College of Business and Accountancy

Simulated Comprehensive Exam on Financial Accounting and Reporting (FAR)

June 5, 2017

1. Krystle Company paid P1,000,000 for supplies during 2017. The
full amount of P1,000,000 was debited to supplies inventory.
The January 1, 2017 balance of supplies inventory was
P360,000.
A physical count of the supplies on hand on December 31, 2017
revealed an amount of P600,000.
c. If the proposed increase is approved by SEC after the end of
reporting period but before the issuance of the statements,
the new authorized share capital may be presented and the
stock dividend may be shown as part of issued share
capital.
d. A note to the financial statements is unnecessary to disclose
the fact that the proposed increase and dividend declaration
have been reflected in the financial statements.

What is the adjusting entry to supplies expense on December 31, 6. An SME sold goods with list price of P1,000,000 to a customer on
2017? normal credit terms of 30 days interest-free credit. Ten days after
a. Debit supplies expense and credit supplies inventory the sale, the customer paid the entity P690,000 in full as final
P760,000. settlement of a debt that arose from the sale of the goods.
b. Debit supplies expense and credit supplies inventory
P600,000. The amount received from the customer included P50,000 value
c. Debit supplies inventory and credit supplies expense added tax collected by the entity on behalf of the national
P600,000. government.
d. Debit supplies inventory and credit supplies expense
P240,000. The settlement amount is net of P200,000 trade discount,
P100,000 volume rebate and P10,000 prompt settlement
2. Under IFRS, a lessee is required to recognize discount.
a. Right of use asset and lease liability
b. Right of use asset but not lease liability At what amount should the entity measure revenue from the sale
c. Lease liability but not right of use asset of the goods.
d. Neither right of use asset nor lease liability a. 1,000,000 c. 700,000
b. 640,000 d. 690,000
3. Nevada Company reported the following capital structure at year-
end: 7. Which disclosure is not required for government grant?
2016 2017 a. The accounting policy adopted for government grant
Ordinary shares 500,000 500,000 including method of presentation.
Convertible preference shares 100,000 100,000 b. Unfulfilled conditions and other contingencies attaching to
10% convertible bonds government assistance.
payable P3,000,000 P3,000,000 c. The name of the government agency that gave the grant
along with the date of sanction of the grant by the
During 2017, the entity paid the annual dividend of P5 per share government agency and the date when cash was received in
on the preference share. The preference shares are convertible case of monetary grant.
into 200,000 ordinary shares and the 10% bonds are convertible d. The nature and extent of government grant recognized and
into 100,000 ordinary shares. an indication of other form of government assistance from
which the entity has directly benefited.
Net income for 2017 was P5,000,000. The tax rate is 30%.
8. An SME incurred the following expenditures in establishing a taxi
What amount should be reported as diluted earnings per shares? business during 2017:
a. 6.51 c. 6.25
b. 7.85 d. 9.00 May 1 General start-up cost 15,000
June 30 Legal cost directly attributable to
4. Arizona Company granted 10,000 share options to each of its five the acquisition of the taxi license 30,000
directors on January 1, 2017. The option vest on January 1, June 30 Payment to the taxi licensing
2021. The fair value of each option on January 1, 2017 is P50 authority for the license, including
and it is anticipated that all of the share options will vest on P10,000 refundable purchase taxes 100,000
January 1, 2021. July 1 Printing business cards of
the drivers 10,000
What amount should be reported as increase in expense and July 1 Payment for an advertisement to
equity for the year ended December 31, 2017? be published every month for the
a. 750,000 c. 625,000 next 12 months in a local daily
b. 500,000 d. 125,000 newspaper 50,000

5. In certain cases, stock dividends are declared on the basis of a The economic life of the taxi license is 5 years from the date of
proposed increase in authorized share capital, the application acquisition on June 30, 2017 with NIL residual value. The taxi
for which has been filed but not yet approved by SEC at the end drivers own the vehicles which they operate under the SME taxi
of reporting period. Under these circumstances, which may not license.
be done?
a. The proposed increased and such dividend declaration What is the initial cost of the intangible asset?
generally shall not be reflected in the statement of financial a. 120,000 c. 135,000
position prior to SEC approval. b. 130,000 d. 145,000
b. These matters shall be disclosed in the notes to financial
statements.
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9. California Company kept the records on a cash basis. The entity entity has elected the fair value option for reporting financial
reported the following cash basis income statement for 2017: liabilities.

