depreciation 420,000.
00
Installment sale which will be recognized as taxable income 900,000.
upon collection 00
Bad debts expense using a method under accrual basis 75,000.00
Provision for warranty 180,000.0
Income tax rate is constant at 30% for all years 0

42. How much is the deferred tax asset at December 31, 2015?
a. 196,500
b. 471,000
c. 181,500
d. 495,000

43. How much is the deferred tax liability at December 31, 2015?
 a. 196,500
b. 471,000
c. 181,500
d. 495,000

Sorcerer’s Stone Company had the following ordinary share activity in 2017:

January 1 – 500,000 ordinary shares outstanding

March 1 – issued new 60,000 ordinary shares
June 1 – Ordinary share was split 2 for 1
November 1 – Reacquired 48,000 ordinary shares

Sorcerer's Stone Company had 100,000 shares of P 20 par, 10%, cumulative and convertible preference share
outstanding throughout 2017. Each preference share is convertible into one ordinary share. During the year
2017, the company reported net income of P 2,930,000.

44. What is the basic earnings per share?

a. 2.46
b. 2.50
c. 2.29
d. 2.68

45. What is the diluted earnings per share?

a. 2.46
b. 2.50
c. 2.29
d. 2.68

The shareholders’ equity of Utah Corporation on December 31, 2017 shows the following account balances:

12% Preference share capital, 9,000 shares P200 1,800,000.0

par 0
Ordinary share capital, 30,00 shares P40 par 1,200,000.0
0
Share premium 950,000.0
0
Retained earnings 1,350,000.
00

The 12% preference share is cumulative and fully participating. Dividends in arrears are for 2 years including the
current year. If Utah is to be liquidated, the preference shareholders would receive par value plus a premium of
P10 per share.

46. What is the book value per share of ordinary share?

a. 66.59
b. 44.80
c. 99.27
d. 63.71

On September 30, 2016, Beast Company declared its non-current asset as a dividend with a carrying value of P
2,000,000 and has a current fair value of P 1,800,000. On December 31, 2016, the non-current asset has a fair
value of P 1,700,000. The non-current asset was distributed on March 1, 2017 when its fair value was P
1,600,000.

47. How much is the property dividends payable that should be reported on December 31, 2016?
a. 2,000,000
b. 1,800,000
c. 1,700,000
d. 1,600,000

48. How much is the gain or loss on distribution taken to profit or loss on March 1, 2017?
a. 0
b. 100,000 (loss)
c. 200,000
d. 300,000

The Cogsworth Company granted 100 share options to each of its 500 employees on January 1, 2017. The option
plan allows the employees to purchase a share of the entity's P100 par value ordinary share at P120 per share.
On January 1, 2017, the fair value of each option is P30. The option plan requires the employees receiving the
options to be in the service of the company for the next three years. Options are exercisable starting January 1,
2020 and options expire at the end of 2021. At January 1, 2017, it was estimated that 20% of the employees will
leave during the next three years.

Actual and revised estimate of employees leaving the company during 2017, 2018 and 2019 are as foilows:

2017: 20 employees left; revised estimate is 15% of remaining employees

2018: 10 employees left; revised estimate is 10% of remaining employees
2019: 18 employees left

During 2020 through 2021, 400 employees exercised their options while the remaining employees allowed their
options to lapse.

49. How much is the compensation expense for the year 2018?
a. 846,000
b. 438,000
c. 510,000
d. 408,000

On January 1, 2016, Mrs. Potts Corporation granted 100 share appreciation rights to each of its 200 employees,
on the condition that the employees remain in the company at least until December 31, 2018. The number of
employees who left in 2016 and the estimated number of employees still expected to leave until December 31,
2018, as estimated at the end of 2016 and 2017 are as follows:

2016: 5 employees left, 10 employees expected to leave until December 31, 2018
2017: 8 employees left, 5 employees expected to leave until December 31, 2018
2018: No employee left the company

The entity estimates the fair values of the SAR's at the end of each year as follows:

2016: P24.80
2017: P30.40
2018: P32.80
2019: P36,50

The market values of the ordinary shares are presented for the following dates:

January 1, 2016 P120.00

December 31, 2016 P142.00
December 31, 2017 P148.00
December 31, 2018 P153.00
December 31, 2019 P156.00

All share appreciation rights were exercised on December 31 2019

50. How much is the compensation expense In 2018?

a. 244,507
b. 613,360
c. 617,100
d. 277,367

The following information related to the defined benefit pension plan of Edward Corp. in relation to your audit of
the company’s post-retirement benefit related accounts:

Defined benefit obligation, January 1 3,000,000.0

0
Fair value of plan asset, January 1 2,800,000.0
0
Contribution to the plan during the year 210,000.00
Current service cost 160,000.0
0
Benefits paid during the year 300,000.00
Defined benefit obligation, December 31 3,482,000.00
Fair value of plan asset, December 31 2,984,000.00
Discount rate 6%

51. What amount of defined cost should be reported in the profit or loss?
a. 160,000
b. 172,000
c. 336,000
d. 508,000
 52. What is the net remeasurement gain or loss to be reported in the other comprehensive income?
a. 160,000
b. 172,000
c. 336,000 (loss)
d. 508,000

53. What is the balance of the prepaid or accrued pension as of December 31?
a. Prepaid pension P200,000
b. Accrued pension P498,000
c. Prepaid pension P200,000
d. Accrued pension P498,000

The differences in Venus Corporation’s balance sheet accounts at December 31, 2017 and 2016, are presented
below:

Increase (Decrease)
Assets
Cash and cash equivalents 420,000.0
0
Account receivable, net -
Inventory 80,000.0
0
Long-term investments -
100,000.00
Property, plant and equipment 700,000.0
0
Accumulated depreciation -

Liabilities and Stockholder's Equity

Accounts payable and accrued -
liabilities 5,000.00
Dividends payable 160,000.0
0
Short-term bank debt 325,000.0
0
Long-term debt 110,000.0
0
Ordinary share, P10 par 100,000.0
0
Share premium 120,000.0
0
Retained earnings 290,000.0
0

The following additional information relates to 2017:

 Net income was P790,000

 Cash dividends of P500,000 were declared
 Building costing P600,000 and having a carrying amount of P350,000 was sold for P350,000
 All PPE were purchased for cash except for equipment costing P110,000 that was accrued through
issuance of long-term debt
 Long-term investment was sold for P135,000. There were no other transactions affecting long-term
investments.
 10,000 ordinary shares were issued for P22 per share

54. How much is the net cash provided by operating activities?

a. 705,000
b. 920,000
c. 670,000
d. 955,000

55. How much is the net cash provided by investing activities?

a. 485,000
b. 375,000
c. 815,000
d. 705.000
 56. How much is the net cash provided by financing activities?
a. 45,000
b. 205,000
c. 95,000
d. 120,000

On January 1, 2017, LASTNATOPROMISE Company classifies a hotel property a non-current asset held for sale.
Immediately before the classification as held for sale, the carrying amount of the property is P400,000,000 ( cost
of P 500,000,000 and accumulated depreciation of P 100,000,000 ). The hotel is depreciated on the straight-line
method with a useful life of 50 years. The estimate of the fair value less cost to sell on this date is P350,000,000.
On January 1, 2018, no buyer could be identified. On this date, management concludes that the criteria for
classification could not be met. The estimate of the fair value less cost to sell is revised to P 340,000,000 while
the value in use at that time is estimated at P 380,000,000.

57. What amount of impairment loss should LASTNATOPROMISE company recognize at the date the asset
was classified as held for sale?
a. 50,000,000
b. 10,000,000
c. 150,000,000
d. 0

58. How much should be taken to profit or loss on the date the asset was reclassified back to property, plant
and equipment?
a. 30,000,000
b. 50,000,000
c. 100,000,000
d. 0