Revenue 1,910,000 On December 31, 2017, what amounts should be presented for
Expenses 809,000 this note?
Net income 1,101,000 Interest Expense Note Payable Gain (Loss)
a. 200,000 2,000,000 0
The following amounts of accrued, prepaid and unearned items b. 200,000 1,950,000 50,000
were ignored at the end of 2016 and 2017: c. 100,000 1,950,000 50,000
2016 2017 d. 0 1,950,000 (150,000)
Accrued revenue 91,000 73,000
Unearned revenue 66,000 108,000 14. Champaca Company has an overdue 8% note
Accrued expenses 49,000 65,000 payable to Mega Bank at P10,000,000 and accrued
Prepaid expenses 46,000 56,000 interest of P800,000. As a result of a restructuring
agreement on January 1, 2017, Mega Bank agreed
What is the net income under accrual basis for 2017? to the following provisions:
a. 1,035,000 c. 1,201,000
b. 1,051,000 d. 1,135,000  The principal obligation is reduced to P8,750,000.
 The accrued interest of P800,000 is forgiven.
10. Sabang Company’s P950,000 net income for the quarter ended  The date of maturity is extended to December 31,
September 30, 2017 included the following after tax items: 2020.
 Annual interest of 10% is to be paid for 4 years every
 A P600,000 expropriation gain, realized on April 30, December 31.
2017, was allocated equally to the second, third, and (Round off PV factor to three decimal places).
fourth quarters of 2017.
 A P160,000 cumulative-effect loss resulting from a What is the gain on extinguishment of debt to be
change in inventory valuation method was recognized on recognized for 2017?
August 1, 2017. a. 1,250,000 c. 2,050,000
b. 1,472,500 d. 672,500
In addition, Sabang paid P480,000 on February 1, 2017, for
2017 calendar-year property taxes. Of this amount, P120,000 15. IFRIC Interpretations issued by IASB
was allocated to the third quarter of 2017. For the quarter a. Are considered authoritative and must be followed
ended September 30, 2017, what amount should be reported b. Cover newly identified financial reporting issues not
as net income? specifically addressed.
a. 910,000 c. 1,110,000 c. Cover issues where unsatisfactory or conflicting
b. 1,030,000 d. 1,150,000 interpretations have developed.
d. All of these are true about IFRIC Interpretations.
11. On January 1, 2017, Belaggio Company leased an equipment
from a lessor with the following pertinent information: 16. Joe Company is preparing the annual financial statement on
December 31, 2017. Because of a recently proven health
Annual rental payable at the end of hazard in one of the products, the Philippine government has
each year 600,000 clearly indicated its intention of requiring the entity to recall all
Lease term 8 years cans of this product sold in the last three months. The entity
Useful life of equipment 10 years estimated that this recall would cost P600,000.
Implicit interest rate 10% What accounting recognition should be accorded this
situation?
The entity has the option to purchase the equipment on January a. No recognition
1, 2025 by paying P600,000. b. Note disclosure only
c. Expense of P600,000 and liability of P600,000.
There is reasonable certainty that the entity shall exercise the d. Expense of P600,000 and retained earnings restriction of
option. On January 1, 2017, the entity incurred initial direct cost P600,000.
of P240,000.(Round off present value factor to two decimal
places). 17. An entity is considering to apply an impairment test to an
individual asset or to the cash generating unit to which the asset
What is the initial cost of the right of use asset? belongs. Which of the following statements is true?
a. 3,480,000 c. 3,720,000 a. If the individual asset does not generate cash inflows that are
b. 3,438.000 d. 0 largely independent from the other assets, the cash
generating unit should be identified.
12. Which of the following statements about the capitalization of b. If the individual asset generates a significant proportion of
borrowing costs as part of the cost of a qualifying asset is true? cash inflows of the entity as a whole, the cash generating
a. If funds come from general borrowings, the amount to be unit should not be identified.
capitalized is based on the weighted average amount of c. If the individual asset generates an insignificant proportion of
expenditures. the cash inflows of the entity as a whole, the cash
b. Capitalization always continues until the asset is brought into generating unit should not be identified.
use. d. All of these statements are true.
c. Capitalization always commences as soon as expenditure of
the asset is incurred. 18. In May 2017, Vegas Company filed suit against Lincoln
d. Capitalization always commences as soon as interest on Company seeking P2,000,000 damages for patent
relevant borrowings is being incurred. infringement. A court verdict in November 2017 awarded
Vegas P1,600,000 in damages, but Lincoln’s appeal is not
13. On July 1, 2017, Placer Company borrowed P2,000,000 on a expected to be decided before 2018. Vegas’ counsel believed
10%, five-year interest-bearing note. On December 31, 2017, it is probable that Vegas will be successful against Lincoln for
the fair value of the note is determined to be P1,950,000. The an estimated amount in the range between P900,000 and
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 P1,200,000 with P1,100,000 considered the most likely 23. The inventory and accounts payable balances increased.
amount. Should these increases be added to or deducted from cash
payments to suppliers to arrive at cost of goods sold for the
What amount should Vegas record as income from the lawsuit current year?
for the year ended December 31, 2017?
a. P1,600,000 c. P1,200,000 Increase in Increase in
b. 1,100,000 d. 0 Inventory accounts payable
a. Added Deducted
19. During 2017, Guadalupe Company was sued by a competitor b. Added Added
for P7,000,000 for infringement of a patent. Based on the c. Deducted Deducted
advice of the entity’s legal counsel, the entity accrued the sum d. Deducted Added
of P4,200,000 as a provision in its financial statements for the
year ended December 31, 2017. 24. Supreme Company prepared draft financial statements that
showed the profit before tax for the year ended December 31,
Subsequently, on February 20, 2018, the Supreme court 2017 at P4,500,000. The board of directors authorized the
decided in favor of the party alleging infringement of the patent financial statements for issue on March 15, 2018. A fire
and ordered the defendant to pay the aggrieved party a sum of occurred at one of Supreme’ sites on January 10, 2018 with
P4,900,000. resulting damage amounting to P3,500,000, only P2,000,000 of
which is covered by insurance. The repairs will take place and
The financial statements were prepared by the entity’s be paid for in April 2018. The P2,000,000 claim from the
management on February 15, 2018 and approved by the board insurance entity will however be received on February 20, 2018.
of directors on March 31, 2018. What amount should be reported as profit before tax in the
financial statements?
What amount should be recognized as accrued liability on a. 3,000,000 c. 2,000,000
December 31, 2017? b. 1,000,000 d. 4,500,000
a. 7,000,000 c. 4,200,000
b. 4,900,000 d. 2,100,000 25. Which of the following statements is not a major objective of
financial reporting?
20. How should research and development cost be accounted for? a. Financial reporting shall provide information about entity
a. Must be capitalized when incurred and then amortized over resources, claims against those resources and changes in
useful life. them.
b. Must be expensed in the period incurred. b. Financial reporting shall provide information useful in
c. May be either capitalized or expensed when incurred evaluating management stewardship.
depending upon the materiality. c. Financial reporting shall provide information useful in
d. Must b e expensed in the period incurred unless it can be investment, credit and similar decisions.
clearly demonstrated that the expenditure will have d. Financial reporting shall provide information useful in
alternative future use or unless contractually reimbursable. assessing cash flow prospects.

21. The adjusted trial balance of Tibet Company on December 31, 26. On January 1, 2017, Solid Company entered into a two-year
2017 included the following accounts: P3,000,000 variable interest loan at the prevailing rate of 12%.
In 2018, the interest rate is equal to the prevailing interest rate
Share capital 12,000,000 at the beginning of the year.
Share premium 4,000,000
Treasury shares, at cost 1,600,000 The principal loan is payable on December 31, 2018 and the
Actuarial loss recognized through other interest is payable on December 31 of each year. On January 1,
comprehensive income 800,000 2017, Solid Company entered into a “receive variable, pay fixed”
Retained earnings unappropriated 4,800,000 interest swap agreement with a speculator bank designated as a
Retained earnings appropriated 2,400,000 cash flow hedge.
Revaluation surplus 3,200,000
Cumulative translation adjustment–credit 1,200,000 The prevailing interest rate on January 1, 2018 is 14% and the
present value of 1 at 14% for one period is 0.877. What amount
What amount should be reported as total shareholders’ equity? should be reported as “interest rate swap receivable” on
a. 20,400,000 c. 22,800,000 December 31, 2017?
b. 26,000,000 d. 25,200,000 a. 60,000 c. 30,000
b. 52,620 d. 0
22. Lakers Company’s income statement for the current year
reported net income of P9,262,500. The auditor raised Items 27 & 28 are based on the following information.
questions about the following amounts that had been included in The following trial balance of Kathmandu Company on
net income: December 31, 2017 has been adjusted except for income tax
expense:
Unrealized loss on foreign currency
translation (net of tax effect) ( 675,000) Cash 540,000
Gain on early retirement of bonds Accounts receivable (net) 2,156,000
payable (net of tax effect) 2,750,000 Inventory 1,748,000
Adjustments to profits of prior Property, plant &
years for errors in depreciation equipment (net) 8,196,000
(net of tax effect) ( 937,500) Accounts payable & accrued
Loss from flood (net of tax effect) (1,750,000) liabilities 1,440,000
Income tax payable 1,200,000
What amount should be reported as adjusted net income? Deferred tax liability 600,000
a. 10,875,000 c. 8,262,500 Share capital 2,000,000
b. 10,200,000 d. 8,125,000 Share premium 2,400,000
Retained earnings, January 1 2,680,000
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 Net sales and other revenue 12,000,000 announced its profit and other selected information on March 22,
Costs and expenses 8,000,000 2018. The financial statements were approved by shareholders
Income tax expense 1,680,000 on April 2, 2018 and filed with the SEC the very next day.
22,320,000 22,320,000
What total amount should be reported as “adjusting events” on
The accounts receivable included P800,000 due from a December 31, 2017?
customer and payable in quarterly installment of P100,000. The a. 6,750,000 c. 13,500,000
last payment is due December 30, 2019. During the year, b. 12,750,000 d. 14,250,000
estimated tax payment of P480,000 was charged to income tax
expense. The income tax rate is 30% on all types of income. 32. The information provided by financial reporting pertains to
a. Individual business entities, rather than to industries or an
On December 31, 2017 what amount should be reported as economy as a whole or to members of society as
27. Total current assets? consumers.
a. 4,044,000 c. 4,424,000 b. Business industries, rather than to individual entities or an
b. 4,444,000 d. 4,824,000 economy as a whole or to members or society as
consumers.
28. Total current liabilities? c. Individual business entities, industries, and an economy as a
a. 2,760,000 c. 3,240,000 whole, rather than to members or society as consumers.
b. 2,640,000 d. 2,160,000 d. An economy as a whole and to members of society as
consumers, rather than to individual entities or industries.
29. Which of the following can an SME elect as an accounting policy
choice to recognize in other comprehensive income or in profit 33. Star Company provided the following net of tax figures for the
or loss? current year:
a. Loss from discontinued operation
b. Gain and loss arising on translating the financial statements Revaluation surplus 800,000
of a foreign operation Foreign currency translation
c. Actuarial gain and loss of defined benefit plan adjustment – debit 40,000
d. Gain and loss that management considers extraordinary Unrealized gain on derivative contract 200,000
Share warrants outstanding 50,000
30. The following information pertains to Victoria Peak Company as Net income 2,800,000
at December 31, 2017:
Property , plant and equipment 28,000,000 What is the comprehensive income for the current year?
Accounts receivable 16,000,000 a. 2,960,000 c. 3,760,000
Prepaid insurance 2,000,000 b. 3,840,000 d. 3,600,000
Short-term note payable 2,400,000
Cash 4,000,000 34. Where there is a long aging or maturation process after harvest,
Bonds payable 32,000,000 the accounting for such products shall be dealt with by
Total assets 81,200,000 a. PAS 41, Agriculture
Land 16,000,000 b. PAS 2, Inventories
Accounts payable 6,400,000 c. PAS 16, Property, plant and equipment
Allowance for doubtful accounts 800,000 d. PAS 40, Investment property
Merchandise inventory 10,400,000
Financial assets @ FV through OCI 5,600,000 35. The following information for the current year is provided by
Wages payable 1,600,000 Prime Company:
Total liabilities 44,800,000
Premium on bonds payable 2,400,000 Sales 4,000,000
Cost of goods sold 2,240,000
What is the working capital? Foreign translation adjustment- credit 320,000
a. 28,400,000 c. 21,200,000 Selling expenses 560,000
b. 26,800,000 d. 37,200,000 Unusual and infrequent gain 320,000
Correction of inventory error 160,000
31. Spade Company provided the following events that occurred General and administrative expenses 480,000
after December 31, 2017: Income tax expense 120,000
 On January 15, 2018 P4,500,000 of accounts receivable Gain on sale of investment 40,000
was written off due to bankruptcy of a major customer. Proceeds from sale of land at cost 640,000
Dividends 240,000
 On February 14, 2018 a shipping vessel of Spade Company
with carrying amount of P7,500,000 was completely lost at What amount should be reported as income from continuing
sea because of a typhoon. operations?
a. 1,600,000 c. 1,280,000
 On March 11, 2018 a court case involving Spade as the b. 1,080,000 d. 960,000
defendant was settled and the entity was obligated to pay
the plaintiff P2,250,000. Spade previously has not 36. In 2017, Sardonyx Company decided to discontinue its
recognized a liability for the suit because management Electronics Division, a separately identifiable component of
deemed it possible that the entity would lose the case, Sardonyx’s business. At December 31, 2017 the division has
not been completely sold. However, negotiations for the final
 On March 15, 2018 one of Spade’s factories with a carrying and complete sale are progressing in a positive manner and it is
amount of P6,000,000 was completely razed by forest fires probable that the disposal will be completed within a year.
that erupted in its vicinity. Analysis of the records for the year disclosed the following
relative to the Electronics Division.
The management completed the draft of the financial statements
for 2017 on February 10, 2018. On March 30, 2018, the board of Operating loss for the year 4,000,000
directors authorized the financial statements for issue. Spade Loss on disposal of some Electronics
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 Division assets during 2017 250,000 42. Which is the reason why the specific identification method may
Expected operating loss in 2018 be considered ideal for assigning cost to inventory and cost of
preceding final disposal 500,000 goods sold?
Expected gain in 2018 on disposal a. The potential for manipulation of net income is reduced.
of division 1,000,000 b. There is no arbitrary allocation of cost.
c. The cost flow matches the physical flow.
How much should be reported as pretax loss from d. It is applicable to all types of inventory.
discontinued operations in 2017?
a. 4,000,000 c. 4,250,000 43. On January 1, 2017, Oaks Company leased a building to Glen
b. 4,750,000 d. 3,750,000 Company for a ten-year term at an annual rental of P500,000.

37. An SME must measure property, plant and equipment after At inception of the lease, Oak received P2,000,000 covering the
initial recognition at first two years’ rent of P1,000,000 and a security deposit of
a. Cost P1,000,000.
b. Cost less any accumulated depreciation less any
accumulated impairment losses This deposit will not be returned to Glen upon expiration of the
c. Cost less any accumulated depreciation less any lease but will be applied to payment of rent for the last two years
accumulated impairment losses plus the cost of day-to-day of the lease.
servicing
d. Cost plus the cost of day-to-day servicing What amount should be reported as current and noncurrent
liability in the December 31, 2017 statement of financial
Items 38 & 39 are based on the following information. position?
The transactions of Genting Company for the current year Current liability Noncurrent liability
included the following: a. 0 2,000,000
b. 500,000 1,000,000
Purchase of real estate for cash c. 1,000,000 1,000,000
(cash was borrowed from bank) 5,500,000 d. 1,000,000 500,000
Sale of investment securities for cash 5,000,000
Dividend paid 6,000,000 44. Which of the following statements is true regarding inventory
Issuance of ordinary shares for cash 2,500,000 writedown and reversal of writedown?
Purchase of patent for cash 1,250,000 a. Reversal of inventory writedown is prohibited.
Payment of bank loan 1,500,000 b. Separate reporting of reversal of inventory writedown is
Increase in customers’ deposit 200,000 required.
Issuance of bonds payable for cash 3,00,000 c. Entities are required to record writedown in a separate loss
account.
38. Genting’s net cash provided by financing d. All of the choices are correct.
activities was
a. 5,000,000 c. 4,500,000 45. Jurong Company computed a pretax accounting income of
b. 3,500,000 d. 5,500,000 P5,000,000 for its first year of operations ended December 31,
2017. In preparing the income tax return for 2017, the following
39. Genting’s net cash used in investing activities differences are noted between accounting income and taxable
was income.
a. 6,750,000 c. 1,750,000
b. 3,750,000 d. 500,000 Nondeductible expenses 200,000
Nontaxable revenue 500,000
Gross income on installment sales
40. Which statement is true when debt investment at Fair Value reported in accounting income but not
through Other Comprehensive Income (FVOCI) is reclassified to in taxable income (expected to reverse
amortized cost? in 2018) 1,000,000
a. The fair value at reclassification date becomes the new Provision for doubtful accounts 100,000
carrying amount. Income tax rate 30%
b. The cumulative gain or loss previously recognized in OCI is
removed from equity and adjusted against the fair value at What is the current tax expense?
reclassification date. a. 1,140,000 c. 1,410,000
c. The original effective rate is not adjusted. b. 1,500,000 d. 1,110,000
d. All of these statements are true.
46. Roseville Company reported net income of P5,000,000 before
41. Bahru Company provided the following data for the preparation income tax expense for the current year. The entity had been
of the statement of cash flows for the current year: profitable in the past and expected to continue to be profitable.
The entity expensed warranty cost in the current year for
Increase in accounts receivable 300,000 P437,500 that is expected to impact the tax return after 2 years.
Decrease in income tax payable 170,000
Depreciation 1,000,000 The entity also had P750,000 in revenue that will not be taxed
Net income 250,000 until next year. The tax rate for the current year is 30% and
Gain on sale of equipment 440,000 40% beyond the current year.
Loss on sale of building 210,000
What amount should be reported as net deferred tax expense?
Using the indirect method, how much should be reported as a. 300,000 c. 125,000
cash flow from operating activities? b. 175,000 d. 0
a. 780,000 c. 880,000
b. 700,000 d. 550,000 47. The Philippine Financial Reporting Standards collectively
include
a. PFRS corresponding to IFRS
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 b. PAS corresponding to IAS
c. Philippine Interpretations corresponding to IFRIC and SIC
Interpretations and Interpretations developed by PIC
d. All of these are included in Philippine Financial Reporting
Standards
Items 48 and 49 are based on the following information.
On January 1, 2017, California Company reported the following
information in relation to a defined benefit plan:
Fair value of plan assets 7,000,000
Projected benefit obligation 7,500,000
During the current year, the entity determined that the current
service cost was P1,400,000 and the discount rate is 10%.
The actual return on plan assets during the year was P840,000.
Other related information for the current year:
Contribution to the plan 1,200,000
Benefits paid to retirees 1,500,000
Decrease in projected benefit obligation
due to changes in actuarial assumptions 200,000
Present value of defined benefit obligation
settled 500,000
Settlement price of defined benefit
obligation 400,000
48. What amount should be reported in the income statement
for the current year as employee benefit expense?
a. 2,150,000 c. 1,350,000
b. 2,050,000 d. 1,450,000
49. What is the net amount of “remeasurement” for 2017?
a. 140,000 c. 340,000
b. 200,000 d. 100,000
50. When a debt investment at Fair Value through Profit or Loss
(FVPL) is reclassified to amortized cost, what is the new
carrying amount at amortized cost?
a. Fair value at reclassification date
b. Face amount of the debt investment
c. Present value of the contractual cash flows
d. Present value of expected cash flows
51. York Corporation is authorized to issue 100,000 ordinary
shares, P17 par value. At the beginning of 2017, 18,000
ordinary shares were issued and outstanding. These shares had
been issued at P24. During 2017, the company entered into the
following transactions:
Jan 16 Issued 1,300 ordinary shares at P25 per
share.
Mar 21 Exchanged 12,000 ordinary shares for a building.
The ordinary shares were selling at P27 per share.
May 7 Reacquired 500 ordinary shares at P26 per share to
be held in treasury.
July 1 Accepted subscriptions to 1,000 ordinary shares at
P28 per share. The contract called for 10% down
payment with the balance due on December 1.
Sept 20 Sold 500 treasury shares at P29 per share.
Dec 1 Collected the balance due on July 1 subscriptions
and issued the shares.
Total contributed capital for December 31, 2017 is
a. P615,000 c. P613,500
b. P818,000 d. P816,500
52. Orchid Company was organized on January 1, 2015. After 2
years of profitable operations, the equity section of the
statement of financial position was as follows:
Share capital, P5 par, 900,000 shares
authorized , 300,000 shares issued
and outstanding 1,500,000
Share premium 9,000,000
Retained earnings 4,200,000
Total shareholders’ equity 14,700,000
During 2017, the following chronological
transactions affected shareholders’ equity:
* Reacquired 15,000 shares at P30 per share to be
held as treasury.
* Declared and issued a 30% stock dividend.
* Declared and paid cash dividend of P10 per share.
* Net income for 2017 amounted to P4,500,000.
What is the unappropriated balance of retained
earnings on December 31, 2017?
a. 4,117,500 c. 4,050,000
b. 4,567,500 d. 3,900,000
53. When loans are made by a bank, origination fees are either
deducted from the loan or collected up front. How are loan
origination fees accounted for by the bank?
a. The amount collected up front is included in income in the
year of receipt.
b. The amount deducted from the loan proceeds is deferred
and recognized in income over the life of the loan.
c. The amount deducted from the loan proceeds is recognized
in income in the year of receipt.
d. The amount collected up front or the amount deducted from
the loan proceeds is deferred and recognized in income
over the life of the loan.
54. On May 1, 2017, Calcutta Company has a machine with a cost
of P1,200,000 and accumulated depreciation of P900,000. On
May 1, 2017, the entity classified the machine as “held for sale”
and decided to sell the machine within 1 year. On May 1, 2017,
the machine had an estimated price of P120,000 and a
remaining useful life of 2 years. It is estimated that selling cost
associated with the disposal of the machine will be P12,000. On
December 31, 2017, the estimated selling price of the machine
had increased to P180,000 with estimated selling cost of
P24,000. What amount should be recognized as gain on
reversal of impairment on December 31, 2017?
a. 72,000 c. 112,500
b. 48,000 d. 88,500
55. Under IFRS, an entity
a. Should evaluate every investment for impairment.
b. Accounts for an impairment as an unrealized loss as a
component of other comprehensive income.
c. Calculate the impairment loss on debt investments as the
difference between the carrying amount plus accrued
interest and the expected discounted future cash flows.
d. All of the choices are correct.
56. Tampines Company had the following bank reconciliation on
June 30:
Balance per bank statement, June 30 5,580,000
Add: Deposit in transit 1,200,000
Total 6,780,000
Less: Outstanding checks 1,500,000
Balance per book, June 30 5,280,000
Data per bank statement for the month of July follow:
Deposits 7,200,000
Disbursements 6,000,000
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 All reconciliation items on June 30 cleared through the bank in c. 5,000,000 11,800,000 6,400,000
July. Outstanding checks on July 31 totaled P900,000 and d. 9,800,000 4,000,000 9,400,000
deposits in transit amounted to P1,800,000
60. On January 1, 2017, LMN Company purchased 50,000 shares
What is the amount of cash receipts per book in July? of XYZ at P100 per share. The investment is measured at fair
a. 6,000,000 c. 9,000,000 value through other comprehensive income. Brokerage fees
b. 7,800,000 d. 6,600,000 amounted to P150,000. A P5 dividend per share of XYZ had
been declared on December 20, 2016, to be paid on April 15,
57. On January 1, 2017, Asean Bank made a P2,000,000 2017 to shareholders of record on February 15, 2017. No other
8% loan. The P160,000 interest is receivable at the transactions occurred in 2017 affecting the investment in XYZ
end of each year, with the principal amount to be shares. What is the initial measurement of the investment?
received at the end of five years. As of the end of a. 5,000,000 c. 5,150,000
2017, the first year’s interest of P160,000 has not b. 4,900,000 d. 4,750,000
been received because the borrower is experiencing
financial difficulties. The borrower negotiated a 61. One of the cash generating units of San Gabriel Company is the
restructuring of the loan. The payment of all of the production of liquor. On December 31, 2017, the entity believed
interest for 5 years will be delayed until the end of that the assets of the cash generating unit (CGU) are impaired
the 5-year loan term. In addition, the amount of based on an analysis of economic indicators. The assets and
principal repayment will be dropped from liabilities of the cash generating unit at carrying amount on
P2,000,000 to P1,000,000. The PV of 1 at 8% for 4 December 31, 2017 are:
periods is .735, and the PV of 1 at 8% for 5 periods
is .68. No interest revenue has been recognized in Cash 4,000,000
2017 in connection with the loan. Accounts receivable 6,000,000
Allowance for doubtful accounts 1,000,000
What is the loan impairment loss to be recognized on December Inventory 7,000,000
31, 2017? Property, plant and equipment 22,000,000
a. 677,000 c. 776,000 Accumulated depreciation 4,000,000
b. 477,000 d. 576,000 Goodwill 3,000,000
Accounts payable 2,000,000
58. Bukit Company provided the following data: Loan payable 1,000,000

Value of biological asset at acquisition The entity determined that the value in use of the cash
cost on December 31, 2016 900,000 generating unit is P30,000,000. The accounts receivable are
Fair valuation surplus on initial considered collectible, except those considered doubtful. What
recognition at fair value on is the impairment loss to be allocated to property, plant and
December 31, 2016 1,050,000 equipment?
Change in fair value on a. 4,000,000 c. 2,400,000
December 31, 2017 due to growth b. 2,880,000 d. 4,200,000
and price fluctuation 150,000
Decrease in fair value due to harvest 135,000 62. On January 1, 2017, Gem Company bought 30% of the
outstanding ordinary shares of Godiva Company for P5,000,000
What is the gain from change in fair value of biological asset cash. Gem Company accounts for this investment by the equity
that should be reported in the 2017 income statement? method. At the date of acquisition, Godiva Company’s net
a. 150,000 c. 1,065,000 assets had a carrying amount of P12,000,000. Depreciable
b. 15,000 d. 1,200,000 assets with an average remaining life of five years have a
current market value that is P2,500,000 in excess of their
carrying amount. The remaining difference between the
59. During the current year, Amazon Company incurred costs to purchase price and the carrying amount of the underlying equity
develop and produce a routine, low-risk computer software cannot be attributed to any identifiable tangible or intangible
product. asset. Accordingly, the remaining difference is allocated to
Completion of detailed program design 2,600,000 goodwill. At the end of 2017, Godiva Company reported net
Costs incurred for coding and testing income of P4,000,000. During 2017, Godiva Company declared
to establish technological feasibility 2,000,000 and paid cash dividends of P1,000,000.
Other coding costs after establishment
of technological feasibility 4,800,000 What is the carrying amount of the investment in Godiva
Other testing costs after establishment Company on December 31, 2017?
of technological feasibility 4,000,000 a. 5,000,000 c. 5,750,000
Costs of producing product masters b. 5,900,000 d. 5,400,000
for training materials 3,000,000
Duplicating of computer software and 63. Bukidnon Company is a producer of coffee. On December 31,
training materials from product 2016, the entity has harvested coffee beans costing
masters (1,000 units) 5,000,000 P4,500,000 and with fair value less cost to sell of P5,250,000
Packaging product (500 units) 1,800,000 at the point of harvest. Because of long aging and maturation
process after harvest, the harvested coffee beans were still on
In the year-end statement of financial position, what amount hand on December 31, 2017. On such date, the fair value less
should be reported in inventory and capitalized as software cost cost to sell is P5,850,000 and the net realizable value is
and what total amount of costs incurred should be expensed P4,800,000. What is the measurement of the coffee beans
immediately? inventory on December 31, 2017?
a. 5,850,000 c. 4,500,000
Statement of Financial Position b. 5,250,000 d. 4,800,000
Inventory Software Expensed Immediately
a. 6,800,000 11,800,000 4,600,000 64. Tulip Company acquired a financial instrument for P5,000,000
b. 9,400,000 7,000,000 6,800,000 on April 15, 2017. The financial instrument is classified as
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 financial asset at fair value through other comprehensive provided the registrant has acquired a minimum of three
income. The direct acquisition costs incurred amounted to years of meaningful experience in public practice.
P875,000. On December 31, 2017, the fair value of the
instrument was P6,875,000 and the transaction costs that 70. The following items required consideration in preparing the
would be incurred on the sale of the investment are estimated financial statements.
at P750,000. What gain should be recognized in other
comprehensive income for the year ended December 31,  On January 1, 2017, the corporation made a loan of
2017? P120,000 to an employee, payable on April 30, 2018 with
a. 250,000 c. 1,000,000 an interest of 2% per annum. On due date, she’s expected
b. 1,125,000 d. 0 to pay the loan and the total interest.
 The corporation paid P90,000 for insurance in 2017
65. Highly liquid investments that are readily convertible into cash covering the year ending August 31, 2018.
can be shown as cash equivalents if the investments have a  On January 2, 2018, the corporation received rent from a
maturity of 90 days or less tenant P40,000 covering the six months to December 31,
a. From the date the investments are acquired 2017.
b. From the end of reporting period
c. From the date of issue of financial statements What is the total amount to be included in the statement of
d. From the date the investments are acquired or from the end financial position as at December 31, 2017?
of the reporting period.
Receivables and Payables and
66. During the current year, Phoenix Company had the following Prepayments Accruals
transactions pertaining to the new office building: a. P220,000 P2,400
b. P222,400 Zero
Purchase price of land 900,000 c. P102,400 Zero
Legal fees for contract to purchase land 30,000 d. P162,400 P60,000
Architect fee 120,000
Demolition of old building on site 75,000
Sale of scrap from old building and
proceeds retained by building contractor 45,000
Construction cost of new building 5,250,000
What amounts should be reported for land and building applying
the PIC interpretation?

Land Building
a. 930,000 5,445,000
b. 900,000 5,400,000
c. 960,000 5,370,000
d. 1,005,000 5,370,000

67. Flamingo Company purchased 10,000, P1,000 face amount,

9% bonds to yield 10%. The carrying amount of the bonds on
January 1, 2015 was P9,750,000. The bonds mature on June
30, 2020 and pay interest semiannually on June 30, and
December 31,. The entity sold 5,000 bonds on March 1, 2017
for P4,900,000 after the interest has been received. What
amount should be recognized as gain on sale of bonds?
a. 18,750 c. 31,250
b. 25,000 d. 0

68. Which of the following situations violates the concept of faithful

representation?
a. Financial statements were issued nine months late.
b. Data on segments having the same expected risks are
reported to analysts estimating future profit.
c. Financial statements included an item of property, plant and
equipment with carrying amount increased to management
estimate of market value.
d. Management reports to shareholders regularly refer to new
projects undertaken.

69. Which of the following statements is incorrect in relation to the

practice of public accountancy?
a. Single practitioners for the practice of public accountancy
shall be registered CPAS in the Philippines.
b. Partners of partnerships formed for the practice of public
accountancy shall be registered CPAs in the Philippines.
c. The Securities and Exchange Commission can register any
corporation organized for the practice of public
accountancy.
d. The Professional Regulation Commission upon favorable
recommendation of the Board of Accountancy shall issue
certificate of accreditation to CPAs in public practice

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